Federal Reserve Bulletin, 1993-05

VOLUME 79 • NUMBER 5 • MAY 1993 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 • Richard Spillenkothen • 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 379 U.S. INTERNATIONAL TRANSACTIONS Corrigan, President, New York Federal IN 1992 Reserve Bank; Edward G. Boehne, President Philadelphia Federal Reserve Bank; Jerry L. After declining in each of the previous four Jordan, President, Cleveland Federal Reserve years, the U.S. current account deficit widened Bank; J. Alfred Broaddus, Jr., President, Richsubstantially in 1992. A larger merchandise mond Federal Reserve Bank; Robert P. trade deficit and the end of cash contributions Forrestal, President, Atlanta Federal Reserve by foreign governments to help finance the Bank; Silas Keehn, President, Chicago Fed- Persian Gulf War accounted for most of the eral Reserve Bank; Thomas C. Melzer, Presichange. The current account deficit was more dent, St. Louis Federal Reserve Bank; Gary H. than matched by recorded net capital inflows, Stern, President, Minneapolis Federal Reserve and the statistical discrepancy in the U.S. Bank; Thomas M. Hoenig, President, Kansas international transactions accounts was City Federal Reserve Bank; Robert D. negative. McTeer, Jr., President, Dallas Federal Reserve Bank; Robert T. Parry, President, San Fran- 389 INDUSTRIAL PRODUCTION AND cisco Federal Reserve Bank. CAPACITY UTILIZATION 464 Vice Chairman Mullins discusses legislative FOR FEBRUARY 1993 initiatives concerning the government securi- Industrial production rose 0.4 percent in Feb- ties market and says that the apparatus of ruary, for its fifth consecutive monthly gain. reporting requirements in this market that Total industrial capacity utilization increased could be implemented under H.R.618 might 0.2 percentage point, to 79.9 percent, the high- reduce the cost of investigating abuses and est rate since September 1991. facilitate enforcement, but could also boost the cost of every trade and reduce the number of market participants, before the Subcommit- 392 STATEMENTS TO THE CONGRESS tee on Telecommunications and Finance of the David W. Mullins, Jr., Vice Chairman, Board House Committee on Energy and Commerce, of Governors, discusses the credit crunch and March 17, 1993. the availability of credit for small businesses, and says that although loan demand should 466 John P. LaWare, member, Board of Goverrevive and banks have ample liquidity to sup- nors, discusses regulatory burden and says port increased lending, the Federal Reserve is that this burden has become substantial, raisworking actively to identify and eliminate any ing the costs of banking services, and that unwarranted bank regulatory impediments to what is needed is new approaches to regulabusiness lending, before the Senate Commit- tion that are more sensitive to cost-benefit tee on Small Business, March 4, 1993. trade-offs, before the Subcommittee on Commerce, Consumer, and Monetary Affairs of the 395 The presidents of the Federal Reserve District House Committee on Government Operations, Banks discuss regional economic and mone- March 17, 1993. tary conditions before the Senate Committee on Banking, Housing, and Urban Affairs, 469 William J. McDonough, Executive Vice Pres- March 10, 1993: Richard F. Syron, President, ident, Federal Reserve Bank of New York, Boston Federal Reserve Bank; E. Gerald reviews the market surveillance activities of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

the New York Reserve Bank and says that continue to depress the growth of the broad over the past year efforts have been focused measures of money in relation to income in on apparent shortages of specific Treasury secu- 1993. The range for total domestic nonfinanrities and that the Bank will continue to pur- cial debt was left unchanged at 4V2 to 6V2 persue each incident of unusual market activity, cent. In keeping with the Committee's usual before the Subcommittee on Telecommunica- procedures under the Humphrey-Hawkins tions and Finance of the House Committee on Act, the ranges would be reviewed at mid- Energy and Commerce, March 17, 1993. year, or sooner if deemed necessary, in light of the growth and velocity behavior of the 471 Alan Greenspan, Chairman, Board of Goveraggregates and ongoing economic and finannors, discusses the burgeoning federal budget cial developments. deficit, which on a cyclically adjusted or struc- For the intermeeting period ahead, the tural basis has hovered around 3 percent of Committee adopted a directive that called for potential GDP for the past ten years, and says maintaining the existing degree of pressure that unless it is addressed, it will increasingly on reserve positions and that did not include a threaten the stability of our economic system, presumption about the likely direction of any before the Senate Committee on Finance, adjustment to policy over the intermeeting March 24, 1993. period. Accordingly, in the context of the 473 Chairman Greenspan discusses the availabil- Committee's long-run objectives for price staity of bank credit to small businesses and says bility and sustainable economic growth, and that although there has been a substantial giving careful consideration to economic, tightening of lending terms and standards that financial, and monetary developments, the has affected small businesses, banks' attitudes directive indicated that slightly greater or toward loans and risktaking are improving, slightly lesser reserve restraint would be before the House Commitee on Small Busi- acceptable during the intermeeting period. ness, March 25, 1993. The reserve conditions contemplated at this meeting were expected to be consistent with 477 ANNOUNCEMENTS little change in the levels of M2 and M3 over the two-month period from January through Meeting of the Consumer Advisory Council. March. New procedures for processing applications filed by foreign banks. 495 LEGAL DEVELOPMENTS Amendment to Regulation C. Various bank holding company, bank service corporation, and bank merger orders; and Amendment to Regulation DD. pending cases. Changes in Board staff. 553 DIRECTORS OF FEDERAL RESERVE Publication of the 79th Annual Report, 1992 BANKS AND BRANCHES and Annual Report: Budget Review, 1992-93. List of directors by Federal Reserve District. 479 MINUTES OF FEDERAL OPEN MARKET COMMITTEE MEETING A1 FINANCIAL AND BUSINESS STATISTICS At its meeting of February 2-3, 1993, the These tables reflect data available as of Committee reduced its ranges for monetary March 26, 1993. growth in 1993 by Vi percentage point to rates of 2 to 6 percent for M2 and Vi to 4V2 percent A3 GUIDE TO TABULAR PRESENTATION for M3. The reductions did not signal any change in monetary policy but were technical A4 Domestic Financial Statistics in nature and intended to take account of A44 Domestic Nonfinancial Statistics ongoing developments that were expected to A53 International Statistics Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A69 GUIDE TO STATISTICAL RELEASES AND A90 FEDERAL RESERVE BOARD SPECIAL TABLES PUBLICATIONS A84 INDEX TO STATISTICAL TABLES A92 MAPS OF THE FEDERAL RESERVE SYSTEM A86 BOARD OF GOVERNORS AND STAFF A94 FEDERAL RESERVE BANKS, BRANCHES, A88 FEDERAL OPEN MARKET COMMITTEE AND OFFICES AND STAFF; ADVISORY COUNCILS Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. International Transactions in 1992 William L. Helkie, of the Board's Division of for losses caused by hurricanes in the United States International Finance, prepared this article. and its territories. Net investment income receipts declined $6 billion, mostly as a result of larger After declining in each of the previous four years, direct investment payments to foreigners due to the the U.S. current account deficit widened substan- U.S. economic recovery. tially in 1992. A larger merchandise trade deficit The substantial current account deficit was more and the end of one-time cash contributions by than matched by recorded net capital inflows, both foreign governments associated with the Persian official and private. Thus, the statistical discrep- Gulf War accounted for most of the change. Exclud- ancy in the U.S. international transactions accounts ing the change in foreign cash transfers, the current was negative. account deficit increased somewhat less than the trade deficit, owing to a strengthening of net service receipts. Nevertheless, the widening of the MAJOR ECONOMIC INFLUENCES ON current account deficit was dramatic (chart 1). U.S. INTERNATIONAL TRANSACTIONS A $23 billion increase in merchandise exports was more than offset by a $46 billion increase Cyclical movements in economic activity at home in merchandise imports, so that the merchandise and abroad, movements in U.S. international price trade deficit widened for the first time since 1987 competitiveness, and swings in the rates of return (table 1). The end of Gulf War-related cash grants on real and financial assets at home and abroad by foreign governments eliminated a $43 billion significantly influenced U.S. international transacoffset to U.S. unilateral transfers abroad; overall, tions in 1992. The main economic factor in the net transfers swung from an inflow of $8 billion in widening of the external deficit (excluding the tran- 1991 to an outflow of $31 billion in 1992. Net sitory effects of payments for the Persian Gulf service receipts expanded $10 billion in 1992, War) was that economic growth in the United mainly because of reduced payments by the U.S. States exceeded that of its major industrial country military for services purchased abroad and insur- trading partners. ance payments recovered from foreign reinsurers 1. U.S. external balances, 1982-92 Relative Growth Rates Billions of dollars From 1989 through 1991, economic growth abroad on average exceeded growth in the United States (chart 2). U.S. households and businesses struggled to redress structural imbalances generated over the 1980s. Pressures to restructure balance sheets, reinforced by more cautious lending practices of U.S. financial institutions, slowed U.S. economic growth, and the relative slowdown in U.S. growth contributed to the narrowing of the external deficit. During 1992, balance sheet adjustment became less of a restraint on the economy, and U.S. domestic The data are quarterly at seasonally adjusted annual rates. demand rose 3.7 percent. Much of the pickup was SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, U.S. international transactions accounts. in the consumer sector: Private consumption surged Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

380 Federal Reserve Bulletin • May 1993 1. U.S. current account, 1987-92 Billions of dollars Change, Item 1987 1988 1989 1990 1991 1992 1991-92 Goods and services, net -151.3 -114.3 -90.1 -76.8 -28.1 -41.2 -13.0 Merchandise trade balance -159.5 -127.0 -115.9 -108.9 -73.4 -96.3 -22.8 Service transactions, net 8.2 12.7 25.8 32.1 45.3 55.1 9.8 Investment income, net 11.0 12.4 14.3 19.2 16.4 10.1 -6.4 Direct investment, net 30.7 38.7 47.8 54.3 52.9 49.2 -3.7 Portfolio investment, net -19.7 -26.3 -33.5 -35.1 -36.5 -39.1 -2.7 Unilateral transfers, net -23.1 -24.9 -25.6 -32.9 8.0 -31.4 -39.4 Foreign cash grants to the United States .0 .0 .0 17.2 42.5 1.3 -41.2 Other transfers -23.1 -24.9 -25.6 -50.1 -34.5 -32.7 1.8 Current account balance -163.4 -126.7 -101.1 -90.4 -3.7 -62.4 -58.7 MEMO: Current account balance excluding foreign cash grants -163.4 -126.7 -101.1 -107.6 —46.2 -63.7 -17.5 Because of rounding, calculations in this and subsequent tables may not SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, yield results shown. U.S. international transactions accounts. at a 5 percent annual rate during the first quarter, At the same time, a slowdown in economic flattened during the second quarter, and rose more growth in major U.S. export markets restrained than 4 percent at an annual rate during the second exports (table 2). Despite reductions in interest half of the year. Real expenditures on residential rates and other measures taken by some foreign structures also picked up. In addition, real expendi- governments to boost spending and stimulate activtures on business fixed investment rose sharply: ity, average year-over-year growth of the econo- Significant price reductions and the push to acquire mies of the United States' industrial country tradstate-of-the-art technology spurred real outlays for ing partners was a disappointing 1 percent. Among office and computing equipment, and demand for the major foreign industrial countries, only Canada, other machinery began to grow as well, as the pace where the earlier recession had been quite severe, of economic expansion lifted expectations of future showed signs of a moderate pickup in growth, sales, increased profits, and improved cash flow. boosted partly by the U.S. recovery. Growth in As a consequence of the pickup in domestic expen- Japan and Germany, previously fairly strong, weakditures, real merchandise imports during 1992 rose ened significantly. Most other European countries at double-digit rates. also recorded only weak growth. Although departure from the exchange-rate mechanism (ERM) of the European Monetary System in September 2. Growth of real gross domestic product, 1989-92 Percentage change from preceding quarter, annual rate 2. Growth of real gross domestic product in selected foreign economies, 1991 and 1992 Percentage change, year over year Country 1991 19921 Canada -1.7 .9 4.1 1.3 Germany (western) 3.8 1.1 United Kingdom -2.4 -.5 Italy 1.4 1.0 France 1.0 1.7 China 7.0 12.8 Hong Kong 4.2 5.5 1989 1990 1991 1992 8.4 5.0 The data are quarterly at seasonally adjusted annual rates. The GDP for .9 -1.5 foreign countries is the weighted average of the Group of Ten (G-10) countries, 3.6 2.8 other industrial countries, and developing countries. The weights are based on 1. Data for 1992 are partly estimated. U.S. bilateral nonagricultural exports. SOURCES. Various national sources. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. International Transactions in 1992 381 allowed short-term interest rates in Italy and the 3. Change in the consumer price index, 1989-92 United Kingdom to fall, interest rates in Europe on Percentage change, fourth quarter to fourth quarter balance remained fairly high during the year as • United States German authorities sought to blunt inflationary • Foreign pressures. Other factors that appear to have contributed to the generally disappointing demand in industrial countries were persistent low levels of business confidence, continued adjustments of spending to reduce high levels of debt on household and firm balance sheets, a reduced pace of lending in some countries, and worries about problems in the financial sector. 1989 1990 1991 1992 Among U.S. trading partners in developing coun- The CPI for foreign countries is the weighted average of the G-10 countries. tries, economic performance in 1992 appears to The weights are shares in U.S. non-oil imports. have been mixed; on average, however, their growth is estimated to have been stronger than in major foreign industrial countries. Economic activ- moderate. Wage inflation also decelerated in most ity in Asia expanded at a particularly strong 7 per- foreign industrial countries. The main exception to cent annual rate, led by growth in China of nearly the generally deflationary pattern abroad was west- 13 percent. However, output growth fell to rela- era Germany, where inflation remained at about tively low rates on average in countries in the 3% percent and concerns about inflationary pres- Western Hemisphere; growth declined sharply in sures contributed to the reluctance of monetary Brazil as a result of political problems and turned authorities to ease more rapidly. down slightly in Mexico as the authorities sought In nominal terms, the multilateral trade-weighted to limit the current account deficit and further foreign exchange value of the U.S. dollar, meareduce inflation. sured in terms of the other G-10 currencies, rose nearly 6 percent from December 1991 to December 1992. The dollar appreciated over the first three U.S. Price Competitiveness months of 1992 amid expectations of strengthening The change in price competitiveness of U.S. export- economic recovery in the United States. Over the and import-competing industries depends on the summer, however, the dollar declined to a point relative movements of inflation rates here and below the previous year's low, as growth of the abroad and on changes in the foreign exchange U.S. economy was perceived to be more sluggish value of the dollar. Because of relatively tighter than expected and the Federal Reserve eased shortmonetary policies abroad, 1992 inflation rates in term interest rates further. The dollar reversed directhe foreign Group of Ten (G-10) countries were, on tion again in the fall, strengthening sharply in the average, lower than U.S. rates (chart 3). The con- wake of turmoil in the European Monetary System tinuing efforts of U.S. businesses to contain produc- and, more important, on evidence of increased tion costs and boost efficiency were reflected in the momentum of the U.S. economic expansion and U.S. consumer price index rising by just 3.1 per- sluggish conditions in foreign industrial economies. cent for the year. The net rise in the weighted average dollar over However, foreign price inflation fell even further 1992 primarily reflected sharp declines in several in 1992. All major industrial countries operated European currencies and in the Canadian dollar. below their potential rates of output (some consid- Denmark's rejection of the Maastricht Treaty in erably so), and inflation rates were generally mod- early June called into question the future of Euroerate. Average CPI inflation in the foreign G-10 pean monetary and political union and led to prescountries was only 2Vi percent, almost IV2 percent- sures on the ERM. In September, the pressures age points below the 1991 average rate. Pass- intensified enough to force Italy and the United through effects from depreciation of exchange rates Kingdom to withdraw from the ERM, and their in the United Kingdom, Italy, and Canada were currencies depreciated sharply. For the year as a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

382 Federal Reserve Bulletin • May 1993 whole, the Italian lira and the British pound A broad measure of the price competitiveness of declined 20 percent and 18 percent respectively U.S. goods and services is the "real," or "priceversus the U.S. dollar. Several other European cur- adjusted," foreign exchange value of the dollar, rencies, including those of Spain, Portugal, and which is computed as the ratio of U.S. consumer several Scandinavian countries, also depreciated prices to foreign consumer prices translated into sharply against the dollar in the fall. The parity of dollars at current nominal exchange rates (chart 4). the French franc with the German mark was main- U.S. prices have fallen relative to average prices in tained within the ERM, but at the cost of rela- dollars in both foreign G-10 and developing countively high French short-term interest rates in the tries since the mid-1980s. However, because of face of a sluggish French economy and rising developments in foreign exchange markets during unemployment. 1992, primarily during the fourth quarter, the real The dollar fell more than 7 percent on balance value of the dollar against the foreign G-10 currenagainst the German mark from December 1991 to cies ended the year higher than it began. August 1992, as German monetary policy, respond- Another aggregated measure of U.S. export price ing to relatively high German money growth and competitiveness, which gives a somewhat different inflation, remained tight longer than market partici- picture of recent developments, is the ratio of averpants had expected. That rise of the mark was more age consumer prices in dollars in G-10 and develthan reversed over fall and winter, however, as it oping countries to U.S. export prices (chart 5). became clear that German economic activity had From a long-term perspective, fluctuations in nomturned significantly downward and as German inal exchange rates during 1992 did not signifimonetary policy was eased somewhat. cantly affect the improvement in the prices of U.S. The dollar depreciated about 4V2 percent on bal- goods relative to the prices of foreign goods and ance against the yen during 1992, despite a notice- services as they had in earlier periods (that is, able decline in Japanese gross domestic product 1981-85). Some of the improvement is due to the during the second and third quarters and a signifi- decline in prices of traded goods relative to prices cant reduction in Japanese interest rates over the of nontraded goods during recent years. year. The net strengthening of the yen probably was due, at least in part, to market reactions to a substantial widening of Japan's external surplus. DEVELOPMENTS IN MERCHANDISE TRADE The merchandise trade deficit widened to $96 bil- 4. Real exchange value of the dollar against currencies of lion in 1992, up from $73 billion in 1991 (table 3). selected countries, 1982-92 Imports grew almost twice as fast as exports as Index, 1987 = 100 5. Ratio of foreign consumer prices to U.S export prices, 1968-92 Ratio scale, 1987:Q4 = 100 1982 1984 1986 1988 1990 1992 The real exchange value of the dollar is calculated using weighted nominal exchange rates adjusted with weighted consumer prices. The weights in the indexes are proportional to each country's share in world exports plus imports during the years 1972-76. The countries in the G-10 index are Belgium- Luxembourg, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, and the United Kingdom. The countries in the developingcountries index are Brazil, Hong Kong, Korea, Malaysia, Mexico, the Philip- Foreign prices are the weighted average of the G-10 countries expressed in pines, Singapore, and Taiwan. The data are quarterly. dollars. The data are quarterly. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. International Transactions in 1992 383 the economic recovery in the United States gained for about 15 percent of the increase in exported momentum but economic growth in markets for capital goods, but most of the rise occurred in the U.S. exports remained sluggish. Early in the year, first part of the year; deliveries in the second half of the deficit narrowed somewhat when a drop in oil the year were 12 percent less than those in the first prices lowered the value of imports. The deficit half. The value of machinery exports grew 7 perwidened sharply in the second quarter, however, cent; these exports expanded steadily throughout when imports surged and exports remained about the year, with more than 80 percent of the increase unchanged. During the remainder of 1992, both going to developing countries (half the increase to imports and exports continued to grow strongly, Asia and half to Latin America). The rise was and the deficit increased further. strongest in high-tech equipment, especially semiconductors, telecommunications equipment, and computers (including accessories and parts). Exports For automotive products, most of the rise in exported vehicles went to Taiwan, Saudi Arabia, Merchandise exports grew 6V2 percent in real terms Venezuela, and Hong Kong, and most of the over the four quarters of 1992. The increase in increase in exported parts went to Mexico and nominal terms was only slightly less, as prices of Canada. Two-thirds of the increase in exported exports changed very little. Sixty percent of total consumer goods went to developing countries U.S. exports went to industrial countries: 26 per- (largely to countries in Latin America, particularly cent to Western European countries, 21 percent to to Mexico). Canada, 11 percent to Japan, and 2 percent to The value of agricultural exports increased approx- Australia and New Zealand. These countries imately 10 percent in 1992, as deliveries of wheat, accounted for only 15 percent of the growth in U.S. soybeans, meat, and dairy products increased exports, however. Most of the growth in exports sharply. U.S. government programs (that is, loan was due to increased shipments to developing guarantees and donations) pushed up shipments of countries in Latin America and Asia. wheat and dairy products to countries in Eastern About three-fourths of the increase in exports Europe and the former Soviet Union. Wheat shipwas in capital goods and automotive products, and ments to these two areas were especially strong more than one-third of the rise was in consumer during the first half of 1992, whereas dairy shipgoods and agricultural products. Aircraft accounted ments to these areas were largest during the second 3. U.S. merchandise trade, 1990-92 Billions of dollars, seasonally adjusted 1991 1992 IItteemm 11999900 11999911 11999922 Q4 Ql Q2 Q3 Q4 Merchandise trade balance -109 -73 -96 -19 -18 -25 -28 -26 Exports 389 416 439 108 108 107 110 114 Agricultural 40 40 44 11 11 10 11 11 Nonagricultural 349 376 395 97 97 97 99 103 Capital goods 153 167 177 44 44 43 43 46 Automotive products 37 40 47 10 11 11 12 13 Consumer goods 43 46 50 12 12 12 13 13 Industrial supplies 97 102 102 25 25 25 26 26 All other exports 19 21 20 6 5 5 5 Imports 498 489 536 126 125 132 138 140 Petroleum and products 62 51 51 12 10 13 14 14 Nonpetroleum 435 438 484 114 115 119 123 127 Computers 23 26 32 7 7 8 9 9 Other capital goods 93 95 103 24 24 25 26 27 Consumer goods 105 108 123 30 29 30 32 32 Automotive products 88 85 91 22 22 22 23 24 Industrial supplies 83 81 88 21 21 22 22 23 Foods and other imports 44 44 47 11 11 12 12 12 SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, U.S. international transactions accounts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

384 Federal Reserve Bulletin • May 1993 half of the year. Exports of soybeans were particu- Imports of automotive products rose 7 percent. larly strong in the third quarter because of a bunch- About 50 percent of the increase came from Caning of shipments to Japan, Mexico, and China. ada (two-thirds vehicles, one-third parts), and Increased exports of meat went mostly to Japan another 30 percent came from Mexico (almost and Mexico. entirely parts). The remaining increase came mainly from Germany (almost entirely vehicles). The value of automotive imports from Japan was Imports about the same in 1992 as in 1991. Imported industrial supplies (other than oil) were During 1992, merchandise imports grew 11 percent 9 percent higher in 1992 than in 1991. Categories in real terms. As with exports, the increase was recording increases outnumbered those showing about the same in nominal terms, as prices of declines. Some of the larger increases were in imports on average changed little during the year. lumber, steel, chemicals, natural gas, and miscella- Although all major categories of imports rose, neous supplies; the larger declines were recorded in nearly two-thirds of the increase was in capital newsprint and metals. goods and consumer goods. Somewhat smaller In 1992, 60 percent of U.S. non-oil imports came increases were recorded for automotive products from industrial countries (about 20 percent each and industrial supplies. The value of imported oil from Canada, Western Europe, and Japan). Non-oil rose only slightly. imports from these countries grew 8 percent and The value of imported capital goods, increasing accounted for more than 45 percent of the increase steadily throughout the year, rose 11 percent. As in imports in 1992. Imports from developing counwith exports, the strongest increases were in high- tries in Asia and Latin America expanded 15 pertech equipment. Computers (including accessories cent, with the largest increases coming from China and parts) accounted for more than 40 percent of and Mexico. the increase in the value of imported capital goods; The value of oil imports increased only slightly, the increase came largely from Japan and develop- as a gain in oil consumption resulting from the ing countries in Asia. U.S. domestic sales of com- rebound in economic activity was roughly offset by puters were very strong beginning in the summer, a decline in the price of imported oil. As a result of fueled by price wars and a push by U.S. businesses mild winter weather and strong OPEC production, to upgrade personal computers and workstations to oil prices began the year at relatively depressed take advantage of improvements in software. Most levels—approximately $19.00 per barrel for spot of the sales were at the lower end of the spectrum West Texas intermediate (WTI) (chart 6). Spot of computer products—items that are often prices of WTI rose from March through June when imported. Excluding computers, imports of capital OPEC restrained output and oil market participants goods rose 8 percent, led by semiconductors, telecommunications equipment, business equipment, 6. Oil prices, 1982-92 and aircraft (including engines and parts). Imported aircraft came mainly from France, the Netherlands, Dollars per barrel and the United Kingdom. Imported consumer goods rose 14 percent. Most of the increase occurred during the second half of the year as the U.S. economy began to pick up more strongly: Imports surged during the third quarter and eased slightly during the fourth. Thirtythree percent of the increase in consumer goods imports came from China, and another 45 percent came from other developing countries in Asia and Latin America; Western Europe and Canada together contributed another 18 percent of the SOURCE. Petroleum Intelligence Weekly, various issues, and U.S. Department increase, and Japan contributed 4 percent. of Commerce, Bureau of Economic Analysis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. International Transactions in 1992 385 perceived a shift in Saudi Arabian pricing policy in for damage caused by Hurricanes Andrew and Iniki light of European Community proposals for a car- in late August and mid-September. However, areas bon tax. The pickup in U.S. economic activity that had provided a solid boost to net service helped keep prices firm through October as the receipts in earlier years, such as travel, passenger continued absence of Iraq left the oil market with fares, and business, professional, and technical serlittle excess capacity. Mild weather in the fourth vices, increased very little, on net (table 5). quarter, coupled with production increases by Saudi The slowdown in industrial economies abroad Arabia, Iran, and Kuwait, pushed prices down restrained not only transportation service receipts almost continuously through December, with spot but also receipts from foreigners for other services. WTI prices at the turn of the year just above $19.00 After increasing in the first quarter of 1992, receipts per barrel, essentially where they had been at the from foreign travelers in the United States leveled beginning of 1992. Near the end of January 1993, off before picking up in the fourth quarter. The spot WTI prices rose to more than $20.00 per depreciation of the U.S. dollar during the middle barrel as OPEC appeared ready to rein in produc- of the year held down payments by U.S. travelers tion. Since then, spot WTI prices have fluctuated abroad as well. between $19 and $21 per barrel as market percep- Transfers under U.S. military sales contracts tions of the adequacy of OPEC production cuts (exports) were about the same in 1992 as they were have changed. a year earlier; after being especially high in the In three of the four quarters of 1992, the quantity fourth quarter of 1991 and the first quarter of 1992 of oil imports posted increases relative to 1991 because of a bunching of aircraft deliveries, milirates. The increases resulted from growing con- tary exports declined during the remainder of sumption (triggered by increased U.S. economic the year. Military expenditures abroad (imports) activity) and declining domestic oil production. For the year as a whole, consumption increased 0.3 million barrels per day while production fell 0.2 mil- 5. U.S. service transactions, 1989-92 lion barrels per day. Since 1985, U.S. oil produc- Billions of dollars tion has generally been falling, with a temporary increase in 1991 brought about by the large gain in Item 1989 1990 1991 1992 Change, 1991-92 oil prices during the Persian Gulf crisis. In 1992, Service transactions, net 26 32 45 55 10 U.S. oil production resumed the downward course Military, net -7 -8 -6 -3 3 typical of mature oil exploration areas (table 4). Insurance, net 1 -0 -1 2 3 Other service transactions, net 32 40 51 55 4 Wmm Service receipts 127 149 164 179 15 Military sales 9 10 11 11 0 DEVELOPMENTS IN TRADE IN SERVICES Insurance receipts, net1 2 2 2 2 0 Other service receipts 117 137 151 165 14 Travel and passenger Net receipts from service transactions increased fares 47 59 64 72 7 Transportation 21 23 24 25 1 $10 billion in 1992. Most of the change occurred as Royalties and license fees .. 13 16 18 17 -1 payments by the U.S. military for services provided Business, professional, and technical by foreigners declined $3 billion and as $4 billion services 6 7 10 11 1 Other service receipts 30 32 35 41 6 of insurance was recovered from foreign reinsurers Service payments 101 117 118 123 5 Military payments 15 18 16 13 -3 Insurance payments, net2 1 2 3 0 -3 4. U.S. oil consumption, production, and imports, Other service payments 85 97 99 110 10 Travel and passenger selected years, 1980-92 fares 42 48 48 55 8 Millions of barrels per day Transportation 21 23 23 23 0 Royalties and license fees .. 3 3 4 4 0 Business, professional, Item 1980 1985 1990 1991 1992 P and technical services 2 2 3 3 0 Consumption 17.1 15.7 17.0 16.7 17.0 Other service payments 18 21 22 24 2 Production 10.8 11.2 9.7 9.9 9.7 Imports 6.9 5.1 8.0 7.6 7.9 1. Premiums received less losses paid. 2. Premiums paid less losses recovered. p Preliminary. SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, SOURCE. U.S. Department of Energy, Energy Information Administration. U.S. international transactions accounts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

386 Federal Reserve Bulletin • May 1993 dropped $3 billion in 1992; key components such 6. U.S. net investment income, 1989-92 as expenditures by U.S. military personnel on for- Billions of dollars eign services and expenditures for petroleum Item 1989 1990 1991 1992 declined rapidly, the decline reflecting the sizable reduction of U.S. forces abroad. The pace of Investment income, net 14 19 16 10 decline for military imports was slowed by a con- Direct investment income, net 48 54 53 49 Receipts 54 55 49 50 tinuing relatively strong level of expenditures on Payments 7 1 -4 0 contractual services. Portfolio investment income, net ... -33 -35 -36 -39 Losses recovered from foreign reinsurers for Receipts 86 88 76 60 Private 81 78 68 53 damage caused by Hurricanes Andrew and Iniki Government 6 11 8 6 Payments 120 123 113 99 increased net insurance receipts in the third quarter Private 84 85 74 60 of 1992. (The full amount of recoveries is recorded Government 36 38 39 39 on an accrual basis when disasters occur, rather SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, U.S. international transactions accounts. than when claims are presented to the insurance companies. Net insurance transactions are part of "other private services" in the current account). The amount of insurance recovered from foreign Direct investment receipts from U.S.-owned affilcompanies reduced recorded service payments, as iates abroad rose slightly in 1992, to $50 billion. total insurance payments are calculated as premi- Increased profits in other industries offset the ums paid less losses recovered. downturn in manufacturing and oil industries. Net income on portfolio investments (private plus government) fell $3 billion, despite a large decrease in interest rates. Portfolio investment NONTRADE CURRENT ACCOUNT receipts from foreigners amounted to $60 billion, TRANSACTIONS $16 billion less than in 1991. Portfolio income payments to foreigners also declined, but by a In 1992, the U.S. current account recorded, besides lesser amount—about $14 billion. A decrease in the $41 billion decline in foreign cash grants to the interest rates usually reduces both receipts and United States to help finance the Persian Gulf War, payments on portfolio investments; however, for a $6 billion decline in net investment income and a the United States an interest rate decline reduces $2 billion rise in other net transfers. income payments more than receipts because the United States has a net recorded liability position in portfolio capital. Had the U.S. net portfolio Investment Income position been unchanged in 1992 from the level recorded at the end of 1991, the decline in interest Net investment income fell. Net income from both rates by itself would have reduced net income direct and portfolio investments contributed to the payments roughly $4 billion. But in 1992 the net decline (table 6). portfolio position deteriorated significantly, and the The recovery in direct investment payments by deterioration more than accounted for the $3 billion foreign-owned subsidiaries in the United States decline in net portfolio income during the year. accounted for the moderate $4 billion decline in net direct investment income in 1992; the unprecedented net losses in 1991 were turned around to Unilateral Transfers small net profits of $0.4 billion. The swing resulted primarily from a cyclical improvement in profits of The conclusion of transactions relating to the Persubsidiaries in manufacturing and the end of losses sian Gulf War greatly affected net unilateral transreported by foreign-owned banks and insurance fers, as foreign cash grants to the United States to companies. However, the level of direct investment help finance the war declined $41 billion. At the payments was far from the peak of $12 billion same time, U.S. government grants to foreign counreached in 1988. tries rose. A large part of the increase went to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. International Transactions in 1992 387 Israel, the result of both additional grants to finance foreign-related banks, more than accounted for the military purchases and adjustments to the disburse- net inflow. The inflow coincided in general with an ment schedule; part of the grants that normally expansion of U.S. assets at foreign-related banks would have been disbursed in the fourth quarter of other than those based in Japan. In 1991, in con- 1991 were postponed until the second quarter of trast, foreign-based banks, spurred by a change in 1992, and the full amount of grants for fiscal year reserve requirements, had rapidly expanded their 1994 were paid out in the fourth quarter of 1992. large time deposits in the United States and relied Another reason for the increase in net unilateral less on inflows from abroad to finance asset growth. transfers was larger contributions to meet the U.S. Moreover, in 1991 demand for funds in the Euroshare of expanded peacekeeping operations. markets had been strong because of borrowing by certain countries to fund contributions to the cost of Desert Storm. CAPITAL ACCOUNT TRANSACTIONS AND THE Securities transactions, reflecting the continued STATISTICAL DISCREPANCY growing internationalization of financial markets, also contributed to the net inflow of capital in 1992. In 1992, the U.S. current account deficit was sub- Foreigners added substantially to their holdings of stantial, net capital inflows were even larger than U.S. government and corporate bonds. In contrast, the current account deficit, and the statistical dis- they made net sales of U.S. equities. U.S. net purcrepancy was significantly negative (table 7). In chases of foreign stocks and bonds were very contrast, the U.S. current account deficit, net capital strong, accompanied by a record pace for foreign flows, and the statistical discrepancy in 1991 had bond issues in the United States. been close to zero. U.S. direct investment abroad was very strong in Substantial inflows were recorded for both offi- 1992, up from 1991. Outflows to Latin America cial and private capital. Foreign official holdings in and Asia grew, and outflows to Europe were subthe United States increased $40 billion, more than stantial. Foreign direct investment in the United double the increase in 1991. Inflows from both States, however, remained depressed, far below the industrial and other countries were substantial. peak of almost $70 billion in 1989. Merger and The net inflow of private capital in 1992, $32 bil- acquisition activity in the United States has generlion, is in contrast to 1991, when private capital ally fallen from the highs of the 1980s, and foreign had recorded a net outflow. Banks, particularly investors in particular may have been discouraged 7. Composition of U.S. capital flows, 1988-92 Billions of dollars Item 1988 1989 1990 1991 1992 Current account balance -127 -101 -90 -4 -62 Official capital, net 39 -16 34 28 43 Foreign official assets in the United States 40 9 34 18 40 U.S. official reserve assets -4 -25 -2 6 4 Other U.S. government assets 3 1 2 3 -1 Private capital, net 88 114 9 -23 32 Net inflows reported by U.S. banking offices 14 12 24 -18 47 Securities transactions, net 35 42 -35 7 14 Private foreign net purchases of the following: U.S. Treasury securities 20 30 -3 16 35 U.S. corporate bonds1 23 27 11 27 32 U.S. corporate stocks -1 7 -15 9 -5 U.S. net purchases of foreign securities -8 -22 -29 -45 -49 Direct investment, net 45 43 17 -17 -37 Foreign direct investment in the United States 57 68 45 12 -4 U.S. direct investment abroad1 -12 -25 -28 -28 -33 Other -7 17 2 5 8 Statistical discrepancy 0 2 47 -1 -13 1. Transactions with finance affiliates in the Netherlands Antilles have SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, been excluded from direct investment outflows and added to foreign pur- U.S. international transactions accounts, chases of U.S. securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

388 Federal Reserve Bulletin • May 1993 by the disappointing returns on much recent for- economy continues to grow faster than the econoeign investment in the United States. mies of its major industrial trading partners. The degree to which the U.S. external deficits widen in 1993 will depend largely on the strength of the PROSPECTS FOR 1993 economic recovery in foreign industrial countries and on the effects of the recent appreciation of the Over the year ahead, U.S. imports of goods and weighted average value of the dollar on US. price services should grow more rapidly than U.S. competitiveness. • exports of goods and services as the U.S. domestic Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

389 Industrial Production and Capacity Utilization for February 1993 Released for publication March 17 ber. Although motor vehicle assemblies decreased more than 2 percent, increases in other components In February, industrial production rose 0.4 percent, pushed up manufacturing output 0.3 percent. In for its fifth consecutive monthly gain. The gain was addition, the output of utilities, which had been slightly below the upward revised 0.5 percent rise held down in January by relatively warm weather, in January and equalled the revised gain in Decem- rebounded sharply. Mining output weakened, how- 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 Percent of capacity 90 80 70 All series are seasonally adjusted. Latest series, February. Capacity is an index of potential industrial production. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

390 Federal Reserve Bulletin • May 1993 Industrial production and capacity utilization Industrial production, index, 1987=100 Percentage change CCCaaattteeegggooorrryyy 11999922 11999933 19922 19932 FFeebb.. 11999922 ttoo Nov.1 Dec.1 Jan.' Feb.P Nov/ Dec.' Jan.r Feb.P FFeebb.. 11999933 Total 110.4 110.8 111.3 111.8 .6 .4 .5 .4 4.3 Previous estimate 110.3 110.5 111.0 .5 .2 .4 Major market groups Products, total3 111.3 112.1 112.5 112.9 .6 .7 .4 .4 4.4 Consumer goods 112.6 113.5 113.9 114.6 .7 .8 .4 .6 5.3 Business equipment 127.8 128.9 130.5 130.9 .8 .9 1.2 .3 8.2 Construction supplies 98.8 98.0 98.3 99.0 .4 -.8 .3 .7 3.1 Materials 109.0 108.9 109.5 110.0 .8 -.1 .5 .5 4.0 Major industry groups Manufacturing 111.3 111.6 112.5 112.8 .6 .3 .8 .3 4.4 Durable 110.2 110.8 112.0 112.4 .6 .5 1.1 .4 5.1 Nondurable 112.7 112.7 113.2 113.4 .6 .1 .4 .2 3.5 Mining 99.4 98.7 98.4 96.4 .6 -.8 -.3 -2.1 -2.0 Utilities 112.4 114.2 112.2 116.3 1.5 1.7 -1.8 3.7 9.2 Capacity utilization, percent MEMO Capacity, percentage 1992 1993 change, Average, Low, High, Feb. 1992 1967-92 1982 1988-89 Feb. Nov.1 Dec. Jan. Feb.P to Feb. 1993 Total 82.0 71.8 85.0 78.3 79.4 79.5 79.7 79.9 2.1 Manufacturing 81.3 70.0 85.1 77.4 78.3 78.4 78.8 78.9 2.3 Advanced processing 80.8 71.4 83.6 76.1 76.6 76.8 77.2 77.2 2.9 Primary processing . 82.3 66.8 89.0 80.4 82.5 82.2 82.8 83.0 1.0 Mining 87.4 80.6 87.2 85.7 86.6 85.9 85.7 83.9 .1 Utilities 86.6 76.2 92.3 82.2 86.2 87.5 85.9 88.9 .9 1. Data seasonally adjusted or calculated from seasonally adjusted 3. Contains components in addition to those shown, monthly data. r Revised, 2. Change from preceding month. p Preliminary. ever, because of reductions in oil and gas extraction again. The production of construction supplies and a coal mining strike. picked up 0.7 percent, although, on balance, it has At 111.8 percent of its 1987 average, total indus- increased only slowly since fall. The output of trial production in February was 4.3 percent above materials increased 0.5 percent. The production of its year-ago level. Total industrial capacity utiliza- energy materials picked up, a move reflecting the tion increased 0.2 percentage point, to 79.9 percent, gain in utilities. The output of both durable and the highest rate since September 1991. nondurable materials strengthened, with significant When analyzed by market group, the data show increases in the production of industrial chemicals that the output of consumer goods rose about and equipment parts, particularly those related to 0.6 percent. Along with the rise in the production computers. of residential utilities, a sharp pickup in the out- When analyzed by industry group, the data show put of appliances and gains in the production of that within manufacturing, the output of durable consumer fuels contributed notably to the overall goods rose 0.4 percent, and the output of nonduraimprovement; the decrease in motor vehicle output ble goods rose 0.2 percent. The gain in the propartly offset those increases. Production of busi- duction of durables was concentrated in a few ness equipment other than motor vehicles increased industries. Output of electrical and nonelectrical 0.5 percent. The increase in the output of informa- machinery, furniture, and stone, clay, and glass tion processing equipment, 0.8 percent, led the way products all increased 1 percent or more. Along Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Industrial Production and Capacity Utilization 391 with the continued weakness in aircraft manufac- The utilization rate for primary-processing industuring and the dip in motor vehicle production, tries now stands at 83.0 percent, 0.7 percent above lower output of lumber, steel, and instruments held its 1967-92 average. By contrast, the operating rate down the increase in durables. Among nondura- for advanced-processing industries remains more bles, production of petroleum products, chemicals, than 3 percentage points below its long-run averand leather products all rose significantly. age. Few advanced-processing industries are oper- Capacity utilization in manufacturing increased ating at or above their long-run utilization rate, 0.1 percentage point, to 78.9 percent. The gain with the largest shortfalls in aerospace and miscelreflected further increases in utilization at primary laneous transportation equipment, instruments, processing industries; the operating rate for apparel, and printing and publishing. • advanced-processing industries was unchanged. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

392 Statements to the Congress Statement by David W. Mullins, Jr., Vice Chairman, cally tightened the terms and standards for granting Board of Governors of the Federal Reserve System, business loans to customers of all sizes. Of course, before the Committee on Small Business, U.S. Sen- some of this tightening was likely justified as an ate, March 4, 1993 appropriate response to the lax credit standards of the 1980s and the resulting heavy loan losses of the early 1990s. Although no substantial reversal or easing is yet I am pleased to be here this morning to discuss the apparent, our surveys indicate that tightening of credit credit crunch and the availability of credit for small standards has ceased. businesses. An important factor influencing the availability of The financing of small business enterprises is a financing during this period has been the condition of central issue in the future growth and vitality of the the U.S. banking industry. The debt financing of the U.S. economy. Small businesses account for almost 1980s left banks with record nonperforming loans— two-thirds of the nation's work force. They created 80 especially commercial real estate loans—in the early percent of the new jobs in the 1980s, a decade in which 1990s. These asset-quality problems produced large the U.S. economy created almost twenty million jobs, loan losses that reduced the capital base of the U.S. despite the fact that Fortune 500 firms reduced their banking industry. In response, the banking industry employment. over the past 2Vi years has focused on identifying and The sources of small business financing are substan- working out bad loans, and rebuilding capital and tially more limited than those of large firms that have liquidity. In short, the banking industry has been continuous access to the depth and liquidity of public engaged in an intensive process of financial healing— capital markets. For debt financing, small businesses dealing with embedded asset-quality problems and are generally dependent on financial institutions, pri- rebuilding its financial strength. marily commercial banking firms. Because of the This retrenchment process has involved reducing importance of small businesses to the growth of the loan growth, investing in government securities, cut- U.S. economy, especially job growth, the protracted ting expenses to enhance earnings, retaining a larger weakness in business loans at banks is an important portion of these earnings, and issuing new equity to public policy concern—one worthy of rigorous analy- bolster depleted capital bases. Although this process sis and concrete action. may have adversely affected loan growth in the short Why have business loans by banks fallen? In our term, it was a necessary prerequisite to the industry's view, there are several contributing factors on both the return to financial strength that is capable of supportdemand side and the supply side of this market. ing and sustaining new lending and growth. First, the demand for bank loans typically declines In our view, the Basle risk-based regulatory capital during recessions as economic activity slows, reducing standards appear not to have played a significant role firms' needs for working capital and new plant and in motivating banks to curtail lending. During this equipment. In the recent downturn this decline has entire retrenchment period, the overwhelming majorbeen amplified by a broad-based desire by businesses ity of U.S. banks met these minimum standards, to reduce their dependence on debt financing. This most by a very wide margin. Indeed, those banks deleveraging phenomenon, which has been apparent with capital far above the minimum standards have for both businesses and households, followed a decade been responsible for the overwhelming majority of in which debt financing expanded to historically very bank investment in government securities. In investhigh levels. Excess leverage in conjunction with a ing in government securities it is not likely that these weak economy reduced the creditworthiness of many very well capitalized banks were motivated by minfirms as well. imum capital standards. Finally, other financial insti- Federal Reserve surveys indicate that supply side tutions that are not subject to Basle risk-based stanconstraints on the availability of financing may have dards, such as credit unions and finance companies, played a role in reduced business borrowing. The exhibited the same pattern of retrenchment characsurveys demonstrate that large banks have systemati- terized by reduced lending growth and increased Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 393 investment in government securities. This pattern economic recovery. In addition, the interest rate suggests that neither Basle capital standards nor spreads on small business lending appear attractive bank examiners were primarily responsible for these relative to alternative bank investments, and the adjustments. Indeed, all financial institutions re- deleveraging process by firms seems to be well adsponded in a similar manner to this economic envi- vanced, though perhaps not entirely completed. ronment of deleveraging and impaired asset quality The recently revised estimate of 4.8 percent growth regardless of whether they were subject to risk-based in gross domestic product (GDP) in the fourth quarter capital standards. of 1992 confirms that U.S. economic growth acceler- The pressure to increase capital beyond the regula- ated markedly during the second half of last year. This tory minimum—in effect to build a notable cushion of suggests that loan demand should be picking up as capital above the minimums—came from several well. Thus, both improved supply and demand cyclical sources. Faced with uncertain large loan losses, banks factors bode well for the outlook for increased small themselves raised their assessment of the necessary business lending. capital base to sustain future lending; the capital Signs indicate that business lending at smaller markets demanded higher capital in order for banks to banks—whose customers tend to be smaller firms— have low-cost access to funds; regulators, and changes may have begun to strengthen. Such increases in small in statutes, recognized that a sound capital base is the business loans may well be masked in the aggregate best protection for the federal safety net and the data by the extensive restructuring of corporate debt. taxpayer. All concluded that adequate capital is re- In recent years, larger businesses with access to the quired for banks to be able, in the future, to sustain public capital markets have issued record volumes of lending in both good times and bad. bonds and stocks and used much of the proceeds to Finally, it is worth noting that this is a worldwide repay short-term debt, including bank loans. More phenomenon. The retrenchment from the financial im- generally, for at least two decades, banks have found balance built up in the 1980s has produced stress in it difficult to retain those large business customers who financial institutions in Japan, the United Kingdom, can directly tap U.S. and foreign markets more Sweden, and Australia to name a few nations. This cheaply. This widely recognized trend has contributed financial retrenchment has contributed to the economic to a decline in business loans as a share of total bank slowdown in many industrial nations. Both in the assets. Although this trend may well continue, small United States and the rest of the world, it is quite likely businesses will remain reliant on banks for their exterthat some banks, some bank lending officers, and some nal finance. Thus, the continued importance of banks bank examiners may have become overly cautious. to small businesses warrants taking a look at those Indeed, in the United States, the federal banking agen- factors that may be constraining credit to small firms cies and the previous and current administrations have that do not have access to public capital markets. attempted to ensure that our examiner staffs and exam- One possible contributing factor may be changes in ination guidelines do not impede the flow of sound loans the nature of bank supervision and regulation in recent to creditworthy borrowers. These efforts continue. years. The 1980s were characterized by a sharp in- Where do we stand today? The U.S. banking indus- crease in the failure of federally insured financial institry has made impressive progress in improving its tutions, both savings and loan associations and banks. financial health. Over the past 43A years through the In response, rigorous regulatory statutes were enacted, third quarter of 1992, U.S. banks have charged off including the savings and loan reform legislation, the $123 billion in bad loans; yet banks have increased Financial Institutions Reform and Recovery Enforcereserves by $5 billion and added $77 billion in equity ment Act (FIRREA) in 1989, and the Federal Deposit capital. Moreover, with loan-loss allocations declining Insurance Corporation Improvement Act (FDICIA) in and after several years of stringent cost controls, 1992 1991. was a record year for bank profitability. Bank capital These statutes produced, directly and indirectly, a ratios now are at the highest level in more than a substantial increase in regulatory burden on the bankquarter of a century. While a segment of the industry ing industry. For example, each of the federal banking remains under stress, the bulk of the U.S. banking agencies had to create more than sixty separate workindustry has made remarkable progress in working ing groups to write the regulations to implement through a very difficult economic cycle and emerging FDICIA regulations, a process that is still not entirely with renewed financial strength. completed. This process itself likely contributed to Although this retrenchment process has been painful subdued loan growth. Banks may have been underand may have constrained credit availability during the standably hesitant to launch major new lending initiaadjustment period, the banking industry now appears to tives before knowing the standards and regulations that have a strong capital base and ample liquidity to fuel the would apply to these new loans. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

394 Federal Reserve Bulletin • May 1993 Although many of these new regulatory requirements substantial research project to sample the financial have been worthwhile and important and have en- behavior of a large number of small business firms. This hanced safety and soundness, many of them provide study will focus on the full range of financing alternaless clear-cut benefits that may not justify their cost in tives available to small business, not just bank financcomparison with the increased burden. Higher burdens ing. The objective is to gain a rigorous understanding of raise the cost of financial intermediation and can ad- the nature, problems, and trends in this area. This is a versely affect the cost and availability of bank credit. major research project that will take some time to Recent research by Federal Reserve staff members has complete, and it underscores the Board of Governors' suggested that the least risky and lowest cost credit commitment to this important component of the econextensions to smaller businesses by banks in the 1980s omy. were unsecured relationship lending. If recent statutory As for the near term, we need to ensure that the and regulatory changes have required additional docu- regulatory process does not impede the flow of credit mentation or collateral on such loans, the quantity of to small businesses. The suggestions for accomplishlending to these safer borrowers may have declined, ing this goal that have appeared in the public debate because banks pass through the additional underlying include exploring ways to reduce excessive documencosts or because these borrowers cannot provide the tation, perhaps by considering small business loans as additional documentation or collateral. a portfolio, rather than requiring each individual loan Indeed there is every reason to think that recent to bear the full regulatory documentation burden—an regulations and statutes have changed the nature of approach currently employed for consumer loans. supervision and regulation. The process has become Some have also suggested examining whether the progressively more standardized and mechanical, requirements for real estate appraisal under the more dependent on documentation, analytical formu- FIRREA have unintentionally imposed an undue burlas, and rigid rules as opposed to examiner judgment. den on business lending, a large portion of which This may have disproportionately affected small busi- involves real estate collateral. More generally, it is ness lending, which often takes the form of character useful to explore ways in which the regulatory process and cash flow loans, requiring judgment, and where might be tailored to be more congruent with the the bank's return comes from a thorough knowledge inherent nature of small business lending, rather than and working relationship with the borrower. These trying to force business lending into a standardized loans are heterogeneous in nature, and they may be regulatory mold. less amenable to the increasing standardized character To this end, the Treasury Department, the Federal of supervision and regulation. Reserve, and the other banking agencies are engaged At the same time, the focus on homogeneous, stan- in a systematic analysis of the possible regulatory dardized lending products may have encouraged lend- impediments to business lending. The objective is to ers to shift toward areas such as mortgages and con- design a set of regulatory actions that will eliminate sumer loans that are more easily documented, scored, unwarranted restraints on lending. The scope of the and categorized. To understand the potential bias from analysis encompasses the full range of issues associthis process, one need only consider the cost and ated with the regulatory burden on banks and possible difficulty in documenting—especially for public or ex- problems in the examination process. In addition, we aminer scrutiny—the soundness of a character loan for believe it is important to focus explicitly on impedismall firms with unaudited financial statements. Com- ments to small business lending. In attempting to pare this with placing funds in standardized mortgages, streamline regulatory procedures for such loans, we in mortgage-backed securities, or in consumer loans are all committed to maintaining essential standards of amenable to computerized credit scoring. safety and soundness including adequate capital stan- Now it is true that a more rigorous supervisory dards. Although it is premature to discuss specifics, a process has many beneficial consequences. But one detailed set of proposals should be completed in the unintended effect may have been to make small busi- near future. ness lending more difficult and costly, because such a A further avenue of attack for this problem, and one regulatory process may be in many ways simply that has been proposed in various forms, is securitizainconsistent with the inherent nature of small business tion. Securitization of business loans could measurlending. ably increase access to capital for small businesses. What can be done to ensure the availability of credit Such programs would be most productive for loans for small businesses? First, we need more rigorous other than relationship loans because the latter Eire not insight into the nature of small business finance, and, to easily standardized. Because of the heterogeneous this end, the Federal Reserve Board last year initiated a nature of small business loans, establishing these Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 395 programs will not be easy. More work needs to be rower. Even if securitization is successful, large numdone to standardize loan terms, and various legal, ber of borrowers have loans that will not lend themregulatory, and accounting problems need to be re- selves to securitization. These borrowers are likely to solved before securitization will be feasible. remain dependent on a healthy flow of bank credit. We at the Board of Governors generally favor efforts, In summary, the outlook for small business finance including appropriate legislation, that would encourage seems encouraging. Loan demand should be reviving securitization. We generally do not favor the establish- as the economic recovery progresses, and the U.S. ment of a new government-sponsored enterprise in- banking industry now possesses a strong capital base volving business loan securitization because of our and ample liquidity to support increased lending. concern about adding to the already enormous over- Nonetheless, the weakness in bank business lending hang of contingent government liabilities. and the importance of small businesses to job growth Although securitization has the potential to increase suggest that it would be unwise to remain complacent credit availability for small businesses, an important and rely entirely on improving cyclical conditions to role for banks in small business financing will still likely fuel growth in small business lending. This is why we remain. Securitization is unlikely to be feasible for a are working actively to try to identify and eliminate basic staple of small business lending—the character any unwarranted bank regulatory impediments to busloan. These loans are critically dependent on lenders' iness lending. We feel this effort is wholly consistent judgment, their knowledge of the firm, its principals, with the Federal Reserve's fundamental objective of business and community, and they require an ongoing promoting maximum sustainable noninflationary working relationship between the lender and the bor- growth in the U.S. economy. • Statement by Richard F. Syron, President, Federal gone periodically. Indeed, the Boston Fed's approach Reserve Bank of Boston, before the Committee on to analyzing national economic developments may Banking, Housing, and Urban Affairs, U.S. Senate, well have been influenced by the region's historic March 10, 1993 difficulties. In addition to national and international financial developments, we tend to focus somewhat Thank you for this opportunity to discuss economic heavily on the "real" sector of the economy and what conditions in the First Federal Reserve District and to is happening to employment, output, and income share my views on monetary policy. I believe the two growth. In my view, the different analytical frameissues are integrally related. The regional experience works used by Reserve Banks and the Board of offers lessons that are critical to an understanding of Governors enrich the economic policy determination the national economy and to the formulation of sound process. monetary policy. In turn, the single most important The present time is a period of severe economic factor affecting any region is the behavior of the distress for New England. The job losses suffered by national economy. the region in the late 1980s and early 1990s have The First District consists of the six New England dwarfed those in all previous recessions since the end states: Maine, Massachusetts, New Hampshire, of World War II. From early 1989 to the present, Rhode Island, Vermont, and Connecticut with the nonfarm payroll employment in New England has exception of Fairfield County, which falls in the Sec- fallen 12 percent.1 The nation, in contrast, experiond District. enced a drop in employment of 2 percent between the New England is very much an economic region and peak in the summer of 1990 and early 1992. While the sees itself as such. The six states share such advan- national job loss is serious, it has been more severe in tages as a high level of education and such disadvan- New England. tages as high energy costs, and over the years their These difficulties are attributable primarily to a fortunes have moved together. One consequence of combination of factors: a real estate collapse and the the almost complete overlap of the boundaries of the resulting stress on lending institutions, increased com- First District and New England is that over the years petition and restructuring in high technology industhe Federal Reserve Bank of Boston has been highly tries, and cutbacks in defense spending. In each case involved in economic developments in the region. This interest in New England also derives from the severe 1. The attachment to this statement is available from the Federal bouts of economic distress that the District has under- Reserve Bank of Boston, Boston, MA 02106-2076. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

396 Federal Reserve Bulletin • May 1993 New England's problems are especially acute, but computer industry and the cutbacks in defense are they are part of broader developments and carry especially severe in New England, they are manifeslessons for the nation as a whole. In particular, New tations of the restructuring and downsizing of major England's experience demonstrates how industrial re- corporations that are occurring nationwide. Structural structuring can aggravate cyclical downturns, and it job losses are aggravating cyclical cutbacks. Nationhighlights the dangers of real estate booms and busts. wide, the fraction of job losers who were on temporary layoff in 1992 was smaller, and the proportion who were on permanent layoff was correspondingly larger, HIGH TECH AND DEFENSE than they have been in twenty-five years. Eventually, this aggressive cost-cutting may pro- New England's current problems have their origins in duce more-competitive firms, higher productivity, and events of the early and mid-1980s. After suffering more a stronger economy. Certainly, the conversion from than most parts of the country in the 1975 recession, military to civilian production should ultimately lead New England began regaining ground in the late 1970s, to higher standards of living. But the transition is very as computers and other high technology industries that painful. New England's experience highlights the drag were more important in the region than nationally that such long-term structural changes can exert on the enjoyed increasingly vigorous demand for their prod- economy and shows how they may stretch out and ucts. New England also accounts for a disproportion- deepen a cyclical downturn. ate share of the nation's defense procurement and, thus, benefited from the Carter-Reagan defense buildup. REAL ESTATE AND BANKING In large part because of the strength of its high technology industries, the region fared much better Despite the seriousness of the difficulties faced by than most of the country in the recessions of 1980 and New England's high tech industries, overall employ- 1981-82. High tech continued to fare well during the ment growth in the region remained strong until the early recovery as both civilian and defense demand late 1980s. Labor shortages, not layoffs, were the rose. Then in 1985 the high technology engine began to focus of concern from 1984 to 1988, as unemployment sputter. Numerous layoffs occurred at computer and rates in some years dipped toward 3 percent. electronics firms in 1985 and 1986. The cutbacks in manufacturing were masked by At first, this seemed an aberration. The vigor the vigorous growth in construction and related financial industry had displayed over the previous ten years and other services industries. The region's strong made a quick return to prosperity seem likely. But the performance in the early 1980s, after a period in which layoffs continued. And still continue. Meanwhile, construction activity was low and the supply of housmore traditional manufacturing industries, which have ing and office space had tightened, sparked a construcbeen in a competitive struggle in New England for tion and real estate boom. Real house prices in the most of this century, were also cutting payrolls. The Boston area more than doubled between 1982 and combination of job losses in high tech and steady 1987; prices in other New England cities rose just as erosion of the traditional industrial base has caused fast. On the commercial side, office vacancy rates manufacturing employment in New England to fall plummeted and rents soared. almost 30 percent from its peak in 1984. Even with the wisdom of hindsight, no completely satisfactory explanation for this abrupt reversal CONSTRUCTION RESPONDED emerges. To some degree, the region was a victim of its earlier success. During most of the 1980s, wages Construction employment in New England increased rose more rapidly in New England than the nation, 70 percent between 1982 and 1987. Growth was also increasing the cost of doing business in the region. very strong in such related industries as real estate and Defense cutbacks have been a drag in recent years. In architectural and engineering services. Retail activity addition, the computer industry has matured, and the received a boost, as rising home prices made New large New England firms were concentrated in prod- England homeowners wealthier, encouraging them to ucts and followed strategies that were no longer on the spend more. And the banking industry flourished—for cutting edge. The persistent layoffs in these areas have a time—as it pursued the opportunities created by the overwhelmed the new jobs created in biotech and real estate boom. software and other regional growth sectors. Commercial banks and thrift institutions in New While the problems created by the maturing of the England found the investment opportunities generated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 397 by the real estate boom irresistible. Commercial bank loans that were not linked to real estate or for which assets in New England almost doubled in the second real estate provided only supplemental collateral. This half of the 1980s, largely on the basis of increased real tightening in turn exacerbated the region's economic estate lending. Between 1984 and 1989 the share of New problems. England commercial bank assets in the form of loans backed by real estate almost doubled, from 17 percent to 32 percent. Although the real estate share of com- MONETARY POLICY mercial bank assets in the country as a whole rose less, it still increased very significantly, from 15 percent to 23 I would like to finish by making a few observations percent. Lenders' willingness to fund real estate about the Boston Fed's approach to monetary policy projects was further fuel for the real estate boom. and our views of the challenges we face. As I have The boom came to an end as housing prices became noted previously, although financial variables such as less and less affordable and as more and more home- interest rates and stock prices contain valuable inforowners and investors began to think that values were mation about the economy, the Boston Fed's apapproaching their peak. The Tax Reform Act of 1986 proach tends to focus on our ultimate objectives—real reduced the attractiveness of rental properties to indi- growth and price stability—and how these will revidual investors, and the difficulties facing high tech- spond to policy actions. Because monetary policy acts nology industries removed a major source of demand with a lag, our approach is forward-looking: What will for research and development and light industrial be the consequences for output and prices a year from space in suburban areas. now of an action today? Once the boom ended, it turned to bust almost To help answer this question, the Boston Fed careovernight. Much of the New England economy had fully constructs its own forecast and monitors those of come to depend upon the construction and real estate other respected forecasters to determine the most boom. Lawyers, accountants, and insurers, as well as likely economic outlook and the risks surrounding that bankers, real estate agents, and construction workers, outlook. Over the years, we have devoted considerhad prospered as real estate values rose and construc- able attention to analyzing different forecasting techtion activity expanded. Thus, many tenants of the new niques, and we favor forecasts that combine formal office buildings, patrons of the retail outlets, and new structural macroeconometric models with the judghomebuyers worked in sectors whose fortunes were ment that comes from experience. Such forecasts have tied to real estate and construction. As the cycle the advantage of making explicit the channels through turned down, these sectors contracted, aggravating which policy works, as well as the ways in which the downward pressure on real estate values. New actions could go awry. England's experience in this regard provides insights We also confer with private sector and academic into what can happen in other parts of the country and economists and meet frequently with leaders from the even in other countries where real estate markets are business, government, and general communities. weakening. These communications have provided valuable signals about emerging trends in the economy, sometimes in advance of the statistics. IMPACT ON BANKS AND THEIR BORROWERS The past few years have been particularly challenging for the economy and thus for the conduct of As boom turned to bust, banks' nonperforming real monetary policy. Structural shifts have been a signifestate assets increased rapidly. Existing provisions for icant depressant. In addition, the recent recession has loan losses proved to be inadequate, and additions to been remarkably uneven in its geographic impact. these reserves caused bank capital to plummet. At New England, and to a lesser extent the entire Norththeir peak in the first half of 1991, nonperforming east and now California, have suffered extraordinary assets exceeded commercial banks' total equity plus job losses, while other parts of the country continued loan-loss reserves. to grow. In contrast, the 1975 recession was felt Around the beginning of 1990, we at the Federal throughout the nation; and even in the 1982 downturn, Reserve Bank of Boston began to hear reports that which was much more severe in the industrial heart- New England banks' difficulties with their real estate land than along the coasts, the regional experience was portfolios were affecting the availability of credit in the more uniform than in the present period. Unforturegion. Not only were banks unwilling to lend to real nately, monetary policy is not a precise tool; one estate projects, but they were also reported to be cannot administer a stimulus to one part of the country imposing considerably more stringent standards for without affecting the whole. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

398 Federal Reserve Bulletin • May 1993 The clear objective of monetary policy is to maxi- should ultimately lead to higher standards of living, mize the long-term real income of all Americans. Price they impose real pain on the workers affected in the behavior that does not distort the decisionmaking of process. All this has been reflected in the number of individuals or firms is an important means to that end. workers permanently losing their jobs. My own view is that monetary policy has been broadly My own fear has been that if the emerging improvesuccessful over the past few years, particularly when ment in the employment market were to reverse, viewed in the context of a period that has encom- income growth would slow and consumers would have passed a variety of economic challenges. After a to retrench, thereby jeopardizing the recovery itself. period of fits and starts, the economy seems to be A monetary policy that promotes the maximum entering a somewhat more promising growth path. sustainable growth of the economy is essential to Importantly, we are beginning to benefit from the promoting continued employment growth. However, substantial increases in the productivity growth that because of the structural nature of much of the the United States lacked for so long. The inflation problem, monetary policy alone will not be an adesituation is encouraging. My primary concern about quate mechanism for dealing with all our employthe early economic recovery has been in the area of ment problems. Macropolicy will probably need to job growth and unemployment. be augmented by measures that will aid firms and Until most recently, the pace of job creation has been workers affected by defense conversion and by requite disappointing. One month's data do not make an structuring more broadly. Thus, improving employeconomic trend, but we all hope that last month's ment prospects may be the major challenge for all report signals the beginning of an improvement in this economic policy. area. Earlier, slow job growth had been greatly exacer- In conclusion, and at the risk of repeating myself, I bated by the kinds of structural problems that have believe that the variety of economic frameworks used been particularly pronounced in New England. The by the Reserve Banks and the information brought overload of commercial real estate has acted as a drag from the individual Federal Reserve Districts make a on the economy directly and has also impaired the valuable contribution to the formulation of monetary ability of many banks to lend as aggressively as in policy. However, monetary policy is inherently naearlier recessions, thus hampering the growth of small tional policy, and I believe it is very useful for those of business. Similarly, although the conversion from mil- us from the Reserve Banks to have the opportunity to itary to civilian production and the restructuring of appear before the Banking Committee to express our many companies as a result of competitive pressures views and to answer questions. • Statement by E. Gerald Corrigan, President, Federal and (3) the results of the latest informal survey of ten Reserve Bank of New York, before the U.S. Commit- large and fifteen smaller businesses regarding the tee on Banking, Housing, and Urban Affairs, U.S. economic outlook as seen by those firms. Senate, March 10, 1993 Although the Second District is relatively small in geographic terms—representing, for example, only a I am pleased to have this opportunity to discuss with small fraction of the land area of my former Federal you recent economic trends in the Second Federal Reserve home in the Minneapolis District—it is quite Reserve District. In keeping with your request, my large and important in economic terms. For example, prepared remarks are very brief, but I have included it is home for about 10 percent of the U.S. population, with my statement a great deal of statistical and and it accounts for about 11 percent and 12 percent anecdotal information bearing on recent trends in the respectively of national GDP and personal income. District.1 These materials include (1) a comprehensive Like so much of the rest of the country, the past set of charts and tables on various indicators of several years have been difficult for the District in economic conditions; (2) a digest of observations and economic and financial terms. Indeed, by many indicomments made by the members of the Bank's Small cators, the period of subpar economic performance in Business and Agriculture Advisory Council at its most the District probably began a little earlier, cut a little recent meeting, which was held on February 5, 1993, deeper, and lasted a little longer than is the case for the nation as a whole. Although it is difficult to generalize, the reasons for this probably center on disproportion- 1. The attachment to this statement is available from the Federal ately greater problems—either directly or indirect- Reserve Bank of Philadelphia, Philadelphia, PA 19106-1574. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 399 ly—in several areas, including (1) commercial real While the District as a whole has a broad and diverse estate overbuilding, (2) defense and aerospace cut- economic base—including its strong international orientabacks, (3) the cutbacks in employment in banking and tion—New York City has a very special place in the finance, (4) corporate restructuring more generally, economy of the region, the District, the nation, and, and (5) the slower growth of exports, especially to indeed, the world. While the term "Big Apple" is widely Europe. cited, we sometimes forget just how big the apple really is. Having said that, I believe it is fair to suggest—drawing For example: on both statistical and anecdotal information—that the • If New York City were a stand-alone country, its near-term outlook has improved, even if it remains true economy—using conservative estimates—would rank that certain structural elements will continue to exert a twelfth among the nations of the world. drag on the District economy for some time. • Manhattan alone has more office space than the Although some of these lingering problems are combined total of the next eight largest central busivery real, the fact remains that the District's econ- ness districts in the United States. omy is rich and diverse and has certain sources of I cite these statistics not simply because they are so underlying strength. For example, the State of New dramatic, but also because the recent period of weak York produces a dramatically disproportionate num- economic performance has been even more pronounced ber of the most scientifically talented high school in the city than in the District as a whole. While there are seniors in the United States, accounting for 43 per- straws in the wind that suggest the economy of the city cent of those cited in the 1991 Westinghouse Talent may at last be firming, the strains on the city's economic Search and 35 percent of the outright winners in that and social infrastructure growing out of this prolonged competition. Another important source of its period of subpar economic performance have been quite strength rests in its strong ties to the international serious. Despite this, the city, and the state, too, have community at large—ties that extend well beyond done a commendable job in managing their fiscal affairs, New York City's critical role as one of the most but not without great difficulty. Moreover, the city's important, if not the most important, international demographic profile is such that the burden associated financial center in the world. Here, too, the statistics with social, educational, and health care costs will remain tell quite an interesting and often overlooked story a formidable problem for both the public and private that includes the following features: sectors for as far as the eye can see. • In 1990, an astonishing 28 percent of all residents In summary, the city, the state, and the District as a in New York City were foreign-born. whole have—like much of the nation—gone through a • Foreign-owned firms employ about a half million difficult period. At present, most indicators point to workers in the New York metropolitan area, which is improving conditions, but several more fundamental or the equivalent of about 25 percent of total employment structural factors will tend to moderate the process of in the greater Washington, D.C., metropolitan area. recovery. Taking a somewhat longer view, I am quite • New York ranks third behind California and Texas confident that the underlying strength and diversity of in the value of goods exports and would probably be the District economy will provide the framework for our largest exporting state if data on service exports renewed vitality and growth—a process that will feed were available on a state-by-state basis. on itself as the structural overhangs of the past abate. Statement by Edward G. Boehne, President, Federal Delaware, the southern half of New Jersey, and roughly Reserve Bank of Philadelphia, before the Committee two-thirds of the State of Pennsylvania. About oneon Banking, Housing, and Urban Affairs, U.S. Sen- third of New Jersey's population and more than 70 ate, March 10, 1993 percent of Pennsylvania's population are in the District. The three states that are either wholly or partially in the District represent more than 8 percent of the U.S. BACKGROUND ON THE THIRD DISTRICT population, employment, and income. The District itself, although small in size geographically, represents Thank you for the opportunity to appear before this about 5 percent of the U.S. economy in terms of committee to discuss District economic conditions and population, employment, and personal income. More monetary policy. The Third Federal Reserve District, than 25 of the Fortune 500 companies are headquarheadquartered in Philadelphia, includes the State of tered within the District boundaries. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

400 Federal Reserve Bulletin • May 1993 The largest concentration of economic activity in the Even though the District as a whole is not highly District is in the Philadelphia metropolitan area. The dependent on defense spending, certain parts of the Philadelphia area is the fourth most populous metropol- District, such as the areas around Dover Air Force itan area in the country, with almost 5 million residents. Base in Delaware and McGuire Air Force Base in New It ranks among the ten largest U.S. markets in both Jersey, are heavily dependent on defense. In Philadelindustrial and commercial office space. The city of phia, the Navy Yard and the Personnel Support and Philadelphia is the fifth largest city in the country and Industrial Supply Centers employ a large number of has the nation's sixth largest downtown office market. workers. In addition, the District has some major In general, the economy in the three states of the defense contractors, such as Boeing Helicopter and District is quite diversified and could be described as a GE Aerospace (which is currently in the process of microcosm of the U.S. economy because the nonfarm being sold to Martin Marietta). economy in the three states mirrors the nation quite closely. The proportions of jobs in most nonfarm categories differ little from the proportions at the national DISTRICT EMPLOYMENT AND UNEMPLOYMENT level.1 The two major nonfarm sectors in which the percentage of jobs diverges significantly from the na- The Third District economy enjoyed solid growth tional average are business and personal services and during the expansion of the 1980s even as it continued government services. Compared with the nation, about to shift away from manufacturing and toward services. 2 percent more of the jobs in the tristate area are in the The history of state unemployment rates illustrates private service industries (including accounting, private how the region's economy performed during most of education, and health care), and about 2 percent fewer the 1980s. In the late 1970s and early 1980s unemployjobs are in the government sector. Agriculture and ment rates in all three states in the District were agricultural services contribute about 1 percent to the regularly at or above the national average. During the total output of the three states—somewhat less than the long expansion in the 1980s, unemployment rates in all U.S. average. But agriculture remains a major industry three states fell below the national average. By the end in parts of south Jersey, southern Delaware, and south- of the decade Pennsylvania's rate was a percentage central Pennsylvania. point below the nation's rate in some months, and the The District used to have a high proportion of its rates in Delaware and New Jersey were even further jobs in manufacturing, but that has changed. In the below the national rate. For a time Delaware's unemearly 1970s more than one-third of the jobs in the three ployment rate was below 3 percent, and the rate in states were in manufacturing—about 7 percent more New Jersey was between 3l/z percent and 4 percent. than at the national level. As late as 1980 more than Job growth in our District was very good in the last one-quarter of the jobs were in manufacturing, still decade, but not quite as good as the drop in unemployhigher than the national average. Today the percent- ment rates would suggest. Combined job growth in the age of jobs in manufacturing in the Third District states three states of the District was slower than job growth is less than 20 percent and very close to the national at the national level, although some labor markets average. were notable exceptions. Jobs in Atlantic City and Within the broad business categories, the chemical Monmouth-Ocean Counties in New Jersey, in Lanindustry and health services are more heavily repre- caster and State College in Pennsylvania, and in the sented in the Third District than in the nation. The State of Delaware all grew appreciably faster than the production of industrial chemicals in the District is national average. In Delaware jobs grew more than concentrated in Delaware. Pharmaceutical research one-and-a-half times the national rate. Some of these and production, also classified among the chemical fast-growing areas benefited from special circumindustries, is concentrated in central New Jersey and stances. in the Philadelphia area. The higher-than-average The introduction of casino gambling in Atlantic City number of jobs in health services in the District is the in the late 1970s, for example, resulted in very rapid result of two factors: The average age of the popula- job growth. Atlantic City was the fastest growing labor tion in the District is higher than that in the nation, and market in our District in the 1980s; jobs increased there are many large medical schools, hospitals, and more than 35 percent. Delaware experienced a major health research facilities in the District. boom as financial service firms moved in to take advantage of the state's 1981 Financial Center Development Act. Jobs in the financial service sector more than doubled in the state during the 1980s. 1. The attachment to this statement is available from the Federal Reserve Bank of Philadelphia, Philadelphia, PA 19106-1574. Unemployment rates in the District came down Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 401 relative to the national unemployment rate during the Delaware has more jobs than it did at the end of the 1980s, despite overall job growth that was slower than recession. The net increase is slightly more than 1 the national average, because the District's labor force percent, far short of the more than 6 percent average generally grew more slowly than that in the nation. for earlier recoveries. In New Jersey jobs are more With the exception of Delaware, labor force growth in than 2 percent below their levels at the official end of the three states in the District lagged growth in the the recession, and in Pennsylvania they are still nation. This slower growth was partly a function of the slightly below their levels at that time. By this time in age distribution in our District. Fewer young people earlier recoveries, jobs in these two states averaged entered the labor force than in earlier decades. The 2Vi percent to 5 percent above their levels at the number of jobs in the three states of the District trough of the business cycle. increased about twice as fast as the slowly growing Given the extended period of job declines in most of labor force during the expansion of the 1980s, so many our District, it is not surprising that the percentage loss labor markets became very tight near the end of the of jobs has been deeper than the loss at the national expansion. level. Recently revised numbers show that the job By the late 1980s, the economy in several parts of declines in the District were not as severe as earlier the District was showing signs of becoming over- numbers suggested, but District losses were still heated. Wages and prices were rising faster in the steeper than the national decline. While the U.S. lost Northeast than in the nation as a whole. The rate of less than 2 percent of its jobs, Pennsylvania and increase in the regional consumer price index (CPI) for Delaware lost 2.4 percent and 2.7 percent respecthe Wilmington-Philadelphia-Trenton area, for exam- tively. New Jersey had the highest percentage of job ple, was 0.5 to 1.5 percentage points higher than the losses; the state lost almost one out of every fourteen CPI inflation rate for the nation as a whole during the jobs between 1989 and 1992. latter part of the 1980s. The region's inflation rate is Job losses in the District were spread across every now close to the national average. Inflation and wage sector of the economy. The goods-producing induscosts are not a concern I hear much about now in the tries took the biggest hit, as they typically do in any District. recession. More than three-quarters of the jobs lost in In contrast to the District's better-than-average per- our states were in construction and manufacturing, formance during much of the 1980s, the District has even though they account for less than one-fourth of suffered a more serious recession and slower recovery the jobs. A larger-than-usual percentage of the job than has the nation in the 1990s. One of the most losses in this recession, however, were in the servicefrequent complaints I heard in the late 1980s when I met producing industries. In every other recession during with business people was their inability to find qualified the past twenty years, the private service-producing workers. Now I hear from people who cannot find jobs. industries suffered little or no net job loss. This time The job situation turned around dramatically in the almost 25 percent of the job losses in our region District, especially in New Jersey. As measured by the (between first quarter 1990 and first quarter 1992) were period in which jobs were generally declining, the in the private service-producing industries. recession lasted longer in most parts of our District than Whether in the goods sector or the service sector, in the nation. Jobs began to decline in our region before the job losses this time seem to be more permanent as they did in the nation. In New Jersey the general many firms have undergone major restructuring. Our decline began in early 1989—more than a year before District has suffered, or is about to suffer, cutbacks by the onset of the national recession. In Pennsylvania the several large employers. DuPont has gone through a general decline began three months before the official major restructuring that has reduced its work force by beginning of the recession. Mirroring the national pat- 6,000 in Delaware alone. Last year, Bell Atlantic tern, jobs continued to decline in the District beyond announced reductions of more than 1,000 positions in the official end of the recession. In New Jersey, there New Jersey and almost 1,000 in Pennsylvania. General has not yet been any sustained job growth. Motors is slated to close an auto parts plant in Tren- The job picture following this most recent recession ton, New Jersey, and an assembly plant in Wilmingstands in marked contrast to the average job growth ton, Delaware; Sears closed a distribution facility in after the other recessions since 1970.1 have included a Philadelphia; and Bethlehem Steel closed its division set of charts comparing the job growth in each state in in Johnstown, Pennsylvania, eliminating 1,900 jobs. our District after this recession with the average The continuing job losses beyond the end of the growth after the recessions of 1970, 1974-75, and national recession meant that unemployment rates in 1981-82. most of the District did not peak until mid-1992. Twenty-two months into the national recovery, only Except for Delaware, the state unemployment rates in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

402 Federal Reserve Bulletin • May 1993 the District are again higher than the national average, DISTRICT REAL ESTATE as they were in the 1970s and early 1980s. Pennsylvania did not quite have the boom times in the 1980s that The real estate sector in the District deserves special New Jersey did, and Pennsylvania has not fallen as far mention because a full recovery in that sector is during the past two years either. Pennsylvania's un- probably still several years away. There is no sign yet employment rate, which had been quite a bit below the of a real recovery in the commercial office market. In national average during the late 1980s, has more the mid-Atlantic region, office construction, measured recently been very close to the national average. in square feet, is down more than 75 percent from its Within Pennsylvania and New Jersey we have a wide peak in 1987. In dollar terms it is down more than 60 range of unemployment rates. Some are in the 5 percent. Office vacancy rates in the Philadelphia marpercent to 6 percent range; others are more than 10 ket remained high in 1992 despite the lack of any new percent. These differences across the states represent construction. Quoted rental rates in 1992 were down in differences in the mix of industries in these geograph- the downtown Philadelphia market and were unical areas. changed in the suburbs. The emerging recovery from the recession is un- High vacancy rates, lower rental rates, and sales of even across the District.. So far, the low point for jobs some distressed properties have meant that purchase in the District's three states combined was Septem- prices per square foot in the Philadelphia area have ber 1992. Employment was up slightly in the fourth dropped dramatically. The average price per square quarter for the District as a whole. I must caution, foot for properties sold dropped from $94 per square however, that we have had temporary improvements foot in 1990 to $43 per square foot in 1992. Many of in the job picture earlier in the national recovery only these recent sales, however, were distress sales. to see the gains evaporate, so we continue to closely On the residential side, in contrast, a recovery has monitor the job picture in the region. been going on for some time, at least in parts of the District. However, the increase in housing starts has been neither steady nor evenly distributed. The housing recovery in New Jersey has been particularly OTHER DISTRICT INDICATORS weak; housing starts there are only about 40 percent of their 1987 level. Although some of the builders in Other indicators give some evidence of a pickup in southern New Jersey have recently indicated improveeconomic activity in several sectors in the District. ment in activity, they have also expressed concern The index of current activity from the Philadelphia that rising lumber prices (which have gone up 40 Fed's monthly Business Outlook Survey of manufac- percent to 50 percent in a few months) could choke off turers rose from close to zero in October 1992 to the recent rise in housing demand in the area. almost 39 percent in February of this year. That means Most of the improvement in housing has been in the that 39 percent more manufacturing firms reported single-family market. With high vacancies and falling real increases in current business activity than reported rents, there has been little incentive to invest in rental decreases in activity. A similar index from our quar- housing. But there are some signs that the rental market is terly survey of all types of firms in southern New stabilizing. In 1992 landlords offered fewer incentives, Jersey rose from 12 percent in the third quarter to 34 such as one-month's free rent or free parking, to renters. percent in the fourth quarter. Consumers in our region are also showing more faith in the recovery. The Conference Board's con- BANK LENDING IN THE DISTRICT sumer confidence index for the mid-Atlantic region was up in the fourth quarter of last year and again in Bank lending was very weak in the District in 1990 and January but fell back a bit in February. This bears 1991, as it was in the nation as a whole, as the close watching because confidence in the region rose recession reduced loan demand and as deteriorating twice before in this recovery before falling back to asset quality led banks (and regulators) to be more low levels. conservative in evaluating lending opportunities. Real Retail sales in the region have increased since their estate lending was especially limited in the face of cyclical low in early 1991. The improvement has not declining property values. The cost of financial interbeen as strong in New Jersey as it has been in mediation rose because of increased capital require- Pennsylvania. Moreover, the advance has been un- ments and higher deposit insurance premiums, and the even over the past two years. (Monthly retail sales deterioration in loan quality increased the perceived data are not available for Delaware.) risk of default. These factors led, despite weak loan Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 403 demand, to a widening of spreads between loan rates growth in New Jersey is likely to be weaker than in charged by banks and their cost of funds. Delaware and Pennsylvania. I believe, however, that we have started to see signs of an improved environment for bank lending in the District. We seem to be moving from a credit crunch to MONETARY POLICY credit caution. Banks have increased their capital positions and reduced their net charge-offs during the Let me now turn from the District to monetary policy. past two years, and nonperforming loans as a percent- The Federal Reserve, against a background of weak age of total loans declined last year. Consequently, the economic growth and lessening inflationary pressures, region's banks are now in a better position to increase has brought short-term rates down to their lowest their lending as loan demand picks up. levels in about thirty years. The federal funds rate has Loans by banks in our region have, in fact, increased declined almost 7 percentage points since early 1989. somewhat during the past year in all categories of lending: Monetary policy began to ease more than a year before real estate, consumer, and commercial and industrial. the onset of the 1990 recession, it eased substantially Banks also reported at the beginning of this year that they during the recession, and it continued to ease during are beginning to see stronger loan demand from middle- the sluggish recovery. By this point in past recessionmarket firms and small businesses. Also, banks are be- recovery periods, the federal funds rate had, on avercoming more active in seeking out lending opportunities. age, risen from its low point a few months after the For example, at a recent meeting of builders in southern trough of the business cycle. In contrast, in this most New Jersey, some bank loan officers attended the meet- recent recession-recovery period the federal funds ing—something we had not seen during the previous two rate has continued to decline since the trough of the years. (In another region of the District, one developer recession in March 1991. This further decline of shorteven reported receiving a phone call from a banker asking term interest rates reflects a continued easing of monif the developer was interested in borrowing money!) etary policy that has been entirely appropriate given Banks in the region also are no longer tightening credit the weak growth of employment and real gross domesstandards, and some banks reported an easing of their tic product (GDP) through much of this recovery. loan terms. I expect to see further increases in lending Because employment and real GDP growth have been over the next year. weaker during this recovery than in previous ones, Nonetheless, obstacles remain to the resumption of monetary policy has been unusually accommodative in normal borrowing relationships, especially for small continuing to bring down short-term rates to try to get and medium-sized businesses. In particular, we must the economy growing at a more sustainable pace. With find ways to facilitate the so-called "character" loan core inflation (that is, the CPI excluding food and by easing up, where prudent, on excessive documen- energy) somewhat above 3 percent during the past two tation and other costs that fall disproportionately on years and short-term rates falling to about 3 percent, small businesses. short-term real rates (that is, short-term rates adjusted for core inflation) have been close to or a little below 0 percent since the trough of the recession, whereas in previous recessions the real federal funds rate has typically risen by now and become positive. SUMMARY OF DISTRICT The pattern of declining short-term interest rates Overall, District economic activity has shown im- during this recession-recovery period has been in provement since September of last year. The unem- marked contrast to the behavior of M2 money growth. ployment rate has declined in each of the District's M2 growth has been very sluggish in comparison to three states, and employment levels are up in the past recoveries despite the continued easing of mone- District as a whole. Unfortunately, employment has tary policy. Because M2's relationship to economic not risen very much since the end of the national growth has been changing in ways that we do not fully recession. Also, some large firms have announced understand, M2 has become a less-reliable guide for major layoffs that will affect our District. The Dis- monetary policy. Indeed, the pace of economic activtrict's growth has lagged the rest of the nation during ity in 1992 was much faster than could have been most of the past two years, and I expect this situation anticipated using the historical relationship between to continue during 1993. Even though I expect employ- M2, income, and interest rates. ment to increase in each of the District's three states, The pace of economic activity improved substanthe improvement is likely to lag behind gains in the tially over the last two quarters of 1992, and, as noted nation as a whole. Among the states in our District, in Chairman Greenspan's testimony to this committee Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

404 Federal Reserve Bulletin • May 1993 on February 19, the central tendency of the governors' rate of 3 percent CPI inflation experienced over the and Reserve Bank presidents' forecasts is for real past two years. I expect inflation will decline below 3 GDP to grow 3 percent to 3V4 percent during 1993, percent in 1993 and 1994, helping to bring expected with the unemployment rate continuing to decline to inflation down further and helping to keep long-term around 63/4 percent to 7 percent. In light of the still- interest rates low. substantial degree of slack in the economy, I would Proposed changes in fiscal policy also have contribnot be concerned by somewhat faster growth than this. uted to low long-term rates. The Administration's Much of the growth in output during 1992 reflected long-term deficit reduction proposal has received a sharp gains in productivity rather than gains in labor generally favorable reaction in financial markets. Evinput. This high rate of productivity growth is wel- idently, the markets view it as a credible plan to come news in one sense, in that it improves our reduce the federal government's future demands for nation's competitive position in world markets. But credit. This has resulted in a significant reduction in these productivity gains over the past two years have long-term interest rates in recent weeks. This reducmeant that employment has not risen very much so far tion should be a big help to the housing market and during this recovery. Productivity gains as large as other interest-sensitive sectors of the economy during those in 1992 are unlikely to persist in 1993, and 1993. Consequently, I am more optimistic about the consequently I expect that employment growth will be future path of economic growth and employment than more substantial this year than last. I was at the beginning of the year. One factor that will be especially important in Nonetheless, the economy continues to face some contributing to continued, and perhaps even stronger, serious obstacles to growth. A major concern is that growth during 1993 is the recent decline in long-term employment is not rising commensurately with the rise interest rates. By the end of last year, long-term in economic activity. Further increases in employment interest rates had already declined substantially from would help ensure that an expansion in the economy their peak in early 1989. The continued easing of will be self-sustaining. In addition, several structural monetary policy in 1990, 1991, and 1992, along with impediments to the economy remain with us. The reduced private sector credit demands as the economy overhang of commercial office space, still-high debt went into recession, contributed to these reductions in burdens of some households and firms, substantial long-term interest rates. cutbacks in defense spending, and the continued re- The decline in actual inflation and in expectations of structuring and layoffs of workers by some firms all will future inflation was another very important contribu- continue to hold back the growth of the economy to tor to the decline in long-term interest rates over the some extent in 1993. Keeping long-term interest rates past several years. Unlike the expansions of the 1970s, low will continue to be important in helping to ease the when the rate of inflation rose in stepwise fashion from debt burdens of firms and households and in offsetting one business cycle to the next, average inflation rates some of these other impediments to economic growth. have not exhibited a tendency for inflation to acceler- The objective of monetary policy is to help maxiate during the long expansion of the 1980s and the mize sustainable growth in output, jobs, and living recovery so far in the 1990s. standards. Keeping inflation low is a necessary ingre- Not only did actual inflation remain relatively low in dient for maximizing sustainable economic and job 1991 and 1992, but expectations of long-term inflation growth. Low inflation promotes long-term planning fell as market analysts came to believe that the econ- and investment by keeping long-term interest rates omy would not experience a resurgence of inflationary low. We now have inflation rates back to levels of the pressures. Based on a survey of economic forecasters 1960s, and these levels will help to keep long-term in business and academia, the rate of inflation expected interest rates low. Reducing the federal budget deficit to prevail over the next ten years fell nearly a full is another critical ingredient to achieving low longpercentage point from about 4.4 percent in early 1990 to term interest rates. For that reason, the current focus 3.5 percent last month. This reduction in expected of fiscal policy on deficit reduction is a welcome inflation undoubtedly has been a major factor in helping development. In combination, these policies—both to reduce long-term bond and mortgage rates. fiscal and monetary—will help to support expansion of the economy while also supporting improved living But at the current 3.5 percent level, long-term standards and low inflation over the long term. • expected inflation is still somewhat above the actual Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 405 Statement by Jerry L. Jordan, President, Federal alded this recent resurgence as the renaissance of Reserve Bank of Cleveland, before the Committee on manufacturing. The Rust Belt has indeed begun to Banking, Housing, and Urban Affairs, U.S. Senate, regain some of its old luster. March 10, 1993 Through improvements in productivity and a more-balanced industrial mix, our region is now poised for future growth. The growth will be uneven, I appreciate the opportunity to appear before you this as some parts of the District are much stronger than morning to discuss economic developments within the others. Clearly, restructuring will continue, both Fourth District of the Federal Reserve System and to within the Fourth District and across the United offer my views on monetary policy. I find that ap- States. But I have no doubts that a strong foundation proaching the issue of monetary policy from the per- is in place for a healthy and sustainable expansion for spective of economic conditions within our region is the foreseeable future. Our relatively buoyant reparticularly informative. I make this statement for two gional economy during the past two years and our reasons. First, the extensive restructuring within the increased presence in foreign markets attest to the four states that make up the Fourth District—Ohio and gains that we have made. The central questions will parts of Kentucky, Pennsylvania, and West Virginia— be about the pace and durability of the expansion, provides important insights into the experience of the not about contraction. During the 1980s, the Midwest national economy during the last several years. Sec- faced a host of market imbalances, not unlike the ond, the gains that this region achieved because of problems that confront other parts of the country these adjustments were aided to a large extent by the today. The region was able to work through these problems, not because of government action, but stable-price policies of the Federal Reserve System because market forces led inefficient industries to during that period. As I will discuss in my testimony, invest in new technologies or simply to close down, these issues are important for understanding the curworkers to invest in new skills, employees and rent and future course of the national economy. management to seek more flexible and innovative In many ways, the Fourth District's performance relationships, and entrepreneurs to find and develop during the past decade foreshadowed that of the napromising new opportunities. tional economy during the past several years. Although the national economy saw extraordinary Government does have an important role, however. growth since 1980, the Midwest's expansion was much It is to establish an environment of competition and more subdued. Employment within the Fourth District long-run stability so that markets can allocate restates grew 9 percent from 1980 through 1992. During sources to their most valued uses. The restructuring the same period, employment in the national econ- that took place in the Fourth District was aided omy, driven by the bicoastal boom, expanded 21 immensely by the reduction in inflation and by the percent. The nationwide increase was sufficient to acceptance that this vigilance would continue in the absorb both an enormous number of baby boomers future. Maintaining this commitment will facilitate the reaching working age and the steady rise in women's restructuring that this and other regions of the country participation in the work force. are currently experiencing. While much of the rest of the nation expanded, the As I have stated on many occasions, monetary Midwest was forced to focus on restructuring—a pro- policy can best promote sustainable long-run ecocess that had been under way for some time. Although nomic growth and rising standards of living by stabirestructuring was a painful experience for many peo- lizing the aggregate price level, by creating a climate of ple, businesses, and banks in the District, it was confidence about the outlook for price stability, and by necessary to restore the competitiveness of its indus- avoiding being a source of economic disturbances tries. On the negative side, in 1980-82 we saw the through unexpected changes in monetary policy. The extent to which this current recovery is at risk depends devastating results of the worst recession to hit this importantly on monetary policy. Deviating from a region since the 1930s: basic industries scaling back or steady and determined pursuit of our longer-run obshutting down, whole communities cut off from their jectives in response to short-term events could jeopeconomic mainstay, workers displaced and discourardize our progress. aged. On the positive side and more recently, the beneficial results of this ongoing process have become My prepared comments discuss in some detail the more evident in the phoenix-like rise by some indus- restructuring and current conditions of the Fourth tries to become much more vibrant and competitive District and my views on the most effective monetary forces in the local, national, and international econ- policy for maximizing long-run output and raising the omy. Newspapers and magazine articles have her- standard of living of all of us. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

406 Federal Reserve Bulletin • May 1993 FOURTH DISTRICT RESTRUCTURING 1.15 percent). In addition, as of September 30, 1992, noncurrent loans as a share of total loans of District The byword for this region over the past decade has banks was lower (1.87 percent versus 3.34 percent), been restructuring—replacement of old technologies and the ratio of book equity to total assets was with new ones, innovation in business practices, scaling somewhat higher (7.77 percent versus 7.39 percent). back of less-efficient industries and expansion of more- As a result of these developments, our region is now competitive ones, and absorption of excess commercial in much better shape than previously. I am encouraged real estate. The restructuring, although difficult and by my conversations with business people and bankers painful, was necessary to improve efficiency and re- around the District, who tell me of significant improvestore competitiveness. The success of these adjust- ments in some of our key industries. The view and the ments can be illustrated by comparing the employment attitude expressed are overwhelmingly forward lookpattern during the past recession with that of previous ing, and this gives me reason to believe that the trend ones. In the six downturns before this most recent will continue. Capital goods producers generally ancontraction, the Fourth District states experienced em- ticipate continued and broadening strength in orders ployment declines two to four times as large as that of and production this quarter from last. Auto manufacthe nation. In the past recession, the drop was less than turers tell us that they anticipate a healthy improvehalf as large as the national decline. Furthermore, ment in U.S. motor vehicle sales in early 1993. With during the 1990s, the region's unemployment rate gen- dealer inventories generally under control, increased erally has been lower than the national rate. vehicle demand has led to rising factory orders. Steel The restructuring led to four basic changes, which producers in the District report that the surge in new have strengthened this economy. First, companies, orders since late last year, from auto and appliance particularly in the manufacturing sector, have im- producers, continued in February and has led to rising proved productivity. For example, manufacturing out- backlogs of unfilled orders and stretching out of delivput in Ohio has doubled since 1982, while the number eries. Some flat-rolled-steel producers report that their of factory jobs has remained roughly the same. With order books for the first half of 1993 are virtually at each worker producing considerably more output, we capacity. now have a leaner, more-competitive manufacturing Despite production gains, most of the people we sector, but one that does not generate as many jobs as have talked to are very cautious about near-term hiring it once did. If this trend continues, as I expect, plans. Employment gains simply have not matched employment will move up as productivity levels in- output growth in most industries. For example, while crease, but in all probability, more slowly than past manufacturers of industrial controls, truck compoexperience would suggest. nents, and steel note a high level of operations in Second, the industrial mix of the economy is more recent months, they are resorting primarily to outbalanced, relying less on the cyclically sensitive sourcing, extra shifts, and overtime to accommodate durable-goods-producing sectors. Third, the region output growth instead of adding workers. In the auto has increased its participation in export markets. industry, however, most employees on temporary Through greater competitiveness, improved product layoff have been recalled, and some facilities are hiring quality, and a deliberate effort by businesses to meet additional workers, as many assembly plants have foreign specifications and to cater to foreign tastes, increased their production schedules. But we must not local businesses have gained an increasing share of forget that the U.S. auto industry is still adapting to many export markets. This is one reason the region change and working through large excess capacity. was more resilient in the early-1990s downturn. Service-sector employment growth also has been Finally, the region has a strong banking sector. relatively anemic. For instance, retailers report that Sound and efficient banks are better able to provide they, like manufacturers, are experiencing intense financing to creditworthy borrowers, which bolsters competitive pressures to cut costs and have relied on regional growth. Our banks are among the strongest in labor-saving technology and management techniques, the country. By implementing prudent management such as tighter inventory control, to accomplish that strategies and avoiding the construction boom-and- goal. Employment growth has been steady in the bust cycle of the past decade, Fourth District banks health care industry, which has emerged as one of the have outperformed their national counterparts. In the largest sectors in both Cleveland and Pittsburgh—two first nine months of 1992, return on assets of District of the largest cities in our District. banks was higher than the national average (1.37 Sluggish job growth in the Fourth District is part of percent versus 0.95 percent) and net loan losses as a a national phenomenon. The interesting question is share of total loans was lower (0.95 percent versus whether employment will pick up enough to offset the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 407 slow growth of the past few years or whether it will generated prices. It can induce people to save too remain moderate, growing along a permanently lower much or too little, to invest in the wrong assets, and to trend. Certainly, last month's payroll employment be cynical about their government. And, when inflafigures are encouraging. tion surprises are curtailed, as the public inevitably In my mind, there are several reasons why employ- demands, the resource-allocation mistakes become ment has not been increasing faster in this expansion. painfully apparent. A large amount of sectoral reallocation of labor is Unfortunately, the role of monetary policy in affecttaking place, not just in my District, but across the ing output is often misunderstood. It is important to country. For example, displaced defense workers are remember what policy can and cannot do. It cannot having to retrain for employment in other sectors. This create capital stock, train workers, or improve techprocess is neither painless nor instantaneous, but as nology. Nor can it produce real goods and services, workers become absorbed in new jobs, we expect create employment, permanently lower the unemployemployment to return to previous trends. Productivity ment rate, or peg or permanently lower the real is on the rise, some of which is due to new technolo- interest rate. This is not to say that there is no role for gies. As workers are reabsorbed into more-competi- monetary policy. But instead of manipulating aggretive industries and these industries expand in domestic gate demand in a futile attempt to achieve an unattainand world markets, we might expect a return to normal able employment objective, monetary policy should growth along a higher trend. focus on providing the conditions that lead to maxi- There may be some additional factors that discour- mum sustainable growth. age firms from hiring workers. One factor is the steady In the not-too-distant past, prices were destabilized rise in the cost of medical coverage for employees. by policymakers who believed in a tradeoff between Firms often find it cheaper to pay overtime to existing price stability and full employment. That dichotomy workers than to take on more workers. Another factor was false. Monetary policy affects only the efficiency is the mounting regulation facing businesses. Even with which real productive resources are used. In the legislation designed to achieve useful purposes can past, monetary policy often kept the economy from sometimes create unintended side effects. For in- reaching its potential because the policy was not made stance, business people have viewed several pieces of consistently from one year to the next. When shortlegislation enacted during the past several years as run attempts to stimulate the economy through monadding significantly to payroll costs. While businesses etary policy have led to inflation, the economy opermay not yet fully understand the actual costs of such ated less efficiently and people ended up working just regulations, they may very well be reluctant to do any as hard but producing less. significant hiring until these costs become more clear. What monetary policy can do to promote long-run To the extent that recent slow employment growth is economic efficiency is to stabilize the aggregate price due to permanently higher labor costs, we may not level and to create a climate of confidence about the recover all those jobs lost in the past few years. outlook for price stability. Confidence in price-level While signs of a faster-paced and sustainable expan- stability would raise living standards because it would sion are improving, I still have some concerns. Unless enable business people, investors, workers, and conmonetary policy is conducted in a manner consistent sumers to make wiser plans for consuming, saving, with price stability, the overall expansion could re- and investing. Plans made on the basis of inaccurate main anemic. assumptions about future prices are often inefficient. Price-level stability would eliminate the incentives people have to employ resources to hedge against MONETARY POLICY inflation. A firm commitment to price stability would free these resources for more productive uses. More- Monetary policy has played an important role in the over, it would foster the stability of banks and the restructuring that is still going on in the nation and, to financial system. When investments are made on the a lesser—but still important—degree, in the Fourth basis of price projections that prove to be wrong, the District. No doubt the need for some of this restruc- lenders that provided the funds for those projects are turing has its roots in mistakes that were made in the often hurt along with the investors. 1970s. One of the problems with inflation is that it How can price stability best be achieved? There has obscures price signals and causes both businesses and been some discussion about the need to go beyond households to make mistakes that can take years, even monetary targets in the Humphrey-Hawkins process. decades, to remedy. Price-level uncertainty distorts I could not agree more. We need a commitment to an the economic information contained in market- explicit long-run price objective so that the Federal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

408 Federal Reserve Bulletin • May 1993 Reserve can use annual monetary targets more effec- money supply would tend to fall below target, unless tively. The question is whether monetary targeting can the Federal Reserve supplied additional reserves. achieve price stability in the absence of an explicit Conversely, should the economy expand very rapidly, commitment to a price objective. Perhaps so, but not the money supply would tend to go above target unless as easily in my view, and at a considerably greater the growth of reserves is restrained. If the long-run cost. An explicit commitment to price stability is an inflation objective is known, and credibility is mainessential operational element that is missing from tained, then the adjustments necessary to achieve today's policy process. Given the apparent inability of price stability can be made much more effectively. policymakers to agree on an explicit price objective, Of course, other factors affect the monetary aggrethe next best thing the Federal Reserve can do is to gates, including interest rate differentials, the resolukeep money supply growth within specified target tion of the savings and loan crisis, and the evolution of ranges that are consistent , over longer periods of time, liquid mutual funds. Although these factors have been with price stability. exerting an unusually large effect on money supply But which money supply: M2, or a narrow measure growth, the announced target ranges for the broad like Ml? Ml, which includes currency and transac- aggregate (M2) are wide enough to accommodate even tions balances, grew very rapidly last year. House- this extreme behavior. holds and businesses added considerably to such bal- What is the alternative? Some have argued that ances relative to their income and as a share of total policy judgments would be better made if the Federal assets. In economists' jargon, the velocity—rate of Reserve ignored monetary aggregates and instead turnover—of such balances declined. At the same looked at the real economy. I cannot agree. In view of time, the small time deposits included in the broad the dramatic economic restructuring taking place tomeasure of money, M2 (which includes Ml as well as day—technological developments, defense cuts, comsmall time deposits and savings balances) fell sharply mercial real estate problems, to name just a few—we and are continuing to decline. Households have re- cannot have any more confidence in our estimates of duced their holdings of these instruments in absolute potential output than we have in our estimates of terms, as well as relative to their income and as a share demand for a specific monetary aggregate. of their total assets. As a result, the velocity of this M2 Furthermore, we have no direct linkage between component rose substantially and by a surprisingly monetary policy actions and either actual or potential large amount relative to past experience. output. Let me say once again that although we may For a policymaker, the challenge is to analyze these be uncertain about how to interpret the disparate conflicting signals and attempt to anticipate future behavior of the monetary aggregates today, this uncertrends in order to conduct reserve-supplying opera- tainty is no greater than the uncertainty that always tions that, over time, are consistent with achieving exists about potential output. maximum sustainable growth in a stable price environ- What does all this mean for monetary policy? One of ment. We have spent considerable time and resources the biggest obstacles to sustained economic growth trying to understand the monetary data, and still we during the year or so has been the lack of credibility of are uncertain. While this is discouraging, it is not the long-run commitment to price stability. While unusual. We should not forget that all economic data inflation has moved down, the public has persisted in represent attempts to match aspects of the real world its belief that future inflation will be higher. Long-term with theoretical concepts. Just as there is a wide gap interest rates have declined but are still substantially between the theoretical concept of output and the above the levels that would be consistent with price real-world measure of output, there is also a gap stability. This belief is reflected in consumer surveys between a theoretical concept of money and the tar- and is manifested in the extraordinary steepness of the geted aggregates. yield curve and in such behavior as the record number Nevertheless, in the real world, we must make of homeowners who have refinanced mortgages. The prudent judgments about how much weight to give to extensive business balance sheet restructuring, which various measures of money. In my opinion, the best is still going on, also suggests expectations that future we can do today is to choose monetary targets that we borrowing costs will be higher as inflation accelerates. think are consistent with long-term price stability and The credibility of the Federal Reserve's goal to try to maintain them. When these targets need to be achieve price stability has been undermined to some adjusted in order to achieve and maintain price stabil- extent by the belief of analysts and policymakers that ity, we should adjust them. Such a strategy automati- the Federal Reserve, through aggressive monetary cally avoids aggravating the fluctuations in economic policy, could move the economy to a sustainable, activity. Should the economy go into recession, the faster long-run growth trend. As Chairman Greenspan Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 409 indicated to you last month in his Humphrey-Hawkins make a credible long-term commitment to an explicit testimony, these mistaken beliefs have left us with an goal for price stability. Only by doing this can we economy in which private markets quickly embed even combat the 1970s legacy of heightened market sensithe expectation of stimulative monetary policy into tivity to short-run monetary policy actions, reduce higher-inflation expectations and nominal bond yields. long-term nominal interest rates by another 2 or 3 To lock in the hard-won gains made against inflation percentage points, and create an environment in which in the 1980s and extend them well into the 1990s, the inflation fears no longer retard the efficient functioning challenge is to find a way for the Federal Reserve to of the economy. • Statement by J. Alfred Broaddus, Jr., President, Fed- many community banks, and an unusually large numeral Reserve Bank of Richmond, before the Committee ber of strong colleges and universities. on Banking, Housing, and Urban Affairs, U.S. Sen- Our Bank has identified three distinct regional econate, March 10, 1993 omies in the District. One includes south central Virginia, North Carolina, and South Carolina and is characterized by substantial manufacturing activity. I am pleased to be here today to discuss economic North Carolina leads the nation in the proportion of activity in the Fifth Federal Reserve District—the payroll employment in manufacturing, and South region served by the Federal Reserve Bank of Rich- Carolina is close behind. Textiles heads the list in mond—and to describe my views on monetary policy. value of output among the manufacturing industries in I will begin with some background information on the this region. The area's strong manufacturing base also District economy. Subsequently, I will review some includes such other industries as chemicals, machinrecent regional economic trends, summarize current ery, electronic equipment, tobacco products, and fureconomic conditions in the District, and conclude with niture. a brief statement of my basic views on monetary The second regional economy consists of Maryland, policy. most of Virginia, and the District of Columbia. This region is heavily dependent on federal government activity, especially defense purchases. Employment OVERVIEW OF THE DISTRICT ECONOMY stemming from federal nondefense purchases is also important in this area, as is federal government em- The Fifth District includes Maryland, the District of ployment of civilian and military personnel. Columbia, Virginia, North Carolina, South Carolina, The third region is West Virginia. West Virginia's and all but the northwestern spur of West Virginia. economy is based largely on coal, which explains the The Federal Reserve Bank of Richmond has branch state's comparative advantage in the production of offices in Baltimore and Charlotte, regional check chemicals and primary metals. Lumber and wood processing centers in Charleston, West Virginia, and products are other West Virginia industries that have Columbia, South Carolina, and a special facility in enjoyed especially rapid growth in recent years. Culpeper, Virginia. The economies of these three regions have some The Fifth District is home for about 10 percent of the elements in common, such as their strong tourist U.S. population. The District's fine transportation industries. The Fifth District is known for its many networks (including its three major seaports: Balti- scenic and historic areas and for its mountain and more, Charleston, and Hampton Roads-Norfolk), fa- seashore resorts. Tobacco is grown in many parts of vorable climate, and proximity to major domestic the District, as it has been since colonial times. Almarkets combine to make the region especially attrac- though domestic tobacco consumption has declined, tive to business. The District is headquarters for exports of both tobacco leaves and manufactured several major nonfinancial corporations and some of tobacco products continue to rise. Other agricultural the nation's largest and most rapidly growing banking products in the District range from peaches in South organizations. Collectively, the Fifth District ranks Carolina, where the harvest often exceeds Georgia's, fourth among Federal Reserve Districts in terms of to poultry production in North Carolina, Virginia, and both the total assets and the market capitalization of Maryland. The Chesapeake Bay usually produces a its banking organizations. The District is also the plentiful harvest of fish, crabs, and oysters, although location of thousands of farms and small businesses, the oyster harvest has been quite low in recent years. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

410 Federal Reserve Bulletin • May 1993 TRENDS IN EMPLOYMENT AND INCOME weeks of 1993, although half of the commercial loan officers surveyed said that stiffer regulatory require- The table accompanying my testimony summarizes ments were still limiting their lending activity. Small the behavior of employment and real personal income business members of our Bank's Small Business and in Fifth District states since the early 1980s.1 The table Agricultural Advisory Council report that credit is still shows that the decade of the 1980s, after its early tight despite ample opportunities, in their view, for recession, brought strong growth in both employment banks to make good start-up business loans. District and income to most of the District. This growth was farmers are evidently finding adequate credit available spurred in the northern part of the District by the in federal programs. defense buildup and the concurrent real estate boom Let me comment now on recent developments in and in the southern part by foreign and domestic individual state economies. South Carolina has been investment in manufacturing. West Virginia, however, recovering at a moderate but steady pace. Retail recorded a more modest increase in jobs and very little sales—including sales of new cars—have risen in increase in income during the 1980s, largely because of recent weeks, as have sales of new and existing job losses in the coal industry. homes. Textile manufacturers are now operating at Employment and real personal income declined capacity and exporting some of their production. throughout the District during the 1990-91 recession, BMW's choice this past October of the Greenvilleas they did in most of the country. Job market condi- Spartanburg area as the site for its new U.S. plant has tions have improved since the end of the recession, sparked increased business activity in that vicinity. although only North Carolina and West Virginia expe- Along the seashore, tourism has revived somewhat, rienced significant employment growth through the and business is better. In Columbia, bankers report end of 1992. Employment actually continued to fall increased commercial loan demand. On the negative sharply in Maryland in this period. Real personal side, the air force base at Myrtle Beach has been income grew moderately in the District from the closed and parts of South Carolina are vulnerable to recession trough through the third quarter of 1992 (the possible further defense cuts. last quarter for which data are available), and here also Our contacts in North Carolina report improving the performance of North Carolina and West Virginia conditions and greater business and consumer optiwas strongest. In agriculture, data on cash receipts mism regarding the outlook. The improvement is essuggest that real farm income in the District was pecially evident in retailing, housing, and manufacvirtually unchanged in 1992 from 1991 but higher than turing but extends also to commercial construction. In in earlier years. Charlotte, for example, one of our sources recently complained that a scarcity of large blocks of vacant office space was discouraging some businesses from CURRENT ECONOMIC CONDITIONS locating in the city, and he bemoaned the absence of speculative builders of commercial real estate. In The latest data and anecdotal economic information Raleigh, office vacancy rates are among the lowest in available to us indicate that the pace of the recovery in the nation. Furniture manufacturers in North Carolina the Fifth District has quickened in recent months. are enjoying their best year in many years, and in- Consumer spending was strong during the Christmas creases in new orders point to continued good busiseason, and more recent information suggests that ness in this industry in the months ahead. spending has held up well since then. The housing Economic conditions in Virginia appear to be imindustry has also been improving for many months, proving at a faster pace than earlier in the recovery. and the decline in mortgage rates in recent weeks has The gains are reflected in a recent pickup in state given home sales an added boost. Manufacturers re- government revenues, which has permitted a modest sponding to our regular mail survey report that District pay increase for state employees. Retail sales and the factory activity improved during the first six weeks of construction of single-family homes in the state Eire 1993 after several months of little change. showing continued gains. The Northern Virginia and Profits are up and nonperforming loans are down at Tidewater areas, which have been the hardest hit by the District's banks. Our recent telephone survey of defense cuts, seem to be recovering despite continued financial institutions indicated that both business and job losses due to reduced defense purchases. Vacancy consumer loan activity increased during the first six rates for office buildings in the state's urban areas have declined somewhat, especially in the suburbs. Vacancy rates are still high, however, in central cities. Economic activity in the District of Columbia, 1. The attachment to this statement is available from the Federal Reserve Bank of Philadelphia, Philadelphia, PA 19106-1574. which began to show some signs of turning up early Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 411 last year, continues to improve slowly. Much consol- ing, and manufacturing. The improvement in the Disidation of Washington's financial institutions has taken trict economy has also benefited District banks, which place, and their performance has improved consider- in the aggregate are in their best condition since before ably, although some problems remain. The local gov- the recession began. ernment continues to be mired in fiscal difficulties brought on by population declines and by the movement of business and government activity to the sub- MONETARY POLICY urbs. Even so, the mood among our business contacts in Washington is positive. One favorable sign is a Turning to my views on monetary policy, I believe that pickup in tourist activity. Another is the relative the primary goal of policy is to promote economic scarcity of office space in Washington, which has led growth and employment and that the Federal Reserve to plans for some new government and commercial can best pursue this goal by fostering a stable aggreconstruction. gate price level over time. Inflation constrains growth In Maryland, indications that the economy has by interfering with the market's ability to allocate bottomed out are tempered by concern about short- resources to their most productive uses. In addition, falls in state government revenues and by additional inflation results in arbitrary and unfair redistributions layoffs at defense contracting plants such as those of of income and wealth that cause social tensions and Westinghouse and Martin Marietta. On the positive weaken the fabric of our society. Moreover, rising side, activity at the Port of Baltimore, which earned inflation is invariably followed by corrective policy its first profit in four years in 1992, is rising modestly. actions that depress economic activity, sometimes—as Also, the residential real estate market finished in the early 1980s—severely. This stop-go pattern 1992 with a good fourth-quarter performance, and retards technological progress and thereby slows the building permits in the state were up 26 percent in longer-run rise in our standard of living. 1992 over 1991. One homebuilder who has not built Substantial progress has been made in reducing speculatively in two years now indicates that he is inflation and interest rates since the early 1980s. The planning to resume building without advance buyer inflation rate has declined from more than 10 percent contracts. in 1980 to around 3 percent today, and the thirty-year Business activity in West Virginia has been improv- Treasury bond rate has fallen from above 14 percent to ing steadily in recent weeks, and our business contacts below 7 percent. I believe that the large decline in in the state are upbeat about prospects for the months long-term rates over this period reflects at least in part ahead. The state's lumber industry, which has bene- a significant increase in the credibility of the Federal fited from strong export demand, is experiencing Reserve's disinflationary strategy. The current thirtyrecord production. Production is also at capacity lev- year Treasury bond rate, however, remains well above els in some wood products industries. One hardwood the 3 percent rate prevailing in the 1950s, when the flooring plant operating with double shifts and with all price level was reasonably stable, which suggests that its production pledged was recently asked if it had the public still fears that inflation will persist at 3 anything at all to sell. "Only rejects," the customer percent or 4 percent in the years ahead. In my estimawas told. He bought them. tion a fully credible policy to achieve price-level Until last month, West Virginia's coal production stability would bring long-term rates down further and was proceeding at a near-record pace, although em- provide an important additional stimulus to economic ployment in the industry was still declining because of activity. In this regard, I should note my belief that the continued shift to capital-intensive extraction. passage of the Neal Amendment would strengthen From February 2 through March 2 a strike idled a greatly the Federal Reserve's effort to achieve full small but significant portion of the industry, and out- credibility for its longer-term objectives. put was about 10 percent below the same period a year Against this background, I believe firmly that speearlier. Coal prices were not affected until the end of cific monetary policy actions taken in the short run February, however, when spot prices rose somewhat should be evaluated within the framework of our as fear that the strike might spread prompted electric long-run goal for price-level stability. In particular, the power companies to add to their coal stockpiles. On annual targets for the monetary aggregates should be March 2, striking miners agreed to return to work seen as a means of helping the Federal Reserve attain while talks continued. its longer-term objectives rather than as ends in them- To sum up, the Fifth District economy is on the selves. The targets play a useful role in signaling our mend, apparently even in the northern part of the long-run commitment to a stable price level, and we District, which was hit hardest by overbuilding and should continue to lower the targets gradually until defense cuts. Conditions are better in retailing, hous- they are fully consistent with this objective. In making Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

412 Federal Reserve Bulletin • May 1993 our short-run policy decisions, however, we should recognize that these actions must be taken in the not adhere slavishly to the targets, in my judgment, context of current developments in the economy. If when technical developments or institutional market forces are putting downward pressure on changes appear clearly to be altering the relationship short-term interest rates, then we must allow shortbetween GDP growth and money growth—such as term rates to fall in reflection of those forces, as indeed occurred in 1992, when nominal GDP grew at a rate we have over the past several years. I think it is futile, of more than 5V2 percent while M2 grew at a rate of however, to base our policy actions on the notion that only 2 percent. monetary policy can eliminate or nearly eliminate In making our short-run policy decisions we also short-run fluctuations in economic activity, which need to be mindful that actions that weaken the occur for a wide variety of reasons. Actual experience credibility of our commitment to price-level stability over the past thirty years provides little, if any, can have perverse effects on interest rates and eco- support for this idea. In particular, history suggests nomic activity. The Federal Reserve directly influ- that attempts to stimulate economic activity in the ences only a small number of short-term interest rates. short run without regard to the possible inflationary As I mentioned earlier, long-term interest rates, which consequences result eventually in higher inflation and have a greater influence on economic behavior, are the depressing corrective actions that I mentioned determined in large part by the public's inflation earlier. expectations. If we want to foster low long-term rates, To sum up, my view is that monetary policy should with all their benefits to the economy, we must make seek to promote real economic growth and employpolicy decisions that the public views as consistent ment by achieving and maintaining price-level stabilwith longer-term price level stability. ity. The Federal Reserve's day-to-day policy actions I should note here that while I believe that the should be consistent with this goal, and the System System's short-run policy actions need to be condi- should do whatever it can to increase and enhance the tioned at all times by our longer-term objectives, I also credibility of this strategy. • Statement by Robert P. Forrestal, President and Chief were some of the most impoverished in the nation. Executive Officer, Federal Reserve Bank of Atlanta Even today, by many measures of social well-being, before the Committee on Banking, Housing, and Ur- Sixth District states continue to underperform the ban Affairs, U.S. Senate, March 10, 1993 nation. For example, the proportion of children living below the poverty line exceeds the national I am pleased to appear before this committee today to average in every District state and reaches about 30 discuss economic conditions in the Sixth Federal percent in Mississippi. All the District states, with Reserve District and to provide my views on appro- the exception of Florida, have lower-than-nationalpriate monetary policy. I will first review current average per capita disposable personal income. And economic conditions in the District and the prospects Florida, Georgia, and Louisiana represent three of the four states across the nation with the lowest high for 1993. Then I will turn to the longer-term outlook school graduation rates. These few figures hint at my for the region and some challenges related to lingering views about macroeconomic policy. As I will share disparities in income growth in the southeastern with you, I favor a policy mix that fosters long-term states. This perspective will bring me to my final investment. Only through the creation of physical subject, monetary policy. and human capital can the poorer areas of the Sixth The issue of sustainable growth is of special concern District share in the successes of the more prosperto me because of the uneven performance of the ous areas. Southeast. Over the past few decades we have experienced some relatively rapid growth, most notably, perhaps, in the Atlanta environs. Middle Tennessee has also performed relatively well, as have most of CURRENT ECONOMIC CONDITIONS AND Florida and sections of Alabama. OUTLOOK FOR 1993 However, the Sixth Federal Reserve District is an extremely diverse economy, encompassing Georgia, Overview Florida, Alabama, two-thirds of Tennessee, and the southern halves of Mississippi and Louisiana. For As background to this view, let me begin with current many decades the states that make up this District economic conditions in the Sixth District. After shar- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 413 ing weak conditions with the rest of the nation, the as significant as those found elsewhere, nor are they southeastern economy began improving in the middle expected to be. of last year. Regional nonfarm payroll employment Of course, lingering problems will keep growth only increased moderately through the end of 1992. From moderate. Several forces that limited employment January 1992 to January 1993, states in the Sixth gains in 1992 are still in effect. Excess real estate District reported more than 300,000 new jobs, a 2.2 investment from the 1980s will continue to dampen percent growth rate. This compares with a 0.6 percent office, apartment, and condominium construction. increase in payroll employment for the nation over the Employment in service industries should grow more same period. Most of the increases were posted in rapidly in 1993 as demand for business and personal services, construction, wholesale trade, and durable services picks up, but the possibility of further consolgoods manufacturing. The District's seasonally idation in several industries, including banking, airadjusted unemployment rate stood at 7.3 percent in lines, and communications, will continue to restrain January of this year, fed by high jobless rates in total employment growth through 1993. On balance, Alabama, Louisiana, and Florida that pulled the re- however, the Southeast's economy is likely to expand gional average above the nation's. However, Florida, more rapidly than the nation's in 1993. the only state with more recent employment statistics, experienced a sharp decline in unemployment in Feb- Retail Activity ruary—to 6.7 percent. After enjoying significant increases in holiday sales, According to the vast majority of our retail contacts, with many areas showing double-digit percentage after a strong holiday season with increased spending gains over year-ago levels, retailers saw sales holding noted across a wide range of goods from apparel and up fairly well in the first quarter. Realtors and home- household textiles to big-ticket items such as electronbuilders have been seeing ongoing improvements in ics, appliances, and furniture, year-over-year conmost single-family markets. Manufacturers are report- sumer spending growth continued in January and early ing modest increases in production. Bankers indicate February. Most retailers are upbeat about near-term that consumer and business loan demand is picking up. prospects, and they are also generally happy with Except for some construction materials, wholesale current inventory levels. Auto sales growth, however, and retail prices have remained stable and wage gains has been less uniformly positive across the region. modest. Contacts across the District suggest that Tourism continues to be a positive force in the consumer and business confidence has revived. regional economy. Air passenger traffic, particularly In 1993, growth in the Southeast should outpace the international arrivals, was significantly above year-ago nation. The region's concentration in household tex- levels in December. Reports of convention attendance tiles, furniture, appliances, and lumber production will in early 1993 show that it is exceeding year-ago levels; be boosted by national strength in single-family con- industry contacts indicate that advance bookings struction, while new construction to replace losses through at least midyear are strong. from Hurricane Andrew will add further to demand. In Looking ahead, Hurricane Andrew will continue to addition to the housing rebound, the Southeast, which generate a spending surge on building materials and has been treating timber as a cultivated crop for related household goods in southern Florida and Loudecades, stands to benefit from environmental restric- isiana through most of the year. Although localized, tions in the Northwest through the 1990s. the stimulus is likely to be large enough to boost Drags from defense cutbacks and state government regional sales an additional 1.5 percentage points, to fiscal problems are also likely to have relatively less well above 1992 levels and comfortably above the impact in the Southeast. Although defense contractors expected national pace. In addition, previously postin the region are suffering, the Sixth District is ex- poned purchases of autos, household goods, and other pected to be hurt relatively less by spending cutbacks big-ticket items as well as increased home sales—new because defense production is a less important factor and resales—will support purchases of appliances, than in other regions. In addition, the Southeast will furnishings, and household textiles next year. probably not be hit as hard as the rest of the nation by The stimulus from Hurricane Andrew will peak in the U.S. Defense Department's current base reduction the second half of the year as insurance proceeds are plans. exhausted. When hurricane-related construction slows The Southeast is also comparatively less hampered after midyear, spending generated by rebuilding in by state and local government budget problems. Al- Florida and Louisiana will begin to fade, in turn though several states are currently considering some causing overall consumer spending gains in the region form of revenue enhancement and budgets have cer- to decelerate. Stimulus from moderate increases in tainly been tight, the problems generally have not been total employment and incomes will be left, but that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

414 Federal Reserve Bulletin • May 1993 cannot sustain the current pace of consumption stability in the nonresidential sector should continue to growth in the Southeast. Nonetheless, the retail work strengthen the demand for textiles. force is expected to expand somewhat faster than total The region also has a concentration of producers of employment through 1993. pulp and paper products and food processors. Production of pulp and paper products advanced convincingly in 1992 as improved shipments and distribution activity Manufacturing stirred demand for boxes and paperboard. Food processing also continued to expand at a steady pace last Manufacturing in both the Southeast and the nation year. The expansion nationally should continue to currently employs between 16 percent and 17 percent boost demand for pulp and paper products through of the nonagricultural work force. However, the re- 1993, and steady growth in food processing should be gional average does not accurately reflect the impor- sustained. tance of manufacturing activity in the different District Regional and national producers of machinery, fabristates. Low manufacturing concentrations in Florida cated metals, and electronics all suffered during the and Louisiana veil the importance of factories as past year. In general, however, their troubles struck the employers in Georgia, Tennessee, Alabama, and Mis- Southeast less severely because these industries are not sissippi. The Southeast's considerably greater depen- as crucial to the region's total factory output as they are dence on nondurables production—52 percent of total in the nation in general. The expansion of auto producfactory employment versus 43 percent nationally—has tion capacity in Tennessee provided a welcome respite given the region an advantage since mid-1991. to an otherwise gloomy transportation equipment sec- District manufacturers reported moderate increases tor in the region. The national upturn in demand for in activity through February. Industry spokespersons durable goods bodes well for these industries. note that production and shipments continue to in- The main weakness—past, present, and future—in crease for textile and apparel plants. An improving durables production nationally revolves around denational housing market is supporting carpet produc- fense, but regional declines in defense-related activity tion, although the glut of office space nationally is should be comparatively less significant than in the depressing the outlook for commercial textile products. United States as a whole. The six-state region repre- Contacts also note improving conditions for electronic sents 13.5 percent of total U.S. employment but, equipment and rubber and plastic producers. According according to the U.S. Department of Defense, is home to preliminary figures from the Atlanta Fed's monthly to only 10.5 percent of the nation's defense-related survey of southeastern manufacturers, almost two- jobs. In a recently released Congressional Budget fifths of responding plants indicated increased produc- Office ranking of states by projected effects of defense tion during February, compared with 15 percent report- employment declines through 1996, no southeastern ing declines. More than half of the respondents expect states appear in the top ten. Declines in the region's production and shipments to increase over the next six defense-related production should also be mitigated months. About half of the survey respondents think somewhat by a national recovery in demand for durathat new orders will be greater six months from now. A ble goods. All in all, manufacturing should lend strength to the southeastern economy in 1993. third of responding firms expect to increase investment over the next six months. Among specific industries within the manufacturing Construction sector, textile and apparel producers account for a large proportion of regional employment. Textile and apparel Construction in the Southeast reached a trough in late factories began adding jobs in mid-1991 as the national 1992 after four years of steady decline. Since its peak housing recovery spurred orders for carpets and house- in 1988, when the industry employed nearly 790,000 hold textiles generally and rising apparel sales inspired workers in the region (7 percent of the total job base), retailers to begin rebuilding inventories that had been 125,000 jobs have been lost, paring construction emsliced to the bone during three tough years. The upward ployment to 4.5 percent of the work force—equal to tick in apparel demand through early 1992 provided the current national average. Most of the job losses only temporary relief to an embattled industry, how- occurred in Florida and Georgia, the Southeast's ever. By the second half of the year, apparel employ- boom states in the 1980s. Alabama and Tennessee ment was already beginning to look unsteady. The posted modest construction layoffs while Louisiana long-term trend toward lower employment should and Mississippi registered offsetting gains. resume over the next year as apparel production con- After adjusting for seasonal variation, realtors retinues to become more capital-intensive or is moved ported that home sales continued to rise in most areas offshore. Fortunately, gains in housing activity and of the Sixth District into the first quarter. They noted Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 415 increased traffic and interest in low- to mid-priced new these jobs and incomes will begin to exert a significant and existing homes. While most reported little change drag on those local economies. in inventories, a growing minority have seen some absorption of excess space in the resale market. Home Service Sector prices have remained mostly steady except for new construction, where higher materials prices are re- Performance of the region's business and professional ported to be pushing housing prices up. Realtors service producers typically parallels the nation's. Alattributed sales gains to low mortgage rates and in- though regional demand for transportation, telecomcreased consumer confidence. The majority are opti- munications, and financial services is likely to rise in mistic about sales prospects during 1993. 1993, employment growth in these industries will be Looking at construction activity, single-family build- constrained by continued restructuring. Major corpoing continues to improve. Permits continued to edge rations continue to announce long-term commitments higher through the end of 1992, and most builders to reducing staff levels. Telecommunications and softcontacted anticipate further sales gains in 1993. Multi- ware companies are facing intense competition. Airfamily development in the Southeast continues to be line bankruptcies have served a particularly hard blow plagued by relatively high vacancies, only moderate to the region in the past two years. While remaining economic growth, a demographic shift that has reduced carriers have taken up most of the slack in service, the traditional pool of young adult renters, and the most of the laid-off employees have not been rehired declining relative price of starter homes. Still, with a and remaining carriers are cutting jobs. virtual absence of new development in most markets Business services employment, which rebounded in since 1991, occupancy rates are edging higher, effective 1992 after declining in 1991, reflects broad efforts at rental rates are firming, and bottom-fishing investors consolidation and cost reduction. Part of 1992's reare more active in buying up nonperforming properties. bound can be attributed to temporary agencies, which While offering little sign of recovery, the supply imbal- are defined as a business service. Increasingly, firms— ances are clearly abating, and the long slide in multi- ranging from insurance agencies to hospitals—use family development appears to be over. Modest gains in temporary agencies to meet fluctuations in demand for multifamily development could occur in 1993, but the services and to hold down costs, to limit long-term recent rebound in residential investment will probably commitments, and to screen prospective employees. slow except for hurricane-initiated activity. Employment gains in health services, which main- Commercial construction remains stagnant in most tained rapid employment growth rates during the remarkets in the District. Potential developers of spec- cession, have begun to slow, perhaps the victim of ulative projects are still having a hard time finding excess capacity as competition among hospitals and credit. Stagnant office development reflects develop- physicians is intensifying. While employment growth ers' sober assessment of how slowly the growth in in this sector will continue to advance more rapidly white-collar employment is likely to absorb excess than total employment in 1993, the rate should slow office supply. Some positive signs are beginning to significantly. appear, however. Large contiguous blocks of space State legislatures in the District have reconvened. are becoming scarcer in major metropolitan areas, and Coincident with the pickup in regional economic aceffective rental rates are inching upward. In some tivity, state and local tax revenues are generally imareas, the lack of new product has resulted in lower proving. Nevertheless, Alabama, Florida, and Louisivacancy rates amid a slow recovery in net absorption. ana are all considering ways to increase revenues. The value of contracts for nonresidential private con- Tennessee legislators may make permanent a state struction in the region appears to have hit bottom in sales tax hike temporarily imposed last year. Georgia mid-1992. As net absorption slowly gains momentum is enjoying relatively vigorous growth in its tax rein 1993, it should set the stage for modest increases in ceipts, and Mississippi is actually running a moderate office development beginning late in 1993 or in early budget surplus. 1994. In addition to these regionwide developments, Hur- Wages and Prices ricane Andrew has ensured a temporary construction boom in southern Florida and, to a lesser extent, Upward wage pressures are virtually nonexistent in southern Louisiana. Repairing $15 billion to $20 billion the District at this time. Corporate restructuring and in damages to residential, commercial, and public downsizing continue to hold back wage increases and structures may require 20,000 to 30,000 additional new hiring. Most respondents to the previously menconstruction laborers at the work's peak in the second tioned manufacturers' survey reported no changes in half of 1993. However, by late 1994 the withdrawal of prices received for finished products or prices paid for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

416 Federal Reserve Bulletin • May 1993 materials in February. Only one-fourth of surveyed to international competition. Comparatively low firms hope to raise finished-product prices in the next wages and taxes in the six southeastern states will six months. Discussions with other contacts reveal continue to draw relatively labor-intensive investsome uncertainty about whether modest price in- ment. Unfortunately, however, many areas of the creases will stick because of the competitive environ- Southeast are not set to deliver the skilled, flexible ment. work force increasingly needed to use sophisticated factory and office technology and to compete interna- A Comparison of District States tionally. Growth in the Sixth District over the past two Turning to the outlook for specific states, Georgia, decades has been fed and sustained by attracting Tennessee, and Florida have more growth potential in capital, both physical and human, from other parts of 1993 than the other states of the region. By year's end the country and overseas. The substantial rise in 1992, both Georgia and Tennessee were exhibiting incomes in middle Tennessee has sprung in large well-entrenched and relatively balanced, moderate measure from decentralization of manufacturing. Ateconomic recoveries. Georgia seems to be back on a lanta's growth has come from this trend, decentralizafavorable track after having absorbed several signifi- tion of corporate headquarters, and outsourcing of cant negative economic shocks over the past four business services, along with a spectacular rate of years, but it faces some drag from the shrinkage in successful small business start-ups. What all these airline and defense payrolls. Tennessee is experienc- sources of jobs have in common is a long-term coming employment gains in manufacturing, especially in mitment of capital and skills to the region. auto-related industries. Both states should grow mod- These commitments would not have been made erately faster than the nation. Florida, the most pop- without the expectation of a long-run payoff to the ulous state in the District, has lagged behind the region investments. The Ph.D.s, engineers, and highly skilled in recovery. It began to show signs of doing better in workers who have relocated to the Southeast would the latter part of 1992. Despite the effects of defense not have come were it not for their expectation of a cuts on Florida's manufacturers, improved tourism better standard of living as a result of their move. The and exports to Latin America will probably be enough physical capital would not have been attracted to the to put Florida's growth on par with the region's in region if the investors did not think that the long-term 1993. Added to those forces, rebuilding after Hurri- payoff would be higher here than elsewhere. In short, cane Andrew will provide an additional boost for jobs our growth has been based on a variety of decisions and incomes. Thus, Florida is also likely to grow at a that are, in one form or another, motivated by relarate above the regional average, but this momentum tively favorable long-term views of the Sixth District. may begin to fade by year-end. However, the region has not succeeded in economic Mississippi and Alabama mostly steered clear of the improvements to all localities or segments of the national recession during 1990 and 1991. However, population. The disparity in the 1993 outlook for the Mississippi's prospects in 1993 are dimmed by ex- six states as well as the statistics on educational pected defense-related layoffs, and Alabama's modest attainment and per capita personal income I provided growth should not measure up to the regional average at the outset attest to this shortcoming. To overcome it because of deceleration in apparel, textiles, and pub- will require more long-run investment in both physical lic-sector employment. Louisiana's energy-based and human capital. However, such a lasting commiteconomy may be running against the region's general ment requires a hospitable economic environment that trend and faces the prospect of a continuation of the people expect to be maintained over time. Moreover, state's current economic slump in 1993 even as the this stability cannot be maintained on a local or moderate national expansion builds momentum. regional level without the sustained presence of appropriate macroeconomic conditions, attendant with a sound fiscal and monetary policy mix. This observa- LONG-TERM GROWTH CHALLENGES tion brings me to the third and final aspect of my remarks, namely, monetary policy. The Southeast's generally positive short-term prospects are based mainly on temporary advantages. In the longer term, sustaining and broadening the growth THE ROLE OF MONETARY POLICY that many parts of the Southeast are likely to experience in 1993 will depend upon the region's ability to The most important role of monetary policy is to attract capital and labor and its response to underlying provide an environment in which the most productive structural changes in the domestic economy as well as outcomes will occur. Such an environment is one that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 417 allows for a focus on the longer run; it is one in which This broadly ameliorative aspect of macroeconomic resources are not distracted or diverted to deal with policy is still the Federal Reserve's mandate. I believe short-term distortions and temporary imbalances. In that the Federal Reserve, like other policy institutions such circumstances, resources, both physical and fi- that act on behalf of society, must keep public prefernancial, can be used to their greatest efficiency and ences in mind when pursuing social goals. As a pracyield their highest output and reward. tical matter, this social obligation means that none of I am well aware of the loss, inefficiency, and waste the transitions should be excessively traumatic. that is behind the human tragedy of unemployment, To make monetary policy in a context of uncerand I am equally aware of the terrible cost of inflation. tainty, complexity, and trade-offs, the Federal Open The role of monetary policy is to put some credible Market Committee (FOMC) seeks to reach decisions bounds on expectations about inflation and unemploy- by consensus, and this consensus is based not only on ment. Thus, the Federal Reserve not only must pro- economic statistics and forecasts but also on informavide assurances that inflation, now or in the future, tion gathered from Americans at work in the economy. will not be allowed to rise enough to become an As a Reserve Bank president, I am able to share with important consideration in private decisions but also my Washington-based colleagues my interpretations must support expectations that disruptions to the of the latest economic data and models as well as the economy in the presence of unforeseen and unwel- opinions and experiences of people in the Southeast. I come shocks will be mitigated. In this sense, I see the meet regularly with business executives, bankers, role of the Federal Reserve as promoting stability, not farmers, labor leaders, educators, and others. These just in prices but also in income and employment people share with me, in confidence, current and growth as well. This setting is a critical ingredient in sensitive information about their firms, changes in the the creation of sustainable growth because a stable size of the work force, early warning signals of inflaenvironment will support the long-term planning hori- tion, credit availability, and what they believe should zon necessary for the investment that will create jobs be done about the way things are turning out. By and nurture high value-added firms. bringing together a broad range of information and opinion, I believe the process of reaching a responsible Of course, the Federal Reserve must seek to create consensus is enhanced. I know that being a part of my and maintain these conditions in a world of uncer- District has influenced my views on monetary policy. tainty. We all know that history does not, in fact, usually repeat itself. In addition, the Federal Reserve Right now, I believe monetary policy is on target. must bring to bear on its decisions an understanding of The economic situation is by no means ideal, given the the social preferences of the American public. Given large number of unemployed. However, we must not the uncertainty inherent in policymaking and the dif- discount the important foundation for growth that has ficulty of assessing risks, monetary policy may some- been laid by the Federal Reserve in reducing inflation. times have to steer the economy gradually to the The current degree of price stability we have achieved desired conditions of price stability and output growth. positions the United States to reap enormous and real, In most advanced economies, policy institutions not inflationary, gains in output and incomes. were created over the past century to mitigate the In this vein I am very heartened that the burning transition costs of economic corrections. In the nine- issue of the federal budget deficit has moved to the teenth century, business cycle fluctuations were much forefront of the social agenda. I feel it would be sharper than they are today. Imbalances were cor- inappropriate to comment on specific elements of the rected by sharp implosions in financial markets, severe proposal because doing so would be inconsistent with contractions in output and money wages, and costly the independence of the central bank. Nonetheless, I dislocations of resources. Prices also tended to fall can emphatically say that a successful resolution of across the board, sometimes quite dramatically. Then this issue can ensure that we achieve conditions favoreconomic growth began afresh. able to long-term investment and lasting growth, both Although such swift and clean adjustments have a in the Southeast and the United States. certain theoretical attractiveness, these abrupt changes were unnecessarily costly for those adversely affected. Sometimes, in the rush of a collapse, sound CONCLUSION businesses, banks, and households were financially ruined because their assets were not liquid and they In conclusion, let me reiterate the motivations for my lacked the time to find the means to liquidate them. stance on monetary policy. I bring to the FOMC the Over time, a variety of economic policy institutions views and experiences of people from a diverse Fedand measures were established to mitigate and atten- eral Reserve District. It is one that has not only uate this process. enjoyed rapid growth but also lingered in oppressive Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

418 Federal Reserve Bulletin • May 1993 poverty. To redress the latter condition, I believe we short-term and short-sighted projects that create need more investment, in both human and physical low-wage jobs for a while until lower-cost alternacapital—better schools, factories with high-skilled tives can be found. Monetary policy thus is critical to jobs, and so forth. the Southeast's major challenge because it can help To garner such investment regionally, we must create such an environment of stable prices and have as a national foundation an economic environ- steady gains in employment and output. By doing so, ment that promises some measure of stability over we will achieve the ultimate goal—higher living stantime. Otherwise the Southeast will end up with more dards for all. • Statement by Silas Keehn, President, Federal Reserve require contact with businesses and individuals and Bank of Chicago, before the Committee on Banking, cannot be derived solely from statistics and theory. Housing, and Urban Affairs, U.S. Senate, March 10, While our Bank follows the publicly released data very 1993 carefully, we rely very heavily on information sources and contacts within the District to determine current I am pleased to be here today to discuss economic and prospective conditions so important to the develconditions in the Seventh Federal Reserve District and opment of the appropriate monetary policy to deal to comment on my views on monetary policy. The with changing economic circumstances. It was only by Seventh District, which includes all of the State of maintaining close contact with our District that it has Iowa and most of the States of Illinois, Indiana, been possible to go beyond the economic statistics to Michigan, and Wisconsin, is an economically large, an understanding of what has really been going on in important, and diverse region, which both reflects and the District's economy and in the nation as a whole. drives a substantial portion of the U.S. economy. The Federal Reserve Bank of Chicago is deeply By any measure, the District ranks as a major involved in monitoring and analyzing economic develeconomic force, and, therefore, conditions in the opments in the District on an ongoing basis with a District directly influence my views regarding mone- variety of fact-finding initiatives. In addition to the tary policy. And, in turn, monetary policy actions very valuable input from our boards of Directors in have an important impact on economic activity in our Chicago and Detroit, we have set up a network of District. advisory and contact groups. The Reserve Bank as- The five District states account for about 14 percent sembles regional data to provide a quantitative base of the nation's GDP and 18 percent of U.S. manufac- for regional analysis, drawing from government turing employment. The District produces 45 percent sources and business in the District, and we have of the nation's automobiles, 30 percent of the trucks, developed our own measures, such as the Midwest 38 percent of the nation's steel, and more than 40 Manufacturing Index, to track District economic acpercent of the country's farm machinery. Farmers in tivity. Some years ago we formed Small Business and the Seventh District account for nearly one-fifth of the Agricultural Advisory Councils to obtain continuing nation's annual sales of farm commodities and half of and very important input from these large sectors of the corn, soybeans, and pork produced nationwide. our economy. In addition, the Bank has established a The District is the headquarters of some of the largest network of Industrial Roundtables to provide informafirms in the United States in manufacturing, retailing, tion about emerging business conditions. Industrial and financial services. Roundtables now meet in Chicago, Detroit, Milwau- Given its size and diversity, it is not surprising that kee, Grand Rapids, and Kalamazoo. The Detroit and the District mirrors the economic challenges and op- Chicago groups include corporate economists from portunities in the U.S. economy as a whole. Conse- some of the largest companies in the District. The quently the District, as the nation, has been experi- Milwaukee and western Michigan groups include chief encing significant difficulties in maintaining an financial officers and corporate planners from the adequate rate of real growth. District performance has diverse and important companies located in these improved, but the pace of improvement continues to areas. In addition, the roundtables include contacts be impeded by further financial and industrial restruc- whose businesses are leading indicators of economic turing. activity throughout the District. These roundtables are Monetary policy requires two things above all, a a direct link to about 100 companies and trade associsolid assessment of where we are and a sure sense of ations in the District and provide timely insight into where we should be going. Both of these questions current conditions and emerging market trends. By Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 419 integrating economic data with direct corporate and However useful as an initial characterization, such small business contacts, we are able to make a com- generalizations belie the very broad diversity of loprehensive analysis of the economic trends and cur- cales and industries in the Seventh District. Today, I rent conditions in the District and from that develop a would like to share with you the diverse richness of factual basis for my recommendations on monetary economic activity among subregions and industries policy. within the Seventh District by drawing not only on our In addition to our formal roundtables, the Bank own analysis and public data sets but also from a wide works together with those public sector and quasipub- network of personal contacts with organizations in the lic groups that are struggling to revitalize the region's region. economy. Collaborations with the Wisconsin Strategic The Seventh District economy emerged from the Development Commission, the Iowa Business Coun- decade of the 1980s in far better shape than most cil, the Commercial Club of Chicago, and the Council analysts expected. Its image as part of the nation's of Great Lakes Industries are examples of organiza- collapsing rust belt has been replaced by an emerging tions working to rebuild the District economy. Such image as the center of lean and agile manufacturing. efforts yield a lasting return to us. Through our per- That is not to say that the District's economy has not sonal participation, we establish a relationship of trust shared the frustration of a subpar recovery nationally and open important avenues of communication with or that it has been immune from the economic hardother analysts of areas within the region that enhances ships of the recession or the corporate restructurings our knowledge of issues important to our District. that have swept the nation. General Motor's (GM's) The diversification of our sources of information in announced plans to close twenty-eight plants over the the District helps to ensure that we do not overlook next three years—roughly half of them in the Seventh any emerging sectors of economic activity and prob- District—is a key example; Sears, Ameritech, Dow lems that broad national statistics can overlook. Chemical, and United Air Lines are among other notable examples of Seventh District corporations undergoing dramatic adjustments in the face of changing markets and competitive pressures. DISTRICT OVERVIEW In addition to upheaval among such corporate enti- The Seventh Federal Reserve District is situated in the ties, there is a striking diversity of conditions among heart of the Midwest, straddling the agricultural plains towns and metropolitan areas within our Seventh toward the West and encompassing a large part of the District. Locations such as Flint, Peoria, Rockford, nation's heavy manufacturing belt, which begins fur- Detroit, and Chicago continue to search for answers ther to the East. With a population that accounts for and solutions to disappearing jobs and income, even 13.6 percent of the nation, our District includes the while national attention focuses on the entire region's entire state of Iowa along with the most populous and turnaround. urbanized portions of Michigan, Illinois, Wisconsin, In the early 1980s, firms such as Caterpillar, Cumand Indiana. Accordingly, while we are headquartered mins Engine, and Whirlpool faced formidable chalin Chicago, we maintain a branch office in Detroit, and lenges. Many companies made the necessary adjustregional offices in Des Moines, Indianapolis, and Mil- ments in the 1980s, while others are still making these waukee. adjustments. Many of the District's large urbanized areas now But the success stories are far from universal. specialize in the business of providing services— Well-meaning and well-directed efforts to restructure business, personal, financial, and wholesale and retail have been to no avail for many small businesses and services. Over all, however, our part of the Midwest family farms and for many large corporations that have currently and historically can be characterized as a gone out of existence. Similarly, there is parallel producer and mover of goods—both natural resource diversity in locational well-being and revival for those oriented such as farm goods, as well as manufactured towns that have grown up around large specialized goods. Nearly one-fifth of the nation's $170 billion in industries. Some can succeed, such as Indianapolis annual sales of farm commodities is generated by and Des Moines, by redefining and reinventing themfarmers in District states, mostly because of its dom- selves (for example, Indianapolis as a center of sportsinant positions in corn, soybeans, dairy, and hogs. In oriented tourism, business services, and retail trade). Others however, despite their best efforts at "diversimanufacturing, the District states account for more fying" (for example, Flint) have thus far made less than one-sixth of the nation's output. Land-based progress confronted by external forces and events. It transportation equipment, electrical equipment, priis an accurate statement that the Seventh District has mary metals, machinery, and food processing are the been through an enormous and very fundamental mainstays of the economy. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

420 Federal Reserve Bulletin • May 1993 change. And in this tremendous diversity of experi- regional banks headquartered outside Chicago and, in ence, not every region or industry has come through some cases, outside the District. intact. The Seventh District is no stranger to adversity. In particular, the region has long needed to adapt to the THE 1980S—A TIME OF DIFFICULT TRANSITION cyclical nature of its economy. Moreover, even when its industries are successful in becoming competitive, Much of the Seventh District was characterized as the the process itself leaves significant challenges and "rustbelt" of the nation in the early 1980s. Weak firms opportunities in its wake. Goods-producing industries, either failed or relocated to lower cost regions, and including farm and factory, have continually boosted inefficient plants were closed or downsized. Indeed, productivity by economizing on the number of jobs. In the District lost nearly 1.5 million jobs during the the United States alone, manufacturing jobs as a share recessionary period of 1980-82, mostly in its manufacof the total payroll labor force have declined from 30 turing sector, while the nation lost about 2 million percent to 17 percent from 1963 to 1992 even while the altogether. To be sure, many of these job losses were sector's share of real national output has remained from cyclically sensitive industries that were able to roughly constant. Such labor dislocation is an ampli- recall workers during the vigorous recovery that folfied problem for regions that are concentrated in lowed. But, many jobs were also linked to structural manufacturing such as the Seventh District. The Dis- changes that had been adversely affecting the District trict's manufacturing share of total payroll jobs de- since at least the mid-1960s. Such jobs would never clined from 37 percent to 21 percent over the same return, creating a large pool of structurally unemperiod. Recent management strategies by firms to ployed workers and above-average unemployment improve their competitiveness by labor-saving cost rates in many metropolitan areas of the District. The attrition and mass layoffs have added to this problem. region's standard of living, as reflected by per capita The imbalances in the Seventh District's economic income, declined in relation to the overall U.S. stanbase are also reflected in the response of local dard during this period. institutions—banks and governments. Governments Why was the District affected so heavily during the have the task of making the investments in the future 1980s? Why did it need to restructure so profoundly? of the region—infrastructure and education. How- The problems of the 1980s were to be found in both the ever, weakness in the underlying economic base can District's mix of industries and also its competitive place a region in a vicious cycle. The vicious cycle of advantage. Unfavorable industry mix presented a foreconomic shock, followed by inability to fund social midable challenge to the District during this period. services and public reinvestment, is further aggra- Fortunately, because of changes in the external envivated. In recent years, weak growth in revenues, ronment, the District's current industry mix has since coupled with fiscal strains from Medicaid and prison become more favorable than many other U.S. regions, expenditures, have squeezed out budget items such as the nation is winding down from its cold war as economic development and higher education in emphasis. The early 1980s favored regions that pro- District states. In the Seventh District, responsibili- duced high tech defense and aerospace equipment. At ties for service provision fall to a much higher degree the same time, heavy U.S. investment in newly emergat the local level of government. As a result, wide ing high tech office equipment such as micro and disparities in economic conditions among local com- personal computers contributed to a shifting of demunities means that local plant closings, for exam- mand away from the District's manufacturing sector. ple, will carry over strongly to the fiscal health of Part of the problem of the 1980s was also the local governments. external environment for exports, which was partly Lending institutions share a similar fate. In the early due to the dollar's climb of 85 percent between 1980 1980s, the balance sheets of Seventh District banks and 1985. As illustrated by unit labor costs over this were weakened by the region's weakening economy. period, the value of the dollar had the effect of raising Banks have been restructuring, although problems world prices of U.S. exports. remain. As in other areas of the country, bank lending The unfavorable exchange rate environment for slowed sharply in the early 1990s. The safety and exports aggravated an underlying competitive trade soundness of Seventh District banks are being problem for District industry. Many District firms strengthened by the ongoing process of consolidation were disadvantaged in foreign markets by their use of as earnings, capital ratios, and asset quality issues outmoded technologies. The competitive shocks of the have all shown important signs of improvement. The early 1980s jolted many District firms into recognizing impetus is not being undertaken by money center and the need to reorganize, reinvest in new technologies, other larger banks in Chicago, however, but by large and to restructure their operations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 421 The Auto Industry tural production plant. It has been estimated that lenders wrote off some $20 billion in bad farm loans as The auto industry is perhaps the most vivid example of a result of the experiences of the 1980s. From 1984 to the combination of cyclical and structural forces that 1987 banks nationwide wrote off $4 billion in non-realwere affecting the District in the early 1980s. Ford and estate farm loans. About $1.1 billion of that write-off Chrysler were the first to begin the arduous process of was by banks in states comprising the Seventh Federal downsizing to adjust to changing market forces. In the Reserve District. Further evidence of the spreading early 1980s, Chrysler was already in the midst of a problems of the 1980s is reflected in the cutback in government-backed rescue effort. Four Chrysler facil- capital expenditures by farmers. At the trough in 1986, ities were closed, all within the Seventh District. Ford capital expenditures in the farm sector fell to less than closed another five plants, but these facilities were $8.5 billion, down from the speculative excesses that outside the District. In the late 1980s, GM began peaked at $20 billion in 1979. closing plants in Detroit, Pontiac, and Flint. In all, Big Three auto producers cut assembly plant capacity by about 2.5 million units (roughly 20 percent) between PROFILES IN DIVERSITY 1985 and 1992. To be sure, offsets occurred with the building of transplants in the District, including Dia- Although the Seventh District can be broadly characmond-Star in Bloomington, Illinois, and Mazda's plant terized by its farming and manufacturing, the region in Flat Rock, Michigan. But in Michigan alone, an hosts a great diversity of industries and local econoestimated 70,000 jobs were lost as a result of auto plant mies. These places and industries are closely tied closings even before the 1990-91 recession (between together. Changing conditions in individual sectors 1987 and 1990), with another 40,000 to 50,000 job and geographic areas have rippled throughout the eliminations to be realized as recently announced plant Seventh District. closings take place. Industrial Diversity The Agricultural Industry Despite all the stress and strain on the Seventh The downturn of the 1980s began early in the decade District's economy in the 1980s, the process of for agriculture and ended around 1986. Several de- adjustment has been slow. To be sure, the early velopments during the first half of the 1980s caused 1980s were only part of a long-term readjustment of farm earnings and the income return on farm assets the District's role in the national economy. From to plummet. The combination of lower earnings, 1964 to 1991, the District's share of total U.S. higher long-term interest rates, and shrinking exports employment declined from 16 percent to 14 percent, of that time period contributed to a sharp decline in while manufacturing employment declined from 20 farmland values and huge equity losses for owners of percent to 16 percent in 1982 before rising to 18 farm real estate. Estimates by the U.S. Department percent by the end of the decade. Still, the District's of Agriculture show that the peak-to-trough decline share—one-sixth of the national economy—reprein the average per acre value of farmland nationwide sents a sizable influence. And, despite a decline in was more than one-fourth in nominal dollar terms the role of the District's manufacturing sector in the and nearly 45 percent in real dollar terms. The national economy, its manufacturing sector remains declines were especially steep in the Seventh Federal the defining characteristic of the District's economy, Reserve District. Reflecting this, our land value accounting for about 25 percent of District employsurveys showed the declines in farmland values in ment (down from 30 percent in 1980). The nation on Illinois, Indiana, and Iowa ranged from 50 percent to average devotes about 17 percent of its employment 60 percent in nominal dollar terms and 60 percent to to manufacturing (also down from 24 percent in 70 percent in real terms. With farmland accounting 1980). And within manufacturing, it is the auto-steelfor three-fourths of all assets in the farm sector, the machine-tool nexus that dominates economic activweakness in the land market translated into equity ity. In general terms, the District is responsible for losses of 30 percent in the balance sheet of the farm producing about 45 percent of the nation's cars, 30 sector nationwide and 50 percent to 60 percent percent of its trucks, and 38 percent of its steel (nominal dollar terms) in Illinois, Indiana, and Iowa. (including the bulk of the higher-quality specialty The combination of low earnings and sinking asset steels). The Seventh District also supports a thriving values quickly extended the farm problems of the service sector primarily focused on the financial and early-to-mid-1980s to lenders and most of the agribus- business needs of its manufacturing sector, while iness industries that support this nation's vast agricul- Chicago's Board of Trade and Mercantile Exchange Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

422 Federal Reserve Bulletin • May 1993 serve global commodity and financial markets. How- Construction machinery ever, while the District's economy has been diversifying away from manufacturing, it is likely to remain Another key area of capital goods production in the the core sector of the region's economy for some Seventh District is construction machinery. For examtime into the future. ple, Caterpillar, Deere, and Case (all headquartered in Still, there is considerable diversity among the dif- the District) are the dominant producers in the United ferent subregions that comprise the Seventh District. States, with mainly Hitachi and Komatsu as major For example, Illinois is a major capital goods pro- competitors. Caterpillar alone accounts for 45 to 50 ducer, particularly of farm and off-highway equip- percent of the sales of crawler loaders and tractors in ment. Deere & Company and Caterpillar are major the U.S. and Deere and Case add another 25 to 30 producers in these markets. Indiana is a center for percent. In terms of markets, the Seventh District steel production and auto parts suppliers. Inland Steel represents about 10 to 15 percent of all purchases of and Cummins Engine are world leaders in these mar- construction machinery. U.S. producers were partickets. Wisconsin is another major supplier of auto parts ularly hurt during the early and mid-1980s, when a and particularly a supplier of machine tools for the weak domestic economy was augmented by a strong auto industry. Modine and Giddings & Lewis are dollar that severely hampered export sales of domesexamples of these types of firms. Michigan is closely tically produced construction equipment. linked to the auto industry and is the headquarters for the Big Three. Steel industry The steel industry in the Seventh District is concen- Machine tool industry trated in northern Indiana (about 25 percent of U.S. production), serving appliance and auto plants in the The machine tool industry in the Seventh District is Midwest. Detroit, with about 8 percent of the nation's heavily geared toward the auto industry, either diproduction, also produces specialty steels for the auto rectly for model design retooling of the auto industry industry. The District is dominated by integrated mills, or indirectly for the supplier industries. The District with more than one-third of the nation's steel-making contains almost half (43 percent) of all metal cutting capacity but only 15 percent to 20 percent of the machine tool producers and 35 percent of all metal nation's minimill capacity. In 1991, total domestic forming machine tool producers in the United States. steel shipments were about 79 million tons, rising to 81 Michigan alone employs about 15 percent of all workmillion tons in 1992. Some improvement is forecasted ers in the machine tool industry, second only to Ohio for 1993 (with projections ranging between 83 million (about 20 percent). Illinois employs slightly more than and 86 million tons), and U.S. firms expect to pick up 25 percent of the workers in the metal forming maa bigger share of its total shipments due to restrictions chine tool industry. However, it should be noted that on imports, which currently constitute about 20 peremployment in the industry has declined from a peak cent of the domestic market. of 108,000 in 1980 to 73,000 in 1989 and the number of companies has declined, often through consolidation, from more than 1,400 to 624. In terms of market, the Agriculture District constitutes about 22 percent of all machine tools in use today, with the greater Chicago area Blessed with an abundance of rainfall and highly accounting for half of that market. In 1989, the United productive land, the five states comprising the Seventh States exported about $1 billion worth of machine Federal Reserve District account for a sizable portion tools but imported nearly $2.5 billion (about half of of the nation's agricultural output. Using only onewhich came from Japan). Imports have risen from tenth of the land in farms, District states generate about 20 percent of total U.S. machine tool consump- nearly one-fifth of the $170 billion in annual sales of tion in 1979 to 50 percent of the market today. Finally, farm commodities. The District's share is concenbetween 1968 and 1989, productivity of machine tools trated in five major commodities. Anchored by Illihas more than doubled (using U.S. average annual nois, Indiana, and Iowa, farmers in District states output per metal cutting machine tool in constant account for about one-half of the corn, soybeans, and dollars as the measure), greatly restricting the growth pork produced nationwide. Paced by Wisconsin's top in the market for these machines. After three years of ranking, they also contribute about one-fourth of the declining shipments, industry forecasts call for an 8 milk production. Those commodities, plus cattle acpercent increase in 1993, with exports up 5 percent and count for more than 85 percent of the sales of all farm imports down 7 percent. commodities from District states. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 423 Outside the five major commodities, the District's Regional Diversity agricultural plant produces a wide diversity of products. For example, the five-state region has a sizable From the service sector alone, it is easy to see that a stake in fruit and vegetable production. Apples and diversity of economic activity also exists within states cherries dominate the fruit component, while potatoes that can affect individual perceptions of District ecoand dry beans account for a large share of the Dis- nomic performance. For example, Chicago is a world trict's vegetable production. Within the broad-based center for derivative markets and serves as the midfruit and vegetable complex, Michigan has achieved continental center of business services. While services the top ranking in several components, such as tart grew, manufacturing declined. Manufacturing employcherries, navy beans, and blueberries. Similarly, Wis- ment in Chicago dropped sharply in the early 1980s. consin ranks first or second in the production of The manufacturing sector lost 179,000 jobs between cranberries and in the acreage devoted to sweet corn, 1979 and 1983, and Chicago has shown little recovery green peas, and snap beans used for processing. The in its manufacturing sector since that time. diversity of the District's agricultural production is Chicago's service sector employment began to exalso apparent in Indiana's top ranking for eggs and in ceed its manufacturing employment in 1979, two years Wisconsin's dominating share for mink pelts. In addi- earlier than the rest of the nation. Indianapolis and Des tion, the agricultural base of the five-state region Moines are prime examples of service-sector econocontains an extensive greenhouse and nursery compo- mies that have thrived on the economic transition from nent and several other commodities, including honey, manufacturing to services. For some types of firms maple syrup, mint, mushrooms, sugar beets and to- and activities, both have provided lower cost locations bacco. for financial and business services than either New York or Chicago. While Michigan is most often identified as the birth- Services place of the modern auto industry, the northern and western parts of the state are more diversified than the Service industries have naturally developed in our auto-dominated southeastern portion of the state. Of- District in support of its goods producing industries. fice furniture (Steelcase and Herman-Miller), chemi- Increasingly, however, business services are being cals (Upjohn and Dow), and auto suppliers (Guardssold to firms outside the District and the United States. man and Donnelly) have provided the diversity to A strong tendency for producer service firms to make cities like Kalamazoo and Grand Rapids among favor large metropolitan areas in our District areas is the fastest growing metropolitan areas in the state, evident. The largest metropolitan areas in the Seventh while the city of Detroit struggles with a shrinking job District—Chicago, Detroit, Indianapolis, Des Moines, base, declining population, and a host of urban proband Milwaukee—display a tendency to export ser- lems. vices, largely from urban centers to smaller towns and While the recession was not easy for the District rural locations within the region. However, less pop- economy, employment data seem to suggest that the ulous metropolitan areas specialize in important ser- District has fared far better in the most recent recesvices as well. For example, although Milwaukee is sion than in previous ones—both in comparison to the located only ninety miles from Chicago, a city with national experience and to its own past. more than three times as many people, Milwaukee Payroll employment data indicate that District emserves as an independent purveyor and specialist in ployment fell at about the same rate as that for the certain urban services such as advertising, consumer nation during the recession and has recovered at a credit reporting, and accounting. Moreover, many slightly faster pace since the beginning of the employsmall metropolitan areas rank close to or above the ment recovery in April 1991. Household employment larger areas in particular services: Peoria and Cedar data show a stronger recovery in Illinois and Michi- Rapids in advertising, Lansing and South Bend in gan, with current levels in both states exceeding consumer credit reporting, Sheboygan in engineering previous peaks (while payroll employment data for and architecture, Grand Rapids in accounting, and these states are still well below their previous peak Battle Creek in management and public relations. levels). Since unemployment data are derived from the Those smaller metropolitan areas hosting major state household survey, unemployment rates for the District universities such as Ann Arbor, Madison, and Cham- states have been showing substantial improvement paign-Urbana figure prominently as service exporters. relative to the national experience in recent months. Computer programming, engineering, research, and For example, Illinois's unemployment rate of 6.5 testing labs draw heavily on university skilled labor percent in January of 1993 marked the longest period and institutional capital. of time (six months) that the state had been below the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

424 Federal Reserve Bulletin • May 1993 nation's unemployment rate in fourteen years, before Real estate activity in the District has been less jumping up to 7.9 percent in February. Michigan's adversely affected than in much of the rest of the unemployment rate was 6.8 percent in February of this nation. This difference can be explained by the Disyear. trict's relatively stronger economy in recent years than that in other parts of the nation and by the relative lack of speculative excesses in the 1980s. Still, vacancy RESTRUCTURING PROGRESS rates of commercial buildings in the major metropolitan areas of the District have been rising in recent Productivity and Competitiveness years and in some cases are higher than in the nation as a whole. For example, downtown office vacancy Despite the hardships of the recessions in the early rates in both Detroit and Chicago have generally been 1980s, Seventh District manufacturers maintained a below national rates for many years. Chicago's office strong commitment to modernization. Indeed, despite vacancy rate rose to 17.7 percent in the third quarter of a shrinking manufacturing sector, District manufactur- 1992, virtually equal to the nation, but much of that ers invested on average 5 percent to 10 percent more increase was due to recent completion of major office per production worker annually than the nation since construction projects at a time when the commercial 1984. Investment lagged only during recession years real estate market was weak. Indianapolis has consisand during the rest of the years of recovery when the tently had vacancy rates above the national average, high value of the dollar severely depressed export but this may reflect in part the fact that Indianapolis demand for manufactured goods in the Midwest. In the has had a rapidly growing commercial sector. Rapid District in the second half of the 1980s the combination expansion of office space may have fueled building of closing inefficient plants and investing in new or activity in anticipation of future needs, which may not existing plants began to show dramatic gains in pro- have been unrealistic given Indianapolis' growth in the ductivity. For example, estimates based on the rela- 1980s. In contrast, Detroit's low office vacancy rate tive improvement in District manufacturing output reflects very little office construction for many years. using pre-1985 technology with post-1985 technology Residential real estate activity in the Seventh Dissuggest efficiency in the District improved about 20 trict has been another strong point in the comparisons percent more than for the rest of the nation. with the nation. By almost any measure—housing Once the exchange value of the dollar began to fall starts, new home sales, or existing home sales—the in the mid- to late-1980s, the revitalized manufacturers District has been outperforming the national housing in the District began to regain market share lost in the market in the early 1990s. For example, housing starts 1970s and early 1980s. The 1990-91 recession, in some for single-family homes in the Midwest portion of the sense, became a testing ground for the ability of nation rose 25 percent in 1992, compared with 20 District manufacturers to sustain their competitive percent in the nation as a whole, and the region has edge in an environment that required many to produce returned to previous peak levels of activity in 1986 well below their most profitable operating rates. Typ- while the nation is still about 33 percent below 1986 ically, the District economy had been hard hit by levels. The reasons for this are similar to the relative national recessions, with employment tending to de- strength in commercial activity. The District has excline by as much as twice the national rate. If manu- perienced slow but steady income growth, and housing facturers in the District were truly becoming more values have been in line with this growth. As a result, competitive, one would expect that they would the District has avoided the speculative overbuilding weather the recessionary storm more easily than in the that has been haunting the eastern and western coasts. past. Indeed, the District generally can be characterized as While the nation lost more than 2 million jobs in the having some of the most affordable housing in the 1990-91 recession (about the same as in the 1980-82 nation. When the housing market nationally was deperiod), the District lost only about 300,000jobs. Since pressed in 1990 and 1991, District homeowners did not the onset of recovery, the nation has recorded an experience the decline in home values that occurred in increase of slightly more than 500,000 payroll jobs, an other regions and in many cases were able to enjoy increase of about 0.5 percent from the recession's some of the highest appreciation of housing stock in trough. The District has increased employment about the nation during the recent economic recovery. 130,000, or about 0.8 percent from its trough. In other words, the District has fared somewhat better than the Industrial Restructuring nation throughout the recession and recovery period, in marked contrast to its more typical pattern of deep A close look behind the progress reveals the fact that recession and partial recovery. the challenges facing the District economy remain Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 425 formidable. The region's firms have begun to restruc- growth (in part because of slower economic growth ture in such a way as to be globally competitive. But overseas). this process goes hand in hand with massive and Because of the relative importance of this latter geographically concentrated layoffs of the region's group to total District exports, and because of the residents. For example, in recent years, restructuring special role of trade between Canada and Michigan, announcements in the auto industry are perhaps the the District's overall export growth has been held back most traumatic. GM's restructuring plans call for in recent years. For example, after outpacing the closing up to twenty-eight assembly and parts plants, nation in 1990 by a substantial margin, District exports many of which are expected to be in the Midwest, and of manufactured goods expanded 8 percent in 1991 and to reduce its work force by roughly 85,000 white- and 6 percent in 1992, while nationally exports increased blue-collar workers, with most of the white-collar job 12 percent and 8 percent. However, if Michigan is losses concentrated in Michigan. According to recent excluded (high volume trade occurs between Michigan estimates, the need for the restructuring can be seen and Canada and, unless the auto industry is directly from production cost comparisons between one or involved, Michigan's volume does not respond to more domestic producers with low-cost Japanese pro- changes in overseas demand), the comparisons look a ducers. The estimates show that cost differentials with little better, with District exports outpacing the nation low-cost Japanese producers on small cars (assuming in 1992 by roughly 2 percentage points. full capacity) may have fallen from more than $2,000 in External and global swings in the marketplace, such 1982 to less than $500 in 1991. as those influencing current demand for capital ma- How have the District's key manufacturing indus- chinery and equipment will continue to lie beyond the tries fared during this recovery? The auto industry has influence of either local policymakers, or national been improving since mid-1992, leading industrial pro- policymakers for that matter. And because the indusduction both in the nation and the District. If recently tries involved are often those who are large employers announced production plans hold, autos will continue at individual locations, the local effects will be severe to boost the District economy. Steel is another indus- for those regions affected. try that has been improving recently, even though profitability has been elusive. Recent adjustments in Agricultural Restructuring trade restriction are likely to provide a significant boost to District steel production in 1993. Finally, The late 1980s brought substantial recovery to the demand for machine tools is being sustained by the farm sector. Farm earnings improved considerably as need for the auto industry to keep pace with model rebounding exports and altered farm support programs changes of imports and transplants and by the need for trimmed the burdensome crop supplies of the midmanufacturers to reduce cost and improve quality. 1980s. The improved returns caused farm asset values Plans for equipment spending appear to be strong and to turn upward. The downturn in farm debt that started should be a key source of strength in the District's in 1984 continued through 1990, further strengthening economy in 1993. the farm sector balance sheet. Various measures of the Exports have always been an important component quality of farm debt have improved substantially from of the District's economy, one that has been increasing the distressed levels of the mid-1980s and are more in over time but which was undermined in the mid-1980s, line with the levels that prevailed before the excesses when the dollar's exchange rate was high. Currently, of the 1970s. Accordingly, the performance of commanufactured exports from the District amount to mercial farm lenders has rebounded sharply. about 12 percent (or $49 billion) of the nation's total. A While the financial condition of the farm sector primary strength in exports has come from capital today is vastly improved from that of the mid-1980s, it equipment (particularly industrial and electrical exhibits a cautious demeanor in spending and continequipment) and scientific instruments. Growth in for- ues to go through considerable restructuring to eign demand for products of these industries during achieve greater production efficiencies. Reflecting the 1991-92 has helped hold up the District economy in an cautious attitudes of farmers, capital expenditures in otherwise sagging export market. In Wisconsin, for the farm sector declined for the second consecutive example, nonelectrical machinery (mostly machine year in 1992 and, at $11.2 billion, were well below the tools) grew at an average annual rate of nearly 20 levels of most years over the past two decades. And percent between 1987 and 1991, before slowing to despite the relatively strong returns to assets in recent only 1 percent in 1991 as global markets weakened. years, the bidding in farmland transactions has been Chemical and transportation equipment industries lackluster. As a result, the trend in farmland values is have also been important in the export mix but have only modestly upward in nominal dollar terms and flat been harder hit by the recent slowdown in export to slightly downward in real terms. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

426 Federal Reserve Bulletin • May 1993 The restructuring that still characterizes the farm five states of the Seventh Federal Reserve District has sector here and elsewhere is reflected in the continuing declined from 23 percent to 14 percent over the past decline in the number of farms. During the 1950s and two decades. This loss has been only partially offset by the 1960s, farm numbers declined at an annual rate of the growing share—from 44 percent to 50 percent—of 3 percent. The rate of decline slowed considerably the nation's hogs that are processed by commercial during the "boom" times of the 1970s and from 1978 to packers in District states. 1981 farm numbers actually stabilized. But the down- Mergers and acquisitions have also been widespread trend has resumed since then, with the annual rate of in the fertilizer, pesticide, seed, and farm machinery decline over the last eleven years approximating 1.5 and equipment industries in recent years. The consolpercent. idation of the farm machinery and equipment industry The decline in farm numbers has been especially has had a sizable repercussion on the states of the apparent among pork producers, a commodity of Seventh Federal Reserve District. As purchases of particular importance in states comprising the Seventh farm machinery and equipment retreated during the Federal Reserve District. The 1987 Census of Agricul- "credit crises" of the 1980s, U.S. payroll employment ture found that the number of farms with hogs was among farm machinery and equipment manufacturers down 45 percent from nine years earlier nationwide retreated from a peak of 159,000 in 1979 to a low of and down 37 percent in District states. (During the 65,000 in 1986. The trend since then has been mixed; same time period, the decline in all farm numbers was recovering to about 79,000 in 1990 and then retreating closer to one-tenth). Updated information shows that to just over 70,000 last year as the cautious spending the number of operations with hogs has declined an patterns of farmers triggered another slump in sales. additional 25 percent nationwide since 1987 and about The consolidation suggested by these employment 14 percent in District states. numbers for farm equipment manufacturers was no Several factors are behind the restructuring that doubt just as extensive in the number of dealerships continues to result in shrinking farm numbers and a and the network of suppliers, distributors, and haulers greater degree of commodity specialization among that support the farm equipment industry. those that remain. But a major factor reflects the need to achieve scale economies to reduce production costs per unit of output. With the increasing globalization of agricultural markets and the likelihood of a further CONFRONTING THE CHALLENGES downscaling of federal government farm income and price support programs, the focus on achieving scale After periods of economic shocks, a region's indigeeconomies will no doubt continue in the future. These nous institutions, including its financial lenders and restructurings that enhance the production efficiency state and local governments, must take up the chalof U.S. agriculture may need to be complemented with lenges of redevelopment and rebuilding. However, redefined rural development and infrastructure invest- during such times, their resources are often stretched ment policies that, among other things, help to retrain thin. displaced farmers and provide better job opportunities for all rural residents. Research on relocation of man- State and Local Government ufacturing activity shows that a number of nonmetropolitan counties in our District are achieving growth in In the 1990s the District's state and local governments manufacturing employment. But many of these fortu- are being forced to make structural changes to their nate counties either border metropolitan areas or revenue systems and cuts in their service programs enjoy the transportation advantages of an interstate rather than relying on the usual temporary budget highway. Many other rural counties could benefit from maneuvers that are typical of cyclical downturns. efforts to retrain workers and expand off-farm job Despite profound shocks to its economy during the opportunities. 1980s, Seventh District governments largely avoided The farm sector restructuring has parallel trends structural changes to revenue systems and services. among agribusiness firms that process and distribute Following the weak 1980-82 period, District governagricultural commodities or manufacture the inputs ments were able to restore fiscal solvency and repeal used by farmers. Consolidation has been vividly evi- the temporary surcharges that they had imposed to dent in recent years in the number of meat packers and shore up deficit positions. Today, however, the tepid processors. Moreover, the emphasis on specialization pace of economic growth, coupled with overlying has led to a geographical shift of beef processors out of pressures from Medicaid and federal mandates, have the Midwest into more western states. Reflecting this, pushed state and local governments to enact tax hikes the share of cattle processed by packing firms in the and service cuts during the aftermath of the 1990-91 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 427 recession. This pressure has left fewer resources to As both self-initiated programs and federally manassist the region in reinvestment and redevelopment. dated programs have grown, state revenue growth has been unable to keep up. Mandated prison sentences The 1980s are swelling corrections expenditures as prisons must be constructed to house the swelling inmate popula- The back-to-back recessions of 1980 and 1981-82 were tion. Medicaid, which requires states to match federal particularly hard on the Seventh District as illustrated contributions, has also been exploding in terms of by a nearly 25 percent drop in Seventh District man- costs as the scope of services covered by Medicaid ufacturing employment from the peak in the first have been regularly expanded and the eligible populaquarter of 1980 to the trough of the second recession in tion has grown. These costs have shown little prospect the third quarter of 1982. At the same time and for of abating. several years thereafter, the agriculture sector was Meanwhile the potential for huge additional costs to plagued by several droughts, debt carryover from the be added through more stringent environmental com- 1970s, and a rising value of the dollar. pliance standards looms in the future. Additionally, The decline in these two key industry sectors had a unlike the early 1980s, the cyclical strategy of using strong effect on the District's state and local fiscal surtaxes to cover budget problems in downturns may health. Still District governments managed to weather need to be abandoned this time. Illinois, for example, the short-lived 1980 recession without having to turn has extended its income tax surcharge through June of to major tax increases; they did so by drawing down 1993 and is now considering making it permanent and relatively healthy fund balances. The recession of dedicating the proceeds to state government or to local 1981-82 proved harder to absorb. Still, District states education rather than sharing the receipts with municmanaged to forestall major spending cuts and tax ipalities. Michigan voters have recently rejected a hikes, at least up until the second half of fiscal year proposal for local property tax relief in the belief that 1983. At that time, deficits were so severe, and further the state would not have the resources to make up for public service cuts so intolerable, that all of the five the accompanying revenue shortfalls. states took the unpopular measure of increasing either State and local governments have also made painful income or sales tax rates or both. Nonetheless, the expenditure cuts. The structural nature of the adjustincome tax changes came primarily in the form of ments now under way in District states is also illussurtaxes that were repealed or expired when recovery trated by the fundamental service programs that have set in. For example, the long-awaited snapback in been the target of cuts. Deep cuts have been made in consumer spending lifted the Michigan economy in popular programs such as general assistance, higher 1983 and 1984, enabling Michigan to cut a temporary education, and economic development. For example, income tax rate hike from 6.35 percent to 5.35 percent among the first programs to fall under the budget axe by fall 1984. State and local balance sheets were in Michigan was the state's General Assistance proreplenished so that fiscal conditions in all five states gram, where 90,000 "able-bodied" recipients were cut were fairly strong by the first quarter of 1985. from the rolls. Similarly, state universities throughout Relative to East and West Coast states, Seventh the Seventh District have seen only small increases in District states tended to increase expenditures at a their budgets. From fiscal year 1991 to fiscal year 1993, slower rate during this period. Also, District states the average annual increase in higher education approused this period of improved conditions to bolster their priations ranged from a high of 3.5 percent in Wisconfiscal structure against future downturns. Michigan sin, to a decline of -0.5 percent in Illinois. pioneered the creation of a budget stabilization fund, So far this year higher education expenditures in and other District states began using a series of tech- Illinois are down 3 percent through the first half of niques all designed to put structures in place to cush- fiscal year 1993. At the same time, public universities ion government from future economic downturns. have had to raise tuition so as to limit the magnitude of budget cuts. Similarly, economic development depart- The 1990s ments in Illinois and Michigan have been drastically cut. The state-funded portion of the Illinois Depart- Fiscal prudence has generally allowed the Seventh ment of Commerce and Community Affairs had its District states to avoid the high degree of fiscal budget cut nearly 80 percent between fiscal year 1991 adjustment that has characterized the New England and fiscal year 1993. Michigan's Department of Commerce saw a 70 percent budget reduction over the states and California; however, it has not left the same period. states insulated from the fiscal stresses that now have an estimated twenty-two states running structural Because of the uncontrolled growth in Medicaid and deficits. corrections spending, these programs have had to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

428 Federal Reserve Bulletin • May 1993 absorb greater reductions than would have been the down to municipalities or to reduce state aid to towns case in previous downturns. will further strain the property tax base and impede At the present time, state governments have little efforts to reduce reliance on the property tax base. room to maneuver. Both Illinois and Michigan have Compounding the strain on the property tax base is exhausted their budget reserves and have exhausted the slow growth in assessed values. More conservative the usual list of fiscal measures tried by the states to property revaluations and a lack of new construction avoid making more sweeping structural adjustments to are limiting the automatic growth in local revenues, their budgets. Faced with a backlog of bills, both which towns became accustomed to during the latter states will still be in difficult shape even with a 1980s. With a distinct possibility that some state sustained recovery. For example, in fiscal year 1992 responsibilities may be shifted to local governments, Michigan used $150 million from its budget stabiliza- proposals will probably emerge to permit towns to tion fund, leaving a balance of only $22 million. Even impose new types of taxes to diversify their revenue so, to balance its books, the state had to accrue certain base and to avoid even greater reliance on property taxes and delay school aid and revenue sharing pay- taxes. ments to municipalities. In the coming year, without a Rising Medicaid and health care costs will continue budget reserve and having exhausted other fiscal ma- to pressure the state and local sector even if the neuvers, the state will have to make structural changes current economic expansion accelerates. These costs in expenditures or revenues to cope with additional have provided the most powerful and persistent fiscal fiscal stresses. In Indiana, Iowa, and Wisconsin poten- strain on state governments. What in 1980 consumed 6 tial fiscal maneuvers are also becoming limited. To percent of state budgets is being projected to consume keep fiscally healthy, Indiana has been forced to use 28 percent by 1995. The growth rate for Medicaid more of its budget reserve than it would prefer. expenditures is running at nearly four times that of Wisconsin, whose relatively strong economy has made revenues. Each year the states have underforecast the it better situated than most states, has still relied on rate of growth in this budget area. As states have had the active use of Governor Thompson's veto and has to provide supplemental funds to cover unanticipated shifted some responsibilities to the local level. Wis- Medicaid expenses, other budget areas have been consin's revenue department has been looking at the squeezed. For example, two District states, Wisconsin and Indiana, had to supplement their fiscal year 1992 expanded use of local sales taxes in the state and the Medicaid budgets by $67 million and $42 million possibility of enabling a local option income tax. In respectively. These increases represented supple- Iowa, two very austere budgets in 1990-91 and 1991ments of more than 40 percent over the original 92, accompanied by employee reductions and some Medicaid budgets in these states. Some pressure has limited tax increases, have enabled the state to cobble been eased by the enactment of Medicaid provider together a precariously balanced budget, but the state taxes in Illinois, Michigan, and Wisconsin. These has no real reserves left to meet any unforeseen taxes force providers to pay tax on the proceeds they downturns. receive from providing Medicaid services and in most Pressures on state government have spilled over cases have the side effect of increasing the federal and have been passed along to local governments. contribution to state Medicaid programs. In Illinois, Despite the fact that property taxes are among the Medicaid expenditures twenty years ago were half of most unpopular of all state and local revenue sources, state spending on primary and secondary education. the Seventh District tax structure is already more Today it slightly exceeds that spending. reliant on property taxes than is the case nationally. All of the District states, except for Indiana, rely on property taxes for a larger share of the state and local Concerns for the Future revenue mix than is the case nationally. As a result, efforts to mitigate future increases in property taxes Longer term, there will be continuing pressures for have been proposed or enacted including property tax increased expenditures on education, infrastructure, caps in Illinois and Wisconsin. This past autumn, and the environment. These three areas will demand Michigan failed to pass the "cut and cap" proposal on more government resources in the future. In the case the ballot when voters appeared to believe that it was of education, the District states' reliance on property unrealistic to expect state reimbursement for lost taxes to fund elementary and secondary education property tax revenues. In fact, voters were probably presents two problems. First, property tax revenues correct in their assessment; state governments have over the near term are unlikely to grow very fast already passed along their own fiscal pressures to local because of a lack of expansion in the property tax governments by delaying or trimming school and mu- base. Unless new efficiencies in providing education nicipal aid payments. Such efforts to push programs are miraculously found and implemented, property tax Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 429 rates will be pressured upward. Given the taxpayer education expenditures (when coupled with these ensentiment against the property tax increases and the vironmental compliance costs) will have the same popularity of tax caps in states such as Illinois, the effect—limiting the other program options of governability of this tax source to fund the larger educational ment. expenditures, which will be needed with a growing There are also concerns that the pension systems of school population, will be strained. Second, the reli- many public employees may be underfunded. Three of ance on the property tax also creates funding inequal- the District's five state employee pension funds are ities between school districts. District states have so severely underfunded, and this has the potential of far been able to avoid judicial challenges that would making worrisome claims on future revenues. Michicompel an equalization scheme. However, in last fall's gan's state pension fund has contributions equal to 66 election, an Illinois referendum that would have re- percent of future liabilities, while Illinois and Indiana quired that the state pay "the majority" of school have funding levels of 64 percent and 58 percent funding was narrowly defeated despite receiving better respectively. These states can use a "pay as you go" than 57 percent of the vote; 60 percent was required. strategy to avoid having to make any drastic short- Moreover, court challenges will continue. The success term adjustments in their levels of contributions. Howof any of these initiatives would be severe. To make ever, such a policy has two negative repercussions. In equalization schemes at all acceptable to the public, the near term, states have been increasing their immespending will need to be "leveled up," thereby sharply diate pension liabilities and outlays through early retirement programs aimed at saving overall personnel raising overall revenue requirements. costs. But this policy puts immediate strains on cur- Infrastructure investments are also being called for, rent operating solvency. Second, state bond ratings mostly in the form of repair and replacement of can be unfavorably affected by pay-as-you-go pension existing structures. For example, one-third of Chicafunding, thereby raising borrowing costs because ungo's sewer system is more than eighty years old. Given derfunded pensions are usually viewed by agencies as that the sewer system was designed to have a total life an indicator of fiscal stress. expectancy averaging ninety years, it is clear that significant outlays will need to be made in the coming years. Other basic infrastructure, such as roads and Recap bridges, are also in need of attention. Because the District states do not carry heavy levels of indebted- Because of both its own fiscal prudence during the ness (measures of both bonded debt per capita and per troubled 1980s and to the more favorable regional $1,000 of personal income are low in all District conditions currently prevailing in many parts of the states), states would ordinarily be in relatively good District, state and local governments have passed shape to issue debt in the form of bonds. However, the through these troubled times in better shape than weak rates of revenue growth will make it costly to many other regions. Nonetheless, District governissue additional debt because it is uncertain as to ments are as widely diverse as the District's economy. whether future revenues will be sufficient to service For example, state government in Michigan and many the debt. of its local governments, in particular, are susceptible Environmental concerns have been added to the list to the upheavals in the economic base that accompany of long-run concerns. Both states and municipalities plant closings and mass layoffs in the auto industry. face staggering costs in implementing the environmen- Moreover, District governments in general are far tal standards included in programs such as the Clean from insulated from the pressures common to the Air Act Amendments of 1990. A detailed study by the entire state and local sector nationally: rising Medicaid city of Columbus, Ohio, estimated that the city will and prison expenditures, federal mandates such as need slightly more than $1 billion to comply with compliance with environmental regulation, and slowly twenty-two state and federal environmental mandates growing revenues. As a result, structural changes and over the next ten years. The magnitude of that expen- fiscal crisis are evident throughout our District for diture is best illustrated by the fact that the total city many governments that have made painful cuts in budget in 1991 was $591 million. Similar compliance public services and that have raised tax rates or costs can be expected at both the state and local level extended tax surcharges. in Seventh District states where the industrial and agricultural heritage of the region will make environ- Financial Developments in the Seventh Federal mental compliance costs steep. At the state level the Reserve District combination of Medicaid and health care costs and environmental compliance costs has the potential of Although the Seventh District did not escape unconsuming the bulk of state budgets. At the local level, scathed the financial trauma that has afflicted the rest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

430 Federal Reserve Bulletin • May 1993 of the nation since the early 1980s, it has suffered less debt. To some degree they have adjusted to the tighter than most other regions. Neither the number of failing capital constraints by cutting lending and asset banks nor their assets have been as large, relative to growth. The net effect of these adjustments was that District totals, as in most other areas of the country. capital ratios rose for nearly all District banks, with For the entire Seventh District, only 72, or 2.6 percent, the average equity capital-to-assets ratio averaging 7.8 of District banks failed between 1982 and 1992, as percent as of the end of 1992. opposed to 9.7 percent of the banks for the country as A key factor in the improving condition of banks in a whole. The annual number of failures in the District the District has been the gradual winding down of their peaked at 14 in 1985, well before the 1989 peak of 206 asset quality problems. Nonperforming loans were failures for the entire United States. In large part, the down from 2.1 percent of total loans in the fourth difference in timing of the District's banking problems quarter of 1991 to 1.7 percent of total loans as of the relative to the rest of the country reflected some previ- fourth quarter of 1992, reflecting the improving ecoously noted characteristics of the behavior of the nomic conditions and further chargeoffs of the worst broader economy. One was the fact, discussed in some loans. An equally encouraging sign was the sharp detail above, that the District economy was hit ex- increase in loan-loss reserve coverage at year-end 1992 tremely hard by the 1981-82 downturn relative to other to 105 percent of nonperforming loans, up from 96 regions of the country. District banking, in turn, was percent in the preceding quarter and from 88 percent at strongly affected by the collapse in land prices and year-end 1991. In view of the fact that this coverage agricultural loan quality problems that accompanied the ratio has averaged just over 100 percent for District disinflationary period that followed. In more recent banks in the past, its current level suggests that most years, in contrast, the District was largely spared the of the negative effects on bank capital of facing up to problems experienced by the Southwest associated probable loan losses are behind us and will no longer with the sharp fall in oil prices beginning in 1986, and constitute a drag on new lending. the 1990-91 recession was not as severe in the District The ongoing process of consolidation that has charas elsewhere. However, we also like to think that the acterized our region over the past two decades has lower failure rate in the District over the entire decade allowed Seventh District banks to become more diverhad something to do with the diligence, conservative sified, in turn, increasing their safety and soundness. loan evaluations, and prompt supervisory intervention This process was given added impetus by the decision that have characterized our field examiners and super- of District states to open themselves to regional and visors. nationwide banking. This process is dramatically al- District banks continue to show improving earnings tering the banking structures of states in the District, and capital. In 1992, the average return on equity for which for many decades had some of the most restriccommercial banks in the Seventh District was 11.6 tive branching and holding company laws in the napercent, up slightly from 11.3 percent in 1991 but tion. Because of the asset quality and earnings probslightly below the national average of 12.1 percent, lems encountered by some of the money center and while the average return on assets was 0.90 percent, other larger banks in the Seventh District's major up from 0.83 percent in 1991 but also slightly below the financial centers in the mid-1980s, those banks have national average of 0.91. While the return on assets of not been in a position to take the initiative in geograph- District banks with assets of less than $1 billion rose ical expansion and acquisition activity. Consequently, sharply to 1.17 percent in 1992 from 0.98 in 1991, that the vacuum has been filled by large regional banks of District banks with assets of more than $1 billion headquartered outside Chicago and, in some cases, slipped slightly to 0.66 percent from 0.67 percent in the outside the District. previous year and remains well below what tradition- Thrift institutions in the Midwest are also showing ally have been considered "normal" levels; the same improvement but from a much lower base. Because of pattern holds for return on equity. The improving their institutional design, thrift institutions were, of health of District banks was further attested by the fact course, much more vulnerable to the unprecedented that there has been a 70 percent decline in the number increases in interest rates at the beginning of the 1980s of lower-rated banks in the District since the end of than commercial banks. Of the District states, only 1986. Illinois had a serious thrift problem, ranking fourth in Beset by the erosion of capital by loan losses of the the number (forty-seven) of thrift institutions resolved past decade and new regulatory pressures to increase by the Resolution Trust Corporation between its escapital, District banks strived to increase their capital tablishment in 1989 and year-end 1992 and eighth in ratios in several ways. They have added to retained terms of the total assets of resolved institutions ($7.7 earnings by restricting dividends and have gone to billion). Although most of the terminally ill thrift market with new issues of equity and subordinated institutions in the Midwest have now been placed in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 431 receivership, a formidable cleanup operation is still in effective financial system. The banking industry's progress. Only four savings and loan associations in transition toward this new, more realistic pricing the District remain in the conservatorship program, structure began to be apparent in spring 1990, acceland there are eight undercapitalized savings and loans erated dramatically during late 1990 and early 1991, rated MACRO 5 that are candidates for conservator- and was completed by 1992. Several forces, including ship. changes in bank regulation, drove the restructuring. It should not be assumed that the health of deposi- However, the three most important forces pushing the tory institutions in the Seventh District has been fully industry down the road to restructuring were the restored or that there is no possibility of further perceived increase in the risk of the industry's loan setbacks. There is still general weakness in commer- portfolio, the concomitant increase in industry losses, cial real estate lending, reflecting the high vacancy and the growing realization that lending could not be rates and reduced building activity that constitute the profitable without substantially wider spreads. hangover from the binge of the late 1980s. However, As was the case across the nation, District banks because overbuilding in the 1980s never reached the responded to these forces by reducing their exposure fever pitch in the District that it did in the Southwest to their largest borrowers and tightening the pricing of and New England, the correction has so far been much loans and loan commitments to nearly every type of more moderate. But while the vacancy rate in Chicago borrower. Whether poorly capitalized or well-capitalremained lower throughout the mid-to-late 1980s than ized, large or small, urban or rural, virtually every in the nation, it has risen sharply over the past three bank in the Seventh District participated in the shift to years as more space has come on the market—just as a new, more realistic pricing structure for bank loans. Sears was relocating to the suburbs. The upshot has been a slowdown in the growth of assets held by District banks from 3 percent in 1990 to Credit Availability 1 percent in 1992. The restructuring of credit markets during 1990 and During the past three years, credit availability re- 1991 was inevitable and, on balance, desirable. Nevmained better in the Midwest than in many other parts ertheless, because policymakers did have several tools of the country. This was largely the result of the at their disposal to ease the transition process, the relatively healthy condition of the District's banking Federal Reserve was continually checking for signs organizations. This health not only meant that fewer that tight credit was creating significant barriers to the banks were forced to reduce their lending, but it also growth of businesses, either in the District or nationeased the adjustment for borrowers at banks that were ally. However, our contacts with District businesses facing capital and asset quality problems. Indeed, and banks suggested that, outside the real estate several of the better capitalized banks in the Seventh sector, District borrowers were still able to obtain District actively sought to bid away creditworthy credit, albeit at a higher price. Indeed, the primary customers from the District's weaker banks. concern of most of the businesses we contacted was In addition, the few midwestern banks that experi- neither the availability nor the price of credit; it was enced significant asset quality problems had loans the economy's sluggish performance. outstanding to borrowers throughout the country. This At recent meetings of our Small Business and Agridiversification had two consequences. First, the fate of cultural Advisory Councils, we have again carefully our troubled banks was generally tied to the prospects reviewed the question of credit availability with the for the national economy, not the fortunes of a single council members. The view continues to be that banks region, as was the case in New England. Second, in have become much more careful in the loan extension contrast to New England, the disruptions created by process; credit standards have been raised, documenthe retrenchment of the troubled banks in our District tation requirements have been made more demanding, were spread across the entire country rather than and as noted above, spreads and fees have risen. being concentrated on borrowers in the District. However, our council members almost universally felt But while the District's banking system remained that adequate credit was generally available. relatively healthy, midwestern borrowers could not On the other hand, many council members were completely escape the changes sweeping through U.S. concerned that environmental regulations are making credit markets. The net effect of these changes has certain types of transactions unbankable. Leery of the been to make bank lending more profitable, ending a potential liability, some banks are shying away from a long-standing but unsustainable deterioration in the credit whenever an environmental issue is even a compensation banks receive for bearing risk. Because remote possibility. Those banks that are willing to the new pricing structure reflects these risks more proceed are very demanding in their requirements for accurately, the ultimate result will be a safer and more complete but costly environmental studies. Both our Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

432 Federal Reserve Bulletin • May 1993 Agricultural and Small Business Advisory Councils on much of the corn harvested in the northern portions feel strongly that this environmental matter is signifi- of our District. cantly impeding the extension of credit to these key The price implications of the larger harvest will be sectors of our District's economy. only partially cushioned by increased consumption. From the perspective of the District's banks, the Domestic consumption of both corn and soybeans will restructuring of credit markets is now largely com- likely register further growth during the current marplete. Credit terms have ceased to tighten, asset qual- keting year. But compared with the 20 percent decline ity is on the rebound, and most District banking in the combined tonnage of corn, soybeans, and soyorganizations have now built up a sufficient cushion of bean meal shipments abroad the past two years, exexcess capital that they can focus more of their atten- port prospects for the District's crop farmers have tion exclusively on the business of lending. However, improved only marginally this year. This partially this does not mean that District banks will soon again reflects the delinquencies that have led to a suspension begin growing at 7 percent or 8 percent a year. In all since late November in new government credit guarlikelihood, District borrowers are still adjusting to this antees to finance shipments to Russia. It also reflects new more realistic pricing structure. As these borrow- the evidence that the crops now growing in the Southers find additional ways to economize on bank credit, ern Hemisphere could produce a banner harvest and their borrowing needs will decrease. This process will add further to available world supplies. be accelerated by the fact that many businesses are It now seems clear that the record 1992 crop harvest carrying debt burdens that are inappropriately high for will contribute to a large buildup in carryover stocks. such a competitive and volatile economic environ- As such, prices of major Seventh District crops have ment. Until District businesses have fully adjusted to hovered at fairly low levels. In particular, corn prices the new credit market realities, we will continue to see since last September have averaged just over $2 a relatively modest rates of growth at District banks. bushel, down nearly one-fifth from a year ago and the lowest in nearly five years. The lower prices will likely outweigh an increase in government payments and CURRENT CONDITIONS lead to a decline in earnings of District crop farmers this year. This will be particularly true for those hit Entering 1993—A Current Assessment hardest by the harvesting problems of last fall. The District's livestock and dairy farmers are also The same challenges and opportunities that have experiencing lower prices from expanding production. transformed the District's economy over the past The current cyclical upswing among hog farmers has fifteen to twenty years can be seen shaping its eco- been under way since the fall of 1990. Per capita pork nomic performance today. To be sure, the District's production rose 7 percent last year and reached the economy is still doing better relative to the nation in highest level since 1981. The latest U.S. Department many sectors, but competitive pressures are continu- of Agriculture estimates show hog numbers nationing to force change. Moreover, the pace of our recov- wide are up 4 percent, assuring continued growth in ery is lackluster by past standards and concerns of pork production well into this year. The inventory sustainability remain as much an issue for the District estimates for Iowa—by far the largest pork producing as for the nation. state—show a rise of 8 percent. Among the other District states, hog numbers are little changed from a Agriculture year ago. The implications of the expanded production on The 1992 crop season was characterized by a record livestock prices have been partially cushioned by the harvest nationwide despite some of the most unusual improving trends in U.S. meat trade. U.S. pork exweather patterns in memory. In our District, record- ports have grown rapidly in recent years while pork breaking outcomes in Illinois, Indiana, and Iowa imports have declined. Nevertheless, hog prices for all pushed the five-state corn and soybean harvest about of 1992 averaged about 14 percent less than the year 28 percent above the low year-earlier level and 8 before, and further slight declines are expected for this percent above the previous high set in 1985. But the year. Prices for many hog farmers may fall below the overall abundance was countered in many areas of the cost of production. However, the more efficient pro- District—especially in Michigan and Wisconsin—by ducers will likely experience smaller but positive opseveral problems that resulted in a very difficult har- erating returns. vest. Cool temperatures during the growing season, an The District's dairy farmers have witnessed quite early frost, and a rainy fall season led to a late harvest, volatile markets in recent years. Last year, milk procostly drying charges, and extensive quality discounts duction expanded a little more than 2 percent. Al- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 433 though averaging 7 percent higher for all of last year, producers are booking orders as far as two quarters milk prices weakened considerably during the latter ahead because of the desire of some customers to half of 1992. Prices are expected to lag year-earlier ensure deliveries. However, profit margins are delevels for much of 1993 until production is pulled into pressed, and one producer has scheduled two price better balance with market needs. Earnings of dairy increases on cold rolled steel for the first half of 1993 in farmers could turn down this year, reversing some of hopes of raising the price of a ton of steel above costs. the gains of last year. Class 8 heavy-duty truck producers report that public The agricultural sector continues to operate with a freight carriers have been ordering trucks in large vivid awareness of the devastating setbacks suffered quantities since July 1992, with the current order by farmers and agribusiness firms as the "agricultural intake rate running at an impressive 180,000 units credit crises" of the 1980s washed out the excesses annually, triggered in part by pent-up demand but also during the "boom" of the 1970s. The subsequent by higher fuel-efficiency standards on new models. improvement in farm earnings and in the level and Sales of Class 8 trucks in 1992 were up sharply (20 quality of farm debt has been substantial, placing the percent) from a year earlier but only reached 119,000 industry on much more solid footings for the 1990s. units, a good improvement from last year but still well Yet the actions of farmers and agribusiness firms under peak levels of former years. One producer is reveal a mood of uncertainty and caution. This mood expecting sales to reach as high as 160,000 units in is tied, in part, to the painful memories of the 1980s. It 1993, which would be near the previous peak level in also reflects the continuing focus on trimming the 1988. federal budget deficit and the implications for the Still, a key reason for the strength in manufacturing safety net provided in farm income and price support activity has been the increase in car and light truck programs. The cautious mood of farmers is also re- assembly in the fourth quarter of 1992 and first quarter lated to concerns about the longer-run prospects for of 1993. If assembly plans hold for the remainder of the export markets that are vital to U.S. agriculture. first quarter, the auto industry will have its highest These concerns mostly center on the General Agree- (seasonally adjusted) quarter of assemblies in four ment on Tariffs and Trade and North American Free years, benefiting not only District assembly plants but Trade Agreement negotiations and the changing econalso the steel, fabricating, and auto-supplier industries omies of Eastern Europe and the former Union of located in the District. Soviet Socialist Republics. The competitive strength and diversity of District The near-term prospects for Midwest farmers are producers among sectors that are doing relatively well somewhat mixed. A record crop harvest last fall and is reflected not only in our direct talks with producers the ongoing expansion among livestock producers will but also in surveys that provide a broader scope to our continue to weigh heavily on prices of major Midwest District coverage. For example, purchasing managers' farm commodities. Conversely, an expanded volume surveys from around the District are providing a direct of crop and livestock marketings and a sizable increase confirmation of what corporate executives are reportin government payments to crop producers will hold ing. The production components of purchasing mangross farm earnings close to last year's relatively high agers' surveys from around the District, including level. Farm production costs will likely be flat again Detroit, indicate moderately expanding production this year due to moderating pressures on input prices activity in early 1993. In fact, the production compoand a slight decline in crop acreage. nent of the Chicago survey reached its highest level since 1988. This continuing strength in the auto and Industry other manufacturing industries should help sustain the District's relatively favorable showing for retail sales The District's economy in January and February of and employment in recent months. this year has been leading the nation in many key Reports on District retail sales in January and Febsectors, particularly manufacturing, retail trade, and ruary are indicating continued strength in spending housing activity. For example, the recent gains in after the strong Christmas selling season last year. For District manufacturing have been broad based, with example, a large department store in the District has producers of steel, appliances, autos, and heavy-duty told us that year-over-year sales growth has contintrucks all reporting improvements as they enter 1993. ued, despite the fact that sales were quite strong at this Appliance producers, in fact, reported a surge in time last year and weather in February was unseasonproduction at the end of 1992, in part linked to ably harsh. District gains were concentrated in seaimproving housing demand but also to an effort by sonal merchandise, household goods, and big-ticket dealers to stock up on 1992 models before new energy items in general. Several retailers in Michigan, includefficiency standards take effect on newer models. Steel ing the Detroit area, had better-than-expected sales Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

434 Federal Reserve Bulletin • May 1993 gains in January and February. Such gains are in line Despite these indicators of an employment pickup, with government data on growth in personal income, most large businesses in the District either have hiring which showed District states on average doing slightly freezes in place or are actively downsizing their workbetter than the national average through the third force. Overtime is running at high levels, and demand quarter of 1992 (most recent data available). Never- for temporary help is strong. But the decisions to hire theless, several established retail chains in the District permanent workers are being made sparingly and with are facing stiff competition from new discount chains the greatest reluctance and will continue to be until the that are aggressively moving into the District—in some recovery shows greater staying power than it has to cases occupying buildings left behind by those retail date. The recent announcement by Dow Chemical in chains that are retrenching. Midland, Michigan, of pending layoffs, however, still The strength in demand for home furnishings and illustrates the problem of job creation. appliances indicated by District retailers is derived in While the auto industry has been a boost to the part from the continuing gains in the District's housing District's economy recently, it may also be a source of sector. A major realtor in the Chicago area has told us instability because of the concern that car sales will that single family home sales in January were the not match industry expectations of 13.5 to 14 million second best January ever for the company, exceeded units in 1993 (an increase of as much as a one million only by last year, when warm weather combined with in unit sales of cars and light trucks over 1992). Auto a pickup in market share to produce a surge in sales. production for the second quarter of 1993 is expected February is running ahead of last year, however, so to be above year-ago rates but could show a decline that the year-to-date gap with last year is quickly from the seasonally adjusted annual rate in the first closing (again despite the occurrence of the coldest quarter. One reason is that Ford and Chrysler will be weather of the winter in February). For the state of closing plants earlier than usual to make model change- Illinois as a whole, realtors were seeing accelerating overs. existing home sales through the fourth quarter of last How much of a cutback in auto production occurs in year. A building materials supplier in Michigan has the second quarter will ultimately be determined by been experiencing double-digit sales growth in January auto sales strength. In the first two months of 1993, and reported that builders in the area expect housing light truck sales have been quite strong, with midsales in the area to be at double digit rates for 1993. February ten-day sales rates at more than 5.0 million Employment growth remains the primary concern units (annual rates), compared with last quarter's nearfor the sustainability of the District's, as well as the record sales rate of 4.8 million units. However, car nation's, recovery. While employment gains in Janu- sales have been a different story. Car sales have been ary and February of 1993 continue to be hard won, running at about 6.4 million units through mid-Februvarious sources of information indicate employment in ary (except for the first ten days of January), which is the District has continued to increase. For example, about equal to the fourth-quarter rate and in the last the employment component of the Chicago purchasing ten-day period, sales slumped to 5.5 million units for managers' survey, after bottoming out in early 1991, cars and to 3.8 million units for light trucks, which reached a five-year high in January and then backed off industry analysts attribute to consumer concerns in February. A January survey of metalworking firms about higher taxes. Still, Big Three producers are in the greater Chicago area showed that hiring activity better positioned to increase their market share than in was strong and that some businesses were beginning to the past, in part because imports have been increasing find shortages of skilled workers. And, it should be prices at a faster pace than the Big Three and in part noted that the recent benchmark revisions for payroll because Big Three quality has generally improved. employment in Michigan showed an upward revision Still, sales will have to increase in the second quarter of more than 70,000 jobs (which would mean that the if the industry is to maintain second-quarter producstate's employment today is about half of the way back tion schedules. While it is encouraging that retail sales to its prerecession peak rather than virtually flat over in general have not experienced a retrenchment on the the recovery as indicated by the original data). Finally, part of the consumer, one has to believe that new Manpower Inc., which surveys businesses quarterly, sources of disposable income through employment reported a net increase in the number of midwestern growth will be needed to sustain growth in consumer firms expecting to hire workers in the second quarter spending. of 1993 of 18 percent, compared with 16 percent in the In assessing the role of the Seventh District econnation as a whole. Most firms in the District were more omy in the current environment, it must be rememoptimistic in the latest Manpower report, with even bered that the Seventh District's economy has been Michigan firms expecting more hiring activity (with the playing an unaccustomed role in the national economy exception of those located in Detroit). in the early 1990s—that of a stabilizing force in eco- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 435 nomic growth. In the past, the District has been highly of our environment such as inflation or other signals of cyclical, accounting for much of the nation's job losses long term problems but that these conditions need to in recession and much of the job gains in the early be considered in light of the real performance of the stages of recovery. To be sure, the District's cyclical- economy. ity was augmented by the long-term decline of its As you well know, our economy over the past few manufacturing sector. The District's manufacturing years has been experiencing significant difficulties in sector is no longer shrinking and may indeed be maintaining an adequate rate of real growth. Economic regaining some of the market share lost in past years. progress has been uneven across both regions and And, its improved competitiveness may also be mak- industries. Economic statistics during this period have ing its cyclical industries less sensitive to cyclical not always provided sufficient information to form an swings in the national economy. This is because the adequate picture of the economy. In this environment District's cyclical industries are better able to hold on I have, consequently, tended to rely heavily on inforto market share (because of their improved competi- mation from our Boards of Directors in Chicago and tiveness) than in the past. Moreover, the District Detroit, our Small Business and Agriculture Advisory should be less directly affected by the defense industry Councils, groups of industry observers meeting with cutbacks. However, because the District is vulnerable us, frequent individual contacts with District firms, to a sudden downturn, if the national economy weak- and continued participation in regional economic deens, I would be cautious about relying too much on the velopment groups in all of our District states, as well District's economy to be an engine of economic exas major contacts through the Council of Great Lakes pansion indefinitely. Governors and the Council of Great Lake Industries. These types of contacts in the Seventh District and Monetary Policy: Meeting the Challenges elsewhere in the Federal Reserve System are extremely helpful in the formulation of monetary policy. Recognizing the problems confronting the District, I As I see it, examination of District conditions is an have consistently favored monetary policy actions that important tool in keeping the monetary policy process would foster financial conditions necessary for sus- in touch with challenges faced by the economy. tainable economic growth. It has been obvious from The most recent economic downturn provides a our continuing and extensive contacts in the District graphic illustration of exactly why it is so important to that the economy would need assistance to deal with keep policy firmly grounded to local business condithe significant structural drags on job creation and tions. Given the low level of inventories, the quick growth. It has also been clear that the needed adjust- response by firms to the shortfall in demand, and ments would be painful, but a vital, growing national falling interest rates, both economic theory and most economy cannot be assured as long as there are forecasting models suggested that the recession should significant financial and industrial imbalances. Re- have ended quickly and that without any additional structuring has resulted in major gains in productivity policy actions the economy should have experienced a for District firms. But as much as productivity gains solid bounceback in jobs and growth. are needed to maintain competitiveness and promote It was our contact with local businesses, banks, and long-term economic growth in our District, there is a other groups that suggested that the recovery was continuing concern about what this means for job much slower than usual getting started and was likely creation and the income gains necessary to generate to be fragile. The debt buildup of the 1980s and the improved standards of living. substantial requirements to restructure corporations In my view, the role of monetary policy in this that had grown larger than their markets could sustain environment is to provide a financial environment that were going to generate a significant drag on economic will assist in correcting the financial imbalances and activity. Interest rates were reduced well in advance of restructuring issues discussed above. The basic goal of the slowdown and continued to ease over this period monetary policy must be to maximize the economic despite periodic indications that the economy was on well-being of the nation as a whole. This means the verge of taking off. promoting financial conditions consistent with maxi- Since mid-1989, the Federal Open Market Committe mum sustainable growth. Specifically, it is my view has taken actions that resulted in the federal funds rate that it is incumbent upon monetary policy to maintain falling from a high of 9% percent to 3 percent today, a a level of sustainable growth in the economy accom- reduction of more than 675 basis points. The discount panied by sufficient job creation to absorb new work- rate and the three-month Treasury bill rates are at their ers and sufficient investment to ensure our ability to lowest levels since 1963 and the thirty-year bond, produce and compete in today's global economy. This which has a somewhat shorter history, is at its lowest is not to say that we can or should ignore other aspects rate in history. I believe that without the types of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

436 Federal Reserve Bulletin • May 1993 District concerns and contacts that keep the policy simple recognition of what today's problems are verprocess in tune with the underlying economy, far less sus yesterday's. At today's 3 percent inflation rate, would have been done and the economy would have inflation does not represent the same type of threat to faced a far harsher retrenchment. Remember that the economy that it did at 10 percent. But we should economists basing their analysis entirely on economic not forget that this very significant improvement in statistics would have us believe that the recovery inflation was achieved at a very high cost in both began in early 1991. While this time is correct in a human and economic terms and that if growth were statistical sense, contact with the District suggested allowed to exceed its long-run potential for an exthat the recovery was much slower getting started than tended period of time that inflation would return. usual and that continued policy actions were neces- Generating the maximum sustainable growth rate for sary. the economy must remain the primary and essential Monetary policy needs to remain sensitive to cur- mission of monetary policy. rent economic conditions and challenges. Policy must In conclusion, I would like to reiterate that while I take into account the whole range of economic expe- am guardedly optimistic about the economy both in riences and special characteristics of each period. my District and in the nation, it is the issues of Inflation posed major problems for long-term growth structural impediments to growth and job creation, in in the early 1980s. Today, in my assessment, we are terms of debt levels, international competition, and operating in an economic environment that could be other issues of restructuring that dominate the ecodescribed as approaching price stability. In the current nomic landscape. If we continue to make progress on environment, job creation and balance sheet restruc- these fundamental issues and begin to see an increase turing are the major challenges facing monetary pol- in employment levels, the economic outlook for the icy. This is not a change in philosophy or goals but a next few years is quite positive. • Statement by Thomas C. Melzer, President, Federal Because of the lags in published data, we also Reserve Bank of St. Louis, before the Committee on attempt to acquire more timely information through Banking, Housing, and Urban Affairs, U.S. Senate, informal means. By interacting regularly with Dis- March 10, 1993 trict individuals—in 1992, Research Department economists and I participated in approximately 150 programs in our District—we learn firsthand about I welcome the opportunity to discuss the economy of economic conditions. Through these programs as the Eighth Federal Reserve District and my views on well as our daily interaction with the District commonetary policy. As many of you know, one of my munity, we gather information on economic condiresponsibilities as a Reserve Bank president is to tions from consumers, labor leaders, homebuilders, gather information about the economy of my District bankers, educators, and business people from both and report on it at Federal Open Market Committee small and large firms. Besides collecting information, meetings. This information—along with similar inforwe solicit opinions and questions on banking and mation from the other Federal Reserve Districts— monetary policies, as well as learn how they may be serves as a backdrop to our discussion on monetary affecting individuals in the District. Although frepolicy. quently anecdotal, this information can sometimes At the Federal Reserve Bank of St. Louis, we signal an important trend before it is apparent in the monitor economic conditions in both the nation and published data. the Eighth Federal Reserve District, which includes the State of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee.1 Reserve Banks monitor the national and regional ECONOMIC STRUCTURE OF THE DISTRICT economies in a variety of ways. For example, we Let me note some facts about the Eighth District routinely collect economic information from various economy. Based on the most recent county data, the official sources, both private and public. District share of personal income in the nation is 4.3 percent. If we include each of the seven District states in its entirety, that share is 13.3 percent. Per capita disposable personal income levels in District states are 1. The attachment to this statement is available from the Federal Reserve Bank of Philadelphia, Philadelphia, PA 19106-1574. below the national average. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 437 The economies of the Eighth District and the nation small steel manufacturers, have located in northeastare very diverse and roughly similar in structure. ern Arkansas. Some differences, however, are worth noting. Table 1 • Bowling Green, Kentucky, has attracted major compares the composition of output for the Eighth industrial plants, including International Paper and the District and the entire United States.2 The table shows James River Corporation. the following: • Memphis, already a significant transportation and • The Eighth District tends to be more manufactur- distribution center, has exhibited substantial real ing-intensive in both durable and nondurable goods growth. In December, total payroll employment was than the United States. Nondurables sectors in the 1.8 percent higher than year earlier, real retail sales District with comparatively high production include were up 31 percent, and the area unemployment rate rubber and plastic products, food, apparel, paper stood at 5.5 percent, well below the 7 percent national products, and chemicals. Durables sectors with com- average. paratively high output include transportation equipment—particularly motor vehicles—fabricated metals Employment, Unemployment, and and wood products. Restructuring • The District economy is a major agricultural producer, supplying significant portions of the national Payroll employment data provide a useful measure output of corn, cotton, rice, and soybeans. with which to compare the Eighth District and the • Transportation services are a relatively important nation during the recession and the recovery to date. contributor to the District economy, reflecting an U.S. payroll employment fell at a 2.2 percent annual extensive network of navigable rivers, the strong rate during the recession from July 1990 to March presence of railroads, and such airline transportation 1991. District employment declined as well but at companies as Federal Express and United Parcel one-half the national rate. In contrast to previous Service. recovery periods, U.S. payroll employment has essentially remained unchanged since the March 1991 recession trough, whereas Eighth District payroll employ- RECENT ECONOMIC PERFORMANCE IN THE ment has grown, although only at a 0.5 percent annual EIGHTH DISTRICT rate. The employment growth comparison for the District Although the 1990-91 recession and restructuring and the United States is repeated in unemployment have affected both the national and Eighth District data. The increase in the District unemployment rate economies, the District has fared somewhat better in the 1990-91 recession was only two-thirds that in than the nation. the nation. In the recovery, the unemployment rate for the District fell to 5.8 percent by the end of 1992—its Pockets of Strength prerecssion level—while the unemployment rate for the United States remained well above its prerecession One of the characteristics of a diverse economy is that, level. even when an economy slows, some regions or sectors Increases in District service-sector employment in may moderate the slowdown. This situation has been the aftermath of the recent recession more than offset observed in our area in recent years, as certain pock- the continued job losses in the goods-producing secets within the District have grown rapidly, bolstering tor. District foods-producing employment, after dethe economic fortunes of our District. Examples fol- creasing at a 6.4 percent rate during the recession, has low: continued to fall in the recovery, although at a signif- • Northern Arkansas has experienced substantial icantly reduced annual rate of 0.1 percent. In contrast economic growth in the past few years. The north- to the District experience, national job growth in western part is home to some of the nation's fastest- services has not been enough to make up for job losses growing companies: Wal-Mart, Tyson Foods, and J.B. in manufacturing. Hunt Transport Services. Nucor, as well as several The Eighth District has not escaped employment restructuring. Substantial employment changes occurred in transportation equipment, including both 2. For these purposes, the District's economic output is assumed to automobile and aerospace manufacturers. Many of the be composed of the total output of the states of Arkansas, Kentucky, Missouri, and Tennessee. This convention is used because the major- changes in the District aerospace industry are directly ity of economic activity in Indiana, Illinois, and Mississippi is not in related to reductions in spending on national defense. the Eighth District. Moreover, the absence of timely data at the During the 1990-91 recession, employment in transcounty level prevents the presentation of up-to-date data for only the Eighth District. portation equipment declined at an annual rate of 15.3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

438 Federal Reserve Bulletin • May 1993 percent in the District and 8.9 percent nationally. rates than other types of real estate loans. Currently, Since the March 1991 recession trough, employment in nonperforming ratios for all types of real estate loans this industrial classification has declined 3.4 percent in are lower at District banks than at national peer banks. the nation but increased 0.4 percent in the District, an • Over the past five years, District banks have increase that is, nonetheless, below the norm for consistently had capital ratios that exceed regulatory previous recoveries. Since mid-1990, McDonnell Dou- minimums. At the end of the third quarter of 1992, glas, the nation's largest defense contractor, has cut only one of the District's 1,200 failed to meet the back employment in St. Louis by roughly 13,000. "adequately capitalized" requirement under the While many of those laid off have found jobs in St. prompt corrective action provisions of the Federal Louis and elsewhere, manufacturing employment in Deposit Insurance Corporation Improvement Act of St. Louis in 1992 was 5,000 below its level for 1991 and 1991 (FDICIA). Even more impressive is the fact that 21,200 below its level for 1990. only twelve District banks failed to meet the tougher "well capitalized" standards under FDICIA. Be- Banking cause District banks generally have capital ratios that exceeds regulatory minimums, they are well-posi- The economic health of the Eighth District is also tioned to meet demands for loans and other banking reflected in the performance of its banks. Over the past services. decade, Eighth District banks have generally outper- All in all, it is fair to say that the economy of the formed banks of similar size in other parts of the Eighth District has been relatively stable in light of country. The somewhat better historical performance national developments. The diverse nature of the of District banks reflects their comparatively low District economy has contributed to this stability, with ratios of overhead expenses to assets and ratios of loan pockets of strength more than offsetting areas of losses to assets. weakness. Such overall stability is backed by the This historical pattern is repeated in recent national strength of the banking sector. This optimistic evaluand District bank performance. In the third quarter of ation does not ignore the significant structural adjust- 1992, District banks recorded return on average as- ments that are occurring in certain sectors and regions. sets—a measure of bank profitability—of 1.17 percent, Nevertheless, in my judgment, were it not for these well above the industry benchmark of 1 percent and unusually large structural adjustments, economic the national average of 1.06 percent. District banks growth in the District would be comparable with that also outperformed the banks in the nation in terms of of earlier recoveries. return on average equity, despite net interest margins that closely matched the national pattern. Recent improvements in the spread between rates earned on loans and rates paid on deposits have VIEWS ON MONETARY POLICY undoubtedly contributed to the current strength in commercial bank earnings nationwide. Several other I would now like to turn to my views on monetary factors, however, account for the comparatively policy. As I stated initially, the monitoring of regional strong performance of District banks: economic conditions provides useful insights that con- • Because the region's economy fared relatively well tribute to the monetary policymaking process. The during the 1990-91 recession, District banks recorded input of Reserve Bank presidents, who are briefed on lower levels of nonperforming loans as a percentage of a broad range of economic viewpoints, enriches Fedeach loan category—consumer, commercial and real eral Open Market Committee discussions of national estate—than did most of their national peers. Lower economic conditions. Such deliberations provide the ratios of nonperforming loans generally translate into backdrop for formulating monetary policy. Nonethelower loan losses. less, monetary policy decisions necessarily must be • The relatively small building boom, especially in made for the nation as a whole, regardless of the commercial real estate, in the Eighth District during conditions in any one District. the mid- and late-1980s left District banks less subject In reaching judgments on policy, I try to keep to loan losses from real estate suffered by banks in several factors in mind. They include the following: other regions. the goals of economic policy, the role of monetary • The comparatively conservative composition of policy in achieving such goals, the usefulness and District bank real estate loan portfolios is reflected in limitations of contercyclical monetary policy actions, relatively high proportions of first and second single- and the importance of an indicator to gauge the thrust family mortgages in their real estate loan portfolios. to monetary policy actions over time. I will discuss Such loans tend to have lower nonperforming and loss each of these issues briefly. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 439 GOALS Monetary Policy Indicators The goals of economic policy include maximum sus- Finally, it is essential to have indicators of the thrust of tainable growth of the economy, a high level of em- monetary policy actions to gauge whether monetary ployment, and stability in the purchasing power of the policy has been excessively tight or easy. Such indidollar. At one time there was thought to be a tradeoff cators should be tied closely to Federal Reserve between policies pursuing growth and those aimed at actions, which primarily involve adding or draining price stability. We now know that maximum sustain- reserves available to the banking system. This apable economic growth is achieved when changes in the proach leads me to monitor the behavior of total price level cease to be a factor in economic decision- reserves, the monetary base, and the Ml monetary making. It is no accident that the most advanced aggregate. These variables, observed over relatively industrial countries and the newly industrialized and long periods, provide a reasonable gauge of the stance fast-growing Asian economies have been compara- of monetary policy. tively successful in keeping price levels stable. The behavior of broader monetary and credit aggre- It cannot be emphasized too strongly that reason- gates, such as M2, can also be useful in formulating ably stable prices create an environment conducive to and evaluating monetary policy. Averaged over threelong-range planning, as resources are used produc- to five-year intervals, M2 growth has been an indicator tively and not expended on inflation hedges. Removing of the growth of nominal spending, although this the distorting effects of inflation from real price signals relationship is now being reevaluated. But monetary enhances market efficiency. Low and stable inflation policy is too complex to be described solely by the also helps to keep interest rates low by removing the behavior of a single variable, especially one over premium that investors require to compensate them- which the Federal Reserve has only limited control. selves both for expected losses due to rising prices and The portion of M2 that is most directly affected by for the risks of making long-term commitments in a Federal Reserve actions, Ml, has risen at double-digit world with price-level uncertainty. rates during the past two years, as have total reserves and the adjusted monetary base. The slow overall growth of M2 has been due entirely to its non-Mi ROLE OF MONETARY POLICY components, which Federal Reserve actions affect only indirectly. The growth of these components has In the long run, monetary policy only affects prices. been affected by the very steep yield curve, the rise in Stimulative monetary policy actions cannot increase deposit insurance premiums, the need for higher capthe economy's long-run growth. The potential for ital ratios, increased regulatory oversight, weak credit economic growth is determined by real factors such as demand, and continuation of the longer-run trend the growth in the labor force, capital investment, and channeling credit away from depository intermediarincreases in productivity. Accordingly, the role of ies. Consequently, M2 growth has slowed despite the monetary policy in achieving our long-run economic Federal Reserve's considerable efforts to raise it. goals is limited. Countercyclical Policy CONCLUSION Countercyclical monetary policy, however, may be There is no simple rule for assessing the appropriateappropriate in the short turn. Monetary policy actions ness of monetary policy at each point in time. Considcan lay the foundation for recovery by bolstering erable judgment is required in setting policy. Thus, the sagging monetary growth rates during a recession and Federal Open Market Committee benefits greatly from can avoid an upward spiral in inflation and interest the diversity of views that are advanced under its rates by moderating excessive monetary growth dur- current structure. Ultimately, the effectiveness of ing an economic expansion. But monetary policy is a monetary policy must be evaluated based on results— blunt tool. Both the magnitude and timing of the and the record of the past decade is reasonably good. effects of countercyclical monetary policy actions on Despite unusually large federal budget deficits, comthe real economy are uncertain. Excessive countercy- plicated international developments, and significant clical monetary policy actions are destabilizing be- financial market restructuring and disruptions, monecause they necessitate policy reversals down the road. tary policy has been successful in reducing inflation Consequently, one must avoid sowing the seeds for during a long period of moderate economic growth. the next inflation when fighting recession or sowing the Although set back by the recession and a slow recovseeds for the next recession when fighting inflation. ery, monetary policy has made substantial progress in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

440 Federal Reserve Bulletin • May 1993 regaining credibility with respect to controlling infla- know what the future holds, but if accelerating inflation and has laid the foundation for a sustainable, tion is behind us, the real economy will be on a firm low-inflationary expansion in the 1990s. No one can footing for genuine progress in the years ahead. • Statement by Gary H. Stern, President, Federal Re- The defense expenditure buildup of the mid-1980s serve Bank of Minneapolis, before the Committee on and the commercial real estate expansion largely by- Banking, Housing, and Urban Affairs, U.S. Senate, passed the Ninth District; therefore, when these in- March 10, 1993 dustries suffered in the early 1990s, the region's performance did not deteriorate as much as the nation's. I appreciate this opportunity to discuss with you The Ninth District's relative improvement, howeconomic conditions in the Ninth Federal Reserve ever, is more than the avoidance of the economic District and my views on monetary policy. Largely by swings that have occurred nationally (indeed, the avoiding the swings of the national economy, the District has experienced its own cycles, particularly Ninth Federal Reserve District's economy has grown within its natural resource-based industries). My travsteadily but unspectacularly since 1985. In 1985 the els across the Ninth District and visits with its leaders, nation was expanding, but the District was still af- along with articles in the fedgazette, the Federal fected by problems in its natural resource-based in- Reserve Bank of Minneapolis' regional business and dustries. Now, the District's economy is somewhat economics newspaper, reveal considerable vitality and stronger than the nation's. In recent years, while the adaptability. Increased exports, growing output from nation's economy was sluggish, the Ninth District's industries created by new technologies, expanding economy—less affected by reductions in defense tourism, and Canadian cross-border shopping have spending and falling commercial real estate prices— enabled the region to advance, despite persistent probgrew at a faster rate. lems in its important natural resource-based industries. UNSPECTACULAR BUT STEADY MANY ACRES, MANY RESOURCES, FEW PEOPLE Close to three-fourths of Ninth District business leaders responding to a poll conducted by the Federal The Ninth District covers a big area but has a small Reserve Bank of Minneapolis last fall said their com- population. Montana, North Dakota, South Dakota, munities' economies were doing better than the na- Minnesota, the Upper Peninsula of Michigan, and tion's. Personal income growth since the trough of the northwestern Wisconsin make up nearly 12 percent of 1990-91 recession supports their observations: In- the total land area of the United States but contain come in the District's four complete states grew faster only 3 percent of its population. than in the nation.1 And in 1992 the District's banks, Natural resource-based industries are important in buoyed by favorable interest rate spreads and strong the District but are no longer the driving force they demand for residential loans, had their best year in a once were. Still, these District industries produce decade. This performance is in marked contrast to about 16 percent of the nation's agricultural output, 11 March 1985, when the nation was in its ninth quarter of percent of mining, and 9 percent of forest products. recovery, but the District's states, except Minnesota, Such industries are especially important in the Diswere expanding more slowly than the nation. In fact, trict's three western states, accounting for 26 percent between the fourth quarter of 1982 and the first quarter of North Dakota's total output, 22 percent of Montaof 1985, South Dakota, North Dakota, and Montana na's, and 20 percent of South Dakota's. ranked forty-fourth, forty-eighth, and forty-ninth re- These sectors—agriculture, mining and energy, and spectively in annual growth. During this time the forestry—have long been important in the Ninth Dis- District's banks mirrored the real economy, especially trict, but, in general, they are no longer dynamic in rural areas, and in 1986 banks had their worst engines of growth. Instead, these sectors struggle to performance in years. earn modest profits, maintain employment levels, and replace obsolescent machinery. Agriculture, along with mining and energy, went through a roughly parallel cycle of a 1970s surge followed by a 1980s 1. The attachment to this statement is available from the Federal slowdown and a weak recovery into the 1990s. The Reserve Bank of Minneapolis, Minneapolis, MN 55401. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 441 forest products sector has followed a different pattern South Dakota and Montana. Coal and oil production but faces structural problems of its own. are important in both North Dakota and Montana. Iron ore is by far the District's most important mining sector in terms of employment and value of AGRICULTURE'S IMPACT output. Output grew through the 1970s, declined in the early 1980s, recovered somewhat by 1990, and is again The rural financial crisis was at its height in 1985. in a slump. Iron mining employment in Minnesota has Concerns for the agricultural and rural economies dropped about 20 percent since 1985. Our remaining dominated board of directors and advisory council ores are low grade and require expensive processing, sessions as well as many of my meetings across the making it hard for existing iron mines to compete with District throughout the late 1980s. more recently developed high-grade sources in Latin Agriculture experienced wrenching adjustments in America. The industry has cut costs, reduced staffing, the 1980s. Good crop prices and low real interest rates improved technical efficiencies, and undergone finanled to the quadrupling of land prices between 1970 and cial restructuring. 1980. But these factors turned negative in the 1980s Copper and gold are also important mining products and pushed agricultural profitability and land values in the Ninth District. These mines have important into a slump. From 1980 to 1987, Ninth District land local employment and spending impacts in northern prices declined 35 percent to 60 percent, and foreclo- Wisconsin, the Upper Peninsula, western South Dasures increased markedly. kota, and Montana. Output and employment have Now the spate of bankruptcies is over. Farm in- been essentially stable over the past eight years in comes have climbed slowly from mid-1980s lows. spite of fluctuating prices and limited profitability. Total agricultural debt dropped 30 percent from 1984 At present, both copper and gold prices are low; to 1990 as lenders wrote off and farmers paid down copper and gold mine layoffs have occurred recently in debt. Land prices stabilized and then rose; by 1992, Michigan and South Dakota. Few new mines, which unadjusted for inflation, they roughly had regained are capital-intensive and involve long lead times, are their 1984 levels. being developed because of current depressed prices. But farm profitability remains tenuous and highly Some officials are concerned that employment and influenced by exchange rates and government support output may thus shrink as ore deposits in existing programs. At a recent meeting of our advisory council, mines are exhausted. one member noted that farmers are broken into two In the 1970s, coal and oil development apparently groups: well-capitalized and highly leveraged. Well- faced a bright future in North Dakota and Montana. capitalized farmers who have not become highly lever- But these hopes slumped with falling oil prices in the aged make reasonable profits, continue to invest in 1980s. While coal production has remained relatively new machinery and facilities, and service debt without stable, oil output has declined, and both oil exploraproblems. But those farmers who were highly lever- tion and new coal mine development are at a virtual aged in the early 1980s, even if they escaped liquida- standstill. tion, still face high debt loads, earn only minimal profits at current prices, and are unable to make substantial new investments. Moreover, small rural towns continue to lose busi- EXCESS CAPACITY PLAGUES PAPER INDUSTRY nesses as retailing moves toward larger regional centers. Similarly, the number of farm implement dealers Since the mid-1980s, the forest products industries and agricultural input suppliers shrank notably during have faced problems somewhat different from those of the 1980s, putting further pressure on the economies of agriculture and mining and energy. The paper industry smaller towns. in Minnesota, Wisconsin, and Michigan is an important source of employment and is value-added. In the late 1980s, we heard reports of substantial new con- PRESSURE ON PRICES AND EMPLOYMENT struction or renovation of paper mills. But now the IN MINING AND ENERGY industry is in the middle of a long slump marked by excess capacity nationwide, stagnant prices, and lim- As in agriculture, the metal mining and energy indus- ited profitability. Industry officials do not expect tries in the Ninth District have experienced financial prices to recover for another three years, it was pressures since the mid-1980s. Ninth District metal reported at our most recent advisory council meeting. mines extract iron ore on the fringes of Lake Superior, Several mills have laid off workers and are running at copper in the same area and in Montana, and gold in less than capacity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

442 Federal Reserve Bulletin • May 1993 FORESTRY FACES SHRINKING RESOURCES manufacturing jobs; during the last two years, the AND TECHNOLOGICAL CHANGE increase in instrument manufacturing jobs, primarily medical devices, offset the decrease in computer man- In Montana and western South Dakota, the forest ufacturing jobs. products industry consists of traditional lumber produc- Outside Minneapolis-St. Paul, manufacturing is retion, with most timber cut from national forests. As in silient as well. I periodically travel to Ninth District the Pacific Northwest, available timber supplies are communities as part of my District Dialogue program, shrinking because of depletion of stocks of mature trees and in Aberdeen, South Dakota, and Eau Claire, and somewhat tighter environmental regulations. Prices Wisconsin, business leaders report that they have bid for cutting rights are rising dramatically, and profits been able to attract firms to help compensate for major are squeezed tightly, even at current high lumber plant closings. prices, according to directors' reports. This situation is apparently a long-term one; output and employment can be expected to continue to shrink. Although this DISTRICT CONSTRUCTION EMPLOYMENT RISES particular sector is not large relative to the entire Ninth AS NATION'S DECLINES District economy, effects on employment and spending may be painful to some communities. Ninth District construction, like manufacturing, is also But at the eastern end of the District a whole new resilient. Although Minneapolis-St. Paul's office vasector is emerging. The late 1980s saw substantial cancy rate rivals the nation's, commercial construcconstruction of plants that use new technology to tion is expanding in Grand Forks, North Dakota, produce plywood substitutes from what were consid- Rochester, Minnesota, and Sioux Falls, South Dakota. ered low-value trees. Several such plants, built in Moreover, some communities are experiencing a surge Minnesota, Wisconsin, and Michigan over the past in residential construction. Western Montana, for exdecade, are currently running at capacity. ample, is benefiting from an in-migration of West Coast residents. Thus, over the past two years Ninth District overall construction employment has risen DISTRICT AVOIDS DECLINE IN MANUFACTURING about 1.5 percent, in contrast to its decline at the national level. While many natural resource-based industries were In services, as in manufacturing and construction, struggling, other District industries escaped the vagar- the Ninth District's performance recently surpassed ies of national economic swings. This is especially true the nation's. During the past two years, employment of defense spending and its effect on the District's in services has increased about 4 percent in the region, manufacturing employment. Although several Ninth well above the increase in the nation as a whole. District communities were, and still are, vulnerable to base closings, defense spending cutbacks were expected to hit the Pacific, New England, and South TELECOMMUNICATIONS BRINGS JOBS Atlantic census regions the hardest. Likewise, Ninth TO THE REGION District manufacturing employment was essentially unchanged over the past two years, while nationally it Service industries from outside the District are using dropped by about 3.5 percent. advances in telecommunications to access the region's While defense orders have been shrinking, manufac- labor force. In the past twelve years, bank credit card turing exports have been increasing for the nation, and processors, notably Citibank, have become a major District manufacturers have been as successful as their South Dakota industry. They now account for about national counterparts when it comes to exporting. 5,000 jobs in Sioux Falls, 6 percent of the city's Between 1987 and 1991 growth in manufactured ex- employment. These jobs are not limited only to the ports totaled at least 55 percent in the District and region's cities and towns; a Salt Lake City firm has nation. hired farmers and rural residents in northeastern Mon- Avoiding defense cutbacks' full brunt and partici- tana to work out of their homes. pating in the export surge have not kept the Ninth District from plant closings and layoffs, but the region has been able to offset many of them. Over the years, MORE PEOPLE TRAVEL TO DISTRICT Minneapolis-St. Paul has blossomed into a major computer manufacturing center. However, the bloom The Ninth District also has benefited from rising is now off; these firms have been laying off workers. tourism. Part of this increase comes from the region's Nevertheless, the Twin Cities still generates high-tech exposure in movies—Dances With Wolves and A River Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 443 Runs Through It, for example. New attractions, such doubled between 1986 and 1992. By 1986, the lagging as the Twin Cities' Mall of America and casino gam- effects of the 1981-82 recession, the mid-1980s agribling, are also pulling people into the region. More- cultural slump, and problems with loans to developing over, the dollar's decline has made U.S. travel attrac- countries had combined to weaken all types of banks, tive to foreigners. but agricultural banks were particularly stressed. However, by 1992, District banks reported their highest average ROAA in a decade. CLOSER TIES TO CANADA HELPING BORDER In addition to the increased average ROAA for all COMMUNITIES District banks between 1986 and 1992, another measure of the solid improvement is a reduction in the The Ninth District's proximity to Canada has also number of banks reporting losses. Only seventeen benefited the region. Although the impact of the U.S.- banks reported losses for the first three quarters of Canada Free Trade Agreement cannot be easily sorted 1992, about 2 percent of the District total, compared out from exchange rates and other factors, a 1991 with 279 for 1986, or 20 percent of all banks. fedgazette poll revealed that Canadian business, particularly in border communities, had increased since the agreement's implementation. Furthermore, in my Dia- RESIDENTIAL MORTGAGES DRIVE CURRENT logue trips to Grand Forks and Minot, North Dakota, LENDING GROWTH and Great Falls, Montana, residents reported how Canadian shoppers are buoying these communities. As discussed earlier, 1986 was a year of retrenching for Last year, however, the Canadian dollar fell relative many banks, so it is not surprising that loan volumes to the U.S. dollar, and at recent advisory council were low. Loan growth then improved through 1988, meetings, a slowing of cross-border traffic into North but in 1990 and 1991 credit quality problems surfaced Dakota and Montana was reported. Moreover, the with commercial loans, in particular commercial real Canadian government has recently taken measures, estate and highly leveraged transactions. such as tougher duty-free limits, to discourage cross- By 1992, loan growth had improved again, but the border shopping. composition of loans changed and was more heavily weighted toward residential mortgages. Favorable long-term interest rates spurred a substantial volume UNEMPLOYMENT DECLINES of mortgage refinancings as well as new loans for purchases of new and existing residential real estate. The region avoided the full effect of the economic Moderate growth occurred in multifamily residential slowdown of the early 1990s, but the region's busilending and agricultural lending. Loans to businesses nesses have also taken advantage of the opportunities and financial institutions and nonresidential loans to offered by changes in the economy. Consequently, the individuals all declined in 1992. It is also interesting Ninth District has scored well on one important test for to note that banks participating in our seasonal a regional economy—keeping its unemployment low. borrowing program were more aggressive in making The United States essentially has the same unemploy- agricultural and small business loans than were those ment rate today as it did in 1985, but unemployment that did not participate. Also, despite recent conrates have declined in Ninth District states. cerns about banks investing in securities instead of While District unemployment rates have been de- making loans, District banks' proportion of securiclining, prices and wages have not been increasing as ties, as a percent of total assets, was unchanged in fast as they did nationally. Between 1985 and 1992, 1992 from 1986. the Minneapolis-St. Paul consumer price index rose at a 3.3 percent annual rate, compared with about a 4 percent rate nationally. During the same period, hourly manufacturing wages increased more slowly ASSET QUALITY, INTEREST INCOME, in the District than they did nationally. AND CAPITAL IMPROVE Concurrently with loan growth, asset quality has BANKING INDUSTRY IMPROVES WITH ECONOMY improved. The ratio of noncurrent loans to total equity peaked in 1986 and has been declining since As the District's economy improved, so did the bank- then; loan-loss reserve coverage ratios have also ing industry. For example, the return on average improved since 1986; and net charge-offs to average assets (ROAA) of Ninth District banks more than loans have declined significantly since 1986, mirror- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

444 Federal Reserve Bulletin • May 1993 ing the trends of noncurrent loans to total loans and to attain the highest possible living standards for our provision expense to average assets. citizens over time. In order to give this goal opera- But also noteworthy was the improvement in 1992 tional meaning, the Federal Reserve, in my view, net interest income, which is the difference between should seek to achieve, over time, maximum sustaininterest earnings and interest expense. Short-term able growth of real output. interest rates have declined from mid-1991 levels, My reading of the accumulated evidence on ecoand banks substantially lowered rates paid on retail nomic performance both here and abroad is that in the deposits, thus reducing banks' funding costs. long run the most significant contribution monetary Bank capital levels have been rising, in part, because policy can make to achieving maximum sustainable of stronger earnings performance and, in part, because growth in real output is to foster price stability. That of tougher risk-based capital rules. Also, total equity to is, I am convinced that in the long run, price stability assets has shown significant improvement since 1990. goes hand in hand with sustained economic prosperity. The two goals are not antithetical, and, indeed, price stability is best thought of as a means to the end of BANKING INDUSTRY FACES RESTRUCTURING sustained prosperity. The number of Ninth District banks declined 17 percent In the short run, we in the Federal Reserve may between the end of 1986 and the third quarter of 1992 indeed find it appropriate to respond to incoming (from 1,363 to 1,143). This reduction was caused by financial and economic information to keep the econconsolidation through acquisitions, by bank failures, and omy on, or to return it to, its potential growth path. by changes in some states' laws that allowed affiliate But, it seems to me, our short-run response should mergers. in general be cautious because of uncertainty both There have been thirty-four bank failures in the District about the state of the economy and about the efsince 1986, when problem bank numbers peaked, ac- fects of policy on the economy. Moreover, we need counting for 14 percent of the reduction in banks. to avoid the problem of turning long-run policy into a sequence of short-run decisions. If followed, such an approach runs the risk of adopting a strat- VIEWS ON MONETARY POLICY egy that is persistently inflationary or contrac- In the broadest sense, and taking a long-run perspec- tionary, depending on conditions prevailing when it tive, the object of monetary policy is, it seems to me, is adopted. • Statement by Thomas M. Hoenig, President, Federal flourishing, and tourism is anchoring growth in some Reserve Bank of Kansas City, before the Committee parts of the District. on Banking, Housing, and Urban Affairs, U.S. Thanks, in part, to this more diverse economic base, Senate, March 10, 1993 the District economy felt less sting from the national recession of 1990-91 and has outpaced the nation throughout the recovery. The recent experience of the As President of the Federal Reserve Bank of Kansas District is a sharp reversal from the 1980s, when our City, I am pleased to address this Senate committee. region consistently trailed the national economy be- The Kansas City Bank serves the Tenth Federal cause of farm and energy recessions and a regional Reserve District, which includes Colorado, Kansas, downturn in real estate. Nebraska, Oklahoma, Wyoming, the northern half of My testimony will discuss current economic condi- New Mexico, and the western third of Missouri. We tions and prospects for growth in the Tenth Federal operate branches in Denver, Oklahoma City, and Reserve District. I will also share my views of the Omaha. national economy and the role for monetary policy. In Spanning the heartland, the Tenth District has tra- brief, the District economy grew at a moderate pace in ditionally relied on its natural resource industries. As a 1992 and will probably grow moderately again in 1993, share of total output, for example, agriculture and roughly matching the growth pace of the national energy are roughly twice as important to our economy economy. I expect the nation's recovery to stay on as to the national economy. However, after severe track, picking up momentum over the course of the farm and energy recessions in the 1980s, our economy year, and my view regarding monetary policy is that it has become more diverse. The region's manufacturing should promote maximum sustainable growth within base is growing, a wide range of service firms is an environment of price stability. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 445 RECENT PEFORMANCE OF THE TENTH DISTRICT • Strong construction activity. Chiefly responsible ECONOMY for maintaining the region's lead over the nation during the recovery has been a booming construction sector. The economy of the Tenth Federal Reserve District Construction jobs in the District have grown at an grew moderately in 1992. Contributing to growth were annual rate of 2.8 percent throughout the recovery, the construction and retail sectors, which were gener- compared with a decline at an annual rate of 1.8 ally strong across the seven-state region. Agriculture percent in the nation. Construction activity has been also posted a good year, with bumper crops and solid robust in virtually all categories. Residential building livestock profits. Energy activity remained sluggish, in the region has surged, largely in response to lower but there was a spurt of new drilling in the fourth mortgage rates. Nonresidential and nonbuilding conquarter as exploration firms took advantage of expiring struction have benefited from a fairly large number of tax credits for coal-seam gas. Manufacturing activity public building projects under way in District states. slumped across the District, matching similar weak- The best example of such activity is the new Denver ness nationwide. International Airport, which will be completed this The District economy grew faster than the national year. Commercial real estate has been stable, with economy in 1992, based on two broad economic declining office vacancy rates and few new projects gauges. Real personal income in the District grew 2.3 under way. percent from the third quarter of 1991 to the third • Strong financial institutions. The District's finanquarter of 1992 (the last period for which data are cial institutions are generally strong, having recovered available), compared with a 1.7 percent gain in the from the farm, energy, and real estate problems they nation. Employment in the District grew 1.2 percent faced in the 1980s. Earnings, asset quality, reserve from the fourth quarter of 1991 to the fourth quarter of coverage, and capital coverage are at their highest 1992, compared with 0.4 percent growth in the nation. levels since the early 1980s. Tenth District banks have also outperformed banks in the rest of the nation in District Economy Outpaces the Nation 1992 in all of these dimensions. Moreover, District employment in financial services has continued to The Tenth District economy has been outperforming grow during the recovery, in contrast to a decline in the nation throughout the recovery. Since the reces- the nation. sion ended in March 1991, the District has added jobs • Buoyant trade and services. Wholesale and retail at an annual rate of 1.1 percent, while employment in trade activity have grown steadily in the District the nation has edged up at an annual rate of 0.2 throughout the recovery. The region has continued to percent. What accounts for the more buoyant econ- attract wholesale firms due to its central location, and omy in our region? retail activity has been solid because of the District's • Farm recovery. The farm economy, in contrast overall growth in jobs and income. District employwith some other parts of the national economy, has ment in wholesale and retail trade has grown during enjoyed a strong recovery. In the mid-1980s, agricul- the recovery, while national employment in these ture suffered a severe downturn, as export markets sectors has shrunk. Similarly, the District's service and farmland values both declined. Since then, farm- sector has grown faster than the nation's because of ers have posted record or near-record net cash in- continued expansion in business services, health care, comes, allowing them to put their financial house in and tourism. Tourism activity, despite a sluggish naorder. Farmland values are still well below the peaks tional economy, has been especially strong in the of the early 1980s, but farmers and their lenders are in Rocky Mountains and in the newly developed tourist solid financial condition. Strong farm income has also areas of southern Missouri. helped buoy business conditions in many rural com- While several sectors have helped buoy the Tenth munities across the region. District economy, manufacturing activity in the Dis- • Stable energy industry. The District's energy trict has been as weak as in the nation. Durable goods industry has stabilized after going through its own production has been especially weak in the District, recession in the 1980s. Energy-dependent areas of the and jobs in durables industries have fallen at an annual District, from Wyoming to Oklahoma, experienced rate of 2.5 percent during the recovery. Automobile downturns after oil prices plummeted in 1986. In the production, which is important to the District econwake of lower oil prices, the energy industry down- omy, posted a rise at District auto plants during the sized. Although painful, the correction was relatively 1992 model year; however, jobs in the industry have quick. More recently, the industry has steadied, being continued to drop. The general aviation industry, neither a significant source of strength, as in the early which is concentrated in the Tenth District, is continu- 1980s, nor a drag, as in the late 1980s. ing to suffer from weak sales. The slump in commer- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

446 Federal Reserve Bulletin • May 1993 cial aircraft is also hurting Wichita's economy, where gish job growth, the state's unemployment rate is less Boeing recently announced a layoff affecting 6,000 than 3 percent, one of the lowest in the nation. The workers in 1993 and 1,000 in 1994. Defense cuts have state's nondurable manufacturing, dominated by food hurt in some areas and particularly in the State of processing, has remained buoyant. Healthy wholesale Missouri. Nondurable goods production has also been trade and service sectors have also helped bolster weak in the District, where jobs in nondurables indus- Nebraska's economy. Most of the state's economic tries have grown at an annual rate of only 0.1 percent. gains, however, have been in metropolitan areas and smaller cities that serve as trade centers for their Mixed Performance in District States surrounding areas. Rural parts of the state continue to languish. In a District that spans seven states from the Ozarks to • Wyoming. Wyoming's economy has posted modthe Rockies, it is not surprising that economic perfor- est growth during the recovery, adding jobs at an mance has varied by state. Overall, job growth in six annual rate of 0.8 percent. The state's energy-based of the seven states has outpaced the nation. Employ- mining industry remains weak, although production of ment growth in the recovery has been strong in Colo- soda ash—used in glassmaking—has benefited from rado and Kansas and weaker in Missouri and Okla- stronger construction activity across the nation. Serhoma. vice growth has been solid, mainly due to tourism- • Colorado. Colorado's economy has grown at a related development. Tourist destinations have continrobust pace throughout the recovery, with job growth ued to grow faster than other parts of the state. averaging 2.6 percent a year. Construction in the state • Missouri. Throughout the recovery, Missouri's has boomed. Strong population growth and low mort- economy has grown more slowly than most other gage rates have led to a spurt in housing starts and District states due to its heavy reliance on manufacrising home prices. The new Denver airport and high- turing. Kansas City, which depends less on manufacway improvements across the state have also bol- turing, has fared better than the eastern part of the stered construction activity. Services and tourism state. Overall, Missouri's job rolls have grown at an have also been quite strong, helping to offset weakness annual rate of 0.4 percent throughout the recovery. in mining and manufacturing. Employment in manufacturing has fallen at an annual • Kansas. The diverse Kansas economy has grown rate of 1.5 percent during the recovery. Durables indussolidly throughout the recovery, adding jobs at an tries, the backbone of the state's industrial base, have average rate of 1.6 percent a year. The state's service been especially weak. The manufacturing slump has sector has been strong, with steady gains in business been partly offset by healthy gains in service employand personal services, particularly in the Kansas City ment. A strong farm economy, meanwhile, has buoyed metropolitan area. Construction has been boosted by a local economies in rural parts of the state, and southstrong residential market and a pickup in public infra- western Missouri has been strong because of tourism. structure projects. The state's important farm econ- • Oklahoma. Oklahoma has been the District's omy is prosperous due to high cattle prices and a large weakest economy during the recovery. Employment wheat harvest. The general aviation, automobile, and has declined at an annual rate of 0.1 percent since the energy sectors remain weak, but they have only recovery began. The state's key energy sector remains slightly dampened what has been a healthy state depressed, even after a mild upturn in drilling late last economy overall. year. Manufacturing has generally been weak, despite • New Mexico. The New Mexico economy has improved auto production in the state during the 1992 grown steadily in the recovery. Employment in the model year. Trade and construction activity in the state has increased at an annual rate of 1.7 percent, state has sagged during the past two years. with services and government activity providing the greatest strength. New Mexico's defense labs and installations have benefited somewhat from defense OUTLOOK FOR THE TENTH DISTRICT ECONOMY cuts elsewhere in the nation, and state and local government employment has increased. Tourism has I expect the Tenth District economy to grow at a also been a plus for the northern half of the state. moderate pace in 1993. Preliminary indicators suggest Partly offsetting the strength in these sectors, manu- the District economy is off to a good start this year. facturing and mining have been somewhat weaker than Retailers report that consumer spending, which picked in the two top states. up toward year-end, has continued to be relatively • Nebraska. Nebraska's economy has grown mod- strong in January and February. Moreover, banks in estly during the recovery. The state's job rolls have the District report strengthening loan demand, and grown at an annual rate of 0.9 percent. Despite slug- farm income is rising slightly. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 447 Survey of Economic Advisory Council therefore edge up, although there may be little improvement in the industry's already strong balance To provide current information on the District's eco- sheet. nomic prospects, it is useful to highlight a recent The expected conclusion of two important trade survey we conducted of our Tenth District Economic pacts this year, the Uruguay Round of General Agree- Advisory Council members and to report their expec- ment on Tariffs and Trade negotiations and the North tations for 1993. With representatives from small bus- American Free Trade Agreement, will have a critical iness, agriculture, labor, and consumer interests, the effect on the farm economy's long-term outlook. The council serves as a valuable source of economic infor- District farm economy stands to reap substantial benmation throughout our region and provides useful efits from freer agricultural trade. views on the overall stance of Federal Reserve mon- • Energy. The energy industry will probably be etary policy (council members are listed in the Appen- stable in 1993, with little change in overall activity. dix).1 Currently, drilling activity is edging down from the Our District advisory council is optimistic about the spurt in the fourth quarter of 1992. With oil prices region's economy in 1993. They report improved sales likely to remain relatively flat, there is little prospect early in the year, both for their firms and in their for significant change in an industry that is operating at communities. The sales gains are reported from a a fraction of the activity reached a decade ago. diverse mix of firms—from food processors to building • Construction. Building activity may slow somematerials suppliers. what in our region in 1993. Large housing inventories Most council members expect their profits to im- that accumulated across the region in 1992 will require prove in 1993 because of both increased sales and some time to be absorbed. Moreover, some big public further cost cutting. A substantial majority of council projects, such as the Denver airport, will wind down members also report a general air of economic opti- this year. mism in their communities. In line with their expecta- • Manufacturing. Manufacturing will probably pick tions, a majority of council members plan to increase up in 1993 as the national economy improves. Factory capital spending in 1993. Nearly all of the council production in the region will benefit from a likely members that plan to expand spending this year expect increase in consumer spending on durables. Defense credit to be readily available. cutbacks will continue to hurt some parts of the Council members also report that employment District. growth is currently lagging behind other business Overall, I expect the Tenth District economy to indicators. The number of firms adding workers so far grow at a moderate pace in 1993, roughly equal to the this year just about equals the number of firms not nation's pace. The nation's ongoing recovery will also adding workers. Similarly, council members are have an important bearing on the growth we achieve in evenly divided between those planning to increase our District. Improvement in the national economy employment this year and those planning no new jobs. will be a prerequisite to a rebound in District factory Only one council member plans to cut jobs in 1993. production, much of which is sold in national and international markets. Outlook for District Industries Additional information that points to moderate growth in the District economy in 1993 is the outlook for key THE NATIONAL OUTLOOK AND MONETARY District industries. We expect agriculture to remain POLICY strong, energy to remain stable, construction to slow, and manufacturing to improve. Turning to the national outlook, I expect the national • Agriculture. The District farm economy should economy to continue to grow moderately in 1993. Real stay on its recovery course in 1993. Livestock produc- GDP growth should pick up over the year, averaging ers' profits are expected to remain strong, but last about 3 percent from the fourth quarter of 1992 to the year's bumper harvest will hold down crop prices. The fourth quarter of 1993. With continued moderate effect of lower crop prices on farmers' incomes in 1993 growth, inflation will likely edge down to just below will be cushioned by larger sales volumes and bigger 3 percent. government payments to farmers. Farm income may The economy in 1993 will benefit from the effects of past easings of monetary policy. The current low level of interest rates will spur spending on consumer durable goods, business fixed investment, and housing. In 1. The attachment to this statement is available from the Federal Reserve Bank of Kansas City, Kansas City, MO 64198-0001. addition, the economy will gain momentum as busi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

448 Federal Reserve Bulletin • May 1993 nesses build inventories in anticipation of stronger seeing in interest-sensitive sectors, such as housing domestic demand. and investment. Other sectors of the economy will contribute little to I think we all agree that the goal of monetary policy economic growth in 1993. Net exports are likely to slip is to promote maximum sustainable growth over as sluggish growth abroad limits U.S. export growth time. In the near term, Federal Reserve policy and the expansion at home boosts U.S. imports. And should be geared toward fostering a solid expansion, total government spending is not expected to change thereby encouraging job growth and the investment substantially relative to a year ago. spending needed to spur the economy's potential Structural factors will also influence the pace of the growth rate. But just as important, and consistent national expansion. Balance sheet improvements with this goal, the Federal Reserve must work toamong households, businesses, and financial institu- ward ensuring an environment of price stability. Low tions will lend support to the recovery. Although the inflation is a prerequisite to an efficiently operating restructuring of balance sheets is still under way, economy and to the achievement of maximum considerable progress has been made in reducing debt growth over time. burdens. Acting to dampen overall growth in 1993 will For the foreseeable future, the Federal Reserve will be the continuing shift of resources from defense to need to monitor a wide range of information in connondefense industries. ducting monetary policy. As you have heard from Inflation is likely to continue to decline in 1993. With Chairman Greenspan, the monetary aggregates, in the unemployment rate expected to fall gradually particular, will probably not be as informative as in the through the year—to 6.9 percent in the fourth quar- past. Relationships among the aggregates and the ter—wage pressures will remain modest. Wage mod- economy are changing as more lending and borrowing eration, therefore, should help dampen inflation fur- are taking place outside the depository sector. Indeed, ther. I expect consumer price index inflation to decline fundamental changes in credit markets are under way to about 2.8 percent in 1993 on a fourth-quarter over worldwide. Thus, in assessing the state of the econfourth-quarter basis. omy and the stance of monetary policy, we will Given this economic outlook, I believe the current monitor a wide range of financial and economic indistance of monetary policy is appropriate. Past mone- cators—in the Tenth District, nationally, and internatary policy easings—which I supported last year as a tionally. And monetary policy will be responsive and voting member of the Federal Open Market Commit- flexible in the face of a rapidly changing and challengtee—have contributed to the improvement we are ing economic environment. • Statement by Robert D. McTeer, Jr., President, Fed- ment growth weakened, and unemployment began to eral Reserve Bank of Dallas, before the Committee on rise. Our employment growth slowed below trend, and Banking, Housing, and Urban Affairs, U.S. Senate, our unemployment rates increased to national levels, March 10, 1993 especially in areas vulnerable to defense cuts. Even with these weaknesses, however, employment in the three states has grown by 194,000 since the trough in I am pleased to respond to your request to share my the national economy. views on monetary policy and the state of the economy in the Eleventh Federal Reserve District. The economy of the Eleventh District, which includes Texas, southern New Mexico, and northern Louisiana, has fared somewhat better than the national OVERVIEW OF THE ELEVENTH DISTRICT average during the past three years.1 In part, we have ECONOMY done better because the economy was rebounding from the sharp contraction that took place after 1986. The relative strength of our economy derives, in part, Measured by employment, our region managed to from trade with Mexico. Exports from Texas to Mexavoid recession but not sluggish recovery. After the ico rose 16.5 percent in 1991 and jumped another 22 U.S. recovery began in April 1991, District employ- percent in 1992. Exports in 1992 amounted to $19 billion, which represented 4.7 percent of gross state product. District industries benefiting most from increased Mexican trade include chemicals, food and 1. The attachment to this statement is available from the Federal kindred products, transportation equipment, electric Reserve Bank of Minneapolis,M inneapolis, MN 55401. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 449 and electronic equipment, furniture and fixtures, and A Growing Similarity to the National Economy apparel. Our border cities have shown the strongest growth, The changing composition of the District economy has both in terms of manufacturing employment and in made it more like the rest of the United States. In retail sales. Geographically, San Antonio and Austin 1982, the District had a more prominent energy sector are doing better than Houston and Dallas-Fort Worth. and less prominent service and manufacturing sectors. Fort Worth has been hardest hit by defense cuts, while Since that year, the District's energy sector has con- Houston has felt the brunt of energy cutbacks. tracted, its service sector has grown in importance, Restructuring away from energy continues to make and its manufacturing sector has declined less than the our economic profile more like the nation's, but that nation's manufacturing sector. restructuring, like similar adjustments across the na- Late in the U.S. recession, the District economy tion, continues to exact a human toll. Within our showed the effects of its growing similarity to the U.S. District, the performance of New Mexico is similar to economy. The influence of the national recession on that of Texas, while that of Louisiana has been some- the District economy was most evident during the first what weaker. two quarters of 1991. The national economy experi- Except for commercial real estate, construction has enced its sharpest contractions from November 1990 been a recent source of strength and jobs in our region. through March 1991. Residential permits last year were the highest since During the recovery, the performance of the District 1986, the year of the oil bust. Office vacancy rates, economy has remained similar to that of the nation's. however, have not recovered much. One lesson from Since March 1991, District employment has grown at our District is that the overhang of commercial real an annual rate 2 percentage points below its long-term estate lasts a long time. trend rate of growth, while U.S. employment has The financial condition of our banks has improved grown at an annual rate 1.8 percentage points below its over the past two years, and bank lending has stabi- long-term trend rate of growth. lized for the first time since 1985. Nonetheless, the credit crunch has been very real in the Southwest. Business Restructuring While it has eased somewhat during the past year, the credit crunch continues to impede job growth in small- As in much of the nation, one source of weakness in and medium-sized businesses that rely on banks for the growth of District employment has been continued credit. structural change in the service sector. Although the service sector has continued to add jobs, the rate of A Stronger Growth Trend growth has declined sharply over the past several years. The employment weakness stems from both With most sectors of the District's economy outper- technological change and increases in the costs of forming their national counterparts, a stronger long- nonwage benefits. For example, the demand for acterm growth trend may be the principal factor contrib- counting services has declined as many small busiuting to employment growing faster in the District than nesses have acquired software that allows them to in the nation during the recovery. Since 1970, the trend keep their own books. Many firms have also comrate of growth in District employment has been 2.9 mented to us that the mandated nonwage costs of percent annually, while the trend rate of growth in hiring an employee have risen so sharply over the last U.S. employment has been 2.1 percent annually. Since two or three years that it is now often cheaper to pay the trough in March 1991, employment gains in both overtime than to hire new workers. the District and the United States have been about equally below their long-term trends. In the District, Reduced Defense Spending employment has grown at a 0.9 percent annual rate since March 1991, while U.S. employment has grown As is the case for many areas of the country, another at a 0.3 percent annual rate. source of weakness in the District economy has been Several factors contribute to the District's stronger cuts in defense spending. Overall, the District is about growth trend. First, the state and local fiscal policies in as sensitive to cuts in defense spending as is the the District have struck a favorable balance between national average. Two metropolitan areas in the rethe provision of government services and the taxes gion, Fort Worth in particular and Dallas to a lesser required to finance them. Second, political and social extent, are more sensitive than the national average. factors in the District states are generally favorable to Nonetheless, the District remains vulnerable to deeconomic growth. Third, the populations of New fense cuts aimed at specific, locally produced weapons Mexico and Texas are younger than the U.S. average. systems. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

450 Federal Reserve Bulletin • May 1993 Reduced U.S. spending on the A-12 attack plane, has lost in excess of 200,000 jobs in oil and gas—more B-2 bomber, F-16 fighter, V-22 Osprey, and other than 50 percent of its peak employment. Both in defense contracts has rocked manufacturers in the absolute numbers and in percentage terms, the Dis- District, particularly those in the Dallas-Fort Worth trict's job losses in energy exceed those of the auto area. Since late 1990, employment at General Dynam- industry nationally. ics' Fort Worth facility has been reduced by more than 11,000 workers. Just last year, Bell Helicopter, Real Estate and Construction Vought Aircraft, and Texas Instruments laid off a total of 9,400 workers in the Dallas-Fort Worth area who In the past few years, the growth of construction has previously were working on defense contracts. Other been a source of strength for the District economy. defense contractors in the area also have made cuts. Although construction jobs have declined by 196,000 Multiplier effects will contribute to further job losses nationally since March 1991, they have increased in the Dallas-Fort Worth area. slightly in the District. Although most major office The District overall has been a net beneficiary of the markets in the District remain overbuilt, residential base realignment process thus far. While bases in construction has shown marked improvement. Permits Austin (Bergstrom AFB), Fort Worth (Carswell AFB), issued for residential construction in 1992 were the and Beeville (Chase Field Naval Air Station) are in the highest since 1986, the year in which the construction process of closing and the Second Armored Division at sector began its massive decline. Fort Hood (near Killeen, Texas) has been deactivated, Differences between District construction and real the District has gained military jobs because 33,000 estate and the corresponding national averages result military personnel are being transferred to Fort Hood. primarily from timing. The District's real estate mar- Additionally, civilian uses have been found for some ket collapsed in 1986, the year in which oil prices of the closed bases. A new round of base-closing plummeted and the region's economy fell into recesdecisions begins this month, however, and the story sion. By the time national real estate property values could change dramatically. tumbled in 1990 and 1991, property values were stabilizing in the District. Oil and Gas During the District's recession, construction employment—which had been stimulated during the early Declines in the oil and gas industry have been still 1980s by tax advantages, a booming regional econanother source of regional weakness. In the District, omy, and speculative excesses—fell almost 30 percent the concentration of employment in oil and gas extrac- from its peak in 1984 to its trough in early 1989. tion is seven times the national average. Although the District construction then began to rise, spurred by boom days of J.R. Ewing have long since left the oil rising occupancy rates and stabilizing property values. patch, oil and gas extraction is still a $40 billion More recently, rising home values, lean home invenindustry in the District (7.8 percent of the value of tories, and low mortgage rates made 1992 the biggest output), and the industry's volatility still has consid- year for residential construction in the District since erable effects on the region's economy. 1986. Weakness in office markets kept the growth of Before February 1991, higher oil prices brought commercial construction at a near standstill. Because about by the Persian Gulf War encouraged a modest the District has already adjusted to the low levels of expansion of the nation's oil and gas industry. As an commercial construction associated with weak office energy-exporting region, the District benefited from markets, however, the commercial sector is not the higher energy prices, while much of the nation suf- drag it is nationally. fered. After February 1991, lower oil prices and extremely Banking low wellhead prices for natural gas brought a sharp contraction to the oil and gas extraction industry, The District banking industry is, on average, now which was exacerbated by a long-term shift of explo- healthier than its national counterpart. In the District, ration and development activity overseas. The Baker healthy banks hold 82 percent of total assets versus 65 Hughes rig count fell to a fifty-two-year low in April percent nationwide. District banks are more profitable 1992. The fall resulted in major employment reduc- and generally hold lower percentages of nonperformtions by oil companies doing business in the District, ing loans than their national counterparts. District such as ARCO, Chevron, Mobil, Marathon, Phillips, banks show a lower propensity to lend than the and Shell. Over the past two years, layoffs in the average U.S. bank, however, holding only 45 percent energy industry directly accounted for the loss of of assets as loans versus 56 percent for all banks 32,000 jobs in the District. Longer term, the District nationwide. Lending by Eleventh District banks has Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 451 not been as strong as the banks' capacity to lend would target range. Nominal aggregate demand was growing indicate, although recently, loans held at District even more strongly, at an annual rate of more than 6 banks have increased marginally. percent. The interest rate yield curve had been posi- Banking institutions in our region have been through tively sloped for six months, and both the Commerce very tough times. From 1982 through 1992, a total of Department and National Bureau of Economic Re- 565 banks failed. A credit crunch and concerns about search indexes of leading indicators were signaling capital constraints on lending began in the Dallas continued economic expansion. Indeed, contempora- District. The impact of the credit crunch on small neous real-time data did not clearly signal that a businesses was long-lasting and severe. The depen- recession had begun until the fourth quarter of 1990, at dence of small businesses on bank credit and the which point the Federal Reserve promptly initiated a contraction of bank loans in recent years—partly as new sequence of easing moves. In consequence, shortthe unintended consequence of stricter regulatory term interest rates declined an additional 100 basis oversight, increased deposit insurance premiums, and points by the end of 1990, and monetary base growth higher capital standards—may well explain some of surged to double-digit rates. the weak employment growth we have seen so far in The oft-heard charge that the Federal Reserve's this recovery. actions were "too little, too late" is not supported by Banking conditions improved slowly as insolvent the evidence. We cut the federal funds rate much more institutions were closed, failing banks were resolved, (17 percent) before the July 1990 business cycle peak and recapitalization occurred. While many factors than before any of the five previous business cycle have contributed to the credit crunch, it is clear that peaks. Despite a pause in interest rate cuts during restoring capital to healthy levels is a necessary con- early 1990, the decline in the federal funds rate from dition for bank lending to resume. April 1989 (when it began its descent) until March 1991 (at the business cycle trough) comes very close to the Regional Summary average percentage decline in the federal funds rate over comparable periods during other recent business Many of the same factors that are holding back em- cycles. The decline in long-term interest rates that ployment growth in the nation during this recovery accompanied the March 1989-March 1991 easing have had a similar effect in the Eleventh District. moves was also well within the range of past experi- These factors include business restructuring and re- ence. duced defense spending. A stronger growth trend in The total decline in the federal funds rate and the the District than in the nation accounts for much of the ten-year Treasury bond rate over this business cycle region's stronger performance in creating jobs. For has now reached 70 percent and 29 percent respecnow, the disadvantages of having a higher concentra- tively, compared with average total declines of 55 tion in the oil and gas industry than the national percent and 9 percent over the other five most recent average are being partially offset by increasing trade cycles. Monetary policy was expansionary throughout with Mexico and an expanding construction sector. the recession. The District's banks are healthier than the national Late in 1990, as soon as it became apparent that the average, but they have yet to become a factor contrib- Gulf War, a spike in oil and gasoline prices, and a uting to stronger growth. Having sketched recent sharp drop in consumer confidence were dragging the events in my region, I turn to the national economy economy down, the Federal Reserve took prompt and the appropriateness of monetary policy. action to maintain spending growth. Unfortunately, the lags between cuts in the federal funds rate and the economy's response are such that our actions were RECENT MONETARY POLICY insufficient to prevent the economy from slipping into a recession. With regard to monetary policy, I believe that it has been accommodative over the past four years. Certainly, by conventional measures, monetary policy THE SHIFTING COMPOSITION OF MONEY was not tight heading into the third quarter of 1990, when the Iraqi invasion triggered a recession. The In response to cuts in short-term interest rates, growth federal funds rate had been declining for fifteen in narrow measures of money has accelerated markmonths and was down more than 150 basis points from edly over the past four years. Growth in the M2 its March 1989 peak. In mid-1990, the M2 money monetary aggregate, in contrast, has slowed. supply was growing at an annual rate of more than 5 It is not surprising that growth in the narrow monpercent, near the center of its 3 percent to 7 percent etary aggregates sped up relative to growth in broader Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

452 Federal Reserve Bulletin • May 1993 measures of money. As short-term interest rates de- has grown about 2 percentage points faster than M2 in cline, the opportunity cost of holding funds in check- recent years—very much in line with recent growth in ing accounts or even in cash declines. The growth rate nominal GDP. Furthermore, the expanded aggregate of narrow monetary aggregates then accelerates. Be- has stayed near the middle of the growth cones implied cause banks are required to hold reserves against Ml by the Federal Reserve's M2 target growth ranges. deposits but not against M2 deposits that are not part This research suggests, then, that current monetary of Ml, the impact of lower interest rates on the growth policy is appropriately expansionary. rates of reserves and the monetary base can be partic- For some time now, I have been warning that, in ularly striking. today's financial environment, disintermediation from The mystery is the magnitude of the absolute slow- the banking system is as likely to be caused by low ing of M2 growth. Historically, the velocity of M2 has short-term interest rates as by high short-term interest moved very closely with short-term interest rates. rates. In the past, a steepening of the yield curve However, this relationship began to deteriorate in brought about by a decline in short-term interest rates 1990. The velocity of M2 has been substantially higher stimulated the growth of bank deposits—as bank dethan expected, given recent declines in short-term posit rates, tied to interest rates on relatively longinterest rates. Indeed, the shortfalls in M2 and M3 term loans, tended not to fall as much as the rates on growth from the midpoints of their ranges were more short-term marketable securities. Over the past two than offset by the increase in their velocities. In other and one-half years, however, households have rewords, hitting the midpoint of the target ranges with no sponded to lower deposit rates and a steepening yield change in velocity would have resulted in slower curve not by shifting away from short-term securities growth in spending and income than actually occurred. into bank deposits but by shifting away from short- The close historical relationship between interest term securities and deposits into bond market mutual rates, M2 growth, and nominal gross domestic product funds and other investment vehicles, as well as by (GDP) growth, to some extent, is a product of hind- reducing consumer debt. These effects have been so sight. Before 1980, M2 as we now know it did not strong that it is possible that further cuts in short-term exist. In 1980, the Federal Reserve redefined M2 to interest rates would actually shrink the M2 money include money products that were not previously supply as that supply is currently measured. included in published money numbers. Most notable among these were money market mutual funds, which if they had remained excluded from M2, would have FACTORS CONTRIBUTING TO THE SLUGGISHNESS lowered M2 growth by 2 to 4 percentage points during OF THE RECOVERY the quarters just before M2's redefinition. If M2 had not been redefined, the historical M2-GDP relation- Output growth during 1992 now appears to have been ship would have appeared much looser. stronger than had been anticipated, GDP having in- Just as households in the late 1970s shifted their creased at better than 3 percent. Growth during the money out of traditional bank deposits into money second half of the year, at more than 4 percent, was market mutual funds, households today are shifting particulary strong. Continued healthy output growth out of M2 deposits at banks and thrift institutions and would be welcomed, particularly if accompanied by a into higher-yielding bond and equity mutual funds. more rapid expansion of employment. Unfortunately, Mutual fund asset management accounts, such as as some members of this committee have noted, we those offered by Merrill Lynch or Charles Schwab, have been in an output recovery but a jobs recession. enable households readily to transfer assets from bond My colleagues and I within the Federal Reserve Sysand stock funds to checkable money market funds tem share your concern with this problem. Recent when needed. While stock funds carry much invest- declines in initial claims for unemployment insurance ment risk, bond funds—particularly bond funds invest- and the lengthening average workweek provide reason ing in government and high-rated corporate bonds— to hope that employment growth will accelerate soon, are quite substitutable for M2 deposits and have grown and the unemployment rate will continue to fall. very rapidly the past two years. The recovery was so slow to gain momentum, in Research at the Dallas Fed indicates that redefining part, because of the unusual composition of the de- M2 to include bond funds held outside Individual clines in output and employment during this past Retirement Accounts and Keogh accounts by house- recession. The overall percentage decreases in output holds would result in a monetary aggregate more and employment during the 1990 recession roughly closely related to its opportunity cost (that is, compet- match the average declines observed during other itive interest rates) and nominal GDP than is M2 as post-World War II recessions. For the industrial seccurrently defined. Indeed, such an expanded aggregate tor, however, the 1990 recession was the mildest Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

454 Federal Reserve Bulletin • May 1993 loss of 124,000 jobs. Between January 1992 and Janu- Alaska ary 1993, the decline in manufacturing employment showed no sign of abating, as employment fell 3.2 Alaska's dependence on oil, fisheries, and other natupercent; the decline in construction employment, how- ral resources makes its economy the most volatile of ever, slowed somewhat, to 3.0 percent. the Twelfth District states; it is subject to large swings Services and state and local government are the only in economic activity related to commodity prices but is sectors to have reported steady job gains since Janu- relatively unlinked to national business cycles. During ary 1991. Between January 1991 and January 1993, the 1989-92 period, employment growth was 4.5 peremployment in those two sectors rose 3.0 percent cent in 1989, 6.1 percent in 1990, 2.1 percent in 1991, (159,000 jobs) and 6.0 percent (164,000 jobs) respec- and 0.5 percent in 1992. The unemployment rate in tively. Growth in these sectors has slowed recently; January 1993 stood at 8.4 percent—below its yearemployment in January 1993 was up 2.2 percent in earlier level of 9.5 percent. Some of Alaska's recent services and 0.4 percent in state and local government volatility is attributable to the activity stimulated by from the levels of a year earlier. the 1989 oil spill and the associated clean-up and Most other sectors have shown weakness in the payments. Thereafter, however, several basic indus- District as a whole. The utilities and communications tries were hampered, making economic activity more sectors have been downsizing, resulting in consider- sluggish. able employment declines. The finance, insurance, In contrast to the weakness in 1992, employment and real estate sector also has reported net job losses rose sharply in January 1993, to a level 2.1 percent over the past few years because of weakness in real above a year earlier. Manufacturing employment rose estate and the consolidation of the banking industry, 4.0 percent, reflecting strength in durable goods emalthough this sector did show a modest gain over the ployment. Pulp and paper employment, however, twelve months ending in January 1993. Trade employ- showed little change over the year, and seafood proment also has been a major source of job losses as a cessing employment declined 8.5 percent after rapid consequence of weak consumer spending and consol- expansion in previous years. The fall-off in seafood idation of the retail sector. Employment in trade processing was due, in part, to lower-than-normal declined 0.2 percent in January from the level of a year catches of pink salmon. earlier, bringing the level of employment down 1.3 A 5.9 percent decline in mining employment over percent from the level in January 1991. Federal gov- the year reflects the sluggish world demand for minerernment employment also contributed to weakness in als, and energy exploration remains constrained by the District, falling 1.9 percent between January 1992 environmental considerations. However, there are and January 1993. some plans for energy development in 1993, including Weakness in the District was mitigated somewhat construction of a gas reinjection facility on the North by growth in activities related to foreign trade. For Slope. A discovery in the Beaufort Sea is potentially example, total import and export traffic in California large enough to justify a sixty-mile connection to the rose to $192.5 billion in 1992, an increase of 10.1 Alaska Pipeline. percent over 1991 and an increase of 16.2 percent over Finally, sluggish construction employment reflects 1990. Oregon and Washington also have seen growth the overall slow economy. A pickup in residential in import and export traffic, although not at the pace of building permits (26.5 percent) and nonresidential con- California.3 struction awards (414 percent) in January 1993 from a The performance of the banking industry in the year earlier, however, suggests that 1993 may see District has been mixed. Earnings ratios at California some improvement in this sector. and Arizona banks were below the national average Sectors showing job growth over the twelve months last year, while the other states in the District posted ending January 1993 included transportation (1.6 pervery strong earnings. Banks in California, Nevada, cent), trade (1.5 percent), services (3.4 percent), and and to some extent Arizona, continued to have rela- federal employment (3.2 percent). With respect to tively high volumes of problem loans. Lending at government employment, however, uncertainty exists commercial banks in the District, which held up very as to the impact of further defense cutbacks on miliwell in the recent recession, has deteriorated in the tary bases that have so far survived. Furthermore, past couple of years, though banks in a number of sluggish conditions in energy markets are restraining states have continued to expand loans. the main source of state government financing—oil revenues—and are constraining state government employment to zero growth. Despite the sluggish economy, banking conditions in 3. These data refer to customs districts. Alaska are relatively good. The return on assets (1.61 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 455 percent) and return on equity (12.67 percent) were est, with employment down 17.1 percent since peakabove the national averages (0.93 percent and 12.24 ing in July 1990, but closure of other high-tech percent respectively).4 At the end of last year, prob- facilities (including IBM) also has contributed to the lem loans at large commercial banks stood at 2.3 sector's weakness. percent of total loans, compared with a national aver- The Tucson area is expected to benefit (in a relative age of 5.1 percent, and are below the national average sense) from further consolidation of the defense and in all major categories.5 Bank lending in the state also aerospace industries now located in California. has held up in the past couple of years compared with Hughes has announced plans to consolidate its misbank lending nationwide. siles division in the Tucson area (largely transferring weapons programs currently located in San Diego that Arizona were acquired from General Dynamics), and it is considering moving other units there as well. Arizona's economy posted solid employment gains in In contrast to manufacturing, trade employment the past year, with employment in January up 2.6 rose 2.1 percent between January 1992 and January percent from the level of a year earlier. The economy 1993, services employment rose 4.4 percent,.and state has shown job growth in the services sector and in and local government employment rose 3.3 percent. construction, while manufacturing has continued to The foreign trade picture also looks like a source of slide. The unemployment rate for the state has risen in new strength in the near term. Trade with Mexico has recent months. In January, the unemployment rate been rising sharply in recent years, boosted during the stood at 8.0 percent, having risen steadily from 6.5 1980s by the growth of the maquiladora (or "twin percent in September 1992. plant") program along the border. In 1992, trade with Construction activity has become a relative bright Mexico reached $983 million, or 20 percent of Arizospot in Arizona, with employment up 7.3 percent na's total exports. Most contacts from the region between January 1992 and January 1993. Construction report high expectations of further trade gains with employment is up to 83,000 workers, the highest level Mexico, particularly if the North American Free Trade since 1990. This increase represents a gain of 6,000 Agreement is ratified. workers since the bottom of August 1991. Compared Part of the explanation for the weakness of some with the peak reached in January 1986, however, sectors of Arizona's economy involves links to the employment is down 29.5 percent (34,400 jobs). Southern California market. Southern California is The recent gains in construction employment in the the largest market for goods and services from Aristate are attributed to growing strength in the residen- zona; many key firms operating in Arizona are headtial market, particularly in Tucson. It appears, there- quartered in California, and California is the source fore, that the long construction recession in Arizona of many of Arizona's tourists. Thus, weakness in that followed the overbuilding in the mid-1980s may be California is having a direct impact on growth in ending. During that period, residential and nonresiden- Arizona. tial construction fell sharply. Raw land prices fell as The banking sector is reflecting some of the changes much as 70 percent in some areas. The overbuilding under way in the Arizona economy. Improving condiwas largely the result of over-optimistic population tions in real estate can be seen in a decline in problem projections. Population in Arizona grew about 4 per- loans in that sector. In the fourth quarter of 1992, cent in the mid-1980s, but the pace was slower in 1990 problem loans at large commercial banks equaled 4.7 (1.6 percent), 1991 (1.8 percent), and 1992 (2.6 per- percent of all loans, and 6.7 percent of real estate loans cent, estimated). Downtown office vacancy rates re- were problem loans. This contrasts with the 5.0 permained high in Phoenix and Tucson at the end of 1992, cent and 9.1 percent ratios reported at the end of 1991. however, at 24.7 and 24.8 percent respectively, com- Equity capital at Arizona banks rose in 1992, while pared with an average national rate of 17.6 percent. return on assets jumped to 0.33 percent, compared Manufacturing in Arizona has been suffering with only 0.18 percent a year earlier. Total bank loans through defense-related cuts, with employment fall- were unusually strong in the early 1990s, boosted, in ing 10.2 percent (19,000 jobs) since the peak in June part, by credit card operations as well as by bank 1988. Aerospace employment has been hit the hard- acquisitions of savings and loan associations. In 1992, the disposition of assets in connection with bank mergers appears to have contributed to a decline in the reported volume of total loans in the first part of the 4. The data on commercial banks for the fourth quarter of 1992 are preliminary. year. In the second half of the year, total bank loans 5. The data on problem loans are for banks with assets of more than rose somewhat. The volume of business loans held by $300 million. "Problems loans" are defined here and throughout the testimony as thirty days or more past due and as nonaccrual loans. commercial banks declined in the first three quarters Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

456 Federal Reserve Bulletin • May 1993 of 1992 but showed some signs of life in the last quarter are gone today. This amounts to 140,000 jobs lost. of the year. Residential construction activity has fallen sharply. In According to the Arizona Blue Chip forecast, Ari- 1992, the number of housing permits issued in Califorzona's economy is expected to pick up in 1993. The nia was just a little more than one-third of the 1986 consensus forecast predicts job growth of 2.4 percent peak, and the number of existing homes sold was well and real personal income growth of 3.3 percent, below the 1989 peak. In addition, home prices have boosted by continued strength in retailing and in the fallen significantly in many parts of the state. housing sector. Commercial real estate is in even worse shape, with high vacancy rates and low absorption in many mar- California kets. Property values in some cases are reported to have fallen below replacement cost. Moreover, rents California is in its longest and deepest recession since for some office buildings are barely covering operating World War II, and the first since 1970 in which its costs. Consequently, very little commercial space is performance has been worse than the nation's. The being built at present. state has lost more than 568,000 jobs since January California real estate and construction activity is 1991, a decline of 4.7 percent.6 Although employment likely to remain weak during the next few years, nationally grew 0.9 percent between February 1992 mainly because the commercial real estate sector and February 1993, California's employment declined suffers from serious overbuilding. Nevertheless, an 1.3 percent, a loss of 182,000 jobs. Even in the robust increase in the number of large commercial sales in job report of February, in which national employment recent months provides some encouragement that rose by 365,000, California's employment fell by conditions in some markets may be stabilizing. 4,600. Moreover, the unemployment rate remains There are some promising signs on the residential stubbornly high, at 9.8 percent in February 1993. side as well. Lower interest rates are strengthening Construction and aerospace have gotten much of the residential sales. The number of home sales in the blame for the state's economic troubles and with good state is well above what it was a year ago. And some reason. improvement in residential construction is noted. Al- The defense sector has been hit hard by cutbacks. though the number of housing permits issued has been Real defense spending in California has fallen 13 declining more or less continuously since the beginpercent since its 1988 peak. Aerospace employment ning of 1990, the consensus forecast is that the number has fallen 28.2 percent since the beginning of 1991—a will be almost 20 percent higher in 1993 than it was in loss of 65,000 jobs. The role of defense cuts in this 1992. recession brings to mind the cycle of 1970, when a One consequence of the stress in California real national recession was accompanied by the defense estate is the burgeoning number of problem loans for cutbacks associated with winding down the Vietnam banks in the state. For example, in the fourth quarter War. In that episode, cutbacks in California's defense of 1992, large California banks' problem loan ratio for spending continued until 1975; yet California began its commercial real estate loans was 9.5 percent, much recovery in February 1971, just two months after the higher than the national ratio of 6.7 percent. As a U.S. economy began to expand in December 1970. At result of the large volume of troubled loans, California that time, defense accounted for WVi percent of the banks have had to set aside significant loan-loss restate's production, much more than the 7 percent serves, which has affected earnings. The return on defense provides today. So, even without a pick- assets (ROA) for all California banks was a modest up—or even a leveling off—in defense spending, Cal- 0.58 percent in 1992. That compares with a good ROA ifornia managed to stage a robust recovery. This of 0.93 percent for large banks nationally. Earnings suggests that if defense cuts were the state's only problems have been especially evident among commuproblem, then California's economy would be ex- nity banks (assets less than $300 million) in Southern pected to recover along with the national economy. California, which as a group posted a net loss for 1992. But there are other problems as well. Construction Last year also marked the second year in a row that and real estate also have been hit hard this time loans at commercial banks in California contracted around. More than a quarter of the construction jobs more sharply than they did nationally. The decline (31 percent) that existed in California in January 1991 during the past two years offset the relatively high lending activity at banks in the state during 1990. A host of public sector issues has moved to center 6. This testimony compares California employment data between stage as much of the state's economy has become January 1991 and February 1993. According to current official data, more and more troubled. Foremost among them are California's employment peaked in May 1990. However, comparisons with pre-1991 data should be viewed with caution (see note 2, p. 453). budget problems for state and local governments. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 457 Projections suggest that putting together a budget will recent period between April and December 1992, it be as difficult this summer as it has been for the past accounted for only 60 percent of the losses. two years. In addition, concerns about the state's Downward adjustments in defense are likely to last business climate have increased in recent years. Crit- for a few more years, and problems in commercial real ics cite a costly and inefficient workers' compensation estate are expected to last even longer. The state system as well as stringent environmental regulations government is going to face difficult choices, which and bureaucratic "red tape." seem certain to complicate California's short-term While a few sectors have been cited as the major problems. The main positive factors for significant sources of California's weak performance, the weak- improvement during the next couple of years are the ness in employment is actually quite broad-based, improved demand from the national economy and extending to a wide range of service, manufacturing, expanding international trade that will continue to and financial industries. Wholesale and retail trade lost boost trade-related business, particularly in Southern 132,000 jobs, a 4.5 percent decline since January 1991, California. Moreover, population growth in 1992 was and non-aerospace manufacturing lost 172,000 jobs, a estimated to have been 2.2 percent, double the na- 9.3 percent decline. tional rate. One somewhat mitigating factor in the state has been the expansion of international trade, thanks to Hawaii the importance of the state's ports in facilitating that trade. In 1991, Los Angeles reported import-export The Hawaiian economy has been hit hard since the last traffic of $121.8 billion, 12.4 percent of the nation's recession began. After registering year-over-year emtotal. San Diego reported another $10.2 billion (1 per- ployment growth in the late 1980s in the range of cent of the nation's total), while San Francisco han- 4 percent to 6 percent, employment has declined. In dled $60.5 billion (6.2 percent of the total).7 In 1992, January 1993, employment fell 1.4 percent below the the state as a whole saw an increase in import-export level of a year earlier. traffic of 10.1 percent. Weakness in employment has raised the state's Most of the state's weakness has been relatively January unemployment rate to 4.0 percent. While concentrated in Southern California (Los Angeles, unemployment is low relative to the levels of most Orange, Riverside, Ventura, San Diego, and San Ber- states, it is high relative to the 2.0 to 2.5 percent rates nardino counties). In Los Angeles County, where the registered before the recession began. job losses have been greatest, the number of jobs is Weakness in the economy can be traced directly to now 7.2 percent lower than it was in January 1991. Job the factors that contributed to the recession in the rest losses are worse in Southern California, partly be- of the country. The onset of the Gulf War had an cause construction and real estate problems have been immediate impact on tourism, leading to monthly more severe in this region and partly because defense employment declines in February, March, and April is a much more important part of the economy in 1991 at annualized rates of 5.6, 1.6, and 3.1 percent Southern California than it is in most other parts of the respectively. Part of this effect can be traced to a sharp state. But as has been the case statewide, Southern reduction in visitors from Japan, where public policy California has seen employment decline across a broad discouraged travel to Hawaii during the hostilities. range of industries, including services, retail trade, Growth in tourism resumed after April 1991 but at a financial services, and non-aerospace manufacturing. more subdued pace. Analysts in Hawaii attribute this Other parts of California have fared better than the weakness to the national recession, which caused southern part of the state, but they are hardly immune travel plans to be curtailed. Especially important to from stress. For example, the greater San Francisco tourism trends was weakness in California, which Bay Area continued to grow for a few months after contributes as much as 30 percent of the mainland Southern California turned down. Since January 1991, visitors to the islands. Weakness in California and the Bay Area has lost about 4lA percent of its jobs; this slow growth in the rest of the country continued to is still worse than the national economy, where em- keep tourism down in Hawaii in 1992. As a result, the ployment growth has been flat since January 1991. state's overall employment declined in all but four And in recent months, a larger share of the state's job months during 1992. losses are outside Southern California. Southern Cal- Two additional factors adversely affected the state's ifornia accounted for 84 percent of total job losses employment growth during the year. First, the "airfrom January 1991 to April 1992, but in the more fare wars" in the summer of 1992 did not include the Hawaiian routes. Consequently, Hawaii suffered from a relative price disadvantage that favored mainland 7. These data refer to customs districts. destinations. Second, Hurricane Iniki caused major Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

458 Federal Reserve Bulletin • May 1993 damage to Kauai, forcing a large number of cancella- ufacturing activity, and a growing influx of population tions. Partially as a result of these factors, nominal has created a construction boom. personal income dropped at an annualized rate of Employment in Idaho grew 3.9 percent between 6.6 percent between the second and third quarters January 1992 and January 1993, continuing the strong of 1992. pace of growth reported in 1991 (3.4 percent), 1990 (4.6 Problems in Japan also have had widespread im- percent), and 1989 (5.4 percent). Of particular note pacts on the Hawaiian economy. Japan's financial were the 5.1 percent expansion in manufacturing jobs market difficulties have had direct repercussions on and the 16.0 percent expansion in construction emnonresidential construction activity in Hawaii. Con- ployment, which contrast strongly with negative struction employment fell 4.7 percent in January trends seen in these sectors in the District as a whole. 1993 from the level of a year earlier, despite rebuild- Reflecting the strong jobs performance, the Idaho ing efforts associated with Kauai. Housing prices unemployment rate stood at 6.4 percent in January have remained high (the fourth quarter 1992 median 1993. price of $352,000 in Honolulu remains by far the Growth in Idaho manufacturing in 1992 occurred highest in the country), but appreciation has slowed. principally in durable goods industries, which saw Moreover, although visitor counts from Japan have employment expand 8.4 percent. Particularly strong generally held up (except during the Gulf War), there job growth was seen in industrial machinery (22.3 is growing concern that, with rising job insecurity in percent) and electronic equipment (6.4 percent). Non- Japan, Japanese tourists may begin to grow more durable goods industries registered 2.6 percent cautious. growth, reflecting relatively weak conditions in food Some recent signs of improvement are noted in the processing and pulp and paper. Printing and publishing construction sector, however. During the twelve- employment rose only 0.2 percent over the year, while month period ending in January, the number of resi- food processing employment fell 0.6 percent. Contacts dential permits rose 49.8 percent. The value of non- report that the strength of Idaho manufacturing is due, residential construction awards jumped sharply after in part, to firms moving in from other states. the hurricane, although the value of new awards has Relatively low housing and labor costs continue to returned to more normal levels since October. These attract manufacturing firms to the state. Median house trends offer hope for renewed construction employ- prices are appreciating at a rapid rate but remain below ment during 1993. the national average. For example, the median home Employment declined in most major sectors be- price in Boise rose nearly 11 percent in 1992 but stands tween January 1992 and January 1993. Employment at a moderate $87,300, compared with the national fell 3.8 percent in the federal government sector median price of $103,900. Larger price increases, (which accounts for a relatively large 6.2 percent of the however, are reported for other communities, espetotal work force in Hawaii), 3.1 percent in trade, 2.0 cially in northern Idaho. percent in manufacturing, and 1.3 percent in services. Other sectors showing growth in January 1993 from State and local government employment rose 1.6 per- the level of a year earlier include trade (4.0 percent) cent during this period. and services (4.6 percent). The growth in services, in The ratio of problem loans has risen slightly at part, reflects growing tourism. Sectors that are faring Hawaiian banks, but conditions remain strong relative less well include mining, timber, and food processing. to other states in the District. Data for large commer- Employment in mining—chiefly silver, gold, and phoscial banks in the state show the problem loan ratio for phates—has declined steadily since 1990, reflecting all loans rising to 3.1 percent in 1992 from 1.7 percent weak mineral prices; in January 1993, employment a year earlier. However, the return on assets in 1992, was down 4.0 percent from a year earlier. Employ- 1.13 percent, was about the same as in 1991. Lending ment in lumber and wood products rose 5.9 percent in at commercial banks in Hawaii expanded much more 1992, but that level is down 9.7 percent from its peak rapidly than it did nationwide during the past two in March 1990. years, although loan growth in the state was below the Idaho's agricultural sector has performed reasonvery rapid pace set in the late 1980s and in 1990. ably well, especially considering the drought conditions that have affected several western states in recent years. In the 1992 water year, Idaho received Idaho only 29 percent of its normal precipitation, the lowest on record. Reflecting reduced production, total farm The Idaho economy has been one of the strongest income in 1992 is expected to decline somewhat from performers in the District—and in the nation—in re- 1991's level. Heavy precipitation in winter 1992-93, cent years. The state has successfully attracted man- however, has significantly alleviated the water short- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 459 age and promises a favorable outlook for 1993. In with strong periods of gains mirroring the pattern of addition, rising potato prices are supporting the farm total employment. sector. Manufacturing employment in Nevada was positive, The overall health of the Idaho economy is reflected unlike most other parts of the District, rising 4.8 in favorable conditions in banking. At the end of 1992, percent in January 1993 from the level of a year earlier. problem loans at large commercial banks stood at 2.1 Manufacturing accounts for only a small share of the percent of loans, compared with a national average of total economy in Nevada—4 percent of total employ- 5.1 percent. Bank profitability in the state also was ment—so the increase in employment translated into a high last year, with a return on assets of 1.24 percent gain of 1,200 jobs. compared with a national average 0.93 percent. Employment in Nevada's finance, insurance, and Growth in loans, including business loans, at Idaho's real estate sector rose 5.2 percent between January commercial banks has been well above the average for 1992 and January 1993. The banking and finance sector the nation in recent years. reported an employment increase of 5.8 percent, and insurance and real estate posted a 4.8 percent gain. Nevada Moreover, Nevada's commercial banks reported improving conditions, with the return on assets rising Economic activity in Nevada has grown throughout from a strong 1.5 percent in 1991 to a very strong 2.9 the national recession and weak recovery period. In percent in 1992, although the share of problem loans January 1993, the Nevada economy posted a 4.4 rose from 5.5 percent in 1991 to 7.2 percent in 1992. percent employment gain from the level of a year Loans at Nevada commercial banks have contracted earlier, with strong gains registered in September, sharply during the past few years. The data on out- November, and January. standing loans, however, significantly overstate the Nevada's unemployment rate has tended to remain weakness in lending activity. The level of total loans below the national average in recent years. It rose to a was affected by sales of credit card loans in 1990 and high of 7.5 percent in August 1992 but has subse- 1991. In 1992, such loan sales also apparently dequently fallen. In January, the unemployment rate pressed the level of total loans at commercial banks in Nevada. In the case of business loans, loan reclassifidropped to 6.8 percent. cations appear to account for much of the net decline Nevada's performance was strong, although highly over the past few years. Taking these special factors variable, in the late 1980s, as year-over-year employinto account suggests that bank lending in Nevada in ment gains ranged from 4 percent to 9 percent until the recent years has been much closer to the pattern end of 1989. Employment growth slowed during the observed nationally. More recent reports also suggest Gulf War and the national recession, dropping yearthat bank lending activity has begun to pick up in the over-year growth for the state to a low of 0.6 percent state. in January 1992. Since that time, employment growth has picked up sharply. Although Nevada's overall economy currently is The construction industry has had the most dra- reporting healthy growth, there are concerns about its matic variations, reflecting the start-up and completion near-term future. Construction activity has been very of several major new casinos. Construction employ- brisk, particularly in the construction of very large ment rose from about 25,000 in 1985 to more than hotel-casinos. Construction employment accounts for 48,000 in early 1990. Employment dropped off" to 6.7 percent of the total work force. That compares below 40,000 at the end of 1991 but climbed to more with an average of about 4 percent nationally. The than 44,000 in January 1993, an increase of 11.4 concern, therefore, is that some overbuilding may be percent. occurring in the hotel and casino sectors. Investors Trade and services are especially important sectors appear to be looking for continued above-normal inin Nevada, accounting for 64 percent of total employ- creases in population and tourism, which may or may ment, compared with 50 percent of employment na- not materialize. (Population growth in 1992 was estimated to be 4.0 percent.) tionally. January 1993 data show trade employment up 2.7 percent over the levels of a year earlier. Services Nevada has attempted to diversify its economy employment was weak in the middle of 1992 but away from gaming in recent years. The gaming indusincreased sharply in January 1993, resulting in an try accounts for 26 percent of all jobs in Nevada and increase of 3.6 percent over the level of a year ago. contributes 41 percent of the state's general fund Strength was reported in the state and local govern- revenues. In fact, many of the new casinos are dement sector, where employment rose 4.3 percent signed as theme parks targeted more at families. between January 1992 and January 1993. Employment Nevada also has encouraged the migration of servicehas risen nearly 50 percent in that sector since 1985, intensive firms, such as credit card processing and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

460 Federal Reserve Bulletin • May 1993 telemarketing businesses. Nevada also hopes to ex- were recorded in finance, insurance, and real estate pand its connections to Los Angeles, developing plans (FIRE) (3.4 percent) and services (3.8 percent). Tourfor a high speed train between Los Angeles and ism is reported strong. The robust FIRE and service Las Vegas. job growth is centered in the larger urban areas. These sectors—together with stronger manufacturing sec- Oregon tors—have led to stronger economies in the larger cities relative to the small lumber-based towns. This Employment growth in Oregon was somewhat better strength is reflected in house price appreciation of 14.9 than the nation's, although conditions in the state percent in Eugene and 11.9 percent in Portland in varied across regions and sectors. In general, service 1992. Overall residential building permits, however, and technology-oriented urban areas had gradual ex- were down 13.4 percent in 1992. pansion. Smaller towns dependent on the traditional Despite the recent drought, agriculture in Oregon lumber and wood-products industry, however, re- performed well, with tree fruit crops benefiting from mained economically depressed. extra sunshine. Reduced river flows, however, re- Employment in Oregon rose 1.9 percent in January sulted in cutbacks in hydroelectric production; com- 1993 from the level of a year earlier, an improvement bined with a recent shutdown of a nuclear power plant, over the 0.2 percent decline seen in 1991. The expan- this forced utilities to purchase power from other sion, however, is modest, compared with the 2.7 states and raise electric rates. Heavy precipitation percent rise in 1990 and the 4.0 percent growth rates during the 1992-93 winter should help alleviate these seen in the late 1980s. An influx of migrants from other conditions. states—including job-seekers from neighboring Cali- Also of concern for Oregon's immediate future are fornia—continues to swell Oregon's population and the issues of state and local government financing. labor force. Reflecting both this immigration and the Measure 5, a recently passed property tax limit, has generally slow economy, Oregon's unemployment rate resulted in financial stresses at all levels of governstood at 8.8 percent in January 1993. ment, particularly in education. Although there are The manufacturing sector was stagnant over the last efforts to find alternative funding sources, the process year, as manufacturing jobs fell 0.4 percent between remains gridlocked. January 1992 and January 1993. Within manufacturing, Banking conditions in Oregon are good, despite the however, conditions were mixed. In 1992, employ- mixed economic picture. In 1992, the return on assets ment fell in industrial machinery (-1.1 percent), in- was 1.27 percent (compared with the national average struments (-9.6 percent), primary metals (-9.2 per- of 0.93) and the return on equity was 13.44 percent cent) and food products (—4.4 percent), while it rose in (compared with a national average of 12.24 percent). electronics (up 6.1 percent).8 Within loan categories, problem loans at Oregon com- Of particular note is the continuing decline of lum- mercial banks are below the national average in all ber and wood products and other industries reliant on sectors but agriculture. Total loan growth at commertimber supply. The sale of timber grown on public cial banks in Oregon was above the national average in lands has been dramatically curtailed because of court- 1992, although business loans at banks in the state ordered environmental restrictions. Employment in contracted more sharply than they did nationwide. the lumber and wood-products industry fell 2.3 per- In general, the outlook for Oregon's economy is cent between January 1992 and January 1993 and has favorable. It is less reliant on aerospace and defensedeclined 22 percent from its recent peak in mid-1989. related industries than its neighbor states of Washing- Pulp and paper employment declined 2.1 percent be- ton and California. Quality of life remains high, and tween January 1992 and January 1993. Contacts report living costs remain relatively low, attracting both that small towns reliant on these industries are under workers and firms. Areas dependent on timber-related severe economic stress with no relief in sight because industries, however, face continued hardship for the of the continuing restricted supply of lumber. foreseeable future. Other sectors in Oregon are similarly mixed. Employment in January 1993 was down 3.6 percent in Utah construction and up 0.5 percent in transportation from the level of a year earlier. Trade employment rose 2.5 Utah has enjoyed a period of prosperity during the percent, boosted by a 14 percent increase in the dollar past two and a half years, despite the weakness seen volume of exports from the state. Robust conditions nationally. Utah's unemployment rate in January 1992 was relatively low, at 5.1 percent. Between July 1990 and January 1993, the number of jobs in Utah grew 7.9 8. January 1993 data for these sectors are not yet available. percent, and during the past year, Utah employment Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 461 grew 3.4 percent. Perhaps even more impressive, 1992 quality in mortgage portfolios continues to be excelwas the fifth consecutive year during which employ- lent. ment in Utah grew 3 percent or more. That is the first In the nonresidential area, the past few years have time in more than fifty years that Utah has seen such seen significant building activity as well. Fewer large an extended period of rapid growth. office buildings are likely to be built during the next The strength in Utah extends across most major few years, but a major renovation at the Kennecott sectors of the state's economy. Since July 1990 the Smelter near Salt Lake City is expected to pump number of jobs has grown 7.4 percent in wholesale and around $800 million in construction spending into the retail trade; 11.1 percent in finance, insurance, and economy during the next few years. In a state in which real estate; and 13.6 percent in services. Growth has the annual value of nonresidential construction awards been rapid in the information processing industry, has totaled between $300 million and $400 million which includes catalog operations, credit card pro- since 1987, the Kennecott project represents a major cessing, and airline reservations. Software also has contribution to the state's economy. contributed significantly to the strong growth. Both One result of relatively strong construction activity WordPerfect and Novell are located in northern Utah, and solid real estate markets is that financial instituas are many smaller software producers. Moreover, tions report good credit quality and strong earnings. At software jobs pay about twice as much as the state- the end of 1992, large commercial banks in Utah had a wide average wage. problem loan ratio of only 2.1 percent, compared with Tourism has provided an additional source of 5.1 percent nationally. Credit quality was strong growth in recent years. One study estimated that across a broad range of loan types. Moreover, profits tourism brought $2.9 billion into the state in 1991, of Utah banks were significantly better than the naproviding 8 percent of the state's total jobs. A huge tional average in 1992. While the return on assets snowfall this winter should result in substantial in- (ROA) averaged a solid 0.93 percent nationally, ROA creases in tourism this year, with skiers coming to the for Utah banks was much higher, at 1.51 percent. state to enjoy the first deep snows in several years. Lending activity at commercial banks in Utah over the In recent years, migration patterns have changed in past few years generally has been stronger than na- Utah's favor. From 1984 to 1990, more people moved tionally, though this was not the case in 1992. out of Utah than moved in. In contrast, both 1991 and Over all, the Utah economy is in excellent shape, 1992 saw nearly 20,000 more people move into Utah and the prospects for continued economic health durthan move out. The net immigration accounted for ing the next few years are good. more than two-fifths of Utah's population growth, boosting the total growth rate to more than 2Vi percent Washington in 1992. Manufacturing activity has not fared as well as most Washington's recent economic performance has other industries in Utah; manufacturing employment slowed from the robust growth seen in the late 1980s. fell 1.7 percent in January 1993 from the level of a year The state's economy—particularly in the Puget Sound earlier. Cutbacks in defense spending explain a good area—has been hit recently by weakness in aerospace. portion of the decline. Nevertheless, within the man- Not all the reports are negative, however, as commuufacturing sector—some industries showed gains— nities in eastern Washington are experiencing robust especially growth industries, such as airbags. growth. Construction employment in Utah has been quite The number of jobs in Washington grew 1.8 percent strong, growing 36.2 percent since the middle of between January 1992 and January 1993, reflecting a 1990. One reason for this performance is that Utah strong increase in January employment. This perforsuffered through major real estate problems during mance follows the weak 0.8 percent growth reported in the mid-1980s, which led to little building in the state 1991. These rates are significantly below the pace of and falling values. The limited building activity in the 1990 (2.7 percent) and 1989 (5.8 percent). Reflecting recent past and the population growth in Utah have this slower job growth, Washington's unemployment led to very strong residential construction activity. rate rose to 7.8 percent in January 1993, up from 7.0 Home values have risen about 10 percent in the Salt percent a year earlier and 5.9 percent at the end of Lake City area during each of the past two years. 1990. Despite the slow job growth, population Most of the construction has been single-family growth—tied to continuing high levels of immigrahomes. In contrast, multifamily markets are just now tion—remains strong, with the labor force growing 2.5 reaching the point where the space built during the percent in 1992. Population growth in 1992 is estimated early 1980s has been absorbed. Residential markets to have been 2.3 percent. Weakness in employment is still look solid. Vacancy rates are low, and credit centered in western Washington, with employment in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

462 Federal Reserve Bulletin • May 1993 Seattle falling 0.7 percent in 1992. In contrast, cities in ployment in lumber and wood products rose in Janueastern Washington are enjoying robust growth. The ary to a level of 3.2 percent above a year earlier, number of jobs in Spokane, for example, grew 2.8 although employment was off 10.8 percent from the percent in 1992. level reported in December 1989. The declines in the The drop-off in Washington's jobs performance last timber-related industries are linked to environmental year is largely attributable to a contraction in its limitations on harvesting from public lands and slugaerospace-based manufacturing sector. The number of gish national demand. Other manufacturing sectors manufacturing jobs fell 1.9 percent in January 1993 recording growth in the last year include electronics from the level of a year earlier, after a 5.0 percent (0.9 percent), food and kindred products (3.0 percent), decline in 1991. Since peaking in April 1990, Washing- and fruits and vegetables (0.7 percent). Contacts reton's manufacturing sector has lost 31,000 jobs. (Be- port that prospects are good for high-tech sectors such tween April 1990 and December 1992, aerospace em- as biotechnology and computer software production. ployment declined by 9,000 jobs.) The majority of Other sectors outside manufacturing also are registhese jobs were linked to cutbacks at Boeing, where tering mixed performance. As in other District states, employment has dropped roughly 8,000 since Boeing's employment was down in mining (-3.1 percent) in employment peaked in 1989. Furthermore, in mid- January, compared with that of a year earlier. Employ- February, Boeing confirmed that it would eliminate ment also contracted in finance, insurance, and real 23,000 jobs in 1993 and another 5,000 during the first estate (-0.7 percent). Job gains, however, were rehalf of 1994. Of the total this year, 15,000 jobs will be corded in trade (2.5 percent), services (3.9 percent), cut in Washington State. These job reductions were and state and local government (3.1 percent). The widely expected after Boeing's announcement in late agriculture sector in Washington has performed well in January that it would reduce production. The Boeing recent years, despite the drought that affects several cutbacks are expected to have a negative impact on its western states. Recent precipitation has improved suppliers, with layoffs already announced by smaller prospects for next year. firms in Washington, Oregon, and Southern California. Washington's construction and real estate markets Given the importance of Boeing for the Puget Sound are mixed. Construction employment rose 2.4 percent economy, where it employs almost 100,000 aerospace in January from the level of a year earlier, as strength workers, prospects for the company are watched in residential construction offset continued weakness carefully by regional analysts. In the short run, con- in nonresidential real estate. The strength in residentinued losses in the U.S. airlines industry and compe- tial construction—driven in part, by needs to house tition from overseas producers are undermining the Washington's growing population—is expected to con- $83 billion backlog of Boeing's "firm" orders. Several tinue into 1993. Residential permits at the end of 1992 carriers have canceled or postponed delivery of jets in were up 26 percent from their year-earlier level. In recent years. Responding to this slackening demand, contrast, nonresidential construction awards were Boeing has slowed production or is slowing production down 17.6 percent from a year earlier. of all its airplane models, including the very profitable Much of the strength in Washington's construction 747. Increased production in the near term is unlikely. remains centered in the eastern part of the state, where Longer-run prospects for the company, however, are contacts report a construction boom in cities such as more favorable. Despite falling orders and competition Spokane. House prices in Spokane appreciated 18 from overseas, Boeing has maintained its traditional percent in 1992—driven by demand from immigramarket share. In addition, the company is developing tion—but the median home price remains at a relanew fuel-efficient product lines tailored to the Asian- tively affordable $80,000. Residential median sales Pacific market, which is expected to be a major source prices in Seattle moved up slightly in the second half of of growth in air travel. The company also has begun 1992, after remaining flat for much of the previous two discussions with European companies for joint devel- years, and stand at $147,000. Contacts attribute the opment of a super jumbo carrier. While these devel- relatively robust growth of central and eastern Washopments bode well for the long-run survival of the ington to factors including affordable housing, immicompany, current troubles in the airline industry sug- gration of firms from higher-cost states, and in the gest that cutbacks at Boeing will retard economic tri-cities area (Richland, Pasco, and Kennewick), a activity in Washington for the foreseeable future. large multiyear clean-up project for the Hanford nu- Outside aerospace, Washington's manufacturing ac- clear facility. tivity is mixed. Compared with levels of a year earlier, Washington's banking sector is performing well. employment rose 1.6 percent in industrial machinery Commercial bank profits in the state were above the and fell 3.4 percent in primary metals, 3.5 percent in national average in 1992, with a return on assets of instruments, and 2.7 percent in pulp and paper. Em- 1.17 percent (versus 0.93 percent nationally) and a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 463 return on equity of 13.16 percent (versus 12.24 percent However, monetary policy is not an effective vehicle nationally). At the end of 1992, problem loans at large for directing credit to these particular sectors. My commercial banks stood at 4.7 percent of assets, views on monetary policy must be based on an underbelow the national average of 5.1 percent and below standing of national economic conditions—an underthe national average in all sectors but construction and standing that is enhanced by my regional perspective as farm loans. Problem construction loans—reflecting well as by those of the other Reserve Bank presidents. weak conditions in nonresidential real estate—stood at With respect to current monetary policy, our goal as 19.1 percent versus a national average of 16.5 percent always is to promote the maximum standard of living at the end of 1992. This ratio for banks in Washington attainable for our citizens over the long run. In recent was higher than for all other District states except years, this has meant mitigating the size of the cyclical California. Commercial bank loan growth has been downswing through reductions in interest rates. Howsluggish during the past two years but still has out- ever, in the long run the most significant contribution paced the growth in bank lending nationwide. we can make to economic growth is by providing a low-inflation environment, and we have made progress in that area. NATIONAL ECONOMIC DEVELOPMENTS In formulating policy, we have faced several chal- AND MONETARY POLICY lenges recently, not the least of which has been the deterioration in the relationship between the monetary Analyses of the various regions of the country that are aggregates and spending on goods and services. Last provided by all twelve of the District Bank presidents year, both M2 and M3 grew sluggishly; at the same play an important role in formulating monetary policy. time, the pace of economic activity picked up, which Taken together, these analyses help form an under- meant that the velocity (spending per dollar) of both standing of developments in the U.S. economy by aggregates rose sharply, well above what historical providing an up-to-date, detailed base of information relationships would suggest. The misleading signals that supplements published national statistics. Be- provided by these aggregates mainly seem to reflect a cause the tools of monetary policy—open market desire by the public to hold liquid funds in highoperations, changes in the discount rate, and occasion- yielding stock and bond mutual funds as well as to pay ally, changes in reserve requirements—affect the down consumer and mortgage debt. More strict supereconomy broadly, the focus of policy must be on the vision and regulation of depository institutions, which national economy as a whole. Policy actions are are essential to the long-run health of the industry, also transmitted to the economy through highly efficient may have contributed to the slow growth in M2 and and integrated national financial markets. Credit is M3. However, to a large extent, financial markets allocated according to the private decisions of the have been able to direct credit through channels other many lenders and borrowers in these markets. The than the banking system so as to mitigate the effects of efficient allocation of credit in financial markets is an restructuring on overall economic activity. important element determining the efficiency with Last year, we had to look beyond the aggregates in which our market economy operates. the formulation of monetary policy to a broad range of Thus the Federal Reserve's actions in the markets economic and financial indicators. Had policy in 1992 affect the overall level of interest rates and availability been aimed at pushing M2 and M3 up into their ranges, of credit but are not aimed at how that credit is policy would have been so expansionary as to have allocated. While each region of the country is affected risked eliciting fears of higher inflation. The response by interest rates and the overall amount of credit of financial markets to the possible inflationary conseavailable in the national economy, the effects of policy quences of overly expansionary monetary policies cannot be directed to particular geographical regions puts a limitation on how much the Federal Reserve can or industries. do to stimulate the economy. When it appears that the Current economic conditions in California provide a Federal Reserve is going too far in easing short-term good illustration of this point. As discussed above, the interest rates, long-term rates rise, which is counterrecession in California is strongly related to a number of productive to efforts to stimulate the pace of economic "structural" problems, including the cutbacks in de- activity. fense spending and the need in recent years to reduce Thus, the Federal Reserve has had to find a delicate the large state budget deficit. These problems will be balance in recent years, allowing short-term interest helped by the national recovery that is under way. rates to fall enough to promote economic expansion Stronger national economic growth will create more but not so much as to risk higher inflation. Developjobs to absorb displaced defense workers, and will ments in 1992 and thus far this year suggest that our reduce the budget deficit by raising state tax receipts. efforts are paying off. The U.S. economy moved into a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

464 Federal Reserve Bulletin • May 1993 phase of sustained expansion last year, after the period then. These declines are in line with what would be of recession and slow growth in the preceding two expected based upon historical relationships between real years. The 3 percent growth in real GDP for last year GDP growth and changes in the unemployment rate, as a whole was modest compared with what typically suggesting that substantial further declines in that rate can occurs in the early stages of expansions; however, it be expected as the expansion continues. Price developcompares favorably with the 2 percent pace that ments last year were favorable. Excluding food and appears to be sustainable for the U.S. economy in the energy, consumer prices rose at a 3 percent rate, the long run and was well ahead of growth in most lowest in twenty years. industrialized economies abroad. I expect the patterns established in 1992 to continue The expanding economy last year generated growth in this year and beyond, with moderate growth in real jobs, although at only a moderate pace, as the productiv- GDP accompanied by gradual declines in both unemity of the work force registered large gains. However, the ployment and inflation. I believe that a major factor strong surge in jobs in February is encouraging. More- behind these favorable developments is the prudent over, the civilian unemployment rate did peak in the easing of monetary policy that has been implemented middle of 1992 and has been on a downward path since to date. • Statement by David W. Mullins, Jr., Vice Chairman, having consulted with the other agencies, the Treasury Board of Governors of the Federal Reserve System, implemented redesigned auction procedures and rules before the Subcommittee on Telecommunications and to eliminate the possibility of a recurrence of the Finance of the Committee on Energy and Commerce, abuses committed in the Salomon Brothers episode. U.S. House of Representatives, March 17, 1993 With the help of staff members at the New York Fed and the Commodity Futures Trading Commission (CFTC), the Board, the Treasury, and the SEC formed I welcome this opportunity to discuss legislative initian Interagency Working Group on Market Surveilatives concerning the government securities market. lance. As a result, enforcement responsibilities and By my count, this marks the ninth time since Salomon procedures have been clarified and intensified. After Brothers' admission of wrongdoing that I have delivcareful study, the Treasury commenced a yearlong ered testimony on this subject before a congressional experiment with auction technique, and the FRBNY panel. In my view, enough is at stake, particularly in has made considerable progress in automating the terms of financing the federal deficit, to warrant this auction process. In addition, the New York Fed has close scrutiny. The interest cost of the federal debt adopted changes in the administration of its relationdepends on the rates when securities are first aucship with primary dealers and is in the process of tioned, while this committee's mandate concerns secrevising the information that it collects from them. ondary market trading in government securities. But that is not a realistic distinction in practice because the Meanwhile, staff members at the various agencies, Treasury's ability to tap funding sources in the pri- as well as academic researchers, have studied the mary market depends critically on the assurance of relationship between prices in the cash and financing smooth trading in the secondary market. markets. This research has produced techniques to identify rate anomalies that could be associated with squeezes. And the Treasury has shown a willingness DEVELOPMENTS SINCE AUGUST 1991 to act through supply management when market prices suggest a serious shortage. Last year, one issue, a Over the past one and one-half years, the Board of ten-year note, was reopened under the policy articu- Governors, the Federal Reserve Bank of New York lated in the Joint Report for addressing an "acute, (FRBNY), the Treasury, and the Securities and Ex- protracted" shortage. Under the threat of Treasury change Commission (SEC), among others, have de- reopenings, no market participant can be confident of voted considerable attention to the government secu- profiting by cornering the market in a Treasury issue. rities market. An important initial product of that work Thus, the government securities market has already was the Joint Report on the Government Securities been subject to substantial change and to intensified Market, which contained a comprehensive survey of scrutiny on an ongoing basis. the market and a detailed plan for correcting the This extensive, in-depth analysis has increased my problems that had been identified. Much of the plan respect and appreciation for this financial marketdelineated in the report has been put in place. After place. In this regard, the U.S. government securities Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 465 market has no rival. This market is the deepest and and more uniformity in interpretation of the existing broadest of all securities markets, offering widespread rules by self-regulatory organizations and regulatory economic benefits by permitting transactions of enor- authorities that administer the rules, should smooth mous size to be conducted at razor-thin bid-ask the way in investigating potential abuses. Of course, spreads. In general, the governmental initiatives un- such improvements within the current regulatory dertaken to date with respect to this market have not framework would be made easier if the Congress acted been intrusive or especially costly and thus have been to restore the Treasury's rulemaking authority for consistent with its continued efficiency. government securities brokers and dealers, which lapsed in 1991. The Board of Governors believes that a decisive WHAT IS NEEDED case has not yet been presented for adding statutory requirements on sales practice rules. If the Congress In weighing the need for additional legislation, the deems that a provision for sales practice rules is Board of Governors believes that the best, most effi- necessary, this could be obtained by simply removing cient, and equitable laws and regulations are drawn up the prohibition on the NASD from applying its sale to address specific problems. This is why, in the practice rules to government securities transactions. Board's view, the timely enactment of the legislative This would bring NASD firms into line with proceagenda outlined in the Joint Report would serve the dures at New York Stock Exchange member firms, nation's interest. This agenda—reestablishing the extending sales practice rules to all nonbank brokers Treasury's rulemaking authority for the government and dealers. securities market and perhaps eliminating the prohibition on the National Association of Securities Dealers (NASD) to specify sales practice rules for members WHAT IS NOT NEEDED participating in this market—would complement the administrative actions that have already been put into Compared with H.R.618, the legislative agenda outmotion. Unfortunately, H.R.618 goes far beyond this lined above is narrower and, in our view, better recommendation by introducing potentially confusing targeted. It appropriately recognizes the substantial and possibly overlapping lines of authority among the administrative changes already set in motion as well as agencies, by erecting a regulatory apparatus that is the unique nature of the government securities market. more appropriate for equity markets, and by creating In the view of the Board of Governors, more sweeping the potential for bureaucratic judgment to substitute and intrusive action does not stand the scrutiny of for the market determination of the flow of pricing rigorous cost-benefit analysis. This was our judgment information. These actions would raise the cost of at the time of the writing of the Joint Report, and participating in the government securities market pre- events since then have only strengthened this conclucisely when our federal finances are critically reliant sion. on worldwide market acceptance for the Treasury's There is no evidence of market failure that would massive debt issuance. warrant the significant overhaul envisioned in The Board of Governors does not believe that the H.R.618. In a market in which so much money evidence supports the case for the sweeping changes changes hands so quickly, even the whiff of illicit in regulatory practices envisioned in this proposed activity would inspire a chorus of complaints and legislation. In our view, the record over the past Wi withdrawals from trading. In fact, bid-ask spreads years and a careful weighing of the costs versus remain narrow, volume remains heavy, and there have benefits would not warrant such steps. The incidents been no notable changes in the ranks of participation. that have come to light are apparently related to Even without evidence of spotty trading, thin markets, individual ethical lapses that are unfortunately all too or trading failures, if there were a convincing logical common when money changes hands. From what is chain to suggest that the government securities market known thus far, it appears that the existing body of was now susceptible to wrongdoing, then prophylactic laws and regulations has proved sufficient to mete out action could well be justified. On this score, however, punishment to the guilty. While there are reports that the structure of the government securities market criminal investigations may have been made more would appear to offer little scope for large-scale misdifficult by shoddy bookkeeping practices at some chief. government securities brokers and dealers, record- First, prices in the government securities market keeping at most of those entities is already covered appear mostly driven by macroeconomic fundamenunder the existing regulatory umbrella. The measures tals. Government securities are homogeneous, with already implemented, including stricter enforcement few of the idiosyncratic factors that push and pull the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

466 Federal Reserve Bulletin • May 1993 prices of private debt or equity instruments relative to and reliable price quotes in the government securities market averages. market, has improved markedly of late. GOVPX, for Second, in a homogeneous, highly visible market example, has enhanced the information that it prosuch as this one, the force of competition remains the vides to the market. If private sector initiatives sire best protection from manipulation. With narrow bid- allowed to run their course, this access should be ask spreads and the quick dissemination of informa- further widened. The threat of governmental interfertion, there is little room to hide collusive activity. Such ence may only prove counterproductive, as private a market is inherently transparent. firms delay additional improvements for fear that Third, a trader who attempted to gain from market another format might be thrust upon them. manipulation now faces the prospect of aggressive The Board accepts that the broad-based apparatus Treasury debt management that would reopen an issue of reporting requirements in this market that could be to shave any illicit gain. Against this backdrop, many implemented under H.R.618 might reduce the cost of of the potentially costly provisions of H.R.618 guard investigating abuses and facilitate enforcement. On the against an enemy that will never take the field. other side of the ledger, such changes would boost the In the Board's view, there is no compelling need to cost of every trade and potentially reduce the ranks of grant new recordkeeping authority to the SEC, espe- market participants. The Treasury's appetite for ficially when existing authority can be used more effec- nancing is too large to make purchasing its securities tively. Nor is there a need for large-position reporting, more expensive or to discourage willing buyers with given the substantial improvement in the agencies' administrative burdens motivated by the vague fear market surveillance efforts. The FRBNY's discussions that someone, somewhere out there, may be inclined with market participants provide a wealth of detail to to cheat. inform the Treasury reopening decision and to alert It is true that H.R.618 does not mandate these enforcement agencies of potential problems. These increased reporting requirements but rather gives varsources are augmented by dealer report forms that soon ious agencies the authority to enact these changes will routinely extract information on specific securities. should they deem them fit. However, even backup But at a more fundamental level, currently available authority may send a chilling message about the U.S. data on market prices provide a continuing stream of market to all participants choosing where to trade in data to mine for evidence of manipulative intent. the global marketplace. Rather than risk slipping into a In our view, there is no demonstrated need to put fundamental change through backup authority, the the SEC into the business of mandating what trading Board of Governors feels it would be a wiser course of screens look like and who gets the information feeds, action to return to the Congress for enabling legislation and such initiatives could impose significant costs on in the future should such authority appear necesthe market. Transparency, or the ability to get timely sary. • Statement by John P. LaWare, Member, Board of handicap its banking institutions—and therefore the Governors of the Federal Reserve System, and Chair- individuals and businesses they serve—with stifling man, Federal Financial Institutions Examination and constantly changing rules and regulations. The Council, before the Subcommittee on Commerce, ever-increasing number and detail of regulatory re- Consumer, and Monetary Affairs of the Committee on quirements and restrictions have increased the costs Government Operations, U.S. House of Representa- and reduced the availability of service from banking tives, March 17, 1993 institutions. Further, aggregate burden frustrates the purpose of stability and safety regulations by driving traditional banking functions toward alternative, less- I am happy to be here to discuss the topic of regulatory regulated providers. burden and particularly the efforts of the Federal Reserve and the other regulatory agencies to reduce In an effort to counter the trend toward costly burden administratively. overregulation, the banking agencies have worked The issue of the appropriate level of regulation of both individually and as a group to identify adminisbanking organizations, although not new, recently has tratively imposed burden and, insofar as possible, to reduce it. These efforts are represented in initiatives been a focus of concern. Banking institutions serve a such as the agencies' Regulatory Uniformity Project, vital role in determining the growth of the economy. the Federal Financial Institutions Examination Coun- Consequently, in an increasingly global and competicil's (FFIEC) Study on Regulatory Burden, and, most tive financial market, the United States can ill afford to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 467 recently, in last week's announcement by the Presi- creditworthy borrowers, and we are working together dent of an interagency program designed to reduce the to implement them fully. cost and burden of lending, particularly to small and medium-sized businesses. FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL STUDY ON INTERAGENCY POLICY STATEMENT ON REGULATORY BURDEN CREDIT AVAILABILITY I have been asked by the subcommittee to describe the On March 10, the President announced that all of the agencies' recently completed Study on Regulatory banking regulatory agencies will, over the next few Burden. The study was mandated by the Congress in months, take actions in five areas to promote greater section 221 of the Federal Deposit Insurance Corpoavailability of credit to creditworthy borrowers. The ration Improvement Act (FDICIA), which required actions to be taken in each of the areas are as follows: the FFIEC to review the regulatory policies and 1. Eliminate impediments to lending to small and procedures of the banking agencies and the Treasury medium-sized businesses by permitting banks to make Department to determine whether they impose "unand carry a basket of loans to such borrowers with necessary" burden on banking institutions and to minimal documentation requirements. In addition, identify any revisions that might reduce burden withguidance will be issued to make it clear that banks and out endangering safety and soundness or diminishing thrift institutions, in making loans to such borrowers, compliance with or enforcement of consumer laws. particularly those loans to be placed in the basket, are The FFIEC was directed to report its findings by encouraged to give important consideration to charac- December 19, 1992. ter and general reputation in assessing a borrower's During early 1992, the four federal banking agencreditworthiness. cies and the Department of the Treasury undertook 2. Reduce appraisal burden and improve the climate extensive internal reviews of their policies, procefor real estate by altering existing rules so that institu- dures, recordkeeping, and documentation requiretions taking real estate as "additional" collateral for a ments. In addition, an interagency task force assembusiness loan that is not to acquire or refinance real bled and reviewed the public comments that the estate will not be required to have such property Federal Deposit Insurance Corporation (FDIC), the appraised by a certified or licensed appraiser. In addi- Office of the Comptroller of the Currency (OCC), and tion, the agencies will be reexamining their existing the Office of Thrift Supervision (OTS) had received rules to make sure that thresholds below which formal in response to their spring 1992 requests for comappraisals are not needed are at reasonable levels. ments on regulatory burden. The FFIEC also re- 3. Enhance and streamline arrangements by which quested and received public comments specifically bankers can obtain a fair and speedy review of com- on ways that burden might be reduced and held plaints about examiner decisions, while providing as- public hearings on this topic in Kansas City, San surance that neither banker nor examiner will be Francisco, and Washington, D.C. subject to retribution as a result of an appeal. At the outset, the FFIEC stated its belief that the 4. Improve all examination processes and proce- goal of this process was not to examine and develop dures by eliminating unneeded duplication of exami- proposed revisions to the overall statutory scheme nations and increasing coordination of examination governing financial institutions. Rather, it appeared to activities, particularly centralizing and streamlining the council that the congressional intent was to accept examinations of multibank organizations. The agen- the statutory scheme as a given and instead to examine cies have also agreed to heighten emphasis in exami- the manner in which the federal banking agencies and nations on risks to the institution and on issues involv- the Treasury Department have implemented that ing fair lending, as well as to reduce regulatory scheme by means of regulations, policy statements, uncertainty by eliminating ambiguous language in reg- procedures, and recordkeeping requirements. ulations and interpretations—and delays in publishing Many commenters, as well as the agencies themregulations and interpretations. selves, recommended changes that were within the 5. Review all regulations and interpretations to find jurisdiction of the agencies. During the year, the agenways to minimize paperwork and other regulatory cies acted on many of these suggestions for regulatory burden. improvement, particularly those related to required We certainly expect that these changes will affect reports, examination procedures, and application prothe willingness of the banking industry to lend to cesses. The study included a summary of those actions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

468 Federal Reserve Bulletin • May 1993 Interagency working groups reviewed other spe- RECOMMENDATIONS FOR THE FUTURE cific recommendations for regulatory change and divided them into three categories. The first category Banking institutions are regulated because of important included specific recommendations from the public public policy considerations, and much of the regulation and areas of concern that the FFIEC agreed were arises ultimately from four fundamental public policy worthy of further consideration. In many cases, the concerns: bank safety and soundness, banking market agencies agreed on the general approach and devel- structure and competition, systemic stability, and conoped a consensus position that is described in the sumer protection. The safety and stability of the banking study. In some cases, an agency supported a recom- system are vital to the economy. Further, it is difficult to mendation in part or preferred an alternative ap- quarrel with the purposes of individual consumer protecproach to meet the goal of the recommendation, and tions. Nevertheless, the aggregate effect of the implemenin a few cases, the agencies felt that further consid- tation of a substantial number of desirable policies may eration and possibly some compromise may be re- result in burdening individual banking transactions to an quired to address the issues. unacceptable degree. Suggestions from the public that, after careful In the aggregate, this burden has become substanconsideration, were found not to meet fully the tial, raising the costs of banking services and thus standards set forth in section 221 are discussed in the encouraging bank customers to seek less costly loans study, while those that concerned agencies that are and services or higher-yielding investments from other not members of the FFIEC are simply listed. In financial intermediaries that are not subject to the addition, an analysis of the public recommendations same regulatory requirements and restrictions. The concerning the rules implementing the Bank Secrecy movement of business from banking institutions to Act (BSA) was contributed by the Department of the other intermediaries and directly to money and capital Treasury. markets may frustrate the purposes for which banking During the course of the study, the FFIEC also regulations were adopted. I believe this burden has reviewed the small number of existing studies of the already begun to threaten the competitiveness of the costs of regulation. Despite methodological and cov- banking industry itself. erage differences, their findings are reasonably con- What is needed is fundamental review of approaches to sistent that regulatory costs might be in the range of regulation in search of mechanisms that will achieve the 6 percent to 14 percent of noninterest expenses. This same goals but with less burden and without the problems estimate includes the cost of deposit insurance pre- that accompany the current approach. New approaches miums but does not include any measurement of the to regulation that are more sensitive to cost-benefit tradeopportunity cost of reserve requirements or prohib- offs must be sought and considered. In particular, existing ited activities. This range applied to the actual 1991 market forces and incentives should be harnessed as noninterest expenses for commercial banks of $214.6 much as possible to achieve regulatory goals rather than billion suggests that regulatory costs could have been relying on microlevel regulations that eliminate the flexibetween $7.5 billion and $17 billion in that year. bility that is important in a dynamic industry. We should In the weeks since the study was submitted to the consider, as well, changes that can reduce burden by Congress, the agencies have continued to consider reducing regulatory prohibitions on banking activities. As the suggestions, and I anticipate that further action you know, the Federal Reserve Board has long supported will be taken in the near term. However, many of the nationwide interstate banking, insurance sales, and full public recommendations as well as the actions taken investment banking powers to provide the public the by the regulatory agencies address problems that are benefits of wider competition, and it supports the paytechnical in nature and not highly significant in terms ment of interest on required reserves to reduce the costs of their impact on total regulatory burden. Indeed, imposed on banking institutions as regulated entities. significant relief from regulatory burden will require To the greatest extent possible, banking regulation more substantial changes. Because legislation is of- should provide flexibility by tailoring requirements to ten very detailed in its requirements and the regula- specific facts and circumstances and by distinguishing tions must track the statutory provisions, the agen- among institutions according to meaningful criteria such cies are limited in their ability to address many as condition, size, and management competence. Regulaprovisions that impose substantial burdens. tions that provide insufficient flexibility can cause unnec- Accordingly, the council's member agencies have essary regulatory burden and create inefficiencies by agreed to continue meeting to identify and recommend preventing depository institutions from finding the most possible statutory changes to reduce regulatory bur- cost-effective means of complying with the law or reguladen further. The council hopes to provide a separate tion and by impairing the ability of banking institutions to report to the Congress on those issues by late spring. react to changing market conditions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 469 These approaches must be applied not only to future banking industry may well be more than the sum of its regulatory actions but to existing regulations as well. parts. This burden has grown slowly but relentlessly Efforts to substantially reduce regulatory burden will over the years, layer by layer by layer, and the pace of undoubtedly raise difficult questions about the trade-offs additional regulation has increased sharply in recent to be made between competing public policies, much like years. While there may be genuine public policy the ongoing discussion of the federal budget. Because benefits from any single regulatory proposal, it is achieving political consensus for change may be difficult, important to recognize that the banking regulations in my judgment, an independent nonpolitical commission and prohibitions, taken together, create a burden that charged with exploring possibilities for legislative change is substantial, if not approaching unmanageable, for would be useful. Such a commission could address a many institutions. When these burdens are aggrebroad range of banking issues such as regulatory burden gated, they affect the economy by reducing the effiand the competitive position of U.S. banking organiza- ciency and competitiveness of the banking industry. tions, offer suggestions and guidance for legislative and Recent actions by the regulatory agencies and the regulatory changes, and assist the Congress in developing plan announced by the President represent important a specific legislative agenda. steps in an ongoing process to address the problem of regulatory burden on the banking industry, and I CONCLUSION look forward to working with this subcommittee and others in considering additional proposals. Perhaps The regulatory burden on banking institutions is large regulatory relief, like regulatory burden, can be and growing. The cumulative regulatory burden on the cumulative. • Statement by William J. McDonough, Executive Vice the strides taken over the past year to improve the President, Federal Reserve Bank of New York, before monitoring of this market. the Subcommittee on Telecommunications and Fi- Salomon Brothers' admissions of deliberate and nance of the Committee on Energy and Commerce, repeated violations of Treasury auction rules could U.S. House of Representatives, March 17, 1993 well have damaged the public's confidence in the overall soundness of the government securities mar- I am pleased to have the opportunity to appear before ket. Fortunately, this did not happen, as evidenced by you in my capacity as Executive Vice President of the the efficiency with which the market has continued to Federal Reserve Bank of New York responsible for perform. Nonetheless, some important questions were the Financial Markets Group. As such, I have respon- raised about the workings of that market and the sibility for domestic and foreign operations of the official oversight of the market. System Open Market Account and for the recently After the events of August 1991, the Treasury, the formed Market Surveillance Function. My statement Securities and Exchange Commission (SEC), and the this morning will discuss the market surveillance ac- Federal Reserve moved quickly to address the various tivities of the Federal Reserve Bank of New York and concerns that arose from the Salomon revelations. The the overall subject of the official oversight and regula- agencies have set up a working group on market tion of the government securities market. surveillance, with the Federal Reserve Bank of New We all share a common goal regarding the govern- York accepting primary responsibility for collecting ment securities market. That is, we all want to ensure and disseminating information. The Treasury facilithat the integrity, health, and efficiency of the world's tated broader auction participation, clarified and relargest and most liquid securities market is preserved. stated auction rules, and, with the Federal Reserve, Quite clearly, the American public and the world at strengthened the procedures for enforcement of those large share an enormous interest in the continued rules. Changes were made to the administration of the vitality of the market for U.S. Treasury securities and primary dealer system to provide greater access to its ability to meet both public and private needs. participants who wished to service the central bank. Against this background, the immediate question Ongoing automation initiatives will lend further supbefore the subcommittee centers on how the legisla- port to ensuring that the primary and secondary martive process can best support efforts to ensure that this kets are open and accessible. Our new system for vital market retains its status as the most efficient automated Treasury auctions is in the final stages of market in the world. As the subcommittee deliberates testing, and its implementation is scheduled for next this important topic, I think it necessary to consider month. This effort will speed and further systematize Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

470 Federal Reserve Bulletin • May 1993 the auction review process and further allow for term maturities. From individual primary dealers, we broader bidder access. In addition, we have finalized collect aggregate data on positions, transactions, fimany of the business requirements for the automation nancing, trade settlement, and when-issued activity in of our open market operations and have taken some specific securities. We also receive information on initial steps in development, with a view toward im- individual securities when we undertake a formal plementing several capabilities next year. This effort survey of primary dealers' activity. will provide an efficient way of accommodating an More broadly, we have access to market opinion, expansion in the number of our trading counterpar- analytics, general economic data, and specific inforties—should such occur. mation on other, related markets. Finally, our daily Market participants themselves have reviewed and conversations with the market participants themselves improved internal compliance procedures and audits provide invaluable information on market developafter the revelations of wrongdoing in 1991. Finally, it ments and their own trading activity. This wealth of is important to restate that, in the face of apparent information allows us to evaluate the current behavior irregularities in the marketplace, securities and bank of specific securities of interest from the vantage point regulators already have access to individual dealer of a comprehensive view of the market. We share with firms' books, records, and trading systems. Having the members of the interagency working group all said that, it should also be stressed that it is neither significant market information that we collect. possible nor desirable to have absolutely fail-safe Our surveillance efforts over this past year focused management and control systems or regulatory on apparent shortages of specific Treasury securities. schemes that can prevent or detect every problem or Time and again, we found that individual episodes of potential problem. Nor is it desirable to discourage "specials" trading represented the natural conseinnovation with overly restrictive and duplicative quence of legitimate uses of the Treasury market, rules. What is needed is an approach that strikes an especially in connection with risk-management strateappropriate balance between the efficiency of the gies to facilitate the orderly underwriting, issuance, market and adequate regulatory oversight. and distribution of the full range of fixed-income Of the efforts taken to date, I should comment on securities sold by corporations, state and local governthe significant progress made in improving communi- ments, and others. At times, these activities can cations among the agencies involved in the surveil- generate large amounts of short positions in Treasury lance effort—the Bank, the Treasury, the SEC, the securities as underwriters hedge their exposures. As a Federal Reserve Board, and the Commodity Futures consequence, temporary shortages of certain issues Trading Commission. The entire working group holds can, and will, develop even though a large amount of a biweekly conference call, and senior officials of the securities is outstanding. working group meet quarterly. I can assure you that Despite the general thrust of our findings to date, we the progress made in cooperation and information recognize that we must continue to rigorously pursue sharing will certainly continue. And I can also assure each incident of unusual market activity. To meet this you that there has been no facet of the work of the responsibility, we intend to build upon the strong start interagency group to date that has witnessed material we have made in tightening surveillance. We will differences of opinion or judgment among the various continue to improve our knowledge of market develagencies. opments, our methods of review and analysis, and the In its effort to satisfy the needs of the working technical resources we need to operate efficiently and group, the New York Fed's surveillance work has effectively with a view to servicing the needs of the focused on activity surrounding several specific Trea- other members of the interagency working group. sury securities as well as a variety of overall market At the same time, I believe the Congress can proconditions. Additional attention was devoted to those vide some further support for our efforts by reauthoincidents that, based on comparisons with either his- rizing the Treasury's rulemaking authority under the torical experience or then-existing market conditions, Government Securities Act of 1986 and explicitly were a potential source of concern. Needless to say, incorporating the making of misleading statements to our methods are being refined as we gain more expe- an issuer of government securities as a violation of the rience and receive input from the other agencies. Securities Exchange Act of 1934. In addition, the In the interest of time, I will not cover the full scope Federal Reserve Bank of New York is sympathetic to of our efforts. However, allow me to mention briefly a legislation that would give the Treasury backup aufew of the specifics of market surveillance. We look at thority to require holders of large positions in Treasury price movements, yield spreads, and trading volume in securities to report this information. This measure will the cash market. In the financing market, we review further our efforts to develop a comprehensive view of market quotes and trades for overnight contracts and the market. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 471 With these steps—and our continued surveillance by the American taxpayer. The progress we have efforts—I think we come much closer to striking that made so far and the outlook for our near-term initiaappropriate balance I spoke of earlier between provid- tives make any additional measures seem clearly preing effective oversight by the agencies and avoiding mature. The agencies have the ability to review, the burdens of excessive regulation that can easily analyze, and act appropriately—and in a timely fashstifle the efficiency and liquidity of the market, a ion—when market developments raise issues of public potentially significant cost that ultimately will be borne concern. • Statement by Alan Greenspan, Chairman, Board of Congress. I should like, nonetheless, to take the time Governors of the Federal Reserve System, before the you have made available to outline my views on the Committee on Finance, U.S. Senate, March 24, 1993 principles that should underlie current deliberations. First, according to both the Office of Management As I have indicated to other committees of the Con- and Budget and the Congressional Budget Office, gress in recent days, our burgeoning structural budget deficits are likely to be held in check by relatively good deficit, unless addressed, will increasingly threaten the economic performance over the next few years. But stability of our economic system. Time is no longer on from 1997 on, budget outlays under existing law are our side. At 5 percent of gross domestic product projected to rise appreciably faster than the tax base. (GDP), the current deficit is very large by historical If such trends are not altered, stabilizing the deficitstandards. After declining through 1996, the current to-GDP ratio solely from the receipts side, not to services deficit starts on an inexorable upward path mention reducing it, will necessarily require everagain. On a cyclically adjusted or structural basis, the increasing tax rates. This would surely undercut indeficit has hovered around 3 percent of potential GDP centives for risktaking and inevitably damp the longfor the past ten years, a phenomenon without prece- term growth and tax revenue potential of our dent in our peacetime history. economy. The gap between spending and revenues I am encouraged that the President and the Congress will not close under such conditions. Thus, there is no are making serious efforts to restore a measure of alternative to achieving much slower growth of outlays balance to our fiscal affairs. if deficit control is our objective. This implies the need It is beguiling to contemplate the downtrend in not only to make cuts now, but also to control the inflation in recent years in the context of very large growth of future spending so that it does not exceed, budget deficits and to conclude that the concerns and preferably is less than, the projected growth in the about their adverse effects on the economy have been tax base. misplaced. Regrettably, this notion is dubious. The The thought expressed by some that we can inflate deficit is a corrosive force that already has begun to eat our way out of the budget deficit is fanciful. Aside away at the foundations of our economic strength. from its serious debilitating effects on our economic Financing of private capital investment has been system, higher inflation, given the explicit and implicit crowded out, and, not surprisingly, the United States indexing of receipts and expenditures, would not rehas experienced a lower level of net investment rela- duce the deficit. As I indicated in testimony to the tive to GDP than any other of the Group of Seven Joint Economic Committee in January, there is a countries in the past decade. possibility that productivity has moved into a signifi- To some degree, the impact of the federal budget cantly faster long-term growth channel, which would deficits over the past decade has been muted as we boost real growth and tax revenues over time. But imported resources to help finance them. This can be even if that turns out to be the case, short of an seen in our large trade and current account deficits. increase beyond anything that we can reasonably However, we should not—indeed, we probably can- anticipate at this time, productivity, in itself, would not—rely on foreign sources of funds indefinitely. If not be enough to resolve the basic long-term imbalwe do nothing, the markets will ultimately force an ance in our budgetary accounts. Thus, while economic adjustment; by acting now to redress our internal growth is necessary to contain budget deficits, it imbalance, we can lower the risk of unpleasant regrettably is not sufficient. stresses down the road. In deciding how to pare a structural budget deficit, it I shall eschew, as I have in previous testimonies, is important to be clear on the different roles of comments on the specific elements of the deficit- boosting taxes, on the one hand, and cutting spending reduction proposals currently under review by the programs, on the other. All feasible taxes, by their Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

472 Federal Reserve Bulletin • May 1993 very nature, restrain business activity. Hence, exclud- rates, and the level of interest rates, as it is reflected in ing so-called sin taxes and possibly environmental the cost of capital, is a key element in the decision taxes, increases in taxes can be justified only to about whether to expand or modernize productive finance expenditures that are deemed essential. The capacity. Hence, to the extent that the demand for level and composition of outlays to be financed by saving exceeds its supply, interest rates will rise until revenues is, in our society, a political matter, as is also sufficient excess demand is finally crowded out. the degree of progressivity and incidence of taxation. The crowded-out demand cannot, of course, be that But over the long run, it is important to recognize that of the federal government, directly or indirectly, betrying to wholly, or substantially, address a structural cause federal government demand does not respond to budget deficit by increasing revenues is fraught with rising interest rates. Rather, real interest rates will rise exceptional difficulties and is more likely to fail than to the point that private borrowing is reduced suffisucceed. ciently to allow the entire requirements of the federal All else equal, reducing the deficit would enlarge the government, including its on- and off-budget deficits pool of savings available for private capital invest- and all its collateral guarantees and mandated activiment. But investment will not automatically occur ties, to be met. unless there are adequate incentives for risktaking. In these circumstances, there is no alternative to A greater willingness of a society to consume less of higher real interest rates diverting real resources from its current income should lower real interest rates and the private to the public sector. In the short run, spur such investment. But if risktaking is discouraged nominal short-term interest rates may temporarily be through excessive taxation of capital or repressive held down if the Federal Reserve accommodates the regulation, high levels of investment will not emerge excess demand for funds through a more expansionary and the level of saving will fall as real incomes monetary policy. But this will only produce greater stagnate. inflation and, ultimately, have little, if any, effect on The process by which government deficits divert the allocation of real resources between the private resources from private investment is part of the and public sectors. broader process of redirecting the allocation of real In such an environment, inflationary forces too resources that inevitably accompanies the activities of often lead to increased risk premiums, higher real the federal government. The federal government can interest rates, and a higher cost of capital. This, in preempt resources from the private sector or direct turn, engenders a foreshortening of the time horizon of their usage by several different means, the most im- investment decisions and a decreasing willingness to portant of which are (1) spending, financed by taxa- commit to the long term, a commitment that is so tion; (2) spending, financed by borrowing, that is, crucial to a modern technologically advanced econdeficit spending; (3) regulation mandating private ac- omy. Structural budget deficits and excessive collattivities such as investment in pollution control or eral credit preemptions are symptoms of a society safety equipment, which are likely to be financed overconsuming, undersaving, and underinvesting. through the issuance of debt; and (4) government While there is no substitute for political will in guarantees of private borrowing. reining in outsized structural budget deficits, there are What deficit spending and regulatory measures have changes, I believe, that could make the budget process in common is that the preemption of resources, di- more effective. In particular, it is worth reconsidering rectly or indirectly, is not sensitive to the rate of sunset legislation, which would impose explicit termiinterest. The federal government, for example, will nation dates on spending programs. Expiring programs finance its budget deficit in full, irrespective of the that still have merit should have no difficulty being interest rate it must pay to raise the funds. Borrowing reauthorized, but programs whose justification has with government-guaranteed debt may be interest sen- become less compelling would not receive the necessitive, but the guarantees have the effect of preempting sary votes. Indeed, it is hard to imagine that sunset resources from those without access to riskless credit. legislation would not lead to at least some improve- Government spending fully financed by taxation does, ment over the current situation, quite possibly fosterof course, preempt real resources from the private ing nontrivial budget savings. sector, but the process works through channels other It also would be useful to take a look at the currentthan through real interest rates. services methodology for evaluating budget changes. Purely private activities, on the other hand, are, to a A baseline estimate obviously is a necessary ingredigreater or lesser extent, responsive to real interest ent in the budget process that helps inform policymakrates. The demand for housing, for example, falls off ers about the impact of policy proposals. However, dramatically as mortgage interest rates rise. Inventory the current-services concept assumes that no further demand is clearly a function of short-term interest congressional, judicial, or bureaucratic actions will be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 473 taken to alter existing programs. This is quite unrealis- amendment on the grounds that it might be impossitic, but it would be of no particular significance were it ble to enforce, I would support a constitutional not for the fact that the bias of such actions is patently amendment, or even a legislative provision, that toward more spending rather than less. Hence, merely stipulates that all revenue and expenditure initiatives owing to ongoing congressional deliberations, adminis- require supermajorities (for example, 60 percent) to trative rulings, and decisions, an add-on to the current pass both houses of the Congress. Combined with services outlay estimates is required to get a better view sunset legislation, such a procedure could probably of what might be termed the "expected" deficit of the go far to neutralize the obvious propensity of our future. It is not possible to know in advance which political system toward structural deficits. spending programs will be expanded, except that some Let me conclude by reiterating my central message. will. In recent years, congressional current services The deficit is a malignant force in our economy. How outlay estimates have consistently been adjusted up- the deficit is reduced is very important; that it be done ward in response to such technical reestimations of is crucial. Allowing it to fester would court a dangerprogram costs. Indeed, technical reestimates explain a ous erosion of our economic strength and a potentially significant part of the failure of the deficit to fall as significant deterioration in our real standard of living. contemplated at the time of enactment of the Omnibus Fortunately, we have it in our power to reverse this Budget Reconciliation Act of 1990. process. This committee has an important role in this Finally, although I do not favor a balanced budget process. Speaking as a citizen, I wish you well. • Statement by Alan Greenspan, Chairman, Board of The declines in business loans associated with bal- Governors of the Federal Reserve System, before the ance sheet restructuring by the larger firms were Committee on Small Business, U.S. House of Repre- superimposed on a secular downtrend in business sentatives, March 25, 1993 credit flows by banks to large firms that have been increasingly relying on nonbank finance. And overlaying the interest rate- and stock market-induced repay- I am pleased to appear before this committee to ment of bank loans by large firms, and their secular discuss the availability of bank credit to small busi- shift to nonbank credit, has been a normal cyclical nesses. It is clear that any assessment of the outlook decline in the demand for credit during the recession for the economy as a whole—especially employ- and modest recovery. ment—has to focus on the health of our small business However, I do not believe that cycles, trends, and sector— including its ability to obtain finance. Indeed, refinancing are the sole explanations for the decline in the importance of bank credit flows to small business business loans. There has been a substantial tightening was highlighted by the President's recent announce- of lending terms and standards, and it has affected ment of joint actions by all the banking agencies to small businesses. This tightening of terms and stanfacilitate such lending. dards has been clear in our periodic surveys of senior Given the importance of small businesses to the loan officers at large banks since the start of the economy and the clear dependence of such firms on decade, although this aspect of loan pricing seems to banks, the decline in overall business loans in the have stabilized in 1992. Evidence from the National 1990s underlines the importance of understanding the Federation of Independent Business is also suggestive. difficulties of bank credit availability. Even more im- For example, owners of the larger small businesses portant, it emphasizes the need to continue to do report greater difficulty obtaining credit than three whatever is possible to remove those sources of re- years ago. The period of credit stringency appears to striction that do not imperil the safety and soundness have lasted longer than in other recent downturns. of the banking system. And, small business credit problems have been very Assessing the true nature of small business bank intense in some regions of the United States. Clearly, credit availability is especially complicated, in part New England has borne a disproportionately large because it seems clear that a substantial share of the burden. decline in the 1990s of total business loans at banks The sources of tighter credit availability are not hard reflects significant balance sheet restructuring by large to find. A significant part of our current problems firms. Many larger businesses have taken advantage of reflects a too-expansive credit policy throughout most the decline in interest rates and the increase in stock of the 1980s. Large numbers of lenders mistakenly prices to refinance their bank loans. perceived that financing real estate was very profit- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

474 Federal Reserve Bulletin • May 1993 able, and virtually risk-free because of the near cer- it is the direct result of market demands. Both capitaltainty of continued real estate inflation. But inflation in issuing banks and those without ready access to capreal estate not only ended; it was in many cases ital markets also improved capital ratios by growing reversed, exposing the lax underwriting standards that less rapidly or even shrinking. All of this, I suggest, is had evolved. not an unexpected reaction to difficult problems. In- The resulting acceleration of nonperforming loans, deed, I would argue that it is not surprising that and associated reserving and write-offs, not only cut underwriting standards have been reviewed and tightsharply into capital—causing many banks to fail and ened. others to be greatly weakened—but also shook the Banks' own desire to rebuild a strong capital base confidence of lending officers and management. In- has played an important role in constraining the supply deed, despite the low rate of failures of depository of bank loans. Research at the Federal Reserve apinstitutions so far in 1993, we should not forget that the pears to have begun to pick up the importance of past several years have seen many more failures of internal capital targets. In saying this, I do not mean to depository institutions than all the other years since imply that either Basle or the prompt corrective action World War II combined. The almost inevitable result capital rules are unimportant. They reinforced the of these traumatic experiences has been that bank importance of capital both at banks and in the market. lending policies have gone through a period of exag- But Basle and other capital standards imposed on a geratedly high underwriting standards—the same error less-traumatized banking system would have been as in the 1980s but in the opposite direction. Although viewed by few observers as a major constraint on there appears to have been no further tightening in banks' ability to make loans. recent months, the effect on banks of excess optimism Indeed, the Federal Reserve Board supports both in real estate in the 1980s is not, I am afraid, as yet the Basle standards and the prompt corrective action behind us. zones of the Federal Deposit Insurance Corporation Commercial real estate prices have not stabilized Improvement Act of 1991 (FDICIA). The behavior of enough to allow most banks to feel confident that they the 1980s—and the associated losses—would surely know what collateral is really worth. Thus, a kind of not have occurred to the same extent without a deposit traditional bank liquidity—a sense that real estate insurance system that permitted banks and thrift insticollateral could be liquidated expeditiously within a tutions to take major risks on a slender capital base known price range—has not yet returned to bank with only minimal market response. Political concerns balance sheets. Although improving significantly from apparently made it impossible to directly lower the per the dark period of 1989-91, we do not yet have the account level of deposit insurance. Hence, making the turnover and transactions required to instill adequate moral hazard of deposit insurance moot through higher confidence in most bankers about either their existing capital standards was the most attractive option availor new loans secured by commercial property. able. With larger amounts of stockholders' capital at The real estate market plays an important role in risk, banks will be encouraged to adopt more careful small business credit because a significant portion of and efficient loan policies. Moreover, simulating marloans to small businesses involves some real estate ket responses, as is intended in the progressively collateral. And, even though banks often do not look restrictive prompt corrective action zones, is helpful. to that real estate as the intended source of repayment, In the absence of deposit insurance, markets would I am still concerned that a real estate market that has impose reduced dividends, a lower pace of expansion, not found its feet is retarding the availability of small and other increasingly severe actions on firms becombusiness credit. This impact is both direct—in evalu- ing financially distressed. ating both the bank's own capital, as well as particular Parenthetically, so far as we can tell, the risk loans—and indirect—by coloring bankers' sense of weights in the Basle standards have not played a general confidence. significant role in disrupting credit flows in general, or As significant as the real estate contraction has been to small businesses in particular. To be sure, the on bankers' attitudes, it is clearly not the sole source intention of the risk weights was to make the capital of trauma. The lax underwriting standards adopted by charge reflect differences in credit risk and to induce many banks in the 1980s contributed to large losses banks at the margin to hold more liquidity in their and write-offs—write-offs of almost $125 billion since portfolios. Thus, if the weighting system had not 1988. Surviving banks not only have covered such caused banks to lean somewhat more toward securilosses by earnings and capital issues but have in- ties, it would have had to be counted as a failure. creased their own minimum capital standards. This Nonetheless, the weights were not designed to cause a increase in internal standards has resulted, in part, large shift from loans to securities. And there is simply from their own review of "policy," but in many cases no real evidence that the weights have been a signifi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 475 cant factor causing the observed substantial shift in bank management has a chilling effect on bank lending credit from loans to government or mortgage-backed attitudes, imparting a high degree of management securities. In addition, the banks that have accounted for uncertainty while the implementing rules are develmost of the increased holdings of Treasury securities are oped, debated, and adopted. It is not unreasonable those with the highest capital ratios, where the zero that banks expect the worst in rule changes before weight could not have been particularly relevant to their they are promulgated. decision. Indeed, financial institutions not subject to risk- Aside from the general impacts on bankers' attitudes based capital or FDICIA, such as credit unions, have also and risktaking, two regulatory factors have particularly shifted strongly away from loans and toward securities in constrained small business credit availability at banks. the 1990s. In short, other factors—lower credit demands, The first, I am sure, was unintended: The real estate balance sheet restructuring, and tightened loan stan- appraisal requirements of FIRREA were designed dards—are better explanations of portfolio shifts than the mainly to eliminate excesses in development and com- Basle risk weights. mercial real estate loans. However, most small busi- But Basle and prompt corrective action were not the ness loans involve some real estate collateral, even if only external forces supplementing banks' and the the purpose of the loan is not to purchase or refinance markets' responses to the residue of the 1980s. Exam- real estate, and the bank does not look to the real estate iners have been widely and severely criticized for as the source of the repayment. Nonetheless, FIRREA permitting banks to have made such bad credit deci- requires that banks either increase their risk by foregosions. That many examiners would respond by becom- ing real estate collateral on such loans or impose ing unusually sensitive to credit-granting procedures significant costs and delays on the credit-granting proand—as professionals—reluctant to respond to pleas cess by requiring certified appraisals on the real estate for more flexibility cannot come as a surprise. At last collateral. Either way, the willingness and ability of reading, the laws of human nature have not been banks to make such loans are reduced and in some repealed. This tendency to respond in an overly cau- cases may have been eliminated. tious way is doubly unfortunate because if there were The second regulatory development that has afever a time that bankers would be careful without fected the availability of small business credit at banks examiner oversight it has been the early 1990s. is the huge increase in the amount of paperwork The other critical external force contributing to resulting from heightened risk aversion by examiners reduced credit availability at small businesses is recent and the attitudes induced by the banking legislation. banking legislation—Financial Institutions Reform, Our research, and the conventional wisdom in bank- Recovery, and Enforcement Act of 1989 (FIRREA) ing, support the view that the least-risky small busiand FDICIA. In understandable reaction to the huge ness loans of the 1980s often had no collateral at all. taxpayer costs of the failure of savings and loan Despite this evidence to the contrary, many bankers associations and the need to establish a taxpayer's now perceive that full documentation and collateral on backup to the Federal Deposit Insurance Corpora- such loans are necessary to minimize the possibility tion—a backup, I note, that has not been used—the that examiners will classify them. As a result, the cost Congress felt it necessary to place severe restrictions of lower-risk loans to small business has risen by the on insured depository institutions. As I indicated a imposition of documentation and collateral requiremoment ago, the Board supports the capital and ments or—if the necessary documentation and collatprompt corrective action provisions of FDICIA. But eral are not available—such loans are not being made. the scale and sheer detail of other portions of recent In either event, the economy suffers. legislation have, I believe, played an important role in Nonetheless, as I review the current banking situaconstraining small business credit flows. tion, I find reasons for optimism, but not compla- The scale has resulted in a drumbeat of mandated cency. While not yet totally stabilized, some degree of regulatory announcements and—perhaps worse—an- firmness is occurring in some commercial real estate ticipated actions. All have diverted management re- markets. Our surveys and other information indicate sources, increased burdens and costs, and created that banks' attitudes toward loans and risktaking are uncertainties that could only make bankers more re- improving. Notwithstanding the almost $125 billion of luctant to take risks. As I have indicated over the past loans that have been charged off over the past five year, I have been particularly concerned about provi- years, loan-loss reserves are $5 billion higher. Earnsions that require regulations to specify operational, ings were at record levels in 1992, and banks have managerial, asset, and earnings standards and mini- been extremely successful in raising new equity. Inmums, as well as detailed auditing requirements— deed, equity capital in the industry has risen almost especially management reports and certification by $80 billion over the past five years; the resulting bank auditors. In addition to cost and burden, such micro- capital ratios are at their highest levels in a quarter of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

476 Federal Reserve Bulletin • May 1993 a century. On balance, while a segment of the industry Consideration is also being given to easing formal is still under stress, the banking industry as a whole real estate appraisals for transactions that do not has made remarkable progress in working through present unusual risk to banks and to increasing severe portfolio problems during a difficult economic the current $100,000 exemption level for all loans. cycle. With an improving economy, I am hopeful that In addition, the agencies have a long list of techthe signs of some business loan growth this winter will nical modifications in process, including revisions become more evident this spring. Banks are patently to other real estate owned, in substance foreclosures, in a strong position to meet such demand. and partially charged-oflf accounting and reporting But the issues are too important to leave to chance. rules, as well as efforts to attempt to reduce ex- There are steps we can and should take. As the Presi- amination duplication by function and agency. Fident announced on March 10, the banking agencies are nally, each agency will attempt—when necessary— working on ways—within the parameters of FDICIA to streamline its examiner appeal and complaint and FIRREA—to modify their policies and regulations process. to encourage more small business credit availability. I These regulatory actions will be, I hope, quite anticipate that the agencies will shortly promulgate helpful, but legislative action is still required. The policies that will significantly ease documentation re- Federal Financial Institutions Examination Council quirements for a portion of loans to small and medium- will be making legislative proposals this spring, and I sized businesses and farmers by stronger banks and urge the Congress to consider them seriously. But thrift institutions. Although research suggests that loans perhaps most important is to learn from the experithat likely will be made under this policy will be low ence of the 1990s. One key lesson surely is that each risk, the banks that will be permitted to extend such new, proposed piece of detailed banking legislation credits are those most able to absorb some additional has to be evaluated in advance to determine what the risk without threat to their safety and soundness and, impacts are likely to be on the health, vigor, and by the record, are adept at credit underwriting. Loans competitiveness of the banking system. It is even with limited documentation—often called "character" more important to consider the potential implications loans—require the special expertise that is the hallmark for the vitality and growth of the economy, especially of the bank lending process and, I believe, is one of the those sectors that create so much of our employment special ingredients that fuels small business—and hence and innovation. These sectors often have few credit economic—expansion. alternatives beyond their local banks. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

477 Announcements MEETING OF THE CONSUMER ADVISORY The FBSEA established uniform standards for COUNCIL all foreign banks entering the United States and requires foreign banks to meet financial, manage- The Federal Reserve Board announced that the rial, and operational standards equivalent to those Consumer Advisory Council met on Thursday, required of US. banking organizations. March 25. The Council's function is to advise the Board on the exercise of the Board's responsibilities under the Consumer Credit Protection Act and AMENDMENT TO REGULATION C on other matters on which the Board seeks its advice. The Federal Reserve Board published on March 2, 1993, a final rule to amend Regulation C (Home Mortgage Disclosure) to carry out provisions of the Housing and Community Development Act of NEW PROCEDURES FOR PROCESSING 1992. The revised rules will apply beginning with APPLICATIONS FILED BY FOREIGN BANKS loan and application data collected for calendar year 1992. The new rule became effective March 1, The Federal Reserve Board announced on March 8, 1993. 1993, new procedures to be used in processing The Housing and Community Development Act applications filed by foreign banks under the Forcontains amendments to the Home Mortgage Diseign Bank Supervision Enhancement Act of 1991 closure Act that require financial institutions to (FBSEA). make their loan application register data available Under the FBSEA, a foreign bank may not estabto the public beginning March 31, 1993. This regislish a branch, agency, representative office, or comter must be modified in accordance with Board mercial lending company without the previous regulations before release to the public. approval of the Board. The act also requires institutions to make their The Board has taken several steps that are disclosure statement available to the public within intended to expedite processing and reduce the three business days of receiving it from the Federal burden on applicants. These steps include proce- Financial Institutions Examinations Council. Curdures that accomplish the following: rently they have thirty days to do so. • Require simultaneous review of applications by the staffs of the Board and Reserve Banks • Urge all foreign bank applicants to meet with AMENDMENT TO REGULATION DD staff members of the Board and Reserve Bank before filing applications The Federal Reserve Board published on • Require adherence to time frames in request- March 16, 1993, a final rule amending Regulation ing information during the acceptance process DD (Truth in Savings) to carry out recent changes • Establish new internal guidelines for process- made to the Truth in Savings Act by the Housing ing applications after acceptance and Community Development Act of 1992. • Inform the public about the information files The law extends the mandatory date for complion home country supervision and bank secrecy ance with the requirements of the Truth in Savings laws that are maintained and available in the Act by three months, so that institutions must com- Board's Freedom of Information Office. ply by June 21, 1993, rather than March 21, 1993. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

478 Federal Reserve Bulletin • May 1993 The law also modifies the advertising rules relating CHANGES IN BOARD STAFF to signs on the premises of an institution and makes a technical change to the provision dealing with The Board of Governors announced the appointnotices required to be given to existing account ment of Stephen M. Hoffman, Jr. to the position of holders. Assistant Director for International Supervision in The Board is also making two minor changes to the Division of Banking Supervision and Regulathe regulation and providing guidance on several tion, effective March 29, 1993. issues that have been raised by institutions since The Board of Governors also announced on publication of the final regulation in September April 2, 1993, the promotions of Brian Madigan to 1992. The Board is also issuing a technical amend- the position of Associate Director and Richard ment to Regulation Q (Interest on Deposits). Porter to Deputy Associate Director and the appointment of Deborah Danker to the position of Assistant Director in the Division of Monetary ANNUAL REPORT: PUBLICATION Affairs. Ms. Danker joined the Board's staff in 1984 with The 79th Annual Report, 1992, of the Board of more than four years' experience at the Federal Governors of the Federal Reserve System, cover- Reserve Bank of New York. She is currently on ing operations for the calendar year 1992, is avail- detail to the Department of the Treasury, where she able for distribution. Copies may be obtained on is serving as Acting Assistant Secretary for Domesrequest to Publications Services, mail stop 138, tic Finance. Before her detail, she had been Chief Board of Governors of the Federal Reserve Sys- of the Banking and Money Market Analysis Sectem, Washington, DC 20551. A separately printed tion. She holds a Ph.D. from Yale University. companion document, entitled Annual Report: Mr. Hoffman will be transferring from the Fed- Budget Review, 1992-93, describes the budgeted eral Reserve Bank of Philadelphia where he is expenses of the Federal Reserve System for currently Vice President in the Credit, Examina- 1993 and compares them with expenses for 1991 tion, Supervision and Regulation Department. He and 1992; it is also available from Publications holds a B.S. degree in Finance from LaSalle Uni- Services. versity, with graduate courses at Drexel University and Widener University. He is a graduate of the Bank Administration Institute's School of Banking at the University of Wisconsin. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

479 Minutes of Federal Open Market Committee Meeting A meeting of the Federal Open Market Committee Ms. Greene, Deputy Manager for Foreign was held in the offices of the Board of Governors Operations Ms. Lovett,2 Deputy Manager for Domestic of the Federal Reserve System in Washington, Operations D.C., on Tuesday, February 2, 1993, at 2:30 p.m. and was continued on Wednesday, February 3, Mr. Ettin, Deputy Director, Division of Research 1993, at 9:00 a.m. and Statistics, Board of Governors Mr. Stockton, Associate Director, Division of Present: Research and Statistics, Board of Governors Mr. Greenspan, Chairman Mr. Madigan, Assistant Director, Division of Mr. Conigan, Vice Chairman Monetary Affairs, Board of Governors Mr. Angell Mr. Brady,3 Section Chief, Division of Monetary Mr. Boehne Affairs, Board of Governors Mr. Keehn Mr. Rosine,3 Senior Economist, Division of Mr. Kelley Research and Statistics, Board of Governors Mr. LaWare Mr. Wiles,4 Secretary of the Board, Office of the Mr. Lindsey Secretary, Board of Governors Mr. McTeer Mr. Winn,4 Assistant to the Board, Office of Board Mr. Mullins Members, Board of Governors Ms. Phillips Ms. Werneke,4 Special Assistant to the Board, Mr. Stern Office of Board Members, Board of Governors Mr. Siciliano,4 Special Assistant to the General Messrs. Broaddus, Jordan, Forrestal, and Parry, Counsel, Legal Division, Board of Governors Alternate Members of the Federal Open Ms. Low, Open Market Secretariat Assistant, Market Committee Division of Monetary Affairs, Board of Governors Messrs. Hoenig, Melzer, and Syron, Presidents of the Federal Reserve Banks of Kansas City, Messrs. Beebe, T. Davis, Dewald, Goodfriend, and St. Louis, and Boston respectively Ms. Tschinkel, Senior Vice Presidents, Federal Reserve Banks of San Francisco, Mr. Kohn, Secretary and Economist Kansas City, St. Louis, Richmond, and Mr. Bernard, Deputy Secretary Atlanta respectively Mr. Coyne, Assistant Secretary Mr. Gillum, Assistant Secretary Mr. McNees, Vice President, Federal Reserve Bank Mr. Mattingly, General Counsel of Boston Mr. Patrikis,1 Deputy General Counsel Mr. Gavin, Assistant Vice President, Federal Mr. Prell, Economist Reserve Bank of Cleveland Mr. Truman, Economist Mr. Weber, Senior Research Officer, Federal Reserve Bank of Minneapolis Messrs. R. Davis, Lang, Lindsey, Promisel, Ms. Meulendyke, Manager, Open Market Rosenblum, Scheld, Siegman, Simpson, Operations, Federal Reserve Bank of and Slifman, Associate Economists New York Mr. McDonough, Manager of the System Open Market Account Attended Tuesday session only. 3. Attended portion of meeting relating to the Committee's discussion of the economic outlook and its longer-run objectives for monetary and debt aggregates. 4. Attended portion of the meeting relating to the release of 1. Attended Wednesday session only. FOMC information to the public. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of Federal Open Market Committee Meeting 481 2. Authority for the Chairman to appoint a Federal goods under contract of sale or expected to move into Reserve Bank as agent to operate the System Account in the channels of trade within a reasonable time and that case the New York Bank is unable to function are secured throughout their life by a warehouse receipt 3. Resolution of FOMC to provide for the continued or similar document conveying title to the underlying operation of the Committee during an emergency; Reso- goods; provided that the aggregate amount of bankers lution of FOMC authorizing certain actions by Federal acceptances held at any one time shall not exceed Reserve Banks during an emergency $100 million; 4. Resolution relating to examinations of the System (c) To buy U.S. Government securities, obligations Open Market Account that are direct obligations of, or fully guaranteed as to 5. Guidelines for the conduct of System operations in principal and interest by, any agency of the United federal agency issues States, and prime bankers acceptances of the types 6. Regulation relating to Open Market Operations of authorized for purchase under 1(b) above, from dealers Federal Reserve Banks for the account of the Federal Reserve Bank of New 7. Program for Security of FOMC Information York under agreements for repurchase of such securities, 8. Federal Open Market Committee Rules. obligations, or acceptances in 15 calendar days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, By unanimous vote, the Authorization for after applying reasonable limitations on the volume of Domestic Open Market Operations, as shown agreements with individual dealers; provided that in the event Government securities or agency issues covered below, was reaffirmed: by any such agreement are not repurchased by the dealer pursuant to the agreement or a renewal thereof, they shall be sold in the market or transferred to the System 1. The Federal Open Market Committee authorizes Open Market Account; and provided further that in the and directs the Federal Reserve Bank of New York, to event bankers acceptances covered by any such agreethe extent necessary to carry out the most recent ment are not repurchased by the seller, they shall condomestic policy directive adopted at a meeting of the tinue to be held by the Federal Reserve Bank or shall be Committee: sold in the open market. (a) To buy or sell U.S. Government securities, 2. In order to ensure the effective conduct of open including securities of the Federal Financing Bank, and market operations, the Federal Open Market Committee securities that are direct obligations of, or fully guaranauthorizes and directs the Federal Reserve Banks to lend teed as to principal and interest by, any agency of the U.S. Government securities held in the System Open United States in the open market, from or to securities Market Account to Government securities dealers and to dealers and foreign and international accounts mainbanks participating in Government securities clearing tained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System arrangements conducted through a Federal Reserve Open Market Account at market prices, and, for such Bank, under such instructions as the Committee may Account, to exchange maturing U.S. Government and specify from time to time. Federal agency securities with the Treasury or the indi- 3. In order to ensure the effective conduct of open vidual agencies or to allow them to mature without market operations, while assisting in the provision of replacement; provided that the aggregate amount of U.S. short-term investments for foreign and international Government and Federal agency securities held in such accounts maintained at the Federal Reserve Bank of Account (including forward commitments) at the close New York, the Federal Open Market Committee authoof business on the day of a meeting of the Committee at rizes and directs the Federal Reserve Bank of New York which action is taken with respect to a domestic policy (a) for System Open Market Account, to sell U.S. Govdirective shall not be increased or decreased by more ernment securities to such foreign and international than $8.0 billion during the period commencing with the accounts on the bases set forth in paragraph 1(a) under opening of business on the day following such meeting agreements providing for the resale by such accounts of and ending with the close of business on the day of the those securities within 15 calendar days on terms comnext such meeting; parable to those available on such transactions in the (b) When appropriate, to buy or sell in the open market; and (b) for New York Bank account, when market, from or to acceptance dealers and foreign appropriate, to undertake with dealers, subject to the accounts maintained at the Federal Reserve Bank of conditions imposed on purchases and sales of securities New York, on a cash, regular, or deferred delivery basis, in paragraph 1(c), repurchase agreements in U.S. Governfor the account of the Federal Reserve Bank of New ment and agency securities, and to arrange correspond- York at market discount rates, prime bankers accep- ing sale and repurchase agreements between its own tances with maturities of up to nine months at the time of account and foreign and international accounts mainacceptance that (1) arise out of the current shipment of tained at the Bank. Transactions undertaken with such goods between countries or within the United States, accounts under the provisions of this paragraph may or (2) arise out of the storage within the United States of provide for a service fee when appropriate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

482 Federal Reserve Bulletin • May 1993 By unanimous vote, the Authorization for For- tion 214.5 of Regulation N, Relations with Foreign eign Currency Operations was amended to update Banks and Bankers, and with the approval of the Committee to renew such arrangements on maturity: the title of the Manager of the System Open Market Account. The Authorization, as amended, is shown below: Amount of arrangement Foreign bank (millions of 1. The Federal Open Market Committee authorizes dollars and directs the Federal Reserve Bank of New York, for equivalent) System Open Market Account, to the extent necessary to Austrian National Bank 250 carry out the Committee's foreign currency directive and National Bank of Belgium 1,000 express authorizations by the Committee pursuant Bank of Canada 2,000 National Bank of Denmark 250 thereto, and in conformity with such procedural instruc- Bank of England 3,000 tions as the Committee may issue from time to time: Bank of France 2,000 German Federal Bank 6,000 A. To purchase and sell the following foreign cur- Bank of Italy 3,000 rencies in the form of cable transfers through spot or Bank of Japan 5,000 forward transactions on the open market at home and B N a e n th k e r o l f a n M d e s x B ic a o n k 7 5 0 0 0 0 abroad, including transactions with the U.S. Treasury, Bank of Norway 250 with the U.S. Exchange Stabilization Fund established Bank of Sweden 300 Swiss National Bank 4,000 by Section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, with the Bank for Interna- Bank for International Settlements tional Settlements, and with other international financial Dollars against Swiss francs 600 Dollars against authorized European institutions: currencies other than Swiss francs 1,250 Austrian schillings Italian lire Belgian francs Japanese yen Any changes in the terms of existing swap arrange- Canadian dollars Mexican pesos ments, and the proposed terms of any new arrangements Danish kroner Netherlands guilders that may be authorized, shall be referred for review and Pounds sterling Norwegian kroner approval to the Committee. French francs Swedish kronor 3. All transactions in foreign currencies undertaken German marks Swiss francs under paragraph 1(A) above shall, unless otherwise expressly authorized by the Committee, be at prevailing B. To hold balances of, and to have outstanding market rates. For the purpose of providing an investment forward contracts to receive or to deliver, the foreign return on System holdings of foreign currencies, or for currencies listed in paragraph A above. the purpose of adjusting interest rates paid or received in C. To draw foreign currencies and to permit for- connection with swap drawings, transactions with foreign banks to draw dollars under the reciprocal currency eign central banks may be undertaken at non-market arrangements listed in paragraph 2 below, provided that exchange rates. drawings by either party to any such arrangement shall 4. It shall be the normal practice to arrange with be fully liquidated within 12 months after any amount foreign central banks for the coordination of foreign outstanding at that time was first drawn, unless the currency transactions. In making operating arrangements Committee, because of exceptional circumstances, spe- with foreign central banks on System holdings of foreign cifically authorizes a delay. currencies, the Federal Reserve Bank of New York shall D. To maintain an overall open position in all not commit itself to maintain any specific balance, unless foreign currencies not exceeding $25.0 billion. For this authorized by the Federal Open Market Committee. Any purpose, the overall open position in all foreign curren- agreements or understandings concerning the administracies is defined as the sum (disregarding signs) of net tion of the accounts maintained by the Federal Reserve positions in individual currencies. The net position in a Bank of New York with the foreign banks designated by single foreign currency is defined as holdings of bal- the Board of Governors under Section 214.5 of Regulaances in that currency, plus outstanding contracts for tion N shall be referred for review and approval to the future receipt, minus outstanding contracts for future Committee. delivery of that currency, i.e., as the sum of these ele- 5. Foreign currency holdings shall be invested insofar ments with due regard to sign. as practicable, considering needs for minimum working 2. The Federal Open Market Committee directs the balances. Such investments shall be in liquid form, and Federal Reserve Bank of New York to maintain recipro- generally have no more than 12 months remaining to cal currency arrangements ("swap" arrangements) for maturity. When appropriate in connection with arrangethe System Open Market Account for periods up to a ments to provide investment facilities for foreign curmaximum of 12 months with the following foreign rency holdings, U.S. Government securities may be purbanks, which are among those designated by the Board chased from foreign central banks under agreements for of Governors of the Federal Reserve System under Sec- repurchase of such securities within 30 calendar days. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of Federal Open Market Committee Meeting 483 6. All operations undertaken pursuant to the preced- C. Cooperate in other respects with central banks ing paragraphs shall be reported promptly to the Foreign of other countries and with international monetary Currency Subcommittee and the Committee. The For- institutions. eign Currency Subcommittee consists of the Chairman 3. Transactions may also be undertaken: and Vice Chairman of the Committee, the Vice Chair- A. To adjust System balances in light of probable man of the Board of Governors, and such other member future needs for currencies. of the Board as the Chairman may designate (or in the B. To provide means for meeting System and Treaabsence of members of the Board serving on the Sub- sury commitments in particular currencies, and to facilicommittee, other Board Members designated by the tate operations of the Exchange Stabilization Fund. Chairman as alternates, and in the absence of the Vice C. For such other purposes as may be expressly Chairman of the Committee, his alternate). Meetings of authorized by the Committee. the Subcommittee shall be called at the request of any 4. System foreign currency operations shall be member, or at the request of the Manager of the System conducted: Open Market Account, for the purposes of reviewing A. In close and continuous consultation and cooprecent or contemplated operations and of consulting with eration with the United States Treasury; the Manager on other matters relating to his responsibil- B. In cooperation, as appropriate, with foreign ities. At the request of any member of the Subcommit- monetary authorities; and tee, questions arising from such reviews and consulta- C. In a manner consistent with the obligations of tions shall be referred for determination to the Federal the United States in the International Monetary Fund Open Market Committee. regarding exchange arrangements under the IMF 7. The Chairman is authorized: Article IV. A. With the approval of the Committee, to enter into any needed agreement or understanding with the By unanimous vote, the Procedural Instructions Secretary of the Treasury about the division of responsibility for foreign currency operations between the Sys- with respect to Foreign Currency Operations were tem and the Treasury; amended to update the title of the Manager of the B. To keep the Secretary of the Treasury fully System Open Market Account. The Procedural advised concerning System foreign currency operations, Instructions, as amended, are shown below: and to consult with the Secretary on policy matters relating to foreign currency operations; C. From time to time, to transmit appropriate In conducting operations pursuant to the authorization reports and information to the National Advisory Coun- and direction of the Federal Open Market Committee as cil on International Monetary and Financial Policies. set forth in the Authorization for Foreign Currency Oper- 8. Staff officers of the Committee are authorized to ations and the Foreign Currency Directive, the Federal transmit pertinent information on System foreign cur- Reserve Bank of New York, through the Manager of the rency operations to appropriate officials of the Treasury System Open Market Account ("Manager"), shall be Department. guided by the following procedural understandings with 9. All Federal Reserve Banks shall participate in the respect to consultations and clearance with the Commitforeign currency operations for System Account in tee, the Foreign Currency Subcommittee, and the Chairaccordance with paragraph 3 G(l) of the Board of Gover- man of the Committee. All operations undertaken pursunors' Statement of Procedure with Respect to Foreign ant to such clearances shall be reported promptly to the Relationships of Federal Reserve Banks dated Jan- Committee. uary 1, 1944. 1. The Manager shall clear with the Subcommittee (or with the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in the By unanimous vote, the Foreign Currency Direc- time available): tive, as shown below, was reaffirmed: A. Any operation that would result in a change in the System's overall open position in foreign currencies exceeding $300 million on any day or $600 million since 1. System operations in foreign currencies shall gen- the most recent regular meeting of the Committee. erally be directed at countering disorderly market condi- B. Any operation that would result in a change on tions, provided that market exchange rates for the U.S. any day in the System's net position in a single foreign dollar reflect actions and behavior consistent with the currency exceeding $150 million, or $300 million when IMF Article IV, Section 1. the operation is associated with repayment of swap 2. To achieve this end the System shall: drawings. A. Undertake spot and forward purchases and sales C. Any operation that might generate a substantial of foreign exchange. volume of trading in a particular currency by the System, B. Maintain reciprocal currency ("swap") arrange- even though the change in the System's net position in ments with selected foreign central banks and with the that currency might be less than the limits specified Bank for International Settlements. in 1(B). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

484 Federal Reserve Bulletin • May 1993 D. Any swap drawing proposed by a foreign The information reviewed at this meeting indibank not exceeding the larger of (i) $200 million or cated that economic activity rose appreciably fur- (ii) 15 percent of the size of the swap arrangement. ther in the fourth quarter. Final demands were 2. The Manager shall clear with the Committee (or buoyed by strength in consumption, business with the Subcommittee, if the Subcommittee believes that consultation with the full Committee is not feasible spending for durable equipment, and residential in the time available, or with the Chairman, if the Chair- construction. Manufacturing activity also increased man believes that consultation with the Subcommittee is considerably, and employment appeared to be on a not feasible in the time available): modest upward trajectory, despite a continuing A. Any operation that would result in a change in flow of announcements of layoffs by large corporathe System's overall open position in foreign currencies exceeding $1.5 billion since the most recent regular tions. Although recent data on wages and prices meeting of the Committee. had been mixed, on balance they suggested that B. Any swap drawing proposed by a foreign bank inflation was trending gradually lower. exceeding the larger of (i) $200 million or (ii) 15 percent Total nonfarm payroll employment registered a of the size of the swap arrangement. small increase in December for the fourth consecu- 3. The Manager shall also consult with the Subcommittee or the Chairman about proposed swap drawings tive month. Service industries, notably business by the System, and about any operations that are not of a and health services, and retail trade accounted for routine character. nearly all of the rise in jobs. Manufacturing and construction payrolls changed little, and govern- The Report of Examination of the System Open ment employment fell as temporary election work- Market Account, conducted by the Board's Divi- ers were dropped from payrolls. The civilian unemsion of Reserve Bank Operations and Payment ployment rate remained at 7.3 percent, almost Systems as of the close of business on July 31, Vi percentage point below its midyear peak but 1992, was accepted. slightly above its level at the beginning of the By unanimous vote, the minutes of actions taken year. at the meeting of the Federal Open Market Com- Industrial production advanced further in mittee held on December 22, 1992, were approved. December and was up considerably over the fourth The Deputy Manager for Foreign Operations quarter as a whole. Motor vehicle assemblies rose reported on developments in foreign exchange mar- sharply during the quarter; strong gains also were kets during the period December 22, 1992, through registered in business equipment, partly reflecting a February 2, 1993. There were no System open further jump in output of computers, and in nonmarket transactions in foreign currencies during durable consumer goods. By contrast, the producthis period, and thus no vote was required of the tion of durable consumer goods other than motor Committee. vehicles was lower on balance after changing little The Manager of the System Open Market over the third quarter, and the output of defense and Account reported on developments in domestic space equipment remained on a downward trend. financial markets and on System open market trans- Total utilization of industrial capacity increased actions in government securities and federal agency significantly in the fourth quarter and for the year obligations during the period December 22, 1992, as a whole. through February 2, 1993. By unanimous vote, the Consumer spending was up substantially in the Committee ratified these transactions. fourth quarter. Retail sales, after rising sharply in The Committee then turned to a discussion of the October and changing little in November, posted a economic outlook, the ranges for the growth of further sizable increase in December. The largest money and debt in 1993, and the implementation of sales gains in the fourth quarter were reported at monetary policy over the intermeeting period automotive dealers and at building material and ahead. A summary of the economic and financial supply outlets, but most other types of retail stores information available at the time of the meeting also recorded higher sales. By contrast, consumer and of the Committee's discussion is provided spending for services, as indicated by data on perbelow, followed by the domestic policy directive sonal consumption expenditures, rose more slowly. that was approved by the Committee and issued to Housing starts surged in December, with single the Federal Reserve Bank of New York. family starts reaching their highest level in nearly Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of Federal Open Market Committee Meeting 485 three years and multifamily starts picking up western Germany and Japan evidently had perslightly from the very low levels of October and sisted into the fourth quarter. November. Sales of new and existing homes A small November decline in producer prices of remained on a strong upward trend in December. finished goods was reversed in December, with a Real outlays for business fixed investment appar- rebound in prices of finished foods outweighing a ently registered a notable gain in the fourth quarter, further drop in energy prices. For finished items particularly for producers' durable equipment. other than food and energy, producer prices rose in Shipments of nondefense capital goods rose in December, but the advance followed six months of November and December after changing little in no change on balance; for 1992 as a whole, this October; for the quarter as a whole, shipments measure of prices increased by a considerably advanced substantially, with increases widespread smaller amount than in 1991. At the consumer by category. Business purchases of cars and trucks level, the index for prices of nonfood, non-energy were up sharply in the fourth quarter, while nonres- items edged higher in December after somewhat idential construction activity retraced a small part larger increases in the two preceding months. The of a third-quarter decline. rise in this index in 1992 was the smallest for any Business inventories expanded moderately in year since the early 1970s, when wage and price November as a sizable drop in manufacturing controls were in effect. Hourly compensation of inventories was more than offset by increases in private industry workers advanced a little more wholesale and retail inventories. At the manufac- rapidly in the fourth quarter than in the two previturing level, the drawdown of stocks was associ- ous quarters, but the rise in total compensation over ated with strong shipments of durable goods, and the year as a whole was considerably smaller than inventory-to-shipments ratios in most industries in 1991. The slowing of labor cost increases last were at or near the bottom of their recent ranges. In year occurred in both the wages and benefits comthe wholesale sector, sizable inventory increases ponents. were reported in November for a second straight At its meeting on December 22, the Committee month; most of the buildup was limited to machin- adopted a directive that called for maintaining the ery, motor vehicles, and miscellaneous nondurable existing degree of pressure on reserve positions and goods. With stocks rising in line with sales since that did not include a presumption about the likely September, the stock-to-sales ratio in wholesaling direction of any adjustments to policy during the remained at the low end of its range over the past intermeeting period. Accordingly, the directive year. Retail inventories increased moderately fur- indicated that in the context of the Committee's ther in November; the inventory-to-sales ratio for long-run objectives for price stability and sustainthe sector was slightly below its average for previ- able economic growth, and giving careful considerous months of the year. ation to economic, financial, and monetary devel- The nominal U.S. merchandise trade deficit opments, slightly greater reserve restraint or widened slightly in November. For October and slightly lesser reserve restraint would be acceptable November together, however, the deficit narrowed during the intermeeting period. The reserve condia little from its average rate in the third quarter, as tions associated with this directive were expected the value of exports rose more than the value of to be consistent with expansion of M2 at an annual imports. Most of the increase in exports was in rate of about IV2 percent and with M3 remaining capital goods, both machinery and aircraft, and in about unchanged on balance over the four-month consumer goods. Passenger cars accounted for a period from November through March. considerable part of the rise in imports, while the Open market operations during the intermeeting inflow of consumer goods eased from the very period were directed toward maintaining the existstrong pace of the third quarter. Recent indicators ing degree of pressure on reserve positions. Adjustsuggested that economic activity had remained ment plus seasonal borrowing was well above weak in the major foreign industrial countries and expected levels in the first two full reserve maintethat unemployment rates had increased further in nance periods in the intermeeting interval; borrowmost of those countries. The recovery in Canada ing was sizable over the long New Year's weekend appeared to be continuing, but the downturn in and also later when unusually heavy Treasury Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

486 Federal Reserve Bulletin • May 1993 tax receipts drained reserves from the banking sys- ness to investors of bond and stock mutual funds tem. The federal funds rate averaged close to ex- might have contributed to a quickening of the pected levels over the intermeeting period. How- runoff of holdings of money market mutual funds ever, the rate was somewhat volatile in late and to the persisting weakness in other M2 December as a result of sizable swings in market accounts. Appreciable declines in M3 in December factors affecting reserves and of shifting market and January reflected both the contraction in M2 anticipations regarding year-end pressures. and reduced needs by banks for managed liabilities Most other short-term interest rates declined at a time of weak overall credit demand. From the somewhat over the intermeeting period, in part fourth quarter of 1991 to the fourth quarter of 1992, reflecting the passing of year-end pressures. both M2 and M3 grew at rates somewhat below the Intermediate- and long-term rates, including those lower ends of the Committee's annual ranges. Total on fixed-rate mortgages, also moved somewhat domestic nonfinancial debt appeared to have lower; the declines occurred in response to growing expanded at the lower end of the Committee's indications that any proposed near-term fiscal stim- monitoring range for 1992. ulus would be quite moderate and that the new The staff projection prepared for this meeting Administration intended to recommend steps, pos- suggested that economic activity would expand sibly including new taxes, to lower the trajectory of over the year ahead at a pace that would be suffithe fiscal deficit appreciably over time. Broad cient to reduce gradually margins of unemployed indexes of stock prices exhibited mixed results labor and capital. Recent declines in long-term over the intermeeting period: Indexes giving heavy interest rates and more optimistic attitudes on the weight to large companies changed little, while part of businesses and households were expected to those primarily reflecting smaller companies rose support further solid gains in business fixed investsignificantly. ment and in homebuying. Continuing progress in In foreign exchange markets, the trade-weighted reducing debt service burdens and a gradual lessenvalue of the dollar in terms of the other G-10 ing of concerns regarding job security were procurrencies rose on balance over the intermeeting jected to foster an expansion of consumer spending period. Through early January, the dollar appreci- a shade faster than the growth in incomes. Export ated against both the yen and the mark, especially demand would be damped for some period of time the latter, in response to actual and expected further by the appreciation of the dollar since mid-1992, declines in interest rates in Japan and Germany. but an anticipated pickup in growth abroad later Subsequently, the dollar's gains were partially this year would begin to counteract the effects of erased as the prospects for near-term easing in the higher dollar. Against the background of con- Germany diminished somewhat and perceptions siderable uncertainties associated with still unangrew that fiscal initiatives in the United States nounced fiscal policy initiatives, the staff retained would lower the deficit and reduce the chances that for this forecast the assumption contained in sevmonetary policy might be tightened in the months eral previous forecasts that fiscal policy would ahead. remain mildly restrictive, largely because of declin- After expanding at a moderate pace over the ing defense outlays. The persisting slack in course of earlier months, M2 contracted in Decem- resource utilization over the forecast horizon was ber and January. Some of the weakness reflected a expected to be associated with some additional slowdown in Ml growth associated with lower progress in reducing inflation. mortgage refinancing activity. Within M2's non- In the Committee's discussion of current and transactions component, the expansion of savings prospective economic developments, the members and money market deposit accounts slowed were encouraged by the mounting evidence of abruptly, perhaps owing in part to the wider spread appreciable momentum in the economic expansion. that had developed during the fall between market On the whole, recent developments tended to rates and those paid on these accounts, as well as to reinforce their forecasts of continuing growth at a the use of monies in these accounts to fund a moderate pace over the year ahead, especially in step-up in consumer purchases and nonwithheld light of the improvement in business and consumer tax payments. In addition, the continued attractive- confidence. The impact of some retarding influ- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of Federal Open Market Committee Meeting 487 ences on the expansion, notably various balance pressures would remain subdued and modest addisheet adjustment activities, appeared to be waning. tional moderation in inflation was expected by most In addition, while some major sectors of the econ- members. Measured from the fourth quarter of omy such as defense spending and commercial 1992 to the fourth quarter of 1993, the forecasts for construction remained weak, the economy was growth of real GDP had a central tendency of 3 to benefiting from considerable growth in consumer 3% percent within a full range of 2Vz to 4 percent. spending, from rising business expenditures for Projections of the civilian rate of unemployment in producer equipment, and from increasing outlays the fourth quarter of 1993 were concentrated in the for housing. In one view, the recent behavior of upper half of a 6V2 to 7 percent range. For the CPI, commodity prices also tended to indicate some the central tendency of the forecasts for the period strengthening in the economy's expansion. Despite from the fourth quarter of 1992 to the fourth quarvarious indications of a more firmly established ter of 1993 was centered on increases in a range of expansion, however, the members felt that the 2Vz to 23A percent, and for nominal GDP the foreoutlook remained subject to a good deal of uncer- casts were clustered in a range of 5¥z to 6 percent tainty, and some commented that substantial for the year. deviations—in either direction—from their current In the course of the Committee's discussion of forecasts could not be ruled out. It was noted in this various factors underlying the outlook for ecoconnection that the specifics of the President's fis- nomic activity, the members observed that on the cal policy proposals were still unknown, and their whole the effects of a number of structural impedireception by the public and the Congress would ments to the expansion seemed to be diminishing have a major influence on confidence, interest rates, as the financial condition of households, business and the performance of the economy. Other sources firms, and financial institutions continued to of uncertainty related to the outlook for further improve. Household and business debt-service burrestructuring activities that involved cutbacks in dens had eased substantially, but it remained diffioperations and employment by many firms, and the cult to predict to what extent and for how long the prospective lending policies of banking institu- ongoing balance sheet adjustments would contions. With regard to the outlook for inflation, most tinue to divert an unusual proportion of cash flows of the members believed that some further progress from spending to balance sheet repair. Improved toward stable prices was likely over the year ahead, profitability and new capital-market issuance had given an economic outcome about in line with their strengthened the capital positions of banking instiforecasts of continued, albeit reduced, margins of tutions, and in general they were now in a much unutilized or underutilized productive resources. better position to augment their lending activities. Some members also referred to the extended period However, there were few indications thus far of of relatively sluggish growth in the broad measures any easing in terms or standards on business loans, of money as a favorable indicator in the outlook for and the depressed and uncertain values of commerinflation. cial mortgages and real estate held in bank port- In keeping with the practice at meetings when folios might continue to exert an inhibiting effect the Committee establishes its long-run ranges for on the willingness of banks to lend. Another negagrowth of the money and debt aggregates, the tive factor was the persistence of downsizing and Committee members and the Federal Reserve Bank other restructuring activities by numerous firms, presidents not currently serving as members had notably large businesses. Such restructuring activiprepared projections of economic activity, the rate ties had not fully run their course as many firms of unemployment, and inflation for 1993. The cen- continued to pare excess production capacity and to tral tendencies of the forecasts pointed to slightly modernize production facilities to meet strong comfaster economic growth this year than currently petition in domestic and foreign markets. The seemed to have occurred in 1992. The anticipated resulting layoffs had damped overall job growth. rate of economic expansion would be at a pace that Despite tepid job growth, retail sales had was rapid enough to reduce the rate of unemploy- strengthened markedly during the closing months ment a little further. Nonetheless, with some slack of 1992, and several members commented that in productive resources persisting, price and cost such sales had continued to display surprising vigor Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

488 Federal Reserve Bulletin • May 1993 in some parts of the country during the early weeks the declines that had occurred in mortgage interest of 1993. Apart from the improvement in consumer rates had fostered a marked strengthening in the sentiment, other favorable factors cited with regard demand for single-family housing as evidenced by to the outlook for consumer spending included reports from many parts of the country as well as lower debt-service burdens and the capital gains or the overall statistics on housing. On the basis of enhanced cash flows now being realized as sales of these developments, the members anticipated a homes picked up and mortgage refinancings again continuing impetus to the economic expansion strengthened. Some members nonetheless ex- from housing construction and from related induspressed a degree of concern about the sustainability tries over the year ahead. In addition, the current of the gains in consumer spending unless there indications of generally lean business inventories, were faster growth in employment and income to associated in part with strong final demands over support such spending. Announcements by promi- the past several months, suggested that the prosnent firms of cutbacks in their workforces had pects for further gains in overall spending were continued into the new year, and while job gains at likely to stimulate efforts by business firms to build other firms, especially smaller ones, were contribut- up inventories over the quarters ahead. ing to modest net growth in overall employment, The increasing signs of slow growth or recession the publicity surrounding the persisting job cut- in a number of foreign nations represented a greater backs and a tendency for many new jobs to be downside risk to the demand for U.S. exports than lower-paying added an element of caution to the had been apparent earlier. It was noted, for examoutlook for consumer expenditures. On balance, ple, that firms engaged in business activities abroad with the measured saving rate already at a low were reporting substantial deterioration in markets level, though an argument could be made that the for U.S. goods in many foreign countries. Growth actual rate was somewhat higher than indicated by in U.S. exports might remain positive over the year the currently published data, consumer spending ahead, but against the background of a relatively seemed likely to expand about in line with the expansive U.S. economy and the dollar's recent growth in consumer incomes over the coming year. appreciation, the value of exports might well fall The growth in consumer incomes in turn was increasingly short of that of imports with adverse likely to depend importantly on the expansion in effects on the growth of U.S. economic activity. business investment spending, and members cited a Turning to the outlook for fiscal policy, members number of factors that were expected to provide a were encouraged by the prospect that the President favorable setting for sustained momentum in such would soon propose a program that would produce spending over the year ahead. These included the substantial reductions in the federal deficit over the strengthening of final demands, the recent declines years ahead. Such a deficit-reduction program, in intermediate- and long-term interest rates, the if deemed credible, could result in lower greater leeway for financial intermediaries to intermediate- and long-term interest rates than increase their lending to businesses, and a continu- would otherwise prevail—even before the program ing desire by business firms to improve their oper- was enacted—with very positive implications for ating efficiencies. Commercial construction activ- interest-sensitive expenditures. For the nearer term, ity, however, was likely to remain quite sluggish. the President was expected to announce some mod- There were indications that commercial real estate est fiscal stimulus relative to what was currently in values had stabilized in a number of areas, but at train. However, the specifics of the President's low levels, and given the persistence of marked proposals were not yet known and there was little imbalances in numerous real estate markets that current basis on which to judge prospective public were the result of several years of overbuilding, a and congressional reactions. Members emphasized significant rebound in commercial building activity the critical need for long-term deficit reduction, for the nation as a whole might well be several and some expressed concern about the adverse years away. The outlook for housing construction effects on financial markets if fiscal stimulus meawas much more promising. Against the background sures were to be enacted for the short run without of a general upswing in consumer confidence and the assurance of further legislation to cut federal the improved balance sheets of many households, deficits over time. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of Federal Open Market Committee Meeting 489 With regard to the outlook for inflation, most of established on a tentative basis at its meeting on the members anticipated that the trend toward June 30-July 1, 1992. The tentative ranges lower price and wage inflation would be sustained included expansion of 2XA to 6V2 percent for M2 over the year ahead, and one member observed that and 1 to 5 percent for M3, measured from the the disinflationary momentum in the economy fourth quarter of 1992 to the fourth quarter of 1993. might well be underestimated. Favorable develop- The monitoring range for growth of total domestic ments relating to the outlook for inflation included nonfinancial debt had been set provisionally at AV2 evidence of slowing increases in labor costs and to 8V percent for 1993. All of these ranges were 2 continued aggressive efforts by many business unchanged from those that the Committee had set firms to improve productivity and reduce costs in for 1992 at its meeting in February of last year and the face of intense competition from domestic and had reaffirmed at midyear. When the provisional foreign producers. Indeed, anecdotal reports from ranges for money growth were established, the around the country continued to suggest little or no Committee had noted that they were especially upward pressure on prices in many regions. In tentative and subject to revision in the latter part of addition, the behavior of interest rates in longer- 1992 or early 1993 owing to the considerable term debt markets was consistent with spreading uncertainty about the evolving relationship of expectations of gradually diminishing inflation. money to income. Some members believed, however, that little or no In the event, the velocities of M2 and M3 had further progress in reducing inflation was a more increased appreciably in the second half of 1992 likely outcome in the year ahead, though none and analysis of the factors behind this development anticipated higher inflation. Some commodity price suggested further increases in the year ahead. Conindexes had edged higher recently, apparently in sequently, in the Committee's discussion, which response to growing demands related to strengthen- tended to focus on M2, all the members indicated ing activity in several sectors of the economy. that they could support a proposal to lower the Lumber prices in particular had risen considerably tentative ranges for growth of the broad monetary in conjunction with the uptrend in single-family aggregates by V2 percentage point for 1993. At the housing construction and various constraints on same time, a number of members indicated that lumber supplies. Some business contacts reported they preferred somewhat different ranges including for the first time in a long while that they were the retention of the tentative ranges, lowering the experiencing or anticipated some upward pressure ranges by more than the proposal, and widening or on their raw materials prices. Further, while most narrowing them. All the members were in firm business contacts saw or anticipated little or no agreement that the purpose of the proposed reducupward pressure on prices in their own industries, tions was not to signal or implement any change in many continued to expect rising inflation more monetary policy or to convey any intention to generally. The still relatively steep slope of the move away from the Committee's commitment to yield curve and its implications with regard to maximum sustainable economic expansion. Rather, expectations of future increases in interest rates the reductions were motivated by the persistence of also suggested that investors remained concerned marked shortfalls in the growth of M2 and M3 about the possibility of higher inflation over the from their historical relationships with various longer run, even though such concerns might have measures of aggregate economic performance; abated somewhat recently and did not appear to those shortfalls appeared to be the technical result extend to the next year or two. In general, however, of forces that are altering the relationship between the members viewed the inflation outlook with money and income. Members of the Committee considerable optimism on the presumption of urged that the Board's report to the Congress and favorable fiscal and monetary policy developments. the Chairman's accompanying testimony make clear the reasons for the unusual behavior of money In keeping with the requirements of the Full and its consequences for the Committee's choice of Employment and Balanced Growth Act of 1978 ranges. (the Humphrey-Hawkins Act), the Committee at this meeting reviewed the ranges for growth of the The deviations in monetary growth from historimonetary and debt aggregates in 1993 that it had cal norms reflected a number of developments Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

490 Federal Reserve Bulletin • May 1993 whose relative importance and intensity had shifted was still subject to considerable uncertainty, and to some extent over the course of recent years, but this implied the need for flexibility in assessing the in general they had served to rechannel funds away implications of money growth relative to the Comfrom depository institutions, and the associated mittee's ranges. Should the factors influencing the weakness in deposit growth had raised velocity— behavior of the broad aggregates persist in holding the ratio of nominal GDP to money. The result was down money growth to the extent seen in 1992, the need for lower money growth than in the past to expansion of M2 and M3 in the lower portion of support a given rate of income growth. Among the their reduced ranges would be consistent with condevelopments that had tended to retard the relative siderable further growth in nominal spending. growth of M2 and M3 was the unprecedented Indeed, a shortfall from the reduced ranges could steepness of the yield curve that had prompted not be ruled out, and one member felt that the large shifts of funds by savers from M2 accounts to potential for such a development warranted considhigher-yielding intermediate- and long-term assets. eration of a somewhat larger reduction in the M2 At the same time, credit growth at bank and thrift range; such a reduction also would signal more depository institutions had been weak, partly as a clearly the Committee's commitment to price staresult of efforts by these institutions to improve bility. On the other hand, the upper portions of the capital and liquidity positions, and partly owing to reduced ranges would still accommodate an ample weak demand. As a consequence, they also had provision of liquidity to support further economic maintained relatively low offering rates on deposits expansion even if the growth of money and of that had provided consumers with an incentive to income were to move toward a historically more reduce or hold down their deposit holdings in order normal alignment and velocity were to slow from to pay down relatively high-cost mortgages and its high rate of increase. In one view, widening the other debts. In 1992, sluggish growth of M2 and tentative M2 range by reducing its lower limit M3 had been associated with a considerable accel- while retaining its upper limit would help the Comeration in nominal spending. Indeed, despite mittee to convey its views regarding the potential growth of both M2 and M3 at rates below the for a continuing but acceptable sluggishness in M2 Committee's ranges, the expansion of the economy growth while leaving room for the possibility of had exceeded most forecasts. faster M2 expansion should changing circumstances foster diminishing strength in velocity. The members generally anticipated that the Another member expressed a preference for narintensity of these forces might diminish in 1993 as rowing the tentative range by lowering only its borrowers and lending institutions achieved more upper limit as a means of signaling the Commitcomfortable balance sheet positions. Nonetheless, tee's intent to resist both inflationary and recessionthe relative weakness in money growth was seen as ary developments. In light of the uncertainties that likely to persist to a marked extent. The yield were involved, the informational content of the curve, while it had flattened a bit recently, was still aggregates probably had diminished and in any expected to provide a considerable incentive for event the Committee would need to continue to many savers to shift funds out of M2 assets, espeevaluate monetary growth developments in the concially as relatively high-yielding time deposits context of a careful assessment of a wide variety of tinued to mature. In addition, banks were likely to other financial, economic, and price developments. remain generally unaggressive in bidding for In this connection, one member observed that the deposits, in part because their substantial earlier uncertainties were of such a magnitude that, while acquisitions of securities would permit them to plausible arguments could be made for a number of accommodate some of the anticipated growth in different ranges, retention of the tentative ranges loan demand by selling securities or limiting purwould be appropriate in light of the Committee's chases. In these circumstances, restrained money willingness to review the ranges in the event that growth seemed likely to remain consistent with unanticipated developments were to unfold. relative strength in the economic expansion. The members recognized that the strength of the All of the members agreed that it would be factors that were expected to continue to depress desirable to retain the monitoring range of 4V2 to broad money growth in relation to income in 1993 8V2 percent that the Committee had established on Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of Federal Open Market Committee Meeting 491 a provisional basis for the growth of total domestic maintain unchanged conditions in reserve markets, nonfinancial debt in 1993. The expansion in such and all indicated that they could accept a directive debt had not been damped by special forces to the that did not incorporate any presumption with same extent as the broad monetary aggregates in regard to the likely direction of possible intermeet- 1992. Over the year ahead, growth in the federal ing adjustments to policy. While there was concern debt was likely to remain substantial, and the about the weakness in the monetary aggregates, the expansion of debt in the nonfederal sectors was members generally agreed that recent economic projected to accelerate somewhat given the contin- developments tended to reinforce the view that ued improvement in borrower balance sheets and monetary policy was on an appropriate course. an anticipated increase in the willingness of finan- The economy seemed to be on a stronger growth cial institutions to lend as the economy continued track than earlier in the expansion, and inflation to expand. Nonetheless, in the context of still cau- remained quite subdued—only a bit above some tious attitudes on the part of both borrowers and estimates of price stability—and likely to moderate lenders, the growth of nonfederal debt probably further in coming quarters in the view of most would remain below that of nominal GDP in the members. Some commented that a further easing year ahead. move at this juncture might well have adverse At the conclusion of the Committee's discussion, effects on inflation sentiment and on interest rates all of the members indicated that they favored or in intermediate- and long-term debt markets. A few could accept a technical downward adjustment of referred to the recent firming in some commodity Vi percentage point in the tentative ranges for the prices and the consensus among private forecasters broader monetary aggregates for 1993 to rates of 2 that inflation could drift higher over the next few to 6 percent for M2 and Vi to 4V2 percent for M3. It years. In the view of one member, these developwas agreed that there should be no change from the ments might argue for a tilt in the directive toward tentative range for total domestic nonfinancial debt. possible restraint, but they did not call for an imme- In keeping with the Committee's usual procedures diate tightening in reserve conditions. under the Humphrey-Hawkins Act, the ranges A staff analysis prepared for this meeting sugwould be reviewed at midyear, or sooner if deemed gested a resumption of some growth in the broad necessary, in light of the growth and velocity be- measures of money later in the first quarter but a havior of the aggregates and ongoing economic and decline in both M2 and M3 for the quarter as a financial developments. Accordingly, by unani- whole. While part of the declines appeared to mous vote, the following longer-run policy for reflect difficulties with seasonal adjustments and 1993 was approved by the Committee for inclusion the ebbing of special factors that previously had in the domestic policy directive: boosted growth, the uncertainties surrounding the behavior of these aggregates tended to reduce their The Federal Open Market Committee seeks monetary role in current monetary policy. Nevertheless, there and financial conditions that will foster price stability was concern about the persisting weakness in the and promote sustainable growth in output. In furtherance broad aggregates, including the likelihood that they of these objectives, the Committee at this meeting estabwould fall well short of the Committee's new lished ranges for growth of M2 and M3 of 2 to 6 percent ranges over the first part of the year. Some memand V2 to 41/2 percent respectively, measured from the fourth quarter of 1992 to the fourth quarter of 1993. The bers also noted that the growth of Ml, while still Committee expects that developments contributing to fairly robust in December and January, was markunusual velocity increases are likely to persist during the edly below its pace over most of 1992. On the year. The monitoring range for growth of total domestic other hand, bank loans had increased in recent nonfinancial debt was set at AVi to %Vi percent for the months, and the weakness in the monetary aggreyear. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price gates did not appear to reflect underlying softness level stability, movements in their velocities, and devel- in the economy. In these circumstances, a number opments in the economy and financial markets. of members believed that any effort to stimulate monetary growth under immediately prevailing economic conditions and market expectations Turning to policy for the intermeeting period might well prove to be counterproductive. An ahead, all of the members endorsed a proposal to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

492 Federal Reserve Bulletin • May 1993 easing at this time could accelerate outflows from of previous months; M3 is estimated to have declined interest-sensitive M2 assets if the easing were appreciably in both months. From the fourth quarter of 1991 to the fourth quarter of 1992, both M2 and M3 seen as signaling a weakening of the System's grew at rates somewhat below the lower ends of the anti-inflationary resolve and were to result in Committee's annual ranges for 1992. Total domestic higher rates on intermediate- and long-term debt nonfinancial debt appears to have expanded at the lower securities. end of the Committee's monitoring range for the year. At the conclusion of the Committee's discussion, The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability all of the members indicated that they favored a and promote sustainable growth in output. In furtherance directive that called for maintaining the existing of these objectives, the Committee at this meeting estabdegree of pressure on reserve positions. They also lished ranges for growth of M2 and M3 of 2 to 6 percent noted their preference for, or acceptance of, a direc- and Vi to AV2 percent respectively, measured from the tive that did not include a presumption about the fourth quarter of 1992 to the fourth quarter of 1993. The Committee expects that developments contributing to likely direction of any adjustment to policy over unusual velocity increases are likely to persist during the the intermeeting period. Accordingly, in the conyear. The monitoring range for growth of total domestic text of the Committee's long-run objectives for nonfinancial debt was set at AV2 to 8V2 percent for the price stability and sustainable economic growth, year. The behavior of the monetary aggregates will conand giving careful consideration to economic, tinue to be evaluated in the light of progress toward price level stability, movements in their velocities, and develfinancial, and monetary developments, the Comopments in the economy and financial markets. mittee decided that slightly greater or slightly lesser In the implementation of policy for the immediate reserve restraint would be acceptable during the future, the Committee seeks to maintain the existing intermeeting period. The reserve conditions con- degree of pressure on reserve positions. In the context of templated at this meeting were expected to be the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consistent with little change in the levels of M2 consideration to economic, financial, and monetary deand M3 over the two-month period from January velopments, slightly greater reserve restraint or slightly through March. lesser reserve restraint would be acceptable in the inter- By unanimous vote, the Federal Reserve Bank of meeting period. The contemplated reserve conditions are expected to be consistent with little change in M2 and New York was authorized and directed, until other- M3 over the period from January to March. wise directed by the Committee, to execute transactions in the System Account in accordance with the At this meeting the Committee discussed a prefollowing domestic policy directive: liminary report of a subcommittee that had been established to examine various issues relating to The information reviewed at this meeting indicates the release of information about Committee meetthat economic activity rose appreciably further in the ings and decisions. All of the members agreed that fourth quarter. Total nonfarm payroll employment registered another small increase in December, and the civil- the Committee should keep the public as fully ian unemployment rate remained at 7.3 percent. Indus- informed as possible about its monetary policy trial production posted solid gains over the closing decisions and their rationale. Such information months of the year. Retail sales were up substantially in could reduce uncertainty about the stance of policy the fourth quarter, and residential construction activity and about the factors the Committee takes into increased sharply. Indicators of business fixed investment suggest a notable gain in recent months, particu- account in reaching its decisions. However, release larly for producers' durable equipment. The nominal of information should not be allowed to compro- U.S. merchandise trade deficit narrowed slightly in mise the overriding objective of making and imple- October-November from its average rate in the third menting the best possible decisions. In that regard, quarter. Recent data on wages and prices have been the Committee noted that its deliberative process mixed but they continue to suggest on balance a trend toward lower inflation. requires a free flow of ideas, including the ability to Interest rates have declined somewhat since the Com- advance or question hypotheses, to speculate on mittee meeting on December 22. In foreign exchange alternative outcomes, and to change opinions in markets, the trade-weighted value of the dollar in terms response to the views expressed by other members. of the other G-10 currencies rose on balance over the The members also needed to feel at liberty during intermeeting period. M2 appears to have contracted in December and Janu- meetings to use a wide array of information that is ary, after expanding at a moderate pace over the course obtained on a confidential basis; at least some of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of Federal Open Market Committee Meeting 493 that information would no longer be provided to options for apprising the public more fully or the Committee if there were a risk of public disclo- promptly of the Committee's actions, and it was sure. Moreover, the Committee wanted to give understood that the subcommittee would continue further consideration to the risk that the adoption of to study the matter. a different schedule for releasing information about It was agreed that the next meeting of the Compolicy decisions might have the effect, in difficult mittee would be held on Tuesday, March 23, 1993. circumstances, of reducing its willingness to make The meeting adjourned. needed policy adjustments promptly. No decisions were made at this meeting concerning various Donald L. Kohn Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

495 Legal Developments FINAL RULE—AMENDMENT TO REGULATION C Examination Council) available to the public at its home office no later than three business days after The Board of Governors is amending 12 C.F.R. Part receiving it from the Examination Council. A financial 203, its Regulation C (Home Mortgage Disclosure Act institution shall also make its disclosure statement ("HMDA")), to incorporate new statutory provisions. available to the public within ten business days in at The Housing and Community Development Act of 1992 least one branch office in each additional MSA where contains amendments to HMDA that require financial it has offices. The disclosure statement at a branch institutions to make their loan application register data office need only contain data relating to properties in available to the public beginning March 31, 1993; the the MSA where the branch office is located. register must be modified in accordance with Board (c) Public disclosure of loan application register. A regulations before release to the public. The act also financial institution shall make its loan application requires institutions to make their disclosure state- register available to the public after modifying it in ment—as compiled by the Federal Financial Institu- accordance with appendix A. An institution shall tions Examination Council later in the year—available make its modified register available following the to the public within three business days of receiving it calendar year for which the data are compiled, by from the Examination Council; they currently have 30 March 31 for a request received on or before March days to do so. 1, and within 30 days for a request received after Effective March 1, 1993, 12 C.F.R. Part 203 is March 1. The modified register made available at a amended as follows: branch office need only contain data relating to properties in the MSA where the branch office is Part 203—Home Mortgage Disclosure located. (d) Availability of data. A financial institution shall 1. The authority citation for part 203 continues to read make its modified register available to the public for a as follows: period of three years and its disclosure statement available for a period of five years. An institution shall Authority: 12 U.S.C. 2801-2810. make the data available for inspection and copying during the hours the office is normally open to the 2. Section 203.5 is amended by redesignating para- public for business. It may impose a reasonable fee for graphs (c) and (d) as (d) and (e), by adding a new any cost incurred in providing or reproducing the data. paragraph (c), and by revising paragraphs (a) through (e) Notice of availability. A financial institution shall (e) to read as follows: post a general notice about the availability of its disclosure statement in the lobbies of its home office and any physical branch offices located in an MSA. Section 203.5—Disclosure and reporting. Upon request, it shall promptly provide the location of the institution's offices where the statement is avail- (a) Reporting to agency. By March 1 following the able. At its option, an institution may include the calendar year for which the loan data are compiled, a location in its notice. financial institution shall send two copies of its 3. Appendix A to part 203 is amended by revising the complete loan application register (if submitted in heading of section III., by revising section III.D., and paper form) to the agency office specified in appendix by adding new sections III.E., F., and G., to read as A of this regulation, and shall retain a copy for its follows: records for a period of not less than three years. A financial institution need only submit one copy when APPENDIX A TO PART 203—FORM AND the submission is on computer tape or diskette. INSTRUCTIONS FOR COMPLETION OF HMDA (b) Public disclosure of statement. A financial institu- LOAN/APPLICATION REGISTER tion shall make its mortgage loan disclosure statement (to be prepared by the Federal Financial Institutions Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

496 Federal Reserve Bulletin • May 1993 III. Submission of HMDA-LAR and Public FINAL RULE—AMENDMENT TO REGULATION Y Release of Data The Board of Governors is amending 12 C.F.R. Part 225, its Real Estate Appraisal Regulations to reflect D. Availability of disclosure statement. The Federal that the Board's Guidelines for Real Estate Appraisal Financial Institutions Examination Council (FFIEC) Policies and Review Procedures have been superseded will prepare a disclosure statement from the data you by the Guidelines for Real Estate Appraisal and Evalsubmit. Your disclosure statement will be returned to uation Programs. the name and address indicated on the transmittal Effective March 19, 1993, 12 C.F.R. Part 225 is sheet. Within three business days of receiving the amended as follows: disclosure statement, you must make a copy available at your home office for inspection by the public. You Part 225—Bank Holding Companies and also must make the disclosure statement available, Change in Bank Control within ten business days after receiving it from the FFIEC, in at least one branch office in each additional 1. The authority citation for part 225 continues to read MSA where you have physical offices. For these as follows: purposes, a business day is any calendar day other than a Saturday, Sunday, or legal public holiday. Authority: 12 U.S.C. 1817(j)(13), 1818, 1831(i), E. Availability of modified loan application register. 1843(c)(8), 1844(b), 3106, 3108, 3907, 3909, 3310, and 1. To protect the privacy of applicants and borrow- 3331-3351, and sec. 306 of the Federal Deposit Insurers, an institution must modify its loan application ance Corporation Improvement Act of 1991 (Pub. L. register by removing the following information be- 102-242, 105 Stat. 2236 (1991). fore releasing it to the public: the application or loan number, date application received, and date of ac- Subpart G—Appraisals tion taken. 2. A financial institution must make its modified 2. In section 225.63, the concluding text in paragraph register available following the calendar year for (a) is revised to read as follows: which the data are compiled, by March 31 for a request received on or before March 1, and within Section 225.63—Appraisals not required; 30 days for a request received after March 1. transactions requiring a State certified or F. Location and format of disclosed data. A financial licensed appraiser. institution must make a complete copy of its disclosure statement and modified register available to the public (a) * * * Any transaction for which a State certified or at its home office. Institutions may make these data licensed appraiser is not required nevertheless must available in hard copy or in automated form (such as have an appropriate evaluation of real property collatby floppy disk or computer tape). Although you are eral that is consistent with the Board's Guidelines for not required to make the modified loan application Real Estate Appraisal and Evaluation Programs. register available in census-tract order, you are strongly encouraged to do so in order to enhance its utility to users. If you have physical branch offices in FINAL RULE—AMENDMENT TO REGULATION Z other MSAs, you must make available, in at least one branch office in each of those MSAs, either a complete The Board of Governors is amending 12 C.F.R. Part copy of the disclosure statement or the portion of it 226, the official staff commentary to Regulation Z that relates to properties in that MSA. Similarly, a (Truth in Lending). The commentary applies and inmodified register at a branch office need only reflect terprets the requirements of Regulation Z. The revidata concerning properties within the MSA where the sions are limited, and address regulatory provisions branch is located. needing clarification or issues for which there may be You are not required to prepare a modified loan a general need for more guidance. The revisions application register in advance of receiving a request address the interplay between the Truth in Lending from the public for this information, but must be able rules on demand features and other federal rules to respond to a request within 30 days. dealing with credit extended to executive officers of G. Posters. Your agency can provide you with HMD A depository institutions. They provide greater flexibilposters that you can use to inform the public of the ity in complying with the disclosure requirements availability of your disclosure statement, or you may under Regulation Z in these transactions. The discloprint your own posters. sure rules for security interests (particularly those in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 497 rescindable transactions) are also clarified. The com- 5b(d)(4)(iii)-l is amended by revising the fourth senmentary offers creditors alternative methods of dis- tence and adding a sentence after the fourth sentence closing security interests in rescindable transactions. to read as follows: Effective April 1, 1993; but compliance is option until October 1, 1993, 12 C.F.R. Part 226 is amended Paragraph 5b(d)(4)(iii). as follows: 1. Disclosure of conditions. * * * As an alternative to Part 226—{Amended] disclosing the conditions in this manner, the creditor may simply describe the conditions using the language 1. The authority citation for part 226 continues to read in sections 226.5b(f)(2)(i)-(iii), 226.5b(f)(3)(i) (regarding as follows: freezing the line when the maximum annual percentage rate is reached), and 226.5b(f)(3)(vi) or language Authority: 12 U.S.C. 3806, 15 U.S.C., 1604 and that is substantially similar. The condition contained in 1637(c)(5); sec. 1204(c). section 226.5b(f)(2)(iv) need not be stated. * * * Supplement I to Part 226—[Amended] 2. In Supplement I to part 226, under the heading "2(a) Definitions," comment 2(a)(25)-6 is amended by add- Supplement I to Part 226—[Amended] ing five new sentences at the end to read as follows: 4. In Supplement I to part 226, under the heading 2(a)(25) Security interest. "5b(f) Limitations on Home Equity Plans," comment 5b(f)(2)-l is amended by revising the second sentence to read as follows: 6. Specificity of disclosure. * * * In disclosing the fact that the transaction is secured by the collateral, the Paragraph 5b(f)(2). creditor also need not disclose how the security interest arose. For example, in a closed-end credit trans- 1. Limitations on termination and acceleration. * * * action, a rescission notice need not specifically state However, creditors may take these actions in the four that a new security interest is "acquired" or an circumstances specified in section 226.5b(f)(2). * * * existing security interest is "retained" in the transaction. The acquisition or retention of a security interest in the consumer's principal dwelling instead may be disclosed in a rescission notice with a general state- Supplement I to Part 226—[Amended] ment such as the following: "Your home is the security for the new transaction." A statement such as this 5. In Supplement I to part 226, under the heading "6(e) may be used, for example, instead of the second Home Equity Plan Information," comment 6(e)-1 is sentence in model form H-9 and could apply both to a amended by adding a parenthetical at the end to read refinancing in which a new security interest is taken by as follows: the original creditor to replace a preexisting security interest and one in which an existing security interest 1. Additional disclosures required. * * * Creditors also is maintained. Of course, because model form H-9 must disclose a list of the conditions that permit the adequately discloses the fact that the home is security creditor to terminate the plan, freeze or reduce the for the transaction, it may be used without modificacredit limit, and implement specified modifications to tion in both a refinancing in which a new security the original terms. (See comment 5b(d)(4)(iii)-l.) interest is taken by the original creditor to replace a preexisting security interest and one in which an existing security interest is retained by that creditor. Supplement I to Part 226—[Amended] Supplement I to Part 226—[Amended] 6. In Supplement I to part 226, under the heading "Appendix G—Open-end model forms and clauses," 3. In Supplement I to part 226, under the heading comment 4 to Appendix G is amended by adding a new "5b(d) Content of Disclosures," comment sentence at the end to read as follows: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

498 Federal Reserve Bulletin • May 1993 4. Models G-5 through G-9. * * * See the commentary 11. Models H-8 through H-9. * * * See the commento section 226.2(a)(25) regarding the specificity of the tary to section 226.2(a)(25) regarding the specificity of security interest disclosure for model form G-7. the security interest disclosure for model form H-9. Supplement I to Part 226—{Amended] FINAL RULE—AMENDMENT TO REGULATION DD 7. In Supplement I to part 226, under the heading "18(i) Demand feature," comment 18(i)-2 is amended The Board of Governors is amending 12 C.F.R. Part by adding a new sentence at the end to read as follows: 230, its Regulation DD (Truth in Savings), to implement recent changes made to the Truth in Savings Act 2. Covered demand features. * * * A creditor may, but by the Housing and Community Development Act of need not, treat its contractual right to demand pay- 1992. The law extends the mandatory date for compliment of a loan made to its executive officers as a ance with the requirements of the Truth in Savings Act demand feature to the extent that the contractual right by three months, so that institutions must comply by is required by Regulation O (12 C.F.R. 215.5) or other June 21, 1993, rather than March 21, 1993. The law federal law. also modifies the advertising rules relating to signs on the premises of an institution, and makes a technical change to the provision dealing with notices required to be given to existing account holders. In addition, Supplement I to Part 226—{Amended] the Board is making two minor changes to the regulation and providing guidance on several issues that 8. In Supplement I to part 226, under the heading have been raised by institutions since publication of "19(b) Certain variable-rate transactions," comment the final regulation in September 1992. 19(b)(2)(xi)-l is amended by revising the first sentence Effective March 21, 1993, 12 C.F.R. Part 230 is to read as follows: amended as follows: Paragraph 19(b)(2)(xi). Part 230—Truth in Savings 1. Demand feature. If a variable-rate loan subject to 1. The authority citation for part 230 continues to read section 226.19(b) requirements contains a demand as follows: feature as discussed in the commentary to section 226.18(i), this fact must be disclosed. * * * Authority: 12 U.S.C. 4301. 2. Section 230.2 is amended by revising the second Supplement I to Part 226—{Amended] sentence in paragraph (a) to read as follows: 8. In Supplement I to part 226, under the heading Section 230.2—Definitions "Appendix G—Open-end model forms and clauses," comment 4 to Appendix G is amended by adding a new sentence at the end to read as follows: (a) * * * The term does not include an existing account held by an unincorporated nonbusiness association of 4. Models G-5 through G-9. * * * See the commentary natural persons prior to June 21, 1993, unless the to section 226.2(a)(25) regarding the specificity of the association notifies the institution that it meets the security interest disclosure for model form G-7. definition of "consumer." 3. Section 230.4 is amended by revising the first and Supplement I to Part 226—{Amended] second sentences in paragraph (c)(1) to read as follows: 9. In Supplement I to part 226, under the heading "Appendix H— Closed-end model forms and clauses," Section 230.4—Account disclosures. comment 11 to Appendix H is amended by adding a new sentence at the end to read as follows: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 499 (c) * * * Depository institutions shall provide a notice 6. In Appendix A to Part 230, Part II is amended by to consumers who receive periodic statements and revising the first paragraph following the introductory who hold existing accounts of the type offered by the text, by adding a heading for a new section A after the institution on June 21, 1993. The notice shall be first paragraph following the introductory text, and by included on or with the first periodic statement sent on adding a new section B after Example (3) to read as or after June 21, 1993 (or on or with the first periodic follows: statement for a statement cycle beginning on or after that date). * * * APPENDIX A To PART 230—ANNUAL 4. Section 230.5 is amended by revising paragraph PERCENTAGE YIELD CALCULATION (a)(2)(ii) to read as follows: Section 230.5—Subsequent disclosures. (2) * * * Part II. Annual percentage yield earned for (ii) Check printing fees. Changes in fees assessed periodic statements for check printing. The annual percentage yield earned shall be calculated 5. Section 230.8 is amended by revising paragraph (e) by using the following formulas ("APY Earned" is to read as follows: used for convenience in the formulas): A. General formula * * * Section 230.8—Advertising. B. Special formula for use where periodic statement is sent more often than the period for which interest is compounded (e) Exemption for certain advertisements. Institutions that use the daily balance method to (1) Certain media. If an advertisement is made accrue interest and that issue periodic statements through one of the following media, it need not more often than the period for which interest is comcontain the information in paragraphs (c)(1), (c)(2), pounded shall use the following special formula: (c)(4), (c)(5), (c)(6)(ii), (d)(4), and (d)(5) of this section: APY Earned =100 {[1 + (i) Broadcast or electronic media, such as televi- (Interest earned/Balance) (Compounding)](365/Compoundin8) - 1} sion or radio; Days in period (ii) Outdoor media, such as billboards; or (iii) Telephone response machines. The following definition applies for use in this for- (2) Indoor Signs. mula (all other terms are defined under Part II): (i) Signs inside the premises of a depository insti- "Compounding" is the number of days in each tution (or the premises of a deposit broker) are not compounding period. subject to paragraphs (b), (c), (d) or (e)(1) of this Assume an institution calculates interest for the section unless they face outside the premises and statement period using the daily balance method, pays can reasonably be viewed by a consumer only a 5.00% interest rate, compounded annually, and from outside the premises. provides periodic statements for each monthly cycle. (ii) If a sign exempt by this paragraph states a rate The account has a daily balance of $1,000 for a 30-day of return, it shall: statement period. The interest earned is $4.11 for the (A) State the rate as an "annual percentage period, and the annual percentage yield earned (using yield," using that term or the term "APY." The the special formula above) is 5.00%: sign shall not state any other rate, except that the interest rate may be stated in conjunction APY Earned = 100 {[1 + (4.11/1,000)(365)](365/365) - 1} with the annual percentage yield to which it 30 relates. (B) Contain a statement advising consumers to APY Earned = 5.00% contact an employee for further information about applicable fees and terms. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

500 Federal Reserve Bulletin • May 1993 FINAL RULE—AMENDMENT TO REGULATION Q Notice of the applications, affording interested persons an opportunity to submit comments, has been The Board of Governors is amending 12 C.F.R. Part published (57 Federal Register 58,022 (1992)). The 217, its Regulation Q (Prohibition Against the Payment time for filing comments has expired, and the Board of Interest on Demand), in conjunction with its amend- has considered the applications and all comments ments to Regulation DD, which implements the Truth received in light of the factors set forth in section 3(c) in Savings Act. Deletion of the advertising rules in of the BHC Act. Regulation Q is delayed by three months until June 21, Comerica, with approximately $27.8 billion in con- 1993. Regulation Q retains provisions prohibiting the solidated assets, controls seven banks and one thrift payment of interest on demand deposits. located in Michigan, California, Florida, Illinois, Ohio, Effective June 21, 1993, Regulation Q sets forth Delaware, and Texas.2 Comerica is the ninth largest disclosure and advertising rules for interest on depos- commercial banking organization in Texas, controlling its by member banks and certain other institutions. deposits of approximately $2.0 billion, representing Institutions that begin compliance with Regulation DD 1.4 percent of total deposits in commercial banks in prior to the mandatory compliance date may comply the state. Nasher is the 18th largest commercial banksolely with the advertising provisions of Regulation ing organization in Texas, controlling deposits of ap- DD, and not the advertising and disclosure provisions proximately $633 million, representing less than 1 perin Regulation Q. cent of total deposits in commercial banks in the state. Upon consummation of the proposed transaction, Comerica would remain the ninth largest commercial banking organization in Texas, controlling deposits of $2.6 billion, representing 1.8 percent of total deposits ORDERS ISSUED UNDER BANK HOLDING in commercial banks in the state.3 COMPANY ACT Competitive, Financial, Managerial and Supervisory Orders Issued Under Section 3 of the Bank Considerations Holding Company Act Comerica and Nasher compete directly in the Dallas Comerica Incorporated banking market.4 Upon consummation of this pro- Detroit, Michigan posal, Comerica would become the fourth largest commercial bank or thrift organization ("depository Order Approving Acquisition of a Bank Holding institution") in the Dallas banking market, controlling Company deposits of $2.3 billion, representing approximately 7.4 percent of total deposits in the depository institu- Comerica Incorporated ("Comerica"), a bank holding tions in the market ("market deposits").5 After concompany within the meaning of the Bank Holding Company Act ("BHC Act"), and Comerica Texas Incorporated ("Comerica-Texas"), both of Detroit, 2. Asset and deposit data are as of June 30, 1992 and includes Michigan, have applied under section 3 of the BHC Comerica's acquisitions approved by the Board as of January 31, Act (12 U.S.C. § 1842) to acquire Nasher Financial 1993. These data do not include Comerica's credit card bank in Ohio Corporation ("Nasher"), and its wholly owned sub- which has received approval to operate as a full-service bank. 3. Deposit and market data are as of December 31, 1991. sidiary NorthPark National Corporation ("NNC"), 4. The Dallas banking market is approximated by Dallas County; both of Dallas, Texas, and thereby indirectly acquire the southwest quadrant of Denton County (including Denton and Lewisville); the southwest quadrant of Collin County (including NorthPark National Bank of Dallas, Dallas, Texas McKinney and Piano); the northern half of Rockwall County; the ("NorthPark Bank"). In connection with this applica- communities of Forney and Terrel in Kaufman County; Midlothian, tion, Comerica-Texas also has applied to become a Waxahachie and Ferris in Ellis County; and Grapevine and Arlington in Tarrant County, Texas. bank holding company by merging with Nasher and 5. Market deposit data are as of June 30,1991. Market share data are NNC. Upon consummation of the proposal, Comerica based on calculations in which the deposits of thrift institutions are proposes to merge NorthPark Bank into Comerica's included at 50 percent. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant subsidiary bank, Comerica Bank-Texas, Dallas, Texas competitors of commercial banks. See Midwest Financial Group, 75 ("Comerica Bank").1 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Currently, Comerica Bank is the fifth largest depository institution in the Dallas banking market, controlling $1.7 billion in deposits, 1. This merger is subject to review under the Bank Merger Act by representing 5.4 percent of market deposits. NorthPark Bank is the the Federal Deposit Insurance Corporation ("FDIC"), Comerica 10th largest depository institution in the market, controlling $627 Bank's primary federal regulator. million in deposits, representing 2.0 percent of market deposits. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 501 sidering Comerica's resulting market share, the num- estant also alleges that the banks illegally discriminate ber of competitors remaining in the market, the against ethnic minorities in making lending decisions relatively small increase in concentration as measured by citing data for the banks that has been filed under by the Herfindahl-Hirschman Index ("HHI"),6 and all the Home Mortgage Disclosure Act ("HMDA").9 The other facts of record, the Board concludes that con- Board has carefully reviewed the CRA performance summation of the proposal would not result in a records of Comerica, Nasher, and their subsidiary significantly adverse effect on competition in the Dal- banks, as well as all comments received, and all the las banking market or any other relevant banking other relevant facts of record, in light of the Statement market. of the Federal Financial Supervisory Agencies regard- The Board also concludes that the financial and ing the Community Reinvestment Act ("Agency CRA managerial resources and future prospects of Comer- statement").10 The Board also notes that similar alleica and Nasher, and their respective subsidiaries, and gations by the Protestant relating to Comerica's record the other supervisory factors that the Board must of performance under the CRA in Texas were extenconsider under section 3 of the BHC Act, are consis- sively reviewed in connection with the Board's recent tent with approval. approval of Comerica's application to acquire Hibernia National Bank in Texas, Dallas, Texas.11 Convenience and Needs Considerations Record of Performance Under the CRA In considering the application under section 3 of the BHC Act, the Board must consider the convenience A. CRA Performance Examinations and needs of the communities to be served and take into account the records of the relevant depository The Agency CRA Statement provides that a CRA institutions under the Community Reinvestment Act examination is an important, and often controlling, (12 U.S.C. § 2901 et. seq.) ("CRA"). The CRA re- factor in the consideration of an institution's CRA quires the federal financial supervisory agencies to record and that these reports will be given great weight encourage financial institutions to help meet the credit in the applications process.12 Comerica Bank received needs of the local communities in which they operate an overall "outstanding" rating in the examination of consistent with the safe and sound operation of such its CRA performance conducted by the FDIC as of institutions. To accomplish this end, the CRA requires October 18, 1991. In addition, Comerica's other six the appropriate federal supervisory authority to "as- subsidiary banks have received either "satisfactory" sess the institution's record of meeting the credit or "outstanding" ratings from their primary supervineeds of its entire community, including low- and sors in the most recent examinations of their CRA moderate-income neighborhoods, consistent with the performance.13 NorthPark Bank received a "satisfacsafe and sound operations of such institution," and to take that record into account in its evaluation of bank holding company applications.7 with staff from Comerica Bank and NorthPark Bank, this protest was In connection with this application, the Board has withdrawn. 9. Protestant also raised concerns about the minority employment received comments from an organization ("Protesand outreach practices of Comerica Bank. Comerica disputes these tant") alleging that Comerica Bank and NorthPark allegations, and maintains that it actively promotes employment Bank have not reinvested into the communities that opportunities for minorities. Although the Board fully supports affirmative programs designed to promote equal opportunity in every they serve, and have failed to meet the credit and aspect of a bank's personnel policies and practices in the employment, needs of low- and moderate-income residents.8 Prot- development, advancement, and treatment of employees, the Board believes that the alleged deficiencies in Comerica Bank's general personnel and employment practices are beyond the scope of the factors that the Board may properly consider under the CRA or the 6. The HHI in the Dallas banking market would increase 22 points convenience and needs factor of the BHC Act. to 1402. Under the revised Department of Justice Merger Guidelines 10. 54 Federal Register 13,742 (1989). (49 Federal Register 26,823 (June 29, 1984)), a market in which the 11. Comerica Incorporated, 79 Federal Reserve Bulletin 31 (1993) post-merger HHI is between 1000 and 1800 is considered moderately (the "Hibernia Order"). concentrated. The Justice Department has informed the Board that a 12. Id. bank merger or acquisition generally will not be challenged (in the 13. Comerica's thrift subsidiary, Comerica Bank-Florida, Federal absence of other factors indicating anti-competitive effects) unless the Savings Bank, Clearwater, Florida ("Comerica-Florida"), representpost-merger HHI is at least 1800 and the merger increases the HHI by ing less than 1 percent of Comerica's consolidated assets, received a 200 points. The Justice Department has stated that the higher than "needs to improve" rating from the Office of Thrift Supervision normal HHI thresholds for screening bank mergers for anti-competi- ("OTS") at its most recent CRA performance examination as of tive effects implicitly recognize the competitive effect of limited- February 1992. As discussed in the Hibernia Order, Comerica immepurpose lenders and other non-depository financial entities. diately initiated a number of steps to address areas for improvement 7. 12 U.S.C. § 2903. that were identified in the examination. In addition, Comerica will 8. The Board received another protest raising similar allegations open an office of its mortgage company subsidiary in Florida, and will regarding NorthPark Bank's record under the CRA. After meeting offer special mortgage and home improvement products to low- and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

502 Federal Reserve Bulletin • May 1993 tory" rating for CRA performance in its most recent accounts, and small business loans are regularly adexamination from the Office of the Comptroller of the vertised in minority publications and on billboards Currency ("OCC") in December 1991. located in low- and moderate-income areas. In addition, the bank plans to offer both English and Spanish B. Corporate Policies language versions of support materials such as brochures and rate sheets. Comerica Bank also has estab- As determined in the Hibernia Order, Comerica Bank lished a Speakers Bureau as a further means to provide has in place the types of policies outlined in the credit and banking information to individuals and Agency CRA Statement that contribute to an effective community groups. Comerica Bank also proposes that CRA program, and these policies and programs will be its Community Development Lending Group will meet implemented following NorthPark Bank's merger with with various neighborhood groups to promote eco- Comerica Bank. For example, the board of directors nomic and community development. of Comerica has adopted a written CRA plan for In addition, Comerica Bank has contracted with a 1991-1993, which includes goals, objectives, and a minority-owned firm to advise the bank on marketing methodology for self-assessment. The Comerica board its services and to implement a comprehensive maralso has established a CRA Committee, and a Public keting plan for low- and moderate-income areas. This Responsibility Committee, to compile and issue status marketing plan will focus on mortgage lending, lending reports, review technical CRA compliance, conduct to small businesses, and improving community awareannual reviews of the distribution of credit products, ness of the bank's services. A substantial portion of submit annual CRA statements to the board for re- Comerica Bank's marketing budget for 1993 will be view, and provide the board with a summary of CRA dedicated to low- and moderate-income areas in southactivities. Comerica Bank also conducts regular CRA ern Dallas, and represents a significant increase over self-assessments, and the bank's board of directors the amount spent in these areas in 1992. actively supports CRA training for all bank personnel Comerica Bank also has developed a Community in the form of workshops, seminars, in-house training, Outreach Plan to improve relationships with commuand a periodic CRA newsletter. nity and government organizations and has already held meetings with a number of community organiza- C. Ascertainment and Marketing tions. Comerica Bank also plans to create a CRA status report that will report on the bank's CRA efforts As discussed in the Hibernia Order, Comerica Bank and shared with community groups. ascertains community credit needs through a multilayered approach to community outreach. For exam- D. Lending and Other Activities ple, the bank's management has ongoing, substantive contacts with numerous civic, religious, neighbor- In the Hibernia Order, the Board found that Comerica hood, minority, and small business organizations. Co- Bank supports a number of governmental programs merica Bank also has an extensive officer call program designed to help meet the housing-related credit needs at each branch. Approximately 25 percent of all calls of low- and moderate-income borrowers, including the are made by officers from the four branches located in Dallas Affordable Housing Partnership, ("DAHP") low- and moderate-income areas of the bank's delin- which provides low-interest mortgages to low-income eated market. In addition, the bank has developed, first-time homebuyers. and will soon distribute, a credit needs survey. In addition, Comerica Bank has provided over Comerica Bank markets its products and services $1 million to Common Ground Community Economic through a variety of advertising activities, including Development Corporation to provide financing for neighborhood and regional newspapers, local radio single-family residences. Comerica Bank has supstations, billboards, statement stuffers, and lobby ported this organization since its inception over ten signs. All of the bank's marketing and advertising years ago. Comerica Bank also supports the Southern programs are reviewed, approved, and monitored by Dallas Development Corporation both financially and the board and senior management of the bank. For through service on its board of directors, and has example, home improvement loans, budget checking recently committed to assist the Corporation in the funding of development loans over a four-year period. Comerica Bank continues to participate in the U.S. moderate-income customers. These loan products feature more flex- Department of Housing and Urban Development's ible underwriting standards than existing credit products offered by 203K Program, through which it has funded loans for Comerica-Florida. The OTS has reviewed this plan and informed the the rehabilitation of properties. In South Dallas and Board that Comerica-Florida is making satisfactory progress in improving its CRA performance record. West Dallas, Comerica Bank has provided financing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 503 for more than 60 houses owned by a neighborhood- ethnic group in certain areas of Dallas. The Protestant based, non-profit organization, and rented to low- has alleged illegal discriminatory lending practices on income residents. Since the Hibernia Order, the bank the basis of these data. has received approval to become a lender under the Because all banks are obligated to ensure that their Title I program for home improvement loans, and lending practices are based on criteria that ensure not product development and training for this program are only safe and sound lending, but also ensure equal underway. The bank's new Affordable Housing Mort- access to credit by creditworthy applicants regardless gage Program, which began in August of 1992 and of race, the Board is concerned when the record of an operates in the Wynnewood branch of South Dallas, institution indicates disparities in lending to minority has provided a significant number of mortgages since applicants. The Board recognizes, however, that its implementation, and Comerica estimates the HMDA data alone provide only a limited measure of 82 percent of the mortgages originated under this any given institution's lending in the communities that program were provided to minorities. In addition, the the institution serves. The Board also recognizes that bank has participated in various other programs di- HMDA data have limitations that make the data an rected at economic revitalization of various low- and inadequate basis, absent other information, for conmoderate-income areas of the Dallas metropolitan clusively determining whether an institution has enarea. Comerica Bank also has begun to implement an gaged in illegal discrimination on the basis of race or Auto Improvement Loan Program that is being tested ethnicity in making lending decisions. in certain low-income branches to provide loans for The most recent examinations for CRA compliance auto repairs. and performance conducted by bank supervisory With respect to small business lending, Comerica agencies found no evidence of illegal discrimination or Bank participates in a number of Small Business Ad- other illegal credit practices at Comerica Bank or ministration loan programs. Comerica Bank also has NorthPark Bank.15 In the case of Comerica Bank, the sponsored numerous business conferences and semi- examination specifically considered the results of the nars for individuals interested in starting small busi- 1990 HMDA data and the loan policies and procedures nesses. The bank uses these occasions to discuss credit which governed the loan applications that were the requirements and standards for small- to medium-sized source for the 1991 data. companies in need of bank financing. Comerica Bank also has taken steps designed to To strengthen its CRA performance, especially in improve its lending to minority and low- and moderatelow- and moderate-income areas, Comerica Bank has income neighborhoods in Dallas. For example, Comerdeveloped a marketing plan that will include commu- ica Bank's management determined that the bank nity participation and an officer calling program. In should review its minority mortgage lending practices, this regard, the bank has made a number of calls in and established a task force to review the bank's low- and moderate-income areas through its General mortgage products and recommend additional credit Banking Calling Program and Small Business Lenders products, if needed, to facilitate lending to low- and Program. Comerica Bank has also established focus moderate-income customers. To help improve its mortgroups to evaluate small business lending needs and gage lending program, Comerica Bank has also adopted consumer loan needs within the bank's delineated a mortgage program to promote affordable housing in service community. low- and moderate-income areas in Dallas. Since September, Comerica Bank has closed 16 loans under the E. HMDA Data and Lending Practices program and a number of other loans are in process. In the Hibernia Order, the Board reviewed the 1990 F. Conclusion Regarding Convenience and and 1991 HMDA data reported by Comerica Bank and Needs Factors has reviewed the data for NorthPark Bank as part of its review of this proposal.14 The HMDA data show The Board has carefully considered the entire record, disparities in the rates for housing-related loan appli- including the comment filed in this case, in reviewing cations, approvals, and denials that vary by racial or the convenience and needs factor under the BHC Act. 15. Both NorthPark Bank and Comerica Bank were cited for 14. Banks are required under the HMDA to report certain informa- technical noncompliance with the Equal Credit Opportunity Act tion regarding loan applications, approvals, and denials to the various ("ECOA") and the Fair Housing Home Loan Data System regulabanking agencies and the public. This information includes data on the tions. The primary regulators for each bank found that NorthPark race, gender, and income of individual loan applicants, as well as the Bank and Comerica Bank have adequate policies and procedures in location of the property securing the potential loan, and a description place to ensure compliance and there was no evidence of prohibited of the application. discriminatory or other illegal credit practices. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

504 Federal Reserve Bulletin • May 1993 Based on a review of the entire record of performance, and hereby is, approved. The Board's approval is including information provided by the Protestant and specifically conditioned upon compliance by Comerica by the banks' primary regulators, the Board believes with all the commitments made in connection with this that the efforts of Comerica Bank and NorthPark Bank application. The commitments and conditions relied to help meet the credit needs of all segments of the on by the Board in reaching this decision are both communities served by the banks, including low- and conditions imposed in writing by the Board in connecmoderate-income neighborhoods, are consistent with tion with its findings and decision, and as such may be approval. enforced in proceedings under applicable law. This The Board recognizes that the record compiled in approval is also conditioned upon Comerica receiving this application points to areas for improvement, es- all necessary Federal and state approvals. pecially in housing-related lending to minority and This transaction should not be consummated before low- and moderate-income borrowers. Comerica has the thirtieth calendar day following the effective date already initiated steps, since the Board's earlier deci- of this order, or later than three months after the sion, to strengthen the CRA performance of the in- effective date of this order, unless such period is sured institutions. Comerica's recent actions as well as extended for good cause by the Board or the Federal the outstanding CRA performance rating received by Reserve Bank of Chicago, acting pursuant to delegated Comerica Bank reflects Comerica's willingness to ad- authority. dress promptly areas where the improvements can be By order of the Board of Governors, effective made to help meet community credit needs. The Board March 1, 1993. believes that this record, and the initiatives proposed by Comerica, will help the resulting organization im- Voting for this action: Chairman Greenspan and Governors prove its CRA performance and address weaknesses Mullins, Angell, Kelley, La Ware, Lindsey, and Phillips. identified by Protestant. In this light, and on the basis of all of the facts of JENNIFER J. JOHNSON Associate Secretary of the Board record, including the Board's determinations in the Hibernia Order, the Board concludes that the conve- Eva Bancshares, Inc. nience and needs considerations, including the CRA Eva, Alabama performance records of Comerica Bank and North- Park Bank, are consistent with approval of this appli- Order Approving Formation of a Bank Holding cation. The Board expects Comerica Bank to imple- Company ment fully the CRA initiatives discussed in this Order, and contained in this application. Comerica Bank's progress in implementing these initiatives will be mon- Eva Bancshares, Inc., Eva, Alabama ("Applicant"), itored by the Federal Reserve Bank of Chicago, and in has applied, under section 3(a)(1) of the Bank Holding future applications by Comerica to expand its deposit- Company Act ("BHC Act") (12 U.S.C. § 1842(a)(1)), taking facilities.16 to become a bank holding company by acquiring all the voting shares of First Bank of Eva, Eva, Alabama Based on the foregoing, including the conditions and ("Bank"). commitments described in this Order and those made Notice of the application, affording interested perin this application, and all of the facts of record, the sons an opportunity to submit comments, has been Board has determined that this application should be, duly published (57 Federal Register 54,792 (1992)). The time for filing comments has expired, and the 16. Protestant requested that the Board hold a public meeting or Board has considered the application and all comhearing on this application. The Board is not required under section ments received in light of the factors set forth in 3(b) of the BHC Act to hold a hearing on an application unless the section 3(c) of the BHC Act. appropriate banking authority for the bank to be acquired makes a timely written recommendation of denial of the application. In this Applicant is a non-operating company formed for case, the OCC has not recommended denial of the proposal. the purpose of acquiring Bank in order to restructure Generally, under the Board's rules, the Board may, in its discretion, hold a public hearing or meeting on an application to clarify factual Bank's existing individual ownership into corporate issues related to the application and to provide an opportunity for form. Bank is the 122nd largest banking organization testimony, if appropriate. 12 U.S.C. §§ 262.3(e) and 262.25(d). The in Alabama, controlling approximately $13 million in Board has carefully considered this request. In the Board's view, interested parties have had a sufficient opportunity to present written deposits, representing less than 1 percent of total submissions, and have submitted substantial written comments that deposits in commercial banks in the state.1 Based on have been considered by the Board. On the basis of all the facts of record, the Board has determined that a public meeting or hearing is not necessary to clarify the factual record in these applications, or otherwise warranted in this case. Accordingly, the request for a public meeting or hearing on this application is hereby denied. 1. State banking data are as of December 31, 1991. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 505 all the facts of record, the Board has concluded that Alabama law also expressly provides that shareconsummation of this proposal would not result in a holders do not have preemptive rights if a corporasignificantly adverse effect on competition in any tion's charter denies such rights,7 and Applicant's relevant banking market. articles of incorporation specifically deny preemptive In connection with this proposal, the Board has rights to its shareholders. Because Bank is not issuing received comments from a shareholder of Bank any stock in connection with this proposal, any pre- ("Protestant") objecting to the transaction on several emptive rights held by its shareholders would not be grounds, including: activated by the proposed transactions. Protestant's (1) That the proposal would violate relevant Ala- argument based upon federal banking regulations also bama corporate statutes and federal banking regula- is inapplicable to this proposal because there is no tions;2 proposed redemption or purchase by Bank of its own (2) That Applicant lacks the financial resources stock. necessary to consummate the transaction, and will The Board notes that Bank currently is in satisfacnot be able to repay indebtedness incurred in con- tory financial condition, and Applicant's debt service nection with the proposal; and projections and pro forma debt-to-equity ratio are (3) That the competence and integrity of Applicant's reasonable and consistent with the Board's guidelines. and Bank's management are inconsistent with ap- In addition, Applicant's financing sources appear to be proval. adequate to meet Applicant's cash needs in connection with this proposal. In light of the foregoing consider- Protestant also maintains that the transaction provides ations and all the other facts of record, the Board has inadequate benefits to Bank and its shareholders, and concluded that the financial resources and future prosis less advantageous than alternative means of raising pects of Applicant and Bank are consistent with apcapital for Bank. proval of this proposal.8 Alabama law provides that corporate transactions The Board has carefully reviewed Protestant's alleinvolving banks are governed by the general business gations with respect to management, including allegacorporation law unless otherwise provided in the tions pertaining to improper insider loan transactions banking statute.3 The business corporation law pro- involving directors, in light of recent examinations vides that a share exchange must be approved by conducted by Bank's primary regulators, the Alabama shareholders as though it were a merger.4 Although Banking Department and the Federal Deposit Insurcorporate mergers in Alabama generally require ap- ance Corporation. On the basis of this review and all proval by a two-thirds vote of the shareholders, the the other facts of record, the Board has concluded that banking statute provides that bank mergers require Protestant's comments regarding management do not only a majority shareholder vote for approval.5 On the raise issues that warrant denial of the application,9 and basis of these provisions, the Alabama Banking Department has concluded that an Alabama-chartered bank and another corporation may engage in a share 7. Ala. Code § 10-2A-44. exchange upon approval by a majority vote of the 8. The Board also has carefully considered Protestant's comments Bank's stock.6 with respect to the benefits to be conferred upon Bank and its shareholders as a result of this proposal, and possible alternative methods of raising capital. Protestant has not suggested that the price or other terms of Applicant's proposed stock offering are inadequate or otherwise unfair to Applicant or Bank. Rather, Protestant believes 2. Specifically, Protestant alleges that: that Bank should issue additional common stock to its current (i) Alabama law requires a two-thirds vote of the shareholders to shareholders. Applicant has stated that its proposal will raise capital approve the transaction, while the proposal calls for a majority on terms highly favorable to Applicant, Bank, and their shareholders, vote; and that the proposed holding company structure will facilitate more (ii) The proposed purchase of new common stock by directors flexible capital-raising capabilities, the creation of a limited market for abridges the preemptive rights granted to Bank's shareholders shareholders wishing to dispose of their stock, and the organization's under Alabama law; and possible entrance into permissible nonbanking activities. In light of (iii) The transaction constitutes an evasion of federal regulatory these circumstances and other facts of record, the Board has conrestrictions against a bank's purchase of its own stock. cluded that Protestant's comments in this regard do not reflect 3. Ala. Code § 5-1A-6. See also Ala. Code § 10-2A-336. adversely on the factors the Board must consider under section 3(c) of 4. Ala. Code § 10-2A-171. the BHC Act. See Western Bancshares, Inc. v. Board of Governors, 5. Ala. Code § § 10-2A-142 and 5-7A-2. 480 F.2d 749 (10th Cir. 1973). 6. The Board has received an opinion to this effect from the Deputy 9. Some of Protestant's allegations, including allegations with Superintendent of the Alabama Banking Department. The Deputy respect to improper insider loan transactions and stock repurchases Superintendent is authorized by statute to issue such interpretations. by Bank, are not supported by the record of this application. Protes- See Ala. Code §§ 5-2A-8 and 5-2A-15(b) (providing that the superin- tant also objects to increased voting control by the board of directors tendent, and in his absence the deputy superintendent, shall issue and the exclusion of a dissenting Bank director from membership on written interpretations of banking laws, and that banks and their Applicant's board. These actions do not raise a legal bar to this officers and directors relying on such an interpretation shall be fully transaction, and the proposed management and directors of Applicant protected even if a court later rules that the interpretation is invalid). and Bank appear to be satisfactory. Other matters raised by Protes- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

506 Federal Reserve Bulletin • May 1993 that managerial considerations are consistent with Notice of the application, affording interested parapproval of this proposal. In addition, the Board has ties an opportunity to submit comments, has been concluded that convenience and needs considerations, published (57 Federal Register 43,458 (1992)). The as well as all other supervisory factors the Board must time for filing comments has expired, and the Board consider under section 3(c) of the BHC Act, also are has considered the application and all comments reconsistent with approval. ceived in light of the factors set forth in section 3(c) of Based on the foregoing and other facts of record, the BHC Act. and subject to and in reliance upon representations FCC, with approximately $3 billion in consolidated and commitments made by Applicant, the Board has assets, controls twelve banking subsidiaries in Arkandetermined that the application should be, and hereby sas, Oklahoma, Tennessee, and Texas.1 In Tennessee, is, approved. The Board's approval is specifically FCC is the 56th largest commercial banking organizaconditioned upon compliance by Applicant with all the tion, controlling deposits of $88.9 million, representing commitments made in connection with this application less than 1 percent of the total deposits in commercial and with the conditions referenced in this Order. For banking organizations in the state.2 First City is the purposes of this action, the commitments and condi- 136th largest commercial banking organization in Tentions relied on in reaching this decision shall be nessee, controlling deposits of $41.1 million, repredeemed to be conditions imposed in writing by the senting less than 1 percent of the total deposits in Board and, as such, may be enforced in proceedings commercial banking organizations in the state. Upon under applicable law. consummation of the proposed transaction, FCC The proposal shall not be consummated before the would become the 38th largest commercial banking thirtieth calendar day following the effective date of organization in the state, controlling $130 million in this Order, or later than three months after the effec- deposits, representing less than 1 percent of total tive date of this Order, unless such period is extended deposits in commercial banking organizations in the for good cause by the Board or by the Federal Reserve state. Bank of Atlanta, acting pursuant to delegated authority. Douglas Amendment By order of the Board of Governors, effective March 1, 1993. Section 3(d) of the BHC Act, the Douglas Amendment, prohibits the Board from approving an applica- Voting for this action: Chairman Greenspan and Governors tion by a bank holding company to acquire any bank Mullins, Angell, Kelley, La Ware, Lindsey, and Phillips. located outside of the bank holding company's home state, unless such acquisition is "specifically autho- JENNIFER J. JOHNSON rized by the statute laws of the State in which such Associate Secretary of the Board bank is located, by language to that effect and not merely by implication."3 FCC, whose home state is First Commercial Corporation Arkansas,4 seeks to acquire a bank in Tennessee. Little Rock, Arkansas Tennessee has enacted a reciprocal interstate banking statute that permits an out-of-state bank holding com- Order Approving Acquisition of a Bank Holding pany to acquire a bank in Tennessee if certain condi- Company tions are satisfied.5 Arkansas has a comparable inter- First Commercial Corporation, Little Rock, Arkansas ("FCC"), a bank holding company within the meaning 1. The banking subsidiaries of FCC include Security National Bank of the Bank Holding Company Act ("BHC Act"), has and Trust Company, Norman, Oklahoma, of which FCC owns 50 percent and another bank holding company owns 50 percent. applied pursuant to section 3(a)(3) of the BHC Act 2. State and market deposit data are as of June 30, 1991. (12 U.S.C. § 1842(a)(3)) to acquire all of the voting 3. 12 U.S.C. § 1842(d). 4. A bank holding company's home state is that state in which the shares of First City, Inc. ("First City"), and thereby operations of the bank holding company's subsidiaries were princiindirectly acquire First City National Bank ("First pally conducted on July 1, 1966, or the date on which the company Bank"), both of Memphis, Tennessee. became a bank holding company, whichever is later. 5. Under Tennessee's interstate banking statute, an out-of-state bank holding company may acquire a Tennessee bank or bank holding company if the laws of the state in which the acquiring bank holding tant, including allegations with respect to shareholder communica- company is located allow Tennessee bank holding companies to tions and asset quality, do not reflect so adversely on the factors the acquire banks and bank holding companies in that state, subject to any Board is required to consider under the BHC Act as to warrant denial conditions, restrictions, requirements, or other limitations that would of this proposal. The remaining managerial issue raised by Protestant apply to such acquisitions but would not apply to an in-state acquisiconcerns a director whose service on the boards of Bank and tion in that state. Tenn. Code Ann. §§ 45-12-102, -103. The Tennessee Applicant has been suspended in a manner satisfactory to the Board. statute also conditions entry on the requirement that the out-of-state Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 507 state banking statute.6 After careful review of the twelve subsidiary banks, including its lead bank, reprelevant statutes, and in light of the facts of record, the resenting approximately 96.5 percent of FCC's assets, Board conludes that FCC's acquisition of First City have received ratings of "outstanding" or "satisfactocomplies with the Tennessee interstate banking stat- ry" from their primary regulators in their most recent ute, and that Board approval of this proposal is not examinations for CRA performance.10 However, one prohibited by the Douglas Amendment. Approval of of FCC's subsidiary banks, First Commercial Bank, this proposal is conditioned upon FCC receiving all N.A., Memphis, Tennessee ("FCBM"), which conrequired state regulatory approvals. trols approximately 3.5 percent of FCC's assets, received two consecutive less than satisfactory exami- Competitive, Financial, Managerial, and nation ratings for CRA performance in 1991 and 1992 Supervisory Considerations from its primary regulator, the Office of the Comptroller of the Currency ("OCC").11 FCC and First City compete directly in the Memphis, The Board has carefully reviewed these examina- Tennessee, banking market.7 Based on all of the facts tions and the CRA performance of FCC and its subof record in this case, the Board concludes that sidiary banks, as well as First Bank, in light of the consummation of this proposal would not have a CRA, the Board's regulations, and the jointly issued significantly adverse effect on competition or the con- Statement of the Federal Financial Supervisory Agencentration of banking resources in any relevant bank- cies Regarding the Community Reinvestment Act ing market.8 Considerations relating to the financial ("Agency CRA Statement").12 The Board previously and managerial resources and future prospects of has stated that applicants should address their CRA FCC, its subsidiary banks, and First Bank, and other responsibilities and have the necessary policies in supervisory factors that the Board is required to place and working well before they file an applicaconsider under section 3 of the BHC Act, also are tion.13 In this regard, actions taken by FCC and FCBM consistent with approval of this application. to improve the CRA performance of FCBM have been carefully considered in this application.14 Convenience and Needs Considerations In reviewing this application, the Board also is re- 10. First Commercial Bank, N.A., Little Rock, Arkansas, received quired to consider the convenience and needs of the a "satisfactory" performance rating from the OCC on July 6, 1992; community to be served and take into account the First National Bank of Russellville, Russellville, Arkansas, received an "outstanding" rating from the OCC on July 6, 1992; Morrilton records of performance of FCC and its subsidiary Security Bank, N.A., Morrilton, Arkansas, received a "satisfactory" banks, as well as First City, under the Community rating from the OCC on July 6, 1992; First National Bank of Conway, Conway, Arkansas, received a "satisfactory" rating from the OCC on Reinvestment Act (12 U.S.C. § 2901 et. seq.) May 4, 1992; Benton State Bank, Benton, Arkansas, received an ("CRA").9 The Board notes that eleven of FCC's "outstanding" rating from the FDIC on December 30, 1990; Arkansas Bank and Trust Company, Hot Springs, Arkansas, received a "satisfactory" rating from the FDIC on January 13, 1987; Security Bank, Harrison, Arkansas, received an "outstanding" rating from the FDIC bank holding company not hold more than I6V2 percent of the total on June 5, 1991; and Farmers and Merchants Bank and Trust deposits held by all federally-insured financial institutions located in Company, Rogers, Arkansas, received a "satisfactory" rating from Tennessee. Tenn. Code Ann. § 45-2-1405. Under this proposal, FCC the FDIC on November 23, 1990; Citizens First National Bank of would hold less than 1 percent of the federally-insured deposits in Tyler, Tyler, Texas, received a "satisfactory" rating from the OCC on Tennessee. February 7, 1991; Lufkin National Bank, Lufkin, Texas, received a 6. Ark. Code Ann. §§ 23-32-1802, -1804. "satisfactory" rating from the OCC on February 28, 1991; Security 7. The Memphis, Tennessee, banking market is approximated by National Bank and Trust Company, Norman, Oklahoma, received a Shelby and Tipton Counties in Tennessee, De Soto and Tate Counties "satisfactory" rating from the OCC on June 26, 1990. in Mississippi, and Crittenden County in Arkansas. 11. FCBM received a "needs to improve" rating in its first 8. In the Memphis, Tennessee, banking market, FCC would become examination in August 1991. At its next examination, in May 1992, the tenth largest commercial banking organization, and the Herfind- FCBM showed improvement in several categories, including ascerahl-Hirschman Index ("HHI") would increase by 1 point to 1005. tainment of community credit needs, geographic distribution and Under the revised Department of Justice Merger Guidelines, 49 record of opening and closing offices, and discrimination and other Federal Register 26,823 (June 29, 1984), a market in which the illegal credit practices, but still received a "needs to improve" rating post-merger HHI is between 1000 and 1800 is considered moderately overall. concentrated. The Justice Department has informed the Board that a 12. 54 Federal Register 13,742 (1989). bank merger or acquisition generally will not be challenged (in the 13. First Interstate BancSystem of Montana, Inc., 77 Federal absence of other factors indicating anticompetitive effects) unless the Reserve Bulletin 1007 (1991); Agency CRA Statement, 54 Federal post-merger HHI is at least 1800 and the merger increases the HHI by Register at 13,743. more than 200 points. 14. The Board also has received a comment from the Mid-South 9. The CRA requires the appropriate federal supervisory authority Peace and Justice Center ("Protestant") criticizing the efforts of to "assess the institution's record of meeting the credit needs of its FCBM to market its credit products to low- and moderate-income entire community, including low- and moderate-income neighbor- neighborhoods and the disparities in the rates of housing-related loan hoods, consistent with the safe and sound operation of such institu- applications, and approvals and denials thereof, among residents of tion," and to take this record into account in its evaluation of bank low- and moderate-income neighborhoods and other neighborhoods. holding company applications. 12 U.S.C. § 2903. In support of its criticisms, Protestant cited HMDA data for 1990 and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

508 Federal Reserve Bulletin • May 1993 The record in this case indicates that FCBM was the 1992 examination that these steps had resulted in chartered in June 1990 when FCC acquired the main an improvement in FCBM's CRA program, and upoffice and three branches of a failed thrift institution, graded FCBM's rating to satisfactory in three of five and that substantial efforts were required of the board categories of CRA performance. This second examiof directors and management of FCBM during its first nation occurred in conjunction with the CRA examimonths of operation to accomplish the transition from nation of all national bank subsidiaries of FCC. In this receivership. In April 1991, the FCC compliance man- regard, the record in this case indicates that substanagement department began working with the FCBM tial improvement in FCBM's CRA performance was board of directors concerning CRA compliance mat- accomplished in the nine months that elapsed between ters. The FCC director of loan review and compliance the two examinations. management met with the FCBM board of directors In response to the 1992 examination, FCBM has and conducted a training session concerning CRA and implemented, and has committed to implement, varithe roles of directors, officers, and employees in ous measures to address the identified weaknesses in achieving compliance. The board of directors ap- its CRA program. The board of directors, with the pointed itself to be the CRA compliance committee of assistance of the FCC compliance department, the bank, adopted a ten-point plan developed by FCC adopted a new action plan. At the suggestion of the for implementing an effective CRA program, and ap- OCC, a new, smaller community delineation was pointed a CRA compliance officer. In August 1991, in adopted, which includes all neighborhoods, including connection with the application of FCBM to relocate low- and moderate-income neighborhoods, within a its main office, the OCC conducted its initial examina- 3Vi mile radius of the main office and each branch tion of FCBM for CRA performance. office, within which approximately 70 percent of all its In response to the 1991 examination, the board of current loans were made. Banking hours have been directors of FCBM requested the further assistance of extended, and the bank plans to convert a branch FCC to develop a written action plan addressing the serving a large area of low- to moderate-income neighmajor areas of criticism. The action plan included borhoods into a full-service facility by hiring a lending specific performance goals and target dates, and FCC officer for the location. FCBM's officer call program required FCBM to submit quarterly reports concern- has been modified to place greater emphasis on maring its compliance with the action plan. In addition, the keting efforts, and the bank's general advertising, FCC compliance management department conducted which formerly was limited to a certificate of deposit an on-site review of FCBM's CRA compliance pro- campaign, now also features general deposit and credit gram in November 1991 and March 1992, and provided services. The marketing budget for 1993 includes additional training in March 1992. Examiners found in increased funds for CRA-related marketing, which will include newspapers, including a minority-oriented weekly, radio, and direct mail. Home equity credit 1991. The HMDA data cited by Protestant, however, actually repre- lines and a home improvement loan product oriented sents first mortgage home lending in the Memphis, Tennessee, banking market by First Commercial Mortgage Company ("FCMC"), the to low- and moderate-income borrowers will be feamortgage lending subsidiary of FCC's lead bank, First Commercial tured.15 In response to mail survey results, a low cost Bank, N.A., Little Rock, Arkansas. The HMDA data for FCMC checking account and student loans have been added. indicate disparities in rates of housing-related loan applications, and in approvals and denials, that vary by racial and economic group in the In addition, a new chief lending officer, with extensive areas served by FCMC. These disparities appear to be less than those experience in commercial lending, has been hired to of other lenders in the Memphis area. replace an officer whose experience was in indirect Because all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending, consumer automobile lending. but also ensure equal access to credit by creditworthy applicants FCBM also has made efforts since the 1992 examregardless of race, the Board is concerned when the record of an institution indicates disparities in lending to minority applicants. The ination to improve its involvement in community Board recognizes, however, that HMDA data alone provide only a development. The bank has increased its contacts limited measure of any given institution's lending in the communities among government programs and local organizathat the institution serves. The Board also recognizes that HMDA data have limitations that make the data an inadequate basis, absent other tions, including the Multi-Bank Community Develinformation, for conclusively demonstrating whether an institution opment Corporation, the Greater Memphis Redevelhas engaged in illegal discrimination on the basis of race or ethnicity in making lending decisions. FCMC was the subject of a special examination by the OCC in 1992 based on the discrepancy in its 1990 HMDA data between its minority and non-minority applicant denial 15. In this regard, FCBM has introduced the LMI Home Improverates, and the OCC found no policies, procedures, or practices that ment Loan, which features no origination fees or points, an interest indicated that illegal discrimination was occurring. Moreover, to rate below the average rate for home improvement loans, and a address the low levels of loan applications from minorities, FCBM has minimum loan amount of $500. This product was developed in recently instituted enhanced marketing and ascertainment efforts response to mail survey results. It will be featured in the bank's described in this Order in minority and low- and moderate-income sponsor identification messages during a home improvement program neighborhoods. broadcast on local television. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 509 opment Authority, the Memphis Housing and Based on all of the facts of record, including the Development Association, St. Mary's Manassas Al- representations and commitments made by FCC and abama Revitalization Team ("SMART"), and Habi- FCBM in this case, the Board concludes that convetat for Humanity. FCBM participates with Neighbor- nience and needs considerations, including the CRA hood Christian Center and the Center for performance records of FCC and its subsidiary banks Neighborhoods in providing credit counseling, and and First Bank, are consistent with approval of this works with SMART and Habitat for Humanity in application. FCC's progress in implementing these providing credit counseling and reconstruction fi- initiatives and commitments will be monitored by the nancing as well as participating in rehabilitation Federal Reserve Bank of St. Louis and in connection projects. The bank has agreed to participate with the with future applications to expand its deposit-taking Tennessee Housing Development Agency in a model facilities. program to increase the availability of home im- Based on the foregoing and other facts of record, the provement loans to low-income borrowers. The bank Board has determined that the application should be, is planning to be both a sponsor and participant in and hereby is, approved. The Board's approval of this Neighborfest, an annual neighborhood festival, and transaction is specifically conditioned upon compliis planning to conduct educational seminars directed ance with the representations and commitments made mainly to children. FCBM also holds $815,000 in by FCC and FCBM in connection with this applicalocal municipal bonds. tion, including their continued compliance with their FCBM's primary regulator has advised the Board commitments and initiatives relating to FCBM's CRA that the actions proposed by FCBM to continue to performance. For purposes of this action, the repreimprove its CRA performance, together with the com- sentations and commitments relied on in reaching this mitment of FCC to support those actions, should be decision are both considered commitments imposed in sufficient when effectively implemented to improve writing by the Board in connection with its findings FCBM's overall CRA performance rating. In this and decision and, as such, may be enforced in proceedings under applicable laws. The transaction apregard, the Board notes that another subsidiary bank proved in this order shall not be consummated before of FCC, Benton State Bank, Benton, Arkansas, rethe thirtieth calendar day following the effective date ceived a composite "needs to improve" rating from of this Order, unless such period is extended for good the FDIC in December 1990 for compliance with cause by the Board or the Federal Reserve Bank of consumer banking laws, and that corrective measures St. Louis, pursuant to delegated authority. were implemented there rapidly enough for the FDIC to find that the bank was in substantial compliance by By order of the Board of Governors, effective June 1991. The Board concludes, in view of all the March 10, 1993. facts of record, including the significant progress made by FCBM in addressing the deficiencies in its record of Voting for this action: Chairman Greenspan and Governors CRA performance during the interval between its 1991 Mullins, Angell, LaWare, and Phillips. Absent and not votand 1992 CRA examinations, the record in this case of ing: Governors Kelley and Lindsey. CRA compliance among FCC's other subsidiary banks, the additional initiatives implemented by JENNIFER J. JOHNSON FCBM, and the further steps that FCC and FCBM Associate Secretary of the Board have committed to take since the 1992 CRA examination, that, on balance, the CRA performance record of First Independence Bancshares, Inc. FCBM is consistent with approval under the conve- Independence, Kansas nience and needs factor. The Board recognizes that the record compiled in this application points to areas Order Denying Formation of a Bank Holding that continue to require improvement in the CRA Company performance of FCBM. FCC has implemented effective CRA programs at its other subsidiary banks, as reflected in the CRA examination reports of these First Independence Bancshares, Inc., Independence, institutions, and the Board believes that FCC and Kansas ("Applicant"), has applied under section FCBM have taken strong steps to ensure that the 3(a)(1) of the Bank Holding Company Act ("BHC deficiencies in FCBM's record of CRA performance Act") (12 U.S.C. § 1842(a)(1)) to acquire at least will be redressed. The Board expects FCC and FCBM 80 percent of the voting shares of First National Bank, to implement fully the CRA initiatives and commit- Independence, Kansas ("Bank"), and thereby bements discussed in this order and contained in its come a bank holding company within the meaning of application. the BHC Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

510 Federal Reserve Bulletin • May 1993 Notice of the application, affording interested per- quests for information by the Board, and, in one sons an opportunity to submit comments, has been instance, information that conflicted with representapublished (57 Federal Register 43,458 (1992)). The tions made to another federal banking regulator on time for filing comments has expired, and the Board financial and managerial matters material to the has considered the application and all comments re- Board's evaluation under the BHC Act. ceived in light of the factors set forth in section 3(c) of Considerations relating to competitive factors, fithe BHC Act. nancial resources and future prospects, and the con- Applicant is a nonoperating corporation formed for venience and needs of the community do not lend the purpose of becoming a bank holding company sufficient weight to warrant approval of this applicathrough the acquisition of Bank.1 Bank is the 443d tion. largest commercial banking organization in Kansas, Accordingly, for these reasons and based on all the controlling deposits of $8.7 million, representing less facts of record, it is the Board's judgment that apthan 1 percent of the total deposits in commercial proval of this application is not warranted and that the banks in the state.2 application should be, and hereby is, denied. In reviewing an application under section 3(c) of the By order of the Board of Governors, effective BHC Act, the Board must consider several factors, March 15, 1993. including the financial and managerial resources and future prospects of the company or companies and the Voting for this action: Chairman Greenspan and Governors banks involved in the proposal.3 In considering the Mullins, Angell, La Ware, Lindsey, and Phillips. Absent and not voting: Governor Kelley. managerial resources of a bank holding company, the Board shall consider the competence, experience, and WILLIAM W. WILES integrity of the officers, directors, and principal share- Secretary of the Board holders of a bank holding company, including their record of compliance with applicable laws and regulations.4 The Board's regulations also provide that the Westamerica Bancorporation San Rafael, California Board will consider a bank holding company's ability to serve as a source of financial and managerial strength to its subsidiary banks.5 Order Approving Merger of Bank Holding Companies As required by the BHC Act, the Board has reviewed the experience, competence, and integrity of Westamerica Bancorporation, San Rafael, California the officers, directors, and principal shareholders of ("Westamerica"), a bank holding company within the Applicant. Based on this review, including review of meaning of the Bank Holding Company Act ("BHC relevant examination reports, information obtained Act"), has applied pursuant to section 3 of the BHC from other federal and state banking authorities, and Act (12 U.S.C. § 1842) to merge with Napa Valley information provided by the management and princi- Bancorp, Napa, California ("Napa"), and thereby pal shareholder in this case, the Board believes manacquire indirectly Napa Valley Bank, Napa, California agerial factors are not consistent with approval of this ("Napa Bank"), Bank of Lake County, N.A., Lakeapplication. In reaching this conclusion, the Board has port, California ("Lake Bank"), Sonoma Valley Bank, considered that Applicant and certain shareholders of Sonoma, California ("Sonoma Bank"), and Suisun Applicant have provided inaccurate responses to re- Valley Bank, Fairfield, California ("Suisun Bank").1 Notice of the application, affording interested persons an opportunity to submit comments, has been 1. The proposal primarily represents a reorganization of existing duly published (57 Federal Register 55,257 (1992)). ownership interests. The time for filing comments has expired, and the 2. State deposit data are as of December 31, 1991. 3. 12 U.S.C. § 1842(c). In interpreting the Board's authority under Board has considered the application and all comsection 3 of the BHC Act, the Supreme Court has stated that the ments received in light of the factors set forth in Board is authorized to disapprove a formation of a bank holding section 3(c) of the BHC Act. company solely on the grounds of financial or managerial unsoundness, and that the authority of the Board is not limited to instances in Westamerica is the 14th largest commercial banking which the financial or managerial unsoundness would be caused or organization in California, controlling deposits of exacerbated by the proposed transaction. Board of Governors v. First Lincolnwood Corp., 546 F.2d 718 (7th Cir. 1976), modified, 560 F.2d 258 (7th Cir. 1977), rev'd on other grounds, 439 U.S. 234 (1978). 4. See 12 U.S.C. § 1842(c)(5), amended by section 210 of the Federal Deposit Insurance Corporation Improvement Act of 1991, 1. Upon consummation of this proposal, Westamerica would con- Pub. L. No. 102-242, § 210, 105 Stat. 2236, 2298; 12 C.F.R. trol all the voting shares of Napa Bank, 88 percent of the voting shares 225.13(b)(2). of Lake Bank, 50.1 percent of the voting shares of Sonoma Bank, and 5. 12 C.F.R. 225.4(a). all the voting shares of Suisun Bank. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 511 $1.2 billion, representing less than 1 percent of total under section 3 of the BHC Act, also are consistent deposits in commercial banks in the state.2 Napa is the with approval of this proposal. 37th largest commercial banking organization in California, controlling deposits of $519 million, represent- Convenience and Needs Considerations ing less than 1 percent of total deposits in commercial banks in the state. Upon consummation of the pro- In considering the convenience and needs of the posed transaction, Westamerica would become the communities to be served, the Board has taken into 13th largest commercial banking organization in Cali- account the records of the subsidiary banks of Westfornia, controlling deposits of $1.7 billion, represent- america and Napa under the Community Reinvesting less than 1 percent of total deposits in commercial ment Act (12 U.S.C. § 2901 et. seq. ) ("CRA"). The banks in the state. CRA requires the federal financial supervisory agen- Westamerica and Napa compete directly in the San cies to encourage financial institutions to help meet the Francisco-Oakland and Fairfield banking markets in credit needs of the local communities in which they California.3 Upon consummation of this proposal, operate consistently with the safe and sound operation Westamerica would remain the fifteenth largest com- of such institutions. To accomplish this end, the CRA mercial banking or thrift organization in the San Fran- requires the appropriate federal supervisory authority cisco-Oakland banking market, controlling less than to "assess the institution's record of meeting the credit 1 percent of the total deposits in depository institu- needs of its entire community, including low- and tions in the market ("market deposits").4 Westamer- moderate-income neighborhoods, consistent with the ica would become the third largest depository institu- safe and sound operation of such institution," and to tion in the Fairfield banking market, controlling take that record into account in its consideration of approximately 13.7 percent of market deposits. After applications.6 considering the number of competitors remaining in In this regard, the Board has received comments in each of these markets, the relatively small increase in support of Westamerica's CRA record from approxiconcentration as measured by the Herfindahl-Hir- mately 18 individuals, small businesses, and religious, schman Index ("HHI"),5 and other facts of record, cultural, and community groups. These commenters the Board concludes that consummation of this pro- have praised Westamerica's CRA efforts in such areas posal would not have a significantly adverse effect on as low-income housing, attentiveness to the needs of competition in the San Francisco-Oakland banking minorities, and community investments and activities. market, the Fairfield banking market, or any other The Board also has received comments from several relevant banking market. organizations ("Protestants") criticizing the CRA per- Considerations relating to the financial and manage- formance of Westamerica's only subsidiary bank, rial resources and future prospects of Westamerica, Westamerica Bank, N.A. ("Westamerica Bank").7 Napa, and their respective subsidiaries, and other Protestants' comments focus upon Westamerica supervisory factors the Board is required to consider Bank's record in meeting the credit needs of low- and moderate-income and minority communities, and specifically allege that the bank's performance is inade- 2. Deposit data are as of June 30, 1991. quate in the following areas: 3. The San Francisco-Oakland banking market is approximated by the San Francisco-Oakland, California RMA. The Fairfield banking (1) Outreach efforts, particularly in minority commarket is approximated by the Fairfield, California RMA. munities; 4. The Board previously has indicated that thrift institutions have (2) Marketing and services provided to minority become, or have the potential to become, major competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve communities, especially the African-American com- Bulletin 386 (1989); National City Corporation, 70 Federal Reserve munity; Bulletin 743 (1984). Thus, for purposes of this analysis, deposits of thrift institutions are included at 50 percent. (3) The amount of lending to low- and moderate- 5. Under the revised Department of Justice Merger Guidelines, 49 income households and minority businesses, con- Federal Register 26,823 (1984), a market in which the post-merger sumers, and homeowners; and HHI is between 1000 and 1800 is considered to be moderately concentrated. The Justice Department has informed the Board that a (4) Philanthropic contributions to underserved combank merger or acquisition generally will not be challenged (in the munities.8 absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by 200 points. The Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompeti- 6. See 12 U.S.C. § 2903. tive effects implicitly recognize the competitive effect of limited- 7. Protestants include The Greenlining Coalition, the West Coast purpose lenders and other non-depository financial entities. Black Publishers Association, The Observer Newspapers, and the Upon consummation of this proposal, the HHI in the San Fran- National Association for the Advancement of Colored People, Westcisco-Oakland banking market would increase by less than 1 point to ern Region. 1377. The HHI in the Fairfield banking market would increase by 8. Some of the Protestants also believe that Westamerica's and 93 points to 1515. Napa's board of directors and senior management include an inade- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

512 Federal Reserve Bulletin • May 1993 Some of the Protestants also have criticized the CRA in the applications process.12 The Board notes that record of Napa and its subsidiary banks, particularly Westamerica Bank received a "satisfactory" rating at its lead bank, Napa Bank, with respect to outreach the examination for CRA performance conducted by efforts, the involvement of the board of directors in the Office of the Comptroller of the Currency CRA-related matters, and housing-related lending to ("OCC") as of June 30, 1992 ("1992 Examination"). minorities and to low- and moderate-income families.9 The Board also notes that each of Napa's subsidiary The Board has carefully reviewed the CRA perfor- banks, including Napa Bank, received a "satisfactomance records of Westamerica Bank and Napa's sub- ry" CRA performance rating in 1992 at its most recent sidiary banks, as well as all comments received,10 examination by its primary regulator.13 Westamerica's responses to those comments, and all of the other relevant facts of record in light of the B. Corporate Policies CRA, the Board's regulations, and the Statement of the Federal Financial Supervisory Agencies Regarding Westamerica Bank has in place the types of policies the Community Reinvestment Act ("Agency CRA and programs that the Board and other federal bank Statement").11 supervisory agencies have indicated contribute to an effective CRA program, and Westamerica has stated Record of Performance Under the CRA that it will implement these policies and programs at all the banks to be acquired from Napa. Westamerica A. CRA Performance Examinations Bank's board of directors has adopted a formal CRA policy, and annually approves an official CRA state- The Agency CRA Statement provides that a CRA ment for the institution. Westamerica Bank also has in examination is an important and often controlling place a comprehensive CRA program, with responsifactor in the consideration of an institution's CRA bilities specifically assigned and involving all levels of record and that these reports will be given great weight the bank's management. This CRA program includes a detailed timetable outlining Westamerica Bank's conduct of CRA-related activities. Annually, the board of directors also approves the bank's CRA and marketing quate number of minorities, and that Westamerica has failed to award plans, which include CRA-related objectives, respona sufficient number of contracts to minority-owned businesses. While the Board fully supports affirmative programs designed to promote sibilities, and employee training schedules.14 The equal opportunity in every aspect of a bank's personnel policies and Community Needs Assessment Committee of senior practices, the Board believes that the alleged deficiencies in the banks' management and the Loan and Investment Committee general personnel practices, including third-party contracting matters, are beyond the scope of factors that may be assessed under the CRA of the board of directors convene monthly to develop or the BHC Act's convenience and needs factor. strategies to address identified banking needs and to 9. Several Protestants have requested the Board to delay the perform monitoring of CRA ascertainment and outprocessing of this application pending an audit by the Board of the CRA activities of Westamerica and Napa on the basis of 1990 census reach efforts and other activities. Westamerica Bank's data, and anticipated changes in CRA and other policies relevant to compliance manager regularly performs an assessment the application by new Administration officials. For the reasons discussed in this Order, the Board believes that there is a sufficient of CRA activities which includes geographic distriburecord to permit an assessment of all the statutory factors, including tion studies and analyses of the disposition of credit considerations relating to the convenience and needs of the commu- applications. In addition to general bankwide policies nities to be served, required to be considered under the BHC Act, and therefore that delay in processing this application is unwarranted. and programs, the institution prepares a Regional Protestants also believe that notice of this application should have Community Relations Plan for each of the bank's been published in minority, including Spanish-language, media. The service areas.15 Board's rules require that notice of an application and a public comment period be published in a newspaper of general circulation in At the 1992 Examination, the OCC concluded that the communities in which the head offices of the applicant (or its largest subsidiary bank) and the banks to be acquired are located, as the board of directors of Westamerica Bank provided well as publication in the Federal Register. 12 C.F.R. 225.14(b)(2) and adequate policy oversight and monitoring for the 262.3(b). These publication requirements ensure that interested members of the community are afforded an adequate opportunity to present their views to the Board. 10. The Board notes that it has considered all comments submitted 12. 54 Federal Register at 13,745. in this case that were received on or before February 26, 1993. 13. These examinations were conducted as follows: 11. 54 Federal Register 13,742 (1989). (1) Napa Bank (FDIC as of June 15, 1992); In connection with its review of the convenience and needs factor (2) Lake Bank (OCC as of May 31, 1992) ; under the BHC Act, the Board also has taken into account the (3) Sonoma Bank (FDIC as of August 5, 1992); and financial condition of Westamerica, Napa, and their respective sub- (4) Suisun Bank (FDIC as of April 30, 1992). sidiary banks, including matters relating to federal regulatory actions 14. The CRA plan is disseminated to all branches through the bank's issued with respect to the Napa organization in 1992. These regulatory Community Banking CRA Resource Handbook. actions restrict the operations of the Napa organization in various 15. The only exceptions are in San Francisco, where the bank has a respects, including prohibiting the payment of dividends by Napa and limited presence, and in Marin County, where Westamerica's familplacing restrictions on dividend payments by Napa Bank. iarity with the area does not require regional planning. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 513 bank's CRA activities.16 In general, the OCC indicated and deposit and loan penetration prepared by a conthat senior management is committed to the bank's sulting firm engaged by the bank. CRA responsibilities. The 1992 Examination also indi- The 1992 Examination commended the marketing cated that the board of directors and employees of aspects of the bank's extensive outreach program. In Westamerica Bank are actively involved with local particular, the examination concluded that Westamercommunity organizations, including groups with direct ica Bank has made reasonable marketing efforts to relevance to CRA activities through a focus on devel- ensure that all segments of its delineated communities, opment and redevelopment efforts. including low- and moderate-income areas, are informed of the bank's products and services, and noted C. Ascertainment and Marketing Efforts that the Community Needs Assessment Committee provides for sound consideration of CRA-related con- The 1992 Examination concluded that Westamerica cerns in marketing efforts. Bank has made strong efforts to ascertain the credit Westamerica Bank markets its products and serneeds of the bank's delineated communities. Senior vices in a wide variety of newspaper publications management has instituted a formal community out- evenly distributed throughout its service areas, includreach program,17 and is actively involved in outreach ing bilingual and local neighborhood media. The 1992 efforts. Branch employees are required to have ongo- Examination noted that the bank's advertising copy ing, meaningful contact with civic, minority, religious, reflects a concentration on business, mortgage, and and small business groups, and at least regular contact consumer loan products, including flexible loan prodwith nonprofit and governmental housing organiza- ucts targeted to low- and moderate-income housetions.18 These contacts are documented by the bank's holds. After concluding that certain loan products Community Relations Officer and compliance depart- designed to meet the credit needs of low- and moderment, and form the basis for Westamerica Bank's ate-income households were not efficiently marketed comprehensive list of outreach sources, which is cen- through traditional media advertising and direct mail tered in the areas of affordable housing and redevel- campaigns, the bank began utilizing its contacts with opment. Branch employees document and report per- local community groups to help identify and educate ceived credit needs ascertained through this program the target market with respect to the bank's products. pursuant to instructions from senior management. Further targeted marketing efforts take the form of These community outreach efforts are supple- focus groups and banking clinics for low-income indimented by the bank's Regional Community Advisory viduals as well as Spanish-language advertising, bro- Boards, which are comprised of various community chures, and seminars.19 members who are able to advise the bank on its image Napa's subsidiary banks also were found to have and marketing and outreach programs throughout its made adequate ascertainment and marketing efforts by delineated communities. Community Roundtable their respective primary regulators. In this regard, the meetings sponsored by Westamerica Bank provide Board notes that the FDIC commended Napa Bank's another forum for open discussion of community programs for the initiation and reporting of community banking needs between representatives from the bank contacts, and concluded that these programs assisted and community organizations. In addition to these the bank in responding to local needs for affordable direct community contacts, bank management uses housing. In addition, Westamerica has stated that it various statistical and other objective means to ascer- will expand its CRA program, including specific astain local credit needs, including Comprehensive pects of its outreach efforts, to its new service com- Housing Affordability Strategy reports, coded census munities. tract maps, and analyses of regional demographic data D. Lending and Other Activities The 1992 Examination indicated that Westamerica 16. In this regard, the OCC noted that the board of directors Bank has made positive efforts in the areas of product receives quarterly summaries of CRA activities as well as monthly development and loan originations. In this regard, the compliance reports that include specific CRA-related information. OCC noted that the bank offers a variety of credit 17. The Board notes that the bank recently amended its community outreach program and related internal reports in order to emphasize products that reasonably address identified credit that minority and low-income individuals and related groups are needs, and that management has demonstrated flexiconsidered high priorities in the bank's CRA calling program. 18. In addition, Westamerica Bank employees, including its chief credit officer and credit administrator, its chief financial officer, and its marketing and public relations managers, meet with leaders of orga- 19. The Board notes that all branches in Hispanic areas of Westnizations who represent low-income populations within the bank's america Bank's service communities, including all branches in delineated communities. Sonoma County, employ at least one Spanish-speaking banker. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

514 Federal Reserve Bulletin • May 1993 bility in modifying products and underwriting criteria regarding community development and redevelopment to make the institution's services more widely avail- opportunities within its delineated service areas, and able throughout its delineated communities. The 1992 that the bank's participation in projects and programs Examination also concluded that loan activity is con- promoting economic revitalization and growth is apsistent with the organization's resources and the iden- propriate and consistent with its size and capacities. In tified credit needs of its communities, and that the this regard, the OCC commended the bank's initiative bank's loan portfolio contains a reasonable volume of in establishing low-income housing fund consortia. various types of loans, including small business, con- Westamerica Bank is the lead institution in one of sumer, and mortgage loans. these consortia, and participates in other private and In the area of family housing loans, Westamerica public housing programs throughout its service com- Bank offers, in addition to traditional construction and munities. In addition, Westamerica Bank has made mortgage loans, assistance in meeting special credit significant investments in the municipal bonds of its needs through its Community Access Loan ("CAL") local communities, and also has invested in the Cali- Program. This program addresses the needs of lower- fornia Equity Fund, which raises capital for lowincome credit applicants through more flexible under- income housing projects in the state.23 The bank also is writing standards, fixed interest rates, and lower active in underwriting municipal bond offerings, many monthly payment terms.20 Westamerica Bank also of which are targeted for housing projects, educational participates in government-sponsored housing loan enhancement, or other community development purprograms, including the Community Home Buyers poses, and contributes to affordable housing and eco- Program and the First Time Home Buyers Program, nomic and community development through loans to each of which is supported by the Federal National and investments in related social service agencies in its Mortgage Association ("FNMA").21 The bank also delineated communities. has extended a small volume of loans supported by the Napa's subsidiary banks also were found by their Federal Housing Administration and the Veterans respective primary regulators to have adequate rec- Administration. ords of marketing and originating loans to address In the area of commercial loans, Westamerica Bank identified community credit needs, including residenoffers several specialized loan products targeted to tial mortgage loans, home improvement loans, small small businesses, as well as more traditional types of business loans, and agricultural loans. In this regard, business credits.22 The 1992 Examination concluded the Board notes that the FDIC concluded that Napa that since the commencement of its Small Business Bank's loan volume was adequate in relation to the Administration ("SBA") loan program in 1991, the bank's resources and its communities' credit needs, bank has generated a favorable volume of loans sup- and also notes that the bank participates in various ported by this agency. The record of this application government-sponsored loan programs, including proindicates that the bank has approximately $12.7 mil- grams supported by the SBA, the Federal Housing lion in loans outstanding under the SBA 504 and 7(a) Administration, and the Veterans Administration. programs. Since mid-1992, Westamerica Bank also has offered long-term small business loans through two E. HMDA Data and Lending Practices Small Business and Microbusiness programs sponsored by the State of California, and the bank cur- The Board has carefully reviewed the 1991 data rently has approximately $700,000 in loans outstanding required to be reported under the HMDA for Westunder those programs. america Bank and Napa Bank, as well as Napa's The 1992 Examination also concluded that West- other subsidiary banks, in light of the comments america Bank's senior management is well-informed submitted by Protestants.24 These data show some disparities for certain communities in rates for hous- 20. The CAL Program is available for home equity, home improvement, and consumer loans. This program is designed to meet the credit needs of customers who do not qualify for standard loans because of their income levels. 21. Westamerica Bank has executed an agreement with FNMA 23. The record of this application indicates that Westamerica Bank providing for the delivery of $2 million in loans under the Community has committed $1 million to this low-income housing fund, and has Home Buyers Program, and has committed $500,000 under this made other substantial commitments to similar low-income housing program for low interest rate mortgages for a project in Petaluma, programs, as well as to the rehabilitation of low-income housing, California. several affordable housing projects, and other projects targeted to the 22. The Board notes that these specialized lending programs are housing needs of the elderly and the disabled. available for all small businesses, including small, minority-owned 24. HMDA reports based on 1990 census data will not be available businesses. until the 1992 HMDA reports are released in the fall of 1993. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 515 ing loan applications, approvals, and denials that low- and moderate-income neighborhoods, as well as vary by racial or ethnic group.25 all other convenience and needs considerations, are Because all banks are obligated to ensure that their consistent with approval of this application.26 lending practices are based on criteria that ensure not The Board expects the Westamerica banking orgaonly safe and sound lending, but also equal access to nization to continue its progress in addressing the credit by creditworthy applicants regardless of race or credit needs of low- and moderate-income and minorethnicity, the Board is concerned when the record of ity neighborhoods in its service communities, and to an institution indicates disparities in lending to minor- implement fully the CRA program discussed in this ity applicants. The Board recognizes, however, that Order. Westamerica's progress in these areas will be HMDA data alone provide only a limited measure of considered in future applications by Westamerica to any given institution's lending in the communities it expand its deposit-taking facilities. serves. The Board also recognizes that HMDA data Based on the foregoing and other facts of record, the have limitations that make the data an inadequate Board has determined that the application should be, basis, absent other information, for conclusively de- and hereby is, approved. This approval is specifically termining whether an institution has engaged in illegal conditioned upon compliance by Westamerica with all discrimination on the basis of race or ethnicity in of the commitments made in connection with this making lending decisions. application and with the conditions referenced in this The 1992 Examination found no evidence of illegal Order. For purposes of this action, the commitments discrimination or other illegal credit practices at Wes- and conditions relied on in reaching this decision shall tamerica Bank or Napa's subsidiary banks. In this be deemed to be conditions imposed in writing by the regard, the Board notes that the OCC reviewed geo- Board and, as such, may be enforced in proceedings graphic distribution analyses of Westamerica Bank's under applicable law. credit applications and denials, and concluded that The transaction shall not be consummated before these analyses disclosed a reasonable penetration of the thirtieth calendar day after the effective date of this the bank's communities. Order, or later than three months after the effective Westamerica has taken steps to improve its lending date of this Order, unless such period is extended for record in low- and moderate-income and minority good cause by the Board or by the Federal Reserve areas. For example, Westamerica Bank has increased Bank of San Francisco, acting pursuant to delegated marketing of special credit products, and the bank's authority. substantial outreach programs also represent an effort By order of the Board of Governors, effective to improve this aspect of its CRA performance record. March 1, 1993. In addition, Westamerica Bank recently created a new employee position in its residential real estate lending Voting for this action: Chairman Greenspan and Governors group whose duties will be to focus exclusively on Mullins, Angell, Kelley, La Ware, Lindsey, and Phillips. low-income and minority housing loans, including related outreach efforts. JENNIFER J. JOHNSON Associate Secretary of the Board F. Conclusion on Convenience and Needs Factor 26. Several Protestants have requested that the Board hold a public meeting or hearing with respect to this application. The Board is not The Board has carefully considered all the facts of required under section 3 of the BHC Act to hold a public hearing record, including the comments filed in this case, in unless the primary supervisor for the bank to be acquired disapproves reviewing the convenience and needs factor under the the proposal. In this case, the primary supervisors for the institutions to be acquired have not objected to Westamerica's application. BHC Act. Based on a review of the entire record, Under its rules, the Board may, in its discretion, hold a public including information provided by commenters oppos- meeting or hearing on an application to clarify factual issues related to the application and to provide an opportunity for testimony, if ing this proposal and the results of CRA performance appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has careexaminations conducted by the respective primary fully considered Protestants' requests for such a meeting or hearing, regulators of Westamerica's and Napa's subsidiary and the written comments submitted by Protestants. In the Board's view, interested parties have had ample opportunity to submit and banks, the Board believes that the efforts of these have submitted substantial written comments that have been considsubsidiary banks to help meet the credit needs of all ered by the Board. Moreover, Protestants have indicated general disagreement regarding the appropriate conclusions to be drawn from segments of the communities they serve, including the facts of record, but have not identified facts that are in dispute and material to the Board's decision. In light of these considerations, the Board has determined that a public meeting or hearing is not necessary 25. These data also disclosed lower application rates in low- and to clarify the factual record in this application, or otherwise warranted moderate-income areas than in other areas of the banks' delineated in this case. Accordingly, the requests for a public meeting or hearing communities. on this application are hereby denied. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

516 Federal Reserve Bulletin • May 1993 Worthen Banking Corporation 13.6 percent of total deposits in commercial banking Little Rock, Arkansas organizations in the state.3 Worthen Financial Corporation Competitive Considerations Little Rock, Arkansas Worthen and Union compete directly in three banking Order Approving Formation of Bank Holding markets in the state of Arkansas: Little Rock, Faulkner Company and Acquisition of Banks County, and Russellville. In the Little Rock banking market,4 Worthen is the second largest depository Worthen Banking Corporation, Little Rock, Arkansas institution, controlling deposits of $812.2 million, rep- ("Worthen"), a bank holding company within the resenting approximately 18.1 percent of total deposits meaning of the Bank Holding Company Act ("BHC in depository institutions in the market ("market de- Act"), and Worthen Financial Corporation ("Worthen posits").5 Union is the fourth largest depository insti- Financial"), a wholly owned de novo subsidiary of tution in the market, controlling deposits of Worthen, have applied under section 3 of the BHC Act $482.1 million, representing 10.8 percent of market (12 U.S.C. § 1842) to acquire The Union of Arkansas deposits. Upon consummation of the proposal, Corporation, Little Rock, Arkansas ("Union"), and Worthen would become the largest depository instituits two bank subsidiaries, Union National Bank of tion in the market, controlling 28.9 percent of market Arkansas, Little Rock, Arkansas ("Union Arkan- deposits, and the Herfindahl-Hirschman Index sas"), and Union National Bank of Texas, Austin, ("HHI") would increase 391 points to a level of 1971.6 Texas ("Union Texas").1 The three-firm concentration ratio in the market would Notice of the applications, affording interested per- increase to 72.7 percent. sons an opportunity to submit comments, has been Seventeen commercial banking organizations and published (57 Federal Register 46,171 (1992)). The time one thrift institution would continue to operate in the for filing comments has expired, and the Board has Little Rock banking market after consummation of the considered the application and all comments received proposal. In addition, the Little Rock banking market in light of the factors set forth in section 3(c) of the BHC has certain features that make it attractive to potential Act. Worthen is the largest commercial banking organi- 3. Union is the 216th largest commercial banking organization in zation in Arkansas, controlling 10 subsidiary banks Texas, controlling deposits of $83.9 million within the state, reprewith total deposits of $2.2 billion, representing senting less than 1 percent of total deposits in commercial banking 11.1 percent of total deposits in commercial banking organizations in the state. Worthen does not control any deposits in organizations in the state.2 Union is the seventh larg- any banking market in Texas. Upon consummation of this proposal, Worthen would become the 216th largest commercial banking organiest commercial banking organization in Arkansas, zation within the state. controlling deposits of $498.2 million within the state, 4. The Little Rock banking market is approximated by Pulaski and Saline Counties; Butler, Caroline, Magness, Oak Grove, Ward, and representing 2.5 percent of total deposits in commer- York townships in Lonoke County; and El Paso, Royal, and Union cial banking organizations in the state. Upon consum- townships in White County. mation of this proposal, Worthen would remain the 5. Market data are as of March 31, 1992. In this context, depository institutions include commercial banks and savings banks. The Board largest commercial banking organization in Arkansas, previously has indicated that thrift institutions have become, or have controlling deposits of $2.7 billion, representing the potential to become, major competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). In considering the competition offered by thrifts in the Little Rock banking market, market share data are based on calculations in which the deposits of two thrift institutions that are controlled by bank holding companies are included at 100 percent, and the deposits of the 1. Worthen will acquire Union indirectly through a merger of Union one other thrift institution in the market, which is not controlled by a with Worthen Financial, with Worthen Financial to be the surviving bank holding company, is included at 50 percent. entity. Following this acquisition, Worthen will merge Union Arkan- 6. Under the revised Department of Justice Merger Guidelines, 49 sas into Worthen's lead banking subsidiary, Worthen National Bank Federal Register 26,823 (June 29, 1984), a market in which the of Arkansas, Little Rock, Arkansas ("Worthen Little Rock"). In post-merger HHI is above 1800 is considered to be highly concenaddition, Worthen National Bank of Conway, Conway, Arkansas, will trated. In such markets, the Justice Department is likely to challenge purchase certain assets and assume certain liabilities of the Conway, a merger that increases the HHI by more than 50 points. The Arkansas, branch of Union Arkansas, and Worthen National Bank of Department of Justice has informed the Board that, as a general Russellville, Russellville, Arkansas, will purchase certain assets and matter, a bank merger or acquisition will not be challenged, in the assume certain liabilities of the Russellville, Arkansas, branch of absence of other factors indicating anticompetitive effects, unless the Union Arkansas. Worthen will seek the necessary regulatory approv- post-merger HHI is at least 1800 and the merger increases the HHI by als for these transactions. Following these transactions, Worthen more than 200 points. The Justice Department has stated that the Financial will retain ownership of Union Texas, and will remain in higher-than-normal HHI thresholds for screening bank mergers for existence as an intermediate bank holding company. anticompetitive effects implicitly recognize the competitive effect of 2. State banking data are as of June 30, 1991. limited-purpose lenders and other non-depository financial entities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 517 entrants. The Little Rock banking market is the largest sellville banking markets, or in any other relevant banking market in Arkansas and is growing in popula- banking market.12 tion more than twice as fast as the state as a whole.7 Pulaski County, which is a part of the Little Rock Financial, Managerial, and Other Considerations banking market, ranks first in population and total The Board concludes that the financial and managerial deposits among all counties in Arkansas, and has total resources and future prospects of Worthen, Union, deposits nearly three times greater than the next largest and their subsidiary banks are consistent with apcounty. In addition, the rate of employment and per proval of this proposal. Considerations relating to the capita income is higher in the Little Rock banking convenience and needs of the communities to be market than in the state as a whole, and employment served and other factors the Board is required to and per capita personal income in the Little Rock consider under section 3 of the BHC Act also are banking market grew at a faster rate between 1980 and consistent with approval. 1990 than in the state as a whole. Four banks have been chartered de novo in the market since 1987.8 Based on the foregoing and other facts of record, the Board has determined that the applications should be, In the Faulkner County banking market,9 Worthen and hereby are, approved. The Board's approval of is the second largest of six depository organizations, this transaction is specifically conditioned upon comcontrolling deposits of $177.4 million, representing pliance with all the commitments given in connection 39.1 percent of market deposits. Union is the sixth with these applications. For the purposes of this largest depository organization, controlling deposits of action, these commitments are considered to be con- $6.1 million, representing 1.4 percent of market deposditions imposed in writing in connection with the its. Upon consummation of this proposal, Worthen approval of these applications, and, as such, may be would remain the second largest depository organization enforced in proceedings under the Federal Deposit in the market, controlling deposits of $183.5 million, rep- Insurance Act. The transactions approved in this resenting 40.5 percent of market deposits. The HHI for Order shall not be consummated before the thirtieth this market would increase by 106 points to 3562. calendar day following the effective date of this Order, The rapid growth of the Faulkner County banking or later than three months after the effective date of market is a substantial mitigating factor when conthis Order, unless such period is extended for good sidering the effect of this proposal on competition cause by the Board or by the Federal Reserve Bank of in this market.10 In addition, this banking market appears to be attractive to potential entrants.11 St. Louis, acting pursuant to delegated authority. By order of the Board of Governors, effective In light of the number of competitors remaining in March 30, 1993. these markets, the attractiveness of these markets to potential entrants, and other facts of record in this Voting for this action: Chairman Greenspan and Governors case, the Board concludes that consummation of this Mullins, Angell, Kelley, LaWare, Lindsey, and Phillips. proposal would not have a significantly adverse effect on competition or the concentration of banking re- JENNIFER J. JOHNSON sources in the Little Rock, Faulkner County, or Rus- Associate Secretary of the Board Orders Issued Under Section 4 of the Bank Holding Company Act Norwest Corporation 7. The Little Rock banking market grew 5.8 percent in population Minneapolis, Minnesota between 1980 and 1990, compared to 2.8 percent for the state as a whole. 8. A major regional bank holding company entered the market in Order Approving the Acquisition of a Title Insurance 1992 by the acquisition of a thrift institution, and after the consum- Agency mation of this proposal would be the fourth largest depository institution in the market. 9. The Faulkner County banking market is approximated by Norwest Corporation, Minneapolis, Minnesota ("Nor- Faulkner County. west"), a bank holding company within the meaning of 10. The population in the Faulkner County banking market grew 32.5 percent between 1980 and 1990, the fastest rate of growth of any the Bank Holding Company Act ("BHC Act"), has county in Arkansas, and population per banking office and total applied under section 4(c)(8) of the BHC Act deposits per banking office exceed the averages for the state. Market deposits grew 9.5 percent between 1988 and 1991, compared to 3.2 percent for the state. 11. A de novo commercial bank entered the market in 1991, and 12. In the Russellville banking market, Worthen would remain the controls 2.9 percent of market deposits. In addition, a regional bank second largest depository institution, and the HHI would increase by holding company entered the market in 1992, and controls 6.2 percent 105 points to 1756. The Russellville banking market comprises Pope of market deposits. and YelfCounties. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

518 Federal Reserve Bulletin • May 1993 (12 U.S.C. § 1843(c)(8)) and section 225.23(a) of the that these activities are closely related to banking.6 Board's Regulation Y (12 C.F.R. 225.23(a)) to acquire The proposed activities of Community Guaranty are through its indirect subsidiary, American Land Title identical to those activities previously approved by the Co., Inc., Omaha, Nebraska ("American Land Ti- Board, and Norwest has proposed to conduct the tle"), substantially all of the assets of Community Title settlement activities under the same terms and subject Guaranty Company, Lombard, Illinois ("Community to the same conditions as in the earlier Board Order Guaranty"), and thereby engage in title insurance regarding this activity.7 Thus, the Board concludes agency and real estate settlement activities. These that Norwest's proposal to engage in real estate setactivities will be performed in five offices in Illinois.1 tlement services is closely related to banking for Notice of the application, affording interested per- purposes of section 4(c)(8) of the BHC Act. sons an opportunity to submit comments, has been The Board is also required to determine whether the published (57 Federal Register 61,601 (1992)). The performance of the proposed activity by Norwest is a time for filing comments has expired, and the Board proper incident to banking—that is, whether the prohas considered the applications and all comments posed activity "can reasonably be expected to proreceived in light of the factors set forth in section duce benefits, such as greater convenience, increased 4(c)(8) of the BHC Act. competition, or gains in efficiency, that outweigh pos- Norwest, with total consolidated assets of $35.3 bil- sible adverse effects, such as undue concentration of lion, is the largest commercial banking organization in resources, decreased or unfair competition, conflicts Minnesota.2 Norwest controls 79 banking subsidiaries of interests, or unsound banking practices." that operate in 12 states and owns a number of 12 U.S.C. § 1843(c)(8). subsidiaries engaged in nonbanking activities. Consummation of this proposal can reasonably be The Board previously has determined that title expected to result in public benefits by providing added insurance agency activities are permissible under sec- convenience to Norwest's customers. In addition, the tion 4(c)(8)(G) of the BHC Act ("exemption G"), activities of Community Guaranty represent a small share which authorizes bank holding companies that en- of the total market of these services, and there are gaged in insurance agency activities, with Board ap- numerous competitors that provide title insurance agency proval, prior to 1971, to engage, or control a company and real estate settlement services. Accordingly, the engaged, in general insurance agency activities.3 Nor- Board concludes that the proposal would not have any west qualifies for exemption G rights.4 significantly adverse effect on competition in the provi- Real estate settlement services include activities sion of these services in any relevant market. associated with the closing of a real estate purchase There is no evidence in the record to indicate that transaction,5 and the Board previously has determined consummation of these proposals is likely to result in any significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking prac- 1. Community Guaranty also performs title abstracting activities, tices that are not outweighed by the public benefits in including title searches of real estate. The Board believes that title abstracting is incidental to conducting title insurance agency activi- this case. The financial and managerial resources of ties, because it provides necessary information needed to authorize Norwest and its subsidiaries are also consistent with the sale of a title insurance policy. 2. Data are as of June 30, 1992. approval. Accordingly, on the basis of all of the facts 3. Norwest Corporation, 76 Federal Reserve Bulletin 1058 (1990) of record and commitments made by Norwest, the ("Norwest/American Land Title")', see First Wisconsin Corporation, 75 Federal Reserve Bulletin 31 (1989), affd sub nom. American Land Title Association v. Board of Governors, 892 F.2d 1059 (D.C. Cir. 1989). (4) Establish a time and place for the closing, and ensure that all 4. In 1959, Norwest received Board approval to retain its general parties properly execute all appropriate documents and meet all insurance agency subsidiaries and, accordingly, is a grandfathered commitments; bank holding company for purposes of exemption G. Northwest (5) Collect and disburse funds for the parties, hold funds in escrow Bancorporation, 45 Federal Reserve Bulletin 963 (1959); Norwest pending satisfaction of certain commitments, prepare the HUD Corporation, 70 Federal Reserve Bulletin 235, 470 (1984); Norwest/ settlement statement, the deed of trust, mortgage notes, the Truth- American Land Title, supra. in-Lending statement, and purchaser's affidavits; and 5. Specifically Community Guaranty will: (6) Record the appropriate documents as required under law. (1) Review the status of the title in the title commitment, resolve any 6. Norwest/American Land Title, supra. exceptions to the title, and review the purchase agreement to 7. Id. Norwest has committed to advise its customers that they are identify any requirements in it in order to ensure compliance with not required to purchase its real estate settlement services in connecthem; tion with the purchase of title insurance in a real estate transaction. (2) Verify the payment of existing loans secured by the real estate Norwest has further committed that it will not require its customers to and verify the amount of and then calculate the prorating of special purchase its real estate settlement services in connection with a loan assessments and taxes on the property; origination. In addition, section 106 of the Bank Holding Company (3) Obtain an updated title insurance commitment to the date of Act Amendments of 1970 generally would prohibit Norwest from tying closing, prepare the required checks, deeds, affidavits, and obtain extensions of credit to the purchase of services from American Land any authorization letter needed; Title or Community Guaranty. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 519 Board concludes that the public benefits that would Illinois Corporation, Springfield, Illinois, bank holding result from approval of these applications outweigh companies within the meaning of the Bank Holding the potential adverse effects, and that the public inter- Company Act ("BHC Act"), have applied for the est factors it must consider under section 4(c)(8) of the Board's approval under section 3 of the BHC Act BHC Act are consistent with approval. (12 U.S.C. § 1842) to acquire First Community Ban- Based on the foregoing and all the other facts of corp, Inc., Rockford, Illinois ("First Community"), record, the Board has determined to, and hereby does, and thereby indirectly acquire First Community's subapprove the application subject to all of the terms and sidiary banks, First National Bank and Trust Comconditions set forth in this order, and in the above pany of Rockford, Rockford, Illinois ("First Nationnoted Board Orders that relate to these activities. The al"), First Bank of Roscoe, Roscoe, Illinois, and First Board's decision is specifically conditioned on compli- Bank of Loves Park, Loves Park, Illinois. Banc One ance with all of the commitments made in this appli- also has applied for the Board's approval under seccation, including the commitments discussed in this tion 3 of the BHC Act to acquire Key Centurion Order and the conditions set forth in NorwestlAmeri- Bancshares, Inc., Charleston, West Virginia ("Key can Land Title. For the purpose of this action, all of Centurion"),1 and thereby indirectly acquire Key Centhese commitments and conditions will be considered turion's subsidiary banks.2 conditions imposed in writing by the Board and, as Banc One also has applied under section 4(c)(8) of such, may be enforced in proceedings under applicable the BHC Act (12 U.S.C. § 1843(c)(8)) to acquire First law. The Board's determination is also subject to all of Bancorp Credit Life Insurance Company, Rockford, the terms and conditions set forth in the Board's Illinois ("First Bancorp"), and thereby engage in the Regulation Y, including those in sections 225.4(d) and sale of credit-related insurance pursuant to section 225.23(b), and to the Board's authority to require 225.25(b)(8) of the Board's Regulation Y (12 C.F.R. modification or termination of the activities of a bank 225.25(b)(8)), and to acquire Reliable Mortgage Comholding company or any of its subsidiaries as the pany, Charleston, West Virginia ("Reliable"), and Board finds necessary to assure compliance with, and thereby engage in mortgage banking activities pursuto prevent evasion of, the provisions of the BHC Act, ant to section 225.25(b)(1) of Regulation Y (12 C.F.R. and the Board's regulations and orders issued there- 225.25(b)(1)). under. Notice of the applications, affording interested per- This transaction shall not be consummated later sons an opportunity to submit comments, has been than three months after the effective date of this published (57 Federal Register 55,533, 61,600 (1992)). Order, unless such period is extended for good cause The time for filing comments has expired, and the by the Board or by the Federal Reserve Bank of Board has considered the applications and all com- Minneapolis, pursuant to delegated authority. By order of the Board of Governors, effective March 8, 1993. 1. Banc One has established a de novo subsidiary holding company, Banc One West Virginia Corporation, for the purpose of facilitating Voting for this action: Chairman Greenspan and Governors this acquisition by merging with and into Key Centurion. Mullins, Kelley, LaWare, and Lindsey. Absent and not 2. By acquiring Key Centurion, Banc One will acquire the following voting: Governors Angell and Phillips. banks: Charleston National Bank, Charleston, West Virginia; Citizens National Bank of St. Albans, St. Albans, West Virginia; Beckley National Bank, Beckley, West Virginia; The National Bank of Logan, JENNIFER J. JOHNSON Logan, West Virginia; The National Bank of Commerce of William- Associate Secretary of the Board son, Williamson, West Virginia; Boone National Bank, Madison, West Virginia; Nicholas County Bank, Summersville, West Virginia; The Central National Bank of Buckhannon, Buckhannon, West Virginia; The Lincoln National Bank of Hamlin, Hamlin, West Virginia; Security National Bank & Trust Co., Wheeling, West Virginia; The ORDERS ISSUED UNDER SECTIONS 3 AND 4 OF First National Bank of New Martinsville, New Martinsville, West Virginia; The First Huntington National Bank, Huntington, West THE BANK HOLDING COMPANY ACT Virginia; and Peoples Bank of Charles Town, Charles Town, West Virginia. Banc One Corporation Banc One's acquisition of Key Centurion's remaining subsidiary banks will be accomplished by acquiring the following wholly owned Columbus, Ohio bank holding company subsidiaries of Key Centurion: (1) Union Bancorp of West Virginia, Inc., Charleston, West Virginia (parent of Union National Bank of West Virginia, Clarksburg, Order Approving the Acquisition of Bank Holding West Virginia, and First National Bank in Philippi, Philippi, West Companies Virginia); (2) Wayne Bancorp, Inc., Charleston, West Virginia (parent of Wayne County Bank, Inc., Wayne, West Virginia); and First Banc One Corporation, Columbus, Ohio ("Banc National Company, Pikeville, Kentucky (parent of The First Na- One"), and its wholly owned subsidiary, Banc One tional Bank of Pikeville, Pikeville, Kentucky). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

520 Federal Reserve Bulletin • May 1993 ments received in light of the factors set forth in Ohio.6 In considering this proposal, the Board has sections 3(c) and 4(c)(8) of the BHC Act. analyzed the interstate banking statutes of Ohio, Illi- Banc One, with total deposits of $39.6 billion, con- nois, West Virginia, and Kentucky, and has concluded trols banking subsidiaries in Ohio, Indiana, Michigan, that Banc One is authorized under those statutes to Wisconsin, Illinois, Texas, Colorado, and Kentucky.3 acquire the banking subsidiaries of First Community in By acquiring First Community and Key Centurion, Illinois, and the banking subsidiaries of Key Centurion Banc One proposes to acquire additional banks in in West Virginia and Kentucky.7 In addition, the Illinois and Kentucky, and to make an initial entry into Illinois Commissioner of Banks and Trust Companies West Virginia. has approved the acquisition of First Community's Banc One is the eighth largest commercial banking bank subsidiaries in Illinois, and the West Virginia organization in Illinois, controlling $2.4 billion in de- Commissioner of Banking has approved the acquisiposits, representing 1.8 percent of total deposits in tion of Key Centurion's bank subsidiaries in West commercial banks in Illinois. First Community is the Virginia.8 Accordingly, Board approval of this pro- 26th largest commercial banking organization in Illi- posal is not prohibited by the Douglas Amendment. nois, controlling $680 million in deposits, representing less than one percent of total deposits in commercial Competitive, Financial, Managerial and Supervisory banks in the state. Upon consummation of Banc One's Considerations acquisition of First Community, Banc One would become the seventh largest commercial banking orga- Banc One and First Community do not compete dinization in the state, controlling $3.1 billion in depos- rectly in any relevant banking markets. Based on all its, representing 2.3 percent of the total deposits in the facts of record, the Board concludes that Banc commercial banks in Illinois. One's acquisition of First Community would not have Banc One is the fourth largest commercial banking significantly adverse effects on competition in any organization in Kentucky, controlling $1.4 billion in relevant banking market. deposits, representing 4.2 percent of total deposits in Banc One and Key Centurion compete directly in the commercial banks in Kentucky. Key Centurion is the Wheeling, West Virginia, banking market.9 Based on all 24th largest commercial banking organization in Ken- of the facts of record, including the characteristics of tucky, controlling $201.8 million in deposits, repre- the Wheeling banking market and the effects this prosenting less than one percent of total deposits in posal would have on competition in this market, the commercial banks in Kentucky. Upon consummation Board concludes that consummation of Banc One's of Banc One's acquisition of Key Centurion,4 Banc acquisition of Key Centurion would not have signifi- One would remain the fourth largest commercial bank- cantly adverse effects on competition in the Wheeling ing organization in Kentucky, controlling $1.6 billion banking market10 or any relevant banking market. in deposits, representing 4.8 percent of total deposits in commercial banks in Kentucky. 6. A bank holding company's home state is that state in which the Douglas Amendment operations of the bank holding company's banking subsidiaries were principally conducted on July 1, i966, or the date on which the company became a bank holding company, whichever is later. Section 3(d) of the BHC Act, the Douglas Amend- 7. Ohio's interstate banking statute permits banks from Illinois and ment, prohibits the Board from approving an applica- West Virginia to acquire banks in Ohio. See Ohio Rev. Code Ann. § 1101.05; 111. Rev. Stat. ch. 17 para. 2510.01; W. Va. Code § 31A-8A-7; tion by a bank holding company to acquire control of Ky. Rev. Stat. Ann. § 287.900. any bank located outside of the bank holding com- 8. The Kentucky Commissioner of the Department of Financial Institutions has indicated that no application is necessary in order for pany's home state, unless such acquisition is "specif- Banc One to acquire Key Centurion's one subsidiary bank in Kenically authorized by the statute laws of the State in tucky. which such bank is located, by language to that effect 9. The Wheeling banking market is approximated by Marshall and not merely by implication."5 For purposes of the County and Ohio County in West Virginia, and Colerain, Pease, Pultney, Mead and York Townships and the eastern two-thirds of Douglas Amendment, the home state of Banc One is Richland Township in Belmont County, Ohio. 10. Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger Herfindahl-Hirschman Index ("HHI") is below 1000 is considered unconcentrated and a market in which the post-merger 3. State deposit data are as of September 30, 1992, and includes HHI is between 1000 and 1800 is moderately concentrated. The acquisitions approved by the Board as of January 31, 1992. Justice Department has informed the Board that a bank merger or 4. Banc One would become the largest commercial banking organi- acquisition generally will not be challenged (in the absence of other zation in West Virginia, controlling $2.8 billion in deposits, represent- factors indicating anti-competitive effects) unless the post-merger ing 14.3 percent of total deposits in commercial banks in West HHI is at least 1800 and the merger increases the HHI by 200 points. Virginia. The Justice Department has stated that the higher than normal HHI 5. 12 U.S.C. § 1842(d). thresholds for screening bank mergers for anti-competitive effects Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 521 The financial and managerial resources and future ford, especially commercial and industrial developprospects of Banc One, First Community, Key Cen- ment for low-income individuals and minorities.14 turion, and their respective subsidiaries, and other The Board has carefully reviewed the CRA perforsupervisory factors the Board must consider under mance records of Banc One, First Community, Key section 3 of the BHC Act, are consistent with approval Centurion, and their respective subsidiary banks, as of this proposal. well as all comments received regarding these applications, Banc One's responses to those comments, Convenience and Needs Considerations and all other relevant facts of record in light of the CRA, the Board's regulations, and the Statement of In acting upon an application to acquire a depository the Federal Financial Supervisory Agencies Regarding institution under the BHC Act, the Board must con- the Community Reinvestment Act ("Agency CRA sider the convenience and needs of the communities to Statement").15 be served, and take into account the records of the relevant depository institutions under the Community Record of Performance Under the CRA Reinvestment Act (12 U.S.C § 2901 et. seq.) ("CRA"). The CRA requires the federal financial A. CRA Performance Examinations supervisory agencies to encourage financial institutions to help meet the credit needs of the local com- The Agency CRA Statement provides that a CRA munities in which they operate, consistent with the examination is an important and often controlling safe and sound operation of such institutions. To factor in the consideration of an institution's CRA accomplish this end, the CRA requires the appropriate record and that these reports will be given great weight federal supervisory authority to "assess the institu- in the applications process.16 The Board notes that tion's record of meeting the credit needs of its entire Banc One's lead subsidiary bank in Ohio, Bank One, community, including low- and moderate-income Columbus, N.A., Columbus, Ohio, received an "outneighborhoods, consistent with the safe and sound standing" rating from the Office of the Comptroller of operation of such institution," and to take that record the Currency ("OCC") at its most recent examination into account in its evaluation of bank holding company for CRA performance in May, 1991. In addition, Banc applications.11 One's remaining 61 subsidiary banks received either In this regard, the Board has received comments "outstanding" or "satisfactory" ratings from their from various organizations ("Protestants") that raise primary regulators in the most recent examinations of issues regarding the efforts by Banc One, First Com- their CRA performance. The Board also notes that munity and Key Centurion to meet the credit needs of First National, First Community's lead bank, received their entire communities, including low- and moder- a "satisfactory" rating from its primary regulator at its ate-income neighborhoods.12 In addition to the com- most recent examination for CRA performance.17 Adments made regarding the CRA performance of Banc ditionally, sixteen of Key Centurion's seventeen sub- One and its subsidiary banks,13 Protestants allege that sidiary banks have received either a "satisfactory" or First Community has not sufficiently met its responsi- "outstanding" rating from their primary regulator bility to invest in the development of Southwest Rock- examiner in the most recent examinations of their CRA performance.18 implicitly recognize the competitive effect of limited purpose lenders and other non-depository financial entities. Upon consummation of this proposal, the HHI for the Wheeling 14. Progressive alleges that First National failed to provide convenbanking market would increase 79 points to 1104. tional financing for the development of a supermarket and pharmacy 11. 12 U.S.C. § 2903. to be located in a low-income area of southwest Rockford. In response 12. The Board has received comments regarding the CRA perfor- to Progressive's allegations, First National has submitted its credit mance record of First Community from the Progressive West Rock- analysis of this project. The Board has previously determined that the ford Community Development Corporation ("Progressive"), and the failure of a financial institution to fund Progressive's proposed devel- CRA performance record of Banc One from the United Paperworkers opment project did not warrant a denial of the application. AMCORE International Union ("UPIU") and The Main Street Business Asso- Financial, Inc., 78 Federal Reserve Bulletin 929 (1992). In light of all ciation ("MSBA"). The Protestants submitted no adverse comments of the facts of record, the Board believes that First National's decision regarding the CRA performance of Key Centurion or its subsidiary to not participate in funding the supermarket and pharmacy project banks. identified by Progressive does not indicate that First National has 13. The comments submitted by the UPIU and the MSBA in the failed to meet the credit needs of its community. context of these applications were also filed in connection with Banc 15. 54 Federal Register 13,742 (1989). One's application to acquire Valley National Corporation, Phoenix, 16. Id. at 13,745 (1989). Arizona ("Valley National"). For the reasons set forth more fully in 17. First National received a satisfactory rating from the OCC in the Board's Order in the Valley National application (Banc One December, 1990. Corporation, 79 Federal Reserve Bulletin 524 (1993) ("Banc Onel 18. Nicholas County Bank received a "less than satisfactory" Valley National")), these comments by the UPIU and the MSBA do performance rating from the Federal Deposit Insurance Corporation not warrant denial of this application. ("FDIC") in December, 1991. In July, 1992, the FDIC noted signifi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

522 Federal Reserve Bulletin • May 1993 The OCC has recently concluded a CRA perfor- are designed to assist disadvantaged populations such mance examination of Bank One, Cleveland, N.A., as the poor, disabled, elderly and minorities, including Cleveland, Ohio ("Bank One Cleveland"), and the programs sponsored by the Small Business Adminis- Board has been advised that the preliminary examina- tration ("SBA"), the Department of Housing and tion rating assigned to this institution is "needs to Urban Development and the Federal Housing Adminimprove". As explained more fully below, Bank One istration. Banc One subsidiaries are certified SBA Cleveland constitutes a small part of the overall orga- lenders and have made millions of dollars of loans nization, and the Board expects Banc One to address through this program. Banc One subsidiaries also the areas of weakness identified by the OCC. provide funding for programs designed to help finance small businesses, including the Minority Enterprise B. Other Aspects of CRA Performance Small Business Investment Corporation. First National also participates with city and state The Board has carefully considered the CRA perfor- governments in various lending programs, including: mance record of Banc One in connection with these (1) The First Time Home Buyers Program; applications and the Banc One/Valley National appli- (2) Tri-Way Rehabilitation Program, a program to cation. For the reasons set forth more fully in Banc provide home improvement loans in low- and mod- One/Valley National, the Board believes that Banc erate-income areas;21 One has in place the types of policies and procedures (3) In-Fill Project, a project designed to provide that the Board and other Federal bank supervisory affordable housing in low- and moderate-income agencies have indicated contribute to an effective CRA areas; and program, and Banc One has committed to implement (4) A student loan program. these policies and programs at all the newly acquired banks.19 In addition, Banc One will implement its Commercial loans at First National also cover all types ascertainment and marketing programs at First Na- and sizes of businesses including small businesses.22 tional,20 and intends to establish a Community Advisory Council at First National made up of target popu- C. Recent CRA Examination of Bank One lations in the Rockford area. This Council will enhance Cleveland existing CRA ascertainment efforts, institutionalize the dialogue between the bank and its community, and In connection with its recent CRA examination of provide a means by which to identify opportunities for Bank One Cleveland, the OCC has preliminarily rated use of the Banc One Community Development Corpo- the CRA performance of this institution as "needs to ration ("CDC"). improve." The Board notes that Bank One Cleveland Banc One has instituted or participates in a number represents less than 5 percent of Banc One's total of programs designed to provide a variety of credit consolidated assets. As previously discussed in this products to low- and moderate-income and minority Order and in Banc One/Valley National, the Banc One borrowers. At the corporate level, Banc One has organization has a demonstrated history of compliance established a system-wide CDC with the resources to with the CRA, and the remaining banking assets of the assist all bank affiliates in financing projects designed Banc One organization are in institutions rated "satto promote community welfare, housing availability isfactory" or "outstanding" for CRA performance. and economic development. Banc One also has a In this regard, the Board notes that Bank One mortgage subsidiary, Banc One Mortgage Corpora- Cleveland's preliminary rating of "needs to improve" tion, that assists affiliates by offering specialized mort- represents a recent downgrading from the current gage products designed for low- and moderate-income rating of "satisfactory" for this institution. The Board applicants. expects Banc One to take steps that will address the Banc One also requires all affiliate banks to partici- areas of weakness identified in the OCC's most recent pate in federal, state and local lending programs which examination. In addition, Banc One must submit to the cant improvement in the Nicholas County Bank CRA program and discontinued its periodic on-site reviews. 21. During 1992, First National originated $100,000 in second 19. Banc One/Valley National, supra note 13. mortgage loans through Tri-Way Rehabilitation Program. 20. Subsequent to Banc One's acquisition of First Community, First 22. First National provides financial and management support to the National proposes to merge with First Bank of Loves Park and First Rockford Small Business Loan Program, as well as participating in the Bank of Roscoe, with First National as the surviving entity, pursuant Small Business Loan Program. First National is the area's only to section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. certified SBA lender, and as of November, 1992, First National § 1828). In this regard, Banc One represents that the CRA policies and recorded $3.25 million in outstanding SBA loans. Five of the six SBA programs that Banc One proposes to implement at First National will 504 loans made in the Rockford market in 1992 were made by First be implemented at the resultant institution. National. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 523 Board, when delivered to the OCC, a copy of the plan Nonbanking Activities to address the weaknesses in the CRA performance record of Bank One Cleveland identified by the OCC. The Board has previously determined that the activi- Banc One also must report to the Federal Reserve ties that Banc One proposes to conduct through First Bank of Cleveland, on a quarterly basis commencing Bancorp and Reliable are closely related to banking June 30, 1993, as to its progress in remedying these and a proper incident thereto within the meaning of problems and implementing the plan for improvement. section 4 of the BHC Act.25 Banc One has committed Banc One's progress in remedying these deficiencies to conduct these activities in accordance with the will be taken into account in connection with future Board's regulations.26 Furthermore, there is no eviapplications by Banc One.23 dence in the record to indicate that Banc One's acquisition of First Bancorp or Reliable is likely to result in D. Conclusion Regarding Convenience and any significantly adverse effects, such as undue con- Needs Factors centration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practice. The Board has carefully considered all of the facts of Accordingly, the Board has determined that the balrecord, including the comments filed in this case, in ance of public interest factors it must consider under reviewing the convenience and needs factors under the section 4(c)(8) of the BHC Act is favorable and con- BHC Act. Based on a review of the entire record of sistent with approval of Banc One's application to performance, including information provided by com- acquire these companies. menters opposing the proposal, the CRA performance examinations by the banks' primary regulators, and Conclusion the Board's consideration of Banc One's CRA record of performance as determined in Banc One/Valley Based on the foregoing, including the commitments National, the Board believes that the efforts of Banc made to the Board by Banc One in these applications One, First Community, and Key Centurion to help and in related correspondence, and in light of all the meet the credit needs of all segments of the commu- facts of record, the Board has determined that these nities served by their subsidiary banks, including low- applications should be, and hereby are, approved. The and moderate-income neighborhoods, are consistent Board's approval is specifically conditioned upon with approval. For these reasons, and based on all the compliance by Banc One with all commitments made facts of record, the Board concludes that convenience in connection with these applications as well as the and needs considerations, including the CRA perfor- conditions discussed in this order. The commitments mance records of the companies and banks involved in and conditions relied on by the Board in reaching this these proposals, are consistent with approval of these decision are deemed to be conditions imposed in applications.24 writing by the Board in connection with its findings and decision, and as such may be enforced in proceedings under applicable law. This approval is also conditioned upon Banc One receiving all necessary Federal and state approvals. 23. For the reasons discussed in Banc One/Valley National, the Board has taken into account the preliminary CRA exam rating of The Board's determinations as to the nonbanking Bank One Cleveland rather than delay consideration of these applica- activities to be conducted by Banc One are subject to tions. all of the conditions contained in the Board's Regula- 24. Protestants have requested a public hearing or meeting to collect information about the mortgage, consumer, and commercial lending tion Y, including those in sections 225.4(d) and practices of Banc One. Section 3(b) of the BHC Act does not require 225.23(b)(3) (12 C.F.R. 225.4(d) and 225.23(b)(3)), and the Board to hold a public hearing on an application unless the appropriate supervisory authority for the bank to be acquired makes a to the Board's authority to require such modification timely written recommendation of denial of the application. In this or termination of the activities of a holding company or case, the Illinois State Banking Commissioner has not recommended any of its subsidiaries as the Board finds necessary to denial of the proposal. Generally, under the Board's rules, the Board may, in its discretion, assure compliance with, or to prevent evasions of, the hold a public hearing or meeting on an application to clarify factual provisions and purposes of the BHC Act and the issues related to the application and to provide an opportunity for Board's regulations and orders issued thereunder. testimony, if appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has carefully considered this request. In the Board's view, The banking acquisitions should not be consum- Protestants have had ample opportunity to present written submismated before the thirtieth calendar day following the sions, and Protestants have submitted written comments that have not identified facts that are material to the Board's decision and that are in dispute. Therefore, the Board has determined that a public meeting or hearing is not necessary to clarify the factual record in this application, or otherwise warranted in this case, and the request for a public 25. See 12 C.F.R. 225.25(b)(8) and (b)(1). meeting or hearing on this application is denied. 26. See id. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

524 Federal Reserve Bulletin • May 1993 effective date of this Order, or later than three months received in light of the factors set forth in sections 3(c) following the effective date of this Order, unless such and 4(c)(8) of the BHC Act. period is extended for good cause by the Board or the Banc One, with $51.2 billion in total consolidated Federal Reserve Bank of Cleveland, acting pursuant to assets, is the ninth largest commercial banking orgadelegated authority. nization in the United States, controlling $39.6 billion By order of the Board of Governors, effective in deposits.2 Banc One operates 61 subsidiary banks in March 1, 1993. Ohio, Indiana, Michigan, Wisconsin, Illinois, Texas, Colorado, and Kentucky. Valley National, with Voting for this action: Chairman Greenspan and Governors $10.9 billion in total consolidated assets, is the largest Mullins, Angell, Kelley, LaWare, Lindsey, and Phillips. commercial banking organization in Arizona, controlling approximately $9 billion in deposits in the state. JENNIFER J. JOHNSON Associate Secretary of the Board Douglas Amendment Banc One Corporation Section 3(d) of the BHC Act, the Douglas Amend- Columbus, Ohio ment, prohibits the Board from approving an application by a bank holding company to acquire control of Order Approving Acquisition of Banks and Certain any bank located outside of the bank holding com- Nonbanking Companies pany's home state, unless such acquisition is "specifically authorized by the statute laws of the State in Banc One Corporation, Columbus, Ohio ("Banc which such bank is located, by language to that effect One"), a bank holding company within the meaning of and not merely by implication."3 Banc One proposes the Bank Holding Company Act ("BHC Act"), has to acquire banks in Arizona, Utah, and California. For applied for the Board's approval under section 3 of the purposes of the Douglas Amendment, the home state BHC Act (12 U.S.C. § 1842) to acquire Valley Na- of Banc One is Ohio.4 tional Corporation, Phoenix, Arizona ("Valley Na- The interstate banking statutes of Arizona and Utah tional"), and thereby indirectly acquire Valley Nationpermit out-of-state bank holding companies to acquire al's subsidiary banks, The Valley National Bank of banks located in those states, subject only to the Arizona, Phoenix, Arizona ("Valley National Bank"), approval of state banking officials.5 The banking au- Valley Bank & Trust Company, N.A., Salt Lake City, thorities of Arizona and Utah have indicated that the Utah, Valley Central Bank, Richfield, Utah, and Cal- proposed transaction is authorized under their respecifornia Valley Bank, N.A., Fresno, California.1 tive state laws. Under California law, a foreign bank Banc One also has applied under section 4(c)(8) of holding company may acquire a bank located in Calithe BHC Act (12 U.S.C. § 1843(c)(8)) to acquire fornia, if the Superintendent determines that substan- Concho Insurance Agency, Inc. ("Concho Insur- tial reciprocity exists between California and the state ance") and VNC Investment Corporation ("VNC in which the foreign bank holding company's opera- Investment"), both of Phoenix, Arizona, and thereby tions are principally conducted, which in this case is engage in the sale of credit-related insurance pursuant Ohio.6 Ohio law imposes a similar substantial recito 12 C.F.R. 225.25(b)(8)(i), and in the making and arranging of commercial loans pursuant to 12 C.F.R. 225.25(b)(1). 2. Asset and deposit data are as of September 30, 1992. Notice of the applications, affording interested per- 3. 12 U.S.C. § 1842(d). sons an opportunity to submit comments, has been 4. A bank holding company's home state is that state in which the published (57 Federal Register 46,170 (1992)). The operations of the bank holding company's banking subsidiaries were principally conducted on July 1, 1966, or the date on which the time for filing comments has expired, and the Board company became a bank holding company, whichever is later. See has considered the applications and all comments 12 U.S.C. § 1842(d). 5. See Ariz. Rev. Stat. Ann. § 6-322(A); Utah Code Ann. § 7-1- 702(2). 6. See Cal. Fin. Code § 3751 et seq. (West 1993). Substantial reciprocity exists between California and a second state if the laws of the second state: 1. The proposal is structured as a merger of Banc One's wholly (i) Authorize a California bank holding company to acquire banks owned subsidiary, Banc One Alpha Corporation, Columbus, Ohio in that state on substantially the same terms and conditions as ("Banc One Alpha"), with and into Valley National. Pursuant to the would be applicable to an acquisition by an in-state bank holding merger, the shares of Valley National will be converted into shares of company, and Banc One, and the shares of Banc One Alpha will be converted into (ii) Grant to a bank owned by a California bank holding company shares of Valley National as the surviving corporation. Banc One substantially the same rights and powers as would be granted to Alpha has no assets or operations, and was formed for the purpose of a bank owned by an in-state bank holding company. Cal. Fin. consummating this transaction. Code § 3751(1) (West 1993). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 525 procity requirement.7 The California Superintendent commenters generally praised the CRA efforts of Banc of Banks has determined that the interstate banking One and its subsidiaries. For example, some of these provisions of Ohio law meet the California require- commenters—focusing on Banc One's efforts in Midment of substantial reciprocity, and has approved this dletown, Cleveland, Columbus, and Cincinnati, all in proposal. Ohio—commended Banc One's minority outreach For these reasons, the Board has concluded that programs, activities to assist low- and moderate-in- Banc One is authorized under the statute laws of come residents, financing to small and minority busi- Arizona, Utah, and California to acquire the banking nesses, and lending for low-income housing, among subsidiaries of Valley National. Accordingly, Board other areas of CRA performance. approval of this proposal is not prohibited by the Other favorable commenters, including public offi- Douglas Amendment. Approval of this proposal is cials, religious and minority groups, business and conditioned, however, upon the receipt by Banc One social service organizations, community development of all required state regulatory approvals. corporations, and members of the public, commended Banc One's CRA record in Dayton, Ohio. Their com- Public Comments on Convenience and Needs ments noted with approval Banc One's efforts in such Considerations areas as technical assistance for and investments in community development initiatives; lending programs, In acting upon an application to acquire a depository including flexible loan products designed to meet the institution under the BHC Act, the Board must con- credit needs of low- and moderate-income borrowers; sider the convenience and needs of the communities to support for small minority businesses; and funding for be served, and take into account the records of the first-time home buyers. Favorable comments also relevant depository institutions under the Community have been received on various aspects of Banc One's Reinvestment Act (12 U.S.C. § 2901 et seq.) CRA efforts elsewhere in Ohio or in Texas, or with ("CRA"). The CRA requires the federal financial respect to the CRA record of Valley National Bank in supervisory agencies to encourage financial institu- Arizona. tions to help meet the credit needs of the local com- Commenters opposing the proposal ("Protestants") munities in which they operate, consistently with the have objected on the basis of the CRA performance safe and sound operation of such institutions. To records of Banc One's and Valley National's subsidaccomplish this end, the CRA requires the appropriate iary banks, and have criticized the efforts of Banc One federal supervisory authority to "assess the institu- and Valley National to meet the credit needs of their tion's record of meeting the credit needs of its entire entire communities, including low- and moderate-incommunity, including low- and moderate-income come neighborhoods.9 Protestants believe that Valley neighborhoods, consistent with the safe and sound National Bank has insufficient outreach and marketing operation of such institution," and to take that record programs for low- and moderate-income families and into account in its evaluation of applications.8 In connection with these applications, the Board has received comments from approximately 60 organizations and individuals who have expressed their views 9. The Board has received a number of comments from individuals and businesses alleging that the denial of their loan applications by as to the merits of Banc One's proposal. Of these subsidiaries of Banc One or Valley National evidenced a failure to commenters, approximately half submitted statements comply with the CRA or fair lending laws. Financial information has been provided regarding some of these transactions. The Board supporting the proposal, primarily on the basis of the believes that the decision whether to grant credit in an individual case CRA record of the Banc One organization. These rests with the lending institution. In making this decision, the Board expects the institution to abide by safe and sound banking practices and to provide equal opportunity for credit to all applicants. After careful consideration of the comments and all the evidence in the See also Cal. Fin. Code § 3752(a)(4) (West 1993) (providing that the record, including relevant examination reports and responses to those state in which the operations of a U.S. bank holding company are comments, the Board has concluded that the comments regarding principally conducted is the state in which the total deposits of its individual loan denials do not indicate that Banc One or Valley subsidiary banks are largest). National has engaged in any unsafe or unsound lending practices or 7. See Ohio Rev. Code Ann. § 1101.05 (Anderson 1988) (permitting has refused to extend credit in violation of the Equal Credit Opporinterstate acquisitions if the acquiring company's home state would tunity Act or other relevant statutes. permit acquisitions of banks in such state by an Ohio-based bank The Board also has reviewed comments from parties currently or holding company on terms that are substantially no more restrictive previously involved in litigation or other disputes with Banc One or than those established for out-of-state bank holding companies under Valley National, or one of their respective subsidiaries, in connection Ohio law). Ohio law also prohibits an acquiring out-of-state institution with bankruptcy or foreclosure proceedings or other matters relating from controlling more than 20 percent of all financial institution to outstanding loans. In light of all the facts of record, including deposits in Ohio upon consummation of the transaction, and requires relevant examination reports, the Board does not believe that these the bank commissioner to review the financial, managerial, and comments warrant denial of these applications. The Board also notes convenience and needs considerations of the proposed acquisition. Id. that these commenters will be able to obtain any appropriate relief to 8. See 12 U.S.C. § 2903. their grievances under applicable principles of law. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

526 Federal Reserve Bulletin • May 1993 for minorities, particularly Hispanics and African- and Some Protestants have requested that the Board Native-Americans, and insufficient involvement by its delay the processing of these applications so that the board of directors in CRA-related matters and over- Board may receive additional information and comsight. Protestants also have specifically criticized Val- ment, including loan information from Banc One.12 ley National Bank's record regarding: Several Protestants also have urged the Board not to (1) Lending to minority businesses, homeowners, act until the results of a pending CRA performance and consumers and to low- and moderate-income examination of Valley National Bank by the Office of neighborhoods and persons in its service communi- the Comptroller of the Currency ("OCC") have been ties; made available for public comment. Other comment- (2) Lending to small businesses, particularly with ers have requested that the Board conduct audits of respect to loan programs supported by the Small the lending records and practices of both the Banc One Business Administration ("SBA"); and the Valley National organizations. (3) Disproportionate rates of denying applications The Board has invited public comment over an submitted by minority and low- and moderate-in- extended period of time in this case and, as noted come credit applicants as reflected in data reported above, has received substantial submissions regarding under the Home Mortgage Disclosure Act the CRA performance of Banc One's and Valley ("HMDA"); and National's subsidiary banks. In addition, the Federal (4) Support for community development projects Reserve Bank of Cleveland ("Reserve Bank") conand programs, and philanthropic contributions relat- ducted an inspection of Valley National Bank's CRA ing to the economic and housing needs of inner-city performance as of November 1992 ("November Inand minority communities.10 spection") in conjunction with the OCC's examination These criticisms also were reflected in Protestants' of that institution. The results of this inspection were comments relating to the CRA performance records of made available to Valley National, Banc One and the Banc One's subsidiary banks, particularly banks lo- Protestants, and their comments in response to the cated in Cleveland, Columbus, and Cincinnati, all in inspection have been carefully considered by the Ohio. Several Protestants also criticized the geo- Board. graphic distribution of Banc One's branch offices in As discussed in this Order, the record of these Cleveland, and the overall commitment of Banc One's applications contains substantial information regardboards of directors and senior management to CRA- ing the issues raised by the Protestants. In the Board's related objectives, particularly in the development of view, the record as it currently stands permits a fair special credit products to assist in meeting the credit evaluation of the CRA performance records of the needs of low- and moderate-income individuals. One Banc One and Valley National organizations and the Protestant, while acknowledging positive CRA efforts convenience and needs factor of the BHC Act with of Banc One in Ohio, expressed concern that this respect to this proposal. transaction would result in adverse impacts upon, or In this regard, the Board has carefully reviewed the insufficient benefits for, minority and low- and moder- CRA performance records of Banc One and Valley ate-income communities similar to deficiencies alleged National and their respective subsidiary banks, the by this Protestant in connection with Banc One's comments presented in written submissions and Banc previous expansion into Texas.11 One's and Valley National's responses to those com- 10. Protestants also have suggested that approval of this proposal the employment, development, advancement, and treatment of emshould be conditioned upon Banc One's agreement to CRA-related ployees and applicants for employment, the Board believes that the commitments; upon the sale of Valley National's operations in Cali- alleged deficiencies in the organizations' general personnel and emfornia to an institution that would be more committed than Banc One ployment practices, including third-party contracting matters, are to CRA-related objectives; or upon Banc One's presentation of a beyond the scope of the factors that may be assessed under the CRA specific plan to improve the CRA performance record of Valley or the convenience and needs factor of the BHC Act. National Bank. 12. Several Protestants believe that notice of these applications 11. The Board notes that it recently examined the CRA performance should be republished in Spanish-language media. The Board's rules record of Banc One's subsidiary in Texas, and concluded that this require, in addition to publication in the Federal Register, that notice record was consistent with approval of a proposal by Banc One to of an application and a public comment period be published in a expand its banking operations in that state. See Banc One Corpora- newspaper of general circulation in the communities in which the head tion, 78 Federal Reserve Bulletin 932 (1992). offices of the applicant (or its largest subsidiary bank) and the banks to Protestants also have raised issues that are not related to the record be acquired are located. 12 C.F.R. 225.14(b)(2) and 262.3(b). These of performance by Banc One and Valley National under the CRA, publication requirements ensure that interested members of the public including matters relating to third-party minority contracts, ethnic are afforded an adequate opportunity to present their views to the diversity within senior management and boards of directors, and equal Board. employment opportunity throughout the work force. While the Board Other Protestants believe that a delay is warranted until anticipated fully supports affirmative programs designed to promote equal oppor- changes in CRA and other policies relevant to the application can be tunity in every aspect of a bank's personnel policies and practices in implemented by the new Administration. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 527 ments, and the November Inspection and comments addition, the Board has been advised that the OCC related to that inspection, as well as all other relevant recently concluded its CRA examination of Valley facts of record, in light of the CRA, the Board's National Bank, and assigned the bank a CRA rating of regulations, and the Statement of the Federal Finan- "satisfactory." The OCC's CRA examination report cial Supervisory Agencies Regarding the Community has been forwarded to Valley National Bank, but has Reinvestment Act ("Agency CRA Statement").13 not yet become publicly available. The Board also has carefully reviewed the information collected in the Record of Performance Under the CRA November Inspection, as well as the responses to that inspection submitted by Protestants and other facts of A. Evaluations of CRA Performance record, regarding the CRA performance of Valley National Bank. In this regard, the November Inspec- The Agency CRA Statement provides that a CRA tion noted areas in which Valley National Bank's CRA examination is an important and often controlling performance record could be strengthened. For examfactor in the consideration of an institution's CRA ple, the inspection concluded that the CRA selfrecord and that these reports will be given great weight assessment measures adopted at Valley National Bank in the applications process.14 In this regard, Banc were somewhat limited, and involved no direct assess- One's lead subsidiary bank in Ohio, Bank One, Co- ment performed by the board. In addition, the Novemlumbus, N.A., Columbus, Ohio ("Bank One Colum- ber Inspection indicated that ascertainment activities bus"), received an "outstanding" rating at its most largely are not the result of an established, boardrecent examination for CRA performance conducted directed effort, but instead include a variety of formal by the OCC as of May 13, 1991. Among Banc One's and informal means utilized to ascertain local credit other large subsidiaries in Ohio, the banks in Akron needs, including an officer calling program, customer and Dayton also received "outstanding" ratings, and surveys, contacts with public officials and neighborthe banks in Cincinnati and Cleveland received "sat- hood organizations, and focus group meetings with isfactory" ratings, at their most recent examinations consumers and small businesses.17 As discussed befor CRA performance conducted by the OCC.15 Over- low, Banc One intends to address these areas of all, the most recent CRA performance examinations weakness by integrating its CRA policies and profor Banc One's subsidiary banks show 19 "outstand- grams at Valley National. ing" ratings and 41 "satisfactory" ratings. Banc One has committed to integrate its CRA policies and pro- B. Corporate Policies grams at all the banks to be acquired from Valley National and, where appropriate, to supplement or Banc One has in place the types of policies and replace Valley National's programs with its own. procedures that the Board and the other Federal bank The OCC has recently concluded a CRA perfor- supervisory agencies have indicated contribute to an mance examination of Bank One, Cleveland, N.A., effective CRA program. In this regard, Banc One Cleveland, Ohio ("Bank One Cleveland"), and the monitors subsidiary bank CRA performance at both Board has been advised that the preliminary examina- the corporate level and the state holding company tion rating assigned to this institution is "needs to level. At the corporate level, a corporate CRA comimprove." As explained more fully below, Bank One mittee, composed of the CRA officers of several state Cleveland constitutes a small part of the overall Banc holding companies and senior corporate mortgage One organization, and the Board expects Banc One to representatives, monitors community reinvestment address the areas of weakness identified by the OCC. performance of all Banc One affiliates and reports on With respect to Valley National's examination this performance directly to the board of directors of record, all of Valley National's subsidiary banks for Banc One. The CRA committee requires quarterly which public examination data are available have been reports from all affiliate banks describing their CRA rated "satisfactory" in their most recent examinations efforts. The CRA committee also reviews and updates for CRA performance by their primary regulators.16 In corporate-wide CRA policy, monitors local issues to detect possible matters of concern, and conducts 13. 54 Federal Register 13,742 (1989). 14. Id. at 13,745. 15. Each of these examinations was conducted during 1991. (3) California Valley Bank, N.A., Fresno, California (OCC as of 16. These examinations were conducted as follows: July 1990). (1) Valley Bank & Trust Company, N.A., Salt Lake City, Utah 17. Generally, the November Inspection found that the center of (OCC as of February 1992); Valley National Bank's ascertainment efforts had recently been redi- (2) Valley Central Bank, Richfield, Utah (Federal Deposit Insurance rected toward external discussions with local groups and organiza- Corporation as of June 1991); and tions as opposed to internal analysis of community credit needs. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

528 Federal Reserve Bulletin • May 1993 extensive CRA training programs. Company-wide the CRA Policy Committee, the CRA Public Policy training programs are held annually for bank CRA Committee, and the CRA Implementation Committee. officers serving medium- and large-sized communities. As previously noted, Banc One has stated that it will In addition, the CRA committee has produced a CRA integrate Valley National into its own CRA program. training video designed to instruct every Banc One Specific elements of the Banc One program to be employee on CRA policy, CRA reporting require- incorporated include: detailed quarterly reporting on ments, and CRA performance expectations. Banc CRA matters, which will be furnished to the boards of One's corporate CRA Research Division assists Banc directors and senior management of the institutions to One's subsidiary banks in collecting and analyzing be acquired; direct contact between Valley National lending data to monitor the distribution of loan prod- Bank's CRA Officer and its board of directors; and the ucts throughout their delineated market areas.18 review of quarterly CRA reports at board meetings. In At the bank level, subsidiary banks file quarterly addition, Banc One intends to enhance other elements reports to their state holding company CRA Officer of the Valley National Bank CRA program, as disdetailing the banks' CRA performance. The CRA cussed in this Order and in Banc One's response to the officers also work together with internal bank CRA November Inspection. committees comprised of senior managers representing different areas of the bank such as marketing, retail C. Ascertainment and Marketing lending and mortgage functions. Banc One requires that CRA officers be personally involved in reporting Banc One affiliates actively assess the credit and bank CRA performance to their local boards of direc- banking needs of their local service areas. Each affiltors to ensure that the directors maintain a compre- iate bank is responsible for formulating and submitting hensive understanding of the bank's CRA efforts and to its board of directors a strategic plan for identifying performance. Each Banc One subsidiary bank utilizes local banking needs. Each bank engages in direct Banc One's CRA Policy and Procedure Manual, which communication with its service communities through is updated to address changes in regulatory require- interviews with community leaders, the creation of ments or Banc One's policies. The manual sets forth community advisory councils, and bank participation the 12 assessment factors examined by federal regula- in community organizations. tors and includes Banc One's principles for subsidiary With respect to ongoing marketing efforts, Banc bank programs. One has distributed a CRA Marketing and Advertising Banc One also requires each subsidiary bank to Guide to all affiliate banks which instructs subsidiary submit a strategic plan identifying local banking needs. banks on such matters as the relationship between Once these needs are identified, Banc One subsidiaries CRA goals and general marketing objectives, the charattempt to meet these needs through product develop- acteristics of populations with special credit needs, ment and modification, marketing initiatives, and com- and creative requirements and advertising copy points munity outreach programs. to be considered in penetrating particular markets.19 Banc One's subsidiary banks also are encouraged to Banc One also markets specific banking products by establish Community Advisory Councils to institution- advertising on television and radio and in print media. alize the process of communication between the bank In specific markets, corporate marketing materials are and its market. The banks utilize this resource to open supplemented where deemed appropriate.20 With reavenues for enhanced market penetration and to foster spect to its marketing efforts in the Hispanic commua better understanding between the bank and the nity, certain Banc One subsidiaries provide Spanishcommunity. In addition to Banc One's company-wide language home buyer counseling, bilingual ATM CRA training program, state holding company CRA service, and Spanish-language brochures on basic officers also hold monthly or quarterly information and banking products. Banc One's subsidiary banks also training sessions for all bank CRA officers in their employ bilingual mortgage originators in communities state. where such expertise is warranted. In addition, Bank Valley National Bank's board of directors and sen- One, Texas, N.A., Dallas, Texas, has developed nuior management also provide oversight and direction merous Spanish-language print advertisements which of CRA activities through three standing committees, 19. This guide also includes a selection of product-specific advertisements that can be customized for particular markets where gov- 18. Banc One's CRA Research Division has provided training in ernment programs are available. understanding HMDA aggregation tables and ensures that all affiliates 20. For example, Banc One runs a national television media file complete and accurate reports of residential lending activity. This campaign. In addition, the Banc One organization advertises on a has enabled affiliate banks to identify areas of opportunity or concern Spanish-language television station in the Milwaukee, Wisconsin area and to target initiatives so as to address perceived needs. and on the Black Entertainment Network in the Lima, Ohio area. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 529 it has made available to other Banc One subsidiaries community welfare, housing availability and economic that might benefit from their use. development. As of December 1992, the CDC had Valley National Bank's ascertainment activities are provided $20 million in equity for low-income housing administered by its board of directors and senior projects utilizing low-income housing tax credits. management, which provide direction through the Banc One also has a mortgage subsidiary, Banc One formulation of the bank's CRA Mission Statement and Mortgage Corporation, which assists affiliates by of- CRA Strategic Action Plan, as well as oversight and fering specialized mortgage products designed for lowmonitoring of these efforts. The Strategic Action Plan and moderate-income applicants. In addition, the details the process that the bank has established to mortgage subsidiary has created and sponsors an identify community credit needs, to research how the affordable housing lender program, through which bank might respond to those needs, and to develop or affiliates with sufficient customer demand for affordenhance products and services designed to meet those able housing have employed mortgage originators speneeds. Valley National Bank also has designed a cialized in affordable housing loans and low-income comprehensive marketing plan which articulates the mortgage products. various methods to be used for promoting the bank's Banc One requires all affiliate banks to participate in credit products and services throughout its delineated federal, state, and local lending programs which are communities, including low- and moderate-income designed to assist disadvantaged populations such as areas. racial and ethnic minorities and the poor, disabled, or Banc One has indicated that it intends to continue elderly, including particularly those programs spon- Valley National Bank's recent orientation toward as- sored by the Small Business Administration, the Decertainment activities that are based upon direct con- partment of Housing and Urban Development, and the tact with community representatives as opposed to Federal Housing Administration. Banc One subsidiarinstitutional reflection regarding community credit ies are certified SBA lenders and have made millions needs. Banc One also intends to review the commu- of dollars of loans through this program. Banc One nity delineations of Valley National Bank, and has subsidiaries also provide funding for other programs indicated that the institution should have at least four designed to help finance small businesses, including regional markets in the State of Arizona, each with a the Minority Enterprise Small Business Investment full-time CRA Officer dedicated to understanding com- Corporation and the Cleveland Micro Loan Program. munity credit needs and evaluating the extent to which Banc One subsidiaries also have made investments the bank is successful in meeting such needs. Evalua- in numerous programs designed to help provide houstions of CRA performance also will be conducted on a ing for low-income families, including the Cincinnati market-by-market basis as opposed to the current Equity Fund, the Cleveland Housing Network, and state-wide system of review. In addition, the ascer- the Cleveland Neighborhood Equity Fund. Banc One tainment methods currently employed by Valley Naalso holds an annual Retail Lending Conference, tional Bank will be supplemented by locally-appointed which focuses on such matters as the collection and Community Advisory Councils and geodemographic use of geocoded information for market delineation reports compiled by Banc One's CRA Research Diviand understanding bank performance with respect to sion. With respect to CRA-related marketing, Banc the equitable distribution of credit. One will require that the bank's CRA Officer attend Banc One affiliate banks may design and promote and participate in meetings of marketing personnel. special lending programs which, by their interest rates, Banc One expects that the continuing and active amortization schedules, and collateral requirements, participation of the CRA Officer in all activities of the target particular types of credit needs. Banc One also marketing department will be effective to ensure that encourages its subsidiary banks to be flexible in the all marketing initiatives are sensitive to the instituapplication of lending criteria to low-income population's CRA-related objectives. tions. Examples of such flexibility include the financing of points and closing costs in mortgage loans, and D. Banc One's Lending and Other Activities the use of a 95 percent loan-to-value ratio for loans with mortgage insurance. Banc One has instituted or participates in a number of The Board also has reviewed Banc One's loan programs designed to provide a variety of credit products and community development activities in products to low- and moderate-income and minority light of Protestants' comments on a city-by-city basis. persons. At the corporate level, Banc One has estab- In each of the principal cities in which it operates, lished a system-wide Community Development Cor- Banc One has put in place a number of programs poration ("CDC") with resources to assist all bank designed to help meet the credit needs of its service affiliates in financing projects designed to promote communities, including the following: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

530 Federal Reserve Bulletin • May 1993 Cincinnati. In Cincinnati, Banc One has hired an six commercial lenders to assist the bank in accomaffordable housing lender and offers products targeted modating the credit needs of small and minority to low- and moderate-income home buyers such as the businesses. Banc One representatives also serve on Community Homebuyer Vi mortgage and a loan prod- committees and projects that help fund small busiuct with flexible underwriting guidelines. Banc One nesses. also supplements the efforts of its affordable housing Columbus. Bank One Columbus offers loans originator with targeted marketing strategies such as through FHA, VA, and OHFA loan programs. In outdoor advertising, minority-audience media, and 1990, the bank closed 85 housing loans through these advertisements on bus benches in target neighbor- programs in the aggregate amount of $4.5 million. In hoods. The Cincinnati bank also uses the services of a addition, in 1990 the bank generated 570 home mortminority appraiser and participates in numerous home gage loans totalling $31.5 million and 1871 home buying seminars. The bank recently hired a research improvement loans totalling $19 million within its manager to develop a more comprehensive system to market area. The bank also has adopted real estate analyze the geographic distribution of loans. loan programs with flexible underwriting standards In 1989, Banc One began offering in Cincinnati both and expanded consumer education in an effort to help FHA and Ohio Housing Finance Agency ("OHFA") address the affordable housing needs of the commu- First Time Homebuyer loans, which feature below- nity. market interest rates and reduced down payments. In In the Columbus market, Banc One approved 529 1990, 21 percent of the bank's home purchase loans in loans to small businesses through the first three quarthe Cincinnati area were FHA loans. The bank also ters of 1992 in the aggregate amount of $27.3 million.23 introduced in 1990 a new home equity loan product Banc One conducts its small business lending in Cowhich allows individuals to borrow up to 100 percent lumbus through the Business Banking Group, which of the equity in their homes. has a target market that includes businesses owned by Banc One also has committed $250,000 through its women and minorities. Outreach activities include CDC to a low-income housing tax credit investment in media advertising, direct mailings, telemarketing, the Cincinnati Equity Fund to rehabilitate housing in newsletters, direct calling, and special promotions. low- and moderate-income neighborhoods, and has The bank also provides special educational and inforinvested $1 million in the Ohio Equity Fund in con- mational services to businesses, and works with comnection with low-income housing. Banc One has re- munity and government groups to enhance lending cently established a Cincinnati/Hamilton County Com- opportunities to targeted businesses. munity Advisory Council as part of its effort to serve Banc One is involved in community development the Cincinnati market. activities throughout the Columbus market. The bank Banc One has focused on improving originations of committed $3.5 million to the Columbus Housing its home improvement loan products in the Cincinnati Partnership for affordable housing projects. The bank market.21 Banc One's lending under this program has also participated in funding the Urban Land Institute's increased from only 8 minority borrowers in 1990 to 82 recent study of the Columbus area's housing needs, borrowers in 1991 and 130 borrowers through the third and now is addressing the study's results. In addition, quarter of 1992. In addition, in its most recent exam- the bank utilizes the corporate CDC in addressing ination, the OCC stated that the bank's loan volume community needs. On behalf of the bank, the CDC was adequate in relation to the institution's resources invested $1.3 million in two Franklin County projects and community credit needs.22 sponsored by the Columbus Housing Partnership and The majority of the bank's commercial loans are to Urban Rental Housing Development. small businesses. In June 1992, Banc One established Dayton. Banc One has taken steps to improve a Business Banking Division in Cincinnati and hired significantly its lending to low- and moderate-income individuals in the Dayton area. In response to ascertained credit needs, Banc One has developed in Day- 21. In this regard, the bank recently implemented improved proce- ton a purchase-rehabilitation loan program, and has dures to ensure that all home equity loans used for home improvement added FHA and VA mortgage products. The bank also purposes are reported on the HMDA loan register. has developed mortgage products which offer flexible 22. The bank's loan mix has a larger concentration of 1-4 family residential loans, home equity loans, loans to individuals, and munic- lending criteria and lower down payments. An examipal loans, and a smaller concentration of commercial and industrial ple of this is the Community Home Buyers Program, loans, than banks with similar asset sizes and branching structures. The institution's loan mix at the end of 1990 included 48 percent real estate loans, 31 percent loans to individuals, 13 percent commercial and industrial loans, and 3 percent municipal loans. Of the real estate 23. Through the third quarter of 1992, the regional office of the SBA loans, 31 percent were for 1-4 family residential homes and 14 percent reported that no other lender in the fifty-two county region had were for home equity loans. extended more SBA loans. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 531 where down payment and other underwriting require- E. Valley National Bank's Lending and Other ments are reduced for low- and moderate-income Activities individuals. Other housing-related loan programs are offered in conjunction with the bank's Historic Resto- Banc One has indicated that it intends to enhance ration Mortgage and the Sponsored Purchase Mort- Valley National Bank's lending programs upon congage program, under which a non-profit organization summation of this proposal. For example, Banc One can participate in creating affordable housing for low- intends to incorporate the bank's Low/Moderate Inand moderate-income individuals. The bank also reg- come Mortgage Lending Program into Banc One's ularly extends loans through the Vision Loan program, affordable housing lender program, which includes which is designed to provide affordable housing for review of all denied loan applications and specialized low- and moderate-income home buyers in the area, underwriting personnel. Banc One also will expect and through the City of Dayton's Neighborhood Lend- Valley National Bank to employ the resources of the ing Program. The bank is the leading lender in the Banc One CDC as well as government programs for Neighborhood Lending Program's home purchase and community or economic development. purchase-rehab program, which provides an interest Banc One has noted, however, that Valley National buy-down feature by the City of Dayton during the Bank has developed a number of programs designed to first three years of the mortgage loan. The bank also meet the credit needs of low- and moderate-income participates in the OHFA First Time Homebuyer populations in Arizona. Banc One expects this bank Program, which offers below-market interest rates and following consummation to continue these products reduced down payment requirements. and programs to the extent they are effective in Through the Banc One CDC, the bank is an equity meeting local credit needs. Banc One expects that participant in County Corp's Homestart II Program, Valley National Bank will continue to be an active which is designed to develop affordable housing. The participant in government-sponsored loan programs, bank also is involved through the CDC in the Mc- and that CRA officers will work with local government Pherson Town neighborhood renovation program, to officials to modify or develop programs in response to which Banc One has provided funding for the acqui- the changing needs of their respective service commusition, renovation, and resale of residential proper- nities. ties. The November Inspection indicated that Valley In 1990, the bank closed 110 FHA and VA loans, National Bank offers a wide range of loan products representing approximately 29 percent of the bank's throughout its delineated communities. In the area of home purchase and refinancing loans during the pe- single-family housing loans, the bank offers, in addiriod. In addition, the bank made 57 residential mort- tion to an array of traditional mortgage products, gage loans in low- and moderate-income census tracts various loan programs targeted to the credit needs of in 1990. low- and moderate-income households. For example, In 1992, Banc One in Dayton introduced a small Valley National Bank's Express Mortgage Program business revolving line of credit offered to businesses was developed to enable lower-income families to with less than $2 million in annual sales. The bank has obtain, through a simple application process, longapproved over 100 applications for this product repre- term fixed-rate mortgages in amounts from $10,000 senting over $2 million in credit commitments. Banc with no mortgage points. In the first two months after One also has committed $200,000 in loans to the its introduction, the bank approved over 1,000 loans Dayton-Montgomery MicroEnterprise Fund, and has under the Express Mortgage Program for a total of recently agreed to invest an additional $90,000 in the approximately $33.5 million. The bank also has intro- Minority Enterprise Small Business Investment Cor- duced a Low/Moderate Income Mortgage Lending poration, which would raise the bank's total invest- Program under which low- and moderate-income apment in this corporation to $175,000 and make it the plicants may obtain long-term fixed-rate mortgages for largest investor in this fund. the purchase of affordable housing. The program pro- The Dayton bank is a certified SBA lender and has vides for flexible underwriting criteria and down paymade nearly 60 SBA-guaranteed loans totalling ment requirements. Valley National Bank has estab- $14 million in the past four years. Through September, lished a fund of $10 million to fund these loans for the Banc One had extended 11 SBA loans for a total of first year of the program, and has hired three loan $2 million in 1992. In 1990, the Dayton bank made officers to manage the product from designated low- 63 loans totalling $7.7 million to small businesses and moderate-income branches. located in areas with a minority population of at least Valley National Bank also helps to meet the credit 20 percent. This figure increased to 69 loans totalling needs of low- and moderate-income home owners $8.4 million in 1991. through joint efforts with such organizations as Hous- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

532 Federal Reserve Bulletin • May 1993 ing for Mesa, Catholic Social Services of Tucson, various business development and housing rehabilita- Comite De Bienestar, and the Tucson Urban League. tion programs. In addition to these private efforts and the programs designed by the bank itself, Valley National Bank also F. HMDA Data and Lending Practices participates in various government-sponsored loan programs targeted to the needs of lower-income The Board has reviewed the HMDA data reported by households, including the FNMA Community Home subsidiary banks of Banc One and Valley National in Buyers Program and Neighbors Mortgage Loan Prolight of Protestants' comments. Data cited by Protesgram, the Veterans Administration No Down Payment tants indicate some disparities in approvals and denials Loan Program, and the HUD 203(k) and 221(d)(2) of loan applications according to racial and ethnic programs. group and income status in the areas served by these The bank also offers home equity loans on both organizations. Because all banks are obligated to fixed- and variable-rate terms for up to 100 percent of adopt and implement lending practices that ensure not the borrower's home equity, as well as FHA- and only safe and sound lending but also equal access to HUD-sponsored home improvement loan programs, credit by creditworthy applicants regardless of race, and participates to a significant extent in the City of the Board is concerned when the record of an institu- Phoenix Home Improvement Loan program.24 tion indicates disparities in lending to minority credit To improve credit services to small businesses, applicants. The Board recognizes, however, that Valley National Bank opened its Small Business Loan HMDA data alone provide only a limited measure of Center in April 1991, and in January 1992 organized any given institution's lending in its community. The the Small Business Banking Division. These groups Board also recognizes that HMDA data have limitawere established to work with businesses with annual tions that make the data an inadequate basis, absent sales of not more than $1 million and aggregate credit other information, for conclusively determining needs of $250,000 or less. The bank is a significant whether an institution has engaged in illegal discrimilender to small businesses, with $142 million in its nation on the basis of race or ethnicity in making small business loan portfolio as of September 1992.25 lending decisions. Valley National Bank also participates in a SBA- The most recent examinations for CRA compliance sponsored lending program for small businesses, and and performance conducted by bank supervisory has begun to increase the number and amount of loans agencies found no evidence of illegal discrimination or made under this program. other illegal credit practices at any subsidiary bank of The bank also participates to a significant extent in Banc One or Valley National. In addition, the Novemcommunity development and redevelopment projects. ber Inspection found no illegal credit practices or In addition to significant purchases of municipal bonds discrimination at Valley National Bank. issued by its local communities, the bank is receptive HMDA data also show some improvement in certain to meeting articulated financial needs on both an areas of lending to minorities and to low- and moderindividual and joint-efforts basis. In this regard, the ate-income credit applicants by the Banc One organi- November Inspection concluded that the bank appears zation. These improvements appear to have resulted to be committed to investing in development and from steps taken by the organization to improve its redevelopment projects. For example, Valley National lending record, such as the affordable housing lender Bank provided $3 million of the initial $10 million of program and the activities of the CRA Research Divifunding for the Arizona Multibank Community Develsion discussed above. opment Corporation, which was established by the Arizona Bankers Association to provide financial and technical assistance for the advancement of small G. Recent CRA Examination of Bank One business, low- and moderate-income housing, and Cleveland economic development. The bank also has joined with a non-profit organization to provide credit to small, In connection with its recent CRA examination of family-owned businesses, and provides funding to Bank One Cleveland, the OCC has preliminarily rated the CRA performance of this institution as "needs to improve." The Board notes that Bank One Cleveland represents less than 5 percent of Banc One's total consolidated assets. As previously discussed in this 24. Valley National Bank has approved loan requests totalling approximately $3.75 million under this program, which provides for Order, the Banc One organization has a demonstrated subsidized interest rates and a maximum loan amount of $15,000. history of compliance with the CRA, and the remain- 25. The Board notes that 14 percent of the bank's small business borrowers are located in minority census tracts. ing banking assets of the Banc One organization are in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 533 institutions rated "satisfactory" or "outstanding" for Other Considerations CRA performance. In this regard, the Board notes that Bank One Banc One and Valley National do not compete in any Cleveland's preliminary rating of "needs to improve" banking market. Hence, the Board has concluded that represents a recent downgrading from the current the proposed acquisition would not adversely aflfect rating of "satisfactory" for this institution. The Board competition in any relevant banking market.28 The expects Banc One to take steps that will address the Board also has concluded that the financial and manareas of weakness identified in the OCC's most recent agerial resources29 and future prospects of Banc One, examination. In addition, Banc One must submit to the Valley National, and their respective subsidiaries, and Board, when delivered to the OCC, a copy of the plan all other supervisory factors the Board must consider to address the weaknesses in the CRA performance under section 3 of the BHC Act, are consistent with record of Bank One Cleveland identified by the OCC. approval of this proposal. Banc One also must report to the Reserve Bank, on a Banc One also has applied, pursuant to section quarterly basis commencing June 30, 1993, as to its 4(c)(8) of the BHC Act, to acquire Concho Insurprogress in remedying these problems and implement- ance, a company that provides credit-related life and ing the plan for improvement. Banc One's progress in disability insurance issued in connection with extenremedying these deficiencies will be taken into ac- sions of credit by Valley National Bank, and VNC count in connection with future applications by Banc Investment, a company that engages in the making One.26 and arranging of commercial loans.30 These activities are permissible for bank holding companies under the H. Conclusion Regarding Convenience and Board's Regulation Y,31 and Banc One proposes to Needs Factor conduct these activities in accordance with the Board's regulations. The Board has carefully considered all of the facts of In order to approve this application, the Board also record, including the comments filed in this case, in must find that the performance of the proposed activreviewing the convenience and needs factor under the ities by Concho Insurance and VNC Investment "can BHC Act. Based on a review of the entire record, including the findings of the November Inspection, information provided by commenters supporting and view, interested parties have had ample opportunity to submit and opposing this proposal, and the results of CRA perfor- have submitted substantial written comments that have been considered by the Board. Moreover, Protestants have indicated general mance examinations conducted by the respective pri- disagreement regarding the appropriate conclusions to be drawn from mary regulators of the subsidiary banks of Banc One the facts of record, but have not identified facts that are in dispute and material to the Board's decision. In light of these considerations, the and Valley National, the Board believes that the Board has determined that a public meeting or hearing is not necessary efforts of Banc One and Valley National to help meet to clarify the factual record in this application, or otherwise warranted the credit needs of all segments of the communities in this case. Accordingly, the requests for a public meeting or hearing on this application are hereby denied. served by their subsidiary banks, including low- and 28. In this regard, one commenter has maintained that the proposal moderate-income neighborhoods, as well as all other would result in a undue concentration of banking resources in Banc convenience and needs considerations, are consistent One. with approval of this proposal.27 29. In addressing the managerial considerations of this proposal, the Board has carefully considered several comments that related to the operations of the subsidiary banks of Banc One and Valley National. Some comments related to particular consumer and business dealings, including loan transactions and payroll processing 26. One Protestant has requested that the Board delay consideration matters, involving certain of these institutions. Other commenters of these applications to permit consideration of the OCC's pending have alleged, without providing any supporting facts or documen- CRA performance examination of Bank One Cleveland. As discussed tation, that management officials of the Banc One and Valley in this Order, the Board has taken into account the preliminary National organizations have engaged in improper, and in some cases examination rating assigned to Bank One Cleveland by the OCC criminal, activity and conduct. The Board has reviewed these rather than delay consideration of these applications. comments in light of all of the facts of record in this case, including 27. Certain of the Protestants have requested that the Board hold information responding to these comments provided by Banc One a public meeting or hearing with respect to this application. The and Valley National, relevant examination reports, and information Board is not required under section 3 of the BHC Act to hold a provided by other federal regulatory agencies. Based on this review, public hearing unless the primary supervisor for the bank to be the Board has concluded that these comments do not reflect so acquired disapproves the proposal. In this case, the primary super- adversely upon the managerial resources of these organizations as to visors for the institutions to be acquired have not objected to Banc warrant denial of this proposal. One's application. 30. VNC Investment also is an investment company which invests Under its rules, the Board may, in its discretion, hold a public in debt and equity securities which do not comprise more than meeting or hearing on an application to clarify factual issues related to 5 percent of the voting securities of any issuer. This is an activity the application and to provide an opportunity for testimony, if permitted to bank holding company subsidiaries without the Board's appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has care- prior approval under section 4(c)(7) of the BHC Act and section fully considered Protestants' requests for such a meeting or hearing, 225.22(c)(6) of the Board's Regulation Y. and the written comments submitted by Protestants. In the Board's 31. See 12 C.F.R. 225.25(b)(8)(i) and 225.25(b)(1). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

534 Federal Reserve Bulletin • May 1993 reasonably be expected to produce benefits to the First Bank System, Inc. public . . . that outweigh possible adverse effects, such Minneapolis, Minnesota as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound Order Approving the Acquisition of a Bank Holding banking practices." 12 U.S.C. § 1843(c)(8). The Board Company expects that the continuance of these activities by these nonbanking subsidiaries would maintain the First Bank System, Inc., Minneapolis, Minnesota, and level of competition among providers of these ser- its wholly owned subsidiary, Central Bancorporation, vices. In addition, there is no evidence in the record Inc., Denver, Colorado (together, "FBS"), both bank that consummation of this proposal would result in any holding companies within the meaning of the Bank significantly adverse effects, such as undue concentra- Holding Company Act ("BHC Act"), have applied tion of resources, decreased or unfair competition, under sections 3(a)(3) and 3(a)(5) of the BHC Act conflicts of interests, or unsound banking practices. (12 U.S.C. § 1842(a)(3) and (a)(5)), to acquire all of the Accordingly, the Board concludes that the balance of voting shares of Colorado National Bankshares, Inc., the public interest factors that it is required to consider Denver, Colorado ("CNB"),1 and thereby indirectly under section 4(c)(8) of the BHC Act is favorable, and acquire CNB's eight subsidiary banks: Colorado Naconsistent with approval of Banc One's section 4 tional Bank, Denver, Colorado; Colorado National application. Bank-Belmont, Pueblo, Colorado; Colorado National Based on the foregoing and other facts of record, Bank-Pueblo, Pueblo, Colorado; Colorado National the Board has determined that the application should Bank-Glenwood, Glenwood Springs, Colorado be, and hereby is, approved. This approval is specif- ("CNB-Glenwood"); Colorado National Bank-Grand ically conditioned upon compliance by Banc One Junction, Grand Junction, Colorado ("CNB-Grand with all of the commitments made in connection with Junction"); Colorado National Bank-Longmont, this application and with the conditions referenced in Longmont, Colorado; Colorado National Bank-Fort this Order. The Board's determination with respect Collins, Fort Collins, Colorado; and Colorado Nato its nonbanking activities also is subject to all of the tional Bank-Exchange, Colorado Springs, Colorado.2 conditions set forth in Regulation Y, including those FBS also has applied under section 4(c)(8) of the in sections 225.4(d) and 225.23(b), and to the Board's BHC Act to engage in nonbanking activities through authority to require such modification or termination the acquisition of the following CNB subsidiaries of the activities of a bank holding company or any of pursuant to section 225.25(b)(8)(i) of the Board's Regits subsidiaries as the Board finds necessary to assure ulation Y (12 C.F.R. 225.25(b)(8)(i)): compliance with, and to prevent evasion of, the (1) Colorado National Insurance Agency, Inc., Denprovisions of the BHC Act and the Board's regula- ver, Colorado, and thereby engage in selling credit tions and orders issued thereunder. For purposes of life, and accident and disability insurance; and this action, the commitments and conditions relied (2) Colorado National Life Insurance Company, on in reaching this decision shall be deemed to be Inc., Denver, Colorado, and thereby engage in conditions imposed in writing by the Board and, as reinsuring credit life, and accident and disability such, may be enforced in proceedings under applica- insurance. ble law. The banking acquisitions shall not be consummated Notice of the applications, affording interested perbefore the thirtieth calendar day after the effective sons an opportunity to submit comments, has been date of this Order, and the proposal shall not be published (58 Federal Register 4,436 (1993)). The time consummated later than three months after the effec- for filing has expired, and the Board has considered tive date of this Order, unless such period is extended the application and all comments received in light of for good cause by the Board or by the Federal Reserve the factors set forth in sections 3 and 4 of the BHC Bank of Cleveland, acting pursuant to delegated au- Act. thority. FBS, with total consolidated assets of approxi- By order of the Board of Governors, effective mately $23.4 billion, controls 21 subsidiary banks and March 1, 1993. 1. CNB will merge into Central Bancorporation, Inc. and the Voting for this action: Chairman Greenspan and Governors resulting entity will operate in Colorado using the CNB name. Mullins, Angell, Kelley, La Ware, Lindsey, and Phillips. 2. In connection with FBS's proposed acquisition of CNB, FBS has requested Board approval under section 3 of the BHC Act to acquire an option to purchase up to 20.6 percent of the voting shares of CNB. JENNIFER J. JOHNSON This option will become moot upon consummation of FBS's applica- Associate Secretary of the Board tion to acquire CNB. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 535 one thrift organization in Colorado, Minnesota, Mon- The Board believes that a number of factors indicate tana, North Dakota, South Dakota, Washington and that this increased level of concentration in the Pueblo Wisconsin.3 FBS is the second largest commercial banking market, as measured by the HHI, overstates banking organization in Colorado, controlling deposits the competitive effects of this proposal. For example, of approximately $4.3 billion, representing 14.3 per- six commercial banks and two thrift institutions with a cent of total deposits in commercial banking organiza- total of $560.8 million in deposits, representing tions in the state.4 CNB is the third largest commercial 64.3 percent of market deposits, would remain in the banking organization in Colorado, controlling deposits market. Among these remaining institutions are four of approximately $2.7 billion, representing 8.9 percent depository institutions with market shares of approxof total deposits in commercial banking organizations imately 14 percent, including one large bank holding in the state. Upon consummation of this proposal, company, two local banking organizations, and one FBS would become the largest commercial banking thrift institution. These remaining competitors will organization in Colorado, controlling deposits of ap- provide local consumers and small businesses with a proximately $6.9 billion, representing 22.9 percent of number of large local lending alternatives. Twelve total deposits in commercial banking organizations in credit unions also have a significant competitive presthe state. ence in this market, controlling approximately 16 percent of market deposits as compared with an average Competitive Considerations of approximately five percent nationwide. Although these credit unions do not have open membership, the membership requirements and the number of alterna- FBS and CNB compete directly in six banking markets tive credit unions are sufficiently broad to ensure that in Colorado: Pueblo, Garfield County, Mesa County, most consumers in the market would be eligible to join Denver-Boulder, Colorado Springs, and Fort Collins. In the Pueblo banking market,5 FBS is the sixth largest one or more of the credit unions. In addition, a large bank holding company recently entered the Pueblo banking or thrift organization ("depository institubanking market with a small market share, and its tion"), controlling deposits of $109.1 million, reprecompetitive presence may be understated by its cursenting 12.5 percent of total deposits in depository institutions in the market ("market deposits").6 CNB rent small market share. In light of these and other facts of record, the Board does not believe that this is the largest depository institution in the market, proposal would have a significantly adverse effect on controlling deposits of $202.4 million, representing competition in the Pueblo banking market. 23.2 percent of market deposits. Upon consummation of this proposal, FBS would become the largest de- In order to mitigate the potential anti-competitive pository institution in the Pueblo banking market, effects in the Garfield County8 and Mesa County9 controlling deposits of $311.5 million, representing banking markets, FBS has committed to divest the 35.7 percent of market deposits. The Herfindahl- banks acquired from CNB in these markets (CNB- Hirschman Index ("HHI") would increase by 580 Glenwood in Garfield County, and CNB-Grand Juncpoints to 2055.7 tion in Mesa County). FBS also has committed that consummation of these divestitures will not exceed the Department of Justice Merger Guidelines.10 3. Asset data are as of December 31, 1992. 4. State deposit data are as of December 31, 1991. 5. The Pueblo banking market is defined as the Pueblo Ranally Market Area ("RMA"). 200 points. The Justice Department has stated that the higher than 6. Market data are as of June 30, 1991. Market share data are based normal threshold for an increase in the HHI when screening bank on calculations in which the deposits of thrift institutions are included mergers and acquisitions for anti-competitive effects implicitly recogat 50 percent. The Board previously has indicated that thrift institu- nizes the competitive effect of limited-purpose lenders and other tions have become, or have the potential to become, major competi- non-depository financial entities. tors of commercial banks. See Midwest Financial Group, 75 Federal 8. The Garfield County banking market comprises Garfield County. Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Upon consummation of this proposal, FBS would remain the largest Reserve Bulletin 743 (1984). Thus, the Board has regularly included depository institution in the Garfield County banking market, controlthrift deposits in the calculation of market share on a 50 percent ling total deposits of $144.8 million, representing 46.1 percent of weighted basis. See, e.g., First Hawaiian Inc., 11 Federal Reserve market deposits. The HHI would increase by 1157 points to 3265. Bulletin 52 (1991). 9. The Mesa County banking market comprises Mesa County. Upon 7. Under the revised Department of Justice Merger Guidelines, 49 consummation of this proposal, FBS would become the largest Federal Register 26,823 (June 29, 1984), a market in which the depository institution in the Mesa County banking market, controlling post-merger HHI is above 1800 is considered to be highly concen- total deposits of $224.4 million, representing 30.5 percent of market trated. In such markets, the Justice Department is likely to challenge deposits. The HHI would increase by 346 points to 2085. a merger that increases the HHI by more than 50 points. The Justice 10. CNB-Glenwood and CNB-Grand Junction have deposits of Department has informed the Board that a bank merger or acquisition $44.7 million and $55.4 million, respectively. FBS has executed final generally will not be challenged (in the absence of other factors sales agreements effecting these divestitures within 180 days of indicating anti-competitive effects) unless the post-merger HHI is at consummation of the acquisition of CNB. FBS also has committed least 1800 and the merger or acquisition increases the HHI by at least that, in the event it is unsuccessful in completing the divestiture within Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

536 Federal Reserve Bulletin • May 1993 Consummation of the proposal in the remaining the substantial mitigating factors in the Pueblo banking banking markets of Colorado Springs,11 Denver- market discussed above, the Board has concluded that Boulder,12 and Fort Collins13 also would not exceed the proposal would not result in a significantly adverse the Department of Justice Merger Guidelines. The effect on competition in any relevant banking mar- Colorado Springs and Denver-Boulder banking mar- ket.16 kets would both remain moderately concentrated upon consummation of this proposal, with 24 and 92 depos- Convenience and Needs Consideration itory institutions remaining in the respective markets.14 The Fort Collins banking market would remain In acting upon an application to acquire a depository highly concentrated but the level of concentration, as institution under the BHC Act, the Board must conmeasured by the market HHI, would increase less sider the convenience and needs of the communities to than 100 points.15 Eleven depository institutions be served, and take into account the records of the would continue to compete in this market. Based on relevant depository institutions under the Community these and other facts of record, the Board concludes Reinvestment Act (12 U.S.C. § 2901 et seq.) that this proposal would not have a significantly ad- ("CRA"). The CRA requires the federal financial verse effect in these markets. supervisory agencies to encourage financial institu- The Board also sought comments from the United tions to help meet the credit needs of the local com- States Attorney General, the Office of the Comptroller munities in which they operate, consistent with the of the Currency ("OCC"), and the Federal Deposit safe and sound operation of such institutions. To Insurance Corporation ("FDIC") on the competitive accomplish this end, the CRA requires the appropriate effects of this proposal. The Attorney General has federal supervisory authority to "assess the institution's record of meeting the credit needs of its entire indicated that, subject to FBS's divestitures in Garcommunity, including low- and moderate-income field and Mesa counties, there would be no signifineighborhoods, consistent with the safe and sound cantly adverse effects on competition in any relevant operation of such institution," and to take that record banking market. Neither the OCC nor the FDIC has into account in its evaluation of bank holding company provided any objection to consummation of the proapplications.17 posal or indicated that the proposal would have any significantly adverse competitive effects. The Board has received comments from the Denver- In light of all of the facts of record, including the Community Reinvestment Alliance ("Protestant") divestitures FBS has proposed in this case in various criticizing the efforts made by FBS and CNB to meet markets, the resulting market concentration measures, the credit needs of their communities, including lowcompetition offered by thrifts and credit unions, the and moderate-income neighborhoods. In particular, number of competitors remaining in the markets, and Protestant alleges that FBS and CNB illegally discriminate against ethnic minorities in making lending decisions, citing data for 1990 and 1991 filed under the Home Mortgage Disclosure Act ("HMDA").18 Prot- 180 days of consummation of the proposal, FBS will transfer the relevant office or offices to an independent trustee that has been estant also alleges that FBS has failed to implement its instructed to sell the office or offices promptly. See, e.g., BankAmerica Corporation, 78 Federal Reserve Bulletin 338, 340 (1992); United New Mexico Financial Corporation, 11 Federal Reserve Bulletin 484, 485 (1991). 16. In reaching this conclusion, the Board has carefully reviewed 11. The Colorado Springs banking market is defined as the Colorado comments maintaining that the consummation of this proposal would Springs RMA. result in significantly adverse competitive effects. For the reasons 12. The Denver-Boulder banking market is defined as the Denver discussed above, the Board does not believe that these comments RMA and Boulder County (including the Boulder RMA), and the town warrant denial of the proposal. of Parker in Douglas County. 17. 12 U.S.C. § 2903. 13. The Fort Collins banking market is defined as the Fort Collins 18. Protestant also alleges discriminatory practices because: RMA. (1) Minority and non-minority "testers" were subjected to disparate 14. FBS would become the largest depository institution in treatment by personnel of FBS's savings association subsidiary, the Colorado Springs banking market, controlling deposits of Bank Western, Denver, Colorado ("Bank Western"), when seeking $584.7 million, representing 27.7 percent of market deposits, and the loan information on two separate occasions; and HHI would increase by 382 points to 1500. In the Denver-Boulder (2) Bank Western delayed the processing of a loan to a bi-racial banking market, FBS would become the largest depository institution, couple purchasing real property in a predominantly minority neighcontrolling deposits of $4.6 billion, representing 26.2 percent of borhood. market deposits, and the HHI would increase by 335 points to 1157. FBS responds that Bank Western personnel receive training to Under the Department of Justice Merger Guidelines, a post-merger prevent discriminatory practices on a continuous basis and that a market concentration of between 1000 and 1800 points is considered further response will require Protestant to identify when and where moderately concentrated. these events occurred. FBS also states that the loan referenced in 15. Upon consummation of this proposal, FBS would become the Protestant's comments was closed in a period slightly longer than the third largest depository institution in the Fort Collins banking market, average of 60 days because of difficulties in obtaining documentation controlling deposits of $117.8 million, representing 14.6 percent of and verification required for marketing the mortgage on the secondary market deposits, and the HHI would increase by 96 points to 2037. market. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 537 Community Action Plan into its banking and nonbank- In particular, FBS's lead subsidiary bank, First Bank, ing subsidiaries in Colorado.19 Another commenter N.A., Minneapolis, Minnesota, received a "satisfacrepresenting minority business professionals in Colo- tory" rating for CRA performance from its primary rado has commended FBS's lending practices and regulator, the OCC, in January 1991, and FBS's lead affirmative steps to address discriminatory practices in bank in Colorado, Central Bank, N.A., Denver, Col- Colorado. orado ("Central Bank-Denver"), received a "satisfac- The Board has carefully reviewed the CRA perfor- tory" rating from the OCC in May 1991. mance records of FBS and CNB, and their respective Bank Western, FBS's savings association subsidsubsidiary banks, as well as all comments received iary acquired last November, received a "needs to regarding this application, FBS's responses to those improve" CRA rating in its most recent examination comments, and all of the other relevant facts of record by its primary regulator, the Office of Thrift Superviin light of the CRA, the Board's regulations, and the sion ("OTS") in May 1992. As a condition to the Statement of the Federal Financial Supervisory Agen- Board's approval of FBS's acquisition of Western cies Regarding the Community Reinvestment Act Capital, FBS committed to immediately institute CRA ("Agency CRA Statement").20 The Board also notes training programs for Bank Western staff and to instithat similar allegations by Protestant relating to FBS's tute its CRA policies, discussed below, at Bank Westrecord of performance under the CRA in Colorado ern.24 In addition, all of CNB's subsidiary banks have were extensively reviewed in connection with the received "outstanding" or "satisfactory" ratings dur- Board's recent approval of FBS's application to ac- ing their most recent examinations for CRA perforquire Western Capital Investment Corporation, Den- mance. ver, Colorado ("Western Capital"), and its savings association subsidiary, Bank Western.21 B. Corporate Policies Record of Performance Under the CRA The Board recently has concluded that FBS's corporate CRA policies and procedures contribute to an A. CRA Performance Examination effective CRA program,25 and FBS has committed that these policies and programs will be implemented into The Agency CRA Statement provides that a CRA all CNB subsidiary banks following FBS's acquisition examination is an important, and often controlling, of CNB. FBS has a Vice-President for Community factor in the consideration of an institution's CRA Relations that coordinates and provides support to all record and that these reports will be given great weight community reinvestment efforts within FBS. In addiin the applications process.22 The Board notes that all tion, FBS has a nine-member Senior CRA Policy but one of FBS's subsidiary banks have received Committee which is charged with overseeing the over- "outstanding" or "satisfactory" ratings during the all CRA performance of FBS's subsidiary banks and most recent examinations of their CRA performance.23 resolving any CRA issues that arise. In Colorado, FBS has its own full-time Community Relations Department to oversee FBS's CRA activities in local markets 19. Several individual commenters raise concerns that a large and to provide technical assistance on CRA matters. out-of-state bank would eliminate local lending decisions by bank personnel who understand the special circumstances and credit needs of the relevant Colorado communities. FBS states that final decisions whether to approve or deny a loan application will be made by the ("CELI"), a microlending program. On the basis of these and other FBS bank entity on the local level under criteria used throughout the facts of record, the Board believed that these initiatives sufficiently FBS corporate structure. addressed relevant areas of weakness in Central Bank-GJ's record of 20. 54 Federal Register 13,742 (1989). performance under the CRA. 21. First Bank System, Inc., 78 Federal Reserve Bulletin 948 (1992) 24. As part of its application to acquire Bank Western, FBS (Order dated October 29, 1992, the "Bank Western Order"). committed to provide CRA training to all Bank Western employees 22. See 54 Federal Register at 13,745. within 45 days of consummation. FBS has fulfilled this commitment 23. As noted in the Bank Western Order, which constitutes less than and has conducted 21 CRA training sessions with Bank Western 1 percent of FBS's consolidated assets, received a "needs to im- employees. In addition, all branch members and employees involved prove" CRA performance rating from the OCC as of June 1991. with credit products were trained on the requirements of the Fair Following this examination, Central Bank-GJ promptly undertook a Housing Act ("FHA") and the Equal Credit Opportunity Act number of steps to address identified areas of weakness in CRA ("ECOA"). FBS has committed to monitor the performance of all its performance. For example, the bank has improved its efforts to branches, particularly Bank Western branches, for compliance with ascertain community credit needs through a demographic analysis and the CRA, the FHA, and the ECOA, and provide additional training as community contacts. Central Bank-GJ also increased its marketing needed. In this regard, follow-up training already has been conducted efforts, including to low- and moderate-income communities, through by retail district managers and branch managers. media advertisements, direct mail, product brochures, tele-marketing 25. First Bank System, Inc., 78 Federal Reserve Bulletin at 950. In and realtor calls, and is working directly with community groups the Bank Western Order, the Board considered the combined records involved in building low-income housing. In addition, Central of FBS's subsidiary banks in Colorado (collectively, the "Central Bank-GJ is participating in new lending programs to meet the needs of Banks") and FBS Mortgage Corporation ("FBS Mortgage"), a mortits community, such as the Community Enterprise Loan Initiative gage company subsidiary of FBS, in serving the Denver community. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

538 Federal Reserve Bulletin • May 1993 FBS also has formed a Senior CRA Policy Committee and its affiliates make direct mail inquiries and needs for Colorado, composed of senior managing officers, ascertainment calls on community groups to ascertain to review overall CRA performance and planning in the credit needs of the communities, including low- and Colorado to ensure that community credit needs are moderate-income neighborhoods. In conjunction with met.26 FBS's CRA planning process, all branch managers identify key community contacts and prepare written C. Ascertainment and Marketing plans for ascertaining community credit needs. FBS and its affiliates also conduct seminars for community FBS ascertains community credit needs through vari- groups to introduce members to available credit prodous community outreach programs as previously de- ucts and provide education in the basics of banking. scribed in the Bank Western Order.27 For example, In addition, FBS Mortgage has taken a number of each of the subsidiary banks of FBS has a market steps designed to improve its record of ascertainment, manager whose primary responsibility is developing marketing and lending to minority and low- and modand implementing the local community reinvestment erate-income communities in Denver. For example, efforts. To assist these market managers, FBS has FBS Mortgage has hired a new Community Lending developed a Community Reinvestment Evaluation and Manager who is responsible for community outreach Planning Handbook ("CRA Handbook"). The CRA and marketing of affordable mortgage programs. FBS Handbook requires each of FBS's subsidiary banks to Mortgage also hired two additional mortgage originaannually complete a six-step CRA planning process tors assigned exclusively to mortgage programs for which includes: delineating the bank's community; low- and moderate-income borrowers. In addition, evaluating the bank's CRA performance for the prior FBS Mortgage and the Central Banks will convene at year; assessing community needs through community least four focus group meetings in the Denver metroinvolvement and analyzing pertinent economic and politan area in 1993 to ascertain community awareness demographic information; identifying specific commu- of credit products and services offered by both the nity credit needs, including for low- and moderate- Central Banks and FBS Mortgage, and to solicit feedincome individuals; developing specific plans for meet- back on performance.30 ing these credit needs, including the development of products and outreach mechanisms to targeted bor- D. Lending and Other Activities rowers; and involving the bank's board of directors in CRA planning. In the Bank Western Order, the Board identified nu- Following the Bank Western Order, Central Bank- merous FBS programs that are designed to provide a Denver established a Community Advisory Board variety of credit products to low- and moderate-income ("CAB"), and FBS Mortgage established a Commu- borrowers.31 In late 1991, FBS Mortgage developed the nity Advisory Committee to assist in understanding FBS Mortgage affordable housing program, called community credit needs, evaluating progress against "L.O.A.N. Resource," or Lending Options for All plans, and marketing products and programs to the Neighborhoods. This program offers standard products community. The CAB is comprised of representatives and processes that are customized to meet the credit of community-based organizations (including four in- needs of particular communities, and includes the availdividuals who are affiliated with Protestant), consum- ability of secondary market affordable housing proers, and small business owners. The CAB reports grams, such as the Colorado Housing Finance Authorsemi-annually to the Central Bank board and has the ity ("CHFA") bond programs, FNMA's Community opportunity to review the Community Action Plan of Homebuyer's Program, FHA 203K, and FHA 203B the Central Banks and FBS Mortgage (the "Plan").28 mortgages. L.O.A.N. Resource also provides financial As part of its commitments in the Bank Western assistance for downpayment and closing costs, and Order, FBS has developed a marketing support pro- initiates credit and property counseling through comgram as part of the Plan to communicate available munity organizations. services and credit opportunities to the public.29 FBS tions include community-based developers, neighborhood associations, church representatives, local Chambers of Commerce, mer- 26. FBS's Senior CRA Policy Committee for Colorado includes chant associations, and government agencies. senior managers from Bank Western. 30. FBS has begun to survey all available publications, including 27. First Bank System, Inc., 78 Federal Reserve Bulletin at 951. neighborhood newspapers and newspapers directed to specific ethnic 28. The plan was distributed to members of the CAB on January 11, populations, to determine appropriate vehicles for FBS Mortgage and 1993 and will be considered by CAB in the near future. the Central Banks to reach minority and low- and moderate-income 29. Under the Plan, the Central Banks, Bank Western, and FBS communities in Colorado. As a result of this survey, FBS has targeted work in partnership with many community organizations, including several publications in which FBS will advertise its services in 1993. Protestant, to address identified community needs. These organiza- 31. First Bank System, Inc., 78 Federal Reserve Bulletin at 951. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 539 As of February 1993, the L.O.A.N. Resource pro- gaged in illegal discrimination on the basis of race or gram, which combines flexible underwriting standards ethnicity in making lending decisions. with loan counseling, has closed seventeen loans and The Board notes that the OTS found no evidence of three are in the process of closing. The Central Banks illegal discrimination in its CRA examination of Bank also have recently introduced the CELI to provide Western, nor have any instances of illegal discriminatechnical assistance and credit to small and emerging tion been found in any regulatory examinations of FBS businesses. A CELI Advisory Council, formed to banks or CNB banks, or their subsidiaries. The Board discuss the needs of small and emerging businesses also has previously discussed a number of steps FBS and to assess the effectiveness of the CELI program, has taken to improve its lending record in Colorado.33 includes several key organizations that represent mi- For example, the Central Banks provide a number nority communities. Since November 1992, five new credit products and services to residents and busi- CELI loans totaling $49,000 have been originated. nesses located in low- and moderate-income and mi- The Central Banks offer SBA lending and provide nority communities in Denver. As of year-end 1991, small business loans through their Mainstreet Credit the Central Banks originated $7.3 million in consumer program. Mainstreet Credit uses simplified application loans to consumers from low- and moderate-income forms and guarantees a 48-hour response after receiv- zip codes in the Denver Metropolitan Statistical Area ing a completed loan application. In December 1992, ("MSA"). Central Bank-Denver also has approxi- Central Bank-Denver became a certified SBA lender, mately $11.4 million in outstanding loans to minorityand since then it has originated $467,000 in SBA loans. owned businesses and approximately $4.4 million in In addition 117 Mainstreet loans, totaling $2.3 million outstanding loans to businesses owned by women. In have been approved. Fifty-six percent of these loans addition, Central Bank-Denver has committed to prohave been in census tracts 100 percent or less than vide $300,000 over a three-year period to the Cole median income. Coalition, a community development partnership initiated to help strengthen a low-income neighborhood in Denver.34 The Central Banks also have extended E. HMDA Data and Lending Practices $500,000 in credit to support the construction of housing for persons with disabilities in the Denver MSA. The Board has reviewed the 1990 and 1991 HMDA data32 reported by FBS, Bank Western, and CNB, as Following the Bank Western Order, FBS Mortgage well as Protestant's comments regarding this data. The implemented a new procedure for bank officer refer- HMDA data shows disparities in the rates for housing- rals, along with a new referral form. These changes are related loan applications, approvals, and denials that designed to establish consistency among all FBS locavary by racial or ethnic groups in Denver. Protestant tions and to ensure that all prospective applicants for has alleged illegal discriminatory lending practices on home mortgages are asked for the same information the basis of this data. when they meet with bank employees. In addition, Because all banks are obligated to ensure that their FBS Mortgage instituted a second level of review for lending practices are based on criteria that ensure not all rejected loan applications. A committee consisting only safe and sound lending, but also ensure equal of the head underwriter, underwriting supervisor, access to credit by creditworthy applicants regardless chief appraiser, closing manager, and operations manof race, the Board is concerned when the record of an ager meet daily to review all rejected applications. institution indicates disparities in lending to minority Also, as stated above, a Senior CRA Policy Commitapplicants. The Board recognizes, however, that tee was established for Colorado to review overall HMDA data alone provides only a limited measure of CRA performance and planning in Colorado to ensure any given institution's lending in the communities that that FBS is meeting community credit needs. the institution serves. The Board also recognizes that HMDA data have limitations that make the data an F. Conclusion Regarding Convenience and inadequate basis, absent other information, for con- Needs Factors clusively determining whether an institution has en- The Board has carefully considered the entire record, including the comments filed in this case, in reviewing 32. Banks are required under the HMDA to report certain information regarding loan applications, approvals, and denials to the various 33. See First Bank System, Inc., 78 Federal Reserve Bulletin at 950. banking agencies and the public. This information includes data on the 34. Senior officers and board members of Central Bank-Denver race, gender and income of individual loan applicants, as well as the serve on the board of directors of several organizations related to location of the property securing the potential loan, and a description community development and affordable housing, including the Capital of the application. Hill Community Center and the Cole Neighborhood Project. 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540 Federal Reserve Bulletin • May 1993 the convenience and needs factor under the BHC Act. concludes that FBS's acquisition of CNB's nonbank- Based on a review of the entire record of performance, ing subsidiaries would not significantly affect compeincluding information provided by the Protestant and tition in any relevant market. Furthermore, there is no by the bank's primary regulators, and the commit- evidence in the record to indicate that consummation ments made by FBS, the Board believes that the of this proposal is likely to result in any significantly efforts of FBS to help meet the credit needs of all adverse effects, such as undue concentration of resegments of the communities served by FBS, includ- sources, decreased or unfair competition, conflicts of ing low- and moderate-income neighborhoods, are interests, or unsound banking practice. Accordingly, consistent with approval. In this light, and on the basis the Board has determined that the balance of public of all of the facts of record, the Board concludes that interest factors it must consider under section 4(c)(8) the convenience and needs considerations, including of the BHC Act is favorable and consistent with the CRA performance of all bank subsidiaries, are approval of FBS's application to acquire CNB's nonconsistent with approval of this application.35 banking subsidiaries. Other Considerations Conclusion The Board also concludes that the financial and man- Based on the foregoing, including the conditions and agerial and future prospects of FBS and CNB, and commitments described in this Order and those made their respective subsidiaries, and the other superviin these applications, and all of the facts of record, the sory factors that the Board must consider under sec- Board has determined that these applications should tion 3 of the BHC Act are consistent with approval.36 be, and hereby are, approved. The Board's approval is FBS also has applied, pursuant to section 4 of the specifically conditioned upon compliance by FBS with BHC Act, to engage in selling and reinsuring credit life, all the commitments made in connection with these and accident and disability insurance. As noted above, applications. the Board has previously determined that these activi- The determinations as to the nonbanking activities ties are closely related to banking and generally permisare subject to all of the conditions contained in the sible for bank holding companies under section 4(c)(8) Board's Regulation Y, including those in sections of the BHC Act. FBS proposes to conduct these 225.4(d) and 225.23(b)(3) (12 C.F.R. 225.4(d) and activities in accordance with the Board's Regulation Y. 225.23(b)(3)), and to the Board's authority to require In considering FBS's acquisition of the nonbanking such modification or termination of the activities of a activities of CNB, the Board notes that these subsidholding company or any of its subsidiaries as the Board iaries compete in geographic markets that are regional finds necessary to assure compliance with, or to preand national in scope. These markets are served by vent evasions of, the provisions and purposes of the numerous competitors, and FBS does not have a BHC Act and the Board's regulations and orders issued significant market share in any of these markets. thereunder. The commitments and conditions relied on Accordingly, in light of the facts of record, the Board by the Board in reaching this decision are both deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and as such 35. Protestant has requested that the Board hold a public meeting or may be enforced in proceedings under applicable law. hearing on these applications. The Board is not required under section 3(b) of the BHC Act to hold a hearing on an application unless the The banking acquisitions shall not be consummated appropriate banking authority for the bank to be acquired makes a before the thirtieth calendar day following the effective timely written recommendation of denial of the application. In this date of this Order, and the banking and nonbanking case, the OCC has not recommended denial of the proposal. Generally, under the Board's rules, the Board may, in its discretion, acquisitions shall not be consummated later than three hold a public hearing or meeting on an application to clarify factual months after the effective date of this Order, unless issues related to the application, and to provide an opportunity for such period is extended for good cause by the Board or testimony, if appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has carefully considered this request. In the Board's view, the Federal Reserve Bank of Minneapolis, acting interested parties have had a sufficient opportunity to present written pursuant to delegated authority. submissions, and have submitted substantial written comments that have been considered by the Board. On the basis of all of the facts of By order of the Board of Governors, effective record, the Board has determined that a public meeting or hearing is March 29, 1993. not necessary to clarify the factual record in these applications, or otherwise warranted in this case. Accordingly, the request for a public meeting or hearing on these applications is hereby denied. Voting for this action: Chairman Greenspan and Governors 36. In light of all the facts of record, including financial information Mullins, Angell, Kelley, LaWare, Lindsey, and Phillips. contained in reports of examination by bank regulatory agencies and these applications, the Board does not believe that comments relating to whether the Board could adequately assess the financial condition JENNIFER J. JOHNSON of the resulting institution warrant denial of the proposal. Associate Secretary of the Board Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 541 Orders Issued Under International Banking Act The Board may also take into account additional standards as set forth in the IBA (12 U.S.C. § 3105(d)(3)-(4)) and Regulation K (12 C.F.R. Bank of Taiwan 211.24(c)). Taipei, Taiwan Bank engages directly in the business of banking outside of the United States through its extensive commercial banking operations in Taiwan. Bank also Order Approving Establishment of a Branch has provided the Board with the information necessary to assess the application through submissions that Bank of Taiwan, Taipei, Taiwan ("Bank"), a foreign address the relevant issues. bank within the meaning of the International Banking Bank is supervised and regulated by the Ministry of Act ("IBA"), has applied under section 7(d) of the Finance of Taiwan ("Ministry") and the Central Bank IB A (12 U.S.C. § 3105(d)) to establish a state-licensed of China ("Central Bank"), which share responsibility branch in Los Angeles, California. A foreign bank for the supervision of Taiwanese banks. The Banking must obtain the approval of the Board to establish a Law of Taiwan grants the Ministry overall authority branch, agency, commercial lending company, or rep- for the regulation and supervision of Taiwanese banks, resentative office in the United States under the For- including commercial banks, such as Bank.1 The Mineign Bank Supervision Enhancement Act of 1991 istry has delegated the authority to the Central Bank to ("FBSEA"), which amended the IBA. act as the primary examiner of banks in Taiwan, in Notice of the application, affording interested per- which capacity the Central Bank conducts mandatory sons an opportunity to submit comments, has been annual examinations.2 published in a newspaper of general circulation in Los Regulation K provides that a foreign bank will be Angeles, California (Los Angeles Times, April 23, considered to be subject to comprehensive supervision 1992). The time for filing comments has expired and no or regulation on a consolidated basis if the Board public comments were received. determines that the foreign bank is supervised and Bank became the first commercial bank in Taiwan in regulated in such a manner that its home country 1946 through the reorganization of a predecessor that supervisor receives sufficient information on the had operated since 1899. Bank is wholly-owned by the worldwide operations of the bank, including the rela- Provincial Government of Taiwan ("Provincial Gov- tionship of the bank to any affiliate, to assess the ernment"). Bank also is the second largest bank in overall financial condition of the foreign bank and its Taiwan in terms of total assets, which at year-end 1992 compliance with law and regulation (12 C.F.R. were $42.2 billion. 211.24(c)(1)).3 In making its determination under this Bank operates an agency in New York City, a standard on this application by Bank, the Board conrepresentative office in London, an offshore banking sidered the following information. unit in Taiwan, and over 125 offices in Taiwan. Bank also owns ten subsidiaries, nine incorporated in Taiwan and one incorporated in Belgium. Three of these 1. This authority permits the Ministry to, among other things, issue licenses, limit activities and expansion, conduct examinations, set subsidiaries are banks; one subsidiary, the Hua Nan minimum capital and liquidity ratios, limit credit extensions, restrict Bank, operates a branch in California and an agency in director interlocks, define qualifications for management, and take New York. Bank does not engage, directly or indi- enforcement actions. 2. Bank receives additional oversight by its owner, the Provincial rectly, in any nonbanking activities in the United Government, and by the Ministry of Audit of the Control Yuan, an States. Bank will remain a qualifying foreign banking auditor of government agencies and government-owned enterprises. 3. In assessing this standard, the Board considers, among other organization under Regulation K after establishing the factors, the extent to which the home country supervisor: proposed branch (12 C.F.R. 211.23(b)). (i) Ensures that the bank has adequate procedures for monitoring Under the IBA, in order to approve an application and controlling its activities worldwide; (ii) Obtains information on the condition of the bank and its by a foreign bank to establish a branch in the United subsidiaries and offices through regular examination reports, States, the Board must determine that the foreign audit reports, or otherwise; bank: (iii) Obtains information on the dealings with and relationship between the bank and its affiliates, both foreign and domestic; (1) Engages directly in the business of banking (iv) Receives from the bank financial reports that are consolidated outside of the United States; on a worldwide basis, or comparable information that permits analysis of the bank's financial condition on a worldwide consol- (2) Has furnished to the Board the information it idated basis; needs to assess adequately the application; and (v) Evaluates prudential standards, such as capital adequacy and (3) Is subject to comprehensive supervision or reg- risk asset exposure, on a worldwide basis. These are indicia of comprehensive, consolidated supervision. No ulation on a consolidated basis by its home country single factor is essential and other elements may inform the Board's supervisor (12 U.S.C. § 3105(d)(2)). determination. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

542 Federal Reserve Bulletin • May 1993 The Ministry and the Central Bank obtain informa- exposure, for Bank on a worldwide basis. The governtion on the condition of Bank, its subsidiaries, and its ment of Taiwan incorporated the risk-based capital foreign offices through regular examinations. Bank standards of the Basle Accord into its Banking Law in also submits periodic financial reports to the Central 1989, with variations that conform to local accounting Bank that reflect the financial condition of Bank and its practices and that apply to government-controlled offices. banks.4 The Ministry implemented these standards to The Central Bank performs mandatory annual on- restrict all dividend and other distributions by any site head office examinations, bi-annual office exami- Taiwanese bank that has a risk-weighted capital ratio nations, and, if warranted, targeted examinations of of less than 8 percent. Bank. The Ministry coordinates examinations and Based on all the facts of record, which include the takes corrective measures based on the examination information described above, the Board concludes reports. The annual examination of the head office of that Bank is subject to comprehensive supervision and Bank specifically includes a review of Bank's interna- regulation on a consolidated basis by its home country tional department, foreign operations, and offices. The supervisors. Ministry has also implemented annual on-site exami- In considering this application, the Board has also nations of Bank's foreign offices to supplement this taken into account the additional standards set forth in review. The review of the activities of Bank's foreign section 7 of the IBA (12 U.S.C. § 3105(d)(3)-(4)). As offices includes scrutiny of host country examination noted above, Bank has received the consent of its reports, internal control and audit reports, and annual home country authorities to establish the proposed outside audit reports. Examiners also review the cor- branch. In addition, the Ministry may share informaporate records of Bank's subsidiaries; such records tion on Bank's operations with other supervisors, contain financial information and other corporate in- including the Board. formation. As noted, under local regulation, Bank must comply With respect to monitoring and oversight of foreign with the capital standards of the Basle Accord, as offices, the Ministry must approve the establishment implemented by Taiwan. Bank's capital exceeds these of such offices by Bank. The Ministry and the Central minimum standards and can be considered equivalent Bank have also required Bank to establish procedures to capital that would be required of a U.S. banking under which a foreign office must obtain head office organization. Managerial and other financial resources approval of certain transactions, undergo an annual of Bank are also considered consistent with approval. internal audit, and document its transactions. Bank The proposed branch will be Bank's second office in has established procedures that conform to these the United States, and Bank appears to have the requirements for the proposed office. The Central experience and capacity to support this additional Bank evaluates the adequacy of the required proce- office. In addition, Bank has established controls and dures and the records of approved transactions during procedures for its U.S. offices to ensure compliance the annual examination of Bank's head office. The with U.S. law. Under the IBA, the proposed state- Ministry also requires Bank's overseas offices to sub- licensed branch may not engage in any type of activity mit host-country examination reports. that is not permissible for a federally-licensed branch The Ministry and Central Bank obtain information without the Board's approval. on the dealings and relationship between Bank and its Finally, Bank has committed that it will make availsubsidiaries through certain regulatory requirements. able to the Board such information on the operations Such requirements include mandatory Ministry ap- of Bank and any affiliate of Bank that the Board deems proval of investments by Bank, Central Bank exami- necessary to determine and enforce compliance with nations, and the prohibition on certain unsecured the IBA, the Bank Holding Company Act of 1956, as lending to companies in which Bank holds certain amended, and other applicable Federal law, to the investments. Actual control over Bank's subsidiaries extent permitted by law. The Board has reviewed rests with the Provincial Government. Nonetheless, relevant provisions of Taiwanese law and has commuthe Ministry must approve any investment by Bank in nicated with the appropriate government authorities a company, and the Ministry or Central Bank may concerning access to information. Bank also has comreview the corporate records of such companies. The mitted to cooperate with the Board to obtain any Ministry or Central Bank also may require Bank to divest its interest in a subsidiary, if the subsidiary is found to pose an undue risk to Bank or is engaging in 4. The Ministry has issued regulations that implement these stanunsafe or improper activities. dards. Generally, these regulations fall within the parameters of the Basle Accord, with the exception of one equity adjustment item that The Ministry and the Central Bank evaluate prudenapplies only to government-owned banks. This factor is not significant tial standards, such as capital adequacy and risk asset in this case. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 543 approvals or consents that may be needed to gain obtain the approval of the Board to establish a branch, access to information that may be requested by the agency, commercial lending company, or representa- Board. In light of these commitments and other facts tive office in the United States under the Foreign Bank of record, and subject to the condition described Supervision Enhancement Act of 1991 ("FBSEA"), below, the Board concludes that Bank has provided which amended the IBA. adequate assurances of access to any necessary infor- Notice of the application, affording interested permation the Board may request. sons an opportunity to submit comments, has been On the basis of all of the facts of record, and subject published in a newspaper of general circulation in New to the commitments made by Bank, as well as the York, New York (New York Times, June 5, 1992). The terms and conditions set forth in this Order, the Board time for filing comments has expired and no public has determined that Bank's application to establish a comments were received. branch should be, and hereby is, approved. If any Bank was founded in 1907 as the Bank of Commurestrictions on access to information on the operations nications. In 1928, the Bank of Communications Act or activities of Bank and any of its affiliates subse- ("BOC Act") gave Bank a new charter as a developquently interfere with the Board's ability to determine ment bank that must promote emerging and infrastructhe safety and soundness of Bank's U.S. operations or ture industries. Since 1975 Bank also has operated as the compliance by Bank or its affiliates with applicable Taiwan's only "Industrial Bank" under the Banking Federal statutes, the Board may require termination of Law of Taiwan. The Ministry of Finance of Taiwan, an any of the Bank's direct or indirect activities in the agency of the central government, owns 97.6 percent United States. Approval of this application is also of Bank's stock. The remaining 2.4 percent of Bank's specifically conditioned on compliance by Bank with shares are widely held. the commitments made in connection with this appli- As an Industrial Bank and a development bank, cation, and with the conditions contained in this Or- Bank provides medium- and long-term development der.5 The commitments and conditions referred to credits, equity and venture capital investments,1 and above are conditions imposed in writing by the Board advice to industrial, mining, transportation, and other in connection with its decision, and may be enforced in public enterprises. proceedings under 12 U.S.C. § 1818 or 12 U.S.C. Bank held total assets of $11.0 billion as of June 30, § 1847 against Bank, its office and its affiliates. 1992. Bank directly conducts international operations By order of the Board of Governors, effective through its Foreign and Business Departments, an March 18, 1993. offshore banking unit,2 a state-licensed branch in San Jose, California, a branch in Singapore, and through Voting for this action: Chairman Greenspan and Governors certain of its 22 domestic branches. These interna- Mullins, Angell, Kelley, LaWare, and Lindsey. Absent and tional operations include trade finance, issuance of not voting: Governor Phillips. debentures and guarantees, remittance, lending, foreign exchange, and correspondent banking activities. WILLIAM W. WILES Bank's also owns a banking subsidiary, Chiao Tung Secretary of the Board Bank Europe, N.V., the Netherlands, and holds investments in several nonbanking companies. Chiao Tung Bank Because it operates a branch in the United States, Taipei, Taiwan Bank is subject to the nonbanking restrictions of section 4 of the Bank Holding Company Act of 1956, Order Approving Establishment of an Agency as amended ("BHC"), and conducts its U.S. activities subject to the requirements of the BHC Act.3 Bank Chiao Tung Bank, Taipei, Taiwan ("Bank"), a foreign will remain a qualifying foreign banking organization bank within the meaning of the International Banking Act ("IBA"), has applied under section 7(d) of the IB A (12 U.S.C. § 3105(d)) to establish a state-licensed 1. Bank invests capital in "strategic industrial enterprises" and agency in New York, New York. A foreign bank must government policy projects such as financial institutions and leasing companies. 2. Offshore banking units in Taiwan generally offer foreign currency deposits and loans to non-residents and financial institutions, and 5. The Board's authority to approve the establishment of the conduct securities, interbank deposit and placement, and foreign proposed branch parallels the continuing authority of the State of exchange activities. California to license offices of a foreign bank. The Board's approval of 3. Bank engages indirectly in nonbanking activities in the United this application does not supplant the authority of the State of States through two investments: Universal Venture Capital Invest- California, and its agent, the California State Banking Department, to ment Corp., Taiwan, and Twin Head International Corp., Taiwan. license the proposed branch of Bank in accordance with any terms or The U.S. activities of these companies are subject to continuing conditions that the California State Banking Department may impose. review under Regulation K. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

544 Federal Reserve Bulletin • May 1993 under Regulation K after establishing the proposed In making its determination under this standard on this agency (12 C.F.R. 211.23(b)). application by Bank, the Board considered the follow- Under the IB A, in order to approve an application ing information. by a foreign bank to establish an agency in the United The Ministry and the Central Bank obtain informa- States, the Board must determine that the foreign tion on the condition of Bank, its subsidiaries, and its bank: foreign office through regular examinations and peri- (1) Engages directly in the business of banking odic financial reports. The Central Bank examines outside of the United States; Bank's head office on-site each year and its branches (2) Has furnished to the Board the information it more frequently, if warranted. The Ministry has imneeds to assess adequately the application; and plemented annual on-site examinations of a Taiwanese (3) Is subject to comprehensive supervision or reg- bank's foreign offices to supplement this review. The ulation on a consolidated basis by its home country Ministry also coordinates examinations and takes corsupervisor (12 U.S.C. § 3105(d)(2)). rective measures based on the examination reports. In its examinations, the Central Bank reviews, The Board may also take into account additional among other things, Bank's financial condition, legal standards as set forth in the IB A (12 U.S.C. compliance, managerial goals and performance, con- § 3105(d)(3)-(4)) and Regulation K (12 C.F.R. formance with the government's economic develop- 211.24(c)). ment guidelines, and audit control system. The docu- Bank engages directly in the business of banking ments that may be examined include host country outside of the United States through its extensive examination reports, transaction documentation, inbanking operations in Taiwan. Bank also has provided ternal control and audit reports, and, for overseas the Board with the information necessary to assess the branches, annual external audit reports. application through submissions that address the rele- The Ministry and Central Bank obtain information vant issues. on the dealings and relationship between Bank and its Bank is supervised and regulated by both the Min- subsidiaries through reports to and examinations by istry of Finance of Taiwan ("Ministry") and the Cen- the Central Bank and through the requirement that the tral Bank of China ("Central Bank"), which share Ministry approve investments in other companies. The responsibility for the supervision of Taiwanese banks. Banking Law of Taiwan also imposes a prohibition on The Banking Law of Taiwan authorizes the Ministry to certain unsecured lending to companies in which Bank regulate and supervise industrial banks in Taiwan, holds certain investments. Finally, if the Ministry or including Bank.4 The Ministry has delegated the au- Central Bank determines that a subsidiary poses an thority to the Central Bank to act as the primary undue risk to Bank or is engaging in unsafe or imexaminer of banks in Taiwan, in which capacity the proper activities, the Ministry may require Bank to Central Bank conducts mandatory annual examina- divest its interest in the subsidiary. Bank has no parent tions.5 or sister affiliates. Regulation K provides that a foreign bank will be With respect to foreign offices, the Ministry must considered to be subject to comprehensive supervision approve the establishment of such offices by Bank. or regulation on a consolidated basis if the Board Bank also has internal controls in its foreign office that determines that the foreign bank is supervised and require head office pre-screening of loan proposals and regulated in such a manner that its home country approval of certain transactions, apply loan policies supervisor receives sufficient information on the and procedures, and provide for monitoring by an worldwide operations of the bank, including the relationship of the bank to any affiliate, to assess the overall financial condition of the bank and its compli- (i) Ensures that the bank has adequate procedures for monitoring ance with law and regulation (12 C.F.R. 211.24(c)(1)).6 and controlling its activities worldwide; (ii) Obtains information on the condition of the bank and its subsidiaries and offices through regular examination reports, audit reports, or otherwise; (iii) Obtains information on the dealings with and relationship 4. With respect to banks, this authority permits the Ministry to, between the bank and its affiliates, both foreign and domestic; among other things, issue licenses, limit activities and expansion, (iv) Receives from the bank financial reports that are consolidated conduct examinations, set minimum capital and liquidity ratios, limit on a worldwide basis, or comparable information that permits credit extensions, restrict director interlocks, define qualifications for analysis of the bank's financial condition on a worldwide consolmanagement, and take enforcement actions. idated basis; 5. Bank receives additional oversight by the Ministry of Audit of the (v) Evaluates prudential standards, such as capital adequacy and Control Yuan, an auditor of government agencies and government- risk asset exposure, on a worldwide basis. owned enterprises. These are indicia of comprehensive, consolidated supervision. No 6. In assessing this standard, the Board considers, among other single factor is essential and other elements may inform the Board's factors, the extent to which the home country supervisor: determination. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 545 internal audit department. Bank's head office also eval- by Taiwan. Bank's capital exceeds the minimum stanuates the performance of its branches and majority- dards and is equivalent to capital that would be reowned subsidiaries and reviews the financial condition quired of a U.S. banking organization. Managerial and of its investments and other subsidiaries. Controls in other financial resources of Bank are also considered the proposed agency will include requiring submission consistent with approval. The proposed agency will be of a monthly internal audit report to the head office. The Bank's second office in the United States, and Bank Central Bank evaluates the adequacy of these proce- appears to have the experience and capacity to supdures and the records of approved transactions during port this additional office. In addition, Bank has estabthe annual examination of Bank's head office. lished controls and procedures for its U.S. offices to Taiwanese law requires Bank to obtain Ministry ensure compliance with U.S. law. Under the IBA, the approval for investments above a de minimis size and proposed state-licensed agency may not engage in any for expansion into certain new activities. The Ministry type of activity that is not permissible for a federallyand Central Bank also require Taiwanese banks to licensed branch without the Board's approval. make financial statements and corporate records of its Finally, Bank has committed that it will make availsubsidiaries available to the supervisors upon request. able to the Board such information on the operations The BOC Act requires that Bank monitor and over- of Bank and any affiliate of Bank that the Board deems see its worldwide operations through additional mea- necessary to determine and enforce compliance with sures that are particular to Bank. One such measure the IBA, the BHC Act, and other applicable Federal created a Board of Supervisors of Bank that consists law, to the extent permitted by law. The Board has of 5 members appointed by the Ministry, and that reviewed relevant provisions of Taiwanese law and exercises oversight over Bank's operations. Another has communicated with the appropriate government requires Bank to divest any investment once the authorities concerning access to information. Bank company is "properly operating in accordance with its also has committed to cooperate with the Board to business purposes." obtain any approvals or consents that may be needed The Ministry and the Central Bank evaluate pruden- to gain access to information that may be requested by tial standards, such as capital adequacy and risk asset the Board. In light of these commitments and other exposure, for Bank on a worldwide basis. The govern- facts of record, and subject to the condition described below, the Board concludes that Bank has provided ment of Taiwan incorporated the risk-based capital adequate assurances of access to any necessary inforstandards of the Basle Accord into its Banking Law in mation the Board may request. 1989, with variations that conform to local accounting practices and that apply to government-controlled On the basis of all of the facts of record, and subject banks.7 The Ministry implemented these standards to to the commitments made by Bank, as well as the restrict all dividend and other distributions by any terms and conditions set forth in this Order, the Board Taiwanese bank that has a risk-weighted capital ratio has determined that Bank's application to establish an of less than 8 percent. agency should be, and hereby is, approved. If any Based on all the facts of record, which include the restrictions on access to information on the operations information described above, the Board concludes that or activities of Bank or any of its affiliates subse- Bank is subject to comprehensive supervision and quently interfere with the Board's ability to determine regulation on a consolidated basis by its home country the safety and soundness of Bank's U.S. operations or supervisors. the compliance by Bank or its affiliates with applicable In considering this application, the Board has also Federal statutes, the Board may require termination of taken into account the additional standards set forth in any of Bank's direct or indirect activities in the United section 7 of the IBA (12 U.S.C. § 3105(d)(3)-(4)). As States. Approval of this application is also specifically noted above, Bank has received the consent of its home conditioned on compliance by Bank with the commitments made in connection with this application, and country authorities to establish the proposed agency. In with the conditions contained in this Order.8 The addition, the Ministry may share information on Bank's commitments and conditions referred to above are operations with other supervisors, including the Board. conditions imposed in writing by the Board in connec- Also as noted above, Bank must comply with the capital standards of the Basle Accord, as implemented 8. The Board's authority to approve the establishment of the proposed agency parallels the continuing authority of the State of New 7. The Ministry has issued regulations that implement these stan- York to license offices of a foreign bank. The Board's approval of this dards. Generally, these regulations fall within the parameters of the application does not supplant the authority of the State of New York, Basle Accord, with the exception of one equity adjustment item that and its agent, the New York State Banking Department, to license the applies only to government-owned banks. This factor is not significant proposed agency of Bank in accordance with any terms or conditions in this case. that the New York State Banking Department may impose. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

546 Federal Reserve Bulletin • May 1993 tion with its decision, and may be enforced in proceed- Voting for this action: Chairman Greenspan and Governors ings under 12 U.S.C. § 1818 or 12 U.S.C. § 1847 Mullins, Angell, Kelley, La Ware, and Lindsey. Absent and not voting: Governor Phillips. against Bank, its office, and its affiliates. By order of the Board of Governors, effective WILLIAM W. WILES March 18, 1993. Secretary of the Board ACTIONS TAKEN UNDER THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 By the Director of the Division of Banking Supervision and Regulation and the General Counsel of the Board Copies are available upon request to the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Acquired Surviving Approval Bank Holding Company Thrift Bank(s) Date Central Bancshares of the South, Altus Federal Savings Central Bank of the March 22, 1993 Inc., Bank, South, Birmingham, Alabama Mobile, Alabama Birmingham, Alabama Evergreen Bancshares, Inc., Anchor Savings Bank, Guaranty National March 10, 1993 Tallahassee, Florida F.S.B., Bank of Hewlett, New York Tallahassee, Tallahassee, Florida Mid Am, Inc., Home Savings of Mid American March 5, 1993 Bowling Green, Ohio America, F.S.B., National Bank & Irwindale, California Trust Company, Bowling Green, Ohio American Community Bank, N.A., Lima, Ohio Wes-Tenn Bancorp, Inc., Tri-County Federal Tipton County Bank, March 3, 1993 Covington, Tennessee Savings Bank, Covington, Covington, Tennessee Tennessee Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 547 APPLICATIONS APPROVED UNDER BANK HOLDING COMPANY ACT By the Secretary of the Board Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request to the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Section 4 Nonbanking Effective Applicant(s) Activity/Company Date Bay Banks, Inc., to engage in the March 4, 1993 Boston, Massachusetts expansion of certain Chemical Banking Corporation, data processing New York, New York activities, including the Fleet Financial Group, ownership, installation, Providence, Rhode Island operation and National Westminster Bank PLC, maintenance of London, Great Britain automated teller The Bank of New York machines and scrip Company, Inc., terminals at New York, New York supermarket and other The Chase Manhattan merchant locations in Corporation, the states of New York, New York Connecticut and HSBC Holdings PLC, Vermont London, Great Britain HSBC Holdings BV, Amsterdam, the Netherlands APPLICATIONS APPROVED UNDER BANK MERGER ACT By the Secretary of the Board Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request to the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Applicant(s) Bank(s) ^^Date^ SouthTrust Bank of West Florida, Gulf Bank of Dunedin, March 10, 1993 St. Petersburg, Florida Dunedin, Florida Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

548 Federal Reserve Bulletin • May 1993 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 ABC Employee Stock Ownership Anchor Bancorporation, Chicago February 26, 1993 Plan, Farmer City, Illinois Anchor, Illinois Alpha-Omega Holding Company, Farmers State Bank, Minneapolis March 3, 1993 Victor, Montana Victor, Montana Archer, Inc., Guaranty Corporation, Kansas City March 5, 1993 Palmer, Nebraska Denver, Colorado Osceola Insurance, Inc., Osceola, Nebraska Area Bancshares Corporation, Commonwealth Bancorp, St. Louis March 2, 1993 Owensboro, Kentucky Glasgow, Kentucky BBS Corp., First State Bank, Dallas March 1, 1993 Socorro, New Mexico Socorro, New Mexico Century Bancorp, Inc, Century Bank and Trust, Atlanta March 2, 1993 Milledgeville, Georgia Milledgeville, Georgia Clear Creek Bank Corp., First State Bank, Kansas City March 25, 1993 Idaho Springs, Colorado Idaho Springs, Colorado Commerce Bancshares, Inc., Republic Bancshares, Kansas City March 11, 1993 Kansas City, Missouri Inc., CBI Security Corporation, Neosho, Missouri Kansas City, Missouri Community Bank Group, Inc., Cleveland Bancshares, Minneapolis March 10, 1993 Eden Prairie, Minnesota Inc., Cleveland, Minnesota Craco, Inc., The First National Bank Kansas City March 16, 1993 Vinita, Oklahoma and Trust Company, Vinita, Oklahoma Dickinson Financial Corporation, Army National Kansas City March 8, 1993 Kansas City, Missouri Bancshares, Inc., Kansas City, Missouri Early Bancshares, Inc., Bank of Early, Atlanta March 5, 1993 Blakely, Georgia Blakely, Georgia Exchange National Bancshares, Exchange National Bank St. Louis March 3, 1993 Inc., of Jefferson City, Jefferson City, Missouri Jefferson City, Missouri Exchange National Interim Bank, Jefferson City, Missouri Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 549 Section 3—Continued Reserve Effective Applicant(s) Bank(s) Bank Date Farmers & Merchants Farmers & Merchants Chicago March 1, 1993 Bancshares, Inc., Bank & Trust, Burlington, Iowa Burlington, Iowa Fourth Financial Corporation, Guaranty Bancorporation, Kansas City March 17, 1993 Wichita, Kansas Tulsa, Oklahoma F.S.B., Inc., Tipton Insurance Agency, Kansas City February 26, 1993 Superior, Nebraska Inc., Tipton, Kansas Glen Elder Agency, Inc., Glen Elder, Kansas Green-Top, Inc., Anmer Corporation, Kansas City March 5, 1993 Central City, Nebraska Neligh, Nebraska Dawson Corporation, Lexington, Nebraska Heartland Bancorporation, Aurora, Nebraska North Platte Corporation, Torrington, Wyoming Pinnacle Bancorp, Abilene, Kansas Pinnacle Bancorp, Inc., Papillion, Nebraska Pinnacle Bancorp, Inc., Newcastle, Wyoming Pinnacle Bancorp, Inc., Ft. Lupton, Colorado Shelby Insurance, Inc., Shelby, Nebraska Hawkeye Bancorporation, First Dubuque Corp., Chicago March 12, 1993 Des Moines, Iowa Dubuque, Iowa ISB Bancshares, Inc., Ipava State Bank, Chicago March 11, 1993 Ipava, Illinois Ipava, Illinois Jewell County Bank, Tipton State Bank, Kansas City February 26, 1993 Mankato, Kansas Tipton, Kansas Traders State Bank, Glen Elder, Kansas Midstate Bancorp, Inc., First Community Bank, Kansas City March 15, 1993 Hinton, Oklahoma Blanchard, Oklahoma Midwest National Bancshares, Harrah National Kansas City March 4, 1993 Inc., Bancshares, Inc., Midwest City, Oklahoma Harrah, Oklahoma NationsBank Corporation, University National Bank, Richmond March 11, 1993 Charlotte, North Carolina Galveston, Texas Charter Bancshares, Inc., Houston, Texas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

550 Federal Reserve Bulletin • May 1993 Section 3—Continued Reserve Effective Applicant(s) Bank(s) Bank Date Peotone Bancorp, Inc., The Sun City Bank, Chicago March 1, 1993 Peotone, Illinois Sun City, Arizona Southwest Bancorp, Inc., Worth, Illinois SC Bancorp, Inc., Worth, Illinois The Sumitomo Bank, Limited, CPB, Inc., San Francisco March 2, 1993 Chuo-ku, Osaka, Japan Honolulu, Hawaii Section 4 Nonbanking Reserve Effective Applicant(s) Activity/ Company Bank Date American Bancorp of Edmond, American Capital Kansas City March 18, 1993 Inc., Mortgage Company, Edmond, Oklahoma Inc., Edmond, Oklahoma Green-Top, Inc., to engage de novo in Kansas City March 5, 1993 Central City, Nebraska making loans Lincolnshire Bancshares, Inc., Success National Bank, Chicago March 19, 1993 Lincolnshire, Illinois Lincolnshire, Illinois Newberry Bancorp, Inc., Northern Michigan Minneapolis March 3, 1993 Sault Ste. Marie, Michigan BIDCO, Inc., Sault Ste. Marie, Michigan Otto Bremer Foundation, First American Insurance Minneapolis March 8, 1993 St. Paul, Minnesota Agencies, Inc., Bremer Financial Corporation, St. Paul, Minnesota St. Paul, Minnesota Sections 3 and 4 . .. . Nonbanking Reserve Effective ( Activity/Company Bank Date Bank of Montana System, Montana Bancsystem, Minneapolis March 1, 1993 Great Falls, Montana Inc., Billings, Montana Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 551 PENDING CASES INVOLVING THE BOARD OF waived by the agencies' provision of examination GOVERNORS materials to the examined institution, and remanded for further consideration of the privilege issue. On August 6, 1992, the district court ordered This list of pending cases does not include suits the matter held in abeyance pending settlement of against the Federal Reserve Banks in which the Board the underlying action. of Governors is not named a party. Board of Governors v. Kemal Shoaib, No. CV 91-5152 (C.D. California, filed September 24, 1991). Action Adams v. Greenspan, No. 93-0167 (D. D.C., filed to freeze assets of individual pending administrative January 27, 1993). Action by former employee under adjudication of civil money penalty assessment by the Civil Rights Act of 1964 concerning termination the Board. On October 15, 1991, the court issued a of employment. preliminary injunction restraining the transfer or Sisti v. Board of Governors, No. 93-0033 (D.D.C., disposition of the individual's assets. filed January 6, 1993). Challenge to Board staff Board of Governors v. Ghaith R. Pharaon, No. interpretation with respect to margin accounts. 91-CIV-6250 (S.D. New York, filed September 17, U.S. Check v. Board of Governors, No. 92-2892 1991). Action to freeze assets of individual pending (D.D.C., filed December 30, 1992). Challenge to administrative adjudication of civil money penalty partial denial of request for information under the assessment by the Board. On September 17, 1991, Freedom of Information Act. the court issued an order temporarily restraining CBC, Inc. v. Board of Governors, No. 92-9572 (10th the transfer or disposition of the individual's Cir., filed December 2, 1992). Petition for review of assets. civil money penalty assessment against a bank holding company and three of its officers and directors for failure to comply with reporting requirements. The Board's brief was filed on March 19, 1993. FINAL ENFORCEMENT ORDERS ISSUED BY THE DLG Financial Corporation v. Board of Governors, BOARD OF GOVERNORS No. 392 Civ. 2086-G (N.D. Texas, filed October 9, 1992). Action to enjoin the Board and the Federal Arthur T. Ciccarello Reserve Bank of Dallas from taking certain en- Eleanor, West Virginia forcement actions, and seeking money damages on a variety of tort and contract theories. On October The Federal Reserve Board announced on March 3, 9, 1992, the court denied plaintiffs' motion for a 1993, the issuance of an Order of Assessment of a Civil temporary restraining order. On November 20, Money Penalty against Arthur T. Ciccarello, an insti- 1992, the Board filed a motion to dismiss. On tution-affiliated party of The Buffalo Bank, Eleanor, December 17, 1992, plaintiffs filed an amended West Virginia. complaint. Zemel v. Board of Governors, No. 92-1056 (D. District The Guardian Bank of Columbia, filed May 4, 1992). Age Discrimination Los Angeles, California in Employment Act case. State of Idaho, Department of Finance v. Board of The Federal Reserve Board announced on March 26, Governors, No. 92-70107 (9th Cir., filed February 1993, the issuance of an Order of Assessment of a Civil 24, 1992). Petition for review of Board order return- Money Penalty against The Guardian Bank, Los Aning without action a bank holding company applica- geles, California. tion to relocate its subsidiary bank from Washington to Idaho. The Board's brief was filed on June 29, Sayed Jawhary 1992. Oral argument was held October 6, 1992. Luxembourg, Luxembourg In re Subpoena Served on the Board of Governors, 91-5427, 91-5428 (D.C. Cir., filed December 27, The Federal Reserve Board announced on March 25, 1991). Appeal of order of district court, dated 1993, the issuance of a combined Order of Prohibition, December 3, 1991, requiring the Board and the Order to Cease and Desist, and Assessment of Civil Office of the Comptroller of the Currency to pro- Money Penalty against Sayed Jawhary, an institutionduce confidential examination material to a private affiliated party of BCCI. The Order settles the Federal litigant. On June 26, 1992, the court of appeals Reserve's charges against Jawhary that were made in affirmed the district court order in part, but held its July 29, 1991, notice against BCCI, Jawhary and that the bank examination privilege was not several other individuals associated with BCCI. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

552 Federal Reserve Bulletin • May 1993 Randolph S. Miles and Cynthia Stout the Federal Reserve Bank of San Francisco and Marin Antioch, Illinois National Bancorp, San Rafael, California. The Federal Reserve Board announced on March 25, New East Bancorp 1993, the issuance of Orders of Assessment of a Civil Selma, North Carolina Money Penalty against Randolph S. Miles and Cynthia Stout, institution-affiliated parties of Antioch Holding The Federal Reserve Board announced on March 31, Company, Antioch, Illinois. 1993, the execution of a Written Agreement among the Federal Reserve Bank of Richmond, the Commissioner of Banks of the State of North Carolina and WRITTEN AGREEMENTS APPROVED BY FEDERAL New East Bancorp, Selma, North Carolina. RESERVE BANKS Marin National Bancorp San Rafael, California The Federal Reserve Board announced on March 31, 1993, the execution of a Written Agreement between Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

553 Directors of Federal Reserve Banks and Branches Regional decentralization and a combination of Class C. Directors are chosen without discriminagovernmental and private characteristics are impor- tion as to race, creed, color, sex, or national origin. tant hallmarks of the uniqueness of the Federal Class A directors of each Reserve Bank repre- Reserve System. Under the Federal Reserve Act, sent the stockholding member banks of the Federal decentralization was achieved by division of the Reserve District. Class B and Class C directors country into twelve regions called Federal Reserve represent the public and are chosen with due, but Districts, and the establishment in each District of a not exclusive, consideration to the interests of agriseparately incorporated Federal Reserve Bank with culture, commerce, industry, services, labor, and its own board of directors. The blending of govern- consumers; they may not be officers, directors, or mental and private characteristics is provided employees of any bank. In addition, Class C directhrough ownership of the stock of the Reserve tors may not be stockholders of any bank. The Bank by member banks in its District who also Board of Governors designates annually one Class elect the majority of the board of directors, and by C director as chairman of the board of directors of the general supervision of the Reserve Banks by each District Bank, and designates another Class C the Board of Governors, an agency of the federal director as deputy chairman. government. The Board also appoints a minority of Each of the twenty-five Branches of Federal each board of directors. Thus, there are essential Reserve Banks has a board of either seven or five elements of regional participation and counsel in directors, a majority of whom are appointed by the the conduct of the System's affairs for which the parent Federal Reserve Bank; the others are ap- Federal Reserve relies importantly on the contribu- pointed by the Board of Governors. One of the tions of the directors of the Federal Reserve Banks Board's appointees is designated annually as chairand Branches. man of the board of that Branch in a manner The following list of directors of Federal prescribed by the parent Federal Reserve Bank. Reserve Banks and Branches shows for each direc- The names of the chairman and deputy chairman tor the class of directorship, the principal business of the board of directors of each Reserve Bank and affiliation, and the date the current term expires. of the chairman of each Branch are published Each Federal Reserve Bank has nine members on monthly in the Federal Reserve Bulletin.1 its board of directors: the member banks elect the three Class A and three Class B directors, and the Board of Governors appoints the three directors in 1. The current list appears on page A94 of this Bulletin. Term expires DISTRICT 1—BOSTON December 31 Class A David A. Page President and Chief Executive Officer, Ocean National Bank of 1993 Kennebunk, Kennebunk, Maine Robert M. Silva President, Chief Executive Officer, and Director, The Citizens 1994 National Bank, Putnam, Connecticut Ira Stepanian Chairman and Chief Executive Officer, The Bank of Boston 1995 Corporation, Boston, Massachusetts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

554 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 1—Continued December 31 Class B Stephen R. Levy Chairman of the Board and Chief Executive Officer, Bolt Beranek and 1993 Newman, Inc., Cambridge, Massachusetts Edward H. Ladd Chairman and Chief Executive Officer, Standish, Ayer and Wood, 1994 Inc., Boston, Massachusetts Joan T. Bok Chairman of the Board, New England Electric System, Westborough, 1995 Massachusetts Class C John E. Flynn Executive Director, The Quality Connection, East Dennis, 1993 Massachusetts Jerome H. Grossman Chairman of the Board and Chief Executive Officer, New England 1994 Medical Center, Inc., Boston, Massachusetts Warren B. Rudman, Esq. Sheehan, Phinney, Bass, and Green, Manchester, New Hampshire 1995 DISTRICT 2—NEW YORK Class A Barbara Harding Chairman of the Board and Chief Executive Officer, Phillipsburg 1993 National Bank and Trust Company, Phillipsburg, New Jersey Thomas G. Labrecque Chairman and Chief Executive Officer, The Chase Manhattan Bank, 1994 N.A., New York, New York Robert G. Wilmers Chairman, President, and Chief Executive Officer, Manufacturers and 1995 Traders Trust Company, Buffalo, New York Class B Rand V. Araskog Chairman, President, and Chief Executive Officer, ITT Corporation, 1993 New York, New York Robert E. Allen Chairman and Chief Executive Officer, American Telephone and 1994 Telegraph Company, Basking Ridge, New Jersey William C. Steere, Jr. Chairman of the Board and Chief Executive Officer, PFIZER Inc., 1995 New York, New York Class C Ellen V. Futter President, Barnard College, New York, New York 1993 Maurice R. Greenberg Chairman and Chief Executive Officer, American International Group, 1994 Inc., New York, New York Cyrus R. Vance Presiding Partner, Simpson Thacher & Bartlett, 1995 New York, New York BUFFALO BRANCH Appointed by the Federal Reserve Bank Susan A. McLaughlin General Credit Manager, Eastman Kodak Company, 1993 Rochester, New York Charles M. Mitschow Senior Executive Vice President, Regional Banking, Marine Midland 1994 Bank, N.A., Buffalo, New York Richard H. Popp Operating Partner, South view Farm, Castile, New York 1994 George W. Hamlin IV President and Chief Executive Officer, The Canandaigua National 1995 Bank and Trust Company, Canandaigua, New York Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directors of Federal Reserve Banks and Branches 555 Term expires DISTRICT 2—Continued December 31 Buffalo Branch—Continued Appointed by the Board of Governors Joseph J. Castiglia President and Chief Executive Officer, Pratt & Lambert, Inc., 1993 Buffalo, New York Donald L. Rust Plant Manager, General Motors Powertrain Division, Tonawanda 1994 Engine Plant, Buffalo, New York Herbert L. Washington HLW Fast Track, Inc., Rochester, New York 1995 DISTRICT 3—PHILADELPHIA Class A President and Chief Executive Officer, United Jersey Bank/South, 1993 Gary F. Simmerman N.A., Cherry Hill, New Jersey President and Chief Executive Officer, The First National Bank of 1994 H. Bernard Lynch Wyoming, Wyoming, Delaware President and Chief Executive Officer, Keystone Financial, Inc., 1995 Carl L. Campbell Harrisburg, Pennsylvania Class B J. Richard Jones President and Chief Executive Officer, Jackson-Cross Company, 1993 Philadelphia, Pennsylvania James A. Hagen Chairman, President, and Chief Executive Officer, Consolidated Rail 1994 Corporation, Philadelphia, Pennsylvania David W. Huggins President and Chief Executive Officer, RMS Technologies, Inc., 1995 Marlton, New Jersey Class C Jane G. Pepper President, The Pennsylvania Horticultural Society, 1993 Philadelphia, Pennsylvania Donald J. Kennedy Business Manager, International Brotherhood of Electrical Workers, 1994 Local Union No. 269, Trenton, New Jersey James M. Mead President, Capital Blue Cross, Harrisburg, Pennsylvania 1995 DISTRICT 4—CLEVELAND Class A Alfred C. Leist Chairman, President and Chief Executive Officer, Apple Creek 1993 Banking Company, Apple Creek, Ohio William T. McConnell President, The Park National Bank, Newark, Ohio 1994 Edward B. Brandon Chairman and Chief Executive Officer, National City Corporation, 1995 Cleveland, Ohio Class B Verna K. Gibson Business Consultant, Columbus, Ohio 1993 Douglas E. Olesen President and Chief Executive Officer, Battelle Memorial Institute, 1994 Columbus, Ohio I.N. Rendall Harper, Jr. President and Chief Executive Officer, American Micrographics 1995 Company, Inc., Monroeville, Pennsylvania Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

556 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 4—Continued December 31 Class C John R. Hodges President, Ohio AFL-CIO, Columbus, Ohio 1993 G. Watts Humphrey President, GWH Holdings, Inc., Pittsburgh, Pennsylvania 1994 A. William Reynolds Chairman and Chief Executive Officer, GenCorp, Fairlawn, Ohio 1995 CINCINNATI BRANCH Appointed by the Federal Reserve Bank Jack W. Buchanan President, Sphar & Company, Inc., Winchester, Kentucky 1993 John N. Taylor, Jr. Chairman and Chief Executive Officer, Kurz-Kasch, Inc., 1993 Dayton, Ohio Marvin J. Stammen President and Chief Executive Officer, Second National Bank, 1994 Greenville, Ohio Jerry W. Carey President and Chief Executive Officer, Union National Bank and Trust 1995 Company, Barbourville, Kentucky Appointed by the Board of Governors Marvin Rosenberg Partner, Towne Properties, Ltd., Cincinnati, Ohio 1993 Raymond A. Bradbury Chairman, Martin County Coal Corporation, Inez, Kentucky 1994 Eleanor Hicks Hicks & Kinley, International Access Marketing, Cincinnati, Ohio 1995 PITTSBURGH BRANCH Appointed by the Federal Reserve Bank George A. Davidson, Jr. Chairman and Chief Executive Officer, Consolidated Natural Gas 1993 Company, Pittsburgh, Pennsylvania Randall L.C. Russell President and Chief Executive Officer, Ranbar Technology, Inc., 1993 Glenshaw, Pennsylvania David S. Dahlmann President and Chief Executive Officer, Southwest National 1994 Corporation, Greensburg, Pennsylvania Frank V. Cahouet Chairman, President, and Chief Executive Officer, Mellon Bank, N.A., 1995 Pittsburgh, Pennsylvania Appointed by the Board of Governors Sandra L. Phillips Executive Director, Pittsburgh Partnership for Neighborhood 1993 Development, Pittsburgh, Pennsylvania Jack B. Piatt Chairman of the Board and President, Millcraft Industries, Inc., 1994 Washington, Pennsylvania Robert P. Bozzone President and Chief Executive Officer, Allegheny Ludlum 1995 Corporation, Pittsburgh, Pennsylvania DISTRICT 5—RICHMOND Class A James G. Lindley Chairman, President, and Chief Executive Officer, South Carolina 1993 National Bank, Columbia, South Carolina Webb C. Hayes IV President, The Palmer National Bank, Washington, D.C. 1994 Charles E. Weller President, Elkridge National Bank and ENB Financial Corporation, 1995 Elkridge, Maryland Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directors of Federal Reserve Banks and Branches 557 Term expires DISTRICT 5—Continued December 31 Class B Chairman, The North Carolina Enterprise Corporation, 1993 Raleigh, North Carolina Paul A. DelaCourt Retired Senior Vice President, ITT/Carbon Industries, Inc., 1994 Charleston, West Virginia L. Newton Thomas, Jr. Chairman, Dilmar Oil Company, Inc., Florence, South Carolina 1995 R.E. Atkinson, Jr. Class C Stephen Brobeck Executive Director, Consumer Federation of America, 1993 Washington, D.C. Anne Marie Whittemore Partner, McGuire, Woods, Battle & Boothe, Richmond, Virginia 1994 Henry J. Faison President, Faison Associates, Charlotte, North Carolina 1995 BALTIMORE BRANCH Appointed by the Federal Reserve Bank Vacancy 1993 Thomas J. Hughes President, Navy Federal Credit Union, Vienna, Virginia 1994 F. Levi Ruark Chairman of the Board and President, The National Bank of 1994 Cambridge, Cambridge, Maryland Richard M. Adams Chairman and Chief Executive Officer, United Bankshares, Inc., 1995 Parkersburg, West Virginia Appointed by the Board of Governors Michael R. Watson President, Association of Maryland Pilots, Annapolis, Maryland 1993 Rebecca Hahn Windsor Chairman and Chief Executive Officer, Hahn Transportation, Inc., 1994 New Market, Maryland Vacancy 1995 CHARLOTTE BRANCH Appointed by the Federal Reserve Bank Jim M. Cherry, Jr. President and Chief Executive Officer, Williamsburg First National 1993 Bank, Kingstree, South Carolina DDoorrootthhyy HH.. AArraannddaa President, Dohara Associates, Inc., Hilton Head Island, 1994 South Carolina L. Glenn Orr, Jr. Chairman, President, and Chief Executive Officer, Southern National 1994 Corporation, Lumberton, North Carolina David B. Jordan Vice Chairman, Chief Executive Officer, and Director, Security 1995 Capital Bancorp, Salisbury, North Carolina Appointed by the Board of Governors William E. Masters President, Perception, Inc., Easley, South Carolina 1993 Harold D. Kingsmore President and Chief Operating Officer, Graniteville Company, 1994 Graniteville, South Carolina Anne M. Allen President, Anne Allen & Associates, Inc., 1995 Greensboro, North Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

558 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 6—ATLANTA December 31 Class A Chairman and Chief Executive Officer, SunTrust Banks, Inc., 1993 James B. Williams Atlanta, Georgia Chairman and Chief Executive Officer, The First National Bank of 1994 Simpson Russell Florence, Florence, Alabama Chairman of the Board, First National Bank, Oneida, Tennessee 1995 W.H. Swain Class B Andre M. Rubenstein Chairman of the Board and Chief Executive Officer, Rubenstein 1993 Brothers, Inc., New Orleans, Louisiana Victoria B. Jackson President, DSS/ProDiesel, Nashville, Tennessee 1994 J. Thomas Holton Chairman and President, Sherman International Corporation, 1995 Birmingham, Alabama Class C Edwin A. Huston Senior Executive Vice President-Finance, Ryder System, Inc., 1993 Miami, Florida Hugh M. Brown President and Chief Executive Officer, BAMSI, Inc., 1994 Titusville, Florida Leo Benatar Chairman of the Board and President, Engraph, Inc., 1995 Atlanta, Georgia BIRMINGHAM BRANCH Appointed by the Federal Reserve Bank Julian W. Banton Chairman, President, and Chief Executive Officer, SouthTrust Bank of 1993 Alabama, N.A., Birmingham, Alabama Marlin D. Moore, Jr. Chairman, Pritchett-Moore, Inc., Tuscaloosa, Alabama 1994 Columbus Sanders President, Consolidated Industries, Inc., Huntsville, Alabama 1994 J. Stephen Nelson President and Chief Executive Officer, First National Bank, 1995 Brewton, Alabama Appointed by the Board of Governors Donald E. Boomershine President, Better Business Bureau of Central Alabama, Inc., 1993 Birmingham, Alabama Shelton E. Allred Chairman of the Board, President, and Chief Executive Officer, 1994 Frit Incorporated, Ozark, Alabama Patricia B. Compton President, Patco, Inc., Georgiana, Alabama 1995 JACKSONVILLE BRANCH Appointed by the Federal Reserve Bank Hugh H. Jones, Jr. Chairman of the Board, Barnett Bank of Jacksonville, N.A., 1993 Jacksonville, Florida Perry M. Dawson President and Chief Executive Officer, Suncoast Schools Federal 1994 Credit Union, Tampa, Florida Arnold A. Heggestad William H. Dial Professor and Director, College of Business 1994 Administration, University of Florida, Gainesville, Florida Merle L. Graser Chairman and Chief Executive Officer, First National Bank of Venice, 1995 Venice, Florida Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directors of Federal Reserve Banks and Branches 559 Term expires DISTRICT 6—Continued December 31 Jacksonville Branch—Continued Appointed by the Board of Governors Joan Dial Ruffier General Partner, Sunshine Cafes, Orlando, Florida 1993 Samuel H. Vickers Chairman, President, and Chief Executive Officer, Design Containers, 1994 Inc., Jacksonville, Florida Lana Jane Lewis-Brent President, Paul Brent Designer, Inc., Panama City, Florida 1995 MIAMI BRANCH Appointed by the Federal Reserve Bank Steven C. Shimp President, O-A-K/Florida, Inc., Fort Myers, Florida 1993 Pat L. Tornillo, Jr. Executive Vice President, United Teachers of Dade, 1993 Miami, Florida Roberto G. Blanco Vice Chairman and Chief Financial Officer, Republic National 1994 Bank of Miami, Miami, Florida E. Anthony Newton President, Island National Bank of Palm Beach, 1995 Palm Beach, Florida Appointed by the Board of Governors Michael T. Wilson President, Vinegar Bend Farms, Inc., Belle Glade, Florida 1993 Dorothy C. Weaver Executive Vice President, Intercap Investments, Inc., 1994 Coral Gables, Florida R. Kirk Landon Chairman and Chief Executive Officer, American Bankers 1995 Insurance Group, Miami, Florida NASHVILLE BRANCH Appointed by the Federal Reserve Bank Williams E. Arant, Jr. President and Chief Executive Officer, First National Bank of 1993 Knoxville, Knoxville, Tennessee William Baxter Lee III Chairman and President, Southeast Services Corporation, 1994 Knoxville, Tennessee Marguerite W. Sallee President and Chief Executive Officer, Corporate Child Care 1994 Management Services, Nashville, Tennessee James D. Harris President and Chief Executive Officer, Brentwood National Bank, 1995 Brentwood, Tennessee Appointed by the Board of Governors William C. Wallace Vice President-Central Division, American Airlines, 1993 Nashville, Tennessee James R. Tuerff President and Chief Executive Officer, American General Life and 1994 Accident Insurance Company, Nashville, Tennessee Harold A. Black James F. Smith, Jr., Professor of Financial Institutions, 1995 College of Business Administration, University of Tennessee, Knoxville, Tennessee Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

560 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 6—Continued December 31 NEW ORLEANS BRANCH Appointed by the Federal Reserve Bank Howard C. Gaines Chairman and Chief Executive Officer, First National Bank of 1993 Commerce, New Orleans, Louisiana Angus R. Cooper II Chairman and Chief Executive Officer, Cooper/T. Smith Corporation, 1994 Mobile, Alabama Kay L. Nelson Managing Director, Nelson Capital Corporation, 1994 New Orleans, Louisiana Thomas E. Walker President and Chief Executive Officer, Bank of Forest, 1995 Forest, Mississippi Appointed by the Board of Governors Victor Bussie President, Louisiana AFL-CIO, Baton Rouge, Louisiana 1993 Jo Ann Slaydon President, Slaydon Consultants and Insight Productions and 1994 Advertising, Baton Rouge, Louisiana Lucimarian Tolliver Roberts President, Mississippi Coast Coliseum Commission, 1995 Pass Christian, Mississippi DISTRICT 7—CHICAGO Class A David W. Fox Chairman, President, and Chief Executive Officer, The Northern Trust 1993 Corporation and The Northern Trust Company, Chicago, Illinois Stefan S. Anderson Chairman, President, and Chief Executive Officer, 1994 First Merchants Bank, N.A., and First Merchants Corporation, Muncie, Indiana Arnold C. Schultz Chairman, President, and Chief Executive Officer, Grundy National 1995 Bank, Grundy Center, Iowa Class B Associate Professor of Management, Krannert Graduate School of 1993 A. Charlene Sullivan Management, Purdue University, West Lafayette, Indiana President and Chief Executive Officer, Dorr's Pine Grove Farm Co., 1994 Thomas C. Dorr Marcus, Iowa President, Schneider National, Inc., Green Bay, Wisconsin 1995 Donald J. Schneider Class C Robert M. Healey President, Chicago Federation of Labor and Industrial Union Council, 1993 AFL-CIO, Chicago, Illinois Duane L. Burnham Chairman and Chief Executive Officer, Abbott Laboratories, 1994 Abbott Park, Illinois Richard G. Cline Chairman, President, and Chief Executive Officer, NICOR, Inc., 1995 Naperville, Illinois Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directors of Federal Reserve Banks and Branches 561 Term expires DISTRICT 7—Continued December 31 DETROIT BRANCH Appointed by the Federal Reserve Bank Charles E. Allen President and Chief Executive Officer, Graimark Realty Advisors, 1993 Inc., Detroit, Michigan William E. Odom Chairman, Ford Motor Credit Company, Dearborn, Michigan 1993 Daniel R. Smith Chairman and Chief Executive Officer, First of America Bank 1994 Corporation, Kalamazoo, Michigan Norman F. Rodgers President and Chief Executive Officer, Hillsdale County National 1995 Bank, Hillsdale, Michigan Appointed by the Board of Governors Beverly A. Beltaire President, P R Associates, Inc., Detroit, Michigan 1993 John D. Forsyth Executive Director, University of Michigan Hospitals, 1994 Ann Arbor, Michigan J. Michael Moore Chairman and Chief Executive Officer, Invetech Company, 1995 Detroit, Michigan DISTRICT 8—ST. LOUIS Class A Ray U. Tanner Chairman, Director, and Chief Executive Officer, Volunteer Bank, 1993 Jackson, Tennessee Henry G. River, Jr. President and Chief Executive Officer, First National Bank in 1994 Pinckneyville, Pinckneyville, Illinois Douglas M. Lester Chairman and President, Trans Financial Bancorp, Inc., 1995 Bowling Green, Kentucky Class B Warren R. Lee President, W. R. Lee & Associates, Inc., Louisville, Kentucky 1993 President and Chief Executive Officer, Sanderson Plumbing Products, 1994 Sandra B. Sanderson-Chesnut Inc., Columbus, Mississippi President and Chief Executive Officer, Riceland Foods, Inc., 1995 Richard E. Bell Stuttgart, Arkansas Class C Janet McAfee Weakley President, Janet McAfee, Inc., St. Louis, Missouri 1993 Robert H. Quenon Mining Consultant, St. Louis, Missouri 1994 John F. McDonnell Chairman and Chief Executive Officer, McDonnell Douglas 1995 Corporation, St. Louis, Missouri LITTLE ROCK BRANCH Appointed by the Federal Reserve Bank James V. Kelley Chairman, President, and Chief Executive Officer, First United 1993 Bancshares, Inc., El Dorado, Arkansas Mahlon A. Martin President, Winthrop Rockefeller Foundation, Little Rock, Arkansas 1993 Barnett Grace Chairman and Chief Executive Officer, First Commercial Bank, N.A., 1994 Little Rock, Arkansas Mark A. Shelton III President, M.A. Shelton Farming Company, Altheimer, Arkansas 1995 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

562 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 8—Continued December 31 Little Rock Branch—Continued Appointed by the Board of Governors L. Dickson Rake President, Barnes, Quinn, Flake & Anderson, Inc., 1993 Little Rock, Arkansas Robert Daniel Natholz, Jr. Chief Executive Officer, Nabholz Construction Corporation, 1994 Conway, Arkansas Betta Carney President and Chief Executive Officer, World Wide Travel 1995 Service, Inc., Little Rock, Arkansas LOUISVILLE BRANCH Appointed by the Federal Reserve Bank Robert M. Hall Owner, Mike Hall Farm, Seymour, Indiana 1993 Charles D. Storms President and Chief Executive Officer, Red Spot Paint and Varnish 1993 Company, Inc., Evansville, Indiana Thomas E. Sprage is, Jr. President, The Farmers National Bank of Lebanon, 1994 Lebanon, Kentucky Malcolm B. Chancey, Jr. Chairman and Chief Executive Officer, Liberty National Bank, 1995 Louisville, Kentucky Appointed by the Board of Governors John A. Williams Chairman and Chief Executive Officer, Computer Services, Inc. 1993 Paducah, Kentucky Laura M. Douglas Legal Director, Metropolitan Sewer District, 1994 Louisville, Kentucky Daniel L. Ash Consultant, Louisville Energy and Environment Corporation, 1995 Louisville, Kentucky MEMPHIS BRANCH Appointed by the Federal Reserve Bank Thomas M. Garrott President and Chief Operating Officer, National Bank 1993 of Commerce and National Commerce Bancorporation, Memphis, Tennessee Larry A. Watson Chairman of the Board and President, Liberty Federal 1993 Savings Bank, Paris, Tennessee Lewis F. Mallory, Jr. President and Chief Executive Officer, National Bank 1994 of Commerce of Mississippi, Starkville, Mississippi Anthony M. Ramp ley President, Chief Executive Officer, and Director, Arkansas Glass 1995 Container Corporation, Jonesboro, Arkansas Appointed by the Board of Governors Seymour B. Johnson Owner, Kay Planting Company, Indianola, Mississippi 1993 Sidney Wilson Owner, Wilson Automotive Group Inc., Jackson, Tennessee 1994 M. Rita Schroeder President, St. Francis Hospital, Memphis, Tennessee 1995 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directors of Federal Reserve Banks and Branches 563 Term expires DISTRICT 9—MINNEAPOLIS December 31 Class A President and Chief Executive Officer, First State Bank of Warner, 1993 Charles L. Seaman Warner, South Dakota Chairman and Chief Executive Officer, First Bank Montana, N.A., 1994 William W. Strausburg and General Manager, First Bank-Regional Banking Group, Billings, Montana Susanne V. Boxer President and Chief Executive Officer, Houghton National Bank, 1995 Houghton, Michigan Class B Earl R. St. John, Jr. President, St. John Forest Products, Inc., Spalding, Michigan 1993 Duane E. Dingmann President, Trubilt Auto Body, Inc., Eau Claire, Wisconsin 1994 Dennis W. Johnson President, TMI Systems Design Corporation/TMI Transport 1995 Corporation, Dickinson, North Dakota Class C President and Chief Executive Officer, Pioneer Metal Finishing, 1993 Delbert W. Johnson Minneapolis, Minnesota Professor, Consumption and Consumer Economics, Department of 1994 Jean D. Kinsey Agricultural and Applied Economics, University of Minnesota, St. Paul, Minnesota Gerald A. Rauenhorst Chairman of the Board and Chief Executive Officer, Opus 1995 Corporation, Minneapolis, Minnesota HELENA BRANCH Appointed by the Federal Reserve Bank Beverly D. Harris President, Empire Federal Savings and Loan Association, 1993 Livingston, Montana Donald E. Olsson, Jr. Executive Vice President, Ronan State Bank, Ronan, Montana 1994 Nancy M. Stephenson Executive Director, Neighborhood Housing Services, 1994 Great Falls, Montana Appointed by the Board of Governors James E. Jenks Jenks Farms, Hogeland, Montana 1993 Lane W. Basso President, Deaconess Medical Center of Billings, Inc., 1994 Billings, Montana DISTRICT 10—KANSAS CITY Class A Roger L. Reisher Co-Chairman of the Board, FirstBank Holding Company of Colorado, 1993 Lakewood, Colorado Charles I. Moyer Chairman and Chief Executive Officer, The First National Bank of 1994 Phillipsburg, Phillipsburg, Kansas William L. McQuillan President and Chief Executive Officer, City National Bank, 1995 Greeley, Nebraska Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

564 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 10—Continued December 31 Class B Don E. Adams Buffalo, Oklahoma 1993 Frank J. Yaklich, Jr. President and Chief Executive Officer, CF & I Steel Corporation, 1994 Pueblo, Colorado President and Chief Operating Officer, Phillips Petroleum Company, 1995 WW. Allen Bartlesville, Oklahoma Class C President and General Manager, Thomas E. Rodriguez & Associates, 1993 P.C., Aurora, Colorado Thomas E. Rodriguez Chairman of the Board and President, Puritan-Bennett Corporation, 1994 Overland Park, Kansas Burton A. Dole, Jr. President and Chief Executive Officer, Godfather's Pizza, Inc., 1995 Omaha, Nebraska Herman Cain DENVER BRANCH Appointed by th ? Federal Reserve Bank Peter R. Decker President, Decker & Associates, Denver, Colorado 1993 Clifford E. Kirk President, First National Bank of Gillette, Gillette, Wyoming 1994 Richard I. Ledbet er President and Chief Executive Officer, First National Bank of 1994 Farmington, Farmington, New Mexico Peter I. Wold Partner, Wold Oil and Gas Company, Casper, Wyoming 1995 Appointed by th e Board of Governors Gilbert Sanchez President, New Mexico Highlands University, 1993 Las Vegas, New Mexico Barbara B. Grogan President, Western Industrial Contractors, Inc., Denver, Colorado 1994 Sandra K. Woods Vice President, Adolph Coors Company, Corporate Real Estate, 1995 Golden, Colorado OKLAHOMA CITY BRANCH Appointed by th e Federal Reserve Bank Gordona Duca President and Owner, Gordona Duca, Inc., Realtors, 1993 Tulsa, Oklahoma C. Kendric Fergeson Chairman of the Board and Chief Executive Officer, The National 1993 Bank of Commerce, Altus, Oklahoma John Wm. Laisle President and Chief Executive Officer, MidFirst Bank, SSB, 1994 Oklahoma City, Oklahoma Dennis M. Mitchell President, Citizens Bank of Ardmore, Ardmore, Oklahoma 1995 Appointed by the Board of Governors Ernest L. Holloway President, Langston University, Langston, Oklahoma 1993 Victor R. Schock President and Chief Executive Officer, Credit Counseling Services of 1994 Oklahoma, Inc., Tulsa, Oklahoma Barry L. Eller Sr. Vice President and General Manager, MerCruiser, Mercury Marine 1995 Business Unit, Division of Brunswick Corp., Stillwater, Oklahoma Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directors of Federal Reserve Banks and Branches 565 Term expires DISTRICT 10— Continued December 31 OMAHA BRANCH Appointed by the Federal Reserve Bank Bruce R. Lauritzen President, First National Bank of Omaha, Omaha, Nebraska 1993 Donald A. Leu President and Chief Executive Officer, Consumer Credit Counseling 1993 Service, Omaha, Nebraska Thomas H. Olson President and Chief Executive Officer, Lisco State Bank, 1993 Lisco, Nebraska Robert L. Peterson Chairman, President, and Chief Executive Officer, IBP, Inc., 1995 Dakota City, Nebraska Appointed by the Board of Governors LeRoy W. Thom President, T-L Irrigation Company, Hastings, Nebraska 1993 Arthur L. Shoener Executive Vice President-Operations, Union Pacific Railroad, 1994 Omaha, Nebraska Sheila Griffin Special Advisor to the Governor of the State of Nebraska for 1995 International Trade, Lincoln, Nebraska DISTRICT 11—DALLAS Class A T.C. Frost Chairman of the Board, Frost National Bank, San Antonio, Texas 1993 Eugene M. Phillips Chairman of the Board and President, The First National Bank of 1994 Panhandle, Panhandle, Texas Jeff Austin, Jr. Chairman of the Board, Texas National Bank, Longview, Texas 1995 Class B J.B. Cooper, Jr. Farmer, Roscoe, Texas 1993 Peyton Yates President, Yates Drilling Company and Executive Vice President, 1994 Yates Petroleum Corporation, Artesia, New Mexico Milton Carroll Chairman of the Board and Chief Executive Officer, Instrument 1995 Products, Inc., Houston, Texas Class C James A. Martin Third General Vice President, International Association of Bridge, 1993 Structural and Ornamental Iron Workers, Austin, Texas Cece Smith General Partner, Phillips-Smith Specialty Retail Group, 1994 Dallas, Texas Leo E. Linbeck, Jr. Chairman of the Board and Chief Executive Officer, Linbeck 1995 Construction Corporation, Houston, Texas EL PASO BRANCH Appointed by the Federal Reserve Bank Veronica K. Callaghan Vice President and Principal, KASCO Ventures, Inc., El Paso, Texas 1993 Ben H. Haines, Jr. President and Chief Operating Officer, First National Bank of Dona 1993 Ana County, Las Cruces, New Mexico Hugo Bustamante, Jr. Owner and Chief Executive Officer, ProntoLube, El Paso, Texas 1994 Wayne Merritt Chairman of the Board and President, Texas National Bank of 1995 Midland, Midland, Texas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

566 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 11—Continued December 31 El Paso Branch—Continued Appointed by the Board of Governors Diana S. Natalicio President, The University of Texas at El Paso, El Paso, Texas 1993 Alvin T. Johnson President, Management Assistance Corporation of America, 1994 El Paso, Texas W. Thomas Beard III President, Leoncita Cattle Company, Alpine, Texas 1995 HOUSTON BRANCH Appointed by the Federal Reserve Bank Walter E. Johnson President and Chief Executive Officer, Southwest Bank of Texas, 1993 Houston, Texas Clive Runnells President and Director, Runnells Cattle Company, Bay City, Texas 1993 Tieman H. Dippel, Jr. Chairman of the Board and President, Brenham Bancshares, Inc., 1994 Brenham, Texas J. Michael Solar Principal Attorney, Solar & Ellis L.L.P., Houston, Texas 1995 Appointed by the Board of Governors Robert C. McNair Chairman and Chief Executive Officer, Cogen Technologies, Inc., 1993 Houston, Texas Isaac H. Kempner III Chairman of the Board, Imperial Holly Corporation, 1994 Sugar Land, Texas Judy Ley Allen Partner and Administrator, Allen Investments, Houston, Texas 1995 SAN ANTONIO BRANCH Appointed by the Federal Reserve Bank Javier Garza Executive Vice President, The Laredo National Bank, Laredo, Texas 1993 Sam R. Sparks President, Sam R. Sparks, Inc., Progreso, Texas 1993 T. Jack Moore III Owner and Manager, T.J. Moore Lumber Inc., Ingram, Texas 1994 Gregory W. Crane President and Chief Executive Officer, Broadway National Bank, 1995 San Antonio, Texas Appointed by the Board of Governors Erich Wendl President and Chief Executive Officer, Maverick Markets, Inc., 1993 Corpus Christi, Texas Roger R. Hemminghaus Chairman, President, and Chief Executive Officer, Diamond 1994 Shamrock, Inc., San Antonio, Texas Carol L. Thompson Vice President, Computerland, Austin, Texas 1995 DISTRICT 12—SAN FRANCISCO Class A Richard L. Mount Chairman, President, and Chief Executive Officer, Saratoga Bancorp, 1993 Saratoga, California William E.B. Siart President, First Interstate Bancorp, Los Angeles, California 1994 Carl J. Schmitt Chairman of the Board and Chief Executive Officer, University 1995 National Bank & Trust Company, Palo Alto, California Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Directors of Federal Reserve Banks and Branches 567 Term expires DISTRICT 12—Continued December 31 Class B John N. Nordstrom Co-Chairman of the Board, Nordstrom, Inc., Seattle, Washington 1993 William L. Tooley Chairman, Tooley & Company, Investment Builders, 1994 Los Angeles, California E. Kay Stepp Former President and Chief Operating Officer, Portland General 1995 Electric Company, Portland, Oregon Class C James A. Vohs Chairman and Chief Executive Officer (Retired), Kaiser Foundation 1993 Health Plan, Inc., and Kaiser Foundation Hospitals, Oakland, California Judith M. Runstad Partner and Managing Director, Foster Pepper and Shefelman, 1994 Seattle, Washington Cynthia A. Parker Executive Director, Anchorage Neighborhood Housing Services, Inc., 1995 Anchorage, Alaska LOS ANGELES BRANCH Appointed by the Federal Reserve Bank Anita Landecker Regional Vice President, Local Initiatives Support Corporation, 1993 Los Angeles, California Antonia Hernandez President and General Counsel, Mexican American Legal Defense and 1994 Educational Fund, Los Angeles, California William S. Randall Chief Executive Officer, Southwest Region, First Interstate Bank, 1994 Phoenix, Arizona Steven R. Sensenbach President and Chief Executive Officer, Vineyard National Bank, 1995 Rancho Cucamonga, California Appointed by the Board of Governors Donald G. Phelps Chancellor, Los Angeles Community College District, 1993 Los Angeles, California David L. Moore President, Western Growers Association, Newport Beach, California 1994 Anne L. Evans Chairman, Evans Hotels, San Diego, California 1995 PORTLAND BRANCH Appointed by the Federal Reserve Bank Cecil W. Drinkward President, Hoffman Construction Company, Portland, Oregon 1993 Stephen G. Kimball Chairman, President, and Chief Executive Officer, Baker Boyer 1993 Bancorp, Walla Walla, Washington Stuart H. Compton Chairman, Pioneer Trust Bank, N.A., Salem, Oregon 1994 Elizabeth K. Johnson President, TransWestern Helicopters, Inc., Scappoose, Oregon 1995 Appointed by the Board of Governors Ross R. Runkel Professor of Law, Willamette University, Salem, Oregon 1993 William A. Hilliard Editor, The Oregonian, Portland, Oregon 1994 Carol A. Whipple Owner/Manager, Rocking C Ranch, Elkton, Oregon 1995 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

568 Federal Reserve Bulletin • May 1993 Term expires DISTRICT 12—Continued December 31 SALT LAKE CITY BRANCH Appointed by the Federal Reserve Bank Curtis H. Eaton Vice President; Manager, Community Banking Area; and Member 1993 of the Board of Directors, First Security Bank of Idaho, N.A., Twin Falls, Idaho Virginia P. Kelson Partner, Ralston Consulting Group, Salt Lake City, Utah 1993 Gerald R. Sherratt President, Southern Utah University, Cedar City, Utah 1994 Roy C. Nelson President, Bank of Utah, Ogden, Utah 1995 Appointed by the Board of Governors Constance G. Hogland Executive Director, Boise Neighborhood Housing Services, Inc., 1993 Boise, Idaho H. Roger Boyer Chairman of the Board, The Boyer Company, Salt Lake City, Utah 1994 Gary G. Michael Chairman and Chief Executive Officer, Albertson's, Inc., 1995 Boise, Idaho SEATTLE BRANCH Appointed by the Federal Reserve Bank B.R. Beeksma Chairman of the Board, InterWest Savings Bank, 1993 Oak Harbor, Washington Gerry B. Cameron Vice Chairman, U.S. Bancorp, Seattle, Washington 1993 Thomas E. Cleveland Chairman of the Board and Chief Executive Officer, Enterprise Bank 1994 of Bellevue, N.A., Bellevue, Washington Constance L. Proctor Partner, Alston, Courtnage, MacAulay & Proctor, 1995 Seattle, Washington Appointed by the Board of Governors George F. Russell, Jr. Chairman, Frank Russell Company, Tacoma, Washington 1993 William R. Wiley Senior Vice President, Battelle Memorial Institute; Director, 1994 Battelle/Pacific Northwest Division; and Director, U.S. Department of Energy, Pacific Northwest Laboratory, Richland, Washington Emilie A. Adams President and Chief Executive Officer, Better Business Bureau, 1995 Seattle, Washington Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A1 Financial and Business Statistics CONTENTS WEEKLY REPORTING COMMERCIAL BANKS Assets and liabilities A3 Guide to Tabular Presentation A21 All reporting banks A23 Branches and agencies of foreign banks Domestic Financial Statistics MONEY STOCK AND BANK CREDIT FINANCIAL MARKETS A4 Reserves, money stock, liquid assets, and debt A24 Commercial paper and bankers dollar measures acceptances outstanding A5 Reserves of depository institutions, Reserve Bank A24 Prime rate charged by banks on short-term credit business loans A6 Reserves and borrowings—Depository A25 Interest rates—money and capital markets institutions A26 Stock market—Selected statistics A7 Selected borrowings in immediately available A27 Selected financial institutions—Selected assets funds—Large member banks and liabilities POLICY INSTRUMENTS FEDERAL FINANCE A8 Federal Reserve Bank interest rates All Federal fiscal and financing operations A9 Reserve requirements of depository institutions A28 U.S. budget receipts and outlays A10 Federal Reserve open market transactions A29 Federal debt subject to statutory limitation A29 Gross public debt of U.S. Treasury—Types and ownership FEDERAL RESERVE BANKS A30 U.S. government securities dealers—Transactions All Condition and Federal Reserve note statements A31 U.S. government securities dealers—Positions A12 Maturity distribution of loan and security and financing holdings A32 Federal and federally sponsored credit agencies—Debt outstanding MONETARY AND CREDIT AGGREGATES A13 Aggregate reserves of depository institutions SECURITIES MARKETS AND and monetary base CORPORATE FINANCE A14 Money stock, liquid assets, and debt measures A16 Bank debits and deposit turnover A33 New security issues—State and local A17 Loans and securities—All commercial banks governments and corporations A34 Open-end investment companies—Net sales and asset position A34 Corporate profits and their distribution COMMERCIAL BANKING INSTITUTIONS A34 Nonfarm business expenditures on new A18 Major nondeposit funds plant and equipment A19 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 • May 1993 Domestic Financial Statistics—Continued A57 Selected U.S. liabilities to foreign official institutions REAL ESTATE A36 Mortgage markets REPORTED BY BANKS A37 Mortgage debt outstanding IN THE UNITED STATES A57 Liabilities to and claims on foreigners CONSUMER INSTALLMENT CREDIT A58 Liabilities to foreigners A60 Banks' own claims on foreigners A3 8 Total outstanding and net change A61 Banks' own and domestic customers' claims on A3 8 Terms foreigners A61 Banks' own claims on unaffiliated foreigners A62 Claims on foreign countries—Combined FLOW OF FUNDS domestic offices and foreign branches A39 Funds raised in U.S. credit markets A41 Summary of financial transactions REPORTED BY NONBANKING BUSINESS A42 Summary of credit market debt outstanding ENTERPRISES IN THE UNITED STATES A43 Summary of financial assets and liabilities A63 Liabilities to unaffiliated foreigners A64 Claims on unaffiliated foreigners Domestic Nonfinancial Statistics SELECTED MEASURES SECURITIES HOLDINGS AND TRANSACTIONS A44 Nonfinancial business activity—Selected A65 Foreign transactions in securities measures A66 Marketable U.S. Treasury bonds and A45 Labor force, employment, and unemployment notes—Foreign transactions A46 Output, capacity, and capacity utilization A47 Industrial production—Indexes and gross value A49 Housing and construction INTEREST AND EXCHANGE RATES A50 Consumer and producer prices A67 Discount rates of foreign central banks A51 Gross domestic product and income A67 Foreign short-term interest rates A52 Personal income and saving A68 Foreign exchange rates A69 Guide to Statistical Releases and International Statistics Special Tables SUMMARY STATISTICS SPECIAL TABLES A53 U.S. international transactions—Summary A54 U.S. foreign trade A70 Assets and liabilities of commercial banks, A54 U.S. reserve assets December 31, 1992 A54 Foreign official assets held at Federal Reserve A76 Terms of lending at commercial banks, Banks February 1-5, 1993 A55 Foreign branches of U.S. banks—Balance A80 Assets and liabilities of U.S. branches and sheet data agencies of foreign banks, December 31, 1992 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 Guide to Tabular Presentation SYMBOLS AND ABBREVIATIONS c Corrected GNMA Government National Mortgage Association e Estimated GDP Gross domestic product n.a. Not available HUD Department of Housing and Urban n.e.c. Not elsewhere classified Development P Preliminary IMF International Monetary Fund r Revised (Notation appears on column heading IO Interest only when about half of the figures in that column IPCs Individuals, partnerships, and corporations are changed.) IRA Individual retirement account * Amounts insignificant in terms of the last decimal MMDA Money market deposit account place shown in the table (for example, less than NOW Negotiable order of withdrawal 500,000 when the smallest unit given is millions) OCD Other checkable deposit 0 Calculated to be zero OPEC Organization of Petroleum Exporting Countries Cell not applicable OTS Office of Thrift Supervision ATS Automatic transfer service PO Principal only CD Certificate of deposit REIT Real estate investment trust CMO Collateralized mortgage obligation REMIC Real estate mortgage investment conduit FFB Federal Financing Bank RP Repurchase agreement FHA Federal Housing Administration RTC Resolution Trust Corporation FHLBB Federal Home Loan Bank Board SAIF Savings Association Insurance Fund FHLMC Federal Home Loan Mortgage Corporation SCO Securitized credit obligation FmHA Farmers Home Administration SDR Special drawing right FNMA Federal National Mortgage Association SIC Standard Industrial Classification FSLIC Federal Savings and Loan Insurance Corporation SMSA Standard metropolitan statistical area G-7 Group of Seven VA Veterans Administration G-10 Group of Ten GENERAL INFORMATION In many of the tables, components do not sum to totals because include not fully guaranteed issues) as well as direct obligaof rounding. tions of the Treasury. "State and local government" also in- Minus signs are used to indicate (1) a decrease, (2) a negative cludes municipalities, special districts, and other political figure, or (3) an outflow. subdivisions. "U.S. government securities" may include guaranteed issues of U.S. government agencies (the flow of funds figures also Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A4 Domestic Nonfinancial Statistics • May 1993 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted1 1992 1992 1993 MMoonneettaarryy aanndd ccrreeddiitt aaggggrreeggaattee Qlr Q2 Q3 Q4r Oct/ Nov.r Dec/ Jan/ Feb. Reserves of depository institutions2 1 Total 25.2 14.8r 9.3 25.8 36.6 22.2 12.0 6.9 5.6 2 Required 25.3 15.3r 9.9 25.3 35.4 23.4 9.6 4.7 9.3 3 Nonborrowed 25.8 14.6r 8.4 27.1 40.2 23.2 11.6 6.0 8.3 4 Monetary base 9.3 7.8 10.5 12.6 11.5 10.4 10.2 8.3 8.6 Concepts of money, liquid assets, and debt4 5 Ml 15.4 10.6 11.7 16.8 19.1 15.7 8.8 7.7 -.5 6 M2 3.2 .3r .8 2.7 3.9 2.3 -.3 -3.1 -4.2 7 M3 1.9 -.6r .1 -.2 -.9 -.4 -3.3 -7.1 -2.3 8 L 1.3 1.3r 1.1 2.0 1.3 3.1 -.9 -2.4 n.a. 9 Debt 4.2 5.7r 4.9 4.4 2.8 5.7 6.2 3.2 n.a. Nontrqnsaction components 10 In M2 -1.1 -3.4r -3.2 -2.8 -2.2 -3.2 -4.0 -7.6 -5.7 11 In M3 only6 -4.2 -4.9 -3.6 -14.3 -24.4 -13.8 -18.7 -27.8 8.1 Time and savings deposits Commercial banks 12 Savings, including MMDAs 18.8 12.6 10.9 12.9 14.5 10.3 5.7 -3.2 2.5 13 Small time -19.6 -13.4 -17.4 -17.1 -17.3 -18.5 -11.5 -10.4 2.1 14 Large time • -15.2 -13.3 -18.6 -18.4 -26.5 -16.2 -10.7 -26.9 -6.3 Thrift institutions 15 Savings, including MMDAs 20.2 18.1 9.2 8.7 7.7 9.9 5.6 1.1 -10.0 16 Small time -24.0 -29.8 -18.6 -21.6 -26.8 -21.0 -21.1 -15.5 -24.1 17 Large time ' -26.8 -31.9 -14.9 -11.3 .0 -29.1 -21.0 -3.6 -28.6 Money market mutual funds 18 General purpose and broker-dealer -3.0 -6.6r -7.4r -4.2 8.4 -9.0 -4.9 -8.1 -20.5 19 Institution-only 33.0 23.9 32.9 -19.4 -53.3 -9.7 -39.6 -27.3 25.5 Debt components4 20 Federal 10.0 14.4 10.7r 6.0 -1.1 10.5 16.3 2.9 n.a. 21 Nonfederal 2.3 2.8r 1.9 3.8 4.2 4.0 2.7 3.3 n.a. 1. Unless otherwise noted, rates of change are calculated from average offices in the United Kingdom and Canada, and (3) balances in both taxable and amounts outstanding during preceding month or quarter. tax-exempt, institution-only money market funds. Excludes amounts held by 2. Figures incorporate adjustments for discontinuities, or "breaks," associ- depository institutions, the U.S. government, money market funds, and foreign ated with regulatory changes in reserve requirements. (See also table 1.20.) banks and official institutions. Also excluded is the estimated amount of overnight 3. Seasonally adjusted, break-adjusted monetary base consists of (1) season- RPs and Eurodollars held by institution-only money market funds. Seasonally ally adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted M3 is computed by adjusting its non-M2 component as a whole and then adjusted currency component of the money stock, plus (3) (for all quarterly adding this result to seasonally adjusted M2. reporters on the "Report of Transaction Accounts, Other Deposits, and Vault L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Cash" and for all weekly reporters whose vault cash exceeds their required Treasury securities, commercial paper, and bankers acceptances, net of money reserves) the seasonally adjusted, break-adjusted difference between current vault market fund holdings of these assets. Seasonally adjusted L is computed by cash and the amount applied to satisfy current reserve requirements. summing U.S. savings bonds, short-term Treasury securities, commercial paper, 4. Composition of the money stock measures and debt is as follows: and bankers acceptances, each seasonally adjusted separately, and then adding Ml: (1) currency outside the Treasury, Federal Reserve Banks, and the vaults this result to M3. of depository institutions; (2) travelers checks of nonbank issuers; (3) demand Debt: Debt of domestic nonfinancial sectors consists of outstanding creditdeposits at all commercial banks other than those due to depository institutions, market debt of the U.S. government, state and local governments, and private the U.S. government, and foreign banks and official institutions, less cash items in nonfinancial sectors. Private debt consists of corporate bonds, mortgages, conthe process of collection and Federal Reserve float; and (4) other checkable sumer credit (including bank loans), other bank loans, commercial paper, bankers deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and acceptances, and other debt instruments. Data are derived from the Federal automatic transfer service (ATS) accounts at depository institutions, credit union Reserve Board's flow of funds accounts. Data on debt of domestic nonfinancial share draft accounts, and demand deposits at thrift institutions. Seasonally sectors are monthly averages, derived by averaging adjacent month-end levels. adjusted Ml is computed by summing currency, travelers checks, demand Growth rates for debt reflect adjustments for discontinuities over time in the levels deposits, and OCDs, each seasonally adjusted separately. of debt presented in other tables. M2: Ml plus (1) overnight (and continuing-contract) repurchase agreements 5. Sum of (1) overnight RPs and Eurodollars, (2) money market fund balances (RPs) issued by all depository institutions and overnight Eurodollars issued to (general purpose and broker-dealer), (3) MMDAs, and (4) savings and small time U.S. residents by foreign branches of U.S. banks worldwide, (2) savings (includ- deposits. ing MMDAs) and small time deposits (time deposits—including retail repurchase 6. Sum of (1) large time deposits, (2) term RPs, (3) term Eurodollars of U.S. agreements (RPs)—in amounts of less than $100,000), and (3) balances in both residents, and (4) money market fund balances (institution-only), less (5) a taxable and tax-exempt general-purpose and broker-dealer money market funds. consolidation adjustment that represents the estimated amount of overnight RPs Excludes individual retirement accounts (IRAs) and Keogh balances at depository and Eurodollars held by institution-only money market funds. This sum is institutions and money market funds. Also excludes all balances held by U.S. seasonally adjusted as a whole. commercial banks, money market funds (general purpose and broker-dealer), 7. Small time deposits—including retail RPs—are those issued in amounts of foreign governments and commercial banks, and the U.S. government. Season- less than $100,000. All IRA and Keogh account balances at commercial banks and ally adjusted M2 is computed by adjusting its non-Mi component as a whole and thrift institutions are subtracted from small time deposits. then adding this result to seasonally adjusted Ml. 8. Large time deposits are those issued in amounts of $100,000 or more, M3: M2 plus (1) large time deposits and term RP liabilities (in amounts of excluding those booked at international banking facilities. $100,000 or more) issued by all depository institutions, (2) term Eurodollars held 9. Large time deposits at commercial banks less those held by money market by U.S. residents at foreign branches of U.S. banks worldwide and at all banking funds, depository institutions, and foreign banks and official institutions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Money Stock and Bank Credit A5 1.11 RESERVES OF DEPOSITORY INSTITUTIONS AND RESERVE BANK CREDIT1 Millions of dollars Average of Average of daily figures for week ending on date indicated daily figures Factor 1992 1993 1993 Dec. Jan. Feb. Jan. 13 Jan. 20 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 335,874 336,822r 334,937 336,140 337,363 332,695r 336,314 332,443 334,964 333,564 U.S. government securities2 2 Bought outright—System account 295,258 297,541 297,289 299,052 298,631 296,880 297,221 296,017 297,127 298,136 3 Held under repurchase agreements ... 3,780 2,582 1,358 864 2,290 0 2,863 0 1,008 0 Federal agency obligations 4 Bought outright 5,477 5,379 5,271 5,413 5,403 5,331 5,310 5,302 5,260 5,260 5 Held under repurchase agreements ... 174 189 73 32 168 0 72 0 64 0 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 62 182 22 40 341 71 30 15 14 24 8 Seasonal credit 18 10 18 6 15 10 11 17 19 22 9 Extended credit 1 1 0 0 1 3 2 0 0 0 10 Float 1,310 1,025r 763 1,132 741 520r -27 491 1,110 999 11 Other Federal Reserve assets 29,795 29,913 30,143 29,601 29,773 29,879 30,833 30,600 30,362 29,123 12 Gold stock 11,057 11,055 11,055 11,056 11,055 11,055 11,055 11,055 11,055 11,055 13 Special drawing rights certificate account . 8,663 8,018 8,018 8,018 8,018 8,018 8,018 8,018 8,018 8,018 14 Treasury currency outstanding 21,432r 21,470r 21,519 21,461r 21,471r 21,480" 21,490 21,504 21,518 21,532 ABSORBING RESERVE FUNDS 15 Currency in circulation 330,548r 330,334r 329,479 331,876r 329,742r 327,913r 326,928 328,530 330,488 330,230 16 Treasury cash holdings 515 505 467 505 502 502 502 466 464 463 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 6,011 7,693 6,018 5,492 6,988 8,761 11,447 5,391 4,791 4,967 18 Foreign 201 215 243 196 212 215 255 222 240 237 19 Service-related balances and adjustments 5,953 6,426r 6,304 6,539 6,969 6,224r 6,004 6,595 6,197 6,184 20 Other 295 285 302 255 282 276 284 298 305 306 21 Other Federal Reserve liabilities and capital 8,109 8,523 9,006 8,262 8,692 8,739 9,076 9,050 8,925 8,928 22 Reserve balances with Federal Reserve Banks3 25,394 23,386r 23,709 23,550 24,520 20,618r 22,382 22,467 24,144 22,853 End-of-month figures Wednesday figures Dec. Jan. Feb. Jan. 13 Jan. 20 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 342,512 333,077r 337,550 334,532 348,010 332,644r 338,816 330,218 336,621 335,258 U.S. government securities 2 Bought outright—System account — 295,011 296,977 298,835 296,764 296,550 297,426 297,820 293,932 297,025 299,778 3 Held under repurchase agreements ... 7,463 0 2,655 0 10,128 0 5,838 0 2,831 0 Federal agency obligations 4 Bought outright 5,413 5,310 5,225 5,413 5,348 5,310 5,310 5,260 5,260 5,260 5 Held under repurchase agreements ... 631 0 275 0 1,027 0 0 0 150 0 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 671 21 40 36 2,233 251 82 16 17 27 8 Seasonal credit 4 10 17 4 5 15 11 19 22 22 9 Extended credit 0 4 •0 0 2 4 0 0 0 0 10 Float 3,253 226r 663 2,558 2,1% -343r -1,263 179 1,887 930 11 Other Federal Reserve assets 30,067 30,529 29,841 29,757 30,521 29,982 31,018 30,812 29,430 29,241 12 Gold stock 11,056 11,055 11,055 11,056 11,055 11,055 11,055 11,055 11,055 11,055 13 Special drawing rights certificate account . 8,018 8,018 8,018 8,018 8,018 8,018 8,018 8,018 8,018 8,018 14 Treasury currency outstanding 21,452r 21,490r 21,546 21,461r 21,471r 21,480" 21,490 21,504 21,518 21,532 ABSORBING RESERVE FUNDS 15 Currency in circulation 334,706r 326,573r 329,638 330,837r 329,312r 327,140" 327,659 329,467 330,993 329,937 16 Treasury cash holdings 508 508 463 502 501 508 466 466 463 463 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 7,492 9,572 5,350 5,080 17,577 10,750 7,284 4,980 4,869 4,973 18 Foreign 206 244 296 203 226 274 284 200 256 232 19 Service-related balances and adjustments 6,179 6,004r 6,420 6,539 6,969 6,224r 6,004 6,595 6,197 6,184 20 Other 372 282 302 282 279 273 302 291 324 282 21 Other Federal Reserve liabilities and capital 7,984 9,141 9,180 8,360 8,649 8,624 8,954 8,683 8,773 8,817 22 Reserve balances with Federal Reserve Banks3 25,592 21,315r 26,519 23,265 25,042 19,404" 28,425 20,112 25,338 24,974 1. For amounts of cash held as reserves, see table 1.12. 3. Excludes required clearing balances and adjustments to compensate for 2. Includes securities loaned—fully guaranteed by U.S. government securities float, pledged with Federal Reserve Banks—and excludes any securities sold and scheduled to be bought back under matched sale-purchase transactions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A6 Domestic Nonfinancial Statistics • May 1993 1.12 RESERVES AND BORROWINGS Depository Institutions1 Millions of dollars Prorated monthly averages of biweekly averages Reserve classification 1990 1991 1992 1992 1993 Dec. Dec. Dec. Aug. Sept. Oct. Nov. Dec. Jan. Feb. 1 Reserve balances with Reserve Banks2 30,237 26,659 25,368 21,272 22,627 23,626 25,462 25,368 23,636 23,515 2 Total vault cash3 31,786 32,510 34,535 32,458 32,342 32,987 32,457 34,535 35,991 33,915 3 Applied vault cash , 28,884 28,872 31,172 28,890 28,894 29,510 29,205 31,172 32,368r 30,368 4 Surplus vault cash 2,903 3,638 3,364 3,568 3,448 3,477 3,252 3,364 3,624 3,547 5 Total reserves6 59,120 55,532 56,540 50,162 51,521 53,136 54,666 56,540 56,004r 53,882 6 Required reserves 57,456 54,553 55,385 49,227 50,527 52,062 53,624 55,385 54,744r 52,778 7 Excess reserve balances at Resenre Banks 1,664 979 1,155 935 994 1,074 1,043 1,155 l,260r 1,104 8 Total borrowings at Reserve Banks 326 192 124 251 287 143 104 124 165 45 9 Seasonal borrowings 76 38 18 223 193 114 40 18 11 18 10 Extended credit9 23 1 1 0 0 0 0 1 1 0 Biweekly averages of daily figures for weeks ending 1992 1993 Nov. 11 Nov. 25 Dec. 9 Dec. 23 Jan. 6 Jan. 20 Feb. 3r Feb. 17 Mar. 3 1 Reserve balances with Reserve Banks 25,535 25,730 24,548 25,209 26,569 24,057 21,500 23,301 24,335 2 Total vault cash3 . 31,688 32,398 34,315 34,770 34,374 36,389 36,369 34,765 32,164 3 Applied vault cash4 28,539 29,117 30,918 31,373 31,105 32,829 32,470 31,069 28,902 4 Surplus vault cash 3,150 3,281 3,397 3,397 3,269 3,560 3,899 3,696 3,262 5 Total reserves6 54,074 54,846 55,466 56,582 57,674 56,886 53,970 54,370 53,237 6 Required reserves 53,346 53,485 54,625 55,357 56,289 55,657 52,740 52,875 52,666 7 Excess reserve balances at Resei^e Banks ... 728 1,361 841 1,225 1,385 1,229 1,230 1,495 571 8 Total borrowings at Reserve Banks 66 138 95 60 269 202 64 33 56 9 Seasonal borrowings 53 37 22 19 12 11 11 18 20 10 Extended credit9 0 0 0 2 0 1 3 0 0 1. Data in this table also appear in the Board's H.3 (502) weekly statistical 5. Total vault cash (line 2) less applied vault cash (line 3). release. For ordering address, see inside front cover. 6. Reserve balances with Federal Reserve Banks (line 1) plus applied vault cash 2. Excludes required clearing balances and adjustments to compensate for float (line 3). and includes other off-balance-sheet "as-of' adjustments. 7. Total reserves (line 5) less required reserves (line 6). 3. Total "lagged" vault cash held by depository institutions subject to reserve 8. Also includes adjustment credit. requirements. Dates refer to the maintenance periods during which the vault cash 9. Consists of borrowing at the discount window under the terms and condican be used to satisfy reserve requirements. Under contemporaneous reserve tions established for the extended credit program to help depository institutions requirements, maintenance periods end thirty days after the lagged computation deal with sustained liquidity pressures. Because there is not the same need to periods during which the balances are held. repay such borrowing promptly as there is with traditional short-term adjustment 4. All vault cash held during the lagged computation period by "bound" credit, the money market impact of extended credit is similar to that of institutions (that is, those whose required reserves exceed their vault cash) plus nonborrowed reserves. the amount of vault cash applied during the maintenance period by "nonbound" institutions (that is, those whose vault cash exceeds their required reserves) to satisfy current reserve requirements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Money Stock and Bank Credit A7 1.13 SELECTED BORROWINGS IN IMMEDIATELY AVAILABLE FUNDS Large Banks1 Millions of dollars, averages of daily figures 1992, week ending Monday 1993, week ending Monday SSoouurrccee aanndd mmaattuurriittyy Nov. 30 Dec. 7 Dec. 14 Dec. 21 Dec. 28 Jan. 4 Jan. 11 Jan. 18 Jan. 25 Federal funds purchased, repurchase agreements, and other selected borrowings From commercial banks in the United States 1 For one day or under continuing contract 73,294 78,107 79,155 74,281 71,828 74,139 75,338 71,955 66,880 2 For all other maturities 16,355 15,108 14,754 14,242 13,825 14,747 13,384 13,895 13,456 From other depository institutions, foreign banks and official institutions, and U.S. government agencies 3 For one day or under continuing contract 17,881 16,203 18,475 19,157 20,597 19,060 20,531 20,277 19,871 4 For all other maturities 19,369 18,294 19,201 19,013 18,783 16,955 17,419 17,441 17,469 Repurchase agreements on U.S. government and federal L agency securities Brokers and nonbank dealers in securities 5 For one day or under continuing contract 11,784 12,150 11,568 11,118 10,237 9,686 11,114 8,554 10,218 6 For all other maturities 20,397 20,577 22,850 18,899 18,183 18,317 18,434 18,775 18,836 All other customers 7 For one day or under continuing contract 20,912 23,747 23,883 23,265 22,808 23,609 23,604 23,692 24,415 8 For all other maturities 15,722 13,102 13,173 12,897 14,151 13,594 13,567 13,755 13,344 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 36,849 40,002 38,196 38,439 37,991 41,221 37,458 37,316 37,614 10 To all other specified customers 20,546 22,053 22,097 20,570 18,270 20,750 18,322 22,669 19,362 1. Banks with assets of $4 billion or more as of Dec. 31, 1988. 2. Brokers and nonbank dealers in securities, other depository institutions, Data in this table also appear in the Board's H.5 (507) weekly statistical release. foreign banks and official institutions, and U.S. government agencies. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A8 Domestic NonfinancialS tatistics • May 1993 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit1 Seasonal credit2 Extended credit3 Federal Reserve Bank 4/ O 2/ n 9 3 Effective date Previous rate 4/ O 2/ n 9 3 Effective date Previous rate 4/ O 2/ n 9 3 Effective date Previous rate Boston 7/2/92 4/1/93 3.60 4/1/93 New York ... 7/2/92 4/1/93 4/1/93 Philadelphia.. 7/2/92 4/1/93 4/1/93 Cleveland 7/6/92 4/1/93 4/1/93 Richmond 7/2/92 4/1/93 4/1/93 Atlanta 7/2/92 4/1/93 4/1/93 Chicago 7/2/92 4/1/93 4/1/93 St. Louis 7/7/92 4/1/93 4/1/93 Minneapolis.. 7/2/92 4/1/93 4/1/93 Kansas City.. 7/2/92 4/1/93 4/1/93 Dallas 7/2/92 4/1/93 4/1/93 San Francisco 7/2/92 3.5 4/1/93 4/1/93 3.55 Range of rates for adjustment credit in recent years4 Range (or F.R. Range (or F.R. Range (or F.R. Effective date A le l v l e F l) . — R. B o an f k Effective 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. Ba o n f k Banks N.Y. Banks N.Y. Banks N.Y. In effect Dec. 31, 1977 6 6 1981-—May 5 13-14 14 1986—Aug. 21 5.5-6 5.5 14 14 22 5.5 5.5 1978—Jan. 9 6-6.5 6.5 Nov. ? 13-14 13 20 6.5 6.5 6 13 13 1987—Sept. 4 5.5-6 6 May 11 6.5-7 7 Dec. 4 12 12 11 6 6 12 7 7 July 3 7-7.25 7.25 1982--July 70 11.5-12 11.5 1988—Aug. 9 6-6.5 6.5 10 7.25 7.25 73 11.5 11.5 11 Aug. 21 7.75 7.75 Aug. 7 11-11.5 11 Sept. 22 8 8 3 11 11 1989—Feb. 24 6.5-7 7 Oct. 16 8-8.5 8.5 16 10.5 10.5 27 7 7 20 8.5 8.5 77 10-10.5 10 Nov. 1 8.5-9.5 9.5 30 10 10 1990—Dec. 19 6.5 6.5 3 9.5 9.5 Oct. 17 9.5-10 9.5 n 9.5 9.5 1991—Feb. 1 6-6.5 6 1979—July 20 10 10 Nov. ?? 9-9.5 9 4 6 6 Aug. 17 10-10.5 10.5 76 9 9 Apr. 30 5.5-6 5.5 20 10.5 10.5 Dec. 14 8.5-9 9 May 2 5.5 5.5 Sept. 19 10.5-11 11 IS 8.5-9 8.5 Sept. 13 5-5.5 5 21 11 11 17 8.5 8.5 Sept. 17 5 5 Oct. 8 11-12 12 Nov. 6 4.5-5 4.5 10 12 12 1984-——AApprr.. 9 8.5-9 9 7 4.5 4.5 13 9 9 Dec. 20 3.5-4.5 3.5 1980—Feb. 15 12-13 13 Nov. 71 8.5-9 8.5 24 3.5 3.5 19 13 13 76 8.5 8.5 May 29 12-13 13 Dec. 74 8 8 1992—July 2 3-3.5 3 30 12 12 7 3 3 June 13 11-12 11 1985-——MMaayy 70 7.5-8 7.5 16 11 11 74 7.5 7.5 29 10 10 IInn eeffffeecctt AApprr.. 22,, 11999933 3 3 July 28 10-11 10 1986-—Mar. 7 7-7.5 7 Sept. 26 11 11 10 7 7 Nov. 17 12 12 Apr. 21 6.5-7 6.5 Dec. 5 12-13 13 July 11 6 6 1. Available on a short-term basis to help depository institutions meet tempo- ordinarily is charged on extended-credit loans outstanding less than thirty days; rary needs for funds that cannot be met through reasonable alternative sources. however, at the discretion of the Federal Reserve Bank, this time period may be The highest rate established for loans to depository institutions may be charged on shortened. Beyond this initial period, a flexible rate somewhat above rates on adjustment-credit loans of unusual size that result from a major operating problem market sources of funds is charged. The rate ordinarily is reestablished on the first at the borrower's facility. business day of each two-week reserve maintenance period, but it is never less 2. Available to help relatively small depository institutions meet regular than the discount rate applicable to adjustment credit plus 50 basis points. seasonal needs for funds that arise from a clear pattern of intrayearly movements 4. For earlier data, see the following publications of the Board of Governors: in their deposits and loans and that cannot be met through special industry Banking and Monetary Statistics, 1914-1941, and 1941-1970; and the Annual lenders. The discount rate on seasonal credit takes into account rates on market Statistical Digest, 1970-1979. sources of funds and ordinarily is reestablished on the first business day of each In 1980 and 1981, the Federal Reserve applied a surcharge to short-term two-week reserve maintenance period; however, it is never less than the discount adjustment-credit borrowings by institutions with deposits of $500 million or more rate applicable to adjustment credit. that had borrowed in successive weeks or in more than four weeks in a calendar 3. May be made available to depository institutions when similar assistance is quarter. A 3 percent surcharge was in effect from Mar. 17, 1980, through May 7, not reasonably available from other sources, including special industry lenders. 1980. A surcharge of 2 percent was reimposed on Nov. 17, 1980; the surcharge Such credit may be provided when exceptional circumstances (including sus- was subsequently raised to 3 percent on Dec. 5, 1980, and to 4 percent on May 5, tained deposit drains, impaired access to money market funds, or sudden 1981. The surcharge was reduced to 3 percent effective Sept. 22, 1981, and to 2 deterioration in loan repayment performance) or practices involve only a partic- percent effective Oct. 12, 1981. As of Oct. 1, 1981, the formula for applying the ular institution, or to meet the needs of institutions experiencing difficulties surcharge was changed from a calendar quarter to a moving thirteen-week period. adjusting to changing market conditions over a longer period (particularly at times The surcharge was eliminated on Nov. 17, 1981. of deposit disintermediation). The discount rate applicable to adjustment credit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A9 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS1 Requirements TTyyppee ooff ddeeppoossiitt22 Percent of Effective date deposits Net transaction accounts3 33333 1111122222/////1111155555/////9999922222 1111100000 1111122222/////1111155555/////9999922222 00000 1111122222/////2222277777/////9999900000 00000 1111122222/////2222277777/////9999900000 1. Required reserves must be held in the form of deposits with Federal Reserve permit no more than six preauthorized, automatic, or other transfers per month, Banks or vault cash. Nonmember institutions may maintain reserve balances with of which no more than three may be checks, are not transaction accounts (such a Federal Reserve Bank indirectly on a pass-through basis with certain approved accounts are savings deposits). institutions. For previous reserve requirements, see earlier editions of the Annual The Monetary Control Act of 1980 requires that the amount of transaction Report or the Federal Reserve Bulletin. Under provisions of the Monetary accounts against which the 3 percent reserve requirement applies be modified Control Act, depository institutions include commercial banks, mutual savings annually by 80 percent of the percentage change in transaction accounts held by banks, savings and loan associations, credit unions, agencies and branches of all depository institutions, determined as of June 30 each year. Effective Dec. 15, foreign banks, and Edge corporations. 1992, for institutions reporting quarterly, and Dec. 24, 1992, for institutions 2. The Garn-St Germain Depository Institutions Act of 1982 (Public Law reporting weekly, the amount was increased from $42.2 million to $46.8 million. 97-320) requires that $2 million of reservable liabilities of each depository 4. The reserve requirement was reduced from 12 percent to 10 percent on Apr. institution be subject to a zero percent reserve requirement. The Board is to adjust 2, 1992, for institutions that report weekly, and on Apr. 16, 1992, for institutions the amount of reservable liabilities subject to this zero percent reserve require- that report quarterly. ment each year for the succeeding calendar year by 80 percent of the percentage 5. For institutions that report weekly, the reserve requirement on nonpersonal increase in the total reservable liabilities of all depository institutions, measured time deposits with an original maturity of less than 1 Vi years was reduced from 3 on an annual basis as of June 30. No corresponding adjustment is to be made in percent to IVi percent for the maintenance period that began Dec. 13, 1990, and the event of a decrease. On Dec. 15, 1992, the exemption was raised from $3.6 to zero for the maintenance period that began Dec. 27, 1990. The reserve million to $3.8 million. The exemption applies in the following order: (1) net requirement on nonpersonal time deposits with an original maturity of 1V5 years negotiable order of withdrawal (NOW) accounts (NOW accounts less allowable or more has been zero since Oct. 6, 1983. deductions); and (2) net other transaction accounts. The exemption applies only to For institutions that report quarterly, the reserve requirement on nonpersonal accounts that would be subject to a 3 percent reserve requirement. time deposits with an original maturity of less than 1 Vi years was reduced from 3 3. Include all deposits against which the account holder is permitted to make percent to zero on Jan. 17, 1991. withdrawals by negotiable or transferable instruments, payment orders of with- 6. The reserve requirement on Eurocurrency liabilities was reduced from 3 drawal, and telephone and preauthorized transfers in excess of three per month percent to zero in the same manner and on the same dates as were the reserve for the purpose of making payments to third persons or others. However, money requirement on nonpersonal time deposits with an original maturity of less than market deposit accounts (MMDAs) and similar accounts subject to the rules that 1 Vi years (see note 4). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic NonfinancialS tatistics • May 1993 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1 Millions of dollars 1992 1993 TTyyppee ooff ttrraannssaaccttiioonn 11999900 11999911 11999922 July Aug. Sept. Oct. Nov. Dec. Jan. U.S. TREASURY SECURITIES Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 24,739 20,158 14,714 0 271 595 4,072 1,064 3,669 0 2 Gross sales 7,291 120 1,628 0 0 0 0 0 0 0 3 Exchanges 241,086 277,314 308,699 30,755 25,041 22,277 28,907 25,468 29,562 24,542 4 Redemptions 4,400 1,000 1,600 0 0 0 0 0 0 0 Others within one year 5 Gross purchases 425 3,043 1,096 0 0 350 0 461 0 0 6 Gross sales 0 0 0 0 0 0 0 0 0 0 7 Maturity shifts 25,638 24,454 36,662 985 4,448 2,753 2,010 7,160 2,777 561 8 Exchanges -27,424 -28,090 -30,543 -1,669 -4,617 -1,905 -982 -4,615 -1,570 -1,202 9 Redemptions 0 1,000 0 0 0 0 0 0 0 0 One to five years 10 Gross purchases 250 6,583 13,118 0 400 3,500 200 4,172 200 0 11 Gross sales 200 0 0 0 0 0 0 0 0 0 12 Maturity shifts -21,770 -21,211 -34,478 -514 -4,036 -2,753 -1,762 -6,800 -2,777 -64 13 Exchanges 25,410 24,594 25,811 1,478 3,567 1,905 884 3,415 1,570 882 Five to ten years 14 Gross purchases 0 1,280 2,818 0 195 750 0 1,176 100 0 15 Gross sales 100 0 0 0 0 0 0 0 0 0 16 Maturity shifts -2,186 -2,037 -1,915 -471 -412 0 -248 -187 0 -497 17 Exchanges 789 2,894 3,532 191 700 0 97 800 0 0 More than ten years 18 Gross purchases 0 375 2,333 0 0 731 0 947 0 0 19 Gross sales 0 0 0 0 0 0 0 0 0 0 20 Maturity shifts -1,681 -1,209 -269 0 0 0 0 -173 0 0 21 Exchanges 1,226 600 1,200 0 350 0 0 400 0 0 All maturities 22 Gross purchases 25,414 31,439 34,079 0 866 5,927 4,272 7,820 3,969 0 23 Gross sales 7,591 120 1,628 0 0 0 0 0 0 0 24 Redemptions 4,400 1,000 1,600 0 0 0 0 0 0 0 Matched transactions 25 Gross sales 1,369,052 1,570,456 1,482,467 127,051 103,708 116,331 116,024 115,020 144,232 114,543 26 Gross purchases 1,363,434 1,571,534 1,480,140 126,137 101,410 115,579 114,917 117,020 142,578 116,510 Repurchase agreements2 27 Gross purchases 221199,,663322 310,084 378,374 12,224 39,484 68,697 18,698 42,373 48,904 34,768 28 Gross sales 202,551 311,752 386,257 12,224 31,868 59,628 35,383 39,117 44,697 42,231 29 Net change in U.S. government securities 24,886 29,729 20,642 -914 6,184 14,244 -13,520 13,075 6,521 -5,497 FEDERAL AGENCY OBLIGATIONS Outright transactions 30 Gross purchases 0 0 0 0 0 0 0 0 0 0 31 Gross sales 0 5 0 0 0 0 0 0 0 0 32 Redemptions 183 292 632 85 54 37 0 0 121 103 Repurchase agreements2 33 Gross purchases 4411,,883366 2222,,880077 14,565 94 601 3,222 1,778 2,760 1,601 2,237 34 Gross sales 40,461 23,595 14,486 94 548 1,800 3,253 2,506 1,224 2,868 35 Net change in federal agency obligations 1,192 -1,085 -554 -85 -1 1,385 -1,475 254 256 -734 36 Total net change in System Open Market Account 26,078 28,644 20,089 -1,000 6,183 15,629 -14,995 13,329 6,777 -6,231 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. acceptances in repurchase agreements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks All 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements1 Millions of dollars Wednesday End of month Account 1993 1992 1993 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 Dec. 31 Jan. 31 Feb. 28 Consolidated condition statement ASSETS 1 Gold certificate account 11,055 11,055 11,055 11,055 11,055 11,056 11,055 11,055 2 Special drawing rights certificate account 8,018 8,018 8,018 8,018 8,018 8,018 8,018 8,018 3 Coin 508 528 542 540 531 446 519 525 Loans 4 To depository institutions 269 94 35 39 49 675 35 57 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 7 Bought outright 5,310 5,310 5,260 5,260 5,260 5,413 5,310 5,225 8 Held under repurchase agreements 0 0 0 150 0 631 0 275 9 Total U.S. Treasury securities. 297,426 303,658 293,932 299,856 299,778 302,474 296,977 301,490 10 Bought outright2 297,426 297,820 293,932 297,025 299,778 295,011 2%,977 298,835 11 Bills 144,210 144,604 140,715 143,809 146,562 141,794 143,761 145,618 12 Notes 118,179 118,179 118,179 117,955 117,955 118,179 118,179 117,955 13 Bonds 35,037 35,037 35,037 35,261 35,261 35,037 35,037 35,261 14 Held under repurchase agreements 0 5,838 0 2,831 0 7,463 0 2,655 15 Total loans and securities 303,005 309,062 299,226 305,305 305,087 309,192 302,321 307,046 16 Items in process of collection 5,337 5,796 5,277 10,475 5,131 8,378 4,565 4,937 17 Bank premises 1,026 1,029 1,025 1,025 1,026 1,026 1,026 1,026 Other assets 18 Denominated in foreign currencies3 21,609 21,990 22,010 22,032 22,062 21,514 21,980 22,263 19 All other 7,373 8,005 7,717 6,428 6,168 7,738 7,572 6,577 20 Total assets 357,932 365,482 354,870 364,879 359,077 367,368 357,057 361,446 LIABILITIES 21 Federal Reserve notes 306,675 307,163 308,972 310,479 309,399 314,208 306,110 309,080 22 Total deposits 38,052 43,912 32,477 37,591 36,403 40,148 37,632 39,034 23 Depository institutions 26,753 36,041 27,007 32,142 30,916 32,079 27,533 33,085 24 U.S. Treasury—General account 10,750 7,284 4,980 4,869 4,973 7,492 9,572 5,350 25 Foreign—Official accounts 274 284 200 256 232 206 244 296 26 Other 273 302 291 324 282 372 282 302 27 Deferred credit items 4,580 5,453 4,738 8,036 4,458 5,028 4,174 4,152 28 Other liabilities and accrued dividends5 2,281 2,254 2,213 2,307 2,304 1,876 2,288 2,323 29 Total liabilities. 351,589 358,782 348,400 358,413 352,565 361,260 350,204 354,589 CAPITAL ACCOUNTS 30 Capital paid in 3,069 3,074 3,078 3,084 3,110 3,054 3,074 3,116 31 Surplus 2,967 3,027 3,037 3,048 3,054 3,054 2,974 3,054 32 Other capital accounts. 307 599 356 334 349 0 806 687 33 Total liabilities and capital accounts 357,932 365,482 354,870 364,879 359,077 367,368 357,057 361,446 MEMO 34 Marketable U.S. Treasury securities held in custody for foreign and international accounts 300,586 301,377 305,792 303,503 301,356 291,393 297,501 306,378 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Bank) 366,095 366,998 368,277 369,273 370,402 363,479 366,486 370,756 36 LESS: Held by Federal Reserve Bank 59,420 59,835 59,305 58,795 61,003 49,271 60,376 61,676 37 Federal Reserve notes, net 306,675 307,163 308,972 310,479 309,399 314,208 306,110 309,080 Collateral held against notes, net: 38 Gold certificate account 11,055 11,055 11,055 11,055 11,055 11,056 11,055 11,055 39 Special drawing rights certificate account. 8,018 8,018 8,018 8,018 8,018 8,018 8,018 8,018 40 Other eligible assets 0 0 0 0 0 0 0 0 41 U.S. Treasury and agency securities 287,602 288,090 289,899 291,405 290,326 295,134 287,037 290,007 42 Total collateral. 306,675 307,163 308,972 310,479 309,399 314,208 306,110 309,080 1. Some of the data in this table also appear in the Board's H.4.1 (503) weekly 3. Valued monthly at market exchange rates. statistical release. For ordering address, see inside front cover. 4. Includes special investment account at the Federal Reserve Bank of Chicago 2. Includes securities loaned—fully guaranteed by U.S. Treasury securities in Treasury bills maturing within ninety days. pledged with Federal Reserve Banks—and excludes securities sold and scheduled 5. Includes exchange-translation account reflecting the monthly revaluation at to be bought back under matched sale-purchase transactions. market exchange rates of foreign exchange commitments. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A12 Domestic Nonfinancial Statistics • May 1993 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding 1 Millions of dollars Wednesday End of month TTTyyypppeee aaannnddd mmmaaatttuuurrriiitttyyy gggrrrooouuupppiiinnnggg 1993 1992 1993 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 Dec. 31 Jan. 31 Feb. 28 1 Total loans 269 94 35 39 49 675 35 57 2 Within fifteen days 268 89 28 39 48 673 33 54 3 Sixteen days to ninety days 1 5 7 1 1 1 1 3 4 Ninety-one days to one year 0 0 0 0 0 0 0 0 5 Total acceptances 0 0 0 0 0 0 0 0 6 Within fifteen days 0 0 0 0 0 0 0 0 7 Sixteen days to ninety days 0 0 0 0 0 0 0 0 8 Ninety-one days to one year 0 0 0 0 0 0 0 0 9 Total U.S. Treasury securities 297,426 303,658 293,931 299,856 299,778 302,474 296,977 301,490 10 Within fifteen days2 14,844 25,456 17,168 14,651 17,416 12,824 9,160 13,331 11 Sixteen days to ninety days 68,910 64,593 66,747 69,642 66,774 70,610 74,289 72,699 12 Ninety-one days to one year 98,456 98,149 94,556 97,536 97,561 103,582 98,311 97,433 n One year to five years 68,686 68,930 68,930 70,291 70,291 68,750 68,686 70,291 14 Five years to ten years 18,726 18,726 18,726 19,628 19,628 18,903 18,726 19,628 15 More than ten years 27,805 27,805 27,805 28,108 28,108 27,805 27,805 28,108 16 Total federal agency obligations 5,310 5,310 5,260 5,410 5,260 6,044 5,310 5,500 17 Within fifteen days2 183 75 35 523 483 821 183 723 18 Sixteen days to ninety days 840 955 920 582 513 810 840 513 19 Ninety-one days to one year 1,023 1,016 1,016 1,016 975 1,064 1,023 1,022 20 One year to five years 2,426 2,426 2,436 2,436 2,436 2,511 2,426 2,389 21 Five years to ten years 6% 6% 711 711 711 6% 696 711 22 More than ten years 142 142 142 142 142 142 142 142 t. Holdings under repurchase agreements are classified as maturing within fifteen days in accordance with maximum maturity of the agreements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A13 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1992r 1993 11998899 11999900 11999911 11999922 IItteemm DDeecc.. DDeecc.. DDeecc.. DDeecc..rr July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Seasonally adjusted AADDJJUUSSTTEEDD FFOORR CCHHAANNGGEESS IINN RREESSEERRVVEE RREEQQUUIIRREEMMEENNTTSS22 11 TToottaall rreesseerrvveess33 40.56 41.83 45.53r 54.35 49.63 50.34 51.27 52.84 53.82 54.35 54.67r 54.92 22 NNoonnbboorrrroowweedd rreesseerrvveess 40.29 41.51 45.34r 54.23 49.35 50.09 50.99 52.69 53.71 54.23 54.50r 54.88 33 NNoonnbboorrrroowweedd rreesseerrvveess pplluuss eexxtteennddeedd ccrreeddiitt55 40.31 41.53 45.34r 54.23 49.35 50.09 50.99 52.69 53.71 54.23 54.50r 54.88 44 RReeqquuiirreedd rreesseerrvveess 39.64 40.17 44.56r 53.20 48.66 49.41 50.28 51.76 52.77 53.20 53.41r 53.82 55 MMoonneettaarryy bbaassee66 267.77 293.29 317.17r 350.80 333.18 336.84 341.59 344.85 347.83 350.80 353.22r 355.74 Not seasonally adjusted 6 Total reserves 41.77 43.07 46.98 56.06 49.49 49.78 51.07 52.62 54.08 56.06 55.97 53.81 7 Nonborrowed reserves ^ 41.51 42.74 46.78 55.93 49.21 49.53 50.78 52.47 53.97 55.93 55.80 53.77 8 Nonborrowed reserves plus extended credit 41.53 42.77 46.78 55.93 49.21 49.53 50.78 52.47 53.97 55.93 55.80 53.77 9 Required reserves 40.85 41.40 46.00 54.90 48.53 48.84 50.08 51.54 53.04 54.90 54.71 52.71 10 Monetary base9 271.18 296.68 321.07 354.55 334.08 336.57 340.08 343.63 347.89 354.55 354.41r 353.19 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS10 11 Total reserves11 62.81 59.12 55.53 56.54 49.82 50.16 51.52 53.14 54.67 56.54 56.00 53.88 12 Nonborrowed reserves 62.54 58.80 55.34 56.42 49.54 49.91 51.23 52.99 54.56 56.42 55.84 53.84 13 Nonborrowed reserves plus extended credit 62.56 58.82 55.34 56.42 49.54 49.91 51.23 52.99 54.56 56.42 55.84 53.84 14 Required reserves 61.89 57.46 54.55 55.39 48.86 49.23 50.53 52.06 53.62 55.39 54.74r 52.78 15 Monetary base12 292.55 313.70 333.61 360.90 339.87 342.49 346.21 349.81 354.25 360.90 360.88r 359.57 16 Excess reserves13 .92 1.66 .98 1.16 .97 .94 .99 1.07 1.04 1.16 1.26 1.10 17 Borrowings from the Federal Reserve .27 .33 .19 .12 .28 .25 .29 .14 .10 .12 .17 .05 1. Latest monthly and biweekly figures are available from the Board's H.3 (502) what required reserves would have been in past periods had current reserve weekly statistical release. Historical data and estimates of the impact on required requirements been in effect. Break-adjusted required reserves include required reserves of changes in reserve requirements are available from the Monetary and reserves against transactions deposits and nonpersonal time and savings deposits Reserves Projections Section, Division of Monetary Affairs, Board of Governors (but not reservable nondeposit liabilities). of the Federal Reserve System, Washington, DC 20551. 9. The break-adjusted monetary base equals (1) break-adjusted total reserves 2. Figures reflect adjustments for discontinuities, or "breaks," associated with (line 6), plus (2) the (unadjusted) currency component of the money stock, plus (3) regulatory changes in reserve requirements. (See also table 1.10) (for all quarterly reporters on the "Report of Transaction Accounts, Other 3. Seasonally adjusted, break-adjusted total reserves equal seasonally Deposits and Vault Cash" and for all weekly reporters whose vault cash exceeds adjusted, break-adjusted required reserves (line 4) plus excess reserves (line 16). their required reserves) the break-adjusted difference between current vault cash 4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally and the amount applied to satisfy current reserve requirements. adjusted, break-adjusted total reserves (line 1) less total borrowings of depository 10. Reflects actual reserve requirements, including those on nondeposit liabilinstitutions from the Federal Reserve (line 17). ities, with no adjustments to eliminate the effects of discontinuities associated 5. Extended credit consists of borrowing at the discount window under with changes in reserve requirements. the terms and conditions established for the extended credit program to help 11. Reserve balances with Federal Reserve Banks plus vault cash used to depository institutions deal with sustained liquidity pressures. Because there is satisfy reserve requirements. not the same need to repay such borrowing promptly as there is with traditional 12. The monetary base, not break-adjusted and not seasonally adjusted, short-term adjustment credit, the money market impact of extended credit is consists of (1) total reserves (line 11), plus (2) required clearing balances and similar to that of nonborrowed reserves. adjustments to compensate for float at Federal Reserve Banks, plus (3) the 6. The seasonally adjusted, break-adjusted monetary base consists of (1) currency component of the money stock, plus (4) (for all quarterly reporters on seasonally adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally the "Report of Transaction Accounts, Other Deposits and Vault Cash" and for all adjusted currency component of the money stock, plus (3) (for all quarterly those weekly reporters whose vault cash exceeds their required reserves) the reporters on the "Report of Transaction Accounts, Other Deposits and Vault difference between current vault cash and the amount applied to satisfy current Cash" and for all those weekly reporters whose vault cash exceeds their required reserve requirements. Since the introduction of changes in reserve requirements reserves) the seasonally adjusted, break-adjusted difference between current vault (CRR), currency and vault cash figures have been measured over the computation cash and the amount applied to satisfy current reserve requirements. 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). 8. To adjust required reserves for discontinuities that are due to regulatory changes in reserve requirements, a multiplicative procedure is used to estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Nonfinancial Statistics • May 1993 1.21 MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES1 Billions of dollars, averages of daily figures 1992 1993 1989 1990 1991 1992 IItteemm Dec. Dec. Dec. Dec." Nov. Dec." Jan." Feb. Seasonally adjusted Measured 1 Ml 794.1 826.1 899.3 1,026.6 1,019.1 1,026.6 1,033.2 1,032.8 2 M2 3,227.3 3,339.0 3,445.8 3,497.3 3,498.1" 3,497.3 3,488.2 3,476.1 3 M3 4,059.8 4,114.6 4,168.1 4,167.1 4,178.5" 4,167.1 4,142.6 4,134.8 4 L 4,890.6 4,965.2 4,982.2 5,051.3 5,055.0" 5,051.3 5,041.1 n.a. 5 Debt 10,076.7 10,751.3 11,192.7" 11,768.2 11,707.6" 11,768.2 11,799.7 n.a. Ml components 6 Currency3 222.6 246.8 267.2 292.3 289.8 292.3 294.8 296.9 7 Travelers checks 7.4 8.3 7.8 8.1 8.2 8.1 8.0 8.0 8 Demand deposits 279.0 277.1 290.5 340.9 339.5 340.9 342.0 341.9 9 Other checkable deposits 285.1 293.9 333.8 385.2 381.6 385.2 388.5 386.1 Nontrqnsaction components 10 In M2j 2,433.2 2,512.9 2,546.6 2,470.7 22,,447799..00"" 2,470.7 2,455.0 2,443.3 11 In M3 832.5 775.6 722.3 669.8 680.4" 669.8 654.3 658.7 Commercial banks 12 Savings deposits, including MMDAs 541.5 581.9 666.2 756.1 752.5 756.1 754.1 755.7 13 Small time deposits 531.0 606.4 601.5 507.0 511.9 507.0 502.6 503.5 14 Large time deposits • 398.2 374.0 341.3 290.2 292.8 290.2 283.7 282.2 Thrift institutions 15 Savings deposits, iiuluding MMDAs 349.7 338.8 376.3 429.9 427.9 429.9 430.3 426.7 16 Small time deposits® 617.5 562.3 463.2 363.5 370.0 363.5 358.8 351.6 17 Large time deposits10 161.1 120.9 83.4 67.3 68.5 67.3 67.1 65.5 Money market mutual funds 18 General purpose and broker-dealer 316.3 348.9 363.9 342.3 343.7" 342.3 340.0 334.2 19 Institution-only 107.2 133.7 182.1 202.3 209.2 202.3 197.7 201.9 Debt components 20 Federal debt 2,249.5 2,493.4 2,764.8 3,068.8 3,027.6" 3,068.8 3,076.3 n.a. 21 Nonfederal debt 7,827.2 8,258.0 8,428.0" 8,699.4 8,679.9" 8,699.4 8,723.5 n.a. Not seasonally adjusted Measures 2 2 2 4 2 3 M M M 3 2 l 4 3 , , 0 2 8 7 4 1 0 0 1 . . . 3 0 9 4 3 , , 1 3 8 2 5 4 4 1 4 . . . 7 9 1 4 3 . , 1 4 9 7 5 1 8 7 6 . . . 1 9 4 4 3 1 , , , 1 5 0 7 1 4 9 1 5 . . . 2 5 7 4 3 1 , , , 1 5 0 8 0 2 3 0 1 . . . 5 9 8 r " 4 3 1 , , , 1 5 0 7 1 4 9 1 5 . . . 2 5 7 4 3 1 . . . 1 4 0 4 9 4 5 4 0 . . . 2 1 0 4 3 1 . . , 1 4 0 3 7 2 2 0 2 . . . 2 1 0 2 2 5 6 D L ebt 1 4 0 , , 9 0 0 6 9 3 . . 9 6 1 4 0 , , 9 7 8 3 4 9 . . 9 9 ll 5 , . 1 0 8 0 2 4 . .2 8 r 1 5 1 , , 0 7 7 6 6 0 . . 1 6 1 5 1 , , 0 6 6 8 8 9 . . 0 9 " " 1 5 1 , , 0 7 7 6 6 0 . . 1 6 1 5 1 . , 0 7 5 8 8 7 . . 1 0 n n . . a a . . Ml components 27 Currency3 225.3 249.5 269.9 295.0 290.0 295.0 293.6 295.3 28 Travelers checks4 6.9 7.8 7.4 7.8 7.9 7.8 7.8 7.7 29 Demand deposits 291.5 289.9 302.9 355.3 343.9 355.3 346.2 334.3 30 Other checkable deposits 288.1 296.9 336.3 387.6 379.7 387.6 392.6 384.6 Nontrqnsaction components 31 In M2; 2,428.1 2,507.8 2,541.5 2,465.8 2,479.4" 2,465.8 2,453.9 2,448.1 32 In M38 830.3 772.8 720.1 667.7 682.8" 667.7 651.2 662.1 Commercial banks 33 Savings deposits, iiuluding MMDAs 543.0 580.0 663.3 752.3 751.9 752.3 749.5 753.1 34 Small time deposits 529.5 606.3 602.0 507.8 512.5 507.8 504.3 504.2 35 Large time deposits10, " 397.1 373.0 340.1 289.1 292.7 289.1 281.7 281.8 Thrift institutions 36 Savings deposits, including MMDAs 347.6 337.7 374.7 427.8 427.5 427.8 427.6 425.2 37 Small time deposits®. 616.0 562.2 463.6 364.1 370.5 364.1 360.1 352.1 38 Large time deposits 162.0 120.6 83.1 67.1 68.5 67.1 66.6 65.4 Money market mutual funds 39 General purpose and broker-dealer 314.6 346.8 361.5 340.0 341.9" 340.0 339.5 340.4 40 Institution-only 107.8 134.4 182.4 202.4 209.5 202.4 202.3 210.3 Repurchase agreements and eurodollars 41 Overnight 77.5 74.7 76.3 73.9 75.1" 73.9 72.8 73.2 42 Term 178.5 158.3 130.1 126.5 128.5" 126.5 123.7 128.4 Debt components 43 Federal debt 2,247.5 2,491.3 2,765.0 3,069.8 3,028.3 3,069.8 3,076.2 n.a. 44 Nonfederal debt 7,816.2 8,248.6 8,417.9" 8,690.8 8,661.7" 8,690.8 8,710.8 n.a. For notes see following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A15 NOTES TO TABLE 1.21 1. Latest monthly and weekly figures are available from the Board's H.6 (508) market fund holdings of these assets. Seasonally adjusted L is computed by weekly statistical release. Historical data are available from the Money and summing U.S. savings bonds, short-term Treasury securities, commercial paper, Reserves Projection Section, Division of Monetary Affairs, Board of Governors of and bankers acceptances, each seasonally adjusted separately, and then adding the Federal Reserve System, Washington, DC 20551. this result to M3. 2. Composition of the money stock measures and debt is as follows: Debt: Debt of domestic nonfinancial sectors consists of outstanding credit Ml: (1) currency outside the Treasury, Federal Reserve Banks, and the vaults market debt of the U.S. government, state and local governments, and private of depository institutions; (2) travelers checks of nonbank issuers; (3) demand nonfinancial sectors. Private debt consists of corporate bonds, mortgages, condeposits at all commercial banks other than those due to depository institutions, sumer credit (including bank loans), other bank loans, commercial paper, bankers the U.S. government, and foreign banks and official institutions, less cash items in acceptances, and other debt instruments. Data are derived from the Federal the process of collection and Federal Reserve float; and (4), other checkable Reserve Board's flow of funds accounts. Debt data are based on monthly deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and averages. This sum is seasonally adjusted as a whole. automatic transfer service (ATS) accounts at depository institutions, credit union 3. Currency outside the U.S. Treasury, Federal Reserve Banks, and vaults of share draft accounts, and demand deposits at thrift institutions. Seasonally depository institutions. adjusted Ml is computed by summing currency, travelers checks, demand 4. Outstanding amount of U.S. dollar-denominated travelers checks of nondeposits, and OCDs, each seasonally adjusted separately. bank issuers. Travelers checks issued by depository institutions are included in M2: Ml plus (1) overnight (and continuing-contract) repurchase agreements demand deposits. (RPs) issued by all depository institutions and overnight Eurodollars issued to 5. Demand deposits at commercial banks and foreign-related institutions other U.S. residents by foreign branches of U.S. banks worldwide, (2) savings (includ- than those owed to depository institutions, the U.S. government, and foreign ing MMDAs) and small time deposits (time deposits—including retail RPs—in banks and official institutions, less cash items in the process of collection and amounts of less than $100,000), and (3) balances in both taxable and tax-exempt Federal Reserve float. general purpose and broker-dealer money market funds. Excludes individual 6. Consists of NOW and ATS account balances at all depository institutions, retirement accounts (IRAs) and Keogh balances at depository institutions and credit union share draft account balances, and demand deposits at thrift institumoney market funds. Also excludes all balances held by U.S. commercial banks, tions. money market funds (general purpose and broker-dealer), foreign governments 7. Sum of (1) overnight RPs and overnight Eurodollars, (2) money market fund and commercial banks, and the U.S. government. Seasonally adjusted M2 is balances (general purpose and broker-dealer), (3) MMDAs, and (4) savings and computed by adjusting its non-Mi component as a whole and then adding this small time deposits. result to seasonally adjusted Ml. 8. Sum of (1) large time deposits, (2) term RPs, (3) term Eurodollars of U.S. M3: M2 plus (1) large time deposits and term RP liabilities (in amounts of residents, and (4) money market fund balances (institution-only), less a consoli- $100,000 or more) issued by all depository institutions, (2) term Eurodollars held dation adjustment that represents the estimated amount of overnight RPs and by U.S. residents at foreign branches of U.S. banks worldwide and at all banking Eurodollars held by institution-only money market funds. offices in the United Kingdom and Canada, and (3) balances in both taxable and 9. Small time deposits—including retail RPs—are those issued in amounts of tax-exempt, institution-only money market funds. Excludes amounts held by less than $100,000. All IRAs and Keogh accounts at commercial banks and thrift depository institutions, the U.S. government, money market funds, and foreign institutions are subtracted from small time deposits. banks and official institutions. Also excluded is the estimated amount of overnight 10. Large time deposits are those issued in amounts of $100,000 or more, RPs and Eurodollars held by institution-only money market funds. Seasonally excluding those booked at international banking facilities. adjusted M3 is computed by adjusting its non-M2 component as a whole and then 11. Large time deposits at commercial banks less those held by money market adding this result to seasonally adjusted M2. funds, depository institutions, and foreign banks and official institutions. L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury securities, commercial paper, and bankers acceptances, net of money Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Nonfinancial Statistics • May 1993 1.22 BANK DEBITS AND DEPOSIT TURNOVER1 Debits are in billions of dollars; turnover is ratio of debits to deposits; monthly data are at annual rates 1992 Bank group, or type of customer 11999900 22 1199991122 1199992222 July Aug. Sept. Oct.r Nov/ Dec. DEBITS TO Seasonally adjusted Demand deposits 1 All insured banks 277,157.5 277,758.0 315,807.0 339,216.4 306.923.0 346.658.3 326,893.0 322,187.1 331,048.7 2 Major New York City banks 131,699.1 137,352.3 165,572.7 177,296.3 157.221.1 184,740.9 176,372.6 173,393.4 176,089.1 3 Other banks 145,458.4 140,405.7 150,234.3 161,920.1 149,702.0 161.917.4 150,520.4 148,793.7 154,959.6 4 Other checkable deposits4 3,349.0 3,645.5 3,788.1 4,078.7 3,763.9 3,942.1 3,700.5 3,610.0 3,683.9 3,483.3 3,266.1 3,330.7 3,513.7 3,139.8 3,559.1 3,465.7 3,496.7 3,402.8 5 Savings deposits including MMDAs DEPOSIT TURNOVER Demand deposits3 797.8 803.5 832.4 916.6 800.0 892.4 818.9 796.1 830.7 6 All insured banks 3,819.8 4,270.8 4,797.9 5,349.6 4,550.9 5,254.5 4,855.5 4,624.0 4,693.3 7 Major New York City banks 464.9 447.9 435.9 480.6 428.8 458.3 414.8 405.2 429.2 8 Other banks 9 Other checkable deposits4 ^ 16.5 16.2 14.4 15.6 14.2 14.7 13.5 12.9 13.1 10 Savings deposits including MMDAs 6.2 5.3 4.7 4.9 4.4 4.9 4.7 4.7 4.6 Not seasonally adjusted Demand deposits 11 All insured banks 277,290.5 277,715.4 315,809.1 341,278.3 315,724.4 334,831.5 335,289.0 308,015.6 340,992.3 12 Major New York City banks 131.784.7 137.307.2 165.595.0 178.555.6 162,973.3 178,998.2 182,584.2 167,578.4 179,987.6 13 Other banks 145.505.8 140.408.3 150.214.1 162.722.7 152,751.0 155,833.4 152,704.8 140,437.2 161,004.6 14 Other checkable deposits4 . 3,346.7 3.645.6 3,788.1 3,987.9 3,696.9 3,945.7 3.689.7 3,351.3 3,849.3 3,483.0 3.267.7 3,328.3 3,523.9 3,173.5 3,374.3 3.400.8 3,239.9 3,583.3 15 Savings deposits including MMDAs DEPOSIT TURNOVER Demand deposits3 798.2 803.4 832.5 916.2 836.5 864.2 839.2 754.3 815.4 16 All insured banks 3,825.9 4,274.3 4,803.5 5,317.6 4,870.2 5,180.1 5,025.6 4,494.4 4,418.1 17 Major New York City banks 465.0 447.9 436.0 480.2 444.1 441.6 420.5 378.5 426.5 18 Other banks 19 Other checkable deposits4 . 16.4 16.2 14.4 15.4 14.1 14.9 13.7 12.1 13.5 20 Savings deposits including MMDAs 6.2 5.3 4.7 4.9 4.4 4.6 4.6 4.4 4.8 1. Historical tables containing revised data for earlier periods can be obtained 2. Annual averages of monthly figures. from the Banking and Money Market Statistics Section, Division of Monetary 3. Represents accounts of individuals, partnerships, and corporations and of Affairs, Board of Governors of the Federal Reserve System, Washington, DC states and political subdivisions. 20551. 4. Accounts authorized for negotiable orders of withdrawal (NOWs) and Data in this table also appear on the Board's G.6 (406) monthly statistical accounts authorized for automatic transfer to demand deposits (ATSs). release. For ordering address, see inside front cover. 5. Money market deposit accounts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions A17 1.23 LOANS AND SECURITIES All Commercial Banks1 Billions of dollars, averages of Wednesday figures 1992 1993 Mar. Apr. May June July Aug. Sept.r Oct. Nov. Dec. Jan.r Feb. Seasonally adjusted 1 Total loans and securities1 2,862.7 2,874.3 2,875.3 2,882.8 2,886.9 2,902.2 2,917.2 2,925.6r 2,932.8 2,938.7r 2,934.9 2,940.1 2 U.S. government securities 579.6 590.8 600.2 610.7 619.2 632.6 640.5 647.3r 652.01 658.2r 658.2 667.1 3 Other securities 178.5 178.5 176.9 175.8 177.9 178.2 178.4 179.3r 177.5r 176. lr 174.1 175.9 4 Total loans and leases1 2,104.5 2,104.9 2,098.2 2,096.2 2,089.8 2,091.4 2,098.3 2,099.0" 2,103.3r 2,104.4r 2,102.7 2,097.1 5 Commercial and industrial ..... 610.8 609.0 607.6 604.6 602.5 601.4 601.0 600.5r 600.9 598.6r 599.9 598.2 6 Bankers acceptances held ... 6.8 6.5 6.7 6.3 6.5 6.5 6.3 7.3 7.5 7.1 6.9 8.2 7 Other commercial and industrial 604.0 602.6 600.9 598.4 596.0 594.9 594.7 593.2r 593.4 591.5r 593.0 590.1 8 U.S. addressees3 594.9 593.2 590.8 588.3 585.3 584.3 583.4 582.1 582.1 580.4r 581.6 578.5 9 Non-U.S. addressees3 9.1 9.4 10.1 10.1 10.7 10.6 11.3 11.1 11.3 11.1 11.4 11.6 10 Real estate 879.1 881.8 883.3 881.8 881.5 883.1 886.7 890.6 892.3r 892.1 888.8 887.5 11 Individual 362.3 360.8 359.2 359.0 358.6 357.4 357.0 355.7 355.2r 355.2r 357.8 360.8 12 Security 60.7 63.4 60.9 63.3 60.5 61.6 64.0 64.7 64.3 64.9 63.2 62.0 13 Nonbank financial institutions 43.6 43.2 43.3 42.4 41.5 42.0 44.0 43.9 44.7r 43.7 45.2 45.1 14 Agricultural 34.3 34.3 34.3 34.6 34.9 35.3 35.2 35.1 35.1 34.9 34.4 34.4 15 State and political subdivisions 28.0 27.6 27.3 26.8 26.2 25.9 25.8 25.4r 25. lr 24.8r 24.2 23.8 16 Foreign banks 6.6 6.7 7.0 7.5 7.7 7.2 7.9 7.3 7.0 7.0 6.8 7.6 17 Foreign official institutions 2.1 2.0 2.0 2.0 2.2 2.3 2.5 2.4 2.8 2.9 2.9 3.1 18 Lease-financing receivables 31.4 31.1 30.9 31.0 30.8 30.8 31.0 30.7r 30.6r 30.6 30.0 30.0 19 All other loans 45.5 45.1 42.4 43.3 43.2 44.3 43.1 42.8 45.3 49.9 49.7 n.a. Not seasonally adjusted 20 Total loans and securities1 2,864.9 2,875.8 2,870.7 2,882.9 2,876.1 2,894.5 2,914.7 2,924.9 2,939.4 2,948.5r 2,937.0 2,943.0 21 U.S. government securities 584.0 592.6 599.4 608.9 615.3 631.3 638.6 645.lr 654.6r 656.9" 658.6 670.7 22 Other securities 178.2 178.0 176.5 175.4 176.8 178.1 178.1 179.7r 178.6r 176.4r 174.7 176.1 23 Total loans and leases1 2,102.6 2,105.2 2,094.8 2,098.7 2,084.0 2,085.0 2,098.0 2,100. f 2,106.1r 2,115.3r 2,103.8 2,096.2 24 Commercial and industrial ..... 614.0 612.1 609.4 606.5 601.5 597.6 597.4 598.2 601.2 601.6r 598.3 597.4 25 Bankers acceptances held2... 6.9 6.3 6.6 6.2 6.3 6.3 6.2 7.2 7.8 7.4 7.1 8.5 26 Other commercial and industrial 607.2 605.8 602.7 600.3 595.2 591.4 591.2 591.0 593.4 594.3r 591.3 588.9 27 U.S. addressees3 598.2 596.3 592.7 589.5 584.2 580.5 580.1 580.2r 582.7 583.3r 579.9 577.2 28 Non-U.S. addressees 9.0 9.5 10.0 10.8 11.0 10.8 11.1 10.8 10.7 11.0 11.4 11.7 29 Real estate 876.7 880.7 883.4 882.0 881.6 883.7 887.5 891.4 893.7r 893.4 888.5 885.8 30 Individual 359.8 358.1 357.4 357.2 356.4 356.9 358.6 356. lr 356.0r 359.6r 361.9 360.9 31 Security 62.6 66.9 58.4 63.5 58.0 59.4 62.5 64.2 63.6 65.7 64.7 64.9 32 Nonbank financial institutions 43.2 42.6 42.8 42.9 41.3 41.8 43.5 43.5 45.1 45.7 45.4 45.0 33 Agricultural 33.0 33.5 34.0 35.1 35.8 36.5 36.6 36.(f 35. lr 34.7 33.6 33.0 34 State and political subdivisions 28.0 27.6 27.3 26.8 26.1 25.9 25.9 25.5r 25.2r 24.8r 24.0 23.7 35 Foreign banks 6.4 6.4 6.8 7.3 7.8 7.0 8.0 7.6 7.3 7.4 6.9 7.4 36 Foreign official institutions 2.1 2.0 2.0 2.0 2.2 2.3 2.5 2.4 2.8 2.9 2.9 3.1 37 Lease-financing receivables .... 31.6 31.2 30.9 31.0 30.6 30.6 30.8 30.6r 30.5 30.5 30.3 30.3 38 All other loans 45.2 44.1 42.5 44.4 42.6 43.2 44.5 44.6 45.7 49.1 47.5 n.a. 1. Adjusted to exclude loans to commercial banks in the United States. 3. United States includes the fifty states and the District of Columbia. 2. Includes nonfinancial commercial paper held. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic NonfinancialS tatistics • May 1993 1.24 MAJOR NONDEPOSIT FUNDS OF COMMERCIAL BANKS1 Billions of dollars, monthly averages 1992 1993 SSoouurrccee ooff ffuunnddss Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Seasonally adjusted 11 TToottaall nnoonnddeeppoossiitt ffuunnddss22 287.2 291.9 292.4 295.9 297.0 302.4 309.4r 305.6r 310.0" 312.9 313.0 312.2 22 NNeett bbaallaanncceess dduuee ttoo rreellaatteedd ffoorreeiiggnn ooffffiicceess33 ...... 44.8 50.9 53.7 61.2 61.7 61.4 64.0 64.4r 68.8r 71.1 74. lr 73.3 33 BBoorrrroowwiinnggss ffrroomm ootthheerr tthhaann ccoommmmeerrcciiaall bbaannkkss iinn UUnniitteedd SSttaatteess44 242.4 241.0 238.7 234.7 235.3 241.1 245.4r 241.1 241.2 241.8r 238.8 238.9 44 DDoommeessttiiccaallllyy cchhaarrtteerreedd bbaannkkss 157.3 154.6 151.8 147.6 147.2 151.5 153.4 154.5 153.7 154.3 155.1 155.9 55 FFoorreeiiggnn--rreellaatteedd bbaannkkss 85.0 86.5 86.9 87.2 88.1 89.6 92. lr 86.6 87.5 87.4 83.7 82.9 Not seasonally adjusted 6 Total nondeposit funds2 292.2 288.4 297.1 295.2 291.5 297.5 304.0" 307.8" 315.2" 312.7 311.8 316.5 7 Net balances due to related foreign offices3 ... 45.6 47.9 55.9 59.2 58.4 57.6 61.6 65.6" 70.5" 75.2 76.7 75.1 8 Domestically chartered banks .2 -4.6 -4.5 -6.3 -7.0 -9.3 -11.0 -12.8 -11.7 -15.1 -15.9 -10.6 9 Foreign-related banks 45.4 52.6 60.4 65.6 65.4 66.9 72.6 78.3" 82.1" 90.3 92.6 85.7 10 Borrowings from other than commercial banks in United States4 246.6 240.5 241.2 236.0 233.1 239.9 242.3r 242.3 244.8 237.5 235.1 241.4 11 Domestically chartered banks 160.2 152.7 153.3 147.4 144.1 150.4 152.2 155.7 158.1 153.4 152.1 157.7 12 Federal funds and security RP borrowings 156.9 149.2 149.4 143.3 139.9 146.5 148.4 152.1 154.0 149.4 148.4 154.5 1133 Other6 3.3 3.4 3.9 4.1 4.2 3.9 3.8 3.6 4.1 4.0 3.6 3.2 14 Foreign-related banks 86.4 87.8 87.9 88.6 89.0 89.5 90.1r 86.6 86.6 84.1 83.0 83.7 MEMO Gross large time deposits7 15 Seasonally adjusted 407.2 401.5 397.5 393.3 387.7 385.8 383.2 375.7 371.3 366.6 359.9" 358.4 16 Not seasonally adjusted 408.1 400.5 399.4 394.9 387.4 387.1 383.6 374.9 371.1 365.5 358.0" 357.9 U.S. Treasury demand balances at commercial banks 17 Seasonally adjusted 21.9 20.8 19.2 24.7 23.1 28.0 24.1 21.5 20.7 20.4 25.6 23.6 18 Not seasonally adjusted 20.1 17.7 21.0 25.2 19.6 22.4 28.6 21.9 16.5 19.5 33.1" 29.5 1. Commercial banks are nationally and state-chartered banks in the fifty states borrowings from Federal Reserve Banks and from foreign banks, term federal and the District of Columbia, agencies and branches of foreign banks, New York funds, loan RPs, and sales of participations in pooled loans. investment companies majority owned by foreign banks, and Edge Act corpora- 5. Figures are based on averages of daily data reported weekly by approxitions owned by domestically chartered and foreign banks. mately 120 large banks and quarterly or annual data reported by other banks. Data in this table also appear in the Board's G.10 (411) release. For ordering 6. Figures are partly averages of daily data and partly averages of Wednesday address, see inside front cover. data. 2. Includes federal funds, repurchase agreements (RPs), and other borrowing 7. Time deposits in denominations of $100,000 or more. Estimated averages of from nonbanks and net balances due to related foreign offices. daily data. 3. Reflects net positions of U.S. chartered banks, Edge Act corporations, and 8. U.S. Treasury demand deposits and Treasury tax and loan notes at com- U.S. branches and agencies of foreign banks with related foreign offices plus net mercial banks. Averages of daily data. positions with own International Banking Facilities (IBFs). 4. Borrowings through any instrument, such as a promissory note or due bill, given for the purpose of borrowing money for the banking business. This includes Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions A19 1.25 ASSETS AND LIABILITIES OF COMMERCIAL BANKS1 Wednesday figures Millions of dollars 1992 Dec. 2r Dec. 9 Dec. 16r Dec. 23r Dec. 30' Jan. 6 Jan. 13 Jan. 20 Jan. 27 ALL COMMERCIAL BANKING INSTITUTIONS2 Assets 3,121,974 3,127,535 3,125,019 3,114,488 3,115,506 3,123,753 3,105,158 3,099,118 1 Loans and securities 796,035 794,499 793,052 795,473 798,542 797.211 798,865 793,944 2 Investment securities 633,704 632,519 631,237 633,168 635,246 635,703 637,834 633,085 3 U.S. government securities 162,331 161,979 161,815 162,304 163,296 161,507 161,031 160,859 4 Other 42,665 39,995 38,146 36,014 35,612 35,901 33,519 37,291 5 Trading account assets 27,832 25,930 24,576 21,569 21,030 20,619 19,881 23,947 6 U.S. government securities 2,969 2,949 2,958 3,285 3,029 2,870 2,496 2,596 7 8 O O t t h h e e r r t s r e a c d u i r n i g ti e a s c count assets 2,28 1 3 1 , , 2 8 7 6 4 4 2,29 1 3 1 , , 0 1 4 1 2 5 2,29 1 3 0 , , 8 6 2 1 1 2 2,28 1 3 1 , , 0 1 0 6 1 0 2,28 1 1 1 , , 3 5 5 5 2 4 2,29 1 0 2 , , 6 4 4 1 2 1 2,27 1 2 1 , , 7 1 7 4 4 1 2,26 1 7 0 , , 8 7 8 4 3 8 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 0 1 2 3 4 9 1 3 4 5 6 8 9 0 2 7 O To t C T C D O B h ta e o a a a e t l r L I h t s s l m n a a h h c e o a l n t R a r C I a A a s e n c i i n s l e s n o n l t r c e h o d d R O l e e a b s m a s a i l m v t o e a s v t a s n b e m w h a h v n t i e s s s a x h u d e k o s s i e l a c r e t l u t e l a r h t r l s a v l a t c n u o s s t l i i F e c d n e a a e e g i t n l s n s d s a g h e a n r o t i a d m n l U t i e R e n . r S e d e b . s u q a e s u d n r t i e v k r t i p y e a o l B si a t n o k ry s institutions 2,1 6 8 8 2 2 3 2 1 1 7 2 0 9 5 9 1 3 3 8 4 5 2 7 1 3 8 2 2 9 6 5 3 9 4 1 7 3 2 , , , , , , , , , , . , , , . 2 4 4 5 8 4 2 2 0 5 6 8 0 7 0 5 0 3 6 8 2 4 2 5 4 9 4 4 2 3 4 3 1 0 1 1 9 5 3 2 8 3 6 0 3 2,1 5 8 8 2 3 2 2 1 1 7 2 9 6 9 2 3 3 7 4 5 9 0 7 3 5 3 9 2 4 1 2 3 2 0 7 5 4 9 , , , , , , , , , , , , , , , 4 6 0 6 6 7 4 8 5 3 0 1 8 2 5 4 5 1 0 1 1 7 5 7 9 7 2 4 8 8 8 4 2 2 3 0 1 5 1 1 5 3 3 8 9 2,1 6 8 8 2 3 2 3 1 7 1 2 0 2 9 5 3 3 8 4 0 5 1 7 3 4 6 1 1 4 9 7 2 1 2 2 8 9 9 , , , , , , , , , , , , , , , 3 2 6 5 2 6 8 1 5 2 0 7 8 0 5 8 2 6 3 4 3 2 6 0 2 5 3 3 1 9 6 4 9 5 4 0 1 6 0 9 9 3 8 0 8 2,1 6 8 8 3 2 2 2 1 1 7 0 3 9 4 9 5 9 3 6 1 3 3 6 3 3 1 5 1 1 7 8 2 4 0 8 1 4 9 , , , , , , , , , , , , , , , 1 7 9 1 8 2 9 0 1 0 4 7 9 7 2 4 1 4 8 9 6 7 8 7 4 5 1 4 8 2 3 7 1 3 1 4 5 9 9 5 8 1 6 4 9 2, 6 1 8 8 2 2 3 3 1 0 2 7 2 9 6 3 0 1 9 3 4 6 3 6 4 3 0 3 9 2 6 0 8 1 6 1 1 5 0 , , , , , , , , , , , , , , , 2 2 4 4 3 5 1 4 6 5 8 9 9 7 9 8 4 1 4 3 3 7 3 9 7 1 3 2 0 3 7 6 2 4 3 9 8 5 9 0 6 0 9 9 0 2,1 5 8 8 2 3 2 2 1 1 7 1 9 9 5 3 3 8 2 9 6 3 3 7 2 3 6 9 6 0 9 4 2 6 5 2 9 2 8 , , , , , , , , , . , , , , , 3 3 9 6 7 7 0 9 2 7 6 2 6 6 2 2 8 8 7 1 5 1 2 7 0 8 8 7 6 7 2 6 5 1 9 5 2 2 1 1 7 6 9 2 1 2, 5 8 2 1 8 2 2 3 1 7 9 1 8 7 2 3 4 0 9 5 0 3 6 6 8 7 8 4 0 3 7 6 9 1 8 9 0 1 3 , , , , , , , , , , , , , , , 7 5 2 1 1 3 4 4 1 3 4 0 1 5 7 9 2 8 5 0 6 0 3 5 8 2 6 3 6 1 3 7 4 5 4 4 9 9 0 8 5 1 4 5 3 2,1 5 8 8 2 2 2 3 1 9 4 0 8 9 8 1 7 2 3 5 3 3 6 6 1 4 4 8 9 7 3 3 4 8 5 3 5 1 3 , , , , , , , , , , , , , , , 8 1 5 9 3 7 3 1 0 6 0 2 3 3 8 9 1 8 1 9 0 7 1 3 1 2 9 3 0 7 1 2 5 5 1 5 6 1 6 3 2 0 5 7 0 25 Total assets 3,642,414 3,627,570 3,647,052 3,645,958 3,652,717 3,645,686 3,601,795 3,620,545 Liabilities 26 Total deposits 2,530,396 2,512,986 2,537,670 2,528,716 2,542,338 2,532,159 2,510,487 2,504,461 27 Transaction accounts 768,816 748,012 776,197 780,351 799,456 783,345 759,838 763,116 2 2 3 3 3 3 3 3 3 3 8 9 0 3 4 7 1 2 5 6 B O o t T T O S S h r m i r a r e t m D o D O e r v h a a w i e e e e t l l n s r h l i m m i u g a d n e t b s r e r a a i g y i m p n n s d l d i o d d e e t t e , , a s i p m e x d i o d U s t e s a s e a p . n i p S n o o t d s o d . v s s i e a g ( i l t r e n s o t o o x d a v $ r c n 1 e y a l 0 r u l n n l 0 i d o n m , c i 0 t s n h e e 0 t g s e i n 0 t c t u c k h t a i e o b c n l k e s a d b e le p ) o sits 7 4 7 6 3 5 3 8 4 4 0 2 3 7 4 1 7 8 1 3 1 4 8 4 2 3 , , , , , , , , , , 5 0 8 5 1 1 2 4 4 4 0 2 8 7 2 4 4 2 7 8 4 3 6 4 0 6 9 3 5 1 7 7 6 3 5 5 3 3 0 5 3 0 7 0 3 2 8 6 6 3 7 6 4 0 9 , , , , . , . , , , 4 2 9 0 4 6 4 2 0 1 4 6 9 4 2 2 4 2 5 1 2 7 1 1 2 2 2 6 6 6 4 7 7 6 3 4 3 9 4 5 3 7 2 7 2 4 5 7 1 3 7 3 8 0 3 4 , , , , , , , , , , 1 9 9 4 6 8 3 4 4 3 6 1 7 1 1 1 1 0 3 4 1 6 9 9 4 0 3 8 8 8 4 7 6 4 7 3 3 9 4 3 3 8 6 4 5 1 8 3 5 6 1 0 9 2 1 8 , , , , , , , , , , 2 2 1 2 9 3 9 2 2 0 9 1 0 2 1 2 3 9 7 2 7 7 5 3 1 7 3 3 7 0 6 4 4 7 7 3 3 4 9 3 6 5 6 4 4 2 3 5 4 6 5 0 5 3 2 9 , , , , , , , , , , 8 7 5 0 0 9 9 3 7 1 3 6 6 3 0 7 2 7 7 4 4 7 1 0 1 5 6 8 3 0 4 6 4 7 7 3 3 9 3 8 4 4 3 6 5 1 8 4 6 0 3 3 7 1 0 4 , , , , , , , , , , 8 7 6 9 2 9 7 2 7 8 1 6 1 6 8 6 2 9 5 8 0 5 5 3 2 7 4 4 6 6 4 4 7 7 6 3 3 7 5 3 3 4 5 1 2 6 7 5 8 4 1 0 2 8 3 5 , , , , , , , , , , 9 1 5 2 4 8 6 7 0 6 3 6 1 8 3 1 0 7 3 1 9 8 6 7 6 9 3 1 6 0 4 7 6 5 7 3 3 4 7 0 3 1 6 3 4 3 5 2 5 6 5 1 5 9 1 4 , , , , . , , , . , 0 5 5 1 8 1 7 1 1 5 9 0 3 8 3 4 0 5 6 0 8 1 7 2 3 5 0 1 1 0 38 Total liabilities 3,373,875 3,358,384 3,379,245 3,378,306 3,381,549 3,374,251 3,330,245 3,350,211 39 Residual (assets less liabilities)3 268,539 269,186 267,807 267,652 271,168 271,436 271,550 270,334 Footnotes appear on the following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Nonfinancial Statistics • May 1993 1.25 ASSETS AND LIABILITIES OF COMMERCIAL BANKS1 Wednesday figures—Continued Millions of dollars 1992 1993 AAccccoouunntt Dec. 2R Dec. 9 Dec. 16R Dec. 23R Dec. 30" Jan. 6 Jan. 13 Jan. 20 Jan. 27 DOMESTICALLY CHARTERED COMMERCIAL BANKS4 Assets 40 Loans and securities 2,763,847 2,762,841 2,762,668 2,745,952 2,749,785 2,754,991 2,739,722 2,736,266 2,717,220 41 Investment securities 731,295 730,287 727,870 730,402 731,627 731,221 732,672 728,036 727,449 42 U.S. government securities 590,850 590,227 587,789 590,205 591,313 592,364 593,701 589,198 587,891 43 Other 140,445 140,059 140,081 140,197 140,314 138,857 138,971 138,838 139,558 44 Trading account assets 42,665 39,995 38,146 36,014 35,612 35,901 33,519 37,291 36,8% 45 U.S. government securities 27,832 25,930 24,576 21,569 21,030 20,619 19,881 23,947 23,233 46 Other securities 2,969 2,949 2,958 3,285 3,029 2,870 2,4% 2,5% 2,472 47 Other trading account assets 11,864 11,115 10,612 11,160 11,554 12,411 11,141 10,748 11,192 48 Total loans 1,989,888 1,992,559 1,996,652 1,979,536 1,982,545 1,987,870 1,973,531 1,970,940 1,952,874 49 Interbank loans 144,237 147,785 151,120 138,961 137,720 148,030 137,989 136,799 130,445 50 Loans excluding interbank 1,845,651 1,844,774 1,845,532 1,840,575 1,844,826 1,839,840 1,835,542 1,834,141 1,822,430 51 Commercial and industrial 440,366 437,044 438,214 437,045 438,683 436,652 433,961 436,562 435,601 5? Real estate 839,661 841,847 841,532 839,030 839,129 838,160 839,238 835,966 832,482 53 Revolving home equity 73,403 73,448 73,386 73,143 73,246 73,386 73,309 73,305 73,2% 54 Other 766,258 768,400 768,147 765,887 765,883 764,774 765,928 762,662 759,186 55 Individual 357,021 357,071 358,059 360,711 361,929 362,679 361,565 361,322 361,345 56 All other 208,602 208,812 207,727 203,789 205,085 202,348 200,778 200,291 193,001 57 Total cash assets 196,159 177,948 193,109 207,160 210,163 200,082 182,905 205,660 170,438 58 Balances with Federal Reserve Banks 27,886 24,783 25,973 34,235 28,649 35,944 25,783 27,025 23,574 59 Cash in vault 33,190 32,579 32,490 31,407 36,402 34,717 34,191 33,336 32,514 60 Demand balances at U.S. depository institutions . 30,203 28,758 30,382 32,975 34,023 30,989 28,527 33,578 28,319 61 Cash items 83,676 70,430 84,750 89,700 91,131 80,292 75,891 92,193 67,610 67 Other cash assets 21,303 21,498 19,614 18,943 20,058 18,240 18,597 19,614 18,422 63 Other assets 176,534 177,529 180,152 175,738 178,449 182,942 178,496 176,140 171,179 64 Total assets 3,136,540 3,118,318 3,135,930 3,128,850 3,138,397 3,138,015 3,101,122 3,118,067 3,058,838 Liabilities 65 Total deposits 2,370,795 2,351,994 2,376,536 2,367,287 2,381,434 2,375,352 2,352,008 2,345,104 2,294,577 66 Transaction accounts 758,901 738,514 765,699 770,342 789,040 773,036 749,448 752,419 708,083 67 Demand, U.S. government 3,520 2,922 5,900 5,216 5,925 4,662 3,287 5,582 3,202 68 Demand, depository institutions 38,751 36,225 39,635 40,821 41,139 38,483 36,099 43,112 35,394 69 Other demand and all checkable deposits 716,630 699,367 720,164 724,306 741,976 729,891 710,063 703,726 669,487 70 Savings deposits (excluding checkable) 744,149 748,217 748,643 738,352 737,581 746,211 746,062 736,514 733,203 71 Small time deposits 635,748 634,919 635,111 633,618 632,289 634,284 631,958 632,627 630,820 72 Time deposits over $100,000 231,998 230,344 227,082 224,975 222,524 221,821 224,540 223,543 222,472 73 Borrowings 365,810 369,110 363,760 366,232 361,745 365,144 349,393 375,989 365,173 74 Treasury tax and loan notes 13,481 6,016 23,348 18,020 29,773 14,886 22,771 34,561 34,921 75 Other 352,329 363,094 340,412 348,212 331,972 350,258 326,622 341,428 330,252 76 Other liabilities 135,004 131,636 131,435 131,288 127,657 129,692 131,779 130,248 131,673 77 Total liabilities 2,871,609 2,852,740 2,871,731 2,864,807 2,870,837 2,870,188 2,833,180 2,851,341 2,791,424 78 Residual (assets less liabilities)3 264,931 265,578 264,199 264,044 267,560 267,828 267,942 266,726 267,414 1. Excludes assets and liabilities of International Banking Facilities. 3. This balancing item is not intended as a measure of equity capital for use in 2. Includes insured domestically chartered commercial banks, agencies and capital adequacy analysis. branches of foreign banks, Edge Act and Agreement corporations, and New York 4. Includes all member banks and insured nonmember banks. Loans and State foreign investment corporations. Data are estimates for the last Wednesday securities data are estimates for the last Wednesday of the month based on a of the month based on a sample of weekly reporting foreign-related and domestic sample of weekly reporting banks and quarter-end condition reports. institutions and quarter-end condition reports. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Commercial Banks A21 1.26 ASSETS AND LIABILITIES OF LARGE WEEKLY REPORTING COMMERCIAL BANKS Millions of dollars, Wednesday figures 1992 1993 Dec. 30" Jan. 6 Jan. 13 Jan. 20 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 ASSETS 1 Cash and balances due from depository institutions 126,237 119,0% 109,305 124,065 99,378 108,828 97,411 120,597 100,834 2 U.S. Treasury and government securities 266,081 270,738 269,585 269,192 269,307 276,421 274,%7 277,181 275,657 3 Trading account 18,471 18,036 17,404 21,290 20,575 21,617 20,504 23,109 20,506 4 Investment account 247,610 252,702 252,181 247,902 248,732 254,804 254,463 254,071 255,151 5 Mortgage-backed securities' 80,693 82,515r 81,704" 77,886" 78,949" 80,501 80,204 80,371 81,550 All others, by maturity 6 One year or less 31,017 33,958r 35,639" 34,999" 34,080" 36,566 36,852 36,698 37,071 7 One year through five years 74,835 75,817" 73,948" 74,646" 74,788" 76,343 75,166 75,459 75,092 8 More than five years 61,066 60,411" 60,891" 60,370" 60,916" 61,395 62,241 61,543 61,438 9 Other securities 56,059 55,926 55,209 55,176 55,172 55,707 55,862 56,042 55,908 10 Trading account 2,875 2,720 2,345 2,445 2,321 2,207 2,357 2,009 1,767 11 Investment account 53,184 53,206 52,864 52,731 52,851 53,500 53,505 54,032 54,141 12 State and political subdivisions, by maturity . 20,398 20,443 20,344 20,343 20,320 20,226 20,262 20,135 20,124 13 One year or less 3,258 3,249 3,211 3,201 3,253 3,299 3,327 3,250 3,406 14 More than one year 17,139 17,194 17,133 17,142 17,067 16,927 16,935 16,884 16,718 15 Other bonds, corporate stocks, and securities - 32,787 32,763 32,520 32,389 32,531 33,274 33,243 33,898 34,016 16 Other trading account assets 11,280 12,166 10,895 10,501 10,935 11,109 10,845 11,839 11,557 17 Federal funds sold2 80,050 84,647" 82,741" 80,000" 75,852" 89,607 78,600 83,946 75,422 18 To commercial banks in the United States 54,569 58,658" 54,208" 55,411" 52,329" 61,918 51,875 57,113 48,697 19 To nonbank brokers and dealers 20,781 21,693 23,487" 20,024 19,694 22,634 22,732 22,637 23,229 20 To others3 4,701 4,2% 5,046 4,566 3,829 5,055 3,993 4,1% 3,4% 21 Other loans and leases, gross 986,467 990,519" 985,657" 988,954" 980,409" 982,808 980,124 981,936 974,476 22 Commercial and industrial 277,878 277,408" 274,524" 277,013" 276,518" 278,%3 276,956 278,227 276,763 23 Bankers acceptances and commercial paper .. 2,046 1,885 1,859 2,190 2,372 2,421 3,030 3,029 2,780 24 All other 275,832 275,524" 272,665" 274,824" 274,146" 276,542 273,925 275,198 273,983 25 U.S. addressees 274,210 273,892" 271,013" 273,078" 272,467" 274,702 272,083 273,379 272,145 26 Non-U.S. addressees 1,623 1,632 1,652 1,745 1,679 1,840 1,842 1,819 1,839 27 Real estate loans 399,152 403,217" 404,442" 401,720" 398,382" 398,511 399,358 397,378 394,554 28 Revolving, home equity 42,793 43,384" 43,326" 43,351" 43,308" 43,187 43,166 43,150 43,058 29 All other 356,359 359,833" 361,116" 358,369" 355,075" 355,325 356,192 354,227 351,4% 30 To individuals for personal expenditures 182,603 185,907" 185,427" 185,144" 185,174" 185,073 184,680 184,439 183,894 31 To financial institutions 38,679 38,555" 36,440" 36,954" 36,374" 35,382 34,643 35,816 33,268 32 Commercial banks in the United States 14,540 14,447" 13,884" 13,7%" 14,032r 13,637 13,222 13,761 12,845 33 Banks in foreign countries 2,159 2,210 1,930 2,225 2,016 1,912 2,082 2,930 2,284 34 Nonbank financial institutions 21,979 21,897" 20,627" 20,932" 20,325" 19,833 19,339 19,126 18,139 35 For purchasing and carrying securities 15,607 14,947" 15,383" 16,606" 14,482" 15,363 16,023 15,199 17,160 36 To finance agricultural production 5,961 5,875 5,733 5,690 5,661 5,524 5,485 5,513 5,522 37 To states and political subdivisions 14,620 14,522 14,458 14,443 14,402 14,303 14,299 14,229 14,258 38 To foreign governments and official institutions 1,384 1,451 1,353 1,408 1,518 1,508 1,394 1,556 1,486 39 All other loans4 26,141 23,844" 23,226" 25,546" 23,629" 23,912 22,867 24,934 22,939 40 Lease-financing receivables 24,441 24,793 24,671 24,430 24,270 24,269 24,418 24,645 24,632 41 LESS: Unearned income 2,290 2,289 2,293 2,282 2,272 2,247 2,245 2,271 2,253 42 Loan and lease reserve 36,494 36,462 36,594 36,534 36,323 36,758 36,866 36,780 36,756 43 Other loans and leases, net 947,683 951,768" 946,770" 950,138" 941,814" 943,803 941,012 942,885 935,466 44 Other assets 162,310 170,206 166,716 162,553 158,831 163,006 164,630 160,047 158,5% 45 Total assets 1,649,701 1,664,547 1,641,222 1,651,626 1,611,290 1,648,482 1,623,327 1,652,536 1,613,441 Footnotes appear on the following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic Nonfinancial Statistics • May 1993 1.26 ASSETS AND LIABILITIES OF LARGE WEEKLY REPORTING COMMERCIAL BANKS—Continued Millions of dollars, Wednesday figures 1992 1993 AAccccoouunntt Dec. 30" Jan. 6 Jan. 13 Jan. 20 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 LIABILITIES 46 Deposits 1,142,776 1,142,823 1,132,291 l,123,956r 1,091,588 1,108,340 1,103,346 1,124,498 1,091,103 47 Demand deposits 299,997 281,350 273,228 276,674r 253,220 261,106 256,903 278,322 252,959 48 Individuals, partnerships, and corporations 241,266 227,793r 221,337r 218,167r 203,691r 209,964 206,151 221,986 204,906 49 Other holders 58,732 53,557r 51,890" 58,508" 49,529" 51,141 50,752 56,335 48,053 50 States and political subdivisions 9,847 10,740 9,138 10,572 9,487 9,728 8,859 9,363 8,936 51 U.S. government 3,817 2,874 2,263 4,307 2,077 2,824 1,945 2,073 2,388 5? Depository institutions in the United States 25,720 23,885 22,404r 27,015 22,118 22,325 20,839 26,678 21,349 53 Banks in foreign countries 6,036 5,628 5,348 6,090 5,194 5,377 5,555 6,832 5,243 54 Foreign governments and official institutions 558 495 483 579 765 564 618 524 664 55 Certified and officers' checks 12,754 9,935r 12,255r 9,944r 9,887r 10,322 12,936 10,866 9,473 56 Transaction balances other than demand deposits .... 119,558 125,013r 121,01^ 118,080r 113,938r 118,995 116,336 116,376 114,435 57 Nontransaction balances 723,221 736,461r 738,044r 729,202r 724,430" 728,240 730,106 729,800 723,710 58 Individuals, partnerships, and corporations 699,178 713,179" 712,952r 704,573r 699,644" 702,932 703,945 703,604 697,882 59 Other holders 24,043 23,281r 25,092r 24,629 24,786 25,307 26,161 26,196 25,828 60 States and political subdivisions 20,610 20,499 20,825 20,413 20,394 20,827 21,440 21,502 21,422 61 U.S. government 1,247 690 2,031 1,980 1,989 2,070 2,152 2,129 2,051 6? Depository institutions in the United States 1,873 1,772r 1,910" 1,908 2,075 2,086 2,243 2,241 2,030 63 Foreign governments, official institutions, and banks 312 320 326 328 327 324 327 323 325 64 Liabilities for borrowed money5 272,397 281,775r 266,714r 286,97 lr 277,738" 297,760 277,765 285,886 277,617 65 Borrowings from Federal Reserve Banks 0 40 0 2,100 200 65 0 0 0 66 Treasury tax and loan notes , 24,934 12,129r 18,783 29,047r 29,923 31,934 27,029 18,101 12,932 67 Other liabilities for borrowed money 247,462 269,606r 247,93LR 255,824r 247,614" 265,761 250,736 267,784 264,685 68 Other liabilities (including subordinated notes and debentures) 97,171 100,01 R 101,676r 100,321r 101,403" 101,4% 100,426 99,531 102,576 69 Total liabilities 1,512,344 1,524,610 1,500,682 1,511,247 1,470,729 1,507,596 1,481,536 1,509,914 1,471,295 70 Residual (total assets less total liabilities)7 137,357 139,937 140,540 140,379 140,561 140,886 141,791 142,623 142,145 MEMO 71 Total loans and leases, gross, adjusted, plus securities .. 1,330,828 1,340,891 l,335,996r 1,334,617 1,325,315 1,340,098 1,335,301 1,340,069 1,331,478 77. Time deposits in amounts of $100,000 or more 113,791 113,972 116,737 115,814r 114,532 115,165 114,902 114,874 113,962 73 Loans sold outright to affiliates 954 921 929 926 917 916 922 910 909 74 Commercial and industrial 452 454 454 453 453 452 452 452 452 75 Other 502 467 474 473 464 464 470 458 458 76 Foreign branch credit extended to U.S. residents 24,318 24,534 24,627 24,640 24,327 24,324 23,892 23,807 23,756 77 Net due to related institutions abroad -17,685 -19,937 -19,467 -16,439 -10,010 -12,273 -14,758 -13,640 -10,309 1. Includes certificates of participation, issued or guaranteed by agencies of the 9. Affiliates include a bank's own foreign branches, nonconsolidated nonbank U.S. government, in pools of residential mortgages. affiliates of the bank, the bank's holding company (if not a bank), and noncon- 2. Includes securities purchased under agreements to resell. solidated nonbank subsidiaries of the holding company. 3. Includes allocated transfer risk reserve. 10. Credit extended by foreign branches of domestically chartered weekly 4. Includes negotiable order of withdrawal accounts (NOWs), automatic trans- reporting banks to nonbank U.S. residents. Consists mainly of commercial and fer service (ATS), and telephone and preauthorized transfers of savings deposits. industrial loans, but includes an unknown amount of credit extended to other than 5. Includes borrowings only from other than directly related institutions. nonfinancial businesses. 6. Includes federal funds purchased and securities sold under agreements to NOTE. Data that formerly appeared in table 1.28, Assets and Liabilities of Large repurchase. Weekly Reporting Commercial Banks in New York City, can be obtained from the 7. This balancing item is not intended as a measure of equity capital for use in Board's H.4.2 (504) weekly statistical release. For ordering address, see inside capital-adequacy analysis. front cover. 8. Excludes loans to and federal funds transactions with commercial banks in the United States. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Commercial Banks A23 1.30 LARGE WEEKLY REPORTING U.S. BRANCHES AND AGENCIES OF FOREIGN BANKS Assets and Liabilities1 Millions of dollars, Wednesday figures Account Dec. 30" Jan. 6r Jan. 13 Jan. 20 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 1 Cash and balances due from depository institutions 17,329 17,330 17,586 18,356 18,209 17,543 18,122 17,657 17,493 2 U.S. Treasury and government agency securities 27,064 26,759 27,159 27,121 26,598 27,157 26,206 27,199 28,054 3 Other securities. 8,636 8,601 8,322 8,342 8,193 8,246 8,269 8,317 8,365 4 Federal funds sold 22,331 27,446 27,398 24,642 23,692 23,360 22,514 20,171 18,346 5 To commercial banks in the United States .. 4,940 7,860 6,392 7,046 6,062 4,706 5,264 5,394 3,784 6 7 8 Ot T C h o e o r m o l t m o h a e e n r r s c s 2 i a a n l d a n le d a i s n e d s, u s g t r r o ia s l s — 1 1 1 6 0 7 8 0 , , , 3 9 3 9 1 8 1 2 6 1 9 6 1 9 5 9 , , , 1 7 5 7 5 8 8 9 6 1 2 9 6 1 9 3 , , , 0 6 0 0 8 2 7 9 8 " r 1 9 6 1 9 4 7 , , , 1 8 5 4 3 9 0 2 6 " " 1 9 6 1 9 4 7 , , , 8 1 6 1 6 3 8 2 0 " " 1 9 1 6 8 8 3 , , , 9 6 5 1 5 4 6 4 6 1 9 1 6 7 7 3 , , , 7 2 6 4 7 5 4 4 0 1 9 1 6 7 4 4 , . , 7 7 6 3 7 3 7 7 9 1 9 6 1 6 3 4 , , , 5 5 2 7 6 4 9 2 6 9 Bankers acceptances and commercial paper 2,449 2,589 2,367 2,528 2,499" 2,571 2,546 2,776 2,768 10 All other 97,937 96,589 96,661r 96,612" 97,320" 96,345 95,197 94,961 93,811 11 U.S. addressees 94,863 93,563 93,487" 93,457" 93,928" 93,254 92,152 91,653 90,507 1 1 1 1 1 1 1 5 6 7 2 3 8 4 T L F o o o B N C r a f a o n o p i N n n s m n u a k o b r m s n s c n a e c h e - n c i i a U n r a k u c l s r . f i i e S a f i o n d i n . l g r n s e a a b b t i a n i d y a g t n c d n n u i d r a r k t e c l e i s c o a o s a l i n s i u n n r s e e n r s e s y t t t s r t h i i a i t n e e u t g e s t U i s o n e n i c s t u ed ri ti S e t s a te .. s , 3 2 1 6 2 4 6 5 3 8 , , , , , , , 1 1 0 0 3 2 0 6 1 7 1 4 9 6 4 9 4 7 3 9 1 3 2 1 6 2 4 5 3 3 7 , , , , , , , 2 1 5 5 8 0 1 0 2 6 6 7 2 4 5 4 2 9 9 6 9 2 3 1 5 4 3 3 4 1 6 , , , , , , , 6 1 2 5 1 8 7 6 7 2 8 7 3 5 6 4 4 6 4 4 4 " " " 3 2 1 5 4 3 5 3 7 1 , , , , , , , 1 8 1 5 1 6 9 9 1 5 0 0 5 3 0 8 5 2 1 9 9 " " " 2 3 1 5 4 3 3 3 7 1 , , , , , , , 0 0 3 8 8 1 8 7 7 9 6 4 8 5 0 8 8 6 2 7 4 " " " " " 3 2 1 5 4 3 3 3 6 1 . , , , , , , 3 2 7 9 0 7 9 5 0 5 1 0 8 9 7 1 8 9 4 0 0 3 2 1 5 2 5 3 3 3 7 , , , , , , , 5 0 4 9 8 9 0 8 0 0 9 0 0 4 2 4 7 3 2 1 6 2 3 1 5 2 4 6 3 3 8 , , , , , . , 8 0 4 0 6 3 7 1 1 2 4 0 7 6 4 4 1 9 7 8 9 3 2 1 5 3 3 4 6 1 8 , , , , , , , 6 4 3 3 4 9 8 0 1 7 0 9 4 4 8 5 1 4 9 6 0 19 To foreign governments and official institutions 364 354 356 360 352 333 407 412 395 20 All other 2,503 2,261 2,242 2,223 2,159 2.358 2,327 2,194 2,040 21 Other assets (claims on nonrelated parties) . 31,004 31,352 31,232" 30,177 30,716 31,916 31,916 31,117 31,714 22 Total assets3 318,301 314,509 310,047" 311,122" 307,625" 307,487 304,749 302,625 302,014 23 Deposits or credit balances due to other than directly related institutions 104,948 102,353 103,137" 103,617 103,426 102,342 101,909 100,305 103,096 24 Demand deposits 4,044 4,035 3,831" 4,224 3,569 4,365 4,551 3,775 3,998 25 Individuals, partnerships, and corporations 3,217 3,214 2,976 3,189 2,792 2,653 2,868 2,888 2,952 26 Other 827 821 855" 1,036 777 1,712 1,683 887 1,046 27 Nontransaction accounts 100,904 98,318 99,306 99,393 99,857 97,977 97,357 96,530 99,098 28 Individuals, partnerships, and corporations 71,003 69,679 71,363" 71,034" 70,915" 69,466 68,244 66,900 69,106 29 Other 29,901 28,638 27,942" 28,358" 28,942" 28,511 29,113 29,630 29,992 30 Borrowings from other than directly related institutions ., 92,318 92,368 88,813 90,684 83,756 87,797 88,234 88,469 83,919 31 Federal funds purchased 49,349 48,858 45,482 50,730 45,776 47,476 45,592 45,320 41,104 32 From commercial banks in the United States 14,736 15,033 12,185 14,764 12,134 14,970 11,836 14,851 10,863 33 From others 34,613 33,825 33,297 35,966 33,642 32,506 33,757 30,469 30,242 34 Other liabilities for borrowed money 42,969 43,510 43,331 39,954 37,980 40,321 42,641 43,149 42,815 35 To commercial banks in the United States 10,357 10,054 10,345 9,191 9,319 8,733 9,331 9,458 8,544 36 To others 32,611 33,456 32,986 30,763 28,661 31,588 33,310 33,691 34,271 37 Other liabilities to nonrelated parties 31,769 30,151 30,645" 30,533 31,193 31,127 31,938 30,994 31,276 38 Total liabilities6 318,301 314,509 310,047" 311,122" 307,625" 307,487 304,749 302,625 302,014 4 3 0 9 T N M o e E t t M al d O u l e o a t n o s r ( e g l r a o te s d s) i a n n s d ti t s u e t c io u n r s i ti a e b s, r o a a d d j usted . 2 4 1 6 5 , , 2 8 4 3 1 9 2 5 1 2 4 , , 3 4 7 3 4 5 2 5 1 2 4 , , 7 5 9 9 0 0 " " 2 4 1 8 2 , , 6 3 3 8 7 8 " " 2 5 1 3 1 , , 1 5 9 3 5 5 " " 2 5 1 0 2 , , 5 2 0 4 2 6 2 4 0 8 9 , , 6 8 2 1 0 7 2 4 0 9 9 , , 3 1 3 1 2 8 2 4 0 8 8 , , 9 6 2 1 6 9 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 to related institutions abroad for U.S. branches and agencies of 3. Includes net due from related institutions abroad for U.S. branches and 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 United States. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A24 Domestic Nonfinancial Statistics • May 1993 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December 1992 1993 IItteemm 1988 1989 1990 1991 1992 Aug. Sept. Oct. Nov. Dec. Jan. Commercial paper (seasonally adjusted unless noted otherwise) 1 AU issuers 458,464 525,831 562,656 531,724 549,433 547,234 550,727 557,915 558,414 549,433 542,438 Financial companies' Dealer-placed paper 2 Total 159,777 183,622 214,706 213,823 228,260 223333,,004455 234,242 223311,,775511 223300,,996666 228,260 215,126 3 Bank-related (not seasonally adjusted) 1,248 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Directly placed paper* 4 Total 194,931 210,930 200,036 183,379 172,813 173,859 178,184 181,388 179,279 172,813 181,264 5 Bank-related (not seasonally adjusted) 43,155 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6 Nonfinancial companies5 103,756 131,279 147,914 134,522 148,360 140,330 138,301 144,776 148,169 148,360 146,048 Bankers dollar acceptances (not seasonally adjusted)6 7 Total 66,631 62,972 54,771 43,770 38,194 37,090 37,814 37,599 37,651 38,194 35,945 Holder 8 Accepting banks 9,086 9,433 9,017 11,017 10,555 9,372 10,436 10,236 10,301 10,555 8,819 9 Own bills 8,022 8,510 7,930 9,347 9,097 7,927 9,073 8,764 9,156 9,097 7,625 10 Bills bought from other banks 1,064 924 1,087 1,670 1,458 11,,444466 1,363 11,,447722 11,,114455 1,458 1,193 Federal Reserve Banks 11 Foreign correspondents 1,493 1,066 918 1,739 1,276 1,851 1,803 1,204 1,289 1,276 1,317 12 Others 56,052 52,473 44,836 31,014 26,364 25,866 25,575 26,159 26,061 26,364 25,810 Basis 13 Imports into United States 14,984 15,651 13,095 12,843 12,209 11,600 12,227 12,116 12,133 12,209 11,146 14 Exports from United States 14,410 13,683 12,703 10,351 8,096 7,861 8,051 7,849 7,673 8,0% 7,690 15 All other 37,237 33,638 28,973 20,577 17,890 17,628 17,536 17,633 17,846 17,890 17,109 1. Institutions engaged primarily in commercial, savings, and mortgage bank- 5. Includes public utilities and firms engaged primarily in such activities as ing; sales, personal, and mortgage financing; factoring, finance leasing, and other communications, construction, manufacturing, mining, wholesale and retail trade, business lending; insurance underwriting; and other investment activities. transportation, and services. 2. Includes all financial-company paper sold by dealers in the open market. 6. Data on bankers acceptances are gathered from approximately 100 institu- 3. Bank-related series were discontinued in January 1989. tions. The reporting group is revised every January. 4. As reported by financial companies that place their paper directly with 7. In 1977 the Federal Reserve discontinued operations in bankers acceptances investors. for its own account. 1.33 PRIME RATE CHARGED BY BANKS on Short-Term Business Loans1 Percent per year Rate Av r e a r te a ge Period Av r e a r t a e ge 10.50 1990 10.01 1991—Jan. ... 9.52 1992—Jan. ... 10.00 1991 8.46 Feb. .. 9.05 Feb. .. 1992 6.25 Mar. .. 9.00 Mar. .. 9.50 Apr. .. 9.00 Apr. .. 9.00 1990- 10.11 May .. 8.50 May .. 8.50 Feb. 10.00 June .. 8.50 June .. 8.00 Mar. 10.00 July ... 8.50 July ... 7.50 Apr. 10.00 Aug. .. 8.50 Aug. .. 6.50 May 10.00 Sept. . 8.20 Sept. . June 10.00 Oct. .. 8.00 Oct. .. 6.00 July . 10.00 Nov. . 7.58 Nov. . Aug. 10.00 Dec. .. 7.21 Dec. Sept. 10.00 Oct. 10.00 1993—Jan. . Nov. 10.00 Feb. Dec. 10.00 Mar. 1. Data in this table also appear in the Board's H.15 (519) weekly and G.13 (415) monthly statistical releases. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A25 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 1992 1993 1993, week ending IItteemm 11999900 11999911 11999922 Nov. Dec. Jan. Feb. Jan. 29 Feb. 5 Feb.12 Feb. 19 Feb. 26 MONEY MARKET INSTRUMENTS 8.10 5.69 3.52 3.09 2.92 3.02 3.03 2.94 3.15 2.92 3.06 2.91 6.98 5.45 3.25 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Commercial paper3,5,6 8.15 5.89 3.71 3.25 3.71 3.21 3.14 3.14 3.16 3.14 3.16 3.11 8.06 5.87 3.75 3.66 3.67 3.25 3.18 3.18 3.21 3.18 3.18 3.15 7.95 5.85 3.80 3.67 3.70 3.35 3.27 3.29 3.31 3.27 3.26 3.23 Finance paper, directly placed3,5,1 8.00 5.73 3.62 3.20 3.68 3.25 3.18 3.18 3.20 3.18 3.20 3.17 7.87 5.71 3.65 3.59 3.58 3.32 3.27 3.27 3.29 3.28 3.27 3.26 7.53 5.60 3.63 3.56 3.52 3.29 3.21 3.23 3.22 3.22 3.22 3.20 Bankers acceptances3,5'* 9 3-month 7.93 5.70 3.62 3.51 3.44 3.14 3.06 3.08 3.09 3.06 3.05 3.05 7.80 5.67 3.67 3.51 3.47 3.23 3.15 3.15 3.18 3.17 3.14 3.10 Certificates qf deposit, secondary marker9 8.15 5.82 3.64 3.23 3.57 3.14 3.08 3.08 3.08 3.08 3.08 3.06 8.15 5.83 3.68 3.58 3.48 3.19 3.12 3.13 3.14 3.12 3.11 3.10 8.17 5.91 3.76 3.60 3.55 3.33 3.22 3.26 3.26 3.24 3.21 3.18 8.16 5.86 3.70 3.67 3.50 3.22 3.12 3.18 3.18 3.13 3.10 3.08 U.S. Treasury bills Secondary market • 7.50 5.38 3.43 3.13 3.22 3.00 2.93 2.92 2.92 2.93 2.92 2.95 7.46 5.44 3.54 3.34 3.36 3.14 3.07 3.07 3.10 3.10 3.04 3.04 7.35 5.52 3.71 3.52 3.55 3.35 3.25 3.26 3.26 3.32 3.22 3.17 Auction average '5'u 7.51 5.42 3.45 3.14 3.25 3.06 2.95 2.98 2.97 2.94 2.93 2.96 7.47 5.49 3.57 3.35 3.39 3.17 3.08 3.09 3.10 3.09 3.08 3.06 7.36 5.54 3.75 3.61 3.57 3.52 3.32 n.a. n.a. 3.32 n.a. n.a. U.S. TREASURY NOTES AND BONDS Constant maturities12 7.89 5.86 3.89 3.68 3.71 3.50 3.39 3.41 3.41 3.45 3.36 3.31 8.16 6.49 4.77 4.58 4.67 4.39 4.10 4.24 4.19 4.21 4.04 3.95 8.26 6.82 5.30 5.14 5.21 4.93 4.58 4.78 4.70 4.71 4.51 4.38 8.37 7.37 6.19 6.04 6.08 5.83 5.43 5.66 5.55 5.56 5.39 5.21 25 7-year 8.52 7.68 6.63 6.49 6.46 6.26 5.87 6.08 5.98 6.00 5.85 5.64 8.55 7.86 7.01 6.87 6.77 6.60 6.26 6.46 6.40 6.38 6.24 6.02 27 30-year 8.61 8.14 7.67 7.61 7.44 7.34 7.09 7.23 7.21 7.18 7.07 6.89 Composite 8.74 8.16 7.52 7.43 7.30 7.17 6.89 7.03 6.98 6.97 6.90 6.70 STATE AND LOCAL NOTES AND BONDS Moody's series13 29 Aaa 6.96 6.56 6.09 6.05 5.91 5.91 5.61 5.89 5.79 5.65 5.51 5.47 30 Baa 7.29 6.99 6.48 6.46 6.27 6.28 5.98 6.28 6.17 6.01 5.88 5.84 7.27 6.92 6.44 6.36 6.22 6.16 5.87 6.10 6.04 5.97 5.85 5.60 CORPORATE BONDS 9.77 9.23 8.55 8.51 8.35 8.24 8.01 8.14 8.09 8.07 7.99 7.88 Rating group 33 Aaa 9.32 8.77 8.14 8.10 7.98 7.91 7.71 7.84 7.78 7.75 7.69 7.61 34 Aa 9.56 9.05 8.46 8.40 8.24 8.11 7.90 8.02 7.98 7.97 7.88 7.77 35 A 9.82 9.30 8.62 8.58 8.37 8.26 8.03 8.15 8.11 8.09 8.02 7.90 36 Baa 10.36 9.80 8.98 8.96 8.81 8.67 8.39 8.55 8.50 8.49 8.37 8.22 37 A-rated, recently offered utility bonds16 10.01 9.32 8.52 8.51 8.27 8.13 7.80 7.95 7.88 7.85 7.73 7.63 MEMO Dividend-price ratio 8.96 8.17 7.46 7.43 7.45 7.25 7.37 7.39 7.40 7.37 7.43 7.29 3.61 3.25 2.99 2.98 2.90 2.88 2.81 2.83 2.77 2.78 2.86 2.82 1. The daily effective federal funds rate is a weighted average of rates on 12. Yields on actively traded issues adjusted to constant maturities. Source: trades through New York brokers. U.S. Treasury. 2. Weekly figures are averages of seven calendar days ending on Wednesday 13. GeneraJ obligations based on Thursday figures; Moody's Investors Service. of the current week; monthly figures include each calendar day in the month. 14. General obligations only, with twenty years to maturity, issued by twenty 3. Annualized using a 36fl-day year or bank interest. state and local governmental units of mixed quality. Based on figures for 4. Rate for the Federal Reserve Bank of New York. Thursday. 5. Quoted on a discount basis. 15. Daily figures from Moody's Investors Service. Based on yields to maturity 6. An average of offering rates on commercial paper placed by several leading on selected long-term bonds. dealers for firms whose bond rating is AA or the equivalent. 16. Compilation of the Federal Reserve. This series is an estimate of the yield 7. An average of offering rates on paper directly placed by finance companies. on recently offered, A-rated utility bonds with a thirty-year maturity and five 8. Representative closing yields for acceptances of the highest-rated money years of call protection. Weekly data are based on Friday quotations. center banks. 17. Standard and Poor's corporate series. Preferred stock ratio based on a 9. An average of dealer offering rates on nationally traded certificates of sample of ten issues: four public utilities, four industrials, one financial, and one deposit. transportation. Common stock ratios on the 500 stocks in the price index. 10. Bid rates for Eurodollar deposits at II a.m. London time. Data are for NOTE. These data also appear in the Board's H. 15 (519) and G. 13 (415) releases. indication purposes only. For ordering address, see inside front cover. 11. Auction date for daily data; weekly and monthly averages computed on an issue-date basis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A26 Domestic NonfinancialS tatistics • May 1993 1.36 STOCK MARKET Selected Statistics 1992 1993 IInnddiiccaattoorr 11999900 11999911 11999922 June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Prices and trading volume (averages of daily figures) Common stock prices (indexes) 1 New York Stock Exchange (Dec. 31, 1965 = 50) 183.66 206.35 229.00 224.68 228.17 230.07 230.13 226.97 232.84 239.47 239.75r 243.41 226.06 258.16 284.26 279.54 281.90 284.44 285.76 279.70 287.80 290.77 292.11 294.40 158.80 173.97 201.02 202.02 198.36 191.31 191.61 192.30 204.63 212.35 221.00 226.% 4 Utility 90.72 92.64 99.48 97.23 101.18 103.41 102.26 101.62 101.13 103.85 105.52 109.45 133.21 150.84 179.29 174.82 180.% 180.47 178.27 181.36 189.27 196.87 203.38 209.93 6 Standard & Poor's Corporation (1941-43 = 10)1 335.01 376.20 415.75 408.27 415.05 417.93 418.48 412.50 422.84 435.64 435.40" 441.76 7 American Stock Exchange (Aug. 31, 1973 = 50? 338.32 360.32 391.28 385.56 384.07 385.80 382.67 371.27 387.75 392.69 402.75r 409.39 Volume of trading (thousands of shares) 156,359 179,411 202,558 195,089 194,138 174,003 191,774 204,787 208,221 222,736 266,011 288,540 1133,,115555 1122,,448866 1144,,117711 1111,,221166 1100,,772222 1111,,887755 1111,,119988 1111,,996666 1144,,992255 1166,,552233 1177,,118844 1188,,115544 Customer financing (millions of dollars, end-of-period balances) 10 Margin credit at broker-dealers3 28,210 36,660 43,990 39,690 39,640 39,940 41,250 41,590 43,630 43,990 44,020 44,290 Free credit balances at brokers4 11 Margin accounts 8,050 8,290 8,970 7,780 7,920 8,060 8,060 8,355 8,500 8,970 8,980 9,790 12 Cash accounts 19,285 19,255 22,510 19,610 18,775 18,305 19,650 18,700 19,310 22,510 20,360 22,190 Margin requirements (percent of market value and effective date)6 Mar. 11, 1%8 June 8, 1968 May 6, 1970 Dec. 6, 1971 Nov. 24, 1972 Jan. 3, 1974 1133 MMaarrggiinn ssttoocckkss 70 80 65 55 65 50 1144 CCoonnvveerrttiibbllee bboonnddss 50 60 50 50 50 50 1155 SShhoorrtt ssaalleess 70 80 65 55 65 50 1. Effective July 1976, includes a new financial group, banks and insurance on securities other than options are the difference between the market value (100 companies. With this change the index includes 400 industrial stocks (formerly percent) and the maximum loan value of collateral as prescribed by the Board. 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and 40 Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May 1, financial. 1936; Regulation G, effective Mar. 11, 1968; and Regulation X, effective Nov. 1, 2. On July 5, 1983, the American Stock Exchange rebased its index, effectively 1971. cutting previous readings in half. On Jan. 1, 1977, the Board of Governors for the first time established in 3. Since July 1983, under the revised Regulation T, margin credit at broker- Regulation T the initial margin required for writing options on securities, setting dealers has included credit extended against stocks, convertible bonds, stocks it at 30 percent of the current market value of the stock underlying the option. On acquired through the exercise of subscription rights, corporate bonds, and Sept. 30, 1985, the Board changed the required initial margin, allowing it to be the government securities. Separate reporting of data for margin stocks, convertible same as the option maintenance margin required by the appropriate exchange or bonds, and subscription issues was discontinued in April 1984. self-regulatory organization; such maintenance margin rules must be approved by 4. Free credit balances are amounts in accounts with no unfulfilled commit- the Securities and Exchange Commission. Effective Jan. 31, 1986, the SEC ments to brokers and are subject to withdrawal by customers on demand. approved new maintenance margin rules, permitting margins to be the price of the 5. New series since June 1984. option plus 15 percent of the market value of the stock underlying the option. 6. These requirements, stated in regulations adopted by the Board of Gover- Effective June 8, 1988, margins were set to be the price of the option plus 20 nors pursuant to the Securities Exchange Act of 1934, limit the amount of credit percent of the market value of the stock underlying the option (or 15 percent in the that can be used to purchase and carry "margin securities" (as defined in the case of stock-index options). regulations) when such credit is collateralized by securities. Margin requirements Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets All 1.37 SELECTED FINANCIAL INSTITUTIONS Selected Assets and Liabilities Millions of dollars, end of period 1992 Apr. May June July Aug. Sept. SAIF-insured institutions 1 Assets 1,084,821 919,979 883,407 872,026 870,334 861,517 856,390 856,165 847,235 846,730 840,605 2 Mortgages 633,385 551,322 529,158 524,954 521,911 516,654 512,264 512,077 508,815 502,863 496,974 3 Mortgage-backed securities 155,228 129,461 125,272 124,763 124,225 123,282 122,385 120,438 119,715 120,715 120,292 4 Contra-assets to mortgage assets' 16,897 12,307 10,979 10,959 11,120 11,282 11,044 11,164 11,073 11,207 10,509 5 Commercial loans 24,125 17,139 15,400 15,075 14,607 14,020 13,929 13,525 13,419 13,630 13,180 6 Consumer loans 48,753 41,775 38,717 37,999 37,868 37,403 37,230 37,123 36,732 35,938 36,019 7 Contra-assets to nonmortgage loans . 1,939 1,239 -1,008 980 949 944 910 932 982 931 845 8 Cash and investment securities 146,644 120,077 119,543 116,462 120,763 119,539 120,220 124,140 120,684 126,719 127,893 9 Other 95,522 73,751 67,387 64,711 63,030 62,844 62,317 60,958 59,925 59,002 57,600 10 Liabilities and net worth 1,084,821 919,979 883,407 872,026 870,334 861,517 856,390 856,165 847,235 846,730 840,605 11 Deposits 835,496 731,937 703,811 689,777 688,199 682,535 676,141 672,354 667,027 660,906 654,047 12 Borrowed money 197,353 121,923 110,031 111,262 110,126 108,943 109,036 110,109 110,022 114,123 114,354 13 FHLBB 100,391 65,842 62,628 62,268 61,439 62,760 62,359 62,225 64,105 63,065 64,742 14 Other 96,962 56,081 47,403 48,994 48,687 46,183 46,677 47,884 45,917 51,058 49,612 15 Other 21,332 17,560 18,295 18,883 19,626 17,740 18,570 20,523 18,017 19,853 20,406 16 Net worth 30,640 48,559 51,271 52,103 52,383 52,299 52,642 53,178 52,169 51,846 51,798 1. Contra-assets are credit-balance accounts that must be subtracted from the NOTE. Components do not sum to totals because of rounding. Data for credit corresponding gross asset categories to yield net asset levels. Contra-assets to unions and life insurance companies have been deleted from this table. Starting in mortgage assets, mortgage loans, contracts, and pass-through securities—include the December 1991 issue, data for life insurance companies are shown in a special loans in process, unearned discounts and deferred loan fees, valuation allowances table of quarterly data. for mortgages "held for sale," and specific reserves and other valuation allow- SOURCE. Office of Thrift Supevision (OTS), insured by the Savings Association ances. Contra-assets to nonmortgage loans include loans in process, unearned Insurance Fund (SAIF) and regulated by the OTS. discounts and deferred loan fees, and specific reserves and valuation allowances. 2. Includes holding of stock in Federal Home Loan Bank and finance leases plus interest. 1.38 FEDERAL FISCAL AND FINANCING OPERATIONS Millions of dollars Fiscal year Calendar year Type of account or operation 1992 1993 11999900 11999911 11999922 Sept. Oct. Nov. Dec. Jan. Feb. U.S. budget 1 Receipts, total 1,031,308 1,054,265 1,091,200 118,338 76,832 74,633 113,756 112,809 66,194 2 On-budget 749,654 760,382 788,774 92,807 55,056 51,219 89,660 90,220 41,094 3 Off-budget 281,654 293,883 302,426 25,531 21,776 23,414 24,096 22,589 25,100 4 Outlays, total 1,251,766 1,323,757 1,381,404 112,918 125,620 107,363 152,701 82,996 113,788 5 On-budget 1,026,701 1,082,072 1,129,044 86,703 103,780 83,444 116,640 85,022 89,333 6 Off-budget 225,064 241,685 252,316 26,235 21,841 23,919 36,061 -2,025 24,456 7 Surplus or deficit (-), total -220,458 -269,492 -290,160 5,400 -48,788 -32,730 -38,945 29,812 -47,594 8 On-budget -277,047 -321,690 -340,270 6,104 -48,724 -32,225 -26,980 5,198r -48,239 9 Off-budget 56,590 52,198 50,110 -704 -65 -505 -11,965 24,614 644 Source of financing (total) 10 Borrowing from the public 220,101 276,802 310,918 9,853 -1,552 61,969 21,078 -8,355 30,689 11 Operating cash (decrease, or increase (-)) . 818 -1,329 -17,305 -22,807 39,420 -7,346 -3,175 -16,436 27,227 12 Other 2 -461 -5,981 -3,453 7,554 10,920 -21,893 21,042 -5,021 -10,322 MEMO 13 Treasury operating balance (level, end of period) 40,155 41,484 58,789 58,789 19,369 26,715 29,890 46,326 19,099 14 Federal Reserve Banks 7,638 7,928 24,586 24,586 4,413 6,985 7,492 9,572 5,350 15 Tax and loan accounts 32,517 33,556 34,203 34,203 14,956 19,729 22,399 36,754 13,749 1. In accordance with the Balanced Budget and Emergency Deficit Control Act monetary assets; accrued interest payable to the public; allocations of SDRs; of 1985, all former off-budget entries are now presented on-budget. Federal deposit funds; miscellaneous liability (including checks outstanding) and asset Financing Bank (FFB) activities are now shown as separate accounts under the accounts; seigniorage; increment on gold; net gain or loss for U.S. currency agencies that use the FFB to finance their programs. The act also moved two valuation adjustment; net gain or loss for IMF loan-valuation adjustment; and social security trust funds (federal old-age survivors insurance and federal profit on sale of gold. disability insurance) off budget. The Postal Service is included as an off-budget SOURCES. Monthly Treasury Statement of Receipts and Outlays of the U.S. item in the Monthly Treasury Statement beginning in 1990. Government (MTS) and the Budget of the U.S. Government. 2. Includes special drawing rights (SDRs); reserve position on the U.S. quota in the International Monetary Fund (IMF); loans to the IMF; other cash and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A28 Domestic Financial Statistics • May 1993 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1 Millions of dollars Fiscal year Calendar year SSSooouuurrrccceee ooorrr tttyyypppeee 1991 1992 1992 1993 11999911 11999922 HI H2 Hlr H2 Dec. Jan. Feb. RECEIPTS 1 All sources 1,054,265 1,091,200 540,504 519,293 560,647 540,849 113,756 112,809 66,194 7 Individual income taxes, net 467,827 476,465 232,389 234,949 236,888 246,% 1 51,171 73,704 23,947 3 Withheld 404,152 408,352 193,440 210,552 198,868 215,591 48,189 36,255 33,652 4 Presidential Election Campaign Fund 32 30 31 1 19 10 0 0 4 Nonwithheld 142,693 149,342 109,405 33,2% 111,855 39,371 3,665 38,452 %7 6 Refunds 79,050 81,259 70,487 8,900 73,853 8,011 683 1,003 10,677 Corporation income taxes 7 Gross receipts 113,599 117,951 58,903 54,016 61,682 58,022 23,721 3,%9 2,510 8 Refunds 15,513 17,680 7,904 8,649 9,403 7,219 772 758 1,719 9 Social insurance taxes and contributions, net 3%, 011 413,689 214,303 186,839 224,569 192,599 31,918 29,416 34,251 10 Employment taxes and contributions 370,526 385,491 199,727 175,802 208,110 180,758 31,252 28,209 31,623 11 Self-employment taxes and contributions 25,457 24,421 22,150 3,306 20,433 3,988 0 -3,032 1,487 1? Unemployment insurance 20,922 23,410 12,2% 8,721 14,070 9,397 245 844 2,259 13 Other net receipts 4,563 4,788 2,279 2,317 2,389 2,445 421 363 369 14 Excise taxes 42,430 45,570 20,703 24,429 22,389 23,456 4,014 3,307 3,342 15 Customs deposits 15,921 17,359 7,488 8,694 8,145 9,497 1,539 1,310 1,347 16 Estate and gift taxes 11,138 11,143 5,631 5,507 5,701 5,733 959 888 822 17 Miscellaneous receipts 22,852 27,195 8,991 13,508 10,992 11,815 1,206 971 1,695 OUTLAYS 18 All types 1,323,757 1,381,404 632,153 694,474 704,591 723,760 152,701 82,996 113,788 19 National defense 272,514 298,361 122,089 147,669 147,066 155,501 30,010 19,683 22,903 20 International affairs 16,167 16,106 7,592 7,691 8,538 9,911 1,170 1,161 1,253 21 General science, space, and technology 15,946 16,409 7,4% 8,472 7,952 8,521 1,571 1,395 1,325 7? Energy 2,511 4,509 1,235 1,698 1,442 3,109 525 15 399 73 Natural resources and environment 18,708 20,017 8,324 11,130 8,607 11,617 1,540 1,372 1,282 24 Agriculture 14,864 14,997 7,684 7,418 7,527 8,881 3,428 1,206 1,145 7.5 Commerce and housing credit 75,639 9,514 17,992 36,534 15,566 -7,843 -1,874 -1,832 -3,532 76 Transportation 31,531 33,337 14,748 17,093 15,679 18,477 2,983 2,363 2,093 27 Community and regional development 7,432 7,411 3,552 3,783 3,902 4,540 774 650 690 28 Education, training, employment, and social services 4411,,447799 4455,,224488 2211,,223344 2211,,111144 23,224 20,922 4,393 4,360 4,068 79 Health 71,183 89,570 35,608 41,459 43,864 47,223 8,191 7,828 8,053 30 Social security and medicare 373,495 406,569" 190,247 193,098 205,500 232,109 59,837 10,376 35,005 31 Income security 171,618 198,073 88,778 87,805 105,744 99,272 18,689 16,225 21,317 3? Veterans benefits and services 31,344 34,133 14,326 17,425 15,5% 18,561 4,148 1,641 2,649 33 Administration of justice 12,295 14,450 6,187 6,574 7,433 7,283 1,236 1,222 1,060 34 General government 11,358 12,939 5,212 6,794 5,052 8,138 2,306 133 994 35 Net interest6 195,012 199,429 98,556 99,149 100,444 98,549 16,559 17,858 15,893 36 Undistributed offsetting receipts -39,356 -39,280 -18,702 -20,436 -18,229 -20,914 -2,783 -2,660 -2,809 1. Functional details do not sum 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. 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 for the outer continental shelf and U.S. the Budget have not been fully distributed across months. government 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 1994. 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, end of month 1990 1991 1992 IItteemm Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 1 Federal debt outstanding 3,397 3,492 3,563 3,683 3,820 3,897 4,001 4,083 n.a. 2 Public debt securities 3,365 3,465 3,538 3,665 3,802 3,881 3,985 4,065 4,177 3 Held by public 2,537 2,598 2,643 2,746 2,833 2,918 2,977 3,048 n.a. 4 Held by agencies 828 867 895 920 969 964 1,008 1,016 n.a. 5 Agency securities 33 27 25 18 19 16 16 18 n.a. 6 Held by public 32 26 25 18 19 16 16 18 n.a. 7 Held by agencies 0 0 0 0 0 0 0 0 n.a. 8 Debt subject to statutory limit 3,282 3,377 3,450 3,569 3,707 3,784 3,891 3,973 4,086 9 Public debt securities 3,281 3,377 3,450 3,569 3,706 3,783 3,890 3,972 4,085 10 Other debt1 0 0 0 0 0 0 0 0 0 MEMO 11 Statutory debt limit 4,145 4,145 4,145 4,145 4,145 4,145 4,145 4,145 4,145 1. Consists of guaranteed debt of Treasury and other federal agencies, specified SOURCES. U.S. Treasury Department, Monthly Statement of the Public Debt of participation certificates, notes to international lending organizations, and District the United States and Treasury Bulletin. of Columbia stadium bonds. 1.41 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership Billions of dollars, end of period 1992 Type and holder 11998899 11999900 11999911 11999922 Q1 Q2 Q3 Q4 1 Total gross public debt 2,953.0 3,364.8 3,801.7 4,177.0 3,881.3 3,984.7 4,064.6 4,177.0 By type 2 Interest-bearing 2,931.8 3,362.0 3,798.9 4,173.9 3,878.5 3,981.8 4,061.8 4,173.9 3 Marketable 1,945.4 2,195.8 2,471.6 2,754.1 2,552.3 2,605.1 2,677.5 2,754.1 4 Bills 430.6 527.4 590.4 657.7 615.8 618.2 634.3 657.7 5 Notes 1,151.5 1,265.2 1,430.8 1,608.9 1,477.7 1,517.6 1,566.4 1,608.9 6 Bonds 348.2 388.2 435.5 472.5 443.8 454.3 461.8 472.5 7 Nonmarketable1 986.4 1,166.2 1,327.2 1,419.8 1,326.2 1,376.7 1,384.3 1,419.8 8 State and local government series 163.3 160.8 159.7 153.5 157.8 161.9 157.6 153.5 9 Foreign issues 6.8 43.5 41.9 37.4 42.0 38.7 37.0 37.4 10 Government 6.8 43.5 41.9 37.4 42.0 38.7 37.0 37.4 11 Public .0 .0 .0 .0 .0 .0 .0 .0 12 Savings bonds and notes... 115.7 124.1 135.9 155.0 139.9 143.2 148.3 155.0 13 Government account series3 695.6 813.8 959.2 1,043.5 956.1 1,002.5 1,011.0 1,043.5 14 Non-interest-bearing 21.2 2.8 2.8 3.1 2.8 2.9 2.8 3.1 By holder4 15 U.S. Treasury and other federal agencies and trust funds, 707.8 828.3 968.7 963.7 1,007.9 1,016.3 16 Federal Reserve Banks 228.4 259.8 281.8 267.6 276.9 296.4 17 Private investors 2,015.8 2,288.3 2,563.2 2,664.0 2,712.4 2,765.5 18 Commercial banks 164.9 171.5 233.4 256.6 267.2 270.0 19 Money market funds 14.9 45.4 80.0 84.0 79.4 79.4 20 Insurance companies 125.1 142.0 168.7 n. a. 176.9 181.3 185.0 n.a. 21 Other companies 93.4 108.9 150.8 166.0 175.0 180.8 22 State and local treasuries 487.5 490.4 520.3 521.8 528.5 530.0 Individuals 23 Savings bonds 117.7 126.2 138.1 142.0 145.4 150.3 24 Other securities 98.7 107.6 125.8 126.1 129.7 130.9 25 Foreign and international 392.9 421.7 455.0 471.2 492.9 499.0 26 Other miscellaneous investors6 520.7 674.5 691.1 719.5 713.1 740.0 1. Includes (not shown separately) securities issued to the Rural Electrification 5. Consists of investments of foreign balances and international accounts in the Administration, depository bonds, retirement plan bonds, and individual retire- United States. ment bonds. 6. Includes savings and loan associations, nonprofit institutions, credit unions, 2. Nonmarketable series denominated in dollars, and series denominated in mutual savings banks, corporate pension trust funds, dealers and brokers, certain foreign currency held by foreigners. U.S. Treasury deposit accounts, and federally sponsored agencies. 3. Held almost entirely by U.S. Treasury and other federal agencies and trust SOURCES. U.S. Treasury Department, data by type of security, Monthly funds. Statement of the Public Debt of the United States; data by holder, the Treasury 4. Data for Federal Reserve Banks and U.S. government agencies and trust Bulletin. funds are actual holdings; data for other groups are Treasury estimates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic NonfinancialS tatistics • May 1993 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions1 Millions of dollars, daily averages 1992, 1992 1993 week 1993, week ending ending Item Nov. Dec. Jan. Dec. 30 Jan. 6 Jan. 13 Jan. 20 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Feb. 24 IMMEDIATE TRANSACTIONS2 By type of security U.S. Treasury securities 1 Bills 233 239 240 38,654 48,188 52,807 50,836 42,636 42,512 46,358 43,801 45,439 Coupon securities, by maturity 2 Less than 3.5 years 288 291 292 21,267 32,120 45,550 51,024 58,100 50,106 58,885 55,363 63,656 3 3.5 to 7.5 years 205 212 221 15,626 29,778 49,463 45,958 56,318 46,365 44,155 42,127 60,642 4 7.5 to 15 years 101 104 106 7,503 13,123 19,853 20,257 21,395 21,061 30,741 27,176 33,253 5 15 years or more 189 197 203 8,143 11,132 15,387 19,152 18,220 16,349 18,095 26,574 25,249 Federal agency securities Debt, by maturity 6 Less than 3.5 years 423r 436 435r 5,229 55,,882200"" 6,883 5,018 6,526 7,082 7,228 6,727 6,213 7 3.5 to 7.5 years 388r 393r 403r 345 696r 888 792 873 877 955 715 880 8 7.5 years or more 208,221 222,736 266,01 lr 932 1,252 11,,003344 11,,222244 11,,223300 11,,004466 11,,335500 11,,115577 11,,118866 Mortgage-backed 9 Pass-throughs 14,925 16,523 17,184 8,435 14,506 26,941 22,744 16,675 15,083 29,594 24,153 20,093 10 All others 43,630 43,990 44,020 3,007 2,201 3,150 4,680 4,211 4,909 3,406 3,413 5,772 By type of counterparty Primary dealers and brokers 11 U.S. Treasury securities 8,500 8,970 8,980 54,359 78,175 115,030 115,525 122,359 108,449 124,847 119,783 141,507 Federal agency securities 12 Debt 19,310" 22,510r 20,360" 805 1,830" 1,795 1,523 1,869 2,051 2,052 1,957 1,787 13 Mortgage-backed 9,765 7,917 10,457 4,532 7,809 13,082 1122,,003344 99,,111111 88,,661133 1155,,776622 1122,,338844 1100,,004433 Customers 14 U.S. Treasury securities 61,832 50,898 68,131 36,833 56,166 68,028 71,701 74,310 6677,,994455 73,387 75,258 86,733 Federal agency securities 15 Debt 5,482r 5,737r 6,384r 5,700 5,938r 7,011 5,510 6,760 6,954 7,481 6,642 6,493 16 Mortgage-backed 11,040 9,413 13,296 6,910 8,898 17,009 15,390 11,775 11,379 17,238 15,182 15,821 FUTURES AND FORWARD TRANSACTIONS4 By type of deliverable security U.S. Treasury securities 17 Bills 3,242 2,464 2,584 1,087 3,189 2,856 22,,334455 1,860 33,,110066 22,,228800 1,800 33,,002299 Coupon securities, by maturity 18 Less than 3.5 years 2,221 1,637 2,155 1,219 1,290 2,036 2,600 2,540 2,104 2,560 2,420 3,230 19 3.5 to 7.5 years 1,969 1,179 1,486 480 903 1,475 1,758 1,614 1,675 1,396 1,562 2,624 20 7.5 to 15 years 3,548 2,336 2,668 1,028 1,369 3,060 2,745 3,059 3,114 3,985 3,900 3,803 21 15 years or more 8,782 6,427 9,140 3,928 5,653 9,391 11,224 9,673 8,940 10,777 13,241 13,161 Federal agency securities Debt, by maturity 22 Less than 3.5 years 161 97 45 86 20 15 109 28 53 63 73 108 23 3.5 to 7.5 years 117 48 114 n.a 5 160 138 91 216 196 46 46 24 7.5 years or more 16 18 78r 7 12 58 192 62 16 92 45 19 Mortgage-backed 25 Pass-tlyoughs 15,801 11,895 16,656 3,811 15,297 18,847 17,297 15,700 14,680 20,912 18,287 13,656 26 Others3 1,132 829 1,276 365 562 638 1,767 2,181 810 987 2,173 1,734 OPTIONS TRANSACTIONS5 By type of underlying security U.S. Treasury, coupon securities, by maturity 27 Less than 3.5 years 1,663 1,401 1,537 478 1,058 1,735 1,628 1,817 1,077 1,300 2,218 2,025 28 3.5 to 7.5 years 824 378 782 72 1,194 732 836 545 538 318 339 712 29 7.5 to 15 years 817 341 573 227 672 676 441 5% 385 586 431 1,020 30 15 years or more 1,607 820 1,233 253 876 846 1,431 1,890 775 11,,221177 1,236 1,881 Federal agency, mortgagebacked securities 31 Pass-throughs 344 338 563 173 617 472 577 644 448 472 580 781 1. Transactions are market purchases and sales of securities as reported to the 4. Futures transactions are standardized agreements arranged on an exchange. Federal Reserve Bank of New York by the U.S. government securities dealers on Forward transactions are agreements made in the over-the-counter market that its published list of primary dealers. Averages are based on the number of trading specify delayed delivery. All futures transactions are included regardless of time days in the period. Immediate, forward, and futures transactions are reported at to delivery. Forward contracts for U.S. Treasury securities and federal agency principal value, which does not include accrued interest; options transactions are debt securities are included when the time to delivery is more than five business reported at the face value of the underlying securities. days. Forward contracts for mortgage-backed agency securities are included Dealers report cumulative transactions for each week ending Wednesday. when the time to delivery is more than thirty days. 2. Transactions for immediate delivery include purchases or sales of securities 5. Options transactions are purchases or sales of put-and-call options, whether (other than mortgage-backed agency securities) for which delivery is scheduled in arranged on an organized exchange or in the over-the-counter market, and include five business days or less and "when-issued" securities that settle on the issue options on futures contracts on U.S. Treasury and federal agency securities. date of offering. Transactions for immediate delivery of mortgage-backed agency NOTE. In tables 1.42 and 1.43, "n.a." indicates that data are not published securities include purchases and sales for which delivery is scheduled in thirty days or because of insufficient activity. less. Stripped securities are reported at market value by maturity of coupon or corpus. Data for several types of options transactions—U.S. Treasury securities, bills; 3. Includes such securities as collateralized mortgage obligations (CMOs), real Federal agency securities, debt; and mortgage-backed securities, other than estate mortgage investment conduits (REMICs), interest-only securities (IOs), pass-throughs—are no longer available because activity is insufficient. and principal-only securities (POs). 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 1992, 1992 1993 week 1993, week ending ending Item Nov. Dec. Jan. Dec. 30 Jan. 6 Jan. 13 Jan. 20 Jan. 27 Feb. 3 Feb. 10 Feb. 17 Positions2 NET IMMEDIATE POSITIONS3 By type of security U.S. Treasury securities 1 Bills 233 239 240 5,897 9,069 12,746 7,028 253 1 33,,881122 66,,338833 Coupon securities, by maturity 2 Less than 3.5 years 288 291 292 -2,284 -2,385 -4,343 -9,699 --33,,225522 --11,,117722 11,,000011 --33,,118866 3 3.5 to 7.5 years 205 212 221 -5,630 -7,193 -8,986 -8,902 -6,680 -7,477 -11,500 -14,471 4 7.5 to 15 years 101 104 106 -10,760 -12,355 -14,007 -14,080 -14,357 -12,296 -7,470 -9,376 5 15 years or more 189 197 203 7,390 7,216 5,863 8,024 7,567 6,194 6,230 8,957 Federal agency securities Debt, by maturity 6 Less than 3.5 years 423 436r 435r 3,078r 4,750 3,210 6,191 5,217 8,112 77,,888811 77,,112255 7 3.5 to 7.5 years 388 393 403r 3,166 2,924 2,779 2,538 2,515 2,188 2,545 2,169 8 7.5 years or more 208,221 222,736 266,01LR 3,682 3,681 3,803 3,701 4,034 3,750 3,440 3,424 Mortgage-backed 9 Pass-throughs 14,925 16,523 17,184 17,272 23,951 39,588 39,619 37,368 32,976 40,227 3355,,779922 10 All others 43,630 43,990 44,020 25,783 24,367 24,215 25,127 24,844 23,742 23,289 24,701 Other money market instruments 11 Certificates of deposit 8,500 8,970 8,980 3,249 2,563 2,372 2,978 3,258 3,623 33,,003355 33,,446633 12 Commercial paper 19,310 22,510 20,360 6,459 8,198 5,310 6,836 6,960 8,109 7,338 7,348 13 Bankers acceptances 864 758 672 921 766 505 638 710 814 811 1,222 FUTURES AND FORWARD POSITIONS5 By type of deliverable security U.S. Treasury securities 14 Bills 2,797 -1,820 -4,355 -1,060 -2,120 -4,844 -5,943 -4,156 -4,422 --44,,880000 --55,,667722 Coupon securities, by maturity 15 Less than 3.5 years 2,105 612 1,488 509 630 1,998 1,109 22,,008899 1,495 11,,555588 11,,445555 16 3.5 to 7.5 years 1,206 609 2,352 1,953 2,593 3,153 2,394 2,165 844 2,467 3,008 17 7.5 to 15 years 2,614 2,138 3,002 3,217 3,700 4,124 2,503 1,891 2,811 1,747 1,428 18 15 years or more -5,164 -7,258 -6,174 -6,180 -6,670 -4,733 -7,642 -6,312 -5,142 -3,844 -5,207 Federal agency securities Debt, by maturity 19 Less than 3.5 years 1 -123 -37 -378 -18 -1 -85 --6622 -1 3388 4466 20 3.5 to 7.5 years 91 -115 -11 -177 -42 31 109 -93 -108 2 29 21 7.5 years or more -6 -16 20r -51 -42 -60 113 103 -55 117 -24 Mortgage-backed 22 Pass-throughs -7,047 -1,280 -12,104 6,223 -909 -14,631 -16,701 -14,887 -11,557 -20,522 --1144,,996655 23 All others 1,911 366 1,450 37 257 1,025 1,964 2,124 1,908 2,810 4,003 24 Certificates of deposit -125,734 -71,895 -66,597 -59,719 -60,181 -66,521 -65,954 -70,855 -70,026 -99,094 -112,864 Financing6 Reverse repurchase agreements 25 Overnight and continuing 211,724r 208,607r 230,268r 208,723r 233,609 225,894 223322,,008866 222288,,667766 223322,,551199 221199,,998877 224477,,557722 26 Term 335,267r 332,244r 345,609r 321,229r 300,889 346,233 340,499 372,269 373,888 398,647 339,373 Repurchase agreements 27 Overnight and continuing 361,802r 357,335r 387,462r 336,394r 379,844 373,483 399,987 338899,,114400 339988,,449966 339933,,001111 441133,,778855 28 Term 329,223r 326,258r 328,043r 311,581r 281,026 321,951 325,068 363,563 352,277 382,749 335,085 Securities borrowed 29 Overnight and continuing 104,281 99,894r 102, NO1 92,681r 97,859 98,375 101,843 106,205 108,787 108,642 111122,,999955 30 Term 44,258r 46,975r 52,374r 47,883r 49,658 52,757 51,219 55,641 52,082 56,900 52,575 Securities loaned 31 Overnight and continuing 4,103r 3,999r 3,724r 3,937r 3,721 3,418 4,725 3,071 3,654 3,312 44,,110055 32 Term 314 601r 351 1,677r 211 200 359 495 560 226 221 Collateralized loans 33 Overnight and continuing 15,142 16,800 16,882 15,998 17,896 16,345 17,015 0 0 0 00 MEMO: Matched book7 Reverse repurchase agreements 34 Overnight and continuing 153,286r 157,110* 167,088r 154,174r 173,326 163,717 167,152 163,818 169,239 115544,,995522 117711,,883388 35 Term 286,925r 289,659r 304,231r 279,545r 269,132 306,055 297,762 326,507 326,022 349,876 294,472 Repurchase agreements 36 Overnight and continuing 188,547r 191,958r 218,787r 189,412r 211,401 217,569 222255,,993377 221144,,664444 226,737 222244,,332211 222222,,553366 37 Term 244,395r 243,209r 253,776r 232,348r 214,045 248,412 247,377 285,202 278,965 300,353 256,312 1. Data for positions and financing are obtained from reports submitted to the delivery. Forward contracts for U.S. Treasury securities and federal agency debt Federal Reserve Bank of New York by the U.S. government securities dealers on securities are included when the time to delivery is more than five business days. its published list of primary dealers. Weekly figures are close-of-business Wednes- Forward contracts for mortgage-backed agency securities are included when the day data; monthly figures are averages of weekly data. 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 that settle terminated without advance notice by either party; term agreements have a fixed on the issue date of offering. Net immediate positions of mortgage-backed agency maturity of more than one business day . securities include securities purchased or sold that have been delivered or are 7. Matched-book data reflect financial intermediation activity in which the scheduled to be delivered in thirty days or less. borrowing and lending transactions are matched. Matched-book data are included 4. Includes such securities as collateralized mortgage obligations (CMOs), real in the financing breakdowns given above. The reverse repurchase and repurchase estate mortgage investment conduits (REMICs), interest-only securities (IOs), numbers are not always equal because of the "matching" of securities of different and principal-only securities (POs). values or different types of collateralization. Digitized for FR5A. SFuEtuRre s positions reflect standardized agreements arranged on an exchange. NOTE. Data for futures and forward commercial paper and bankers acceptances and Forward positions reflect agreements made in the over-the-counter market that for term financing of collateralized loans are no longer available because of insufficient http://fraser.stslpoeuciifsy fdeedla.yoerdg d/ elivery. All futures positions are included regardless of time to activity. Federal Reserve Bank of St. Louis

A32 DomesticN onfinancial Statistics • May 1993 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period 1992 AAggeennccyy 11998888 11998899 11999900 11999911 Aug. Sept. Oct. Nov. Dec. 1 Federal and federally sponsored agencies 381,498 411,805 434,668 442,772 464,773 475,606 479,978 481,050 483,970 2 Federal agencies 35,668 35,668 42,159 41,035 40,034 41,319 41,470 42,081 41,829 3 Defense Department 8 8 7 7 7 7 7 7 7 4 Export-Import Bank2,3 11,033 10,985 11,376 9,809 8,156 7,698 7,698 7,698 7,208 5 Federal Housing Administration 150 328 393 397 229 301 309 344 374 6 Government National Mortgage Association certificates of participation 0 0 0 0 0 0 0 0 0 7 Postal Service6 6,142 6,445 6,948 8,421 10,123 10,123 10,123 10,660 10,660 8 Tennessee Valley Authority 18,335 17,899 23,435 22,401 21,519 23,190 23,333 23,372 23,580 9 United States Railway Association 0 0 0 0 0 0 0 0 0 10 Federally sponsored agencies7 345,832 375,428 392,509 401,737 424,739 434,287 438,508 438,%9 442,141 11 Federal Home Loan Banks 135,836 136,108 117,895 107,543 108,564 110,830 112,436 114,364 114,733 12 Federal Home Loan Mortgage Corporation 22,797 26,148 30,941 30,262 34,295 36,750 34,108 30,914 29,631 13 Federal National Mortgage Association 105,459 116,064 123,403 133,937 150,280 155,232 159,764 161,308 166,300 14 Farm Credit Banks8 53,127 54,864 53,590 52,199 52,137 52,734 52,510 52,728 51,910 15 Student Loan Marketing Association 22,073 28,705 34,194 38,319 39,552 38,830 39,766 39,737 39,650 16 Financing Corporation10 5,850 8,170 8,170 8,170 8,170 8,170 8,170 8,170 8,170 17 Farm Credit Financial Assistance Corporation 690 847 1,261 1,261 1,261 1,261 1,261 1,261 1,261 18 Resolution Funding Corporation 0 4,522 23,055 29,9% 29,996 29,9% 29,9% 29,9% 29,9% MEMO 19 Federal Financing Bank debt 3 142,850 134,873 179,083 185,576 174,003 164,422 159,899 156,579 154,994 Lending to federal and federally sponsored agencies 20 Export-Import Bank 11,027 10,979 11,370 9,803 8,150 7,692 7,692 7,692 77,,220022 21 Postal Service6 5,892 6,195 6,698 8,201 9,903 9,903 9,903 10,440 10,440 22 Student Loan Marketing Association 4,910 4,880 4,850 4,820 4,820 4,820 4,790 4,790 4,790 23 Tennessee Valley Authority 16,955 14,055 10,725 7,275 7,175 7,175 6,975 6,975 24 United States Railway Association6 0 0 0 0 0 0 0 0 0 Other lending14 25 Farmers Home Administration 58,496 53,311 52,324 48,534 43,009 42,979 42,979 42,979 42,979 26 Rural Electrification Administration 19,246 19,265 18,890 18,562 18,238 18,143 18,172 18,172 18,172 27 26,324 23,724 70,896 84,931 82,608 73,710 69,188 65,531 64,436 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. On-budget since Sept. 30, 1976. 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 year 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, the Department of Health, Education, and Welfare, the Department of 13. The FFB, which began operations in 1974, is authorized to purchase or sell Housing and Urban Development, the Small Business Administration, and the obligations issued, sold, or guaranteed by other federal agencies. Because FFB Veterans' Administration. incurs debt solely for the purpose of lending to other agencies, its debt is not 6. Off-budget. included in the main portion of the table in order to avoid double counting. 7. Includes outstanding noncontingent liabilities: notes, bonds, and deben- 14. Includes FFB purchases of agency assets and guaranteed loans; the latter tures. Some data are estimated. are loans guaranteed by numerous agencies, with the amounts guaranteed by any 8. Excludes borrowing by the Farm Credit Financial Assistance Corporation, one agency generally being small. The Farmers Home Administration entry shown on line 17. consists exclusively of agency assets, while the Rural Electrification Administra- 9. Before late 1982, the Association obtained financing through the Federal tion entry consists of both agency assets and guaranteed loans. Financing Bank (FFB). Borrowing excludes that obtained from the FFB, which is shown on line 22. 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 1992 1993 TTyyppee ooff iissssuuee oorr iissssuueerr,, 11999900 11999911 11999922 oorr uussee July Aug. Sept. Oct. Nov. Dec. Jan. Feb. 1 AU issues, new and refunding1 120,339 154,402 215,191 17,386 19,774 18,698 21,092 14,133 19,577 17,580" 16,125 By type of issue 2 General obligation 39,610 55,100 78,611 7,136 7,005 7,461 7,733 5,203 6,024 44,,665500"" 3 Revenue 81,295 99,302 136,580 10,250 12,769 11,237 13,359 8,930 13,553 12,930" I 1 By type of issuer 4 State 15,149 24,939 25,295 2,836 2,933 1,710 2,742 1,688 2,339 11,,333399 n.a. 5 Special district or statutory authority2 72,661 80,614 127,618 10,040 11,203 11,054 13,113 8,197 11,159 12,556 1 6 Municipality, county, or township 32,510 48,849 60,210 4,510 5,638 5,934 5,237 4,248 6,079 3,685 1 7 Issues for new capital 103,235 116,953 120,272 7,565 11,993 10,496 13,760 8,028 8,010 4,878 4,878 By use of proceeds 8 9 T E r d a u n c s a p t o io r n ta tion 1 1 7 1 , , 0 6 4 5 2 0 2 1 1 3 , , 1 3 2 9 1 5 2 1 2 7 , , 0 3 7 3 1 4 1, 5 7 7 4 1 7 2 1 , , 1 7 3 3 0 7 1 1 , , 2 9 3 7 7 7 2 1 , , 0 3 8 6 3 4 1, 5 8 3 0 1 0 1, 8 65 3 8 1 11,,00 84 00 8 55 " "" T 10 Utilities and conservation 11,739 21,039 20,058 629 2,604 2,265 3,340 960 1,258 891" n.a. 11 Social welfare 23,099 25,648 21,796 887 767 1,869 2,365 1,070 1,121 540 1 12 Industrial aid 6,117 8,376 5,424 91 503 1,176 367 581 339 178 1 13 Other purposes 34,607 30,275 33,589 3,640 4,252 1,972 4,241 3,086 2,803 1,416 T 1. Par amounts of long-term issues based on date of sale. SOURCES. Securities Data Company beginning January 1993. Investment 2. Includes school districts. Dealer's Digest for earlier data. 1.46 NEW SECURITY ISSUES U.S. Corporations Millions of dollars 1992 1993 Type of issue, offering, 1990 1991 1992 or issuer July Aug. Sept. Oct. Nov. Dec. 1 AU issues 340,049 465,483 n.a. 48,136 46,235 37,091 42,849 39,123 35,679 39,272 46,042 2 Bonds2 299,884 390,018 404,992 39,113 39,758 31,815 37,539 32,157 31,180 33,223 40,808 By type of offering 3 Public, domestic 188,848 287,125 377,453 36,085 37,833 28,561 36,185 30,249 28,771r 31,683 37,879 4 Private placement, domestic . 86,982 74,930 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5 Sold abroad 23,054 27,962 27,539 3,027 1,924 3,254 1,355 1,909 2,409 1,540 2,929 By industry group 6 Manufacturing 51,779 86,628 69,538 7,338 5,509 4,720 5,974 7,975 3,467 4,219 8,850 7 Commercial and miscellaneous 40,733 36,666 30,049 1,665 3,488 2,159 2,374 2,813 2,393 2,226 2,690 8 Transportation 12,776 13,598 6,497 899 766 393 677 290 0 611 316 9 Public utility 17,621 23,945 44,643 4,266 6,902 4,509 5,230 3,700 1,289 2,867 3,421 10 Communication 6,687 9,431 13,073 1,028 2,081 1,053 1,191 427 374 516 2,915 11 Real estate and financial 170,288 219,750 241,192 23,916 21,011 18,982 22,093 16,953 23,656 22,785 22,616 12 Stocks2 40,165 75,467 n.a. 9,023 6,477 5,276 5,310 4,499 6,049 5,234 By type of offering 13 Public preferred n.a. 17,408 21,332 2,933 2,413 1,148 1,233 2,901 1,540 1,608 1,112 14 Common n.a. 47,860 57,099 6,090 4,064 4,129 4,077 4,065 2,958 4,441 4,122 15 Private placement 16,736 10,109 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. By industry group 16 Manufacturing 5,649 24,154 n.a. 3,000 857 713 307 1,779 288 1,468 722 17 Commercial and miscellaneous 10,171 19,418 n.a. 1,079 1,599 1,315 602 940 1,366 2,226 1,688 18 Transportation 369 2,439 n.a. 1,064 n.a. n.a. 59 53 304 118 65 2 1 0 9 C Pu o b m li m c u u n t i i c li a ty ti on 3,8 4 2 1 2 6 3,4 4 7 7 4 5 n n . . a a . . n. 6 a 1 . 0 n. 5 a 6 . 4 n. 9 a 2 . 1 1,0 5 5 9 1 5 3 9 5 9 9 1 2 5 2 0 1 9 2 2 6 31 0 0 21 Real estate and financial 19,738 25,507 n.a. 3,271 3,457 2,327 2,695 3,735 2,369 2,019 2,438 1. Figures represent gross proceeds of issues maturing in more than one year; 2. Monthly data cover only public offerings. they are the principal amount or number of units calculated by multiplying by the 3. Monthly data are not available. offering price. Figures exclude secondary offerings, employee stock plans, SOURCES. IDD Information Services, Inc., the Board of Governors of the investment companies other than closed-end, intracorporate transactions, equi- Federal Reserve System, and, before 1989, the U.S. Securities and Exchange ties sold abroad, and Yankee bonds. Stock data include ownership securities Commission. issued by limited partnerships. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A34 Domestic Nonfinancial Statistics • May 1993 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets Millions of dollars 1992 1993 IItteemm11 11999911rr 11999922 June July Aug. Sept. Oct. Nov. Dec/ Jan. 1 Sales of own shares2 463,645 647,055 51,457 54,915 50,627 50,039 52,214 52,019 70,618 71,607 2 Redemptions of own shares 342,547 447,140 37,457 34,384 35,223 37,862 37,134 34,126 51,993 46,545 3 Net sales 121,098 199,915 14,000 20,703 15,404 12,177 15,080 17,893 18,625 25,062 4 Assets4 808,582 1,056,310 911,218 951,806 957,145 978,507 983,151 1,019,618 1,056,310 1,082,653 5 Cash5 60,292 73,999 69,508 72,732 77,245 76,498 75,808 80,247 73,999 76,764 6 Other 748,290 982,311 841,710 879,074 879,900 902,009 907,343 939,371 982,311 1,005,889 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 assets exclude both 5. Includes all U.S. Treasury securities and other short-term debt securities. money market mutual funds and limited-maturity municipal bond funds. SOURCE. Investment Company Institute. Data based on reports of membership, 2. Includes reinvestment of dividends. Excludes reinvestment of capital gains which comprises substantially all open-end investment companies registered with distributions. the Securities and Exchange Commission. Data reflect underwritings of new 3. Excludes sales and redemptions resulting from transfers of shares into or out companies. of money market mutual funds within the same fund family. 1.48 CORPORATE PROFITS AND THEIR DISTRIBUTION Billions of dollars; quarterly data at seasonally adjusted annual rates 1991 1992 AAccccoouunntt 11999900 11999911 11999922 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 1 Profits with inventory valuation and capital consumption adjustment 361.7 346.3 394.5 349.6 347.3 341.2 347.1 384.0 388.4 374.1 431.3 2 Profits before taxes 355.4 334.7 372.3 337.6 332.3 336.7 332.3 366.1 376.8 354.1 392.2 3 Profits tax liability 136.7 124.0 140.5 121.3 122.9 127.0 125.0 136.4 144.1 131.8 149.7 4 Profits after taxes 218.7 210.7 231.8 216.3 209.4 209.6 207.4 229.7 232.7 222.2 242.6 5 Dividends 149.3 146.5 149.3r 150.6 146.2 145.1 143.9 143.6 146.6 151.1 155.9" 6 Undistributed profits 69.4 64.2 82.5 65.7 63.2 64.5 63.4 86.2 86.1 71.1 86.6 7 Inventory valuation -14.2 3.1 -7.4r 6.7 9.9 -4.8 .7 -5.4 -15.5 -9.7 1.0" 8 Capital consumption adjustment 20.5 8.4 29.5r 5.3 5.1 9.3 14.1 23.3 27.0 29.7 38. lr SOURCE. U.S. Department of Commerce, Survey of Current Business. 1.50 NONFARM BUSINESS EXPENDITURES on New Plant and Equipment Billions of dollars; quarterly data at seasonally adjusted annual rates 1991 1992 19931 IInndduussttrryy 11999911 11999922 1199993311 Q2 Q3 Q4 Ql Q2 Q3 Q41 Ql1 1 Total nonfarm business 528.39 547.39 576.55 525.02 526.59 529.87 535.72 540.91 547.53 565.40 576.07 Manufacturing 2 Durable goods industries 77.64 74.07 76.08 79.31 74.94 76.40 74.19 74.26 71.84 75.98 77.30 3 Nondurable goods industries \ 105.17 99.41 106.49 107.20 102.55 102.66 99.79 97.52 100.39 99.95 106.63 Nonmanufacturing 4 Mining 10.02 9.25 9.97 10.08 10.09 9.99 8.87 9.18 9.09 9.87 10.97 Transportation 5 Railroad 5.95 6.91 7.43 66..2255 66..3322 55..4444 6.65 6.50 6.87 7.64 6.71 6 Air 10.17 9.69 8.63 9.95 9.61 10.41 8.86 9.75 10.13 10.00 8.80 7 Other 6.54 7.06 7.69 6.67 6.63 6.45 6.37 7.27 7.69 6.90 7.% Public utilities 8 Electric 43.76 48.10 54.23 43.09 43.27 44.75 46.06 48.45 47.73 50.15 52.96 9 Gas and other 22.82 24.09 25.59 22.00 23.25 22.67 22.75 24.19 23.92 25.51 24.74 10 Commercial and other 246.32 268.81 280.43 240.46 249.94 251.11 262.17 263.80 269.86 279.42 280.00 1. Figures are amounts anticipated by business. SOURCE. U.S. Department of Commerce, Survey of Current Business. 2. "Other" consists of construction, wholesale and retail trade, finance and insurance, personal and business services, and communication. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Markets and Corporate Finance A35 1.51 DOMESTIC FINANCE COMPANIES Assets and Liabilities1 Billions of dollars, end of period; not seasonally adjusted 1991 1992 AAccccoouunntt 11998899 11999900 11999911 QL Q2 Q3 Q4 QL Q2 Q3 ASSETS 1 Accounts receivable, gross2 462.9 492.9 480.3 482.9 488.5 484.7 480.3 475.7 476.8R 475.8 7 138.9 133.9 121.9 127.1 127.5 125.3 121.9 118.4 116.7 116.6 3 270.2 293.5 292.6 291.7 295.2 293.2 292.6 291.6 293.7R 291.1 4 Real estate 53.8 65.5 65.8 64.1 65.7 66.2 65.8 65.8 66.4 68.1 LESS: Reserves for unearned income 54.7 57.6 55.1 57.2 58.0 57.6 55.1 53.6 51.2 50.8 6 Reserves for losses 8.4 9.6 12.9 10.7 11.1 13.1 12.9 13.0 12.3 12.0 7 Accounts receivable, net 399.8 425.7 412.3 415.0 419.3 414.1 412.3 409.1 413.3R 412.9 8 All other 102.6 113.9 149.0 118.7 122.8 136.4 149.0 145.5 139.4 146.5 9 502.4 539.6 561.2 533.7 542.1 550.5 561.2 554.6 552.7r 559.4 LIABILITIES AND CAPITAL 10 27.0 31.0 42.3 35.6 36.9 39.6 42.3 38.0 37.8 38.1 11 160.7 165.3 159.5 155.5 156.1 156.8 159.5 154.4 147.7 153.2 Debt 12 Other short-term n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 13 Long-term n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 14 35.2 37.5 34.5 32.4 34.2 36.5 34.5 34.5 34.8 34.9 IS Not elsewhere classified 162.7 178.2 191.3 182.4 184.5 185.0 191.3 189.8 191.9 191.4 16 61.5 63.9 69.0 64.3 67.1 68.8 69.0 72.0 73.4 73.7 17 Capital, surplus, and undivided profits 55.2 63.7 64.8 63.4 63.3 63.8 64.8 66.0 67.1 68.1 18 Total liabilities and capital 502.4 539.6 561.2 533.7 542.1 550.5 561.2 554.6 552.7r 559.4 1. Includes finance company subsidiaries of bank holding companies but not of companies; securitized pools are not shown since they are not on the books, retailers and banks. Data are amounts carried on the balance sheets of finance 2. Before deduction for unearned income and losses. 1.52 DOMESTIC FINANCE COMPANIES1 Millions of dollars, amounts outstanding, end of period 1992 1993 TTyyppee ooff ccrreeddiitt 11999900 11999911 11999922RR Aug. Sept. Oct. Nov. Dec/ Jan. Seasonally adjusted 1 Total 2,203r 2,476" 2,748 579" 580r 574r 594r 607 619 2,712r 3,098r 3,412 154,729 155,618 154,501 156,593 157,707 155,641 3 Real estate2 l,906r 2,088r 2,413 67,753 67,717 68,035 67,838 68,011 68,450 l,088r l,112r 1,193 305,634 304,523 304,787 304,801 306,146 300,554 Not seasonally adjusted 5 l,600r l,810r 2,151 26,783" 28,128" 27,468" 28,233" 31,916 29,775 6 4,018R 4,514R 4,989 155,529 156,416 155,505 157,005 158,631 155,521 7 4,064R 4,323R 4,697 60,393 59,806 59,290 58,286 57,605 57,133 8 L,874,065R 2,159,510" 2,430,988 56,782 56,808 57,013 58,128 59,522 58,794 9 Securitized motor vehicles 157,446R 160,958R 170,200 26,852 28,204 27,823 28,964 29,775 28,480 1FT Securitized other consumer 366,060"" 378,060" 482,010 11,503 11,598 11,379 11,626 11,729 11,114 11 82,430" 85,640" 96,960 68,104 68,064 68,477 68,016 68,410 68,397 1? 198,645R 216,120" 231,620 299,815 300,519 302,892 303,875 308,118 300,321 13 92,072 90,319 87,456 85,745 85,261 86,747 85,621 87,456 86,493 14 Retail5 26,401 22,507 19,303 20,743 20,407 20,763 19,708 19,303 19,126 15 Wholesale6 33,573 31,216 27,158 n.a. n.a. n.a. n.a. n.a. n.a. 16 32,098 36,596 38,191 39,889 39,506 39,536 39,020 38,191 38,640 17 137,654 141,399 151,607 145,790 147,319 147,146 148,202 151,607 146,820 18 Retail 31,968 30,962 32,212 32,250 31,571 31,475 31,427 32,212 32,458 19 Wholesale6 11,101 9,671 8,669 9,084 8,994 8,928 8,824 8,669 8,582 70 94,585 100,766 110,726 104,455 106,754 106,743 107,952 110,726 105,780 71 63,774 60,887 57,464 59,013 58,493 58,898 59,269 57,464 55,551 77 Securitized business assets 5,467 8,807 11,590 9,268 9,447 10,101 10,782 11,590 11,457 73 Retail 667 576 1,118 158 152 634 607 1,118 1,036 74 3,281 5,285 5,756 5,193 5,378 5,593 5,813 5,756 5,582 25 1,519 2,946 4,716 3,917 3,917 3,874 4,362 4,716 4,839 1. Includes finance company subsidiaries of bank holding companies but not of 5. Passenger car fleets and commercial land vehicles for which licenses are retailers and banks. Data are before deductions for unearned income and losses. required. Data in this table also appear in the Board's G.20 (422) monthly statistical release. 6. Credit arising from transactions between manufacturers and dealers, that is, For ordering address, see inside front cover. floor plan financing. 2. Includes all loans secured by liens on any type of real estate, for example, 7. includes loans on commercial accounts receivable, factored commercial first and junior mortgages and home equity loans. accounts, and receivable dealer capital; small loans used primarily for business or 3. Includes personal cash loans, mobile home loans, and loans to purchase other farm purposes; and wholesale and lease paper for mobile homes, campers, and types of consumer goods such as appliances, apparel, general merchandise, and travel trailers. Digitized for FreRcreAaStioEn Rv ehicles. 4. Outstanding balances of pools upon which securities have been issued; these http://fraser.sbtalolauncisesf eadre. onor glo/ nger carried on the balance sheets of the loan originator. Federal Reserve Bank of St. Louis

A36 Domestic Nonfinancial Statistics • May 1993 1.53 MORTGAGE MARKETS Conventional Mortgages on New Homes Millions of dollars except as noted 1992 1993 IItteemm 11999900 11999911 11999922 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Terms and yields in primary and secondary markets PRIMARY MARKETS Terms1 1 Purchase price (thousands of dollars) 153.2 155.0 158.1 148.4 146.0 159.2 165.4 154.0 158.6 159.7 2 Amount of loan (thousands of dollars) 112.4 114.0 118.1 113.6 109.3 119.7 117.3 117.7 119.5 114.5 3 Loan-price ratio (percent) 74.8 75.0 76.6 78.7 77.0 77.3 75.3 77.7 76.8 75.4 4 Maturity (years) 27.3 26.8 25.6 24.8 25.7 25.2 24.9 26.1 25.7 23.8 5 Fees and charges (percent of loan amount) 1.93 1.71 1.60 1.62 1.52 1.42 1.54 1.31 1.49 1.43 6 Contract rate (percent per year) 9.68 9.02 7.98 7.72 7.68 7.65 7.81 7.65 7.57 7.52 Yield (percent per year) 1 OTS series3 10.01 9.30 8.25 8.00 7.93 7.90 8.07 7.88 7.82 7.77 8 HUD series4 10.08 9.20 8.43 8.01 7.95 8.29 8.38 8.19 7.93 7.63 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (HUD series)5 10.17 9.25 8.46 8.08 8.06 8.29 8.54 8.12 8.04 7.55 10 GNMA securities6 9.51 8.59 7.77 7.28 7.31 7.53 7.90 7.57 7.39 7.02 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 113,329 122,837 142,833 142,246 144,904 149,133 153,306 158,119 159,204 159,766 12 FHA/VA-insured 21,028 21,702 22,168 22,199 22,275 22,399 22,372 22,593 22,640 22,573 13 Conventional 92,302 101,135 120,664 120,047 122,629 126,734 130,934 135,526 136,564 137,193 Mortgage transactions (during period) 14 Purchases 23,959 37,202 75,905 3,651 6,779 8,380 7,980 8,832 4,993 4,118 Mortgage commitments (during period)7 15 Issued 23,689 40,010 74,970 6,053 8,880 8,195 6,084 6,185 4,189 4,177 16 To sell9 5,270 7,608 10,493 10 148 0 237 1,811 1,159 221 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of period)9 17 Total 20,419 24,131 29,959 29,367 31,629 32,995 32,703 33,665 n.a. n.a. 18 FHA/VA-insured 547 484 408 376 371 365 359 352 n.a. n.a. 19 Conventional 19,871 23,283 29,552 28,990 31,259 32,630 32,343 33,313 n.a. n.a. Mortgage transactions (during period) 20 Purchases 75,517 97,727 191,125 13,562 16,391 20,199 19,607 20,792 n.a. n.a. 21 Sales 73,817 92,478 179,208 12,314 14,267 18,771 19,154 19,602 16,536 12,107 Mortgage commitments (during period)10 22 Contracted 102,401 114,031 261,637 14,212 17,132 27,380 29,717 32,453 n.a. n.a. 1. Weighted averages based on sample surveys of mortgages originated by Association (GNMA), assuming prepayment in twelve years on pools of thirtymajor institutional lender groups; compiled by the Federal Housing Finance year mortgages insured by the Federal Housing Administration or guaranteed by Board in cooperation with the Federal Deposit Insurance Corporation. the Department of Veterans Affairs carrying the prevailing ceiling rate. Monthly 2. Includes all fees, commissions, discounts, and "points" paid (by the figures are averages of Friday figures 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 one- to four-family loan commitments accepted in the Federal National the end of ten years; from Office of Thrift Supervision (OTS). Mortgage Association's (FNMA's) free market auction system, and through the 4. Average contract rates on new commitments for conventional first mort- FNMA-GNMA tandem plans. gages; from U.S. Department of Housing and Urban Development (HUD). 8. Does not include standby commitments issued, but includes standby 5. Average gross yields on thirty-year, minimum-downpayment, first mort- commitments converted. gages insured by the Federal Housing Administration (FHA) for immediate 9. Includes participation loans as well as whole loans. delivery in the private secondary market. Based on transactions on first day of 10. Includes conventional and government-underwritten loans. The Federal subsequent month. Large monthly movements of average yields may reflect Home Loan Mortgage Corporation's mortgage commitments and mortgage transmarket adjustments to changes in maximum permissible contract rates. actions include activity under mortgage securities swap programs, while the 6. Average net yields to investors on fully modified pass-through securities corresponding data for FNMA exclude swap activity. backed by mortgages and guaranteed by the Government National Mortgage 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 1991 1992 Type of holder and property 11998899 11999900 11999911 04 Ql Q2 Q3 Q4P 1 All holders 3,570,906r 3,795,210" 3,915,871" 3,915,871" 3,938,198" 3,976,483' 4,012,983" 4,057,012 By type of property 2 One- to four-family residences 2,424,258r 2,635,428r 2,764,447" 2,764,447" 2,790,734" 2,838,732" 2,890,842" 2,942,958 3 Multifamily residences 307,672r 311,113r 310,427" 310,427" 310,499" 306,038" 305,379" 302,211 4 Commercial 754,952r 764,953r 758,063" 758,063" 754,290" 748,4%" 733,083" 728,404 5 Farm 84,025 83,716r 82,934" 82,934" 82,674" 83,218" 83,679" 83,439 By type of holder 6 Major financial institutions 1,931,537 1,914,315 1,846,910 1,846,910 1,825,983 1,803,488" 1,793,505" 1,771,502 7 Commercial banks 767,069 844,826 876,284 876,284 880,377 884,598 891,484" 893,793 8 One- to four-family 389,632 455,931 486,572 486,572 492,910 4%,518 506,658" 511,306 9 Multifamily 38,876 37,015 37,424 37,424 37,710 38,314 38,985" 38,013 10 Commercial 321,906 334,648 333,852 333,852 330,837 330,229 325,934" 324,5% 1 1 1 2 Sa F vi a n r g m s institutions 43 91 1 0 6 , , 2 6 5 5 4 6 80 1 1 7 , , 6 23 2 1 8 70 1 5 8 , , 3 4 6 3 7 6 70 1 5 8 , , 3 4 6 3 7 6 68 1 2 8 , , 3 9 3 1 8 9 65 1 9 9 , , 6 5 2 3 4 8 64 1 8 9 , , 1 9 7 0 8 6 " " 62 1 7 9 , , 5 8 3 7 1 8 13 One- to four-family 669,220 600,154 538,358 538,358 524,536 508,545 501,604" 489,217 14 Multifamily 106,014 91,806 79,881 79,881 77,166 74,788 73,723" 69,788 15 Commercial 134,370 109,168 86,741 86,741 80,278 75,947 72,517" 68,202 16 Farm 650 500 388 388 358 345 334 324 17 Life insurance companies 254,214 267,861 265,258 265,258 263,269 259,266" 253,843" 250,178 18 One- to four-family 12,231 13,005 11,547 11,547 11,214 10,676" 10,451" 10,110 19 Multifamily 26,907 28,979 29,562 29,562 29,693 29,425" 28,804" 28,558 20 Commercial 205,472 215,121 214,105 214,105 212,865 210,139" 205,709" 202,989 21 Farm 9,604 10,756 10,044 10,044 9,497 9,026" 8,878" 8,522 22 Federal and related agencies 197,778r 239,003r 266,156" 266,156" 278,3%" 278,131" 277,485" 286,428 23 Government National Mortgage Association 23 20 19 19 19 23 27 31 24 One- to four-family 23 20 19 19 19 23 27 31 25 Multifamily 0 0 0 0 0 0 0 0 26 Farmers Home Administration 41,176 41,439 41,713 41,713 41,791 41,628 41,671 41,695 27 One- to four-family 18,422 18,527 18,496 18,496 18,488 17,718 17,292 16,912 28 Multifamily 9,054 9,640 10,141 10,141 10,270 10,356 10,468 10,575 29 Commercial 4,443 4,690 4,905 4,905 4,%1 4,998 5,072 5,158 30 Farm 9,257 8,582 8,171 8,171 8,072 8,557 8,839 9,050 31 Federal Housing and Veterans' Administrations 6,087 8,801 10,733 10,733 11,332 11,480 11,768 12,581 32 One- to four-family 2,875 3,593 4,036 4,036 4,254 4,403 4,531 5,153 33 Multifamily 3,212 5,208 6,697 6,697 7,078 7,077 7,236 7,428 34 Resolution Trust Corporation 0 32,600 45,822 45,822 49,345 44,624 37,099 32,045 35 One- to four-family 0 15,800 14,535 14,535 15,458 15,032 12,614 9,658 36 Multifamily 0 8,064 15,018 15,018 16,266 13,316 11,130 11,038 37 Commercial 0 8,736 16,269 16,269 17,621 16,276 13,356 11,350 38 Farm 0 0 0 0 0 0 0 0 39 Federal National Mortgage Association 99,001r 104,870" 112,283" 112,283" 118,238" 122,979" 126,476" 137,584 40 One- to four-family 90,575r 94,323r 100,387" 100,387" 105,869" 110,223" 113,407" 124,016 41 Multifamily 8,426 10,547 11,896 11,8% 12,369 12,756 13,069 13,568 42 Federal Land Banks 29,640 29,416 28,777 28,777 28,776 28,775 28,815" 28,827 43 One- to four-family 1,210 1,838 1,693 1,693 1,693 1,693 1,695" 1,6% 44 Farm 28,430 27,577 27,084 27,084 27,083 27,082 27,119" 27,131 45 Federal Home Loan Mortgage Corporation 21,851 21,857 26,809 26,809 28,895 28,621 31,629 33,665 46 One- to four-family 18,248 19,185 24,125 24,125 26,182 26,001 29,039 31,032 47 Multifamily 3,603 2,672 2,684 2,684 2,713 2,620 2,591 2,633 48 Mortgage pools or trusts5 951,740' 1,116,452" 1,270,862" 1,270,862" 1,288,823" 1,341,338" 1,385,460" 1,425,546 49 Government National Mortgage Association 368,367 403,613 425,295 425,295 421,977 422,922 422,255 419,516 50 One- to four-family 358,142 391,505 415,767 415,767 412,574 413,828 413,063 410,675 51 Multifamily 10,225 12,108 9,528 9,528 9,404 9,094 9,192 8,841 52 Federal Home Loan Mortgage Corporation 272,870 316,359 359,163 359,163 367,878 382,797 391,762 407,514 53 One- to four-family 266,060 308,369 351,906 351,906 360,887 376,177 385,400 401,525 54 Multifamily 6,810 7,990 7,257 7,257 6,991 6,620 6,362 5,989 55 Federal National Mortgage Association 228,232 299,833 371,984 371,984 389,853 413,226 429,935 444,979 56 One- to four-family 219,577 291,194 362,667 362,667 380,617 403,940 420,835 435,979 57 Multifamily 8,655 8,639 9,317 9,317 9,236 9,286 9,100 9,000 58 Farmers Home Administration 80 66 47 47 43 43 41 38 59 One- to four-family 21 17 11 11 10 9 9 8 60 Multifamily 0 0 0 0 0 0 0 0 61 Commercial 26 24 19 19 18 18 18 17 62 Farm 33 26 17 17 16 15 14 13 63 Private mortgage conduits 82,191r 96,581" 114,373" 114,373" 109,071" 122,350" 141,468" 153,499 64 One- to four-family 77,217 90,684 104,196 104,1% 95,600" 105,700" 123,000" 132,000 65 Multifamily 462" 731" 3,698" 3,698" 4,686" 5,7%" 5,7%" 6,305 66 Commercial 4,512r 5,166" 6,479" 6,479" 8,784" 10,855" 12,673" 15,194 67 Farm 0 0 0 0 0 0 0 0 68 Individuals and others6 489,851r 525,440" 531,943" 531,943" 544,9%" 553,526" 556,532" 573,535 69 One- to four-family 300,805r 331,282" 330,131" 330,131" 340,424" 348,245" 351,217" 363,641 70 Multifamily 85,427r 87,713" 87,324" 87,324" 86,917" 86,591" 88,922" 90,475 71 Commercial 84,224r 87,400" 95,693" 95,693" 98,925" 100,035" 97,805" 100,898 72 Farm 19,395 19,045" 18,795" 18,795" 18,730" 18,656" 18,588 18,522 1. Based on data from various institutional and governmental sources; figures 5. Outstanding principal balances of mortgage-backed securities insured or for some quarters estimated in part by the Federal Reserve. Multifamily debt guaranteed by the agency indicated. refers to loans on structures of five or more units. 6. Other holders include mortgage companies, real estate investment trusts, 2. Includes loans held by nondeposit trust companies but not loans held by state and local credit agencies, state and local retirement funds, noninsured bank trust departments. pension funds, credit unions, and finance companies. 3. Includes savings banks and savings and loan associations. 4. FmHA-guaranteed securities sold to the Federal Financing Bank were reallocated from FmHA mortgage pools to FmHA mortgage holdings in 1986:4 because of accounting changes by the Farmers Home Administration. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A38 Domestic Nonfinancial Statistics • May 1993 1.55 CONSUMER INSTALLMENT CREDIT1 Millions of dollars, amounts outstanding, end of period 1992 1993 HHoollddeerr aanndd ttyyppee ooff ccrreeddiitt 11999900 11999911 11999922rr Aug. Sept. Oct. Nov. Dec.r Jan. Seasonally adjusted 11 TToottaall 735,338 727,799 726,653 720,664 722,104 722,372 723,448 726,653 727,557 22 AAuuttoommoobbiillee 284,993 263,003 260,097 256,944 257,384 256,846 257,740 260,097 259,554 33 RReevvoollvviinngg 222,950 242,785 251,258 248,043 250,017 250,454 250,620 251,258 253,233 44 OOtthheerr 227,395 222,012 215,298 215,677 214,703 215,071 215,088 215,298 214,769 Not seasonally adjusted 5 Total 748,524 742,058 741,381 721,985 724,198 722,760 725,178 741,381 732,408 By major holder 6 Commercial banks 347,087 339,565 329,603 323,866 324,046 324,697 324,529 329,603 327,035 7 Finance companies 133,863 121,901 117,086 117,175 116,650 116,304 116,414 117,086 113,676 8 Credit unions 93,057 92,254 92,648 92,270 92,698 92,228 91,838 92,648 92,859 9 Retailers 44,822 44,030 44,952 38,791 38,778 39,299 39,539 44,952 42,585 10 Savings institutions 46,969 40,315 33,861 35,378 35,069 34,148 34,171 33,861 33,902 11 Gasoline companies 4,822 4,362 4,365 4,542 4,499 4,452 4,365 4,365 4,366 12 Pools of securitized assets 77,904 99,631 118,866 109,963 112,458 111,632 114,322 118,866 117,985 By major type of credit3 13 Automobile 285,050 263,108 260,227 259,128 260,395 259,055 258,539 260,227 258,308 14 Commercial banks 124,913 111,912 108,581 107,978 108,355 108,068 107,675 108,581 108,417 15 Finance companies 75,045 63,413 57,604 60,393 59,806 59,290 58,286 57,604 54,973 16 Pools of securitized assets 24,428 28,057 33,593 30,826 31,971 31,757 32,672 33,593 34,164 17 Revolving 235,056 255,895 264,801 247,051 248,692 248,526 251,422 264,801 258,450 18 Commercial banks 133,385 137,968 132,921 126,922 127,234 127,257 128,164 132,921 129,541 19 Retailers 40,003 39,352 40,064 34,167 34,148 34,654 34,857 40,064 37,719 20 Gasoline companies 4,822 4,362 4,365 4,542 4,499 4,452 4,365 4,365 4,366 21 Pools of securitized assets 44,335 60,139 72,695 66,985 68,252 67,699 69,415 72,695 71,872 22 Other 228,418 223,055 216,353 215,806 215,111 215,179 215,217 216,353 215,650 23 Commercial banks 88,789 89,685 88,101 88,966 88,457 89,372 88,690 88,101 89,077 24 Finance companies 58,818 58,488 59,482 56,782 56,844 57,014 58,128 59,482 58,703 25 Retailers 4,819 4,678 4,888 4,624 4,630 4,645 4,682 4,888 4,866 26 Pools of securitized assets2 9,141 11,435 12,578 12,152 12,235 12,176 12,235 12,578 11,949 1. The Board's series on amounts of credit covers most short- and 2. Outstanding balances of pools upon which securities have been issued; these intermediate-term credit extended to individuals that is scheduled to be repaid (or balances are no longer carried on the balance sheets of the loan originator. has the option of repayment) in two or more installments. 3. Totals include estimates for certain holders for which only consumer credit Data in this table also appear in the Board's G.19 (421) monthly statistical totals are available. release. For ordering address, see inside front cover. 1.56 TERMS OF CONSUMER INSTALLMENT CREDIT1 Percent per year except as noted 1992 1993 IItteemm 11999900rr 11999911rr 11999922rr July Aug. Sept. Oct. Nov. Dec. Jan. INTEREST RATES Commercial banks1 1 48-month new car 11.78 11.14 9.29 n.a. 9.15 n.a. n.a. 8.60 n.a. n.a. 2 24-month personal 15.46 15.18 14.04 n.a. 13.94 n.a. n.a. 13.55 n.a. n.a. 3 120-month mobile home 14.02 13.70 12.67 n.a. 12.57 n.a. n.a. 12.36 n.a. n.a. 4 Credit card 18.17 18.23 17.78 n.a. 17.66 n.a. n.a. 17.38 n.a. n.a. Auto finance companies 5 New car 12.54 1122..4411 9.93 9.94 8.88 8.65 9.51 9.65 9.65 10.08 6 Used car 15.99 15.60 13.79 13.67 13.49 13.44 13.37 13.37 13.66r 13.72 OTHER TERMS3 Maturity (months) 7 New car 54.6 55.1 54.0 54.4 53.6 53.3 54.1 54.1 53.6 53.9 8 Used car 46.0 47.2 48.0 48.0 47.9 47.7 47.9 47.8 47.7r 49.2 Loan-to-value ratio 9 New car 87 88 89 89 90 90 89 89 90 90 10 Used car 95 % 97 97 97 97 97 97 97 97 Amount financed (dollars) 11 New car 12,071 12,494 13,592 13,570 13,745 13,889 13,885 14,043 14,315r 13,975 12 Used car 8,289 8,884 9,121 9,293 9,238 8,402 9,373 9,475 9,464r 9,472 1. Data in this table also appear in the Board's G.19 (421) monthly statistical 2. Data are available for only the second month of each quarter, release. For ordering address, see inside front cover. 3. At auto finance companies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A39 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1 Billions of dollars; quarterly data at seasonally adjusted annual rates 1991 1992 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr Q2 Q3 Q4 Ql Q2 Q3 Q4 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors .. 775.8 740.8 665.0 442.7r 587.4 534.4" 401.4" 371.1" 687.5" 583.0 476.0 603.2 By sector and instrument ? U.S. government 155.1 146.4 246.9 278.2 304.0 276.7 288.4 320.4 368.9 335511..99 119933..44 330011..77 Treasury securities 137.7 144.7 238.7 292.0 303.8 282.9 317.2 316.6 380.1 351.5 184.4 299.1 4 Agency issues and mortgages 17.4 1.6 8.2 -13.8 .2 -6.2 -28.8 3.8 -11.2 .4 9.0 2.7 5 Private 620.7 594.4 418.2 164.4r 283.5 257.7" 113.0" 50.7" 318.6" 231.1 282.6 301.5 By instrument Debt capital instruments 474.1 441.8 342.3 244.7r 280.4 321.0" 177.8" 175.4" 333.0" 226677..11 225533..77 226677..99 7 Tax-exempt obligations 53.7 65.0 51.2 45.8 53.3 48.5 53.5 45.5 52.0 73.0 52.3 35.9 8 Corporate bonds 103.1 73.8 47.1 78.8 66.3 96.5 81.6" 60.2" 76.3 77.5 61.3 50.3 9 317.3 303.0 244.0 120. lr 160.8 175.9" 42.6" 69.7" 204.8" 116.6 140.1 181.7 10 Home mortgages 241.8 245.3 219.4 129.0' 198.5 147.3" 118.6" 93.0" 221.5" 155.5 202.8 214.2 11 Multifamily residential 16.7 16.4 3.7 -,9r -8.3 12.7" -31.0" 8.0" .0" -17.9 -2.7 -12.7 1? Commercial 60.8 42.7 21.0 -7.3" -29.9 16.6" -42.6" -31.4" -15.7" -23.2 -61.8 -18.8 n -2.1 -1.5 -.1 -.8 .5 -.6" -2.4" .0 -1.0" 2.2 1.8 -1.0 14 Other debt instruments 146.6 152.6 75.8 -80.2 3.0 -63.3 -64.8 -124.7 -14.4 -36.0 28.8 33.6 is Consumer credit 50.1 41.7 17.5 -12.5 2.4 -7.8 -24.0 -8.0 3.1 -12.4 .4 18.8 16 Bank loans n.e.c 41.0 40.2 4.4 -33.4 -16.8 -34.5 -18.2 -66.1 -26.9 -21.5 -3.2 -15.4 17 Open market paper 11.9 21.4 9.7 -18.4 9.8 -15.9 -36.3 -7.0 12.6 -3.4 1.7 28.4 18 Other 43.6 49.3 44.2 -15.8 7.5 -5.2 13.7 -43.6 -3.2 1.3 30.0 1.9 By borrowing sector 19 State and local government 48.9 63.2 48.3 38.5 48.1 38.6 37.6 41.9 46.1 6633..44 5500..00 3322..99 70 Household 318.6 305.6 254.2 144.9" 215.1 178.0" 132.3" 104.2" 229.0" 177.2 220.7 233.7 71 Nonfinancial business 253.1 225.6 115.6 -18.9" 20.2 41.1" -56.9" -95.4" 43.6" -9.4 11.9 34.9 V Farm -7.5 1.6 2.5 .9 .9 2.2" -.2" -2.2 -1.6 6.6 1.0 -2.3 n Nonfarm noncorporate 61.8 50.4 26.7 -23.6 -34.2 9.8 -65.9 -51.5 -20.7 -50.6 -40.3 -25.2 24 Corporate 198.8 173.6 86.4 3.7r 53.5 29.1" 9.2" -41.7" 65.9" 34.7 51.1 62.4 Foreign net borrowing in United States 6.4 10.2 23.9 14.1 24.1 -63.2 15.6 41.0 9.9 55.2 30.6 ..88 76 6.9 4.9 21.4 14.9 18.5 10.6 15.5 22.3 4.9 21.9 22.3 2255..11 77 Bank loans n.e.c -1.8 -.1 -2.9 3.1 1.6 -3.5 1.4 6.5 1.5 14.1 3.9 -13.2 78 Open market paper 8.7 13.1 12.3 6.4 5.2 -51.9 16.0 14.9 -7.8 27.7 12.8 -11.9 29 U.S. government loans -7.5 -7.6 -6.9 -10.2 -1.2 -18.3 -17.2 -2.7 11.4 -8.5 -8.4 .7 30 Total domestic plus foreign 782.2 750.9 688.9 456.8" 611.6 471.2" 417.0" 412.1" 697.4" 638.2 506.6 604.0 Financial sectors 31 Total net borrowing by financial sectors 211.4 220.1 187.1 131.5r 223.3 106.0r 143.8" 165.6" 159.5r 241.6 265.2 227.0 By instrument V U.S. government-related 119.8 151.0 167.4 150.0" 167.1 129.4" 115566..00"" 158.5" 137.4" 222.8 116655..66 114422..77 33 Sponsored-credit-agency securities 44.9 25.2 17.1 9.2 40.2 -29.7 20.6 32.6 11.5 48.3 67.7 33.5 34 Mortgage pool securities 74.9 125.8 150.3 140.9" 126.9 159.0" 135.5" 125.9" 125.9" 174.4 97.9 109.2 35 Loans from U.S. government .0 .0 -.1 .0 .0 .0 .0 -.1 .0 .0 .0 .0 36 91.7 69.1 19.7 -18.6" 56.2 -23.4 -12.3" 7.1" 22.1" 18.9 99.6 84.3 37 Corporate bonds 16.2 46.8 34.4 47.7" 50.0 72.4 29.5 47.5" 14.9" 25.5 59.8 99.9 38 Mortgages .3 .0 .3 .6 .3 .9 .4" ..88"" .9 ..11 .3 ..11 39 Bank loans n.e.c .6 1.9 1.2 3.2 7.2 -2.9 10.2 44..55 8.2 33..99 5.4 1111..11 40 Open market paper 54.8 31.3 8.6 -32.0 -2.1 -46.0 -16.7 -12.7 7.6 -16.3 12.8 -12.6 41 Loans from Federal Home Loan Banks 19.7 -11.0 -24.7 -38.0 .8 -47.7 -35.7 -33.0 -9.5 5.7 21.3 -14.2 By borrowing sector 4? Sponsored credit agencies 44.9 25.2 17.0 9.1 40.2 -29.7 20.6 32.5 11.5 4488..33 6677..77 3333..55 43 Mortgage pools 74.9 125.8 150.3 140.9" 126.9 159.0" 135.5" 125.9" 125.9" 174.4 97.9 109.2 44 Private 91.7 69.1 19.7 -18.6" 56.2 -23.4 -12.3" 7.1" 22.1" 18.9 99.6 84.3 45 Commercial banks -3.0 -1.4 -1.1 -13.3 4.5 -11.7 -9.2 -14.1 7.2 .8 1.6 8.2 46 Bank affiliates 5.2 6.2 -27.7 -2.5 1.1 -3.5 -6.8 9.6 2.7 -8.2 10.5 -.4 47 Savings and loan associations 19.9 -14.1 -29.9 -39.5 -4.6 -48.7 -41.1 -25.1 -20.3 2.7 10.0 -10.6 48 Mutual savings banks 1.9 -1.4 -.5 -3.5 1.7 -1.7 -5.5 -8.7 4.3 .3 8.3 -6.2 49 Finance companies 31.5 59.7 35.6 4.5" 14.3 3.4 12.2 12.9" 1.0" -20.9 28.9 48.0 50 Real estate investment trusts (REITs) 3.6 -1.9 -1.9 .0 1.8 .1 -.3" .1" 4.6 .9 1.3 .5 51 Securitized credit obligation (SCO) issuers 32.5 22.0 45.2 35.6 37.4 38.7 38.5 32.3 22.5 43.2 39.1 44.8 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A40 Domestic NonfinancialS tatistics • May 1993 1.57—Continued 1991 1992 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11998888 11998899 11999900 11999911 11999922 Q2 Q3 Q4 Ql Q2 Q3 Q4 All sectors 5522 TToottaall nneett bboorrrroowwiinngg,, aallll sseeccttoorrss 993.6 971.0 876.0 588.3r 834.9 577.2r 560.8r S77.7r 856.9" 879.8 771.8 831.0 5533 UU..SS.. ggoovveerrnnmmeenntt sseeccuurriittiieess 274.9 297.3 414.4 428.3r 471.1 406. lr 444.4r 479.0" 506.3" 574.7 359.0 444.4 5544 SSttaattee aanndd llooccaall oobblliiggaattiioonnss 53.7 65.0 51.2 45.8 53.3 48.5 53.5 45.5 52.0 73.0 52.3 35.9 5555 CCoorrppoorraattee aanndd ffoorreeiiggnn bboonnddss 126.3 125.5 102.9 141.3r 134.9 179.5 126.7r 130.0" 96.0" 124.9 143.4 175.3 5566 MMoorrttggaaggeess 317.5 303.0 244.3 120.7r 161.1 176.9" 43.0" 70.5" 205.7" 116.7 140.3 181.8 5577 CCoonnssuummeerr ccrreeddiitt 50.1 41.7 17.5 -12.5 2.4 -7.8 -24.0 -8.0 3.1 -12.4 .4 18.8 5588 BBaannkk llooaannss nn..ee..cc 39.9 41.9 2.8 -27.1 -8.0 -40.9 -6.7 -55.1 -17.2 -3.5 6.1 -17.5 5599 OOppeenn mmaarrkkeett ppaappeerr 75.4 65.9 30.7 -44.0 12.9 -113.8 -37.0 -4.9 12.4 8.1 27.3 3.9 6600 OOtthheerr llooaannss 55.8 30.6 12.4 -64.2 7.1 -71.2 -39.1 -79.3 -1.3 -1.6 43.0 -11.6 External corporate equity funds raised in United States 61 Total net share issues -118.4 -65.7 22.1 198.8 272.1 182.3 232.5" 268.2" 230.3" 291.7 288.6 277.7 62 Mutual funds 6.1 38.5 67.9 150.5 206.4 125.6 182.5 195.9 148.4" 236.3 233.3 207.5 63 All other -124.5 -104.2 -45.8 48.3 65.7 56.7 50.0" 72.3" 81.9 55.4 55.3 70.2 64 Nonfinancial corporations -129.5 -124.2 -63.0 18.3 26.8 12.0 19.0 48.0 46.0 36.0 11.0 14.0 65 Financial corporations 4.1 2.7 9.8 -.1 7.4 8.1 -3.2" 1.4" 6.0 8.4 8.1 7.3 66 Foreign shares purchased in United States .9 17.2 7.4 30.2 31.5 36.6 34.1 22.9 29.9 11.0 36.2 48.9 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical release, tables F.2 through F.5. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A41 1.58 SUMMARY OF FINANCIAL TRANSACTIONS1 Billions of dollars except as noted; quarterly data at seasonally adjusted annual rates 1991 1992 Transaction category or sector 11998888 11998899 11999900 11999911 11999922 Q2 Q3 Q4 Ql" Q2" Q3" Q4 NET LENDING IN CREDIT MARKETS2 1 Total net lending in credit markets 993.6 971.0 876.0 588.3R 834.9 577.2R 560.8R 577.7R 856.9 879.8 771.8 831.0 2 Private domestic nonfinancial sectors 226.2 209.6 203.8 10.5r 60.6 187.7r —143.2r -59.7r 206.5 120.6 -162.8 78.0 3 Households 198.9 179.5 172.3 -24.8r 65.8 171.3r -185.8r -105.9" 227.2 111.3 -160.3 84.9 4 Nonfarm noncorporate business 3.1 -.8 -1.4 -1.9 -2.1 -2.0 -1.6 -2.1 -1.9 -2.5 -1.9 -1.9 5 Nonfinancial corporate business 5.7 12.9 6.6 20.9 8.4 29.0 32.2 30.1 -2.7 8.4 15.4 12.5 6 State and local governments 18.6 17.9 26.2 16.3 -11.5 -10.6 12.1 18.2 -16.1 3.4 -15.9 -17.6 7 U.S. government -10.6 -3.1 33.7 10.0 -12.4 24.8 -2.1 -17.9 13.9 -24.9 -26.8 -12.0 8 Foreign 96.3 74.1 58.4 42.6r 97.6 51.4 37.3 71.0 88.4 138.4 64.2 99.6 9 Financial sectors 681.8 690.4 580.2 525.lr 689.1 313.3r 668.7r 584.3r 548.0 645.6 897.2 665.5 10 Sponsored credit agencies 37.1 -.5 16.4 14.2 62.7 -25.2r 35.8r 18.6r 93.0 40.0 76.4 41.6 11 Mortgage pools 74.9 125.8 150.3 140.9r 126.9 159.0" 135.5r 125.9" 125.9 174.4 97.9 109.2 12 Monetary authority 10.5 -7.3 8.1 31.1 27.9 -4.0 48.1 22.3 33.2 9.8 10.8 57.8 13 Commercial banking 157.1 176.8 125.4 84.0 90.7 34.7 82.4 104.3 98.9 58.4 157.4 48.1 14 U.S. commercial banks 127.1 145.7 95.2 38.9 69.2 6.4 26.5 45.6 91.9 .5 132.0 52.4 15 Foreign banking offices 29.4 26.7 28.4 48.5 14.5 33.7 56.7 61.3 .6 58.6 6.5 -7.6 16 Bank affiliates -.1 2.8 -2.8 -1.5 6.7 -2.6 2.4 -1.1 6.4 -.6 18.5 2.5 17 Banks in U.S. possession .7 1.6 4.5 -1.9 .3 -2.8 -3.3 -1.5 .0 -.1 .4 .8 18 Private nonbank finance 402.2 395.7 279.9 255.0r 380.9 148.8r 367.0r 313.lr 197.0 362.9 554.7 408.8 19 Thrift institutions 119.0 -91.0 -151.9 -144.9 -63.8 -164.8 -176.8 -49.7 -113.3 -81.6 -41.9 -18.5 20 Savings and loan associations 87.4 -93.9 -143.9 -140.9 -77.0 -144.0 -156.3 -83.3 -137.9 -92.4 -38.5 -39.1 21 Mutual savings banks 15.3 -4.8 -16.5 -15.5 -2.8 -31.1 -30.8 11.5 7.6 -7.4 -13.0 1.5 22 Credit unions 16.3 7.7 8.5 11.5 16.0 10.2 10.3 22.2 17.0 18.3 9.6 19.0 23 Insurance 186.2 207.7 188.5 218.7r 184.9 216.3r 257. lr 156.5r 114.2 183.6 227.8 213.9 24 Life insurance companies 103.8 93.1 94.4 83.2 94.9 132.8 73.8 13.2 80.6 81.9 96.5 120.4 25 Other insurance companies 29.2 29.7 26.5 34.7 17.3 37.0 36.8 32.1 33.1 22.2 2.5 11.2 26 Private pension funds 18.1 36.2 16.6 63.9" 37.8 -2.5r 113. lr 94.2r -28.7 49.5 90.5 39.7 27 State and local government retirement funds 35.1 48.7 51.0 37.0 35.0 49.0 33.4 17.0 29.2 30.0 38.2 42.6 28 Finance n.e.c 96.9 278.9 243.3 181.3r 259.8 97.4 286.7r 206.3r 196.1 260.9 368.9 213.4 29 Finance companies 49.2 69.3 41.6 -23.lr 20.8 -14.5 -5.2 -54.lr 40.8 -23.0 14.2 51.2 30 Mutual funds 11.9 23.8 41.4 90.3 123.6 75.3 117.1 124.8 64.0 169.1 150.7 110.4 31 Money market funds 10.7 67.1 80.9 30.1 2.5 -68.9 1.1 53.8r 61.9 -20.9 -16.3 -14.7 32 Real estate investment trusts (REITs) .9 .5 -.7 -.7 1.5 -.1 — .6r -.9 -.7 2.6 -2.8 7.0 33 Brokers and dealers -8.2 96.3 34.9 49.0 74.0 66.8 135.8 50.5 7.5 89.8 184.0 14.7 34 Securitized credit obligation (SCOs) issuers 32.5 22.0 45.2 35.6 37.4 38.7 38.5 32.3 22.5 43.2 39.1 44.8 RELATION OF LIABILITIES TO FINANCIAL ASSETS 35 Net flows through credit markets 993.6 971.0 876.0 588.3R 834.9 577.2" 560.8R 577.7" 856.9 879.8 771.8 831.0 Other financial sources 36 Official foreign exchange 4.0 24.8 2.0 -5.9 -3.5 -4.8 -15.5 -5.0 3.5 -6.5 -8.5 -2.4 3 3 4 3 7 8 0 9 T I L P n e r i t f e n e e a s r s i b i o n u a n s r n y u k f r u c a c n u n l d r c a r e i e r m e n r s s e c e s y r e v r a e v n s e d s special drawing rights 1 2 9 2 5 3 . . . . 9 3 5 6 - 2 1 2 2 6 4 1 8 . . . . 5 1 4 8 1 2 3 8 5 2 4 6 . . . . 7 5 2 8 2 - 2 6 3 4 7 . . . . 7 5 0 7 " r r 2 - 4 2 3 1 6 7 2 . . . . 8 4 3 0 - 1 7 3 9 9 1 4 . . . . 6 4 4 7 r r 3 9 4 1 9 2 9 . . . . 9 4 2 4 " r - 2 3 4 1 2 1 9 . . . . 5 5 5 2 r r r 1 5 3 2 6 0 9 . . . . 1 5 1 0 1 2 2 7 8 0 8 . . . . 7 8 3 6 3 1 3 0 1 2 5 9 . . . . 5 3 2 4 - 2 1 - 3 9 7 0 6 6 . . . . 7 7 4 2 41 Deposits at financial institutions 259.9 290.0 96.8 61.1 50.8 -75.4 27.3 47.8 74.7 -55.2 223.9 -40.3 42 Checkable deposits and currency 43.2 6.1 44.2 75.8 122.1 7.9 104.5 114.4 88.6 92.8 202.7 104.1 43 Small time and savings deposits 120.8 96.7 59.9 16.7 -62.8 -1.1 -42.4 13.0 -29.9 -89.3 -79.0 -52.9 44 Large time deposits 53.6 17.6 -66.7 -60.9 -79.1 -63.0 -78.1 -117.4 -78.8 -104.9 -54.8 -77.8 45 Money market fund shares 21.9 90.1 70.3 41.2r 8.3 -58.7 4.0 26.8 106.2 -38.3 -13.0 -21.7 46 Security repurchase agreements 23.5 78.3 -23.5 -16.4 71.8 43.1 36.3 16.0 15.5 136.9 128.7 6.1 47 Foreign deposits -3.1 1.1 12.6 4.6 -9.5 -3.6 3.0 -5.0 -26.9 -52.5 39.3 2.0 4 4 8 9 C M o u r t p u o a r l a f t u e n e d q s u h it a i r e e s s -124 6 . . 5 1 -10 3 4 8 . . 2 5 -4 6 5 7 . . 8 9 1 4 5 8 0 . . 3 5 2 6 0 5 6 . . 7 4 1 5 2 6 5 . . 7 6 1 5 8 0 2 . . 0 5 " 1 7 9 2 5 . . 3 9 r 1 8 4 1 8 . . 9 4 23 5 6 5 . . 3 4 23 5 3 5 . . 3 3 20 7 7 0 . . 5 2 5 5 5 5 5 3 4 1 2 0 N T T M Se a r o i a c x s n d u c e c e r s e o i l t r d l p y a p e a n o b y c e r t r a o a e b u t d l e s e i t proprietors' equity - 2 3 2 8 1 5 9 2 3 . . . . . 2 3 2 3 0 - 2 3 6 6 1 2 9 2 0 5 . . . . . 5 9 0 0 6 - 1 3 4 2 - 9 3 4 0 . . 5 . . . 3 1 5 5 1 - 5 4 1 9 - 1 0 0 . . . . . 8 0 1 4 4 r r " r - 2 1 0 5 1 0 4 1 1 1 . . . . . 6 7 8 2 1 - - 3 1 4 8 2 3 1 9 1 0 . . . . . o 4 6 1 2 " r r r 4 4 3 8 i 8 5 7 2 3 . . . . . 7 4 6 6 r " r r 2 1 - - 0 2 7 3 5 0 5 . . . . . 3 2 2 7 l r r r r - - 1 1 7 - 7 9 2 9 0 5 4 . . . . . 3 0 0 2 7 2 - 7 3 1 1 4 5 6 1 0 . . . . . 3 8 0 6 7 - 2 1 7 5 1 6 7 1 6 4 . . . . . 2 1 8 8 4 - 1 1 4 4 2 8 2 1 3 1 . . . . . 9 5 8 4 9 55 Total financial sources 1,650.2 1,772.7 1,374.3 1,323.0" 1,716.4 931.6R L,494.5R 1,438.0" 1,559.8 1,668.1 2,066.9 1,571.0 Floats not included in assets (-) 56 U.S. government checking deposits 1.6 8.4 3.3 -13.1 .1 15.6 23.9 -73.1 4.4 -11.7 -5.3 13.0 5 5 7 8 T O r t a h d e e r c c h re e d c i k t able deposits -.9 .8 -3. . 2 6 21 2 . . 5 5 1 2 8 . . 0 4 r -4 1 . . 5 6 4 3 0 . . 0 7 r - 2 2 7 . . 1 2 r - -3 6 . .1 7 r 1 6 6 . . 7 7 -29 2 . . 1 5 -1 2 3 4 . . 9 3 -19 1 . . 8 1 Liabilities not identified as assets (-) 59 Treasury currency -.1 -.2 .2 -.6 -.2 -.3 -.2 -.1 -.4 -.1 -.3 -.1 60 Interbank claims -3.0 -4.4 1.6 26.2 -6.3 20.8 28.4 .2 13.4 -15.1 -2.6 -20.8 6 6 6 1 2 3 T M Se a i c x s u c e r s e i l t l p y a a n y r e e a o p b u u l s e r chase agreements -29 6 4 . . . 8 4 3 -9 2 5 2 3 . . . 6 9 3 - - 3 1 4 3 6 . . . 8 8 5 — 1 3 5 0 0 . . . 6 4 6 r r -1 4 9 9 1 . . . 2 5 8 7 2 6 6. . . 2 0 4 r -19 3 2 1 3 6 . . . 8 4 9 r 1 4 8 1 4 1 2 . . . 4 0 3 R " - - - 4 7 1 1 1 1 . . . 1 0 3 - 1 7 2 0 6 5 4 . . . 1 7 2 7 2 3 6 3 . . . 6 4 0 6 2 6 6 1 . . . 8 6 8 64 Totals identified to sectors as assets 1,670.7 1,841.0 1,387.5 L,304.7R 1,693.6 767.LR L,548.9R 1,283.1" 1,642.4 1,667.8 1,961.6 1,502.5 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical 2. Excludes corporate equities and mutual fund shares. release, tables F.6 and F.7. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A42 Domestic Nonfinancial Statistics • May 1993 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING1 Billions of dollars, end of period 1991 1992 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr Q2 Q3 Q4 Ql Q2 Q3" Q4 Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 10,087.1 10,760.8 11,200.9" 11,788.3 10,960.1" 11,081.3" 11,200.9" 11,331.8" 11,471.8" 11,615.3 11,788.3 By lending sector and instrument 2 U.S. government 2,251.2 2,498.1 2,776.4 3,080.3 2,591.9 2,687.2 2,776.4 2,859.7 2,923.3 2,998.9 3,080.3 3 Treasury securities 2,227.0 2,465.8 2,757.8 3,061.6 2,567.1 2,669.6 2,757.8 2,844.0 2,907.4 2,980.7 3,061.6 4 Agency issues and mortgages 24.2 32.4 18.6 18.8 24.8 17.6 18.6 15.8 15.9 18.1 18.8 5 Private 7,835.9 8,262.6 8,424.5" 8,708.0 8,368.2" 8,394.1" 8,424.5" 8,472.0" 8,548.5" 8,616.4 8,708.0 By instrument 6 Debt capital instruments 5,577.9 5,936.0 6,180.6" 6,461.1 6,087.4" 6,137.2" 6,180.6" 6,252.0" 6,326.7" 6,395.4 6,461.1 7 Tax-exempt obligations 1,004.4 1,055.6 1,101.4 1,154.7 1,072.5 1,089.3 1,101.4 1,111.5 1,128.6 1,145.6 1,154.7 8 Corporate bonds 926.1 973.2 1,051.9" 1,118.3 1,016.5 1,036.9 1,051.9" 1,071.0 1,090.4 1,105.7 1,118.3 9 Mortgages 3,647.5 3,907.3 4,027.3" 4,188.1 3,998.5" 4,011.1" 4,027.3" 4,069.4" 4,107.7" 4,144.1 4,188.1 10 Home mortgages 2,515.1 2,760.0 2,889.0" 3,087.5 2,835.3" 2,866.9" 2,889.0" 2,935.3" 2,983.3" 3,035.4 3,087.5 11 Multifamily residential 304.4 305.8 304.9" 296.6 310.6" 302.9" 304.9" 304.9" 300.4" 299.7 296.6 12 Commercial 742.6 757.6 750.3" 720.4 768.8" 758.1" 750.3" 746.4" 740.6" 725.1 720.4 13 Farm 85.3 84.0 83.2 83.7 83.8 83.2" 83.2 82.9 83.5" 83.9 83.7 14 Other debt instruments 2,258.0 2,326.7 2,243.9 2,246.9 2,280.8 2,256.9 2,243.9 2,220.0 2,221.9" 2,221.0 2,246.9 15 Consumer credit 791.8 809.3 796.7 799.2 786.7 785.9 796.7 775.7 775.8 781.1 799.2 16 Bank loans n.e.c 760.7 758.0 724.6 707.8 742.0 734.1 724.6 712.5 709.4 705.2 707.8 17 Open market paper 107.1 116.9 98.5 108.3 119.4 107.0 98.5 110.3 111.7 108.3 108.3 18 Other 598.4 642.6 624.1 631.6 632.6 629.8 624.1 621.6 624.9" 626.4 631.6 By borrowing sector 19 State and local government 815.7 864.0 902.5 950.6 878.5 891.4 902.5 911.3 925.9 942.3 950.6 20 Household 3,508.2 3,780.6 3,925.5" 4,140.6 3,846.7" 3,886.0" 3,925.5" 3,950.6" 4,008.1" 4,068.6 4,140.6 21 Nonfinancial business 3,512.0 3,618.0 3,596.5" 3,616.7 3,643.0" 3,616.7" 3,596.5" 3,610.1" 3,614.5" 3,605.5 3,616.7 22 Farm 139.2 140.5 138.8 139.7 139.6 140.4 138.8 136.4" 140.1" 141.2 139.7 23 Nonfarm noncorporate 1,177.5 1,204.2 1,180.6 1,146.4 1,210.8 1,191.0 1,180.6 1,174.9 1,163.7" 1,150.6 1,146.4 24 Corporate 2,195.3 2,273.4 2,277.1" 2,330.6 2,292.7" 2,285.3" 2,277.1" 2,298.9" 2,310.7" 2,313.7 2,330.6 25 Foreign credit market debt held in United States 254.8 278.6 292.7 307.6 277.6 282.2 292.7 282.4 298.4" 306.9 307.6 26 Bonds 88.0 109.4 124.2 142.7 114.8 118.6 124.2 125.4 130.9" 136.5 142.7 27 Bank loans n.e.c 21.4 18.5 21.6 23.2 19.7 20.0 21.6 22.0 25.5 26.5 23.2 28 Open market paper 63.0 75.3 81.8 77.7 74.0 78.0 81.8 70.5 77.5 80.7 77.7 29 U.S. government loans 82.4 75.4 65.2 64.0 69.1 65.6 65.2 64.4 64.5" 63.4 64.0 30 Total credit market debt owed by nonfinancial sectors, domestic and foreign 10,341.9 11,039.4 11,493.6" 12,095.9 11,237.7" 11,363.5" 11,493.6" 11,614.1" 11,770.2" 11,922.2 12,095.9 Financial sectors 31 Total credit market debt owed by financial sectors 2,333.0 2,524.2 2,665.9" 2,890.1 2,578.2" 2,615.1" 2,665.9" 2,697.7" 2,756.6" 2,824.0 2,890.1 By instrument 32 U.S. government-related 1,249.3 1,418.4 1,574.3" 1,741.5 1,489.6" 1,531.1" 1,574.3" 1,603.8" 1,658.3" 1,702.0 1,741.5 33 Sponsored credit-agency securities 373.3 393.7 402.9 443.1 389.6 394.7 402.9 405.7 417.8 434.7 443.1 34 Mortgage pool securities 871.0 1,019.9 1,166.7" 1,293.5 1,095.2" 1,131.5" 1,166.7" 1,193.2" 1,235.6" 1,262.5 1,293.5 35 Loans from U.S. government 5.0 4.9 4.8 4.8 4.9 4.9 4.8 4.8 4.8 4.8 4.8 36 Private 1,083.7 1,105.8 1,091.6" 1,148.6 1,088.6 1,084.0" 1,091.6" 1,094.0 1,098.3 1,122.0 1,148.6 37 Corporate bonds 491.9 528.2 580.2" 621.8 562.2 569.5 580.2" 578.2 583.2 598.4 621.8 38 Mortgages 3.4 4.2 4.8 5.1 4.5 4.6" 4.8 5.0 5.0 5.1 5.1 39 Bank loans n.e.c 37.5 38.6 41.8 49.0 37.0 39.0 41.8 41.6 43.7 44.5 49.0 40 Open market paper 409.1 417.7 385.7 392.8 390.1 387.0 385.7 392.9 389.5 393.9 392.8 41 Loans from Federal Home Loan Banks 141.8 117.1 79.1 79.9 94.7 83.9 79.1 76.3 76.9 80.2 79.9 By borrowing sector 42 Sponsored credit agencies 378.3 398.5 407.7 447.9 394.4 399.5 407.7 410.5 422.6 439.5 447.9 43 Mortgage pools 871.0 1,019.9 1,166.7" 1,293.5 1,095.2" 1,131.5" 1,166.7" 1,193.2" 1,235.6" 1,262.5 1,293.5 44 Private financial sectors 1,083.7 1,105.8 1,091.6" 1,148.6 1,088.6 1,084.0" 1,091.6" 1,094.0 1,098.3 1,122.0 1,148.6 45 Commercial banks 77.4 76.3 63.0 67.4 65.9 64.6 63.0 60.8 61.7 63.3 67.4 46 Bank affiliates 142.5 114.8 112.3 113.4 113.3 110.6 112.3 115.0 112.7 114.4 113.4 47 Savings and loan associations 145.2 115.3 75.9 71.3 91.0 79.0 75.9 71.2 70.3 70.9 71.3 48 Mutual savings banks 17.2 16.7 13.2 14.9 16.6 15.2 13.2 13.5 14.3 16.2 14.9 49 Finance companies 504.2 539.8 547.9" 562.2 540.4 543.7 547.9" 547.1 541.8 549.4 562.2 50 Real estate investment trusts (REITs) 10.1 10.6 11.4 14.0 11.0 11.2" 11.4 12.7 13.2 13.7 14.0 51 Securitized credit obligation (SCO) issuers... 187.1 232.3 268.0 305.4 250.3 259.9 268.0 273.6 284.4 294.2 305.4 All sectors 52 Total credit market debt, domestic and foreign.. 12,674.9 13,563.6 14,159.6" 14,985.9 13,815.9" 13,978.7" 14,159.6" 14,311.9" 14,526.8" 14,746.2 14,985.9 53 U.S. government securities 3,495.6 3,911.7 4,345.9" 4,817.0 4,076.6" 4,213.5" 4,345.9" 4,458.7" 4,576.8" 4,696.0 4,817.0 54 State and local obligations 1,004.4 1,055.6 1,101.4 1,154.7 1,072.5 1,089.3 1,101.4 1,111.5 1,128.6 1,145.6 1,154.7 55 Corporate and foreign bonds 1,506.0 1,610.7 1,756.4" 1,882.8 1,693.5 1,725.0 1,756.4" 1,774.6 1,804.5" 1,840.5 1,882.8 56 Mortgages 3,650.9 3,911.5 4,032.1" 4,193.3 4,003.0" 4,015.6" 4,032.1" 4,074.5" 4,112.7" 4,149.2 4,193.3 57 Consumer credit 791.8 809.3 796.7 799.2 786.7 785.9 796.7 775.7 775.8 781.1 799.2 58 Bank loans n.e.c 819.6 815.1 788.0 780.0 798.7 793.2 788.0 776.1 778.7 776.1 780.0 59 Open market paper 579.2 609.9 565.9 578.8 583.6 572.0 565.9 573.7 578.7 582.9 578.8 60 Other loans 827.5 839.9 773.2 780.3 801.4 784.2 773.2 767.1 771.1" 774.8 780.3 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical release, tables L.2 through L.4. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A43 1.60 SUMMARY OF FINANCIAL ASSETS AND LIABILITIES1 Billions of dollars except as noted, end of period 1991 1992 Transaction category or sector 11998899 11999900 11999911 11999922 Q2 Q3 Q4 Ql Q2' Q3' Q4 CREDIT MARKET DEBT OUTSTANDING11 t Total credit market assets 12,674.9 13,563.6 14,159.6' 14,985.9 13,815.91 13,978.7' 14,159.6' 14,311.? 14,526.8 14,746.2 14,985.9 2 Private domestic nonfinancial sectors 2,440.5 2,644.2 2,531.9' 2,584.0 2,661.3' 2,653.8' 2,531.9' 2,546.1' 2,548.9 2,539.7 2,584.0 1 1 4 6 7 9 3 5 8 0 1 F F U i o . n N N H S S M S r a e t p . o o o n a o i o g n n u g t c r e n n f f t s o i g i a a s e v n a o l a r h e n a m g r o s r n d e e n e l c d d n c m l i p s o o t a c o o e l c n r o n r a e c c s l t l d o o s i g r r t p p o o a o v g r r e a a e r t t n n e e c m i b b e e u u s n s s t i i s n n e e s s s s 9 1 , , 2 4 2 7 3 8 7 1 9 9 0 3 6 5 7 1 8 5 3 5 4 7 6 1 0 0 . . . . . . . . . 1 7 1 2 2 4 0 1 3 9 1 1 , , , 8 5 2 7 3 8 0 1 8 5 8 3 9 1 8 1 8 8 5 3 8 2 9 2 9 6 . . . . . . . . . 6 7 0 3 4 9 3 9 9 1 1 1 0 , , , 2 5 2 8 3 7 1 5 3 4 0 5 9 3 3 6 4 6 6 7 3 7 5 4 6 6 . . . . . . . . . 2 2 9 1 7 7 1 7 4 ' ' ' ' 1 1 1 1 , , , 2 4 5 2 9 7 2 2 1 6 2 3 3 5 9 3 9 6 4 0 3 1 2 1 5 3 . . . . . . . . . 3 7 1 7 5 8 5 9 5 1 1 1 0 , , , 5 2 8 3 8 0 1 0 2 5 0 5 8 8 8 9 9 8 2 7 3 9 2 9 5 3 . . . . . . . . . 8 9 9 7 3 0 5 2 8 1 ' ' ' ' 1 1 1 0 , , , 3 5 2 8 1 8 1 2 5 8 3 5 1 8 8 3 5 2 0 2 9 9 7 1 1 5 . . . . . . . . . 9 0 0 9 3 2 0 5 6 ' ' ' ' ' 1 1 1 0 , , , 2 5 2 8 3 7 1 5 0 5 3 4 9 3 3 6 4 7 3 6 6 7 5 4 6 6 . . . . . . . . . 9 1 2 2 7 1 7 7 4 ' ' ' ' 1 1 1 0 , , , 4 5 2 8 7 1 1 6 1 3 5 5 5 9 6 9 5 9 1 0 1 6 7 6 3 8 . . . . . . . . . 4 2 9 9 2 2 5 2 4 ' ' ' ' 1 1 1 0 , , , 4 2 5 2 8 7 2 8 2 0 5 3 4 9 5 3 4 9 7 1 3 5 1 0 6 5 . . . . . . . . . 0 5 9 3 3 3 8 8 6 1 1 1 1 , , , 2 9 4 5 2 7 0 2 0 0 4 3 5 2 5 6 6 2 7 6 8 9 0 7 0 2 . . . . . . . . . 1 9 3 1 2 8 6 5 5 1 1 1 1 , , , 2 5 2 9 4 2 7 2 1 5 2 3 6 3 9 9 3 6 4 3 1 0 2 3 1 5 . . . . . . . . . 3 7 7 1 5 5 8 5 9 12 Monetary authority 233.3 241.4 272.5 300.4 253.7 264.7 272.5 271.8 282.6 285.2 300.4 13 Commercial banking 2,643.9 2,769.3 2,853.3 2,944.0 2,796.6 2,817.8 2,853.3 2,860.6 2,882.9 2,922.9 2,944.0 14 U.S. commercial banks 2,368.4 2,463.6 2,502.5 2,571.7 2,480.0 2,488.7 2,502.5 2,514.0 2,521.9 2,556.7 2,571.7 15 Foreign banking offices 242.3 270.8 319.2 333.8 284.4 297.5 319.2 313.3 328.2 328.9 333.8 16 Bank affiliates 16.2 13.4 11.9 18.6 11.3 11.6 11.9 13.6 13.1 17.5 18.6 17 Banks in U.S. possession 17.1 21.6 19.7 20.0 20.9 20.0 19.7 19.7 19.7 19.8 20.0 18 Private nonbank finance 5,179.7 5,474.1 5,856.2' 6,237.1 5,566.4' 5,652.2' 5,856.2' 5,913.0' 6,010.7 6,143.6 6,237.1 19 Thrift institutions 1,484.9 1,335.5 1,190.6 1,126.8 1,248.4 1,205.1 1,190.6 1,161.8 1,143.0 1,133.2 1,126.8 20 Savings and loan associations 1,088.9 945.1 804.2 727.2 866.3 826.1 804.2 771.1 748.8 737.9 727.2 21 Mutual savings banks 241.1 227.1 211.5 208.7 216.4 208.7 211.5 213.4 211.6 208.3 208.7 22 Credit unions 154.9 163.4 174.9 190.9 165.7 170.2 174.9 177.2 182.6 187.0 190.9 23 Insurance 2,140.3 2,329.1 2,674.9' 2,859.8 2,443.9' 2,507.4' 2,674.9' 2,708.0' 2,756.2 2,812.2 2,859.8 24 Life insurance companies 1,013.1 1,116.5 1,199.6 1,294.5 1,183.7 1,201.4 1,199.6 1,224.3 1,247.1 1,270.3 1,294.5 25 Other insurance companies 317.5 344.0 378.7 396.0 361.4 370.7 378.7 387.0 392.5 393.1 396.0 26 Private pension funds 394.7 431.3 622.2' 660.0 437.1' 465.4' 622.2' 615.1' 627.4 650.1 660.0 27 State and local government retirement funds 414.9 437.4 474.3 509.3 461.7 470.1 474.3 481.6 489.1 498.7 509.3 28 Finance n.e.c 1,554.5 1,809.4 1,990.7' 2,250.5 1,874.1' 1,939.7 1,990.7' 2,043.3' 2,111.5 2,198.2 2,250.5 29 Finance companies 617.1 658.7 635.6' 656.4 651.7 647.4 635.6' 641.0 641.6 642.5 656.4 30 Mutual funds 307.2 360.2 450.5 574.0 394.4 421.4 450.5 470.0' 513.3 548.7 574.0 31 Money market funds 291.8 372.7 402.7' 405.2 389.9 389.5 402.7' 423.1 413.5 408.8 405.2 32 Real estate investment trusts (REITs) 8.4 7.7 7.0 8.5 7.4' 7.2 7.0 6.8 7.5 6.8 8.5 33 Brokers and dealers 142.9 177.9 226.9 300.9 180.4 214.3 226.9 228.8 251.2 297.3 300.9 34 Securitized credit obligation (SCOs) issuers 187.1 232.3 268.0 305.4 250.3 259.9 268.0 273.6 284.4 294.2 305.4 RELATION OF LIABILITIES TO FINANCIAL ASSETS 35 Total credit market debt 12,674.9 13,563.6 14,159.6' 14,985.9 13,815.9r 13,978.7' 14,159.6' 14,au^ 14,526.8 14,746.2 14,985.9 Other liabilities 36 Official foreign exchange 53.6 61.3 55.4 51.8 53.6 52.9 55.4 52.7 54.4 55.4 51.8 37 Treasury currency and special drawing rights certificates 23.8 26.3 26.3 24.5 26.1 26.2 26.3 26.3 26.4 26.5 24.5 38 Life insurance reserves 354.3 380.0 402.0 434.0 392.3 397.2 402.0 409.6' 416.8 424.9 434.0 4 3 0 9 I P n e t n e s r i b o a n n k fu c n l d a i r m e s s erves 3,21 3 0 2 . . 5 4 3,30 6 3 4 . . 0 0 4,2 6 2 5 3 . .4 2 ' ' 4,5 1 8 1 5 1 . . 8 4 3,5 3 5 5 0 . ^ 9 3,7 e 16 o . ^ 5' 4,22 6 3 5 . . 4 2 ' ' 4,2 6 4 7 2. . 1 4 ' ' 4,29 7 4 0 . . 2 7 4,4 1 2 0 9 1 . . 1 8 4,5 1 8 1 5 1 . . 8 4 41 Deposits at financial institutions 4,644.6 4,741.4 4,802.5 4,853.3 4,765.7 4,769.5 4,802.5 4,796.7' 4,790.9 4,843.1 4,853.3 42 Checkable deposits and currency 888.6 932.8 1,008.5 1,130.3 933.1 948.3 1,008.5 984.3' 1,032.3 1,071.6 1,130.3 43 Small time and savings deposits 2,265.4 2,325.3 2,342.0 2,279.3 2,351.5 2,339.7 2,342.0 2,340.9' 2,314.7 2,294.3 2,279.3 44 Large time deposits 615.4 548.7 487.9 409.0 532.6 517.1 487.9 469.7' 438.7 428.8 409.0 45 Money market fund shares 428.1 498.4 539.6 547.9 532.8 533.1 539.6 571.0 557.2 553.2 547.9 46 Security repurchase agreements 403.2 379.7 363.4 435.2 354.0 368.9 363.4 376.4 406.8 444.1 435.2 4 4 7 8 Mu F t o u r a e l i g fu n n d d e s p h o a s r it e s s 5 4 6 3 6. . 2 9 60 5 2 6 . . 1 6 8 6 1 1 3 . . 2 9 ' 1,0 5 5 1 6 . . 6 5 68 6 3 1 . . 7 7 7 6 4 2 4 . . 4 2 8 6 13 1 . . 9 2 1 , 8 5 5 4 7 . . 4 7 ' ' 9 4 35 1 . . 5 3 9 5 7 1 7 . . 1 4 1,0 5 5 1 6 . . 6 5 49 Security credit 133.9 137.4 188.9 224.3 137.5 158.1 188.9 195.1 194.1 213.1 224.3 50 Trade debt 903.9 938.0 940.9' 992.1 909.4 935.3 940.9' 940.9' 945.3 974.6 992.1 51 Taxes payable 81.8 81.4 72.3' 77.1 65.8 71.9' 72.3' 74.2' 69.8 74.8 77.1 52 Miscellaneous 2,508.3 2,678.8 2,811.7' 2,921.0 2,699.2' 2,733.4' 2,811.7' 2,828.8' 2,875.3 2,915.2 2,921.0 53 Total liabilities 25,188.3 26,577.2 28,562.1' 30,317.6 27,136.1' 27,644.8' 28,562.1' 28,803.3' 29,200.2 29,782.1 30,317.6 Financial assets not included in liabilities (+) 54 Gold and special drawing rights 21.0r 22.0r 22.3' 19.6 21.4' 21.8' 22.3' 22^ 22.1 23.2 19.6 55 Corporate equities 3,819.7 3,506.6 4,630.0 5,127.7 4,104.7 4,338.5 4,630.0 4,739.7 4,678.1 4,860.5 5,127.7 56 Household equity in noncorporate business 2,524.9 2,449.4 2,367.8' 2,263.6 2,511.8' 2,495.2' 2,367.8' 2,373.5' 2,354.7 2,330.9 2,263.6 Floats not included in assets (-) 57 U.S. government checking deposits 6.1 15.0 3.8 6.8 8.3 19.8 3.8 .9 1.4 4.0 6.8 58 Other checkable deposits 26.5 28.9 30.9 32.5 29.9 23.6 30.9 29.5' 32.6 23.3 32.5 59 Trade credit -159.7 -148.0 -134.0' -138.5 -157.7 -154.2 -134.0' -135.2' -154.7 -152.7 -138.5 Liabilities not identified as assets (-) 60 Treasury currency -4.3 -4.1 -4.8 -5.0 -4.7 -4.7 -4.8 -4.9 -4.9 -5.0 -5.0 61 Interbank claims -31.0 -32.0 -4.2 -10.7 -9.9 -4.7 -4.2 -1.8 -4.0 -5.9 -10.7 6 6 2 3 T Se a c x u e r s i t p y a y re a p b u le r chase agreements 2 1 0 1 . . 6 5 -2 2 3 1 . . 3 8 -1 1 2 8 . . 9 9 1 2 2 7 8 . . 1 9 -2 1 5 1 . . 8 8 ' -1 1 0 7 . . 6 6 ' -1 I 2 S .9 ^ -1 1 0 1 . . 1 5 ' 1 18 1 . . 0 6 3 24 6 . . 4 5 2 2 7 8 . . 1 9 64 Miscellaneous -251.lr -247.3r -452.3' -549.3 -242.3' -300.8' -452.3' -443.0' -455.7 -510.1 -549.3 65 Totals identified to sectors as assets 31,935.2' 32,944.3' 36,136.8' 38,336.6 34,164.3' 34,914.2' 36,136.8' 36,491.8' 36,810.8 37,582.0 38,336.6 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical 2. Excludes corporate equities and mutual fund shares. release, tables L.6 through L.7. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A44 Domestic Nonfinancial Statistics • May 1993 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, 1987=100 except as noted 1992 1993 MMeeaassuurree 11999900 11999911 11999922 June July Aug. Sept. Oct. Nov/ Dec.r Jan. Feb. 1 Industrial production1 109.2 107.1 108.7 108.5 109.4 109.1 108.9 109.7 110.4 110.8 111.3r 111.8 Market groupings 2 Products, total 110.1 108.1 109.5 109.0 109.6 109.8 109.6 110.7 111.3 112.1 112.5 112.9 3 Final, total 110.9 109.6 111.1 110.5 111.0 111.5 111.2 112.4 113.1 113.9 114.6 114.9 4 Consumer goods 107.3 107.5 110.5r 109.6 110.4 110.8 110.7 111.9 112.6 113.5 113.9" 114.6 5 Equipment 115.5 112.2 111.9 111.6 111.8 112.5 111.9 113.0 113.7 114.5 115.4" 115.2 6 Intermediate 107.7 103.4 104.6 104.4 105.1 104.4 104.5 105.5 105.7 106.1 106.1" 106.7 7 Materials 107.8 105.5 107.4 107.6 109.0 108.1 107.9 108.2 109.0 108.9 109.5" 110.0 Industry groupings 8 Manufacturing 109.9 107.4 109.6r 109.6 110.2 110.1 109.8 110.6 111.3 111.6 112.5" 112.8 9 Capacity utilization, manufacturing (percent)2 82.3 78.2 77.8 77.8 78.1 77.9 77.5 77.9 78.3 78.4 78.8" 78.9 10 Construction contracts3 95.3 89.7 92.8 90.0 89.0 90.0 89.0 104.0 92.0 90.0 100.0 95.0 11 Nonagricultural employment, total4 107.4 106.0 106.1 106.1 106.3 106.2 106.2 106.2 106.3 106.4 106.5 106.8 12 Goods-producing, total 101.0 96.4 94.8 95.0 94.9 94.6 94.3 94.2 94.2 94.2 94.2" 94.5 13 Manufacturing, total 100.5 97.0 95.6 95.9 95.9 95.4 95.2 94.9 95.0 94.9 95.1 95.1 14 Manufacturing, production worker.... 100.1 96.1 95.2 95.4 95.5 94.9 94.6 94.3 94.6 94.7 95.1 95.1 15 Service-producing 109.5 109.0 109.7 109.6 109.9 109.9 110.0 110.1 110.2 110.3 110.4" 110.7 16 Personal income, total 122.7 127.0 133.0 132.5 132.8 133.0 133.6 135.3r 135.3 136.6 137.2 n.a. 17 Wages and salary disbursements 121.3 124.4 129.0 128.5 128.7 129.6 129.5 130.5 131.2 132.2 133.0 n.a. 18 Manufacturing 113.5 113.6 115.4 115.1 115.5 115.3 115.3 116.5 116.0 117.5 117.0 n.a. 19 Disposable personal income5 122.9 128.0 134.7 134.4 134.5 134.6 135.2 137.0" 136.8 138.2 138.6 n.a. 20 Retail sales6 120.2" 121.3r 127. lr 125.7r 126.6r 127.3r 128. lr 130.7r 130.5 131.9 132.1" 132.4 Prices7 21 Consumer (1982-84=100) 130.7 136.2 140.3 140.2 140.5 140.9 141.3 141.8 142.0 141.9 142.6 143.1 22 Producer finished goods (1982=100) 119.2 121.7 123.2 123.9 123.7 123.6 123.3 124.3 123.9 123.8 124.0 124.3 1. A major revision of the industrial production index and the capacity 6. Based on data from U.S. Bureau of the Census, Survey of Current Business. utilization rates was released in April 1990. See "Industrial Production: 1989 7. Based on data not seasonally adjusted. Seasonally adjusted data for changes Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April in the price indexes can be obtained from the Bureau of Labor Statistics, U.S. 1990), pp. 187-204. Department of Labor, Monthly Labor Review. 2. Ratio of index of production to index of capacity. Based on data from the NOTE. Basic data (not indexes) for series mentioned in notes 4, 5,and 6, and Federal Reserve, DRI McGraw-Hill, U.S. Department of Commerce, and other indexes for series mentioned in notes 3 and 7 can also be found in the Survey of sources. Current Business. 3. Index of dollar value of total construction contracts, including residential, Figures for industrial production for the latest month are preliminary, and many nonresidential, and heavy engineering, from McGraw-Hill Information Systems figures for the three months preceding the latest month have been revised. See Co., F.W. Dodge Division. "Recent Developments in Industrial Capacity and Utilization," Federal Reserve 4. Based on data from U.S. Department of Labor, Employment and Earnings. Bulletin, vol. 76 (June 1990), pp. 411-35. Series covers employees only, excluding personnel in the armed forces. 5. Based on data from U.S. Department of Commerce, Survey of Current Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A45 2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data seasonally adjusted except as noted 1992 1993 CCaatteeggoorryy 11999900 11999911 11999922 July Aug. Sept. Oct. Nov. Dec. Jan.r Feb. HOUSEHOLD SURVEY DATA 1 Noninstitutional population1 190,216 191,883 193,542 193,588 193,749 193,893 194,051 194,210 194,379 194,514 194,641 2 Labor force (including Armed Forces)1 126,954 127,421 128,948 129,316 129,363 129,220 128,986 129,259 129,461 128,953 129,182 3 Civilian labor force 124,787 125,303 126,982 127,350 112277,,440044 112277,,227744 112277,,006666 112277,,336655 112277,,559911 112277,,008833 112277,,332277 Employment 4 Nonagricultural industries 114,728 114,644 114,391 114,515 114,562 114,503 114,518 114,855 115,049 114,879 115,335 5 Agriculture 3,186 3,233 3,207 3,207 3,218 33,,222211 3,169 33,,220099 33,,226622 33,,119911 33,,111166 Unemployment 6 Number 6,874 8,426 9,384 9,628 9,624 9,550 9,379 9,301 9,280 9,013 8,876 7 Rate (percent of civilian labor force) 5.5 6.7 7.4 7.6 7.6 7.5 7.4 7.3 7.3 7.1 7.0 8 Not in labor force 63,262 64,462 64,594 64,272 64,386 64,673 65,065 64,951 64,918 65,561 65,459 ESTABLISHMENT SURVEY DATA 9 Nonagricultural payroll employment3 109,782 108,310 108,434 108,594 108,485 108,497 108,571 108,646 108,752r 108,796 109,161 10 Manufacturing 19,117 18,455 18,192 18,242 18,145 18,102 18,046 18,068 18,062r 18,091 18,101 11 Mining 710 691 635 633 626 620 623 622 619 617 605 12 Contract construction 5,133 4,685 4,594 4,584 4,591 4,574 4,601 4,590 4,582r 4,558 4,654 13 Transportation and public utilities 5,808 5,772 5,741 5,742 5,729 5,738 5,731 5,732 5,742r 5,761 5,766 14 Trade 25,877 25,328 25,120 25,156 25,070 25,079 25,115 25,092 25,132r 25,210 25,348 15 Finance 6,729 6,678 6,672 6,660 6,661 6,669 6,680 6,669 6,677 6,684 6,680 16 Service 28,130 28,323 28,903 28,971 28,981 29,065 29,152 29,188 29,253r 29,230 29,361 17 Government 18,304 18,380 18,578 18,606 18,682 18,650 18,623 18,685 18,685r 18,645 18,646 1. Persons sixteen years of age and older. Monthly figures are based on sample pay for, the pay period that includes the twelfth day of the month; excludes data collected during the calendar week that contains the twelfth day; annual data proprietors, self-employed persons, household and unpaid family workers, and are averages of monthly figures. By definition, seasonality does not exist in members of the armed forces. Data are adjusted to the March 1984 benchmark, population figures. and only seasonally adjusted data are available at this time. 2. Includes self-employed, unpaid family, and domestic service workers. SOURCE. Based on data from U.S. Department of Labor, Employment and 3. Includes all full- and part-time employees who worked during, or received Earnings. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A46 Domestic Nonfinancial Statistics • May 1993 2.12 OUTPUT, CAPACITY, AND CAPACITY UTILIZATION1 Seasonally adjusted 1992 1992 1992 Q1 Q2 Q3 Q4r Q1 Q2 Q3 Q4 Ql Q2 Q3 Q4r Output (1987=100) Capacity (percent of 1987 output) Capacity utilization rate (percent) 1 Total industry 107.1 108.5 109.1 110.3 137.0 137.7 138.4 139.1 78.2 78.8 78.8 79.3 2 Manufacturing 108.0 109.5 110.0 111.2 139.7 140.6 141.4 142.2 77.3 77.9 77.8 78.2 3 Primary processing 104.0 105.4 106.4 107.1 129.3 129.6 129.9 130.3 80.5 81.3 81.9 82.2 4 Advanced processing 109.9 111.4 111.7 113.1 144.6 145.6 146.7 147.7 76.0 76.5 76.2 76.6 5 Durable goods 106.6 108.4 108.8 110.2 143.7 144.4 145.2 146.0 74.2 75.0 74.9 75.5 6 Lumber and products 98.5 96.7 98.5 101.2 125.9 126.1 126.3 126.5 78.2 76.7 78.0 80.0 7 Primary metals 102.2 101.7 104.0 104.6 129.1 128.3 127.5 126.7 79.2 79.2 81.5 82.5 8 Iron and steel 103.8 101.6 104.6 106.7 134.1 132.7 131.2 129.8 77.4 76.6 79.7 82.2 9 Nonferrous 100.0 101.7 103.0 101.6 122.1 122.2 122.3 122.4 81.9 83.3 84.3 83.0 10 Nonelectrical machinery 122.1 125.7 128.8 132.0 164.3 165.9 167.4 168.9 74.3 75.8 76.9 78.1 11 Electrical machinery 110.5 111.8 112.6 113.6 147.9 149.1 150.4 151.6 74.7 75.0 74.9 74.9 12 Motor vehicles and parts 91.7 100.5 98.1 103.7 136.2 136.7 137.2 137.7 67.3 73.5 71.5 75.3 13 Aerospace and miscellaneous transportation equipment . 99.3 96.8 94.9 93.2 140.4 140.9 141.5 142.1 70.8 68.7 67.1 65.6 14 Nondurable goods 109.8 110.9 111.6 112.5 134.8 135.6 136.5 137.4 81.5 81.7 81.8 81.9 15 Textile mill products 104.3 106.2 106.6 107.1 118.8 119.2 119.7 120.2 87.9 89.0 89.1 89.1 16 Paper and products 105.8 106.7 108.2 107.5 119.3 119.9 120.5 121.1 88.7 89.0 89.8 88.8 17 Chemicals and products 113.6 116.8 118.0 119.2 143.4 144.3 145.1 146.0 79.2 81.0 81.3 81.6 18 Plastics materials 124.4 129.7 132.4 126.3 148.7 150.5 152.2 154.0 83.7 86.2 87.0 82.0 19 Petroleum products 107.7 109.2 106.9 110.4 121.4 121.5 121.6 121.7 88.7 89.9 87.9 90.8 20 Mining 97.9 98.9 99.2 99.0 114.7 114.7 114.8 114.8 85.3 86.2 86.5 86.2 21 Utilities 107.0 107.4 109.4 112.4 129.5 129.8 130.1 130.4 82.6 82.7 84.1 86.2 22 Electric 109.7 110.3 113.2 115.5 125.6 126.0 126.4 126.8 87.3 87.6 89.5 91.1 Previous cycle2 Latest cycle3 1992 1992 1993 High Low High Low Feb. July Aug. Sept. Oct. Nov.r Dec/ Jan/ Feb.p Capacity utilization rate (percent) 1 Total industry 89.2 72.6 87.3 71.8 78.3 79.1 78.8 78.6 79.0 79.4 79.5 79.7 79.9 2 Manufacturing 88.9 70.8 87.3 70.0 77.4 78.1 77.9 77.5 77.9 78.3 78.4 78.8 78.9 3 Primary processing 92.2 68.9 89.7 66.8 80.4 82.7 81.7 81.3 81.9 82.5 82.2 82.8 83.0 4 Advanced processing 87.5 72.0 86.3 71.4 76.1 76.2 76.3 76.0 76.3 76.6 76.8 77.2 77.2 5 Durable goods 88.8 68.5 86.9 65.0 74.5 75.2 75.2 74.4 75.1 75.5 75.8 76.4 76.6 6 Lumber and products 90.1 62.2 87.6 60.9 78.5 79.1 78.3 76.6 79.7 80.9 79.3 81.5 80.8 7 Primary metals 100.6 66.2 102.4 46.8 79.5 82.6 81.8 80.1 82.0 83.1 82.5 85.5 85.3 8 Iron and steel 105.8 66.6 110.4 38.3 77.4 80.8 79.5 78.8 81.6 82.6 82.3 85.9 85.8 9 Nonferrous 92.9 61.3 90.5 62.2 82.9 85.4 85.2 82.2 82.7 83.8 82.7 84.8 84.5 10 Nonelectrical machinery 96.4 74.5 92.1 64.9 74.2 76.6 77.3 76.9 77.4 78.0 79.0 79.6 80.1 11 Electrical machinery 87.8 63.8 89.4 71.1 74.8 75.1 75.1 74.3 74.5 75.6 74.6 75.3 76.1 12 Motor vehicles and parts .... 93.4 51.1 93.0 44.5 68.9 71.3 72.5 70.8 73.6 74.3 77.9 81.4 80.3 13 Aerospace and miscellaneous transportation equipment. 77.0 66.6 81.1 66.9 70.9 67.7 67.0 66.4 66.3 65.5 65.0 64.0 63.3 14 Nondurable goods 87.9 71.8 87.0 76.9 81.3 82.0 81.6 81.7 81.7 82.0 81.9 82.0 82.0 15 Textile mill products 92.0 60.4 91.7 73.8 88.2 89.6 88.7 88.9 88.4 89.4 89.5 91.0 90.9 16 Paper and products 96.9 69.0 94.2 82.0 87.6 91.1 88.2 90.0 87.8 88.9 89.6 89.1 88.4 17 Chemicals and products 87.9 69.9 85.1 70.1 79.1 81.5 81.1 81.4 81.4 82.1 81.3 81.5 81.9 18 Plastics materials 102.0 50.6 90.9 63.4 83.0 89.8 86.0 85.1 82.8 84.1 79.1 19 Petroleum products 96.7 81.1 89.5 68.2 88.1 89.8 85.8 88.3 91.5 91.0 89.7 91.2 92.4 20 Mining 94.4 88.4 96.6 80.6 85.7 87.6 86.1 85.6 86.1 86.6 85.9 85.7 83.9 21 Utilities 95.6 82.5 88.3 76.2 82.2 84.1 83.6 84.6 85.0 86.2 87.5 85.9 88.9 22 Electric 99.0 82.7 88.3 78.7 86.8 89.5 89.2 89.9 89.8 91.0 92.5 90.7 94.1 1. Data in this table also appear in the Board's G.17 (419) monthly statistical 2. Monthly high, 1973; monthly low, 1975. release. For ordering address, see inside front cover. For a detailed description of 3. Monthly highs, 1978 through 1980; monthly lows, 1982. the series, see "Recent Developments in Industrial Capacity and Utilization," Federal Reserve Bulletin, vol. 76 (June 1990), pp. 411-35. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A47 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data seasonally adjusted 1987 1992 1993 1992 GGrroouupp por- aavvgg.. tion Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov.r Dec.r JJaann..rr FFeebb.."" Index (1987 = 100) MAJOR MARKETS 1 Total index 100.0 108.7 107.2 107.6 108.1 108.9 108.5 109.4 109.1 108.9 109.7 110.4 110.8 111.3 111.8 ? 60.8 109.5 108.1 108.5 109.0 109.7 109.0 109.6 109.8 109.6 110.7 111.3 112.1 112.5 112.9 3 46.0 111.1 109.4 109.8 110.6 111.4 110.5 111.0 111.5 111.2 112.4 113.1 113.9 114.6 114.9 4 Consumer goods, total 26.0 110.5 108.8 109.3 110.1 110.8 109.6 110.4 110.8 110.7 111.9 112.6 113.5 113.9 114.6 5 Durable consumer goods 5.6 107.9 105.3 106.2 107.9 111.1 109.2 108.6 109.2 106.9 108.1 108.9 111.6 113.9 114.5 6 Automotive products 2.5 106.6 101.6 103.6 106.5 110.6 108.0 106.6 106.8 104.5 108.8 110.2 114.8 120.1 118.4 7 Autos and trucks 1.5 102.0 94.3 95.7 102.5 107.8 104.0 100.5 100.6 98.2 105.9 107.2 116.5 123.9 120.3 8 Autos, consumer .9 90.0 84.8 81.9 93.1 98.6 97.6 92.3 87.2 88.1 88.5 89.4 97.7 102.3 101.8 9 Trucks, consumer .6 122.1 110.2 118.8 118.3 123.3 114.8 114.3 123.1 115.1 135.1 137.1 148.1 160.3 151.4 10 Auto parts and allied goods... 1.0 113.7 112.6 115.5 112.5 114.8 114.0 115.7 116.2 114.0 113.3 114.7 112.3 114.4 115.5 11 Other 3.1 109.0 108.3 108.3 109.1 111.5 110.2 110.3 111.1 108.9 107.6 107.8 109.0 109.0 111.5 1? Appliances, A/C, and TV .8 104.7 102.9 103.5 103.4 107.4 106.2 102.3 110.6 108.5 103.8 103.8 104.2 103.6 109.4 N Carpeting and furniture .9 102.7 102.4 102.5 104.4 105.9 103.2 103.8 103.6 100.9 100.5 101.4 104.4 104.7 104.8 14 Miscellaneous home goods ... 1.4 115.3 115.0 114.7 115.2 117.3 116.9 118.8 116.1 114.2 114.3 114.1 114.7 114.9 116.9 is Nondurable consumer goods 20.4 111.2 109.8 110.2 110.7 110.7 109.7 110.8 111.2 111.7 112.9 113.7 114.0 113.9 114.7 16 9.1 108.5 107.4 107.8 107.6 107.7 107.2 108.6 110.1 108.9 109.8 110.1 109.9 110.2 110.7 17 Clothing 2.6 95.2 95.2 95.1 95.3 96.4 95.5 96.8 95.0 95.5 94.9 95.4 95.8 95.6 95.1 18 Chemical products 3.5 122.6 118.3 119.4 120.8 121.4 121.6 121.5 122.0 124.1 126.8 128.3 128.7 129.1 129.5 19 Paper products 2.5 124.2 124.7 124.6 125.1 124.3 121.7 121.9 121.8 124.2 124.1 126.1 126.4 125.6 125.9 70 2.7 108.1 106.4 107.0 108.9 107.2 104.8 107.4 106.2 108.1 111.5 112.2 114.0 113.1 116.6 ?1 .7 104.7 103.5 103.7 105.1 104.0 104.4 105.3 99.0 103.5 110.3 108.0 105.7 107.6 109.6 22 Residential utilities 2.0 109.4 107.5 108.2 110.3 108.4 105.0 108.2 108.9 109.7 112.0 113.7 117.1 115.2 119.2 7 7 3 4 Business equipment 2 1 0 3 . . 0 9 1 1 1 2 1 4 . . 9 4 1 1 2 1 1 0. . 2 0 1 11 2 0 1 . . 4 5 1 1 1 2 1 3 . . 3 0 1 1 2 1 4 2 . . 5 3 1 1 2 1 4 1 . . 1 6 1 11 2 1 4 . . 8 4 1 11 2 2 5 . . 5 9 1 1 1 2 1 5 . . 9 4 1 1 1 2 3 6 . . 0 8 1 1 1 2 3 7 . . 7 8 1 1 1 2 4 8 . . 5 9 1 1 1 3 5 0 . . 4 5 1 1 1 3 5 0 . . 2 9 75 Information processing and related .. 5.6 141.0 134.6 136.0 137.9 139.2 140.4 141.9 143.5 143.5 145.7 146.8 148.1 150.8 152.0 76 Office and computing 1.9 176.5 162.4 164.9 168.2 170.5 174.0 178.0 182.0 184.0 187.0 189.0 194.7 200.1 ?7 4.0 102.1 101.3 101.3 101.7 103.4 102.9 103.4 102.7 101.6 102.0 103.1 102.8 103.2 110033..55 ">8 Transit 2.5 131.2 129.2 128.9 131.7 133.3 131.8 128.7 132.6 130.4 133.0 134.1 136.7 139.8 138.3 79 1.2 101.2 94.7 95.0 101.3 105.6 101.7 98.1 101.3 99.1 105.2 107.7 114.4 121.4 119.8 30 Other 1.9 114.1 112.2 112.2 113.2 115.0 111.5 112.2 114.4 115.8 115.5 115.9 117.7 116.8 117.7 31 Defense and space equipment 5.4 82.9 86.2 85.6 84.7 84.2 83.6 82.7 81.8 81.1 80.5 79.7 79.2 78.3 77.6 3? Oil and gas well drilling .6 78.3 73.9 76.2 79.2 79.2 74.6 78.6 75.0 74.4 80.2 85.2 88.5 84.7 76.6 33 Manufactured homes .2 108.8 99.7 98.7 100.7 100.3 97.1 112.0 106.1 111.2 119.9 127.1 138.0 143.0 34 Intermediate products, total 14.7 104.6 104.0 104.4 103.9 104.4 104.4 105.1 104.4 104.5 105.5 105.7 106.1 106.1 106.7 6.0 97.4 96.0 96.7 96.5 97.8 97.2 98.6 98.5 97.1 98.5 98.8 98.0 98.3 99.0 36 Business supplies 8.7 109.6 109.6 109.7 109.0 109.0 109.4 109.7 108.5 109.6 110.4 110.5 111.8 111.5 112.1 37 39.2 107.4 105.8 106.1 106.8 107.7 107.6 109.0 108.1 107.9 108.2 109.0 108.9 109.5 110.0 38 19.4 109.9 108.1 108.3 108.7 110.4 110.2 111.2 111.1 109.9 110.9 112.0 112.1 113.6 114.1 39 4.2 101.0 97.1 97.9 99.3 102.5 102.9 101.8 103.9 102.3 103.5 103.8 103.8 105.9 106.4 40 7.3 116.2 115.2 115.1 114.7 116.2 116.2 117.5 117.0 116.4 117.2 118.7 118.9 120.3 121.2 41 Other 7.9 108.8 107.5 107.5 108.1 109.2 108.7 110.2 109.5 108.1 109.1 110.2 110.2 111.6 111.6 4? 2.8 108.3 107.3 106.3 106.3 108.3 107.7 111.5 110.9 108.1 108.5 111.3 108.9 111.5 111.3 43 Nondurable goods materials 9.0 109.7 107.1 108.9 109.4 109.7 110.4 111.7 110.3 110.5 109.7 110.6 109.9 110.4 111.0 44 Textile materials 1.2 102.6 101.5 102.0 103.2 102.9 102.3 103.9 102.9 103.9 103.3 103.8 102.7 105.0 105.3 45 Pulp and paper materials 1.9 109.8 106.8 107.8 109.2 107.8 110.8 111.8 108.9 112.7 109.6 111.0 113.2 110.7 110.4 46 3.8 110.2 106.6 109.3 109.9 111.2 110.9 113.4 111.9 110.9 110.2 111.1 108.6 109.5 110.7 47 Other 2.1 112.4 111.2 112.7 112.2 112.4 113.4 112.8 112.6 111.5 112.6 112.9 113.5 115.0 115.1 48 10.9 101.2 100.5 100.1 101.3 101.3 100.6 102.9 100.9 102.0 102.0 102.4 102.3 101.3 102.0 49 Primary energy 7.2 100.3 100.6 98.2 99.8 99.7 99.6 102.3 101.4 101.8 102.1 102.3 101.9 101.1 100.6 50 Converted fuel materials 3.7 103.0 100.4 103.8 104.1 104.3 102.6 104.1 100.0 102.5 101.7 102.4 103.2 101.7 104.9 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.3 108.9 107.6 107.9 108.3 109.0 108.6 109.6 109.3 109.2 109.8 110.5 110.7 111.0 111.6 52 Total excluding motor vehicles and parts... 95.3 109.2 107.8 108.2 108.6 109.2 108.8 109.9 109.6 109.5 110.1 110.8 111.0 111.3 111.8 Total excluding office and computing machines 97.5 107.0 105.8 106.1 106.6 107.4 106.8 110077..66 110077..33 110077..00 110077..88 110088..44 110088..77 110099..11 110099..55 54 Consumer goods excluding autos and 24.5 111.0 109.7 110.2 110.6 110.9 109.9 111.0 111.4 111111..44 111122..22 111133..00 111133..33 111133..33 111144..33 55 Consumer goods excluding energy 23.3 110.8 109.1 109.6 110.3 111.2 110.1 110.7 111.3 111.0 111.9 112.7 113.4 114.0 114.4 56 Business equipment excluding autos and trucks 12.7 126.7 123.6 124.1 125.2 126.4 126.3 112277..00 112288..33 112277..99 112288..99 112299..77 113300..33 113311..44 113322..00 57 Business equipment excluding office and computing equipment 12.0 116.0 114.3 114.5 115.7 117.1 116.1 115.8 116.8 111155..99 117.0 111177..99 111188..33 111199..33 111199..11 58 Materials excluding energy 28.4 109.8 107.8 108.5 108.9 110.2 110.3 111.3 110.8 110.1 110.5 111.6 111.4 112.6 113.1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A48 Domestic Nonfinancial Statistics • May 1993 2.13—Continued 1987 1992 1993 Group c S o I d C e p po ro r- - a 1 v 99 g 2 . tion Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov/ Dec/ Jan/ Feb." Index (1987 = 100) MAJOR INDUSTRIES 1 Total index 100.0 108.7 107.2 107.6 108.1 108.9 108.5 109.4 109.1 108.9 109.7 110.4 110.8 111.3 111.8 2 Manufacturing 84.4 109.6 108.1 108.5 109.0 109.9 109.6 110.2 110.1 109.8 110.6 111.3 111.6 112.5 112.8 3 Primary processing 26.7 105.7 103.9 104.5 105.0 105.6 105.6 107.3 106.2 105.7 106.6 107.4 107.2 108.0 108.5 4 Advanced processing 57.7 111.4 110.0 110.3 110.8 111.9 111.4 111.6 112.0 111.7 112.5 113.1 113.7 114.6 114.9 5 Durable goods 47.3 108.4 107.0 107.0 107.6 109.1 108.5 109.0 109.2 108.2 109.5 110.2 110.8 112.0 112.4 6 Lumber and products ... "'24 2.0 98.6 98.8 99.2 97.2 97.4 95.4 99.8 98.9 96.7 100.8 102.3 100.4 103.2 102.3 7 Furniture and fixtures ... 25 1.4 100.3 98.1 98.6 101.1 103.3 100.3 101.0 101.7 100.5 99.6 99.5 101.3 100.7 101.7 8 Clay, glass, and stone products 32 2.5 96.3 94.6 95.0 95.6 96.7 96.6 97.1 96.4 96.1 97.7 97.8 98.8 97.7 99.5 9 Primary metals 33 3.3 103.0 102.7 101.4 100.9 102.0 102.1 105.6 104.3 102.0 104.2 105.3 104.3 107.9 107.5 10 Iron and steel 331,2 1.9 104.1 103.7 102.5 100.9 102.2 101.8 106.4 104.4 103.0 106.3 107.2 106.5 110.7 110.3 11 Raw steel .1 101.2 102.7 98.8 99.9 98.5 101.5 105.3 101.9 99.8 101.7 101.5 100.4 106.6 12 Nonferrous 333-6,9 1.4 101.6 101.2 99.9 100.9 101.8 102.5 104.4 104.2 100.5 101.2 102.6 101.2 103.9 103.5 13 Fabricated metal products 34 5.4 101.7 100.5 100.0 100.6 102.2 102.2 102.6 102.5 101.3 102.9 103.4 103.5 103.6 104.2 14 Nonelectrical machinery. 35 8.6 127.2 121.9 122.9 124.1 126.7 126.4 127.8 129.3 129.1 130.4 131.7 133.8 135.4 136.7 15 Office and computing machines 357 2.5 176.5 162.4 164.9 168.2 170.5 174.0 178.0 182.0 184.0 187.0 189.0 194.7 200.1 204.1 16 Electrical machinery .... 36 8.6 111.8 110.7 110.9 111.0 112.3 112.2 112.6 113.0 112.1 112.7 114.6 113.5 114.8 116.5 17 Transportation equipment 37 9.8 97.2 96.8 96.5 98.0 99.6 98.2 96.7 97.0 95.6 97.5 97.5 99.5 101.2 100.1 18 Motor vehicles and parts 371 4.7 98.7 93.8 94.2 98.5 102.7 100.4 97.7 99.4 97.2 101.2 102.4 107.4 112.4 111.0 19 Autos and light trucks 2.3 100.2 92.9 93.7 101.1 106.5 103.0 99.3 98.6 96.7 103.1 104.6 113.7 120.7 117.6 20 Aerospace and miscellaneous transportation equipment.. 372-6,9 5.1 96.0 99.6 98.6 97.4 96.8 96.3 95.7 94.9 94.1 94.1 93.0 92.5 91.2 90.3 21 Instruments 38 3.3 118.1 118.6 118.6 119.0 119.8 118.5 118.5 118.2 118.1 117.8 116.8 116.7 117.2 116.6 22 Miscellaneous 39 1.2 119.5 120.0 120.0 118.9 118.4 117.8 120.4 118.2 118.6 119.7 120.0 120.3 120.6 121.0 23 Nondurable goods 37.2 111.2 109.6 110.4 110.7 110.9 111.0 111.7 111.3 111.8 112.0 112.7 112.7 113.2 113.4 24 Foods "20 8.8 110.1 109.6 110.2 109.6 109.3 109.0 109.8 110.6 110.2 111.2 111.5 111.0 112.0 112.1 25 Tobacco products 21 1.0 105.3 99.4 101.3 101.0 102.5 103.6 106.6 115.9 110.5 107.6 107.7 108.2 108.4 107.5 26 Textile mill products 22 1.8 106.0 104.7 105.3 106.3 106.8 105.3 107.1 106.1 106.6 106.1 107.4 107.8 109.6 109.7 27 Apparel products 23 2.4 97.7 97.7 97.8 98.0 99.0 98.1 99.4 97.6 97.6 97.2 97.8 97.9 97.7 97.4 28 Paper and products 26 3.6 107.1 104.6 105.8 107.0 105.8 107.3 109.6 106.3 108.6 106.2 107.6 108.7 108.3 107.6 29 Printing and publishing .. 27 6.4 113.3 114.4 113.8 113.7 113.4 113.0 112.3 111.4 113.2 113.4 113.6 114.9 114.5 114.7 30 Chemicals and products . 28 8.6 117.1 113.4 114.8 115.8 117.0 117.5 118.0 117.6 118.3 118.7 119.9 119.0 119.5 120.3 31 Petroleum products 29 1.3 108.6 106.9 109.7 110.3 108.5 108.9 109.1 104.3 107.4 111.3 110.7 109.2 111.0 112.4 32 Rubber and plastic products 30 3.0 117.3 114.0 115.4 116.5 117.1 117.3 118.5 119.0 117.3 118.3 119.3 120.5 121.1 121.5 33 Leather and products ... 31 .3 85.2 81.4 82.9 84.1 86.2 86.2 87.1 84.8 86.4 87.0 86.0 85.3 85.7 87.0 34 Mining 7.9 98.8 98.4 97.5 99.1 99.7 98.0 100.6 98.8 98.3 98.8 99.4 98.7 98.4 96.4 35 Metal "lO .3 158.0 152.9 155.8 154.2 166.4 154.0 163.7 165.6 158.6 155.7 167.1 159.7 160.9 161.5 36 Coal 11,12 1.2 105.5 107.9 103.0 104.0 107.6 98.6 112.0 107.5 103.7 103.9 106.8 106.7 110.7 106.1 37 Oil and gas extraction 13 5.7 93.2 92.7 91.9 94.2 93.4 93.9 94.0 92.4 93.0 93.9 93.4 92.6 91.4 89.5 38 Stone and earth minerals .. 14 .7 105.9 103.5 107.4 105.9 108.0 105.6 106.2 106.4 105.2 104.9 105.5 106.6 106.4 106.4 39 Utilities 7.6 108.6 106.4 107.7 108.2 107.3 106.7 109.3 108.8 110.2 110.7 112.4 114.2 112.2 116.3 40 Electric 49I,3PT 6.0 111.6 109.0 110.7 111.0 110.2 109.7 113.0 112.7 113.8 113.7 115.3 117.4 115.2 119.6 41 Gas 492,3PT 1.6 97.6 96.9 96.7 97.7 96.6 95.3 95.4 94.1 97.0 99.6 101.3 102.5 100.7 104.0 SPECIAL AGGREGATES 42 Manufacturing excluding motor vehicles and parts 79.8 110.3 108.9 109.3 109.6 110.3 110.1 110.9 110.7 110.5 111.1 111.8 111.9 112.5 112.9 43 Manufacturing excluding office and computing machines 82.0 107.6 106.5 106.8 107.2 108.1 107.6 108.2 108.0 107.6 108.3 109.0 109.1 109.9 110.1 Gross value (billions of 1982 dollars, annual rates) MAJOR MARKETS 44 Products, total 1,734.8 1,932.0 1,889.7 1,902.8 1,918.7 1,935.5 1,920.1 1,936.2 1,935.9 1,937.0 1,969.8 1,981.4 1,996.0 2,020.0 2,027.5 45 Final 1,350.9 1,529.4 1,490.8 1,501.5 1,518.2 1,532.1 1,519.1 1,530.4 1,532.8 1,534.6 1,563.8 1,572.2 1,587.9 1,609.9 1,615.3 46 Consumer goods 833.4 908.0 890.2 896.2 905.6 912.4 901.3 909.3 905.3 907.1 928.2 931.3 935.9 948.3 952.0 47 Equipment 517.5 621.4 600.6 605.3 612.7 619.7 617.8 621.0 627.5 627.5 635.6 640.9 652.0 661.5 663.4 48 Intermediate 384.0 402.7 398.9 401.2 400.5 403.4 401.1 405.8 403.1 402.4 406.0 409.1 408.2 410.1 412.2 1. Data in this table also appear in the Board's G.17 (419) monthly statistical Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April release. For ordering address, see inside front cover. 1990), pp. 187-204. A major revision of the industrial production index and the capacity 2. Standard industrial classification, utilization rates was released in April 1990. See "Industrial Production: 1989 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A49 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted 1992 1993 IItteemm 11999900 11999911 11999922RR Apr. May June July Aug. Sept. Oct. Nov." Dec." Jan. Private residential real estate activity (thousands of units except as noted) NEW UNITS 1 Permits authorized 1,111 949 1,097 1,058 1,054 1,032 1,080 1,076 1,125 1,139 1,126 1,201 1,180 2 One-family 794 754 913 873 879 872 879 877 913 959 955 1,044 997 3 Two-or-rnore-family 317 195 184 185 175 160 201 199 212 180 171 157 183 4 Started 1,193 1,014 1,200 1,095 1,197 1,141 1,106 1,229 1,218 1,226 1,226 1,286 1,178 5 One-family 895 840 1,030 939 1,019 994 961 1,038 1,045 1,079 1,089 1,133 1,061 6 Two-or-more-family 298 174 169 156 178 147 145 191 173 147 137 153 117 7 Under construction at end of period1.. 711 606 611 654R 650" 641" 628 633 637" 644 641 644 645 8 One-family 449 434 474 483R 483" 481" 474" 479" 485" 493 498 503 510 9 Two-or-more-family 262 173 137 171 167" 160 154" 154" 152 151 143 141 135 10 Completed 1,308 1,091 1,157 1,079" 1,194" 1,181" 1,234" 1,133" 1,128" 1,137" 1,229 1,218 1,128 11 One-family 966 838 964 899" 1,002" 979" 1,026" 945" 942" 964" 1,002 1,012 965 12 Two-or-more-family 342 253 194 180" 192" 202 208" 188" 186" 173" 227 206 163 13 Mobile homes shipped 188 171 210 193 194 194 210 202 217 228 244 266 267 Merchant builder activity in one-family units 14 Number sold 535 507 609 552" 552" 584" 622" 625" 672" 637" 615 652 569 15 Number for sale at end of period ... 321 284R 265 274 273" 273" 271 270" 267" 264" 262 265 267 Price of units sold (thousands of dollars) 16 Median 122.3 120.0 121.2 120.0 113.0 124.5 118.0 123.5 119.5 125.0" 128.9 125.0 111188..00 17 Average 149.0 147.0 144.7 145.0 146.0 146.6 137.7 145.3 142.2 148.4" 147.2 144.0 139.9 EXISTING UNITS (one-family) 18 Number sold 3,211 3,219 3,520 3,490 3,450" 3,320" 3,380" 3,340" 3,380" 3,710" 3,860 4,040 3,780 Price of units sold (thousands of dollars) 19 Median 95.2 99.7 103.6 103.5" 103.1" 105.5" 102.8" 110055..00"" 103.5" 103.4 102.7 104.2 110033..11 20 Average 118.3 127.4 130.8 130.7" 131.0" 133.9" 132.2 132.4" 131.0 129.3" 128.8 131.0 129.4 Value of new construction (millions of dollars)3 CONSTRUCTION 21 Total put in place 442,066 400,955 426,002 427,585 427,980 426,730 425,700 419,598 429,291 430,494 432,811 436,395 430,777 77 Private 334,153 290,707 307,375 309,832 306,999 312,182 305,848 301,984 308,813 312,177 314,156 316,469 316,767 73 Residential 182,856 157,837 183,208 182,644 182,892 184,630 181,162 184,201 186,343 188,675 191,459 194,765 196,914 74 Nonresidential, total 151,297 132,870 124,167 127,188 124,107 127,552 124,686 117,783 122,470 123,502 122,697 121,704 119,853 75 Industrial buildings 23,849 22,281 20,173 21,335 21,008 20,285 20,594 17,862 19,019 18,594 19,008 18,578 17,720 76 Commercial buildings 62,866 48,482 40,417 40,712 39,643 43,310 39,988 37,010 39,333 40,003 40,371 38,216 38,057 71 Other buildings 21,591 20,797 21,514 21,409 21,993 21,991 22,228 21,518 22,068 21,648 21,527 21,278 21,356 28 Public utilities and other 42,991 41,310 42,063 43,732 41,463 41,966 41,876 41,393 42,050 43,257 41,791 43,632 42,720 79 Public 107,909 110,247 118,624 117,753 120,981 114,548 119,853 117,614 120,478 118,317 118,655 119,926 114,010 30 Military 2,664 1,837 2,490 2,329 2,668 2,503 2,372 2,438 3,172 2,299 2,705 2,609 2,503 31 Highway 31,154 29,918 32,759 31,447 32,633 31,496 32,682 33,451 34,651 32,200 34,374 31,076 29,247 37 Conservation and development... 4,607 4,958 6,079 5,818 5,767 5,889 5,772 5,382 6,364 6,698 6,462 8,281 6,843 33 Other 69,484 73,534 77,296 78,159 79,913 74,660 79,027 76,343 76,291 77,120 75,114 77,960 75,417 1. Not at annual rates. SOURCE. 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. Recent data on value of new construction may not be strictly comparable Institute and seasonally adjusted by the Census Bureau, and (2) sales and prices with data for previous periods because of changes by the Census Bureau in its of existing units, which are published by the National Association of Realtors. All estimating techniques. For a description of these changes, see Construction back and current figures are available from the originating agency. Permit Reports (C-30-76-5), issued by the Census Bureau in July 1976. authorizations are those reported to the Census Bureau from 17,000 jurisdictions beginning in 1984. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 Domestic Nonfinancial Statistics • May 1993 2.15 CONSUMER AND PRODUCER PRICES Percentage changes based on seasonally adjusted data except as noted Change from 12 Change from 3 months earlier months earlier (annual rate) Change from 1 month earlier IIInnndddeeexxx llleeevvveeelll,,, IIIttteeemmm 1992 1992 19931 FFFeeebbb...,,, 11999922 11999933 111999999333 111 FFeebb.. FFeebb.. Mar. June Sept. Dec. Oct. Nov. Dec. Jan. Feb. CONSUMER PRICES2 (1982-84=100) 1 All items 2.8 3.2 3.5 2.6 2.6 3.2 .4 .2 .1 .5 .3 143.1 2 1.5 1.7 2.4 -1.2 3.2 1.4 .0 .1 .3 .4 .1 139.9 3 Energy items -3.7 3.2 -3.9 8.6 1.2 1.9 .5 .2 -.2 .5 -.4 102.2 4 All items less food and energy 3.8 3.6 4.5 2.8 2.5 3.8 .5 .3 .2 .5 .5 150.8 5 Commodities 2.9 2.8 4.1 2.5 1.8 1.5 .3 .1 -.1 .5 .5 134.7 6 Services 4.1 4.0 4.5 3.1 2.9 4.7 .5 .4 .3 .4 .4 160.1 PRODUCER PRICES (1982=100) 7 Finished goods .6 1.8 2.0 3.3 1.3 -.3 .0" -,2r .1 .2 .4 124.3 8 Consumer foods -1.0 .5 -.3 -.6 4.3 2.9 -.1 -.5 1.3 -.9 -.1 124.0 9 Consumer energy -5.2 3.5 -1.0 16.6 -3.5 -9.8 1.0" — 1.3r -2.3 .9 1.7 76.9 10 Other consumer goods 2.8 2.2 3.6 2.4 1.5 .9 -.1 .R .1 .4 .3 139.4 11 Capital equipment 2.1 1.7 3.5 .9 1.2 .3 -.2 .2 .3 .5 130.9 Intermediate materials 12 Excluding foods and feeds -1.8 2.0 1.1 5.0 .7 -1.4 -.3r -.1 .3 .5 115.9 13 Excluding energy -.7 1.7 2.0 1.7 1.3 -.3 -.2 .2 .3 .5 123.5 Crude materials 14 Foods -1.2 -.4 8.4 2.7 -4.8 4.3 .8r -.7r 1.0 .3 .1 105.6 15 Energy -9.1 2.3 -26.6 51.5 19.8 -20.2 -I.R .5r -4.9 .0 -2.5 77.2 16 Other -6.1 9.7 15.8 4.8 2.2 1.5 -1.2 -,6r 2.3 3.1 2.2 137.3 1. Not seasonally adjusted. SOURCE. Bureau of Labor Statistics. 2. Figures for consumer prices are for all urban consumers and reflect a rental-equivalence measure of homeownership. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A51 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1991 1992 11999900 11999911 11999922rr Q4 Ql Q2 Q3 Q4r GROSS DOMESTIC PRODUCT 1 Total 5,522.2 5,677.5 5,950.7 5,753.3 5,840.2 5,902.2 5,978.5 6,082.1 By source 4 5 2 3 Pe N D S rs e o u o r r n n v a d a i b c l u l e r e c s a o b g n l o e s o u d g m s o p o t d io s n expenditures 2 3 1 , . . 0 7 4 2 5 4 6 2 9 8 4 4 . . . . 7 4 3 5 2 3 1 , , , 1 4 8 2 9 4 8 5 0 6 7 1 . . . . 1 1 7 5 4 2 1 , , , 3 0 4 2 2 9 8 9 4 4 0 0 . . . . 0 9 3 5 2 3 1 , , , 2 4 9 2 4 5 4 5 1 0 2 1 . . . . 1 4 4 9 4 2 1 , , , 2 0 4 2 7 2 6 7 9 9 2 4 . . . . 3 4 8 1 4 2 1 , , , 0 3 4 2 5 0 7 7 7 9 0 7 . . . . 1 0 6 5 4 2 1 . , . 1 3 4 2 0 3 8 9 8 3 2 2 . . . . 7 5 3 8 4 2 1 , , , 3 1 4 3 7 9 1 9 4 0 7 8 . . . . 5 9 7 7 6 Gross private domestic investment 799.5 721.1 770.9 736.1 722.4 773.2 781.6 806.4 7 Fixed investment 793.2 731.3 766.2 726.9 738.2 765.1 766.6 794.8 8 Nonresidential 577.6 541.1 548.3 528.7 531.0 550.3 549.6 562.4 9 Structures 201.1 180.1 168.5 169.7 170.1 170.3 166.1 167.4 10 Producers' durable equipment 376.5 360.9 379.8 358.9 360.8 380.0 383.5 395.0 11 Residential structures 215.6 190.3 217.8 198.2 207.2 214.8 217.0 232.4 12 Change in business inventories 6.3 -10.2 4.7 9.2 -15.8 8.1 15.0 11.6 13 Nonfarm 3.3 -10.3 2.6 14.5 -13.3 6.4 9.7 7.5 14 Net exports of goods and services -68.9 -21.8 -30.2 -16.0 -8.1 -37.1 -36.0 -39.6 15 Exports 557.0 598.2 636.6 622.9 628.1 625.4 639.0 654.1 16 Imports 625.9 620.0 666.9 638.9 636.2 662.5 675.0 693.7 17 Government purchases of goods and services .. 1,043.2 1,090.5 1,115.2 1,090.3 1,103.1 1,109.1 1,124.2 1,124.3 18 Federal 426.4 447.3 449.2 440.8 445.0 444.8 455.2 451.8 19 State and local 616.8 643.2 666.0 649.5 658.0 664.3 669.0 672.5 By major type of product 20 Final sales, total 5,515.9 5.687.7 5.946.0 5.744.2 5,855.9 5.894.1 5.963.5 6.070.5 21 Goods 2,160.1 2.192.8 2.260.1 2,188.4 2,233.6 2.233.2 2,258.4 2,315.1 22 Durable 920.6 907.6 944.1 905.7 923.6 932.3 943.8 976.5 23 Nondurable 1,239.5 1,285.1 1,316.0 1,282.7 1,310.0 1,300.8 1.314.6 1.338.6 24 Services 2,846.4 3,030.3 3,196.6 3.090.3 3,142.2 3,173.4 3,217.8 3,253.1 25 Structures 509.4 464.7 489.3 465.5 480.1 487.6 487.3 502.3 26 Change in business inventories 6.3 -10.2 4.7 9.2 -15.8 8.1 15.0 11.6 2 2 8 7 N D o u n ra d b u l r e a b g l o e o d g s o ods - 7 .9 .2 -19 9 . . 3 0 -3 8 . . 4 2 - 1 8 7 . . 1 3 -19 3 . . 3 5 -1 9 . . 4 5 1 2 2 . . 7 3 - 1 6 8 . . 5 2 MEMO 29 Total GDP in 1987 dollars 4,877.5 4,821.0 4,922.8 4,838.5 4,873.7 4,892.4 4,933.7 4,991.5 NATIONAL INCOME 30 Total 4,468.3 4,544.2 n.a. 4,599.1 4,679.4 4,716.5 4,719.6 n.a. 31 Compensation of employees 3,291.2 3,390.8 3,524.9 3,433.8 3,476.3 3,506.3 3,534.3 3,582.8 32 Wages and salaries 2,742.9 2,812.2 2,916.4 2,845.0 2,877.6 2,901.3 2,923.5 2,963.3 33 Government and government enterprises .. 514.8 543.5 562.5 546.4 554.6 561.4 564.3 569.6 34 Other 2,228.0 2,268.7 2,353.9 2,298.6 2,323.0 2,339.9 2,359.1 2,393.7 35 Supplement to wages and salaries 548.4 578.7 608.5 588.7 598.7 605.0 610.8 619.5 36 Employer contributions for social insurance 277.4 290.4 302.8 293.7 299.4 301.5 302.9 307.2 37 Other labor income 271.0 288.3 305.7 295.0 299.2 303.6 307.9 312.2 38 Proprietors' income1 366.9 368.0 404.6 377.9 393.6 398.4 397.4 428.9 39 Business and professional' 325.2 332.2 365.0 340.0 353.6 359.9 365.9 380.8 40 Farm1 41.7 35.8 39.6 37.9 40.1 38.5 31.5 48.1 41 Rental income of persons2 -12.3 -10.4 4.8 -6.6 -4.5 3.3 6.4 13.8 42 Corporate profits1 361.7 346.3 n.a. 347.1 384.0 388.4 374.1 n.a. 43 Profits before tax3 355.4 334.7 n.a. 332.3 366.1 376.8 354.1 n.a. 44 Inventory valuation adjustment -14.2 3.1 -8.0 .7 -5.4 -15.5 -9.7 -1.6 45 Capital consumption adjustment 20.5 8.4 29.5 14.1 23.3 27.0 29.7 37.9 46 Net interest 460.7 449.5 n.a. 446.9 430.0 420.0 407.3 n.a. 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. U.S. Department of Commerce, Survey of Current Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A52 Domestic Nonfinancial Statistics • May 1993 2.17 PERSONAL INCOME AND SAVING Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1991 1992 AAccccoouunntt 11999900 11999911 11999922rr Q4 Ql Q2 Q3 Q4r PERSONAL INCOME AND SAVING 1 Total personal income 4,664.2 4,828.3 5,058.0 4,907.2 4,980.5 5,028.9 5,062.0 5,160.6 2 Wage and salary disbursements 2,742.8 2,812.2 2,917.9 2,845.0 2,877.6 2,901.3 2,923.5 2,969.3 3 Commodity-producing industries 745.6 737.4 743.0 741.5 736.8 743.1 742.4 749.7 556.1 556.9 565.5 563.9 559.9 564.7 565.5 571.9 634.6 647.4 666.9 652.9 660.9 662.9 667.7 676.1 847.8 883.9 945.6 904.3 925.3 933.9 949.1 973.9 7 Government and government enterprises 514.8 543.6 562.5 546.4 554.6 561.4 564.3 569.6 271.0 288.3 305.7 295.0 299.2 303.6 307.9 312.2 9 Proprietors' income 366.9 368.0 404.6 377.9 393.6 398.4 397.4 428.9 10 Business and professional 325.2 332.2 365.0 340.0 353.6 359.9 365.9 380.8 11 Farm1 41.7 35.8 39.6 37.9 40.1 38.5 31.5 48.1 12 Rental income of persons2 -12.3 -10.4 4.8 -6.6 -4.5 3.3 6.4 13.8 140.3 137.0 139.3 134.3 133.9 136.6 141.0 145.8 14 Personal interest income 694.5 700.6 670.2 703.3 684.8 675.2 663.2 657.7 15 Transfer payments 685.8 771.1 866.0 799.8 842.7 859.7 874.1 887.7 16 Old-age survivors, disability, and health insurance benefits ... 352.0 382.0 414.1 390.6 405.7 412.1 417.1 421.5 17 LESS: Personal contributions for social insurance 224.8 238.4 250.6 241.5 246.8 249.3 251.5 254.8 18 EQUALS: Personal income 4,664.2 4,828.3 5,058.0 4,907.2 4,980.5 5,028.9 5,062.0 5,160.6 19 LESS: Personal tax and nontax payments 621.3 618.7 627.2 622.3 619.6 617.1 628.8 643.5 20 EQUALS: Disposable personal income 4,042.9 4,209.6 4,430.7 4,284.9 4,360.9 4,411.8 4,433.2 4,517.0 21 LESS: Persona] outlays 3,867.3 4,009.9 4,217.1 4,065.5 4,146.3 4,179.5 4,229.9 4,312.8 22 EQUALS: Personal saving 175.6 199.6 213.6 219.4 214.6 232.3 203.3 204.2 MEMO Per capita (1987 dollars) 23 Gross domestic product 19,513.0 19,077.1 19,272.2 1199,,006666..00 1199,,115588..55 1199,,118811..88 1199,,228888..44 1199,,445599..11 24 Personal consumption expenditures 13,043.6 12,824.1 12,972.0 12,802.6 12,930.2 12,893.3 12,973.3 13,089.8 25 Disposable personal income 14,068.0 13,886.0 14,036.0 13,913.0 14,017.0 14,021.0 13,998.0 14,108.0 26 Saving rate (percent) 4.3 4.7 4.8 5.1 4.9 5.3 4.6 4.5 GROSS SAVING 27 Gross saving 718.0 708.2 n.a. 698.2 677.5 682.9 669966..99 n.a. 28 Gross private saving 854.1 901.5 n.a. 934.8 950.1 968.1 992.1 n.a. 29 Personal saving 175.6 199.6 213.6 219.4 214.6 232.3 203.3 204.2 30 Undistributed corporate profits 75.7 75.8 n.a. 78.3 104.0 97.7 91.2 n.a. 31 Corporate inventory valuation adjustment -14.2 3.1 -8.0 .7 -5.4 -15.5 -9.7 -1.6 Capital consumption allowances 368.3 383.0 394.9 338866..33 338866..11 339911..22 440077..22 339944..99 33 Noncorporate 234.6 243.1 258.5 250.7 245.3 247.0 290.4 251.2 34 Government surplus, or deficit (-), national income and -136.1 -193.3 -279.8 --223366..66 -272.6 --228855..22 --229955..22 n.a. 35 Federal -166.2 -210.4 -295.2 -258.7 -289.2 -302.9 -304.4 n.a. 36 State and local 30.1 17.1 15.4 22.0 16.6 17.7 9.2 n.a. 37 Gross investment 723.4 730.1 724.7 714.6 706.5 713.8 732.0 746.6 38 Gross private domestic 799.5 721.1 770.9 736.1 722.4 773.2 781.6 806.4 39 Net foreign -76.1 9.0 n.a. -21.5 -16.0 -59.4 -49.6 n.a. 40 Statistical discrepancy 5.4 21.9 n.a. 16.4 29.0 30.9 35.1 n.a. 1. With inventory valuation and capital consumption adjustments. SOURCE. U.S. Department of Commerce, Survey of Current Business. 2. With capital consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A53 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data seasonally adjusted except as noted1 1991 1992 Item 1991 1992 Q4 Q1 Q2 Q3r Q4P 1 Balance on current account.. -90,428 -3,682 -62,448 -7,218 -6,374r -18,279" -15,771 -22,020 2 Merchandise trade balance -108,853 -73,436 -96,275 -18,539 -17,663r -25,004" -27,634 -25,974 3 Merchandise exports 388,705 415,962 439,272 107,851 107,634r 107,148" 110,119 114,371 4 Merchandise imports -497,558 -489,398 -535,547 -126,390 -125,297r -132,152" -137,753 -140,345 5 Military transactions, net -7,818 -5,524 -2,503 -540 -624 -623 -579 -677 6 Other service transactions, net 39,873 50,821 57,628 13,676 14,450" 13,242" 16,315 13,625 7 Investment income, net 19,287 16,429 10,062 2,458 4,394r 1,851" 2,977 839 8 U.S. government grants -17,597 24,487 -13,832 78 -2,620 -3,085 -2,521 -5,605 9 U.S. government pensions and other transfers -2,945 -3,462 -3,736 -1,080 -830" -1,119" -941 -846 10 Private remittances and other transfers -12,374 -12,9% -13,793 -3,271 -3,481" -3,541" -3,388 -3,382 11 Change in U.S. government assets other than official reserve assets, net (increase, -) 2,304 3,397 -959 -437 -38 -277 -301 -344 12 Change in U.S. official reserve assets (increase, -) -2,158 5,763 3,901 1,225 -1,057 1,464 1,952 1,542 13 Gold 0 0 0 0 0 0 0 0 14 Special drawing rights (SDRs) -192 -177 2,316 -23 -172 -168 -173 2,829 15 Reserve position in International Monetary Fund 731 -367 -2,692 17 111 1 -118 -2,685 16 Foreign currencies -2,697 6,307 4,277 1,232 -996 1,631 2,243 1,398 17 Change in U.S. private assets abroad (increase, -) -56,467 -71,379 -47,843 -44,947 —3,614r -1,610" -22,892 -19,726 18 Bank-reported claims 7,469 -4,753 32,372 -23,219 15,859 10,943 -1,274 6,844 19 Nonbank-reported claims -2,477 5,526 3,742 1,269 4,764 3,137 -4,159 20 U.S. purchases of foreign securities, net -28,765 -45,017 -48,646 -11,305 -8,703 -8,221 -13,934 -17,788 21 U.S. direct investments abroad, net -32,694 -27,135 -35,311 -11,692 -15,534r -7,469" -3,525 -8,782 22 Change in foreign official assets in United States (increase, +) .. 33,908 18,407 40,307 12,819 21,192 20,895 -7,269 5,489 23 U.S. Treasury securities 29,576 15,815 18,333 12,619 14,909 11,126 -323 -7,379 24 Other U.S. government obligations 667 1,301 4,025 1,075 540 1,699 912 874 25 Other U.S. government liabilities 1,866 1,600 2,469 -344 96 598 929 846 26 Other U.S. liabilities reported by U.S. banks3 3,385 -1,668 16,168 -914 5,534 7,547 -7,787 10,874 27 Other foreign official assets -1,586 1,359 -688 383 113 -75 -1,000 274 28 Change in foreign private assets in United States (increase, +).. 65,471 48,573 80,093 36,110 -2,577" 26,571" 29,246 26,854 29 U.S. bank-reported liabilities 16,370 -13,678 14,667 23,465 -4,474 -551 22,905 -3,213 30 U.S. nonbank-reported liabilities 4,906 -405 4,413 725 1,942 1,141 1,330 31 Foreign private purchases of U.S. Treasury securities, net -2,534 16,241 35,077 1,408 -828 10,286 4,870 20,749 32 Foreign purchases of other U.S. securities, net 1,592 34,918 29,884 4,832 4,551 10,333 2,693 12,307 33 Foreign direct investments in United States, net 45,137 11,498 -3,948 5,680 -3,768" 5,362" -2,552 -2,989 34 Allocation of special drawing rights 0 0 0 0 0 0 0 0 35 Discrepancy 2,447 -7,532" -28,764" 15,035 8,205 36 Due to seasonal adjustment 47,370 -1,078 -13,052 613 4,901" 1,2%" -6,640 439 37 Before seasonal adjustment 1,835 -12,433 -30,060 21,675 7,767 47,370 - i ,078 -13,051 MEMO Changes in official assets 38 U.S. official reserve assets (increase, -) -2,158 5,763 3,901 1,225 -1,057 1,464 1,952 1,542 39 Foreign official assets in United States, excluding line 25 (increase, +) 32,042 16,807 37,838 13,163 21,096 20,297 -8,198 4,643 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line 22) 1,707 -5,604 5,402 1,023 2,459 -2,125 3,062 2,006 1. Seasonal factors not calculated for lines 12-16, 18-20, 22-34, and 38-40. 4. Associated primarily with military sales contracts and other transactions 2. Data are on an international accounts basis. The data differ from the Census arranged with or through foreign official agencies. basis data, shown in table 3.11, for reasons of coverage and timing. Military 5. Consists of investments in U.S. corporate stocks and in debt securities of exports are excluded from merchandise trade data and are included in line 6. private corporations and state and local governments. 3. Reporting banks include all types of depository institution as well as some SOURCE. U.S. Department of Commerce, Survey of Current Business. brokers and dealers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A54 International Statistics • May 1993 3.11 U. S. FOREIGN TRADE1 Millions of dollars; monthly data seasonally adjusted 1992 1993 IItteemm 11999900 11999911 11999922 July Aug. Sept. Oct. Nov. Dec/ Jan." 1 Exports of domestic and foreign merchandise, excluding grant-aid shipments 393,592 421,730 448,115 37,806 35,799 37,882 39,072 3388,,118877 39,671 37,008 2 General imports including merchandise for immediate consumption plus entries into bonded warehouses 495,311 487,129 532,380 45,170 44,974 46,551 46,324 45,535 46,562 44,311 3 Trade balance -101,718 -65,399 -84,265 -7,364 -9,174 -8,669 -7,252 -7,348 -6,891 -7,303 1. Government and nongovernment shipments of merchandise between foreign the United States. Since Jan. 1, 1987, merchandise trade data have been released countries and the fifty states, including the District of Columbia, Puerto Rico, the forty-five days after the end of the month; the previous month is revised to reflect U.S. Virgin Islands, and U.S. Foreign Trade Zones. Data exclude (1) shipments late documents. among the United States, Puerto Rico, the U.S. Virgin Islands, and other U.S. Data in this table differ from figures for merchandise trade shown in the U.S. affiliated insular areas, (2) shipments to U.S. Armed Forces and diplomatic balance of payments accounts (table 3.10, lines 2 to 4) primarily for reasons of missions abroad for their own use, (3) U.S. goods returned to the United States by coverage. For both exports and imports a large part of the difference is the its Armed Forces, (4) personal and household effects of travelers, and (5) treatment of military sales and purchases. The military sales to foreigners in-transit shipments. Data reflect the total arrival of merchandise from foreign (exports) and purchases from foreigners (imports) that are included in this table as countries that immediately entered consumption channels, warehouses, or U.S. merchandise trade are shifted, in the balance of payments accounts, from Foreign Trade Zones (general imports). Import data are Customs value; export "merchandise trade" into the broader category "military transactions." data are F.A.S. value. Beginning in 1990, data for U.S. exports to Canada are SOURCE. FT900, U.S. Merchandise Trade, (U.S. Department of Commerce, derived from import data compiled by Canada; similarly, in Canadian statistics, Bureau of the Census). Canadian exports to the United States are derived from import data compiled by 3.12 U.S. RESERVE ASSETS Millions of dollars, end of period 1992 1993 Asset 1989 1990 1991 Aug. Sept. Oct. Dec.' Jan. 1 Total 74,609 83,316 77,719 78,474 78,527 74,207 72,231 71,323 71,962 2 Gold stock, including Exchange Stabilization Fund 11,059 11,058 11,057 11,059 11,059 11,060 11,059 11,056 11,055 3 Special drawing rights2,3 9,951 10,989 11,240 12,193 12,111 11,561 11,495 8,503 8,546 4 Reserve position in International Monetary Fund2 9,048 9,076 9,488 9,762 9,778 9,261 8,781 11,759 12,079 5 Foreign currencies 44,551 52,193 45,934 45,460 45,579 42,325 40,8% 40,005 40,282 1. Gold held "under earmark" at Federal Reserve Banks for foreign and 5 currencies have been used. U.S. SDR holdings and reserve positions in the IMF international accounts is not included in the gold stock of the United States; see also have been valued on this basis since July 1974. table 3.13, line 3. Gold stock is valued at $42.22 per fine troy ounce. 3. Includes allocations of SDRs by the International Monetary Fund on Jan. 1 2. Special drawing rights (SDRs) are valued according to a technique adopted of the year indicated, as follows: 1970—$867 million; 1971—$717 million; 1972— by the International Monetary Fund (IMF) in July 1974. Values are based on a $710 million; 1979—$1,139 million; 1980—$1,152 million; 1981—$1,093 million; weighted average of exchange rates for the currencies of member countries. From plus net transactions in SDRs. July 1974 through December 1980, 16 currencies were used; since January 1981, 4. Valued at current market exchange rates. 3.13 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS1 Millions of dollars, end of period 1992 1993 AAsssseett 11998899 11999900 11999911 Aug. Sept. Oct. Nov. Dec. Jan. Feb.p 1 Deposits 589 369 968 297 546 415 229 205 325 2% Held in custody 2 U.S. Treasury securities 224,911 278,499 281,107 318,328 306,971 311,538 308,959 314,481 324,356 329,183 3 Earmarked gold3 13,456 13,387 13,303 13,261 13,241 13,201 13,192 13,686 13,077 13,074 1. Excludes deposits and U.S. Treasury securities held for international and 3. Held for foreign and international accounts and valued at $42.22 per fine regional organizations. troy ounce; not included in the gold stock of the United States. 2. Marketable U.S. Treasury bills, notes, and bonds and nonmarketable U.S. Treasury securities payable at face value in dollars or foreign currencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A55 3.14 FOREIGN BRANCHES OF U.S. BANKS Balance Sheet Data1 Millions of dollars, end of period 1992 1993 AAccccoouunntt 11998899 1990 11999911 July Aug." Sept." Oct." Nov. Dec. Jan. ASSETS All foreign countries 1 Total payable in any currency 545,366 556,925 548,901 537,690" 544,887 545,388 554,253 566,721" 542,206" 543,760 7 198,835 188,496 176,301 171,977" 163,103 167,419 174,986 177,443" 166,752" 169,278 3 157,092 148,837 137,509 136,287 128,267 134,119 138,940 141,542" 132,229" 134,217 4 Other banks in United States 17,042 13,296 12,884 9,576 9,181 8,083 10,683 10,019" 9,703" 9,571 5 24,701 26,363 25,908 26,114" 25,655 25,217 25,363 25,882 24,820" 25,490 6 300,575 312,449 303,934 311,746" 321,707 320,111 319,139 328,592" 318,074" 314,737 7 Other branches of parent bank 113,810 135,003 111,729 112,177 116,604 118,952 115,521 125,143 123,253" 116,325 8 90,703 72,602 81,970 85,142" 87,347 83,756 86,560 86,086" 82,199" 81,811 9 16,456 17,555 18,652 19,670" 20,450 20,511 20,809 20,378 20,727 19,984 10 79,606 87,289 91,583 94,757" 97,306 96,892 96,249 96,985 91,895 96,617 11 Other assets 45,956 55,980 68,666 53,967" 60,077 57,858 60,128 60,686" 57,380" 59,745 12 Total payable in U.S. dollars 382,498 379,479 363,941 349,330" 341,109 347,181 364,080 374,398" 365,764" 353,564 N Claims on United States 191,184 180,174 169,662 166,573" 157,469 161,463 169,290 171,938" 162,079" 164,681 14 Parent bank 152,294 142,962 133,476 133,120 124,737 130,446 136,156 138,424" 129,283" 131,553 15 Other banks in United States 16,386 12,513 12,025 9,135 8,876 7,476 9,360 9,291" 9,266" 9,214 16 Nonbanks 22,504 24,699 24,161 24,318" 23,856 23,541 23,774 24,223 23,530" 23,914 17 Claims on foreigners 169,690 174,451 167,010 163,008" 161,663 166,762 173,457 182,347" 183,565" 171,041 18 Other branches of parent bank 82,949 95,298 78,114 72,250 70,689 72,348 76,098 83,902 83,128" 77,606 19 48,396 36,440 41,635 41,718 40,350 42,274 45,436 45,931" 47,250" 41,450 7 7 0 1 Nonbank foreigners 2 1 7 0 , , 3 9 8 6 4 1 3 1 0 2 , , 4 2 1 9 5 8 3 1 3 3 , , 5 68 7 5 6 3 1 5 3 , , 6 3 9 4 7 3 " " 3 1 6 3 , , 9 6 3 8 8 6 3 1 8 3 , , 1 9 5 90 0 3 1 7 3 , , 9 9 5 6 7 6 3 1 8 3 , , 5 9 1 9 9 5 3 1 8 4 , , 8 3 7 1 4 3 3 1 8 3 , , 1 8 0 8 2 3 22 Other assets 21,624 24,854 27,269 19,749" 21,977 18,956 21,333 20,113" 20,120" 17,842 United Kingdom 23 Total payable in any currency 161,947 184,818 175,599 159,241" 165,754 161,966 168,063 168,333 165,591 164,360 7 7 4 5 3 35 9 , , 8 2 4 1 7 2 4 4 2 5 , , 4 5 1 6 3 0 3 3 5 1 , , 2 9 5 3 7 1 3 35 8 , , 5 7 4 6 2 3 3 3 7 4 , , 5 5 1 9 1 3 3 3 5 2 , , 8 9 9 2 1 9 3 3 9 6 , , 5 4 5 1 8 3 3 3 8 5 , , 3 0 5 2 8 7 3 3 6 3, , 4 4 6 0 0 3 " 3 3 7 4 , , 6 2 0 9 9 0 76 Other banks in United States 1,058 792 1,267 1,065 744 1,067 1,400 925 1,298" 886 77 Nonbanks 2,307 2,355 2,059 2,156 2,174 1,895 1,745 2,406 1,645 2,433 78 Claims on foreigners 107,657 115,536 109,692 105,990 108,895 107,675 109,919 113,193 111,623 108,362 79 Other branches of parent bank 37,728 46,367 35,735 35,359 37,732 38,894 40,594 45,092 46,165 42,894 30 36,159 31,604 36,394 36,777 37,711 36,039 36,701 34,559 33,399 33,513 31 Public borrowers 3,293 3,860 3,306 3,128 3,046 3,371 3,692 3,370 3,329 3,059 37 30,477 33,705 34,257 30,726 30,406 29,371 28,932 30,172 28,730 28,8% 33 Other assets 15,078 23,722 30,650 14,488" 19,348 18,400 18,586 16,782 17,565 18,389 34 Total payable in U.S. dollars 103,208 116,762 105,974 98,779" 99,661 100,664 107,342 109,479 109,449 101,209 35 36,404 41,259 32,418 36,133 34,948 33,618 37,359 35,956 34,508 35,481 36 34,329 39,609 30,370 33,936 32,786 31,578 35,299 33,765 32,186" 33,070 3 37 8 Other banks in United States 1,2 8 3 4 2 3 1,3 3 1 3 6 4 1,2 8 2 2 6 2 1,4 7 1 8 2 5 1, 6 5 2 3 5 7 1,3 7 2 1 9 1 1,2 7 9 6 1 9 1,7 43 5 8 3 1 1 , ,0 3 2 0 2 0 " 1, 6 7 8 2 4 7 39 Claims on foreigners 59,062 63,701 58,791 56,264 55,812 59,338 61,658 65,164 66,335 59,339 40 Other branches of parent bank 29,872 37,142 28,667 26,751 26,825 28,225 30,217 34,434 34,124 30,823 41 16,579 13,135 15,219 15,930 15,565 16,800 17,269 16,848 17,089 14,150 4 4 4 4 ? 3 Ot N he o r n a b s a s n e k ts f oreigners 1 7 2 0 , , , 7 3 2 4 7 4 2 1 0 1 1 3 1 0 , , , 1 8 2 4 0 8 3 2 1 1 1 2 4 2 , , , 8 7 0 5 6 5 3 5 2 1 6 2 0 , , , 3 6 9 8 5 3 2 3 0 " 1 2 8 1 , , , 9 3 0 0 5 6 1 3 9 1 2 7 1 , , , 6 7 7 0 0 0 4 8 9 1 2 8 1 , , , 5 3 6 1 2 5 5 5 7 1 2 8 1 , , , 5 3 3 0 5 8 1 9 1 1 2 8 2 , , , 6 3 7 0 4 7 6 9 3 1 2 6 2 , , , 1 3 2 5 8 1 4 9 2 Bahamas and Cayman Islands 45 Total payable in any currency 176,006 162,316 168,326 153,928" 144,327 145,786 154,293 156,176" 147,422" 144,894 46 124,205 112,989 115,244 102,916" 94,659 96,911 102,726 104,245" 96,280" %,976 4 4 7 8 Other banks in United States 8 1 7 5 , , 8 0 8 7 2 1 7 1 7 1 , , 8 8 7 6 3 9 8 1 1 0 , , 5 9 2 0 0 7 7 8 2 , , 0 1 4 0 5 7 64 8 , , 4 0 5 6 4 0 6 6 8 , , 5 3 6 0 2 9 7 8 2 , , 1 2 9 0 9 7 73 8, , 2 8 8 5 2 6 " " 66 7 , , 6 8 0 2 8 8 " " 6 7 7, , 2 % 1 2 9 41 21,252 23,247 22,817 22,764" 22,145 22,040 22,320 22,107 21,844 21,795 50 Claims on foreigners 44,168 41,356 45,229 42,054" 41,486 41,884 42,844 44,156" 44,509" 41,185 51 Other branches of parent bank 11,309 13,416 11,098 8,678 8,596 7,753 7,287 8,238 7,293 7,041 5? 22,611 16,310 20,174 18,838" 17,570 18,412 19,840 20,122" 21,212" 18,464 53 Public borrowers 5,217 5,807 7,161 6,753" 7,152 7,128 7,146 7,209 7,786 7,564 54 Nonbank foreigners 5,031 5,823 6,796 7,785" 8,168 8,591 8,571 8,587 8,218 8,116 55 Other assets 7,633 7,971 7,853 8,958" 8,182 6,991 8,723 7,775" 6,633" 6,733 56 Total payable in U.S. dollars 170,780 158,390 163,771 148,139" 138,584 140,104 149,304 151,436" 142,861" 140,332 1. Since June 1984, reported claims held by foreign branches have been million to $150 million equivalent in total assets, the threshold now applicable to reduced by an increase in the reporting threshold for "shell" branches from $50 all reporting branches. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A56 International Statistics • May 1993 3.14 FOREIGN BRANCHES OF U.S. BANKS Balance Sheet Data1—Continued 1992 1993 AAccccoouunntt 11998899 11999900 11999911 July Aug.r Sept.r Oct/ Nov. Dec. Jan. LIABILITIES All foreign countries 57 Total payable in any currency 545,366 556,925 548,901 537,690' 544,887 545,388 554,253 566,721r 542,206r 543,760 58 Negotiable certificates of deposit (CDs) 23,500 18,060 16,284 12,758 14,246 12,389 12,056 12,342 10,032 12,320 59 To United States 197,239 189,412 198,121 192,319r 179,476 185,380 188,979 188,004r 189,263r 176,112 60 Parent bank 138,412 138,748 136,431 133,212r 126,976 127,573 132,999 131,806* 134,158*" 122,512 61 Other banks in United States 11,704 7,463 13,260 11,833 10,971 12,408 12,281 13,392r 12,182r 12,829 62 Nonbanks 47,123 43,201 48,430 47,274r 41,529 45,399 43,699 42,806r 42,923r 40,771 63 To foreigners 296,850 311,668 288,254 301,948r 314,823 312,390 315,400 330,314 309,4%r 321,052 64 Other branches of parent bank ... 119,591 139,113 112,033 114,226 120,509 120,714 118,001 126,018 125,144 119,903 65 Banks 76,452 58,986 63,097 65,422r 68,522 68,493 70,439 74,536 62,185r 68,118 66 Official institutions 16,750 14,791 15,596 18,058 18,237 16,720 20,572 20,645 19,730 23,655 67 Nonbank foreigners 84,057 98,778 97,528 104,242r 107,555 106,463 106,388 109,115 102,437 109,376 68 Other liabilities 27,777 37,785 46,242 30,665r 36,342 35,229 37,818 36,061 33,415 34,276 69 Total payable in U.S. dollars 396,613 383,522 370,561 354,497r 346,223 346,581 364,969 372,320r 368,212r 353,450 70 Negotiable CDs 19,619 14,094 11.909 8,531 8,755 7,628 6,710 7,503 6,238 7,102 71 To United States 187,286 175,654 185,286 179,627r 166,609 171,086 176,013 175,857r 178,562r 164,595 72 Parent bank 132,563 130,510 129,669 125,808r 119,521 119,714 125,491 124,658r 127,836r 115,894 73 Other banks in United States 10,519 6,052 11,707 10,816 9,866 11,117 11,409 12,246r ll,512r 11,710 74 Nonbanks 44,204 39,092 43.910 43,003r 37,222 40,255 39,113 38,953r 39,214r 36,991 75 To foreigners 176,460 179,002 158,993 155,355r 157,482 155,266 165,960 175,293 171,624 169,077 76 Other branches of parent bank ... 87,636 98,128 76,601 73,699 74,060 73,208 77,197 82,957 83,700 78,869 77 Banks 30,537 20,251 24,156 22,956r 22,973 22,822 25,210 28,404 26,118 23,556 78 Official institutions 9,873 7,921 10,304 11,543 10,713 9,939 12,097 12,342 12,430 14,094 79 Nonbank foreigners 48,414 52,702 47,932 47,157r 49,736 49,297 51,456 51,590 49,376 52,558 80 Other liabilities 13,248 14,772 14,373 10,984r 13,377 12,601 16,286 13,667 11,788 12,676 United Kingdom 81 Total payable in any currency .. 161,947 184,818 175,599 159,241r 165,754 161,966 168,063 168,333 165,591 164,360 82 Negotiable CDs 20,056 14,256 11,333 7,731 8,083 7,266 6,064 5,636 4,517 5,774 83 To United States 36,036 39,928 37,720 37,164 35,527 35,885 35,399 34,532 39,174r 33,028 84 Parent bank 29,726 31,806 29,834 29,104 27,695 27,528 27,427 26,471 31,100* 25,098 85 Other banks in United States 1,256 1,505 1,438 1,315 1,632 1,670 1,341 1,689 1,065 1,742 86 Nonbanks 5,054 6,617 6,448 6,745 6,200 6,687 6,631 6,372 7,009* 6,188 87 To foreigners 92,307 108,531 98,167 100,738 104,892 101,999 109,358 113,395 107,176* 111,103 88 Other branches of parent bank 27,397 36,709 30,054 30,205 31,234 30,756 33,696 35,560 35,983 35,376 89 Banks 29,780 25,126 25,541 25,155 26,435 25,823 28,792 30,609 25,231* 25,%5 90 Official institutions 8,551 8,361 9,670 11,091 10,699 9,131 11,687 11,438 12,090 14,188 91 Nonbank foreigners 26,579 38,335 32,902 34,287 36,524 36,289 35,183 35,788 33,872 35,574 92 Other liabilities 13,548 22,103 28,379 13,608r 17,252 16,816 17,242 14,770 14,724 14,455 93 Total payable in U.S. dollars 108,178 116,094 108,755 97,161r 98,698 95,652 104,521 105,699 108,170r 100,731 94 Negotiable CDs 18,143 12,710 10,076 6,139 5,890 5,689 4,213 4,494 3,894 4,770 95 To United States 33,056 34,697 33,003 32,178 30,357 30,330 31,266 30,204 35,417* 28,619 96 Parent bank 28,812 29,955 28,260 27,351 25,873 25,700 26,021 25,160 29,957* 23,766 97 Other banks in United States 1,065 1,156 1,177 857 1,088 992 866 906 709 1,063 98 Nonbanks 3,179 3,586 3,566 3,970 3,3% 3,638 4,379 4,138 4,751* 3,790 99 To foreigners 50,517 60,014 56,626 52,894 54,381 51,916 59,938 62,899 62,048 60,033 100 Other branches of parent bank 18,384 25,957 20,800 18,634 18,983 17,986 22,080 22,8% 22,026 20,807 101 Banks 12,244 9,488 11,069 9,399 9,289 9,112 10,956 13,050 12,540 9,740 102 Official institutions 5,454 4,692 7,156 7,808 6,956 6,156 8,142 8,459 8,847 10,114 103 Nonbank foreigners 14,435 19,877 17,601 17,053 19,153 18,662 18,760 18,494 18,635 19,372 104 Other liabilities 6,462 8,673 9,050 5,950r 8,070 7,717 9,104 8,102 6,811 7,309 Bahamas and Cayman Islands 105 Total payable in any currency .. 176,006 162,316 168,326 153,928r 144,327 145,786 154,293 156,176r 147,422r 144,894 106 Negotiable CDs 678 646 1,173 1,330 1,814 872 1,394 1,939 1,350 1,355 107 To United States 124,859 114,738 129,872 115,821r 106,049 109,296 114,327 116,587r 111,74^ 108,037 108 Parent bank 75,188 74,941 79,394 67,517r 64,190 63,057 69,537 71,269r 67,235r 65,009 109 Other banks in United States 8,883 4,526 10,231 9,641 8,522 9,801 10,303 10,944r 10,445r 10,265 110 Nonbanks 40,788 35,271 40,247 38,663r 33,337 36,438 34,487 34,374r 34,069r 32,763 111 To foreigners 47,382 44,444 35,200 35,141r 34,883 34,060 34,896 35,411 32,556 33,766 112 Other branches of parent bank 23,414 24,715 17,388 17,668 17,315 16,071 15,441 16,287 15,169 15,411 113 Banks 8,823 5,588 5,662 6,393r 6,244 6,788 6,988 7,574 6,422 6,350 114 Official institutions 1,097 622 572 862 935 984 1,058 932 805 932 115 Nonbank foreigners 14,048 13,519 11,578 10,218r 10,389 10,217 11,409 10,618 10,160 11,073 116 Other liabilities 3,087 2,488 2,081 1,636 1,581 1,558 3,676 2,239 1,767 1,736 117 Total payable in U.S. dollars 171,250 157,132 163,603 148,979r 139,100 140,298 149,320 151,527r 143,150r 140,734 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A57 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1992 1993 IItteemm 11999900 11999911 July Aug. Sept. Oct. Nov. Dec/ Jan." 1 Total1 344,529 360,530 404,162 406,671 393,758 405,385 394,940" 398,340 411,617 By type 2 Liabilities reported by banks in the United States^ 39,880 38,396 48,879 52,078 43,675 60,853 54,102r 54,493 63,603 3 U.S. Treasury bills and certificates3 79,424 92,692 114,781 113,307 113,634 104,286 100,702 104,598 111,540 U.S. Treasury bonds and notes 4 Marketable 202,487 203,677 212,710 213,407 208,924 211,875 211,272 210,549 207,578 5 Nonmarketable 4,491 4,858 4,582 4,476 4,505 4,473 4,503 4,532 4,562 6 U.S. securities other than U.S. Treasury securities5 18,247 20,907 23,210 23,403 23,020 23,898 24,361 24,168 24,334 By area 7 Western Europe1 167,191 168,365 194,465 196,061 186,434 194,611 184,307r 188,684 196,107 8 Canada 8,671 7,460 9,876 9,990 7,027 8,111 6,381 7,870 8,361 9 Latin America and Caribbean 21,184 33,554 39,146 38,356 37,703 38,538 38,945r 39,770 41,371 10 Asia 138,096 139,465 150,043 151,785 151,667 153,555 154,493 152,148 156,211 11 Africa 1,434 2,092 3,218 2,860 3,360 3,481 3,779 3,565 3,705 12 Other countries6 7,955 9,592 7,412 7,617 7,565 7,087 7,033 6,301 5,860 1. Includes the Bank for International Settlements. 5. Debt securities of U.S. government corporations and federally sponsored 2. Principally demand deposits, time deposits, bankers acceptances, commer- agencies, and U.S. corporate stocks and bonds. cial paper, negotiable time certificates of deposit, and borrowings under repur- 6. Includes countries in Oceania and Eastern Europe. chase agreements. SOURCE. Based on Treasury Department data and on data reported to the 3. Includes nonmarketable certificates of indebtedness (including those payable Treasury Department by banks (including Federal Reserve Banks) and securities in foreign currencies through 1974) and Treasury bills issued to official institutions dealers in the United States and on the 1984 benchmark survey of foreign portfolio of foreign countries. investment in the United States. 4. Excludes notes issued to foreign official nonreserve agencies. Includes bonds and notes payable in foreign currencies; zero coupon bonds are included at current value. 3.16 LIABILITIES TO, AND CLAIMS ON, FOREIGNERS Reported by Banks in the United States1 Payable in Foreign Currencies Millions of dollars, end of period 1992 IItteemm 11998899 11999900 11999911 Mar. June Sept. Dec. 1 Banks' liabilities 67,835 70,477 75,129 68,071 70,842 85,723r 73.047 2 Banks' claims 65,127 66,796 73,195 60,435 58,262 73,174 62,654 3 Deposits 20,491 29,672 26,192 23,270 23,462 29,412 24.048 4 Other claims 44,636 37,124 47,003 37,165 34,800 43,762 38,606 5 Claims of banks' domestic customers 3,507 6,309 3,398 2,962 4,375 3,908 4,432 1. Data on claims exclude foreign currencies held by U.S. monetary 2. Assets owned by customers of the reporting bank located in the United authorities. 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

A58 International Statistics • May 1993 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States1 Payable in U.S. dollars Millions of dollars, end of period 1992 1993 IItteemm 11999900 11999911 11999922rr July Aug. Sept. Oct. Nov. Dec.r Jan." HOLDER AND TYPE OF LIABILITY 1 Total, all foreigners 759,634 756,066 806,498 777,058 768,819 793,159 793,149 799,455r 806,498 800,972 2 Banks' own liabilities 577,229 575,374 602,780 571,516 564,071 585,806 590,768 601,022r 602,780 591,590 3 Demand deposits 21,723 20,321 21,627 19,739 21,698 22,474 21,288 21,918r 21,627 21,105 4 Time deposits 168,017 159,649 160,756 148,254 144,119 143,768 158,180 157,418r 160,756 151,010 5 Other. 65,822 66,305 93,463 82,953 86,611 82,484 91,673 95,659" 93,463 102,714 6 Own foreign offices4 321,667 329,099 326,934 320,570 311,643 337,080 319,627 326,027r 326,934 316,761 7 Banks' custodial liabilities5 182,405 180,692 203,718 205,542 204,748 207,353 202,381 198,433 203,718 209,382 8 U.S. Treasury bills and certificates 96,796 110,734 127,652 135,579 135,744 134,894 112277,,999933 112222,,448800 112277,,665522 113333,,884422 9 Other negotiable and readily transferable instruments7 17,578 18,664 21,974 19,339 18,541 19,341 19,954 21,699 21,974 22,924 10 Other 68,031 51,294 54,092 50,624 50,463 53,118 54,434 54,254 54,092 52,616 11 Nonmonetary international and regional organizations 5,918 8,981 9,354 11,321 12,874 10,810 10,736 9,754r 9,354 10,730 12 Banks' own liabilities 4,540 6,827 6,955 8,192 9,767 8,173 7,010 6,821r 6,955 7,468 13 Demand deposits 36 43 46 24 21 24 73 58 46 39 14 Time deposits 1,050 2,714 3,328 3,008 2,630 2,527 1,908 2,570 3,328 2,631 15 Other3 3,455 4,070 3,581 5,160 7,116 5,622 5,029 4,193r 3,581 4,798 16 Banks' custodial liabilities5 1,378 2,154 2,399 3,129 3,107 2,637 3,726 2,933 2,399 3,262 17 U.S. Treasury bills and certificates6 364 1,730 1,908 2,602 2,654 1,991 33,,008855 22,,337711 11,,990088 22,,777744 18 Other negotiable and readily transferable instruments7 1,014 424 486 527 453 646 641 561 486 488 19 Other 0 0 5 0 0 0 0 1 5 0 20 Official institutions9 119,303 131,088 159,091 163,660 165,385 157,309 165,139 154,804r 159,091 175,143 21 Banks' own liabilities 34,910 34,411 50,728 45,334 48,526 40,524 57,145 50,122r 50,728 59,388 22 Demand deposits 1,924 2,626 1,274 1,372 1,676 1,761 1,723 1,492 1,274 1,3% 23 Time deposits 14,359 16,504 17,528 18,129 18,098 16,238 19,703 17,934r 17,528 18,726 24 Other . 18,628 15,281 31,926 25,833 28,752 22,525 35,719 30,696r 31,926 39,266 25 Banks' custodial liabilities5 84,393 96,677 108,363 118,326 116,859 116,785 107,994 104,682 108,363 115,755 26 U.S. Treasury bills and certificates6 79,424 92,692 104,598 114,781 113,307 113,634 110044,,228866 110000,,770022 110044,,559988 111,540 27 Other negotiable and readily transferable instruments 4,766 3,879 3,726 3,459 3,466 2,922 3,595 3,784 3,726 4,054 28 Other 203 106 39 86 86 229 113 1% 39 161 29 Banks10 540,805 522,265 543,338 514,526 501,804 536,759 525,448 544,396r 543,338 521,815 30 Banks' own liabilities 458,470 459,335 472,221 448,210 435,147 466,796 454,496 473,449r 472,221 453,133 31 Unaffiliated foreign banks 136,802 130,236 145,287 127,640 123,504 129,716 134,869 147,422r 145,287 136,372 32 Demand deposits 10,053 8,648 10,033 8,442 9,851 10,443 9,741 10,088 10,033 9,920 33 Time deposits 88,541 82,857 90,780 77,229 73,175 74,447 86,312 88,187 90,780 81,373 34 Other3 38,208 38,731 44,474 41,969 40,478 44,826 38,816 49,147r 44,474 45,079 35 Own foreign offices4 321,667 329,099 326,934 320,570 311,643 337,080 319,627 326,027r 326,934 316,761 36 Banks' custodial liabilities5 82,335 62,930 71,117 66,316 66,657 69,963 70,952 70,947 71,117 68,682 37 U.S. Treasury bills and certificates6 10,669 7,471 11,087 9,444 10,429 10,905 1100,,448811 1100,,444444 11,087 9,641 38 Other negotiable and readily transferable instruments7 5,341 5,694 7,561 7,129 6,920 7,373 7,276 7,516 7,561 7,661 39 Other 66,325 49,765 52,469 49,743 49,308 51,685 53,195 52,987 52,469 51,380 40 Other foreigners 93,608 93,732 94,715 87,551 88,756 88,281 91,826 90,501r 94,715 93,284 41 Banks' own liabilities 79,309 74,801 72,876 69,780 70,631 70,313 72,117 70,630r 72,876 71,601 42 Demand deposits 9,711 9,004 10,274 9,901 10,150 10,246 9,751 10,280" 10,274 9,750 43 Time deposits 64,067 57,574 49,120 49,888 50,216 50,556 50,257 48,727r 49,120 48,280 44 Other 5,530 8,223 13,482 9,991 10,265 9,511 12,109 ll,623r 13,482 13,571 45 Banks' custodial liabilities5 14,299 18,931 21,839 17,771 18,125 17,968 19,709 19,871 21,839 21,683 46 U.S. Treasury bills and certificates6 6,339 8,841 10,059 8,752 9,354 8,364 1100,,114411 88,,996633 1100,,005599 99,,888877 47 Other negotiable and readily transferable instruments7 6,457 8,667 10,201 8,224 7,702 8,400 8,442 9,838 10,201 10,721 48 Other 1,503 1,423 1,579 795 1,069 1,204 1,126 1,070 1,579 1,075 MEMO 49 Negotiable time certificates of deposit in custody for foreigners 7,073 7,456 9,114 6,976 7,279 7,452 7,672 7,716 9,114 9,724 1. Reporting banks include all types of depository institution, as well as some 6. Includes nonmarketable certificates of indebtedness and Treasury bills brokers and dealers. issued to official institutions of foreign countries. 2. Excludes negotiable time certificates of deposit, which are included in 7. Principally bankers acceptances, commercial paper, and negotiable time "Other negotiable and readily transferable instruments." certificates of deposit. 3. Includes borrowing under repurchase agreements. 8. Principally the International Bank for Reconstruction and Development, the 4. For U.S. banks, includes amounts due to own foreign branches and foreign Inter-American Development Bank, and the Asian Development Bank. Excludes subsidiaries consolidated in Consolidated Report of Condition filed with bank "holdings of dollars" of the International Monetary Fund. regulatory agencies. For agencies, branches, and majority-owned subsidiaries of 9. Foreign central banks, foreign central governments, and the Bank for foreign banks, consists principally of amounts due to head office or parent foreign International Settlements. bank, and foreign branches, agencies, or wholly owned subsidiaries of head office 10. Excludes central banks, which are included in "Official institutions." or parent foreign bank. 5. Financial claims on residents of the United States, other than long-term securities, held by or through reporting banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank-Reported Data A59 3.17—Continued 1992 1993 IItteemm 11999900 11999911 11999922rr July Aug. Sept. Oct. Nov. Dec." Jan.P AREA 1 Total, ail foreigners 759,634 756,066 806,498 777,058 768,819 793,159 793,149 799,455' 806,498 800,972 2 Foreign countries 753,716 747,085 797,144 765,737 755,945 782,349 782,413 789,701' 797,144 790,242 3 254,452 249,097 308,400 283,144 289,388 290,344 306,499 311,864r 308,400 303,723 4 1,229 1,193 1,614 1,445 1,427 1,456 1,584 1,358 1,614 1,158 5 Belgium and Luxembourg 12,382 13,337 20,578 16,797 18,449 17,942 21,177 19,662' 20,578 21,255 6 1,399 937 3,059 1,348 1,329 1,760 1,788 1,481 3,059 1,885 7 602 1,341 1,300 720 976 685 949 1,144 1,300 1,862 8 30,946 31,808 41,452 28,900 29,456 32,153 34,876 39,%3 41,452 34,285 9 Germany 7,485 8,619 18,618 8,%7 11,032 14,739 13,810 15,401 18,618 20,764 1100 934 765 910 998 934 1,069 872 749 910 815 1111 Italy 17,735 13,541 10,038 10,164 10,992 12,236 11,104 12,494 10,038 8,750 1? 5,350 7,161 7,375 9,653 10,422 10,397 9,334 8,411 7,375 8,731 13 2,357 1,866 3,319 1,421 1,341 1,851 1,577 2,014 3,319 3,550 14 Portugal 2,958 2,184 2,465 2,659 2,664 2,245 2,258 2,255 2,465 2,518 15 7,544 11,391 9,790 15,313 14,904 15,589 14,602 10,383 9,790 14,864 16 1,837 2,222 3,043 3,710 4,162 3,194 5,313 4,485 3,043 2,%2 17 36,690 37,238 39,456 39,568 40,569 39,314 37,867 40,791 39,456 41,505 18 1,169 1,598 2,666 1,789 2,021 2,087 2,524 2,360 2,666 2,533 19 109,555 100,292 112,380 111,913 111,521 115,747 114,668 117,347' 112,380 106,688 70 Yugoslavia 928 622 504 547 554 567 577 575 504 506 71 Others in Western Europe 11,689 9,274 25,831 22,743 21,872 12,867 27,228 26,691 25,831 25,939 7? 119 241 581 609 525 499 450 601 581 436 23 Other Eastern Europe13 1,545 3,467 3,421 3,880 4,238 3,947 3,941 3,699 3,421 2,717 24 20,349 21,605 22,313 22,350 20,410 22,668 21,378 22,052 22,313 21,512 75 332,997 345,529 313,242 325,397 310,989 315,512 309,%3 309,794r 313,242 313,017 76 7,365 7,753 9,475 10,041 9,397 9,065 9,387 8,715 9,475 10,790 77 107,386 100,622 82,285 92,546 82,571 76,295 85,899 86,376r 82,285 84,682 78 2,822 3,178 7,079 4,848 4,782 4,275 5,889 6,355r 7,079 6,319 79 5,834 5,704 5,580 5,311 5,283 5,393 5,828 5,235 5,580 5,321 30 British West Indies 147,321 163,620 149,078 151,591 148,164 159,703 143,240 143,084" 149,078 146,659 31 Chile 3,145 3,283 3,030 3,605 3,393 3,440 3,253 2,925 3,030 3,638 3? 4,492 4,661 4,579 4,686 4,711 4,792 4,767 4,677 4,579 4,438 33 Cuba 11 2 3 12 9 33 10 11 3 2 34 1,379 1,232 987 1,074 1,214 1,073 1,026 1,016 987 945 35 1,541 1,594 1,375 1,420 1,432 1,416 1,376 1,323 1,375 1,311 36 257 231 371 271 272 309 274 271 371 294 37 Mexico 16,650 19,957 19,430 19,642 20,046 19,650 19,226 19,543 19,430 20,088 38 Netherlands Antilles 7,357 5,592 5,209 5,085 4,825 4,751 4,708 6,101 5,209 4,352 39 4,574 4,695 4,189 4,457 4,302 4,595 4,115 3,975 4,189 4,013 40 1,294 1,249 1,056 1,131 1,123 1,143 1,124 1,026 1,056 1,034 41 2,520 2,0% 1,955 2,163 2,182 2,019 2,087 2,092 1,955 1,887 47 12,271 13,181 11,370 11,080 10,802 11,101 11,504 11,003 11,370 11,107 43 Other 6,779 6,879 6,191 6,434 6,481 6,459 6,250 6,066r 6,191 6,137 44 136,844 120,462 143,165 124,905 125,215 144,145 134,327 136,104r 143,165 141,478 China 45 People's Republic of China 2,421 2,626 4,327 2,292 2,508 2,480 2,582 22,,555599"" 4,327 4,103 46 Republic of China (Taiwan) 11,246 11,491 7,221 10,277 10,362 9,430 8,617 8,751r 7,221 7,940 47 12,754 14,269 18,415 16,840 17,775 17,991 17,513 16,294r 18,415 17,495 48 1,233 2,418 1,369 1,567 1,480 1,372 1,234 1,210" 1,369 1,323 49 Indonesia 1,238 1,463 1,465 1,256 958 1,507 1,249 1,232 1,465 1,392 50 2,767 2,015 3,746 2,850 2,620 2,613 2,208 3,691 3,746 3,389 51 67,076 47,069 58,303 45,826 45,683 64,651 56,070 55,374 58,303 55,985 5? Korea (South) 2,287 2,587 3,336 3,288 3,644 3,672 3,531 3,685 3,336 3,415 53 Philippines 1,585 2,449 2,266 1,994 1,920 2,028 2,275 2,223r 2,266 2,350 54 1,443 2,252 5,565 4,017 4,624 4,517 5,082 5,797 5,565 5,722 55 Middle Eastern oil-exporting countries14 15,829 15,752 21,446 19,828 18,938 19,977 19,040 20,266 21,446 19,877 56 Other 16,965 16,071 15,706 14,870 14,703 13,907 14,926 15,022 15,706 18,487 57 4,630 4,825 5,855 5,516 5,314 5,592 5,843 6,062 5,855 5,913 58 Egypt 1,425 1,621 2,472 2,324 2,143 2,243 2,598 2,601 2,472 2,756 59 104 79 76 85 93 100 98 93 76 88 60 South Africa 228 228 189 269 275 190 240 214 189 158 61 53 31 19 17 24 14 24 23 19 32 6? Oil-exporting countries13 1,110 1,082 1,346 1,211 1,090 1,339 1,201 1,402 1,346 1,125 63 Other 1,710 1,784 1,753 1,610 1,689 1,706 1,682 1,729 1,753 1,754 64 Other 4,444 5,567 4,169 4,425 4,629 4,088 4,403 3,825 4,169 4,599 65 3,807 4,464 3,047 3,066 3,322 2,927 2,987 2,654 3,047 3,502 66 Other 637 1,103 1,122 1,359 1,307 1,161 1,416 1,171 1,122 1,097 67 Nonmonetary international and regional 5,918 8,981 9,354 11,321 12,874 10,810 10,736 9,754" 99,,335544 1100,,773300 6 6 9 8 International i 4 1 , , 3 0 9 4 0 8 6 1 , , 4 1 8 8 5 1 7 1 , , 4 4 3 1 4 9 7 2 , , 4 6 0 9 2 9 9 2 , , 6 3 5 1 1 9 7 2 , , 7 2 1 8 4 9 2 7 , , 1 6 3 8 9 9 2 6, , 5 2 9 5 4 7 " 7 1 , , 4 4 3 1 4 9 7 2, , 3 4 2 % 6 70 Other regional 479 1,315 501 1,220 904 807 908 903 501 908 11. Beginning December 1992, excludes Bosnia, Croatia, and Slovenia. 15. Comprises Algeria, Gabon, Libya, and Nigeria. 12. Includes the Bank for International Settlements and Eastern European 16. Principally the International Bank for Reconstruction and Development, countries not listed in line 23. Beginning December 1992, includes, in addition, all Excludes "holdings of dollars" of the International Monetary Fund. former parts of the U.S.S.R. (except Russia), and Bosnia, Hercegovina, Croatia, 17. Principally the Inter-American Development Bank. and Slovenia. 18. Asian, African, Middle Eastern, and European regional organizations, 13. Comprises Bulgaria, Czechoslovakia, Hungary, Poland, and Romania. except the Bank for International Settlements, which is included in "Other 14. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and Western Europe." United Arab Emirates (Trucial States). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A60 International Statistics • May 1993 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 1992 1993 AArreeaa aanndd ccoouunnttrryy 11999900 11999911 11999922rr July Aug. Sept. Oct. Nov. Dec." Jan." 1 Total, all foreigners 511,543 514,339 495,983 502,941 479,705 485,349 493,411 490,588r 495,983 483,637 2 Foreign countries 506,750 508,056 490,901 499,520 475,316 481,178 490,939 487,707r 490,901 480,640 3 Europe 113,093 114,310 124,058 124,453 119,126 117,235 126,109 122,048r 124,058 117,176 4 Austria 362 327 340 647 606 341 373 437" 340 365 5 Belgium and Luxembourg 5,473 6,158 6,384 6,475 6,344 7,524 6,971 6,423r 6,384 6,473 6 Denmark 497 686 707 951 901 1,007 825 1,056 707 705 7 Finland 1,047 1,907 1,414 1,269 1,081 1,299 817 1,230 1,414 1,275 8 France 14,468 15,112 14,847 14,154 13,011 15,004 16,081 15,698 14,847 14,012 9 Germany 3,343 3,371 4,229 3,870 4,707 4,074 5,628 5,327 4,229 5,543 10 Greece 727 553 718 590 619 606 601 598 718 669 11 Italy 6,052 8,242 9,048 10,508 9,876 9,487 9,754 9,443 9,048 8,716 12 Netherlands 1,761 2,546 2,492 2,042 2,075 1,980 2,334 3,006 2,492 2,927 13 Norway 782 669 356 731 707 639 666 435 356 649 14 Portugal 292 344 325 382 387 383 327 330 325 390 15 Spain 2,668 1,881 2,792 3,730 2,590 3,304 4,630 3,504 2,792 2,613 16 Sweden 2,094 2,335 4,981 5,967 6,567 5,494 6,698 5,786 4,981 5,340 17 Switzerland 4,202 4,540 4,671 3,683 3,934 3,112 3,698 3,590 4,671 4,437 18 Turkey 1,405 1,063 962 1,174 1,002 986 1,177 950 962 1,071 19 United Kingdom 65,151 60,395 63,916 62,800 58,861 56,456 60,191 58,921 63,916 56,168 20 Yugoslavia2 1,142 825 573 693 678 674 668 661 573 575 21 Others in Western Europe3 597 789 1,703 1,227 1,356 1,216 964 1,019 1,703 1,603 2.7 Russia 530 1,970 3,148 3,153 3,280 3,199 3,190 3,174 3,148 3,154 23 Other Eastern Europe 499 597 452 407 544 450 516 460r 452 491 24 Canada 16,091 15,113 14,166 17,429 15,151 15,902 16,826 15,830 14,166 16,471 25 Latin America and Caribbean 231,506 246,137 213,764 234,066 217,582 210,329 213,340 217,035r 213,764 218,452 26 Argentina 6,967 5,869 4,882 5,614 4,789 4,560 4,568 4,605r 4,882 4,804 27 Bahamas 76,525 87,138 59,507 74,806 62,615 58,502 64,848 65,139" 59,507 62,817 28 Bermuda 4,056 2,270 5,934 6,099 6,302 3,567 2,798 6,035" 5,934 6,797 29 Brazil 17,995 11,894 10,883 12,186 12,286 11,308 11,558 11,583 10,883 10,926 30 British West Indies 88,565 107,846 98,587 104,133 99,775 99,294 96,741 96,320" 98,587 100,934 31 Chile 3,271 2,805 3,397 3,118 3,220 3,320 3,340 3,309" 3,397 3,689 32 Colombia 2,587 2,425 2,748 2,398 2,322 2,475 2,595 2,698 2,748 2,752 33 Cuba 0 0 0 0 0 0 5 0 0 0 34 Ecuador 1,387 1,053 888 950 949 920 936 926 888 853 35 Guatemala 191 228 262 167 189 237 277 255 262 240 36 Jamaica 238 158 167 151 150 160 147 162 167 170 37 Mexico 14,851 16,567 15,049 16,341 16,564 17,313 16,666 16,495" 15,049 15,262 38 Netherlands Antilles 7,998 1,207 1,379 941 966 1,045 1,080 1,529 1,379 1,735 39 Panama 1,471 1,560 4,473 2,025 2,053 1,945 1,988 2,080" 4,473 1,980 40 Peru 663 739 730 708 708 732 721 723 730 779 41 Uruguay 786 599 936 749 799 921 882 877 936 895 47 Venezuela 2,571 2,516 2,527 2,360 2,585 2,654 2,702 2,880 2,527 2,429 43 Other 1,384 1,263 1,415 1,320 1,310 1,376 1,488 1,419" 1,415 1,390 44 Asia 138,722 125,262 131,650 115,933 116,509 130,614 127,228 112266,,111144 131,650 112211,,665566 China 45 People's Republic of China 620 747 1,409 642 696 636 978 624 1,409 774 46 Republic of China (Taiwan) 1,952 2,087 2,046 1,965 1,983 2,054 1,848 1,653 2,046 1,683 47 Hong Kong 10,648 9,617 9,646 9,103 8,015 10,087 9,127 9,268 9,646 9,125 48 India 655 441 529 512 528 499 500 539 529 529 49 Indonesia 933 952 1,189 1,090 1,108 1,089 1,112 1,135 1,189 1,326 50 Israel 774 860 820 901 920 800 826 937 820 877 51 Japan 90,699 84,807 78,530 71,120 71,469 83,201 80,091 77,666 78,530 74,556 57 Korea (South) 5,766 6,048 6,175 6,063 6,201 6,247 6,113 6,288 6,175 6,062 53 Philippines 1,247 1,910 2,145 1,635 1,775 1,852 2,181 2,034 2,145 1,871 54 Thailand 1,573 1,713 1,867 1,716 1,691 1,795 1,764 1,873 1,867 1,796 55 Middle Eastern oil-exporting countries 10,749 8,284 18,559 14,323 14,783 14,613 15,488 16,858 18,559 17,200 56 Other 13,106 7,796 8,735 6,863 7,340 7,741 7,200 7,239 8,735 5,857 57 Africa 5,445 4,928 4,287 4,452 4,455 4,333 4,303 4,233 4,287 4,262 58 Egypt 380 294 194 261 243 256 229 214 194 171 59 Morocco 513 575 441 496 483 467 452 443 441 421 60 South Africa 1,525 1,235 1,041 1,047 1,066 1,055 1,036 1,063 1,041 1,058 61 Zaire 16 4 4 4 4 4 4 4 4 3 62 Oil-exporting countries 1,486 1,298 1,004 1,157 1,130 1,067 1,056 1,029 1,004 1,078 63 Other 1,525 1,522 1,603 1,487 1,529 1,484 1,526 1,480 1,603 1,531 64 Other 1,892 2,306 2,976 3,187 2,493 2,765 3,133 2,447 2,976 2,623 65 Australia 1,413 1,665 2,263 1,937 1,463 1,765 1,951 1,601 2,263 1,896 66 Other 479 641 713 1,250 1,030 1,000 1,182 846 713 727 67 Nonmonetary international and regional organizations 4,793 6,283 55,,008822 3,421 4,389 4,171 2,472 2,881 5,082 2,997 1. Reporting banks include all types of depository institutions, as well as some 4. Comprises Bulgaria, Czechoslovakia, Hungary, Poland, and Romania. brokers and dealers. 5. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and 2. Beginning December 1992, excludes Bosnia, Croatia, and Slovenia. United Arab Emirates (Trucial States). 3. Includes the Bank for International Settlements and Eastern European 6. Comprises Algeria, Gabon, Libya, and Nigeria. countries not listed in line 23. Beginning December 1992, includes, in addition, all 7. Excludes the Bank for International Settlements, which is included in former parts of the U.S.S.R. (except Russia), and Bosnia, Hercegovina, Croatia, "Other Western Europe." and Slovenia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A61 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 1992 CCllaaiimm 11999900 11999911 11999922rr July Aug. Sept. Oct. Nov/ Dec/ Jan." 11 TToottaall 579,044 579,683 555,947 552,135 555,947 22 BBaannkkss'' ccllaaiimmss 511,543 514,339 495,983 502,941 479,705 485,349 493,411 490,588 495,983 483,637 33 FFoorreeiiggnn ppuubblliicc bboorrrroowweerrss 41,900 37,126 31,366 32,940 32,263 31,426 32,062 30,846 31,366 33,057 44 OOwwnn ffoorreeiiggnn ooffffiicceess 304,315 318,800 299,542 302,061 287,523 297,590 297,682 290,945 299,542 290,902 55 UUnnaaffffiilliiaatteedd ffoorreeiiggnn bbaannkkss 117,272 116,602 110,475 113,963 105,987 105,796 112,508 113,856 110,475 102,012 66 DDeeppoossiittss 65,253 69,018 61,133 62,897 56,294 54,316 60,876 62,114 61,133 53,615 77 OOtthheerr 52,019 47,584 49,342 51,066 49,693 51,480 51,632 51,742 49,342 48,397 88 AAllll ootthheerr ffoorreeiiggnneerrss 48,056 41,811 54,600 53,977 53,932 50,537 51,159 54,941 54,600 57,666 99 CCllaaiimmss ooff bbaannkkss'' ddoommeessttiicc ccuussttoommeerrss33...... 67,501 65,344 59,964 66,786 59,964 1100 DDeeppoossiittss 14,375 15,280 15,287 15,348 15,287 1111 NNeeggoottiiaabbllee aanndd rreeaaddiillyy ttrraannssffeerraabbllee iinnssttrruummeennttss44 41,333 37,125 31,548 38,258 31,548 1122 OOuuttssttaannddiinngg ccoolllleeccttiioonnss aanndd ootthheerr ccllaaiimmss 11,792 12,939 13,129 13,180 13,129 MMEEMMOO 1133 CCuussttoommeerr lliiaabbiilliittyy oonn aacccceeppttaanncceess 13,628 8,974 8,682 8,505 8,682 1144 DDoollllaarr ddeeppoossiittss iinn bbaannkkss aabbrrooaadd,, rreeppoorrtteedd bbyy nnoonnbbaannkkiinngg bbuussiinneessss eenntteerrpprriisseess iinn tthhee UUnniitteedd SSttaatteess 44,638 39,111 33,562 34,712 33,223 34,091 34,522r 33,708 33,562 n.a. 1. For banks' claims, data are monthly; for claims of banks' domestic custom- foreign bank, and foreign branches, agencies, or wholly owned subsidiaries of ers, data are quarterly. head office or parent foreign bank. Reporting banks include all types of depository institution, as well as some 3. Assets held by reporting banks for the account of their domestic customers. brokers and dealers. 4. Principally negotiable time certificates of deposit and bankers acceptances. 2. For U.S. banks, includes amounts due from own foreign branches and 5. Includes demand and time deposits and negotiable and nonnegotiable foreign subsidiaries consolidated in Consolidated Report of Condition filed with certificates of deposit denominated in U.S. dollars issued by banks abroad. For bank regulatory agencies. For agencies, branches, and majority-owned subsidiar- description of changes in data reported by nonbanks, see Federal Reserve ies of foreign banks, consists principally of amounts due from head office or parent Bulletin, vol. 65 (July 1979), 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 1992 MMaattuurriittyy,, bbyy bboorrrroowweerr aanndd aarreeaa 11998899 11999900 11999911 Mar. June Sept. Dec.p 1 Total 238,123 206,903 195,302 194,455 196,874 187,422 196,085 By borrower 2 Maturity of one year or less2 178,346 165,985 162,573 161,456 162,402 155,135 164,575 3 Foreign public borrowers 23,916 19,305 21,050 20,231 20,492 17,837 17,867 4 All other foreigners 154,430 146,680 141,523 141,225 141,910 137,298 146,708 5 Maturity of more than one year 59,776 40,918 32,729 32,999 34,472 32,287 31,510 6 Foreign public borrowers 36,014 22,269 15,859 16,189 15,147 13,303 13,219 7 All other foreigners 23,762 18,649 16,870 16,810 19,325 18,984 18,291 By area Maturity of one year or less 8 Europe 53,913 49,184 51,835 52,790 54,955 55,842 53,967 9 Canada 5,910 5,450 6,444 6,907 7,935 5,973 6,118 10 Latin America and Caribbean 53,003 49,782 43,597 48,582 49,138 45,300 50,279 11 Asia 57,755 53,258 51,059 43,645 41,412 40,754 46,358 12 Africa 3,225 3,040 2,549 2,486 2,142 2,195 1,810 13 All other3 4,541 5,272 7,089 7,046 66,,882200 55,,007711 66,,004433 Maturity of more than one year 14 Europe 4,121 3,859 3,878 4,360 6,793 6,663 5,339 15 Canada 2,353 3,290 3,595 3,284 3,153 3,243 3,280 16 Latin America and Caribbean 45,816 25,774 18,277 18,196 16,915 15,160 15,149 17 Asia 4,172 5,165 4,459 4,729 5,007 4,848 4,977 18 Africa 2,630 2,374 2,335 2,191 2,341 2,095 2,363 19 All other3 684 456 185 239 263 278 402 1. Reporting banks include all kinds of depository institutions besides commer- 2. Maturity is time remaining 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

A62 International Statistics • May 1993 3.21 CLAIMS ON FOREIGN COUNTRIES Held by U.S. Offices and Foreign Branches of U.S.-Chartered Banks1 Billions of dollars, end of period 1990 1991 1992 AArreeaa oorr ccoouunnttrryy 11998888 11998899 Dec. Mar. June Sept. Dec. Mar. June Sept. Dec.p 1 Total 346.3r 338.8 317.8 325.3 320.4 335.7 341.5 347.5r 357.3r 344.0* 345.7 2 G-10 countries and Switzerland 152.7 152.9 132.1 129.9 129.8 134.0 137.2 130.5 135.6 i37.r 133.2 3 Belgium and Luxembourg 9.0 6.3 5.9 6.2 6.1 5.8 6.0 5.3 6.2 6.2 5.6 4 France 10.5 11.7 10.4 9.7 10.5 11.1 11.0 10.0 11.9 15.4 15.3 5 Germany 10.3 10.5 10.6 8.8 8.3 9.7 8.3 8.4 8.8r 10.9 9.3 6 Italy 6.8 7.4 5.0 4.0 3.6 4.5 5.6 5.4 8.0 6.4 6.5 7 Netherlands 2.7 3.1 3.0 3.3 3.3 3.0 4.7 4.3 3.3 3.7 2.8 8 Sweden 1.8 2.0 2.2 2.0 2.5 2.1 1.9 2.0 1.9 2.2 2.3 9 Switzerland 5.4 7.1 4.4 3.7 3.3 3.9 3.4 3.2 4.6 5.2r 4.7 10 United Kingdom 66.2 67.2 60.8 62.3 59.5 64.9 68.5 64.8 65.8r 62.2r 61.3 11 Canada 5.0 5.4 5.9 6.8 8.2 5.8 5.8 6.5 6.7 6.7 6.5 12 Japan 34.9 32.2 23.9 23.2 24.6 23.2 22.2 20.7 18.3 18.3 18.8 13 Other industrialized countries 21.3r 2i.<y 22.9 23.5r 21.3r 22. lr 22.8r 21 -4r 25.5 25. lr 24.1 14 Austria 1.5 1.5 1.4 1.4 1.1 1.0 .6 .8 .8 .7 1.2 15 Denmark 1.1 1.1 1.1 .9 1.2 .9 .9 .8 1.3 1.5 .9 16 Finland 1.1 1.0 .7 1.0 .8 .6 .7 .8 .8 1.0 .7 17 Greece 1.8 2.5 2.7 2.5 2.4 2.3 2.6 2.3 2.8 3.0 3.0 18 Norway 1.8 1.4 1.6 1.5 1.5 1.4 1.4 1.5 1.7 1.6 1.2 19 Portugal .4 .4 .6 .6 .6 .5 .6 .5 .5 .5 .4 20 Spain 6.2 7.1 8.3 9.0 7.1 8.3 8.3 7.7 10.1 9.8 9.0 21 Turkey 1.5 1.2 1.7 1.7 1.9 1.6 1.4 1.2 1.5 1.5 1.3 22 Other Western Europe 1.7r l.C 1.2r 1.2r l.lr 1.3r 1.8r 1.5r 2.0r 1.5r 1.7 23 South Africa 2.4 2.0 1.8 1.8 1.8 1.6 1.9 1.8 1.7 1.7 1.7 24 Australia 1.8 1.6 1.8 1.9 2.0 2.4 2.7 2.3 2.3 2.3 2.9 25 OPEC2 16.6 17.1 12.8 17.1 14.0 15.6 14.6 15.8 16.2 15.9 16.1 26 Ecuador 1.7 1.3 1.0 .9 .9 .8 .7 .7 .7 .7 .6 27 Venezuela 7.9 7.0 5.0 5.1 5.3 5.6 5.4 5.4 5.3 5.4 5.2 28 Indonesia 1.7 2.0 2.7 2.8 2.6 2.8 2.8 3.0 3.0 3.0 3.0 29 Middle East countries 3.4 5.0 2.5 6.6 3.7 5.0 4.2 5.3 5.9 5.4 6.2 30 African countries 1.9 1.7 1.7 1.6 1.5 1.5 1.5 1.4 1.4 1.4 1.1 31 Non-OPEC developing countries 85.3 77.5 65.4 66.4 65.0 65.0 64.3 70.6 68.6r 73.2 73.2 Latin America 32 Argentina 9.0 6.3 5.0 4.7 4.6 4.5 4.8 5.0 5.1 6.2 6.6 33 Brazil 22.4 19.0 14.4 13.9 11.6 10.5 9.6 10.8 10.6 10.8 10.8 34 Chile 5.6 4.6 3.5 3.6 3.6 3.7 3.6 3.9 4.0 4.2 4.4 35 Colombia 2.1 1.8 1.8 1.7 1.6 1.6 1.7 1.6 1.6 1.7 1.8 36 Mexico 18.8 17.7 13.0 13.7 14.3 16.2 15.5 18.2 16.3r 17.1 16.0 37 Peru .8 .6 .5 .5 .5 .4 .4 .4 .4 .5 .5 38 Other 2.6 2.8 2.3 2.2 2.0 1.9 2.1 2.2 2.2 2.5 2.6 Asia China 39 Peoples Republic of China .3 .3 .2 .4 .6 .4 .3 .3 .3 .3 1.2 40 Republic of China (Taiwan) 3.7 4.5 3.5 3.6 4.1 4.1 4.1 4.8 4.6 5.0 5.2 41 India 2.1 3.1 3.3 3.5 3.0 2.8 3.0 3.6 3.8 3.6 3.2 42 Israel 1.2 .7 .5 .5 .5 .5 .5 .4 .4 .4 .4 43 Korea (South) 6.1 5.9 6.2 6.8 6.9 6.5 6.8 6.9 6.9 7.4 6.6 44 Malaysia 1.6 1.7 1.9 2.0 2.1 2.3 2.3 2.5 2.7 3.0 3.1 45 Philippines 4.5 4.1 3.8 3.7 3.7 3.6 3.7 3.6 3.r 3.3 3.6 46 Thailand 1.1 1.3 1.5 1.6 1.7 1.9 1.7 1.7 1.9 2.2 2.2 47 Other Asia3 .9 1.0 1.7 2.1 2.3 2.3 2.4 2.7 3.0" 3.3 3.1 Africa 48 Egypt .4 .4 .4 .4 .4 .4 .4 .3 .5 .3 .2 49 Morocco .9 .9 .8 .8 .7 .7 .7 .7 .7 .6 .6 50 Zaire .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 51 Other Africa3 1.1 1.0 1.0 .8 .8 .8 .7 .7 .6 .9 1.0 52 Eastern Europe 3.6 3.5 2.3 2.1 2.1 1.8 2.4 2.9 3.0 3.1 3.1 53 Russia .7 .7 .2 .3 .4 .4 .9 1.4 1.7 1.8 1.9 54 Yugoslavia 1.8 1.6 1.2 1.0 1.0 .8 .9 .8 .7 .7 .6 55 Other 1.1 1.3 .9 .8 .7 .7 .7 .6 .6 .7 .6 56 Offshore banking centers 44.2 36.6 42.5 50.0 48.3 52.7 52.0 58.3r 59.3r 52.3r 55.0 57 Bahamas 11.0 5.5 2.8 8.3 6.8 6.7 11.9 14.0 12.3r 8.1 5.7 58 Bermuda .9 1.7 4.4 4.4 4.2 7.1 2.3 3.9 5.1 3.8 6.2 59 Cayman Islands and other British West Indies 12.9 9.0 11.5 14.1 14.9 13.8 15.8 17.2r 17.9" 15.4r 19.9 60 Netherlands Antilles 1.0 2.3 7.9 1.1 1.4 3.9 1.2 1.0 .8 ,7r 1.1 61 Panama 2.5 1.4 1.4 1.5 1.3 1.3 1.3 1.3 1.7r 1.8r 1.7 62 Lebanon .1 .1 .1 .1 .1 .1 .1 .1 .1 .1 .1 63 Hong Kong 9.6 9.7 7.7 11.6 12.4 12.1 12.2 12.2 IS.C 15.2 13.8 64 Singapore 6.1 7.0 6.6 8.9 7.2 7.7 7.1 8.5 6.4 7.1r 6.5 65 Other5 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 66 Miscellaneous and unallocated6 22.6 30.3 39.8 36.4 39.9 44.6 48.2 48.0 48.8r 36.9r 40.7 1. The banking offices covered by these data are the U.S. offices and foreign $150 million equivalent in total assets, the threshold now applicable to all branches of U.S.-owned banks and of U.S. subsidiaries of foreign-owned banks. reporting branches. Offices not covered include (1) U.S. agencies and branches of foreign banks, and 2. Organization of Petroleum Exporting Countries, shown individually; other (2) foreign subsidiaries of U.S. banks. To minimize duplication, the data are members of OPEC (Algeria, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, adjusted to exclude the claims on foreign branches held by a U.S. office or another Saudi Arabia, and United Arab Emirates); and Bahrain and Oman (not formally foreign branch of the same banking institution. The data in this table combine members of OPEC). foreign branch claims in table 3.14 (the sum of lines 7 through 10) with the claims 3. Excludes Liberia. of U.S. offices in table 3.18 (excluding those held by agencies and branches of 4. Includes Canal Zone beginning December 1979. foreign banks and those constituting claims on own foreign branches). 5. Foreign branch claims only. Since June 1984, reported claims held by foreign branches have been reduced 6. Includes New Zealand, Liberia, and international and regional by an increase in the reporting threshold for "shell" branches from $50 million to organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A63 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States1 Millions of dollars, end of period 1991 1992 TTyyppee aanndd aarreeaa oorr ccoouunnttrryy 11998888 11998899 11999900 June Sept. Dec. Mar. June Sept. 1 32,952 38,764 46,169 41,774 43,256 43,244 44,170 44,231 45,096 7 Payable in dollars 27,335 33,973 40,912 37,258 38,520 37,852 38,719 37,536 36,606 3 Payable in foreign currencies 5,617 4,791 5,257 4,516 4,736 5,392 5,451 6,695 8,490 By type 4 Financial liabilities 14,507 17,879 21,192 19,562 21,690 21,981 22,339 22,043 23,336 5 Payable in dollars 10,608 14,035 17,105 16,202 17,985 17,869 18,111 16,799 16,500 6 Payable in foreign currencies 3,900 3,844 4,087 3,360 3,705 4,112 4,228 5,244 6,836 7 Commercial liabilities 18,445 20,885 24,977 22,212 21,566 21,263 21,831 22,188 21,760 8 Trade payables 6,505 8,070 10,683 8,569 8,313 8,310 8,914 9,516 9,419 9 Advance receipts and other liabilities 11,940 12,815 14,294 13,644 13,253 12,953 12,917 12,672 12,341 10 Payable in dollars 16,727 19,938 23,807 21,056 20,535 19,983 20,608 20,737 20,106 11 Payable in foreign currencies 1,717 947 1,170 1,157 1,031 1,280 1,223 1,451 1,654 By area or country Financial liabilities 17 Europe 9,962 11,660 11,086 10,503 12,343 12,002 12,539 13,091 1144,,008833 n Belgium and Luxembourg 289 340 394 355 397 217 174 194 256 14 359 258 975 937 2,164 2,106 1,997 2,324 2,830 15 Germany 699 464 621 658 682 682 666 836 956 16 Netherlands 880 941 1,081 1,026 1,050 1,056 1,025 979 951 17 Switzerland 1,033 541 545 513 497 408 355 490 525 18 United Kingdom 6,533 8,818 6,455 6,018 6,610 6,513 7,415 7,392 7,723 19 Canada 388 610 229 293 305 267 283 337 320 70 Latin America and Caribbean 839 1,357 4,153 3,808 3,883 4,307 4,047 3,308 3,257 71 Bahamas 184 157 371 375 314 537 396 343 192 ?? Bermuda 0 17 0 12 0 114 114 114 115 73 Brazil 0 0 0 0 6 6 8 10 18 74 British West Indies 645 724 3,160 2,816 2,961 3,047 2,915 2,167 2,231 75 Mexico 1 6 5 6 6 7 7 8 12 26 Venezuela 0 0 4 4 4 4 4 4 5 77 3,312 4,151 5,313 4,947 5,155 5,347 5,375 5,218 5,586 78 Japan 2,563 3,299 4,077 3,771 4,006 4,108 4,113 4,122 4,553 29 Middle East oil-exporting countries 3 2 5 4 19 13 13 10 17 30 Africa 2 2 2 9 3 6 7 0 5 31 Oil-exporting countries 0 0 0 7 2 4 6 0 0 32 Allother4 4 100 409 2 1 52 88 89 85 Commercial liabilities 33 Europe 7,319 9,071 10,310 8,607 8,084 7,808 7,491 7,144 66,,772233 34 Belgium and Luxembourg 158 175 275 245 225 248 256 240 173 35 455 877 1,218 1,185 992 830 671 659 6% 36 Germany 1,699 1,392 1,270 1,040 911 944 878 702 744 37 Netherlands 587 710 844 729 751 709 574 605 601 38 Switzerland 417 693 775 580 492 488 482 400 369 39 United Kingdom 2,079 2,620 2,792 2,289 2,217 2,310 2,444 2,404 2,263 40 Canada 1,217 1,124 1,261 1,208 1,011 990 1,094 1,077 1,085 41 Latin America and Caribbean 1,090 1,224 1,672 1,619 1,512 1,352 1,701 1,803 1,518 4? Bahamas 49 41 12 5 14 3 13 8 3 43 286 308 538 504 450 310 493 409 338 44 Brazil 95 100 145 180 211 219 230 212 115 4^ British West Indies 34 27 30 49 46 107 108 73 85 46 217 323 475 358 291 304 375 475 322 47 Venezuela 114 164 130 119 102 94 168 279 147 48 6,915 7,550 9,483 8,752 8,855 9,330 9,889 10,439 10,997 49 3,094 2,914 3,651 3,411 3,363 3,720 3,548 3,537 3,900 50 Middle Eastern oil-exporting countries2,5 1,385 1,632 2,016 1,657 1,780 1,498 1,591 1,778 1,813 51 576 886 844 596 836 713 644 775 675 52 Oil-exporting countries3 202 339 422 226 357 327 253 389 337 53 Other4 1,328 1,030 1,406 1,431 1,268 1,070 1,012 950 762 1. For a description of the changes in the international statistics tables, see 3. Comprises Algeria, Gabon, Libya, and Nigeria. Federal Reserve Bulletin, vol. 65, (July 1979), 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

A64 International Statistics • May 1993 3.23 CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States1 Millions of dollars, end of period 1991 1992 TTyyppee,, aanndd aarreeaa oorr ccoouunnttrryy 11998888 11998899 11999900 June Sept. Dec. Mar. June Sept. 1 Total 33,805 33,173 35,348 37,101 38,315 42,635 42,203 41,884 38,662 2 Payable in dollars 31,425 30,773 32,760 35,014 35,952 40,068 39,563 38,915 35,741 3 Payable in foreign currencies 2,381 2,400 2,589 2,087 2,363 2,567 2,640 2,969 2,921 By type 4 Financial claims 21,640 19,297 19,874 20,881 22,536 25,463 25,355 24,640 21,367 5 Deposits 15,643 12,353 13,577 12,544 16,188 17,218 16,964 15,116 12,547 6 Payable in dollars 14,544 11,364 12,552 11,758 15,182 16,343 15,803 13,829 11,489 7 Payable in foreign currencies 1,099 989 1,025 786 1,006 875 1,161 1,287 1,058 8 Other financial claims 5,997 6,944 6,297 8,337 6,348 8,245 8,391 9,524 8,820 9 Payable in dollars 5,220 6,190 5,280 7,632 5,611 7,365 7,644 8,799 7,788 10 Payable in foreign currencies 777 754 1,017 704 737 880 747 725 1,032 11 Commercial claims 12,166 13,876 15,475 16,220 15,779 17,172 16,848 17,244 17,295 12 Trade receivables 11,091 12,253 13,657 14,120 13,429 14,447 14,243 14,743 14,555 13 Advance payments and other claims 1,075 1,624 1,817 2,100 2,350 2,725 2,605 2,501 2,740 14 Payable in dollars 11,660 13,219 14,927 15,623 15,159 16,360 16,116 16,287 16,464 15 Payable in foreign currencies 505 657 548 597 620 812 732 957 831 By area or country Financial claims 16 Europe 10,278 8,463 9,645 11,873 13,129 13,546 14,207 13,207 11,249 17 Belgium and Luxembourg 18 28 76 74 76 13 12 25 16 18 France 203 153 371 271 255 312 277 786 809 19 Germany 120 152 367 298 434 342 290 381 321 20 Netherlands 348 238 265 429 420 385 727 732 766 21 Switzerland 217 153 357 433 580 591 682 779 602 22 United Kingdom 9,039 7,496 7,971 10,222 10,997 11,251 11,631 8,773 7,727 23 Canada 2,325 1,904 2,934 2,015 2,163 2,679 2,755 2,534 2,256 24 Latin America and Caribbean 8,160 8,020 6,201 5,926 6,289 7,932 7,070 7,260 6,523 25 Bahamas 1,846 1,890 1,090 457 652 758 415 523 1,099 26 Bermuda 19 7 3 4 19 8 12 12 65 27 Brazil 47 224 68 127 137 192 191 181 135 28 British West Indies 5,763 5,486 4,635 4,957 5,106 6,384 5,912 6,018 4,792 29 Mexico 151 94 177 161 176 321 318 343 222 30 Venezuela 21 20 25 29 32 40 34 32 26 31 Asia 623 590 860 742 614 957 966 1,280 995 32 Japan 354 213 523 398 277 385 380 712 481 33 Middle East oil-exporting countries2 5 8 8 4 3 5 3 4 4 34 Africa 106 140 37 64 61 57 60 57 66 35 Oil-exporting countries3 10 12 0 1 1 1 0 0 1 36 All other4 148 180 195 261 280 292 297 302 278 Commercial claims 37 Europe 5,181 6,209 7,044 7,464 6,884 7,950 7,894 8,137 7,790 38 Belgium and Luxembourg 189 242 212 220 190 192 181 255 170 39 France 672 964 1,240 1,402 1,330 1,544 1,562 1,563 1,739 40 Germany 669 696 807 958 858 943 936 908 885 41 Netherlands 212 479 555 707 641 643 646 666 588 42 Switzerland 344 313 301 296 258 295 328 399 294 43 United Kingdom 1,324 1,575 1,775 1,817 1,807 2,088 2,086 2,173 1,977 44 Canada 983 1,091 1,074 1,241 1,232 1,174 1,176 1,131 1,172 45 Latin America and Caribbean 2,241 2,184 2,375 2,433 2,494 2,591 2,572 2,672 3,141 46 Bahamas 36 58 14 16 8 11 11 9 7 47 Bermuda 230 323 246 247 255 263 272 291 245 48 Brazil 299 297 326 309 385 418 364 438 395 49 British West Indies 22 36 40 43 37 41 45 32 43 50 Mexico 461 508 661 710 741 829 892 847 968 51 Venezuela 227 147 192 195 1% 202 206 251 302 52 Asia 2,993 3,570 4,127 4,201 4,282 4,563 4,351 4,462 4,313 53 Japan 946 1,199 1,460 1,645 1,808 1,869 1,780 1,786 1,798 54 Middle Eastern oil-exporting countries 453 518 460 501 496 621 635 609 512 55 Africa 435 429 488 428 431 418 418 422 430 56 Oil-exporting countries 122 108 67 63 80 95 75 73 66 57 Other4 333 393 367 454 456 476 437 420 449 1. For a description of the changes in the international statistics tables, see 3. Comprises Algeria, Gabon, Libya, and Nigeria. Federal Reserve Bulletin, vol. 65, (July 1979), 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

Securities Holdings and Transactions A65 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1993 1992 1993 Transaction and area or country 1991 1992r Jan.- July Aug. Sept. Oct. Nov. Dec/ Jan.p Jan. U.S. corporate securities STOCKS 1 Foreign purchases 211,207 221,360 19,109 18,547 13,174 13,884 18,830 17,885 22,725 19,109 2 Foreign sales 200,116 226,499 19,306 18,769 14,841 17,034 18,179 16,598 20,382 19,306 3 Net purchases or sales (-) 11,091 -5,139 -197 -222 -1,667 -3,150 651 1,287 2,343 -197 4 Foreign countries 10,522 -5,172 -192 -239 -1,622 -3,059 654 1,284 2,319 -192 5 Europe 53 -4,934 38 -965 -1,089 -1,683 75 371 1,505 38 6 France 9 -1,331 -27 10 -46 -234 -92 -50 -154 -27 7 Germany -63 -64 89 -14 -26 -112 -52 47 162 89 8 Netherlands -227 -280 62 -14 -54 -107 -24 -4 190 62 9 Switzerland -131 143 196 -55 -150 -189 -124 -40 221 196 10 United Kingdom -352 -3,294 -347 -742 -652 -869 362 361 705 -347 11 Canada 3,845 1,405 -340 130 -59 -278 -227 43 176 -340 12 Latin America and Caribbean 2,177 2,210 304 -24 -24 -90 236 649 422 304 13 Middle East1 -134 -88 -92 4 -14 136 -57 -219 70 -92 14 Other Asia 4,255 -3,944 -123 370 -442 -1,064 767 373 122 -123 15 Japan 1,179 -3,598 28 172 -301 -97 184 220 215 28 16 Africa 153 10 4 -7 -1 14 -21 -18 -7 4 17 Other countries 174 169 17 253 7 -94 -119 85 31 17 18 Nonmonetary international and regional organizations 568 33 -5 17 -45 -91 -3 3 2244 -5 BONDS2 19 Foreign purchases 153,096 214,801 17,415 18,343 19,785 17,160 19,315 18,082 19,264 17,415 20 Foreign sales 125,637 175,273 15,432 16,311 16,620 14,452 15,224 16,317 15,513 15,432 21 Net purchases or sales (-) 27,459 39,528 1,983 2,032 3,165 2,708 4,091 1,765 3,751 1,983 22 Foreign countries 27,590 38,412 2,079 2,153 3,150 2,573 4,045 1,600 3,206 2,079 23 Europe 13,112 18,117 1,307 1,029 1,516 1,818 1,993 -492r 1,996 1,307 24 France 847 1,221 101 161 -5 155 -4 -7 217 101 25 Germany 1,577 2,503 91 -37 -13 387 -34 -113 857 91 26 Netherlands 482 531 -119 177 22 58 133 144 48 -119 27 Switzerland 656 -513 122 -13 -94 -51 -23 -260 105 122 28 United Kingdom 8,931 13,032 354 760 1,447 1,319 1,568 -312 962 354 29 Canada 1,623 236 -437 67 -100 48 198 281 -38 -437 30 Latin America and Caribbean 2,672 8,833 419 676 878 548 842 540 513 419 31 Middle East1 1,787 3,461 300 239 284 -5 273 515 655 300 32 Other Asia 8,459 7,779 305 231 593 171 790 692 119 305 33 Japan 5,767 -216 190 -710 -1,229 -590 467 266 9 190 34 Africa 52 59 168 22 1 -7 -50 -4r 7 168 35 Other countries -116 -73 17 -111 -22 0 -1 68 -46 17 36 Nonmonetary international and regional organizations -131 1,116 -96 -121 15 135 46 165 554455 --9966 Foreign securities 37 Stocks, net purchases or sales (-)3 -31,967 -32,099 -2,319 -3,244 -2,959 -2,854 -4,269 -3,625r -4,349 -2,319 38 Foreign purchases 120,598 149,841 12,700 13,496 9,759 13,580 12,420 11,672r 12,780 12,700 39 Foreign sales3 152,565 181,940 15,019 16,740 12,718 16,434 16,689 15,297r 17,129 15,019 40 Bonds, net purchases or sales (—) -14,828 -18,614 -3,685 -4,280 275 -1,561 -2,352 -791r -2,674 -3,685 41 Foreign purchases 330,311 484,590 38,326 43,301 45,938 45,747 49,108 52,066r 39,607 38,326 42 Foreign sales 345,139 503,204 42,011 47,581 45,663 47,308 51,460 52,857r 42,281 42,011 43 Net purchases or sales (—), of stocks and bonds -46,795 -50,713 -6,004 -7,524 -2,684 -4,415 -6,621 —4,416r -7,023 -6,004 44 Foreign countries -46,711 -54,249 -4,997 -8,383 -2,771 -4,436 -6,648 —4,489r -7,177 -4,997 45 Europe -34,452 -38,203 -5,130 -5,333 -1,244 -3,282 -6,862 -4,990"" -4,497 -5,130 46 Canada -7,004 -6,574 -103 -2,212 207 -136 -1,014 57 R -1,167 -103 47 Latin America and Caribbean 759 -1,830 222 1,631 -430 308 1,091 -1,671 512 222 48 Asia -7,350 -6,537 -381 -2,461 -1,376 -1,667 727 l,567r -1,670 -381 49 Africa -9 -57 -7 14 11 -14 -2 42 -11 -7 50 Other countries 1,345 -1,048 402 -22 61 355 -588 -8 -344 402 51 Nonmonetary international and regional organizations -84 3,536 -1,007 859 87 21 27 73r 154 --11,,000077 1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, 3. In a July 1989 merger, the former stockholders of a U.S. company received Oman, Qatar, Saudi Arabia, and United Arab Emirates (Trucial States). $5,453 million in shares of the new combined U.K. company. This transaction is 2. Includes state and local government securities and securities of U.S. not reflected in the data, government agencies and corporations. Also includes issues of new debt securities sold abroad by U.S. corporations organized to finance direct investments abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 International Statistics • May 1993 3.25 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Transactions Millions of dollars 1993 1992 1993 Country or area 1991 1992 Jan.- July Aug. Sept. Oct. Nov. Dec/ Jan." Jan. Transactions, net purchases or sales -) during period1 1 Estimated total 19,865 39,349* 447 -1,862 6,458 -5,995 3,576 17,648R 8 447 2 Foreign countries 19,687 37,9%r -134 -2,286 6,785 -6,204 4,381 17,661r -194 -134 3 Europe 8,663 19,677r -590 -2,445 3,450 -4,655 4,701 7,284r 3,163 -590 4 Belgium and Luxembourg 523 1,981 -59 331 80 -25 232 370 -32 -59 5 Germany -4,725 2,076 692 -829 255 900 -8 -1,584 898 692 6 Netherlands -3,735 -2,923 -1,238 -1,046 367 -239 -40 1,827 -804 -1,238 7 Sweden -663 -804 -54 -26 -1,289 -843 202 668 -344 -54 8 Switzerland 1,007 481 -199 -703 -87 292 769 1,334 213 -199 9 United Kingdom 6,218 24,214r 2,025 212 3,681 16 4,098 7,209* 2,833 2,025 10 Other Western Europe 10,024 -6,002r -1,759 -581 428 -4,761 -551 -2,758 395 -1,759 11 Eastern Europe 13 654 2 197 15 5 -1 218 4 2 12 Canada -3,019 562r 3,302 2,520 900 -4,281 458 -1,087 -99 3,302 13 Latin America and Caribbean 10,285 -3,223 -1,495 -2,869 -1,563 -1,479 -1,915 7,270 -4,519 -1,495 14 Venezuela 10 539 -175 216 60 31 155 27 11 -175 15 Other Latin America and Caribbean 4,179 -1,957 -3,309 -589 -758 -2,537 -3,233 2,385 415 -3,309 16 Netherlands Antilles 6,097 -1,805 1,989 -2,4% -865 1,027 1,163 4,858 -4,945 1,989 17 Asia 3,367 23,526r -1,136 1,783 4,112 4,004 1,416 4,000 1,188 -1,136 18 Japan -4,081 9,817r -743 2,221 1,887 2,448 -339 3,383 2,201 -743 19 Africa 689 1,103 -33 149 56 59 -37 119 0 -33 20 Other -298 -3,649 -182 -1,424 -170 148 -242 75 73 -182 21 Nonmonetary international and regional organizations 178 1,353 581 424 -327 209 -805 -13 202 581 22 International -358 1,018 226 365 -133 -31 -903 -38 76 226 23 Latin American regional -72 533 270 -68 -75 201 219 -31 97 270 MEMO 24 Foreign countries 19,687 37,9%r -134 -2,286 6,785 -6,204 4,381 17,661r -194 -134 25 Official institutions 1,190 6,872r -2,971 -767 697 -4,483 2,951 -603 -723 -2,971 26 Other foreign 18,4% 31,124r 2,837 -1,519 6,088 -1,721 1,430 18,264r 529 2,837 Oil-exporting countries 27 Middle East2 -6,822 4,323 -238 856 1,093 750 -271 407 511 -238 28 Africa3 239 11 8 0 0 4 0 0 0 8 1. Official and private transactions in marketable U.S. Treasury securities 2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and having an original maturity of more than one year. Data are based on monthly United Arab Emirates (Trucial States). transactions reports. Excludes nonmarketable U.S. Treasury bonds and notes 3. Comprises Algeria, Gabon, Libya, and Nigeria. held by official institutions of foreign countries. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Interest and Exchange Rates A67 3.26 DISCOUNT RATES OF FOREIGN CENTRAL BANKS1 Percent per year Rate on Mar. 31, 1993 Rate on Mar. 31, 1993 Rate on Mar. 31, 1993 Country Country Country 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 e M ffe o c n t t i h v e Austria.. 7.0 Mar. 1993 Germany... 7.5 Mar. 1993 Norway 17.0 Nov. 1992 Belgium . 7.0 Mar. 1993 Italy 11.5 Dec. 1992 Switzerland 5.0 Mar. 1993 Canada.. 5.36 Mar. 1993 Japan 2.5 July 1992 United Kingdom 12.0 Sept. 1992 Denmark 10.5 Mar. 1993 Netherlands 7.0 Mar. 1993 France .. 9.1 Dec. 1992 1. Rates shown are mainly those at which the central bank either discounts or 2. Since Feb. 1981, the rate has been that at which the Bank of France makes advances against eligible commercial paper or government securities for discounts Treasury bills for seven to ten days. commercial banks or brokers. For countries with more than one rate applicable to such discounts or advances, the rate shown is the one at which it is understood that the central bank transacts the largest proportion of its credit operations. 3.27 FOREIGN SHORT-TERM INTEREST RATES1 Averages of daily figures, percent per year Type or country 1990 1991 1992 Sept. Oct. Nov. Dec. Jan. Feb. 1 Eurodollars .... 8.16 5.86 3.70 3.15 3.30 3.67 3.50 3.22 3.12 3.11 2 United Kingdom 14.73 11.47 9.56 9.86 8.23 7.16 7.11 6.88 6.10 5.91 3 Canada 13.00 9.07 6.76 5.33 7.57 7.63 7.93 7.03 6.38 5.59 4 Germany 8.41 9.15 9.42 9.37 8.85 8.84 8.93 8.50 8.29 7.85 1 9 5 6 7 8 0 J B N I F S t a w r a e e p a l l t i g y a n h t n i z c e u e e r m r l l a a n n d d s 1 1 8 7 8 9 2 0 . . . . . . 5 7 7 7 1 2 1 7 5 1 0 0 1 9 8 9 9 7 2 . . . . . . 1 3 3 4 0 0 9 3 0 9 1 4 1 1 9 4 7 9 3 0 . . . . . . 2 3 3 6 9 1 5 9 1 7 1 4 1 1 9 7 9 3 0 7 . . . . . . 2 4 2 8 5 5 3 4 0 9 1 4 1 1 6 8 3 8 5 0 . . . . . . 2 8 6 7 5 8 8 5 3 0 2 2 1 6 8 9 8 3 4 . . . . . . 4 6 6 7 5 3 4 6 4 7 8 8 1 1 3 6 8 8 3 0 . . . . . . 1 5 7 6 6 7 3 5 6 5 0 5 1 1 5 8 8 3 1 2 . . . . . . 7 5 1 0 6 5 0 2 9 0 9 6 1 1 5 7 8 3 1 1 . . . . . . 3 2 9 7 4 7 4 7 8 5 3 0 1 1 8 5 7 3 1 0 . . . . . . 4 0 2 2 2 8 7 5 7 6 6 9 1. Rates are for three-month interbank loans, with the following exceptions: Canada, finance company paper; Belgium, three-month Treasury bills; and Japan, CD rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A68 International Statistics • May 1993 3.28 FOREIGN EXCHANGE RATES1 Currency units per dollar except as noted 1992 1993 CCoouunnttrryy//ccuurrrreennccyy uunniitt 11999900 11999911 11999922 Oct. Nov. Dec. Jan. Feb. Mar. 1 Australia/dollar^ 78.069 77.872 73.521 71.481 68.984 68.974 67.297 68.294 70.775 2 Austria/schilling 11.331 11.686 10.992 10.436 11.168 11.130 11.368 11.556 11.586 3 Belgium/franc 33.424 34.195 32.148 30.581 32.661 32.545 33.239 33.841 33.919 4 Canada/dollar 1.1668 1.1460 1.2085 1.2453 1.2674 1.2725 1.2779 1.2602 1.2471 5 China, P.R./yuan 4.7921 5.3337 5.5206 5.5486 5.6134 5.8106 5.77% 5.7874 5.7455 6 Denmark/krone 6.1899 6.4038 6.0372 5.7278 6.1166 6.1206 6.2319 6.3019 6.3242 7 Finland/markka 3.8300 4.0521 4.4865 4.7096 5.0615 5.1444 5.4242 5.8534 5.9767 8 France/franc 5.4467 5.6468 5.2935 5.0370 5.3706 5.3974 5.4751 5.5594 5.5944 9 Germany/deutsche mark 1.6166 1.6610 1.5618 1.4851 1.5875 1.5822 1.6144 1.6414 1.6466 10 Greece/drachma 158.59 182.63 190.81 192.50 206.48 209.48 215.97 220.60 223.57 11 Hong Kong/dollar 7.7899 7.7712 7.7402 7.7298 7.7348 7.7416 7.7376 7.7335 7.7332 12 India/rupee 17.492 22.712 28.156 28.477 28.474 28.979 29.043 30.042 31.939 13 Ireland/pound2 165.76 161.39 170.42 177.19 166.17 166.71 163.37 148.11 147.58 14 Italy/lira 1,198.27 1,241.28 1,232.17 1,309.64 1,364.45 1,412.38 1,491.07 1,550.43 1,591.35 15 Japan/yen 145.00 134.59 126.78 121.17 123.88 124.04 124.99 120.76 117.02 16 Malaysia/ringgit 2.7057 2.7503 2.5463 2.5044 2.5227 2.5710 2.5985 2.6295 2.6051 17 Netherlands/guilder 1.8215 1.8720 1.7587 1.6717 1.7862 1.7788 1.8155 1.8473 1.8507 18 New Zealand/dollar 59.619 57.832 53.792 53.943 51.9% 51.570 51.270 51.603 53.026 19 Norway/krone 6.2541 6.4912 6.2142 6.0562 6.4714 6.6804 6.8721 6.9779 6.9989 20 Portugal/escudo 142.70 144.77 135.07 132.33 141.71 142.05 145.36 149.89 152.17 21 Singapore/dollar 1.8134 1.7283 1.6294 1.6081 1.6338 1.6397 1.6527 1.6463 1.6446 22 South Africa/rand 2.5885 2.7633 2.8524 2.8923 2.9959 3.0140 3.0713 3.1313 3.1790 23 South Korea/won 710.64 736.73 784.58 786.79 787.09 791.75 794.87 799.25 7%.42 24 Spain/peseta 101.96 104.01 102.38 105.74 113.83 112.95 114.62 117.51 117.71 25 Sri Lanka/rupee 40.078 41.200 44.013 44.276 44.404 45.046 46.307 46.351 47.069 26 Sweden/krona 5.9231 6.0521 5.8258 5.6006 6.2528 6.8903 7.2536 7.5566 7.7362 27 Switzerland/franc 1.3901 1.4356 1.4064 1.3176 1.4291 1.4219 1.4774 1.5178 1.5206 28 Taiwan/dollar 26.918 26.759 25.160 25.278 25.405 25.452 25.452 25.837 26.026 29 Thailand/baht 25.609 25.528 25.411 25.253 25.462 25.488 25.523 25.508 25.425 30 United Kingdom/pound 178.41 176.74 176.63 165.29 152.68 155.10 153.25 143.95 146.17 MEMO 31 United States/dollar3 89.09 89.84 86.61 85.03 90.04 90.50 92.36 93.82 93.65 1. Averages of certified noon buying rates in New York for cable transfers. the 1972-76 average world trade of that country divided by the average world Data in this table also appear in the Board's G.5 (405) monthly statistical release. trade of all ten countries combined. Series revised as of August 1978 (see Federal For ordering address, see inside front cover. Reserve Bulletin, vol. 64, August 1978, p. 700). 2. Value in U.S. cents. 3. Index of weighted-average exchange value of U.S. dollar against the currencies of ten industrial countries. The weight for each of the ten countries is Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A69 Guide to Statistical Releases and Special Tables STATISTICAL RELEASES—List Published Semiannually, with Latest BULLETIN Reference Issue Page Anticipated schedule of release dates for periodic releases December 1992 A78 SPECIAL TABLES—Quarterly Data Published Irregularly, with Latest BULLETIN Reference Title and Date Issue Page Assets and liabilities of commercial banks March 31, 1992 August 1992 A70 June 30, 1992 November 1992 A70 September 30, 1992 February 1993 A70 December 31, 1992 May 1993 A70 Terms of lending at commercial banks May 1992 September 1992 A78 August 1992 November 1992 A76 November 1992 February 1993 A76 February 1993 May 1993 A76 Assets and liabilities of U.S. branches and agencies of foreign banks March 31, 1992 September 1992 A82 June 30, 1992 November 1992 A80 September 30, 1992 February 1993 A80 December 31, 1992 May 1993 A80 Pro forma balance sheet and income statements for priced service operations June 30, 1991 November 1991 A80 September 30, 1991 January 1992 A70 March 30,1992 August 1992 A80 June 30, 1992 October 1992 A70 Assets and liabilities of life insurance companies June 30, 1991 December 1991 A79 September 30, 1991 May 1992 A81 December 31, 1991 August 1992 A83 September 30, 1992 March 1993 A71 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Special Tables • May 1993 4.20 DOMESTIC AND FOREIGN OFFICES Insured Commercial Bank Assets and Liabilities1 Consolidated Report of Condition, December 31, 1992 Millions of dollars except as noted Banks with foreign offices2 Bank o s f f w ic i e th s o d n o ly m estic IItteemm TToottaall Total Foreign Domestic Over 100 Under 100 1 Total assets4 3,482,114 1,911,690 419,929 1,578,868 1,206,116 364,309 2 Cash and balances due from depository institutions 297,063 201,162 83,833 117,329 73,351 22,550 3 Cash items in process of collection, unposted debits, and currency and coin 4 85,256 1,668 83,588 39,038 i 4 5 C C a u s r h re n it c e y m s a n i d n c p o ro in c ess of collection and unposted debits T 1 n n . . a a . . n n . . a a . . 6 1 6 7 , , 3 2 4 4 3 6 2 1 7 1 , , 4 5 4 9 6 2 T 1 6 Balances due from depository institutions in the United States n.a. 31,584 19,098 12,486 19,392 n.a. 7 Balances due from banks in foreign countries and foreign central banks 1 66,985 62,948 4,037 2,692 1 8 Balances due from Federal Reserve Banks f 17,337 119 17,218 12,230 T MEMO 9 Non-interest-bearing balances due from commercial banks in the United States (included in balances due from depository institutions in the United States) n.a. n.a. n.a. 7,674 15,160 9,989 10 Total securities, loans and lease financing receivables, net 2,887,499 1,486,673 n.a. n.a. 1,073,144 327,682 11 Total securities, book value 765,160 318,545 30,825 287,719 323,177 123,438 12 U.S. Treasury securities and U.S. government agency and corporation obligations 601,488 240,767 5,864 234,903 261,228 99,494 13 U.S. Treasury securities n.a. 89,762 3,647 86,115 112,559 n.a. 14 U.S. government agency and corporation obligations n.a. 151,005 2,218 148,787 148,669 n.a. 15 All holdings of U.S. government-issued or guaranteed certificates of participation in pools of residential mortgages 157,244 77,080 1,815 75,265 60,219 19,945 16 All other n.a. 73,925 402 73,522 88,450 n.a. 17 Securities issued by states and political subdivisions in the United States 71,204 20,394 562 19,832 34,301 16,508 18 Other domestic debt securities n.a. 27,004 228 26,776 22,433 n.a. 19 All holdings of private certificates of participation in pools of residential mortgages 3,798 2,276 0 2,276 11,,440044 111188 20 All other domestic debt securities 51,627 24,727 228 24,499 21,029 5,871 21 Foreign debt securities n.a. 24,132 22,702 1,430 328 n.a. 22 Equity securities 12,582 6,248 1,469 4,779 4,887 1,447 23 Marketable 5,608 1,938 363 1,575 2,668 1,002 24 Investments in mutual funds 3,351 793 30 762 1,684 875 25 Other 2,320 1,149 334 815 1,013 157 26 LESS: Net unrealized loss 63 3 1 2 30 30 27 Other equity securities 6,974 4,310 1,106 3,203 2,219 445 28 Federal funds sold and securities purchased under agreements to resell 157,539 74,987 401 74,586 62,428 20,124 29 Federal funds sold 130,613 54,554 n.a. n.a. 56,162 19,897 30 Securities purchased under agreements to resell 26,926 20,432 n.a. n.a. 6,267 227 31 Total loans and lease financing receivables, gross 2,027,493 1,131,613 198,957 932,656 707,130 188,750 32 LESS: Unearned income on loans 8,407 3,068 981 2,087 3,970 1,369 33 Total loans and leases (net of unearned income) 2,019,086 1,128,545 197,976 930,568 703,160 187,381 34 LESS: Allowance for loan and lease losses 53,942 35,060 n.a. n.a. 15,621 3,261 35 LESS: Allocated transfer risk reserves 343 343 n.a. n.a. 0 0 36 EQUALS: Total loans and leases, net 1,964,801 1,093,142 n.a. n.a. 687,539 184,120 Total loans, gross, by category 37 Loans secured by real estate 861,661 399,154 21,343 377,812 359,161 103,345 38 Construction and land development 4 i 44,451 27,558 6,026 39 Farmland T T T 2,137 7,206 10,526 40 One- to four-family residential properties 1 1 1 209,277 193,733 56,876 41 Revolving, open-end loans, extended under lines of credit n.a. n.a. n.a. 39,725 30,336 3,091 4? All other loans 1 1 1 169,552 163,397 53,786 43 Multifamily (five or more) residential properties 1 1 1 12,449 12,314 2,180 44 Nonfarm nonresidential properties T • • 109,498 118,351 27,737 45 Loans to depository institutions 37,900 29,585 15,545 14,040 8,126 189 46 Commercial banks in the United States n.a. 12,050 466 11,584 7,478 n.a. 47 Other depository institutions in the United States n.a. 657 108 549 304 n.a. 48 Banks in foreign countries n.a. 16,878 14,971 1,907 344 n.a. 49 Loans to finance agricultural production and other loans to farmers 34,887 5,217 225 4,992 10,865 18,806 50 Commercial and industrial loans 533,273 375,217 93,728 281,489 126,474 31,582 51 U.S. addressees (domicile) n.a. 300,684 21,776 278,908 125,956 n.a. 52 Non-U.S. addressees (domicile) n.a. 74,533 71,952 2,581 518 n.a. 53 Acceptances of other banks 1,938 1,226 6% 530 400 312 54 U.S. banks n.a. 387 6 382 n.a. n.a. 55 Foreign banks n.a. 839 690 149 n.a. n.a. 56 Loans to individuals for household, family, and other personal expenditures (includes purchased paper) 382,753 174,704 20,233 154,471 176,507 31,542 57 Credit cards and related plans 135,768 69,990 n.a. n.a. 63,907 1,871 58 Other (includes single payment and installment) 246,985 104,714 n.a. n.a. 112,600 29,672 59 Obligations (other than securities) of states and political subdivisions in the United States (includes nonrated industrial development obligations) 24,980 13,499 270 13,229 10,220 1,261 60 Taxable 1,802 1,249 147 1,102 510 44 61 Tax-exempt 23,177 12,251 124 12,127 9,710 1,217 62 All other loans 115,349 104,847 43,381 61,466 9,258 1,245 63 Loans to foreign governments and official institutions n.a. 24,151 22,763 1,388 83 n.a. 64 Other loans n.a. 80,696 20,618 60,078 9,174 n.a. 65 Loans for purchasing and carrying securities n.a. n.a. n.a. 14,964 1,797 n.a. 66 All other loans n.a. n.a. n.a. 45,114 7,378 n.a. 67 Lease financing receivables 34,752 28,164 3,538 24,626 6,120 468 68 Assets held in trading accounts 80,508 78,936 47,922 30,907 1,388 184 69 Premises and fixed assets (including capitalized leases) 52,636 28,262 i n.a. 18,461 5,913 70 Other real estate owned 26,177 16,550 T n.a. 7,807 1,820 71 Investments in unconsolidated subsidiaries and associated companies 3,168 2,690 1 n.a. 418 60 72 Customers' liability on acceptances outstanding 16,041 15,594 n.a. n.a. 424 22 73 Net due from own foreign offices, Edge and agreement subsidiaries, and IBFs n.a. n.a. 1 63,509 n.a. n.a. 74 Intangible assets 15,369 9,390 1 n.a. 5,552 427 75 Other assets 103,653 72,432 • n.a. 25,571 5,651 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banks A71 4.20—Continued Banks with foreign offices2 Bank o s f f w ic i e th s o d n o ly m estic Item Total Total Foreign Domestic Over 100 Under 101 76 Total liabilities, limited-life preferred stock and equity capital ,482,114 1,911,690 n.a. n.a. 1,206,116 364,309 77 Total liabilities5 ,220,322 1,781,078 419,926 1,448,259 1,108,872 330,372 78 Limited-life preferred stock 2 0 n. a. n.a. 0 2 79 Total deposits .678,587 1,358,817 286,737 1,072,079 996,977 322,794 80 Individuals, partnerships, and corporations 175,468 991,468 929,560 297,131 81 U.S. government 5,228 3,069 6% 82 States and political subdivisions in the United States 31,965 43,149 20,091 83 Commercial banks in the United States n.a. n a. n. a. 21,801 9,170 1,259 84 Other depository institutions in the United States 3,637 4,494 1,255 85 Banks in foreign countries 6,260 114 n.a. 86 Foreign governments and official institutions n.a. 22,172 21,180 991 62 n.a. 87 Certified and official checks 21,271 11,583 854 10,730 7,360 2,327 88 Allother6 n.a. n. a. 89,235 n.a. n.a. 34 89 Total transaction accounts 398,412 309,739 96,598 90 Individuals, partnerships, and corporations 339,294 274,755 85,380 91 U.S. government 4,732 2,815 581 92 States and political subdivisions in the United States 14,028 16,506 7,484 93 Commercial banks in the United States 20,034 6,753 638 94 Other depository institutions in the United States 2,911 1,434 172 95 Banks in foreign countries 5,933 107 n.a. 96 Foreign governments and official institutions 751 10 n.a. 97 Certified and official checks 10,730 7,360 2,327 98 All other n.a. n.a. 17 99 Demand deposits (included in total transaction accounts) 286,037 174,935 46,994 100 Individuals, partnerships, and corporations 231,679 150,324 41,425 101 U.S. government 4,674 2,735 557 102 States and political subdivisions in the United States 9,329 6,261 1,867 103 Commercial banks in the United States 20,034 6,724 633 104 Other depository institutions in the United States n.a. n.a. n.a. 2,911 1,414 168 105 Banks in foreign countries 5,931 107 n.a. 106 Foreign governments and official institutions 750 10 n.a. 107 Certified and official checks 10,730 7,360 2,327 108 All other n.a. n.a. 17 109 Total nontransaction accounts 673,667 687,238 226,195 110 Individuals, partnerships, and corporations 652,173 654,805 211,751 111 U.S. government 497 253 115 112 States and political subdivisions in the United States 17,937 26,643 12,606 113 Commercial banks in the United States 1,767 2,417 622 114 U.S. branches and agencies of foreign banks 109 132 n.a. 115 Other commercial banks in the United States 1,658 2,285 n.a. 116 Other depository institutions in the United States 726 3,060 1,083 117 Banks in foreign countries 327 7 n.a. 118 Foreign branches of other U.S. banks 3 4 n.a. 119 Other banks in foreign countries 324 3 n.a. 120 Foreign governments and official institutions 240 52 n.a. 121 All other n.a. n.a. 18 122 Federal funds purchased and securities sold under agreements to repurchase 250,940 184,458 378 184,080 63,368 3,114 123 Federal funds purchased 164,053 127,144 n.a. n.a. 35,720 1,189 124 Securities sold under agreements to repurchase 86,887 57,314 n.a. n.a. 27,648 1,925 125 Demand notes issued to the U.S. Treasury n. a. n.a. n.a. 17,563 4,494 360 126 Other borrowed money 130,112 103,411 37,393 66,019 25,619 1,082 127 Banks' liability on acceptances executed and outstanding 16,199 15,752 3,447 12,306 424 22 128 Notes and debentures subordinated to deposits 33,513 31,572 n.a. n.a. 1,852 88 129 Net due to own foreign offices, Edge and agreement subsidiaries, and IBFs n.a. n.a. n.a. 23,598 n.a. n.a. 130 All other liabilities 8i5 ,555 69,505 n.a. n.a. 16,138 2,912 131 Total equity capital7 261,790 130,612 n.a. n.a. 97,243 33,935 MEMO 132 Holdings of commercial paper included in total loans, gross 1,257 282 975 1,333 n.a. 133 Total individual retirement accounts (IRA) and Keogh plan accounts 64,496 65,096 18,336 134 Total brokered deposits 29,110 15,581 569 135 Total brokered retail deposits 20,387 13,158 543 136 Issued in denominations of $100,000 or less 1,148 1,959 480 137 Issued in denominations greater than $100,000 and participated out by the broker in shares of $100,000 or less 19,239 11,199 63 138 Money market deposit accounts (savings deposits; MMDAs) 238,452 174,333 40,888 139 Other savings deposits (excluding MMDAs) 122,617 126,363 38,854 140 Total time deposits of less than $100,000 206,297 300 118,175 141 Time certificates of deposit of $100,000 or more 89,911 83,764 27,265 142 Open-account time deposits of $100,000 or more 16,390 2,980 1,014 143 All negotiable order of withdrawal (NOW) accounts (including Super NOWs)... 110,873 132,180 48,240 144 Total time and savings deposits n. a. n. a. n. a. 786,042 822,042 275,799 Quarterly averages 903,116 697,055 185,985 145 Total loans 146 Obligations (other than securities) of states and political subdivisions 13,822 10,356 n.a. in the United States 147 Transaction accounts in domestic offices (NOW accounts, automated transfer service 102,356 126,510 47,288 (ATS) accounts, and telephone and preauthorized transfer accounts) Nontransaction accounts in domestic offices 240,067 175,851 40,603 148 Money market deposit accounts 120,676 123,728 37,827 149 Other savings deposits 96,328 85,592 27,242 150 Time certificates of deposit of $100,000 or more 230,813 309,039 120,751 151 All other time deposits 152 Number of banks 11,419 214 n.a. n.a. 2,793 8,412 Footnotes appear at the end of table 4.22 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Special Tables • May 1993 4.21 DOMESTIC OFFICES, Insured Commercial Banks with Assets of $100 Million or more or with foreign offices1 Consolidated Report of Condition, December 31, 1992 Millions of dollars except as noted Members NNoonn-- Item TToottaall mmeemmbbeerrss Total National State 1 Total assets4 2,784,984 2,172,390 1,6%,253 476,136 612,594 2 Cash and balances due from depository institutions 190,680 156,956 122,920 34,035 33,725 3 Cash items in process of collection and unposted debits 93,789 83,061 66,057 17,004 10,727 4 Currency and coin 28,838 23,813 19,536 4,277 5,025 5 Balances due from depository institutions in the United States 31,878 20,593 16,689 3,904 11,285 6 Balances due from banks in foreign countries and foreign central banks 6,729 5,537 4,421 1,116 1,191 7 Balances due from Federal Reserve Banks 29,448 23,952 16,218 7,734 5,497 8 Total securities, loans, and lease financing receivables, (net of unearned income) 2,381,638 1,831,768 1,447,797 383,970 549,870 9 Total securities, book value 610,8% 463,972 350,401 113,571 146,924 10 U.S. Treasury securities 198,675 145,581 113,446 32,135 53,093 11 U.S. government agency and corporation obligations 297,456 233,794 176,222 57,572 63,662 12 All holdings of U.S. government-issued or guaranteed certificates of participation in pools of residential mortgages 135,484 110,661 85,457 25,204 24,823 13 Allother 161,972 123,133 90,765 32,368 38,839 14 Securities issued by states and political subdivisions in the United States 54,133 38,329 27,133 11,1% 15,804 15 Other domestic debt securities 49,208 38,268 26,850 11,418 10,940 16 All holdings of private certificates of participation in pools of residential mortgages .. 3,680 3,137 2,811 326 543 17 All other 45,528 35,132 24,040 11,092 10,397 18 Foreign debt securities 1,759 1,198 1,114 84 561 19 Equity securities 9,666 6,802 5,636 1,166 2,864 20 Marketable 4,243 2,080 1,810 270 2,164 21 Investments in mutual funds 2,447 1,174 1,032 142 1,272 22 Other 1,828 919 789 130 910 23 LESS: Net unrealized loss 32 13 11 3 19 24 Other equity securities 5,423 4,722 3,825 8% 701 25 Federal funds sold and securities purchased under agreements to resell8 137,014 110,034 87,028 23,006 26,980 26 Federal funds sold 56,162 37,449 32,9% 4,454 18,712 27 Securities purchased under agreements to resell 6,267 4,399 3,361 1,039 1,867 28 Total loans and lease financing receivables, gross 1,639,786 1,261,835 1,013,169 248,666 377,951 29 LESS: Unearned income on loans 6,058 4,073 2,800 1,273 1,985 30 Total loans and leases (net of unearned income) 1,633,728 1,257,762 1,010,369 247,393 375,966 Total loans, gross, by category 31 Loans secured by real estate 736,973 549,706 450,156 99,550 187,267 32 Construction and land development 72,009 54,793 45,298 9,494 17,216 33 Farmland 9,343 5,608 4,778 830 3,735 34 One- to four-family residential properties 403,010 306,%2 251,6% 55,266 %,048 35 Revolving, open-end and extended under lines of credit 70,061 53,683 43,807 9,876 16,378 36 All other loans 332,949 253,279 207,888 45,391 79,670 37 Multifamily (five or more) residential properties 24,763 17,674 14,219 3,455 7,088 38 Nonfarm nonresidential properties 227,849 164,669 134,165 30,504 63,179 39 Commercial banks in the United States 19,062 14,322 10,433 3,889 4,739 40 Other depository institutions in the United States 853 616 528 87 238 41 Banks in foreign countries 2,251 1,915 1,040 876 336 42 Finance agricultural production and other loans to fanners 15,856 10,814 9,429 1,385 5,043 43 Commercial and industrial loans 407,%3 329,823 260,439 69,384 78,140 44 U.S. addressees (domicile) 404,864 327,115 258,302 68,813 77,750 45 Non-U.S. addressees (domicile) 3,099 2,709 2,137 572 390 46 Acceptances of other banks9 930 645 470 175 285 47 U.S. banks 536 361 211 151 175 48 Foreign banks 202 194 190 3 8 49 Loans to individuals for household, family, and other personal expenditures (includes purchased paper) 330,978 243,591 200,725 42,866 87,387 50 Credit cards and related plans 63,907 44,258 40,855 3,403 19,649 51 Other (includes single payment and installment) 112,600 68,383 55,292 13,091 44,217 52 Loans to foreign governments and official institutions 1,472 1,442 848 594 29 53 Obligations (other than securities) of states and political subdivisions in the United States (includes nonrated industrial development obligations) 23,449 19,039 13,747 5,293 4,410 54 Taxable 1,612 1,361 %3 398 251 55 Tax-exempt 21,837 17,679 12,784 4,895 4,158 56 Other loans 69,252 64,382 44,705 19,677 4,870 57 Loans for purchasing and carrying securities 16,761 15,832 8,442 7,391 928 58 AH other loans 52,491 48,550 36,264 12,286 3,942 59 Lease financing receivables 30,746 25,539 20,648 4,891 5,207 60 Customers' liability on acceptances outstanding 12,524 11,790 8,695 3,095 734 61 Net due from own foreign offices, Edge and agreement subsidiaries, and IBFs 63,509 57,221 31,018 26,203 6,287 62 Remaining assets 200,141 171,876 116,840 55,036 28,265 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banks A73 4.20—Continued Members NNoonn-- IItteemm TToottaall mmeemmbbeerrss Total National State 63 Total liabilities and equity capital 2,784,984 2,172,390 1,696,253 476,136 612,594 64 Total liabilities5 2,557,131 1,996,978 1,561,188 435,789 560,153 65 2,069,056 1,595,886 1,273,976 321,910 473,170 66 Individuals, partnerships, and corporations 1,921,028 1,478,915 1,182,224 2%,691 442,113 67 U.S. government 8,297 6,992 5,702 1,290 1,305 68 States and political subdivisions in the United States 75,114 55,116 44,354 10,762 19,998 69 Commercial banks in the United States 30,970 27,854 21,881 5,974 3,116 70 Other depository institutions in the United States 8,131 5,569 4,387 1,183 2,561 71 Banks in foreign countries 6,374 5,964 3,977 1,987 410 72 Foreign governments and official institutions 1,053 956 561 395 98 73 Certified and official checks 18,089 14,520 10,890 3,630 3,570 74 Total transaction accounts 708,151 567,054 449,580 117,474 141,098 75 Individuals, partnerships, and corporations 614,049 487,012 387,438 99,574 127,037 76 U.S. government 7,547 6,312 5,199 1,113 1,235 77 States and political subdivisions in the United States 30,533 23,828 19,086 4,742 6,705 78 Commercial banks in the United States 26,786 25,315 20,043 5,272 1,472 79 Other depository institutions in the United States 4,344 3,609 2,684 925 735 80 Banks in foreign countries 6,040 5,759 3,869 1,890 281 81 Foreign governments and official institutions 762 698 370 328 63 82 Certified and official checks 18,089 14,520 10,890 3,630 3,570 83 Demand deposits (included in total transaction accounts) 460,972 377,420 294,375 83,045 83,552 84 Individuals, partnerships, and corporations 382,004 308,210 241,105 67,104 73,794 85 7,408 6,185 5,085 1,100 1,223 86 States and political subdivisions in the United States 15,590 13,140 10,344 2,797 2,449 87 Commercial banks in the United States 26,757 25,315 20,043 5,272 1,443 88 Other depository institutions in the United States 4,325 3,595 2,669 925 731 89 Banks in foreign countries 6,038 5,758 3,869 1,888 280 90 Foreign governments and official institutions 760 698 370 328 63 91 Certified and official checks 18,089 14,520 10,890 3,630 3,570 92 Total nontransaction accounts 1,360,905 1,028,832 824,3% 204,436 332,073 93 Individuals, partnerships, and corporations 1,306,979 991,903 794,786 197,117 315,075 94 U.S. government 750 679 503 177 70 95 States and political subdivisions in the United States 44,581 31,288 25,268 6,020 13,293 % Commercial banks in the United States 4,184 2,539 1,838 702 1,645 97 U.S. branches and agencies of foreign banks 241 105 90 16 136 98 Other commercial banks in the United States 3,943 2,434 1,748 686 1,508 99 Other depository institutions in the United States 3,786 1,960 1,703 257 1,826 100 Banks in foreign countries 334 205 108 97 129 101 Foreign branches of other U.S. banks 7 7 4 3 0 102 Other banks in foreign countries 327 198 104 94 129 103 Foreign governments and official institutions 292 258 191 66 34 104 Federal funds purchased and securities sold under agreements to repurchase10 247,448 210,303 151,711 58,592 37,145 105 Federal funds purchased 35,720 28,726 23,251 5,475 6,995 106 Securities sold under agreements to repurchase 27,648 17,579 15,306 2,273 10,069 107 Demand notes issued to the U.S. Treasury 22,057 20,000 13,482 6,518 2,057 108 Other borrowed money 91,638 64,729 45,765 18,964 26,909 109 Banks liability on acceptances executed and outstanding 12,730 11,995 8,878 3,117 735 110 Notes and debentures subordinated to deposits 1,852 1,364 1,135 229 489 111 Net due to own foreign offices, Edge and agreement subsidiaries, and IBFs 23,598 14,248 12,320 1,928 9,350 112 Remaining liabilities 112,351 92,702 66,241 26,460 19,649 113 Total equity capital7 227,853 175,412 135,065 40,347 52,441 MEMO 114 Holdings of commercial paper included in total loans, gross 2,308 912 891 2211 11,,33%% 115 Total individual retirement (IRA) and Keogh plan accounts 129,592 99,985 80,964 19,021 29,607 116 Total brokered deposits 44,690 32,067 26,745 5,322 12,623 117 Total brokered retail deposits 33,545 24,091 20,230 3,861 9,454 118 Issued in denominations of $100,000 or less 3,107 1,787 1,695 92 1,320 119 Issued in denominations greater than $100,000 and participated out by the broker in shares of $100,000 or less 30,438 22,304 18,535 3,769 8,133 120 Money market deposit accounts (savings deposits; MMDAs) 412,785 326,688 261,507 65,182 86,097 171 Other savings accounts 248,980 188,062 139,730 48,332 60,918 177 Total time deposits of less than $100,000 506,094 375,255 309,691 65,564 130,839 123 Time certificates of deposit of $100,000 or more 173,675 123,473 104,122 19,351 50,202 124 Open-account time deposits of $100,000 or more 19,371 15,354 9,347 6,007 4,016 125 All negotiable order of withdrawal (NOW) accounts (including Super NOWs) 243,053 187,090 153,023 34,066 55,%3 126 Total time and savings deposits 1,608,084 1,218,466 979,601 238,865 389,618 Quarterly averages 177 1,600,171 11,,222288,,771199 987,362 224411,,335577 337711,,445522 128 Obligations (other than securities) of states and political subdivisions in the United States 24,178 19,708 14,249 5,459 4,470 129 Transaction accounts (NOW accounts, automated transfer service (ATS) accounts, and telephone preauthorized transfer accounts) 228,866 174,864 143,213 31,651 54,002 Nontransaction accounts 130 Money market deposit accounts 415,918 329,162 261,704 67,457 86,756 131 Other savings deposits 244,404 184,406 136,894 47,512 59,998 13? Time certificates of deposits of $100,000 or more 181,919 130,126 109,744 20,381 51,794 133 All other time deposits 539,852 402,075 326,909 75,167 137,776 134 3,007 1,625 1,350 275 1,382 Footnotes appear at the end of table 4.22 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Special Tables • May 1993 4.22 DOMESTIC OFFICES, Insured Commercial Bank Assets and Liabilities1 Consolidated Report of Condition, December 31, 1992 Millions of dollars except as noted Members NNoonn-- IItteemm TToottaall mmeemmbbeerrss Total National State 1 Total assets4 3,149,292 2,312,519 1,804,319 508,200 836,773 7 Cash and balances due from depository institutions 213,230 165,769 129,807 35,962 47,461 Currency and coin 31,913 25,009 20,472 4,537 6,904 4 Non-interest-bearing balances due from commercial banks 32,823 18,660 14,390 4,270 14,162 S Other 148,494 122,100 94,944 27,155 26,395 6 Total securities, loans, and lease financing receivables (net of unearned income) 2,712,581 1,958,865 1,545,644 413,221 753,716 7 Total securities, book value 734,334 512,294 388,718 123,576 222,040 8 U.S. Treasury securities and U.S. government agency and corporation obligations 595,624 419,031 321,309 97,722 176,593 9 Securities issued by states and political subdivisions in the United States 70,641 44,168 31,608 12,560 26,474 10 Other debt securities 56,956 41,642 29,654 11,988 15,314 11 All holdings of private certificates of participation in pools of residential mortgages 3,798 3,181 2,846 335 617 1? All other 53,158 38,461 26,808 11,653 14,697 n Equity securities 11,113 7,454 6,147 1,307 3,659 14 Marketable 5,245 2,446 2,111 335 2,799 is Investments in mutual funds 3,321 1,522 1,316 206 1,799 16 1,986 948 815 133 1,038 17 LESS: Net unrealized loss 62 24 20 4 38 18 Other equity securities 5,868 5,008 4,036 972 860 19 Federal funds sold and securities purchased under agreements to resell8 157,138 118,268 93,319 24,949 38,870 20 Federal funds sold 76,059 45,600 39,236 6,364 30,459 21 Securities purchased under agreements to resell 6,493 4,483 3,412 1,072 2,010 22 Total loans and lease financing receivables, gross 1,828,536 1,332,921 1,066,826 266,094 495,615 n LESS: Unearned income on loans 7,426 4,618 3,220 1,398 2,809 24 Total loans and leases (net of unearned income) 1,821,109 1,328,303 1,063,606 264,697 492,806 Total loans, gross, by category 75 Loans secured by real estate 840,318 588,443 479,219 110099,,222244 225511,,887755 26 Construction and land development 78,035 57,213 47,071 10,142 20,823 77 Farmland 19,868 8,895 7,386 1,509 10,973 28 One- to four-family residential properties 459,886 328,566 267,725 60,841 131,320 29 Revolving, open-end loans, and extended under lines of credit 73,151 55,015 44,718 10,297 18,137 30 All other loans 386,735 273,551 223,007 50,544 113,183 31 Multifamily (five or more) residential properties 26,943 18,498 14,839 3,659 8,445 32 Nonfarm nonresidential properties 255,586 175,271 142,199 33,072 80,314 33 Loans to depository institutions 22,355 16,927 12,055 4,872 5,428 34 Loans to finance agricultural production and other loans to farmers 34,663 17,160 14,460 2,700 17,503 35 Commercial and industrial loans 439,545 342,579 269,846 72,733 96,966 36 Acceptances of other banks 1,242 745 547 198 498 37 Loans to individuals for household, family, and other personal expenditures (includes purchased paper) 362,520 255,576 209,919 45,657 106,944 38 Credit cards and related plans 65,778 44,894 41,364 3,530 20,884 39 Other (includes single payment installment) 142,272 79,733 63,977 15,756 62,539 40 Obligations (other than securities) of states and political subdivisions in the United States 24,710 19,475 14,095 5,379 5,235 41 1,656 1,377 975 401 279 47 23,054 18,098 13,120 4,978 4,956 43 All other loans 71,968 66,306 45,890 20,416 5,663 44 Lease financing receivables 31,214 25,710 20,795 4,916 5,504 45 Customers' liability on acceptances outstanding 12,547 11,809 8,711 3,098 738 46 Net due from own foreign offices, Edge and agreement subsidiaries, and IBFs 63,509 57,221 31,018 26,203 6,287 47 Remaining assets 210,934 176,077 120,158 55,919 34,857 48 Total liabilities and equity capital 3,149,292 2,312,519 1,804,319 508,200 836,773 49 Total liabilities3 2,887,503 2,124,295 1,659,390 464,905 763,208 50 Total deposits 2,391,850 1,720,185 1,369,947 350,238 671,665 51 Individuals, partnerships, and corporations 2,218,159 1,593,604 1,270,911 322,693 624,555 57. U.S. government 8,993 7,304 5,948 1,356 1,689 53 States and political subdivisions in the United States 95,205 62,247 50,045 12,202 32,957 54 Commercial banks in the United States 32,230 28,632 22,179 6,453 3,598 55 Other depository institutions in the United States 9,385 5,989 4,695 1,294 3,3% 56 Certified and official checks 20,417 15,478 11,625 3,853 4,939 57 All other 7,461 6,931 4,545 2,386 530 58 Total transaction accounts 804,750 605,584 479,630 125,953 199,166 59 Individuals, partnerships, and corporations 699,429 521,029 414,174 106,855 178,400 60 U.S. government 8,128 6,572 5,404 1,168 1,556 61 States and political subdivisions in the United States 38,018 26,459 21,245 5,214 11,559 67, Commercial banks in the United States 27,424 25,893 20,191 5,702 1,531 63 Other depository institutions in the United States 4,516 3,685 2,747 938 832 64 Certified and official checks 20,417 15,478 11,625 3,853 4,939 65 All other 6,818 6,469 4,245 2,223 349 66 Demand deposits (included in total transaction accounts) 507,966 396,771 309,143 87,628 111,194 67 Individuals, partnerships, and corporations 423,428 325,056 254,195 70,861 98,372 68 7,965 6,440 5,285 1,155 1,525 69 States and political subdivisions in the United States 17,457 13,769 10,872 2,897 3,688 70 Commercial banks in the United States 27,390 25,892 20,190 5,702 1,498 71 Other depository institutions in the United States 4,494 3,669 2,731 938 824 77 Certified and official checks 20,417 15,478 11,625 3,853 4,939 73 All other 6,815 6,467 4,245 2,222 348 74 Total nontransaction accounts 1,587,100 1,114,601 890,317 224,284 472,499 75 Individuals, partnerships, and corporations 1,518,730 1,072,575 856,737 215,838 446,155 76 U.S. government 865 732 544 188 133 77 States and political subdivisions in the United States 57,187 35,788 28,800 6,988 21,399 78 Commercial banks in the United States 4,806 2,739 1,988 751 2,067 79 Other depository institutions in the United States 4,869 2,304 1,948 356 2,565 80 664433 446622 229999 163 181 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banks A75 4.22—Continued Members NNoonn-- IItteemm TToottaall mmeemmbbeerrss Total National State 81 Federal funds purchased and securities sold under agreements to repurchase10 250,562 211,658 152,636 59,022 38,904 82 Federal funds purchased 36,909 29,286 23,577 5,709 7,623 83 Securities sold under agreements to repurchase 29,573 18,373 15,904 2,469 11,200 84 Demand notes issued to the U.S. Treasury 22,417 20,122 13,577 6,546 2,294 85 Other borrowed money 92,720 65,100 46,054 19,046 27,620 86 Banks liability on acceptances executed and outstanding 12,752 12,014 8,894 3,120 738 87 Notes and debentures subordinated to deposits 1,940 1,381 1,143 237 560 88 Net due to own foreign offices, Edge and agreement subsidiaries, and IBFs 23,598 14,248 12,320 1,928 9,350 89 Remaining liabilities 115,262 93,836 67,138 26,697 21,427 90 Total equity capital7 261,789 188,224 144,929 43,295 73,565 MEMO 91 Assets held in trading accounts11 32,478 30,938 19,359 11,579 1,541 92 U.S. Treasury securities 14,776 14,643 8,646 5,997 132 93 U.S. government agency corporation obligations 3,436 3,019 2,410 608 417 94 Securities issued by states and political subdivisions in the United States 1,525 1,435 871 565 90 95 Other bonds, notes, and debentures 1,794 1,737 1,593 144 57 % Certificates of deposit 1,080 930 667 263 150 97 Commercial paper 29 29 29 0 0 98 Bankers acceptances 2,314 2,159 1,429 730 155 99 Other 6,700 6,619 3,369 3,250 81 100 Total individual retirement (IRA) and Keogh plan accounts 147,928 106,746 86,208 20,537 41,182 101 Total brokered deposits 45,259 32,287 26,897 5,390 12,972 102 Total brokered retail deposits 34,088 24,301 20,374 3,927 9,787 103 Issued in denominations of $100,000 or less 3,587 1,964 1,819 144 1,623 104 Issued in denominations greater than $100,000 and participated out by the broker in shares of $100,000 or less 30,501 22,337 18,555 3,782 8,164 Savings deposits 105 Money market deposit accounts (savings deposits; MMDAs) 453,673 343,459 274,451 69,008 110,214 106 Other savings deposits 287,834 203,527 151,318 52,209 84,306 107 Total time deposits of less than $100,000 624,269 417,886 342,628 75,258 206,384 108 Time certificates of deposit of $100,000 or more 200,940 134,029 112,302 21,728 66,910 109 Open-account time deposits of $100,000 or more 20,384 15,700 9,618 6,081 4,685 110 All negotiable order of withdrawal (NOW) accounts (including Super NOWs) 291,292 205,812 167,964 37,848 85,480 111 Total time and savings deposits 1,883,884 1,323,413 1,060,804 262,609 560,471 Quarterly averages 112 Total loans 11,,778866,,115566 11,,229988,,664400 11,,004400,,119922 225588,,444488 444888777,,,555111777 113 Transaction accounts (NOW accounts, automated transfer service (ATS) accounts, and telephone and preauthorized transfer accounts) 276,154 193,152 157,784 35,369 83,002 Nontransaction accounts 114 Money market deposit accounts 456,521 345,871 274,610 71,261 110,650 115 Other savings deposits 282,230 199,468 148,212 51,256 82,762 116 Time certificates of deposit of $100,000 or more 209,162 140,673 117,901 22,771 68,489 117 All other time deposits 660,602 445,647 360,522 85,125 214,955 118 Number of banks 11,419 4,547 3,594 953 6,872 1. Effective Mar. 31, 1984, the report of condition was substantially revised for calendar year, were $100 million or more. (These banks file the FFIEC 032 or commercial banks. Some of the changes are as follows: (1) Previously, banks with FFIEC 033 Call Report.) "Under 100" refers to banks whose assets, on June 30 international banking facilities (IBFs) that had no other foreign offices were of the preceding calendar year, were less than $100 million. (These banks filed the considered domestic reporters. Beginning with the March 31, 1984, Call Report FFIEC 034 Call Report.) these banks are considered foreign and domestic reporters and must file the 4. Because the domestic portion of allowances for loan and lease losses and foreign and domestic report of condition; (2) banks with assets of more than $1 allocated transfer risk reserve are not reported for banks with foreign offices, the billion report additional items; (3) the domestic offices of banks with foreign components of total assets (domestic) do not sum to the actual total (domestic). offices report far less detail; and (4) banks with assets of less than $25 million have 5. Because the foreign portion of demand notes issued to the U.S. Treasury is been excused from reporting certain detail items. not reported for banks with foreign offices, the components of total liabilities The "n.a." for some of the items is used to indicate the lesser detail available (foreign) will not sum to the actual total (foreign). from banks without foreign offices, the inapplicability of certain items to banks 6. The definition of "all other" varies by report form and therefore by column that have only domestic offices or the absence of detail on a fully consolidated in this table. basis for banks with foreign offices. 7. Equity capital is not allocated between the domestic and foreign offices of All transactions between domestic and foreign offices of a bank are reported in banks with foreign offices. "net due from" and "net due to." All other lines represent transactions with 8. Only the domestic portion of federal funds sold and securities purchased parties other than the domestic and foreign offices of each bank. Because these under agreements to resell are reported here; therefore, the components do not intraoffice transactions are nullified by consolidation, total assets and total sum to totals. liabilities for the entire bank may not equal the sum of assets and liabilities 9. "Acceptances of other banks" is not reported by domestic banks having less respectively of the domestic and foreign offices. than $300 million in total assets; therefore the components do not sum to totals. 2. Foreign offices include branches in foreign countries, Puerto Rico, and U.S. 10. Only the domestic portion of federal funds purchased and securities sold territories and possessions; subsidiaries in foreign countries; all offices of Edge are reported here; therefore the components do not sum to totals. Act and Agreement corporations wherever located and IBFs. 11. Components are reported only for banks with total assets of $1 billion or 3. The "over 100" refers to banks whose assets, on June 30 of the preceding more; therefore the components do not sum to totals. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 Special Tables • May 1993 4.23 TERMS OF LENDING AT COMMERCIAL BANKS Survey of Loans Made, February 1-5, 19931 A. Commercial and Industrial Loans Weighted Loan rate (percent) Loans Loans Amount of Average average secured made Partici- Characteristic ($ l 1 o , a 0 n 0 s 0 ) ($1 si ,0 ze 0 0) maturity2 W av e e ig ra h g te e d Standard coll b a y te ral co u m m n e d m n e t i r t - (p p l e o a r t a c i n o e s n n t) Days effective3 (percent) (percent) ALL BANKS 1 Overnight6 7,333,668 6,404 .24 62.3 6.5 2 One month and under (excluding overnight) 7,208,296 963 17 4.20 27.0 73.3 7.7 3 Fixed rate 5,748,921 1,911 17 4.08 20.7 71.5 7.1 4 Floating rate 1,459,376 326 17 4.66 52.1 80.3 10.0 5 Over one month and under a year . 7.705.951 134 150 5.54 55.1 83.1 5.4 6 Fixed rate 3,063,944 141 115 4.83 42.6 76.3 1.6 7 Floating rate 4,642,006 130 172 6.02 63.3 87.6 7.8 8 Demand7 14,812,621 288 5.45 63.2 66.9 3.2 9 Fixed rate 4.065.279 894 4.17 23.9 67.8 3.5 10 Floating rate 10,747,342 230 5.93 78.0 66.5 3.1 11 Total short term 37,060,536 315 4.92 43.4 70.6 12 Fixed rate (thousands of dollars) .. 20,211,700 663 28 4.16 19.7 68.1 5.3 13 1-99 339,729 13 178 8.43 72.6 36.0 1.0 14 100-499 332,759 190 87 6.34 58.1 62.2 6.6 15 500-999 380,367 645 61 4.97 47.8 70.6 8.7 16 1,000-4,999 3,661,256 2,312 31 4.40 24.9 75.3 7.1 17 5,000-9,999 3.952.280 6,895 27 4.16 16.4 70.5 6.6 18 10,000 and over 11,545,310 18,611 21 3.86 15.6 66.1 4.3 19 Floating rate (thousands of dollars) 16,848,836 194 135 5.85 71.7 73.5 5.0 20 1-99 1.636.952 24 159 7.42 83.7 83.4 1.7 21 100-499 2,908,572 196 160 6.89 75.5 89.1 6.5 22 500-999 1,477,933 676 140 6.77 73.4 89.7 7.6 23 1,000-4,999 3,941,534 1,973 154 6.09 60.1 88.0 6.1 24 5,000-9,999 1,598,714 6,715 128 5.20 52.5 74.2 6.4 25 10,000 and over 5,285,131 22,473 84 4.54 79.9 46.4 3.3 Months 26 Total long term 5,082,959 193 6.39 64.4 71.9 27 Fixed rate (thousands of dollars) .. 1,534,899 126 6.43 66.9 62.8 3.5 28 1-99 202,898 19 8.98 93.6 19.1 .1 29 100-499 185,710 168 8.11 93.6 33.0 3.2 30 500-999 71,990 661 7.07 75.8 49.0 5.9 31 1,000 and over 1,074,302 4,138 5.62 56.7 77.1 4.0 32 Floating rate (thousands of dollars) 3,548,060 252 6.38 63.3 75.8 10.3 33 1-99 243,261 25 8.13 88.6 53.4 2.5 34 100-499 649,014 203 7.30 75.6 69.3 7.5 35 500-999 423,420 655 6.88 78.8 72.7 7.6 36 1,000 and over 2,232,365 3,811 5.82 54.0 80.7 12.4 Loan rate (percent) Days Effective3 Nominal8 LOANS MADE BELOW PRIME " 37 Overnight6 7,183,113 3.87 5.7 6.6 38 One month and under (excluding overnight) 6,668,363 3,693 16 3.97 3.96 23.0 73.3 7.3 39 Over one month and under a year 4,259,811 626 127 4.28 4.25 37.6 86.2 4.8 40 Demand7 7,425,035 3,142 3.93 3.90 50.0 46.0 2.3 41 Total short term 25,536,322 2,137 36 3.96 28.4 5.3 42 Fixed rate 19,077,810 2,839 3.98 3.96 17.0 68.3 5.5 43 Floating rate 6,458,512 1,235 4.00 3.% 62.2 52.1 4.5 Months 44 Total long term 1,751,431 566 4.59 81.9 4.9 45 Fixed rate .. 709,950 464 4.36 4.32 34.9 75.5 6.5 46 Floating rate 1,041,480 667 4.74 4.68 48.4 86.3 3.8 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets All 4.23—Continued Characteristic Am lo o a u n n s t of Av s e iz ra e g e W m a a v e t e i u g r r h a i g t t e y e d 2 W L ei o g a h n t e r d a te (percent) s L ec o b u a y r n e s d c L o u m m n o a d a m d n e e i r s t - P p l a o a r t a t i i n o c s n i - ($1,000) ($1,000) Days e a f v fe e c r t a i g v e e 3 St e a r n ro d r a 4 r d c (p o e ll r a c t e e n ra t) l (p m er e c n en t t) (percent) LARGE BANKS 1 Overnight6 5,687,807 6,871 4.00 8.4 59.7 8.4 2 One month and under (excluding overnight) 5,539,357 3,657 16 4.13 28.3 74.6 6.2 3 Fixed rate 4,425,194 5,202 16 4.09 22.0 71.7 5.6 4 Floating rate 1,114,163 1,678 15 4.28 53.4 86.2 8.7 5 Over one month and under a year. 3,903,242 718 133 4.95 49.3 87.0 6.3 6 Fixed rate 1,705,237 2,159 98 4.51 44.1 81.3 1.8 7 Floating rate 2,198,005 473 160 5.28 53.4 91.4 9.7 8 Demand7 10,129,528 557 5.17 64.4 61.0 1.4 9 Fixed rate 2,697,965 2,520 4.06 27.5 71.1 .2 10 Floating rate 7,431,564 434 5.57 77.8 57.4 1.9 11 Total short term 25,259,935 972 40 4.64 41.6 67.7 4.8 12 Fixed rate (thousands of dollars) .. 14,516,203 4,102 21 4.10 20.3 68.0 5.2 13 1-99 20,611 25 122 6.83 62.7 56.1 1.6 14 100-499 127,140 235 70 5.54 55.2 73.0 5.7 15 500-999 201,898 680 40 4.84 36.3 85.4 6.5 16 1,000-4,999 2,350,399 2,336 23 4.51 28.1 71.2 5.7 17 5,000-9,999 2,732,399 6,852 26 4.25 21.1 69.6 8.8 18 10,000 and over 9,083,757 18,767 17 3.91 17.1 66.3 4.0 19 Floating rate (thousands of dollars) 10,743,732 479 111 5.38 70.3 67.3 4.2 20 1-99 442,319 32 146 7.26 82.5 92.0 1.4 21 100-499 1,251,008 207 149 6.87 73.8 92.4 3.7 22 500-999 699,851 670 152 6.50 63.2 87.8 7.1 23 1,000-4,999 2,107,299 2,043 138 5.94 52.7 87.8 5.8 24 5,000-9,999 1,181,331 6,855 104 5.22 59.9 75.9 4.2 25 10,000 and over 5,061,924 22,624 4.50 79.1 45.6 3.5 Months 26 Total long term 2,594,212 693 5.94 51.4 79.1 12.5 27 Fixed rate (thousands of dollars) .. 487,766 611 5.38 43.7 77.1 9.4 28 1-99 14,968 30 9.15 94.3 18.5 1.1 29 100-499 31,728 193 7.58 78.2 62.2 4.8 30 500-999 34,879 699 7.37 75.8 55.3 4.1 31 1,000 and over 406,191 4,351 4.89 36.4 82.3 10.6 32 Floating rate (thousands of dollars) 2,106,446 715 6.07 53.2 79.6 13.2 33 1-99 41,178 35 7.17 87.2 74.1 7.8 34 100-499 247,677 234 6.98 77.4 82.4 11.5 35 500-999 205,150 659 6.52 66.9 78.7 13.1 36 1,000 and over 1,612,441 4,097 5.85 46.9 79.4 13.6 Loan rate (percent) Days Effective3 Nominal8 LOANS MADE BELOW PRIME10 37 Overnight6 5,553,819 7,646 3.95 3.94 6.9 58.7 8.6 38 One month and under (excluding overnight) 5,239,032 5,594 15 3.99 3.98 25.5 74.8 5.4 39 Over one month and under a year 2,749,775 4,170 114 4.18 4.16 38.9 87.7 6.6 40 Demand7 5,785,907 4,791 3.86 3.82 58.4 41.7 .1 41 Total short term 19,328,533 5,475 29 3.97 3.94 31.9 62.1 42 Fixed rate 13,917,872 5,694 4.00 3.99 18.7 67.3 5.3 43 Floating rate 5,410,661 4,982 3.87 3.83 65.9 48.8 3.8 Months 44 Total long term 1,067,696 2,852 46 4.42 4.36 33.3 89.5 7.5 45 Fixed rate .. 331,369 2,916 4.15 4.10 23.3 86.4 13.0 46 Floating rate 736,327 2,824 4.54 4.47 37.8 90.9 5.0 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Special Tables • May 1993 4.23 TERMS OF LENDING AT COMMERCIAL BANKS Survey of Loans Made, February 1-5, 1993'—Continued Commercial and industrial loans—Continued Weighted Loan rate (percent) Loans Loans Amount of Average average secured made Partici- Characteristic ($ l 1 o , a 0 n 0 s 0 ) ($1 s , i 0 z 0 e 0) maturity2 W av e e ig ra h g te e d Standard coll b a y te ral co u m m n e d m n e t i r t - (p p l e o a r t a c i n e o s n n t) Days effective3 (percent) (percent) OTHER BANKS 1 Overnight6 3,662,233 .26 1.0 52.4 2 One month and under (excluding overnight) 1,707,351 259 24 5.12 35.1 61.3 30.5 3 Fixed rate 1,140,456 319 22 4.73 30.9 67.6 22.5 4 Floating rate 566,895 188 28 5.89 43.5 48.6 46.7 5 Over one month and under a year . 4.362.558 89 177 6.09 60.4 77.5 12.4 6 Fixed rate 1,250,101 64 160 5.50 46.9 60.4 8.1 7 Floating rate 3,112,458 106 184 6.32 65.8 84.4 14.1 8 Demand7 4,189,633 132 6.82 72.4 80.4 9.0 9 Fixed rate 435,949 143 5.03 26.8 93.7 13.4 10 Floating rate 3,753,684 131 7.03 77.7 78.9 8.5 11 Total short term 13,921,776 158 5.51 45.3 69.8 10.5 12 Fixed rate (thousands of dollars) .. 6,488,739 242 38 4.21 16.9 59.4 6.7 13 1-99 368,821 15 151 8.73 80.1 33.3 .0 14 100-499 206,813 182 106 6.81 62.4 43.8 7.4 15 500-999 178,775 635 171 4.27 19.7 49.1 4.1 16 1,000-4,999 1,160,067 2,359 61 4.52 21.8 71.4 10.5 17 5,000-9,999 993,082 7,216 28 3.99 7.5 73.1 11.1 18 10,000 and over 3,581,180 20,998 13 3.55 8.6 55.9 5.0 19 Floating rate (thousands of dollars) 7,433,037 121 160 6.65 70.1 78.9 13.8 20 1-99 1.201.559 25 163 7.62 84.2 84.3 2.5 21 100-499 2,004,308 202 188 7.15 82.8 82.0 10.0 22 500-999 793,191 648 152 6.74 77.5 94.5 20.2 23 1,000-4,999 2,116,421 1,836 172 6.63 59.1 82.6 14.3 24 5,000-9,999 402,571 6,644 126 4.58 10.0 75.4 12.1 25 10,000 and over 914,987 32,454 114 5.12 69.2 44.2 30.8 Months 26 Total long term 2,053,945 90 6.71 66.4 67.1 27 Fixed rate (thousands of dollars) .. 813,232 67 6.19 52.0 65.3 1.1 28 1-99 180,626 16 9.31 91.5 21.9 .2 29 100-499 152,611 193 8.11 96.0 24.3 4.1 30 500-999 31,035 595 7.48 94.8 44.8 .0 31 1,000 and over 448,960 6,730 4.20 18.1 98.2 .6 32 Floating rate (thousands of dollars) 1,240,714 116 7.04 75.8 68.3 8.2 33 1-99 208,746 24 8.06 81.3 43.7 .6 34 100-499 377,192 213 7.37 81.5 66.4 6.7 35 500-999 123,041 628 6.98 86.0 79.5 21.8 36 1,000 and over 531,735 2,727 6.42 67.3 76.8 9.1 Loan rate (percent) Days Effective3 Nominal8 LOANS MADE BELOW PRIME 37 Overnight6 3,660,764 10,472 3.51 3.47 1.0 52.4 38 One month and under (excluding overnight) 1,255,130 1,295 23 4.08 4.03 25.3 58.8 38.2 39 Over one month and under a year 2,036,476 261 170 4.69 4.65 44.2 84.1 11.9 40 Demand7 675,546 600 4.37 4.34 24.1 20.4 41 Total short term 7,627,916 744 55 3.99 3.96 66.0 11.5 42 Fixed rate 5,860,036 1,056 31 3.76 3.73 11.8 62.2 7.4 43 Floating rate 1,767,880 375 145 4.75 4.69 41.1 78.8 25.1 Months 44 Total long term 761,147 4.82 4.80 38.1 45 Fixed rate .. 471,816 346 4.37 4.35 21.0 92.8 .5 46 Floating rate 289,331 287 5.56 5.54 66.1 89.8 4.9 For notes see following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A79 NOTES TO TABLE 4.23 1. As of Sept. 30, 1990, assets of most of the large banks were at least $7.0 "basic" or "reference" rate); the federal funds rate; domestic money market billion. For all insured banks, total assets averaged $275 million. rates other than the federal funds rate; foreign money market rates; and other base 2. Average maturities are weighted by loan size and exclude demand loans. rates not included in the foregoing classifications. 3. Effective (compounded) annual interest rates are calculated from the stated 6. Overnight loans mature on the following business day. rate and other terms of the loans and weighted by loan size. 7. Demand loans have no stated date of maturity. 4. The chances are about two out of three that the average rate shown would 8. Nominal (not compounded) annual interest rates are calculated from the differ by less than this amount from the average rate that would be found by a stated rate and other terms of the loans and weighted by loan size. complete survey of lending at all banks. 9. The prime rate reported by each bank is weighted by the volume of loans 5. The most common base rate is that used to price the largest dollar volume of extended and then averaged. loans. Base pricing rates include the prime rate (sometimes referred to as a bank's 10. The proportion of loans made at rates below the prime may vary substantially from the proportion of such loans outstanding in banks' portfolios. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Special Tables • May 1993 4.30 ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, December 31, 19921 Millions of dollars All states New York California Illinois IItteemm inc T I l B o u F t d a s i l n g I o B n F ly s inc T I l B o u t F d a s i l n g I o B n F ly s inc T I l B o u F t d a s i l n g I o B n F ly s inc T IB l o u F t d a s i l n g I o B n F ly s 1 Total assets4 712,559 314,981 537,212 249,843 81,337 38,873 55,951 18,456 2 Claims on nonrelated parties 627,343 199,982 467,420 166,780 74,780 15,972 55,656 13,176 3 Cash and balances due from depository institutions 151,886 126,055 130,867 106,540 8,750 8,205 10,991 10,656 4 Cash items in process of collection and unposted debits 2,417 0 2,309 0 10 0 80 00 5 Currency and coin (U.S. and foreign) 25 n.a. 18 n.a. 2 n.a. 11 n.a. 6 Balances with depository institutions in United States .. 90,111 68,450 77,826 57,286 5,%9 5,457 55,,554488 5,368 7 U.S. branches and agencies of other foreign banks (including IBFs) 84,833 65,964 73,295 55,008 5,720 5,427 5,227 55,,220011 8 Other depository institutions in United States (including IBFs) 5,278 2,485 4,531 2,279 249 30 332222 116677 9 Balances with banks in foreign countries and with foreign central banks 58,823 57,606 50,276 49,253 2,752 2,748 5,351 55,,228888 10 Foreign branches of U.S. banks 1,741 1,649 1,369 1,280 71 71 234 232 11 Other banks in foreign countries and foreign central banks 57,083 55,957 48,906 47,973 2,680 2,676 5,117 55,,005566 12 Balances with Federal Reserve Banks 509 n.a. 438 n.a. 17 n.a. 11 n.a. 13 Total securities and loans 388,594 63,843 263,684 51,502 59,109 6,781 38,824 2,227 14 Total securities, book value 78,690 13,668 71,632 12,822 3,577 520 3,103 298 15 U.S. Treasury 28,908 n.a. 27,947 n.a. 102 n.a. 811 n.a. 16 Obligations of U.S. government agencies and corporations 14,081 n.a. 1133,,334433 n.a. 556699 n.a. 110033 n.a. 17 Other bonds, notes, debentures, and corporate stock (including state and local securities) 35,701 13,668 30,342 12,822 2,906 552200 22,,118888 229988 18 Federal funds sold and securities purchased under agreements to resell 37,025 3,328 35,309 2,879 864 449 455 00 19 U.S. branches and agencies of other foreign banks 8,919 2,673 7,720 2,277 636 3% 2% 0 20 Commercial banks in United States 5,444 71 5,154 71 88 0 73 0 21 Other 22,663 583 22,435 531 141 53 86 0 22 Total loans, gross 310,034 50,185 192,146 38,688 55,554 6,262 35,727 1,929 23 Less: Unearned income on loans 130 11 94 9 22 1 6 0 24 Equals: Loans, net 309,904 50,174 192,053 38,680 55,531 6,261 35,721 1,929 Total loans, gross, by category 75 Real estate loans 51,879 549 26,133 292 16,906 217 55,,223355 4400 26 Loans to depository institutions 46,092 30,783 35,748 23,417 5,269 4,224 2,620 1,408 27 Commercial banks in United States (including IBFs) 22,017 10,826 16,152 7,442 3,656 2,650 1,910 724 28 U.S. branches and agencies of other foreign banks ... 19,508 10,3% 14,407 7,0% 3,498 2,580 1,444 709 29 Other commercial banks in United States 2,509 430 1,745 345 158 70 466 15 30 Other depository institutions in United States (including IBFs) 0 0 0 0 0 00 00 00 31 Banks in foreign countries 24,075 19,957 19,596 15,975 1,613 1,574 710 684 37 Foreign branches of U.S. banks 320 270 248 200 70 70 0 0 33 Other banks in foreign countries 23,755 19,687 19,347 15,775 1,543 1,504 710 684 34 Other financial institutions 23,272 1,056 20,288 914 1,050 37 1,461 21 35 Commercial and industrial loans 167,885 12,441 92,088 9,480 31,756 1,602 25,630 376 36 U.S. addressees (domicile) 147,905 448 77,684 343 29,342 84 24,942 7 37 Non-U.S. addressees (domicile) 19,981 11,993 14,403 9,137 2,414 1,519 688 369 38 Acceptances of other banks 1,339 75 847 68 86 0 2 0 39 U.S. banks 651 0 343 0 22 0 0 0 40 Foreign banks 688 75 504 68 65 0 2 0 41 Loans to foreign governments and official institutions (including foreign central banks) 6,846 5,063 55,,220099 44,,337777 187 114499 338833 8855 42 Loans for purchasing or carrying securities (secured and unsecured) 8,637 78 88,,442222 4455 152 3322 4488 0 43 All other loans 4,084 140 3,412 95 146 1 349 0 44 All other assets 49,837 6,756 37,560 5,860 6,057 537 5,385 292 45 Customers' liability on acceptances outstanding 18,387 n.a. 13,138 n.a. 4,035 n.a. 891 n.a. 46 U.S. addressees (domicile) 12,634 n.a. 8,142 n.a. 3,535 n.a. 789 n.a. 47 Non-U.S. addressees (domicile) 5,753 n.a. 4,9% n.a. 500 n.a. 102 n.a. 48 Other assets including other claims on nonrelated parties 31,450 6,756 24,423 5,860 2,022 537 4,495 292 49 Net due from related depository institutions5 85,216 114,998 69,792 83,063 6,557 22,901 295 5,280 50 Net due from head office and other related depository institutions 85,216 n.a. 69,792 n.a. 6,557 n.a. 229955 n.a. 51 Net due from establishing entity, head offices, and other related depository institutions n.a. 114,998 n.a. 8833,,006633 n.a. 2222,,990011 n.a. 55,,228800 52 Total liabilities4 712,559 314,981 537,212 249,843 81,337 38,873 55,951 18,456 53 Liabilities to nonrelated parties 599,132 278,109 484,727 221,890 66,169 38,206 30,030 11,585 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Branches and Agencies A81 4.30—Continued Millions of dollars All states New York California Illinois IItteemm ex T c IB l o u t F d a s i l n g I o B n F ly s ex T c IB l o u t F d a s i l n g I o B n F ly s ex T c IB l o u t F d a s i l n g I o B n F ly s ex T c IB l o u t F d a s i l n g I o B n F ly s 54 Total deposits and credit balances 149,782 207,838 129,107 187,448 4,482 9,386 6,909 5,182 55 Individuals, partnerships, and corporations 106,142 15,282 88,518 10,009 4,213 600 6,156 3/ 5 5 7 6 N U o .S n . - U ad .S d . r e a s d s d ee re s s ( s d e o e m s i ( c d i o le m ) icile) 9 1 1 4 , , 2 8 7 7 1 2 1 3 2 , , 0 2 0 7 7 6 7 8 9 , , 7 7 8 2 9 9 7 3 , , 0 0 0 0 2 7 2 1 , , 3 8 9 2 3 0 600 0 5 1 , , 1 00 4 7 8 il 0 58 Commercial banks in United States (including IBFs)... 27,876 63,788 25,989 58,284 38 2,895 693 2,147 59 U.S. branches and agencies of other foreign banks .. 12,426 57,361 11,751 52,459 11 2,671 280 1,858 60 Other commercial banks in United States 15,451 6,427 14,238 5,825 26 224 413 289 61 Banks in foreign countries 7,442 110,402 7,263 101,984 4 5,061 43 2,875 6? Foreign branches of U.S. banks 4,022 5,273 3,979 4,535 0 385 40 331 61 Other banks in foreign countries 3,420 105,130 3,284 97,449 4 4,676 3 2,544 64 Foreign governments and official institutions (including foreign central banks) 2,405 18,253 1,984 17,059 180 830 3 123 65 All other deposits and credit balances 5,550 113 5,047 112 24 0 4 0 66 Certified and official checks 366 306 24 9 67 Transaction accounts and credit balances (excluding IBFs) 7,558 6,083 307 321 68 Individuals, partnerships, and corporations 5,754 4,548 250 303 69 U.S. addressees (domicile) 4,190 3,570 206 2% 70 Non-U.S. addressees (domicile) 1,563 978 44 7 71 Commercial banks in United States (including IBFs)... 116 110 1 0 72 U.S. branches and agencies of other foreign banks .. 26 24 0 0 73 Other commercial banks in United States 90 86 1 0 74 Banks in foreign countries 857 753 4 1 75 Foreign branches of U.S. banks 6 5 0 0 76 Other banks in foreign countries 850 748 3 1 77 Foreign governments and official institutions (including foreign central banks) 370 302 4 2 78 All other deposits and credit balances 96 63 23 4 79 Certified and official checks 366 306 24 9 80 Demand deposits (included in transaction accounts and credit balances) 6,947 5,784 232 305 81 Individuals, partnerships, and corporations 5,354 4,416 199 289 8? U.S. addressees (domicile) 4,028 3,500 169 283 83 Non-U.S. addressees (domicile) 1,326 916 30 5 84 Commercial banks in United States (including IBF)s... 94 n.a. 89 n.a. 1 n.a. 0 n.a. 85 U.S. branches and agencies of other foreign banks .. 16 14 0 0 86 Other commercial banks in United States 79 75 0 0 87 Banks in foreign countries 738 645 3 1 88 Foreign branches of U.S. banks 6 5 0 0 89 Other banks in foreign countries 732 640 3 1 90 Foreign governments and official institutions (including foreign central banks) 339 281 4 2 91 All other deposits and credit balances 56 47 1 4 92 Certified and official checks 366 306 24 9 93 Non-transaction accounts (including MMDAs, excluding IBFs) 142,224 123,024 4,175 6,588 94 Individuals, partnerships, and corporations 100,389 83,970 3,963 5,852 95 U.S. addressees (domicile) 87,080 76,159 2,187 4,852 96 Non-U.S. addressees (domicile) 13,309 7,811 1,776 1,000 97 Commercial banks in United States (including IBFs)... 27,760 25,878 36 693 98 U.S. branches and agencies of other foreign banks .. 12,400 11,727 11 280 99 Other commercial banks in United States 15,360 14,152 25 413 100 Banks in foreign countries 6,585 6,510 0 42 101 Foreign branches of U.S. banks 4,015 3,974 0 40 102 Other banks in foreign countries 2,570 2,535 0 2 103 Foreign governments and official institutions (including foreign central banks) 2,035 1,682 176 1 104 All other deposits and credit balances 5,454 4,984 0 1 105 IBF deposit liabilities 207,838 187,448 9,386 5,182 106 Individuals, partnerships, and corporations 15,282 10,009 600 3/ 107 U.S. addressees (domicile) 3,007 3,007 0 0 108 Non-U.S. addressees (domicile) 12,276 7,002 600 37 109 Commercial banks in United States (including IBFs)... 63,788 58,284 2,895 2,147 110 U.S. branches and agencies of other foreign banks .. n. a. 57,361 n.a. 52,459 n. a. 2,671 n.a. 1,858 111 Other commercial banks in United States 6,427 5,825 224 289 112 Banks in foreign countries 110,402 101,984 5,061 2,875 113 Foreign branches of U.S. banks 5,273 4,535 385 331 114 Other banks in foreign countries 105,130 97,449 4,676 2,544 115 Foreign governments and official institutions (including foreign central banks) 18,253 17,059 830 123 116 All other deposits and credit balances 113 112 0 0 For notes see end of table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Special Tables • May 1993 4.30 ASSETS AND LIABILITIES of U.S. Branches and Agencies of Foreign Banks, December 31, 19921—Continued Millions of dollars All states New York California Illinois IItteemm in T c IB l o u t F d a s i l n g I o B n F ly s inc T I l B o u t F d a s i l n g I o B n F ly s inc T I l B o u F t d a s i l n g I o B n F ly s inc T I l B o u F t d a s i l n g I o B n F ly s 117 Federal funds purchased and securities sold under agreements to repurchase 73,134 12,196 62,191 9,036 6,847 1,765 3,744 1,372 118 U.S. branches and agencies of other foreign banks 10,495 2,101 7,3% 949 1,692 546 1,310 601 119 Other commercial banks in United States 13,861 316 10,698 138 2,263 107 778 /I 120 Other 48,778 9,780 44,097 7,949 2,893 1,113 1,656 699 121 Other borrowed money 119,879 52,159 69,219 20,230 39,685 26,509 9,098 4,877 122 Owed to nonrelated commercial banks in United States (including IBFs) 47,522 22,002 20,461 4,292 22,256 15,775 3,347 1,631 123 Owed to U.S. offices of nonrelated U.S. banks 14,302 1,829 9,527 803 3,262 849 1,122 135 124 Owed to U.S. branches and agencies of nonrelated foreign banks 33,220 20,172 10,934 3,489 18,994 14,925 2,225 1,496 125 Owed to nonrelated banks in foreign countries 27,866 26,610 14,025 12, !88 10,705 10,628 2,865 2,855 126 Owed to foreign branches of nonrelated U.S. banks ... 2,126 2,000 853 749 1,107 1,107 143 133 127 Owed to foreign offices of nonrelated foreign banks 25,740 24,610 13,171 12,138 9,598 9,521 2,723 2,723 128 Owed to others 44,491 3,546 34,734 3,050 6,725 106 2,887 390 129 All other liabilities 48,499 5,915 36,762 5,176 5,769 546 5,097 154 130 Branch or agency liability on acceptances executed and outstanding 20,433 n.a. 14,875 n.a. 44,,007733 n.a. 888844 n.a. 131 Other liabilities to nonrelated parties 28,067 5,915 21,887 5,176 1,696 546 4,213 154 132 Net due to related depository institutions5 113,427 36,872 52,485 27,952 15,168 667 25,921 6,871 133 Net due to head office and other related depository institutions5 113,427 n.a. 52,485 n.a. 15,168 n.a. 25,921 n.a. 134 Net due to establishing entity, head office, and other related depository institutions n.a. 36,872 n.a. 27,952 n.a. 667 n.a. 6,871 MEMO 135 Non-interest bearing balances with commercial banks in United States 1,308 0 1,015 0 133 0 82 0 136 Holding of commercial paper included in total loans 1,966 1,800 99 57 137 Holding of own acceptances included in commercial and industrial loans 3,228 2,551 361 110099 138 Commercial and industrial loans with remaining maturity of one year or less 99,952 52,693 19,262 16,154 139 Predetermined interest rates 63,163 n.a. 31,017 n.a. 12,615 n.a. 12,198 n.a. 140 Floating interest rates 36,788 21,675 6,647 3,956 141 Commercial and industrial loans with remaining maturity of more than one year 67,934 39,395 12,494 9,476 142 Predetermined interest rates 23,890 13,655 4,008 4,401 143 Floating interest rates 44,044 25,740 8,486 5,075 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

U.S. Branches and Agencies A83 4.30—Continued Millions of dollars All states New York California Illinois IItteemm ex T c IB l o u t F d a s i l n g I o B n F ly s ex T c IB l o u t F d a s i l n g I o B n F ly s ex T c IB l o u t F d a s i l n g I o B n F ly s ex T c IB l o u t F d a s i l n g I o B n F ly s 111144444444 CCCCoooommmmppppoooonnnneeeennnnttttssss ooooffff ttttoooottttaaaallll nnnnoooonnnnttttrrrraaaannnnssssaaaaccccttttiiiioooonnnn aaaaccccccccoooouuuunnnnttttssss,,,, iiiinnnncccclllluuuuddddeeeedddd iiiinnnn ttttoooottttaaaallll ddddeeeeppppoooossssiiiittttssss aaaannnndddd ccccrrrreeeeddddiiiitttt bbbbaaaallllaaaannnncccceeeessss ooooffff nnnnoooonnnnttttrrrraaaannnnssssaaaaccccttttiiiioooonnnnaaaallll aaaaccccccccoooouuuunnnnttttssss,,,, iiiinnnncccclllluuuuddddiiiinnnngggg IIIIBBBBFFFFssss 148,384 129,843 4,922 6,729 111144445555 TTTTiiiimmmmeeee CCCCDDDDssss iiiinnnn ddddeeeennnnoooommmmiiiinnnnaaaattttiiiioooonnnnssss ooooffff $$$$111100000000,,,,000000000000 oooorrrr mmmmoooorrrreeee 112,201 t 98,066 t 2,812 t 4,895 t 111144446666 OOOOtttthhhheeeerrrr ttttiiiimmmmeeee ddddeeeeppppoooossssiiiittttssss iiiinnnn ddddeeeennnnoooommmmiiiinnnnaaaattttiiiioooonnnnssss ooooffff $$$$111100000000,,,,000000000000 oooorrrr mmmmoooorrrreeee 23,657 n.a. 20,930 n.a. 943 n.a. 1,466 n.a. 111144447777 TTTTiiiimmmmeeee CCCCDDDDssss iiiinnnn ddddeeeennnnoooommmmiiiinnnnaaaattttiiiioooonnnnssss ooooffff $$$$111100000000,,,,000000000000 oooorrrr mmmmoooorrrreeee \ wwwwiiiitttthhhh rrrreeeemmmmaaaaiiiinnnniiiinnnngggg mmmmaaaattttuuuurrrriiiittttyyyy ooooffff mmmmoooorrrreeee tttthhhhaaaannnn 11112222 mmmmoooonnnntttthhhhssss ........ 12,526 1 10,847 1,167 1 368 1 All states2 New York California Illinois inc T I l B o u t F d a s i l n g I o B n F ly s in T c I l B o u t F d a s i l n g I o B n F ly s inc T I l B o u F t d a s i l n g I o B n F ly s inc T I l B o u F t d a s i l n g I o B n F ly s 111144448888 MMMMaaaarrrrkkkkeeeetttt vvvvaaaalllluuuueeee ooooffff sssseeeeccccuuuurrrriiiittttiiiieeeessss hhhheeeelllldddd 77,801 13,408 70,704 12,545 3,656 538 3,064 296 111144449999 IIIImmmmmmmmeeeeddddiiiiaaaatttteeeellllyyyy aaaavvvvaaaaiiiillllaaaabbbblllleeee ffffuuuunnnnddddssss wwwwiiiitttthhhh aaaa mmmmaaaattttuuuurrrriiiittttyyyy ggggrrrreeeeaaaatttteeeerrrr tttthhhhaaaannnn oooonnnneeee ddddaaaayyyy iiiinnnncccclllluuuuddddeeeedddd iiiinnnn ooootttthhhheeeerrrr bbbboooorrrrrrrroooowwwweeeedddd mmmmoooonnnneeeeyyyy 77,521 n.a. 41,627 n.a. 29,786 n.a. 4,881 n.a. 111155550000 NNNNuuuummmmbbbbeeeerrrr ooooffff rrrreeeeppppoooorrrrttttssss ffffiiiilllleeeedddd6666 573 0 268 0 133 0 51 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. 11, last issued on footnote 5). On the former monthly branch and agency 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. Therefore, 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 the 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

A84 Index to Statistical Tables References are to pages A3-A83 although the prefix "A" is omitted in this index ACCEPTANCES, bankers (See Bankers acceptances) Demand deposits Agricultural loans, commercial banks, 21, 22 Banks, by classes, 19-23 Assets and liabilities (See also Foreigners) Ownership by individuals, partnerships, and Banks, by classes, 19-22 corporations, 23 Domestic finance companies, 35 Turnover, 16 Federal Reserve Banks, 11 Depository institutions Financial institutions, 27 Reserve requirements, 9 Foreign banks, U.S. branches and agencies, 23, 80-83 Reserves and related items, 4, 5, 6, 13, 71, 73, 75 Automobiles Deposits (See also specific types) Consumer installment credit, 38 Banks, by classes, 4, 19-22, 23 Production, 47, 48 Federal Reserve Banks, 5, 11 Turnover, 16 BANKERS acceptances, 10, 24, 25 Discount rates at Reserve Banks and at foreign central banks and Bankers balances, 19-22, 80-83. (See also Foreigners) foreign countries (See Interest rates) Bonds (See also U.S. government securities) Discounts and advances by Reserve Banks (See Loans) New issues, 34 Dividends, corporate, 34 Rates, 25 Branch banks, 23, 55 EMPLOYMENT, 45 Business activity, nonfinancial, 44 Eurodollars, 25 Business expenditures on new plant and equipment, 34 Business loans (See Commercial and industrial loans) FARM mortgage loans, 37 Federal agency obligations, 5, 10, 11, 12, 30, 31 CAPACITY utilization, 46 Federal credit agencies, 32 Capital accounts Federal finance Banks, by classes, 19, 71, 73, 75 Debt subject to statutory limitation, and types and ownership Federal Reserve Banks, 11 of gross debt, 29 Central banks, discount rates, 67 Receipts and outlays, 27, 28 Certificates of deposit, 25 Treasury financing of surplus, or deficit, 27 Commercial and industrial loans Treasury operating balance, 27 Commercial banks, 17, 21, 70, 72, 74, 76-79 Federal Financing Bank, 27, 32 Weekly reporting banks, 21-23 Federal funds, 7, 18, 21, 22, 23, 25, 27 Commercial banks Federal Home Loan Banks, 32 Assets and liabilities, 19-22, 76-79 Federal Home Loan Mortgage Corporation, 32, 36, 37 Commercial and industrial loans, 17, 19, 20, 21, 22, 23 Federal Housing Administration, 32, 36, 37 Consumer loans held, by type and terms, 38, 70, 72, 74 Federal Land Banks, 37 Loans sold outright, 21 Federal National Mortgage Association, 32, 36, 37 Nondeposit funds, 18, 80-83 Federal Reserve Banks Number by classes, 71, 73, 75 Condition statement, 11 Real estate mortgages held, by holder and property, 37 Discount rates (See Interest rates) Terms of lending, 76-79 U.S. government securities held, 5, 11, 12, 29 Time and savings deposits, 4 Federal Reserve credit, 5, 6, 11, 12 Commercial paper, 24, 25, 35 Federal Reserve notes, 11 Condition statements (See Assets and liabilities) Federally sponsored credit agencies, 32 Construction, 44, 49 Finance companies Consumer installment credit, 38 Assets and liabilities, 35 Consumer prices, 44,46 Business credit, 35 Consumption expenditures, 52, 53 Loans, 38 Corporations Paper, 24, 25 Nonfinancial, assets and liabilities, 34 Financial institutions Profits and their distribution, 34 Loans to, 21, 22, 23 Security issues, 33, 65 Selected assets and liabilities, 27 Cost of living (See Consumer prices) Float, 51 Credit unions, 38 Flow of funds, 39,41, 42, 43 Currency and coin, 70, 72, 74 Foreign banks, assets and liabilities of U.S. branches and Currency in circulation, 5, 14 agencies, 22, 23, 80-83 Customer credit, stock market, 26 Foreign currency operations, 11 Foreign deposits in U.S. banks, 5, 11, 21, 22 DEBITS to deposit accounts, 16 Foreign exchange rates, 68 Debt (See specific types of debt or securities) Foreign trade, 54 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A85 Foreigners REAL estate loans Claims on, 55, 57, 60, 61, 62, 64 Banks, by classes, 17, 21, 22, 37, 72 Liabilities to, 22, 54, 55, 57, 58, 63, 65, 66 Financial institutions, 27 Terms, yields, and activity, 36 GOLD Type of holder and property mortgaged, 37 Certificate account, 11 Repurchase agreements, 7, 18, 21, 22, 23 Stock, 5, 54 Reserve requirements, 9 Government National Mortgage Association, 32, 36, 37 Reserves Gross domestic product, 51 Commercial banks, 19 Depository institutions, 4, 5, 6, 13 HOUSING, new and existing units, 49 Federal Reserve Banks, 11 U.S. reserve assets, 54 INCOME, personal and national, 44, 51, 52 Residential mortgage loans, 36 Industrial production, 44, 47 Retail credit and retail sales, 38, 39,44 Installment loans, 38 Insurance companies, 29, 37 SAVING Interest rates Flow of funds, 39, 41, 42,43 Bonds, 25 National income accounts, 51 Commercial banks, 76-79 Savings and loan associations, 37, 38, 39. (See also SAIF-insured Consumer installment credit, 38 institutions) Federal Reserve Banks, 8 Savings Association Insurance Funds (SAIF) insured institutions, 27 Foreign central banks and foreign countries, 67 Savings banks, 27, 37, 38 Money and capital markets, 25 Savings deposits (See Time and savings deposits) Mortgages, 36 Securities (See also specific types) Prime rate, 24 Federal and federally sponsored credit agencies, 32 International capital transactions of United States, 53-67 Foreign transactions, 65 International organizations, 57, 58, 60, 63,64 Life insurance companies, 70 Inventories, 51 New issues, 33 Investment companies, issues and assets, 34 Prices, 26 Investments (See also specific types) Special drawing rights, 5, 11, 53, 54 Banks, by classes, 19, 20, 21, 22, 23, 27 State and local governments Commercial banks, 4, 17, 19-22, 72 Deposits, 21, 22 Federal Reserve Banks, 11, 12 Holdings of U.S. government securities, 29 Financial institutions, 37 New security issues, 33 Ownership of securities issued by, 21, 22 LABOR force, 45 Rates on securities, 25 Life insurance companies (See Insurance companies) Stock market, selected statistics, 26 Loans (See also specific types) Stocks (See also Securities) Banks, by classes, 19-22 New issues, 33 Commercial banks, 4, 17, 19-22, 70, 72, 74 Prices, 26 Federal Reserve Banks, 5, 6, 8, 11, 12 Financial institutions, 27, 37 Student Loan Marketing Association, 32 Insured or guaranteed by United States, 36, 37 TAX receipts, federal, 28 MANUFACTURING Thrift institutions, 4. (See also Credit unions and Savings and Capacity utilization, 46 loan associations) Production, 46, 48 Time and savings deposits, 4, 14, 18, 19, 20, 21, 22, 23, 71, 73, 75 Margin requirements, 26 Trade, foreign, 54 Member banks (See also Depository institutions) Treasury cash, Treasury currency, 5 Federal funds and repurchase agreements, 7 Treasury deposits, 5, 11, 27 Reserve requirements, 9 Treasury operating balance, 27 Mining production, 48 UNEMPLOYMENT, 45 Mobile homes shipped, 49 U.S. government balances Monetary and credit aggregates, 4, 13 Commercial bank holdings, 19, 20, 21, 22 Money and capital market rates, 25 Treasury deposits at Reserve Banks, 5, 11, 27 Money stock measures and components, 4,14 U.S. government securities Mortgages (See Real estate loans) Bank holdings, 19-22, 23, 29 Mutual funds, 34 Dealer transactions, positions, and financing, 31 Mutual savings banks (See Thrift institutions) Federal Reserve Bank holdings, 5, 11,12, 29 Foreign and international holdings and NATIONAL defense outlays, 28 transactions, 11, 29, 66 National income, 51 Open market transactions, 10 Outstanding, by type and holder, 27, 29 OPEN market transactions, 10 Rates, 24 U.S. international transactions, 53-67 PERSONAL income, 52 Utilities, production, 48 Prices Consumer and producer, 44, 50 VETERANS Administration, 36, 37 Stock market, 26 Prime rate, 24 WEEKLY reporting banks, 21-23 Producer prices, 44, 50 Wholesale (producer) prices, 44, 50 Production, 44, 47 Profits, corporate, 34 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A86 Federal Reserve Board of Governors and Official Staff ALAN GREENSPAN, Chairman WAYNE D. ANGELL DAVID W. MULLINS, JR., Vice Chairman 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 THEODORE E. ALLISON, Assistant to the Board for Federal CHARLES J. SIEGMAN, Senior Associate Director Reserve System Affairs DALE W. HENDERSON, Associate Director LYNN S. FOX, Special Assistant to the Board DAVID H. HOWARD, Senior Adviser WINTHROP P. HAMBLEY, Special Assistant to the Board DONALD B. ADAMS, Assistant Director BOB STAHLY MOORE, Special Assistant to the Board PETER HOOPER III, Assistant Director DIANE E. WERNEKE, Special Assistant to the Board KAREN H. JOHNSON, Assistant Director RALPH W. SMITH, JR., Assistant Director LEGAL DIVISION J. VIRGIL MATTINGLY, JR., General Counsel DIVISION OF RESEARCH AND STATISTICS SCOTT G. ALVAREZ, Associate General Counsel MICHAEL J. PRELL, Director RICHARD M. ASHTON, Associate General Counsel EDWARD C. ETTIN, Deputy Director OLIVER IRELAND, Associate General Counsel WILLIAM R. JONES, Associate Director KATHLEEN M. O'DAY, Associate General Counsel THOMAS D. SIMPSON, Associate Director MARYELLEN A. BROWN, Assistant to the General Counsel LAWRENCE SLIFMAN, Associate Director DAVID J. STOCKTON, Associate Director OFFICE OF THE SECRETARY MARTHA BETHEA, Deputy Associate Director WILLIAM W. WILES, Secretary PETER A. TINSLEY, Deputy Associate Director JENNIFER J. JOHNSON, Associate Secretary MYRON L. KWAST, Assistant Director BARBARA R. LOWREY, Associate Secretary PATRICK M. PARKINSON, Assistant Director ELLEN MALAND, Assistant Secretary MARTHA S. SCANLON, Assistant Director JOYCE K. ZICKLER, Assistant Director DIVISION OF BANKING JOHN J. MINGO, Adviser LEVON H. GARABEDIAN, Assistant Director SUPERVISION AND REGULATION (Administration) RICHARD SPILLENKOTHEN, Director STEPHEN C. SCHEMERING, Deputy Director DIVISION OF MONETARY AFFAIRS DON E. KLINE, Associate Director WILLIAM A. RYBACK, Associate Director DONALD L. KOHN, Director FREDERICK M. STRUBLE, Associate Director DAVID E. LINDSEY, Deputy Director HERBERT A. BIERN, Deputy Associate Director BRIAN F. MADIGAN, Associate Director ROGER T. COLE, Deputy Associate Director RICHARD D. PORTER, Deputy Associate Director JAMES I. GARNER, Deputy Associate Director DEBORAH DANKER, Assistant Director HOWARD A. AMER, Assistant Director NORMAND R.V. BERNARD, Special Assistant to the Board GERALD A. EDWARDS, JR., Assistant Director DIVISION OF CONSUMER JAMES D. GOETZINGER, Assistant Director STEPHEN M. HOFFMAN, JR., Assistant Director AND COMMUNITY AFFAIRS LAURA M. HOMER, Assistant Director GRIFFITH L. GARWOOD, Director JAMES V. HOUPT, Assistant Director GLENN E. LONEY, Associate Director JACK P. JENNINGS, Assistant Director DOLORES S. SMITH, Associate Director MICHAEL G. MARTINSON, Assistant Director MAUREEN P. ENGLISH, Assistant Director RHOGER H PUGH, Assistant Director IRENE SHAWN MCNULTY, Assistant Director SIDNEY M. SUSSAN, Assistant Director MOLLY S. WASSOM, Assistant Director Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A87 JOHN P. LAWARE SUSAN M. PHILLIPS LAWRENCE B. LINDSEY OFFICE OF DIVISION OF RESERVE BANK OPERATIONS STAFF DIRECTOR FOR MANAGEMENT AND PAYMENT SYSTEMS S. DAVID FROST, Staff Director CLYDE H. FARNSWORTH, JR., Director WILLIAM SCHNEIDER, Special Assignment: DAVID L. ROBINSON, Deputy Director (Finance and Project Director, National Information Center Control) PORTIA W. THOMPSON, Equal Employment Opportunity CHARLES W. BENNETT, Assistant Director Programs Officer JACK DENNIS, JR., Assistant Director EARL G. HAMILTON, Assistant Director DIVISION OF HUMAN RESOURCES JEFFREY C. MARQUARDT, Assistant Director MANAGEMENT JOHN H. PARRISH, Assistant Director DAVID L. SHANNON, Director LOUISE L. ROSEMAN, Assistant Director JOHN R. WEIS, Associate Director FLORENCE M. YOUNG, Assistant Director ANTHONY V. DIGIOIA, Assistant Director OFFICE OF THE INSPECTOR GENERAL JOSEPH H. HAYES, JR., Assistant Director FRED HOROWITZ, Assistant Director BRENT L. BOWEN, Inspector General DONALD L. ROBINSON, Assistant Inspector General OFFICE OF THE CONTROLLER BARRY R. SNYDER, Assistant Inspector General 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 DIVISION OF INFORMATION RESOURCES MANAGEMENT STEPHEN R. MALPHRUS, Director BRUCE M. BEARDSLEY, Deputy Director MARIANNE M. EMERSON, Assistant Director Po KYUNG KIM, Assistant Director RAYMOND H. MASSEY, Assistant Director EDWARD T. MULRENIN, Assistant Director DAY W. RADEBAUGH, JR., Assistant Director ELIZABETH B. RIGGS, Assistant Director RICHARD C. STEVENS, Assistant Director Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

88 Federal Reserve Bulletin • May 1993 Federal Open Market Committee and Advisory Councils FEDERAL OPEN MARKET COMMITTEE MEMBERS ALAN GREENSPAN, Chairman E. GERALD CORRIGAN, Vice Chairman WAYNE D. ANGELL EDWARD W. KELLEY, JR. DAVID W. MULLINS, JR. EDWARD G. BOEHNE JOHN P. LAWARE SUSAN M. PHILLIPS SILAS KEEHN LAWRENCE B. LINDSEY GARY H. STERN ROBERT D. MCTEER, JR. ALTERNATE MEMBERS J. ALFRED BROADDUS, JR. JERRY L. JORDAN ROBERT T. PARRY ROBERT P. FORRESTAL JAMES H. OLTMAN STAFF DONALD L. KOHN, Secretary and Economist RICHARD W. LANG, Associate Economist NORMAND R.V. BERNARD, Deputy Secretary DAVID E. LINDSEY, Associate Economist JOSEPH R. COYNE, Assistant Secretary LARRY J. PROMISEL, Associate Economist GARY P. GILLUM, Assistant Secretary ARTHUR J. ROLNICK, Associate Economist J. VIRGIL MATTINGLY, JR., General Counsel HARVEY ROSENBLUM, Associate Economist ERNEST T. PATRIKIS, Deputy General Counsel KARL A. SCHELD, Associate Economist MICHAEL J. PRELL, Economist CHARLES J. SIEGMAN, Associate Economist EDWIN M. TRUMAN, Economist THOMAS D. SIMPSON, Associate Economist RICHARD G. DAVIS, Associate Economist LAWRENCE SLIFMAN, Associate Economist WILLIAM J. MCDONOUGH, Manager of the System Open Market Account MARGARET L. GREENE, Deputy Manager for Foreign Operations JOAN E. LOVETT, Deputy Manager for Domestic Operations FEDERAL ADVISORY COUNCIL E. B. ROBINSON, JR., President JOHN B. MCCOY, Vice President MARSHALL N. CARTER, First District EUGENE A. MILLER, Seventh District CHARLES S. SANFORD, JR., Second District ANDREW B. CRAIG, III, Eighth District ANTHONY P. TERRACCIANO, Third District JOHN F. GRUNDHOFER, Ninth District JOHN B. MCCOY, Fourth District DAVID A. RISMILLER, Tenth District EDWARD E. CRUTCHFIELD, JR., Fifth District CHARLES R. HRDLICKA, Eleventh District E.B. ROBINSON, JR., Sixth District RICHARD M. ROSENBERG, Twelfth District HERBERT V. PROCHNOW, Secretary WILLIAM J. KORSVIK, Associate Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A89 CONSUMER ADVISORY COUNCIL DENNY D. DUMLER, Denver, Colorado, Chairman JEAN POGGE, Chicago, Illinois, Vice Chairman BARRY A. ABBOTT, San Francisco, California BONNIE GUITON, Charlottesville, Virginia JOHN R. ADAMS, Philadelphia, Pennsylvania JOYCE HARRIS, Madison, Wisconsin JOHN A. BAKER, Atlanta, Georgia GARY S. HATTEM, New York, New York VERONICA E. BARELA, Denver, Colorado JULIA E. HILER, Marietta, Georgia MULUGETTA BIRRU, Pittsburgh, Pennsylvania RONALD HOMER, Boston, Massachusetts DOUGLAS D. BLANKE, St. Paul, Minnesota THOMAS L. HOUSTON, Dallas, Texas GENEVIEVE BROOKS, Bronx, New York HENRY JARAMILLO, Belen, New Mexico TOYE L. BROWN, Boston, Massachusetts EDMUND MIERZWINSKI, Washington, D.C. CATHY CLOUD, Washington, D.C. JOHN V. SKINNER, Irving, Texas MICHAEL D. EDWARDS, Yelm, Washington LOWELL N. SWANSON, Portland, Oregon MICHAEL FERRY, St. Louis, Missouri MICHAEL W. TIERNEY, Washington, D.C. NORMA L. FREIBERG, New Orleans, Louisiana GRACE W. WEINSTEIN, Englewood, New Jersey LORI GAY, Los Angeles, California JAMES L. WEST, Tijeras, New Mexico DONALD A. GLAS, Hutchinson, Minnesota ROBERT O. ZDENEK, Washington, D.C. THRIFT INSTITUTIONS ADVISORY COUNCIL DANIEL C. ARNOLD, Houston, Texas, President BEATRICE D'AGOSTINO, Somerville, New Jersey, Vice President WILLIAM A. COOPER, Minneapolis, Minnesota CHARLES JOHN KOCH, Cleveland, Ohio PAUL L. ECKERT, Davenport, Iowa ROBERT MCCARTER, New Bedford, Massachusetts GEORGE R. GLIGOREA, Sheridan, Wyoming NICHOLAS W. MITCHELL, JR., Winston-Salem, North Carolina THOMAS J. HUGHES, Merrifield, Virginia STEPHEN W. PROUGH, Irvine, California KERRY KILLINGER, Seattle, Washington THOMAS R. RICKETTS, Troy, Michigan Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A90 Federal Reserve Board Publications For ordering assistance, write PUBLICATIONS SERVICES, Federal Reserve Regulatory Service. Looseleaf; updated at MS-138, Board of Governors of the Federal Reserve System, least monthly. (Requests must be prepaid.) Washington, DC 20551 or telephone (202) 452-3244 or FAX Consumer and Community Affairs Handbook. $75.00 per (202) 728-5886. When a charge is indicated, payment should year. accompany request and be made payable to the Board of Monetary Policy and Reserve Requirements Handbook. Governors of the Federal Reserve System. Payment from for- $75.00 per year. eign residents should be drawn on a U.S. bank. Securities Credit Transactions Handbook. $75.00 per year. The Payment System Handbook. $75.00 per year. Federal Reserve Regulatory Service. 3 vols. (Contains all four Handbooks plus substantial additional material.) THE FEDERAL RESERVE SYSTEM—PURPOSES AND FUNCTIONS. $200.00 per year. 1984. 120 pp. Rates for subscribers outside the United States are as follows ANNUAL REPORT. and include additional air mail costs: ANNUAL REPORT: BUDGET REVIEW, 1991-92. Federal Reserve Regulatory Service, $250.00 per year. FEDERAL RESERVE BULLETIN. Monthly. $25.00 per year or Each Handbook, $90.00 per year. $2.50 each in the United States, its possessions, Canada, and Mexico. Elsewhere, $35.00 per year or $3.00 each. THE U.S. ECONOMY IN AN INTERDEPENDENT WORLD: A MULTI- ANNUAL STATISTICAL DIGEST: period covered, release date, COUNTRY MODEL, May 1984. 590 pp. $14.50 each. number of pages, and price. WELCOME TO THE FEDERAL RESERVE. March 1989. 14 pp. 1981 October 1982 239 pp. $ 6.50 INDUSTRIAL PRODUCTION—1986 EDITION. December 1986. 440 pp. $9.00 each. 1982 December 1983 266 pp. $ 7.50 1983 October 1984 264 pp. $11.50 FINANCIAL FUTURES AND OPTIONS IN THE U.S. ECONOMY. December 1986. 264 pp. $10.00 each. 1984 October 1985 254 pp. $12.50 1985 October 1986 231 pp. $15.00 FINANCIAL SECTORS IN OPEN ECONOMIES: EMPIRICAL ANALY- 1986 November 1987 288 pp. $15.00 SIS AND POLICY ISSUES. August 1990. 608 pp. $25.00 each. 1987 October 1988 272 pp. $15.00 1988 November 1989 256 pp. $25.00 CONSUMER EDUCATION PAMPHLETS 1980-89 March 1991 712 pp. $25.00 Short pamphlets suitable for classroom use. Multiple copies are 1990 November 1991 185 pp. $25.00 available without charge. 1991 November 1992 215 pp. $25.00 Consumer Handbook on Adjustable Rate Mortgages Consumer Handbook to Credit Protection Laws SELECTED INTEREST AND EXCHANGE RATES—WEEKLY SERIES OF CHARTS. Weekly. $30.00 per year or $.70 each in the A Guide to Business Credit for Women, Minorities, and Small United States, its possessions, Canada, and Mexico. Else- Businesses where, $35.00 per year or $.80 each. How to File A Consumer Credit Complaint Series on the Structure of the Federal Reserve System THE FEDERAL RESERVE ACT and other statutory provisions The Board of Governors of the Federal Reserve System affecting the Federal Reserve System, as amended through The Federal Open Market Committee August 1990. 646 pp. $10.00. Federal Reserve Bank Board of Directors REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL Federal Reserve Banks RESERVE SYSTEM. Organization and Advisory Committees A Consumer's Guide to Mortgage Lock-Ins ANNUAL PERCENTAGE RATE TABLES (Truth in Lending— A Consumer's Guide to Mortgage Settlement Costs Regulation Z) Vol. I (Regular Transactions). 1969. 100 pp. A Consumer's Guide to Mortgage Refinancings Vol. II (Irregular Transactions). 1969. 116 pp. Each vol- Home Mortgages: Understanding the Process and Your Right ume $2.25; 10 or more of same volume to one address, to Fair Lending $2.00 each. Making Deposits: When Will Your Money Be Available? Introduction to Flow of Funds. 1980. 68 pp. $1.50 each; 10 or When Your Home is on the Line: What You Should Know more to one address, $1.25 each. About Home Equity Lines of Credit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A91 STAFF STUDIES: Summaries Only Printed in the 160. BANKING MARKETS AND THE USE OF FINANCIAL SER- Bulletin VICES BY SMALL AND MEDIUM-SIZED BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September Studies and papers on economic and financial subjects that are 1990. 35 pp. of general interest. Requests to obtain single copies of the full text or to be added to the mailing list for the series may be sent 161. A REVIEW OF CORPORATE RESTRUCTURING ACTIVITY, 1980-90, by Margaret Hastings Pickering. May 1991. to Publications Services. 21pp. 162. EVIDENCE ON THE SIZE OF BANKING MARKETS FROM Staff Studies 1-145 are out of print. MORTGAGE LOAN RATES IN TWENTY CITIES, by Stephen A. Rhoades. February 1992. 11 pp. 146. THE ROLE OF THE PRIME RATE IN THE PRICING OF 163. CLEARANCE AND SETTLEMENT IN U.S. SECURITIES MAR- BUSINESS LOANS BY COMMERCIAL BANKS, 1977-84, by KETS, by Patrick Parkinson, Adam Gilbert, Emily Gollob, Thomas F. Brady. November 1985. 25 pp. Lauren Hargraves, Richard Mead, Jeff Stehm, and Mary 147. REVISIONS IN THE MONETARY SERVICES (DIVISIA) IN- Ann Taylor. March 1992. 37 pp. DEXES OF THE MONETARY AGGREGATES, by Helen T. Farr and Deborah Johnson. December 1985. 42 pp. 148. THE MACROECONOMIC AND SECTORAL EFFECTS OF THE REPRINTS OF SELECTED Bulletin ARTICLES ECONOMIC RECOVERY TAX ACT: SOME SIMULATION RESULTS, by Flint Brayton and Peter B. Clark. December Some Bulletin articles are reprinted. The articles listed below 1985. 17 pp. are those for which reprints are available. Most of the articles reprinted do not exceed twelve pages. Limit of ten copies 149. THE OPERATING PERFORMANCE OF ACQUIRED FIRMS IN BANKING BEFORE AND AFTER ACQUISITION, by Stephen A. Rhoades. April 1986. 32 pp. Recent Developments in the Bankers Acceptance Market. 1/86. 150. STATISTICAL COST ACCOUNTING MODELS IN BANKING: The Use of Cash and Transaction Accounts by American A REEXAMINATION AND AN APPLICATION, by John T. Families. 2/86. Rose and John D. Wolken. May 1986. 13 pp. Financial Characteristics of High-Income Families. 3/86. 151. RESPONSES TO DEREGULATION: RETAIL DEPOSIT PRICING Prices, Profit Margins, and Exchange Rates. 6/86. FROM 1983 THROUGH 1985, by Patrick I. Mahoney, Alice Agricultural Banks under Stress. 7/86. P. White, Paul F. O'Brien, and Mary M. McLaughlin. Foreign Lending by Banks: A Guide to International and U.S. January 1987. 30 pp. Statistics. 10/86. 152. DETERMINANTS OF CORPORATE MERGER ACTIVITY: A Recent Developments in Corporate Finance. 11/86. REVIEW OF THE LITERATURE, by Mark J. Warshawsky. Measuring the Foreign-Exchange Value of the Dollar. 6/87. April 1987. 18 pp. Changes in Consumer Installment Debt: Evidence from the 153. STOCK MARKET VOLATILITY, by Carolyn D. Davis and 1983 and 1986 Surveys of Consumer Finances. 10/87. Alice P. White. September 1987. 14 pp. Home Equity Lines of Credit. 6/88. 154. THE EFFECTS ON CONSUMERS AND CREDITORS OF Mutual Recognition: Integration of the Financial Sector in the PROPOSED CEILINGS ON CREDIT CARD INTEREST RATES, European Community. 9/89. by Glenn B. Canner and James T. Fergus. October 1987. The Activities of Japanese Banks in the United Kingdom and in 26 pp. the United States, 1980-88. 2/90. 155. THE FUNDING OF PRIVATE PENSION PLANS, by Mark J. Industrial Production: 1989 Developments and Historical Warshawsky. November 1987. 25 pp. Revision. 4/90. 156. INTERNATIONAL TRENDS FOR U.S. BANKS AND BANKING Recent Developments in Industrial Capacity and Utilization. MARKETS, by James V. Houpt. May 1988. 47 pp. 6/90. 157. M2 PER UNIT OF POTENTIAL GNP AS AN ANCHOR FOR Developments Affecting the Profitability of Commercial Banks. THE PRICE LEVEL, by Jeffrey J. Hallman, Richard D. 7/90. Porter, and David H. Small. April 1989. 28 pp. Recent Developments in Corporate Finance. 8/90. 158. THE ADEQUACY AND CONSISTENCY OF MARGIN REQUIRE- U.S. Exchange Rate Policy: Bretton Woods to Present. 11/90. MENTS IN THE MARKETS FOR STOCKS AND DERIVATIVE The Transmission Channels of Monetary Policy: How Have PRODUCTS, by Mark J. Warshawsky with the assistance of They Changed? 12/90. Dietrich Earnhart. September 1989. 23 pp. Changes in Family Finances from 1983 to 1989: Evidence from 159. NEW DATA ON THE PERFORMANCE OF NONBANK SUBSID- the Survey of Consumer Finances. 1/92. IARIES OF BANK HOLDING COMPANIES, by Nellie Liang U.S. International Transactions in 1991. 5/92. and Donald Savage. February 1990. 12 pp. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A92 Maps of the Federal Reserve System LEGEND Both pages Facing page • Federal Reserve Bank city • Federal Reserve Branch city • Board of Governors of the Federal — Branch boundary Reserve System, Washington, D.C. NOTE The Federal Reserve officially identifies Districts Commonwealth of Puerto Rico and the U.S. Virgin by number and Reserve Bank city (shown on both Islands; the San Francisco Bank serves American pages) and by letter (shown on the facing page). Samoa, Guam, and the Commonwealth of the In the 12th District, the Seattle Branch serves Northern Mariana Islands. The Board of Governors Alaska, and the San Francisco Bank serves Hawaii. revised the branch boundaries of the System most The System serves commonwealths and terri- recently in December 1991. tories as follows: the New York Bank serves the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A93 5-E Baltimore. Pittsburgh :innati Buffalo BOSTON NEW YORK PHILADELPHIA CLEVELAND RICHMOND • Nashville Birmingham. Jacksonville • Memphis Miami ATLANTA CHICAGO ST. LOUIS MINNEAPOLIS ALASKA Oklahoma City KANSAS CITY HAWAII DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A94 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 Jerome H. Grossman Richard F. Syron Warren B. Rudman Cathy E. Minehan NEW YORK* 10045 Ellen V. Futter E. Gerald Corrigan Maurice R. Greenberg James H. Oltman Buffalo 14240 Herbert L. Washington James O. Aston PHILADELPHIA 19105 Jane G. Pepper Edward G. Boehne James M. Mead William H. Stone, Jr. CLEVELAND* 44101 A. William Reynolds Jerry L. Jordan To be announced Sandra Pianalto Cincinnati 45201 Marvin Rosenberg Charles A. Cerino1 Pittsburgh 15230 Robert P. Bozzone Harold J. Swart1 RICHMOND* 23219 Anne Marie Whittemore J. Alfred Broaddus, Jr. Henry J. Faison Jimmie R. Monhollon Baltimore 21203 To be announced Ronald B. Duncan1 Charlotte 28230 Anne M. Allen Walter A. Varvel1 Culpeper Communications John G. Stoides1 and Records Center 22701 ATLANTA 30303 Edwin A. Huston Robert P. Forrestal Leo Benatar Jack Guynn Donald E. Nelson1 Birmingham 35283 Donald E. Boomershine Fred R. Herr1 Jacksonville 32231 JoanD. Ruffier James D. Hawkins1 Miami 33152 R. KirkLandon James T. Curry III Nashville 37203 James R. Tuerff Melvyn K. Purcell New Orleans 70161 Lucimarian Roberts Robert J. Musso CHICAGO* 60690 Richard G. Cline Silas Keehn Robert M. Healey William C. Conrad Detroit 48231 J. Michael Moore Roby L. Sloan1 ST. LOUIS 63166 Robert H. Quenon Thomas C. Melzer Janet McAfee Weakle James R. Bowen Little Rock 72203 Robert D. Nabholz, Jr. Karl W. Ashman Louisville 40232 John A. Williams Howard Wells Memphis 38101 Seymour B. Johnson John P. Baumgartner 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 Burton A. Dole, Jr. Thomas M. Hoenig Herman Cain Henry R. Czerwinski Denver 80217 Barbara B. Grogan Kent M. Scott Oklahoma City 73125 Ernest L. Holloway David J. France Omaha 68102 Sheila Griffin Harold L. Shewmaker DALLAS 75201 Leo E. Linbeck, Jr. Robert D. McTeer, Jr. Cece Smith Tony J. Salvaggio El Paso 79999 W. Thomas Beard, III Sammie C. Clay Houston 77252 Judy Ley Allen Robert Smith, IIP San Antonio 78295 Erich Wendl Thomas H. Robertson SAN FRANCISCO 94120 James A. Vohs Robert T. Parry Judith M. Runstad Patrick K. Barron Los Angeles 90051 Donald G. Phelps John F. Moore1 Portland 97208 William A. Hilliard E. Ronald Liggett1 Salt Lake City 84125 Gary G. Michael Andrea P. Wolcott Seattle 98124 George F. Russell, Jr. Gordon Werkema1 •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. 1. Senior Vice President. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis