Federal Reserve Bulletin, 1996-10

VOLUME 82 • NUMBER 10 • OCTOBER 1996 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 883 THE LOCATION OF U.S. CURRENCY: HOW Amendment to regulations regarding loans in MUCH is ABROAD? areas with special flood hazards. Federal Reserve bank notes are widely used Proposal to amend the risk-based capital guideoutside the United States. Knowledge of how lines for banks and bank holding companies much U.S. currency is abroad is important for a regarding the treatment of collateralized transvariety of reasons, but currency movements are actions; proposed amendments to Regulation Y. notoriously difficult to measure, and estimates of Development of public service announcements the foreign component of currency stocks and on the sale of mutual funds at banks. flows have been subject to a great deal of speculation and uncertainty. This article brings together several new methods and data sources to 909 MINUTES OF THE FEDERAL OPEN narrow the range of that uncertainty. The authors MARKET COMMITTEE MEETING estimate that about $200 billion to $250 billion HELD ON JULY 2-3, 1996 of U.S. currency was abroad at the end of 1995, or more than half the roughly $375 billion then At its meeting on July 2-3, 1996, the Commitin circulation outside of banks. Moreover, tee reaffirmed the ranges for 1996 growth of M2 growth in foreign demand for U.S. currency— and M3 of 1 to 5 percent and 2 to 6 percent especially for hundred-dollar bills ($100s)—has respectively and the monitoring range for been far stronger than growth in U.S. demand. expansion of total domestic nonfinancial debt of On average over the 1990s, the currency stock 3 to 7 percent that it had established in January. abroad has been growing at about three times The Committee provisionally set the same the rate of growth of the domestic stock. ranges for 1997. For the intermeeting period ahead, the Committee adopted a directive that called for maintaining the existing degree of pressure 904 INDUSTRIAL PRODUCTION AND CAPACITY on reserve positions and that included a bias UTILIZATION FOR AUGUST 1996 toward the possible firming of reserve condi- Industrial production increased 0.5 percent in tions during the intermeeting period. August, to 126.9 percent of its 1987 average, after a gain of 0.1 percent in My. Industrial capacity utilization rose 0.2 percentage point, to 917 LEGAL DEVELOPMENTS 83.5 percent. Various bank holding company, bank service corporation, and bank merger orders; and pending cases. 907 ANNOUNCEMENTS Issuance of final agency guidelines on safety and soundness standards for asset quality and A1 FINANCIAL AND BUSINESS STATISTICS earnings. These tables reflect data available as of August 28, 1996. Issuance of a final rule amending the risk-based capital standards to incorporate a measure of market risk. A3 GUIDE TO TABULAR PRESENTATION Adoption of a final rule regarding investment A4 Domestic Financial Statistics adviser activities in Regulation Y. A42 Domestic Nonfinancial Statistics Recission of a staff interpretive letter. A50 International Statistics Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A63 GUIDE TO STATISTICAL RELEASES AND A72 FEDERAL RESERVE BOARD PUBLICATIONS SPECIAL TABLES A74 M4.PS OF THE FEDERAL RESERVE SYSTEM A66 INDEX TO STATISTICAL TABLES A76 FEDERAL RESERVE BANKS, BRANCHES, AND OFFICES A68 BOARD OF GOVERNORS AND STAFF A70 FEDERAL OPEN MARKET COMMITTEE AND STAFF; ADVISORY COUNCILS Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? Richard D. Porter and Ruth A. Judson, of the Divi- Currency movements are difficult to measure for sion of Monetary Affairs, prepared this article. Lyle some of the same reasons that currency is popular: It Kumasaka, Adam Reed, and James Walsh provided can be easily concealed and readily carried across research assistance. borders, even in large quantities (a briefcase can hold $1 million in $100s). The total amount of U.S. cur- Federal Reserve bank notes are widely used outside rency in circulation is known; in principle, one could the United States. Knowing how much U.S. currency conduct a census to determine the domestic stock and is abroad is important for a variety of reasons, but assume that the rest of the currency is abroad. Howcurrency movements are notoriously difficult to mea- ever, such a census would be invasive, prohibitively sure, and estimates of the foreign component of cur- costly, and unlikely to yield reliable results. Thus, the rency stocks and flows have been subject to a great amount of currency held abroad can only be estideal of speculation and uncertainty. Here we bring mated, and then only from incomplete or indirect together several new methods and data sources to evidence about dollars flowing across U.S. borders. narrow the range of that uncertainty. According to Policymakers would find it useful to have a clear our estimates, about $200 billion to $250 billion of idea of how much U.S. currency is circulating outside U.S. currency was abroad at the end of 1995, or more the country. First, foreign demand for U.S. currency, than half the roughly $375 billion then in circulation if large and unrelated to domestic U.S. spending, will outside of banks. Moreover, that proportion has been complicate the interpretation of movements in the rising. Our calculations indicate that growth in for- amount of currency outstanding and in various other eign demand for U.S. currency—especially for monetary aggregates. hundred-dollar bills ($100s)—is far stronger than Second, estimates of changes in foreign holdings growth in U.S. demand. On average over the 1990s, of U.S. currency may also reduce the average size of the overseas stock has been growing at about three the errors-and-omissions category in the U.S. internatimes the rate of growth of the domestic stock. tional transaction accounts, which do not currently Today, foreigners hold U.S. currency for the same incorporate any estimates of changes in foreign holdreasons that people once held gold coins: as a unit of ings of currency. account, a medium of exchange, and a store of value Third, a significant foreign demand for U.S. curwhen the purchasing power of the domestic currency rency will have important effects on the amount of is uncertain or when other assets lack sufficient ano- seigniorage that the United States can expect.1 All nymity, portability, divisibility, liquidity, or security. U.S. currency, including that held externally, can be A safe asset in an unpredictable world, dollars often thought of as a form of interest-free Treasury borrowflow into a country during periods of economic and ing and therefore as a saving to the taxpayer. If the political upheaval and sometimes remain there well amount of currency abroad is around $200 billion, after the crisis has subsided. and the three-month Treasury bill rate is 5.2 percent (which it is as of this writing), the amount of seigniorage (and taxpayer saving) from externally circulating currency, calculated as the product of these two NOTE. We are grateful to Michael Bordo, David B. Humphrey, figures, would be more than $10 billion per year. Russell Krueger, J.L. Laake, Robert M. Lucas, Jr., Howard Murad, Knowing more accurately the amount of seigniorage Gerald Pollack, and our colleagues in the Federal Reserve for helpful assistance, comments, and discussions on various points. We thank FinCEN, the Financial Crimes Enforcement Network of the Department of the Treasury, for permission to use aggregate information derived from the U.S. Customs Service's Currency and Monetary Instrument Reports. Finally, we are grateful for the stimulating dia- 1. Seigniorage is defined as the government's gain from converting logue we have had with Edgar L. Feige on all aspects of this study. valuable metal into more valuable coins. We use the term here in the Questions and comments can be e-mailed to the authors at looser sense that includes the central bank's income from issuing rporter@frb.gov or ijudson@frb.gov. paper currency. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

884 Federal Reserve Bulletin • October 1996 derived from externally circulating currency would THE INTERNATIONAL MARKET assist policymakers in deciding how many resources FOR U.S. CURRENCY to devote to protecting it by, for example, combating the counterfeiting of U.S. currency abroad or improv- Before the advent of paper currency, gold coin—in ing the physical quality of externally circulating the form of Dutch guilders, Spanish pieces of eight, notes. Add to these reasons the fact that currency and other coins of the realm—circulated far outside outstanding has surged over recent years, and a reli- the countries in which they were minted; similarly, able answer to the question of how much is abroad bank notes (that is, notes issued by private commerbecomes a matter of considerable interest. cial banks) in the United States and England in the In all, we have examined ten methods for estimat- 19th century circulated far beyond the market areas ing the amount of currency held abroad. We first of those banks. U.S. currency today provides many of outline the major sources of foreign demand for U.S. the monetary services that gold coins once did. As currency. We also review the available information, the leading international currency, Federal Reserve from statistical reports to institutional structure, none notes enter other national economies for reasons both of which, alone, covers the full extent of currency public and private. Some countries, including Panama stocks or flows but which nonetheless point to for- and Liberia, have elected at times to use the U.S. eign use as the major source of recent growth in US. dollar as their currency. Other countries that issue currency. We then describe two of the ten methods currency maintain stable exchange rates between we use to estimate the stock of currency abroad, the their own currency and the U.S. dollar; in the Caribseasonal method and the biometric method, which bean, for example, that stability allows tourists and provide convenient illustrations of the assumptions residents to use both dollars and local currency withand empirical relationships required to estimate over- out fear of a sudden change in exchange value. Workseas currency flows and stocks. ers employed outside their home countries are often After briefly summarizing the remaining eight paid in U.S. dollars, which make their way into local methods, we present a summary measure, the economies directly or via remittances: U.S. soldiers "median flow estimate," based on several methods have been paid in dollars since World War II, and for which we have sufficient time-series data. We many expatriate workers in the oil-producing counshow that although year-to-year changes in domestic tries of the Middle East are paid in dollars. The dollar holdings have been relatively stable, changes in total is also the preferred currency for exchange: Travelers currency have grown and have become increasingly heading for points outside of Western Europe often dominated by foreign movements. In light of the economize on exchange costs by carrying dollars. evidence, we examine and find unpersuasive several arguments supporting the claim that very little currency is held outside the United States. Finally, when Jeffrey A. Frankel, "Still the Lingua Franca," Foreign Affairs, our estimate of U.S. currency held abroad is sub- vol. 74 (July/August 1995), pp. 9-16. Lawrence B. Lindsey, "America's Most Ignored Export," Durell tracted from the total outstanding, the amount of Journal of Money and Banking, vol. 6 (Winter 1994-95), pp. 2-5. domestically circulating currency per U.S. resident John Mueller, "Most of Our Money Is Missing—Again," Durell that remains is considerably smaller than the corre- Journal of Money and Banking, vol. 6 (Winter 1994-95), pp. 6-13. Richard D. Porter, "Estimates of Foreign Holdings of U.S. sponding measure for most other developed coun- Currency—An Approach Based on Relative Cross-Country Seasonal tries, and we examine some of the economic forces Variations," in Nominal Income Targeting with the Monetary Base as underlying these cross-country differences.2 Instrument: An Evaluation ofMcCallums' Rule, Finance and Economics Discussion Series Working Study 1 (Board of Governors of the Federal Reserve System, March 1993). , "Foreign Holdings of U.S. Currency," International Economic Insights (November/December 1993), p. 5. 2. For earlier estimates of the foreign component of currency and Ruth A. Judson, "The Location of U.S. Currency: stocks and flows and related issues, see, for example, How Much Is Abroad?" (Board of Governors of the Federal Reserve Robert B. Avery, Gregory E. Elliehausen, Arthur B. Kennickell, System, April 15, 1996). and Paul A. Spindt, "Changes in the Use of Transaction Accounts Franz Seitz, "The Circulation of Deutsche Mark Abroad," Discusand Cash from 1984 to 1986," Federal Reserve Bulletin, vol. 73 sion Paper 1/95, Economic Research Group of the Deutsche (March 1987), pp. 179-96. Bundesbank (May 1995). Alan S. Blinder, "The Role of the Dollar as an International Case M. Sprenkle, "The Case of the Missing Currency," Journal of Currency," Eastern Economic Journal, vol. 22 (Spring 1996), Economic Perspectives, vol. 7 (Fall 1993), pp. 175-84. pp. 127-36. Scott B. Summer, "The Case of the Missing Currency, Correspon- Edgar L. Feige, "Overseas Holdings of U.S. Currency and the dence," Journal of Economic Perspectives, vol. 8 (Fall 1994), Underground Economy," in Susan Pozo, ed., Exploring The Under- pp. 201-03. ground Economy: Studies of Illegal and Unreported Activity , "The Transactions and Hoarding Demand for Cur- (Kalamazoo, Mich.: W.E. Upjohn Institute for Employment Research, rency," Quarterly Review of Economics and Business, vol. 30 1996), pp. 5-62. (Spring 1990), pp. 75-89. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 885 Episodes of economic and political turmoil have continue to hold dollars as an instantly liquid form frequently been the catalyst for major influxes of of insurance against further political or economic dollars into a region. Recently, Argentina and the upheaval. Finally, in a high-inflation economy, holdformer Soviet Union received large inflows of dol- ing dollars as currency and bearing the implicit lars. In Argentina, which experienced chronic high interest cost can be more convenient than holding inflation from the 1960s to the early 1990s and brief other available savings or transactions instruments, bouts of hyperinflation in the mid 1970s and late even if they earn interest.6 1980s, U.S. currency is still used as the settlement medium for large-scale transactions such as those involving real estate and cars.3 Argentina has DATA SOURCES FOR ESTIMATES received as much as $40 billion in net shipments of OF CURRENCY HELD ABROAD U.S. currency, or well over $1,000 per capita.4 However, a Federal Reserve and Treasury study of the use We have two direct sources of information about of U.S. currency in Argentina suggests that some currency flows abroad—the U.S. Customs Service currency that was initially shipped to Argentina could and the Federal Reserve Bank of New York. Howhave subsequently moved to neighboring countries.5 ever, data from these sources are often inadequate for In the countries of the former Soviet Union, past measuring the stock of currency abroad, in particular and current high inflation, confiscatory currency because they miss much of the cash that is handreforms, and the underdevelopment of the banking carried or remitted by mail by guest workers and system encourage people to hold and use U.S. dollars travelers. Thus, to better estimate stocks, we also use for everything from retail purchases of imported con- sources of indirect information about currency flows. sumer products to the settlement of debts between We first describe the major sources of direct and and within countries. Cumulative net shipments of indirect data on currency flows in and out of the U.S. dollars to this part of the world have likely United States. We then present other institutional and surpassed those to Argentina, with some estimates as general information on currency growth and ecohigh as $60 billion. Moreover, evidence from nomic activity that point to a large and increasing Argentina and other countries indicates that long presence of U.S. currency outside the country. after crisis episodes have passed, many residents The Currency and Monetary Instrument 3. Daniel Heymann and Axel Leijonhufvud discuss the forces affecting currency holdings in countries experiencing high inflation Reports but not hyperinflation (High Inflation: The Arne Ryde Memorial Lectures, Clarendon Press, 1995). See also Carlos A. Vegh, "Stopping The most obvious direct source of information on High Inflation," International Monetary Fund, Staff Papers, vol. 39 (September, 1992), pp. 626-95; and Miguel A. Savastano, "Dollariza- currency flows across U.S. borders are the Currency tion in Latin America: Recent Evidence and Some Policy Issues," in and Monetary Instrument Reports (CMIRs) required P.D. Mizen and E.J. Pentecost, eds., The Macroeconomics of Inter- by the U.S. Customs Service.7 In principle, these national Currencies: Theory, Policy, and Evidence (Brookfleld, Vt.: Elgar, forthcoming). reports are a rich source of information because indi- For a perspective on this phenomenon and its relationship to sover- viduals or firms making almost any shipment of more eignty, see Benjamin J. Cohen, "The Political Economy of Currency than $10,000 in cash across a U.S. border are required Regions," in Edward D. Mansfield and Helen V. Milner, eds., The Political Economy of Regionalism (Columbia University Press, forth- to file a CMIR (the reporting threshold was raised, coming). For an international treatment of this issue, including a from $5,000 to $10,000, in 1980). Although CMIR discussion of the implications for balance-of-payments statistics, see data on shipments by banks seem to agree with the John Wilson, "Physical Currency Movements and Capital Flows," in Report on the Measurement of International Capital Flows: banks' own reports to the Federal Reserve Bank of Part II—Background Papers (International Monetary Fund, 1992), pp. 91-97; and Russell Krueger and Jiming Ha, "Measurement of Co-Circulation of Currencies," Working Paper 95/34 (International Monetary Fund, 1995). 6. In fact, some evidence indicates that the private holding of 4. This figure extends through 1995 the cumulation of net currency dollars in high-inflation regimes may possibly be more efficient than shipments to Argentina calculated in Steven Kamin and Neil R. other arrangements: A recent study of the welfare cost of inflation Ericsson, "Dollarization in Argentina," International Finance Discus- presents evidence that the financial sectors in high-inflation countries sion Papers 460 (Board of Governors of the Federal Reserve System, are larger than they would be otherwise; but among such high- 1993). Kamin and Ericsson find their estimate of Argentine dollar inflation economies, those that have been "dollarized" tend to have holdings to be consistent with the reduction in domestic money somewhat smaller financial sectors than the others. See William B. demand attributable to high inflation. English, "Inflation and Financial Sector Size," Finance and Econom- 5. Graciela Kaminsky, "Study by the U.S. Treasury Department ics Discussion Series 96-16 (Board of Governors of the Federal and Federal Reserve System of the Use of U.S. Currency Outside the Reserve System, April 1996). United States" (Board of Governors of the Federal Reserve System, 7. For more detail on these reports, see Feige, "Overseas Holdings 1994). of U.S. Currency." Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

886 Federal Reserve Bulletin • October 1996 New York, the CMIR data on nonbank shipments provide accurate aggregate data because of a onesum to improbably large net inflows.8 At least four sided data collection process and the omission of factors indicate that CMIRs are neither accurate nor some potentially large volumes of currency flows. thorough measures of large cash shipments that take place outside the banking sector. First, because arriving travelers must pass through Foreign Currency Shipments by Banks Customs but departing travelers ordinarily do not, the CMIR data are biased toward measuring inflows A second direct source of currency flow data is the of currency. Departing travelers are occasionally information provided to the Federal Reserve Bank of informed of the filing requirement or are targeted for New York by commercial bank-note brokers, prienforcement purposes, but their responses are not marily large commercial banks. Currently, we have adjusted statistically to account for the large propor- monthly data on incoming and outgoing currency tion of outgoing travelers who should, but apparently shipments by country for two intervals, the interwar do not, file CMIRs. For example, in 1994 the number period (for which the country data had been pubof travelers entering the United States from anywhere lished annually) and the period beginning in 1988. in the world was about the same as the number of We focus on the recent data.9 travelers leaving (about 45 million), but in that year, Overall, the shipments data indicate that well over about 170,000 arriving travelers filed CMIRs, $100 billion in U.S. currency on net has moved whereas only about 34.000 departing travelers did so. overseas since the late 1980s. From 1988 through Second, CMIRs do not capture shipments of 1991, the region receiving the bulk of currency ship- $10,000 or less, activity that could cumulate to a ments was Latin America, led by Argentina, which significant total. In 1994, excluding travel to Mexico received a little more than one-third of total net and Canada, 18.7 million U.S. residents left the shipments from the United States to the rest of the United States, and 19.2 million visitors entered. If world in this period. Since then, Europe has become these travelers carried an average of $1,000 each, the dominant destination, reflecting the turbulence in the unrecorded flows in each direction would be the former Soviet Union. Net U.S. currency flows to relatively large, around one-half of the measured Russia alone in both 1994 and 1995 have been at $32.8 billion 1994 CMIR inflows and $39.1 billion least $20 billion per year, or well more than half of outflows. For example, banking statistics seem to total net foreign shipments of U.S. currency. indicate that U.S. currency flows only back from the On the whole, from 1988 to 1995 about half of net Caribbean to the United States; the currency going in U.S. currency shipments abroad have gone to Europe, the other direction, from the United States to the with the bulk of those presumably going to Russia. Caribbean, goes not through the international bank- About 30 percent has been evenly split between the ing system but via the pockets of American tourists Far East and the Middle East, with the remainder and others, and most of it presumably goes going to Latin America, particularly Argentina. unrecorded. Third, many shipments greater than $10,000 are likely to be misreported or not reported at all. Disaggregated Sources: Surveys and Federal Although banks and other firms are accustomed to Reserve Cash Offices filing CMIRs and probably do so fairly diligently, individuals are potentially less aware of these reports, Two of the most important sources of indirect inforless willing to file them, or even eager to avoid them. mation on currency flows are recent survey results Fourth, the record-keeping system for CMIRs was designed with the purpose of identifying individual 9. The details of the data from 1988 onward are confidential. For transactions, not of developing accurate aggregate the interwar period, see for example, "Foreign Movements of United statistics on currency flows. In sum, CMIRs are an States Currency," Federal Reserve Bank of New York, Monthly important source of data, but they probably do not Review of Credit and Business Conditions, October 1, 1926, p. 6; "Shipments of American Currency To and From Europe," Banking and Monetary Statistics: 1914-1941 (Board of Governors of the Federal Reserve System, 1943), pp. 405-07, and table 113, pp. 8. In the CMIR system, double counting may exist for some 417-18; and "Shipments of American Currency To and From transactions: for example, a bank and a commercial shipper may both Europe," Federal Reserve Bulletin, vol. 18 (January 1932), pp. 7-9. report the same currency shipment. Further, not all cross-border Also, some annual data cover a brief period following World War II: consignments of cash require a CMIR. In particular, overland ship- See Balance of Payments Statistical Supplement to Survey of Current ments of currency between banks and established customers do not Business (Department of Commerce, 1958), pp. 178-79, note 3, need to be reported, nor do overland shipments between established international investment position table referencing U.S. currency offices of banks (31 C.F.R. 103.23, (3) and (9)). abroad in 1946-56. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 887 and data from currency processing performed at thirty-seven Federal Reserve Cash Offices. Each of the Federal Reserve System's Cash Offices. Twice the twelve Federal Reserve Banks has at least one in the mid-1980s and again in May 1995 the Federal main Cash Office and up to five Branch Cash Offices. Reserve engaged the Michigan Survey Research The Cash Offices record—by denomination and, to a Center to poll at least 500 households regarding limited extent, by series—all currency received, protheir use of currency and various transaction cessed, destroyed, and paid out or shipped to other accounts (table l).10 In the latest survey, average Cash Offices. These data do not differentiate foreign cash holdings (line 1), the percentage of currency and domestic flows, but by comparing Cash Office outstanding that is accounted for by holdings of reports on shipments of $100s and $50s with informaadults (line 5), and the percentage of expenditures tion from the surveys, we can enhance our knowlmade with cash (line 10) all had dropped significantly edge of stocks and flows abroad. The biometric from the levels of the mid-1980s. Furthermore, busi- method indicates that about two-thirds of $100s and nesses and children are not believed to hold signifi- nearly half of $50s are held abroad. cant amounts of currency. Hence, the declines recorded by the surveys over a period when real per capita currency was increasing sharply (see table 3) Institutional Knowledge: The New York Cash most likely point to growing demand outside the Office and $100 Notes country. The other type of indirect data, which we use in the Hundred-dollar notes are the largest denomination biometric method (described below), comes from the now issued by the Federal Reserve. Although $20s are in more common use than $100s in the United States, $100s make up 60 percent of the dollar value of all U.S. currency outstanding. Two facts about the 10. Results from the 1980s surveys are discussed in Avery and others, "Changes in the Use of Transaction Accounts"; and Robert B. use of $100 notes suggest that the net new demand Avery, Gregory E. Elliehausen, Arthur B. Kennickell, and Paul A. for them is coming primarily from abroad. First, the Spindt, "The Use of Cash and Transaction Accounts by American Federal Reserve Cash Office serving the New York Families," Federal Reserve Bulletin, vol. 72 (February 1986), pp. 87-108. City region is the primary supplier of currency to foreign users, especially of $100s, and second, its shipments of $ 100s are unusually large relative to the size of its District, as measured by several economic 1. Results of three household surveys on use of cash, 1984, variables, including regional shares of vault cash, 1986, and 1995 population, income, and deposits (table 2).11 This Cash Office, one of the two Cash Offices in the June June May Item 1984 1986 1995 New York District (the other is in Buffalo), has 1. Average cash holdings (dollars)1 148 153 1002 accounted for 97 percent of the nationwide net issu- 2. Cash on hand before acquisition ance of $100s since 1988; for the twenty-two years of of cash (dollars) 50 50 27 3. Cash acquired (dollars) 196 207 1493 currency issuance reported in table 2, the New York 4. Days between acquisitions of cash .... 12 16 12 5. Percentage of total currency and City Cash Office accounted for nearly 83 percent of coin outside of depository the net national issuance of $100s. institutions and held by adults ... 11 11 5 6. Percentage of cash acquired in $ 100s . n.a. n.a. 23 Given the survey data described above (table 1), 7. Annual turnover rate of cash gljj/s (cash spent divided by average Isjs the largest possible number of $100s per person in cash balance) 50 49 36 8. Number of cash transactions the United States is less than one-third of a single per month n.a. n.a. 29 9. Monthly cash expenditures (dollars) .. 633 669 301 $100 bill, while for every U.S. resident about nine 10. Percentage of total expenditures made with cash 30 3344 20 NOTE. Dollar values for 1984 and 1986 have been inflated by the chain-type 11. The determination of a given District's share of nationwide price index for personal consumption expenditures to make them comparable to currency holdings should depend on some combination of the varithe nominal 1995 values. All statistics are sample means. 1. Estimated as cash on hand before the acquisition of cash (line 2) plus ables in the first five columns of table 2. Because the Federal Reserve one-half of the cash acquired (line 3). System supplies currency on demand, we need consider only the 2. Based on 458 respondents. demand for currency. That demand depends on national variables such 3. Based on 453 respondents who held positive amounts of cash. Calculating as the price level and interest rates and on regional measures such as as in note 1 for the 453 respondents in lines 2 and 3 in May 1995, average cash spending and population. If the use of cash in some Districts is more balances were $27 + $149/2 = $101.50. The May 1995 entry in line 1 is $100 intensive than in others, that propensity would be visible in variables ($1.50 less) because it includes 5 additional individuals, who held no cash such as vault cash. Thus, it is fair to assume that a given District's whatsoever. In both of the earlier surveys, all of the respondents reported that share of currency is explained by some combination of spending (for they held some cash. which we substitute personal income), population, vault cash, or n.a. Not available. SOURCE. Federal Reserve. deposits in that District. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

888 Federal Reserve Bulletin • October 1996 2. District shares of nationwide characteristics of economic size and total cash issuance Percent Savings and All Federal Reserve District Vault cash' Population 2 P in e c r o so m n e a 3 l T d ra ep ns o a s c it t s io 1 n tr d a e n p s o a s c i t t i s o 1 n $100s issued4 deno is m su in e a d t 4 i ons Boston 5.0 5.0 6.1 4.4 4.6 4.4 10.7 New York 13.0 9.7 12.1 14.3 14.4 82.8 80.5 Philadelphia 3.6 4.6 5.1 3.3 3.6 3.0 -.7 Cleveland 6.9 6.5 5.9 6.3 6.8 4.5 13.0 Richmond 9.7 9.4 9.3 8.8 9.5 6.7 9.4 Atlanta 12.7 12.8 11.2 11.1 12.0 -15.9 -34.8 Chicago 10.6 12.3 12.4 12.6 12.4 13.8 29.0 St. Louis 4.0 5.0 4.2 5.0 4.6 3.7 3.8 Minneapolis 1.9 3.0 2.6 3.2 2.9 1.7 1.9 Kansas City 4.6 5.4 5.0 5.9 5.3 3.0 4.3 Dallas 6.4 7.4 6.4 6.9 6.3 1.2 -3.6 San Francisco 21.5 18.8 19.6 18.1 17.5 -9.1 -13.4 Total 100 100 100 100 100 100 100 NOTE. Because the distribution of these values changes extremely slowly, the 2. 1990 census. variation in dates for which we have data introduces only a small discrepancy 3. Per capita for 1989 multiplied by the 1990 population. into the comparisons. 4. Value issued from 1974 to 1995 inclusive. 1. 1995:Q4. SOURCE. Authors' calculations. $100 notes circulate somewhere in the world.12 In 1990s have been a period of declining use of cash for sum, the basic information we have from surveys and consumption spending within the United States. In the Federal Reserve Cash Offices about the circula- real per capita terms, the amount of notes outstandtion of $100 notes is consistent with relatively low ing, other than $100s, has not changed much since dollar use domestically and high use abroad. the late 1950s, so the increase is almost all attributable to $100s: the stock of $100s outstanding has risen about $700 in real terms, to nearly $850, since Aggregate Data on the Relative Growth of 1959. Currency and Related Economic Variables Other data pointing to a dominant external demand Finally, basic domestic macroeconomic data corrobo- for currency are the changes in total real per capita rate our findings that recent currency growth is not currency holdings and the ratio of currency to M2 driven by domestic factors. Empirically, the amount since 1959, which are a puzzle if one ignores foreign of currency outstanding typically grows in line with, currency demands (chart 1). In real terms, total per or even a bit more slowly than, consumption in the capita balances for all denominations plus coin United States. Indeed, this was the pattern until 1990. increased relatively slowly from 1959 to 1979, then However, in the current decade, currency has grown jumped sharply from the early 1980s to the end of about 3V6 percentage points more rapidly than con- 1995. In contrast, the direction of change in the ratio sumption in nominal terms and in real per capita of currency to M2 was generally downward until the terms (table 3).13 Yet as the survey data show, the late 1980s, a trend that reflected in part the absence of interest paid on currency and the implicit or explicit interest paid on the rest of M2.14 Because most of M2 12. We do not know the proportion of survey respondents who held bears interest at the market rate and currency yields $100s before their acquisition of cash, but we do know the maximum no interest, households have an incentive to econonumber of $100s they could have held from the individual data underlying table 1, line 2. Based on this maximum as well as on line 6 mize on currency in favor of other M2 assets, so the and the assumption that the average holding of this denomination is ratio should (other things equal) tend to decrease over the initial amount plus one-half of the $100s acquired, the maximum time. Indeed, one might have expected this decline to amount of $100s held on average could not have been more than 30 percent of one note in the 1995 survey. have accelerated somewhat as more and more of M2 13. Currency in circulation is defined as currency, including coin, bore a market rate of interest, a process that began in held outside of the Federal Reserve and the Treasury. The currency 1978 and was completed for the explicit interestcomponent of Ml is equal to currency in circulation less vault cash held at depository institutions. Definitive estimates on the amounts of currency that have been lost or destroyed are not available, but presumably the quantities are small (see Robert Laurent, "Currency in Circulation and the Real Value of Notes," Journal of Money, Credit, very small, however, relative to the magnitude of the uncertainty and Banking, vol. 16, May 1974, pp. 213-26). In this paper we use a inherent in our estimates of overseas currency holdings. To reflect that variety of currency measures, the choice of which depends on the uncertainty, we round all of the reported percentage estimates to the availability of the data needed for a given method; hence, our esti- nearest percent. mates of currency abroad do not always refer to exactly the same 14. A similar declining pattern for this or comparable ratios holds currency concept. The differences between the currency measures are in most other developed countries. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 889 3. Spending and currency measures in the United States, 1959-95 Mean year-end to year-end growth (percent) Level, end of period PPeerriioodd Personal Currency Currency Other consumption component $100s component $100s denominations expenditures of Ml of Ml Nominal Billions of dollars 1111999955559999 28.8 5.9 24.4 1111999966660000----66669999 6.5 4.6 6.2 45.7 11.0 36.9 1111999977770000----77779999 9.9 8.3 13.4 104.8 42.0 72.0 1111999988880000----88889999 7.9 7.5 10.4 222.6 118.7 123.6 1111999999990000----99995555 5.1 8.6 11.8 372.2 241.5 159.9 Per capita, real terms Per capita dollars, real terms 1111999955559999 701 144 594 1111999966660000----66669999 3.0 1.1 2.7 779 188 630 1111999977770000----77779999 2.3 .7 5.8 839 336 576 1111999988880000----88889999 2.1 1.7 4.6 995 531 552 1111999999990000----99995555 1.0 4.5 7.7 1,303 843 558 NOTE. Growth is at logarithmic rates. End-of-period values for the currency . . . Not applicable. component of Ml are December averages; for denominations, December 31. SOURCE. Federal Reserve, U.S. Department of the Treasury, and authors' Real terms calculated with the chain-type price index for personal consumption calculations. expenditures, 1992 base year. bearing components of this aggregate in the mid- estimates; thereafter, we summarize the other eight 1980s. In any case, until the latter part of the 1980s, methods and present the median estimate.16 The seathe downward trend in this currency ratio was inter- sonal and biometric approaches are indirect methods rupted only by business cycles. Thus, the large in that they do not directly use information about increase in the currency ratio starting at the end of currency flows or currency abroad but infer them the 1980s is a surprise, suggesting once more that from other characteristics of currency. explaining currency growth with domestic factors alone is problematic.15 The Seasonal Method ESTIMATION METHODS In general, the seasonal method presupposes that U.S. currency held abroad behaves differently from U.S. Because data on currency flows abroad are incomplete, cumulating them does not provide a good esti- 16. For details of these methods, see Porter and Judson, "The mate of the stock of currency held abroad. Thus, we Location of U.S. Currency." combine the flow data with estimates from a variety of alternate methods. We have examined ten methods 1. U.S. currency ratio and the total real stock of U.S. for estimating the share of currency abroad. We dis- currency measured in dollars per U.S. resident cuss in detail two methods, one based on differences Chained (1992) dollars in the seasonal patterns of U.S. and Canadian currency demand and one based on biometric population 15. Part of the increase in the ratio reflects the shift of assets out of M2 into non-M2 instruments such as stock and bond funds in the first few years of the 1990s; see Athanasios Orphanides and Richard Porter, "P* Revisited: Money-Based Inflation Forecasts with a Changing Equilibrium Velocity" (Board of Governors of the Federal Reserve System, 1996). But even after accounting for such shifts, the implied increase in the demand for currency from the low point of the ratio in the late 1980s would be quite large, on the order of $140 billion to account for the increase in the ratio. We will show below that a shift of this magnitude is consistent with most of the estimates of net shipments of currency abroad during the period since 1988 (table 5). We have not included interest rates in the discussion, even though they move in the right direction to explain some of the recent accelera- NOTE. Currency ratio calculated with the currency component of Ml (see tion in currency growth (table 3). We do not find compelling evidence text note 13). Per capita holdings deflated by the chain-type price index for that the interest sensitivity of currency is large enough to explain this personal consumption expenditures, 1992 base year. Shading indicates periods acceleration (see appendix A). of recession as defined by the National Bureau of Economic Research. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

890 Federal Reserve Bulletin • October 1996 currency held at home in some measurable respect.17 holdings, then overall seasonal variations in U.S.cur- The average measured characteristic of currency, say rency holdings should have diminished. Rough sup- X, will be a weighted average of the characteristic for port for such a hypothesis comes from a comparison the domestically held currency, XD, and of that for the of the 1959-63 seasonal variations in the currency foreign-held currency, XI, as follows: component of Ml with the component's 1991-95 variations. The seasonal fluctuations for the last five- (1) X=(3Xrf + (l year period are much reduced from what they were in the early period (chart 2).19 where the weight P is the domestic share of total currency outstanding, and 1 — (3 is the foreign share. By observing the overall behavior of currency, we Canada as the Benchmark know X. We exploit various data to infer XD or XF, for U.S. Domestic Behavior thus allowing an estimate of the shares of currency held at home and abroad (see box "The Seasonal Canada is a suitable benchmark for comparison for Variation Technique"). two basic reasons. First, Canadian currency is not The seasonal method uses relative seasonal varia- used outside of Canada to any significant degree. tions in the currency circulating in the United States Second, because the United States and Canada have a and Canada to infer overseas holdings of dollars.18 similar set of major holidays and school vacations Four assumptions underlie this method: (1) the sea- and share many customs, the seasonal variations in sonal pattern in domestic demand for U.S. dollars is retail sales and in consumption in the two countries similar to the seasonal pattern of demand within are similar; hence the induced domestic demand for Canada for Canadian dollars, (2) foreign demand for their respective currencies should also have about the U.S. dollars has no significant seasonal pattern, (3) the circulation of Canadian dollars outside of Canada is negligible, so that the demand for Cana- 19. The degree of the decline may be overstated in the chart dian dollars can be attributed solely to domestic because of differing trends in the two periods. To investigate more demand, and (4) U.S. currency is not used to a precisely, we use a seasonal filter, STL, to extract the seasonal component of the series and focus on the seasonal amplitude, which is substantial degree inside Canada. Under these the difference between the maximum seasonal effect (reached in assumptions, the share of U.S. currency abroad can December) and the minimum (usually reached in the subsequent be deduced by comparing the seasonality of Cana- February). According to this measure, the amplitude of seasonal variation declines about one-half from 1960 to 1995. The STL method dian currency in circulation to the seasonality of all is set out in Robert B. Cleveland, William S. Cleveland, Jean E. U.S. currency in circulation. If foreign holdings McRae, and Irma Terpenning, "STL: A Seasonal-Trend Decomposiexhibit seasonality similar to that of domestic hold- tion Procedure Based on Loess," Statistics Sweden, Journal of Official Statistics, vol. 6, no. 1 (1990), pp. 3-73. More formally, statistical ings, the estimate generally provides a lower bound tests indicate that net foreign shipments of currency by banks do not on the share of currency held abroad. have a significant seasonal pattern; see Porter and Judson, "The Location of U.S. Currency." Seasonality in Currency Holdings and in Banking Shipments 2. Stock of U.S. currency in two periods, 1959-63 and 1991-95 One factor undercutting any seasonality in foreign Ratio scale, billions of dollars Ratio scale, billions of dollars holdings is the unpredictable timing of foreign national crises, which tend to precipitate large dollar 34 — inflows to the affected nation. In addition, transaction 360 costs may discourage foreign users from returning to 1991-95, 32 — (right scale) the United States those dollars received in routine 320 exchanges that may have a seasonal pattern. If foreign currency holdings have relatively little seasonal- 30 — 1959-63, ity and have tended to increase relative to domestic (left scale) 280 28 — 17. Two other indirect methods, the coin and demographic, also embody this assumption (Porter and Judson, "The Location of U.S. 1 Currency"). Dec. Dec. Dec. Dec. Dec. 18. Porter and Judson, "The Location of U.S. Currency." NOTE. Currency measured as currency component of Ml. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 891 The Seasonal Variation Technique Typically, the currency component of Ml is seasonally foreign demand does not vary seasonally), we can simplify adjusted with a model in which the unadjusted series is equation 1.3 slightly: viewed as a product of three terms: a trend-cycle term, a seasonal term, and an irregular, or noise, term. The seasonal (1.4) S, = + (1 - P,) term in the unadjusted series (the reciprocal of the seasonal factor) is around 1 in periods without a discernible seasonal Given values for the seasonal terms, equation 1.4 becomes influence; it registers its largest values above 1 in periods of a single equation in one unknown, (3,. We can solve for significant seasonal increases of currency, which occur provided that the seasonal terms in equation 1.4 do not around Christmas and the summertime vacation period; and equal 1. In periods without a seasonal influence (which is it is typically the furthest below 1 after such periods, when when 5, = 1 and S,d =1), any value of P, is consistent with the seasonal term typically declines sharply. equation 1.4, so we cannot identify a unique value. Thus, Given the assumptions above, the model for the domestic the method generates sensible estimates at an annual freand foreign holdings of currency can be written as follows. quency but not at all frequencies. First, overall currency holdings can be modeled as the The best estimate of the model is obtained by measuring product of a trend-cycle (and irregular) component and a the seasonal variation around Christmas, specifically from seasonal component in the respective (domestic and for- the seasonal high that is reached in currency in December eign) locations. In symbols let S be the seasonal term and T to the seasonal low in February. This period of the year is be the trend term so that the one in which the seasonal in currency is best aligned with the seasonal in transactions (retail sales). (1.1) TS, = T}Sd + 7?Sf Formally, we take equation 1.4 and rewrite the time t subscript t as m,y (where m refers to the mA month in the yA year) and set (5, to (3. Then subtracting equation 1.4 for where the superscript d is associated with the multiplicative February from equation 1.4 for the preceding December currency components held domestically, the superscript/is and collecting terms in (3, we find that the share of currency associated with those components held outside the country, held domestically is and the subscript t denotes time.1 The left side of equation 1.1 represents the overall unadjusted currency series as the product of the trend-cycle and seasonal terms, while the °dec,y ^feb,y + 1 right side displays a parallel decomposition for the domestic and foreign components. If we let (5, be the fraction of the To calculate this equation with actual values, we assume, overall trend held domestically, and 1 - (3, the fraction held for the reasons given above, that Canadian data can be used abroad, then equation 1.1 can be rewritten as to estimate what the relative seasonal variations in the United States would be without any foreign holdings of (1.2) r,s,=P,r(s?+( i - p , )W currency. Given a seasonal adjustment procedure, we can use the estimate of the overall seasonal component for the currency component of Ml in the United States to estimate Cancelling T from both sides of equation 1.2, t the numerator in equation 1.5 and use the analogous term for Canada to estimate the denominator; with the value for (1.3) s,=p,s? + a-P,)# p, the domestic share, the share held abroad is then calculated as 1 - p. Observe that equation 1.3 is an example of the main text's equation 1, with the seasonal term playing the role of the X variable in that definitional equation. Finally, assuming that 1. The irregular term in the seasonal decomposition can be viewed as being confined within the trend term. Adding an explicit irregular term does the foreign seasonal component is always equal to 1 (that is, not alter the results. same seasonal pattern.20 This similarity implies that demand for U.S. currency and that for Canadian any difference between the seasonal variation in total currency likely reflects foreign demand for U.S. currency. In addition, Canada's set of denominations is similar to that in the United States, and the bilateral exchange rate is sufficiently close to 1 that pair-wise 20. The notion that the seasonal term in retail sales induces the comparisons of individual denominations or combiseasonal term in holdings of domestic currency is of long standing nations of denominations in the two currencies can be (see, for example, "Seasonal Variations in Money in Circulation," considered. Federal Reserve Bulletin, vol. 18, December 1932, pp. 735^6). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

892 Federal Reserve Bulletin • October 1996 Estimates from the Seasonal Method Biometric Estimates Applying the seasonal method produces an estimate Our use of the biometric method focuses on the of the share of currency held abroad that begins with supply of $100s. The share of the nationwide net about 40 percent in 1960 and then rises uniformly, issuance of $100s attributable to four Reserve reaching 70 percent by 1995 (chart 3, top panel).21 Districts—New York, Atlanta, Dallas, and San The estimated rise in the currency share abroad stems Francisco—over the past twenty-two years is out of both from the drop in seasonal amplitude within the proportion to the Districts' shares of other national United States and from an increase in that for Canada. economic characteristics (table 2). The anomaly Toward the end of the period, the growth in the share regarding these four Districts is consistent with our of currency held abroad moderated, but the implied understanding that most foreign shipments of curflows abroad picked up sharply (chart 3, bottom rency go in and out of the New York District, with panel) because of the large increase in overall cur- additional smaller net inflows through the Atlanta rency holdings. and Dallas Districts (from Latin America) and the San Francisco District (from the Far East). To obtain a more precise understanding of such 21. The seasonal adjustment method, applied to the logarithm of regional breakdowns, including the overall domesticthe series, is from Cleveland and others, "STL: A Seasonal-Trend Decomposition." On balance, the results using XI1 ARIMA or offi- foreign split in currency holdings, the second estimacial (central bank) adjustment procedures are very similar to those tion method we develop mimics a technique used by shown here. We have chosen to report the STL results because they biologists to estimate the size of an animal population are the smoothest, but the basic results would be little changed if other estimates were substituted. Because the time-varying estimate is calcu- when they are able to capture only a sample of the lated without averaging, it might seem surprising that the estimate population at any given time. The approach draws on shown in the top panel of chart 3 is so smooth. By construction the studies by a Danish biologist, Carl Petersen, who STL seasonal adjustment procedure guarantees that the monthly seasonal components are smooth through time, a property that evidently worked more than 100 years ago. Petersen's work carries over in this application to the ratios. suggested that an animal population can be estimated by capturing a sample of animals, marking them, 3. U.S. currency abroad, estimated with seasonal method releasing them, and capturing another sample later.22 Assuming that the marks do not affect the animals' Percent ability to survive (and thus their likelihood of being Percentage held abroad in the second sample), the share of marked animals in the (unknown) general population will be the same as the share of marked animals in the recaptured sample (see box "The Biometric Method"). We adapt Petersen's approach to obtain an estimate of how much U.S. currency is abroad by combining two sources of information. First, data from Federal Reserve Cash Offices on currency shipped to and from local banks allow us to obtain virtually continuous "samples" of currency. Second, although currency is not literally marked, statistics for the pre- Billions of dollars 1990-series note are maintained separately from those Net amount flowing^ for the 1990-series $100 note, which contains an embedded security thread.23 We can think of the 1990-series notes as marked animals: When a pre- 22. E.D. Le Cren, "A Note on the History of Mark-Recapture Population Estimates," The Journal of Animal Ecology, vol. 34 (June 1965), pp. 453-54, notes that Petersen did not use the method for counting but that others properly credit him with the method. See C.G. Joh. Petersen, "On the Biology of Our Fiat-Fishes and on the Decrease of Our Flat-Fish Fisheries," Report of the Danish Biological Station, vol. 4, 1893. See also G.A.F. Seber, The Estimation of Animal Abundance and Related Parameters, 2d ed. (Macmillan, 1982). 23. The 1990-series notes were introduced in August 1991, in 1965 1970 1975 1980 1985 1990 1995 $100s. The 1996-series $100 note was introduced in March 1966 (see NOTE. Currency measured as currency component of Ml. box "The 1996-Series $100 Note"). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 893 The Biometric Method For any geographic area, the total population of notes to be Unlike the biologists, we do know N, apart from what has estimated, N, can be expressed in relation to three known been lost or destroyed.1 Using N, the estimate for total numbers: M, the total number of marked (1990-series) notes, the number of notes held in foreign countries is N~ f notes; n, the number of notes in a sample; and m, the N - N, and the share of notes abroad is just N/N. This d f number of marked (1990-series) notes in a sample. Assum- method has the advantage of using parallel estimates for ing that the notes circulate freely and randomly, so that the domestic and foreign circulation. Using the actual N, the sampled proportions of marked notes are representative of share of currency abroad is estimated as N/N, which has f the notes circulating in the area chosen, Petersen's approach the advantage of using our knowledge of the total amount (see text note 22) tells us that the sample proportion of of currency in circulation for each of the denominations. marked notes is equal to the proportion of marked notes in The range of estimates for each denomination (see table) the whole population: can be considered outer bounds for the true figures because of the way they represent hoarded notes. The biometric method is able to estimate only the population of notes (i.D ^ N n actively in circulation; the bank notes that are hoarded do not circulate and hence cannot be part of the estimates of With the total number of notes in the population, N, in some n/m for any location. When the foreign share is estimated geographic area (for example, a Federal Reserve Cash as the ratio of notes circulating in the foreign pool to all Office's area) as the only unknown in this relationship, we notes outstanding, the implicit assumption is that all can solve for it as uncounted notes are in the domestic pool, which is presumably not true; thus, the estimate is a lower bound of cur- (1.2) N =— M rency held abroad. Similarly, estimating the foreign share m as the number of notes in the foreign pool over total measured notes implicitly assumes that notes are hoarded in We have used the Petersen method to obtain estimates of the same proportion that they circulate. In this case, if notes Federal Reserve 1990-series $100 and $50 notes circulating are hoarded disproportionately abroad, the estimate could in the United States and abroad ($50s with the embedded be higher; however, the estimate for $100s is about 70 persecurity thread were introduced in 1992). We know the total cent, and we find it unlikely that more than 70 percent of number of marked notes, M, from outflows of the 1990the hoarded notes in the world are hoarded abroad. Thus, series $100s and $50s from each of the Federal Reserve we consider this estimate an upper bound.2 Cash Offices; and we know the ratio of total sampled notes to marked sampled notes, n/m, from notes that are received from circulation at each Cash Office. Because almost all currency sent to and received from 1. A difference between this problem and the biometricians' is that they capture and count marked species over discrete time intervals, whereas the foreign countries goes through the New York City Cash Federal Reserve continuously processes currency. Thus, our computations Office, we provisionally assume that this office is the for- should, in principle, use a lag of the quantity of new notes in circulation to eign pool and the rest of the Offices together constitute the account for the fact that notes released during the sample period are not actually part of the pool for the whole period. In practice, lags do not appear domestic pool. We estimate total notes in circulation to matter. For estimates of notes that are lost and destroyed, see Laurent, throughout the United States excluding New York City, say "Currency in Circulation." N , by applying equation 1.2 to the pool consisting of all 2. The estimates appear to be relatively robust to alternative assumptions my about the location of the foreign pool. Little changes if, as part of the foreign the Offices outside New York City. Then, to obtain an pool, we include two other cities, Los Angeles and Miami, that are believed estimate of total domestic currency circulation (that is, to have significant foreign currency activity. Generally, if we try to align the including New York City), N, we scale up to account for District biometric estimates with the relevant economic variables that influd ence domestic currency location, we obtain estimates of domestic holdings the population served by the New York City Cash Office: that are similar to the aggregate biometric estimates. P°Pny Biometric estimates of currency held abroad POP xn > Percent $50s $100s where pop is the population served by the New York City ny Office, and pop xny is the population served by the rest of the Year Value used for total bank notes Cash Offices combined. Estimated Actual Estimated Actual We can estimate the foreign share of currency holdings in two different ways, depending on whether total notes are 1991 n.a. n.a. 56 82 determined as the sum of the notes in all the Federal 1992 29 62 47 75 1993 30 54 53 72 Reserve Districts, say N = N ny + N my (that is, an estimate) or 1994 34 48 60 71 1995 40 49 66 75 are taken as the actual total of notes in circulation, say N. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

894 Federal Reserve Bulletin • October 1996 1990 note is "sampled," or returned to a Federal Reserve Cash Office, it is "marked" by being The 1996-Series $100 Note replaced with a 1990-series note. We know how many 1990-series notes have been issued by each Domestic and foreign shipments of a newly designed Federal Reserve Cash Office, and we know how U.S. $100 note began in March 1996. Aside from minor changes introduced in 1990, the 1996 note was the first many return to the Cash Offices in later samples. redesign of U.S. currency since 1928. The goal of the Second, we make use of the institutional fact that the change was to preserve as much of the traditional appear- New York City Cash Office handles relatively few ance of the note as possible while introducing new secucash shipments to and from domestic banks and that rity features that would make the note more difficult to most of the currency shipments it handles are to and counterfeit. With the new design, which will be applied from foreign banks. Thus, if we can estimate the to smaller denominations over six- to twelve-month inter- "population" of dollars in the "pool" served by each vals, notes are the same size, use the same ink color and Federal Reserve Cash Office, the currency abroad can paper, and feature the same historical figures and monube estimated as the population in the New York City ments as before. However, the portrait has been enlarged Cash Office pool. and moved to the left to make room for a watermark that matches the portrait. Other security features include Using the biometric method, we find that the microprinting around the portrait and elsewhere, a thread December 1995 estimate of the share of $100s held woven into the note in a different position for each abroad is between 66 percent and 75 percent and the denomination, and, for the larger denominations, a speestimate for $50s (marked with a security thread in cial ink for the denomination number in the lower right 1992) is between 40 percent and 49 percent.24 front corner of the note that changes color when one changes the viewing angle of the note. SUMMARY OF ALL ESTIMATION METHODS In addition to the two methods described above, eight other techniques were developed to estimate the stock of U.S. currency held abroad. These are summarized in table 4. The estimate of the foreign share of currency using indirect estimates of the type just described is just under 30 percent using the coin method and ranges from about 50 percent to 70 percent using the biometric, demographic, and seasonal methods (table 5). Taking the midpoint of this range of estimates Although flow-based methods (both direct and out- gives us a way of assigning an end-of-year value for lier) do not yield straightforward estimates of the the share abroad for any method for which we have stock held abroad, such estimates can be derived flow data; for example, we derive an extreme range because the flow data over the years can be consistent of 49 percent to 71 percent for the shipments proxy only with a relatively narrow range for the overseas (see note 25), the midpoint of which is 60 percent.26 stock. The estimates are obtainable from a trial-and- Overall, the shares of currency held abroad at yearerror procedure using various assumed values for the end 1995 as derived from the flow-based estimates current proportion abroad.25 range from the low of 17 percent for the CMIR statistics to a high of 60 percent using the shipments proxy. 24. As an alternative, we have also estimated the model for each We have also used the same trial-and-error method Cash Office and then aggregated the results. The estimate in the text to get an estimate of currency held abroad averaging should be preferred if there are significant movements of currency across all of the methods. We begin by taking the (leakages) across these domestic pools. In any event, this alternative estimate tends to be within a few percentage points of those shown in estimated flows abroad for each year of the period the text by the end of the sample period. Thus, it does not seem to matter very much whether we explicitly consider leakages of currency across the domestic pools. 25. To see the steps involved, consider what foreign holdings of currency outstanding at the end of 1976 had been held overseas currency would be consistent with some flow estimates. According to ($80.1 billion, not seasonally adjusted), then the stock of foreign the shipments proxy, currency shipped abroad between 1977 and 1995 holdings would have been $263.4 billion, or 71 percent of the total. totaled $183.3 billion, on net, as shown in table 5, column 1. If no 26. Clearly, neither endpoint is likely to be correct, whereas a value currency had been held overseas at the end of 1976, the total stock of near the middle is much more likely to be so. Thus, we will use the foreign holdings at the end of 1995 would have been $183.3, or midpoint in what follows as a rough gauge of the percentage held 49 percent of the total outstanding. At the other extreme, if all abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 895 from 1977 to 1995 for each of the seven available the midpoint between the two extremes), we obtain a methods.27 For each year of the period, we take the midpoint estimate of 55 percent as the proportion of median value of the seven estimates, which are then total currency that was held abroad at the end of summed across years to obtain the total median flow 1995. estimate for the entire period, shown in the first two As a check on this estimated percentage abroad, it columns of the bottom row of table 5. Taking the is helpful to evaluate the largest denomination in flows from the median flow estimate and using the active circulation, the hundred-dollar bill, which same technique to estimate year-end shares that we plays such a major role in the overseas currency used before for each of the direct methods (taking market. The available estimates for $100s, shown in table 5, are consistent with 74 percent of this denomination being held abroad. If only $100s were abroad, they alone could account for an overseas share for 27. For three of the methods (biometric, demographic, and foreign total currency of 44 percent. A reasonable assumpcurrency shipments), we do not have sufficient years of data to include tion is that the smaller denominations could easily them in the median calculation. 4. Methods for estimating currency abroad Method Description Indirect (stock-based) Seasonal Described in text Biometric Described in text Coin As in the seasonal method, we use Canada's ratio of notes to coin to estimate the U.S. domestic ratio, assuming that U.S. coins are not typically used outside the country Demographic Estimates of the ages of domestic and foreign notes were obtained from special samples of physical notes taken in March and October 1989. The overall age of notes in circulation is a weighted average of notes circulating abroad and domestically Direct (flow-based) Customs reports Businesses and individuals moving more than $10,000 across U.S. borders must generally file Currency and Monetary Instrument Reports (CMIRs) with U.S. Customs. Incoming travelers are informed of the filing requirement on their Customs Declaration. Departing travelers are occasionally informed of the filing requirement or are targeted for enforcement purposes Foreign currency shipments Net foreign currency shipments are reported to Federal Reserve Cash Offices on an informal basis by the small number of commercial banks that are major international shippers of currency Shipments proxy We assume that monthly net shipments of $100s from the New York City Cash Office are approximately equal to net shipments abroad of all currency. We exploit the institutional fact that foreign shipments are predominantly in $100 notes and that they most often originate at the Federal Reserve Bank of New York. We assume that the three sources of disparity between actual net flows and New York shipments (that is, the quantity of $100s used domestically within the area served by the N Y. Office, the quantity of lower-denomination notes this Office sends abroad, and foreign shipments by other Cash Offices) are all small Cash Office flows We compare currency shipment data from each Federal Reserve Cash Office with other indicators of regional cash demand such as population and income. Cash Offices whose share of total shipments is much different from their population or income shares are assumed to be making or receiving foreign shipments. Statistical methods yield an estimate of the domestic cash demand component as indicated by local population and income Outlier-based (flow-based) Money demand If currency holdings abroad increase sharply, then predictions of U.S. demand based on domestic factors such as U.S. interest rates and transactions should produce a significant underestimate. This approach measures the net flows of currency abroad from prediction errors generated by the Federal Reserve Board staff's currency demand model Signal extraction Like the money-demand method, this method is based on outliers from a prespecified relationship, in this case a time-series model Summary measure of currency flows abroad Median flow estimate Computed as the median in each year of the estimates from seven of the above methods: seasonal, coin, Customs reports, shipments proxy, Cash Office flows, money demand, and signal extraction. The remaining three methods do not have data for enough years to be included in this estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

896 Federal Reserve Bulletin • October 1996 contribute 11 additional percentage points.28 Thus, 1990s (table 6). The domestic flows show no distinct the evidence for $100s appears consistent with an trend, and most of the year-to-year changes in the estimated minimum of around 55 percent of currency currency component of Ml (including the pickup in being held abroad. the 1990s) are accounted for by variations in the foreign flows.29 (Appendix A is an economic and statistical analysis of these summary flows.) PROPERTIES OF MEDIAN FLOW ESTIMATE Two notable multiyear spurts appear in the net OF OVERSEAS CURRENCY FLOWS amount of currency going abroad: in 1990 and the early part of 1991 and again in 1993 and 1994. The All our methods except the CMIR indicate that over- first surge is associated with an increase to Argentina seas currency flows are large and growing. We focus and with a worldwide increase in the demand for on the median flow estimate because it does not dollar currency as a result of the Persian Gulf war; depend very much on the results of any one method. the second is part of the deteriorating situation in The median flow calculations show that the overseas Russia and other parts of the former Soviet Union. component of currency flows has been picking up, to Although overseas currency flows tended to drop more than 70 percent of total currency flows in the back somewhat after these surges, the general upward path for foreign currency shipments is unmistakable. 28. Estimates from the biometric, seasonal, and demographic meth- Predicting the future course of shipments is even ods for denominations less than $100 can easily account for the more problematic than estimating past flows. Some needed increment. of the currency held abroad is used by travelers to areas outside of Western Europe, so that more such travel is likely to increases the foreign demand for 5. Net flows of U.S. currency to foreign locations and the currency. But the remaining, larger component is percentage of U.S. currency abroad, by method of estimation much more unpredictable and subject to massive and abrupt shifts because of wars or fundamental changes Stock, Flow in economic and political regimes or to evolving December 1995 (billions MMeetthhoodd of dollars)1 exce (p p e t r a c s e n n t o ) ted fears about such developments. 1977-95 1988-95 Overall $100s 29. Statistically, they have a simple correlation coefficient of 0.98 Indirect (stock-based) methods with annual data. Seasonal 223.6 132.5 70 74 Biometric n.a. n.a. n.a. 70' Coin 173.8 92.2 29 Demographic 492 513 6. Increase in the currency component of Ml, by foreign Direct (flow-based) methods Customs reports 5.2 42.1 17* n.a. or domestic destination Net foreign currency shipments, Billions of dollars except as noted as compiled by N.Y. FR Cash Office n.a. 107.1 54 4 Shipments proxy 183.3 140.3 60 4 Going to foreign Going to domestic Estim fl a o t w es s based on Cash Office 163.1 123.2 55 4 634 YYeeaarr iinncc TT rr oo ee tt aa aa ss ll ee11 economies economy Amount Percent Amount Percent Outlier-based (flow-based) methods 1977 7.9 1.6 20.2 6.3 79.8 M Sig o n n a e l y e d x e tr m a a c n ti d o n 1 1 1 7 9 9 . . 6 6 1 14 0 0 4 . . 4 6 4 5 3 9 4 4 944 1 1 9 9 7 7 8 9 8 8. . 8 6 2 2 . . 6 4 2 2 9 7 . . 8 2 6 6 . . 1 4 7 72 0 . . 8 2 Median flow estimate3 163.8 123.1 55 4 746 1980 10.6 3.6 33.7 7.0 66.3 1981 7.2 2.3 32.0 4.9 68.0 NOTE. For detail on the results of the coin, shipments proxy, Cash Office, and 1982 9.9 3.8 38.1 6.2 61.9 outlier-based methods, see Porter and Judson, "The Location of U.S. Cur- 1983 13.7 5.3 38.7 8.4 61.3 rency." For detail on the demographic method, see Feige, "Overseas Hold- 1984 9.9 3.5 35.6 6.4 64.4 ings of U.S. Currency." 1. The average of the two estimates that bound the true value. 1985 11.8 5.0 42.5 6.8 57.5 1986 12.8 4.6 36.2 8.2 63.8 2. Surveys taken in the spring and fall of 1989. An updated estimate of the 1987 16.1 6.0 37.3 10.1 62.7 currency held abroad based on this 1989 estimate and the median flow estimate 1988 15.4 6.5 41.9 9.0 58.1 (last row in table) yields a result of 59 percent at the end of 1995. 1989 10.4 5.7 54.5 4.7 45.5 3. This value becomes 78 percent when updated by the increase in $100s since 1989 that is associated with the shipments proxy. 1990 24.2 18.3 75.7 5.9 24.3 4. Midpoint of feasible range for proportion of currency held abroad; see 1991 20.6 15.1 73.1 5.5 26.9 text. 1992 25.5 18.1 71.2 7.3 28.8 1993 29.5 22.3 75.6 7.2 24.4 5. Computed by taking, for each year, the median of the seven methods that 1994 32.5 23.6 72.5 8.9 27.5 have data for 1977-95 and then taking the median of the resulting series. 6. Median of all methods yielding a value, with the demographic value 1995 18.3 13.6 74.5 4.7 25.5 updated as in note 3. n.a. Not available. 1. December to December, seasonally adjusted. . . . Not applicable. SOURCE. Federal Reserve and authors' calculations. / Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 897 Finally, the growth of total U.S. currency outstand- seen from simple back-of-envelope calculations.31 ing over the past fifteen years has clearly outpaced And we have already seen that surveys do not assign both the inflation rate and the growth of the U.S. much cash to households, although respondents may population (that is, as shown in chart 4, total real U.S. understate the true amounts they hold.32 currency outstanding per U.S. resident has risen sub- An unreported rise in the use of currency could stantially since the early 1980s). But the level of real reflect a rise in tax evasion or underground activity domestic balances has been nearly flat since the late (such behavior is very unlikely to be picked up in a 1980s (chart 4), a result, perhaps, of the increasing survey of currency usage). But the estimated size of use of currency substitutes such as checks and credit the unrecorded economy does not seem sufficient to cards (as found in the 1995 currency survey). By account for the observed increase in currency holdcontrast, real foreign demand has been increasing ings. Suppose that 10 percent of U.S. gross domestic sharply, resulting in a more stable appearance for the product were generated in the cash economy—a gentrend in total real currency per US. resident than for erous assumption—and that all worldwide illegal either of its components.30 drug transactions were exclusively done with U.S. currency (an assumption that double counts the illegal drug transactions included in the U.S. cash economy). The Contrarian View That Most U.S. Currency We know from currency surveys that an average unit Is Held at Home of currency turns over on the order of thirty-five to fifty times per year. Thus, the amount of currency One of our basic findings is that most of the recent required to support both the 10 percent of our $7 trilincrease in the demand for currency has been from lion GDP economy plus all drug trafficking (reported outside of the United States. The other possibility is to be on the order of $300 billion) would be between that the increased demand has been domestic in ori- about $20 billion and $30 billion, or only 5 percent to gin. But domestic sources for the recent surge in total 8 percent of U.S. currency outstanding.33 cash holdings are difficult to identify. Most analysts Tax avoidance is the most likely other possibility do not ascribe very much currency holding to busi- that would account for the cash we attribute to fornesses; the thinness of their likely holdings can be eign holdings. Suppose that, to avoid taxation, individuals and businesses manage to hide sizable 30. The foreign component is the median flow estimate for 1977- 95, here deflated by U.S. population because we are uncertain of the 31. Most businesses need nothing more than seed cash to operate, size of the foreign population that holds US. currency. The levels for and the total amount of such cash is not likely to be significant, as the the foreign component are based on the midpoint of the range for this following calculation shows. Almost 2.7 million retail establishments series, estimated to be 55 percent at the end of 1995. existed in 1992. Taking certain elements of cash use at supermarket chains as the standard for all retail establishments that year, assume that each establishment had ten cash registers (currently the median 4. Median flow estimate of the foreign component number for supermarket chains) and each register contained $200 of of the total real stock of U.S. currency, seed cash (the amount that at least one large supermarket chain uses for that purpose); then the total currency holdings by all retail estabmeasured in dollars per U.S. resident lishments would have been only $5.4 billion, or 1.8 percent of the total stock of currency at the end of 1992. If, in addition, one business Ratio scale, chained (1992) dollars days' worth of total consumption was always in transit to depository institutions, the total amount from both of these sources would have been only $22.3 billion, or only 7.7 percent of total currency holdings in that year. 32. Even taken at face value, CMIR statistics contradict claims that the foreign component is small. For example, the CMIR data imply that, taking the midpoint of the range of estimates, 17 percent of currency was held abroad at the end of 1995; but in that case, the implied amount overseas at the beginning of the sample (the end of 1976) would have been 67 percent. On the other hand, if little currency is held abroad currently, how would one account for the $53.2 billion in currency that was returned to the United States in 1995, according to CMIR statistics? 33. That is, with a turnover rate of fifty, ([0.1 x 7 x 1012] + [300 x 109]) / 50 = 20 x 109. The most recent cash survey, in 1995, found that the turnover rate of currency was about thirty-six times per year, 1980 1985 1990 1995 down from a rate of fifty times per year in the mid-1980s (a decline from about seven days per turnover to ten). Such a decline might be NOTE. Currency measured as currency component of Ml and deflated by the chain-type price index for personal consumption expenditures, 1992 base year. expected in light of the generally lower level of interest rates prevail- 1. The domestic component is defined here as total less foreign. ing more recently. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

898 Federal Reserve Bulletin • October 1996 amounts of cash that they had skimmed from their demand for money in these developed countries.35 business cash receipts. Such activities undoubtedly We conclude that these differences can be explained occur, but it strikes us as dubious that in the aggre- in part by differences in the principal determinants gate they could fill the void, given that currency, of currency holdings—interest rates, inflation, and which does not pay interest, must compete with many spending. But more important, we believe the differother investment vehicles that produce significant ences can be more fully explained by differences in real returns. payment systems and practices as well as in the levels Another counterargument to our findings would be of crime and taxation, the availability of ATM that we have not given sufficient recognition to the machines, the relative size of the denominations in unique characteristics of currency, including its ano- which currency is issued, and, we suspect, the relanymity, which can have great value in some (mostly tive strictness of the regulations regarding currency illicit) transactions. However, this advantage is not usage. unique to transactions within the United States but extends to the world, in part because of even fewer legal and regulatory restrictions on the use of cur- SUMMARY AND CONCLUSIONS rency elsewhere. Also, the increase in $100s, the denomination with the most significant increase, has One of the purposes of the Federal Reserve System is been concentrated in one Federal Reserve Cash to provide currency on demand—"to furnish an elas- Office, that serving only New York City and its tic currency," according to the preamble of the 1913 environs. Tax evasion and other illegal activity can- act creating the Federal Reserve. The original impenot explain this geographic concentration. Moreover, tus for providing a more flexible currency supply was if the New York City region actually had a highly domestic in nature—for example, at the time, oneunusual distribution of cash, it would surely be third of the population was still engaged in agriculreflected in other statistics such as a skewed geo- tural pursuits and thus subject to the large seasonal graphic distribution of vault cash, which is not the swings in agricultural transactions, a great many of case, at least for the District in which New York City is located (table 2). Nor, finally, can tax evasion and other illegal activity explain the data's temporal 35. The balances for Switzerland conceivably include substantial pattern—for example, the sharp rise in the ratio of amounts of cash held by nonresidents in safety deposit boxes at Swiss currency to M2 that began at the end of the 1980s. banks. If so, the Swiss data, like that for the United States and Germany, should be adjusted for "foreign" holdings. Currently, almost 90 percent of Swiss currency value is held in three largedenomination notes—100 francs, 500 francs, and 1,000 francs—with almost 50 percent of total currency held in the largest of these. CROSS-COUNTRY COMPARISONS Because 1,000-franc notes rarely circulate in Switzerland, we suspect that some of the currency is held in safety deposit boxes. After decades in which many developed countries have supposedly been moving to cashless economies, the sheer size of current per capita currency holdings 7. Comparison of per capita amounts of currency in circulation in selected industrial countries, 1995 around the world may come as a surprise (table 7). For two countries, the United States and Germany, Country U.S. dollars part of the mystery is removed when we take the foreign holdings into account.34 Making such adjust- Japan 3,590 Switzerland 3,450 ments, the United States per capita holdings move to Germany 2,030 the low end of the international scale, roughly equal Netherlands 1,550 United States 1,450 to the per capita levels in Great Britain, Finland, and Norway 1,410 Belgium 1,350 Canada—countries without significant external hold- Germany with foreign holdings removed, ings of their currencies. Appendix B explores how assuming 35 percent abroad 1,320 Sweden 1,160 the relatively high amount in other countries (even in Italy 1,080 Denmark 1,050 Germany after deducting its foreign holdings) might France 900 Canada 670 be explained in the context of an analysis of the United States with foreign holdings removed. assuming 55 percent abroad 650 Finland 560 Great Britain 530 NOTE. Per capita amounts converted to dollars and rounded to the nearest 34. Work at the German central bank suggests that between 30 per- $10. Some values for 1995 population are extrapolations. cent and 40 percent of deutsche marks are held outside Germany. See SOURCE. International Financial Statistics (International Monetary Fund), Seitz, "The Circulation of Deutsche Mark Abroad." Bank for International Settlements, and authors' calculations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 899 which were undertaken with cash. But within a cent of the U.S. currency stock is currently held decade of the act's passage, the Federal Reserve outside the country. began to collect data on overseas shipments of cur- The large expansion of the stock of U.S. currency rency by a number of large commercial banks in in the past decade—attributable, as we have seen, to New York City, and over the subsequent seventy foreign demand—has provided a significant rise in years, U.S. currency has become the world's leading seigniorage to the U.S. Treasury and in the benefit cash medium. In addition to the dollar's virtues as that seigniorage provides to U.S. taxpayers. In the last cash (anonymity and compactness), dollars are held several years, the Federal Reserve's holdings of U.S. and used because of their liquidity and stability rela- securities (the bulk of the Federal Reserve's balancetive to most of the world's currencies. While much of sheet counterpart to the stock of U.S. currency U.S. currency abroad is held in $100s, a significant outstanding) have yielded annual net earnings— amount also appears to be in smaller denominations. seigniorage—of roughly $15 billion to $25 billion, Determining how much of U.S. currency has gone which is turned over to the U.S. Treasury. Our estiabroad or returned from abroad in any period is mate is that roughly one-half to two-thirds of the difficult. Identifying flows between the United States earnings is likely attributable to foreign holdings of and any individual country is even more problematic. U.S. currency. If the flows in both directions stay within the banking In sum, we now have several methods of determinsystem, the banking data we have will often capture ing the stocks and flows of dollars abroad. The estimuch of it. However, if the flows are extraordinarily mates are far from identical, but they generally point large, as they appear to have been recently, the outlier in the same direction, toward large and increasing methods—the money demand and signal extraction quantities of U.S. dollars abroad. methods—may be able to pick up aggregate net outflows as well.36 The difficulty is that not all currency moves across APPENDIX A: OTHER PROPERTIES borders within the banking system. Thus, part of our OF THE MEDIAN FLOW ESTIMATE motivation for developing the indirect methods, such as the seasonal and the biometric, was to capture Here are details on our investigation of the relationflows that might not show up in the more direct ship of the changes in the overall demand for curmeasures. In fact, all of the methods except for that rency and its domestic and foreign components and using the CMIR data from Customs suggest that a on considerations in determining a confidence interlarge amount of currency has gone abroad, and we val for the median flow estimate. are inclined to view those expansive estimates as being close to the truth. Does this mean that the methods are inherently good? Or is this just a coinci- The Median Flow Estimate dence? We think it safe to say that the movements and Domestic Demand abroad have been so large in the 1990s that any reasonable method would have a fair chance of pick- Recent changes in currency holdings seem to be ing them up. dominated by the foreign component: While the for- Our "median flow" estimates of the amount of eign component has been trending up, the domestic currency held abroad and the size of recent overseas component has been rather flat at an average level of flows suggest that more than half of the nearly a little less than $7 billion (table 6). To see whether $300 billion increase in the currency component of the domestic component responds to economic incen- Ml since 1976 has gone abroad to accommodate tives, we regressed the change in the currency comincreased demands for Federal Reserve currency ponent of Ml on the median flow estimate as well as (table 6). Higher flows abroad would be registered if on variables possibly determining changes in the we used the shipments proxy (60 percent) and much domestic demand for money. lower flows would be estimated if we used the Cus- If the coefficient on the median flow estimate is toms data on CMIRs (less than 2 percent). We have close to 1 (as it is in the regression reported in also estimated that between 55 percent and 70 per- table A.l), then we can interpret the remaining coefficients as a domestic money demand function for the annual change in domestic currency holdings. That is, with the full effect of the median flow esti- 36. The same also applies to the Cash Office flows, which can be mate being captured by the change in the currency thought of as a crude form of money demand applied to the District or component of Ml, the result is essentially the same Branch level. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

900 Federal Reserve Bulletin • October 1996 as if we had subtracted the median flow estimate Confidence Intervals for the Median Flow from the change in the currency component and then Estimate estimated a money demand function for domestic currency holdings. Of course, if the coefficient on the An advantage of using the median flow estimate as overseas flow is significantly different from 1, such the summary measure of currency flows abroad is an interpretation will not hold. that it readily permits statements of confidence inter- The domestic part of the specification explains the vals. From a statistical point of view, one may regard changes in domestic currency holdings by an inter- the seven estimates (one from each of our seven cept, the change in the nominal interest rate, and a different methods) used in constructing the median consumption measure. The change in the nominal flow estimate as a random sample from a continuous interest rate is measured (in the spirit suggested by distribution of possible estimates; in that case, the Lawrence Ball) as the weighted average rate on a sample median that we use is an estimate of the narrow alternative to holding currency, namely the median of the population distribution. components of M2 without any maturity: other In the example at hand, the median is the middle checkable deposits, money market deposit accounts, result obtained from the seven estimation methods savings accounts, and money market mutual fund and hence can be thought of as a result of discarding accounts.37 The scale measure is the change in nomi- the three highest and three lowest estimates of net nal consumption expenditures (excluding those on flows abroad; in that light, variations in confidence automobiles, which are generally not bought with intervals for median flow estimates can be concurrency). The specification is in changes and not in structed on the basis of variations in the number of levels because levels (together with lagged stocks to extreme observations that are excluded from the cover distributed lag effects) require accounting for calculation (chart A.l).39 For the widest confidence the measurement error in the level of currency interval, none of the observations are excluded, so abroad.38 that the lower and upper confidence limits are formed Each of the estimates has the correct sign, but most by the lowest and highest of all seven observations; of the variance of the change in the currency compo- for the intermediate interval, the lowest and highest nent, at least at an annual frequency, apparently observations are excluded; and for the narrowest, the results from changes in foreign holdings and not two lowest and two highest are discarded. These domestic holdings. The framework of table A.l ranges may be useful if one wants to represent some allows us to distinguish the relative contributions in an analysis of variance, and we find that almost 90 percent of the variance of currency changes results 39. To obtain the widest interval, we drop none of the observations from changes in foreign currency holdings (row 2). in constructing the range. In that case the probability that the range consisting of the smallest to largest flow would cover the true median in some period is about 0.98; alternatively, if one removed the top and bottom estimates from the set of seven, the resulting confidence 37. Lawrence Ball, "Velocity and the Return on Near Moneys," interval for the median would be about 0.87; finally if one removed (Johns Hopkins University, June 1995). the top two and bottom two estimates, the probability that the result- 38. If we drop any one of the methods from the median calculation, ing interval would cover the true median would be about 0.55. See the resulting regression estimates are relatively similar to those shown Robert V. Hogg and Allen T. Craig, Introduction to Mathematical in table A. 1. Statistics, 5th ed. (Prentice Hall, 1995), pp. 497-98. A.l. Results of regression of change in currency component of Ml on foreign demand and the determinants of domestic demand, and associated decomposition of variance Determinants of domestic demand FFoorreeiiggnn ddeemmaanndd,, RReessiidduuaall CCoovvaarriiaannccee RRii IItteemm mmeeddiiaann ffllooww Change in Change in ssttaannddaarrdd eerrrroorr tteerrmm eessttiimmaattee Intercept nominal interest consumption rates expenditures RReeggrreessssiioonn'' .993 5.912 -1.223 13.096 1.3 .9754 (15.1) (3.5) (-2.7) (.7) VVaarriiaannccee ddeeccoommppoossiittiioonn22 52.6 .9 1.7 3.1 (90.3) 1 (1-5) (2.9) (5.3) 1. Numbers in parentheses are t statistics. 2. Numbers in parentheses are the percentages of the variance of changes in currency that are explained by each column or set of columns. . . . Not applicable. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 901 of the uncertainty that exists about net flows of the CMIR data, which generally appear to underesticurrency abroad. mate net currency flows abroad and produce the For that purpose we are inclined to use either the smallest flow measure in nearly three-fourths of the intermediate or narrowest interval: The width of nei- periods. This result raises the question of how much ther interval shows any tendency to trend up over the median flow estimate would rise if we excluded time; the widths are not constant but can get rela- the CMIR statistics at the outset: In that case, the tively narrow, as in 1990 or 1992, years for which the resulting summary measure matches the median flow various methods are in broad agreement about net estimate for much of the period and lies slightly flows of currency abroad. above it otherwise; the average amount by which it Another part of our reason for preferring the two exceeds the median flow estimate is only $0.5 billion narrowest ranges is that they exclude the smallest per year.40 observation in each year and thus give less weight to Alternatively, because the CMIR flows are most often at the bottom of the range of estimates, one could diminish their influence by constructing a confidence interval ranging from the next to the smallest A. 1. Alternative confidence intervals for the median flow flow to the largest flow in any period; such a range estimate would cover the true median about 93 percent of the time. Further, as an indication of the level of uncertainty about net flows abroad, the implied standard error associated with such a range would currently lie between about %2Vi billion and $23/4 billion per year. APPENDIX B: ESTIMATES OF CROSS-COUNTRY CURRENCY DEMAND We investigated the degree to which the crosscountry differences in per capita holdings of currency can be explained by various economic factors. We estimated currency demand equations for fourteen developed countries with data covering a seven-year period ending in 1993.41 The equations have the following specifications: • The dependent variable, VELOCITY, which is the currency velocity of GNP, that is, the ratio of GNP to the estimated currency holdings that are inside the country but outside the banking system. 40. Taking the median of the six methods excluding the CMIR method would increase the midpoint estimate of the amount held abroad slightly, from 55 percent to 57 percent. 41. In our specification, all the variables are natural logs of the underlying series, and the variable names are written in small capital letters. We thank David B. Humphrey and his collaborators for making their cross-country currency data available to us (see David B. Humphrey, Lawrence B. Pulley, and Jukka M. Vesala, "Cash, Paper, and Electronic Payments," Journal of Money, Credit, and Banking, vol. 28, November 1996, part 2, in press). The only variable that we have added is RATIO OF REVENUE TO GDP from Robert Summers and Alan Heston, "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, vol. 106 (May 1991), pp. 327-68. We used an updated version, Mark 5.5, available by anonymous ftp from ftp://nber.harvard.edu. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

902 Federal Reserve Bulletin • October 1996 • Two opportunity cost terms, an interest rate purchasing power associated with the largest denomi- (NOMINAL RATE) and the rate of inflation (INFLATION nation of domestic currency that is generally avail- RATE). Higher opportunity costs tend to induce cur- able. For example, the largest denomination in active rency holders to reduce their holdings, resulting in circulation in Japan (the ¥10,000 note), the-United higher currency velocities. Kingdom (the £50 note), and the United States (the • Two "scale" terms. The first, RATIO OF REVE- $100 note) range in value in dollar terms from about NUE TO GDP, accounts for the velocity effect of the $78 to $100 as of this writing; these values represent underground economy: If government raises taxes, considerably less purchasing power than that of the tax avoidance will rise, leading to more production largest denominations in Canada, Germany, the in the off-the-books (cash) sector, which in turn Netherlands, and Switzerland, all of which have increases the amount of currency per unit of output 1,000-unit bank notes, which now range in value and thus works to lower velocity. from about $600 to $830. Categorizing some coun- The second scale term is VIOLENT CRIME per tries as "low-denomination" (those in which the 100,000 population. The effects of crime are ambigu- largest denomination has relatively low purchasing ous: On one hand, street crime is likely to reduce power) and others as "high-denomination," we find currency holdings (raise velocity) because of fear of that significant differences emerge between the two being robbed; on the other hand, various forms of groups in the responsiveness of their currency criminal activities involve the use of currency. demand functions. For example, for both groups, • The total estimated number of noncash pay- increases in the price level tend to redirect more ments, NONCASH PAYMENTS, per capita. Presumably, transactions toward the largest denomination; but, for other things equal, an economy with a higher level of low-denomination countries, another effect of inflanoncash payments will have lower currency holdings tion may be more important: the substitution out of and higher currency velocities. currency into other means of payment for large-value • The number of automated teller machines, ATM, transactions that would otherwise require an inconveper capita. The effect of ATMs is ambiguous. On one nient amount of cash to execute. hand, more ATMs reduce the cost of obtaining cur- The specification we estimate uses a pooled rency and thus should lower currency obtained per panel regression with different slopes for the lowtransaction and overall currency holdings. On the denomination and high-denomination countries other hand, lowering the cost of obtaining currency (table B.l). The opportunity-cost elasticities in the could also make it more convenient relative to other low-denomination countries are higher (in absolute transaction media such as credit cards, thus increas- value) than those in the high-denomination countries, ing overall currency holdings and lowering velocity. perhaps because of the above-mentioned substitution The last factor we consider accounts for the effect in low-denomination countries as rising prices notable differences that exist among countries in the B.2. Actual real per capita holdings of currency in selected industrial nations compared with holdings predicted by B.l. Pooled panel-data regressions for currency velocities pooled panel-data regressions for velocity Low-denomination High-denomination U.S. dollars Variable countries countries Country Actual Predicted NOMINAL RATE 4.47 1.21 (3.0) (.4) Low-denomination countries Denmark 714 839 INFLATION RATE 7.52 5.05 407 610 (3.9) (1.4) 784 650 943 1,028 RATIO OF REVENUE TO GDP . . . -.70 -.81 2,247 2,033 (-4-7) (-5.9) 1,132 924 1,108 840 VIOLENT CRIME -.02 .29 United Kingdom 462 520 (-.3) (1.5) United States' 358 340 NONCASH PAYMENTS .70 1.60 High-denomination countries (7.2) (5.6) 1,178 1,281 618 648 ATM -.15 -.36 Germany2 906 1,067 (-1.8) (-3.3) Netherlands 1,309 1,057 Switzerland 2,732 2,566 INTERCEPT 1.82 -3.40 (4.3) (-4.1) NOTE. Holdings are averages for 1987-93. Dollar values deflated by the R2 .78 .79 chain-type price index for personal consumption expenditures, 1992 base year. Number of observations 60 34 1. After removal of foreign holdings, which were estimated using midpoint of overseas stock from the median flow estimate. NOTE. Numbers in parentheses are t statistics. 2. After removal of estimated foreign holdings (35 percent of total). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Location of U.S. Currency: How Much Is Abroad? 903 intensify the inconvenience of their low purchasing The underground economy effects (RATIO OF REVEpower currency.42 Except for the effect of crime, NUE TO GDP), are similar in magnitude in both types which is ambiguous, all of the variables appear to of countries and appear to have powerful explanatory have the expected signs and are generally quite effects. The ATM results are especially significant in significant43 the high-denomination countries and indicate that the convenience effects dominate the transaction-cost effects. The difference between the intercepts in the two specifications implies that residents in the high- 42. Using a Chow test, we solidly reject the hypothesis that the denomination countries hold on average about $185 corresponding slope coefficients in the velocity specifications are more in currency than their counterparts in lowequal in the high- and low-denomination countries; the test statistic denomination countries. Excluding foreign holdings equaled 5.50, which has a p value of 0.0001. Both opportunity cost variables (NOMINAL RATE and INFLATION from the domestic currency stock of Germany and RATE) are measured as a gross return so that we treat them symmetri- the United States yields values that on average tend cally and can take logs for the deflation of the price level that occurs to track the currency series in the various countries, in the sample. As a result, the coefficient of the elasticity of real money balances with respect to these opportunity costs measured as a with about 80 percent of the variation in velocity net return (the more usual way of introducing such variables) will be explained by the specification in both types of counx / (1 + x) times the gross elasticity, where x is a fraction; for example, tries (table B.2). a 5 percent rate would imply that the elasticity on the gross return should be reduced by 0.05 / 1.05 = 0.0471 to express it as an elasticity In sum, the cross-country differences in currency on a net return. holdings appear to be somewhat explicable by the 43. The crime variable has different signs in the two regressions basic factors we have been considering, including the and is insignificant in either case. The underground economy effects (RATIO OF REVENUE TO GDP) are similar in magnitude. We believe on magnitude of the largest denomination in which curbalance that crime should reduce currency holdings and thus increase rency is issued. To be sure, consideration of such velocity. We find such a result for the high-denomination countries, and it is marginally significant on a one-sided test of statistical denomination effects, as well as of the NONCASH significance. PAYMENTS variable, may also embody other aspects The opportunity-cost elasticities in the high-denomination countries of the demand for currency, such as the regulatory are not significant, perhaps because of the relatively low number of environment in which bank notes are handled. • degrees of freedom. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

904 Industrial Production and Capacity Utilization for August 1996 Released for publication September 17 was in August 1995. Industrial capacity utilization rose 0.2 percentage point, to 83.5 percent. Industrial production increased 0.5 percent in August When analyzed by market group, the data show after a gain of 0.1 percent in July. Some of the that the output of consumer goods fell 0.6 percent, acceleration from July to August resulted from with the decline concentrated in durables; the producweather-related swings in utility output; manufactur- tion of nondurable consumer goods was unchanged. ing output increased 0.3 percent in both months. At The drop in the output of durable consumer goods 126.9 percent of its 1987 average, total industrial reflected decreases in the output both of automotive production in August was 3.4 percent higher than it products and of other durable goods. Motor vehicle Industrial production indexes Twelve-month percent change Twelve-month percent change Materials 10 10 Durable manufacturing Products 1990 1991 1992 1993 1994 1995 1996 1990 1991 1992 1993 1994 1995 1996 Capacity and industrial production Ratio scale, 1987 production = 100 Ratio scale, 1987 production =100 — Total industry — 160 ~ Manufacturing — 160 Capacity 140 - CCaappaacciittyy __ —~~ 140 120 ^ 120 100 - 100 Production Production 80 80 1 1 1 1 I 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 I 1 1 Percent of capacity Percent of capacity Total industry Manufacturing Utilization - 90 Utilization 90 80 80 70 70 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1982 1984 1986 1988 1990 1992 1994 1996 1982 1984 1986 1988 1990 1992 1994 1996 All series are seasonally adjusted. Latest series, August. Capacity is an index of potential industrial production. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

905 Industrial production and capacity utilization, August 1996 Industrial production, index, 1987 = 100 Percentage change CCCCaaaatttteeeeggggoooorrrryyyy 11999966 19961 AAuugg.. 11999955 ttoo May' Juner Julyr Aug. p Mayr Juner Julyr Aug.p AAuugg.. 11999966 TTTToooottttaaaallll 125.4 126.2 126.3 126.9 .7 .6 .1 .5 3.4 PPPPrrrreeeevvvviiiioooouuuussss eeeessssttttiiiimmmmaaaatttteeee 125.2 126.0 126.2 .5 .6 .1 MMMMaaaajjjjoooorrrr mmmmaaaarrrrkkkkeeeetttt ggggrrrroooouuuuppppssss PPPPrrrroooodddduuuuccccttttssss,,,, ttttoooottttaaaallll2222 121.3 122.1 122.4 122.4 .5 .6 .2 .0 2.7 CCCCoooonnnnssssuuuummmmeeeerrrr ggggooooooooddddssss 116.3 116.6 117.3 116.5 .4 .3 .5 -.6 .6 BBBBuuuussssiiiinnnneeeessssssss eeeeqqqquuuuiiiippppmmmmeeeennnntttt 166.0 168.5 170.0 170.9 -.2 1.5 .8 .6 8.6 CCCCoooonnnnssssttttrrrruuuuccccttttiiiioooonnnn ssssuuuupppppppplllliiiieeeessss 111.0 113.8 112.2 111.9 1.7 2.5 -1.4 -.3 4.6 MMMMaaaatttteeeerrrriiiiaaaallllssss 131.6 132.5 132.2 133.8 1.0 .7 -.2 1.2 4.5 MMMMaaaajjjjoooorrrr iiiinnnndddduuuussssttttrrrryyyy ggggrrrroooouuuuppppssss MMMMaaaannnnuuuuffffaaaaccccttttuuuurrrriiiinnnngggg 127.4 128.4 128.8 129.1 .7 .8 .3 .3 4.0 DDDDuuuurrrraaaabbbblllleeee 139.1 141.2 141.6 142.0 .6 1.5 .3 .3 6.7 NNNNoooonnnndddduuuurrrraaaabbbblllleeee 114.4 114.4 114.8 114.9 .8 .0 .3 .2 .6 MMMMiiiinnnniiiinnnngggg 100.5 101.9 100.9 103.3 .1 1.4 -1.0 2.4 3.3 UUUUttttiiiilllliiiittttiiiieeeessss 128.4 126.2 123.9 125.8 1.6 -1.8 -1.8 1.5 -2.4 Capacity utilization, percent MMMEEEMMMOOO CCCaaapppaaaccciiitttyyy,,, pppeeerrr--ccceeennntttaaagggeee 1995 1996 ccchhhaaannngggeee,,, AAvveerraaggee,, LLooww,, HHiigghh,, AAAuuuggg... 111999999555 11996677--9955 11998822 11998888--8899 Aug. Mayr Juner Julyr Aug.? tttooo AAAuuuggg... 111999999666 Total 82.1 71.8 84.9 83.9 83.3 83.5 83.3 83.5 3.9 Previous estimate 83.2 83.4 83.2 Manufacturing 81.4 70.0 85.2 82.7 82.1 82.5 82.4 82.3 4.4 Advanced processing 80.7 71.4 83.5 81.2 80.5 80.8 80.8 80.6 5.2 Primary processing 82.6 66.8 89.0 86.2 86.1 86.6 86.4 86.5 2.5 Mining 87.4 80.6 86.5 89.3 89.8 91.1 90.2 92.4 -.1 Utilities 86.9 76.2 92.6 95.3 94.1 92.3 90.5 91.8 1.3 NOTE. Data seasonally adjusted or calculated from seasonally adjusted 2. Contains components in addition to those shown, monthly data. r Revised, 1. Change from preceding month. p Preliminary. assemblies fell 0.7 million units from their July level, plies decreased 0.3 percent after a 1.4 percent drop in to 12.6 million units (annual rate). The August rate July. Despite these recent declines, the production was higher than in any month during the first half of index for this sector remains 4.6 percent above its the year. Decreases in the output of air conditioners, year-earlier level. appliances, and television sets led the decline in other The output of industrial materials rose 1.2 percent durables. Among consumer nondurables, increases in in August. Increases in electricity generation and in residential electricity usage and in the production of coal mining pushed the output of energy materials up gasoline and heating oil were offset by decreases in 2.5 percent. The output of durable goods materials the output of consumer chemical products and rose 1.1 percent, with gains in the output of parts clothing. destined for use in consumer goods or in business and The output of business equipment advanced defense equipment. The output of nondurable materi- 0.6 percent; the increase was concentrated at pro- als increased 0.4 percent for a second month; the ducers of information processing equipment. The out- production in this grouping has risen about 4]/i perput of industrial equipment, which had fallen for five cent since its low point at the beginning of the year. consecutive months, barely edged up; because of the When analyzed by industry group, the data show drop in motor vehicle assemblies, the production of that the 0.3 percent increase in factory output transit equipment fell. However, the decrease in tran- reflected gains both in durable goods and in nondurasit equipment was muted somewhat by another month ble goods. Among durables, large increases came of increased activity at aircraft manufacturers. The in computer and office equipment, aerospace and output of defense and space equipment increased for miscellaneous transportation equipment, and instrua second month; production in this sector has risen ments; all posted increases of more than 1 percent. since the end of last year, the first sustained increase Besides motor vehicles and parts, the production of since the 1980s. The production of construction sup- lumber and of iron and steel fell significantly. Among Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

906 Federal Reserve Bulletin • October 1996 nondurables, the indexes for petroleum refining, rub- peripheral equipment, that periodic updating of ber and plastics products, and tobacco showed gains weights is too infrequent to provide reliable estimates of more than 1 percent. On the negative side, the of current changes in output, capacity, and capacity output of textile mill products fell 1.1 percent, and utilization. With the publication of the revision, the output indexes for both apparel and chemicals fell value-added proportions will be updated annually, 0.5 percent. Apparel production is down nearly 6 per- and the new index number formula will be applied to cent from its year-earlier level. all aggregates of IP, capacity, and gross value of The factory operating rate edged down 0.1 percent- product. For the most part, relative price movements age point, to 82.3 percent. The rate for advanced- among the 260 individual components of the IP index processing industries decreased 0.2 percentage point, are likely to have little visible effect on total IP. to 80.6 percent, and the rate for primary-processing However, the more frequent updating of the relative industries edged up 0.1 percentage point, to 86.5 per- price of the output of the computer industry could cent. Utilization for primary-processing industries lower overall IP growth in some years by as much as remains about 4 percentage points above its 1967-95 '/2 percentage point; in other years, the updating of average. Rates for primary metals, petroleum refin- weights will have virtually no effect. Because the ing, fabricated metals products, and rubber and plas- new index number formula will slow capacity growth tics products are more than 5 percentage points above as well as IP growth, the effect of the reaggregation their long-run averages. on overall capacity utilization should be small. The operating rate for utilities increased 1.3 per- The regular updating of source data for IP will centage points in August but stayed below its level include the introduction of annual data from the 1994 during the first half of the year; temperatures moved Annual Survey of Manufactures and selected 1995 up from their low levels in July but remained below Current Industrial Reports of the Bureau of the Cennormal. sus. Available annual data on mining for 1994 and This release and the history for all series pub- 1995 from the Department of the Interior will also be lished here are available on the Internet at introduced. Revisions to the monthly indicators for http://www.bog.frb.fed.us, the Board of Governors' each industry (physical product data, production- World Wide Web site. worker hours, or electric power usage) and revised seasonal factors will be incorporated back to 1992. The statistics on the industrial use of electric power 1996 REVISION ANNOUNCEMENT will be revised back to 1972. These revisions stem During the fourth quarter, the Federal Reserve will from three basic sources. First, the new figures incorpublish revisions of its measures of industrial produc- porate more complete reports received from utilities tion (IP), capacity, capacity utilization, and industrial for the past few years. Second, an updated panel of use of electric power; the current target month for the reporters on cogeneration will be fully integrated into release is November. The revisions of IP, capacity, our survey of electric power use. Third, the levels of and capacity utilization will incorporate updated the monthly electric power series for manufacturing source data for recent years and will feature a change industries will be benchmarked to indexes derived in the method of aggregating the indexes. From 1977 from data published in the Census Bureau's annual onward, the value-added proportions used to weight surveys and censuses of manufactures. These indexes individual series will be updated annually rather than will also be revised so that 1992 electric power usage quinquennially. In addition, the IP indexes and the equals 100. capacity measures will be rebased so that 1992 actual More detail on the plans for this revision is availoutput equals 100. Capacity utilization, the ratio of IP able on the Internet at http://www.bog.frb.fed.us. to capacity, will be recomputed on the basis of Once the revision is published, the revised data will revised IP and capacity measures. be available at that site and on diskettes from the The aggregate IP indexes will be constructed with Board of Governors of the Federal Reserve System, a superlative index formula similar to that introduced Publications Services, 202-452-3245. The revised by the Bureau of Economic Analysis as the featured data will also be available through the Economic measure of real output in its January 1996 compre- Bulletin Board of the Department of Commerce, call hensive revision of the National Income and Product 202-482-1986. In addition to the data currently pro- Accounts. At present, the aggregate IP indexes are vided, the time series of implicit prices necessary for computed as linked Laspeyres indexes, with the a user to aggregate IP and capacity under the new weights updated every five years. Because of the methodology will be provided by the Industrial Outrapid fall in the relative price of computers and put Section, 202-452-3151. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

907 Announcements ISSUANCE OF FINAL AGENCY GUIDELINES 1997, and compliance is mandatory as of January 1, ON SAFETY AND SOUNDNESS STANDARDS 1998. FOR ASSET QUALITY AND EARNINGS The final rule implements an amendment to the Basle Capital Accord that sets forth a supervisory The Federal Reserve Board along with the Office of framework for measuring market risk to cover debt the Comptroller of the Currency, the Federal Deposit and equity positions located in an institution's trading Insurance Corporation, and the Office of Thrift account and foreign exchange and commodity posi- Supervision on August 27, 1996, issued final inter- tions wherever located. agency guidelines prescribing safety and soundness The effect of the final rule is that any bank or bank standards for asset quality and earnings, thus com- holding company (institution) that is regulated by the pleting the requirements of section 132 of the Federal Board, the OCC, or the FDIC and has significant Deposit Insurance Corporation Improvement Act of exposure to market risk must measure that risk using 1991. The guidelines were effective October 1, 1996. its own internal value-at-risk model, subject to the The guidelines prescribe that insured depository parameters contained in the final rule, and hold a commensurate amount of capital. institutions establish and maintain systems that are commensurate with the institution's size and the nature and scope of its operations to accomplish the following: ADOPTION OF A FINAL RULE REGARDING INVESTMENT ADVISER ACTIVITIES • Identify problem assets and prevent deterioration IN REGULATION Y in those assets • Evaluate and monitor earnings and ensure that The Federal Reserve Board on August 26, 1996, earnings are sufficient to maintain adequate capital announced adoption of a final amendment to and reserves. the Board's interpretive rule regarding investment adviser activities contained in Regulation Y The guidelines are general in nature and focus on (12 C.F.R. 225.125). The final rule was effective what proper management should achieve, while leav- September 30, 1996. ing the methods for achieving those objectives to The amendment permits a bank holding company each institution. Because the guidelines are consistent (and its bank and nonbank subsidiaries) to purchase, with existing sound practices at banks, the Board in a fiduciary capacity, securities of an investment believes that well-managed banks will not need to company advised by the bank holding company if the alter their operations to comply with the guidelines. purchase is specifically authorized by the terms of the The final guidelines are substantially the same as instrument creating the fiduciary relationship, by those proposed in 1995. court order, or by the law of the jurisdiction under which the trust is administered. ISSUANCE OF FINAL RULE AMENDING THE RISK-BASED CAPITAL STANDARDS TO RESCISSION OF A STAFF INTERPRETIVE LETTER INCORPORATE A MEASURE OF MARKET RISK The Federal Reserve Board on August 26, 1996, The Federal Reserve Board along with the Office of determined to rescind a June 27, 1986, staff interprethe Comptroller of the Currency (OCC) and the tive letter setting forth restrictions that a bank holding Federal Deposit Insurance Corporation (FDIC) on company must abide by in selling mutual fund and August 29, 1996, issued a final rule amending risk- unit investment trust shares through a nonbanking based capital standards to incorporate a measure for subsidiary engaged in securities brokerage. In light of market risk. The final rule is effective January 1, regulatory changes that have occurred since the issu- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

908 Federal Reserve Bulletin • October 1996 ance of the so-called Sovran Letter, the Board deter- panies (banking organizations) regarding the treatmined that the restrictions contained in the letter ment of collateralized transactions. Comments are either have been effectively superseded or are no requested by October 15, 1996. longer necessary. The Federal Reserve Board on August 28, 1996, requested comment on proposed revisions to Regulation Y that are intended to improve the competitiveness of bank holding companies by eliminating AMENDMENT TO REGULATIONS REGARDING unnecessary regulatory burden and operating restric- LOANS IN AREAS WITH SPECIAL FLOOD tions and by streamlining the application and notice HAZARDS process. Comments are requested by October 31, The Federal Reserve Board is amending regulations 1996. regarding loans in areas having special flood hazards. The Board's action was effective October 1, 1996. This action implements the provisions of the National PUBLIC SERVICE ANNOUNCEMENTS Flood Insurance Reform Act of 1994. ON THE SALE OF MUTUAL FUNDS As required by statute, the final rules establish new escrow requirements for flood insurance premiums, The Federal Reserve announced on August 15, 1996, add reference to the statutory authority and the re- that it is providing public service announcements to quirement for lenders and servicers to "force place" 145 television stations across the United States as flood insurance under certain circumstances, enhance part of its continuing nationwide education program flood hazard notice requirements, set forth new entitled "Mutual Funds: Understand the Risks." authority for lenders to charge fees for determining The public service announcements, in 15- and 30whether a property is located in a special flood hazard second versions, deal with the sale of mutual funds area, and contain various other provisions necessary and annuities at banks. The announcements highlight to implement the National Flood Insurance Reform that these investment products, even when purchased Act of 1994. through banks, are not insured by the Federal Deposit Similar action is being taken by the Office of the Insurance Corporation and are subject to market risks, Comptroller of the Currency, the Federal Deposit including loss of principal. Insurance Deposit Corporation, the Office of Thrift As part of the education campaign, the Federal Supervision, the National Credit Union Administra- Reserve System has been offering seminars on this tion, and the Farm Credit Administration. topic for consumer and banker groups. Additional information may be obtained from the regional Federal Reserve Banks. Following is a list of contact numbers: PROPOSED ACTIONS The Federal Reserve Board along with the Office of Boston (617) 973-3647 Chicago (312) 322-5110 the Comptroller of the Currency, the Federal Deposit New York (212) 720-6136 St. Louis (314)444-8688 Insurance Corporation, and the Office of Thrift Philadelphia (215) 574-6439 Minneapolis (612) 340-2373 Supervision (Agencies) on August 8, 1996, requested Cleveland (216) 579-2891 Kansas City (816)881-2681 comments on a proposal to amend the risk-based Richmond (804) 697-8135 Dallas (214) 922-5255 capital guidelines for banks and bank holding com- Atlanta (404) 521-8934 San Francisco (415) 974-2489 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

909 Minutes of the Federal Open Market Committee Meeting Held on July 2-3, 1996 A meeting of the Federal Open Market Committee Messrs. Madigan and Slifman, Associate Directors, was held in the offices of the Board of Governors of Divisions of Monetary Affairs and Research and Statistics respectively, Board of Governors the Federal Reserve System in Washington, D.C., on Mr. Bray ton,2 Ms. Johnson,2 Messrs. Reinhart Tuesday, July 2, 1996, at 1:00 p.m. and continued on and Smith,3 Assistant Directors, Divisions of Wednesday, July 3, 1996, at 9:00 a.m. Research and Statistics, International Finance, Monetary Affairs, and International Finance Present: respectively, Board of Governors Mr. Greenspan, Chairman Ms. Kusko2 and Mr. Wilcox,2 Senior Economists, Mr. McDonough, Vice Chairman Divisions of Research and Statistics and Mr. Boehne Monetary Affairs respectively, Mr. Jordan Board of Governors Mr. Kelley Ms. Garrett, Economist, Division of Monetary Mr. Lindsey Affairs, Board of Governors Mr. McTeer Ms. Low, Open Market Secretariat Assistant, Mr. Meyer Division of Monetary Affairs, Board of Ms. Phillips Governors Ms. Rivlin Mr. Stern Ms. Holcomb, First Vice President, Federal Reserve Ms. Yellen Bank of Dallas Mr. Beebe, Ms. Browne, Messrs. Davis, Dewald, Messrs. Broaddus, Guynn, Moskow, and Parry, Eisenbeis, Goodfriend, and Hunter, Senior Alternate Members of the Federal Open Market Vice Presidents, Federal Reserve Banks of Committee San Francisco, Boston, Kansas City, St. Louis, Atlanta, Richmond, and Chicago respectively Messrs. Hoenig and Melzer, and Ms. Minehan, Messrs. Kos and Meyer, Vice Presidents, Federal Presidents of the Federal Reserve Banks of Reserve Banks of New York and Philadelphia Kansas City, St. Louis, and Boston respectively respectively Mr. Kohn, Secretary and Economist By unanimous vote, the minutes of the meeting of Mr. Bernard, Deputy Secretary the Federal Open Market Committee held on May 21, Mr. Coyne, Assistant Secretary 1996, were approved. Mr. Gillum, Assistant Secretary Mr. Mattingly, General Counsel The Manager of the System Open Market Account Mr. Baxter, Deputy General Counsel reported on recent developments in foreign exchange Mr. Prell, Economist markets. There were no open market transactions in Mr. Truman, Economist foreign currencies for System account during the period since the meeting on May 21, 1996, and thus Messrs. D. Lindsey, Mishkin, Promisel, Rolnick, Rosenblum, Siegman, Simpson, Sniderman, no vote was required of the Committee. and Stockton, Associate Economists The Manager also reported on recent developments in domestic financial markets and on System open Mr. Fisher, Manager, System Open Market Account market transactions in U.S. government securities and federal agency obligations during the period May 21, Mr. Winn,1 Assistant to the Board, Office of Board Members, Board of Governors Mr. Ettin, Deputy Director, Division of Research and Statistics, Board of Governors 2. Attended portion of the meeting relating to the Committee's discussion of the economic outlook and its longer-run growth ranges for the monetary and debt aggregates. 1. Attended portion of meeting concerning issues relating to the 3. Attended portion of the meeting relating to the Committee's long-run price objective for monetary policy. review of its swap line agreements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

910 Federal Reserve Bulletin • October 1996 1996, through July 2, 1996. By unanimous vote, the starts fell considerably in May from the relatively Committee ratified these transactions. high April level. The decline suggested that the rise The Committee then turned to a discussion of the in mortgage rates in recent months had begun to economic and financial outlook, the ranges for the damp construction activity, but indicators of housing growth of money and debt in 1996 and 1997, and the demand, such as sales of new and existing homes, implementation of monetary policy over the inter- remained relatively robust. meeting period ahead. A summary of the economic Growth in business expenditures on durable equipand financial information available at the time of the ment and nonresidential structures appeared to be meeting and of the Committee's discussion is pro- slowing following a surge in outlays in the first vided below, followed by the domestic policy direc- quarter. In May, shipments of nondefense capital tive that was approved by the Committee and issued goods rebounded from the substantial decline in to the Federal Reserve Bank of New York. April; however, excluding movements in the volatile The information reviewed at this meeting sug- aircraft category, shipments were down on balance gested that economic activity advanced considerably over the two months. Among the major components, further in the second quarter, although growth in shipments of both computing and communications aggregate final demand showed some signs of slow- equipment fell sharply in April and retraced only part ing. Consumer spending continued to post sizable of that decline in May. Recent data on new orders gains, but business investment in equipment and pointed to more modest increases in spending on structures apparently was rising less vigorously, and business equipment over the months ahead. Nonresihigher mortgage rates evidently were starting to exert dential building activity increased considerably fursome restraint on housing construction activity. Busi- ther in April (latest data available), but incoming ness inventories had been brought into better balance information on contracts suggested that growth in with sales, and production and employment had risen nonresidential construction would weaken somewhat appreciably. Upward pressures on food and energy in coming months. prices had led to somewhat larger increases in the Businesses had made considerable progress in consumer price index over recent months. recent months in bringing their inventories into better Nonfarm payroll employment continued to expand alignment with sales. In manufacturing, stocks rose briskly over April and May. Job gains were concen- moderately in April after a decline in March. The trated in the service-producing and construction stock-to-shipments ratio dropped further in April industries, while employment in manufacturing was and was at a low level. At the wholesale trade stable on balance over the April-May period after level, inventory accumulation was appreciable in having declined somewhat in 1995 and the first quar- April after several months of modest growth. The ter of 1996. The civilian unemployment rate rose in inventory-to-sales ratio for this sector edged up in May to 5.6 percent, which was the average rate for April but remained well below the elevated levels of the year to date. last fall. Retail inventories increased slightly in April Industrial production increased appreciably further after a large decline in March associated with a in May. In contrast to April's advance, much of substantial liquidation of motor vehicle stocks. The which had resulted from the resumption of operations aggregate ratio of inventories to sales for retail estabat a major motor vehicle manufacturer after the settle- lishments was around the lower end of its range in ment of a strike, the May rise largely reflected gains recent years. in a wide range of non-auto-related manufacturing The nominal deficit on U.S. trade in goods and industries as well as a weather-related jump in elec- services widened in April from its rate in the first tricity generation. The surge in overall output lifted quarter, reflecting a slightly larger increase in the total utilization of industrial capacity somewhat value of imports than in that of exports. The expanabove the average rate recorded during the previous sion in imports was concentrated in oil as U.S. refintwo quarters. ers sought to meet growing domestic demand and Total nominal retail sales surged in May after rebuild their inventories. The rise in exports was having changed little in April; the increase in sales, broadly based, although exports of computers, semicoupled with available information on prices, sug- conductors, and automotive products edged off. gested that real consumer spending on goods had Economic activity in the major foreign industrial risen substantially on balance since the first quarter. countries appeared to have expanded moderately on Recent data (available through April) indicated that balance since the beginning of the year. In the first spending on services had increased moderately on quarter, economic performance ranged from unexbalance in recent months. Single-family housing pectedly robust in Japan to further weakness in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 911 Germany; the limited data available for the second In foreign exchange markets, the trade-weighted quarter suggested a slowdown in Japan, a bounce- value of the dollar in terms of the other G-10 currenback in Germany, and moderate growth in other cies depreciated slightly over the intermeeting period. major trading partners. The dollar declined against the German mark and Although upward pressures on energy prices con- other European currencies as growing indications of tinued to boost overall consumer prices in April and a recent pickup in economic activity in Germany May, price increases for nonfood, non-energy items damped market expectations of any further easing of remained small. Over the twelve months ended in monetary policy by the Bundesbank. By contrast, the May, the increase in core consumer prices was appre- dollar rose against the yen in apparent response to a ciably smaller than in the previous twelve-month series of statements by Japanese officials suggesting period; much of the deceleration reflected swings in that there would be no near-term firming of Japanese automobile finance charges. At the producer level, monetary policy. higher prices for finished energy goods over April The broad monetary aggregates were weak in May: and May were partially offset by slightly lower prices M2 declined, and M3 expanded relatively sluggishly. for finished foods; prices for nonfood, non-energy The weakness in M2 and M3 was associated in part finished goods were little changed over the two- with the adverse effects of the earlier rise in market month period and rose less over the twelve months interest rates on the opportunity costs of holding ended in May than in the comparable year-earlier deposits. Deposit balances also may have been drawn period. Data on average hourly earnings of produc- down to meet unusually large individual tax liabilition and nonsupervisory workers indicated that this ties on the April 15 tax date. Partial data for June measure of labor costs had increased by a somewhat pointed to a rebound in both aggregates. For the year larger amount in the year ended in May than in the through June, these aggregates were estimated to comparable year-earlier period. have grown at rates around the upper bounds of their At its meeting on May 21, 1996, the Committee respective annual ranges. Expansion of total domestic adopted a directive that called for maintaining the nonfinancial debt had slowed somewhat in recent existing degree of pressure on reserve positions and months, but the debt aggregate had remained in the that did not include a presumption about the likely middle portion of its annual range. direction of any adjustments to policy during the The staff forecast prepared for this meeting sugintermeeting period. The directive stated that in the gested that, after a sizable advance in economic activcontext of the Committee's long-run objectives for ity in the second quarter, growth would moderate and price stability and sustainable economic growth, and the economy would expand around or perhaps a little giving careful consideration to economic, financial, above its estimated potential. Consumer spending and monetary developments, slightly greater reserve was projected to expand at a more moderate pace, in restraint or slightly lesser reserve restraint would be line with disposable income; the favorable effect of acceptable during the intermeeting period. The higher equity prices on household wealth and the reserve conditions associated with this directive were still-ample availability of credit were expected to expected to be consistent with moderate growth in balance persisting consumer concerns about job and M2 and M3 over coming months. retirement security and the restraining effect of high Open market operations were directed toward household debt burdens. Homebuilding was forecast maintaining the existing degree of pressure on reserve to slow somewhat in response to the back-up in positions throughout the intermeeting period. The residential mortgage rates but was expected to remain federal funds rate averaged near 5lA percent, the level at a relatively high level in the context of sustained expected to be associated with the unchanged policy income growth and the still-favorable cash flow stance. Because the Committee's decision had been affordability of home ownership. Business spending largely anticipated in financial markets, other market on equipment and structures was projected to grow interest rates also were little changed during the early less rapidly in light of the anticipated moderate part of the period. However, market rates increased growth of sales and profits and the reduced rate of appreciably following the release of a strong employ- utilization of production capacity now prevailing. ment report in early June, though most of that rise The external sector was expected to exert a small was later retraced as expectations of near-term tight- restraining influence on economic activity over the ening of monetary policy diminished. On balance, projection period, even though an anticipated firming most market rates were up a little over the intermeet- of economic activity abroad would bolster demand ing period. Major indexes of stock prices were down for U.S. exports. Little further fiscal contraction was on balance over the period. forecast over the projection period. Inflation recently Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

912 Federal Reserve Bulletin • October 1996 had been lifted by adverse developments in energy 5Y2 percent for 1996 and 4]A to 5 percent for 1997. markets and was projected to remain above the levels The civilian rate of unemployment associated with of recent years, given the still-high level of resource these forecasts was expected by most members to utilization and the effects of tight grain supplies on remain around 5V2 percent this year and to be in a food prices. range of 5XA to 53A percent in 1997. This level of In the Committee's discussion of current and resource utilization was expected to be associated prospective economic developments, members com- with a slightly higher rate of inflation in 1996, as mented on the stronger-than-expected expansion in measured by the consumer price index, than that overall economic activity in recent months, but for a recorded in 1995 owing to developments in the food variety of reasons they anticipated that growth would and energy sectors, but a decline was anticipated in slow appreciably over the second half of the year to a 1997. Specifically, the projections converged on rates pace more in line with the growth in the economy's of 3 to 3lA percent in 1996 and 23A to 3 percent in potential. Key factors bearing on this outlook 1997. The projections for both 1996 and 1997 were included the prospective effects of the rise in interest based on individual views concerning what would be rates and the dollar that had occurred since earlier in an appropriate monetary policy over the projection the year and the waning influence of transitory fac- horizon. tors that had stimulated economic activity in the In their assessment of factors bearing on the outsecond quarter. The members generally agreed, how- look for final demand, members commented that ever, that, apart from evidence of some moderation in growth in consumer spending was likely to moderate the growth of business investment expenditures from in coming quarters from its pace thus far this year. a very rapid pace, there were few hard indications of This moderation would reflect the projected slowing a slowing in the expansion and the risks were clearly in income growth. While overall employment condito the upside of their current forecasts. Against that tions, the buildup of household net worth, and access background, they were concerned that inflation could to financing would bolster consumer expenditures, begin to rise. Cost and price pressures had been members also cited a number of limiting factors. The surprisingly well contained at high levels of resource latter included the increase in consumer indebtedutilization, but this unusually favorable performance ness, satisfaction of earlier pent-up demand for conmight not be sustained, and in any event even greater sumer durable goods, and continuing concern about resource utilization, as would occur if growth did not job security. Higher interest rates also were expected moderate appreciably, carried substantial inflation to exert an inhibiting effect on purchases of consumer risk. There were some scattered indications in statisti- durables, including those related to housing. Some cal and anecdotal reports that tended to suggest that members observed that while slower growth in conwage inflation might be trending higher, although key sumer spending was the most probable forecast, they measures of price inflation, excluding their food and saw an upside risk from the wealth effects of the energy components, continued to display a flat or large rise that had occurred in the value of stock even a declining trend. market holdings. In keeping with the practice at meetings when the Business expenditures for plant and equipment Committee sets its long-run ranges for the money and were expected to grow at a slower though still appredebt aggregates, the members of the Committee and ciable pace. Indeed, such spending already appeared the Federal Reserve Bank presidents not currently to be moderating. Contract data suggested that nonserving as members provided individual projections residential construction activity was on a slowing of the growth in real and nominal GDP, the rate of growth trajectory and expansion of outlays for prounemployment, and the rate of inflation for the years ducers' durable equipment also appeared to have 1996 and 1997. (The ranges in this paragraph take softened. Given the outlook for slower growth in into account minor revisions made by a few members final demand, many businesses would not have to add subsequent to the meeting.) The forecasts of the rate significantly to capacity. However, spending for comof expansion in real GDP for 1996 as a whole had a puting equipment, while perhaps moderating from central tendency of 2Vi to 23A percent, reflecting the exceptional pace of recent quarters, was thought expectations of considerable moderation in the rate of likely to remain buoyant as continuing innovations economic growth over the second half of the year; for and declining prices stimulated further solid gains in 1997, the projections centered on continued moderate this segment of business spending. growth of GDP in a range of l3A to 2'A percent. With Housing was seen as another important sector of regard to the expansion of nominal GDP, the fore- the economy that was likely to exert a retarding effect casts were concentrated in growth ranges of 5 to on the expansion as the rise that had occurred in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 913 mortgage interest rates was felt increasingly in hous- in line with their current forecasts, the resulting added ing markets. The anecdotal information from around pressures on resources would at some point translate the nation and the available statistics suggested, how- into higher price inflation. Accordingly, the factors ever, that those markets generally had remained bearing on the outlook for resource use and inflation surprisingly ebullient thus far, and there were only needed to be monitored with special care in this limited indications of some softening in home con- period. struction activity. With regard to inflation over the long run, the Business inventory investment was viewed as a members agreed that it was essential for the Commitkey upside risk in the economic outlook for coming tee to continue to focus on reducing inflation over quarters. An inventory overhang at the end of last time because the achievement of an even less inflayear had been corrected in the first quarter, and tionary economic environment would foster a more inventory investment was indicated to have turned productive economy and maximum sustainable ecopositive again in the second quarter. However, cur- nomic expansion. The members acknowledged that rent inventory-to-sales ratios appeared to be rela- as inflation diminished to very low levels, questions tively lean, and final sales that exceeded current about the measurement of the overall price level expectations might well induce a sharp upward presented difficult problems for assessing progress adjustment in inventory accumulation, especially if toward price stability. Some also observed that the lead times were to lengthen and producers perceived precise level of average price inflation that might be shortfalls in their safety stocks. compatible with the optimal functioning of the econ- Members viewed the outlook for inflation as a omy was an unsettled issue owing, for example, to source of substantial uncertainty in their forecasts, potential rigidities in labor markets. Thus far, such though many saw reasonable prospects that a rate of rigidities had not impeded the economy from funceconomic expansion in line with their forecasts and tioning at a very high level as inflation came down, associated levels of capacity utilization would prove and continued adaptation to even lower inflation rates to be consistent with little change in the core rate of was very likely. However, the Committee would need inflation. Some important measures of price inflation, to pay careful attention to these potential problems as after adjustment to exclude their volatile food and inflation fell further. For now, the members agreed energy components, had shown a flat or even a that some additional progress in reducing inflation declining trend in recent quarters. The outlook for was very likely to improve the ultimate performance overall price increases would remain contingent in of the economy, and that it was particularly important part on food and energy price developments, but at this juncture to resist firmly any tendency for more importantly on underlying cost pressures in the inflation to worsen. economy. In keeping with the requirements of the Full Several members commented that the levels of Employment and Balanced Growth Act of 1978 (the utilization of capital and labor resources that had Humphrey-Hawkins Act), the Committee at this prevailed over the past couple of years would have meeting reviewed the ranges for growth of the monebeen expected, on the basis of historical patterns, to tary and debt aggregates that it had established in foster rising cost pressures and greater inflation. January for 1996, and it decided on tentative ranges However, labor compensation gains had been sub- for those aggregates for 1997. The current ranges set dued in relation to earlier cyclical experience, likely in January for the period from the fourth quarter of as a consequence of increased worker concerns about 1995 to the fourth quarter of 1996 were unchanged job security and job opportunities. Despite the con- from the ranges for 1995 and included expansion of tinued low rate of unemployment and widespread 1 to 5 percent for M2 and 2 to 6 percent for M3. An anecdotal reports of tight labor markets across the unchanged monitoring range of 3 to 7 percent was set country, there were only limited indications in in January for growth of total domestic nonfinancial national data that wage inflation might be increasing. debt in 1996. Whether greater labor cost pressures would emerge A majority of the members favored retaining the in the context of the members' consensus forecast for current ranges for this year and extending them on a economic activity was a critical issue in the outlook provisional basis to 1997. They anticipated that for prices, though it was noted that at least some of growth of M2 and M3 probably would continue at the rising costs were likely to be absorbed in shrink- rates close to the upper limit of their respective ing profit margins. Even if greater price inflation ranges in both years, given the Committee's expectawere averted under that scenario, the members saw a tions for the performance of the economy and prices. substantial risk that if economic growth did not slow However, despite a degree of concern about setting Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

914 Federal Reserve Bulletin • October 1996 ranges that did not more comfortably encompass At the conclusion of this discussion, the Commitexpected growth, these members preferred not to tee voted to reaffirm the ranges for growth of M2 and change the ranges for a variety of reasons. The cur- M3 and the monitoring range for expansion of total rent ranges for the broad monetary aggregates could domestic nonfinancial debt that it had established in be viewed as anchors or benchmarks for money January for 1996. For the year 1997, the Committee growth that would be associated with approximate approved provisional ranges for M2 and M3 and a price stability and sustained economic growth, provisional monitoring range for total domestic nonassuming behavior of velocity in line with historical financial debt that were unchanged from the 1996 experience. Accordingly, a reaffirmation of those ranges. In keeping with its usual procedure under the ranges would underscore the Committee's commit- Humphrey-Hawkins Act, the Committee would ment to a policy of achieving price stability over review its preliminary ranges for 1997 early next time; and in the view of some members, higher year, or sooner if interim conditions warranted, in ranges could raise questions in this regard. Moreover, light of their growth and velocity behavior and a change in the ranges might be misinterpreted as a ongoing economic and financial developments. signal of greater reliance on the broad monetary Accordingly, the Committee voted to incorporate the aggregates in the formulation and conduct of mone- following statement regarding the 1996 and 1997 tary policy. In this connection, the members noted ranges in its domestic policy directive: that the behavior of M2 in relation to nominal GDP The Federal Open Market Committee seeks monetary and interest rates had displayed a pattern over the and financial conditions that will foster price stability and past two years or so that was in line with historical promote sustainable growth in output. In furtherance of norms before the 1990s. However, in light of difficul- these objectives, the Committee reaffirmed at this meeting ties in the early 1990s and changes in financial mar- the ranges it had established in January for growth of M2 kets, the prospective growth of M2 and its velocity and M3 of 1 to 5 percent and 2 to 6 percent respectively, measured from the fourth quarter of 1995 to the fourth remained subject to considerable uncertainty and the quarter of 1996. The monitoring range for growth of total members felt that it would be premature for the domestic nonfinancial debt was maintained at 3 to 7 per- Committee to place increased reliance on M2 at this cent for the year. For 1997 the Committee agreed on point. tentative ranges for monetary growth, measured from the fourth quarter of 1996 to the fourth quarter of 1997, of 1 to A few members preferred somewhat higher growth 5 percent for M2 and 2 to 6 percent for M3. The Commitranges for M2 and M3 because such ranges would tee provisionally set the associated monitoring range for more comfortably surround the Committee's expecta- growth of total domestic nonfinancial debt at 3 to 7 percent tions for monetary growth. The higher ranges would for 1997. The behavior of the monetary aggregates will be more informative for the Congress and the public continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and as to the money growth likely to be associated with developments in the economy and financial markets. the Committee's expected economic outcomes for the period covered by the ranges. They believed that Votes for this action: Messrs. Greenspan, McDonough, the reasons for establishing the higher ranges could Boehne, Jordan, Kelley, McTeer, Meyer, Mses. Phillips and Rivlin, and Mr. Stern. Votes against this action: Mr. readily be explained and understood as appropriate Lindsey and Ms. Yellen. technical adjustments that did not imply any lessened commitment to the Committee's price stability goal. Mr. Lindsey and Ms. Yellen dissented because they For example, such an explanation appeared to have preferred somewhat higher ranges for M2 and M3 been accepted with little or no comment by the public growth in 1996 and 1997. The central tendencies of when the range for M3 was increased in July 1995. the members' forecasts of nominal GDP for the two The Committee members were unanimously in years were likely to be associated with growth of the favor of retaining the current monitoring range of 3 to broad monetary aggregates at rates around the top of 7 percent for growth of total domestic nonfinancial the current ranges. Somewhat higher ranges would debt in 1996 and extending that range on a provi- more comfortably encompass the anticipated growth sional basis to 1997. They took account of a staff of the monetary aggregates and in their view would projection indicating that growth of the debt aggre- conform more closely with the provisions and intent gate was likely to slow somewhat from its pace of the Federal Reserve Act that require the System to earlier this year in line with some moderation in the communicate its objectives and plans for monetary expansion of nominal income. According to the staff growth to the Congress. They believed the reasons projection, growth in the debt measure would be near for raising the ranges could easily be explained and the midpoint of the existing range over the period understood as a technical adjustment that did not through 1997. represent a reduced commitment to the goal of price Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 915 stability or an increased emphasis on the monetary higher inflation. Several commented that an asymaggregates in policy formulation. metric directive did not imply a commitment to In the Committee's discussion of policy for the tighten monetary policy at some point, whether durintermeeting period ahead, all but one of the mem- ing the intermeeting period or at a future meeting, but bers supported a proposal to maintain an unchanged it did imply the need for special vigilance. Some policy stance. These members also indicated that noted that a policy tightening action could tend to they preferred or could accept an asymmetric direc- have a more pronounced effect than usual because it tive that was biased toward restraint. In their view, would indicate a shift in the direction of policy and the most likely outcome was a slowing of the expan- might generate expectations of further tightening. sion to a more sustainable pace and a continuation of Under the circumstances, the Committee would consubdued inflation. Nevertheless, they were concerned sult in some way before any policy tightening was that the risks to that outcome were tilted toward undertaken. higher inflation. While a strong economy generally At the conclusion of the Committee's discussion, was a welcome development, at current levels of all but one member indicated that they supported resource use a continuation of rapid growth was not a directive that called for maintaining the existing likely to be sustainable because it would have the degree of pressure on reserve positions and that potential for adding significantly to inflation pres- included a bias toward the possible firming of reserve sures. However, inflation had remained relatively conditions during the intermeeting period. Accorddamped thus far, and the rise in interest rates among ingly, in the context of the Committee's long-run other factors was expected to curb demand. More- objectives for price stability and sustainable ecoover, any tendency for price pressures to mount was nomic growth, and giving careful consideration to likely to emerge only gradually and be reversible economic, financial, and monetary developments, through a relatively limited policy adjustment. The the Committee decided that somewhat greater reserve current stance of monetary policy could not be de- restraint would be acceptable and slightly lesser scribed in this view as clearly accommodative. While reserve restraint might be acceptable during the interthe federal funds rate had been reduced appreciably meeting period. The reserve conditions contemplated in nominal terms over the past year, its current level at this meeting were expected to be consistent with on an inflation-adjusted basis seemed to be only moderate growth of M2 and M3 over coming months. marginally below its peak prior to mid-1995. In the At the conclusion of the meeting, the Federal circumstances, the Committee could afford to wait Reserve Bank of New York was authorized and for more evidence to see whether additional inflation directed, until instructed otherwise by the Commitpressures were likely to develop. A number of key tee, to execute transactions in the System Account economic data would become available over the next in accordance with the following domestic policy several weeks that would provide a much better basis directive: for assessing the economy's momentum over the second half of the year and the outlook for inflation. The information reviewed at this meeting suggests that economic activity advanced considerably further in the A differing view gave more emphasis to prospects second quarter, but increases in final demand showed some for rising inflation and the need for immediate action signs of moderation. Nonfarm payroll employment was up to forestall a buildup of cost and price pressures substantially in April and May; the civilian unemployment before they undermined the expansion. There was rate rose to 5.6 percent in May. Industrial production little firm evidence that economic growth was slow- increased appreciably further in May, reflecting gains across a wide range of industries. Real consumer spending ing and reports of appreciable wage pressures were rose substantially on balance over April and May. Singleincreasing. Inflation expectations persisted in finanfamily housing starts fell considerably in May from a cial markets, and probably in product and labor mar- relatively high level in April. Orders and contracts point to kets as well; if they were allowed to worsen, the some deceleration in spending on business equipment and Committee's long-run goal of price stability would nonresidential structures after a very rapid expansion earlier in the year. The nominal deficit on U.S. trade in goods become much more difficult to achieve. Delaying and services widened in April from its rate in the first action risked the need for a greater adjustment in quarter. Upward pressures on food and energy prices have policy at a later date with possible disruption to the led to somewhat larger increases in the consumer price economy. index over recent months. Most market interest rates have edged higher since the Members observed that an asymmetric directive Committee meeting on May 21. In foreign exchange marwould represent a shift from the symmetric directives kets, the trade-weighted value of the dollar in terms of the that had been adopted over the past year but would be other G-10 currencies has depreciated slightly over the in keeping with their assessments of the risks of intermeeting period. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

916 Federal Reserve Bulletin • October 1996 M2 declined in May, though partial data for June pointed Mr. Stern dissented because he was convinced that to a rebound. Growth of M3 was relatively sluggish in May a modestly more restrictive policy was warranted. In but also appears to have turned up in June. For the year his view, the momentum of the economy and strains through June, both aggregates are estimated to have grown on capacity in labor and some other markets raised at rates around the upper bounds of their respective ranges for the year. Expansion in total domestic nonfinancial debt the possibility of an acceleration of inflation that has been moderate on balance over recent months and has would jeopardize the economic expansion. This conremained in the middle portion of its range. cern aside, Mr. Stern also believed that current cir- The Federal Open Market Committee seeks monetary cumstances were favorable for policy action to reduce and financial conditions that will foster price stability and inflation further and thereby help to sustain the ongopromote sustainable growth in output. In furtherance of these objectives, the Committee reaffirmed at this meeting ing improvement in the economy. the ranges it had established in January for growth of M2 As a prelude to its formal review later in the year, and M3 of 1 to 5 percent and 2 to 6 percent respectively, the Committee at this meeting considered its existing measured from the fourth quarter of 1995 to the fourth network of swap arrangements with a number of quarter of 1996. The monitoring range for growth of total foreign central banks and the Bank for International domestic nonfinancial debt was maintained at 3 to 7 percent for the year. For 1997 the Committee agreed on Settlements. From time to time in recent years the tentative ranges for monetary growth, measured from the Committee had discussed a variety of issues relating fourth quarter of 1996 to the fourth quarter of 1997, of 1 to to its foreign exchange activities and its financial 5 percent for M2 and 2 to 6 percent for M3. The Commitarrangements with other central banks. In this distee provisionally set the associated monitoring range for cission, the Committee considered in particular growth of total domestic nonfinancial debt at 3 to 7 percent for 1997. The behavior of the monetary aggregates will whether the swap arrangements, all of which had continue to be evaluated in the light of progress toward been put in place in the 1960s, remained an approprice level stability, movements in their velocities, and priate approach to international financial cooperation developments in the economy and financial markets. among central banks in light of the evolution of the In the implementation of policy for the immediate future, international financial system in recent decades, and the Committee seeks to maintain the existing degree of whether other approaches should be considered. The pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustain- Committee made no decisions relating to these matable economic growth, and giving careful consideration to ters, though it was understood that these issues would economic, financial, and monetary developments, some- be explored further. what greater reserve restraint would or slightly lesser It was agreed that the next meeting of the Commitreserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected tee would be held on Tuesday, August 20, 1996. to be consistent with moderate growth in M2 and M3 over The meeting adjourned at 12:50 p.m. coming months. Votes for short-run policy: Messrs. Greenspan, McDonough, Boehne, Jordan, Kelley, Lindsey, McTeer, Donald L. Kohn Meyer, Mses. Phillips, Rivlin, and Yellen. Vote against this action: Mr. Stern. Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

917 Legal Developments JOINT FINAL RULE—AMENDMENTS TO REGULA- (a) Purpose. The purpose of this Appendix is to ensure that TIONS H AND Y banks with significant exposure to market risk maintain adequate capital to support that exposure.1 This Appendix The Office of the Comptroller of the Currency (OCC), the supplements and adjusts the risk-based capital ratio calcu- Board of Governors of the Federal Reserve System lations under Appendix A of this part with respect to those (Board), and the Federal Deposit Insurance Corporation banks. (FDIC) (collectively, the Agencies) are amending their (b) Applicability. (1) This Appendix applies to any national respective risk-based capital standards to incorporate a bank whose trading activity2 (on a worldwide consolimeasure for market risk to cover all positions located in an dated basis) equals: institution's trading account and foreign exchange and (i) 10 percent or more of total assets;3 or commodity positions wherever located. The final rule im- (ii) $1 billion or more. plements an amendment to the Basle Capital Accord that (2) The OCC may apply this Appendix to any national sets forth a supervisory framework for measuring market bank if the OCC deems it necessary or appropriate for risk. The effect of the final rule is that any bank or bank safe and sound banking practices. holding company (institution) regulated by the OCC, the (3) The OCC may exclude a national bank otherwise Board, or the FDIC, with significant exposure to market meeting the criteria of paragraph (b)(1) of this section risk must measure that risk using its own internal value-at- from coverage under this Appendix if it determines the risk model, subject to the parameters contained in this final bank meets such criteria as a consequence of accounting, rule, and must hold a commensurate amount of capital. operational, or similar considerations, and the OCC deems it consistent with safe and sound banking prac- Effective January 1, 1997, 12C.F.R. Parts 3, 208, 225, tices. and 325 are amended as follows: (c) Scope. The capital requirements of this Appendix support market risk associated with a bank's covered posi- Part 3—Minimum Capital Ratios; Issuance of tions. Directives (d) Effective date. This Appendix is effective as of January 1, 1997. Compliance is not mandatory until January 1, 1. The authority citation for Part 3 continues to read as 1998. Subject to supervisory approval, a bank may opt to follows: comply with this Appendix as early as January 1, 1997.4 Authority. 12U.S.C. 93a, 161, 1818, 1828(n), 1828 note, Section 2—Definitions. 183In note, 1835, 3907, and 3909. For purposes of this Appendix, the following definitions 2. Section 3.6 is amended by revising paragraph (a) to read apply: as follows: (a) Covered positions means all positions in a bank's trading account, and all foreign exchange5 and commodity Section 3.6—Minimum capital ratios. (a) Risk-based capital ratio. All national banks must have and maintain the minimum risk-based capital ratio as set 1. This Appendix is based on a framework developed jointly by forth in Appendix A (and, for certain banks, in Appen- supervisory authorities from the countries represented on the Basle Committee on Banking Supervision and endorsed by the Group of Ten dix B). Central Bank Governors. The framework is described in a Basle Committee paper entitled "Amendment to the Capital Accord to Incorporate Market Risk," January 1996. 3. A new Appendix B is added to Part 3 to read as follows: 2. Trading activity means the gross sum of trading assets and liabilities as reported in the bank's most recent quarterly Consolidated Report of Condition and Income (Call Report). Appendix B to Part 3—Risk-Based Capital 3. Total assets means quarter-end total assets as reported in the Guidelines; Market Risk Adjustment bank's most recent Call Report. 4. A bank that voluntarily complies with the final rule prior to January 1, 1998, must comply with all of its provisions. Section 1—Purpose, Applicability, Scope, and Effective 5. Subject to supervisory review, a bank may exclude structural Date. positions in foreign currencies from its covered positions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

918 Federal Reserve Bulletin • October 1996 positions, whether or not in the trading account.6 Positions (i) VAR-based capital charge. The VAR-based capital include on-balance-sheet assets and liabilities and off- charge equals the higher of: balance-sheet items. Securities subject to repurchase and (A) The previous day's VAR measure; or lending agreements are included as if they are still owned (B) The average of the daily VAR measures for by the lender. each of the preceding 60 business days multiplied (b) Market risk means the risk of loss resulting from by three, except as provided in section 4(e) of this movements in market prices. Market risk consists of gen- Appendix; eral market risk and specific risk components. (ii) Specific risk add-on. The specific risk add-on is (1) General market risk means changes in the market calculated in accordance with section 5 of this Appenvalue of covered positions resulting from broad market dix; and movements, such as changes in the general level of (iii) Capital charge for de minimis exposure. The interest rates, equity prices, foreign exchange rates, or capital charge for de minimis exposure is calculated commodity prices. in accordance with section 4(a) of this Appendix. (2) Specific risk means changes in the market value of (3) Market risk equivalent assets. Calculate market risk specific positions due to factors other than broad market equivalent assets by multiplying the measure for market movements and includes such risk as the credit risk of an risk (as calculated in paragraph (a)(2) of this section) by instrument's issuer. 12.5. (c) Tier 1 and Tier 2 capital are the same as defined in (4) Denominator calculation. Add market risk equiva- Appendix A of this part. lent assets (as calculated in paragraph (a)(3) of this (d) Tier 3 capital is subordinated debt that is unsecured; is section) to adjusted risk-weighted assets (as calculated fully paid up; has an original maturity of at least two years; in paragraph (a)(1) of this section). The resulting sum is is not redeemable before maturity without prior approval the bank's risk-based capital ratio denominator. by the OCC; includes a lock-in clause precluding payment (b) Risk-based capital ratio numerator. A bank subject to of either interest or principal (even at maturity) if the this Appendix shall calculate its risk-based capital ratio payment would cause the issuing bank's risk-based capital numerator by allocating capital as follows: ratio to fall or remain below the minimum required under (1) Credit risk allocation. Allocate Tier 1 and Tier 2 Appendix A of this part; and does not contain and is not capital equal to 8.0 percent of adjusted risk-weighted covered by any covenants, terms, or restrictions that are assets (as calculated in paragraph (a)(1) of this section).8 inconsistent with safe and sound banking practices. (2) Market risk allocation. Allocate Tier 1, Tier 2, and (e) Value-at-risk (VAR) means the estimate of the maxi- Tier 3 capital equal to the measure for market risk as mum amount that the value of covered positions could calculated in paragraph (a)(2) of this section. The sum of decline during a fixed holding period within a stated confi- Tier 2 and Tier 3 capital allocated for market risk must dence level, measured in accordance with section 4 of this not exceed 250 percent of Tier 1 capital allocated for Appendix. market risk. (This requirement means that Tier 1 capital allocated in this paragraph (b)(2) must equal at least Section 3—Adjustments to the Risk-Based Capital 28.6 percent of the measure for market risk.) Ratio Calculations. (3) Restrictions, (i) The sum of Tier 2 capital (both allocated and excess) and Tier 3 capital (allocated in (a) Risk-based capital ratio denominator. A bank subject paragraph (b)(2) of this section) may not exceed to this Appendix shall calculate its risk-based capital ratio 100 percent of Tier 1 capital (both allocated and exdenominator as follows: cess).9 (1) Adjusted risk-weighted assets. Calculate adjusted (ii) Term subordinated debt (and intermediate-term risk-weighted assets, which equals risk-weighted assets preferred stock and related surplus) included in Tier 2 (as determined in accordance with Appendix A of this capital (both allocated and excess) may not exceed 50 part), excluding the risk-weighted amounts of all cov- percent of Tier 1 capital (both allocated and excess). ered positions (except foreign exchange positions out- (4) Numerator calculation. Add Tier 1 capital (both side the trading account and over-the-counter derivative allocated and excess), Tier 2 capital (both allocated and positions).7 excess), and Tier 3 capital (allocated under paragraph (2) Measure for market risk. Calculate the measure for (b)(2) of this section). The resulting sum is the bank's market risk, which equals the sum of the VAR-based risk-based capital ratio numerator. capital charge, the specific risk add-on (if any), and the capital charge for de minimis exposure (if any). 8. A bank may not allocate Tier 3 capital to support credit risk (as 6. The term trading account is defined in the instructions to the Call calculated under Appendix A). Report. 9. Excess Tier 1 capital means Tier 1 capital that has not been 7. Foreign exchange positions outside the trading account and all allocated in paragraphs (b)(1) and (b)(2) of this section. Excess Tier 2 over-the-counter derivative positions, whether or not in the trading capital means Tier 2 capital that has not been allocated in paragraph account, must be included in adjusted risk-weighted assets as deter- (b)( 1) and (b)(2) of this section, subject to the restrictions in paragraph mined in Appendix A of this part. (b)(3) of this section. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 919 Section 4—Internal Models. by multiplying a one-day VAR measure by the square root of ten). (a) General. For risk-based capital purposes, a bank sub- (2) The VAR measures must be based on an historical ject to this Appendix must use its internal model to mea- observation period (or effective observation period for a sure its daily VAR, in accordance with the requirements of bank using a weighting scheme or other similar method) this section.10 The OCC may permit a bank to use alterna- of at least one year. The bank must update data sets at tive techniques to measure the market risk of de minimis least once every three months or more frequently as exposures so long as the techniques adequately measure market conditions warrant. associated market risk. (3) The VAR measures must include the risks arising (b) Qualitative requirements. A bank subject to this Appen- from the non-linear price characteristics of options posidix must have a risk management system that meets the tions and the sensitivity of the market value of the following minimum qualitative requirements: positions to changes in the volatility of the underlying (1) The bank must have a risk control unit that reports rates or prices. A bank with a large or complex options directly to senior management and is independent from portfolio must measure the volatility of options positions business trading units. by different maturities. (2) The bank's internal risk measurement model must be (4) The VAR measures may incorporate empirical correintegrated into the daily management process. lations within and across risk categories, provided that (3) The bank's policies and procedures must identify, the bank's process for measuring correlations is sound. and the bank must conduct, appropriate stress tests and In the event that the VAR measures do not incorporate backtests.11 The bank's policies and procedures must empirical correlations across risk categories, then the identify the procedures to follow in response to the bank must add the separate VAR measures for the four results of such tests. major risk categories to determine its aggregate VAR (4) The bank must conduct independent reviews of its measure. risk measurement and risk management systems at least (e) Backtesting. (1) Beginning one year after a bank starts annually. to comply with this Appendix, a bank must conduct (c) Market risk factors. The bank's internal model must backtesting by comparing each of its most recent 250 use risk factors sufficient to measure the market risk inher- business days' actual net trading profit or loss13 with the ent in all covered positions. The risk factors must address corresponding daily VAR measures generated for interinterest rate risk,12 equity price risk, foreign exchange rate nal risk measurement purposes and calibrated to a onerisk, and commodity price risk. day holding period and a 99 percent, one-tailed confi- (d) Quantitative requirements. For regulatory capital pur- dence level. poses, VAR measures must meet the following quantitative (2) Once each quarter, the bank must identify the numrequirements: ber of exceptions, that is, the number of business days (1) The VAR measures must be calculated on a daily for which the magnitude of the actual daily net trading basis using a 99 percent, one-tailed confidence level loss, if any, exceeds the corresponding daily VAR meawith a price shock equivalent to a ten-business day sure. movement in rates and prices. In order to calculate VAR (3) A bank must use the multiplication factor indicated measures based on a ten-day price shock, the bank may in Table 1 of this Appendix in determining its capital either calculate ten-day figures directly or convert VAR charge for market risk under section 3(a)(2)(i)(B) of this figures based on holding periods other than ten days to Appendix until it obtains the next quarter's backtesting the equivalent of a ten-day holding period (for instance, results, unless the OCC determines that a different adjustment or other action is appropriate. 10. A bank's internal model may use any generally accepted mea- 1. Multiplication Factor Based on Results of Backtesting surement techniques, such as variance-covariance models, historical simulations, or Monte Carlo simulations. However, the level of sophis- Number of exceptions Multiplication factor tication and accuracy of a bank's internal model must be commensurate with the nature and size of its covered positions. A bank that 4 or fewer 3.00 modifies its existing modeling procedures to comply with the require- 5 3.40 ments of this Appendix for risk-based capital purposes should, none- 6 3.50 theless, continue to use the internal model it considers most appropri- 7 3.65 ate in evaluating risks for other purposes. 8 3.75 11. Stress tests provide information about the impact of adverse 9 3.85 market events on a bank's covered positions. Backtests provide infor- 10 or more 4.00 mation about the accuracy of an internal model by comparing a bank's daily VAR measures to its corresponding daily trading profits and losses. 12. For material exposures in the major currencies and markets, modeling techniques must capture spread risk and must incorporate 13. Actual net trading profits and losses typically include such enough segments of the yield curve—at least six—to capture differ- things as realized and unrealized gains and losses on portfolio posiences in volatility and less than perfect correlation of rates along the tions as well as fee income and commissions associated with trading yield curve. activities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

920 Federal Reserve Bulletin • October 1996 Section 5—Specific Risk. account and instruments located in the trading account with values that react primarily to changes in interest rates, including certain non-convertible preferred (a) Specific risk add-on. For purposes of section 3(a)(2)(ii) stock, convertible bonds, and instruments subject to of this Appendix, a bank's specific risk add-on equals the repurchase and lending agreements. Also included are standard specific risk capital charge calculated under paraderivatives (including written and purchased options) graph (c) of this section. If, however, a bank can demonfor which the underlying instrument is a covered debt strate to the OCC that its internal model measures the instrument that is subject to a non-zero specific risk specific risk of covered debt and/or equity positions and capital charge. that those measures are included in the VAR-based capital (A) For covered debt positions that are derivatives, charge in section 3(a)(2)(i) of this Appendix, then the bank a bank must risk-weight (as described in paramay reduce or eliminate its specific risk add-on under this graph (c)(l)(iii) of this section) the market value of section. The determination as to whether a model incorpothe effective notional amount of the underlying debt rates specific risk must be made separately for covered instrument or index portfolio. Swaps must be indebt and equity positions. cluded as the notional position in the underlying (1) If a model includes the specific risk of covered debt debt instrument or index portfolio, with a receiving positions but not covered equity positions (or vice verside treated as a long position and a paying side sa), then the bank can reduce its specific risk charge for treated as a short position; and the included positions under paragraph (b) of this sec- (B) For covered debt positions that are options, tion. The specific risk charge for the positions not inwhether long or short, a bank must risk-weight (as cluded equals the standard specific risk capital charge described in paragraph (c)(l)(iii) of this section) the under paragraph (c) of this section. market value of the effective notional amount of the (2) If a model addresses the specific risk of both covered underlying debt instrument or index multiplied by debt and equity positions, then the bank can reduce its the option's delta. specific risk charge for both covered debt and equity (ii) A bank may net long and short covered debt positions under paragraph (b) of this section. In this positions (including derivatives) in identical debt iscase, the comparison described in paragraph (b) of this sues or indices. section must be based on the total VAR-based figure for (iii) A bank must multiply the absolute value of the the specific risk of debt and equity positions, taking into current market value of each net long or short covered account any correlations that are built into the model. debt position by the appropriate specific risk weight- (b) VAR-based specific risk capital charge. In all cases where a bank measures specific risk in its internal model, 2. Specific Risk Weighting Factors for Covered Debt the total capital charge for specific risk (i.e., the VAR- Positions based specific risk capital charge plus the specific risk add-on) must equal at least 50 percent of the standard CCaatteeggoorryy Remaining maturity Weighting factor specific risk capital charge (this amount is the minimum (contractual) (in percent) specific risk charge). Government1 N/A .00 (1) If the portion of a bank's VAR measure that is attributable to specific risk (multiplied by the bank's 6 months or less .25 multiplication factor if required in section 3(a)(2) of this Qualifying2 Over 6 months to 24 1.00 Appendix) is greater than or equal to the minimum months specific risk charge, then the bank has no specific risk over 24 months 1.60 add-on and its capital charge for specific risk is the Other3 N/A 8.00 portion included in the VAR measure. (2) If the portion of a bank's VAR measure that is 1. The "government" category includes all debt instruments of central governments of OECD countries (as defined in Appendix A of this part) including attributable to specific risk (multiplied by the bank's bonds, Treasury bills, and other short-term instruments, as well as local currency multiplication factor if required in section 3(a)(2) of this instruments of non-OECD central governments to the extent the bank has Appendix) is less than the minimum specific risk charge, liabilities booked in that currency. 2. The "qualifying" category includes debt instruments of U.S. governmentthen the bank's specific risk add-on is the difference sponsored agencies (as defined in Appendix A of this part), general obligation between the minimum specific risk charge and the spe- debt instruments issued by states and other political subdivisions of OECD countries, multilateral development banks (as defined in Appendix A of this cific risk portion of the VAR measure (multiplied by the part), and debt instruments issued by U.S. depository institutions or OECDbank's multiplication factor if required in section 3(a)(2) banks (as defined in Appendix A of this part) that do not qualify as capital of the of this Appendix). issuing institution. This category also includes other debt instruments, including corporate debt and revenue instruments issued by states and other political (c) Standard specific risk capital charge. The standard subdivisions of OECD countries, that are: (1) rated investment grade by at least specific risk capital charge equals the sum of the compo- two nationally recognized credit rating services; (2) rated investment grade by nents for covered debt and equity positions as follows: one nationally recognized credit rating agency and not rated less than investment grade by any other credit rating agency; or (3) unrated, but deemed to be of (1) Covered debt positions, (i) For purposes of this comparable investment quality by the reporting bank and the issuer has instrusection 5, covered debt positions means fixed-rate or ments listed on a recognized stock exchange, subject to review by the OCC. 3. The "other" category includes debt instruments that are not included in the floating-rate debt instruments located in the trading government or qualifying categories. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 921 ing factor indicated in Table 2 of this Appendix. The of stocks comprising the index, a bank may apply a specific risk capital charge component for covered 2.0 percent risk weighting factor to the futures and debt positions is the sum of the weighted values. stock basket positions (long and short), provided that such trades are deliberately entered into and (2) Covered equity positions, (i) For purposes of this separately controlled, and that the basket of stocks section 5, covered equity positions means equity in- comprises at least 90 percent of the capitalization struments located in the trading account and instru- of the index. ments located in the trading account with values that (iv) The specific risk capital charge component for react primarily to changes in equity prices, including covered equity positions is the sum of the weighted voting or non-voting common stock, certain convert- values. ible bonds, and commitments to buy or sell equity instruments. Also included are derivatives (including Section 6—Reservation of Authority. written and purchased options) for which the underlying is a covered equity position. (A) For covered equity positions that are deriva- The OCC reserves the authority to modify the application tives, a bank must risk weight (as described in of any of the provisions in this Appendix to any bank, upon paragraph (c)(2)(iii) of this section) the market reasonable justification. value of the effective notional amount of the underlying equity instrument or equity portfolio. Swaps Part 208—Membership of State Banking must be included as the notional position in the Institutions in the Federal Reserve System underlying equity instrument or index portfolio, (Regulation H) with a receiving side treated as a long position and a paying side treated as a short position; and 1. The authority citation for Part 208 is revised to read as (B) For covered equity positions that are options, follows: whether long or short, a bank must risk weight (as described in paragraph (c)(2)(iii) of this section) the Authority. 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, market value of the effective notional amount of the 461, 481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, underlying equity instrument or index multiplied by 183lp-1, 3105, 3310, 3331-3351, and 3906-3909; the option's delta. 15 U.S.C. 78b, 781(b), 781(g), 781(i), 78o-4(c)(5), 78q, (ii) A bank may net long and short covered equity 78q-l, and 78w; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, positions (including derivatives) in identical equity 4104b, 4106, and 4128. issues or equity indices in the same market.14 (iii) (A) A bank must multiply the absolute value of 2. In Part 208, section 208.13 is revised to read as follows: the current market value of each net long or short covered equity position by a risk weighting factor of Section 208.13—Capital Adequacy. 8.0 percent, or by 4.0 percent if the equity is held in a portfolio that is both liquid and well-diversified. For The standards and guidelines by which the capital adecovered equity positions that are index contracts comquacy of state member banks will be evaluated by the prising a well-diversified portfolio of equity instru- Board are set forth in Appendix A and Appendix E for ments, the net long or short position is multiplied by a risk-based capital purposes, and, with respect to the ratios risk weighting factor of 2.0 percent. relating capital to total assets, in Appendix B to Part 208 (B) For covered equity positions from the following and in Appendix B to the Board's Regulation Y, 12 C.F.R. futures-related arbitrage strategies, a bank may ap- Part 225. ply a 2.0 percent risk weighting factor to one side (long or short) of each position with the opposite 3. In Part 208, Appendix A is amended in the introductory side exempt from charge: text, by adding a new paragraph after the second undesig- (1) Long and short positions in exactly the same nated paragraph to read as follows: index at different dates or in different market centers; or Appendix A to Part 208—Capital Adequacy (2) Long and short positions in index contracts at Guidelines for State Member Banks; Risk-Based the same date in different but similar indices. Measure (C) For futures contracts on broadly-based indices that are matched by offsetting positions in a basket In addition, when certain banks that engage in trading activities calculate their risk-based capital ratio under this 14. A bank may also net positions in depository receipts against an Appendix A, they must also refer to Appendix E of this opposite position in the underlying equity or identical equity in part, which incorporates capital charges for certain market different markets, provided that the bank includes the costs of conversion. risks into the risk-based capital ratio. When calculating Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

922 Federal Reserve Bulletin • October 1996 their risk-based capital ratio under this Appendix A, such (d) Effective date. This Appendix is elfective as of Janubanks are required to refer to Appendix E of this part for ary 1, 1997. Compliance is not mandatory until January 1, supplemental rules to determine qualifying and excess 1998. Subject to supervisory approval, a bank may opt to capital, calculate risk-weighted assets, calculate market comply with this appendix as early as January 1, 1997.4 risk equivalent assets, and calculate risk-based capital ratios adjusted for market risk. Section 2—Definitions. For purposes of this Appendix, the following definitions 4. In Part 208, a new Appendix E is added to read as apply: follows: (a) Covered positions means all positions in a bank's Appendix E to Part 208 —Capital Adequacy trading account, and all foreign exchange5 and commodity Guidelines for State Member Banks; Market Risk positions, whether or not in the trading account.6 Positions Measure include on-balance-sheet assets and liabilities and offbalance-sheet items. Securities subject to repurchase and Section 1—Purpose, Applicability, Scope, and lending agreements are included as if they are still owned Elfective Date. by the lender. (b) Market risk means the risk of loss resulting from (a) Purpose. The purpose of this Appendix is to ensure that movements in market prices. Market risk consists of genbanks with significant exposure to market risk maintain eral market risk and specific risk components. adequate capital to support that exposure.1 This Appendix (1) General market risk means changes in the market supplements and adjusts the risk-based capital ratio calcu- value of covered positions resulting from broad market lations under Appendix A of this part with respect to those movements, such as changes in the general level of banks. interest rates, equity prices, foreign exchange rates, or (b) Applicability. (1) This Appendix applies to any insured commodity prices. state member bank whose trading activity2 (on a world- (2) Specific risk means changes in the market value of wide consolidated basis) equals: specific positions due to factors other than broad market (i) 10 percent or more of total assets;3 or movements and includes such risk as the credit risk of an (ii) $1 billion or more. instrument's issuer. (2) The Federal Reserve may additionally apply this (c) Tier I and Tier 2 capital are defined in Appendix A of Appendix to any insured state member bank if the Fed- this part. eral Reserve deems it necessary or appropriate for safe (d) Tier 3 capital is subordinated debt that is unsecured; is and sound banking practices. fully paid up; has an original maturity of at least two years; (3) The Federal Reserve may exclude an insured state is not redeemable before maturity without prior approval member bank otherwise meeting the criteria of para- by the Federal Reserve; includes a lock-in clause precludgraph (b)(1) of this section from coverage under this ing payment of either interest or principal (even at matu- Appendix if it determines the bank meets such criteria as rity) if the payment would cause the issuing bank's riska consequence of accounting, operational, or similar based capital ratio to fall or remain below the minimum considerations, and the Federal Reserve deems it consis- required under Appendix A of this part; and does not tent with safe and sound banking practices. contain and is not covered by any covenants, terms, or (c) Scope. The capital requirements of this Appendix sup- restrictions that are inconsistent with safe and sound bankport market risk associated with a bank's covered posi- ing practices. tions. (e) Value-at-risk (VAR) means the estimate of the maximum amount that the value of covered positions could decline during a fixed holding period within a stated confi- 1. A portfolio is liquid and well-diversified if: dence level, measured in accordance with section 4 of this (1) It is characterized by a limited sensitivity to price changes of Appendix. any single equity issue or closely related group of equity issues held in the portfolio; (2) The volatility of the portfolio's value is not dominated by the volatility of any individual equity issue or by equity issues from any single industry or economic sector; (3) It contains a large number of individual equity positions, with no single position representing a substantial portion of the portfolio's total market value; and (4) It consists mainly of issues traded on organized exchanges or in well-established over-the-counter markets. 4. A bank that voluntarily complies with the final rule prior to 2. Trading activity means the gross sum of trading assets and January 1, 1998, must comply with all of its provisions. liabilities as reported in the bank's most recent quarterly Consolidated 5. Subject to supervisory review, a bank may exclude structural Report of Condition and Income (Call Report). positions in foreign currencies from its covered positions. 3. Total assets means quarter-end total assets as reported in the 6. The term trading account is defined in the instructions to the Call bank's most recent Call Report. Report. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 923 Section 3—Adjustments to the Risk-Based Capital allocated in this paragraph (b)(2) must equal at least Ratio Calculations. 28.6 percent of the measure for market risk.) (3) Restrictions, (i) The sum of Tier 2 capital (both (a) Risk-based capital ratio denominator. A bank subject allocated and excess) and Tier 3 capital (allocated in to this Appendix shall calculate its risk-based capital ratio paragraph (b)(2) of this section) may not exceed denominator as follows: 100 percent of Tier 1 capital (both allocated and (1) Adjusted risk-weighted assets. Calculate adjusted excess).9 risk-weighted assets, which equals risk-weighted assets (ii) Term subordinated debt (and intermediate-term (as determined in accordance with Appendix A of this preferred stock and related surplus) included in Tier 2 part), excluding the risk-weigh ted amounts of all cov- capital (both allocated and excess) may not exceed ered positions (except foreign exchange positions out- 50 percent of Tier 1 capital (both allocated and exside the trading account and over-the-counter derivative cess). positions).7 (4) Numerator calculation. Add Tier 1 capital (both (2) Measure for market risk. Calculate the measure for allocated and excess), Tier 2 capital (both allocated and market risk, which equals the sum of the VAR-based excess), and Tier 3 capital (allocated under paracapital charge, the specific risk add-on (if any), and the graph (b)(2) of this section). The resulting sum is the capital charge for de minimis exposures (if any). bank's risk-based capital ratio numerator. (i) VAR-based capital charge. The VAR-based capital charge equals the higher of: Section A—Internal Models. (A) The previous day's VAR measure; or (B) The average of the daily VAR measures for (a) General. For risk-based capital purposes, a bank subeach of the preceding 60 business days multiplied ject to this Appendix must use its internal model to meaby three, except as provided in section 4(e) of this sure its daily VAR, in accordance with the requirements of Appendix; this section.10 The Federal Reserve may permit a bank to (ii) Specific risk add-on. The specific risk add-on is use alternative techniques to measure the market risk of calculated in accordance with section 5 of this Appen- de minimis exposures so long as the techniques adequately dix; and measure associated market risk. (iii) Capital charge for de minimis exposure. The (b) Qualitative requirements. A bank subject to this Appencapital charge for de minimis exposure is calculated in dix must have a risk management system that meets the accordance with section 4(a) of this Appendix. following minimum qualitative requirements: (3) Market risk equivalent assets. Calculate market risk (1) The bank must have a risk control unit that reports equivalent assets by multiplying the measure for market directly to senior management and is independent from risk (as calculated in paragraph (a)(2) of this section) by business trading units. 12.5. (2) The bank's internal risk measurement model must be (4) Denominator calculation. Add market risk equiva- integrated into the daily management process. lent assets (as calculated in paragraph (a)(3) of this (3) The bank's policies and procedures must identify, section) to adjusted risk-weighted assets (as calculated and the bank must conduct, appropriate stress tests and in paragraph (a)(1) of this section). The resulting sum is backtests.11 The bank's policies and procedures must the bank's risk-based capital ratio denominator. identify the procedures to follow in response to the (b) Risk-based capital ratio numerator. A bank subject to results of such tests. this Appendix shall calculate its risk-based capital ratio numerator by allocating capital as follows: (1) Credit risk allocation. Allocate Tier 1 and Tier 2 capital equal to 8.0 percent of adjusted risk-weighted 9. Excess Tier 1 capital means Tier 1 capital that has not been assets (as calculated in paragraph (a)(1) of this section).8 allocated in paragraphs (b)(1) and (b)(2) of this section. Excess Tier 2 capital means Tier 2 capital that has not been allocated in para- (2) Market risk allocation. Allocate Tier 1, Tier 2, and graph (b)(1) and (b)(2) of this section, subject to the restrictions in Tier 3 capital equal to the measure for market risk as paragraph (b)(3) of this section. calculated in paragraph (a)(2) of this section. The sum of 10. A bank's internal model may use any generally accepted mea- Tier 2 and Tier 3 capital allocated for market risk must surement techniques, such as variance-covariance models, historical simulations, or Monte Carlo simulations. However, the level of sophisnot exceed 250 percent of Tier 1 capital allocated for tication and accuracy of a bank's internal model must be commensumarket risk. (This requirement means that Tier 1 capital rate with the nature and size of its covered positions. A bank that modifies its existing modeling procedures to comply with the requirements of this Appendix for risk-based capital purposes should, nonetheless, continue to use the internal model it considers most appropri- 7. Foreign exchange positions outside the trading account and all ate in evaluating risks for other purposes. over-the-counter derivative positions, whether or not in the trading 11. Stress tests provide information about the impact of adverse account, must be included in adjusted risk weighted assets as deter- market events on a bank's covered positions. Backtests provide informined in Appendix A of this part. mation about the accuracy of an internal model by comparing a bank's 8. A bank may not allocate Tier 3 capital to support credit risk (as daily VAR measures to its corresponding daily trading profits and calculated under Appendix A of this part). losses. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

924 Federal Reserve Bulletin • October 1996 (4) The bank must conduct independent reviews of its day holding period and a 99 percent, one-tailed confirisk measurement and risk management systems at least dence level. annually. (2) Once each quarter, the bank must identify the num- (c) Market risk factors. The bank's internal model must ber of exceptions, that is, the number of business days use risk factors sufficient to measure the market risk inher- for which the magnitude of the actual daily net trading ent in all covered positions. The risk factors must address loss, if any, exceeds the corresponding daily VAR meainterest rate risk,12 equity price risk, foreign exchange rate sure. risk, and commodity price risk. (3) A bank must use the multiplication factor indicated (d) Quantitative requirements. For regulatory capital pur- in Table 1 of this Appendix in determining its capital poses, VAR measures must meet the following quantitative charge for market risk under section 3(a)(2)(i)(B) of this requirements: Appendix until it obtains the next quarter's backtesting (1) The VAR measures must be calculated on a daily results, unless the Federal Reserve determines that a basis using a 99 percent, one-tailed confidence level different adjustment or other action is appropriate. with a price shock equivalent to a ten-business day movement in rates and prices. In order to calculate VAR 1. Multiplication Factor Based on Results of Backtesting measures based on a ten-day price shock, the bank may either calculate ten-day figures directly or convert VAR Number of exceptions Multiplication factor figures based on holding periods other than ten days to 4 or fewer 3.00 the equivalent of a ten-day holding period (for instance, 5 3.40 by multiplying a one-day VAR measure by the square 6 3.50 root of ten). 7 3.65 8 3.75 (2) The VAR measures must be based on an historical 9 3.85 observation period (or effective observation period for a 10 or more 4.00 bank using a weighting scheme or other similar method) of at least one year. The bank must update data sets at Section 5—Specific Risk. least once every three months or more frequently as market conditions warrant. (3) The VAR measures must include the risks arising (a) Specific risk add-on. For purposes of section 3(a)(2)(ii) from the non-linear price characteristics of options posiof this Appendix, a bank's specific risk add-on equals the tions and the sensitivity of the market value of the standard specific risk capital charge calculated under parapositions to changes in the volatility of the underlying graph (c) of this section. If, however, a bank can demonrates or prices. A bank with a large or complex options strate to the Federal Reserve that its internal model meaportfolio must measure the volatility of options positions sures the specific risk of covered debt and/or equity by different maturities. positions and that those measures are included in the (4) The VAR measures may incorporate empirical corre- VAR-based capital charge in section 3(a)(2)(i) of this Aplations within and across risk categories, provided that pendix, then the bank may reduce or eliminate its specific the bank's process for measuring correlations is sound. risk add-on under this section. The determination as to In the event that the VAR measures do not incorporate whether a model incorporates specific risk must be made empirical correlations across risk categories, then the separately for covered debt and equity positions. bank must add the separate VAR measures for the four (1) If a model includes the specific risk of covered debt major risk categories to determine its aggregate VAR positions but not covered equity positions (or vice vermeasure. sa), then the bank can reduce its specific risk charge for (e) Backtesting. (1) Beginning one year after a bank starts the included positions under paragraph (b) of this secto comply with this Appendix, a bank must conduct tion. The specific risk charge for the positions not inbacktesting by comparing each of its most recent 250 cluded equals the standard specific risk capital charge business days' actual net trading profit or loss13 with the under paragraph (c) of this section. corresponding daily VAR measures generated for inter- (2) If a model addresses the specific risk of both covered nal risk measurement purposes and calibrated to a onedebt and equity positions, then the bank can reduce its specific risk charge for both covered debt and equity positions under paragraph (b) of this section. In this case, the comparison described in paragraph (b) of this 12. For material exposures in the major currencies and markets, section must be based on the total VAR-based figure for modeling techniques must capture spread risk and must incorporate the specific risk of debt and equity positions, taking into enough segments of the yield curve—at least six—to capture differences in volatility and less than perfect correlation of rates along the account any correlations that are built into the model. yield curve. (b) VAR-based specific risk capital charge. In all cases 13. Actual net trading profits and losses typically include such where a bank measures specific risk in its internal model, things as realized and unrealized gains and losses on portfolio posithe total capital charge for specific risk (i.e., the VARtions as well as fee income and commissions associated with trading activities. based specific risk capital charge plus the specific risk Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 925 add-on) must equal at least 50 percent of the standard 2. Specific Risk Weighting Factors for Covered Debt specific risk capital charge (this amount is the minimum Positions specific risk charge). Remaining Maturity Weighting Factor (1) If the portion of a bank's VAR measure that is CCaatteeggoorryy (contractual) (in percent) attributable to specific risk (multiplied by the bank's Government N/A .00 multiplication factor if required in section 3(a)(2) of this Appendix) is greater than or equal to the minimum 6 months or less .25 specific risk charge, then the bank has no specific risk Qualifying over 6 months to 24 1.00 add-on and its capital charge for specific risk is the months portion included in the VAR measure. over 24 months 1.60 (2) If the portion of a bank's VAR measure that is Other N/A 8.00 attributable to specific risk (multiplied by the bank's multiplication factor if required in section 3(a)(2) of this (A) The government category includes all debt in- Appendix) is less than the minimum specific risk charge, struments of central governments of OECD-based then the bank's specific risk add-on is the difference countries14 including bonds, Treasury bills, and between the minimum specific risk charge and the speother short-term instruments, as well as local curcific risk portion of the VAR measure (multiplied by the rency instruments of non-OECD central governbank's multiplication factor if required in section 3(a)(2) ments to the extent the bank has liabilities booked of this Appendix). in that currency. (c) Standard specific risk capital charge. The standard (B) The qualifying category includes debt instruspecific risk capital charge equals the sum of the compo- ments of U.S. government-sponsored agencies, gennents for covered debt and equity positions as follows: eral obligation debt instruments issued by states (1) Covered debt positions, (i) For purposes of this and other political subdivisions of OECD-based section 5, covered debt positions means fixed-rate or countries, multilateral development banks, and debt floating-rate debt instruments located in the trading instruments issued by U.S. depository institutions account and instruments located in the trading account or OECD-banks that do not qualify as capital of the with values that react primarily to changes in interest issuing institution.15 This category also includes rates, including certain non-convertible preferred other debt instruments, including corporate debt stock, convertible bonds, and instruments subject to and revenue instruments issued by states and other repurchase and lending agreements. Also included are political subdivisions of OECD countries, that are: derivatives (including written and purchased options) (1) Rated investment-grade by at least two nafor which the underlying instrument is a covered debt tionally recognized credit rating services; instrument that is subject to a non-zero specific risk (2) Rated investment-grade by one nationally capital charge. recognized credit rating agency and not rated less (A) For covered debt positions that are derivatives, than investment-grade by any other credit rating a bank must risk-weight (as described in para- agency; or graph (c)(l)(iii) of this section) the market value of (3) Unrated, but deemed to be of comparable the effective notional amount of the underlying debt investment quality by the reporting bank and the instrument or index portfolio. Swaps must be in- issuer has instruments listed on a recognized cluded as the notional position in the underlying stock exchange, subject to review by the Federal debt instrument or index portfolio, with a receiving Reserve. side treated as a long position and a paying side (C) The other category includes debt instruments treated as a short position; and that are not included in the government or qualify- (B) For covered debt positions that are options, ing categories. whether long or short, a bank must risk-weight (as (2) Covered equity positions, (i) For purposes of this described in paragraph (c)(l)(iii) of this section) the section 5, covered equity positions means equity inmarket value of the effective notional amount of the struments located in the trading account and instruunderlying debt instrument or index multiplied by ments located in the trading account with values that the option's delta, react primarily to changes in equity prices, including (ii) A bank may net long and short covered debt voting or non-voting common stock, certain convertpositions (including derivatives) in identical debt is- ible bonds, and commitments to buy or sell equity sues or indices. instruments. Also included are derivatives (including (iii) A bank must multiply the absolute value of the current market value of each net long or short covered debt position by the appropriate specific risk weight- 14. Organization for Economic Cooperation and Development ing factor indicated in Table 2 of this Appendix. The (OECD)-based countries is defined in Appendix A of this part. specific risk capital charge component for covered 15. U.S. government-sponsored agencies, multilateral development debt positions is the sum of the weighted values. banks, and OECD banks are defined in Appendix A of this part. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

926 Federal Reserve Bulletin • October 1996 written and purchased options) for which the underly- of stocks comprising the index, a bank may apply a ing is a covered equity position. 2.0 percent risk weighting factor to the futures and (A) For covered equity positions that are deriva- stock basket positions (long and short), provided tives, a bank must risk weight (as described in that such trades are deliberately entered into and paragraph (c)(2)(iii) of this section) the market separately controlled, and that the basket of stocks value of the effective notional amount of the under- comprises at least 90 percent of the capitalization lying equity instrument or equity portfolio. Swaps of the index. must be included as the notional position in the (iv) The specific risk capital charge component for underlying equity instrument or index portfolio, covered equity positions is the sum of the weighted with a receiving side treated as a long position and values. a paying side treated as a short position; and (B) For covered equity positions that are options, Part 225—Bank Holding Companies and Change in whether long or short, a bank must risk weight (as Bank Control (Regulation Y) described in paragraph (c)(2)(iii) of this section) the market value of the effective notional amount of the 1. The authority citation for Part 225 continues to read as underlying equity instrument or index multiplied by follows: the option's delta. (ii) A bank may net long and short covered equity Authority. 12U.S.C. 1817(j)(13), 1818, 1831i, 1831p-l, positions (including derivatives) in identical equity 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331issues or equity indices in the same market.16 3351,3907, and 3909. (iii) (A) A bank must multiply the absolute value of the current market value of each net long or short 2. In Part 225, Appendix A is amended in the introductory covered equity position by a risk weighting factor text, by adding a new paragraph after the second undesigof 8.0 percent, or by 4.0 percent if the equity is held nated paragraph to read as follows: in a portfolio that is both liquid and welldiversified.17 For covered equity positions that are index contracts comprising a well-diversified port- Appendix A to Part 225—Capital Adequacy folio of equity instruments, the net long or short Guidelines for Bank Holding Companies: position is multiplied by a risk weighting factor of Risk-Based Measure 2.0 percent. (B) For covered equity positions from the following futures-related arbitrage strategies, a bank may ap- In addition, when certain organizations that engage in ply a 2.0 percent risk weighting factor to one side trading activities calculate their risk-based capital ratio (long or short) of each position with the opposite under this Appendix A, they must also refer to Appendix E side exempt from charge, subject to review by the of this part, which incorporates capital charges for certain Federal Reserve: market risks into the risk-based capital ratio. When calcu- (7) Long and short positions in exactly the same lating their risk-based capital ratio under this Appendix A, index at different dates or in different market such organizations are required to refer to Appendix E of centers; or this part for supplemental rules to determine qualifying and (2) Long and short positions in index contracts at excess capital, calculate risk-weighted assets, calculate the same date in different but similar indices. market risk equivalent assets, and calculate risk-based cap- (C) For futures contracts on broadly-based indices ital ratios adjusted for market risk. that are matched by offsetting positions in a basket 3. In Part 225, a new Appendix E is added to read as follows: 16. A bank may also net positions in depository receipts against an opposite position in the underlying equity or identical equity in different markets, provided that the bank includes the costs of conversion. Appendix E to Part 225—Capital Adequacy 17. A portfolio is liquid and well-diversified if: Guidelines for Bank Holding Companies: Market (1) It is characterized by a limited sensitivity to price changes of Risk Measure any single equity issue or closely related group of equity issues held in the portfolio; (2) The volatility of the portfolio's value is not dominated by the Section 1—Purpose, Applicability, Scope, and volatility of any individual equity issue or by equity issues from Effective Date. any single industry or economic sector; (3) It contains a large number of individual equity positions, with no single position representing a substantial portion of the portfo- (a) Purpose. The purpose of this Appendix is to ensure that lio's total market value; and bank holding companies (organizations) with significant (4) It consists mainly of issues traded on organized exchanges or in well-established over-the-counter markets. exposure to market risk maintain adequate capital to sup- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 927 port that exposure.1 This Appendix supplements and ad- (1) General market risk means changes in the market justs the risk-based capital ratio calculations under Appen- value of covered positions resulting from broad market dix A of this part with respect to those organizations. movements, such as changes in the general level of (b) Applicability. (1) This Appendix applies to any bank interest rates, equity prices, foreign exchange rates, or holding company whose trading activity2 (on a world- commodity prices. wide consolidated basis) equals: (2) Specific risk means changes in the market value of (i) 10 percent or more of total assets;3 or specific positions due to factors other than broad market (ii) $1 billion or more. movements and includes such risk as the credit risk of an (2) The Federal Reserve may additionally apply this instrument's issuer. Appendix to any bank holding company if the Federal (c) Tier 1 and Tier 2 capital are defined in Appendix A of Reserve deems it necessary or appropriate for safe and this part. sound banking practices. (d) Tier 3 capital is subordinated debt that is unsecured; is (3) The Federal Reserve may exclude a bank holding fully paid up; has an original maturity of at least two years; company otherwise meeting the criteria of para- is not redeemable before maturity without prior approval graph (b)(1) of this section from coverage under this by the Federal Reserve; includes a lock-in clause preclud- Appendix if it determines the organization meets such ing payment of either interest or principal (even at matucriteria as a consequence of accounting, operational, or rity) if the payment would cause the issuing organization's similar considerations, and the Federal Reserve deems it risk-based capital ratio to fall or remain below the miniconsistent with safe and sound banking practices. mum required under Appendix A of this part; and does not (c) Scope. The capital requirements of this Appendix sup- contain and is not covered by any covenants, terms, or port market risk associated with an organization's covered restrictions that are inconsistent with safe and sound bankpositions. ing practices. (d) Effective date. This Appendix is effective as of Jan- (e) Value-at-risk (VAR) means the estimate of the maxiuary 1, 1997. Compliance is not mandatory until January 1, mum amount that the value of covered positions could 1998. Subject to supervisory approval, a bank holding decline due to market price or rate movements during a company may opt to comply with this Appendix as early as fixed holding period within a stated confidence level, mea- January 1, 1997.4 sured in accordance with section 4 of this Appendix. Section 2—Definitions. Section 3—Adjustments to the Risk-Based Capital Ratio Calculations. For purposes of this Appendix, the following definitions apply: (a) Risk-based capital ratio denominator. An organization subject to this Appendix shall calculate its risk-based capi- (a) Covered positions means all positions in an organiza- tal ratio denominator as follows: tion's trading account, and all foreign exchange5 and com- (1) Adjusted risk-weighted assets. Calculate adjusted modity positions, whether or not in the trading account.6 risk-weighted assets, which equals risk-weighted assets Positions include on-balance-sheet assets and liabilities (as determined in accordance with Appendix A of this and off-balance-sheet items. Securities subject to repur- part) excluding the risk-weighted amounts of all covered chase and lending agreements are included as if still owned positions (except foreign exchange positions outside the by the lender. trading account and over-the-counter derivative posi- (b) Market risk means the risk of loss resulting from tions).7 movements in market prices. Market risk consists of gen- (2) Measure for market risk. Calculate the measure for eral market risk and specific risk components. market risk, which equals the sum of the VAR-based capital charge, the specific risk add-on (if any), and the capital charge for de minimis exposures (if any). 1. This Appendix is based on a framework developed jointly by (i) VAR-based capital charge. The VAR-based capital supervisory authorities from the countries represented on the Basle Committee on Banking Supervision and endorsed by the Group of Ten charge equals the higher of: Central Bank Governors. The framework is described in a Basle (A) The previous day's VAR measure; or Committee paper entitled "Amendment to the Capital Accord to (B) The average of the daily VAR measures for Incorporate Market Risk," January 1996. each of the preceding 60 business days multiplied 2. Trading activity means the gross sum of trading assets and by three, except as provided in section 4(e) of this liabilities as reported in the bank holding company's most recent quarterly Y-9C Report. Appendix; 3. Total assets means quarter-end total assets as reported in the bank holding company's most recent Y-9C Report. 4. A bank holding company that voluntarily complies with the final rule prior to January 1, 1998, must comply with all of its provisions. 5. Subject to supervisory review, a bank may exclude structural 7. Foreign exchange positions outside the trading account and all positions in foreign currencies from its covered positions. over-the-counter derivative positions, whether or not in the trading 6. The term trading account is defined in the instructions to the Call account, must be included in adjusted risk weighted assets as deter- Report. mined in Appendix A of this part. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

928 Federal Reserve Bulletin • October 1996 (ii) Specific risk add-on. The specific risk add-on is requirements of this section.10 The Federal Reserve may calculated in accordance with section 5 of this Appen- permit an organization to use alternative techniques to dix; and measure the market risk of de minimis exposures so long (iii) Capital charge for de minimis exposure. The as the techniques adequately measure associated market capital charge for de minimis exposure is calculated in risk. accordance with section 4(a) of this Appendix. (b) Qualitative requirements. A bank holding company (3) Market risk equivalent assets. Calculate market risk subject to this Appendix must have a risk management equivalent assets by multiplying the measure for market system that meets the following minimum qualitative rerisk (as calculated in paragraph (a)(2) of this section) by quirements: 12.5. (1) The organization must have a risk control unit that (4) Denominator calculation. Add market risk equiva- reports directly to senior management and is indepenlent assets (as calculated in paragraph (a)(3) of this dent from business trading units. section) to adjusted risk-weighted assets (as calculated (2) The organization's internal risk measurement model in paragraph (a)(1) of this section). The resulting sum is must be integrated into the daily management process. the organization's risk-based capital ratio denominator. (3) The organization's policies and procedures must (b) Risk-based capital ratio numerator. An organization identify, and the organization must conduct, appropriate subject to this Appendix shall calculate its risk-based capi- stress tests and backtests.11 The organization's policies tal ratio numerator by allocating capital as follows: and procedures must identify the procedures to follow in (1) Credit risk allocation. Allocate Tier 1 and Tier 2 response to the results of such tests. capital equal to 8.0 percent of adjusted risk-weighted (4) The organization must conduct independent reviews assets (as calculated in paragraph (a)(1) of this section).8 of its risk measurement and risk management systems at (2) Market risk allocation. Allocate Tier 1, Tier 2, and least annually. Tier 3 capital equal to the measure for market risk as (c) Market risk factors. The organization's internal model calculated in paragraph (a)(2) of this section. The sum of must use risk factors sufficient to measure the market risk Tier 2 and Tier 3 capital allocated for market risk must inherent in all covered positions. The risk factors must not exceed 250 percent of Tier 1 capital allocated for address interest rate risk,12 equity price risk, foreign exmarket risk. (This requirement means that Tier 1 capital change rate risk, and commodity price risk. allocated in this paragraph (b)(2) must equal at least (d) Quantitative requirements. For regulatory capital pur- 28.6 percent of the measure for market risk.) poses, VAR measures must meet the following quantitative (3) Restrictions, (i) The sum of Tier 2 capital (both requirements: allocated and excess) and Tier 3 capital (allocated in (1) The VAR measures must be calculated on a daily paragraph (b)(2) of this section) may not exceed basis using a 99 percent, one-tailed confidence level 100 percent of Tier 1 capital (both allocated and with a price shock equivalent to a ten-business day excess).9 movement in rates and prices. In order to calculate VAR (ii) Term subordinated debt (and intermediate-term measures based on a ten-day price shock, the organizapreferred stock and related surplus) included in Tier 2 tion may either calculate ten-day figures directly or capital (both allocated and excess) may not exceed convert VAR figures based on holding periods other than 50 percent of Tier 1 capital (both allocated and ex- ten days to the equivalent of a ten-day holding period cess). (for instance, by multiplying a one-day VAR measure by (4) Numerator calculation. Add Tier 1 capital (both the square root of ten). allocated and excess), Tier 2 capital (both allocated and excess), and Tier 3 capital (allocated under paragraph (b)(2) of this section). The resulting sum is the 10. An organization's internal model may use any generally acorganization's risk-based capital ratio numerator. cepted measurement techniques, such as variance-covariance models, historical simulations, or Monte Carlo simulations. However, the level of sophistication and accuracy of an organization's internal model Section A—Internal Models. must be commensurate with the nature and size of its covered positions. An organization that modifies its existing modeling procedures (a) General. For risk-based capital purposes, a bank hold- to comply with the requirements of this Appendix for risk-based ing company subject to this Appendix must use its internal capital purposes should, nonetheless, continue to use the internal model it considers most appropriate in evaluating risks for other model to measure its daily VAR, in accordance with the purposes. 11. Stress tests provide information about the impact of adverse market events on a bank's covered positions. Backtests provide information about the accuracy of an internal model by comparing an 8. An institution may not allocate Tier 3 capital to support credit organization's daily VAR measures to its corresponding daily trading risk (as calculated under Appendix A of this part). profits and losses. 9. Excess Tier 1 capital means Tier 1 capital that has not been 12. For material exposures in the major currencies and markets, allocated in paragraphs (b)(1) and (b)(2) of this section. Excess Tier 2 modeling techniques must capture spread risk and must incorporate capital means Tier 2 capital that has not been allocated in para- enough segments of the yield curve—at least six—to capture differgraph (b)(1) and (b)(2) of this section, subject to the restrictions in ences in volatility and less than perfect correlation of rates along the paragraph (b)(3) of this section. yield curve. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 929 (2) The VAR measures must be based on an historical Section 5—Specific Risk. observation period (or effective observation period for an organization using a weighting scheme or other simi- (a) Specific risk add-on. For purposes of section 3(a)(2)(h) lar method) of at least one year. The organization must of this Appendix, a bank holding company's specific risk update data sets at least once every three months or more add-on equals the standard specific risk capital charge frequently as market conditions warrant. calculated under paragraph (c) of this section. If, however, (3) The VAR measures must include the risks arising an organization can demonstrate to the Federal Reserve from the non-linear price characteristics of options posi- that its internal model measures the specific risk of covered tions and the sensitivity of the market value of the debt and/or equity positions and that those measures are positions to changes in the volatility of the underlying included in the VAR-based capital charge in section rates or prices. An organization with a large or complex 3(a)(2)(i) of this Appendix, then it may reduce or eliminate options portfolio must measure the volatility of options its specific risk add-on under this section. The determinapositions by different maturities. tion as to whether a model incorporates specific risk must (4) The VAR measures may incorporate empirical corre- be made separately for covered debt and equity positions. lations within and across risk categories, provided that (1) If a model includes the specific risk of covered debt the organization's process for measuring correlations is positions but not covered equity positions (or vice versound. In the event that the VAR measures do not sa), then the organization can reduce its specific risk incorporate empirical correlations across risk categories, charge for the included positions under paragraph (b) of then the organization must add the separate VAR mea- this section. The specific risk charge for the positions not sures for the four major risk categories to determine its included equals the standard specific risk capital charge aggregate VAR measure. under paragraph (c) of this section. (e) Backtesting. (1) Beginning one year after a bank hold- (2) If a model addresses the specific risk of both covered ing company starts to comply with this Appendix, it debt and equity positions, then the organization can must conduct backtesting by comparing each of its most reduce its specific risk charge for both covered debt and recent 250 business days' actual net trading profit or equity positions under paragraph (b) of this section. In loss13 with the corresponding daily VAR measures gen- this case, the comparison described in paragraph (b) of erated for internal risk measurement purposes and cali- this section must be based on the total VAR-based figure brated to a one-day holding period and a 99th percentile, for the specific risk of debt and equity positions, taking one-tailed confidence level. account of any correlations that are built into the model. (2) Once each quarter, the organization must identify the (b) VAR-based specific risk capital charge. In all cases number of exceptions, that is, the number of business where a bank holding company measures specific risk in its days for which the magnitude of the actual daily net internal model, the total capital charge for specific risk trading loss, if any, exceeds the corresponding daily {i.e., the VAR-based specific risk capital charge plus the VAR measure. specific risk add-on) must equal at least 50 percent of the (3) A bank holding company must use the multiplication standard specific risk capital charge (this amount is the factor indicated in Table 1 of this Appendix in determin- minimum specific risk charge). ing its capital charge for market risk under section (1) If the portion of an organization's VAR measure that is attributable to specific risk (multiplied by the organi- 1. Multiplication Factor Based on Results of Backtesting zation's multiplication factor if required in sec- Number of exceptions Multiplication factor tion 3(a)(2) of this Appendix) is greater than or equal to the minimum specific risk charge, then the organization 4 or fewer 3.00 has no specific risk add-on and its capital charge for 5 3.40 6 3.50 specific risk is the portion included in the VAR measure. 7 3.65 (2) If the portion of an organization's VAR measure that 8 3.75 is attributable to specific risk (multiplied by the organi- 9 3.85 10 or more 4.00 zation's multiplication factor if required in section 3(a)(2) of this Appendix) is less than the minimum 3(a)(2)(i)(B) of this Appendix until it obtains the next specific risk charge, then the organization's specific risk quarter's backtesting results, unless the Federal Reserve add-on is the difference between the minimum specific determines that a different adjustment or other action is risk charge and the specific risk portion of the VAR appropriate. measure (multiplied by the multiplication factor if required in section 3(a)(2) of this Appendix). (c) Standard specific risk capital charge. The standard specific risk capital charge equals the sum of the components for covered debt and equity positions as follows: 13. Actual net trading profits and losses typically include such (1) Covered debt positions, (i) For purposes of this things as realized and unrealized gains and losses on portfolio posisection 5, covered debt positions means fixed-rate or tions as well as fee income and commissions associated with trading activities. floating-rate debt instruments located in the trading Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

930 Federal Reserve Bulletin • October 1996 account or instruments located in the trading account ments to the extent the organization has liabilities with values that react primarily to changes in interest booked in that currency. rates, including certain non-convertible preferred (B) The qualifying category includes debt instrustock, convertible bonds, and instruments subject to ments of U.S. government-sponsored agencies, genrepurchase and lending agreements. Also included are eral obligation debt instruments issued by states derivatives (including written and purchased options) and other political subdivisions of OECD-based for which the underlying instrument is a covered debt countries, multilateral development banks, and debt instrument that is subject to a non-zero specific risk instruments issued by U.S. depository institutions capital charge. or OECD banks that do not qualify as capital of the (A) For covered debt positions that are derivatives, issuing institution.15 This category also includes an organization must risk-weight (as described in other debt instruments, including corporate debt paragraph (c)(l)(iii) of this section) the market and revenue instruments issued by states and other value of the effective notional amount of the under- political subdivisions of OECD countries, that are: lying debt instrument or index portfolio. Swaps (7) Rated investment-grade by at least two namust be included as the notional position in the tionally recognized credit rating services; underlying debt instrument or index portfolio, with (2) Rated investment-grade by one nationally a receiving side treated as a long position and a recognized credit rating agency and not rated less paying side treated as a short position; and than investment grade by any other credit rating (B) For covered debt positions that are options, agency; or whether long or short, an organization must risk- (3) Unrated, but deemed to be of comparable weight (as described in paragraph (c)(l)(iii) of this investment quality by the reporting organization section) the market value of the effective notional and the issuer has instruments listed on a recogamount of the underlying debt instrument or index nized stock exchange, subject to review by the multiplied by the option's delta. Federal Reserve. (ii) An organization may net long and short covered (C) The other category includes debt instruments debt positions (including derivatives) in identical debt that are not included in the government or qualifyissues or indices. ing categories. (iii) An organization must multiply the absolute value (2) Covered equity positions, (i) For purposes of this section 5, covered equity positions means equity in- 2. Specific Risk Weighting Factors for Covered Debt struments located in the trading account and instru- Positions ments located in the trading account with values that react primarily to changes in equity prices, including CCaatteeggoorryy Remaining Maturity Weighting Factor voting or non-voting common stock, certain convert- (contractual) (in percent) ible bonds, and commitments to buy or sell equity Government N/A .00 instruments. Also included are derivatives (including written or purchased options) for which the underling 6 months or less .25 Qualifying over 6 months to 24 1.00 is a covered equity position. months (A) For covered equity positions that are derivaover 24 months 1.60 tives, an organization must risk weight (as described in paragraph (c)(2)(iii) of this section) the Other N/A 8.00 market value of the effective notional amount of the underlying equity instrument or equity portfolio. of the current market value of each net long or short Swaps must be included as the notional position in covered debt position by the appropriate specific risk the underlying equity instrument or index portfolio, weighting factor indicated in Table 2 of this Appenwith a receiving side treated as a long position and dix. The specific risk capital charge component for a paying side treated as a short position; and covered debt positions is the sum of the weighted (B) For covered equity positions that are options, values. whether long or short, an organization must risk weight (as described in paragraph (c)(2)(iii) of this (A) The government category includes all debt insection) the market value of the effective notional struments of central governments of OECD-based amount of the underlying equity instrument or incountries14 including bonds, Treasury bills, and dex multiplied by the option's delta. other short-term instruments, as well as local currency instruments of non-OECD central govern- 14. Organization for Economic Cooperation and Development 15. U.S. government-sponsored agencies, multilateral development (OECD)-based countries is defined in Appendix A of this part. banks, and OECD banks are defined in Appendix A of this part. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 931 (ii) An organization may net long and short covered Authority: 12U.S.C. 1815(a), 1815(b), 1816, 1818(a), equity positions (including derivatives) in identical 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), equity issues or equity indices in the same market.16 1828(i), 1828(n), 1828(o), 1831o, 3907, 3909, 4808; (iii) (A) An organization must multiply the absolute Pub. L. 102-233, 105 Stat. 1761, 1789, 1790 (12U.S.C. value of the current market value of each net long 1831n note); Pub. L. 102-242, 105 Stat. 2236, 2355, 2386 or short covered equity position by a risk weighting (12 U.S.C. 1828 note). factor of 8.0 percent, or by 4.0 percent if the equity is held in a portfolio that is both liquid and well- 2. Appendix A to Part 325 is amended in the introductory diversified.17 For covered equity positions that are text, by adding a new paragraph after the third undesigindex contracts comprising a well-diversified port- nated paragraph to read as follows: folio of equity instruments, the net long or short position is to be multiplied by a risk weighting Appendix A to Part 325—Statement of Policy on factor of 2.0 percent. Risk-Based Capital (B) For covered equity positions from the following futures-related arbitrage strategies, an organization may apply a 2.0 percent risk weighting factor to In addition, when certain banks that engage in trading one side (long or short) of each equity position with activities calculate their risk-based capital ratio under this the opposite side exempt from charge, subject to Appendix A, they must also refer to Appendix C of this review by the Federal Reserve: part, which incorporates capital charges for certain market (7) Long and short positions in exactly the same risks into the risk-based capital ratio. When calculating index at different dates or in different market their risk-based capital ratio under this Appendix A, such centers; or banks are required to refer to Appendix C of this part for (2) Long and short positions in index contracts at supplemental rules to determine qualifying and excess the same date in different but similar indices. capital, calculate risk-weighted assets, calculate market (C) For futures contracts on broadly-based indices risk equivalent assets and add them to risk-weighted assets, that are matched by offsetting positions in a basket and calculate risk-based capital ratios as adjusted for marof stocks comprising the index, an organization ket risk. may apply a 2.0 percent risk weighting factor to the futures and stock basket positions (long and short), provided that such trades are deliberately entered 3. A new Appendix C is added to Part 325 to read as into and separately controlled, and that the basket follows: of stocks comprises at least 90 percent of the capitalization of the index. Appendix C to Part 325—Risk-Based Capital for (iv) The specific risk capital charge component for State Non-Member Banks; Market Risk covered equity positions is the sum of the weighted values. Section 1—Purpose, Applicability, Scope, and Effective Date. Part 325—Capital Maintenance (a) Purpose. The purpose of this Appendix is to ensure that 1. The authority citation for Part 325 continues to read as banks with significant exposure to market risk maintain follows: adequate capital to support that exposure.1 This Appendix supplements and adjusts the risk-based capital ratio calculations under Appendix A of this part with respect to those banks. (b) Applicability. (1) This Appendix applies to any insured state nonmember bank whose trading activity2 (on a 16. An organization may also net positions in depository receipts worldwide consolidated basis) equals: against an opposite position in the underlying equity or identical (i) 10 percent or more of total assets;3 or equity in different markets, provided that the organization includes the costs of conversion. 17. A portfolio is liquid and well-diversified if: (1) It is characterized by a limited sensitivity to price changes of 1. This Appendix is based on a framework developed jointly by any single equity issue or closely related group of equity issues supervisory authorities from the countries represented on the Basle held in the portfolio; Committee on Banking Supervision and endorsed by the Group of Ten (2) The volatility of the portfolio's value is not dominated by the Central Bank Governors. The framework is described in a Basle volatility of any individual equity issue or by equity issues from Committee paper entitled "Amendment to the Capital Accord to any single industry or economic sector; Incorporate Market Risk," January 1996. (3) It contains a large number of individual equity positions, with 2. Trading activity means the gross sum of trading assets and no single position representing a substantial portion of the portfo- liabilities as reported in the bank's most recent quarterly Consolidated lio's total market value; and Report of Condition and Income (Call Report). (4) It consists mainly of issues traded on organized exchanges or 3. Total assets means quarter-end total assets as reported in the in well-established over-the-counter markets. bank's most recent Call Report. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

932 Federal Reserve Bulletin • October 1996 (ii) $1 billion or more. ratio to fall or remain below the minimum required under (2) The FDIC may additionally apply this Appendix to Appendix A of this part; and does not contain and is not any insured state nonmember bank if the FDIC deems it covered by any covenants, terms, or restrictions that are necessary or appropriate for safe and sound banking inconsistent with safe and sound banking practices, practices. (e) Value-at-risk (VAR) means the estimate of the maxi- (3) The FDIC may exclude an insured state nonmember mum amount that the value of covered positions could bank otherwise meeting the criteria of paragraph (b)(1) decline during a fixed holding period within a stated confiof this section from coverage under this Appendix if it dence level, measured in accordance with section 4 of this determines the bank meets such criteria as a conse- Appendix. quence of accounting, operational, or similar considerations, and the FDIC deems it consistent with safe and Section 3—Adjustments to the Risk-Based Capital sound banking practices. Ratio Calculations. (c) Scope. The capital requirements of this Appendix support market risk associated with a bank's covered posi- (a) Risk-based capital ratio denominator. A bank subject tions. to this Appendix shall calculate its risk-based capital ratio (d) Effective date. This Appendix is effective as of Janu- denominator as follows: ary 1, 1997. Compliance is not mandatory until January 1, (1) Adjusted risk-weighted assets. Calculate adjusted 1998. Subject to supervisory approval, a bank may opt to risk-weighted assets, which equals risk-weighted assets comply with this Appendix as early as January 1, 1997.4 (as determined in accordance with Appendix A of this part), excluding the risk-weighted amounts of all cov- Section 2—Definitions. ered positions (except foreign exchange positions outside the trading account and over-the-counter derivative For purposes of this Appendix, the following definitions positions).7 apply: (2) Measure for market risk. Calculate the measure for market risk, which equals the sum of the VAR-based (a) Covered positions means all positions in a bank's capital charge, the specific risk add-on (if any), and the trading account, and all foreign exchange5 and commodity capital charge for de minimis exposures (if any). positions, whether or not in the trading account.6 Positions (i) VAR-based capital charge. The VAR-based capital include on-balance-sheet assets and liabilities and off- charge equals the higher of: balance-sheet items. Securities subject to repurchase and (A) The previous day's VAR measure; or lending agreements are included as if they are still owned (B) The average of the daily VAR measures for by the lender. each of the preceding 60 business days multiplied (b) Market risk means the risk of loss resulting from by three, except as provided in section 4(e) of this movements in market prices. Market risk consists of gen- Appendix; eral market risk and specific risk components. (ii) Specific risk add-on. The specific risk add-on is (1) General market risk means changes in the market calculated in accordance with section 5 of this Appenvalue of covered positions resulting from broad market dix; and movements, such as changes in the general level of (iii) Capital charge for de minimis exposure. The interest rates, equity prices, foreign exchange rates, or capital charge for de minimis exposure is calculated commodity prices. in accordance with section 4(a) of this Appendix. (2) Specific risk means changes in the market value of (3) Market risk equivalent assets. Calculate market risk specific positions due to factors other than broad market equivalent assets by multiplying the measure for market movements and includes such risk as the credit risk of an risk (as calculated in paragraph (a)(2) of this section) by instrument's issuer. 12.5. (c) Tier 1 and Tier 2 capital are defined in Appendix A of (4) Denominator calculation. Add market risk equivathis part. lent assets (as calculated in paragraph (a)(3) of this (d) Tier 3 capital is subordinated debt that is unsecured; is section) to adjusted risk-weighted assets (as calculated fully paid up; has an original maturity of at least two years; in paragraph (a)(1) of this section). The resulting sum is is not redeemable before maturity without prior approval the bank's risk-based capital ratio denominator. by the FDIC; includes a lock-in clause precluding payment (b) Risk-based capital ratio numerator. A bank subject to of either interest or principal (even at maturity) if the this Appendix shall calculate its risk-based capital ratio payment would cause the issuing bank's risk-based capital numerator by allocating capital as follows: 4. A bank that voluntarily complies with the final rule prior to January 1, 1998, must comply with all of its provisions. 5. Subject to FDIC review, a bank may exclude structural positions 7. Foreign exchange positions outside the trading account and all in foreign currencies from its covered positions. over-the-counter derivative positions, whether or not in the trading 6. The term trading account is defined in the instructions to the Call account, must be included in adjusted risk weighted assets as deter- Report. mined in Appendix A of this part. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 933 (1) Credit risk allocation. Allocate Tier 1 and Tier 2 (2) The bank's internal risk measurement model must be capital equal to 8.0 percent of adjusted risk-weighted integrated into the daily management process. assets (as calculated in paragraph (a)(1) of this section).8 (3) The bank's policies and procedures must identify, (2) Market risk allocation. Allocate Tier 1, Tier 2, and and the bank must conduct, appropriate stress tests and Tier 3 capital equal to the measure for market risk as backtests.11 The bank's policies and procedures must calculated in paragraph (a)(2) of this section. The sum of identify the procedures to follow in response to the Tier 2 and Tier 3 capital allocated for market risk must results of such tests. not exceed 250 percent of Tier 1 capital allocated for (4) The bank must conduct independent reviews of its market risk. (This requirement means that Tier 1 capital risk measurement and risk management systems at least allocated in this paragraph (b)(2) must equal at least 28.6 annually. percent of the measure for market risk.) (c) Market risk factors. The bank's internal model must (3) Restrictions, (i) The sum of Tier 2 capital (both use risk factors sufficient to measure the market risk inherallocated and excess) and Tier 3 capital (allocated in ent in all covered positions. The risk factors must address paragraph (b)(2) of this section) may not exceed interest rate risk,12 equity price risk, foreign exchange rate 100 percent of Tier 1 capital (both allocated and risk, and commodity price risk. excess).9 (d) Quantitative requirements. For regulatory capital pur- (ii) Term subordinated debt (and intermediate-term poses, VAR measures must meet the following quantitative preferred stock and related surplus) included in Tier 2 requirements: capital (both allocated and excess) may not exceed (1) The VAR measures must be calculated on a daily 50 percent of Tier 1 capital (both allocated and ex- basis using a 99 percent, one-tailed confidence level cess). with a price shock equivalent to a ten-business day (4) Numerator calculation. Add Tier 1 capital (both movement in rates and prices. In order to calculate VAR allocated and excess), Tier 2 capital (both allocated and measures based on a ten-day price shock, the bank may excess), and Tier 3 capital (allocated under paragraph either calculate ten-day figures directly or convert VAR (b)(2) of this section). The resulting sum is the bank's figures based on holding periods other than ten days to risk-based capital ratio numerator. the equivalent of a ten-day holding period (for instance, by multiplying a one-day VAR measure by the square Section A—Internal Models. root of ten). (2) The VAR measures must be based on an historical (a) General. For risk-based capital purposes, a bank sub- observation period (or effective observation period for a ject to this Appendix must use its internal model to mea- bank using a weighting scheme or other similar method) sure its daily VAR, in accordance with the requirements of of at least one year. The bank must update data sets at this section.10 The FDIC may permit a bank to use alterna- least once every three months or more frequently as tive techniques to measure the market risk of de minimis market conditions warrant. exposures so long as the techniques adequately measure (3) The VAR measures must include the risks arising associated market risk. from the non-linear price characteristics of options posi- (b) Qualitative requirements. A bank subject to this Appen- tions and the sensitivity of the market value of the dix must have a risk management system that meets the positions to changes in the volatility of the underlying following minimum qualitative requirements: rates or prices. A bank with a large or complex options (1) The bank must have a risk control unit that reports portfolio must measure the volatility of options positions directly to senior management and is independent from by different maturities. business trading units. (4) The VAR measures may incorporate empirical correlations within and across risk categories, provided that the bank's process for measuring correlations is sound. In the event that the VAR measures do not incorporate empirical correlations across risk categories, then the 8. A bank may not allocate Tier 3 capital to support credit risk (as bank must add the separate VAR measures for the four calculated under Appendix A of this part). 9. Excess Tier 1 capital means Tier 1 capital that has not been allocated in paragraphs (b)(1) and (b)(2) of this section. Excess Tier 2 capital means Tier 2 capital that has not been allocated in paragraph (b)(1) and (b)(2) of this section, subject to the restrictions in paragraph (b)(3) of this section. 11. Stress tests provide information about the impact of adverse 10. A bank's internal model may use any generally accepted mea- market events on a bank's covered positions. Backtests provide inforsurement techniques, such as variance-covariance models, historical mation about the accuracy of an internal model by comparing a bank's simulations, or Monte Carlo simulations. However, the level of sophis- daily VAR measures to its corresponding daily trading profits and tication and accuracy of a bank's internal model must be commensu- losses. rate with the nature and size of its covered positions. A bank that 12. For material exposures in the major currencies and markets, modifies its existing modeling procedures to comply with the require- modeling techniques must capture spread risk and must incorporate ments of this Appendix for risk-based capital purposes should, none- enough segments of the yield curve—at least six—to capture differtheless, continue to use the internal model it considers most appropri- ences in volatility and less than perfect correlation of rates along the ate in evaluating risks for other purposes. yield curve. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

934 Federal Reserve Bulletin • October 1996 major risk categories to determine its aggregate VAR eluded equals the standard specific risk capital charge measure. under paragraph (c) of this section. (e) Backtesting. (1) Beginning one year after a bank starts (2) If a model addresses the specific risk of both covered to comply with this Appendix, a bank must conduct debt and equity positions, then the bank can reduce its backtesting by comparing each of its most recent 250 specific risk charge for both covered debt and equity business days' actual net trading profit or loss13 with the positions under paragraph (b) of this section. In this corresponding daily VAR measures generated for inter- case, the comparison described in paragraph (b) of this nal risk measurement purposes and calibrated to a one- section must be based on the total VAR-based figure for day holding period and a 99 percent, one- tailed confi- the specific risk of debt and equity positions, taking into dence level. account any correlations that are built into the model. (2) Once each quarter, the bank must identify the num- (b) VAR-based specific risk capital charge. In all cases ber of exceptions, that is, the number of business days where a bank measures specific risk in its internal model, for which the magnitude of the actual daily net trading the total capital charge for specific risk (i.e., the VARloss, if any, exceeds the corresponding daily VAR mea- based specific risk capital charge plus the specific risk sure. add-on) must equal at least 50 percent of the standard (3) A bank must use the multiplication factor indicated specific risk capital charge (this amount is the minimum in Table 1 of this Appendix in determining its capital specific risk charge). charge for market risk under section 3(a)(2)(i)(B) of this (1) If the portion of a bank's VAR measure that is Appendix until it obtains the next quarter's backtesting attributable to specific risk (multiplied by the bank's results, unless the FDIC determines that a different ad- multiplication factor if required in section 3(a)(2) of this justment or other action is appropriate. Appendix) is greater than or equal to the minimum specific risk charge, then the bank has no specific risk add-on and its capital charge for specific risk is the 1. Multiplication Factor Based on Results of Backtesting portion included in the VAR measure. Number of exceptions Multiplication factor (2) If the portion of a bank's VAR measure that is 4 or fewer 3.00 attributable to specific risk (multiplied by the bank's 5 3.40 multiplication factor if required in section 3(a)(2) of this 6 3.50 Appendix) is less than the minimum specific risk charge, 7 3.65 then the bank's specific risk add-on is the difference 8 3.75 9 3.85 between the minimum specific risk charge and the spe- 10 or more 4.00 cific risk portion of the VAR measure (multiplied by the bank's multiplication factor if required in section 3(a)(2) of this Appendix). Section 5—Specific Risk. (c) Standard specific risk capital charge. The standard specific risk capital charge equals the sum of the compo- (a) Specific risk add-on. For purposes of section 3(a)(2)(ii) nents for covered debt and equity positions as follows: of this Appendix, a bank's specific risk add-on equals the (1) Covered debt positions, (i) For purposes of this standard specific risk capital charge calculated under parasection 5, covered debt positions means fixed-rate or graph (c) of this section. If, however, a bank can demonfloating-rate debt instruments located in the trading strate to the FDIC that its internal model measures the account and instruments located in the trading account specific risk of covered debt and/or equity positions and with values that react primarily to changes in interest that those measures are included in the VAR-based capital rates, including certain non-convertible preferred charge in section 3(a)(2)(i) of this Appendix, then the bank stock, convertible bonds, and instruments subject to may reduce or eliminate its specific risk add-on under this repurchase and lending agreements. Also included are section. The determination as to whether a model incorpoderivatives (including written and purchased options) rates specific risk must be made separately for covered for which the underlying instrument is a covered debt debt and equity positions. instrument that is subject to a non-zero specific risk (1) If a model includes the specific risk of covered debt capital charge. positions but not covered equity positions (or vice ver- (A) For covered debt positions that are derivatives, sa), then the bank can reduce its specific risk charge for a bank must risk-weight (as described in parathe included positions under paragraph (b) of this secgraph (c)(l)(iii) of this section) the market value of tion. The specific risk charge for the positions not inthe effective notional amount of the underlying debt instrument or index portfolio. Swaps must be included as the notional position in the underlying debt instrument or index portfolio, with a receiving 13. Actual net trading profits and losses typically include such side treated as a long position and a paying side things as realized and unrealized gains and losses on portfolio positreated as a short position; and tions as well as fee income and commissions associated with trading activities. (B) For covered debt positions that are options, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 935 whether long or short, a bank must risk-weight (as issuer has instruments listed on a recognized described in paragraph (c)(l)(iii) of this section) the stock exchange, subject to review by the FDIC. market value of the effective notional amount of the (C) The other category includes debt instruments underlying debt instrument or index multiplied by that are not included in the government or qualifythe option's delta. ing categories. (ii) A bank may net long and short covered debt (2) Covered equity positions, (i) For purposes of this positions (including derivatives) in identical debt is- section 5, covered equity positions means equity insues or indices. struments located in the trading account and instru- (iii) A bank must multiply the absolute value of the ments located in the trading account with values that current market value of each net long or short covered react primarily to changes in equity prices, including debt position by the appropriate specific risk weight- voting or non-voting common stock, certain converting factor indicated in Table 2 of this Appendix. The ible bonds, and commitments to buy or sell equity specific risk capital charge component for covered instruments. Also included are derivatives (including debt positions is the sum of the weighted values. written and purchased options) for which the underlying is a covered equity position. 2. Specific Risk Weighting Factors for Covered Debt (A) For covered equity positions that are deriva- Positions tives, a bank must risk weight (as described in paragraph (c)(2)(iii) of this section) the market CCaatteeggoorryy Remaining Maturity Weighting Factor value of the effective notional amount of the under- (contractual) (in percent) lying equity instrument or equity portfolio. Swaps Government N/A 0.00 must be included as the notional position in the underlying equity instrument or index portfolio, 6 months or less 0.25 Qualifying over 6 months to 24 1.00 with a receiving side treated as a long position and months a paying side treated as a short position; and over 24 months 1.60 (B) For covered equity positions that are options, whether long or short, a bank must risk weight (as Other N/A 8.00 described in paragraph (c)(2)(iii) of this section) the market value of the effective notional amount of the (A) The government category includes all debt inunderlying equity instrument or index multiplied by struments of central governments of OECD-based countries14 including bonds, Treasury bills, and the option's delta. (ii) A bank may net long and short covered equity other short-term instruments, as well as local curpositions (including derivatives) in identical equity rency instruments of non-OECD central governissues or equity indices in the same market.16 ments to the extent the bank has liabilities booked (iii) (A) A bank must multiply the absolute value of in that currency. the current market value of each net long or short (B) The qualifying category includes debt instrucovered equity position by a risk weighting factor ments of U.S. government-sponsored agencies, genof 8.0 percent, or by 4.0 percent if the equity is held eral obligation debt instruments issued by states in a portfolio that is both liquid and welland other political subdivisions of OECD-based diversified.17 For covered equity positions that are countries, multilateral development banks, and debt index contracts comprising a well-diversified portinstruments issued by U.S. depository institutions folio of equity instruments, the net long or short or OECD-banks that do not qualify as capital of the issuing institution.15 This category also includes position is multiplied by a risk weighting factor of 2.0 percent. other debt instruments, including corporate debt and revenue instruments issued by states and other political subdivisions of OECD countries, that are: (7) Rated investment-grade by at least two na- 16. A bank may also net positions in depository receipts against an tionally recognized credit rating services; opposite position in the underlying equity or identical equity in different markets, provided that the bank includes the costs of conver- (2) Rated investment-grade by one nationally sion. recognized credit rating agency and not rated less 17. A portfolio is liquid and well-diversified if: than investment-grade by any other credit rating (1) It is characterized by a limited sensitivity to price changes of agency; or any single equity issue or closely related group of equity issues (3) Unrated, but deemed to be of comparable held in the portfolio; (2) The volatility of the portfolio's value is not dominated by the investment quality by the reporting bank and the volatility of any individual equity issue or by equity issues from any single industry or economic sector; (3) It contains a large number of individual equity positions, with 14. Organization for Economic Cooperation and Development no single position representing a substantial portion of the portfo- (OECD)-based countries is defined in Appendix A of this part. lio's total market value; and 15. U.S. government-sponsored agencies, multilateral development (4) It consists mainly of issues traded on organized exchanges or banks, and OECD banks are defined in Appendix A of this part. in well-established over-the-counter markets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

936 Federal Reserve Bulletin • October 1996 (B) For covered equity positions from the following 22.3—Requirement to purchase flood insurance where futures-related arbitrage strategies, a bank may ap- available. ply a 2.0 percent risk weighting factor to one side 22.4—Exemptions. (long or short) of each position with the opposite 22.5—Escrow requirement. side exempt from charge, subject to review by the 22.6—Required use of standard flood hazard determination FDIC: form. (/) Long and short positions in exactly the same 22.7—Forced placement of flood insurance. index at different dates or in different market 22.8—Determination fees. centers; or 22.9—Notice of special flood hazards and availability of (2) Long and short positions in index contracts at Federal disaster relief assistance. the same date in different but similar indices. 22.10—Notice of servicer's identity. (C) For futures contracts on broadly-based indices that are matched by offsetting positions in a basket Appendix A to Part 22—Sample Form of Notice of of stocks comprising the index, a bank may apply a Special Flood Hazards and Availability of Federal 2.0 percent risk weighting factor to the futures and Disaster Relief Assistance stock basket positions (long and short), provided that such trades are deliberately entered into and Authority. 12U.S.C. 93a; 42 U.S.C. 4012a, 4104a, 4104b, separately controlled, and that the basket of stocks 4106, and 4128. comprises at least 90 percent of the capitalization of the index. Section 22.1—Authority, purpose, and scope. (iv) The specific risk capital charge component for covered equity positions is the sum of the weighted (a) Authority. This part is issued pursuant to 12 U.S.C. 93a values. and 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128. (b) Purpose. The purpose of this part is to implement the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended JOINT FINAL RULE—AMENDMENT TO REGULATION H (42 U.S.C. 4001-4129). (c) Scope. This part, except for sections 22.6 and 22.8, The Comptroller of the Currency (OCC), Board of Goverapplies to loans secured by buildings or mobile homes nors of the Federal Reserve System (Board), Federal Delocated or to be located in areas determined by the Director posit Insurance Corporation (FDIC), Office of Thrift Superof the Federal Emergency Management Agency to have vision (OTS). and National Credit Union Administration special flood hazards. Sections 22.6 and 22.8 apply to loans (NCUA) are amending their regulations, and the Farm secured by buildings or mobile homes, regardless of loca- Credit Administration (FCA) is issuing new regulations, tion. regarding loans in areas having special flood hazards. This action is required by statute to implement the provisions of Section 22.2—Definitions. the National Flood Insurance Reform Act of 1994. The joint final rules establish new escrow requirements for (a) Act means the National Flood Insurance Act of 1968, as flood insurance premiums, add references to the statutory amended (42 U.S.C. 4001-4129). authority and the requirement for lenders and servicers to (b) Bank means a national bank or a bank located in the ''force place" flood insurance under certain circumstances, District of Columbia and subject to the supervision of the enhance flood hazard notice requirements, set forth new Comptroller of the Currency. authority for lenders to charge fees for determining whether (c) Building means a walled and roofed structure, other a property is located in a special flood hazard area, and than a gas or liquid storage tank, that is principally above contain various other provisions necessary to implement ground and affixed to a permanent site, and a walled and the National Flood Insurance Reform Act of 1994. roofed structure while in the course of construction, alter- Effective October 1, 1996; except for Part 614, which ation, or repair. will be effective October 3, 1996, and Part 760, which will (d) Community means a State or a political subdivision of a be effective November 1, 1996, 12C.F.R. Parts 22, 208, State that has zoning and building code jurisdiction over a 339, 563, 572, 614, and 760 are amended as follows: particular area having special flood hazards. (e) Designated loan means a loan secured by a building or Part 22—Loans in Areas Having Special Flood mobile home that is located or to be located in a special Hazards flood hazard area in which flood insurance is available under the Act. Section (f) Director of FEM A means the Director of the Federal Emergency Management Agency. 22.1—Authority, purpose, and scope. (g) Mobile home means a structure, transportable in one or 22.2—Definitions. more sections, that is built on a permanent chassis and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 937 designed for use with or without a permanent foundation Section 22.5—Escrow requirement. when attached to the required utilities. The term mobile home does not include a recreational vehicle. For purposes If a bank requires the escrow of taxes, insurance premiums, of this part, the term mobile home means a mobile home on fees, or any other charges for a loan secured by residential a permanent foundation. The term mobile home includes a improved real estate or a mobile home that is made, manufactured home as that term is used in the NFIP. increased, extended, or renewed after October 1, 1996, the (h) NFIP means the National Flood Insurance Program bank shall also require the escrow of all premiums and fees authorized under the Act. for any flood insurance required under section 22.3. The (i) Residential improved real estate means real estate upon bank, or a servicer acting on behalf of the bank, shall which a home or other residential building is located or to deposit the flood insurance premiums on behalf of the be located. borrower in an escrow account. This escrow account will (j) Servicer means the person responsible for: be subject to escrow requirements adopted pursuant to (1) Receiving any scheduled, periodic payments from a section 10 of the Real Estate Settlement Procedures Act of borrower under the terms of a loan, including amounts 1974 (12 U.S.C. 2609) (RESPA), which generally limits for taxes, insurance premiums, and other charges with the amount that may be maintained in escrow accounts for respect to the property securing the loan; and certain types of loans and requires escrow account state- (2) Making payments of principal and interest and any ments for those accounts, only if the loan is otherwise other payments from the amounts received from the subject to RESPA. Following receipt of a notice from the borrower as may be required under the terms of the loan. Director of FEMA or other provider of flood insurance that (k) Special flood hazard area means the land in the flood premiums are due, the bank, or a servicer acting on behalf plain within a community having at least a one percent of the bank, shall pay the amount owed to the insurance chance of flooding in any given year, as designated by the provider from the escrow account by the date when such Director of FEMA. premiums are due. (1) Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and Section 22.6—Required use of standard flood an assignment of the loan to the person advancing the hazard determination form. funds. (a) Use of form. A bank shall use the standard flood hazard Section 22.3—Requirement to purchase flood determination form developed by the Director of FEMA insurance where available. (as set forth in Appendix A of 44 C.F.R. Part 65) when determining whether the building or mobile home offered (a) In general. A bank shall not make, increase, extend, or as collateral security for a loan is or will be located in a renew any designated loan unless the building or mobile special flood hazard area in which flood insurance is availhome and any personal property securing the loan is cov- able under the Act. The standard flood hazard determinaered by flood insurance for the term of the loan. The tion form may be used in a printed, computerized, or amount of insurance must be at least equal to the lesser of electronic manner. the outstanding principal balance of the designated loan or (b) Retention of form. A bank shall retain a copy of the the maximum limit of coverage available for the particular completed standard flood hazard determination form, in type of property under the Act. Flood insurance coverage either hard copy or electronic form, for the period of time under the Act is limited to the overall value of the property the bank owns the loan. securing the designated loan minus the value of the land on which the property is located. Section 22.7—Forced placement of flood insurance. (b) Table funded loans. A bank that acquires a loan from a mortgage broker or other entity through table funding shall If a bank, or a servicer acting on behalf of the bank, be considered to be making a loan for the purposes of this determines at any time during the term of a designated loan part. that the building or mobile home and any personal property securing the designated loan is not covered by flood insur- Section 22.4—Exemptions. ance or is covered by flood insurance in an amount less than the amount required under section 22.3, then the bank The flood insurance requirement prescribed by section 22.3 or its servicer shall notify the borrower that the borrower does not apply with respect to: should obtain flood insurance, at the borrower's expense, (a) Any State-owned property covered under a policy of in an amount at least equal to the amount required under self-insurance satisfactory to the Director of FEMA, who section 22.3, for the remaining term of the loan. If the publishes and periodically revises the list of States falling borrower fails to obtain flood insurance within 45 days within this exemption; or after notification, then the bank or its servicer shall pur- (b) Property securing any loan with an original principal chase insurance on the borrower's behalf. The bank or its balance of $5,000 or less and a repayment term of one year servicer may charge the borrower for the cost of premiums or less. and fees incurred in purchasing the insurance. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

938 Federal Reserve Bulletin • October 1996 Section 22.8—Determination fees. (4) A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home caused by flooding in a Feder- (a) General. Notwithstanding any Federal or State law ally declared disaster. other than the Flood Disaster Protection Act of 1973 as (c) Timing of notice. The bank shall provide the notice amended (42 U.S.C. 4001-4129), any bank, or a servicer required by paragraph (a) of this section to the borrower acting on behalf of the bank, may charge a reasonable fee within a reasonable time before the completion of the for determining whether the building or mobile home setransaction, and to the servicer as promptly as practicable curing the loan is located or will be located in a special after the bank provides notice to the borrower and in any flood hazard area. A determination fee may also include, event no later than the time the bank provides other similar but is not limited to, a fee for life-of-loan monitoring. notices to the servicer concerning hazard insurance and (b) Borrower fee. The determination fee authorized by taxes. Notice to the servicer may be made electronically or paragraph (a) of this section may be charged to the bormay take the form of a copy of the notice to the borrower. rower if the determination: (d) Record of receipt. The bank shall retain a record of the (1) Is made in connection with a making, increasing, receipt of the notices by the borrower and the servicer for extending, or renewing of the loan that is initiated by the the period of time the bank owns the loan. borrower; (e) Alternate method of notice. Instead of providing the (2) Reflects the Director of FEMA's revision or updating notice to the borrower required by paragraph (a) of this of floodplain areas or flood-risk zones; section, a bank may obtain satisfactory written assurance (3) Reflects the Director of FEMA's publication of a from a seller or lessor that, within a reasonable time before notice or compendium that: the completion of the sale or lease transaction, the seller or (i) Affects the area in which the building or mobile lessor has provided such notice to the purchaser or lessee. home securing the loan is located; or The bank shall retain a record of the written assurance (ii) By determination of the Director of FEMA, may from the seller or lessor for the period of time the bank reasonably require a determination whether the buildowns the loan. ing or mobile home securing the loan is located in a (f) Use of prescribed form of notice. A bank will be special flood hazard area; or considered to be in compliance with the requirement for (4) Results in the purchase of flood insurance coverage notice to the borrower of this section by providing written by the bank or its servicer on behalf of the borrower notice to the borrower containing the language presented in under section 22.7. Appendix A to this part within a reasonable time before the (c) Purchaser or transferee fee. The determination fee completion of the transaction. The notice presented in authorized by paragraph (a) of this section may be charged Appendix A to this part satisfies the borrower notice reto the purchaser or transferee of a loan in the case of the quirements of the Act. sale or transfer of the loan. Section 22.10—Notice of servicer's identity. Section 22.9—Notice of special flood hazards and availability of Federal disaster relief assistance. (a) Notice requirement. When a bank makes, increases, (a) Notice requirement. When a bank makes, increases, extends, renews, sells, or transfers a loan secured by a extends, or renews a loan secured by a building or a mobile building or mobile home located or to be located in a home located or to be located in a special flood hazard special flood hazard area, the bank shall notify the Director area, the bank shall mail or deliver a written notice to the of FEMA (or the Director's designee) in writing of the borrower and to the servicer in all cases whether or not identity of the servicer of the loan. The Director of FEMA flood insurance is available under the Act for the collateral has designated the insurance provider to receive the bank's securing the loan. notice of the servicer's identity. This notice may be pro- (b) Contents of notice. The written notice must include the vided electronically if electronic transmission is satisfacfollowing information: tory to the Director of FEMA's designee. (1) A warning, in a form approved by the Director of (b) Transfer of servicing rights. The bank shall notify the FEMA, that the building or the mobile home is or will Director of FEMA (or the Director's designee) of any be located in a special flood hazard area; change in the servicer of a loan described in paragraph (a) (2) A description of the flood insurance purchase re- of this section within 60 days after the effective date of the quirements set forth in section 102(b) of the Flood change. This notice may be provided electronically if elec- Disaster Protection Act of 1973, as amended (42 U.S.C. tronic transmission is satisfactory to the Director of 4012a(b)); FEMA's designee. Upon any change in the servicing of a (3) A statement, where applicable, that flood insurance loan described in paragraph (a) of this section, the duty to coverage is available under the NFIP and may also be provide notice under this paragraph (b) shall transfer to the available from private insurers; and transferee servicer. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 939 Appendix A to Part 22—Sample Form of Notice of relief assistance in the event of a Federally declared flood Special Flood Hazards and Availability of Federal disaster. Disaster Relief Assistance PART 208—MEMBERSHIP OF STATE BANKING We are giving you this notice to inform you that: The INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM building or mobile home securing the loan for which you (REGULATION H) have applied is or will be located in an area with special 1. The authority citation for Part 208 is revised to read as flood hazards. The area has been identified by the Director follows: of the Federal Emergency Management Agency (FEMA) as a special flood hazard area using FEMA's Flood Insur- Authority. 12 U.S.C. 36, 248(a), 248(c), 321-338a, 37Id, ance Rate Map or the Flood Hazard Boundary Map for the 461, 481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, following community: . 183lp-1, 3105, 3310, 3331-3351 and 3906-3909; This area has a one percent (1%) chance of a flood equal to 15 U.S.C. 78b, 781(b), 781(g), 781(i), 78o-4(c)(5), 78q, or exceeding the base flood elevation (a 100-year flood) in 78q-l, and 78w; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, any given year. During the life of a 30-year mortgage loan, 4104b, 4106, and 4128. the risk of a 100-year flood in a special flood hazard area is 26 percent (26%). Federal law allows a lender and bor- Section 208.8(e) [Removed and Reserved] rower jointly to request the Director of FEMA to review the determination of whether the property securing the loan 2. In section 208.8, paragraph (e) is removed and reserved, is located in a special flood hazard area. If you would like and APPENDIX A— SAMPLE NOTICES is removed. to make such a request, please contact us for further information. 3. A new section 208.23 and its Appendix A are added at The community in which the property securing the the end of subpart A to read as follows: loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you Section 208.23—Loans in areas having special the loan that you have applied for if you do not purchase flood hazards. flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew (a) Purpose and scope—(1) Purpose. The purpose of this flood insurance on the property, Federal law authorizes and section is to implement the requirements of the National requires us to purchase the flood insurance for you at your Flood Insurance Act of 1968 and the Flood Disaster expense. Protection Act of 1973, as amended (42 U.S.C. 4001- • Flood insurance coverage under the NFIP may be 4129). purchased through an insurance agent who will obtain the (2) Scope. This section, except for paragraphs (f) and (h) policy either directly through the NFIP or through an of this section, applies to loans secured by buildings or insurance company that participates in the NFIP. Flood mobile homes located or to be located in areas deterinsurance also may be available from private insurers that mined by the Director of the Federal Emergency Mando not participate in the NFIP. agement Agency to have special flood hazards. Para- • At a minimum, flood insurance purchased must cover graphs (f) and (h) of this section apply to loans secured the lesser of. by buildings or mobile homes, regardless of location. (1) The outstanding principal balance of the loan; or (b) Definitions. (1) Act means the National Flood Insur- (2) The maximum amount of coverage allowed for the ance Act of 1968, as amended (42 U.S.C. 4001-4129). type of property under the NFIP. (2) Building means a walled and roofed structure, other Flood insurance coverage under the NFIP is limited to than a gas or liquid storage tank, that is principally the overall value of the property securing the loan minus above ground and affixed to a permanent site, and a the value of the land on which the property is located. walled and roofed structure while in the course of con- • Federal disaster relief assistance (usually in the form struction, alteration, or repair. of a low-interest loan) may be available for damages (3) Community means a State or a political subdivision incurred in excess of your flood insurance if your commu- of a State that has zoning and building code jurisdiction nity's participation in the NFIP is in accordance with NFIP over a particular area having special flood hazards. requirements. (4) Designated loan means a loan secured by a building Flood insurance coverage under the NFIP is not or mobile home that is located or to be located in a available for the property securing the loan because the special flood hazard area in which flood insurance is community in which the property is located does not available under the Act. participate in the NFIP. In addition, if the non-participating (5) Director of FEMA means the Director of the Federal community has been identified for at least one year as Emergency Management Agency. containing a special flood hazard area, properties located in (6) Mobile home means a structure, transportable in one the community will not be eligible for Federal disaster or more sections, that is built on a permanent chassis and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

940 Federal Reserve Bulletin • October 1996 designed for use with or without a permanent foundation (e) Escrow requirement. If a state member bank requires when attached to the required utilities. The term mobile the escrow of taxes, insurance premiums, fees, or any other home does not include a recreational vehicle. For pur- charges for a loan secured by residential improved real poses of this section, the term mobile home means a estate or a mobile home that is made, increased, extended, mobile home on a permanent foundation. The term or renewed after October 1, 1996, the state member bank mobile home includes a manufactured home as that term shall also require the escrow of all premiums and fees for is used in the NFIR any flood insurance required under paragraph (c) of this (7) NFIP means the National Flood Insurance Program section. The state member bank, or a servicer acting on its authorized under the Act. behalf, shall deposit the flood insurance premiums on (8) Residential improved real estate means real estate behalf of the borrower in an escrow account. This escrow upon which a home or other residential building is account will be subject to escrow requirements adopted located or to be located. pursuant to section 10 of the Real Estate Settlement Proce- (9) Servicer means the person responsible for: dures Act of 1974 (12 U.S.C. 2609) (RESPA), which gener- (i) Receiving any scheduled, periodic payments from ally limits the amount that may be maintained in escrow a borrower under the terms of a loan, including accounts for certain types of loans and requires escrow amounts for taxes, insurance premiums, and other account statements for those accounts, only if the loan is charges with respect to the property securing the loan; otherwise subject to RESPA. Following receipt of a notice and from the Director of FEMA or other provider of flood (ii) Making payments of principal and interest and insurance that premiums are due, the state member bank, any other payments from the amounts received from or a servicer acting on its behalf, shall pay the amount the borrower as may be required under the terms of owed to the insurance provider from the escrow account by the loan. the date when such premiums are due. (10) Special flood hazard area means the land in the (f) Required use of standard flood hazard determination flood plain within a community having at least a one form— percent chance of flooding in any given year, as desig- (1) Use of form. A state member bank shall use the nated by the Director of FEMA. standard flood hazard determination form developed by (11) Table funding means a settlement at which a loan is the Director of FEMA (as set forth in Appendix A of funded by a contemporaneous advance of loan funds and 44 C.F.R. Part 65) when determining whether the buildan assignment of the loan to the person advancing the ing or mobile home offered as collateral security for a funds. loan is or will be located in a special flood hazard area in (c) Requirement to purchase flood insurance where which flood insurance is available under the Act. The available— standard flood hazard determination form may be used (1) In general. A state member bank shall not make, in a printed, computerized, or electronic manner. increase, extend, or renew any designated loan unless (2) Retention of form. A state member bank shall retain a the building or mobile home and any personal property copy of the completed standard flood hazard determinasecuring the loan is covered by flood insurance for the tion form, in either hard copy or electronic form, for the term of the loan. The amount of insurance must be at period of time the bank owns the loan. least equal to the lesser of the outstanding principal (g) Forced placement of flood insurance. If a state member balance of the designated loan or the maximum limit of bank, or a servicer acting on behalf of the bank, determines coverage available for the particular type of property at any time during the term of a designated loan that the under the Act. Flood insurance coverage under the Act is building or mobile home and any personal property securlimited to the overall value of the property securing the ing the designated loan is not covered by flood insurance or designated loan minus the value of the land on which the is covered by flood insurance in an amount less than the property is located. amount required under paragraph (c) of this section, then (2) Table funded loans. A state member bank that ac- the bank or its servicer shall notify the borrower that the quires a loan from a mortgage broker or other entity borrower should obtain flood insurance, at the borrower's through table funding shall be considered to be making a expense, in an amount at least equal to the amount required loan for the purposes of this section. under paragraph (c) of this section, for the remaining term (d) Exemptions. The flood insurance requirement pre- of the loan. If the borrower fails to obtain flood insurance scribed by paragraph (c) of this section does not apply with within 45 days after notification, then the state member respect to: bank or its servicer shall purchase insurance on the borrow- (1) Any State-owned property covered under a policy of er's behalf. The state member bank or its servicer may self-insurance satisfactory to the Director of FEMA, charge the borrower for the cost of premiums and fees who publishes and periodically revises the list of States incurred in purchasing the insurance. falling within this exemption; or (h) Determination fees—(1) General. Notwithstanding any (2) Property securing any loan with an original principal Federal or State law other than the Flood Disaster Probalance of $5,000 or less and a repayment term of one tection Act of 1973, as amended (42 U.S.C. 4001-4129), year or less. any state member bank, or a servicer acting on behalf of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 941 the bank, may charge a reasonable fee for determining the borrower and in any event no later than the time the whether the building or mobile home securing the loan bank provides other similar notices to the servicer conis located or will be located in a special flood hazard cerning hazard insurance and taxes. Notice to the serarea. A determination fee may also include, but is not vicer may be made electronically or may take the form limited to, a fee for life-of-loan monitoring. of a copy of the notice to the borrower. (2) Borrower fee. The determination fee authorized by (4) Record of receipt. The state member bank shall retain paragraph (h)(1) of this section may be charged to the a record of the receipt of the notices by the borrower and borrower if the determination: the servicer for the period of time the bank owns the (i) Is made in connection with a making, increasing, loan. extending, or renewing of the loan that is initiated by (5) Alternate method of notice. Instead of providing the the borrower; notice to the borrower required by paragraph (i)(l) of (ii) Reflects the Director of FEMA's revision or updat- this section, a state member bank may obtain satisfacing of floodplain areas or flood-risk zones; tory written assurance from a seller or lessor that, within (iii) Reflects the Director of FEMA's publication of a a reasonable time before the completion of the sale or notice or compendium that: lease transaction, the seller or lessor has provided such (A) Affects the area in which the building or mobile notice to the purchaser or lessee. The state member bank home securing the loan is located; or shall retain a record of the written assurance from the (B) By determination of the Director of FEMA, seller or lessor for the period of time the bank owns the may reasonably require a determination whether loan. the building or mobile home securing the loan is (6) Use of prescribed form of notice. A state member located in a special flood hazard area; or bank will be considered to be in compliance with the (iv) Results in the purchase of flood insurance cover- requirement for notice to the borrower of this paraage by the lender or its servicer on behalf of the graph (i) by providing written notice to the borrower borrower under paragraph (g) of this section. containing the language presented in Appendix A to this (3) Purchaser or transferee fee. The determination fee section within a reasonable time before the completion authorized by paragraph (h)(1) of this section may be of the transaction. The notice presented in Appendix A charged to the purchaser or transferee of a loan in the to this section satisfies the borrower notice requirements case of the sale or transfer of the loan. of the Act. (i) Notice of special flood hazards and availability of (j) Notice of servicer's identity—(1) Notice requirement. Federal disaster relief assistance— When a state member bank makes, increases, extends, (1) Notice requirement. When a state member bank renews, sells, or transfers a loan secured by a building or makes, increases, extends, or renews a loan secured by a mobile home located or to be located in a special flood building or a mobile home located or to be located in a hazard area, the bank shall notify the Director of FEMA special flood hazard area, the bank shall mail or deliver a (or the Director's designee) in writing of the identity of written notice to the borrower and to the servicer in all the servicer of the loan. The Director of FEMA has cases whether or not flood insurance is available under designated the insurance provider to receive the state the Act for the collateral securing the loan. member bank's notice of the servicer's identity. This notice may be provided electronically if electronic trans- (2) Contents of notice. The written notice must include mission is satisfactory to the Director of FEMA's desigthe following information: nee. (i) A warning, in a form approved by the Director of (2) Transfer of servicing rights. The state member bank FEMA, that the building or the mobile home is or will shall notify the Director of FEMA (or the Director's be located in a special flood hazard area; designee) of any change in the servicer of a loan de- (ii) A description of the flood insurance purchase scribed in paragraph (j)(l) of this section within 60 days requirements set forth in section 102(b) of the Flood after the effective date of the change. This notice may be Disaster Protection Act of 1973, as amended provided electronically if electronic transmission is satis- (42 U.S.C. 4012a(b)); factory to the Director of FEMA's designee. Upon any (iii) A statement, where applicable, that flood insurchange in the servicing of a loan described in paraance coverage is available under the NFIP and may graph (j)(l) of this section, the duty to provide notice also be available from private insurers; and under this paragraph (j)(2) shall transfer to the transferee (iv) A statement whether Federal disaster relief assisservicer. tance may be available in the event of damage to the building or mobile home caused by flooding in a Federally declared disaster. Appendix A to Section 208.23—Sample Form of (3) Timing of notice. The state member bank shall pro- Notice Notice of Special Flood Hazards and vide the notice required by paragraph (i)(l) of this Availability of Federal Disaster Relief Assistance section to the borrower within a reasonable time before the completion of the transaction, and to the servicer as We are giving you this notice to inform you that: promptly as practicable after the bank provides notice to The building or mobile home securing the loan for which Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

942 Federal Reserve Bulletin • October 1996 you have applied is or will be located in an area with of bank holding companies to allow a bank holding comspecial flood hazards. The area has been identified by the pany (and its bank and nonbank subsidiaries) to purchase, Director of the Federal Emergency Management Agency in a fiduciary capacity, securities of an investment com- (FEMA) as a special flood hazard area using FEMA's pany advised by the bank holding company if the purchase Flood Insurance Rate Map or the Flood Hazard Boundary is specifically authorized by the terms of the instrument Map for the following community: . creating the fiduciary relationship, by court order, or by the This area has a one percent (1%) chance of a flood equal to law of the jurisdiction under which the trust is adminisor exceeding the base flood elevation (a 100-year flood) in tered. This amendment would reflect changes that have any given year. During the life of a 30-year mortgage loan, occurred since the rule was adopted; and would conform the risk of a 100-year flood in a special flood hazard area is the Board's interpretive rule to rules applied to banks by 26 percent (26%). Federal law allows a lender and bor- the Federal Deposit Insurance Corporation and the Office rower jointly to request the Director of FEMA to review of the Comptroller of the Currency, and the standard in the determination of whether the property securing the loan section 23B of the Federal Reserve Act for this type of is located in a special flood hazard area. If you would like activity. to make such a request, please contact us for further information. Effective September 30, 1996, 12 C.F.R. Part 225 is amended as follows: The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you Part 225—Bank Holding Companies and Change in the loan that you have applied for if you do not purchase Bank Control (Regulation Y) flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew 1. The authority citation for 12 C.F.R. Part 225 continues flood insurance on the property, Federal law authorizes and to read as follows: requires us to purchase the flood insurance for you at your expense. Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-l, • Flood insurance coverage under the NFIP may be 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331purchased through an insurance agent who will obtain the 3351,3907, and 3909. policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood 2. Section 225.125 is amended by revising paragraph (g) to insurance also may be available from private insurers that read as follows: do not participate in the NFIP. • At a minimum, flood insurance purchased must cover Section 225.125—Investment adviser activities. the lesser of: (1) the outstanding principal balance of the loan; or (2) the maximum amount of coverage allowed for the (g) In view of the potential conflicts of interests that may type of property under the NFIP. exist, a bank holding company and its bank and nonbank Flood insurance coverage under the NFIP is limited to subsidiaries should not: the overall value of the property securing the loan minus (1) Purchase for their own account securities of any the value of the land on which the property is located. investment company for which the bank holding com- • Federal disaster relief assistance (usually in the form pany acts as investment adviser; of a low-interest loan) may be available for damages (2) Purchase in their sole discretion, any such securities incurred in excess of your flood insurance if your commu- in a fiduciary capacity (including as managing agent) nity's participation in the NFIP is in accordance with NFIP unless the purchase is specifically authorized by the requirements. terms of the instrument creating the fiduciary relation- Flood insurance coverage under the NFIP is not ship, by court order, or by the law of the jurisdiction available for the property securing the loan because the under which the trust is administered; community in which the property is located does not (3) Extend credit to any such investment company; or participate in the NFIP. In addition, if the non-participating (4) Accept the securities of any such investment comcommunity has been identified for at least one year as pany as collateral for a loan which is for the purpose of containing a special flood hazard area, properties located in purchasing securities of the investment company. the community will not be eligible for Federal disaster relief assistance in the event of a Federally declared flood disaster. ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT Orders Issued Under Section 3 of the Bank Holding Company Act FINAL RULE—AMENDMENT TO REGULATION Y The Board of Governors is adopting a final rule amending First Merchants Corporation its interpretive rule regarding investment adviser activities Muncie, Indiana Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 943 Order Approving the Acquisition of a Bank Holding tory institution in the Muncie banking market, controlling Company deposits of $62.8 million, representing approximately 4.4 percent of market deposits. After consummation of the First Merchants Corporation, Muncie, Indiana ("First Merproposal, First Merchants would control deposits of apchants"), a bank holding company within the meaning of proximately $509.7 million, representing approximately the Bank Holding Company Act ("BHC Act"), has re- 36 percent of market deposits. The Herfindahl-Hirschman quested the Board's approval under section 3 of the BHC Index ("HHI") for the Muncie banking market would Act (12 U.S.C. § 1842) to merge with Randolph County increase by 281 points to 2184. Consummation of the Bancorp ("Randolph"), and thereby acquire its wholly proposal, therefore, would exceed the threshold levels of owned subsidiary bank, Randolph County Bank ("Ranmarket concentration as measured by the HHI under the dolph Bank"), both in Winchester, Indiana. Department of Justice Merger Guidelines.4 Notice of the proposal, affording interested persons an The Board believes that several factors in the Muncie opportunity to submit comments, has been published banking market mitigate the potential anticompetitive ef- (61 Federal Register 31,941 (1996)). The time for filing fects of the proposal. For example, eight other competitors comments has expired, and the Board has considered the would remain in the market, including three relatively proposal and all comments received in light of the factors large out-of-state banking organizations, each with total set forth in section 3(c) of the BHC Act. deposits of more than $2 billion. In addition, three of the First Merchants is the 14th largest commercial banking eight other competitors, including one of the large out-oforganization in Indiana, controlling deposits of approxi- state banking organizations, would each control at least mately $596 million, representing approximately 1.1 per- 9 percent of total deposits in depository institutions in the cent of total deposits in commercial banking organizations market. in Indiana.1 Randolph is the 88th largest commercial bank- The Muncie banking market also has several characterising organization in Indiana, controlling approximately tics that make it attractive for entry. Deposit growth in the $63.4 million in deposits, representing less than 1 percent Muncie Metropolitan Statistical Area ("MSA") has subof total deposits in commercial banking organizations in stantially exceeded the average deposit growth in Indiana's the state. On consummation of the proposal, First Mer- other MSAs during recent years, and recent job growth in chants would become the 13th largest commercial banking the market has been substantial.5 The Muncie MSA also organization in Indiana and control approximately has recently experienced both de novo entry and entry by $659.4 million in deposits, representing approximately 1.2 acquisition,6 and a large interstate banking organization percent of total deposits in commercial banking organiza- has announced its intention to enter the Muncie banking tions in the state. market. Indiana's interstate and branch banking laws, moreover, permit both statewide branching and interstate Competitive Considerations banking, and, therefore, present low legal barriers to entry into the Muncie banking market for in-state and out-of- First Merchants's subsidiary bank, First Merchants Bank, state banking organizations.7 The Department of Justice National Association, Muncie ("Merchants Bank"), and has reviewed the proposal and advised the Board that Randolph Bank compete directly in the Muncie banking consummation of the proposal would not likely have any market ("Muncie banking market").2 Merchants Bank is significantly adverse competitive effects in this or any the largest depository institution in the Muncie banking relevant banking market.8 market, controlling deposits of approximately $446.9 million, representing approximately 31.6 percent of total deposits in depository institutions in the market ("market deposits").3 Randolph Bank is the eighth largest deposi- 4. Under the revised Department of Justice Merger Guidelines, 49 Federal Register 26823 (June 29, 1984), a market in which the post-merger HHI is above 1800 is considered to be highly concen- 1. State deposit data are as of December 31, 1995, and market share trated. The Department of Justice has informed the Board that a bank data are as of June 30, 1995. merger or acquisition generally will not be challenged (in the absence 2. The Muncie banking market is approximated by Delaware and of other factors indicating anticompetitive effects) unless the post- Randolph Counties in Indiana, excluding Washington and Greensfork merger HHI is at least 1800 and the merger increases the HHI by more townships; Licking and Jackson townships in Blackford County, Indi- than 200 points. The Department of Justice has stated that the higher ana; and Jackson township in Darke County, Ohio. than normal HHI thresholds for screening bank mergers for anticom- 3. In this context, depository institutions include commercial banks, petitive effects implicitly recognize the competitive effect of limitedsavings banks, and savings associations. Market share data are based purpose lenders and other nondepository financial entities. on a calculation in which the deposits of thrift institutions are included 5. One recent study ranked the Muncie metropolitan area first at 50 percent. The Board previously has indicated that thrift institu- among 50 similarly sized metropolitan areas in terms of job creation tions have become, or have the potential to become, significant in the United States. competitors of commercial banks. See WM Bancorp, 76 Federal 6. Michigan's third largest bank entered the market de novo in 1995, Reserve Bulletin 788 (1990); National City Corporation, 70 Federal and entry by acquisition occurred in 1994 and 1995. Reserve Bulletin 743 (1984). Thus, the Board has regularly included 7. Indiana Code Annotated §§ 28-2-13-19 and 28-2-16-15 (Burns thrift deposits in the calculation of market share on a 50-percent 1996). weighted basis. See, e.g., First Hawaiian Inc., 11 Federal Reserve 8. The Office of the Comptroller of the Currency and the Federal Bulletin 52 (1991). Deposit Insurance Corporation have not objected to the proposal. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

944 Federal Reserve Bulletin • October 1996 Based on these and all the facts of record, the Board InterWest is the ninth largest depository institution in concludes that consummation of the proposal is not likely Washington, controlling deposits of approximately to have a significantly adverse effect on competition or on $833 million, representing approximately 1.6 percent of the concentration of banking services in the Muncie bank- total deposits in depository institutions in Washington.1 ing market or any other relevant market. In light of all the Central is the 3 2d largest depository institution in Washingfacts of record, the Board also concludes that the financial ton, controlling approximately $178 million in deposits, and managerial resources and future prospects of First representing less than 1 percent of total deposits in deposi- Merchants and Randolph and their respective subsidiaries tory institutions in the state. On consummation of the are consistent with approval, as are considerations relating proposal, InterWest would become the seventh largest to the convenience and needs of the community to be commercial banking organization in Washington, and conserved and other supervisory factors the Board must con- trol approximately $1 billion in deposits, representing apsider under the BHC Act. proximately 2 percent of total deposits in depository insti- For these reasons, and in light of all the other facts of tutions in the state. record, the Board has determined that the application should be, and hereby is, approved. The Board's approval Competitive Considerations is expressly conditioned on First Merchants' compliance with all the commitments made in connection with the InterWest's subsidiary savings bank, Interwest Savings application. The commitments relied on by the Board in Bank, Oak Harbor, Washington ("Savings Bank"), and reaching this decision shall be deemed to be conditions Central's commercial bank subsidiaries, Central Washingimposed in writing by the Board in connection with its ton Bank, Wenatchee, Washington ("Central Washingfindings and decision, and, as such, may be enforced in ton"), and North Central Washington Bank, Omak, Washproceedings under applicable law. ington ("North Central"), compete directly in the The merger with Randolph shall not be consummated Washington banking markets of Wenatchee ("Wenatchee before the fifteenth calendar day following the effective banking market"), Omak-Okanogan ("Omak-Okanogan date of this order or later than three months after the banking market"), and Chelan ("Chelan banking mareffective date of this order, unless such period is extended ket").2 Consummation of the proposal would not exceed for good cause by the Board or by the Federal Reserve the threshold levels of market concentration3 as measured Bank of Chicago, acting pursuant to delegated authority. by the Herfindahl-Hirschman Index ("HHI") under the By order of the Board of Governors, effective Department of Justice Merger Guidelines in the Wenatchee August 28, 1996. banking market.4 Voting for this action: Chairman Greenspan, and Governors Lindsey, Phillips, Yellen, and Meyer. Absent and not voting: Vice Chair Rivlin and Governor Kelley. 1. Deposit and market share data are as of June 30, 1995, adjusted for mergers and acquisitions that were consummated as of April 30, WILLIAM W. WILES 1996. In this context, depository institutions include commercial Secretary of the Board banks, savings banks, and savings associations. 2. The Wenatchee banking market is approximated by the towns of InterWest Bancorp, Inc. Wenatchee, East Wenatchee, Leavenworth, Cashmere, and Waterville, Washington. The Omak-Okanogan banking market is approximated Oak Harbor, Washington by the towns of Omak, Okanogan, Oroville, Tonasket, Twisp, and Winthrop, Washington. The Chelan banking market is approximated Order Approving the Acquisition of a Bank Holding by the towns of Manson and Chelan, Washington. Company 3. Market share data are based on a calculation in which the deposits of thrift institutions are included at 50 percent. The Board previously has indicated that thrift institutions have become, or have InterWest Bancorp, Inc., Oak Harbor ("InterWest"), a the potential to become, significant competitors of commercial banks. bank holding company within the meaning of the Bank See WM Bancorp, 76 Federal Reserve Bulletin 788 (1990); National Holding Company Act ("BHC Act"), has requested the City Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of Board's approval under section 3 of the BHC Act market share on a 50-percent weighted basis. See, e.g., First Hawaiian (12 U.S.C. § 1842) to merge with Central Bancorporation, Inc., 77 Federal Reserve Bulletin 52 (1991). Wenatchee ("Central"), and thereby indirectly acquire its 4. The HHI for the Wenatchee banking market would increase by wholly owned subsidiary banks, Central Washington Bank, 145 points to 1987. Under the revised Department of Justice Merger Wenatchee, and North Central Washington Bank, Omak, Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger HHI is above 1800 is considered to be highly all in Washington. concentrated. The Department of Justice has informed the Board that a Notice of the proposal, affording interested persons an bank merger or acquisition generally will not be challenged (in the opportunity to submit comments, has been published absence of other factors indicating anticompetitive eifects) unless the (61 Federal Register 21,183 (1996)). The time for filing post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the comments has expired, and the Board has considered the higher than normal HHI thresholds for screening bank mergers for proposal and all comments received in light of the factors anticompetitive eifects implicitly recognize the competitive effect of set forth in section 3(c) of the BHC Act. limited-purpose lenders and other nondepository financial entities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 945 These thresholds, however, would be exceeded in the effects of the proposal should be considered on the basis of Omak-Okanogan and Chelan banking markets.5 The Board IPC deposits. When analyzed on the basis of IPC deposits, notes that HHI levels are only guidelines that are used by the HHI for deposits in the Omak-Okanogan banking marthe Board, the Department of Justice, and the other bank- ket would increase 172 points to 1757, and Interwest ing agencies to help identify cases in which a more detailed would control 24.3 percent of IPC deposits after consumcompetitive analysis is appropriate to assure that the pro- mation of the proposal. posal would not have a significantly adverse effect on Barriers to entry into these markets are relatively low competition in any relevant market. A proposal that fails to because Washington law permits banks to branch statewide pass the HHI market screen may nonetheless be approved without restriction. The Chelan banking market, in particubecause other information may indicate that the proposal lar, has characteristics that make it attractive for entry by would not have a significantly adverse effect on competi- an out-of-market firm. The population of the Chelan banktion. The Department of Justice has reviewed the proposal ing market increased by 15.9 percent from 1990 to 1994, and advised the Board that consummation of the proposal while the population for the entire state increased by would not likely have any significantly adverse competi- 9.8 percent. tive effects in these or any relevant Washington banking Based on these and all the facts of record, the Board market.6 concludes that consummation of the proposal is not likely The Board also believes that several factors in the Omak- to have a significantly adverse effect on competition or on Okanogan and Chelan markets mitigate the potential anti- the concentration of banking services in the Omakcompetitive effects of the proposal. The Board believes that Okanogan or Chelan banking markets or any other relevant a calculation of the HHI based on total market deposits market. The Board also concludes in light of all the facts of does not accurately reflect the competitive effects of this record that the financial and managerial resources and proposal in these markets. In addition, numerous competi- future prospects of InterWest and Central and their respectors would remain in both banking markets after consum- tive subsidiaries are consistent with approval, as are conmation of the proposal. In the Omak-Okanogan banking siderations relating to the convenience and needs of the market, seven depository institutions would remain, includ- community to be served and other supervisory factors the ing three large regional commercial banking organizations Board must consider under the BHC Act.9 each with more than 10 percent of market deposits. In the For these reasons, and in light of all the other facts of Chelan banking market, four depository institution compet- record, the Board has determined that the application itors would remain, including two large bank holding com- should be, and hereby is, approved. The Board's approval panies that would control more than 34 percent and is expressly conditioned on InterWest's compliance with 24 percent of market deposits, respectively. all the commitments made in connection with the applica- The record indicates that governmental deposits of local tion. The commitments relied on by the Board in reaching political subdivisions represent a majority of the deposits this decision shall be deemed to be conditions imposed in held by Interwest in the Omak-Okanogan banking market. writing by the Board in connection with its findings and These types of deposits may be volatile because they decision, and, as such, may be enforced in proceedings generally are short-term, subject to competitive bidding, under applicable law. and usually can be used to fund only short-term loans. The The transactions shall not be consummated before the Board previously has determined that individual, partner- fifteenth calendar day following the effective date of this ship, and corporation ("IPC") deposits may be the proper order, or later than three months after the effective date of focus for the competitive analysis of markets in which this order, unless such period is extended for good cause by government deposits constitute a relatively large share of the Board or by the Federal Reserve Bank of San Frantotal market deposits.7 In the Omak-Okanogan banking cisco, acting pursuant to delegated authority. market, 62.6 percent of InterWest's deposits are non-IPC By order of the Board of Governors, effective deposits, compared with market-wide non-IPC deposits of August 12, 1996. approximately 9.4 percent.8 In light of these and all the facts of record, the Board concludes that the competitive 5. The HHI would increase for the Omak-Okanogan banking market by 397 points to 1875, and for the Chelan banking market by 211 points to 2981. 9. Interwest proposes to operate Savings Bank's branches, which 6. The Office of the Comptroller of the Currency and the Federal are insured by the Savings Association Insurance Fund, in tandem Deposit Insurance Corporation ("FDIC") have not objected to the with the branches of Central's subsidiary banks, which are insured by proposal. the Bank Insurance Fund. The FDIC has determined generally that 7. See Banco Popular de Puerto Rico, 79 Federal Reserve Bulletin tandem operations of the type proposed are consistent with restrictions 979 (1993); CNB Bancshares, Inc., 80 Federal Reserve Bulletin 538 on a "conversion transaction" under the Federal Deposit Insurance (1994). Act (12 U.S.C. § 1815), see FDIC Press Release 47-96 (July 1, 1996). 8. On average, non-IPC deposits account for approximately InterWest has proposed steps to ensure that deposit transfers by 6.4 percent of total deposits in banks in the United States. These data customers are voluntary and to inform customers that the depository are as of June 30, 1995. subsidiaries of InterWest and Central are separate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

946 Federal Reserve Bulletin • October 1996 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and cation by a bank holding company to acquire control of a Governors Kelley, Phillips, and Meyer. Absent and not voting: Gover- bank located in a state other than the home state of such nors Lindsey and Yellen. bank holding company, if certain conditions are met. For purposes of the BHC Act, the home state of KeyCorp is JENNIFER J. JOHNSON Ohio.3 As noted above, KeyCorp would establish a de novo Deputy Secretary of the Board bank in New Hampshire. The conditions for an interstate acquisition under section 3(d) are met in this case.4 In view KeyCorp of all the facts of record, the Board is permitted to approve Cleveland, Ohio the proposal under section 3(d) of the BHC Act. Order Approving the Acquisition of a Bank Competitive Considerations Section 3 of the BHC Act prohibits the Board from approv- KeyCorp, Cleveland, Ohio ("KeyCorp"), a bank holding ing an application if the proposal would result in a monopcompany within the meaning of the Bank Holding Comoly, or would substantially lessen competition in any relepany Act ("BHC Act"), and its wholly owned subsidiary, vant market unless such anticompetitive effects are clearly Key Bancorp of New Hampshire, Inc., Bedford, New outweighed in the public interest by the probable effects of Hampshire, have requested the Board's approval under the transaction in meeting the convenience and needs of section 3 of the BHC Act (12 U.S.C. § 1842) to acquire the community to be served. KeyCorp currently does not Key Bank, Bedford, New Hampshire ("Key Bank"), a de operate an insured depository institution in New Hampnovo state-chartered bank. shire. Based on all the facts of record, the Board concludes Notice of the proposal, affording interested persons an that consummation of the proposal would not have any opportunity to submit comments, has been published significantly adverse effects on competition or the concen- (61 Federal Register 26,181 (1996)).1 The time for filing tration of banking resources in any relevant banking marcomments has expired, and the Board has considered the ket. Accordingly, the Board concludes that competitive proposal and all comments received in light of the factors considerations are consistent with approval. set forth in section 3 of the BHC Act. KeyCorp, with total consolidated assets of $66.3 billion, Other Factors under the BHC Act operates subsidiary banks in 13 states. KeyCorp is the tenth largest commercial banking organization in the United The BHC Act also requires the Board to consider the States, controlling 1.7 percent of total United States bankfinancial and managerial resources and future prospects of ing assets, and is the third largest commercial banking the companies and banks involved, the convenience and organization in Ohio, controlling approximately $13.2 bilneeds of the community to be served, and certain other lion in deposits, representing 13.4 percent of all deposits in supervisory factors. commercial banking organizations in the state.2 KeyCorp also engages in a number of permissible nonbanking activ- A. Supervisory Factors ities throughout the United States. The Board has carefully considered the financial and man- Interstate Analysis agerial resources and future prospects of KeyCorp and its subsidiaries, as well as other supervisory factors in light of Section 3(d) of the BHC Act, as amended by section 101 of all the facts of record. These facts include supervisory the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, allows the Board to approve an appli- 3. Pub. L. No. 103-328, 108 Stat. 2338 (1994). A bank holding company's home state is the state in which the operations of the bank 1. Inner City Press/Community on the Move ("Protestant") con- holding company's banking subsidiaries were principally conducted tends that notice of the proposal was required under the Board's Rules on July 1, 1966, or the date on which the company became a bank of Procedure to be published in Albany, New York. The Board's Rules holding company, whichever is later. of Procedure provide for newspaper publication in the "community or 4. See 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) communities in which the head offices of the largest subsidiary bank, and (B). KeyCorp is adequately capitalized and adequately managed. if any, or an applicant and of each bank, shares of which are to be The New Hampshire Banking Department has determined that Key directly or indirectly acquired, are located in the case of applications Bank is not subject to the minimum charter age requirements under under section 3 of the Bank Holding Company Act." 12 C.F.R. current New Hampshire law because the transaction was authorized 262.3(b)(l)(ii)(E). The record indicates that Key Bancorp of New and approved before New Hampshire law was amended to impose a Hampshire, Inc., a New Hampshire corporation, initially was char- minimum age requirement. In addition, on consummation of the tered as a non-operating company located in Albany, New York, but proposal, KeyCorp and its affiliates would control less than 10 percent subsequently moved its headquarters to New Hampshire. Accordingly, of the total amount of deposits of insured depository institutions in the KeyCorp's publication of notice of the proposal in newspapers of United States, and less than 20 percent of the total amount of deposits general circulation on April 26, 1996, in appropriate areas in Ohio and of insured depository institutions in New Hampshire, as required by New Hampshire complied with the Board's Rules of Procedure. state law. The New Hampshire Banking Department approved Key- 2. U.S. banking asset data are as of March 31, 1996. State deposit Corp 's petition to organize a de novo bank, and has issued a Certifidata are as of June 30, 1995. cate to Affiliate to KeyCorp. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 947 reports of examination assessing the financial and manage- tion, the Board considers an institution's policies and pracrial resources of the organizations and confidential finan- tices for compliance with applicable fair lending laws. The cial information provided by KeyCorp. Based on these and Board also takes into account information on an instituall other facts of record, the Board concludes that all the tion's lending activities that assist in meeting the credit supervisory factors under the BHC Act, including financial needs of low- and moderate-income neighborhoods, inand managerial considerations, weigh in favor of approv- cluding programs and activities initiated since its most ing the proposal.5 recent CRA performance examination.10 Performance Examinations. All of KeyCorp's subsid- B. Convenience and Needs Factor iary banks, including the banks conducting the banking activities in the areas discussed in Protestant's comments, The Board has long held that consideration of the conve- received a CRA performance rating of "satisfactory" or nience and needs factor includes a review of the records of "outstanding" in their most recent evaluations for CRA the relevant depository institutions under the Community performance by their primary federal supervisors (collec- Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA"). As tively, "CRA Examinations").11 In particular, Key Bankprovided in the CRA, the Board has evaluated this factor in NY, Key Bank-OR, Society-OH, Society-IN, and light of examinations by the primary federal supervisors of Society-MI received "outstanding" ratings from their prithe CRA performance records of the relevant institutions. mary federal supervisors.12 Key Bank-WA was rated "sat- The Board also has carefully considered comments from isfactory" by the Federal Deposit Insurance Corporation Protestant contending that branch closings by KeyCorp's ("FDIC") at its most recent CRA performance evaluation. subsidiary banks have adversely affected access to credit The examinations of the particular KeyCorp subsidiary and banking services in low-to-moderate income ("LMI") banks that were the primary focus of Protestant's comcommunities located in several states.6 Protestant also ar- ments generally found that the community delineations for gues that KeyCorp's reported plan to close up to 40 percent the banks were reasonable and did not exclude any LMI of its traditional brick and mortar branches over the next neighborhoods.13 In general, examiners also concluded that four to five years would disproportionately disadvantage the geographic distribution of credit demonstrated reason- LMI areas. In addition, Protestant criticizes the record of able penetration of all segments of each bank's communilending of several of KeyCorp's subsidiary banks in LMI ties, including LMI neighborhoods. None of the banks was areas and areas with predominantly African-American pop- found to have engaged in illegal credit practices or praculations7 by citing housing-related loan data filed under the Home Mortgage Disclosure Act (12 U.S.C. § 2801 et seq.) ("HMDA") for a number of metropolitan areas.8 provides that a CRA examination is an important and often controlling factor in the consideration of an institution's CRA record and that An institution's most recent CRA performance evaluareports of these examinations will be given great weight in the tion is a particularly important consideration in the applicaapplications process. 54 Federal Register 13,742, 13,745 (1989). tions process because it represents a detailed on-site evalu- 10. Protestant argues that KeyCorp's examinations should be acation of the institution's overall record of performance corded little weight because they are outdated. As noted, the Board under the CRA by its primary federal supervisor.9 In addi- has considered all the information of record since the performance examinations of KeyCorp's subsidiary banks, including information provided by Protestant and KeyCorp. The Board has also considered supervisory information from the primary federal supervisors of the 5. Protestant alleges that KeyCorp management improperly paid for subsidiary banks, particularly when the most recent examination of a a flight for the New York State Tax Commissioner from Cleveland to KeyCorp subsidiary bank indicated areas to be addressed to improve Albany in May, 1996. KeyCorp states that it has billed the Commis- its performance. sioner's office for the cost of passage on the flight which had been 11. The CRA ratings for all of KeyCorp's subsidiary banks are set scheduled to transport KeyCorp employees from Cleveland to Albany. forth in Appendix A. KeyCorp also owns Key Bank USA, N.A., 6. In particular, Protestant alleges that specific branch closings and Cleveland, Ohio ("Key Bank USA"), which was chartered in Septemconsolidations in Indiana and Ohio in 1995 and 1996 eliminated ber 1995 and has not been examined for CRA performance. Protestant convenient banking alternatives in a number of communities. Protes- maintains that the bank's recent designation as a limited purpose bank tant believes that the criteria that these banks have used to determine under the new CRA regulations was in error. See 60 Federal Register whether a branch should be closed have a disparate impact on LMI 22,156 (1995). This designation was made by the Office of the areas and communities with predominantly minority populations. Comptroller of the Currency ("OCC"), the primary federal supervisor 7. These banks include Key Bank of New York, Albany, New York of Key Bank USA, under 12 C.F.R. 25.25(b) and is not reviewable by ("Key Bank-NY"), Key Bank of Washington, Tacoma, Washington the Board. ("Key Bank-WA"), Key Bank of Oregon, Portland, Oregon ("Key 12. Key Bank-NY also received an "outstanding" rating for CRA Bank-OR"), Society National Bank, Cleveland, Ohio ("Society- performance from the New York State Banking Department OH"), Society National Bank, South Bend, Indiana ("Society-IN"), ("NYSBD") as of December 31, 1995. Protestant contends that this and Society Bank, Ann Arbor, Michigan ("Society-MI"). examination should be given little weight because it was conducted 8. Data for KeyCorp's subsidiary banks cited by Protestant include off-site. The Board has considered information provided by the data from the following metropolitan areas: Albany, Buffalo, Roches- NYSBD examination, which assesses the bank's compliance under ter, Syracuse, Binghamton, and New York City, all in New York; section 28-b of the New York Banking Law, as well as information Seattle and Tacoma, both in Washington; Portland and Salem, both in provided by the FDIC's on-site examination. Oregon; Detroit, Michigan; Bloomington, Indianapolis and Elkhart- 13. FDIC examiners concluded that Key Bank-WA had inconsis- Goshen, all in Indiana; and Cincinnati, Ohio. tently applied the bank's methodology for delineating its service 9. The Board notes that the Statement of the Federal Financial community. The Board has considered the bank's new delineated Supervisory Agencies Regarding the Community Reinvestment Act community in light of supervisory information provided by the FDIC. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

948 Federal Reserve Bulletin • October 1996 tices that discourage applications for credit.14 Examiners KeyBank National Association ("KeyBank, N.A."), paralso determined that the banks' ascertainment efforts were ticipates in special lending programs in Ohio, Michigan, effective, and marketing activities sufficiently informed all and Indiana involving loan pools, entrepreneurial groups, residents of banks' delineated community of its available housing partnerships and other local, state, and federal banking products and services. Examiners indicated that all programs.15 In Ohio, KeyBank, N.A., provides financing the banks offered some programs to support affordable for the Microloan Initiative Fund for women-owned busihousing and small business lending in their communities nesses, participates in programs with the Coalition for and that all the banks participated to some extent in federal Community Reinvestment Group, and offers its Businessand local government-sponsored loan programs. These ex- Assist Program, which assists in paying the Small Business aminations, moreover, found that many of the banks were Administration guarantee fee. In Indiana, KeyBank, N.A., actively involved in community development lending pro- participates in projects with Habitat for Humanity, Elkhart grams with local nonprofit organizations or community Housing Partnership, Noblesville Housing Association, and development corporations. Corporation for Entrepreneurial Development. KeyCorp has developed several products on the corpo- Key Bank-WA and Key Bank-OR also participate in rate level to help meet the credit and banking service needs programs offered with community reinvestment associaof LMI customers. KeyCorp's Home Assist program offers tions, small business associations, and affordable housing mortgages with a lower downpayment and the ability to organizations. For example, examiners noted that Key finance closing costs. Under this program, an approved Bank-WA, is a founding member of the Washington Comapplicant is eligible to receive a contribution from the bank munity Reinvestment Association, a nonprofit mortgage of up to 2 percent of the purchase price of a home, up to a banking consortium that assists in providing affordable maximum of $1,000. A related corporate product called housing to LMI individuals throughout the state. Key LoanAssist helps customers establish or improve credit Bank-OR offers the Federal Home Administration histories. ("FHA") Title I Home Improvement program and the KeyCorp's subsidiary banks also locally develop and bank's own Basic Home Repair Loan Program.16 participate in special lending programs that reflect the HMDA Data. The Board has carefully reviewed HMDA unique credit needs of particular communities. Each sub- data cited by Protestant to support its contention that sidiary bank has several specialized programs designed to certain of KeyCorp's subsidiary banks have inadequate and improve its lending to LMI and minority communities. For discriminatory lending records. These data show that in example, Key Bank-NY has committed permanent mort- some respects, such as in the percentage of applications gage financing for Affordable Housing Projects in several received from and loans made to African-American applicities in New York and has developed the Key Affordable cants, KeyCorp's performance is comparable to or exceeds Mortgage Program in conjunction with the New York State the performance of lenders in the aggregate in a significant Commissioner of Housing to provide homeownership op- number of the metropolitan areas analyzed by Protestant. portunities for LMI individuals. In April 1994, Key In other respects, however, the data show disparities in Bank-NY introduced the Key to the City program that application and denial rates to African-American loan aprequired only a $500 down payment for the purchase of a plicants as compared to white applicants in certain marone-to-four family residential dwelling located in an LMI kets.17 census tract. Through May 1995, Key Bank-NY originated The Board is concerned when the record of an institution approximately $50 million in mortgages under the Key to indicates such disparities in lending, and believes that all the City product. In addition, in January 1994, Key Bank-NY committed $20 million to the Key to Ownership program offered with New York state's Home Ownership 15. In the first half of 1996, Society-OH, Society-IN, and Development Program and the State of New York Mort- Society-MI merged to form KeyBank, N.A. gage Agency's Mortgage Insurance Fund. The Key to 16. The Basic Home Repair Loan Program supplements the FHA Ownership program has a $5,000 minimum loan amount, program and focuses on low-income individuals who have little or no equity in their homes but need to improve basic functions, such as terms up to 30 years, flexible underwriting standards, and electrical wiring and plumbing. reduced downpayment and closing costs. 17. Protestant claims that KeyCorp's mortgage lending has declined and, consequently, that KeyCorp is no longer committed to serving the mortgage credit needs of its communities. The Board notes that KeyCorp's subsidiary banks continue to provide housing-related 14. The KeyCorp-WA examination noted weaknesses in the bank's loans, including loans to LMI neighborhoods. The Board has reprocedures for fair lending law compliance, including reviews of all viewed KeyCorp's HMDA data for 1994 and 1995 for areas in which denied applications, and in the bank's ability to retrieve denied loan KeyCorp's mortgage lending has declined. In New York, for example, files. The examiners found that there was no indication of prohibited the Board notes that mortgage lending by all HMDA-reporting lenders discriminatory or other illegal credit practices, but noted that record- in Key Bank-NY's delineated community also declined during this keeping deficiencies prevented the completion of their assessment. period. In addition, the Board notes that the CRA does not require KeyCorp-WA has initiated steps to improve its fair lending law banks to provide any specific type of loan product, participate in any compliance, including a second review process for initially denied specific type of loan program, or allocate any particular level of housing-related loan applications, and other steps to address examin- resources to any such product or program. As discussed, KeyCorp's ers' comments. The Board has reviewed these steps in light of subsidiary banks provide a variety of products and programs to meet supervisory information from the FDIC. the housing-related credit needs of LMI communities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 949 banks are obligated to ensure that their lending practices Branch Closings. Protestant maintains that KeyCorp's are based on criteria that assure not only safe and sound branch closings have adversely affected access to credit lending, but also assure equal access to credit by creditwor- and banking services, particularly in Indiana and Ohio.20 thy applicants regardless of race. The Board recognizes, KeyCorp indicates that Society-IN has not closed or conhowever, that HMDA data alone provide an incomplete solidated any branches in LM1 neighborhoods since its measure of an institution's lending in its community be- 1995 examination. Examiners concluded that the eight cause these data cover only a few categories of housing- branches closed during the two years preceding the 1995 related lending and provide limited information about the examination had not adversely affected overall access to covered loans.18 HMDA data, therefore, have limitations the bank's loan products.21 Society-IN's branch closing that make the data an inadequate basis, absent other infor- policy required management to consider the impact of a mation, for concluding that an institution has engaged in proposed closure or reduction in services on the commuillegal discrimination in lending. nity, customers, and employees. Before a final decision on Because of the limitations of HMDA data, the Board has closure was made, the proposal was reviewed by the bank's carefully reviewed other information such as the examina- local Advisory Board and the Community Investment tions reports of the banks' primary supervisors. As noted, Committee. the CRA examinations found none of the KeyCorp's sub- Society-OH has closed or consolidated 31 branches with sidiary banks engaged in practices that would discourage five branches located in LMI neighborhoods during the individuals from applying for credit. In addition, KeyCorp period January 1, 1994, to May 31, 1996. Examiners has initiated a number of steps to ensure compliance with reviewed the bank's closure of 12 branches and automated fair lending laws. For example, Key Corp has implemented teller machines ("ATMs") for the two-year period preceda second review of denied loan applications in many of its ing the examination, and the proposed closure of banks to ensure that consistent loan decisions are made. 14 branches and one ATM at the time of the examination, The second review generally is conducted before a final and concluded that these closures had not and would not decision when denial of a mortgage application is recom- adversely impact LMI areas. Examiners also considered mended. In addition, examiners noted in the CRA Exami- Society-OH's record of opening and closing branches nations that management of all of KeyCorp's subsidiary within its communities to be very strong and noted that its banks had implemented training and compliance programs Community Development Department was involved in the to support fair and equal treatment of loan applicants.19 beginning if a proposed branch closing affected an LMI area.22 The Board also has considered Protestant's comments 18. For example, these data do not provide a basis for an indepen- regarding KeyCorp's reported plan—independent of the dent assessment of whether an applicant who was denied credit was in proposed transaction under review in this case—to close fact creditworthy. Thus, credit history problems and excessive debt branches over a four to five year period. This case involves levels relative to income—reasons most frequently cited for a credit denial—are not available from the HMDA data. the establishment by KeyCorp of a new bank in New 19. Protestant alleges that 1994 HMDA data reported by Key Hampshire. KeyCorp currently does not operate any banks Bank-NY, Key Bank-WA, and Key Bank-OR reflect illegal pre- or branches in New Hampshire, and KeyCorp proposes to screening because of the extremely high approval rates for home open seven new branches to serve communities in New purchase loans to minorities in certain MSAs. KeyCorp denies that it Hampshire.23 The Board notes, moreover, that any prohas engaged in illegal pre-screening and believes that the data issues raised by Protestant result from the operations of its former mortgage subsidiary, KeyCorp Mortgage Inc. ("KMI"), which was sold in 1995. Data reported by Key Bank-NY reflect coding errors for loans 20. Protestant disputes KeyCorp's determination that certain cessamade under one special loan program by KMI in 1994. In essence, tions of branch operations were branch consolidations, which do not incorrect computer coding of these items caused applications under require advanced notice, instead of branch closings, which do require this program that were denied, withdrawn, closed for incompleteness, advanced notice. Protestant also disputes KeyCorp's interpretation of or approved but not accepted to be deleted from the relevant HMDA the Joint Policy Statement on Branch Closings (58 Federal Register Loan Application Register ("LAR"). Key Bank-NY also inadver- 49,083 (1993)), with respect to the distinction between consolidations tently reported loans under this special program as originations in- and closings set forth in the statement. The OCC is conducting an stead of purchases in its HMDA LAR. KeyCorp has and undertaken on-site CRA examination of KeyBank, N.A.. which serves Ohio and steps to improve the accuracy of its HMDA data reporting. For Indiana. The Board has considered Protestant's comments in light of example, in 1995, KeyCorp implemented significant enhancements to information provided by the OCC. and information made public by its programming systems and centralized all HMDA data processing KeyCorp in connection with the proposal that indicates that advance at the parent holding company. KeyCorp also states that the three notice was provided regardless of whether the cessation in branch banks cited by Protestant may have had high approval rates because operations was categorized as a consolidation or a closing. many loans and applications resulted from an accommodation loan 21. Examiners also noted that Society-IN initiated discussions with program with KMI. Under this program, if a loan application did not some city officials and community leaders on potential new inner-city meet secondary market guidelines, KMI, as an accommodation for its branch sites in LMI areas and alternative delivery systems. affiliate banks, would offer the banks the opportunity to originate the 22. Branch closings by other KeyCorp banks discussed in Protesloan. This practice ended with the sale of KMI and KeyCorp's tant's comments are reviewed in Appendix B. subsidiary banks now originate their loans directly. The Board also 23. Protestant criticizes KeyCorp's plan to open seven supermarket has provided Protestant's comments and KeyCorp's responses regard- branches by noting that no supermarket is located in an LMI commuing HMDA data reporting to the banks' primary federal supervisor, nity and by arguing that such smaller automated facilities disproporthe FDIC, to consider in conducting its scheduled on-site examina- tionately exclude LMI communities and businesses. KeyCorp states tions of the banks in October 1996. that three of Key Bank's proposed supermarket branches are located Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

950 Federal Reserve Bulletin • October 1996 jected branch closings by KeyCorp's subsidiary banks Board's approval is expressly conditioned on compliance would be reviewed by its primary federal supervisors dur- by KeyCorp with all the commitments made in connection ing CRA examinations and by the Board in future applica- with the proposal and with the conditions referred to in this tions. order. For purposes of this action, the commitments and Conclusion on Convenience and Needs Factor. The conditions relied on by the Board in reaching this decision Board has carefully considered the entire record in its are deemed to be conditions imposed in writing and, as review of the convenience and needs factor under the BHC such, may be enforced in proceedings under applicable Act. Based on all the facts of record, including information law. provided by Protestant and KeyCorp, relevant reports of This proposal shall not be consummated before the fif- CRA evaluations of performance and other supervisory teenth calendar day following the effective date of this information from the banks' regulators, the Board con- order or later than three months following the effective date cludes that the efforts of KeyCorp to help meet the credit of this order, unless such period is extended for good cause needs of all segments of the communities served, including by the Board or by the Federal Reserve Bank of Cleveland, residents of low- and moderate-income areas, are consis- acting pursuant to delegated authority. tent with approval. Since KeyCorp currently does not By order of the Board of Governors, effective August 5, operate any banks or branches in New Hampshire, the 1996. proposal under review would have a positive effect on the convenience and needs of the New Hampshire communi- Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and ties by providing a new banking alternative. In this light, Governors Kelley, Phillips, and Meyer. Absent and not voting: Goverthe Board concludes that convenience and needs consider- nors Lindsey and Yellen. ations, including the CRA performance records of Key- Corp's subsidiary banks, are consistent with approval.24 JENNIFER J. JOHNSON Deputy Secretary of the Board Conclusion Appendix A Based on the foregoing and all other facts of record, including all the commitments made by KeyCorp in connection with the proposal, the Board has determined that Bank Rating Supervisor Date the application should be, and hereby is, approved.25 The Key Bank Alaska, Anchorage, Alaska outstanding FDIC June 27, 1994 Key Bank Colorado, Ft Collins, Colorado ssaattiissffaaccttoorryy FDIC Oct. 28, 1994 within three miles of 19 of the 24 LMI census tracts in New Hamp- Key Bank Idaho, shire. In addition, KeyCorp notes that these supermarket branches Boise, Idaho oouuttssttaannddiinngg FDIC Mar. 28, 1994 would be full-service branches offering the same products and ser- Key Bank New York, vices offered at traditional branches, including deposit and loan prod- Albany, New York outstanding FDIC Oct. 4, 1994 Key Bank Maine, ucts. Portland, Maine outstanding FDIC July 19, 1994 24. Protestant maintains that negative comments in the public CRA Key Bank Oregon, files at certain KeyCorp banks, and KeyCorp's responses which Portland, Oregon outstanding FDIC June 27, 1994 Key Bank Utah, Protestant considers to be inadequate, raise adverse considerations for Salt Lake City, Utah outstanding FDIC Feb. 7, 1994 KeyCorp's CRA record. The Board believes that these isolated com- Key Bank Vermont, ments are outweighed by all the facts of record relating to KeyCorp's Burlington, Vermont outstanding FDIC AAuugg.. 3300,, 11999944 Key Bank Washington, CRA performance. In addition, the Board notes that such comments Tacoma, Washington satisfactory FDIC Nov. 8, 1993 and responses by the bank are reviewed by the bank's primary federal Key Bank Wyoming, regulator as part of the examination process in assessing the institu- Cheyenne, Wyoming outstanding FDIC May 23, 1994 Key Savings Bank, tion's CRA performance record. Vancouver, Washington ... satisfactory FDIC Dec. 12, 1994 25. Protestant requested that the Board hold a public hearing or Society National Bank,1 public meeting. Section 3(b) of the BHC Act does not require the Cleveland, Ohio oouuttssttaannddiinngg occ Mar. 23, 1994 Board to hold a public hearing or meeting on an application unless the Society Bank,1 Ann Arbor, Michigan outstanding FDIC Nov. 15, 1993 appropriate supervisory authority for the bank to be acquired makes a Society National Bank,1 timely written recommendation of denial of the application. In this South Bend, Indiana outstanding occ Mar. 31, 1995 case, the New Hampshire Banking Department has not recommended denial. 1. These banks were merged in 1995 to form KeyBank National Association, Under the Board's rules, the Board may, in its discretion, hold a Cleveland, Ohio. public hearing or meeting on an application to clarify factual issues related to the application and to provide an opportunity for testimony, Appendix B if appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has carefully considered Protestant's request in light of all the facts of Branch Closings by Key Bank-NY record. Protestant has had ample opportunity to submit its views and has, in fact, submitted substantial materials that have been considered by the Board in acting on the application. Protestant does not indicate According to KeyCorp, Key Bank-NY has closed or conwhat, if any, additional views would be expressed at a public hearing solidated 18 branches with 5 branches located in LMI or meeting, or why its written submission does not adequately present the views of its members. Based on all the facts of record, the Board has determined that public or private hearings or meetings are not case, and, accordingly, the request for public hearings or meetings on necessary to clarify the factual record or otherwise warranted in this the applications are denied. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 951 neighborhoods from January 1, 1994, to May 31, 1996. become a bank holding company by acquiring Marine Examiners reviewed the bank's closure of 20 branches in National Bank, Irvine, California ("Marine"). the 18 months preceding the 1994 examination, and noted Notice of the proposal, affording interested persons an that the bank had opened and closed numerous offices as a opportunity to submit comments, has been published result of the acquisition of two institutions in 1993. Exam- (60 Federal Register 67,137 (1995)). The time for filing iners found that Key Bank-NY had established written comments has expired, and the Board has considered the policies and procedures covering branch openings and application and all comments received in light of the closings, which include the requirements of federal law factors set forth in section 3 of the BHC Act. and specify individual responsibilities for all personnel Shinhan, with total assets equivalent to approximately involved in branch closings. $22.7 billion, is the 11th largest banking organization in Korea.1 Shinhan also operates a branch in New York, New Branch Closings by Key Bank-ME York. Marine controls $94.3 million in deposits, representing less than 1 percent of total deposits in banks and thrifts KeyCorp indicates that Key Bank-ME has closed or con- in California.2 Shinhan and Marine do not compete in any solidated 16 branches with 5 branches located in LMI relevant banking market. Accordingly, the Board conneighborhoods from January 1, 1994, to May 31, 1996.1 cludes that consummation of this proposal would not have KeyCorp also indicates that many of these closures and a significantly adverse effect on competition or the concenconsolidations were in connection with Key Bank-ME's tration of banking resources in any relevant banking marmerger with Casco Northern Bank. Examiners reviewed ket. the bank's closure of 5 branches in the two years preceding Under section 3 of the BHC Act, as amended by the the 1994 examination, and noted that in all cases it appears Foreign Bank Supervision Enhancement Act of 1991,3 the that the bank reviewed all possible options prior to actually Board may not approve an application involving a foreign closing the branches and complied with federal regula- bank unless the bank is "subject to comprehensive supervitions. Examiners found that Key Bank-ME decided against sion or regulation on a consolidated basis by the appropriclosing one branch office as a result of receiving strong ate authorities in the bank's home country."4 The Board support from the community to keep the branch open. In has previously determined, in applications under the Interaddition, examiners noted that the bank's branch closing national Banking Act (12 U.S.C. § 3101 et seq.) (the policy meet the requirements of federal law. "IBA"), that certain Korean commercial banks were subject to comprehensive consolidated supervision by their Branch closings by Key Bank-WA home country authorities.5 In this case, the Board has determined that Shinhan is supervised on substantially the KeyCorp indicates that Key Bank-WA has closed or con- same terms and conditions as the other Korean commercial solidated 21 branches with 8 branches located in LMI banks. Based on all the facts of record, the Board has neighborhoods from January 1, 1994, to May 31, 1996. concluded that Shinhan is subject to comprehensive super- Examiners reviewed the bank's closure of 16 branches in vision and regulation on a consolidated basis by its home the three years preceding the 1993 examination, and noted country supervisors. that all branches closed involved a facility which was The BHC Act also requires the Board to determine that within one half mile of another full service Key Bank-WA the foreign bank has provided adequate assurances that it branch. Examiners also noted that the bank appeared to will make available to the Board such information on its consider the possible elfects of any reduction in banking operations and activities and those of its affiliates that the services prior to closing branches and that the bank adopted Board deems appropriate to determine and enforce complia branch closing policy in conformance with federal law. ance with the BHC Act. The Board has reviewed the Shinhan Bank Seoul, Korea 1. Asset and ranking data are as of December 31, 1995, and employ the exchange rate then in effect. 2. Deposit data are as of December 31, 1995. Order Approving the Formation of a Bank Holding 3. Pub. L. No. 102-242, § 201 et seq., 105 Stat. 2286 (1991). Company 4. 12 U.S.C. § 1842(c)(3)(B). As provided in Regulation Y, the Board determines whether a foreign bank is subject to consolidated home country supervision under the standards set forth in Regula- Shinhan Bank, Seoul, Korea ("Shinhan"), has requested tion K (International Banking Operations). 12C.F.R. 225.13(b)(5). the Board's approval under section 3 of the Bank Holding Regulation K provides that a foreign bank may be considered subject Company Act (12 U.S.C. § 1842(a)) ("BHC Act") to to consolidated supervision if the Board determines that the bank is supervised or regulated in such a manner that its home country supervisor receives sufficient information on the worldwide operations of the foreign bank, including the relationship of the bank to its affiliates, to assess the foreign bank's overall financial condition and 1. Key Bank-ME has applied to the FDIC to establish and relocate compliance with law and regulation. 12 C.F.R. 211.24(c)(l)(ii). branches in Maine. Protestant has objected to these applications and 5. See Donghwa Bank, 81 Federal Reserve Bulletin 744 (1995), Cho maintains that these actions do not constitute relocations. Protestant's Hung Bank, 81 Federal Reserve Bulletin 475 (1995), KorAm Bank, 80 comments are under consideration by the FDIC. Federal Reserve Bulletin 184 (1994) ("KorAm"). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

952 Federal Reserve Bulletin • October 1996 restrictions on disclosure in jurisdictions where Shinhan Orders Issued Under Section 4 of the Bank Holding has material operations and has communicated with the Company Act relevant government authorities concerning access to information. Shinhan has committed that, to the extent not CNB Financial Corp. prohibited by applicable law, it will make available to the Canajoharie, New York Board such information on the operations of Shinhan and any of its affiliates that the Board deems necessary to Order Approving a Notice to Engage in Certain determine and enforce compliance with the BHC Act, the Investment Advisory Activities IBA, and other applicable federal law. Shinhan also has committed to cooperate with the Board to obtain any CNB Financial Corp., Canajoharie, New York ("CNB"), a waivers or exemptions that may be necessary in order to bank holding company within the meaning of the Bank enable Shinhan to make any such information available to Holding Company Act ("BHC Act"), has applied for the the Board. In light of these commitments and other facts of Board's approval under section 4(c)(8) of the BHC Act record,6 the Board has concluded that Shinhan has pro- (12 U.S.C. § 1843(c)(8)) and section 225.23 of Regulavided adequate assurances of access to any appropriate tion Y (12 C.F.R. 225.23) to establish and retain all the information the Board may request. For these reasons, and voting shares of Central Asset Management, Inc., also of based on all the facts of record, the Board has concluded Canajoharie, New York ("Company"), and thereby engage that the supervisory factors the Board is required to con- de novo in providing portfolio investment advisory sersider under section 3 of the BHC Act are consistent with vices, including discretionary investment management serapproval. vices to institutional customers, and general economic ad- The Board also has concluded that considerations relat- vice pursuant to sections 225.25(b)(4)(iii) and (iv) of ing to the financial and managerial resources7 and future Regulation Y. CNB also proposes to provide discretionary prospects of Shinhan and its subsidiaries and Bank and the investment management services to customers who do not convenience and needs of the community to be served are qualify as institutional customers under Regulation Y.1 consistent with approval of this proposal, as are other Notice of the proposal, affording interested persons an supervisory factors. opportunity to submit comments, has been published Based on the foregoing and all the other facts of record, (61 Federal Register 31,942 (1996)). The time for filing the Board has determined that this application should be, comments has expired, and the Board has considered the and hereby is, approved. The Board's approval of this notice and all comments received in light of the factors set proposal is expressly conditioned on Shinhan's compliance forth in section 4(c)(8) of the BHC Act. with all the commitments made in connection with this CNB, with total consolidated assets of $583.4 million, application, and with the conditions in this order. For controls one commercial bank in New York.2 CNB has purposes of this action, these commitments and conditions committed to the Board that Company would be registered are deemed to be conditions imposed in writing by the as an investment adviser under the Investment Advisers Board in connection with its findings and decision and, as Act of 1940 (15 U.S.C. § 80b-1 et seq.) ("Investment such, may be enforced in proceedings under applicable Advisers Act") before engaging in any investment advilaw. sory activities. This transaction shall not be consummated before the Section 4(c)(8) of the BHC Act provides that a bank fifteenth calendar day following the effective date of this holding company may engage, with Board approval, in any order or later than three months after the effective date of activity that the Board determines to be "so closely related this order, unless such period is extended for good cause by to banking or managing or controlling banks as to be a the Board or by the Federal Reserve Bank of San Fran- proper incident thereto." The Board previously has detercisco, acting pursuant to delegated authority. mined that all of the proposed investment advisory activi- By order of the Board of Governors, effective ties are closely related to banking.3 August 19, 1996. In order to approve this notice, the Board also must find that the performance of the proposed activities by CNB Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and "can reasonably be expected to produce benefits to the Governors Kelley, Lindsey, Phillips, Yellen, and Meyer. public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair com- JENNIFER J. JOHNSON petition, conflicts of interests, or unsound banking prac- Deputy Secretary of the Board tices."4 As part of its evaluation of these factors, the Board considers the financial and managerial resources of the 6. The Board previously has reviewed relevant provisions of confidentiality, secrecy, and other laws in jurisdictions in which Shinhan has material operations. See KorAm; Bank of Tokyo, 81 Federal 1. 12 C.F.R. 225.2(g). Reserve Bulletin 279 (1995). 2. Asset data are as of March 31, 1996. 7. Shinhan's capital exceeds the minimum levels that would be 3. See 12 C.F.R. 225.25(b)(4)(iii) and (iv); and CoreStates Financial required under the Basle Capital Accord, and is considered equivalent Corp., 80 Federal Reserve Bulletin 644 (1994) ("CoreStates"). to the capital that would be required of a U.S. banking organization. 4. 12 U.S.C. § 1843(c)(8). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 953 notificant and its subsidiaries and the effect the transaction conditions set forth in this order, the Board has determined would have on such resources.5 Based on all the facts of that the notice should be, and hereby is, approved. The record, the Board concludes that financial and managerial Board's determination is subject to all the conditions set considerations are consistent with approval. forth in Regulation Y, including those in sections 225.7 and The Board expects that consummation of this proposal 225.23(b)(3) and (b)(7) of Regulation Y (12 C.F.R. 225.7 to engage de novo in these activities would result in greater and 225.25(b)(3) and (b)(7)), and to the Board's authority competition in the market for these services. In addition, to require modification or termination of the activities of a consummation of the proposal can reasonably be expected bank holding company or any of its subsidiaries as the to provide added convenience and services to CNB's cus- Board finds necessary to assure compliance with, and to tomers. CNB has stated that Company would be able to prevent evasion of, the provisions of the BHC Act and the make investment advisory services more accessible to cus- Board's regulations and orders issued thereunder. The tomers in the central New York region. Consummation of Board's decision is specifically conditioned on CNB's this proposal is unlikely to result in significantly adverse compliance with the commitments and representations effects, such as undue concentration of resources, de- made in connection with this notice, including the commitcreased or unfair competition, conflicts of interests, or ments and conditions discussed in this order. The commitunsound banking practices.6 Based on all the facts of ments, representations, and conditions relied on in reaching record, the Board finds that the public benefits of CNB's this decision shall be deemed to be conditions imposed in proposed activities outweigh any adverse effects, and, writing by the Board in connection with its findings and decision and may be enforced in proceedings under applitherefore, that the activities are a proper incident to bankcable law. ing for purposes of section 4(c)(8) of the BHC Act. Based on the foregoing and all the facts of record, This transaction shall not be consummated later than including the commitments discussed in this order and all three months after the effective date of this order, unless other commitments and representations made by CNB in such period is extended for good cause by the Board or the connection with this notice, and subject to the terms and Federal Reserve Bank of New York, acting pursuant to delegated authority. By order of the Board of Governors, effective 5. See 12 C.F.R. 225.24. August 12, 1996. 6. CNB has committed that, with two exceptions, Company will conduct these activities pursuant to the conditions and limitations specified in the Board's regulations and in CoreStates. In CoreStates, Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and the Board, in approving the provision of discretionary investment Governors Kelley, Phillips, and Meyer. Absent and not voting: Govermanagement services to non-institutional customers, relied on certain nors Lindsey and Yellen. commitments intended to mitigate any potential for abuse, conflicts of interest, or customer confusion. In this regard, CNB has committed JENNIFER J. JOHNSON that no investment transactions will be executed by Company on Deputy Secretary of the Board behalf of non-institutional customers through Company, CNB, or any affiliate of CNB; Company will not purchase, for discretionary invest- First State Bancshares of Blakely, Inc. ment advisory accounts, any securities for which CNB acts as underwriter, dealer, distributor, or placement agent, other than obligations of Blakely, Georgia the United States, unless directed to do so in writing by the customer prior to each such transaction and after disclosure of any such affili- Order Denying Acquisition of a Thrift Holding Company ated relationships involved in the particular transaction; fees charged by Company to its non-institutional customers for its discretionary investment advisory services will not be based on the number of First State Bancshares of Blakely, Inc., Blakely, Georgia account transactions executed; the services of Company will not be ("First State"), a bank holding company within the meanadvertised, promoted, or otherwise marketed through branches of ing of the Bank Holding Company Act ("BHC Act"), has CNB's depository institution subsidiaries; Company's affiliation with requested the Board's approval under section 4(c)(8) of the CNB will not be advertised or promoted, unless and to the extent required by law; Company, CNB, and affiliates of CNB will not share BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.23 of confidential information regarding their respective customers without the Board's Regulation Y (12 C.F.R. 225.23) to acquire the customer's consent; and Company's offices will not be located in, First Southwest Bancorp, Inc. ("Southwest"), and Southlocated in the same building as, or geographically proximate to any west's wholly owned thrift subsidiary, First Federal Savbranches of CNB's depository institution subsidiaries. CNB has reings Bank of Southwest Georgia ("FFSB"), both of Donalquested relief, however, from two other restrictions. In particular, CNB has proposed that its depository institution subsidiaries be per- sonville, Georgia, and thereby to engage in operating a mitted to refer non-institutional customers to Company, and that savings association. Company be permitted to have a name that is similar to the name of Notice of the proposal, affording interested persons an the existing depository institution subsidiary of CNB. To mitigate the opportunity to submit comments, has been published potential for customer confusion, CNB has committed that its depository institution subsidiaries will provide customers with oral and (61 Federal Register 33,920 (1996)). The time for filing written disclosures before making any referral to Company to enforce comments has expired, and the Board has considered the the understanding that Company and CNB's depository institution application and all comments received in light of the subsidiaries are separate and that products provided by Company are factors set forth in section 4(c)(8) of the BHC Act. uninsured. These disclosures are similar to those required in the Interagency Statement on the Retail Sale of Nondeposit Investment First State is the 138th largest depository institution in Products. I FRRS ^ 3-1579.51 and 3-1579.52. Georgia, controlling deposits of $69.8 million, represent- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

954 Federal Reserve Bulletin • October 1996 ing less than 1 percent of total deposits in depository analyzing the competitive effects of a proposal must reflect institutions in the state.' Southwest, with deposits of commercial and banking realities and should consist of the $69.6 million, is the 140th largest depository institution in local area where the depository institutions involved offer the state. On consummation of the proposal, First State their services and where local consumers can practicably would be the 62d largest depository institution in Georgia, turn for alternatives.5 In making a determination on the controlling total deposits of $139.4 million, representing geographic market in this case, the Board has considered less than 1 percent of the total deposits in depository worker commuting patterns (as indicated by census data), institutions in the state. shopping patterns, and other indicia of economic integra- The Board previously has determined by regulation that tion and the transmission of competitive forces among the operation of a savings association by a bank holding depository institutions.6 In addition, the Board has recompany is closely related to banking within the meaning viewed information from an on-site investigation of the of section 4(c)(8) of the BHC Act. 12 C.F.R. 225.25(b)(9). area conducted by Board staff and the Federal Reserve The Board requires savings associations acquired by bank Bank of Atlanta in connection with the proposal ("Federal holding companies to conform their direct and indirect Reserve Survey"). activities to those permissible for bank holding companies First State Bank is headquartered and FFSB's branch is under section 4 of the BHC Act and Regulation Y.2 located in Blakely, which is approximately 32 miles northeast of Dothan and connected to Dothan by a two-lane state Competitive Considerations highway. Blakely and Dothan are separated by the Chattahoochee River, and there is little commercial development Under section 4(c)(8) of the BHC Act, the Board is re- between the two towns. Traffic count data do not indicate a quired to consider whether a proposal is likely to result in significant amount of daily travel from Blakely to Dothan.7 any significant adverse effects, such as undue concentration In addition, commuting data from the 1990 US. Census of resources, decreased or unfair competition, conflicts of indicate that only approximately 4 percent of the resident interests, or unsound banking practices.3 The Board has work force in Early County commutes to the Dothan carefully considered First State's contentions that consum- Metropolitan Statistical Area ("MSA").8 Moreover, the mation of this proposal would not result in significantly Dothan Ranally Metro Area ("RMA") does not include adverse competitive effects because First State and FFSB do not provide the same types of banking products and services in Early County, Georgia ("Early County"), a rural county in southwest Georgia near the Alabama and Florida state lines. In addition, First State maintains that 5. See St. Joseph Valley Bank, 68 Federal Reserve Bulletin 673 the relevant geographic banking market for analyzing the (1982). The key question to be considered in making this selection "is not where the parties to the merger do business or even where they competitive effects of this proposal extends beyond Early compete, but where, within the area of competitive overlap, the effect County and includes the City of Dothan, which is the of the merger on competition will be direct and immediate." United county seat of Houston County, Alabama ("Dothan"). States v. Philadelphia Nat'I Bank, 374 U.S. at 357; United States v. In evaluating the competitive effects of a proposed trans- Phillipsburg Nat'I Bank, 399 U.S. 350 (1969). 6. First State discounts the value of commuting data for Early action, the Board must determine the appropriate product County and contends that data showing where Early County residents market and geographic market. Using the cluster of bank- regularly travel to obtain goods and services is more useful in defining ing products and services approximated by market depos- the relevant banking market. First State conducted an informal survey its, which is the traditional method for analyzing the com- of FFSB customers, which found that 44 percent of the 128 FFSB petitive effects of an acquisition of a depository institution,4 customers questioned believe Blakely, the county seat of Early County, is the most important town for their shopping and financial the Board concludes that consummation of this proposal needs, but that 30 percent selected Dothan. First State reports that would result in significantly adverse effects on competition 46 percent of the FFSB customers surveyed had banking relationships in the Early County banking market for the reasons dis- with one of the other financial institutions in Blakely, and 9 percent cussed below. had banking relationships with institutions in Dothan. First State also contends that Early County's small population and declining eco- The Board also concludes that the relevant banking nomic base require its residents to travel regularly to Dothan to obtain market does not include Dothan. The Board and the courts goods, services, and entertainment. To support this view. First State have found that the relevant geographic banking market for notes that Blakely does not have a major shopping center, sit-down restaurant, or movie theater and that all these facilities are available in Dothan. Dothan also has three college-level institutions, all of which 1. Deposit data are as of December 31, 1995. In this context, waive out-of-state tuition for residents of Early County. depository institutions include commercial banks, savings banks, and 7. The population of Early County is approximately 11,800 resisavings associations. dents. Data from the Georgia Department of Transportation for 1995 2. Southwest and FFSB currently do not engage in any activities indicate that approximately 2300 cars travel daily on state highway 62 that are not permissible for bank holding companies under the BHC from Blakely to Dothan. Assuming that not more than 50 percent of Act. the cars (1150) that drive through Blakely to get to Dothan are from 3. 12 U.S.C. § 1843(c)(8). counties surrounding Early County, approximately 10 percent of the 4. First Hawaiian, Inc., 79 Federal Reserve Bulletin 966, 966-68 residents (assuming one passenger per car) travel daily to Dothan. (1993); SouthTrust Corporation, 78 Federal Reserve Bulletin 710 8. MSAs are designated by the Office of Management and Budget (1992); see also United States v. Philadelphia Nat'I Bank, 374 U.S. and reflect some degree of economic integration. No part of Early 321, 357 (1963). County is included within the Dothan MSA. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 955 any portion of Early County or extend to the Alabama- and Dothan banking organizations is limited. Deposit rates Georgia line.9 paid by the banks in Early County appear to be alfected Basic shopping and medical facilities are available to primarily by rates offered by other institutions in the Early residents within Early County. For example, a grocery County banking market, and not by institutions in Dothan. store, small retail operations, farm supply and hardware In addition, Dothan-based institutions do not report acstores, car dealerships and 17 fast-food restaurants are tively seeking customers in Early County. Overall, Dothan located in Blakely. Medical services are provided by a is regarded as too distant to be considered a convenient or small hospital, six physicians, two dentists, and several cost-effective alternative source of banking services for pharmacies that are located in the county. In addition, most of Early County's residents and small business.13 Early County residents have a number of entertainment Based on all the facts of record, and for the reasons facilities, including video rental stores, several private discussed above, the Board concludes that the Early clubs, a swimming pool, and a ball park. Approximately 68 County banking market, an area that includes all of Early percent of the participants in a telephone survey conducted County except the town of Arlington, is the appropriate as part of the Federal Reserve Survey indicated that their geographic market for analyzing the competitive effects of regular shopping was done in the Early County area, pri- the proposal, and that Dothan should not be included in the marily Blakely, and only 28.3 percent of the participants relevant banking market. regularly shopped in Dothan.10 The Federal Reserve Survey also indicates that Early Competitive Effects in the Early County Banking Market County residents rely on financial institutions located in the county for banking services. A survey of Early County First State Bank is the largest of three depository instituresidents showed that 91 percent of Early County house- tions in the Early County banking market, controlling holds with depository institution accounts had their transac- $53.3 million of deposits, representing nearly 54 percent of tion accounts with in-market institutions. In addition, the total deposits in the market ("market deposits").14 84 percent of savings accounts and 78 percent of certifi- FFSB is the smallest of the three depository institutions in cates of deposit ("CDs") held by Early County residents the market, controlling deposits of $18.6 million, which are with the local banks and thrift. The Federal Reserve represents 9.4 percent of market deposits based on weight- Survey found that, by contrast, residents of Early County ing thrift deposits at 50 percent. On consummation, First do not use Dothan's financial institutions." Georgia state State would control total deposits of $71.9 million, reprelaw also limits a Georgia bank's ability to compete with senting more than 66 percent of market deposits. Only one other depository institutions located outside a particular depository institution would compete with First State in the county. In fact, until this year, Georgia banks were prohib- market.13 The market, as measured by the Herfindahlited from branching de novo in counties other than the Hirschman Index ("HHI"), would be highly concentrated. county where the main office of the bank was located.12 The HHI would increase by 1208 points to 5549, an Observations of bank practices and discussions with senior increase in concentration that would significantly exceed management of depository institutions in Early County and Dothan confirm that competition between Early County 9. RMA is a privately defined geographic locality that is demo- 13. The ability of residents to bank locally is important in view of graphically and economically integrated. The Board previously has the county's large proportion of low-income families, who are unfound RMA definitions to be useful guidelines in defining relevant likely to travel considerable distances for goods and services. Twogeographic markets. See, e.g., SouthTrust Corporation, 78 Federal thirds of Early County households have annual incomes of less than Reserve Bulletin 711 (1992). $25,000, and 27 percent of families have annual incomes below the 10. The Federal Reserve Survey also showed little evidence of poverty level. economic integration between the town of Arlington and Early 14. Market data are as of June 30, 1996. Market share data are based County. Arlington straddles the county line between Early and Cal- on calculations that include the deposits of the thrift institution at houn Counties and most of its residents live and work in Calhoun 50 percent. The Board previously has indicated that thrift institutions County. Arlington also is served by a different local telephone com- have become, or have the potential to become, significant competitors pany from the one that serves Early County, and Arlington residents of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin are not listed in the Early County telephone directory. Accordingly, in 743 (1984). Because the deposits of FFSB would be controlled by a light of all the facts of record, the Board concludes that Arlington commercial banking organization after consummation of the proposal, should be excluded from the definition of the Early County banking those deposits are included at 100 percent in the calculation of First market. State's pro forma market share. See Norwest Corporation, 78 Federal 11. Of the 81 households surveyed that reported having checking Reserve Bulletin 452 (1992); First Banks, Inc., 76 Federal Reserve accounts, only one maintained an account with an institution in Bulletin 669 (1990). Dothan; of the 82 savings and time deposit accounts maintained by the 15. First State contends that the remaining competitor, Bank of survey respondents, only one was held at an institution in Dothan. In Early, Blakely, Georgia, has an established record of aggressively addition, none of the respondents who reported obtaining a loan in the competing with First State across several major product lines. As a last five years received their loan from a Dothan-based institution. result of this proposal, however, First State Bank would control twice 12. Effective July 1, 1996, Georgia law was amended to permit the percentage of market deposits controlled by Bank of Early de novo branching into three non-contiguous counties. Statewide (66 percent of market deposits compared to 33 percent) and have three branching is authorized after July 1, 1998. See Ga. Code Ann. branches or offices in the Early County banking market as compared § 7-1-601. to Bank of Early's single office in the market. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

956 Federal Reserve Bulletin • October 1996 the threshold levels in the Department of Justice merger Administration. These loans provide Early County farmers guidelines.16 with operating funds necessary to plant and harvest crops, The Board notes that HHI thresholds are only guidelines and they provide guaranteed lines of credit to farmers for that are used by the Board, the Department of Justice, and operating expenses. other banking agencies to help identify cases in which a FFSB and First State Bank also are important competimore detailed competitive analysis is appropriate to ensure tors in the provision of consumer loans, and approval of that the proposal would not have a significantly adverse this proposal would result in the elimination of one imporeffect on competition in any relevant market. A proposal tant source for this type of credit.20 Following consummathat fails to pass the HHI market screen nevertheless may tion of this proposal, the market concentration for these be approved because other information may indicate that loans, as measured by the HHI, would increase by 2010 the proposal would not have a significantly adverse effect points to 5581.21 Both FFSB and First State Bank also on competition. engage in l-to-4 family mortgage lending. More than First State contends that First State Bank and FFSB do 70 percent of FFSB's loans consist of home mortgages, not provide the same types of banking products and ser- and 16 percent of First State Bank's loans are such mortvices in the Early County area.17 First State also argues that gages. Accordingly, both institutions have the expertise a number of factors mitigate the potential anticompetitive and familiarity with Early County real estate to make effects of the proposal, including competition offered by mortgage loans in this market.22 nonbank competitors in Early County and the inability of First State and FFSB also compete directly with respect the declining Early County economy to support three de- to deposit accounts. Both institutions concentrate on propository institutions. viding small retail deposit accounts (accounts with average Although First State Bank and FFSB do not focus on the balances of less than $10,000), and both institutions have a same products, they do compete directly, in particular significant number of these accounts.23 First State mainacross four individual loan product lines that are important tains that FFSB is an ineffective competitor for small to Early County residents: commercial and industrial accounts because it offers interest rates lower than its two ("C&I") loans, agricultural loans, l-to-4 family mortgage commercial bank competitors in the market. The Board loans, and consumer loans. First State Bank and FFSB both notes, however, that FFSB has offered competitive rates on offer C&I loans.18 Following consummation of this pro- certain products in the past and currently offers the highest posal, concentration in the market for C&I loans, as mea- rate in the market for small passbook savings accounts, a sured by the HHI, would increase 1082 points to 5779.19 particularly important product in a county in which Both institutions also offer agricultural loans to Early 42 percent of the population has an annual income of less County residents and, although FFSB does less agricultural than $15,000 a year. lending than First State Bank, there is evidence that the Nonbank organizations are not significant competitors thrift plays an important role in the provision of agricul- for the depository institutions in the Early County banking tural credit. FFSB is one of a small number of financial market. The largest nonbank competitor, Five Star Federal institutions in southwest Georgia that offers guaranteed Credit Union, Cedar Springs, Georgia ("Five Star"), has and/or subsidized loans through the Rural Economic and membership requirements that would disqualify approxi- Community Development Service and the Farm Services mately 50 percent of Early County residents and offers 16. Under the revised Department of Justice Merger Guidelines, 49 20. As of May 9, 1996, First State Bank made 44.4 percent of the Federal Register 26,823 (1984), a market in which the post-merger total amount of these loans in the market ("market share") and, as of HHI is above 1800 is considered highly concentrated. The Department March 31, 1996, FFSB had a 22.6 percent market share. Following of Justice has informed the Board that a bank merger or acquisition consummation of this proposal, First State would control 67.1 percent generally will not be challenged (in the absence of other factors of the market for this type of credit. indicating anticompetitive effects) unless the post-merger HHI is at 21. The Board recognizes that there are other lenders that provide least 1800 and the merger increases the HHI by more than 200 points. consumer credit to Early County residents. These nonbanking firms The Justice Department has stated that the higher than normal HHI are not significant competitors of the three depository institutions. thresholds for screening bank mergers for anticompetitive effects Nonetheless, if the total volume of consumer loans made by an implicitly recognize the competitive effect of limited-purpose lenders in-market credit union and several area finance companies were and other non-depository institutions. considered in calculating the competitive effects of the proposal, the 17. FFSB, a thrift institution, engages primarily in residential mort- HHI would increase by 268 points to 4029. gage and real estate lending and provides few unsecured commercial 22. First State Bank generally limits the maturity of its mortgages to loans and agricultural loans in the market. First State Bank, on the 15 years, while FFSB offers a broader array of products with maturiother hand, engages in limited residential mortgage lending and has ties extending to 30 years. Each institution has the capacity to offer focused its activities on commercial and agricultural lending. various types of mortgages should demand for a particular type of 18. FFSB offers only secured C&I loans, whereas First State Bank mortgage increase. makes both secured and unsecured loans. Each C&I loan made in the 23. More than 76 percent of FFSB's accounts and almost 81 percent market was for less than $1 million. Data submitted by First State of First State Bank's accounts are small retail deposit accounts. As of indicate that the average size of its secured C&I loans is $24,000; the June 30, 1996, small retail deposit accounts in the Blakely office of average size of such loans made by FFSB is $20,000. FFSB included 780 savings accounts, 439 CDs, and 737 checking and 19. Interviews conducted as part of the Federal Reserve Study NOW accounts. These accounts at First State Bank's Blakely office indicate that FFSB would welcome the opportunity to do more com- included 1,747 savings accounts, 1,365 CDs, and 3,131 transaction mercial and industrial lending. accounts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 957 limited products and services.24 In addition, the mitigating 1993.30 The data thus do not establish any long-term downeffect of competition provided by Five Star would be ward trend. Moreover, FFSB's Blakely office has experiminimal even if it were considered to be an equal competi- enced a steady growth in deposits since it was established tor of the depository institutions.25 Moreover, the Federal 20 years ago, including a significant deposit growth in the Reserve Survey indicates that the overwhelming majority past several years. For example, deposits in the branch of Early County residents obtain their deposit and credit have grown from $13.2 million in 1990 to $19.2 million in products from the three depository institutions in the mar- 1995, a 45 percent increase. ket.26 Small businesses as well rely on in-market depository institutions.27 Public Benefits Data indicate that Early County is recovering from the economic decline that First State cites as a factor support- The Board also has considered whether the potential beneing its contention that three depository institutions cannot fits to the public, such as greater convenience, increased operate profitability in the market. From 1990 to 1995, the competition, or gains in efficiency outweigh possible adpopulation in Early County increased by 2.9 percent and, verse effects. First State contends that cost savings realized from 1991 to 1994 (the latest available data), per capita as a result of this proposal would permit the combined income increased at a rate equal to the rate of increase for institutions to provide more products and services to its the state as a whole and the rate of increase for the state's customers, increased community development activities, non-metropolitan areas. From 1993 to 1994, per capita and affordable banking products for low- and moderateincome growth in Early County was double the state aver- income residents in Early County. First State believes that age and nearly three times the national average.28 The it can expand FFSB's programs to benefit the existing Federal Reserve Survey, which included discussions with customers of both institutions. Early County officials and businessmen, indicates that the The requirement under section 4 of the BHC Act that the current rate of growth is anticipated to continue in part Board must determine that public benefits from a proposal because of the planned expansion of highway connections can reasonably be expected to outweigh potential adverse between Early County and other parts of the region. effects necessarily involves a balancing process that takes A review of profitability data also indicates that the three into account the extent of the potential for adverse effects. depository institutions have generally performed well. For the reasons discussed in this order, the effects on Bank performance ratios for Early County, although below competition in the Early County banking market are subaverage, are comparable to those in other rural Georgia stantially adverse. counties.29 The banking market's growth rate for deposits The Board also notes that Southwest and FFSB are and population also slightly exceeds the state and rural well-managed organizations in satisfactory financial condi- Georgia county averages. tion. FFSB has an "outstanding" rating from its primary First State contends that FFSB's Blakely branch is not federal supervisor in its most recent evaluation for perforperforming well to support its view that Early County is a mance under the Community Reinvestment Act. In light of declining market. The Board notes that, although First these and all the facts of record, the Board does not believe State claims that FFSB's Blakely office was unprofitable in that the public benefits derived from costs savings and the last two years, FFSB's Blakely office earned a profit in gains in efficiency in the proposal are sufficient, on balance, to outweigh the significantly adverse effects on competition in the Early County banking market. For these reasons, and based on all of the facts of record, the Board concludes that the proposed transaction would 24. Other nonbank firms in the market provide negligible deposit have significantly adverse effects of the Early County services and offer a narrow range of loan products. 25. If Five Star's deposits were given 100 percent weight, the HHI banking market. The Board also concludes that considerwould increase 1205 points to 4182 as a result of the proposal. ations relating to public benefits, including financial and 26. For example, evidence suggests that the finance companies that managerial resources of the institutions involved, do not operate in the Early County banking market do not compete with the lend sufficient weight to outweigh these adverse competidepository institutions. Interviews conducted as part of the Federal tive effects. Accordingly, the Board hereby denies First Reserve Survey suggested that the customer base of the finance companies differs substantially from the customer base of the deposi- State's notice under section 4(c)(8) of the BHC Act. tory institutions. By order of the Board of Governors, effective 27. According to Federal Reserve Survey, nearly 85 percent of the August 26, 1996. 177 small business reporting had relationships with Early County depository institutions. Large regional bank holding companies had almost no accounts. 28. During this time period, per capita income grew in Early County 30. The record suggests that the Blakely branch may have been by 11.5 percent, while the growth rate was 5.0 percent in Georgia and unprofitable in part because deposits gathered at the branch have been 4.2 percent in the United States. In 1994, Early County was ranked invested in the federal funds market rather than in higher yielding 107th of 159 Georgia counties in terms of population, but ranked 88th loans. Also, income earned from FFSB's investments are allocated to in terms of per capita income. the FFSB home office, while the corresponding expenses are divided 29. First State consistently earned 1 percent or more on assets in the equally between the home office and the branches. Such internal 1990s. Bank of Early earned more than 1 percent on assets in each of accounting procedures may understate the profits earned at the Blakely the last four years. office. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

958 Federal Reserve Bulletin • October 1996 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and ciary standards, and other requirements of the 1934 Act, Governors Kelley, Lindsey, Yellen, and Meyer. Voting against this the SEC, and the NASD. action: Governor Phillips. Activities Approved by Order WILLIAM W. WILES Secretary of the Board The Board previously determined that it was permissible under section 4(c)(8) of the BHC Act and section 20 of the KeyCorp Glass-Steagall Act for KeyCorp to conduct the proposed Cleveland, Ohio activities through Key Capital.4 KeyCorp has committed to engage in these activities in accordance with the conditions Order Approving a Notice to Engage in Certain and limitations relied on by the Board in the KeyCorp Nonbanking Activities Order, with one exception.5 KeyCorp, Cleveland, Ohio, a bank holding company within Director Interlocks the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section KeyCorp has requested that the Board permit three (of 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and seven) directors of Key Capital also to serve as directors of section 225.23 of the Board's Regulation Y (12 C.F.R. Key Capital's bank or thrift affiliates ("affiliated banks").6 225.23) to acquire all the voting shares of Carleton, Mc- KeyCorp has committed that the three interlocking direc- Creary, Holmes & Co. ("CMHC"), Cleveland, Ohio. Untors would not be officers of Key Capital or the affiliated der this proposal, KeyCorp would merge CMHC with and banks, or have the authority to conduct the daily business into Key Capital Markets, Inc., Cleveland, Ohio ("Key or handle individual transactions of Key Capital or its Capital"), a wholly owned subsidiary of KeyCorp authoaffiliated banks. In addition, KeyCorp has committed that, rized to engage in certain nonbanking activities, including at a meeting of the board of directors of Key Capital or the underwriting and dealing in, to a limited extent, securities affiliated banks, a quorum will not be deemed to exist that a state member bank may not underwrite or deal in unless the interlocking directors are less than a majority of ("bank-ineligible securities").1 KeyCorp would thereby the directors present. engage in the following nonbanking activities throughout The Board previously has permitted limited interlocks the United States: between a banking organization and an affiliated subsidiary (1) Providing corporate financial advisory services pursuengaged in bank-ineligible securities activities ("section ant to 12 C.F.R. 225.25(b)(4), and 20 subsidiary").7 The addition of the interlocks proposed (2) acting as agent in the private placement of all types of by KeyCorp would not, in view of the commitments prodebt and equity securities as permitted by Board order.2 vided by KeyCorp, appear to give the affiliated banks Notice of the proposal, affording interested persons an managerial control over Key Capital or otherwise raise any opportunity to submit comments, has been published conflicts of interest. Accordingly, the Board finds these (61 Federal Register 33,118 (1996)). The time for filing limited interlocks should be permitted, since it appears that comments has expired, and the Board has considered the Key Capital would be operationally distinct from its affilinotice and all comments received in light of the factors set ated banks. The Board expects that KeyCorp will ensure forth in section 4(c)(8) of the BHC Act. that the framework established in the KeyCorp Order will KeyCorp, with total consolidated assets of approxibe maintained in all other respects. mately $65 billion, is the 13th largest banking organization in the United States.3 KeyCorp operates banking subsidiaries in several states and engages through other subsidiaries 4. See KeyCorp Order. in various permissible nonbanking activities. Key Capital 5. KeyCorp anticipates that there may be a brief period (ranging is registered as a broker-dealer with the Securities and from one or two days to a few weeks) between the acquisition of the Exchange Commission ("SEC") under the Securities Ex- voting shares of CMHC through KeySub and the merger of the assets change Act of 1934 ("1934 Act") (15 U.S.C. § 78a et seq.), of CMHC into Key Capital. During the period between the acquisition and is a member of the National Association of Securities and the merger, KeyCorp will conduct the proposed activities through NewCo. KeyCorp has committed that, during this time, it will treat Dealers, Inc. ("NASD"). Accordingly, Key Capital is sub- NewCo as if it were Key Capital for the purposes of the commitments ject to the record keeping and reporting obligations, fidu- and limitations of the KeyCorp Order. 6. KeyCorp previously received the Board's approval to have two director interlocks and one officer interlock between Key Capital and 1. See KeyCorp, 82 Federal Resen'e Bulletin 359 (1996) ("Key- its affiliated banks. The interlocking officer provides only legal coun- Corp Order"). The transaction would involve two steps. KeyCorp sel and corporate record keeping services to Key Capital and does not would acquire 100 percent of the voting shares of CMHC through its serve as a management official of, have sales or policy making wholly owned subsidiary, KeySub, Inc., Cleveland, Ohio. Shortly responsibilities for, or have contact with customers of Key Capital. thereafter, KeyCorp would merge the corporation surviving the acqui- See KeyCorp Order. sition ("NewCo") with and into Key Capital. 1. See KeyCorp Order, National City Corporation, 80 Federal 2. See J.P. Morgan & Company Incorporated, 76 Federal Reserve Reserve Bulletin 346 (1994); Synovus Financial Corp., 11 Federal Bulletin 26 (1990). Reserve Bulletin 954 (1991); Banc One Corporation, 76 Federal 3. Assets and ranking are as of March 31, 1996. Resen'e Bulletin 756 (1990). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 959 Financial Factors, Managerial Resources and Other ments and conditions agreed to by KeyCorp shall be Considerations deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and as such In order to approve this notice, the Board must consider may be enforced in proceedings under applicable law. whether the proposed activities "can reasonably be ex- These activities shall not be commenced later than three pected to produce benefits to the public, such as greater months after the effective date of this order, unless such convenience, increased competition, or gains in efficiency, period is extended for good cause by the Board or, pursuant that outweigh possible adverse effects, such as undue con- to delegated authority, by the Federal Reserve Bank of centration of resources, decreased or unfair competition, Cleveland. conflicts of interests, or unsound banking practices."8 As By order of the Board of Governors, effective part of its evaluation of these factors, the Board considers August 14, 1996. the financial condition and managerial resources of the notificant and its subsidiaries and the effect of the proposed Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and transaction on these resources.9 Based on all the facts of Governors Kelley, Phillips, and Meyer. Absent and not voting: Goverrecord, including relevant reports of examination, the nors Lindsey and Yellen. Board has concluded that financial and managerial consid- JENNIFER J. JOHNSON erations are consistent with approval of the proposal. Deputy Secretary of the Board The Board expects that the proposed transaction would result in public benefits by permitting CMHC and its Union Planters Corporation customers to draw upon the greater resources of and Memphis, Tennessee broader range of products offered by Key Capital and its affiliates. The Board also expects that the transaction would Order Approving Notice to Acquire a Savings produce efficiencies and economies of scale for KeyCorp Association and Engage in Certain Nonbanking Activities and thereby would permit KeyCorp to provide better investment banking services to its customers. In sum, the Union Planters Corporation ("Applicant"), a bank holding proposal should yield greater convenience for KeyCorp's company within the meaning of the Bank Holding Comand CMHC's customers and may be expected to foster pany ("BHC") Act, has requested the Board's approval improved methods of meeting customer needs. There is no under section 4(c)(8) of the BHC Act (12 U.S.C. evidence in the record to indicate that the proposed transac- § 1843(c)(8)) and section 225.23 of the Board's Regulation would result in any undue concentration of resources tion Y (12 C.F.R. 225.23) to acquire all the voting shares of or decreased or unfair competition, conflicts of interests, Leader Financial Corporation ("Leader Financial") and its unsound banking practices, or other adverse effects. In wholly owned subsidiary, Leader Federal Bank for Savings addition, to address any potential adverse impact from its ("Savings Bank"), a federal savings bank, all in Memphis, performance of the proposed activities, KeyCorp has com- Tennessee. Applicant also has requested the Board's apmitted to conduct the activities pursuant to conditions the proval under section 4(c)(8) of the BHC Act to acquire the Board previously has found satisfactory to mitigate potenother direct and indirect nonbanking subsidiaries of Leader tial adverse effects. Accordingly, the Board has concluded Financial listed in the Appendix and thereby engage nationthat the performance of the proposed activities by KeyCorp wide in permissible nonbanking activities.1 can reasonably be expected to produce public benefits that Notice of the proposal, affording interested persons an outweigh possible adverse effects under the proper incident opportunity to submit comments, has been published to banking standard of section 4(c)(8) of the BHC Act. (61 Federal Register 30,240 (1996)). The time for filing Based on the foregoing and all the facts of record, the comments has expired, and the Board has considered the Board has determined that the notice should be, and hereby notice and all comments received in light of the factors set is, approved. Approval of this notice is specifically condiforth in section 4(c)(8) of the BHC Act. tioned on compliance by KeyCorp with the commitments Applicant, with total consolidated assets of $11.4 billion, made in connection with this notice. The Board's determioperates subsidiary banks in Alabama, Arkansas, Kennation also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.23(b) (12 C.F.R. 225.27 and 225.23(b)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure 1. The proposal is the first step in a series of transactions to merge compliance with, and to prevent evasion of, the provisions Savings Bank with and into Applicant's wholly owned subsidiary of the BHC Act and the Board's regulations and orders bank, Union Planters National Bank, Memphis, Tennessee ("UPNB"). Immediately after the merger, UPNB would sell Savings Bank's thereunder. For purposes of this transaction, the commit- Nashville branches to Union Planters Bank-Middle Tennessee, Nashville, Tennessee ("UPB-Middle Tennessee"). These transactions (the "Bank Mergers") are subject to the approval of the Office of the 8. 12 U.S.C. § 1843(c)(8). Comptroller of the Currency ("OCC") under section 18(c) of the 9. See 12 C.F.R. 225.24. Federal Deposit Insurance Act (12 U.S.C. § 1828(c)). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

960 Federal Reserve Bulletin • October 1996 tucky, Louisiana, Mississippi, Missouri, and Tennessee.2 services, which is the traditional method for analyzing the Applicant is the third largest depository organization in competitive effects of an acquisition of a depository institu- Tennessee, controlling $4.9 billion in deposits, represent- tion, the Board finds that consummation of the proposal ing approximately 8.9 percent of total deposits in deposi- would not have a significantly adverse effect on competitory institutions in the state.3 Leader Financial, with total tion in any relevant banking market.9 consolidated assets of $3.2 billion, is the 8th largest depos- Applicant and Savings Bank compete directly in the itory organization in Tennessee, controlling $1.5 billion in Memphis and Nashville, Tennessee, banking markets.10 deposits, representing 2.8 percent of total deposits in de- Consummation of the proposal would not cause the levels pository institutions in the state. On consummation of the of concentration as measured by the Herfindahl-Hirschman proposal, Applicant would remain the third largest deposi- Index ("HHI") to exceed the Department of Justice merger tory organization in Tennessee, controlling deposits of guidelines in either of these banking markets,11 and a large $6.4 billion, representing approximately 11.7 percent of number of depository institutions would continue to opertotal deposits in depository institutions in the state. The Board has determined that the operation of a savings association by a bank holding company is closely related to 710 (1992); see also United States v. Philadelphia National Bank, banking for purposes of section 4(c)(8) of the BHC Act.4 374 U.S. 321, 357 (1963). Mid-South Peace and Justice Center, Mem- Applicant has committed to conform all activities of Sav- phis, Tennessee ("Mid-South"), maintains that the Board should ings Bank to those permissible for bank holding companies analyze the competitive eifects of the proposal on specific loan produnder section 4(c)(8) of the BHC Act and Regulation Y.5 ucts and banking services, including loans secured by used automobiles. Mid-South provides no evidence to support the conclusion that The Board also has determined by regulation that the individual products and services should be considered separately. proposed lending, leasing, community development, credit- Available data indicate that consummation of the proposal is not likely related insurance, and full-service securities brokerage ac- to increase appreciably the level of concentration in consumer lending tivities are closely related to banking within the meaning of or commercial lending, including small business lending. Moreover, section 4(c)(8) of the BHC Act.6 Applicant has committed numerous competitors, including a number of nonbank lenders that provide consumer loans, would remain after consummation of the to conduct these activities subject to the limitations set proposal, and the relevant markets are attractive for entry by other forth in Regulation Y. competitors. 9. Mid-South and Inner City Press/Community on the Move, Bronx, New York ("ICP"), contend that the Board should separately consider Competitive Considerations the competitive effects of the proposal in several downtown and lowto moderate-income areas of Memphis, Tennessee. In determining the Under section 4(c)(8) of the BHC Act, the Board is re- relevant geographic markets, the Board has considered the location of quired to consider whether a proposal is likely to result in the depository institutions, worker commuting patterns (as indicated any significantly adverse effects, such as undue concentra- by census data), and other indicia of economic integration and the transmission of competitive forces among depository institutions. tion of resources, decreased or unfair competition, conflicts Commuting data from the 1990 Census show significant levels of of interests, or unsound banking practices.7 In evaluating commuting into Shelby County, Tennessee, which includes Memphis, the competitive eifects of a proposed transaction, the Board from the five surrounding counties. In addition, Memphis is the largest must determine the appropriate product market and geo- city in the six-county area and is the primary location for shopping, graphic market.8 Using the cluster of banking products and services and entertainment for residents in the area. Other relevant indicators, moreover, including the Memphis Metropolitan Statistical Area ("MSA") and Memphis Ranally Metropolitan Area, reflect a substantial degree of economic integration between Shelby County 2. Consolidated asset data are as of March 31, 1996. All other data and its surrounding counties. Based on all the facts of record, the are as of June 30, 1995, and are adjusted to reflect acquisitions of Board concludes that the appropriate geographic market for analyzing Applicant consummated through March 15, 1996. the combination of Applicant and Leader Financial in this area is the 3. In this context, depository institutions include commercial banks, Memphis, Tennessee banking market, which is approximated by savings banks, and savings associations. Shelby, Tipton and Fayette Counties in Tennessee; Crittendon County, 4. See 12 C.F.R. 225.25(b)(9). Applicant's proposed acquisition of Arkansas; and De Soto and Tate Counties in Mississippi. Leader Financial also is subject to the approval of the Office of Thrift 10. The Nashville, Tennessee, banking market is approximated by Supervision ("OTS") pursuant to the Home Owners Loan Act Cheatham, Davidson, Robertson, Rutherford, Sumner, Williamson, (12 U.S.C. § 1467a(e)). and Wilson Counties, and the town of Spring Hill in Maury County, 5. Applicant has committed that all impermissible real estate activi- all in Tennessee. ties will be divested or terminated within two years of consummation 11. On consummation of the proposal, the HHIs would increase 261 of the proposal, that no new impermissible projects or investments points to 1671 in the Memphis banking market, and 1 point to 1467 in will be undertaken during this period, and that capital adequacy the Nashville banking market. Under the revised Department of Jusguidelines will be met excluding impermissible real estate invest- tice Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a ments. Applicant also has committed that any impermissible securities market in which the post-merger HHI is between 1000 and 1800 is or insurance activities conducted by Savings Bank will cease on or considered moderately concentrated. The Justice Department has inbefore consummation of the proposal. Savings Bank may continue to formed the Board that a bank merger or acquisition will not be service any impermissible insurance policies for two years after challenged (in the absence of other factors indicating anti-competitive consummation of the proposal, but may not renew any policies during effects) unless the post-merger HHI is at least 1800 and the merger this two-year period. increases the HHI by more than 200 points. The Justice Department 6. See 12 C.F.R. 225.25(b)(1), (5), (6), (8)(i), and (15)(ii). has stated that the higher than normal HHI thresholds for screening 7. 12 U.S.C. § 1843(c)(8). bank mergers for anticompetitive effects implicitly recognize the 8. See First Hawaiian, Inc., 79 Federal Reserve Bulletin 966, competitive effect of limited purpose lenders and other non-depository 966-68 (1993); SouthTrust Corporation, 78 Federal Reserve Bulletin financial entities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 961 ate in these markets.12 Based on these and all other facts of The Board also has carefully considered comments from record, the Board concludes that consummation of the several organizations and an individual ("Protestants")14 proposal would not result in any significantly adverse that criticize the record of Applicant and Savings Bank in eifects on competition or on the concentration of banking meeting the credit needs of minority individuals and lowresources in the Memphis or Nashville banking markets or to moderate-income communities in Memphis, Tennessee. any other relevant banking market. In addition, some Protestants contend that UPNB and Applicant also operates subsidiaries that engage in mort- Savings Bank have an insufficient number of branches in gage lending, leasing, credit-related insurance, and securi- downtown and low- to moderate-income areas of Memties brokerage activities in competition with Leader Finan- phis, and that Applicant's proposed branch closings in cial subsidiaries. The record indicates that there are Memphis after consummation of this transaction would numerous providers of these services and that the markets adversely affect the local communities. Several Protestants for these services are unconcentrated. Based on all the facts also contend that data filed under the Home Mortgage of record, the Board concludes that consummation of the Disclosure Act ("HMDA") (12 U.S.C. § 2801 et seq.) proposal would not have any significantly adverse eifects indicate that UPNB and Savings Bank have refused or on competition in the markets for these nonbanking ser- failed to assist in meeting the housing-related credit needs vices. of African Americans, low- to moderate-income neighborhoods, and areas with predominantly minority populations Record of Performance Under the Community ("minority communities") in Memphis. Reinvestment Act An institution's most recent CRA performance evaluation is a particularly important consideration in the applica- In acting on a proposal to acquire a savings association tions process because it represents a detailed on-site evaluunder section 4(c)(8) of the BHC Act, the Board reviews ation of an institution's overall record of performance the records of the relevant depository institutions under the under the CRA by its primary federal supervisor.15 In Community Reinvestment Act (12 U.S.C. § 2901 et seq.) addition, the Board considers an institution's policies and ("CRA").13 As provided in the CRA, the Board has evalu- practices for compliance with applicable fair lending laws. ated the record of performance of Applicant's depository The Board also takes into account information on an instiinstitutions and Savings Bank in light of the CRA perfor- tution's lending activities that assist in meeting the credit mance examinations of these organizations by their pri- needs of low- to moderate-income neighborhoods. mary federal supervisors. Performance Examinations. All of Applicant's subsidiary banks and savings associations that have been examined for CRA performance received "outstanding" or "satisfactory" ratings from their primary federal supervisors in their most recent examinations. In particular, UPNB received a "satisfactory" CRA performance rating from the 12. After consummation of the proposal, Applicant would remain OCC, its primary federal supervisor, at its most recent the second largest depository institution in the Memphis banking examination as of October 1994 ("UPNB Examination").16 market and the fourth largest depository institution in the Nashville Furthermore, Savings Bank received a "satisfactory" CRA banking market. Applicant would control approximately 25.5 percent performance rating from the OTS at its most recent examiof total deposits in depository institutions in the Memphis banking market ("market deposits") and 8.6 percent of market deposits in the nation as of April 1995 ("Savings Bank Examination"). Nashville banking market after consummation of the proposal. In Performance Records of Applicant and Savings Bank. addition, 37 depository institutions would remain in the Memphis As noted above, Applicant proposes to merge Savings banking market and 32 depository institutions would remain in the Bank with and into UPNB, after which the operations of Nashville banking market after consummation of the proposal. Market share data are based on calculations in which the deposits of Savings Bank would become subject to the CRA policies, thrift institutions are included at 50 percent. The Board previously has procedures, and programs of UPNB. The Board has careindicated that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin 743 (1984). Because the deposits of Savings Bank would be controlled by a commercial banking organiza- 14. In addition to Mid-South and ICP, Protestants include Memphis tion after consummation of the proposal, those deposits are included Area Community Reinvestment Organization ("MACRO"); VECA at 100 percent in the calculation of Applicant's pro forma market Community Development Corporation; Students, Mothers, and Conshare. See Norwest Corporation, 78 Federal Reserve Bulletin 452 cerned Citizens, Inc.; and Douglass, Bungalow & Crump Neighbor- (1992); First Banks, Inc., 76 Federal Reserve Bulletin 669 (1990). hood Association's Coalition Alliance ("DBC Neighborhood Alli- 13. The Board previously has determined that the CRA by its terms ance"), all of Memphis, Tennessee. generally does not apply to applications by bank holding companies to 15. The Board notes that the Statement of the Federal Financial acquire nonbanking companies under section 4(c)(8) of the BHC Act. Supervisory Agencies Regarding the Community Reinvestment Act See The Mitsui Bank, Ltd., 76 Federal Reserve Bulletin 381 (1990). provides that a CRA examination is an important and often controlling The Board also has stated that, unlike other companies that may be factor in consideration of an institution's CRA record and that reports acquired by bank holding companies under section 4(c)(8) of the BHC of these examinations will be given great weight in the applications Act, savings associations are depository institutions, as that term is process. See 54 Federal Register 13,742, 13,745 (1989). defined in the CRA, and thus acquisitions of savings associations are 16. UPB-Middle Tennessee also received a "satisfactory" CRA subject to review under the express terms of the CRA. See Norwest performance rating from the OCC at its most recent examination as of Corporation, 76 Federal Reserve Bulletin 873 (1990). January 1996. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

962 Federal Reserve Bulletin • October 1996 fully reviewed Applicant's CRA performance record in ing the credit needs of, and marketing its credit products to, light of substantially similar comments submitted in con- residents of Memphis.19 The Savings Bank Examination nection with a number of recent applications filed by concluded that Savings Bank had performed reasonably Applicant.17 In the Union Planters Orders, the Board care- well in attracting loan applications from individuals in fully reviewed UPNB's CRA performance record, includ- low- to moderate-income census tracts in the Memphis ing its lending, marketing, and outreach activities, the MSA, and that the association's credit extensions, credit services provided through its branches, its branch closing applications and credit denials were adequately distributed policies, and the actions that the bank had taken to throughout its delineated community. In addition, examinstrengthen its lending in low- to moderate-income areas. ers noted that Savings Bank was an active participant in the The Board also considered Applicant's HMDA data for market for FHA and VA loans and participated in a variety 1990 to 1994, and preliminary 1995 HMDA data. For the of community development projects in Memphis.20 reasons discussed in detail in the Union Planters Orders, Branch Locations and Closings. The UPNB Examinawhich are hereby incorporated by reference, the Board tion concluded that the bank's branch and automated teller concluded that the CRA performance record of Applicant machine ("ATM") networks were reasonably accessible to was consistent with approval of the applications under the all segments of the bank's community, including low- to BHC Act. moderate-income neighborhoods. UPNB operates 35 full- The Union Planters Orders noted that the UPNB Exam- service branches and 37 stand-alone ATMs in Shelby ination found that the bank's community delineation was County.21 Five of UPNB's branches in Memphis are loreasonable and did not exclude any low- to moderate- cated in low- to moderate-income census tracts. The bank income neighborhoods. The examination also found that recently applied for the OCC's approval to establish an UPNB had a satisfactory record of ascertaining community additional 55 stand-alone ATMs in convenience stores credit needs and that the bank's marketing program effec- located throughout Shelby County, and 26 of these ATMs tively informed all segments of its delineated community would be located in low- to moderate-income census of the bank's credit products and services. In addition, tracts.22 Savings Bank operates 15 branches in Shelby examiners concluded that the bank's distribution of loans, County, including two branches that are located in low- to applications, and denials was reasonable. The Union Plant- moderate-income census tracts. ers Orders also reviewed UPNB's special lending programs to assist in meeting the credit needs of low- to moderate-income borrowers, including participation in a 19. Examiners noted that Savings Bank initiated a marketing plan in number of government-sponsored programs through the the Memphis area that placed special emphasis on attracting credit Federal Housing Administration ("FHA"), Veterans Ad- applications from individuals in low- to moderate-income census ministration ("VA"), Tennessee Housing Development Au- tracts. Examiners also found that the association marketed its credit thority, and Small Business Administration.18 products through local newspapers and radio programs with predominately minority audiences and through advertisements in low- to The Savings Bank Examination found that the institu- moderate-income and minority communities. tion's delineated community was reasonable and did not 20. Savings Bank purchased and originated 6,245 FHA and VA unreasonably exclude any low- to moderate-income neigh- loans in 1993 and 1994, totalling more than $419 million. In connection with its operations, Savings Bank purchases and services pools of borhoods. Examiners found that Savings Bank's branches delinquent FHA and VA loans. Certain Protestants contend, without that accepted mortgage loan applications were easily accesproviding any substantiation, that Savings Bank may use improper sible to members of the local communities. Examiners also collection techniques to service these delinquent loans, and question found that Savings Bank had a strong record of ascertain- whether UPNB's proposed acquisition of this line of business is consistent with the convenience and needs of the community. The Board has carefully considered Protestants comments in light of confidential reports of examination assessing Savings Bank's FHA/VA 17. See Union Planters Corporation, 82 Federal Reserve Bulletin loan purchase and servicing program. The Board also notes that OTS 756 (1996); Union Planters Corporation, 82 Federal Reserve Bulletin examiners favorably noted Savings Bank's purchase of FHA and VA 745 (1996); Union Planters Corporation, 82 Federal Reserve Bulletin loans at the Savings Bank Examination. 78 (1996); and Union Planters Corporation, 81 Federal Reserve 21. Fifteen of UPNB's branches are designated "Home Buyer Bulletin 800 (1995) (collectively, "Union Planters Orders"). These Centers" and are staffed by employees with particular knowledge of matters have included UPNB's sensitivity to the credit needs of the bank's mortgage products, including its special housing-related African Americans, its history of providing loans and other banking lending programs. services to low- to moderate-income neighborhoods and minority 22. Two Protestants submitted proposals requesting that Applicant residents of Memphis, and its branch locations in downtown and low- agree to establish a bank branch in specific neighborhoods in Memto moderate-income areas of Memphis. phis. UPNB is conducting an internal analysis to determine whether 18. One Protestant expresses concern that consummation of the UPNB should construct a branch at the locations identified by Protesproposal would reduce the level of funding available for community tants. Although communications by depository institutions with comdevelopment activities in Memphis. The UPNB Examination noted munity groups provide a valuable method of assessing and determinthat UPNB was a charter member of the Memphis Multi-Bank Com- ing how an institution may best address the credit needs of the munity Development Corporation, and had formed an association with community, the Board believes that the CRA does not require that a the City of Memphis and community groups to develop housing for depository institution enter into an agreement with any organization. low- to moderate-income persons. Applicant, moreover, has requested Accordingly, in reviewing the proposal, the Board has focused on the approval to continue Leader Financial's participation in two commu- programs and policies that Applicant and Savings Bank have in place nity development housing projects that will be rented primarily to to serve the credit needs of their entire communities. See Fifth Third low- to moderate-income persons. Bancorp, 80 Federal Reserve Bulletin 838 (1994). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 963 UPNB has publicly stated that it plans to close or consol- dations will be assessed by examiners as part of the bank's idate 14 branches of UPNB and Savings Bank in the next CRA performance examination and will be reviewed Memphis banking market after consummation of the pro- by the Board in future applications to acquire a depository posal and the related Bank Mergers. The operations of the facility. 14 branches would be transferred to other branches of the HMDA Data. In the Union Planters Orders, the Board combined entity.23 More than 70 percent of the branches to noted that 1990-1994 HMDA data for Applicant and be closed or consolidated in the Memphis area are located UPNB generally reflect reasonable efforts by UPNB to within one-half mile of another UPNB branch, and all of assist in meeting the credit needs of communities with lowthe branches are located within one mile of another UPNB to moderate-income and minority residents.28 In connecbranch.24 Two of the branches to be closed or consolidated tion with the proposal, the Board has carefully reviewed are located in low- to moderate-income areas. After the the 1995 HMDA data for Applicant and the 1993, 1994, proposed branch actions, UPNB would continue to operate and 1995 HMDA data for Savings Bank.29 These data for five branches in low- to moderate-income census tracts.25 UPNB indicate that UPNB continues to assist in meeting Applicant has stated that the proposed branch closings the needs of minorities and low- to moderate-income comand consolidations in Memphis would be conducted in munities.30 accordance with UPNB's branch closing policy. The HMDA data for Applicant and Savings Bank, however, UPNB Examination concluded that the bank's branch also generally indicate some disparities in the rate of loan closing/service reduction policy seeks to minimize the originations, denials, and applications by racial group and impact of any reduction in services and that UPNB had an income level. The Board is concerned when an institution's acceptable record of opening and closing branch offices. record indicates disparities in lending to minority appli- The Board notes that UPNB's branch closing policy re- cants and believes that all banks are obligated to ensure quires the bank to notify community groups and leaders that their lending practices are based on criteria that assure prior to closing any branch, and that UPNB has sent not only safe and sound banking, but also equal access to notification of the proposed closings and consolidations to credit by creditworthy applicants regardless of race. The a variety of community groups in the Memphis area.26 In Board recognizes, however, that HMDA data alone provide addition, UPNB's proposed branch closings will be subject an incomplete measure of an institution's lending in its to the Joint Agency Policy Statement on Branch Closings community because these data cover only a few categories ("Joint Policy Statement").27 The Board also notes that the of housing-related lending and provide limited information impact of UPNB's proposed branch closings and consoli- about the covered applications and loans.31 HMDA data, therefore, have limitations that make the data an inadequate basis, absent other information, for concluding that 23. Some Protestants contend that the closure of specific branches an institution has engaged in illegal discrimination in makwould negatively affect the local communities. Applicant has stated ing lending decisions. that it would continue to serve all communities currently served by the branches slated for closure or consolidation. Applicant also has noted that UPNB intends to establish a telephone banking center capable of opening accounts and accepting loan applications from customers Movement of branches within the same immediate neighborhood that located throughout the Memphis area. do not substantially affect the nature of the business or the customers 24. Applicant also has stated that it intends to close or consolidate served are considered consolidations or relocations under the Joint an additional four branches of Savings Bank and UPB-Middle Tennes- Policy Statement and, as such, do not require prior notice. see in the Nashville banking market after consummation of the pro- 28. The Board noted, for example, that the percentage of the total posal. Three of the four branches to be closed or consolidated in the number of applications received by UPNB from African Americans Nashville area are located within one-half mile of another UPB- had increased every year from 1992 to 1994. In addition, the Board Middle Tennessee branch, and none of the four branches is located in noted that UPNB had received a greater percentage of loan applicaa low- to moderate-income census tract. tions from, and originated a greater percentage of loans to, African 25. None of the branches to be closed or consolidated in connection Americans than the aggregate average of banking institutions in the with the proposal are located in a census tract that has a minority Memphis MSA from 1992 to 1994. population of 80 percent or more. 29. MACRO submitted a survey of 1993 and 1994 HMDA data for 26. These groups include the National Association for the Advance- Applicant and Leader Financial in the Memphis MSA. Based on this ment of Colored People, the Memphis Urban League, the Memphis survey, MACRO concluded that Applicant had an "above average" Area Neighborhood Development Community Organization, and the record of housing-related lending in the Memphis MSA and in the DBC Neighborhood Alliance. center city area of Memphis, and that Leader Financial had a "below 27. See 58 Federal Register 49,083 (1993) (interpreting section 42 average" record of housing-related lending in these areas. of the Federal Deposit Insurance Act (12 U.S.C. § 1831r-l)). Under 30. For example, the 1995 data indicate that UPNB continued to these provisions, all insured depository institutions are required to receive a higher percentage of its total loan applications in Shelby submit a notice of any proposed branch closing to the appropriate County from, and continued to originate a higher percentage of its federal banking agency no later than 90 days before the date of closure total loans to, African Americans than lenders in the aggregate. These that contains: data also indicate that UPNB originated a higher percentage of the (1) The identity of the branch to be closed and the proposed closing loan applications that it received from low- to moderate-income date; census tracts in 1995 than in 1994. (2) A detailed statement of the reasons for the decision to close the 31. For example, HMDA data do not provide a basis for an branch; and independent assessment of whether an applicant who was denied (3) Statistical or other information supporting the reasons for clo- credit was in fact creditworthy. Thus, credit history problems and sure, consistent with the institution's written policy for branch excessive debt levels relative to income—reasons most frequently closings. cited for a credit denial—are not available from the HMDA data. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

964 Federal Reserve Bulletin • October 1996 Because of the limitations of HMDA data, the Board has Other Considerations carefully reviewed other information, particularly examination reports that provide an on-site evaluation of compli- In order to approve the proposal, the Board also must ance by UPNB and Savings Bank with the fair lending determine that the proposed activities are a proper incident laws. The UPNB Examination and Savings Bank Examina- to banking, that is, that the proposal "can reasonably be tion found no evidence of prohibited discrimination or expected to produce benefits to the public, such as greater other illegal credit practices at the institutions.32 Examiners convenience, increased competition, or gains in efficiency, at both institutions also found no evidence of any practices that outweigh possible adverse eifects, such as undue conintended to discourage applications for the types of credit centration of resources, decreased or unfair competition, listed in the bank's CRA statement. conflicts of interests, or unsound banking practices."36 As In addition, UPNB and Savings Bank have initiated part of the Board's evaluation of these factors, the Board several measures to assure compliance with the fair lend- has carefully reviewed the financial and managerial reing laws. For example, UPNB has instituted a "second sources of Applicant, Leader Financial, and their respeclook" program for its retail and mortgage loan divisions tive subsidiaries, and the effect the transaction would have and provides sensitivity and diversity training to bank on such resources in light of all the facts of record.37 These personnel.33 In May 1996, UPNB also hired a private facts of record include confidential reports of examination consulting firm to conduct a comprehensive fair lending and other supervisory information received from the prireview of its residential mortgage activities. The Savings mary federal supervisors of the organizations assessing Bank Examination noted that management routinely moni- their financial and managerial resources and compliance tored the association's underwriting policies and proce- with consumer-related laws.38 Based on all the facts of dures to assure that loan applicants are not discriminated record, the Board concludes that the financial and manageagainst on a prohibited basis.34 rial resources of the organizations involved in this proposal Conclusion Regarding Record of Performance Under are consistent with approval.39 CRA. The Board has carefully reviewed all the facts of record in considering the CRA performance record of Applicant and Savings Bank, including information pro- The record does not support the conclusion that the fees charged by vided by Protestants, Applicant's responses, and the results Applicant or Leader Financial for checking accounts or other banking services are based in any way on a factor prohibited by law. of the performance examinations of Applicant's bank sub- The Board also has noted that the limited jurisdiction granted to the sidiaries and Savings Bank. Based on this review, and for Board under the BHC Act does not authorize the Board to adjudicate the reasons discussed in this order and the Union Planters unsubstantiated allegations that arise under a statute administered and Orders, the Board concludes that considerations relating to enforced by another agency. See Norwest Corporation, 82 Federal the CRA are consistent with approval.35 Reserve Bulletin 580 (1996). The Department of Justice ("DOJ") has express statutory authority to investigate and prosecute the type of collusive practices alleged by Protestant, and the Board has provided Protestant's comments to the DOJ for its consideration. 32. Examiners at the UPNB Examination reviewed all first mort- 36. 12 U.S.C. § 1843(c)(8). One Protestant notes that Leader Finangage and home improvement loan applications received by UPNB cial is a defendant in lawsuits concerning the forced placement of during the first six months of 1994, and compared the loan files of collateral insurance. The "forced placement" of insurance occurs white applicants whose loans were approved with the files of African- when a creditor obtains, at the borrower's expense, insurance to American applicants whose loans were denied. This review revealed protect collateral after other coverage for the collateral has lapsed. no instances, practices, or policies indicating that customers were Leader Financial has denied any wrongdoing and the courts have not treated in an illegal manner. Examiners at the Savings Bank Examina- reached any final judgment in these lawsuits. The Board retains tion also conducted a comparative review of loan files for white adequate supervisory authority to take action, if appropriate, should applicants who received loans and minority applicants who were the allegations of improper actions be substantiated. Protestant also denied loans. Examiners found no patterns of discriminatory treatment reiterates comments that the Board previously reviewed in the Union and concluded that minority and non-minority applicants were given Planters Orders, including comments relating to pending lawsuits similar levels of assistance during the underwriting process. against Applicant involving the forced placement of collateral insur- 33. UPNB also takes a "second look" at loan applications received ance, a past lawsuit against Applicant involving the sale of securitized through the bank's automated loan machines. automobile receivables by Applicant's three nonbank subsidiaries, 34. Examiners also noted that Savings Bank's board of directors had and allegations of management misconduct at a Mississippi state bank instructed management to reemphasize to all employees the institu- acquired by Applicant in 1994. tion's commitment to nondiscriminatory lending. 37. See 12 C.F.R. 225.24; see also The Fuji Bank, Limited, 75 35. One Protestant contends, without providing supporting facts, Federal Reserve Bulletin 94 (1989); Bayerische Vereinsbank AG, 73 that banking organizations in the Memphis area, including Applicant Federal Reserve Bulletin 155 (1987). and Leader Financial, charge an excessive fee for returned checks and 38. In conducting this review, the Board has carefully considered that banking organizations have colluded to establish a uniformly high comments from certain Protestants alleging misconduct and violations fee for this service. The record indicates that UPNB has an established of banking laws by the management of Leader Financial, and violarecord of providing a full range of banking and lending services in its tions of the Real Estate Settlement Procedures Act (12 U.S.C. § 2601 delineated communities, including substantial lending services, and et seq.) by UPNB and Leader Financial. Based on all the facts of offers access to a full range of retail banking services, including a record, including supervisory information provided by the primary checking account with no monthly fee for senior citizens and other federal supervisor of UPNB and Leader Financial, the Board does not low-cost checking account products. While the Board has recognized believe that the record supports these allegations. that banks help serve the banking needs of their communities by 39. One Protestant has questioned whether the proposal would be making available basic banking services at a nominal or no charge, the eligible for "pooling-of-interests" accounting treatment and why Ap- CRA does not require that banks limit the fees charged for services. plicant's pro forma financial statements do not reflect the "goodwill" Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 965 In reviewing the public interest factors in this case, the into account the extent of the potential for adverse effects. Board also has carefully considered the contentions of For the reasons discussed in this order and the Union certain Protestants that Applicant has not sufficiently dem- Planters Orders, the potential for adverse effects, if any, onstrated the public benefits of the proposal.40 The record resulting from the transaction is negligible. The Board also indicates that consummation of the proposal and the Bank concludes that, based on the considerations discussed Mergers would provide customers of the combined institu- above, including the expanded products and services for tions with access to a broader array of banking products customers, the proposal can reasonably be expected to and services than currently is offered by each of the institu- produce notable public benefits. Accordingly, based on all tions individually.41 In addition, the proposed merger of the facts of record, the Board has determined that consum- Savings Bank and UPNB would provide the customers of mation of the proposal can reasonably be expected to Savings Bank with access to Applicant's larger network of produce public benefits that would outweigh any likely branches and ATMs.42 Applicant also has stated that it adverse effects under the proper incident to banking stanintends to invest approximately $2.5 million to upgrade the dard of section 4(c)(8) of the BHC Act.44 branches of Savings Bank acquired by UPNB and UPB- Middle Tennessee.43 Applicant states, moreover, that the Conclusion combination of Savings Bank and UPNB would permit UPNB to achieve greater economies of scale and efficien- Based on the foregoing and all the facts of record, includcies in its mortgage operations. ing the commitments discussed in this order and all other The requirement under section 4 of the BHC Act that the commitments and representations made by Applicant in Board must determine that public benefits from a proposal connection with the notice, and subject to the terms and can reasonably be expected to outweigh potential adverse conditions set forth in this order, the Board has determined effects necessarily involves a balancing process that takes that the notice should be, and hereby is, approved.43 The Board's determination is subject to all the conditions set forth in Regulation Y, including those in sections 225.7 and currently maintained by Leader Financial. The Board has reviewed 225.23(g) of Regulation Y (12 C.F.R. 225.7 and these comments in light of relevant accounting principles and all the facts of record, including a preliminary opinion of Applicant's independent public accountant stating that the proposal would qualify for 44. Some Protestants contend that the Board should delay considerpooling-of-interests accounting treatment. In addition, Applicant has ation of the proposal and request additional information from Applistated that it will not consummate the proposal unless it qualifies for cant on the competitive impact of the proposal, proposed branch pooling-of-interests accounting treatment. The Board also notes that closures, the public benefits anticipated from consummation of the Leader Financial has no "goodwill" on its financial statements. proposal, and the management of Savings Bank's FHA/VA loan 40. One Protestant also contends, without providing any supporting program. Protestants have not provided any facts to demonstrate that a factual evidence, that prior acquisitions by Applicant have benefited delay is warranted. The Board is required by the BHC Act and the only stockholders of the institutions and resulted in adverse effects Board's rules to act on applications submitted under section 4 of the such as increased fees to consumers and fewer banking services and BHC Act within specified time periods. Based on all the facts of facilities for low- to moderate-income customers. The facts of record record, the Board concludes that the record on this notice is sufficient in this application, and the facts of record considered in the Union to act on the notice at this time and that delay or denial of the proposal Planters Orders, do not support these contentions. on the grounds of informational insufficiency is not warranted. 41. For example, UPNB operates ten automated loan machines and 45. Some of the Protestants have requested that the Board hold a offers retail trust services and telephone bill payment services to its public hearing or meeting to receive public testimony on this procustomers. Comparable products or services currently are not offered posal, including testimony relating to Applicant's proposed branch by Savings Bank. In addition, Applicant has stated that consummation closures, the effect of the proposal on banking competition and the of the proposal would permit Applicant to offer to its expanded level of lending in Memphis, and the CRA record of performance of customer base certain mortgage and loan products that have been Applicant and Leader Financial. Under the Board's rules, a hearing is developed by Savings Bank, including a variety of adjustable-rate required under section 4 of the BHC Act only if there are disputed mortgage programs and a temporary construction loan that converts to issues of material fact that cannot be resolved in some other manner. a permanent loan upon completion of the project. 12 C.F.R. 225.23(f). Protestants do not identify disputed issues of fact 42. After the Bank Mergers and the proposed branch consolidations, that are material to the Board's decision. In addition, interested parties current customers of Savings Bank would have access to 36 full-ser- have had an ample opportunity to present their views, and Protestants vice UPNB branches in the Memphis banking market and 24 full-ser- have submitted substantial written comments that have been considvice UPB-Tennessee branches in the Nashville banking market. This ered by the Board. Protestants' requests fail to demonstrate why a represents a substantial increase over the 15 branches that Savings written presentation would not suffice and to summarize the evidence Bank currently operates in the Memphis banking market, and the four that would be presented at a hearing or meeting. See 12 C.F.R. branches operated by Savings Bank in the Nashville banking market. 262.3(e). The Board has carefully considered the proposal in light of Applicant also operates 37 stand-alone ATMs in the Memphis banking all the facts of record, including Protestants' comments on the issues market and 11 stand-alone ATMs in the Nashville banking market. In discussed above, and, for the reasons discussed in this order and the comparison, Savings Bank operates four stand-alone ATMs in the Union Planters Orders, has concluded that the factors that the Board Memphis banking market and no stand-alone ATMs in the Nashville must consider under section 4 of the BHC Act are consistent with banking market. As noted above, UPNB also has requested the ap- approval. Protestants' requests dispute the weight that should be proval of the OCC to establish 55 more stand-alone ATMs throughout accorded to, and the conclusions that the Board should draw from, the Shelby County. existing facts of record. For these reasons, and based on all the facts of 43. Applicant states that these improvements may include expand- record, the Board has determined that a public hearing or meeting is ing the branches to accommodate increased staff, providing drive- not required or necessary to clarify the factual record in the notice, or through teller or ATM access, or adding safe deposit boxes or night otherwise warranted in this case. Accordingly, the requests for a depositories. public hearing or meeting on the notice are hereby denied. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

966 Federal Reserve Bulletin • October 1996 225.25(g)), and to the Board's authority to require modifi- Applicant also has applied to retain Leader Financial's cation or termination of the activities of a bank holding direct and indirect ownership interest in the following company or any of its subsidiaries as the Board finds joint ventures: necessary to assure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's (1) Millcreek Development Partnership, L.P. and Hoover regulations and orders issued thereunder. The Board's deci- Road, L.P., both in Memphis, Tennessee, and thereby ension is specifically conditioned on Applicant's compliance gage in community development activities pursuant to with the commitments made in connection with the notice, section 225.25(b)(6) of the Board's Regulation Y; and including the commitments and conditions discussed in (2) Southeastern Mortgage of Alabama, L.L.C., Birmingthis order. The commitments and conditions relied on in ham, Alabama, and ASMI, LLC, Indianapolis, Indiana, and reaching this decision shall be deemed to be conditions thereby engage in making, acquiring, or servicing loans or imposed in writing by the Board in connection with its other extensions of credit pursuant to section 225.25(b)(1) findings and decision and may be enforced in proceedings of the Board's Regulation Y. under applicable law. This transaction shall not be consummated later than three months after the effective date of this order, unless ORDERS ISSUED UNDER FEDERAL RESERVE ACT such period is extended for good cause by the Board or the Federal Reserve Bank of St. Louis, acting pursuant to Community Bank of Nevada delegated authority. Las Vegas, Nevada By order of the Board of Governors, effective August 5, 1996. Order Approving Establishment of a Branch Community Bank of Nevada, Las Vegas, Nevada Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and ("Bank"), a state member bank, has requested the Board's Governors Kelley, Phillips, and Meyer. Absent and not voting: Goverapproval under section 9 of the Federal Reserve Act nors Lindsey and Yellen. (12 U.S.C. § 321 et seq.) to establish a branch at 2887 South Maryland Parkway, Las Vegas, Nevada. JENNIFER J. JOHNSON Notice of the proposal, affording interested persons an Deputy Secretary of the Board opportunity to submit comments, has been published in accordance with the Board's Rules of Procedure. The time for filing comments has expired, and the Board has considered the application and all comments received in light of Appendix the factors specified in the Federal Reserve Act. Bank, with total deposits of approximately $34.9 million, is the 18th largest commercial banking organization Other Nonbanking Subsidiaries of Leader Financial to in Nevada, controlling less than 1 percent of the total be Acquired by Applicant deposits in commercial banking organizations in the state.1 Bank has been in operation since July 1995, and, under this proposal, would establish its first permanent branch. (1) Leader Services, Inc., Memphis, Tennessee, and thereby engage in acting as principal, agent or broker in the Considerations Related to the Community Reinvestment sale of certain insurance (including home mortgage re- Act demption insurance) that is directly related to an extension of credit by the bank holding company or its subsidiaries In reviewing an application to establish a branch, the Board pursuant to section 225.25(b)(8)(i) of the Board's Regulais required to take into account the institution's record tion Y; and in full-service brokerage activities pursuant to under the Community Reinvestment Act (12 U.S.C. § 2901 section 225.25(b)(15)(ii) of the Board's Regulation Y; et seq.) ("CRA").2 The Board has received comments from (2) Leader Federal Mortgage, Inc. ("Leader Mortgage"), the Culinary Workers Union, Local 226, and a number of Leader Funding Corporation I, and Leader Funding Corpoindividuals ("Protestants") criticizing Bank's record of ration III, all in Memphis, Tennessee, and thereby engage performance under the CRA.3 In particular, Protestants in making, acquiring and servicing loans or other extenmaintain that Bank: . sions of credit pursuant to section 225.25(b)(1) of the (1) Has a declining loan-to-deposit ratio; Board's Regulation Y; and (3) Leader Leasing, Inc., Memphis, Tennessee, and thereby engage in leasing real and personal property, including 1. Deposit and state ranking data are as of March 31, 1996. certain higher-residual-value leasing, pursuant to section 2. See 12 U.S.C. §§ 2902(3)(C), 2903(2). 3. The Board has also considered comments supporting Protestants' 225.25(b)(5) of the Board's Regulation Y and making, contentions from the Association of Community Organizations for acquiring, or servicing commercial loans pursuant to sec- Reform Now, the National Community Reinvestment Coalition, and tion 225.25(b)(1) of the Board's Regulation Y. the National Low Income Housing Coalition. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 967 (2) Originates a small percentage of real estate loans Bank's loan-to-deposit ratio averaged approximately within its assessment area; 70 percent over the four quarters from September 30, 1995, (3) Lends primarily to borrowers in high-income census to June 30, 1996. The July 1996 Examination found that tracts and to large residential developments and commer- this ratio exceeded the standards for satisfactory perforcial projects; and mance in light of peer averages for commercial banks (4) Does not sufficiently provide residential lending in within Bank's assessment area and nationally. Although census tracts with substantial minority populations. Bank's loan-to-deposit ratio declined to 58 percent as of Protestants also contend that the significant amount of June 30, 1996, examiners concluded that the decline relending to Bank's directors and shareholders impairs its sulted from the greater than expected success of Bank's ability to assist in meeting the credit needs of its communi- certificate of deposit program and not from a diminution in ties.4 The Board has carefully reviewed those comments in lending.9 light of all the facts of record. As noted, Bank is a small institution and is primarily An institution's most recent CRA performance evalua- engaged in business-purpose lending, especially small busition is a particularly important consideration in the applica- ness loans.10 Bank's outstanding loans consist of approxitions process because it represents a detailed on-site evalu- mately 66 percent for business-related purposes, totaling ation of the institution's overall record of performance $16.5 million, and approximately 23 percent for financing under the CRA by its primary federal supervisor.5 In con- real estate construction and development, totaling nection with this application, the Federal Reserve Bank of $5.7 million. The July 1996 Examination found that all of San Francisco ("Reserve Bank") conducted a full-scope, Bank's business-related loans were small business loans, on-site examination of Bank's CRA record of performance and that approximately 74 percent by count and 72 percent (the "July 1996 Examination") and has preliminarily rated by dollar amount of those loans were made in its assess- Bank's performance as "satisfactory." ment area.11 Approximately 49 percent of Bank's construc- Bank qualifies as a small bank for purposes of the new tion and development loans by count and 56 percent by regulations jointly promulgated by the federal financial dollar amount of commitment were also made in its assesssupervisory agencies to implement the CRA.6 Bank was ment area. Overall, approximately 67 percent by count of evaluated under the small bank performance standards, Bank's business-related and construction and development which consider: loans and 62 percent by dollar amount were conducted (1) The bank's loan-to-deposit ratio, adjusted for sea- within its assessment area. sonal variation and, as appropriate, other lending-related Of Bank's small business loans, 24 percent by count and activities; 35 percent by dollar amount were made in moderate- (2) The percentage of loans and, as appropriate, other income census tracts.12 Bank also is qualified to make lending-related activities located in the bank's assess- government-sponsored loans through the Small Business ment area; Administration ("SBA"), specifically the SBA's 504 and (3) The bank's record of lending to and, as appropriate, engaging in other lending-related activities for borrowers of different income levels and businesses and farms 9. If Bank's loans to directors were excluded from consideration in calculating the ratio, as suggested by Protestants, examiners still of different sizes; considered Bank's loan-to-deposit ratio to be reasonable as compared (4) The geographic distribution of the bank's loans; and to the ratio for its national peers. Examiners also reviewed the level of (5) The bank's record of taking actions, if warranted, in aggregate loans to Bank's directors and their related interests. They response to written complaints about its performance in concluded that the level was not unusual for a de novo bank that had helping to meet credit needs in its assessment area(s).7 been in operation for a short period of time, because such institutions often rely on established relationships to generate business. Examiners also consider any evidence of discriminatory or 10. For purposes of the new CRA regulation, a small business loan other illegal credit practices.8 is a commercial and industrial loan with an original amount of $1 million or less, or a loan secured by nonfarm nonresidential property with an original amount of $1 million or less. See 12 C.F.R. 228.12(u). Bank also participated as a mortgage broker in 67 home mortgages, totaling approximately $12.6 million, as of the July 1996 4. In addition, Protestants believe that Bank should provide Spanish Examination. language brochures and other materials. 11. As determined by the examiners, Bank's assessment area en- 5. The Board notes that the Statement of the Federal Financial compasses 52 census tracts in Clark County, Nevada, which includes Supervisory Agencies Regarding the Community Reinvestment Act the City of Las Vegas. This area, which is located in the western part provides that a CRA examination is an important and often controlling of the city and includes only whole geographies (i.e, in this case, factor in the consideration of an institution's CRA record and that census tracts), was considered by examiners to be reasonable and not reports of these examinations will be given great weight in the to reflect any illegal discrimination or to exclude arbitrarily any lowapplications process. See 54 Federal Register 13,742, 13,745 (1989). and moderate-income areas. Bank's assessment area is comprised of 6. See 60 Federal Register 22,156 (May 4, 1995). See also 12 C.F.R. the following numbers of census tracts by income: low income—4, 228.12(t) which defines a "small bank" with no parent holding moderate income—10, middle income—21, and high income—17. company as a bank that had less than $250 million in assets as of Bank intends to expand its assessment area after opening the proposed December 31 of either of the prior two years. Bank's assets totalled branch. approximately $37 million as of December 31, 1995. 12. The largest dollar amount of loans extended by Bank was in 7. See 12 C.F.R. 228.26. moderate-income census tracts (as opposed to middle- or upper- 8. 12 C.F.R. 228.28(c). income census tracts). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

968 Federal Reserve Bulletin • October 1996 7A programs. Examiners also found that residential real its management, and the proposed exercise of corporate estate development within Bank's assessment area was powers. Protestants argue that an administrative action by focused primarily in middle- and high-income census the National Labor Relations Board ("NLRB") against a tracts, consistent with construction and development lend- casino owned by one of Bank's outside directors, past ing by Bank and by other institutions. Nevertheless, Bank business proposals between Bank and its officers and direcfinanced the development of 16 condominiums to provide tors, and current loans extended to Bank insiders raise affordable housing to low- and moderate-income individu- adverse managerial considerations and conflicts of interests als, with purchase prices ranging from $68,000 to concerns. Protestants also allege that Bank has made loans $70,000.13 to single borrowers and their related interests that exceed Examiners considered Bank to be generally responsive 25 percent of its unimpaired capital in violation of Nevada to written complaints about its efforts to assist in meeting state law.17 the credit needs of its community. The July 1996 Examina- The Board does not believe that the conduct at issue in tion noted a number of complaints in Bank's public com- the NLRB proceeding warrants a denial of the proposal.18 ment file from members of the Culinary Workers Union. In addition, the Board notes that issues raised by Bank's Bank invited all complainants who provided return ad- proposed business dealings with its officers and directors dresses to discuss their concerns, but no complainant has were resolved in the context of Bank's application for responded. The July 1996 Examination also found no membership in the Federal Reserve System two years ago. evidence of illegal discrimination and considered Bank's Reserve Bank and state examiners also recently conducted compliance with fair lending laws and regulations satisfac- a joint safety and soundness examination of Bank. Examintory.14 ers reviewed all of Bank's loans to insiders and concluded The Board has carefully reviewed all the facts of record that they complied with Regulation 0(12 C.F.R. Part 215), in considering the CRA performance record of Bank, in- the regulation applicable to loans to insiders of state memcluding information provided by Protestants, Bank's re- ber banks, including the requirement that an insider abstain sponses, and the results of the July 1996 Examination. from voting on his or her own loan application. Bank also Based on this review, the Board concludes that consider- has sold to institutions unaffiliated with Bank or Bank's ations relating to the CRA are consistent with approval.15 directors participations in loans to single borrowers, in order to comply with Nevada limitations on loans to single Other Considerations borrowers; and state examiners did not find any violations of applicable state law lending limits. The Board also notes The Board also carefully reviewed the factors required to that Bank has a compliance officer and written procedures be considered in proposals to establish a branch, including to ensure compliance with all applicable regulations. In the financial condition of Bank,16 the general character of light of these and all the facts of record, the Board concludes that other factors required to be considered under section 9 of the Federal Reserve Act are consistent with 13. Bank also financed the development of 23 single family homes approval.19 with purchase prices ranging from $89,950 to $112,945. Examiners noted, based on information from the Housing Authority of the City of Las Vegas and the Nevada Fair Housing Center, that housing with a purchase price of less than $90,000 is considered affordable for low- directors. In this light, examiners in a recent safety and soundness to moderate-income individuals. examination did not consider the volatility of these deposits to ad- 14. The compliance examination included a sampling of approved versely affect the financial condition of Bank and noted that Bank and denied loan applications, a review of Bank's loan policies and management monitors large depositor relationships closely. lending criteria, and interviews with Bank personnel. Examiners also 17. See Nevada Revised Stat. §§ 662.145 and 662.155 (1992); noted that Bank financed a real estate development project in one Nevada Administrative Code § 662.002 et seq. census tract and made 13 percent of its small business loans in another 18. The NLRB proceeding is part of a long-standing dispute becensus tract within Bank's assessment area that have substantial tween the casino and the unions representing beverage dispensers and minority populations. hotel and restaurant employees. The NLRB found that the casino had 15. Protestants question whether Bank has provided sufficient infor- engaged in unfair labor practices that: mation to demonstrate a benefit to the community from this proposal. (1) Interfered with, restrained, or coerced employees in the exercise In reviewing an application to establish a branch, the Board is re- of their rights under the National Labor Relations Act ("NLRA"), quired to consider the specific factors set forth in the Federal Reserve and Act and the bank's record of performance under the CRA. As dis- (2) Refused to bargain collectively with the representatives of cussed in this order, the Board has carefully reviewed the proposal in employees. light of these considerations. Neither of these Acts, however, requires See §§ 8(a)(1) and (a)(5) of the NLRA (29 U.S.C. §§ 158(a)(1) and a separate finding that benefits to the community would result from (a)(5)). The conduct at issue included surveillance on and ejection of the establishment of a branch. Protestants also maintain that Bank has union representatives, unilaterally imposing new rules on employee not complied with all aspects of its internal CRA policy, including conduct and unilaterally ceasing to pay pension fund contributions. documentation of its outreach efforts. The new CRA regulations, as a The casino was ordered to cease and desist from these activities, and general matter, focus on an institution's actual performance and not the NLRB's finding was upheld by a federal circuit court of appeals. the documentation of its lending efforts. 19. Protestants argue that the record of this proposal is information- 16. Protestants contend that a substantial portion of Bank's deposits ally incomplete because Bank has failed to respond to their requests is from large depositors in amounts of $100,000 or more. for information, including information regarding its CRA-related ac- Approximately 60 percent of Bank's large deposits are held by tivities. In light of all the facts of record, and for the reasons discussed Bank's primary shareholders, and two of these depositors are Bank above, the Board concludes that the record of the proposal is sufficient Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 969 Based on the foregoing, the Board has determined that the IBA, provides that a foreign bank must obtain the the application should be, and hereby is, approved.20 The approval of the Board to establish a branch in the United Board's approval is specifically conditioned on compliance States. by Bank with all the commitments made in connection Notice of the application, affording interested persons an with the application. For purposes of this action, these opportunity to submit comments, has been published in a commitments and conditions are conditions imposed in newspaper of general circulation in New York (The New writing by the Board in connection with its findings and York Times, April 26, 1996). The time for filing comments decisions and, as such, may be enforced in proceedings has expired, and the Board has considered the application under applicable law. and all comments received. Approval of the establishment of the branch is subject to Bank has total consolidated assets of approximately the completion of the facility within one year after the $62 billion, and is wholly owned by the Government of the effective date of this order, unless such period is extended Republic of Korea.1 Bank, which originally was chartered for good cause by the Board or the Reserve Bank, acting as a development bank focused on executing the governpursuant to delegated authority. ment's economic development plans after the Korean War, By order of the Board of Governors, effective now engages in a wide range of commercial banking August 28, 1996. activities in the domestic and international markets.2 In addition to its network of domestic branches, Bank also Voting for this action: Chairman Greenspan and Governors Lind- operates 13 domestic subsidiaries engaged in leasing, vensey, Meyer, Phillips, and Yellen. Absent and not voting: Vice Chair ture capital finance, investment advisory and securities Rivlin and Governor Kelley. services, merchant and investment banking and manufacturing activities. International operations include branches, WILLIAM W. WILES representative offices, and banking and financial subsidiar- Secretary of the Board ies located in Europe, Asia, and North America. In the United States, Bank operates a representative office and a broker-dealer subsidiary, Korea Associated Securities, Inc. ORDERS ISSUED UNDER INTERNATIONAL BANKING ACT ("KASI"),3 in New York, New York, and several nonbank subsidiaries and affiliates.4 Bank would be a qualifying Korea Development Bank banking organization within the meaning of Regulation K Seoul, Korea after establishment of the proposed branch. 12 C.F.R. 211.23(b). Order Approving Establishment of a Branch Bank would upgrade its existing representative office in New York, New York, to a state-licensed branch that Korea Development Bank, Seoul, Korea ("Bank"), a forwould engage in wholesale banking activities including the eign bank within the meaning of the International Banking provision of long-term facility loans to Korean manufactur- Act ("IBA"), has applied under section 7(d) of the IBA ing companies operating in the United States, loan syndica- (12 U.S.C. § 3105(d)) to establish a state-licensed branch tions for project and lease finance, and trade financing for in New York, New York. The Foreign Bank Supervision export and import transactions between Korea and the Enhancement Act of 1991 ("FBSEA"), which amended United States. The Ministry of Finance and Economy of the Republic of Korea (the "Ministry") has no objection to the establishto act on the application at this time and that delay or denial of the ment of the proposed branch. The State of New York proposal on the grounds of informational insufficiency is not war- Banking Department has approved the application of Bank ranted. 20. Protestants have requested that the Board hold a public hearing to establish the proposed branch. or meeting on this proposal to allow Protestants to question Bank on its submissions, to obtain additional information from Bank, and to present information on the proposal. The Federal Reserve Act does 1. All data are as of December 31, 1995. not require the Board to hold a public hearing on applications to 2. The Government of Korea does not direct Bank's lending activiestablish branches. Generally, under its Rules of Procedure, the Board ties or impose legal restrictions, goals, quotas or directives on Bank as may, in its discretion, hold a public hearing or meeting on an applica- to particular types of commercial transactions or particular borrowers. tion to clarify factual issues related to the application and to provide A relatively small percentage of Bank's lending is to governmentan opportunity for testimony, if appropriate. 12 C.F.R. 262.3(e) and owned companies. 262.25(d). Protestants in this case have had ample opportunity to 3. Bank would apply under section 4(c)(8) of the Bank Holding submit their views, and have, in fact, submitted substantial written Company Act for the approval of the Board to retain its ownership comments that have been carefully considered in connection with the interest in KASI following establishment of the proposed branch. Board's decision. Protestants' requests fail to demonstrate why writ- 4. KDB has indirect investments in the following non-bank entities ten comments are inadequate in this case to present their views or in the U.S.: Pohang Steel America, a wholly owned subsidiary of resolve the issues raised by their comments as required by the Board's Pohang Iron & Steel Co. of Korea, Daewoo Equipment Corporation rules. 12 C.F.R. 262.3(e). For these reasons, and based on all the facts and Daewoo Machinery Corporation, subsidiaries of Daewoo Indusof record, the Board has determined that a public hearing or meeting is tries of Korea, Hanjung America Corporation, a wholly owned subsidnot necessary to clarify the factual record in this application, or iary of Korea Heavy Industries & Construction Co., Ltd., and a direct otherwise warranted in this case. Accordingly, Protestants' requests investment in Asiana Airlines, a Korean commercial air carrier with for a public hearing or meeting on the proposal are denied. ticketing offices in the United States. 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970 Federal Reserve Bulletin • October 1996 In order to approve an application by a foreign bank to Inspection (the "BAI"), an independent government establish a branch in the United States, the IBA and Regu- agency that reports directly to the President of Korea.7 lation K require the Board to determine that the foreign The Ministry's supervisory authority extends to estabbank applicant engages directly in the business of banking lishment or change of location of Bank's subsidiaries and outside of the United States, and has furnished to the Board offices, amendments to the by-laws, approval of an annual the information it needs to adequately assess the applica- operational program and annual budget, changes in the tion. The Board also must determine that the foreign bank amount of capital, nomination of the governor of Bank and is subject to comprehensive supervision or regulation on a the appointment of the auditor of Bank, and determination consolidated basis by its home country supervisor of any permissible incidental activities of Bank. (12 U.S.C. § 3105(d)(2)). The Board may also take into The BAI is authorized to audit the books and records of account additional standards as set forth in the IBA all government-owned institutions, including Bank and its (12 U.S.C. § 3105(d)(3)-(4)) and Regulation K (12 C.F.R. subsidiaries. The results of the BAI's annual on-site exam- 211.24(c)). inations of Bank are reviewed by the Ministry in its role as Bank engages directly in the business of banking outside the principal supervisor of Bank. BAI inspectors have of the United States through its commercial banking opera- broad authority to request any documents necessary to tions in Korea. Bank also has provided the Board with the conduct their examination and their inspection authority information necessary to assess the application through extends to all domestic and foreign offices and subsidiaries submissions that address the relevant issues. of Bank. Regulation K provides that a foreign bank will be con- On-site examinations of Bank's head office occur once a sidered to be subject to comprehensive supervision or year. These examinations include a review of asset quality, regulation on a consolidated basis if the Board determines capital adequacy, accounting procedures, compliance with that the bank is supervised and regulated in such a manner laws and regulations, adequacy of internal compliance and that its home country supervisor receives sufficient infor- controls, proper procurement of goods and services, appromation on the foreign bank's worldwide operations, includ- priateness of expenditures, adequacy of foreign operations, ing the relationship of the foreign bank to any affiliate, to including an evaluation of management effectiveness over assess the overall financial condition of the foreign bank those operations, and accuracy of reports submitted by and its compliance with law and regulation (12 C.F.R. foreign offices. 211.24(c)(1)).5 In making its determination under this stan- The BAI has authority to audit all domestic and foreign dard, the Board has considered the following information. offices and subsidiaries of Bank. On-site examinations of Bank's primary supervisor is the Ministry. Additionally, foreign offices occur generally every three years. The Bank is subject to supervision by the Office of Bank schedule, however, is adjusted as necessary to address Supervision and Examination (the "OBSE") of the Bank changes in risk profiles or other specific issues. Off-site of Korea.6 As a government-owned institution, Bank also examinations are conducted annually in conjunction with is subject to audit and inspection by the Board of Audit and the head office examination, and are similar in scope to on-site examinations. Bank is required to submit periodic reports to the Ministry and the OBSE. The Ministry requires the submission of 5. In assessing this standard, the Board considers, among other reports from Bank on all aspects of Bank's banking operafactors, the extent to which the home country supervisors: (i) Ensure that the bank has adequate procedures for monitoring tions including management, financial performance, and and controlling its activities worldwide; foreign exchange activity. Certain financial statements, in- (ii) Obtain information on the condition of the bank and its cluding the balance sheet and income statement, and the subsidiaries and offices through regular examination reports, report on capital adequacy are prepared on a consolidated audit reports, or otherwise; (iii) Obtain information on the dealings with and relationship basis. Reports submitted monthly to either the OBSE or the between the bank and its affiliates, both foreign and domestic; Ministry include a balance sheet, deposit and reserve re- (iv) Receive from the bank financial reports that are consolidated quirement information, credit exposures exceeding 15 peron a worldwide basis, or comparable information that permits cent of equity, aggregate large exposure concentrations, analysis of the bank's financial condition on a worldwide consoland loans outstanding to the 30 largest Korean business idated basis; (v) Evaluate prudential standards, such as capital adequacy and conglomerates. Additionally, Bank is required to provide risk asset exposure, on a worldwide basis. the OBSE with semiannual operational reports of its for- These are indicia of comprehensive, consolidated supervision. No eign branches and subsidiaries. These reports include fisingle factor is essential and other elements may inform the Board's determination. 6. The Board previously has determined that several other Korean banks are subject to comprehensive supervision on a consolidated 7. Certain domestic nonbanking subsidiaries of Bank are subject to basis in connection with their applications filed under the FBSEA. supervision and audit by other regulatory authorities in addition to the These banks, however, are chartered as commercial banks and are BAI, the Ministry and the Bank of Korea. KDB Securities Co., Ltd. subject to primary supervision by the OBSE. In addition, the Board and Korea Development Investment Management Co., Ltd. are subrecently determined that Long Term Credit Bank of Korea, a private ject to supervision by the Securities Supervisory Board (the "SSB"), development bank under the primary supervision of the Ministry, is a Ministry-subordinated entity that supervises and regulates securities also subject to comprehensive supervision on a consolidated basis. firms. The SSB examines these entities on an as-needed basis and 82 Federal Reserve Bulletin 767 (1996). reports the result of the examinations to the Ministry upon request. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 971 nancial statements and analyses of past due loans and other subject to comprehensive supervision on a consolidated exposures. Bank also provides the OBSE with annual basis by its home country supervisor. financial reports. The OBSE has the authority to require The Board has also taken into account the additional any relevant statistical data or information. standards set forth in section 7 of the IB A (see 12 U.S.C. In addition to the audits performed by the BAI, all of § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). Bank has pro- Bank's foreign subsidiaries are audited by external audi- vided the Board with the information necessary to assess tors at least annually. The external auditors review, among the application through submissions that address the releother things, asset quality and internal controls. Internal vant issues. As noted above, Bank has received the consent control weaknesses are reported to senior management and of the Ministry to establish the proposed state-licensed the board of directors. Although there is no formal and branch. In addition, the Ministry may share information on direct communication channel between the external audi- Bank's operations with other supervisors, including the tors and the Ministry and Bank of Korea, audited financial Board. statements are provided to the Ministry and Bank of Korea Korea is a signatory to the Basle risk-based capital upon request. standards, and Korean risk-based capital standards meet Bank provides the Ministry with operational information those established by the Basle Capital Accord. Bank's on a consolidated basis which includes materials concern- capital is in excess of the minimum levels that would be ing the business activities of Bank and its domestic and required by the Basle Capital Accord and is considered foreign subsidiaries. Although there are no express legal or equivalent to capital that would be required of a U.S. regulatory restrictions imposed on transactions between banking organization. Managerial and other financial re- Bank and its affiliates, Bank represents that it observes sources of Bank also are considered consistent with aprestrictions fundamentally similar to those imposed on proval, and Bank appears to have the experience and commercial banks. In this regard, Bank applies limits on capacity to support the proposed branch. Bank has establoans to its officers and employees as well as officers or lished controls and procedures for the proposed branch in employees of its affiliated companies. Additionally, certain order to ensure compliance with U.S. law, as well as restrictions on equity investments apply to Bank. controls and procedures for its worldwide operations in Bank's internal audit function is responsible for annual general. on-site audits of the head office and branches and bi-annual Finally, the Board has reviewed the restrictions on disaudits of foreign offices. In accordance with standards set closure in relevant jurisdictions in which Bank operates by the Ministry, the audit group conducts general, specific, and has communicated with relevant government authoriand routine (daily) audits.8 The scope of the general audit ties about access to information. Bank has committed that is broad, covering financial performance as well as compliit will make available to the Board such information on the ance with Korean banking law and regulations. Head office operations of Bank and any affiliate of Bank that the Board audits include a review of asset quality, internal controls, deems necessary to determine and enforce compliance with accounting policies and procedures, operational policies the IBA, the Bank Holding Company Act of 1956, as and controls, budgeting and expenditure controls. The anamended, and other applicable federal law. To the extent nual internal audit report is submitted to the Ministry and that the provision of such information is prohibited or includes the examination scope, correction orders, and impeded by law, Bank has committed to cooperate with the recommendations. The audit group is also responsible for Board to obtain any necessary consents or waivers that ensuring that the foreign offices are complying with Bank's might be required from third parties in connection with internal policies and procedures and all applicable banking disclosure of certain information. In addition, subject to laws and regulations of the host countries. The branch also certain conditions, the Ministry may share information on would be audited by the BAI. Bank's operations with other supervisors, including the Under the KDB Act, the Ministry has the power to Board. In light of these commitments and other facts of dismiss the senior officers, executive directors, and auditor record, and subject to the condition described below, the of KDB, and may request the dismissal of the governor. Board concludes that Bank has provided adequate assur- The BAI may request the Ministry to take disciplinary ances of access to any necessary information the Board action against any officer or employee of KDB who has may request. committed any unlawful act, refused inspection, or caused On the basis of all the facts of record, and subject to the any delay in the presentation of documents requested by commitments made by Bank, as well as the terms and the BAI. conditions set forth in this order, the Board has determined Based on all the facts of record, including the informathat Bank's application to establish a state-licensed branch tion described above, the Board concludes that Bank is should be, and hereby is, approved. Should any restrictions on access to information on the operations or activities of Bank and its affiliates subsequently interfere with the 8. A general audit encompasses an annual review of all operating Board's ability to obtain information to determine and departments. Special audits may be conducted at the request of the enforce compliance by Bank or its affiliates with applicable Ministry, the board of directors, or the governor in response to specific federal statutes, the Board may require termination of any issues or concerns which may arise. Routine or daily audits relate specifically to the loan approval process. of Bank's direct or indirect activities in the United States. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

972 Federal Reserve Bulletin • October 1996 Approval of this application is also specifically conditioned proceedings under 12 U.S.C. § 1818 or 12 U.S.C. § 1847 on Bank's compliance with the commitments made in against Bank, its offices, and its affiliates. connection with this application and with the conditions in By order of the Board of Governors, elfective this order.9 The commitments and conditions referred to August 23, 1996. above are conditions imposed in writing by the Board in connection with its decision, and may be enforced in Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Lindsey, Phillips, and Meyer. Absent and not voting: Governor Yellen. JENNIFER J. JOHNSON 9. The Board's authority to approve establishment of the proposed Deputy Secretary of the Board branch office parallels the continuing authority of the State of New York to license offices of a foreign bank. The Board's approval of this application does not supplant the authority of the State of New York proposed branch office of Bank in accordance with any terms or and its agent, the New York State Banking Department, to license the conditions that the New York State Banking Department may impose. INDEX OF ORDERS ISSUED OR ACTIONS TAKEN BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (APRIL I, 1996-JUNE 30,1996) ,. Merged or Acquired Bank Date of Bulletin Applicant * • • * Volume or Activity Approval , _ and Page Aspen Bancshares, Inc., Val Cor Bancorporation, Inc., May 31, 1996 82, 665 Aspen, Colorado Cortez, Colorado Valley National Bank of Cortez, Cortez, Colorado Bank of Boston Corporation, The Boston Bancorp, June 3, 1996 82, 733 Boston, Massachusetts Boston, Massachusetts South Boston Savings Bank, Boston, Massachusetts The Bank of New York Company, BNY Capital Markets, Inc., June 10, 1996 82, 748 Inc., New York, New York New York, New York The Bessemer Group, Incorporated, Bessemer Asset Management, Inc., April 24, 1996 82, 569 Woodbridge, New Jersey New York, New York BNCCORP, Inc., Cambridge Bank Professionals, LLC, May 1, 1996 82, 673 Bismarck, North Dakota St. Cloud, Minnesota BNC Financial Corporation, St. Cloud, Minnesota Butte Bank Shares, Inc., First Citizens Bank of Butte, April 1, 1996 82, 554 Butte, Montana Butte, Montana Caisse Nationale de Credit Agricole, CALFP (US), Inc., June 10, 1996 82, 754 S.A., New York, New York Paris, France Capital One Financial Corporation, Order approving an exemption from the April 11, 1996 82,584 Falls Church, Virginia anti-tying provisions Cardinal Bancshares, Inc., Security First Network Bank, May 21, 1996 82, 674 Lexington, Kentucky Pineville, Kentucky Five Paces Software, Inc., Atlanta, Georgia Cedel Bank, S.A., To establish a representative office in April 24, 1996 82, 591 Luxembourg New York, New York Commercial Bank "Ion Tiriac", To establish a representative office in April 22, 1996 82, 592 S.A., New York, New York Bucharest, Romania Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 973 Bulletin Merged or Acquired Bank Date of Applicant Volume or Activity Approval and Page Community Bancshares of Community State Bank, June 17, 1996 82, 735 Marysville, Inc., Hanover, Kansas Marysville, Kansas Creditanstalt-Bankverein, To relocate its existing federally April 22, 1996 82, 594 Vienna, Austria licensed uninsured branch from New York, New York, to Greenwich, Connecticut Croghan Bancshares, Inc., Union Bancshares Corp., June 10, 1996 82, 737 Fremont, Ohio Bellevue, Ohio Union Bank and Savings Company, Bellevue, Ohio The Croghan Colonia Bank, Union Bank and Savings Company, June 10, 1996 82, 737 Fremont, Ohio Bellevue, Ohio Dresdner Bank AG, RCM Capital Management, California May 30, 1996 82, 676 Frankfurt, Germany Limited Partnership, San Francisco, California RCM Capital Trust Company, San Francisco, California Emigrant Bancorp, Inc., Queens County Bancorp, Inc., April 1, 1996 82, 555 New York, New York Flushing, New York Farmers State Corporation, First Security Bank-Madison, April 8, 1996 82, 557 Mountain Lake, Minnesota Madison, Minnesota Bank Southwest Corporation, Worthington, Minnesota Firstar Corporation, Jacob Schmidt Company, June 24, 1996 82, 762 Milwaukee, Wisconsin St. Paul, Minnesota Firstar Corporation of Minnesota, American Bancorporation, Inc., Bloomington, Minnesota St. Paul, Minnesota First Commerce Banks of Florida, Prime Bank of Central Florida, June 5, 1996 82, 738 Inc., Titusville, Florida Winter Haven, Florida First Commerce Corporation, 150 Baronne Street Limited Partnership, May 29, 1996 82, 679 New Orleans, Louisiana New Orleans, Louisiana First Hawaiian, Inc., Pacific One Bank, April 8, 1996 82, 575 Honolulu, Hawaii Portland, Oregon Pioneer Federal Savings Bank, Honolulu, Hawaii Flathead Holding Company of Bank West, N.A., June 24, 1996 82, 741 Bigfork, Kalispell, Montana Bigfork, Montana Fleet Financial Group, Inc., NatWest Bank National Association, April 15, 1996 82, 558 Boston, Massachusetts Jersey City, New Jersey Huntington Bancshares, Order approving an exemption from the May 23, 1996 82, 688 Incorporated, anti-tying provisions Columbus, Ohio National City Corporation, Cleveland, Ohio Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

974 Federal Reserve Bulletin • October 1996 Bulletin Merged or Acquired Bank DDaattee ooff Applicant Volume or Activity AApppprroovvaall and Page Huntington Bancshares Five Paces Software, Inc., May 21, 1996 82, 680 Incorporated, Atlanta, Georgia Columbus, Ohio Wachovia Corporation, Winston-Salem, North Carolina Area Bancshares Corporation, Owensboro, Kentucky Iowa State Bank, To establish a branch at June 24, 1996 82, 767 Hull, Iowa 1101 Main Street, Hull, Iowa Komercni Banka, a.s., To establish a representative office in April 22, 1996 82, 597 Prague, Czech Republic New York, New York Korea Long Term Credit Bank, To establish a state-licensed branch in June 24, 1996 82, 767 Seoul, Korea New York, New York Morgan Guaranty Trust Company of J.P. Morgan Delaware, April 29, 1996 82, 585 New York, Wilmington, Delaware New York, New York National Bancshares Corporation of Corpus Christi Bancshares, Inc., April 29, 1996 82, 565 Texas, Corpus Christi, Texas Laredo, Texas National Bank of Canada, To establish representative offices in June 10, 1996 82, 769 Montreal, Cananda Denver, Colorado; Boca Raton, Florida; Baltimore, Maryland; Boston, Massachusetts; Southfield, Michigan; Charlotte, North Carolina; Cincinnati, Ohio; Cleveland, Ohio; Pittsburgh, Pennsylvania; Memphis, Tennessee; and Richmond, Virginia Norwest Corporation, AmeriGroup, Incorporated, April 29, 1996 82, 580 Minneapolis, Minnesota Minnetonka, Minnesota AmeriBank, Bloomington, Minnesota Norwest Corporation, The Prudential Home Mortgage May 6, 1996 82, 683 Minneapolis, Minnesota Company, Inc., Clayton, Missouri Norwest Corporation, Union Texas Bancorporation, Inc., May 29, 1996 82, 667 Minneapolis, Minnesota Laredo, Texas Union National Bank of Texas, Laredo, Texas Promstroybank of Russia, To establish a representative office in April 8, 1996 82, 599 Moscow, Russian Federation New York, New York R&G Financial Corporation, R-G Premier Bank of Puerto Rico, June 17, 1996 82, 745 Hato Rey, Puerto Rico Hato Rey, Puerto Rico R&G Mortgage Corporation, Hato Rey, Puerto Rico Signet Bank, Signet Bank N.A., April 29, 1996 82, 590 Richmond, Virginia Falls Church, Virginia Swiss Bank Corporation, S.G. Warburg Overseas Ltd., May 13, 1996 82, 685 Basle, Switzerland London, England S.G. Warburg Forex Ltd., London, England (branch located in New York, New York) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 975 Bulletin Merged or Acquired Bank Date of Applicant Volume or Activity Approval and Page Swiss Bank Corporation, To establish a representative office in May 13, 1996 82, 690 Basle, Switzerland Houston, Texas Union Planters Corporation, Eastern National Bank, June 5, 1996 82, 745 Memphis, Tennessee Miami, Florida Union Planters Corporation, Franklin Financial Group, Inc., June 10, 1996 82, 756 Memphis, Tennessee Morristown, Tennessee Franklin Federal Savings Bank, Morristown, Tennessee West One Bank, Idaho, U.S. Bank of Idaho, National June 17, 1996 82, 765 Boise, Idaho Association, Coeur D'Alene, Idaho Wilson Bank Holding Company, DeKalb Community Bank, April 1, 1996 82, 568 Lebanon, Tennessee Smithville, Tennessee Woodforest Bancshares, Inc., Mutual Money Investments, Inc., April 8, 1996 82, 573 Houston, Texas Houston, Texas 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 Applicant(s) Bank(s) Effective Date Wachovia Corporation, Wachovia Capital Markets, Inc., August 26, 1996 Winston-Salem, North Carolina Atlanta, Georgia 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 Applicant(s) Bank(s) Reserve Bank Effective Date Alabama National Bancorporation, FIRSTBANC Holding Company, Inc., Atlanta August 21, 1996 Birmingham, Alabama Robertsdale, Alabama First Bank of Baldwin County, Robertsdale, Alabama BancFirst Corporation, Inc., Commerce Bancorporation, Inc., Kansas City July 26, 1996 Oklahoma City, Oklahoma McLoud, Oklahoma The Belknap Partnership, L.P., Bootheel Bancorp, Inc., St. Louis August 19, 1996 Poplar Bluff, Missouri Maiden, Missouri First Community Bank, Bernie, Missouri Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

976 Federal Reserve Bulletin • October 1996 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Big Bend Bancshares Corporation, Marfa National Bank, Dallas July 30, 1996 Presidio, Texas Marfa, Texas Rio Bancshares Corporation, Wilmington, Delaware Bullsboro Bancshares, Inc., The Bank of Newnan, Atlanta August 14, 1996 Newnan, Georgia Newnan, Georgia Community Holdings Corporation, First State Bank and Trust Company of Chicago August 19, 1996 Palos Hills, Illinois Palos Hills, Palos Hills, Illinois DFC Acquisition Corporation Two, Air Academy National Bancorp, Kansas City August 21, 1996 Kansas City, Missouri United States Air Force Academy, Colorado East Texas Bancorp, Inc., East Texas Delaware Financial Dallas July 30, 1996 Longview, Texas Corporation, Dover, Delaware Community Bank, Longview, Texas East Texas Delaware Financial Community Bank, Dallas July 30, 1996 Corporation, Longview, Texas Dover, Delaware FirstBank Holding Company of FirstBank of Greeley, Kansas City August 20, 1996 Colorado Employee Stock Greeley, Colorado Ownership Plan, Lakewood, Colorado FirstBank Holding Company of Colorado, Lakewood, Colorado First Commercial Corporation, City National Bank, St. Louis July 29, 1996 Little Rock, Arkansas Whitehouse, Texas First Interstate BancSystem of First Interstate Bank of Montana, N.A., August 14, 1996 Montana, Inc., Kalispell, Montana Billings, Montana First Interstate Bank of Wyoming, N.A. Casper, Wyoming First National Bancorp, Inc., The First National Bank of St. Mary's, Richmond August 14, 1996 St. Mary's, West Virginia St. Mary's, West Virginia F & M National Corporation, Allegiance Banc Corporation, August 15, 1996 Winchester, Virginia Bethesda, Maryland FNB Bancshares, Inc., Richmond August 16, 1996 Gaffney, South Carolina Freeman Bancstock Investments, UB&T Financial Corporation, Dallas August 2, 1996 Dallas, Texas Dallas, Texas Inwood Bancshares, Inc., Dallas, Texas Independent Bancshares, Inc., Granite Holding Corporation, Minneapolis July 30, 1996 Clarkfield, Minnesota Granite Falls, Minnesota Investors Bancorp, MHC, Investors Savings Bank, New York August 16, 1996 Millburn, New Jersey Millburn, New Jersey Investors Bancorp, Inc., Millburn, New Jersey JS Investments, Limited Partnership, First Interstate Bank of Montana, N.A., Minneapolis August 14, 1996 Billings, Montana Kalispell, Montana Nbar5, Limited Partnership, First Interstate Bank of Wyoming, N.A., Ranchester, Wyoming Casper, Wyoming Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 977 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Kingsbury BDC Financial Services, Bank of Dixon County, Kansas City July 30, 1996 Inc., Ponca, Nebraska Ponca, Nebraska American State Bank, Newcastle, Nebraska Lawton Partners Holding Company, First United, Inc., St. Louis August 21, 1996 Central City, Kentucky Central City, Kentucky Mark Twain Bancshares, Inc., Northland Bancshares, Inc., St. Louis August 15, 1996 St. Louis, Missouri Kansas City, Missouri Mark Twain Acquisition Corp. II, First National Bank of Platte County, St. Louis, Missouri Kansas City, Missouri Mercantile Bancorporation Inc., Peoples State Bank, St. Louis August 5, 1996 St. Louis, Missouri Topeka, Kansas Ameribanc, Inc., St. Louis, Missouri Mesaba Bancshares, Inc., River Bancorp, Inc., Minneapolis July 31, 1996 Biwabik, Minnesota Ramsey, Minnesota Mid State Banks, Inc., The First State Bank of Ocilla, Atlanta August 8, 1996 Cordele, Georgia Ocilla, Georgia National City Bancshares, Inc., First National Bank of Wayne City, St. Louis August 2, 1996 Evansville, Indiana Wayne City, Illinois Norwest Corporation, Texas Bancorporation, Inc., Minneapolis August 20, 1996 Minneapolis, Minnesota Odessa, Texas ONB Financial Services, Inc., Ocala National Bank, Atlanta August 22, 1996 Ocala, Florida Ocala, Florida Ouachita Bancshares Corp., Ouachita Independent Bank, Dallas August 2, 1996 West Monroe, Louisiana Monroe, Louisiana Premier Bancorp, Inc., Premier Bank, Kansas City August 20, 1996 Denver, Colorado Lenexa, Kansas R. Banking Limited Partnership, Commerce Bancorporation, Inc., Kansas City July 26, 1996 Oklahoma City, Oklahoma McLoud, Oklahoma The Ringsmuth Family Limited Wakefield Bancorporation, Inc., Minneapolis August 7, 1996 Partnership, Wakefield, Michigan Wakefield, Michigan River Bancorp, Inc., Northland Security Bank, Minneapolis July 31, 1996 Ramsey, Minnesota Ramsey, Minnesota SSB Holdings, Inc., Second Bancshares, Inc., Kansas City July 31, 1996 Miami, Oklahoma Miami, Oklahoma S.Y. Bancorp, Inc., The Austin State Bank, St. Louis August 12, 1996 Louisville, Kentucky Austin, Indiana WKS, Inc., Sierra Thrift, San Francisco August 8, 1996 Fresno, California Fresno, California Section 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Arrow Financial Corporation, VNB Trust Company, New York July 31, 1996 Glens Falls, New York Rutland, Vermont Arrow Vermont Corporation, Rutland, Vermont Centura Banks, Inc., First Greensboro Home Equity, Inc. Richmond August 12, 1996 Rocky Mount, North Carolina Greensboro, North Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

978 Federal Reserve Bulletin • October 1996 Section 4—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Elfective Date Century Bancshares, Inc., To engage de novo in discount St. Louis July 30, 1996 Gainesville, Missouri brokerage securities activities Commerzbank Aktiengesellschaft, Commerz Futures Corporation, New York August 12, 1996 Frankfurt am Main, Germany Chicago, Illinois Deutsche Bank AG, Deutsche Financial Capital Limited New York August 16, 1996 Frankfurt (Main), Federal Liability Company, Republic of Germany, Greensboro, North Carolina Oakwood Homes Corporation, Greensboro, North Carolina Greater Community Bancorp, Greater Community Financial, L.L.C., New York August 2, 1996 Totowa, New Jersey Totowa, New Jersey NBN Corp., Smoky Mountain Financial Services, Atlanta July 31, 1996 Newport, Tennessee Inc., Jefferson City, Tennessee NEB Corporation, To engage in making and servicing Chicago August 8, 1996 Fond du Lac, Wisconsin loans NBN Corp., Smoky Mountain Financial Services, Atlanta August 16, 1996 Newport, Tennessee Inc., Jefferson City, Tennessee Norwest Corporation, Central Computers, Inc., Minneapolis July 26, 1996 Minneapolis, Minnesota Victoria, Texas Norwest Corporation, Norwest Technical Services, Inc., Minneapolis August 22, 1996 Minneapolis, Minnesota Minneapolis, Minnesota Norwest Financial, Inc., To engage de novo in the issuance Des Moines, Iowa and sale at retail of money orders Norwest Financial Services, Inc., Sunburst Financial Services, Inc., Minneapolis July 26, 1996 Des Moines, Iowa Jackson, Mississippi, dba Rapid Norwest Corporation, Finance, Inc., Minneapolis, Minnesota Jackson, Mississippi Norwest Financial Services, Inc., Des Moines, Iowa Norwest Financial, Inc., Des Moines, Iowa Security Banc Corporation, Third Financial Corporation, Cleveland August 2, 1996 Springfield, Ohio Piqua, Ohio Sharon Bancshares, Inc., To engage de novo in full-service St. Louis July 26, 1996 Sharon, Tennessee brokerage activities The Tokai Bank, Limited, Tokai Financial Services, Inc., San Francisco August 14, 1996 Nagoya, Japan Berwyn, Pennsylvania Wells Fargo & Company, To engage de novo on a nationwide San Francisco August 6, 1996 San Francisco, California basis, through all of its subsidiary banks, in the issuance and sale of money instruments as follows: (1) domestic money orders up to a maximum face value of $10,000; (2) international money orders in denominations not to exceed $10,000; and (3) official checks with no maximum limitation on the face amount, but subject to certain limitations Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 979 Section 4—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Wells Fargo & Company, To expand to nationwide, the San Francisco August 5, 1996 San Francisco, California geographic scope of the previously approved activity of installing, owning, operating, and maintaining automatic teller machines Zions Bancorporation, To engage de novo in the activity of San Francisco August 9, 1996 Salt Lake City, Utah installing, owning, and operating automatic teller machines Sections 3 and 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date North Shore Community Bancorp, Lake Forest Bancorp, Inc., Chicago August 14, 1996 Inc., Lake Forest, Illinois Wilmette, Illinois Hinsdale Bancorp, Inc., Hinsdale, Illinois Libertyville, Bancorp, Inc., Lake Forest, Illinois Crabtree Capital Corporation, Schaumburg, Illinois Roosevelt Financial Group, Inc., Community Charter Corporation, St. Louis August 19, 1996 Chesterfield, Missouri St. Louis, Missouri Missouri State Bank and Trust Company, St. Louis, Missouri Roosevelt Bank, Chesterfield, Missouri Roosevelt Mortgage Company, Chesterfield, Missouri APPLICATIONS APPROVED UNDER BANK MERGER 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. Applicant(s) Bank(s) Reserve Bank Effective Date BancFirst, The Bank of Commerce, Kansas City July 26, 1996 Oklahoma City, Oklahoma McLoud, Oklahoma Boulder Valley Bank & Trust, Mountain Parks Bank-East, Kansas City July 26, 1996 Boulder, Colorado Evergreen, Colorado Mountain Parks Bank-West, Breckenridge, Colorado The Bank of Louisville, Louisville, Colorado Triangle Bank, Granville United Bank, Richmond August 2, 1996 Raleigh, North Carolina Oxford, North Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

980 Federal Reserve Bulletin • October 1996 Bank Merger Act—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Yellowstone Bank, Yellowstone Bank, Minneapolis August 20, 1996 Laurel, Montana Absarokee, Montana Yellowstone Bank, Billings, Montana Yellowstone Bank, Columbus, Montana PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the case with Kuntz v. Board of Governors, No. 95-1495. On Federal Reserve Banks in which the Board of Governors is not April 8, 1996, the Board filed a motion to dismiss the named a party. action. Henderson v. Board of Governors, No. 96-1054 (D.C. Cir., Long v. Board of Governors, No. 96-9526 (10th Cir., filed filed February 16, 1996). Petition for review of a Board July 31, 1996). Petition for review of Board order dated order dated January 17, 1996, approving the merger of First July 2, 1996, assessing a civil money penalty and cease and Citizens BancShares, Inc., Raleigh, North Carolina, with desist order for violations of the Bank Holding Company Allied Bank Capital, Inc., Sanford, North Carolina. Petition- Act. ers' motion for a stay was denied on March 7, 1996. Esformes v. Board of Governors, No. 96-1916 (S.D. Fla., filed Research Triangle Institute v. Board of Governors, July 12, 1996). Complaint challenging Board denial of No. 1:96CV00102 (M.D.N.C., filed February 12, 1996). administrative request for confidential supervisory informa- Contract dispute. On May 3, 1996, the Board filed a motion tion. On July 12, 1996, plaintiffs moved for an expedited to dismiss the action. hearing on the complaint. The motion was denied on Au- Inner City Press/Community on the Move v. Board of Govergust 1, 1996. nors, No. 96-4008 (2nd Cir., filed January 19, 1996). Peti- Board of Governors v. Interamericas Investments, Ltd., tion for review of a Board order dated January 5, 1996, No. 96-7108 (D.C. Cir., filed June 14, 1996). Appeal of approving the applications and notices by Chemical Bankdistrict court ruling granting, in part, the Board's applica- ing Corporation to merge with The Chase Manhattan Cortion to enforce an adminstrative investigatory subpoena for poration, both of New York, New York, and by Chemical documents and testimony. Appellants filed a motion for a Bank to merge with The Chase Manhattan Bank, N.A., both stay of the district court ruling on July 17, 1996; the of New York, New York. Petitioners' motion for an emer- Board's opposition was filed on July 23, 1996. gency stay of the transaction was denied following oral argument on March 26, 1996. The Board's brief on the Interamericas Investments, Ltd. v. Board of Governors, merits was filed July 8, 1996. The case has been consoli- No. 96-60326 (5th Cir., filed May 8, 1996). Petition for dated for oral argument and decision with Lee v. Board of review of order imposing civil money penalties and cease Governors, No. 95^1134 (2d Cir.). and desist order in enforcement case. Petitioners' brief was filed on July 26, 1996. On August 20, petitioners' motion Menick v. Greenspan, No. 95-CV-01916 (D. D.C., filed Octofor a stay of the Board's orders pending judicial review was ber 10, 1995). Complaint alleging sex, age, and handicap denied by the Court of Appeals. discrimination in employment. Kuntz v. Board of Governors, No. 96-1137 (D.C. Cir., filed Kuntz v. Board of Governors, No. 95-1495 (D.C. Cir., filed April 25, 1996). Petition for review of a Board order dated September 21, 1995). Petition for review of Board order March 25, 1996, approving an application by CoreStates dated August 23, 1995, approving the applications of The Financial Corp., Philadelphia, Pennsylvania to acquire Me- Fifth Third Bank, Cincinnati, Ohio, to acquire certain assets ridian Bancorp, Inc., Reading, Pennsylvania. The Board's and assume certain liabilities of 12 branches of PNC Bank, motion to dismiss was filed on June 3, 1996. Ohio, N.A., Cincinnati, Ohio, and to establish certain Kuntz v. Board of Governors, No. 96-1079 (D.C. Cir., filed branches. The Board's motion to dismiss was filed on March 7, 1996). Petition for review of a Board order dated October 26, 1995. February 7, 1996, approving applications by The Fifth Lee v. Board of Governors, No. 95-4134 (2nd Cir., filed Third Bank, Cincinnati, Ohio, and The Firth Third Bank of August 22, 1995). Petition for review of Board orders dated Columbus, Columbus, Ohio, to acquire certain assets and July 24, 1995, approving certain steps of a corporate reorgaassume certain liabilities of 25 branches of NBD Bank, nization of U.S. Trust Corporation, New York, New York, Columbus, Ohio. Petitioner has moved to consolidate the and the acquisition of U.S. Trust by Chase Manhattan Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 981 Corporation, New York, New York. On September 12, FINAL ENFORCEMENT ORDERS ISSUED BY THE BOARD 1995, the court denied petitioners' motion for an emergency OF GOVERNORS stay of the Board's orders. The Board's brief was filed on April 16, 1996. Joseph G. Donner, Jr. Beckman v. Greenspan, No. 95-35473 (9th Cir., filed May 4, Lenexa, Kansas 1995). Appeal of dismissal of action against Board and others seeking damages for alleged violations of constitu- The Federal Reserve Board announced on August 14, tional and common law rights. The appellants' brief was 1996, the issuance of an Order of Prohibition against filed on June 23, 1995; the Board's brief was filed on Joseph G. Donner, Jr., an appraiser for the Premier Bank, July 12, 1995. Lenexa, Kansas, a state member bank, and other banks. Money Station, Inc. v. Board of Governors, No. 95-1182 (D.C. Cir., filed March 30, 1995). Petition for review of a Board order dated March 1, 1995, approving notices by Bank One Corporation, Columbus, Ohio; CoreStates Finan- Albert L. Margolin cial Corp., Philadelphia, Pennsylvania; PNC Bank Corp., Lenexa, Kansas Pittsburgh, Pennsylvania; and KeyCorp, Cleveland, Ohio, to acquire certain data processing assets of National City The Federal Reserve Board announced on August 14, Corporation, Cleveland, Ohio, through a joint venture sub- 1996, the issuance of an Order of Prohibition against sidiary. On April 23, 1996, the court vacated the Board's Albert L. Margolin, an appraiser for the Premier Bank, order. On July 31, 1996, the full court granted the Board's Lenexa, Kansas, a state member bank, and other banks. suggestion for rehearing en banc, and vacated the April 23 panel decision. In re Subpoena Duces Tecum, Misc. No. 95-06 (D.D.C., filed January 6, 1995). Action to enforce subpoena seeking pre- WRITTEN AGREEMENTS APPROVED BY FEDERAL decisional supervisory documents sought in connection with RESERVE BANKS an action by Bank of New England Corporation's trustee in bankruptcy against the Federal Deposit Insurance Corpora- The Bank of Corning Company tion. The Board filed its opposition on January 20, 1995. Corning, Ohio Oral argument on the motion was held July 14, 1995. Board of Governors v. Pharaon, No. 91-CIV-6250 (S.D. New York, filed September 17, 1991). Action to freeze assets of The Federal Reserve Board announced on August 13, individual pending administrative adjudication of civil 1996, the execution of a Written Agreement by and among money penalty assessment by the Board. On September 17, The Bank of Corning Company, Corning, Ohio, the Fed- 1991, the court issued an order temporarily restraining the eral Reserve Bank of Cleveland, and the Superintendent of transfer or disposition of the individual's assets. Financial Institutions of the State of Ohio. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A1 Financial and Business Statistics A3 GUIDE TO TABULAR PRESENTATION Federal Finance A25 Federal fiscal and financing operations DOMESTIC FINANCIAL STATISTICS A26 U.S. budget receipts and outlays A27 Federal debt subject to statutory limitation Money Stock and Bank Credit A27 Gross public debt of U.S. Treasury— Types and ownership A4 Reserves, money stock, liquid assets, and debt A28 U.S. government securities measures dealers—Transactions A5 Reserves of depository institutions, Reserve Bank A29 U.S. government securities dealers— credit Positions and financing A6 Reserves and borrowings—Depository A30 Federal and federally sponsored credit institutions agencies—Debt outstanding A6 Selected borrowings in immediately available funds—Large member banks Securities Markets and Corporate Finance Policy Instruments A31 New security issues—Tax-exempt state and local governments and corporations A7 Federal Reserve Bank interest rates A32 Open-end investment companies—Net sales A8 Reserve requirements of depository institutions and assets A9 Federal Reserve open market transactions A32 Corporate profits and their distribution A3 3 Domestic finance companies—Assets and Federal Reserve Banks liabilities, and consumer, real estate, and business A10 Condition and Federal Reserve note statements credit All Maturity distribution of loan and security holdings Real Estate Monetary and Credit Aggregates A34 Mortgage markets A35 Mortgage debt outstanding A12 Aggregate reserves of depository institutions and monetary base Consumer Installment Credit A13 Money stock, liquid assets, and debt measures A15 Deposit interest rates and amounts outstanding— A3 6 Total outstanding commercial and BIF-insured banks A36 Terms A16 Bank debits and deposit turnover Flow of Funds Commercial Banking Institutions A37 Funds raised in U.S. credit markets A17 Assets and liabilities, Wednesday figures A39 Summary of financial transactions A40 Summary of credit market debt outstanding Weekly Reporting Commercial Banks— A41 Summary of financial assets and liabilities Assets and liabilities A19 Large reporting banks DOMESTIC NONFINANCIAL STATISTICS A21 Branches and agencies of foreign banks Selected Measures Financial Markets A42 Nonfinancial business activity— A22 Commercial paper and bankers dollar Selected measures acceptances outstanding A42 Labor force, employment, and unemployment A22 Prime rate charged by banks on short-term A43 Output, capacity, and capacity utilization business loans A44 Industrial production—Indexes and gross value A23 Interest rates—money and capital markets A46 Housing and construction A24 Stock market—Selected statistics A47 Consumer and producer prices Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2 Federal Reserve Bulletin • October 1996 DOMESTIC NONFINANCIAL STATISTICS- Reported by Nonbanking Business CONTINUED Enterprises in the United States A58 Liabilities to unaffiliated foreigners Selected Measures—Continued A59 Claims on unaffiliated foreigners A48 Gross domestic product and income A49 Personal income and saving Securities Holdings and Transactions A60 Foreign transactions in securities INTERNATIONAL STATISTICS A61 Marketable U.S. Treasury bonds and notes—Foreign transactions Summary Statistics A50 U.S. international transactions—Summary Interest and Exchange Rates A51 U.S. foreign trade A61 Discount rates of foreign central banks A51 U.S. reserve assets A61 Foreign short-term interest rates A51 Foreign official assets held at Federal Reserve A62 Foreign exchange rates Banks A52 Selected U.S. liabilities to foreign official institutions A63 GUIDE TO STATISTICAL RELEASES AND SPECIAL TABLES Reported by Banks in the United States A52 Liabilities to and claims on foreigners SPECIAL TABLE A53 Liabilities to foreigners A55 Banks' own claims on foreigners A64 Pro forma balance sheets and income statements A56 Banks' own and domestic customers' claims on for priced service operations, June 30, 1996 foreigners A56 Banks' own claims on unaffiliated foreigners A66 INDEX TO STATISTICAL TABLES A57 Claims on foreign countries— Combined domestic offices and foreign branches Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 Guide to Tabular Presentation SYMBOLS AND ABBREVIATIONS c Corrected G-10 Group of Ten e Estimated GNMA Government National Mortgage Association n.a. Not available GDP Gross domestic product n.e.c. Not elsewhere classified HUD Department of Housing and Urban P Preliminary Development r Revised (Notation appears on column heading IMF International Monetary Fund when about half of the figures in that column IO Interest only are changed.) IPCs Individuals, partnerships, and corporations * Amounts insignificant in terms of the last decimal IRA Individual retirement account place shown in the table (for example, less than MMDA Money market deposit account 500,000 when the smallest unit given is millions) MSA Metropolitan statistical area 0 Calculated to be zero NOW Negotiable order of withdrawal Cell not applicable OCD Other checkable deposit ATS Automatic transfer service OPEC Organization of Petroleum Exporting Countries BIF Bank insurance fund OTS Office of Thrift Supervision CD Certificate of deposit PO Principal only CMO Collateralized mortgage obligation REIT Real estate investment trust FFB Federal Financing Bank REMIC Real estate mortgage investment conduit FHA Federal Housing Administration RP Repurchase agreement FHLBB Federal Home Loan Bank Board RTC Resolution Trust Corporation FHLMC Federal Home Loan Mortgage Corporation SAIF Savings Association Insurance Fund FmHA Farmers Home Administration SCO Securitized credit obligation FNMA Federal National Mortgage Association SDR Special drawing right FSLIC Federal Savings and Loan Insurance Corporation SIC Standard Industrial Classification G-7 Group of Seven VA Department of Veterans Affairs GENERAL INFORMATION In many of the tables, components do not sum to totals because of include not fully guaranteed issues) as well as direct obligarounding. 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 NonfinancialS tatistics • October 1996 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted' 1995 1996 1996 MMoonneettaarryy oorr ccrreeddiitt aaggggrreeggaattee Q3 Q4 Ql Q2 Mar. Apr. May June July Reserves of depository institutions2 1 Total -1.5 -6.9 -7.9 -6.4 19.2 -11.7 -20.8 -2.5 -20.2 2 Required -2.5 -7.7 -8.5 -5.7 13.2 -11.6 -15.4 -9.1' -18.8 3 Nonborrowed -2.4 -6.4 -6.5 -7.6 19.6 -13.2 -21.6 -8.3' -20.0 4 Monetary base3 1.7 2.7 1.5 2.1 8.9 -.6 1.0 5.7 7.6 Concepts of money, liquid assets, and debt4 5 Ml -1.5 -5.1 -2.7 -,7r 10.0 -3.2r -6.8r -.5' -8.8 6 M2 6.9 4.1 5.9 4.1 11.7 1.9r - 1.7r 5.5' 2.3 7 M3 8.0 4.5 7.2 5.4r 11.1 1.8r 3.0r 4.7 3.8 8 L 9.1 5.9 5.1 5.9 12.6 5.7r -.r 6.5 n.a. 9 Debt 4.9 4.7 4.7 4.8 6.1r 4.5r 3.7 3.8 n.a. Nontransaction components 10 In M25 10.9 8.3 9.7 6.r 12.4 4.1r .6 8.1' 7.0 11 In M3 only6 12.1 6.3 12.6 10.6 9.0 1.5 21.2r 1.5' 9.5 Time and savings deposits Commercial banks 12 Savings, including MMDAs 9.0 13.1 22.6 12.7 25.2 8.6r 4.1r 12.3 10.9 13 Small time7 11.0 4.8 2.5 —2.6r -4.5 -3.5 -2.1' 1.3' 5.6 14 Large time8,9 13.0 19.4 8.9 17.8r 27.4 8.1r 20.2' 18.5' 25.1 Thrift institutions 15 Savings, including MMDAs -7.3 -2.8 -.3 8.1 5.7 13.91 5.2' 2.9 .0 16 Small time7 4.1 5.0 -2.5 -3.4 -8.4 -1.7 -2.7 -3.4' -3.1 17 Large time8 13.7 8.0 6.2 -2.8 -9.5 1.6 -9.5 6.4 12.7 Money market mutual funds 18 Retail 36.9 16.5 14.7 11.5 32.6 2.7 -3.2 21.2 14.0 19 Institution-only 27.6 10.3 27.9 8.7 21.6 -13.0 -10.3 29.1 16.8 Repurchase agreements and Eurodollars 20 Repurchase agreements10 -5.0 -14.6 1.3 5.0r -13.5 -7.8 80.0 -70.7' -18.3 21 Eurodollars10 9.4 —6.6r 16.9r 10.8r -29.8 33.1' 17.4' 11.0 -19.4 Debt components4 22 Federal 4.6 2.3 2.7 5.2 11.2 3.6 1.8 2.5 n.a. 23 Nonfederal 5.0 5.5 5.4 4.7 4.3r 4.8r 4.4 4.3 n.a. 1. Unless otherwise noted, rates of change are calculated from average amounts outstand- amounts held by depository institutions, the U.S. government, money market funds, and ing during preceding month or quarter. foreign banks and official institutions. Seasonally adjusted M3 is calculated by summing large 2. Figures incorporate adjustments for discontinuities, or "breaks," associated with time deposits, institutional money fund balances, RP liabilities, and Eurodollars, each regulatory changes in reserve requirements. (See also table 1.20.) seasonally adjusted separately, and adding this result to seasonally adjusted M2. 3. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency securities, commercial paper, and bankers acceptances, net of money market fund holdings of component of the money stock, plus (3) (for all quarterly reporters on the "Report of these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term Transaction Accounts, Other Deposits and Vault Cash" and for all weekly reporters whose Treasury securities, commercial paper, and bankers acceptances, each seasonally adjusted vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference separately, and then adding this result to M3. between current vault cash and the amount applied to satisfy current reserve requirements. Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial 4. Composition of the money stock measures and debt is as follows: sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in the process of collection and Federal corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data, Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of which are derived from the Federal Reserve Board's flow of funds accounts, are breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at thrift institutions. Seasonally month-averaged (that is, the data have been derived by averaging adjacent month-end levels). adjusted Ml is computed by summing currency, travelers checks, demand deposits, and 5. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retail OCDs, each seasonally adjusted separately. money fund balances, each seasonally adjusted separately. M2: Ml plus (1) savings (including MMDAs), (2) small-denomination time deposits (time 6. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities deposits—including retail RPs—in amounts of less than $100,000), and (3) balances in retail (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and money market mutual funds (money funds with minimum initial investments of less than term) of U.S. addressees, each seasonally adjusted separately. $50,000). Excludes individual retirement accounts (IRAs) and Keogh balances at depository 7. Small time deposits—including retail RPs—are those issued in amounts of less than institutions and money market funds. Seasonally adjusted M2 is calculated by summing $100,000. All IRA and Keogh account balances at commercial banks and thrift institutions savings deposits, small-denomination time deposits, and retail money fund balances, each are subtracted from small time deposits. seasonally adjusted separately, and adding this result to seasonally adjusted M1. 8. Large time deposits are those issued in amounts of $100,000 or more, excluding those M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more), (2) booked at international banking facilities. balances in institutional money funds (money funds with minimum initial investments of 9. Large time deposits at commercial banks less those held by money market funds, $50,000 or more), (3) RP liabilities (overnight and term) issued by all depository institutions, depository institutions, the U.S. government, and foreign banks and official institutions. and (4) Eurodollars (overnight and term) held by U.S. residents at foreign branches of U.S. 10. Includes both overnight and term. banks worldwide and at all banking offices in the United Kingdom and Canada. Excludes 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 1996 1996 May June July June 19 June 26 July 3 July 10 July 17 July 24 July 31 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 416,807 420,911R 423,810 422,869 420,638R 425,037 425,448 425,198 419,274 424,561 U.S. government securities2 2 Bought outright—System account 380,178 382,000 383,166 382,857 382,495 383,362 383,437 383,393 382,763 383,049 3 Held under repurchase agreements 1,983 4,456 5,677 5,418 3,086 7,282 7,611 6,422 1,794 6,078 Federal agency obligations 4 Bought outright 2,442 2,401 2,359 2,388 2,388 2,388 2,383 2,351 2,351 2,336 5 Held under repurchase agreements 503 524 449 256 747 62 96 1,010 414 407 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 24 185 92 586 22 269 30 5 16 261 8 Seasonal credit 106 190 285 193 227 254 263 283 299 308 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float 517 380R 468 312 718R 127 670 385 450 266 11 Other Federal Reserve assets 31,054 30,775R 31,314 30,861 30,956R 31,293 30,958 31,349 31,188 31,856 12 Gold stock 11,051 11,051 11,050 11,051 11,050 11,050 11,050 11,050 11,050 11,050 13 Special drawing rights certificate account 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 14 Treasury currency outstanding 24,415R 24,482R 24,543 24,483R 24,497R 24,511 24,525 24,539 24,553 24,567 ABSORBING RESERVE FUNDS 15 Currency in circulation 420,050R 423,445R 428,381 423,217R 423,303R 426,183 430,109 428,958 427,422 427,164 16 Treasury cash holdings 276 281 269 285 279 280 278 268 267 258 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 5,714 6,162 5,304 6,022 7,184 6,417 5,277 5,464 5,260 5,384 18 Foreign 196 177 180 173 171 188 207 176 173 164 19 Service-related balances and adjustments 6,188 6,161 6,228 6,117 6,184 6,172 6,270 6,002 6,380 6,281 20 Other 362 330 318 336 332 333 314 342 313 295 21 Other Federal Reserve liabilities and capital 12,885 13,224 13,391 13,304 13,252 13,351 13,228 13,252 13,242 13,885 22 Reserve balances with Federal Reserve Banks3 .. . 16,771 16,832R 15,501 19,117 15,649R 17,842 15,507 16,494 11,988 16,914 End-of-month figures Wednesday figures May June July June 19 June 26 July 3 July 10 July 17 July 24 July 31 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 420,959 425,292R 436,326 433,333 421,392R 426,627 426,066 432,275 419,946 436,326 U.S. government securities2 2 Bought outright—System account 381,346 383,914 382,378 382,761 382,522 382,702 383,785 383,364 382,967 382,378 3 Held under repurchase agreements 5,704 7,086 15,458 12,711 4,226 9,012 8,798 12,700 2,080 15,458 Federal agency obligations 4 Bought outright 2,428 2,388 2,336 2,388 2,388 2,388 2,351 2,351 2,351 2,336 5 Held under repurchase agreements 1,350 0 282 195 0 433 40 1,690 700 282 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 8 388 1,423 3,644 17 10 4 9 17 1,423 8 Seasonal credit 148 248 295 207 241 255 272 295 310 295 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float -342 -190R 504 92 907R 664 -450 18 197 504 11 Other Federal Reserve assets 30,318 31,458R 33,649 31,334 31,091R 31,162 31,265 31,848 31,324 33,649 12 Gold stock 11,051 11,050 11,050 11,051 11,050 11,050 11,050 11,050 11,050 11,050 13 Special drawing rights certificate account 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 14 Treasury currency outstanding 24,455R 24,5 llr 24,567 24,483R 24,497R 24,511 24,525 24,539 24,553 24,567 ABSORBING RESERVE FUNDS 15 Currency in circulation 422,41 lr 424,780R 428,715 423,830R 424,830R 429,537 430,701 428,935 427,693 428,715 16 Treasury cash holdings 265 280 261 279 280 282 268 269 257 261 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 3,757 7,701 6,836 6,142 7,290 3,703 5,668 5,323 5,211 6,836 18 Foreign 160 183 166 167 163 171 190 167 167 166 19 Service-related balances and adjustments 6,237 6,172 6,281 6,117 6,184 6,172 6,270 6,002 6,380 6,281 20 Other 300 326 278 326 326 315 347 363 291 278 21 Other Federal Reserve liabilities and capital 13,148 13,374 14,817 13,141 13,024 13,049 13,094 13,067 13,194 14,817 22 Reserve balances with Federal Reserve Banks3 20,357 18,205R 24,756 29,033 15,012R 19,127 15,271 23,907 12,524 24,756 1. Amounts of cash held as reserves are shown in table 1.12, line 2. 3. Excludes required clearing balances and adjustments to compensate for float. 2. Includes securities loaned—fully guaranteed by U.S. government securities pledged with Federal Reserve Banks—and excludes 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 • October 1996 1.12 RESERVES AND BORROWINGS Depository Institutions1 Millions of dollars Prorated monthly averages of biweekly averages RReesseerrvvee ccllaassssiiffiiccaattiioonn 1993 1994 1995 1996 Dec. Dec. Dec. Jan. Feb. Mar. Apr. May June July 1 Reserve balances with Reserve Banks2 29,374 24,658 20,440 17,763 16,792 18,426 19,181 16,753 16,590r 15,395 2 Total vault cash3 36,818 40,378 42,088 44,676 42,115 40,892 40,889 41,146 41,979 42,773 3 Applied vault cash4 33,484 36,682 37,460 39,170 36,957 36,458 36,688 36,382 37,095 37,451 4 Surplus vault cash5 3,334 3,696 4,628 5,506 5,158 4,435 4,201 4,764 4,883 5,322 5 Total reserves6 62,858 61,340 57,900 56,934 53,749 54,884 55,869 53,135 53,685r 52,846 6 Required reserves 61,795 60,172 56,622 55,449 52,898 53,747 54,750 52,275 52,535r 51,778 7 Excess reserve balances at Reserve Banks7 1,063 1,168 1,278 1,485 851 1,137 1,120 860 1,150r 1,068 8 Total borrowings at Reserve Banks8 82 209 257 38 35 21 91 127 386 368 9 Seasonal borrowings 31 100 40 7 7 10 34 105 192 284 10 Extended credit9 0 0 0 0 0 0 0 0 0 0 Biweekly averages of daily figures for two week periods ending on dates indicated 1996 Mar. 27 Apr. 10 Apr. 24 May 8 May 22 June 5 June 19 July 3 July 17 July 31 1 Reserve balances with Reserve Banks2 18,492 18,954 20,331 16,876 16,946 16,341 16,565 16,735r 16,049 14,453 2 Total vault cash3 40,362 40,903 40,398 42,013 40,823 40,879 42,824 41,403 42,347 43,492 3 Applied vault cash4 36,011 36,767 36,417 37,190 36,091 36,117 37,747 36,712 37,320 37,741 4 Surplus vault cash5 4,352 4,136 3,981 4,823 4,732 4,762 5,078 4,692 5,027 5,751 5 Total reserves6 54,502 55,721 56,748 54,065 53,037 52,458 54,311 53,447r 53,369 52,194 6 Required reserves 53,346 54,567 55,629 53,002 52,201 51,743 53,234 52,007r 52,543 50,965 7 Excess reserve balances at Reserve Banks7 1,156 1,154 1,119 1,063 836 715 1,078 l,439r 826 1,229 8 Total borrowings at Reserve Banks8 20 47 122 92 129 156 469 386 290 442 9 Seasonal borrowings 12 16 30 71 103 138 173 241 273 304 10 Extended credit9 0 0 0 0 0 0 0 0 0 0 1. Data in this table also appear in the Board's H.3 (502) weekly statistical release. For 5. Total vault cash (line 2) less applied vault cash (line 3). ordering address, see inside front cover. Data are not break-adjusted or seasonally adjusted. 6. Reserve balances with Federal Reserve Banks (line 1) plus applied vault cash 2. Excludes required clearing balances and adjustments to compensate for float and (line 3). 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 may be used 9. Consists of borrowing at the discount window under the terms and conditions estabto satisfy reserve requirements. The maintenance period for weekly reporters ends sixteen lished for the extended credit program to help depository institutions deal with sustained days after the lagged computation period during which the vault cash is held. Before Nov. 25, liquidity pressures. Because there is not the same need to repay such borrowing promptly as 1992, the maintenance period ended thirty days after the lagged computation period. with traditional short-term adjustment credit, the money market effect of extended credit is 4. All vault cash held during the lagged computation period by "bound" institutions (that similar to that of nonborrowed reserves. is, those whose required reserves exceed their vault cash) plus 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. 1.13 SELECTED BORROWINGS IN IMMEDIATELY AVAILABLE FUNDS Large Banks1 Millions of dollars, averages of daily figures 1996, week ending Monday SSoouurrccee aanndd mmaattuurriittyy June 3 June 10 June 17 June 24 July 1 July 8 July 15 July 22 July 29 Federal funds purchased, repurchase agreements, and other selected borrowings From commercial banks in the United States 1 For one day or under continuing contract 85,577 82,179 80,092 73,504r 77,701 81,116 75,971 75,271 72,877 2 For all other maturities 18,749r 17,752' 18,129r 18,182r 17,457 16,080 16,780 15,435 14,984 From other depository institutions, foreign banks and official institutions, and U.S. government agencies 3 For one day or under continuing contract 21,158 19,602 17,394 24,776 18,186 22,846 22,183 22,679 18,460 4 For all other maturities 22,330r 21,178r 21,307r 22,056r 21,159 20,122 21,500 20,195 20,210 Repurchase agreements on U.S. government and federal agency securities Brokers and nonbank dealers in securities 5 For one day or under continuing contract 21,158r 18,891r 17,804r 17,786r 15,609 17,296 14,058 11,804 12,467 6 For all other maturities 41,306r 41,082r 40,444r 39,570r 37,087 38,104 39,958 39,674 41,571 All other customers 7 For one day or under continuing contract 39,439 38,153 37,560 35,588 34,254 36,086 37,174 37,226 37,015 8 For all other maturities 13,652 13,611 14,195 14,362 13,905 13,089 12,734 13,145 13,065 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 68,874 68,559 70,490 66,112 72,735 70,774 64,529 64,835 66,286 10 To all other specified customers2 21,sir 25,847 27,762 24,775 22,878 25,514 25,023 22,049 21,470 1. Banks with assets of $4 billion or more as of Dec. 31, 1988. 2. Brokers and nonbank dealers in securities, other depository institutions, foreign banks Data in this table also appear in the Board's H.5 (507) weekly statistical release. For and official institutions, and U.S. government agencies, ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A7 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit1 Seasonal credit2 Extended credit3 FFeeddeerraall RReesseerrvvee BBaannkk 8/3 O 0 n /9 6 Effective date Previous rate 8/3 O 0 n /9 6 Effective date Previous rate 8/3 O 0 n /9 6 Effective date Previous rate Boston 5.00 2/1/96 5.25 5.30 8/29/96 5.35 5.80 8/29/96 5.85 New York 1/31/96 Philadelphia 1/31/96 Cleveland 1/31/96 Richmond 2/1/96 Atlanta 1/31/96 Chicago 2/1/96 St. Louis 2/5/96 Minneapolis 1/31/96 Kansas City 2/1/96 Dallas 1/31/96 San Francisco 5.00 1/31/96 5.25 5.30 8/29/96 5.35 5.80 8/29/96 5.85 Range of rates for adjustment credit in recent years4 Range (or F.R. Bank Range (or F.R. Bank Range (or Effective date level)—All of Effectiv level)—All of level)—All F.R. Banks N.Y. F.R. Banks N.Y. F.R. Banks In effect Dec. 31, 1977 6 6 1981—Nov. 2 13-14 13 1988—Aug. 9 6-6.5 6.5 13 13 11 6.5 6.5 1978—Jan. 9 6-6.5 6.5 Dec. 4 12 12 20 6.5 6.5 1989—Feb. 24 6.5-7 7 May 11 6.5-7 7 1982—July 20 11.5-12 11.5 7 7 12 7 7 23 11.5 11.5 27 July 3 7-7.25 7.25 Aug. 2 11-11.5 11 6.5 6.5 10 7.25 7.25 3 11 11 1990—Dec. 19 Aug. 21 7.75 7.75 16 10.5 10.5 6-6.5 6 Sept. 22 8 8 27 10-10.5 10 1991—Feb. 1 6 6 Oct. 16 8-8.5 8.5 30 10 10 4 5.5-6 5.5 20 8.5 8.5 Oct. 12 9.5-10 9.5 Apr. 30 5.5 5.5 Nov. 1 8.5-9.5 9.5 13 9.5 9.5 May 2 5-5.5 5 3 9.5 9.5 Nov. 22 9-9.5 9 Sept. 13 5 5 26 9 9 1 7 4.5-5 4.5 1979—July 20 10 10 Dec. 14 8.5-9 9 Nov. 6 4.5 4.5 Aug. 17 10-10.5 10.5 15 8.5-9 8.5 7 3.5^1.5 3.5 20 10.5 10.5 17 8.5 8.5 Dec. 20 3.5 3.5 Sept. 19 10.5-11 11 24 21 11 11 1984—Apr. 9 8.5-9 9 1992—July 2 3-3.5 3 Oct. 8 11-12 12 13 9 9 7 3 3 10 12 12 Nov. 21 8.5-9 8.5 26 8.5 8.5 1994—May 17 3-3.5 3.5 1980—Feb. 15 12-13 13 Dec. 24 1 8 3.5 3.5 19 13 13 Aug. 16 3.5-4 4 May 29 12-13 13 1985—May 20 7.5-8 7.5 18 4 4 30 12 12 24 7.5 7.5 Nov. 15 4-4.75 4.75 June 13 11-12 11 17 4.75 4.75 16 11 11 1986—Mar. 7 7-7.5 7 July 28 10-11 10 10 7 7 1995—Feb. 1 4.75-5.25 5.25 29 10 10 Apr. 21 6.5-7 6.5 9 5.25 5.25 Sept 26 1111 1111 23. 6.5 6.5 Nov. 17 12 12 July 11 6 6 1996—Jan. 31 5.00-5.25 5.00 Dec. 5 12-13 13 Aug. 21 5.5-6 5.5 Feb. 5 5.00 5.00 8 13 13 22 5.5 5.5 11998811——MMaayy 55 13-14 14 In effect Aug. 30, 1996 5.00 5.00 88 14 14 1987—Sept. 4 5.5-6 6 11 6 6 1. Available on a short-term basis to help depository institutions meet temporary needs for of the Federal Reserve Bank, this time period may be shortened. Beyond this initial period, a funds that cannot be met through reasonable alternative sources. The highest rate established flexible rate somewhat above rates charged on market sources of funds is charged. The rate for loans to depository institutions may be charged on adjustment credit loans of unusual size ordinarily is reestablished on the first business day of each two-week reserve maintenance that result from a major operating problem at the borrower's facility. period, but it is never less than the discount rate applicable to adjustment credit plus 50 basis 2. Available to help relatively small depository institutions meet regular seasonal needs for points. funds that arise from a clear pattern of intrayearly movements in their deposits and loans and 4. For earlier data, see the following publications of the Board of Governors: Banking and that cannot be met through special industry lenders. The discount rate on seasonal credit takes Monetary Statistics, 1914-1941, and 1941-1970; and the Annual Statistical Digest, 1970into account rates charged by market sources of funds and ordinarily is reestablished on the 1979. first business day of each two-week reserve maintenance period; however, it is never less than In 1980 and 1981, the Federal Reserve applied a surcharge to short-term adjustment-credit the discount rate applicable to adjustment credit. borrowings by institutions with deposits of $500 million or more that had borrowed in 3. May be made available to depository institutions when similar assistance is not successive weeks or in more than four weeks in a calendar quarter. A 3 percent surcharge was reasonably available from other sources, including special industry lenders. Such credit may in effect from Mar. 17, 1980, through May 7, 1980. A surcharge of 2 percent was reimposed be provided when exceptional circumstances (including sustained deposit drains, impaired on Nov. 17, 1980; the surcharge was subsequently raised to 3 percent on Dec. 5, 1980, and to access to money market funds, or sudden deterioration in loan repayment performance) or 4 percent on May 5, 1981. The surcharge was reduced to 3 percent effective Sept. 22, 1981, practices involve only a particular institution, or to meet the needs of institutions experiencing and to 2 percent effective Oct. 12, 1981. As of Oct. 1, 1981, the formula for applying the difficulties adjusting to changing market conditions over a longer period (particularly at times surcharge was changed from a calendar quarter to a moving thirteen-week period. The of deposit disintermediation). The discount rate applicable to adjustment credit ordinarily is surcharge was eliminated on Nov. 17, 1981. charged on extended-credit loans outstanding less than thirty days; however, at the discretion Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A8 Domestic NonfinancialS tatistics • October 1996 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS1 Type of deposit Net transaction accounts 1 $0 million—$52.0 million3 . 12/19/95 2 More than $52.0 million4 . 12/19/95 3 Nonpersonal time deposits' 12/27/90 4 Eurocurrency liabilities6. .. 12/27/90 1. Required reserves must be held in the form of deposits with Federal Reserve Banks succeeding calendar year by 80 percent of the percentage increase in the total reservable or vault cash. Nonmember institutions may maintain reserve balances with a Federal liabilities of all depository institutions, measured on an annual basis as of June 30. No Reserve Bank indirectly, on a pass-through basis, with certain approved institutions. For corresponding adjustment is made in the event of a decrease. The exemption applies only to previous reserve requirements, see earlier editions of the Annual Report or the Federal accounts that would be subject to a 3 percent reserve requirement. Effective Dec. 19, 1995, Reserve Bulletin. Under the Monetary Control Act of 1980, depository institutions the exemption was raised from $4.2 million to $4.3 million. include commercial banks, mutual savings banks, savings and loan associations, credit 4. The reserve requirement was reduced from 12 percent to 10 percent on unions, agencies and branches of foreign banks, and Edge Act corporations. Apr. 2, 1992, for institutions that report weekly, and on Apr. 16, 1992, for institutions that 2. Transaction accounts include all deposits against which the account holder is permitted report quarterly. to make withdrawals by negotiable or transferable instruments, payment orders of with- 5. For institutions that report weekly, the reserve requirement on nonpersonal time deposits drawal, or telephone or preauthorized transfers for the purpose of making payments to third with an original maturity of less than 1 '/> years was reduced from 3 percent to 1 [/i percent for persons or others. However, accounts subject to the rules that permit no more than six the maintenance period that began Dec. 13, 1990, and to zero for the maintenance period that preauthorized, automatic, or other transfers per month (of which no more than three may be began Dec. 27, 1990. For institutions that report quarterly, the reserve requirement on by check, draft, debit card, or similar order payable directly to third parties) are savings nonpersonal time deposits with an original maturity of less than 11/2 years was reduced from 3 deposits, not transaction accounts. percent to zero on Jan. 17, 1991. 3. The Monetary Control Act of 1980 requires that the amount of transaction accounts The reserve requirement on nonpersonal time deposits with an original maturity of 1 xfi against which the 3 percent reserve requirement applies be modified annually by 80 percent of years or more has been zero since Oct. 6, 1983. the percentage change in transaction accounts held by all depository institutions, determined 6. The reserve requirement on Eurocurrency liabilities was reduced from 3 percent to zero as of June 30 of each year. Effective Dec. 19, 1995, the amount was decreased from $54.0 in the same manner and on the same dates as the reserve requirement on nonpersonal time million to $52.0 million. deposits with an original maturity of less than 1 !/> years (see note 5). Under the Garn-St Germain Depository Institutions Act of 1982, the Board adjusts the amount of reservable liabilities subject to a zero percent reserve requirement each year for the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A9 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1 Millions of dollars 1995 1996 TTyyppee ooff ttrraannssaaccttiioonn 11999933 11999944 11999955 aanndd mmaattuurriittyy Dec. Jan. Feb. Mar. Apr. May June U.S. TREASURY SECURITIES Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 17,717 17,484 10,932 0 0 0 0 88 00 33,,331111 2 Gross sales 0 0 0 0 0 0 0 0 0 0 3 Exchanges 332,229 376,277 398,487 31,535 31,476 39,332 30,556 32,218 40,467 31,726 4 Redemptions 0 0 900 0 0 0 0 0 0 0 Others within one year 5 Gross purchases 1,223 1,238 390 390 0 0 0 35 0 00 6 Gross sales 0 0 0 0 0 0 0 0 0 0 7 Maturity shifts 31,368 0 0 0 2,048 2,746 0 3,511 5,107 0 8 Exchanges -36,582 -21,444 0 0 -3,287 -7,575 0 -4,824 -5,448 0 9 Redemptions 0 0 0 0 1,228 0 0 787 0 0 One to five years 10 Gross purchases 10,350 9,168 4,966 2,317 0 0 0 1,899 00 00 11 Gross sales 0 0 0 0 0 0 0 0 0 0 12 Maturity shifts -27,140 -6,004 0 0 -2,048 -1,908 0 -3,511 -4,049 0 13 Exchanges 0 17,801 0 0 3,287 5,175 0 4,824 3,748 0 Five to ten years 14 Gross purchases 4,168 3,818 1,239 0 0 0 0 447799 00 00 15 Gross sales 0 0 0 0 0 0 0 0 0 0 16 Maturity shifts 0 -3,145 0 0 0 -818 0 0 -1,058 0 17 Exchanges 0 2,903 0 0 0 1,500 0 0 1,700 0 More than ten years 18 Gross purchases 3,457 3,606 3,122 1,884 0 0 0 1,065 0 00 19 Gross sales 0 0 0 0 0 0 0 0 0 0 20 Maturity shifts 0 -918 0 0 0 -20 0 0 0 0 21 Exchanges 0 775 0 0 0 900 0 0 0 0 All maturities 22 Gross purchases 36,915 35,314 20,649 4,591 0 0 0 3,566 0 3,311 23 Gross sales 0 0 0 0 0 0 0 0 0 0 24 Redemptions 767 2,337 2,376 0 1,228 0 0 787 0 0 Matched transactions 25 Gross purchases 1,475,941 1,700,836 2,197,736 227,858 260,425 274,290 251,623 253,482 259,135 248,534 26 Gross sales 1,475,085 1,701,309 2,202,030 228,071 259,186 275,979 251,086 251,510 259,595 249,277 Repurchase agreements 27 Gross purchases 475,447 309,276 331,694 34,325 16,040 6,230 31,602 48,869 3300,,668888 4433,,004488 28 Gross sales 470,723 311,898 328,497 28,546 28,802 6,230 27,706 50,345 27,404r 41,666 29 Net change in U.S. Treasury securities 41,729 29,882 17,175 10,157 -12,751 -1,689 4,433 3,274 2,824r 3,950 FEDERAL AGENCY OBLIGATIONS Outright transactions 30 Gross purchases 0 0 0 0 0 0 0 00 00 00 31 Gross sales 0 0 0 0 0 0 0 0 0 0 32 Redemptions 774 1,002 1,303 58 0 0 108 82 16 40 Repurchase agreements 33 Gross purchases 35,063 52,696 36,851 2.888 9,793 765 5,640 22,,337722 55,,112222'' 55,,113388 34 Gross sales 34,669 52,696 36,776 1,788 10,893 765 4,640 3,372 4,372r 6,488 35 Net change in federal agency obligations -380 -1,002 -1,228 1,042 -1,100 0 892 -1,082 l,334r -1,390 36 Total net change in System Open Market Account... 41,348 28,880 15,948 11,199 -13,851 -1,689 5,325 2,192 4,158r 2,560 1. Sales, redemptions, and negative figures reduce holdings of the System Open Market Account; all other figures increase such holdings. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic Nonfinancial Statistics • October 1996 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements' Millions of dollars Wednesday End of month Account 1996 1996 July 3 July 10 July 17 July 24 July 31 May 31 June 30 July 31 Consolidated condition statement ASSETS 1 Gold certificate account 11,050 11,050 11,050 11,050 11,050 11,051 11,050 11,050 2 Special drawing rights certificate account 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 3 Coin 523 495 494 508 521 552 552 521 Loans 4 To depository institutions 265 276 304 327 1,718 155 636 1,718 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 2,388 2,351 2,351 2,351 2,336 2,428 22,,338888 22,,333366 8 Held under repurchase agreements 433 40 1,690 700 282 1,350 0 282 9 Total U.S. Treasury securities 391,714 392,583 396,064 385,047 397,836 387,050 391,000 397,836 10 Bought outright2 382,702 383,785 383,364 382,967 382,378 381,346 383,914 382,378 11 Bills 186,158 187,241 186,819 186,422 185,833 184,801 187,370 185,833 12 Notes 150,102 150,102 150,102 150,102 150,102 150,102 150,102 150,102 13 Bonds 46,443 46,443 46,443 46,443 46,443 46,443 46,443 46,443 14 Held under repurchase agreements 9,012 8,798 12,700 2,080 15,458 5,704 7,086 15,458 15 Total loans and securities 394,801 395,251 400,410 388,425 402,173 390,983 394,025 402,173 16 Items in process of collection 7,106 5,938 6,567 5,830 6,143 4,007 4,152 6,143 17 Bank premises 1,182 1,184 1,190 1,191 1,190 1,171 1,182 1,190 Other assets 18 Denominated in foreign currencies3 19,556 19,564 19,573 19,581 20,183 19,561 19,554 20,183 19 All other4 10,436 10,682 11,203 10,598 12,349 9,538 10,726 12,349 20 Total assets 454,822 454,333 460,654 447,351 463,777 447,032 451,409 463,777 LIABILITIES 21 Federal Reserve notes 405,830 406,938 405,159 403,905 404,930 398,773 401,101 404,930 22 Total deposits 29,442 28,855 36,501 24,886 38,332 30,901 32,804 38,332 23 Depository institutions 25,253 22,649 30,649 19,217 31,052 26,685 24,594 31,052 24 U.S. Treasury—General account 3,703 5,668 5,323 5,211 6,836 3,757 7,701 6,836 25 Foreign—Official accounts 171 190 167 167 166 160 183 166 26 Other 315 347 363 291 278 300 326 278 27 Deferred credit items 6,501 5,446 5,927 5,366 5,697 4,210 4,130 5,697 28 Other liabilities and accrued dividends5 4,416 4,364 4,323 4,182 5,156 4,542 4,464 5,156 29 Total liabilities 446,189 445,603 451,911 438,339 454,116 438,426 442,499 454,116 CAPITAL ACCOUNTS 30 Capital paid in 4,139 4,139 4,159 4,421 4,437 4,154 4,138 4,437 31 Surplus 3,966 3,966 3,966 3,966 3,966 3,960 3,966 3,966 32 Other capital accounts 528 624 618 625 1,257 492 806 1,257 33 Total liabilities and capital accounts 454,822 454,333 460,654 447,351 463,777 447,032 451,409 463,777 MEMO 34 Marketable U.S. Treasury securities held in custody for foreign and international accounts 547,336 550,556 549,228 553,814 559,611 556,832 551,797 555599,,661111 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Banks) 518,722 518,712 519,731 520,444 521,387 514,098 519,234 521,387 36 LESS: Held by Federal Reserve Banks 112,892 111,773 114,573 116,539 116,457 115,325 118,133 116,457 37 Federal Reserve notes, net 405,830 406,938 405,159 403,905 404,930 398,773 401,101 404,930 Collateral held against notes, net 38 Gold certificate account 11,050 11,050 11,050 11,050 11,050 11,051 11,050 11,050 39 Special drawing rights certificate account 10,168 10,168 10,168 10,168 10,168 10,168 10,168 10,168 40 Other eligible assets 0 0 0 0 0 0 0 0 41 U.S. Treasury and agency securities 384,611 385,720 383,941 382,687 383,713 377,554 379,883 383,713 42 Total collateral 405,830 406,938 405,159 403,905 404,930 398,773 401,101 404,930 1. Some of the data in this table also appear in the Board's H.4.1 (503) weekly statistical 3. Valued monthly at market exchange rates. release. For ordering address, see inside front cover. 4. Includes special investment account at the Federal Reserve Bank of Chicago in Treasury 2. Includes securities loaned—fully guaranteed by U.S. Treasury securities pledged with bills maturing within ninety days. Federal Reserve Banks—and excludes securities sold and scheduled to be bought back under 5. Includes exchange-translation account reflecting the monthly revaluation at market matched sale-purchase transactions. exchange rates of foreign exchange commitments. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks All 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding Millions of dollars Wednesday Type of holding and maturity July 3 July 10 July 17 July 24 July 31 May 31 1 Total loans 1,718 2 Within fifteen days1 61 52 282 301 1,555 75 231 204 224 23 26 1,163 80 18 3 Sixteen days to ninety days 391,714 392,583 396,064 385,047 397,836 381,346 383,914 4 Total U.S. Treasury securities... 17,925 23,270 27,773 17,531 28,057 2,926 4,410 5 Within fifteen days' 93,246 88,725 87,508 91,086 86,783 98,950 99,558 6 Sixteen days to ninety days 116,132 116,177 116,650 112,295 118,032 116,114 116,591 7 Ninety-one days to one year 92,749 92,749 91,751 91,751 92,581 91,694 91,694 8 One year to five years 32,941 32,941 33,662 33,662 33,662 32,941 32,941 9 Five years to ten years 38,721 38,721 38,721 38,721 38,721 38,721 38,721 10 More than ten years 11 Total federal agency obligations 2,821 2,391 4,041 3,051 2,618 2,428 2,388 12 Within fifteen days' 470 55 871 438 372 307 13 Sixteen days to ninety days 730 715 659 709 722 473 495 14 Ninety-one days to one year 645 655 555 505 492 575 610 15 One year to five years 485 475 475 475 475 512 485 16 Five years to ten years 467 467 467 467 467 472 467 17 More than ten years 25 25 25 25 25 25 25 1. Holdings under repurchase agreements are classified as maturing within fifteen days in NOTE. Total acceptances data have been deleted from this table because data are no longer accordance with maximum maturity of the agreements. available. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A12 Domestic NonfinancialS tatistics • October 1996 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1995 1996 1992 1993 1994 1995 IItteemm Dec. Dec. Dec. Dec. Dec. Jan. Feb. Mar. Apr. May June July Seasonally adjusted ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS2 1 Total reserves3 54.37 60.52 59.36 56.36 56.36 55.61 54.85 55.73 55.18 54.23 54.1 lr 53.20 2 Nonborrowed reserves4 54.24 60.44 59.16 56.11 56.11 55.57 54.81 55.71 55.09 54.10 53.73 52.83 3 Nonborrowed reserves plus extended credit5 54.24 60.44 59.16 56.11 56.11 55.57 54.81 55.71 55.09 54.10 53.73 52.83 4 Required reserves 53.21 59.46 58.20 55.09 55.09 54.12 54.00 54.59 54.06 53.37 52.96 52.13 5 Monetary base6 351.24 386.88 418.72 435.01 435.01 435.18 433.67 436.87 436.64 437.01r 439.08r 441.85 Not seasonally adjusted 6 Total reserves7 56.06 62.37 61.13 58.02 58.02 56.95 53.80 54.97 56.00 53.29 53.87 53.06 7 Nonborrowed reserves 55.93 62.29 60.92 57.76 57.76 56.91 53.77 54.95 55.90 53.16 53.48r 52.69 8 Nonborrowed reserves plus extended credit5 55.93 62.29 60.92 57.76 57.76 56.91 53.77 54.95 55.90 53.16 53.48r 52.69 9 Required reserves8 54.90 61.31 59.96 56.74 56.74 55.47 52.95 53.84 54.88 52.43 52.72 51.99 10 Monetary base9 354.55 390.59 422.51 439.03 439.03 436.01 430.29 434.86 437.12 436.13 439.88r 443.19 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS10 11 Total reserves" 56.54 62.86 61.34 57.90 57.90 56.93 53.75 54.88 55.87 53.14 53.69 52.85 12 Nonborrowed reserves 56.42 62.78 61.13 57.64 57.64 56.90 53.72 54.86 55.78 53.01 53.30 52.48 13 Nonborrowed reserves plus extended credit5 56.42 62.78 61.13 57.64 57.64 56.90 53.72 54.86 55.78 53.01 53.30 52.48 14 Required reserves 55.39 61.80 60.17 56.62 56.62 55.45 52.90 53.75 54.75 52.28 52.54r 51.78 15 Monetary base12 360.90 397.62 427.25 444.45 444.45 441.96 436.26 440.77 442.96 442.17r 445.94r 449.26 16 Excess reserves13 1.16 1.06 1.17 1.28 1.28 1.49 .85 1.14 1.12 .86 1.15r 1.07 17 Borrowings from the Federal Reserve .12 .08 .21 .26 .26 .04 .04 .02 .09 .13 .39 .37 1. Latest monthly and biweekly figures are available from the Board's H.3 (502) weekly 8. To adjust required reserves for discontinuities that are due to regulatory changes in statistical release. Historical data starting in 1959 and estimates of the effect on required reserve requirements, a multiplicative procedure is used to estimate what required reserves reserves of changes in reserve requirements are available from the Money and Reserves would have been in past periods had current reserve requirements been in effect. Break- Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve adjusted required reserves include required reserves against transactions deposits and nonper- System, Washington, DC 20551. sonal time and savings deposits (but not reservable nondeposit liabilities). 2. Figures reflect adjustments for discontinuities, or "breaks," associated with regulatory 9. The break-adjusted monetary base equals (1) break-adjusted total reserves (line 6), plus changes in reserve requirements. (See also table 1.10.) (2) the (unadjusted) currency component of the money stock, plus (3) (for all quarterly 3. Seasonally adjusted, break-adjusted total reserves equal seasonally adjusted, break- reporters on the "Report of Transaction Accounts, Other Deposits and Vault Cash" and for all adjusted required reserves (line 4) plus excess reserves (line 16). those weekly reporters whose vault cash exceeds their required reserves) the break-adjusted 4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally adjusted, difference between current vault cash and the amount applied to satisfy current reserve break-adjusted total reserves (line 1) less total borrowings of depository institutions from the requirements. Federal Reserve (line 17). 10. Reflects actual reserve requirements, including those on nondeposit liabilities, with no 5. Extended credit consists of borrowing at the discount window under the terms and adjustments to eliminate the effects of discontinuities associated with regulatory changes in conditions established for the extended credit program to help depository institutions deal reserve requirements. with sustained liquidity pressures. Because there is not the same need to repay such 11. Reserve balances with Federal Reserve Banks plus vault cash used to satisfy reserve borrowing promptly as with traditional short-term adjustment credit, the money market effect requirements. of extended credit is similar to that of nonborrowed reserves. 12. The monetary base, not break-adjusted and not seasonally adjusted, consists of (1) total 6. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally reserves (line 11), plus (2) required clearing balances and adjustments to compensate for float adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency at Federal Reserve Banks, plus (3) the currency component of the money stock, plus (4) (for component of the money stock, plus (3) (for all quarterly reporters on the "Report of all quarterly reporters on the "Report of Transaction Accounts, Other Deposits and Vault Transaction Accounts, Other Deposits and Vault Cash" and for all those weekly reporters Cash" and for all those weekly reporters whose vault cash exceeds their required reserves) the whose vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference between current vault cash and the amount applied to satisfy current reserve difference between current vault cash and the amount applied to satisfy current reserve requirements. Since the introduction of contemporaneous reserve requirements in February requirements. 1984, currency and vault cash figures have been measured over the computation periods 7. Break-adjusted total reserves equal break-adjusted required reserves (line 9) plus excess ending on Mondays. reserves (line 16). 13. Unadjusted total reserves (line 11) less unadjusted required reserves (line 14). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A13 1.21 MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES1 Billions of dollars, averages of daily figures 1996r 1992 1993 1994 1995 IItteemm Dec. Dec. Dec. Dec. Apr. May June July Seasonally adjusted Measures2 1 Ml 1,024.4 1,128.6 1,148.7 1,124.9 1,123.6 1,117.2 1,116.7 1,108.5 2 M2 3,438.7 3,494.1 3,509.4 3,662.6 3,735.9 3,730.7 3,747.8 3,755.0 3 M3 4,187.3 4,249.6 4,319.7 4,576.0 4,693.4 4,705.1 4,723.5 4,738.3 4 L 5,075.8 5,164.5 5,303.7 5,685.5 5,813.0 5,812.7 5,844.2 n.a. 5 Debt 11,880.5 12,517.4 13,159.3 13,894.8 14,132.9 14,177.0 14,222.4 n.a. Ml components 6 Currency3 292.9 322.4 . 354.9 373.2 376.0 377.1 379.4 382.6 7 Travelers checks4 8.1 7.9 8.5 8.9 8.9 8.7 8.6 8.5 8 Demand deposits5 339.1 384.3 382.4 389.8 406.3 409.6 413.6 410.5 9 Other checkable deposits6 384.2 414.0 402.9 353.0 332.4 321.8 315.0 306.9 Nontransaction components 10 In M27 2,414.3 2,365.4 2,360.7 2,537.7 2,612.3 2,613.5 2,631.2 2,646.5 11 In M3 only8 748.6 755.6 810.3 913.4 957.5 974.4 975.6 983.3 Commercial banks 12 Savings deposits, including MMDAs 754.1 785.0 751.9 775.0 826.9 829.7 838.2 845.8 13 Small time deposits9 509.3 470.4 505.4 578.5 576.4 575.4 576.0 578.7 14 Large time deposits10' " 286.6 272.3 298.7 342.4 356.6 362.6 368.2 375.9 Thrift institutions 15 Savings deposits, including MMDAs 433.0 433.8 397.0 359.5 366.3 367.9 368.8 368.8 16 Small time deposits9 361.9 317.6 318.2 359.6 354.0 353.2 352.2 351.3 17 Large time deposits10 67.1 61.5 64.8 75.0 75.6 75.0 75.4 76.2 Money market mutual funds 18 Retail 356.0 358.7 388.1 465.1 488.7 487.4 496.0 501.8 19 Institution-only 199.8 197.9 183.7 227.2 245.6 243.5 249.4 252.9 Repurchase agreements and Eurodollars 20 Repurchase agreements12 128.1 157.5 180.8 177.6 182.9 195.1 183.6 180.8 21 Eurodollars12 66.9 66.3 82.3 91.2 96.8 98.2 99.1 97.5 Debt components 22 Federal debt 3,068.6 3,328.3 3,497.6 3,644.6 3,707.0 3,712.6 3,720.2 n.a. 23 Nonfederal debt 8,812.0 9,189.1 9,661.7 10,250.2 10,425.9 10,464.4 10,502.1 n.a. Not seasonally adjusted Measures2 24 Ml 1,046.0 1,153.7 1,174.2 1,150.7 1,129.9 1,104.0 1,112.8 1,108.5 25 M2 3,455.1 3,514.1 3,529.8 3,682.3 3,748.8 3,716.1 3,746.2 3,761.9 26 M3 4,205.3 4,271.3 4,341.5 4,597.1 4,698.2 4,690.0 4,720.7 4,740.4 27 L 5,103.1 5,194.2 5,333.2 5,715.0 5,818.6 5,793.5 5,835.3 n.a. 28 Debt 11,881.5 12,509.6 13,150.2 13,878.0 14,060.2 14,070.7 14,138.7 n.a. Ml components 29 Currency3 295.0 324.8 357.5 376.1 375.8 377.5 380.5 383.8 30 Travelers checks4 7.8 7.6 8.1 8.5 8.6 8.6 8.9 9.1 31 Demand deposits5 354.4 401.8 400.1 407.9 406.0 399.5 409.8 411.1 32 Other checkable deposits6 388.9 419.4 408.4 358.1 339.4 318.3 313.6 304.5 Nontransaction components 33 In M27 2,409.1 2,360.4 2,355.6 2,531.5 2,618.9 2,612.1 2,633.4 2,653.4 34 In M3 only8 750.2 757.1 811.7 914.8 949.4 973.8 974.5 978.5 Commercial banks 35 Savings deposits, including MMDAs 752.9 784.3 751.6 775.0 825.9 827.7 839.9 848.3 36 Small time deposits9 507.8 468.2 502.5 574.5 578.4 577.5 578.1 581.2 37 Large time deposits10, 11 286.2 272.1 298.5 342.3 353.8 364.9 369.0 374.2 Thrift institutions 38 Savings deposits, including MMDAs 432.4 433.4 396.9 359.5 365.9 367.0 369.5 369.9 39 Small time deposits9 360.9 316.1 316.4 357.1 355.2 354.4 353.4 352.7 40 Large time deposits10 67.0 61.5 64.8 75.0 75.0 75.5 75.5 75.8 Money market mutual funds 41 Retail 355.1 358.3 388.2 465.4 493.5 485.5 492.5 501.4 42 Institution-only 201.1 199.4 185.5 229.4 242.8 241.1 244.5 250.2 Repurchase agreements and Eurodollars 43 Repurchase agreements'2 127.2 156.6 179.6 176.1 182.3 195.4 187.2 181.4 44 Eurodollars12 68.7 67.6 83.4 92.0r 95.5 96.9 98.3 96.9 Debt components 45 Federal debt 3,069.8 3,329.5 3,499.0 3,645.9 3,699.5 3,692.0 3,698.0 n.a. 46 Nonfederal debt 8,811.7 9,180.1 9,651.2 10,232.1 10,360.7 10,378.7 10,440.6 n.a. Footnotes appear on following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic NonfinancialS tatistics • October 1996 NOTES TO TABLE 1.21 1. Latest monthly and weekly figures are available from the Board's H.6 (508) weekly these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term statistical release. Historical data starting in 1959 are available from the Money and Reserves Treasury securities, commercial paper, and bankers acceptances, each seasonally adjusted Projections Section, Division of Monetary Atfairs, Board of Governors of the Federal Reserve separately, and then adding this result to M3. System, Washington, DC 20551. Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial 2. Composition of the money stock measures and debt is as follows: sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in the process of collection and Federal corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data, Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of which are derived from the Federal Reserve Board's flow of funds accounts, are breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at thrift institutions. Seasonally month-averaged (that is, the data have been derived by averaging adjacent month-end levels). adjusted Ml is computed by summing currency, travelers checks, demand deposits, and 3. Currency outside the U.S. Treasury, Federal Reserve Banks, and vaults of depository OCDs, each seasonally adjusted separately. institutions. M2: Ml plus (1) savings deposits (including MMDAs), (2) small-denomination time 4. Outstanding amount of U.S. dollar-denominated travelers checks of nonbank issuers. deposits (time deposits—including retail RPs—in amounts of less than $100,000), and (3) Travelers checks issued by depository institutions are included in demand deposits. balances in retail money market mutual funds (money funds with minimum initial invest- 5. Demand deposits at commercial banks and foreign-related institutions other than those ments of less than $50,000). Excludes individual retirement accounts (IRAs) and Keogh owed to depository institutions, the U.S. government, and foreign banks and official institubalances at depository institutions and money market funds. Seasonally adjusted M2 is tions, less cash items in the process of collection and Federal Reserve float. calculated by summing savings deposits, small-denomination time deposits, and retail money 6. Consists of NOW and ATS account balances at all depository institutions, credit union fund balances, each seasonally adjusted separately, and adding this result to seasonally share draft account balances, and demand deposits at thrift institutions. adjusted Ml. 7. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retail M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more) money fund balances. issued by all depository institutions, (2) balances in institutional money funds (money funds 8. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities with minimum initial investments of $50,000 or more), (3) RP liabilities (overnight and term) (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and issued by all depository institutions, and (4) Eurodollars (overnight and term) held by U.S. term) of U.S. addressees. residents at foreign branches of U.S. banks worldwide and at all banking offices in the United 9. Small time deposits—including retail RPs—are those issued in amounts of less than Kingdom and Canada. Excludes amounts held by depository institutions, the U.S. govern- $100,000. All IRAs and Keogh accounts at commercial banks and thrift institutions are ment, money market funds, and foreign banks and official institutions. Seasonally adjusted subtracted from small time deposits. M3 is calculated by summing large time deposits, institutional money fund balances, RP 10. Large time deposits are those issued in amounts of $100,000 or more, excluding those liabilities, and Eurodollars, each seasonally adjusted separately, and adding this result to booked at international banking facilities. seasonally adjusted M2. 11. Large time deposits at commercial banks less those held by money market funds,, L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury depository institutions, the U.S. government, and foreign banks and official institutions. securities, commercial paper, and bankers acceptances, net of money market fund holdings of 12. Includes both overnight and term. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A15 1.22 DEPOSIT INTEREST RATES AND AMOUNTS OUTSTANDING Commercial and BIF-insured saving banks1 1995 1996 IItteemm D 19 e 9 c 3 . D 19 e 9 c 4 . Nov. Dec. Jan. Feb. Mar. Apr. May June July Interest rates (annual effective yields)2 INSURED COMMERCIAL BANKS 1 Negotiable order of withdrawal accounts 1.86 1.96 1.93 1.91 1.90 1.91 1.85 1.89 1.88 1.90 1.94 2 Savings deposits3 2.46 2.92 3.13 3.10 3.01 2.98 2.91 2.91 2.89 2.86R 2.87 Interest-bearing time deposits with balances of less than $100,000, by maturity 3 7 to 91 days 2.65 3.79 4.13 4.10 4.02 3.99 4.02 4.01 4.03R 4.08R 4.13 4 92 to 182 days 2.91 4.44 4.74 4.68 4.57 4.45 4.49 4.51 4.51 4.55 4.59 5 183 days to 1 year 3.13 5.12 5.11 5.02 4.91 4.79 4.83 4.86 4.88R 4.95R 5.00 6 More than 1 year to 2'/> years 3.55 5.74 5.27 5.17 5.03 4.89 4.94 5.03 5.10R 5.18 5.25 7 More than 2 vl years 4.28 6.30 5.49 5.40 5.26 5.10 5.19 5.28 5.36 5.46 5.51 BIF-INSURED SAVINGS BANKS4 8 Negotiable order of withdrawal accounts 1.87 1.94 1.94 1.91 1.85 1.84 1.83 1.84 1.82 1.80 1.81 9 Savings deposits3 2.63 2.87 2.99 2.98 2.95 2.92 2.86 2.85 2.84 2.85 2.88 Interest-bearing time deposits with balances of less than $100,000, by maturity 10 7 to 91 days 2.81 3.80 4.43 4.43 4.38 4.26 4.37 4.42 4.49 4.54 4.64 11 92 to 182 days 3.02 4.89 5.02 4.95 4.86 4.77 4.76 4.77 4.83 4.91 5.01 12 183 days to 1 year 3.31 5.52 5.28 5.18 5.06 4.91 4.89 4.91 4.96 5.02 5.09 13 More than 1 year to 2 x/i years 3.67 6.09 5.47 5.33 5.22 5.10 5.15 5.23 5.25 5.35 5.41 14 More than 2yi years 4.62 6.43 5.64 5.46 5.34 5.24 5.24 5.32 5.38 5.51 5.60 Amounts outstanding (millions of dollars) INSURED COMMERCIAL BANKS 15 Negotiable order of withdrawal accounts 305,237 304,896 257,098 248,417 245,749 242,930 218,604 228,637r 208,890r 203,034r 207,043 16 Savings deposits3 767,035 737,068 753,139 776,466 768,071 784,035 827,666 805,317r 839,482r 844,348r 841,265 17 Personal 598,276 580,438 588,995 615,113 612,321 623,110 661,919 639,92 lr 669,107r 672,737r 667,595 18 Nonpersonal 168,759 156,630 164,144 161,353 155,750 160,925 165,748 165,396r 170,375r 171,61 lr 173,670 Interest-bearing time deposits with balances of less than $100,000, by maturity 19 7 to 91 days 29,362 32,265 31,093 32,170 33,783 35,719 35,377 34,07 r 30,356r 31,345r 31,691 20 92 to 182 days 109,050 96,650 95,513 93,941 95,350 97,219 97,141 96,052r 95,896r 95,100r 94,659 21 183 days to 1 year 145,386 163,062 184,704 183,834 184,046 184,095 186,158 190,018r 193,722r 195,450r 197,958 22 More than 1 year to 2 V5 years 139,781 164,395 208,315 208,601 212,394 210,493 208,915 208,252r 208,767r 209,587r 209,067 23 More than 2 Yl years 180,461 192,712 199,389 199,002 199,254 198,922 198,980 197,783r 198,332r 198,856r 197,733 24 IRA and Keogh plan deposits 144,011 144,155 149,647 150,546 150,366 149,965 150,496 150,580r 150,889r 151,349r 151,273 BIF-INSURED SAVINGS BANKS4 25 Negotiable order of withdrawal accounts 11,191 11,175 11,088 11,918 11,139 11,597 11,703 11,492 11,744 11,234 10,921 26 Savings deposits3 80,376 70,082 68,345 68,643 66,702 67,614 67,276 66,808 67,715 66,886 66,956 27 Personal 77,263 67,159 64,932 65,366 63,377 64,524 64,208 63,559 64,199 63,594r 63,651 28 Nonpersonal 3,113 2,923 3,413 3,277 3,325 3,090 3,068 3,249 3,516 3,292r 3,305 Interest-bearing time deposits with balances of less than $100,000, by maturity 29 7 to 91 days 2,746 2,144 1,819 2,001 2,009 2,131 2,140 2,179 2,345 2,226 2,372 30 92 to 182 days 12,974 11,361 11,394 12,140 12,334 13,247 13,477 13,911 13,934 13,702 13,613 31 183 days to 1 year 17,469 18,391 24,833 25,686 26,304 26,863 26,534 27,265 28,079 27,907 28,556 32 More than 1 year to 2'/i years 16,589 17,787 27,149 27,482 26,582 26,945 25,934 25,684 25,422 25,492 26,186 33 More than 2 Vl years 20,501 21,293 22,552 22,866 22,449 21,819 22,646 22,526 22,638 22,569r 22,556 34 IRA and Keogh plan accounts 19,791 19,013 21,231 21,321 20,827 20,845 20,615 20,553 20,543 20,709 20,647 1. BIF, Bank Insurance Fund. Data in this table also appear in the Board's H.6 (508) 2. As of October 31, 1994, interest rate data for NOW accounts and savings deposits Special Supplementary Table monthly statistical release. For ordering address, see inside reflect a series break caused by a change in the survey used to collect these data. front cover. Estimates are based on data collected by the Federal Reserve System from a 3. Includes personal and nonpersonal money market deposits. stratified random sample of about 425 commercial banks and 75 savings banks on the last day 4. Includes both mutual and federal savings banks. of each month. Data are not seasonally adjusted and include IRA and Keogh deposits and foreign currency-denominated deposits. Data exclude retail repurchase agreements and deposits held in U.S. branches and agencies of foreign banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics • October 1996 1.23 BANK DEBITS AND DEPOSIT TURNOVER1 Debits are in billions of dollars; turnover is ratio of debits to deposits; monthly data are at annual rates 1995 1996 Dec. Jan. Feb. Mar. Apr.' May DEBITS Seasonally adjusted Demand deposits3 1 All insured banks 334,784.1 369,029.1 397,649.3 397,538.3 430,421.2 447,869.0 422,696.7 463,246.0 470,743.6 2 Major New York City banks 171,224.3 191,168.8 201,161.4 203,977.5 229,379.2 238,538.4 224,066.5 245,440.5 252,388.3 3 Other banks 163,559.7 177,860.3 196,487.9 193,560.8 201,042.0 209,330.6 198,630.2 217,805.5 218,355.3 4 Other checkable deposits4 3,481.5 3,798.6 4,207.4 4,595.5 4,967.8R 5,024.4R 4,942.7R 5,281.1 5,703.5 5 Savings deposits (including MMDAs)5 3,497.4 3,766.3 4,507.8 5,703.6 6,035.9R 6,406.6R 6,283. F 7,357.0 7,132.9 DEPOSIT TURNOVER Demand deposits3 6 All insured banks 785.9 817.4 874.1 852.7 916.8 950.6 881.0 970.0 987.3 7 Major New York City banks 4,198.1 4,481.5 4.867.3 5,069.7 5,368.0 5,852.3 5,608.2 5,884.3 6,032.3 8 Other banks 424.6 435.1 475.2 454.4 471.1 486.4 451.6 499.7 502.0 9 Other checkable deposits4 11.9 12.6 15.4 18.6 20.8 21.6 21.7R 23.3 26.4 10 Savings deposits (including MMDAs)5 4.6 4.9 6.1 7.4 7.7 8.1 7.8 9.0 8.7 DEBITS Not seasonally adjusted Demand deposits3 11 All insured banks 334,899.2 369,121.8 397,657.8 411,802.7 429,213.3 414,819.1 442,977.6 456,900.3 459,063.0 12 Major New York City banks 171,283.5 191,226.0 201,182.6 210,780.0 227,293.7 222,007.5 236,954.2 238,335.3 240,893.0 13 Other banks 163,615.7 177,895.7 196,475.3 201,022.7 201,919.6 192,811.6 206,023.4 218,565.0 218,170.0 14 Other checkable deposits4 3,481.7 3,795.6 4,202.6 4,784.8 5,393.9R 4,629. lr 4,990.4R 5,580.8 5,479.6 15 Savings deposits (including MMDAs)5 3.498.3 3,764.4 4,500.8 6,013.9 6,309.7R 5,798.9R 6,444.7R 7,690.1 7,061.8 DEPOSIT TURNOVER Demand deposits3 16 All insured banks 786.1 818.2 874.6 847.5 895.4 900.9 947.0 956.6 980.1 17 Major New York City banks 4,197.9 4,490.3 4,873.1 4,900.9 5,109.7 5,427.5 6,060.5 5,774.9 5,963.5 18 Other banks 424.8 435.3 475.4 453.9 464.3 459.6 480.6 500.9 509.8 19 Other checkable deposits4 11.9 12.6 15.3 19.0 22.0R 19.9 21.8R 24.1 25.6 20 Savings deposits (including MMDAs)5 4.6 4.9 6.1 7.8 8.1 7.3 1.9' 9.4 8.6 1. Historical tables containing revised data for earlier periods can be obtained from the 4. As of January 1994, other checkable deposits (OCDs), previously defined as automatic Publications Section, Division of Support Services, Board of Governors of the Federal transfer to demand deposits (ATSs) and negotiable order of withdrawal (NOW) accounts, Reserve System, Washington, DC 20551. were expanded to include telephone and preauthorized transfer accounts. This change Data in this table also appear in the Board's G.6 (406) monthly statistical release. For redefined OCDs for debits data to be consistent with OCDs for deposits data. ordering address, see inside front cover. 5. Money market deposit accounts. 2. Annual averages of monthly figures. 3. Represents accounts of individuals, partnerships, and corporations and of states and political subdivisions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions A17 1.26 ASSETS AND LIABILITIES OF COMMERCIAL BANKS1 Billions of dollars Monthly averages Wednesday figures Account 1995 1996r 1996 July Jan. Feb. Mar. Apr. May June July July 10 July 17 July 24 July 31 ALL COMMERCIAL Seasonally adjusted BANKING INSTITUTIONS Assets 1 Bank credit 3,533.2r 3,633.6 3,647.3 3,641.1 3,659.4 3,663.2 3,668.4 3,671.9 3,670.0 3,678.3 3,676.2 33,,666644..77 7 Securities in bank credit 982.8r 991.2 998.2 983.0 982.0 988.2 980.3 975.0 978.0 979.6 975.4 967.1 U.S. government securities 703.9 702.4 715.3 704.7 704.8 713.2 706.6 706.2 706.9 705.2 707.3 705.2 4 Other securities 278.8r 288.8 282.9 278.3 277.3 275.0 273.7 268.8 271.0 274.4 268.2 261.9 Loans and leases in bank credit2 .. . 2,550.4 2,642.3 2,649.1 2,658.1 2,677.4 2,675.0 2,688.1 2,696.9 2,692.1 2,698.7 2,700.8 2,697.6 6 Commercial and industrial 697.7 723.6 728.0 726.9 732.8 735.1 738.1 741.9 738.8 743.2 743.4 743.0 7 Real estate l,062.2r 1,086.4 1,090.0 1,095.4 1,097.3 1,099.0 1,102.3 1,103.5 1,101.7 1,103.5 1,104.3 1,105.7 8 Revolving home equity 78.0 79.7 80.0 80.0 80.2 79.8 79.4 79.8 79.6 79.9 79.8 80.0 9 Other 984.2r 1,006.7 1,010.0 1,015.4 1,017.1 1,019.2 1,022.9 1,023.7 1,022.0 1,023.6 1,024.5 1,025.8 in Consumer 481.0 500.2 500.3 503.8 507.4 504.9 510.0 511.9 511.5 511.9 512.8 511.7 ii Security3 87.1 85.0 85.7 84.9 85.9 82.6 82.1 80.3 82.7 80.5 80.4 76.8 l? Other 222.4 247.1 245.1 247.1 254.0 253.5 255.7 259.1 257.4 259.7 259.8 260.3 13 Interbank loans4 192.8 203.2 192.3 202.6 208.9 208.7 207.0 199.6 196.2 198.3 198.8 203.1 14 Cash assets5 213.8 233.3 219.6 216.4 222.5 219.4 216.7 216.9 209.8 219.7 214.6 227.0 15 Other assets6 225.4r 237.9 243.0 242.0 243.6 242.8 253.3 264.8 265.4 264.3 265.3 267.0 16 Total assets7 4,108.2r 4,251.1 4,245.5 4,245.2 4211.2 4,277.1 4,288.1 4,2953 4,283.6 4302.7 4,297.0 4303.7 Liabilities 17 Deposits 2,609.0 2,687.5 2,681.7 2,702.6 2,718.7 2,717.7 2,721.5 2,728.4 2,722.2 2,726.4 2,732.3 2,736.8 18 Transaction 792.0 782.9 765.5 766.7 770.1 756.4 749.8 742.6 737.1 739.9 748.8 752.7 IP Nontransaction 1,817.0 1,904.7 1,916.2 1,935.9 1,948.7 1,961.3 1,971.7 1,985.9 1,985.1 1,986.5 1,983.4 1,984.1 ?0 Large time 402.0 422.0 426.4 429.1 433.3 440.0 445.4 448.0 448.8 448.7 447.4 445.8 71 Other 1,415.0 1,482.7 1,489.8 1,506.8 1,515.3 1,521.3 1,526.3 1,537.9 1,536.2 1,537.8 1,536.1 1,538.3 77 Borrowings 685.8 705.1 691.8 688.8 710.5 710.4 702.2 692.5 683.9 694.6 695.9 697.5 ?3 From banks in the U.S 195.5r 206.6 192.6 204.0 207.6 207.4 203.6 200.2 197.6 203.4 197.4 201.4 ?4 From nonbanks in the U.S 490.3r 498.5 499.2 484.8 502.9 503.0 498.6 492.3 486.3 491.2 498.4 496.1 ?5 Net due to related foreign offices 235.5r 270.2 276.6 261.6 254.6 256.1 255.1 248.1 247.8 251.5 240.9 248.1 26 Other liabilities8 213.7r 231.6 233.8 224.1 231.7 219.9 226.9 225.3 226.6 227.8 225.6 221.9 27 Total liabilities 3,744.0r 3394.4 3,883.9 3,877.0 3,915.5 3,904.0 3,905.6 3,894.4 3380.4 3,900.4 3,894.7 3,9043 28 Residual (assets less liabilities)9 364.2r 356.7 361.5 368.2 361.6 373.1 382.5 400.9 403.2 402.4 402.3 399.4 Not seasonally adjusted Assets 79 Bank credit 3,526.ff 3,624.4 3,638.9 3,635.4 3,660.4 3,660.1 3,665.3 3,664.7 3,662.4 3,670.3 3,661.6 3,661.7 Securities in bank credit 979.6r 978.9 993.2 987.4 987.2 992.7 981.5 971.7 973.5 973.7 972.0 967.0 31 U.S. government securities 701.9 697.1 710.6 709.1 710.8 714.0 706.8 704.0 703.9 702.3 705.1 704.7 3? Other securities 277.7r 281.8 282.6 278.4 276.4 278.7 274.7 267.7 269.6 271.4 266.9 262.3 33 Loans and leases in bank credit2 . . . 2,546.4 2,645.5 2,645.7 2,648.0 2,673.2 2,667.4 2,683.8 2,693.0 2,688.9 2,696.6 2,689.6 2,694.7 34 Commercial and industrial 698.5 720.6 726.1 730.9 738.7 740.5 741.1 743.0 740.9 744.7 742.5 742.5 35 Real estate 1,062.1 1,086.2 1,086.9 1,089.8 1,093.4 1,095.9 1,100.9 1,103.3 1,102.4 1,103.7 1,103.3 1,104.8 36 Revolving home equity 78.1 79.5 79.5 79.2 79.6 79.7 79.3 79.9 79.7 80.0 79.9 80.2 37 Other 984.0 1,006.6 1,007.4 1,010.6 1,013.8 1,016.3 1,021.6 1,023.4 1,022.7 1,023.7 1,023.4 1,024.6 38 Consumer 478.5 504.8 500.8 499.5 504.7 503.2 506.3 509.2 507.6 509.0 510.5 510.5 39 Security3 84.3 86.9 88.7 84.8 86.7 78.4 80.0 77.8 79.3 78.4 76.4 76.2 40 Other 223.0 247.0 243.2 243.0 249.7 249.5 255.6 259.6 258.7 260.8 256.8 260.7 41 Interbank loans4 189.6 212.2 194.2 200.5 205.9 202.3 203.3 196.8 195.0 193.5 188.9 203.3 47 Cash assets5 211.7 240.8 220.4 209.2 217.0 216.7 214.6 214.6 208.8 215.7 200.0 228.6 43 Other assets6 225,6r 238.6 242.3 240.5 241.0 243.8 252.8 265.5 265.7 263.3 262.4 270.8 44 Total assets7 4,0%.2r 4,2593 4,239.1 4,228.5 4,267.5 4,265.9 4,278.8 4,284.0 4,274.6 4,285.2 4,2553 4306.6 Liabilities 45 Deposits 2,601.6 2,694.3 2,672.7 2,688.9 2,715.6 2,707.4 2,718.3 2,721.6 2,724.0 2,715.7 2,693.8 2,737.1 46 Transaction 784.2 794.6 758.3 751.9 769.0 744.0 743.3 735.4 736.1 729.0 712.1 752.3 47 Nontransaction 1,817.4 1,899.7 1,914.4 1,937.0 1,946.6 1,963.4 1,974.9 1,986.2 1,987.9 1,986.7 1,981.7 1,984.7 48 Large time 400.1 419.0 426.9 430.6 433.2 445.4 445.2 445.9 445.6 446.6 446.8 445.2 49 Other 1,417.3 1,480.7 1,487.4 1,506.4 1,513.4 1,517.9 1,529.7 1,540.2 1,542.2 1,540.0 1,534.8 1,539.5 50 Borrowings 695.4 692.2 686.2 680.7 696.6 707.7 711.9 704.7 698.1 709.9 701.8 708.9 51 From banks in the U.S 193.7r 213.6 194.3 199.2 206.4 204.6 205.3 198.5 197.3 200.0 190.3 200.8 5? From nonbanks in the U.S 501.7r 478.6 491.9 481.5 490.2 503.1 506.6 506.2 500.7 509.9 511.5 508.1 53 Net due to related foreign offices 233.8r 277.3 278.2 262.2 254.8 258.4 247.6 246.7 243.8 245.5 248.9 247.5 54 Other liabilities8 212.9r 233.3 234.3 225.5 228.0 222.5 227.7 224.8 224.4 226.7 224.4 223.9 55 Total liabilities 3,743.7r 3^97.1 3,871.4 3,8573 3,895.0 3,896.0 3,905.4 3,897.7 3,890.2 3,897.9 3,868.9 3,917.4 56 Residual (assets less liabilities)9 352.5r 362.2 367.7 371.2 372.5 369.9 373.3 386.3 384.4 387.3 386.4 389.2 Footnotes appear on following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Nonfinancial Statistics • October 1996 1.26 ASSETS AND LIABILITIES OF COMMERCIAL BANKS'—Continued Billions of dollars Monthly averages Wednesday figures Account 1995 1996' 1996 July Jan. Feb. Mar. Apr. May June July July 10 July 17 July 24 July 31 DOMESTICALLY CHARTERED Seasonally adjusted COMMERCIAL BANKS Assets 57 Bank credit 3,110.0 3,197.3 3,196.0 3,197.9 3,211.6 3,213.4 3,210.9 3,212.2 3,211.5 3,217.8 3,215.9 3,204.2 58 Securities in bank credit 849.4r 854.2 852.6 843.0 841.8 845.2 835.9 833.2 835.9 837.0 834.7 825.0 59 U.S. government securities 639.9 639.2 641.8 633.5 633.2 635.3 627.2 625.5 625.5 624.8 627.2 623.8 60 Other securities 209.5 215.1 210.8 209.4 208.6 209.9 208.6 207.8 210.4 212.1 207.5 201.2 61 Loans and leases in bank credit2 2,260.6 2,343.0 2,343.4 2,354.9 2,369.8 2,368.2 2,375.0 2,379.0 2,375.6 2,380.8 2,381.2 2,379.2 62 Commercial and industrial 522.9 540.3 541.0 541.4 545.8 548.0 548.1 549.4 547.8 550.0 549.9 549.9 63 Real estate 1,024.3 1,051.1 1,055.7 1,062.1 1,064.1 1,065.9 1,069.4 1,070.2 1,068.4 1,070.2 1,071.2 1,072.1 64 Revolving home equity 78.0 79.7 79.9 80.0 80.1 79.7 79.3 79.8 79.6 79.9 79.8 80.0 65 Other 946.3r 971.5 975.8 982.2 983.9 986.2 990.1 990.4 988.8 990.4 991.4 992.2 66 Consumer 481.0 500.2 500.3 503.8 507.4 504.9 510.0 511.9 511.5 511.9 512.8 511.7 67 Security3 51.9 55.5 52.2 51.2 52.9 50.7 46.8 46.1 48.2 46.7 45.6 43.3 68 Other 180.5 195.8 194.2 196.5 199.6 198.8 200.7 201.3 199.7 202.0 201.7 202.1 69 Interbank loans4 171.4 181.4 171.6 181.8 187.8 187.4 184.6 180.4 176.9 177.9 179.8 184.9 70 Cash assets5 187.0 202.2 190.3 189.1 196.3 193.2 191.5 191.6 184.3 194.3 189.3 201.8 71 Other assets6 171.6 182.7 186.4 187.0 188.7 187.4 201.1 215.1 215.3 214.6 215.6 217.7 72 Total assets7 3,582.9 3,706.7 3,687.6 3,698.9 3,7273 3,7245 3,730.8 3,741.5 3,730.2 3,746.8 3,742.7 3,750.6 Liabilities 73 Deposits 2,445.1 2,523.6 2,516.9 2,534.6 2,549.2 2,545.1 2,549.3 2,553.9 2,545.8 2,551.9 2,558.9 2,563.0 74 Transaction 782.5 772.1 754.8 756.8 759.5 745.4 739.0 731.9 726.3 729.4 738.1 742.0 75 Nontransaction 1,662.5 1,751.5 1,762.1 1,777.8 1,789.7 1,799.7 1,810.4 1,822.0 1,819.5 1,822.5 1,820.8 1,821.0 76 Large time 248.3 272.3 274.4 273.3 275.6 279.4 283.1 285.5 285.2 286.3 285.8 283.8 77 Other 1,414.3 1,479.2 1,487.7 1,504.5 1,514.0 1,520.3 1,527.3 1,536.6 1,534.3 1,536.3 1,535.0 1,537.2 78 Borrowings 567.2 590.8 574.1 577.0 591.1 585.4 582.1 576.1 568.6 579.8 576.3 580.3 79 From banks in the U.S 176.4r 185.2 173.1 183.5 184.4 183.9 183.3 180.6 178.9 183.8 175.7 181.9 80 From nonbanks in the U.S 390.71" 405.7 401.0 393.5 406.7 401.5 398.8 395.5 389.7 396.1 400.6 398.5 81 Net due to related foreign offices .... 82.9 93.0 90.5 81.3 84.6 88.2 79.7 76.1 76.0 76.4 74.8 74.4 82 Other liabilities8 137.2 152.7 153.9 147.1 154.8 146.4 155.9 155.8 156.5 158.1 155.9 153.5 83 Total liabilities 3,2323r 3,360.2 3335.4 3,340.0 3379.7 3365.1 3367.0 3361.9 3346.8 33663 3365.9 3371.2 84 Residual (assets less liabilities)9 350.6 346.5 352.2 358.9 347.6 359.4 363.8 379.6 383.4 380.5 376.8 379.4 Not seasonally adjusted Assets 85 Bank credit 3,102.4 3,185.6 3,187.8 3,190.7 3,214.3 3,213.8 3,211.3 3,204.4 3,204.5 3,208.5 3,200.3 3,200.1 86 Securities in bank credit 845.4 843.2 848.6 846.2 846.9 848.5 839.3 829.3 832.1 831.0 829.3 823.3 87 U.S. government securities 638.0 632.0 637.7 636.6 638.9 637.0 628.6 623.5 624.2 622.2 624.0 622.8 88 Other securities 207.4 211.2 210.9 209.6 208.0 211.5 210.7 205.9 208.0 208.8 205.3 200.5 89 Loans and leases in bank credit2 2,257.0 2,342.4 2,339.3 2,344.5 2,367.4 2,365.3 2,372.0 2,375.0 2,372.3 2,377.5 2,371.1 2,376.7 90 Commercial and industrial 522.9 537.2 540.2 544.5 551.7 553.5 550.6 549.4 548.7 550.1 548.0 549.2 91 Real estate l,024.2r 1,051.0 1,052.4 1,056.4 1,060.6 1,063.0 1,068.1 1,070.1 1,069.3 1,070.4 1,070.1 1,071.4 92 Revolving home equity 78.1 79.5 79.5 79.2 79.5 79.6 79.3 79.9 79.7 79.9 79.9 80.1 93 Other 946.1r 971.5 973.0 977.2 981.0 983.4 988.8 990.2 989.6 990.5 990.2 991.3 94 Consumer 478.5 504.8 500.8 499.5 504.7 503.2 506.3 509.2 507.6 509.0 510.5 510.5 95 Security3 50.5 53.9 53.2 51.3 53.9 49.5 47.0 44.8 46.3 45-5 43.4 43.1 96 Other 180.9 195.5 192.6 192.9 196.6 196.2 200.0 201.5 200.5 202.5 199.0 202.5 97 Interbank loans4 168.2 189.1 175.3 180.5 185.7 180.8 182.6 177.6 175.9 174.3 169.8 184.2 98 Cash assets5 184.4 210.0 192.2 182.2 191.4 191.0 188.6 188.9 183.1 190.0 174.3 202.9 99 Other assets6 172.5 183.7 185.2 186.3 187.9 187.7 200.9 216.5 216.8 214.2 213.3 221.7 100 Total assets7 3,570.9 3,711.9 3,683.9 3,682.7 3,722.4 3,7163 3,726.1 3,729.8 3,722.8 3,729.5 3,700.2 3,751.1 Liabilities 101 Deposits 2,439.4 2,529.4 2,508.2 2,520.6 2,548.4 2,533.3 2,544.0 2,549.3 2,551.8 2,543.4 2,521.4 2,564.6 102 Transaction 774.8 783.8 747.7 742.2 759.0 733.7 732.7 724.7 725.5 718.4 701.5 741.7 103 Nontransaction 1,664.7 1,745.7 1,760.5 1,778.3 1,789.4 1,799.6 1,811.2 1,824.5 1,826.4 1,825.1 1,820.0 1,823.0 104 Large time 248.3 269.6 275.8 273.8 277.0 282.7 282.9 285.6 285.3 286.3 286.5 284.8 105 Other 1,416.3 1,476.0 1,484.7 1,504.6 1,512.4 1,517.0 1,528.3 1,538.9 1,541.1 11,,553388..88 1,533.5 1,538.1 106 Borrowings 571.6 581.7 573.2 569.5 576.3 584.5 587.6 582.8 576.3 558888..11 579.9 586.9 107 From banks in the U.S 173.5r 192.1 175.6 178.5 184.1 182.8 183.4 177.8 176.7 179.3 169.6 180.1 108 From nonbanks in the U.S 398. r 389.6 397.6 390.9 392.1 401.7 404.2 405.0 399.6 408.7 410.3 406.8 109 Net due to related foreign offices .... 81.8 92.9 92.3 84.5 85.0 93.2 78.5 75.1 72.2 73.9 77.1 75.7 110 Other liabilities8 137.0 153.4 152.3 148.8 152.8 147.9 156.2 155.8 155.5 157.8 155.4 154.8 111 Total liabilities 3,229.9 3357.4 3326.0 3323.4 3362.4 3358.9 33663 3362.9 3355.8 3363.2 3333.9 3382.1 112 Residual (assets less liabilities)9 341.0 354.4 357.9 359.3 360.0 357.4 359.8 366.9 367.0 366.3 366.3 369.0 1. Covers the following types of institutions in the fifty states and the District of 4. Consists of federal funds sold to, reverse repurchase agreements with, and loans to Columbia: domestically chartered commercial banks that submit a weekly report of condition commercial banks in the United States. (large domestic); other domestically chartered commercial banks (small domestic); branches 5. Includes vault cash, cash items in process of collection, demand balances due from and agencies of foreign banks; New York State investment companies, and Edge Act and depository institutions in the United States, balances due from Federal Reserve Banks, and agreement corporations (foreign-related institutions). Excludes international banking facili- other cash assets. ties. Data are Wednesday values, or pro rata averages of Wednesday values. Large domestic 6. Excludes the due-from position with related foreign offices, which is included in lines banks constitute a universe; data for small domestic banks and foreign-related institutions are 25, 53, 81, and 109. estimates based on weekly samples and on quarter-end condition reports. Data are adjusted 7. Excludes unearned income, reserves for losses on loans and leases, and reserves for for breaks caused by reclassifications of assets and liabilities. transfer risk. Loans are reported gross of these items. 2. Excludes federal funds sold to, reverse repurchase agreements with, and loans to 8. Excludes the due-to position with related foreign offices, which is included in lines 25, commercial banks in the United States. 53, 81, and 109. 3. Consists of reserve repurchase agreements with broker-dealers and loans to purchase 9. This balancing item is not intended as a measure of equity capital for use in capital and carry securities. adequacy analysis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Commercial Banks A19 1.27 ASSETS AND LIABILITIES OF LARGE WEEKLY REPORTING COMMERCIAL BANKS Millions of dollars, Wednesday figures 1996 AAccccoouunntt June 5 June 12 June 19 June 26 July 3 July 10 July 17 July 24 July 31 ASSETS 1 Cash and balances due from depository institutions 114,726 110,322 125,851 110,485 125,567 113,212 121,647 109,121 130,333 2 U.S. Treasury and government securities 277,713 273,645 271,603 272,833 275,315 274,472 273,839 274,836 276,139 3 Trading account 21,150 18,954 18,345 17,982 19,693 19,343 18,671 18,847 21,740 4 Investment account 256,563 254,691 253,258 254,851 255,623 255,129 255,168 255,990 254,399 5 Mortgage-backed securities' 115,964 115,590 114,558 115,923 116,364 116,197 115,085 115,354 116,003 All others, by maturity 6 One year or less 33,750 34,018 33,613 33,645 33,424 32,917 33,661 34,451 31,970 7 One year through five years 59,428r 57,420r 57,122' 59,007' 59,855 60,109 59,806 59,424 59,361 8 More than five years 47,421r 47,663r 47,965r 46,276' 45,980 45,906 46,616 46,761 47,065 9 Other securities 124,631 124,182 123,464 122,014 121,839 121,616 122,600 119,324 114,337 10 Trading account l,677r l,814r 2,380r 2,262' 2,403 2,325 2,274 2,114 2,271 11 Investment account 63,475 63,743 64,111 63,689 63,403 62,886 62,978 62,395 62,278 12 State and local government, by maturity 18,444 18,543 18,775 18,845 18,303 18,368 18,399 18,658 18.770 13 One year or less 3,909 3,915 3,995 4,012 3,634 3,720 3,807 3,794 3,872 14 More than one year 14,535 14,627 14,779 14,833 14,669 14,648 14,592 14,864 14,898 15 Other bonds, corporate stocks, and securities 45,030 45,200 45,336 44,844 45,100 44,518 44,578 43,737 43,509 16 Other trading account assets 59,479r 58,625r 56,972r 56,064' 56,033 56,404 57,348 54,815 49,788 17 Federal funds sold2 112,854 115,303 110,919 111,917 122,635 105,554 105,366 103,366 116,856 18 To commercial banks in the United States 81,728 82,091 79,256 83,254 91,258 75,201 74,976 75,560 87,541 19 To nonbank brokers and dealers in securities 26,224 28,326 26,292 22,608 25,629 25,948 25,731 23,547 22,708 20 To others3 4,902 4,885 5,371 6,055 5,748 4,405 4,658 4,259 6,606 21 Other loans and leases, gross 1,298,990 1,298,139 1,305,751 1,306,656 1,333,950 1,327,943 1,334,213 1,332,857 1,332,798 22 Commercial and industrial 355,720r 353,482r 357,929r 357,713' 363,254 359,336 360,809 360,324 361,180 23 Bankers acceptances and commercial paper 1,369 1,401 1,390 1,324 1,365 1,404 1,437 1,453 1,536 24 All other 354,352r 352,080r 356,539r 356,389' 361,888 357,932 359,372 358,872 359,644 25 U.S. addressees 351,755' 349,47 LR 353,902' 353,783' 359,193 355,173 356,540 355,965 356,819 26 Non-U.S. addressees 2,597 2,609 2,637 2,605 2,696 2,759 2,832 2,907 2,826 27 Real estate loans 506,019 507,727 508,668 508,198 521,651 521,806 521,466 522,547 522,917 28 Revolving, home equity 48,092 48,135 48,594 48,854 49,187 49,224 49,529 49,813 49,881 29 All other 457,927 459,592 460,074 459,343 472,464 472,582 471,937 472,734 473,036 30 To individuals for personal expenditures 252,993r 254,03 lr 253,286' 255,230' 259,699 259,840 261,321 262,873 261,937 31 To depository and financial institutions 75,897 75,821 75,057 75,479 75,806 77,635 81,484 77,282 75,904 32 Commercial banks in the United States 44,109 43,194 43,189 43,596 42,590 43,813 45,983 44,555 43,551 33 Banks in foreign countries 3,174 3,456 3,339 3,254 3,637 4,367 6,471 4,838 3,752 34 Nonbank depository and other financial institutions 28,614 29,171 28,529 28,629 29,580 29,455 29,030 27,889 28,601 35 For purchasing and carrying securities 15,356 15,196 17,183 15,602 15,411 14,899 14,561 14,891 15,186 36 To finance agricultural production 6,833 6,893 7,065 7,243 7,295 7,286 7,305 7,259 7,254 37 To states and political subdivisions 10,384 10,163 10,392 10,520 10,613 10,606 10,698 10,690 10,695 38 To foreign governments and official institutions 1,095 1,106 1,207 1,066 1,079 1,046 1,313 960 959 39 All other loans 27,321 25,707 26,479 26,723 29,980 25,923 25,500 26,166 26,244 40 Lease-financing receivables 47,373 48,013 48,486 48,883 49,161 49,567 49,755 49,863 50,521 41 LESS: Unearned income 1,935 1,987 2,002 2,003 1,988 2,018 2,037 2,148 2,132 42 Loan and lease reserve3 33,291 33,244 33,284 33,153 33,617 33,602 33,782 33,781 33,957 43 Other loans and leases, net 1,263,764 1,262,908 1,270,465 1,271,500 1,298,345 1,292,323 1,298,394 1,296,928 1,296,709 44 All other assets 169,655 155,524 158,979 157,831 172,999 174,112 173,688 173,218 175,842 45 Total assets 2,063,343 2,041,883 2,061,280 2,046,580 2,116,700 2,081,290 2,095,534 2,076,792 2,110,216 Footnotes appear on the following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic NonfinancialS tatistics • October 1996 1.27 ASSETS AND LIABILITIES OF LARGE WEEKLY REPORTING COMMERCIAL BANKS—Continued Millions of dollars, Wednesday figures 1996 AAccccoouunntt June 5 June 12 June 19 June 26 July 3 July 10 July 17 July 24 July 31 LIABILITIES 46 Deposits 1,238,748 1,230,539 1,230,209 1,221,262 1,289,538 1,264,586 1,263,211 1,253,938 1,283,224 47 Demand deposits 317,013 311,611 311,034 305,247 334,354 314,641 313,598 304,755 331,139 48 Individuals, partnerships, and corporations 271,951 267,381 262,712 260,886 286,262 272,047 269,945 262,340 284,903 49 Other holders 45,061 44,230 48,323 44,361 48,091 42,594 43,653 42,415 46,237 50 States and political subdivisions 8,238 7,790 9,318 9,059 8,647 7,715 7,816 7,938 9,328 51 U.S. government 2,147 2,432 4,319 2,095 2,466 1,681 1,619 1,765 2,321 52 Depository institutions in the United States 22,222 20,565 21,596 19,480 22,769 20,002 19,370 19,596 21,449 53 Banks in foreign countries 5,172 5,933 5,464 5,892 5,861 5,439 6,871 5,168 4,566 54 Foreign governments and official institutions 564 588 569 555 761 539 802 523 807 55 Certified and officers' checks 6,718 6,922 7,057 7,279 7,587 7,218 7,175 7,424 7,766 56 Transaction balances other than demand deposits4 73,194 72,100 73,684 72,220 70,019 70,413 70,631 69,991 70,901 57 Nontransaction balances 848,541 846,828 845,491 843,795 885,166 879,532 878,983 879,192 881,184 58 Individuals, partnerships, and corporations 818,924 817,297 816,880 815,778 857,087 851,281 850,729 850,882 852,651 59 Other holders 29,618 29,531 28,611 28,017 28,079 28,251 28,254 28,310 28,533 60 States and political subdivisions 23,619 23,587 22,663 21,938 22,007 22,179 22,059 22,131 22,489 61 U.S. government 4,030 4,014 4,009 4,050 4,242 4,004 4,010 4,005 4,026 62 Depository institutions in the United States 1,669 1,631 1,633 1,724 1,424 1,531 1,675 1,663 1,582 63 Foreign governments, official institutions, and banks . . 300 299 305 306 406 536 509 510 436 64 Liabilities for borrowed money5 408,777 400,126 419,678 413,207 406,560 400,223 412,173 400,513 407,117 65 Borrowings from Federal Reserve Banks 0 0 3,522 0 0 0 0 0 1,381 66 Treasury tax and loan notes 580 2,710 24,581 22,963 6,143 2,692 12,316 18,540 22,640 67 Other liabilities for borrowed money6 408.197 397,416 391,575 390,244 400,416 397,531 399,857 381,973 383,096 68 Other liabilities (including subordinated notes and debentures) . . . 218,946 213,405 213,780 214,996 214,170 209,098 212,799 213,759 211,755 69 Total liabilities 1,866,471 1,844,069 1,863,667 1,849,464 1,910,268 1,873,906 1,888,184 1,868,209 1,902,096 70 Residual (total assets less total liabilities)7 196,872 197,814 197,613 197,115 206,432 207,383 207,351 208,583 208,120 MEMO 71 Total loans and leases, gross, adjusted, plus securities8 1,688,351 1,685,983 1,689,292 1,686,570 1,719,892 1,710,572 1,715,058 1,710,268 1,709,038 72 Time deposits in amounts of $100,000 or more 126,160 126,540 126,910 126,032 130,282 130,983 131,296 132,154 130,448 73 Loans sold outright to affiliates9 1,020 1,014 1,000 989 980 974 967 958 951 74 Commercial and industrial 264 264 264 263 263 263 263 263 263 75 Other 755 750 736 725 717 711 704 695 689 76 Foreign branch credit extended to U.S. residents10 28,415 28,332 29,051 28.633 28,993 28,681 28,623 28,729 28,859 77 Net owed to related institutions abroad 68,820 74,965 72,643 78,224 73,058 67,112 68,578 72,397 71,078 1. Includes certificates of participation, issued or guaranteed by agencies of the U.S. 8. Excludes loans to and federal funds transactions with commercial banks in the government, in pools of residential mortgages. United States. 2. Includes securities purchased under agreements to resell. 9. Affiliates include a bank's own foreign branches, nonconsolidated nonbank affiliates of 3. Includes allocated transfer risk reserve. the bank, the bank's holding company (if not a bank), and nonconsolidated nonbank 4. Includes negotiable order of withdrawal (NOWs) and automatic transfer service (ATS) subsidiaries of the holding company. accounts, and telephone and preauthorized transfers of savings deposits. 10. Credit extended by foreign branches of domestically chartered weekly reporting banks 5. Includes borrowings only from other than directly related institutions. to nonbank U.S. residents. Consists mainly of commercial and industrial loans, but includes 6. Includes federal funds purchased and securities sold under agreements to repurchase. an unknown amount of credit extended to other than nonfinancial businesses. 7. This balancing item is not intended as a measure of equity capital for use in capitaladequacy analysis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Weekly Reporting Commercial Banks A21 1.28 LARGE WEEKLY REPORTING U.S. BRANCHES AND AGENCIES OF FOREIGN BANKS Assets and Liabilities Millions of dollars, Wednesday figures 1996 AAccccoouunntt June 5 June 12 June 19 June 26 July 3 July 10 July 17 July 24 July 31 ASSETS 1 Cash and balances due from depository institutions 15,943 15,613 15,994 15,533 15,588 15,069 15,486 15,065 15,508 2 U.S. Treasury and government agency securities 49,899 50,413 50,018 49,962 50,301 50,927 51,105 51,780 52,247 3 Other securities 44,026' 43,294' 40,347 40,278 39,819 40,206 40,838 40,101 40,252 4 Federal funds sold1 26,267 30,215 29,399 27,389 28,122 28,779 28,406 26,480 26,710 5 To commercial banks in the United States 7,320 6,078 7,787 6,285 6,072 6,667 6,531 4,831 5,674 6 To others2 18,947 24,138 21,612 21,104 22,050 22,112 21,875 21,650 21,036 7 Other loans and leases, gross 186,699R 188,397' 190,581' 190,630' 193,652 192,435 194,750 194,536 194,731 8 Commercial and industrial 120,260 120,539 121,100 121,958 122,773 121,868 123,292 123,294 122,401 9 Bankers acceptances and commercial paper . 4,942 5,066 4,887 4,969 5,096 4,979 4,953 4,951 4,718 10 All other 115,318 115,473 116,214 116,989 117,678 116,889 118,339 118,344 117,684 11 U.S. addressees 109,080 109,233 109,935 109,927 110,850 109,970 111,360 111,388 110,747 12 Non-U.S. addressees 6,239 6,241 6,279 7,061 6,827 6,919 6,979 6,956 6,936 13 Loans secured by real estate 20,048R 2200,,005544'' 20,147' 20,291' 19,979 20,105 19,848 19,837 19,890 14 Loans to depository and financial institutions 33,676 35,306 35,978 36,044 37,352 37,529 38,773 38,397 39,340 15 Commercial banks in the United States 3,100 3,253 3,007 2,735 2,715 2,704 2,709 2,586 2,584 16 Banks in foreign countries 3,062 3,075 3,075 3,129 3,334 3,244 3,518 3,351 3,370 17 Nonbank financial institutions 27,514 28,978 29,896 30,181 31,302 31,581 32,546 32,460 33,385 18 For purchasing and carrying securities 5,387 5,143 5,742 4,994 5,920 5,300 5,444 5,490 5,472 19 To foreign governments and official institutions 587 599 791 783 773 778 775 787 933 20 All other 6,740R 6,755' 6,822' 6,560' 6,855 6,855 6,619 6,731 6,696 21 Other assets (claims on nonrelated parties) 39,783R 38,897' 34,643' 33,636' 32,944 33,634 34,049 34,490 35,740 22 Total assets3 397,625R 399,306R 391,745R 388,649R 387,099 387,109 388,883 388,071 393,033 LIABILITIES 23 Deposits or credit balances owed to other than directly related institutions 111,088 110,595 108,608 108,311 104,020 106,582 109,787 109,304 109,190 24 Demand deposits4 4,325 4,145 4,462 4,380 4,203 4,095 4,664 3,839 4,192 25 Individuals, partnerships, and corporations .... 3,617 3,487 3,563 3,684 3,503 3,413 4,015 3,223 3,416 26 Other 708 658 899 696 700 683 648 616 776 27 Nontransaction accounts 106,763 106,450 104,146 103,931 99,818 102,486 105,123 105,465 104,997 28 Individuals, partnerships, and corporations .... 78,147 77,787 75,870 76,005 73,784 74,867 76,480 76,329 75,548 29 Other 28,616 28,663 28,276 27,927 26,034 27,619 28,643 29,136 29,449 30 Borrowings from other than directly related institutions 81,729 86,177 84,714 81,610 83,982 81,803 78,595 80,900 86,068 31 Federal funds purchased5 49,330 52,350 50,509 49,987 53,652 52,091 48,083 48,649 53,673 32 From commercial banks in the United States . . 11,993 11,234 11,002 10,202 11,635 10,089 7,897 9,042 13,688 33 From others 37,337 41,116 39,507 39,786 42,018 42,001 40,186 39,607 39,985 34 Other liabilities for borrowed money 32,399 33,827 34,206 31,623 30,329 29,712 30,512 32,251 32,395 35 To commercial banks in the United States 3,812 3,970 4,024 4,241 3,953 4,129 3,712 3,612 3,641 36 To others 28,587 29,856 30,181 27,382 26,377 25,583 26,800 28,639 28,754 37 Other liabilities to nonrelated parties 62,494R 62,390' 55,313' 56,290' 55,731 56,051 55,708 55,563 57,353 38 Total liabilities6 397,62SR 399,306R 391,745R 388,649R 387,099 387,109 388,883 388,071 393,033 MEMO 39 Total loans (gross) and securities, adjusted7 296,471' 302,988' 299,549' 299,239' 303,106 302,976 305,859 305,481 305,682 40 Net owed to related institutions abroad 107,306' 107,667' 112,345' 111,216' 116,692 116,615 120,544 116,686 112,577 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. For U.S. branches and agencies of foreign banks having a net "due to" position, 3. For U.S. branches and agencies of foreign banks having a net "due from" position, includes net owed to related institutions abroad. includes net due from related institutions abroad. 7. Excludes loans to and federal funds transactions with commercial banks in the United 4. Includes other transaction deposits. States. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic NonfinancialS tatistics • October 1996 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December 1996 IItteemm 1991 1992 1993 1994 1995 Jan. Feb. Mar. Apr. May June Commercial paper (seasonally adjusted unless noted otherwise) 1 All issuers 528,832 545,619 555,075 595,382 674,904 685,791 687,669 695,230r 710,690r 719,069r 731,027 Financial companies' 2 Dealer-placed paper2, total 212,999 226,456 218,947 223,038 275,815 288,368 293,313 291,600' 302,504' 301,670' 310,524 3 Directly placed paper3, total 182,463 171,605 180,389 207,701 210,829 208,159 208,046 208,880 211,833 221,463 223,236 4 Nonfinancial companies4 133,370 147,558 155,739 164,643 188,260 189,264 186,310 194,750' 196,352' 195,936' 197,267 Bankers dollar acceptances (not seasonally adjusted) 5 Total 43,770 38,194 32,348 29,835 29,242 By holder 6 Accepting banks 11,017 10,555 12,421 11,783 7 Own bills 9,347 9,097 10,707 10,462 8 Bills bought from other banks 1,670 1,458 1,714 1,321 Federal Reserve Banks6 9 Foreign correspondents 1,739 1,276 725 410 10 Others 31,014 26,364 19,202 17,642 By basis 11 Imports into United States 12,843 12,209 10,217 10,062 12 Exports from United States 10,351 8,096 7,293 6,355 13 All other 20,577 17,890 14,838 13,417 1. Institutions engaged primarily in commercial, savings, and mortgage banking; sales, 5. Data on bankers dollar acceptances are gathered from approximately 100 institutions. personal, and mortgage financing; factoring, finance leasing, and other business lending; The reporting group is revised every January. Beginning January 1995, data for Bankers insurance underwriting; and other investment activities. dollar acceptances will be reported annually in September. 2. Includes all financial-company paper sold by dealers in the open market. 6. In 1977 the Federal Reserve discontinued operations in bankers dollar acceptances for 3. As reported by financial companies that place their paper directly with investors. its own account. 4. Includes public utilities and firms engaged primarily in such activities as communications, construction, manufacturing, mining, wholesale and retail trade, transportation, and services. 1.33 PRIME RATE CHARGED BY BANKS Short-Term Business Loans1 Percent per year Average Average Average Date of change Rate Period rate Period rate Period rate 1993—Jan. 1 6.00 1993 6.00 1994—Jan 6.00 1995—Jan 8.50 1994 7.15 Feb 6.00 Feb 9.00 1994—Mar. 24 6.25 1995 8.83 Mar 6.06 Mar. 9.00 Apr. 19 6.75 Apr. 6.45 Apr. 9.00 May 17 7.25 1993--Jan 6.00 May 6.99 May 9.00 Aug. 16 7.75 Feb 6.00 June 7.25 June 9.00 Nov. 15 8.50 Mar 6.00 July 7.25 July 8.80 Apr. 6.00 Aug 7.51 Aug 8.75 1995—Feb. 1 9.00 May 6.00 Sept 7.75 Sept 8.75 July 7 8.75 June 6.00 Oct 7.75 Oct 8.75 Dec. 20 8.50 July 6.00 Nov 8.15 Nov 8.75 Aug 6.00 Dec 8.50 Dec 8.65 1996—Feb. 1 8.25 Sept 6.00 Oct 6.00 1996—Jan 8.50 Nov 6.00 Feb 8.25 Dec 6.00 Mar 8.25 Apr 8.25 May 8.25 June 8.25 July 8.25 Aug 8.25 1. The prime rate is one of several base rates that banks use to price short-term business Report. Data in this table also appear in the Board's H.15 (519) weekly and G.13 (415) loans. The table shows the date on which a new rate came to be the predominant one quoted monthly statistical releases. For ordering address, see inside front cover. by a majority of the twenty-five largest banks by asset size, based on the most recent Call Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A23 1.35 INTEREST RATES Money and Capital Markets Percent per year; figures are averages of business day data unless otherwise noted 1996 1996, week ending IItteemm 11999933 11999944 11999955 Apr. May June July June 28 July 5 July 12 July 19 July 26 MONEY MARKET INSTRUMENTS 1 Federal funds1'2,3 3.02 4.21 5.83 5.22 5.24 5.27 5.40 5.21 5.53 5.26 5.23 5.25 2 Discount window borrowing2'4 3.00 3.60 5.21 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Commercial paper3-5,6 3 1-month 3.17 4.43 5.93 5.40 5.38 5.45 5.44 5.50 5.49 5.45 5.44 5.40 4 3-month 3.22 4.66 5.93 5.39 5.39 5.49 5.53 5.51 5.52 5.56 5.54 5.51 5 6-month 3.30 4.93 5.93 5.38 5.42 5.57 5.67 5.61 5.63 5.70 5.69 5.65 Finance paper, directly placed*'5'1 6 1-month 3.12 4.33 5.81 5.31 5.29 5.35 5.33 5.38 5.35 5.36 5.31 5.29 7 3-month 3.16 4.53 5.78 5.28 5.29 5.37 5.43 5.40 5.39 5.45 5.44 5.42 8 6-month 3.15 4.56 5.68 5.20 5.23 5.35 5.44 5.38 5.36 5.48 5.45 5.43 Bankers acceptances3,5,8 9 3-month 3.13 4.56 5.81 5.28 5.29 5.38 5.45 5.40 5.43 5.47 5.45 5.44 10 6-month 3.21 4.83 5.80 5.28 5.31 5.47 5.57 5.49 5.52 5.59 5.58 5.55 Certificates of deposit, secondary market3,9 11 1-month 3.11 4.38 5.87 5.34 5.32 5.37 5.37 5.39 5.39 5.40 5.36 5.33 12 3-month 3.17 4.63 5.92 5.36 5.36 5.46 5.53 5.49 5.49 5.57 5.54 5.51 13 6-month 3.28 4.96 5.98 5.42 5.47 5.64 5.75 5.66 5.69 5.80 5.75 5.73 14 Eurodollar deposits, 3-month3,10 3.18 4.63 5.93 5.36 5.36 5.46 5.49 5.48 5.45 5.54 5.48 5.47 U.S. Treasury bills Secondary market3,5 15 3-month 3.00 4.25 5.49 4.95 5.02 5.09 5.15 5.09 5.13 5.15 5.13 5.16 16 6-month 3.12 4.64 5.56 5.06 5.12 5.25 5.30 5.22 5.26 5.34 5.28 5.30 17 1-year 3.29 5.02 5.60 5.23 5.33 5.48 5.52 5.47 5.49 5.57 5.47 5.53 Auction average3'5'" 18 3-month 3.02 4.29 5.51 4.99 5.02 5.11 5.17 5.10 5.12 5.21 5.19 5.14 19 6-month 3.14 4.66 5.59 5.08 5.12 5.26 5.32 5.23 5.22 5.41 5.36 5.30 20 1-year 3.33 5.02 5.69 5.17 5.31 5.56 5.49 5.56 n.a. n.a. n.a. 5.49 U.S. TREASURY NOTES AND BONDS Constant maturities12 21 1-year 3.43 5.32 5.94 5.54 5.64 5.81 5.85 5.79 5.82 5.90 5.80 5.85 22 2-year 4.05 5.94 6.15 5.96 6.10 6.30 6.27 6.25 6.25 6.34 6.22 6.25 23 3-year 4.44 6.27 6.25 6.11 6.27 6.49 6.45 6.44 6.43 6.53 6.40 6.44 24 5-year 5.14 6.69 6.38 6.30 6.48 6.69 6.64 6.63 6.60 6.72 6.59 6.62 25 7-year 5.54 6.91 6.50 6.48 6.66 6.83 6.76 6.76 6.73 6.86 6.71 6.73 26 10-year 5.87 7.09 6.57 6.51 6.74 6.91 6.87 6.86 6.85 6.95 6.81 6.85 27 20-year 6.29 7.49 6.95 6.98 7.11 7.22 7.14 7.16 7.12 7.23 7.11 7.12 28 30-year 6.59 7.37 6.88 6.79 6.93 7.06 7.03 7.02 7.00 7.11 7.00 7.02 Composite 29 More than 10 years (long-term) 6.45 7.41 6.93 6.94 7.08 7.20 7.13 7.14 7.10 7.21 7.09 7.10 STATE AND LOCAL NOTES AND BONDS Moody's series13 30 5.38 5.77 5.80 5.62 5.75 5.67 5.83 5.90 5.90 5.80 5.86 5.76 31 Baa 5.83 6.17 6.10 5.94 5.97 5.98 5.96 5.96 5.96 5.92 6.01 5.94 32 Bond Buyer series14 5.60 6.18 5.95 5.94 5.98 6.02 5.92 5.97 5.94 6.00 5.88 5.86 CORPORATE BONDS 33 Seasoned issues, all industries15 7.54 8.26 7.83 7.80 7.91 8.00 7.95 7.96 7.92 8.02 7.92 7.93 Rating group 34 Aaa 7.22 7.97 7.59 7.50 7.62 7.71 7.65 7.66 7.62 7.73 7.61 7.62 35 Aa 7.40 8.15 7.72 7.68 7.77 7.87 7.82 7.83 7.79 7.89 7.79 7.81 36 A 7.58 8.28 7.83 7.83 7.94 8.02 7.97 7.97 7.94 8.05 7.94 7.95 37 Baa 7.93 8.63 8.20 8.19 8.30 8.40 8.35 8.36 8.32 8.42 8.32 8.34 38 A-rated, recently offered utility bonds16 7.46 8.29 7.86 7.90 8.02 8.13 8.07 7.97 8.23 8.09 8.01 8.06 MEMO Dividend-price raticP 39 Common stocks 2.78 2.82 2.56 2.24 2.21 2.21 2.28 2.22 2.19 2.25 2.32 2.35 1. The daily effective federal funds rate is a weighted average of rates on trades through 12. Yields on actively traded issues adjusted to constant maturities. Source: U.S. Depart- New York brokers. ment of the Treasury. 2. Weekly figures are averages of seven calendar days ending on Wednesday of the 13. General obligation bonds based on Thursday figures; Moody's Investors Service. current week; monthly figures include each calendar day in the month. 14. State and local government general obligation bonds maturing in twenty years are used 3. Annualized using a 360-day year for bank interest. in compiling this index. The twenty-bond index has a rating roughly equivalent to Moodys' 4. Rate for the Federal Reserve Bank of New York. A1 rating. Based on Thursday figures. 5. Quoted on a discount basis. 15. Daily figures from Moody's Investors Service. Based on yields to maturity on selected 6. An average of offering rates on commercial paper placed by several leading dealers for long-term bonds. firms whose bond rating is AA or the equivalent. 16. Compilation of the Federal Reserve. This series is an estimate of the yield on recently 7. An average of offering rates on paper directly placed by finance companies. offered, A-rated utility bonds with a thirty-year maturity and five years of call protection. 8. Representative closing yields for acceptances of the highest-rated money center banks. Weekly data are based on Friday quotations. 9. An average of dealer offering rates on nationally traded certificates of deposit. 17. Standard & Poor's corporate series. Common stock ratio is based on the 500 stocks in 10. Bid rates for Eurodollar deposits at approximately 11:00 a.m. London time. Data are the price index. for indication purposes only. NOTE. Some of the data in this table also appear in the Board's H.15 (519) weekly and 11. Auction date for daily data; weekly and monthly averages computed on an issue-date G.13 (415) monthly statistical releases. For ordering address, see inside front cover. basis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A24 Domestic NonfinancialS tatistics • October 1996 1.36 STOCK MARKET Selected Statistics 1995 1996 IInnddiiccaattoorr 11999933 Nov. Dec. Jan. Feb. Mar. Apr. May June July Prices and trading volume (averages of daily figures)1 Common stock prices (indexes) 1 New York Stock Exchange (Dec. 31, 1965 = 50) 249.71 254.16 291.18 317.58 327.90 329.22 346.46 346.73 347.50 354.84 358.32 345.06 2 Industrial 300.10 315.32 367.40 398.66 412.11 413.05 435.92 439.55 441.99 452.63 458.30 438.58 3 Transportation 242.68 247.17 270.14 300.06 303.53 300.43 315.29 324.77 326.42 334.66 331.57 316.57 4 Utility 114.55 104.96 110.64r 119.49 123.95r 127.09 135.51 122.83 122.44 124.86 123.60 122.66 5 Finance 216.55 209.75 238.48 266.12 273.36 274.96 290.97 290.44 287.92 290.43 294.42 287.89 6 Standard & Poor's Corporation (1941-43 = 10)2 451.63 460.42 541.72 595.53 614.57 614.42 649.54 647.07 647.17 661.23 668.50 644.06 7 American Stock Exchange (Aug. 31, 1973 = 50)3 438.77 449.49 498.13 529.93 538.01 540.48 562.34 565.69 580.60 600.93 591.99 550.16 Volume of trading (thousands of shares) 8 New York Stock Exchange 263,374 290,652 345,729 360,199 384,310 416,048 434,607 426,198 419,941 404,184 392,413 398,245 9 American Stock Exchange 18,188 17,951 20,387 16,724 21,085 21,069 27,107 22,988 24,886 28,127 23,903 21,281 Customer financing (millions of dollars, end-of-period balances) 10 Margin credit at broker-dealers4 60,310 61,160 76,680 77,875 76,680 73,530 77,090 78,308 81,170 86,100 87,160 79,860 Free credit balances at brokers5 11 Margin accounts6 12,360 14,095 16,250 15,590 16,250 14,950 15,840 15,770 15,780 16,890 16,800r 17,700 12 Cash accounts 27,715 28,870 34,340 30,340 34,340 32,465 34,700 33,113 33,100 33,760 33,775r 32,935 Margin requirements (percent of market value and eifective date)7 Mar. 11, 1968 June 8, 1968 May 6, 1970 Dec. 6, 1971 Nov. 24, 1972 Jan. 3, 1974 13 Margin stocks 70 80 65 55 65 50 14 Convertible bonds 50 60 50 50 50 50 15 Short sales 70 80 65 55 65 50 1. Daily data on prices are available upon request to the Board of Governors. For ordering purchase and carry "margin securities" (as defined in the regulations) when such credit is address, see inside front cover. collateralized by securities. Margin requirements on securities other than options are the 2. In July 1976 a financial group, composed of banks and insurance companies, was added difference between the market value (100 percent) and the maximum loan value of collateral to the group of stocks on which the index is based. The index is now based on 400 industrial as prescribed by the Board. Regulation T was adopted effective Oct. 15, 1934; Regulation U, stocks (formerly 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and effective May 1, 1936; Regulation G, effective Mar. 11, 1968; and Regulation X, effective 40 financial. Nov. 1, 1971. 3. On July 5, 1983, the American Stock Exchange rebased its index, effectively cutting On Jan. 1, 1977, the Board of Governors for the first time established in Regulation T the previous readings in half. initial margin required for writing options on securities, setting it at 30 percent of the current 4. Since July 1983, under the revised Regulation T, margin credit at broker-dealers has market value of the stock underlying the option. On Sept. 30, 1985, the Board changed the included credit extended against stocks, convertible bonds, stocks acquired through the required initial margin, allowing it to be the same as the option maintenance margin required exercise of subscription rights, corporate bonds, and government securities. Separate report- by the appropriate exchange or self-regulatory organization; such maintenance margin rules ing of data for margin stocks, convertible bonds, and subscription issues was discontinued in must be approved by the Securities and Exchange Commission. Effective Jan. 31, 1986, the April 1984. SEC approved new maintenance margin rules, permitting margins to be the price of the option 5. Free credit balances are amounts in accounts with no unfulfilled commitments to plus 15 percent of the market value of the stock underlying the option. brokers and are subject to withdrawal by customers on demand. Eifective June 8, 1988, margins were set to be the price of the option plus 20 percent of the 6. Series initiated in June 1984. market value of the stock underlying the option (or 15 percent in the case of stock-index 7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant options). to the Securities Exchange Act of 1934, limit the amount of credit that can be used to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A25 1.38 FEDERAL FISCAL AND FINANCING OPERATIONS Millions of dollars Fiscal year Calendar year TTTyyypppeee ooofff aaaccccccooouuunnnttt ooorrr ooopppeeerrraaatttiiiooonnn 1996 11999933 11999944 11999955 Feb. Mar. Apr. May June July U.S. budget1 1 Receipts, total 1.153,535 1,257,737 1,355,213 89,349 89,011 203,386 90,044 151,919 103,813 2 On-budget 841,601 922,711 1,004,134 60,912 56,677 160,774 60,106 116,718 75,202 3 Off-budget 311,934 335,026 351,079 28,437 32,334 42,612 29,938 35,201 28,611 4 Outlays, total 1,408,675 1,460,841 1,519,133 133,644 136,286 130,993 143,342 117,818 130,909 5 On-budget 1.142,088 1,181,469 1,230,469 105,711 108,365 105,131 114,486 104,161 104,454 6 Off-budget 266,587 279,372 288,664 27,933 27,921 25,862 28,856 13,657 26,455 7 Surplus or deficit (-), total -255,140 -203,104 -163,920 -44,295 -47,275 72,393 -53,298 34,101 -27,096 8 On-budget -300,487 -258,758 -226,335 -44,799 -51,688 55,643 -54,380 12,557 -29,252 9 Off-budget 45,347 55,654 62,415 504 4,413 16,750 1,082 21,544 2,156 Source of financing (total) 10 Borrowing from the public 248,619 185,344 171,288 47,022 39,189 -35,466 20,633 -8,619 29,098 11 Operating cash (decrease, or increase (—)) 6,283 16,564 -2,007 6,297 9,283 -26,449 43,809 -33,519 1,262 12 Other 2 238 1,196 -5,361 -9,024 -197 -10,478 -11,144 8,037 -3,264 MEMO 13 Treasury operating balance (level, end of period) 52,506 35,942 37,949 31,157 21,874 48,323 4,514 38,033 36,771 14 Federal Reserve Banks 17,289 6,848 8,620 5,632 7,021 11,042 3,757 7,701 6,836 15 Tax and loan accounts 35,217 29,094 29,329 25,525 14,853 37,281 757 30,332 29,936 1. Since 1990, off-budget items have been the social security trust funds (federal old-age net gain or loss for U.S. currency valuation adjustment; net gain or loss for IMF loansurvivors insurance and federal disability insurance) and the U.S. Postal Service. valuation adjustment; and profit on sale of gold. 2. Includes special drawing rights (SDRs); reserve position on the U.S. quota in the SOURCE. Monthly totals: U.S. Department of the Treasury, Monthly Treasury Statement of International Monetary Fund (IMF); loans to the IMF; other cash and monetary assets; Receipts and Outlays of the U.S. Government; fiscal year totals: U.S. Office of Management accrued interest payable to the public; allocations of SDRs; deposit funds; miscellaneous and Budget, Budget of the U.S. Government. liability (including checks outstanding) and asset accounts; seigniorage; increment on gold; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A26 Domestic NonfinancialS tatistics • October 1996 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1 Millions of dollars Fiscal year Calendar year Source or type May July RECEIPTS 1 All sources 1,257,737 1,355,213 625,556 710,542 656,402 766,631 90,044 151,919 103,813 2 Individual income taxes, net 543,055 590,244 273,315 307,498 292,393 347,285 29,914 60,816 49,814 3 Withheld 459,699 499,927 240,063 251,398 256,916 264,177 45,399 35,941 48,072 4 Nonwithheld 160,433 175,855 42,029 132,001 43,100 162,782 6,352 26,926 3,631 5 Refunds 77,077 85,538 8,787 75,959 10,058 79,735 21,850 2,061 1,893 Corporation income taxes 6 7 R G e ro fu ss n d r s e ceipts 15 1 4 3 , , 2 8 0 2 5 0 17 1 4 7 , , 4 4 2 1 2 8 78 7 , , 3 74 9 7 3 9 1 2 0 , , 1 3 3 9 2 9 8 7 8, , 3 5 0 1 2 8 96 9 , , 4 7 8 0 0 4 3 1 , , 6 0 4 7 7 7 37,9 9 5 9 0 2 5,665861 8 Social insurance taxes and contributions, net 461,475 484,473 220,140 261,837 224,269 277,767 48,676 45,583 39,258 9 Employment taxes and contributions2 428,810 451,045 206,615 241,557 211,323 257,446 38,104 44,888 36,946 10 Unemployment insurance 28,004 28,878 11.177 18,001 10,702 18,068 10,155 400 1,939 11 Other net receipts3 4,661 4,550 2,349 2,279 2,247 2,254 417 295 372 12 Excise taxes 55,225 57,484 30.178 27,452 30,014 25,682 4,113 4,310 4,508 13 Customs deposits 20,099 19,301 11,041 8,848 9,849 8,731 1,427 1,450 1,712 14 Estate and gift taxes 15,225 14,763 7,067 7,425 7,718 8,775 1,415 1,141 1,259 15 Miscellaneous receipts4 22,274 31,944 13,169 15,750 11,374 11,620 1,929 1,663 2,287 OUTLAYS 16 All types 1,460,841 1,519,133 752,150 760,824 752,511 785,730 143,342 117,818 130,909 17 National defense 281,642 272,066 141,885 135,648 132,870r 133,439r 26,609 19,769 22,541 18 International affairs 17,083 16,434 11,889 4,797 6,994 8,074 1,165 837 497 19 General science, space, and technology 16,227 16,724 7,604 8,611 8,810 8,897 1,584 1,536 1,660 20 Energy 5,219 4,936 2,923 2,358 2,203 1,355 216 822 187 21 Natural resources and environment 21,064 22,105 11,911 10,273 12,633 10,238 1,757 1,543 2,062 22 Agriculture 15,046 9,773 7,623 4,039 3,062 71 -175 -124 843 23 Commerce and housing credit -5,118 -14,441 -4,270 -13,937 -4,412 -7,334 256 -1,368 -304 24 Transportation 38,066 39,350 21,835 18,193 19,931 18,291 3,324 3,185 3,648 25 Community and regional development 10,454 10,641 6,283 5,073 6,169r 5,237r 826 959 26 Education, training, employment, and social services 46,307 27,450 25,893 26,137 3,961 27 Health 107,122 115,418 54,147 59,057 57,098r 59,957 11,201 9,762 10,077 28 Social security and Medicare 464,312 495,701 236,817 251,975 251,387 264,649 46,727 44,731 45,376 29 Income security 214,031 220,449 101,806 117,190 104,041r 121,032 21,407 11,332 18,189 30 Veterans benefits and services 37,642 37,938 19,761 19,269 18,684 18,164 5,254 1,570 3,255 3 3 1 2 G A e d n m e i r n a i l s t g ra o t v io er n n m of e n ju t stice 1 1 5 1 , , 2 3 5 0 6 3 1 13 6 , , 8 2 3 2 5 3 7 7, , 3 7 5 5 5 3 5 8 , , 7 05 9 1 6 8 7 , ,6 1 2 1 1 6r 4 9 , , 6 0 4 2 1 1 1,618830 1 1, , 7 3 5 2 5 7 1,9 5 8 3 9 33 Net interest5 202,957 232,173 109,434 116,169 119,351r 120,579 20,359 18,977 20,311 34 Undistributed offsetting receipts6 -37,772 -44,455 -20,066 -17,631 — 26,994 -16,716 -2,991 -2,636 -3,543 1. Functional details do not sum to total outlays for calendar year data because revisions to 4. Deposits of earnings by Federal Reserve Banks and other miscellaneous receipts. monthly totals have not been distributed among functions. Fiscal year total for receipts and 5. Includes interest received by trust funds. outlays do not correspond to calendar year data because revisions from the Budget have not 6. Rents and royalties for the outer continental shelf, U.S. government contributions for been fully distributed across months. employee retirement, and certain asset sales. 2. Old-age, disability, and hospital insurance, and railroad retirement accounts. SOURCE. Fiscal year totals: U.S. Office of Management and Budget, Budget of the U.S. 3. Federal employee retirement contributions and civil service retirement and Government, Fiscal Year 1997; monthly and half-year totals: U.S. Department of the Treadisability fund. sury, Monthly Treasury Statement of Receipts and Outlays of the U.S. Government. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A25 1.40 FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION Billions of dollars, end of month 1994 1995 1996 IItteemm June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 1 Federal debt outstanding 4,673 4,721 4,827 4,891 4,978 5,001 5,017 5,153 5,197 2 Public debt securities 4,646 4,693 4,800 4,864 4,951 4,974 4,989 5,118 5,161 3 Held by public 3,443 3,480 3,543 3,610 3,635 3,653 3,684 3,764 n.a. 4 Held by agencies 1,203 1,213 1,257 1,255 1,317 1,321 1,305 1,354 n.a. 5 Agency securities 28 29 27 27 27 27 28 36 36 6 Held by public 27 29 27 26 27 27 28 28 n.a. / Held by agencies 0 0 0 0 0 0 0 8 n.a. 8 Debt subject to statutory limit 4,559 4,605 4,711 4,775 4,861 4,885 4,900 5,030 5,073 9 Public debt securities 4,559 4,605 4,711 4,774 4,861 4,885 4,900 5,030 5,073 10 Other debt1 0 0 0 0 0 0 0 0 0 MEMO 11 Statutory debt limit 4,900 4,900 4,900 4,900 4,900 4,900 4,900 5,500 5,500 1. Consists of guaranteed debt of U.S. Treasury and other federal agencies, specified SOURCE. U.S. Department of the Treasury, Monthly Statement of the Public Debt of the participation certificates, notes to international lending organizations, and District of Colum- United States and Treasury Bulletin. bia stadium bonds. 1.41 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership Billions of dollars, end of period 1995 1996 TTyyppee aanndd hhoollddeerr 11999922 11999933 11999944 11999955 Q3 Q4 Q1 Q2 1 Total gross public debt 4,177.0 4,535.7 4,800.2 4,988.7 4,974.0 4,988.7 5,117.8 5,161.1 By type 2 Interest-bearing 4,173.9 4,532.3 4,769.2 4,964.4 4,950.6 4,964.4 5,083.0 5,126.8 3 Marketable 2,754.1 2,989.5 3,126.0 3,307.2 3,260.5 3,307.2 3,375.1 3,348.4 4 Bills 657.7 714.6 733.8 760.7 742.5 760.7 811.9 773.6 5 Notes 1,608.9 1,764.0 1,867.0 2,010.3 1,980.3 2,010.3 2,014.1 2,025.8 6 Bonds 472.5 495.9 510.3 521.2 522.6 521.2 534.1 534.1 7 Nonmarketable1 1,419.8 1,542.9 1,643.1 1,657.2 1,690.2 1,657.2 1,707.9 1,778.3 8 State and local government series 153.5 149.5 132.6 104.5 113.4 104.5 96.5 97.8 9 Foreign issues2 37.4 43.5 42.5 40.8 41.0 40.8 40.4 37.8 10 Government 37.4 43.5 42.5 40.8 41.0 40.8 40.4 37.8 11 Public .0 .0 .0 .0 .0 .0 .0 .0 12 Savings bonds and notes 155.0 169.4 177.8 181.9 181.2 181.9 183.0 183.8 13 Government account series' 1,043.5 1,150.0 1,259.8 1,299.6 1,324.3 1,299.6 1,357.7 1,428.5 14 Non-interest-bearing 3.1 3.4 31.0 24.3 23.3 24.3 34.8 34.3 By holder 4 15 U.S. Treasury and other federal agencies and trust funds 1,047.8 1,153.5 1,257.1 1,304.5 1,320.8 1,304.5 1,353.8 16 Federal Reserve Banks 302.5 334.2 374.1 391.0 374.1 391.0 381.0 17 Private investors 2,839.9 3,047.4 3,168.0 3,294.9 3,279.5 3,294.9 3,382.8 18 Commercial banks 294.4 322.2 290.1 280.1 289.0 280.1 281.0 19 Money market funds 79.7 80.8 67.6 71.3 64.2 71.3 87.3 20 Insurance companies 197.5 234.5 240.1 252.6 249.8 252.6 254.5 21 Other companies 192.5 213.0 226.5 228.8 224.1 228.8 229.0 n a. 22 State and local treasuries5'6 563.3 605.9 483.4 343.8 384.9 343.8 343.0 Individuals 23 Savings bonds 157.3 171.9 180.5 185.0 183.5 185.0 185.8 24 Other securities 131.9 137.9 150.7 162.7 162.4 162.7 161.4 25 Foreign and international7 549.7 623.0 688.6 861.8 848.1 861.8 930.1 26 Other miscellaneous investors6'8 673.5 658.3 840.5 908.8 873.5 908.8 910.7 1. Includes (not shown separately) securities issued to the Rural Electrification Administra- 7. Consists of investments of foreign balances and international accounts in the United tion, depository bonds, retirement plan bonds, and individual retirement bonds. States. 2. Nonmarketable series denominated in dollars, and series denominated in foreign cur- 8. Includes savings and loan associations, nonprofit institutions, credit unions, mutual rency held by foreigners. savings banks, corporate pension trust funds, dealers and brokers, certain U.S. Treasury 3. Held almost entirely by U.S. Treasury and other federal agencies and trust funds. deposit accounts, and federally sponsored agencies. 4. Data for Federal Reserve Banks and U.S. government agencies and trust funds are actual SOURCE. U.S. Treasury Department, data by type of security, Monthly Statement of the holdings; data for other groups are Treasury estimates. Public Debt of the United States; data by holder, Treasury Bulletin. 5. Includes state and local pension funds. 6. In March 1996, in a redefinition of series, fully defeased debt backed by nonmarketable federal securities was removed from "Other miscellaneous investors" and added to "State and local treasuries." The data shown here have been revised accordingly. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A28 Domestic NonfinancialS tatistics • October 1996 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions1 Millions of dollars, daily averages 1996 1996, week ending IItteemm Apr. May June June 5 June 12 June 19 June 26 July 3 July 10 July 17 July 24 July 31 OUTRIGHT TRANSACTIONS2 By type of security 1 U.S. Treasury bills 55,901 47,278 52,915 57,129 53,849 55,294 47,770 51,172 45,975 46,759 44,730 45,143 Coupon securities, by maturity 2 Five years or less 97,216 94,636 99,169 98,440 108,694 96,599 92,456 99,661 89,231 102,734 101,135 76,322 3 More than five years 41,971 49,383 43,649 44,864 48,800 42,796 36,010 50,178 53,013 48,832 40,111 37,812 4 Federal agency 28,936 29,131 33,225 29,123 30,317 35,178 35,464 36,166 35,736 34,710 35,317 34,819 5 Mortgage-backed 34,788 35,929 35,542 35,943 56,857 31,260 21,376 27,774 52,724 41,762 27,177 24,319 By type of counterparty With interdealer broker 6 U.S. Treasury 112,758 111,032 113,378 111,907 126,241 113,458 101,372 113,246 106,315 115,888 108,081 91,951 7 Federal agency 795 661 704 496 752 828 707 575 629 748 662 665 8 Mortgage-backed 11,979 13,422 13,267 15,522 19,210 11,399 8,498 11,624 18,216 15,669 10,056 7,890 With other 9 U.S. Treasury 82,330 80,265 82,355 88,526 85,103 81,230 74,864 87,765 81,904 82,436 77,896 67,327 10 Federal agency 28,141 28,470 32,521 28,626 29,565 34,350 34,757 35,591 35,108 33,962 34,654 34,154 11 Mortgage-backed 22,808 22,507 22,275 20,421 37,647 19,861 12,878 16,150 34,509 26,093 17,121 16,429 FUTURES TRANSACTIONS3 By type of deliverable security 12 U.S. Treasury bills 369 410 539 481 779 866 121 250 265 316 n.a. 100 Coupon securities, by maturity 13 Five years or less 1,203 1,550 l,761r 2,158 2,064 1,946 1.026 1,781 1,494 1,945 1,774 1,086 14 More than five years 11,717 12,854 12,742 14,370 15,346 13,997 8.484 11,299 11,484 11,291 11,071 9,513 15 Federal agency 0 0 0 0 0 0 0 0 0 0 0 0 16 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 0 OPTIONS TRANSACTIONS4 By type of underlying security 17 U.S. Treasury bills 0 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 18 Five years or less 1,582 2,294 2,937 2,255 4,289 2,502 2,329 3,186 1,417 2,187 1,978 1,588 19 More than five years 3,773 4,057 4,494 4,562 5,585 4,753 3,252 4,119 4,806 4,064 3,654 3,644 20 Federal agency 0 0 0 0 0 0 0 0 0 0 0 0 21 Mortgage-backed 1,110 1,046 786 971 1,288 467 510 740 1,089 590 633 489 1. Transactions are market purchases and sales of securities as reported to the Federal Forward transactions are agreements made in the over-the-counter market that specify Reserve Bank of New York by the U.S. government securities dealers on its published list of delayed delivery. Forward contracts for U.S. Treasury securities and federal agency debt primary dealers. Monthly averages are based on the number of trading days in the month. securities are included when the time to delivery is more than five business days. Forward Transactions are assumed evenly distributed among the trading days of the report week. contracts for mortgage-backed agency securities are included when the time to delivery is Immediate, forward, and futures transactions are reported at principal value, which does not more than thirty business days. include accrued interest; options transactions are reported at the face value of the underlying 3. Futures transactions are standardized agreements arranged on an exchange. All futures securities. transactions are included regardless of time to delivery. Dealers report cumulative transactions for each week ending Wednesday. 4. Options transactions are purchases or sales of put and call options, whether arranged on 2. Outright transactions include immediate and forward transactions. Immediate delivery an organized exchange or in the over-the-counter market, and include options on futures refers to purchases or sales of securities (other than mortgage-backed federal agency securi- contracts on U.S. Treasury and federal agency securities. ties) for which delivery is scheduled in five business days or less and "when-issued" NOTE, "n.a." indicates that data are not published because of insufficient activity. securities that settle on the issue date of offering. Transactions for immediate delivery of mortgage- Major changes in the report form filed by primary dealers induced a break in the dealer data backed agency securities include purchases and sales for which delivery is scheduled in thirty business series as of the week ending July 6, 1994. days or less. Stripped securities are reported at market value by maturity of coupon or corpus. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A25 1.43 U.S. GOVERNMENT SECURITIES DEALERS Positions and Financing1 Millions of dollars 1996 1996, week ending IItteemm Apr. May June June 5 June 12 June 19 June 26 July 3 July 10 July 17 July 24 Positions" NET OUTRIGHT POSITIONS3 By type of security 1 U.S. Treasury bills 17,119 15,447 13,791 28,159 22,380 8,845 4,991 4,854 10,113 12,921 23,286 Coupon securities, by maturity 2 Five years or less 7,771 2,210 -4,136 -961 -3,042 -10,342 -1,686 -3,448 -14,023 -10,059 -8,166 3 More than five years -27,702 -23,291 -20,940 -22,315 -21,501 -21,006 -20,230 -19,366 -17,599 -19,276 -20,244 4 Federal agency 26,566 23,921 22,350 22,655 24,935 22,365 22,229 17,632 18,296 22,818 24,189 5 Mortgage-backed 32,583 34,206 35,764 36,270 35,104 35,001 35,372 38,307 37,003 39,147 40,305 NET FUTURES POSITIONS4 By type of deliverable security 6 U.S. Treasury bills -3,560 -4,625 -2,006 —3,484 -2,941 -1,157 -1,049 -1,681 -1,571 -2,778 -3,226 Coupon securities, by maturity 7 Five years or less 1,073 632 254 7 466 1,617 260 -2,202 -1,978 -2,079 -1,015 8 More than five years -4,285 -3,598 -7,798 -4,910 -5,945 -5,821 -10,124 -14,039 -11,211 -12,557 -15,194 9 Federal agency 0 0 0 0 0 0 0 0 0 0 0 10 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 NET OPTIONS POSITIONS By type of deliverable security 11 U.S. Treasury bills 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 12 Five years or less 1,542 -139 -2,515 -1,868 -2,276 -3,099 -2,796 -2,225 -732 -908 -1,058 13 More than five years 1,081 -703 670 -735 235 70 1,308 3,123 1,884 1,162 3,229 14 Federal agency 0 0 0 0 0 0 0 n.a. n.a. n.a. 0 15 Mortgage-backed 4,435 3,902 3,075 3,465 3,479 2,941 2,896 2,425 2,886 2,548 2,604 Financing5 Reverse repurchase agreements 16 Overnight and continuing 256,694 251,988 243,475 235,548 238,277 248,074 242,786 255.640 267,488 263,405 250,706 17 Term 467,590 453,182 463,139 428,448 470,543 471,190 479,431 450,945 475,371 488,031 507,791 Securities borrowed 18 Overnight and continuing 166,490 173,105 179,427 182,616 181,178 182,894 173,201 177,206 182,305 185,499 182,017 19 Term 67,330 63,987 60,592 58,906 61,003 60,316 61,212 61,379 59,185 58,974 64,132 Securities received as pledge 20 Overnight and continuing 3,275 2,488 5,063 4,501 4,446 5,423 5,411 5,605 5,503 4,516 4,060 21 Term 53 52 82 47 91 112 86 51 56 56 49 Repurchase agreements 22 Overnight and continuing 577,949 559,390 540,745 556,952 561,144 545,801 508,525 532,327 563,727 568,361 560,993 23 Term 399,259 392,946 409,135 362,346 403,262 415,376 444,087 405,814 412,138 424,209 449,452 Securities loaned 24 Overnight and continuing 4,728 4,804 5,341 5,577 5,711 5,890 4,636 4,670 4,697 4,915 4,384 25 Term 2,611 3,094 3,160 0 0 0 0 3,160 3,133 3,159 3,524 Securities pledged 26 Overnight and continuing 37,160 41,591 46,541 45,317 45,388 47,466 51,352 40,053 39,833 40,852 37,337 27 Term 8,518 6,797 6,584 6,016 6,063 6,060 7,419 7,664 7,595 6,566 6,668 Collateralized loans 28 Overnight and continuing 12,819 10,687 10,828 11,827 12,080 10,911 6,955 14,023 15,662 15,662 14,260 29 Term 1,328 1,411 1,327 1,270 1,470 1,289 1,284 1,289 1,794 1,189 1,289 30 Total 14,045 12,091 12,155 13,097 13,550 12,200 8,239 15,312 17,456 16,791 15,549 MEMO: Matched book6 Securities in 31 Overnight and continuing 244,480 244,668 243,847 236,593 236,204 250,199 244,804 253,497 270,866 271,578 265,571 32 Term 464,018 441,772 448,381 413,953 459,074 453,905 461,803 439,546 460,576 475,035 497,723 Securities out 33 Overnight and continuing 362,930r 349,379r 344,632 337,593 356,820 350,654 330,951 345,504 374,155 369,901 369,738 34 Term 349,263 337,119 353,804 309,423 345,288 360,676 385,233 357,154 361,575 379,096 397,826 1. Data for positions and financing are obtained from reports submitted to the Federal 4. Futures positions reflect standardized agreements arranged on an exchange. All futures Reserve Bank of New York by the U.S. government securities dealers on its published list of positions are included regardless of time to delivery. primary dealers. Weekly figures are close-of-business Wednesday data. Positions for calendar 5. Overnight financing refers to agreements made on one business day that mature on the days of the report week are assumed to be constant. Monthly averages are based on the next business day; continuing contracts are agreements that remain in effect for more than one number of calendar days in the month. business day but have no specific maturity and can be terminated without advance notice by 2. Securities positions are reported at market value. either party; term agreements have a fixed maturity of more than one business day. Financing 3. Net outright positions include immediate and forward positions. Net immediate posi- data are reported in terms of actual funds paid or received, including accrued interest. tions include securities purchased or sold (other than mortgage-backed agency securities) that 6. Matched-book data reflect financial intermediation activity in which the borrowing and have been delivered or are scheduled to be delivered in five business days or less and lending transactions are matched. Matched-book data are included in the financing break- "when-issued" securities that settle on the issue date of offering. Net immediate positions for downs given above. The reverse repurchase and repurchase numbers are not always equal mortgage-backed agency securities include securities purchased or sold that have been because of the "matching" of securities of different values or different types of collateralizadelivered or are scheduled to be delivered in thirty business days or less. tion. Forward positions reflect agreements made in the over-the-counter market that specify NOTE, "n.a." indicates that data are not published because of insufficient activity. delayed delivery. Forward contracts for U.S. Treasury securities and federal agency debt Major changes in the report form filed by primary dealers induced a break in the dealer data securities are included when the time to delivery is more than five business days. Forward series as of the week ending July 6, 1994. contracts for mortgage-backed agency securities are included when the time to delivery is more than thirty business days. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic NonfinancialS tatistics • October 1996 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period 1996 AAggeennccyy 11999922 11999933 11999944 11999955 Jan. Feb. Mar. Apr. May 1 Federal and federally sponsored agencies 483,970 570,711 738,928 844,611 836,820 840,384 846,807 2 Federal agencies 41,829 45,193 39,186 37,347 37,273 31,986 31,284 3 Defense Department' 7 6 6 6 6 6 6 4 Export-Import Bank2'3 7,208 5,315 3,455 2,050 2,050 2,050 2,015 5 Federal Housing Administration4 374 255 116 97 31 35 52 n a. n a. 6 Government National Mortgage Association certificates of participation5 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 7 Postal Service6 10,660 9,732 8,073 5,765 5,765 300 300 8 Tennessee Valley Authority 23,580 29,885 27,536 29,429 29,421 29,595 28,911 9 United States Railway Association6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10 Federally sponsored agencies7 442,141 523,452 699,742 807,264 799,547 808,398 815,523 837,570 11 Federal Home Loan Banks 114,733 139,512 205,817 243,194 234,664 233,404 239,253 242,437 243,389 12 Federal Home Loan Mortgage Corporation 29,631 49,993 93,279 119,961 120,868 123,777 124,278 136,185 141,248 13 Federal National Mortgage Association 166,300 201,112 257,230 299,174 297,657 304,159 306,815 306,361 305,050 14 Farm Credit Banks8 51,910 53,123 53,175 57,379 58,659 57,536 59,428 60,815 61,197 15 Student Loan Marketing Association9 39,650 39,784 50,335 47,529 47,673 49,495 45,723 47,052 46,735 16 Financing Corporation10 8,170 8,170 8,170 8,170 8,170 8,170 8,170 8 170 8,170 17 Farm Credit Financial Assistance Corporation" 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 18 Resolution Funding Corporation12 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 MEMO 19 Federal Financing Bank debt13 154,994 128,187 103,817 78,681 78,512 68,037 66,725 Lending to federal and federally sponsored agencies 20 Export-Import Bank3 7,202 5,309 3,449 2,044 2,044 2,044 2,009 21 Postal Service6 10,440 9,732 8,073 5,765 5,765 300 300 22 Student Loan Marketing Association 4,790 4,760 n.a. n.a. n.a. n.a. n.a. 23 Tennessee Valley Authority 6,975 6,325 3,200 3,200 3,200 n.a. n.a. n.a. n a. 24 United States Railway Association6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Other lending14 25 Farmers Home Administration 42,979 38,619 33,719 21,015 21,015 21,015 21,015 26 Rural Electrification Administration 18,172 17,578 17,392 17,144 17,026 17,040 17,049 27 Other 64,436 45,864 37,984 29,513 29,462 27,638 26,352 1. Consists of mortgages assumed by the Defense Department between 1957 and 1963 10. The Financing Corporation, established in August 1987 to recapitalize the Federal under family housing and homeowners assistance programs. Savings and Loan Insurance Corporation, undertook its first borrowing in October 1987. 2. Includes participation certificates reclassified as debt beginning Oct. 1, 1976. 11. The Farm Credit Financial Assistance Corporation, established in January 1988 to 3. On-budget since Sept. 30, 1976. provide assistance to the Farm Credit System, undertook its first borrowing in July 1988. 4. Consists of debentures issued in payment of Federal Housing Administration insurance 12. The Resolution Funding Corporation, established by the Financial Institutions Reform, claims. Once issued, these securities may be sold privately on the securities market. Recovery, and Enforcement Act of 1989, undertook its first borrowing in October 1989. 5. Certificates of participation issued before fiscal year 1969 by the Government National 13. The FFB, which began operations in 1974, is authorized to purchase or sell obligations Mortgage Association acting as trustee for the Farmers Home Administration, the Department issued, sold, or guaranteed by other federal agencies. Because FFB incurs debt solely for the of Health, Education, and Welfare, the Department of Housing and Urban Development, the purpose of lending to other agencies, its debt is not included in the main portion of the table to Small Business Administration, and the Veterans Administration. avoid double counting. 6. Off-budget. 14. Includes FFB purchases of agency assets and guaranteed loans; the latter are loans 7. Includes outstanding noncontingent liabilities: notes, bonds, and debentures. Includes guaranteed by numerous agencies, with the amounts guaranteed by any one agency generally Federal Agricultural Mortgage Corporation; therefore details do not sum to total. Some data being small. The Farmers Home Administration entry consists exclusively of agency assets, are estimated. whereas the Rural Electrification Administration entry consists of both agency assets and 8. Excludes borrowing by the Farm Credit Financial Assistance Corporation, which is guaranteed loans. shown on line 17. 9. Before late 1982, the association obtained financing through the Federal 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 A31 1.45 NEW SECURITY ISSUES Tax-Exempt State and Local Governments Millions of dollars 1995 1996 TTyyppee ooff iissssuuee oorr iissssuueerr,, 11999933 11999944 11999955 oorr uussee Dec. Jan. Feb. Mar. Apr. May June July 1 All issues, new and refunding1 279,945 153,950 143,101 16,978 11,545 11,598 15,244 13,199 14,991 16,533 11,162 By type of issue 2 General obligation 90,599 54,404 55,737 5,489 6,074 2,063 4,846 5,083 5,476 6,493 4,078 3 Revenue 189,346 99,546 86,555 11,489 5,471 9,535 10,398 8,116 9,515 10,040 7,084 By type of issuer 4 State 27,999 19,186 14,215 951 1,630 695 904 926 2,807 1,047 680 5 Special district or statutory authority2 178,714 95,896 91,419 11,678 7,052 7,820 10,141 9,571 9,824 9,899 6,923 6 Municipality, county, or township 73,232 38,868 36,658 4,349 2,863 3,083 4,199 2,702 2,360 5,587 3,559 7 Issues for new capital 91,434 105,972 94,412 11,070 6,517 6,383 10,621 9,487 9,594 13,864 9,364 By use of proceeds 8 Education 16,831 21,267 24,926 2,968 2,065 2,226 1,847 2,142 2,442 3,453 1,859 9 Transportation 9,167 10,836 11,887 1,178 573 359 1,417 682 778 1,390 547 10 Utilities and conservation 12,014 10,192 9,618 1,664 439 582 892 592 1,368 974 984 11 Social welfare 13,837 20,289 18,612 1,614 935 904 2,715 1,669 1,764 3,152 2,074 12 Industrial aid 6,862 8,161 6,566 1,325 322 110 785 751 302 414 326 13 Other purposes 32,723 35,227 26,518 2,321 2,183 2,202 2,965 3,651 2,940 4,481 3,574 1. Par amounts of long-term issues based on date of sale. SOURCE. Securities Data Company beginning January 1993; Investment 2. Includes school districts. Dealer's Digest before then. 1.46 NEW SECURITY ISSUES U.S. Corporations Millions of dollars 1995 1996 TTyyppee ooff iissssuuee,, ooffffeerriinngg,, 11999933 11999944 11999955 oorr iissssuueerr Nov. Dec. Jan. Feb. Mar. Apr. May June 1 All issues' 769,088 583,240 n a. 55,349 40,149 49,520r 62,115r 55,666r 48,844r 69,176 66,233 2 Bonds2 646,634 498,039 n a. 47,568 34,619 44,764r 52,955r 48,256r 36,344r 55,894 53,492 By type of offering 3 Public, domestic 487,029 365,222 408,806 43,336 32,219 35,443r 45,972r 41,419r 30,585r 46,825 45,446 4 Private placement, domestic3 121,226 76,065 n a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5 Sold abroad 38,379 56,755 76,910 4,232 2,399 9,321r 6,984r 6,837r 5,759r 9,069 8,046 By industry group 6 Manufacturing 88,160 43,423 42,950 4,017 3,205 3,952r 2,522r 3,335 2,503r 5,937 5,339 7 Commercial and miscellaneous 58,559 40,735 37,139 4,178 3,099 2,277r 2,840r 3,803r 2,663r 4,933 4,272 8 Transportation 10,816 6,867 5,727 225 1,240 664 584 137 120 819 850 9 Public utility 56,330 13,322 11,974 485 685 l,906r 965r 788r 444r 691 1,144 10 Communication 31,950 13,340 18,158 3,333 648 748 2,691 2,253r 724r 1,187 2,231 11 Real estate and financial 400,820 380,352 369,769 35,330 25,742 35,217r 43,354r 37,94 lr 29,890r 42,326 39,658 12 Stocks2 122,454 85,155 n.a. 7,781 5,530 4,756 9,160 7,410r 12,500 13,282 12,741 By type of offering 13 Public preferred 18,897 12,570 10,964 2,210 890 2,167 3,258 967 2,000 1,660 3,195 14 Common 82,657 47,828 57,809 5,571 4,640 2,589 5,902 6,443 10,500 11,622 9,546 15 Private placement3 20,900 24,800 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. By industry group 16 Manufacturing 22,271 17,798 2,209 681 295 1,543 2,036 3,968 2,777 2,688 17 Commercial and miscellaneous 25,761 15,713 n.a. 3,274 2,632 2,521 2,659 3,577 4,122 5,041 6,444 18 Transportation 2,237 2,203 97 156 38 141 232 37 322 189 19 Public utility 7,050 2,214 36 322 115 809 319 149 147 569 20 Communication 3,439 494 0 0 200 122 100 144 1,205 837 21 Real estate and financial 61,004 46,733 2,166 1,739 1,588 3,719 1,130 4,079 3,789 2,015 1. Figures represent gross proceeds of issues maturing in more than one year; they are the 2. Monthly data cover only public offerings. principal amount or number of units calculated by multiplying by the offering price. Figures 3. Monthly data are not available. exclude secondary offerings, employee stock plans, investment companies other than closed- SOURCE. Beginning July 1993, Securities Data Company and the Board of Governors of end, intracorporate transactions, equities sold abroad, and Yankee bonds. Stock data include the Federal Reserve System. ownership securities issued by limited partnerships. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A32 Domestic NonfinancialS tatistics • October 1996 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets1 Millions of dollars 1995 1996 IItteemm 11999944 11999955 Nov. Dec. Jan. Feb. Mar. Apr. May June 1 Sales of own shares2 841,286 871,415 70,499 94,719 112,332 90,370 93,856 101,310 96,501 88,115 2 Redemptions of own shares 699,823 699,497 52,727 67,945 75,354 60,398 65,748 81,005 69,419 69,072 3 Net sales3 141,463 171,918 17,772 26,774 36,978 29,972 28,108 20,305 27,082 19,044 4 Assets4 1,550,490 2,067,337 2,032,958 2,067,337 2,143,185 2,181,711 2,212,517 2,293,491 2,356,307 2,363,024 5 Cash5 121,296 142,572 141,489 142,572 150,772 144,520 142,697 148,777 145,554 144,275 6 Other 1,429,195 1,924,765 1,891,470 1,924,765 1,992,414 2,037,191 2,069,820 2,144,713 2,201,752 2,218,749 1. Data on sales and redemptions exclude money market mutual funds but include 4. Market value at end of period, less current liabilities. limited-maturity municipal bond funds. Data on asset positions exclude both money market 5. Includes all U.S. Treasury securities and other short-term debt securities. mutual funds and limited-maturity municipal bond funds. SOURCE. Investment Company Institute. Data based on reports of membership, which 2. Includes reinvestment of net income dividends. Excludes reinvestment of capital gains comprises substantially all open-end investment companies registered with the Securities and distributions and share issue of conversions from one fund to another in the same group. Exchange Commission. Data reflect underwritings of newly formed companies after their 3. Excludes sales and redemptions resulting from transfers of shares into or out of money initial offering of securities. 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 1994' 1995r 1996 AAccccoouunntt 11999933 11999944rr 11999955rr Q3 Q4 Ql Q2 Q3 Q4 Qlr Q2 1 Profits with inventory valuation and capital consumption adjustment 464.4r 529.5 586.6 553.1 570.9 560.0 562.3 612.5 611.8 645.1 653.8 2 Profits before taxes 464.3 531.2 598.9 550.8 572.4 594.5 589.6 607.2 604.2 642.2 644.0 3 Profits-tax liability 163.8 195.3 218.7 203.4 213.5 217.3 214.2 224.5 218.7 233.4 236.7 4 Profits after taxes 300.5 335.9 380.2 347.4 358.8 377.2 375.3 382.8 385.5 408.8 407.4 5 Dividends 197.3 211.0 227.4 212.5 218.5 221.7 224.6 228.5 234.7 239.9 243.1 6 Undistributed profits 103.2r 124.8 152.8 134.9 140.3 155.5 150.8 154.3 150.8 168.9 164.3 7 Inventory valuation -6.6 -13.3 -28.1 -16.5 -22.8 -51.9 -42.3 -9.3 -8.8 -17.4 -13.0 8 Capital consumption adjustment 6.7 11.6 15.9 18.8 21.3 17.4 15.0 14.6 16.5 20.4 22.7 SOURCE. U.S. Department of Commerce, Survey of Current Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Markets and Corporate Finance A3 3 1.51 DOMESTIC FINANCE COMPANIES Assets and Liabilities1 Billions of dollars, end of period; not seasonally adjusted 1994 1995 1996 AAccccoouunntt 11999933 11999944 11999955 Q3 Q4 Ql Q2 Q3 Q4 Ql ASSETS 1 Accounts receivable, gross2 482.8 551.0 614.6 524.1 551.0 568.5 586.9 594.7 614.6 621.8r 2 Consumer 116.5 134.8 152.0 130.3 134.8 135.8 141.7 146.2 152.0 151.9r 3 Business 294.6 337.6 375.9 317.2 337.6 351.9 361.8 362.4 375.9 380.9r 4 Real estate 71.7 78.5 86.6 76.6 78.5 80.8 83.4 86.1 86.6 89.1 5 LESS: Reserves for unearned income 50.7 55.0 63.2 51.1 55.0 58.9 62.1 61.2 63.2 61.5r 6 Reserves for losses 11.2 12.4 14.1 12.1 12.4 12.9 13.7 13.8 14.1 14.2 7 Accounts receivable, net 420.9 483.5 537.3 460.9 483.5 496.7 511.1 519.7 537.3 546. r 8 All other 170.9 183.4 210.7 177.2 183.4 194.6 198.1 198.1 210.7 212.8r 9 Total assets 591.8 666.9 748.0 638.1 666.9 691.4 709.2 717.8 748.0 758.9 LIABILITIES AND CAPITAL 10 Bank loans 25.3 21.2 23.1 21.6 21.2 21.0 21.5 21.8 23.1 23.5 11 Commercial paper 159.2 184.6 184.5 171.0 184.6 181.3 181.3 178.0 184.5 184.8 Debt 12 Owed to parent 42.7 51.0 62.3 50.0 51.0 52.5 57.5 59.0 62.3 62.3 13 Not elsewhere classified 206.0 235.0 284.7 228.2 235.0 254.4 264.4 272.1 284.7 291.4 14 All other liabilities 87.1 99.5 106.2 95.0 99.5 102.5 102.1 102.4 106.2 105.7 15 Capital, surplus, and undivided profits 71.4 75.7 87.2 72.3 75.7 79.7 82.5 84.4 87.2 91.1 16 Total liabilities and capital 591.8 666.9 748.0 638.1 666.9 691.4 709.2 717.8 748.0 758.9 1. Includes finance company subsidiaries of bank holding companies but not of retailers 2. Before deduction for unearned income and losses, and banks. Data are amounts carried on the balance sheets of finance companies; securitized pools are not shown, as they are not on the books. 1.52 DOMESTIC FINANCE COMPANIES Consumer, Real Estate, and Business Credit1 Millions of dollars, amounts outstanding, end of period 1996 TTyyppee ooff ccrreeddiitt 11999933 11999944 11999955 Jan. Feb. Mar. Apr. May June Seasonally adjusted 1 Total 546,103 615,618 691,616 696,099 700,977 703,398 708,343 710,367 719,536 2 Consumer 160,227 176,085 198,861 200,162 202,548 203,280 205,184 207,027 210,341 3 Real estate2 72,043 78,910 87,077 88,084 88,188 89,502 89,943 90,180 93,917 4 Business 313,833 360,624 405,678 407,853 410,241 410,616 413,216 413,160 415,278 Not seasonally adjusted 5 550,751 620,975 697,340 697,312 701,576 705,650 710,762 712,429 722,597 6 162,770 178,999 202,101 201,774 202,108 202,337 203,532 205,678 209,851 7 Motor vehicles 56,057 61,609 70,061 71,420 73,312 72,129 73,810 74,327 74,286 8 Other consumer3 60,396 73,221 81,988 81,186 81,214 79,779 79,489 80,435 80,344 9 Securitized motor vehicles 36,024 31,897 33,633 32,128 30,364 31,093 30,476 31,435 34,826 10 Securitized other consumer 10,293 12,272 16,419 17,040 17,218 19,336 19,757 19,481 20,395 11 Real estate2 71,727 78,479 86,606 88,495 88,520 89,056 89,975 90,182 93,100 12 Business 316,254 363,497 408,633 407,043 410,948 414,257 417,255 416,569 419,646 13 Motor vehicles 95,173 118,197 133,277 132,062 132,153 134,098 134,500 134,196 137.477 14 Retail loans5 18,091 21,514 25,304 25,906 26,591 27,140 27,954 27,151 29,032 15 Wholesale loans6 31,148 35,037 36,427 34,198 33,386 33,910 32,155 31,360 32,095 16 Leases 45,934 61,646 71,546 71,958 72,176 73,048 74,391 75,685 76,350 17 Equipment 145,452 157,953 177,297 175,984 176,461 177,285 178,507 178,151 178,983 18 Loans7 43,514 49,358 59,109 57,997 57,574 57,909 57,576 57,327 58,788 19 Leases 101,938 108,595 118,188 117,987 118,887 119,376 120,931 120,824 120,195 20 Other business8 53,997 61,495 65,363 66,643 68,070 69,497 69,193 68,112 67,210 21 Securitized business assets 21,632 25,852 32,696 32,354 34,264 33,377 35,055 36,110 35,976 22 Retail loans 2,869 4,494 4,723 4,467 4,252 4,067 4,367 4,790 4,688 23 Wholesale loans 10,584 14,826 21,327 21,130 23,460 22,622 24,327 25,028 24,950 24 Leases 8,179 6,532 6,646 6,757 6,552 6,688 6,361 6,292 6,338 1. Includes finance company subsidiaries of bank holding companies but not of retailers 5. Passenger car fleets and commercial land vehicles for which licenses are required. and banks. Data are before deductions for unearned income and losses. Data in this table also 6. Credit arising from transactions between manufacturers and dealers, that is, floor plan appear in the Board's G.20 (422) monthly statistical release. For ordering address, see inside financing. front cover. 7. Beginning with the June 1996 data, retail and wholesale business equipment loans have 2. Includes all loans secured by liens on any type of real estate, for example, first and junior been combined and are no longer separately available. mortgages and home equity loans. 8. Includes loans on commercial accounts receivable, factored commercial accounts, and 3. Includes personal cash loans, mobile home loans, and loans to purchase other types of receivable dealer capital; small loans used primarily for business or farm purposes; and consumer goods such as appliances, apparel, general merchandise, and recreation vehicles. wholesale and lease paper for mobile homes, campers, and travel trailers. 4. Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of the loan originator. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A34 Domestic Nonfinancial Statistics • October 1996 1.53 MORTGAGE MARKETS Mortgages on New Homes Millions of dollars except as noted 1996 IItteemm 11999933 11999944 11999955 Jan. Feb. Mar. Apr. May June July Terms and yields in primary and secondary markets PRIMARY MARKETS Terms[ 1 Purchase price (thousands of dollars) 163.1 170.4 175.8 179.2 181.7 184.5 175.2 179.5 180.1 194.0 2 Amount of loan (thousands of dollars) 123.0 130.8 134.5 135.8 143.2 141.5 133.2 137.6 139.4 144.2 3 Loan-to-price ratio (percent) 78.0 78.8 78.6 77.3 80.3 77.8 78.4 79.3 78.7 76.2 4 Maturity (years) 26.1 27.5 27.7 27.7 27.8 26.4 27.1 27.2 25.8 26.7 5 Fees and charges (percent of loan amount)2 1.30 1.29 1.21 1.07 1.24 1.30 1.17 1.16 1.31 1.25 Yield (percent per year) 6 Contract rate1 7.03 7.26 7.65 7.15 7.00 7.25 7.57 7.61 7.75 7.80 7 Effective rate1,3 7.24 7.47 7.85 7.32 7.20 7.49 7.76 7.80 8.05 8.01 8 Contract rate (HUD series)4 7.37 8.58 8.05 7.23 7.56 7.97 8.22 8.34 8.37 8.28 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (Section 203)5 7.46 8.68 8.18 7.11 7.57 8.09 8.52 8.57 8.55 8.56 10 GNMA securities6 6.65 7.96 7.57 6.71 6.85 7.40 7.63 7.81 7.91 7.84 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 190,861 222,057 253,511 255,619 257,970 262,014 263,809 267,330 270,042 272,458 12 FHA/VA insured 23,857 27,558 28,762 28,622 28,502 28,744 29,132 30,442 30,936 30,830 13 Conventional 167,004 194,499 224,749 226,997 229,468 233,270 234,677 236,888 239,106 241,628 14 Mortgage transactions purchased (during period) 92,037 62,389 56,598 4,810 5,371 7,681 5,339 6,720 5,421 5,345 Mortgage commitments (during period) 15 Issued7 92,537 54,038 56,092 5,750 7,013 6,293 5,599 5,228 5,280 5,036 16 To sell8 5,097 1,820 360 3 0 29 0 13 0 0 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of period)8 17 Total 55,012 72,693 107,424 111,143 114,793 117,420 119,520 121,058 123,806 125,574 18 FHA/VA insured 321 276 267 226 223 220 216 212 209r 205 19 Conventional 54,691 72,416 107,157 110,917 114,570 117,200 119,304 120,846 123,597r 125,369 Mortgage transactions (during period) 20 Purchases 229,242 124,697 98,470 13,357 10,891 11,984 12,740 12,385 10,266 9,934 21 Sales 208,723 117,110 85,877 11,624 9,733 11,384 11,958 11,904 9,969 9,496 22 Mortgage commitments contracted (during period)' 274,599 136,067 118,659 12,765 10,378 14,520 13,009 11,075 11,164 10,626 1. Weighted averages based on sample surveys of mortgages originated by major institu- 6. Average net yields to investors on fully modified pass-through securities backed by tional lender groups for purchase of newly built homes; compiled by the Federal Housing mortgages and guaranteed by the Government National Mortgage Association (GNMA), Finance Board in cooperation with the Federal Deposit Insurance Corporation. assuming prepayment in twelve years on pools of thirty-year mortgages insured by the 2. Includes all fees, commissions, discounts, and "points" paid (by the borrower or the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. seller) to obtain a loan. 7. Does not include standby commitments issued, but includes standby commitments 3. Average effective interest rate on loans closed for purchase of newly built homes, converted. assuming prepayment at the end of ten years. 8. Includes participation loans as well as whole loans. 4. Average contract rate on new commitments for conventional first mortgages; from U.S. 9. Includes conventional and government-underwritten loans. The Federal Home Loan Department of Housing and Urban Development (HUD). Based on transactions on the first Mortgage Corporation's mortgage commitments and mortgage transactions include activity day of the subsequent month. under mortgage securities swap programs, whereas the corresponding data for FNMA 5. Average gross yield on thirty-year, minimum-downpayment first mortgages insured exclude swap activity. by the Federal Housing Administration (FHA) for immediate delivery in the private secondary market. Based on transactions on first day of subsequent month. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Real Estate A3 5 1.54 MORTGAGE DEBT OUTSTANDING1 Millions of dollars, end of period 1995 1996 TTyyppee ooff hhoollddeerr aanndd pprrooppeerrttyy 11999922 11999933 11999944 Ql Q2 Q3 Q4 Qlp 1 All holders 4,092,984 4,268,420 4,473,100 4,515,854 4,584,566 4,663,864 4,715,884 4,773,998 By type of property 2 One- to four-family residences 3,037,408 3,227,134 3,430,023 3,465,065 3,524,378 3,593,966 3,634,698 3,682,610 3 Multifamily residences 274,234 270,796 275,303 276,398 280,390 284,238 288,090 292,448 4 Nonfarm, nonresidential 700,604 689,296 684,803 690,988 695,947 701,241 708,467 713,751 5 80,738 81,194 82,971 83,403 83,850 84,420 84,629 85,189 By type of holder 6 Major financial institutions 1,769,187 1,767,835 1,815,810 1,841,815 1,868,175 1,895,285 1,890,539 1,895,878 7 Commercial banks2 894,513 940,444 1,004,280 1,024,854 1,053,048 1,072,780 1,080,373 1,087,174 8 One- to four-family 507,780 556,538 611,697 625,378 648,705 662,126 663,588 666,306 9 Multifamily 38,024 38,635 38,916 39,746 40,593 43,003 43,846 45,201 10 Nonfarm, nonresidential 328,826 324,409 331,100 336,795 340,176 343,826 349,109 351,736 11 Farm 19,882 20,862 22,567 22,936 23,575 23,824 23,829 23,931 12 Savings institutions3 627,972 598,330 596,199 601,777 599,745 604,614 596,789 595,903 13 One- to four-family 489,622 469,959 477,499 483,625 482,005 489,150 482,765 484,020 14 Multifamily 69,791 67,362 64,400 63,778 64,404 63,569 61,926 60,494 15 Nonfarm, nonresidential 68,235 60,704 54,011 54,085 53,054 51,604 51,809 51,089 16 Farm 324 305 289 288 282 291 288 299 17 Life insurance companies 246,702 229,061 215,332 215,184 215,382 217,892 213,377 212,801 18 One- to four-family 11,441 9,458 7,910 7,892 7,911 8,006 7,833 7,815 19 Multifamily 27,770 25,814 24,306 24,250 24,310 24,601 24,070 24,013 20 Nonfarm, nonresidential 198,269 184,305 173,539 173,142 173,565 175,643 171,855 171,445 21 Farm 9,222 9,484 9,577 9,900 9,596 9,643 9,619 9,528 22 Federal and related agencies 286,263 327,014 319,401 317,753 315,722 319,923 320,828 322,131 23 Government National Mortgage Association 30 22 6 15 7 2 2 2 24 One- to four-family 30 15 6 15 7 2 2 2 25 Multifamily 0 7 0 0 0 0 0 0 26 Farmers Home Administration4 41,695 41,386 41,781 41,857 41,917 41,858 41,791 41,594 27 One- to four-family 16,912 15,303 13,826 13,507 13,217 12,914 12,643 12,327 28 Multifamily 10,575 10,940 11,319 11,418 11,512 11,557 11,617 11,636 29 Nonfarm, nonresidential 5,158 5,406 5,670 5,807 5,949 6,096 6,248 6,365 30 Farm 9,050 9,739 10,966 11,124 11,239 11,291 11,282 11,266 31 Federal Housing and Veterans' Administrations 12,581 12,215 10,964 10,890 10,098 9,535 9,809 8,439 32 One- to four-family 5,153 5,364 4,753 4,715 4,838 4,918 5,180 4,228 33 Multifamily 7,428 6,851 6,211 6,175 5,260 4,617 4,629 4,211 34 Resolution Trust Corporation 32,045 17,284 10,428 9,342 6,456 4,889 1,864 0 35 One- to four-family 12,960 7,203 5,200 4,755 2,870 2,299 691 0 36 Multifamily 9,621 5,327 2,859 2,494 1,940 1,420 647 0 37 Nonfarm, nonresidential 9,464 4,754 2,369 2,092 1,645 1,170 525 0 38 Farm 0 0 0 0 0 0 0 0 39 Federal Deposit Insurance Corporation 0 14,112 7,821 6,730 6,039 5,015 4,303 5,553 40 One- to four-family 0 2,367 1,049 840 731 618 492 1,848 41 Multifamily 0 1,426 1,595 1,310 1,135 722 428 560 42 Nonfarm, nonresidential 0 10,319 5,177 4,580 4,173 3,674 3,383 3,145 43 Farm 0 0 0 0 0 0 0 0 44 Federal National Mortgage Association 137,584 166,642 178,059 177,615 178,462 182,229 183,782 183,531 45 One- to four-family 124,016 151,310 162,160 161,780 162,674 166,393 168,122 167,895 46 Multifamily 13,568 15,332 15,899 15,835 15,788 15,836 15,660 15,636 47 Federal Land Banks 28,664 28,460 28,555 28,065 28,005 28,151 28,428 28,891 48 One- to four-family 1,687 1,675 1,671 1,651 1,648 1,656 1,673 1,700 49 Farm 26,977 26,785 26,885 26,414 26,357 26,495 26,755 27,191 50 Federal Home Loan Mortgage Corporation 33,665 46,892 41,786 43,239 44,738 48,243 50,849 54,120 51 One- to four-family 31,032 44,345 38,956 40,105 41,477 44,809 46,997 50,058 52 Multifamily 2,633 2,547 2,830 3,134 3,261 3,434 3,852 4,062 53 Mortgage pools or trusts5 1,434,264 1,564,571 1,718,297 1,731,468 1,759,091 1,795,041 1,853,613 1,895,309 54 Government National Mortgage Association 419,516 414,066 450,934 454,401 457,101 463,654 472,298 475,823 55 One- to four-family 410,675 404,864 441,198 444,632 446,855 453,114 461,453 464,644 56 Multifamily 8,841 9,202 9,736 9,769 10,246 10,540 10,845 11,179 57 Federal Home Loan Mortgage Corporation 407,514 447,147 490,851 492,194 498,216 503,370 515,051 524,326 58 One- to four-family 401,525 442,612 487,725 489,114 495,182 500,417 512,238 521,721 59 Multifamily 5,989 4,535 3,126 3,080 3,034 2,953 2,813 2,605 60 Federal National Mortgage Association 444,979 495,525 530,343 533,262 543,669 559,585 582,959 599,546 61 One- to four-family 435,979 486,804 520,763 523,903 533,091 548,400 569,724 585,527 62 Multifamily 9,000 8,721 9,580 9,359 10,578 11,185 13,235 14,019 63 Farmers Home Administration4 38 28 19 14 13 12 11 10 64 One- to four-family 8 5 3 2 2 2 2 1 65 Multifamily 0 0 0 0 0 0 0 0 66 Nonfarm, nonresidential 17 13 9 7 6 5 5 5 67 Farm 13 10 7 5 5 5 4 4 68 Private mortgage conduits 162,217 207,806 246,150 251,597 260,093 268,420 283,294 295,604 69 One- to four-family6 140,718 173,635 194,451 198,040 202,718 207,679 214,635 220,022 70 Multifamily 6,305 8,701 14,925 15,743 17,281 18,903 21,279 24,477 71 Nonfarm, nonresidential 15,194 25,469 36,774 37,814 40,094 41,838 47,380 51,104 72 Farm 0 0 0 0 0 0 0 0 73 Individuals and others7 603,270 609,000 619,592 624,819 641,578 653,615 650,904 660,680 74 One- to four-family 447,871 455,676 461,157 465,111 480,447 491,463 486,660 494,495 75 Multifamily 64,688 65,397 69,601 70,305 71,050 71,897 73,243 74,354 76 Nonfarm, nonresidential 75,441 73,917 76,153 76,667 77,284 77,384 78,152 78,861 77 Farm 15,270 14,009 12,681 12,736 12,796 12,872 12,850 12,970 1. Multifamily debt refers to loans on structures of five or more units. 6. Includes securitized home equity loans. 2. Includes loans held by nondeposit trust companies but not loans held by bank trust 7. Other holders include mortgage companies, real estate investment trusts, state and local departments. credit agencies, state and local retirement funds, noninsured pension funds, credit unions, and 3. Includes savings banks and savings and loan associations. finance companies. 4. FmHA-guaranteed securities sold to the Federal Financing Bank were reallocated from SOURCE. Based on data from various institutional and government sources. Separation of FmHA mortgage pools to FmHA mortgage holdings in 1986:Q4 because of accounting nonfarm mortgage debt by type of property, if not reported directly, and interpolations and changes by the Farmers Home Administration. extrapolations, when required for some quarters, are estimated in part by the Federal Reserve. 5. Outstanding principal balances of mortgage-backed securities insured or guaranteed by Line 69 from Inside Mortgage Securities and other sources. the agency indicated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A36 Domestic Nonfinancial Statistics • October 1996 1.55 CONSUMER INSTALLMENT CREDIT1 Millions of dollars, amounts outstanding, end of period 1996r HHoollddeerr aanndd ttyyppee ooff ccrreeddiitt 11999933 11999944 11999955 Jan. Feb. Mar. Apr. May June Seasonally adjusted 11 TToottaall 844,118 966,457 1,103,164 1,112,235 1,123,182 1,132,882 1,139,830 1,145,428 1,153,703 22 AAuuttoommoobbiillee 279,786 317,182 351,052 352,520 355,136 357,752 360,460 361,627 366,936 33 RReevvoollvviinngg 287,011 339,337 413,894 418,971 425,658 431,035 438,222 443,909 446,707 44 OOtthheerr22 277,321 309,939 338,218 340,745 342.388 344,095 341,148 339,892 340,060 Not seasonally adjusted 5 Total 863,924 990,247 1,131,747 1,122,524 1,120,273 1,122,549 1,129,073 1,135,676 1,146,536 By major holder 6 Commercial banks 399,683 462,923 507,414 501,083 498,804 498,302 503,371 502,173 504,866 7 Finance companies 116,453 134,830 152,624 152,606 154,365 151,749 153,299 155,893 154,630 8 Credit unions 101,634 119,594 131,939 131,257 130,839 130,837 131,844 133,367 134,710 9 Savings institutions 37,855 38,468 40,106 40,224 40,448 40,762 41,000 41,000 40,323 10 Nonfinancial business3 77,229 86,621 85,061 80,733 78,138 76,681 73,765 74,680 72,521 11 Pools of securitized assets4.. 131,070 147,811 214,603 216,621 217,679 224,218 225,794 228,563 239,486 By major type of credit5 12 Automobile 281,538 319,715 354,260 352,028 352,907 354,061 356,014 358,948 365,449 13 Commercial banks 122,000 141,895 149,094 148,186 147,703 148,455 150,434 151,271 153,814 14 Finance companies 56,057 61,609 70,626 71,420 73,312 72.129 73,810 74,327 74,286 15 Pools of securitized assets4 39,561 36,376 44,616 42,373 41,568 42,800 40,545 41,021 44,828 16 Revolving 302,201 357,307 435,674 425,964 424,537 425,664 431,499 438,033 441,814 17 Commercial banks 149.920 182,021 210,298 200,080 198,886 196,836 201,903 205,011 204,658 18 Nonfinancial business3 . .. 50,125 56,790 53,525 50,520 48,613 47,416 44,526 45,182 43,097 19 Pools of securitized assets4 80,242 96,130 147,934 151,640 153,390 157,690 161,185 163,774 169,865 20 Other 280,185 313,225 341,813 344,532 342,829 342,824 341,560 338,695 339,273 21 Commercial banks 127,763 139,007 148,022 152,817 152,215 153,011 151,034 145,891 146,394 22 Finance companies 60,396 73,221 81,998 81,186 81,053 79,620 79,489 81,566 80,344 23 Nonfinancial business3 . . . 27,104 29,831 31,536 30,213 29,525 29,265 29,239 29,498 29,424 24 Pools of securitized assets4 11,267 15,305 22,053 22,608 22,721 23,728 24,064 23,768 24,793 1. The Board's series on amounts of credit covers most short- and intermediate-term credit 3. Includes retailers and gasoline companies. extended to individuals that is scheduled to be repaid (or has the option of repayment) in two 4. Outstanding balances of pools upon which securities have been issued; these balances or more installments. Data in this table also appear in the Board's G.19 (421) monthly are no longer carried on the balance sheets of the loan originator. statistical release. For ordering address, see inside front cover. 5. Totals include estimates for certain holders for which only consumer credit totals are 2. Comprises mobile home loans and all other installment loans that are not included in available. automobile or revolving credit, such as loans for education, boats, trailers, or vacations. These loans may be secured or unsecured. 1.56 TERMS OF CONSUMER INSTALLMENT CREDIT1 Percent per year except as noted 1995 1996 IItteemm 11999933 11999944 11999955 Dec. Jan. Feb. Mar. Apr. May June INTEREST RATES Commercial banks~ 1 48-month new car 8.09 8.12 9.57 n.a. n.a. 9.12 n.a. 8.93 2 24-month personal 13.47 13.19 13.94 n.a. n.a. 13.63 n.a. n.a. 13.52 n.a. Credit card plan 3 All accounts n.a. 15.69 16.02 n.a. n.a. 15.82 n.a. n.a. 15.44 4 Accounts assessed interest n.a. 15.77 15.79 n.a. n.a. 15.41 n.a. n.a. 15.41 n.a. Auto finance companies 5 New car 9.48 9.79 11.19 10.52 9.74 9.86 9.77 9.64 9.37 9.53 6 Used car 12.79 13.49 14.48 13.83 13.27 13.28 13.19 13.26 13.49 13.62 OTHER TERMS3 Maturity (months) 7 New car 54.5 54.0 54.1 53.6 51.8 52.3 51.8 51.5 50.8 50.4 8 Used car 48.8 50.2 52.2 51.8 52.2 52.1 52.0 51.8 51.7 51.6 Loan-to-value ratio 9 New car 91 92 92 92 92 91 91 91 91 91 10 Used car 98 99 99 99 99 98 98 99 99 100 Amount financed (dollars) 11 New car 14,332 15,375 16,210 17,034 16,698 16,627 16,520 16,605 16,686 16,854 12 Used car 9,875 10,709 11,590 12,152 12,059 11,990 11,934 12,024 12,233 12,249 1. The Board's series on amounts of credit covers most short- and intermediate-term credit 2. Data are available for only the second month of each quarter, extended to individuals that is scheduled to be repaid (or has the option of repayment) in two 3. At auto finance companies, or more installments. Data in this table also appear in the Board's G.19 (421) monthly statistical release. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A37 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1 Billions of dollars; quarterly data at seasonally adjusted annual rates 1994 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999911 11999922 11999933 11999944 11999955 Q3 Q4 QL Q2 Q3 Q4 QL Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors.... 481.7 543.0 628.5 618.9 732.9 587.6 634.8 880.4 888.3 584.8 578.2 863.5 By sector and instrument 2 U.S. government 278.2 304.0 256.1 155.9 144.4 135.6 150.1 266.8 202.8 65.8 42.4 288.7 3 Treasury securities 292.0 303.8 248.3 155.7 142.9 132.8 155.7 268.0 201.2 65.4 37.2 291.0 4 Budget agency issues and mortgages -13.8 .2 7.8 .2 1.5 2.9 -5.7 -1.2 1.6 .4 5.1 -2.3 5 Private 203.5 239.0 372.3 463.1 588.5 452.0 484.7 613.6 685.6 519.1 535.9 574.8 By instrument 6 Municipal securities 87.8 30.5 74.8 -29.3 -41.3 -58.4 -53.8 -45.8 -4.3 -107.4 -7.6 -6.4 7 Corporate bonds 78.8 67.6 75.2 23.3 73.3 15.4 6.2 53.0 98.4 59.8 82.0 58.9 8 Mortgages 158.4 130.9 157.2 194.3 237.5 205.5 210.6 222.5 239.6 290.5 197.4 285.4 9 Home mortgages 173.6 187.6 187.9 202.4 204.7 210.3 216.8 196.8 207.2 256.8 157.8 250.1 10 Multifamily residential -5.5 -10.4 -6.0 1.3 11.0 5.6 -4.2 2.7 14.2 13.7 13.6 15.6 11 Commercial -10.0 -47.8 -25.0 -11.1 20.1 -12.7 -3.4 21.2 16.3 17.7 25.2 17.4 12 Farm .4 1.4 .5 1.8 1.7 2.2 1.4 1.7 1.8 2.3 .8 2.2 13 Consumer credit -13.7 5.0 61.5 124.9 142.9 133.8 141.8 138.3 156.9 158.5 118.2 121.7 14 Bank loans n.e.c -40.9 -13.7 3.8 73.1 103.0 92.1 76.7 152.5 96.8 76.8 86.0 52.8 15 Commercial paper -18.4 8.6 10.0 21.4 18.1 28.5 30.7 12.3 39.1 13.9 7.2 37.9 16 Other loans and advances -48.5 10.1 -10.2 55.4 54.9 35.1 72.4 80.8 59.1 27.1 52.7 24.5 By borrowing sector 17 Household 183.8 198.4 249.1 362.2 383.5 385.3 392.4 358.6 393.0 448.1 334.5 387.7 18 Nonfinancial business -61.9 19.5 61.0 144.3 250.6 132.1 160.8 300.1 303.6 181.5 217.4 190.7 19 Farm 2.1 1.3 2.0 2.8 2.0 2.4 -2.0 .9 3.6 4.3 -.8 .9 20 Nonfarm noncorporate -11.0 -16.0 7.0 12.1 35.9 8.8 16.5 51.3 34.4 29.8 28.2 29.3 21 Corporate -53.0 34.1 52.0 129.3 212.7 120.9 146.3 247.9 265.6 147.4 190.0 160.5 22 State and local government 81.6 21.1 62.3 -43.4 -45.7 -65.4 -68.5 -45.1 -11.1 -110.6 -16.0 -3.7 23 Foreign net borrowing in United States 14.8 22.6 68.8 -20.3 67.7 19.6 33.5 61.4 40.4 94.1 75.1 36.9 24 Bonds 15.0 15.7 81.3 7.1 46.5 20.8 27.7 13.5 49.9 52.1 70.6 45.4 25 Bank loans n.e.c 3.1 2.3 .7 1.4 8.5 4.7 -.5 8.1 5.6 8.2 11.9 8.7 26 Commercial paper 6.4 5.2 -9.0 -27.3 13.6 -8.1 5.9 37.9 -11.1 30.9 -3.4 -13.8 27 Other loans and advances -9.8 -.6 -4.2 -1.6 -.8 2.2 .4 1.9 -4.0 2.9 -4.1 -3.3 28 Total domestic plus foreign 496.5 565.6 697.3 598.6 800.7 607.2 668.3 941.8 928.8 678.9 653.3 900.4 Financial sectors 29 Total net borrowing by financial sectors 155.6 240.0 291.1 467.9 444.9 428.7 536.8 273.1 436.1 490.0 580.4 313.6 By instrument 30 U.S. government-related 145.7 155.8 164.2 288.6 205.1 250.3 321.2 89.4 192.1 221.4 317.5 147.2 31 Government-sponsored enterprise securities 9.2 40.3 80.6 176.9 106.9 152.1 249.0 62.9 127.2 101.5 136.1 37.4 32 Mortgage pool securities 136.6 115.6 83.6 116.5 98.2 98.3 72.2 26.4 64.9 119.9 181.4 109.8 33 Loans from U.S. government .0 .0 .0 -4.8 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 9.8 84.2 126.9 179.2 239.8 178.3 215.6 183.7 244.0 268.6 262.9 166.4 35 Corporate bonds 69.9 82.7 120.1 117.5 185.5 103.9 84.9 167.5 182.3 208.1 184.0 136.2 36 Mortgages .5 .6 3.6 9.8 5.3 12.0 4.9 5.2 5.2 5.2 5.6 5.5 37 Bank loans n.e.c 8.8 2.2 -13.0 -12.3 3.0 -11.7 1.9 -3.0 21.2 7.1 -13.4 7.6 38 Open market paper -32.0 -.7 -6.2 41.6 42.6 41.3 85.9 38.5 34.0 43.3 54.7 22.6 39 Other loans and advances -37.3 -.6 22.4 22.6 3.4 32.8 38.1 -24.5 1.3 4.9 32.0 -5.5 By borrowing sector 40 Government-sponsored enterprises 9.1 40.2 80.6 172.1 106.9 152.1 249.0 62.9 127.2 101.5 136.1 37.4 41 Federally related mortgage pools 136.6 115.6 83.6 116.5 98.2 98.3 72.2 26.4 64.9 119.9 181.4 109.8 42 Private financial sectors 9.8 84.2 126.9 179.2 239.8 178.3 215.6 183.7 244.0 268.6 262.9 166.4 43 Commercial banks -10.7 7.7 4.6 9.9 8.1 23.9 4.1 6.3 18.2 8.8 -.9 -4.8 44 Bank holding companies -2.5 2.3 8.8 10.3 14.4 11.5 16.0 16.3 20.8 28.2 -7.8 -25.8 45 Funding corporations -6.5 13.2 2.9 24.2 32.0 47.3 11.1 61.5 21.7 52.1 -7.3 26.6 46 Savings institutions -44.7 -7.0 11.3 12.8 2.6 14.8 36.1 -18.9 -7.2 5.1 31.5 10.9 47 Credit unions .0 .0 .2 .2 -.1 .5 .2 -.3 -.1 .1 .0 -.1 48 Life insurance companies * .0 .0 .2 .3 -.1 .0 1.3 .0 .1 -.1 -.4 2.5 49 Finance companies 17.7 -1.6 .2 50.2 51.6 16.3 57.3 83.1 57.2 6.5 59.6 50.0 50 Mortgage companies -2.4 8.0 .0 -11.5 -2.1 -7.0 1.1 -7.4 14.8 4.0 -20.0 .7 51 Real estate investment trusts (REITs) 1.2 .3 3.4 13.7 5.4 18.8 6.3 5.2 5.2 5.2 6.0 5.9 52 Brokers and dealers 3.7 2.7 12.0 .5 -5.0 -7.6 19.3 -29.5 -.1 2.1 7.7 -31.8 53 Issuers of asset-backed securities (ABSs) 54.0 58.5 83.3 68.5 133.0 59.8 62.8 67.6 113.2 156.5 194.5 132.2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A38 Domestic NonfinancialS tatistics • October 1996 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS'—Continued 1994 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr Q3 Q4 QI Q2 Q3 Q4 QL All sectors 54 Total net borrowing, all sectors 652.1 805.6 988.4 1,066.5 1,245.6 1,035.9 1,205.2 1,214.8 1,364.9 1,169.0 1,233.7 1,214.0 55 U.S. government securities 424.0 459.8 420.3 449.3 349.5 386.0 471.3 356.2 394.9 287.2 359.9 435.9 56 Municipal securities 87.8 30.5 74.8 -29.3 -41.3 -58.4 -53.8 -45.8 -4.3 -107.4 -7.6 -6.4 57 Corporate and foreign bonds 163.6 166.0 276.6 147.9 305.3 140.1 118.8 234.0 330.6 320.0 336.7 240.5 58 Mortgages 158.9 131.5 160.8 204.1 242.8 217.5 215.5 227.7 244.8 295.7 202.9 290.9 59 Consumer credit -13.7 5.0 61.5 124.9 142.9 133.8 141.8 138.3 156.9 158.5 118.2 121.7 60 Bank loans n.e.c -29.1 -9.3 -8.5 62.2 114.5 85.1 78.1 157.6 123.7 92.1 84.5 69.0 61 Open market paper -44.0 13.1 -5.1 35.7 74.3 61.7 122.5 88.8 61.9 88.1 58.5 46.6 62 Other loans and advances -95.6 8.9 8.0 71.7 57.5 70.2 111.0 58.1 56.5 34.9 80.6 15.7 Funds raised through mutual funds and corporate equities 63 Total net share issues 209.4 294.9 442.1 150.8 159.3 113.2 -81.1 40.0 156.7 196.1 244.3 273.4 64 Mutual funds 147.2 209.1 323.7 128.9 173.9 129.7 -12.6 78.5 173.3 195.3 248.6 290.9 65 Corporate equities 62.2 85.8 118.4 21.9 -14.7 -16.4 -68.5 -38.5 -16.6 .7 -4.3 -17.6 66 Nonfinancial corporations 18.3 27.0 21.3 -44.9 -74.2 -50.0 -118.0 -60.0 -71.3 -92.8 -72.8 -118.0 67 Financial corporations 13.3 28.1 36.6 24.1 12.3 10.5 16.3 8.7 17.7 9.7 13.3 11.5 68 Foreign shares purchased by U.S. residents 30.7 30.7 60.5 42.7 47.2 23.1 33.2 12.8 37.0 83.9 55.3 89.0 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 A39 1.58 SUMMARY OF FINANCIAL TRANSACTIONS1 Billions of dollars except as noted; quarterly data at seasonally adjusted annual rates 1994 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999911 11999922 11999933 11999944 11999955 Q3 Q4 Ql Q2 Q3 Q4 Ql NET LENDING IN CREDIT MARKETS2 1 Total net lending in credit markets 652.1 805.6 988.4 1,066.5 1,245.6 1,035.9 1,205.2 1,214.8 1,364.9 1,169.0 1,233.7 1,214.0 2 Private domestic nonfinancial sectors 105.2 87.9 65.6 258.9 -84.8 213.4 227.8 35.3 -142.3 -54.9 -177.3 -133.6 3 Households 29.0 81.7 52.2 304.7 51.5 292.3 343.4 170.8 -77.2 203.2 -90.7 -103.6 4 Nonfarm noncorporate business -5.3 -.1 .6 .7 1.0 .7 .9 .5 1.1 1.1 1.2 1.2 5 Nonfinancial corporate business 30.7 27.8 9.1 48.1 -3.5 37.3 53.2 -41.1 39.5 -50.2 37.6 52.7 6 State and local governments 50.8 -21.5 3.7 -94.6 -133.7 -117.0 -169.7 -94.9 -105.7 -209.0 -125.3 -83.9 7 U.S. government 10.5 -11.9 -18.4 -24.2 -21.3 -11.3 -24.4 -13.2 -24.3 -23.9 -23.9 -24.6 8 Rest of the world 13.3 98.2 128.3 134.4 271.7 137.5 210.9 241.2 326.1 358.0 161.7 327.6 9 Financial sectors 523.1 631.5 812.8 697.4 1,080.0 696.3 790.8 951.6 1,205.3 889.8 1,273.1 1,044.5 10 Government sponsored enterprises 15.1 68.8 90.2 119.1 94.7 121.9 171.4 28.2 97.5 61.5 191.7 42.3 11 Federally related mortgage pools 136.6 115.6 83.6 116.5 98.2 98.3 72.2 26.4 64.9 119.9 181.4 109.8 12 Monetary authority 31.1 27.9 36.2 31.5 12.7 29.7 30.0 16.3 20.8 -11.1 24.7 14.3 13 Commercial banking 80.8 95.3 142.2 163.4 266.3 183.4 174.5 343.1 315.6 248.9 157.7 130.7 14 U.S. chartered banks 35.7 69.5 149.6 148.1 186.6 155.6 174.2 183.4 222.4 227.5 112.9 85.9 15 Foreign banking offices in United States 48.5 16.5 -9.8 11.2 75.4 22.9 -5.6 158.8 83.9 24.1 35.0 51.1 16 Bank holding companies -1.5 5.6 .0 .9 -.3 2.7 -2.4 -1.5 5.3 -9.6 4.6 -5.3 17 Banks in U.S. affiliated areas -1.9 3.7 2.4 3.3 4.7 2.2 8.3 2.4 4.0 7.0 5.2 -.9 18 Funding corporations 8.2 17.7 -19.4 -27.4 6.2 -43.4 -4.2 39.8 -3.5 5.5 -17.0 154.9 19 Thrift institutions -146.1 -61.3 -1.7 34.9 8.7 53.8 32.4 28.2 9.7 43.6 -46.8 -2.1 20 Life insurance companies 86.5 78.5 100.9 66.3 98.7 89.5 79.4 132.4 131.2 77.0 54.3 122.1 21 Other insurance companies 30.0 6.7 27.7 24.9 21.4 25.3 30.4 19.2 21.7 21.8 22.8 22.2 22 Private pension funds 35.4 41.1 45.9 47.0 61.3 42.5 74.7 58.9 57.2 50.5 78.5 77.8 23 State and local government retirement funds 41.1 23.0 19.8 29.0 21.4 -11.1 36.6 62.4 3.2 6.8 13.2 87.3 24 Finance companies -9.2 7.5 -9.0 68.2 63.6 63.8 81.7 92.5 65.7 43.7 52.7 56.7 25 Mortgage companies 11.2 .1 .0 -22.9 -3.4 -14.0 2.1 -14.4 29.9 7.3 -36.4 1.7 26 Mutual funds 80.1 126.2 159.5 -7.1 52.5 -29.3 -70.4 -15.1 21.5 52.0 151.5 62.9 27 Closed-end funds 12.8 18.2 11.0 -5.5 5.8 -13.6 -10.0 3.5 6.4 8.4 5.0 -1.2 28 Money market mutual funds 32.7 4.7 20.4 30.0 86.5 57.7 53.9 53.1 135.2 33.2 124.6 170.1 29 Real estate investment trusts (REITs) -.7 1.1 .6 4.7 1.8 5.5 .2 1.8 1.8 1.8 1.9 1.9 30 Brokers and dealers 17.5 -1.3 14.8 -44.2 90.1 -21.9 -8.0 30.5 146.2 -1.8 185.6 -101.1 31 Asset-backed securities issuers (ABSs) 50.0 53.7 80.8 61.9 112.3 50.6 42.6 55.5 100.9 144.6 148.0 112.2 32 Bank personal trusts 10.0 8.0 9.5 7.1 -18.8 7.7 1.4 -10.8 -20.6 -23.7 -20.2 -18.1 RELATION OF LIABILITIES TO FINANCIAL ASSETS 33 Net flows through credit markets 652.1 805.6 988.4 1,066.5 1,245.6 1,035.9 1,205.2 1,214.8 1,364.9 1,169.0 1,233.7 1,214.0 Other financial sources 34 Official foreign exchange -5.9 -1.6 .8 -5.8 8.8 .2 -8.6 17.8 10.3 9.0 -1.9 -2.1 35 Special drawing rights certificates .0 -2.0 .0 .0 2.2 .0 .0 .0 .0 8.6 .0 .0 36 Treasury currency .0 .2 .4 .7 .6 .8 .7 .7 .7 .8 .0 .0 3/ Life insurance reserves 25.7 27.3 35.2 34.0 49.9 67.7 21.6 54.0 49.9 29.9 66.0 56.0 38 Pension fund reserves 198.2 238.6 247.3 248.0 258.5 238.0 293.4 302.5 310.7 223.0 197.7 301.5 39 Interbank claims -3.4 49.4 50.5 89.7 10.1 4.1 99.9 -13.6 25.2 -43.2 71.8 -80.9 40 Checkable deposits and currency 86.3 113.5 117.3 -9.7 -12.5 -66.0 -40.5 42.8 133.5 -151.5 -75.0 51.7 41 Small time and savings deposits 1.5 -57.2 -70.3 -40.0 96.5 -51.8 -46.9 18.1 112.0 142.2 113.6 174.7 42 Large time deposits -58.5 -73.2 -23.5 19.6 65.6 84.0 36.5 116.8 69.2 76.3 .3 52.0 43 Money market fund shares 41.6 4.5 20.2 43.3 142.3 56.4 86.5 59.9 233.5 121.2 154.8 225.6 44 Security repurchase agreements -16.5 43.1 71.2 78.3 110.7 86.0 51.9 161.8 130.7 85.1 65.2 -31.6 45 Foreign deposits -26.5 -3.5 -18.5 45.8 5.8 28.1 97.9 39.2 90.6 -63.8 -42.8 -32.0 46 Mutual fund shares 147.2 209.1 323.7 128.9 173.9 129.7 -12.6 78.5 173.3 195.3 248.6 290.9 47 Corporate equities 62.2 85.8 118.4 21.9 -14.7 -16.4 -68.5 -38.5 -16.6 .7 -4.3 -17.6 48 Security credit 51.4 4.6 61.4 -.1 26.7 -59.3 37.1 -10.7 30.8 35.4 51.3 80.3 49 Trade payables 31.0 46.6 54.4 111.0 106.0 97.2 149.4 113.6 30.5 183.2 96.8 129.7 50 Taxes payable -7.4 9.7 5.2 3.2 1.3 10.2 4.2 15.3 -4.3 4.0 -9.8 9.5 51 Noncorporate proprietors' equity .5 16.7 3.4 22.6 38.7 46.0 23.1 26.9 33.5 48.6 45.7 53.1 52 Investment in bank personal trusts 16.1 -7.1 1.6 18.8 -47.7 23.6 11.9 -44.3 -45.6 -63.9 -37.1 -47.3 53 Miscellaneous 278.2 280.5 364.6 236.8 461.9 264.8 303.4 327.2 505.1 347.6 667.6 466.0 54 Total financial sources 1,473.9 1,790.4 2,351.7 2,113.5 2,730.1 1,979.2 2,245.7 2,482.9 3,237.8 2,357.5 2,842.3 2,893.5 Floats not included in assets ( —) 55 U.S. government checkable deposits -13.1 .7 -1.5 -4.8 -6.0 7.4 -24.4 13.2 -16.3 3.5 -24.3 17.8 56 Other checkable deposits 4.5 1.6 -1.3 -2.8 -3.8 -3.3 -2.3 -3.7 -3.9 -3.5 -4.2 -3.9 57 Trade credit 36.1 11.3 -6.6 -7.8 -14.8 12.6 -44.0 79.5 12.7 -44.1 -107.3 -71.6 Liabilities not identified as assets (—) 58 Treasury currency -.6 -.2 -.2 -.2 -.5 -.2 -.2 -.2 -.4 -.3 -1.0 -.9 59 Interbank claims 26.2 -4.9 4.2 -2.7 -3.1 10.1 -1.7 .8 8.2 7.6 -29.1 12.4 60 Security repurchase agreements -9.5 3.6 34.3 31.5 11.0 -53.5 86.7 64.4 -47.3 39.6 -12.7 -76.7 61 Foreign deposits -24.0 -2.8 -7.0 36.9 -1.5 39.5 55.7 45.6 81.6 -93.6 -39.5 -41.5 62 Taxes payable -2.2 11.9 11.1 8.6 8.7 10.8 -.9 -8.9 31.6 10.8 1.4 -24.0 63 Miscellaneous 9.7 -.1 -126.1 -138.7 -29.8 -44.3 -107.3 -230.6 -36.9 -4.8 153.1 123.3 64 Total identified to sectors as assets 1,446.8 1,769.3 2,444.9 2,193.7 2,769.8 2,000.1 2,284.2 2,522.7 3,208.3 2,442.4 2,905.9 2,958.8 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund shares. 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

A40 Domestic Nonfinancial Statistics • October 1996 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING1 Billions of dollars, end of period 1994 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr Q3 Q4 Ql Q2 Q3 Q4 Ql Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 11,894.5 12,537.8 13,163.0 13,895.9 12,965.8 13,163.0 13,339.3 13,548.4 13,707.8 13,895.9 14,072.1 By sector and instrument 2 U.S. government 3,080.3 3,336.5 3,492.3 3,636.7 3,432.3 3,492.3 3,557.9 3,583.5 3,603.4 3,636.7 3,717.2 Treasury securities 3,061.6 3,309.9 3,465.6 3,608.5 3,404.1 3,465.6 3,531.5 3,556.7 3,576.5 3,608.5 3,689.6 4 Budget agency issues and mortgages 18.8 26.6 26.7 28.2 28.2 26.7 26.4 26.8 26.9 28.2 27.6 5 Private 8,814.2 9,201.3 9,670.7 10,259.2 9,533.6 9,670.7 9,781.4 9,964.9 10,104.4 10,259.2 10,354.9 By instrument 6 Municipal securities 1,302.8 1,377.5 1,348.2 1,307.0 1,362.6 1,348.2 1,335.4 1,331.7 1,309.9 1,307.0 1,304.1 / Corporate bonds 1,154.5 1,229.7 1,253.0 1,326.3 1,251.5 1,253.0 1,266.3 1,290.9 1,305.8 1,326.3 1,341.0 8 Mortgages 4,088.7 4,260.0 4,454.4 4,691.8 4,400.5 4,454.4 4,495.8 4,563.2 4,641.2 4,691.8 4,748.6 9 Home mortgages 3,037.4 3,227.6 3,430.0 3,634.7 3,374.6 3,430.0 3,465.1 3,524.4 3,594.0 3,634.7 3,682.6 10 Multifamily residential 272.5 267.8 269.1 280.2 270.2 269.1 269.8 273.3 276.8 280.2 284.1 11 Commercial 698.1 683.4 672.3 692.4 673.1 672.3 677.6 681.6 686.1 692.4 696.7 12 Farm 80.7 81.2 83.0 84.6 82.6 83.0 83.4 83.9 84.4 84.6 85.2 13 Consumer credit 802.4 863.9 988.8 1,131.7 933.9 988.8 989.3 1,029.7 1,077.5 1,131.7 1,123.3 14 Bank loans n.e.c 672.2 676.0 749.0 852.0 724.9 749.0 782.8 810.6 825.6 852.0 861.9 15 Commercial paper 107.1 117.8 139.2 157.4 138.7 139.2 149.8 162.9 163.3 157.4 173.2 16 Other loans and advances 686.5 676.3 738.0 792.9 721.6 738.0 762.0 775.8 781.2 792.9 802.7 By borrowing sector 1/ Household 4,021.4 4,272.9 4,634.7 5,018.3 4,515.1 4,634.7 4,676.5 4,784.1 4,908.0 5,018.3 5,063.2 18 Nonfinancial business 3,696.8 3,770.3 3,921.1 4,171.8 3,885.6 3,921.1 4,002.7 4,084.0 4,122.3 4,171.8 4,224.8 19 Farm 136.3 138.3 141.2 143.2 143.1 141.2 138.9 142.8 144.9 143.2 140.9 20 Nonfarm noncorporate 1,122.9 1,129.9 1,142.0 1,178.0 1,137.4 1,142.0 1,154.5 1,163.3 1,170.4 1,178.0 1,185.0 21 Corporate 2,437.6 2,502.0 2,638.0 2,850.7 2,605.0 2,638.0 2,709.2 2,777.8 2,807.0 2,850.7 2,898.9 22 State and local government 1,095.9 1,158.2 1,114.8 1,069.1 1,132.8 1,114.8 1,102.2 1,096.8 1,074.1 1,069.1 1,066.9 23 Foreign credit market debt held in United States 313.1 381.9 361.6 429.4 352.4 361.6 376.8 387.6 409.9 429.4 438.5 24 Bonds 146.2 227.4 234.6 281.1 227.6 234.6 237.9 250.4 263.4 281.1 292.4 25 Bank loans n.e.c 23.9 24.6 26.1 34.6 26.3 26.1 28.2 29.6 31.6 34.6 36.8 26 Commercial paper 77.7 68.7 41.4 55.0 39.9 41.4 50.9 48.1 55.8 55.0 51.5 27 Other loans and advances 65.3 61.1 59.6 58.7 58.6 59.6 59.8 59.5 59.0 58.7 57.8 28 Total credit market debt owed by nonfinancial sectors, domestic and foreign 12,207.6 12,919.7 13,524.6 14,325.3 13,318.3 13,524.6 13,716.1 13,935.9 14,117.7 14,325.3 14,510.7 Financial sectors 29 Total credit market debt owed by financial sectors 3,025.0 3,321.5 3,794.6 4,242.1 3,656.2 3,794.6 3,861.4 3,971.8 4,093.9 4,242.1 4,317.1 By instrument 30 U.S. government-related 1,720.0 1,884.1 2,172.7 2,377.8 2,093.3 2,172.7 2,196.2 2,247.1 2,300.1 2,377.8 2,416.6 31 Government-sponsored enteipnses securities 443.1 523.7 700.6 807.5 638.3 700.6 716.3 748.1 773.5 807.5 816.9 32 Mortgage pool securities 1,272.0 1,355.6 1,472.1 1,570.3 1,454.9 1,472.1 1,479.9 1,499.0 1,526.6 1,570.3 1,599.7 33 Loans from U.S. government 4.8 4.8 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 1,305.1 1,437.4 1,621.9 1,864.3 1,563.0 1,621.9 1,665.2 1,724.7 1,793.8 1,864.3 1,900.6 35 Corporate bonds 738.4 858.5 973.5 1,158.9 949.5 973.5 1,012.3 1,056.4 1,110.2 1,158.9 1,189.6 36 Mortgages 5.4 8.9 18.7 24.0 17.5 18.7 20.0 21.3 22.6 24.0 25.4 3/ Bank loans n.e.c 80.5 67.6 55.3 58.3 53.4 55.3 53.4 58.4 60.3 58.3 59.1 38 Open market paper 394.3 393.5 442.8 488.1 420.5 442.8 454.1 462.8 473.6 488.1 492.8 39 Other loans and advances 86.6 108.9 131.6 135.0 122.0 131.6 125.4 125.7 127.0 135.0 133.6 By borrowing sector 40 Government-sponsored enterprises 447.9 528.5 700.6 807.5 638.3 700.6 716.3 748.1 773.5 807.5 816.9 41 Federally related mortgage pools 1,272.0 1,355.6 1,472.1 1,570.3 1,454.9 1,472.1 1,479.9 1,499.0 1,526.6 1,570.3 1,599.7 42 Private financial sectors 1,305.1 1,437.4 1,621.9 1,864.3 1,563.0 1,621.9 1,665.2 1,724.7 1,793.8 1,864.3 1,900.6 43 Commercial banks 80.0 84.6 94.5 102.6 92.6 94.5 95.0 99.9 102.0 102.6 100.5 44 Bank holding companies 114.6 123.4 133.6 148.0 129.6 133.6 137.7 142.9 150.0 148.0 141.6 45 Funding corporations 161.6 169.9 199.3 233.9 200.6 199.3 221.0 229.9 240.0 233.9 244.6 46 Savings institutions 88.4 99.6 112.4 115.0 103.4 112.4 107.7 105.9 107.2 115.0 117.8 47 Credit unions .0 .2 .5 .4 .4 .5 .4 .3 .4 .4 .4 48 Life insurance companies .0 .2 .6 .5 .3 .6 .6 .6 .6 .5 1.1 49 Finance companies 390.4 390.5 440.7 492.3 420.9 440.7 456.7 467.2 471.9 492.3 499.8 50 Mortgage companies 30.2 30.2 18.7 16.6 18.5 18.7 16.9 20.6 21.6 16.6 16.8 51 Real estate investment trusts (REITs) 13.9 17.4 31.1 36.5 29.5 31.1 32.4 33.7 35.0 36.5 38.0 52 Brokers and dealers 21.7 33.7 34.3 29.3 29.4 34.3 26.9 26.8 27.4 29.3 21.4 53 Issuers of asset-backed securities (ABSs) 404.3 487.6 556.1 689.1 537.7 556.1 570.0 596.8 637.8 689.1 718.8 All sectors 54 Total credit market debt, domestic and foreign.... 15,232.6 16,241.2 17,319.2 18,567.4 16,974.5 17,319.2 17,577.5 17,907.8 18,211.5 18,567.4 18,827.8 55 U.S. government securities 4,795.5 5,215.8 5,665.0 6,014.6 5,525.6 5,665.0 5,754.1 5,830.6 5,903.5 6,014.6 6,133.8 56 Municipal securities 1,302.8 1,377.5 1,348.2 1,307.0 1,362.6 1,348.2 1,335.4 1,331.7 1,309.9 1,307.0 1,304.1 57 Corporate and foreign bonds 2,039.0 2,315.6 2,461.0 2,766.3 2,428.6 2,461.0 2,516.5 2,597.7 2,679.5 2,766.3 2,823.1 58 Mortgages 4,094.1 4,269.0 4,473.1 4,715.9 4,418.0 4,473.1 4,515.9 4,584.6 4,663.9 4,715.9 4,774.0 59 Consumer credit 802.4 863.9 988.8 1,131.7 933.9 988.8 989.3 1,02.9.7 1,077.5 1,131.7 1,123.3 60 Bank loans n.e.c 776.6 768.2 830.4 944.9 804.5 830.4 864.4 898.6 917.4 944.9 957.8 61 Open market paper 579.0 580.0 623.5 700.4 599.2 623.5 654.7 673.8 692.7 700.4 717.6 62 Other loans and advances 843.1 851.1 929.1 986.6 902.2 929.1 947.2 961.0 967.1 986.6 994.2 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 A41 1.60 SUMMARY OF FINANCIAL ASSETS AND LIABILITIES1 Billions of dollars except as noted, end of period 1994 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999922 11999933 11999944 11999955 Q3 Q4 Qi Q2 Q3 Q4 Ql CREDIT MARKET DEBT OUTSTANDING2 1 Total credit market assets 15,232.6 16,241.2 17,319.2 18,567.4 16,974.5 17,319.2 17,577.5 17,907.8 18,211.5 18,567.4 18,827.8 2 Private domestic nonfinancial sectors 2,671.6 2,730.1 3,019.3 2,930.4 2,900.6 3,019.3 2,984.8 2,935.1 2,942.2 2,930.4 2,858.6 3 Households 1,618.5 1,658.9 1,993.9 2,041.3 1,857.7 1,993.9 2,013.6 1,974.3 2,048.3 2,041.3 2,001.8 4 Nonfarm noncorporate business 38.1 38.8 39.5 40.4 39.3 39.5 39.6 39.9 40.2 40.4 40.7 5 Nonfinancial corporate business 257.8 271.5 319.7 316.1 295.3 319.7 291.0 302.8 290.4 316.1 306.6 6 State and local governments 757.2 760.8 666.3 532.5 708.3 666.3 640.6 618.1 563.4 532.5 509.4 7 U.S. government 235.0 230.7 206.5 185.2 212.6 206.5 203.2 197.1 191.2 185.2 179.0 8 Rest of the world 1,022.8 1,146.6 1,255.7 1,527.5 1,240.7 1,255.7 1,324.4 1,402.6 1,493.1 1,527.5 1,617.8 9 Financial sectors 11,303.2 12,133.8 12,837.7 13,924.3 12,620.6 12,837.7 13,065.2 13,372.9 13,585.1 13,924.3 14,172.5 10 Government-sponsored enterprises 457.8 548.0 667.1 761.8 624.3 667.1 673.5 698.6 714.0 761.8 771.7 11 Federally related mortgage pools 1,272.0 1,355.6 1,472.1 1,570.3 1,454.9 1,472.1 1,479.9 1,499.0 1,526.6 1,570.3 1,599.7 12 Monetary authority 300.4 336.7 368.2 380.8 356.8 368.2 367.1 375.7 370.6 380.8 379.6 13 Commercial banking 2,948.6 3,090.8 3,254.3 3,520.6 3,203.9 3,254.3 3,327.8 3,409.8 3,474.2 3,520.6 3,541.4 14 U.S. chartered banks 2,571.9 2,721.5 2,869.6 3,056.1 2,822.3 2,869.6 2,906.5 2,963.7 3,023.7 3,056.1 3,068.8 15 Foreign banking offices in United States 335.8 326.0 337.1 412.6 335.5 337.1 373.6 396.0 401.1 412.6 422.3 16 Bank holding companies 17.5 17.5 18.4 18.0 19.0 18.4 18.0 19.3 16.9 18.0 16.7 17 Banks in U.S. affiliated areas 23.4 25.8 29.2 33.8 27.1 29.2 29.8 30.8 32.5 33.8 33.6 18 Funding corporations 162.5 149.2 129.5 138.3 130.2 129.5 140.8 137.4 143.1 138.3 174.9 19 Thrift institutions 1,134.5 1,132.7 1,167.6 1,176.3 1,160.4 1,167.6 1,173.4 1,177.4 1,188.9 1,176.3 1,174.6 20 Life insurance companies 1,309.1 1,420.6 1,487.0 1,585.7 1,470.7 1,487.0 1,523.1 1,557.1 1,575.5 1,585.7 1,619.2 21 Other insurance companies 389.4 422.7 446.4 471.9 439.1 446.4 451.8 458.5 464.4 471.9 478.1 22 Private pension funds 571.7 617.6 664.6 725.9 645.9 664.6 679.3 693.6 706.2 725.9 745.3 23 State and local government retirement funds 417.5 437.3 466.3 487.7 454.3 466.3 480.7 482.1 481.8 487.7 508.2 24 Finance companies 496.4 482.8 551.0 614.6 524.1 551.0 568.5 586.9 594.7 614.6 623.3 25 Mortgage companies 60.5 60.4 37.5 34.1 37.0 37.5 33.9 41.4 43.2 34.1 34.5 26 Mutual funds 566.4 725.9 718.8 771.3 741.8 718.8 719.3 724.8 739.2 771.3 791.7 27 Closed-end funds 67.7 78.6 73.1 78.9 75.6 73.1 74.0 75.6 77.7 78.9 78.6 28 Money market mutual funds 408.6 429.0 459.0 545.5 437.9 459.0 480.6 508.0 505.7 545.5 595.6 29 Real estate investment trusts (REITs) 8.1 8.6 13.3 15.1 13.3 13.3 13.8 14.2 14.7 15.1 15.6 30 Brokers and dealers 122.7 137.5 93.3 183.4 95.3 93.3 101.0 137.5 137.0 183.4 158.2 31 Asset-backed securities issuers (ABSs) 378.0 458.8 520.7 632.9 507.3 520.7 531.5 555.2 593.2 632.9 657.6 32 Bank personal trusts 231.5 240.9 248.0 229.2 247.7 248.0 245.3 240.2 234.2 229.2 224.7 RELATION OF LIABILITIES TO FINANCIAL ASSETS 33 Total credit market debt 15,232.6 16,241.2 17,319.2 18,567.4 16,974.5 17,319.2 17,577.5 17,907.8 18,211.5 18,567.4 18,827.8 Other liabilities 34 Official foreign exchange 51.8 53.4 53.2 63.7 55.5 53.2 64.1 67.1 65.1 63.7 62.1 35 Special drawing rights certificates 8.0 8.0 8.0 10.2 8.0 8.0 8.0 8.0 10.2 10.2 10.2 36 Treasury currency 16.5 17.0 17.6 18.2 17.5 17.6 17.8 18.0 18.2 18.2 18.2 37 Life insurance reserves 433.0 468.2 502.2 552.1 496.8 502.2 515.7 528.1 535.6 552.1 566.1 38 Pension fund reserves 4.055.1 4,471.6 4,693.9 5,499.6 4,677.0 4,693.9 4,895.7 5,095.4 5,318.1 5,499.6 5,745.6 39 Interbank claims 138.5 189.3 280.0 290.7 250.1 280.0 273.0 265.9 267.4 290.7 266.2 40 Deposits at financial institutions 5,050.2 5,154.9 5,296.0 5,704.4 5,212.4 5,296.0 5,389.5 5,572.4 5,615.3 5,704.4 5,799.1 41 Checkable deposits and currency 1,134.4 1,251.7 1,242.0 1,229.5 1,205.0 1,242.0 1,193.9 1,246.3 1,200.4 1,229.5 1,183.8 42 Small time and savings deposits 2,293.5 2,223.2 2,183.3 2,279.7 2,199.1 2,183.3 2,200.1 2,222.4 2,255.6 2,279.7 2,336.4 43 Large time deposits 415.2 391.7 411.2 476.9 402.6 411.2 441.1 456.2 477.4 476.9 490.6 44 Money market fund shares 539.5 559.6 602.9 745.3 578.7 602.9 634.0 678.5 702.7 745.3 816.9 45 Security repurchase agreements 399.9 471.1 549.4 660.1 548.1 549.4 603.4 629.3 655.6 660.1 666.5 46 Foreign deposits 267.7 257.6 307.1 312.9 278.9 307.1 316.9 339.6 323.6 312.9 304.9 47 Mutual fund shares 992.5 1,375.4 1,477.3 1,852.8 1,515.8 1,477.3 1,553.3 1,661.0 1,782.0 1,852.8 2,004.8 48 Security credit 217.7 279.0 279.0 305.6 263.9 279.0 269.5 277.9 286.2 305.6 318.3 49 Trade payables 995.1 1,049.4 1,160.5 1,266.5 1,099.8 1,160.5 1,159.8 1,174.2 1,217.3 1,266.5 1,269.7 50 Taxes payable 79.7 84.9 88.0 89.3 87.1 88.0 94.3 89.2 91.9 89.3 94.2 51 Investment in bank personal trusts 660.6 691.3 699.4 767.4 701.1 699.4 719.7 739.7 758.6 767.4 781.6 52 Miscellaneous 4,785.2 5,165.2 5,397.3 5,769.9 5,373.0 5,397.3 5,459.7 5,537.2 5,626.9 5,769.9 5,836.4 53 Total liabilities 32,716.4 35,248.7 37,271.6 40,757.9 36,732.4 37,271.6 37,997.6 38,941.9 39,804.3 40,757.9 41,600.4 Financial assets not included in liabilities (+) 54 Gold and special drawing rights 19.6 20.1 21.1 22.1 21.0 21.1 22.7 22.9 22.1 22.1 22.1 55 Corporate equities 5,462.9 6,278.5 6,293.4 8,345.4 6,228.7 6,293.4 6,835.8 7,393.0 8,013.8 8,345.4 8,820.5 56 Household equity in noncorporate business 2,458.3 2,476.3 2,564.6 2,657.7 2,550.9 2,564.6 2,576.7 2,607.0 2,619.3 2,657.7 2,669.9 Floats not included in assets (—) 57 U.S. government checkable deposits 6.8 5.6 3.4 3.1 1.2 3.4 4.2 2.0 .6 3.1 .0 58 Other checkable deposits 42.0 40.7 38.0 34.2 30.6 38.0 33.3 35.7 27.3 34.2 29.6 59 Trade credit -251.1 -251.4 -260.1 -274.9 -323.2 -260.1 -297.1 -315.8 -331.3 -274.9 -356.1 Liabilities not identified as assets (-) 60 Treasury currency -4.9 -5.1 -5.4 -5.8 -5.3 -5.4 -5.4 -5.5 -5.6 -5.8 -6.0 61 Interbank claims -9.3 -4.7 -6.5 -9.0 -3.4 -6.5 -2.7 -2.9 .1 -9.0 -2.5 62 Security repurchase agreements 43.0 77.3 108.8 119.8 100.7 108.8 132.9 114.5 136.4 119.8 108.7 63 Foreign deposits 217.6 218.4 258.7 257.2 241.3 258.7 270.1 290.5 267.1 257.2 246.8 64 Taxes payable 25.2 26.8 25.0 33.7 22.8 25.0 10.0 25.6 28.7 33.7 13.5 65 Miscellaneous -514.5 -667.2 -830.5 -859.2 -688.2 -830.5 -892.2 -878.5 -884.9 -859.2 -896.0 66 Total identified to sectors as assets 41,102.3 44,583.2 46,819.3 52,483.9 46,156.5 46,819.3 48,179.7 49,699.2 51,221.1 52,483.9 53,975.0 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund L.6 and L.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 • October 1996 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, and indexes 1987=100, except as noted Apr. May' Juner 1 Industrial production Market groupings 2 Products, total 110.0 115.6 118.3 118.8 119.2 118.6 120.7 120.0 120.8r 121.2 121.8 3 Final, total 112.7 118.3 121.4 121.9 122.1 121.9 124.5 123.4 124.8 125.0 125.5 4 Consumer goods 109.5 113.7 115.1 115.9 115.7 114.6 116.6 115.3 115.9r 116.1 116.1 5 Equipment 117.5 125.3 131.4 131.4 132.3 133.7 137.3 136.5 139.2 139.4 140.8 6 Intermediate 101.8 107.3 109.0 109.3 110.1 108.5 109.3 109.6 108.6 109.7 110.5 7 Materials 113.8 122.0 127.4 128.4 128.4 128.5 129.4 129.1 130.3r 131.4 132.5 Industry groupings 8 Manufacturing 9 Capacity utilization, manufacturing (percent)' 10 Construction contracts3 105.1 114.2 118.3 122.0 117.0 120.0r 113.0 126.0r 127.0' 125.0 120.0 11 Nonagricultural employment, total4 1 9 0 4 8 . . 6 6 1 9 1 6 2 . .0 9 1 9 1 8 5 . . 1 0 1 9 1 7 5 . . 8 6 1 9 1 7 5 . . 9 9 1 9 1 7 5 . . 7 8 1 9 1 8 6 . . 3 3 1 9 1 8 6 . . 1 5 1 9 1 8 6 . . 1 7 1 9 1 8 7 . . 3 0 1 9 1 8 7 . . 4 3 12 Goods-producing, total 95.1 96.4 97.2 96.6 96.7 96.4 96.5 96.2 96.2 96.3 96.3 13 Manufacturing, total 95.3 97.5 98.7 98.0 98.1 97.7 97.8 97.4 97.5 97.5 97.5 14 Manufacturing, production workers 113.1 116.8 120.3 121.3 121.6 121.6 122.1 122.3 122.6 123.0 123.3 15 Service-producing 141.3 148.4r 157.7r 160.7r 161,6r 161.7r 162.9r 163.5r 164.3r 165.1 166.6 16 Personal income, total 136.0 142.6 150.9r 153.8r 154.6r 154.4r 156.0r 156.7r 157.5r 158.2 160.3 17 Wages and salary disbursements 119.3 124.9r 130.4r 131.6r 132.0r 130.8r 132.5r 131.8r 134.4r 135.1 135.7 18 Manufacturing 142.4 149.3r 158.2r 161.3r 162.3r 162.2r 163.2r 163.7r 162.9r 165.1 166.5 19 Disposable personal income5 134.7 144.8 152.2 154.3 155.3 155.3 158.6 159.3 159.1 160.4 159.5 20 Retail sales5 Prices6 21 Consumer (1982-84=100) 144.5 148.2 152.4 153.6 153.5 154.4 154.9 155.7 156.3 156.6 156.7 22 Producer finished goods (1982=100) 124.7 125.5 127.9 128.7 129.1 129.4 129.4 130.1' 130.8 131.0 131.6 1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For 5. Based on data from U.S. Department of Commerce, Survey of Current Business. the ordering address, see the inside front cover. The latest historical revision of the industrial 6. Based on data not seasonally adjusted. Seasonally adjusted data for changes in the price production index and the capacity utilization rates was released in November 1995. See "A indexes can be obtained from the U.S. Department of Labor, Bureau of Labor Statistics, Revision to Industrial Production and Capacity Utilization, 1991-95," Federal Reserve Monthly Labor Review. Bulletin, vol. 82 (January 1996), pp. 16—25. For a detailed description of the industrial NOTE. Basic data (not indexes) for series mentioned in notes 4 and 5, and indexes for series production index, see "Industrial Production: 1989 Developments and Historical Revision," mentioned in notes 3 and 6, can also be found in the Survey of Current Business. Federal Reserve Bulletin, vol. 76 (April 1990), pp. 187-204. Figures for industrial production for the latest month are preliminary, and many figures for 2. Ratio of index of production to index of capacity. Based on data from the Federal the three months preceding the latest month have been revised. See "Recent Developments in Reserve, DRI McGraw-Hill, U.S. Department of Commerce, and other sources. Industrial Capacity and Utilization," Federal Reserve Bulletin, vol. 76 (June 1990), pp. 3. Index of dollar value of total construction contracts, including residential, nonresiden- 411-35. See also "Industrial Production Capacity and Capacity Utilization since 1987," tial, and heavy engineering, from McGraw-Hill Information Systems Company, F.W. Dodge Federal Reserve Bulletin, vol. 79 (June 1993), pp. 590-605. Division. 4. Based on data from U.S. Department of Labor, Employment and Earnings. Series covers employees only, excluding personnel in the armed forces. 2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data seasonally adjusted 1995 1996 CCaatteeggoorryy 11999933 11999944 11999955 Dec. Jan. Feb. Mar. Apr. May' June' July HOUSEHOLD SURVEY DATA1 1 Civilian labor force2 129,200 131.056 132,304 132,352 132,903 133,018 133,655 133,361 133,910 133,669 134,181 Employment 2 Nonagricultural industries3 117,144 119,651 121,460 121,656 121,698 122,143 122,664 122,726 122,971 123,228 123,382 3 Agriculture 3,115 3,409 3,440 3,325 3,529 3,519 3,487 3,368 3,491 3,382 3,502 Unemployment 4 Number 8,940 7,996 7,404 7,371 7,677 7,355 7,504 7,266 7,448 7,060 7,297 5 Rate (percent of civilian labor force) 6.9 6.1 5.6 5.6 5.8 5.5 5.6 5.4 5.6 5.3 5.4 ESTABLISHMENT SURVEY DATA 6 Nonagricultural payroll employment4 110,730 114,172 117,203 118,136 118,070 118,579 118,737 118,928 119,335 119,555 119,748 7 Manufacturing 18,075 18,321 18,468 18,367 18,309 18,332 18,282 18,283 18,302 18,298 18,278 8 Mining 610 601 580 570 569 573 574 573 576 574 570 9 Contract construction 4,668 4,986 5,158 5,223 5,234 5,349 5,340 5,353 5,384 5,406 5,431 10 Transportation and public utilities 5,829 5,993 6,165 6,249 6,254 6,270 6,289 6,294 6,311 6,329 6,336 11 Trade 25,755 26,670 27,585 27,832 27,780 27,869 27,891 27,972 28,066 28,162 28,263 12 Finance 6,757 6,896 6,830 6,887 6,894 6,919 6,932 6,942 6,964 6,968 6,987 13 Service 30,197 31,579 33,107 33,661 33,694 33,902 34,035 34,114 34,274 34,364 34,392 14 Government 18,841 19,128 19,310 19,347 19,336 19,365 19,394 19,397 19,458 19,454 19,491 1. Beginning January 1994, reflects redesign of current population survey and population 4. Includes all full- and part-time employees who worked during, or received pay for, the controls from the 1990 census. pay period that includes the twelfth day of the month; excludes proprietors, self-employed 2. Persons sixteen years of age and older, including Resident Armed Forces. Monthly persons, household and unpaid family workers, and members of the armed forces. Data are figures are based on sample data collected during the calendar week that contains the twelfth adjusted to the March 1992 benchmark, and only seasonally adjusted data are available at this day; annual data are averages of monthly figures. By definition, seasonality does not exist in time. population figures. SOURCE. Based on data from U.S. Department of Labor, Employment and Earnings. 3. Includes self-employed, unpaid family, and domestic service workers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A43 2.12 OUTPUT, CAPACITY, AND CAPACITY UTILIZATION1 Seasonally adjusted 1995 1996 1995 1996 1995 1996 SSeerriieess Q3 Q4 Ql Q2r Q3 Q4 Ql Q2 Q3 Q4 Ql Q2r Output (1987=100) Capacity (percent of 1987 output) Capacity utilization rate (percent)2 1 Total industry 122.3 122.5 123.4 125.2 146.3 147.7 149.1 150.6 83.6 82.9 82.8 83.2 2 Manufacturing 124.1 124.6 125.3 127.3 150.2 151.9 153.5 155.1 82.6 82.0 81.6 82.1 3 Primary processing3 117.1 117.1 116.7 118.5 135.2 136.1 136.9 137.8 86.6 86.1 85.2 86.0 4 Advanced processing4 127.5 128.1 129.4 131.5 157.5 159.5 161.5 163.5 80.9 80.3 80.1 80.4 5 Durable goods 133.0 134.2 136.0 139.5 161.7 164.2 166.7 169.4 82.3 81.7 81.6 82.4 6 Lumber and products 104.6 105.8 104.6 108.3 119.8 120.9 121.7 122.4 87.3 87.5 85.9 88.4 7 Primary metals 118.2 118.8 118.9 119.8 128.8 129.5 130.3 131.4 91.8 91.8 91.2 91.2 8 Iron and steel 121.3 121.3 122.6 123.3 132.9 133.5 134.4 135.7 91.3 90.9 91.2 90.9 9 Nonferrous 113.9 115.3 113.8 114.9 123.3 124.0 124.8 125.5 92.4 93.0 91.2 91.5 10 Industrial machinery and equipment 178.9 186.8 195.3 201.4 206.1 212.0 218.1 224.5 86.8 88.1 89.5 89.7 11 Electrical machinery 178.4 182.9 186.3 189.4 206.3 213.9 221.8 229.9 86.5 85.5 84.0 82.4 12 Motor vehicles and parts 140.7 140.5 132.6 145.9 176.8 179.2 181.3 182.9 79.6 78.4 73.2 79.8 13 Aerospace and miscellaneous transportation equipment 86.9 79.0 84.0 86.3 130.1 129.3 128.6 128.1 66.8 61.1 65.3 67.4 14 Nondurable goods 114.3 113.9 113.5 113.8 137.7 138.4 139.0 139.6 83.0 82.3 81.7 81.5 15 Textile mill products 110.9 109.4 106.4 109.3 131.6 132.8 133.7 134.2 84.3 82.4 79.6 81.5 16 Paper and products 119.5 118.1 114.6 119.2 132.8 133.9 134.9 135.8 90.0 88.2 85.0 87.8 17 Chemicals and products 124.6 126.4 126.9 126.3 155.6 156.5 157.5 158.5 80.1 80.7 80.6 79.7 18 Plastics materials 118.3 123.1 126.9 135.4 137.1 138.6 87.3 89.7 91.6 19 Petroleum products 109.2 107.7 109.7 109.7 116.4 116.6 116.8 117.1 93.8 92.4 93.9 93.7 20 Mining 100.2 98.2 98.7 100.8 111.9 111.9 111.9 111.8 89.5 87.8 88.2 90.1 21 Utilities 124.7 124.1 126.7 126.7 135.2 135.6 136.0 136.5 92.3 91.5 93.2 92.8 22 Electric 125.0 123.7 126.4 127.2 132.5 133.0 133.4 133.9 94.3 93.1 94.8 94.9 1973 1975 Previous cycle5 Latest cycle6 1995 1996 High Low High Low High Low July Feb. Mar. Apr/ Mayr June Julyp Capacity utilization rate (percent)2 1 Total industry 89.2 72.6 87.3 71.8 84.9 78.0 83.3 83.3 82.6 83.0 83.2 83.4 83.2 2 Manufacturing 88.9 70.8 87.3 70.0 85.2 76.6 82.4 82.3 81.3 81.9 82.0 82.3 82.3 3 Primary processing3 92.2 68.9 89.7 66.8 89.0 77.9 86.7 84.9 85.3 85.5 86.0 86.5 86.2 4 Advanced processing4 87.5 72.0 86.3 71.4 83.5 76.1 80.6 81.1 79.6 80.4 80.3 80.6 80.7 5 Durable goods 88.8 68.5 86.9 65.0 84.0 73.7 81.7 82.5 80.9 82.1 82.2 82.9 83.0 6 Lumber and products 90.1 62.2 87.6 60.9 93.3 76.1 86.9 84.8 88.2 88.7 87.6 89.0 87.7 7 Primary metals 100.6 66.2 102.4 46.8 92.8 74.2 92.0 89.8 90.3 91.0 90.6 92.0 90.8 8 Iron and steel 105.8 66.6 110.4 38.3 95.7 72.0 89.8 88.9 89.1 90.8 89.7 92.1 90.9 9 Nonferrous 92.9 61.3 90.5 62.2 88.7 75.2 94.8 91.0 91.8 91.1 91.6 91.8 90.8 10 Industrial machinery and equipment 96.4 74.5 92.1 64.9 84.0 71.8 86.2 89.9 89.9 89.5 89.5 90.1 89.9 11 Electrical machinery 87.8 63.8 89.4 71.1 84.9 77.0 86.2 85.1 83.7 82.5 82.1 82.5 82.5 12 Motor vehicles and parts 93.4 51.1 93.0 44.5 85.1 56.6 77.7 77.9 66.7 79.1 79.1 81.0 84.2 13 Aerospace and miscellaneous transportation equipment 77.0 66.6 81.1 66.9 88.4 78.8 67.2 65.5 66.7 67.0 67.3 67.8 67.8 14 Nondurable goods 87.9 71.8 87.0 76.9 86.7 80.3 83.1 81.9 81.6 81.5 81.7 81.5 81.3 15 Textile mill products 92.0 60.4 91.7 73.8 92.1 78.8 83.7 79.4 81.4 80.7 81.0 82.6 82.4 16 Paper and products 96.9 69.0 94.2 82.0 94.8 86.7 91.6 84.1 85.4 87.7 87.9 87.7 89.0 17 Chemicals and products 87.9 69.9 85.1 70.1 85.9 79.0 79.9 80.7 80.1 79.7 79.7 79.6 79.5 18 Plastics materials 102.0 50.6 90.9 63.4 97.0 74.8 87.9 91.3 92.6 93.4 94.5 19 Petroleum products 96.7 81.1 89.5 68.2 88.5 84.6 93.7 94.3 94.0 93.8 93.8 93.6 92.9 20 Mining 94.4 88.4 96.6 80.6 86.5 86.1 90.0 87.6 90.3 89.7 89.6 91.1 90.9 71 Utilities 95.6 82.5 88.3 76.2 92.6 83.1 90.8 93.1 94.0 92.7 93.7 92.2 90.3 22 Electric 99.0 82.7 88.3 78.7 94.8 86.7 92.3 94.9 95.2 94.0 96.1 94.8 92.6 1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For 3. Primary processing includes textiles; lumber; paper; industrial chemicals; synthetic the ordering address, see the inside front cover. The latest historical revision of the industrial materials; fertilizer materials; petroleum products; rubber and plastics; stone, clay, and glass; production index and the capacity utilization rates was released in November 1995. See "A primary metals; and fabricated metals. Revision to Industrial Production and Capacity Utilization, 1991-95," Federal Reserve 4. Advanced processing includes foods; tobacco; apparel; furniture and fixtures; printing Bulletin, vol. 82 (January 1996), pp. 16—25. For a detailed description of the industrial and publishing; chemical products such as drugs and toiletries; agricultural chemicals; leather production index, see "Industrial Production: 1989 Developments and Historical Revision," and products; machinery; transportation equipment; instruments; and miscellaneous manufac- Federal Reserve Bulletin, vol. 76 (April 1990), pp. 187-204. tures. 2. Capacity utilization is calculated as the ratio of the Federal Reserve's seasonally adjusted 5. Monthly highs, 1978-80; monthly lows, 1982. index of industrial production to the corresponding index of capacity. 6. Monthly highs, 1988-89; monthly lows, 1990-91. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A44 Domestic Nonfinancial Statistics • October 1996 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data seasonally adjusted 1992 1995 1996 Group pro- 1995 por- avg. tion July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr.r May' June Julyp Index (1987 = 100) MAJOR MARKETS 1 Total index 100.0 121.9 121.5 122.7 122.8 122.2 122.6 122.8 122.5 124.2 123.6 124.5 125.2 126.0 126.2 2 Products 60,6 118.3 118.0 119.2 119.4 118.3 118.8 119.2 118.6 120.7 120.0 120.8 121.2 121.8 122.0 J Final products 46.3 121.4 121.2 122.4 122.6 121.3 121.9 122.1 121.9 124.5 123.4 124.8 125.0 125.5 125.9 4 Consumer goods, total 28.6 115.1 114.6 115.9 116.0 114.9 115.9 115.7 114.6 116.6 115.3 115.9 116.1 116.1 116.5 Durable consumer goods 5.6 124.2 121.4 124.0 125.8 123.4 124.9 126.3 120.3 125.1 119.3 125.5 126.1 130.1 133.5 6 Automotive products 2.5 130.7 125.3 130.7 132.9 128.5 130.5 132.8 125.9 133.1 120.3 133.5 134.1 137.5 145.0 / Autos and trucks 1.6 131.4 123.9 132.0 133.1 128.6 129.8 132.1 124.1 133.5 111.1 135.9 135.4 138.9 149.8 8 Autos, consumer .9 103.1 101.0 100.6 102.6 100.2 100.2 99.5 92.8 99.7 77.0 104.1 106.2 110.4 116.5 9 Trucks, consumer .7 181.7 163.9 188.2 187.7 179.1 182.8 190.6 180.4 194.4 173.1 192.7 187.3 189.2 209.3 10 Auto parts and allied goods .9 127.8 126.6 126.6 130.8 126.7 130.2 132.7 128.1 130.7 137.2 127.2 129.9 133.1 133.5 11 Other 3.0 118.6 118.1 118.1 119.6 118.9 119.9 120.5 115.5 118.1 118.5 118.5 119.2 123.6 123.5 12 Appliances, televisions, and air conditioners .7 135.5 132.2 135.8 139.4 140.1 145.3 141.9 132.2 137.5 138.3 139.7 138.9 151.6 153.3 13 Carpeting and furniture .8 105.8 107.9 104.4 106.9 105.6 104.1 107.4 101.1 103.4 105.7 104.4 105.5 110.0 109.5 14 Miscellaneous home goods 1.5 118.2 117.4 118.0 117.8 116.9 117.6 118.3 116.2 117.7 116.9 117.1 118.2 118.6 117.9 15 Nondurable consumer goods 23.0 112.9 113.0 113.9 113.7 112.9 113.8 113.2 113.3 114.5 114.4 113.6 113.7 112.7 112.3 16 Foods and tobacco 10.3 111.3 112.8 111.8 111.6 111.1 110.9 110.6 110.6 112.0 112.3 112.2 111.8 111.4 110.6 1/ Clothing 2.4 94.8 93.6 93.9 93.4 92.9 91.5 89.7 88.2 90.3 88.9 88.8 89.2 88.2 88.1 18 Chemical products 4.5 131.3 128.6 132.6 134.0 135.7 135.0 136.5 138.1 138.1 136.7 133.8 134.0 132.3 133.1 19 Paper products 2.9 106.6 107.6 106.7 107.3 106.6 108.4 106.3 104.9 106.0 105.8 106.1 107.2 106.6 108.0 20 Energy 2.9 116.5 116.1 122.3 119.0 113.1 121.1 119.5 121.0 122.6 123.9 121.8 122.0 119.6 117.0 21 Fuels .9 108.8 108.2 108.4 111.4 107.3 108.2 108.6 108.6 111.8 112.2 111.5 111.7 110.7 110.0 22 Residential utilities 2.1 119.6 119.4 128.2 122.2 115.4 126.6 124.1 126.1 127.2 128.8 126.2 126.3 123.3 119.9 23 Equipment 17.7 131.4 131.6 132.9 133.1 131.5 131.4 132.3 133.7 137.3 136.5 139.2 139.4 140.8 141.2 24 Business equipment 13.7 155.7 155.7 157.5 158.2 156.5 156.9 158.4 160.5 164.8 162.7 166.3 166.2 168.5 169.3 25 Information processing and related 5.7 198.1 197.2 201.0 203.0 206.5 208.1 209.4 213.3 220.5 221.6 224.9 225.9 229.9 230.3 2261 Computer and office equipment 1.4 373.5 371.7 379.6 390.0 402.9 417.8 431.7 442.9 463.3 476.0 491.1 503.3 513.1 521.8 Industrial 4.0 127.5 127.1 129.1 128.7 128.6 129.1 129.5 129.6 131.3 130.3 129.9 129.4 128.7 128.4 28 Transit 2.6 136.3 139.8 138.0 137.9 122.3 119.6 124.5 128.1 133.2 121.2 136.1 135.1 138.9 144.5 29 Autos and trucks 1.2 140.1 139.9 141.3 143.3 135.7 134.2 135.3 129.1 136.0 113.6 140.0 138.2 141.9 152.0 30 Other 1.4 123.2 122.6 122.2 123.3 120.9 121.4 121.7 122.1 123.5 122.5 122.1 121.2 124.0 123.2 31 Defense and space equipment 3.3 65.9 66.5 66.1 65.2 64.4 62.9 62.0 61.6 63.1 64.2 64.0 64.4 63.8 63.6 32 Oil and gas well drilling .6 87.1 88.4 89.5 88.3 83.5 83.1 83.8 85.1 89.7 96.3 100.6 104.3 102.3 99.1 33 Manufactured homes .2 152.7 148.6 155.9 158.0 158.9 161.8 164.4 158.1 157.8 168.2 170.7 170.4 172.4 34 Intermediate products, total 14.3 109.0 108.5 109.4 109.5 109.2 109.3 110.1 108.5 109.3 109.6 108.6 109.7 110.5 110.2 35 Construction supplies 5.3 108.2 107.3 107.0 108.4 108.3 108.7 110.5 107.2 109.3 111.5 109.2 110.4 112.8 112.8 36 Business supplies 9.0 109.6 109.5 111.0 110.3 109.9 109.9 110.0 109.6 109.5 108.6 108.4 109.4 109.2 108.7 37 Materials 39.4 127.4 126.8 128.1 128.1 128.1 128.4 128.4 128.5 129.4 129.1 130.3 131.4 132.5 132.6 38 Durable goods materials 20.8 141.5 140.2 142.3 144.1 143.9 145.3 144.8 145.8 147.3 145.5 147.3 148.8 150.5 151.1 39 Durable consumer parts 4.0 138.5 133.9 138.4 139.8 138.6 140.1 139.3 140.6 141.1 132.5 142.1 143.4 148.0 148.7 40 Equipment parts 7.5 163.0 164.4 167.1 169.1 169.4 171.0 170.8 171.7 176.3 176.8 177.2 178.8 181.3 183.1 41 Other 9.2 126.2 124.4 124.9 126.8 126.5 127.9 127.2 128.2 127.8 127.4 126.8 128.1 128.1 127.6 42 Basic metal materials 3.1 125.7 124.9 123.1 127.0 124.3 128.1 126.6 125.7 123.7 124.4 123.7 124.3 125.4 124.3 43 Nondurable goods materials 8.9 119.8 118.9 118.8 117.8 118.7 116.6 117.4 115.7 116.1 116.3 118.8 119.8 120.3 120.5 44 Textile materials 1.1 109.2 102.6 109.2 106.2 107.3 104.8 103.3 100.3 101.8 103.0 104.9 106.1 106.8 107.0 45 Paper materials 1.8 120.5 123.9 120.4 117.0 121.4 114.3 115.2 113.4 113.4 113.7 118.9 118.6 115.2 118.2 46 Chemical materials 3.9 124.4 124.4 123.1 123.3 122.9 122.7 121.9 121.8 121.3 121.6 123.6 125.3 127.0 126.5 47 Other 2.1 116.5 113.8 114.6 115.1 114.6 114.1 118.9 115.2 117.1 116.4 117.8 118.3 120.0 119.0 48 Energy materials 9.7 106.6 107.5 108.5 105.8 105.5 105.7 106.0 105.9 106.1 108.2 107.0 107.5 107.8 106.9 49 Primary energy 6.3 101.9 102.3 101.4 101.2 101.7 100.8 101.0 100.6 101.3 103.9 103.1 102.4 103.3 102.7 50 Converted fuel materials 3.3 116.0 118.1 122.8 115.0 113.1 115.4 116.2 116.6 115.5 116.7 114.9 117.8 116.9 115.4 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.2 121.5 121.2 122.3 122.4 121.9 122.3 122.5 122.4 123.8 123.9 124.1 124.8 125.5 125.4 52 Total excluding motor vehicles and parts 95.2 120.9 120.7 121.7 121.8 121.3 121.7 121.9 121.9 123.3 123.7 123.5 124.2 124.8 124.7 53 Total excluding computer and office equipment 98.2 118.2 117.8 118.9 118.9 118.1 118.4 118.5 118.0 119.5 118.7 119.5 120.1 120.7 120.8 54 Consumer goods excluding autos and trucks . 27.0 114.0 114.0 114.8 114.9 114.0 115.0 114.7 114.0 115.5 115.6 114.6 114.8 114.6 114.3 55 Consumer goods excluding energy 25.7 114.9 114.5 115.1 115.7 115.1 115.3 115.3 113.9 115.9 114.3 115.2 115.4 115.7 116.4 56 Business equipment excluding autos and trucks 12.5 157.0 157.2 158.9 159.5 158.4 159.0 160.5 163.5 167.5 167.5 168.7 168.8 170.9 170.9 57 Business equipment excluding computer and office equipment 12.2 133.0 133.2 134.4 134.3 131.6 130.8 131.3 132.6 135.5 132.3 134.8 133.8 135.4 135.6 58 Materials excluding energy 29.7 134.9 133.7 135.1 136.1 136.2 136.6 136.4 136.6 137.8 136.6 138.6 139.9 141.3 141.7 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A45 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1—Continued 1992 1995 1996 GGrroouupp c S o I d C e p p r o o r - - 1 a 9 v 9 g 5 . tion July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr/ Mayr June Julyp Index (1987 = 100) MAJOR INDUSTRIES 59 Total index 100.0 121.9 121.5 122.7 122.8 122.2 122.6 122.8 122.5 124.2 123.6 124.5 125.2 126.0 126.2 60 Manufacturing 85.4 123.9 123.3 124.2 124.9 124.4 124.5 124.8 124.5 126.2 125.2 126.5 127.2 128.1 128.6 61 Primary processing 26.6 117.6 116.9 116.6 117.8 117.0 117.1 117.3 116.7 116.3 117.1 117.5 118.5 119.4 119.2 62 Advanced processing 58.9 126.8 126.3 127.8 128.2 127.9 128.0 128.4 128.2 131.0 129.0 130.8 131.3 132.3 133.0 63 Durable goods 45.0 132.5 131.5 133.2 134.4 133.5 134.3 134.8 134.9 137.5 135.6 138.3 139.2 141.2 142.0 (A Lumber and products "'24 2.0 104.5 103.7 103.7 106.2 105.7 104.8 106.9 103.1 103.3 107.5 108.4 107.3 109.1 107.8 65 Furniture and fixtures 25 1.4 111.6 111.1 110.9 112.0 110.9 109.8 109.3 109.3 110.5 107.7 108.9 111.9 113.0 112.5 66 Stone, clay, and glass products 32 2.1 104.1 103.2 103.0 103.8 104.5 104.9 104.3 105.5 104.1 102.9 103.6 104.9 105.9 104.4 67 Primary metals 33 3.1 119.2 118.3 115.4 121.0 115.7 120.8 120.0 121.5 117.1 118.0 119.2 119.0 121.1 120.0 68 Iron and steel 331,2 1.7 122.4 119.3 117.7 127.0 115.1 126.1 122.7 128.1 119.5 120.2 122.9 121.8 125.4 124.1 69 Raw steel 331PT .1 114.7 111.5 114.2 118.6 111.3 116.4 118.0 113.9 112.5 114.9 112.9 113.2 115.7 70 Nonfeirous 333-6,9 1.4 114.8 116.5 111.9 113.2 115.8 113.8 116.2 113.0 113.6 114.8 114.2 115.1 115.5 114.4 71 Fabricated metal products. . . 34 5.0 113.9 112.4 114.3 115.1 114.0 114.5 115.0 115.6 117.0 116.1 115.5 116.7 117.4 117.5 72 Industrial machinery and equipment 35 8.0 177.8 176.0 179.5 181.3 183.8 186.5 190.1 191.9 196.1 197.8 199.0 201.0 204.2 205.7 73 Computer and office equipment 357 1.8 373.5 371.7 379.6 390.0 402.9 417.8 431.7 442.9 463.3 476.0 491.1 503.3 513.1 521.8 74 Electrical machinery 36 7.2 174.9 175.7 178.7 180.8 182.4 183.6 182.8 182.4 188.7 187.9 187.3 188.8 192.0 194.2 75 Transportation equipment. . . 37 9.5 113.3 111.6 114.1 114.1 109.3 108.6 109.7 108.3 112.1 103.1 114.6 114.9 117.1 120.1 76 Motor vehicles and parts . 371 4.8 141.9 136.7 142.1 143.3 139.7 140.7 141.2 135.5 141.1 121.3 144.3 144.7 148.7 155.0 77 Autos and light trucks . 371PT 2.5 131.3 124.3 131.6 132.8 128.4 129.6 131.5 123.5 132.8 109.9 135.5 135.3 138.9 149.6 78 Aerospace and miscellaneous transportation equipment 372-6,9 4.7 85.8 87.6 87.2 85.9 80.0 77.7 79.4 82.2 84.2 85.7 86.0 86.3 86.8 86.6 79 Instruments 38 5.4 110.7 110.2 111.4 111.3 111.4 111.5 109.7 111.0 113.4 112.9 112.8 112.4 113.3 112.6 80 Miscellaneous 39 1.3 122.7 121.4 122.4 122.9 122.2 123.3 123.5 122.1 124.0 124.0 122.6 123.0 124.4 123.1 81 Nondurable goods 40.5 114.3 114.3 114.3 114.4 114.3 113.7 113.8 113.1 113.8 113.6 113.5 114.0 113.8 113.8 82 Foods "'20 9.4 115.3 115.3 115.5 115.5 115.4 114.8 114.8 114.8 116.0 115.6 115.4 115.4 114.6 114.1 83 Tobacco products 21 1.6 90.2 99.1 91.3 90.2 88.2 88.9 88.4 87.1 90.9 92.6 94.6 91.9 93.0 90.8 84 Textile mill products 22 1.8 112.6 109.9 112.4 110.5 111.1 108.9 108.3 104.1 106.2 109.0 108.2 108.8 111.1 111.0 85 Apparel products 23 2.2 95.7 94.8 94.5 94.5 93.3 92.4 91.5 89.2 90.9 89.7 90.4 90.8 90.9 90.5 86 Paper and products 26 3.6 119.8 121.3 118.6 118.5 119.7 116.2 118.2 114.9 113.5 115.5 118.9 119.5 119.4 121.4 87 Printing and publishing 27 6.8 99.4 99.0 100.5 99.8 98.9 99.3 98.8 97.9 98.7 96.7 96.3 97.5 96.6 96.7 88 Chemicals and products .... 28 9.9 125.0 124.0 124.4 125.3 126.7 126.0 126.5 127.1 127.1 126.5 126.0 126.4 126.5 126.6 89 Petroleum products 29 1.4 108.3 109.0 108.5 110.0 106.9 107.4 108.9 108.9 110.2 109.9 109.7 109.8 109.7 108.9 90 Rubber and plastic products . 30 3.5 139.4 137.7 138.7 139.8 139.7 140.3 139.3 139.0 139.7 140.5 137.6 140.7 140.5 140.5 91 Leather and products 31 .3 81.3 78.7 80.8 80.5 79.7 78.2 76.8 75.6 77.1 76.7 76.2 75.9 75.7 73.9 92 Mining 6.9 99.9 100.7 100.0 100.0 98.2 98.3 98.1 97.1 98.0 101.1 100.4 100.2 101.9 101.6 93 Metal " lO .5 169.3 172.2 172.1 170.8 178.3 175.9 172.8 159.5 157.1 166.1 158.3 161.3 164.4 164.0 94 Coal 12 1.0 112.9 117.0 109.7 116.2 112.3 109.5 108.5 103.3 108.0 114.8 109.5 111.9 113.2 108.5 95 Oil and gas extraction 13 4.8 91.9 91.9 92.4 91.2 89.2 90.1 90.1 90.8 90.2 92.6 93.3 92.8 94.1 94.5 96 Stone and earth minerals 14 .6 112.3 113.5 111.6 113.1 112.4 110.9 112.4 108.9 117.2 117.4 115.6 112.7 117.9 118.7 97 Utilities 7.7 122.0 122.7 128.8 122.7 121.6 125.4 125.1 125.6 126.6 128.0 126.4 127.9 125.9 123.6 98 Electric 491,493PT 6.1 122.1 122.2 130.0 122.7 123.7 123.6 123.9 125.5 126.6 127.1 125.7 128.7 127.1 124.4 99 Gas 492,493PT 1.6 121.7 124.5 124.3 122.4 113.6 132.5 129.9 125.6 126.3 131.5 128.9 124.8 121.4 120.5 SPECIAL AGGREGATES 100 Manufacturing excluding motor vehicles and parts 80.6 122.8 122.5 123.1 123.8 123.4 123.6 123.9 123.9 125.4 125.4 125.5 126.1 126.9 127.0 101 Manufacturing excluding office and computing machines . . . 83.7 119.5 118.9 119.8 120.3 119.6 119.6 119.7 119.3 120.7 119.5 120.7 121.2 122.0 122.3 Gross value (billions of 1992 dollars, annual rates) MAJOR MARKETS 102 Products, total 2,002.9 2,245.6 2,238.8 2,257.8 2,268.1 2,240.3 2,255.8 2,265.7 2,248.9 2,293.1 2,269.5 2,300.3 2,304.8 2,316.9 2,326.4 103 Final 1,552.2 1,748.7 1,743.2 1,760.5 1,768.2 1,741.9 1,756.8 1,761.9 1,753.0 1,794.2 1,766.8 1,801.5 1,803.5 1,810.7 1,821.9 104 Consumer goods 1,033.4 1.130.5 1,124.0 1,135.7 1,141.1 1,125.1 1,139.3 1,139.0 1,124.7 1,148.4 1,129.5 1,144.9 1,145.6 1,145.6 1,151.2 105 Equipment 518.8 618.3 619.2 624.8 627.1 616.7 617.5 622.9 628.4 645.8 637.3 656.6 657.9 665.0 670.8 106 Intermediate 450.7 496.9 495.6 497.3 499.9 498.4 499.0 503.8 495.9 498.8 502.7 498.8 501.3 506.2 504.5 1. Data in this table also appear in the Board's G. 17 (419) monthly statistical release. For Bulletin, vol. 82 (January 1996), pp. 16-25. For a detailed description of the industrial the ordering address, see the inside front cover. The latest historical revision of the industrial production index, see "Industrial Production: 1989 Developments and Historical Revision," production index and the capacity utilization rates was released in November 1995. See "A Federal Reserve Bulletin, vol. 76, (April 1990), pp. 187-204. Revision to Industrial Production and Capacity Utilization, 1991-95," Federal Reserve 2. Standard industrial classification. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A46 Domestic Nonfinancial Statistics • October 1996 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted 1995 1996 Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr/ May June Private residential real estate activity (thousands of units except as noted) NEW UNITS 1 Permits authorized 1,199 1,372 1,332 1,427 1,393 1,450 1,487 1,378 1,417 1,423 1,459 1,452 1,415 2 One-family 987 1,068 997 1,079 1,050 1,073 1,123 1,056 1,087 1,097 1,115 1,098 1,085 3 Two-family or more 213 303 335 348 343 377 364 322 330 326 344 354 330 4 Started 1,288 1,457 1,354 1,401 1,351 1,458 1,425 1,453 1,514 1,439 1,511 1,478 1,474 5 One-family 1,126 1,198 1,076 1,130 1,109 1,129 1,150 1,146 1,183 1,163 1,209 1,144 1,201 6 Two-family or more 162 259 278 271 242 329 275 307 331 276 302 334 273 7 Under construction at end of period1 680 762 776 783 781 790 800 803 800 816 826 833 842 8 One-family 543 558 547 555 560 562 569 569 565 581 591 594 604 9 Two-family or more 137 204 229 228 221 228 231 234 235 235 235 239 238 10 Completed 1,193 1,347 1,313 1,267 1,320 1,360 1,225 1,403 1,328 1,391 1,350 1,392 1,398 11 One-family 1,040 1,160 1,066 1,009 1,039 1,081 1,003 1,113 1,052 1,112 1,073 1,108 1,100 12 Two-family or more 153 187 247 258 281 279 222 290 276 279 277 284 298 13 Mobile homes shipped 254 304 340 352 354 355 352 352 341 364 378 369 372 Merchant builder activity in one-family units 14 Number sold 666 670 665 684 673 679 683 743 784 713r 740 739 726 15 Number for sale at end of period1 293 337 372 350 360 368 372 370 355 368r 369 365 363 Price of units sold (thousands of dollars)2 16 Median 126.1 130.4 133.4 130.0 135.2 137.0 138.6 131.9 139.4 137.0r 140.0 136.0 140.0 17 Average 147.6 153.7 157.6 155.6 156.2 160.7 165.6 155.3 163.7 162.lr 170.0 162.1 165.3 EXISTING UNITS (one-family) 18 Number sold 3,800 3,946 3,801 4,090 4,070 4,000 3,870 3,720 3,940 4,200 4,200 4,280 4,160 Price of units sold (thousands of dollars)2 19 Median 106.5 109.6 112.2 114.8 113.2 114.3 113.9 114.8 114.0 115.7 116.5 117.6 122.9 20 Average 133.1 136.4 138.4 140.2 138.7 139.5 138.7 141.2 138.7 140.1 141.9 144.4 150.2 Value of new construction (millions of dollars)3 CONSTRUCTION 21 Total put in place 482,737 527,063 547,079 550,467 549,952 549,745 555,701 558,952 544,577 556,983 564,985 559,198 565,891 22 Private 362,587 400,007 410,197 411,326 410,550 411,015 417,191 418,896 411,248 419,726 423,568 417,414 424,749 23 Residential 210,455 238,873 236,598 237,663 237,952 239,938 243,104 242,474 238,558 245,881 247,469 246,744 246,076 24 Nonresidential 152,132 161,134 173,599 173,663 172,598 171,077 174,087 176,422 172,690 173,845 176,099 170,670 178,673 25 Industrial buildings 26,482 28,947 32,301 32,427 31,422 32,032 31,996 32,495 30,792 30,593 30,316 27,363 29,360 26 Commercial buildings 53,375 59,728 67,528 67,660 67,259 65,555 66,447 66,475 66,461 65,503 67,485 65,748 69,043 27 Other buildings 26,219 26,961 26,923 27,340 27,899 27,418 28,197 28,103 27,470 27,884 27,426 27,755 29,837 28 Public utilities and other 46,056 45,498 46,847 46,236 46,018 46,072 47,447 49,349 47,967 49,865 50,872 49,804 50,433 29 Public 120,151 127,056 136,884 139,140 139,402 138,729 138,510 140,056 133,329 137,257 141,417 141,784 141,142 30 Military 2,454 2,319 3,005 3,218 2,295 3,217 3,211 3,554 3,982 3,126 3,192 3,015 3,307 31 Highway 34,342 37,673 38,161 38,209 40,125 38,344 40,402 39,444 40,956 39,527 39,763 38,071 38,517 32 Conservation and development 5,908 6,370 6,389 6,212 5,222 5,888 6,014 5,352 5,455 5,811 5,884 5,689 5,920 33 Other 77,447 80,694 89,329 91,501 91,760 91,280 88,883 91,706 82,936 88,793 92,578 95,009 93,398 1. Not at annual rates. SOURCE. Bureau of the Census estimates for all series except (1) mobile homes, which are 2. Not seasonally adjusted. private, domestic shipments as reported by the Manufactured Housing Institute and season- 3. Recent data on value of new construction may not be strictly comparable with data for ally adjusted by the Census Bureau, and (2) sales and prices of existing units, which are previous periods because of changes by the Bureau of the Census in its estimating techniques. published by the National Association of Realtors. All back and current figures are available For a description of these changes, see Construction Reports (C—30-76-5), issued by the from the originating agency. Permit authorizations are those reported to the Census Bureau Census Bureau in July 1976. from 19,000 jurisdictions beginning in 1994. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A47 2.15 CONSUMER AND PRODUCER PRICES Percentage changes based on seasonally adjusted data except as noted Change from 12 Change from 3 months earlier Change from 1 month earlier months earlier (annual rate) IIInnndddeeexxx llleeevvveeelll,,, IIIttteeemmm 1995 1996 1996 JJJuuulllyyy 11999955 11999966 111999999666 111 JJuullyy JJuullyy Sept. Dec. Mar. June Mar. Apr. May June July CONSUMER PRICES2 (1982-84=100) 1 All items 2.8 3.0 1.6 2.4 4.0 3.1 .4 .4 .3 .1 .3 157.0 2 2.7 3.4 2.7 1.9 3.2 4.6 .6 .3 .1 .7 .5 153.2 3 Energy items 1.2 4.1 -10.5 1.9 15.8 8.4 1.4 3.2 1.1 -2.2 -.4 112.5 4 All items less food and energy 3.0 2.7 2.8 2.2 3.5 2.2 .3 .1 .2 .2 .3 165.5 Commodities 1.1 1.4 2.0 1.7 2.6 -.3 .4 -.1 .0 .0 .0 140.3 6 Services 3.8 3.3 3.0 2.5 3.4 3.9 .2 .3 .3 .3 .3 179.9 PRODUCER PRICES (1982=100) 7 Finished goods 1.7 2.6 1.6 4.4 2.5 1.9 .5 .4 -.1 .2 .0 131.5 8 Consumer foods 1.8 4.0 8.8 4.4 ,6r 4.9r ,8r -,4r .0 1.6 .2 133.6 9 Consumer energy .4 5.3 -10.2 10.8 17.8 .0 2.6 2.8 -.6 -2.1 -.9 84.1 10 Other consumer goods 2.2 1.7 2.3 3.4 -,3r 2.5r -.R .R .1 .3 -.1 144.4 11 Capital equipment 1.8 1.2 1.8 2.9 ,0r -.3' .l1 .R -.1 -.1 .3 138.2 Intermediate materials 12 Excluding foods and feeds 6.4 -.9 -.6 -.6 -1.0 .0 .2 .3 .2 -.6 -.4 125.5 13 Excluding energy 7.4 -1.8 1.5 -2.9 -3.5r .0' -.2' -.r .2 -.1 -.3 133.6 Crude materials 14 Foods 1.0 24.7 34.8 20.8 -4.r 58.1r .f 4.0 6.3 1.4 2.7 130.4 15 Energy -9.4 15.1 -21.0 33.9 52.8r —15.0r —2.5r 8.2r -3.8 -7.7 1.4 78.5 16 Other 13.8 -13.5 -17.6 -18.4 - 10.6r -1.9' -2.3r -.4r -.3 -1.4 -1.6 153.1 1. Not seasonally adjusted. SOURCE. U.S. Department of Labor, 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

A48 Domestic Nonfinancial Statistics • October 1996 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1995 1996 AAccccoouunntt 11999933 11999944 11999955 Q2 Q3 Q4 QL Q2 GROSS DOMESTIC PRODUCT 1 Total 6,553.0r 6,935.7r 7,253.8r 7,204.9r 7,309.8r 7,350.6r 7,426.8r 7,538.1 By source 2 Personal consumption expenditures 4,454.1 4,700.9' 4,924.9' 4,910.5' 4,957.9' 4,990.5' 5,060.5' 5,143.9 3 Durable goods 530.7 580.9 606.4 604.0 615.8 612.8 625.2 641.6 4 Nondurable goods 1,368.9 1,429.7 1,485.9' 1,486.7' 1,491.2' 1,494.2' 1,522.1' 1,549.3 5 Services 2,554.6 2,690.3' 2,832.6' 2,819.8' 2,850.9' 2,883.5' 2,913.2' 2,953.1 6 Gross private domestic investment 871.1 1,014.4 1,065.3 1,050.3 1,074.8 1,064.0 1,068.9 1,093.0 7 Fixed investment 850.5 954.9 1,028.2 1,016.3 1,036.6 1,046.2 1,070.7 1,081.6 8 Nonresidential 598.8 667.2 738.5 734.4 746.3 749.7 769.0 768.0 9 Structures 171.8 180.2 199.7 197.6 202.5 204.0 208.4 205.9 10 Producers' durable equipment 427.0 487.0 538.8 536.8 543.8 545.7 560.6 562.1 11 Residential structures 251.7 287.7 289.8 281.9 290.3 296.5 301.7 313.6 12 Change in business inventories 20.6 59.5 37.0 34.0 38.2 17.8 -1.7 11.4 13 Nonfarm 26.8 48.0 39.6 36.1 41.5 19.9 2.7 15.1 14 Net exports of goods and services -62.7R -94.4R -94.7' -115.3' -87.6' -67.2' -86.3' -105.0 15 Exports 657.8R 719.1' 807.4' 797.3' 819.0' 837.0' 839.5' 850.9 16 Imports 720.5' 813.5' 902.0' 912.6' 906.6' 904.2' 925.8' 955.9 17 Government consumption expenditures and gross investment 1,290.4' 1,314.7 1,358.3' 1,359.4' 1,364.6' 1,363.4' 1,383.7 1,406.2 18 Federal 522.6' 516.4' 516.6' 522.0' 516.8' 507.7' 518.6 527.7 19 State and local 767.8 798.4 841.7 837.3 847.7 855.7 865.1 878.5 By major type of product 20 Final sales, total 6,532.4' 6,876.2' 7,216.7' 7,170.9' 7,271.5' 7,332.8' 7,428.6' 7,526.8 21 Goods 2,401.4' 2,534.4' 2,662.2' 2,646.2' 2,688.8' 2,698.0' 2,749.3' 2,782.7 22 Durable 1,014.3' 1,086.2' 1,147.3' 1,138.6' 1,167.2' 1,166.4' 1,192.1' 1,215.1 23 Nondurable 1,387.2 1,448.3 1,515.0' 1,507.7' 1,521.6' 1,531.7' 1,557.1' 1,567.5 24 Services 3,584.0' 3,746.5' 3,926.9' 3,908.9' 3,950.2' 3,992.4' 4,027.9' 4,079.6 25 Structures 547.0 595.3 627.6 615.7 632.6 642.3 651.4 664.5 26 Change in business inventories 20.6 59.5 37.0 34.0 38.2 17.8 -1.7 11.4 27 Durable goods 15.7 31.9 34.9 28.5 29.2 27.3 12.3 12.6 28 Nondurable goods 4.9 27.7 2.2 5.4 9.1 -9.4 -14.0 -1.2 MEMO 29 Total GDP in chained 1992 dollars 6,386.4' 6,608.7r 6,742.9r 6,713.5r 6,776.4r 6,780.7r 6,814.3r 6,885.1 NATIONAL INCOME 30 Total 5,195.3r 5,501.6r 5,813.5r 5,755.4r 5,861.4r 5,927.4r 6,015.3r n.a. 31 Compensation of employees 3,809.5' 4,009.8' 4,222.7' 4,191.6' 4,247.7' 4,301.1' 4,344.3' 4,420.8 32 Wages and salaries 3,095.3' 3,257.3' 3,433.2' 3,406.0' 3,454.0' 3,501.1' 3,540.2' 3,606.3 33 Government and government enterprises 584.2 602.5 621.7 619.6 624.1 626.9 634.0 639.0 34 Other 2,511.1' 2,654.8' 2,811.5' 2,786.4' 2,829.9' 2,874.2' 2,906.1' 2,967.3 35 Supplement to wages and salaries 714.2 752.4 789.5 785.6 793.7 800.1 804.1 814.5 36 Employer contributions for social insurance 333.3 350.2 365.5 363.6 367.8 369.8 375.0 380.5 37 Other labor income 380.9 402.2 424.0 422.0 425.9 430.2 429.1 434.0 38 Proprietors' income' 420.0 450.9 478.3 474.7 479.6 486.7 499.5 515.8 39 Business and professional' 388.1 415.9 449.3 447.1 451.5 454.9 461.1 470.1 40 Farm' 32.0 35.0 29.0 27.6 ' 28.1 31.8 38.4 45.7 41 Rental income of persons2 102.5 116.6 122.2 121.6 120.9 125.8 126.9 122.6 42 Corporate profits' 464.4' 529.5' 586.6' 562.3' 612.5' 611.8' 645.1' n.a. 43 Profits before tax3 464.3 531.2' 598.9' 589.6' 607.2' 604.2' 642.2' n.a. 44 Inventory valuation adjustment -6.6 -13.3 -28.1 -42.3 -9.3 -8.8 -17.4 -15.8 45 Capital consumption adjustment 6.7 11.6 15.9 15.0 14.6 16.5 20.4 22.7 46 Net interest 398.9' 394.9' 403.6' 405.2' 400.7' 401.9' 399.5' 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

Selected Measures A49 2.17 PERSONAL INCOME AND SAVING Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1995r 1996 AAccccoouunntt 11999933 11999944'' 11999955rr Q2 Q3 Q4 Qlr Q2 PERSONAL INCOME AND SAVING 1 Total personal income 5,480.1r 5,753.1 6,115.1 6,074.4 6,146.9 6,234.5 6,308.5 6,411.3 2 Wage and salary disbursements 3,090.7r 3,241.8 3,430.6 3,403.1 3,451.2 3,500.2 3,538.2 3,606.3 3 Commodity-producing industries 781.3 824.9 863.5 858.7 866.7 873.9 878.7 900.2 4 Manufacturing 593.1 621.1 648.4 645.3 650.1 654.7 654.8 671.6 Distributive industries 698.4 739.2 783.7 777.3 789.3 800.7 810.5 822.1 6 Service industries l,026.7r 1,075.2 1,161.6 1,147.5 1,171.1 1,198.6 1,215.1 1,245.0 7 Government and government enterprises 584.2 602.5 621.7 619.6 624.1 626.9 634.0 639.0 8 Other labor income 380.9 402.2 424.0 422.0 425.9 430.2 429.1 434.0 9 Proprietors' income' 420.0 450.9 478.3 474.7 479.6 486.7 499.5 515.8 10 Business and professional' 388.1 415.9 449.3 447.1 451.5 454.9 461.1 470.1 11 Farm' 32.0 35.0 29.0 27.6 28.1 31.8 38.4 45.7 12 Rental income of persons 102.5 116.6 122.2 121.6 120.9 125.8 126.9 122.6 13 Dividends 186.8 199.6 214.8 212.2 215.8 221.7 226.6 229.3 14 Personal interest income 648. lr 663.7 717.1 716.6 719.9 727.2 726.1 733.1 15 Transfer payments 910.7 956.3 1,022.6 1,016.8 1,029.9 1,041.4 1.063.0 1,076.0 16 Old-age survivors, disability, and health insurance benefits 444.4 472.9 507.4 505.1 510.7 516.1 529.9 536.4 17 LESS: Personal contributions for social insurance 259.6 278.1 294.5 292.7 296.2 298.8 301.0 305.8 18 EQUALS: Personal income 5,480. r 5,753.1 6,115.1 6,074.4 6,146.9 6,234.5 6,308.5 6,411.3 19 LESS: Personal tax and nontax payments 689.9 731.4 794.3 801.5 798.4 807.2 824.9 867.4 20 EQUALS: Disposable personal income 4,790.2r 5,021.7 5,320.8 5,272.9 5,348.5 5,427.3 5,483.5 5,544.0 21 LESS: Personal outlays 4,575.8r 4,832.3 5,071.5 5,054.4 5,106.6 5,144.7 5,218.1 5,304.4 22 EQUALS: Personal saving 2I4.4r 189.4 249.3 218.5 241.9 282.6 265.4 239.6 MEMO Per capita (chained 1992 dollars) 23 Gross domestic product 24,734.3r 25,349.8 25,628.7 25,555.9 25,726.7 25,684.5 25,753.3 25,962.0 24 Personal consumption expenditures 16,806.7r 17,158.4 17,399.5 17,395.8 17,453.8 17,459.9 17,570.2 17,692.4 25 Disposable personal income 18,078.0r 18,330.0 18,799.0 18,676.0 18,829.0 18,986.0 19,041.0 19,071.0 26 Saving rate (percent) 4.5 3.8 4.7 4.1 4.5 5.2 4.8 4.3 GROSS SAVING 27 Gross saving 935.5r 1,056.3 1,151.8 1,102.9 1,168.6 1,220.6 1,217.9 n.a. 28 Gross private saving 962.4r 1,006.7 1,071.8 1,018.5 1,085.9 1,138.9 1,133.8 n.a. 29 Personal saving 214.4r 189.4 249.3 218.5 241.9 282.6 265.4 239.6 30 Undistributed corporate profits' 103.3r 123.2 140.6 123.5 159.6 158.4 171.8 n.a. 31 Corporate inventory valuation adjustment -6.6 -13.3 -28.1 -42.3 -9.3 -8.8 -17.4 -15.8 Capital consumption allowances 32 Corporate 417.0 441.0 454.0 451.3 456.9 463.6 465.6 447700..66 33 Noncorporate 223.1 237.7 225.2 222.4 224.7 233.4 229.1 232.4 34 Gross government saving -26.9r 49.6 80.0 84.4 82.7 81.7 84.1 n.a. 35 Federal -187.4r -119.6 -87.9 -86.9 -84.6 -80.7 -82.0 n.a. 36 Consumption of fixed capital 68.2 70.6 73.8 74.2 73.8 73.8 73.2 72.5 37 Current surplus or deficit (-), national accounts -255.6r -190.2 -161.7 -161.1 -158.5 -154.5 -155.2 n.a. 38 State and local 160.5 169.2 167.9 171.3 167.3 162.4 166.1 n.a. 39 Consumption of fixed capital 65.6 69.4 72.9 72.3 73.4 74.3 75.1 76.0 40 Current surplus or deficit ( —), national accounts 94.9 99.7 95.0 99.0 93.9 88.1 91.0 n.a. 41 Gross investment 993.S 1,090.4 1,150.9 1,123.2 1,161.5 1,173.9 1,167.9 n.a. 42 Gross private domestic investment 871.1 1,014.4 1,065.3 1,050.3 1,074.8 1,064.0 1,068.9 1,093.0 43 Gross government investment 210.6 212.3 221.9 223.7 224.7 220.1 228.8 233.6 44 Net foreign investment -88.2 -136.4 -136.3 -150.8 -138.1 -110.2 -129.9 n.a. 45 Statistical discrepancy 58.0r 34.1 -.9 20.3 -7.1 -46.7 -50.0 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

A50 International Statistics • October 1996 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data seasonally adjusted except as noted1 1995 1996 IItteemm ccrreeddiittss oorr ddeebbiittss 11999933 11999944 11999955 Q1 Q2 Q3 Q4 Qlp 1 Balance on current account -99,936 -148,405 -148,154 -39,054 -40,976 -37,688 -30,435 -35,588 2 Merchandise trade balance2 -132,609 -166,121 -173,424 -44,923 -47,927 -42,548 -38,026 -42,738 3 Merchandise exports 456,832 502,463 575,940 138,551 142,983 144,984 149,422 150,019 4 Merchandise imports -589,441 -668,584 -749,364 -183,474 -190,910 -187,532 -187,448 -192,757 5 Military transactions, net 881 1,963 3,585 628 859 1,120 978 628 6 Other service transactions, net 59,690 59,779 64,775 14,780 15,244 17,093 17,657 17,758 / Investment income, net 9,742 -4,159 -8,016 -900 -862 -4,361 -1,890 -395 8 U.S. government grants -16,823 -15,816 -10,959 -2,846 -2,381 -2,933 -2,799 -4,340 y U.S. government pensions and other transfers -4,081 -4,544 -3,420 -758 -967 -964 -731 -1,026 10 Private remittances and other transfers -16,736 -19,506 -20,696 -5,035 -4,942 -5,095 -5,624 -5,475 ii Change in U.S. government assets other than official reserve assets, net (increase, -) -342 -341 -280 -154 -179 252 -199 52 12 Change in U.S. official reserve assets (increase, —) -1,379 5,346 -9,742 -5,318 -2,722 -1,893 191 17 13 Gold 0 0 0 0 0 0 0 0 14 Special drawing rights (SDRs) -537 -441 -808 -867 -156 362 -147 -199 13 Reserve position in International Monetary Fund -44 494 -2,466 -526 -786 -991 -163 -849 16 Foreign currencies -797 5,293 -6,468 -3,925 -1,780 -1,264 501 1,065 17 Change in U.S. private assets abroad (increase, —) -192,889 -155,700 -297,834 -56,275 -105,398 -37,954 -98,206 -55,801 18 Bank-reported claims3 29,947 -8,161 -69,146 -29,114 -41,236 8,476 -7,272 44,,551100 19 Nonbank-reported claims 1,581 -32,804 -34,219 -4,537 -22,904 7,500 -14,278 20 U.S. purchases of foreign securities, net -146,253 -60,270 -98,960 -7,571 -23,011 -35,839 -32,539 -33,492 21 U.S. direct investments abroad, net -78,164 -54,465 -95,509 -15,053 -18,247 -18,091 -44,117 -26,819 22 Change in foreign official assets in United States (increase, +) 72,153 40,253 109,757 21,822 37,380 39,186 11,369 51,582 23 U.S. Treasury securities 48,952 30,745 68,813 10,132 25,208 20,489 12,984 55,600 24 Other U.S. government obligations 4,062 6,077 3,734 1,126 1,326 518 764 52 25 Other U.S. government liabilities4 1,713 2,344 1,082 -331 235 -71 1,249 -195 26 Other U.S. liabilities reported by U.S. banks3 14,841 3,560 32,862 10,630 7,662 18,478 -3,908 -3,664 21 Other foreign official assets5 2,585 -2,473 3,266 265 2,949 -228 280 -211 28 Change in foreign private assets in United States (increase, +) 178,843 245,123 314,705 69,173 78,041 79,630 87,860 47,234 29 U.S. bank-reported liabilities3 20,859 111,842 25,283 3,860 10,200 -21,542 32,765 --2299,,444499 30 US. nonbank-reported liabilities 10,489 -7,710 34,578 9,076 7,285 6,945 11,272 31 Foreign private purchases of U.S. Treasury securities, net 24,381 34,225 99,340 29,969 30,368 37,269 1,734 11,734 32 Foreign purchases of other U.S. securities, net 80,092 57,006 95,268 15,480 20,496 31,971 27,321 35,437 33 Foreign direct investments in United States, net 43,022 49,760 60,236 10,788 9,692 24,987 14,768 29,512 34 Allocation of special drawing rights 0 0 0 0 0 0 0 0 35 Discrepancy 43,550 13,724 31,548 9,806 33,854 -41,533 29,420 -7,496 36 Due to seasonal adjustment 6,519 -266 -7,407 1,153 6,365 3/ Before seasonal adjustment 43,550 13,724 31,548 3,287 34,120 -34,126 28,267 -13,861 MEMO Changes in official assets 38 U.S. official reserve assets (increase, -) --11,,337799 55,,334466 --99,,774422 --55,,331188 -2,722 --11,,889933 191 1177 39 Foreign official assets in United States, excluding line 25 (increase, +) 70,440 37,909 108,675 22,153 37,145 39,257 10,120 51,777 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line 22) -3,717 -1,529 3,959 -412 -341 6,147 -1,435 -1,417 1. Seasonal factors are not calculated for lines 12-16, 18-20, 22-34, and 38^10. 4. Associated primarily with military sales contracts and other transactions arranged with 2. Data are on an international accounts basis. The data differ from the Census basis data, or through foreign official agencies. shown in table 3.11, for reasons of coverage and timing. Military exports are excluded from 5. Consists of investments in U.S. corporate stocks and in debt securities of private merchandise trade data and are included in line 5. corporations and state and local governments. 3. Reporting banks include all types of depository institutions as well as some brokers and SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current dealers. Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A51 3.11 U.S. FOREIGN TRADE1 Millions of dollars; monthly data seasonally adjusted 1995 1996 IItteemm 11999933 11999944 11999955 Dec. Jan. Feb. Mar. Apr. May Junep 1 Goods and services, balance -72,037 -104,381 -105,064 -6,399 -9,686 -6,654 -8,012 -9,606 -10,546 -8,111 2 Merchandise -132,607 -166,123 -173,424 -12,601 -15,505 -12,784 -14,450 -15,585 -16,791 -14,454 3 Services 60,570 61,742 68,360 6,202 5,819 6,130 6,438 5,979 6,245 6,343 4 Goods and services, exports 642,953 698,301 786,529 68,088 66,493 69,163 69,277 68,990 69,893 69,706 5 Merchandise 456,834 502,462 575,939 50,120 48,645 50,883 50,490 50,740 51,384 51,192 6 Services 186,119 195,839 210,590 17,968 17,848 18,280 18,787 18,250 18,509 18,514 7 Goods and services, imports -714,990 -802,682 -891,593 -74,487 -76,179 -75,817 -77,289 -78,596 -80,439 -77,817 8 Merchandise -589,441 -668,585 -749,363 -62,721 -64,150 -63,667 -64,940 -66,325 -68,175 -65,646 9 Services -125,549 -134,097 -142,230 -11,766 -12,029 -12,150 -12,349 -12,271 -12,264 -12,171 1. Data show monthly values consistent with quarterly figures in the U.S. balance of SOURCE. FT900, U.S. Department of Commerce, Bureau of the Census and Bureau of payments accounts. Economic Analysis. 3.12 U.S. RESERVE ASSETS Millions of dollars, end of period 1995 1996 AAsssseett 11999922 11999933 11999944 Dec. Jan. Feb. Mar. Apr. May June Julyp 1 Total 71,323 73,442 74,335 85,832 82,717 84,270 84,212 83,710 83,468 83,455 85,099 2 Gold stock, including Exchange Stabilization Fund' 11,056 11,053 11,051 11,050 11,052 11,053 11,053 11,052 11,051 11,050 11,050 3 Special drawing rights2,3 8,503 9,039 10,039 11,037 10,778 11,106 11,049 10,963 11,037 11,046 11,216 4 Reserve position in International Monetary Fund2 11,759 11,818 12,030 14,649 14,312 14,813 15,249 15,117 15,227 15,282 15,665 5 Foreign currencies4 40,005 41,532 41,215 49,096 46,575 47,298 46,861 46,578 46,153 46,077 47,168 1. Gold held "under earmark" at Federal Reserve Banks for foreign and international SDR holdings and reserve positions in the IMF also have been valued on this basis since July accounts is not included in the gold stock of the United States; see table 3.13, line 3. Gold 1974. stock is valued at $42.22 per fine troy ounce. 3. Includes allocations of SDRs by the International Monetary Fund on Jan. 1 of the year 2. Special drawing rights (SDRs) are valued according to a technique adopted by the indicated, as follows: 1970—$867 million; 1971—$717 million; 1972—$710 million; 1979— International Monetary Fund (IMF) in July 1974. Values are based on a weighted average of $1,139 million; 1980—$1,152 million; 1981—$1,093 million; plus net transactions in SDRs. exchange rates for the currencies of member countries. From July 1974 through December 4. Valued at current market exchange rates. 1980, sixteen currencies were used; since January 1981, five currencies have been used. U.S. 3.13 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS1 Millions of dollars, end of period 1995 1996 AAsssseett 11999922 11999933 11999944 Dec. Jan. Feb. Mar. Apr. May June July" 1 Deposits 205 386 250 386 165 209 191 166 160 182 166 Held in custody 2 U.S. Treasury securities2 314,481 379,394 441,866 522,170 532,776 559,741 573,435 573,924 578,608 572,839 580,277 3 Earmarked gold3 13,118 12,327 12,033 11,702 11,702 11,689 11,590 11,445 11,339 11,296 11,273 1. Excludes deposits and U.S. Treasury securities held for international and regional 3. Held in foreign and international accounts and valued at $42.22 per fine troy ounce; not organizations. included in the gold stock of the United States. 2. Marketable U.S. Treasury bills, notes, and bonds and nonmarketable U.S. Treasury securities, in each case measured at face (not market) value. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A52 International Statistics • October 1996 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1995 1996 IItteemm 11999933 11999944 Dec. Jan. Feb. Mar. Apr. May Junep 1 Total1 482,915 520,934 630,775 644,570 670,229 682,952 687,217r 689,711 695,954 By type 2 Liabilities reported by banks in the United States 69,721 73,386 107,258 103,919 103,242 103,994 111,017' 104,926 117,835 3 U.S. Treasury bills and certificates3 151,100 139,571 168,534 173,949 191,188 198,382 186,638 188,321 187,171 U.S. Treasury bonds and notes 4 Marketable 212,237 254,059 293,684 306,299 314,980 319,728 327,981 334,463 327,815 5 Nonmarketable4 5,652 6,109 6,491 6,120 6,159 6,199 6,238r 5,903 5,941 6 U.S. securities other than U.S. Treasury securities5 44,205 47,809 54,808 54,283 54,660 54,649 55,343 56,098 57,192 By area 7 Europe1 207,034 215,374 222,314 223,569 231,389 242,589 241,161 244.294 245,385 8 Canada 15,285 17,235 19,473 19,078 18,850 20,846 20,878 21.670 21,250 9 Latin America and Caribbean 55,898 41,492 66,720 70,281 70,497 73,039 71,287r 67.949 69,739 10 Asia 197,702 236,824 310,966 320,512 338,999 335,006 341,148' 343,206 346,071 11 Africa 4,052 4,180 6,296 6,924 6,574 6,584 7,388 7.173 6,996 12 Other countries 2,942 5,827 5,004 4,204 3,918 4,886 5,353 5,417 6,511 1. Includes the Bank for International Settlements. Venezuela, beginning December 1990, 30-year maturity issue; Argentina, beginning April 2. Principally demand deposits, time deposits, bankers acceptances, commercial paper, 1993, 30-year maturity issue. negotiable time certificates of deposit, and borrowings under repurchase agreements. 5. Debt securities of U.S. government corporations and federally sponsored agencies, and 3. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official U.S. corporate stocks and bonds. institutions of foreign countries. SOURCE. Based on U.S. Department of the Treasury data and on data reported to the 4. Excludes notes issued to foreign official nonreserve agencies. Includes current value of department by banks (including Federal Reserve Banks) and securities dealers in the United zero-coupon Treasury bond issues to foreign governments as follows: Mexico, beginning States, and on the 1989 benchmark survey of foreign portfolio investment in the United March 1988, 20-year maturity issue and beginning March 1990, 30-year maturity issue; States. 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 1995 1996 IItteemm 11999922 11999933 11999944 June Sept. Dec. Mar. 1 Banks'liabilities 72,796 78,259 89,284 106,621 102,147 112,556 109,635' 2 Banks' claims 62,799 62,017 60,689 77,042 69,481 74,830 69,522 3 Deposits 24,240 20,993 19,661 28,909 25,712 22,688 22,220 4 Other claims 38,559 41,024 41,028 48,133 43,769 52,142 47,302 5 Claims of banks' domestic customers2 4,432 12,854 10,878 10,244 6,624 6,145 6,064 1. Data on claims exclude foreign currencies held by U.S. monetary authorities. 2. Assets owned by customers of the reporting bank located in the United States that represent claims on foreigners held by reporting banks for the accounts of the domestic customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A53 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States1 Payable in U.S. dollars Millions of dollars, end of period 1995 1996 IItteemm 11999933 11999944 11999955 Dec. Jan. Feb. Mar. Apr. May Junep BY HOLDER AND TYPE OF LIABILITY 1 Total, all foreigners 926,672 1,014,808 l,099,665r l,099,665r l,098,640r l,101,912r l,100,426r l,100,602r 1,096,063 1,097,972 2 Banks' own liabilities 626,919 718,440 753,545r 753,545r 747,46 lr 732,922' 729,805r 735,762' 723,566 731,351 3 Demand deposits 21,569 23,386 24,460 24,460 22,182 23,507 23,371 23,958 23,337 27,486 4 Time deposits2 175,106 186,512 192,700 192,700 198,434' 192,116r 193,549' 192,011' 181,031 189,671 5 Other3 111,971 112,984 139,780 139,780 141,963 149,009 138,311 146,589' 144,051 149,290 6 Own foreign offices4 318,273 395,558 396,605r 396,605r 384,882 368,290 374,574 373,204 375,147 364,904 7 Banks' custodial liabilities5 299,753 296,368 346,120 346,120 351,179 368,990 370,621 364,840 372,497 366,621 8 U.S. Treasury bills and certificates6 176,739 116622,,990088 197,341 119977,,334411 203,478 222233,,339955 222288,,770055 221177,,110066 220,823 221188,,660044 9 Other negotiable and readily transferable instruments7 36,289 42,532 52,246 52,246 46,973 43,404 40,483 44,823 49,655 51,465 10 Other 86,725 90,928 96,533 96,533 100,728 102,191 101,433 102,911 102,019 96,552 11 Nonmonetary international and regional organizations8... 10,936 8,606 11,039 11,039 10,622 11,109 9,476 11,266' 11,954 12,093 12 Banks' own liabilities 5,639 8,176 10,347 10,347 9,628 10,314 8,558 10,440' 11,167 10,849 13 Demand deposits 15 29 21 21 30 43 16 28 34 123 14 Time deposits2 2,780 3,298 4,656 4,656 4,385 3,479 3,527 3,979 3,402 3,987 15 Other3 2,844 4,849 5,670 5,670 5,213 6,792 5,015 6,433' 7,731 6,739 16 Banks' custodial liabilities5 5,297 430 692 692 994 795 918 826 787 1,244 17 U.S. Treasury bills and certificates6 44,,227755 281 350 350 764 555 564 426 376 874 18 Other negotiable and readily transferable instruments7 1,022 149 341 341 230 230 298 400 390 370 19 Other 0 0 1 1 0 10 56 0 21 0 20 Official institutions9 220,821 212,957 275,792 275,792 277,868 294,430 302,376 297,655' 293,247 305,006 21 Banks' own liabilities 64,144 59,935 83,311 83,311 85,040 84,077 88,537 91,602' 81,894 91,502 22 Demand deposits 1,600 1,564 2,098 2,098 1,522 1,655 1,423 1,679 1,504 2,216 23 Time deposits2 21,653 23,511 30,716 30,716 28,069 29,904 32,404 36,637' 32,656 38,567 24 Other3 40,891 34,860 50,497 50,497 55,449 52,518 54,710 53,286' 47,734 50,719 25 Banks' custodial liabilities5 156,677 153,022 192,481 192,481 192,828 210,353 213,839 206,053 211,353 213,504 26 U.S. Treasury bills and certificates6 151,100 139,571 168,534 168,534 173,949 191,188 119988,,338822 118866,,663388 188,321 187,171 27 Other negotiable and readily transferable instruments7 5,482 13,245 23,603 23,603 18,532 18,138 14,970 19,065 22,661 25,835 28 Other 95 206 344 344 347 1,027 487 350 371 498 29 Banks10 592,171 678,367 691,555r 691,555r 687,180r 670,727r 666,739' 665,4901 662,333 654,502 30 Banks' own liabilities 478,755 563,466 567,980r 567,980r 558,951r 541,421r 539,657' 537,427' 533,016 530,708 31 Unaffiliated foreign banks 160,482 167,908 171,375 171,375 174,069r 173,13 lr 165,083' 164,223' 157,869 165,804 32 Demand deposits 9,718 10,633 11,756 11,756 10,247 10,948 10,971 11,453 10,660 12,389 33 Time deposits2 105,262 111,171 103,554 103,554 110,436r 104,230r 101,013' 96,222' 89,075 90,901 34 Other3 45,502 46,104 56,065 56,065 53,386 57,953 53,099 56,548' 58,134 62,514 35 Own foreign offices4 318,273 395,558 396,605r 396,605r 384,882 368,290 374,574 373,204 375,147 364,904 36 Banks' custodial liabilities5 113,416 114,901 123,575 123,575 128,229 129,306 127,082 128,063 129,317 123,794 37 U.S. Treasury bills and certificates6 10,712 11,251 1155,,886699 1155,,886699 15,992 1177,,994477 1155,,996677 1166,,880011 1177,,558844 18,241 38 Other negotiable and readily transferable instruments7 17,020 14,505 13,035 13,035 13,590 12,094 11,864 10,814 11,775 11,021 39 Other 85,684 89,145 94,671 94,671 98,647 99,265 99,251 100,448 99,958 94,532 40 Other foreigners 102,744 114,878 121,279 121,279 122,970 125,646 121,835 126,191 128,529 126,371 41 Banks' own liabilities 78,381 86,863 91,907 91,907 93,842 97,110 93,053 96,293 97,489 98,292 42 Demand deposits 10,236 11,160 10,585 10,585 10,383 10,861 10,961 10,798 11,139 12,758 43 Time deposits2 45,411 48,532 53,774 53,774 55,544 54,503 56,605 55,173 55,898 56,216 44 Other3 22,734 27,171 27,548 27,548 27,915 31,746 25,487 30,322 30,452 29,318 45 Banks' custodial liabilities5 24,363 28,015 29,372 29,372 29,128 28,536 28,782 29,898 31,040 28,079 46 U.S. Treasury bills and certificates6 10,652 11,805 12,588 12,588 12,773 13,705 13,792 1133,,224411 1144,,554422 1122,,331188 47 Other negotiable and readily transferable instruments7 12,765 14,633 15,267 15,267 14,621 12,942 13,351 14,544 14,829 14,239 48 Other 946 1,577 1,517 1,517 1,734 1,889 1,639 2,113 1,669 1,522 MEMO 49 Negotiable time certificates of deposit in custody for foreigners 17,567 17,895 9,099 9,099 10,479 10,544 10,005 8,306 9,284 9,580 1. Reporting banks include all types of depository institutions as well as some brokers and 6. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official dealers. Excludes bonds and notes of maturities longer than one year. institutions of foreign countries. 2. Excludes negotiable time certificates of deposit, which are included in "Other negotia- 7. Principally bankers acceptances, commercial paper, and negotiable time certificates of ble and readily transferable instruments." deposit. 3. Includes borrowing under repurchase agreements. 8. Principally the International Bank for Reconstruction and Development, the Inter- 4. For U.S. banks, includes amounts owed to own foreign branches and foreign subsidiar- American Development Bank, and the Asian Development Bank. Excludes "holdings of ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory dollars" of the International Monetary Fund. agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists 9. Foreign central banks, foreign central governments, and the Bank for International principally of amounts owed to the head office or parent foreign bank, and to foreign Settlements. branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank. 10. Excludes central banks, which are included in "Official institutions." 5. Financial claims on residents of the United States, other than long-term securities, held by or through reporting banks for foreign customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A54 International Statistics • October 1996 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States'—Continued 1995 1996 IItteemm 11999933 11999944 11999955 Dec. Jan. Feb. Mar. Apr. May Junep AREA 50 Total, all foreigners 926,672 1,014,808 l,099,665r l,099,665r l,098,640r l,101,912r l,100,426r l,100,602r l,096,063r 1,097,972 51 Foreign countries 915,736 1,006,202 l,088,626r l,088,626r l,088,018r l,090,803r l,090,950r l,089,336r l,084,109r 1,085,879 52 377,911 390,710 362,786 362,786 368,325 374,048 370,581 375,5 25R 367,761R 363,790 53 Austria 1,917 3,588 3,537 3,537 3,437 2,996 2,848 3,477 3,624 3,234 54 Belgium and Luxembourg 28,670 21,877 24,842 24,842 24,881 27,182 25,584 27,572 25,955 20,831 55 Denmark 4,517 2,884 2,921 2,921 2,979 3,861 2,876 2,787 2,645 2,796 56 Finland 1,872 1,436 2,831 2,831 2,421 2,409 1,768 2,203 2,188 1,745 57 France 40,316 44,361 39,204 39,204 39,697 41,099 41,332 41,304R 39,640R 40,444 58 Germany 26,685 27,109 24,035 24,035 25,988 24,695 25,229 24,854 23,950 25,863 59 Greece 1,519 1,393 2,011 2,011 1,998 2,063 1,966 1,714 1,665 1,690 60 Italy 11,759 10,885 10,875 10.875 9,616 12,468 11,475 10,178 11,045 12,109 61 Netherlands 16,096 16,033 13,724 13,724 11,350 12,173 12,839 12,397 12,578 12,161 62 Norway 2,966 2,338 1,394 1,394 1,067 1,246 1,034 915 828 1,388 63 Portugal 3,366 2,846 2,761 2,761 3,055 2,931 2,843 2,529 1,858 1,401 64 Russia 2,511 2,726 7,950 7,950 7,858 9,180 9,321 8,798 7,260 6,925 65 Spain 20,496 14,675 10,012 10,012 11,838 11,589 18,976 19,548 19,010 20,312 66 Sweden 2,738 3,094 3,245 3,245 2,555 2,813 2,2 56 3,943 2,410 2,693 67 Switzerland 41,560 40,515 43,627 43,627 40,806 42,010 39,083 36,805 37,099 39,008 68 Turkey 3,227 3,341 4,124 4,124 4,350 4,559 4,103 4,453 4,669 4,926 69 United Kingdom 133,993 163,795 139,127 139,127 152,654 146,985 144,136 146,612 146,335r 143,770 70 Yugoslavia11 372 245 177 177 163 163 143 145 146 217 11 Other Europe and other former U.S.S.R.12 33,331 27,769 26,389 26,389 21,612 23,626 22,769 25,291 24,856r 22,277 72 20,235 24,768 30,470r 30,470r 33,012 32,031 31,500 31,285 33,178 33,389 73 Latin America and Caribbean 362,238 423,830 440,216 440,216 435,624r 421,950r 433,599r 430,933r 433,075' 432,566 14 Argentina 14,477 17,203 12,236 12,236 13,524 11,764 11,985 14,117 11,650 13,580 75 Bahamas 73,820 104,002 94,991 94,991 96,77 lr 91,124r 87,987r 85,769r 86,303r 85,257 /6 Bermuda 8,117 8,424 4,897 4,897 4,633 4,702 5,035 4,262 4,998 4,172 7/ Brazil 5,301 9,145 23,797 23,797 22,715 21,761 21,483r 20,222 20,105 28,130 78 British West Indies 193,699 229,599 239,083 239,083 233,383 227,438 240,61 r 239,129 243,145r 231,948 79 Chile 3,183 3.127 2,825 2,825 2,978 2,772 2,815 2,882 2,867 2,937 80 Colombia 3,171 4,615 3,666 3,666 3,505 3,682 3,637 3,790 33,,443300 3,680 81 Cuba 33 13 8 8 7 7 7 13 88 10 82 Ecuador 880 875 1,315 1,315 1,236 1,201 1,274 1,265 1,284 1,302 83 Guatemala 1,207 1,121 1,275 1,275 1,058 1,075 1,060 1,085 1.073 1,073 84 Jamaica 410 529 481 481 500 495 503 516 550 534 85 Mexico 28,019 12,227 24,555 24,555 23,643 23,899 24,577 23,330 23.214 24,777 86 Netherlands Antilles 4,686 5,217 4,672 4,672 4,448 4,461 4,402 5,272 4.722 5,162 8/ Panama 3,582 4,551 4,265 4,265 4,030 4,166 4,026 3,887 3.846 3,878 88 Peru 929 900 974 974 1,025 1,092 962 1,081 1,064 1,011 89 Uruguay 1,611 1,597 1,835 1,835 1,799 1,726 1,908 1,748 1.757 1,769 90 Venezuela 12,786 13,985 11,810 11,810 12,662 12,611 13,255 14,244 14.672 14,925 91 Other 6,327 6,700 7,531 7,531 7,707 7,974 8,072 8,321 8,387r 8,421 92 Asia 144,527 154,334 240,740 240,740 223388,,117755 224499,,444477 224411,,995588 223377,,770055 235,906 223399,,223322 China 93 People's Republic of China 4,011 10,066 33,750 33,750 35,733 32,200 24,430 25,861 24,857 25,485 94 Republic of China (Taiwan) 10,627 9,844 11,714 11,714 12,311 12,955 15,513 14,953 14,598 16,637 95 Hong Kong 17,132 17,104 20,303 20,303 20,307 22,286 20,187 18,379 18,605 18,257 96 1,114 2,338 3,373 3,373 3,263 3,527 3,990 3,752 3,938 4,012 97 Indonesia 1,986 1,587 2,708 2,708 2,011 2,349 2,169 2,627 2,374 2,317 98 Israel 4,435 5,157 4,073 4,073 4,348 5,780 5,344 5,450 5,123 5,199 99 Japan 61,466 62,981 109,193 109,193 106,728 113,361 117,325 111,635 111,498 113,802 100 Korea (South) 4,913 5,124 5,749 5,749 5,092 5,607 5,875 5,860 5,664 6,569 101 Philippines 2,035 2,714 3,089 3,089 2,394 2,366 2,336 2,467 2,897 2,970 102 Thailand 6,137 6,466 12,279 12,279 13,121 13,389 12,158 12,905 13,387 12,262 103 Middle Eastern oil-exporting countries13 15,822 15,482 15,582 15,582 14,417 13,491 13,741 14,895 14,234 13,379 104 Other 14,849 15,471 18,927 18,927 18,450 22,136 18,890 18,921 18,731 18,343 105 6,633 6,524 7,641 7,641 7,679 7,818 7,089 7,832 7,404 7,507 106 Egypt 2,208 1,879 2,136 2,136 1,848 2,375 2,057 2,002 1,873 1,831 107 Morocco 99 97 104 104 99 52 65 114 113 115 108 South Africa 451 433 739 739 1,217 665 413 1,001 745 666 109 Zaire 12 9 10 10 11 8 9 8 16 6 110 Oil-exporting countries14 1,303 1,343 1,797 1,797 1,774 1,968 1,706 1,904 1,887 2,013 111 Other 2,560 2,763 2,855 2,855 2,730 2,750 2,839 2,803 2,770 2,876 112 Other 4,192 6,036 6,773 6,773 5,203 5,509 6,223 6,056 6,785r 9,395 113 Australia 3,308 5,142 5,644 5,644 4,326 4,503 5,239 4,896 5,757 7,981 114 Other 884 894 1,129 1,129 877 1,006 984 1,160 l,028r 1,414 115 Nonmonetary international and regional organizations.. . 10,936 8,606 11,039 11,039 10,622 11,109 9,476 11,266r 1 l,954r 12,093 116 International'5 6,851 7,537 9,300 9,300 9,639 10,075 7,938 9,982r 10,587r 10,835 117 Latin American regional16 3,218 613 893 893 349 292 758 422 594 451 118 Other regional17 867 456 846 846 634 742 780 862 773 807 11. Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 15. Principally the International Bank for Reconstruction and Development. Excludes 12. Includes the Bank for International Settlements. Since December 1992, has "holdings of dollars" of the International Monetary Fund. included all parts of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia. 16. Principally the Inter-American Development Bank. 13. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab 17. Asian, African, Middle Eastern, and European regional organizations, except the Bank Emirates (Trucial States). for International Settlements, which is included in "Other Europe." 14. Comprises Algeria, Gabon, Libya, and Nigeria. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A55 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 1995 1996 AArreeaa oorr ccoouunnttrryy 11999933 11999944 11999955 Dec. Jan. Feb. Mar. Apr/ May Junep 1 Total, all foreigners 488,497 483,242 529,948r 529,948r 527,317 520,790 531,340r 527,363 518,375 536,311 2 Foreign countries 486,092 478,651 528,017r 528,017r 525,015 518,011 527,526r 524,647 514,881 533,289 3 Europe 123,741 123,380 130,315 130,315 133,923 138,574 138,820' 135,605 134,471 146,204 4 Austria 412 692 565 565 683 773 892r 1,213 1,212 1,088 5 Belgium and Luxembourg 6,532 6,738 7,599 7,599 8,365 8,519 6,003r 8,688 8,711 6,921 6 Denmark 382 1,129 403 403 541 599 698r 543 482 432 7 Finland 594 512 1,055 1,055 1,397 1,313 1,782 1,305 1,282 1,013 8 France 11,822 12,146 14,798 14,798 12,253 13,161 13,740 11,604 11,954 11,767 9 Germany 7,724 7,608 8,864 8,864 8,072 8,774 9,260 8,647 8,099 11,831 10 Greece 691 604 449 449 555 603 507 622 554 563 11 Italy 8,834 6,043 5,364 5,364 5,010 4,838 5,865r 5,696 6,166 5,721 12 Netherlands 3,063 2,959 5,051 5,051 4,305 4,722 5,585r 6,346 5,618 6,546 13 Norway 396 504 665 665 1,098 1,408 1,016 793 933 1,243 14 Portugal 834 938 888 888 853 743 773 889 813 704 15 Russia 2,310 973 660 660 678 775 868 741 482 472 16 Spain 3,717 3,530 2,166 2,166 3,811 4,041 5,420 5,092 3,158 2,519 17 Sweden 4,254 4,098 2,060 2,060 2,315 2,151 2,206r 3,534 2,526 2,799 18 Switzerland 6,605 5,746 7,074 7,074 4,613 4,016 4,841 6,370 8,713 12,144 19 Turkey 1,301 878 785 785 732 707 810 973 867 930 20 United Kingdom 62,013 66,846 67,388 67,388 75,147 78,040 73,741r 69,117 69,581 75,810 21 Yugoslavia- 473 265 147 147 481 118 120 208 204 164 22 Other Europe and other former U.S.S.R.3 1,784 1,171 4,334 4,334 3,014 3,273 4,693 3,224 3,116 3,537 23 Canada 18,617 18,490 20,192r 20,192r 20,068 18,421 18,040r 22,061 20,885 22,241 24 Latin America and Caribbean 225,238 223,523 256,955r 256,955r 257,146 248,483 252,727 245,845 237,369 239,237 25 Argentina 4,474 5,844 6,439 6,439 6,185 6,057 6,216 6,187 6,037 6,437 26 Bahamas 63,353 66,410 58,815r 58,815r 60,284 63,240 65,628 54,911 55,476 60,592 27 Bermuda 8,901 8,481 5,717 5,717 5,011 4,742 4,829 5,031 2,993 3,113 28 Brazil 11,848 9,583 13,297 13,297 13,252 13,915 13,813 14,175 14,189 15,076 29 British West Indies 99,319 95,741 123,914 123,914 122,759 108,833 113,239 118,599 110,770 101,589 30 Chile 3,643 3,820 5,024 5,024 4,996 4,593 4,559 4,605 4,363 5,062 31 Colombia 3,181 4,004 4,550 4,550 4,622 4,492 4,547 4,517 4,523 4,540 32 Cuba 0 0 0 0 0 0 0 0 0 0 33 Ecuador 681 682 825 825 841 842 977 959 944 957 34 Guatemala 288 366 457 457 439 461 465 473 461 456 35 Jamaica 195 258 323 323 299 362 332 335 345 368 36 Mexico 15,879 17,749 18,028 18,028 17,114 17,167 16,953 17,071 16,857 16,811 37 Netherlands Antilles 2,683 1,396 9,229 9,229 11,043 12,973 10,902 8,728 8,674 12,888 38 Panama 2,894 2,198 3,018 3,018 2,845 2,820 2,612 2,503 2,397 2,567 39 Peru 657 997 1,829 1,829 1,762 1,928 1,936 2,042 2,350 2,395 40 Uruguay 969 503 466 466 422 463 623 578 602 623 41 Venezuela 2,910 1,831 1,661 1,661 1,575 1,572 1,559 1,377 1,279 1,392 42 Other 3,363 3,660 3,363 3,363 3,697 4,023 3,537 3,754 5,109 4,371 43 111,775 107,079 115,361r 115,361r 108,989 107,056 111,390 115,030 115,954 118,381 China 44 People's Republic of China 2,271 836 1,023 1,023 1,014 1,351 2,439 3,405 2,857 2,141 45 Republic of China (Taiwan) 2,625 1,448 1,713 1,713 1,407 1,404 1,729 1,626 1,514 1,490 46 Hong Kong 10,828 9,161 12,895 12,895 13,254 13,867 15,545 15,329 14,738 16,016 47 India 589 994 1,846 1,846 1,864 1,859 1,869 1,787 1,786 1,794 48 Indonesia 1,527 1,470 1,678 1,678 1,458 1,478 1,604 1,526 1,539 1,537 49 Israel 826 688 739 739 668 683 665 642 615 615 50 Japan 60,032 59,151 61,308 61,308 55,897 55,077 52,776 54,657 54,685 54,260 51 Korea (South) 7,539 10,286 14,089r 14,089r 14,501 15,523 17,362 17,250 17,854 19,256 52 Philippines 1,410 662 1,350 1,350 814 779 1,202 779 836 1,298 53 Thailand 2,170 2,902 2,599 2,599 2,397 3,256 3,060 2,970 3,015 3,194 54 Middle Eastern oil-exporting countries4 15,115 13,748 9,639 9,639 8,053 6,410 7,145 7,252 8,976 8,354 55 Other 6,843 5,733 6,482 6,482 7,662 5,369 5,994 7,807 7,539 8,426 56 Africa 3,861 3,050 2,727 2,727 2,798 2,879 2,884 2,743 2,691 2,768 57 Egypt 196 225 210 210 208 237 247 225 217 198 58 Morocco 481 429 514 514 514 561 585 594 628 639 59 South Africa 633 671 465 465 483 520 567 493 468 515 60 Zaire 4 2 1 1 1 1 1 1 1 1 61 Oil-exporting countries5 1,129 856 552 552 589 526 516 501 478 474 62 Other 1,418 867 985 985 1,003 1,034 968 929 899 941 63 Other 2,860 3,129 2,467 2,467 2,091 2,598 3,665 3,363 3,511 4,458 64 Australia 2,037 2,186 1,622 1,622 1,822 2,243 2,645 2,620 2,333 2,513 65 Other 823 943 845 845 269 355 1,020 743 1,178 1,945 66 Nonmonetary international and regional organizations6 . . . 2,405 4,591 1,931 1,931 2,302 2,779 3,814 2,716 3,494 3,022 1. Reporting banks include all types of depository institutions as well as some brokers and 4. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab dealers. Emirates (Trucial States). 2. Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 5. Comprises Algeria, Gabon, Libya, and Nigeria. 3. Includes the Bank for International Settlements. Since December 1992, has included all 6. Excludes the Bank for International Settlements, which is included in "Other Europe." parts of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A56 International Statistics • October 1996 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 1995 1996 TTyyppee ooff ccllaaiimm 11999933 11999944 11999955 Dec. Jan. Feb. Mar.' Apr.' May Junep 1 Total 575,818 599,521 652,715r 652,715r 657,231 2 Banks' claims 488,497 483,242 529,948r 529,948' 527,317 520,790 531,340 527,363 518,375 536,311 3 Foreign public borrowers 29,228 23,416 22,522 22,522 23,148 24,383 27,759 26,263 22,217 22,697 4 Own foreign offices2 285,510 283,183 307,509' 307,509' 305,118 295,217 297,601 298,972 300,425 307,516 5 Unaffiliated foreign banks 100,865 109,228 98,702 98,702 97,240 98,139 103,509 101,182 98,174 105,549 6 Deposits 49,892 59,250 37,343 37,343 35,520 37,565 41,914 37,393 35,413 33,866 7 Other 50,973 49,978 61,359 61,359 61,720 60,574 61,595 63,789 62,761 71,683 8 All other foreigners 72,894 67,415 101,215 101,215 101,811 103,051 102,471 100,946 97,559 100,549 9 Claims of banks' domestic customers3 87,321 116,279 122,767 122,767 125,891 10 Deposits 41,734 64,829 58,519 58,519 68,800 11 Negotiable and readily transferable instruments4 3311,,118866 3366,,000088 44,161 44,161 39,274 12 Outstanding collections and other claims 14,401 15,442 20,087 20,087 17,817 MEMO 13 Customer liability on acceptances 7,920 8,427 8,410 8,410 9,026 14 Dollar deposits in banks abroad, reported by nonbanking business enterprises in the United States5 29,150 32,796 30,717 30,717 27,830 32,777 33,113 32,384 34,258 30,598 1. For banks' claims, data are monthly; for claims of banks' domestic customers, data are principally of amounts due from the head office or parent foreign bank, and from foreign for quarter ending with month indicated. branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank. Reporting banks include all types of depository institution as well as some brokers and 3. Assets held by reporting banks in the accounts of their domestic customers. dealers. 4. Principally negotiable time certificates of deposit, bankers acceptances, and commercial 2. For U.S. banks, includes amounts due from own foreign branches and foreign subsidiar- paper. ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory 5. Includes demand and time deposits and negotiable and nonnegotiable certificates of agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists deposit denominated in U.S. dollars issued by banks abroad. 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 1995 1996 MMaattuurriittyy,, bbyy bboorrrroowweerr aanndd aarreeaa"" 11999922 11999933 11999944 June Sept. Dec. Mar. 1 Total 195,119 202,566 200,042 220,360r 216,986r 222,338 233,591 By borrower 2 Maturity of one year or less 163,325 172,662 168,331 186,383' 178,686' 176,172 193,803 3 Foreign public borrowers 17,813 17,828 15,435 15,822 14,192 15,015 19,569 4 All other foreigners 145,512 154,834 152,896 170,561' 164,494' 161,157 174,234 5 Maturity of more than one year 31,794 29,904 31,711 33,977 38,300 46,166 39,788 6 Foreign public borrowers 13,266 10,874 7,838 7,892 8,220 7,506 8,110 7 All other foreigners 18,528 19,030 23,873 26,085 30,080 38,660 31,678 By area Maturity of one year or less 8 Europe 53,300 57,413 55,742 60,323 52,045 53,897 58,001 9 Canada 6,091 7,727 6,690 7,838 7,135 6,089 5,473 10 Latin America and Caribbean 50,376 60,490 58,877 68,681' 71,319 72,393 84,297 11 Asia 45,709 41,418 39,851 43,965' 42,556' 40,133 40,332 12 Africa 1,784 1,820 1,376 1,447 1,261 1,271 1,302 13 All other3 6,065 3,794 5,795 4,129 4,370 2,389 4,398 Maturity of more than one year 14 Europe 5,367 5,310 4,203 4,240 4,594 4,885 6,827 15 Canada 3.287 2,581 3,505 3,685 3,571 2,731 2,563 16 Latin America and Caribbean 15,312 14,025 15,717 17,557 20,224 27,811 19,532 17 Asia 5,038 5,606 5,318 6,058 7,373 8,023 8.461 18 Africa 2,380 1,935 1,583 1,389 1,389 1,430 1,474 19 All other3 410 447 1,385 1,048 1,149 1,286 931 1. Reporting banks include all types of depository institutions as well as some brokers and 2. Maturity is time remaining until maturity. dealers. 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A57 3.21 CLAIMS ON FOREIGN COUNTRIES Held by U.S. and Foreign Offices of U.S. Banks' Billions of dollars, end of period 1994 1995 1996 Area or country 11999922 11999933 June Sept. Dec. Mar. June Sept. Dec. Mar. Junep 1 Total 344.7 407.7 486. lr 486.4r 496.6r 541.8r 526.3r 527.0r 549.0r 571.6 605.0 2 G-10 countries and Switzerland 131.3 161.8 173.3r 182.6' 190.6' 210.6' 202.6' 196.8' 203.4' 202.3 222.0 3 Belgium and Luxembourg .0 7.4 8.6 9.6 7.0 10.2 9.4 10.7 13.5 10.7 8.0 4 France 15.3 12.0 18.6 20.7 19.1 19.8 19.3 17.5' 19.2 17.9 17.7 5 Germany 9.1 12.6 24.7 24.0 24.7 31.2 29.9' 27.2 26.9' 31.5 31.4 6 Italy 6.5 7.7 14.0 11.6 11.8 10.6 10.7 12.6 11.5 13.2 14.9 7 Netherlands .0 4.7 3.4 3.4 3.6 3.5 4.3 4.1 3.4 3.0 4.7 8 Sweden 2.3 2.7 3.0 2.6 2.7 3.1 3.0 2.7 2.7 3.3 2.7 9 Switzerland 4.8 5.9 5.4 5.5 5.1 5.7 6.2 6.3 6.3 5.2 6.3 10 United Kingdom 59.7 84.3 64.9r 78.4r 85.7' 89.9' 86.7' 80.0' 82.0' 84.8 101.4 11 Canada 6.3 6.9 9.9 10.2 10.0 10.5 11.1 11.9 9.4 9.7 11.1 12 Japan 18.8 17.6 20.7 16.5 20.7 25.9 22.1 24.0 28.5 22.9 23.9 13 Other industrialized countries 24.0 25.6 42.6r 42.6r 45.2' 44.1' 43.3' 50.1' 50.2' 61.3 55.5 14 Austria 1.2 .4 1.0 1.0 1.1 .9 .7 1.2 .9 1.3 1.2 15 Denmark .9 1.0 1.1 1.0r 1.3 1.7 1.1 1.8 2.6 3.4 3.3 16 Finland .7 .4 .8 .8 .9 1.1 .5 .7 .8 .7 .6 17 Greece 3.0 3.2 4.6 4.3r 4.5' 4.9' 5.0' 5.1' 5.7' 5.6 5.6 18 Norway 1.2 1.7 1.6 1.6 2.0 2.4 1.8 2.3 3.2 2.1 2.3 19 Portugal .4 .8 1.1 1.0 1.2 1.0 1.2 1.9 1.3 1.6 1.6 20 Spain 8.9 9.9 12.6 14.0 13.6 14.1 13.3 13.3 11.6 17.5 13.6 21 Turkey 1.3 2.1 2.1 1.8 1.6 1.4 1.4 2.0' 1.9' 2.0 2.2 22 Other Western Europe 1.7 2.6 2.8 1.0 2.7 2.5 2.6 3.0 4.7 3.8 3.4 23 South Africa 1.7 1.1 1.2 1.2 1.0 1.5 1.4 1.3 1.2 1.7 2.0 24 Australia 2.9 2.3 13.7 15.0 15.4 12.6 14.3 17.4 16.4 21.7 19.7 25 OPEC2 15.8 17.4 21.6 21.7' 23.9' 19.5 20.3' 22.4 22.1 21.2 20.1 26 Ecuador .6 .5 .5 .4 .5 .5 .7 .7 .7 .8 .9 27 Venezuela 5.2 5.1 4.4 3.9 3.7 3.5 3.5 3.0 2.7 2.9 2.3 28 Indonesia 2.7 3.3 3.2 3.3 3.8 4.0 4.1 4.4 4.8 4.7 4.9 29 Middle East countries 6.2 7.4 12.4 13.0 15.0 10.7 11.4 13.6 13.3 12.3 11.5 30 African countries 1.1 1.2 1.1 1.1 .9' .7 .6' .6 .6 .6 .5 31 Non-OPEC developing countries 72.6 83.1 94.8r 93.2' 96.0' 98.5' 103.6 104.0 112.6' 116.8 125.9 Latin America 32 Argentina 6.6 7.7 9.8 10.5 11.2 11.4 12.3 10.9 12.9 12.7 14.1 33 Brazil 10.8 12.0 12.0 9.3 8.4 9.2 10.0' 13.6 13.7 17.8 22.2 34 Chile 4.4 4.7 5.1 5.5 6.1 6.4 7.1 6.4 6.8 6.4 6.7 35 Colombia 1.8 2.1 2.4 2.4 2.6 2.6 2.6 2.9 2.9 2.9 2.8 36 Mexico 16.0 17.8 18.6 19.8 18.4 17.8 17.6 16.3 17.3 16.1 15.3 37 Peru .5 .4 .6 .6 .5 .6 .8 .7 .8 .9 1.2 38 Other 2.6 3.1 2.7 2.8 2.7 2.4 2.6 2.6 2.8 3.1 3.1 Asia China 39 People's Republic of China .7 2.0 .8 1.0 1.1 1.1 1.4 1.7 1.8 3.3 2.9 40 Republic of China (Taiwan) 5.2 7.3 7.1 6.9 9.2 8.5 9.0 9.0 9.4 9.7 9.8 41 India 3.2 3.2 3.7 3.9 4.2 3.8 4.0 4.4 4.4 4.7 4.2 42 Israel .4 .5 .4 .4 .4 .6 .7 .5 .5 .5 .5 43 Korea (South) 6.6 6.7 14.3 14.4 16.2 16.9 18.7 18.0 19.1 19.4 21.8 44 Malaysia 3.1 4.4 5.2 3.9 3.1 3.9 4.1 4.3 4.4 4.7 5.0 45 Philippines 3.6 3.1 3.2 2.9 3.3 3.0 3.6 3.3 4.1 3.9 4.7 46 Thailand 2.2 3.1 3.3 3.5 2.1 3.3 3.8 3.9 4.9 5.2 5.4 47 Other Asia 3.1 3.1 3.2 3.4 4.7 4.9 3.5 3.7 4.5 4.3 4.7 Africa 48 Egypt .2 .4 ,5r .3 .3 .4 .4 .4 .4 .2 .2 49 Morocco .6 .7 .7 .7 .6 .6 .9 .9' .7 .7 .8 50 Zaire .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 51 Other Africa3 1.0 .8 1.0 .9 .8 .7 .6 .7 .9 .7 .8 52 Eastern Europe 3.1 3.2 3.2 3.0 2.7 2.3 1.8 3.4 4.2 6.2 5.0 53 Russia4 1.9 1.6 1.3 1.1 .8 .7 .4 .6 1.0 1.4 1.0 54 Yugoslavia5 .6 .6 .5 .5 .5 .4 .3 .4 .3 .3 .3 55 Other .6 .9 1.4 1.5 1.4 1.2 1.0 2.3 2.8 4.5 3.7 56 Offshore banking centers 58.1 73.0 80.61 77.2' 71.4' 84.4' 82.1 86.0' 99.0 100.7 103.2 57 Bahamas 6.9 10.9 13.3 13.8 10.3 12.5 8.4 12.6 11.0 13.4 17.3 58 Bermuda 6.2 8.9 6.5 6.0 8.4 8.6 8.3 6.1 6.3 5.3 3.6 59 Cayman Islands and other British West Indies 21.5 18.0 23.8 21.5 19.9 19.4 23.7 23.4 32.1 28.5 23.6 60 Netherlands Antilles 1.1 2.6 2.5 1.7 1.3 .9 2.4 5.5 9.9 10.7 13.0 61 Panama6 1.9 2.4 2.0 1.9' 1.3 1.1 1.3 1.3' 1.4 1.6 1.7 62 Lebanon 63 Hong Kong 13.9 18.7 21.8 203 19.9 22.5' 23! 1 23.7 25.1 25.7 27^8 64 Singapore 6.5 11.2 10.6 11.8 10.1 19.2' 14.8 13.3 13.1 15.4 15.9 65 Other' .0 .1 .0 .0 .1 .0 .0 .1 .1 .1 .1 66 Miscellaneous and unallocated8 39.7 43.4 69.1' 65.8' 66.7' 82.2 72.3 64.0' 57.3' 62.5 72.8 1. The banking offices covered by these data include US. offices and foreign branches of 2. Organization of Petroleum Exporting Countries, shown individually; other members of U.S. banks, including U.S. banks that are subsidiaries of foreign banks. Offices not covered OPEC (Algeria, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, and United include U.S. agencies and branches of foreign banks. Beginning March 1994, the data include Arab Emirates); and Bahrain and Oman (not formally members of OPEC). large foreign subsidiaries of U.S. banks. The data also include other types of U.S. depository 3. Excludes Liberia. Beginning March 1994 includes Namibia. institutions as well as some types of brokers and dealers. To eliminate duplication, the data 4. As of December 1992, excludes other republics of the former Soviet Union. are adjusted to exclude the claims on foreign branches held by a U.S. office or another foreign 5. As of December 1992, excludes Croatia, Bosnia and Hercegovinia, and Slovenia. branch of the same banking institution. 6. Includes Canal Zone. These data are on a gross claims basis and do not necessarily reflect the ultimate country 7. Foreign branch claims only. risk or exposure of U.S. banks. More complete data on the country risk exposure of U.S. banks 8. Includes New Zealand, Liberia, and international and regional organizations. are available in the quarterly Country Exposure Lending Survey published by the Federal Financial Institutions Examination Council. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A58 International Statistics • October 1996 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1994 1995 1996 TTyyppee ooff lliiaabbiilliittyy,, aanndd aarreeaa oorr ccoouunnttrryy 11999922 11999933 11999944 Dec. Mar. June Sept. Dec. Mar.p 1 Total 45,511 50,597 54,309 54,309 50,187 49,973 47,673 46,448 49,608 2 Payable in dollars 37,456 38,728 38,298 38,298 35,903 34,281 33,908 33,903 36,314 3 Payable in foreign currencies 8,055 11,869 16,011 16,011 14,284 15,692 13,765 12,545 13,294 By type 4 Financial liabilities 23,841 29,226 32,954 32,954 29,775 29,282 26,237 24,241 26,225 Payable in dollars 16,960 18,545 18,818 18,818 16,704 15,028 13,872 12,903 13,826 6 Payable in foreign currencies 6,881 10,681 14,136 14,136 13,071 14,254 12,365 11,338 12,399 7 Commercial liabilities 21,670 21,371 21,355 21,355 20,412 20,691 21,436 22,207 23,383 8 Trade payables 9,566 8,802 10,005 10,005 9,844 10,527 10,061 11,013 10,815 y Advance receipts and other liabilities 12,104 12,569 11,350 11,350 10,568 10,164 11,375 11,194 12,568 10 Payable in dollars 20,496 20,183 19,480 19,480 19,199 19,253 20,036 21,000 22,488 ii Payable in foreign currencies 1,174 1,188 1,875 1,875 1,213 1,438 1,400 1,207 895 By area or country Financial liabilities 12 Europe 13,387 18,810 21,703 21,703 17,541 18,223 16,401 15,622 16,605 13 Belgium and Luxembourg 414 175 495 495 612 778 347 369 483 14 France 1,623 2,539 1,727 1,727 2,046 1,101 1,365 999 1,679 lb Germany 889 975 1,961 1,961 1,755 1,589 1,670 1,974 2,161 16 Netherlands 606 534 552 552 633 530 474 466 479 17 Switzerland 569 634 688 688 883 1,056 948 895 957 18 United Kingdom 8,610 13,332 15,543 15,543 10,764 12,138 10,518 10,138 10,241 19 Canada 544 859 629 629 1,817 893 797 632 1,166 20 Latin America and Caribbean 4,053 3,359 2,034 2,034 2,065 1,950 1,904 1,783 1,876 21 Bahamas 379 1,148 101 101 135 81 79 59 78 22 Bermuda 114 0 80 80 149 138 144 147 126 23 Brazil 19 18 207 207 58 58 111 57 57 24 British West Indies 2,850 1,533 998 998 1,068 1,030 930 866 946 25 Mexico 12 17 0 0 10 3 3 12 16 26 Venezuela 6 5 5 5 5 4 3 2 2 27 5,818 5,956 8,403 8,403 8,156 8,023 6,947 5,988 6,390 28 Japan 4,750 4,887 7,314 7,314 7,182 7,141 6,308 5,436 5,980 29 Middle Eastern oil-exporting countries' 19 23 35 35 27 25 25 27 26 30 Africa 6 133 135 135 156 151 149 150 131 31 Oil-exporting countries2 0 123 123 123 122 122 122 122 122 32 All other3 33 109 50 50 40 42 39 66 57 Commercial liabilities 33 Europe 7,398 6,827 6,773 6,773 6,642 6,776 7,263 7,700 8,444 34 Belgium and Luxembourg 298 239 241 241 271 311 349 331 370 35 France 700 655 728 728 642 504 528 481 648 36 Germany 729 684 604 604 482 556 660 767 870 37 Netherlands 535 688 722 722 536 448 566 500 659 38 Switzerland 350 375 327 327 327 432 255 413 432 39 United Kingdom 2,505 2,039 2,444 2,444 2,848 2,902 3,351 3,568 3,525 40 Canada 1,002 879 1,037 1,037 1,235 1,146 1,219 1,040 960 41 Latin America and Caribbean 1,533 1,658 1,857 1,857 11,,336688 1,836 11,,660077 11,,774400 2,114 42 Bahamas 3 21 19 19 88 3 11 11 28 43 Bermuda 307 350 345 345 260 397 219 205 570 44 Brazil 209 214 161 161 96 107 143 98 129 45 British West Indies 33 27 23 23 29 12 5 56 10 46 Mexico 457 481 574 574 356 420 357 416 470 47 Venezuela 142 123 276 276 273 204 175 221 243 48 Asia 10,594 10,980 10,741 10,741 10,151 9,978 10,275 10,421 10,496 49 Japan 3,612 4,314 4,555 4,555 4,110 3,531 3,475 3,315 3,726 50 Middle Eastern oil-exporting countries' 1,889 1,534 1,576 1,576 1,787 1,790 1,647 1,912 1,747 51 Africa 568 453 428 428 463 481 589 619 708 52 Oil-exporting countries2 309 167 256 256 248 252 241 254 254 53 Other3 575 574 519 519 553 474 483 687 661 1. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab 2. Comprises Algeria, Gabon, Libya, and Nigeria. Emirates (Trucial States). 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A59 3.23 CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1994 1995 1996 TTyyppee ooff ccllaaiimm,, aanndd aarreeaa oorr ccoouunnttrryy 11999922 11999933 11999944 Dec. Mar. June Sept. Dec. Mar.p 1 Total 45,073 49,159 57,888 57,888 52,218 58,051 53,424 52,509 55,398 2 Payable in dollars 42,281 45,161 53,805 53,805 48,425 54,138 49,696 48,711 50,999 3 Payable in foreign currencies 2,792 3,998 4,083 4,083 3,793 3,913 3,728 3,798 4,399 By type 4 Financial claims 26,509 27,771 33,897 33,897 29,606 34,574 29,891 27,398 30,810 5 Deposits 17,695 15,717 18,507 18,507 17,115 22,046 17,974 15,133 17,595 6 Payable in dollars 16,872 15,182 18.026 18.026 16,458 21,351 17,393 14,654 17,044 7 Payable in foreign currencies 823 535 481 481 657 695 581 479 551 8 Other financial claims 8,814 12,054 15,390 15,390 12,491 12,528 11,917 12,265 13,215 9 Payable in dollars 7,890 10,862 14,306 14,306 11,275 11,370 10,689 10,976 11,328 10 Payable in foreign currencies 924 1,192 1,084 1,084 1,216 1,158 1,228 1,289 1,887 11 Commercial claims 18,564 21,388 23,991 23,991 22,612 23,477 23,533 25,111 24,588 12 Trade receivables 16,007 18,425 21,158 21,158 20,415 21,326 21,409 22,998 22,077 13 Advance payments and other claims 2,557 2,963 2,833 2,833 2,197 2,151 2,124 2,113 2,511 14 Payable in dollars 17,519 19,117 21,473 21,473 20,692 21,417 21,614 23,081 22,627 15 Payable in foreign currencies 1,045 2,271 2,518 2,518 1,920 2,060 1,919 2,030 1,961 By area or country Financial claims 16 Europe 9,331 7,299 7,936 7,936 7,630 7,927 7,840 7,609 8,929 17 Belgium and Luxembourg 8 134 86 86 146 155 160 193 159 18 France 764 826 800 800 808 730 753 803 1,015 19 Germany 326 526 540 540 527 356 301 436 320 20 Netherlands 515 502 429 429 606 601 522 517 486 21 Switzerland 490 530 523 523 490 514 530 498 470 22 United Kingdom 6,252 3,585 4,649 4,649 4,040 4,790 4,924 4,303 5,568 23 Canada 1,833 2,032 3,581 3,581 3,848 3,705 3,526 2,851 5,269 24 Latin America and Caribbean 13,893 16,224 19,536 19,536 16,109 21,159 15,345 14,500 13,865 25 Bahamas 778 1,336 2,424 2,424 940 2,355 1,552 1,965 1,588 26 Bermuda 40 125 27 27 37 85 35 81 77 27 Brazil 686 654 520 520 528 502 851 830 1,943 28 British West Indies 11,747 12,699 15,228 15,228 13,531 17,013 11,816 10,393 9,164 29 Mexico 445 872 723 723 583 635 487 554 461 30 Venezuela 29 161 35 35 27 27 50 32 40 31 Asia 864 1,657 1,871 1,871 1,504 1,235 2,160 1,579 1,890 32 Japan 668 892 953 953 621 471 1,404 871 1,171 33 Middle Eastern oil-exporting countries' 3 3 141 141 4 3 4 3 13 34 Africa 83 99 373 373 141 138 188 276 277 35 Oil-exporting countries' 9 1 0 0 9 9 6 5 5 36 All other3 505 460 600 600 374 410 832 583 580 Commercial claims 37 Europe 8,451 9,105 9,540 9,540 8,947 9,200 8,862 9,824 9,757 38 Belgium and Luxembourg 189 184 213 213 199 218 224 231 247 39 France 1,537 1,947 1,881 1,881 1,790 1,669 1,706 1,830 1,803 40 Germany 933 1,018 1,027 1,027 977 1,023 997 1,070 1,407 41 Netherlands 552 423 311 311 324 341 338 452 442 42 Switzerland 362 432 557 557 556 612 438 520 575 43 United Kingdom 2,094 2,377 2,556 2,556 2,388 2,469 2,479 2,656 2,607 44 Canada 1,286 1,781 1,988 1,988 2,010 2,003 1,971 1,951 2,044 45 Latin America and Caribbean 3,043 3,274 4,117 4,117 4,140 4,370 4,359 4,364 4,147 46 Bahamas 28 11 9 9 17 21 26 30 30 47 Bermuda 255 182 234 234 208 210 245 272 273 48 Brazil 357 460 612 612 695 777 745 898 808 49 British West Indies 40 71 83 83 55 83 66 79 106 50 Mexico 924 990 1,243 1,243 1,106 1,109 1,026 993 868 51 Venezuela 345 293 348 348 295 319 325 285 308 52 Asia 4,866 6,014 6,982 6,982 6,200 6,516 6,826 7,312 7,078 53 Japan 1,903 2,275 2,655 2,655 1,911 2,011 1,998 1,870 2,009 54 Middle Eastern oil-exporting countries' 693 704 708 708 689 707 775 974 1,024 55 Africa 554 493 454 454 468 478 544 654 667 56 Oil-exporting countries2 78 72 67 67 71 60 74 87 107 57 Other3 364 721 910 910 847 910 971 1,006 895 1. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab 2. Comprises Algeria, Gabon, Libya, and Nigeria. Emirates (Trucial States). 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A60 International Statistics • October 1996 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1996 1995 1996 Transaction, and area or country 1994 1995 J J a u n. n — e Dec. Jan. Feb. Mar. Apr. May Junep U.S. corporate securities STOCKS 1 Foreign purchases 350,593 462,950 305,207 46,479 43,574 52,260 55,281 53,047 57,671 43,374 2 Foreign sales 348,716 451,710 294,700 44,372 41,948 51,083 54,450 48,774 56,084 42,361 3 Net purchases, or sales (-) 1,877 11,240 10,507 2,107 1,626 1,177 831 4,273 1,587 1,013 4 Foreign countries 1,867 11,445 10,530 2,109 1,623 1,306 877 4,129 1,582 1,013 5 Europe 6,714 4,912 3,121 1,028 1,954 -1,072 1,377 1,429 -259 -308 b France -201 -1,099 -317 -382 164 -161 661 -336 -306 -339 1 Germany 2,110 -1,837 650 -11 239 -37 86 174 -30 218 8 Netherlands 2,251 3,507 1,187 373 660 20 208 237 -67 129 9 Switzerland -30 -2,283 1,320 191 639 -441 566 618 -140 78 10 United Kingdom 840 8,066 -283 1,277 -165 -223 -241 345 417 -416 11 Canada -1,160 -1,517 781 -175 645 518 -90 52 -425 81 12 Latin America and Caribbean -2,111 5,814 3,984 219 -487 2,694 -318 808 1,245 42 13 Middle East1 -1,142 -337 -1,206 148 -507 -285 -33 -6 -261 -114 14 Other Asia -1,234 2,503 3,924 883 -40 -336 -291 1,852 1,380 1,359 15 Japan 1,162 -2,725 1,535 1,231 94 -131 -749 1,446 73 802 16 Africa 29 2 -67 -1 6 -62 -44 31 6 -4 17 Other countries 771 68 -7 7 52 -151 276 -37 -104 -43 18 Nonmonetary international and regional organizations 10 -205 -23 -2 3 -129 -46 144 5 0 BONDS2 19 Foreign purchases 289,586 293,533 192,385 22,020 26,598 32,759 39,808 24,116r 34,753 34,351 20 Foreign sales 229,665 206,951 134,909 21,117 17,726 23,608 25,113 18,693 24,026 25,743 21 Net purchases, or sales (-) 59,921 86,582 57,476 903 8,872 9,151 14,695 5,423r 10,727 8,608 22 Foreign countries 59,036 87,036 57,374 875 8,830 9,230 14,607 5,392r 10,722 8,593 23 Europe 37,065 70,318 36,238 1,631 5,631 8,968 6,476 3,947 7,144 4,072 24 France 242 1,143 3,047 137 839 314 670 785 113 326 25 Germany 657 5,938 3,913 236 -26 1,859 467 721 891 1 26 Netherlands 3,322 1,463 834 101 163 365 -66 -52 371 53 21 Switzerland 1,055 494 199 -381 56 -86 -38 -144 178 233 28 United Kingdom 31,642 57,591 24,292 1,247 3,854 6,280 4,745 2,264 4,247 2,902 29 Canada 2,958 2,569 2,113 181 104 235 149 359 952 331144 30 Latin America and Caribbean 5,442 6,141 10,671 -848 2,096 -713 7,140 33 1,253 886622 31 Middle East1 771 1,869 -55 187 -194 -334 13 122 120 218 32 Other Asia 12,153 5,659 8,777 -293 1,272 1,161 831 l,094r 1,279 3,140 33 Japan 5,486 2,250 3,503 -904 338 336 245 135' 537 1,912 34 Africa -7 234 187 86 -16 -40 37 49 107 50 35 Other countries 654 246 -557 -69 -63 -47 -39 -212 -133 -63 36 Nonmonetary international and regional organizations 885 -454 102 28 42 -79 88 31 5 15 Foreign securities 37 Stocks, net purchases, or sales ( —) -48,071 -50,291 -39,720 -6,602 -6,434 -5,704 -10,345 -6,706 -3,055 -7,476 38 Foreign purchases 386,106 345,540 224,817 32,369 33,481 37,464 36,115 37,764 43,515 36,478 39 Foreign sales 434,177 395,831 264,537 38,971 39,915 43,168 46,460 44,470 46,570 43,954 40 Bonds, net purchases, or sales (—) -9,224 -48,545 -14,648 -4,050 -4,584 -1,404 -6,038 -153 -527 -1,942 41 Foreign purchases 848,368 889,471 519,705 80,328 84,638 95,201 93,345 81,256 82,414 82,851 42 Foreign sales 857,592 938,016 534,353 84,378 89,222 96,605 99,383 81,409 82,941 84,793 43 Net purchases, or sales (—), of stocks and bonds .... -57,295 -98,836 -54,368 -10,652 -11,018 -7,108 -16,383 -6,859 -3,582 -9,418 44 Foreign countries -57,815 -98,031 -54,059 -10,711 -11,049 -6,983 -16,387 -6,802 -3,473 -9,365 45 Europe -3,516 -48,125 -19,947 -5,926 -4,068 -2,552 -4,508 -1,949 1,475 -8,345 46 Canada -7,475 -7,952 -4,680 -14 -2,668 -58 -1,865 614 -231 -472 47 Latin America and Caribbean -18,334 -7,634 -5,962 -802 -3 -1,031 -2,582 -1,190 -2,136 980 48 -24,275 -34,056 -20,767 -4,391 -4,685 -2,557 -5,756 -4,094 -2,260 -1,415 49 Japan -17,427 -25,072 -11,416 -3,687 -3,427 -1,592 -3,224 -950 -921 -1,302 50 Africa -467 -327 -861 -44 -96 -161 -436 -14 -32 -122 51 Other countries -3,748 63 -1,842 466 471 -624 -1,240 -169 -289 9 52 Nonmonetary international and regional organizations 520 -805 -309 59 31 -125 4 -57 -109 -53 1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, 2. Includes state and local government securities and securities of U.S. government Saudi Arabia, and United Arab Emirates (Trucial States). 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

Securities Holdings and Transactions!Interest and Exchange Rates A61 3.25 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Transactions1 Millions of dollars; net purchases, or sales (—) during period 1996 1995 1996 AArreeaa oorr ccoouunnttrryy 11999944 11999955 J J a u n n . e - Dec. Jan. Feb. Mar. Apr. May Junep 1 Total estimated 78,801 133,991 75,261 -9,454 14,018 15,451 7,025 15,751r 14,368 8,648 2 Foreign countries 78,637 133,552 77,034 -9,016 13,713 16,192 6,414 17,126' 14,130 9,459 3 Europe 38,542 50,000 42,058 -1,120 7,291 8,462 4,083 8,712 7,776 5,734 4 Belgium and Luxembourg 1,098 591 579 171 149 -120 81 399 -151 221 5 Germany 5,709 6,136 8,875 452 1,385 1,829 958 1,833 1,674 1,196 6 Netherlands 1,254 1,891 -2,263 381 807 354 -1,597 -2,137 -757 1,067 7 Sweden 794 358 1,729 -285 -45 803 372 286 342 -29 8 Switzerland 481 -472 1,395 -664 76 84 65 1,329 683 -842 9 United Kingdom 23,365 34,778 19,715 -4,377 1,177 1,644 2,270 6,070 3,364 5,190 10 Other Europe and former U.S.S.R 5,841 6,718 12,028 3,202 3,742 3,868 1,934 932 2,621 -1,069 11 Canada 3,491 252 4,723 208 1,867 1,863 35 1,766 -669 -139 1? Latin America and Caribbean -10,383 48,609 -8,214 3,762 -2,648 -2,931 -4,985 l,993r -1,167 1,524 13 Venezuela -319 -2 -301 61 -142 -93 -44 4 -39 13 14 Other Latin America and Caribbean -20,493 25,152 1,566 4,710 8,922 -1,896 -2,696 3,865r -2,195 -4,434 15 Netherlands Antilles 10,429 23,459 -9,479 -1,009 -11,428 -942 -2,245 -1,876 1,067 5,945 16 47,317 32,319 38,076 -11,843 6,920 8,616 6,941 4,478 8,202 2,919 17 Japan 29,793 16,863 15,957 -5,695 2,619 3,069 2,443 2,382 4,565 879 18 Africa 240 1,464 950 252 515 -100 311 250 -48 22 19 Other -570 908 -559 -275 -232 282 29 -73 36 -601 20 Nonmonetary international and regional organizations 164 439 -1,773 -438 305 -741 611 -1,375 238 -811 21 International 526 9 -621 -347 210 -308 647 -414 -9 -747 22 Latin American regional -154 261 -1,279 -115 -45 -254 12 -1,008 9 7 23 F M o E r M ei O gn countries 78,637 133,552 77,034 -9,016 13,713 16,192 6,414 17,126r 14,130 9,459 ?4 Official institutions 41,822 39,625 34,131 2,651 12,615 8,681 4,748 8,253 6,482 -6,648 25 Other foreign 36,815 93,927 42,903 -11,667 1,098 7,511 1,666 8,873r 7,648 16,107 Oil-exporting countries 7.6 Middle East2 -38 3,075 4,409 -1,085 -658 122 1,127 863 2,162 779933 27 0 2 1 0 0 1 0 0 1 -1 1. Official and private transactions in marketable U.S. Treasury securities having an 2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab original maturity of more than one year. Data are based on monthly transactions reports. Emirates (Trucial States). Excludes nonmarketable U.S. Treasury bonds and notes held by official institutions of foreign 3. Comprises Algeria, Gabon, Libya, and Nigeria. countries. 3.26 DISCOUNT RATES OF FOREIGN CENTRAL BANKS1 Percent per year, averages of daily figures Rate on Aug. 31, 1996 Rate on Aug. 31, 1996 Country Country Month effective Austria. ., 2.5 Apr. 1996 Germany . . . 2.5 Belgium. . 2.5 Apr. 1995 Italy 8.25 Canada. . 4.25 Aug. 1996 Japan .5 Denmark 3.25 Apr. 1996 Netherlands . 2.5 France2 . 3.55 July 1996 Switzerland . 1.5 1. Rates shown are mainly those at which the central bank either discounts or makes 2. Since February 1981, the rate has been that at which the Bank of France discounts advances against eligible commercial paper or government securities for commercial banks or Treasury bills for seven to ten days, 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 Percent per year, averages of daily figures 1996 TTyyppee oorr ccoouunnttrryy 11999933 11999944 11999955 Feb. Mar. Apr. May June July Aug. 1 Eurodollars 3.18 4.63 5.93 5.14 5.28 5.36 5.36 5.46 5.49 5.41 2 United Kingdom 5.88 5.45 6.63 6.13 6.02 5.97 6.03 5.80 5.69 5.72 3 Canada 5.14 5.57 7.14 5.22 5.23 5.03 4.82 4.87 4.76 4.30 4 Germany 7.17 5.25 4.43 3.26 3.25 3.22 3.19 3.29 3.29 3.20 5 Switzerland 4.79 4.03 2.94 1.61 1.68 1.68 1.99 2.53 2.52 2.21 6 Netherlands 6.73 5.09 4.30 3.00 3.09 2.83 2.61 2.81 2.99 3.05 7 France 8.30 5.72 6.43 4.29 4.14 3.87 3.78 3.85 3.73 3.84 8 Italy 10.09 8.45 10.43 9.90 9.82 9.60 8.88 8.73 8.72 8.77 9 Belgium 8.10 5.65 4.73 3.23 3.25 3.23 3.19 3.23 3.29 3.21 10 Japan 2.96 2.24 1.20 .61 .60 .61 .62 .57 .67 .62 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

A62 International Statistics • October 1996 3.28 FOREIGN EXCHANGE RATES1 Currency units per dollar except as noted 1996 CCoouunnttrryy//ccuurrrreennccyy uunniitt 11999933 11999944 11999955 Mar. Apr. May June July Aug. 1 Australia/dollar2 67.993 73.161 74.073 77.136 78.566 79.700 79.122 78.974 78.305 2 Austria/schilling 11.639 11.409 10.076 10.391 10.580 10.782 10.755 10.576 10.435 3 Belgium/franc 34.581 33.426 29.472 30.371 30.902 31.502 31.433 30.947 30.553 4 Canada/dollar 1.2902 1.3664 1.3725 1.3656 1.3592 1.3693 1.3658 1.3697 1.3722 5 China, P.R./yuan 5.7795 8.6404 8.3700 8.3495 8.3583 8.3479 8.3424 8.3409 8.3379 6 Denmark/krone 6.4863 6.3561 5.5999 5.7074 5.8050 5.9160 5.8941 5.8014 5.7327 7 Finland/markka 5.7251 5.2340 4.3763 4.6066 4.7288 4.7541 4.6710 4.5812 4.4793 8 France/franc 5.6669 5.5459 4.9864 5.0583 5.1049 5.1855 5.1787 5.0881 5.0636 9 Germany/deutsche mark 1.6545 1.6216 1.4321 1.4776 1.5048 1.5324 1.5282 1.5025 1.4826 10 Greece/drachma 229.64 242.50 231.68 241.54 242.00 243.27 241.75 237.65 237.00 11 Hong Kong/dollar 7.7357 7.7290 7.7357 7.7325 7.7345 7.7363 7.7404 7.7379 7.7345 12 India/rupee 31.291 31.394 32.418 34.485 34.320 35.025 35.100 35.667 35.800 13 Ireland/pound2 146.47 149.69 160.35 157.21 156.51 156.29 158.31 160.31 161.08 14 Italy/lira 1,573.41 1,611.49 1,629.45 1,562.43 1,565.60 1,556.71 1,542.30 1,526.82 1,516.62 15 Japan/yen 111.08 102.18 93.96 105.94 107.20 106.34 108.96 109.19 107.87 16 Malaysia/ringgit 2.5738 2.6237 2.5073 2.5417 2.5113 2.4936 2.4967 2.4915 2.4933 17 Netherlands/guilder 1.8585 1.8190 1.6044 1.6540 1.6805 1.7135 1.7120 1.6862 1.6633 18 New Zealand/dollar2 54.127 59.358 65.625 68.079 68.242 68.571 67.650 69.001 68.860 19 Norway/krone 7.1009 7.0553 6.3355 6.4277 6.4901 6.5748 6.5376 6.4465 6.4153 20 Portugal/escudo 161.08 165.93 149.88 152.93 154.51 157.54 157.40 154.56 152.27 21 Singapore/dollar 1.6158 1.5275 1.4171 1.4095 1.4082 1.4074 1.4090 1.4160 1.4124 22 South Africa/rand 3.2729 3.5526 3.6284 3.9293 4.2130 4.3679 4.3519 4.3963 4.5289 23 South Korea/won 805.75 806.93 772.69 781.31 780.42 780.86 798.45 813.03 817.52 24 Spain/peseta 127.48 133.88 124.64 124.39 125.49 127.97 128.87 126.96 125.72 25 Sri Lanka/rupee 48.211 49.170 51.047 53.748 54.163 54.868 55.529 55.293 55.603 26 Sweden/krona 7.7956 7.7161 7.1406 6.7318 6.7141 6.7984 6.6807 6.6394 6.6211 27 Switzerland/franc 1.4781 1.3667 1.1812 1.1959 1.2180 1.2539 1.2579 1.2320 1.2029 28 Taiwan/dollar 26.416 26.465 26.495 27.400 27.188 27.352 27.674 27.573 27.496 29 Thailand/baht 25.333 25.161 24.921 25.251 25.290 25.289 25.354 25.355 25.289 30 United Kingdom/pound2 150.16 153.19 157.85 152.71 151.60 151.52 154.16 155.30 154.99 MEMO 31 United States/dollar3 93.18 91.32 84.25 86.57 87.46 88.28 88.16 87.25 86.54 1. Averages of certified noon buying rates in New York for cable transfers. Data in this 3. Index of weighted-average exchange value of U.S. dollar against the currencies of ten table also appear in the Board's G.5 (405) monthly statistical release. For ordering address, industrial countries. The weight for each of the ten countries is the 1972-76 average world see inside front cover. trade of that country divided by the average world trade of all ten countries combined. Series 2. Value in U.S. cents. revised as of August 1978 (see Federal Reserve Bulletin, vol. 64 (August 1978), p. 700). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A63 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 June 1996 All SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference Title and Date Issue Page Assets and liabilities of commercial banks March 31, 1993 August 1993 A70 June 30, 1993 November 1993 A70 September 30, 1993 February 1994 A70 December 31, 1993 May 1994 A68 Terms of lending at commercial banks August 1995 November 1995 A68 November 1995 February 1996 A68 February 1996 May 1996 A68 May 1996 August 1996 A64 Assets and liabilities of U.S. branches and agencies of foreign banks June 30, 1995 November 1995 All September 30, 1995 February 1996 All December 31, 1995 May 1996 All March 31, 1996 September 1996 A64 Pro forma balance sheet and income statements for priced service operations June 30, 1995 October 1995 All September 30, 1995 January 1996 A68 March 31, 1996 July 1996 A64 June 30, 1996 October 1996 A64 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 Residential lending reported under the Home Mortgage Disclosure Act 1994 September 1995 A68 1995 September 1996 A68 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A64 Special Tables • October 1996 4.31 PRO FORMA FINANCIAL STATEMENTS FOR FEDERAL RESERVE PRICED SERVICES A. Pro forma balance sheet Millions of dollars Item June 30, 1996 June 30, 1995 Short-term assets (Note 1) Imputed reserve requirement on clearing balances 603.0 404.3 Investment in marketable securities 5,427.0 3,638.7 Receivables 61.9 63.0 Materials and supplies 11.0 8.1 Prepaid expenses 24.6 25.5 Items in process of collection 2,154.8 2,125.1 Total short-term assets 8,282.2 6,264.7 Long-term assets (Note 2) 377.1 349.0 Furniture and equipment 149.5 162.8 Leases and leasehold improvements 21.2 23.0 Prepaid pension costs 266.3 221.3 Total long-term assets 814.0 756.2 Total assets 9,096.3 7,020.9 Short-term liabilities Clearing balances and balances arising from early credit of uncollected items 6,093.5 4,096.2 Deferred-availability items 2,091.2 2,071.8 Short-term debt 97.5 96.7 Total short-term liabilities 8,282.2 6,264.7 Long-term liabilities Obligations under capital leases 2.3 3.8 Long-term debt 181.0 159.5 Postretirement/postemployment benefits obligation 183.7 170.8 Total long-term liabilities 367.0 334.1 Total liabilities 8,649.2 6,598.8 Equity 447.1 422.1 Total liabilities and equity (Note 3) 9,096.3 7,020.9 NOTE. Components may not sum to totals because of rounding. The priced services (2) LONG-TERM ASSETS financial statements consist of these tables and the accompanying notes. Consists of long-term assets used solely in priced services, the priced-services portion of (1) SHORT-TERM ASSETS long-term assets shared with nonpriced services, and an estimate of the assets of the Board of Governors used in the development of priced services. Elfective Jan. 1, 1987, the Reserve The imputed reserve requirement on clearing balances held at Reserve Banks by depository Banks implemented the Financial Accounting Standards Board's Statement of Financial institutions reflects a treatment comparable to that of compensating balances held at corre- Accounting Standards No. 87, Employers' Accounting for Pensions (SFAS 87). Accordingly, spondent banks by respondent institutions. The reserve requirement imposed on respondent the Federal Reserve Banks recognized credits to expenses of $12.0 million in the second balances must be held as vault cash or as nonearning balances maintained at a Reserve Bank; quarter of 1996, S12.2 million in the first quarter of 1996, S8.7 million in the second quarter thus, a portion of priced services clearing balances held with the Federal Reserve is shown as of 1995 and $7.2 million in the first quarter of 1995, and corresponding increases in this asset required reserves on the asset side of the balance sheet. The remainder of clearing balances is account. assumed to be invested in three-month Treasury bills, shown as investment in marketable securities. Receivables are (1) amounts due the Reserve Banks for priced services and (2) the share of (3) LIABILITIES AND EQUITY suspense-account and difference-account balances related to priced services. Materials and supplies are the inventory value of short-term assets. Under the matched-book capital structure for assets that are not "self-financing," short-term Prepaid expenses include salary advances and travel advances for priced-service personnel. assets are financed with short-term debt. Long-term assets are financed with long-term debt Items in process of collection is gross Federal Reserve cash items in process of collection and equity in a proportion equal to the ratio of long-term debt to equity for the fifty largest (CIPC) stated on a basis comparable to that of a commercial bank. It reflects adjustments for bank holding companies, which are used in the model for the private-sector adjustment factor intra-System items that would otherwise be double-counted on a consolidated Federal (PSAF). The PSAF consists of the taxes that would have been paid and the return on capital Reserve balance sheet; adjustments for items associated with non-priced items, such as those that would have been provided had priced services been furnished by a private-sector firm. collected for government agencies; and adjustments for items associated with providing fixed Other short-term liabilities include clearing balances maintained at Reserve Banks and availability or credit before items are received and processed. Among the costs to be deposit balances arising from float. Other long-term liabilities consist of obligations on capital recovered under the Monetary Control Act is the cost of float, or net CIPC during the period leases. (the difference between gross CIPC and deferred-availability items which is the portion of gross CIPC that involves a financing cost), valued at the federal funds rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A65 4.31 PRO FORMA FINANCIAL STATEMENTS FOR FEDERAL RESERVE PRICED SERVICES B. Pro forma income statement Millions of dollars Item Quarter ending June 30, 1996 Quarter ending June 30, 1995 Revenue from services provided to depository institutions (Note 4) 196.0 183.1 Operating expenses (Note 5) 162.3 161.8 Income from operations 33.7 21.3 Imputed costs (Note 6) Interest on float 1.1 3.1 Interest on debt 4.3 4.1 Sales taxes 2.6 2.9 FDIC insurance 0.0 8.0 1.8 11.9 Income from operations after imputed costs 25.7 9.4 Other income and expenses (Note 7) Investment income on clearing balances 75.7 61.6 Earnings credits 68.6 7.1 55.8 5.8 Income before income taxes 32.8 15.1 Imputed income taxes (Note 8) 9.8 4.7 Income before cumulative effect of a change in accounting principle 23.0 10.4 Cumulative effect on previous years from retroactive application of accrual method of accounting for postemployment benefits (net of $6.5 million tax) (Note 9) Net income 23.0 10.4 MEMO Targeted return on equity (Note 10) 10.7 9.6 Six months ending June 30, 1996 Six months ending June 30, 1995 Revenue from services provided to depository institutions (Note 4) 390.1 365.1 Operating expenses (Note 5) 323.4 330.7 Income from operations 66.7 34.3 Imputed costs (Note 6) Interest on float 11.8 8.8 Interest on debt 8.6 8.1 Sales taxes 5.4 5.1 FDIC insurance 0.0 25.8 5.4 27.4 Income from operations after imputed costs 40.9 6.9 Other income and expenses (Note 7) Investment income on clearing balances 147.2 125.5 Earnings credits 134.0 13.2 110.1 15.3 Income before income taxes 54.1 22.3 Imputed income taxes (Note 8) 16.2 6.9 Income before cumulative effect of a change in accounting principle 37.9 15.4 Cumulative effect on previous years from retroactive application of accrual method of accounting for postemployment benefits (net of $6.5 million tax) (Note 9) -14.6 Net income 37.9 .8 MEMO Targeted return on equity (Note 10) 21.0 17.7 NOTE. Components may not sum to totals because of rounding. The priced services Unrecovered float includes float generated by services to government agencies and by other financial statements consist of these tables and the accompanying notes. central bank services. Float recovered through income on clearing balances is the result of the increase in investable clearing balances; the increase is produced by a deduction for float for (4) REVENUE cash items in process of collection, which reduces imputed reserve requirements. The income on clearing balances reduces the float to be recovered through other means. As-of adjustments Revenue represents charges to depository institutions for priced services and is realized from and direct charges are mid-week closing float and interterritory check float, which may be each institution through one of two methods: direct charges to an institution's account or recovered from depositing institutions through adjustments to the institution's reserve or charges against its accumulated earnings credits. clearing balance or by valuing the float at the federal funds rate and billing the institution directly. Float recovered through per-item fees is valued at the federal funds rate and has been (5) OPERATING EXPENSES added to the cost base subject to recovery in the second quarters of 1996 and 1995. Operating expenses consist of the direct, indirect, and other general administrative expenses (7) OTHER INCOME AND EXPENSES of the Reserve Banks for priced services plus the expenses for staif members of the Board of Governors working directly on the development of priced services. The expenses for Board Consists of investment income on clearing balances and the cost of earnings credits. staff members were $.7 million in the first and second quarters of 1996 and 1995. The credit Investment income on clearing balances represents the average coupon-equivalent yield on to expenses under SFAS 87 (see note 2) is reflected in operating expenses. three-month Treasury bills applied to the total clearing balance maintained, adjusted for the effect of reserve requirements on clearing balances. Expenses for earnings credits granted to (6) IMPUTED COSTS depository institutions on their clearing balances are derived by applying the average federal funds rate to the required portion of the clearing balances, adjusted for the net effect of Imputed costs consist of interest on float, interest on debt, sales taxes, and the FDIC reserve requirements on clearing balances. assessment. Interest on float is derived from the value of float to be recovered, either explicitly or through per-item fees, during the period. Float costs include costs for checks, (8) INCOME TAXES book-entry securities, noncash collection, ACH, and funds transfers. Imputed income taxes are calculated at the effective tax rate derived from the PSAF model Interest is imputed on the debt assumed necessary to finance priced-service assets. The (see note 3). sales taxes and FDIC assessment that the Federal Reserve would have paid had it been a private-sector firm are among the components of the PSAF (see note 3). (9) POSTEMPLOYMENT BENEFITS The following list shows the daily average recovery of float by the Reserve Banks for the second quarter of 1996 and 1995 in millions of dollars: Effective Jan. 1, 1995, the Reserve Banks implemented SFAS 112, Employers' Accounting for Postemployment Benefits. Accordingly in the first quarter of 1995 the Reserve Banks 1996 1995 recognized a one-time cumulative charge of $21.1 million to reflect the retroactive application of this change in accounting principle. Total float 413.4 457.6 Unrecovered float 15.4 41.2 (10) RETURN ON EQUITY Float subject to recovery 398.0 416.4 Represents the after-tax rate of return on equity that the Federal Reserve would have earned Sources of float recovery had it been a private business firm, as derived from the PSAF model (see note 3). This amount Income on clearing balances 40.3 42.2 is adjusted to reflect the recovery of automation consolidation costs of $1.6 million for the As-of adjustments 318.4 210.5 second quarter of 1996, $1.2 million for the first quarter of 1996, $1.7 million for the second Direct charges 107.7 77.9 quarter of 1995, and $.3 million for the first quarter of 1995. The Reserve Banks plan to Per-item fees (68.5) 85.8 recover these amounts, along with a finance charge, by the end of the year 2001. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 Index to Statistical Tables References are to pages A3-A65 although the prefix "A" is omitted in this index ACCEPTANCES, bankers (See Bankers acceptances) Deposits (See also specific types) Agricultural loans, commercial banks, 19, 20 Banks, by classes, 4, 17-21 Assets and liabilities (See also Foreigners) Federal Reserve Banks, 5, 10 Banks, by classes, 17-21 Interest rates, 15 Domestic finance companies, 33 Turnover, 16 Federal Reserve Banks, 10 Discount rates at Reserve Banks and at foreign central banks and Financial institutions, 25 foreign countries (See Interest rates) Foreign banks, U.S. branches and agencies, 21 Discounts and advances by Reserve Banks (See Loans) Automobiles Dividends, corporate, 32 Consumer installment credit, 36 Production, 44, 45 EMPLOYMENT, 42 Eurodollars, 23 BANKERS acceptances, 10, 11, 19-22, 23 Bankers balances, 17-21. (See also Foreigners) FARM mortgage loans, 35 Bonds (See also U.S. government securities) Federal agency obligations, 5, 9, 10, 11, 28, 29 New issues, 31 Federal credit agencies, 30 Rates, 23 Federal finance Branch banks, 21 Debt subject to statutory limitation, and types and ownership Business activity, nonfinancial, 42 of gross debt, 27 Business loans (See Commercial and industrial Receipts and outlays, 25, 26 loans) Treasury financing of surplus, or deficit, 25 Treasury operating balance, 25 CAPACITY utilization, 43 Federal Financing Bank, 30 Capital accounts Federal funds, 6, 19, 20, 21, 23, 25 Banks, by classes, 17 Federal Home Loan Banks, 30 Federal Reserve Banks, 10 Federal Home Loan Mortgage Corporation, 30, 34, 35 Central banks, discount rates, 61 Federal Housing Administration, 30, 34, 35 Certificates of deposit, 23 Federal Land Banks, 35 Commercial and industrial loans Federal National Mortgage Association, 30, 34, 35 Commercial banks, 19, 20 Federal Reserve Banks Weekly reporting banks, 19-21 Condition statement, 10 Commercial banks Discount rates (See Interest rates) U.S. government securities held, 5, 10, 11, 27 Assets and liabilities, 17-21 Federal Reserve credit, 5, 6, 10, 11 Commercial and industrial loans, 17-21 Federal Reserve notes, 10 Consumer loans held, by type and terms, 36 Federal Reserve System Deposit interest rates of insured, 15 Loans sold outright, 20 Balance sheet for priced services, 64, 65 Real estate mortgages held, by holder and Condition statement for priced services, 64, 65 property, 35 Federally sponsored credit agencies, 30 Time and savings deposits, 4 Finance companies Commercial paper, 22, 23, 33 Assets and liabilities, 33 Condition statements (See Assets and liabilities) Business credit, 33 Construction, 42, 46 Loans, 36 Consumer installment credit, 36 Paper, 22, 23 Consumer prices, 42 Financial institutions, loans to, 19, 20, 21 Consumption expenditures, 49, 50 Float, 5 Corporations Flow of funds, 37-41 Profits and their distribution, 32 Foreign banks, assets and liabilities of U.S. branches and agencies, Security issues, 31, 61 20,21 Cost of living (See Consumer prices) Foreign currency operations, 10 Credit unions, 36 Foreign deposits in U.S. banks, 5, 20 Currency in circulation, 5, 13 Foreign exchange rates, 62 Customer credit, stock market, 24 Foreign trade, 51 Foreigners Claims on, 52, 55, 56, 57, 59 DEBITS to deposit accounts, 16 Liabilities to, 20, 51, 52, 53, 58, 60, 61 Debt (See specific types of debt or securities) Demand deposits GOLD Banks, by classes, 17-21 Certificate account, 10 Ownership by individuals, partnerships, and Stock, 5,51 corporations, 20, 21 Government National Mortgage Association, 30, 34, 35 Turnover, 16 Gross domestic product, 48 Depository institutions Reserve requirements, 8 Reserves and related items, 4, 5, 6, 12 HOUSING, new and existing units, 46 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A67 INCOME and expenses, Federal Reserve System, 64, 65 Real estate loans—Continued Income, personal and national, 42, 48, 49 Terms, yields, and activity, 34 Industrial production, 42, 44 Type of holder and property mortgaged, 35 Installment loans, 36 Repurchase agreements, 6 Insurance companies, 27, 35 Reserve requirements, 8 Interest rates Reserves Bonds, 23 Commercial banks, 17 Consumer installment credit, 36 Depository institutions, 4, 5, 6, 12 Deposits, 15 Federal Reserve Banks, 10 Federal Reserve Banks, 7 U.S. reserve assets, 51 Foreign central banks and foreign countries, 61 Residential mortgage loans, 34 Money and capital markets, 23 Retail credit and retail sales, 36, 42 Mortgages, 34 Prime rate, 22 SAVING International capital transactions of United States, 50-61 Flow of funds, 37-41 International organizations, 52, 53, 55, 58, 59 National income accounts, 48 Inventories, 48 Savings institutions, 35, 36, 37 Investment companies, issues and assets, 32 Savings deposits (See Time and savings deposits) Investments (See also specific types) Securities (See also specific types) Banks, by classes, 17-21 Federal and federally sponsored credit agencies, 30 Commercial banks, 4, 17-21 Foreign transactions, 60 Federal Reserve Banks, 10, 11 New issues, 31 Financial institutions, 35 Prices, 24 Special drawing rights, 5, 10, 50, 51 LABOR force, 42 State and local governments Life insurance companies (See Insurance companies) Deposits, 19, 20 Loans (See also specific types) Holdings of U.S. government securities, 27 Banks, by classes, 17—21 New security issues, 31 Commercial banks, 17-21 Ownership of securities issued by, 19, 21 Federal Reserve Banks, 5, 6, 7, 10, 11 Rates on securities, 23 Federal Reserve System, 64, 65 Stock market, selected statistics, 24 Financial institutions, 35 Stocks (See also Securities) Insured or guaranteed by United States, 34, 35 New issues, 31 Prices, 24 MANUFACTURING Student Loan Marketing Association, 30 Capacity utilization, 43 Production, 43, 45 TAX receipts, federal, 26 Margin requirements, 24 Thrift institutions, 4. (See also Credit unions and Savings Member banks (See also Depository institutions) institutions) Federal funds and repurchase agreements, 6 Time and savings deposits, 4, 13, 15, 17-21 Reserve requirements, 8 Trade, foreign, 51 Mining production, 45 Treasury cash, Treasury currency, 5 Mobile homes shipped, 46 Treasury deposits, 5, 10, 25 Monetary and credit aggregates, 4, 12 Treasury operating balance, 25 Money and capital market rates, 23 Money stock measures and components, 4, 13 UNEMPLOYMENT, 42 Mortgages (See Real estate loans) U.S. government balances Mutual funds, 32 Commercial bank holdings, 17-21 Treasury deposits at Reserve Banks, 5, 10, 25 Mutual savings banks (See Thrift institutions) U.S. government securities Bank holdings, 17-21, 27 NATIONAL defense outlays, 26 Dealer transactions, positions, and financing, 29 National income, 48 Federal Reserve Bank holdings, 5, 10, 11, 27 Foreign and international holdings and OPEN market transactions, 9 transactions, 10, 27, 61 Open market transactions, 9 PERSONAL income, 49 Outstanding, by type and holder, 27, 28 Prices Rates, 23 Consumer and producer, 42, 47 U.S. international transactions, 50-62 Stock market, 24 Utilities, production, 45 Prime rate, 22 Producer prices, 42, 47 VETERANS Administration, 34, 35 Production, 42, 44 Profits, corporate, 32 WEEKLY reporting banks, 17-21 Wholesale (producer) prices, 42, 47 REAL estate loans Banks, by classes, 19, 20, 35 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A68 Federal Reserve Board of Governors and Official Staff ALAN GREENSPAN, Chairman EDWARD W. KELLEY, JR. ALICE M. RIVLIN, Vice Chair LAWRENCE B. LINDSEY 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, Deputy Congressional Liaison 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 THOMAS A. CONNORS, Assistant Director DIANE E. WERNEKE, Special Assistant to the Board PETER HOOPER III, Assistant Director PORTIA W. THOMPSON, Equal Employment Opportunity KAREN H. JOHNSON, Assistant Director Programs Adviser CATHERINE L. MANN, Assistant Director RALPH W. SMITH, JR., Assistant Director LEGAL DIVISION DIVISION OF RESEARCH AND STATISTICS J. VIRGIL MATTINGLY, JR., General Counsel MICHAEL J. PRELL, Director SCOTT G. ALVAREZ, Associate General Counsel EDWARD C. ETTIN, Deputy Director RICHARD M. ASHTON, Associate General Counsel DAVID J. STOCKTON, Deputy Director OLIVER IRELAND, Associate General Counsel MARTHA BETHEA, Associate Director KATHLEEN M. O'DAY, Associate General Counsel WILLIAM R. JONES, Associate Director ROBERT DEV. FRIERSON, Assistant General Counsel MYRON L. KWAST, Associate Director KATHERINE H. WHEATLEY, Assistant General Counsel PATRICK M. PARKINSON, Associate Director THOMAS D. SIMPSON, Associate Director LAWRENCE SLIFMAN, Associate Director OFFICE OF THE SECRETARY MARTHA S. SCANLON, Deputy Associate Director WILLIAM W. WILES, Secretary PETER A. TINSLEY, Deputy Associate Director JENNIFER J. JOHNSON, Deputy Secretary DAVID S. JONES, Assistant Director BARBARA R. LOWREY, Associate Secretary and Ombudsman STEPHEN A. RHOADES, Assistant Director CHARLES S. STRUCKMEYER, Assistant Director DIVISION OF BANKING ALICE PATRICIA WHITE, Assistant Director JOYCE K. ZICKLER, Assistant Director SUPERVISION AND REGULATION JOHN J. MINGO, Senior Adviser RICHARD SPILLENKOTHEN, Director GLENN B. CANNER, Adviser STEPHEN C. SCHEMERING, Deputy Director WILLIAM A. RYBACK, Associate Director DIVISION OF MONETARY AFFAIRS HERBERT A. BIERN, Deputy Associate Director ROGER T. COLE, Deputy Associate Director DONALD L. KOHN, Director JAMES I. GARNER, Deputy Associate Director DAVID E. LINDSEY, Deputy Director HOWARD A. AMER, Assistant Director BRIAN F. MADIGAN, Associate Director GERALD A. EDWARDS, JR., Assistant Director RICHARD D. PORTER, Deputy Associate Director STEPHEN M. HOFFMAN, JR., Assistant Director VINCENT R. REINHART, Assistant Director JAMES V. HOUPT, Assistant Director NORMAND R.V. BERNARD, Special Assistant to the Board JACK P. JENNINGS, Assistant Director MICHAEL G. MARTINSON, Assistant Director DIVISION OF CONSUMER AND COMMUNITY AFFAIRS RHOGER H PUGH, Assistant Director SIDNEY M. SUSSAN, Assistant Director GRIFFITH L. GARWOOD, Director MOLLY S. WASSOM, Assistant Director GLENN E. LONEY, Associate Director WILLIAM SCHNEIDER, Project Director, DOLORES S. SMITH, Associate Director National Information Center MAUREEN P. ENGLISH, Assistant Director IRENE SHAWN MCNULTY, Assistant Director Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A69 SUSAN M. PHILLIPS LAURENCE H. MEYER JANET L. YELLEN OFFICE OF DIVISION OF RESERVE BANK OPERATIONS STAFF DIRECTOR FOR MANAGEMENT AND PAYMENT SYSTEMS S. DAVID FROST, Staff Director CLYDE H. FARNSWORTH, JR., Director SHEILA CLARK, EEO Programs Director DAVID L. ROBINSON, Deputy Director (Finance and Control) LOUISE L. ROSEMAN, Associate Director DIVISION OF HUMAN RESOURCES CHARLES W. BENNETT, Assistant Director MANAGEMENT JACK DENNIS, JR., Assistant Director EARL G. HAMILTON, Assistant Director DAVID L. SHANNON, Director JEFFREY C. MARQUARDT, Assistant Director JOHN R. WEIS, Associate Director JOHN H. PARRISH, Assistant Director JOSEPH H. HAYES, JR., Assistant Director FLORENCE M. YOUNG, Assistant Director FRED HOROWITZ, Assistant Director OFFICE OF THE INSPECTOR GENERAL OFFICE OF THE CONTROLLER BRENT L. BOWEN, Inspector General GEORGE E. LIVINGSTON, Controller DONALD L. ROBINSON, Assistant Inspector General STEPHEN J. CLARK, Assistant Controller (Programs and Budgets) BARRY R. SNYDER, Assistant Inspector General 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 MARIANNE M. EMERSON, Assistant Director Po KYUNG KIM, Assistant Director RAYMOND H. MASSEY, Assistant Director EDWARD T. MULRENIN, Assistant Director DAY W. RADABAUGH, 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

70 Federal Reserve Bulletin • October 1996 Federal Open Market Committee and Advisory Councils FEDERAL OPEN MARKET COMMITTEE MEMBERS ALAN GREENSPAN, Chairman WILLIAM J. MCDONOUGH, Vice Chairman EDWARD G. BOEHNE LAWRENCE B. LINDSEY ALICE M. RIVLIN JERRY L. JORDAN ROBERT D. MCTEER, JR. GARY H. STERN EDWARD W. KELLEY, JR. LAURENCE H. MEYER JANET L. YELLEN SUSAN M. PHILLIPS ALTERNATE MEMBERS J. ALFRED BROADDUS, JR. MICHAEL H. MOSKOW ERNEST T. PATRIKIS JACK GUYNN ROBERT T. PARRY STAFF DONALD L. KOHN, Secretary and Economist DAVID E. LINDSEY, Associate Economist NORMAND R.V. BERNARD, Deputy Secretary FREDERIC S. MISHKIN, 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 THOMAS C. BAXTER, JR., Deputy General Counsel CHARLES J. SIEGMAN, Associate Economist MICHAEL J. PRELL, Economist THOMAS D. SIMPSON, Associate Economist EDWIN M. TRUMAN, Economist MARK S. SNIDERMAN, Associate Economist RICHARD W. LANG, Associate Economist DAVID J. STOCKTON, Associate Economist PETER R. FISHER, Manager, System Open Market Account FEDERAL ADVISORY COUNCIL RICHARD G. TILGHMAN, President FRANK V. CAHOUET, Vice President WILLIAM M. CROZIER, JR., First District ROGER L. FITZSIMONDS, Seventh District WALTER V. SHIPLEY, Second District THOMAS H. JACOBSEN, Eighth District WALTER E. DALLER, JR., Third District RICHARD M. KOVACEVICH, Ninth District FRANK V. CAHOUET, Fourth District CHARLES E. NELSON, Tenth District RICHARD G. TILGHMAN, Fifth District CHARLES T. DOYLE, Eleventh District CHARLES E. RICE, Sixth District WILLIAM F. ZUENDT, Twelfth District HERBERT V. PROCHNOW, Secretary Emeritus JAMES ANNABLE, Co-Secretary WILLIAM J. KORSVIK, Co-Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A71 CONSUMER ADVISORY COUNCIL KATHARINE W. MCKEE, Durham, North Carolina, Chairman JULIA M. SEWARD, Richmond, Virginia, Vice Chairman RICHARD S. AMADOR, LOS Angeles, California ERROL T. LOUIS, Brooklyn, New York THOMAS R. BUTLER, Riverwoods, Illinois WILLIAM N. LUND, Falmouth, Maine ROBERT A. COOK, Baltimore, Maryland RONALD A. PRILL, Minneapolis, Minnesota ALVIN J. COWANS, Orlando, Florida LISA RICE-COLEMAN, Toledo, Ohio ELIZABETH G. FLORES, Laredo, Texas JOHN R. RINES, Detroit, Michigan HERIBERTO FLORES, Springfield, Massachusetts MARGOT SAUNDERS, Washington, D.C. EMANUEL FREEMAN, Philadelphia, Pennsylvania ANNE B. SHLAY, Philadelphia, Pennsylvania DAVID C. FYNN, Cleveland, Ohio REGINALD J. SMITH, Kansas City, Missouri ROBERT G. GREER, Houston, Texas GEORGE P. SURGEON, Arkadelphia, Arkansas KENNETH R. HARNEY, Chevy Chase, Maryland GREGORY D. SQUIRES, Milwaukee, Wisconsin GAIL K. HILLEBRAND, San Francisco, California JOHN E. TAYLOR, Washington, D.C. TERRY JoRDE,'Cando, North Dakota LORRAINE VANETTEN, Troy, Michigan FRANCINE JUSTA, New York, New York THEODORE J. WYSOCKI, JR., Chicago, Illinois EUGENE I. LEHRMANN, Madison, Wisconsin LILY K. YAO, Honolulu, Hawaii THRIFT INSTITUTIONS ADVISORY COUNCIL E. LEE BEARD, Hazleton, Pennsylvania, President DAVID F. HOLLAND, Burlington, Massachusetts, Vice President BARRY C. BURKHOLDER, Houston, Texas CHARLES R. RINEHART, Irwindale, California MICHAEL T. CROWLEY, JR., Milwaukee, Wisconsin JOSEPH C. SCULLY, Chicago, Illinois GEORGE L. ENGELKE, JR., Lake Success, New York RONALD W. STIMPSON, Memphis, Tennessee DOUGLAS A. FERRARO, Englewood, Colorado LARRY T. WILSON, Raleigh, North Carolina BEVERLY D. HARRIS, Livingston, Montana WILLIAM W. ZUPPE, Spokane, Washington Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A72 Federal Reserve Board Publications For ordering assistance, write PUBLICATIONS SERVICES, Monetary Policy and Reserve Requirements Handbook. $75.00 MS-127, Board of Governors of the Federal Reserve System, per year. Washington, DC 20551 or telephone (202) 452-3244 or FAX Securities Credit Transactions Handbook. $75.00 per year. (202) 728-5886. You may also use the publications order The Payment System Handbook. $75.00 per year. form available on the Board's World Wide Web site Federal Reserve Regulatory Service. Four vols. (Contains all (http://www.bog.frb.fed.us). When a charge is indicated, payment four Handbooks plus substantial additional material.) $200.00 should accompany request and be made payable to the Board of per year. Governors of the Federal Reserve System or may be ordered via Rates for subscribers outside the United States are as follows Mastercard or Visa. Payment from foreign residents should be and include additional air mail costs: drawn on a U.S. bank. Federal Reserve Regulatory Service, $250.00 per year. Each Handbook, $90.00 per year. FEDERAL RESERVE REGULATORY SERVICE FOR PERSONAL COMPUTERS. Diskettes; updated monthly. Standalone PC. $300 per year. BOOKS AND MISCELLANEOUS PUBLICATIONS Network, maximum 1 concurrent user. $300 per year. THE FEDERAL RESERVE SYSTEM—PURPOSES AND FUNCTIONS. Network, maximum 10 concurrent users. $750 per year. 1994. 157 pp. Network, maximum 50 concurrent users. $2,000 per year. ANNUAL REPORT. Network, maximum 100 concurrent users. $3,000 per year. ANNUAL REPORT: BUDGET REVIEW, 1995-96. Subscribers outside the United States should add $50 to cover FEDERAL RESERVE BULLETIN. Monthly. $25.00 per year or $2.50 additional airmail costs. each in the United States, its possessions, Canada, and THE U.S. ECONOMY IN AN INTERDEPENDENT WORLD: A MULTI- Mexico. Elsewhere, $35.00 per year or $3.00 each. COUNTRY MODEL, May 1984. 590 pp. $14.50 each. ANNUAL STATISTICAL DIGEST: period covered, release date, num- INDUSTRIAL PRODUCTION —1986 EDITION. December 1986. ber of pages, and price. 440 pp. $9.00 each. 1981 October 1982 239 pp. $ 6.50 FINANCIAL FUTURES AND OPTIONS IN THE U.S. ECONOMY. 1982 December 1983 266 pp. $ 7.50 December 1986. 264 pp. $10.00 each. 1983 October 1984 264 pp. $11.50 FINANCIAL SECTORS IN OPEN ECONOMIES: EMPIRICAL ANALY- 1984 October 1985 254 pp. $12.50 SIS AND POLICY ISSUES. August 1990. 608 pp. $25.00 each. 1985 October 1986 231 pp. $15.00 1986 November 1987 288 pp. $15.00 1987 October 1988 272 pp. $15.00 1988 November 1989 256 pp. $25.00 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 1992 December 1993 215 pp. $25.00 1993 December 1994 281 pp. $25.00 Consumer Handbook on Adjustable Rate Mortgages 1994 December 1995 190 pp. $25.00 Consumer Handbook to Credit Protection Laws A Guide to Business Credit for Women, Minorities, and Small Businesses SELECTED INTEREST AND EXCHANGE RATES—WEEKLY SERIES OF Series on the Structure of the Federal Reserve System CHARTS. Weekly. $30.00 per year or $.70 each in the United The Board of Governors of the Federal Reserve System States, its possessions, Canada, and Mexico. Elsewhere, The Federal Open Market Committee $35.00 per year or $.80 each. Federal Reserve Bank Board of Directors Federal Reserve Banks THE FEDERAL RESERVE ACT and other statutory provisions affect- Organization and Advisory Committees ing the Federal Reserve System, as amended through August A Consumer's Guide to Mortgage Lock-Ins 1990. 646 pp. $10.00. A Consumer's Guide to Mortgage Settlement Costs REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL A Consumer's Guide to Mortgage Refinancings RESERVE SYSTEM. Home Mortgages: Understanding the Process and Your Right ANNUAL PERCENTAGE RATE TABLES (Truth in Lending— to Fair Lending Regulation Z) Vol. I (Regular Transactions). 1969. 100 pp. How to File a Consumer Complaint Vol. II (Irregular Transactions). 1969. 116 pp. Each volume Making Deposits: When Will Your Money Be Available? $2.25. Making Sense of Savings GUIDE TO THE FLOW OF FUNDS ACCOUNTS. 672 pp. $8.50 each. SHOP: The Card You Pick Can Save You Money FEDERAL RESERVE REGULATORY SERVICE. Loose-leaf; updated Welcome to the Federal Reserve monthly. (Requests must be prepaid.) When Your Home is on the Line: What You Should Know Consumer and Community Affairs Handbook. $75.00 per year. About Home Equity Lines of Credit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A73 STAFF STUDIES: Only Summaries Printed in the 163. CLEARANCE AND SETTLEMENT IN U.S. SECURITIES MAR- BULLETIN KETS, by Patrick Parkinson, Adam Gilbert, Emily Gollob, Lauren Hargraves, Richard Mead, Jeff Stehm, and Mary Studies and papers on economic and financial subjects that are of Ann Taylor. March 1992. 37 pp. 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 to 164. THE 1989-92 CREDIT CRUNCH FOR REAL ESTATE, by James T. Fergus and John L. Goodman, Jr. July 1993. Publications Services. 20 pp. 165. THE DEMAND FOR TRADE CREDIT: AN INVESTIGATION OF Staff Studies 1-157 are out of print. MOTIVES FOR TRADE CREDIT USE BY SMALL BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September 158. THE ADEQUACY AND CONSISTENCY OF MARGIN REQUIRE- 1993. 18 pp. MENTS IN THE MARKETS FOR STOCKS AND DERIVATIVE 166. THE ECONOMICS OF THE PRIVATE PLACEMENT MARKET, by PRODUCTS, by Mark J. Warshawsky with the assistance of Mark Carey, Stephen Prowse, John Rea, and Gregory Udell. Dietrich Earnhart. September 1989. 23 pp. January 1994. Ill pp. 159. NEW DATA ON THE PERFORMANCE OF NONBANK SUBSIDI- 167. A SUMMARY OF MERGER PERFORMANCE STUDIES IN BANK- ARIES OF BANK HOLDING COMPANIES, by Nellie Liang and ING, 1980-93, AND AN ASSESSMENT OF THE "OPERATING Donald Savage. February 1990. 12 pp. PERFORMANCE" AND "EVENT STUDY" METHODOLOGIES, 160. BANKING MARKETS AND THE USE OF FINANCIAL SER- by Stephen A. Rhoades. July 1994. 37 pp. VICES BY SMALL AND MEDIUM-SIZED BUSINESSES, by 168. THE ECONOMICS OF THE PRIVATE EQUITY MARKET, by Gregory E. Elliehausen and John D. Wolken. September George W. Fenn, Nellie Liang, and Stephen Prowse. Novem- 1990. 35 pp. ber 1995. 69 pp. 161. A REVIEW OF CORPORATE RESTRUCTURING ACTIVITY, 169. BANK MERGERS AND INDUSTRYWIDE STRUCTURE, 1980-94, 1980-90, by Margaret Hastings Pickering. May 1991. by Stephen A. Rhoades. February 1996. 32 pp. 21 pp. 162. EVIDENCE ON THE SIZE OF BANKING MARKETS FROM MORT- GAGE LOAN RATES IN TWENTY CITIES, by Stephen A. Rhoades. February 1992. 11 pp. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A74 Maps of the Federal Reserve System 9 1 MINNEAPOLIS • 2 °N •NEW YORK 12 C B I C A O DM CLE• VELAND3 PUH ILADELPHIA 10 4 M KANSAS CITYB . ^ • ^ RICHMOND ST. LOUIS 5 6 i ATLANTA ^ DALLAS ALASKA HAWAII 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 by number of Puerto Rico and the U.S. Virgin Islands; the San and Reserve Bank city (shown on both pages) and by letter Francisco Bank serves American Samoa, Guam, and the (shown on the facing page). Commonwealth of the Northern Mariana Islands. The In the 12th District, the Seattle Branch serves Alaska, Board of Governors revised the branch boundaries of the and the San Francisco Bank serves Hawaii. System most recently in December 1991. The System serves commonwealths and territories as follows: the New York Bank serves the Commonwealth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A75 1-A 2-B 3-C 4-D 5-E Baltimore MD vtIJ KI CT • / VT \ wv NC NH Buffalo •Cincinnati •Charlotte MA I / NY cr sc BOSTON NEW YORK PHILADELPHIA CLEVELAND RICHMOND 6-F 7-G 8-H •Nashville KY ^ Birmingham JL ; JN Detroit • Louisville Jacksonville ^ d •Memphis • New Orleans JFt Little/ Roek ( MS Miami ATLANTA CHICAGO ST. LOUIS 9-1 • Helena MINNEAPOLIS 10-J 12-L WY 1 NTI Omaha* CO S3 Beaver Hi Seattle NM 1 Oklahoim City OK KANSAS CITY 11-K TX Salt Lake City • FL _ LA EELL PPaassoo RA—H " X Houston • V* •Los Angeles San Antonio DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 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 Cathy E. Minehan William C. Brainard Paul M. Connolly NEW YORK* 10045 John C. Whitehead William J. McDonough Thomas W. Jones Ernest T. Patrikis Buffalo 14240 Joseph J. Castiglia Carl W. Turnipseed1 PHILADELPHIA 19105 Donald J. Kennedy Edward G. Boehne Joan Carter William H. Stone, Jr. CLEVELAND* 44101 A. William Reynolds Jerry L. Jordan G. Watts Humphrey, Jr. Sandra Pianalto Cincinnati 45201 John N. Taylor, Jr. Charles A. Cerino1 Pittsburgh 15230 John T. Ryan III Harold J. Swart' RICHMOND* 23219 Claudine B. Malone J. Alfred Broaddus, Jr. Robert L. Strickland Walter A. Varvel Baltimore 21203 Michael R. Watson William J. Tignanelli1 Charlotte 28230 James O. Roberson Dan M. Bechter1 Culpeper 22701 Julius Malinowski, Jr.2 ATLANTA 30303 Hugh M. Brown Jack Guynn Daniel E. Sweat, Jr. Patrick K. Barron James M. Mckee1 Birmingham 35283 Donald E. Boomershine Fred R. Herr1 Jacksonville 32231 Joan D. Ruffier James D. Hawkins1 Miami 33152 R. Kirk Landon James T. Curry III Nashville 37203 Paula Lovell Melvyn K. Purcell New Orleans 70161 Lucimarian Roberts Robert J. Musso CHICAGO* 60690 Robert M. Healey Michael H. Moskow Lester H. McKeever, Jr. William C. Conrad Detroit 48231 Florine Mark David R. Allardice1 ST. LOUIS 63166 John F. McDonnell Thomas C. Melzer Susan S. Elliott W. LeGrande Rives Little Rock 72203 Janet M. Jones Robert A. Hopkins Louisville 40232 John A. Williams Thomas A. Boone Memphis 38101 John V. Myers John P. Baumgartner MINNEAPOLIS 55480 Jean D. Kinsey Gary H. Stern David A. Koch Colleen K. Strand Helena 59601 Lane W. Basso John D. Johnson KANSAS CITY 64198 Herman Cain Thomas M. Hoenig A. Drue Jennings Richard K. Rasdall Denver 80217 Peter I. Wold Carl M. Gambs1 Oklahoma City 73125 Barry L. Eller Kelly J. Dubbert Omaha 68102 LeRoy W. Thom Harold L. Shewmaker DALLAS 75201 Cece Smith Robert D. McTeer, Jr. Roger R. Hemminghaus Helen E. Holcomb El Paso 79999 Patricia Z. Holland-Branch Sammie C. Clay Houston 77252 Issac H Kempner III Robert Smith, III1 San Antonio 78295 Carol L. Thompson James L. Stull1 SAN FRANCISCO .... 94120 Judith M. Runstad Robert T. Parry James A. Vohs John F. Moore Los Angeles 90051 Anita E. Landecker Mark L. Mullinix1 Portland 97208 Ross R. Runkel Raymond H. Laurence1 Salt Lake City 84125 Gerald R. Sherratt Andrea P. Wolcott Seattle 98124 George F. Russell, Jr. Gordon R. G. Werkema3 •Additional offices of these Banks are located at Lewiston, Maine 04240; Windsor Locks, Connecticut 06096; East Rutherford, 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; Milwaukee, Wisconsin 53202; and Peoria, Illinois 61607. 1. Senior Vice President. 2. Assistant Vice President. 3. Executive Vice President Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Statistical Releases Available on the Commerce Department's Economic Bulletin Board The Board of Governors of the Federal Reserve Sys- For further information regarding a subscription to tem makes some of its statistical releases available to the economic bulletin board, please call (202) 482the public through the U.S. Department of Com- 1986. The releases transmitted to the economic bullemerce's economic bulletin board. Computer access tin board, on a regular basis, are the following: to the releases can be obtained by subscription. Reference Number Statistical release Frequency of release H.3 Aggregate Reserves Weekly/Thursday H.4.1 Factors Affecting Reserve Balances Weekly /Thursday H.6 Money Stock Weekly/Thursday H.8 Assets and Liabilities of Insured Domestically Chartered Weekly/Monday and Foreign Related Banking Institutions H.10 Foreign Exchange Rates Weekly/Monday H.15 Selected Interest Rates Weekly/Monday G.5 Foreign Exchange Rates Monthly/end of month G.17 Industrial Production and Capacity Utilization Monthly/midmonth G.19 Consumer Installment Credit Monthly/fifth business day Z. 1 Flow of Funds Quarterly Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Publications of Interest FEDERAL RESERVE CONSUMER CREDIT PUBLICATIONS The Federal Reserve Board publishes a series of pam- Shop . . . The Card You Pick Can Save You Money is phlets covering individual credit laws and topics, as designed to help consumers comparison shop when pictured below. looking for a credit card. It contains the results of the Three booklets on the mortgage process are available: Federal Reserve Board's survey of the terms of credit A Consumer's Guide to Mortgage Lock-Ins, A Consum- card plans offered by credit card issuers throughout the er's Guide to Mortgage Refinancings, and A Consumer's United States. Because the terms can affect the amount Guide to Mortgage Settlement Costs. These booklets an individual pays for using a credit card, the booklet were prepared in conjunction with the Federal Home lists the annual percentage rate (APR), annual fee, grace Loan Bank Board and in consultation with other federal period, type of pricing (fixed or variable rate), and a agencies and trade and consumer groups. The Board telephone number for each card issuer surveyed. also publishes the Consumer Handbook to Credit Pro- Copies of consumer publications are available free tection Laws, a complete guide to consumer credit pro- of charge from Publications Services, Mail Stop 127, tections. This forty-four-page booklet explains how to Board of Governors of the Federal Reserve System, shop and obtain credit, how to maintain a good credit Washington, DC 20551. Multiple copies for classroom rating, and how to dispute unfair credit transactions. use are also available free of charge. A Guide to A Consumer's Quid* to Business Mortgage Credit Settlement Costs for Women, Minorities, and Small Businesses SHOP The Card You Pick Can Save You Money Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis