Federal Reserve Bulletin, 1991-06

VOLUME 77 • NUMBER 6 • JUNE 1991 FEDERAL RESERVE BULLETIN BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, WASHINGTON, D.C. PUBLICATIONS COMMITTEE Joseph R. Coyne, Chairman • S. David Frost • Griffith L. Garwood • Donald L. Kohn • J. Virgil Mattingly, Jr. • Michael J. Prell • Edwin M. Truman 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 Section headed by S. Ellen Dykes, the Graphics Center under the direction of Peter G. Thomas, and Publications Services supervised by Linda C. Kyles. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table of Contents 375 ISSUES IN LABOR SUPPLY to 78.7 percent, its lowest level since September 1986, when the rate was 78.6 per- This article introduces a basic framework cent. for analyzing individuals' decisions to supply labor and uses it to discuss shifts in 401 STATEMENTS TO THE CONGRESS labor supply in the short and the long terms. It also looks at the recent slowdown in and Ellen Maland, Assistant Director, Division the prospects for growth in the labor force. of Consumer and Community Affairs, Board of Governors of the Federal Reserve 388 BANK HOLDING COMPANY System, addresses issues about the extent INVESTMENTS FOR and manner in which financial institutions COMMUNITY DEVELOPMENT evaluate the creditworthiness of consumer credit cardholders and says that the Board Since 1971, the Federal Reserve has permitbelieves it would be unwise to place reted bank holding companies to invest, unstraints on an institution's ability to engage der certain guidelines and limitations, in in a regional evaluation of its credit card projects primarily benefiting economically portfolio, particularly when increased probdisadvantaged communities. This article exlems and risks are identified in that area, plores the concept of community developbefore the Subcommittee on General Overment and examines the mechanisms used sight and Investigations of the House Comby bank holding companies to undertake mittee on Banking, Finance and Urban Afcommunity development investment activifairs, April 8, 1991. ties under Regulation Y. 405 John P. LaWare, Member, Board of Gov- 397 STAFF STUDY SUMMARY ernors, discusses the potential effects on consumers of H.R.1505, the Treasury's In "A Review of Corporate Restructuring proposed Financial Institutions Safety and Activity, 1980-90," the author discusses Consumer Choice Act of 1991, and says the recent developments in corporate rethat the Board generally supports this bill structuring activity and places them in the because it would result in better and context of the merger activity that occurred cheaper services to consumers and other in the 1980s. The study also presents aggreusers of financial services, while at the gate estimates of merger and acquisition same time it would restrict the further exactivity that form the basis of net equity tension of the federal safety net, before the retirements published in the Federal Re- Subcommittee on Consumer Affairs and serve flow of funds accounts. Coinage of the House Committee on Banking, Finance and Urban Affairs, April 10, 398 INDUSTRIAL PRODUCTION 1991. Industrial production decreased 0.3 percent in March after declines of 0.9 percent and 411 E. Gerald Corrigan, President, Federal Re- 0.5 percent respectively in February and serve Bank of New York, presents his January. Total industrial capacity utiliza- views on the Administration's proposals to tion dropped 0.4 percentage point in March modify the current restrictions on the abil- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ity of commercial banks to affiliate with larly strongly supports the thrust of the both securities firms and commercial enti- Treasury bill to authorize new activities and ties and says that it would be a huge mistake interstate branching, before the Senate to eliminate the barriers the Congress has Committee on Banking, Housing, and Urconstructed between banking and com- ban Affairs, April 23, 1991. merce, before the Subcommittee on Telecommunications and Finance of the House 443 Governor La Ware presents the views of the Committee on Energy and Commerce, Board on the proposed Fair Trade in Finan- April 11, 1991. cial Services Act of 1991 and says that the proposed act would replace the U.S. policy of national treatment with a policy of recip- 423 Alan Greenspan, Chairman, Board of Govrocal national treatment and that the Federnors, discusses title III of S.207, the Fueral Reserve believes strongly that there are tures Trading Practices Act of 1991, particbetter ways to encourage other countries to ularly those provisions dealing with margins open their markets, before the Subcommiton stock index futures and those dealing tee on Economic Stabilization of the House with the exclusivity provisions of the Com- Committee on Banking, Finance and Urban modity Exchange Act, and says that it is Affairs, April 24, 1991. important for the Congress to clarify the limits of the CEA in a way that permits 446 Chairman Greenspan discusses three bankinnovation in U.S. financial markets so that ing reform bills, H.R.6, the Deposit Insurthey can continue to be strong and competance and Regulatory Reform Act of 1991, itive, before the Senate Committee on H.R.15, the Depositor Protection Act of Banking, Housing, and Urban Affairs, April 1991, and H.R.1505, the Treasury's pro- 16, 1991. posed Financial Institutions Safety and Consumer Choice Act of 1991, and says 425 Richard Syron, President, Federal Reserve that modifications of the deposit insurance Bank of Boston, discusses the failure of the system are necessary, but the Board Rhode Island Share and Deposit Indemnity strongly prefers the comprehensive ap- Corporation (RISDIC) in terms of the effect proach to banking reform that the Treasury of the crisis on individual citizens in Rhode bill offers, before the Subcommittee on Fi- Island and on the economy of the state and nancial Institutions Supervision, Regulation reviews actions taken by the Federal Re- and Insurance of the House Committee on serve Bank of Boston in response to the Banking, Finance and Urban Affairs, April financial problems of loan and investment 30, 1991. companies, banks, and credit unions insured by RISDIC, before the Subcommitee on General Oversight and Investigations of 461 ANNOUNCEMENTS the House Committee on Banking, Finance Change in the discount rate. and Urban Affairs, April 17, 1991. Revisions to Regulation K. 430 Chairman Greenspan discusses two bank- Revisions to the official staff commentary ing reform bills, S.543, the Comprehensive on Regulation B. Deposit Insurance Reform and Taxpayer Revisions to the official staff commentary Protection Act of 1991, and S.713, the Treaon Regulation Z. sury's proposed Financial Institutions Safety and Consumer Choice Act of 1991, Availability weekly of a list of institutions and says that the Board strongly supports that have been examined for compliance both bills in their approach to deposit insur- with the Community Reinvestment Act ance and supervisory procedures and simi- (CRA). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

463 LEGAL DEVELOPMENTS A76 BOARD OF GOVERNORS AND STAFF Various bank holding company, bank ser- A78 FEDERAL OPEN MARKET COMMITTEE vice corporation, and bank merger orders; AND STAFF; ADVISORY COUNCILS and pending cases. A80 FEDERAL RESERVE BOARD Ai FINANCIAL AND BUSINESS STATISTICS PUBLICATIONS These tables reflect data available as of April 26, 1991. A82 SCHEDULE OF RELEASE DATES FOR PERIODIC RELEASES A3 Domestic Financial Statistics A46 Domestic Nonfinancial Statistics A84 INDEX TO STATISTICAL TABLES A55 International Statistics A86 FEDERAL RESERVE BANKS, A71 GUIDE TO TABULAR PRESENTATION, BRANCHES, AND OFFICES STATISTICAL RELEASES, AND SPECIAL TABLES A87 MAP OF FEDERAL RESERVE SYSTEM Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Issues in Labor Supply Janice Shack-Marquez, of the Board's Division nants have affected the supply of labor in various of Research and Statistics, prepared this article. ways. The supply of labor resources bears importantly Population on a wide variety of economic and social policy issues. Debates about unemployment and other The size and composition of the population is the macroeconomic problems often involve questions first major building block of the labor force. Over about individuals' choices between labor and lei- the past forty years, the working-age population sure; debates about the social security system, of the United States (that is, noninstitutionalized welfare, minimum wages, and the income tax civilians sixteen years of age and older) has system inevitably involve questions about work grown significantly: At the end of 1990, it stood incentives; and debates about child care and elder at 189 million (chart 1), 84 million more than its care involve questions about individuals' avail- level in 1950. Three sources of change determine ability to work. Each person, influenced by the the pattern of growth in the population: births, economic incentives of wages and the availability deaths, and net immigration. of jobs, as well as by social customs, tastes, and During the 1960s and 1970s, the growth of the ability, must decide how much time and effort to working-age population was influenced mainly by allocate to the labor market. Those choosing to the sharp rise in birth rates from the end of World work must then decide on a career and a style of War II to the early 1960s—the period of the working life. Such decisions by all individuals so-called baby boom. As the large baby-boom determine the aggregate amount of labor available cohort reached working age between 1961 and to the economy, which in turn is a key determi- 1979, the overall working-age population grew 1.9 nant of the level and growth of the economy's percent per year, and the number of inexperiproductive capacity. enced workers seeking jobs bulged (chart 2). For example, sixteen to twenty-four year olds, who had accounted for 18 percent of the working-age THE DETERMINANTS OF LABOR SUPPLY population in the 1950s, made up nearly 22 per- In an accounting sense, the supply of labor available for the production of goods and services 1. Civilian noninstitutional population, sixteen years depends on the size and the composition of the of age and older, 1948-90 population, the proportion of the population working or looking for work (the rate of labor force participation), the number of hours worked each week, and the number of weeks worked each year.1 Over the past four decades, these determi- 1. See the box at the end of the text for definitions of many terms used throughout this article. The intensity of work effort and the education and training of the work force will help determine how productively the available supply of hours will be translated into the output of goods and services. These issues are beyond the scope of this 1950 1960 1970 1980 1990 article. SOURCE. U.S. Bureau of Labor Statistics. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

376 Federal Reserve Bulletin • June 1991 2. Age structure of the U.S. population1 1970 I I R Males Females Males 10 1. Solid color bars indicate the baby-boom cohort. SOURCE. U.S. Bureau of the Census. cent of the working-age population by 1970. In Service, probably has added another 100,000 to contrast, the baby bust, which began in the early 300,000 per year to the total of legal immigration. 1960s, slowed the pace of growth of the working- Recently, new laws have resulted in large flucage population to about 1 percent in the 1980s; tuations in the flow of immigrants. Efforts to and the proportion of sixteen to twenty-four year control illegal immigration led to the Immigration olds in the working-age population shrank back to Reform and Control Act of 1986, which attempted 17 percent by 1990. to restrict the employment opportunities of illegal The average lifespan, the second determinant aliens by imposing penalties on employers who of population trends, has lengthened because of hired them. However, the recent Immigration Act advances in health care. Average life expectancy of 1990 works in the opposite direction: It allows has increased from seventy years in 1960 to for an increase in total immigration, for an inseventy-five years in 1989. As a result, persons crease in the immigration of individuals with skills sixty-five years of age and older are a growing that are in short supply, and for the admission of proportion of the population. immigrants from underrepresented countries. The The final factor that has influenced population Immigration and Naturalization Service estimates growth in recent decades is the net flow of immi- that this act could increase legal immigration from grants. Between 1980 and 1989, legal immigration roughly 600,000 in 1989 to as much as 800,000 to the United States averaged 580,000 persons per annually over the next several years. year—about one-quarter of 1 percent of the U.S. population. This pace was well above that of the Labor Force Participation 1970s, which was 450,000 per year. Although estimates are imprecise, illegal immigration, ac- Besides sizable increases in the working-age popcording to the Immigration and Naturalization ulation, the proportion of the working-age popu- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Issues in Labor Supply 377 3. Rates of labor force participation, 1950-90 in 1970 to 68 percent in 1990; the participation Percent rate for men over sixty-five years of age also has dropped significantly from 33 percent in 1970 to 16 percent by 1990. These declines reflect a trend toward earlier retirement. In contrast, participation rates for men from twenty-five to fifty-four years of age have declined only slightly. The dramatic demographic shifts associated with the baby boom and the baby bust and the secular changes in various social and economic • IMBlMBMIBIMBMlilMBMIBIlIB 1950 1960 1970 1980 1990 conditions have influenced individuals' decisions SOURCE. U.S. Bureau of Labor Statistics. about how much labor to supply to the market. The following section lays out a conceptual lation that is either working or looking for work framework for analyzing individual labor supply. has been on an upward trend throughout the past Subsequent sections use the framework to anafour decades (chart 3). In the early 1950s, the rate lyze shifts in labor supply in the short and the of labor force participation averaged roughly 59 long terms. percent; by 1990, the rate had risen to more than 66 percent. Perhaps the most noteworthy change that has LABOR SUPPLY DECISIONS: taken place in the labor market over the past A CONCEPTUAL FRAMEWORK forty years is the vast increase in the proportion of women in the civilian labor force. As chart 3 The basic framework for analyzing an individshows, increasing participation among women ual's decision to participate in the labor market has more than accounted for the overall rise in the labor force participation rate. As late as 4. Rates of labor force participation, by age range 1950, only 34 percent of women were in the labor force. By 1980, women's participation Females rate had risen to 52 percent; and by 1990, it had — 1990 80 moved up to 58 percent. Rising participation among women has occurred in most age categories (chart 4), with the greatest increases evident for women of childbearing age. The participation rate for women twenty to twenty-four years of age increased from 46 percent in 1960 to 69 percent in 1980 and now stands at nearly 72 percent. For women twenty-five to thirty-four years of age, the participation rate has more than doubled, from 36 percent in 1960 to 74 percent in 1990. Indeed, the jump in the labor force participation rate of married women with children under the age of six has been dramatic, tripling from 19 percent in 1960 to 59 percent in 1990. In contrast, participation rates among men generally have declined over the past three decades. The most substantial decreases have been among men from fifty-five to sixty-four 16-19 20-24 25-34 35-44 45-54 55-64 65 + years of age, whose rate fell from 87 percent Age Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

378 Federal Reserve Bulletin • June 1991 is a model of the allocation of time between sion. This relation occurs because of the effects work and leisure.2 The model describes the of fluctuations in expected real wages on labor factors that will influence an individual's re- supply decisions. Although the level of real sponse to an increase in the wage rate and, in wages does not change much over the business particular, identifies two opposing influences— cycle, the probability of finding a job changes the substitution effect and the income effect. As substantially. Consequently, during a recesthe wage rate goes up, the opportunity cost of sion, the expected real wage falls for those leisure rises—that is, the income forgone by not without jobs. For some workers, the expected working rises as the wage rate rises. The sub- payoff from looking for work is so low that they stitution effect is the tendency for individuals to decide that spending time at home is more allocate their time away from leisure and productive than spending time in searching for a toward more work when the wage rate rises— job—that is, in the terminology of the model of that is, substitute work time for leisure time. In the allocation of time presented in the preceding contrast, the income effect assumes that leisure section, the substitution effect dominates. This is like most goods: As income rises, individuals result is referred to as the discouraged worker want to purchase more leisure. Thus, an indi- effect. However, if labor supply decisions of vidual can be expected to allocate a portion of family members are interdependent, the need to the increase in potential income associated with maintain living standards during a recession can a hike in wage rates to acquiring more leisure; draw other workers into the labor force despite this allocation can offset part or all of the the low expected real wage. For example, if one substitution effect associated with the higher family member loses his or her job during a wage or can more than offset it. In summary, recession, the family may decide that another with an increase in wage rates, the substitution family member should enter the labor market. effect reduces desired leisure and increases the This response is referred to as the addedamount of labor services an individual wants to worker effect. offer to the labor market, whereas the income Of course, the added-worker and the discoureffect increases desired leisure and decreases aged-worker effects can coexist because the labor services. added workers and discouraged workers will be The presence of both effects creates ambiguity different groups of people. Which group domiin predicting individuals' overall labor supply nates is an empirical issue. Research has indiresponse to changes in labor market conditions. cated that in the aggregate the discouraged- Although economic theory cannot predict worker effect dominates the added-worker effect: whether the income or the substitution effect will More households are affected by the decline in dominate an individual's decision to supply la- expected real wages during a recession than are bor, empirical evidence can be brought to bear induced to enter the labor force by the layoff of a on this question. The relative importance of family member.3 In addition, the increased atthese income and substitution effects can vary, tachment of women to the labor force has dimindepending upon the time frame and the demo- ished the potential importance of the addedgraphic groups considered, and can change over worker effect as the pool of nonparticipating time. women has shrunk. Thus, the number of discouraged workers clearly increases during economic downturns and declines during expansions; or LABOR SUPPLY AND THE BUSINESS CYCLE stated another way, the rate of labor force par- Typically, labor force participation rises during an expansionary period and falls during a reces- 3. See, for example, Jacob Mincer, "Labor Force Participation of Married Women: A Study of Labor Supply," As- 2. The terms work and leisure are used to distinguish pects of Labor Economics (Princeton University Press for the between work for pay or profit (or looking for such work) and National Bureau of Economic Research, 1962), pp. 63-97; and all other activities, only some of which would be what is Shelly Lundberg, "The Added Worker Effect," Journal of usually considered leisure. Labor Economics, vol. 3 (January 1985), pp. 11-37. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Issues in Labor Supply 379 5. Discouraged workers, 1970-901 participation for women in 1960 and 1970 were Thousands broadly consistent with the life-cycle model, although participation among women of childbearing age tended to drop off sharply. By 1990, however, the profile of labor force participation 1500 rates for women had essentially the same shape as that for men. As previously discussed, over the past few * 1000 decades movements in labor supply for men and women have diverged: The participation of I N1 1 1 1 1 II 1 1 11 1 1 I 1 II 1 M il women in the labor force has risen sharply, 1970 1975 1980 1985 1990 while the participation of men has trended The shaded areas denote recessions as defined by the National Bureau down. The life-cycle model alone does not fully of Economic Research. 1. Discouraged workers are those individuals who reported that they explain these long-term trends in labor force were not searching for work because they believed no jobs were participation. Other economic forces that unavailable. SOURCE. U.S. Bureau of Labor Statistics. derlie these developments include demographic ticipation tends to rise more rapidly during ex- changes in the labor force as well as shifts in pansions than during recessions (chart 5). social customs and tastes that have influenced changes in relative income, fertility patterns, attachment to the labor force, and retirement LABOR SUPPLY OVER THE LONGER RUN decisions. These income and substitution effects are im- Relative Income Effects portant over longer periods as well. Broadly speaking, hourly wage rates tend to be rela- One way that demographic changes can affect tively low when young people first enter the participation decisions is through their influwork force and are learning new skills. Wage ence on the relative incomes of various age rates rise until they peak, typically when work- groups.5 Over the past three decades, relative ers are around forty-five to fifty-five years of income effects have been most pronounced for age, and then they decline. The so-called life- younger workers. The income of year-round, cycle model of labor supply predicts that the full-time workers aged fifteen to twenty-four labor supply of individual households will years (the best available proxy for the wage change as the members of the household age.4 rate), relative to that of men aged forty-five to In particular, workers are assumed to partici- fifty-four years, began to decline sharply in the pate most heavily during the period of their life mid-1960s and continued falling through the cycle when their expected wages are highest 1970s and into the 1980s (chart 6). The decline and to substitute leisure for work when ex- coincided with the influx of young workers into pected wages are low. the labor market (chart 7). Relative income The rates of men's participation in the labor flattened out for young men and women in the force over the past three decades appear to be second half of the 1980s, as the small current consistent with this view, as they rise from men's generation of youth (the baby-bust generation) teenage years into middle age and then fall off in replaced the baby-boom generation, although their later years (chart 4). The rates of labor force reduced demand for lower-skilled workers ap- 4. For an illustration of the importance of intertemporal 5. For a more complete discussion of demographic effects substitution in labor supply see Gilbert Ghez and Gary Becker, on relative income, see William Wascher, Susan Burch, and Allocation of Time and Goods over the Life Cycle (Columbia John Goodman, Jr., "Economic Implications of Changing University Press for the National Bureau of Economic Re- Population Trends," Federal Reserve Bulletin (December search, 1975); and James Heckman and Thomas MaCurdy, "A 1986), pp. 815-26; and Michael L. Wachter, "Intermediate Life Cycle Model of Female Labour Supply," Review of Swings in Labor Force Participation," Brookings Papers on Economic Studies, vol. 47 (January 1980), pp. 47-74. Economic Activity, vol. 1 (1977), pp. 545-76. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

380 Federal Reserve Bulletin • June 1991 6. Relative income of full-time workers, 7. Sixteen to twenty-four year olds as a percent of fifteen to twenty-four years of age, 1955-901 civilian population, 1948-901 Percent Percent 80 23 21 19 \ A-17 Mill Ml 1111 n 11 l a i i i B i i i ai IIBIIIBI ||B 1950 1960 1970 1980 1990 1. Relative income is defined as the ratio of the median income of all 1. Civilian population aged sixteen years and older. full-time workers aged 15 to 24 to that of full-time male workers SOURCE. U.S. Bureau of Labor Statistics. aged 45 to 54. SOURCE. U.S. Bureau of the Census, Current Population Reports, same time, a woman's decision to participate in Series P-60, various issues. the labor force may be affected by whether she parently prevented a reversal of the earlier has young children. In the 1960s and the first half decline. of the 1970s, the birth rate fell sharply (chart 8). The changes in the relative wage levels for For the next ten years, birth rates flattened out young men and women affected the labor supply and then in the late 1980s began to increase. decisions of individual young people in two The lower birth rates probably were closely ways: first, through changes in their own relative related to the sharp rise during the 1970s in the wage and, second, through changes in the rela- participation rate of women twenty-five to thirtytive wages of their spouses or other family mem- four years of age. Of course, the importance of bers. For young women, econometric evidence the birth rate to levels of labor force participation suggests that the effect of the declines in their is influenced by changes in the availability, cost, own relative wages, which ordinarily would have and quality of child care and the propensity for reduced labor supply, was more than offset by mothers of young children to work outside the the positive influence on participation of the home. Currently, the proportion of mothers of potential drop in family living standards associ- young children who are in the labor market is at ated with the decline in the relative wage of a historic high. This finding suggests that childyoung men.6 In contrast, the econometric evi- rearing and young women's participation in the dence suggests that these effects are about off- labor force are more compatible than in the past. setting for the participation decisions of young men. 8. Births per thousand women, ages fifteen to Fertility and Home Responsibilities forty-four, 1948-90 Women's decisions to participate in the labor force and to have children are not independent. For example, a woman's decision to increase the size of her family may be affected by the level of her family's income and by the wage she expects to receive by entering the labor market. At the 6. See Wachter, "Intermediate Swings in Labor Force Participation" and Robert S. Gay and William Wascher, "Persistence Effects in Labor Force Participation," Eastern Economic Journal, vol. 15 (October-December 1989), pp. 177-87. SOURCE. U.S. National Center for Health Statistics. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Issues in Labor Supply 381 The trend toward increased labor force par- 2. Civilian population aged sixteen years and over, not ticipation by women is mirrored in the data on in the labor force, by reason, 1971-90' individuals who are out of the labor force. Data Thousands on the trends in nonparticipation have been 1971-79 1980-89 Reason 1990 tabulated since the mid-1970s (tables 1 and 2). (average) (average) Between the late 1970s and the 1980s, the Male downward trend for younger women in the Wants a job now 59.9 3.6 159.1 category of keeping house apparently slowed. Going to school....... 17.1 -14.5 44.9 HI health 14.0 8.3 27.5 These data are consistent with the small in- Thinks cannot get job. 7.8 7.6 6.3 crease in the birth rate shown in chart 8. For Other 21.0 2.2 80.5 adult women, increasing labor force participa- Does not want a job now 418.0 332.7 379.5 Family/home 8.6 17.5 20.7 tion continued to shrink this category of non- Going to school -3.8 -5.9 168.5 participation well into the 1980s. IU health 50.1 -5.3 198.5 Retired 276.4 327.3 84.8 Other 86.6 -.8 -93.0 1. Civilian population aged sixteen years and over, not in the labor force, by activity, 1977-901 Female Thousands Wants a job now 93.0 -30.5 254.7 Family/home 37.0 -3.9 -98.7 1977-79 1980-89 Going to school 22.2 -11.5 125.7 AAggee aanndd aaccttiivviittyy (average) (average) 11999900 Ill health 14.4 3.4 21.5 Thinks cannot get job.. 1.9 -3.3 141.1 Male Other 17.4 -15.1 65.2 16-19 years old Does not want a job now 25.7 -60.5 393.0 Keeping house 2.9 .7 11.0 Family/home -343.8 -564.6 -251.6 Attending school -24.2 -14.4 52.2 Going to school 11.2 13.4 195.0 Unable to work 2.2 -.9 15.7 Ill health 33.5 24.4 206.4 Other -24.5 -11.5 40.4 Retired 219.7 443.6 298.6 Other 105.1 22.7 -55.3 20-24 years old Keeping house 4.6 1.8 7.9 Total not in labor force . 596.6 245.4 1186.3 Attending school -4.6 -5.9 89.0 Unable to work -1.9 2.0 -4.2 Other 26.2 -5.1 -39.7 1. Change in level from four quarters earlier at an annual rate. 25 years and over Retirement Keeping house 23.7 13.8 45.3 Attending school 4.6 6.7 -.3 Unable to work -11.5 18.9 155.0 Other 325.2 330.9 163.9 An important element of the slow decline in labor force participation rates for men is a trend, Female beginning as early as the 1930s, toward earlier 16-19 years old Keeping house -90.0 -23.0 .7 retirement.7 Between 1960 and 1990, labor force Attending school -78.0 -25.2 200.1 participation rates for men fifty-five and over fell Unable to work -1.9 .4 .9 Other 16.4 -11.3 -37.1 substantially; and despite an increase in partici- 20-24 years old pation among women twenty to fifty-four years Keeping house -72.8 -70.0 -65.8 Attending school -11.0 1.4 27.0 of age, participation rates for women fifty-five Unable to work 4.8 -.6 6.4 and over dropped to rates similar to those for Other 19.8 5.1 -4.7 men (chart 4). Data on nonparticipation also 25 years and over HP&'^I Keeping house -527.1 -522.4 -236.6 show the trend toward early retirement for men Attending school 18.4 22.0 63.0 between the late 1970s and 1980s (table 2). Unable to work 46.4 42.2 170.9 Other 358.6 491.8 524.0 Participation rates for older men reached his- Total not in labor force 3.8 245.4 1186.3 torically low levels in the mid-1980s and since Keeping house -662.8 -616.2 -207.5 Attending school -86.4 -12.2 372.0 i Unable to work 33.0 62.0 349.0 Other 720.0 811.8 672.8 7. See Donald O. Parsons, "The Decline in Male Labor Force Participation," Journal of Political Economy, vol. 88 MEMO Civilian labor force 2940.4 1850.9 492.0 (1980), pp. 117-34; Laurence J. Kotlikoff and David Wise, Civilian population 2944.2 2096.3 1678.3 The Wage Carrot and the Pension Stick (W. E. Upjohn Institute for Employment Research, 1989); and Gary S. 1. Change in level from four quarters earlier. Civilian population equals Fields and Olivia Mitchell, Retirement, Pensions, and Social "labor force" plus "not in the labor force." Security (MIT Press, 1985). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

382 Federal Reserve Bulletin • June 1991 then have changed little. Factors contributing to 9. Work experience, 1958-89 the decline in participation include wider cover- Weeks age of the labor force by social security, the extension of old age assistance to persons sixtytwo to sixty-four years old, the greater availability of social security and other types of disability payments, the greater prevalence of pension plans, the provision of early retirement benefits in many pension plans, and efforts by employers Women to cut back payrolls by inducing early retirement. These factors dramatically lowered the cost, in terms of forgone earnings, of retirement. In addition, as lifetime incomes rose, individuals sub- Proportion of population aged sixteen and more with stituted away from work to leisure in their later labor force experience during the year £ , MBWMPiMWWiMBi years. In recent years, the enactment of laws prohibiting mandatory retirement may have been a factor working to stem the decline in participation among older men. The cause of increased retirement among women is somewhat different (table 2). From 1960 to 1990, among women in their preretiremi LJ ment years (forty-five to fifty-four years of age) I960 1965 labor force participation increased markedly SOURCE. U.S. Bureau of Labor Statistics. (chart 4). Consequently, in 1990 a larger proportion of women fifty-five years of age and older were eligible for retirement than had been eligible of weeks those individuals spent in the labor in earlier years. Nevertheless, the finding that the force. rate of labor force participation for these women The labor force participation rate provides a has remained fairly steady since 1960 suggests snapshot of labor force attachment, and data on that factors favoring retirement have influenced the cumulative experience of individuals in the women as well as men. labor market over an entire year provide a more comprehensive view of changing trends in labor force activity. The Work Experience Surveys conducted with the March Current Population Labor Force Attachment Survey summarize the cumulative employment and unemployment experience of respondents The rise in participation rates among women is for the preceding year.8 These data can shed light also due to a greater attachment to the labor on the extent to which changes in the labor force force of women who are currently working. If all participation rate reflect changes in the number labor force participants stayed in the labor force of participants in the labor market each year as for the entire year, the annual average labor force opposed to changes in the number of weeks participation rate would be a direct measure of during the year workers participate in labor marannual labor force experience. However, some ket activity. individuals will be out of the labor force for part The two panels of chart 9 show the trends in of the year. Consequently, to study the effect of the two components of labor force participation changing patterns of work experience on labor between 1958 and 1989, the last year for which the force participation, annual participation rates are divided into two components: the proportion of the population that worked or looked for work at 8. The Current Population Survey is also the source of data some time during the year and the mean number on labor force participation rates and the unemployment rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Issues in Labor Supply 383 work experience data have been tabulated. The 3. Part-time work as a percentage of total employment, average number of weeks worked annually by 1968-90 men who were in the labor force at any time Percent during the year has drifted up slightly over the Age group and reason 1990 thirty years to just under fifty weeks. This finding for part-time work reflects the fact that most men with labor market All workers experience work at full-time, year-round jobs or, Voluntary Involuntary if unemployed at some point in the year, that they Workers 16 to 19 years.. remain active in searching for work. However, Voluntary the proportion of men with labor force experience Involuntary during the year has shrunk slowly over time Men, 20 years and older because of the trend toward early retirement. Voluntary Involuntary .... For women, the average number of weeks worked has steadily increased from thirty-nine Women, 20 years and older weeks in 1958 to more than forty-seven weeks in Voluntary Involuntary 1989. This finding highlights the extent to which, over time, women have developed firmer attachules because they do not want full-time work or ments to the labor market. This trend has ocare unavailable for full-time work are considered curred as women's exits from jobs, or from a voluntary part-time workers. Those individuals search for a job, to nonparticipation each year who work short hours because of slack work, the have become less frequent. Indeed, by the late inability to find a full-time job, or for other reasons 1980s, the average amount of time women spent related to the demand for their labor are considin the labor force had moved to within three ered involuntary part-time workers. weeks of the average for men. At the same time, the proportion of women with some labor market Part-time employment has made up a growing activity during the year has trended higher, this share of all jobs over the past four decades. The trend further boosting the participation rate of fraction of employed workers who voluntarily females in the labor force. work part time rose from 13 percent in the late 1960s to 14 percent in the 1970s and accounted The relative contributions of the two compofor the trend in total part-time work over this nents to the overall rise in the female labor force period (table 3). The increase occurred partly participation rate have shifted over time. Bebecause employers sought to accommodate the tween 1958 and 1964, all of the increase in the preferences for short hours of students and participation rate reflected growth in the proporhousewives, the fastest growing groups in the tion of women with labor market experience. labor force in the 1970s. However, voluntary Over the subsequent decade or so, however, the part-time work has remained a fairly constant rise in the number of weeks spent working or proportion of total employment since the 1970s. looking for work each year and the rise in the Instead, involuntary part-time employment has proportion of women with labor market experipropelled the upward trend in total part-time ence contributed in equal proportions to the work since the early 1970s, largely because emsharp acceleration in the participation rate for ployers view part-time work as a means to cut women. The growing attachment of women to labor costs, and not because workers want the labor force, as measured by the average shorter schedules.9 With a sizable proportion of weeks of experience, continued into the midthe workforce holding part-time jobs, it would 1980s, even though the rise in incidence of seem that the aggregate amount of labor supplied women with labor market experience slowed. could be increased by lengthening the workweek Although many jobs place constraints on the number of hours per week worked by employees, employees can, in effect, exercise some choice 9. See Chris Tilly, "Reasons for the Continuing Growth of over their hours of work by choosing their type of Part-time Employment," Monthly Labor Review (March employment. Those who choose part-time sched- 1991), pp. 10-18. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

384 Federal Reserve Bulletin • June 1991 of those working part time. However, many the female multiple-job holders work at more workers hold more than one part-time job and than one part-time job; they work, on average, thus essentially work full-time schedules. nearly fifty hours per week. Indeed, a final way that employees can exercise All told, more women are participating in the choice over their hours of employment is to work labor force than at any time in the past four at more than one job. Between 1970 and the decades, and those women who are participating middle of the 1980s, the percentage of workers work more hours per week and more weeks per holding two or more jobs showed no apparent year. In many ways, women's labor supply decitrend, with the proportion fluctuating around sions are more and more resembling those of men. 5 percent (table 4). Historically, most holders of multiple jobs were men working a second job to supplement income from a primary, full-time job. THE SLOWDOWN IN 1990: PERMANENT OR However, while the aggregate multiple-job-hold- TRANSITORY? ing rate held fairly steady over this period, the rate for men moved down from 7 percent in 1970 to The overall rise in labor force participation over around 6 percent by the mid-1970s, where it the past three decades has not been smooth. In stayed through the middle of the 1980s. At the numerous episodes, participation stopped insame time, the rate for women moved up from 2LA creasing for a time or even declined slightly. percent in 1970 to 43A percent in 1985. The steady upward movement in labor force Between mid-1985 and mid-1989, the number participation rates after 1982 stopped suddenly in of persons holding more than one job increased 1990. In some respects, a flattening in the particnearly Wi million, and the proportion of multi- ipation rate seems a natural reaction to the recent ple-job holders climbed substantially from 5V2 slowing in the growth of employment opportunipercent in 1985 to 6V4 percent in 1989. Women ties. Over the four quarters of 1990, employment, accounted for nearly two-thirds of the increase in as measured by the current population survey, multiple-job holding over this period. Multiple- was down about 270,000—the first decline in job holding for men continues to be a way of eight years. Also during 1990, the labor force supplementing income from a full-time job with participation rate declined, and the civilian labor work after hours. In contrast, nearly one-third of force increased only V2 percent—the smallest annual gain in almost thirty years. 4. Percentage of workers holding more than one job, 1970-89' Apparently, the halt in labor force growth in 1990 reflected both cyclical and secular develop- Women as ments. In response to slowing economic growth, proportion of all MEMO: the number of discouraged workers rose, al- Year Total Men Women holders of Total multiple employed2 though the number remains well below that seen jobs early in the 1980s (chart 5 and table 2). 1970 5.2 7.0 2.2 15.7 78,358 The pickup in nonparticipation in 1990 also 1971 5.1 6.7 2.6 19.0 78,708 reflected increased school attendance for the 1972 4.6 6.0 2.4 19.5 81,224 1973 5.1 6.6 2.7 20.3 83,758 younger age groups (table 1). If jobs are scarce, 1974 4.5 5.8 2.6 22.3 85,786 schooling is a natural alternative for the young. 1975 4.7 5.8 2.9 24.4 84,146 But rising school enrollment rates may reflect the 1976 4.5 5.8 2.6 23.1 87,278 1977 5.0 6.2 3.4 27.2 90,482 increasing returns to higher education over the 1 1 9 9 7 7 8 9 4 4 . . 9 8 5 5 . . 9 8 3 3 . . 5 3 2 28 9 . . 5 8 9 9 6 3 , , 3 9 2 0 7 4 1980s as well.10 1980 4.9 5.8 3.8 32.5 96,809 The larger number of young nonparticipants in 1985 5.4 5.9 4.7 38.3 106,878 1990 who reported school as their major activity 1989 6.2 6.4 5.9 43.0 117,084 and as their reason for nonparticipation is mir- 1. Based on special survey data from the Current Population Survey, Bureau of Labor Statistics. 2. Numbers in thousands. Household employment adjusted to a payroll concept. Adjusted household employment equals household employment minus 10. See Lawrence Katz and Kevin Murphy, "Changes in self-employed workers minus unpaid absences minus private household Relative Wages, 1963-87: Supply and Demand Factors," workers plus agricultural service workers. unpublished manuscript, April 1990. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Issues in Labor Supply 385 rored in the school enrollment rate for sixteen to men are caring for young children and ailing twenty-four year olds (enrollees as a proportion of spouses.11 the population of sixteen to twenty-four year Taken together, these data do not unambigolds), which has increased steadily in recent years uously point to the increase in nonparticipation as (chart 10). Through 1989, the distribution of being either a permanent or temporary phenomeschool enrollment by employment status had re- non. If, for example, the increase in the number of mained fairly constant. Between 1989 and 1990, young women who are staying out of the labor the proportion of school enrollees who reported force because of home or family responsibilities themselves as out of the labor force (the bottom persists, the 1990 slowdown in participation may slice of chart 10) jumped from 23 percent to 25 last for a number of years. However, the rise in percent. In other words, full-time students now the number of discouraged workers, albeit modmake up a larger share of all school enrollees. erate, combined with several other factors sug- For adult women, the increase in labor force gests that some of the increase in nonparticipation participation continued at the expense of the may be transitory or cyclical in nature. In particnumber keeping house—at least through the end ular, the substantial increase in school enrollment of the 1980s. However, some reversal may have has occurred among nonparticipants who are deoccurred in 1990. That is, the number of women voting themselves full time to education, rather leaving housework to enter the labor force may than among participants who are dividing their not be dropping as fast as it had previously. This time between schooling and the labor force. These reversal may reflect, in part, the recent increases students may be choosing more intensive schoolin the birth rate (chart 8). As fertility has in- ing as an alternative to what they perceive to be a creased, the availability of child care has become poor labor market. In any case, this increase in an important factor in decisions about labor force school enrollment is not a negative development participation, especially for women. Also, as the for the long-term growth of the economy. These population ages, the care of elderly parents and young people are investing in their human capital spouses may become a limiting factor on labor and are likely to move into the labor force when supply decisions of individuals. Indeed, a moder- their schooling is completed. Also, greater schoolate decline among adult men in total participation ing at this time may result in stronger labor force in 1990 relative to the mid-1980s is attributed to attachment later in their careers. Consequently, more men reporting that they are keeping house. their increase in nonparticipation is not necessar- This decline may reflect that a growing number of ily indicative of a permanent, secular decline in labor force growth. It appears rather to be a transitory phenomenon that should be reversed 10. School enrollment as a percent of population of over the medium term. sixteen to twenty-four year olds, by employment status, 1970-90 THE LONGER-TERM OUTLOOK The gap in work experience patterns of men and women has significant implications for the outlook for further increases in labor force participation. The difference in the proportions of men and women with some labor market experience 11. The distinction between discouraged workers and other nonparticipants is fuzzy given that the classification of respondents is based on self-reporting. For example, an individual who is truly discouraged may choose to report housekeeping as the reason for nonparticipation if he or she views discouragement as an admission of failure. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

386 Federal Reserve Bulletin • June 1991 during the year has shrunk considerably over the at the same rate as during the 1980s, growth in past thirty years, but it remains sizable: In 1958, the female labor force participation rate would about 50 percent of all women aged sixteen years remain at the 1980-90 average of 1 Vi percentage and over worked or looked for work at some time points per year for another decade. Thereafter, during the year, compared with more than 90 however, the contribution of growing labor percent of men aged sixteen years and over. By force attachment to the rise in the labor force the mid-1970s, the proportions were 57 percent participation rate for women would be exand 84 percent respectively; by 1989, they were hausted. 64 percent and 81 percent. Thus, considerable As indicated in the preceding section, trends in room exists for more women to enter the work labor force participation show no clear signs of a force, although home and family responsibilities sharp structural break, despite the drop in late may be a constraint on how high the proportion 1990. Nevertheless, the increase in the rate of of women will go. participation for women is likely to slow gradu- Similarly, the average number of weeks of ally as it nears the rate of participation now labor market experience for men (which has experienced by men. As formal child care has been relatively stable at approximately fifty become more affordable and more accessible, the weeks per year) may be viewed as an effective effect of fertility on labor force decisions has ceiling for women. Under this assumption, clos- been muted. Expanded access to child care may ing the remaining gap for women has the poten- weaken this relationship further. tial of adding only another 3 percentage points Past experience suggests that the participato their labor force participation rate. How fast tion rates of young people are likely to be that gap may disappear is unclear; between affected by movements in their relative in- 1986 and 1988, when labor market conditions comes. The relative income of young people is were generally favorable, the average weeks of likely to rise for the next several years as the experience for women were little changed. If no baby-bust cohort continues to move into the further increase in weeks of work experience labor force. This higher relative income may were to occur, the upward trend in the labor place less pressure on young families to have force participation rate for adult women would dual careers. Although a greater emphasis on be reduced by about 1 Vz percentage points per educational attainment may depress labor force year. Alternatively, if that gap were to continue participation rates for the next several years, it to close at the same rate as over the 1976-88 could boost long-term labor force attachment period and if the proportion of women partici- by increasing the expected wages of school pating in the labor force were to continue to rise enrollees over their lifetimes. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Issues in Labor Supply 387 in this article derive from the Current Popula- All civilians sixteen years of age and older who are not tion Survey (CPS), a monthly survey that the Bureau of classified as employed or unemployed are defined as not the Census conducts for the Bureau of Labor Statistics. in the labor force. These persons are classified further, The CPS, collected from a probability sample of approx- the classification depending upon two sets of questions imately 60,000 households, provides statistics on the asked of all respondents to the CPS. The first set (see table employment status of the civilian population. 1) asks respondents about their major activity during the JL . . . .. i ^ * survey period. Possible answers include "in school," "keep- The term civilian labor force refers to all persons sixing house," "unable to work because of long-term illness," teen years of age and older who are either working for or "other." The second set of questions (see table 2) asks pay or profit or looking for work. Unemployed refers to persons not in the labor force the major reason for their persons who are not working but are available and looklack of participation. Respondents are split into those who ing for work. Thus the labor force consists of the employed would like a job now and those who would not. These and the unemployed. The labor force participation rate questions, tabulated separately for men and women, prorepresents members of the civilian labor force as a pervide a richer classification of respondents. cent of the civilian noninstitutional population of persons sixteen years of age and older, or the working-age population. The unemployment rate represents the number of unemployed as a percentage of the civilian labor force. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

388 Bank Holding Company Investments for Community Development Kenneth P. Fain and Sandra F. Braunstein, of the financing needs of lower-income families and eco- Board's Division of Consumer and Community nomically distressed neighborhoods and communi- Affairs, prepared this article. ties. Hence, many banks and other holding company subsidiaries now originate loans guaranteed or subsidized by government for housing and business. Since 1971, the Federal Reserve has permitted bank Financial institutions also purchase community holding companies to invest, under certain guidedevelopment loans from other lenders, provide lines and limitations, in projects primarily benefiting technical and loan-packaging assistance to nonprofit economically disadvantaged communities. Through groups, and participate in state and local government subsidiaries, limited partnerships, and other business programs aimed at housing, business development, ventures, bank holding companies have used this and economic revitalization in distressed urban and limited authority to help provide housing and job rural communities. In recent years, an increasing opportunities for low- and moderate-income pernumber of financial institutions have established sons, assist in the development of small and minority specialized lending units that focus on community businesses, and provide essential services to otherdevelopment finance. wise deprived communities. Although these activities are specialized, they are These activities have been approved by the Fedstill well within the traditional, primary function of eral Reserve, under its Regulation Y, with certain financial institutions: the allocation of capital in the constraints needed to protect the safety and soundform of debt financing. In performing this function, ness of the holding companies and ensure that institutions must wait for their customers to initiate required public benefits result. This article explores projects and commit equity capital before loans can the concept of community development and exambe made. ines the mechanisms used by bank holding com- The Federal Reserve has recognized that tradipanies to undertake community development investtional bank and holding company activities may be ment activities under Regulation Y. It suggests that insufficient to support the revitalization of some bank holding companies making limited but focused economically distressed communities. Lack of use of equity investments for community welfare interest by conventional investors has severely purposes can stimulate the economic revitalization limited the capacity of financial institutions to of neighborhoods and communities. originate loans on a safe and sound basis in lowerincome areas. The shortage of equity capital is often the critical factor in the continued economic stagna- BACKGROUND tion or decline of certain urban neighborhoods and rural areas. Through their traditional, conventional functions, Beginning in the 1960s, local nonprofit groups financial institutions have always played a role in the created a new type of institution, the community economic growth of the communities they serve. development corporation, or CDC, to generate Conventional mortgages, home improvement loans, investment in economically weak neighborhoods. and financing for businesses and public facilities all The CDCs had a dual character as community-based create development opportunities for others and in organizations dedicated to the advancement of local turn help fuel housing development, job creation, economic activity and as corporate entities able to and economic growth in general. invest successfully in housing and other business Over the past two decades, financial institutions ventures. This dual character made the CDCs also have been asked to help address the special especially effective in helping focus government, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

389 private, and local resources on grass-roots solutions community-based organizations undertake key to neighborhood problems. CDCs became important projects as well as provide the capital and expertise catalysts for community revitalization. to support other, more traditional forms of bank financing. REGULATION Y FEDERAL RESERVE POLICIES FOR COMMUNITY In viewing the problems of low-income communities DEVELOPMENT INVESTMENTS and the contribution of the CDCs of the 1960s, the Board of Governors of the Federal Reserve System The Federal Reserve allows bank holding comdetermined that equity investments by bank holding panies some latitude to tailor their investments to companies could be a useful community- meet the disparate needs of disadvantaged commudevelopment tool that could directly benefit low- and nities. However, the Federal Reserve does examine moderate-income persons and areas. The 1970 all community development proposals to determine amendments to the Bank Holding Company Act whether the planned investment meets the "commugave the Board the flexibility it needed to include nity welfare test," whether the size of the investment community development in Regulation Y, which is appropriate to its purpose and prudent for the specifies the nonbanking activities considered proper institution, and whether there is community involveand permissible (subject to individual applications) ment in the project or organization supported by the for bank holding companies. The 1971 change in investment. Regulation Y, now contained in section 225.25 (b)(6), defines the term community development as follows: Community Welfare Test Making equity and debt investments in corpora- The definition of community development in Regtions or projects designed primarily to promote ulation Y refers to "investments . . . designed community welfare, such as the economic rehabil- primarily to promote community welfare." Board itation and development of low-income areas by decisions have generally held that an investment that providing housing, services or jobs for residents. directly and primarily benefits economically disadvantaged persons and communities meets the com- In the remainder of this article, the use of the term munity welfare test. Usually, such benefits are in the equity investment will be used to refer to equity form of new or rehabilitated housing, jobs created investments for community development in the sense through a variety of commercial and industrial just defined. developments, or health and educational services, The Federal Reserve Board views equity invest- all targeted on low- and moderate-income persons ments in CDCs or other qualifying ventures as and areas. important, flexible tools that bank holding com- The Board has made clear, however, that investpanies can use to stimulate and supplement (but not ments to build or rehabilitate upper-income housing replace) their nonequity programs to finance com- or to develop any facilities not explicitly designed to munity development.1 Through such investments, create improved job opportunities for lower-income bank holding companies can play a direct role in persons are presumed not to benefit the public public-private partnerships for community revital- welfare under Regulation Y even if they may entail ization and job creation. And by leveraging other some such benefit. For example, investments to public and private funds, these investments can help develop upscale housing in an economically distressed community might indirectly benefit some low- and moderate-income persons through resulting 1. Bank holding companies may prefer to initiate and manage construction jobs or through an increased tax-base equity investments for community development through one or that could help finance enhanced local services to more bank subsidiaries rather than through the holding company low-income groups. But without strong evidence to itself. In such cases, each bank should seek authorization for such investments from its primary supervisory agency. the contrary, such benefits would be insufficient to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

390 Federal Reserve Bulletin • June 1991 merit Federal Reserve approval of a community Capital Investment development activity under the community welfare standard of Regulation Y. The size of community development investments by Nevertheless, recognizing that the size, popula- a bank holding company will vary substantially tion mix, community needs, and economic condition according to the community needs to be addressed of communities vary, the Federal Reserve has and the holding company's objectives, financial demonstrated flexibility in applying the standards of capacity, and geographic scope of operations. Many Regulation Y to holding company applications for bank holding companies have chosen to capitalize community development activities. In particular, it CDC subsidiaries with small initial investments, has given holding companies some latitude regarding adding needed capital as projects reach the developprofit goals and geographic scope when planning ment stage. In other cases, such as investments in their community development investments. limited partnerships that develop or own lowerincome housing, the partnership agreements often Profits and Dividends. A bank holding company have required phased payments of capital by bank may invest in CDCs, projects, and other business holding companies and other investors over a period ventures meeting the community welfare test on of years. either a for-profit or nonprofit basis. The Federal In light of the diversity of community development Reserve sets no explicit limits on the amount or rate activities, the Federal Reserve takes a flexible of profit that may be generated, although significant approach in its evaluation of equity commitments. profits are generally not to be expected. Moreover, Although the Board sets no minimum or maximum profits or dividends from a CDC or venture may be levels for capital investment by holding companies, provided to the holding company at any time. This it does expect that the financial commitment will be flexibility is often necessary to attract capital from appropriate to the nature and scope of anticipated other nonbank investors. investment activities and prudent with respect to the The majority of holding company CDCs and other size, financial condition, and capitalization of the equity investments have been for-profit ventures. holding company. Although the capacity to obtain immediate returns The extent to which public sector funds are on investments may be important in principle to available for community revitalization will have a holding companies and participating nonbank inves- bearing on the magnitude of a financial institution's tors, in practice most holding companies choose to equity investment. Where public funds are present, reinvest profits in the CDC or in additional projects financial institutions can focus on providing supplethat benefit the community welfare. mentary equity capital to fill financial gaps in projects. If public sector funding is inconsistent or Geographic Scope. The Federal Reserve does not uncertain, bank holding company CDCs may have limit the geographic scope of community develop- to invest additional equity capital and significantly ment investments. Thus, bank holding companies greater planning and managerial resources in can and do make their investments in the market projects. They also may have to rely more on areas served by their subsidiary banks, whether additional private sector sources of subsidized those areas are in one community or several states. capital, such as foundation grants, corporate and Some holding companies, anticipating expansion individual donations, and voluntary "sweat equity" across state lines, obtain approval for a nationwide contributions. scope of community development investments so that they can assist newly acquired subsidiaries wherever they may be located. So long as the Community Involvement activities in new locations meet the community welfare test and are consistent with the approval Community development is a process that, almost received, this approach allows a holding company by definition, involves the participation of a variety or its CDC to make community development of public and private organizations. Efforts to investments in new areas served by subsidiary banks revitalize economically disadvantaged areas and without having to seek additional approvals. meet the housing and employment needs of low- and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Holding Company Investments for Community Development 391 moderate-income persons can rarely occur or be long-term basis, might find it advantageous for truly successful without effective community in- several reasons to create a wholly owned CDC volvement in the planning and financing processes. subsidiary. The Federal Reserve does not require or specify First, the revitalization of declining communities any particular approach to ensuring public involve- almost always requires a long-term commitment of ment in the community development investments of resources on several fronts. In that context, a bank bank holding companies. Nonetheless, bank holding holding company that creates a subsidiary CDC companies contemplating community development makes an institutional commitment that enables both investments are encouraged to seek and consider the the company and its affiliate banks to take extended views of the affected parties—neighborhood devel- action on many different types of community opment organizations, community advocacy groups, development projects with the maximum flexibility. local government officials and agencies, small The subsidiary CDC may develop its own projects, businesses, merchant associations, and other busi- form or invest in joint ventures and limited partnerness organizations, depending on the nature and ships, invest in small businesses, or provide gap location of a project. Such consultations help equity and financing for single-purpose community investors identify worthwhile projects; establish development projects developed by others. Morecooperative working relationships with public over, holding company CDCs may specialize solely agencies, development groups, and potential inves- in housing or small business investment, or they tors; and facilitate the marketing of completed may invest in a wider range of community developprojects to those most in need. Many holding com- ment projects. pany CDCs have community representatives on Second, community development finance in gentheir boards of directors. Others have established eral and equity investment in particular are unique community advisory committees in each community activities requiring knowledge that may not be where projects are considered, or they use outreach present in traditional banking organizations. A submechanisms already established by their subsidiary sidiary CDC, like a specialized bank lending unit, banks. can be a corporate focal point that enables the holding company to centralize community development expertise. MECHANISMS FOR COMMUNITY DEVELOPMENT Third, with a CDC, a holding company can INVESTMENTS leverage its capital for investment in disadvantaged communities while limiting its exposure to the Bank holding companies may invest in both nonprofit associated risks. As a corporate entity, a CDC can and for-profit ventures, and they may structure their leverage its capital with loans and reinvest its income investments in a variety of ways. The most comin additional projects without requiring additional monly used structures are subsidiary CDCs, partnerfinancial resources from its parent. The CDC ship in a CDC or investment pool, investments in a corporate structure can help shield the parent limited partnership, and investments in a single institution from exposure to potential liabilities project or business. Each approach has advantages associated with real estate development or business and disadvantages, depending on the holding comventures. pany's size and objectives and the nature of the local Finally, a CDC subsidiary is often useful in community. helping bank affiliates pursue their own community development programs by providing, for example, Subsidiary Community Development technical assistance, advisory services, equity Corporations investments, or debt financing. In this way, the CDC can enhance the performance and image of affiliate Generally, any holding company that regularly banks in their respective communities. receives requests from affiliate banks, government The activities of bank holding company CDCs agencies, and community groups to help finance have been as varied as the needs of their communicommunity development projects, or that wishes to ties. Although most CDCs have focused on lowerengage in community development activities on a income housing or on business development that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

392 Federal Reserve Bulletin • June 1991 creates jobs for lower-income persons, CDC projects state banks (where authorized by state law and also have included, in one case, the creation of a test permitted by their primary regulator), thrift institufarm to support experimentation on crops that would tions, utilities, insurance companies, and other local help diversify a local rural farm economy and, in corporations, businesses, and individuals. Where another instance, rehabilitation of a medical clinic in statutes allow, state and local government redevela small community seeking to attract doctors. In opment agencies and quasi-public development each case, benefits for low- and moderate-income corporations may invest in consortium CDCs. persons were clearly demonstrated. An important advantage to a consortium CDC is CDCs have proved to be useful mechanisms for its ability to tap the expertise and resources of its both small and large holding companies. For investor organizations to help manage CDC operaexample, the CDC of one small bank holding com- tions. Executives with a variety of skills and pany makes debt and equity investments through professional backgrounds can serve on the CDC limited partnerships in low-income housing projects, board and investment and loan review committees primarily in smaller communities. The CDC also or help manage the CDCs day-to-day operations. has served as a general partner in a limited partner- And, if necessary, a consortium CDC can raise the ship to develop 166 units of low- and moderate- funds needed to hire full-time management and staff income housing. Another small holding company with expertise in community development finance formed a CDC to promote industrial development without undue burden on any one investor. and job creation for lower-income residents in a For some holding companies, consortium CDCs small rural county. may present drawbacks. First, the CDCs investment The CDC of a larger, regional bank holding decisions may not always match the holding compacompany has made development investments in ny's priorities or preferences. Second, the consorseveral states. With a capitalization of almost tium approach may limit the ability of a multibank $10 million, the CDC has provided equity and debt holding company to assist its affiliate banks, often financing for housing rehabilitation and new con- located in different communities and states. For struction of rental housing projects for low- and example, if a consortium CDCs projects are not moderate-income families. In addition, this CDC is located in the community delineated for purposes of an investor in a statewide equity fund that provides evaluating a bank's CRA performance, the CDC capital for the acquisition and renovation of housing projects may not be counted in that bank's CRA for low- and moderate-income areas. evaluation. For that reason, some holding companies may wish to help capitalize consortium CDCs in the communities of their affiliate banks. Consortium CDCs and Equity Pools Third, investment returns must be shared with other investors, as must public recognition for the Using another major approach to community devel- support given to the CDCs revitalization activities. opment, a bank holding company may join with And finally, depending on how it is structured, the several other financial institutions or with nonbank consortium may prevent a holding company from investors to create a CDC or an equity pool. Such receiving any of the tax advantages flowing to the ventures, commonly called consortium CDCs, allow CDC from its project investments. institutions to share community development resources as well as risks and are especially well suited Profit Considerations of the CDC Form for a holding company that lacks the capital or expertise to address multiple community needs or Bank holding companies should carefully consider larger, more complex projects on its own. their option to invest in CDCs and consortium CDCs Most consortium CDCs have been organized to on a for-profit or nonprofit basis. Each approach has provide housing for low- and moderate-income advantages and disadvantages. persons or to address the needs of small and minority businesses. Their geographic scope has ranged from the neighborhood to the nation. Other investors in The Nonprofit Form. An advantage of nonprofit consortium CDCs have included national banks, organizations is their eligibility to receive grant Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Holding Company Investments for Community Development 393 money directly from many foundations and govern- CDC or investment may not be viewed by the ment agencies. In the case of rental or for-sale community as providing the maximum benefits to housing, such grants help reduce the cost of debt low- and moderate-income persons. service, thereby allowing rents or sale prices to be Most bank holding companies choose the forset at levels affordable to low-income persons. Also, profit form for their CDC investments, finding that because a nonprofit community development ven- many of the advantages of nonprofit operations can ture must reinvest its earnings in other devel- be obtained through partnerships with existing opment projects, its nonprofit status emphasizes nonprofit community organizations. community benefit, not direct financial gain, as its primary purpose. By conveying this message, a financial institution's community development ac- Limited Partnerships tivity may achieve increased community support and credibility. The advent of a federal tax credit for business A drawback is that community-based nonprofit investment in low-income housing has made this groups could perceive a nonprofit CDC that is type of investment more attractive to businesses and controlled by a financial institution as an advantaged corporations. As a result, a growing number of competitor for scarce, hard-to-obtain government limited partnerships invest exclusively in qualified and foundation grants. A nonprofit CDC also may low-income housing projects. The limited partnerhave difficulty attracting funds from those who ships are formed by a general partner—usually a would prefer to earn a return on their investment. private developer, nonprofit organization, or gov- This problem is especially significant in the case of ernment-sponsored housing finance corporation— consortium CDCs or partnerships, which may need which in turn sells shares to the limited partners. to attract significant capital from a variety of Limited partners are essentially passive investors corporate and individual investors so that they may and risk losing their limited liability status if they undertake larger revitalization projects. participate in managing or directing the partnership's investment activity. Consequently, the financial The For-Profit Form. The for-profit approach strength, experience, and character of the general or often is more acceptable to the management and managing partner is of utmost importance and must boards of directors of would-be investors because it be assessed carefully by any holding company places community development in a business context considering the purchase of shares as a limited that conveys seriousness of purpose and organiza- partner. For this reason and because limited partnertional discipline. In addition, the potential for ship arrangements often involve complex legal and investment returns (including in some cases, tax accounting issues, investors often must incur signifbenefits) attracts investments from others in a icant costs for "due diligence" investigations before community who share an interest in community making any investment decision. revitalization. Successful for-profit CDCs and Generally, limited partnerships for low-income ventures help demonstrate to other developers and housing come in two varieties: operating limited businesses that community development work can partnerships and master limited partnerships. Both be profitable and rewarding. types can provide direct investment returns and tax For some bank holding companies, the for-profit benefits to the limited partners while limiting their approach may have some disadvantages. Commu- exposure to many of the liabilities associated with nity and neighborhood groups may perceive a for- direct real estate development. profit CDC as more risk-averse and less willing to For example, one bank holding company has pursue difficult projects in low-income areas even committed equity investments of almost $5 million though these may be most needed. Also, some to limited partnerships that developed 12 housing community organizations may prefer to see potential projects with a total of more than 500 housing units net earnings from any community development for lower-income families and the elderly. One was project used to reduce project costs, rents, or sale a master limited partnership that developed 340 prices rather than passed back as profits to the housing units in 8 projects located in smaller, rural financial institution sponsors. Thus, a for-profit communities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

394 Federal Reserve Bulletin • June 1991 Operating Partnerships. Operating partnerships accommodate an expansion of the institution's usually are created for a particular housing project, territory. although some partnerships invest in several. The equity investments generated by an operating Management Considerations partnership reduce significantly the amount of debt needed to finance the project. Hence, the debt The complexities of the community development service that the rents must support is also lower, process demand that investment organizations allowing for reduced rents that are affordable even to exercise careful management and oversight. The families with very low incomes. level of commitment of management resources may A bank holding company may be the sole limited vary considerably, however, depending on the type partner or be one of many. The partnership owns the of investments. For example, CDCs that focus on housing project, and the limited partners benefit venture capital investments in small and minority from any net income and tax credits generated by the business will require a relatively large commitment project in proportion to their ownership interest. of staff to monitor the progress of the businesses assisted. Master Limited Partnerships. Master limited The level of management resources committed partnerships are formed to purchase shares in may also vary according to the investment mechaoperating limited partnerships, particularly for low- nism being used. For example, a subsidiary CDC income housing. They are usually created by national involved in several projects and regularly adding or statewide groups such as housing finance agencies more may require a full-time chief executive officer and nonprofit or quasi-public corporations, but some and other staff members to conduct community are based locally. Equity funds or equity pools for outreach, review project proposals, manage the low-income housing are often organized as master investment approval process, and monitor investlimited partnerships; others may employ the corpo- ments once made. On the other hand, a CDC that rate form and operate as consortium CDCs. makes only occasional project investments as needs or opportunities arise can be managed effectively by its board of directors with part-time support from the staff of the holding company or affiliate bank. Most Direct Investments CDCs also form an investment committee of bank or Instead of forming or joining a CDC or investing in holding company officers and other real estate limited partnerships, a bank holding company may development experts. invest directly in community development projects. Limited partnership investments require far less For example, it may provide additional equity for a management than a CDC. Indeed, as limited partneighborhood housing project or commercial rede- ners, holding companies that engage in activities velopment venture, making it possible for the that might constitute "management" of the partnersponsor to qualify for debt financing and move ship risk exposure to potential liabilities as a general forward. Bank holding companies using the direct partner. Nonetheless, limited partnership investinvestment approach usually have preferred to enter ments may be extremely labor intensive during the into a joint venture with a local developer or period when the holding company is considering nonprofit development corporation that initiates and purchase of partnership shares and reviewing manages the project. partnership documents. Having invested, holding A direct project investment may be useful in companies will need to review the project and the helping the holding company respond to a specific activities of the general partner to ensure that their and immediate community need—the investment interests are protected and that any tax benefits can be made without incurring the delays and costs promised the limited partners are in fact provided. associated with incorporation of a CDC or formation of a limited partnership. On the other hand, a THE BENEFITS TO FINANCIAL INSTITUTIONS single-purpose investment may spark requests for participation in many other projects located through- When making equity investments, financial instituout the institution's trade area. And a CDC could tions have usually focused on housing and on the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Holding Company Investments for Community Development 395 commercial revitalization of neighborhoods, both who view community support as an important factor for the benefit of low- and moderate-income fami- when they select a financial institution. lies, and on the development of small and minority businesses in distressed areas. Such investments can benefit the institutions in a variety of ways, including Investment Return a return on the investment, the development of new market opportunities, a gain in leadership stature When properly conceived and structured, equity and competitive advantage in the community, the investments in projects designed to benefit lowerprotection or enhancement of the value of the income persons and areas may yield direct capital institutions' assets that already exist in the commu- gains or after-tax profits. Although the profitability nity, and support of the subsidiary banks' perfor- of community development investments will vary mance under the Community Reinvestment Act. with the type of project, the capacity to earn a return could make holding-company participation as an equity investor in community-welfare projects more Development of New Market Opportunities attractive than charitable contributions and grants for essentially the same purposes. In both new and existing markets, active participation in community development helps an institution create new business opportunities. Equity invest- Enhancing CRA Performance ments can help generate additional deposits and increased demand for bank loans or other services in A bank holding company's equity investments for markets previously perceived as weak. Construction community development do not relieve its affiliate or rehabilitation of low- and moderate-income banks from their responsibilities under the Commuhousing, for example, can reestablish neighborhoods nity Reinvestment Act (CRA). But a holding and help create local demand for shopping and other company's strategic use of such investments can business services. Similarly, projects for commer- help strengthen its banks' CRA performance. For cial revitalization or industrial redevelopment that example, the investments, made directly by the provide jobs for unemployed and underemployed holding company or through its CDC, may help persons can lead directly to new or expanded banking community projects qualify for development loans relationships. from the holding company's subsidiary banks. Or a holding company's CDC may provide technical assistance that will help subsidiary banks identify Community Leadership and Competitive appropriate projects and package safe and sound Advantage community development loans. Rather than wait for other private investors to commit capital, a holding company itself can make CONCLUSION the commitment, an action that can increase community confidence and help attract the interest of other Community development investments may not be private investors. In thus becoming a catalyst for suitable for every bank holding company. The option additional investment, the institution also becomes a has, however, generated interest among banks and leader in the overall revitalization process. holding companies seeking new ways to support the In a financial services marketplace that is highly revitalization of distressed communities. competitive, such leadership demonstrates an insti- The extent to which a bank holding company is tution's commitment to the economic well-being of willing to approach community development through its community and local markets and helps the equity investments depends on many corporate and institution distinguish itself from its bank and community factors, each of which may vary over nonbank competitors. Such leadership also helps time. The nature and required extent of the investcement business relationships with decisionmakers ment activity and the availability of holding comin government and business and with consumers pany capital and other resources for community Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

396 Federal Reserve Bulletin • June 1991 development purposes are some key considerations. The holding companies that have made commu- Also important is the extent to which a holding nity development investments, whether through company and its subsidiary banks have effective, CDCs, limited partnerships or other ventures, have ongoing community relationships; these relation- found them to be valuable supplements to those ships can aid the institution in identifying projects products and services that are more traditionally that both need equity capital and meet the needs of employed to help meet community reinvestment lower-income persons and areas. needs. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

397 Staff Studies The staff members of the Board of Governors of those of the author and do not necessarily indithe Federal Reserve System and of the Federal cate concurrence by the Board of Governors, by Reserve Banks undertake studies that cover a the Federal Reserve Banks, or by members of wide range of economic and financial subjects. their staffs. From time to time the studies that are of Single copies of the full text of each study are general interest are published in the Staff Stud- available without charge. The titles available are ies series and summarized in the FEDERAL shown under "Staff Studies" in the list of Fed- RESERVE BULLETIN. eral Reserve Board publications at the back of The analyses and conclusions set forth are each BULLETIN. STUDY SUMMARY A REVIEW OF CORPORATE RESTRUCTURING ACTIVITY, 1980-90 Margaret Hastings Pickering—Staff, Board of Governors Prepared as a staff study in early 1991 After running at an extraordinary pace in 1988 and vastly exceeded that of any year prior to 1984, 1989, corporate restructuring activity and the as- when the current merger wave began. sociated retirement of equity fell sharply in 1990. This study has two purposes. One is to discuss The remarkable strength in the final two years of these recent developments more fully by placing the 1980s occurred despite measures, taken at the them in the context of the merger activity that federal and state levels, to discourage takeover occurred in the 1980s. The second is to present activity. Reflecting restructuring activity, net re- aggregate estimates of merger and acquisition tirements of equity by nonfinancial corporations activity that form the basis of net equity retiresurged to a record $130 billion in 1988 and receded ments published in the Federal Reserve flow of only slightly in 1989 to $124 billion. funds accounts. Throughout the study, the focus Presaged by the collapse of the proposed is on the nonfinancial corporate sector. Moreunion-led leveraged buyout of United Air Lines over, the estimates of merger activity deal only and the financial hemorrhaging of the Campeau with transactions by the nonfinancial corporate retailers, the 1990 retreat of corporate restructur- sector that result in the retirement of equity. An ing activity occurred as financing costs rose appendix contains a detailed description of these sharply and prices for asset sales weakened. estimates and of some other measures of merger Nonetheless, the volume of mergers and acqui- and acquisition activity; it also includes informasitions was substantial, as reflected in the tion on the largest individual transactions that $63 billion total of net equity retirements, which have occurred in recent years. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

398 Industrial Production and Capacity Utilization Released for publication on April 16 of motor vehicles rose about 2Vi percent as a further decline in autos only partially offset a Industrial production decreased 0.3 percent in sharp rise in trucks. Total industrial capacity March after declines of 0.9 and 0.5 percent utilization dropped 0.4 percentage point in March respectively in February and January. The de- to 78.7 percent, its lowest level since September cline in output in March mainly reflected contin- 1986, when the rate was 78.6 percent. ued weakness in business equipment, construc- For the first quarter as a whole, industrial tion supplies, and durable materials; production production declined at an annual rate of about Industrial production indexes Twelve-month percent change Twelve-month percent change Capacity and industrial production Ratio scale, 1987 production = 100 Ratio scale, 1987 production = 100 Total industry _ — 90 Utilization \ - 80 70 1 1 1 1 1 1 1 1 1 1 1 1 1979 1981 1983 1985 1987 1989 1991 All series are seasonally adjusted. Latest series, March. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

399 1987 = 100 Percentage change from preceding month Perchange, Industrial production 1990 1991 1990 1991 Mar. 1990 to Dec/ Jan.r Feb.p Mar.P Dec/ Jan/ Feb/ Mar.p Mar. 1991 Total index 107.2 106.6 105.7 105.3 -1.0 -.5 -.9 -.3 -3.3 Previous estimates 107.2 106.6 105.7 -1.1 -.5 -.8 Major market groups Products, total 108.4 107.8 106.8 106.6 -.8 -.5 -.9 --..22 --33..22 Consumer goods 105.7 105.5 104.5 104.9 -.8 -.2 -.9 .4 -2.4 Business equipment 121.2 121.8 121.1 120.5 -1.4 .6 -.6 -.5 -1.4 Construction supplies 101.0 97.6 96.3 94.8 -.8 -3.3 -1.3 -1.6 -11.7 Materials 105.3 104.7 103.9 103.4 -1.4 -.6 -.8 -0.4 -3.5 Major industry groups Manufacturing 107.5 107.0 106.0 105.5 -1.4 -.5 -.9 -.5 --44..00 Durable 107.5 107.0 106.2 105.5 -2.1 -.5 -.8 -.6 -5.7 Nondurable 107.4 106.9 105.7 105.5 -.4 -.5 -1.1 -.2 -1.6 Mining 103.4 101.9 103.8 102.9 .1 -1.4 1.8 -.8 1.8 Utilities 108.8 107.8 104.2 105.7 1.7 -.9 -3.3 1.4 -.5 Percent of capacity Capacity growth, CCaappaacciittyy uuttiilliizzaattiioonn 1990 1990 1991 Mar. 1990 Average, Low, High, to 1967-90 1982 1988-89 MMaarr.. 11999911 Mar. Dec/ Jan/ Feb/ Mar.P Total industry 82.2 71.8 85.0 83.4 80.6 80.0 79.1 78.7 2.5 Manufacturing 81.5 70.0 85.1 83.0 79.4 78.9 77.9 77.4 2.9 Advanced processing 81.1 71.4 83.6 82.0 78.5 78.2 77.5 77.0 3.2 Primary processing 82.4 66.8 89.0 85.3 81.5 80.4 78.9 78.4 2.2 Mining 87.4 80.6 87.2 87.6 90.8 89.7 91.4 90.6 -1.6 Utilities 86.8 76.2 92.3 84.1 85.1 84.2 81.4 82.4 1.6 r Revised. NOTE. Indexes are seasonally adjusted, p Preliminary. 9V4 percent, after having fallen 7 percent in the information processing equipment, which inprevious quarter. At 105.3 percent of its 1987 cludes computers, turned up during the first annual average, total industrial production in quarter after having weakened late last year. March was 3.3 percent below its year-ago level. Among materials, the output of durables de- In market groups, excluding motor vehicles, clined again as production of parts for consumer the production of consumer goods rose slightly in durable goods and equipment were curtailed fur- March after having declined in each of the four ther. The output of nondurable materials, such as preceding months. Among the major compo- textiles, paper, and chemicals, was little changed nents, the output of food and consumer energy last month following a sharp drop in February. products, particularly electricity for residential The production of energy materials decreased use, posted gains in March after having declined again, owing, in part, to a decline in coal. for several months; however, the output of cloth- In industry groups, manufacturing output fell ing and goods for the home, such as appliances, 0.5 percent in March, reducing the factory utilicarpeting, and furniture, remained depressed. zation rate to 77.4 percent, its lowest rate since The production of business equipment excluding August 1983. Operating rates were down 0.5 autos and trucks decreased again last month and percentage point for both primary and advanced has fallen about 2Vi percent since its peak in processing industries. In the six months since September of last year. Over this period, the last September, the utilization rate for primary output of industrial equipment has dropped processing industries has fallen 6.7 percentage sharply; in contrast, the production of commer- points, while the rate for advanced processing cial aircraft has increased, and the output of industries has fallen 4.8 percentage points. Out- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

400 Federal Reserve Bulletin • June 1991 side manufacturing, the operating rate at utilities its level a year earlier. Similarly, utilization in rose sharply in March, but the rate for mining lumber, another construction-related industry, is fell. off 13 percentage points from a year earlier. On The largest declines in utilization for primary the positive side, utilization rates in petroleum processing industries in March were in stone, and primary metals advanced for a second clay, and glass products, and in fabricated metals. month. Among the advanced processing indus- Production of stone, clay, and glass products has tries, utilization in motor vehicles and parts fallen dramatically during the past year; its oper- increased slightly in March, but the operating ating rate in March is 10 percentage points below rates for most other industries declined. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

401 Statements to the Congress Statement by Ellen Maland, Assistant Director, reduced the credit limit on accounts that, in its Division of Consumer and Community Affairs, view, posed a risk of loss. It is my understanding Board of Governors of the Federal Reserve Sys- that the bank sent a notice to each cardholder tem, before the Subcommittee on General Over- before terminating the consumer's account or sight and Investigations of the Committee on reducing the credit line. Banking, Finance and Urban Affairs, U.S. You have inquired whether other financial House of Representatives, presented in Boston, institutions have engaged in a regional evaluation Massachusetts, April 8, 1991. of credit cardholders in this manner. The Board does not collect data that would provide this Thank you for this opportunity to address issues information. A review of consumer complaints about the extent and manner in which financial about our state member banks for 1989 and 1990 institutions evaluate the creditworthiness of con- did not reveal that consumers have raised this sumer credit cardholders. I am pleased to be issue, although they are probably unlikely to here, in my capacity as Assistant Director of the know if an institution has engaged in a regional Division of Consumer and Community Affairs, to evaluation of its cardholders. Based on informal provide background information on this issue inquiries, we do not believe it is common for and to discuss how laws administered by the institutions to undertake any early or special Federal Reserve Board relate to this practice. review of existing credit card customers based on The division's responsibilities include writing the state of residence or the region of the country regulations for several consumer credit statutes, in which the cardholder resides. Even assuming including the Equal Credit Opportunity Act and that this practice has not been common, howthe Truth in Lending Act. In addition, the divi- ever, it may well be changing, as regional variasion oversees consumer compliance examina- tions in economic health have become more tions of state member banks conducted by Fed- pronounced and as sophisticated credit evaluaeral Reserve examiners. tion systems have become more common. In- I would like to provide a brief review of the deed, based on our inquiries, it is clear that practice that has prompted you to hold this institutions do take different approaches in evalhearing. During the early months of 1990, a large uating applicants for credit cards depending on issuer of bank credit cards noticed a significant the region of the country in which the applicants increase in bankruptcy filings among its credit reside. cardholders in several Northeastern and mid- Atlantic states. In August 1990, before the time it would have conducted a standard review of the RISK EVALUATION accounts, the bank analyzed the financial circumstances of its credit card customers residing in a Some institutions have adopted aggressive marnine-state area to determine whether they posed keting campaigns to offer their credit products to a high level of risk. Consumers who had been a wide array of potential customers. Over the delinquent in making payments to the bank over past several years there has been a tremendous the previous fourteen months, or who were over increase in the availability of credit cards. Since their credit limit when the review was under- 1985 the number of credit cards issued by banks taken, were evaluated by the use of scoring has risen from 161 million to more than 218 models. As permitted by the credit agreement million. (This number is in addition to the apwith the consumer, the bank then closed or proximately 28 million travel and entertainment Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

402 Federal Reserve Bulletin • June 1991 cards in circulation in 1990.) Similarly, new com- continue to receive credit and further ensures petitors have expanded credit opportunities for that the credit card accounts of the institution consumers. For example, a new national credit remain a source of revenue and strength for the card was introduced in 1985 and has since grown institution. In addition, reviewing an account can to more than 21 million accounts. sometimes provide benefits to the consumer. A In soliciting potential new customers, in eval- creditor may increase the credit limit available to uating applicants for credit, and in reviewing the consumer upon a favorable examination of existing accounts, financial institutions establish the account. Similarly, additional credit or other a level of acceptable risk for the credit they offer. financial products may be offered to consumers The standards of creditworthiness used by an who receive favorable evaluations. institution to determine who will be offered credit is one element of risk. Financial institutions seek to maintain a balance between offering credit CREDIT CARD REVIEW POLICIES widely and limiting the risks that may accompany an extension of credit. Where that balance is Besides monitoring accounts on an ongoing basis struck varies among institutions and is subject to to ensure that timely payments are made, instichange as their experience varies over time. tutions typically review their credit card ac- Some institutions have more flexible credit stancounts when the card is scheduled for renewal. dards than others and grant credit to individuals Whether at the scheduled renewal or at an earlier who might not qualify for credit from other date, a card issuer may use a scoring model to institutions. The credit standards of such institudetermine if the consumer's financial circumtions may entail a higher degree of risk. This stances have changed since the last review. approach may produce a greater number of con- A review of an institution's credit portfolio in sumers with accounts at that institution but also response to an increase in credit problems is an may produce, in the aggregate, more consumers appropriate practice to ensure repayment of who have problems making timely payments or debt. Of course, institutions conducting such a more accounts that are charged off if consumers review should seek to ensure that creditworthy fail to repay their debts. borrowers in any region served by the institution Institutions also try to ensure that the level of continue to have access to credit, consistent with risk for their current credit card accounts—as prudent lending practices. It appears that, in the with other types of credit—remains acceptable present case, the institution did not shut off and that charged-off accounts do not increase to credit to sound borrowers. Indeed, no adverse too high a level. Too many charge-offs may lead action was taken on more than 99 percent of the an institution to try to recoup losses through the accounts initially reviewed. imposition of higher interest rates or fees, a reduction of benefits or enhancements, or a tightening of credit availability standards. Competitive concerns, however, may limit the ability of CREDIT SCORING an institution to increase fees or interest rates or reduce existing benefits. Thus, an institution may Credit-scoring systems have been used by instiseek to control risk and losses associated with its tutions for many years to evaluate whether to credit card accounts by evaluating the financial extend credit. (A credit-scoring system uses a circumstances of its current account holders. statistical methodology to assign values to cer- Such a practice may work to limit credit card tain characteristics of applicants that have been charge-offs by identifying potential problems be- shown to predict whether they will repay the fore consumers are in serious default on their credit extended to them. The characteristics accounts. This type of evaluation, within the scored do not cause repayment or nonpayment; boundaries of federal (and state) law, is a prudent they are simply predictive.) In 1989, more than banking practice. Through such a review the 50 percent of commercial banks with $1 billion or institution ensures that creditworthy consumers more in assets used some type of credit-scoring Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 403 system in examining applications for bank credit solely from a creditor's own account files, while cards. other models use data contained in credit re- It is important to recognize that credit-scoring ports. Models can be designed to predict whether models both for applicants and for existing cus- a delinquent account will likely become more tomers usually are developed for particular cred- delinquent or whether the account will return to itors, and for particular regions, because a factor a satisfactory performance level. While our inthat is predictive in one area may not be predic- quiries indicate that, in evaluating existing credit tive in another. Typically, a sample of accounts card accounts, institutions generally have not from the creditor's own records is used to eval- utilized these models on a regional basis, because uate account behavior. A scoring model will of the increased availability of these systems analyze accounts of consumers who have paid in regional examination may become more comaccordance with the terms of the account and mon. Indeed, institutions have a financial reason those who have been delinquent. To forecast to do so. Obviously, if an institution is experifuture payment performance, many factors will encing a higher degree of problems in a certain be examined, including both factors related to region, it is more cost effective to conduct a the account (such as past delinquencies, the review only of the accounts in that region rather relation of the account balance to the credit limit, than of all its accounts. and the age of the account) and attributes of the borrower (such as occupation and employment history). Credit-scoring models may incorporate different factors in different regions of the coun- CREDIT CARD PROBLEMS try since factors can vary in their predictive value. For example, a factor such as whether you There appear to be compelling reasons for instiown or rent your dwelling will have different tutions to give greater scrutiny to their credit predictive value depending on the region in card accounts. Data show that nonbusiness which you reside. In an area where homeowner- bankruptcy filings have increased over the last ship is very common, it may not be as effective a several years. For example, in 1984, more than predictor as it is in other areas where homeown- 284,000 nonbusiness bankruptcies were filed. By ership is less common. In addition, card issuers 1989, the number had more than doubled to more may require consumers to meet higher or lower than 616,000. And, in 1990, more than 718,000 cutoff scores in different regions in accordance nonbusiness bankruptcies were filed, an increase with the level of risk they find acceptable. Simi- of 16 percent over 1989. Some states have expelarly, a card issuer may change the cutoff score it rienced even more dramatic increases, particuhas established for granting or continuing credit larly between 1989 and 1990. For example, in the if it determines that higher-than-acceptable nine-state area reviewed by the bank in the losses are resulting from its prior level. present case, nonbusiness bankruptcy filings in- Financial institutions may increasingly turn to creased 69 percent between 1989 and 1990. credit-scoring systems to evaluate the risks not Moreover, nationwide evidence suggests that only of potential but also of existing customers. credit card losses are increasingly due to bank- There are two factors that explain why an insti- ruptcies. For example, Visa reports that in 1988, tution may be more inclined to engage in an early bankruptcies accounted for 32 percent of total review of credit card accounts using such tech- bank card losses; in 1989 41 percent of losses niques (rather than waiting for the normal review were due to bankruptcies. In addition, some data time): The analytical tools are more available and suggest that older, established accounts are not the need for closer scrutiny has increased. So- immune to bankruptcy. For example, in 1988, 22 called "bankruptcy scoring" and "behavioral percent of the accounts included in nonbusiness scoring" models have become more readily bankruptcy filings were at least five years old. available to institutions in the past few years to This figure rose to 32 percent for the same class predict potential problem accounts. Some mod- of accounts for nonbusiness bankruptcies filed in els are designed by using information drawn 1989. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

404 Federal Reserve Bulletin • June 1991 Industry trade data also show that credit card ing—on a nonprohibited basis—a population of delinquency rates have climbed over the past consumers who reside in a certain region of the several years, even as outstanding debt has in- country does not raise the same issues of equal creased. For bank credit cards, in 1984, 3.3 treatment as those that led the Congress to enact percent of outstanding debt ($1.77 billion) was the ECOA. thirty or more days delinquent. In 1988, the The ECOA provides certain rights for all credit figure had risen to 3.95 percent ($4.48 billion); applicants when credit is denied. Lenders must and by 1989 4.16 percent of outstanding bank notify the applicant or customer within thirty credit card debt was delinquent ($5.55 billion). days of the adverse action. Thus, a refusal to All of these factors acting in concert present a grant credit or a reduction of a credit line will forceful argument for institutions to evaluate require that the lender send a notice to affected their credit card portfolios in a manner that will consumers. The consumer is entitled to the spebest ensure that losses are kept at an acceptable cific reasons for the decision. Neither the ECOA level. nor Regulation B, however, requires a notice if the applicant is currently delinquent or in default when the action is taken. The reason for this EQUAL CREDIT OPPORTUNITY ACT AND exception is that the Congress believed a notice FAIR CREDIT REPORTING ACT was not needed in these cases since it should be evident to the consumer that termination is due, While these review policies are beneficial from for example, to a failure to make timely payan institution's point of view, any of these eval- ments. If the termination is due to past delinuations can obviously create hardship for indi- quency and the consumer is currently up to date, vidual consumers. For better or worse, some however, the law does require notice to be given. consumers may rely on bank credit cards as an If information in a report from a credit bureau important part of their overall financial planning is used as a basis for the creditor's decision, the strategy. Consumers experiencing financial diffi- Fair Credit Reporting Act (FCRA) requires that culties may have their credit lines reduced—or the consumer be told and be given the name and their credit privileges eliminated—-just at the time address of the credit bureau whose report was when they may be inclined to rely more on these used. In such cases, the FCRA provides that the credit accounts than usual because of loss of consumer is entitled to obtain a copy of the credit employment or other adverse circumstances. report without charge, and, if the information The Equal Credit Opportunity Act, which is was incorrect, the consumer has a right to reimplemented by the Board's Regulation B, pro- quest that the matter be investigated and the vides certain protections when an "adverse ac- information corrected. The consumer may then tion" is taken on an account—such as reducing request that the card issuer reconsider its decithe credit limit or terminating a credit card. In sion in light of the corrected information. addition, the Fair Credit Reporting Act applies in certain circumstances to these situations. The Equal Credit Opportunity Act (ECOA) prohibits TRUTH IN LENDING creditors from discriminating against credit applicants or existing customers because of factors The Truth in Lending Act and the Board's imsuch as race, color, religion, gender, or marital plementing Regulation Z require lenders to disstatus. While a creditor may not consider factors close the specific terms of credit card accounts to such as these, conducting a review of an account consumers when the account is opened. In genbecause the consumer resides in a specific region eral, the regulation also requires creditors to of the country does not violate the ECOA. In provide a fifteen-day advance notice if any of enacting the ECOA, the Congress sought to those terms are later changed. The statute itself prohibit creditors from evaluating consumers dif- does not require this notice. The provision, ferently due to immutable characteristics such as which the Board established by regulation, has race, color, or gender. A practice of evaluat- been in effect since 1969. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 405 There are several exceptions to this require- portune time. It is my understanding, however, ment, however, and they encompass the situa- that many institutions—including the bank tions involved here. The change in terms notice whose actions are being reviewed today—proapplies only to items required to be disclosed vide some advance notice of cancellation for when the account is opened. Thus, technically, most account holders. since the credit limit is not a feature required to be disclosed initially, a change in terms notice need not be given if that limit is changed. In CONCLUSION addition, the regulation does not require an advance notice if the consumer is in default, for the In summary, consumers, financial institutions, same reason mentioned with regard to the and the financial system as a whole are best ECOA—it should be evident to consumers that served when institutions are able to monitor and the change is due to the failure to make timely quickly respond to the increased risk of losses for payments on the account. consumer credit card accounts. The Board be- Regulation Z does not require an advance lieves it would be unwise to place restraints on an notice if an account is terminated. If a creditor institution's ability to engage in a regional evaldecides to terminate an account, for example, uation of its credit card portfolio, particularly due to the use of a credit-scoring model that when increased problems and risks are identified predicts that the account is a high-risk one, an in that area. In the case discussed earlier, the advance notice need not be given. This exclusion evidence indicates that the institution generally was prompted by the belief that providing an continued to make credit available to creditwor- "adverse action" notice, as required by Regula- thy borrowers in the region examined, consistent tion B, would provide sufficient protection to the with sound banking practices. consumer. Of course, failure to give consumers I appreciate this opportunity to speak to the an advance notice could result in some consum- subcommittee and would be happy to answer any ers learning of a termination decision at an inop- questions you may have. • Statement by John P. LaWare, Member, Board that limits the ability of U.S. banks to compete of Governors of the Federal Reserve System, effectively on both cost and service grounds. before the Subcommittee on Consumer Affairs But this subcommittee, in particular, should and Coinage of the Committee on Banking, know that the Board's support for the bill is not Finance and Urban Affairs, U.S. House of Rep- keyed solely to any benefits that might accrue to resentatives, April 10, 1991. banks. The objective of public policy is not to enhance the profits of one group of businesses I am pleased to appear before this subcommittee relative to another. The Board generally supports on behalf of the Federal Reserve Board to dis- this bill because it would result in better and cuss the potential impact on consumers of H.R. cheaper services to consumers and other users of 1505, the Treasury's proposed Financial Institu- financial services, while at the same time it tions Safety and Consumer Choice Act of 1991. restricts the further extension of the federal While I will be limiting my comments to issues safety net. most directly related to consumer benefits and risks, the subcommittee should know that a majority of the Board strongly supports the ADDITIONAL CONSUMER SERVICES AND thrust of this bill. We believe that H.R. 1505 PROTECTIONS constructively addresses evolving difficulties with the safety net and offers important and For example, the bill would permit financial constructive measures to strengthen bank super- services holding companies with exceptionally vision and to modify the operating framework well-capitalized bank subsidiaries to provide, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

406 Federal Reserve Bulletin • June 1991 through separately capitalized affiliates, money in plain words that the products were not federally market mutual funds, other securities invest- insured. Consumer confusion about such claims ments, and insurance services. Like H.R. 192, has been a continuing problem, and the bill adthe bill introduced by Congressman Barnard, dresses it directly. H.R. 1505, recognizes that allowing banking organizations to provide a full range of financial services will not only help to improve the condition INTERSTATE BRANCHING of our banks but also improve service to the consumer. The Board believes that consumers The Treasury's proposed bill would repeal the would benefit from the convenience and competi- Douglas Amendment to the Bank Holding Comtion that would result from having a wider range pany Act, to permit banking companies to operof financial services products easily accessible ate subsidiary banks in all states, and would from banking organizations. Banking organiza- amend the McFadden Act, to permit banks to tions would only be successful in marketing new operate branches of their banks in all states. financial products if they were able to offer greater Branching within a state after the first interstate convenience and better rates and prices to the branch is opened would be subject to the same public. state restrictions placed on locally headquartered The administration's proposal would regulate banks. A majority of the Board strongly supports and supervise the expanded activities through the proposal to permit full interstate banking by functional regulation that would provide consum- any vehicle that a banking organization chooses. ers the same protection they enjoy when dealing We are encouraged to see that this proposal with an independent provider of financial ser- already has support within the full committee: vices. For example, consumers buying securities Congressman Wylie's bill, H.R. 15, Congressfrom bank affiliates would be protected by the man Schumer's bill, H.R. 624, and Congressman same regulatory and statutory standards and the Neal's bill, H.R. 1480, all of which would also same regulator—the Securities and Exchange allow interstate branching. Commission (SEC)—as when the securities are Only Hawaii and Montana have not yet passed purchased from independent broker-dealers. Ad- legislation to permit interstate banking in some ditional protections for consumers already exist form, reciprocal, regional, or without limit. Virin laws prohibiting most tie-in sales that require tually all states, however, require the interstate consumers to buy another product to obtain presence to be in the form of separate subsidiary access to bank credit or other essential bank banks of the parent holding company, each with services. Even if there were no statutory con- its own board, management organization, and straints, the large number of competing banks capital. A majority of the Board believes that and other providers of financial products would cost savings could occur in some banking orgaseverely limit the ability of banks successfully to nizations just from the conversion of existing require any tie-ins in most markets. bank subsidiaries to branches of the lead bank. H.R. 1505 would permit the sale on bank prem- Through competition, such cost reduction would ises of mutual fund shares, certain investment be reflected in more and lower-priced consumer securities, and insurance products, with appropri- services. The lower cost of branching across ate disclosures designed to inform the consumer state lines would also induce more banks to that these products are not covered by the federal engage in interstate banking, further enhancing safety net. Such a delivery system would allow competition and consumer choice. maximum synergy between the bank and its affil- Over the years, there has been opposition by iates, providing benefit and convenience to both some consumer and other groups to interstate the buyer and seller. Whether purchased on bank branching. It is important that their concerns be premises or elsewhere, the bill would require that discussed. customers purchasing nondeposit products from The first concern is that interstate branching banks and bank affiliates be alerted to the lack of would result in undue concentration—and ultifederal insurance by signing documents indicating mately higher loan rates and lower deposit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 407 rates—as large out-of-state banks drive smaller cussed, should soften such concerns that out-ofin-state banks out of business. In-state market market entrants will ignore local customers. If a evidence simply does not support that conten- local branch does not meet the demands of the tion. All of the evidence—we know of no studies community, it will not succeed and it will attract reaching the opposite conclusion—is that small a rival. Regardless of who owns a bank or banks generally survive out-of-market bank en- branch—local or out-of-market capital—market try by large banks and are subsequently more realities drive the bank to seek local loans both to profitable than the entrant. Similar evidence in- attract and maintain deposits and to earn a profit. dicates that, whether de novo or by acquisition, Finally, large banks have higher loan-to-denew large bank entrants to local markets are able posit ratios than small banks, an important factor to expand market share by only modest amounts, for evaluating the benefit of interstate branching. if at all. In the 1970s, for example, when state- This factor could imply that large banks entering wide branching was authorized in New York new markets would make both more in-market State, several large New York City banks sought loans and out-of-market loans. Many assume that an upstate presence by acquiring small banks in most of the loans would, in fact, be made outside these markets. By 1983, the acquired banks had the community. However, as I noted, banks gained on average less than 1 percentage point in must both meet their CRA requirements and market share, with the largest gain less than 3 service their customers to remain competitive in percentage points. The acquired banks or the market. It should also be kept in mind that branches continue to have small market shares, small banks also export funds: They are relaor they have been sold to local banks, as the New tively large lenders to other banks through the York City banks have exited the market. federal funds and correspondent deposit markets Besides their difficulties in winning customers and purchase relatively more Treasury and outaway from existing banks, entrants by acquisi- of-market state and local bonds than large banks. tion often are soon confronted with competition In sum, the evidence suggests that interstate from a de novo bank organized by local citizens, banking will not lead to the displacement of at times led by the former managers of the community banks by large regional or money acquired bank. The potential for entry—both de market rivals, nor will it in the aggregate be a novo and by acquisitions by other banks outside substantial source of additional earnings to outthe market—plus evidence of continued small of-market banks seeking new profits. What interbank success, substantially lessens the potential state banking promises is wider consumer that consumer harm will result from interstate choices at better prices, and, for our banking branching. It is well to remember that in the system, increased competitive efficiency, the decade just passed, while about 5,300 banks were elimination of unnecessary costs associated with absorbed by merger, about 2,700 new banks were the delivery of banking services, and risk reducchartered, and while 6,700 branches were closed, tion through diversification. By the record, most 16,500 new ones were opened. Local banking community banks are already providing services markets in the United States are incredibly dy- to their customers so efficiently that they have namic and sensitive to consumer demand, and little to fear from out-of-market rivals. Those that interstate banking seems likely to make it only are not should worry because interstate banking more so. will—and should—mean their displacement by a Another concern of some is that new entrants more efficient competitor. will vacuum up local deposits and channel them to out-of-market loans or that managers brought into local markets will be insensitive to, or have CRA ISSUES no authority to adjust to, local demands. However, it is important to recall that a bank must If large regional, or even national, branch netfulfill its Community Reinvestment Act (CRA) works develop, the Board and the other regularesponsibilities in all the markets in which it tors will have to assure themselves that their operates. Moreover, the ease of entry, just dis- CRA examination processes continue to work Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

408 Federal Reserve Bulletin • June 1991 within the new structure. Obviously, some ad- would still accompany the expedited review durjustments will be necessary because the present ing the forty-five day prior notice interval. geographic focus of CRA examination reports Even with this shortened period, interested and ratings will have to be adapted to banks with parties will be provided an opportunity to combroader geographical scope. However, it is ment. In an important way, the agencies have worth noting that we already review the perfor- taken a more aggressive role in the CRA examimance of banks with large intrastate branching nation process to encourage members of the systems by examining a sample of branches. We public to submit comments on the bank's CRA believe that this procedure would be appropriate performance to the bank at any time. These for larger systems as well. comments are then reviewed by the examiners as Under the Treasury proposal, nothing in the part of the examination process and reflected in process of bank acquisitions or branching would the CRA rating given to the bank. Thus, files and be different for organizations owning banks ratings, as well as investigations of complaints, whose capital is not significantly above the inter- should now be more up to date and therefore national capital standards. Such entities would more consistent with expedited review. This continue to be subject to the current full applica- current procedure should be particularly helpful tion process for acquisition of banks and the to community groups in having their concerns addition of branches, including review of public investigated. criticism of their CRA performance. And, a There is always a tension between the banks' bank—regardless of its capital—would be subject desires to have the government review their to a full application process, including CRA expansion plans expeditiously and community review, when it opened its initial branch in any interests that CRA performance be weighed in new state. the process. The more rapid review in H.R. 1505 Holding companies whose subsidiary banks is designed to make the maintenance of high meet unusually high capital standards, could capital more attractive, and this goal must be under H.R. 1505, acquire additional banks, after balanced against the greater time pressure put on 1994 in any state, with only a forty-five-day prior potential protestants. We believe that public disnotice under a scaled back or expedited review closure of CRA ratings and public comments process. These high-capital banks could also received on a continuing basis will tend to offset, branch within any state, subsequent to opening in part, this timing adjustment for community their first branch in that state, without any prior groups. notice, although, of course, they would be subject to state regulations on branching. Some community groups may be concerned that these DEPOSIT INSURANCE REFORM expedited procedures would not permit them to raise CRA protests at all for some branches and There is concern about the administration's prothat there would be inadequate time for them to posals (1) to limit deposit insurance to $100,000 do so for some bank acquisitions. We believe, per person per institution (plus another $100,000 however, that procedures now in use and the bill per person per institution for retirement funds), itself should soften these concerns. and (2) to study the feasibility of limiting insur- For example, a bank with unusually high cap- ance to one $100,000 coverage per person across ital must still have at least a satisfactory CRA all institutions. The Board too has some doubts rating to open an in-state branch without notice about the administrative cost, potential intrusiveor review. For the acquisition of banks by hold- ness, and feasibility of the latter proposal but ing companies with well-capitalized bank subsid- prefers to await the results of the proposed study iaries, the benefits of the acquisition to the local before taking a position. But, the majority of the community, including analysis of the bank's per- Board supports the $100,000 per person per formance record under the Community Reinvest- institution limit for each of two classes of acment Act, must be explicitly considered by the counts and believes that it is not an issue that regulators in the convenience and needs test that should affect the average consumer. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 409 Based on a 1989 survey sponsored by the risk-averse depositors with balances in excess of Federal Reserve and several other agencies, no deposit insurance limits may be inclined to shift more than 3V2 percent of all households have their funds out of smaller banks. Such shifts deposits of more than $100,000 at any one in- could be a significant share of total deposits in sured depository institution. However, the Trea- some communities, leaving insufficient funds to sury bill specifically permits each individual to meet local credit demands. Although transfers benefit from $100,000 of deposit insurance at might be made to other small banks in the each institution. And almost 60 percent of the community to keep deposits at each institution households with aggregate deposits in excess of within insurance limits, the concern is that the $100,000 at one institution are composed of a shifts will be to market instruments—like Treahusband and wife whose combined deposits sury securities or money market mutual could be fully insured at their depository institu- funds—or to larger out-of-community banks tion by splitting their deposits into two accounts where the deposits in excess of insurance limits at that institution, each of no more than $100,000. might still be protected by the too-large-to-fail This calculation—which reduces the proportion doctrine. of all households with uninsured balances under The local credit implications of these arguthe Treasury bill from 3V2 to IV2 percent—even ments are difficult to evaluate. As I have noted, ignores the additional insurance each spouse the shifts may be in market with large balances could obtain from retirement accounts under the broken into multiple accounts at several local administration's proposal. Moreover, the median banks, each of less than $100,000. In addition, household net worth for the 1V2 percent of house- community banks tend to be the best capitalholds whose deposits at one institution would ized, least risky entities, and as a result are exceed the $100,000 insurance limit for each perhaps less subject to deposit withdrawals. spouse is almost $2 million, suggesting little need Indeed, our review of the data did not suggest for the protection of a safety net. The compara- any special deposit weakness at smaller banks ble net worth of the households holding fully during the period of publicity about bank insured deposits is less than $60,000. soundness. Nonetheless, while any local credit Extending insurance to all consumer deposits market effects are probably modest, one cannot to protect the 1V2 percent of all households that rule out entirely that deposit insurance limits, would have any uninsured balance under the as called for by H.R. 1505, could cause some proposal—and to uninsured deposits of small- balances to shift, possibly to larger entities or and medium-sized businesses and nonprofit insti- out of the banking system. I will return to the tutions—is, of course, possible, but would, we longer-term resolution of these concerns in a believe, be highly undesirable without significant moment. and substantial increases in the minimum capital The Treasury proposal does call for an excepratios of banks. Such an approach would attract tion to the least-cost resolution of a failing bank, even more large-balance accounts, further in- which usually implies fully paying depositors crease the moral hazard risk induced in the only up to the insurance limit. If the Treasury banking system, and expand further the potential and the Federal Reserve agree that the failure of for taxpayer liability, raising consumer costs in an insured entity could have systemic risk implithe process. Indeed, the higher bank insurance cations—that is, that its failure with losses to premiums already levied to avoid taxpayer costs depositors could cause failures to occur at a large for the current bank insurance problems are number of other entities, or could cause disrupreducing bank profits and probably the yield tion in financial markets generally—the governavailable to consumers on insured-bank deposits, ment could then provide special assistance to as well as raising their bank loan rates. Increased protect all of its depositors and to maintain the costs are usually passed through, at least in part, existence of the bank. While this provision of the to the customers of any business. bill could be used to offset potential regional Smaller banks, consumer groups, and others systemic problems from the possible failure of a have pointed out that, despite these arguments, number of small or medium-sized banks, it is Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

410 Federal Reserve Bulletin • June 1991 clear that this provision focuses on larger insti- H.R. 1505 imposes no cross-marketing fire tutions. walls among affiliates of holding companies to No one is comfortable with special treatment permit a high degree of synergy among the comfor larger banks, and the Treasury proposal does ponents of the organization. As I have previously substantially tighten up existing practice. On its noted, it does require disclosure of the insurance face, the too-large-to-fail doctrine is unfair; it status of deposits and other financial products to tends to induce moral hazard risks at large banks; inform consumers. Moreover, it provides the it may, in certain circumstances, cause a shift of agencies with the authority to limit possible large account balances from small to large banks. conflicts of interest to constrain the risk to the Nonetheless, there are circumstances in which safety net. H.R. 1505 also provides authority for there is a need to support large banks to avoid the supervisors to take actions to limit risks that disruption to the economy as a whole. It is for this affiliates may create for the insured bank and reason that we reluctantly support this provision imposes rules that limit the transfer of funds from and hope that it will have to be used only on very the bank to its affiliates. Some tightening of these rare occasions. Indeed, H.R. 1505 envisions cir- latter proposals, including some additional speccumstances in which large banks could fail with- ificity regarding the types of transactions the out undue disruption to financial markets and the agency may address, would be desirable, but economy. Thus, it would be a mistake for the generally their thrust is consistent with the depositors of large banks to assume that all their Board's preferences. deposits were protected at all times. The bill would permit the purchase of financial Moreover, the Board believes that other provi- services holding companies—with their bank sions of H.R. 1505 would address both the per- subsidiaries—by commercial and industrial enceived risk of uninsured depositors at small banks terprises. Before the Congress takes what will and the future necessity to implement the too-big- amount to an irreversible step in this area, the to-fail doctrine. The best protection for depositors Board believes that the issue of commerce and and the insurance fund is to have strong and safe banking should be carefully studied and should banks. The Board believes that the bill's emphasis await the absorption of the large number of other on capital and prompt corrective action poli- reforms contained in the bill. cies—as well as the profit opportunities from I have not commented on all provisions of the expanded activities and the greater diversification Treasury bill or the other reform proposals that of risks through interstate branching—will reduce may have consumer implications. Nor have I risk in the banking system and soon make the addressed the specific consumer provisions in practical implication of deposit insurance limits a H.R. 6, introduced by Chairman Gonzalez. The much less important consumer issue. Stronger Board will be happy to provide its views and banks also mean a safer Bank Insurance Fund and assistance on these issues if requested at some less need for potential taxpayer assistance. later time. Prompt corrective action, expanded activities, and interstate branching are consumer benefits— directly through more convenient choice and in- CONCLUSION directly through a stronger system. In summary, the administration's proposals would widen and strengthen the ability of U.S. OTHER ISSUES banks to serve the public more effectively, which is why the Board supports their thrust. The Your invitation to testify also requested Board possible adjustments to the CRA process that comment on the adequacy of fire walls and may be necessary for nationwide branch banks commercial ownership of banks. I shall address and for accelerated acquisitions by the strongest these issues briefly. institutions seem to the Board to be manageable. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 411 Statement by E. Gerald Corrigan, President, Fed- Basic reform of the system is needed and eral Reserve Bank of New York, before the Sub- needed badly. At the very least, we should put committee on Telecommunications and Finance those reforms in place and permit them to run of the Committee on Energy and Commerce, U.S. their course before we give any further consider- House of Representatives, April 11, 1991. ation to permitting commercial firms to own and control banking institutions having access to the public safety net. I am delighted to appear before you this morning The text of this statement obviously is very to discuss—in accordance with your request—the lengthy. I apologize for that, but its length reflects specific features of the Administration's proposals the fact that the mixing of banking and commerce to modify the current restrictions on the ability of raises many substantive questions, some of which commercial banks to affiliate with both securities are quite subtle. Concern about these issues is firms and commercial entities. Because it is more reflected in the widespread present-day prescripcontroversial and because it has more far-reach- tions against such combinations in the internaing implications, I shall concentrate much of my tional community as well as in a long-standing prepared statement on the so-called banking- Anglo-American caution about such arrangements commerce question. that reaches back some three hundred years. I should say at the outset that while I do have The bottom line of the statement is, however, some differences of view with the Treasury on a quite clear. I remain opposed to combinations of few specific points—including the banking and commercial and banking organizations because commerce question—I enthusiastically applaud of the following: the efforts of Secretary Brady and his associates 1. When they are needed most, fire walls will at the Treasury for putting before the Congress not work. and the nation a truly comprehensive approach to 2. It is inevitable that at least parts of the reforming and modernizing the banking and finan- supervisory system—if not the safety net—will cial system in the United States. Unless this task be extended to commercial owners of banks. is successfully completed—and completed 3. The risks of concentration of economic resoon—I fear we face renewed and more intense sources and power are great. stress in our financial system, with all of its 4. The potential benefits that might grow out implications for strains in the economy at large of banking-commercial combinations strike me and a further deterioration in the international as remote at best and illusory at worse at least competitive position of U.S. financial institutions. under present circumstances. Thus, I very much share the view of the Treasury and the President that these issues are a high DEFINITION OF TERMS priority on the national agenda for 1991, and I support the thrust of the great bulk of the ap- One of the immediate problems that must be proach suggested by the Treasury. confronted in the debate on banking-commerce is In part, I welcomed this invitation to appear the need for a consistent definition of terms within before the subcommittee because it provided which the debate can be framed. The crucial issue me with an opportunity to take a step back and is not whether a manufacturing firm or a retail firm reconsider my personal views on whether the may own or control a company that engages in separation of banking and commerce should be financial services or even whether an industrial continued. In preparing this statement, I have company directly engages in the provision of gone to considerable lengths to give the benefit financial services. Rather, the core question—in of the doubt to the arguments for permitting the context of other problems associated with commercial firms to control banks. But the banking-commercial combinations—is whether more I analyze the issue, the more I am sure such a business entity should be permitted to own that it would be a huge mistake to eliminate the and control financial institutions that, in turn, barriers the Congress has constructed between have direct or indirect access to the federal safety banking and commerce. net associated with banking institutions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

412 Federal Reserve Bulletin • June 1991 It follows, therefore, that we must have a fairs in a safe and impartial manner. As a part of clear conception of what we mean by the terms that covenant, such institutions are subject to "control" and "safety net." The dictionary official regulation, the burden and costs of definition of "control" is a useful starting point which are accepted in exchange for the priviin that it stipulates that control means the leges and protections afforded by the safety net. "power or authority to guide or manage." But Looked at in this light, one of the key problems even that definition is only a starting point facing banking and other financial institutions is because we all know that in the day-to-day that technology and other forces have fundaworld of corporate affairs it is not always easy mentally altered the historic balance between to pinpoint the circumstances in which financial the burdens of regulation and the protections or other arrangements produce the result of and privileges afforded by the safety net. We "control." Fortunately, however, there is a see this problem quite vividly in the diminished long-established body of banking law and ad- value of the banking franchise. ministrative rulings that helps clarify that am- All of this brings into sharp focus the quesbiguity. That history tells us that control is tion of why all nations have a safety net and presumed to exist when ownership exceeds 24.9 regulated financial institutions in the first place. percent and that control may exist when own- In other words, why don't we simply treat ership is far less than 24.9 percent. Control is banks and other financial institutions the same presumed not to exist when ownership is less way we treat gas stations and furniture stores? than 4.9 percent. These parameters strike me as The fundamental answer to that question lies a very reasonable range within which the de- with the essential functions that banking instibate can be framed. tutions perform. That is, in the context of The definition of the safety net is rather market economies, the tasks of mobilizing savstraightforward, even though the precise appli- ings, channeling those savings into the most cation of that definition to particular cases can productive uses, and providing the means be difficult. For these purposes, a financial firm through which payment is made are seen as may be said to have access to the safety net if it, having such unique economic and fiduciary directly or indirectly, has deposit insurance, importance as to justify both regulation and the has access to the discount window of the cen- safety net. For example, since these institutral bank, has access to the account and pay- tions can perform these functions only with ment services of the central bank, and is subject someone else's money, and because the risks to official supervision. The ambiguity that can inherent in the performance of these functions arise in the application of this definition centers are so obvious, all nations take at least some on two main points: first, whether the distinc- steps to protect depositors and investors and to tion between direct versus indirect access to the regulate some aspects of the credit-origination safety net matters; second, whether concerns process. about access to the safety net apply equally to But, such protections, as important as they all of its components or whether one or more are, cannot fully explain the nature of the safety elements, such as deposit insurance and access net arrangements in this country, to say nothing to the discount window, take on special signif- of arrangements in other countries that often go icance in particular applications of the defini- further in protecting financial institutions and tion. their customers than is the case in the United While the specifics may vary from country to States. The missing link is, of course, what country, the de facto presence of an official central bankers and others call "systemic safety net for banks is universal. The mere risk." By systemic risk I mean the clear and presence of a safety net implies something of a present danger that problems in financial insticovenant between those institutions that are the tutions can quickly be transmitted to other beneficiaries of the safety net and the society at institutions or markets, thereby inflicting damlarge. Under the terms of that covenant, the age on those other institutions, their customers, affected institutions agree to conduct their af- and, ultimately, to the economy at large. More Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 413 than anything else, it is the systemic risk phe- countries banking and securities firms are one nomenon associated with banking and financial and the same) are very much the exception institutions that makes them different from gas rather than the rule. In fact, I am not aware of stations and furniture stores. It is this factor— a single example in which such a pattern of more than any other—that constitutes the fun- ownership would apply to a major banking damental rationale for the safety net arrange- institution, and I can think of only a limited ments that have evolved in this and other number of cases in which it would apply at all, countries. even though there may very well be some Looked at in this light, it seems to me very examples that I am not acquainted with. clear that a society should care, and care a lot, Having said that, let me quickly state that (1) about who it is that controls financial institutions there are cases abroad in which banks own large that have access to the safety net. By the same stakes in commercial firms; (2) there are many token, I would concede that those public policy countries in which banks have greater flexibility concerns are not similarly present in a situation than in the United States in the scope of their in which an auto manufacturing company or a relationships with commercial firms; and (3) retailer has a financial subsidiary, so long as there are countries where, as a general matter, neither the auto company nor anyone else has ownership interests in banks and corporations any illusions that it or the financial subsidiary has generally are not as widely distributed as is access to the safety net. Admittedly, I can imag- typical in the United States. But, commercial ine circumstances in which the sudden and un- control of banking institutions having access to controlled failure of a major financial subsidiary the safety net is, by far, the exception, not the of a manufacturing company could pose signifi- rule, even though in a number of countries, cant problems for financial markets and financial including the United Kingdom and Germany, institutions more generally. Similarly, I must also the absence of commercial control of banks admit that the competitive presence of financial occurs by practice and tradition rather than as a subsidiaries of commercial firms—even when matter of strict legal prohibition. operating wholly outside the safety net—has While on this subject of statutory arrangebeen a factor in undermining the value of the ments abroad, I find it interesting that within franchise of banks. This may be especially true the very recent past we have had two important when the terms of credit or other transactions countries—Italy and Mexico—that have had with the financial subsidiary are heavily subsi- experience with commercial and banking comdized by the parent company. binations and have enacted sweeping new leg- All of that notwithstanding, the banking- islation strictly precluding commercial firms commerce question does not stand or fall on from controlling banks in the future. In the case whether commercial firms can provide financial of Italy, ownership of banks in excess of services; it does not even stand or fall on the 5 percent is subject to approval by the Bank of presence or absence of the Bank Holding Com- Italy, and in no case can a single owner's pany Act. The key question is whether we, as a holdings exceed an absolute ceiling of 15 society, should care about who owns and con- percent. Mexico's new law limits ownership trols banking institutions that have access to the to 5 percent with an absolute ceiling of 10 safety net and the terms and conditions—if percent. any—under which such arrangements should be The point of this, of course, is that if the permitted. United States were to authorize commercial firms to control banking institutions having access to the safety net, we would be alone among INTERNATIONAL EXPERIENCE the major countries of the world in permitting such arrangements. Perhaps being alone in that Impressions to the contrary, examples in other regard should not bother us. But, on the other major countries in which commercial firms con- hand, perhaps experience around so much of the trol banking firms (recognizing that in most rest of the world is telling us something. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

414 Federal Reserve Bulletin • June 1991 A BRIEF HISTORY OF BANKING AND Almost one hundred years later, Alexander COMMERCE Hamilton drafted the chartering legislation of the Bank of the United States, which was enacted on Those who favor permitting banking-commercial February 25, 1791. Hamilton's model for the combinations here in the United States often point Bank of the United States was influenced imporout that over the broad sweep of the financial tantly by the charter of the Bank of England, and history of the United States we have had notewor- it contained similar restrictions. Specifically, thy examples of comingling banking and commer- Section 7, Article X reads: cial activities. However, such examples are the exception, not the rule. Moreover, the full history The said corporation. . . shall not be at liberty to of banking in the Anglo-American tradition purchase any public debt whatsoever; nor shall it directly or indirectly deal or trade in any thing, except seems, quite clearly, to point to a public policy bills of exchange, gold or silver bullion, or in the sale bias against such combinations. of goods really and truly pledged for money lent and The history of the banking-commerce issue not redeemed in due time; or of goods which shall be over most of the eighteenth and nineteenth the produce of its lands. centuries must be viewed in the context of prevailing legal and business practices. For Moreover, Section 8 states: example, for most of that period, the corporate form was in a state of evolution as a natural And be it further enacted, that if the said corporaoutgrowth of the early and more mature stages tion, or any person or persons for or to the use of the same, shall deal or trade in buying or selling any of the Industrial Revolution. Thus, most corpogoods, wares, merchandise, or commodities whatsorations were charted by some political jurisdicever, contrary to the provisions of this act, all and tion to perform specified functions. Partly for every person and persons, by whom any order or that reason, much of the earlier debate about direction for so dealing or trading shall have been the banking-commerce issue did not center given, and all and every person and persons who shall have been concerned as parties or agents therein, shall squarely on the issue as to who should be forfeit and lose treble the value of the goods, wares, allowed to own banks. Rather, it centered on merchandises, and commodities, in which such dealthe extent to which the charter of banking ings and trade shall have been; corporations would permit such an institution to engage in a broad range of activities, includ- In drafting the charters of each Bank of the ing activities that in today's terminology would United States, the Congress was sensitive to fit squarely on the "commercial" side of the issues relating to ownership over banks. No ledger. individual or partnership could own more than 4 While there surely were examples in which percent of the shares of the First Bank. No banking and commercial activities were autho- individual, company, or corporation could hold rized in the same business entity, there is ample more than 0.875 percent of the shares of the evidence that such combinations were viewed Second Bank. with concern as a matter of broad public policy. In the period immediately after the chartering For example, when the Bank of England was of the Banks of the United States, there were chartered by the British Parliament in 1694, the some cases in which banking and commercial chartering act contained a clear prohibition entities or activities were comingled. Yet, in a against the bank engaging in commerce. Specifi- number of states and in the charter of the Second cally, the act provided: Bank of the United States enacted in 1816, the stipulations against such combinations of activi- And to the intent that their Majesties' subjects may ties were retained. not be oppressed by the said corporation by their Concerns about comingling banking and commonopolizing or engrossing any sort of goods, wares or mercial activities were again recognized in the merchandise, be it further declared. . . that the said National Banking Act of 1864, which stipulated corporation. . . shall not at any time. . . deal or trade . . . in the buying or selling of any goods, wares or that nationally chartered banks would be limited merchandise whatsoever. . . to exercising "such incidental powers as shall be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 415 necessary to carry on the business of banking." exceptions, was the generally accepted state of Interpreting this phrase narrowly, the courts affairs. Beginning in the 1930s, commercial subsequently ruled that it would be "ultra vires" firms began to acquire smaller banks. This (beyond the proper scope or in excess of legal growing tendency was dealt with in federal authority) for a bank to carry on a mining, legislation in 1933, 1965, and 1970, but the manufacturing, or trading business; to engage in matter was not fully laid to rest. Now that we the buying or selling of cattle; or to operate a are at a watershed in terms of structure of our railway. financial system, we once again have an oppor- While the issues associated with the comin- tunity to get it right. gling of banking and commercial activities were very much a part of banking history in the last two centuries, it was not until this century that THE ARGUMENTS FOR COMBINING the question of commercial ownership of banks BANKING AND COMMERCE was joined. The ownership issue began to surface in the legislative debate surrounding the enact- While contemporary experience around much of ment of the Clayton Act. However, it was not the industrial world and the history of banking in until the late 1930s that the debate in today's the Anglo-American tradition would, taken by terms really took shape. In that timeframe, the themselves, seem to constitute sufficient grounds Federal Reserve Board, among others, began to to go slowly in moving toward permitting comcall for legislation that would curb the growing mercial firms to control banks, neither that hispractice of commercial firms owning banks—a tory nor those global practices constitute necestrend that was (perhaps ironically) taking hold in sary or sufficient reason to reject bankingpart to save banks from the repercussions of the commercial combinations out of hand. Great Depression. Indeed, in a market economy—especially one The efforts that began in the late 1930s culmi- such as that of the United States, which is so nated with the passage of the Bank Holding deeply rooted in the tradition of freedom and Company Act of 1956. The 1956 act's major entrepreneurial enterprise—there is a strong restrictions applied only to companies control- philosophical bias for permitting any institution ling two or more banks. However, in response to the right to go into any business, including bankthe subsequent growing importance and scope of ing. On the other hand, the very essence of the one-bank holding companies, the 1970 public policy has its roots in the central proposiamendments to the act closed the so-called one- tion that the common good can dictate circumbank loophole, although a similar loophole for stances in which individual prerogatives must be so-called unitary thrift institutions was left in limited. It was precisely this line of reasoning place and remains to this date. that led Adam Smith to the conclusion that Much of the legislative debate about the 1970 banking had to be regulated when, in the Wealth amendments to the act centered on the distinc- of Nations, he wrote: tion between corporate "conglomerates" and "congeneric" corporations. The result of the Such regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those conglomerate-congeneric debate was the adopexertions of the natural liberty of a few individuals, tion of a limited congeneric proposal—bank holdwhich might endanger the security of the whole sociing companies could engage in activities "closely ety, are, and ought to be, restrained by the laws of all related to banking." Companies engaged in a governments; of the most free, as well as of the most broader range of activities had a ten-year tempo- despotical. The obligation of building party walls, in order to prevent the communication of fire, is a rary grandfather period to either divest themviolation of natural liberty, exactly of the same kind selves of their banks or their impermissible nonwith the regulations of the banking trade which are banking activities. here proposed. To summarize briefly, for the greater part of this nation's existence, the fact that commercial Against this background I, for one, do not feel firms did not own and control banks, with some apologetic in taking the position that the case for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

416 Federal Reserve Bulletin • June 1991 permitting commercial firms to control banking ever, in the face of those concerns, the argument institutions should be based on some affirmative is made that allowing such combinations will public policy reasons to take this step. In those provide important public benefits that—given circumstances, I think it only reasonable to ask: appropriate safeguards and fire walls—more than First, why would commercial firms want to con- compensate for the risks. The most important trol banking institutions; second, what public public benefit that is cited in this regard is that policy ends would be served by such arrange- such arrangements would provide a needed ments; and third, how credible are the safeguards source of fresh capital to the banking system or against abuse, recognizing that even the most to individual banks. It is also suggested—though ardent of the proponents accept the fact that such not as forcefully—that commercial ownership of safeguards are necessary? banking organizations will provide, presumably As to the first of these questions, namely, why through synergies, greater innovations and effiwould commercial firms want to control banking ciencies that will lower costs for financial serorganizations, I can see several possibilities. vices to their end users. Finally, it is suggested— First, the commercial firm may conclude that the drawing on the experience in countries like rate of return on such investments is greater than Germany and Japan—that close linkages bethat available on alternative investments. Sec- tween banks and commercial firms will promote ond, the commercial firm may conclude that such greater economic stability. investments provide a vehicle to diversify its Regardless of how much weight one puts on cash flow or its profits. Third, the commercial the potential benefits associated with permitting firm may see synergies between its basic busi- commercial firms to control banks, virtually evness and one or more aspects of the banking eryone acknowledges that such arrangements business. Fourth, the commercial firm may see must be accompanied by strong regulatory safeadvantages to having indirect access to one or guards to protect against potential abuse. While more elements of the safety net. While never the list of existing or suggested safeguards or fire stated, I must confess that I wonder at times if walls is long, in generic terms they fall into three another motivation for such combinations might major categories: first, limits on which banks can not be a desire on the part of some firms to be acquired by which commercial firms; second, further leverage their own capital position. various fire walls that limit transactions or inter- In considering the question of why commercial action between the bank and its commercial concerns might wish to make investments in owner; and third, various arrangements whereby banks, it is important to keep in mind that any the authorities could force a commercial owner commercial firm can make sizable passive invest- of a bank to take certain actions—including diments in one or more banking institutions under vestiture—if the bank were in jeopardy. existing laws and regulations. Similarly, such In considering the merits of any or all fire passive investments could easily provide major walls, it is important to keep several things in elements of income diversification. On the other mind: First, fire walls, by their nature must limit hand, if control is sought or achieved, or if the synergies. Thus, the higher and thicker the fire investment is motivated by perceived synergies wall, the less the synergy. Indeed, if the fire walls or by a desire to gain indirect access to the safety are fail-safe, the synergies must all but disapnet, then it must follow that concerns about pear. Second, fire walls, by their nature, seem conflicts of interest, unfair competition, and con- inconsistent with the essence of control. If, to centration and the extension of the safety net use the dictionary definition, the "power or must be present, even if differences of opinion authority to guide or manage" is present, it is exist as to the nature and depth of those con- very hard to conceive of conditions in which fire cerns. walls can be said to be fail-safe. Third, the acid test of fire walls arises in the context of adversity Indeed, to my knowledge, all of the propoeither to the banking institution itself, a crossnents of blending banking and commerce recogstream affiliate, or the parent. That is, in the face nize that the potential for such problems is of serious problems is it reasonable to conclude, present when control of the bank exists. How- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 417 based on experience, that the marketplace—here continuing supervision of bank holding companies and abroad—will distinguish one entity from we now have to commercial owners of banking another within the framework of a business con- institutions. Indeed, the nature of government glomerate with common ownership of the com- involvement in business that would seem to grow ponent parts? Unless one can be quite sure of out of such arrangements would, in itself, seem that result, the obvious danger is that in times of contrary to the role of government in a market stress, fire walls become walls of fire! economy. The second set of risks associated with banking and commercial combinations—namely the THE RISKS ASSOCIATED WITH COMBINING so-called contagion risks—pose even more diffi- BANKING AND COMMERCE cult problems. By contagion risks I mean, of course, the danger that problems in any one part From a public policy perspective there are three of a business will adversely affect other parts of sets of risks associated with permitting commer- the business despite fire walls or legal separacial firms to control banks. The first is the tions between particular business units within the historic concerns about conflicts of interest, un- company as a whole. fair competition, and concentration. The second The contagion problem is, of course, multifacis the contagion risks—or the dangers that prob- eted. That is, the concern does not simply center lems in one part of an overall entity cannot, in on the relatively narrow question of what hapmarket terms, be contained and isolated from pens if the banking entity itself gets into trouble. other parts of the firm. The third set of risks is In fact, the contagion problem can be more those surrounding the potential extension of the difficult to cope with in a situation in which safety net—or at least parts of it—to the firms adversity at the level of the parent impairs the that control the banking organizations. well-being of the bank. I do not believe that it is necessary to elaborate In any of these circumstances, the important in any detail on the nature of the risks regarding question relates to how the marketplace and how conflicts, unfair competition, or excessive con- the owners and managers of such institutions centration that can grow out of situations in react to adversity. That is, faced with adversity, which commercial firms control banks. The na- do the owners and managers walk away from ture of those potential sources of risk has been troubled affiliates or do they conclude that repurecognized for centuries. tational and other considerations require that While those sources of potential concern have they make efforts to stabilize the troubled affiliate been widely recognized for many years, it should to protect the well-being and the reputation of the be stressed that they arise because they consti- entity as a whole? Similarly, and even more tute a threat to what I like to call the impartiality important, what does experience tell us about the of the credit decisionmaking process. As such, manner in which the marketplace reacts to these they go right to the heart of one of the most circumstances? That is, in the face of serious important functions of banking institutions in a problems in one part of a financial entity, does market economy. the marketplace continue to deal with the other It should also be stressed that, in the contem- parts of the entity on a business-as-usual basis or porary world of high-speed, high-complexity fi- do market participants shy away from the affilinance, practices that cross the line between po- ated companies as well as the troubled entity? tential problems and actual problems can be very On both of these points it seems to me that the difficult to detect until it is too late. This is evidence is overwhelming that fire walls and especially true if the entity that controls the bank- corporate separateness do not stand up well in ing organization is not, itself, subject to direct the face of adversity and that the contagion risks official supervision or oversight. This is an impor- are very real indeed. It is noteworthy in this tant point since I suspect that none of the advo- regard that in a recent ruling regarding the relacates of commerce and banking combinations tionship between Credit Suisse and Credit-Suisse would favor the extension of the kind of direct and First Boston, the Swiss Federal Supreme Court Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

418 Federal Reserve Bulletin • June 1991 squarely acknowledged the existence of the con- firms to own and control banking organizations tagion problem even in the face of legal separate- carries with it at least the implicit transfer of ness. Specifically, the court said: some elements of the safety net to such firms if in no other way than through the official sanc- The Drexel affair has shown that isolating a company tion of the particular combination in question. that was in itself solvent could not protect it from a loss For example, I assume that even the propoof repute. Since the insolvency of one member of a nents of merging banking and commerce would banking and financial group leads to a loss of confidence agree that the acquisition of a bank by a comin the other members, the Federal Banking Commission mercial company would be subject to some sort is justified in requiring evidence that sufficient own funds capital are available within the group as a whole. of official approval process. I assume that they would also agree that a part of that application This ruling by the Swiss Federal Supreme process would have to focus on the financial Court is important not only because it seems to strength of the acquiring firm as well as the be a common sense affirmation of what experi- regulatory and managerial fire walls that they ence suggests but also because it tends to reflect agree should be constructed. I assume that they the widespread view outside the United States would further agree that such applications that banking and financial firms are a single would be approved while others would be deentity. This is important because, even if we in nied and that some form of ongoing monitoring the United States can convince ourselves that would be necessary. In making this point, it fire walls and legal separations can be made to should be emphasized that commercial firms stick in any circumstances, it will accomplish wishing to own banks undoubtedly will not be little if the international financial community limited to a few "blue chip" companies. To the does not accept that view. This is particularly contrary, the list of potential acquirers will true in a context in which all major U.S. financial include all comers—something I am convinced firms—and therefore the well-being of the finan- we should be especially sensitive to in this era cial system at large—are highly dependent on in which the fate of seemingly very strong foreign counterparties for a wide range of activ- companies can fall on difficult times so very ities—including funding. quickly and irreversibly. Looking at experience in the United States and Therein, of course, lies the dilemma. That is, around the world, it seems clear to me that even the official act of approving an application Walter Wriston had it exactly right when, a of a commercial firm to acquire a bank seems to number of years ago, he said: carry with it the extension of at least some elements of official oversight to the acquiring firm For example, it is inconceivable that any major bank in a manner that brings with it—at least by would walk away from any subsidiary of its holding implication—an official blessing of the transaccompany. If your name is on the door, all of your tion and the relationship. As I see it, this subtle capital funds are going to be behind it in the real world. but certain extension of an element of the safety Lawyers can say you have separation, but the marketplace is persuasive, and it would not see it that way. net is not something we should take lightly since we must be prepared to live with its conse- The realities of the contagion problem give rise quences in foul weather as well as in fair. to the third set of risks associated with banking In considering the potential sources of risk and commerce combinations, and those risks associated with commercial ownership of banks include, or course, the dangers that such combi- there can be honest differences of judgment as to nations bring with them the likelihood that at how great and how clear and present those least some parts of the safety net will be ex- dangers may be. That is why these risks and tended to the commercial owner of banking in- potential risks must, in the end, be carefully stitutions, especially in times of stress. weighed and balanced against the potential ben- However, fully aside from situations involv- efits of banking and commercial combinations. ing severe financial strains, it seems clear to me That is the task of the next section of this that the mere fact of permitting commercial statement. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 419 BALANCING THE RISKS AND THE commercial ownership, there will be an entirely BENEFITS new dimension to the contagion problem— namely, the implication for the banking entity It is clear to me that in current circumstances the should there be serious problems with the parent. weight of the arguments against permitting com- For example, it is worth pondering what would mercial firms to own and control banking institu- have occurred in 1980 had Chrysler owned a tions is very powerful on several counts. While family of banking institutions having access to any one of these factors seems to me persuasive, the safety net. Similarly, what might have hapit is the cumulative weight of all of the arguments pened had Texaco been in a similar position at that is truly compelling. the time of the Penzoil litigation? It is also worth keeping in mind that the corporate landscape is First, when they are needed the most, fire currently littered with dozens of "fallen angels," walls will not work. This is important not only in many of which might well have owned banks in its own right but also because, as mentioned happier times. Finally, it is also worth noting that earlier, every serious proposal to permit com- if we go back twenty-five or thirty years we can mercial firms to own banks depends—either im- find examples of commercial companies that plicitly or explicitly—on the premise that fire were seen as financially invincible—and thus walls are fail-safe and will stand up in the face of strong candidates to own banks—that are today a stress. Not only is that premise inconsistent with mere shadow of their earlier profile, if that. experience, but it also seems to me to be an In short, I draw very little comfort from the outright contradiction since the concept of con- track record of fire walls, especially their reliabiltrol is incompatible with the concept of fail-safe ity in times of stress. Given that the invincibility fire walls. To put it differently, control seems to of fire walls would be even more important in the inescapably entail responsibility. To make mat- case of commercial ownership of banking institers worse, the very instant that synergies are tutions, the risks associated with such arrangestipulated—either explicitly or implicitly—the ments seem to me entirely too great. contradiction becomes glaring. If the fire walls are fail-safe, the synergies must disappear, and if Second, it is inevitable that at least parts of the the synergies disappear, the central economic supervisory system—if not the safety net—will be agrument that public benefits will flow from such extended to commercial owners of banks. Partly combinations is rendered moot. because it would be so very imprudent to rely on I am not suggesting that separately capitalized fire walls, permitting commercial firms to control subsidiaries and fire walls (or, better stated, banks would, of necessity, entail at least some Chinese walls) may not serve a useful public elements of the regulatory and supervisory appapolicy purpose. To the contrary, such arrange- ratus being extended to the commercial owners ments can be a very big help in minimizing of banks. The application process itself guaranproblems of potential conflicts of interest and tees that result, as does even the most subtle unfair competition. They can also be very helpful imposition of a source of strength doctrine. Simin facilitating a sensible system of functional ilarly, with all or most of the capital of the bank supervision. But it would be a serious mistake to downstreamed from the parent, the supervisor conclude or to assume that fire walls can protect would have to look to the parent to see what lies against the contagion problem. behind that capital. More generally, the enforce- The marketplace views these banking and fi- ment of fire walls—even those governing transnancial entities as a whole; indeed, that is how actions flows—would have to entail at least some these firms typically are managed, and in many interaction between the supervisor and the parcases their integrated nature is a feature of their ent. At a minimum, all of this will complicate the advertising. To believe things would somehow be already difficult moral hazard problem. At worst, different with commercial ownership of such it could entail a greatly expanded role for the firms seems to me to strain common sense and government in the affairs of corporate Ameriexperience to the limit. Therefore, if we have ca—a result that I suspect few would welcome. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

420 Federal Reserve Bulletin • June 1991 But, the even larger question is whether, in the problem. But even if we fully ignore the fire wall face of adversity, such combinations might result issue, it seems a major leap to conclude that in the de facto extension of other aspects of the commercial-banking conglomerates would, in safety net to the owner of the bank. As I said fact, yield sizable efficiencies. Indeed, the hisearlier, the mere fact of official sanction of some tory of conglomerates generally is, at best, such combinations and the denial of others seems checkered. Again, putting aside the financial to carry with it some elements of that risk. How capital issue, the two most obvious sources of much further that risk might be extended in the such gains in efficiency that are not inherently face of serious problems is hard to judge, but it objectionable would seem to lie in the areas of seems clear to me that the best way to avoid that technology and managerial expertise. However, risk is to avoid creating the preconditions under if better or different technology or management is which it could arise. needed, it can be acquired directly. With regard to the economic stability argu- Third, the risks of concentration of economic ment, it must be acknowledged that in Germany resources and power are great. That is, if we and Japan, in particular, there are closer relationwere to permit commercial firms to control ships between banking and industry than is the banks, it is clear that the potential dangers in case in the United States. And, it must also be terms of concentration of economic resources acknowledged that in recent years the overall and economic power—with all of the potential economic performance of those two countries implications for compromising the impartiality of has, by many standards, been quite good. Howthe credit decisionmaking process—could be se- ever, there are also other countries where bankrious indeed. Since this is as much a social and ing-commercial relationships are very close, but political issue as it is an economic issue, I tend to economic performance has been mixed or worse. shy away from placing too much emphasis on What that suggests, of course, is that economic this factor. Even though I choose to do that in performance is much more a function of the recognition of the official position I hold, I would fundamentals of macroeconomic policy than it is be less than candid if I did not acknowledge that a function of national preferences as to industrial I, too, worry about the broad socioeconomic— structure. and perhaps even political—implication of these Moreover, even if we were to grant that there arrangements that have been raised by Henry is some marginal net benefit to economic perfor- Kaufman and others. mance growing out of these arrangements, the It is important to keep in mind that while these question remains as to whether there may not be concerns may seem remote today, once we start costs—either economic or social—growing out of down the very slippery slope of combining bank- such arrangements that would outweigh those ing and commerce we will, in practical terms, potential benefits. That is probably more a polithave already passed the point of no return. ical question than an economic one, so I must Turning back will not be easy or cheap. leave it to others to consider the possible tradeoffs involved. Finally, the potential benefits that might grow out of banking-commercial combinations strike There is one final aspect of this issue, and it me as remote at best and illusory at worst, at relates to the motivations for commercial ownerleast under present circumstances. The one pos- ship of banks. If the motivation is either a desire sible exception to this is the source of capital to gain access to the safety net or large-scale argument that is discussed further below. How- synergies, the problems are obvious. If it is ever, putting that issue aside for the moment, the diversification of income, it is clear that there are two other economic arguments (that is, the effi- all kinds of ways commercial firms can diversify ciency argument and the economic stability ar- their income, including owning financial subsidgument) just don't strike me as very convincing. iaries that unambiguously do not have access to For one thing, both depend on synergies that, as the safety net. Finally, if the returns in banking outlined earlier, collide head-on with the fire wall are so superior to returns available on alternate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 421 investments, then it is clear that capital would the banking-commerce question is that, given flow to banking quite freely and naturally with no the obvious risks, the case for permitting comneed for the capital resources of industrial firms mercial firms to own and control banking instito augment traditional sources of capital. tutions should rest on some compelling and However, as we all know very well, the cur- affirmative public policy reason. In the current rent situation in banking is not one in which circumstances, I simply do not see compelling relative returns command that lofty position in public policy reasons to follow that course of the eyes of investors. Indeed, the pattern of action. Thus, under present and foreseeable price-earnings ratios of even the most successful circumstances, I remain opposed to such combanking organizations over recent years tells us binations. that in unmistakable terms. Thus, the strains in the banking system and the associated pressures on the financial position of the deposit insurance COMBINATIONS OF BANKING AND fund are the major factors that give rise to the SECURITIES FIRMS suggestion that permitting commercial firms to own banks is desirable on public policy grounds While I am strongly opposed to combinations of in that such arrangements will provide the banking and commercial firms, I have been, and needed fresh capital to the banking industry. remain, in favor of authorizing combinations of While this argument deserves careful attention banking and securities firms—given, of course, under current circumstances, I find it unpersua- appropriate corporate structure and safeguards. sive. For one thing, as I have said on earlier The reasons why I favor such combinations are, occasions, it is by no means clear to me that the in many ways, the mirror image of the reasons I banking system is materially short of capital. The am against banking-commercial combinations. problem may well be too much capital chasing Those factors include the following: too few good loans. Beyond that, there is ample room for commercial firms to make passive in- First, unlike banking and commerce, combinavestments in banking institutions even under tions of banking and securities firms are the rule, existing rules. Finally, in a market economy, not the exception, throughout the industrial capital is attracted by profits and returns. If an world. In fact, as things stand now, only Japan industry cannot compete—especially because of and the United States do not permit such combioutdated laws and regulations—it will not, and nations. Moreover, in several important counshould not, attract capital. On the other hand, if tries, securities activities take place directly in the unnecessary and outdated structural impedi- the bank and not in an affiliated company. ments to profitability are removed, capital should flow quite naturally. At the very least, this says Second, combinations of banking and securito me that, before we as a nation take the ties companies strike me as wholly in keeping essentially irreversible step of permitting com- with the spirit of congeneric financial corporamercial firms to own and control banking firms, tions. Indeed, even within the narrowly defined we ought to put in place the kind of basic reforms limits of Glass-Steagall, banks are actively enthe Treasury and others have suggested and see gaged in a wide range of securities activities. what happens. I, for one, have little doubt that More recently, and reflecting the thrust of comwhen capital is needed and can serve its purpose, petitive and technological developments, banks it will be available from conventional sources. As and securities companies alike have aggressively a part of that process, and as I have said on been moving into each other's traditional lines of earlier occasions, I would not be allergic at all to business here and abroad. Banking organizations providing some greater flexibility regarding com- and securities companies now have banks here mercial firms' ownership stakes in banks and and abroad. Moreover, there is now a wide range vice versa, so long as the control issue is not of specific activities in which banking organizabreached or threatened. tions and securities firms compete directly. Ex- To summarize, the position I have taken on amples include the following: foreign exchange; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

422 Federal Reserve Bulletin • June 1991 the writing and brokering of interest rate and access to the discount window at the Bank of currency swaps; underwriting and trading in a Japan. wide range of Euro-currency debt and equity instruments; underwriting and dealing in a wide Fifth, while there is something to be said for range of governmental securities, here and the so-called limited universal bank model, I abroad; the underwriting or private placement of believe that securities activities (with some excommercial paper; and, on a limited scale, the ceptions) of banking firms should be conducted underwriting of debt and equity securities here in in a separately capitalized subsidiary of the the United States. Obviously, none of these close holding company and the banking activities of parallels in business activities are to be found securities firms should be organized similarly. among banking and commercial firms. While I am under no illusion about fire walls— especially their ability to deal with the contagion Third, bank holding companies—including problems—I do believe that so-called Chinese such companies that own securities subsidiar- walls can play a very useful role in guarding ies—are and should be subject to official super- against conflicts of interest and unfair competivision at the level of the holding company. They tion. Such arrangements have, for example, are also subject to functional supervision at the worked well over the years in relationships belevel of the bank or securities affiliate of the tween trust departments of banks and the bank as holding company. This means that the official a whole. It is also true, as noted earlier, that supervisory process does not have to reach into separately capitalized entities can also facilitate a new segment of corporate America, as would functional supervision. However, functional sube the case with banking and commercial combi- pervision is not good enough. We also need nations. consolidated supervision at the level of the hold- More importantly, it also means that problems ing company. at the level of the parent that might adversely Thus, combinations of banking and securities affect the bank should be easier to detect and firms should be permitted so long as appropriate remedy. Indeed, the mere presence of officially supervisory standards and policies are in place. promulgated capital standards, consolidated re- However, such arrangements can give rise to one porting requirements, and periodic inspections at major practical problem: There will be a handful the level of the holding company provide some of securities firms owned by commercial compagreater assurance against contagion problems nies that would not be allowed to own insured coming from any direction. I might add in this depository institutions. That is, securities firms regard that the principle of consolidated supervi- that are not controlled by commercial firms sion of banking institutions is the norm through- would be free to own insured depositories, but out the industrial world. This principle is the those controlled by commercial firms would not. basic line of reasoning that lies behind the ruling This rule may seem arbitrary, but it is a natural of the Swiss court in the Credit Suisse case that outgrowth of the argument against the direct or was cited earlier. indirect control of banking firms by commercial entities. This rule would not, of course, preclude commercial companies from owning and control- Fourth, because some elements of the safety ling financial subsidiaries, as is now the case. But net—in this case, official supervision and regulait would put a halt to such firms owning and tion—apply to the holding company owners of controlling banking institutions with access to all banks, it does not follow that all other elements elements of the safety net. of the safety net need, or should, apply to the holding company or to its nonbank subsidiaries. This is surely the case with deposit insurance. On the other hand, in Japan and the United King- SUMMARY dom, securities firms that are not affiliated with banks do have account relationships with the The long-term implications as to how the United central bank, and in Japan such firms also have States should best reform and restructure its Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 423 banking and financial system cannot be antici- tem is long overdue. Therefore, I would urge the pated with precision. That, inevitably, points to Congress to move as promptly as possible the case for care and caution in the process. The toward the enactment of broad-based progresneed for caution is at the heart of the reasons sive legislation this year. Few items on today's why I oppose banking and commercial combina- national agenda strike me as having greater imtions in the present circumstances. portance and even fewer will have greater impor- However, the need for caution cannot be al- tance for the long-term well-being not just of the lowed to result in paralysis. Prompt and compre- banking and financial system but also of the hensive reform of the banking and financial sys- economy at large. • Statement by Alan Greenspan, Chairman, Board exclusivity provisions of the CEA somewhat of Governors of the Federal Reserve System, differently. I would like to comment on each before the Committee on Banking, Housing, and alternative, but first I would like to review with Urban Affairs, U.S. Senate, April 16, 1991. the committee some of the history of this issue. Under the so-called exclusivity provisions of I welcome the opportunity to discuss title III of the CEA, contracts for sale of a commodity for S. 207, the Futures Trading Practices Act of future delivery are subject to the exclusive juris- 1991. Although many of the issues presented in diction of the CFTC. In addition, transactions in, this legislation are highly complex, they are or in connection with, such contracts can only be important to the competitiveness and soundness conducted on, or subject to, the rules of a of U.S. financial markets. Consequently, I com- contract market designated by the CFTC. The mend the committee for undertaking to explore CEA defines the term "commodity" broadly to them fully at this time. There are two provisions include not only agricultural products and other of this title that have been of particular interest to goods such as oil but also services, rights, and the Board of Governors of the Federal Reserve interests. This language has been interpreted to System, those dealing with margins on stock include contracts for the future delivery of finanindex futures and those dealing with the exclu- cial interests such as the value of Treasury sivity provisions of the Commodity Exchange securities or stock indexes. Although the CEA Act (CEA). As I have noted in previous testi- excludes a number of transactions, including mony and congressional correspondence, the contracts for deferred shipment or delivery and Board supports federal oversight of margins on transactions in foreign currency, government sestock index futures, which is provided for in curities, and mortgages, it nonetheless can be S. 207. While we continue to see good reasons read to be applicable broadly to many types of for vesting that authority directly with the Com- financial contracts. modity Futures Trading Commission (CFTC) or In recent years, a wide variety of new products the Securities and Exchange Commission, we have been developed to serve the investment and accept the rationale for giving this authority to risk management needs of the public. Many of the Board with the latitude to delegate this au- these products have had some of the economic thority to the CFTC and, of course, would en- attributes of futures, and their legality has been deavor to discharge that responsibility in a care- called into question by the exclusivity provisions ful and serious manner. of the CEA. For example, over the past ten years, Of more relevance to the hearing today is the the swap markets have developed and grown to matter of the exclusivity provisions of the CEA. involve transactions with $3 trillion in notional I understand that there are currently three alter- principal amount. The vast majority of these native approaches to this issue that may be transactions involve interest rates or exchange considered: the approach passed by the Agricul- rates, but in recent years a significant number ture Committee; another approach offered by the have involved goods such as oil or precious met- CFTC; and a third offered by Senators Bond and als. In a swap transaction, the parties agree to Wirth. Each of these approaches revises the make payments to each other based on changes in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

424 Federal Reserve Bulletin • June 1991 interest rates or the value of oil or other products. cannot eliminate the uncertainty created by the Unlike exchange-traded futures contracts, these exclusivity provisions, and therefore cannot retransactions are customized to the needs of indi- move the existing impediments to innovation. vidual customers and are negotiated on a bilateral Administrative actions leave open the possibility basis. Thus, they represent important risk-man- that exemptions will be revoked or that private agement tools to shield financial institutions and parties will raise the statutory prohibition in an others from fluctuations in interest rates or the attempt to invalidate specific transactions. This prices of the goods or instruments in which they uncertainty impedes the development of new deal. The customizing of these transactions to financial products. individual customer needs as to maturity, pay- S. 207, as passed by the Agriculture Commitment intervals, or other terms can offer significant tee, attempts to address these issues but does so advantages over standardized exchange-traded in a way that is less than satisfactory. The products by allowing the customer to adjust its Agriculture Committee version would provide individual risk positions with greater precision. the CFTC with the authority to exempt certain Nevertheless, the exclusivity provisions of the transactions including swap agreements and de- Commodity Exchange Act have cast a pall over posits from the CEA. To exempt swap agreethis market, particularly in the area of swaps ments, the CFTC would have to find, after notice linked to prices for goods such as oil. Investors and the opportunity for a hearing, that the exand financial institutions have been concerned emption was in the public interest, the transacthat such transactions might be interpreted to be tions are entered into by a limited class of the economic equivalent of contracts of sale for participants, and that they meet several restricfuture delivery under the CEA and therefore be tions. The Agriculture Committee version also considered illegal off-exchange futures. Thus, an would provide the CFTC with the authority to active market in swaps related to prices of goods exempt bank deposits if it determines, after nodid not develop until the CFTC took administra- tice and the opportunity for a hearing, that the tive action to indicate that it would not view them exemption would not be contrary to the public as illegal off-exchange futures. Even with this interest. exemption, there continues to be concern that While providing for certain exemptive authordevelopments in the swap markets may run ity, the Agriculture Committee version would afoul. perpetuate impediments to innovation in hybrid This specter has almost surely inhibited inno- instruments and risk management products and vation, not only in the swaps markets but also in would forestall developments in swap markets other financial markets. As early as 1989, the that could reduce systemic risk. For example, Board expressed its concern to the CFTC that the some of the restrictions on the swap exemption provisions of the CEA would prevent financial included in the Agriculture Committee version institutions from developing and offering new in- have the potential to limit the exemption of some struments to manage risk and reduce the flexibil- swap agreements currently traded, as well as to ity and competitiveness of U.S. financial markets. inhibit the development of new transactions. The In several administrative actions, the CFTC Board also is particularly concerned about the has taken steps to alleviate some of the problems potential of these provisions to impede the develcreated by the exclusivity provisions of the CEA. opment of multilateral netting arrangements that These actions have included a policy statement are designed to reduce counterparty credit risk indicating that the Commission would not con- and the resulting systemic risk to the financial sider interest rate swaps and certain commodity markets. The importance of such arrangements swaps to be illegal off-exchange futures. In addi- was recently recognized in a report released last tion, the Commission adopted rules excluding November by the governors of the central banks certain hybrid instruments, including bank de- of the Group of Ten Countries. Moreover, such posits, from the CEA provided that these trans- restrictions lead to swap activity and any associactions met certain financial tests. While these ated netting arrangements moving offshore. were constructive steps, for which we commend Further, the general exemptive authority in the the CFTC, administrative actions by themselves Agriculture Committee version is narrow; the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 425 CFTC may not be able to make appropriate of the CEA altogether, thus avoiding problems exemptions; and the requirement for a hearing that may arise from a cumbersome exemptive would create a burdensome process that would in process and the potential for revocation of any itself limit the usefulness of the exemptive au- exemptions that may be granted for these transthority. In addition, the Agriculture Committee actions. It also would provide the CFTC with version also suggests that the CFTC would have broader discretionary authority to exempt any jurisdiction over some depository instruments instrument if the CFTC determines the exempand lending transactions, even though banks are tion is consistent with the public interest. The subject to a comprehensive system of federal approach taken by this proposed alternative goes regulation designed to ensure the safety of the further to alleviate the difficulties for the finaninstitutions and to protect their depositors. cial markets created by the provisions of the The alternative developed by the CFTC goes CEA than the Agriculture Committee or CFTC further in expanding the CFTC's exemptive au- versions and therefore is, in our judgment, thority than the provisions of the Agriculture preferable, particularly in the areas of swaps, Committee version and might be viewed as an bank deposits, and lending instruments. The improvement over the current law. Neverthe- exclusion approach also would remove possible less, this alternative continues to rely on discre- conflicts in regulatory jurisdiction that might tionary, and potentially restrictive, exemptive arise from continued CFTC jurisdiction over procedures for dealing with swaps and bank swaps. At the same time the limitations on the deposits rather than the more certain exclusion- exclusions ensure that these transactions are ary approach of the Bond-Wirth alternative. subject to federal oversight or are limited to Further, it does not address lending transactions sophisticated investors. at all. In conclusion, I believe that it is important that The alternative language offered by Senators the Congress act to clarify the limits of the CEA Bond and Wirth, on the other hand, excludes in a way that permits innovation in U.S. financial certain swap transactions as well as certain de- markets so that they can continue to be strong posit and lending transactions from the coverage and competitive. • Statement by Richard Syron, President, Federal unions insured by RISDIC. I will conclude with Reserve Bank of Boston, for the Subcommittee the lessons that should be drawn from this on General Oversight and Investigations of the experience. Committee on Banking, Finance and Urban Affairs U.S. House of Representatives, April 17, 1991. IMPACT OF THE CRISIS I am pleased to appear before you to discuss the Even before the collapse of RISDIC, serious failure of the Rhode Island Share and Deposit problems were emerging in the Rhode Island Indemnity Corporation (RISDIC). The situation economy. Rhode Island, like other New England in Rhode Island is very serious, and it is useful states, had been suffering an economic decline to explore fully why this problem occurred and well before the national recession. The decline how similar problems can be avoided in the began with a prolonged decline in the manufacfuture. In that effort, I will summarize the turing sector, but this weakness radiated to other impact of the crisis on individual citizens in sectors of the economy. The slow growth in state Rhode Island and on the economy of the state. revenues in Rhode Island, and in other New I will then review actions taken by the Federal England states, has forced state and local gov- Reserve Bank of Boston in response to the ernments to increase taxes and cut services. financial problems experienced by the loan and These problems were compounded by the colinvestment companies, banks, and credit lapse of the real estate and construction bubble. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

426 Federal Reserve Bulletin • June 1991 The rapidly rising real estate prices of the mid- ruptcy filings for the first quarter were almost 50 1980s reversed direction and began to fall. The percent higher than the average for 1990. The 121 median sales price of an existing single-family housing permits issued in February were far home in Providence, which had been $133,000 in below the 1990 monthly average of 260 permits. the fourth quarter of 1988, had fallen to $120,000 The unemployment rate in February was 7.9 perby the fourth quarter of 1990. The falling real cent, compared with 7.5 percent in December. estate prices not only eliminated a major source The RISDIC crisis has clearly worsened an alof wealth to consumers but also magnified the ready bleak economic outlook for Rhode Island. effects of the national recession. Employment in The Federal Reserve is deeply concerned with construction and real estate-related occupations the severity of the economic problems in Rhode normally declines during economic downturns; Island. Roughly $1.2 billion remains frozen. The however, the size of housing inventories and the situation is all the more tragic in that many of softness in real estate prices were unusual even these problems could have been avoided had for recessionary periods. earlier warnings been heeded. These problems have been obvious to the citizens of Rhode Island. In December 1990, before the failure of RISDIC, the unemployment EARLY WARNINGS rate was 7.5 percent, 1.4 percentage points higher than the national average. Personal bank- The Federal Reserve Bank of Boston had been ruptcies in 1990 numbered almost twice those of concerned for some time with the financial viabilthe prior year. Business bankruptcies also in- ity of private insurance funds located in individual creased sharply in 1990, to triple the number in states. This concern increased with the failure of 1989. By any measure, the "misery index" of the private thrift insurers in Maryland and Ohio in citizens of Rhode Island was already high going early 1985. Their experiences convinced us of the into the RISDIC crisis. need to monitor carefully the financial health of The failure of RISDIC at the beginning of this privately insured institutions in the First District. year clearly exacerbated an already dreary eco- Examination of financial data on RISDIC itself nomic situation. Initially, it is estimated that more and on RISDIC-insured institutions raised serious than 350,000 accounts were frozen as a result of doubts about the financial viability of the private the RISDIC failure in a state with a population of insurance fund. Among the institutions that only slightly more than 1 million people. Individ- RISDIC insured, several clearly could not have uals were deprived of access to their funds, and qualified for federal insurance in 1985. Further businesses could not finance inventories and pay- weakening the fund, some of RISDIC's strongest rolls, resulting in severe dislocations that affected members were qualifying for federal insurance the entire citizenry of the state. and leaving the RISDIC insurance pool. In relative terms, the crisis was much more Even without a pool of risky members, substansevere than the two highly publicized private tial concerns with RISDIC would have remained. insurance failures in Ohio and Maryland in 1985. RISDIC expanded deposit insurance coverage to While the total shortfall between deposits and accounts exceeding $100,000 in 1985 and continassets is unclear, estimates range between $150 ually allowed members to engage in risky lending million and $450 million, roughly 9 percent to 27 practices that were not acceptable to federal inpercent of total 1990 state government general surers of credit unions or to other private insurers. revenues. In comparison, the shortfall in Ohio Because of the small size of the insurance pool, and Maryland was roughly 1 percent of each losses from large institutions could only be met by state's general revenues. substantial additional assessments on its remaining members. Furthermore, since all the institu- It is still too early to estimate the full economic tions were located in the same area, made loans to impact of the RISDIC financial collapse on similar borrowers, and had large positions in other Rhode Island. Nonetheless, the relatively few RISDIC insured-institutions, all were likely to economic data available for the first quarter of experience problems at the same time. this year are not encouraging. Personal bank- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 427 This lack of diversification, and the knowledge insured institutions and the lax regulation apthat RISDIC's riskiest institutions were also its peared harmless during the boom, they amplified largest, led senior officials of the Boston Federal problems once the economy started to decline. Reserve Bank to initiate discussions with Rhode By the end of the 1980s it was apparent that the Island government officials on the status of rapid expansion of real estate activity was not RISDIC-insured institutions. Specifically, on sustainable. The small increases in population March 21, 1986, Frank Morris, the former pres- and slow growth in personal income had not kept ident of the Federal Reserve Bank of Boston, pace with real estate prices. Real estate values along with the senior vice president of its Bank throughout New England were decreasing, chal- Supervision Division and Credit Group and the lenging even New England's best-managed instivice president of the Bank Supervision Division, tutions. The economic climate was devastating to met with Governor Edward DiPrete and his chief institutions that had grown excessively by engagof staff. The purpose of the meeting was to ing in imprudent lending practices, and that inhighlight the recent collapse of private insurers in cluded many RISDIC-insured institutions. Ohio and Maryland and to urge passage of legislation requiring federal insurance for all RISDIC members. Governor DiPrete seemed receptive CRISIS PREPARATIONS and subsequently supported legislation requiring federal insurance. With the precarious financial situation of many Federal Reserve officials in Boston continued New England depository institutions and the to correspond with the Rhode Island Director of announcement in the fall of 1990 that RISDIC Policy about the legislation requiring mandatory had closed Heritage Loan and Investment Comfederal deposit insurance for RISDIC members. pany, just four months after having closed Jef- Reserve Bank staff reviewed drafts of bills and ferson Loan and Investment Company, the Fedmonitored their progress. Our early involvement eral Reserve Bank of Boston became concerned with RISDIC ended, however, with the defeat of that other RISDIC-insured institutions might also the bills requiring federal deposit insurance. be insolvent. Boston Federal Reserve officials Our warnings also seemed less urgent, in part, met with the Superintendent of Banking on Nobecause of the economic boom in Rhode Island vember 20, 1990, to receive a briefing on the during the mid-1980s. Of course, the boom only status of RISDIC and RISDIC-insured institupostponed, rather than prevented, the realization tions. The staff obtained the bank examination of RISDIC's problems. Unemployment in Rhode and financial data necessary to begin analysis of Island dropped to a low of 2.3 percent in Decem- the financial condition of RISDIC institutions, ber 1988, and Rhode Island experienced unprec- and contracts were initiated with the Rhode edented increases in real estate prices. The rapid Island Credit Union League (RICUL) and the expansion of the Rhode Island economy, along National Credit Union Association (NCUA). In with lax regulatory oversight of the composition addition, I initiated the first of many contacts and growth of credit union assets, enabled RIS- with Governor-Elect Bruce Sundlun to discuss DIC-insured institutions to aggressively expand the closure of Heritage Loan and Investment their lending. Many of the largest RISDIC-in- Company and the problems in other RISDICsured institutions experienced loan and deposit insured institutions. growth well in excess of 100 percent between As a result of these discussions, we developed 1985 and 1990. Such a rapid expansion of lending plans to provide emergency cash shipments to is frequently accompanied by a relaxation of institutions experiencing deposit runs and to procredit standards and requires even greater vigi- vide discount window loans, should either action lance by regulatory authorities. But there was no be required. For the most troubled institutions, commensurate increase in the number of super- daily liquidity reporting was implemented and visory staff to conduct bank exams and monitor- Federal Reserve staff conducted onsite visits. It ing at the Department of Business Regulation or was essential to have an effective mechanism to at RISDIC. While the rapid growth of RISDIC- alert the Federal Reserve in the event of unusu- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

428 Federal Reserve Bulletin • June 1991 ally large deposit withdrawals. We also imple- After consultation with Rhode Island state mented contingency plans for delivering emer- officials, it was decided that checks drawn on the gency shipments of currency, including arranging twenty-two closed institutions that qualified for for transportation and storage with the appropri- federal deposit insurance would be paid and ate security necessary for the bulk transfer of delivered to RICUL. Banks sending checks for currency. Discount loan preparations included collection on closed RISDIC institutions that informing RISDIC-insured institutions of the col- would remain closed because they were unable lateral and other requirements necessary to ac- to qualify for federal insurance were notified that cess the discount window, evaluating the avail- drafts on those institutions would be returned ability of each bank's collateral, assisting in the with the stamp "Unable to Present at This execution of borrowing agreements for discount Time." In addition, depositors' access to an window loans, and establishing a potential field ATM network posed unique problems that were warehouse and the legal documentation required resolved after consultation with officials of the for securing the assets used as collateral. state of Rhode Island and the ATM network. These efforts were coordinated with other reg- ACH transactions, an essential source of inulators and with the incoming and outgoing ad- come for many citizens, were expected to be ministrations in Rhode Island. In addition, an particularly large at the beginning of the month officer of the Bank Examination Department was because of the delivery of social security payloaned to the state of Rhode Island to serve as a ments. It was essential that actions be taken to liaison between the Federal Reserve Bank and ensure payment of direct deposits in closed Rhode Island officials. Toward the end of De- RISDIC institutions. After having conferred with cember, senior staff of the Federal Reserve Bank representatives of the U.S. Treasury, the Social of Boston were in daily contact, including week- Security Administration, and the Rhode Island ends and holidays, with RICUL, the NCUA, and Division of Banking, it was decided that Citizens senior Rhode Island officials to monitor the situ- Trust Company would act as agent for receipt ation and to discuss possible resolutions of the and disbursement of direct deposit payments RISDIC problem. destined for closed RISDIC institutions that did not qualify for federal insurance. For the twentytwo institutions reopening the week starting Jan- CONTAINMENT uary 7, 1991, with federal deposit insurance, ACH transactions were processed so that they As you know, on January 1, 1991, newly elected would be available to customers when the insti- Governor Bruce Sundlun announced the closing tutions reopened after the bank holiday. Several of all forty-five credit unions, banks, and loan Reserve Bank staff were dispatched to aid Citiand investment companies insured by RISDIC. zens Trust Company with the task of authenti- My strong view, albeit personal, is that Governor cating and reconciling individual payments. In Sundlun acted decisively and appropriately. The addition, the redirection of payments required bank holiday protected small and poorly in- significant reprogramming; in January and February alone, more than 10,000 electronic credits formed depositors from having the only remainwere redirected. These actions ensured the mining deposits in these insolvent institutions. The imum of disruptions for depositors of closed focus of Federal Reserve activities immediately institutions who received direct deposits, many became the protection of the payments mechaof whom have limited income and depend on nism and the prevention of any spillover to direct deposits, such as Social Security payinstitutions with insurers other than RISDIC. ments, to survive. The closings required the Federal Reserve Bank of Boston to decide how to process checks drawn The January 1 closing of the forty-five RISDIC on RISDIC-insured institutions and how to pro- institutions raised concerns that disruptions cess and settle direct deposit checks sent to might become more extensive as depositors beclosed RISDIC institutions through the auto- came less confident about banking institutions in mated clearinghouse (ACH). general. Depositor anxiety was increased by ru- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 429 mors of the impending closure of Bank of New such as Rhode Island, does not rest on a suffi- England and the uncertainty over the form the ciently diversified economic base. In contrast to closure would take. The highly charged atmo- federal deposit insurance, which is well diversisphere made depositors particularly sensitive to fied because it has a large number of members pronouncements by public officials and the press. that are geographically dispersed, RISDIC had The mere picture of an institution, even one neither large numbers of member institutions nor totally unaffiliated with RISDIC, in a national a diverse geographic distribution. As a result, media report on the RISDIC crisis was sufficient many member institutions were susceptible to to result in large cash withdrawals. similar risks, and the largest institutions com- Not surprisingly in this unsettled banking posed a sizable percentage of the total insurable climate, several financial institutions in South- pool. The three largest RISDIC-insured institueastern Massachusetts and Rhode Island re- tions accounted for 49 percent of total member quired emergency cash shipments. Despite deposits. Losses at any of the large institutions snowstorms and the presence of jittery deposi- imperiled the entire fund, which could not be tors, the timely delivery of cash shipments replenished by the limited resources of the recontained the deposit runs to a relatively few maining institutions. institutions. During the month of January the Second, many depositors are unaware that Federal Reserve Bank of Boston delivered private insurance is not guaranteed by the federal thirty emergency cash shipments totaling government and, at least not directly, by the $319.7 million. Once it became clear that depos- state. In contrast, federal insurance has the full itory institutions insured by sources other than faith and credit of the U.S. government as the RISDIC were not facing liquidity problems, the ultimate guarantee that depositors will always runs stopped. have access to their funds. Depositor mispercep- We hope that the Federal Reserve Bank of tions have forced states whose private insurance Boston has played a useful role in reducing the collapsed to assume the obligations of the private hardships suffered by the citizens of Rhode Is- insurer. These assumed state obligations have land as a result of the RISDIC crisis. Our early been reinforced by the names and advertisewarnings were not successful in averting the ments of the private insurance funds. problem. But after the seriousness of the recent Third, states should reexamine the resources situation became apparent, we carefully moni- allocated to bank examination and supervision. tored the situation so that we could offer assist- Failure to adequately monitor RISDIC-insured ance when it was required. Our actions to facil- institutions was all but inevitable, given the limitate transactions despite the closure of forty-five ited resources appropriated for bank regulation institutions, our emergency shipments of cash, in Rhode Island. State regulators depended on and the assistance we have provided depository the private insurer and on outside audits because institutions, other regulators, and Rhode Island of limited state resources. While in good times officials helped to minimize the disruptions cuts in monitoring and supervising banks provide caused by this unfortunate financial crisis. an attractive source of possible state savings, particularly since such cuts are unlikely to enrage special interest groups, these so-called "sav- IMPLICATIONS FOR POLICY ings" are dwarfed by the eventual costs to the states when state-regulated banks experience fi- While the RISIDC crisis is far from resolved, it nancial difficulties. has already highlighted the need to reconsider Fourth, the benefits to the financial system of several broad policy issues. The first two relate having the Federal Reserve involved in the many directly to flaws in RISDIC insurance. The last aspects of banking were clearly demonstrated in three relate to banking and regulatory matters in this crisis. The supervisory and operational exgeneral. pertise of the Federal Reserve was essential in First, deposit insurance within narrow geo- quickly responding to potential problems in the graphic boundaries, particularly in small states payments mechanism. This quick response pre- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

430 Federal Reserve Bulletin • June 1991 vented wider systemic problems and minimized closed institutions depositors have received the disruptions to the payments system for the very limited payouts. However, these institucitizens of Rhode Island. tions have some assets with value. The state of Fifth, coordinated action by state officials and Rhode Island needs to move quickly to give federal regulators was essential in preventing a depositors access to as much of their funds as is more serious financial disruption at the time of feasible. The Federal Reserve Bank cannot be a the RISDIC crisis. Greater contacts between source of capital to eliminate the shortfall. elected officials and federal and state banking However, we are prepared to work with state regulators should be encouraged and might help officials in any appropriate way including proavert future problems in the financial services viding liquidity to viable depository instituindustry. tions. As the national economy pulls out of the CONCLUSION recession, New England's economic outlook should improve. While the New England econ- In summary, the collapse of RISDIC has been a omy is likely to lag the national economy by up major disruption to the citizens of Rhode Is- to six months, we expect to see moderate land. Unfortunately, no costless solution to this economic growth by the end of this year. The problem exists. The liabilities of RISDIC-in- regional economy will also be strengthened by sured institutions substantially exceed their as- the upcoming resolution of banking problems sets, and this deficit is likely only to get larger elsewhere in New England. These positive deas resolution of the RISDIC crisis is delayed. velopments should help restore the economic Depositors in some closed institutions have yet climate that will allow resolution of Rhode to receive any of their funds, and in other Island's current financial crisis. • Statement by Alan Greenspan, Chairman, Board the bank franchise associated with the ongoing of Governors of the Federal Reserve System, technological revolution that has dramatically before the Committee on Banking, Housing, and lowered the cost of financial transactions and Urban Affairs, U.S. Senate, April 23, 1991. expanded the scope of financial activities of bank rivals; and (2) a statutory and regulatory struc- I am pleased to appear before this committee to ture that impairs the competitiveness of U.S. discuss two important banking reform bills. The banks by increasing their operating costs, disfirst, S.543, the Comprehensive Deposit Insur- couraging geographic diversification, and limiting ance Reform and Taxpayer Protection Act of their ability to respond to financial innovations 1991, was introduced by Chairman Riegle. The and the challenges posed by nonbank providers second, S.713, is the Treasury's proposed Finan- of financial services. cial Institutions Safety and Consumer Choice The coupling of the Riegle bill with the provi- Act of 1991. These two bills have a significant sions of the Treasury bill on interstate branching degree of overlap and agreement about modifica- and expanded activities for banking organizations to our deposit insurance system and our tions would address these basic problems facing supervisory procedures. U.S. banks and would establish a particularly Both bills propose similar reforms to reverse useful framework for congressional action. one of the fundamental causes of the problems These broader reforms would make our banking facing our banking system today: an expansive system more efficient and better able to serve the safety net that creates incentives for our banks to public and would create an environment for a take excessive risk with insufficient capital. The safe, sound, and profitable banking system. Treasury bill also addresses two other root Both bills contain a large number of detailed causes of the present difficulties of the U.S. provisions. In the interests of both time and banking system: (1) the reduction in the value of space, I have limited my comments to those Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 431 portions of each bill that represent the core be reduced in size over time before sale or proposals relevant to basic reform, to those for liquidation. which the Board may have a view contrary to Thus, prompt corrective action is designed to others that you may have heard, and to those decrease the probability of failures, and, when with which the Board has relatively strong res- they do occur, to minimize their cost to the ervations. I will, of course, respond to questions Federal Deposit Insurance Corporation (FDIC). about those provisions on which I have not It thus would reduce the need to draw on the commented. insurance fund and to limit that draw when resort With so many provisions, it is not surprising to insurance funds is necessary. The Board that no Federal Reserve Board member supports strongly supports this approach and believes that all of them. Nonetheless, all members of the it is an idea whose time has come for enactment. Board support a significant number of them, and In this regard, we are struck by the many simia few provisions are opposed by some or all of larities between the specifics of the two bills. The us. Thus, when I say that the Board supports or Treasury proposal clearly draws heavily on the opposes any particular provision, I will be sug- provisions of the earlier version of the Riegle bill, gesting a majority or sometimes a unanimous and likewise the Riegle bill has been adjusted in position. In this sense, I can say that the Board reflection of Treasury proposals. strongly supports both bills in their approach to Our suggestions do not call for significant deposit insurance and supervisory procedures, modifications, but we nonetheless urge their conand similarly strongly supports the thrust of the sideration. For example, both bills, correctly in Treasury bill to authorize new activities and our view, base prompt corrective action on capinterstate branching. ital. Generally, capital is a leading indicator of the financial condition and future performance and solvency of a bank. It should thus be a major PROMPT CORRECTIVE ACTION determinant in prompt corrective action. However, supervisory experience and economic re- The centerpiece of both bills is a capital-based search indicate that sometimes capital ratios prompt corrective action mechanism, under alone do not always differentiate between banks which entities with capital ratios below certain posing high and low risk to the deposit insurance standards would be placed under prompt and system. That is why the Treasury's proposal progressively greater pressure to limit their div- includes reference to "unsafe and unsound" idends and their growth and to modify manage- conditions or operations in placing banks into ment practices. As the degree of undercapitaliza- zones lower than might be indicated by capital tion increases, the supervisory pressure would alone. We believe that more general language— intensify. The principal objective of prompt cor- such as "other supervisory criteria"—would be rective action is to change the behavior of bank more useful. Operationally, this would mean that management by modifying its risk-benefit calcu- supervisors would be able also to consider asset lations through the establishment of a presump- quality, liquidity, earnings, risk concentrations, tion that supervisors will take specified correc- and judgmental information based on recent extive action as capital deteriorates. Moreover, by aminations, such as classified assets data. In acting promptly, it is possible to maintain the short, a reduction in a bank's capital ratio refranchise values of the going concern and to quires that a close review for significant probavoid the rapid declines in value that normally lems is required but that other variables should occur for insolvent banks. For the same reason, be considered as well. at some low, but still positive, critical level of These other indicators of the financial condibank capital, the bank would be placed in con- tion of a bank should not prevent categorization servatorship or receivership and the stockhold- based on capital. They would, however, permit ers provided only with residual values, if any. If supervisors to act even if the criteria for bank the bank could not be recapitalized, it would be capital were met. Indeed, we would suggest that sold, merged, or liquidated; larger banks might the proposed provisions for prompt corrective Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

432 Federal Reserve Bulletin • June 1991 action be revised to indicate that supervisors the additional flexibility it provides. Both apcould use other supervisory information to down- proaches require certain actions and permit sugrade institutions relative to zones implied by pervisory discretion when deemed appropriate. capital alone. We believe that this approach In the Treasury approach, the number of rewould greatly improve the overall effectiveness quired and the range of permissible actions exand fairness of a policy of prompt corrective pand as the capital ratio declines, but procedures action without jeopardizing the presumption that are specified—requiring explicit determination of regulators would be required to act quickly, public benefits—that permit the supervisor to forcefully, and consistently in dealing with capi- delay taking required actions. The Riegle aptal-impaired institutions. Nor would it eliminate proach permits no deviations from a small numthe rigor that its supporters hope prompt correc- ber of required actions but has a wide range of tive action policies would bring to the supervi- permissible responses, a procedure that also prosory framework. In our view, noncapital consid- vides flexibility to the supervisor. Both aperations should only be allowed to reduce the proaches thus blend flexibility with a mandate for category that capital alone would call for and prompt action. Both avoid inflexible, cookbook never either to neutralize or raise the categoriza- supervisory rules, while establishing a presumption of a bank based on capital. tion of rapid supervisory action. Indeed, even with the supplemental authority The adoption of prompt corrective action polprovided by the Treasury and Riegle prompt icies would represent a significant change in the corrective action proposals, the bank regulators supervisory framework for a large number of must remain vigilant in detecting problems that institutions. To avoid unintended impacts in do not immediately show up in capital ratios of credit markets and to provide banks with time to banks and must be aggressive in using existing rebuild their capital positions and modify their enforcement authority to address these prob- policies, we would urge a delayed effective date. lems. Both bills would permit a systemic pro- The Treasury legislation calls for a three-year gram of progressive restraint based on the capital delay, and the Riegle bill for a nine-month lag, of the institution, instead of requiring the regula- after enactment. We prefer the longer interval. tor to determine on a case-by-case basis, as a Putting banks on clear notice of the coming precondition for remedial action, that an unsafe supervisory framework at a certain date should or unsound practice exists. This program would provide for a smooth transition with minimal provide a powerful and useful tool for addressing disruption. problems at banks but would not replace the A final technical note: Both bills call for the need for active supervision of other factors at regulators to establish the specific capital ratios banks. for each zone or category. The Treasury bill The proposed Treasury legislation would au- requires that the agencies set the critical capital thorize expedited judicial review to ensure that level—that would call for putting the bank in the supervisor had not acted in an arbitrary and conservatorship or receivership—at a point that capricious way but would allow the supervisory generally permits resolution of troubled banks responses to go forward without delay while the without significant financial loss to the FDIC. court was reviewing the process of capital mea- The Treasury bill provides that this measure may surement. Such a procedure is a necessary pre- be no lower than 1.5 percent of the bank's assets. condition for the "prompt" in prompt corrective The Riegle bill indicates that the critical capital action but should be modified to include the other ratio should be set high enough that "with only supervisory standards referred to above. We rare exceptions" resolution would involve no urge the incorporation of this concept of expe- cost to the FDIC but does not specify a minimum dited judicial review in S.543. critical capital level. The Riegle proposal has three categories of The very act of placing a bank in receivership classification for prompt corrective action, and or conservatorship significantly lowers its franthe Treasury proposal has five. The Board pre- chise value, thereby increasing FDIC resolution fers the larger number of categories because of costs. It is unreasonable to impose such a "hair- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 433 cut" on operating banks. We would suggest, bank stock values, in loan and deposit rates, and therefore, that the criterion be to "minimize" in the technology and scale of bank operations. A resolution costs. It is worth emphasizing that rollback could thus create disruptions that may prompt corrective action will tend to reduce well exceed its benefits. losses to the insurance fund, but a genuine fail- The Treasury also proposes a study of longersafe, no-losses-to-the-FDIC policy would require run efforts to limit coverage to $100,000 per unrealistically high capital levels. We also be- individual across all institutions. The Board enlieve that it is appropriate for the Congress to set dorses the concept of a study to understand a floor on the critical capital level that indicates better the potential cost and intrusiveness of that the Congress recognizes the positive subsidy such a fundamental change in the scope of deresulting from the federal safety net. posit insurance coverage. Both bills would require that the FDIC establish a risk-based deposit premium assessment DEPOSIT INSURANCE REFORM system. In principle, such a system has several attractive characteristics: It would link the cost As I noted, prompt corrective action will ulti- of insurance to the risk that a bank poses to the mately make deposit insurance reform less press- insurance fund; it would reduce the subsidy to ing. Nevertheless, both bills propose a reason- risky banks; and it would spread the cost of able reining in of the safety net that the Board insurance more fairly across depository institusupports. Both bills call for limiting insurance tions. It could also be coupled with capital, coverage to $100,000 per individual per insured reducing the premium for those banks that held institution (plus $100,000 for retirement savings) capital above the minimum levels adjusted for and for eliminating coverage for all—or in the their risk profiles. Whatever these attractions case of S.543, for most—pass-through and bro- might be in principle, the Board would urge kered accounts. We believe that this basic pro- caution at a time when premiums are already posal would be consistent with the original intent high, Bank Insurance Fund (BIF) resources are of deposit insurance to protect the smaller-bal- low, and the range of premiums necessary to ance depositor. reflect risk differences accurately, and to induce It is worth noting that 1989 survey data suggest genuine behavioral changes, might be much that only about 3V2 percent of households held wider than feasible. Risk-based premiums also accounts that, when combined for all household would have to be designed with some degree of members, exceeded $100,000 at a single deposi- complexity if they were to be fair and if unintory institution. However, 60 percent of these tended incentives were to be avoided. Moreover, combined accounts were both less than $200,000 the extent of potential benefits when risk-based and held by households with husband and wife, premiums are imposed on top of the risk-based each of whom could, under the provisions of capital system, while likely to be positive, reboth bills, open fully insured accounts at the quires further evaluation. same institution. With this adjustment, which Both bills would require that the FDIC resolve excludes the additional coverage for retirement failed banks in the least costly manner, which accounts proposed in both bills, only Wi percent generally means that uninsured depositors would of households would have held accounts with receive only pro rata shares of residual values, if uninsured balances. These households had me- any. The Riegle bill, however, has no provision dian net worth in excess of $2 million, hardly a permitting consideration of systemic risks, and, family for which the safety net was designed. after 1994, prohibits outright any financial assis- Some observers would prefer a rollback in tance by the FDIC to an insured bank that would coverage. If we were rewriting history, few ob- have the effect of preventing loss to uninsured servers now would call for insurance coverage as depositors or creditors. To minimize the impact high as $100,000 per individual per institution. of a bank failure on other banks, this bill would But, as I noted last summer before this commit- require the Federal Reserve to develop and apply tee, such insurance levels are now capitalized in rules that limit interbank deposits and credits, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

434 Federal Reserve Bulletin • June 1991 including a prohibition on interbank deposits by of different sizes, and its tendency both to banks not in capital compliance. broaden the safety net and to undermine depos- While the Board understands the desire to limit itor and creditor discipline on bank risktaking. systemic risks through controlling interbank Despite the substantial concerns, the Board, credit relationships, we strongly oppose this pro- like the Treasury, has reluctantly concluded that posal because of the substantial disruption that there may be circumstances in which all of the could occur in the correspondent bank network depositors of failing institutions will have to be from its implementation. We are, for example, protected in the interests of macroeconomic staconcerned with the inducement to rapid with- bility. In evaluating our conclusion, it is impordrawals that would be associated with the mes- tant to underline that we anticipate that there will sage that a bank, whose capital has declined to also be circumstances in which large banks can just below minimum levels, was suddenly prohib- fail with losses to uninsured depositors but withited from taking interbank deposits. The pay- out undue disruption to financial markets. The ments system depends importantly on the inter- Treasury's proposal, in fact, contemplates that bank network, with large cross-border interbank the large-balance depositors of these banks will balances held for payments purposes. Sudden not be protected. Moreover, since the exception changes in the ability to offer such balances proposal is designed to maintain the confidence would be associated with sudden shifts in pay- of depositors in the system, its implementation ment patterns that could be quite disruptive. does not call for protection of nondeposit credi- The Treasury's bill is silent on interbank de- tors of the bank, its holding company, or its posits and credits. However, it calls for an ex- nonbank affiliates, and especially protection of ception to the least costly resolution of failed the stockholders and senior management. These banks in those situations in which the Treasury claimants and employees need not be protected and the Federal Reserve Board, on a case-by- to serve the objectives of the exception proposcase basis, jointly determine that there would be als. bona fide systemic risk. In addition, I would emphasize again that other No one—including the Federal Reserve provisions of both bills should ultimately make Board—is comfortable with the exception proce- the exception or too-big-to-fail issue less reledures for addressing systemic risk, even though vant. The greater emphasis on capital maintethe Treasury proposal would tighten up the way nance, more frequent onsite examinations, and such cases are handled. While, in principle, policies of prompt corrective action can be exsystemic risk could develop if a number of pected to modify bank behavior and attitudes smaller or regional banks were to fail, systemic toward risktaking. Indeed, the ultimate solution risks are more likely to derive from the failure of to the too-big-to-fail problem is to ensure that our one or more large institutions. Thus, the need to policies minimize the probability of large banks handle systemic risk has come to be associated becoming weak and that when banks experience with the too-big-to-fail doctrine. The dispropor- distress that regulators act promptly to limit tionate degree of systemic risk at larger banks FDIC costs. But reality requires that we recoghighlights the tension between one of the main nize that substantial increases in capital and purposes of deposit insurance—protecting small- substantial reversals of policies cannot occur in er-balance depositors—and the concern that the the short run. Moreover, it would be taking a rapid withdrawals by uninsured depositors from significant risk, we believe, to eliminate the longlarger banks perceived to be in a weakened run option to respond in a flexible way to unexcondition could cause and spread significant dis- pected and unusual situations. The Federal Reruptions that could, in turn, affect credit avail- serve alone cannot address this problem. We can ability and macroeconomic stability. Whatever add liquidity to the economy and we can direct its macro benefits might be, the too-big-to-fail liquidity to individual institutions in appropriate doctrine has increasingly offended observers and circumstances. But we cannot, under the Federal policymakers alike because of its inequitable Reserve Act, nor should we, provide capital to treatment of depositors and borrowers at banks any institution. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 435 BANK INSURANCE FUND ing increases in premium costs beyond an RECAPITALIZATION amount equal to an increase of 23 basis points on the current base. While prompt corrective action and deposit in- The Board believes that any plan to recapitalsurance limits will reduce future exposure of the ize the BIF must provide sufficient resources Bank Insurance Fund, the chairman of the FDIC without imposing excessive burdens on the bankhas warned of the unfolding insolvency of BIF. ing industry in the near term. The Board also In response, the Treasury has developed a pro- believes that loans to the BIF that would be posal that would authorize the Federal Reserve repaid with future premium revenues are the best Banks to lend up to $25 billion to the FDIC to means of striking this difficult balance. absorb losses sustained by the BIF in resolving However, an element of the Treasury's profailed banks. While the liabilities of the BIF posal that has troubled the Board is the use of the would be full faith and credit obligations of the Federal Reserve Banks as the source of these U.S. Treasury, it is anticipated that they would loans. To prevent such loans from affecting monbe repaid from increased insurance premiums. etary policy, the loans would need to be matched Premiums could be increased to as high as 30 by sales from the Federal Reserve's portfolio of cents per $100 of assessed deposits—7 cents Treasury securities. Thus, in either case, the higher than the premium that the FDIC has public would be required to absorb an amount of proposed to impose at midyear. In addition, the Treasury securities equal to the amount of loans BIF could borrow from other sources up to $45 to the BIF. billion for "working-capital" purposes, that is, to The Board can discover no economic purpose carry assets of failed banks pending their sale or that would be served by this indirect financing liquidation. These loans would thus be self-liqui- route. The implications for financial markets, the dating. Total premium income would be used to economy, and the federal budget would be idenpay interest on borrowings from the Federal tical if the Treasury made the proposed loans to Reserve and the Federal Financing Bank, cover the BIF rather than to the Federal Reserve ongoing insurance losses, repay Federal Reserve Banks. Because the Federal Reserve would offloans, and rebuild the BIF fund. set the loans with open market sales, there would In the current environment of intense compe- be no impact on reserves, the federal funds rate, tition and weak earnings, the Federal Reserve or the money supply. With respect to budgetary Board is concerned about the potential costs of implications, neither FDIC outlays, net interest further premium increases in terms of the sound- payments by the U.S. government, nor the budness and competitiveness of our banking, finan- get deficit would be any different. Finally, use of cial, and economic system. It is extremely diffi- the Treasury rather than the Reserve Banks cult to judge how high the premium could be would have no implications for the Budget Enraised before the costs outweigh the benefits in forcement Act. terms of added revenues for the BIF. What is Not only would use of the Reserve Banks for clear is that in reaching a judgment about the funding the BIF serve no apparent economic appropriate premium level we cannot ignore purpose, it could create potential problems of these potential costs simply because they cannot precedent and perception for the Federal Reeasily be measured. The premium level that serve. In particular, the proposal involves the maximizes the BIF's premium revenues, or even Federal Reserve directly funding the government. the premium level that maximizes the net worth The Congress has always severely limited and, of the BIF, could be substantially higher than the more recently, has forbidden the direct placement level that would be optimal if the potentially of Treasury debt with the Federal Reserve, apparadverse impact of higher premiums on our finan- ently out of concern that such a practice could cial system and our economy could be precisely compromise the independent conduct of monequantified. In light of these considerations, the tary policy and would allow the Treasury to Board supports the imposition of a premium cap escape the discipline of selling its debt directly to of 30 basis points and urges caution in consider- the market. Implementation of the proposal could Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

436 Federal Reserve Bulletin • June 1991 create perceptions, both in the United States and the scope of activities for holding companies with abroad, that the nature or function of our central well-capitalized bank subsidiaries. bank had been altered. In addition, if implemen- It is clear that some members of the Congress tation of the proposal created a precedent for are hesitant about authorizing wider activities for further loans to the BIF or to other entities, the banking organizations at a time when taxpayers liquidity of the Federal Reserve's portfolio could are being asked to pick up the costs for failed be reduced sufficiently to create concerns about savings and loan associations that have unsucthe ability of the Federal Reserve to control the cessfully taken too much risk and when BIF supply of reserves and, thereby, to achieve its recapitalization proposals raise the concern that monetary policy objectives. taxpayer assistance for resolution costs of banks The BIF must be granted unquestioned access may also be necessary. Such hesitancy is underto the financial resources necessary to meet its standable. However, two crucial differences exobligations. And, the public must be reassured ist between the expanded bank activities prothat, regardless of the solvency or insolvency of posed by the Treasury and those previously the BIF, the U.S. government will make avail- allowed for savings and loan associations: the able whatever funds are necessary to protect types of activities in which the institutions could federally insured deposits. engage and the types of institutions that would be Whatever financial arrangements accomplish allowed to engage in the activities. this objective, however, it is of critical impor- The wider activities proposed by the Treasury tance that we adopt policies now to minimize the are all financial in nature; they involve the types risk that such losses to the insurance fund will of risk with which bankers are familiar, letting ever occur again. The Board believes that both them build on their expertise. Thus, for example, the Riegle and the Treasury bills establish an the bill would not permit financial services holdapproach that would accomplish that objective ing companies to engage in real estate developthrough prompt corrective action. But the Riegle ment or other nonfinancial activities. It is worth bill does not address other issues that would repeating that the new activities that would be strengthen banking organizations, issues that I authorized would be restricted to holding comwould now like to discuss. panies with well-capitalized and soundly operated bank subsidiaries. They are to be conducted in separately capitalized affiliates that would have limited access to bank funds; and they must EXPANDED ACTIVITIES be divested if the capital of the affiliated banks AND INTERSTATE BRANCHING does not remain significantly above the minimum international capital standards. The proposal As the committee knows, the Board believes that does not repeat the thrift experience of authoriza significant part of the longer-run solution to the ing all institutions—strong and weak—to engage subsidy provided by the safety net is an increase in new activities in the depository, financed by in minimum capital standards. However, the insured deposits. The proposed approach is uncondition of many banks suggests that a shorter- likely to expose the safety net to additional risk run restoration process must precede the in- because it does not reflect a wholesale removal of crease in capital minimums. In the interim, the restraints. Based on their current capital posi- Board supports the Treasury proposal that would tions, we estimate that only about one-fourth of immediately reward those financial services the largest twenty-five, and about one-half of holding companies with bank subsidiaries that the largest fifty, of our banking organizations would be permitted to engage in such activities have capital significantly above the minimum if they were authorized today. Almost all of the standards. Not only does such an approach crenext fifty largest bank holding companies have ate additional inducements for these organizabank subsidiaries with capital high enough to tions to build and maintain the banks' capital, it permit the holding company to engage in these also addresses one of the most significant causes new activities. of weaknesses in the banking system by widening Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 437 The best protection for the insurance fund is to interstate banking promises is wider consumer be certain that we have strong banking organiza- choices at better prices and, for our banking tions. Authorizing wider activities for holding system, increased competition and efficiency, the companies with well-capitalized bank subsidiar- elimination of unnecessary costs associated with ies would increase the efficiency of our financial the delivery of banking services, and risk reducsystem by permitting such organizations to re- tion through diversification. The Board continues spond more flexibly to the new competitive en- to urge its prompt adoption. vironment in banking here and abroad. It also would add to the incentives for increasing and maintaining bank capital, and it would make REGULATION AND EXAMINATION available better and cheaper services to customers of U.S. banks around the world. The holding company form is retained in the Similar benefits involving even more banks Treasury proposal as the best organizational veand a larger proportion of the public would result hicle for financial modernization. Under the from widening the geographic scope of bank Treasury proposal, each holding company subactivity. The Riegle bill excludes, and the Trea- sidiary—bank and nonbank—would be sepasury bill includes, such provisions. The Treasury rately capitalized and functionally regulated as if proposal would repeal the Douglas Amendment it were an independent entity: Bank regulatory to the Bank Holding Company Act, to permit agencies would regulate banks, the Securities banking companies to operate subsidiary banks and Exchange Commission (SEC) would regulate in all states, and would amend the McFadden broker-dealers and mutual funds, and the states Act, to permit banks to operate branches of their would regulate insurance companies. banks in all states. The bill would thus eliminate To restrict the safety net to the insured bank, an anachronism and permit full interstate bank- the proposal would apply Sections 23A and 23B ing by any vehicle that a banking organization of the Federal Reserve Act, which limits quantichooses. tatively the financial transactions between banks An interstate banking system has slowly and their affiliates and requires that such transevolved in this country through the holding com- actions be collateralized and conducted on marpany vehicle. Only Hawaii and Montana do not ket terms. However, to achieve the synergies now have on the books legislation that per- that are the purpose of the proposal, the bill mits—or is scheduled to permit—some form of would not impose management, operations, or interstate banking. But this approach, with sep- general marketing fire walls, though strong disarately capitalized bank subsidiaries, and with closure requirements would be required to proless than full nationwide banking authorized, still tect the consumer. Among the fire walls that does not permit some banking organizations to would remain are restrictions on sales of affiliate enter some attractive markets and, most impor- liabilities at the bank, where they might be contant, is unduly costly. True nationwide interstate fused with insured deposits. branching would be much more flexible and In the Treasury bill, the primary regulator of efficient, achieving geographic diversification at the largest bank subsidiary would become the lower cost. Simply by collapsing existing subsid- umbrella supervisor of the financial services iaries to branches, banks could eliminate the holding company. The Treasury bill contemunnecessary costs of separate boards and extra plates that, with expanded permissible activities, management layers, as well as the costs of sep- the insured banking units often would account arately capitalizing each subsidiary. Authoriza- for a significantly smaller proportion of the contion of interstate bank branching is, in effect, solidated assets of the financial services holding both a more efficient use of capital and a capital- company than they are now of the bank holding building step by reducing banking costs. company. As a result, the focus of the umbrella supervisor in the Treasury bill is to police and The evidence from intrastate branching does constrain threats to the bank, while limiting not suggest that it will be a substantial source of banklike regulation of the holding company and additional earnings to out-of-market banks. What Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

438 Federal Reserve Bulletin • June 1991 its uninsured subsidiaries. The Riegle bill, in While the Treasury bill provides the supervisor contrast, does not expand the scope of activities with examination authority over financial affilof banking organizations and thus retains the iates to determine compliance with these recurrent banklike regulatory focus on the consol- quirements, the Board believes that additional idated holding company, whose assets are pre- clarification is required to assure that the superdominantly banks and subsidiaries whose activi- visor would have full examination powers over ties are closely related to banking. the consolidated financial services holding com- In their respective context, each of these ap- pany when the banks' capital declined below proaches makes sense to the Board because they minimum levels. link regulation to the type of activity. Since the All of these clarifications are necessary to Board strongly supports a wider range of activi- ensure that the umbrella supervisor would be ties for banking organizations, we would also able to act promptly and effectively to protect the support the regulatory approach of the Treasury bank. But the thrust of the modified provisions bill if such activities are authorized. Under that would still be to limit the banklike regulation of approach, the umbrella supervisor's authority the holding company and its uninsured subsidiarover the uninsured affiliates of well-capitalized ies, provided the bank affiliates are well capitalbanks would be limited. However, the umbrella ized. For example, the traditional consolidated supervisor would police financial transactions bank holding company capital regulation would between the bank and its affiliates, could assess not be imposed, under the bill, as long as its the risks to the bank posed by the activities of its insured depository subsidiaries were themselves nonbank affiliates, and could require divestiture capitalized above minimum levels. There are of a nonbank affiliate posing a threat to the bank. several reasons for this approach: It recognizes To assure that the bank is protected, the Board the practical infeasibility of regulators determinbelieves that some minor modifications in the ing what the appropriate minimum capital should language of the Treasury bill are necessary to be for an organization that is not primarily a further clarify that the umbrella supervisor could banking organization but rather a true financial examine the parent anytime it wishes to assure services company; it facilitates equitable treatthat it is not creating risk for the bank. Further ment between holding company subsidiaries and clarity is also necessary to assure that, while the independent firms; it avoids the inefficiencies of umbrella supervisor would not, as a matter of regulation; it creates an additional incentive to course, examine the nonbank affiliates on a reg- build and maintain a strong bank capital position; ular basis, the umbrella supervisor would be and it avoids even the appearance of extending permitted to examine nonbank affiliates when- the safety net. ever the supervisor believed that the affiliate It certainly is true that this would permit holdposed a risk to the banks, even when the banks' ing companies to rely without regulatory limit on capital was above minimum levels; otherwise the debt markets to finance equity contributions to supervisor's divestiture authority would be less their bank and nonbank subsidiaries—so-called meaningful. Balancing protection of the bank and double leverage. However, prompt corrective aclimits on the spreading of the safety net with tion would limit dividends and other payments minimal regulation of nonbank affiliates requires that bank subsidiaries could make to their parent careful legislative language. should the banks' capital decline. Such restric- The Treasury proposal calls for the imposi- tions on dividends, as well as the strict limitation tion of bank capital standards on, and the of the safety net protection only to the banks, are application of many of the regulations govern- likely to make financial markets cautious about ing prompt corrective action for banks to, the the quantity of debt that it permits financial serconsolidated holding company whenever the vices holding companies to assume. Moreover, capital of the bank falls and remains below the with the appropriate examination authority, the minimum bank capital standard. This approach supervisor could take remedial corrective action if is designed to reinforce the protection of the the holding company poses risk to the banks. banks from contagion by its parent or affiliates. Our support for limits on banklike regulation of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 439 holding companies, as I have noted, depends on be significantly smaller, on average, than nabanks becoming a less important component of tional banks. We believe our ability to accomthe consolidated entity. Should permissible ac- plish our monetary policy objective successtivities of bank holding companies remain un- fully would be seriously damaged without the changed—and bank holding companies remain intimate contacts derived from our supervisory predominantly in the banking business—the responsibilities relating to large banking organi- Board would prefer to see the continuation of zations. This theme was echoed in the 1984 consolidated holding company supervision, Bush Task Force report, which assigned umregardless of the capital position of the subsid- brella supervision of large bank holding compaiary bank. In such a context, we would support nies to the Federal Reserve, even if it did not the extension of the cross guarantees to non- regulate the lead bank. We believe that the bank subsidiaries, as provided in the Riegle bill. Federal Reserve must have hands-on knowl- The Riegle bill does not address regulatory edge of the operations of those large banking structure, while the Treasury bill makes the organizations, where potential problems could Board the primary regulator of state-chartered have systemic effects, if we are to perform the banks and a new federal agency the primary critical function of ensuring stability in the regulator of national banks and thrift institu- financial markets and payments systems. For tions. Thus, both the Board and the Treasury example, it is difficult to imagine how we would believe that the Federal Reserve should have a administer our discount window responsibilities significant role in the supervisory process. and the associated collateral evaluations with- The Board is convinced that the information out the practical experience and knowledge flow obtained from the supervisory contact is of derived from our supervisory responsibilities at critical importance for the conduct of monetary the larger institutions. policy and the maintenance of the stability of Moreover, with the increasing globalization the financial system. In addition, the Board of banking, in the coming years the central believes that its supervisory policy benefits banks of the world will need more than ever to from the perspective of its responsibilities for coordinate responses to developments that may macrostabilization. Not only is it important that originate anywhere and have an impact not only monetary and supervisory policies not work at on foreign exchange markets but also on the cross purposes, but I cannot emphasize enough financial markets of their respective countries. how much we rely on the qualitative informa- In a world of electronic transfers, in which tion we now obtain from bankers through our billions of dollars, yen, marks, and sterling can supervisory process to understand evolving de- be transferred in milliseconds, and problems at velopments in financial markets. We need a a bank or other institution in any country can critical mass of coverage of banking markets to put such transfers—and hence market stabiliget an immediate sense of what lies behind the ty—at risk, central bank consultation and coordata, and, just as our responsibilities for macro- dination on operating details and procedures stabilization bring a different perspective to our are critical. Thus, in our view, it is essential supervisory efforts, we use this feedback from that the Federal Reserve—to conduct its stabithe supervisory process both to help us develop lization policies—have intimate familiarity with our monetary policy and to evaluate its impact. all banking institutions having a substantial For example, our understanding of the recent cross-border presence. evolving problems with credit availability, the constrained flow of credit, and the impact on economic activity came importantly from our FOREIGN BANK ACTIVITIES supervisory contact with banking organizations IN THE UNITED STATES large and small. Under the Treasury proposal, however, the The Treasury bill would require that a foreign Federal Reserve would have umbrella authority bank that desires to engage in newly authorized only over state-chartered banks, which tend to financial activities establish a financial services Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

440 Federal Reserve Bulletin • June 1991 holding company in the United States through banks could also be discouraged from involvewhich such activities would have to be con- ment in U.S. banking markets by requiring ducted. The bill also would require that any foreign banks to operate only through subsidforeign bank that chooses to engage in such iaries to engage in new activities. Moreover, by activities in the United States close its U.S. compelling a switch from branches, whose debranches and agencies and conduct all of its posits now are largely uninsured, to U.S. sub- U.S. banking business through a U.S. subsid- sidiaries, whose deposits would be covered by iary bank. Under the bill, foreign banks would U.S. deposit insurance, we would be increasing lose their grandfather rights for U.S. securities the extent to which depositors would look to affiliates after three years and would be re- the U.S. safety net instead of to the foreign quired to obtain approval from appropriate au- parent in the event of problems. thorities to engage in underwriting and dealing Foreign banks have made a substantial conin securities activities in the United States in tribution to the competitive environment of the same way that a U.S. banking organization U.S. financial markets and the availability of would. The Treasury bill would also allow credit to U.S. borrowers. Currently, legal lendforeign banks to establish interstate branches at ing limits for U.S. branches and agencies of any locations permitted to state or national foreign banks are based on the consolidated banks. Foreign banks choosing to engage only capital of their parent banks. By contrast, rein banking in the United States would not be quiring a "roll up" of branches and agencies of required to form U.S. subsidiary banks and a foreign bank into a U.S. subsidiary bank, would be permitted to operate interstate whose capital is measured separately from the through branches of the foreign parent bank. parent, might limit the extent to which foreign The capital and other supervisory standards banks contribute to the depth and efficiency of that would be the basis for authorizing affiliates markets in the United States. of foreign banks to engage in newly authorized We also have some reservations about the financial activities and interstate banking are purpose that would be served by requiring a the same as those that would apply to affiliates foreign bank to establish a holding company in of U.S. banks. Such a policy appears appropri- the United States to conduct new financial ate and equitable. On the other hand, we ques- activities. In particular, requiring foreign banks tion the need for the requirement that foreign to operate through holding companies is not banks close their U.S. branches and agencies necessary to assure competitive equity for U.S. and conduct their U.S. business in a separately financial services holding companies or indecapitalized U.S. subsidiary bank to take advan- pendent U.S. nonbank firms. First, we see no tage of the expanded powers for activities and clear competitive advantages to foreign banks branching. when they can engage in new activities only if As the Treasury bill recognizes in advocating the banks are well capitalized. Second, domestic interstate branching, a requirement branches of foreign banks possess no systemic that a banking business be conducted through funding advantages in the United States, and separately incorporated subsidiaries rather than any cost advantage a foreign bank may have in branches imposes substantial costs by not per- its own home market would be available regardmitting a banking organization to use its capital less of the structure of its U.S. operations. The and managerial resources efficiently. In most requirement that a foreign bank conduct new countries, U.S. banks have been permitted to activities only through a financial services holdenjoy the advantages inherent in competing in ing company imposes additional costs on forforeign markets through branch offices. In bilat- eign banks without any obvious benefits. It also eral and multilateral discussions, U.S. authori- creates an inducement for foreign banks to ties have correctly argued that a restriction conduct their banking operations in less costly against branching discourages the involvement environments outside the United States and for of U.S. banks in foreign markets. It would be foreign authorities to threaten reciprocal reinconsistent not to acknowledge that foreign strictions for U.S. financial firms abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 441 COMMERCE AND BANKING main prohibited, financial firms already owned by commercial and industrial firms would likely The Treasury has proposed permitting commer- point out the inequity of their being prohibited cial and industrial firms to own financial service from affiliating with banks, while their indepenholding companies. The Treasury report that dent rivals were free to do so. Given the relapreceded its legislative proposals focused on the tively small number of securities firms, insurance need to widen and deepen capital sources, espe- companies, finance companies, and thrift institucially for failing banks, for which nonfinancial tions that are owned by commercial and induscorporations might be willing to provide substan- trial firms, the Congress may wish to address this tial capital in exchange for control. The Treasury issue through appropriate limited grandfather proposal also seeks fairness for those financial provisions. firms that operate in markets banks would be authorized to enter under the proposal but that would otherwise be prohibited from purchasing a ACCOUNTING STANDARDS bank because of their commercial parents. The Treasury report also stressed the desirability of Both bills address accounting standards in bankadditional management expertise and strategic ing. Timely and accurate financial information on direction from commercial firms as well as the depository institutions is critical to the supervireduction in regulatory burden in distinguishing sory process and to effective market discipline. between financial and nonfinancial activities. Thus, it is important that financial statements and Those who hold a contrary view argue that our reports of condition accurately represent the true capital markets are so well developed that prof- economic condition of firms. itable opportunities in banking can attract capital The Riegle bill contains a number of provisions from sources other than nonfinancial corpora- intended to strengthen regulatory accounting tions seeking management control, provided that standards for insured depository institutions. banks operate in a regime that permits them to be While the Board shares the basic view that any fully competitive. In addition, opponents are deficiencies in accounting practices should be concerned about the implications of permitting corrected, we are concerned that certain contemcommercial and industrial firms to own—even plated reforms may be counterproductive. In indirectly—subsidiaries with access to special particular, I am referring to the provisions requirgovernment protection. ing that regulatory accounting standards move in On balance, the Board supports on a philo- the direction of market-value accounting. sophical level the notion of permitting any insti- The Riegle bill would direct the SEC, in contution the right to go into any business—includ- sultation with the banking agencies, to "faciliing banking—with the proper safeguards. tate" the development of regulatory accounting However, the Board believes that it would be principles that promote effective supervision and prudent to delay enacting the authority to link "accurately reflect—at market value, to the excommerce and banking until we have gained tent feasible—the economic condition of insured some actual experience with wider financial own- depository institutions." This provision apparership of, and wider activities for, banking orga- ently is intended to stimulate the development of nizations. We should reflect carefully on such a market valuation techniques, leading, eventubasic change in our institutional framework be- ally, to the adoption of market-based accounting cause it is a step that would be difficult to reverse standards for banks and thrift institutions. A and for which a strong case for immediate enact- related provision would mandate that banks with ment has not been made. total assets of more than $1 billion disclose the The Board would have no difficulty with those aggregate market value of their assets and liabilnonbanking financial firms wishing to affiliate ities in reports of condition. with banks maintaining their de minimis preex- The Board recognizes the potential value of isting holdings in commercial or industrial firms. accounting research directed at improving the But, if banking and commerce connections re- measurement of assets and liabilities. However, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

442 Federal Reserve Bulletin • June 1991 we are skeptical whether such research can suc- confidence. The latter problem could arise even cessfully resolve fundamental problems regard- if market value information were disseminated ing the applicability of market value accounting through supplemental disclosures. to all banking organizations. Consequently, at While the adoption of market value accounting this time we believe that it would be premature to for investment securities may be technically feacommit, even in principle, to the adoption of sible at this time, the Board strongly recommarket value accounting either in whole or in mends against such a partial approach that would part for banking organizations. mark only part of the balance sheet to market. Our concerns are both practical and concep- Such a partial approach could create substantial tual. Because most assets and liabilities of banks measurement distortions that artificially distort are not traded actively, their market values bank behavior. Depository institutions often use would have to be estimated. Inherently, such investment securities to hedge interest rate risk estimates would be highly subjective. For valid present in other areas of their balance sheet. reasons, the economic value of an asset or a Thus, were investment securities marked to marliability might differ according to the identity of ket, offsetting gains or losses on other assets and the holder, reflecting differences in individual liabilities generally would not be recognized, risk preferences, tax situations, informational leading to inaccurate measures of the true net and operating costs, and other idiosyncratic fac- worth and riskiness of the institution. Banks and tors. Indeed, the value added by banks is partly thrift institutions, therefore, might be discourattributable to their comparative advantage rela- aged by accounting treatment from undertaking tive to other investors in evaluating, originating, hedging transactions that are in their best interor servicing illiquid loans, based on proprietary est. In addition, the partial approach would tend information, operating efficiencies, or special to undermine incentives to acquire and hold monitoring capabilities. long-term securities and might encourage a trad- Owing to this subjectivity, market value esti- ing mentality that could increase the overall level mates would be difficult to verify by auditors and of risk in the portfolio. examiners and susceptible to manipulation. We believe that the agencies and the SEC Thus, the adoption of market value accounting could productively focus on the improvement in principles for illiquid assets could worsen, rather supplemental disclosure and support the provithan enhance, the quality of information about sions of the Treasury bill that call for such the true condition of depository institutions. efforts. However, at present we believe that Technologies that reduce the underlying subjec- there is rather limited scope for expanding suptivity of market value estimates generally do so plemental disclosures of market value informaby imposing standardized assumptions that may tion by banks. For several years, a supplemental not be appropriate in all situations and would schedule to the report of condition has shown precisely fit none. both the current book value and market value of Even when assets are traded in liquid markets, each type of security held by banks. While these market values may not be the best measure of market values have not been included in reported underlying value. A growing body of evidence capital and earnings, they are publicly disclosed. suggests that asset prices display substantial In addition, assets that are expected to turn over short-run volatility or noise that is unrelated to relatively quickly are carried at market value, in economic fundamentals. Under market value ac- the case of trading accounts, or at the lower of counting, such noise could discourage depository cost or market value, in the case of debt securiinstitutions from making fixed-rate loans, whose ties, mortgages, and other loans held for sale. market values would be especially subject to The report of condition requires separate discloprice changes. Market value accounting also sure of the amount of debt securities and loans could lead to greater fluctuations in bank earn- held for sale, with the latter going beyond what is ings that might generate instability in the supply mandated under generally accepted accounting of credit to the economy through its impact on principles (GAAP). Perhaps the only significant the volatility of capital positions and on public area where additional supplemental disclosures Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 443 of market value information may be appropriate CONCLUSION is residential mortgages that are not held for resale and mortgage servicing rights. The active The bills before you address critical issues of secondary market for these assets and related fundamental importance. The Board strongly mortgage-backed securities could be used as a supports the provisions of the Riegle and Treabasis for disclosure of their market value. sury proposals to rein in the safety net by Much can be done to reduce divergences be- limiting deposit insurance coverage and impletween accounting and economic measures of fi- menting prompt corrective action procedures. nancial condition within the current GAAP frame- We believe, however, that the Riegle bill should work. The most important priority should be to be extended to cover the proposals in the improve the reporting of loan-loss reserves and Treasury bill to expand the range of permissible disclosures about loan quality and asset concen- activities for organizations with well-capitaltrations. Financial analysts typically cite these ized banking subsidiaries and to rescind ineffiareas, rather than the lack of market value infor- cient restrictions on interstate banking. These mation, as the most problematical under current steps would significantly and prudently limit accounting standards. In this regard, on March 1, subsidies to banks, reduce incentives for excesthe federal banking and thrift agencies recom- sive risktaking, and safely remove constraints mended voluntary disclosures about the cash that have limited the ability of banks to deliver flows and other characteristics of nonaccrual wider services at lower costs. All of these loans held by banking and thrift organizations. In actions, including assured funding for the BIF, addition, the report of condition was recently are required if we are to have a healthy and revised to collect detailed data on the participa- strong banking system capable of financing ecotion by banks in highly leveraged transactions. nomic growth and providing American house- Nevertheless, further disaggregated disclosures holds and businesses with low cost state-of-theabout the characteristics of loans and borrowers, art financial services. as would be required under S.543, may be appropri- Despite the need to develop procedures to ate. Such disclosures could exert constructive mar- assure that the BIF has adequate resources, the ket discipline on depository institutions to ensure Board urges the Congress to address the issues adequate provisioning for loan-loss reserves. broadly and to avoid only partial solutions by I would also note that the banking agencies separating into component parts the comprehencurrently are working to develop more compre- sive proposals for reform such as those suggested hensive and uniform standards for examining by the Treasury. Despite our concerns about loan-loss reserves. Together with an at least an- some of its proposals, we strongly support the nual full-scope asset quality examination of every thrust of the Treasury's approach because it bank, these standards should enhance the reliabil- addresses the issues within a framework that ity of estimates of the allowance for loan-loss re- attacks the major root causes of the problems in serves and their comparability across institutions. our banking system. • Statement by John P. LaWare, Member, Board Act of 1991. Given our direct responsibilities of Governors of the Federal Reserve System, with respect to the financial service industry and before the Subcommittee on Economic Stabiliza- our desire to ensure a healthy and efficient envition of the Committee on Banking, Finance and ronment for the provision of financial services, Urban Affairs, U.S. House of Representatives, the Federal Reserve has a special interest in this April 24, 1991. legislation. The proposed act has two major elements that I am pleased to appear before you this morning to I would like to discuss this morning. First, the present the views of the Federal Reserve Board Secretary of the Treasury would be required to on the proposed Fair Trade in Financial Services submit to the Congress every two years a report Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

444 Federal Reserve Bulletin • June 1991 identifying those countries that do not offer na- Despite some individual legislative initiatives in tional treatment to U.S. banks, securities bro- recent years, it is acknowledged by virtually all kers and dealers, or investment advisers. A major industrial countries as the principle upon country offers national treatment to foreign firms which regulation of the international operations if it offers "the same competitive opportunities of banks ought to be based. Over many years (including effective market access)" as are avail- the U.S. government has assumed a leadership able to their domestic firms. In the case of a role in building a consensus around this concountry where a significant failure to accord cept. At home, our policy of national treatment national treatment is found, the Secretary of the seeks to ensure that foreign and domestic banks Treasury must, in general, enter into negotiations have a fair and equal opportunity to participate with the country to end the discrimination. The in our markets. The motivation is not merely a Secretary may, at his discretion, publish in the commitment to equity and nondiscrimination, Federal Register a determination that a country though such a commitment in itself is worthy. does not give national treatment; if he does so, More fundamentally, the motivation also is to regulatory agencies would have authority to use provide consumers of financial services with such a determination as a basis for denying access to a deep, varied, competitive, and effiapplications by financial institutions from that cient banking market in which they can satisfy country. their financial needs on the best possible terms. Second, if the Secretary of the Treasury has Our policy of national treatment has served published in the Federal Register a determina- this country well. The U.S. banking market and tion with respect to a country, institutions from U.S. financial markets more generally are the that country that are already operating in the most efficient, most innovative, and most sophis- United States may not commence "any new line ticated in the world. It is not a coincidence that of business" or conduct business from a "new our markets are also among the most open to location" without obtaining prior approval from foreign competition. Foreign banks, by their the appropriate regulators. This provision would presence and with the resources that they bring apply to new U.S. activities or U.S. offices for from their parents, make a significant contribuwhich no approval process is currently required tion to our market and to our economic growth; for either domestic or foreign banks. For exam- they enhance the availability and reduce the cost ple, a foreign-owned U.S. bank may decide to of financial services to U.S. firms and individuals begin to offer consumer mortgage lending or as well as to U.S. public-sector entities. investment advisory services. Currently, no ap- The proposed act would replace the U.S. polplication for regulatory approval is required. icy of national treatment with a policy of recip- However, under the proposed act such activities rocal national treatment. The United States would be viewed as "new lines of business" would be saying that we are prepared to forgo the requiring regulatory approval. benefits of foreign banks' participation in our While we share the objectives of this proposed market if U.S. banks were not allowed to comlegislation in that we too would like to encourage pete fully and equitably abroad. other countries to liberalize their financial mar- Based on experience to date, the Federal Rekets, we think that the legislation itself is unwar- serve feels strongly that there are better ways to ranted and would have unfortunate conse- encourage other countries to open their markets. quences. It would reject national treatment and Relying on market forces to induce liberalization grandfather rights—two practices that have been may actually be the most potent force. It is well fundamental to U.S. policy toward the interna- understood that any country that wants to have a tional operations of financial organizations. financial market with sufficient international stat- These practices should be preserved. Let me ure to compete with New York and London must elaborate on these points. liberalize and open its market. Many countries, including notably—but not only—Japan and Ger- The principle of national treatment was esmany, are moving inexorably in that direction. tablished as U.S. policy with respect to foreign banks by the International Banking Act of 1978. Nevertheless, we have not relied only on such Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 445 a passive strategy, however successful such a European subsidiaries of U.S. banks may constrategy ultimately may be. In 1979, after pas- tinue to conduct business and to expand their sage of the International Banking Act, the Trea- operations on a national treatment basis. sury Department, with the help of other agen- If, contrary to this widely accepted practice, cies, prepared its first National Treatment the Congress were to adopt the proposed act, the Study, which has been updated several times, United States could no longer hold to a princimost recently last year, and which will be pled position in advocating liberalization in interprepared regularly in the future, pursuant to the national circles. By telling existing foreign- Omnibus Trade and Competitiveness Act of owned banks in the United States that the rules 1988. Based on the findings of those reports, the and procedures that have applied equally to them Treasury has engaged in bilateral talks with and to all other banks operating in the United several countries, including Japan, partly as a States now apply only to U.S.-owned banks, we consequence of which we have seen a substan- would be denying national treatment to foreign tial degree of liberalization in foreign financial banks. We would run the risk of introducing markets. instability and discouraging foreign investment in Beyond those efforts, the Federal Reserve and our markets. Moreover, we would be inviting others urged countries of the European Commu- almost certain retaliation. nity strongly, and with some success, to soften In conclusion, I would like to emphasize that the reciprocity provisions in their proposed Sec- we have witnessed substantial liberalization and ond Banking Directive. We have participated in a structural reform in financial markets abroad range of committees at the Bank for International over the past decade. Like members of the Settlements in Basle and at the Organisation for Congress, we too would like to see further prog- Economic Co-operation and Development in ress. However, we must recognize also that U.S. Paris, where work has been aimed, in part, at markets are not as open as other countries would establishing the legal, supervisory, and regula- like or, for that matter, as free as many in the tory conditions that are a precondition for ensur- United States, including the Federal Reserve, ing a "level playing field." In addition, the would like. Federal Reserve has joined others in the U.S. National treatment is an important concept, government in working vigorously to reach a but in its implementation it is also an elusive one. meaningful agreement on trade in financial ser- Because it is enormously difficult to apply navices within the current Uruguay round of mul- tional treatment in a world in which the structilateral trade negotiations. tures of banking markets in various countries I turn now to grandfathering, a practice widely differ significantly, it is tempting to seek what accepted internationally as a means of protecting may appear to be direct, clear-cut solutions. investment in existing foreign banking operations However, lawmakers in each country, including at a time of statutory change. U.S. operations of the United States, must balance considerations foreign banks were grandfathered in the Interna- of competitive equity with other legitimate contional Banking Act. With respect to foreign op- cerns. We cannot insist that other countries erations of U.S. banks, the Federal Reserve, adopt our structures any more than we can let along with others in the U.S. government and the others dictate to us. U.S. financial industry, objected strenuously It could prove to be a costly mistake if we when the European Community (EC) was con- jeopardize the gains we have made and are sidering the elimination of grandfather rights for continuing to make in improving our own marforeign banks, including U.S. banks, operating in kets, in reforming markets abroad, and in gaining Europe; in the end the EC preserved those access for U.S. financial firms to those markets, rights, as I suspect they realized all along that for the sake of trying, probably in vain, to force they would ultimately have to do. Consequently, others to adhere to our own timetable. • An additional statement follows. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

446 Federal Reserve Bulletin • June 1991 Statement by Alan Greenspan, Chairman, portions of each bill that represent the core Board of Governors of the Federal Reserve proposals relevant to basic reform, to those for System, before the Subcommittee on Financial which the Board may have a view contrary to Institutions Supervision, Regulation and Insur- others that you may have heard, and to those ance of the Committee on Banking, Finance with which the Board has relatively strong resand Urban Affairs, U.S. House of Representa- ervations. I shall, of course, respond to questions tives, April 30, 1991. about those provisions on which I have not commented. I am pleased to appear before this committee to With so many provisions, it is not surprising discuss three important banking reform bills: that there is some difference of opinion among H.R. 6, the Deposit Insurance and Regulatory the Board members on some of them. Thus, Reform Act of 1991, introduced by Chairman when I say that the Board supports or opposes Gonzalez; H.R. 15, the Depositor Protection Act any particular provision, I will be suggesting a of 1991, introduced by Congressman Wylie; and majority or sometimes a unanimous position. In H.R. 1505, the Treasury's proposed Financial this sense, I can say that the Board strongly Institutions Safety and Consumer Choice Act of supports the thrust of the Treasury bill to limit 1991. These three bills all would modify our deposit insurance, authorize new activities and deposit insurance system to place limits on an interstate branching, and modify supervisory expansive safety net that has created incentives procedures. for our banks to take excessive risk with insufficient capital. Both the Wylie and the Treasury bills would also increase the efficiency of our banking system, reducing its operating costs and PROMPT CORRECTIVE ACTION increasing its diversification, by authorizing a true interstate banking system. Both the Treasury and the Gonzalez bills call for The Treasury bill addresses more broadly two a capital-based mechanism for prompt corrective other root causes of the present difficulties of the action under which entities with capital ratios U.S. banking system: (1) the ongoing technolog- below certain standards would be placed under ical revolution that has dramatically lowered the prompt and progressively greater pressure to cost of financial transactions and expanded the limit their dividends and their growth and to scope of financial activities of bank rivals, reduc- modify management practices. As the degree of ing the value of the bank franchise; and (2) a undercapitalization increases, the supervisory statutory and regulatory structure that impairs pressure would intensify. The principal objective the competitiveness of U.S. banks by limiting of prompt corrective action is to change the their ability to respond to financial innovations behavior of bank management by modifying its and the challenges posed by nonbank providers risk-benefit calculations through the establishof financial services. ment of a presumption that supervisors will take Modifications of the deposit insurance system specified corrective action as capital deterioare necessary, but the Board strongly prefers the rates. Moreover, by acting promptly, it is possicomprehensive approach to banking reform that ble for the franchise value of the going concern to the Treasury bill offers, believing that it estab- be maintained and to avoid the rapid declines in lishes a particularly useful framework for con- value that normally occur for insolvent banks. gressional action. These broader reforms would For the same reason, at some low, but still make our banking system more efficient and positive, critical level of bank capital, the bank better able to serve the public as well as create an would be placed in conservatorship or receiverenvironment for a safe, sound, and profitable ship and the stockholders provided only with banking system. residual values, if any. If the bank could not be The three bills contain a large number of recapitalized, it would be sold, merged, or liquidetailed provisions. In the interests of both time dated; larger banks might be reduced in size over and space, I have limited my comments to those time before sale or liquidation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 447 Prompt corrective action is designed to de- consistently in dealing with capital-impaired increase the probability of failures, and, when they stitutions. Nor would it eliminate the rigor that do occur, to minimize their cost to the Federal its supporters hope prompt corrective action Deposit Insurance Corporation (FDIC). It thus policies would bring to the supervisory framewould reduce the need to draw on the insurance work. In our view, noncapital considerations fund and to limit that draw when resort to should only be allowed to reduce the category insurance funds is necessary. The Board strongly that capital alone would call for and never either supports this approach and believes that it is an to neutralize or raise the categorization of a bank idea whose time has come for enactment. based on capital. Our suggestions do not call for significant Indeed, even with the supplemental authority modifications, but we nonetheless urge their con- provided by the Treasury and Gonzalez prompt sideration. For example, both bills, correctly in corrective action proposals, the bank regulators our view, base prompt corrective action on cap- must remain vigilant in detecting problems that ital. Generally, capital is a leading indicator of do not immediately show up in capital ratios of the financial condition and future performance banks and must be aggressive in using existing and solvency of a bank. It thus should be a major enforcement authority to address these probdeterminant in prompt corrective action. How- lems. Both bills would permit a systematic proever, supervisory experience and economic re- gram of progressive restraint based on the capital search indicate that capital ratios alone do not of the institution instead of requiring the regulaalways differentiate between banks posing high tor to determine on a case-by-case basis, as a and low risk to the deposit insurance system. precondition for remedial action, that an unsafe That is why the Treasury's proposal authorizes or unsound practice exists. This would provide a placing banks into zones lower than might be powerful and useful tool for addressing problems indicated by capital alone on the basis of "unsafe at banks but would not replace the need for and unsound" conditions or operations. We be- active supervision of other factors at banks. lieve that more general language—such as "other The proposed Treasury legislation would ausupervisory criteria"—would be more useful. thorize expedited judicial review to ensure that Operationally, this would mean that supervisors the supervisor had not acted in an arbitrary and would be able also to consider asset quality, capricious way but would allow the supervisory liquidity, earnings, risk concentrations, and judg- responses to go forward without delay while the mental information based on recent examinations court was reviewing the process of capital measuch as data on classified assets. In short, a surement. Such a procedure is a necessary prereduction in a bank's capital ratio implies that a condition for the "prompt" in prompt corrective close review for significant problems is required action but should be modified to include the other but that other variables should be considered as supervisory standards referred to above. We well. urge the incorporation of this concept of expe- These other indicators of the financial condi- dited judicial review in the Gonzalez bill. tion of a bank should not prevent categorization Both the Gonzalez and Treasury approaches to based on capital. They would, however, permit prompt corrective action require certain supervisupervisors to act even if the criteria for bank sory steps as capital declines and permit supercapital were met. Indeed, we would suggest that visory discretion when deemed appropriate. In the proposed provisions for prompt corrective the Treasury approach, the number of required action be revised to indicate that supervisors and the range of permissible actions expand as could use other information to downgrade insti- the capital ratio declines, but procedures are tutions relative to zones implied by capital alone. specified that permit the supervisor to delay We believe that this approach would greatly taking required actions based on explicit deterimprove the overall effectiveness and fairness of mination of public benefits. The Gonzalez apa policy of prompt corrective action without proach permits no deviations from a small numjeopardizing the presumption that regulators ber of required actions and has other permissible would be required to act quickly, forcefully, and responses in certain limited situations, a proce- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

448 Federal Reserve Bulletin • June 1991 dure that also provides some flexibility to the worth emphasizing that prompt corrective action supervisor. Both approaches thus blend flexibil- would tend to reduce losses to the insurance ity with a mandate for prompt action. Both avoid fund, but a genuine fail-safe, no-losses-to-theinflexible, cookbook supervisory rules, while es- FDIC policy would require unrealistically high tablishing a presumption of rapid supervisory capital levels. We also believe that it is appropriaction. ate for the Congress to set a floor on the critical However, we prefer the provisions of the capital level that indicates that the Congress Treasury bill to those in H.R. 6. The latter would recognizes the positive subsidy resulting from trigger supervisory action only at two capital the federal safety net. levels or if an undercapitalized bank did not submit or adhere to its capital plan. The Treasury bill provides for more flexibility by creating five DEPOSIT INSURANCE REFORM capital zones, each with different supervisory steps. The adoption of prompt corrective action pol- As I noted, prompt corrective action will ultiicies would represent a significant change in the mately make deposit insurance reform less presssupervisory framework for a large number of ing. Nevertheless, the Wylie and Treasury bills institutions. To avoid unintended impacts in propose a reasonable reining in of the safety net credit markets and to provide banks with time to that the Board supports. Both bills call for limitrebuild their capital positions and modify their ing insurance coverage to $100,000 per individual policies, we would urge a delayed effective date. per insured institution (plus $100,000 for retire- The Treasury legislation calls for a three-year ment savings). The Board supports these proposdelay after enactment and the Gonzalez bill for a als to limit insurance coverage as well as the nine-month delay. We believe that it would be types of limits on insurance for pass-through advisable to enact the longer interval. Putting accounts called for in all three bills and the banks on clear notice of the coming supervisory elimination of insurance for brokered accounts in framework at a certain date should provide for a the Treasury bill. We believe that these steps smooth transition with minimal disruption. would be consistent with the original intent of A final technical note: The Treasury and deposit insurance to protect the smaller-balance Gonzalez bills require that the agencies set the depositor. critical capital level that would call for putting It is worth noting that 1989 survey data suggest the bank in conservatorship or receivership. The that only about Vh percent of households held Treasury bill calls for that critical ratio to be at a accounts that, when combined for all household point that generally permits resolution of trou- members, exceeded $100,000 at a single deposibled banks without significant financial loss to tory institution. However, 60 percent of these the FDIC, while the Gonzalez bill provides that combined accounts were both less than $200,000 the critical capital ratio should be set high enough and held by households with husband and wife, so that the "with only rare exceptions" resolu- each of whom could, under the provisions of tion would involve no cost to the FDIC. For the both bills, open fully insured accounts at the Treasury, this should be no lower than 1.5 per- same institution. In another 15 percent of housecent of bank assets and for the Gonzalez ap- holds, funds could be fully insured at a single proach no less than 2 percent of tangible assets. depository institution if put into accounts of The very act of placing a bank in receivership other members of the household. With both of or conservatorship significantly lowers its fran- these adjustments, which exclude the additional chise value, thereby increasing FDIC resolution coverage for retirement accounts proposed in costs. To require that a bank be closed with both bills, less than 1 percent of households capital high enough to assure that it could absorb would have held accounts with uninsured balall of the associated drop in values seems unrea- ances. These households had median net worth sonable. We would suggest, therefore, that the in excess of $2 million, hardly a family for which criterion be to "minimize" resolution costs. It is the safety net was designed. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 449 Some observers would prefer a rollback in and the Gonzalez bills would require that the coverage. If we were rewriting history, few now FDIC resolve failed banks in the least costly would call for insurance coverage as high as manner, which generally means that uninsured $100,000 per individual per institution. But, as I depositors would receive only pro rata shares of noted last summer before this committee, such residual value, if any. The Gonzalez bill, howinsurance levels are now capitalized in bank ever, has no provision permitting consideration stock values, in loan and deposit rates, and in the of systemic risks, and, after 1994, prohibits technology and scale of bank operations. A roll- outright any financial assistance by the FDIC to back could thus create disruptions that may well an insured bank that would have the effect of exceed its benefits. preventing loss to uninsured depositors or cred- The Treasury also proposes a study of longer- itors. The Gonzales bill also contains a provirun efforts to limit coverage to $100,000 per sion intended to limit Federal Reserve discount individual (presumably plus another $100,000 for window lending to undercapitalized instituretirement accounts), across all institutions. The tions, when lending to such institutions is not Gonzalez bill would adopt that coverage limit just for very short-term liquidity purposes. The without a study, rather than the per institution Federal Reserve is sympathetic to concerns limits in the other two bills. The Board endorses about failing bank use of the discount window the concept of a study to understand better the to fund the flight of uninsured creditors, potenpotential cost and intrusiveness of such a funda- tially raising the cost of resolution to the FDIC. mental change in the scope of deposit insurance The Federal Reserve would prefer not to lend to coverage. insolvent institutions unless the failure to do so Both the Gonzalez and the Treasury bills might have systemic implications. However, we would require that the FDIC establish a risk- are concerned that the Gonzales bill would based deposit premium assessment system. In seriously handicap the Board's ability to ensure principle, such a system has several attractive the stability of the banking system and might characteristics: It would link the cost of insur- prematurely close off liquidity support to viable ance to the risk that a bank poses to the insur- institutions. ance fund; it would reduce the subsidy to risky The Treasury bill calls for an exception to the banks; and it would spread the cost of insurance least costly resolution of failed banks when the more fairly across depository institutions. It Treasury and the Federal Reserve Board, on a could also be coupled with capital, reducing the case-by-case basis, jointly determine that there premium for those banks that held capital above would be bona fide systemic risk. No one— the minimum levels adjusted for their risk pro- including the Federal Reserve Board—is comfiles. Whatever these attractions might be in fortable with the exception procedures for adprinciple, the Board would urge caution at a time dressing systemic risk, even though the when premiums are already high, Bank Insur- Treasury proposal would tighten up the way ance Fund (BIF) resources are low, and the such cases are handled. While, in principle, range of premiums necessary to reflect risk dif- systemic risk could develop if several smaller or ferences accurately, and to induce genuine be- regional banks were to fail, systemic risks are havioral changes, might be much wider than more likely to derive from the failure of one or feasible. Risk-based premiums also would have more large institutions. Thus, the need to hanto be designed with some degree of complexity if dle systemic risk has come to be associated they were to be fair and if unintended incentives with the too-big-to-fail doctrine. The disproporwere to be avoided. Moreover, the extent of tionate degree of systemic risk at larger banks potential benefits when risk-based premiums are highlights the tension between one of the main imposed on top of the risk-based capital system, purposes of deposit insurance—protecting while likely to be positive, requires further eval- smaller-balance depositors—and the concern uation. that the rapid withdrawals by uninsured depositors and other short-term creditors from larger The Wylie bill is silent on the failure resolubanks perceived to be in a weakened condition tion procedure of the FDIC, while the Treasury Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

450 Federal Reserve Bulletin • June 1991 could cause and spread significant disruptions BANK INSURANCE FUND that could, in turn, affect credit availability and RECAPITALIZATION macroeconomic stability. Whatever its macro benefits might be, the too-big-to-fail doctrine While prompt corrective action and deposit inhas increasingly offended observers and policy- surance limits will reduce future exposure of the makers alike because of its inequitable treat- Bank Insurance Fund, the chairman of the FDIC ment of depositors, other short-term creditors, has warned of the unfolding insolvency of the and borrowers at banks of different sizes, and BIF. In response, the Treasury has developed a its tendency both to broaden the safety net and proposal that would authorize the Federal Reto undermine depositor and creditor discipline serve Banks to lend up to $25 billion to the FDIC on bank risk-taking. to absorb losses sustained by the BIF in resolv- Despite the substantial concerns, the Board, ing failed banks. While the liabilities of the BIF like the Treasury, has reluctantly concluded that would be full faith and credit obligations of the there may be circumstances in which all of the U.S. Treasury, it is anticipated that they would depositors and short-term creditors of failing be repaid from increased insurance premiums. institutions will have to be protected in the Premiums could be increased to as high as 30 interests of macroeconomic stability. In evaluat- cents per $100 of assessed deposits—7 cents ing our conclusion, it is important to underline higher than the premium that the FDIC has that we anticipate that there will also be circum- proposed to impose at midyear. In addition, the stances in which large banks can fail with losses BIF could borrow from other sources up to $45 to uninsured depositors and creditors but without billion for "working-capital" purposes, that is to undue disruption to financial markets. The Trea- carry assets of failed banks pending their sale or sury's proposal, in fact, contemplates that the liquidation. These loans would thus be self-liquilarge-balance depositors of these banks will not dating. Total premium income would be used to be protected. Moreover, the exception proposal pay interest on borrowings from the Federal does not call for protection of all creditors of the Reserve and the Federal Financing Bank, cover bank, its holding company, or its nonbank affili- ongoing insurance losses, repay Federal Reserve ates, and especially protection of the stockhold- loans, and rebuild the BIF fund. ers and senior management. These claimants and employees should not be protected. Increase in BIF Premiums. In the current In addition, I would emphasize again that other environment of both intense competition and provisions of the Treasury and the Gonzalez bills weak earnings, the Federal Reserve Board is should ultimately make the exception or too-big- concerned about the potential costs of further to-fail issue less relevant. The greater emphasis premium increases in terms of the soundness and on capital maintenance, more frequent on-site competitiveness of our banking, financial, and examinations (also included in the Wylie bill), economic system. It is extremely difficult to and prompt corrective action can be expected to judge how high the premium could be raised modify bank behavior and attitudes toward risk- before the costs outweigh the benefits in terms of taking. Indeed, the ultimate solution to the too- added revenues for the BIF. What is clear is that big-to-fail problem is to ensure that our policies in reaching a judgment about the appropriate minimize the probability of large banks becoming premium level we cannot ignore these potential weak and that when banks experience distress costs simply because they cannot easily be meathat regulators act promptly to limit FDIC costs. sured. The premium level that maximizes the But reality requires that we recognize that sub- BIF's premium revenues, or even the premium stantial increases in capital and substantial rever- level that maximizes the net worth of the BIF, sals of policies cannot occur in the short run. could be substantially higher than the level that Moreover, it would be taking a significant risk, would be optimal if the potential adverse impact we believe, to eliminate the long-run option to of higher premiums on our financial system and respond in a flexible way to unexpected and our economy could be precisely quantified. In unusual situations. light of these considerations, the Board supports Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 451 the imposition of a premium cap of 30 basis While ownership of Federal Reserve stock points and urges caution in considering increases clearly does not confer any control over policy in premium costs beyond an amount equal to a to member banks, there are clear benefits to the charge of 23 basis points on the current base. existing legal regime. Stock ownership, with The Board believes that any plan to recapital- local boards of directors, helps greatly to ize the BIF must provide sufficient resources strengthen significant elements of the structure without imposing excessive burdens on the bank- of the Federal Reserve System. By providing ing industry in the near term. The Board also for private ownership of the Reserve Banks believes that loans to the BIF that would be insulated from political control, present stock repaid with future premium revenues are the best holding arrangements help ensure the indepenmeans of striking this difficult balance. dent role of the Federal Reserve within the Congressman Wylie's bill would assist banks government. The stock ownership by area inin paying the higher premiums in two ways. The dustry participants contributes importantly to first way would authorize both larger reductions the cooperative atmosphere that is vital to the in reserve requirements than is possible under effective and efficient day-to-day operation of existing law and the transfer of imputed earnings our monetary system. What appears to some to on reserve balances to the insurance funds. In be an institutional quirk or an anachronism may fact, the Federal Reserve still has room under in fact be a critical and important element in existing law to reduce reserve requirements fur- helping to ensure an independent U.S. central ther but is concerned about the effects of such bank drawing on the regional resources of the reductions on the clearing of payments, on financial community to make national policy. money market volatility, and on the conduct of Rather than retiring this stock, we would prefer monetary policy. Further reductions in reserve to see amendments to the Federal Reserve Act requirements, in any event, would not benefit to provide that the dividend on the stock reflect those banks whose account balances would have a more appropriate rate of return, perhaps, for to be maintained for clearing purposes. More- example, a rate linked in some way to the return over, if reserve requirements were not reduced, on the Federal Reserve Bank's portfolio. We the imputed interest payments would not be understand the motivation to return funds to the returned to the banks, but the distorting effects of banking system during this period of pressure the reserve requirement tax would continue to on the insurance fund, but we would urge the fall on particular types of deposits. The Board Congress not to ignore the important policy favors a more straightforward approach of pay- implications inherent in the structure of the ing explicit interest on required reserve balances, Federal Reserve involved in this proposal. which the banks could use to offset higher pre- Congressman Gonzalez's bill would seek to miums. Such an approach would end the tax augment BIF balances, and to limit the increase involved in this monetary policy and payment in BIF premiums on most banks, by including systems tool. the deposits of foreign branches of U.S. banks The second way the Wylie bill would assist in in the FDIC's assessment base. We understand paying higher premiums is to require the retire- the sense of fairness that motivates this proment of Federal Reserve stock, freeing up $2.5 posal, especially given a policy that some banks billion of assets at national and state member may be "too large to fail." However, there are banks that they could then invest in different countervailing reasons for great caution in levyways; the additional earnings that they could ing assessments on the foreign branch deposits. realize above the statutory risk-free return of 6 The judgment that charging premiums on percent on Federal Reserve stock probably is foreign branch deposits would raise significant modest at this time but could be more significant amounts of revenue for the FDIC rests on the in other environments. Presumably, the Reserve assumption that depositors would continue to Banks would rebuild their capital from this dis- hold these deposits in the face of relatively large tribution by withholding some of their earnings FDIC premiums. However, at least some, if not from the Treasury. all, of the premium increases would likely be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

452 Federal Reserve Bulletin • June 1991 reflected in lower offering yields on the deposits payments by the U.S. government, nor the budsubject to premiums. Because depositors at get deficit would be any different. Finally, use of foreign branches appear to be among the most the Treasury rather than the Reserve Banks sensitive to yield differentials among money would have no implications for the Budget Enmarket instruments, they are likely to shift forcement Act. funds out of U.S. banks should the yield differ- Not only would use of the Reserve Banks for ential on U.S. bank deposits decline vis-a-vis funding the BIF serve no apparent economic alternative money market instruments, such as purpose, it could also create potential problems deposits at foreign-based banks and commercial of precedent and perception for the Federal paper. Thus, larger U.S. banks would likely be Reserve. In particular, the proposal involves faced with the choice of either trying to pass the Federal Reserve directly funding the govadditional assessments on to deposit and loan ernment. The Congress has always severely customers in highly competitive markets, pos- limited, and, more recently, has removed the sibly suffering further erosion of their competi- authorization for, the direct placement of Treative positions, or absorbing assessments and sury debt with the Federal Reserve, apparently suffering associated reductions in earnings and out of concern that such a practice could comequity values during a difficult banking period. promise the independent conduct of monetary In any event, the revenue increase from the BIF policy and would allow the Treasury to escape assessments on foreign branch deposits of U.S. the discipline of selling its debt directly to the banks will be smaller—we believe considerably market. Implementation of the proposal could smaller—than initial calculations would suggest create perceptions, both in the United States once adjustment is made for the reduced de- and abroad, that the nature or function of our mand for lower-yielding deposits in the Euro- central bank had been altered. In addition, if markets. implementation of the proposal created a precedent for further loans to BIF or to other Lending by the Reserve Banks. Irrespective of entities, the liquidity of the Federal Reserve's the level of insurance premiums or methods of portfolio could be reduced sufficiently to create assisting banks to pay them, an element of the concerns about the ability of the Federal Re- Treasury's proposal to recapitalize the BIF that serve to control the supply of reserves and, has troubled the Board is the use of the Federal thereby, to achieve its monetary policy objec- Reserve Banks as the source of loans to the BIF tives. to cover its losses on failed bank resolutions. To The BIF must be granted unquestioned access prevent such loans from affecting monetary pol- to the financial resources necessary to meet its icy, the loans would need to be matched by sales obligations. And, the public must be reassured from the Federal Reserve's portfolio of Treasury that, regardless of the solvency or insolvency of securities. Thus, in either case, the public would the BIF, the U.S. government will make availbe required to absorb an amount of Treasury able whatever funds are necessary to protect securities equal to the amount of loans to the federally insured deposits. Whatever financial BIF. arrangements help accomplish this objective, The Board can discover no economic purpose however, it is of critical importance that we that would be served by this indirect financing adopt policies now to minimize the risk that such route. The implications for financial markets, the losses to the insurance fund will ever occur economy, and the federal budget would be iden- again. The Board believes that both the Gonzalez tical if the Treasury, rather than the Federal and the Treasury bills establish an approach that Reserve Banks, made the proposed loans to the would help accomplish that objective through BIF. Because the Federal Reserve would offset prompt corrective action. But the Gonzalez bill the loans with open market sales, there would be does not address other issues that would no impact on reserves, the federal funds rate, or strengthen banking organizations, and the Wylie the money supply. With respect to budgetary bill only partially addresses them. I would like to implications, neither FDIC outlays, net interest turn to these issues now. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 453 EXPANDED ACTIVITIES ties engaging in these new activities must be AND INTERSTATE BRANCHING divested if the capital of the affiliated banks does not remain significantly above the minimum in- As the committee knows, the Board believes that ternational capital standards. The proposal does a significant part of the longer-run solution to the not repeat the thrift experience of authorizing all subsidy provided by the safety net is an increase institutions—strong and weak—to engage in new in minimum capital standards. However, the activities in the depository institution itself, ficondition of many banks suggests that a shorter- nanced by insured deposits. The proposed aprun restoration process must precede the in- proach is unlikely to expose the safety net to crease in capital minimums. In the interim, the additional risk because it does not reflect a Board supports the Treasury proposal that would wholesale removal of restraints. Based on their immediately reward those financial services current capital positions, we estimate that only holding companies with bank subsidiaries that about one-fourth of the largest twenty-five, and have capital significantly above the minimum about one-half of the largest fifty, of our banking standards. Not only does such an approach cre- organizations would be permitted to engage in ate additional inducements for these organiza- such activities if they were authorized today. tions to build and maintain the banks' capital, it Almost all of the next fifty largest bank holding also addresses one of the most significant causes companies have bank subsidiaries with capital of weaknesses in the banking system by widening high enough to permit the holding company to the scope of activities for holding companies with engage in these new activities. well-capitalized bank subsidiaries. Congressman Wylie's bill would permit bank It is clear that some members of the Congress holding companies to engage in activities beyond are hesitant about authorizing wider activities for those presently authorized when the activities banking organizations at a time when taxpayers are "of a financial nature," provided they are are being asked to pick up the costs for failed either in response to technological innovations in savings and loan associations that have unsuc- the provision of banking and banking-related cessfully taken too much risk and when BIF services or are substantially identical to products recapitalization proposals raise the concern that and services offered by nonbank competitors. taxpayer assistance for resolution costs of banks The Wylie bill offers a constructive option that, may also be necessary. Such hesitancy is under- while more limited than the Treasury bill, would standable. However, two crucial differences ex- address one of the fundamental restraints on the ist between the expanded bank activities pro- ability of banking organizations to remain composed by the Treasury and those previously petitive in an ever-changing marketplace. Howallowed for savings and loan associations: the ever, unless the Glass-Steagall Act is repealed types of activities in which the institutions could and certain provisions of Section (4)(c)(8) of the engage and the types of institutions that would be Bank Holding Company Act are rescinded, the allowed to engage in them. Wylie bill would not permit banking organiza- The wider activities proposed by the Treasury tions to engage in securities activities beyond are all financial in nature; they involve the types Section 20 subsidiaries or to engage in insurance of risk with which bankers are familiar, letting underwriting or sales. In remaining financial marthem build on their expertise. Thus, for example, kets, it would focus on responding to the innothe bill would not permit financial services hold- vations developed by their nonbank competitors ing companies to engage in real estate develop- rather than permitting banking organizations to ment or other nonfinancial activities. It is worth originate their own innovations for the delivery repeating that the new activities that would be of financial services. The Board thus prefers the authorized would be restricted to holding com- broader approach proposed in the Treasury bill. panies with well-capitalized and soundly oper- The best protection for the insurance fund is to ated bank subsidiaries. They are to be conducted be certain that we have strong banking organizain separately capitalized affiliates that would tions. Authorizing wider activities for holding have limited access to bank funds; and the enti- companies with well-capitalized bank subsidiar- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

454 Federal Reserve Bulletin • June 1991 ies would increase the efficiency of our financial ing services, and risk reduction through system by permitting such organizations to re- diversification. The Board continues to urge its spond more flexibly to the new competitive en- prompt adoption. vironment in banking here and abroad. It also would add to the incentives for increasing and maintaining bank capital, and it would make REGULATION AND EXAMINATION available better and cheaper services to customers of U.S. banks around the world. The holding company form is retained in the Similar benefits involving even more banks Treasury proposal as the best organizational veand a larger proportion of the public would result hicle for financial modernization. Under the from widening the geographic scope of bank Treasury proposal, each holding company subactivity. The Treasury and Wylie bills would sidiary—bank and nonbank—would be separepeal the Douglas amendment to the Bank Hold- rately capitalized and functionally regulated as if ing Company Act to permit banking companies it were an independent entity: Bank regulatory to operate subsidiary banks in all states, and agencies would regulate banks, the Securities would amend the McFadden Act and related and Exchange Commission (SEC) would regulate statutes, to permit banks to operate branches of broker-dealers and mutual funds, and the states their banks in all states. These bills would thus would regulate insurance companies. eliminate an anachronism and permit full inter- To restrict the safety net to the insured bank, state banking by any vehicle that a banking the proposal would apply Sections 23A and 23B organization chooses. of the Federal Reserve Act, which limits quanti- An interstate banking system has slowly tatively the financial transactions between banks evolved in this country through the holding com- and their affiliates and requires that such transpany vehicle. Only Hawaii and Montana do not actions be collateralized and conducted on marnow have on the books laws that permit—or are ket terms. However, to achieve the synergies scheduled to permit—some form of interstate that are the purpose of the proposal, the bill banking. But this approach, with separately cap- would not impose management, operations, or italized bank subsidiaries, and with less than full general marketing fire walls, though strong disnationwide banking authorized, still does not closure requirements would be required to propermit some banking organizations to enter some tect the consumer. Among the fire walls that attractive markets and, most important, is un- would remain are restrictions on sales of affiliate duly costly. True nationwide interstate branching liabilities at the bank, where they might be conwould be much more flexible and efficient, fused with insured deposits. achieving geographic diversification at lower In the Treasury bill, the primary regulator of cost. Simply by collapsing existing subsidiaries the largest bank subsidiary would become the to branches, banks could eliminate the unneces- umbrella supervisor of the financial services sary costs of separate boards and extra manage- holding company. The Treasury bill contemment layers as well as the costs of separately plates that, with expanded permissible activities, capitalizing each subsidiary. Authorization of the insured banking units often would account interstate bank branching is, in effect, both a for a significantly smaller proportion of the conmore efficient use of capital and a capital-building solidated assets of the financial services holding step by reducing banking costs. company than they are now of the bank holding The evidence from intrastate branching does company. In this context, the focus of the umnot suggest that interstate branching will be a brella supervisor in the Treasury bill is to police substantial source of additional earnings to out- and constrain threats to the bank, while limiting of-market banks. What interstate banking prom- banklike regulation of the holding company and ises is wider consumer choices at better prices its uninsured subsidiaries. In contrast, the and, for our banking system, increased competi- Gonzalez bill does not expand the scope of tion and efficiency, the elimination of unneces- activities of banking organizations and the Wylie sary costs associated with the delivery of bank- bill expands powers only marginally. Thus, both Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 455 retain the current banklike regulatory focus on the supervisor would have full examination powthe consolidated holding company, whose assets ers over the consolidated financial services holdare predominantly banks and subsidiaries whose ing company when the banks' capital declined activities are bank related. below minimum levels. In their respective contexts, each of these ap- All of these clarifications are necessary to enproaches makes sense to the Board because they sure that the umbrella supervisor would be able to link regulation to the type of activity. Since the act promptly and effectively to protect the bank. Board strongly supports a wider range of activi- But the thrust of the modified provisions still ties for banking organizations, we would also would be to limit the banklike regulation of the support the regulatory approach of the Treasury holding company and its uninsured subsidiaries, bill if such activities are authorized. Under that provided the bank affiliates are well capitalized. approach, the umbrella supervisor's authority For example, the traditional consolidated bank over the uninsured affiliates of well-capitalized holding company capital regulation would not be banks would be limited. However, the umbrella imposed under the bill as long as its insured supervisor would police financial transactions be- depository subsidiaries were themselves capitaltween the bank and its affiliates, could assess the ized above minimum levels. There are several risks to the bank posed by the activities of its reasons for this approach: It recognizes the pracnonbank affiliates, and could require divestiture of tical infeasibility of regulators determining what a nonbank affiliate posing a threat to the bank. the appropriate minimum capital should be for an To ensure that the bank is protected, the Board organization that is not primarily a banking orgabelieves some minor modifications in the language nization but rather a true financial services comof the Treasury bill are necessary to further clarify pany; it facilitates equitable treatment between that the umbrella supervisor could examine the holding company subsidiaries and independent parent anytime it wishes to ensure that it is not firms; it avoids the inefficiencies of regulation; it creating risk for the bank. Further clarity is also creates an additional incentive to build and mainnecessary to ensure that, while the umbrella su- tain a strong bank capital position; and it avoids pervisor would not, as a matter of course, exam- even the appearance of extending the safety net. ine the nonbank affiliates on a regular basis, the It certainly is true that this approach would umbrella supervisor would be permitted to exam- permit holding companies to rely without regulaine these affiliates whenever the supervisor be- tory limit on debt markets to finance equity lieved that they posed a risk to the banks, even contributions to their bank and nonbank subsidwhen the banks' capital was above minimum iaries—so-called double leverage. However, levels; otherwise the supervisor's divestiture au- prompt corrective action would limit dividends thority would be less meaningful. Balancing pro- and other payments that bank subsidiaries could tection of the bank and limits on the spreading of make to their parent should the banks' capital the safety net with minimal regulation of nonbank decline. Such restrictions on dividends, as well affiliates requires careful legislative language. as the strict limitation of the safety net protection The Treasury proposal calls for the imposition only to the banks, are likely to make financial of bank capital standards on, and the application markets cautious about the quantity of debt they of many of the regulations governing prompt permit financial services holding companies to corrective action for banks to, the consolidated assume. Moreover, with the appropriate examiholding company whenever the capital of the bank nation authority, the supervisor could take remefalls and remains below the minimum bank capital dial corrective action if the holding company standard. This approach is designed to reinforce poses risk to the banks. the protection of the bank from contagion from its Our support for limits on banklike regulation of parent or affiliates. While the Treasury bill pro- holding companies, as I have noted, depends on vides the supervisor with examination authority banks becoming a less important component of over financial affiliates to determine compliance the consolidated entity. Should permissible acwith these requirements, the Board believes that tivities of bank holding companies remain unadditional clarification is required to ensure that changed—and bank holding companies remain Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

456 Federal Reserve Bulletin • June 1991 predominantly in the banking business—the which Congressman Wylie's bill would have stud- Board would prefer to see the continuation of ied for the feasibility of implementation; that consolidated holding company supervision, report also would have made the Federal Reserve regardless of the capital position of the subsid- the primary regulator of all state banks and the iary bank. umbrella supervisor of their holding companies, As for regulatory structure, the Treasury bill but, in addition, it would have made the Federal would make the Board the primary regulator of Reserve the umbrella supervisor of the holding state-chartered banks and a new federal agency companies of large banks, even if those banks had the primary regulator of national banks and thrift a national charter and, hence, another primary institutions; the Gonzalez bill would create a regulator. We believe that the Federal Reserve single new agency as the primary federal regulator must have hands-on knowledge of the operations of all banks and thrift institutions. The Board is of those large banking organizations when potenconvinced that the information flow it now obtains tial problems could have systemic effects if we are from its supervisory contact with banks is of to perform the critical function of ensuring stabilcritical importance for the conduct of monetary ity in the financial markets and payments systems. policy and the maintenance of the stability of the For example, it is difficult to imagine how we financial system. In addition, the Board believes would administer our discount window responsithat its supervisory policy benefits from the per- bilities and the associated collateral evaluations spective of its responsibilities for macrostabiliza- without the practical experience and knowledge tion. Not only is it important that monetary and derived from our supervisory responsibilities at supervisory policies not work at cross purposes the larger institutions. but I cannot emphasize enough how much we rely Moreover, with the increasing globalization of on the qualitative information that we now obtain banking, in the coming years the central banks of from bankers through our supervisory process to the world will need more than ever to coordinate understand evolving developments in financial responses to developments that may originate markets. We need a critical mass of coverage of anywhere and affect not only foreign exchange banking markets to get an immediate sense of markets but also the financial markets of their what lies behind the data and, just as our respon- respective countries. In a world of electronic sibilities for macrostabilization bring a different transfers, in which billions of dollars, yen, perspective to our supervisory efforts, we use this marks, and sterling can be transferred in millifeedback from the supervisory process both to seconds, and problems at a bank or other instihelp us develop our monetary policy and to eval- tution in any country can put such transfers—and uate its impact. For example, our understanding hence market stability—at risk, central bank of the recent evolving problems with credit avail- consultation and coordination on operating deability, the constrained flow of credit, and the tails and procedures are critical. Thus, in our impact on economic activity came importantly view, it is essential that the Federal Reserve—to from our supervisory contact with banking orga- conduct its stabilization policies—have intimate nizations large and small. familiarity with all banking institutions having a Under the Treasury proposal, however, the substantial cross-border presence. Federal Reserve would have umbrella authority only over state-chartered banks, which tend to be significantly smaller, on average, than national FOREIGN BANK ACTIVITIES banks, and, under the Gonzalez bill, we would IN THE UNITED STATES have no supervisory responsibilities at all. We believe that our ability to accomplish our mone- The Treasury bill would require that a foreign tary policy objectives successfully would be seri- bank that desires to engage in newly authorized ously damaged without the intimate contacts de- financial activities establish a financial services rived from our supervisory responsibilities holding company in the United States through relating to large banking organizations. This view which such activities would have to be conwas echoed in the 1984 Bush Task Force report, ducted. The bill also would require that any Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 457 foreign bank that chooses to engage in such pelling a switch from branches, whose deposits activities in the United States close its U.S. now are largely uninsured, to U.S. subsidiaries, branches and agencies and conduct all of its U.S. whose deposits would be covered by U.S. debanking business through a U.S. subsidiary posit insurance, we would be increasing the bank. Under the bill, foreign banks would lose extent to which depositors would look to the their grandfather rights for U.S. securities affili- U.S. safety net instead of to the foreign parent in ates after three years and would be required to the event of problems. obtain approval from appropriate authorities to Foreign banks have made a substantial contriengage in underwriting and dealing in securities bution to the competitive environment of U.S. activities in the United States in the same way financial markets and the availability of credit to that a U.S. banking organization would. The U.S. borrowers. Currently, legal lending limits Treasury bill would also allow foreign banks to for U.S. branches and agencies of foreign banks establish interstate branches at any locations are based on the consolidated capital of their permitted to state or national banks. Foreign parent banks. By contrast, requiring a "roll up" banks choosing to engage only in banking in the of branches and agencies of a foreign bank into a United States would not be required to form U.S. U.S. subsidiary bank, whose capital is measured subsidiary banks and would be permitted to separately from the parent, might limit the extent operate interstate through branches of the for- to which foreign banks contribute to the depth eign parent bank. and efficiency of markets in the United States. The capital and other supervisory standards We also have some reservations about the that would be the basis for authorizing affiliates purpose that would be .served by requiring a of foreign banks to engage in newly authorized foreign bank to establish a holding company in financial activities and interstate banking are the the United States to conduct new financial activsame as would apply to affiliates of U.S. banks. ities. In particular, requiring that foreign banks Such a policy appears appropriate and equitable. operate through holding companies is not neces- On the other hand, we question the need for the sary to ensure competitive equity for U.S. finanrequirement that foreign banks close their U.S. cial services holding companies or independent branches and agencies and conduct their U.S. U.S. nonbank firms. First, we see no clear combusiness in a separately capitalized U.S. subsid- petitive advantages to foreign banks when they iary bank to take advantage of the expanded can engage in new activities only if the banks are powers for activities and branching. well capitalized. Second, branches of foreign As the Treasury bill recognizes in advocating banks possess no systematic funding advantages domestic interstate branching, a requirement that in the United States, and any cost advantage a a banking business be conducted through sepa- foreign bank may have in its own home market rately incorporated subsidiaries rather than would be available regardless of the structure of branches imposes substantial costs by not per- its U.S. operations. The requirement that a formitting a banking organization to use its capital eign bank conduct new activities only through a and managerial resources efficiently. In most financial services holding company imposes adcountries, U.S. banks have been permitted to ditional costs on foreign banks without any obenjoy the advantages inherent in competing in vious benefits. It also creates an inducement for foreign markets through branch offices. In bilat- foreign banks to conduct their banking operaeral and multilateral discussions, U.S. authori- tions in less costly environments outside the ties have correctly argued that a restriction United States and for foreign authorities to against branching discourages the involvement of threaten reciprocal restrictions for U.S. financial U.S. banks in foreign markets. It would be firms abroad. inconsistent not to acknowledge that foreign banks could also be discouraged from involve- COMMERCE AND BANKING ment in U.S. banking markets by requiring foreign banks to operate only through subsidiaries The Treasury has proposed permitting commerto engage in new activities. Moreover, by com- cial and industrial firms to own financial service Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

458 Federal Reserve Bulletin • June 1991 holding companies. The Treasury report that dent rivals were free to do so. Given the relapreceded its legislative proposals focused on the tively small number of securities firms, insurance need to widen and deepen capital sources, espe- companies, finance companies, and thrift institucially for failing banks, for which nonfinancial tions that are owned by commercial and induscorporations might be willing to provide substan- trial firms, the Congress may wish to address this tial capital in exchange for control. The Treasury issue through appropriate limited grandfather proposal also seeks fairness for those financial provisions. firms that operate in markets that banks would be authorized to enter under the proposal but that would otherwise be prohibited from purchasing a ACCOUNTING STANDARDS bank because of their commercial parents. The Treasury report also stressed the desirability of Both the Gonzalez and the Treasury bills address additional management expertise and strategic accounting standards in banking. Timely and direction from commercial firms as well as the accurate financial information on depository inreduction in regulatory burden in distinguishing stitutions is critical to the supervisory process between financial and nonfinancial activities. and to effective market discipline. Thus, it is Those who hold a contrary view argue that our important that financial statements and reports of capital markets are so well developed that prof- condition accurately represent the true economic itable opportunities in banking can attract capital condition of firms. from sources other than nonfinancial corpora- The Gonzalez bill contains a number of protions seeking management control, provided that visions intended to strengthen regulatory acbanks operate in a regime that permits them to be counting standards for insured depository instifully competitive. In addition, opponents are tutions. While the Board shares the basic view concerned about the implications of permitting that any deficiencies in accounting practices commercial and industrial firms to own—even should be corrected, we are concerned that indirectly—subsidiaries with access to special certain contemplated reforms may be countergovernment protection. productive. In particular, I am referring to the On balance, the Board supports on a philo- provisions requiring that regulatory accounting sophical level the notion of permitting any insti- standards move in the direction of market-value tution the right to go into any business—includ- accounting. ing banking—with the proper safeguards. The Gonzalez bill would direct the new single However, the Board believes that it would be banking agency it creates to "prescribe regulaprudent to delay enacting the authority to link tions which require that all assets and liabilities commerce and banking until we have gained of insured depository institutions be accounted some actual experience with wider financial own- for at fair market value unless the agency makes ership of, and wider activities for, banking orga- a determination that such a method of accounting nizations. We should reflect carefully on such a is inappropriate in the case of a particular asset basic change in our institutional framework be- or liability or class of assets or liabilities." The cause it is a step that would be difficult to reverse Board has significant concerns regarding the apand for which a strong case for immediate enact- plicability of market value accounting to all bankment has not been made. ing organizations. Consequently, at this time we The Board would have no difficulty with those believe that it would be premature to commit, nonbanking financial firms wishing to affiliate even in principle, to the adoption of market value with banks maintaining their de minimis preex- accounting either in whole or in part for banking isting holdings in commercial or industrial firms. organizations. But, if banking and commerce connections re- Our concerns are both practical and concepmain prohibited, financial firms already owned tual. Because most assets and liabilities of banks by commercial and industrial firms would likely are not traded actively, their market values point out the inequity of their being prohibited would have to be estimated. Inherently, such from affiliating with banks, while their indepen- estimates would be highly subjective. For valid Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 459 reasons, the economic value of an asset or a balance sheet. Thus, were investment securities liability might differ according to the identity of marked to market, offsetting gains or losses on the holder, reflecting differences in individual other assets and liabilities generally would not risk preferences, tax situations, informational be recognized, leading to inaccurate measures and operating costs, and other idiosyncratic fac- of the true net worth and riskiness of the tors. Indeed, the value added by banks is partly institution. Banks and thrift institutions, thereattributable to banks' comparative advantage rel- fore, might be discouraged by accounting treatative to other investors in evaluating, originating, ment from undertaking hedging transactions or servicing illiquid loans, based on proprietary that are in their best interest. In addition, the information, operating efficiencies, or special partial approach would tend to undermine inmonitoring capabilities. centives to acquire and hold long-term securi- Owing to this subjectivity, market value esti- ties and might encourage a trading mentality mates would be difficult for auditors and exam- that could increase the overall level of risk in iners to verify and would be susceptible to ma- the portfolio. nipulation. Thus, the adoption of market value We support the provisions of the Treasury bill accounting principles for illiquid assets could that call for efforts to improve supplemental worsen, rather than enhance, the quality of in- disclosure. I would note that for several years a formation about the true condition of depository supplemental schedule to the report of condition institutions. Technologies that reduce the under- has shown both the current book value and lying subjectivity of market value estimates gen- market value of each type of security held by erally do so by imposing standardized assump- banks. Although these market values are publicly tions that may not be appropriate in all situations disclosed, they have not been included in reand would precisely fit none. ported capital and earnings. We continue to Even when assets are traded in liquid markets, believe that this accounting treatment is appromarket values may not be the best measure of priate in light of the role played by the investunderlying value. A growing body of evidence ment portfolios at most banking organizations. suggests that asset prices display substantial Much can be done to reduce divergences between short-run volatility or noise that is unrelated to accounting and economic measures of financial coneconomic fundamentals. Under market value ac- dition within the current generally accepted accounting, such noise could discourage depository counting principles (GAAP) framework. The most institutions from making fixed-rate loans, whose important priority should be to improve the reportmarket values would be especially subject to ing of loan-loss reserves and disclosures about loan price changes. Market value accounting also quality and asset concentrations. Financial analysts could lead to greater fluctuations in bank earn- typically cite these areas, rather than the lack of ings that might generate instability in the supply market value information, as the most problematical of credit to the economy through its impact on under current accounting standards. In this regard, the volatility of capital positions and on public on March 1, the federal banking and thrift agencies confidence. The latter problem could arise even recommended voluntary disclosures about the cash if market value information were disseminated flows and other characteristics of nonaccrual loans through supplemental disclosures. held by banking and thrift organizations. In addi- While the adoption of market value account- tion, the report of condition was recently revised to ing for investment securities may be technically collect detailed data on the participation by banks in feasible at this time, the Board strongly recom- highly leveraged transactions. Nevertheless, further mends against such a partial approach that disaggregated disclosures about the characteristics would mark only part of the balance sheet to of loans and borrowers may be appropriate. Such market. Such a partial approach could create disclosures could exert constructive market discisubstantial measurement distortions that artifi- pline on depository institutions to ensure adequate cially distort bank behavior. Depository institu- provisioning for loan losses. tions often use investment securities to hedge I would also note that the banking agencies interest rate risk present in other areas of their currently are working to develop more compre- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

460 Federal Reserve Bulletin • June 1991 hensive and uniform standards for examining deposit insurance, modifying supervisory proceloan-loss reserves. Together with an at least an- dures, introducing true interstate banking, and nual full-scope asset quality examination of every authorizing wider activities for strong organizabank, these standards should enhance the reliabil- tions would significantly and prudently limit subity of estimates of the allowance for loan-loss sidies to banks, reduce incentives for excessive reserves and their comparability across institu- risktaking, and safely remove constraints that tions. have limited the ability of banks to deliver wider services at lower costs. All of these actions, including assured funding for the BIF, are re- CONCLUSION quired if we are to have a healthy and strong banking system capable of financing economic The bills before you address critical issues of growth and providing American households and fundamental importance. The Board strongly businesses with low cost, state-of-the-art finansupports the provisions of the Wylie and Trea- cial services. sury proposals to rein in the safety net by limiting Despite the need to develop procedures to ensure deposit insurance coverage and to rescind ineffi- that the BIF has adequate resources, the Board cient restrictions on interstate banking. The urges the Congress to address the issues broadly Board also strongly supports the provisions of and to avoid partial solutions that separate into the Gonzalez and Treasury bills implementing component parts the comprehensive proposals for prompt corrective action procedures. We be- reform such as those suggested by the Treasury. lieve, however, that both the Gonzalez and Despite our concerns about some of its proposals, Wylie bills should be extended to cover the we strongly support the thrust of the Treasury's proposals in the Treasury bill to expand the range approach because it addresses the issues within a of permissible activities for organizations with framework that attacks the major root causes of the well-capitalized banking subsidiaries. Limiting problems in our banking system. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

461 Announcements CHANGE IN THE DISCOUNT RATE • Clarify the portfolio investment authority under which U.S. banking organizations may The Federal Reserve Board announced on April make limited equity investments in any type of 30, 1991, a reduction in the discount rate from 6 company outside the United States. percent to 5V2 percent, effective immediately. • Permit Edge corporations to provide domes- Action was taken in light of continued weak- tic banking services, including loans, to foreign ness in economic activity, especially in the in- persons and governments. dustrial and capital goods areas, and evidence of • Expand the range of permissible activities for abating inflationary pressures. The reduction, in U.S. banking organizations abroad to include part, realigns the discount rate with market in- futures commission merchant activities and life terest rates. insurance underwriting. In taking the action, the Board voted on re- • Modify the authority for debt-for-equity inquests submitted by the boards of directors of the vestments, including permitting a cash compo- Federal Reserve Banks of Boston, New York, nent to such investments without prior notice to Atlanta, Chicago, and Dallas. The Board subse- the Board and providing for retention of such quently approved similar actions by the boards of investments in companies that engage in a small directors of the Federal Reserve Banks of Phila- level of business activities in the United States. delphia, Richmond, Minneapolis, Kansas City, • Authorize case-by case exemptions from the and San Francisco, effective April 30; of the standard for qualifying foreign banking organiza- Federal Reserve Bank of Cleveland, effective tions. May 1; and of the Federal Reserve Bank of St. • Require Edge corporations to maintain a Louis, effective May 2. minimum risk-based capital level of 10 percent. • Make certain other technical and clarifying amendments. REGULATION K: REVISIONS The International Banking Act requires the Board to review its regulations with respect to The Federal Reserve Board announced on April Edge corporations at least every five years to 19,1991, revisions to Regulation K (International ensure that the purposes of the Edge Act are Banking Operations), which govern international being served in light of prevailing economic banking operations that will permit U.S. banking conditions and banking practices. Edge corpoorganizations to expand the scope of their inter- rations are corporations chartered to engage in national activities. international or foreign banking or other inter- Some of the revisions to the regulation will national or foreign operations. The Board inbecome effective immediately; others will be- cluded in this review all of the provisions of come effective May 24, 1991. Regulation K. The revisions will accomplish the following: • Expand the existing authority to engage in underwriting and dealing in equity securities out- REGULATION B: REVISIONS TO OFFICIAL side the United States. STAFF COMMENTARY • Increase the current dollar limits under which U.S. banking organizations may make The Federal Reserve Board issued on April 2, investments abroad without prior notice to the 1991, revisions to its official staff commentary to Board. Regulation B (Equal Credit Opportunity). The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

462 Federal Reserve Bulletin • June 1991 revisions, which became effective April 1, ad- ined for compliance with the Community Reindress notification of adverse action and a state vestment Act (CRA). law preemption determination. The information is included in a weekly publication, which lists applications received and actions taken by the Board, the Board's staff, and REGULATION Z: REVISIONS TO OFFICIAL the Federal Reserve Banks. Institutions that STAFF COMMENTARY have been examined for CRA compliance are listed in a new Section V following the applica- The Federal Reserve Board issued on April 1, tion notices for each Federal Reserve District. 1991, revisions to its official staff commentary for Persons interested in subscribing to this publi- Regulation Z (Truth in Lending). The revisions cation (H.2) should contact Publications Serwere effective on April 1, 1991, but compliance is vices, mail stop 138, Board of Governors of the optional until October 1, 1991. The interpreta- Federal Reserve System, Washington, D.C. tions address such issues as renewals of home 20551. A check for $35 should accompany each equity lines of credit, credit card substitution, request for a year's subscription. The subscripand renewable balloon payment mortgages. tion cost may be waived for community organizations on a case-by-case basis. In addition, each Federal Reserve Bank pub- EXAMINATIONS FOR COMPLIANCE WITH lishes its own applications bulletin that includes a THE COMMUNITY REINVESTMENT ACT section on CRA examinations made in that Reserve District. Interested persons should contact The Federal Reserve Board now makes available the individual Reserve Banks for further inforweekly a list of institutions that have been exam- mation about the District publications. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

463 Legal Developments FINAL RULE—AMENDMENT TO REGULATION D (c) The Board of Governors is amending 12 C.F.R. Part (1) 204, its Regulation D (Reserve Requirements of De- ^ * * * i pository Institutions), including simplifying the definition of "savings account" by merging paragraphs * * * 204.2(d)(2)(i) and (ii), which previously had separate descriptions of savings accounts and money market (2) The term "savings deposit" also means: A deposit accounts, and revising section 204.7(a) to deposit or account, such as an account commonly change the term "penalties" to "charges," where known as a passbook savings account, a statement appropriate, to more accurately reflect the nature of savings account, or as a money market deposit these payments. account ("MMDA"), that otherwise meets the re- Effective April 24, 1991, 12 C.F.R. Part 204 is quirements of section 204.2(d)(1) and from which, amended as follows: under the terms of the deposit contract or by practice of the depository institution, the depositor is Part 204—Reserve Requirements of Depository permitted or authorized to make no more than six Institutions transfers and withdrawals, or a combination of such transfers and withdrawals, per calendar month or 1. The authority citation for Part 204 continues to read statement cycle (or similar period) of at least four as follows: weeks, to another account (including a transaction account) of the depositor at the same institution or Authority: Sections 11(a), 11(c), 19, 25, 25(a) of the to a third party by means of a preauthorized or Federal Reserve Act (12 U.S.C. 248(a), 248(c), 371a, automatic transfer, or telephonic (including data 371b, 461, 601, 611); section 7 of the International transmission) agreement, order or instruction, and Banking Act of 1978 (12 U.S.C. 3105); and section 411 of the Garn-St Germain Depository Institutions Act of 1982 (12 U.S.C. 461). 1. A time deposit, or a portion thereof, may be paid before maturity without imposing the early withdrawal penalties specified by this part: 2. Section 204.2 is amended by revising paragraph (a) where the time deposit is maintained in an individual retirement account established in accordance with 26 U.S.C. 408 and is paid (b)(3)(ii)(A), footnote 1 to paragraph (c)(1), and parawithin seven days after establishment of the individual retirement graphs (d)(2), (e)(2), and (f)(2); by removing paragraph account pursuant to 26 C.F.R. 1.408-6(d)(4), where it is maintained in (b)(3)(iv) and redesignating paragraphs (b)(3)(v) and a Keogh (H.R. 10) plan, or where it is maintained in a "401(k) plan" under 26 U.S.C. 401(k); provided that the depositor forfeits an amount (b)(3)(vi) as (b)(3)(iv) and (b)(3)(v), respectively, to at least equal to the simple interest earned on the amount withdrawn; read as follows: (b) where the depository institution pays all or a portion of a time deposit representing funds contributed to an individual retirement account or a Keogh (H.R. 10) plan established pursuant to 26 U.S.C. Section 204.2—Definitions. 408 or 26 U.S.C. 401 or to a "401(k) plan" established pursuant to 26 U.S.C. 401 (k) when the individual for whose benefit the account is maintained attains age 59Vi or is disabled (as defined in 26 U.S.C. 72(m)(7)) or thereafter; (b) ^ * ^ * * * * * (c) where the depository institution pays that portion of a time deposit on which federal deposit insurance has been lost as a result of the merger of two or more federally insured banks in which the depositor previously maintained separate time deposits, for a period of one year (A) is subject to check, draft, negotiable order from the date of the merger; of withdrawal, share draft, or similar item, such (d) upon the death of any owner of the time deposit funds; (e) when any owner of the time deposit is determined to be legally as an account authorized by 12 U.S.C. 1832(a) incompetent by a court or other administrative body of competent ("NOW account") and a savings deposit de- jurisdiction; or (f) where a time deposit is withdrawn within ten days after a specified scribed in section 204.2(d)(2), provided that the maturity date even though the deposit contract provided for automatic depositor is eligible to hold a NOW account; or renewal at the maturity date. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

464 Federal Reserve Bulletin • June 1991 no more than three of the six such transfers may be made by check, draft, debit card, or similar order (4) Deposits or accounts on which the depository made by the depositor and payable to third parties. institution has reserved the right to require at least A "preauthorized transfer" includes any arrange- seven days' written notice prior to withdrawal or ment by the depository institution to pay a third transfer of any funds in the account and under the party from the account of a depositor upon written terms of which, or by practice of the depository or oral instruction (including an order received institution, the depositor is permitted or authorized through an automated clearing house (ACH)) or any to make more than six withdrawals per month or arrangement by a depository institution to pay a statement cycle (or similar period) of at least four third party from the account of the depositor at a weeks for the purposes of transferring funds to predetermined time or on a fixed schedule. Such an another account of the depositor at the same instiaccount is not a "transaction account" by virtue of tution (including "transaction account") or for makan arrangement that permits transfers for the pur- ing payment to a third party by means of a preaupose of repaying loans and associated expenses at thorized transfer, or telephonic (including data the same depository institution (as originator or transmission) agreement, order or instruction, exservicer) or that permits transfers of funds from this cept accounts described in section 204.2(d)(2). An account to another account of the same depositor at account that authorizes more than six such withthe same institution or permits withdrawals (pay- drawals in a calendar month, or statement cycle (or ments directly to the depositor) from the account similar period) of at least four weeks, is a "transacwhen such transfers or withdrawals are made by tion account" whether or not more than six such mail, messenger, automated teller machine, or in transfers are made during such period. * * * person or when such withdrawals are made by * * telephone (via check mailed to the depositor) (2) "Nonpersonal time deposit" does not include regardless of the number of such transfers or withnontransferable time deposits to the credit of or in drawals.56 which the entire beneficial interest is held by an individual pursuant to an individual retirement account or Keogh (H.R. 10) plan under 26 U.S.C. 408, (e)* * * 401, or non-transferable time deposits held by an (2) Deposits or accounts on which the depository employer as part of an unfunded deferred-compeninstitution has reserved the right to require at least sation plan established pursuant to subtitle D of the seven days' written notice prior to withdrawal or Revenue Act of 1978 (Pub. L. No. 95-600, 92 Stat. transfer of any funds in the account and that are 2763), or a "401(k) plan" under 26 U.S.C. 401(k). subject to check, draft, negotiable order of withdrawal, share draft, or other similar item, except accounts described in section 204.2(d)(2) (savings 3. Section 204.7(a) is revised to read as follows: deposits), but including accounts authorized by 12 U.S.C. 1832(a) (NOW accounts). Section 204.7—Reserve Deficiencies. (a) Charges for deficiencies. 5. In order to ensure that no more than the permitted number of (1) Assessment of charges. Deficiencies in a deposwithdrawals or transfers are made, for an account to come within the definition in § 204.2(d)(2), a depository institution must either: itory institution's required reserve balance, after (a) prevent withdrawals or transfers of funds from this account that are application of the 2 percent carryover provided in in excess of the limits established by § 204.2(d)(2), or section 204.3(h) are subject to reserve deficiency (b) adopt procedures to monitor those transfers on an ex post basis and contact customers who exceed the established limits on more than an charges. Federal Reserve Banks are authorized to occasional basis. assess charges for deficiencies in required reserves For customers who continue to violate those limits after they have been contacted by the depository institution, the depository institu- at a rate of 2 percent per year above the lowest rate tion must either close the account and place the funds in another in effect for borrowings from the Federal Reserve account that the depositor is eligible to maintain, or take away the Bank on the first day of the calendar month in which transfer and draft capacities of the account. An account that authorizes withdrawals or transfers in excess of the the deficiencies occurred. Charges shall be assessed permitted number is a transaction account regardless of whether the on the basis of daily average deficiencies during authorized number of transactions are actually made. For accounts each maintenance period. Reserve Banks may, as an described in section 204.2(d)(2), the institution at its option may use, on a consistent basis, either the date on the check, draft, or similar alternative to levying monetary charges, after conitem, or the date the item is paid in applying the limits imposed by that sideration of the circumstances involved, permit a section. 6. Reserved. depository institution to eliminate deficiencies in its Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 465 required reserve balance by maintaining additional The entities referred to in section 204.2(c)(1)(E) and reserves during subsequent reserve maintenance section 204.8(a)(2)(i)(B)(5) are: periods. (2) Waivers. (i) Reserve Banks may waive the charges for ASIA reserve deficiencies except when the deficiency Asia and Pacific Council. arises out of a depository institution's gross negligence or conduct that is inconsistent with the principles and purposes of reserve requirements. Each Reserve Bank has adopted guidelines that provide for waivers of small charges. The guide- FINAL RULE—AMENDMENT TO REGULATION K lines also provide for waiving the charge once during a two-year period for any deficiency that The Board of Governors is amending 12 C.F.R. Parts does not exceed a certain percentage of the de- 211 and 265, its Regulation K (International Banking pository institution's required reserves. Decisions Operations) and its Rules Regarding Delegation of by Reserve Banks to waive charges in other Authority. The International Banking Act of 1978 situations are based on an evaluation of the cir- (P.L. 95-369) requires the Board to review and revise cumstances in each individual case and the depos- its regulation governing the operation of Edge corpoitory institution's reserve maintenance record. If rations every five years. In connection with this rea depository institution has demonstrated a lack view, the Board has examined all of the provisions of of due regard for the proper maintenance of Regulation K, 12 C.F.R. Part 211, which governs required reserves, the Reserve Bank may decline international banking operations, and has revised proto exercise the waiver privilege and assess all visions of the regulation governing permissible activicharges regardless of amount or reason for the ties of U.S. banking organizations abroad, including deficiency. underwriting and dealing in equity securities; invest- (ii) In individual cases, where a federal supervi- ments by U.S. banking organizations under the gensory authority waives a liquidity requirement, or eral consent procedures; portfolio investments; dowaives the penalty for failing to satisfy a liquidity mestic powers of Edge corporations; capitalization requirement, the Reserve Bank in the District and supervision of Edge corporations; debt-for-equity where the involved depository institution is lo- investments; qualifying foreign banking organizations; cated shall waive the reserve requirement im- powers of foreign branches of member banks; and posed under this part for such depository institu- export trading companies. In addition, there are other tion when requested by the federal supervisory and technical amendments to Regulation K and certain authority involved. amendments to the Board's Rules Regarding Delegation of Authority, 12 C.F.R. Part 265. Effective May 27, 1991, except in the case of section 5. Footnote 14 is section 204.8(a)(2)(i)(B)(5) is revised 211.5(b)(l)(iii), (c)(1) and (f)(4)(i), which are effective to read as follows: immediately, 12 C.F.R. Part 211, Subparts A, B, and C, and Part 265 are amended as follows: The designated entities are specified in 12 C.F.R. Part 211—International Banking Operations 204.125. 1. The authority citation for part 211 is revised to read 6. Above the caption to section 204.121 the following as follows: is added: Authority. Federal Reserve Act (12 U.S.C. 221 Interpretations et seq.)\ Bank Holding Company Act of 1956, as amended (12 U.S.C. 1841 et seq.y the International 7. In section 204.125, the caption of the section, the Banking Act of 1978 (Pub. L. 95-369; 92 Stat. 607; introductory clause, and the first entry under the 12 U.S.C. 3101 et seq.y the Bank Export Services Act heading "ASIA" are revised to read as follows: (Title II, Pub. L. 97-290, 96 Stat. 1235); the International Lending Supervision Act (Title IX, Pub. L. Section 204.125—Foreign, international, and su- 98-181, 97 Stat. 1153, 12 U.S.C. 3901 et seq.y, and the pranational entities referred to in sections Export Trading Company Act Amendments of 1988 204.2(c)(l)(iv)(E) and 204.8(a)(2)(i)(B)(5). (Title III, Pub. L. 100-418, 102 Stat. 1384 (1988)). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

466 Federal Reserve Bulletin • June 1991 2. Subpart A (section 211.1 through 211.7) is revised to BHC Act afforded by section 4(c)(13) of the BHC read as follows: Act (12 U.S.C. 1843(c)(13)). Subpart A—International Operations of United Section 211.2—Definitions. States Banking Organizations Unless otherwise specified, for the purposes of this Section 211.1 Authority, purpose, and scope. subpart: Section 211.2 Definitions. (a) An "affiliate" of an organization means: Section 211.3 Foreign branches of U.S. banking or- (1) any entity of which the organization is a direct or ganizations. indirect subsidiary; or Section 211.4 Edge and Agreement corporations. (2) any direct or indirect subsidiary of the organiza- Section 211.5 Investments and activities abroad. tion or such entity. Section 211.6 Lending limits and capital require- (b) "Capital Adequacy Guidelines" means the Capital ments. Adequacy Guidelines for State Member Banks: Risk- Section 211.7 Supervision and reporting. Based Measure (12 C.F.R. 208, App. A). (c)"Capital and surplus" means paid-in and unim- Subpart A—International Operations of United States paired capital and surplus, and includes undivided Banking Organizations profits but does not include the proceeds of capital notes or debentures. Section 211.1—Authority, purpose, and scope. (d) "Directly or indirectly," when used in reference to activities or investments of an organization, means (a) Authority. This subpart is issued by the Board of activities or investments of the organization or of any Governors of the Federal Reserve System ("Board") subsidiary of the organization. under the authority of the Federal Reserve Act (e) "Eligible country" means a country that, since ("FRA") (12 U.S.C. 221 et seq.)- the Bank Holding 1980, has restructured its sovereign debt held by Company Act of 1956 ("BHC Act") (12 U.S.C. 1841 foreign creditors, and any other country that the Board et seq.)-, and the International Banking Act of 1978 deems to be eligible. ("IBA") (12 U.S.C. 3101 et seq.). Requirements for (f) An Edge corporation is "engaged in banking" if it is the collection of information contained in this regula- ordinarily engaged in the business of accepting depostion have been approved by the Office of Management its in the United States from nonaffiliated persons. and Budget under the provision of 44 U.S.C. 3501, (g) "Engaged in business" or "engaged in activities" et seq. and have been assigned OMB Nos. 7100-0107; in the United States means maintaining and operating 7100-0109; 7100-0110; 7100-0069; 7100-0086; and 7100- an office (other than a representative office) or subsid- 0073. iary in the United States. (b) Purpose. This subpart sets out rules governing the (h) "Equity" means an ownership interest in an orgainternational and foreign activities of U.S. banking nization, whether through: organizations, including procedures for establishing (1) Voting or nonvoting shares; foreign branches and Edge corporations to engage in (2) General or limited partnership interests; international banking and for investments in foreign (3) Any other form of interest conferring ownership organizations. rights, including warrants, debt, or any other inter- (c) Scope. This subpart applies to: ests that are convertible into shares or other owner- (1) corporations organized under section 25(a) of the ship rights in the organization; or FRA (12 U.S.C. 611-631), "Edge corporations"; (4) Loans that provide rights to participate in the (2) corporations having an agreement or undertaking profits of an organization, unless the investor rewith the Board under section 25 of the FRA ceives a determination that such loans should not be (12 U.S.C. 601-604a), "Agreement corporations"; considered equity in the circumstances of the par- (3) member banks with respect to their foreign ticular investment. branches and investments in foreign banks under (i) "Foreign" or "foreign country" refers to one or section 25 of the FRA (12 U.S.C. 601-604a);' and more foreign nations, and includes the overseas terri- (4) bank holding companies with respect to the tories, dependencies, and insular possessions of those exemption from the nonbanking prohibitions of the nations and of the United States, and the Commonwealth of Puerto Rico. (j) "Foreign bank" means an organization that: 1. Section 25 of the FRA, which refers to national banking associ- (1) Is organized under the laws of a foreign country; ations, also applies to state member banks of the Federal Reserve System by virtue of section 9 of the FRA (12 U.S.C. 321). (2) Engages in the business of banking; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 467 (3) Is recognized as a bank by the bank supervisory affiliates directly or indirectly own or control more or monetary authority of the country of its organi- than 50 percent of the equity of the organization, zation or principal banking operations; (v) "Tier 1 capital" has the same meaning as provided (4) Receives deposits to a substantial extent in the under the Capital Adequacy Guidelines (12 C.F.R. regular course of its business; and 208, App. A). (5) Has the power to accept demand deposits. (k) "Foreign branch" means an office of an organiza- Section 211.3—Foreign branches of U.S. tion (other than a representative office) that is located banking organizations. outside the country under the laws of which the organization is established, at which a banking or (a) Establishment of foreign branches. financing business is conducted. (1) Right to establish branches. Foreign branches (1) "Foreign person" means an office or establishment may be established by any member bank having located, or individual residing, outside the United capital and surplus of $1,000,000 or more, an Edge States. corporation, an Agreement corporation, or a subsid- (m) "Investment" means: iary held pursuant to this subpart. Unless otherwise (1) The ownership or control of equity; provided in this section, the establishment of a (2) Binding commitments to acquire equity ; foreign branch requires the specific prior approval of (3) Contributions to the capital and surplus of an the Board. organization; and (2) Branching within a foreign country. Unless the (4) The holding of an organization's subordinated organization has been notified otherwise, no prior debt when the investor and the investor's affiliates Board approval is required for an organization to hold more than 5 percent of the equity of the establish additional branches in any foreign country organization. where it operates one or more branches.2 (n) "Investor" means an Edge corporation, Agree- (3) Branching into additional foreign countries. Afment corporation, bank holding company, or member ter giving the Board 45 days' prior written notice, an bank. organization that operates branches in two or more (o) "Joint venture" means an organization that has 20 foreign countries may establish a branch in an percent or more of its voting shares held directly or additional foreign country, unless notified otherwise indirectly by the investor or by an affiliate of the by the Board.2 investor under any authority, but which is not a (4) Expiration of branching authority. Authority to subsidiary of the investor. establish branches through prior approval or prior (p) "Loans and extensions of credit" means all direct notice shall expire one year from the earliest date on and indirect advances of funds to a person made on the which the authority could have been exercised, basis of any obligation of that person to repay funds, unless the Board extends the period. (q) "Organization" means a corporation, government, (5) Reporting. Any organization that opens, closes, partnership, association, or any other entity, or relocates a branch shall report such change in a (r) "Person" means an individual or an organization, manner prescribed by the Board. (s) "Portfolio investment" means an investment in an (b) Further powers of foreign branches of member organization other than a subsidiary or joint venture, banks. In addition to its general banking powers, and (t) "Representative office" means an office that: to the extent consistent with its charter, a foreign (1) Engages solely in representational and adminis- branch of a member bank may engage in the following trative functions such as solicitation of new business activities so far as usual in connection with the busifor or liaison between the organization's head office ness of banking in the country where it transacts and customers in the United States; and business: (2) Does not have authority to make business deci- (1) Guarantees. Guarantee debts, or otherwise agree sions for the account of the organization repre- to make payments on the occurrence of readily sented. ascertainable events,3 if the guarantee or agreement (u) "Subsidiary" means an organization more than 50 specifies a maximum monetary liability; but except percent of the voting shares of which is held directly or indirectly, or which is otherwise controlled or capable 2. For the purpose of this paragraph, a subsidiary other than a bank of being controlled, by the investor or an affiliate of the or an Edge or Agreement corporation is considered to be operating a investor under any authority. Among other circum- branch in a foreign country if it has an affiliate that operates an office stances, an investor is considered to control an orga- (other than a representative office) in that country. 3. "Readily ascertainable events" include, but are not limited to, nization if the investor or an affiliate is a general events such as nonpayment of taxes, rentals, customs duties, or costs partner of the organization or if the investor and its of transport and loss or nonconformance of shipping documents. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

468 Federal Reserve Bulletin • June 1991 to the extent that the member bank is fully secured, (i) The credit extension is reported promptly to it may not have liabilities outstanding for any person the branch's home office; and on account of such guarantees or agreements which, (ii) Any extension of credit exceeding $100,000 (or when aggregated with other unsecured obligations the equivalent in local currency) is reported also of the same person, exceed the limit contained in to the bank's board of directors; paragraph (a)(1) of section 5200 of the Revised (5) Real estate loans. Take liens or other encum- Statutes (12 U.S.C. 84) for loans and extensions of brances on foreign real estate in connection with its credit; extensions of credit, whether or not of first priority (2) Government obligations. Underwrite, distribute, and whether or not the real estate has been imbuy, sell, and hold obligations of: proved; (i) The national government of the country in (6) Insurance. Act as insurance agent or broker; which the branch is located; (7) Employee benefits program. Pay to an employee (ii) An agency or instrumentality of the national of the branch, as part of an employee benefits government where supported by the taxing au- program, a greater rate of interest than that paid to thority, guarantee, or full faith and credit of the other depositors of the branch; national government; and (8) Repurchase agreements. Engage in repurchase (iii) A political subdivision of the country; agreements involving securities and commodities Provided however that, no member bank may hold, that are the functional equivalents of extensions of or be under commitment with respect to, such credit; obligations for its own account in an aggregate (9) Investment in subsidiaries. With the Board's amount exceeding the greater of: prior approval, acquire all of the shares of a com- (A) 10 percent of its Tier 1 capital; or pany (except where local law requires other inves- (B) 10 percent of the total deposits of the bank's tors to hold directors' qualifying shares or similar branches in that country on the preceding year- types of instruments) that engages solely in activiend call report date (or the date of acquisition of ties: the branch in the case of a branch that has not (i) in which the member bank is permitted to been so reported); engage; or (3) Other Investments. Invest in: (ii) that are incidental to the activities of the (i) The securities of the central bank, clearing foreign branch; and houses, governmental entities other than those (10) Other activities. With the Board's prior apauthorized under paragraph (b)(2) of this section, proval, engage in other activities that the Board and government-sponsored development banks of determines are usual in connection with the transthe country in which the foreign branch is located; action of the business of banking in the places where (ii) Other debt securities eligible to meet local the member bank's branches transact business. reserve or similar requirements; and (c) Reserves of foreign branches of member banks. (iii) Shares of automated electronic payments Member banks shall maintain reserves against foreign networks, professional societies, schools, and the branch deposits when required by part 204 of this like necessary to the business of the branch; chapter (Regulation D). Provided however that, the total investments of the Section 211.4—Edge and Agreement bank's branches in that country under this para- corporations. graph (exclusive of securities held as required by the law of that country or as authorized under section (a) Organization. 5136 of the Revised Statutes (12 U.S.C. 24, Sev- (1) Board authority. The Board shall have the auenth)) may not exceed 1 percent of the total deposits thority to approve: of the bank's branches in that country on the pre- (i) The establishment of Edge corporations; and ceding year-end call report date (or on the date of (ii) Investments by member banks and bank holdacquisition of the branch in the case of a branch that ing companies in Agreement corporations. has not so reported); (2) Permit. A proposed Edge corporation shall be- (4) Credit extensions to bank's officers. Extend come a body corporate when the Board issues a credit to an officer of the bank residing in the permit approving its proposed name, articles of country in which the foreign branch is located to association, and organization certificate. finance the acquisition or construction of living (3) Name. The name shall include "international," quarters to be used as the officer's residence abroad, "foreign," "overseas," or some similar word, but provided however that: may not resemble the name of another organization Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 469 to an extent that might mislead or deceive the and transferred only on its books and in complipublic. ance with section 25(a) of the FRA and this (4) Federal Register notice. The Board shall publish subpart. in the Federal Register notice of any proposal to (ii) The share certificates of an Edge corporation organize an Edge corporation and will give inter- shall: ested persons an opportunity to express their views (A) Name and describe each class of shares on the proposal. indicating its character and any unusual at- (5) Factors considered by the Board. The factors tributes such as preferred status or lack of considered by the Board in acting on a proposal to voting rights; and organize an Edge corporation include: (B) Conspicuously set forth the substance of: (i) The financial condition and history of the (1) Any limitations upon the rights of ownerapplicant; ship and transfer of shares imposed by sec- (ii) The general character of its management; tion 25(a) of the FRA; and (iii) The convenience and needs of the community (2) Any rules that the Edge corporation preto be served with respect to international banking scribes in its by-laws to ensure compliance and financing services; and with this paragraph. (iv) The effects of the proposal on competition. (iii) Any change in status of a shareholder that (6) Authority to commence business. causes a violation of section 25(a) of the FRA (i) After the Board issues a permit, the Edge shall be reported to the Board as soon as possible, corporation may elect officers and otherwise com- and the Edge corporation shall take such action as plete its organization, invest in obligations of the the Board may direct. United States Government, and maintain deposits (2) Ownership of Edge corporations by foreign inwith depository institutions, but it may not exer- stitutions. cise any other powers until at least 25 percent of (i) Prior Board approval. One or more foreign or the authorized capital stock specified in the arti- foreign-controlled domestic institutions referred cles of association has been paid in cash, and each to in paragraph 13 of section 25(a) of the FRA shareholder has paid in cash at least 25 percent of (12 U.S.C. 619) may apply for the Board's prior that shareholder's stock subscription. approval to acquire directly or indirectly a major- (ii) Unexercised authority to commence business ity of the shares of the capital stock of an Edge as an Edge corporation shall expire one year after corporation. issuance of the permit, unless the Board extends (ii) Conditions and requirements. Such an instituthe period. tion shall: (7) Amendments to articles of association. No (A) Provide the Board information related to its amendment to the articles of association shall be- financial condition and activities and such other come effective until approved by the Board. information as the Board may require; (8) Shareholders meeting. An Edge Corporation (B) Ensure that any transaction by an Edge shall provide in its bylaws that: corporation with an affiliate4 is on substantially (i) A shareholders meeting shall be convened at the same terms, including interest rates and the request of the Board within five days after the collateral, as those prevailing at the same time Board gives notice of the request to the Edge for comparable transactions by the Edge corpocorporation; ration with nonaffiliated persons, and does not (ii) Any shareholder or group of shareholders that involve more than the normal risk of repayment owns or controls 25 percent or more of the shares or present other unfavorable features; of the Edge corporation shall attend such a meet- (C) Ensure that the Edge corporation will not ing in person or by proxy; and provide funding on a continual or substantial (iii) Failure by a shareholder or authorized repre- basis to any affiliate or office of the foreign sentative to attend any such meeting in person or institution through transactions that would be by proxy may result in removal or barring of such inconsistent with the international and foreign shareholders or any representatives from further business purposes for which Edge corporations participation in the management or affairs of the are organized; Edge corporation. (b) Nature and ownership of shares. (1) Shares. 4. For purposes of this paragraph, "affiliate" means any organiza- (i) Shares of stock in an Edge corporation may not tion that would be an "affiliate" under section 23 A of the FRA include no-par value shares and shall be issued (12 U.S.C. 371c) if the Edge corporation were a member bank. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

470 Federal Reserve Bulletin • June 1991 (D) Invest no more than 10 percent of the copy of the notice of the proposal published in a institution's capital and surplus in the aggregate newspaper of general circulation in the communiamount of stock held in all Edge corporations; ties to be served by the branch, and (iii) The newspaper notice may appear no earlier (E) In the case of a foreign institution not than 90 calendar days prior to submission of subject to section 4 of the BHC Act: notice of the proposal to the Reserve Bank. The (1) Comply with any conditions that the Board newspaper notice must provide an opportunity for may impose that are necessary to prevent the public to give written comment on the proundue concentration of resources, decreased posal to the appropriate Reserve Bank for at least or unfair competition, conflicts of interest, or 30 days after the date of publication. unsound banking practices in the United (2) Factors considered. The factors considered in States; and acting upon a proposal to establish a branch are (2) Give the Board 45 days' prior written enumerated in paragraph (a)(5) of this section. notice, in a form to be prescribed by the (3) Expiration of authority. Authority to open a Board, before engaging in any nonbanking branch under prior notice shall expire one year from activity in the United States, or making any the earliest date on which that authority could have initial or additional investments in another been exercised, unless the Board extends the period. organization, that would require prior Board (d) Reserve requirements and interest rate limitations. approval or notice by an organization subject The deposits of an Edge or Agreement corporation are to section 4 of the BHC Act; in connection subject to parts 204 and 217 of this chapter (Regulawith such notice, the Board may impose con- tions D and Q) in the same manner and to the same ditions necessary to prevent adverse effects extent as if the Edge or Agreement corporation were a that may result from such activity or invest- member bank. ment. (e) Permissible activities in the United States. An Edge (3) Change in control. corporation may engage directly or indirectly in activi- (i) Prior notice. Any person shall give the Board ties in the United States that are permitted by the sixth 60 days' prior written notice, in a form to be paragraph of section 25(a) of the FRA and are incidental prescribed by the Board, before acquiring, di- to international or foreign business, and in such other rectly or indirectly, 25 percent or more of the activities as the Board determines are incidental to voting shares, or otherwise acquiring control, of international or foreign business. The following activian Edge corporation. The Board may extend the ties will ordinarily be considered incidental to an Edge 60-day period for an additional 30 days by notify- corporation's international or foreign business: ing the acquiring party. A notice under this para- (1) Deposit activities. graph need not be filed where a change in control (i) Deposits from foreign governments and foreign is effected through a transaction requiring the persons. An Edge corporation may receive in the Board's approval under section 3 of the BHC Act United States transaction accounts, savings, and (12 U.S.C. 1842). time deposits (including issuing negotiable certifi- (ii) Board review. In reviewing a notice filed under cates of deposits) from foreign governments and this paragraph, the Board shall consider the fac- their agencies and instrumentalities, and from fortors set forth in paragraph (a)(5) of this section eign persons. and may disapprove a notice or impose any con- (ii) Deposits from other persons. An Edge corpoditions that it finds necessary to assure the safe ration may receive from any other person in the and sound operation of the Edge corporation, to United States transaction accounts, savings, and assure the international character of its operation, time deposits (including issuing negotiable certifand to prevent adverse effects such as decreased icates of deposit) if such deposits: or unfair competition, conflicts of interest, or (A) Are to be transmitted abroad; undue concentration of resources. (B) Consist of funds to be used for payment of (c) Domestic branches. obligations to the Edge corporation or collateral (1) Prior notice. securing such obligations; (i) An Edge corporation may establish branches in (C) Consist of the proceeds of collections the United States 45 days after the Edge corpora- abroad that are to be used to pay for exported tion has given notice to its Reserve Bank, unless or imported goods or for other costs of exportthe Edge corporation is notified to the contrary ing or importing or that are to be periodically within that time. transferred to the depositor's account at an- (ii) The notice to the Reserve Bank shall include a other financial institution; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 471 (D) Consist of the proceeds of extensions of the United States of goods, whether direct or credit by the Edge corporation; through brokers or other intermediaries; (E) Represent compensation to the Edge corpo- (C) The domestic shipment or temporary storration for extensions of credit or services to the age of goods being imported or exported (or customer; accumulated for export); and (F) Are received from Edge or Agreement cor- (D) The assembly or repackaging of goods porations, foreign banks and other depository imported or to be exported; institutions (as described in part 204 of this (ii) Finance the costs of production of goods and chapter (Regulation D)); services for which export orders have been re- (G) Are received from an organization that by ceived or which are identifiable as being directly its charter, license, or enabling law is limited to for export; business that is of an international character, (iii) Assume or acquire participations in extenincluding Foreign Sales Corporations sions of credit, or acquire obligations arising from (26 U.S.C. 921); transportation organizations transactions the Edge corporation could have engaged exclusively in the international trans- financed, including acquisitions of obligations of portation of passengers or in the movement of foreign governments; goods, wares, commodities or merchandise in (iv) Guarantee debts, or otherwise agree to make international or foreign commerce; and export payments on the occurrence of readily ascertaintrading companies that are exclusively engaged able events,5 if the guarantee or agreement specin activities related to international trade. ifies the maximum monetary liability thereunder (2) Liquid funds. Funds of an Edge or Agreement and is related to a type of transaction described in corporation that are not currently employed in its paragraphs (e)(4)(i) and (ii) of this section; and international or foreign business, if held or invested (v) Provide credit and other banking services for in the United States, shall be in the form of: domestic and foreign purposes to foreign govern- (i) Cash; ments and their agencies and instrumentalities; (ii) Deposits with depository institutions, as de- foreign persons; and organizations of the type scribed in part 204 of this chapter (Regulation D), described in paragraph 211.4(e)(l)(ii)(G) of this and other Edge and Agreement corporations; section. (iii) Money market instruments (including repur- (5) Payments and collections. An Edge corporation chase agreements with respect to such instru- may receive checks, bills, drafts, acceptances, ments), such as bankers' acceptances, federal notes, bonds, coupons, and other instruments for funds sold, and commercial paper; and collection abroad, and collect such instruments in (iv) Short- or long-term obligations of, or fully the United States for a customer abroad; and may guaranteed by, federal, state, and local govern- transmit and receive wire transfers of funds and ments and their instrumentalities. securities for depositors. (3) Borrowings. An Edge corporation may: (6) Foreign exchange. An Edge corporation may (i) Borrow from offices of other Edge and Agree- engage in foreign exchange activities. ment corporations, foreign banks, and depository (7) Fiduciary and investment advisory activities. An institutions (as described in part 204 of this chapter Edge corporation may: (Regulation D)) or issue obligations to the United (i) Hold securities in safekeeping for, or buy and States or any of its agencies or instrumentalities; sell securities upon the order and for the account (ii) Incur indebtedness from a transfer of direct and risk of, a person, provided such services for obligations of, or obligations that are fully guaran- U.S. persons shall be with respect to foreign teed as to principal and interest by, the United securities only; States or any agency or instrumentality thereof (ii) Act as paying agent for securities issued by that the Edge corporation is obligated to repur- foreign governments or other entities organized chase; under foreign law; (iii) Issue long-term subordinated debt that does (iii) Act as trustee, registrar, conversion agent, or not qualify as a "deposit" under part 204 of this paying agent with respect to any class of securichapter (Regulation D). ties issued to finance foreign activities and distrib- (4) Credit activities. An Edge corporation may: uted solely outside the United States; (i) Finance the following: (A) Contracts, projects, or activities performed 5. "Readily ascertainable events" include, but are not limited to, substantially abroad; events such as nonpayment of taxes, rentals, customs duties, or cost (B) The importation into or exportation from of transport and loss or nonconformance of shipping documents. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

472 Federal Reserve Bulletin • June 1991 (iv) Make private placements of participations in liquidity, and adequacy of capital. Subject to these its investments and extensions of credit; however, considerations and the other provisions of this section, except to the extent permissible for member it is the Board's policy to allow activities abroad to be banks under section 5136 of the Revised Statutes organized and operated as best meets corporate poli- (12 U.S.C. 24, Seventh), no Edge corporation cies. may otherwise engage in the business of under- (b) Investment requirements. writing, distributing, or buying or selling securi- (1) Eligible investments. Subject to the limitations in ties in the United States; paragraph (b)(2) of this section, an investor may (v) Act as investment or financial adviser by directly or indirectly: providing portfolio investment advice and portfo- (i) Invest in a subsidiary that engages solely in lio management with respect to securities, other activities listed in paragraph (d) of this section or financial instruments, real property interests and in such other activities as the Board has deterother investment assets,6 and by providing advice mined in the circumstances of a particular case on mergers and acquisitions, provided such ser- are permissible; provided however that, in the vices for U.S. persons shall be with respect to case of an acquisition of a going concern, existing foreign assets only; and activities that are not otherwise permissible for a (vi) Provide general economic information and subsidiary may account for not more than 5 advice, general economic statistical forecasting percent of either the consolidated assets or reveservices and industry studies, provided such ser- nues of the acquired organization ; vices for U.S. persons shall be with respect to (ii) Invest in a joint venture provided that, unless foreign economies and industries only. otherwise permitted by the Board, not more than (8) Banking services for employees. Provide banking 10 percent of the joint venture's consolidated services, including deposit services, to the officers assets or revenues are attributable to activities not and employees of the Edge corporation and its listed in paragraph (d) of this section; and affiliates; however, extensions of credit to such (iii) Make portfolio investments in an organizapersons shall be subject to the restrictions of part tion, provided however that: 215 of this chapter (Regulation O) as if the Edge (A) The total direct and indirect portfolio incorporation were a member bank. vestments by the investor and its affiliates in (9) Other activities. With the Board's prior ap- organizations engaged in activities that are not proval, engage in other activities in the United permissible for joint ventures do not exceed: States that the Board determines are incidental to (1) 40 percent of the total equity of the orgathe international or foreign business of Edge corpo- nization, when combined with shares in the rations. organization held in trading or dealing ac- (f) Agreement corporations. With the prior approval of counts pursuant to paragraph (d)(14) of this the Board, a member bank or bank holding company section and shares in the organization held may invest in a federally- or state-chartered corpora- under any other authority ; or tion that has entered into an agreement or undertaking (2) 25 percent of the investor's Tier 1 capital with the Board that it will not exercise any power that where the investor is a bank holding company is impermissible for an Edge corporation under this or 100 percent of Tier 1 capital for any other subpart. investor, when combined with underwriting commitments and shares held in trading or Section 211.5—Investments and activities dealing accounts pursuant to paragraph abroad. (d)(14) of this section;7 and (B) Any loans and extensions of credit made by (a) General policy. Activities abroad, whether con- an investor or its affiliates to the organization ducted directly or indirectly, shall be confined to are on substantially the same terms, including activities of a banking or financial nature and those interest rates and collateral, as those prevailing that are necessary to carry on such activities. In doing at the same time for comparable transactions so, investors shall at all times act in accordance with between the investor or its affiliates and nonafhigh standards of banking or financial prudence, hav- filiated persons. ing due regard for diversification of risks, suitable 6. For purposes of this section, management of an investment portfolio does not include operational management of real property, or 7. For this purpose, a direct subsidiary of a member bank is deemed industrial or commercial assets. to be an investor. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 473 (2) Direct investments by member banks. A member general consent and prior notice procedures with bank's direct investments under section 25 of the respect to any investor or with respect to the acquisi- FRA shall be limited to: tion of shares of organizations engaged in particular (i) Foreign banks; kinds of activities. An investor shall apply for and (ii) Foreign organizations formed for the sole receive the prior specific consent of the Board for its purpose of either holding shares of a foreign bank initial investment in its first subsidiary or joint venture or performing nominee, fiduciary, or other bank- unless an affiliate has made such an investment. Auing services incidental to the activities of a foreign thority to make investments under prior notice or branch or foreign bank affiliate of the member specific consent shall expire one year from the earliest bank; and date on which the authority could have been exer- (iii) Subsidiaries established pursuant to section cised, unless the Board extends the period. 211.3(b)(9) of this subpart. (1) General consent. Subject to the other limitations (3) Investment limit. In computing the amount that of this section, the Board grants its general consent may be invested in any organization under this for the following:9 section, there shall be included any unpaid amount (i) Any investment in a joint venture or subsidfor which the investor is liable and any investments iary, and any portfolio investment, if the total in the same organization held by affiliates under any amount invested (in one transaction or in a series authority. of transactions) does not exceed the lesser of: (4) Divestiture. An investor shall dispose of an (A) $25 million; or investment promptly (unless the Board authorizes (B) 5 percent of the investor's Tier 1 capital in retention) if: the case of a member bank, bank holding com- (i) The organization invested in: pany, or Edge corporation engaged in banking, (A) Engages in the general business of buying or or 25 percent of the investor's Tier 1 capital in selling goods, wares, merchandise, or commod- the case of an Edge corporation not engaged in ities in the United States; banking; (B) Engages directly or indirectly in other bus- (ii) Any additional investment in an organization iness in the United States that is not permitted in any calendar year so long as: to an Edge corporation in the United States (A) The total amount invested in that calendar except that an investor may hold up to 5 percent year does not exceed 10 percent of the invesof the shares of a foreign company that engages tor's Tier 1 capital; and directly or indirectly in business in the United (B) The total amount invested under section States that is not permitted to an Edge corpo- 211.5 (including investments made pursuant to ration; or specific consent or prior notice) in that calendar (C) Engages in impermissible activities to an year does not exceed cash dividends reinvested extent not permitted under paragraph (b)(1) of under paragraph (c)(l)(iii) of this section plus 10 this section; or percent of the investor's direct and indirect (ii) After notice and opportunity for hearing, the historical cost10 in the organization, which ininvestor is advised by the Board that its invest- vestment authority, to the extent unexercised, ment is inappropriate under the FRA, the BHC may be carried forward and accumulated for up Act, or this subpart. to five consecutive years; (c) Investment procedures.8 Direct and indirect investments shall be made in accordance with the general consent, prior notice, or specific consent procedures 9. In determining compliance with these limits, an investor shall contained in this paragraph. Except as the Board may combine the value of all shares of an organization held in trading or otherwise determine, in order for an investor to make dealing accounts under paragraph 211.5(d)(14) of this section with investments in the same organization. Shares held in trading or dealing investments under the general consent procedure, the accounts are also subject to the limits in paragraph 211.5(d)(14) of this investor and any other investor of which it is a section. subsidiary shall be in compliance with applicable min- 10. The "historical cost" of an investment consists of the actual amounts paid for shares or otherwise contributed to the capital imum standards for capital adequacy. The Board may accounts, as measured in dollars at the exchange rate in effect at the at any time, upon notice, modify or suspend the time each investment was made. It does not include subordinated debt or unpaid commitments to invest even though these may be considered investments for other purposes of this part. For investments acquired indirectly as a result of acquiring a subsidiary, the historical 8. When necessary, the general consent and prior notice provisions cost to the investor is measured as of the date of acquisition of the of this section constitute the Board's approval under the eighth subsidiary at the net asset value of the equity interest in the case of paragraph of section 25(a) of the FRA for investments in excess of the subsidiaries and joint ventures, and in the case of portfolio investlimitations therein based on capital and surplus. ments, at the book carrying value. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

474 Federal Reserve Bulletin • June 1991 (iii) Any additional investment in an organization fund does not exercise managerial control over the in an amount equal to cash dividends received firms in which it invests; from that organization during the preceding (12) Performing management consulting services twelve calendar months; or provided that such services when rendered with (iv) Any investment that is acquired from an respect to the U.S. market shall be restricted to the affiliate at net asset value. initial entry ; (2) Prior notice. An investment that does not qualify (13) Underwriting, distributing and dealing in debt under the general consent procedure may be made securities outside the United States; after the investor has given 45 days' prior written (14) Underwriting, distributing, and dealing in eqnotice to the Board. The Board may waive the uity securities outside the United States as follows: 45-day period if it finds immediate action is required (i) By an investor, or an affiliate, that had comby the circumstances presented. The notice period menced such activities prior to March 27, 1991, shall commence at the time the notice is accepted. and subject to limitations in effect at that time The Board may suspend the period or act on the (12 C.F.R. part 211 (1990)); or investment under the Board's specific consent pro- (ii) With the approval of the Board, underwriting cedures. equity securities if: (3) Specific consent. Any investment that does not (A) Commitments by an investor and its affiliqualify for either the general consent or the prior ates for the shares of an organization do not in notice procedure shall not be consummated without the aggregate exceed the lesser of $60 million or the specific consent of the Board. 25 percent of the investor's Tier 1 capital unless (d) Permissible activities. The Board has determined the underwriter is covered by binding committhat the following activities are usual in connection ments from subunderwriters or other purchaswith the transaction of banking or other financial ers obtained by the investor or its affiliates; and operations abroad: (B) Commitments by an investor and its affili- (1) Commercial and other banking activities; ates for the shares of an organization in excess (2) Financing, including commercial financing, con- of those permitted by paragraph (d)(14)(ii)(A) of sumer financing, mortgage banking, and factoring; this section provided that: (3) Leasing real or personal property, or acting as (1) the underwriting level approved by the agent, broker, or advisor in leasing real or personal Board for the investor and its affiliates in property, if the lease serves as the functional equiv- excess of the limitations of paragraph alent of an extension of credit to the lessee of the (d)(14)(ii)(A) of this section is fully deducted property; from the capital of the bank holding com- (4) Acting as fiduciary; pany, and from the capital of the bank where (5) Underwriting credit life insurance and credit the securities activities are conducted by a accident and health insurance; subsidiary of a U.S. bank;11 and (6) Performing services for other direct or indirect (2) in the Board's judgment such bank holding operations of a U.S. banking organization, including company and bank would remain strongly representative functions, sale of long-term debt, capitalized after such deduction from capital; name saving, holding assets acquired to prevent loss and on a debt previously contracted in good faith, and (iii) With the approval of the Board, dealing in the other activities that are permissible domestically for shares of an organization (including the shares of a bank holding company under sections 4(a)(2)(A) a U.S. organization with respect to foreign perand 4(c)(1)(C) of the BHC Act; sons only and subject to the limitations on owning (7) Holding the premises of a branch of an Edge or controlling shares of a company in section 4 of corporation or member bank or the premises of a the BHC Act and the Board's Regulation Y direct or indirect subsidiary, or holding or leasing (12 C.F.R. part 225)) where the shares held in the the residence of an officer or employee of a branch trading or dealing accounts of an investor and its or subsidiary; affiliates, when combined with any shares held (8) Providing investment, financial, or economic pursuant to the authority provided under paraadvisory services; graph (b) of this section, do not in the aggregate (9) General insurance agency and brokerage; exceed the lesser of $30 million or 10 percent of (10) Data processing; (11) Organizing, sponsoring, and managing a mutual fund if the fund's shares are not sold or distributed 11. Fifty percent of such capital deductions shall be from Tier 1 in the United States or to U.S. residents and the capital. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 475 the investor's Tier 1 capital, provided however (16) Underwriting life, annuity, pension fund-rethat: lated, and other types of insurance, where the (A) For purposes of determining compliance associated risks have been previously determined with the limitations of this paragraph (d)(14)(iii) by the Board to be actuarially predictable, provided and paragraph (b)(l)(iii)(A)(2) of this section, however that: long and short positions in the same security (i) Investments in, and loans and extensions of may be netted and positions in a security may credit (other than loans and extensions of credit be offset by futures, forwards, options, and fully secured in accordance with the requirements similar instruments referenced to the same se- of section 23A of the FRA (12 U.S.C. 371c) or curity through hedging methods approved by with such other standards as the Board may the Board, except that any position in a security require) to, the company by the investor or its shall not be deemed to have been reduced by affiliates are deducted from the capital of the more than 75 percent; investor;13 and (B) Any shares held in trading or dealing ac- (ii) Activities conducted directly or indirectly by a counts for longer than 90 days shall be reported subsidiary of a U.S. insured bank are excluded to the senior management of the investor; from the authority of this paragraph. (C) Any shares acquired pursuant to an under- (17) Acting as a futures commission merchant for writing commitment for up to 90 days after the financial instruments of the type, and on exchanges, payment date for such underwriting shall not be that the Board has previously approved, provided subject to the dollar and percentage limitations however that: of paragraph (d)(14)(iii) of this section or the (i) Activities are conducted in accordance with the investment provisions of paragraph (b) of this standards set forth in section 225.25(b)(18) of the section, other than the aggregate limits in para- Board's Regulation Y (12 C.F.R. 225.25(b)(18)); graph (b)(l)(iii)(A)(2) of this section; and and (D) Shares of an organization held in all trading (ii) Prior approval must be obtained for activities and dealing accounts, when combined with all conducted on an exchange that requires members other equity interests in the organization held to guarantee or otherwise contract to cover losses by the investor and its affiliates, other than suffered by other members. underwriting commitments for shares and (18) Acting as principal or agent in swap transacshares held pursuant to an underwriting for 90 tions14 subject to any limitations applicable to state days following the payment date for such member banks under the Board's Regulation H shares, must conform to the permissible limits (12 C.F.R. 208), except that where such activities for investments in an organization under para- involve contracts related to a commodity, such graph (b) of this section.12 contracts must provide an option for cash settlement (iv) Underwriting commitments for shares and and the option must be exercised upon settlement. shares held by an affiliate authorized to under- (19) Engaging in activities that the Board has deterwrite equity securities under section 4(c)(8) of the mined in Regulation Y (12 C.F.R. 225.25(b)) are BHC Act shall not be included in determining closely related to banking under section 4(c)(8) of compliance with the aggregates limits in para- the BHC Act; and graph (b)( 1 )(iii)(A)(2) and the limits of paragraphs (20) With the Board's specific approval, engaging in (d)(14)(ii)(A) and (iii) of this section, except that other activities that the Board determines are usual shares held by such an affiliate shall be included in connection with the transaction of the business of for purposes of determining compliance with banking or other financial operations abroad and are paragraph (d)(14)(iii)(D) of this section. consistent with the FRA or the BHC Act. (15) Operating a travel agency provided that the (e) Debts previously contracted. Shares or other owntravel agency is operated in connection with finan- ership interests acquired to prevent a loss upon a debt cial services offered abroad by the investor or previously contracted in good faith are not subject to others; the limitations or procedures of this section; however, they shall be disposed of promptly but in no event later 12. Underwriting commitments are combined with shares held by an investor and its affiliates (other than an affiliate authorized to deal in shares under section 4(c)(8) of the BHC Act) in dealing or trading 13. Fifty percent of such capital deduction shall be from Tier 1 accounts and with portfolio investments for purposes of determining capital. compliance with the aggregate limits in paragraph (b)(l)(iii)(A)(2) of 14. Swap transactions involving equity instruments are separately this section. authorized under paragraph (d)(14) of this section. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

476 Federal Reserve Bulletin • June 1991 than two years after their acquisition, unless the Board hibiting loans from the bank to the company in authorizes retention for a longer period, which the investment is made. (f) Investments made through debt-for-equity conver- (3) Divestiture. sions. (i) Time limits for divestiture. The bank holding (1) Permissible investments. A bank holding com- company shall divest the shares of, or other pany may make investments through the conversion ownership interests in, any company acquired of sovereign or private debt obligations of an eligible pursuant to this paragraph (unless the retention of country, either through direct exchange of the debt the shares or other ownership interest is otherobligations for the investment or by a payment for wise permissible at the time required for divestithe debt in local currency, the proceeds of which, ture) within the longer of: including an additional cash investment not exceed- (A) Ten years from the date of acquisition of the ing in the aggregate more than 10 percent of the fair investment except that the Board may extend value of the debt obligations being converted as part such period if, in the Board's judgment, such an of such investment, are used to purchase the follow- extension would not be detrimental to the pubing investments: lic interest; or (1) Public sector companies. A bank holding com- (B) Two years from the date on which the bank pany may acquire up to and including 100 percent holding company is permitted to repatriate in of the shares of (or other ownership interests in) full the investment in the foreign company; any foreign company located in an eligible coun- Provided however that, in either event divestiture try if the shares are acquired from the government occurs within fifteen years of the date of the acquiof the eligible country or from agencies or instru- sition. mentalities. (ii) Report to the Board. The bank holding com- (ii) Private sector companies. A bank holding pany shall report to the Board on its plans for company may acquire up to and including 40 divesting an investment made under this parapercent of the shares, including voting shares, of graph two years prior to the final date for dives- (or other ownership interests in) any other foreign titure, in a manner to be prescribed by the Board. company located in an eligible country subject to (iii) Other conditions requiring divestiture. All the following conditions: investments made pursuant to this paragraph are (A) A bank holding company may acquire subject to paragraphs (b)(4)(i)(A) and (B) of this more than 25 percent of the voting shares of section requiring prompt divestiture (unless the the foreign company only if another share- Board upon application authorizes retention) if holder or control group of shareholders unaf- the company invested in engages permissible busfiliated with the bank holding company holds iness in the United States that exceeds in the a larger block of voting shares of the com- aggregate 10 percent of the company's consolipany; dated assets or revenues calculated on an annual (B) The bank holding company and its affiliates basis; provided however that, such company may may not lend or otherwise extend credit to the not engage in activities in the United States that foreign company in amounts greater than 50 consist of banking or financial operations (as percent of the total loans and extensions of defined in section 211.23(f)(5)(iii)(B) of this chapcredit to the foreign company; and ter), or types of activities permitted by regulation (C) The bank holding company's representation or order under section 4(c)(8) of the BHC Act, on the board of directors or on management except under regulations of the Board or with the committees of the foreign company may be no prior approval of the Board. more than proportional to its shareholding in (4) Investment procedures. the foreign company. (i) General consent. Subject to the other limita- (2) Investments by bank subsidiary of bank hold- tions of this paragraph, the Board grants its gening company. Upon application, the Board may eral consent for investments made under this permit an indirect investment to be made pursuant paragraph if the total amount invested does not to this paragraph through an insured bank subsid- exceed the greater of $25 million or 1 percent of iary of the bank holding company where the bank the Tier 1 capital of the investor. holding company demonstrates that such owner- (ii) All other investments shall be made in accorship is consistent with the purposes of the FRA. dance with the procedures of paragraph (c) of this In granting its consent, the Board may impose section requiring prior notice or specific consent. such conditions as it deems necessary or appro- (5) Conditions. priate to prevent adverse effects, including pro- (i) Name. Any company acquired pursuant to this Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments All paragraph shall not bear a name similar to the (2) "Loans and extensions of credit" has the meanname of the acquiring bank holding company or ing set forth in section 211.2(p) of this part16 and, for any of its affiliates. purposes of this paragraph, include: (ii) Confidentiality. Neither the bank holding com- (i) Acceptances outstanding that are not of the pany nor its affiliates shall provide to any com- types described in paragraph 7 of section 13 of the pany acquired pursuant to this paragraph any FRA (12 U.S.C. 372); confidential business information or other infor- (ii) Any liability of the lender to advance funds to mation concerning customers that are engaged in or on behalf of a person pursuant to a guarantee, the same or related lines of business as the com- standby letter of credit, or similar agreements; pany. (iii) Investments in the securities of another organization except where the organization is a sub- Section 211.6—Lending limits and capital sidiary; and requirements. (iv) Any underwriting commitments to an issuer of securities where no binding commitments have (a) Acceptances of Edge corporations. been secured from subunderwriters or other pur- (1) Limitations. An Edge corporation shall be and chasers. remain fully secured for: (3) Exceptions. The limitations of paragraph (b)(1) of (i) All acceptances outstanding in excess of 200 this section do not apply to: percent of its Tier 1 capital; and (i) Deposits with banks and federal funds sold; (ii) All acceptances outstanding for any one per- (ii) Bills or drafts drawn in good faith against son in excess of 10 percent of its Tier 1 capital; actual goods and on which two or more unrelated provided however that, these limitations apply only parties are liable; to acceptances of the types described in paragraph 7 (iii) Any bankers' acceptance of the kind deof section 13 of the FRA (12 U.S.C. 372). scribed in paragraph 7 of section 13 of the FRA (2) Exceptions. These limitations do not apply if the that is issued and outstanding; excess represents the international shipment of (iv) Obligations to the extent secured by cash goods and the Edge corporation is: collateral or by bonds, notes, certificates of in- (i) Fully covered by primary obligations to reim- debtedness, or Treasury bills of the United States; burse it that are guaranteed by banks or bankers; (v) Loans and extensions of credit that are covor ered by bona fide participation agreements; or (ii) Covered by participation agreements from (vi) Obligations to the extent supported by the full other banks, as such agreements are described in faith and credit of the following: section 250.165 of this chapter. (A) The United States or any of its depart- (b) Loans and extensions of credit to one person. ments, agencies, establishments, or wholly (1) Limitations. Except as the Board may otherwise owned corporations (including obligations to specify: the extent insured against foreign political and (i) The total loans and extensions of credit out- credit risks by the Export-Import Bank of the standing to any person by an Edge corporation United States or the Foreign Credit Insurance engaged in banking and its direct or indirect Association), the International Bank for Reconsubsidiaries may not exceed 15 percent of the struction and Development, the International Edge corporation's Tier 1 capital;15 and Finance Corporation, the International Devel- (ii) The total loans and extensions of credit to any opment Association, the Inter-American Develperson by a foreign bank or Edge corporation opment Bank, the African Development Bank, subsidiary of a member bank, and by majority- the Asian Development Bank, or the European owned subsidiaries of a foreign bank or Edge Bank for Reconstruction and Development; corporation, when combined with the total loans (B) Any organization if at least 25 percent of and extensions of credit to the same person by the such an obligation or of the total credit is also member bank and its majority-owned subsidiaries, may not exceed the member bank's limitation on loans and extensions of credit to one person. 16. In the case of a foreign government, these include loans and extensions of credit to the foreign government's departments or agencies deriving their current funds principally from general tax revenues. In the case of a partnership or firm, these include loans and extensions of credit to its members and, in the case of a corporation, 15. For purposes of this subsection, "subsidiary" includes subsid- these include loans and extensions of credit to the corporation's iaries controlled by the Edge corporation but does not include affiliates where the affiliate incurs the liability for the benefit of the companies otherwise controlled by affiliates of the Edge corporation. corporation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

478 Federal Reserve Bulletin • June 1991 supported by the full faith and credit of, or (2) of this section shall be made available to examparticipated in by, any institution designated in iners of the appropriate bank supervisory agencies. paragraph (b)(3)(vi)(A) of this section in such (b) Examinations. Examiners appointed by the Board manner that default to the lender will necessar- shall examine each Edge corporation once a year. An ily include default to that entity. The total loans Edge corporation shall make available to examiners and extensions of credit under this paragraph sufficient information to assess its condition and oper- (b)(3)(vi)(B) to any person shall at no time ations and the condition and activities of any organiexceed 100 percent of the Tier 1 capital of the zation whose shares it holds. Edge corporation, (c) Reports. (c) Capitalization. An Edge corporation shall at all (1) Reports of condition. Each Edge corporation times be capitalized in an amount that is adequate in shall make reports of condition to the Board at such relation to the scope and character of its activities. In times and in such form as the Board may prescribe. the case of an Edge corporation engaged in banking, The Board may require that statements of condition after December 31, 1992, its minimum ratio of quali- or other reports be published or made available for fying total capital to weighted-risk assets, as deter- public inspection. mined under the Capital Adequacy Guidelines, shall (2) Foreign operations. Edge and Agreement corponot be less than 10 percent, of which at least 50 percent rations, member banks, and bank holding compashall consist of Tier 1 capital; provided however that nies shall file such reports on their foreign operafor purposes of this paragraph, no limitation shall tions as the Board may require. apply as to the inclusion of subordinated debt that (3) Acquisition or disposition of shares. A member qualifies as Tier 2 capital under the Capital Adequacy bank, Edge or Agreement corporation or a bank Guidelines. holding company shall report, in a manner prescribed by the Board, any acquisition or disposition of shares. Section 211.7—Supervision and reporting. (d) Filing and processing procedures. (1) Unless otherwise directed by the Board, appli- (a) Supervision. cations, notifications, and reports required by this (1) Foreign branches and subsidiaries. Organiza- part shall be filed with the Reserve Bank of the tions conducting international banking operations district in which the parent bank or bank holding under this subpart shall supervise and administer company is located or, if none, the Reserve Bank of their foreign branches and subsidiaries in such a the district in which the applying or reporting instimanner as to ensure that their operations conform to tution is located. Instructions and forms for such high standards of banking and financial prudence. applications, notifications and reports are available Effective systems of records, controls, and reports from the Reserve Banks. shall be maintained to keep management informed (2) The Board shall act on an application or notifiof their activities and condition. Such systems shall cation under this subpart within 60 calendar days provide, in particular, information on risk assets, after the Reserve Bank has accepted the application liquidity management, operations, internal controls, or notification unless the Board notifies the investor and conformance to management policies. Reports that the 60-day period is being extended and states on risk assets shall be sufficient to permit an ap- the reasons for the extension. praisal of credit quality and assessment of exposure to loss, and for this purpose provide full information Subpart B—Foreign Banking Organizations on the condition of material borrowers. Reports on the operations and controls shall include internal 3. Section 211.21 is revised to read as follows: and external audits of the branch or subsidiary. (2) Joint ventures. Investors shall maintain sufficient information with respect to joint ventures to keep Section 211.21—Authority, purpose, and scope. informed of their activities and condition. Such information shall include audits and other reports on financial performance, risk exposure, management (a) Authority. This subpart is issued by the Board of policies, operations, and controls. Complete infor- Governors of the Federal Reserve System ("Board") mation shall be maintained on all transactions with under the authority of the Bank Holding Company Act the joint venture by the investor and its affiliates. of 1956 (12 U.S.C. 1841 et seq.) ("BHC Act"); and the (3) Availability of reports to examiners. The reports International Banking Act of 1978 (12 U.S.C. 3101 and information specified in paragraphs (a)(1) and et seq.) ("IBA"). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 479 (b) Purpose and scope. This subpart is in furtherance that date shall be terminated or divested within three of the purposes of the BHC Act and the IBA. It applies months of the filing of the second Annual Report to foreign banks and foreign banking organizations unless the Board grants consent to continue the with respect to: activity or retain the investment under paragraph (e) (1) The limitations on interstate banking under sec- of this section. tion 5 of the IBA (12 U.S.C. 3103); and (3) A foreign banking organization that ceases to (2) The exemptions from the nonbanking prohibi- qualify under paragraph (b) of this section, or an tions of the BHC Act and the IBA afforded by affiliate of such foreign banking organization, that sections 2(h) and 4(c)(9) of the BHC Act (12 U.S.C. requests a specific determination of eligibility under 1841(h) and 1843(c)(9)). paragraph (e) of this section may, prior to the Board's determination on eligibility, continue to 4. In section 211.22, paragraphs (a)(2), and (a)(5) are engage in activities and make investments under the revised to read as follows: provisions of paragraphs (f)(1), (2) and (4) of this section. Section 211.22—Interstate banking operations (e) Specific determination of eligibility for nonqualifyof foreign banking organizations. ing foreign banking organizations. (1) A foreign banking organization that does not qualify under paragraph (b) of this section for the exemptions afforded by this section, or that has lost (a) Definitions* * * its eligibility for the exemptions under paragraph (d) ^ * * * of this section, may apply to the Board for a specific (2) "Banking subsidiary," with respect to a speci- determination of eligibility for the exemptions. fied foreign bank, means a bank that is a subsidiary (2) A foreign banking organization may apply for a as the terms "bank" and "subsidiary" are defined specific determination prior to the time it ceases to in section 2 of the BHC Act (12 U.S.C. 1841). be eligible for the exemptions afforded by this (3) * * * section. ^ * * * (3) In determining whether eligibility for the exemp- (5) "Foreign bank," for purposes of this section, is tions would be consistent with the purposes of the an organization that is organized under the laws of a BHC Act and in the public interest, the Board shall foreign country and that engages in the business of consider: banking. (i) The history and the financial and managerial resources of the organization; 5. In section 211.23, paragraphs (d), (e), (f)(4), (f)(5), (ii) The amount of its business in the United (g), and (h) are revised, and paragraph (i) is added, to States; read as follows: (iii) The amount, type, and location of its nonbanking activities, including whether such activi- Section 211.23—Nonbanking activities of ties may be conducted by U.S. banks or bank foreign banking organizations. holding companies; and (iv) Whether eligibility of the foreign banking organization would result in undue concentration of resources, decreased or unfair competition, (d) Loss of eligibility for exemptions. conflicts of interests, or unsound banking prac- (1) A foreign banking organization that qualified tices. under paragraph (b) of this section shall cease to be (4) Such determination shall be subject to any coneligible for the exemptions of this section if it fails to ditions and limitations imposed by the Board, inmeet the requirements of paragraph (b) of this cluding any requirements to cease activities or dissection for two consecutive years as reflected in its pose of investments. Annual Reports (F.R. Y-7) filed with the Board. (5) Determinations of eligibility would generally not (2) A foreign banking organization that ceases to be be granted where a majority of the business of the eligible for the exemptions of this section may foreign banking organization derives from commercontinue to engage in activities or retain investments cial or industrial activities or where the U.S. bankcommenced or acquired prior to the end of the first ing business of the organization is larger than the fiscal year for which its Annual Report reflects non-U.S. banking business conducted directly by nonconformance with paragraph (b) of this section. the foreign bank or banks (as defined in section Activities commenced or investments made after 211.2(j) of this part) of the organization. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

480 Federal Reserve Bulletin • June 1991 (f) Permissible activities and investments. A foreign regulation or order under section 4(c)(8) of the banking organization that qualifies under paragraph (b) BHC Act, only under regulations of the Board of this section may: or with the prior approval of the Board. ^ * * * (1) Activities within Division H (Finance, (2) * * * Insurance, and Real Estate) of the SIC shall ^ * * * be considered banking or financial operations (4) Own or control voting shares of any company in for this purpose, with the exception of acting a fiduciary capacity under circumstances that would as operators of nonresidential buildings (SIC entitle such shareholding to an exemption under 6512), operators of apartment buildings (SIC section 4(c)(4) of the BHC Act if the shares were 6513), operators of dwellings other than held or acquired by a bank. apartment buildings (SIC 6514), and opera- (5) Own or control voting shares of a foreign com- tors of residential mobile home sites (SIC pany that is engaged directly or indirectly in busi- 6515); and operating title abstract offices (SIC ness in the United States other than that which is 6541); and incidental to its international or foreign business, (2) The following activities shall be considsubject to the following limitations: ered financial activities and may be engaged (i) More than 50 percent of the foreign company's in only with the approval of the Board under consolidated assets shall be located, and consoli- subsection (g): credit reporting services (SIC dated revenues derived from, outside the United 7323); computer and data processing services States; provided however that, if the foreign com- (SIC 7371,7372,7373,7374,7375,7376, 7377, pany fails to meet the requirements of this para- 7378, and 7379); armored car services (SIC graph for two consecutive years (as reflected in 7381); management consulting (SIC 8732, Annual Reports (F.R. Y-7)) filed with the Board 8741, 8742, and 8748); certain rental and by the foreign banking organization, the foreign leasing activities (SIC 4741, 7352, 7353, 7359, company shall be divested or its activities termi- 7513, 7514, 7515, and 7519); accounting, aunated within one year of the filing of the second diting and bookkeeping services (SIC 8721); consecutive Annual Report that reflects noncon- courier services (SIC 4215 and 4513); and formance with the requirements of this paragraph, arrangement of passenger transportation unless the Board grants consent to retain the (SIC 4724, 4725, and 4729). investment under paragraph (g) of this section; (g) Exemptions under section 4(c)(9) of the BHC Act. (ii) The foreign company shall not directly under- A foreign banking organization that is of the opinion write, sell, or distribute, nor own or control more that other activities or investments may, in particular than 5 percent of the voting shares of a company circumstances, meet the conditions for an exemption that underwrites, sells, or distributes securities in under section 4(c)(9) of the BHC Act may apply to the the United States except to the extent permitted Board for such a determination by submitting to the bank holding companies; Reserve Bank of the District, in which its banking (iii) If the foreign company is a subsidiary of the operations in the United States are principally conforeign banking organization, the foreign company ducted, a letter setting forth the basis for that opinion. must be, or must control, an operating company, (h) Reports. and its direct or indirect activities in the United (1) The foreign banking organization shall inform the States shall be subject to the following limitations: Board through the organization's Reserve Bank (A) The foreign company's activities in the within 30 days after the close of each quarter of all United States shall be the same kind of activi- shares of companies engaged, directly or indirectly, ties or related to the activities engaged in di- in activities in the United States that were acquired rectly or indirectly by the foreign company during such quarter under the authority of this secabroad as measured by the "establishment" tion. categories of the Standard Industrial Classifica- (2) The foreign banking organization shall also retion (SIC) (an activity in the United States shall port any direct activities in the United States combe considered related to an activity outside the menced during such quarter by a foreign subsidiary United States if it consists of supply, distribu- of the foreign banking organization. This information, or sales in furtherance of the activity); tion shall (unless previously furnished) include a (B) The foreign company may engage in activ- brief description of the nature and scope of each ities in the United States that consist of bank- company's business in the United States, including ing, securities, insurance or other financial op- the 4-digit SIC numbers of the activities in which the erations, or types of activities permitted by company engages. Such information shall also in- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 481 elude the 4-digit SIC numbers of the direct parent of (1) Bank holding companies as defined in section 2 any U.S. company acquired, together with a state- of the BHC Act (12 U.S.C. 1841(a)); ment of total assets and revenues of the direct (2) Edge and Agreement corporations, as described parent. in section 211.1(c) of this part, that are subsidiaries (i) Availability of information. If any information of bank holding companies but are not subsidiaries required under this section is unknown and not of banks; reasonably available to the foreign banking orga- (3) Bankers' banks as described in section nization, either because obtaining it would in- 4(c)(14)(F)(iii) of the BHC Act (12 U.S.C. volve unreasonable effort or expense or because it 1843(c)(14)(F)(iii)); and rests peculiarly within the knowledge of a com- (4) Foreign banking organizations as defined in pany that is not controlled by the organization, section 211.23(a)(2) of this part. the organization shall: (1) Give such information on the subject as it Section 211.32—Definitions. possesses or can reasonably acquire together with the sources thereof; and The definitions of section 211.2 in Subpart A apply to (2) Include a statement either showing that this subpart subject to the following: unreasonable effort or expense would be in- (a) "Export trading company" means a company that volved or indicating that the company whose is exclusively engaged in activities related to internashares were acquired is not controlled by the tional trade and, by engaging in one or more export organization and stating the result of a request trade services, derives: for information. (1) At least one-third of its revenues in each consecutive four-year period from the export of, or 6. Subpart C is revised to read as follows: from facilitating the export of, goods and services produced in the United States by persons other Subpart C—Export Trading Companies than the export trading company or its subsidiaries; and Section 211.31 Authority, purpose, and scope. (2) More revenues in each four-year period from Section 211.32 Definitions. export activities as described in paragraph (a)(1) of Section 211.33 Investments and extensions of credit. this section than it derives from the import, or Section 211.34 Procedures for filing and processing facilitating the import, into the United States of notices. goods or services produced outside the United States. Subpart C—Export Trading Companies For purposes of this section, "revenues" shall include net sales revenues from exporting, import- Section 211.31—Authority, purpose, and scope. ing, or third party trade in goods by the export trading company for its own account, and gross (a) Authority. This subpart is issued by the Board of revenues derived from all other activities of the Governors of the Federal Reserve System ("Board") export trading company. under the authority of the Bank Holding Company Act (b) The terms "bank," "company" and "subsidiary" of 1956, as amended (12 U.S.C. 1841 et seq. ) ("BHC have the same meanings as those contained in section Act"), the Bank Export Services Act (Title II, Pub. L. 2 of the BHC Act (12 U.S.C. 1841). 97-290, 96 Stat. 1235 (1982)) ("BESA"), and the Export Trading Company Act Amendments of 1988 (Title III, Pub. L. 100-418, 102 Stat. 1384 (1988)) Section 211.33—Investments and extensions of ("ETC Act Amendments"). credit. (b) Purpose and scope. This subpart is in furtherance of the purposes of the BHC Act, the BESA, and the (a) Amount of investments. In accordance with the ETC Act Amendments, the latter two statutes being procedures of section 211.34 of this subpart, an designed to increase U.S. exports by encouraging eligible investor may invest no more than 5 percent investments and participation in export trading com- of its consolidated capital and surplus in one or more panies by bank holding companies and the specified export trading companies, except that an Edge or investors. The provisions of this subpart apply to the Agreement corporation not engaged in banking may following (hereinafter referred to as "eligible inves- invest as much as 25 percent of its consolidated tors"): capital and surplus but no more than 5 percent of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

482 Federal Reserve Bulletin • June 1991 consolidated capital and surplus of its parent bank (B) Product research and design; holding company. (C) Product modification; or (b) Extensions of credit. (D) Activities not specifically covered by the (1) Amount. An eligible investor in an export list of activities contained in section trading company or companies may extend credit 4(c)(14)(F)(ii) of the BHC Act. directly or indirectly to the export trading com- (ii) Such an expansion of activities shall be repany or companies in a total amount that at no time garded as a proposed investment under this subexceeds 10 percent of the investor's consolidated part. capital and surplus. (b) Time period for Board action. (2) Terms. (1) A proposed investment that has not been disap- (i) An eligible investor in an export trading proved by the Board may be made 60 days after the company may not extend credit directly or indi- Reserve Bank accepts the notice for processing. A rectly to the export trading company or any of its proposed investment may be made before the expicustomers or to any other investor holding 10 ration of the 60-day period if the Board notifies the percent or more of the shares of the export investor in writing of its intention not to disapprove trading company on terms more favorable than the investment. those afforded similar borrowers in similar cir- (2) The Board may extend the 60-day period for an cumstances, and such extensions of credit shall additional 30 days if the Board determines that the not involve more than the normal risk of repay- investor has not furnished all necessary informament or present other unfavorable features. tion or that any material information furnished is (ii) For the purposes of this provision, an investor substantially inaccurate. The Board may disapin an export trading company includes any affiliate prove an investment if the necessary information is of the investor. provided within a time insufficient to allow the (3) Collateral requirements. Covered transactions Board reasonably to consider the information rebetween a bank and an affiliated export trading ceived. company in which a bank holding company has (3) Within three days of a decision to disapprove an invested pursuant to this subpart are subject to the investment, the Board shall notify the investor in collateral requirements of section 23A of the Fed- writing and state the reasons for the disapproval. eral Reserve Act (12 U.S.C. 371c), except where a (c) Time period for investment. An investment in an bank issues a letter of credit or advances funds to export trading company that has not been disapproved an affiliated export trading company solely to fi- shall be made within one year from the date of the nance the purchase of goods for which: notice not to disapprove, unless the time period is (i) The export trading company has a bona fide extended by the Board or by the appropriate Reserve contract for the subsequent sale of the goods; and Bank. (ii) The bank has a security interest in the goods or (d) Time period for calculating revenues. For any in the proceeds from their sale at least equal in export trading company that commenced operations value to the letter of credit or the advance. two years or more prior to August 23, 1988, the four-year period within which to calculate revenues Section 211.34—Procedures for filing and derived from its activities under section 211.32(a) of processing notices. this part shall be deemed to have commenced with the beginning of the 1988 fiscal year for that export trading (a) Filing notice. company. For all other export trading companies, the (1) Prior notice of investment. An eligible investor four-year period shall commence with the first fiscal shall give the Board 60 days' prior written notice of year after the respective export trading company has any investment in an export trading company. been in operation for two years. (2) Subsequent notice. (i) An eligible investor shall give the Board 60 days' prior written notice of changes in the activ- Part 265—Rules Regarding Delegation of ities of an export trading company that is a Authority subsidiary of the investor if the export trading company expands its activities beyond those de- 1. The authority citation for part 265 continues to read scribed in the initial notice to include: as follows: (A) Taking title to goods where the export trading company does not have a firm order for Authority: Sec. ll(k), 38 Stat. 261 and 80 Stat. 1314 the sale of those goods; (12 U.S.C. 248(k». Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 483 2. In section 265.2, paragraph (c)(38) is added to read is on the same terms and conditions on which the as follows: Board based its approval of the exchange. Section 265.2—Specific functions delegated to Board employees and to Federal Reserve Banks. ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT (38) Under section 211.5(d)(14) of this chapter (Regu- Orders Issued Under Section 3 of the Bank lation K): Holding Company Act (i) To approve requests for authority to engage in the activities of underwriting, distributing, and Fleet/Norstar Financial Group, Inc. dealing in shares outside the United States, pro- Providence, Rhode Island vided that the Staff Director has determined that the internal procedures and operations of the Order Approving an Application to Provide Interim organization and the effect of the proposed activ- Management Services to the FDIC ities on capital adequacy are consistent with approval; and Fleet/Norstar Financial Group, Inc., Providence, (ii) To approve hedging methods authorized under Rhode Island ("Applicant"), a bank holding company section 211.5(d)(14)(iii)(A) of this chapter. within the meaning of the Bank Holding Company Act (the "BHC Act"), has applied under section 3 of the BHC Act (12 U.S.C. § 1842) to exercise control over the management and policies of the New Bank of New 3. In section 265.2, paragraphs (f)(46)(iii) and (46)(v) England, N.A., Boston, Massachusetts ("New are removed; paragraphs (f)(46)(iv) and (46)(vi) are BNE"), New Maine National Bank, Portland, Maine redesignated as (f)(46)(iii) and (46)(iv) respectively; ("New Maine"), and New Connecticut Bank & Trust and paragraph (f)(46)(ii) is revised, and paragraph f(53) Company, N.A., Hartford, Connecticut ("New Conis added, to read as follows: necticut"), by entering into an interim management contract with the Federal Deposit Insurance Corporation ("FDIC") involving these banks. New BNE, New Maine, and New Connecticut (together, "Bridge (f) Each Federal Reserve Bank * * * Banks") are bridge banks created by the FDIC to acquire the assets and assume the deposits and other liabilities of the three subsidiary banks of Bank of New England Corporation, Boston, Massachusetts. (46) * * * On January 6, 1991, the three subsidiary banks of ^ * * * Bank of New England Corporation were declared (ii) A bank holding company investor and its lead insolvent and the FDIC was appointed receiver of bank meet the minimum capital adequacy guide- each of the banks. That same day the FDIC establines of the Board, the Comptroller of the Cur- lished the Bridge Banks pursuant to section ll(n) of rency or the Federal Deposit Insurance Corpo- the Federal Deposit Insurance Act ("FDI Act") to ration or have enacted capital enhancement acquire the assets and assume the deposits and other plans that have been determined by the appro- liabilities of the closed banks. The FDIC solicited priate supervisory authority to be acceptable; offers for the acquisition of the Bridge Banks from qualified bidders pursuant to sections 1 l(n) and 13(f) of the FDI Act (12 U.S.C. §§ 1821(n) and 1823(f)), and today has announced that it has selected Applicant as (53) Under section 211.5(d)(17) of this chapter the winning bidder for the Bridge Banks pursuant to (Regulation K) to approve applications to engage section 13(f) of the FDI Act. The FDIC has indicated in futures commission merchant activities on an to the Board that an emergency exists and has reexchange that requires members to guarantee or quested that the Board take expeditious action, under otherwise contract to cover losses suffered by the relevant provisions of the BHC Act, in order to other members, provided that the Board has pre- minimize the cost of the transaction to the FDIC and viously approved the exchange and the application to permit the Bridge Banks to operate under private Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

484 Federal Reserve Bulletin • June 1991 management during the period while a final sale of the weeks. The Board intends to seek public comment on Bridge Banks is negotiated. subsequent applications to the Board to effect the final The Board has considered this application in light of acquisitions pursuant the emergency procedures esthe factors provided in the BHC Act.1 Applicant's tablished in the Bank Merger Act and the BHC Act. existing financial condition on a consolidated basis and Based on the foregoing and all the facts of record, its managerial resources and the future prospects of the Board has determined that this application under the companies involved are satisfactory in the context section 3 of the BHC Act should be, and hereby is, of this proposal. The benefits to the convenience and approved. This action is limited to approval of the needs of the communities in the relevant markets of transaction according to the terms and conditions of maintaining the Bridge Banks as viable competitors Applicant's bid as presented to the Board, and any and of providing the Bridge Banks immediately with significant modification to those terms or conditions new management with demonstrated capability weigh may require further review by the Board. In light of all in favor of approval of this application. Applicant and of the facts of record in this case, including the FDIC's the Bridge Banks compete in certain banking markets. request that the Board act immediately on this appli- The Board believes that any adverse competitive cation, the Board also has determined, pursuant to effects that may result from the Applicant's manage- section 3(b) of the BHC Act (12 U.S.C. § 1842(b)), ment contract with these Banks are outweighed by the section 225.14(h) of the Board's Regulation Y substantial public benefits of this proposal. The man- (12 C.F.R. 225.14(h)), and section 262.3(1) of the agement contract would permit the Bridge Banks to Board's Rules of Procedure (12 C.F.R. 262.3(1)), to operate under private management while a final con- dispense with the notice provisions of the BHC Act in tract is negotiated and would avoid any potential reviewing this application. For the same reasons, the disruption in the operations of these Banks during this Board has determined, in accordance with section period.2 11(b) of the BHC Act, that expeditious action on this After entering into the management agreement, Ap- application is necessary and that Applicant may act plicant will apply to acquire the assets and liabilities of pursuant to the management contract on or after the each of the Bridge Banks in transactions subject to fifth calendar day following the effective date of this review under section 18(c) of the Bank Merger Act. In order. addition, Applicant proposes to establish a new inter- By order of the Board of Governors, effective mediate bank holding company to hold the shares of April 22, 1991. the Massachusetts and Connecticut Bridge Banks in a transaction subject to section 3 of the BHC Act. Voting for this action: Chairman Greenspan and Governors Applicant expects that consummation of these trans- Angell, Kelley, and La Ware. Absent and not voting: Goveractions would occur following final negotiation of the nor Mullins. sale agreements with the FDIC over the next several JENNIFER J. JOHNSON Associate Secretary of the Board 1. This application does not seek authority to acquire the assets or voting shares of the Bridge Banks. While the laws of Massachusetts United New Mexico Financial Corporation permit a Rhode Island bank holding company to acquire assets and Albuquerque, New Mexico voting shares of a Massachusetts bank, it is unclear whether the State has authorized an out-of-state bank holding company to acquire control of Massachusetts bank through the proposed management Order Approving the Acquisition of Banks contract. Section 3(d) of the BHC Act (12 U.S.C. § 1842(d)), the Douglas Amendment, prohibits the Board from approving an application by a bank holding company to acquire control of any bank located United New Mexico Financial Corporation, Albuqueroutside of the holding company's home state unless the acquisition is specifically authorized by the laws of the state where the bank is que, New Mexico ("Applicant"), a bank holding comlocated. Section ll(n)(8)(B) and section 13(f) of the FDI Act, how- pany within the meaning of the Bank Holding Comever, specifically provide that a bank holding company may acquire a pany Act ("BHC Act"), has applied under section 3 of bridge bank located in another state, without regard to the limitations on interstate banking in the Douglas Amendment or any relevant state the BHC Act (12 U.S.C. § 1842), to acquire the follaw, where the bridge bank has total assets of at least $500,000,000. lowing subsidiary banks of First Interstate Bancorp, 12 U.S.C. §§ 1821(n)(8)(B) and 1823(f)(4)(A). Each of the Bridge Banks was established by the FDIC pursuant to section ll(n) and has Los Angeles, California ("First Interstate"); First total assets in excess of $500,000,000. Applicant was awarded the Interstate Bank of Albuquerque, Albuquerque, New management contract pursuant to section 1 l(n) and section 13(f) of the Mexico ("FI Albuquerque"); First Interstate Bank of FDI Act. Accordingly, the provisions of the Douglas Amendment and of any relevant state law do not bar approval of the proposed interim Lea County, Hobbs, New Mexico ("FI Lea County"); management contract under the BHC Act. and First Interstate Bank of Roswell, Roswell, New 2. The Board has considered comments regarding the competitive Mexico ("FI Roswell"). After the proposed acquisieffects of Applicant's acquisition of the Bridge Banks as they relate to tions, Applicant proposes to merge these banks with Applicant's proposal to enter into an interim management agreement. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 485 its three existing subsidiary banks that operate in the approximately 29.7 percent of the deposits held by same banking markets.1 banks and savings associations operating in the market Notice of the application, affording interested per- ("market deposits").5 First Interstate is the largest sons an opportunity to submit comments, has been depository organization, controlling approximately published (55 Federal Register 35,462 (1990)). The $127.3 million in deposits, representing approximately time for filing comments has expired, and the Board 33.6 percent of market deposits. The Lea County has considered the application and all comments re- market is highly concentrated, with the four largest ceived in light of the factors set forth in section 3(c) of depository organizations controlling approximately 88 the BHC Act. percent of market deposits. Upon consummation of Applicant operates 13 subsidiary banks in New this transaction, Applicant would become the largest Mexico and is the third largest commercial banking depository organization in the market, controlling aporganization in the state, controlling approximately proximately $239.7 million in deposits, representing $980.5 million in deposits, representing approximately approximately 63 percent of market deposits. The 10.4 percent of the total deposits in commercial bank- Herfindahl-Hirschman Index ("HHI"), would ining organizations in New Mexico.2 First Interstate is crease by 1994 points to 4422.6 the fourth largest commercial banking organization in In order to mitigate the adverse competitive effects New Mexico, controlling approximately $738 million that would otherwise result from consummation of this in deposits in New Mexico, representing approxi- proposal, Applicant has committed to divest, within mately 7.8 percent of the total deposits in commercial 120 days of consummation, at least $90 million in banking organizations in the state. Upon consumma- banking deposits in Lea County.7 These divested tion of the proposed acquisition, Applicant would deposits would be utilized to create a new commercial become the second largest commercial banking orga- banking organization that would rank second in the nization in New Mexico, controlling approximately market, with approximately 23.8 percent of market $1.5 billion in deposits, representing approximately 16 deposits.8 percent of the total deposits in commercial banking In addition to the proposed divestiture, the Board organizations in the state.3 Consummation of the prohas considered several other factors that substantially posal would not result in significantly adverse effects on the concentration of banking resources in New Mexico. 5. All market share calculations include thrift institution deposits at 50 percent. The Board previously has recognized that thrift institu- Applicant and First Interstate compete directly in tions have become, or have the potential to become, major competithe Albuquerque, Lea County, and Roswell, New tors of commercial banks. Midwest Financial Group, 75 Federal Mexico banking markets. The Board has carefully Reserve Bulletin 386 (1989); CB&T Bancshares, Inc., 75 Federal Reserve Bulletin 381 (1989); National City Corporation, 70 Federal considered several comments, including comments Reserve Bulletin 743 (1984). from state and congressional representatives, on the 6. Under the revised Department of Justice Merger Guidelines, 49 alleged anticompetitive effects and loss of employment Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is above 1800 is considered highly concentrated. In in Lea County, New Mexico, and one comment on the such markets, the Justice Department is likely to challenge a merger alleged anticompetitive effects in Roswell County, that increases the HHI by more than 50 points. The Justice Depart- New Mexico. ment has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors In the Lea County banking market,4 Applicant is the indicating anticompetitive effects), unless the post-merger HHI is at second largest depository organization, controlling least 1800 and the merger increases the HHI by at least 200 points. The Justice Department has stated that the higher than normal HHI approximately $112.4 million in deposits, representing thresholds for screening bank mergers for anticompetitive effects implicitly recognizes the competitive effect of limited-purpose lenders and other non-depository financial entities. 7. The Applicant has committed to divest all branches and deposits 1. Applicant has also applied to the Federal Deposit Insurance of FI Lea County in Hobbs and Lovington, New Mexico. Applicant Corporation and the New Mexico Financial Institutions Division to will also submit to the Board before consummation of this transaction merge; all required agreements, including definitive contracts of sale, that (i) FI Albuquerque with United Mew Mexico Bank at Albuquerque, would cause an effective divestiture under the BHC Act. If the Albuquerque, New Mexico: Applicant is unsuccessful in divesting these deposits within 120 days (ii) FI Lea County with United New Mexico Bank at Lea County, of consummation, the Applicant will transfer them to an independent Hobbs, New Mexico; and trustee who will be instructed to promptly sell these deposits and remit (iii) FI Roswell with United New Mexico Bank at Roswell. Upon the proceeds to the Applicant. See, e.g., First Union Corporation, 76 consummation of these mergers, these banks would be state-chartered Federal Reserve Bulletin 83 (1990). The Justice Department has nonmember banks. indicated that it does not plan to challenge this proposal in light of this 2. State banking data are as of June 30, 1990; market data are as of proposed divestiture. March 31, 1990; and thrift data are as of June 30, 1989. 8. After the divestiture, Applicant would remain the largest com- 3. These data reflect the proposed divestiture of the deposits mercial banking organization in the Lea County market, controlling discussed later in this Order. approximately $149.7 million, representing approximately 39.5 per- 4. The Lea County banking market is approximated by Lea County cent of market deposits. The HHI would increase by 170 points to excluding Jal, New Mexico. 2598. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

486 Federal Reserve Bulletin • June 1991 mitigate the anticompetitive effects of the combination On the basis of the above facts and other facts of of Applicant and First Interstate in this market. Five record, including the divestiture commitments made commercial banks and one thrift institution would by the Applicant, the Board finds that consummation remain as competitors upon consummation of the of this proposal would not have a significantly adverse proposal. Because the deposits to be divested by effect on competition in any relevant market. Applicant would be used to create a new commercial Upon consummation of this proposal, Applicant's banking organization, the Lea County market would lead bank, United New Mexico Bank at Albuquerque, have as many commercial banks following consumma- Albuquerque, New Mexico ("UNM-Albuquerque"), tion of this proposal as there were prior to consumma- would more than double its present size to assets of tion. On the basis of all facts of record, including approximately $833 million and would hold approxi- Applicant's commitments and subject to the condi- mately half the total banking assets of the Applicant. tions in this Order, the Board finds that consummation The Board notes that FI Albuquerque and UNMof this proposal would not have a significantly adverse Albuquerque both have reported poor earnings and effect on competition in the Lea County banking problem assets. In order to strengthen the combined market. organization, Applicant has committed to inject up to In the Albuquerque banking market,9 Applicant is $12 million in additional capital into UNM-Albuquerthe fifth largest depository organization, controlling que.12 In light of this and other facts of record, the approximately $318.5 million in deposits, representing Board believes that the financial and managerial reapproximately 5.2 percent of market deposits. First sources of Applicant and its future prospects are Interstate is the fourth largest depository organization consistent with approval. in Albuquerque, controlling approximately $427.4 mil- In considering the convenience and needs of the lion in deposits, representing approximately 7 percent communities to be served, the Board notes that UNMof market deposits. Upon consummation of this pro- Albuquerque's enhanced capital would generally imposal, Applicant would become the fourth largest prove the financial condition of the bank and permit it depository organization in the market, controlling ap- to better serve the community. The Board also has proximately $745.9 million in deposits, representing considered the potential for loss of employment in Lea approximately 12.2 percent of market deposits. The County resulting from the proposal. The Applicant has HHI for the market would increase by 73 points to stated that some personnel reductions may occur, and 2271. Accordingly, the Board concludes that consum- has committed that all affected persons will be treated mation of the proposal would not result in a signifi- fairly and in accordance with all applicable laws. The cantly adverse effect on competition in the Albuquer- Board notes that the impact of this proposal on emque banking market. ployment would be lessened by the entry into this In the Roswell banking market,10 Applicant is the market of a new banking organization that would second largest depository organization, controlling acquire the divested branches. Accordingly, in light of approximately $107.5 million in deposits, representing all the facts of record, the Board believes that considapproximately 17 percent of market deposits. First erations relating to the convenience and needs of the Interstate is the fourth largest depository organization, communities to be served by Applicant's subsidiary controlling approximately $72.7 million in deposits, banks are also consistent with approval. representing approximately 11.5 percent of market Based on the foregoing and other facts of record, the deposits. Following consummation of this proposal, Board has determined that the application should be, the Roswell market would remain moderately concen- and hereby is, approved. This approval is conditioned trated and seven commercial banks and two thrifts upon the Applicant's fulfilling its commitments within would remain in the market.11 Accordingly, the Board the prescribed time periods, including commitments to concludes that consummation of the proposal would make the necessary capital infusions into its lead bank not result in a significantly adverse effect on competi- as well as its commitments for the divestiture in the tion in the Roswell banking market. Lea County market. In addition, the Board's approval is conditioned upon the Applicant submitting to the Board before consummation of this transaction all required agreements, including definitive contracts of 9. The Albuquerque banking market is approximated by the Albuquerque RMA. 10. The Roswell-Artesia banking market is approximated by Chaves County and the northern half of Eddy County. 11. Upon consummation, Applicant would become the largest 12. Applicant has committed to make a capital infusion into UNMbanking organization in the market, controlling approximately $179.7 Albuquerque in the amount of $2 million upon consummation of this million in deposits, which represents approximately 28.6 percent of proposal, $5 million at the time of the proposed divestiture, and up to total market deposits. The HHI for the market would increase by 392 an additional $5 million subsequent to these events if under certain points to 1654. circumstances the additional infusion is necessary. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 487 sale, necessary to complete an effective divestiture Notice of the application, affording an opportunity under the BHC Act, and upon receiving approval from for interested persons to submit comments, has been the Federal Deposit Insurance Corporation. This duly published (55 Federal Register 49,704 (1990)). transaction shall not be consummated before the thir- The time for filing comments has expired, and the tieth calendar day following the effective date of this Board has considered the application and all com- Order, or later than three months after the effective ments received in light of the factors set forth in date of this Order, unless such period is extended by section 4 of the BHC Act. the Board or by the Federal Reserve Bank of Dallas, Barclays has total consolidated assets of approxiacting pursuant to delegated authority. mately $260.3 billion.3 Barclays owns bank subsidiar- By order of the Board of Governors, effective ies in New York, Delaware, and North Carolina, and April 15, 1991. operates branches in New York, Boston, and Chicago and agencies in San Francisco and Miami. Voting for this action: Chairman Greenspan and Governors Concurrent with its purchase of the traveler's check Angell, Kelley, and LaWare. Absent and not voting: Gover- operations of BankAmerica, Barclays and BankAmernor Mullins. ica have entered into a joint venture agreement that will combine the traveler's check operations of both JENNIFER J. JOHNSON companies into Interpayment. Both Interpayment and Associate Secretary of the Board BA Cheque Corporation currently engage in the issuance and sale of traveler's checks with a face value of Orders Issued Under Section 4 of the Bank $1,000 or less and, under this proposal, Interpayment Holding Company Act would engage only in traveler's check activities that the Board has determined by regulation to be closely Barclays PLC related to banking for purposes of section 4(c)(8) of the London, England BHC Act. See 12 C.F.R. 225.25(b)(12). In acting on an application under section 4(c)(8) of Barclays Bank PLC the BHC Act, the Board must consider whether an London, England applicant's performance of the proposed activities "can reasonably be expected to produce benefits to Order Approving Application to Engage in the the public, such as greater convenience, increased Issuance and Sale of Traveler's Checks competition, or gains in efficiency that outweigh possible adverse effects, such as undue concentration of Barclays PLC and Barclays Bank PLC, London, Enresources, decreased or unfair competition, conflicts gland (together, "Barclays"), bank holding companies of interest, or unsound banking practices." 12 U.S.C. within the meaning of the Bank Holding Company Act § 1843(c)(8). This consideration also requires an eval- ("BHC Act"), have applied for the Board's approval uation of the financial and managerial aspects associunder section 4(c)(8) of the BHC Act (12 U.S.C. ated with the proposal. Consummation of this proposal § 1843(c)(8)), to engage indirectly in the issuance and would result in the elimination of a competitor among sale of traveler's checks with a face value of $1,000 or the issuers of traveler's checks. Barclays is the third less on a global basis by acquiring through its subsidlargest issuer of traveler's checks in the United States, iary, Interpayment Services Ltd., Poole, England ("Interpayment"),1 certain assets of BA Cheque Cor- representing approximately 9.2 percent of the travelporation, San Francisco, California, the traveler's er's checks issued and sold in the United States. check subsidiary of BankAmerica Corporation, San BankAmerica is the fourth largest issuer of traveler's Francisco, California ("BankAmerica").2 checks in the United States, representing 8.2 percent of the traveler's checks issued and sold in the United States.4 Upon consummation of this proposal, Interpayment would control approximately 17.4 percent of 1. Interpayment currently manages the traveler's check business of Barclays in the United States and arranges for the sale of Barclays's traveler's checks through unaffiliated sales agents. Barclays has previously received approval to engage in the issuance and sale of traveler's checks in the United States. See 71 Federal Reserve Bulletin America subsidiaries and affiliates of traveler's checks issued by 741 (1985). Interpayment for an initial period of time. 2. In return for the transfer of its traveler's check business, 3. Asset data are as of December 31, 1990. BankAmerica will acquire a nonvoting, nonconvertible, preferred 4. On a worldwide basis, the five largest issuers of traveler's checks stock interest in Interpayment. Barclays and BankAmerica have also account for approximately 93.2 percent of traveler's checks sold. entered into a two-year management services agreement during which Barclays and BankAmerica rank fourth and fifth respectively in the BankAmerica will work to preserve its base of unaffiliated selling sale of traveler's checks worldwide. As a result of this proposal, agents for use by Interpayment. Barclays and BankAmerica have also Interpayment would control the issuance of approximately 16.4 perentered into a sales agent agreement governing the sale by Bank- cent of the traveler's checks sold worldwide. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

488 Federal Reserve Bulletin • June 1991 the market for the issuance and sale of traveler's substantial competition in any local market. Retail checks in the United States. agents establish the price charged for traveler's checks The market for the issuance of traveler's checks is and are generally constrained from substantially raishighly concentrated, with the five largest issuers of ing prices due to competition from no-fee sellers, and traveler's checks accounting for approximately 97.9 the growing substitutability of credit cards as a paypercent of the traveler's checks sold in the United ment mechanism for travelers. Accordingly, consum- States.5 Although consummation of this proposal mation of this proposal would not substantially lessen would eliminate a competitor among issuers of travel- competition in the market for the sale of traveler's er's checks, several factors serve to mitigate the checks. potential anticompetitive effects of this proposal.6 As In light of these and other considerations reflected in an initial matter, while the market among issuers of the record, the Board concludes that consummation of traveler's checks has always been concentrated, the this proposal would not have a significantly adverse record suggests that there exists strong competition effect on competition in the markets for the issuance among issuers to enlist the numerous independent and sale of traveler's checks. agents that sell their checks. There is nothing in the In the past, the Board has expressed concern that a record that would indicate that the elimination of one joint venture could lead to a matrix of relationships competitor from this market would in any way affect between co-venturers that could lessen competition the continuing competition among the remaining issu- between the co-venturers, create the possibility of ers of traveler's checks for the services of these selling conflicts of interests, or impair or give the appearance agents. of impairing the ability of the banking organization to In addition, the market is dominated by the largest function effectively as an independent and impartial issuer of traveler's checks, which currently issues provider of credit.8 In this case, neither the proposed over 60 percent of the traveler's checks sold in the investment nor the joint venture agreement or other United States. The combination of the traveler's check agreements applicable to this transaction between issuance operations of Barclays and BankAmerica Barclays and BankAmerica place any limits on the should result in operational efficiencies that would other activities of Barclays or BankAmerica. Both allow Interpayment to operate more effectively and act Barclays and BankAmerica are large, independent as a more viable competitor to the largest issuer of organizations that will continue to compete in a variety traveler's checks.7 of banking and nonbanking activities. In addition, The Board also has examined the effect of consum- because these companies are both bank holding commation of this proposal on the market for the sale of panies whose activities conform to the requirements of traveler's checks. The market for the sale of traveler's the BHC Act, this proposal does not raise the same checks is local in geographic scope. There is no level of concern present in joint ventures between evidence in the record that would suggest that the bank holding companies and commercial companies proposed transaction would result in the elimination of that the proposed joint venture may undermine the legally mandated separation of banking and commerce.9 Accordingly, consummation of this transaction is not expected to create any conflicts of interests 5. Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger or adversely influence Barclays or BankAmerica in Herfindahl-Hirschman Index ("HHI") is above 1800 is considered to any creditor relationships. be highly concentrated. In such nonbanking markets, the Justice Based upon all of the facts of record, the Board Department is likely to challenge a merger that increases the HHI by more than 50 points, in the absence of factors indicating that the believes that consummation of this proposal is not merger would not substantially lessen competition. Upon consumma- likely to result in any significant adverse effects, such tion of this transaction, the HHI in the market for the issuance of as undue concentration of resources, decreased or traveler's checks in the United States would increase by 151 points to 4603. The Justice Department has indicated that, at this time, it does unfair competition, conflicts of interests, or unsound not plan to challenge this proposal. banking practices. Accordingly, the Board has deter- 6. The Board has previously indicated that market share indicators alone may be inconclusive in determining actual market behavior, and mined that the performance of the proposed activity findings of anticompetitive effects based on such indicators can be by Barclays can reasonably be expected to produce rebutted by a showing that these indicators do not accurately reflect public benefits that would outweigh adverse effects the true economic characteristics of a particular market. See The Bank of New York Company, Inc., 74 Federal Reserve Bulletin 257,262 n. 18 (1988). 7. Moreover, a review of the available evidence suggests that demand for traveler's checks has declined in recent years due in part to the increased acceptability of credit cards as a payment mechanism 8. See, e.g., Amsterdam-Rotterdam Bank, N.V., 70 Federal Refor travelers. This factor also serves to mitigate the Board's concern serve Bulletin 835 (1984). about the potential anticompetitive effects of the elimination of a 9. See The Dai-Ichi Kangyo Bank, Limited, 76 Federal Reserve competitor from the market for the issuance of traveler's checks. Bulletin 75 (1990). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 489 under the proper incident to banking standard of Notice of the application, affording interested persection 4(c)(8) of the BHC Act. sons an opportunity to submit comments on the pro- Based on the above, the Board has determined to, posal, has been published (56 Federal Register 7387 and hereby does, approve the application subject to all (1991)). The time for filing comments has expired, and of the terms and conditions set forth in this order and the Board has considered the application and all the Board's regulations that relate to these activities. comments received in light of the public interest The Board's determination is also subject to all of the factors set forth in section 4(c)(8) of the BHC Act. conditions set forth in the Board's Regulation Y, First Michigan, with total consolidated assets of including those in sections 225.4(d) and 225.23(b), and $1.6 billion, is the ninth largest banking organization in to the Board's authority to require modification or Michigan.1 It operates ten banking subsidiaries in termination of the activities of a bank holding com- Michigan and also engages in trust and credit-related pany or any of its subsidiaries as the Board finds insurance activities through its other nonbanking subnecessary to assure compliance with, and prevent sidiaries. evasion of, the provisions of the BHC Act and the The Board previously has determined by order that Board's regulations and orders issued thereunder. full-service brokerage is a permissible non-banking ac- This transaction shall not be consummated later tivity for bank holding companies under section 4(c)(8) than three months after the effective date of this order, of the BHC Act.2 In addition, Company will provide unless such period is extended for good cause by the discretionary investment management for institutional Board or by the Federal Reserve Bank of New York, customers only, under the same terms and conditions pursuant to delegated authority. as previously approved by the Board.3 First Michigan By order of the Board of Governors, effective also proposes that Company engage in investment April 5, 1991. advisory and securities brokerage activities on a separate basis pursuant to the Board's Regulation Y.4 Voting for this action: Chairman Greenspan and Governors The Board also has found that, subject to certain Angell, Kelley, La Ware, and Mullins. prudential limitations that address the potential for conflicts of interests, unsound banking practices or WILLIAM W. WILES other adverse effects, the proposed "riskless princi- Secretary of the Board pal" activities are so closely related to banking as to be a proper incident thereto within the meaning of First Michigan Bank Corporation section 4(c)(8) of the BHC Act. First Michigan has Holland, Michigan committed that Company will conduct its riskless principal activities using the same methods and proce- Order Approving Application to Provide Securities dures and subject to the prudential limitations estab- Brokerage and Investment Advisory Services and lished by the Board in the Bankers Trust II and J.P. Act as Riskless Principal Morgan orders.5 First Michigan Bank Corporation, Holland, Michigan, 1. Data are as of December 31, 1990. ("First Michigan"), a bank holding company subject 2. PNC Financial Corp., 75 Federal Reserve Bulletin 396 (1989); to the Bank Holding Company Act ("BHC Act"), has Bank of New England Corporation, 74 Federal Reserve Bulletin 700 applied under section 4(c)(8) of the BHC Act (1988); Bankers Trust New York Company, 74 Federal Reserve Bulletin 695 (1988). (12 U.S.C. § 1843(c)(8)) and section 225.23(a) of the 3. J.P. Morgan & Co. Inc., 73 Federal Reserve Bulletin 810 (1987). Board's Regulation Y (12 C.F.R. 225.23(a)), for its Investment advice would be provided on an integrated basis, i.e., wholly owned subsidiary, FMB-Brokerage Services, company would not charge an explicit fee for the investment advice and would receive fees only for transactions executed for customers. Inc., Holland, Michigan ("Company"), to engage in 4. 12 C.F.R. 225.25(b)(15). the following activities: 5. J.P. Morgan & Company Incorporated, 76 Federal Reserve Bulletin 26 (1990) ("J.P. Morgan"); and Bankers Trust New York (1) to provide securities brokerage services and Corporation, 75 Federal Reserve Bulletin 829 (1989) ("Bankers Trust related securities credit services pursuant to section II"). In this regard, Company will maintain specific records that will 225.25(b)(15) of the Board's Regulation Y (12 clearly identify all riskless principal transactions, and Company will not engage in any riskless principal transactions for any securities C.F.R. 225.25(b)(15)); carried in its inventory. When acting as a riskless principal, Company (2) to provide investment advisory and brokerage will only engage in transactions in the secondary market and not at the order of a customer that is the issuer of the securities to be sold, will services on a combined basis ("full-service broker- not act as riskless principal in any transaction involving a security for age") to retail and institutional customers, subject to which it makes a market, nor hold itself out as making a market in the securities that it buys and sells as riskless principal. Moreover, conditions previously established by the Board; and Company will not engage in riskless principal transactions with First (3) to buy and sell all types of securities on the order Michigan or any of First Michigan's affiliates, including any foreign of investors as a "riskless principal". affiliates that may engage in securities dealing activities overseas. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

490 Federal Reserve Bulletin • June 1991 In order to approve this application, the Board is The Fuji Bank, Limited required to determine that the performance of the Tokyo,Japan proposed activities "can reasonably be expected to produce benefits to the public . . . that outweigh Order Approving Application to Engage in Certain possible adverse effects, such as undue concentration Leasing Activities of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices." The Fuji Bank, Limited, Tokyo, Japan ("Fuji"), a 12 U.S.C. § 1843(c)(8). bank holding company within the meaning of the Bank Consummation of the proposal would provide in- Holding Company Act ("BHC Act"), has applied creased convenience to First Michigan's customers. under section 4(c)(8) of the BHC Act (12 U.S.C. The Board also expects that the de novo entry of First § 1843(c)(8)) and section 225.23(a) of the Board's Michigan into the market for these services would Regulation Y (12 C.F.R. 225.23(a)) to engage, through increase the level of competition among providers of its wholly owned subsidiary, Heller Financial, Inc., these services. Chicago, Illinois ("Heller"), in the leasing of personal Consummation of the proposal within the frame- property, and acting as agent, broker, or adviser in work established in this and previous Board Orders is leasing such property, including lease transactions in not likely to result in any significantly adverse effects, which Heller may rely for its compensation on an such as undue concentration of resources, decreased estimated residual value of the leased property at the or unfair competition, conflicts of interests, or un- expiration of the initial lease term of up to 100 percent sound banking practices. In addition, financial and of the acquisition cost of the property ("higher residmanagerial considerations are consistent with ap- ual value leasing"). proval of the application. Accordingly, the Board has Notice of the application, affording interested perdetermined that the performance of the proposed sons an opportunity to submit comments, has been activities by First Michigan can reasonably be ex- duly published (56 Federal Register 9700 (1991)). The pected to produce public benefits which would out- time for filing comments has expired, and the Board weigh potential adverse effects. has considered the application and all comments re- Based on all of the facts of record, as well as the ceived in light of the factors set forth in section 4(c)(8) commitments made by Applicant, and the conditions of the BHC Act. set forth in this and the above-noted orders, the Board Fuji, with total consolidated assets equivalent to has determined that the balance of the public interest approximately $372.6 billion, is the third largest bankfactors it is required to consider under section 4(c)(8) of ing organization in the world.1 Fuji owns Fuji Bank & the BHC Act is favorable. Accordingly, the application Trust Company, New York, New York. In addition, is hereby approved. The Board's determination is sub- Fuji operates branches in New York and in Chicago; ject to all of the conditions set forth in the Board's agencies in Los Angeles, San Francisco, Houston, and Regulation Y, including those in sections 225.4(d) and Atlanta; representative offices in Miami and in Seattle; 225.23(b), and to the Board's authority to require and an Edge Act Corporation in San Francisco. Fuji modification or termination of the activities of the engages in various nonbanking activities in the United holding company or any of its subsidiaries as the Board States pursuant to section 4(c)(8) of the BHC Act. finds necessary to assure compliance with, and to Heller currently engages in various nonbanking acprevent evasion of, the provisions and purposes of the tivities, including commercial financing and leasing BHC Act and the Board's regulations and Orders activities pursuant to sections 225.25(b)(1) and (b)(5) issued thereunder. of the Board's Regulation Y. Heller has total assets of This transaction shall not be consummated later $7.3 billion. than three months after the effective date of this In order to approve an application under section Order, unless such period is extended for good cause 4(c)(8) of the BHC Act, the Board must determine that by the Board or by the Federal Reserve Bank of the proposed activity is "so closely related to banking Chicago, pursuant to delegated authority. or managing or controlling banks as to be a proper By order of the Board of Governors, effective incident thereto . . . ." 12 U.S.C. § 1843(c)(8). The April 1, 1991. Board previously has determined by order that the activities of engaging in higher residual value leasing Voting for this action: Chairman Greenspan and Governors and acting as agent, broker, or adviser with respect to Angell, Kelley, and Mullins. Absent and not voting: Governor La Ware. JENNIFER J. JOHNSON 1. Asset data are as of September 30, 1990. Ranking is as of July 26, Associate Secretary of the Board 1990. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 491 such lease transactions are closely related to banking 10 percent of Fuji's total consolidated assets, and to and permissible for bank holding companies subject to limit the aggregate amount of Heller's investment in certain limitations.2 Heller proposes to conduct these leases with estimated residual values in excess of 70 activities using the same methods and procedures and percent of the acquisition cost of the leased property subject to the same limitations established by the to the lesser of: Board in its previous orders regarding these activities. (i) 0.5 percent of Fuji's total consolidated assets, In this regard, all leases will be non-operating and, or with the exception of the residual value calculation, (ii) 10 percent of Fuji's total consolidated sharewill otherwise conform to all of the requirements holders' equity. provided in the Board's regulation regarding leasing transactions generally.3 In particular, Heller would In addition, Fuji has committed to maintain Heller's engage in the proposed activities only for leases in capital at levels commensurate with industry stanwhich the property to be leased is acquired specifically dards for comparable leasing activities. The Federal for the leasing transaction under consideration or was Reserve Bank of New York will monitor the policies acquired specifically for an earlier leasing transaction. and procedures of Heller to assure that they comply Moreover, Fuji has committed that the proposed lease with this Order. transactions engaged in by Heller would have a mini- In every case involving a nonbanking acquisition by mum initial lease term of one year, that the maximum a bank holding company under section 4 of the BHC lease term would be no more than 40 years, and that Act, the Board considers the financial condition and Heller would sell or re-lease the property within two resources of the applicant and its subsidiaries and the years of the expiration of the initial lease. effect of the transaction on these resources.4 After In acting on an application under section 4(c)(8) of making adjustments to reflect Japanese banking and the BHC Act, the Board also must consider whether accounting principles, including consideration of a an applicant's performance of the proposed activities portion of unrealized appreciation in Fuji's portfolio of "can reasonably be expected to produce benefits to equity securities, the Board concludes that financial the public, such as greater convenience, increased considerations are consistent with approval. The mancompetition, or gains in efficiency, that outweigh pos- agerial resources of Fuji also are consistent with sible adverse effects, such as undue concentration of approval. resources, decreased or unfair competition, conflicts Consummation of the proposal would provide added of interests, or unsound banking practices." convenience to Fuji's leasing customers. In addition, 12 U.S.C. § 1843(c)(8). the Board expects that the de novo entry of Fuji into Fuji maintains that approval of the proposed activity the market for this activity would increase the level of would enable Heller to better respond to the needs of competition among providers of this service. Accordits leasing customers and competitive conditions in the ingly, the Board has determined that the performance leasing industry by allowing Heller to offer a broader of the proposed activity by Fuji can reasonably be range of leasing terms. expected to produce benefits to the public. The Board has considered the potential for adverse For these reasons, and in reliance on Fuji's commiteffects that might be associated with reliance by Heller ments, the Board believes that consummation of this on high residual values in leasing transactions. In this proposal is not likely to result in any significantly case, Fuji proposes that Heller engage in these leasing adverse effects, such as undue concentration of reactivities subject to limitations previously relied on by sources, decreased or unfair competition, conflicts of the Board which are designed to minimize the possi- interests, or unsound banking practices. Based on the bility of such effects. Fuji also has committed to limit foregoing and other facts of record, the Board conthe total amount of Heller's investment in leases with cludes that the balance of the public interest factors estimated residual values in excess of 25 percent of the that it is required to consider under section 4(c)(8) is acquisition cost of the leased property to no more than favorable in this case. Accordingly, subject to the conditions in this Order and the commitments made by Fuji, the Board has determined that the proposed application should be, 2. The Sanwa Bank, Limited, 77 Federal Reserve Bulletin 187 (1991); Security Pacific Corporation, 76 Federal Reserve Bulletin 462 and hereby is, approved. This determination is subject (1990). See also Dai-Ichi Kangyo Bank, Limited, 76 Federal Reserve to all of the conditions set forth in the Board's Regu- Bulletin 960 (1990). On May 25, 1990, the Board issued for comment a proposal to make these leasing activities permissible for bank holding companies generally under Regulation Y. 55 Federal Register 22,348 and 23,446 (1990). Fuji has committed to conform Heller's 4. 12 C.F.R. 225.24; The Fuji Bank, Limited, 75 Federal Reserve leasing activities to any final rule adopted by the Board. Bulletin 94 (1989); Bayerische Vereinsbank AG, 73 Federal Reserve 3. See 12 C.F.R. 225.25(b)(5). Bulletin 155, 156 (1987). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

492 Federal Reserve Bulletin • June 1991 lation Y, including sections 225.4(d) and 225.23(b) owner to acquire all the shares of Apple Bancorp.1 (12 C.F.R. 225.4(d) and 225.23(b)), and to the Board's Based on the facts of record, consummation of this authority to require such modification or termination proposal would not result in any significantly adverse of the activities of a bank holding company or any of effect on competition or the concentration of banking its subsidiaries as the Board finds necessary to assure resources in the State of New York or in any relevant compliance with, or to prevent evasion of, the provi- market. Accordingly, the Board concludes that comsions and purposes of the BHC Act and the Board's petitive considerations are consistent with approval of regulations and orders issued thereunder. these applications. The financial and managerial re- This transaction shall not be consummated later sources and future prospects of Apple Merger and than three months after the effective date of this Bank appear to be consistent with approval. Order, unless such period is extended for good cause The Board also has considered factors relating to the by the Board or by the Federal Reserve Bank of New convenience and needs of the communities to be York, pursuant to delegated authority. served. In this regard, the Board notes that Apple By order of the Board of Governors, effective Bancorp and Bank are under new ownership and that April 10, 1991. new management has initiated affirmative steps to improve substantially the performance of Bank under Voting for this action: Chairman Greenspan and Governors the Community Reinvestment Act (12 U.S.C. § 2901 Angell, LaWare, and Mullins. Absent and not voting: Gov- et seq.) ("CRA") and to correct deficiencies in the ernor Kelley. Bank's performance identified in Bank's last examination report.2 In general, the Statement of the Federal JENNIFER J. JOHNSON Financial Supervisory Agencies Regarding the Com- Associate Secretary of the Board munity Reinvestment Act indicates that commitments for future corrective actions offered in the application Orders Issued Under Sections 3 and 4 of the process will not be sufficient to overcome a seriously Bank Holding Company Act deficient CRA record.3 In this case, however, the inadequate CRA record reflected the actions of the previous owners and the current owner has taken Apple Merger Corp. steps to correct deficiencies in CRA performance in a New York, New York timely fashion. Accordingly, the Board believes that accepting commitments for improvement of Bank's CRA record is appropriate. Order Approving Formation of a Bank Holding In light of all the facts of record, including the CRA Company and Engaging in Commercial Lending programs to be implemented and the programs begun by Bank's new management to improve its CRA Apple Merger Corp., New York, New York ("Apple performance, the Board believes that considerations Merger"), has applied pursuant to section 3(a)(1) of relating to the convenience and needs of the commuthe Bank Holding Company Act ("BHC Act") nities to be served are consistent with approval. The (12 U.S.C. § 1842(a)(1)) to become a bank holding Board's decision in this regard is specifically premised company by acquiring approximately 95 percent of the upon the commitments made by applicant in this voting shares of Apple Bancorp, Inc., New York, New application. York ("Apple Bancorp"), a registered bank holding Apple Merger also has applied to engage in commercompany. Apple Merger would thereby indirectly ac- cial lending activities pursuant to section 225.25(b)(1) quire Apple Bank for Savings, New York, New York of the Board's Regulation Y (12 C.F.R. 225.25(b)(1)). ("Bank"). Apple Merger also has applied pursuant to There is no evidence in the record to indicate that section 4(c)(8) of the BHC Act to engage in commer- approval of this proposal would result in any significial lending activities. cantly adverse effects, such as undue concentration of Notice of the applications, affording interested persons an opportunity to submit comments, have been 1. Apple Bancorp's current owner controls approximately 95 perpublished (55 Federal Register 50,773 (1990)). The cent of the shares and proposes to acquire the remaining shares of time for filing comments has expired, and the Board Apple Bancorp outstanding through a "second step" merger. Record has considered the applications and all comments ownership of the current owner's shares will be transferred to Apple Merger immediately before it merges with and into Apple Bancorp. As received in light of the factors set forth in sections 3 a result of this merger, each outstanding share of Apple Bancorp will and 4 of the BHC Act. be converted into a right to receive $38 in cash. 2. The examination was conducted as of July 12, 1990 and occurred Apple Merger is an interim corporation formed for prior to acquisition of Bank by its current owner. the purpose of permitting Apple Bancorp's current 3. 54 Federal Register 13,742 (1989). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 493 resources, decreased or unfair competition, conflicts (the "Bank Merger Act"), to purchase certain assets of interests, or unsound banking practices. Accord- from and to assume certain liabilities of ten branches ingly, the Board has determined that the balance of the of Goldome, Buffalo, New York ("Goldome").i public interest factors it must consider under section MHTC also has applied to establish branches at the 4(c)(8) of the BHC Act is favorable and consistent with locations of the ten Goldome branches listed in the approval. Appendix pursuant to section 9 of the Federal Reserve Based on the foregoing and other facts of record, the Act (12 U.S.C. § 321 et seq.) ("FRA") and for per- Board has determined that the applications should be, mission to make an additional investment in bank and hereby are, approved. This approval is specifically premises pursuant to section 24A of the FRA conditioned upon applicant's compliance with the (12 U.S.C. § 371d). commitments made to the Board regarding its steps to Notice of these applications, affording interested improve Bank's record of performance under the persons an opportunity to submit comments, has been CRA. The acquisition of Bank shall not be consum- given in accordance with the Bank Merger Act and the mated before the thirtieth calendar day following the Board's Rules of Procedure (12 C.F.R. 262.3(b)). As effective date of this Order, and the proposed bank and required by the Bank Merger Act, reports on the nonbank acquisitions shall not be consummated later competitive effects of the merger were requested from than three months after the effective date of this the United States Attorney General, the Comptroller Order, unless such period is extended for good cause of the Currency, and the Federal Deposit Insurance by the Board or the Federal Reserve Bank of New Corporation. The time for filing comments has ex- York, acting pursuant to delegated authority. The pired, and the Board has considered the applications determination as to the nonbanking activities ap- and all comments received in light of the factors set proved in this case is subject to all of the conditions forth in the Bank Merger Act and in section 9 of the contained in Regulation Y, including those in sections FRA. 225.4(d) and 225.23(b)(3) (12 C.F.R. 225.4(d) and MHTC is the fourth largest commercial banking 225.23(b)(3)), and to the Board's authority to require organization in the state of New York, controlling such notification or termination of the activities of a deposits of $24.5 billion, which represents approxiholding company or any of its subsidiaries as the mately 9.1 percent of total deposits in commercial Board finds necessary to assure compliance with, or to banking organizations in the state.2 The 10 operating prevent evasion of, the provisions and purposes of the Goldome offices MHTC proposes to acquire are lo- BHC Act and the Board's regulations and orders cated within the counties of New York, Bronx, Orissued thereunder. ange, Rockland, and Westchester in New York State. By order of the Board of Governors, effective Total deposits in all the offices to be acquired are April 1, 1991. approximately $1.46 billion, representing approximately 0.4 percent of total deposits in commercial banks in the state.3 Upon consummation of this pro- Voting for this action: Chairman Greenspan and Governors Angell, Kelley, and Mullins. Absent and not voting: Gover- posal, MHTC would remain the fourth largest comnor La Ware. mercial banking organization in the state, controlling approximately 9.6 percent of total deposits in commer- JENNIFER J. JOHNSON cial banking organizations in the state. Associate Secretary of the Board MHTC and Goldome compete in the Metropolitan New York-New Jersey banking market.4 The Metro- Orders Issued Under Bank Merger Act Manufacturers Hanover Trust Company 1. MHTC also has applied to assume the deposit liabilities of three New York, New York branches of Goldome that may be closed by the acquisition date and certain non-branch deposit liabilities of Goldome. 2. Market data are as of June 30, 1989, and state deposit data are as Order Approving Acquisition of Certain Assets and of December 30, 1990. Assumption of Certain Liabilities of a Bank, the 3. Goldome is a state-chartered savings bank with deposits insured by the Federal Deposit Insurance Corporation ("FDIC"). Because Establishment of Branches, and Additional Goldome had FDIC insurance prior to the enactment of the Financial Investment in Bank Premises Institutions Reform, Recovery and Enforcement Act ("FIRREA"), this transaction does not represent the conversion of a Savings Association Insurance Fund member to a Bank Insurance Fund Manufacturers Hanover Trust Company, New York, member under the provisions of that Act and is not, therefore, subject New York ("MHTC"), a state-chartered member to that Act's moratorium on such conversions. See FIRREA, Pub. L. No. 101-73, §§ 206(a)(7) and 208(14). bank, has applied pursuant to section 18(c) of the 4. The Metropolitan New York-New Jersey market includes New Federal Deposit Insurance Act (12 U.S.C. § 1828(c)) York City and Nassau, Suffolk, Orange, Putnam, Rockland, Sullivan, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

494 Federal Reserve Bulletin • June 1991 politan New York-New Jersey banking market is MHTC has failed: considered to be unconcentrated and would remain so (i) to provide financing for homes in Harlem by upon consummation of the proposal.5 Based on these using inappropriate lending criteria based on raand the other facts of record, the Board concludes that cial composition and geographic location; consummation of the proposal would not have a (ii) to offer credit products, including customer significantly adverse effect on competition in the rele- accounts, that meet the credit needs of low- and vant banking market. moderate-income persons in Harlem; and In evaluating these applications, the Board has (iii) to incorporate the Harlem community in its carefully considered the financial resources of MHTC outreach and advertising programs. and the effect on those resources of the proposed acquisition. The Board notes that Manufacturers Ha- The Board has carefully reviewed the CRA perfornover Corporation, the parent of MHTC, recently mance record of MHTC, as well as Protestant's comadded capital to MHTC to support this proposal. ments and MHTC's response to those comments, in Consummation of this proposal, therefore, would not light of the CRA, the Board's regulations, and the result in any diminution of MHTC's tangible capital Statement of the Federal Financial Supervisory Agenposition. The present proposal would result in a rela- cies Regarding the Community Reinvestment Act tively small increase in MHTC's asset size, and ("Agency CRA Statement").? The Agency CRA MHTC would use the acquired deposits to reduce its Statement provides guidance regarding the types of short-term liabilities. Based on these considerations, policies and procedures that the supervisory agencies the Board concludes that the financial and managerial believe financial institutions should have in place in resources and future prospects of MHTC, within the order to fulfill their responsibilities under the CRA on context of this proposal, are consistent with approval. an ongoing basis and the procedures that the supervi- In considering the convenience and needs of the sory agencies will use during the application process to communities to be served, as provided in the Bank review an institution's CRA compliance and perfor- Merger Act, and in reviewing an application for a mance. The Agency CRA Statement also suggests that deposit facility, including the establishment of a do- decisions by agencies to allow financial institutions to mestic branch or other facility with the ability to expand will be made pursuant to an analysis of the institution's overall CRA performance and will be accept deposits under the FRA, the Board is required, based on the actual record of performance of the under the Community Reinvestment Act institution, s (12 U.S.C. § 2901 et seq.) ("CRA"), to consider the institution's record of serving the credit needs of the Initially, in the most recent examination of MHTC's community, including low- and moderate-income CRA performance ("the CRA examination"), the neighborhoods. The CRA requires the federal financial Board notes that MHTC has received an "outstandsupervisory agencies to encourage financial institu- ing" rating from the Federal Reserve Bank of New tions to help meet the credit needs of the local com- York, acting pursuant to authority delegated by the munities in which they operate consistent with the safe Board, MHTC's primary regulator.9 This rating was and sound operation of such institutions. assigned under the new four-tiered rating system im- In this regard, the Board has considered comments plemented by amendments to the CRA in the filed by the City wide Responsible Banking Alliance: FIRREA.10 The Agency CRA Statement provides MHT ("Protestant") alleging that MHTC has generally failed to meet the credit needs of the Harlem community.6 Specifically, Protestant alleges that needs of women- and minority-owned businesses and has limited involvement in community-based organizations, and a comment generally objecting to the loss of Goldome branches in Manhattan and the and Westchester Counties in New York; Bergen, Essex, Hudson, Bronx. For the reasons discussed above, the Board believes that, on Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somer- balance, MHTC meets the credit needs of small businesses and is set, Sussex, Union, and Warren Counties in New Jersey; and parts of involved in community-based organizations in upstate New York and Fairfield County in Connecticut. that MHTC's ownership of the Goldome branches will permit these 5. Under the revised Department of Justice Merger Guidelines (49 branches to continue to operate and help to meet the convenience and Federal Register 26,823 (June 29, 1984)), a market in which the needs of the communities served by these branches. post-merger Herfindahl-Hirschman Index ("HHI") is less than 1000 7. 54 Federal Register 13,742 (1989). is considered unconcentrated. Generally the Justice Department will 8. Id. not challenge a bank merger (in the absence of other factors indicating 9. The CRA compliance examination for MHTC is as of Septemanticompetitive effects) if the post-merger HHI is less than 1000. Upon ber 24, 1990. consummation of this proposal, the HHI of the market would increase 10. This system provides for "outstanding," "satisfactory," by 5 points to 436. "needs to improve" and "substantial noncompliance" ratings for an 6. Protestant is an alliance of community advocates and non-profit institution's record of meeting community credit needs. Ratings housing developers. The Board also has considered a comment assigned to financial institutions after July 1, 1990, are disclosed to the alleging that, in upstate New York, MHTC does not meet the credit public. 12 U.S.C. § 2906(b)(2). Under this new rating system, an Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 495 that, although CRA examination reports do not pro- ria based on the racial composition of the community vide conclusive evidence of an institution's CRA and its geographic location. Discrimination and other record, these reports will be given great weight in the illegal credit practices are evaluated in a CRA perforapplications process.11 mance examination under the following assessment The CRA examination found that MHTC's delinea- factors: tion of its communities in general was reasonable and (1) any practices intended to discourage applications did not exclude low- and moderate-income communi- for types of credit set forth in the institution's CRA ties from its service area. In addition, the CRA exam- Statement (Assessment Factor D); and ination concluded that a geographic analysis of loan (2) evidence of prohibited discriminatory or other applications using Home Mortgage Disclosure Act illegal credit practices (Assessment Factor F).14 ("HMDA") data and MHTC's annual CRA lending studies of approved and declined applications from the The CRA examination under these factors found no Downstate Community supported the reasonableness evidence of any practice by MHTC intended to disof the delineation. Protestant's comments relate to courage applications for the types of credit set forth in Harlem which is an area within MHTC's Downstate MHTC's CRA Statement.15 Furthermore, no credit Community as delineated under the CRA.12 practices were identified that were inconsistent with The CRA requires the appropriate federal supervi- the substantive provisions of anti-discrimination laws sory authority to "assess an institution's record of and regulations, including the Equal Credit Opportumeeting the credit needs of its entire community, nity Act and the Fair Housing Act.16 including low- and moderate-income neighborhoods, Although the CRA examination noted that HMDA consistent with the safe and sound operation of the data indicated low-level lending activity in some areas, institution."13 The Agency CRA Statement similarly it concluded that there is reasonable penetration provides that federal regulatory agencies are required throughout MHTC's Downstate Community, including to take into account a financial institution's record of in low- and moderate-income census tracts.17 For exhelping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods when considering certain applications from 14. Protestant maintains that MHTC's ratio of outstanding loans to core deposits in Harlem when compared with this same ratio outside these institutions. Accordingly, in considering Protesof Harlem is evidence of MHTC's discrimination against borrowers in tant's comments under the CRA, the Board must this area. The Board previously has noted that loan-to-deposit ratios consider MHTC's record of performance in meeting are only a broad measure of lending activity and that there are many nondiscriminatory reasons why a particular neighborhood may generthe credit needs of its entire CRA-delineated commuate more deposits than loan requests, or more requests than deposits. nity. This community includes, but is not limited to, See First Bank System, Inc., 74 Federal Reserve Bulletin 824 (1988). the Downstate Community which includes Harlem. 15. The CRA examination noted that MHTC affirmatively solicited credit applications from all segments of its communities, including Protestant alleges, primarily on the basis of analyses applications from low- and moderate-income neighborhoods and that of HMDA data, that MHTC has refused to provide MHTC had written policies, procedures, and training programs to ensure that the bank did not illegally discourage or pre-screen applihome financing in Harlem by using inappropriate crite- cants. In addition, MHTC has represented that it hires independent, external evaluators (white and minority, male and female) to "shop" its own branches and rate branch personnel on a variety of service quality criteria to ensure that branches provide equal access to the institution's CRA record is evaluated in light of 12 assessment factors, bank's loan and deposit products. which are grouped into five performance categories: 16. The CRA examination noted isolated violations under the (i) ascertainment of community credit needs; Board's Regulation B, implementing the Equal Credit Opportunity (ii) marketing and types of credit offered and extended; Act, that were exceptions to established bank procedures and that (iii) geographic distribution and record of opening and closing affected few applicants. For approximately three months, telephone offices; applicants for credit card lines of credit were provided with oral rather (iv) discrimination and other illegal credit practices; and than written notification of adverse action. Corrective action already (v) community development. has been taken by management for those affected applicants and to 11. 54 Federal Register 13,745. ensure future compliance. 12. The Downstate Community includes New York City and the 17. The Board notes that MHTC has taken affirmative steps relating counties of Nassau, Suffolk, Orange, Rockland and Westchester and to its performance in mortgage lending in low- and moderate-income is served by 192 branches. Four of these branches serve Harlem. The neighborhoods. MHTC recently has obtained approval from state Board generally has defined Harlem in the same manner as Protestant banking authorities to establish the Manufacturers Hanover Commuto include community districts 9, 10, and 11, a geographic area nity Development Corporation ("MHCDC") to incorporate all of its bounded on the east by the East River, extending north to East 142nd community development activities into a single organizational struc- Street and south to 96th Street, and bounded on the west by the ture. MHCDC's activities include the financing of low- and moderate- Hudson River, extending north approximately to West 155th Street income multi-family dwellings and residential housing lending. In and south to 110th Street. This area includes 73 census tracts and is addition, MHTC implemented specific goals this year for its branches predominately minority and low-income. Protestant's analyses relate to increase residential loan origination. This program is branch-based to approximately 68 census tracts within Harlem, but these analyses and will supplement MHTC's "MortgageTrack" Program, a mortgage do not indicate specifically how many or which of the census tracts referral program for realtors and mortgage brokers located in MHTC's have been excluded. Downstate Community. In 1990, MHTC undertook a market research 13. 12 U.S.C. § 2901. study to focus on lending efforts in low- and moderate-income Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

496 Federal Reserve Bulletin • June 1991 ample, in 1988 and 1989, 10 percent of home mort- eligible residents home improvement loans below gage and home improvement loans made by MHTC market rates and rehabilitation loans and technical assistance to owners of small multi-family and in the Downstate Community were made in low- and mixed-used buildings.22 moderate-income census tracts. During the first six months of 1990, 14 percent of such loans were made MHTC also provides a variety of other consumer in low- and moderate-income census tracts.18 HMDA products to low- and moderate-income communities, data for the five boroughs of New York City in 1989 including unsecured personal installment loans, autoshow that 13.1 percent of MHTC's mortgage loans mobile loans, and retail credit cards.23 MHTC has been and 30.5 percent of its home improvement loans were active in originating government-guaranteed student made in low- and moderate-income areas. loans and has participated in projects that benefit the Protestant also alleges that MHTC does not provide cultural and social aspects of the Harlem community.24 multi-family housing loans and has failed to participate In addition, MHTC offers a variety of credit products to in FHA or VA mortgage insurance programs. The small businesses including revolving credit lines, busi- CRA, however, affords a financial institution consider- ness installment loans, time and demand commercial able flexibility in determining how best to meet the loans and letters of credit.25 MHTC also recently recredit needs of its entire community, and institutions are not required to adopt specific activities or programs.19 In this regard, MHTC is a substantial contributor inception through October 1990. In addition, CPC has outstanding to revolving loan funds utilized by financial interme- commitments of $4 million for the substantial rehabilitation of 286 more units in Harlem. These commitments bring the total public and diaries for the construction of affordable housing, private investments leveraged by CPC for housing development in including Community Preservation Corporation Harlem to almost $157 million. When CPC acquired these 2,782 units for rehabilitation, 719 were occupied and 2,063 were vacant. ("CPC") ($11.7 million commitment), and Neighbor- The occupied units, which were slated for moderate rehabilitation, hood Housing Service of New York City ("NHS") are under the New York City program for rent stabilization. The ($500,000 commitment) and Capital Affordable Hous- remaining vacant units were targeted for "gut" rehabilitation. The Department of Housing Preservation and Development ("HPD") ing ($313,000 commitment).20 Since 1974, CPC has determines the plans for occupancy and the rents of these units, with financed more than 9500 dwelling units in northern the goal of housing as many low-income individuals as possible. HPD's guidelines for CPC's units currently under construction in Manhattan, which represents public and private in- Harlem provide that 80 percent of the units would be for moderatevestments of over $220 million. This lending has been income individuals, 10 percent for low-income individuals, and 10 concentrated in the districts of Washington Heights, percent for formerly homeless persons. 22. NHS has reported to the Board that it is presently processing 11 a low- and moderate-income community, and Central loan applications from Harlem for a total amount of $901,600 in loan Harlem.21 In October 1990, NHS began to offer to commitments. 23. As of year-end 1989, MHTC has represented that it had $29.5 million outstanding in consumer credit extensions (excluding mortgages) from residents of Harlem. The Board notes that in designating neighborhoods and MHTC has identified low- and moderate-income the Harlem community, MHTC defines its southern boundary as census tracts in New York City eligible to generate mortgage loan 96th Street, east to west, with the effect of including a portion of the applications. Upper West Side. Accordingly, MHTC's reported outstanding ex- 18. The Board believes that certain disparities alleged by Protestant tensions of credit and other activities in Harlem as designated by the in the HMDA data relating specifically to Harlem must be considered Board may be less. in light of other factors associated with Harlem. These factors include 24. MHTC currently has outstanding a total of $2.9 million for the a relatively low number of owner-occupied housing units, fewer real renovation of the Apollo Theater, which was completed in 1988, and estate transfers eligible for mortgage financing, and low median a $2.1 million participation in a loan for the reconstruction of the household incomes. For example, only 11 percent of the housing units National Black Theater. MHTC's investment in community developin Harlem are owner occupied. In addition, the median household ment projects in New York City, including its projects in Harlem, income in Harlem is $8,528 while the median household income in the totals 19 projects for an investment of approximately $98.8 million. other districts in Manhattan is $17,385. 25. MHTC reports that its small business loan extensions to 19. See Uniform Interagency Community Reinvestment Act Final businesses with addresses in Harlem totalled $4.7 million in 1989. As Guidelines for Disclosure of Written Evaluations and Revised Assess- a general matter, MHTC's efforts to meet the credit needs of small ment Rating System, 55 Federal Register 18,163 (1990) ("Uniform businesses extend to its other CRA-delineated communities, including Interagency Guidelines"). women- and minority-owned businesses in its Upstate Communities. 20. MHTC also lends directly to housing-related and community MHTC markets its services to small businesses primarily through its development projects on a short-term basis. For example, MHTC has Business Finance Group ("BFG"). BFG lends up to $250,000 to any committed to provide $73.8 million in construction loans, $4.4 million one business and provides business installment loans as small as of which will be used to rehabilitate 13 buildings in Manhattan for use $3,000 and lines of credit as small as $25,000. Marketing efforts for by low- and moderate-income families under New York City's vacant BFG are coordinated through a call program by branch staff, and the building program. Two of these buildings are located in Harlem. sampled call reports demonstrated that branch officers were contact- Although Protestant believes that MHTC should provide permanent ing local businesses throughout MHTC's delineated areas. The CRA financing for multi-family housing in Harlem and participate in other examination confirmed that these call programs were working well, types of city-sponsored housing programs, the CRA does not require and the Board expects that MHTC will strengthen its documentation lenders to participate in specific types of financing or programs. of these programs. In addition, the CRA examination noted that 21. Protestant has generally criticized CPC's lack of lending in MHTC indirectly lends money to small businesses through small Harlem and its tenant practices. CPC has reported updated infor- business investment corporations and minority-enterprise small busimation to the Board that it has made $52.4 million in construction ness investment corporations, which lend primarily to businesses loans, representing 2,782 dwelling units in Harlem since CPC's located in New York City but also throughout the tri-state area. 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Legal Developments 497 entered the SBA's guaranteed loan program. the five boroughs of New York City, MHTC is actively Protestant's criticisms of MHTC's credit products involved with 213 community-based organizations, of offered in Harlem is based in large part on a compar- which 113 serve communities throughout Manhattan, ative analysis of its checking and savings accounts.26 including 24 organizations exclusively serving Harlem. In addition to its regular accounts, MHTC offers a Nine of the Harlem organizations are involved in Basic Checking product designed to accommodate housing and economic development. MHTC's Urban customers with limited finances and first-time ac- Affairs Officers participate in and sponsor a number of count holders.27 MHTC has initiated steps to en- forums on issues of community interest throughout the hance its ATM services in Harlem by completing the community, including in Harlem and other low- and installation of four additional ATMs at one of its moderate-income neighborhoods within the delineated Harlem branches to provide 24-hour access, and community. In addition, these officers have made intends to explore providing additional ATMs with on-site visits to a number of community groups based 24-hour access at other Harlem branch locations. in low- and moderate-income communities, including Protestant generally alleges that MHTC's outreach, Harlem. MHTC officers also provide volunteer service advertising, and communication programs have failed for a variety of such organizations. to incorporate Harlem into its lending community.28 The Board also notes that MHTC has adopted many The Board notes, however, that, as a general matter, of the elements of an effective CRA program as the CRA examination found that MHTC has an effec- outlined in the Agency CRA Statement. MHTC has a tive ascertainment program that includes ongoing and CRA officer responsible for coordinating CRA activimeaningful contact with numerous and diverse com- ties throughout the bank. The board of directors has munity organizations and government agencies been actively involved in overseeing the establishment throughout its entire service area.29 For example, in of the bank's CRA Mission Statement and CRA Action Plan and of an organizational structure to implement MHTC's CRA efforts. MHTC's board reviews quarterly reports and other information from the CRA Finally, MHTC has a working relationship with Rochester Neighbor- officer and a board member who is the contact behood Housing Services, Inc. and Neighborhood Housing Services of tween the board and the bank's Planning Committee. Buffalo, Inc. The Planning Committee, consisting of the CRA of- 26. Protestant suggests that MHTC is unable to meet the credit needs of Harlem because of its speculative lending activities outside ficer and 13 senior officers, monitors the CRA Advisits CRA service community. As discussed above, the Board believes ory Committee's activities and reviews and approves that MHTC offers credit products that help meet the needs of low- and major proposals submitted by the CRA Advisory moderate-income communities within its Downstate Community, including Harlem. In addition, the Board previously has noted as a Committee. The Planning Committee, also consisting general matter that an internationally-oriented lending program by a of the CRA officer and other senior officers, meets commercial bank is not necessarily inconsistent with helping to meet monthly to review and assess MHTC's CRA program, the credit needs of its local community. See First National Boston Corporation, 67 Federal Reserve Bulletin 253 (1981); Manufacturers identify weaknesses in the program, make recommen- Hanover Trust Company, 66 Federal Reserve Bulletin 601 (1980). dations for improving it, and implement strategies for 27. For a monthly fee of $5 and no minimum balance, Basic Checking provides up to eight free checks per month and unlimited the introduction of products and services. ATM usage without charge. Additional check and teller transactions The CRA examination found that MHTC's marketcost $0.75 each. Applicant's Basic Checking was compared to accounts offered by four other large New York banks and it ranked ing efforts are generally satisfactory and that MHTC second in affordability. MHTC reports that 21 percent of its checking employs a multimedia approach in marketing its prodrelationships in Harlem use Basic Checking and that between 1989 and ucts. In the spring of 1990, MHTC initiated a mortgage 1990 the number of accounts in Harlem have increased by 54 percent. One of MHTC's advertisements involving its Power Checking product and basic checking advertisement campaign in the is the subject of a Notice of Violation by the New York Department of press media.30 For 1991, MHTC plans to alternate Consumer Affairs. MHTC believes that the advertisement complies advertising in the minority press of its credit products with all applicable consumer protection laws and is currently discussing the notice with the Department. 28. In support of this allegation, Protestant maintains that MHTC's outstanding loans and correspondent banking services provided to South Africa inhibit its ability to ascertain and meet the credit needs of the Harlem community. The record in this case does not indicate that MHTC's investments are in violation of applicable law, and as New York City and, to a lesser extent, throughout the rest of MHTC's discussed above, the Board believes that MHTC has adequately delineated communities. attempted to ascertain credit needs and market its credit products to 30. MHTC advertises home equity credit lines and other loan its entire community, including Harlem. See NCNB Corporation, 73 products in New York City's three major daily newspapers. Adver- Federal Reserve Bulletin 666, 668, n. 11 (1987). tisements for mortgages and basic checking services also are placed in 29. The CRA examination found no variation from MHTC's satis- minority and local community newspapers such as El Diario and The factory level of involvement with community-based organizations in Amsterdam News and in weeklies such as The Phoenix, Greenline and its Upstate Community. The CRA examination noted that MHTC was the Carib News. In addition, MHTC advertises in El Vocero, a very active in supporting nonprofit organizations through grants, Spanish-language daily, and the City Sun, a newspaper that targets a although these grants were made primarily to organizations located in black readership. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

498 Federal Reserve Bulletin • June 1991 for personal loans and its mortgage products.31 MHTC the belief that the facts already before the Board are also uses other methods of local marketing, including incomplete or insufficient to permit the Board to setting up display booths at local street fairs, sponsor- carry out its responsibility under the Bank Merger ing charitable and civic events, and advertising in Act and the FRA to evaluate the applications under nonprofit journals. the statutory criteria, or that further investigation In considering the public benefits of this transac- would produce additional relevant information. The tion, the Board also notes that Goldome would Board is not required to hold a formal hearing or receive additional capital as the result of this trans- receive oral testimony where a party disputes the action. In addition, most of the branches of Goldome conclusions to be drawn from established facts or to be acquired in this transaction would remain open where such proceedings would not serve to develop and continue to operate and serve their communities. new or useful facts. The Board believes that the new capital provided to Protestant asserts that several disputes, including Goldome by this transaction and the continued oper- MHTC's refusal to lend in Harlem, MHTC's refusal ation of these branches by MHTC would result in to discuss its South African policy, and MHTC's substantial public benefits. failure to develop services that are affordable to For the reasons discussed above, and based upon low-income persons, raise factual questions.32 Protthe overall CRA record of MHTC, as well as other estant maintains that these disputes contradict facfacts of record and public benefits of this proposal, tual assertions made by MHTC in the applications. the Board concludes that, on balance, the conve- These assertions, however, do not dispute facts in nience and needs factor, including the CRA record of the record or even elicit new facts, but question MHTC, is consistent with approval of these applica- inferences and conclusions drawn from the factual tions. The Board also has considered the factors it is presentations in the applications. required to consider when approving applications for The Board finds that MHTC and Protestant have establishment of branches pursuant to section 9 of had ample opportunity to present evidence and arguthe FRA and finds those factors to be consistent with ments in writing and to respond to each other's approval. In addition, the Board concludes that submissions and concludes that the parties' extenallowing MHTC under section 24A of the FRA to sive written submissions have been an adequate make an additional investment in bank premises is means of clarifying the issues in this case, including necessary to enable MHTC to acquire the Goldome the factual issues raised by Protestant. The Board branches, and is consistent with approval. also believes that the few truly factual disputes that Protestant has requested a formal hearing on these Protestant asserts exist regarding MHTC's CRA applications as well as a public meeting or an oppor- record in the Harlem community should be viewed in tunity to present its views orally to the Board. The the context of all the facts of record regarding Bank Merger Act and the FRA do not require the MHTC's service to its entire CRA-delineated com- Board to hold a hearing on merger or branch appli- munities. Thus, in the Board's view, even assuming cations filed pursuant to these provisions and there- that these few facts are in dispute, they would not fore Protestant has no right to a hearing. The Board's have a material effect on the Board's conclusion with rules generally provide that the Board may, in its respect to MHTC's overall compliance with the discretion, hold a public hearing or meeting to clarify CRA. Accordingly, Protestant's request for a public factual issues related to the application and to pro- hearing or meeting or to make an oral presentation vide an opportunity for testimony. See 12 C.F.R. before the Board is denied. 262.3(e), 262.25(d) and 262.3(i)(3). Based on the foregoing and all of the facts of Initially, the Board notes that Protestant has been record, the Board has determined that the applicagiven the opportunity to submit, and has submitted, tions should be, and hereby are, approved. This extensive written facts and arguments to the Board transaction shall not be consummated before the regarding these applications. These materials, as well thirtieth calendar day following the effective date of as responses from MHTC and information available this order, unless such period is extended for good to the Board, have not provided a basis to support cause by the Board or by the Federal Reserve Bank of New York, acting pursuant to delegated authority. 31. MHTC also plans to begin advertising small business loans in the City Sun this month. In addition, MHTC has recently undertaken a multimedia advertising campaign targeted at small and mid-size bus- 32. In Protestant's view, these disputed facts cannot be resolved by inesses in the New York area. In 1991 MHTC plans to expand its written submissions because some information is not publicly availmarketing efforts for personal and automobile loan products in its able and adequate consideration of these factual disputes requires Downstate Community. cross-examination of MHTC's officials. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 499 By order of the Board of Governors, effective Order Approving Application to Engage in Certain April 19, 1991. Futures Commission Merchant Activities in Japan Voting for this action: Chairman Greenspan and Governors Angell, Kelley, and La Ware. Absent and not voting: Governor Mullins. April 1, 1991 JENNIFER J. JOHNSON Mr. Edmund P. Rogers, III Associate Secretary of the Board Senior Vice President and Resident Counsel J.P. Morgan & Co., Incorporated APPENDIX 60 Wall Street New York, NY 10260 Manufacturers Hanover Trust Company has applied to establish branches at the following locations: Dear Mr. Rogers: As requested in your letter of December 11, 1990, the New York County Board of Governors grants its consent to Morgan Guaranty International Finance Corporation 1065 Avenue of the Americas, New York, NY 10021 ("MGIFC"), New York, New York, to retain the 1122 Lexington Avenue, New York, NY 10021 shares of J.P. Morgan Securities Asia Limited ("JPMSA"), Singapore, after JPMSA acts as a futures Bronx County commission merchant ("FCM") on the Osaka Securities Exchange (the "OSE"), Osaka, Japan. JPMSA 3555 Johnson Avenue, Bronx, NY 10463 would act as a FCM with respect to a Nikkei 225 futures contract and a Nikkei 225 options contract, and futures Orange County contracts of the kinds listed in section 225.25(b)(18) of Regulation Y. JPMSA would also offer investment 13-15 Sussex Street, Port Jervis, NY 12771 advice to non-affiliated persons on financial futures and Route 17M near Route 6, Wawayanda, NY 10973 options on financial futures. In taking this action, the Board relied on MGIFC's commitment that JPMSA's Rockland County FCM and investment advisory activities on the OSE will be conducted in accordance with the conditions imposed 466 Pacesetter Shopping Center, Route 202, in sections 225.25(b)(18) and (19) of Regulation Y. Ramapo, NY 10970 The Board has also delegated to the Federal Re- 108 Main Street, Nyack, NY 10960 serve Bank of New York authority to approve additional 41 South Middletown Road, Nanuet, NY 10954 financial contracts involving products that the Board has reviewed and approved previously but that are not Westchester County specifically covered by Regulation Y. Proposals involving products that have not been reviewed previously by the 722 North Bedford Road, Bedford Hills, NY 10507 Board continue to require the Board's specific consent. Route 6 and Lee Road, Jefferson Valley, NY 10535 The Reserve Bank should be notified promptly of any prospective substantial changes in the activities of the OSE that would materially increase the potential liability of the Morgan organization in conducting ORDERS ISSUED UNDER FEDERAL RESERVE activities on the OSE. The Board expects that MGIFC ACT will comply with any conditions the Board may impose after reviewing such changes. Orders Issued Under Section 25(a) of the Federal Reserve Act Very truly yours, Jennifer J. Johnson Morgan Guaranty International Finance Associate Secretary of the Board Corporation New York, New York cc: Vice President Rutledge, FRB of New York Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

500 Federal Reserve Bulletin • June 1991 APPLICATIONS APPROVED UNDER BANK HOLDING COMPANY ACT By Federal Reserve Banks Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request to the Reserve Banks. Section 3 Reserve Effective Applicant(s) Bank(s) Bank Date Bancshares of Jackson Hole Jackson Hole Bancshares Kansas City April 10, 1991 Incorporated, Corp., Jackson, Wyoming Jackson, Wyoming Banc West Bancorp, Inc., The Bank of the West, Dallas April 15, 1991 Taylor, Texas Austin, Texas Blue Waters Bancshares, Inc., First State Bank of Minneapolis March 29, 1991 New Brighton, Minnesota Graceville, Graceville, Minnesota Caldwell County Bancshares, Caldwell County Bank, Kansas City April 19, 1991 Inc., Hamilton, Missouri Hamilton, Missouri CBW Bancorp, The Citizens Bank of Atlanta April 24, 1991 Crawfordville, Florida Wakulla, Crawfordville, Florida Chesapeake Bancorp, The Chesapeake Bank & Richmond April 2, 1991 Chestertown, Maryland Trust Company, Chestertown, Maryland Citizens National Bancorp, Inc. The Citizens National Chicago April 15, 1991 Darlington, Wisconsin Bank of Darlington, Darlington, Wisconsin CTB Financial Corporation, Community Trust Bank, Dallas April 22, 1991 Choudrant, Louisiana Choudrant, Louisiana Denali Bancorporation, Inc., Denali State Bank, San Francisco April 1, 1991 Fairbanks, Alaska Fairbanks, Alaska Enfin, Inc., Enterprise Bank, Cleveland March 21, 1991 Solon, Ohio Solon, Ohio Firstbank of Illinois Co., Central Banc System, Chicago April 5, 1991 Springfield, Illinois Inc., Fairview Heights, Illinois Firstbank of Illinois Co., PBM Bancorp, Inc., Chicago April 5, 1991 Springfield, Illinois Marion, Illinois Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 501 Section 3—Continued Reserve Effective Applicant(s) Bank(s) Bank Date First Bancshares of Valley City, Litchville State Bank Minneapolis March 22, 1991 Inc., Holding Company, Valley City, North Dakota Litchville, North Dakota First Michigan Bank Northwestern Bank Chicago April 11, 1991 Corporation, Corporation, Holland, Michigan East Jordan, Michigan First Pinellas Financial Group, First National Bank of Atlanta March 15, 1991 Inc., Pinellas, Pinellas Park, Florida Pinellas Park, Florida First State Bancorp, Inc., Farmers Bank of St. Louis March 22, 1991 Caruthersville, Missouri Portage ville, Portageville, Missouri First Staunton Bancshares, Inc., The First National Bank St. Louis April 9, 1991 Staunton, Illinois in Staunton, Staunton, Illinois FSB Bancorp, Farmers Savings Bank, Chicago April 24, 1991 Wever, Iowa Wever, Iowa High Point Financial Services, Forreston State Bank, Chicago April 19, 1991 Inc., Forreston, Illinois Forreston, Illinois HUBCO, Inc., Meadowlands National New York April 12, 1991 Union City, New Jersey Bank, North Bergen, New Jersey Illinois State Bancorp, Inc., First National Bank of Chicago April 12, 1991 Chicago, Illinois Wheaton, Wheaton, Illinois Larimer Bancorporation, Inc., First Interstate Bank of Kansas City April 23, 1991 Fort Collins, Colorado Fort Collins, N.A., Fort Collins, Colorado Mcintosh Bancshares, Inc., Mcintosh State Bank, Atlanta April 3, 1991 Jackson, Georgia Jackson, Georgia Midlothian State Bank Employee Midlothian State Bank, Chicago April 22, 1991 Stock Ownership Trust, Midlothian, Illinois Midlothian, Illinois Old Second Bancorp, Inc., Affiliated Bank, Chicago March 27, 1991 Aurora, Illinois Burlington, Illinois Prairie Bancorp, Inc., Tampico National Bank, Chicago March 28, 1991 Manlius, Illinois Tampico, Illinois The Prosperity Banking Prosperity Bank of Atlanta March 25, 1991 Company, St. Augustine, St. Augustine, Florida St. Augustine, Florida Star Banc Corporation, Star Bank, Northern Cleveland April 9, 1991 Kentucky, Kentucky, Newport, Kentucky Covington, Kentucky TAG Bancshares, Inc., Citizens Bank & Trust, Atlanta April 10, 1991 Trenton, Georgia Inc., Trenton, Georgia Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

502 Federal Reserve Bulletin • June 1991 Section 3—Continued Reserve Effective Applicant(s) Bank(s) Bank Date United Missouri Bancshares, Valley Bank Holding Kansas City March 29, 1991 Inc., Company, Security, Colorado Kansas City, Missouri Section 4 Nonbanking Reserve Effective Applicant(s) Activity/Company Bank Date AMCORE Financial, Inc., AMCORE Interim Chicago April 12, 1991 Rockford, Illinois Federal Savings Bank, Rockford, Illinois Banc One Corporation, Citizens Federal Savings Cleveland March 25, 1991 Columbus, Ohio and Loan Association, Dayton, Ohio Credit Lyonnais, IMRS, Inc., New York March 22, 1991 Paris, France Stamford, Connecticut FCNB Corp, FCNB Federal Savings Richmond April 22, 1991 Frederick, Maryland Bank, Frederick, Maryland First Community Bancshares, Community Savings and Kansas City April 22, 1991 Inc., Loan Association, Lone Grove, Oklahoma Ardmore, Oklahoma Fulton Financial Corporation, Great Valley Savings Philadelphia March 28, 1991 Lancaster, Pennsylvania Association, Reading, Pennsylvania Lewis Banshares, Inc., First State Insurance Minneapolis April 4, 1991 Armour, South Dakota Agency, Armour, South Dakota Metrobancorp, Metro Federal Savings Chicago March 29, 1991 Indianapolis, Indiana Bank, Indianapolis, Indiana Norwest Corporation, AVCO Financial Services Minneapolis April 17, 1991 Minneapolis, Minnesota of Mississippi, Inc., Norwest Financial Services, Inc., Irvine, California Des Moines, Iowa Norwest Financial, Inc., Des Moines, Iowa Norwest Corporation, U. B. C. Investment Minneapolis March 26, 1991 Minneapolis, Minnesota Corp., Denver, Colorado Synovus Financial Corporation, Citizens Federal Savings Atlanta March 22, 1991 Columbus, Georgia and Loan Association of Rome, Rome, Georgia Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 503 APPLICATIONS APPROVED UNDER BANK MERGER ACT Reserve Effective Applicant(s) Bank(s) Bank Date Chemical Bank Bay Area, First Federal Savings Chicago April 23, 1991 Bay City, Michigan Bank and Trust, Pontiac, Michigan Comerica Bank - Detroit, Comerica Bank, N.A., Chicago March 21, 1991 Detroit, Michigan Jackson, Michigan Tioga State Bank, Norstar Bank N.A., New York April 5, 1991 Spencer, New York Buffalo, New York Union Bank/Streator, Ottawa National Bank, Chicago March 22, 1991 Streator, Illinois Ottawa, Illinois PENDING CASES INVOLVING THE BOARD OF former bank holding company directors. Oral argu- GOVERNORS ment is scheduled for May 16, 1991. Sibille v. Federal Reserve Bank of New York and Board of Governors, No. 90-CIV-5898 (S.D. New This list of pending cases does not include suits York, filed September 12, 1990). Appeal of denial of against the Federal Reserve Banks in which the Board Freedom of Information Act request. of Governors is not named a party. Kuhns v. Board of Governors, No. 90-1398 (D.C. Cir., filed July 30, 1990). Petition for review of Board Fields v. Board of Governors, No. 3:91CV069 (N.D. order denying request for attorney's fees pursuant Ohio, filed February 5, 1991). Appeal of denial of to Equal Access to Justice Act. The petition for request for information under the Freedom of Infor- review was denied on April 12, 1991. mation Act. May v. Board of Governors, No. 90-1316 (D.C. Cir., State of Illinois v. Board of Governors, No. 90-3824 filed July 27, 1990). Appeal of District Court order (7th Circuit, appeal filed December 19, 1990). Ap- dismissing plaintiff's action under Freedom of Inforpeal of injunction restraining the Board from provid- mation and Privacy Acts. Board's motion for suming state examination materials in response to a mary affirmance filed October 12, 1990. Congressional subpoena. On November 30, 1990, Burke v. Board of Governors, No. 90-9509 (10th the U.S. District Court for the Northern District of Circuit, filed February 27, 1990). Petition for review Illinois issued a preliminary injunction preventing of Board orders assessing civil money penalties and the Board and the Chicago Reserve Bank from issuing orders of prohibition. Oral argument is providing documents relating to the state examina- scheduled for May 7. tion in response to the subpoena. The House Com- Kaimowitz v. Board of Governors, No. 90-3067 (11th mittee on Banking, Finance and Urban Affairs has Cir., filed January 23, 1990). Petition for review of appealed the injunction. Argument in the case is Board order dated December 22, 1989, approving scheduled for May 10, 1991. application by First Union Corporation to acquire Citicorp v. Board of Governors, No. 90-4124 (2d Florida National Banks. Petitioner objects to ap- Circuit, filed October 4, 1990). Petition for review of proval on Community Reinvestment Act grounds. Board order requiring Citicorp to terminate certain Babcock and Brown Holdings, Inc. v. Board of Goverinsurance activities conducted pursuant to Delaware nors, No. 89-70518 (9th Cir., filed November 22, law by an indirect nonbank subsidiary. The Dela- 1989). Petition for review of Board determination that ware Bankers Association and the State of Delaware a company would control a proposed insured bank have intervened on behalf of petitioners, and insur- for purposes of the Bank Holding Company Act. Oral ance trade associations have intervened on behalf of argument was held on April 9, and on April 17 the the Board in the action. Awaiting decision. Court of Appeals dismissed the case as moot. Stanley v. Board of Governors, No. 90-3183 (7th Consumers Union of U.S., Inc. v. Board of Gover- Circuit, filed October 3, 1990). Petition for review of nors, No. 90-5186 (D.C. Cir., filed June 29, 1990). Board order imposing civil money penalties on five Appeal of District Court decision upholding amend- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

504 Federal Reserve Bulletin • June 1991 ments to Regulation Z implementing the Home complaint. Board's motion to dismiss or for sum- Equity Loan Consumer Protection Act. Awaiting mary judgment was denied on January 3, 1991. decision. Awaiting trial date. Synovus Financial Corp. v. Board of Governors, No. 89-1394 (D.C. Cir., filed June 21, 1989). Petition for review of Board order permitting relocation of a WRITTEN AGREEMENTS APPROVED BY FEDERAL bank holding company's national bank subsidiary RESERVE BANKS from Alabama to Georgia. Oral argument was held on October 11, 1990. On December 10, the Justice Bank Bumiputra Malaysia Berhad Department filed a brief on behalf of the Board and Kuala Lumpur, Malaysia the Office of the Comptroller of the Currency in response to a request from the court regarding an The Federal Reserve Board announced on April 30, issue in the case. 1991, the execution of a written statement among the MCorp v. Board of Governors, No. 89-2816 (5th Cir., Federal Reserve Banks of New York and San Franfiled May 2, 1989). Appeal of preliminary injunction cisco, and the Bank Bumiputra Malaysia, Berhad, against the Board enjoining pending and future en- Kuala Lumpur, Malaysia, and its New York Branch forcement actions against a bank holding company and Los Angeles Agency. now in bankruptcy. On May 15, 1990, the Fifth Circuit vacated the district court's order enjoining Community Bankers, Inc. the Board from proceeding with enforcement actions Granbury, Texas based on section 23A of the Federal Reserve Act, but The Federal Reserve Board announced on April 4, upheld the district court's order enjoining such ac- 1991, the execution of a Written Agreement between tions based on the Board's source-of-strength docthe Federal Reserve Bank of Dallas, Community Banktrine. 900 F.2d 852 (5th Cir. 1990). On March 4, 1991, ers, Inc., Granbury, Texas, and Mr. Charles Baker, the Supreme Court granted the parties' cross-peti- Chairman of the board of directors of the bank holding tions for certiorari, Nos. 90-913, 90-914. The company. Board's brief was filed on April 18, 1991. MCorp v. Board of Governors, No. CA3-88-2693 First City Bancorporation of Texas, Inc. (N.D. Tex., filed October 10, 1988). Application for Houston, Texas injunction to set aside temporary cease and desist orders. Stayed pending outcome of MCorp v. Board The Federal Reserve Board announced on April 19, of Governors, 900 F.2d 852 (5th Cir. 1990). 1991, the execution of a Written Agreement between White v. Board of Governors, No. CU-S-88-623-RDF the Federal Reserve Bank of Dallas and First City (D. Nev., filed July 29, 1988). Age discrimination Bancorporation of Texas, Inc., Houston, Texas. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A1 Financial and Business Statistics CONTENTS WEEKLY REPORTING COMMERCIAL BANKS Domestic Financial Statistics Assets and liabilities A19 All reporting banks A21 Branches and agencies of foreign banks MONEY STOCK AND BANK CREDIT FINANCIAL MARKETS A3 Reserves, money stock, liquid assets, and debt measures A22 Commercial paper and bankers dollar A4 Reserves of depository institutions, Reserve Bank acceptances outstanding credit A22 Prime rate charged by banks on short-term A5 Reserves and borrowings—Depository business loans institutions A23 Interest rates-money and capital markets A6 Selected borrowings in immediately available A24 Stock market - Selected statistics funds—Large member banks A25 Selected financial institutions-Selected assets and liabilities POUCY INSTRUMENTS FEDERAL FINANCE A7 Federal Reserve Bank interest rates A8 Reserve requirements of depository institutions A27 Federal fiscal and financing operations A9 Federal Reserve open market transactions A28 U.S. budget receipts and outlays A29 Federal debt subject to statutory limitation A29 Gross public debt of U. S. Treasury - Types FEDERAL RESERVE BANKS and ownership A30 U.S. government securities A10 Condition and Federal Reserve note statements dealers—Transactions All Maturity distribution of loan and security A31 U.S. government securities dealers—Positions holdings and financing A32 Federal and federally sponsored credit agencies—Debt outstanding MONETARY AND CREDIT AGGREGATES A12 Aggregate reserves of depository institutions SECURITIES MARKETS AND and monetary base CORPORATE FINANCE A13 Money stock, liquid assets, and debt measures A15 Bank debits and deposit turnover A33 New security issues-State and local A16 Loans and securities-All commercial banks governments and corporations A34 Open-end investment companies—Net sales and asset position COMMERCIAL BANKING INSTITUTIONS A34 Corporate profits and their distribution A34 Total nonfarm business expenditures on new A17 Major nondeposit funds plant and equipment A18 Assets and liabilities, last-Wednesday-of-month A35 Domestic finance companies—Assets and series liabilities and business credit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2 Federal Reserve Bulletin • June 1991 Domestic Financial Statistics—Continued A56 Foreign branches of U.S. banks—Balance sheet data A58 Selected U.S. liabilities to foreign official REAL ESTATE institutions A36 Mortgage markets A37 Mortgage debt outstanding REPORTED BY BANKS IN THE UNITED STATES CONSUMER INSTALLMENT CREDIT A58 Liabilities to and claims on foreigners A38 Total outstanding and net change A59 Liabilities to foreigners A39 Terms A61 Banks' own claims on foreigners A62 Banks' own and domestic customers' claims on foreigners FLOW OF FUNDS A62 Banks' own claims on unaffiliated foreigners A63 Claims on foreign countries—Combined A40 Funds raised in U.S. credit markets domestic offices and foreign branches A42 Direct and indirect sources of funds to credit markets A43 Summary of credit market debt outstanding REPORTED BY NONBANKING BUSINESS A44 Summary of credit market claims, by holder ENTERPRISES IN THE UNITED STATES A64 Liabilities to unaffiliated foreigners Domestic Nonfinancial Statistics A65 Claims on unaffiliated foreigners SELECTED MEASURES SECURITIES HOLDINGS AND TRANSACTIONS A45 Nonfinancial business activity-Selected A66 Foreign transactions in securities measures A67 Marketable U.S. Treasury bonds and A46 Labor force, employment, and unemployment notes-Foreign transactions A47 Output, capacity, and capacity utilization A48 Industrial production—Indexes and gross value A50 Housing and construction INTEREST AND EXCHANGE RATES A51 Consumer and producer prices A52 Gross national product and income A68 Discount rates of foreign central banks A53 Personal income and saving A68 Foreign short-term interest rates A69 Foreign exchange rates International Statistics A71 Guide to Tabular Presentation, Statistical Releases, and Special Tables SUMMARY STATISTICS A54 U.S. international transactions-Summary A55 U.S. foreign trade SPECIAL TABLE A55 U.S. reserve assets A55 Foreign official assets held at Federal Reserve A72 Assets and liabilities of U.S. branches and agencies Banks of foreign banks, December 31,1990 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Money Stock and Bank Credit A3 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Annual rates of change, seasonally adjusted in percent1 1990 1991 1990 1991 MMoonneettaarryy aanndd ccrreeddiitt aaggggrreeggaatteess Q2 Q3 Q4 Q1 Nov. Dec. Jan. Feb.' Mar. Reserves of depository institutions2 1 Total ,2r -.5' 3.9' 9.2 7.6' 21.4' 8.8' 3.5 --11..22 2 Required -.5' 1.7' 4.7 5.1' 3.6' -3.6' 12.8 14.8 3 Nonborrowed .7 3.8' 7.8' 9.1 12.2' 19.1' 3.8' 10.5 -.9 4 Monetary base3 7.9' 9.1r 9.9' 14.5 6.5' 9.0' 21.5' 16.8 5.9 Concepts of money, liquid assets, and debt4 5 Ml 4.2 3.7 3.4 5.8 3.1 3.1 1.9 14.1 99..00 6 M2 3.9 3.0 2.1' 3.6 .1' 1.8' 1.1' 8.7 7.6 7 M3 1.3 1.6 1.0' 4.3 .1' 1.1' 3.7' 10.9 2.9 8 L .9 2.0' 1.5' n.a. .5' .4' 4.9' 9.2 n.a. 9 Debt 7.0 7.1 6.0 5.3 6.1 5.1 4.6 6.3 n.a. Nontransaction components 10 In M2' ..., 3.8 2.7 1.7' 2.8 -1.0' 1.5' y 6.9 7.0 11 In M3 only6 -9.1 -3.8' -3.5' 7.2 .5' -2.0' 14.8' 20.3 -16.9 Time and savings deposits Commercial banks 12 Savings 4.1 5.9 5.2 10.3 3.6 7.3 12.0 11.3 15.3 13 MMDAs 9.6 8.2 3.5 6.0 2.2 3.2 -2.2' 17.2 17.5 14 Small-denomination time7 12.7 15.5 11.5 9.0 2.9' 17.5 7.2 8.0 4.8 15 Large-denomination time • -2.9 -2.2 -8.5 11.7 1.9 -4.0r 23.9 21.6 -3.9 Thrift institutions 16 Savings 2.2 -3.3 -7.3 -.4 -5.6 -8.5 -4.5 9.1 14.7 17 MMDAs .4 -7.7 -7.2 -1.2 -5.5 -16.7 -1.9 8.5 16.8 18 Small-denomination time' -7.4 -ll.CC -8.6' -10.2 -2.1' -13.0' -9.8' -10.5 -14.4 19 Large-denomination time -28.7 -27.3 -26.3 -32.2 -29.9 -39.3 -30.7 -30.5 -35.5 Money market mutual funds 20 General purpose and broker-dealer 4.7 10.0 11.2 19.5 4.6 16.4 29.7 14.1 18.0 21 Institution-only 14.8 21.6 30.4 49.9 9.0 51.8 42.0 84.9 23.3 Debt components* 22 9.7 14.4 11.4 12.3 15.5 13.1 10.9 14.4 n.a. 23 Nonfederal 6.2 4.9 4.3 3.1 3.2 2.5 2.6 3.6 n.a. 1. Unless otherwise noted, rates of change are calculated from average banking offices in the United Kingdom and Canada, and balances in both taxable amounts outstanding in preceding month or quarter. and tax-exempt, institution-only money market mutual funds. Excludes amounts 2. Figures incorporate adjustments for discontinuities associated with regula- held by depository institutions, the U.S. government, money market funds, and tory changes in reserve requirements. (See also table 1.20.) foreign banks and official institutions. Also subtracted is the estimated amount of 3. Seasonally adjusted, break-adjusted monetary base consists of (1) season- overnight RPs and Eurodollars held by institution-only money market mutual ally adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally funds. adjusted currency component of the money stock, plus (3) (for all quarterly L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term reporters on the "Report of Transaction Accounts, Other Deposits and Vault Treasury securities, commercial paper and bankers acceptances, net of money Cash" and for all those weekly reporters whose vault cash exceeds their required market mutual fund holdings of these assets. reserves) the seasonally adjusted, break adjusted difference between current vault Debt: Debt of domestic nonfinancial sectors consists of outstanding credit cash and the amount applied to satisfy current reserve requirements. market debt of the U.S. government, state and local governments, and private 4. Composition of the money stock measures and debt is as follows: nonfinancial sectors. Private debt consists of corporate bonds, mortgages, con- Ml: (1) currency outside the Treasury, Federal Reserve Banks, and the vaults sumer credit (including bank loans), other bank loans, commercial paper, bankers of depository institutions; (2) travelers checks of nonbank issuers; (3) demand acceptances, and other debt instruments. Data are derived from the Federal deposits at ail! commercial banks other than those due to depository institutions, Reserve Board's flow of funds accounts. Data on debt of domestic nonfinancial the U.S. government, and foreign banks and official institutions, less cash items in sectors are monthly averages, derived by averaging adjacent month-end levels. the process of collection and Federal Reserve float; and (4) other checkable Growth rates for debt reflect adjustments for discontinuities over time in the levels deposits (OCD), consisting of negotiable order of withdrawal (NOW) and auto- of debt presented in other tables. matic transfer service (ATS) accounts at depository institutions, credit union 5. Sum of overnight RPs and Eurodollars, money market fund balances share draft accounts, and demand deposits at thrift institutions. (general purpose and broker-dealer), MMDAs, and savings and small time M2: Ml plus overnight (and continuing contract) repurchase agreements deposits. (RPs) issued by all depository institutions and overnight Eurodollars issued to 6. Sum of large time deposits, term RPs, term Eurodollars of U.S. residents, U.S. residents by foreign branches of U.S. banks worldwide, money market and money market fund balances (institution-only), less a consolidation adjustdeposit accounts (MMDAs), savings and small-denomination time deposits ment that represents the estimated amount of overnight RPs and Eurodollars held (time deposits—including retail RPs—in amounts of less than $100,000), and by institution-only money market mutual funds. balances in both taxable and tax-exempt general purpose and broker-dealer 7. Small-denomination time deposits—including retail RPs—are those issued money market mutual funds. Excludes individual retirement accounts (IRA) in amounts of less than $100,000. All IRA and Keogh accounts at commercial and Keogh balances at depository institutions and money market funds. Also banks and thrifts are subtracted from small time deposits. excludes all balances held by U.S. commercial banks, money market funds 8. Large-denomination time deposits are those issued in amounts of $100,000 (general purpose and broker-dealer), foreign governments and commercial or more, excluding those booked at international banking facilities. banks, and the U.S. government. 9. Large-denomination time deposits at commercial banks less those held by M3: M2 plus large-denomination time deposits and term RP liabilities (in money market mutual funds, depository institutions, and foreign banks and amounts of $100,000 or more) issued by all depository institutions, term Eurodol- official institutions. lars held by U.S. residents at foreign branches of U.S. banks worldwide and at all Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A4 Domestic Nonfinancial Statistics • June 1991 1.11 RESERVES OF DEPOSITORY INSTITUTIONS AND RESERVE BANK CREDIT Millions of dollars Monthly averages of Weekly averages of daily figures for week ending daily figures Factors 1991 1991 Jan. Feb. Mar. Feb. 13 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Mar. 27 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit 284,701 286,467 285,011 285,706 286,980 287,851 286,908 285,061 285,153 283,699 U.S. government securities1, 2 2 Bought outright-system account 234,665 235,257 238,299 236,243 235,574 235,783 238,066 238,476 237,476 237,285 3 Held under repurchase agreements ... 2,165 3,542 1,019 898 4,341 5,603 2,886 1,319 2,039 380 Federal agency obligations2^ 4 Bought outright 6,342 6,342 6,342 6,342 6,342 6,342 6,342 6,342 6,342 6,342 5 Held under repurchase agreements ... 223 331 87 73 303 675 345 36 109 77 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions2 7 Adjustment credit 52 145 143 30 203 265 405 65 109 34 8 Seasonal credit 32 36 53 27 46 43 38 45 56 68 9 Extended credit 29 34 51 20 33 60 40 38 56 72 10 Float 1,077 874 557 1,170 927 161 610 322 286 242 11 Other Federal Reserve assets 39,661 39,907 38,459 40,904 39,212 38,920 38,176 38,418 38,680 39,200 12 Gold stock 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 13 Special drawing rights certificate account . 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 14 Treasury currency outstanding 20,429 20,471 20,546 20,464 20,474 20,484 20,519 20,533 20,548 20,562 ABSORBING RESERVE FUNDS 15 Currency in circulation 284,549 284,133 286,408 283,967 284,780 284,535 285,550 286,944 286,745 286,047 16 Treasury cash holdings 572 576 616 558 590 569 607 609 619 622 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 8,701 11,221 6,406 11,187 9,728 13,345 9,192 5,869 4,801 6,131 18 Foreign 252 223 247 215 221 235 232 247 250 266 19 Service-related balances and adjustments 3,097 2,777 2,849 2,674 2,805 2,849 2,854 2,890 2,859 2,812 20 Other 188 195 220 184 210 188 215 212 256 206 21 Other Federal Reserve liabilities and capital 8,467 9,246 8,087 9,612 8,936 9,017 8,047 8,242 8,501 8,549 22 Reserve balances with Federal Reserve Banks3 20,379 19,643 21,800 18,851 21,261 18,672 21,804 21,657 22,746 20,705 End-of-month figures Wednesday figures 1991 1991 Jan. Feb. Mar. Feb. 13 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Mar. 27 SUPPLYING RESERVE FUNDS 23 Reserve Bank credit 299,857 298,834 286,706 285,495 290,125 286,231 291,517 283,623 294,060 287,378 U.S. government securities1, 2 24 Bought outright-system account 234,306 236,636 240,965 234,881 235,204 236,235 237,100 237,572 237,816 241,238 25 Held under repurchase agreements 14,888 14,768 0 2,578 6,118 3,580 5,437 0 9,857 0 Federal agency obligationsr 26 Bought outright 6,342 6,342 6,342 6,342 6,342 6,342 6,342 6,342 6,342 6,342 27 Held under repurchase agreements ... 2,186 1,266 0 196 181 575 1,151 0 592 0 28 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions2 29 Adjustment credit 89 402 135 51 591 29 2,343 22 183 44 30 Seasonal credit 39 47 62 33 45 40 36 53 66 66 31 Extended credit 52 57 48 18 63 56 27 46 65 63 32 Float 531 1,073 2,582 713 2,276 216 574 977 -181 299 33 Other Federal Reserve assets 41,425 38,245 36,573 40,684 39,305 39,159 38,508 38,611 39,321 39,327 34 Gold stock 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 35 Special drawing rights certificate account . 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 36 Treasury currency outstanding 20,454 20,494 20,577 20,464 20,474 20,484 20,519 20,533 20,548 20,562 ABSORBING RESERVE FUNDS 37 Currency in circulation 283,004 285,151 286,685 284,411 285,234 284,691 286,499 287,254 286,514 286,286 38 Treasury cash holdings 590 605 623 589 597 605 608 618 621 623 Deposits, other than reserve balances, with Federal Reserve Banks 39 Treasury 27,810 23,898 10,922 11,012 15,782 13,300 6,247 4,827 5,243 6,156 40 Foreign 271 329 228 210 235 301 251 228 197 299 41 Service-related balances and adjustments 2,766 2,854 2,827 2,674 2,805 2,849 2,855 2,890 2,859 2,812 42 Other 183 171 188 177 188 184 222 197 195 207 43 Other Federal Reserve liabilities and capital 9,820 8,216 5,670 8,719 8,819 8,746 7,982 8,331 8,506 8,392 44 Reserve balances with Federal Reserve Banks3 16,944 19,181 21,214 19,243 18,016 17,114 28,449 20,888 31,548 24,240 1. Includes securities loaned—fully guaranteed by U.S. government securities 3. Excludes required clearing balances and adjustments to compensate for pledged with Federal Reserve Banks—and excludes any securities sold and float. scheduled to be bought back under matched sale-purchase transactions. NOTE. For amounts of currency and coin held as reserves, see table 1.12. 2. Beginning with the May 1990 Bulletin, this table has been revised to Components may not add to totals because of rounding. correspond with the H.4.1 statistical release. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Money Stock and Bank Credit A5 1.12 RESERVES AND BORROWINGS Depository Institutions1 Millions of dollars Monthly averages9 RReesseerrvvee ccllaassssiiffiiccaattiioonn 1988 1989 1990 1990 1991 Dec. Dec. Dec. Sept. Oct. Nov. Dec. Jan. Feb. Mar. 1 Reserve balances with Reserve Banks 37,837 35,436 30,237 33,303 32,127 33,382 30,237 22,023 19,827'' 21,731 2 Total vault cash 28,204 29,822 31,777 30,625 31,515 31,086 31,777 33,220 33,477 30,896 3 Applied vault cash 25,909 27,374 28,884 28,149 28,925 28,663 28,884 28,969 28,724 26,852 4 Surplus vault cash5 2,295 2,448 2,893 2,476 2,590 2,423 2,893 4,250 4,753 4,044 5 Total reserves6 63,746 62,810 59,120 61,452 61,052 62,045 59,120 50,992 48,55V 48,583 6 Required reserves 62,699 61,888 57,456 60,544 60,206 61,099 57,456 48,824 46,743r 47,411 7 Excess reserve balances at Reserve Banks' 1,047 922 1,665 909 847 947 1,665 2,168 l^ 1,172 8 Total borrowings at Reserve Banks 1,716 265 326 624 410 230 326 534 252 241 9 Seasonal borrowings at Reserve Banks 130 84 76 418 335 162 76 33 37 55 10 Extended credit at Reserve Banks8 1,244 20 23 6 18 24 23 27 34 53 Biweekly averages of daily figures for weeks ending 1990 1991 Nov. 28 Dec. 12 Dec. 26 Jan. 9 Jan. 23 Feb. 6 Feb. 20 Mar. 6 Mar. 20 Apr. 3 11 Reserve balances with Reserve Banks 32,848 34,046 28,413 26,198 21,193 18,776 20,049 20,228r 22,209 21,941 12 Total vault cash1... 31,631 30,293 32,690 32,783 32,050 35,759 33,341 32,005 30,286 31,067 13 Applied vault cash4 29,125 28,027 29,621 28,876 28,222 30,384 28,638 27,629 26,413 26,986 14 Surplus vault cash5 2,506 2,266 3,069 3,908 3,828 5,375 4,703 4,376 3,873 4,081 15 Total reserves6 61,972 62,073 58,034 55,074 49,415 49,160 48,687 47,857' 48,622 48,927 16 Required reserves 61,006 61,513 56,113 51,481 48,478 46,439 46,934 46,637' 47,616 47,573 17 Excess reserve balances at Reserve Banks7 966 561 1,922 3,592 937 2,721 1,753 l,221r 1,007 1,355 18 Total borrowings at Reserve Banks 193 130 504 295 884 191 179 426 185 212 19 Seasonal borrowings at Reserve Banks 140 87 79 41 28 35 37 41 51 68 20 Extended credit at Reserve Banks8 25 25 22 22 28 30 27 50 47 62 1. These data also appear in the Board's H.3 (502) release. For address, see in- satisfy current reserve requirements. side front cover. 5. Total vault cash (line 2) less applied vault cash (line 3). 2. Excludes required clearing balances and adjustments to compensate for float 6. Reserve balances with Federal Reserve Banks (line 1) plus applied vault cash and includes other off-balance sheet "as-of' adjustments. (line 3). 3. Total "lagged" vault cash held by those depository institutions currently 7. Total reserves (line 5) less required reserves (line 6). subject to reserve requirements. Dates refer to the maintenance periods in which 8. Extended credit consists of borrowing at the discount window under the the vault cash can be used to satisfy reserve requirements. Under contempora- terms and conditions established for the extended credit program to help neous reserve requirements, maintenance periods end 30 days after the lagged depository institutions deal with sustained liquidity pressures. Because there is computation periods in which the balances are held. not the same need to repay such borrowing promptly as there is with traditional 4. All vault cash held during the lagged computation period by "bound" short-term adjustment credit, the money market impact of extended credit is institutions (i.e., those whose required reserves exceed their vault cash) plus the similar to that of nonborrowed reserves. amount of vault cash applied during the maintenance period by "nonbound" 9. Data are prorated monthly averages of biweekly averages. institutions (i.e., those whose vault cash exceeds their required reserves) to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A6 Domestic Nonfinancial Statistics • June 1991 1.13 SELECTED BORROWINGS IN IMMEDIATELY AVAILABLE FUNDS Large Banks1 Averages of daily figures, in millions of dollars 1991, week ending 1990, week ending Monday Monday2 Maturity and source Nov. 19 Nov. 26 Dec. 3 Dec. 10 Dec. 17 Dec. 24 Dec. 31 Jan. 7 Federal funds purchased, repurchase agreements, and other selected borrowing in immediately available funds From commercial banks in the United States 1 For one day or under continuing contract 87,080 82,126 83,431 88,675 83,932 80,069 74,416 82,002 2 For all other maturities 19,428 21,122 19,755 20,403 19,750 19,919 19,020 16,548 From other depository institutions, foreign banks and foreign official institutions, and U.S. government agencies 3 For one day or under continuing contract 37,728 34,159 36,220 35,472 34,350 29,847 28,065 29,672 4 For all other maturities 21,121 23,295 20,933 21,495 20,976 20,512 21,031 20,037 Repurchase agreements on U.S. government and federal agency securities in immediately available funds Brokers and nonbank dealers in securities 5 For one day or under continuing contract 13,700 11,585 12,015 9,971 9,542 8,891 8,718 6 For all other maturities 21,972 21,976 21,258 20,222 18,797 16,567 17,577 18,874 All other customers 7 For one day or under continuing contract 31,667 27,725 30,998 29,936 29,794 26,219 27,060 27,549 8 For all other maturities 13,665 17,193 13,248 12,912 12,064 13,609 13,626 11,629 MEMO: Federal funds loans and resale agreements in immediately available funds in maturities of one day or under continuing contract 9 To commercial banks in the United States 50,258 46,826 47,141 46,871 44,446 43,353 43,753 49,537 10 To all other specified customers3 17,843 16,466 17,078 17,362 20,409 18,312 15,935 17,779 1. Banks with assets of $1 billion or more as of Dec. 31, 1977. Division of Applications Development and Statistical Services, Financial State- These data also appear in the Board's H.5 (507) release. For address, see inside ment Reports Section, (202) 452-3349. front cover. 3. Brokers and nonbank dealers in securities; other depository institutions; 2. Beginning with the August Bulletin data appearing are the most current foreign banks and official institutions; and United States government agencies. available. To obtain data from May 1, 1989, through April 16, 1990, contact the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A7 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels AAddjjuussttmmeenntt ccrreeddiitt Extended credit2 aanndd FFFeeedddeeerrraaalll RRReeessseeerrrvvveee SSeeaassoonnaall ccrreeddiitt11 First 30 days of borrowing After 30 days of borrowing3 BBBaaannnkkk 4/2 O 9 n /9 1 Ef d fe a c te ti ve Pre r v at i e o us 4/2 O 9 n /9 1 Eff d e a c te ti ve Pre r v at i e o us 4/2 O 9 n /9 1 Ef d fe a c te ti ve Pre r v at i e o us Effective date Boston 6 2/1/91 6 Vi 6 2/1/91 6Vi 6.50 4/18/91 6.65 4/4/91 New York 2/1/91 2/1/91 4/18/91 4/4/91 Philadelphia 2/1/91 2/1/91 4/18/91 4/4/91 Cleveland 2/1/91 2/1/91 4/18/91 4/4/91 Richmond 2/1/91 2/1/91 4/18/91 4/4/91 Atlanta 2/4/91 2/4/91 4/18/91 4/4/91 Chicago 2/1/91 2/1/91 4/18/91 4/4/91 St. Louis 2/4/91 2/4/91 4/18/91 4/4/91 Minneapolis 2/1/91 2/1/91 4/18/91 4/4/91 Kansas City 2/1/91 2/1/91 4/18/91 4/4/91 Dallas 2/1/91 2/1/91 4/18/91 4/4/91 San Francisco ... 6 2/1/91 6 Vi 6 2/1/91 6Vi 6.50 4/18/91 6.65 4/4/91 Range of rates for adjustment credit in recent years4 Range (or F.R. Range (or F.R. Range (or Effective date A le l v l e F l) . — R. B o a f n k Effective date A le l v l e F l) . — R. B o an f k Effective date A le l v l e F l) . — R. Banks N.Y. Banks N.Y. Banks In effect Dec. 31, 1977. 6 6 1981---MMaayy 5 13-14 14 1985—May 20 7Vi-8 m 1978--Jan. 9 6-6'/> 6Vi 8 14 14 24 m 7Vi 20 6Vi 6Vi Nov. ? 13-14 13 May 11 6VS-7 1 6 13 13 1986—Mar. 7 7-7 Vi 7 12 7 7 Dec. 4 12 12 10 7 7 July 3 1-1 Vi m Apr. 21 6Vi-7 6Vi 10 IV* 7V4 1982---JJuullyy 70 im-12 im July 11 6 6 Aug. 21 73/4 V/4 73 nvi nvi Aug. 21 514-6 5 Vi Sept. 22 8 8 AAuugg.. ? 11-llVi n 22 5 Vi 5Vi Oct. 16 8-8Vi 8Vi 3 11 ii Nov. 2 1 0 8V 8 i - V 9 i V i 9 m V i 7 1 7 6 lO l - O lO V V i i l 1 O 0 V i 1987—Sept. 1 4 1 5V 6 i- 6 6 6 3 9V2 9 Vi 30 10 10 Oct. 1? 9Vi-10 9 Vi 1988—Aug. 9 6-6Vi 6Vi 1979--July 20 10 10 n 9Vi 9V2 11 6 Vi 6Vi Aug. 17 lO-lOVi lOVi Nov. ?? 9-9V2 9 20 lOVi 10V5 76 9 9 1989—Feb. 24 6Vi-7 7 Sept. 19 10Vi-ll 11 Dec. 14 m-9 9 7 7 21 11 11 15 81/1-9 8Vi 27 Oct. 8 11-12 12 17 8Vi 8 Vi 6V2 6Vi 10 12 12 1990—Dec. 19 1984---AApprr.. 9 8Vi-9 9 6-6Vi 6 1980--Feb. 1 1 5 9 12 1 - 3 1 3 1 1 3 3 Nov. 7 1 , 3 1 , 81 9 /2 -9 9 m . 1991—Feb. 41 6 6 May 29 12-13 13 76 8Vi m In effect Apr. 29, 1991 6 6 30 12 12 Dec. 74 8 8 June 13 11-12 11 16 11 11 July 28. 10-11 10 29 10 10 Sept. 26 11 11 Nov. 17 12 12 Dec. 5 12-13 13 1. Adjustment credit is available on a short-term basis to help depository in no case will the rate charged be less than the basic discount rate plus 50 basis institutions meet temporary needs for funds that cannot be met through reason- points. The flexible rate is reestablished on the first business day of each able alternative sources. After May 19,1986, the highest rate established for loans two-week reserve maintenance period. At the discretion of the Federal Reserve to depository institutions may be charged on adjustment credit loans of unusual Bank, the time period for which the basic discount rate is applied may be size that result from a major operating problem at the borrower's facility. shortened. Seasonal credit is available to help smaller depository institutions meet regular, 4. For earlier data, see the following publications of the Board of Governors: seasonal needs for funds that cannot be met through special industry lenders and Banking and Monetary Statistics, 1914-1941, and 1941-1970; Annual Statistical that arise from a combination of expected patterns of movement in their deposits Digest, 1970-1979. and loans. A temporary simplified seasonal program was established on Mar. 8, In 1980 and 1981, the Federal Reserve applied a surcharge to short-term 1985, and the interest rate was a fixed rate Vi percent above the rate on adjustment adjustment credit borrowings by institutions with deposits of $500 million or more credit. The program was reestablished for 1986 and 1987 but was not renewed for that had borrowed in successive weeks or in more than four weeks in a calendar 1988. quarter. A 3 percent surcharge was in effect from Mar. 17, 1980 through May 7, 2. Extended credit is available to depository institutions, when similar assist- 1980. There was no surcharge until Nov. 17,1980, when a 2 percent surcharge was ance is not reasonably available from other sources, when exceptional circum- adopted; the surcharge was subsequently raised to 3 percent on Dec. 5,1980, and stances or practices involve only a particular institution or when an institution is to 4 percent on May 5, 1981. The surcharge was reduced to 3 percent effective experiencing difficulties adjusting to changing market conditions over a longer Sept. 22, 1981, and to 2 percent effective Oct. 12, 1981. As of Oct. 1, 1981 the period of time. formula for applying the surcharge was changed from a calendar quarter to a 3. For extended-credit loans outstanding more than 30 days, a flexible rate moving 13-week penod. The surcharge was eliminated on Nov. 17, 1981. somewhat above rates on market sources of funds ordinarily will be charged, but Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A8 Domestic Nonfinancial Statistics • June 1991 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS1 Percent of deposits Depository institution requirements after implementation of the Monetary Control Act TTyyppee ooff ddeeppoossiitt,, aanndd ddeeppoossiitt iinntteerrvvaall Percent of Effective date deposits Net transaction accounts3' 4 33333 1111122222/////1111188888/////9999900000 1111122222 1111122222/////1111188888/////9999900000 00000 1111122222/////2222277777/////9999900000 00000 1111122222/////2222277777/////9999900000 1. Required reserves must be held in the form of deposits with Federal Reserve three per month for the purpose of making payments to third persons or others. Banks or vault cash. Nonmember institutions may maintain reserve balances with However, MMDAs and similar accounts subject to the rules that permit no more a Federal Reserve Bank indirectly on a pass-through basis with certain approved than six preauthorized, automatic, or other transfers per month, of which no more institutions. For previous reserve requirements, see earlier editions of the Annual than three can be checks, are not transaction accounts (such accounts are savings Report or the Federal Reserve Bulletin. Under provisions of the Monetary deposits). Control Act, depository institutions include commercial banks, mutual savings 4. The Monetary Control Act of 1980 requires that the amount of transaction banks, savings and loan associations, credit unions, agencies and branches of accounts against which the 3 percent reserve requirement applies be modified foreign banks, and Edge corporations. annually by 80 percent of the percentage change in transaction accounts held by 2. The Garn-St Germain Depository Institutions Act of 1982 (Public Law all depository institutions, determined as of June 30 each year. Effective Dec. 18, 97-320) requires that $2 million of reservable liabilities of each depository 1990 for institutions reporting quarterly and Dec. 25, 1990 for institutions institution be subject to a zero percent reserve requirement. The Board is to adjust reporting weekly, the amount was increased from $40.4 million to $41.1 million. the amount of reservable liabilities subject to this zero percent reserve require- 5. The reserve requirements on nonpersonal time deposits with an original ment each year for the succeeding calendar year by 80 percent of the percentage maturity of less than 1-1/2 years were reduced from 3 percent to 1-1/2 percent on increase in the total reservable liabilities of all depository institutions, measured the maintenance period that began December 13, 1990, and to zero for the on an annual basis as of June 30. No corresponding adjustment is to be made in maintenance period that began December 27, 1990, for institutions that report the event of a decrease. On Dec. 20, 1988, the exemption was raised from $3.2 weekly. The reserve requirement on nonpersonal time deposits with an original million to $3.4 million. In determining the reserve requirements of depository maturity of 1-1/2 years or more has been zero since October 6, 1983. institutions, the exemption shall apply in the following order: (1) net NOW 6. For institutions that report quarterly, the reserves on nonpersonal time accounts (NOW accounts less allowable deductions); and (2) net other transaction deposits with an original maturity of less than 1-1/2 years were reduced from 3 accounts. The exemption applies only to accounts that would be subject to a 3 percent to zero on January 17, 1991. percent reserve requirement. 7. The reserve requirements on Euroccurrency liabilities were reduced from 3 3. Transaction accounts include all deposits on which the account holder is percent to zero in the same manner and on the same dates as were the reserves on permitted to make withdrawals by negotiable or transferable instruments, pay- nonpersonal time deposits with an original maturity of less than 1-1/2 years (see ment orders of withdrawal, and telephone and preauthorized transfers in excess of notes 5 and 6). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A9 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1 Millions of dollars 1990 1991 TTyyppee ooff ttrraannssaaccttiioonn 11998888 11998899 11999900 Aug. Sept. Oct. Nov. Dec. Jan. Feb. U.S. TREASURY SECURITIES Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 8,223 14,284 24,739 4,264 631 933 6,658 00 0 11,,996677 7 Gross sales 587 12,818 7,291 68 0 0 0 2,350 120 0 Exchange 241,876 231,211 241,086R 26,512R 19,041 19,271 25,981 16,939 19,747 21,381 4 Redemptions 2,200 12,730 4,400 0 0 0 0 3,000 1,000 0 Others within 1 year 5 Gross purchases 2,176 327 425' 0 0 0 325 00 00 110000 6 Gross sales 0 0 0 0 0 0 0 0 0 0 7 Maturity shift 23,854 28,848 25,638 3,235 1,010 1,934 3,531 1,991 989 2,292 8 Exchange -24,588 -25,783 -27,424 -4,550 0 0 -4,315 0 0 0 9 Redemptions 0 500 0 0 0 0 0 0 0 0 1 to 5 years 10 Gross purchases 5,485 1,436 250' 0 0 00 0 00 00 00 11 Gross sales 800 490 200 0 0 0 0 200 0 0 1? Maturity shift -17,720 -25,534 -21,770 -2,188 -1,010 -1,677 -3,258 -1,991 -778 -1,909 13 22,515 23,250 25,410 4,200 0 0 3,915 0 0 0 5 to 10 years 14 Gross purchases 1,579 287 0 0 0 00 00 00 00 335500 15 Gross sales 175 29 100 0 0 0 0 100 0 0 16 Maturity shift -5,946 -2,231 -2,186 -697 0 -256 127 0 -212 -184 17 Exchange 1,797 1,934 789 0 0 0 0 0 0 0 Over 10 years 18 Gross purchases 1,398 284 0 0 0 00 00 00 00 00 19 Gross sales 0 0 0 0 0 0 0 0 0 0 20 Maturity shift -188 -1,086 -1,681 -350 0 0 -400 0 0 -200 21 Exchange 275 600 1,226 350 0 0 400 0 0 0 All maturities ??, Gross purchases 18,863 16,617 25,414 4,264 631 933 6,983 0 00 22,,441177 73 Gross sales 1,562 13,337 7,591 68 0 0 0 2,650 120 0 24 Redemptions 2,200 13,230 4,400 0 0 0 0 3,000 1,000 0 Matched transactions 1,168,484 1,323,480 1,369,052 113,647 120,036 127,265 116,601 125,844 113300,,775511 112277,,558899 26 Gross purchases 1,168,142 1,326,542 1,363,434 110,635 120,280 129,722 114,488 123,442 126,141 127,502 Repurchase agreements2 7,7 Gross purchases 152,613 129,518 219,632 26,700 31,9% 19,844 36,457 45,684 36,337 44,688 28 Gross sales 151,497 132,688 202,551 23,764 34,932 19,844 34,105 31,022 38,462 44,809 29 Net change in U.S. government securities 15,872 -10,055 24,886 4,121 -2,060 3,390 7,222 6,608 -7,855 2,209 FEDERAL AGENCY OBLIGATIONS Outright transactions 30 Gross purchases 0 0 00 00 00 00 00 00 00 00 31 0 0 0 0 0 0 0 0 0 0 32 587 442 183 37 0 34 0 1 0 0 Repurchase agreements2 33 57,259 38,835 41,836 7,130 7,394 5,913 2,774 2,091 4,416 3,546 34 56,471 40,411 40,461 5,944 8,580 5,913 2,504 1,021 3,571 4,466 35 Net change in federal agency obligations 198 -2,018 1,192 1,149 -1,186 -34 270 1,070 845 -920 36 Total net change in System Open Market Account 16,070 -12,073 26,078 5,270 -3,247 33,,335566 77,,449922 77,,667788 --77,,001100 11,,229900 1. Sales, redemptions, and negative figures reduce holdings of the System Open 2. In July 1984 the Open Market Trading Desk discontinued accepting bankers Market Account; all other figures increase such holdings. Details may not add to acceptances in repurchase agreements, totals because of rounding. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic Nonfinancial Statistics • June 1991 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements1 Millions of dollars Wednesday End of month Account 1991 1991 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Mar. 27 Jan. 31 Feb. 28 Mar. 29 Consolidated condition statement ASSETS 1 Gold certificate account 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 2 Special drawing rights certificate account 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 3 611 662 663 663 658 535 611 659 Loans 4 To depository institutions 136 2,406 122 314 172 190 180 244 5 Other 0 0 0 0 0 0 0 0 6 Acceptances held under repurchase agreements 0 0 0 0 0 0 0 0 Federal agency obligations 0 0 0 0 0 0 0 0 7 Bought outright 6,342 6,342 6,342 6,342 6,342 6,342 6,342 6,342 8 Held under repurchase agreements 866 1,151 0 592 0 1,341 2,186 0 U.S. Treasury securities Bought outright 9 Bills 111,664 113,530 113,102 112,447 114,668 112,520 111,736 114,245 10 Notes 91,407 92,307 93,207 94,107 95,307 91,407 91,407 95,457 11 Bonds 31,163 31,263 31,263 31,263 31,263 31,163 31,163 31,263 12 Total bought outright2 234,234 237,100 237,572 237,816 241,238 235,090 234,306 240,965 13 Held under repurchase agreements 2,359 5,437 0 9,857 0 17,013 14,888 0 14 Total U.S. Treasury securities 236,592 242,537 237,572 247,673 241,238 252,103 249,194 240,965 15 Total loans and securities 243,936 252,435 244,035 254,921 247,752 259,975 257,901 247,551 16 Items in process of collection 6,650 6,074 5,674 5,075 4,719 6,106 5,160 9,381 17 Bank premises 875 884 890 896 896 872 875 896 Other assets 18 Denominated in foreign currencies 32,838 32,614 32,731 32,890 33,006 32,633 33,879 30,096 19 All other 6,308 5,072 5,111 5,643 5,674 6,376 6,704 5,647 20 Total assets 312,294 318,817 310,180 321,163 313,781 327,573 326,206 315,305 LIABILITIES 21 Federal Reserve notes 263,537 267,251 268,002 267,250 267,005 267,657 263,751 267,391 Deposits 22 To depository institutions 17,926 31,243 23,831 34,913 27,205 38,658 19,902 24,067 23 U.S. Treasury—General account 16,884 6,247 4,827 5,243 6,156 8,960 27,810 10,922 24 Foreign—Official accounts 225 251 228 197 299 369 271 228 25 Other 197 222 197 195 207 242 183 188 26 Total deposits 35,232 37,963 29,083 40,548 33,867 48,228 48,165 35,405 27 Deferred credit items 5,019 5,622 4,764 4,858 4,516 3,540 4,470 6,839 28 Other liabilities and accrued dividends 3,195 3,063 3,027 3,177 3,000 3,301 3,588 2,552 29 Total liabilities 306,982 313,898 304,876 315,833 308,388 322,727 319,974 312,187 CAPITAL ACCOUNTS 30 Capital paid in 2,450 2,480 2,485 2,486 2,501 2,423 2,450 2,501 31 Surplus 2,423 2,311 2,349 2,378 2,423 2,423 2,423 751 32 Other capital accounts 438 127 469 465 468 0 1,359 -133 33 Total liabilities and capital accounts 312,294 318,817 310,180 321,163 313,781 327,573 326,206 315,305 34 MEMO: Marketable U.S. Treasury securities held in custody for foreign and international accounts 252,496 251,501 247,823 248,299 241,444 247,521 255,092 245,789 Federal Reserve note statement 35 Federal Reserve notes outstanding issued to bank 306,722 309,831 310,328 310,631 311,119 304,829 306,681 311,042 36 LESS: Held by bank 43,185 42,580 42,326 43,381 44,114 37,172 42,930 43,651 37 Federal Reserve notes, net 263,537 267,251 268,002 267,005 267,605 267,657 263,751 267,391 Collateral held against notes net: 38 Gold certificate account 11,058 11,058 11,058 11,058 11,058 11,058 11,058 11,058 39 Special drawing rights certificate account 10,018 10,018 10,018 10,018 10,018 10,018 10,018 10,018 40 Other eligible assets 0 0 3,013 0 0 0 0 0 41 U.S. Treasury and agency securities 242,460 246,175 243,913 246,174 245,928 246,581 242,675 246,315 42 Total collateral 263,537 267,251 268,002 267,250 267,005 267,657 263,751 267,391 1. Some of these data, also appear in the Board's H.4.1 (503) release. For 3. Valued monthly at market exchange rates. address, see inside front cover. Components may not add to totals because of 4. Includes special investment account at the Federal Reserve Bank of Chicago rounding. in Treasury bills maturing within 90 days. 2. Includes securities loaned—fully guaranteed by U.S. Treasury securities 5. Includes exchange-translation account reflecting the monthly revaluation at pledged with Federal Reserve Banks—and excludes securities sold and scheduled market exchange rates of foreign-exchange commitments. to be bought back under matched sale-purchase transactions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks All 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding Millions of dollars Wednesday End of month TTTyyypppeee aaannnddd mmmaaatttuuurrriiitttyyy gggrrrooouuupppiiinnngggsss 1991 1991 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Jan. 30 Feb. 27 Mar. 29 700 125 2,406 122 314 136 125 173 3 2 W 16 i t d h a in y s 1 t 5 o d 9 a 0 y s d ays 70 0 0 0 12 4 0 5 2,38 2 2 0 4 8 3 0 7 5 30 6 0 8 13 0 0 6 12 4 0 5 16 0 6 6 5 Acceptances—Total 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7 8 9 1 1 6 d d a a y y s s t t o o 9 1 0 y d e a ar y s 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 9 0 1 2 U. W 9 S 1 1 6 . i t d T d h a a r i y e n y a s s s 1 t t u 5 o o r d y 9 1 a 0 s y y e d e s c ' a a u r y r s i ties—Total 2 5 4 5 7 1 9 1 1 8 4 , , , , , 3 0 5 6 1 2 0 7 3 4 2 3 2 8 9 2 5 7 5 3 9 7 9 1 6 , , , , , 3 8 2 5 1 1 3 9 4 6 9 8 5 9 6 2 6 5 7 3 0 8 9 0 7 , , , , , 2 2 8 1 4 4 0 5 3 0 5 5 7 7 6 2 6 6 6 3 1 1 7 0 7 0 , , , , , 0 6 5 2 2 3 0 7 7 9 7 7 2 0 8 2 2 6 5 7 4 0 1 6 0 7 , , , , , 5 5 6 5 6 6 3 9 7 1 2 7 9 3 6 2 5 3 5 7 1 8 7 4 3 2 , , , , , 3 0 5 1 5 0 0 6 6 1 2 0 9 7 0 2 5 3 5 7 9 9 6 7 1 , , , , , 3 2 5 8 1 1 3 4 9 6 9 8 9 5 6 2 6 7 6 4 6 2 2 1 0 , , , , , 8 2 3 9 1 8 0 6 8 3 1 4 5 7 3 14 Over 5 years to 10 years 2 1 4 3 , , 6 2 7 8 6 4 2 1 4 3 , , 6 63 7 4 6 2 1 4 3 , , 6 6 7 8 6 4 2 1 4 3 , , 6 6 7 8 5 4 2 1 4 3 , , 6 6 7 8 6 4 2 1 4 3 , , 7 3 3 0 6 6 2 1 4 3 , , 6 63 7 4 6 2 1 4 3 , , 6 68 7 4 6 1 1 1 6 7 8 Fe W d 1 e 6 i r t d a h l a i n y a s g 1 e t 5 o n c d 9 y a 0 y o d s b 1 a l y ig s ations—Total 6 1 , , 5 5 5 5 2 6 6 7 3 3 9 5 6 1 , , 3 6 6 3 4 0 5 0 2 8 7 4 6 1 , , 3 6 9 4 5 1 3 4 3 1 6 1 , , 3 7 8 4 7 8 2 2 5 4 9 6 1 , , 9 8 6 7 3 6 8 2 4 2 9 9 7 1 1 , , , 2 5 8 0 0 4 3 6 8 8 5 4 6 1 , , 3 6 6 3 4 5 0 0 2 7 8 4 6 1 , , 3 2 6 8 4 7 5 0 2 5 3 8 2 2 0 1 O O v v e e r r 5 1 y y e e a a r r s t o to 5 1 y 0 e a y r e s a rs 2 1 , , 5 0 1 9 3 8 0 7 7 2 1 , , 5 0 1 4 3 8 8 7 8 2 1 , , 5 0 1 4 3 8 8 7 8 2 1 , , 4 0 1 2 3 8 8 7 8 2 1 , , 4 0 1 2 3 8 8 7 8 2 1 , , 5 0 1 5 2 8 0 2 8 2 1 , , 5 0 1 4 3 8 8 7 7 2 1 , , 3 0 1 9 2 8 3 4 8 1. Holdings under repurchase agreements are classified as maturing within 15 NOTE: Components may not sum to totals because of rounding, days in accordance with maximum maturity of the agreements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A12 Domestic Nonfinancial Statistics • June 1991 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1990r i99r 1987 1988 1989 1990 IItteemm Dec/ Dec/ Dec/ Dec/ Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Seasonally adjusted ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS2 1 Total reserves3 45.81 47.60 47.73 49.10 47.97 48.26 47.94 48.24 49.10 49.47 49.61 49.56 2 Nonborrowed reserves4 45.03 45.88 47.46 48.78 47.05 47.64 47.53 48.01 48.78 48.93 49.36 49.32 3 Nonborrowed reserves plus extended credit3 45.52 47.12 47.48 48.80 47.17 47.64 47.55 48.04 48.80 48.% 49.39 49.37 4 Required reserves 44.77 46.55 46.81 47.44 47.11 47.35 47.10 47.30 47.44 47.30 47.80 48.39 5 Monetary base6 246.28 263.46 274.17 299.79 290.46 293.80 295.94 297.55 299.79 305.15 309.44 310.97 ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS2 Not seasonally adjusted 6 Total reserves7 47.04 49.00 49.18 50.58 47.63 48.11 47.55 48.42 50.58 50.76 48.55 48.58 7 Nonborrowed reserves • 46.26 47.29 48.91 50.25 46.70 47.48 47.14 48.19 50.25 50.22 48.30 48.34 8 Nonborrowed reserves plus extended credit5 46.75 48.53 48.93 50.28 46.83 47.49 47.16 48.21 50.28 50.25 48.33 48.39 9 Required reserves8 46.00 47.96 48.26 48.91 46.76 47.20 46.71 47.47 48.91 48.59 46.74 47.41 10 Monetary base9 249.93 267.46 278.30 304.04 290.98 293.07 294.43 298.44 304.04 306.03 305.74 308.17 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS10 11 Total reserves11 62.14 63.75 62.81 59.12 60.73 61.45 61.05 62.05 59.12 50.99 48.55 48.58 1 1 3 2 N No o n n b b o o r r r r o o w w e e d d r r e e s s e e r r v v e e s s plus extended credit5% 6 6 1 1 . . 3 8 6 5 6 6 3 2 . . 2 0 7 3 6 6 2 2 . . 5 5 4 6 5 5 8 8 . . 8 7 2 9 5 5 9 9 . . 9 8 3 0 6 6 0 0 . .8 8 3 3 6 6 0 0 . . 6 6 4 6 6 6 1 1 . . 8 8 2 4 5 5 8 8 . . 8 7 2 9 5 5 0 0 . . 4 4 8 6 4 4 8 8 . . 3 3 3 0 4 48 8 . . 3 3 4 9 14 Required reserves. 61.09 62.70 61.89 57.46 59.86 60.54 60.21 61.10 57.46 48.82 46.74 47.41 15 Monetary base12 266.06 283.00 292.55 313.70 304.99 307.21 308.85 312.69 313.70 309.30 308.53 311.03 16 Excess reserves13 1.05 1.05 .92 1.66 .87 .91 .85 .95 1.66 2.17 1.81 1.17 17 Borrowings from the Federal Reserve .78 1.72 .27 .33 .93 .62 .41 .23 .33 .53 .25 .24 1. Latest monthly and biweekly figures are available from the Board's H.3(502) 8. To adjust required reserves for discontinuities because of regulatory changes statistical release. Historical data and estimates of the impact on required reserves in reserve requirements, a multiplicative procedure is used to estimate what of changes in reserve requirements are available from the Monetary and Reserves required reserves would have been in past periods had current reserve require- Projections Section. Division of Monetary Affairs. Board of Governors of the ments been in effect. Break-adjusted required reserves are equal to break-adjusted Federal Reserve System, Washington, D.C. 20551. required reserves held against transactions deposits. 2. Figures reflect adjustments tor discontinuities or "breaks" associated with 9. The break-adjusted monetary base equals (1) break-adjusted total reserves regulatory changes in reserve requirements. (line 6), plus (2) the (unadjusted) currency component of the money stock, plus (3) 3. Seasonally adjusted, break adjusted total reserves equal seasonally adjusted, (for all quarterly reporters on the "Report of Transaction Accounts, Other break-adjusted required reserves (line 4) plus excess reserves (line 16). Deposits and Vault Cash" and for all those weekly reporters whose vault cash 4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally exceeds their required reserves) the break-adjusted difference between current adjusted, break-adjusted total reserves (line 1) less total borrowings of depository vault cash and the amount applied to satisfy current reserve requirements. institutions from the Federal Reserve (iine 17). 10. Reflects actual reserve requirements, including those on nondeposit liabil- 5. Extended credit consists of borrowing at the discount window under ities, with no adjustments to eliminate the effects of discontinuities associated the terms and conditions established for the extended credit program to help with changes in reserve requirements. depository institutions deal with sustained liquidity pressures. Because there is 11. Reserve balances with Federal Reserve Banks plus vault cash used to not the same need to repay such borrowing promptly as there is with traditional satisfy reserve requirements. short-term adjustment credit, the money market impact of extended credit is 12. The monetary base, not break-adjusted and not seasonally adjusted, similar to that of nonborrowed reserves. consists of (1) total reserves (line 11), plus (2) required clearing balances and 6. The seasonally adjusted, break-adjusted monetary base consists of (1) adjustments to compensate for float at Federal Reserve Banks, plus (3) the seasonally adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally currency component of the money stock, plus (4) (for all quarterly reporters on adjusted currency component of the money stock, plus (3) (for all quarterly the "Report of Transaction Accounts, Other Deposits and Vault Cash" and for all reporters on the "Report of Transaction Accounts, Other Deposits and Vault those weekly reporters whose vault cash exceeds their required reserves) the Cash" and for all those weekly reporters whose vault cash exceeds their required difference between current vault cash and the amount applied to satisfy current reserves, the seasonally adjusted, break-adjusted difference between current vault reserve requirements. After the introduction of CRR, currency and vault cash cash and the amount applied to satisfy current reserve requirements. figures are measured over the computation periods ending on Mondays. 7. Break-adjusted total reserves equal break-adjusted required reserves (line 9) 13. Unadjusted total reserves (line 11) less unadjusted required reserves (line 14). plus excess reserves (line 16). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A13 1.21 MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES1 Billions of dollars, averages of daily figures 1990 1991 - 1987 1988 1989 1990 Itenr Dec. Dec. Dec. Dec. Dec. Jan.' Feb. Mar. Seasonally adjusted 1 Ml 749.7 786.4 793.6 825.4 825.4 826.7 836.4 842.7 2 M2 2,910.1 3,069.9 3,223.1 3,329.8' 3,329.8' 3,332.9 3,357.0' 3,378.3 3 M3 3,677.4 3,919.1 4,055.2 4,113.8' 4,113.8' 4,126.5 4,164.1' 4,174.0 4 L 4,337.0 4,676.0 4,889.9 4,959.7' 4,959.7' 4,979.9 5,018.1 n.a. 5 Debt 8,345.1 9,107.6 9,790.4 10,450.0 10,450.0 10,490.2 10,544.9 n.a. Ml components 6 Currency3 196.8 212.0 222.2 246.4 246.4 251.6 255.1 256.7 7 Travelers checks 7.0 7.5 7.4 8.4 8.4 8.4 8.2 8.1 8 Demand deposits 286.5 286.3 278.7 276.9 276.9 272.9 276.2 277.2 9 Other checkable deposits6 259.3 280.7 285.2 293.7 293.7 293.9 296.8 300.8 Nontransactions components 10 In M2... .„ 2,160.4 2,283.5 2,429.5 2,504.4' 2,504.4' 2,506.2 2,520.7' 2,535.5 11 In M3 only 767.3 849.3 832.1 784.0' 784.0' 793.7 807.1' 795.7 Time and Savings accounts Commercial banks 12 Savings deposits 178.3 192.1 187.7 199.4 199.4 201.4 220033..33 220055..99 13 Money market deposit accounts 356.4 350.2 353.0 378.4 378.4 377.7 383.1' 388.7 14 Small time deposits'^ 388.0 447.5 531.4 598.1' 598.1' 601.7 605.7 608.1 15 Large time deposits10, 326.6 368.0 401.9 386.1' 386.1' 393.8 400.9' 399.6 Thrift institutions 16 Savings deposits 233.7 232.3 216.4 211.4 211.4 210.6 221122..22 221144..88 17 Money market deposit accounts 168.5 151.2 133.1 127.6 127.6 127.4 128.3 130.1 18 Small time deposits'. 529.7 584.3 614.5 566.1' 566.1' 561.5 556.6' 549.9 19 Large time deposits10 162.6 174.3 161.6 121.0 121.0 117.9 114.9' 111.5 Money market mutual funds 20 General purpose and broker-dealer 221.7 241.1 313.6 347.7 334477..77 335566..33 336600..55 336655..99 21 Institution-only 88.9 86.9 101.9 125.7 125.7 130.1 139.3 142.0 Debt components 22 Federal debt 1,957.9 2,114.2 2,268.1 2,532.8 22,,553322..88 22,,555555..99 22,,558866..66 n.a. 23 Nonfederal debt 6,387.2 6,993.4 7,522.3 7,917.2 7,917.2 7,934.3 7,958.3 n.a. Not seasonally adjusted 24 Ml 766.2 804.2 811.9 844.3 844.3 833.2 823.4 834.7 25 M2 2,923.0 3,083.3 3,236.6 3,343.9' 3,343.9' 3,343.1 3,347.8' 3,377.5 26 M3 3,690.3 3,931.5 4,067.0 4,125.9' 4,125.9' 4,132.6 4,152.2' 4,173.3 27 L 4,352.8 4,691.8 4,907.4 4,978.0' 4.978.C 4,995.9 5,008.7 n.a. 28 Debt 8,329.1 9,093.2 9,775.9 10,437.4 10,437.4 10,480.0 10,513.6 n.a. Ml components 29 Currency3 199.3 214.8 225.3 249.6 249.6 249.8 252.7' 255.6 30 Travelers checks 6.5 6.9 6.9 7.8 7.8 7.8 7.8 7.8 31 Demand deposits5 298.6 298.9 291.5 289.9 289.9 277.7 268.1 270.1 32 Other checkable deposits6 261.8 283.5 288.2 297.0' 297.C 297.9 294.8 301.3 Nontransactions components 33 In M2 2,156.8 2,279.1 2,424.7 2,499.6' 2,499.6' 2,509.9 22,,552244..44'' 22,,554422..88 34 In M3 only8 767.3 848.2 830.4 782.0' 782.C 789.5 804.4' 795.8 Time and Savings accounts Commercial banks 35 Savings deposits 176.8 190.6 186.4 197.7 197.7 199.9 201.6 205.9 36 Money market deposit accounts 359.0 353.2 356.5 381.6 381.6 380.5 384.6' 390.9 37 Small time deposits'. 387.2 446.0 529.2 596.1' 596.1' 602.1 606.3 607.7 38 Large time deposits10' 11 325.8 366.8 400.4 386.1 386.1 392.2 399.4' 399.1 Thrift institutions 39 Savings deposits 231.4 229.9 214.2 209.6 209.6 209.0 210.5 214.8 40 Money market deposit accounts 168.6 151.6 133.7 128.7 128.7 128.4 128.8 130.8 41 Small time deposits 529.5 583.8 613.8 564.1' 564.1' 561.9 557.2' 549.6 42 Large time deposits 163.3 175.2 162.6 121.0 121.0 117.5 114.5' 111.3 Money market mutual funds 43 General purpose and broker-dealer 221.1 240.7 313.5 347.8 347.8 356.6 364.7 372.5 89.6 87.6 102.8 127.0 127.0 134.8 144.0 143.9 Repurchase agreements and Eurodollars 45 Overnight 83.2 83.4 77.3 73.9 73.9 71.4 7700..99'' 7700..77 46 Term 197.1 227.7 179.8 161.4' 161.4' 160.4 160.7' 156.3 Debt components 47 Federal debt 1,955.6 2,111.8 2,265.9 2,532.1 2,532.1 2,557.8 2,591.0 n.a. 48 Nonfederal debt 6,373.5 6,981.4 7,509.9 7,905.4 7,905.4 7,922.2 7,922.6 n.a. For notes see following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Nonfinancial Statistics • June 1991 NOTES TO TABLE 1.21 1. Latest monthly and weekly figures are available from the Board's H.6 (508) Debt: Debt of domestic nonfinancial sectors consists of outstanding credit release. Historical data are available from the Money and Reserves Projection market debt of the U.S. government, state and local governments, and private Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve nonfinancial sectors. Private debt consists of corporate bonds, mortgages, con- System, Washington, D.C. 20551. sumer credit (including bank loans), other bank loans, commercial paper, bankers 2. Composition of the money stock measures and debt is as follows: acceptances, and other debt instruments. Data are derived from the Federal Ml: (1) currency outside the Treasury, Federal Reserve Banks, and the vaults Reserve Board's flow of funds accounts. Debt data are based on monthly of depository institutions; (2) travelers checks of nonbank issuers; (3) demand averages. deposits at all commercial banks other than those due to depository institutions, 3. Currency outside the U.S. Treasury, Federal Reserve Banks, and vaults of the U.S. government, and foreign banks and official institutions less cash items in depository institutions. the process of collection and Federal Reserve float; and (4), other checkable 4. Outstanding amount of U.S. dollar-denominated travelers checks of nondeposits (OCD) consisting of negotiable order of withdrawal (NOW) and auto- bank issuers. Travelers checks issued by depository institutions are included in matic transfer service (ATS) accounts at depository institutions, credit union demand deposits. share draft accounts, and demand deposits at thrift institutions. 5. Demand deposits at commercial banks and foreign-related institutions other M2: Ml plus overnight (and continuing contract) repurchase agreements (RPs) than those due to depository institutions, the U.S. government, and foreign banks issued by all depository institutions and overnight Eurodollars issued to U.S. and official institutions, less cash items in the process of collection and Federal residents by foreign branches of U.S. banks worldwide, money market deposit Reserve float. accounts (MMDAs), savings and small-denomination time deposits (time depos- 6. Consists of NOW and ATS balances at all depository institutions, credit its—including retail RPs—in amounts of less than $100,000), and balances in both union share draft balances, and demand deposits at thrift institutions. taxable and tax-exempt general purpose and broker-dealer money market mutual 7. Sum of overnight RPs and overnight Eurodollars, money market fund funds. Excludes individual retirement accounts (IRA) and Keogh balances at balances (general purpose and broker-dealer), MMDAs, and savings and small depository institutions and money market funds. Also excludes all balances held time deposits. by U.S. commercial banks, money market funds (general purpose and broker- 8. Sum of large time deposits, term RPs, term Eurodollars of U.S. residents, dealer), foreign governments and commercial banks, and the U.S. government. and money market fund balances (institution-only), less a consolidation adjust- M3: M2 plus large-denomination time deposits and term RP liabilities (in ment that represents the estimated amount of overnight RPs and Eurodollars held amounts of $100,000 or more) issued by all depository institutions, term Eurodol- by institution-only money market funds. lars held by U.S. residents at foreign branches of U.S. banks worldwide and at all 9. Small-denomination time deposits—including retail RPs—are those issued banking offices in the United Kingdom and Canada, and balances in both taxable in amounts of less than $100,000. All individual retirement accounts (IRA) and and tax-exempt, institution-only money market mutual funds. Excludes amounts Keogh accounts at commercial banks and thrifts are subtracted from small time held by depository institutions, the U.S. government, money market funds, and deposits. foreign banks and official institutions. Also subtracted is the estimated amount of 10. Large-denomination time deposits are those issued in amounts of $100,000 overnight RPs and Eurodollars held by institution-only money market mutual or more, excluding those booked at international banking facilities. funds. 11. Large-denomination time deposits at commercial banks less those held by L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term money market mutual funds, depository institutions, and foreign banks and Treasury securities, commercial paper and bankers acceptances, net of money official institutions. market mutual fund holdings of these assets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A15 1.22 BANK DEBITS AND DEPOSIT TURNOVER1 Debits are shown in billions of dollars, turnover as ratio of debits to deposits. Monthly data are at annual rates. 1990 1991 Bank group, or type of customer 11998899 11999900 Aug. Sept. Oct. Nov. Dec. Jan. Seasonally adjusted Demand deposits 1 All insured banks 219,795.7 256.150.4 278.202.3 295,570.0 267,680.2 295,490.0 294,468.6 270,911.4 284.385.4 2 Major New York City banks 115,475.6 129,319.9 131,740.9 144,314.2 126,088.7 136,082.4 140,531.5 129,636.7 137,766.9 3 Other banks 104,320.2 126.830.5 146.461.4 151,255.8 141,591.5 159,407.6 153,937.1 141,274.7 146.618.5 4 ATS-NOW accounts4 2,478.1 2,910.5 3,344.7 3,549.5 3,110.7 3,449.3 3,479.2 3,310.2 3,502.1 5 Savings deposits 537.0 547.5 558.2 599.8 523.6 573.7 565.8 519.9 575.3 DEPOSIT TURNOVER Demand deposits3 6 All insured banks 622.9 735.1 801.4 851.9 764.8 865.9 857.1 789.7 844.4 7 Major New York City banks 2,897.2 3,421.5 3,802.2 4,119.5 3,717.9 4,280.5 4,320.4 3,926.2 4,202.0 8 Other banks 333.3 408.3 468.8 484.9 447.9 515.1 494.9 455.6 482.3 9 ATS-NOW accounts4 13.2 15.2 16.4 17.4 15.1 16.8 16.8 15.9 16.7 10 Savings deposits5 2.9 3.0 2.9 3.1 2.7 2.9 2.9 2.6 2.9 DEBITS TO Not seasonally adjusted Demand deposits 11 All insured banks 219,790.4 256,133.2 277,719.5 302,515.9 257,936.7 298,947.2 277,536.6 279.499.3 288.167.7 12 Major New York City banks 115,460.7 129,400.1 131.784.7 147,040.1 121,343.4 142,664.0 133,220.6 133,491.9 136.578.8 13 Other banks 104,329.7 126,733.0 145.934.8 155,475.8 136,593.3 156,283.2 144,316.0 146.007.4 151.588.9 14 ATS-NOW accounts4 2,477.3 2,910.7 3,339.2 3,570.5 3,131.6 3,462.0 3,259.5 3,394.4 3,879.4 15 MMDA6 2,342.7 2,677.1 2,928.1 3,189.2 2,775.9 3,095.5 2,805.0 2,990.3 3,107.4 536.3 546.9 557.1 599.6 513.6 616.3 505.1 520.9 589.2 16 Savings deposits DEPOSIT TURNOVER Demand deposits3 622.8 735.4 800.6 887.4 744.4 870.9 800.0 777.1 835.0 17 All insured banks 2,896.7 3,426.2 3,809.9 4,395.6 3,607.3 4,376.5 4,067.4 3,758.7 3,993.1 18 Major New York City banks 333.2 408.0 467.3 505.7 436.6 503.1 459.3 450.4 487.6 19 Other banks 13.2 15.2 16.4 17.7 15.4 17.1 15.8 16.0 18.1 20 ATS-NOW accounts4 6.6 7.9 8.0 8.6 7.5 8.3 7.4 7.9 8.2 21 MMDA® 2.9 2.9 2.9 3.1 2.6 3.1 2.6 2.7 3.0 22 Savings deposits3 1. Historical tables containing revised data for earlier periods may be obtained 4. Accounts authorized for negotiable orders of withdrawal (NOW) and acfrom the Monetary and Reserves Projections Section, Division of Monetary counts authorized for automatic transfer to demand deposits (ATS). ATS data are Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. available beginning December 1978. 20551. 5. Excludes ATS and NOW accounts, MMDA and special club accounts, such These data also appear on the Board's G.6 (406) release. For address, see inside as Christmas and vacation clubs. front cover. 6. Money market deposit accounts. 2. Annual averages of monthly figures. 3. Represents accounts of individuals, partnerships, and corporations and of states and political subdivisions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics • June 1991 1.23 LOANS AND SECURITIES All Commercial Banks1 Billions of dollars; averages of Wednesday figures 1990 1991 Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Seasonally adjusted 1 Total loans and securities2 2,648.1 2,655.4 2,670.1 2,683.0 2,704.9 2,708.0 2,713.6 2,716.6 2,723.6 2,721.2 2,735.1 2,750.9 2 U.S. government securities 426.4 430.3 438.4 442.8 445.7 450.1 453.1 454.0 454.2 454.1 458.0 471.4 3 Other securities 180.2 178.2 177.5 177.3 178.8 178.8 177.8 175.9 175.6 177.7 177.6 177.6 4 Total loans and leases2 2,041.5 2,046.9 2,054.2 2,062.9 2,080.4 2,079.0 2,082.7 2,086.7 2,093.8 2,089.4 2,099.5 2,102.0 S Commercial and industrial ..... 645.9 644.3 645.3 644.4 645.1 644.7 643.7 646.5 648.1 644.3 643.9 646.0 6 Bankers acceptances held3... 7.6 7.6 7.8 7.6 7.4 7.5 7.3 7.4 7.5 7.7 66..88 6.7 7 Other commercial and industrial 638.3 636.7 637.4 636.7 637.7 637.1 636.4 639.1 640.5 636.6 637.1 639.4 8 U.S. addressees4 634.0 632.2 633.2 632.5 633.4 632.6 631.7 634.0 635.3 631.1 631.5 633.7 9 Non-U.S. addressees4 4.3 4.4 4.3 4.3 4.3 4.5 4.7 5.1 5.3r 5.5 5.5 5.6 10 Real estate 790.8 798.9 805.9 814.5 818.0 822.5 827.7 832.0 836.5 837.3 842.6 846.3 11 Individual 377.8 378.4 377.6 376.4 378.2 378.6 379.7 378.7 378.9 375.9 377.7 375.5 12 Security 36.8 35.5 35.0 38.7 44.6 41.3 40.5 39.6 40.6 43.2 4433..22 3388..99 13 Nonbank financial institutions 34.0 34.1 34.4 34.7 35.0 35.2 34.8 34.6 34.7 34.2 35.3 36.1 14 Agricultural 30.8 31.0 31.1 31.3 31.5 31.8 32.2 32.5 33.0 33.6 3333..77 3344..11 15 State and political subdivisions 38.2 37.9 37.3 36.4 35.8 35.2 35.1 34.8 34.2 33.5 33.4 33.0 16 Foreign banks 8.6 8.7 7.4 7.0 7.9 8.1 9.0 8.2 7.4 6.6 6.9 7.6 17 Foreign official institutions 3.3 3.3 3.2 3.2 3.2 3.3 3.2 3.2 3.2 3.0 3.1 3.2 18 Lease financing receivables 32.4 32.6 32.4 32.6 32.7 32.8 33.3 32.9 32.7 32.4 32.8 33.0 19 All other loans 42.8 42.3 44.5 43.6 48.2 45.5 43.6 43.6 44.6 45.4r 46.9 48.3 Not seasonally adjusted 20 Total loans and securities2 2,647.7 2,654.5 2,670.8 2,677.5 2,700.1 2,707.0 2,715.5 2,720.1 2,730.5 2,721.0 2,737.3 2,748.3 21 U.S. government securities 427.5 430.3 437.1 439.9 444.0 448.2 450.8 454.1 451.5 455.8 463.9 475.8 22 Other securities 179.5 178.0 177.5 176.4 179.1 179.0 178.0 176.6 176.3 177.9 177.3 176.9 23 Total loans and leases2 2,040.7 2,046.2 2,056.3 2,061.1 2,077.1 2,079.8 2,086.7 2,089.3 2,102.7 2,087.3 2,096.1 2,095.7 24 Commercial and industrial ..... 650.6 648.3 647.7 644.6 643.5 640.9 641.2 644.5 648.0 641.1 643.0 648.3 25 Bankers acceptances held ... 7.4 7.6 8.0 7.3 7.2 7.5 7.4 7.6 7.7 7.6 7.0 6.6 26 Other commercial and industrial 643.2 640.8 639.7 637.3 636.3 633.4 633.8 636.9 640.3 633.4 636.1 641.7 27 U.S. addressees,4 638.6 636.3 635.5 632.9 631.8 628.8 629.1 631.9 635.1 628.2 630.6 636.2 28 Non-U.S. addressees 4.6 4.5 4.3 4.4 4.5 4.6 4.7 5.0 5.2 5.3 5.5 5.4 29 Real estate 788.4 798.0 806.0 814.9 819.9 824.2 830.3 834.0 837.9 837.1 839.5 842.6 30 Individual 375.1 376.6 375.6 374.1 377.4 380.4 380.6 379.8 383.8 380.1 377.1 372.8 31 Security 38.3 34.9 37.1 38.6 43.9 40.3 39.5 38.5 40.0 41.0 44.8 40.2 32 Nonbank financial institutions 33.7 33.8 34.5 34.6 35.0 34.9 34.7 35.0 36.1 34.7 34.9 35.4 33 Agricultural 29.8 30.6 31.4 32.1 32.5 32.9 33.1 32.9 32.9 32.9 32.7 3322..77 34 State and political subdivisions 38.2 37.8 37.2 36.2 35.7 35.2 35.1 34.7 34.0 34.1 33.5 33.0 3b Foreign banks 8.3 8.6 7.5 7.1 8.0 8.2 9.3 8.4 7.6 6.6 6.8 7.2 36 Foreign official institutions 3.3 3.3 3.2 3.2 3.2 3.3 3.2 3.2 3.2 3.0 3.1 3.2 37 Lease financing receivables 32.4 32.5 32.2 32.4 32.6 32.8 33.3 33.1 32.8 32.8 32.9 32.9 38 All other loans 42.5 41.6 43.9 43.3 45.4 46.8 46.3 45.3 46.5 43.7 47.7 47.5 1. Data have been revised to reflect new benchmark and seasonal adjustments. 3. Includes nonfinancial commercial paper held. 2. Excludes loans to commercial banks in the United States. 4. United States includes the 50 states and the District of Columbia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions All 1.24 MAJOR NONDEPOSIT FUNDS OF COMMERCIAL BANKS' Monthly averages, billions of dollars 1990 1991 SSoouurrccee Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan.' Feb.' Mar. Seasonally adjusted 1 Total nondeposit funds2 268.9 269.0 272.3 281.1 283.8 283.0 291.8' 292.4' 287.7' 277.1 265.4 264.4 2 Net balances due to related foreign offices 18.7 25.8 17.2 19.T 19.0 21.5 29.9 30.1 34.5 33.4 24.7 30.0 3 Borrowings from other than commercial banks in United States4 250.3 243.2 255.1 262.0 264.8 261.5' 262.0' 262.3' 253.1' 243.7 240.7 234.4 4 Domestically chartered banks 193.7 186.6 196.8 201.6 202.2 198.8 196.9 195.1 187.2 182.5 177.6 172.2 5 Foreign-related banks 56.6 56.5 58.3 60.4 62.6 62.7 65.<f 67.2' 66.C 61.3 63.1 62.2 Not seasonally adjusted 6 Total nondeposit funds2 269.7 277.3 275.1 277.2 282.5 278.6 288.7' 293.5' 282.1' 272.5 268.4 269.7 7 Net balances due to related foreign offices3 16.7 28.5 17.4 16.6 18.5 21.5 29.6 30.8 37.1 33.1 24.7 29.5 8 Domestically chartered banks -10.6 -1.3 -6.1 -5.8 -3.4 -4.2 -1.0 .6 -4.2 -15.3 -15.2 -6.1 9 Foreign-related banks 27.3 29.8 23.5 22.4 21.9 25.8' 30.6 30.2 41.3 48.4 39.9 35.5 10 Borrowings from other than commercial banks in United States 253.0 248.8 257.7 260.6 264.0 257.0 259.2' 262.8' 245.C 239.4 243.7 240.2 11 Domestically chartered banks 194.8 191.6 197.7 199.1 201.7 195.6 195.0 197.6 182.9 177.9 179.8 176.6 12 Federal funds and security RP borrowings 191.0 188.3 194.6 196.2 198.1 191.6 191.7 194.8 180.1 174.7 177.1 173.4 13 Other 3.7 3.4 3.2 2.9 3.6 4.0 3.2 2.9 2.8 3.2 2.8 3.2 14 Foreign-related banks6 58.2 57.2 60.0 61.5 62.3 61.5 64.2r 65.1' 62.1' 61.5 63.9 63.6 MEMO Gross large time deposits' 15 Seasonally adjusted 456.2 454.4 451.5 451.9 449.2 443.6 438.0 435.2 431.8 440.9 450.4 450.7 16 Not seasonally adjusted 453.9 454.0 451.0 450.5 450.1 445.4 440.4 437.8 431.8 439.3 449.0 450.2 U.S. Treasury demand balances at commercial banks8 17 Seasonally adjusted 21.3 19.2 20.6 15.0 32.7 26.0 22.3 25.2 24.4 25.7 33.4 33.8 18 Not seasonally adjusted 20.0 25.2 20.9 15.2 23.5 31.0 20.9 19.2 23.0 29.4 39.3 28.4 1. Commercial banks are those in the 50 states and the District of Columbia romissory note or due bill, given for the purpose of borrowing money for the with national or state charters plus agencies and branches of foreign banks, New anking business. This includes borrowings from Federal Reserve Banks and York investment companies majority owned by foreign banks, and Edge Act from foreign banks, term federal funds, loan RPs, and sales of participations in corporations owned by domestically chartered and foreign banks. pooled loans. These data also appear in the Board's G.10 (411) release. For address, see 5. Based on daily average data reported weekly by approximately 120 large inside front cover. banks and quarterly or annual data reported by other banks. 2. Includes federal funds, RPs, and other borrowing from nonbanks and net 6. Figures are partly daily averages and partly averages of Wednesday data. balances due to related foreign offices. 7. Time deposits in denominations of $100,000 or more. Estimated averages of 3. Reflects net positions of U.S. chartered banks, Edge Act corporations, and daily data. U.S. branches and agencies of foreign banks with related foreign offices plus net 8. U.S. Treasury demand deposits and Treasury tax-and-loan notes at compositions with own IBFs. mercial banks. Averages of daily data. 4. Other borrowings are borrowings through any instrument, such as a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Nonfinancial Statistics • June 1991 1.25 ASSETS AND LIABILITIES OF COMMERCIAL BANKING INSTITUTIONS Last-Wednesday-of-Month Series1 Billions of dollars 1990 1991 AAccccoouunntt May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. ALL COMMERCIAL BANKING INSTITUTIONS2 1 Loans and securities 2,847.1 2,871.6 2,878.8 2,896.8 2,887.1 2,931.3 2,925.1 2,936.9 2,908.7 2,924.9 2,910.9 2 Investment securities 587.2 589.8 588.3 597.2 601.7 604.9 603.3 605.6 612.8 614.0 628.3 3 U.S. government securities 417.8 422.2 421.7 429.1 434.5 438.0 437.6 439.6 447.6 449.5 463.3 4 Other 169.3 167.6 166.6 168.0 167.2 166.8 165.7 166.0 165.2 164.5 165.1 5 Trading account assets 21.4 23.7 27.7 29.3 21.4 27.4 25.0 22.0 24.1 26.9 23.5 6 Total loans 2,238.5 2,258.1 2,262.8 2,270.4 2,264.0 2,299.0 2,296.9 2,309.3 2,271.8 2,283.9 2,259.1 7 Interbank loans 192.8 202.2 204.8 200.1 191.0 207.9 207.0 204.0 193.3 185.0 171.8 8 Loans excluding interbank 2,045.7 2,055.9 2,057.9 2,070.3 2,073.0 2,091.2 2,089.8 2,105.3 2,078.6 2,099.0 2,087.3 9 Commercial and industrial 645.8 646.9 641.5 639.7 639.7 643.4 644.4 650.8 637.2 645.1 648.5 10 Real estate 801.7 807.9 816.0 820.1 825.0 831.5 833.7 838.3 836.9 840.1 842.5 11 Individual 376.6 376.8 374.8 379.4 381.2 380.8 380.5 384.7 378.6 376.4 371.5 12 All other 221.7 224.3 225.6 231.1 227.1 235.5 231.2 231.5 225.9 237.4 224.8 13 Total cash assets 237.7 219.6 210.7 207.7 213.7 220.8 216.7 217.9 199.2 204.5 206.1 14 Reserves with Federal Reserve Banks. 27.6 31.8 29.8 30.0 33.6 29.7 33.0 23.4 16.5 18.1 25.0 15 Cash in vault 29.9 28.9 28.8 30.3 29.3 29.4 32.8 32.0 30.4 29.8 28.9 16 Cash items in process of collection ... 100.7 86.2 79.6 77.5 81.1 85.4 78.4 86.0 74.7 79.9 76.9 17 Demand balances at U.S. depository institutions 32.0 27.7 27.3 27.3 27.0 28.5 28.4 29.6 28.1 27.7 27.6 18 Other cash assets 47.5 45.0 45.2 42.5 42.8 47.8 44.2 46.8 49.6 49.0 47.7 19 Other assets 197.0 207.5 205.3 220.8 226.6 230.1 226.6 245.1 249.9 259.6 263.1 20 Total assets/total liabilities and capital 3,281.8 3,298.6 3,294.8 3,325.3 3,327.4 3,382.2 3,368.5 3,399.9 3,357.8 3,388.9 3,380.1 21 Deposits 2,295.3 2,282.4 2,290.9 2,296.5 2,300.1 2,332.0 2,319.9 2,363.4 2,334.6 2,365.0 2,382.5 22 Transaction deposits 618.1 598.6 590.1 589.1 595.3 612.1 598.1 637.1 587.9 594.1 602.8 23 Savings deposits 554.5 556.4 561.3 565.6 563.5 570.5 573.1 573.3 573.9 583.5 594.1 24 Time deposits 1,122.7 1,127.5 1,139.5 1,141.8 1,141.3 1,149.4 1,148.8 1,152.9 1,172.8 1,187.3 1,185.6 25 Borrowings 546.1 572.6 562.1 579.9 570.9 591.0 570.6 548.7 529.8 515.4 492.3 26 Other liabilities 223.3 223.9 220.5 226.2 233.1 236.0 255.3 264.4 268.8 282.3 278.2 27 Residual (assets less liabilities) 217.1 219.7 221.2 222.8 223.4 223.3 222.7 223.5 224.6 226.2 227.0 MEMO 28 U.S. government securities (including trading account) 430.9 436.1 440.4 446.3 445.1 454.2 451.9 451.1 459.4 463.7 475.9 29 Other securities (including trading account) 177.6 177.4 175.6 180.2 178.0 178.1 176.4 176.5 177.5 177.2 176.0 DOMESTICALLY CHARTERED COMMERCIAL BANKS3 30 Loans and securities 2,589.5 2,608.3 2,614.4 2,631.8 2,620.5 2,658.4 2,645.1 2,654.2 2,628.0 2,642.3 2,635.6 31 Investment securities 558.6 559.2 557.3 566.1 569.0 571.5 569.8 570.5 575.3 577.4 588.6 32 U.S. government securities 404.8 407.7 406.5 414.1 417.9 420.9 420.8 421.7 426.5 429.3 440.2 33 Other 153.7 151.5 150.8 152.0 151.2 150.6 149.1 148.8 148.7 148.2 148.5 34 Trading account assets 21.4 23.7 27.7 29.3 21.4 27.4 25.0 22.0 24.1 26.9 23.5 35 Total loans 2,009.5 2,025.5 2,029.4 2,036.4 2,030.0 2,059.5 2,050.3 2,061.7 2,028.6 2,038.0 2,023.5 36 Interbank loans 144.2 153.3 153.7 153.7 146.0 164.0 157.4 160.0 151.7 150.9 148.3 37 Loans excluding interbank 1,865.4 1,872.2 1,875.7 1,882.6 1,884.0 1,895.5 1,892.9 1,901.7 1,876.9 1,887.0 1,875.2 38 Commercial and industrial 521.4 520.1 517.3 514.0 513.2 515.4 513.4 512.7 504.2 508.4 506.3 39 Real estate 764.5 769.7 776.7 779.5 784.0 789.8 791.6 796.4 794.0 797.1 799.7 40 Individual 376.6 376.8 374.8 379.4 381.2 380.8 380.5 384.7 378.6 376.4 371.5 41 All other 202.9 205.5 206.9 209.8 205.7 209.5 207.4 207.9 200.2 205.1 197.7 42 Total cash assets 209.7 193.3 184.7 181.7 187.0 189.3 187.7 188.3 166.6 172.7 177.0 43 Reserves with Federal Reserve Banks. 26.6 30.9 28.9 28.0 32.1 28.5 31.5 23.0 15.3 17.0 24.0 44 Cash in vault 29.9 28.9 28.8 30.3 29.2 29.4 32.8 32.0 30.3 29.8 28.8 45 Cash items in process of collection ... 99.3 84.2 78.1 75.9 79.0 83.6 76.4 83.9 72.9 78.2 74.9 46 Demand balances at U.S. depository institutions 30.0 25.9 25.6 25.0 25.1 26.6 26.2 27.6 26.2 25.8 25.8 47 Other cash assets 23.9 23.4 23.4 22.5 21.5 21.2 20.9 21.8 22.0 21.9 23.4 48 Other assets 136.0 141.2 139.1 145.6 152.3 153.6 155.0 167.8 166.9 171.3 167.9 49 Total assets/liabilities and capital 2,935.2 2,942.9 2,938.2 2,959.1 2,959.7 3,001.3 2,987.8 3,010.3 2,961.4 2,986.3 2,980.4 50 Deposits 2,213.0 2,200.0 2,209.2 2,214.9 2,220.1 2,253.8 2,243.3 2,283.5 2,236.2 2,255.2 2,266.2 51 Transaction deposits 608.3 588.5 580.2 578.8 584.4 601.5 587.7 626.1 577.4 583.8 592.2 52 Savings deposits 551.6 553.4 558.3 562.6 560.4 567.4 569.8 570.0 570.6 580.2 590.6 53 Time deposits 1,053.2 1,058.1 1,070.7 1,073.5 1,075.3 1,085.0 1,085.8 1,087.4 1,088.1 1,091.2 1,083.4 54 Borrowings 393.6 410.3 396.0 404.3 395.8 400.4 394.1 375.6 380.1 371.8 354.9 55 Other liabilities 115.1 116.5 115.3 120.7 124.1 127.5 131.5 131.4 124.2 136.8 136.0 56 Residual (assets less liabilities) 213.4 216.2 217.7 219.2 219.7 219.6 219.0 219.8 220.9 222.6 223.4 MEMO 57 Real estate loans, revolving 54.1 55.0 56.3 57.7 58.6 60.6 61.1 61.7 62.9 63.3 63.6 58 Real estate loans, other 710.3 714.7 720.4 721.7 725.4 729.2 730.5 734.7 731.1 733.8 736.1 1. Back data are available from the Banking and Monetary Statistics section, the last Wednesday of the month based on a weekly reporting sample of Board of Governors of the Federal Reserve System, Washington, D.C., 20551. foreign-related institutions and quarter-end condition reports. These data also appear in the Board's weekly H.8 (510) release. 2. Commercial banking institutions include insured domestically chartered Figures are partly estimated. They include all bank-premises subsidiaries and commercial banks, branches and agencies of foreign banks, Edge Act and other significant majority-owned domestic subsidiaries. Loan and securities data Agreement corporations, and New York State foreign investment corporations. for domestically chartered commercial banks are estimates for the last Wednes- 3. Insured domestically chartered commercial banks include all member banks day of the month based on a sample of weekly reporting banks and quarter-end and insured nonmember banks. condition report data. Data for other banking institutions are estimates made for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Commercial Banks A19 1.26 ASSETS AND LIABILITIES OF LARGE WEEKLY REPORTING COMMERCIAL BANKS Millions of dollars, Wednesday figures 1991 Account Jan. 30 Feb. 6 Feb. 13 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 ASSETS 1 Cash and balances due from depository institutions 93,562 95,316 95,700 112,066 98,752 104,672 101,740 107,772 2 U.S. Treasury and government securities 182,590 185,682 187,462 188,595 186,851 191,647 190,367 191,601 3 Trading account 11,755 13,558 14,822 16,387 14,203 18,038 15,951 16,121 4 Investment account 170,835 172,124 172,640 172,208 172,648 173,610 174,416 175,480 5 Mortgage-backed securities' 81,447 81,863 81,822 82,003 82.349 82,703 82,822 83,922 6 All other maturing in 7 One year or less 18,484 17,875 17,946 18,618 18,362 18,183 18,259 17,985 8 Over one through five years 39,568 40,782 40,895 39,645 39,739 39,980 41,030 41,093 9 Over five years 31,337 31,603 31,977 31,943 32,198 32,743 32,305 32,479 10 Other securities 60,350 60,348 60,145 60,216 60,449 60,568 60,312 59,950 11 Trading account 925 1,216 1,101 1,097 1,348 1,412 1,267 1,267 12 Investment account 59,425 59,132 59,044 59,119 59,102 59,156 59,044 58,682 13 State and political subdivisions, by maturity 29,689 29,373 29,299 29,223 29,057 28,957 28,719 28,414 14 One year or less 3,746 3,761 3,746 3,722 3,707 3,711 3,699 3,659 15 Over one year 25,943 25,611 25,553 25,501 25.350 25,246 25,019 24,754 16 Other bonds, corporate stocks, and securities 29,736 29,760 29,746 29,896 30,045 30,199 30,326 30,269 17 Other trading account assets 11,341 12,303 11,624 11,198 11,330 11,757 10,8% 9,997 18 Federal funds sold2 75,416 87.753 74,535 80,606 73,836 80,514 75,204 69,212 19 To commercial banks in the U.S— 53,339 58,080 50,287 53,076 48,177 54,863 47,372 45,434 20 To nonbank brokers and dealers 19,062 25,385 20,742 24,511 21,767 22,081 24,176 20,626 21 To others3 3,016 4,288 3,507 3,018 3,892 3,570 3,656 3,153 22 Other loans and leases, gross 1,053,060 1,054,462 1,055,764 1,059,255 1,056,932 1,056,198 1,053,501 1,053,825 23 Commercial and industrial 318,310 320,061 319,813 320,155 320,614 321,087 318,772 320,041 24 Bankers' acceptances and commercial paper 1,473 1,607 1,579 1,674 1,523 1,552 1,522 1,571 25 All other 316,838 318,453 318,234 318,481 319,092 319,535 317,250 318,470 26 U.S. addressees 315,480 317,067 316,712 317,065 317,693 318,184 315,879 317,179 27 Non-U.S. addressees 1,358 1,386 1,522 1,416 1,398 1,351 1,371 1,291 28 Real estate loans 400,832 401,011 400,895 401,720 401,324 401,681 402,681 402,814 29 Revolving, home equity 35,381 35,398 35,480 35,593 35,589 35,582 35,645 35,718 30 All other 365,451 365,613 365,415 366,127 365,736 366,100 367,037 367,0% 31 To individuals for personal expenditures 196,355 195,515 195,084 195,252 194,867 194,050 193,548 192,294 32 To depository and financial institutions 46,764 47,701 48,551 48,841 48,327 48,836 50,209 49,826 33 Commercial banks in the United States 21,164 21,654 22,707 22,693 22,852 22,419 23,701 24,193 34 Banks in foreign countries 3,242 3,333 2,969 3,423 3,010 3,280 3,360 2,871 35 Nonbank depository and other financial institutions ... 22,358 22,715 22,874 22,725 22,465 23,137 23,148 22,762 36 For purchasing and carrying securities 13,469 13.754 14,723 16,197 15,143 13,703 12,152 13,011 37 To finance agricultural production 5,858 5,798 5,787 5,738 5,732 5,786 5,810 5,707 38 To states and political subdivisions 21,092 20,904 20,856 20,816 20,802 20,642 20,531 20,486 39 To foreign governments and official institutions 1,170 1,152 1,205 1,233 1,316 1,248 1,781 1,230 40 All other loans4 21,875 21,254 21,467 21,936 21,465 21,746 20,662 21,142 41 Lease financing receivables 27,335 27,312 27,383 27,367 27,341 27,418 27,354 27,274 42 LESS: Unearned income 4,249 4,222 4,227 4,241 4,230 4,169 4,145 4,150 4 4 4 4 3 5 O O t t h he e r r l a L o s o a s a n e n s ts a a n n d d l l e e a a s se e s r , e n s e e t r ve3 1,0 1 3 0 6 8 9 2 , , , 8 9 7 9 1 1 9 3 1 1,0 1 3 1 6 9 0 6 , , , 2 9 3 7 6 9 1 9 7 1,0 1 3 1 6 8 3 5 , , , 0 4 6 5 8 7 4 3 2 1,0 1 3 1 6 7 7 2 , , , 9 0 8 9 1 5 7 7 6 1,0 1 3 1 6 8 4 4 , , , 0 6 0 0 9 1 9 3 7 1,0 1 3 1 6 8 3 1 , , , 4 6 8 0 2 1 0 8 8 1,0 1 1 3 6 8 1 2 , , , 0 3 7 2 3 3 0 6 6 1,0 1 3 1 6 8 1 1 , , , 2 4 6 5 1 9 8 6 1 46 Total assets 1,595,884 1,618,769 1,608,622 1,632,554 1,609,929 1,624,605 1,612,279 1,611,640 Footnotes appear on the following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Nonfinancial Statistics • June 1991 1.26 ASSETS AND LIABILITIES OF LARGE WEEKLY REPORTING COMMERCIAL BANKS—Continued Millions of dollars, Wednesday figures 1991 Account Jan. 30 Feb. 6 Feb. 13 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Mar. 27 LIABILITIES 47 Deposits 1,089,942 1,105,362 1,100,170 1,114,940 1,098,902 1,107,116 1,108,889 1,100,432 1,103,072 48 Demand deposits 213,859 218,833 217.156 228,6% 216,423 217.712 219,747 213,051 218,8% 49 Individuals, partnerships, and corporations 172,112 176,618 176,451 181,508 173,477 176,358 176,477 171,490 173,717 50 Other holders 41,746 42,215 40,705 47,188 42,946 41,354 43,270 41,561 45,179 51 States and political subdivisions 6,758 6,507 6,199 7,074 6,808 6,081 5,826 6,725 6,945 52 U.S. government 1,511 1,419 1,186 1,608 1,627 1,513 1,310 1,513 1,687 53 Depository institutions in the United States ... 18,896 19,375 18,052 22,031 17,984 19,636 17,893 19,450 19,594 54 Banks in foreign countries 4,984 5,278 4,820 5,156 4,922 4,872 5,187 4,582 5,412 55 Foreign governments and official institutions .. 637 701 819 699 676 489 669 818 569 56 Certified and officers' checks 8,960 8,934 9,629 10,621 10,929 8,763 12,385 8,473 10,972 57 Transaction balances other than demand deposits4 . 82,988 86,%2 84,688 85,254 84,412 88,984 86,838 86,817 86,629 58 Nontransaction balances 793,0% 799,567 798,325 800,989 798,067 800,421 802,304 800,564 797,547 59 Individuals, partnerships, and corporations 757,266 762,689 761.157 763,669 760,514 763,121 764,998 763,1% 760,393 60 Other holders 35,829 36,878 37,168 37,320 37,553 37,300 37,305 37,369 37,154 61 States and political subdivisions 28,734 29,606 30,014 30,177 30,642 30,372 30,476 30,720 30,730 62 U.S. government 869 864 865 873 875 888 888 873 864 63 Depository institutions in the United States ... 5,731 5,906 5,801 5,788 5,559 5,556 5,471 5,300 5,090 64 Foreign governments, official institutions, and banks . 495 502 489 481 476 485 470 476 469 6 6 5 6 Lia B b o i r li r t o ie w s i n fo g r s b f o ro r m ro w Fe ed d e m ra o l n R ey e serve Banks 292,789 0 302,375 0 292,494 0 299,5 5 8 2 1 5 287,445 0 29 2 5 , ,8 3 2 1 5 3 277,724 0 288,75 6 4 2 275,11 1 5 1 67 Treasury tax and loan notes 28,194 28,228 28,012 28,754 29,207 19,407 14,761 22,127 21,551 68 Other liabilities for borrowed money6 264,595 274,146 264,482 270,302 258,238 274,105 262,963 266,564 253,553 69 Other liabilities (including subordinated notes and debentures) 102,459 100,089 103,960 106,279 111,891 109,950 113,131 110,391 110,622 70 Total liabilities 1,485,190 1,507,827 1,496,624 1,520,800 1,498,237 1,512,891 1,499,744 1,499,577 1,488,809 71 Residual (Total assets minus total liabilities)7 110,693 110,942 111,998 111,755 111,692 111.713 112,535 112,063 112,992 MEMO 72 Total loans and leases, gross, adjusted, plus securities' 1,308,254 1,320,815 1,316,536 1,324,101 1,318,370 1,323,402 1,319,207 1,314,958 1,307,725 73 Time deposits in amounts of $100,000 or more 209,768 211,262 210,117 209,579 207,581 206,170 205,559 204,123 201,722 74 Loans sold outright to affiliates, total9 1,275 1,279 1,284 1,284 1,293 1,271 1,302 1,233 1,241 75 Commercial and industrial 737 743 746 748 753 731 760 695 692 76 Other 538 536 537 537 539 540 542 538 550 77 Foreign branch credit extended to U.S. residents10... 24,961 24,884 25,528 26,078 26,036 25,939 26,055 26,241 25,981 78 Net due to related institutions abroad -15,269 -18,306 -15,153 -12,188 -7,036 -5,647 -2,985 -5,194 -4,161 1. Includes certificates of participation, issued or guaranteed by agencies of the the United States. U.S. government, in pools of residential mortgages. 9. Affiliates include a bank's own foreign branches, nonconsolidated nonbank 2. Includes securities purchased under agreements to resell. affiliates of the bank, the bank's holding company (if not a bank), and noncon- 3. Includes allocated transfer risk reserve. solidated nonbank subsidiaries of the holding company. 4. Includes NOW, ATS, and telephone and pre-authorized transfer savings 10. Credit extended by foreign branches of domestically chartered weekly deposits. reporting banks to nonbank U.S. residents. Consists mainly of commercial and 5. Includes borrowings only from other than directly related institutions. industrial loans, but includes an unknown amount of credit extended to other than 6. Includes federal funds purchased and securities sold under agreements to nonfinancial businesses. repurchase. NOTE. Data that formerly appeared on table 1.28 Asset and Liabilities of Large 7. This balancing item is not intended as a measure of equity capital for use in Weekly Reporting Commercial Banks in New York City may be obtained from the capital adequacy analysis. Board's H.4.2 (504) statistical release. For address see inside front cover. 8. Excludes loans to and federal funds transactions with commercial banks in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Commercial Banks A21 1.30 LARGE WEEKLY REPORTING U.S. BRANCHES AND AGENCIES OF FOREIGN BANKS Assets and Liabilities Millions of dollars, Wednesday figures 1991 AAccccoouunntt Jan. 30 Feb. 6 Feb. 13 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Mar. 27 1 Cash and balances due from depository institutions 18,317 19,138 17,842 17,228 17,867 17,610 17,114 1166,,004433 1155,,558877 7 U.S. Treasury and government agency securities 13,669 13,634 13,250 1133,,008822 1133,,008822 1144,,442266 1144,,660000 1166,,112266 1144,,994400 3 Other securities 7,624 7,595 7,698 7,592 7,576 7,567 7,657 7,639 7,688 4 Federal funds sold1 7,729 8,577 8,832 10,572 9,696 8,841 8,686 10,589 5,153 To commercial banks in the United States ... 4,739 3,686 3,726 5,584 3,953 3,888 2,682 4,630 1,654 6 Toothers2 2,989 4,890 5,107 4,988 5,743 4,953 6,004 5,959 3,499 7 Other loans and leases, gross 137,190 136,325 136,638 135,724 136,822 137,187 138,358 138,624 137,272 8 Commercial and industrial 79,832 80,395 80,948 81,959 82,084 83,447 83,869 84,278 85,192 9 Bankers acceptances and commercial 2,238 2,588 2,446 2,273 2,111 22,,116688 22,,114433 11,,998811 22,,001199 10 All other 77,594 77,807 78,502 79,686 79,973 81,279 81,726 82,297 83,172 11 U.S. addressees 75,657 75,890 76,562 77,688 77,990 79,292 79,754 80,375 81,106 1? Non-U.S. addressees 1,937 1,918 1,940 1,998 1,983 1,987 1,972 1,922 2,066 13 Loans secured by real estate 27,477 27,495 27,529 27,637 27,845 28,331 28,551 28,479 28,360 14 To financial institutions 24,662 23,600 23,171 21,642 21,773 20,806 21,115 20,761 18,974 15 Commercial banks in the United States.. 17,806 16,410 15,848 14,403 14,177 13,068 13,198 12,995 11,715 16 Banks in foreign countries 1,193 1,403 1,442 1,590 1,514 1,658 1,704 1,785 1,686 17 Nonbank financial institutions 5,663 5,787 5,882 5,649 6,082 6,080 6,212 5,981 5,573 18 For purchasing and carrying securities 1,611 1,250 1,577 1,176 1,645 1,263 1,615 1,700 1,425 19 To foreign governments and official 222 250 213 204 229900 221122 221111 119922 225599 7ft All other 3,386 3,335 3,200 3,105 3,185 3,127 2,998 3,215 3,063 21 Other assets (claims on nonrelated parties) .. 33,838 33,102 33,043 31,053 31,291 30,577 30,626 30,090 29,444 22 Total assets3 237,106 240,479 241,123 239,100 240,767 241,846 243,417 242,544 238,662 73 Deposits or credit balances due to other than directly related institutions 63,517 65,766 69,203 70,332 73,281 7722,,882222 7755,,668888 7766,,223388 7777,,887744 74 Demand deposits4 4,030 3,993 4,007 4,046 4,019 3,845 3,997 4,466 4,532 75 Individuals, partnerships, and corporations 2,637 2,610 2,452 2,521 22,,446622 22,,552255 22,,559988 22,,77%% 22,,776677 76 Other 1,394 1,384 1,555 1,525 1,558 1,320 1,398 1,670 1,765 77 Nontransaction accounts 59,486 61,773 65,196 66,286 69,262 68,976 71,691 71,772 73,343 78 Individuals, partnerships, and corporations 44,308 46,284 48,887 50,292 5522,,448888 5511,,885566 5533,,880044 5544,,005500 5544,,229977 79 Other 15,178 15,489 16,308 15,994 16,774 17,121 17,887 17,722 19,046 30 Borrowings from other than directly 93,491 98,136 95,226 92,744 90,136 9944,,004499 9944,,779900 9900,,337777 8855,,221133 31 Federal funds purchased5 36,788 42,198 40,342 42,011 36,641 40,023 40,208 36,746 33,435 37 From commercial banks in the United States 16,696 18,401 15,155 17,954 14,974 1166,,664455 1177,,997711 1133,,772200 1155,,227722 33 From others 20,092 23,798 25,187 24,057 21,667 23,377 22,237 23,026 18,162 34 Other liabilities for borrowed money 56,703 55,937 54,884 50,733 53,495 54,026 54,582 53,631 51,779 3355 To commercial banks in the United States 26,716 24,124 24,146 21,451 21,818 21,100 21,787 2211,,662288 1199,,990066 36 29,987 31,814 30,739 29,282 31,678 32,926 32,795 32,003 31,873 37 Other liabilities to nonrelated parties 33,396 32,526 32,497 30,372 30,084 29,432 29,6% 29,407 28,854 38 Total liabilities6 237,106 240,479 241,123 239,100 240,767 241,846 243,417 242,544 238,662 MEMO 39 Total loans (gross) and securities adjusted7 .. 143,666 146,034 146,845 146,983 149,046 151,066 153,421 155,354 151,684 40 Net due to related institutions abroad 27,963 21,943 20,378 21,802 22,832 19,906 16,867 23,091 18,142 1. Includes securities purchased under agreements to resell. 5. Includes securities sold under agreements to repurchase. 2. Includes transactions with nonbank brokers and dealers in securities. 6. Includes net due to related institutions abroad for U.S. branches and 3. Includes net due from related institutions abroad for U.S. branches and agencies of foreign banks having a net due to position. agencies of foreign banks having a net due from position. 7. Excludes loans to and federal funds transactions with commercial banks in 4. Includes other transaction deposits. the U.S. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic Nonfinancial Statistics • June 1991 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period 1990 1991 1986 1987 1988 1989 1990 Dec. Dec. Dec. Dec. Dec. Sept. Oct. Nov. Dec. Jan. Feb. Commercial paper (seasonally adjusted unless noted otherwise) 1 All issuers 331,316 358,997 458,464 530,123 566,688 562,508 561,148 564,482 566,688 569,378 566,067 Financial companies1 Dealer-placed paper2 2 Total 110011,,770077 110022,,774422 115599,,777777 186,343 218,953 220055,,009933 220055,,667733 211,986 221188,,995533 221166,,114488 221177,,881122 3 Bank-related (not seasonally adjusted)3 2,265 1,428 1,248 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Directly placed paper4 4 Total 115511,,889977 174,332 119944,,993311 212,640 201,862 220066,,007799 220055,,442200 220044,,119911 220011,,886622 220022,,999977 119977,,999900 5 Bank-related (not seasonally adjusted)3 40,860 43,173 43,155 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6 Nonfinancial companies5 77,712 81,923 103,756 131,140 145,873 151,336 150,055 148,305 145,873 150,233 145,795 Bankers dollar acceptances (not seasonally adjusted)6 7 Total 64,974 70,565 66,631 62,972 54,771 50,469 52,093 53,968 54,771 56,498 52,831 Holder 8 Accepting banks 13,423 10,943 9,086 9,433 9,017 9,366 9,189 8,751 9,017 10,029 10,240 9 Own bills 11,707 9,464 8,022 8,510 7,930 7,944 7,868 7,535 7,930 8,539 8,391 10 Bills bought 1,716 1,479 1,064 924 1,087 1,421 1,321 1,217 11,,008877 1,490 1,849 Federal Reserve Banks 11 Own account 0 0 0 0 0 0 0 0 0 0 0 12 Foreign correspondents 1,317 965 1,493 1,066 918 1,333 1,145 880 918 927 892 13 Others 50,234 58,658 56,052 52,473 44,836 39,770 41,760 44,337 44,836 45,542 41,699 Basis 14 Imports into United States 14,670 16,483 14,984 15,651 13,096 12,723 12,408 12,758 13,096 14,284 13,799 15 Exports from United States 12,960 15,227 14,410 13,683 12,703 11,889 13,238 13,865 12,703 12,870 12,082 16 Allother 37,344 38,855 37,237 33,638 26,481 25,856 26,447 27,345 26,481 n.a. n.a. 1. Institutions engaged primarily in activities such as, but not limited to, 5. Includes public utilities and firms engaged primarily in such activities as commercial savings, and mortgage banking; sales, personal, and mortgage financ- communications, construction, manufacturing, mining, wholesale and retail trade, ing; factoring, finance leasing, and other business lending; insurance underwrit- transportation, and services. ing; and other investment activities. 6. Beginning January 1988, the number of respondents in the bankers accep- 2. Includes all financial company paper sold by dealers in the open market. tance survey were reduced from 155 to 111 institutions—those with $100 million 3. Beginning January 1989, bank-related series have been discontinued. or more in total acceptances. The panel is revised every January and currently has 4. As reported by financial companies that place their paper directly with about 100 respondents. The current reporting group accounts for over 90 percent investors. of total acceptances activity. 1.33 PRIME RATE CHARGED BY BANKS on Short-Term Business Loans Percent per year Date of change Rate Period Av r e a r t a e ge Period Av r e a r t a e ge Period 1988— Feb. 2 8.50 1988 9.32 1989—Jan. ... 10.50 1990—Jan. ... May 11 9.00 1989 10.87 Feb. .. 10.93 Feb. .. July 14 9.50 1990 10.01 Mar. .. 11.50 Mar. .. Aug. 11 10.00 Apr. .. 11.50 Apr. .. Nov. 28 10.50 1988— Jan. 8.75 May ... 11.50 May ... Feb. 8.51 June .. 11.07 June .. 1989—Feb. 10 11.00 Mar. 8.50 July ... 10.98 July ... 24 11.50 Apr. 8.50 Aug. .. 10.50 Aug. .. June 5 11.00 May 8.84 Sept. .. 10.50 Sept. .. July 31 10.50 June 9.00 Oct. ... 10.50 Oct. ... July 9.29 Nov. .. 10.50 Nov. .. 1990— Jan. 8 10.00 Aug. 9.84 Dec. .. 10.50 Dec. Sept. 10.00 1991—Jan. 2. 9.50 Oct. 10.00 1991—Jan. . Feb. 4 9.00 Nov. 10.05 Feb. Dec. 10.50 Mar. Apr. NOTE. These data also appear in the Board's H. 15 (519) and G. 13 (415) releases. For address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A23 1.35 INTEREST RATES Money and Capital Markets Averages, percent per year; weekly, monthly and annual figures are averages of business day data unless otherwise noted. 1990 1991 1991, week ending Instrument 11998888 11998899 11999900 Dec. Jan. Feb. Mar. Mar. 1 Mar. 8 Mar. 15 Mar. 22 MONEY MARKET RATES 1 Federal funds1'2'3 7.57 9.21 8.10 7.31 6.91 6.25 6.12 6.31 6.47 6.17 6.10 2 Discount window boiTowing2'11 6.20 6.93 6.98 6.79 6.50 6.00 6.00 6.00 6.00 6.00 6.00 Commercial paper3,4,5 3 1-month 7.58 9.11 8.15 8.28 7.12 6.53 6.48 6.71 6.75 6.38 6.35 4 3-month 7.66 8.99 8.06 7.80 7.10 6.49 6.41 6.63 6.63 6.33 6.31 5 6-month 7.68 8.80 7.95 7.49 7.02 6.41 6.36 6.51 6.54 6.28 6.28 Finance paper, directly placed3, ,6 6 1-month 7.44 8.99 8.00 7.62 6.95 6.31 6.31 6.35 6.61 6.18 6.20 7 3-month 7.38 8.72 7.87 7.32 6.92 6.38 6.28 6.52 6.52 6.16 6.19 8 6-month 7.14 8.16 7.53 6.95 6.59 6.14 6.20 6.33 6.36 6.11 6.13 Bankers acceptances3,4' 9 3-month 7.56 8.87 7.93 7.60 6.96 6.36 6.24 6.52 6.42 6.14 6.19 10 6-month 7.60 8.67 7.80 7.25 6.84 6.22 6.21 6.43 6.36 6.11 6.18 Certificates of deposit, secondary market3,8 11 1-month 7.59 9.11 8.15 8.27 7.10 6.45 6.47 6.65 6.76 6.35 6.36 12 3-month 7.73 9.09 8.15 7.82 7.17 6.52 6.45 6.71 6.70 6.35 6.35 13 6-month 7.91 9.08 8.17 7.64 7.17 6.51 6.50 6.70 6.69 6.38 6.45 14 Eurodollar deposits, 3-month3,9 7.85 9.16 8.16 7.87 7.23 6.60 6.44 6.73 6.78 6.50 6.29 U.S. Treasury bills Secondary market3,4 15 3-month 6.67 8.11 7.50 6.74 6.22 5.94 5.91 6.04 6.05 5.83 5.87 16 6-month 6.91 8.03 7.46 6.70 6.28 5.93 5.92 6.03 6.04 5.85 5.89 17 1-year , 7.13 7.92 7.35 6.61 6.25 5.91 6.00 6.02 6.09 5.94 6.01 Auction average1' 18 3-month 6.68 8.12 7.51 6.81 6.30 5.95 5.91 6.01 6.09 5.85 5.83 19 6-month 6.92 8.04 7.47 6.76 6.34 5.93 5.91 6.01 6.06 5.91 5.82 20 1-year 7.17 7.91 7.36 6.58 6.22 5.85 6.06 n.a. n.a. 6.06 n.a. CAPITAL MARKET RATES U.S. Treasury notes and bonds Constant maturities 21 1-year 7.65 8.53 7.89 7.05 6.64 6.27 6.40 6.40 6.48 6.32 6.41 22 2-year 8.10 8.57 8.16 7.31 7.13 6.87 7.10 7.05 7.13 7.02 7.15 "23 3-year 8.26 8.55 8.26 7.47 7.38 7.08 7.35 7.27 7.36 7.26 7.42 24 5-year 8.47 8.50 8.37 7.73 7.70 7.47 7.77 7.65 7.75 7.70 7.85 25 7-year 8.71 8.52 8.52 8.00 7.97 7.73 8.00 7.88 8.00 7.94 8.07 26 10-year 8.85 8.49 8.55 8.08 8.09 7.85 8.11 8.00 8.10 8.06 8.18 27 30-year 8.96 8.45 8.61 8.24 8.27 8.03 8.29 8.16 8.27 8.24 8.36 Composite 28 Over 10 years (long-term) 8.98 8.58 8.74 8.31 8.33 8.12 8.38 8.26 8.38 8.34 8.45 State and local notes and bonds Moody's series15 29 Aaa 7.36 7.00 6.96 6.63 6.57 6.41 6.76 6.47 6.81 6.52 7.03 30 Baa 7.83 7.40 7.29 7.10 7.17 7.03 7.29 7.00 7.34 7.25 7.47 31 Bond Buyer series16 7.68 7.23 7.27 7.09 7.08 6.91 7.10 7.01 7.06 7.06 7.13 Corporate bonds Seasoned issues 32 All industries 10.18 9.66 9.77 9.63 9.62 9.36 9.43 9.39 9.44 9.40 9.47 33 Aaa 9.71 9.26 9.32 9.05 9.04 8.83 8.93 8.85 8.92 8.91 8.97 34 Aa 9.94 9.46 9.56 9.39 9.37 9.16 9.21 9.16 9.22 9.17 9.23 35 A 10.24 9.74 9.82 9.64 9.61 9.38 9.50 9.44 9.49 9.47 9.54 3 3 6 7 A- B ra a t a ed , recently offered utiHty bonds18s 1 1 0 0 . . 2 8 0 3 1 9 0 . . 7 1 9 8 1 1 0 0 . . 3 0 6 1 1 9 0 . . 9 4 5 3 1 9 0 . . 8 4 3 5 1 9 0 . . 5 0 4 7 1 9 0 . . 5 0 8 9 1 9 0 . . 6 0 4 9 1 9 0 . . 6 1 2 1 1 9 0 . . 5 0 4 5 1 9 0 . . 6 1 0 3 MEMO: Dividend/price ratio 38 Preferred stocks 9.23 9.05 n.a. 8.72 8.71 8.46 8.56 8.40 8.58 8.51 8.56 39 Common stocks 3.64 3.45 n.a. 3.74 3.82 3.35 3.26 3.32 3.24 3.25 3.31 1. The daily effective federal funds rate is a weighted average of rates on 13. Yields on actively traded issues adjusted to constant maturities. Source: trades through N.Y. brokers. U.S. Treasury. 2. Weekly figures are averages of 7 calendar days ending on Wednesday of the 14. Unweighted average of rates on all outstanding bonds neither due nor current week; monthly figures include each calendar day in the month. callable in less than 10 years, including one very low yielding "flower"bond. 3. Annualized using a 360-day year or bank interest. 15. General obligation based on Thursday figures; Moody's Investors Service. 4. Quoted on a discount basis. 16. General obligations only, with 20 years to maturity, issued by 20 state and 5. An average of offering rates on commercial paper placed by several leading local governmental units of mixed quality. Based on figures for Thursday. dealers for firms whose bond rating is AA or the equivalent. 17. Daily figures from Moody's Investors Service. Based on yields to maturity 6. An average of offering rates on paper directly placed by finance companies. on selected long-term bonds. 7. Representative closing yields for acceptances of the highest rated money 18. Compilation of the Federal Reserve. This series is an estimate of the yield center banks. on recently-offered, A-rated utility bonds with a 30-year maturity and 5 years of 8. An average of dealer offering rates on nationally traded certificates of call protection. Weekly data are based on Friday quotations. deposit. 19. Standard and Poor's corporate series. Preferred stock ratio based on a 9. Bid rates for Eurodollar deposits at 11 a.m. London time. sample of ten issues: four public utilities, four industrials, one financial, and one 10. One of several base rates used by banks to price short-term business loans. transportation. Common stock ratios on the 500 stocks in the price index. 11. Rate for the Federal Reserve Bank of New York. NOTE. These data also appear in the Board's H. 15 (519) and G. 13 (415) releases. 12. Auction date for daily data; weekly and monthly averages computed on an For address, see inside front cover. issue-date basis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A24 Domestic Nonfinancial Statistics • June 1991 1.36 STOCK MARKET Selected Statistics 1990 1991 11998888 11998899 11999900 July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Prices and trading (averages of daily figures) Common stock prices 1 New York Stock Exchange (Dec. 31, 1965 = 50) 149.97 180.13 183.48 196.61 181.45 173.22 168.05 172.21 179.57 177.95 197.75 203.56 2 Industrial 180.83 228.04 225.81 245.86 226.73 216.81 208.58 212.81 221.86 220.69 246.74 255.36 3 Transportation 134.09 174.90 158.64 173.18 147.41 136.95 131.99 132.% 141.31 145.89 166.06 166.26 4 Utility 72.22 94.33 90.61 89.85 85.81 83.30 87.27 89.69 91.56 88.59 92.08 92.29 5 Finance 127.41 162.01 133.23 143.11 128.14 118.59 108.01 113.76 122.18 121.39 141.03 145.41 6 Standard & Poor's Corporation (1941-43 = 10)1 265.88 323.05 334.63 360.03 330.75 315.41 307.12 315.29 328.75 325.49 362.26 372.28 7 American Stock Exchange (Aug. 31, 1973 = 50? 295.08 356.67 338.36 359.09 333.49 318.53 296.67 294.88 305.54 304.08 338.11 353.98 Volume of trading (thousands of shares) 8 New York Stock Exchange 161,386 165,568 156,842 160,490 174,446 142,054 159,590 149,916 155,836 166,323 226,635 196,343 9 American Stock Exchange 9,955 13,124 13,155 12,529 15,881 11,668 11,294 10,368 11,620 10,870 16,649 15,326 Customer financing (end-of-period balances, in millions of dollars) 10 Margin credit at broker-dealers3 32,740 34,320 28,210 32,130 30,350 29,640 28,650 27,820 28,210 27,390 28,860 26,595 Free credit balances at brokers4 11 Margin-account 5,660 7,040 8,050 6,385 7,140 7,285 7,245 7,300 8,050 7,435 7,190 7,320 12 Cash-account 16,595 18,505 19,285 17,035 16,745 16,185 15,820 17,025 19,285 18,825 19,435 19,555 Margin requirements (percent of market value and effective date)6 Mar. 11, 1968 June 8 , 1968 May 6, 1970 Dec. 6, 1971 Nov. 24, 1972 Jan. 3, 1974 13 Margin stocks 70 80 65 55 65 50 14 Convertible bonds 50 60 50 50 50 50 15 Short sales 70 80 65 55 65 50 1. Effective July 1976, includes a new financial group, banks and insurance "margin securities" (as defined in the regulations) when such credit is collatercompanies. With this change the index includes 400 industrial stocks (formerly alized by securities. Margin requirements on securities other than options are the 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and 40 difference between the market value (100 percent) and the maximum loan value of financial. collateral as prescribed by the Board. Regulation T was adopted effective Oct. 15, 2. Beginning July 5, 1983, the American Stock Exchange rebased its index 1934; Regulation U, effective May 1, 1936; Regulation G, effective Mar. 11, 1968; effectively cutting previous readings in half. and Regulation X, effective Nov. 1, 1971. 3. Beginning July 1983, under the revised Regulation T, margin credit at On Jan. 1, 1977, the Board of Governors for the first time established in broker-dealers includes credit extended against stocks, convertible bonds, stocks Regulation T the initial margin required for writing options on securities, setting acquired through exercise of subscription rights, corporate bonds, and govern- it at 30 percent of the current market-value of the stock underlying the option. On ment securities. Separate reporting of data for margin stocks, convertible bonds, Sept. 30, 1985, the Board changed the required initial margin, allowing it to be the and subscription issues was discontinued in April 1984. same as the option maintenance margin required by the appropriate exchange or 4. Free credit balances are in accounts with no unfulfilled commitments to the self-regulatory organization; such maintenance margin rules must be approved by brokers and are subject to withdrawal by customers on demand. the Securities and Exchange Commission. Effective Jan. 31, 1986, the SEC 5. New series beginning June 1984. approved new maintenance margin rules, permitting margins to be the price of the 6. These regulations, adopted by the Board of Governors pursuant to the option plus 15 percent of the market value of the stock underlying the option. Securities Exchange Act of 1934, limit the amount of credit to purchase and carry Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A23 1.37 SELECTED FINANCIAL INSTITUTIONS Selected Assets and Liabilities Millions of dollars, end of period 1990 1991 AAccccoouunntt 11998888 11998899 Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. SAIF-insured institutions 1 Assets 1,350,500 1,249,055 1,210,338 1,197,787 1,174,615 1,162,561 1,157,157 1,124,891' 1,115,358' 1,107,489' 1,083,579' 1,064,867 2 Mortgages 764,513 733,729 715,422 708,550 691,239 689,080 684,967 665,955 662,448' 653,515' 633,456' 624,621 3 Mortgage-backed securities 214,587 170,532 166,167 165,741 159,173 158,146 156,398 154,196 153,425 155,577 155,307' 151,515 4 Contra-assets to mortgage assets' 37,950 25,457 21,999 22,044 20,337 19,550 19,321 18,459^ 17,031 16,903' 16,877' 15,099 5 Commercial loans 33,889 32,150 30,931 30,351 28,753 28,483 27,868 26,774' 26,053 25,262' 24,123' 23,660 6 Consumer loans 61,922 58,685 56,639 55,659 55,171 54,667 53,387 50,517 49,322' 48,552 47,224' 46,625 7 Contra-assets to nonmortgage loans2 3,056 3,592 2,227 1,771 1,980 1,978 2,022 1,957' 1,711' 1,674' 1,879' 1,556 8 Cash and investment securities 186,986 166,053 153,346 152,391 155,674 150,396 153,052 148,04c 145,303' 146,019' 146,558' 140,558 9 Other3 129,610 116,955 112,059 108,910 106,922 103,318 102,829 99,824' 97,547' 97,141' 95,637' 94,544 10 Liabilities and net worth 1,350,500 1,249,055 1,210,338 1,197,787 1,174,615 1,162,561 1,157,157 1,124,891' 1,115,358' 1,107,489' 1,083,579' 1,064,867 11 Savings capital 971,700 945,656 916,069 902,653 890,497 885,272 878,730 857,687 851,810 846,820 835,502' 823,534 12 Borrowed money 299,400 252,230 246,646 241,943 230,169 222,442 221,872 212,224 206,771 202,316 195,628' 187,319 13 FHLBB 134,168 124,577 115,620 114,047 109,733 106,127 105,882 101,731 100,574 100,493 100,391 95,837 14 Other 165,232 127,653 131,026 127,896 120,436 116,315 115,990 110,493 106,197 101,823 95,237' 91,482 15 Other 24,216 27,556 27,341 28,807 25,151 26,749 28,240 23,862' 25,585 26,131' 21,315' 22,097 16 Net worth n.a. 23,612 20,282 24,379 28,803 28,099 28,316 31, 31,192' 32,222' 31,134' 31,918 SAIF-insured federal savings banks 17 Assets 425,966 498,522 593,345 570,795 583,392 580,847 584,632 591,136 588,880 585,847 576,531 567,373 18 Mortgages 230,734 283,844 333,300 317,985 323,516 328,236 328,895 332,927 332,431 328,122 320,233 316,889 19 Mortgage-backed securities 64,957 70,499 81,030 77,781 78,001 80,474 80,994 82,418 82,219 84,190 81,205 79,451 20 Contra-assets to mortgage assets' 13,140 13,548 11,590 10,798 10,200 9,227 9,339 9,964 9,578 9,305 9,591 8,222 21 Commercial loans 16,731 18,143 20,324 19,713 19,683 18,810 18,662 18,767 18,458 18,197 17,674 17,299 22 Consumer loans 24,222 28,212 20,324 32,407 32,745 31,003 31,183 30,750 30,682 30,421 29,933 31,179 23 Contra-assets to nonmortgage loans 889 1,193 908 707 970 870 813 980 572 809 990 770 24 Finance leases plus interest 880 1,101 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 25 Cash and investment .. 61,029 64,538 72,618 70,999 75,081 71,354 73,756 73,602 75,117 72,454 75,940 71,066 26 Other 35,412 39,981 46,180 44,840 47,723 44,150 44,129 46,043 45,287 45,319 45,008 44,768 27 Liabilities and net worth 425,966 498,522 593,345 570,795 583,392 580,847 584,632 591,136 588,880 585,847 576,531 567,373 28 Savings capital 298,197 360,547 429,469 413,009 427,379 423,472 424,260 434,705 436,080 436,903 434,297 428,822 29 Borrowed money 99,286 108,448 126,240 123,415 121,721 118,393 120,592 119,991 115,472 111,270 107,270 102,313 30 FHLBB 46,265 57,032 63,120 61,057 60,666 61,287 62,209 61,605 60,256 60,265 59,949 57,703 31 Other 53,021 51,416 63,120 62,358 61,055 57,106 58,383 58,386 55,216 51,005 47,321 44,610 32 Other 8,075 9,041 9,982 10,307 8,889 9,245 10,128 8,253 9,063 9,824 8,193 8,356 33 Net worth 20,218 22,716 23,505 21,138 21,944 26,424 26,420 24,859 24,837 24,931 24,172 25,285 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A26 Domestic Nonfinancial Statistics • June 1991 1.37—Continued 1990 1991 AAccccoouunntt 11998888 11998899 Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Credit unions4 34 Total assets/liabilities and capital 174,593 183,688 193,208 195,020 195,302 194,523 196,625 197,272 35 Federal 114,566 120,666 127,250 128,648 128,142 127,564 128,715 129,086 36 State 60,027 63,022 65,958 66,372 67,160 66,959 67,910 68,186 37 Loans outstanding.. 113,191 122,608 122,616 123,205 123,968 124,343 126,156 127,341 38 Federal 73,766 80,272 80,205 80,550 81,063 81,063 82,040 82,823 39 State 39,425 42,336 42,411 42,655 42,905 43,280 44,116 44,518 40 Savings 159,010 167,371 175,745 176,701 178,127 176,360 178,081 177,532 41 Federal 104,431 109,653 115,554 116,402 116,717 115,305 116,411 115,469 42 State 54,579 57,718 60,191 60,299 61,408 61,056 61,670 62,063 Life insurance companies5 43 Assets 1,376,660 1,387,463 1,411,881 Securities 44 Government 195,287 202,962 208,782 45 United States6 167,735 175,156 180,200 46 State and local 10,963 11,818 12,038 47 Foreign7 16,589 15,988 16,544 48 Business 705,070 709,470 724,603 49 Bonds 570,245 588,251 596,053 50 Stocks 134,825 121,219 128,550 51 Mortgages 264,865 266,063 267,922 52 Real estate 44,188 44,544 44,718 53 Policy loans 63,144 60,641 61,562 54 Other assets 104,106 103,783 104,294 1. Contra-assets are credit-balance accounts that must be subtracted from the 7. Issues of foreign governments and their subdivisions and bonds of the corresponding gross asset categories to yield net asset levels. Contra-assets to International Bank for Reconstruction and Development. mortgage loans, contracts, and pass-through securities include loans in process, NOTE. SAlF-insured institutions: Estimates by the OTS for all institutions unearned discounts and deferred loan fees, valuation allowances for mortgages insured by the SAIF and based on the OTS thrift Financial Report. "held for sale," and specific reserves and other valuation allowances. SAIF-insured federal savings banks: Estimates by the OTS for federal savings 2. Contra-assets are credit-balance accounts that must be subtracted from the banks insured by the SAIF and based on the OTS thrift Financial Report. corresponding gross asset categories to yield net asset levels. Contra-assets to Credit unions: Estimates by the National Credit Union Administration for nonmortgage loans include loans in process, unearned discounts and deferred loan federally chartered and federally insured state-chartered credit unions serving fees, and specific reserves and valuation allowances. natural persons. 3. Holding of stock in Federal Home Loan Bank and Finance leases plus Life insurance companies: Estimates of the American Council of Life Insurance interest are included in "Other" (line 9). for all life insurance companies in the United States. Annual figures are annual- 4. Data include all federally insured credit unions, both federal and state statement asset values, with bonds carried on an amortized basis and stocks at chartered, serving natural persons. year-end market value. Adjustments for interest due and accrued and for 5. Data are no longer available on a monthly basis for life insurance companies. differences between market and book values are not made on each item separately 6. Direct and guaranteed obligations. Excludes federal agency issues not but are included, in total, in "other assets." guaranteed, which are shown in the table under "Business" securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A23 1.38 FEDERAL FISCAL AND FINANCING OPERATIONS Millions of dollars Calendar year Fiscal Fiscal Fiscal Type of account or operation year year year 1988 1989 1990 Oct. Nov. Jan. Feb. Mar. U.S. budget1 1 Receipts, total 908,166 990,701 1,031,231' 77,061 70,507 101,900 100,713 67,657 64,805 2 On-budget 666,675 727,035 749,577' 57,101 45,531 82,059 70,023 45,954 39,011 3 Off-budget 241,491 263,666 281,654 19,960 24,976 19,841 30,690 22,063 25,794 4 Outlays, total 1,063,318 1,144,020 1,251,62c 108,346 118,218 109,212 99,023' 93,834' 105,650 5 On-budget 860,627 933,107 1,026,554' 89,433 96,769 94,679 79,105' 72,667' 83,114 6 Off-budget 202,691 210,911 225,065 18,912 21,448 14,532 19,918 21,167 22,536 7 Surplus, or deficit (-), total -155,151 -153,320 -220,390 -31,285 -47,711 -7,311 1,69c -26,177' -40,845 8 On-budget -193,952 -206,072 -276,977 -32,332 -51,238 -12,620 -9,082' -27,073' -44,103 9 Off-budget 38,800 52,753 56,590 1,048 3,528 5,309 10,772 896 3,258 Source of financing (total) 10 Borrowing from the public 166,139 141,806 264,453 32,265 46,776 19,700 31,764 34,611 -9,913 11 Operating cash (decrease, or increase (-)) -7,962 3,425 818 4,720 12,533 -9,286 -30,627 2,341 28,473 12 Other 2 -3,026 8,089 -44,881 -5,700 -11,59 -3,103 -2,827' -10,775' 22,285 MEMO 13 Treasury operating balance (level, end of period) 44,398 40,973 40,155 35,435 22,902 32,188 62,815 60,474 32,001 14 Federal Reserve Banks 13,023 13,452 7,638 7,607 5,495 8,960 27,810 23,898 10,922 15 Tax and loan accounts 31,375 27,521 32,517 27,828 17,406 23,228 35,006 36,577 21,078 1. In accordance with the Balanced Budget and Emergency Deficit Control Act international monetaiy fund; other cash and monetary assets; accrued interest of 1985, all former off-budget entries are now presented on-budget. The Federal payable to the public; allocations of special drawing rights; deposit funds; Financing Bank (FFB) activities are now shown as separate accounts under the miscellaneous liability (including checks outstanding) and asset accounts; agencies that use the FFB to finance their programs. The act has also moved two seigniorage; increment on gold; net gain/loss for U.S. currency valuation adjustsocial security trust funds (Federal old-age survivors insurance and Federal ment; net gain/loss for IMF valuation adjustment; and profit on the sale of gold. disability insurance trust funds) off-budget. SOURCE. Monthly Treasury Statement of Receipts and Outlays of the U.S. 2. Includes SDRs; reserve position on the U.S. quota in the IMF; loans to Government and the Budget of the U.S. Government. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A28 Domestic Nonfinancial Statistics • June 1991 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1 Millions of dollars Calendar year Fiscal Fiscal Source or type year year 1989 1990 1991 1989 1990 H2 HI H2 Feb. Mar. RECEIPTS 1 All sources 990,701 1,031,232' 527,574 470,276 548,861 503,122' 100,713 67,657 64,805 2 Individual income taxes, net 445,690 466,884 233,572 218,706 243,087 230,745 50,882 27,929 11,288 4 3 P W re it s h i h d e e l n d t ial Election Campaign Fund . 361,38 3 6 2 390,48 3 0 2 174,2 2 3 8 0 193,296 3 190,21 3 9 0 207,469 3 29,390 0 32,737 4 30,478 9 5 N on withheld 154,839 149,189 121,563 33,303 117,675 31,728 21,799 1,186 4,426 6 Refunds 70,567 72,817 62,251 7,898 64,838 8,455 308 5,998 23,625 Corporation income taxes 7 Gross receipts 117,015 110,017 61,585 52,269 58,830 54,044 5,025 3,611 14,338 8 Refunds 13,723 16,510 7,259 6,842 8,326 7,603 1,197 1,116 1,531 9 Social insurance taxes and contributions, net 359,416 380,047 200,127 162,574 210,476 178,468 39,604 29,872 33,045 10 Employment taxes and contributions 332,859 353,891 184,569 152,407 195,269 167,224 38,472 27,824 32,416 11 Self-employment taxes and contributions3 18,504 21,795 16,371 1,947 19,017 2,638 1,795 1,445 1,463 12 Unemployment insurance 22,011 21,635 13,279 7,909 12,929 8,9% 778 1,678 226 13 Other net receipts4 4,546 4,522 2,277 2,260 2,278 2,249 354 370 402 14 Excise taxes 34,386 35,345 16,814 16,799 18,153 17,535 2,931 2,594 4,149 15 Customs deposits 16,334 16,707 7,918 8,667 8,0% 8,568 1,324 1,215 1,271 16 Estate and gift taxes 8,745 11,500 4,583 4,451 6,442 5,333 906 772 864 17 Miscellaneous receipts5 22,839 27,240' 10,235 13,651 12,106 16,032' 1,237 2,780 1,381 OUTLAYS 18 All types 1,144,020 1,251,62c 565,425 587,394 640,867 647,225' 99,023' 93,834' 105,650 19 National defense 303,559 299,335 148,098 149,613 152,733 149,497' 20,811' 16,881' 15,743 20 International affairs 9,574 13,760 6,567 5,971 6,770 8,943 465' 1,026' 2,001 21 General science, space, and technology . 12,838 14,420 6,238 7,091 6,974 8,081 1,013 1,188 1,317 22 Energy 3,702 2,470 2,221 1,449 1,216 979 71 31 61 23 Natural resources and environment 16,182 17,009 7,022 9,183 7,343 9,933' 1,398 1,183 1,283 24 Agriculture 16,948 11,998 9,619 4,132 7,450 6,878 1,516 578 1,240 25 Commerce and housing credit 29,091 67,495 4,129 22,295 38,672 37,491 -144 -2,257 5,929 26 Transportation 27,608 29,495 12,953 14,982 13,754 16,218 2,658 2,134 2,139 27 Community and regional development .. 5,361 8,466 1,833 4,879 3,987 3,939 663 494 497 28 Education, training, employment, and social services 36,694 37,479 18,083 18,663 19,537 18,988 4,045 3,509 3,782 29 Health 48,390 58,101 24,078 25,339 29,488 31,424 5,663 5,464 5,623 30 Social security and medicare 317,506 346,383 162,195 162,322 175,997 176,353 30,625 30,476 30,643 31 Income security 136,031 148,299 70,937 67,950 78,475 75,948 14,299 15,475 16,836 32 Veterans benefits and services 30,066 29,112 14,891 14,864 15,217 15,479 %2 2,591 2,731 33 Administration of justice 9,422 10,076 4,801 4,909 4,868 5,265 951 1,010 941 3 3 4 5 G G e e n n e e r r a a l l - g p o u v rp e o rn se m e fi n s t c al assistance n. 9 a , . 1 24 n 10 .a , . 8 22 3,858 0 n 4 . , a 7 . 60 n 4 . , a 9 . 16 n 6 . , a 9 . 8 2 n 1 . , a 0 . 7 1 n.a 1 . 4 7 n.a 7 . 1 7 36 Net interest6 169,317 183,790 86,009 87,927 91,155 94,650 16,064 16,782 17,120 37 Undistributed offsetting receipts7 -37,212 -36,615 -18,131 -18,935 -17,688 -19,829 -3,109 -2,879 -2,952 1. Functional details do not add to total outlays for calendar year data because 5. Deposits of earnings by Federal Reserve Banks and other miscellaneous receipts. revisions to monthly totals have not been distributed among functions. Fiscal year 6. Net interest function includes interest received by trust funds. total for outlays does not correspond to calendar year data because revisions from 7. Consists of rents and royalties on the outer continental shelf, U.S. governthe Budget have not been fully distributed across months. ment contributions for employee retirement. 2. Old-age, disability, and hospital insurance, and railroad retirement accounts. SOURCES. U.S. Department of the Treasury, Monthly Treasury Statement of 3. Old-age, disability, and hospital insurance. Receipts and Outlays of the U.S. Government, and the U.S. Office of Manage- 4. Federal employee retirement contributions and civil service retirement and ment and Budget, Budget of the U.S. Government, Fiscal Year 1990. disability fund. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A29 1.40 FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION Billions of dollars 1989 1990 1991 IItteemm Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 1 Federal debt outstanding 2,763.6 2,824.0 2,881.1 2,975.5 3,081.9 3,175.5 3,266.1 3,397.3 3,491.7 2 Public debt securities 2,740.9 2,799.9 2,857.4 2,953.0 3,052.0 3,143.8 3,233.3 3,364.8 3,465.2 3 Held by public 2,133.4 2,142.1 2,180.7 2,245.2 2,329.3 2,368.8 2,437.6 2,536.6 n.a. 4 Held by agencies 607.5 657.8 676.7 707.8 722.7 775.0 795.8 828.3 n.a. 5 Agency securities 22.7 24.0 23.7 22.5 29.9 31.7 32.8 32.5 n.a. 6 Held by public 22.3 23.6 23.5 22.4 29.8 31.6 32.6 32.4 n.a. 7 Held by agencies .4 .5 .1 .1 .2 .2 .2 .1 n.a. 8 Debt subject to statutory limit 2,725.6 2,784.6 2,829.8 2,921.7 2,988.9 3,077.0 3,161.2 3,281.7 3,377.1 9 Public debt securities 2,725.5 2,784.3 2,829.5 2,921.4 2,988.6 3,076.6 3,160.9 3,281.3 3,376.7 10 Other debt1 .2 .2 .3 .3 .3 .4 .4 .4 .4 11 MEMO: Statutory debt limit 2,800.0 2,800.0 2,870.0 3,122.7 3,122.7 3,122.7 3,195.0 4,145.0 4,145.0 1. Includes guaranteed debt of Treasuo' and other federal agencies, specified SOURCES. Treasury Bulletin and Monthly Statement of the Public Debt of the participation certificates, notes to international lending organizations, and District United States. of Columbia stadium bonds. 1.41 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership Billions of dollars, end of period 1990 Type and holder 1987 1988 1989 1990 Q2 Q3 Q4 Q1 1 Total gross public debt 2,431.7 2,684.4 2,953.0 3,364.8 3,143.8 3,233.3 3,364.8 3,465.2 By type 2 Interest-bearing debt 2,428.9 2,663.1 2,931.8 3,362.0 3,121.5 3,210.9 3,362.0 3,441.4 3 Marketable 1,724.7 1,821.3 1.945.4 2,195.8 2,028.0 2,092.8 2,195.8 2,227.9 4 Bills 389.5 414.0 430.6 527.4 453.5 482.5 527.4 533.3 5 Notes 1,037.9 1,083.6 1.151.5 1,265.2 1,192.7 1,218.1 1,265.2 1.280.4 6 Bonds 282.5 308.9 348.2 388.2 366.8 377.2 388.2 399.3 7 Nonmarketable1 704.2 841.8 986.4 1,166.2 1,093.5 1,118.2 1,166.2 1.213.5 8 State and local government series 139.3 151.5 163.3 160.8 164.3 161.3 160.8 159.4 9 Foreign issues 4.0 6.6 6.8 43.5 36.4 36.0 43.5 42.8 10 Government 4.0 6.6 6.8 43.5 36.4 36.0 43.5 42.8 11 Public .0 .0 .0 .0 .0 .0 .0 .0 12 Savings bonds and notes 99.2 107.6 115.7 124.1 120.1 122.2 124.1 127.7 13 Government account series3 461.3 575.6 695.6 813.8 758.7 779.4 813.8 853.1 14 Non-interest-bearing debt 2.8 21.3 21.2 2.8 22.3 22.4 23.8 By holder4 15 U.S. government agencies and trust funds 477.6 589.2 707.8 828.3 775.0 795.8 828.3 16 Federal Reserve Banks 222.6 238.4 228.4 259.8 231.4 232.5 259.8 17 Private investors 1,731.4 1,858.5 2,015.8 2,288.3 2,141.8 2,207.3 2,288.3 18 Commercial banks 201.5 193.8 174.8r n.a. 189.2' 188.0 n.a. 19 Money market funds 14.6 11.8 14.9' n.a. 28.1 33.6 n.a. 20 Insurance companies 104.9 107.3 130. V n.a. 137.0 138.9 n.a. 21 Other companies 84.6 87.1 98.8' n.a. 112.1 114.6 n.a. 22 State and local Treasurys 284.6 313.6 338.7r n.a. 345.7 344.0 n.a. Individuals 23 Savings bonds 101.1 109.6 117.7 126.2 121.9 123.9 126.2 24 Other securities 71.3 79.2 98.8' n.a. 112.1 114.6 n.a. 25 Foreign and international 299.7 362.2 392.9' n.a. 392.3' 404.9 n.a. 26 Other miscellaneous investors 569.1 593.4 672.5 n.a. n.a. 1. Includes (not shown separately): Securities issued to the Rural Electrifica- 5. Consists of investments of foreign and international accounts. Excludes tion Administration; depository bonds, retirement plan bonds, and individual non-interest-bearing notes issued to the International Monetary Fund. retirement bonds. 6. Includes savings and loan associations, nonprofit institutions, credit unions, 2. Nonmarketable dollar-denominated and foreign currency-denominated se- mutual savings banks, corporate pension trust funds, dealers and brokers, certain ries held by foreigners. U.S. Treasury deposit accounts, and federally-sponsored agencies. 3. Held almost entirely by U.S. Treasury agencies and trust funds. SOURCES. Data by type of security, U.S. Treasury Department, Monthly 4. Data for Federal Reserve Banks and U.S. Treasury agencies and trust funds Statement of the Public Debt of the United States; data by holder and the are actual holdings; data for other groups are Treasury estimates. Treasury Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic Nonfinancial Statistics • June 1991 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions1 Millions of dollars, daily averages 1990 1991 1991, week ending Dec. Jan. Feb Jan. 30 Feb. 6 Feb. 13 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Mar. 27 IMMEDIATE TRANSACTIONS2 By type of security U.S. government securities 1 Bills 32,387 35,403 32,240 28,449 40,113 30,613 30,502 29,602 30,757 40,782 32,542 Coupon securities 2 Maturing in less than 3.5 years 28,498 38,084 42,240 32,661 57,607 40,351 39,528 36,705 31,456 38,501 36,362 3 Maturing in 3.5 to 7.5 years... 24,702 28,005 30,579 25,534 32,135 32,022 29,310 29,987 26,452 28,473 29,859 4 Maturing in 7.5 to 15 years 11,161 10,873 16,105 10,583 21,879 18,236 13,714 12,721 11,230 13,956 13,786 5 Maturing in 15 years or more.. 13,055 14,905 17,854 13,780 18,902 20,719 18,192 14,384 14,985 17,059 15,433 Federal agency securities Debt 6 Maturing in less than 3.5 years 4,968 4,716 3,946 4,671 4,456 4,026 3,531 3,872 3,959 4,091 4,440 7 Maturing in 3.5 to 7.5 years... 509 453 607 392 786 721 508 457 576 487 686 8 Maturing in 7.5 years or more 614 1,079 677 505 923 806 613 465 428 846 692 Mortgage-backed 9 Pass-throughs 12,308 10,991 10,070 9,468 11,283 11,728 7,788 10,060 8,380 11,358 10,884 10 All others 1,340 1,066 1,416 1,106 1,277 1,456 1,205 1,715 1,335 1,205 1,233 By type of counterparty Pnmary dealers and brokers 11 U.S. government securities 66,700 78,825 85,733 67,754 102,536 87,010 81,696 77,562 73,171 89,342 81,204 Federal agency 12 Debt securities 1,842 1,985 1,439 1,702 1,878 1,699 1,170 1,148 1,174 1,463 1,766 13 Mortgage backed securities . 7,230 6,048 5,627 5,355 5,591 6,401 4,663 5,957 5,079 6,626 5,874 Customers 14 U.S. government securities 43,102 48,445 53,285 43,253 68,100 54,932 49,549 45,836 41,709 49,428 46,777 Federal agency 15 Debt securities 4,248 4,263 3,792 3,865 4,286 3,854 3,482 3,646 3,789 3,961 4,051 16 Mortgage-backed securities . 6,418 6,008 5,858 5,219 6,969 6,783 4,331 5,817 4,637 5,937 6,243 FUTURE AND FORWARD TRANSACTIONS4 By type of deliverable security U.S. government securities 17 Bills 4,833 6,339 4,669 3,089 7,506 3,642 4,344 3,662 5,115 6,268 3,795 Coupon securities 18 Maturing in less than 3.5 years 1,093 1,470 2,258 1,839 2,873 2,012 2,398 2,012 1,557 1,445 1,370 19 Maturing in 3.5 to 7.5 years... 810 804 867 750 910 1,103 734 782 616 922 1,227 20 Maturing in 7.5 to 15 years ... 1,037 861 1,419 532 1,594 2,253 699 1,199 1,239 867 1,392 21 Maturing in 15 years or more.. 7,861 9,362 9,507 7,256 9,051 10,928 9,606 8,269 9,921 10,488 10,497 Federal agency securities Debt 22 Maturing in less than 3.5 years 113 121 137 320 53 177 201 126 10 39 167 23 Maturing in 3.5 to 7.5 years... 36 40 23 4 9 59 6 19 12 45 50 24 Maturing in 7.5 years or more 39 62 52 15 26 31 72 29 46 9 Mortgage-backed 25 Pass-throughs 6,603 9,203 9,662 5,741 9,199 11,688 11,168 6,995 7,189 9,597 8,545 26 All others 780 1,112 1,079 974 1,477 702 1,268 930 1,170 1,436 1,273 OPTION TRANSACTIONS5 By type of underlying securities U.S. government securities 27 Bills 10 64 102 160 120 78 236 0 0 Coupon securities 28 Maturing in less than 3.5 years 650 1,136 1,594 715 2,764 1,281 1,012 1,651 1,108 1,118 29 Maturing in 3.5 to 7.5 years... 270 245 304 394 244 437 274 253 278 370 381 30 Maturing in 7.5 to 15 years 195 187 228 231 180 285 225 177 404 320 363 31 Maturing in 15 years or more.. 1,648 2,691'' 2,659 2,134'' 2,601 2,436 3,511 2,268 1,706 2,075 1,840 Federal agency securities Debt 3 3 2 3 M M a a t t u u r r i i n n g g i i n n l 3 e . s 5 s to th 7 an .5 3 y .5 e a y r e s a . r . s . 0 1 0 0 r 02 o 0 r 0 1 0 0 7 1 0 0 0 0 0 1 0 0 34 Maturing in 7.5 years or more 0 0 1 0 0 0 0 4 0 0 0 Mortgage-backed 3 3 5 6 P A a l s l s o -t t h h r e o rs u ghs 382 0 356 2 365 1 306 0 376 0 645 0 19 0 1 285 2 18 0 9 430 0 38 0 3 1. Transactions are market purchases and sales of securities as reported to the Stripped securities are reported at market value by maturity of coupon or corpus. Federal Reserve Bank of New York by the U.S. government securities dealers on 3. Includes securities such as CMOs, REMICs; IOs, and POs. its published list of primary dealers. Averages for transactions are based on the 4. Futures transactions are standardized agreements arranged on an exchange. number of trading days in the period. Immediate, forward, and future transactions Forward transactions are agreements made in the over-the-counter market that are reported at principal value, which does not include accrued interest; option specify delayed delivery. All futures transactions are included regardless of time transactions are reported at the face value of the underlying securities. to delivery. Forward contracts for U.S. government securities and federal agency Dealers report cumulative transactions for each week ending Wednesday. debt securities are included when the time to delivery is more than five days. 2. Transactions for immediate delivery include purchases or sales of securities Forward contracts for mortgage-backed securities are included when the time to (other than mortgage-backed agency securities) for which delivery is scheduled in delivery is more than thirty days. five business days or less and "when-issued" securities that settle on the issue 5. Options transactions are purchases or sales of put and call options, whether date of offering. Transactions for immediate delivery of mortgage-backed securities arranged on an organized exchange or in the over-the-counter market and include include purchases and sales for which delivery is scheduled in thirty days or less. options on futures contracts on U.S. government and federal agency securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A31 1.43 U.S. GOVERNMENT SECURITIES DEALERS Positions and Financing1 Millions of dollars 1990 1991 1991, week ending IItteemm Dec. Jan. Feb. Jan. 23 Jan. 30 Feb. 6 Feb. 13 Feb. 20 Feb. 27 Mar. 6 Mar. 13 Mar. 20 Positions2 NET IMMEDIATE3 By type of security U.S. government securities 1 Bills 14,443 11,468 12,635 12,237 10,004 11,307 15,836 12,181 11,290 10,778 17,4% 14,112 Coupon securities 2 Maturing in less than 3.5 years 7,333 4,315 7,602 5,193 5,082 8,664 7,773 12,253 2,712 1,717 250 206 3 Maturing in 3.5 to 7.5 years -1,780 -1,311 -3,939 -3,413 -1,857 -5,528 -4,118 -6,142 -633 -878 -210 103 4 Maturing in 7.5 to 15 years -7,711 -7,520 -5,186 -7,441 -8,500 -7,308 -4,794 -4,474 -4,593 -4,344 -3,%7 -5,385 5 Maturing in 15 years or more -9,616 -13,762 -12,537 -13,985 -13,324 -12,030 -10,988 -12,617 -13,895 -16,350 -16,661 -15,707 Federal agency securities Debt 6 Maturing in less than 3.5 years 3,867 4,006 5,128 3,428 3,892 3,968 4,461 5,291 6,389 6,783 3,810 5,352 7 Maturing in 3.5 to 7.5 years 2,135 1,930 2,212 1,824 1,975 2,240 2,184 2,162 2,222 2,513 2,792 2,569 8 Maturing in 7.5 years or more 4,407 7,392 7,152 7,573 7,363 7,485 7,088 7,062 7,054 6,926 6,421 6,064 Mortgage-backed 9 Pass-throughs 21,431 23,290 24,668 21,408 21,778 23,495 27,571 25,590 22,040 23,320 25,797 24,893 10 All others^ 12,881 10,665 10,599 9,988 10,360 10,158 11,033 10,473 10,783 9,805 9,178 8,929 Other money market instruments 11 Certificates of deposit 2,526 2,936 2,828 3,043 3,189 3,488 3,161 2,796 2,022 2,400 2,451 2,531 12 Commercial paper 7,132 6,243 6,020 5,759 6,531 7,441 5,633 5,708 5,482 6,144 5,821 5,764 13 Bankers' acceptances 863 1,041 1,020 999 1,214 1,105 942 1,039 1,043 762 1,022 945 FUTURE AND FORWARD5 By type of deliverable security U.S. government securities 14 Bills -19,084 -21,345 -15,708 -19,460 -18,872 -19,314 -19,301 -14,857 -11,165 -6,679 -11,199 -11,531 Coupon securities 15 Maturing in less than 3.5 years -1,347 -1,273 -1,744 -2,518 705 -1,565 -2,617 -1,334 -1,496 -1,318 -1,388 -801 16 Maturing in 3.5 to 7.5 years -3,308 -3,147 -2,094 -2,571 -2,867 -2,887 -2,013 -2,131 -1,607 -1,056 -1,561 -235 17 Maturing in 7.5 to 15 years -1,000 -917 -498 -920 -937 -328 -776 -621 -289 -166 -813 672 18 Maturing in 15 years or more -5,865 -5,487 -4,529 -5,764 -6,157 -7,048 -5,043 -3,906 -2,792 -2,342 -3,700 -2,964 Federal agency securities Debt 19 Maturing in less than 3.5 years 189 236 218 225 434 267 227 234 171 90 108 -52 20 Maturing in 3.5 to 7.5 years 54 15 120 110 10 25 214 75 142 194 1 317 21 Maturing in 7.5 years or more -117 -84 -38 -124 -50 -66 -39 -47 -7 -22 -10 -23 Mortgage-backed 22 Pass-throughs -9,587 -11,001 -14,009 -8,911 -9,161 -13,079 -18,492 -14,658 -10,075 -11,203 -11,354 -8,987 23 All others -2,150 -547 -674 31 -677 -266 -1,043 -674 -710 -291 -430 853 Other money market instruments 24 Certificates of deposit 48,860 53,410 17,964 56,755 50,752 54,058 19,020 4,907 2,498 -6,326 5,445 15,391 25 Commercial paper 0 0 0 0 0 0 0 0 0 0 0 -50 26 Bankers' acceptances 0 0 0 0 0 0 0 0 0 0 0 0 Financing6 Reverse repurchase agreements 27 Overnight and continuing 145,088 161,799 166,419 158,837 163,110 163,877 158,693 169,523 170,914 182,558 183,511 178,461 28 Term 211,555 222,5% 238,768 226,668 225,547 248,830 246,055 233,033 231,059 221,502 233,812 238,384 Repurchase agreements 29 Overnight and continuing 244,723 261,845 273,462 258,038 258,273 271,015 258,164 284,136 277,814 290,048 280,431 282,021 30 Term 176,412 189,444 206,983 196,142 195,086 208,564 219,607 201,160 201,593 187,622 204,997 211,004 Securities borrowed 31 Overnight and continuing 55,446 53,229 50,385 52,199 51,965 52,860 48,922 49,%2 50,199 50,041 49,339 52,353 32 Term 22,406 24,357 23,369 24,576 24,099 23,451 22,235 22,978 24,532 25,416 25,013 23,022 Securities lent 33 Overnight and continuing 6,176 6,463 6,934 6,352 6,1% 6,751 6,375 7,207 7,325 7,292 6,579 6,975 34 Term 1,206 719 931 835 778 725 784 871 1,328 826 831 1,029 Collateralized loans 35 Overnight and continuing 6,097 5,950 5,109 6,062 6,291 6,806 5,640 4,639 3,772 3,851 4,841 4,264 36 Term 890 1,066 1,599 1,392 1,320 1,384 1,572 1,648 1,740 1,740 1,567 1,525 MEMO: Matched book7 Reverse repurchases 37 Overnight and continuing 94,705 106,486 109,746 104,915 109,985 106,930 107,462 112,897 110,232 117,176 112,749 118,468 38 Term 168,822 181,794 195,243 185,169 183,574 203,506 200,490 190,709 189,774 178,956 188,760 188,987 Repurchases 39 Overnight and continuing 123,020 141,455 144,722 138,640 142,516 146,452 134,462 147,567 148,540 159,509 148,983 146,205 40 Term 129,305 140,092 158,034 144,241 146,257 161,940 168,977 153,053 151,409 139,251 152,061 157,669 1. Data for positions and financing are obtained from reports submitted to the specify delayed delivery. All futures positions are included regardless of time to Federal Reserve Bank of New York by the U.S. government securities dealers on delivery. Forward contracts for U.S. government securities and for federal its published list of primary dealers. Weekly figures are close-of-business Wednes- agency debt securities are included when the time to delivery is more than five day data; monthly figures are averages of weekly data. Data for positions and business days. Forward contracts for mortgage-backed securities are included financing are averages of close-of-business Wednesday data. when the time to delivery is more than thirty days. 2. Securities positions are reported at market value. 6. Overnight financing refers to agreements made on one business day that 3. Net immediate positions include securities purchased or sold (other than mature on the next business day; continuing contracts are agreements that remain mortgage-backed agency securities) that have been delivered or are scheduled to in effect for more than one business day but have no specific maturity and can be be delivered in five business days or less and "when-issued" securities settle on terminated without a requirement for advance notice by either party; term the issue date of offering. Net immediate positions of mortgage-backed securities agreements have a fixed maturity of more than one business day. include securities purchased or sold that have been delivered or are scheduled to 7. Matched-book data reflect financial intermediation activity in which the be delivered in thirty days or less. borrowing and lending transactions are matched. Matched-book data are included 4. Includes securities such as CMOs, REMICs, IOs, and POs. in the financing breakdowns listed above. The reverse repurchase and repurchase 5. Futures positions are standardized contracts arranged on an exchange. numbers are not always equal due to the "matching" of securities of different Forward positions reflect agreements made in the over-the-counter market that values or types of collateralization. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A32 Domestic Nonfinancial Statistics • June 1991 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period 1990 1991 AAggeennccyy 11998866 11998877 11998888 11998899 Oct. Nov. Dec. Jan. Feb. 1 Federal and federally sponsored agencies 307,361 341,386 381,498 411,805 431,519 430,842 434,668 445,430 441,440 2 Federal agencies 36,958 37,981 35,668 35,664 42,685 42,191 42,159 42,141 42,191 3 Defense Department1 33 13 8 7 7 7 7 7 7 4 Export-Import Bank2,3 14,211 11,978 11,033 10,985 11,346 11,346 11,376 11,376 11,376 5 Federal Housing Administration4 138 183 150 328 382 387 393 329 361 6 Government National Mortgage Association participation certificates5 2,165 1,615 0 0 0 00 0 0 00 7 Postal Service6 3,104 6,103 6,142 6,445 6,948 6,948 6,948 6,948 6,948 8 Tennessee Valley Authority 17,222 18,089 18,335 17,899 24,002 23,510 23,435 23,481 23,499 9 United States Railway Association6 85 0 0 0 0 0 0 0 0 10 Federally sponsored agencies7 270,553 303,405 345,830 375,407 388,834 388,651 392,509 403,289 399,249 11 Federal Home Loan Banks 88,758 115,727 135,836 136,108 117,120 116,627 117,895 115,402 112,874 12 Federal Home Loan Mortgage Corporation 13,589 17,645 22,797 26,148 29,073 30,035 30,941 33,157 32,640 13 Federal National Mortgage Association 93,563 97,057 105,459 116,064 119,775 122,257 123,403 125,849 125,974 14 Farm Credit Banks8 62,478 55,275 53,127 54,864 56,788 53,469 53,590 53,717 52,480 15 Student Loan Marketing Association9 12,171 16,503 22,073 28,705 33,592 33,777 34,194 35,736 35,854 16 Financing Corporation10 0 1,200 5,850 8,170 8,170 8,170 8,170 8,170 8,170 17 Farm Credit Financial Assistance Corporation 0 0 690 847 1,261 1,261 1,261 1,261 1,261 18 Resolution Funding Corporation12 0 0 0 4,522 23,055 23,055 23,055 29,996 29,996 MEMO 19 Federal Financing Bank debt13 157,510 152,417 142,850 134,873 180,538 177,620 179,083 181,062 181,714 Lending to federal and federally sponsored agencies 70 Export-Import Bank3 14,205 11,972 11,027 10,979 11,340 11,340 11,370 11,370 1111,,337700 71 Postal Service6 2,854 5,853 5,892 6,195 6,698 6,698 6,698 6,698 6,698 22 Student Loan Marketing Association 4,970 4,940 4,910 4,880 4,880 4,850 4,850 4,850 4,850 23 Tennessee Valley Authority 15,797 16,709 16,955 16,519 14,622 14,130 14,055 14,101 14,119 24 United States Railway Association6 85 0 0 0 0 0 0 0 0 Other Lending14 75 Farmers Home Administration 65,374 59,674 58,496 53,311 52,324 52,324 52,324 52,169 52,544 76 Rural Electrification Administration 21,680 21,191 19,246 19,265 18,966 18,968 18,890 18,906 18,906 27 32,545 32,078 26,324 23,724 71,708 69,310 70,896 72,968 73,227 1. Consists of mortgages assumed by the Defense Department between 1957 10. The Financing Corporation, established in August 1987 to recapitalize the and 1963 under family housing and homeowners assistance programs. Federal Savings and Loan Insurance Corporation, undertook its first borrowing in 2. Includes participation certificates reclassified as debt beginning Oct. 1, 1976. October 1987. 3. Off-budget Aug. 17, 1974, through Sept. 30, 1976; on-budget thereafter. 11. The Farm Credit Financial Assistance Corporation (established in January 4. Consists of debentures issued in payment of Federal Housing Administration 1988 to provide assistance to the Farm Credit System) undertook its first insurance claims. Once issued, these securities may be sold privately on the borrowing in July 1988. securities market. 12. The Resolution Funding Corporation, established by the Financial Institu- 5. Certificates of participation issued before fiscal 1969 by the Government tions Reform, Recovery, and Enforcement Act of 1989, undertook its first National Mortgage Association acting as trustee for the Farmers Home Admin- borrowing in October 1989. istration; Department of Health, Education, and Welfare; Department of Housing 13. Includes FFB purchases of agency assets and guaranteed loans; the latter and Urban Development; Small Business Administration; and the Veterans contain loans guaranteed by numerous agencies with the guarantees of any Administration. particular agency being generally small. The Farmers Home Administration item 6. Off-budget. consists exclusively of agency assets, while the Rural Electrification Administra- 7. Includes outstanding noncontingent liabilities: notes, bonds, and deben- tion entry contains both agency assets and guaranteed loans. tures. Some data are estimated. 14. The FFB, which began operations in 1974, is authorized to purchase or sell 8. Excludes borrowing by the Farm Credit Financial Assistance Corporation, obligations issued, sold, or guaranteed by other federal agencies. Since FFB shown in line 17. incurs debt solely for the purpose of lending to other agencies, its debt is not 9. Before late 1981, the Association obtained financing through the Federal included in the main portion of the table in order to avoid double counting. Financing Bank (FFB). Borrowing excludes that obtained from the FFB, which is shown on line 21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Market and Corporate Finance A33 1.45 NEW SECURITY ISSUES Tax-Exempt State and Local Governments Millions of dollars 1990 1991 TTyyppee ooff iissssuuee oorr iissssuueerr,, 11998888 11998899 11999900 oorr uussee Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. 1 All issues, new and refunding1 114,522 113,646 120,339 10,899 13,930 8,512 9,961 12,250 7,230 11,335' 10,864 Type of issue 2 General obligation 30,312 35,774 39,610 3,400 3,763 3,530 3,024 3,536 2,343 4,838 44,,221199 3 Revenue 84,210 77,873 81,295 7,499 10,167 4,982 6,937 8,714 4,887 6,497' 6,645 Type of issuer 4 State 8,830 11,819 15,149 1,568 2,317 1,470 1,337 1,3% 713 2,027 1,195 5 Special district and statutory authority 74,409 71,022 72,661 6,%2 8,188 4,512 5,879 7,032 4,563 4,903 6,599 6 Municipalities, counties, and townships 31,193 30,805 32,510 2,369 3,425 2,530 2,745 3,822 1,954 4,405 3,070 7 Issues for new capital, total 79,665 84,062 103,235 9,061 12,713 7,936 9,058 10,707 6,977 10,403' 9,675 Use of proceeds 8 Education 15,021 15,133 17,042 1,345 1,472 1,743 1,009 1,418 1,079 1,579 22,,558833 9 Transportation 6,825 6,870 11,650 540 920 1,069 727 2,008 711 146 421 10 Utilities and conservation 8,4% 11,427 11,739 1,002 687 806 1,301 776 1,1% 2,046 1,886 11 Social welfare 19,027 16,703 23,099 2,554 3,995 1,153 1,992 2,001 891 1,089 2,140 12 Industrial aid 5,624 5,036 6,117 700 674 497 540 933 607 768 554 13 Other purposes 24,672 28,894 34,607 2,919 4,965 2,668 4,392 3,571 2,493' 4,775 2,091 1. Par amounts of long-term issues based on date of sale. SOURCES. Investment Dealer's Digest beginning April 1990. Securities Data/ 2. Includes school districts beginning 1986. Bond Buyer Municipal Data Base beginning 1986. Public Securities Association for earlier data. 1.46 NEW SECURITY ISSUES U.S. Corporations Millions of dollars 1990 1991 Type of issue or issuer, 1990 or use July Aug. Sept. Oct. Nov. Dec. Jan/ 1 All issues' 410,849' 376,627' 234,961' 19,966 13,773r 14,987r 20,384' 24,948' 20,886' 17,238 2 Bonds2 353,048' 318,756' 234,961' 17,719 12,965' 14,561' 19,422' 23,713' 19,097' 16,269 Type of offering 3 Public, domestic • 202,170' 181,276' 188,469' 14,414 11,769' 12,652' 17,557' 22,007' 18,421' 15,469 4 Private placement, domestic* . 127,700 114,629 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5. Sold abroad 23,178 22,851 23,054 3,305 1,196 1,909 1,865 1,706 676 800 Industry group 6 Manufacturing 70,306' 76,345 38,188' 2,015 854 2,598' 3,531' 6,582 2,782 3,128 7 Commercial and miscellaneous 62,790' 49,726' 11,098' 1,862' 304' 138 548 821' 1,061' 1,408 8 Transportation 10,275' 10,105 4,926' 270 489 533 230 457' 351 711 9 Public utility 19,579' 17,130' 13,893' 703 818 928 796 2,209' 2,032' 700 10 Communication 5,593' 8,461' 4,516' 12<r 48' 250' 228' 593' 1,270' 97 11 Real estate and financial 184,503' 156,991' 138,907' 10,453' 10,113' 14,089' 13,050' 11,601' 10,225 12,748' 12 Stocks2 57,802 57,870 426 962 1,235 1,789 896 2,247 13 T P y r p e e f erred 6,544 6,194 3,998 350 145 100 550 265 175 0 14 Common , 35,911 26,030 19,443 1,897 663 327 412 970 1,614 8% 15 Private placement3 15,346 25,647 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 16 I M nd a u n s u tr f y a ctu g r r i o n u g p 7,608 9,308 n.a. 348 125 0 60 154 46 60 1 1 8 7 T C r o a m ns m p e o r r c t i a a t l i o a n n d miscellaneous 8 1 , , 4 5 4 3 9 5 7 1 , , 4 9 4 2 6 9 5,0 1 2 2 6 6 5070 25 7 1 1 1702 19 7 4 420 11 5 0 24 1 2 8 2 1 0 9 C Pu o b m li m c u u n t i il c i a ty ti on 1, 5 8 1 9 5 8 3 1 , , 0 9 9 0 0 4 4,2 4 2 1 9 6 1703 1309 390 2970 4620 288 6 2108 21 Real estate and financial 37,798 34,028 11,055 862 218 215 400 574 1,327 359 1. Figures which represent gross proceeds of issues maturing in more than one 3. Data are not available on a monthly basis. Before 1987, annual totals include year, are principal amount or number of units multiplied by offering price. underwritten issues only. Excludes secondary offerings, employee stock plans, investment companies other SOURCES. IDD Information Services, Inc., the Board of Governors of the than closed-end, intracorporate transactions, equities sold abroad, and Yankee Federal Reserve System, and before 1989, the U.S. Securities and Exchange bonds. Stock data include ownership securities issued by limited partnerships. Commission. 2. Monthly data include only public offerings. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A34 Domestic Nonfinancial Statistics • June 1991 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Asset Position Millions of dollars 1990 1991 IItteemm 11998899 11999900 July Aug. Sept. Oct. Nov. Dec. Jan/ Feb. INVESTMENT COMPANIES1 1 Sales of own shares2 306,445 345,780 29,444 29,227 23,387 27,511 25,583 34,553 38,012 30,605 272,165 289,573 22,933 24,837 21,053 23,112 22,085 29,484 27,648 23,390 3 Net sales 34,280 56,207 6,511 4,390 2,334 4,399 3,498 5,069 10,364 7,215 4 Assets4 553,871 570,744 586,526 554,722 535,787 538,306 557,676 570,744 590,296 616,472 44,780 48,638 48,944 51,103 51,128 51,847 52,829 48,638 53,549 53,899 6 Other 509,091 522,106 537,582 503,619 484,659 486,459 504,847 522,106 536,747 562,573 1. Data on sales and redemptions exclude money market mutual funds but 4. Market value at end of period, less current liabilities. include limited maturity municipal bond funds. Data on asset positions exclude 5. Also includes all U.S. government securities and other short-term debt both money market mutual funds and limited maturity municipal bond funds. securities. 2. Includes reinvestment of investment income dividends. Excludes reinvest- NOTE. Investment Company Institute data based on reports of members, which ment of capital gains distributions and share issue of conversions from one fund comprise substantially all open-end investment companies registered with the to another in the same group. Securities and Exchange Commission. Data reflect newly formed companies after 3. Excludes share redemption resulting from conversions from one fund to their initial offering of securities. another in the same group. 1.48 CORPORATE PROFITS AND THEIR DISTRIBUTION Billions of dollars; quarterly data are at seasonally adjusted annual rates. 1989 1990 AAccccoouunntt 11998888 11998899 11999900'' Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 Corporate profits with inventory valuation and capital consumption adjustment 337.6 311.6 299.9 332277..33 321.4 306.7 229900..99 296.8 330066..66 330000..77 228888..99 2 Profits before tax 316.7 307.7 306.4 335.1 314.6 291.4 289.8 296.9 299.3 318.5 304.1 3 Profits tax liability 136.2 135.1 133.0 148.3 140.8 127.8 123.5 129.9 133.1 139.1 126.5 4 Profits after tax 180.5 172.6 173.4 186.7 173.8 163.6 166.3 167.1 166.1 179.4 177.6 5 Dividends 110.0 123.5 133.9 119.1 122.1 125.0 127.7 130.3 133.0 135.1 137.2 6 Undistributed profits 70.5 49.1 39.5 67.6 51.7 38.6 38.6 36.8 33.2 44.3 40.4 7 Inventory valuation -27.0 -21.7 -11.4 -43.0 -23.1 -6.1 -14.5 -11.4 -.5 -19.8 -13.8' 8 Capital consumption adjustment 47.8 25.5 4.9 35.2 29.9 21.4 15.6 11.3 7.7 2.0 -1.4' SOURCE. Survey of Current Business (Department of Commerce). 1.50 TOTAL NONFARM BUSINESS EXPENDITURES on New Plant and Equipment • Billions of dollars; quarterly data are at seasonally adjusted annual rates. 1989 1990 1991 IInndduussttrryy 11998899 11999900 11999911 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1 Total nonfarm business 507.40 532.96 546.41 514.95 519.58 532.45 535.49 534.86 529.02 540.82 547.91 Manufacturing 2 Durable goods industries 82.56 82.99 80.88 83.60 83.41 86.35 84.34 82.67 78.62 81.36 80.86 3 Nondurable goods industries 101.24 109.79 112.51 102.40 108.47 105.02 110.82 111.81 111.52 107.37 113.28 Nonmanufacturing 4 Mining 9.21 9.87 9.85 99..2244 9.38 9.58 9.84 9.98 10.09 10.02 10.12 Transportation 5 Railroad 6.26 6.41 6.18 6.36 6.80 6.45 6.66 5.60 6.90 5.80 6.07 6 Air 6.73 8.98 10.06 8.89 5.75 9.35 9.36 10.05 7.17 9.61 8.86 7 Other 5.85 6.20 6.82 5.78 5.69 6.33 5.84 5.76 6.88 6.83 6.67 Public utilities 8 Electric 44.81 43.98 46.66 44.44 44.66 43.37 42.62 43.63 46.31 45.87 46.61 9 Gas and other 21.47 23.02 22.41 20.75 21.15 22.34 21.65 23.85 24.22 22.85 21.97 10 Commercial and other2 229.28 241.72 251.04 233.50 234.25 243.66 244.37 241.51 237.32 251.11 253.48 •Trade and services are no longer being reported separately. They are included 2. "Other" consists of construction; wholesale and retail trade; finance and in Commercial and other, line 10. insurance; personal and business services; and communication. 1. Anticipated by business. SOURCE. Survey of Current Business (Department of Commerce). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Domestic Finance Companies A35 1.51 DOMESTIC FINANCE COMPANIES Assets and Liabilities1 Billions of dollars, end of period 1989 1990 AAccccoouunntt 11998877 1988 11998899 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ASSETS Accounts receivable, gross2 141.1 146.2 140.8 143.9 146.3 140.8 137.9 138.6 140.9 136.0 207.4 236.5 256.0 250.9 246.8 256.0 262.9 274.8 275.4 290.8 39.5 43.5 48.9 47.1 48.7 48.9 52.1 55.4 57.7 59.9 4 Total 388.1 426.2 445.8 441.9 441.8 445.8 452.8 468.8 474.0 486.7 Less: 45.3 50.0 52.0 52.2 52.9 52.0 51.9 54.3 55.1 56.6 6.8 7.3 7.7 7.5 7.7 7.7 7.9 8.2 8.6 8.9 336.0 368.9 386.1 382.2 381.3 386.1 393.0 406.3 410.3 421.2 8 All other 58.3 72.4 91.6 81.4 85.2 91.6 92.5 95.5 102.8 103.6 339944..22 441.3 477.6 463.6 466.4 477.6 485.5 501.9 513.1 524.8 LIABILITIES 16.4 15.4 14.5 12.1 12.2 14.5 13.9 15.8 15.6 18.6 128.4 142.0 149.5 149.0 147.2 149.5 152.9 152.4 148.6 152.7 Debt 28.0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 137.1 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 50.6 63.8 59.8 60.3 63.8 70.5 72.8 82.0 77.3 137.9 147.8 140.5 145.1 147.8 145.7 153.0 156.6 157.4 52.8 59.8 62.6 63.5 61.8 62.6 61.7 66.1 68.7 78.7 3311..55 35.6 39.4 38.8 39.8 39.4 40.7 41.8 41.6 40.2 339944..22 441.3 477.6 463.6 466.4 477.6 485.5 501.9 513.1 524.8 1. Components may not sum to totals because of rounding. 2. Excludes pools of securitized assets. 1.52 DOMESTIC FINANCE COMPANIES Business Credit Outstanding and Net Change1 Millions of dollars, seasonally adjusted 1990 1991 Type 1988 11998899 11999900 Sept. Oct. Nov. Dec. Jan. Feb. 1 Total 234,578 258,504 292,117 285,654 287,921 287,819 292,117 294,134' 293,825 Retail financing of installment sales 2 Automotive 36,957 39,139 37,756 38,470 39,150 38,600 37,756 38,062 37,564 3 Equipment 28,199 29,674 31,867 30,607 30,487 30,729 31,867 31,984 32,116 4 Pools of securitized assets2 n.a. 698 951 946 902 927 951 911 879 Wholesale 5 Automotive 32,357 33,074 31,385 37,082 35,258 33,111 31,385 32,467 30,550 6 Equipment 5,954 6,896 11,504 9,791 10,698 10,847 11,504 11,543 11,205 7 All other 9,312 9,918 9,043 9,597 9,477 9,447 9,043 9,381 9,094 8 Pools of securitized assets2 n.a. 0 2,950 863 679 649 2,950 2,836 3,353 Leasing 9 Automotive 24,875 27,074 39,622 30,453 31,303 31,601 39,622 39,303' 39,234 10 Equipment 57,658 68,112 75,240 79,158 80,833 81,427 75,240 76,576 78,881 11 Pools of securitized assets2 n.a. 1,247 1,849 1,655 1,724 1,884 1,849 1,854 1,810 12 Loans on commercial accounts receivable and factored commercial accounts receivable 18,103 19,081 23,231 20,538 20,740 21,652 23,231 22,130 22,280 13 All other business credit 21,162 23,590 26,720 26,495 26,670 26,944 26,720 27,086 26,861 Net change (during period) 14 Total 22,434 22,580 31,396 2,611 2,267 -101 4,298 2,017r -309 Retail financing of installment sales 15 Automotive 819 2,182 -1,383 -141 680 -549 -844 306 -499 16 Equipment 1,386 1,475 2,195 -100 -120 243 1,138 118 131 17 Pools of securitized assets2 n.a. -26 253 -41 -44 25 24 -40 -32 Wholesale 18 Automotive 2,288 716 -1,689 2,653 -1,823 -2,147 -1,727 1,083 -1,918 19 Equipment 377 940 2,389 -21 907 149 657 39 -338 20 All other 983 605 -874 -110 -120 -29 -404 338 -287 21 Pools of securitized assets2 n.a. 0 2,950 213 -184 -30 2,301 -114 517 Leasing 22 Automotive 2,777 2,201 12,548 -488 850 298 8,021 -319' -69 23 Equipment 9,752 9,187 7,128 444 1,675 594 -6,188 1,337 2,305 24 Pools of securitized assets2 n.a. 526 602 -48 69 160 -35 5 -44 25 Loans on commercial accounts receivable and factored commercial accounts receivable -65 979 4,149 564 202 912 1,579 -1,101 150 26 All other business credit 4,119 3,796 3,131 -314 175 273 -223 366 -225 1. These data also appear in the Board's G.20 (422) release. For address, see 2. Data on pools of securitized assets are not seasonally adjusted, inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A36 Domestic Nonfinancial Statistics • June 1991 1.53 MORTGAGE MARKETS Millions of dollars; exceptions noted. 1990 1991 IItteemm 11998888 11998899 11999900 Sept. Oct. Nov. Dec. Jan. Feb. Mar. Terms and yields in primary and secondary markets PRIMARY MARKETS Conventional mortgages on new homes Terms 1 Purchase price (thousands of dollars) 150.0 159.6 153.2 156.6 146.1 151.5 156.3 148.3 153.2 136.7 2 Amount of loan (thousands of dollars) 110.5 117.0 112.4 114.8 105.1 111.2 115.4 112.3 113.8 100.4 3 Loan/price ratio (percent) 75.5 74.5 74.8 74.7 73.5 75.0 74.9 77.2 76.3 74.6 4 Maturity (years) 28.0 28.1 27.3 27.2 26.9 27.1 28.6 28.1 28.3 25.7 5 Fees and charges (percent of loan amount)2, 2.19 2.06 1.93 1.78 1.80 1.68 1.85 1.75 1.73 1.59 6 Contract rate (percent per year) 8.81 9.76 9.68 9.60 9.68 9.61 9.45 9.36 9.28 9.16 Yield (percent per year) 7 OTS series3 9.18 10.11 10.01 9.90 9.98 9.90 9.76 9.65 9.57 9.43 8 HUD series4 10.30 10.21 10.08 10.18 10.11 9.86 9.66 9.53 9.49 9.49 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (HUD series)5 10.49 10.24 10.17 10.24 10.23 9.81 9.66 9.58 9.57 9.61 10 GNMA securities6 9.83 9.71 9.51 9.65 9.66 9.46 9.08 8.87 8.66 8.75 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 101,329 104,974 113,329 113,718 114,216 115,085 116,628 117,445 118,284 119,196 12 FHA/V A-insured 19,762 19,640 21,028 21,364 21,495 21,530 21,751 21,854 21,947 21,976 13 Conventional 81,567 85,335 92,302 92,354 92,721 93,555 94,877 95,591 96,337 97,220 Mortgage transactions (during period) 14 Purchases 23,110 22,518 23,959 2,123 2,077 2,078 2,410 1,781 1,792 1,987 Mortgage commitments7 15 Issued (during period)® n.a. n.a. n.a. 2,073 1,849 2,426 2,104 1,889 1,779 3,087 16 To sell (during period)9 n.a. n.a. n.a. 644 92 0 0 2 0 109 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of period)9 17 Total 15,105 20,105 20,419 20,508 20,790 21,301 21,857 n.a. n.a. n.a. 18 FHA/V A 620 590 547 536 530 524 518 n.a. n.a. n.a. 19 Conventional 14,485 19,516 19,871 19,972 20,260 20,777 21,339 n.a. n.a. n.a. Mortgage transactions (during period) 20 Purchases 44,077 78,588 75,517 5,798 6,118 6,981 10,637 n.a. n.a. n.a. 21 Sales 39,780 73,446 73,817 5,707 5,734 6,314 9,918 4,507 4,465 6,184 Mortgage commitments10 22 Contracted (during period) 66,026 88,519 102,401 6,643 10,972 10,164 12,938 n.a. n.a. n.a. 1. Weighted averages based on sample surveys of mortgages originated by ciation guaranteed, mortgage-backed, fully modified pass-through securities, nuyor institutional lender groups; compiled by the Federal Home Loan Bank assuming prepayment in 12 years on pools of 30-year FHA/VA mortgages Board in cooperation with the Federal Deposit Insurance Corporation. carrying the prevailing ceiling rate. Monthly figures are averages of Friday figures 2. Includes all fees, commissions, discounts, and "points" paid (by the from the Wall Street Journal. borrower or the seller) to obtain a loan. 7. Includes some multifamily and nonprofit hospital loan commitments in 3. Average effective interest rates on loans closed, assuming prepayment at addition to 1- to 4-family loan commitments accepted in FNMA's free market the end of 10 years. auction system, and through the FNMA-GNMA tandem plans. 4. Average contract rates on new commitments for conventional first mort- 8. Does not include standby commitments issued, but includes standby gages; from Department of Housing and Urban Development. commitments converted. 5. Average gross yields on 30-year, minimum-downpayment, Federal Housing 9. Includes participation as well as whole loans. Administration-insured first mortgages for immediate delivery in the private 10. Includes conventional and government-underwritten loans. FHLMC's secondary market. Based on transactions on first day of subsequent month. Large mortgage commitments and mortgage transactions include activity under mortgage/ monthly movements in average yields may reflect market adjustments to changes securities swap programs, while the corresponding data for FNMA exclude swap in maximum permissable contract rates. activity. 6. Average net yields to investors on Government National Mortgage Asso- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Real Estate A37 1.54 MORTGAGE DEBT OUTSTANDING1 Millions of dollars, end of period 1989 1990 TTyyppee ooff hhoollddeerr,, aanndd ttyyppee ooff pprrooppeerrttyy 11998888 11998899 11999900 Q4 Ql Q2 Q3 Q4P 1 All holders 3,265,352 3,552,716 3,858,580 3,552,716 3,693,622 3,757,289 3,813,083 3,858,580 ? 1- to 4-family 2,184,449 2,408,575 2,690,678 2,408,575 2,530,708 2,593,951 2,643,112 2,690,678 3 Multifamily 290,651 302,537 300,173 302,537 304,758 300,644 301,756 300,173 4 704,970 757,538 783,498 757,538 774,253 778,694 783,916 783,498 5 85,282 84,066 84,231 84,066 83,903 84,000 84,299 84,231 6 Selected financial institutions 1,826,706 1,927,883 1,918,662 1,927,883 1,935,745 1,937,175 1,930,841 1,918,662 7 Commercial banks 669,237 763,415 841,814 763,415 783,542 811,407 828,178 841,814 8 1- to 4-family 317,585 368,518 427,740 368,518 381,221 405,545 418,225 427,740 9 Multifamily 33,158 37,9% 36,180 37,996 36,833 37,274 36,737 36,180 10 Commercial 302,989 340,204 360,243 340,204 348,676 351,412 355,843 360,243 11 Farm 15,505 16,697 17,651 16,697 16,812 17,176 17,373 17,651 1? Savings institutions3 924,606 910,254 809,829 910,254 891,921 860,903 836,600 809,829 n 1- to 4-family 671,722 669,220 610,809 669,220 658,405 642,110 626,789 610,809 14 Multifamily 110,775 106,014 91,789 106,014 103,841 97,359 94,714 91,789 IS Commercial 141,433 134,370 106,708 134,370 129,056 120,866 114,567 106,708 16 676 650 524 650 619 568 530 524 17 Life insurance companies 232,863 254,214 267,018 254,214 260,282 264,865 266,063 267,018 18 1- to 4-family 11,164 12,231 12,837 12,231 12,525 12,740 12,773 12,837 19 Multifamily 24,560 26,907 28,171 26,907 27,555 28,027 28,100 28,171 70 Commercial 187,549 205,472 215,121 205,472 210,422 214,024 214,585 215,121 ?1 9,590 9,604 10,890 9,604 9,780 10,075 10,605 10,890 22 Finance companies4 37,846 45,476 48,777 45,476 45,808 47,104 49,784 48,777 73 Federal and related agencies 200,570 209,498 247,693 209,498 216,146 227,818 242,695 247,693 74 Government National Mortgage Association 26 23 21 23 22 21 21 21 7.5 1- to 4-family 26 23 21 23 22 21 21 21 76 Multifamily 0 0 0 0 0 0 0 0 77 Farmers Home Administration 42,018 41,176 41,324 41,176 41,125 41,175 41,269 41,324 78 1- to 4-family 18,347 18,422 18,494 18,422 18,419 18,434 18,476 18,494 79 Multifamily 8,513 9,054 9,623 9,054 9,199 9,361 9,477 9,623 30 Commercial 5,343 4,443 4,671 4,443 4,510 4,545 4,608 4,671 31 Farm 9,815 9,257 8,536 9,257 8,997 8,835 8,708 8,536 37 Federal Housing and Veterans Administration 5,973 6,087 8,570 6,087 6,355 6,792 7,938 8,570 33 1- to 4-family 2,672 2,875 3,362 2,875 3,027 3,054 3,248 3,362 34 Multifamily 3,301 3,212 5,208 3,212 3,328 3,738 4,690 5,208 35 Federal National Mortgage Association 103,013 110,721 115,508 110,721 112,353 112,855 113,718 115,508 36 1- to 4-family 95,833 102,295 104,900 102,295 103,300 103,431 103,722 104,900 37 Multifamily 7,180 8,426 10,608 8,426 9,053 9,424 9,9% 10,608 38 Federal Land Banks 32,115 29,640 29,145 29,640 29,325 29,595 29,441 29,145 39 1- to 4-family 1,890 1,210 1,820 1,210 1,197 1,741 1,766 1,820 40 30,225 28,430 27,325 28,430 28,128 27,854 27,675 27,325 41 Federal Home Loan Mortgage Corporation 17,425 21,851 20,525 21,851 19,823 19,979 20,508 20,525 47 1- to 4-family 15,077 18,248 17,870 18,248 16,772 17,316 17,810 17,870 43 Multifamily 2,348 3,603 2,655 3,603 3,051 2,663 2,697 2,655 44 Mortgage pools or trusts6 811,847 946,766 1,101,589 946,766 984,811 1,024,893 1,060,640 1,101,589 45 Government National Mortgage Association 340,527 368,367 404,076 368,367 376,962 385,456 394,859 404,076 46 1- to 4-family 331,257 358,142 393,656 358,142 366,300 374,960 384,474 393,656 47 Multifamily 9,270 10,225 10,419 10,225 10,662 10,496 10,385 10,419 48 Federal Home Loan Mortgage Corporation 226,406 272,870 309,486 272,870 281,736 295,340 301,797 309,486 49 1- to 4-family 219,988 266,060 301,450 266,060 274,084 287,232 293,721 301,450 50 Multifamily 6,418 6,810 8,036 6,810 7,652 8,108 8,077 8,036 51 Federal National Mortgage Association 178,250 228,232 303,880 228,232 246,391 263,330 281,806 303,880 57 1- to 4-family 172,331 219,577 295,438 219,577 237,916 254,811 273,335 295,438 53 Multifamily 5,919 8,655 8,442 8,655 8,475 8,519 8,471 8,442 54 Farmers Home Administration5 104 80 68 80 76 72 70 68 55 1- to 4-family 26 21 17 21 20 19 18 17 56 Multifamily 0 0 0 0 0 0 0 0 57 Commercial 38 26 24 26 25 24 24 24 58 Farm 40 33 27 33 31 30 29 27 59 Individuals and others7 426,229 468,569 590,637 468,569 556,920 567,403 578,908 590,637 60 259,971 294,517 402,385 294,517 374,143 382,343 393,027 402,385 61 Multifamily 79,209 81,634 80,978 81,634 83,666 82,040 80,636 80,978 67 Commercial 67,618 73,023 87,995 73,023 79,576 83,557 85,865 87,995 63 19,431 19,395 19,278 19,395 19,536 19,463 19,379 19,278 1. Based on data from various institutional and governmental sources, with 5. Farmers Home Administration-guaranteed securities sold to the Federal some quarters estimated in part by the Federal Reserve. Multifamily debt refers Financing Bank were reallocated from FmHA mortgage pools to FmHA mortgage to loans on structures of five or more units. holdings in 1986:4, because of accounting changes by the Fanners Home 2. Includes loans held by nondeposit trust companies but not bank trust Administration. departments. 6. Outstanding principal balances of mortgage pools backing securities insured 3. Includes savings banks and savings and loan associations. Beginning 1987:1, or guaranteed by the agency indicated. Includes private pools which are not data reported by FSLIC-insured institutions include loans in process and other shown as a separate line item. contra assets (credit balance accounts that must be subtracted from the corre- 7. Other holders include mortgage companies, real estate investment trusts, sponding gross asset categories to yield net asset levels). state and local credit agencies, state and local retirement funds, noninsured 4. Assumed to be entirely 1- to 4-family loans. pension funds, credit unions, and other U.S. agencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A38 Domestic Nonfinancial Statistics • June 1991 1.55 CONSUMER INSTALLMENT CREDIT1 Total Outstanding, and Net Change, seasonally adjusted Millions of dollars, amounts outstanding, end of period 1990 1991 HHoollddeerr,, aanndd ttyyppee ooff ccrreeddiitt 11998899 11999900 June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Seasonally adjusted 11 TToottaall 716,624 739,014 724,601 729,329 732,385 735,222 736,595 739,357 739,014 736,756' 734,461 22 AAuuttoommoobbiillee 290,770 285,336 287,168 286,791 285,283 285,261 284,402 284,483 285,336 283,593' 280,501 33 RReevvoollvviinngg 197,110 218,235 208,362 212,138 214,492 216,804 218,381 219,757 218,235 219,463' 220,838 44 MMoobbiillee hhoommee 22,343 21,816 22,733 22,795 22,976 22,672 22,491 22,518 21,816 22,684 22,446 55 OOtthheerr 206,401 213,628 206,338 207,605 209,635 210,484 211,320 212,599 213,628 211,015' 210,676 Not seasonally adjusted 6 Total 727,561 750,941 722,953 727,196 734,511 737,260 737,252 740,346 750,941 740,602' 733,940 By major holder 7 Commercial banks 343,865 351,695 335,998 339,124 342,987 344,941 344,875 346,128 351,695 345,027' 343,923 8 Finance companies 140,832 136,154 138,642 138,7% 139,4% 140,890 141,329 139,195 136,154 134,739 132,750 9 Credit unions 90,875 91,203 90,137 90,631 91,306 91,311 91,406 91,174 91,203 90,335' 89,990 10 Retailers 42,638 42,111 37,382 36,804 37,231 36,682 36,047 37,470 42,111 39,828 37,866 11 Savings institutions 57,228 49,594 52,902 52,503 52,399 51,358 50,787 50,310 49,594 49,117 47,687 1 1 3 2 G Po a o so ls l i o n f e s c e o c m ur p it a i n z i e e d s assets2 .. 4 3 8 , , 9 1 3 8 5 8 75 4 , , 4 7 3 4 7 7 63 4, , 1 7 9 0 2 0 6 4 4, , 9 3 4 % 2 6 4 6 , , 7 3 2 7 2 0 67 4 , , 3 7 5 2 5 3 68 4 , ,7 0 1 9 8 0 7 4 1 , , 7 3 0 6 1 8 75 4 , , 4 7 3 4 7 7 7 4 6 , , 7 8 4 0 8 8 ' 7 4 7 , , 3 3 3 9 3 1 By major type of credit3 14 Automobile 290,421 284,908 287,254 287,479 288,221 289,255 287,730 285,877 284,908 281,750' 279,098 15 Commercial banks 126,613 126,117' 126,988 126,986 128,079 128,937 128,133 127,039 126,117' 124,494 123,394 1 1 6 7 F Po in o a ls n c o e f c s o e m cu p r a it n iz ie e s d assets2 8 1 2 8 , , 7 1 2 9 1 1 7 24 4 , , 1 3 9 9 8 7 7 2 8 1 , , 2 0 7 4 3 3 7 21 7 , , 6 7 9 1 2 6 7 21 7 , , 5 2 6 0 2 5 7 21 8 , , 2 1 3 1 9 6 7 20 8 , , 7 0 8 3 6 3 7 2 5 3 , , 2 1 2 5 4 9 7 2 4 4 , , 3 1 9 9 7 8 2 7 5 2, , 0 6 1 9 5 0 ' 7 26 0 , , 5 2 1 8 4 7 18 Revolving 208,188 230,456 206,820 209,582 213,119 214,853 216,285 219,713 230,456 224,006' 221,015 19 Commercial banks 130,956 133,295 122,116 124,569 125,967 126,995 127,950 129,111 133,295 128,774' 128,442 20 Retailers 37,967 37,535 32,884 32,325 32,735 32,212 31,601 32,993 37,535 35,330 33,448 2 2 1 2 G Po a o so ls l i o n f e s c e o c m ur p i a ti n z i e e d s assets2 2 3 2 , , 9 9 3 7 5 7 43 4 , , 8 7 8 4 7 7 3 4 6 , , 1 0 9 7 2 6 3 4 6, , 7 3 8 % 6 38 4 , , 1 7 9 2 4 2 3 4 9 , , 7 60 2 6 3 40 4 , , 7 7 9 1 8 8 41 4, , 7 7 0 9 1 7 4 4 3 , , 7 8 4 8 7 7 44 4 , , 3 7 0 4 2 8 44 4 , , 1 3 6 3 1 3 23 Mobile home 22,283 21,757 22,644 22,873 23,033 22,815 22,720 22,646 21,757 22,818 22,540 24 Commercial banks 9,155 9,934 9,2% 9,443 9,541 9,3% 9,363 9,351 9,934 9,838 9,824 25 Finance companies 4,716 3,956 5,266 5,328 5,358 5,423 5,400 5,364 3,956 5,141 5,059 26 Other 206,669 213,820 206,235 207,252 210,138 210,337 210,517 212,110 213,820 212,028' 211,287 27 Commercial banks 77,141 82,349 77,598 78,126 79,400 79,613 79,429 80,627 82,349 81,921' 82,263 28 Finance companies 53,395 57,801 55,103 55,752 56,933 57,351 57,8% 58,607 57,801 57,583 57,404 29 Retailers 4,671 4,576 4,498 4,479 4,4% 4,470 4,446 4,477 4,576 4,498 4,418 30 Pools of securitized assets2 7,020 7,352 6,581 6,464 6,614 6,510 6,506 6,412 7,352 6,816 6,716 1. The Board's series cover most short- and intermediate-term credit extended 2. Outstanding balances of pools upon which securities have been issued; these to individuals that is scheduled to be repaid (or has the option of repayment) in balances are no longer carried on the balance sheets of the loan originator. two or more installments. 3. Totals include estimates for certain holders for which only consumer credit These data also appear in the Board's G.19 (421) release. For address, see totals are available. inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Consumer Installment Credit A39 1.56 TERMS OF CONSUMER INSTALLMENT CREDIT1 Percent unless noted otherwise 1990 1991 IItteemm 11998888 11998899 11999900 Aug. Sept. Oct. Nov. Dec. Jan. Feb. INTEREST RATES Commercial banks2 1 48-month new car 10.85 12.07 11.78 11.89 n.a. n.a. 11.62 n.a. n.a. 11.60 2 24-month personal 14.68 15.44 15.46 15.46 n.a. n.a. 15.69 n.a. n.a. 15.42 3 120-month mobile home3 13.54 14.11 14.02 14.09 n.a. n.a. 13.99 n.a. n.a. 13.88 4 Credit card 17.78 18.02 18.17 18.18 n.a. n.a. 18.23 n.a. n.a. 18.28 Auto finance companies 5 New car 12.60 12.62 12.54 12.62 12.34 12.57 12.74 12.86 12.99 13.16 6 Used car 15.11 16.18 15.99 15.98 16.03 16.12 16.07 16.04 15.70 15.90 OTHER TERMS4 Maturity (months) 7 New car 56.2 54.2 54.6 54.8 54.3 54.6 54.6 54.7 54.9 55.2 8 Used car 46.7 46.6 46.1 46.2 46.1 46.1 46.0 45.8 47.4 47.1 Loan-to-value ratio 9 New car 94 91 87 86 85 85 85 85 88 88 10 Used car 98 97 95 % 95 95 95 94 96 % Amount financed (dollars) 11 New car 11,663 12,001 12,071 11,939 11,837 11,917 11,986 12,140 12,229 12,081 12 Used car 7,824 7,954 8,289 8,415 8,403 8,423 8,494 8,530 8,600 8,605 1. These data also appear in the Board's G.19 (421) release. For address, see 3. Before 1983 the maturity for new car loans was 36 months, and for mobile inside front cover. home loans was 84 months. 2. Data for midmonth of quarter only. 4. At auto finance companies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A40 Domestic Nonfinancial Statistics • June 1991 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS Billions of dollars; quarterly data are at seasonally adjusted annual rates. 1989 1990 TTrraannssaaccttiioonn ccaatteeggoorryy,, sseeccttoorr Q2 Q3 Q4 Qi Q2 Q3 Q4 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors.. 836.9 687.0 760.8 678.2 662.1 666.8 678.8 620.2 788.6 611.8 687.2 561.0 By sector and instrument 2 U.S. government 215.0 144.9 157.5 151.6 272.5 100.1 173.9 185.0 247.3 228.2 286.1 328.4 3 Treasury securities 214.7 143.4 140.0 150.0 264.4 95.0 166.8 189.6 217.8 222.9 287.5 329.4 4 Agency issues and mortgages .4 1.5 17.4 1.6 8.2 5.1 7.1 -4.6 29.6 5.4 -1.3 -1.0 5 Private domestic nonfinancial sectors 621.9 542.1 603.3 526.6 389.6 566.7 504.9 435.2 541.3 383.6 401.0 232.6 6 Debt capital instruments 465.8 453.2 459.2 379.8 309.6 390.1 369.2 347.0 393.7 318.9 282.8 243.0 7 Tax-exempt obligations 22.7 49.3 49.8 30.4 19.4 28.7 34.1 19.1 13.0 24.7 29.8 10.1 X Corporate bonds 126.8 79.4 102.9 73.7 61.5 86.5 62.7 87.4 45.2 75.2 46.0 79.6 9 Mortgages 316.3 324.5 306.5 275.7 228.7 275.0 272.4 240.5 335.6 218.9 207.0 153.3 10 Home mortgages 218.7 234.9 231.0 218.0 214.4 211.3 221.0 214.3 272.8 228.2 179.3 177.4 11 Multifamily residential 33.5 24.4 16.7 16.4 -.7 21.4 11.8 9.5 22.1 -18.2 3.1 -9.7 12 Commercial 73.6 71.6 60.8 42.7 14.8 41.5 40.9 19.9 40.1 10.9 22.7 -14.6 13 Farm -9.5 -6.4 -2.1 -1.5 .2 .9 -1.3 -3.2 .5 -1.9 1.9 .2 14 Other debt instruments 156.1 88.9 144.1 146.8 80.0 176.5 135.6 88.2 147.6 64.7 118.2 -10.4 15 Consumer credit 58.0 33.5 50.2 39.1 18.4 36.9 37.1 44.1 14.9 10.5 26.6 21.6 16 Bank loans n.e.c 66.9 10.0 39.8 39.9 -3.0 45.1 50.8 7.7 18.7 6.5 5.6 -43.0 17 Open market paper -9.3 2.3 11.9 20.4 9.7 39.5 16.9 -6.9 69.6 -6.2 17.3 -41.7 18 Other 40.5 43.2 42.2 47.4 54.9 55.0 30.9 43.3 44.3 53.9 68.7 52.6 19 By borrowing sector 621.9 542.1 603.3 526.6 389.6 566.7 504.9 435.2 541.3 383.6 401.0 232.6 20 State and local governments 36.2 48.8 45.6 29.6 14.6 33.3 28.6 16.5 8.9 17.7 28.7 3.1 21 Households 293.0 302.2 314.9 285.0 260.1 264.0 290.8 291.8 335.0 269.7 246.8 189.0 22. Nonfinancial business 292.7 191.0 242.8 211.9 114.9 269.4 185.4 126.9 197.4 96.2 125.6 40.4 23 Farm -16.3 -10.6 -7.5 1.6 3.0 -5.0 -2.1 8.9 6.3 -4.8 5.2 5.1 24 Nonfarm noncorporate 99.2 77.9 65.7 50.8 14.3 56.9 40.2 35.0 44.4 5.2 22.3 -14.5 25 Corporate 209.7 123.7 184.6 159.5 97.6 217.4 147.3 83.1 146.8 95.8 98.1 49.8 26 Foreign net borrowing in United States 9.7 4.5 6.3 10.9 23.3 -6.9 30.4 16.9 -3.5 42.5 32.9 21.2 27 Bonds 3.1 7.4 6.9 5.3 21.1 11.5 8.1 -1.0 28.1 27.4 3.2 25.7 28 Bank loans n.e.c -1.0 -3.6 -1.8 -.1 -2.8 -3.2 3.7 -4.3 -6.7 -2.0 1.9 -4.3 29 Open market paper 11.5 2.1 8.7 13.3 12.3 -6.6 20.7 22.2 -16.4 23.1 27.3 15.3 30 U.S. government loans -3.9 -1.4 -7.5 -7.5 -7.4 -8.7 -2.1 .1 -8.5 -6.1 .5 -15.5 31 Total domestic plus foreign 846.6 691.5 767.1 689.1 685.4 659.9 709.2 637.1 785.1 654.3 720.1 582.2 Financial sectors 32 Total net borrowing by financial sectors 285.1 300.2 247.6 205.5 199.4 154.1 123.9 187.3 198.6 172.6 170.9 255.4 By instrument 33 U.S. government related 154.1 171.8 119.8 151.0 170.6 128.8 124.8 156.4 176.2 183.8 137.5 184.8 34 Sponsored credit agency securities 15.2 30.2 44.9 25.2 22.6 22.5 13.2 -4.7 14.3 17.0 20.6 38.8 35 Mortgage pool securities 139.2 142.3 74.9 125.8 148.0 106.3 111.6 161.1 162.0 166.8 116.9 146.1 36 Loans from U.S. government -.4 -.8 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 37 Private financial sectors 131.0 128.4 127.8 54.5 28.8 25.3 -.9 30.9 22.3 -11.3 33.5 70.5 38 Corporate bonds 82.9 78.9 51.7 36.8 44.1 28.5 26.7 39.6 37.7 64.0 22.3 52.4 39 Mortgages .1 .4 .3 .0 .7 .0 .3 -.4 -.7 .8 2.6 .0 40 Bank loans n.e.c 4.0 -3.2 1.4 1.8 .7 -.1 2.0 4.2 -2.2 -.6 1.9 3.8 41 Open market paper 24.2 27.9 54.8 26.9 8.0 10.1 11.0 36.3 9.5 -44.6 37.2 29.8 42 Loans from Federal Home Loan Banks 19.8 24.4 19.7 -11.0 -24.7 -13.1 -41.0 -48.8 -22.0 -30.9 -30.5 -15.5 By sector 43 285.1 300.2 247.6 205.5 199.4 154.1 123.9 187.3 198.6 172.6 170.9 255.4 44 Sponsored credit agencies 14.9 29.5 44.9 25.2 22.6 22.5 13.2 -4.7 14.3 17.0 20.6 38.8 45 Mortgage pools 139.2 142.3 74.9 125.8 148.0 106.3 111.6 161.1 162.0 166.8 116.9 146.1 46 Private financial sectors 131.0 128.4 127.8 54.5 28.8 25.3 -.9 30.9 22.3 -11.3 33.5 70.5 47 Commercial banks -3.6 6.2 -3.0 -1.4 -1.1 2.5 3.5 -.7 -4.9 -7.9 -12.5 21.0 48 Bank affiliates 15.2 14.3 5.2 6.2 -27.7 2.9 16.5 -3.9 -10.0 -32.2 -40.2 -28.5 49 Savings and loan associations 20.9 19.6 19.9 -14.1 -32.4 -16.3 -44.7 -56.2 -15.8 -53.5 -36.5 -24.0 50 Mutual savings banks 4.2 8.1 1.9 -1.4 -.1 .0 -2.3 .7 -8.3 6.5 .3 1.1 51 Finance companies 54.7 40.8 67.7 46.3 50.9 40.4 23.5 52.6 27.1 27.5 91.3 57.8 52 REITs .8 .3 3.5 -1.9 -.3 -2.8 -3.1 .1 -.5 -2.0 1.3 -.1 53 SCO Issuers 39.0 39.1 32.5 20.8 39.5 -1.4 5.7 38.2 34.7 50.3 29.7 43.3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A41 1.57—Continued 1989 1990 TTrraannssaaccttiioonn ccaatteeggoorryy,, sseeccttoorr 11998866 11998877 11998888 11998899 11999900 Q2 Q3 Q4 QL Q2 Q3 Q4 All sectors 54 Total net borrowing 1,131.7 991.7 1,014.7 894.5 884.8 814.0 833.0 824.4 983.7 826.8 891.0 837.5 55 U.S. government securities 369.5 317.5 277.2 302.6 443.1 228.9 298.7 341.4 423.6 412.1 423.6 513.3 56 State and local obligations 22.7 49.3 49.8 30.4 19.4 28.7 34.1 19.1 13.0 24.7 29.8 10.1 57 Corporate and foreign bonds 212.8 165.7 161.5 115.8 126.7 126.5 97.6 125.9 111.0 166.6 71.4 157.7 58 Mortgages 316.4 324.9 306.7 275.7 229.4 275.0 272.7 240.1 334.9 219.7 209.5 153.4 59 Consumer credit 58.0 33.5 50.2 39.1 18.4 36.9 37.1 44.1 14.9 10.5 26.6 21.6 60 Bank loans n.e.c 69.9 3.2 39.4 41.5 -5.1 41.9 56.5 7.5 9.8 4.0 9.4 -43.5 61 Open market paper 26.4 32.3 75.4 60.6 30.0 42.9 48.5 51.6 62.6 -27.7 81.9 3.3 62 Other loans 56.1 65.5 54.4 28.9 22.8 33.2 -12.2 -5.4 13.9 17.0 38.8 21.6 63 MEMO: U.S. government, cash balance .0 -7.9 10.4 -5.9 8.6 20.7 -22.7 -7.3 22.9 -38.1 21.1 28.3 Totals net of changes in U.S. government cash balances 64 Net borrowing by domestic nonfinancial 836.9 694.9 750.4 684.1 653.6 646.1 701.6 627.6 765.7 649.9 666.1 532.6 65 Net borrowing by U.S. government 215.0 152.8 147.1 157.5 264.0 79.4 196.7 192.4 224.4 266.3 265.1 300.1 External corporate equity funds raised in United States 66 Total net share issues 86.8 10.9 -124,2 -63.7 17.2 -43.0 -61.0 14.9 -4.7 51.3 -9.6 31.7 67 Mutual funds 159.0 73.9 1.1 41.3 66.9 34.0 57.9 72.4 53.1 76.5 51.7 86.2 68 All other -72.2 -63.0 -125.3 -105.1 -49.7 -77.0 -118.9 -57.6 -57.8 -25.2 -61.3 -54.4 69 Nonfinancial corporations -85.0 -75.5 -129.5 -124.2 -63.0 -98.7 -146.3 -79.3 -69.0 -48.0 -74.0 -61.0 70 Financial corporations 11.6 14.6 3.3 2.4 6.1 4.3 -.1 4.5 10.0 .3 12.6 1.5 71 Foreign shares purchased in United States 1.2 -2.1 .9 16.7 7.2 17.4 27.5 17.2 1.3 22.5 .1 5.1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A42 Domestic Nonfinancial Statistics • June 1991 1.58 DIRECT AND INDIRECT SOURCES OF FUNDS TO CREDIT MARKETS Billions of dollars, except as noted; quarterly data are at seasonally adjusted annual rates. 1989 1990 TTrraannssaaccttiioonn ccaatteeggoorryy,, oorr sseeccttoorr 11998866 11998877 11998888 11998899 11999900 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 Total funds advanced in credit markets to domestic nonfinancial sectors 836.9 687.0 760.8 678.2 662.1 666.8 678.8 620.2 788.6 611.8 687.2 561.0 By public agencies and foreign 2 Total net advances 280.2 248.8 210.7 187.6 278.7 15.5 218.3 203.8 234.4 314.3 316.1 249.9 3 U.S. government securities 69.4 70.1 85.2 30.7 79.9 -103.3 115.7 27.1 17.3 97.1 134.9 70.2 4 Residential mortgages 136.3 139.1 86.3 137.9 179.0 119.7 127.7 178.3 182.2 206.7 160.8 166.3 5 FHLB advances to thrifts 19.8 24.4 19.7 -11.0 -24.7 -13.1 -41.0 -48.8 -22.0 -30.9 -30.5 -15.5 6 Other loans and securities 54.7 15.1 19.4 30.0 44.5 12.1 15.8 47.1 56.8 41.3 50.9 28.9 Total advanced, by sector 7 U.S. government 9.7 -7.9 -9.4 -2.4 34.0 -6.0 -9.3 5.7 33.5 41.3 59.1 2.0 8 Sponsored credit agencies 153.3 169.3 112.0 125.3 170.1 28.0 126.4 158.4 184.2 166.3 155.6 174.4 9 Monetary authorities 19.4 24.7 10.5 -7.3 8.1 -1.6 -31.2 -4.6 -6.3 40.4 24.4 -25.9 10 Foreign 97.8 62.7 97.6 72.1 66.4 -4.9 132.4 44.2 22.9 66.4 77.0 99.4 Agency and foreign borrowing not in line 1 11 Sponsored credit agencies and mortgage pools 154.1 171.8 119.8 151.0 170.6 128.8 124.8 156.4 176.2 183.8 137.5 184.8 12 Foreign 9.7 4.5 6.3 10.9 23.3 -6.9 30.4 16.9 -3.5 42.5 32.9 21.2 Private domestic funds advanced 13 Total net advances 720.5 614.5 676.2 652.5 577.3 773.3 615.7 589.7 727.0 523.8 541.5 517.1 14 U.S. government securities 300.1 247.4 192.1 271.9 363.2 332.2 183.0 314.3 406.2 314.9 288.8 443.0 15 State and local obligations 22.7 49.3 49.8 30.4 19.4 28.7 34.1 19.1 13.0 24.7 29.8 10.1 16 Corporate and foreign bonds 89.7 66.9 91.3 66.1 67.7 91.1 65.6 70.6 57.0 81.7 47.2 84.8 17 Residential mortgages 115.9 120.2 161.3 96.5 34.8 113.0 105.1 45.5 112.7 3.3 21.6 1.5 18 Other mortgages and loans 212.0 155.2 201.4 176.6 67.6 195.2 186.9 91.5 116.1 68.3 123.6 -37.7 19 LESS: Federal Home Loan Bank advances 19.8 24.4 19.7 -11.0 -24.7 -13.1 -41.0 -48.8 -22.0 -30.9 -30.5 -15.5 Private financial intermediation 20 Credit market funds advanced by private financial institutions 730.0 528.4 562.3 511.1 394.1 600.9 345.9 623.4 379.9 275.8 404.8 515.8 21 Commercial banking 198.1 135.4 156.3 177.3 119.9 160.9 183.7 184.3 188.1 126.1 104.6 60.7 22 Savings institutions 107.6 136.8 120.4 -90.9 -141.0 -42.3 -135.8 -201.9 -56.6 -210.3 -167.4 -129.6 23 Insurance and pension funds 160.1 179.7 198.7 177.9 226.1 188.1 136.1 205.1 168.8 238.9 231.0 265.5 24 Other finance 264.2 76.6 86.9 246.8 189.1 294.2 161.9 436.0 79.5 121.1 236.6 319.2 25 Sources of funds 730.0 528.4 562.3 511.1 394.1 600.9 345.9 623.4 379.9 275.8 404.8 515.8 26 Private domestic deposits and RPs 277.1 162.8 229.2 225.2 72.8 267.4 284.4 208.0 113.0 36.7 91.8 49.6 27 Credit market borrowing 131.0 128.4 127.8 54.5 28.8 25.3 -.9 30.9 22.3 -11.3 33.5 70.5 28 Other sources 321.8 237.1 205.3 231.4 292.5 308.2 62.3 384.6 244.6 250.3 279.6 395.6 29 Foreign funds 12.9 43.7 9.3 -9.9 46.5 -35.4 30.4 -20.6 46.4 13.4 122.2 4.2 30 Treasury balances 1.7 -5.8 7.3 -3.4 5.3 13.9 -19.9 5.0 13.1 -13.4 18.2 3.4 31 Insurance and pension reserves 119.9 135.4 177.6 140.5 209.2 123.2 82.6 193.9 144.8 219.2 219.8 252.8 32 Other, net 187.3 63.9 11.0 104.2 31.5 206.4 -30.8 206.3 40.3 31.1 -80.7 135.2 Private domestic nonfinancial investors 33 Direct lending in credit markets 121.5 214.6 241.7 195.9 212.0 197.7 268.9 -2.8 369.3 236.8 170.1 71.9 34 U.S. government securities 27.0 86.0 129.0 134.3 198.4 136.2 196.8 4.3 250.7 186.2 178.1 178.5 35 State and local obligations -19.9 61.8 53.5 28.4 -1.3 5.1 39.0 12.8 .4 13.0 16.0 -34.3 36 Corporate and foreign bonds 52.9 23.3 -9.4 .7 -26.6 9.4 -4.7 14.6 38.0 -27.2 -82.4 -34.8 37 Open market paper 9.9 15.8 36.4 5.4 15.9 17.8 21.4 -64.6 45.3 39.8 13.7 -35.3 38 Other 51.7 27.6 32.2 27.1 25.6 29.2 16.4 30.1 34.9 24.9 44.8 -2.1 39 Deposits and currency 297.5 179.3 232.8 241.3 100.1 290.6 261.8 230.6 138.0 60.3 137.8 64.3 40 Currency 14.4 19.0 14.7 11.7 22.6 12.8 6.0 10.1 26.1 23.1 32.2 9.1 41 Checkable deposits 96.4 -.9 12.9 1.5 -1.0 -41.7 14.7 65.8 -11.0 -4.2 16.9 -5.6 42 Small time and savings accounts 120.6 76.0 122.4 100.5 67.5 99.0 163.1 109.1 111.3 29.3 63.0 66.6 43 Money market fund shares 43.2 28.9 20.2 85.2 62.4 119.2 116.7 65.6 72.2 4.7 110.9 62.0 44 Large time deposits -3.2 37.2 40.8 23.1 -45.8 61.1 -23.8 -13.4 -24.6 -15.4 -78.8 -64.2 45 Security RPs 20.2 21.6 32.9 14.9 -10.5 29.8 13.7 -19.2 -34.9 22.3 -20.2 -9.1 46 Deposits in foreign countries 5.9 -2.5 -11.2 4.4 4.7 10.4 -28.6 12.4 -1.1 .6 13.9 5.6 47 Total of credit market instruments, deposits, and currency 419.0 393.9 474.5 437.2 312.1 488.3 530.7 227.7 507.3 297.1 307.9 136.2 48 Public holdings as percent of total 33.1 36.0 27.5 27.2 40.7 2.3 30.8 32.0 29.9 48.0 43.9 42.9 49 Private financial intermediation (in percent) 101.3 86.0 83.2 78.3 68.3 77.7 56.2 105.7 52.3 52.7 74.8 99.7 50 Total foreign funds 110.7 106.4 106.9 62.2 113.0 -40.3 162.8 23.6 69.3 79.8 199.2 103.6 MEMO: Corporate equities not included above 51 Total net issues 86.8 10.9 -124.2 -63.7 17.2 -43.0 -61.0 14.9 -4.7 51.3 -9.6 31.7 52 Mutual fund shares 159.0 73.9 1.1 41.3 66.9 34.0 57.9 72.4 53.1 76.5 51.7 86.2 53 Other equities -72.2 -63.0 -125.3 -105.1 -49.7 -77.0 -118.9 -57.6 -57.8 -25.2 -61.3 -54.4 54 Acquisitions by financial institutions 50.9 32.0 -2.9 17.2 30.1 -14.1 6.1 76.9 42.1 72.1 -36.5 42.8 55 Other net purchases 35.9 -21.2 -121.4 -80.9 -12.9 -28.9 -67.1 -62.1 -46.8 -20.8 26.9 -11.0 NOTES BY LINE NUMBER. 31. Excludes net investment of these reserves in corporate equities. 1. Line 1 of table 1.57. 32. Mainly retained earnings and net miscellaneous liabilities. 2. Sum of lines 3-6 or 7-10. 33. Line 13 less line 20 plus line 27. 6. Includes farm and commercial mortgages. 34-38. Lines 14-18 less amounts acquired by private finance plus amounts 11. Credit market funds raised by federally sponsored credit agencies, and net borrowed by private finance. Line 38 includes mortgages. issues of federally related mortgage pool securities. 40. Mainly an offset to line 9. 13. Line 1 less line 2 plus line 11 and 12. Also line 20 less line 27 plus line 33. 47. Lines 33 plus 39, or line 13 less line 28 plus 40 and 46. Also sum of lines 28 and 47 less lines 40 and 46. 48. Line 2/line 1. 18. Includes farm and commercial mortgages. 49. Line 20/line 13. 26. Line 39 less lines 40 and 46. 50. Sum of lines 10 and 29. 27. Excludes equity issues and investment company shares. Includes line 19. 51. 53. Includes issues by financial institutions. 29. Foreign deposits at commercial banks, bank borrowings from foreign NOTE. Full statements for sectors and transaction types in flows and in amounts branches, and liabilities of foreign banking agencies to foreign affiliates, less outstanding may be obtained from Flow of Funds Section, Division of Research claims on foreign affiliates and deposits by banking in foreign banks. and Statistics, Board of Governors of the Federal Reserve System, Washington, 30. Demand deposits and note balances at commercial banks. D.C. 20551. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A43 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING Billions of dollars; period-end levels. 1989 1990 TTrraannssaaccttiioonn ccaatteeggoorryy,, sseeccttoorr 11998866 11998877 11998888 11998899 Q2 Q3 Q4 Ql Q2 Q3 Q4 Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 7,646.3 8,343.9 9,096.0 9,805.2 9,438.7 9,605.1 9,805.2 10,069.4 10,226.6 1100,,339944..11 1100,,557799..99 By sector and instrument 7 U.S. government 1,815.4 1,960.3 2,117.8 2,269.4 2,165.7 2,206.1 2,269.4 2,360.9 22,,440011..77 22,,447700..22 22,,556688..99 3 Treasury securities 1,811.7 1,955.2 2,095.2 2,245.2 2,142.1 2,180.7 2,245.2 2,329.3 2,368.8 2,437.6 2,536.5 4 Agency issues and mortgages 3.6 5.2 22.6 24.2 23.6 25.4 24.2 31.6 32.9 32.6 32.4 Private domestic nonfinancial sectors 5,831.0 6,383.6 6,978.2 7,535.8 7,273.0 7,399.0 7,535.8 7,708.6 7,824.9 7,923.9 8,011.0 6 Debt capital instruments 3,962.7 4,427.9 4,886.4 5,283.3 5,091.4 5,189.9 5,283.3 5,449.4 5,533.8 5,610.6 5,678.2 7 Tax-exempt obligations 679.1 728.4 790.8 821.2 804.9 816.4 821.2 822.4 827.4 838.0 840.6 8 Corporate bonds 669.4 748.8 851.7 925.4 887.9 903.5 925.4 936.7 955.5 967.0 986.9 9 2,614.2 2,950.7 3,243.8 3,536.6 3,398.6 3,470.0 3,536.6 3,690.4 3,750.9 3,805.6 3,850.7 10 Home mortgages 1,720.8 1,943.1 2,173.9 2,404.3 2,287.6 2,347.6 2,404.3 2,530.7 2,594.0 2,643.1 2,690.7 11 Multifamily residential 246.2 270.0 286.7 304.4 298.3 301.2 304.4 303.7 298.9 299.8 298.1 17 551.4 648.7 696.4 742.6 725.9 734.9 742.6 772.1 773.9 778.4 777.7 13 Farm 95.8 88.9 86.8 85.3 86.8 86.3 85.3 83.9 84.0 84.3 84.2 14 Other debt instruments 1,868.2 1,955.7 2,091.9 2,252.6 2,181.6 2,209.1 2,252.6 2,259.1 2,291.2 2,313.3 2,332.8 IS Consumer credit 659.8 693.2 743.5 790.6 756.7 771.0 790.6 774.3 783.3 793.9 809.0 16 666.0 673.3 713.1 763.0 740.3 750.7 763.0 756.2 761.6 761.1 760.2 17 Open market paper 62.9 73.8 85.7 107.1 110.1 113.3 107.1 126.0 128.7 131.8 116.9 18 Other 479.6 515.3 549.6 591.9 574.5 574.1 591.9 602.6 617.6 626.5 646.8 19 By borrowing sector 5,831.0 6,383.6 6,978.2 7,535.8 7,273.0 7,399.0 7,535.8 7,708.6 7,824.9 7,923.9 8,011.0 70 State and local governments 510.1 558.9 604.5 634.1 619.9 629.9 634.1 634.3 637.6 647.9 648.8 71 2,596.1 2,879.1 3,191.5 3,501.8 3,330.7 3,411.4 3,501.8 3,625.0 3,699.7 3,768.4 3,834.1 77 2,724.8 2,945.6 3,182.2 3,400.0 3,322.5 3,357.6 3,400.0 3,449.3 3,487.6 3,507.6 3,528.2 73 156.6 145.5 137.6 139.2 139.5 139.2 139.2 137.4 140.2 141.5 140.9 74 Nonfarm noncorporate 997.6 1,075.4 1,145.1 1,195.9 1,177.6 1,183.0 1,195.9 1,208.0 1,208.9 1,209.8 1,210.2 25 Corporate 1,570.6 1,724.6 1,899.5 2,064.8 2,005.3 2,035.5 2,064.8 2,103.9 2,138.6 2,156.3 2,177.1 2266 Foreign credit market debt held in United States 238.3 244.6 253.9 261.5 252.2 257.7 261.5 260.4 272.0 279.3 228844..88 77 74.9 82.3 89.2 94.5 92.1 94.2 94.5 102.1 107.7 108.6 115.6 78 26.9 23.3 21.5 21.4 21.5 22.6 21.4 19.0 19.3 19.8 18.6 79 Open market paper 37.4 41.2 49.9 63.0 52.7 57.5 63.0 59.3 65.1 71.5 75.3 30 U.S. government loans 99.1 97.7 93.2 82.6 85.8 83.4 82.6 80.0 80.0 79.4 75.3 31 Total domestic plus foreign 7,884.7 8,588.5 9,349.9 10,066.8 9,690.8 9,862.8 10,066.8 10,329.8 10,498.7 10,673.3 10,864.7 Financial sectors 37 Total credit market debt owed by financial sectors 1,529.8 1,836.8 2,084.4 2,322.4 2,234.1 2,263.8 2,322.4 2,356.3 22,,440033..33 22,,444444..44 22,,552200..22 By instrument 33 U.S. government related 810.3 978.6 1,098.4 1,249.3 1,169.5 1,203.6 1,249.3 1,286.1 11,,332288..00 11,,336655..44 11,,441188..55 34 Sponsored credit agency securities 273.0 303.2 348.1 373.3 369.0 370.4 373.3 376.0 378.9 381.9 396.0 35 Mortgage pool securities 531.6 670.4 745.3 871.0 795.6 828.2 871.0 905.2 944.2 978.5 1,017.5 36 Loans from U.S. government 5.7 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 37 719.5 858.2 986.1 1,073.0 1,064.6 1,060.2 1,073.0 1,070.2 1,075.3 1,079.0 1,101.8 38 Corporate bonds 287.4 366.3 418.0 482.7 466.1 472.7 482.7 491.7 508.2 513.6 526.8 39 Mortgages 2.7 3.1 3.4 3.4 3.5 3.5 3.4 3.2 3.5 4.1 4.1 40 36.1 32.8 34.2 36.0 33.8 34.1 36.0 33.2 34.8 34.9 36.7 41 Open market paper 284.6 322.9 377.7 409.1 399.4 398.8 409.1 409.1 402.5 408.4 417.1 42 Loans from Federal Home Loan Banks... 108.6 133.1 152.8 141.8 161.9 151.1 141.8 132.9 126.3 117.9 117.1 43 Total, by sector 1,529.8 1,836.8 2,084.4 2,322.4 2,234.1 2,263.8 2,322.4 2,356.3 2,403.3 2,444.4 2,520.2 44 Sponsored credit agencies 278.7 308.2 353.1 378.3 374.0 375.4 378.3 381.0 383.8 386.8 400.9 45 531.6 670.4 745.3 871.0 795.6 828.2 871.0 905.2 944.2 978.5 1,017.5 46 Private financial sectors 719.5 858.2 986.1 1,073.0 1,064.6 1,060.2 1,073.0 1,070.2 1,075.3 1,079.0 1,101.8 47 Commercial banks 75.6 81.8 78>8 77.4 75.7 77.0 77.4 73.4 73.3 70.7 76.3 48 Bank affiliates 116.8 131.1 136.2 142.5 141.2 144.0 142.5 141.5 133.8 122.5 114.7 49 Savings and loan associations 119.8 139.4 159.3 145.2 167.9 155.7 145.2 137.1 125.6 115.1 112.7 50 Mutual savings banks 8.6 16.7 18.6 17.2 17.7 17.5 17.2 15.4 16.7 17.3 17.1 51 Finance companies 328.1 378.8 446.1 496.2 478.0n 481.2 496.2 499.6 510.3 530.1 546.6 5? REITs 6.5 7.3 11.4 10.1 10.6 10.0 10.1 10.1 9.8 10.2 10.3 53 SCO issuers 64.0 103.1 135.7 184.4 173.5 174.9 184.4 193.1 205.7 213.1 224.0 All sectors 54 Total credit market debt 9,414.4 10,425.3 11,434.3 12,389.1 11,925.0 12,126.6 12,389.1 12,686.1 12,902.0 13,117.7 13,384.9 55 U.S. government securities 2,620.0 2,933.9 3,211.1 3,513.7 3,330.3 3,404.7 3,513.7 3,642.0 3,724.8 3,830.6 3,982.4 56 State and local obligations 679.1 728.4 790.8 821.2 804.9 816.4 821.2 822.4 827.4 838.0 840.6 57 Corporate and foreign bonds 1,031.7 1,197.4 1,358.9 1,502.6 1,446.1 1,470.5 1,502.6 1,530.5 1,571.4 1,589.3 1,629.3 58 2,617.0 2,953.8 3,247.2 3,540.1 3,402.1 3,473.6 3,540.1 3,693.6 3,754.3 3,809.7 3,854.8 59 659.8 693.2 743.5 790.6 756.7 771.0 790.6 774.3 783.3 793.9 809.0 60 729.0 729.5 768.9 820.3 795.6 807.4 820.3 808.4 815.7 815.8 815.5 61 Open market paper 384.9 437.9 513.4 579.2 562.2 569.6 579.2 594.5 596.3 611.7 609.2 62 Other loans 693.1 751.1 800.5 821.4 827.1 813.5 821.4 820.5 828.9 828.8 844.2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A44 Domestic Nonfinancial Statistics • June 1991 1.60 SUMMARY OF CREDIT MARKET CLAIMS, BY HOLDER Billions of dollars, except as noted; period-end levels. 1989 1990 TTrraannssaaccttiioonn ccaatteeggoorryy,, oorr sseeccttoorr 11998866 11998877 11998888 11998899 Q2 Q3 Q4 Ql Q2 Q3 Q4 1 Total funds advanced in credit markets to domestic nonfinancial sectors 7,646.3 8,343.9 9,096.0 9,805.2 9,438.7 9,605.1 9,805.2 10,069.4 10,226.6 10,394.1 10,579( .9 By public agencies and foreign 2 Total held 1,779.4 2,006.6 2,199.7 2,379.3 2,263.5 2,317.4 2,379.3 2,419.9 2,503.0 2,582.0 2,656i .5 3 U.S. government securities 509.8 570.9 651.5 682.1 642.7 668.6 682.1 679.2 706.9 737.4 7621 .0 4 Residential mortgages 678.5 814.1 900.4 1,038.4 954.4 991.1 1,038.4 1,077.7 1,126.5 1,171.8 1,215i .9 5 FHLB advances to thrifts 108.6 133.1 152.8 141.8 161.9 151.1 141.8 132.9 126.3 117.9 117U 6 Other loans and securities 482.4 488.6 495.1 517.0 504.5 506.6 517.0 530.2 543.3 555.0 561 .4 7 Total held, by type of lender 1,779.4 2,006.6 2,199.7 2,379.3 2,263.5 2,317.4 2,379.3 2,419.9 2,503.0 2,582.0 2,656i .5 8 U.S. government 255.3 240.0 217.6 207.1 211.5 207.8 207.1 216.2 227.8 242.0 241 .2 9 Sponsored credit agencies and mortgage pools ... 835.9 1,001.0 1,113.0 1,238.2 1,157.8 1,193.5 1,238.2 1,274.0 1,315.0 1,358.0 1,406i .8 10 Monetary authority 205.5 230.1 240.6 233.3 238.4 227.6 233.3 224.4 237.8 240.8 241 .4 11 Foreign 482.8 535.5 628.5 700.6 655.7 688.5 700.6 705.2 722.4 741.3 767' .1 Agency and foreign debt not in line 1 12 Sponsored credit agencies and mortgage pools ... 810.3 978.6 1,098.4 1,249.3 1,169.5 1,203.6 1,249.3 1,286.1 1,328.0 1,365.4 1,4181 .5 13 Foreign 238.3 244.6 253.9 261.5 252.2 257.7 261.5 260.4 272.0 279.3 2841 .8 Private domestic holdings 14 Total private holdings 6,915.6 7,560.4 8,248.5 8,936.8 8,596.9 8,749.0 8,936.8 9,196.0 9,323.7 9,456.7 9,626i .7 li U.S. government securities 2,110.1 2,363.0 2,559.7 2,831.6 2,687.6 2,736.1 2,831.6 2,962.8 3,017.9 3,093.2 3,22C1 .3 16 State and local obligations 679.1 728.4 790.8 821.2 804.9 816.4 821.2 822.4 827.4 838.0 84C1 .6 17 Corporate and foreign bonds 606.6 674.3 765.6 831.6 797.7 814.5 831.6 847.6 866.2 878.5 8991 .3 18 Residential mortgages 1,288.5 1,399.0 1,560.2 1,670.4 1,631.5 1,657.7 1,670.4 1,756.7 1,766.4 1,771.1 1,772: .9 2 1 0 9 L O E th S e S r : m Fe o d r e tg ra a l g e H s o a m nd e L lo o a a n n s Bank advances 2,3 1 3 0 9 8 . . 8 6 2,5 1 2 3 8 3 . . 7 1 2,7 1 2 5 4 2 . . 9 8 2,9 1 2 4 3 1 . . 8 8 2,8 1 3 6 7 1 . . 0 9 2,8 1 7 5 5 1 . . 3 1 2,9 1 2 4 3 1 . . 8 8 2,9 1 3 3 9 2 . . 4 9 2,9 1 7 2 2 6 . . 1 3 2,9 1 9 1 3 7 . . 8 9 3,0 1 1 1 0 7 1r ..6l Private financial intermediation 21 Credit market claims held by private financial institutions 6,018.0 6,564.5 7,128.6 7,662.7 7,424.6 7,507.8 7,662.7 7,850.5 7,915.0 8,000.6 8,1231 .5 22 Commercial banking 2,187.6 2,323.0 2,479.3 2,656.6 2,549.0 2,599.6 2,656.6 2,680.4 2,720.7 2,751.1 2,776i .5 23 Savings institutions 1,297.9 1,445.5 1,567.7 1,480.7 1,561.0 1,530.3 1,480.7 1,461.3 1,409.5 1,371.5 1,339> .7 24 Insurance and pension funds 1,525.4 1,705.1 1,903.8 2,081.6 1,999.0 2,031.6 2,081.6 2,152.5 2,198.4 2,242.5 2,307' .6 25 Other finance 1,007.1 1,091.0 1,177.9 1,443.8 1,315.6 1,346.2 1,443.8 1,556.4 1,586.4 1,635.5 1,699> .6 26 Sources of funds 6,018.0 6,564.5 7,128.6 7,662.7 7,424.6 7,507.8 7,662.7 7,850.5 7,915.0 8,000.6 8,123( .5 27 Private domestic deposits and RPs 3,199.0 3,354.2 3,599.1 3,824.3 3,679.1 3,742.5 3,824.3 3,846.6 3,837.6 3,852.9 3,897' .0 28 Credit market debt 719.5 858.2 986.1 1,073.0 1,064.6 1,060.2 1,073.0 1,070.2 1,075.3 1,079.0 1,1011 .8 29 Other sources 2,099.5 2,352.1 2,543.5 2,765.5 2,680.9 2,705.1 2,765.5 2,933.7 3,002.1 3,068.8 3,1741 .7 30 Foreign funds 18.6 62.3 71.5 61.6 49.4 55.0 61.6 63.4 66.3 94.1 10?1 .2 31 Treasury balances 27.5 21.6 29.0 25.6 34.4 30.3 25.6 16.7 32.1 36.6 301 .9 32 Insurance and pension reserves 1,398.5 1,527.8 1,692.5 1,826.0 1,770.0 1,785.7 1,826.0 1,861.5 1,907.7 1,940.6 1,9961 .7 33 Other, net 655.0 740.3 750.5 852.3 827.2 834.0 852.3 992.1 996.0 997.5 9881 .8 Private domestic nonfinancial investors 34 Credit market claims 1,617.0 1,854.1 2,106.0 2,347.1 2,236.9 2,301.5 2,347.1 2,415.6 2,484.1 2,535.0 2,6051 .0 35 U.S. government securities 848.7 936.7 1,072.2 1,206.4 1,122.9 1,171.3 1,206.4 1,256.2 1,288.7 1,332.3 1,4141 .4 36 Tax-exempt obligations 212.6 274.4 340.9 369.3 353.8 363.1 369.3 362.5 368.5 372.4 36f1 .1 37 Corporate and foreign bonds 90.5 114.0 100.4 130.5 128.2 131.1 130.5 152.1 156.2 151.8 1381 .4 38 Open market paper 145.1 178.5 218.0 228.7 236.7 239.3 228.7 230.1 247.2 247.9 244( .6 39 Other 320.1 350.4 374.4 412.1 395.3 396.8 412.1 414.8 423.3 430.6 439> .5 40 Deposits and currency 3,410.1 3,583.9 3,832.3 4,073.6 3,926.2 3,979.0 4,073.6 4,094.9 4,096.7 4,118.3 4,1731 .7 41 Currency 186.3 205.4 220.1 231.8 226.4 224.4 231.8 234.4 242.7 247.2 2541 .4 42 Checkable deposits 516.6 515.4 527.2 528.7 495.0 486.1 528.7 501.2 510.7 501.2 527' .7 43 Small time and savings accounts 1,948.3 2,017.1 2,156.2 2,256.7 2,189.3 2,224.4 2,256.7 2,289.4 2,292.3 2,302.4 2,3241 .2 44 Money market fund shares 268.9 297.8 318.0 403.3 362.1 391.0 403.3 436.7 426.3 454.5 4651 .7 45 Large time deposits 336.7 373.9 414.7 437.8 435.7 440.0 437.8 431.1 415.8 407.1 3921 .0 46 Security RPs 128.5 150.1 182.9 197.9 196.9 200.9 197.9 188.3 192.5 187.9 187'. 4 47 Deposits in foreign countries 24.8 24.3 13.1 17.6 20.7 12.1 17.6 13.9 16.4 18.3 22! .3 48 Total of credit market instruments, deposits, and currency 5,027.2 5,438.0 5,938.2 6,420.7 6,163.0 6,280.5 6,420.7 6,510.6 6,580.7 6,653.3 6,7781 .7 49 Public holdings as percent of total 22.6 23.4 23.5 23.6 23.4 23.5 23.6 23.4 23.8 24.2 241 .5 50 Private financial intermediation (in percent) 87.0 86.8 86.4 85.7 86.4 85.8 85.7 85.4 84.9 84.6 841 .4 51 Total foreign funds 501.3 597.8 700.1 762.3 705.1 743.5 762.3 768.6 788.7 835.4 875i. 2 MEMO: Corporate equities not included above 52 Total market value 3,360.6 3,325.0 3,619.8 4,378.9 4,069.7 4,395.4 4,378.9 4,170.3 4,336.4 3,846.4 3,9951 .8 53 Mutual fund shares 413.5 460.1 478.3 555.1 514.8 543.9 555.1 550.3 587.9 547.3 579i .9 54 Other equities 2,947.1 2,864.9 3,141.6 3,823.8 3,555.0 3,851.5 3,823.8 3,620.0 3,748.5 3,299.1 3,4151 .9 55 Holdings by financial institutions 974.6 1,039.5 1,176.1 1,492.3 1,343.0 1,478.5 1,492.3 1,435.6 1,543.0 1,312.1 1,4081 .3 56 Other holdings 2,385.9 2,285.5 2,443.7 2,886.6 2,726.8 2,917.0 2,886.6 2,734.6 2,793.4 2,534.3 2,587' .4 NOTES BV LINE NUMBER. 32. Excludes net investment of these reserves in corporate equities. 1. Line 1 of table 1.59. 33. Mainly retained earnings and net miscellaneous liabilities. 2. Sum of lines 3-6 or 8-11. 34. Line 14 less line 21 plus line 28. 6. Includes farm and commercial mortgages. 35-39. Lines 15-19 less amounts acquired by private finance plus amounts 12. Credit market debt of federally sponsored agencies, and net issues of borrowed by private finance. Line 39 includes mortgages. federally related mortgage pool securities. 41. Mainly an offset to line 10. 14. Line 1 less line 2 plus line 12 and 13. Also line 21 less line 28 plus line 34. 48. Lines 34 plus 40, or line 14 less line 29 plus 41 and 47. Also sum of lines 29 and 48 less lines 41 and 47. 49. Line 2/line 1 and 13. 19. Includes farm and commercial mortgages. 50. Line 21/line 14. 27. Line 40 less lines 41 and 47. 51. Sum of lines 11 and 30. 28. Excludes equity issues and investment company shares. Includes line 20. 52-54. Includes issues by financial institutions. 30. Foreign deposits at commercial banks plus bank borrowings from foreign NOTE. Full statements for sectors and transaction types in flows and in amounts affiliates, less claims on foreign affiliates and deposits by banking in foreign banks. outstanding may be obtained from Flow of Funds Section, Stop 95, Division of 31. Demand deposits and note balances at commercial banks. Research and Statistics, Board of Governors of the Federal Reserve System, Digitized for FRASER Washington, D.C. 20551. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A45 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures 1977 = 100; monthly and quarterly data are seasonally adjusted. Exceptions noted. 1990 1991 11998888 11998899 11999900 July Aug. Sept. Oct. Nov. Dec. Jan.' Feb.' Mar. 1 Industrial production (1987 = 100)' 105.4 108.1 109.2 110.4 110.5 110.6 109.9 108.3 107.2 106.6 105.7 105.3 2 M Pr a o r d k u et c ts, g r t o o u ta p l i n ( g 1 s 9 87 = 100) 105.3 108.6 110.1 110.9 110.9 111.4 111.0 109.3 108.4 107.8 106.8 106.6 3 Final, total (1987 = 100) 105.6 109.1 110.9 111.7 111.9 112.6 112.3 110.2 109.2 109.1 108.3 108.3 4 Consumer goods (1987 = 100) 104.0 106.7 107.3 107.5 107.8 108.7 108.6 106.5 105.7' 105.5 104.5 104.9 5 Equipment (1987 = 100) 107.6 112.3 115.5 117.2 117.2 117.8 117.0 115.1 113.6' 113.7 113.2 112.7 6 Intermediate (1987 = 100) 104.4 106.8 107.7 108.4 107.9 107.4 107.0 106.2 106.0' 104.0 102.2 101.3 7 Materials (1987 = 100) 105.6 107.4 107.8 109.6 109.7 109.4 108.3 106.8 105.3' 104.7 103.9 103.4 8 I M nd a u n s u tr f y a ctu g r r i o n u g p i ( n 1 g 9 s 8 7 = 100) 105.8 108.9 109.9 111.1 111.1 111.2 110.7 108.9 107.5' 107.0 106.0 105.5 Capacity utilization (percent)2 83.9 83.9 82.3 83.1 82.9 82.8 82.2 80.7 79.4 78.9 77.9 77.4 9 Manufacturing 166.7 172.9 153.6' 153.0 149.0 146.0 147.0 146.0 130.0 132.0 133.0 128.0 10 Construction contracts (1982 = 100)3... 128.0 131.5 133.8 134.3 134.1 134.1 133.9 133.6 133.4 133.2 132.8 132.6 11 Nonagricultural employment, total4 103.4 104.0 102.7 103.1 102.8 102.4 101.8 100.7 100.3 99.4 98.8 98.2 12 Goods-producing, total 98.3 98.7 96.8 97.2 96.9 96.6 96.3 95.2 95.0 94.6 93.8 93.3 13 Manufacturing, total 93.5 93.8 91.5 92.0 91.7 91.2 90.9 89.6 89.3 88.9 87.9 87.4 14 Manufacturing, production- worker 138.3 142.9 146.8 147.3 147.3 147.4 147.4 147.4 147.2 147.3 147.0 147.0 15 Service-producing 253.2 272.7 289.0 290.1 290.8 292.2 292.1 293.4' 295.1' 293.9 294.6 n.a. 16 Personal income, total 244.6 258.9 272.2 274.4 274.5 276.4 274.8 274.8 277.1 275.5 275.9 n.a. 17 Wages and salary disbursements 196.5 203.1 205.0 206.9 206.7 207.0 206.0 202.9 205.4' 202.5 201.1 n.a. 18 Manufacturing 252.2 270.1 286.1 286.9 287.6 288.7 288.7' 290.1' 291.6' 290.3 291.2 n.a. 19 Disposable personal income5 228.2' 241.7' 250.9' 251.1' 251.7' 254.0' 253.5' 254.3' 249.4' 246.2 251.2 249.2 20 Retail sales6 21 ^Consumer (1982-84 = 100) 118.3 124.0 130.7 130.4 131.6 132.7 133.5 133.8 133.8 134.6 134.8 135.0 22 Producer finished goods (1982 = 100) 108.0 113.6 119.2 118.2 119.3 120.4 122.3 122.9 121.9 121.9 121.2 120.6 1. A major revision of the industrial production index and the capacity 6. Based on Bureau of Census data published in Survey of Current Business. utilization rates was released in April 1990. See "Industrial Production: 1989 7. Data without seasonal adjustment, as published in Monthly Labor Review. Developments and Historical Revision" in the Federal Reserve Bulletin, vol. 76 Seasonally adjusted data for changes in the price indexes may be obtained from (April 1990), pp. 187-204. the Bureau of Labor Statistics, U.S. Department of Labor. 2. Ratios of indexes of production to indexes of capacity. Based on data from Federal Reserve, McGraw-Hill Economics Department, Department of Com- NOTE. Basic data (not index numbers) for series mentioned in notes 4, 5,and 6, merce, and other sources. and indexes for series mentioned in notes 3 and 7 may also be found in the Survey 3. Index of dollar value of total construction contracts, including residential, of Current Business. nonresidential and heavy engineering, from McGraw-Hill Information Systems Figures for industrial production for the latest month are preliminary and the Company, F. W. Dodge Division. prior three months have been revised. See "Recent Developments in Industrial 4. Based on data in Employment and Earnings (U.S. Department of Labor). Capacity and Utilization," Federal Reserve Bulletin, vol. 76 (June 1990), pp. Series covers employees only, excluding personnel in the Armed Forces. 411-35. 5. Based on data in Survey of Current Business (U.S. Department of Commerce). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A46 Domestic Nonfinancial Statistics • June 1991 2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data are seasonally adjusted. Exceptions noted. 1990 1991 CCaatteeggoorryy 11998888 11998899 11999900 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. HOUSEHOLD SURVEY DATA 1 Noninstitutional population1 186,837 188,601 190,216 190,411 190,568 190,717 190,854 190,999 191,116 191,248 191,384 2 Labor force (including Armed Forces)1 123,893 126,077 126,954 126,855 127,137 127,067 126,880 127,307 126,777 127,209 127,467 3 Civilian labor force 121,669 123,869 124,787 124,705 124,970 124,875 124,723 125,174 124,638 125,076 125,326 4 Nonagricultural industries2 111,800 114,142 114,728 114,538 114,689 114,558 114,201 114,321 113,759 113,696 113,656 5 Agriculture 3,169 3,199 3,186 3,152 3,194 3,175 3,185 3,253 3,163 3,222 3,098 Unemployment 6 Number 6,701 6,528 6,874 7,015 7,087 7,142 7,337 7,600 7,715 8,158 8,572 7 Rate (percent of civilian labor force) — 5.5 5.3 5.5 5.6 5.7 5.7 5.9 6.1 6.2 6.5 6.8 8 Not in labor force 62,944 62,524 63,262 63,556 63,431 63,650 63,974 63,692 64,339 64,039 63,917 ESTABLISHMENT SURVEY DATA 9 Nonagricultural payroll employment3 105,536 108,413 110,330 110,613 110,612 110,432 110,165 110,004 109,813' 109,522' 109,316 10 Manufacturing 19,350 19,426 19,064 19,084 19,019 18,951 18,744 18,693 18,615' 18,466' 18,374 11 Mining 713 700 735 735 736 733 738 740 737 737' 735 12 Contract construction 5,110 5,200 5,205 5,194 5,176 5,093 5,029 4,983 4,841' 4,860 4,788 13 Transportation and public utilities 5,527 5,648 5,838 5,846 5,870 5,870 5,866 5,882 5,883' 5,849' 5,844 14 Trade 25,132 25,851 26,151 26,222 26,214 26,147 26,082 26,001 25,974' 25,843' 25,774 15 Finance 6,649 6,724 6,833 6,852 6,851 6,843 6,833 6,829 6,829' 6,819' 6,821 16 Service 25,669 27,096 28,209 28,387 28,440 28,475 28,548 28,573 28,622' 28,601' 28,624 17 Government 17,386 17,769 18,295 18,293 18,306 18,320 18,325 18,303 18,312' 18,347' 18,356 1. Persons 16 years of age and over. Monthly figures, which are based on 3. Data include all full- and part-time employees who worked during, or sample data, relate to the calendar week that contains the 12th day; annual data received pay for, the pay period that includes the 12th day of the month, and are averages of monthly figures. By definition, seasonality does not exist in exclude proprietors, self-employed persons, domestic servants, unpaid family population figures. Based on data from Employment and Earnings (U.S. Depart- workers, and members of the Armed Forces. Data are adjusted to the March 1984 ment of Labor). benchmark and only seasonally adjusted data are available at this time. Based on 2. Includes self-employed, unpaid family, and domestic service workers. data from Employment and Earnings (U.S. Department of Labor). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A47 2.12 OUTPUT, CAPACITY, AND CAPACITY UTILIZATION1 Seasonally adjusted 1990 1991 1990 1991 1990 1991 SSeerriieess Q2 Q3 Q4r Q1 Q2 Q3 Q4' Q1 Q2 Q3 Q4' Q1 Output (1987 = 100) Capacity (percent of 1987 output) Utilization rate (percent) 1 Total industry 109.4 110.5 108.5 105.9 131.1 131.9 132.8 133.6 83.5 83.7 81.7 79.3 2 Manufacturing 110.2 111.1 109.0 106.1 133.0 134.0 135.0 136.0 82.8 82.9 80.8 78.1 3 Primary processing 106.3 107.6 104.7 100.5 124.8 125.5 126.1 126.8 85.2 85.8 83.0 79.2 4 Advanced processing 112.1 112.8 111.0 108.7 136.9 138.0 139.1 140.2 81.9 81.7 79.8 77.6 5 Durable 112.4 113.6 110.0 106.2 137.1 138.0 139.0 139.9 82.0 82.3 79.1 75.9 6 Lumber and products 102.3 101.5 95.7 91.6 123.5 124.0 124.6 125.0 82.8 81.8 76.8 73.3 7 Primary metals 107.4 112.2 107.3 98.5 127.4 127.7 127.9 128.2 84.2 87.9 83.9 76.8 8 Iron and steel 107.5 114.3 110.0 98.1 132.2 132.5 132.7 133.0 81.3 86.3 82.9 73.7 9 Nonferrous 107.1 109.2 103.4 99.1 120.6 120.9 121.1 121.3 88.8 90.3 85.3 81.7 10 Nonelectrical machinery 126.7 128.5 126.4 124.7 153.1 154.7 156.3 157.9 82.8 83.1 80.8 79.0 11 Electrical machinery 112.2 112.4 109.9 108.1 138.7 140.0 141.4 142.7 80.9 80.3 77.8 75.7 12 Motor vehicles and parts 102.6 103.7 89.4 81.0 132.4 132.7 132.9 133.4 77.5 78.2 67.2 60.7 13 Aerospace and miscellaneous transportation equipment ... 113.6 114.5 113.3 110.5 134.3 135.2 136.1 137.0 84.6 84.7 8833..33 8800..77 14 Nondurable 107.5 108.1 107.8 106.0 127.9 128.9 129.9 130.9 84.0 83.8 83.0 81.0 15 Textile mill products 102.4 101.3 98.2 94.6 116.3 116.6 117.0 117.3 88.1 86.9 84.0 80.7 16 Paper and products 104.5 107.2 105.8 102.2 114.5 115.1 115.7 116.4 91.3 93.2 91.4 87.8 17 Chemicals and products 109.9 110.8 110.2 109.2 134.6 135.9 137.1 138.4 81.6 81.5 80.4 78.9 18 116.3 117.2 118.1 128.4 130.6 132.9 90.6 89.7 88.9 19 Petroleum products 106.0 110.0 107.4 107.0 121.2 121.3 121.4 121.4 87.4 90.7 88.5 88.1 70 102.5 103.4 103.1 102.9 115.0 114.5 114.0 113.6 89.1 90.3 90.4 90.6 71 Utilities 107.8 110.5 108.3 105.9 126.6 127.1 127.6 128.1 85.2 86.9 84.8 82.7 22 Electric 111.0 112.9 111.2 108.9 121.9 122.6 123.2 123.8 91.1 92.1 90.2 87.9 Previou s cycle2 Latest cycle3 1990 1991 High Low High Low Mar. Aug. Sept. Oct. Nov. Dec/ Jan/ Feb/ Mar." Capacity utilization rate (percent) 23 Total industry 89.2 72.6 87.3 71.8 83.4 83.7 83.6 83.0 81.6 80.6 80.0 79.1 78.7 24 Manufacturing 88.9 70.8 87.3 70.0 83.0 82.9 82.8 82.2 80.7 79.4 78.9 77.9 77.4 25 Primary processing 92.2 68.9 89.7 66.8 85.3 86.1 85.1 84.3 83.2 81.5 80.4 78.9 78.4 26 Advanced processing 87.5 72.0 86.3 71.4 82.0 81.6 81.8 81.3 79.6 78.5 78.2 77.5 77.0 77 Durable 88.8 68.5 86.9 65.0 82.0 82.3 82.2 81.2 79.1 77.2 76.7 75.9 75.2 28 Lumber and products 90.1 62.2 87.6 60.9 85.3 81.0 80.7 78.9 76.6 74.9 74.8 72.7 72.4 79 Primary metals 100.6 66.2 102.4 46.8 82.8 89.8 87.4 85.0 85.3 81.4 76.4 76.8 77.3 30 Iron and steel 105.8 66.6 110.4 38.3 80.3 89.3 86.0 83.2 84.8 80.8 72.3 73.6 75.3 31 Nonferrous 92.9 61.3 90.5 62.2 86.6 90.5 89.6 87.7 85.9 82.3 82.7 81.8 80.5 37 Nonelectrical machinery 96.4 74.5 92.1 64.9 82.3 83.2 82.8 82.2 80.8 79.5 79.7 79.0 78.2 33 Electrical machinery 87.8 63.8 89.4 71.1 81.5 80.4 80.1 78.6 78.1 76.6 75.7 76.0 75.5 34 Motor vehicles and parts 93.4 51.1 93.0 44.5 78.3 76.1 81.0 78.1 64.5 59.0 62.3 59.8 60.0 35 Aerospace and miscellaneous transportation equipment.. 77.0 66.6 81.1 66.9 83.7 84.4 84.3 84.0 83.1 82.8 81.7 8800..77 7799..66 36 Nondurable 87.9 71.8 87.0 76.9 84.3 83.8 83.6 83.6 82.9 82.4 81.8 80.7 80.4 37 Textile mill products 92.0 60.4 91.7 73.8 86.0 86.1 86.3 86.6 83.3 82.1 82.3 79.8 79.9 38 Paper and products 96.9 69.0 94.2 82.0 90.1 92.5 93.3 92.5 90.9 91.0 89.7 87.0 86.8 39 Chemicals and products 87.9 69.9 85.1 70.1 81.8 81.8 81.4 81.0 80.2 79.9 79.5 78.7 78.4 102 0 50 6 90.9 63.4 88.3 89.7 88.9 90.0 90.2 86.5 86.2 41 Petroleum products 96.7 81.1 89.5 68.2 90.1 90.8 90.1 89.5 88.9 87.0 86.4 88.6 89.3 4? 94.4 88.4 96.6 80.6 87.6 89.4 90.9 89.9 90.6 90.8 89.7 91.4 90.6 43 Utilities 95.6 82.5 88.3 76.2 84.1 87.6 86.7 85.6 83.8 85.1 84.2 81.4 82.4 44 Electric 99.0 82.7 88.3 78.7 90.3 92.7 91.9 91.2 88.9 90.6 89.6 86.5 87.7 1. These data also appear in the Board's G.17 (419) release. For address, see 2. Monthly high 1973; monthly low 1975. inside front cover. For a detailed description of the series, see "Recent Devel- 3. Monthly highs 1978 through 1980; monthly lows 1982. opments in Industrial Capacity and Utilization," Federal Reserve Bulletin, vol. 76 (June 1990), pages 411-35. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A48 Domestic Nonfinancial Statistics • June 1991 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data are seasonally adjusted 1987 1990 1991 pro- 1990 GGrroouuppss por- avg. tion Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec/ Jan/ Feb/ Mar." Index (1987 = 100) MAJOR MARKET 1 Total index 100.0 109.2 108.9 108.8 109.4 110.1 110.4 110.5 110.6 109.9 108.3 107.2 106.6 105.7 105.3 2 Products 60.8 110.1 110.1 109.8 110.5 110.9 110.9 110.9 111.4 111.0 109.3 108.4 107.8 106.8 106.6 3 Final products 46.0 110.9 110.7 110.4 111.2 111.7 111.7 111.9 112.6 112.3 110.2 109.2 109.1 108.3 108.3 4 Consumer goods 26.0 107.3 107.5 107.2 107.4 107.8 107.5 107.8 108.7 108.6 106.5 105.7 105.5 104.5 104.9 5 Durable consumer goods 5.6 106.2 110.8 107.3 109.3 112.1 108.3 107.4 110.4 106.9 99.4 96.0 97.4 94.8 94.8 6 Automotive products 2.5 102.3 109.3 102.4 107.0 112.2 106.7 104.6 111.8 107.1 93.5 86.7 90.4 86.8 87.5 7 Autos and trucks 1.5 97.4 107.7 95.8 105.6 112.9 104.8 101.5 113.0 107.5 84.2 74.6 79.6 75.2 77.2 8 Autos, consumer .9 92.2 100.5 87.7 96.8 103.8 98.0 97.2 111.5 104.6 80.7 77.2 83.2 79.1 76.8 9 Trucks, consumer .6 106.1 120.0 109.3 120.4 128.3 116.1 108.8 115.4 112.2 90.2 70.2 73.7 68.6 78.0 10 Auto parts and allied goods... 1.0 109.6 111.6 112.2 108.9 111.2 109.5 109.3 110.0 106.4 107.3 104.8 106.6 104.1 102.9 11 Other 3.1 109.4 112.0 111.2 111.1 112.0 109.5 109.6 109.3 106.8 104.1 103.4 103.0 101.2 100.5 12 Appliances, A/C, and TV .8 102.0 108.1 104.4 103.6 107.5 100.2 101.9 101.0 94.6 90.8 89.9 92.8 93.7 93.2 N Carpeting and furniture .9 104.9 105.9 107.5 107.6 107.8 106.0 104.9 106.0 103.8 99.2 100.9 100.4 94.0 94.6 14 Miscellaneous home goods ... 1.4 116.4 118.0 117.3 117.5 117.2 116.9 116.8 116.1 115.5 114.6 112.5 110.3 109.9 108.4 15 Nondurable consumer goods 20.4 107.6 106.6 107.1 106.9 106.6 107.3 107.9 108.2 109.1 108.5 108.4 107.7 107.2 107.7 16 Foods and tobacco 9.1 105.9 105.8 105.6 105.2 104.4 105.1 105.7 105.3 106.7 107.8 107.5 106.4 106.3 106.8 17 Clothing 2.6 95.7 97.0 96.0 96.4 95.7 95.6 94.6 95.3 94.2 91.7 92.1 90.7 90.4 89.9 18 Chemical products 3.5 113.3 111.0 113.5 113.0 112.8 112.4 114.3 115.1 115.9 113.5 113.5 113.9 114.2 114.9 19 Paper products 2.5 119.7 116.4 118.1 118.6 118.3 120.3 119.3 121.9 123.4 122.8 122.7 122.1 120.3 120.1 20 Energy 2.7 105.9 103.1 104.1 104.1 105.3 106.7 109.0 108.0 108.8 106.4 106.6 106.4 104.7 106.6 21 Fuels .7 102.9 101.8 101.6 98.2 102.6 104.6 106.0 105.6 104.0 101.1 98.1 99.8 103.5 105.0 22 Residential utilities 2.0 107.0 103.6 105.0 106.3 106.3 107.5 110.0 108.9 110.6 108.4 109.7 108.9 105.2 107.2 23 Equipment, total 20.0 115.5 114.9 114.7 116.2 116.8 117.2 117.2 117.8 117.0 115.1 113.6 113.7 113.2 112.7 24 Business equipment 13.9 123.1 122.2 121.6 123.5 124.4 125.0 125.4 126.4 125.4 122.9 121.2 121.8 121.1 120.5 25 Information processing and related .. 5.6 127.2 126.0 126.4 126.6 126.3 128.0 128.5 129.5 130.1 128.8 127.5 129.7 131.3 131.3 26 Office and computing 1.9 149.8 147.2 149.3 148.9 150.6 152.7 152.2 153.6 155.3 149.8 148.9 154.0 156.4 156.9 27 Industrial 4.0 115.3 113.9 114.2 115.8 116.0 117.2 117.9 117.4 115.4 115.3 112.3 111.6 109.7 108.2 28 Transit 2.5 129.9 130.6 126.2 132.5 137.4 135.5 135.4 140.5 137.5 126.3 123.4 125.9 123.2 123.5 29 Autos and trucks 1.2 96.8 104.5 95.2 105.7 112.2 103.1 101.5 111.0 106.5 83.9 75.3 79.8 75.5 77.3 30 Other 1.9 118.5 117.8 117.6 119.4 119.9 119.2 119.8 118.5 117.0 117.6 118.5 115.2 112.5 111.2 31 Defense and space equipment 5.4 97.3 97.5 97.3 97.6 97.6 97.8 97.7 97.3 97.3 96.2 95.8 94.4 94.3 93.8 32 Oil and gas well drilling .6 109.0 106.0 114.3 118.6 119.5 116.2 106.9 107.4 107.1 109.7 107.3 106.4 108.2 107.7 33 Manufactured homes .2 90.8 92.9 89.7 91.3 92.8 90.0 93.4 91.8 89.0 87.3 83.4 83.1 77.3 78.5 34 Intermediate products, total 14.7 107.7 108.2 108.0 108.3 108.3 108.4 107.9 107.4 107.0 106.2 106.0 104.0 102.2 101.3 35 Construction supplies 6.0 105.2 107.3 106.4 105.5 106.0 106.7 105.3 103.8 103.1 101.8 101.0 97.6 96.3 94.8 36 Business supplies 8.7 109.4 108.9 109.1 110.2 109.8 109.5 109.7 109.9 109.7 109.2 109.4 108.5 106.3 105.8 37 Materials, total 39.2 107.8 107.1 107.3 107.7 108.8 109.6 109.7 109.4 108.3 106.8 105.3 104.7 103.9 103.4 38 Durable goods materials 19.4 111.8 110.9 110.9 112.5 113.8 114.0 114.9 114.1 112.5 110.4 107.5 106.6 105.7 105.0 39 Durable consumer parts 4.2 104.0 104.5 103.2 108.5 108.5 108.1 110.4 109.0 106.0 98.5 91.1 93.7 91.1 89.2 40 Equipment parts 7.3 118.1 117.6 117.4 118.1 119.1 119.2 119.4 119.8 118.6 117.4 116.9 115.8 116.1 115.5 41 Other 7.9 110.2 108.1 108.9 109.6 111.8 112.4 113.1 111.6 110.4 110.2 107.4 104.9 103.9 103.6 42 Basic metal materials 2.8 111.9 107.5 110.2 109.2 113.6 115.5 116.3 115.8 112.0 112.7 109.6 103.7 104.5 105.2 43 Nondurable goods materials 9.0 106.0 105.2 106.1 105.2 106.1 107.8 106.8 106.9 106.5 105.6 104.9 105.1 103.3 103.3 44 Textile materials 1.2 96.7 94.9 95.6 97.4 99.4 100.2 97.8 98.1 97.9 95.1 91.4 92.7 91.1 91.5 45 Pulp and paper materials 1.9 106.4 103.0 106.0 104.5 104.8 109.0 106.9 109.4 108.6 107.2 108.5 105.8 103.5 102.8 46 Chemical materials 3.8 106.8 107.5 107.4 105.4 107.3 108.5 108.0 106.6 105.6 105.8 105.7 106.5 104.1 104.3 47 Other 2.1 109.5 108.7 109.8 109.8 108.8 109.9 109.3 110.1 110.8 109.4 107.6 109.0 108.2 108.6 48 Energy materials 10.9 102.1 102.0 101.8 101.1 102.1 103.3 103.0 103.0 102.3 101.6 102.0 101.2 101.0 100.6 49 Primary energy 7.2 101.3 101.2 100.3 100.1 101.2 103.3 102.1 101.0 100.7 101.4 101.9 101.6 103.0 101.9 50 Converted fuel materials 3.7 103.5 103.4 104.6 102.9 103.9 103.4 104.9 107.0 105.3 102.0 102.1 100.4 97.1 98.1 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.3 109.5 109.0 109.2 109.5 110.0 110.6 110.7 110.6 110.0 109.0 108.1 107.4 106.5 106.1 52 Total excluding motor vehicles and parts ... 95.3 109.8 109.2 109.5 109.7 110.2 110.8 110.9 110.7 110.2 109.4 108.6 107.8 106.9 106.6 53 Total excluding office and computing machines 97.5 108.2 108.0 107.8 108.4 109.1 109.3 109.4 109.5 108.8 107.3 106.1 105.4 104.4 104.0 54 Consumer goods excluding autos and trucks 24.5 107.9 107.5 107.9 107.6 107.5 107.6 108.2 108.4 108.7 107.9 107.6 107.0 106.3 106.6 55 Consumer goods excluding energy 23.3 107.5 108.0 107.5 107.8 108.1 107.6 107.7 108.7 108.6 106.5 105.6 105.4 104.5 104.7 56 Business equipment excluding autos and trucks 12.7 125.6 124.0 124.2 125.3 125.6 127.2 127.8 128.0 127.2 126.8 125.6 125.9 125.6 124.8 57 Business equipment excluding office and computing equipment 12.0 118.7 118.2 117.2 119.4 120.2 120.5 121.1 122.0 120.6 118.6 116.7 116.6 115.4 114.7 58 Materials excluding energy 28.4 110.0 109.1 109.4 110.2 111.4 112.1 112.3 111.8 110.6 108.9 106.6 106.1 104.9 104.5 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A49 2.13—Continued 1987 1990 1991 Groups c S o I d C e p p r o o r - - aa 1 vv 9 gg 9 .. 0 tion Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec/ Jan/ FFeebb// Index (1987 = 100) MAJOR INDUSTRY 1 Total index. 100.0 109.2 108.9 108.8 109.4 110.1 110.4 110.5 110.6 109.9 108.3 107.2 106.6 105.7 2 Manufacturing 84.4 109.9 109.8 109.5 110.3 110.8 111.1 111.1 111.2 110.7 108.9 107.5 107.0 106.0 3 Primary processing .. 26.7 106.3 106.0 105.9 106.1 107.0 107.9 108.0 106.9 106.2 104.9 102.9 101.8 100.1 4 Advanced processing 57.7 111.6 111.7 111.3 112.4 112.6 112.5 112.5 113.2 112.8 110.8 109.5 109.4 108.7 Durable 47.3 111.6 111.9 111.1 112.6 113.4 113.4 113.5 113.8 112.5 109.9 107.5 107.0 106.2 Lumber and products ... 24 2.0 101.6 105.0 103.3 101.7 102.0 103.6 100.5 100.3 98.2 95.5 93.5 93.4 90.8 Furniture and fixtures ... 25 1.4 105.9 105.9 107.6 108.0 108.7 108.0 106.7 106.9 104.4 102.3 102.0 99.3 96.0 Clay, glass, and stone products 32 2.5 105.7 107.7 105.1 106.4 106.1 106.0 106.6 104.5 104.4 103.8 100.7 97.2 98.2 Primary metals 33 3.3 108.4 105.4 106.4 106.2 109.5 110.3 114.6 111.6 108.6 109.1 104.2 97.8 98.5 Iron and steel 331,2 1.9 109.9 106.1 106.7 105.5 110.3 110.6 118.3 113.9 110.3 112.6 107.3 96.0 97.9 Raw steel .1 109.6 105.9 104.9 107.6 111.8 113.9 118.5 111.6 112.8 109.5 100.6 104.7 97.9 Nonferrous 333-6,9 1.4 106.2 104.3 105.9 107.1 108.3 109.8 109.4 108.4 106.2 104.1 99.8 100.3 99.3 Fabricated metal products 5.4 105.9 105.5 105.0 107.1 106.7 107.7 107.9 106.8 106.4 104.3 101.9 101.6 98.9 Nonelectrical machinery. 8.6 126.5 125.2 125.7 126.9 127.5 128.3 128.8 128.5 128.1 126.3 124.7 125.5 124.7 Office and computing machines 357 2.5 149.8 147.3 149.3 149.0 150.6 152.7 152.2 153.6 155.3 149.8 148.9 154.0 156.4 Electrical machinery 36 8.6 111.4 112.3 111.3 112.4 112.8 112.2 112.5 112.5 110.8 110.4 108.7 107.7 108.5 Transportation equipment 9.8 105.5 107.9 105.1 109.0 111.0 109.3 107.9 111.1 109.2 100.1 96.6 98.1 96.0 Motor vehicles and parts 4.7 96.8 103.5 95.8 104.0 108.0 102.7 101.0 107.5 103.8 85.8 78.5 83.0 79.8 Autos and light trucks 2.3 96.6 106.7 94.6 104.3 111.6 103.8 100.9 112.8 107.1 83.7 74.9 80.1 75.8 20 Aerospace and miscellaneous transportation equipment.. 372-6,9 5.1 113.3 111.9 113.4 113.5 113.8 115.2 114.1 114.2 114.0 113.1 112.9 111.6 110.6 Instruments 38 3.3 116.8 115.7 115.8 116.5 115.0 116.9 117.5 118.4 118.1 118.1 117.3 118.8 119.1 Miscellaneous manufacturers 39 1.2 120.0 118.6 118.6 119.1 119.6 120.4 121.8 121.3 121.5 122.5 119.1 115.1 114.1 23 Nondurable 37.2 107.8 107.2 107.5 107.4 107.6 108.1 108.1 108.0 108.4 107.7 107.4 106.9 105.7 24 Foods 8.8 107.6 107.1 107.0 106.8 106.1 107.1 107.7 107.6 108.8 109.6 109.1 108.4 108.1 25 Tobacco products 1.0 98.6 100.0 98.8 97.2 95.6 98.5 96.3 96.4 97.8 99.0 101.1 100.0 99.4 26 Textile mill products 1.8 100.8 99.8 100.9 102.7 103.6 102.9 100.4 100.7 101.2 97.4 96.1 96.4 93.6 27 Apparel products 2.4 98.8 99.8 98.7 99.2 99.3 99.2 98.8 98.4 97.2 95.5 94.9 92.9 93.1 28 Paper and products 3.6 105.3 102.8 105.3 104.0 104.2 107.8 106.5 107.5 106.8 105.1 105.4 104.1 101.2 29 Printing and publishing .. 6.4 111.9 111.4 112.0 112.8 112.0 111.4 110.9 111.6 112.9 112.4 112.8 112.4 110.5 30 Chemicals and products . 8.6 110.3 109.5 110.3 109.2 110.3 110.4 111.1 110.9 110.7 110.0 109.9 109.7 109.0 31 Petroleum products 1.3 108.2 109.1 106.8 104.6 106.5 110.5 110.2 109.3 108.6 107.8 105.6 104.9 107.6 32 Rubber and plastic products 3.0 110.2 109.8 109.0 110.9 112.8 110.9 112.0 110.3 110.6 109.6 106.9 108.2 104.9 33 Leather and products ... .3 100.0 103.3 102.6 103.5 102.0 102.5 99.6 100.3 95.3 89.9 92.6 89.6 88.2 34 Mining 7.9 102.6 101.1 102.9 102.2 102.2 104.0 102.4 103.9 102.6 103.3 103.4 101.9 103.8 35 Metal 10 .3 153.1 141.4 152.7 148.7 156.7 164.8 155.7 163.6 146.8 153.4 162.0 143.0 153.0 36 Coal 11,12 1.2 113.2 112.9 114.2 110.0 113.5 118.5 110.2 116.8 114.7 112.9 110.6 108.4 112.8 37 Oil and gas extraction — 13 5.7 95.5 94.6 95.7 96.0 94.6 95.5 95.8 95.8 95.8 97.3 96.7 96.4 98.3 38 Stone and earth minerals . 14 .7 119.5 116.5 120.2 119.9 121.1 121.8 120.1 121.7 118.0 113.5 118.9 118.1 111.5 39 Utilities... 7.6 108.0 106.2 106.7 107.1 109.7 109.7 111.4 110.3 109.2 106.9 108.8 107.8 104.2 40 Electric. 491.3PT 6.0 110.8 109.7 109.7 110.3 113.1 112.1 113.6 112.9 112.1 109.6 111.8 110.8 107.1 41 Gas.... 492,3PT 1.6 97.3 93.3 95.5 95.2 97.4 100.7 103.3 100.9 98.1 97.0 97.6 96.5 93.8 SPECIAL AGGREGATES 42 Manufacturing excluding motor vehicles and parts 79.8 110.7 110.2 110.3 110.7 111.0 111.6 111.7 111.4 111.1 110.3 109.1 108.4 107.5 43 Manufacturing excluding office and computing machines 82.0 108.7 108.7 108.3 109.2 109.6 109.8 109.9 110.0 109.4 107.7 106.2 105.5 104.4 Gross value (billions of 1982 dollars, annual rates) MAJOR MARKET 44 Products, total 1,734.8 1,911.4 1,922.6 1,906.2 1,922.2 1,937.0 1,923.5 1,929.5 1,941.6 1,939.6 1,882.8 1,859.4 1,863.7 1,850.6 45 Final 1,350.9 1,497.7 1,507.5 1,493.9 1,506.0 1,523.4 1,508.7 1,516.3 1,529.1 1,523.7 1,470.8 1,450.8 1,462.2 1,457.7 46 Consumer goods 833.4 882.9 893.4 883.9 885.9 893.8 886.0 885.9 895.2 892.7 865.2 857.6 860.6 856.6 47 Equipment 517.5 614.8 614.1 610.0 620.1 629.6 622.7 630.4 633.9 631.0 605.6 593.2 601.6 601.1 48 Intermediate 384.0 413.7 415.1 412.3 416.2 413.6 414.9 413.1 412.5 415.9 412.0 408.7 401.5 392.9 1. These data also appear in the Board's G.17 (419) release. For requests see utilization rates was released in April 1990. See "Industrial Production: 1989 address inside front cover. Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April A major revision of the industrial production index and the capacity 1990), pp. 187-204. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 Domestic Nonfinancial Statistics • June 1991 2.14 HOUSING AND CONSTRUCTION Monthly figures are at seasonally adjusted annual rates except as noted. 1990 1991 IItteemm 11998888 11998899 11999900 May June July Aug. Sept. Oct. Nov. Dec.' Jan.' Feb. Private residential real estate activity (thousands of units) NEW UNITS 1 Permits authorized 1,456 1,339 1,096 1,065 1,108 1,082 1,050 992 920 906 844 797 863 2 1-family 994 932 792 802 7% 780 762 737 708 671 645 609 693 3 2-or-more-family 462 407 304 263 312 302 288 255 212 235 199 188 170 4 Started 1,488 1,376 1,193 1,208 1,187 1,155 1,131 1,106 1,026 1,130 971 847 993 5 1-family 1,081 1,003 895 897 890 876 835 858 839 769 751 648 778 6 2-or-more-family 407 373 298 311 297 279 2% 248 187 361 220 199 215 7 Under construction, end of period1 . 919 850 711' 857 847 831 815 790 766 756 744 719 716 8 1-family 570 535 449' 546 538 528 517 503 497 486 478 462 460 9 2-or-more-family 350 315 262' 311 309 303 298 287 269 270 266 257 256 10 Completed 1,530 1,423 1,308 1,351 1,294 1,312 1,307 1,314 1,275 1,246 1,155 1,111 1,073 11 1-family 1,085 1,026 966' 1,001 950 988 950 963 930 922 878 830 823 12 2-or-more-family 445 396 342 350 344 324 357 351 345 324 277 281 250 13 Mobile homes shipped 218 198 188 190 190 187 193 184 186 181 167 168 157 Merchant builder activity in 1-family units 14 Number sold 675 650 535' 535 549 541 525 504 465 48C 460 402 467 15 Number for sale, end of period1 368 363 319 359 354 350 345 338 334 327 319 316 314 Price (thousands of dollars)2 Median 16 Units sold 113.3 120.4 122.3 125.0 125.0 118.7 118.4 113.0 120.0 118.9 127.0 120.0 127.5 Average 17 Units sold 139.0 148.3 149.0' 150.6 150.4 149.8 144.7 142.1 153.0 143.3' 153.9 152.3 156.8 EXISTING UNITS (1-family) 18 Number sold 3,594 3,439 3,316 3,350 3,370 3,320 3,410 3,160 3,070 3,150 3,130 2,900 3,160 Price of units sold (thousands of dollars) 19 Median 89.2 92.9 95.2 95.2 98.9 98.1 97.2 94.4 92.9 92.0 91.7 95.6 94.0 20 Average 112.5 118.0 118.3 118.5 122.5 121.1 120.7 116.8 115.9 115.6 114.1 123.0 119.7 Value of new construction3 (millions of dollars) CONSTRUCTION 21 Total put in place 422,076 432,068 433,999r 443,805 441,088 437,010 436,338 423,941 420,186' 415,737' 406,639 395,433 395,110 22 Private 327,102 333,514 324,435' 333,992 329,556 331,269 323,518 317,516 309,354' 301,861' 295,482 291,901 285,414 23 Residential 198,101 196,551 186,852' 196,055 189,462 187,083 184,409 179,713 174,573' 169,292' 164,751 160,971 155,105 24 Nonresidential, total 129,001 136,963 137,583' 137,937 140,094 144,186 139,109 137,803 134,781' 132,569' 130,731 113300,,993300 113300,,330099 Buildings 25 Industrial 14,931 18,506 20,563 20,847 20,405 23,609 20,239 19,862 19,598' 19,530' 20,748 20,806 20,703 26 Commercial 58,104 59,389 54,630 54,698 56,581 56,951 55,347 53,648 51,88c 49,806' 49,534 48,765 48,345 27 Other 17,278 17,848 18,824 18,379 19,272 19,792 19,801 20,267 19,606' 19,377' 18,428 18,562 18,647 28 Public utilities and other 38,688 41,220 43,566' 44,013 43,836 43,834 43,722 44,026 43,697' 43,856' 42,021 42,797 42,614 29 Public 94,971 98,551 109,564' 109,813 111,532 105,741 112,820 106,425 110,833' 113,877' 111,157 103,532 109,6% 30 Military 3,579 3,520 3,735' 5,459 5,868 3,308 2,888 2,543 1,981' 2,982' 1,890 2,201 1,364 31 Highway 30,140 29,502 31,987 30,658 30,311 28,775 31,865 31,322 33,231' 35,289' 34,562 27,310 33,059 32 Conservation and development... 4,726 4,969 4,735' 5,504 3,958 4,460 4,776 3,482 4,939' 5,068' 5,486 5,639 5,376 33 Other 56,526 60,560 69,107' 68,192 71,395 69,198 73,291 69,078 70,682' 70,538' 69,219 68,382 69,897 1. Not at annual rates. NOTE. Census Bureau estimates for all series except (1) mobile homes, which 2. Not seasonally adjusted. are private, domestic shipments as reported by the Manufactured Housing 3. Value of new construction data in recent periods may not be strictly Institute and seasonally adjusted by the Census Bureau, and (2) sales and prices comparable with data in previous periods because of changes by the Bureau of the of existing units, which are published by the National Association of Realtors. All Census in its estimating techniques. For a description of these changes see back and current figures are available from the originating agency. Permit Construction Reports (C-30-76-5), issued by the Bureau in July 1976. authorizations are those reported to the Census Bureau from 16,000 jurisdictions beginning with 1978. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A51 2.15 CONSUMER AND PRODUCER PRICES Percentage changes based on seasonally adjusted data, except as noted Change from 12 Change from 3 months earlier Change from 1 month earlier months earlier (at annual rate) IIInnndddeeexxx llleeevvveeelll IIIttteeemmm 1990 1991 1990 1991 MMMaaarrr... 11999900 11999911 111999999111 MMaarr.. MMaarr.. June Sept. Dec. Mar. Nov. Dec. Jan. Feb. Mar. CONSUMER PRICES2 (1982-84=100) 1 All items 5.2 4.9 4.1 8.2 4.9 2.4 .3 .3 .4 .2 -.1 135.0 7 Food 6.5 3.3 2.5 4.6 3.9 2.4 .4 .1 .6 -.2 .2 135.8 3 Energy items 6.3 4.4 1.2 44.2 18.0 -30.7 .5 -.4 -2.4 -4.0 -2.6 99.7 4 All items less food and energy 4.9 5.2 4.6 6.0 3.8 6.8 .3 .4 .8 .7 .1 140.9 5 Commodities 3.7 3.8 2.0 3.3 2.3 7.9 .2 .2 1.0 1.0 -.1 128.1 6 Services 5.5 6.0 5.5 7.2 4.8 6.4 .4 .4 .7 .6 .3 148.4 PRODUCER PRICES (1982=100) 7 Finished goods 4.5 2.9 1.0 11.3 4.4 -3.9 .4 -.6 -.1 -.6 -.3 120.6 8 Consumer foods 5.2 .6 -1.6 2.3 1.3 .6 .R -.3 .2 .2 125.1 9 Consumer energy 7.5 11.8 -4.6 118.7 17.7 -35.4 .2 -4.7 -2.5 -5.1 -3.2 74.9 10 Other consumer goods 4.0 4.1 3.8 3.5 3.1 5.6 .8' -.R ..88 .5 .2 132.7 11 Capital equipment 3.7 3.2 2.7 3.6 3.3 3.2 .2 .3 ..33 .2 .2 125.8 1? Intermediate materials3 1.0 1.7 .4 13.4 3.8 -9.2 ,3r -.y -.4 -.9 -1.1 114.4 13 Excluding energy .0 1.2 .7 4.0 2.0 -1.6 .3r .1 -.1 -.4 121.8 Crude materials 14 Foods 1.4 -4.5 -3.8 -7.8 -5.3 -1.1 -i.v -1.5 .0 1.2 110.1 15 Energy 6.9 -1.8 -39.2 305.8 -20.2 -52.7 -11.0R —10.6r 6.3 -15.9 -7.3 77.2 16 Other -5.0 -1.1 13.5 5.9 -18.5 -2.4 -2.3r -1.4' .3 .2 -1.1 132.7 1. Not seasonally adjusted. 3. Excludes intermediate materials for food manufacturing and manufactured 2. Figures for consumer prices are those for all urban consumers and reflect a animal feeds. rental equivalence measure of homeownership after 1982. SOURCE. Bureau of Labor Statistics. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A52 Domestic Nonfinancial Statistics • June 1991 2.16 GROSS NATIONAL PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data are at seasonally adjusted annual rates. 1989 1990 AAccccoouunntt 11998888 11998899 119999CC Q4 Q1 Q2 Q3 Q4r GROSS NATIONAL PRODUCT 1 Total 4,873.7 5,200.8 5,465.1 5,289.3 5,375.4 5,443.3 5,514.6 5,527.3 By source 2 Personal consumption expenditures 3,238.2 3,450.1 3,657.3 3,518.5 3,588.1 3,622.7 3,693.4 3,724.9 3 Durable goods 457.5 474.6 480.3 471.2 492.1 478.4 482.3 468.5 4 Nondurable goods 1,060.0 1,130.0 1,193.7 1,148.8 1,174.7 1,179.0 1,205.0 1,216.0 5 Services 1,720.7 1,845.5 1,983.3 1,898.5 1,921.3 1,965.3 2,006.2 2,040.4 6 Gross private domestic investment 747.1 771.2 741.0 762.7 747.2 759.0 759.7 698.3 7 Fixed investment 720.8 742.9 746.1 737.7 758.9 745.6 750.7 729.2 8 Nonresidential 488.4 511.9 524.1 511.8 523.1 516.5 532.8 524.0 9 Structures 139.9 146.2 147.0 147.1 148.8 147.2 149.8 142.1 10 Producers' durable equipment 348.4 365.7 377.1 364.7 374.3 369.3 383.0 381.9 11 Residential structures 232.5 231.0 222.0 225.9 235.9 229.1 217.9 205.2 12 Change in business inventories 26.2 28.3 -5.0 25.0 -11.8 13.4 9.0 -30.8 13 Nonfarm 29.8 23.3 -7.4 24.1 -17.0 13.0 6.8 -32.4 14 Net exports of goods and services -74.1 -46.1 -31.2 -35.3 -30.0 -24.9 -41.3 -28.8 15 Exports 552.0 626.2 672.8 642.8 661.3 659.7 672.7 697.4 16 Imports 626.1 672.3 704.0 678.1 691.3 684.6 714.1 726.2 17 Government purchases of goods and services 962.5 1,025.6 1,098.1 1,043.3 1,070.1 1,086.4 1,102.8 1,132.9 18 Federal 380.3 400.0 424.0 399.9 410.6 421.9 425.8 437.6 19 State and local 582.3 625.6 674.1 643.4 659.6 664.6 677.0 695.3 By major type of product 2(1 Final sales, total 4,847.5 5,172.5 5,470.2 5,264.3 5,387.2 5,429.9 5,505.6 5,558.2 21 Goods 1,908.9 2,044.4 2,148.3 2,060.9 2,122.8 2,133.1 2,161.4 2,175.9 22 Durable 840.3 894.7 939.0 894.2 941.4 930.1 943.4 941.2 23 Nondurable 1,068.6 1,149.7 1,209.3 1,166.7 1,181.4 1,203.0 1,218.0 1,234.7 24 Services 2,488.6 2,671.2 2,864.5 2,747.5 2,791.3 2,834.2 2,889.6 2,943.0 25 Structures 450.0 456.9 457.4 455.9 473.0 462.5 454.6 439.3 26 Change in business inventories 26.2 28.3 -5.0 25.0 -11.8 13.4 9.0 -30.8 27 Durable goods 19.9 11.9 -11.1 13.2 -21.6 .0 9.8 -32.5 28 Nondurable goods 6.4 16.4 6.0 11.9 9.8 13.4 -.8 1.7 MEMO 29 Total GNP in 1982 dollars 4,016.9 4,117.7 4,157.3 4,133.2 4,150.6 4,155.1 4,170.0 4,153.4 NATIONAL INCOME 30 Total 3,984.9 4,223.3 4,420.1 4,267.1 4,350.3 4,411.3 4,452.4 4,466.5 31 Compensation of employees 2,905.1 3,079.0 3,244.2 3,128.6 3,180.4 3,232.5 3,276.9 3,286.9 32 Wages and salaries 2,431.1 2,573.2 2,705.3 2,612.7 2,651.6 2,696.3 2,734.2 2,738.9 33 Government and government enterprises 446.6 476.6 508.0 486.7 497.1 505.7 511.3 518.1 34 Other 1,984.5 2,096.6 2,197.2 2,126.0 2,154.5 2,190.6 2,222.9 2,220.8 35 Supplement to wages and salaries 474.0 505.8 538.9 515.9 528.8 536.1 542.7 548.0 36 Employer contributions for social insurance 248.5 263.9 280.8 268.4 276.0 279.7 282.7 284.8 37 Other labor income 225.5 241.9 258.1 247.5 252.8 256.4 260.0 263.2 38 Proprietors' income1 354.2 379.3 402.5 381.7 404.0 401.7 397.9 406.2 39 Business and professional 310.5 330.7 352.6 336.0 346.6 350.8 355.6 357.4 40 Farm1 43.7 48.6 49.9 45.7 57.4 51.0 42.4 48.8 41 Rental income of persons2 16.3 8.2 6.9 4.1 5.5 4.3 8.4 9.3 42 Corporate profits' 337.6 311.6 299.9 290.9 296.8 306.6 300.7 295.7 43 Profits before tax3 316.7 307.7 306.4 289.8 296.9 299.3 318.5 310.8 44 Inventory valuation adjustment -27.0 -21.7 -11.4 -14.5 -11.4 -.5 -19.8 -13.8 45 Capital consumption adjustment 47.8 25.5 4.9 15.6 11.3 7.7 2.0 -1.4 46 Net interest 371.8 445.1 466.7 461.7 463.6 466.2 468.3 468.4 1. With inventory valuation and capital consumption adjustments. 3. For after-tax profits, dividends, and the like, see table 1.48. 2. With capital consumption adjustment. SOURCE. Survey of Current Business (Department of Commerce). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A53 2.17 PERSONAL INCOME AND SAVING Billions of current dollars; quarterly data are at seasonally adjusted annual rates. Exceptions noted. 1989 1990 AAccccoouunntt 11998888 11998899 11999900rr Q4 Q1 Q2 Q3 Q4' PERSONAL INCOME AND SAVING 1 Total personal income 4,070.8 4,384.3 4,645.5 4,469.2 4,562.8 4,622.2 4,678.5 4,718.5 2 Wage and salary disbursements 2,431.1 2,573.2 2,705.3 2,612.7 2,651.6 2,696.3 2,734.2 2,738.9 3 Commodity-producing industries 696.4 720.6 729.3 721.4 724.6 731.1 735.3 726.0 4 Manufacturing 524.0 541.8 546.8 540.9 541.2 548.1 551.8 546.1 5 Distributive industries 572.0 604.7 637.2 614.6 627.0 637.3 642.7 641.9 6 Service industries 716.2 771.4 830.8 790.0 802.9 822.2 844.9 853.0 7 Government and government enterprises 446.6 476.6 508.0 486.7 497.1 505.7 511.3 518.1 8 Other labor income 225.5 241.9 258.1 247.5 252.8 256.4 260.0 263.2 9 Proprietors' income1 354.2 379.3 402.5 381.7 404.0 401.7 397.9 406.2 10 Business and professional 310.5 330.7 352.6 336.0 346.6 350.8 355.6 357.4 11 Farm1 43.7 48.6 49.9 45.7 57.4 51.0 42.4 48.8 12 Rental income of persons 16.3 8.2 6.9 4.1 5.5 4.3 8.4 9.3 13 Dividends 102.2 114.4 123.8 118.2 120.5 122.9 124.9 126.7 14 Personal interest income 547.9 643.2 680.4 664.9 670.5 678.0 685.3 687.9 15 Transfer payments 587.7 636.9 694.8 655.9 680.9 686.7 696.4 715.1 16 Old-age survivors, disability, and health insurance benefits ... 300.5 325.3 350.7 334.1 347.2 347.6 351.1 356.8 17 LESS: Personal contributions for social insurance 194.1 212.8 226.2 215.8 222.9 224.1 228.6 228.9 18 EQUALS: Personal income 4,070.8 4,384.3 4,645.5 4,469.2 4,562.8 4,622.2 4,678.5 4,718.5 19 LESS: Personal tax and nontax payments 591.6 658.8 699.4 669.6 675.1 696.5 709.5 716.6 20 EQUALS: Disposable personal income 3,479.2 3,725.5 3,946.1 3,799.6 3,887.7 3,925.7 3,969.1 4,001.9 21 LESS: Personal outlays 3,333.6 3,553.7 3,766.0 3,625.5 3,696.4 3,730.6 3,802.6 3,834.4 22 EQUALS: Personal saving 145.6 171.8 180.1 174.1 191.3 195.1 166.5 167.5 MEMO Per capita (1982 dollars) 23 Gross national product 16,302.4 16,549.6' 16,535.3 16,546.0 16,575.9 16,554.2 1166,,556622..99'' 1166,,444499..44 24 Personal consumption expenditures 10,578.3 10,678.0'' 10,665.8 10,688.2 10,692.1 10,672.5 10,711.5' 10,588.7 25 Disposable personal income 11,368.0 11,531.0 11,509.0 11,541.0 11,586.0 11,564.0 11,511.0 11,376.0 26 Saving rate (percent) 4.2 4.6 4.6 4.6 4.9 5.0 4.2 4.2 GROSS SAVING 27 Gross saving 656.1 691.5 659.0 674.8 664.8 679.3 665.9 626.0 28 Gross private saving 751.3 779.3 788.8 786.4 795.0 806.7 772.2 781.3 29 Personal saving 145.6 171.8 180.1 174.1 191.3 195.1 166.5 167.5 30 Undistributed corporate profits' 91.4 53.0 33.1 39.8 36.7 40.5 26.5 28.7 31 Corporate inventory valuation adjustment -27.0 -21.7 -11.4 -14.5 -11.4 -.5 -19.8 -13.8 Capital consumption allowances 32 Corporate 322.1 346.4 363.0 356.5 356.7 335599..77 336655..55 337700..33 33 Noncorporate 192.2 208.0 212.6 216.0 210.3 211.4 213.8 214.8 34 Government surplus, or deficit (-), national income and product accounts -95.3 -87.8 -129.8 -111.6 -130.2 -127.3 --110066..44 --115555..33 35 Federal -141.7 -134.3 -165.4 -150.1 -168.3 -166.0 -145.7 -181.7 36 State and local 46.5 46.4 35.6 38.5 38.1 38.6 39.3 26.4 37 Gross investment 627.8 674.4 655.6 671.8 665.6 676.1 661.0 619.6 38 Gross private domestic 747.1 771.2 741.0 762.7 747.2 759.0 759.7 698.3 39 Net foreign -119.2 -96.8 -85.5 -90.9 -81.6 -82.9 -98.7 -78.7 40 Statistical discrepancy -28.2 -17.0 -3.4 -3.0 .7 -3.2 -4.9 -6.4 1. With inventory valuation and capital consumption adjustments. SOURCE. Survey of Current Business (Department of Commerce). 2. With capital consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A54 Domestic Nonfinancial Statistics • June 1991 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data are seasonally adjusted except as noted.1 1989 1990 Item credits or debits 1988 1989 1990 Q4 Q1 Q2 Q3 Q4" -128,862 -110,035 -99,297 -26,692 -22,320 -22,733 -26,481 -27,762 Not seasonally adjusted . „ -27,926 -18,327 -20,987 -30,672 -29,311 Merchandise trade balance2 -126,986 -114,864 -108,680 -28,746 -26,809 -23,225 -29,785 -28,861 Merchandise exports 320,337 360,465 389,286 91,738 %,093 %,585 96,152 100,456 Merchandise imports -447,323 -475,329 -497,966 -120,484 -122,902 -119,810 -125,937 -129,317 Military transactions, net -5,452 -6,319 -6,414 -1,776 -1,287 -1,382 -1,705 -2,042 Investment income, net 1,610 -913 7,534 561 2,004 -990 2,256 4,265 Other service transactions, net 16,971 26,783 29,337 7,900 7,212 7,286 6,852 7,988 Remittances, pensions, and other transfers -4,261 -3,758 -4,101 -889 -1,038 -921 -1,106 -1,037 U.S. government grants -10,744 -10,963 -16,972 -3,742 -2,402 -3,501 -2,993 -8,075 11 Change in U.S. government assets, other than official reserve assets, net (increase, -) 2,969 1,185 2,971 -47 -659 -360 4,797 1 1 2 3 Ch G an o g ld e in U.S. official reserve assets (increase, -). -3,9120 -25,2930 -2,1580 -3,2020 -3,1770 3710 1,7390 -1,0920 14 Special drawing rights (SDRs) 127 -535 -192 -204 -247 -216 363 -93 15 Reserve position in International Monetary Fund. 1,025 471 731 -23 234 493 8 -4 16 Foreign currencies -5,064 -25,229 -2,697 -2,975 -3,164 94 1,368 -995 17 Change in U.S. private assets abroad (increase, -). -83,232 -102,953 -62,062 -45,4% 36,741 -31,257 -33,273 -34,273 18 Bank-reported claims -56,322 -50,684 816 -32,658 52,353 -13,639 -13,489 -24,409 19 Nonbank-reported claims -2,847 1,391 47 1,202 -1,550 625 20 U.S. purchase of foreign securities, net -7,846 -21,938 -26,785 -4,109 -7,4% -11,247 -1,223 -6,819 21 U.S. direct investments abroad, net -16,217 -31,722 -36,370 -8,776 -9,318 -4,821 -19,186 -3,045 22 Change in foreign official assets in United States (increase, +) .. 39,515 8,823 30,778 -7,016 -8,203 5,541 13,588 19,851 23 U.S. Treasury securities 41,741 333 28,704 -7,342 -5,897 2,442 12,058 20,101 24 Other U.S. government obligations 1,309 1,383 667 569 -521 346 134 708 2 2 5 6 O O t t h h e e r r U U . . S S . . g li o a v bi e l r i n ti m es e n re t p l o ia r b te il d i ti b e y s U.S. banks34 - - 7 3 1 1 0 9 4,9 3 4 3 0 2 1 1 , , 4 49 8 5 6 -8 4 2 1 0 2 -1 - , 3 2 8 7 1 8 1 1, , 9 0 1 8 8 9 - 1, 2 8 0 71 2 -1,0 9 1 7 6 9 27 Other foreign official assets5 -2,506 1,835 -1,574 165 -126 -254 -273 -921 28 Change in foreign private assets in United States (increase, +).. 181,926 205,829 56,766 76,336 -24,786 19,954 42,543 19,055 29 U.S. bank-reported liabilities 70,235 61,199 19,786 36,674 -32,264 4,897 27,591 19,562 U.S. nonbank-reported liabilities 6,664 2,867 1,732 290 1,317 4,425 Foreign private purchases of U.S. Treasury securities, net 20,239 29,951 1,144 5,671 -835 3,614 312 -I,947 Foreign purchases of other U.S. securities, net 26,353 39,568 4,096 10,793 2,486 2,890 -1,670 390 Foreign direct investments in United States, net 58,435 72,244 25,708 21,466 5,537 7,236 11,885 1,050 34 Allocation of SDRs 0 0 0 0 0 0 0 0 35 Discrepancy -8,404 22,443 73,002 6,117 22,404 28,932 2,244 19,424 36 Owing to seasonal adjustments 3,560 3,023 -767 -4,980 2,726 37 Statistical discrepancy in recorded data before seasonal adjustment 22,443 73,002 2,558 19,381 29,699 16,698 MEMO Changes in official assets 38 U.S. official reserve assets (increase, —) -3,912 -25,293 -2,158 -3,202 -3,177 371 1,739 -1,092 39 Foreign official assets in United States (increase, +) excluding line 25 40,225 8,491 29,292 -7,428 -7,822 4,452 13,790 18,872 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line 22 above) -2,996 10,713 1,902 -1,379 2,953 208 -1,600 341 1. Seasonal factors are not calculated for lines 6, 10, 12-16, 18-20, 22-34, and 4. Primarily associated with military sales contracts and other transactions 38-40. arranged with or through foreign official agencies. 2. Data are on an international accounts (IA) basis. Differs from the Census 5. Consists of investments in U.S. corporate stocks and in debt securities of basis data, shown in table 3.11, for reasons of coverage and timing. Military private corporations and state and local governments. exports are excluded from merchandise data and are included in line 6. NOTE. Data are from Bureau of Economic Analysis, Survey of Current Business 3. Reporting banks include all kinds of depository institutions besides commer- (Department of Commerce). cial banks, as well as some brokers and dealers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A55 3.11 U.S. FOREIGN TRADE1 Millions of dollars; monthly data are seasonally adjusted. 199C 1991 IItteemm 11998888 11998899 119999CC Aug. Sept. Oct. Nov. Dec. Jan. Feb. 1 EXPORTS of domestic and foreign merchandise excluding grant-aid shipments, f.a.s. value 322,426 363,812 393,592 32,515 32,231 34,631 33,586 33,570 34,311 33,502 GENERAL IMPORTS including merchandise for immediate consumption plus entries into bonded warehouses 2 Customs value 440,952 473,211 495,311 41,868 41,315 44,527 43,123 39,895 41,474 38,836 Trade balance 3 Customs value -118,526 -109,399 -101,718 -9,353 -9,084 -9,897 -9,536 -6,325 -7,164 -5,334 1. The Census basis data differ from merchandise trade data shown in table tions; military payments are excluded and shown separately as indicated above. 3.10, U.S. International Transactions Summary, for reasons of coverage and As of Jan. 1,1987 census data are released 45 days after the end of the month; the timing. On the export side, the largest adjustment is the exclusion of military sales previous month is revised to reflect late documents. Total exports and the trade (which are combined with other military transactions and reported separately in balance reflect adjustments for undocumented exports to Canada. the "service account" in table 3.10, line 6). On the import side, additions are made SOURCE. FT900 "Summary of U.S. Export and Import Merchandise Trade" for gold, ship purchases, imports of electricity from Canada, and other transac- (Department of Commerce, Bureau of the Census). 3.12 U.S. RESERVE ASSETS Millions of dollars, end of period 1990 1991 Type 1987 1988 1989 Sept. Oct. Nov. Dec. Jan. Feb. Mar." 1 Total 45,798 47,802 74,609 80,024 82,822r 83,041' 83,316' 85,006 82,797 78,002 2 Gold stock, including Exchange 11,078 11,057 11,059 11,063 11,060 11,059 11,058 11,058 11,058 11,058 Stabilization Fund1 10,283 9,637 9,951 10,666 10,876 11,059 10,989 10,922 10,958 10,368 3 Special drawing rights2,3 4 ReseMrvoen peotasriyti oFnu innd 2I nternational 11,349 9,745 9,048 8,881 9,066 8,871 9,076 9,468 9,556 8,910 5 Foreign currencies4 13,088 17,363 44,551 49,414 51,820' 52,052' 52,193' 53,558 51,225 47,666 1. Gold held under earmark at Federal Reserve Banks for foreign and interna- in the IMF also are valued on this basis beginning July 1974. tional accounts is not included in the gold stock of the United States; see table 3. Includes allocations by the International Monetary Fund of SDRs as follows: 3.13. Gold stock is valued at $42.22 per fine troy ounce. $867 million on Jan. 1, 1970; $717 million on Jan. 1, 1971; $710 million on Jan. 1, 2. Beginning July 1974, the IMF adopted a technique for valuing the SDR based 1972; $1,139 million on Jan. 1, 1979; $1,152 million on Jan. 1, 1980; and $1,093 on a weighted average of exchange rates for the currencies of member countries. million on Jan. 1, 1981; plus transactions in SDRs. From July 1974 through December 1980, 16 currencies were used; from January 4. Valued at current market exchange rates. 1981, 5 currencies have been used. The U.S. SDR holdings and reserve position 3.13 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS1 Millions of dollars, end of period 1990 1991 AAsssseettss 11998877 11998888 11998899 Sept. Oct. Nov. Dec. Jan. Feb. Mar." 1 Deposits 244 347 589 360 297 264 369 271 329 228 Assets held in custody 2 U.S. Treasury securities2 195,126 232,547 224,911 261,321 266,749 272,399 278,499 286,722 286,471 272,505 3 Earmarked gold3 13,919 13,636 13,456 13,419 13,415 13,389 13,387 13,377 13,382 13,374 1. Excludes deposits and U.S. Treasury securities held for international and 3. Earmarked gold and the gold stock are valued at $42.22 per line troy ounce, regional organizations. Earmarked gold is gold held for foreign and international accounts and is not 2. Marketable U.S. Treasury bills, notes, and bonds; and nonmarketable U.S. included in the gold stock of the United States. Treasury securities payable in dollars and in foreign currencies at face value. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A56 International Statistics • June 1991 3.14 FOREIGN BRANCHES OF U.S. BANKS Balance Sheet Data1 Millions of dollars, end of period 1990 1991 AAsssseett aaccccoouunntt Aug. Sept. Oct. Nov. Dec. Jan. Feb. All foreign countries 1 Total, all currencies 518,618 505,595 545,366 551,377r 546,172' 552,542' 558,626' 556,925' 563,587' 559,946 2 Claims on United States 138,034 169,111 198,835 178,267r 182,593' 177,571' 180,938' 188,496' 183,587' 187,688 3 Parent bank 105,845 129,856 157,092 137,589'' 140,897' 135,568' 140,302' 148,837' 141,094' 145,481 4 Other banks in United States 16,416 14,918 17,042 14,500 14,272 13,261 12,937' 13,296 14,541 12,887 5 Nonbanks 15,773 24,337 24,701 26,178 27,424 28,742 27,699 26,363 27,952 29,320 6 Claims on foreigners 342,520 299,728 300,575 313,831 311,248 319,318 323,02C 312,349' 321,15C 313,128 7 Other branches of parent bank 122,155 107,179 113,810 121,705 123,359 128,747 135,177 134,567 131,727' 124,167 8 Banks 108,859 96,932 90,703 88,768 83,305 82,706 81,44C 72,986' 81,607' 80,030 9 Public borrowers 21,832 17,163 16,456 16,157 16,379 16,335 16,591' 17,502' 18,205' 17,843 10 Nonbank foreigners 89,674 78,454 79,606 87,201 88,205 91,530 89,812 87,294 89,611' 91,088 11 Other assets 38,064 36,756 45,956 59,279 52,331 55,653 54,668 56,080 58,85C 59,130 12 Total payable in U.S. dollars 350,107 357,573 382,498 358,038' 360,210' 362,537' 371,753' 379,162' 379,386' 379,729 13 Claims on United States 132,023 163,456 191,184 169,745' 174,016' 168,988' 172,336' 180,174' 175,505' 180,115 14 Parent bank 103,251 126,929 152,294 132,025' 135,IOC 129,882' 134,436' 142,962' 135,389' 140,303 15 Other banks in United States 14,657 14,167 16,386 13,513 13,422 12,441 12,088' 12,513 13,739 12,266 16 Nonbanks 14,115 22,360 22,504 24,207 25,494 26,665 25,812 24,699 26,377 27,546 17 Claims on foreigners 202,428 177,685 169,690 163,490 163,994 168,722 174,832' 174,092' 179,403' 173,166 18 Other branches of parent bank 88,284 80,736 82,949 82,564 84,378 90,198 95,599 94,939 93,488 87,033 19 Banks 63,707 54,884 48,396 40,733 39,413 37,531 37,795' 36,44C 41,134' 40,785 20 Public borrowers 14,730 12,131 10,961 10,939 11,166 11,201 11,202' 12,298' 13,136' 12,944 21 Nonbank foreigners 35,707 29,934 27,384 29,254 29,037 29,792 30,236 30,415 31,645' 32,404 22 Other assets 15,656 16,432 21,624 24,803 22,200 24,827 24,585 24,896 24,478 26,448 United Kingdom 23 Total, all currencies 158,695 156,835 161,947 184,933 178,484 184,660 188,182 184,818 184,817 180,211 24 Claims on United States 32,518 40,089 39,212 40,092 42,574 39,862 42,301 45,560 40,197 41,278 25 Parent bank 27,35(1 34,243 35,847 36,140 39,042 35,904 38,453 42,413 36,533 37,662 26 Other banks in United States 1,259 1,123 1,058 1,037 723 694 1,088 792 1,095 924 27 Nonbanks 3,909 4,723 2,307 2,915 2,809 3,264 2,760 2,355 2,569 2,692 28 Claims on foreigners 115,700 106,388 107,657 118,423 114,863 122,203 124,077 115,536 121,077 115,361 29 Other branches of parent bank 39,903 35,625 37,728 43,581 44,408 47,390 49,499 46,367 47,857 41,653 30 Banks 36,735 36,765 36,159 37,623 34,088 35,480 36,135 31,604 34,05C 34,518 31 Public borrowers 4,752 4,019 3,293 3,757 3,639 3,521 3,675 3,860 3,953 4,029 32 Nonbank foreigners 34,310 29,979 30,477 33,462 32,728 35,812 34,768 33,705 35,217' 35,161 33 Other assets 10,477 10,358 15,078 26,418 21,047 22,595 21,804 23,722 23,543 23,572 34 Total payable in U.S. dollars 100,574 103,503 103,208 106,891 106,899 109,950 115,182 116,762 114,413 113,673 35 Claims on United States 30,439 38,012 36,404 35,979 37,997 35,429 37,668 41,259 36,120 37,644 36 Parent bank 26,304 33,252 34,329 33,585 36,024 33,145 35,614 39,609 33,754 35,345 37 Other banks in United States 1,044 964 843 721 466 419 611 334 771 615 38 Nonbanks 3,091 3,796 1,232 1,673 1,507 1,865 1,443 1,316 1,595 1,684 39 Claims on foreigners 64,560 60,472 59,062 60,390 59,811 63,720 66,876 63,701 67,996 64,682 40 Other branches of parent bank 28,635 28,474 29,872 32,976 33,990 37,069 39,630 37,142 38,120 33,136 41 Banks 19,188 18,494 16,579 14,570 13,206 13,571 13,915 13,135 14,905' 15,840 42 Public borrowers 3,313 2,840 2,371 2,896 2,866 2,790 2,862 3,143 3,242 3,290 43 Nonbank foreigners 13,424 10,664 10,240 9,948 9,749 10,290 10,469 10,281 l l^ 12,416 44 Other assets 5,575 5,019 7,742 10,522 9,091 10,801 10,638 11,802 10,297 11,347 Bahamas and Caymans 45 Total, all currencies 160,321 170,639 176,006 150,726' 153,266' 153,529' 153,BSC 162,316' 166,896' 167,717 46 Claims on United States 85,318 105,320 124,205 103,552' 106,606' 107,009' 106,694' 112,989' 115,402' 118,297 47 Parent bank 60,048 73,409 87,882 68,538' 70,177' 70,877' 71,416' 77,873' 77,946' 81,402 48 Other banks in United States 14,277 13,145 15,071 12,625 12,539 11,605 11,017' 11,869 12,877 11,380 49 Nonbanks 10,993 18,766 21,252 22,389 23,890 24,527 24,261 23,247 24,579 25,515 50 Claims on foreigners 70,162 58,393 44,168 39,595 39,573 38,062 38,669' 41,356' 42,801' 40,363 51 Other branches of parent bank 21,277 17,954 11,309 12,031 11,638 12,152 12,697 13,416 12,292 11,477 52. Banks 33,751 28,268 22,611 17,543 18,076 15,994 16,299' 16,31C 18,343 16,863 53 Public borrowers 7,428 5,830 5,217 4,554 4,818 4,876 4,775' 5,807' 6,528' 6,484 54 Nonbank foreigners 7,706 6,341 5,031 5,467 5,041 5,040 4,898 5,823 5,638 5,539 55 Other assets 4,841 6,926 7,633 7,579 7,087 8,458 8,487 7,971 8,693 9,057 56 Total payable in U.S. dollars 151,434 163,518 170,780 146,472' 149,615' 149,271' 149,754' 158,39C 162,048' 163,041 1. Beginning with June 1984 data, reported claims held by foreign branches from $50 million to $150 million equivalent in total assets, the threshold now have been reduced by an increase in the reporting threshold for "shell" branches applicable to all reporting branches. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A57 3.14—Continued 1990 1991 LLiiaabbiilliittyy aaccccoouunntt 11998877 11998888 11998899 Aug. Sept. Oct. Nov. Dec. Jan. Feb. All foreign countries 57 Total, all currencies 518,618 505,595 545,366 551,377' 546,172' 552,542' 558,626' 556,925' 563,587' 559,946 58 Negotiable CDs 30,929 28,511 23,500 22,917 21,977 22,089 21,521 18,060 19,106 18,595 59 To United States 161,390 185,577 197,239 167,441' 172,916' 167,575' 171,592' 189,412' 185,869' 187,070 60 Parent bank 87,606 114,720 138,412 109,849' 117,384' 113,098' 115,5^ 138,748' 133,708 131,735 61 Other banks in United States 20,355 14,737 11,704 10,264 8,976 7,984 9,140 7,463 9,341 10,580 62 Nonbanks 53,429 56,120 47,123 47,328 46,556 46,493 46,933' 43,201' 42,82C 44,755 63 To foreigners 304,803 270,923 296,850 321,365 317,202 327,139 328,534 311,663 319,811 316,179 64 Other branches of parent bank 124,601 111,267 119,591 124,393 125,382 131,045 137,849 138,799 131,899 124,143 65 Banks 87,274 72,842 76,452 79,485 75,351 75,815 72,352 58,966' 70,202' 73,852 66 Official institutions 19,564 15,183 16,750 17,801 17,475 18,436 17,996 14,791' 17,343 16,648 67 Nonbank foreigners 73,364 71,631 84,057 99,686 98,994 101,843 100,337 99,107 100,367' 101,536 68 Other liabilities 21,496 20,584 27,777 39,654 34,077 35,739 36,979' 37,79C 38,801' 38,102 69 Total payable in U.S. dollars 361,438 367,483 396,613 365,959' 364,972' 363,963' 372,359' 383,291' 383,707' 379,680 70 Negotiable CDs 26,768 24,045 19,619 17,588 17,219 17,022 16,845 14,094 15,141 14,446 71 To United States 148,442 173,190 187,286 155,202' 159,059' 153,350' 157,013' 175,713' 171,779' 174,169 72 Parent bank 81,783 107,150 132,563 103,386' 109,49c 104,651' 106,951' 130,569' 125,657 124,530 73 Other banks in United States 18,951 13,468 10,519 8,791 7,501 6,486 7,686 6,052 7,627 8,715 74 Nonbanks 47,708 52,572 44,204 43,025 42,068 42,213 42,376' 39,092' 38,495' 40,924 75 To foreigners 177,711 160,766 176,460 177,484 175,725 178,969 183,461 178,707 181,824 175,480 76 Other branches of parent bank 90,469 84,021 87,636 84,157 85,303 89,658 95,556 97,833 94,464 87,007 77 Banks 35,065 28,493 30,537 28,945 26,576 23,669 25,022 20,251' 23,661' 25,553 78 Official institutions 12,409 8,224 9,873 9,710 9,346 9,689 9,091 7,921' 10,585 10,004 79 Nonbank foreigners 39,768 40,028 48,414 54,672 54,500 55,953 53,792 52,702 53,114' 52,916 80 Other liabilities 8,517 9,482 13,248 15,685 12,969 14,622 15,04C 14,777' 14,963' 15,585 United Kingdom 81 Total, all currencies 158,695 156,835 161,947 184,933 178,484 184,660 188,182 184,818 184,817 180,211 82 Negotiable CDs 26,988 24,528 20,056 18,703 17,542 17,557 17,144 14,256 14,872 14,363 83 To United States 23,470 36,784 36,036 33,365 35,485 32,143 36,500 39,928 34,389 34,070 84 Parent bank 13,223 27,849 29,726 23,399 25,461 22,013 26,165 31,806 25,548 25,670 85 Other banks in United States 1,536 2,037 1,256 1,535 1,765 1,430 1,671 1,505 1,861 1,401 86 Nonbanks 8,711 6,898 5,054 8,431 8,259 8,700 8,664 6,617 6,980 6,999 87 To foreigners 98,689 86,026 92,307 109,372 106,494 114,959 113,958 108,531 113,754 110,454 88 Other branches of parent bank 33,078 26,812 27,397 28,967 30,487 32,357 34,406 36,709 34,547 30,978 89 Banks 34,290 30,609 29,780 34,647 30,111 33,870 32,844 25,126' 31,765 32,801 90 Official institutions 11,015 7,873 8,551 9,902 9,578 10,788 9,534 8,361' 10,368 9,728 91 Nonbank foreigners 20,306 20,732 26,579 35,856 36,318 37,944 37,174 38,335 37,074 36,947 92 Other liabilities 9,548 9,497 13,548 23,493 18,963 20,001 20,580 22,103 21,802 21,324 93 Total payable in U.S. dollars 102,550 105,907 108,178 108,532 107,216 108,064 114,090 116,153 114,367 112,343 94 Negotiable CDs 24,926 22,063 18,143 15,758 15,502 15,237 15,100 12,710 13,387 12,790 95 To United States 17,752 32,588 33,056 28,779 30,368 26,867 31,117 34,756 29,114 29,705 % Parent bank 12,026 26,404 28,812 22,423 23,963 20,334 24,381 30,014 23,945 24,389 97 Other banks in United States 1,308 1,752 1,065 1,228 1,471 1,035 1,318 1,156 1,324 926 98 Nonbanks 4,418 4,432 3,179 5,128 4,934 5,498 5,418 3,586 3,845 4,390 99 To foreigners 55,919 47,083 50,517 55,252 54,679 57,639 59,787 60,014 63,702 60,977 100 Other branches of parent bank 22,334 18,561 18,384 17,347 18,560 20,797 23,288 25,957 24,954 21,339 101 Banks 15,580 13,407 12,244 13,042 11,116 10,465 11,911 9,488' 11,539 12,993 102 Official institutions 7,530 4,348 5,454 5,463 5,324 5,751 5,000 4,692' 7,158 6,570 103 Nonbank foreigners 10,475 10,767 14,435 19,400 19,679 20,626 19,588 19,877 20,051 20,075 104 Other liabilities 3,953 4,173 6,462 8,743 6,667 8,321 8,086 8,673 8,164 8,871 Bahamas and Caymans 105 Total, all currencies 160,321 170,639 176,006 150,726' 153,266' 153,529' 153,85C 162,316' 166,896' 167,717 106 Negotiable CDs 885 953 678 553 553 560 561 646 654 629 107 To United States 113,950 122,332 124,859 100,653' 104,243' 103,577' 104,086' 114,738' 120,248' 121,656 108 Parent bank 53,239 62,894 75,188 56,123' 62,308' 62,506' 61,35C 74,941' 80,157 77,681 109 Other banks in United States 17,224 11,494 8,883 7,039 5,398 4,959 5,798 4,526 5,655 7,618 110 Nonbanks 43,487 47,944 40,788 37,491 36,537 36,112 36,938' 35,271' 34,436' 36,357 111 To foreigners 43,815 45,161 47,382 46,922 46,237 46,867 46,299 44,444 42,883 42,555 112 Other branches of parent bank 19,185 23,686 23,414 24,965 24,781 25,864 25,579 24,715 23,099 22,923 113 Banks 10,769 8,336 8,823 7,469 7,519 6,794 6,569 5,588 6,063' 6,188 114 Official institutions 1,504 1,074 1,097 943 731 703 763 622 811 728 115 Nonbank foreigners 12,357 12,065 14,048 13,545 13,206 13,506 13,388 13,519 12,910' 12,716 116 Other liabilities 1,671 2,193 3,087 2,598 2,233 2,525 2,904' 2,488' 3,111' 2,877 117 Total payable in U.S. dollars 152,927 162,950 171,250 145,701' 148,621' 147,781' 148,197' 157,132' 161,708' 162,358 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A58 International Statistics • June 1991 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1990' 1989 Aug. Sept. Oct. Jan.r 1 Total1 304,132 312,477' 321,602 324,007 329,964 340,542 343,908 352,105 By ty p e 2 Liabilities reported by banks in the United States2 . 31,519 36,496 40,861 40,202 44,681 43,170 39,494 41,445 3 U.S. Treasury bills and certificates3 103,722 76,985 72,803 72,472 72,457 80,220 78,493 82,520 U.S. Treasury bonds and notes 4 Marketable 152,429 179,269r 185,351 189,159 190,534 195,305 203,185 205,752 5 Nonmarketable 523 568 3,692 3,717 3,741 3,765 4,491 4,521 6 U.S. securities other than U.S. Treasury securities5 15,939 19,159 18,895 18,457 18,551 18,082 18,245 17,867 By area 7 Western Europe 123,752 133,417 152,611 156,275 163,363 169,277 171,170 173,216 8 Canada 9,513 9,482 11,083 10,171 8,903 8,639 8,598 8,106 9 Latin America and Caribbean 10,030 8,745r 11,561 11,776 11,615 14,298 15,777 16,209 10 Asia 151,887 153,338 136,977 136,333 137,032 139,235 138,159 143,597 11 Africa 1,403 1,030 1,697 1,383 1,305 1,404 1,433 1,659 12 Other countries 7,548 6,469 7,675 8,068 7,748 7,692 8,071 8,612 1. Includes the Bank for International Settlements. bonds and notes payable in foreign currencies; zero coupon bonds are included at 2. Principally demand deposits, time deposits, bankers acceptances, commer- current value. cial paper, negotiable time certificates of deposit, and borrowings under repur- 5. Debt securities of U.S. government corporations and federally sponsored chase agreements. agencies, and U.S. corporate stocks and bonds. 3. Includes nonmarketable certificates of indebtedness (including those payable 6. Includes countries in Oceania and Eastern Europe. in foreign currencies through 1974) and Treasury bills issued to official institutions NOTE. Based on data and on data reported to the Treasury Department by of foreign countries. banks (including Federal Reserve Banks) and securities dealers in the United 4. Excludes notes issued to foreign official nonreserve agencies. Includes States and on the 1984 benchmark survey of foreign portfolio investment in the United States. 3.16 LIABILITIES TO AND CLAIMS ON FOREIGNERS Reported by Banks in the United States Payable in Foreign Currencies1 Millions of dollars, end of period 1990r IItteemm 11998877 11998888 11998899'' Mar. June Sept. Dec. 1 Banks' own liabilities 555555,,,444333888 777444,,,999888000 666777,,,888333555 666333,,,222777333 666888,,,666555000 666999,,,888222777 666999,,,222666000 2 Banks' own claims 555111,,,222777111 666888,,,999888333 666555,,,111222777 666111,,,000888222 666666,,,666888000 666888,,,000666444 666666,,,111000888 111888,,,888666111 222555,,,111000000 222000,,,444999111 222111,,,555888555 222000,,,222888111 222333,,,777111888 222555,,,555222666 333222,,,444111000 444333,,,888888444 444444,,,666333666 333999,,,444999777 444666,,,333999999 444444,,,333444666 444000,,,555888222 5 Claims of banks' domestic customers2 555555111 333666444 333,,,555000777 111,,,666444999 222,,,666111222 222,,,888444333 666,,,555666333 1. Data on claims exclude foreign currencies held by U.S. monetary author- 2. Assets owned by customers of the reporting bank located in the United ities. States that represent claims on foreigners held by reporting banks for the accounts of the domestic customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A59 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States1 Payable in U.S. dollars Millions of dollars, end of period 1990' 1991 Holder and type of liability 11998888 11998899 11999900'' Aug. Sept. Oct. Nov. Dec. Jan.' Feb." 1 All foreigners 685,339 736,878' 755,455 729,261 731,516 737,343 744,298 755,455 753,640 759,701 2 Banks' own liabilities 514,532 577,498' 577,424 561,770 561,795 564,094 561,298 577,424 568,508 575,349 3 Demand deposits 21,863 22,032' 21,734 20,507 22,085 20,212 19,680 21,734 19,689 20,112 4 Time deposits2 152,164 168,780' 168,096 156,506 159,040 158,674 162,289 168,0% 159,370 162,150 5 Other. 51,366 67,823' 67,560 75,893 67,406 75,398 72,280 67,560 76,943 75,946 6 Own foreign offices 289,138 318,864' 320,034 308,864 313,264 309,810 307,049 320,034 312,506 317,141 7 Banks' custody liabilities5 170,807 159,380 178,031 167,491 169,721 173,250 183,000 178,031 185,132 184,352 8 U.S. Treasury bills and certificates6 115,056 91,100 98,179 92,915 91,361 94,821 101,243 98,179 105,801 105,301 9 Other negotiable and readily transferable instruments 16,426 19,526 17,408 16,983 17,198 17,680 18,294 17,408 17,886 18,176 10 Other 39,325 48,754 62,444 57,593 61,162 60,748 63,464 62,444 61,445 60,875 11 Nonmonetary international and regional organizations 3,224 4,894' 5,918 5,219 6,422 5,404 5,324 5,918 7,907 6,555 12 Banks' own liabilities 2,527 3,279' 4,540 3,260 5,111 4,369 3,179 4,540 6,430 4,092 13 Demand deposits 71 96 36 39 101 57 33 36 67 23 14 Time deposits2 1,183 927 1,038 1,303 1,245 885 773 1,038 1,587 1,672 15 Other3. 1,272 2,255' 3,467 1,917 3,765 3,427 2,373 3,467 4,775 2,397 16 Banks' custody liabilities5 698 1,616 1,378 1,959 1,311 1,034 2,145 1,378 1,478 2,462 17 U.S. Treasury bills and certificates6 57 197 364 1,095 479 248 1,077 364 423 1,620 18 Other negotiable and readily transferable instruments7 641 1,417 1,014 819 817 782 1,022 1,014 1,005 842 19 Other 0 2 0 45 15 5 46 0 50 0 20 Official institutions9 135,241 113,481 117,988 113,664 112,673 117,137 123,390 117,988 123,965 125,638 21 Banks' own liabilities 27,109 31,108 34,698 36,825 36,237 39,893 38,065 34,698 37,553 38,730 22 Demand deposits 1,917 2,196 1,940 1,914 2,498 2,121 1,784 1,940 1,686 1,580 23 Time deposits2 9,767 10,495 13,965 11,399 11,547 11,535 12,824 13,965 11,690 13,127 24 Other. 15,425 18,417 18,793 23,512 22,192 26,237 23,457 18,793 24,177 24,023 25 Banks' custody liabilities5 108,132 82,373 83,290 76,839 76,436 77,244 85,325 83,290 86,413 86,908 26 U.S. Treasury bills and certificates6 103,722 76,985 78,493 72,803 72,472 72,457 80,220 78,493 82,520 82,611 27 Other negotiable and readily transferable instruments 4,130 5,028 4,594 3,685 3,676 4,361 4,725 4,594 3,712 3,923 28 Other 280 361 203 351 289 427 380 203 180 374 29 Banks10 459,523 515,275' 537,076 514,652 517,854 514,636 519,067 537,076 523,305 531,089 30 Banks' own liabilities 409,501 454,273' 458,053 439,243 439,390 436,852 438,014 458,053 444,824 451,431 31 Unaffiliated foreign banks 120,362 135,409 138,018 130,378 126,127 127,041 130,965 138,018 132,318 134,290 32 Demand deposits 9,948 10,279 10,048 9,797 10,405 8,989 8,9% 10,048 8,985 9,509 33 Time deposits2 80,189 90,557 89,040 77,421 80,273 80,187 83,620 89,040 81,717 82,576 34 Other. 30,226 34,573 38,930 43,161 35,449 37,866 38,349 38,930 41,617 42,204 35 Own foreign offices4 289,138 318,864' 320,034 308,864 313,264 309,810 307,049 320,034 312,506 317,141 36 Banks' custody liabilities5 50,022 61,002 79,024 75,409 78,464 77,785 81,053 79,024 78,481 79,658 37 U.S. Treasury bills and certificates6 7,602 9,367 12,958 13,848 13,002 13,642 13,510 12,958 12,803 13,937 38 Other negotiable and readily transferable instruments 5,725 5,124 5,356 5,366 6,184 5,840 5,841 5,356 6,129 6,498 39 Other 36,694 46,510 60,710 56,195 59,278 58,303 61,701 60,710 59,549 59,222 40 Other foreigners 87,351 103,228' 94,473 95,726 94,566 100,166 96,518 94,473 98,462 %,419 41 Banks' own liabilities 75,396 88,839' 80,134 82,443 81,056 82,980 82,040 80,134 79,701 81,095 42 Demand deposits 9,928 9,460' 9,710 8,757 9,081 9,045 8,868 9,710 8,950 8,999 43 Time deposits2 61,025 66,801' 64,054 66,383 65,975 66,067 65,072 64,054 64,376 64,775 44 Other3 4,443 12,577 6,370 7,304 6,000 7,868 8,100 6,370 6,374 7,321 45 Banks' custody liabilities5 11,956 14,389 14,339 13,284 13,509 17,186 14,477 14,339 18,762 15,324 46 U.S. Treasury bills and certificates6 3,675 4,551 6,363 5,169 5,408 8,476 6,436 6,363 10,055 7,133 47 Other negotiable and readily transferable instruments7 5,929 7,958 6,445 7,113 6,521 6,697 6,705 6,445 7,040 6,913 48 Other 2,351 1,880 1,531 1,001 1,580 2,013 1,336 1,531 1,667 1,278 49 MEMO: Negotiable time certificates of deposit in custody for foreigners 6,425 7,203 7,022 5,713 6,346 6,199 6,466 7,022 6,%3 6,724 1. Reporting banks include all kinds of depository institutions besides commer- 5. Financial claims on residents of the United States, other than long-term cial banks, as well as some brokers and dealers. securities, held by or through reporting banks. 2. Excludes negotiable time certificates of deposit, which are included in 6. Includes nonmarketable certificates of indebtedness and Treasury bills "Other negotiable and readily transferable instruments." issued to official institutions of foreign countries. 3. Includes borrowing under repurchase agreements. 7. Principally bankers acceptances, commercial paper, and negotiable time 4. U.S. banks: includes amounts due to own foreign branches and foreign certificates of deposit. subsidiaries consolidated in "Consolidated Report of Condition" filed with bank 8. Principally the International Bank for Reconstruction and Development, and regulatory agencies. Agencies, branches, and majority-owned subsidiaries of the Inter-American and Asian Development Banks. Data exclude "holdings of foreign banks: principally amounts due to head office or parent foreign bank, and dollars" of the International Monetary Fund. foreign branches, agencies, or wholly owned subsidiaries of head office or parent 9. Foreign central banks, foreign central governments, and the Bank for foreign bank. International Settlements. 10. Excludes central banks, which are included in "Official institutions." Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A60 International Statistics • June 1991 3.17—Continued 1990 1991 AArreeaa aanndd ccoouunnttrryy 11998888 11998899 11999900 Aug. Sept. Oct. Nov. Dec. Jan.' Feb/ 1 Total 685,339 736,878'' 755,455' 729,261' 731,516' 737,343' 744,298' 755,455' 753,640 759,701 2 Foreign countries 682,115 731,984' 749,537' 724,042' 725,094' 731,94C 738,974' 749,537' 745,733 753,146 3 Europe 231,912 237,501'' 254,960' 245,107' 244,063' 245,718' 247,225' 254,96C 248,063 250,837 4 Austria 1,155 1,233 1,229 1,544 1,433' 1,401 1,385 1,229 1,615 1,568 5 Belgium-Luxembourg 10,022 10,648 12,407 11,537 12.13C 12,207 11,51c 12,407 12,382 12,559 6 Denmark 2,200 1,415 1,405' 2,236' 2,055 1,985' i 1,405' 1,121 1,019 7 Finland 285 570 602 43C 392 660 422 602 504 489 8 France 24,777 26,903 30,946' 24,233' 29,111' 29,131' 29,1% 30,946' 29,249 28,081 9 Germany 6,772 7,578 7,386 7,605 7,815' 8,438' 8,1% 7,386 8,262 9,604 10 Greece 672 1,028 934 923 1,435 993 949 934 895 797 11 Italy 14,599 16,169 17,736' 17,005' 16,259' 16,732' 16,051' 17,736' 16,173 17,353 12 Netherlands 5,316 6,613 5,375 6,209 5,385 6,082 6,056 5,375 5,674 6,562 13 Norway 1,559 2,401 2,358 2,192 1,951 1,875 2,330 2,358 2,181 2,078 14 Portugal 903 2,418'' 2,958 2,949' 2,992 2,985' 2,959 2,958 2,877 2,684 15 Spain 5,494 4,364 7,694 4,447 4,335' 5,312 7,347 7,694 8,964 8,224 16 Sweden 1,284 1,491 1,837 1,495 833 1,706 2,304 1,837 1,256 709 17 Switzerland 34,199 34,496 36,915' 34,545 34,537' 34,239' 34,031' 36,915' 35,570 37,446 18 Turkey 1,012 1,818 1,169' 1,897 1,634 1,451 1,358 1,169' 1,127 1,195 19 United Kingdom 111,811 102,362 109,527' 108,20C 104,728' 100,983' 103,034' 109,527' 102,370 103,867 20 Yugoslavia 529 1,474 928 2,272 2,043 1,753 1,571 928 1,030 958 21 Other Western Europe1 8,598 13,563 l l^ 14,057 13,24C 16,258' 15,141 11,889' 14,548 1122,,998800 22 U.S.S.R 138 350 119 56 240 234 220 119 1% 8888 23 Other Eastern Europe2 591 608 1,546 1,275 1,515 1,294 1,388 1,546 2,071 2,574 24 Canada 21,062 18,865 20,332 21,122 20,796 19,654 20,679 20,332 19,200 23,798 25 Latin America and Caribbean 271,146 311,028r 326,995' 310,574' 314,347' 319,932' 318,387' 326,995' 331,657 335,527 26 Argentina 7,804 7,304 7,366 7,848' 7,981 7,722' 7,664 7,366 7,659 7,688 27 Bahamas 86,863 99,341 107,311' 93,683' 97,998' 98,33C 97,689' 107,311' 104,347 101,264 28 Bermuda 2,621 2,884 2,809 2,656 2,641' 2,482 2,518 2,809 3,101 3,031 29 Brazil 5,314 6,351' 5,853 6,36C 6,15C 5,915' 6,470 5,853 5,915 6,323 30 British West Indies 113,840 138,309' 140,569' 140,254' 139,44C 144,374' 141,385' 140,569' 147,625 154,292 31 Chile 2,936 3,212 3,145 3,491 3,134' 3,170 3,422 3,145 3,193 3,064 32 Colombia 4,374 4,653 4,492 4,346' 3,926 4,285' 4,251 4,492 4,467 44,,330088 33 Cuba 10 10 11 11 10 49 9 11 18 88 34 Ecuador 1,379 1,391 1,379 1,348 1,348 1,314 1,310 1,379 1,359 1,332 35 Guatemala 1,195 1,312 1,541 1,496 1,517 1,485 1,478 1,541 1,564 1,580 36 Jamaica 269 209 257 213 217 219 228 257 224 257 37 Mexico 15,185 15,423 16,769' 16.54C 16,701' 16,68C 16,501 16,769' 17,046 17,267 38 Netherlands Antilles 6,420 6,310 7,381 6,429 6,554' 7,101' 7,350 7,381 7,100 6,942 39 Panama 4,353 4,362' 4,575' 4,648 4,636' 4,617' 4,644 4,575' 4,336 4,340 40 Peru 1,671 1,984 1,295 1,369 1,362 1,360 1,327 1,295 1,347 1,323 41 Uruguay 1,898 2,284 2,520 2,531 2,512 2,512 2,446 2,520 2,595 2,640 42 Venezuela 9,147 9,482r 12,945' 10,449' 11,107 11,365' 13,001 12,945' 12,708 12,814 43 Other 5,868 6,206 6,779 6,901 7,113 6,951 6,693 6,779 7,053 7,054 44 114477,,883388 115566,,220011 113388,,0066cc 113377,,779955'' 113366,,887788'' 113377,,224411'' 114433,,668844'' 113388,,0066CC 113366,,774477 113333,,448888 China 45 Mainland 1,895 1,773 2,421 2,324 2,115 2,173 2,493 2,421 2,866 2,719 46 Taiwan 26,058 19,588 11,277' 12,639 12,468 12,237 11,418 11,277' 11,037 11,077 47 Hong Kong 12,248 12,416 12,689' 13,833 13,836 13,767 13,843 12,689' 14,863 14,744 48 India 699 780 1,225 806 1,005' 953 1,116 1,225 1,459 1,628 49 Indonesia 1,180 1,281 1,238 1,130 1,397' 1,261 1,261 1,238 1,166 1,719 50 Israel 1,461 1,243 2,767 1,125 942' 921 3,075 2,767 2,823 2,510 51 Japan 74,015 81,184 68.29C 68,678' 68,934' 67,925' 69,137' 68,29C 64,143 62,256 52 Korea 2,541 3,215 2,28C 2,316 2,56C 2,442 2,732 2,28C 2,399 2,180 53 Philippines 1,163 1,766 1,585' 1,351' 1,340 1,274 1,549 1,585' 1,455 1,655 54 Thailand 1,236 2,093 1,443' 2,233 1,626 1,448 1,681 1,443' 2,228 2,149 55 Middle-East oil-exporting countries3 12,083 13,370 15,844 14,928 14,044' 16,412 17,431' 15,844 14,734 13,720 56 Other 13,260 17,491 17,002' 16,433 16,611' 16,428' 17,949 17,002' 17,574 17,131 57 Africa 3,991 3,824' 4,630 4,64C 4,152 4,225' 4,390 4,630 5,177 5,157 58 Egypt 911 686 1,425 1,505 970 1,099 9% 1,425 1,476 1,416 59 Morocco 68 78 104 77 93 87 90 104 107 90 60 South Africa 437 206' 228 333' 393 235' 283 228 212 317 61 Zaire 85 86 53 43 44 45 55 53 56 51 62 Oil-exporting countries 1,017 1,121 1,110 1,072 966 1,050 1,288 1,110 1,508 1,528 63 Other 1,474 1,648 1,710 1,609 1,687 1,708 1,678 1,710 1,818 1,755 64 Other countries 6,165 4,564 4,56C 4,803 4,858 5,169 4,610 4,56C 4,888 4,339 65 Australia 5,293 3,867 3,807' 4,122 4,127 4,371 3,804 3,807' 3,882 3,433 66 All other 872 697 753' 681 732 797 807 753' 1,007 906 67 Nonmonetary international and regional organizations 3,224 4,894' 5,918' 5,219' 6,422' 5,404' 5,324' 5,918' 7,907 6,555 68 International 2,503 3,947' 4,39C 4,08C 5,198' 4,289' 4,203' 4,39C 6,427 4,880 69 Latin American regional 589 684 1,048 569 668 627 809 1,048 975 1,235 70 Other regional6 133 263 479 571 556 487 312 479 506 440 1. Includes the Bank for International Settlements and Eastern European 4. Comprises Algeria, Gabon, Libya, and Nigeria. countries that are not listed in line 23. 5. Excludes "holdings of dollars" of the International Monetary Fund. 2. Comprises Bulgaria, Czechoslovakia, Hungary, Poland, and Romania. 6. Asian, African, Middle Eastern, and European regional organizations, 3. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and except the Bank for International Settlements, which is included in "Other United Arab Emirates (Trucial States). Western Europe." Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A61 3.18 BANKS' OWN CLAIMS ON FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period 1990' 1991 Area and country 11998888 11998899 11999900 Aug. Sept. Oct. Nov. Dec. Jan.' Feb." 1 Total 491,165 534,492' 512,323' 495,185 493,463 495,593 505,352 512,323 498,967 508,373 2 Foreign countries 489,094 530,630' 507,529' 491,342 488,115 491,309 500,202 507,529 496,346 504,692 3 Europe 116,928 119,025' 113,737' 106,428 105,406 103,631 107,189 113,737 108,994 107,842 4 5 6 A D B u e e l n s g t m r i i u a a m r k - Luxembourg 8,5 4 4 1 8 8 5 3 3 6,4 4 5 7 1 8 8 5 2 5,4 4 3 9 5 6 7 8 2 ' ' 6,6 6 2 8 8 7 2 7 6 5,6 6 3 2 5 6 9 9 9 5,1 4 2 4 8 4 7 9 7 6,4 8 2 4 6 4 1 8 2 5,4 4 3 5 9 6 8 7 2 6,1 6 3 6 2 2 9 7 3 5,9 4 4 0 0 7 5 0 2 7 Finland 1,065 1,027 1,047 1,177 972 814 861 1,047 1,103 1,381 8 France 13,243 16,146 14,531 14,273 14,403 13,750 13,386 14,531 15,362 14,360 9 Germany 2,329 2,865 3,449' 2,939 3,403 3,242 3,634 3,449 3,562 3,620 10 Greece 433 788 729 610 686 729 720 729 653 654 11 Italy 7,936 6,662 6,066 4,493 4,629 5,070 5,171 6,066 6,171 5,780 12 Netherlands 2,541 1,904 1,736' 1,636 2,219 1,711 1,849 1,736 1,938 2,093 13 Norway 455 609 777 716 744 732 661 777 701 670 14 Portugal 261 376 304 427 407 444 368 304 345 314 15 Spain 1,823 1,930 2,758 2,100 2,312 2,373 2,584 2,758 2,959 2,526 16 Sweden 1,977 1,773 2,073 3,407 2,332 2,577 2,251 2,073 2,135 2,303 17 Switzerland 3,895 6,141 4,473' 3,712 4,043 3,475 3,995 4,473 2,232 2,550 18 Turkey 1,233 1,071 1,405' 1,434 1,377 1,371 1,346 1,405 1,381 1,507 19 United Kingdom 65,706 65,527 65,312' 58,620 57,833 58,267 59,919 65,312 60,527 60,375 20 Yugoslavia 1,390 1,329 1,142 1,029 1,120 1,226 1,160 1,142 1,084 980 21 Other Western Europe2 1,152 1,302 587 689 690 667 619 587 705 907 22 U.S.S.R 1,255 1,179 530 624 940 825 653 530 505 501 23 Other Eastern Europe3 754 921 499 897 640 474 459 499 512 545 24 Canada 18,889 15,451' 16,091 15,356 15,445 16,185 14,295 16,091 17,537 19,364 25 Latin America and Caribbean 214,264 230,438' 230,043' 204,170 211,853 217,247 228,593 230,043 229,801 234,920 26 Argentina 11,826 9,270 6,874' 7,111 7,549 7,028 7,024 6,874 6,727 6,581 27 Bahamas 66,954 77,921 76,504' 67,870 71,534 71,934 71,026 76,504 78,334 79,541 28 Bermuda 483 1,315 4,006' 2,443 3,736 3,662 4,291 4,006 1,771 2,826 29 Brazil 25,735 23,749 17,994 18,906 18,651 18,626 18,393 17,994 17,953 17,943 30 British West Indies 55,888 68,749' 87,061' 71,124 73,601 78,046 86,333 87,061 93,924 97,117 31 Chile 5,217 4,353 3,271 3,430 3,264 3,372 3,373 3,271 3,227 3,239 32 Colombia 22,,994444 22,,778844 2,585 2,700 2,563 2,544 2,531 2,585 2,555 2,520 33 Cuba 11 11 0 2 0 0 1 0 0 0 34 Ecuador 2,075 1,688 1,387 1,507 1,498 1,487 1,499 1,387 1,361 1,361 35 Guatemala4 198 197 191 207 215 211 152 191 193 191 36 Jamaica 212 297 238 243 254 262 265 238 243 171 37 Mexico 24,637 23,376 15,068' 14,953 15,366 15,359 15,380 15,068 14,863 15,052 38 Netherlands Antilles 1,306 1,921 7,998' 1,632 1,818 3,310 7,386 7,998 2,199 1,604 39 Panama 2,521 1,740 1,471 1,491 1,556 1,463 1,449 1,471 1,534 1,502 40 Peru 1,013 771 663 644 649 667 730 663 659 694 41 Uruguay 910 929' 786 834 804 794 787 786 767 625 42 Venezuela 10,733 9,652' 2,611' 7,657 7,274 7,102 6,585 2,611 2,140 2,270 43 Other Latin America and Caribbean 1,612 1,726 1,334' 1,415 1,521 1,382 1,390 1,334 1,351 1,683 44 Asia 130,881 157,474 140,216' 157,883 147,580 146,800 142,577 140,216 132,336 135,076 China Mainland 762 634 620 586 542 639 689 620 565 497 46 Taiwan 4,184 2,776 1,934' 1,997 1,681 1,061 1,586 1,934 1,776 1,475 47 Hong Kong 10,143 11,128 10,644 9,473 9,026 8,478 8,506 10,644 8,250 8,755 48 India 560 621 655 628 864 524 540 655 624 627 49 Indonesia 674 651 933 836 826 896 923 933 926 1,081 50 Israel 1,136 813 774 785 698 688 758 774 934 1,609 51 Japan 90,149 111,300 92,023' 114,952 106,549 106,369 100,083 92,023 91,481 90,379 52 Korea 5,213 5,323 5,737' 5,614 5,688 5,533 5,533 5,737 5,937 5,674 53 Philippines 1,876 1,344 1,247 1,369 1,333 1,206 1,175 1,247 1,230 1,261 54 Thailand 848 1,140 1,573 1,245 1,279 1,444 1,523 1,573 1,587 1,791 55 Middle East oil-exporting countries5 6,213 10,149 10,984 10,657 10,430 11,098 10,947 10,984 9,009 12,255 56 Other Asia 9,122 11,594 13,092 9,741 8,663 8,865 10,314 13,092 10,016 9,673 57 Africa 5,718 5,890 5,445 5,567 5,544 5,601 5,705 5,445 5,438 5,426 58 Egypt 507 502 380 449 430 411 383 380 384 314 59 Morocco 511 559 513 539 542 534 519 513 514 511 60 South Africa 1,681 1,628 1,525 1,571 1,594 1,576 1,726 1,525 1,523 1,518 61 Zaire 17 16 16 19 20 19 19 16 17 21 62 Oil-exporting countries6 1,523 1,648 1,486 1,586 1,534 1,510 1,492 1,486 1,462 1,475 63 Other 1,479 1,537 1,525 1,403 1,424 1,551 1,566 1,525 1,538 1,587 64 Other countries 2,413 2,354 1,998 1,938 2,287 1,845 1,843 1,998 2,240 2,063 65 Australia 1,520 1,781 1,518 1,304 1,863 1,416 1,483 1,518 1,674 1,547 66 All other 894 573 479 634 424 429 360 479 566 517 67 Nonmonetary international and regional organizations7 2,071 3,862' 4,793' 3,843 5,347 4,284 5,151 4,793 2,621 3,681 1. Reporting banks include all kinds of depository institutions besides commer- 4. Included in "Other Latin America and Caribbean" through March 1978. cial banks, as well as some brokers and dealers. 5. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and 2. Includes the Bank for International Settlements. Beginning April 1978, also United Arab Emirates (Trucial States). includes Eastern European countries not listed in line 23. 6. Comprises Algeria, Gabon, Libya, and Nigeria. 3. Beginning April 1978 comprises Bulgaria, Czechoslovakia, Hungary, Po- 7. Excludes the Bank for International Settlements, which is included in land, and Romania. "Other Western Europe." Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A62 International Statistics • June 1991 3.19 BANKS' OWN AND DOMESTIC CUSTOMERS' CLAIMS ON FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period 199C 1991 TTyyppee ooff ccllaaiimm 11998888 11998899'' 119999CC Aug. Sept. Oct. Nov. Dec. Jan.' Feb/ 1 Total 555555533333338888888,,,,,,,666666688888889999999 555555599999993333333,,,,,,,000000088888887777777 555555588888881111111,,,,,,,666666611111114444444 555555555555559999999,,,,,,,222222266666663333333 555555588888881111111,,,,,,,666666611111114444444 22 BBaannkkss'' oowwnn ccllaaiimmss oonn ffoorreeiiggnneerrss 444444499999991111111,,,,,,,111111166666665555555 555555533333334444444,,,,,,,444444499999992222222 555555511111112222222,,,,,,,333333322222223333333 495,185 444444499999993333333,,,,,,,444444466666663333333 495,593 505,352 555555511111112222222,,,,,,,333333322222223333333 498,967 508,373 33 FFoorreeiiggnn ppuubblliicc bboorrrroowweerrss 66666662222222,,,,,,,666666655555558888888 66666660000000,,,,,,,555555511111111111111 44444441111111,,,,,,,999999922222227777777 47,019 44444448888888,,,,,,,444444422222223333333 46,714 46,903 44444441111111,,,,,,,999999922222227777777 38,971 43,913 44 OOwwnn ffoorreeiiggnn ooffffiicceess 222222255555557777777,,,,,,,444444433333336666666 222222299999996666666,,,,,,,000000011111111111111 333333300000003333333,,,,,,,111111122222227777777 274,102 222222277777778888888,,,,,,,999999944444448888888 281,529 291,011 333333300000003333333,,,,,,,111111122222227777777 299,015 304,244 55 UUnnaaffffiilliiaatteedd ffoorreeiiggnn bbaannkkss 111111122222229999999,,,,,,,444444422222225555555 111111133333334444444,,,,,,,888888888888885555555 111111111111119999999,,,,,,,666666699999990000000 137,590 111111122222225555555,,,,,,,000000044444445555555 124,833 121,447 111111111111119999999,,,,,,,666666699999990000000 119,091 117,621 66 DDeeppoossiittss 66666665555555,,,,,,,888888899999998888888 77777778888888,,,,,,,111111188888885555555 66666667777777,,,,,,,666666677777773333333 80,153 77777772222222,,,,,,,333333399999993333333 72,132 68,441 66666667777777,,,,,,,666666677777773333333 70,615 69,140 77 OOtthheerr 66666663333333,,,,,,,555555522222227777777 55555556666666,,,,,,,777777700000000000000 55555552222222,,,,,,,000000011111117777777 57,436 55555552222222,,,,,,,666666655555552222222 52,701 53,006 55555552222222,,,,,,,000000011111117777777 48,476 48,481 88 AAllll ootthheerr ffoorreeiiggnneerrss 44444441111111,,,,,,,666666644444446666666 44444443333333,,,,,,,000000088888885555555 44444447777777,,,,,,,555555577777779999999 36,474 44444441111111,,,,,,,000000044444446666666 42,517 45,992 44444447777777,,,,,,,555555577777779999999 41,890 42,595 99 CCllaaiimmss ooff bbaannkkss'' ddoommeessttiicc ccuussttoommeerrss33...... 44444447777777,,,,,,,555555522222224444444 55555558888888,,,,,,,555555599999994444444 66666669999999,,,,,,,222222299999991111111 66666665555555,,,,,,,888888800000001111111 66666669999999,,,,,,,222222299999991111111 8888888,,,,,,,222222288888889999999 11111113333333,,,,,,,000000011111119999999 11111117777777,,,,,,,222222277777772222222 11111114444444,,,,,,,777777700000007777777 11111117777777,,,,,,,222222277777772222222 11 Negotiable and readily transferable 22222225555555,,,,,,,777777700000000000000 33333330000000,,,,,,,999999988888883333333 33333333333333,,,,,,,444444433333330000000 33333334444444,,,,,,,000000099999994444444 33333333333333,,,,,,,444444433333330000000 12 Outstanding collections and other 11111113333333,,,,,,,555555533333335555555 11111114444444,,,,,,,555555599999992222222 11111118888888,,,,,,,555555588888888888888 11111116666666,,,,,,,999999999999999999999 11111118888888,,,,,,,555555588888888888888 13 MEMO: Customer liability on 11111119999999,,,,,,,555555599999996666666 11111112222222,,,,,,,888888899999999999999 11111113333333,,,,,,,444444488888884444444 11111112222222,,,,,,,888888866666660000000 11111113333333,,,,,,,444444488888884444444 Dollar deposits in banks abroad, reported by nonbanking business enterprises in the United States 45,36C 45,509 42,169 44,502 43,016 42,827 48,405 42,169 44,602 n.a. 1. Data for banks' own claims are given on a monthly basis, but the data for parent foreign bank. claims of banks' own domestic customers are available on a quarterly basis only. 3. Assets owned by customers of the reporting bank located in the United Reporting banks include all kinds of depository institutions besides commercial States that represent claims on foreigners held by reporting banks for the account banks, as well as some brokers and dealers. of their domestic customers. 2. U.S. banks: includes amounts due from own foreign branches and foreign 4. Principally negotiable time certificates of deposit and bankers acceptances. subsidiaries consolidated in "Consolidated Report of Condition" filed with bank 5. Includes demand and time deposits and negotiable and nonnegotiable regulatory agencies. Agencies, branches, and majority-owned subsidiaries of certificates of deposit denominated in U.S. dollars issued by banks abroad. For foreign banks: principally amounts due from head office or parent foreign bank, description of changes in data reported by nonbanks, see July 1979 Bulletin, and foreign branches, agencies, or wholly owned subsidianes of head office or p. 550. 3.20 BANKS' OWN CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period 1990' MMaattuurriittyy;; bbyy bboorrrroowweerr aanndd aarreeaa 11998877 11998888 11998899'' Mar. June Sept. Dec. 1 Total 235,130 233,184 238,123 211,640 208,443 213,898 208,549 By borrower 2 Maturity of 1 year or less 163,997 172,634 178,346 160,129 159,164 166,687 168,595 3 Foreign public borrowers 25,889 26,562 23,916 23,345 20,778 21,770 20,655 4 All other foreigners 138,108 146,071 154,430 136,784 138,387 144,917 147,940 5 Maturity over 1 year 71,133 60,550 59,776 51,510 49,279 47,211 39,953 6 Foreign public borrowers 38,625 35,291 36,014 27,894 27,961 26,213 20,946 7 All other foreigners 32,507 25,259 23,762 23,616 21,318 20,998 19,007 By area Maturity of 1 year or less2 8 Europe 59,027 55,909 53,913 48,484 49,312 51,579 49,632 9 Canada 5,680 6,282 5,910 5,680 5,720 5,520 5,436 10 Latin America and Caribbean 56,535 57,991 53,003 46,415 44,332 43,941 49,181 11 Asia 35,919 46,224 57,755 51,768 51,126 56,366 56,035 12 Africa 2,833 3,337 3,225 3,166 2,991 2,951 3,040 13 All other3 4,003 2,891 4,541 4,616 5,683 66,,333300 55,,227733 Maturity of over 1 year 14 Europe 6,696 4,666 4,121 4,389 4,201 4,426 3,882 15 Canada 2,661 1,922 2,353 2,712 2,819 3,033 3,291 16 Latin America and Caribbean 53,817 47,547 45,816 35,529 33,189 31,295 25,980 17 Asia 3,830 3,613 4,172 5,552 5,866 5,646 3,865 18 Africa 1,747 2,301 2,630 2,764 2,739 2,544 2,374 19 All other3 2,381 501 684 565 465 266 561 1. Reporting banks include all kinds of depository institutions besides commer- 2. Remaining time to maturity. cial banks, as well as some brokers and dealers. 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A63 3.21 CLAIMS ON FOREIGN COUNTRIES Held by U.S. Offices and Foreign Branches of U.S.-Chartered Banks1 2 Billions of dollars, end of period 1988 1989 1990 AArreeaa oorr ccoouunnttrryy 11998866 11998877 Dec. Mar. June Sept. Dec. Mar. June Sept. Dec. 1 Total 386.5 382.4 346.3 346.3r 340.0 346.5r 338.8r 334.1' 322.2' 332.8' 319.0' 156.6 159.7 152.7 145.5r 145.1 146.4 152.9 i46.y 140.(K 145.2' 133.6' 8.4 10.0 9.0 8.6 7.8 6.9 6.3 6.6 6.2 6.5 5.9T 13.6 13.7 10.5 11.2 10.8 11.1 11.7 10.5 10.3 11.1 10.4 11.6 12.6 10.3 10.2 10.6 10.4 10.5 11.2 11.2 11.2 10.7' 9.0 7.5 6.8 5.2 6.1 6.8 7.4 6.0 5.4' 4.5 5.0 4.6 4.1 2.7 2.8 2.8 2.4 3.1 3.1 2.7 3.8 2.9 2.4 2.1 1.8 2.3 1.8 2.0 2.0 2.1 2.3 2.3' 2.1 5.8 5.6 5.4 5.1 5.4 6.1 7.1 6.3 6.4 5.7' 4.7 70.9 68.8 66.2 65.6 64.5 63.7 67.2 64.0 59^ 62.5' 60.8' 5.2 5.5 5.0 4.0 5.1 5.9 5.4 4.8 5.2 5.1 6.C 25.1 29.8 34.9 30.5 30.2 31.0 32.2 32.4r 30.4 32.5 25.1' 26.1 26.4 21.0 21.1 21.2 21.0 20.7 23.1 22.6 23.2' 22.8' 1.7 1.9 1.5 1.4 1.7 1.5 1.5 1.5 1.5 1.6 1.4 1.7 1.7 1.1 1.1 1.4 1.1 1.1 1.1 1.1 1.1' 1.1 1.4 1.2 1.1 1.0 1.0 1.1 1.0 1.1 .9 .8 .7 2.3 2.0 1.8 2.1 2.3 2.4 2.5 2.6 2.7 2.8 2.7 2.4 2.2 1.8 1.6 1.8 1.4 1.4 1.7 1.4 1.5 1.6' .9 .6 .4 .4 .6 .4 .4 .4 .8 .6 .6 20 Spain 5.8 8.0 6.2 6.6 66..22 6.9 7.1 8.3 7.9 8.5 8.4 2.0 2.0 1.5 1.3 11..11 1.2 1.2 1.3 1.4 1.6 1.7' 1.5 1.6 1.3 1.1 1.1 1.0 .7 1.0 1.1 .7 .9 3.0 2.9 2.4 2.2 2.1 2.1 2.0 2.0 1.9 1.9 1.8 3.4 2.4 1.8 2.4 1.9 2.1 1.6 2.1 1.9 2.0 1.9 25 OPEC countries3 19.4 17.4 16.6 16.2 16.1 16.2 17.1 15.5 15.3 14.4 13.1' 2.2 1.9 1.7 1.6 1.5 1.5 1.3 1.2 1.1 1.1 1.0 8.7 8.1 7.9 7.9 7.5 7.4 7.0 6.1 6.0 6.0 5.0 2.5 1.9 1.7 1.7 1.9 2.0 2.0 2.1 2.0 2.3 2.7 4.3 3.6 3.4 3.3 3.4 3.5 5.0 4.3 4.4 3.3 2.8' 1.8 1.9 1.9 1.7 1.6 1.9 1.7 1.8 1.8 1.7 1.7 9999..66 9977..88 8855..33 8855..99 8833..44 81.2 77.5 68.8 66.6' 67.1 65.5' Latin America 9.5 9.5 9.0 8.5 7.9 7.6 6.3 5.5 5.1 4.9 4.9 33 Brazil 25.3 24.7 22.4 22.8 22.1 20.9 19.0 17.5 16.7 15.4 14.4 34 Chile 7.1 6.9 5.6 5.7 5.2 4.9 4.6 4.3 3.7 3.6 3.5 2.1 2.0 2.1 1.9 1.7 1.6 1.8 1.8 1.7 1.8 1.8 24.0 23.5 18.8 18.3 17.7 17.2 17.7 12.7 12.6 13.1 13.2 37 Peru 1.4 1.1 .8 .7 .6 .6 .6 .5 .5 .5 .5 3.1 2.8 2.6 2.7 2.6 2.9 2.8 2.7 2.3 2.4 2.3 Asia China .4 .3 .3 .5 .3 .3 .3 .3 .2 .2 .2 4.9 8.2 3.7 4.9 5.2 5.0 4.5 3.8 3.6 3.9 3.5 1.2 1.9 2.1 2.6 2.4 2.7 3.1 3.5 3.6 3.6 3.3 1.5 1.0 1.2 .9 .8 .7 .7 .6 .7 .6 .5' 43 Korea (South) 6.7 5.0 6.1 6.1 6.6 6.5 5.9 5.3 5.6 6.2 6.2' 2.1 1.5 1.6 1.7 1.6 1.7 1.7 1.8 1.8 1.8 1.9 5.4 5.2 4.5 4.4 4.4 4.0 4.1 3.7 3.9 3.9 3.8 46 Thailand . .9 .7 1.1 1.0 1.0 1.3 1.3 1.1 1.3 1.5 1.5 .7 .7 .9 .8 .8 1.0 1.0 1.2 1.1 1.6 1.7 Africa .7 .6 .4 .5 .6 .5 .4 .4 .5 .4 .4 .9 .9 .9 .9 .9 .8 .9 .9 .9 .9 .8 .1 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 51 Other Africa4 1.6 1.3 l.l 1.1 1.1 1.0 1.0 .9 .8' .8 1.0' 33..55 3.2 3.6 3.5 3.4 3.5 3.5 3.4 2.9r 2.7' 2.3' 53 US.SR ..11 .3 .7 .7 .6 .8 .7 .8 .4 .4 .2 2.0 1.8 1.8 1.7 1.7 1.7 1.6 1.4 1.4 1.3 1.2' 55 Other 1.4 1.1 1.1 1.1 1.1 1.1 1.3 1.2' 1.1' 1.1' .9 61.5 54.5 44.2 48.7' 43.2' 49.2 36.6 42.9 40.1' 42.C 40.3 22.4 17.3 11.0 15.8 11.0 11.4 5.5 9.2 8.5 8.9 2.8' .6 .6 .9 1.1 .7 1.3 1.7 .9 2.2 4.0 4.3' 12.3 13.5 12.9 12.2'' 10.8 15.3 9.(r 10.9 8.5 9.0 10.C 1.8 1.2 1.0 .9 1.0 1.1 2.3 2.6 2.3 2.2 7.9 4.0 3.7 2.5 2.2 1.9 1.5 1.4 1.3 1.4 1.5 1.4 .1 .1 .1 .1 .1 .1 .1 .1 .1 .1 .1 11.1 11.2 9.6 9.6 10.4 10.7 9.7 9.8 10.0 9.0 7.1' 9.2 7.0 6.1 6.8 7.3 7.8 7.0 8.0 7.0 7.3 6.7' 65 Others® .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 1199..88 2233..22 22.6 25.0 27.4 28.7' 30.3' 33.3r 34.5' 38 ff 41.1' 1. The banking offices covered by these data are the U.S. offices and foreign from $50 million to $150 million equivalent in total assets, the threshold now branches of U.S.-owned banks and of U.S. subsidiaries of foreign-owned banks. applicable to all reporting branches. Offices not covered include (1) U.S. agencies and branches of foreign banks, and 3. This group comprises the Organization of Petroleum Exporting Countries (2) foreign subsidiaries of U.S. banks. To minimize duplication, the data are shown individually, other members of OPEC (Algeria, Gabon, Iran, Iraq, Kuwait, adjusted to exclude the claims on foreign branches held by a U.S. office or another Libya, Nigeria, Qatar, Saudi Arabia, and United Arab Emirates), and Bahrain and foreign branch of the same banking institution. The data in this table combine Oman (not formally members of OPEC). foreign branch claims in table 3.14 (the sum of lines 7 through 10) with the claims 4. Excludes Liberia. of U.S. offices in table 3.18 (excluding those held by agencies and branches of 5. Includes Canal Zone beginning December 1979. foreign banks and those constituting claims on own foreign branches). 6. Foreign branch claims only. 2. Beginning with June 1984 data, reported claims held by foreign branches 7. Includes New Zealand, Liberia, and international and regional organizahave been reduced by an increase in the reporting threshold for "shell" branches tions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A64 International Statistics • June 1991 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States1 Millions of dollars, end of period 1989 1990 TTyyppee,, aanndd aarreeaa oorr ccoouunnttrryy 11998877 11998888rr 11998899 Sept. Dec. Mar. June' Sept.' Dec." 1 Total 28,302 32,952 38,653 36,544r 38,653r 38,832' 39,642 44,557 42,746 2 Payable in dollars 22,785 27,335 33,808 31,683r 33,808' 34,463' 35,090 39,431 38,413 3 Payable in foreign currencies 5,517 5,617 4,846 4,861 4,846' 4,369' 4,552 5,126 4,333 By type 4 Financial liabilities 12,424 14,507 18,365 17,141 18,365' 17,928' 19,495 20,484 18,476 5 Payable in dollars 8,643 10,608 14,462 13,289 14,462 14,635' 16,055 16,644 15,288 6 Payable in foreign currencies 3,781 3,900 3,903 3,852 3,903' 3,293' 3,441 3,840 3,188 7 Commercial liabilities 15,878 18,445 20,288 19,403' 20,288' 20,904' 20,147 24,073 24,270 8 Trade payables 7,305 6,505 7,588 6,906 7,588' 7,434' 6,881 9,956 10,004 9 Advance receipts and other liabilities 8,573 11,940 12,700 12,497r 12,70c 13,47C 13,266 14,118 14,266 10 Payable in dollars 14,142 16,727 19,345 18,394' 19,345' 19,828' 19,036 22,787 23,125 11 Payable in foreign currencies 1,737 1,717 943 1,009 943 1,076 1,111 1,286 1,145 By area or country Financial liabilities 12 Europe 8,320 9,962 11,609 11,213 11,60^ 11,05C 11,883 11,345 9,921 13 Belgium-Luxembourg 213 289 340 308 340 318' 332 350 344 14 France 382 359 258 242 258 277' 196 503 734 15 Germany 551 699 521 592 521 482 601 660 694 16 Netherlands 866 880 947 855 947' 901' 934 948 1,025 17 Switzerland 558 1,033 541 799 541 529 552 633 611 18 United Kingdom 5,557 6,533 8,741 8,207 8,741 8,256' 8,741 7,539 5,7% 19 Canada 360 388 573 575 573 476 345 357 305 20 Latin America and Caribbean 1,189 839 1,268 1,367 1,268 1,814 2,573 3,394 3,239 21 Bahamas 318 184 157 186 157 272 249 368 344 22 Bermuda 0 0 17 7 17 0 0 0 0 23 Brazil 25 0 0 0 0 0 0 0 0 24 British West Indies 778 645 635 743 635 1,061 1,782 2,409 2,274 25 Mexico 13 1 6 4 6 5 4 4 5 26 Venezuela 0 0 0 0 0 0 0 0 4 27 Asia 2,451 3,312 4,814 3,886 4,814 4,483 4,636 4,906 4,584 28 Japan 2,042 2,563 3,963 3,130 3,963 3,445 3,434 3,771 3,406 29 Middle East oil-exporting countries2 8 3 2 2 2 3 5 4 5 30 Africa 4 2 2 4 2 3 3 2 2 31 Oil-exporting countries 1 0 0 2 0 0 1 0 0 32 All other4 100 4 100 97 100 102 55 479 424 Commercial liabilities 33 Europe 5,516 7,319 8,918 8,335r 8,918' 9,165' 8,343 9,733 10,258 34 Belgium-Luxembourg 132 158 179 137 179' 233 297 248 251 35 France 426 455 871 806 871 882' 929 1,191 1,286 36 Germany 909 1,699 1,365 1,185 1,365' 1,145' 962 1,023 1,234 37 Netherlands 423 587 699 548 699 688 607 701 855 38 Switzerland 559 417 621 531 621 583 607 708 735 39 United Kingdom 1,599 2,079 2,648 2,717'' 2,648' 2,954' 2,466 2,804 2,824 40 Canada 1,301 1,217 1,124 1,189 1,124' 1,150' 1,179 1,266 1,289 41 Latin America and Caribbean 864 1,090 1,187 1,086 1,187 1,304 1,278 1,554 1,576 42 Bahamas 18 49 41 27 41 37 22 18 12 43 Bermuda 168 286 308 305 308 516 412 371 520 44 Brazil 46 95 100 113 100 116 106 126 121 45 British West Indies 19 34 27 30 27 18 29 42 29 46 Mexico 189 217 304 220 304 241 285 506 420 47 Venezuela 162 114 154 107 154 85 119 120 121 48 Asia 6,565 6,915 7,188 7,088 7,188' 7,015' 7,073 8,797 8,961 49 Japan 2,578 3,094 2,915 2,676 2,915' 2,745' 3,182 3,189 3,605 50 Middle East oil-exporting countries ' 1,964 1,385 1,401 1,442 1,401 1,393 1,125 2,321 1,701 51 Africa 574 576 844 648 844 753 885 1,315 789 52 Oil-exporting countries 135 202 307 255 307 263 277 593 422 53 All other4 1,057 1,328 1,027 1,057 1,027 1,517 1,390 1,408 1,397 1. For a description of the changes in the International Statistics tables, see 3. Comprises Algeria, Gabon, Libya, and Nigeria. July 1979 Bulletin, p. 550. 4. Includes nonmonetary international and regional organizations. 2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and 5. Revisions include a reclassification of transactions, which also affects the United Arab Emirates (Trucial States). totals for Asia and the grand totals. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A65 3.23 CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States1 Millions of dollars, end of period 1989 1990 Type, and area or country 11998877 11998888 11998899 Sept. Dec. Mar. June' Sept. Dec." 1 Total 30,964 34,035 31,437 32,088 31,437 29,815' 31,577 30,903' 33,441 2 Payable in dollars 28,502 31,654 29,106 29,806 29,106 27,687' 29,265 28,504' 31,137 3 Payable in foreign currencies 2,462 2,381 2,330 2,282 2,330 2,128' 2,312 2,399' 2,304 By type 4 Financial claims 20,363 21,869 17,689 19,135 17,689 16,558' 18,035 16,572' 18,008 5 Deposits 14,894 15,643 10,400 12,154 10,400 10,451' 9,869 10,303' 11,222 6 Payable in dollars 13,765 14,544 9,473 11,278 9,473 9,583 8,799 9,11C 10,401 7 Payable in foreign currencies 1,128 1,099 927 877 927 868' 1,070 1,193' 821 8 Other financial claims 5,470 6,226 7,289 6,981 7,289 6,108' 8,166 6,269 6,786 9 Payable in dollars 4,656 5,450 6,535 6,073 6,535 5,420' 7,433 5,616 5,913 10 Payable in foreign currencies 814 777 754 908 754 688 733 652 873 11 Commercial claims 10,600 12,166 13,748 12,953 13,748 13,257' 13,542 14,331' 15,433 12 Trade receivables 9,535 11,091 12,140 11,472 12,140 11,635 11,821 12,518' 13,474 13 Advance payments and other claims . 1,065 1,075 1,608 1,481 1,608 1,622' 1,721 1,813 1,959 14 Payable in dollars 10,081 11,660 13,099 12,455 13,099 12,684' 13,034 13,778' 14,823 15 Payable in foreign currencies 519 505 650 498 650 573 508 554 610 By area or country Financial claims 16 Europe 9,531 10,279 7,040 7,528 7,040 6,964' 9,604 7,95 C 7,937 17 Belgium-Luxembourg 7 18 28 166 28 22 126 27 76 18 France 332 203 153 173 153 198 141 143 366 19 Germany 102 120 192 120 192 505 93 97 371 20 Netherlands 350 348 303 292 303 315 332 315 332 21 Switzerland 65 218 95 111 95 122 137 176 320 22 United Kingdom 8,467 9,039 6,035 6,419 6,035 5,587' 8,556 6,971' 6,215 23 Canada 2,844 2,325 1,892 2,359 1,892 1,758 2,035 1,994 2,893 24 Latin America and Caribbean 7,012 8,160 7,590 8,315 7,590 6,984' 5,479 5,666 5,752 25 Bahamas 1,994 1,846 1,516 1,699 1,516 1,662' 992 977' 1,261 26 Bermuda 7 19 7 33 7 4 3 4' 2 27 Brazil 63 47 224 70 224 79 84 70 70 28 British West Indies 4,433 5,763 5,431 6,125 5,431 4,824 4,003 4,215 4,031 29 Mexico 172 151 94 105 94 152 153 158 160 30 Venezuela 19 21 20 36 20 21 20 23 25 31 Asia 879 844 831 826 831 763 815 733' 1,173 32 Japan 605 574 439 460 439 416 473 450 850 33 Middle East oil-exporting countries2 8 5 8 7 8 7 6 9 8 34 Africa . 65 106 140 75 140 67 62 49 37 7 10 12 8 12 11 8 7 0 35 Oil-exporting countries3 36 All other4 33 155 195 31 195 23 41 179' 215 Commercial claims 4,180 5,181 6,168 5,429 6,168 6,026 6,042 6,428' 7,099 37 Europe 178 189 241 220 241 219 208 189 210 38 Belgium-Luxembourg 650 672 956 829 956 958 908 1,140 1,306 39 France 562 669 687 686 687 699 662 638 799 40 Germany 133 212 478 396 478 450 475 491' 558 41 Netherlands 185 344 305 222 305 270 235 300 302 42 Switzerland 1,073 1,324 1,572 1,398 1,572 1,690 1,586 1,679' 1,791 43 United Kingdom 44 Canada 936 983 1,058 1,278 1,058 1,121' 1,125 1,135 1,042 45 Latin America and Caribbean 1,930 2,241 2,177 2,147 2,177 2,061 2,204 2,392' 2,307 46 Bahamas 19 36 57 10 57 22 17 25 14 47 Bermuda 170 230 323 271 323 243 284 340 232 48 Brazil 226 299 292 239 292 231 234 252 318 49 British West Indies 26 22 36 33 36 38 46 35 33 50 Mexico 368 461 509 509 509 525 581 649 644 51 Venezuela 283 227 147 189 147 188 223 223 191 52 Asia 2,915 2,993 3,538 3,316 3,538 3,257 3,419 3,575' 4,104 53 Japan 1,158 946 1,184 1,176 1,184 1,061 1,080 1,211' 1,423 54 Middle East oil-exporting countries' 450 453 515 410 515 432 414 403 451 55 Africa . 401 435 418 399 418 425 390 372 487 56 Oil-exporting countries3 144 122 107 87 107 89 98 71 67 57 All other4 238 333 389 383 389 367 361 429 393 1. For a description of the changes in the International Statistics tables, see 3. Comprises Algeria, Gabon, Libya, and Nigeria. July 1979 Bulletin, p. 550. 4. Includes nonmonetary international and regional organizations. 2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates (Trucial States). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 International Statistics • June 1991 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1991 199C 1991 Transactions, and area or country 1989 1990' J F a e n b . . - Aug. Sept. Oct. Nov. Dec. Jan/ Feb." U.S. corporate securities STOCKS 1 Foreign purchases 214,061 173,227 31,916 20,912 8,804 11,633 12,551 13,316 10,241 21,675 2 Foreign sales 204,114 188,373 31,644 22,226 11,318 15,434 13,368 14,573 11,048 20,596 3 Net purchases, or sales (-) 9,946 -15,146 273 -1,314 -2,515 -3,801 -817 -1,257 -807 1,079 4 Foreign countries 10,180 -15,218 215 -1,351 -2,460 -3,759 -812 -1,267 -808 1,023 5 Europe 481 -8,498 -1,850 -1,406 -1,166 -1,415 -582 -487 -610 -1,240 6 France -708 -1,234 3 -208 -151 -159 -80 -49 -24 27 7 Germany -830 -368 -317 -116 2 -87 -14 -144 -114 -203 8 Netherlands 79 -398 -246 -107 -47 -61 21 -46 -142 -104 9 Switzerland -3,277 -2,867 -1,162 -252 -124 -213 -169 -263 -222 -941 10 United Kingdom 3,691 -2,992 -62 -636 -721 -687 -282 149 -93 31 11 Canada -881 892 491 337 197 155 216 279 24 467 12 Latin America and Caribbean 3,042 -1,337 1,170 -242 -216 -357 292 -280 233 936 13 Middle East1 3,531 -2,435 396 197 -437 -558 -430 -251 -279 675 14 Other Asia 3,577 -3,477 235 -69 -711 -1,517 -420 -406 -196 432 15 Japan 3,330 -2,891 -637 16 -737 -1,135 -194 -382 -271 -366 16 Africa 131 -63 64 16 -1 -31 -5 -14 33 31 17 Other countries 299 -298 -292 -185 -125 -35 117 -108 -13 -279 18 Nonmonetary international and regional organizations -234 71 58 37 -55 -42 -5 9 2 56 BONDS2 19 Foreign purchases 120,550' 118,464 17,345 11,852 7,398 8,842 11,205 9,943 8,877 8,468 20 Foreign sales 87,376' 101,571 17,897 13,005 9,388 7,673 7,754 7,890 8,631 9,266 21 Net purchases, or sales (-) 33,174' 16,892 -553 -1,153 -1,990 1,169 3,452 2,052 246 -798 22 Foreign countries 32,821' 17,348 -636 -1,122 -2,020 1,405 3,456 2,055 85 -720 23 Europe 19,064' 10,231 -1,214 468 -925 428 2,046 1,088 -149 -1,065 24 France 372 373 100 -40 -103 -74 24 39 31 68 25 Germany -238 -377 24 172 4 -29 -59 -41 -54 78 26 Netherlands 850 172 49 -20 -72 35 52 110 47 1 27 Switzerland -511' 392 143 -346 0 -193 148 45 360 -217 28 United Kingdom 18,123' 10,429 -1,006 526 -382 371 1,727 1,406 -120 -885 29 Canada 1,116 1,906 179 92 -89 127 93 -85 71 108 30 Latin America and Caribbean 3,686 4,279 423 -52 -223 282 343 495 -17 439 31 Middle East' -182 76 67 -317 -46 -10 -35 74 69 -2 32 Other Asia 9,025' 1,104 -78 -1,168 -711 628 1,033 486 131 -209 33 Japan 6,292' 747 94 -855 -871 386 812 399 308 -214 34 Africa 56 96 -5 0 8 2 6 -9 -15 10 35 Other countries 57 -344 -8 -146 -34 -53 -30 7 -5 -2 36 Nonmonetary international and regional organizations 353 -455 83 -31 30 -237 -4 -2 161 -78 Foreign securities 37 Stocks, net purchases, or sales (-)3 - 13,12c -8,729 -3,582 -184 452 -319 1,068 -1,831 -408 -3,174 38 Foreign purchases 109,792' 122,532 16,722 12,363 7,521 9,282 10,060 7,244 6,209 10,513 39 Foreign sales3 122,912' 131,261 20,304 12,547 7,069 9,601 8,993 9,075 6,618 13,686 40 Bonds, net purchases, or sales (-) -5,943' -22,294 -2,059 288 -573 -2,791 165 -4,771 -187 -1,872 41 Foreign purchases 234,32C 314,228 64,123 29,961 25,719 35,235 32,837 33,372 27,000 37,124 42 Foreign sales 240,263' 336,522 66,182 29,672 26,292 38,026 32,671 38,143 27,187 38,995 43 Net purchases, or sales (—), of stocks and bonds .... -19,063' -31,023 -5,640 105 -122 -3,110 1,233 -6,602 -595 -5,045 44 Foreign countries -19,101' -28,349 -5,645 -339 -397 -2,312 1,207 -5,860 -556 -5,089 45 Europe -17,721' -7,752 -2,723 -1,128 -71 -911 2,017 -919 325 -3,049 46 Canada -4,180 -7,374 -1,353 196 6 -893 -1,740 -659 -574 -779 47 Latin America and Caribbean 426 -8,960 650 -72 -402 262 283 -2,811 350 300 48 Asia 2,532' -3,885 -2,601 583 -305 -687 706 -1,571 -792 -1,809 49 Africa 93 -137 52 -8 12 4 -69 28 22 30 50 Other countries -251' -240 329 90 363 -87 11 73 112 217 51 Nonmonetary international and regional organizations 38' -2,673 5 444 275 -798 25 -742 -39 44 1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, ties sold abroad by U.S. corporations organized to finance direct investments Oman, Qatar, Saudi Arabia, and United Arab Emirates (Tmcial States). abroad. 2. Includes state and local government securities, and securities of U.S. 3. As a result of the merger of a U.S. and U.K. company in July 1989, the government agencies and corporations. Also includes issues of new debt securi- former stockholders of the U.S. company received $5,453 million in shares of the new combined U.K. company. This transaction is not reflected in the data above. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Interest and Exchange Rates A67 3.25 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Transactions Millions of dollars 1991 199C 1991 Country or area 1989 1990' J F a e n b . . - Aug. Sept. Oct. Nov. Dec. Jan/ Feb." Transactions, net purchases or sales (-) during period1 1 Estimated total2 54,203' 19,930 16,126 4,120 1,014 -1,066 5,848 6,531 2,775 13,351 2 Foreign countries2 52,301' 20,245 16,429 3,479 1,346 -1,051 5,538 6,541 4,539 11,890 3 Europe2 36,286 19,096 6,320 -2,635 5,065 245 2,070 4,461 3,284 3,036 4 Belgium-Luxembourg 1,048 -2 409 -395 -99 72 -68 -105 260 149 5 Germany2 7,904 5,732 -2,233 1,412 633 580 1,677 571 -542 -1,691 6 Netherlands -1,141 1,012 215 1,278 956 -454 -249 625 300 -85 7 Sweden 693 1,142 -619 -266 -33 163 276 721 -661 43 8 Switzerland 1,098 112 308 -128 548 619 -6 200 170 139 9 United Kingdom 20,198 -1,309 2,711 -3,789 1,611 -1,740 -1,625 244 2,757 -46 10 Other Western Europe 6,508 12,388 5,522 -758 1,444 1,004 2,069 2,204 995 4,527 11 Eastern Europe -21 13 6 11 0 0 -5 0 6 0 12 Canada 698 -4,558 -968 1,178 -866 -637 -468 155 -795 -173 13 Latin America and Caribbean 464' 15,587 -2,039 1,332 -1,946 4,731 4,316 1,610 -5,150 3,111 14 Venezuela 311 -50 -153 0 -50 -2 49 1 -153 -1 15 Other Latin America and Caribbean -322' 4,880 1,310 308 -1,150 646 978 1,208 -592 1,901 16 Netherlands Antilles 475 10,757 -3,195 1,024 -747 4,086 3,290 401 -4,405 1,210 17 Asia 13,297 -11,047 12,556 3,308 -1,751 -5,192 -930 -72 7,019 5,537 18 Japan 1,681 -14,880 4,159 2,376 -2,092 -4,059 -1,153 -2,407 2,244 1,915 19 Africa 116 313 188 57 151 83 8 -3 78 110 20 All other 1,439 855 372 239 692 -281 543 389 102 269 21 Nonmonetary international and regional organizations 1,902 -316 -303 641 -332 -15 310 -10 -1,763 1,461 22 International 1,473 -191 -598 444 -154 -100 159 -125 -1,701 1,104 23 Latin America regional 231 -2 -46 25 -75 -59 0 92 -202 156 Memo 24 Foreign countries2 52,301' 20,245 16,429 3,479 1,346 -1,051 5,538 6,541 4,539 11,890 25 Official institutions 26,840' 23,916 9,885 6,542 3,807 1,375 4,771 7,880 2,567 7,317 26 Other foreign2 25,461 -3,671 6,544 -3,063 -2,462 -2,426 767 -1,339 1,971 4,573 Oil-exporting countries 27 Middle East3 8,148 -387 1,167 -366 241 -1,247 -878 1,014 523 644 28 Africa4 -1 0 21 0 0 0 0 0 0 21 1. Estimated official and private transactions in marketable U.S. Treasury 3. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and securities with an original maturity of more than 1 year. Data are based on United Arab Emirates (Trucial States). monthly transactions reports. Excludes nonmarketable U.S. Treasury bonds and 4. Comprises Algeria, Gabon, Libya, and Nigeria. notes held by official institutions of foreign countries. 2. Includes U.S. Treasury notes publicly issued to private foreign residents denominated in foreign currencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A68 International Statistics • June 1991 3.26 DISCOUNT RATES OF FOREIGN CENTRAL BANKS Percent per year Rate on Apr. 30, 1991 Rate on Apr. 30, 1991 Rate on Apr. 30, 1991 Country Country Country e M ffe o c n t t i h v e Percent e M ffe o c n t t i h v e Percent e M ffe o c n t t i h v e Austria.. 6.5 Oct. 1989 France 9.0 Mar. 1990 Norway 10.50 July 1990 Belgium . 10.5 Nov. 1989 Germany, Fed. Rep. of, 6.50 Feb. 1991 Switzerland . 6.0 Oct. 1989 Canada.. 9.49 Apr. 1991 Italy 12.5 May 1990 United Kingdom' Denmark 9.50 Jan. 1991 Japan 6.0 Aug. 1990 Netherlands 7.75 Feb. 1991 1. As of the end of February 1981, the rate is that at which the Bank of France or makes advances against eligible commercial paper and/or government comdiscounts Treasury bills for 7 to 10 days. mercial banks or brokers. For countries with more than one rate applicable to 2. Minimum lending rate suspended as of Aug. 20, 1981. such discounts or advances, the rate shown is the one at which it is understood the NOTE. Rates shown are mainly those at which the central bank either discounts central bank transacts the largest proportion of its credit operations. 3.27 FOREIGN SHORT-TERM INTEREST RATES Percent per year, averages of daily figures 1990 1991 CCoouunnttrryy,, oorr ttyyppee 11998888 11998899 11999900 Oct. Nov. Dec. Jan. Feb. Mar. Apr. 1 Eurodollars 7.85 9.16 8.16 8.06 8.04 7.87 7.23 6.60 6.44 6.11 2 United Kingdom 10.28 13.87 14.73 14.02 13.57 13.75 13.91 13.20 12.33 11.90 3 Canada 9.63 12.20 13.00 12.58 12.36 11.95 11.13 10.37 9.97 9.67 4 Germany 4.28 7.04 8.41 8.51 8.79 9.17 9.25 8.% 8.99 9.08 5 Switzerland 2.94 6.83 8.71 7.88 8.39 8.65 8.44 7.81 8.17 8.26 6 Netherlands 4.72 7.28 8.57 8.39 8.73 9.27 9.31 9.01 9.04 9.11 7 France 7.80 9.27 10.20 9.92 9.88 10.14 10.14 9.64 9.34 9.21 8 Italy 11.04 12.44 12.11 11.40 12.42 13.45 13.13 13.31 12.52 11.90 9 Belgium 6.69 8.65 9.70 8.89 9.03 9.81 9.91 9.51 9.28 9.20 10 Japan 4.43 5.39 7.75 8.26 8.35 8.27 8.18 8.01 8.09 7.% NOTE. Rates are for 3-month interbank loans except for Canada, finance company paper; Belgium, 3-month Treasury bills; and Japan, CD rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Interest and Exchange Rates A69 3.28 FOREIGN EXCHANGE RATES1 Currency units per dollar Country/currency 1988 Jan. Apr. 1 Australia/dollar2 78.409 79.186 78.069 77.290 77.019 77.930 78.351 77.107 77.947 2 Austria/schilling 12.357 13.236 11.331 10.451 10.539 10.616 10.416 11.341 11.977 3 Belgium/franc 36.785 39.409 33.424 30.647 31.014 31.088 30.475 33.206 35.017 4 CanadaMollar 1.2306 1.1842 1.1668 1.1635 1.1603 1.1560 1.1549 1.1572 1.1535 5 China, P.R./yuan 3.7314 3.7673 4.7921 4.9714 5.2352 5.2352 5.2352 5.2352 5.2767 6 Denmark/krone 6.7412 7.3210 6.1899 5.6946 5.7735 5.8115 5.6953 6.1886 6.5163 7 Finland/markka 4.1933 4.2963 3.8300 3.5644 3.6341 3.6431 3.5941 3.8512 3.9925 8 France/franc 5.9595 6.3802 5.4467 5.0020 5.0895 5.1253 5.0398 5.4862 5.7540 9 Germany/deutsche mark 1.7570 1.8808 1.6166 1.4857 1.4982 1.5091 1.4805 1.6122 1.7027 10 Greece/drachma 142.00 162.60 158.59 152.27 156.08 159.70 158.82 174.16 184.76 11 Hong Kong/dollar 7.8072 7.8008 7.7899 7.7951 7.8034 7.7950 7.7943 7.7911 7.7939 12 India/rupee 13.900 16.213 17.492 18.098 18.127 18.339 18.860 19.243 19.906 13 Ireland/punt2 152.49 141.80 165.76 180.18 177.77 168.68 179.81 157.43 157.12 14 ItalyAira 1,302.39 1,372.28 1,198.27 1,117.04 1,129.26 1,134.38 1,111.19 1,201.% 1,261.57 15 Japan/yen 128.17 138.07 145.00 129.22 133.89 133.70 130.54 137.39 137.11 16 Malaysia/rinegjt 2.6190 2.7079 2.7057 2.6949 2.7030 2.7140 2.6%9 2.7418 2.7498 17 Netherlands/guilder.... 1.9778 2.1219 1.8215 1.6761 1.6904 1.7015 1.6689 1.8174 1.9186 18 New Zealand/dollar2 65.560 59.354 59.619 61.120 59.574 59.476 60.120 59.389 58.909 19 Norway /krone 6.5243 6.9131 6.2541 5.79% 5.8717 5.8993 5.7919 6.2899 6.6198 20 Portugal/escudo 144.27 157.53 142.70 130.87 132.82 134.43 130.45 140.97 148.00 21 Singapore/dollar 2.0133 1.9511 1.8134 1.7100 1.7275 1.7455 1.7180 1.7589 1.7688 22 South Africa/rand 2.2770 2.6214 2.5885 2.5247 2.5395 2.5643 2.5412 2.6636 2.7325 23 South Korea/won 734.52 674.29 710.64 717.03 718.58 720.83 723.97 727.73 728.36 24 Spain/peseta 116.53 118.44 101.96 94.07 95.75 95.08 92.61 100.21 105.08 25 Sri Lanka/rupee 31.820 35.947 40.078 40.355 40.244 40.300 40.598 40.750 40.836 26 Sweden/krona 6.1370 6.4559 5.9231 5.5633 5.6338 5.6345 5.5516 5.9081 6.1145 27 Switzerland/franc 1.4643 1.6369 1.3901 1.2569 1.2814 1.2714 1.2685 1.3918 1.4399 28 Taiwan/dollar 28.636 26.407 26.918 27.245 27.162 27.197 27.109 27.311 27.333 2 3 9 0 U Th n a it i e la d n d K /b in a g h d t om/poundf y 1 2 7 5 8 . . 3 1 1 3 2 1 2 6 5 3 . . 7 8 2 2 5 1 2 7 5 8 . . 6 4 0 1 9 1 2 9 5 6 . . 0 4 7 2 8 1 2 9 5 2 . . 2 1 0 9 8 1 2 9 5 3 . . 2 4 4 6 4 1 2 9 5 6 . . 1 4 4 1 1 1 2 8 5 2 . . 4 1 4 4 7 1 2 7 5 4 . . 5 9 7 7 8 MEMO 31 United States/dollar' 92.72 98.60 89.09 82.12 83.35 83.51 82.12 8.12 1. Averages of certified noon buying rates in New York for cable transfers. currencies of 10 industrial countries. The weight for each of the 10 countries is the Data in this table also appear in the Board's G.5 (405) release. For address, see 1972-76 average world trade of that country divided by the average world trade of inside front cover. all 10 countries combined. Series revised as of August 1978 (see Federal Reserve 2. Value in U.S. cents. Bulletin, vol. 64, August 1978, p. 700). 3. Index of weighted-average exchange value of U.S. dollar against the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A71 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 about IPCs Individuals, partnerships, and corporations 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 when SMSAs Standard metropolitan statistical areas the smallest unit given is millions) Cell not applicable General Information Minus signs are used to indicate (1) a decrease, (2) a negative tions of the Treasury. "State and local government" also infigure, or (3) an outflow. cludes municipalities, special districts, and other political "U.S. government securities" may include guaranteed issues subdivisions. of U.S. government agencies (the flow of funds figures also In some of the tables, details do not add to totals because of include not fully guaranteed issues) as well as direct obliga- rounding. STATISTICAL RELEASES—List Published Semiannually, with Latest BULLETIN Reference Issue Page Anticipated schedule of release dates for periodic releases June 1991 A82 SPECIAL TABLES-Published Irregularly, with Latest BULLETIN Reference Title and Date Issue Page Assets and liabilities of commercial banks March 31,1990 January 1991 All June 30,1990 February 1991 A72 September 30,1990 March 1991 A72 December 31, 1990 May 1991 A72 Terms of lending at commercial banks February 1990 September 1990 A73 May 1990 December 1990 All August 1990 December 1990 A77 November 1990 April 1991 A73 Assets and liabilities of U. S. branches and agencies of foreign banks March 31, 1990 September 1990 A78 June 30,1990 December 1990 A82 September 30,1990 February 1991 A78 December 31,1990 June 1991 All Pro forma balance sheet and income statements for priced service operations June 30,1989 February 1990 A78 September 30, 1989 March 1990 A88 March 31,1990 September 1990 A82 June 30,1990 October 1990 All Special table follows. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

All Special Tables • June 1991 4.30 ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, December 31, 19901 Millions of dollars All states2 New York California Illinois IItteemm in I c T B l o u F t d a ' i s l n g I o B nl F y s in I c T B l o u F t d a ' i s l n g I o B n F ly 's 3 in I c T B l o u F t d a ' i s l n g I o B n F ly 's 3 in I c T B l o u F t d a ' i s l n g I o B n F ly ' s 1 Total assets4 626,379 287,460 453,401 222,543 90,917 32,572 52,826 21,917 2 Claims on nonrelated parties 557,364 209,425 399,472 164,741 83,439 19,868 52,404 19,374 3 Cash and balances due from depository institutions 154,664 125,297 123,799 97,146 11,139 10,349 17,301 1166,,227755 4 Cash items in process of collection and unposted debits 2,251 1 2,207 0 25 1 4 0 5 Currency and coin (U.S. and foreign) 28 n.a. 20 n.a. 2 n.a. 2 n.a. 6 Balances with depository institutions in United States .. 80,637 55,711 65,473 42,878 5,416 4,710 8,711 7,715 7 U.S. branches and agencies of other foreign banks (including their IBFs) 71,488 52,641 57,829 40,224 4,8% 4,660 7,989 7,394 8 Other depository institutions in United States (including their IBFs) 9,149 3,071 7,644 2,654 519 50 722 321 9 Balances with banks in foreign countries and with foreign central banks 70,753 69,584 55,225 54,268 5,643 5,638 8,566 8,560 10 Foreign branches of U.S. banks 1,606 1,387 1,485 1,272 42 42 63 63 11 Other banks in foreign countries and foreign central banks 69,148 68,197 53,740 52,9% 5,601 5,5% 8,503 8,497 12 Balances with Federal Reserve Banks 995 n.a. 874 n.a. 52 n.a. 18 n.a. 13 Total securities and loans 336,649 74,078 225,758 59,732 62,523 8,013 29,923 2,564 14 Total securities, book value 50,506 15,756 44,824 14,169 3,644 1,037 1,473 510 15 U.S. Treasury 11,065 n.a. 10,782 n.a. 57 n.a. 164 n.a. 16 Obligations of U.S. government agencies and corporations 6,897 n.a. 6,576 n.a. 217 n.a. 23 n.a. 17 Other bonds, notes, debentures and corporate stock (including state and local securities) 32,543 15,756 27,465 14,169 3,370 1,037 1,286 510 18 Federal funds sold and securities purchased under agreements to resell 14,266 2,533 11,848 1,934 910 472 1,067 55 19 U.S. branches and agencies of other foreign banks 8,837 1,319 7,204 1,167 438 80 941 35 20 Commercial banks in United States 2,330 99 1,995 64 77 0 75 0 21 Other 3,099 1,115 2,649 703 395 392 52 20 22 Total loans, gross 286,334 58,363 181,074 45,602 58,914 6,979 28,459 2,054 23 Less: Unearned income on loans 191 42 140 39 35 3 9 0 24 Equals: Loans, net 286,143 58,322 180,934 45,564 58,879 6,976 28,450 2,054 Total loans, gross, by category 25 Real estate loans 44,446 450 22,859 255 14,069 153 4,566 36 26 Loans to depository institutions 62,599 28,974 47,549 21,383 9,092 4,575 4,124 1,565 27 Commercial banks in United States (including IBFs).... 42,756 10,751 31,773 6,927 7,2% 2,824 3,504 974 28 U.S. branches and agencies of other foreign banks ... 37,675 10,310 27,239 6,581 7,031 2,748 3,240 954 29 Other commercial banks in United States 5,081 442 4,534 346 265 76 264 20 30 Other depository institutions in United States (including IBFs) 53 0 34 0 15 0 3 0 31 Banks in foreign countries 19,790 18,223 15,742 14,456 1,781 1,752 617 591 32 Foreign branches of U.S. banks 390 363 362 335 7 7 21 21 33 Other banks in foreign countries 19,400 17,859 15,380 14,121 1,774 1,745 597 570 34 Other financial institutions 9,076 1,277 6,819 1,082 1,068 153 778 36 35 Commercial and industrial loans 148,897 15,641 87,399 13,348 32,784 1,625 18,256 301 36 U.S. addressees (domicile) 127,718 535 70,669 432 30,029 % 17,755 7 37 Non-U.S. addressees (domicile) 21,179 15,106 16,730 12,915 2,755 1,529 501 295 38 Acceptances of other banks 2,029 9 1,083 9 602 0 298 0 39 U.S. banks 601 0 406 0 151 0 12 0 40 Foreign banks 1,427 9 677 9 451 0 286 0 41 Loans to foreign governments and official institutions (including foreign central banks) 12,823 11,704 10,153 9,251 561 473 119 112 42 Loans for purchasing or carrying securities (secured and unsecured) 2,471 53 1,769 48 650 0 48 5 43 All other loans 3,994 256 3,444 225 88 0 270 0 44 All other assets 51,785 7,518 38,067 5,928 8,867 1,034 4,113 480 45 Customers' liability on acceptances outstanding 27,984 n.a. 20,335 n.a. 6,123 n.a. 1,170 n.a. 46 U.S. addressees (domicile) 19,203 n.a. 12,771 n.a. 5,229 n.a. 1,166 n.a. 47 Non-U.S. addressees (domicile) 8,780 n.a. 7,564 n.a. 894 n.a. 4 n.a. 48 Other assets including other claims on nonrelated parties 23,801 7,518 17,733 5,928 2,744 1,034 2,943 480 49 Net due from related depository institutions5 69,016 78,036 53,929 57,802 7,478 12,704 422 22,,554433 50 Net due from head office and other related depository institutions5 69,016 n.a. 53,929 n.a. 7,478 n.a. 422 n.a. 51 Net due from establishing entity, head offices, and other related depository institutions n.a. 78,036 n.a. 57,802 n.a. 12,704 n.a. 2,543 52 Total liabilities4 626,379 287,460 453,401 222,543 90,917 32,572 52,826 21,917 53 Liabilities to nonrelated parties 547,925 260,236 413,708 206,535 80,682 31,560 37,061 14,303 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Branches and Agencies A73 4.30—Continued Millions of dollars All states2 New York California Illinois ex I T c B l o u F t d a 's i l n g I o B n F ly 's 3 ex I T c B l o u F t d a ' i s l n g I o B n F ly 's 3 ex I T c B l o u F t d a 's i l n g I o B n F ly 's 3 ex I T c B l o u F t d a ' i s l n g I o B n F ly 's 3 54 Total deposits and credit balances 76,316 195,827 62,354 173,124 4,128 12,882 3,658 2,716 55 Individuals, partnerships, and corporations 57,043 15,893 45,403 9,266 3,064 579 3,259 144 56 U.S. addressees (domicile) 42,917 476 37,207 476 1,162 0 2,210 0 57 Non-U.S. addressees (domicile) 14,126 15,418 8,196 8,791 1,902 579 1,049 144 58 Commercial banks in United States (including IBFs). 12,118 56,938 10,347 51,224 775 4,216 381 981 59 U.S. branches and agencies of other foreign banks 6,466 50,673 6,374 45,706 16 3,723 29 833 60 Other commercial banks in United States 5,652 6,264 3,973 5,518 759 493 352 148 61 Banks in foreign countries 2.049 108,507 1,942 98,737 12 7,654 3 1,534 62 Foreign branches of U.S. banks 149 5,743 149 5,132 0 484 0 93 63 Other banks in foreign countries 1,900 102,764 1,793 93,606 12 7,170 3 1,441 64 Foreign governments and official institutions (including foreign central banks) 1,804 14,031 1,497 13,439 238 433 3 56 65 All other deposits and credit balances 2,810 457 2,734 457 17 0 1 0 66 Certified and official checks 492 n. a. 431 n.a. 22 n.a. 10 n.a. 67 Transaction accounts and credit balances (excluding IBFs) 8,597 7,408 2% 257 68 Individuals, partnerships, and corporations 5,518 4,562 225 242 69 U.S. addressees (domicile) 4,129 3,582 191 235 70 Non-U.S. addressees (domicile) 1,389 980 35 7 71 Commercial banks in United States (including IBFs). 278 274 1 0 72 U.S. branches and agencies of other foreign banks 106 105 0 0 73 Other commercial banks in United States 172 n.a. 169 n.a. 1 n.a. 0 n.a. 74 Banks in foreign countries 1,122 1,039 11 3 75 Foreign branches of U.S. banks 10 10 0 0 76 Other banks in foreign countries 1,112 1,029 11 3 77 Foreign governments and official institutions (including foreign central banks) 372 312 19 1 78 All other deposits and credit balances 815 789 17 1 79 Certified and official checks 492 431 22 10 80 Demand deposits (included in transaction accounts and credit balances) 7,837 6,885 226 241 81 Individuals, partnerships, and corporations 5,116 4,384 163 226 82 U.S. addressees (domicile) 3,928 3,489 140 220 83 Non-U.S. addressees (domicile) 1.188 894 23 7 84 Commercial banks in United States (including IBF)s. 196 193 1 0 85 U.S. branches and agencies of other foreign banks 49 47 0 0 86 Other commercial banks in United States 148 n.a. 145 n a. 1 n.a. 0 n.a. 87 Banks in foreign countries 982 903 11 3 88 Foreign branches of U.S. banks 8 8 0 0 89 Other banks in foreign countries 974 895 11 3 90 Foreign governments and official institutions (including foreign central banks) 298 238 19 1 91 All other deposits and credit balances 753 736 11 1 92 Certified and official checks 492 431 22 10 93 Non-transaction accounts (including MMDAs, excluding IBFs) 67,719 54,946 3,832 3,401 94 Individuals, partnerships, and corporations 51,526 40,841 2,839 3,017 95 U.S. addressees (domicile) 38,788 33,625 972 1,975 96 Non-U.S. addressees (domicile) 12,737 7,216 1,867 1,042 97 Commercial banks in United States (including IBFs). 11,839 10,073 774 381 98 U.S. branches and agencies of other foreign banks 6,359 6,269 16 29 99 Other commercial banks in United States 5,480 n.a. 3,804 n. a. 758 n.a. 352 n a. 100 Banks in foreign countries 926 902 0 0 101 Foreign branches of U.S. banks 139 139 0 0 102 Other banks in foreign countries 788 764 0 0 103 Foreign governments and official institutions (including foreign central banks) 1,432 1,185 220 2 104 All other deposits and credit balances 1,995 1,945 0 1 105 IBF deposit liabilities 195,827 173,124 12,882 2,716 106 Individuals, partnerships, and corporations 15,893 9,266 579 144 107 U.S. addressees (domicile) 476 476 0 0 108 Non-U.S. addressees (domicile) 15,418 8,791 579 144 109 Commercial banks in United States (including IBFs). 56,938 51,224 4,216 981 110 U.S. branches and agencies of other foreign banks 50,673 45,706 3,723 833 111 Other commercial banks in United States n. a. 6,264 n.a. 5,518 n.a. 493 n.a. 148 112 Banks in foreign countries 108 507 98,737 7,654 1,534 113 Foreign branches of U.S. banks 5,743 5,132 484 93 114 Other banks in foreign countries 102,764 93,606 7,170 1,441 115 Foreign governments and official institutions (including foreign central banks) 4,031 13,439 433 56 116 All other deposits and credit balances 457 457 0 0 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A74 Special Tables • June 1991 4.30 ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, December 31, 19901—Continued Millions of dollars All states2 New York California Illinois IItteemm in I T c B l o u F t d a ' i s l n g I o B n F ly ' s in I T c B l o u F t d a ' i s l n g I o B n F ly ' s in I T c B l o u F t d a ' i s l n g I o B nl F y ' s in I T c B l o u F t d a ' i s l n g I o B nl F y ' s 117 Federal funds purchased and securities sold under agreements to repurchase 68,468 8,429 50,241 5,056 9,544 2,150 8,143 1,201 118 U.S. branches and agencies of other foreign banks 12,046 3,231 7,092 1,234 3,219 1,222 1,667 752 119 Other commercial banks in United States 22,303 655 13,724 368 4,425 207 3,801 80 120 Other 34,119 4,543 29,425 3,454 1,899 720 2,675 369 121 Other borrowed money 115511,,331188 49,225 86,085 22,893 44,578 15,662 18,851 10,045 122 Owed to nonrelated commercial banks in United States (including IBFs) 80,029 17,195 39,965 5,165 28,818 8,164 9,899 3,479 123 Owed to U.S. offices of nonrelated U.S. banks 27,075 4,061 13,498 1,172 9,158 2,491 3,938 258 124 Owed to U.S. branches and agencies of nonrelated foreign banks 52,954 13,133 26,467 3,993 19,660 5,673 5,961 3,221 125 Owed to nonrelated banks in foreign countries 30,400 29,477 16,145 15,303 7,422 7,375 6,568 6,561 126 Owed to foreign branches of nonrelated U.S. banks ... 2,271 2,160 875 764 984 984 365 365 127 Owed to foreign offices of nonrelated foreign banks 28,129 27,318 15,270 14,539 6,438 6,392 6,204 6,197 128 Owed to others 40,890 2,553 29,975 2,425 8,338 123 2,383 5 129 All other liabilities 55,997 6,754 41,904 5,463 9,550 866 3,694 341 130 Branch or agency liability on acceptances executed and outstanding 33,857 n.a. 25,263 n.a. 6,853 n. a. 1,157 n.a. 131 Other liabilities to nonrelated parties 22,140 6,754 16,641 5,463 2,697 866 2,537 341 132 Net due to related depository institutions5 78,454 27,225 39,693 16,007 10,235 1,012 15,765 7,614 133 Net due to head office and other related depository institutions5 78,454 n. a. 39,693 n.a. 10,235 n. a. 15,765 n.a. 134 Net due to establishing entity, head office, and other related depository institutions n.a. 27,225 n.a. 16,007 n.a. 1,012 n.a. 7,614 MEMO 135 Non-interest bearing balances with commercial banks in United States 2,615 92 2,197 91 166 0 113 0 136 Holding of commercial paper included in total loans 1,892 1,653 164 73 137 Holding of own acceptances included in commercial and industrial loans 2,510 1,775 478 138 138 Commercial and industrial loans with remaining maturity of one year or less 79,279 43,884 19,751 10,261 139 Predetermined interest rates 44,415 n a. 22,759 n.a. 12,309 n.a. 5,953 n.a. 140 Floating interest rates 34,864 21,125 7,442 4,308 141 Commercial and industrial loans with remaining maturity of more than one year 69,618 43,515 13,033 7,995 142 Predetermined interest rates 21,643 13,504 3,167 3,695 143 Floating interest rates 47,975 30,011 9,866 4,299 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Branches and Agencies A75 4.30—Continued Millions of dollars All states2 New York California Illinois IItteemm ex T c IB l o u F t d a s i l n g o IB nl F y s ex T c IB l o u F t d a s i l n g o IB nl F y s ex T c IB l o u F t d a s i l n g o IB nl F y s ex T c IB l o u F t d a s i l n g o IB nl F y s 111144444444 CCCCoooommmmppppoooonnnneeeennnnttttssss ooooffff ttttoooottttaaaallll nnnnoooonnnnttttrrrraaaannnnssssaaaaccccttttiiiioooonnnn aaaaccccccccoooouuuunnnnttttssss,,,, nnnn iiiinnnn oooo cccc nnnn llll tttt uuuu rrrr dddd aaaa eeee nnnn dddd ssss aaaa iiii cccc nnnn tttt iiii tttt oooo oooo nnnn ttttaaaa aaaa llll llll dddd aaaa eeee cccc pppp ccccoooo oooo uuuu ssssiiii nnnn ttttssss ttttssss ,,,, aaaa nnnn iiii dddd nnnn cccc cccc lllluuuu rrrreeee dddd dddd iiiinnnn iiiitttt gggg bbbb IIII aaaa BBBB llllaaaa FFFF nnnn ssss cccc eeeessss ooooffff 77,692 1 65,654 t 4,242 t 3,323 t 111144445555 TTTTiiiimmmmeeee CCCCDDDDssss iiiinnnn ddddeeeennnnoooommmmiiiinnnnaaaattttiiiioooonnnnssss ooooffff $$$$111100000000,,,,000000000000 oooorrrr mmmmoooorrrreeee 44,055 36,133 2,492 1,564 111144446666 OOOOtttthhhheeeerrrr ttttiiiimmmmeeee ddddeeeeppppoooossssiiiittttssss iiiinnnn ddddeeeennnnoooommmmiiiinnnnaaaattttiiiioooonnnnssss ooooffff $$$$111100000000,,,,000000000000 oooorrrr mmmmoooorrrreeee 16,523 n.a. 13,838 n1.a. 1,028 n1.a. 1,542 n.1a. 111144447777 TTTTiiiimmmmeeee CCCCDDDDssss iiiinnnn ddddeeeennnnoooommmmiiiinnnnaaaattttiiiioooonnnnssss ooooffff $$$$111100000000,,,,000000000000 oooorrrr mmmmoooorrrreeee » wwwwiiiitttthhhh rrrreeeemmmmaaaaiiiinnnniiiinnnngggg mmmmaaaattttuuuurrrriiiittttyyyy ooooffff mmmmoooorrrreeee tttthhhhaaaannnn 11112222 mmmmoooonnnntttthhhhssss ........ 17,114 15,683 722 217 All states2 New York California Illinois inc T I l B o u t F d a s i l n g o IB nl F y s inc T IB l o u F t d a s i l n g o IB nl F y s 3 inc T I l B o u F t d a s i l n g o IB nl F y s inc T I l B o u F t d a s i l n g o IB nl F y s 3 111144448888 MMMMaaaarrrrkkkkeeeetttt vvvvaaaalllluuuueeee ooooffff sssseeeeccccuuuurrrriiiittttiiiieeeessss hhhheeeelllldddd 47,192 14,379 41,620 12,849 3,313 986 1,457 505 111144449999 IIIImmmmmmmmeeeeddddiiiiaaaatttteeeellllyyyy aaaavvvvaaaaiiiillllaaaabbbblllleeee ffffuuuunnnnddddssss wwwwiiiitttthhhh aaaa mmmmaaaattttuuuurrrriiiittttyyyy ggggrrrreeeeaaaatttteeeerrrr tttthhhhaaaannnn oooonnnneeee ddddaaaayyyy iiiinnnncccclllluuuuddddeeeedddd iiiinnnn ooootttthhhheeeerrrr bbbboooorrrrrrrroooowwwweeeedddd mmmmoooonnnneeeeyyyy 93,845 n.a. 52,534 n.a. 28,849 n.a. 11,246 n.a. 111155550000 NNNNuuuummmmbbbbeeeerrrr ooooffff rrrreeeeppppoooorrrrttttssss ffffiiiilllleeeedddd6666 565 0 263 0 130 0 55 0 1. Data are aggregates of categories reported on the quarterly form FFIEC 002, that no IBF data re reported for that item, either because the item is not an eligible "Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign IBF asset or liability or because that level of detail is not reported for IBFs. From Banks." Details may not add to totals because of rounding. This form was first December 1981 through September 1985, IBF data were included in all applicable used for reporting data as of June 30, 1980, and was revised as of December 31, items reported. 1985. From November 1972 through May 1980, U.S. branches and agencies of 4. Total assets and total liabilities include net balances, if any, due from or due foreign banks had filed a monthly FR 886a report. Aggregate data from that report to related banking institutions in the United States and in foreign countries (see were available through the Federal Reserve statistical release G.l 1, last issued on footnote 5). On the former monthly branch and agencyu report, available through July 10, 1980. Data in this table and in the G.ll tables are not strictly comparable the G.ll statistical release, gross balances were included in total assets and total because of differences in reporting panels and in definitions of balance sheet liabilities. Therefopre, total asset and total liability figures in this table are not items. comparable to those in the G.ll tables. 2. Includes the District of Columbia. 5. "Related banking institutions" includes the foreign head office and other 3. Effective December 1981, the Federal Reserve Board amended Regulations U.S. and foreign branches and agencies of the bank, the bank's parent holding D and Q to permit banking offices located in the United States to operate company, and majority-owned banking subsidiaries of the bank and of its parent International Banking Facilities (IBFs). As of December 31, 1985 data for IBFs holding company (including subsidiaries owned both directly and indirectly). are reported in a separate column. These data are either included in or excluded 6. In some cases two or more offices of a foreign bank within the same from tne total columns as indicated in the headings. The notation "n.a." indicates metropolitan area file a consolidated report. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 Federal Reserve Board of Governors and Official Staff ALAN GREENSPAN, Chairman WAYNE D. ANGELL EDWARD W. KELLEY, JR. OFFICE OF BOARD MEMBERS DIVISION OF INTERNATIONAL FINANCE JOSEPH R. COYNE, Assistant to the Board EDWIN M. TRUMAN, Staff Director DONALD J. WINN, Assistant to the Board LARRY J. PROMISEL, Senior Associate Director BOB STAHLY MOORE, Special Assistant to the Board CHARLES J. SIEGMAN, Senior Associate Director DIANE E. WERNEKE, Special Assistant to the Board DAVID H. HOWARD, Deputy Associate Director ROBERT F. GEMMILL, Staff Adviser LEGAL DIVISION DONALD B. ADAMS, Assistant Director J, VIRGIL MATTINGLY, JR., General Counsel DALE W. HENDERSON, Assistant Director SCOTT G. ALVAREZ, Associate General Counsel PETER HOOPER III, Assistant Director RICHARD M. ASHTON, Associate General Counsel KAREN H. JOHNSON, Assistant Director OLIVER IRELAND, Associate General Counsel RALPH W. SMITH, JR., Assistant Director RICKI R. TIGERT, Associate General Counsel KATHLEEN M. O'DAY, Assistant General Counsel DIVISION OF RESEARCH AND STATISTICS MARYELLEN A. BROWN, Assistant to the General Counsel MICHAEL J. PRELL, Director EDWARD C. ETTIN, Deputy Director OFFICE OF THE SECRETARY THOMAS D. SIMPSON, Associate Director WILLIAM W. WILES, Secretary LAWRENCE SLIFMAN, Associate Director JENNIFER J. JOHNSON, Associate Secretary DAVID J. STOCKTON, Associate Director BARBARA R. LOWREY, Associate Secretary MARTHA BETHEA, Deputy Associate Director PETER A. TINSLEY, Deputy Associate Director DIVISION OF CONSUMER MYRON L. KWAST, Assistant Director PATRICK M. PARKINSON, Assistant Director AND COMMUNITY AFFAIRS MARTHA S. SCANLON, Assistant Director GRIFFITH L. GARWOOD, Director JOYCE K. ZICKLER, Assistant Director GLENN E. LONEY, Assistant Director LEVON H. GARABEDIAN, Assistant Director ELLEN MALAND, Assistant Director (Administration) DOLORES S. SMITH, Assistant Director DIVISION OF MONETARY AFFAIRS DIVISION OF BANKING SUPERVISION AND REGULATION DONALD L. KOHN, Director DAVID E. LINDSEY, Deputy Director WILLIAM TAYLOR, Staff Director BRIAN F. MADIGAN, Assistant Director DON E. KLINE, Associate Director RICHARD D. PORTER, Assistant Director FREDERICK M. STRUBLE, Associate Director NORMAND R.V. BERNARD, Special Assistant to the Board WILLIAM A. RYBACK, Deputy Associate Director STEPHEN C. SCHEMERING, Deputy Associate Director OFFICE OF THE INSPECTOR GENERAL R H JO I E C E R H B M A E . R R C D T L S E A P A . I V L B L E IE E R R N , N A K , O s A s T i s H s s t E a i N s n t , a t D n D t e i p D re u i c r t t y e o c A r t o ss r o ciate Director B BA RE R N RY T L R . . B S O N W YD EN ER , , I n A s s p s e is c t t a o n r t G In e s n p e e r c a t l o r General ROGER T. COLE, Assistant Director JAMES I. GARNER, Assistant Director JAMES D. GOETZINGER, Assistant Director MICHAEL G. MARTINSON, Assistant Director ROBERT S. PLOTKIN, 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

A77 JOHN P. LAWARE DAVID W. MULLINS, JR. 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 SCHNEIDER, Special Assignment: Project Director, National Information Center DIVISION OF RESERVE BANK OPERATIONS PORTIA W. THOMPSON, Equal Employment Opportunity AND PAYMENT SYSTEMS Programs Officer CLYDE H. FARNSWORTH, JR. , Director DAVID L. ROBINSON, Deputy Director (Finance and DIVISION OF HUMAN RESOURCES Control) MANAGEMENT BRUCE J. SUMMERS, Deputy Director (Payments and DAVID L. SHANNON, Director Automation) JOHN R. WEIS, Associate Director CHARLES W. BENNETT, Assistant Director ANTHONY V. DIGIOIA, Assistant Director JACK DENNIS, JR., Assistant Director JOSEPH H. HAYES, JR., Assistant Director EARL G. HAMILTON, Assistant Director FRED HOROWITZ, Assistant Director JOHN H. PARRISH, Assistant Director LOUISE L. ROSEMAN, Assistant Director OFFICE OF THE CONTROLLER FLORENCE M. YOUNG, Assistant Director GEORGE E. LIVINGSTON, Controller STEPHEN J. CLARK, Assistant Controller (Programs and Budgets) DARRELL R. PAULEY, Assistant Controller (Finance) DIVISION OF SUPPORT SERVICES ROBERT E. FRAZIER, Director GEORGE M. LOPEZ, Assistant Director DAVID L. WILLIAMS, Assistant Director OFFICE OF THE DIRECTOR FOR INFORMATION RESOURCES MANAGEMENT STEPHEN R. MALPHRUS, Director MARIANNE M. EMERSON, Assistant Director EDWARD T. MULRENIN, Assistant Director DIVISION OF HARDWARE AND SOFTWARE SYSTEMS BRUCE M. BEARDSLEY, Director DAY W. RADEBAUGH, JR. , Assistant Director ELIZABETH B. RIGGS, Assistant Director DIVISION OF APPLICATIONS DEVELOPMENT AND STATISTICAL SERVICES WILLIAM R. JONES, Director ROBERT J. ZEMEL, Associate Director Po KYUNG KIM, Assistant Director RAYMOND H. MASSEY, Assistant Director RICHARD C. STEVENS, Assistant Director Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

78 Federal Reserve Bulletin • June 1991 Federal Open Market Committee and Advisory Councils FEDERAL OPEN MARKET COMMITTEE MEMBERS ALAN GREENSPAN, Chairman E. GERALD CORRIGAN, Vice Chairman WAYNE D. ANGELL SILAS KEEHN JOHN P. LAWARE ROBERT P. BLACK EDWARD W. KELLEY, JR. DAVID W. MULLINS, JR. ROBERT P. FORRESTAL ROBERT T. PARRY ALTERNATE MEMBERS ROGER GUFFEY THOMAS C. MELZER JAMES H. OLTMAN W. LEE HOSKINS RICHARD F. SYRON STAFF DONALD L. KOHN, Secretary and Economist J. ALFRED BROADDUS, JR. , Associate Economist NORMAND R.V. BERNARD, Deputy Secretary RICHARD G. DAVIS, Associate Economist JOSEPH R. COYNE, Assistant Secretary DAVID E. LINDSEY, Associate Economist GARY P. GILLUM, Assistant Secretary LARRY J. PROMISEL, Associate Economist J. VIRGIL MATTINGLY, JR., General Counsel KARL A. SCHELD, Associate Economist ERNEST T. PATRKIS, Deputy General Counsel CHARLES J. SIEGMAN, Associate Economist MICHAEL J. PRELL, Economist THOMAS D. SIMPSON, Associate Economist EDWIN M. TRUMAN, Economist LAWRENCE SLIFMAN, Associate Economist JACK H. BEEBE, Associate Economist SHEILA T. TSCHINKEL, 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 PAUL HAZEN, President LLOYD P. JOHNSON, Vice President IRA STEPANIAN, First District B. KENNETH WEST, Seventh District CHARLES S. SANFORD, JR., Second District DAN W. MITCHELL, Eighth District TERRENCE A. LARSEN, Third District LLOYD P. JOHNSON, Ninth District JOHN B. MCCOY, Fourth District JORDAN L. HAINES, Tenth District EDWARD E. CRUTCHFIELD, Fifth District RONALD G. STEINHART, Eleventh District E.B. Robinson, Jr., Sixth District PAUL HAZEN, Twelfth District HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVIK, Associate Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A79 CONSUMER ADVISORY COUNCIL JAMES W. HEAD, Berkeley, California, Chairman LINDA K. PAGE, Columbus, Ohio, Vice Chairman VERONICA E. BARELA, Denver, Colorado JULIA E. HILER, Marietta, Georgia GEORGE H. BRAASCH, Oakbrook, Illinois HENRY JARAMILLO, Belen, New Mexico TOYE L. BROWN, Boston, Massachusetts BARBARA KAUFMAN, San Francisco, California CLIFF E. COOK, Tacoma, Washington KATHLEEN E. KEEST, Boston, Massachusetts R.B. (JOE) DEAN, JR., Columbia, South Carolina COLLEEN D. MCCARTHY, Kansas City, Missouri DENNY D. DUMLER, Denver, Colorado MICHELLE S. MEIER, Washington, D.C. WILLIAM C. DUNKELBERG, Philadelphia, Pennsylvania BERNARD F. PARKER, JR., Detroit, Michigan JAMES FLETCHER, Chicago, Illinois OTIS PITTS, JR., Miami, Florida GEORGE C. GALSTER, Wooster, Ohio VINCENT P. QUAYLE, Baltimore, Maryland E. THOMAS GARMAN, Blacksburg, Virginia CLIFFORD N. ROSENTHAL, New York, New York DONALD A. GLAS, Hutchinson, Minnesota ALAN M. SILBERSTEIN, New York, New York DEBORAH B. GOLDBERG, Washington, D.C. NANCY HARVEY STEORTS, Dallas, Texas MICHAEL M. GREENFIELD, St. Louis, Missouri DAVID P. WARD, Chester, New Jersey JOYCE HARRIS, Madison, Wisconsin SANDRA L. WILLETT, Boston, Massachusetts THRIFT INSTITUTIONS ADVISORY COUNCIL MARION O. SANDLER, Oakland, California, President LYNN W. HODGE, Greenwood, South Carolina, Vice President DANIEL C. ARNOLD, Houston, Texas RICHARD A. LARSON, West Bend, Wisconsin JAMES L. BRYAN, Richardson, Texas PRESTON MARTIN, San Francisco, California DAVID L. HATFIELD, Kalamazoo, Michigan RICHARD D. PARSONS, New York, New York ELLIOT K. KNUTSON, Seattle, Washington EDMOND M. SHANAHAN, Chicago, Illinois JOHN WM. LAISLE, Oklahoma City, Oklahoma WOODBURY C. TITCOMB, Worcester, Massachusetts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A80 Federal Reserve Board Publications For ordering assistance, write PUBLICATIONS SERVICES, THE U.S. ECONOMY IN AN INTERDEPENDENT WORLD: A MS-138, Board of Governors of the Federal Reserve System, MULTICOUNTRY MODEL, May 1984. 590 pp. $14.50 each. Washington, D.C. 20551 or telephone (202) 452-3244 or FAX WELCOME TO THE FEDERAL RESERVE. March 1989. 14 pp. (202) 728-5886. When a charge is indicated, payment should INDUSTRIAL PRODUCTION—1986 EDITION. December 1986. accompany request and be made payable to the Board of 440 pp. $9.00 each. Governors of the Federal Reserve System. Payment from foreignF INANCIAL FUTURES AND OPTIONS IN THE U.S. ECONOMY. residents should be drawn on a U. S. bank. December 1986. 264 pp. $10.00 each. FINANCIAL SECTORS IN OPEN ECONOMIES: EMPIRICAL ANALY- SIS AND POLICY ISSUES. August 1990.608 pp. $25.00 each. THE FEDERAL RESERVE SYSTEM—PURPOSES AND FUNCTIONS. 1984. 120 pp. ANNUAL REPORT. ANNUAL REPORT: BUDGET REVIEW, 1990-91. CONSUMER EDUCATION PAMPHLETS FEDERAL RESERVE BULLETIN. Monthly. $25.00 per year or Short pamphlets suitable for classroom use. Multiple copies are $2.50 each in the United States, its possessions, Canada, available without charge. and Mexico. Elsewhere, $35.00 per year or $3.00 each. ANNUAL STATISTICAL DIGEST 1974-78. 1980. 305 pp. $10.00 per copy. Consumer Handbook on Adjustable Rate Mortgages 1981. 1982. 239 pp. $ 6.50 per copy. Consumer Handbook to Credit Protection Laws 1982. 1983. 266 pp. $ 7.50 per copy. A Guide to Federal Reserve Regulations 1983. 1984. 264 pp. $11.50 per copy. A Guide to Business Credit for Women, Minorities, and Small 1984. 1985. 254 pp. $12.50 per copy. Businesses 1985. 1986. 231 pp. $15.00 per copy. How to File A Consumer Credit Complaint Series on the Structure of the Federal Reserve System 1986. 1987. 288 pp. $15.00 per copy. The Board of Governors of the Federal Reserve System 1987. 1988. 272 pp. $15.00 per copy. The Federal Open Market Committee 1988. 1989. 256 pp. $25.00 per copy. Federal Reserve Bank Board of Directors 1980-89. 1991. 712 pp. $25.00 per copy. Federal Reserve Banks SELECTED INTEREST AND EXCHANGE RATES—WEEKLY SERIES Organization and Advisory Committees OF CHARTS. Weekly. $30.00 per year or $.70 each in the A Consumer's Guide to Mortgage Lock-Ins United States, its possessions, Canada, and Mexico. A Consumer's Guide to Mortgage Settlement Costs Elsewhere, $35.00 per year or $.80 each. A Consumer's Guide to Mortgage Refinancing THE FEDERAL RESERVE ACT and other statutory provisions Home Mortgages: Understanding the Process and Your Right affecting the Federal Reserve System, as amended through August 1990. 646 pp. $10.00. to Fair Lending Making Deposits: When Will Your Money Be Available? REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL When Your Home is on the Line: What You Should Know About RESERVE SYSTEM. Home Equity Lines of Credit ANNUAL PERCENTAGE RATE TABLES (Truth in Lending—Regulation Z) Vol. I (Regular Transactions). 1969.100pp. Vol. II (Irregular Transactions). 1969. 116 pp. Each volume $2.25; 10 or more of same volume to one address, $2.00 PAMPHLETS FOR FINANCIAL INSTITUTIONS each. Introduction to Flow of Funds. 1980. 68 pp. $1.50 each; 10 or Short pamphlets on regulatory compliance, primarily suitable more to one address, $1.25 each. for banks, bank holding companies, and creditors. Federal Reserve Regulatory Service. Looseleaf; updated at least monthly. (Requests must be prepaid.) Limit of fifty copies Consumer and Community Affairs Handbook. $75.00 per year. The Board of Directors' Opportunities in Community Monetary Policy and Reserve Requirements Handbook. Reinvestment $75.00 per year. The Board of Directors' Role in Consumer Law Compliance Securities Credit Transactions Handbook. $75.00 per year. Combined Construction/Permanent Loan Disclosure and The Payment System Handbook. $75.00 per year. Regulation Z Federal Reserve Regulatory Service. 3 vols. (Contains all four Community Development Corporations and the Federal Reserve Handbooks plus substantial additional material.) $200.00 Construction Loan Disclosures and Regulation Z per year. Finance Charges Under Regulation Z Rates for subscribers outside the United States are as followsH ow to Determine the Credit Needs of Your Community and include additional air mail costs: Regulation Z: The Right of Rescission Federal Reserve Regulatory Service, $250.00 per year. The Right to Financial Privacy Act Each Handbook, $90.00 per year. Signature Rules in Community Property States: Regulation B Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A81 Signature Rules: Regulation B 158. THE ADEQUACY AND CONSISTENCY OF MARGIN REQUIRE- Timing Requirements for Adverse Action Notices: Regulation B MENTS IN THE MARKETS FOR STOCKS AND DERIVATIVE What An Adverse Action Notice Must Contain: Regulation B PRODUCTS, by Mark J. Warshawsky with the assistance of Understanding Prepaid Finance Charges: Regulation Z Dietrich Earnhart. September 1989. 23 pp. 159. NEW DATA ON THE PERFORMANCE OF NONBANK SUB- SIDIARIES OF BANK HOLDING COMPANIES, by Nellie Liang STAFF STUDIES: Summaries Only Printed in the and Donald Savage. February 1990. 12 pp. Bulletin 160. BANKING MARKETS AND THE USE OF FINANCIAL SER- Studies and papers on economic andfinancial subjects that are of VICES BY SMALL AND MEDIUM-SIZED BUSINESSES, by general interest. Requests to obtain single copies of the full text Gregory E. Elliehausen and John D. Wolken. September or to be added to the mailing list for the series may be sent to 1990. 35 pp. Publications Services. Staff Studies 1-145 are out of print. REPRINTS OF SELECTED Bulletin ARTICLES 146. THE ROLE OF THE PRIME RATE IN THE PRICING OF Some Bulletin articles are reprinted. The articles listed below BUSINESS LOANS BY COMMERCIAL BANKS, 1977-84, by are those for which reprints are available. Most of the articles Thomas F. Brady. November 1985. 25 pp. reprinted do not exceed twelve pages. 147. REVISIONS IN THE MONETARY SERVICES (DIVISIA) IN- DEXES OF THE MONETARY AGGREGATES, by Helen T. Farr Limit of ten copies and Deborah Johnson. December 1985. 42 pp. 148. THE MACROECONOMIC AND SECTORAL EFFECTS OF THE Recent Developments in the Bankers Acceptance Market. 1/86. ECONOMIC RECOVERY TAX ACT: SOME SIMULATION The Use of Cash and Transaction Accounts by American RESULTS, by Flint Brayton and Peter B. Clark. December Families. 2/86. 1985. 17 pp. Financial Characteristics of High-Income Families. 3/86. 149. THE OPERATING PERFORMANCE OF ACQUIRED FIRMS IN Prices, Profit Margins, and Exchange Rates. 6/86. BANKING BEFORE AND AFTER ACQUISITION, by Stephen Agricultural Banks under Stress. 7/86. A. Rhoades. April 1986. 32 pp. Foreign Lending by Banks: A Guide to International and U.S. 150. STATISTICAL COST ACCOUNTING MODELS IN BANKING: Statistics. 10/86. A REEXAMINATION AND AN APPLICATION, by John T. Recent Developments in Corporate Finance. 11/86. Rose and John D. Wolken. May 1986. 13 pp. Measuring the Foreign-Exchange Value of the Dollar. 6/87. 151. RESPONSES TO DEREGULATION : RETAIL DEPOSIT PRICING Changes in Consumer Installment Debt: Evidence from the 1983 FROM 1983 THROUGH 1985, by Patrick I. Mahoney, Alice and 1986 Surveys of Consumer Finances. 10/87. P. White, Paul F. O'Brien, and Mary M. McLaughlin. Home Equity Lines of Credit. 6/88. January 1987. 30 pp. Mutual Recognition: Integration of the Financial Sector in the 152. DETERMINANTS OF CORPORATE MERGER ACTIVITY: A European Community. 9/89. REVIEW OF THE LITERATURE, by Mark J. Warshawsky. The Activities of Japanese Banks in the United Kingdom and in April 1987. 18 pp. the United States, 1980-88. 2/90. 153. STOCK MARKET VOLATILITY, by Carolyn D. Davis and Industrial Production: 1989 Developments and Historical Alice P. White. September 1987. 14 pp. Revision. 4/90. 154. THE EFFECTS ON CONSUMERS AND CREDITORS OF U.S. International Transactions in 1989. 5/90. PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES, Recent Developments in Industrial Capacity and Utilization. by Glenn B. Canner and James T. Fergus. October 1987. 6/90. 26 pp. Developments Affecting the Profitability of Commercial Banks. 155. THE FUNDING OF PRIVATE PENSION PLANS, by Mark J. 7/90. Warshawsky. November 1987. 25 pp. Recent Developments in Corporate Finance. 8/90. 156. INTERNATIONAL TRENDS FOR U.S. BANKS AND BANKING U.S. Exchange Rate Policy: Bretton Woods to Present. 11/90. MARKETS, by James V. Houpt. May 1988. 47 pp. The Transmission Channels of Monetary Policy: How Have 157. M2 PER UNIT OF POTENTIAL GNP AS AN ANCHOR FOR They Changed? 12/90. THE PRICE LEVEL, by Jeffrey J. Hallman, Richard D. Porter, and David H. Small. April 1989. 28 pp. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A82 ANTICIPATED SCHEDULE OF RELEASE DATES FOR PERIODIC RELEASES - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 1 (PAYMENT MUST ACCOMPANY REQUESTS) Annual Approximate Date of period to which data Weekly Releases rate release days refer • Aggregate Reserves of Depository Institutions and $15.00 Thursday Week ended previous the Monetary Base. H.3 (502) [1.20] Wednesday • Actions of the Board: Applications and Reports $35.00 Friday Week ended previous Saturday Received. H.2 (501) • Assets and Liabilities of Insured Domestically $15.00 Monday Wednesday, 3 weeks earlier Chartered and Foreign Related Banking Institutions. H.8 (510) [1.25] • Factors Affecting Reserves of Depository $15.00 Thursday Week ended previous Institutions and Condition Statement of Federal Wednesday Reserve Banks. H.4.1 (503) [1.11] • Foreign Exchange Rates. H. 10 (512) [3.28] $15.00 Monday Week ended previous Friday • Money Stock, Liquid Assets, and Debt Measures, $35.00 Thursday Week ended Monday of H.6 (508) [1.21] previous week • Selected Borrowings in Immediately Available $15.00 Wednesday Week ended Thursday of Funds of Large Commercial Banks. H.5 (507) previous week [1.13] • Selected Interest Rates. H. 15 (519) [1.35] $15.00 Monday Week ended previous Saturday • Weekly Consolidated Condtion Report of Large $15.00 Friday Wednesday, 1 week earlier Commercial Banks, and Domestic Subsidiaries. H.4.2 (504) [1.26,1.28,1.29, 1.30] Monthly Releases • Consumer Installment Credit. G.19 (421) [1.55, $ 5.00 5th working day of 2nd month previous 1.56] month • Debits and Deposit Turnover at Commercial Banks. $ 5.00 12 of month Previous month G.6 (406) [1.22] • Finance Companies. G.20(422) [1.51,1.52] $ 5.00 5th working day of 2nd month previous month • Foreign Exchange Rates. G.5 (405) [3.28] $5.00 1st of month Previous month • Industrial Production and Capacity Utilization G. 17 Previous month $15.00 Midmonth (419) [2.12, 2.13] • Loans and Securities at all Commercial Banks. G.7 Previous month $ 5.00 3rd week of month (407) [1.23] • Major Nondeposit Funds of Commercial Banks. Previous month $ 5.00 3rd week of month G.10 (411) [1.24] • Research Library-Recent Acquisitions. G. 15 (417) Free of 1st of month Previous month charge • Selected Interest Rates. G.13 (415) [1.35] $5.00 1st Tuesday of Previous month month 1. Release dates are those anticipated or usually met. However, please note that for some releases there is normally a certain variability because of reporting or processing procedures. Moreover, for all series unusual circumstances may, from time to time, result in a release date being later than anticipated. The respective Bulletin tables that report the data are designated in brackets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A83 Annual Approximate Date of period to which data Quarterly Releases rate release days refer • Agricultural Finance Databook. E.15 (125) $ 5.00 End of March January, April, July, and June, September, Ocotber and December • Country Exposure Lending Survey. E. 16 (126) $ 5.00 January, April, Previous quarter July, and October • Flow of Funds Accounts: Seasonally Adjusted $15.00 23rd of February, Previous quarter and Unadjusted. Z.l (780) [1.58,1.59] May, August, and November • Flow of Funds Summary Statistics Z.l (788) $ 5.00 15th of February, Previous quarter [1.57,1.58] May, August, and November • Geographical Distribution of Assets and Liabilities $ 5.00 15th of March, Previous quarter ofMajor Foreign Branches ofU.S. Banks. E.ll June, September, (121) and December • Survey of Terms of Bank Lending to Business. E. 2 $ 5.00 Midmonth of February, May, August, and (111) [1.34] March, June, November September, and December • List of OTC Margin Stocks. E.7 (117) $ 5.00 January, April, February, May, August, and July, and November October Semiannual Releases • Balance Sheets for the U.S. Economy. C.9 (108) $ 5.00 October and April Previous year • Report on the Terms of Credit Card Plans. E.5 $ 5.00 March and August January and June (115) Annual Releases • Aggregate Summaries of Annual Surveys of $ 5.00 February End of previous June Securities Credit Extension. C. 2 (101) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A84 Index to Statistical Tables References are to pages A3-A75 although the prefix "A" is omitted in this index ACCEPTANCES, bankers (See Bankers acceptances) Demand deposits Agricultural loans, commercial banks, 19,20 Banks, by classes, 18-21 Assets and liabilities (See also Foreigners) Ownership by individuals, partnerships, and corporations, 21 Banks, by classes, 18-20 Turnover, 15 Domestic finance companies, 35 Depository institutions Federal Reserve Banks, 10 Reserve requirements, 8 Financial institutions, 25 Reserves and related items, 3, 4, 5,12 Foreign banks, U.S. branches and agencies, 21, 72-75 Deposits (See also specific types) Automobiles Banks, by classes, 3, 18-20, 21 Consumer installment credit, 38, 39 Federal Reserve Banks, 4,10 Production, 48, 49 Turnover, 15 Discount rates at Reserve Banks and at foreign central banks and foreign countries (See Interest rates) BANKERS acceptances, 9, 22, 23 Discounts and advances by Reserve Banks (See Loans) Bankers balances, 18-20. (See also Foreigners) Dividends, corporate, 34 Bonds (See also U.S. government securities) New issues, 33 EMPLOYMENT, 46 Rates, 23 Eurodollars, 23 Branch banks, 21, 56,72-75 Business activity, nonfinancial, 45 FARM mortgage loans, 37 Business expenditures on new plant and equipment, 34 Federal agency obligations, 4,9, 10,11, 30, 31 Business loans (See Commercial and industrial loans) Federal credit agencies, 32 Federal finance Debt subject to statutory limitation, and types and ownership CAPACITY utilization, 47 of gross debt, 29 Capital accounts Receipts and outlays, 27,28 Banks, by classes, 18 Treasury financing of surplus, or deficit, 27 Federal Reserve Banks, 10 Treasury operating balance, 27 Central banks, discount rates, 68 Federal Financing Bank, 27, 32 Certificates of deposit, 23 Federal funds, 6, 17, 19,20,21,23,27 Commercial and industrial loans Federal Home Loan Banks, 32 Commercial banks, 16, 19, 72-73 Federal Home Loan Mortgage Corporation, 32, 36, 37 Weekly reporting banks, 19-21 Federal Housing Administration, 32, 36, 37 Commercial banks Federal Land Banks, 37 Assets and liabilities, 18-20, 72-75 Federal National Mortgage Association, 32, 36, 37 Commercial and industrial loans, 16, 18, 19, 20,21, 72-75 Federal Reserve Banks Consumer loans held, by type and terms, 38, 39 Condition statement, 10 Loans sold outright, 19 Discount rates (See Interest rates) Nondeposit funds, 17 U.S. government securities held, 4, 10, 11, 29 Real estate mortgages held, by holder and property, 37 Federal Reserve credit, 4, 5,10,11 Time and savings deposits, 3 Federal Reserve notes, 10 Commercial paper, 22, 23, 35 Federal Savings and Loan Insurance Corporation insured Condition statements (See Assets and liabilities) institutions, 25 Construction, 45, 50 Federally sponsored credit agencies, 32 Consumer installment credit, 38, 39 Finance companies Consumer prices, 45, 47 Assets and liabilities, 35 Consumption expenditures, 52, 53 Business credit, 35 Corporations Loans, 38, 39 Nonfinancial, assets and liabilities, 34 Paper, 22,23 Profits and their distribution, 34 Financial institutions Security issues, 33, 66 Loans to, 19,20, 21 Cost of living (See Consumer prices) Selected assets and liabilities, 25 Credit unions, 28, 38. (See also Thrift institutions) Float, 4 Currency and coin, 18 Flow of funds, 40, 42, 43, 44 Currency in circulation, 4, 13 Foreign banks, assets and liabilities of U.S. branches and Customer credit, stock market, 24 agencies, 21, 72-75 Foreign currency operations, 10 Foreign deposits in U.S. banks, 4,10, 19, 20 DEBITS to deposit accounts, 14 Foreign exchange rates, 69 Debt (See specific types of debt or securities) Foreign trade, 55 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A85 Foreigners REAL estate loans Claims on, 56, 58, 61, 62,63, 65 Banks, by classes, 16, 19,20, 37, 74 Liabilities to, 20, 55, 56, 58, 59, 64, 66, 67 Financial institutions, 25 Terms, yields, and activity, 36 GOLD Type of holder and property mortgaged, 37 Certificate account, 10 Repurchase agreements, 6,17, 19, 20, 21 Stock, 4,55 Reserve requirements, 8 Government National Mortgage Association, 32, 36, 37 Reserves Gross national product, 52 Commercial banks, 18 Depository institutions, 3, 4, 5, 12 Federal Reserve Banks, 10 HOUSING, new and existing units, 50 U.S. reserve assets, 55 Residential mortgage loans, 36 INCOME, personal and national, 45, 52, 53 Retail credit and retail sales, 38, 39, 45 Industrial production, 45, 48 Installment loans, 38, 39 Insurance companies, 25, 29, 37 SAVING Interest rates Flow of funds, 40, 42, 43,44 Bonds, 23 National income accounts, 52 Consumer installment credit, 39 Savings and loan associations, 25, 37, 38, 40. (See also Thrift Federal Reserve Banks, 7 institutions) Foreign central banks and foreign countries, 68 Savings banks, 25, 37, 38 Money and capital markets, 23 Savings deposits (See Time and savings deposits) Mortgages, 36 Securities (See also specific types) Prime rate, 22 Federal and federally sponsored credit agencies, 32 International capital transactions of United States, 54-68 Foreign transactions, 66 International organizations, 58, 59, 61, 64, 65 New issues, 33 Inventories, 52 Prices, 24 Investment companies, issues and assets, 34 Special drawing rights, 4, 10, 54, 55 Investments (See also specific types) State and local governments Banks, by classes, 18, 19, 20,21, 25 Deposits, 19, 20 Commercial banks, 3,16, 18-20, 37 Holdings of U.S. government securities, 29 Federal Reserve Banks, 10, 11 New security issues, 33 Financial institutions, 25, 37 Ownership of securities issued by, 19,20, 25 Rates on securities, 23 LABOR force, 46 Stock market, selected statistics, 24 Life insurance companies (See Insurance companies) Stocks (See also Securities) Loans (See also specific types) New issues, 33 Banks, by classes, 18-20 Prices, 24 Commercial banks, 3, 16, 18-20 Student Loan Marketing Association, 32 Federal Reserve Banks, 4, 5, 7, 10,11 Financial institutions, 25, 37 TAX receipts, federal, 28 Insured or guaranteed by United States, 36, 37 Thrift institutions, 3. (See also Credit unions and Savings and loan associations) MANUFACTURING Time and savings deposits, 3, 13, 17, 18, 19, 20, 21 Capacity utilization, 47 Trade, foreign, 55 Production, 47,49 Treasury cash, Treasury currency, 4 Margin requirements, 24 Treasury deposits, 4, 10, 27 Member banks (See also Depository institutions) Treasury operating balance, 27 Federal funds and repurchase agreements, 6 Reserve requirements, 8 UNEMPLOYMENT, 46 Mining production, 49 U.S. government balances Mobile homes shipped, 50 Commercial bank holdings, 18,19, 20 Monetary and credit aggregates, 3, 12 Treasury deposits at Reserve Banks, 4, 10, 27 Money and capital market rates, 23 U.S. government securities Money stock measures and components, 3,13 Bank holdings, 18-20, 21,29 Mortgages (See Real estate loans) Dealer transactions, positions, and financing, 31 Mutual funds, 34 Federal Reserve Bank holdings, 4, 10, 11, 29 Mutual savings banks (See Thrift institutions) Foreign and international holdings and transactions, 10,29, 67 NATIONAL defense outlays, 28 Open market transactions, 9 National income, 52 Outstanding, by type and holder, 25,29 Rates, 23 OPEN market transactions, 9 U.S. international transactions, 54-68 Utilities, production, 49 PERSONAL income, 53 Prices VETERANS Administration, 36, 37 Consumer and producer, 45, 51 Stock market, 24 Prime rate, 22 WEEKLY reporting banks, 19-21 Producer prices, 45, 51 Wholesale (producer) prices, 45, 51 Production, 45, 48 Profits, corporate, 34 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A86 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 Richard N. Cooper Richard F. Syron Jerome H. Grossman Robert W. Eisenmenger NEW YORK* 10045 Cyrus R.Vance E. Gerald Corrigan Ellen V. Futter James H. Oltman Buffalo 14240 Mary Ann Lambertsen James O. Aston PHILADELPHIA 19105 Peter A. Benoliel Edward G. Boehne Jane G. Pepper William H. Stone, Jr. CLEVELAND* 44101 John R.Miller W. LeeHoskins A. William Reynolds William H. Hendricks Cincinnati 45201 Kate Ireland Charles A. Cerino1 Pittsburgh 15230 Robert P. Bozzone Harold J. Swart1 RICHMOND* 23219 Anne Marie Whittemore Robert P. Black Henry J. Faison Jimmie R. Monhollon Baltimore 21203 John R. Hardesty, Jr. Ronald B. Duncan1 Charlotte 28230 Anne M. Allen Albert D. Tinkelenberg1 Culpeper Communications John G. Stoides1 and Records Center 22701 ATLANTA 30303 Larry L. Prince Robert P. Forrestal Edwin A. Huston Jack Guynn Donald E. Nelson1 Birmingham 35283 Roy D.Terry FredR. Herr1 Jacksonville 32231 Hugh M. Brown James D. Hawkins1 Miami 33152 Dorothy C. Weaver James T. Curry III Nashville 37203 Shirley A. Zeitlin Melvyn K. Purcell New Orleans 70161 Vacancy Robert J. Musso CHICAGO* 60690 Charles S. McNeer Silas Keehn Richard G. Cline Daniel M. Doyle Detroit 48231 Phyllis E. Peters Roby L.Sloan1 ST. LOUIS 63166 H. Edwin Trusheim Thomas C. Melzer Robert H. Quenon James R. Bo wen Little Rock 72203 Wm. Earle Love Karl W. Ashman Louisville 40232 Lois H.Gray Howard Wells Memphis 38101 Katherine H. Smythe Ray Laurence MINNEAPOLIS 55480 Delbert W. Johnson Gary H. Stern Gerald A. Rauenhorst Thomas E. Gainor Helena 59601 James E.Jenks John D. Johnson KANSAS CITY 64198 Fred W. Lyons, Jr. Roger Guffey Burton A. Dole, Jr. Henry R. Czerwinski Denver 80217 Barbara B. Grogan Kent M.Scott Oklahoma City 73125 Ernest L. Holloway David J. France Omaha 68102 Herman Cain Harold L. Shewmaker DALLAS 75222 Hugh G. Robinson Robert D. McTeer, Jr. Leo E. Linbeck, Jr. Tony J. Salvaggio El Paso 79999 W. Thomas Beard, III Sammie C. Clay Houston 77252 Gilbert D. Gaedcke, Jr. Robert Smith, III1 San Antonio 78295 Roger R. Hemminghaus Thomas H. Robertson SAN FRANCISCO 94120 Robert F. Erburu Robert T. Parry Carolyn S. Chambers Carl E. Powell Los Angeles 90051 Yvonne B. Burke Thomas C. Warren2 Portland 97208 William A Hilliard Leslie R. Watters Salt Lake City 84125 D.N.Rose Andrea P. Wolcott Seattle 98124 Bruce R. Kennedy Gerald R. Kelly1 •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 FR1. ASSenEioRr Vice President. 2. Executive Vice President. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A87 The Federal Reserve System Boundaries of Federal Reserve Districts and Their Branch Territories Melt*, Minneapolis <L Chicago j Omaha* r?"C(Sco ® Deiiv Kansas City tfichj??! iL W/ r r, ... ^fj.ar/offe "ge/es Oklahoma Cityi little Rock Birmingham Dallas® t ) ® EiKii "1 , Houston| ^Orleen* San Antonio I Mi""' April 1914 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

Federal Reserve Statistical Releases Available on the Commerce Department's Electronic Bulletin Board The Board of Governors of the Federal Reserve scription. For further information regarding a System makes some of its statistical releases avail- subscription to the electronic bulletin board, able to the public through the U.S. Department of please call (703) 487-4630. The releases transmit- Commerce's electronic bulletin board. Computer ted to the electronic bulletin board, on a regular access to the releases can be obtained by sub- basis, are the following: Reference Number Statistical release Frequency of release H.3 Aggregate Reserves Weekly/Thursday H. 4.1 Factors Affecting Reserve Balances Weekly /Thursday H.6 Money Stock Weekly/Thursday H. 8 Assets and Liabilities of Insured Domestically Chartered Weekly/Monday and Foreign Related Banking Institutions H. 10 Foreign Exchange Rates Weekly/Monday H.15 Selected Interest Rates Weekly/Monday G.5 Foreign Exchange Rates Monthly/end of month G.17 Industrial Production and Capacity Utilization Monthly/midmonth G.19 Consumer Installment Credit Monthly/fifth business day Z.7 Flow of Funds Quarterly Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Publications of Interest FEDERAL RESERVE REGULATORY SERVICE To promote public understanding of its regulatory ings, and staff opinions. Also included is the Board's functions, the Board publishes the Federal Reserve list of OTC margin stocks. Regulatory Service, a three-volume looseleaf service The Consumer and Community Affairs Handbook containing all Board regulations and related statutes, contains Regulations B, C, E, M, Z, AA, and BB, and interpretations, policy statements, rulings, and staff associated materials. opinions. For those with a more specialized interest in The Payment System Handbook deals with expethe Board's regulations, parts of this service are pub- dited funds availability, check collection, wire translished separately as handbooks pertaining to monetary fers, and risk-reduction policy. It includes Regulation policy, securities credit, consumer affairs, and the CC, Regulation J, the Expedited Funds Availability payment system. Act and related statutes, official Board commentary on These publications are designed to help those who Regulation CC, and policy statements on risk reducmust frequently refer to the Board's regulatory mate- tion in the payment system. rials. They are updated at least monthly, and each For domestic subscribers, the annual rate is $200 for contains citation indexes and a subject index. the Federal Reserve Regulatory Service and $75 for The Monetary Policy and Reserve Requirements each Handbook. For subscribers outside the United Handbook contains Regulations A, D, and Q, plus States, the price including additional air mail costs is related materials. For convenient reference, it also $250 for the Service and $90 for each Handbook. All contains the rules of the Depository Institutions De- subscription requests must be accompanied by a check regulation Committee. or money order payable to the Board of Governors of The Securities Credit Transactions Handbook con- the Federal Reserve System. Orders should be adtains Regulations G, T, U, and X, dealing with exten- dressed to Publications Services, mail stop 138, Board sions of credit for the purchase of securities, together of Governors of the Federal Reserve System, Washwith all related statutes, Board interpretations, rul- ington, D.C. 20551. U.S. MONETARY POLICY AND FINANCIAL MARKETS U.S. Monetary Policy and Financial Markets by Ann- context, examining first the evolution of Federal Re- Marie Meulendyke offers an in-depth description of serve monetary policy procedures from their beginthe way monetary policy is developed by the Federal nings in 1914 to the end of the 1980s. It indicates how Open Market Committee and the techniques employed policy operates most directly through the banking to implement policy at the Open Market Trading Desk. system and the financial markets and describes key Written from her perspective as a senior economist in features of both. Finally, the book turns its attention to the Open Market Function at the Federal Reserve the transmittal of monetary policy actions to the U.S. Bank of New York, Ann-Marie Meulendyke describes economy and throughout the world. the tools and the setting of policy, including many of The book is $5.00 a copy for U.S. purchasers and the complexities that differentiate the process from $10.00 for purchasers outside the United States. Copsimpler textbook models. Included is an account of a ies are available from the Public Information Departday at the Trading Desk, from morning information- ment, Federal Reserve Bank of New York, 33 Liberty gathering through daily decisionmaking and the exe- Street, New York, N.Y. 10045. Checks must accomcution of an open market operation. pany orders and should be payable to the Federal The book also places monetary policy in a broader Reserve Bank of New York in U.S. dollars. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis