Federal Reserve Bulletin, 1997-04

VOLUME 83 • NUMBER 4 • APRIL 1997 FEDERAL RESERVE 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 227 THE ROLE OF EXPECTATIONS IN THE not pose unacceptable risks to our financial FRB/US MACROECONOMIC MODEL system, before the Subcommittee on Financial Institutions and Consumer Credit of the House In the past year, the staff of the Board of Gover- Committee on Banking and Financial Services, nors of the Federal Reserve System began using February 13, 1997. a new macroeconomic model of the U.S. economy referred to as the FRB/US model. This 254 Chairman Greenspan presents the Federal Resystem of mathematical equations, describing serve's semiannual report on monetary policy interactions among economic measures such as and says that the performance of the economy inflation, interest rates, and gross domestic prod- over the past year has been quite favorable and uct, is one of the tools used in economic fore- that looking ahead the members of the FOMC casting and the analysis of macroeconomic pol- expect inflation to remain low and the econicy issues at the Board. The FRB/US model omy to grow appreciably further, before the replaces the MPS model, which, with periodic Senate Committee on Banking, Housing, and revisions, had been used at the Federal Reserve Urban Affairs, February 26, 1997. (Chairman Board since the early 1970s. A key feature of Greenspan presented identical testimony before the new model is that expectations of future the Subcommittee on Domestic and Internaeconomic conditions are explicit in many of its tional Monetary Policy of the House Committee equations. Because of this clear delineation of on Banking and Financial Services, March 5, expectations, the FRB/US model can be used to 1997.) study issues that would be difficult or impossible to study with the MPS model. For example, 260 ANNOUNCEMENTS the new model can show how the economy's Revisions to Regulation Y. response to specific events, such as a reduction in defense spending, may vary considerably with Annual update to the official staff commentary the speed at which the public recognizes that the to Regulation Z. event has occurred or will occur. Proposal to revise the official staff commentary to Regulation M. 246 INDUSTRIAL PRODUCTION AND CAPACITY Final Decision and Final Order of Prohibition UTILIZATION FOR FEBRUARY 1997 and Assessment of Civil Money Penalty. Industrial production rose 0.5 percent in Febru- Revisions to the money stock data. ary, to 118.1 percent of its 1992 average, after having edged down a revised 0.1 percent in 265 MINUTES OF THE FEDERAL OPEN MARKET January. Capacity utilization edged up 0.1 per- COMMITTEE MEETING HELD ON centage point, to 83.3 percent, matching the DECEMBER 17, 1996 average level in the last half of 1996. At its meeting on December 17, 1996, the Committee adopted a directive that called for main- 249 STATEMENTS TO THE CONGRESS taining the existing degree of pressure on reserve positions and that retained a bias toward the Alan Greenspan, Chairman, Board of Goverpossible firming of reserve conditions during the nors, presents the views of the Board on some intermeeting period. broad issues associated with financial modernization and says that the Board strongly urges an 271 LEGAL DEVELOPMENTS extensive increase in the activities permitted to banking organizations and other financial Various bank holding company, bank service institutions, provided that these activities are corporation, and bank merger orders; and pendfinanced at nonsubsidized market rates and do ing cases. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A1 FINANCIAL AND BUSINESS STATISTICS A66 BOARD OF GOVERNORS AND STAFF These tables reflect data available as of A68 FEDERAL OPEN MARKET COMMITTEE AND February 26, 1997. STAFF; ADVISORY COUNCILS A3 GUIDE TO TABULAR PRESENTATION A4 Domestic Financial Statistics A70 FEDERAL RESERVE BOARD PUBLICATIONS A42 Domestic Nonfinancial Statistics A50 International Statistics A72 MAPS OF THE FEDERAL RESERVE SYSTEM A74 FEDERAL RESERVE BANKS, BRANCHES, A63 GUIDE TO STATISTICAL RELEASES AND AND OFFICES SPECIAL TABLES A64 INDEX TO STATISTICAL TABLES Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model Flint Brayton, Eileen Mauskopf, David Reifschneider, affect the economy today. Similarly, the FRB/US Peter Tinsley, and John Williams, of the Board's model can be used to examine the extent to which the Division of Research and Statistics, prepared this consequences for inflation of a sharp increase in the article. Brian Doyle and Steven Sumner provided price of oil depend on the course of monetary policy research assistance. anticipated by the public. In the past year, the staff of the Board of Governors of the Federal Reserve System began using a new EXPECTATIONS IN MACROECONOMIC MODELS macroeconomic model of the U.S. economy, referred to as the FRB/US model. This system of mathemati- Expectations play an important role in the economic cal equations describing interactions among eco- theories that underpin most macroeconomic models. nomic measures such as inflation, interest rates, and Planning for the future is a central part of economic gross domestic product (GDP) is used in economic life. The need to make decisions about the type of car forecasting and the analysis of macroeconomic pol- to buy, the amount of education to pursue, and the icy issues at the Board. fraction of income to save forces households to think The FRB/US model replaces the MPS model, about which choices make the most sense not just for which, with periodic revisions, had been used at the today but for years into the future. Similarly, business Federal Reserve Board since the early 1970s.1 A key firms, in deciding where to locate factories and feature of the new model is that expectations of offices, what equipment to install, and what products future economic conditions are explicit in many of its to develop and produce, make decisions with conseequations. Because of the clear delineation of expec- quences that may last many years. Individuals must tations, issues that would have been difficult or make informed guesses about circumstances in the impossible to study with the MPS model can now be years ahead and then base decisions on these expecexamined. For example, the new model can show tations. The approach to expectations taken in the how the anticipation of future events, such as a FRB/US model is best understood in the context of a legislated reduction in future defense spending, may debate that has engaged macroeconomists for the past twenty-five years. The Debate about Expectations 1. For further discussions of the FRB/US model, see Flint Brayton and Peter Tinsley, "A Guide to FRB/US: A Macroeconomic Model of the United States," Finance and Economics Discussion Series, Economists have long recognized that expectations 1996-42 (Board of Governors of the Federal Reserve System, 1996; play a prominent role in economic decisionmaking available on the Board's web site at http://www.bog.frb.fed.us/pubs/ feds/); Sharon Kozicki, Dave Reifschneider, and Peter Tinsley, "The and are a critical feature of macroeconomic models. Behavior of Long-Term Interest Rates in the FRB/US Model," The However, they disagree about the basis on which Determinants of Long-Term Interest Rates and Exchange Rates and individuals form expectations and thus about the way the Role of Expectations, Bank for International Settlements Conference Papers, vol. 2 (Basle: Bank for International Settlements, 1996), to model them. For example, the conventional view is pp. 215-51; and Flint Brayton, Andrew Levin, Ralph Tryon, and that current consumption spending depends partly on John C. Williams, "The Evolution of Macro Models at the Federal how large or small consumers expect their future Reserve Board," Carnegie-Rochester Conference Series on Public Policy, forthcoming. The latter paper also discusses a new global income to be. But economists are not in accord macroeconomic model, known as FRB/MCM, now used by the staff over exactly what information consumers take into of the Federal Reserve Board. See also Andrew Levin, "A Compariaccount in forecasting future income. son of Alternative Monetary Policy Rules in the FRB Multi-Country Model," The Determinants of Long-Term Interest Rates, pp. 340-69. The debate continues, partly because obtaining data For a discussion of the MPS model, see Flint Brayton and Eileen on expectations is difficult. For example, surveys of Mauskopf, "The Federal Reserve Board MPS Quarterly Econometric expectations are limited to a few economic variables, Model of the U.S. Economy," Economic Modelling, vol. 3 (July 1985), pp. 170-292. such as inflation, and it is unclear whether the sur- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

228 Federal Reserve Bulletin • April 1997 veys accurately measure the expectations that influ- interest rates on the systematic relationship between ence actual decisions. In some instances, expec- the cyclical state of the economy and interest rates. tations can be inferred from nonsurvey data. Because of the criticism of adaptive expectations, Expectations about future short-term interest rates, the assumption of rational expectations, which had for example, can be inferred by comparing the yields first been proposed in the early 1960s, gained favor on bonds of different maturities, given the assump- among many macroeconomists.4 In a given macrotion that a bond's yield depends on the sequence economic model, expectations of future events are of short-term interest rates expected over its term rational if they are identical to the forecasts of that to maturity, plus a term premium. However, this model. Because it posits that individuals make full approach provides accurate measures of expectations use of all of the information embodied in the struconly if this theory of the term structure of interest ture of a macroeconomic model, the rational expecrates is itself correct and if term premiums can be tations approach has become one benchmark for reliably estimated.2 the estimation of unobserved expectations. The lack of adequate data has meant that builders Cost-benefit analysis provides a useful perspective of macroeconomic models have had to specify a on this debate. In the view represented by models priori how individuals form expectations (see box employing adaptive expectations, either the costs of "Assumptions about the Ways in Which Expectations Are Formed"). Most models developed in the 1960s and 1970s, including MPS, incorporated the simplify- 4. See John F. Muth, "Rational Expectations and the Theory of Price Movements," Econometrica, vol. 29 (1961), pp. 315-35. The ing assumption that people form expectations adopdefinition of rational expectations proposed by Muth (p. 316) includes tively. Under this assumption, for example, the expec- the statement that "the way [rational] expectations are formed depends tation for inflation in the next year is based on the specifically on the structure of the relevant system describing the economy." recent inflation trend. Similarly, expected interest rates depend on past interest rates. Starting in the 1970s, a number of economists Assumptions about the Ways in Which strongly criticized this treatment of expectations in Expectations Are Formed macroeconomic models. Robert Lucas, in what has become known as the "Lucas Critique," argued that Macroeconomic models have relied on several different analyzing alternative monetary and fiscal policies assumptions about how individuals form expectations of using these models is of questionable value because future economic conditions: the adaptive approach fails to recognize that, in the real world, people are likely to modify their expecta- Adaptive expectations depend only on past observations as policies are changed.3 According to Lucas tions of the variable in question. Most econometric modand others, individuals have economic incentives to els developed in the 1960s and 1970s, including the MPS form accurate forecasts of future economic events, model, employed this assumption. and such forecasts include the anticipated effects of Rational, or model-consistent, expectations are identithe government's macroeconomic policies. If the cal to the forecasts produced by the macroeconomic Federal Reserve usually lowers interest rates during model in which the expectations are used. This assumprecessions, for example, then individuals facing the tion has been used in many macroeconomic models onset of a recession will base their forecasts of future developed in the past fifteen years and is one option for the formation of expectations used in FRB/US. VAR expectations are identical to the forecasts of a small vector autoregression (VAR) model that includes equations for a few key economic measures (see box 2. Similarly, the Treasury's recent issuance of bonds with returns "Types of Macroeconomic Models" for a description of indexed to the consumer price index (CPI) may help in the measure- a VAR model). This is another option for expectations ment of inflation expectations, which can be calculated by comparing formation used in FRB/US. the rate of interest on conventional bonds with the rate on indexed bonds. This approach, however, is subject to a number of potential problems. For a discussion, see Martin D.D. Evans, "Index-Linked Adaptive and VAR expectations may be rational if they Debt and the Real Term Structure: New Estimates and Implications are used in a macroeconomic model with a coinciding from the U.K. Bond Market," New York University, Solomon Center, structure. For example, if actual inflation depends only Working Paper Series S-96-24 (March 1996). on past inflation, then adaptive expectations of inflation 3. Robert E. Lucas, "Econometric Policy Evaluation: A Critique," Carnegie-Rochester Conference Series on Public Policy, vol. 1 will be rational. (1976), pp. 19-46. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 229 sophisticated approaches to forming expectations are two assumptions. One is that the unobserved expectahigh, or the benefits from improved forecast accuracy tions of firms and households can be adequately are slight. Thus, individuals form their expectations captured by forecasts of an explicit model of the of the future using simple rules of thumb or easily economy. The second is that participants in the econcomputed formulas, such as adaptive expectations. omy behave so as to achieve the highest possible At the other extreme is the view underlying the expected welfare and profits over time. Although rational expectations approach. In this case, collect- these assumptions are similar to those usually found ing and analyzing information is assumed to have small costs and large benefits, and consequently individuals base expectations on sophisticated forecast- Types of Macroeconomic Models ing models that make use of all relevant data. Between these extremes is the view that forecast- FRB/US is one of many macroeconomic models that ing has both significant advantages and significant have been developed over the past thirty years. Macrocosts. Such a circumstance should lead households economic models are systems of equations that sumand firms to choose forecasting models that closely marize the interactions among such economic variables resemble their economic environment but fall short as gross domestic product (GDP), inflation, and interest of a complete model of the economy in every detail.5 rates. These models can be grouped into several types: In FRB/US, one of the options for expectations formation, referred to as VAR expectations, is motivated Traditional structural models typically follow the by this view. Keynesian paradigm featuring sluggish adjustment of prices. These models usually assume that expectations are adaptive but subsume them in the general dynamic structure of specific equations in such a way that the Separation of Expectations from Actions contribution of expectations alone is not identified. The in FRB/US | MPS and Multi-Country (MCM) models formerly used at | the Federal Reserve Board are examples. An important feature of the new model is the explicit Rational expectations structural models explicitly separation of expectations regarding future events incorporate expectations that are consistent with the modfrom delayed responses to these expectations. This el's structure. Examples include variants of the FRB/US separation does not exist in traditional structural and FRB/MCM models currently used at the Federal macroeconomic models (see box "Types of Macro- Reserve Board, Taylor's multi-country model, and the economic Models"), partly because the expectations IMF's Multimod.1 of firms and households are unobservable and partly Equilibrium business-cycle models assume that labor because the structures of these models are not based and goods markets are always in equilibrium and that on formal theories of optimal planning over time. expectations are rational. All equations are closely based Thus, traditional structural models cannot distinguish on assumptions that households maximize their own welwhether changes in activity are a function of altered fare and firms maximize profits. Examples are models expectations today or lagged responses to past plans. developed by Kydland and Prescott and by Christiano For example, they cannot determine whether a rise in and Eichenbaum.2 business capital investment is attributable to revised Vector autoregression (VAR) models employ a small expectations about sales or is part of a sequence of number of estimated equations to summarize the dynamic gradual capital acquisitions related to earlier investbehavior of the entire macroeconomy, with few restricment plans. tions from economic theory beyond the choice of vari- FRB/US removes this ambiguity by explictly pars- ables to include in the model. Sims is the original propoing observed dynamic behavior into movements that nent of this type of model.3 have been induced by changes in expectations and responses to expectations that have been delayed 1. John B. Taylor, Macroeconomic Policy in a World Economy (Norton, 1993); Paul Masson, Steven Symansky, Rick Haas, and Michael because of adjustment costs. This separation rests on Dooley, "MULTIMOD: A Multi-Region Econometric Model," Staff Studies for the World Economic Outlook (International Monetary Fund, 1988). 2. Finn Kydland and Edward C. Prescott, "Time to Build and Aggregate Fluctuations," Econometrica, vol. 50 (1982), pp. 1345-70; Law- 5. In recent years, the view that information about the economy is rence J. Christiano and Martin Eichenbaum, "Current Real-Businesscostly to obtain and analyze has spurred some economists to study Cycle Theories and Aggregate Labor-Market Fluctuations," American how individuals' knowledge about the economy might increase Economic Review, vol. 82 (1992), pp. 430-50. over time as they observe their economic environment. Different 3. Christopher Sims, "Macroeconomics and Reality," Econometrica, approaches to learning are discussed in Thomas J. Sargent, Bounded vol. 48 (1980), pp. 1-48. Rationality in Macroeconomics (Clarendon, 1993). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

230 Federal Reserve Bulletin • April 1997 in rational expectations macroeconomic models, the forming expectations is greater for some participants FRB/US model uses a more general description of in the economy than for others. For instance, the frictions to more closely match the correlations in expectations of investors in financial markets may historical time-series data. be based on more detailed information and more sophisticated forecasting models than are those of households—a difference that can be approximated OPTIONS FOR EXPECTATIONS FORMATION by making the expectations of investors model- IN FRB/US consistent and those of households VAR. The FRB/US model is designed so that alternative assumptions can be made about the scope of informa- Speed of Expectations Revision tion that households and firms use in forming expectations and the speed with which they revise their Another dimension of expectations formation is the expectations on the basis of new information. speed with which households' and firms' views of the Because of the lack of detailed knowledge on how economy respond to changes in the economic enviindividuals actually form expectations, the grounds ronment. Of particular importance in analyzing the are weak for choosing one assumption over all oth- effects of monetary and fiscal policy actions is how ers. The flexibility of FRB/US makes it possible quickly the public recognizes that a deliberate change to gauge the sensitivity of conclusions drawn from in policy has occurred or will occur sometime in the model simulations to alternative assumptions about future. the way expectations are formed.6 In some instances, households and firms may recognize that a shift in policy has occurred only after some time has elapsed. FRB/US allows for the Scope of Information gradual adjustment of expectations about some key long-run conditions to changes in policy objectives Two alternative assumptions regarding the scope of so as to mimic the process of learning. For example, information are used in the FRB/US model. One is under either VAR or model-consistent expectations, a that expectations are rational, or model-consistent. In shift in monetary policy intended to reduce inflation this case, households and firms are assumed to have a can be simulated using alternative assumptions about detailed understanding of how the economy func- how quickly the change in policy is recognized by the tions, and expectations are identical to the forecasts public. If recognition is assumed to be slow, expectaof the FRB/US model. tions about long-run inflation are specified to adjust The other alternative is that expectations are based slowly. Conversely, rapid recognition is associated on a less elaborate understanding of the economy, with fast adjustment of inflation expectations. as represented by a small forecasting model contain- In other instances, a policy action—or the likeliing only a few important macroeconomic variables. hood of the action—may be recognized in advance. Because the form of the forecasting model is simi- For example, movements in bond yields have at lar to that of a vector autoregression (VAR), such times been attributed to revised expectations of future expectations are called VAR expectations. The VAR government fiscal actions.7 Under model-consistent approach in the FRB/US model assumes that house- expectations, anticipation of future policy changes or holds and firms form expectations primarily on the of other events can be introduced simply by including basis of their knowledge of the historical interactions knowledge of the event in the information that firms among three variables: the federal funds rate, the and households use when forecasting. In the case of cyclical state of the economy, and the rate of infla- VAR expectations, advance recognition, if approprition (see box "The Forecasting Model for VAR ate, is introduced by specifying that expectations of Expectations"). both long-run inflation and interest rates respond The FRB/US model can also be simulated under before the event. the assumption that the scope of information used in 6. The legitimacy of shifting among alternative specifications of expectations formation rests on the assumption that the coefficients 7. For a discussion of such effects during 1993, see Council of in the equations of FRB/US are unaffected by such changes in Economic Advisers, Economic Report of the President (February specification. 1994), pp. 78-87. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 231 The Forecasting Model for VAR Expectations VAR expectations in FRB/US are the forecasts of a model (3) Ax, = .02(71 - 7t£)r _ , - ,04(i - 0), _ j that has at its core a set of three equations—one each for the federal funds rate, inflation, and the output gap. The equa- 3 - .21(r- it), _ i + .09 X w-j jAu, _ tions contain an identical set of explanatory variables con- i = i t sisting of the first lagged value of the deviation of each 3 3 variable from its expected long-run value and three lagged + . 19 X WgjAx, _ i + .08 X w , Ar, _ 9 values of the first difference of each core variable. Coeffi- i = 1 i = 1 cient estimates indicate that the system of core equations is stable, meaning that forecasts of outcomes far into the The variables are defined as follows: future converge to the measures of long-run expectations observed on the date they are formed. Long-run expec- r = federal funds rate tations for inflation are taken from survey data, and those for the federal funds rate from forward interest rates. The 7t = inflation rate of chain-weight price index for perlong-run expectation of the output gap is assumed to be sonal consumption expenditures zero. In the equations in this box, each set of weights (WjjJ = 1, 2 ... 9) sums to one. x = percentage gap between actual and potential output (1) Ar = .03(n-i£)_, + .12 (*-<»,_, ( ( Ki = expected long-run rate of inflation 3 - .05 (r - rt), _ , + .33 X w, ,AJt, _ ri = expected long-run value of the federal funds rate. i = 1 3 3 The set of equations is able to generate expectations + .22 X w Ax _ j - .27 X w> ,Ar, _ !=i 2 t t i=i 3 of the values of the three core variables at any future date. (Forecasts of iti and equal their most recent (2) A7tt = . 17(*-n£), + . 13 (x-0),_, observed value.) For each additional variable for which an expectation appears in FRB/US, an auxiliary equation, 3 which expresses the variable as a function of its own - .01 (r — _ i - .27 f X = i H>4fA7tf _f past values and of the set of explanatory variables appearing in the core equations, is added to the forecasting 3 3 - .17 X W jAX, _, + .02 X w^Ar_,, model. 5 f EXPECTATIONS IN INDIVIDUAL chases of durable goods or the rate of business invest- DECISIONMAKING ment in capital equipment. In FRB/US, small changes in activity, made over several periods, are generally In the FRB/US model, expectations about future eco- less costly than the same cumulative change made in nomic conditions influence current prices and activity a single period. As a result, anticipation of relevant by means of two distinct channels. Through the first future conditions benefits households and firms. The channel, asset valuation, today's price of an asset is more accurately they forecast future events, the less linked to the expected earnings stream of the asset frequently they must make large revisions to their and the expected rate of return on alternative assets. economic plans and, consequently, the lower are their Thus, in the model, current bond and stock prices adjustment costs. are determined by the present discounted value of expected coupon and dividend payments. Through the second channel, adjustment dynamics, expecta- Asset Valuation tions play a role in reducing the costs of economic frictions. Households, in maximizing their welfare, Tying the current price of an asset to its expected and firms, in maximizing their profits, face various future earnings is a common way of modeling bond frictions in pursuing their goals, such as costs asso- and equity prices and is not unique to FRB/US. The ciated with adjusting the rate of household pur- price of a bond equals the flow of payments (coupons Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

232 Federal Reserve Bulletin • April 1997 plus principal repayment) that will accrue to the interest rates, as captured by the corporate bond rate, owner of the bond discounted by the opportunity cost determine the current price of equity. of holding the bond. Because an alternative to hold- FRB/US also applies the link between the current ing a bond is holding a sequence of short-lived assets, value of an asset and its expected earnings stream to the opportunity cost can be represented, in part, by the valuation of human capital, where the flow of the set of short-term interest rates expected to prevail earnings is that expected by an individual over his over the bond's term to maturity. Thus, the bond's or her lifetime. The need to have a measure of the yield depends on expected future short-term interest value of human capital arises from a theory of conrates, plus a term premium to compensate for the sumption in which households base current spending difference in risk exposure from holding the bond not on current income but on the expected average of instead of the sequence of short-term assets (see box income over their remaining lifetime. Households "Equation for the Ten-Year Treasury Bond Yield"). borrow and lend in banking and capital markets to Similarly, the value of corporate equity depends adjust for discrepancies between actual income and on the present discounted value of the expected divi- average expected income. In FRB/US, the value of dend stream accruing to the owner of the equity. In human capital is defined as the present discounted FRB/US, the opportunity cost of holding equity is value of expected future wage income net of taxes proportional to the corporate bond rate adjusted for and inclusive of transfer payments. expected inflation. Thus, expectations about future dividends, future inflation, and future short-term Adjustment Dynamics Equation for the Ten-Year The need for expectations in areas of decisionmaking other than asset valuation is determined by the Treasury Bond Yield strength of frictions or constraints on dynamic adjust- According to the expectations theory of the term struc- ments. As discussed below, slower responses require ture, the current yield on ten-year Treasury bonds equals longer lead times as provided by forecasts of more a weighted average of the values of the federal funds rate distant events. expected over the forty-quarter term of the bond, plus a In the nonfinancial sectors of FRB/US, decisions term premium, by households and firms rest on forecasts of equilibrium goals that would be selected in the absence of frictions but, because of costs in adjusting activities, RLO, = E { IW,R, } +P , T + I F are only gradually achieved. Consequently, the econi = 0 MMMiMMMMNNIM omy generally is characterized by disequilibrium, where E,{.} denotes forecasts based on information avail- with firms and households behaving optimally but able during the current quarter and the weights, w ( , sum being constrained from immediate movement to equito one. In the FRB/US model, the term premium, librium. Indeed, apart from the expectations required for asset valuation, the condition of gradual adjustments to equilibrium is the main reason that firms and (i, = .46 - .79E,{ S w^+j), i =o households need to look ahead. Displacements from equilibrium levels of activity equals a constant, a cyclical component that varies are in many cases due to unexpected events, such as inversely with the expected gap between actual and differences between anticipated and actual household potential output, and an unexplained residual (not income or between expected and realized business shown). sales. The restoration of equilibrium is subject to The variables are defined as follows: planning lags, contractual requirements, and other frictions that inhibit full adjustment to equilibrium r 10 = yield on ten-year Treasury bonds within a quarter. The extent of frictions varies by r = federal funds rate activity, so the speed at which equilibrium is restored varies across activities and sectors. p = term premium Diagram 1 illustrates differences in behavior due to x = ppeerrcceenntt:a ge gap between actual and potential differences in the extent of friction constraints on output. dynamic adjustment. Typically, a household purchase Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 233 of a staple commodity is not subject to significant not only to the need to collect and assimilate informaadjustment costs. The decision to purchase such a tion on customer needs and supplier costs but also to staple—milk—is depicted in the diagram, in which lags in developing engineering and management the horizontal axis denotes time; t denotes "today," specifications for the new equipment. The firm may the current period; and line y* denotes the equilib- select a slower delivery schedule if equipment prorium amount of milk consumption for each period. ducers charge more for early delivery. Finally, addi- The equilibrium amount of milk consumption is tional delays may occur because of the time needed assumed to grow over time as the expected number for the installation of the new equipment and the or age of children in the household increases. The training of operators. amount of milk carried over from the past, y , is Confronted by these constraints on adjustment, the a below the equilibrium amount needed for today's firm decides on a program of gradual adjustment to consumption, y . In this example, frictions are not a equilibrium. Based on the average speed of quarterly b significant constraint on dynamic adjustment because adjustment for equipment investment estimated from milk is readily available at a nearby store. Thus, the historical data, the firm moves the current level of decision to purchase additional milk is followed by equipment investment to y, which is about 15 perc an action that restores the amount of milk on hand to cent closer to the equilibrium, y , than the level of b the equilibrium level, y . In the absence of significant investment in the previous period, y . In each subseb a frictions, forecasts of future requirements for milk are quent period the firm reduces the distance between unnecessary because the household can quickly the actual and equilibrium rates of investment about adjust the stock of milk to the equilibrium level 15 percent, as shown by the line curving from y to c required in each subsequent period. the equilibrium path y*. The diagram also depicts a situation in which Although diagram 1 is useful in illustrating the forward-looking expectations are necessary because difference between rapid adjustment to equilibrium in of the presence of significant frictions—for example, the absence of frictions and gradual adjustment to the purchase by a firm of new capital equipment. equilibrium when frictions are present, it does not Because the firm expects to increase its output, the directly indicate the way in which expectations of path of equilibrium purchases, y * rises over time. In future goals influence dynamic adjustments under this example, y represents yesterday's level of equip- frictions. That is, diagram 1 provides an external a ment investment, which is assumed to be below the observer's view of different adjustment speeds resultequilibrium level, y , that is consistent with demand ing from differences in the importance of frictions in b and cost conditions today. In contrast to the earlier specific economic activities, but it does not reveal the example, only a fraction of the gap between the nature of the decisionmaking process used by firms previous level of investment, y , and the current and households.8 As indicated in the box "Optimiza equilibrium level, y , will be eliminated in the current ing Actions When Change Is Costly," an optimal b period, t. Delays in adjusting investment may be due action today reflects plans for adjustment formulated in earlier periods and revised plans for the future based on current information. Thus, in the case of business capital investment, decisions in the current 1. Adjustments to equilibrium period are based on a weighted average of equilibrium values for past periods and expected equilib- •V..V* rium values for future periods. y* Diagram 2 presents the intertemporal planning perspective of a profit-maximizing firm for which fricyb ^^ tions are important constraints on actions. The vertical line indicates the decisionmaker's location in 8. The forward-planning aspect of decisionmaking is absent in the partial adjustment equations frequently used in traditional structural models to represent the dynamic behavior depicted in diagram 1. In y f c such equations, action in the current period is related to the distance \y a that remains between today's equilibrium and yesterday's action: t Time yt - yt-i + My* - yt-iX where y, denotes today's action and yf is today's equilibrium value. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

234 Federal Reserve Bulletin • April 1997 Optimizing Actions When Change Is Costly Firms and households in FRB/US balance the expected of changing the growth rate of actions, c representing the 3 costs of deviating from equilibrium against the costs of unit cost of changing the rate of acceleration, and so on. changing their actions. Expected future costs are discounted The decision rule that minimizes this weighted sum of so that those in distant periods have a smaller influence on expected costs can be represented as the following:1 current actions than do those in near-term periods. The optimization of tradeoffs between the costs of current and m - 1 oo = a (yt 1 -y,-1) + £ ajAy,_, + £,_,{ X fAy* «J• future actions is represented in FRB/US by the assumption 0 Q + that individuals minimize the following weighted sum of expected current and future costs: Optimal adjustment of activity in the current period, Ay, t depends on three components: (1) the deviation of last period's activity from its equilibrium level, yf_ j - y,_; £,-.{ \B'[c (y, -yf ,)2 + c,(Ay, ,)2 x 0 + i + + (2) past changes in the levels of activity, Ay, • (these lagged i = 0 terms are not present if firms or households minimize only + c 2 (A2 y t + ,)2 + c 3 (A3 y, + ,)2 + •..]}, the costs associated with changing the level of activity); and (3) a weighted forecast of future changes in equilibrium where E, _ j {.} is a forecast of future costs based on informa- levels, Ayf (the forecast weights,^, are functions of the +i tion available at the end of the previous period, t- 1, and B discount factor, B, and the cost parameters, c , c„ c ,...). 0 2 is a discount factor between zero and one. The first squared The optimal level of activity, y, defined by this decision t term in the summation is the cost of deviating from equilib- rule can be expressed equivalently as a two-sided moving rium in period t + i, where c is the unit cost associated with average in past and future equilibrium values: 0 squared deviations from equilibrium, y is the planned t+i activity, and _yf is the associated equilibrium. l +/ y,=E,-d.J^iyf+ih The remaining terms in the cost function define the expected costs of frictions associated with changes in actions. A is a mathematical shorthand to represent the where the w>, weights, indicating the relative importance one-period change in a variable, such as Ay, s (y - y_ ), for current decisions of past and future equilibrium values, t t t and A2y, = A(y, - y_,) = ((y, - y_ - , - y,_ )). Many sum to one. The estimated relative-importance weights for t t 2 macroeconomic models assume that the principal source of selected activities in FRB/US are plotted in diagram 2. friction in observed behavior is represented by the term Ci(Ay )2, where c, is the unit cost of changing the level 1. See Peter A. Tinsley, "Fitting Both Data and Theories: Polynomial r + i of activity. A more generalized description of frictions is Adjustment Costs and Error Correction Decision Rules," Finance and Economics Discussion Series, 93-21 (Board of Governors of the Federal Reserve permitted in FRB/US, with c 2 representing the unit cost System, 1993). time. Future quarters over the firm's planning period 2. Relative importance of past and future equilibrium values appear to the right of the vertical line, and past in current decisions quarters to the left. The three curves show the Quarterly relative-importance weight relative-importance weights used in planning for different economic activities and are based on the dynamic responses estimated for these activities in the FRB/US model. The curve labeled "Equipment investment" depicts the relative-importance weights of past and expected future events in determining investment in capital equipment. Although in principle firms plan over an infinite future, the effective length of the planning period is determined by the extent of the frictions associated with the firm's actions. The relative-importance weights for only the past three years and future three years are plotted because the Lags Current quarter Leads weights for more distant quarters are close to zero. In Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 235 the case of equipment investment, the initial twelve ment, the equilibrium values in periods close to the quarters of the planning period (to the right of the current quarter are assigned higher weights, and vertical line) account for about 90 percent of the periods further from the current quarter are assigned relative-importance weights over the infinite plan- lower weights. Consequently, the mean lead for pricning period. Equilibrium levels further in the future ing is markedly shorter—about three quarters. are less important to current investment than are Diagram 2 also illustrates the one-sided format of those in the nearer term because more-distant needs relative-importance weights used in asset valuations. can be satisfied by equipment purchases in future Because frictions are of negligible importance in quarters. financial markets, asset valuations are only forward- A summary measure of the effective average length looking, and the bond yield is determined by foreof the forward planning period is the mean lead casts of the federal funds rate over the maturity determined by the relative-importance weights.9 of the bond. For a ten-year Treasury coupon bond Because frictions play a large role in dynamic adjust- (the example plotted in diagram 2), the relativements for capital equipment, the mean lead for equip- importance weights of expected future funds rates ment investment is relatively lengthy—approximately decline over the ten-year planning period. Consesix quarters. quently, the associated mean lead is about four years. Weights for past quarters (to the left of the vertical line) indicate the relative importance of past equilibrium levels for current decisions. The relative- OVERVIEW OF THE EQUATIONS IN FRB/US importance weights for past planning periods also approach zero for distant quarters because older plans The FRB/US model takes into account decisions have been completed by past actions. In a construc- in three sectors: (1) the household sector, where tion similar to that used to define the mean lead, households make choices about spending, saving, relative-importance weights for past quarters can and entering or leaving the workforce; (2) the private be used to estimate the mean lag response. This business sector, where firms make investment, construction is useful as a measure of the average employment, pricing, production, and financial plans; speed at which firms respond to unexpected shocks and (3) the public sector, where local, state, and because, by definition, firms cannot respond in federal governments (including the Federal Reserve) advance to unforseen events. In the FRB/US model, set monetary and fiscal policies.10 FRB/US models the mean lag for responses involving equipment the behavior of these sectors in the aggregate, but investment is about seven quarters. some equations do allow for differences among Lead and lag responses for activities less affected households or among firms. For example, because by frictions in FRB/US also appear in diagram 2. One small businesses have less ready access to capital is the adjustment of output prices by firms to better markets than large corporations have and must rely reflect current and anticipated demand and cost con- more heavily on internal funds to finance capital ditions. In the FRB/US model, the prices of most investment, the equation for investment in busigoods and services are "sticky," or slow to adjust ness equipment allows the amount of investment to to equilibrium. This behavior contrasts with that of depend, in part, on firms' cash flow. models based on classical theories, in which the About half of the approximately fifty behavioral prices of goods and services are as flexible as those in equations in the model—estimated from thirty years financial markets. The curve labeled "Output prices" of historical data—use explicit measures of expectaillustrates the relative importance firms assign to past tions. Of this half, the adjustment-dynamics frameand future equilibrium values in deciding the current work is used for the equations for consumption of price of business output. Because the frictions for nondurable goods and services; spending on conpricing are smaller than those for equipment invest- sumer durables of two types; investment in residential structures, producers' durable equipment, and manufacturing and trade inventories; aggregate labor 9. The mean lead is calculated by multiplying the sequential numhours; the price level and rate of hourly labor ber of each quarter in the forward planning period by the corresponding relative-importance weight: X Wti/ X Wj, 1=0 1=0 10. Decisions made by financial intermediaries such as banks are not modeled directly, but instead are captured by equations that link where wj is the relative-importance weight for the i,h quarter in the rates on consumer and business loans and home mortgages to those on planning period. comparable government securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

236 Federal Reserve Bulletin • April 1997 compensation; and dividends. The asset valuation retirees in the form of equal increases in payroll approach is used for the equations for the yields on taxes and social security benefits is predicted to raise three types of bonds; the market value of corporate total spending on consumer goods and to reduce equities; and the exchange rate. The other behavioral saving. equations—including those for exports, imports, The standard life-cycle approach is modified for employment, labor supply, investment in nonresi- FRB/US in three important ways. First, in evaluating dential construction, and the stock of inventories lifetime income, households discount their expected outside of manufacturing and trade—are estimated future income at a rate estimated to be 25 percent per using traditional specifications without explicit year. Such a high rate of discount reflects the signifiexpectations. cant degree of uncertainty that households attach to their future earnings. Given this rate, expected aftertax wage and transfer income over the next five years Household Sector makes up about three-fourths of human capital.13 Second, consumption adjusts to permanent income In the model, households maximize their welfare, only gradually (in accordance with the adjustmentwhich is measured by the present discounted value of cost approach described earlier). The frictions that expected utility derived from the consumption of slow adjustment are relatively small, however, and nondurable goods and services.11 Households are spending therefore adjusts to the level warranted by assumed to prefer a smooth pattern of consumption permanent income at an estimated rate of 20 percent over time and therefore base their spending on per quarter. Finally, an estimated 10 percent of total estimates of permanent income—defined to be pro- consumption is accounted for by a group of houseportional to the sum of human capital and other holds that spend on the basis of current rather than wealth—rather than on current income alone. By permanent income, perhaps because their access to doing so, a household is able to maintain a relatively credit is limited.14 stable standard of living over its lifetime even if its Besides choosing how much to consume, houseincome fluctuates substantially. This model of con- holds also decide how much to spend on housing, sumption is commonly referred to as the "life-cycle" motor vehicles, and other consumer durable goods. model.12 Because housing and durable goods last for many The equation for consumption of nondurable goods years, purchases of these items are modeled as capital and services follows the life-cycle model by allowing investments, where the cost depends in part on the aggregate consumption spending to depend on the inflation-adjusted interest rate on consumer loans or distribution of income and assets across the popula- home mortgages. As with the consumption of nontion (see box "Consumption of Nondurable Goods durable goods and services, the equations for purand Services"). For example, the life-cycle model chases of motor vehicles, other durable goods, and predicts that the marginal propensity to consume— housing reflect households' gradual adjustment to the increase in spending associated with a dollar equilibrium. increase in income or assets—is higher for retirees Income that households do not spend on goods and than for young workers, who are assumed to be services is assumed to be invested in various financial saving for their retirement and their children's educa- assets, including Treasury and corporate securities. tion. Thus, the consumption equation incorporates Households are assumed to be risk averse, and the an estimated higher marginal propensity to consume equations for returns on long-term bonds and stocks out of social security benefits (as well as other transfer income) than out of after-tax labor income. Consequently, a shift of resources from workers to 13. The idea that income may be discounted at a rate well in excess of the market rate of interest was originally proposed by Milton Friedman in his description of the permanent income model of consumption. See Friedman, "Windfalls, the Horizon, and Related Con- 11. In the FRB/US model, the measure of consumption of nondura- cepts in the Permanent Income Hypothesis," in Carl Christ and others, ble goods and services includes the flow of services from durable eds., Measurement in Economics (Stanford University Press, 1963), goods and therefore differs from the data published under the same pp. 3-28. name in the national income and product accounts. 14. For a number of reasons, including the presence of credit- 12. The life-cycle model was introduced in the 1950s by Franco constrained households, Ricardian Equivalence—the independence of Modigliani and Richard Brumberg. It is described in A. Ando and private consumption and the level of government debt—does not hold F. Modigliani, "The Life-Cycle Hypothesis of Saving: Aggregate in the FRB/US model. For example, a temporary reduction in current Implications and Tests," American Economic Review, vol. 53 (1963), income taxes funded through the issuance of bonds redeemed over pp. 55-84. thirty years leads to a short-run increase in consumption in FRB/US. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 237 Consumption of Nondurable Goods and Services The equilibrium level of consumption depends on current Definitions values of stock market and other property wealth and on the C = Consumption of nondurable goods and services present discounted value of expected future income. Income (including service flow from the stock of durables), is divided into labor, transfer, and property components, billions of chained (1992) dollars. where labor income is represented by total income less the sum of transfer and property income. Expectations of future E, = Expectational operator, using information availincome are discounted at the rate of 7 percent per quarter. able at time t. The equilibrium level of consumption also varies procycli- W - Household property wealth excluding stock market cally, as represented by the positive coefficient on the po assets, divided by price index for C. output gap, X . The adjustment equation for consumption gap indicates that optimal dynamic planning determines about W = Household stock market wealth, divided by price ps 90 percent of consumption but that about 10 percent (the index for C. coefficient on A log Y ,) of consumption moves with curh Xgap = Percentage deviation between real GDP and its rent income, possibly because of liquidity constraints. potential level. y h = After-tax total household income, divided by price (1) log C* = .8307 £,{log[(l - ,93)( E .93%,, ,-)]} i' = 0 + index for C. = After-tax household property income, divided by + .0584£,{log[(l-.93XZ .93%,, )]} price index for C. i = 0 + i = Household transfer income, divided by price index for C. - .0656£,{log[(l - .93): I -93%„,,+,)]} is 0 * = Equilibrium value. + .0325 log W + . 144 log W , ps t p0 + .00801 X , - .262. gap (2) A log C = .000554 + . I54(log C*1, - log C _ ,) t r + .208 A log C _ ! t + (1 -.0995)£ _,{I/ A log C* ) f i = f0 +i + .0995 A log Y , h< - (.0995 * .208) A log Y ,_ . K X U = -74. include term and risk premiums that compensate Business Sector households for the risks they bear in holding them. Through the process of arbitrage, asset prices are In the model, firms maximize the present discounted assumed to adjust rapidly, and risk-adjusted returns value of expected profits. They set prices for their are equalized across assets. products, negotiate wages and benefits with their Finally, the decision to participate in the workforce employees, and decide how much to invest in buildis modeled in a relatively simple way that captures ings and equipment, how much inventory to hold, the time trends in participation over the past thirty and how many workers to employ and the length of years and the tendency for the participation rate to the workweek. They also select the amount of profits rise during periods of high employment. The aggre- paid out as dividends. Expectations enter these equagate supply of labor is assumed not to respond to the tions because of the need for planning that arises wage rate or to taxes. from adjustment costs. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

238 Federal Reserve Bulletin • April 1997 In FRB/US, most firms sell their products in mar- ployment rate consistent with profit-maximizing kets characterized by imperfect competition; that is, a behavior of firms and the bargaining ability of workfirm sets the prices of goods it sells as a markup over ers.15 Because the equilibrium unemployment rate costs of production (see box "Prices and Wages"). does not depend on the rate of inflation, it is the same Abstracting from frictions that impede price adjust- as the nonaccelerating inflation rate of unemployment, the profit-maximizing price markup varies ment (NAIRU). Because of short-run frictions, the inversely with the degree of slack in the economy as labor market is often not in equilibrium. When it is measured by the unemployment rate. This relation- not in equilibrium, wage and price inflation will tend ship is illustrated by the downward-sloping line in to rise when unemployment is below the NAIRU and diagram 3. In the model, firms are inhibited by the to fall when unemployment is above the NAIRU. But reactions of their customers and competitors from inflation can also change for other reasons, such as a changing their prices too rapidly in response to movement in energy or import prices. changes in costs or demand. Prices adjust to their Equilibrium production costs depend on the profitequilibrium level at a rate estimated to be 25 percent maximizing mix of capital, labor, and energy used in per quarter. production, and the mix, in turn, depends on the The equation for the rate of hourly labor compensa- after-tax cost of capital relative to the prices of other tion, as measured by the employment cost index, is factor inputs. The cost of capital increases as the based implicitly on a model of bargaining over the inflation-adjusted yield on bonds rises and decreases real wage. Because wages are typically based on as the price of shares in the stock market rises. explicit and implicit multiperiod contracts, they are Equilibrium labor productivity, or output per unit of less flexible than prices: Wages adjust to their equi- labor input, is determined by two factors—long-run librium level at a rate estimated to be only 10 percent trends, assumed to be exogenous, and the equilibrium per quarter. Abstracting from such frictions, the capital and energy intensity of production. ability of workers to bargain for a high real wage In the FRB/US model, a firm meets the demand for depends on their relative bargaining power, which its goods and services given the price it has set by declines during periods of high unemployment. In adjusting production and by building up or drawing diagram 3, this relationship is represented by the down inventory stocks. A firm can alter its level of upward-sloping line, which relates the inverse of the production by adjusting the number of labor hours real wage (the price markup) to the unemployment hired and by installing new equipment. In the model, rate. the responses of employment and investment depend In equilibrium, price inflation equals the growth on the relative costs of labor and capital and on the rate of unit costs, and the price markup over wages frictions that slow the adjustment of labor hours and chosen by firms equals the inverse of the real wage capital. resulting from the bargaining process. This equi- Because of the costs of adjusting total hours, librium in wage- and price-setting is shown by the including the costs of hiring and training new workintersection of the two lines in diagram 3. This ers and of paying shift and overtime premiums, most intersection determines a unique equilibrium unem- firms (covering an estimated two-thirds of privatesector employment) are modeled as adjusting labor 3. Price and wage equilibrium input to its equilibrium level at a rate estimated to be about 15 percent per quarter, thus smoothing labor input over the business cycle. The remaining firms (covering one-third of private-sector employment) adjust hours immediately when demand changes by laying off or recalling workers or by using temporary help. Rapidly altering the rate of equipment investment to its equilibrium level is costly for firms, so their 15. Several theories of wage and price determination yield an equilibrium unemployment rate like that in FRB/US. These theories include labor market search, union wage bargaining, efficiency wages, and insider-outsider interests in employment and compensation. N. Gregory Mankiw and David Romer, eds., New Keynesian Economics (MIT Press, 1991), contains examples of such models. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 239 Prices and Wages Prices. The main price variable in the FRB/US model, P , (4) log P,* = .068 + log L + 1.020 log P xp prdgt xg is a domestic absorption (private domestic final sales plus exports, net of indirect taxes) price index. The equilibrium - .020 log P - .01 lL . ceng urda price, P*, is a weighted average of the equilibrium price for private output, P*, and the price of output from other (5) A log P, = -.009 + .030(log P,* - log fy, _ , u sectors less inventory change, P , and is inversely related olh to the rate of unemployment, L . The equilibrium private urda + X w, A log P i _ i output price—based on a three-factor Cobb-Douglas pro- i = 1 t duction technology—is a markup over minimized cost. The dynamic equation for P follows the framework for gradual xp adjustment described in the text and is constrained to be i = 0 consistent with a vertical long-run Phillips curve; that is, the coefficients on lagged and future inflation sum to one. The - ,009D , + 1.400 A S^ , wpc equation also contains terms that allow for the more rapid adjustment of the prices of energy-intensive products, such + .023 A \ogP lminr as retail gasoline, relative to that of the prices of other goods. Zw, = .709. .291. (1) log P* = log((P*X + P X )/X ) - .003L + .019. Definitions g oth olh p urda D = Dummy for Nixon wage-price controls. (2) log P* = .280 + .980 log {P/L ) + .020 log P . wpc t pnlgt ceng = Expectational operator, using information avail- (3) A log P^, = .001 + .101 (log P* - log P \ _ , able at the end of the previous quarter, t -1. xp Lprdgt ~ Trend labor productivity. 2 + i IX = w 1 ,- A log Pxp, t -j L rda = Demographically adjusted unemployment rate. U P = Price index for crude energy consumption. ceng + £,_,{ IJJ A log ;>*,,,} P = Price for crude energy consumption relative to CENGR price of nonfarm business output. Pi = Compensation per hour in nonfarm business. + .271 C0e , _ 2A log Pcengr, I - 1 P = Minimum wage, deflated by hourly labor lminr ~ .0470) e ,_ 3 A log P ceng r t t-2- compensation. P = Price index for X . Xw, = .566. Zfi = .434. oth oth P = Price index for X. xg g Wages. The equilibrium nominal wage (compensation P = Price index for X. xp p per hour) is based on the same relationship that underlies S = Employer social insurance premiums, deflated by the equilibrium private output price, P*, with an additional tax total labor compensation. term reflecting the negative effect of the unemployment rate on the equilibrium wage. As in the case of the dynamic X = Nonfarm, nonhousing business output plus oil g price equation, the wage equation follows the gradual imports (net of indirect business taxes). adjustment framework and is constrained to be consistent X = Output of housing, farm, household, and instiwith a vertical long-run Phillips curve. Three additional oth tutional sectors plus government output (net of terms—a dummy for wage and price controls, D , the wpc employee compensation) plus non-petroleum rate of growth of employer social insurance taxes, A S , tax imports less inventory investment. and the rate of increase of the real minimum wage, A log P, —capture the rapid pass-through of changes in X = Private domestic final sales (net of sales taxes and minr p these variables to actual wages. other indirect taxes) plus exports. a) = Energy share of output. e * = Equilibrium value. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

240 Federal Reserve Bulletin • April 1997 adjustment to changes in expected output or in the ior of aggregate production, employment, and inflacosts of capital, labor, and energy proceeds relatively tion. Specifically, the FRB/US model is used to slowly, at a rate estimated to be 15 percent per predict how the overall economy would respond to quarter in the FRB/US model. In addition, for a group two hypothetical events—a tightening in fiscal policy of firms (accounting for about 20 percent of invest- achieved through a permanent reduction in defense ment), profit-maximizing investment plans are con- spending and an increase in the price of oil. strained by their limited access to external sources of In the analysis of the first scenario, a critical factor funds. For these firms, investment is determined by is the speed with which the public recognizes that a available cash flow. change in the economic environment has occurred or will occur. The model can be simulated with several possibilities, including gradual learning about the Government Sector change after it has occurred, recognition of the change at the time it occurs, and anticipation of the In the FRB/US model, the government influences change before it occurs. All three possibilities are macroeconomic conditions through three activities: relevant for fiscal policy, so the analysis of the cutmonetary policy carried out by the Federal Reserve, back in defense spending focuses on the sensitivity of fiscal policy carried out by the federal government, the model's predictions to changes in recognition and the spending and tax actions of state and local speed. governments. For the second scenario, the recognition problem Monetary policy is characterized by an equation does not concern oil prices per se (these are readily for the level of the federal funds rate. In model observable) but instead the anticipated response of simulations, policymakers are assumed to set the monetary policy to the rise in oil prices. Specifically, federal funds rate to stabilize the rate of inflation at the public might think that a change in policy has some target level and to hold aggregate demand near occurred when none actually has. The macroecothe level consistent with full employment. The key nomic implications of such a possibility is the focus characteristics of such a policy are the rate of infla- of this analysis. tion that policymakers hope to achieve over time— To simulate the effects of these events, a baseline the inflation target—and the sensitivity of the federal forecast of economic activity is generated given a set funds rate to deviations of actual inflation from this of assumptions for fiscal and monetary policy, forobjective and to deviations of the level of economic eign economic conditions, oil prices, and so forth. activity from its potential. Then the model is run again under the assumption The activities of the federal government are sum- that one of these factors—government spending or marized by a group of equations that describe the the price of oil—changes. A comparison of the basesetting of tax rates (on personal and corporate line and simulation forecasts indicates the way the incomes, payrolls, and the sales value of some goods) economy would react to such an event (according to and the level of spending (on employee compensa- the FRB/US model). tion, investment, other purchases of goods and ser- Simulation of economic events permits the tracing vices, transfer payments, net subsidies to government of the dynamic responses of households and firms enterprises, and grants to state and local govern- to changes in the economic environment. It shows ments). Federal debt (the accumulation of deficits how adjustment costs give rise to macroeconomic over time) is financed through the issuance of Trea- disequilibrium—transitory deviations of aggregate sury bills and bonds. A similar set of equations demand from the economy's full-employment level describes the aggregate tax and spending policies of of production. Such disequilibrium explains, for state and local governments. example, why many policies that may be beneficial in the long run, such as a reduction in federal borrowing or a return to price stability, often carry with them short-run costs in the form of reduced income and EXPECTATIONS IN ACTION: higher unemployment. MODEL SIMULATIONS So far the discussion has focused on the way in which expectations affect the decisions of firms and Tightening of Fiscal Policy households. Now it turns to the interactions of these sectors of the economy and, through model simula- In the first hypothetical event, the Congress passes tions, explores the role of expectations in the behav- legislation that reduces annual defense expenditures Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 241 4. Simulated consequences of a cutback in defense spending when recognition of the change is immediate or gradual Percentage point change Percentage point change Ratio of the federal budget deficit to GDP Unemployment rate 0.4 0.6 1.2 0.4 Immediate recognition 1 I L I I I I I L Federal funds rate Yield on ten-year Treasury bond 0.6 0.6 J 1 L 2 4 6 -2 2 4 6 10 Years relative to cutback Years relative to cutback NOTE. Both simulations are based on VAR expectations. relative to baseline by Vi percent of GDP in the first firms have VAR expectations, are summarized in year of the program and 1 percent in the second year. diagram 4. Results are shown for two different char- The annual reduction in non-interest outlays, ex- acterizations of the speed with which the public recpressed as a percentage of GDP, remains at this level ognizes the extent of the change in policy: (1) The thereafter.16 The improvement in the overall budget public at the start of the program recognizes the full balance is assumed to be a similar percentage of implications of the policy change for the long-run GDP; taxes are adjusted to offset interest savings value of the real federal funds rate, and (2) the public generated by a reduction in federal borrowing. Mone- only gradually revises its estimate of the equilibrium tary policy makers are assumed to act to stabilize the real funds rate, on the basis of observed changes in economy by gradually lowering the federal funds rate actual rates of inflation and interest. In both cases, the whenever the level of real activity is below its poten- public's beliefs about the long-run rate of inflation (in tial and inflation is less than the targeted rate; when other words, about the inflation goals of monetary the opposite is true, they raise the funds rate.17 policy makers) are unaffected by the change in fiscal policy. Under either assumption about the speed of rec- Effects under Immediate and Gradual Recognition ognition, the cuts in defense spending weaken aggregate demand—first by decreasing the sales of defense The macroeconomic effects of the tightening of fiscal contractors and then by decreasing sales in other policy, under the assumption that households and sectors that supply goods and services to the defense industry and its workers. The initial effect is magnified as firms reduce employment and household 16. Such cuts would be only half as great as the actual decline in spending responds to the loss in current income. defense spending since the end of the cold war: Expenditures have Firms and households project (more or less correctly) fallen from about 5Vi percent of GDP in 1989-91 to about 3Vi percent that the initial decline in the level of aggregate sales, today. 17. The speed at which policy responds to changes in real activity employment, and income will persist for a few years. and inflation is based on an equation for the funds rate estimated over Accordingly, firms cut back on their capital spending 1980-95. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

242 Federal Reserve Bulletin • April 1997 and further reduce their demand for labor; house- ably longer if the public only gradually revises its holds moderate their spending on consumer goods notions of the long-term state of the economy. and housing. Under these conditions, unemployment rises. The initial increase in unemployment is smaller if Effects of Prior Recognition the public fails to recognize immediately the size and persistence of the change in fiscal policy; in this In the preceding simulations, the public either recogsituation, households and firms underestimate the full nizes the economic implications of the spending cut contractionary effect of the cuts and see less need as soon as it is implemented or learns about them as to reduce their spending. In contrast, even though time passes. The public might, however, anticipate immediate recognition magnifies the short-run conse- the policy change before its actual implementation. quences of the policy change, it nonetheless hastens Such prior recognition could arise when the Congress the return to equilibrium because in this situation passes legislation containing provisions that take firms and households understand a key fact about the effect at a later date. Prior recognition could also economy as represented by FRB/US: A permanent occur when a prolonged period of discussion within decline in the federal budget deficit, by raising the and outside the government has preceded the passage economy's aggregate rate of saving, lowers the long- of legislation (as, for example, the public debate over term real funds rate consistent with full employ- the likely size of future cuts in defense spending that ment.18 Therefore, with monetary policy directed began immediately after the fall of the Berlin Wall, toward keeping the rate of inflation unchanged, the well before an actual reduction in spending). public forecasts that the nominal federal funds rate If firms and households recognize a policy change will quickly fall to a lower level and remain there before its enactment, they can begin to adjust early. permanently. This view leads to a drop in bond yields Diagram 5 shows the response of the economy to the immediately upon enactment of the cuts in defense cuts in defense spending discussed earlier under two spending.19 By contrast, when recognition is gradual, assumptions: (1) the public recognizes the full change bond yields decline more slowly because firms and in policy when the initial cuts are first enacted and households only sluggishly revise their estimate of (2) the public anticipates the change two years before the long-run level of the federal funds rate. it occurs. In both cases, households and firms are Whether the public reacts quickly or slowly, com- assumed to have model-consistent expectations.20 petitive forces in financial markets ensure that the As can be seen, prior recognition causes the econdecline in bond yields is accompanied by falling omy to strengthen in advance of the spending cuts. mortgage rates, rising stock prices, and a depreciating The source of this early pickup in activity is the dollar. These changes in wealth and borrowing condi- public's knowledge that the coming change in fiscal tions spur consumer spending and domestic capital policy is associated with a lower federal funds rate in formation and increase the net foreign demand for the long run. As a result of this expectation, bond U.S. goods. Eventually, the stimulus from favorable yields fall two years before the spending cuts take financial conditions fully offsets the contractionary place. The stimulus from this reduction in borrowing effect of the cuts in defense spending, and unemploy- costs—combined with the effects of higher stock ment returns to its baseline level. This return takes prices and a lower foreign exchange value of the five years if recognition is immediate and consider- dollar—initially increases aggregate demand, particularly in the areas of investment goods and net exports. As a result, the unemployment rate falls before the change in policy, and in response, the federal funds rate rises. However, once the spending cuts are imple- 18. In FRB/US, inflation stability is achieved only if the unemployment rate equals the NAIRU or, equivalently, only if aggregate demand equals the potential level of output. The real interest rate that achieves this equality is the equilibrium real rate. Because aggregate demand is positively related to government spending and negatively 20. Comparison of the black lines in diagrams 4 and 5 shows that related to the real interest rate, a permanent decline in government altering the scope of the public's knowledge about the economy has spending must, if equilibrium is to be restored, be offset by a perma- little effect on the predicted macroeconomic consequences of the nent decline in the real interest rate. change in fiscal policy: For this hypothetical event, what matters is not 19. The initial decline in long-term interest rates is smaller than the whether the public has VAR (diagram 4) or model-consistent (diaeventual fall, primarily because the term premiums demanded by gram 5) expectations, but the speed at which they recognize that a investors increase with the slowdown in economic activity. Once the change has occurred. For other scenarios (such as that of the oil price level of activity returns to normal, term premiums return to baseline shock), however, altering the scope of the public's knowledge does values. significantly affect the model's predictions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 243 5. Simulated consequences of a cutback in defense spending when policy change is recognized before or immediately upon enactment Percentage point change Percentage point change Ratio of the federal budget deficit to GDP Unemployment rate - 0.4 - 0.6 Immediate recognition 1.2 0.4 Early recognition J L J I L J I L J I L J I I Federal funds rate Yield on ten-year Treasury bond - 0.6 0.6 _J 1 L I I I I L J 1— _1 1 1 L 0 2 4 6 -2 0 2 4 6 10 Years relative to cutback Years relative to cutback NOTE: Both simulations are based on model-consistent expections. mented, the rise in aggregate demand is reversed, and price of oil, like the ones that occurred during the the pattern of economic activity is roughly the same middle and late 1970s. Consider a simulation in as if the change had not been recognized in advance. which oil prices double over the course of a year and remain at this higher level for several years thereafter.21 This situation is illustrated in diagram 6, Rise in Oil Prices under the assumption that firms and households have VAR expectations. As can be seen, such an energy In the simulations involving a cut in defense spend- shock would produce a large initial spike in coning, households and firms face the problem of dis- sumer price inflation. cerning the long-run objectives of fiscal policy. In In one situation (curve labeled "Correct" in diaone case they recognize the complete details of the gram), the initial rise in inflation is assumed to have program immediately upon enactment; in others they no effect on the public's beliefs concerning the goals either learn about the change over time or anticipate of monetary policy; the public has confidence in the it in advance. In gauging the likely effects of their government's commitment to restoring the baseline actions, policymakers must accept that any of these rate of inflation and does not change its expectations reactions is possible and that policy actions can influ- regarding inflation in the long run. In an alternative ence but not wholly control the public's speed situation (curve labeled "Incorrect"), the public, seeof recognition (or any other aspect of the public's ing that inflation has risen, modifies its views about beliefs). Conceivably, there are circumstances in which the public may come to perceive a change in policy when 21. A price increase of this magnitude would be considerably none has occurred. Such a situation might arise, for smaller than the 250 percent rise in 1973-74 but about the same size example, in the context of a large increase in the as that in 1979-80. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

244 Federal Reserve Bulletin • April 1997 6. Simulated consequences of higher oil prices when public perceptions of monetary policy are correct or incorrect Percentage point change Percentage point change Inflation Long-run inflation expectations 1.2 0.6 0.6 0.3 J I J L J L J L Federal funds rate Unemployment rate 0.6 0.4 0.2 0.6 J _J L J L 2 4 2 4 6 10 Years relative to oil price increase Years relative to oil price increase NOTE. Both simulations are based on VAR expectations. the long-run target for inflation, even though the initially rises in response to the original spike in goals of policy have not changed. Under such circum- inflation but later falls below baseline as inflation stances the price spike leads to expectations of a moderates and unemployment rises. With inflation significant increase in long-run inflation. Only after close to baseline after three years, the implied reducpolicymakers prove their commitment to a noninfla- tion in the real interest rate is sufficient to eventually tionary path and achieve a reduction in the actual rate offset the contractionary effects of higher oil prices. of inflation—a process that takes several years—do The cost of bringing inflation down to its original expectations of long-run inflation return to baseline. level is greater, in terms of the cumulative increase in The rise in oil prices affects households and firms unemployment, if the public thinks that the target rate in similar ways under the two assumptions about of inflation has risen. This extra cost arises because expectations. For example, in both cases higher oil the public's misperception of policy leads it to make prices feed directly into higher prices for gasoline, two forecasting errors: (1) an overstatement of the heating oil, and other sources of energy. The higher future rate of growth of unit labor costs (the wage energy bill puts pressure on firms' profit margins, and rate adjusted for productivity growth) and (2) an thus on prices, while workers demand higher wages understatement of the average future level of unemas the cost of living rises. Because wages adjust more ployment. The first error is a direct consequence of slowly than prices, the real wage falls and depresses the policy misperception, because equilibrium in the demand for consumer goods. Consumption FRB/US requires that the rate of growth of unit labor spending is further restrained by the increase in the costs must equal the target rate of inflation in the long share of aggregate income flowing overseas to pay run. The second error results from the mistaken belief for imported oil. Under these circumstances, unem- that monetary policy makers will allow inflation to ployment rises. remain permanently higher instead of bringing it back to baseline by restraining aggregate demand. The resultant weakness in aggregate spending is Because the actual rate of inflation depends on the only transitory. Because the goal of monetary policy expected growth of unit labor costs and the future is to stabilize the economy, the federal funds rate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

The Role of Expectations in the FRB/US Macroeconomic Model 245 level of unemployment (as well as on lagged infla- model of the U.S. economy used at the Federal tion), the two forecasting errors exacerbate the infla- Reserve Board and the ways in which they affect tion problem created by higher oil prices. To offset predictions of the economy's response to disturthis additional source of inflationary pressure, the bances in aggregate supply and demand. As noted stance of monetary policy must be tighter on average. earlier, economists do not agree on the appropriate The need for this tighter stance does not disappear treatment of expectations in macroeconomic models. until the policy misperception is corrected through an Thus, the FRB/US model was designed to be flexible actual reduction in inflation. with respect to the formation of expectations. A subject of ongoing research is the way in which firms and households modify their method of forming CONCLUSION expectations in light of new evidence—that is, how they learn about the structure of the changing eco- These simulations provide a glimpse of the key role nomic environment. The FRB/US model provides a that expectations play in the new macroeconomic framework for analyzing this and other issues. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

246 Industrial Production and Capacity Utilization for February 1997 Released for publication March 14 weather. At 118.1 percent of its 1992 average, industrial production in February was 3.8 percent above its Industrial production rose 0.5 percent in February level of February 1996. Capacity utilization edged up after having edged down a revised 0.1 percent 0.1 percentage point, to 83.3 percent, matching the in January. The increase resulted from gains in average level in the last half of 1996. the production of durable consumer goods, business When analyzed by market group, the data show equipment, construction supplies, and durable materi- that the output of consumer goods was unchanged in als; the output of energy products and energy materi- February; gains in the production of durable goods als fell sharply because of the unseasonably warm and nondurable goods other than energy products Industrial production indexes Twelve-month percent change Twelve-month percent change Capacity and industrial production Ratio scale, 1987 production = 100 Ratio scale, 1987 production =100 Percent of capacity Total industry Manufacturing Utilization - 1 1 1 1 1 1 1 1 1983 1985 1987 1989 1991 1993 1995 1997 1983 1985 1987 1989 1991 1993 1995 1997 All series are seasonally adjusted. Latest series, February. Capacity is an index of potential industrial production. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

247 Industrial production and capacity utilization, February 1997 Industrial production, index, 1992= 100 Percentage change CCaatteeggoorryy 11999966 11999977 19961 1997 FFeebb.. 11999966 ttoo Nov.r Dec.r Jan.r Feb.P Nov.' Dec/ Jan.r Feb.P FFeebb.. 11999977 Total 117.2 117.7 117.6 118.1 .8 .4 -.1 .5 3.8 Previous estimate 117.1 117.7 117.7 .8 .5 .0 Major market groups Products, total2 114.1 114.3 114.3 114.8 1.1 .2 .0 .5 3.6 Consumer goods 112.3 112.7 112.1 112.1 1.3 .4 -.6 .0 2.1 Business equipment 129.8 130.5 131.8 133.3 .8 .5 1.0 1.1 7.0 Construction supplies 120.7 118.1 118.1 119.7 2.6 -2.2 .0 1.4 5.7 Materials 122.2 123.1 122.7 123.3 .4 .8 -.3 .5 4.1 Major industry groups Manufacturing 118.5 119.2 118.9 119.8 .8 .6 -.2 .8 4.4 Durable 128.4 128.9 128.9 130.5 1.0 .4 .1 1.2 5.6 Nondurable 107.9 108.8 108.1 108.5 .5 .8 -.6 .3 3.0 Mining 103.5 105.0 104.3 105.6 .1 1.4 -.6 1.3 4.8 Utilities 114.5 112.7 114.1 110.1 2.4 -1.6 1.3 -3.5 -2.8 Capacity utilization, percent MEMO Capacity, percentage 1996 1997 change, Average, Low, High, Feb. 1996 1967-96 1982 1988-89 Feb. Nov.r Dec. Jan. Feb.P to Feb. 1997 Total 82.1 71.1 85.3 83.2 83.4 83.5 83.2 83.3 3.7 Previous estimate 83.4 83.5 83.3 Manufacturing 81.2 69.0 85.7 82.2 82.4 82.5 82.1 82.5 4.1 Advanced processing 80.6 70.4 84.2 80.9 80.5 80.7 80.3 80.6 4.9 Primary processing . 82.3 66.2 88.9 85.3 86.5 86.6 86.0 86.6 2.3 Mining 87.5 80.3 86.8 86.5 91.1 92.4 91.7 92.9 -.1 Utilities 87.2 75.9 92.6 91.5 91.0 89.3 90.4 87.1 2.1 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. were offset by weather-related declines in the output The output of construction supplies rebounded, of energy products. Among durables, the output of reversing much of the weakening of the previous two motor vehicles advanced further, to a level well above months. The production of materials rose 0.5 percent, the average pace in 1996. In addition, the production led by a sizable gain in the output of durable goods of appliances rebounded, reversing some of the materials. Among the components of durable materidecline posted in January. On balance, however, the als, the output of equipment parts, particularly semioutput of appliances was somewhat below the high conductors, rose sharply. The production of parts for levels of last spring and summer. The production of consumer durables, mainly for motor vehicles, also nondurable consumer goods other than energy prod- increased. The output of nondurable goods materials ucts also turned up; so far this quarter, the output in edged down 0.3 percent; gains in the production of this sector, which perked up late last year, is about paper materials were offset by declines in other cateunchanged from the fourth-quarter level. gories. Over the past few months, the output of paper The output of business equipment rose 1.1 percent and chemicals has improved somewhat, while, on further in February, with all major categories posting balance, the production of textiles has weakened. The gains. The output of information processing equip- production of most energy materials fell in February ment continued to contribute importantly to the because of the relatively mild weather. strength in this sector, accounting for about half of When analyzed by industry group, the data show the February gain. In addition, the ongoing strength that manufacturing output rose 0.8 percent in Februin commercial aircraft boosted the production of tran- ary after a 0.2 percent decrease in January. The gain sit equipment; the output of industrial equipment, mainly reflected a rebound in durables; the output in which had been quite sluggish last year, rose notice- this sector was about flat in January. The production ably for a second month. of nondurables rose 0.3 percent, retracing part of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

248 Federal Reserve Bulletin • April 1997 decline in January. The sharp drop in utility output advanced-processing industries edged up 0.3 percentmore than offset a large increase in the index for age point, to 80.6 percent; the rate for primarymining, which was boosted by higher coal output and processing industries rose 0.6 percentage point, to a pickup in oil and gas drilling activity. 86.6 percent. The factory operating rate rose 0.4 percentage This release and the history for all published series point, to 82.5 percent, and was just slightly above are available on the Internet at the Board's World the level of a year earlier. The utilization rate for Wide Web site, http://www.bog.frb.fed.us. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

249 Statements to the Congress Statement by Alan Greenspan, Chairman, Board of Thus, if my comments today sound cautious, I Governors of the Federal Reserve System, before the want the subcommittee to understand that my obser- Subcommittee on Financial Institutions and Con- vations do not reflect opposition to further freeing of sumer Credit of the Committee on Banking and constraints on financial competition. To the contrary. Financial Services, U.S. House of Representatives, We strongly urge an extensive increase in the activi- February 13, 1997 ties permitted to banking organizations and other financial institutions, provided these activities are It is a pleasure to appear here today to present the financed at nonsubsidized market rates and do not views of the Federal Reserve Board on some broad pose unacceptable risks to our financial system. issues associated with financial modernization. The Although a level playing field requires broader powunremitting pressures of technology and the market ers, it does not require subsidized ones. are drastically changing the financial landscape and eroding traditional positions of competitors, inducing new competitive strategies and participants, forcing SAFETY NET IMPLICATIONS new regulatory responses, and building pressures on the Congress to shape developments in the public In this century the Congress has delegated the use of interest. the sovereign credit—the power to create money and I know that you have been an active sponsor and borrow unlimited funds at the lowest possible supporter of legislation to modernize the financial rate—to support the banking system. It has done so system. The Board also has been a strong proponent indirectly as a consequence of deposit insurance, both of expanded financial activities for banking Federal Reserve discount window access, and final organizations and enhanced opportunities for non- riskless settlement of payment system transactions. bank financial institutions to enter banking. We con- The public policy purpose was to protect depositors, tinue to support financial modernization because we stem bank runs, and lower the level of risk to the believe it would provide improved financial services financial system from the insolvency of individual for our citizens. Moreover, both our experience and institutions. In insuring depositors, the government, analysis suggest that the additional risks of new through the Federal Deposit Insurance Corporation financial products are modest and manageable. (FDIC), substituted its unsurpassable credit rating for Indeed, technology already has resulted in a blurring those of banks. Similarly, provisions of the Federal of product and service-defining lines so dramatic as Reserve Act enabled banks to convert illiquid assets, to make many financial products virtually indistin- such as loans, into riskless assets (deposits at the guishable from one another and the old rules inappli- central bank) through the discount window and to cable. In the process, we have already seen the public complete payments using Federal Reserve credits. benefits—benefits that removal of old barriers could All these uses of the sovereign credit have dramationly enhance. cally improved the soundness of our banking system But as we proceed down the path of reform, and the public's confidence in it. reforms both desired for their benefits to the public In the process, it has profoundly altered the risks and required by global markets and new technolo- and returns in banking. Sovereign credit guarantees gies, the Board urges that any modifications be tested have significantly reduced the amount of capital that against certain standards. In particular, the Board banks and other depositories need to hold because believes that the changes we adopt should be consis- creditors demand less of a buffer to protect themtent with (1) continuing the safety and soundness selves from the failure of institutions that are the of the banking system; (2) limiting systemic risks; beneficiaries of such guarantees. In different lan- (3) contributing to macroeconomic stability; and guage, these entities have been able to operate with a (4) limiting the spread of both the moral hazard and much higher degree of leverage—that is, to obtain the subsidy implicit in the safety net. more of their funds from other than the owners of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

250 Federal Reserve Bulletin • April 1997 organization—than virtually all other financial insti- bank holding companies and their nonbank subsiditutions. At the same time, depositories have been able aries have a higher cost of capital than banks. to take greater risk in their portfolios than would This is clear in the debt ratings of bank subsidiaries otherwise be the case because private creditors— of bank holding companies, which are virtually depositors and others—are less affected by the illi- always higher than those of their parent holding quidity of, or losses on, the banks' portfolios. The companies. Moreover, existing law and regulation end result has been a higher risk-adjusted rate of under sections 23A and 23B of the Federal Reserve return on depository institution equity. Act require that any credit extended by a bank to its Moreover, the enhanced ability to take risk has parent or affiliate not only be totally collateralized contributed to economic growth, while the discount and subject to quantitative limits but also be extended window and deposit insurance have contributed to at arm's length and at market rates, making a direct our macroeconomic stability. But all good things transfer of the safety net subsidy difficult. have their price. The use of the sovereign credit in It is true that a bank could pay dividends from its banking—even its potential use—creates a moral earnings—earnings that have been enhanced by the hazard that distorts the incentives for banks: The safety net subsidy to fund its parent's nonbank affilibanks determine the level of risk-taking and receive ates. However, the evidence appears to be that such the gains therefrom but do not bear the full costs of transfers generally do not occur. Existing holding that risk. The remainder of the risk is transferred to company powers are limited and do not offer a broad the government. This then creates the necessity for spectrum of profitable opportunities. Accordingly, it the government to limit the degree of risk it absorbs is not surprising that data for the top fifty bank by writing rules under which banks operate and holding companies indicate that transfers from bank imposing on these entities supervision by its agents— subsidiaries to their parents, which, like dividends, the banking regulators—to ensure adherence to these embody the subsidy, appear to have approximately rules. The experience with many insured thrift institu- equaled holding company net transfers to their own tions in the 1980s showed just how dangerous lax shareholders and long-term creditors. This finding enforcement of supervisory rules can be. In the indicates that few subsidized dollars in the aggregate end, some hard lessons were learned, many of which found their way into the equity accounts of holding were legislated into the FDIC Improvement Act of company nonbank affiliates from the upstreaming of 1991. bank funds. The subsidy to the banking and other depositories We must, I think, be continually on guard that the created by the use of the unsurpassable sovereign subsidy provided by the safety net does not leak credit rating of the U.S. government is an undesirable outside the institutions for which it was intended and but unavoidable consequence of creating a safety net. provide a broad subsidy to other kinds of activities. Indeed, one measure of the effectiveness of a safety Put another way, we must remain especially vigilant net is our ability to minimize the subsidy and limit its in maintaining a proper balance between a safety net incidence outside the area to which it was directed. that fosters economic and financial stabilization and Some of the value of the subsidy has been passed to one that benefits the competitive position of private depositors of, and borrowers from, banks, for exam- businesses for no particular public purpose. As I ple, as well as to the original bank shareholders. But noted, safety net subsidies have costs in terms of the U.S. government has been remarkably successful distorted incentives and misallocated resources. That in containing the value of most of the subsidy within is why the Congress must be cautious in how the depository institutions. The organizational structure sovereign credit is used. of the bank holding company has, on balance, pro- It has been suggested that the structure of the bank vided an effective means of limiting the use of the holding company imposes inefficiencies on banking sovereign credit subsidy by other parts of the banking organizations and that these organizations should thus organization. To be sure, bank holding companies be given the option of conducting expanded financial have indirectly benefited from the subsidy because activities in a direct subsidiary of the bank. The bank their major assets are subsidiary banks. The value of subsidiary may be a marginally more efficient way of the subsidy given to the subsidiary banks has no delivering such services, but we believe it cannot doubt been capitalized, in part, into the share prices avoid being a funnel for transferring the sovereign of holding companies and has improved their debt credit subsidy directly from the bank to finance the ratings, lowering their cost of capital. But holding new powers, thereby imparting a subsidized competicompanies also own nonsubsidized entities that have tive advantage to the subsidiary of the bank. One can no direct access to the safety net. Accordingly, both devise rules—such as 23A and 23B—to ensure that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 251 loans from the bank to its own subsidiaries are lim- holding companies would shift those activities now ited and at market rates. One can even devise rules to conducted in holding company affiliates to bank sublimit the aggregate equity investment made by banks sidiaries, eviscerating the holding company structure. in their subsidiaries. But one cannot eliminate the If such shifts happened solely as the result of operafact that the equity invested in subsidiaries is funded tional efficiencies, no one, including the Board, by the sum of insured deposits and other bank bor- should mourn the demise of the holding company. rowings that directly benefit from the subsidy of the But if, as I suspect, such shifts occurred because of safety net. Thus, inevitably, a bank subsidiary must the attraction of a government subsidy, we should be have lower costs of capital than an independent entity concerned because the insidious effects of such subsiand even a subsidiary of the bank's parent. Indeed, dies would have spread. The evidence from flows one would expect that a rational banking organization between banks and their parents, relative bond ratwould, as much as possible, shift its nonbank activity ings, and the administration of sections 23A and B of from the bank holding company structure to the bank the Federal Reserve Act all strongly suggest that the subsidiary structure. Such a shift from affiliates to holding company structure is far more capable of bank subsidiaries would increase the subsidy and the containing the sovereign credit subsidy whose purcompetitive advantage of the entire banking organiza- pose is support of the safety net, not providing tion relative to its nonbank competitors. expanded competitive advantage. I am aware that these are often viewed as only As new activities hopefully expand for banking highly technical issues and hence ones that are in the organizations, we believe that it is essential that we end of little significance. I do not think so. The issue ensure that they are financed at market rates, not of the use of the sovereign credit is central to how our subsidized ones. This will not always be easy. Confinancial system will allocate credit and hence real tainment of subsidies is often implemented through resources, the kinds of risk it takes, and the degree firewalls and other devices that could also inhibit the of supervision it requires. If the Congress wants to very synergies that the expansion of activities is extend the use of the sovereign credit further, to meant to achieve. But we have dealt with these achieve a wider range over which the benefits of tradeoffs before and should be able to do so in the doing so can accrue, it ought to make that decision future as well. explicitly and accept the consequences of the subsidy on the financial system that come with it. But it should not, in the name of some technical change, or UMBRELLA SUPERVISION in search of some minor efficiency, inadvertently expand the use of the sovereign credit. This issue Whether new activities are authorized in bank subsidwould not be so important if we were not in the iaries, bank holding companies, or both, the Conprocess of addressing what must surely be a water- gress, in its review of financial modernization, must shed in the revamping of our regulatory structure. We consider legal entity supervision versus umbrella must avoid inadvertently extending the safety net and supervision. The Board believes that umbrella superits associated subsidy without a thorough understand- vision is a realistic necessity to protect our financial ing of the implications of such an extension to the system and to limit any misuse of the sovereign competitive balance and systemic risks of our finan- credit. cial system. The bank holding company organization is increas- Central to the Board's choice of a financial struc- ingly being managed to take advantage of the synerture is its desire for one that will be most effective in gies between its component parts to deliver better fostering both a viable financial system and a vibrant products to the market and higher returns to stockeconomy. These objectives, in our view, would be holders. Such synergies cannot occur if the model of thwarted if the safety net subsidy directly benefited the holding company is one in which the parent is new activities. With the safety net comes the moral just, in effect, a portfolio investor in its subsidiary. hazard of which I spoke earlier, and its attendant Indeed, virtually all of the large holding companies misallocation of resources, and uneven competitive now operate as integrated units and are managed as playing field. If the government subsidies directed to such. banks were channeled to bank subsidiaries, in my As bank holding companies began to widen their judgment, both the benefits and enumerated costs to activities, and as new technologies permitted not only the financial system and the public would occur. the development of new products but also the sys- If banks were permitted to engage in new activities tems for controlling them, the banking organization in their own subsidiaries, inevitably virtually all was impelled to develop centralized risk-control Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

252 Federal Reserve Bulletin • April 1997 techniques that crossed legal entities. Today, risk their exposure to all units of an organization that management for the entire company is increasingly seem to be having trouble. Better safe than sorry. centralized not only at the larger and more sophisti- Indeed, it is in the cauldron of the payments and cated banking organizations but at other large finan- settlement system, where decisions involving large cial services providers as well. This development sums must be made in short periods, that this conreflects the demands of the market place, which views tagion effect might first be seen as participants banks and their affiliates and other financial busi- understandably seek to protect themselves from the nesses and their affiliates as integrated organizations uncertainty that accompanies this contagion effect. in terms of financial condition, management, and And that is how crises often begin. reputation. These concerns were part of the motivation for the To understand the risk controls of the bank, we congressional decision just five years ago to require have first to come to grips with the fact that the that foreign banks could enter the United States if, organization is interested in risk and its control, not and only if, they were subject to consolidated superby instrument or legal entity but for the entire busi- vision. This decision, which is consistent with the ness. This type of control is being adopted by more international standards for consolidated supervision and more organizations each year and can only of banking organizations, was a good decision then. increase as more activities are authorized by the It is a good decision today, especially for those bankregulators and the Congress. Regulatory policies ing organizations whose disruption could cause major and operating procedures have had to respond to financial disturbances in U.S. and foreign markets. these realities, to focus on the process of decision- For foreign and for U.S. banking organizations, making for the total organization. Thus, the Federal retreat from consolidated supervision would, the Reserve—the historical umbrella supervisor—also Board believes, be a significant step backward. has found it necessary to concentrate more on the We have to be careful, however, that consolidated process that banking organizations use to manage umbrella supervision does not inadvertently so hammarket, credit, operating, and exchange rate risk, and per the decisionmaking process of banking organizaless on the traditional after-the-fact evaluation of tions as to render them ineffectual. The Federal balance sheets that can, and often do, change dramati- Reserve Board is accordingly in the process of cally the day after they have been reviewed by the reviewing its supervisory structure and other procesupervisors. In such a world, process, if not every- dures to reflect the aforementioned market-directed thing, is critical, and that process is determined shift from conventional balance sheet auditing to increasingly at the parent holding company for all evaluation of the internal risk-management process. of the units of the organization on a consolidated Although focused on the key risk-management probasis. cesses, it would sharply reduce routine supervisory One could argue—as several witnesses appearing umbrella presence in holding companies. As the combefore this subcommittee did on Tuesday—that regu- mittee knows, the Board has recently published for lators should only be interested in the entities they comment proposals to expedite the applications proregulate and, hence, review the risk-evaluation pro- cess, and the legislation that the Congress enacted cess only as it relates to their regulated entity. Pre- last year eased such procedures as well. Nonetheless, sumably each regulator of each entity—the bank the Board requests even greater modification to its regulators, the Security and Exchange Commission, existing statutory mandate so that the required appliand the state insurance and finance company cations process could be sharply cut back, particuauthorities—would look only at how the risk- larly in the area of nonbank financial services. management process affected their units. It is our We would hope that if the Congress authorizes belief that this simply will not be adequate. Risks wider activities for financial services holding compamanaged on a consolidated basis cannot be reviewed nies, that it recognize that a bank that is a minor part on an individual legal entity basis by different of such an organization (and its associated safety net) supervisors. can be protected through adequate bank capital Indeed, our experience has been that a problem in requirements and the application of sections 23A and one legal entity can have a contagion effect in other 23B of the Federal Reserve Act. The case is weak, in entities. If a bank affiliate begins to have difficulty, our judgment, for umbrella supervision of a holding the market evaluates the problem as the consolidated company that because it owns only a small bank, entity's problem and can bring pressure on all the does not have material access to the safety net. units. These pressures usually take the form of fund- As I noted when discussing the safety net and bank ing or liquidity difficulties, as creditors seek to reduce subsidiaries, attached to all uses of the sovereign Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 253 credit come efforts by the government to protect the If we were fully confident of how the structure taxpayer. Those entities interested in banks are really would evolve, we could presumably construct today interested in access to the safety net because it is far the regulations that would foster that evolution. But easier to engage in the nonsafety net activities of we cannot be certain. We thus run the risk of locking banks without acquiring a bank. If an organization in a set of inappropriate regulations that could chooses to deliver some of its services with the aid of adversely alter the development of market structures. the sovereign credit by acquiring a bank, it should not We cannot be confident that we know what the true be excused from efforts of the government to look synergies between finance and nonfinance will be in out for the stability of the overall financial system. ten or even five years. Our ability to foresee accu- For bank holding companies that own more than a rately the future implications of technologies and small bank, this implies umbrella supervision. market developments in banking, as in other indus- Although that process will increasingly be designed tries, has not been particularly impressive. As Profesto reduce supervisory presence and be as nonintru- sor Rosenberg of Stanford University has pointed sive as possible, umbrella supervision should not be out, "... mistaken forecasts of future structure litter eliminated but recognized for what it is: the cost of our financial landscape." Consider the view of the obtaining a subsidy. 1960s that the "cashless society" was imminent. Nonetheless, the public preference for paper has declined only gradually. Similarly, just a few years ago conventional wisdom argued that banks were BANKING AND COMMERCE dinosaurs that were becoming extinct. The reality today is far from it. Even more recently, it was Finally, let me turn to an issue that has bedeviled argued that banks and nonfinancial firms had to supervisory and regulatory discussions for years: the merge to save the capital-starved banking system. potential separation of commerce and banking. Today, as you know, virtually all of our banks are As I indicated earlier, it is clear that rapidly changvery well capitalized. ing technologies are altering the nature of what constitutes finance. Indeed, just as the lines between All these examples suggest that if we change the banking and other financial institutions are often rules now about banking and commerce under ciralready difficult to discern, the boundaries between cumstances of uncertainty about future synergies finance and nonfinance are likely to become increas- between finance and nonfinance we might end up ingly indistinct as we move into the twenty-first doing more harm than good. And, as with all rule century. For example, computer and software firms changes by government, we are likely to find it will certainly be offering ever more sophisticated impossible to correct our errors promptly. Modificafinancial products. And doubtless financial firms will tions of such a fundamental structural rule as the be offering an increasingly sophisticated array of separation of banking and commerce should accordnonfinancial services. In addition, some of the finan- ingly proceed at a deliberate pace, testing the cial firms who mainly produce products and services response of markets and technological innovation to that many observers believe should be permissible to the altered rules in the years ahead. The public needs banks are also engaged in, or affiliated with, nonfi- to have confidence in the regulatory structure, implynancial businesses. ing that we proceed slowly and cautiously. Newer technologies will make it highly unlikely Excessive delay, however, would doubtless prothat the walling off of any ownership of financial duce some inequities. Expanded financial activities institutions by nonfinancial businesses and vice versa for banking organizations requires, the Board can be continued very far into the twenty-first cen- believes, that those firms operating in markets that tury. Nonetheless, the Board has concluded that it banks can enter should, in turn, be authorized to would be wise to move with caution in addressing the engage in banking. However, some of these nonbankremoval of the current legal barriers between com- ing financial firms already own—or are owned by— merce and banking. The free and open legal associa- nonfinancial entities. A complete commerce and tion of banking and commerce would be a profound banking prohibition would thus require the divestiand surely irreversible structural change in the ture of all nonfinancial activities by those organiza- American economy. Hence, we must be careful to tions that wanted to acquire or establish banks. The assure ourselves that whatever changes are made in principle of caution suggests an approach that may our supervisory structure not distort our evolution to prove useful. Perhaps those organizations that either the most efficient financial structure as we move into have or establish well-capitalized and well-managed the next century. bank subsidiaries should be permitted a small basket Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

254 Federal Reserve Bulletin • April 1997 of nonfinancial assets—a certain percentage of either might be addressed on a case-by-case basis with a consolidated assets or capital. A small permissible scheduled longer-term divestiture to avoid the worst basket would establish, in effect, a pilot program to short-term inequities. A basket clause plus a case-byevaluate the efficacy of further breaching of the bank- case review of individual situations might also proing and commerce wall. We found that such a slow vide a way to make available a common bank and and deliberate policy worked well with section 20 thrift charter to those unitary thrift institutions that affiliates. are affiliated with nonfinancial businesses. The Board Of course, some nonbanking firms would find that has no firm opinion on just exactly how such their nonfinancial activities would exceed a small tradeoffs might be made, constrained only by the basket exemption. Such excess nonconforming assets general concerns I summarized earlier. Statement by Alan Greenspan, Chairman, Board of Looking ahead, the members of the FOMC expect Governors of the Federal Reserve System, before the inflation to remain low and the economy to grow Committee on Banking, Housing, and Urban Affairs, appreciably further. However, as I shall be discuss- U.S. Senate, February 26, 1997 ing, the unusually good inflation performance of recent years seems to owe, in large part, to some I appreciate the opportunity to appear before this temporary factors of uncertain longevity. Thus, the committee to present the Federal Reserve's semi- FOMC continues to see the distribution of inflation annual report on monetary policy.1 risks skewed to the upside and must remain espe- The performance of the U.S. economy over the cially alert to the possible emergence of imbalances past year has been quite favorable. Real GDP growth in financial and product markets that ultimately could picked up to more than 3 percent over the four endanger the maintenance of the low-inflation enviquarters of 1996, as the economy progressed through ronment. Sustainable economic expansion for 1997 its sixth year of expansion. Employers added more and beyond depends on it. than 7}/i million workers to their payrolls in 1996, For some, the benign inflation outcome of 1996 and the unemployment rate fell further. Nominal might be considered surprising, as resource utilizawages and salaries have increased faster than prices, tion rates—particularly of labor—were in the neighmeaning that workers have gained ground in real borhood of those that historically have been associterms, reflecting the benefits of rising productivity. ated with building inflation pressures. To be sure, an Outside the food and energy sectors, increases in acceleration in nominal labor compensation, especonsumer prices actually have continued to edge cially its wage component, became evident over the lower, with core CPI inflation only 2Vi percent over past year. But the rate of pay increase still was the past twelve months. markedly less than historical relationships with labor Low inflation last year was both a symptom and a market conditions would have predicted. Atypical cause of the good economy. It was symptomatic of restraint on compensation increases has been evident the balance and solidity of the expansion and the for a few years now and appears to be mainly the evident absence of major strains on resources. At the consequence of greater worker insecurity. In 1991, at same time, continued low levels of inflation and the bottom of the recession, a survey of workers at inflation expectations have been a key support for large firms by the International Survey Research Corhealthy economic performance. They have helped to poration indicated that 25 percent feared being laid create a financial and economic environment con- off. In 1996, despite the sharply lower unemployment ducive to strong capital spending and longer-range rate and the tighter labor market, the same survey planning generally, and so to sustained economic organization found that 46 percent were fearful of a expansion. Consequently, the Federal Open Market job layoff. Committee (FOMC) believes that it is crucial to keep The reluctance of workers to leave their jobs to inflation contained in the near term and ultimately to seek other employment as the labor market tightened move toward price stability. has provided further evidence of such concern, as has the tendency toward longer labor union contracts. For many decades, contracts rarely exceeded three years. Today, one can point to five- and six-year contracts— 1. See "Monetary Policy Report to the Congress," Federal Reserve contracts that are commonly characterized by an Bulletin, vol. 83 (March 1997), pp. 173-87. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 255 emphasis on job security and that involve only mod- signs that the return to more normal patterns may be est wage increases. The low level of work stoppages in process. The Bureau of Labor Statistics reports of recent years also attests to concern about job that people were somewhat more willing to quit their security. jobs to seek other employment in January than previ- Thus, the willingness of workers in recent years to ously. The possibility that this reflects greater confitrade off smaller increases in wages for greater job dence by workers accords with a recent further rise in security seems to be reasonably well documented. the percent of households responding to a Conference The unanswered question is why this insecurity per- Board survey who perceive that job availability is sisted even as the labor market, by all objective plentiful. Of course, the job market has continued to measures, tightened considerably. One possibility be quite good recently; employment in January regismay lie in the rapid evolution of technologies in use tered robust growth, and initial claims for unemployin the work place. Technological change almost ment insurance have been at a relatively low level of surely has been an important impetus behind corpo- late. Wages rose faster in 1996 than in 1995 by most rate restructuring and downsizing. Also, it contrib- measures, perhaps also raising questions about utes to the concern of workers that their job skills whether the transitional period of unusually slow may become inadequate. No longer can one expect to wage gains may be drawing to a close. obtain all of one's lifetime job skills with a high To be sure, the pickup in wage gains has not shown school or college diploma. Indeed, continuing educa- through to underlying price inflation. Increases in the tion is perceived to be increasingly necessary to core CPI, as well as in several broader measures of retain a job. The more pressing need to update job prices, have stayed subdued or even edged off further skills is doubtless also a factor in the marked expan- in recent months. As best we can judge, faster prosion of on-the-job training programs, especially in ductivity growth last year meant that rising compentechnical areas, in many of the nation's corporations. sation gains did not cause labor costs per unit of Certainly, other factors have contributed to the output to increase any more rapidly. Nonlabor costs, softness in compensation growth in the past few which are roughly a quarter of total consolidated years. The sharp deceleration in health care costs, of costs of the nonfinancial corporate sector, were little course, is cited frequently. Another factor is the changed in 1996. heightened pressure on firms and their workers in Owing in part to this subdued behavior of unit industries that compete internationally. Domestic costs, profits and rates of return on capital have risen deregulation has had similar effects on the intensity to high levels. As a consequence, businesses believe of competitive forces in some industries. In any that, were they to raise prices to boost profits further, event, although I do not doubt that all these factors competitors with already ample profit margins would are relevant, I would be surprised if they were nearly not follow suit; instead, they would use the occasion as important as job insecurity. to capture a greater market share. This interplay is If heightened job insecurity is the most significant doubtless a significant factor in the evident loss of explanation of the break with the past in recent years, pricing power in U.S. business. then it is important to recognize that, as I indicated in Intensifying global competition also may be furlast February's Humphrey-Hawkins testimony, sup- ther restraining domestic firms' ability to hike prices pressed wage cost growth as a consequence of job as well as wages. Clearly, the appreciation of the insecurity can be carried only so far. At some point, dollar, on balance, over the past eighteen months or the tradeoff of subdued wage growth for job security so, together with low inflation in many of our trading has to come to an end. In other words, the relatively partners, has resulted in a marked decline in non-oil modest wage gains we have experienced are a tempo- import prices that has helped to damp domestic inflarary rather than a lasting phenomenon because there tion pressures. Yet it is important to emphasize that is a limit to the value of additional job security these influences, too, would be holding down inflapeople are willing to acquire in exchange for lesser tion only temporarily; they represent a transition to a increases in living standards. Even if real wages were lower price level than would otherwise prevail, not to to remain permanently on a lower upward track than a permanently lower rate of inflation. otherwise as a result of the greater sense of insecu- Against the background of all these considerations, rity, the rate of change of wages would revert at some the FOMC has recognized the need to remain vigilant point to a normal relationship with inflation. The for signs of potentially inflationary imbalances that unknown is when this transition period will end. might, if not corrected promptly, undermine our eco- Indeed, some recent evidence suggests that the nomic expansion. The FOMC in fact has signaled a labor markets bear especially careful watching for state of heightened alert for possible policy tighten- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

256 Federal Reserve Bulletin • April 1997 ing since last July in its policy directives. But we useful leading indicator in one instance has given off have also taken care not to act prematurely. The misleading signals in another. FOMC refrained from changing policy last summer, I have already discussed the key role of labor despite expectations of a near-term policy firming market developments in restraining inflation in the by many financial market participants. In light of current cycle and our careful monitoring of signs that the developments I have just discussed affecting the transition phase of trading off lower real wages wages and prices, we thought inflation might well for greater job security might be coming to a close. remain damped, and in any case was unlikely to pick As always, with resource utilization rates high, we up very rapidly, in part because the economic expan- would need to watch closely a situation in which sion appeared likely to slow to a more sustainable demand was clearly unsustainable because it was pace. In the event, inflation has remained quiescent producing escalating pressures on resources, which since then. could destabilize the economy. And we would need Given the lags with which monetary policy affects to be watchful that the progress we have made in the economy, however, we cannot rule out a situation keeping inflation expectations damped was not erodin which a preemptive policy tightening may become ing. In general, though, our analysis will need to appropriate before any sign of actual higher inflation encompass all potentially relevant information, from becomes evident. If the FOMC were to implement financial markets as well as the economy, especially such an action, it would be judging that the risks to when some signals, like those in the labor market, the economic expansion of waiting longer had have not been following their established patterns. increased unduly and had begun to outweigh the The ongoing economic expansion to date has reinadvantages of waiting for uncertainties to be reduced forced our conviction about the importance of low by the accumulation of more information about eco- inflation—and the public's confidence in continued nomic trends. Indeed, the hallmark of a successful low inflation. The economic expansion almost surely policy to foster sustainable economic growth is that would not have lasted nearly so long had moneinflation does not rise. I find it ironic that our actions tary policy supported an unsustainable acceleration in 1994-95 were criticized by some because inflation of spending that induced a buildup of inflationary did not turn upward. That outcome, of course, was imbalances. The Federal Reserve must not acquiesce the intent of the tightening, and I am satisfied that our in an upcreep in inflation, for acceding to higher actions then were both necessary and effective and inflation would countenance an insidious weakening helped to foster the continued economic expansion. of our chances for sustaining long-run economic To be sure, 1997 is not 1994. The real federal growth. Inflation interferes with the efficient allocafunds rate today is significantly higher than it was tion of resources by confusing price signals, underthree years ago. Then we had just completed an cutting a focus on the longer run, and distorting extended period of monetary ease that addressed the incentives. credit stringencies of the early 1990s, and with the This year overall inflation is anticipated to stay abatement of the credit crunch the low real funds rate restrained. The central tendency of the forecasts made of early 1994 was clearly incompatible with contain- by the Board members and the Reserve Bank presiing inflation and sustaining growth going forward. In dents has the increase in the total CPI slipping back February 1997, in contrast, our concern is a matter of into a range of 23/4 percent to 3 percent over the four relative risks rather than of expected outcomes. The quarters of the year. This slight falloff from last real funds rate, judging by core inflation, is only year's pace is expected to owe, in part, to a slower slightly below its early 1995 peak for this cycle and rise in food prices as some of last year's supply might be at a level that will promote continued nonin- limitations ease. More important, world oil supplies flationary growth, especially considering the recent are projected by most analysts to increase relative to rise in the exchange value of the dollar. Nonetheless, world oil demand, and futures markets project a we cannot be sure. And the risks of being wrong are further decline in prices, at least in the near term. The clearly tilted to the upside. recent and prospective declines in crude oil prices not I wish it were possible to lay out in advance only should affect retail gasoline and home heating exactly what conditions have to prevail to portend a oil prices but also should relieve inflation pressures buildup of inflation pressures or inflationary psychol- through lower prices for other petroleum products, ogy. However, the circumstances that have been asso- which are embedded in the economy's underlying ciated with increasing inflation in the past have not cost structure. Nonetheless, the trend in inflation rates followed a single pattern. The processes have dif- in the core CPI and in broader price measures may fered from cycle to cycle, and what may have been a be somewhat less favorable than in recent years. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 257 A continued tight labor market, whose influence on tion, which asks individuals about their confidence in costs would be augmented by the scheduled increase the social security system, shows that between 1992 in the minimum wage later in the year and perhaps by and 1996 the percent of respondents expressing little higher growth of benefits now that considerable or no confidence in the system jumped from about health care savings already have been realized, could 45 percent to more than 60 percent. put upward pressure on core inflation. Moreover, the Moreover, consumer debt burdens are near historieffects of the sharp rise in the dollar over the past cal highs, while credit card delinquencies and pereighteen months in pushing down import prices are sonal bankruptcies have risen sharply over the past likely to ebb over coming quarters. year. These circumstances may make both borrowers The unemployment rate, according to Board mem- and lenders a bit more cautious, damping spending. bers and Bank presidents, should stay around 5lA per- In fact, we may be seeing both wealth and debt cent to 5 '/2 percent through the fourth quarter, consis- effects already at work for different segments of the tent with their projections of measured real GDP population, to an approximately offsetting extent. growth of 2 percent to 2lA percent over the four Saving out of current income by households in the quarters of the year. Such a growth rate would repre- upper income quintile, who own nearly three-fourths sent some downshifting in output expansion from of all non-pension equities held by households, evithat of last year. The projected moderation of growth dently has declined in recent years. At the same likely would reflect several influences: (1) declines in time, the use of credit for purchases appears to have real federal government purchases should be exerting leveled off after a sharp run-up from 1993 to 1996, a modest degree of restraint on overall demand; perhaps because some households are becoming debt (2) the lagged effects of the increase in the exchange constrained and, as a result, are curtailing their value of the dollar in recent months likely will damp spending. U.S. net exports somewhat this year; and (3) residen- The Federal Reserve will be weighing these influtial construction is unlikely to repeat the gains of ences as it endeavors to help extend the current 1996. On the other hand, we do not see evidence of period of sustained growth. Participants in financial widespread imbalances either in business inventories markets seem to believe that in the current benign or in stocks of equipment and consumer durables that environment the FOMC will succeed indefinitely. would lead to a substantial cutback in spending. And There is no evidence, however, that the business financial conditions overall remain supportive; real cycle has been repealed. Another recession will interest rates are not high by historical standards, and doubtless occur some day because of circumstances credit is readily available from intermediaries and in that could not be, or at least were not, perceived by the market. policymakers and financial market participants alike. The usual uncertainties in the overall outlook are History demonstrates that participants in financial especially focused on the behavior of consumers. markets are susceptible to waves of optimism, which Consumption should rise roughly in line with the can, in turn, foster a general process of asset-price projected moderate expansion of disposable income, inflation that can feed through into markets for goods but both upside and downside risks are present. and services. Excessive optimism sows the seeds of According to various surveys, sentiment is decidedly its own reversal in the form of imbalances that tend upbeat. Consumers have enjoyed healthy gains in to grow over time. When unwarranted expectations their real incomes along with the extraordinary stock ultimately are not realized, the unwinding of these market-driven rise in their financial wealth over the financial excesses can act to amplify a downturn in past couple of years. Indeed, econometric models economic activity, much as they can amplify the suggest that the more than $4 trillion rise in equity upswing. As you know, last December I put the values since late 1994 should have had a larger question this way: "... how do we know when irrapositive influence on consumer spending than seems tional exuberance has unduly escalated asset values, to have actually occurred. which then become subject to unexpected and pro- It is possible, however, that households have been longed contractions . . .?" reluctant to spend much of their added wealth We have not been able, as yet, to provide a satisfybecause they see a greater need to keep it to support ing answer to this question, but there are reasons in spending in retirement. Many households have the current environment to keep this question on the expressed heightened concern about their financial table. Clearly, when people are exposed to long security in old age, which reportedly has led to periods of relative economic tranquility, they seem increased provision for retirement. The results of a inevitably prone to complacency about the future. survey conducted annually by the Roper Organiza- This is understandable. We have had fifteen years Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

258 Federal Reserve Bulletin • April 1997 of economic expansion interrupted by only one pulling back a little from consumer credit card lendrecession—and that was six years ago. As the ing as losses exceed expectations. Nonetheless, some memory of such past events fades, it naturally seems bank and nonbank lenders have been expanding ever less sensible to keep up one's guard against an aggressively into the home equity loan market and adverse event in the future. Thus, it should come as so-called "subprime" auto lending, although recent no surprise that, after such a long period of balanced problems in the latter may already be introducing a expansion, risk premiums for advancing funds to sense of caution. businesses in virtually all financial markets have Why should the central bank be concerned about declined to near-record lows. the possibility that financial markets may be overesti- Is it possible that there is something fundamentally mating returns or mispricing risk? It is not that we new about this current period that would warrant have a firm view that equity prices are necessarily such complacency? Yes, it is possible. Markets may excessive right now or risk spreads patently too low. have become more efficient, competition is more Our goal is to contribute as best we can to the highest global, and information technology has doubtless possible growth of income and wealth over time, and enhanced the stability of business operations. But, we would be pleased if the favorable economic enviregrettably, history is strewn with visions of such ronment projected in markets actually comes to pass. "new eras" that, in the end, have proved to be a Rather, the FOMC has to be sensitive to indications mirage. In short, history counsels caution. of even slowly building imbalances, whatever their Such caution seems especially warranted with source, that, by fostering the emergence of inflation regard to the sharp rise in equity prices during the pressures, would ultimately threaten healthy ecopast two years. These gains have obviously raised nomic expansion. questions of sustainability. Analytically, current Unfortunately, because the monetary aggregates stock-price valuations at prevailing long-term interest were subject to an episode of aberrant behavioral rates could be justified by very strong earnings patterns in the early 1990s, they are likely to be growth expectations. In fact, the long-term earnings of only limited help in making this judgment. For projections of financial analysts have been marked up three decades starting in the early 1960s, the public's noticeably over the last year and seem to imply very demand for the broader monetary aggregates, espehigh earnings growth and continued rising profit mar- cially M2, was reasonably predictable. In the intergins, at a time when such margins are already up mediate term, M2 velocity—nominal income divided appreciably from their depressed levels of five years by the stock of M2—tended to vary directly with ago. It could be argued that, although margins are the the difference between money market yields and highest in a generation, they are still below those that the return on M2 assets—that is, with its short-term prevailed in the 1960s. Nonetheless, further increases opportunity cost. In the long run, as adjustments in these margins would evidently require continued in deposit rates caused the opportunity cost to revert restraint on costs: labor compensation continuing to to an equilibrium, M2 velocity also tended to return grow at its current pace and productivity growth to an associated stable equilibrium level. For several picking up. Neither, of course, can be ruled out. But years in the early 1990s, however, the velocities of we should keep in mind that, at these relatively low M2 and M3 exhibited persisting upward shifts that long-term interest rates, small changes in long-term departed markedly from these historical patterns. earnings expectations could have outsized impacts on In the past two to three years, velocity patterns equity prices. seem to have returned to those historical relation- Caution also seems warranted by the narrow yield ships, after allowing for a presumed permanent spreads that suggest perceptions of low risk, possibly upward shift in the levels of velocity. Even so, given unrealistically low risk. Considerable optimism about the abnormal velocity behavior during the early the ability of businesses to sustain this current healthy 1990s, FOMC members continue to see considerable financial condition seems, as I indicated earlier, to uncertainty in the relationship of broad money to be influencing the setting of risk premiums, not just opportunity costs and nominal income. Concern in the stock market but throughout the financial about the possibility of aberrant behavior has made system. This optimistic attitude has become espe- the FOMC hesitant to upgrade the role of these cially evident in quality spreads on high-yield corpo- measures in monetary policy. rate bonds—what we used to call "junk bonds." In Against this background, at its February meeting, addition, banks have continued to ease terms and the FOMC reaffirmed the provisional ranges set last standards on business loans, and margins on many of July for money and debt growth this year: 1 percent these loans are now quite thin. Many banks are to 5 percent for M2, 2 percent to 6 percent for M3, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 259 and 3 percent to 7 percent for the debt of domestic debt aggregate probably will expand around the nonfinancial sectors. The M2 and M3 ranges again middle of its range this year. are designed to be consistent with the FOMC's long- I will conclude on the same upbeat note about the run goal of price stability: For if the velocities of the U.S. economy with which I began. Although a central broader monetary aggregates were to continue behav- banker's occupational responsibility is to stay on the ing as they did before 1990, then money growth lookout for trouble, even I must admit that our ecoaround the middle portions of the ranges would be nomic prospects in general are quite favorable. The consistent with noninflationary, sustainable economic flexibility of our market system and the vibrancy of expansion. But even with such velocity behavior this our private sector remain examples for the whole year, when inflation is expected to still be higher than world to emulate. The Federal Reserve will endeavor is consistent with our long-run objective of reason- to do its part by continuing to foster a monetary able price stability, the broader aggregates could well framework under which our citizens can prosper to grow around the upper bounds of these ranges. The the fullest possible extent. • Chairman Greenspan presented identical testimony before the Subcommittee on Domestic and International Monetary Policy of the Committee on Banking and Financial Services, U.S. House of Representatives, March 5, 1997. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

260 Announcements REGULATION Y: REVISIONS mentary to Regulation Z (Truth in Lending). The revisions are effective October 1, 1997, and compli- The Federal Reserve Board on February 20, 1997, ance is optional before that date. announced revisions to Regulation Y (Bank Holding The revisions provide guidance on the treatment of Companies and Change in Bank Control) that are some fees paid in connection with mortgage loans intended to improve the competitiveness of bank and tolerances for accuracy in disclosing the finance holding companies by eliminating unnecessary regu- charge and other costs. They also discuss such issues latory burden and operating restrictions and by as the treatment of debt cancellation agreements and streamlining the application and notice process. The duties of creditors that provide periodic statements revisions are effective April 21, 1997. electronically. The revisions include the following: • A streamlined and expedited review process for PROPOSED ACTION bank and nonbanking proposals by well-run bank holding companies The Federal Reserve Board on February 12, 1997, • A reorganization and expansion of the regulatory requested comment on a second proposal revising the list of nonbanking activities and the removal of a official staff commentary to Regulation M, which number of restrictions on those activities that are implements the Consumer Leasing Act. The act outmoded, have been superseded by Board order, or requires that lessors provide uniform cost and other are unnecessary restrictions that would not apply to disclosures about consumer lease transactions. Cominsured banks that conduct the same activity ments were requested by March 13, 1997. • Amendments to the tying restrictions, including removal of the regulatory extensions of those restric- FINAL DECISION AND FINAL ORDER OF tions to bank holding companies and their nonbank PROHIBITION AND ASSESSMENT OF CIVIL subsidiaries MONEY PENALTY • Other changes to eliminate unnecessary regulatory burden and to streamline and modernize Regula- The Federal Reserve Board announced on Febrution Y, including changes to the provisions impleary 4, 1997, the issuance of its Final Decision and menting the Change in Bank Control Act and Final Order of Prohibition and Assessment of Civil section 914 of the Financial Institutions Reform, Money Penalty in the Matter of Ghaith R. Pharaon, a Recovery, and Enforcement Act of 1989. former Bank of Credit and Commerce International This final rule reflects a number of revisions in (BCCI) insider. response to concerns, suggestions, and information The Board assessed a $37 million fine against provided by commenters. In particular, the Board has Pharaon and permanently barred him from the U.S. changed in several respects the streamlined proce- banking industry because of his illegal activities. dure governing bank acquisitions and has adopted The Board's Final Decision adopted the Recoma number of measures designed to broaden and mended Decision of the Administrative Law Judge improve public notice of acquisition proposals. These who presided at a nineteen-day administrative hearchanges focus on ensuring that interested persons ing conducted in 1995 by attorneys from the Board will have a meaningful opportunity to provide the and the Federal Reserve Bank of New York. Board with information regarding acquisition The Board found that Pharaon acted illegally as a proposals. secret nominee for BCCI when he acquired the Independence Bank of Encino, California, in 1985. The REGULATION Z: ANNUAL UPDATE TO OFFICIAL Independence Bank of Encino failed in January 1992. STAFF COMMENTARY Pharaon, who is a resident of Saudi Arabia, is the subject of criminal indictments issued by the U.S. The Federal Reserve Board on February 28, 1997, Department of Justice and the New York County published its annual update to the official staff com- District Attorney. He participated in the Board's Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

261 administrative hearing through his counsel but has also incorporates historical data for a number of not returned to the United States to contest personally money market mutual funds that began reporting for federal and state criminal charges. the first time during 1996. Finally, some money mar- Pharaon has the right to appeal the Board's Final ket mutual funds have been reclassified from the Decision in a federal appellate court. retail category into the institutional category. These revisions to the money fund data generally lowered the level of M2 slightly, but they raised the level of REVISIONS TO THE MONEY STOCK DATA M3 by amounts that cumulate to $23 billion by late 1996. Measures of the money stock were revised in Febru- Seasonal factors for the monetary aggregates have ary 1997 to incorporate the results of the annual been revised using the benchmarked data through benchmark and seasonal factor review. Data in December 1996. As in the past few years, the X-ll tables 1.10 and 1.21 in the statistical appendix to the ARIMA procedure was used to derive monthly sea- Bulletin reflect these changes beginning with this sonal factors. Overall, the revisions to seasonal facissue. tors slightly shifted the growth of Ml, M2, and M3 The revisions had no effect on the annual growth from the first half to the second half of 1996. rate of M2 over 1996, but they raised the annual Complete historical data are available in printed growth rates of Ml and M3 by 0.1 and 0.3 percentage form from the Money and Reserves Projection Secpoints, respectively, over the past year. tion, Mail Stop 72, Board of Governors of the Fed- The benchmark incorporates minor revisions to eral Reserve System, Washington, DC 20551 (202) data reported on the weekly and quarterly deposit 452-3062. Historical data for the monetary aggrereports, and it takes account of deposit data from gates and their components are available each week call reports for banks and thrift institutions that in statistical release H.6 on the Board's World Wide are not weekly or quarterly deposit reporters. These Web site (http://www.bog.frb.fed.us) under Domestic revisions to deposit data start in 1994. The bench- and International Research, Statistical Releases, and mark also incorporates minor revisions to esti- also from the Economic Bulletin Board of the U.S. mates of individual retirement accounts and Keogh Department of Commerce. Call (202) 482-1986 or accounts at banks and thrift institutions using Call toll free (800) 782-8872 for information on how to Reports starting in the mid-1980s. The benchmark access the Commerce Department bulletin board. 1. Monthly seasonal factors used to construct Ml, January 1996-March 1998 Other checkable deposits1 NNoonnbbaannkk ttrraavveelleerrss YYeeaarr aanndd mmoonntthh CCuurrrreennccyy DDeemmaanndd ddeeppoossiittss cchheecckkss Total At banks 1996—January .9966 .9588 1.0106 1.0154 1.0233 February .9933 .9575 .9764 .9945 1.0016 March .9971 .9726 .9815 1.0012 1.0038 April .9986 .9805 1.0021 1.0226 1.0222 May .9995 .9911 .9793 .9903 .9880 June 1.0016 1.0272 .9967 .9974 .9943 July 1.0023 1.0606 1.0039 .9931 .9892 August 1.0018 1.0633 .9960 .9899 .9880 September .9980 1.0404 .9973 .9946 .9934 October .9967 1.0076 1.0008 .9911 .9884 November 1.0010 .9751 1.0137 .9982 .9957 December 1.0070 .9625 1.0405 1.0117 1.0120 1997—January .9965 .9594 1.0098 1.0148 1.0229 February .9930 .9581 .9763 .9944 1.0015 March .9966 .9732 .9830 1.0015 1.0039 April .9993 .9817 1.0025 1.0232 1.0229 May 1.0000 .9920 .9790 .9899 .9876 June 1.0016 1.0276 .9974 .9976 .9943 July 1.0025 1.0602 1.0045 .9931 .9892 August 1.0031 1.0623 .9965 .9900 .9882 September .9973 1.0396 .9974 .9948 .9935 October .9982 1.0071 1.0001 .9911 .9886 November 1.0013 .9751 1.0130 .9980 .9956 December 1.0071 .9627 1.0401 1.0115 1.0118 1998—January .9973 .9598 1.0094 1.0146 1.0228 February .9933 .9587 .9763 .9943 1.0015 March .9962 .9732 .9839 1.0017 1.0039 1. Seasonally adjusted other checkable deposits at thrift institutions are adjusted, and seasonally adjusted other checkable deposits at commercial banks, derived as the difference between total other checkable deposits, seasonally Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

262 Federal Reserve Bulletin • April 1997 2. Monthly seasonal factors used to construct M2 and M3, January 1996-March 1998 SSaavviinnggss aanndd SSmmaallll-- LLaarrggee-- Money market mutual funds YYeeaarr aanndd mmoonntthh MMMMDDAA ddeennoommiinnaattiioonn ddeennoommiinnaattiioonn RRPPss EEuurrooddoollllaarrss ddeeppoossiittss11 ttiimmee ddeeppoossiittss11 ttiimmee ddeeppoossiittss11 In M2 In M3 only 1996—January .9946 .9986 .9914 1.0068 1.0288 .9902 1.0126 February .9937 1.0004 .9957 1.0099 1.0309 .9855 1.0114 March 1.0004 1.0023 .9970 1.0157 1.0131 .9876 1.0106 April 1.0014 1.0027 .9913 1.0106 .9922 .9944 .9926 May .9984 1.0019 1.0057 .9910 .9868 1.0100 .9904 June 1.0029 1.0008 1.0011 .9893 .9813 1.0257 .9923 July 1.0034 1.0012 .9945 .9959 .9897 1.0044 .9856 August 1.0033 1.0001 .9981 1.0013 .9974 1.0078 .9917 September 1.0011 .9988 .9990 .9916 .9829 1.0106 .9927 October .9995 .9989 1.0114 .9900 .9885 1.0151 1.0086 November 1.0020 .9975 1.0115 .9953 1.0021 .9939 1.0020 December .9988 .9963 1.0036 1.0028 1.0040 .9731 1.0072 1997—January .9944 .9988 .9914 1.0069 1.0288 .9898 1.0146 February .9938 1.0007 .9960 1.0108 1.0332 .9869 1.0115 March 1.0010 1.0025 .9981 1.0166 1.0147 .9863 1.0094 April 1.0016 1.0030 .9909 1.0099 .9922 .9936 .9926 May .9982 1.0020 1.0051 .9893 .9849 1.0129 .9905 June 1.0029 1.0007 1.0005 .9888 .9818 1.0260 .9928 July 1.0035 1.0010 .9946 .9959 .9904 1.0030 .9872 August 1.0034 .9999 .9974 1.0018 .9972 1.0094 .9916 September 1.0011 .9986 .9982 .9919 .9830 1.0117 .9934 October .9994 .9987 1.0119 .9902 .9880 1.0155 1.0096 November 1.0018 .9975 1.0123 .9950 1.0012 .9936 .9983 December .9987 .9964 1.0040 1.0026 1.0028 .9706 1.0070 1998—January .9943 .9989 .9909 1.0067 1.0275 .9892 1.0155 February .9938 1.0009 .9961 1.0113 1.0361 .9879 1.0119 March 1.0014 1.0025 .9986 1.0176 1.0161 .9858 1.0097 1. Seasonal factors are applied to deposits data at both commercial banks and thrift institutions. 3. Weekly seasonal factors used to construct Ml, December 2, 1996-April 6, 1998 Other checkable deposits1 NNoonnbbaannkk ttrraavveelleerrss WWeeeekk eennddiinngg CCuurrrreennccyy DDeemmaanndd ddeeppoossiittss cchheecckkss Total At banks 1996—December 2 .9944 .9620 1.0322 1.0026 .9994 9 1.0039 .9616 1.0269 1.0186 1.0141 16 1.0014 .9622 1.0380 1.0129 1.0131 23 1.0166 .9628 1.0395 1.0098 1.0141 30 1.0115 .9634 1.0501 1.0080 1.0118 1997—January 6 1.0048 .9630 1.0730 1.0382 1.0351 13 1.0004 .9611 1.0304 1.0193 1.0203 20 .9961 .9592 .9964 1.0113 1.0228 27 .9897 .9573 .9638 .9960 1.0121 February 3 .9905 .9554 .9828 1.0006 1.0156 10 .9956 .9567 .9774 .9907 .9889 17 .9948 .9580 .9796 .9924 1.0001 24 .9900 .9593 .9637 .9937 1.0052 March 3 .9922 .9607 .9860 1.0012 1.0092 10 .9980 .9662 .9816 .9904 .9839 17 .9970 .9718 .9901 .9980 .9999 24 .9953 .9774 .9684 1.0019 1.0092 31 .9962 .9830 .9907 1.0159 1.0202 April 7 1.0039 .9844 1.0146 1.0279 1.0222 14 1.0028 .9827 1.0223 1.0265 1.0210 21 .9985 .9810 1.0051 1.0306 1.0340 28 .9944 .9793 .9713 1.0125 1.0199 May 5 .9989 .9798 .9908 1.0073 1.0035 12 1.0011 .9859 .9796 .9860 .9816 19 .9990 .9920 .9815 .9835 .9831 26 1.0004 .9980 .9534 .9831 .9850 June 2 .9981 1.0041 .9985 .9967 .9900 9 1.0055 1.0138 1.0044 .9942 .9802 16 1.0025 1.0241 1.0086 .9948 .9877 23 1.0003 1.0344 .9768 .9993 1.0049 30 .9986 1.0446 .9995 1.0023 1.0057 July 7 1.0089 1.0518 1.0270 .9999 .9908 14 1.0037 1.0567 1.0127 .9878 .9777 21 1.0013 1.0616 .9957 .9914 .9933 28 .9989 1.0664 .9796 .9905 .9947 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Announcements 263 3. Weekly seasonal factors used to construct Ml, December 2, 1996-April 6, 1998—Continued Other checkable deposits1 NNoonnbbaannkk ttrraavveelleerrss WWeeeekk eennddiinngg CCuurrrreennccyy DDeemmaanndd ddeeppoossiittss cchheecckkss Total At banks 1997—August 4 1.0032 1.0700 1.0112 .9993 .9903 11 1.0074 1.0664 1.0048 .9820 .9743 18 1.0033 1.0628 1.0043 .9893 .9895 25 .9991 1.0591 .9767 .9882 .9929 SSeepptteemmbbeerr 11 .9988 1.0555 .9910 .9963 .9959 88 1.0038 1.0497 1.0184 .9925 .9791 15 .9984 1.0430 1.0096 .9931 .9882 22 .9949 1.0364 .9807 .9977 1.0037 29 .9924 1.0297 .9803 .9956 1.0033 October 6 1.0000 1.0224 1.0073 .9956 .9882 13 1.0021 1.0142 1.0040 .9856 .9793 20 .9981 1.0060 1.0037 .9920 .9936 27 .9948 .9979 .9812 .9874 .9918 November 3 .9967 .9897 1.0091 .9987 .9909 10 1.0030 .9831 1.0073 .9950 .9850 17 1.0013 .9765 1.0222 .9970 .9938 24 .9996 .9698 .9956 .9934 .9973 December 1 1.0017 .9632 1.0310 1.0078 1.0106 8 1.0040 .9617 1.0287 1.0025 .9901 15 1.0045 .9623 1.0400 .9982 .9940 22 1.0100 .9629 1.0390 1.0140 1.0217 29 1.0119 .9636 1.0469 1.0243 1.0336 1998—January 5 1.0067 .9635 1.0657 1.0373 1.0393 12 1.0020 .9616 1.0349 1.0210 1.0203 19 .9972 .9598 1.0010 1.0150 1.0251 26 .9910 .9580 .9698 .9993 1.0144 February 2 .9900 .9562 .9844 1.0040 1.0180 9 .9958 .9570 .9786 .9917 .9900 16 .9950 .9584 .9788 .9918 1.0008 23 .9910 .9597 .9625 .9928 1.0045 March 2 .9920 .9611 .9855 .9998 1.0078 9 .9983 .9659 .9865 .9884 .9829 16 .9971 .9713 .9916 .9968 1.0000 23 .9960 .9768 .9709 1.0029 1.0103 30 .9942 .9823 .9812 1.0153 1.0189 April 6 1.0000 .9823 1.0194 1.0270 1.0209 1. Seasonally adjusted other checkable deposits at thrift institutions are adjusted, and seasonally adjusted other checkable deposits at commercial banks, derived as the difference between total other checkable deposits, seasonally 4. Weekly seasonal factors used to construct M2 and M3, December 2, 1996-April 6, 1998 SSaavviinnggss aanndd SSmmaallll-- LLaarrggee-- Money market mutual funds WWeeeekk eennddiinngg MMMMDDAA ddeennoommiinnaattiioonn ddeennoommiinnaattiioonn RRPPss EEuurrooddoollllaarrss ddeeppoossiittss11 ttiimmee ddeeppoossiittss11 ttiimmee ddeeppoossiittss11 In M2 In M3 only 1996—December 2 .9970 .9971 1.0080 .9997 1.0078 .9843 1.0047 9 1.0048 .9968 1.0069 1.0050 1.0016 .9748 .9934 16 1.0019 .9960 1.0055 1.0084 1.0147 .9757 1.0006 23 .9954 .9955 1.0024 1.0051 1.0025 .9699 1.0053 30 .9927 .9962 .9995 .9963 1.0030 .9680 1.0283 11999977——JJaannuuaarryy 6 1.0041 .9983 .9950 .9844 .9562 .9790 1.0195 13 1.0072 .9987 .9920 1.0107 1.0245 .9899 1.0184 20 .9926 .9988 .9904 1.0139 1.0460 .9898 1.0134 27 .9785 .9986 .9897 1.0142 1.0650 .9965 1.0145 FFeebbrruuaarryy 3 .9867 .9997 .9903 1.0064 1.0461 .9944 1.0029 10 1.0032 1.0004 .9943 1.0096 1.0459 .9914 1.0029 17 .9956 1.0008 .9952 1.0072 1.0253 .9868 1.0144 24 .9853 1.0008 .9983 1.0159 1.0344 .9825 1.0209 March 3 .9942 1.0015 1.0003 1.0132 1.0132 .9810 1.0117 10 1.0147 1.0024 1.0008 1.0162 1.0235 .9825 1.0003 17 1.0062 1.0025 1.0010 1.0193 1.0217 .9916 1.0092 24 .9945 1.0023 .9995 1.0192 1.0155 .9967 1.0086 31 .9915 1.0031 .9904 1.0130 .9987 .9767 1.0187 AApprriill 7 1.0145 1.0038 .9877 1.0168 .9995 .9885 .9999 14 1.0155 1.0031 .9880 1.0208 .9993 .9881 .9862 21 .9990 1.0028 .9909 1.0100 .9884 .9952 .9847 28 .9791 1.0023 .9948 .9971 .9847 1.0005 1.0010 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

264 Federal Reserve Bulletin • April 1997 4. Weekly seasonal factors used to construct M2 and M3, December 2, 1996-April 6, 1998—Continued SSaavviinnggss aanndd SSmmaallll-- LLaarrggee-- Money market mutual funds WWeeeekk eennddiinngg MMMMDDAA ddeennoommiinnaattiioonn ddeennoommiinnaattiioonn RRPPss EEuurrooddoollllaarrss ddeeppoossiittss11 ttiimmee ddeeppoossiittss'' ttiimmee ddeeppoossiittss11 In M2 | In M3 only —May 5 .9956 1.0027 .9978 .9920 .9822 1.0007 .9879 12 1.0060 1.0023 1.0028 .9890 .9821 1.0071 .9822 19 .9989 1.0019 1.0056 .9862 .9856 1.0134 .9878 26 .9923 1.0017 1.0097 .9900 .9890 1.0182 .9983 June 2 .9972 1.0013 1.0086 .9902 .9851 1.0250 .9979 9 1.0183 1.0011 1.0059 .9921 .9862 1.0254 .9910 16 1.0122 1.0006 1.0021 .9936 .9864 1.0345 .9925 23 .9928 1.0001 .9975 .9877 .9750 1.0293 .9894 30 .9900 1.0009 .9942 .9815 .9785 1.0151 .9971 JJuullyy 7 1.0139 1.0022 .9912 .9854 .9814 1.0054 .9800 14 1.0114 1.0014 .9947 .9970 .9930 .9985 .9745 21 .9988 1.0007 .9949 .9997 .9936 .9989 .9860 28 .9891 1.0001 .9969 .9999 .9951 1.0088 1.0042 August 4 1.0052 1.0003 .9958 .9998 .9872 1.0045 .9969 11 1.0133 1.0007 .9965 1.0045 .9984 1.0114 .9896 18 1.0053 1.0000 .9968 1.0029 .9976 1.0082 .9848 25 .9968 .9995 .9989 1.0039 1.0046 1.0099 .9900 September 1 .9964 .9992 .9984 .9963 .9934 1.0115 1.0001 8 1.0193 .9993 .9980 .9958 .9833 1.0058 .9834 15 1.0125 .9985 .9971 .9961 .9923 1.0134 .9913 22 .9914 .9979 .9979 .9911 .9862 1.0169 .9914 29 .9812 .9985 .9987 .9851 .9693 1.0113 1.0054 October 6 1.0048 1.0001 1.0068 .9854 .9797 1.0088 1.0005 13 1.0075 .9997 1.0125 .9926 .9874 1.0145 1.0046 20 .9985 .9984 1.0123 .9916 .9954 1.0164 1.0099 27 .9897 .9976 1.0145 .9911 .9880 1.0223 1.0216 November 3 .9958 .9976 1.0134 .9896 .9888 1.0132 1.0103 10 1.0138 .9979 1.0147 .9931 .9953 1.0013 .9959 17 1.0070 .9977 1.0119 .9918 1.0022 .9947 .9921 24 .9934 .9972 1.0121 1.0002 1.0083 .9869 .9983 December 1 .9948 .9971 1.0094 .9978 1.0048 .9817 1.0022 8 1.0101 .9969 1.0081 1.0030 1.0027 .9716 .9946 15 1.0047 .9962 1.0064 1.0095 1.0199 .9735 .9988 22 .9935 .9956 1.0033 1.0053 .9990 .9683 1.0042 29 .9847 .9960 1.0003 .9978 .9989 .9657 1.0282 —January 5 1.0061 .9983 .9946 .9872 .9699 .9762 1.0179 12 1.0085 .9989 .9919 1.0098 1.0285 .9870 1.0183 19 .9932 .9990 .9898 1.0137 1.0383 .9894 1.0147 26 .9783 .9988 .9892 1.0124 1.0514 .9958 1.0168 February 2 .9867 .9996 .9901 1.0041 1.0347 .9957 1.0083 9 1.0037 1.0005 .9938 1.0082 1.0458 .9929 1.0039 16 .9954 1.0009 .9958 1.0078 1.0313 .9891 1.0121 23 .9845 1.0011 .9974 1.0177 1.0424 .9836 1.0199 March 2 .9935 1.0016 1.0003 1.0142 1.0207 .9819 1.0127 9 1.0137 1.0026 1.0010 1.0170 1.0272 .9819 1.0026 16 1.0060 1.0026 1.0009 1.0201 1.0230 .9895 1.0091 23 .9947 1.0022 .9992 1.0200 1.0158 .9936 1.0089 30 .9914 1.0027 .9939 1.0143 .9992 .9795 1.0180 April 6 1.0144 1.0034 .9906 1.0169 1.0002 .9839 1.0046 1. Seasonal factors are applied to deposits data at both commercial banks and thrift institutions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

265 Minutes of the Federal Open Market Committee Meeting Held on December 17, 1996 A meeting of the Federal Open Market Committee Ms. Low, Open Market Secretariat Assistant, was held in the offices of the Board of Governors of Division of Monetary Affairs, Board of Governors the Federal Reserve System in Washington, D.C., on Mr. Barron, First Vice President, Federal Tuesday, December 17, 1996, at 9:00 a.m. Reserve Bank of Atlanta Messrs. Beebe, Davis, Eisenbeis, and Goodfriend, Present: Senior Vice Presidents, Federal Reserve Banks Mr. Greenspan, Chairman of San Francisco, Kansas City, Atlanta, and Mr. McDonough, Vice Chairman Richmond respectively Mr. Boehne Messrs. Gavin, Kos, and Rosengren, Vice Presidents, Mr. Jordan Federal Reserve Banks of St. Louis, New York, Mr. Kelley and Boston respectively Mr. Lindsey Mr. Evans, Assistant Vice President, Federal Mr. McTeer Reserve Bank of Chicago Mr. Meyer Ms. Phillips By unanimous vote, the minutes of the meeting of Ms. Rivlin the Federal Open Market Committee held on Novem- Mr. Stern Ms. Yellen ber 13, 1996, were approved. The Manager of the System Open Market Account Messrs. Broaddus, Guynn, Moskow, and Parry, reported on developments in foreign exchange mar- Alternate Members of the Federal kets since the meeting on November 13, 1996. There Open Market Committee were no transactions in foreign currencies for System account during this period, and thus no vote was Messrs. Hoenig, Melzer, and Ms. Minehan, required of the Committee. Presidents of the Federal Reserve Banks of The Manager also reported on developments in Kansas City, St. Louis, and Boston respectively domestic financial markets and on System open market transactions in government securities and federal Mr. Kohn, Secretary and Economist Mr. Bernard, Deputy Secretary agency obligations during the period from Novem- Mr. Coyne, Assistant Secretary ber 13, 1996, through December 16, 1996. By unani- Mr. Gillum, Assistant Secretary mous vote, the Committee ratified these transactions. Mr. Mattingly, General Counsel The Committee members discussed certain Mr. Baxter, Deputy General Counsel changes in the procedures for conducting domestic Mr. Prell, Economist Mr. Truman, Economist open market operations that the Manager of the System Open Market Account had proposed for imple- Messrs. Lang, Lindsey, Mishkin, Promisel, mentation at the beginning of 1997. The changes Rolnick, Rosenblum, Siegman, Simpson, included advancing the normal time for initiating Sniderman, and Stockton, Associate Economists daily operations by one hour to between 10:30 a.m. and 10:45 a.m. Moving to the earlier time would Mr. Fisher, Manager, System Open Market Account place Desk operations closer to the period during the day when the financing market was most active and Mr. Ettin, Deputy Director, Division of Research and thus in a position to accommodate a larger volume of Statistics, Board of Governors System transactions when necessary. As at present, Mr. Slifman, Associate Director, Division of the Manager might choose to undertake Desk opera- Research and Statistics, Board of Governors tions at other times during the day when special Mr. Reinhart, Assistant Director, Division of circumstances dictate. The Manager also indicated Monetary Affairs, Board of Governors Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

266 Federal Reserve Bulletin • April 1997 that the normal time for domestic operations might be October surge, and the average workweek of private moved to an even earlier hour after expedited proce- production or nonsupervisory workers retraced more dures were developed for assembling the necessary than half of its October decline. Service industries statistical information on a timely basis for such recorded another large gain in employment despite a operations. In the interest of making information sharp drop in payrolls at help-supply firms, and the about System operations available more promptly to number of jobs in retail trade expanded further in market participants and the broader public, the Desk November after a steep rise in October. In the goodsalso would begin at the start of 1997 to announce the producing sector, employment in construction and par amount of its market transactions shortly after the manufacturing rose moderately. The civilian unemcompletion of the operations. With respect to pur- ployment rate increased slightly, to 5.4 percent, in chases of Treasury coupon securities for System November. account, the Desk had adopted about one year ago the Industrial production rose sharply in November practice of making such purchases in separate matu- after a small October decline. A rebound in motor rity tranches but might at its option in the future vehicle assemblies from the disruptive effects of work spread such purchases over a number of weeks rather stoppages accounted for much of the increase in than over the course of several days. This more production in November, but output from utilities flexible timing would allow the Desk to inject also surged in response to unusually cool weather. reserves into the banking system through outright The production of nondurable consumer goods and operations as the need arose without waiting for that business equipment other than motor vehicles also need to accumulate to particularly high levels. was up significantly in November, while the manu- All the members who commented endorsed the facture of consumer durables and defense and space changes, with several noting that they were appropri- equipment decreased further. Reflecting the strong ate responses to evolving market circumstances. advance in production, the utilization of total indus- Because the new procedures did not involve any trial capacity picked up considerably in November. alterations in the Committee's current directives, Consumer spending increased appreciably on balauthorizations, or rules, a formal vote was not ance in recent months after a lackluster performance required. in the summer. Total retail sales fell in November but The Committee then turned to a discussion of the nonetheless were considerably above their average in economic and financial outlook and the implementa- the third quarter. The November decline reflected tion of monetary policy over the intermeeting period weakness in auto sales; retail spending on other ahead. A summary of the economic and financial items, notably nonauto durable goods, rose signifiinformation available at the time of the meeting and cantly further. Spending on services picked up in of the Committee's discussion is provided below, October (latest data) following a relatively weak third followed by the domestic policy directive that was quarter. Housing starts rebounded in November after approved by the Committee and issued to the Federal having declined in September and October. Single- Reserve Bank of New York. family starts in November were a little below the The information reviewed at this meeting sug- average pace of previous months in the year, while gested that economic activity had continued to multifamily starts surged to a level not seen since late expand at a moderate pace in recent months. Con- 1990. By contrast, sales of both new and existing sumer spending had rebounded from its summer lull, homes dropped again in October (latest data). but housing demand was somewhat weaker on bal- Growth of business fixed investment appeared to ance and the growth of business spending on durable have slowed to a moderate pace in the fourth quarter equipment had slowed from a very rapid pace. after a sharp rise in the previous quarter. Shipments Although inventory investment had picked up, stocks of nondefense capital goods fell in October, reversing in most sectors had remained well aligned with sales. a sizable September gain; however, recent data on Both industrial production and employment had orders pointed to further increases in business spendrecorded sizable advances. Increases in labor com- ing for equipment, especially for communications pensation had trended up this year, and consumer equipment where shipments already were at a high price inflation also had picked up, but the faster rise level. Business investment in transportation equipin overall consumer prices owed entirely to larger ment evidently weakened, as sales of heavy trucks increases in food and energy prices. remained sluggish and production shortfalls held back fleet sales of light vehicles. By contrast, nonresi- Private-sector demand for labor remained solid in dential construction continued to expand at a solid November. Private nonfarm payroll employment rate in October, with building activity particularly increased appreciably further in November after an Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 267 strong in the office, other commercial, institutional, up considerably in November after having edged and industrial categories. down in October. The twelve-month rise in this index Business inventory investment picked up sharply was somewhat larger than the advance over the previin October from the slow September pace, but total ous twelve months. stocks remained at a low level in relation to sales. At its meeting on November 13, 1996, the Com- Most of the October increase occurred at the whole- mittee adopted a directive that called for maintaining sale level; inventories of farm products turned up the existing degree of pressure on reserve positions sharply after months of sizable drawdowns, and but that included a bias toward the possible firming of petroleum stocks were built up from unseasonably reserve conditions during the intermeeting period. low levels. Despite the October rise, the ratio of The directive stated that in the context of the Comwholesale inventories to shipments remained at the mittee's long-run objectives for price stability and lower end of its range over recent years. In manufac- sustainable economic growth, and giving careful conturing, stocks increased at a pace in line with ship- sideration to economic, financial, and monetary ments, and the aggregate inventory-shipments ratio developments, somewhat greater reserve restraint stayed at a very low level. Retail inventories were up would be acceptable and slightly lesser reserve moderately in October. The inventory-sales ratio for restraint might be acceptable during the intermeeting the sector was unchanged and remained in the middle period. The reserve conditions associated with this of its range over recent years. directive were expected to be consistent with moder- The nominal deficit on U.S. trade in goods and ate growth of M2 and relatively strong expansion of services was somewhat larger in September than in M3 over coming months. August; exports decreased slightly in September Open market operations during the intermeeting while imports were little changed. For the third quar- period were directed toward maintaining the existing ter, the deficit widened substantially from its rate in degree of pressure on reserve positions. However, the the second quarter as exports fell and imports rose federal funds rate tended to average a little above the moderately. Nearly all of the decline in exports level expected with an unchanged policy stance in reflected lower sales of aircraft and gold. Increases in apparent response to scattered operating problems imports were widespread but they were largely offset and occasional unexpectedly large clearing needs at by declines in imports of gold and semiconductors. banks. Other short-term interest rates registered Economic growth picked up in most of the major small mixed changes since the November 13 meetforeign industrial countries in the third quarter, but ing; Treasury bill rates drifted lower, partly because available indicators generally suggested some slow- of heightened demands for safety and liquidity as ing of growth in the fourth quarter. In Japan, by asset markets became more volatile during the period, contrast, economic activity had been sluggish in the while year-end pressures boosted rates on private third quarter but appeared to have picked up more instruments with maturities in early 1997. At longer recently. maturities, yields drifted lower over most of the Consumer price inflation in October and Novem- intermeeting period in response to incoming data that ber was lifted slightly by sizable advances in energy suggested economic growth would remain moderate prices and, to a lesser degree, increases in food and inflation subdued, but they rebounded late in the prices; however, consumer prices for items other period in response to the release of firmer economic than food and energy rose modestly during the two data and growing concerns regarding the sustainabilmonths. The rise in core consumer prices over the ity of current domestic asset prices. Despite these twelve months ended in November was somewhat concerns, most major indexes of equity prices smaller than it had been over the previous twelve advanced further on balance. months, although the total index registered a bigger In foreign exchange markets, the trade-weighted advance as a result of larger increases in food and value of the dollar in terms of the other G-10 currenenergy prices. At the producer level, prices of fin- cies rose slightly over the intermeeting period. The ished energy goods rose sharply in October and dollar rose even more against the German mark and November while prices of finished foods advanced the French franc amid increased market apprehension less rapidly. Excluding food and energy, prices of that the European Monetary Union's common curfinished goods edged lower on balance over October rency, the euro, will not be as strong a currency as and November, and in the twelve months ended in the mark. The dollar also might have been boosted November, these prices rose substantially less than by statements by French and German officials that in the previous twelve months. Average hourly earn- suggested the dollar was undervalued against their ings of production and nonsupervisory workers were currencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

268 Federal Reserve Bulletin • April 1997 Expansion of the broad monetary aggregates was further growth at a pace averaging near the econorelatively strong in November. Growth of M2 picked my's potential. The economy currently displayed up, reflecting a sharp increase in demand deposits fairly solid underpinnings, with few imbalances of and smaller runoffs in other checkable deposits. the kind that historically had tended to create prob- Inflows to retail money market funds remained sub- lems. Against the background of generally supportive stantial. Expansion of M3 moderated somewhat from financial conditions and a high degree of consumer its brisk pace in October as growth in business and business confidence, further economic growth demands for credit slowed and banks reduced their was thought likely to be sustained by appreciable reliance on large time deposits and other managed increases in consumer spending and business investliability components. For the year through Novem- ment. The overall pace of the expansion was expected ber, M2 was estimated to have grown at a rate in the to be restrained to an extent, however, by declining upper half of the Committee's annual range, and M3 federal government outlays for goods and services at a rate a little above the top of its range. Total and ongoing weakness in net exports. domestic nonfinancial debt expanded moderately on Despite the prospects for moderate economic balance over recent months and remained in the growth, members observed that the risks on inflation middle portion of its range. still seemed to be tilted toward some rise over time. The staff forecast prepared for this meeting sug- Measures of core inflation had displayed little trend gested that the expansion would be sustained at a and even some decline over the past year. However, pace close to the economy's estimated growth poten- wage increases had moved higher over that period, a tial. Consumer spending was projected to increase at development suggesting the possibility that labor a rate generally in line with the anticipated rise in markets might be tighter than could be sustained over disposable income; the favorable effects on house- the long term. At some point accelerating labor comhold wealth of the advance that had occurred in stock pensation costs, were they to continue, likely would prices and the ample availability of credit for most spill over into higher inflation. Such an outcome borrowers were expected to balance the damping remained subject to a great deal of uncertainty, effects of continuing consumer concerns about the however, in light of the relatively benign behavior in adequacy of their savings, the security of their jobs, recent years of both wages and prices in comparison and the extent of their debt burdens. Homebuilding with historical experience at prevailing levels of was forecast to decline somewhat but to stabilize at a resource utilization. relatively high level in the context of continued In the Committee's discussion of developments in income growth and the generally favorable cash-flow major sectors of the economy bearing on the outlook affordability of home ownership. Business spending for business activity, members noted that consumer on equipment and structures was projected to expand spending had picked up as expected after a lull during less rapidly in light of some anticipated slowing in the summer months. Survey data and anecdotal the growth of sales and profits. Fiscal policy and the reports suggested that consumer confidence was curexternal sector were expected to continue to exert rently high, and there were widespread indications of small restraining influences on economic activity robust retail sales during the early weeks of the over the projection period. Consumer price inflation, holiday season, though holiday sales were always excluding the relatively volatile food and energy difficult to read at this stage. Thus far, however, sales components of the price index, was forecast to rise of motor vehicles had not strengthened to the extent slightly over 1997 and 1998 in the context of antici- that was anticipated after full production was restored pated high resource use and an accompanying appre- following a work stoppage at a major manufacturer. ciable pickup in the growth of labor compensation Members cited a number of factors—the rise in conthat would be augmented by the legislated rise in the sumer debt burdens, tightening consumer credit stanfederal minimum wage. Somewhat larger increases dards, continued worker concerns about job security, would have been projected in consumer price infla- and the satisfaction of earlier pent-up demands—that tion in the absence of anticipated technical measure- were tending to inhibit the growth in consumer ment changes to the index. spending and perhaps helped to explain why the sharp increases in stock market wealth had not been In the Committee's discussion of current and proaccompanied by stronger growth in such spending. spective developments, members commented that The behavior of the stock market injected an addithe information received during the relatively short tional note of uncertainty into the forecast for coninterval since the previous meeting had not materially sumer spending and the economy more generally. altered either their assessment that the economy The rise over recent years had been extraordinary and was performing quite favorably or their forecasts of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 269 had brought market valuations to fairly high levels growth of entitlements, but its achievement would relative to earnings and dividends. In these circum- have favorable effects on financial markets and on stances, the members recognized the need to monitor business and consumer sentiment more generally, with special care price movements in the stock mar- thereby tending to offset at least in part any direct ket and asset markets more generally for their impli- effects of reduced federal spending on aggregate cations for consumer and other spending. On balance, demand. favorable employment and income conditions seemed Members anticipated that the external sector of the likely to foster a level of consumer spending that economy would continue to exert some restraint on would provide key support for sustained economic domestic economic activity, though perhaps to a expansion. lesser extent than over the past year. In particular, the The members anticipated smaller though still siz- growth of U.S. exports was expected to accelerate able gains in business fixed investment over the year somewhat in association with some strengthening on ahead. Slowing growth in profit levels and cash flows average in the economies of the nation's key trading was likely to retard spending for many types of partners. The economic recovery in Mexico from its business equipment, but favorable prices, advancing earlier financial crisis was already providing a considtechnology, and readily available financing probably erable boost to exports from some parts of the United would continue to foster rapid expansion in office, States. computing, and communications equipment. The out- Inflation had remained subdued, but the members look for nonresidential construction remained uneven continued to view the risks as tilted toward increases across the country, but such construction seemed in the future. Labor compensation costs clearly were likely to edge higher on balance over the next several rising at a faster pace in the context of persistently quarters. Members noted in this regard that the con- tight labor markets, and an upturn in core price struction of office buildings had strengthened in a inflation seemed quite possible at some point in the number of urban areas. Business inventories cur- absence of some easing of pressures in labor markets. rently seemed on the whole to be at desired and However, the members recognized that the increase sustainable levels in relation to sales. In the circum- in wage inflation had been significantly less than stances, inventory accumulation was projected to would have been anticipated on the basis of historical remain moderate and, barring unexpected surges or relationships with labor market conditions, and price declines in final sales, was not likely to be a signifi- performance also had been more favorable than those cant factor affecting the course of the economy. relationships would have suggested. In the circum- The recent information on residential construction stances, there was a good deal of uncertainty regardwas mixed. Weakness in late summer and early fall ing the outlook for inflation, including the potential evidently reflected the effects of earlier increases in degree of utilization in labor markets, the associated mortgage interest rates, but some measures of hous- pressures on labor costs, and the ability of firms to ing activity in November indicated unexpected pass higher labor costs into prices in markets that strength. In addition, reports from around the country generally continued to be described as highly compointed to uneven conditions ranging from further petitive. With the economy operating in the neighborstrength to some emerging weakness in regional hood of its sustainable potential, relatively minor housing markets. On balance, the statistical and anec- differences in overall economic growth could have a dotal information was interpreted, by some members significant effect over time on whether inflation at least, as consistent with a tendency for housing would tend to trend up or down. activity to stabilize. In this view, a level of housing In the Committee's discussion of policy for the construction somewhat below the peak reached ear- intermeeting period ahead, all the members supported lier in 1996 was likely to be sustained, buoyed in part a proposal to maintain an unchanged policy stance by the recent decline in mortgage interest rates and while also retaining a bias toward restraint in the the continuing rise in consumer incomes and favor- directive. An unchanged policy was warranted by the able consumer sentiment. quite satisfactory performance of the economy and A modest degree of fiscal restraint seemed likely inflation and the uncertainties surrounding the outover the next two fiscal years. Some members look. Thus, while the longer-term risks might point expressed optimism with regard to the prospects for toward rising inflation, there were reasonable prosan agreement between the President and the Congress pects that inflation would remain contained, and any that would provide a basis for reaching a balanced pickup in inflation, should it occur, was likely to be budget by the year 2002. Such an agreement would limited at least for a time. In the circumstances, the need to include controversial constraints on the members concluded that watchful waiting remained Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

270 Federal Reserve Bulletin • April 1997 the prudent course for policy as they continued to and services widened substantially in the third quarter from assess ongoing developments. Because the risks of its rate in the second quarter. Increases in labor compensation have trended up this year, and consumer price inflation waiting did not appear to be substantial at this juncalso has picked up owing to larger increases in food and ture, anticipatory tightening was not yet called for. energy prices. In the Committee's discussion of possible adjust- Short-term market interest rates have registered mixed ments to policy during the intermeeting period, changes since the Committee meeting on November 13, members agreed that the retention of an asymmetric 1996, while long-term yields have risen slightly. In foreign exchange markets, the trade-weighted value of the dollar in directive toward tightening was consistent with their terms of the other G-10 currencies has risen slightly over view that the risks remained biased toward higher the intermeeting period. inflation. Accordingly, while they were not suggest- Growth of M2 picked up in November, while expansion ing that policy should be especially quick to react to of M3 moderated somewhat from its brisk pace in October. incoming information over the intermeeting period, For the year through November, M2 is estimated to have grown at a rate in the upper half of the Committee's annual they did view the next policy move as more likely to range, and M3 at a rate a little above the top of its range. be in the direction of some firming than toward Total domestic nonfinancial debt has expanded moderately easing. In this connection, some members empha- on balance over recent months and has remained in the sized that it would be especially important for the middle portion of its range. Committee to act promptly to counter any tendency The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and for price inflation to rise and for higher inflation promote sustainable growth in output. In furtherance of expectations to become embedded in financial marthese objectives, the Committee at its meeting in July kets and economic decisionmaking more generally. reaffirmed the ranges it had established in January for At the conclusion of the Committee's discussion, growth of M2 and M3 of 1 to 5 percent and 2 to 6 percent respectively, measured from the fourth quarter of 1995 to all the members indicated that they supported a directhe fourth quarter of 1996. The monitoring range for tive that called for maintaining the existing degree of growth of total domestic nonfinancial debt was maintained pressure on reserve positions and that retained a bias at 3 to 7 percent for the year. For 1997, the Committee toward the possible firming of reserve conditions agreed on a tentative basis to set the same ranges as in during the intermeeting period. Accordingly, in the 1996 for growth of the monetary aggregates and debt, measured from the fourth quarter of 1996 to the fourth context of the Committee's long-run objectives for quarter of 1997. The behavior of the monetary aggregates price stability and sustainable economic growth, and will continue to be evaluated in the light of progress giving careful consideration to economic, financial, toward price level stability, movements in their velocities, and monetary developments, the Committee decided and developments in the economy and financial markets. that somewhat greater reserve restraint would be In the implementation of policy for the immediate future, acceptable and slightly lesser reserve restraint might the Committee seeks to maintain the existing degree of pressure on reserve positions. In the context of the Combe acceptable during the intermeeting period. The mittee's long-run objectives for price stability and sustainreserve conditions contemplated at this meeting were able economic growth, and giving careful consideration to expected to be consistent with relatively strong economic, financial, and monetary developments, someexpansion in M2 and M3 over coming months. what greater reserve restraint would or slightly lesser The Federal Reserve Bank of New York was autho- reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected rized and directed, until instructed otherwise by the to be consistent with relatively strong expansion in M2 and Committee, to execute transactions in the System M3 over coming months. Account in accordance with the following domestic policy directive: Votes for this action: Messrs. Greenspan, McDonough, Boehne, Jordan, Kelley, Lindsey, McTeer, Meyer, Mses. The information reviewed at this meeting suggests that Phillips, Rivlin, Mr. Stern, and Ms. Yellen. Votes against economic activity has continued to expand at a moderate this action: None. pace. Private nonfarm payroll employment increased appreciably further in November, although the civilian It was agreed that the next meeting of the Commitunemployment rate edged up to 5.4 percent. Industrial tee would be held on Tuesday-Wednesday, Februproduction rose sharply in November, in part because of ary 4-5, 1997. a rebound in motor vehicle assemblies that had been The meeting adjourned at 12:40 p.m. depressed earlier by work stoppages. Consumer spending has posted appreciable gains over recent months after a summer lull. Housing starts rebounded in November after declining in September and October. Business fixed investment appears to be growing moderately after a sharp rise in Donald L. Kohn the third quarter. The nominal deficit on U.S. trade in goods Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

271 Legal Developments FINAL RULE-AMENDMENT TO REGULATION H Section 208.24—Recordkeeping and confirmation of certain securities transactions effected by State The Board of Governors is amending 12 C.F.R. Part 208, member banks. its Regulation H (Membership of State Banking Institutions in the Federal Reserve System; Recordkeeping and Confirmation of Certain Securities Transactions Effected (a) Exceptions and safe and sound operations. by State Member Banks). The amendments accommodate (1) A State member bank may be excepted from one or developments in recordkeeping, confirmation and settle- more of the requirements of this section if it meets one ment requirements for broker-dealers by adding certain of the following conditions of paragraphs (a)(l)(i) yield-related confirmation disclosure requirements for through (a)(l)(iv) of this section: transactions involving debt and asset-backed securities ef- (i) De minimis transactions. The requirements of parafected by State member banks for customers, and provid- graphs (c)(2) through (c)(4) and paragraphs (e)(1) ing for three-day settlement of those transactions. The through (e)(3) of this section shall not apply to banks amendments also clarify that State member banks that having an average of less than 200 securities transaceffect de minimis government securities brokerage transac- tions per year for customers over the prior three tions and are exempt from registration under Department calendar year period, exclusive of transactions in govof the Treasury regulations, also are exempt from Regula- ernment securities; tion H. Finally, the amendments address the minimum (ii) Government securities. The recordkeeping rerecordkeeping requirements for State member banks ex- quirements of paragraph (c) of this section shall not empt from the regulation, require State member banks to apply to banks effecting fewer than 500 government establish trading policies and procedures that separate the securities brokerage transactions per year; provided sales function from the back office function, liberalize the that this exception shall not apply to government written notification requirements for periodic plans, and securities transactions by a State member bank that include several new definitions and language edits. has filed a written notice, or is required to file notice, Effective April 1, 1997, 12 C.F.R. Part 208 is amended with the Federal Reserve Board that it acts as a as follows: government securities broker or a government securities dealer; (iii) Municipal securities. The municipal securities Part 208—Membership of State Banking activities of a State member bank that are subject to Institutions in the Federal Reserve System regulations promulgated by the Municipal Securities (Regulation H) Rulemaking Board shall not be subject to the requirements of this section; and (iv) Foreign branches. The requirements of this section shall not apply to the activities of foreign 1. The authority citation for Part 208 continues to read as branches of a State member bank. follows: (2) Every State member bank qualifying for an exemption under paragraph (a)(1) of this section that conducts Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338a, 371d, securities transactions for customers shall, to ensure safe 461, 481-486, 601, 611, 1814, 1820(d)(8), 1823(j), and sound operations, maintain effective systems of 1828(o), 1831o, 1831p-l, 3105, 3310, 3331-3351, and records and controls regarding its customer securities 3906-3909; 15 U.S.C. 78b, 781(b), 781(g), 781(i), 78otransactions that clearly and accurately reflect appropri- 4(c)(5), 78q, 78q-l and 78w; 31 U.S.C. 5318; 42 U.S.C. ate information and provide an adequate basis for an 4012a, 4104a, 4104b, 4106 and 4128. audit of the information. (b) Definitions. For purposes of this section: (1) Asset-backed security shall mean a security that is Section 208.8—[Amended] serviced primarily by the cash flows of a discrete pool of receivables or other financial assets, either fixed or re- 2. In section 208.8, paragraph (k) is removed and reserved. volving, that by their terms convert into cash within a finite time period plus any rights or other assets designed 3. A new section 208.24 is added to subpart A to read as to assure the servicing or timely distribution of proceeds follows: to the security holders. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

272 Federal Reserve Bulletin • April 1997 (2) Collective investment fund shall mean funds held by indirect interest and which is designated by the Secrea State member bank as fiduciary and, consistent with tary of the Treasury for exemption as necessary or local law, invested collectively as follows: appropriate in the public interest or for the protection (i) In a common trust fund maintained by such bank of investors; exclusively for the collective investment and reinvest- (iii) A security issued or guaranteed as to principal ment of monies contributed thereto by the bank in its and interest by any corporation whose securities are capacity as trustee, executor, administrator, guardian, designated, by statute specifically naming the corporaor custodian under the Uniform Gifts to Minors Act; tion, to constitute exempt securities within the meanor ing of the laws administered by the Securities and (ii) In a fund consisting solely of assets of retirement, Exchange Commission; or pension, profit sharing, stock bonus or similar trusts (iv) Any put, call, straddle, option, or privilege on a which are exempt from Federal income taxation under security as described in paragraphs (b)(7)(i), (ii), or the Internal Revenue Code (26 U.S.C.). (iii) of this section other than a put, call, straddle, (3) Completion of the transaction effected by or through option, or privilege that is traded on one or more a state member bank shall mean: national securities exchanges, or for which quotations (i) For purchase transactions, the time when the cus- are disseminated though an automated quotation systomer pays the bank any part of the purchase price (or tem operated by a registered securities association. the time when the bank makes the book-entry for any (8) Investment discretion with respect to an account shall part of the purchase price if applicable); however, if mean if the State member bank, directly or indirectly, is the customer pays for the security prior to the time authorized to determine what securities or other property payment is requested or becomes due, then the trans- shall be purchased or sold by or for the account, or action shall be completed when the bank transfers the makes decisions as to what securities or other property security into the account of the customer; and shall be purchased or sold by or for the account even (ii) For sale transactions, the time when the bank though some other person may have responsibility for transfers the security out of the account of the cus- such investment decisions. tomer or, if the security is not in the bank's custody, (9) Municipal security shall mean a security which is a then the time when the security is delivered to the direct obligation of, or obligation guaranteed as to prinbank; however, if the customer delivers the security to cipal or interest by, a State or any political subdivision the bank prior to'the time delivery is requested or thereof, or any agency or instrumentality of a State or becomes due then the transaction shall be completed any political subdivision thereof, or any municipal corwhen the banks makes payment into the account of porate instrumentality of one or more States, or any the customer. security which is an industrial development bond (as (4) Crossing of buy and sell orders shall mean a security defined in 26 U.S.C. 103(c)(2) the interest on which is transaction in which the same bank acts as agent for both excludable from gross income under 26 U.S.C. 103(a) by the buyer and the seller. reason of the application of paragraph (4) or (6) of (5) Customer shall mean any person or account, includ- 26 U.S.C. 103(c) (determined as if paragraphs (4)(A), (5) ing any agency, trust, estate, guardianship, or other fidu- and (7) were not included in 26 U.S.C. 103(c), paragraph ciary account, for which a State member bank effects or (1) of 26 U.S.C. 103(c) does not apply to such security. participates in effecting the purchase or sale of securi- (10) Periodic plan shall mean: ties, but shall not include a broker, dealer, bank acting as (i) A written authorization for a State member bank to a broker or dealer, municipal securities broker or dealer, act as agent to purchase or sell for a customer a or issuer of the securities which are the subject of the specific security or securities, in a specific amount transactions. (calculated in security units or dollars) or to the extent (6) Debt security as used in paragraph (c) of this section of dividends and funds available, at specific time shall mean any security, such as a bond, debenture, note intervals, and setting forth the commission or charges or any other similar instrument which evidences a liabil- to be paid by the customer or the manner of calculatity of the issuer (including any security of this type that ing them (including dividend reinvestment plans, auis convertible into stock or similar security) and frac- tomatic investment plans, and employee stock purtional or participation interests in one or more of any of chase plans); or the foregoing; provided, however, that securities issued (ii) Any prearranged, automatic transfer or sweep of by an investment company registered under the Invest- funds from a deposit account to purchase a security, or ment Company Act of 1940, 15 U.S.C. 80a-1 et seq., any prearranged, automatic redemption or sale of a shall not be included in this definition. security with the funds being transferred into a de- (7) Government security shall mean: posit account (including cash management sweep ser- (i) A security that is a direct obligation of, or obliga- vices). tion guaranteed as to principal and interest by, the (11) Security shall mean: United States; (i) Any note, stock, treasury stock, bond, debenture, (ii) A security that is issued or guaranteed by a corpo- certificate of interest or participation in any profitration in which the United States has a direct or sharing agreement or in any oil, gas, or other mineral Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 273 royalty or lease, any collateral-trust certificate, preor- (i) The account(s) for which the transaction was efganization certificate or subscription, transferable fected; share, investment contract, voting-trust certificate, for (ii) Whether the transaction was a market order, limit a security, any put, call, straddle, option, or privilege order, or subject to special instructions; on any security, or group or index of securities (in- (iii) The time the order was received by the trader or cluding any interest therein or based on the value other bank employee responsible for effecting the thereof), any instrument commonly known as a "secu- transaction; rity"; or any certificate of interest or participation in, (iv) The time the order was placed with the broker/ temporary or interim certificate for, receipt for, or dealer, or if there was no broker/dealer, the time the warrant or right to subscribe to or purchase, any of the order was executed or canceled; foregoing; (v) The price at which the order was executed; and (ii) But does not include a deposit or share account in (vi) The broker/dealer utilized; a federally or state insured depository institution, a (4) A record of all broker/dealers selected by the bank to loan participation, a letter of credit or other form of effect securities transactions and the amount of commisbank indebtedness incurred in the ordinary course of sions paid or allocated to each such broker during the business, currency, any note, draft, bill of exchange, calendar year; and or bankers acceptance which has a maturity at the (5) A copy of the written notification required by paratime of issuance of not exceeding nine months, exclu- graphs (c) and (d) of this section. sive of days of grace, or any renewal thereof the (d) Content and time of notification. Every State member maturity of which is likewise limited, units of a collec- bank effecting a securities transaction for a customer shall tive investment fund, interests in a variable amount give or send to such customer either of the following types (master) note of a borrower of prime credit, or U.S. of notifications at or before completion of the transaction Savings Bonds, or; if the bank uses a broker/dealer's confirmation, within (c) Recordkeeping. Except as provided in paragraph (a) of one business day from the bank's receipt of the broker/ this section, every State member bank effecting securities dealer's confirmation: transactions for customers, including transactions in gov- (1) A copy of the confirmation of a broker/dealer relaternment securities, and municipal securities transactions ing to the securities transaction; and if the bank is to by banks not subject to registration as municipal securities receive remuneration from the customer or any other dealers, shall maintain the following records with respect source in connection with the transaction, and the remuto such transactions for at least three years. Nothing con- neration is not determined pursuant to a prior written tained in this section shall require a bank to maintain the agreement between the bank and the customer, a staterecords required by this paragraph in any given manner, ment of the source and the amount of any remuneration provided that the information required to be shown is to be received; or clearly and accurately reflected and provides an adequate (2) A written notification disclosing: basis for the audit of such information. Records may be (i) The name of the bank; maintained in hard copy, automated, or electronic form (ii) The name of the customer; provided the records are easily retrievable, readily avail- (iii) Whether the bank is acting as agent for such able for inspection, and capable of being reproduced in a customer, as agent for both such customer and some hard copy. A bank may contract with third party service other person, as principal for its own account, or in providers, including broker/dealers, to maintain records any other capacity; required under this part. (iv) The date of execution and a statement that the (1) Chronological records of original entry containing an time of execution will be furnished within a reasonitemized daily record of all purchases and sales of secu- able time upon written request of such customer specrities. The records of original entry shall show the ifying the identity, price and number of shares or units account or customer for which each such transaction (or principal amount in the case of debt securities) of was effected, the description of the securities, the unit such security purchased or sold by such customer; and aggregate purchase or sale price (if any), the trade (v) The amount of any remuneration received or to be date and the name or other designation of the broker/ received, directly or indirectly, by any broker/dealer dealer or other person from whom purchased or to from such customer in connection with the transacwhom sold; tion; (2) Account records for each customer which shall re- (vi) The amount of any remuneration received or to be flect all purchases and sales of securities, all receipts and received by the bank from the customer and the deliveries of securities, and all receipts and disburse- source and amount of any other remuneration to be ments of cash with respect to transactions in securities received by the bank in connection with the transacfor such account and all other debits and credits pertain- tion, unless remuneration is determined pursuant to a ing to transactions in securities; written agreement between the bank and the customer, (3) A separate memorandum (order ticket) of each order provided, however, in the case of Government securito purchase or sell securities (whether executed or can- ties and municipal securities, this paragraph (d)(2)(vi) celled), which shall include: shall apply only with respect to remuneration received Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

274 Federal Reserve Bulletin • April 1997 by the bank in an agency transaction. If the bank is an asset-backed security which represents an interelects not to disclose the source and amount of remu- est in or is secured by a pool of receivables or other neration it has or will receive from a party other than financial assets that are subject continuously to prethe customer pursuant to this paragraph (d)(2)(vi), the payment, a statement indicating that the actual yield written notification must disclose whether the bank of such asset-backed security may vary according to has received or will receive remuneration from a party the rate at which the underlying receivables or other other than the customer, and that the bank will furnish financial assets are prepaid and a statement of the fact within a reasonable time the source and amount of that information concerning the factors that affect this remuneration upon written request of the cus- yield (including at a minimum, the estimated yield, tomer. This election is not available, however, if, with weighted average life, and the prepayment assumprespect to a purchase, the bank was participating in a tions underlying yield) will be furnished upon written distribution of that security; or with respect to a sale, request of such customer; and the bank was participating in a tender offer for that (xii) In the case of a transaction in a debt security, security; other than a government security, that the security is (vii) The name of the broker/dealer utilized; or, where unrated by a nationally recognized statistical rating there is no broker/dealer, the name of the person from organization, if that is the case, whom the security was purchased or to whom it was (e) Notification by agreement; alternative forms and times sold, or the fact that such information will be fur- of notification. A State member bank may elect to use the nished within a reasonable time upon written request; following alternative procedures if a transaction is effected (viii) In the case of a transaction in a debt security for: subject to redemption before maturity, a statement to (1) Accounts (except periodic plans) where the bank the effect that the debt security may be redeemed in does not exercise investment discretion and the bank and whole or in part before maturity, that the redemption the customer agree in writing to a different arrangement could affect the yield represented and that additional as to the time and content of the notification; provided, information is available on request; however, that such agreement makes clear the custom- (ix) In the case of a transaction in a debt security er's right to receive the written notification pursuant to effected exclusively on the basis of a dollar price: paragraph (c) of this section at no additional cost to the (A) The dollar price at which the transaction was customer; effected; (2) Accounts (except collective investment funds) where (B) The yield to maturity calculated from the dollar the bank exercises investment discretion in other than an price; provided, however, that this paragraph agency capacity, in which instance the bank shall, upon (c)(2)(ix)(B) shall not apply to a transaction in a request of the person having the power to terminate the debt security that either has a maturity date that account or, if there is no such person, upon the request of may be extended by the issuer with a variable any person holding a vested beneficial interest in such interest payable thereon, or is an asset-backed secu- account, give or send to such person the written notificarity that represents an interest in or is secured by a tion within a reasonable time. The bank may charge such pool of receivables or other financial assets that are person a reasonable fee for providing this information; subject to continuous prepayment; (3) Accounts, where the bank exercises investment dis- (x) In the case of a transaction in a debt security cretion in an agency capacity, in which instance: effected on the basis of yield: (i) The bank shall give or send to each customer not (A) The yield at which the transaction was effected, less frequently than once every three months an itemincluding the percentage amount and its character- ized statement which shall specify the funds and secuization (e.g., current yield, yield to maturity, or rities in the custody or possession of the bank at the yield to call) and if effected at yield to call, the type end of such period and all debits, credits and transacof call, the call date, and the call price; and tions in the customer's accounts during such period; and (B) The dollar price calculated from the yield at (ii) If requested by the customer, the bank shall give which the transaction was effected; and or send to each customer within a reasonable time the (C) If effected on a basis other than yield to matu- written notification described in paragraph (c) of this rity and the yield to maturity is lower than the section. The bank may charge a reasonable fee for represented yield, the yield to maturity as well as providing the information described in paragraph (c) the represented yield; provided, however, that this of this section; paragraph (c)(2)(x)(C) shall not apply to a transac- (4) A collective investment fund, in which instance the tion in a debt security that either has a maturity date bank shall at least annually furnish a copy of a financial that may be extended by the issuer with a variable report of the fund, or provide notice that a copy of such interest rate payable thereon, or is an asset-backed report is available and will be furnished upon request, to security that represents an interest in or is secured each person to whom a regular periodic accounting by a pool of receivables or other financial assets would ordinarily be rendered with respect to each particthat are subject to continuous prepayment; ipating account. This report shall be based upon an audit (xi) In the case of a transaction in a debt security that made by independent public accountants or internal au- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 275 ditors responsible only to the board of directors of the law, for the crossing of buy and sell orders on a fair and bank; equitable basis to the parties to the transaction; and (5) A periodic plan, in which instance the bank: (4) That bank officers and employees who make invest- (i) Shall (except for a cash management sweep ser- ment recommendations or decisions for the accounts of vice) give or send to the customer a written statement customers, who participate in the determination of such not less than every three months if there are no recommendations or decisions, or who, in connection securities transactions in the account, showing the with their duties, obtain information concerning which customer's funds and securities in the custody or securities are being purchased or sold or recommended possession of the bank; all service charges and com- for such action, must report to the bank, within ten days missions paid by the customer in connection with the after the end of the calendar quarter, all transactions in transaction; and all other debits and credits of the securities made by them or on their behalf, either at the customer's account involved in the transaction; or bank or elsewhere in which they have a beneficial inter- (ii) Shall for a cash management sweep service or est. The report shall identify the securities purchased or similar periodic plan as defined in section sold and indicate the dates of the transactions and 208.24(b)(10)(ii) give or send its customer a written whether the transactions were purchases or sales. Exstatement in the same form as prescribed in paragraph cluded from this requirement are transactions for the (e)(i) above for each month in which a purchase or benefit of the officer or employee over which the officer sale of a security takes place in a deposit account and or employee has no direct or indirect influence or connot less than once every three months if there are no trol, transactions in mutual fund shares, and all transacsecurities transactions in the account subject to any tions involving in the aggregate $10,000 or less during other applicable laws or regulations; the calendar quarter. For purposes of this para- (6) Upon the written request of the customer the bank graph (g)(4), the term securities does not include governshall furnish the information described in paragraph (c) ment securities. of this section, except that any such information relating to remuneration paid in connection with the transaction need not be provided to the customer when paid by a FINAL RULE — AMENDMENT TO REGULATION Y source other than the customer. The bank may charge a reasonable fee for providing the information described The Board of Governors is amending 12 C.F.R. Part 225, in paragraph (d) of this section. its Regulation Y (Bank Holding Companies and Change in (f) Settlement of securities transactions. All contracts for Bank Control). The Board has adopted comprehensive the purchase or sale of a security shall provide for comple- amendments to Regulation Y that improve the competitivetion of the transaction within the number of business days ness of bank holding companies by eliminating unnecesin the standard settlement cycle for the security followed sary regulatory burden and operating restrictions, and by by registered broker dealers in the United States unless streamlining the application/notice process. Among other otherwise agreed to by the parties at the time of the revisions, the final rule incorporates a streamlined and transaction. expedited review process for bank acquisition proposals by (g) Securities trading policies and procedures. Every State well-run bank holding companies with a number of modifimember bank effecting securities transactions for custom- cations intended to broaden and improve public notice of ers shall establish written policies and procedures provid- bank acquisition proposals, to assure that the regulatory ing: filing is made well within the public comment period, and (1) Assignment of responsibility for supervision of all to better assure that proposals reviewed under the streamofficers or employees who: lined procedures do not raise issues under the statutory (i) Transmit orders to or place orders with broker/ factors in the Bank Holding Company Act. dealers; The final rule also implements the changes enacted in (ii) Execute transactions in securities for customers; the Economic Growth and Regulatory Paperwork Reducor tion Act of 1996 that eliminate certain notice and approval (iii) Process orders for notification and/or settlement requirements and streamline others that involve nonbankpurposes, or perform other back office functions with ing proposals by well-run bank holding companies. The respect to securities transactions effected for custom- final rule also includes a reorganized and expanded regulaers; provided that procedures established under this tory list of permissible nonbanking activities and removes paragraph (g)(l)(iii) should provide for supervision a number of restrictions on those activities that are outand reporting lines that are separate from supervision moded, have been superseded by Board order or do not of personnel under paragraphs (g)(l)(i) and (g)(l)(ii) apply to insured banks that conduct the same activity. of this section; In addition, the final rule incorporates several amend- (2) For the fair and equitable allocation of securities and ments to the tying restrictions, including removal of the prices to accounts when orders for the same security are regulatory extension of those restrictions to bank holding received at approximately the same time and are placed companies and their nonbank subsidiaries. A number of for execution either individually or in combination; other changes have also been included to eliminate unnec- (3) Where applicable and where permissible under local essary regulatory burden and to streamline and modernize Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

276 Federal Reserve Bulletin • April 1997 Regulation Y, including changes to the provisions imple- (1) Regulate the acquisition of control of banks by menting the Change in Bank Control Act and section 914 companies and individuals; of the Financial Institutions Reform, Recovery, and En- (2) Define and regulate the nonbanking activities in forcement Act of 1989. which bank holding companies and foreign banking Effective April 21, 1997, 12 C.F.R. Part 225 is amended organizations with United States operations may engage; as follows: and (3) Set forth the procedures for securing approval for Part 225—Bank Holding Companies and Change in these transactions and activities. Bank Control (Regulation Y) (c) Scope — (1) Subpart A contains general provisions and definitions of terms used in this regulation. 1. The authority citation for Part 225 continues to read as (2) Subpart B governs acquisitions of bank or bank follows: holding company securities and assets by bank holding companies or by any company that will become a bank Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1831p-l, holding company as a result of the acquisition. 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331- (3) Subpart C defines and regulates the nonbanking 3351, 3907, and 3909. activities in which bank holding companies and foreign banking organizations may engage directly or through a 2. Subpart A is revised to read as follows: subsidiary. The Board's Regulation K governs certain nonbanking activities conducted by foreign banking or- Subpart A—General Provisions ganizations and certain foreign activities conducted by bank holding companies (12 C.F.R. Part 211, Interna- Section tional Banking Operations). (4) Subpart D specifies situations in which a company is 225.1 Authority, purpose, and scope. presumed to control voting securities or to have the 225.2 Definitions. power to exercise a controlling influence over the man- 225.3 Administration. agement or policies of a bank or other company; sets 225.4 Corporate practices. forth the procedures for making a control determination; 225.5 Registration, reports, and inspections. and provides rules governing the effectiveness of divesti- 225.6 Penalties for violations. tures by bank holding companies. 225.7 Exceptions to tying restrictions (5) Subpart E governs changes in bank control resulting from the acquisition by individuals or companies (other than bank holding companies) of voting securities of a Subpart A—General Provisions bank holding company or state member bank of the Federal Reserve System. Section 225.1 Authority, purpose, and scope. (6) Subpart F specifies the limitations that govern companies that control so-called nonbank banks and the (a) Authority. This part1 (Regulation Y) is issued by the activities of nonbank banks. Board of Governors of the Federal Reserve System {Board) (7) Subpart G prescribes minimum standards that apply under section 5(b) of the Bank Holding Company Act of to the performance of real estate appraisals and identifies 1956, as amended (12 U.S.C. 1844(b)) (BHC Act); sections transactions that require state certified appraisers. 8 and 13(a) of the International Banking Act of 1978 (8) Subpart H identifies the circumstances when written (12 U.S.C. 3106 and 3108); section 7(j)(13) of the Federal notice must be provided to the Board prior to the ap- Deposit Insurance Act, as amended by the Change in Bank pointment of a director or senior officer of a bank Control Act of 1978 (12 U.S.C. 1817(j)(13)) (Bank Control holding company and establishes procedures for obtain- Act); section 8(b) of the Federal Deposit Insurance Act ing the required Board approval. (12 U.S.C. 1818(b)); section 914 of the Financial Institu- (9) Appendix A to the regulation contains the Board's tions Reform, Recovery and Enforcement Act of 1989 Risk-Based Capital Adequacy Guidelines for bank hold- (12 U.S.C. 183li); section 106 of the Bank Holding Coming companies. pany Act Amendments of 1970 (12 U.S.C. 1972); and the (10) Appendix B contains the Board's Capital Adequacy International Lending Supervision Act of 1983 (Pub. L. Guidelines for measuring leverage for bank holding 98-181, title IX). The BHC Act is codified at 12 U.S.C. companies and state member banks. 1841, et seq. (11) Appendix C contains the Board's policy statement (b) Purpose. The principal purposes of this part are to: governing small bank holding companies. (12) Appendix D contains the Board's Capital Adequacy Guidelines for measuring tier 1 leverage for bank holding companies. (13) Appendix E contains the Board's Capital Adequacy Guidelines for measuring market risk of bank holding 1. Code of Federal Regulations, title 12, chapter II, part 225. companies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 277 Section 225.2—Definitions. (2) Company does not include any organization, the majority of the voting securities of which are owned by the United States or any state. Except as modified in this regulation or unless the context (3) Testamentary trusts exempt. Unless the Board finds otherwise requires, the terms used in this regulation have that the trust is being operated as a business trust or the same meaning as set forth in the relevant statutes. company, a trust is presumed not to be a company if the (a) Affiliate means any company that controls, is controlled trust: by, or is under common control with, another company. (i) Terminates within 21 years and 10 months (b)(1) Bank means: after the death of grantors or beneficiaries of the trust (i) An insured bank as defined in section 3(h) of the living on the effective date of the trust or within 25 Federal Deposit Insurance Act (12 U.S.C. 1813(h)); or years; (ii) An institution organized under the laws of the (ii) Is a testamentary or inter vivos trust established by United States which both: an individual or individuals for the benefit of natural (A) Accepts demand deposits or deposits that the persons (or trusts for the benefit of natural persons) depositor may withdraw by check or similar means who are related by blood, marriage or adoption; for payment to third parties or others; and (iii) Contains only assets previously owned by the (B) Is engaged in the business of making commer- individual or individuals who established the trust; cial loans. (iv) Is not a Massachusetts business trust; and (2) Bank does not include those institutions qualifying (v) Does not issue shares, certificates, or any other under the exceptions listed in section 2(c)(2) of the BHC evidence of ownership. Act (12 U.S.C. 1841(c)(2)). (4) Qualified limited partnerships exempt. Company (c)(1) Bank holding company means any company (includ- does not include a qualified limited partnership, as deing a bank) that has direct or indirect control of a bank, fined in section 2(o)(10) of the BHC Act. other than control that results from the ownership or (e) (1) Control of a bank or other company means (except control of: for the purposes of subpart E of this part): (i) Voting securities held in good faith in a fiduciary (i) Ownership, control, or power to vote 25 percent or capacity (other than as provided in paragraphs more of the outstanding shares of any class of voting (e)(2)(ii) and (iii) of this section) without sole discre- securities of the bank or other company, directly or tionary voting authority, or as otherwise exempted indirectly or acting through one or more other perunder section 2(a)(5)(A) of the BHC Act; sons; (ii) Voting securities acquired and held only for a (ii) Control in any manner over the election of a reasonable period of time in connection with the un- majority of the directors, trustees, or general partners derwriting of securities, as provided in sec- (or individuals exercising similar functions) of the tion 2(a)(5)(B) of the BHC Act; bank or other company; (iii) Voting rights to voting securities acquired for the (iii) The power to exercise, directly or indirectly, a sole purpose and in the course of participating in a controlling influence over the management or policies proxy solicitation, as provided in section 2(a)(5)(C) of of the bank or other company, as determined by the the BHC Act; Board after notice and opportunity for hearing in (iv) Voting securities acquired in satisfaction of debts accordance with section 225.31 of subpart D of this previously contracted in good faith, as provided in part; or section 2(a)(5)(D) of the BHC Act, if the securities (iv) Conditioning in any manner the transfer of are divested within two years of acquisition (or such 25 percent or more of the outstanding shares of any later period as the Board may permit by order); or class of voting securities of a bank or other company (v) Voting securities of certain institutions owned by a upon the transfer of 25 percent or more of the outthrift institution or a trust company, as provided in standing shares of any class of voting securities of sections 2(a)(5)(E) and (F) of the BHC Act. another bank or other company. (2) Except for the purposes of section 225.4(b) of this (2) A bank or other company is deemed to control voting subpart and subpart E of this part, or as otherwise securities or assets owned, controlled, or held, directly provided in this regulation, bank holding company in- or indirectly: cludes a foreign banking organization. For the purposes (i) By any subsidiary of the bank or other company; of subpart B of this part, bank holding company includes (ii) In a fiduciary capacity (including by pension and a foreign banking organization only if it owns or con- profit-sharing trusts) for the benefit of the shareholdtrols a bank in the United States. ers, members, or employees (or individuals serving in (d)(1) Company includes any bank, corporation, general or similar capacities) of the bank or other company or limited partnership, association or similar organization, any of its subsidiaries; or business trust, or any other trust unless by its terms it (iii) In a fiduciary capacity for the benefit of the bank must terminate either within 25 years, or within 21 years or other company or any of its subsidiaries. and 10 months after the death of individuals living on (f) Foreign banking organization and qualifying foreign the effective date of the trust. banking organization have the same meanings as provided Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

278 Federal Reserve Bulletin • April 1997 in section 211.21(n) and section 211.23 of the Board's state of the United States, the District of Columbia, any Regulation K (12 C.F.R. 211.21(n) and 211.23). territory of the United States, Puerto Rico, Guam, Ameri- (g) Insured depository institution includes an insured bank can Samoa, and the Virgin Islands. as defined in section 3(h) of the Federal Deposit Insurance (q)(l) Voting securities means shares of common or pre- Act (12 U.S.C. 1813(h)) and a savings association. ferred stock, general or limited partnership shares or (h) Lead insured depository institution means the largest interests, or similar interests if the shares or interest, by insured depository institution controlled by the bank hold- statute, charter, or in any manner, entitle the holder: ing company as of the quarter ending immediately prior to (i) To vote for or to select directors, trustees, or the proposed filing, based on a comparison of the average partners (or persons exercising similar functions of total risk-weighted assets controlled during the previous the issuing company); or 12-month period by each insured depository institution (ii) To vote on or to direct the conduct of the operasubsidiary of the holding company. tions or other significant policies of the issuing com- (i) Management official means any officer, director (includ- pany. ing honorary or advisory directors), partner, or trustee of a (2) Nonvoting shares. Preferred shares, limited partnerbank or other company, or any employee of the bank or ship shares or interests, or similar interests are not voting other company with policy-making functions. securities if: (j) Nonbank bank means any institution that: (i) Any voting rights associated with the shares or (1) Became a bank as a result of enactment of the interest are limited solely to the type customarily Competitive Equality Amendments of 1987 (Pub. L. provided by statute with regard to matters that would 100-86), on the date of enactment (August 10, 1987); significantly and adversely affect the rights or preferand ence of the security or other interest, such as the (2) Was not controlled by a bank holding company on issuance of additional amounts or classes of senior the day before the enactment of the Competitive Equal- securities, the modification of the terms of the security ity Amendments of 1987 (August 9, 1987). or interest, the dissolution of the issuing company, or (k) Outstanding shares means any voting securities, but the payment of dividends by the issuing company does not include securities owned by the United States or when preferred dividends are in arrears; by a company wholly owned by the United States. (ii) The shares or interest represent an essentially (1) Person includes an individual, bank, corporation, part- passive investment or financing device and do not nership, trust, association, joint venture, pool, syndicate, otherwise provide the holder with control over the sole proprietorship, unincorporated organization, or any issuing company; and other form of entity, (iii) The shares or interest do not entitle the holder, by (m) Savings association means: statute, charter, or in any manner, to select or to vote (1) Any federal savings association or federal savings for the selection of directors, trustees, or partners (or bank; persons exercising similar functions) of the issuing (2) Any building and loan association, savings and loan company. association, homestead association, or cooperative bank (3) Class of voting shares. Shares of stock issued by a if such association or cooperative bank is a member of single issuer are deemed to be the same class of voting the Savings Association Insurance Fund; and shares, regardless of differences in dividend rights or (3) Any savings bank or cooperative that is deemed by liquidation preference, if the shares are voted together as the director of the Office of Thrift Supervision to be a a single class on all matters for which the shares have savings association under section 10(1) of the Home voting rights other than matters described in paragraph Owners Loan Act. (o)(2)(i) of this section that affect solely the rights or (n) Shareholder—(1) Controlling shareholder means a per- preferences of the shares. son that owns or controls, directly or indirectly, (r) Well-Capitalized—(1) Bank holding company. In the 25 percent or more of any class of voting securities of a case of a bank holding company,2 well-capitalized means bank or other company. that: (2) Principal shareholder means a person that owns or (i) On a consolidated basis, the bank holding company controls, directly or indirectly, 10 percent or more of any maintains a total risk-based capital ratio of 10.0 perclass of voting securities of a bank or other company, or cent or greater, as defined in Appendix A of this part; any person that the Board determines has the power, (ii) On a consolidated basis, the bank holding comdirectly or indirectly, to exercise a controlling influence pany maintains a Tier 1 risk-based capital ratio of over the management or policies of a bank or other company. (o) Subsidiary means a bank or other company that is controlled by another company, and refers to a direct or 2. For purposes of this subpart and subparts B and C of this part, a indirect subsidiary of a bank holding company. An indirect bank holding company with consolidated assets under $150 million that is subject to the Small Bank Holding Company Policy Statement subsidiary is a bank or other company that is controlled by in Appendix C of this part will be deemed to be "well-capitalized" if a subsidiary of the bank holding company, the bank holding company meets the requirements for expedited/ (p) United States means the United States and includes any waived processing in Appendix C. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 279 6.0 percent or greater, as defined in Appendix A of in the United States have received at least a satisfactory this part; and composite rating at the most recent annual assessment. (iii) The bank holding company is not subject to any written agreement, order, capital directive, or prompt Section 225.3—Administration. corrective action directive issued by the Board to meet and maintain a specific capital level for any (a) Delegation of authority. Designated Board members capital measure. and officers and the Federal Reserve Banks are authorized (2) Insured depository institution. In the case of an by the Board to exercise various functions prescribed in insured depository institution, well-capitalized means this regulation and in the Board's Rules Regarding Delegathat the institution maintains at least the capital levels tion of Authority (12 C.F.R. Part 265) and the Board's required to be "well-capitalized" under the capital ade- Rules of Procedure (12 C.F.R. Part 262). quacy regulations or guidelines applicable to the institu- (b) Appropriate Federal Reserve Bank. In administering tion that have been adopted by the appropriate federal this regulation, unless a different Federal Reserve Bank is banking agency for the institution under section 38 of designated by the Board, the appropriate Federal Reserve the Federal Deposit Insurance Act (12 U.S.C. 1831o). Bank is as follows: (3) Foreign banks—(i) Standards applied. For purposes (1) For a bank holding company (or a company applying of determining whether a foreign banking organiza- to become a bank holding company): the Reserve Bank tion qualifies under paragraph (r)(l) of this section: of the Federal Reserve district in which the company's (A) A foreign banking organization whose home banking operations are principally conducted, as meacountry supervisor, as defined in section 211.21 of sured by total domestic deposits in its subsidiary banks the Board's Regulation K (12 C.F.R. 211.21), has on the date it became (or will become) a bank holding adopted capital standards consistent in all respects company; with the Capital Accord of the Basle Committee on (2) For a foreign banking organization that has no sub- Banking Supervision (Basle Accord) may calculate sidiary bank and is not subject to paragraph (b)(1) of this its capital ratios under the home country standard; section: the Reserve Bank of the Federal Reserve district and in which the total assets of the organization's United (B) A foreign banking organization whose home States branches, agencies, and commercial lending comcountry supervisor has not adopted capital stan- panies are the largest as of the later of January 1, 1980, dards consistent in all respects with the Basle Ac- or the date it becomes a foreign banking organization; cord shall obtain a determination from the Board (3) For an individual or company submitting a notice that its capital is equivalent to the capital that under subpart E of this part: the Reserve Bank of the would be required of a U.S. banking organization Federal Reserve district in which the banking operations under paragraph (r)(l) of this section. of the bank holding company or state member bank to be (ii) Branches and agencies. For purposes of determin- acquired are principally conducted, as measured by total ing, under paragraph (r)(l) of this section, whether a domestic deposits on the date the notice is filed. branch or agency of a foreign banking organization is well-capitalized, the branch or agency shall be Section 225.4—Corporate practices. deemed to have the same capital ratios as the foreign banking organization, (a) Bank holding company policy and operations. (1) A (s) Well-managed—(1) In general. A company, insured bank holding company shall serve as a source of finandepository institution, or branch or agency of a foreign cial and managerial strength to its subsidiary banks and banking organization is well-managed if: shall not conduct its operations in an unsafe or unsound (i) At its most recent inspection or examination or manner. subsequent review by the appropriate federal banking (2) Whenever the Board believes an activity of a bank agency for the company or institution, the company or holding company or control of a nonbank subsidiary institution received: (other than a nonbank subsidiary of a bank) constitutes a (A) At least a satisfactory composite rating; and serious risk to the financial safety, soundness, or stability (B) At least a satisfactory rating for management of a subsidiary bank of the bank holding company and is and for compliance, if such a rating is given; or inconsistent with sound banking principles or the pur- (ii) In the case of a company or insured depository poses of the BHC Act or the Financial Institutions institution that has not received an examination rating, Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) the Board has determined, after a review of the mana- et seq.), the Board may require the bank holding comgerial and other resources of the company or deposi- pany to terminate the activity or to terminate control of tory institution, that the company or institution quali- the subsidiary, as provided in section 5(e) of the BHC fies for the streamlined procedures in this subpart, and Act. subparts B and C of this part. (b) Purchase or redemption by bank holding company of its (2) Foreign banking organizations. A foreign banking own securities—(1) Filing notice. Except as provided in organization shall qualify under this paragraph if the paragraph (b)(6) of this section, a bank holding company combined operations of the foreign banking organization shall give the Board prior written notice before purchas- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

280 Federal Reserve Bulletin • April 1997 ing or redeeming its equity securities if the gross consid- the bank holding company in writing of the reasons eration for the purchase or redemption, when aggregated for a decision to disapprove any proposed purchase with the net consideration paid by the company for all or redemption. Within 10 calendar days of receipt such purchases or redemptions during the preceding 12 of a notice of disapproval by the Board, the bank months, is equal to 10 percent or more of the company's holding company may submit a written request for a consolidated net worth. For the purposes of this section, hearing. "net consideration" is the gross consideration paid by (ii) The Board shall order a hearing within 10 calenthe company for all of its equity securities purchased or dar days of receipt of the request if it finds that redeemed during the period minus the gross consider- material facts are in dispute, or if it otherwise appears ation received for all of its equity securities sold during appropriate. Any hearing conducted under this parathe period. graph shall be held in accordance with the Board's (2) Contents of notice. Any notice under this section Rules of Practice for Formal Hearings (12 C.F.R. shall be filed with the appropriate Reserve Bank and Part 263). shall contain the following information: (iii) At the conclusion of the hearing, the Board shall (i) The purpose of the transaction, a description of the by order approve or disapprove the proposed purchase securities to be purchased or redeemed, the total num- or redemption on the basis of the record of the hearber of each class outstanding, the gross consideration ing. to be paid, and the terms and sources of funding for (6) Exception for well-capitalized bank holding compathe transaction; nies. A bank holding company is not required to obtain (ii) A description of all equity securities redeemed prior Board approval for the redemption or purchase of within the preceding 12 months, the net consideration its equity securities under this section provided: paid, and the terms of any debt incurred in connection (i) Both before and immediately after the redemption, with those transactions; and the bank holding company is well-capitalized; (iii)(A) If the bank holding company has consolidated (ii) The bank holding company is well-managed; and assets of $150 million or more, consolidated pro (iii) The bank holding company is not the subject of forma risk-based capital and leverage ratio calcula- any unresolved supervisory issues. tions for the bank holding company as of the most (c) Deposit insurance. Every bank that is a bank holding recent quarter, and, if the redemption is to be debt company or a subsidiary of a bank holding company shall funded, a parent-only pro forma balance sheet as of obtain Federal Deposit Insurance and shall remain an inthe most recent quarter; or sured bank as defined in section 3(h) of the Federal Deposit (B) If the bank holding company has consolidated Insurance Act (12 U.S.C. 1813(h)). assets of less than $150 million, a pro forma parent- (d) Acting as transfer agent, municipal securities dealer, or only balance sheet as of the most recent quarter, clearing agent. A bank holding company or any nonbankand, if the redemption is to be debt funded, one- ing subsidiary that is a "bank," as defined in secyear income statement and cash flow projections. tion 3(a)(6) of the Securities Exchange Act of 1934 (3) Acting on notice. Within 15 calendar days of receipt (15 U.S.C. 78c(a)(6)), and that is a transfer agent of securiof a notice under this section, the appropriate Reserve ties, a municipal securities dealer, a clearing agency, or a Bank shall either approve the transaction proposed in the participant in a clearing agency (as those terms are defined notice or refer the notice to the Board for decision. If the in section 3(a) of the Securities Exchange Act (15 U.S.C. notice is referred to the Board for decision, the Board 78c(a)), shall be subject to sections 208.8(f)-(j) of the shall act on the notice within 30 calendar days after the Board's Regulation H (12 C.F.R. 208.8(f)-(j» as if it were Reserve Bank receives the notice. a state member bank. (4) Factors considered in acting on notice, (i) The Board (e) Reporting requirement for credit secured by certain may disapprove a proposed purchase or redemption if bank holding company stock. Each executive officer or it finds that the proposal would constitute an unsafe or director of a bank holding company the shares of which are unsound practice, or would violate any law, regula- not publicly traded shall report annually to the board of tion, Board order, directive, or any condition imposed directors of the bank holding company the outstanding by, or written agreement with, the Board. amount of any credit that was extended to the executive (ii) In determining whether a proposal constitutes an officer or director and that is secured by shares of the bank unsafe or unsound practice, the Board shall consider holding company. For purposes of this paragraph, the terms whether the bank holding company's financial condi- "executive officer" and "director" shall have the meaning tion, after giving effect to the proposed purchase or given in section 215.2 of Regulation O (12 C.F.R. 215.2). redemption, meets the financial standards applied by (f) Suspicious activity report. A bank holding company or the Board under section 3 of the BHC Act, including any nonbank subsidiary thereof, or a foreign bank that is the Board's Capital Adequacy Guidelines (Appen- subject to the BHC Act or any nonbank subsidiary of such dix A) of this part and the Board's Policy Statement foreign bank operating in the United States, shall file a for Small Bank Holding Companies (Appendix C) of suspicious activity report in accordance with the provisions this part. of section 208.20 of the Board's Regulation H (12 C.F.R. (5) Disapproval and hearing, (i) The Board shall notify 208.20). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 281 Section 225.5—Registration, reports, and 1972(1)). These exceptions are in addition to those in inspections. section 106. The section also restricts tying of electronic benefit transfer services by bank holding companies and (a) Registration of bank holding companies. Each company their nonbank subsidiaries. shall register within 180 days after becoming a bank hold- (b) Exceptions to statute. Subject to the limitations of ing company by furnishing information in the manner and paragraph (c) of this section, a bank may: form prescribed by the Board. A company that receives the (1) Extension to affiliates of statutory exceptions preserv- Board's prior approval under subpart B of this part to ing traditional banking relationships. Extend credit, become a bank holding company may complete this regis- lease or sell property of any kind, or furnish any service, tration requirement through submission of its first annual or fix or vary the consideration for any of the foregoing, report to the Board as required by paragraph (b) of this on the condition or requirement that a customer: section. (i) Obtain a loan, discount, deposit, or trust service (b) Reports of bank holding companies. Each bank holding from an affiliate of the bank; or company shall furnish, in the manner and form prescribed (ii) Provide to an affiliate of the bank some additional by the Board, an annual report of the company's operations credit, property, or service that the bank could require for the fiscal year in which it becomes a bank holding to be provided to itself pursuant to seccompany, and for each fiscal year during which it remains a tion 106(b)(1)(C) of the Bank Holding Company Act bank holding company. Additional information and reports Amendments of 1970 (12 U.S.C. 1972(1)(C)). shall be furnished as the Board may require. (2) Safe harbor for combined-balance discounts. Vary (c) Examinations and inspections. The Board may examine the consideration for any product or package of products or inspect any bank holding company and each of its based on a customer's maintaining a combined minisubsidiaries and prepare a report of their operations and mum balance in certain products specified by the bank activities. With respect to a foreign banking organization, (eligible products), if: the Board may also examine any branch or agency of a (i) The bank offers deposits, and all such deposits are foreign bank in any state of the United States and may eligible products; and examine or inspect each of the organization's subsidiaries (ii) Balances in deposits count at least as much as in the United States and prepare reports of their operations nondeposit products toward the minimum balance. and activities. The Board shall rely, as far as possible, on (3) Safe harbor for foreign transactions. Engage in any the reports of examination made by the primary federal or transaction with a customer if that customer is: state supervisor of the subsidiary bank of the bank holding (i) A corporation, business, or other person (other company or of the branch or agency of the foreign bank. than an individual) that: (A) Is incorporated, chartered, or otherwise orga- Section 225.6—Penalties for violations. nized outside the United States; and (B) Has its principal place of business outside the (a) Criminal and civil penalties. (1) Section 8 of the BHC United States; or Act provides criminal penalties for willful violation, and (ii) An individual who is a citizen of a foreign country civil penalties for violation, by any company or individ- and is not resident in the United States. ual, of the BHC Act or any regulation or order issued (c) Limitations on exceptions. Any exception granted purunder it, or for making a false entry in any book, report, suant to this section shall terminate upon a finding by the or statement of a bank holding company. Board that the arrangement is resulting in anti-competitive (2) Civil money penalty assessments for violations of practices. The eligibility of a bank to operate under any the BHC Act shall be made in accordance with sub- exception granted pursuant to this section shall terminate part C of the Board's Rules of Practice for Hearings upon a finding by the Board that its exercise of this (12 C.F.R. Part 263, subpart C). For any willful violation authority is resulting in anti-competitive practices. of the Bank Control Act or any regulation or order (d) Extension of statute to electronic benefit transfer serissued under it, the Board may assess a civil penalty as vices. A bank holding company or nonbank subsidiary of a provided in 12 U.S.C. 1817(j)(15). bank holding company that provides electronic benefit (b) Cease-and-desist proceedings. For any violation of the transfer services shall be subject to the anti-tying restric- BHC Act, the Bank Control Act, this regulation, or any tions applicable to such services set forth in section 7(i)(l 1) order or notice issued thereunder, the Board may institute a of the Food Stamp Act of 1977 (7 U.S.C. 2016(i)(ll)). cease-and-desist proceeding in accordance with the Finan- (e) For purposes of this section, bank has the meaning cial Institutions Supervisory Act of 1966, as amended given that term in section 106(a) of the Bank Holding (12 U.S.C. 1818(b) etseq.). Company Act Amendments of 1970 (12 U.S.C. 1971), but shall also include a United States branch, agency, or com- Section 225.7—Exceptions to tying restrictions. mercial lending company subsidiary of a foreign bank that is subject to section 106 pursuant to section 8(d) of the (a) Purpose. This section establishes exceptions to the International Banking Act of 1978 (12 U.S.C. 3106(d)), anti-tying restrictions of section 106 of the Bank Holding and any company made subject to section 106 by sec- Company Act Amendments of 1970 (12 U.S.C. 1971, tion 4(f)(9) or 4(h) of the BHC Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

282 Federal Reserve Bulletin • April 1997 3. Subpart B is revised to read as follows: if the foreign banking organization were a bank holding company. Subpart B—Acquisition of Bank Securities or Assets Section 225.12 Transactions not requiring Board Section approval. 225.11 Transactions requiring Board approval. The following transactions do not require the Board's 225.12 Transactions not requiring Board approval. approval under section 225.11 of this subpart: 225.13 Factors considered in acting on bank acquisition (a) Acquisition of securities in fiduciary capacity. The proposals. acquisition by a bank or other company (other than a trust 225.14 Expedited action for certain bank acquisitions by that is a company) of control of voting securities of a bank well-run bank holding companies. or bank holding company in good faith in a fiduciary 225.15 Procedures for other bank acquisition proposals. capacity, unless: 225.16 Public notice, comments, hearings, and other provi- (1) The acquiring bank or other company has sole discresions governing applications and notices. tionary authority to vote the securities and retains this 225.17 Notice procedure for one-bank holding company authority for more than two years; or formations. (2) The acquisition is for the benefit of the acquiring bank or other company, or its shareholders, employees, Subpart B—Acquisition of Bank Securities or Assets or subsidiaries. (b) Acquisition of securities in satisfaction of debts previ- Section 225.11—Transactions requiring Board ously contracted. The acquisition by a bank or other comapproval pany of control of voting securities of a bank or bank holding company in the regular course of securing or The following transactions require the Board's prior ap- collecting a debt previously contracted in good faith, if the proval under section 3 of the Bank Holding Company Act acquiring bank or other company divests the securities except as exempted under section 225.12 or as otherwise within two years of acquisition. The Board or Reserve covered by section 225.17 of this subpart: Bank may grant requests for up to three one-year extensions. (a) Formation of bank holding company. Any action that (c) Acquisition of securities by bank holding company with causes a bank or other company to become a bank holding majority control. The acquisition by a bank holding comcompany. pany of additional voting securities of a bank or bank (b) Acquisition of subsidiary bank. Any action that causes a holding company if more than 50 percent of the outstandbank to become a subsidiary of a bank holding company. ing voting securities of the bank or bank holding company (c) Acquisition of control of bank or bank holding company is lawfully controlled by the acquiring bank holding comsecurities. pany prior to the acquisition. (1) The acquisition by a bank holding company of direct (d) Acquisitions involving bank mergers and internal coror indirect ownership or control of any voting securities porate reorganizations — (1) Transactions subject to Bank of a bank or bank holding company, if the acquisition Merger Act. The merger or consolidation of a subsidiary results in the company's control of more than 5 percent bank of a bank holding company with another bank, or of the outstanding shares of any class of voting securi- the purchase of assets by the subsidiary bank, or a ties of the bank or bank holding company. similar transaction involving subsidiary banks of a bank (2) An acquisition includes the purchase of additional holding company, if the transaction requires the prior securities through the exercise of preemptive rights, but approval of a federal supervisory agency under the Bank does not include securities received in a stock dividend Merger Act (12 U.S.C. 1828(c)) and does not involve the or stock split that does not alter the bank holding compa- acquisition of shares of a bank. This exception does not ny's proportional share of any class of voting securities. include: (d) Acquisition of bank assets. The acquisition by a bank (i) The merger of a nonsubsidiary bank and a nonoperholding company or by a subsidiary thereof (other than a ating subsidiary bank formed by a company for the bank) of all or substantially all of the assets of a bank. purpose of acquiring the nonsubsidiary bank; or (e) Merger of bank holding companies. The merger or (ii) Any transaction requiring the Board's prior apconsolidation of bank holding companies, including a proval under section 225.11(e) of this subpart. The merger through the purchase of assets and assumption of Board may require an application under this subpart if liabilities. it determines that the merger or consolidation would (f) Transactions by foreign banking organization. Any have a significant adverse impact on the financial transaction described in paragraphs (a) through (e) of this condition of the bank holding company, or otherwise section by a foreign banking organization that involves the requires approval under section 3 of the BHC Act. acquisition of an interest in a U.S. bank or in a bank (2) Certain acquisitions subject to Bank Merger Act. The holding company for which application would be required acquisition by a bank holding company of shares of a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 283 bank or company controlling a bank or the merger of a subsidiary holding company or the bank holding company controlling a bank with the bank holding com- company. pany, if the transaction is part of the merger or consolida- (ii) A transaction described in paragraph (d)(3)(i) of tion of the bank with a subsidiary bank (other than a this section qualifies for this exception if: nonoperating subsidiary bank) of the acquiring bank (A) The transaction represents solely a corporate holding company, or is part of the purchase of substan- reorganization involving companies and insured detially all of the assets of the bank by a subsidiary bank pository institutions that, both preceding and fol- (other than a nonoperating subsidiary bank) of the ac- lowing the transaction, are lawfully controlled and quiring bank holding company, and if: operated by the bank holding company; (i) The bank merger, consolidation, or asset purchase (B) The transaction does not involve the acquisition occurs simultaneously with the acquisition of the of additional voting shares of an insured depository shares of the bank or bank holding company or the institution that, prior to the transaction, was less merger of holding companies, and the bank is not than majority owned by the bank holding company; operated by the acquiring bank holding company as a (C) The bank holding company is not organized in separate entity other than as the survivor of the mutual form; and merger, consolidation, or asset purchase; (D) Both before and after the transaction, the bank (ii) The transaction requires the prior approval of a holding company meets the Board's Capital Adefederal supervisory agency under the Bank Merger quacy Guidelines (Appendixes A, B, C, D, and E of Act (12 U.S.C. 1828(c)); this part). (iii) The transaction does not involve the acquisition (e) Holding securities in escrow. The holding of any voting of any nonbank company that would require prior securities of a bank or bank holding company in an escrow approval under section 4 of the BHC Act (12 U.S.C. arrangement for the benefit of an applicant pending the 1843); Board's action on an application for approval of the pro- (iv) Both before and after the transaction, the acquir- posed acquisition, if title to the securities and the voting ing bank holding company meets the Board's Capital rights remain with the seller and payment for the securities Adequacy Guidelines (Appendixes A, B, C, D, and E has not been made to the seller. of this part); (f) Acquisition of foreign banking organization. The acqui- (v) At least 10 days prior to the transaction, the sition of a foreign banking organization where the foreign acquiring bank holding company has provided to the banking organization does not directly or indirectly own or Reserve Bank written notice of the transaction that control a bank in the United States, unless the acquisition is contains: also by a foreign banking organization and otherwise sub- (A) A copy of the filing made to the appropriate ject to section 225.11(f) of this subpart. federal banking agency under the Bank Merger Act; and Section 225.13—Factors considered in acting on (B) A description of the holding company's in- bank acquisition proposals. volvement in the transaction, the purchase price, and the source of funding for the purchase price; (a) Factors requiring denial. As specified in section 3(c) of and the BHC Act, the Board may not approve any application (vi) Prior to expiration of the period provided in under this subpart if: paragraph (d)(2)(v) of this section, the Reserve Bank (1) The transaction would result in a monopoly or would has not informed the bank holding company that an further any combination or conspiracy to monopolize, or application under section 225.11 is required. to attempt to monopolize, the business of banking in any (3) Internal corporate reorganizations. part of the United States; (i) Subject to paragraph (d)(3)(ii) of this section, any (2) The effect of the transaction may be substantially to of the following transactions performed in the United lessen competition in any section of the country, tend to States by a bank holding company: create a monopoly, or in any other manner be in restraint (A) The merger of holding companies that are of trade, unless the Board finds that the transaction's subsidiaries of the bank holding company; anti-competitive effects are clearly outweighed by its (B) The formation of a subsidiary holding compa- probable effect in meeting the convenience and needs of ny;1 the community; (C) The transfer of control or ownership of a sub- (3) The applicant has failed to provide the Board with sidiary bank or a subsidiary holding company be- adequate assurances that it will make available such tween one subsidiary holding company and another information on its operations or activities, and the operations or activities of any affiliate of the applicant, that the Board deems appropriate to determine and enforce compliance with the BHC Act and other applicable federal 1. In the case of a transaction that results in the formation or banking statutes, and any regulations thereunder; or designation of a new bank holding company, the new bank holding (4) In the case of an application involving a foreign company must complete the registration requirements described in section 225.5. banking organization, the foreign banking organization Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

284 Federal Reserve Bulletin • April 1997 is not subject to comprehensive supervision or regula- (ii) A description of the transaction that includes tion on a consolidated basis by the appropriate authori- identification of the companies and insured depository ties in its home country, as provided in sec- institutions involved in the transaction2 and identification 211.24(c)(l)(ii) of the Board's Regulation K tion of each banking market affected by the transac- (12 C.F.R. 211.24(c)(l)(ii)). tion; (b) Other factors. In deciding applications under this sub- (iii) A description of the effect of the transaction on part, the Board also considers the following factors with the convenience and needs of the communities to be respect to the applicant, its subsidiaries, any banks related served and of the actions being taken by the bank to the applicant through common ownership or manage- holding company to improve the CRA performance of ment, and the bank or banks to be acquired: any insured depository institution subsidiary that does (1) Financial condition. Their financial condition and not have at least a satisfactory CRA performance future prospects, including whether current and pro- rating at the time of the transaction; jected capital positions and levels of indebtedness con- (iv) Evidence that notice of the proposal has been form to standards and policies established by the Board. published in accordance with section 225.16(b)(1); (2) Managerial resources. The competence, experience, (v)(A) If the bank holding company has consolidated and integrity of the officers, directors, and principal assets of $150 million or more, an abbreviated shareholders of the applicant, its subsidiaries, and the consolidated pro forma balance sheet as of the most banks and bank holding companies concerned; their recent quarter showing credit and debit adjustments record of compliance with laws and regulations; and the that reflect the proposed transaction, consolidated record of the applicant and its affiliates of fulfilling any pro forma risk-based capital ratios for the acquiring commitments to, and any conditions imposed by, the bank holding company as of the most recent quar- Board in connection with prior applications. ter, and a description of the purchase price and the (3) Convenience and needs of community. The conve- terms and sources of funding for the transaction; nience and needs of the communities to be served, (B) If the bank holding company has consolidated including the record of performance under the Commu- assets of less than $150 million, a pro forma parentnity Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) only balance sheet as of the most recent quarter and regulations issued thereunder, including the Board's showing credit and debit adjustments that reflect Regulation BB (12 C.F.R. Part 228). the proposed transaction, and a description of the (c) Interstate transactions. The Board may approve any purchase price, the terms and sources of funding for application or notice under this subpart by a bank holding the transaction, and the sources and schedule for company to acquire control of all or substantially all of the retiring any debt incurred in the transaction; assets of a bank located in a state other than the home state (vi) If the bank holding company has consolidated of the bank holding company, without regard to whether assets of less than $300 million, a list of and biographthe transaction is prohibited under the law of any state, if ical information regarding any directors or senior the transaction complies with the requirements of sec- executive officers of the resulting bank holding comtion 3(d) of the BHC Act (12 U.S.C. 1842(d)). pany that are not directors or senior executive officers (d) Conditional approvals. The Board may impose condi- of the acquiring bank holding company or of a comtions on any approval, including conditions to address pany or institution to be acquired; competitive, financial, managerial, safety and soundness, (vii) For each insured depository institution whose convenience and needs, compliance or other concerns, to Tier 1 capital, total capital, total assets or riskensure that approval is consistent with the relevant statu- weighted assets change as a result of the transaction, tory factors and other provisions of the BHC Act. the total risk-weighted assets, total assets, Tier 1 capital and total capital of the institution on a pro forma basis; and Section 225.14—Expedited action for certain bank (viii) The market indexes for each relevant banking acquisitions by well-run bank holding companies. market reflecting the pro forma effect of the transaction. (a) Filing of notice—(1) Information required and public notice. As an alternative to the procedure provided in section 225.15, a bank holding company that meets the requirements of paragraph (c) of this section may satisfy the prior approval requirements of section 225.11 in 2. If, in connection with a transaction under this subpart, any person or group of persons proposes to acquire control of the acquiring bank connection with the acquisition of shares, assets or conholding company for purposes of the Bank Control Act or sectrol of a bank, or a merger or consolidation between tion 225.41, the person or group of persons may fulfill the notice bank holding companies, by providing the appropriate requirements of the Bank Control Act and section 225.43 by provid- Reserve Bank with a written notice containing the fol- ing, as part of the submission by the acquiring bank holding company under this subpart, identifying and biographical information required lowing: in paragraph (6)(A) of the Bank Control Act (12 U.S.C. (i) A certification that all of the criteria in para- 1817(j)(6)(A)), as well as any financial or other information requested graph (c) of this section are met; by the Reserve Bank under section 225.43. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 285 (2) Waiver of unnecessary information. The Reserve filed under paragraph (a) of this section may be ex- Bank may reduce the information requirements in para- cluded for purposes of paragraph (c)(2)(ii) if: graph (a)(1) (v) through (viii) as appropriate. (A) The bank holding company has developed a (b)(1) Action on proposals under this section. The Board or plan acceptable to the appropriate federal banking the appropriate Reserve Bank shall act on a proposal agency for the institution to restore the capital and submitted under this section or notify the bank holding management of the institution; and company that the transaction is subject to the procedure (B) All insured depository institutions excluded in section 225.15 within 5 business days after the close under this paragraph represent, in the aggregate, of the public comment period. The Board and the Re- less than 10 percent of the aggregate total riskserve Bank shall not approve any proposal under this weighted assets of all insured depository institusection prior to the third business day following the tions controlled by the bank holding company; close of the public comment period, unless an emer- (3) Convenience and needs criteria—(i) Effect on the gency exists that requires expedited or immediate action. community. The record indicates that the proposed The Board may extend the period for action under this transaction would meet the convenience and needs of section for up to 5 business days. the community standard in the BHC Act; and (2) Acceptance of notice in event expedited procedure (ii) Established CRA performance record. At the time not available. In the event that the Board or the Reserve of the transaction, the lead insured depository institu- Bank determines after the filing of a notice under this tion of the acquiring bank holding company and insection that a bank holding company may not use the sured depository institutions that control at least procedure in this section and must file an application 80 percent of the total risk-weighted assets of insured under section 225.15, the application shall be deemed institutions controlled by the holding company have accepted for purposes of section 225.15 as of the date received a satisfactory or better composite rating at that the notice was filed under this section. the most recent examination under the Community (c) Criteria for use of expedited procedure. The procedure Reinvestment Act; in this section is available only if: (4) Public comment. No comment that is timely and (1) Well-capitalized organization—(i) Bank holding substantive as provided in section 225.16 is received by company. Both at the time of and immediately after the Board or the appropriate Reserve Bank other than a the proposed transaction, the acquiring bank holding comment that supports approval of the proposal; company is well-capitalized; (5) Competitive criteria—(i) Competitive screen. With- (ii) Insured depository institutions. Both at the time of out regard to any divestitures proposed by the acquirand immediately after the proposed transaction: ing bank holding company, the acquisition does not (A) The lead insured depository institution of the cause: acquiring bank holding company is well- (A) Insured depository institutions controlled by capitalized; the acquiring bank holding company to control in (B) Well-capitalized insured depository institutions excess of 35 percent of market deposits in any control at least 80 percent of the total risk-weighted relevant banking market; or assets of insured depository institutions controlled (B) The Herfindahl-Hirschman index to increase by the acquiring bank holding company; and by more than 200 points in any relevant banking (C) No insured depository institution controlled by market with a post-acquisition index of at least the acquiring bank holding company is undercapi- 1800;and talized; (ii) Department of Justice. The Department of Justice (2) Well-managed organization, (i) Satisfactory exami- has not indicated to the Board that consummation of nation ratings. At the time of the transaction, the the transaction is likely to have a significantly adverse acquiring bank holding company, its lead insured effect on competition in any relevant banking market; depository institution, and insured depository institu- (6) Size of acquisition — (i) In general — (A) Limited tions that control at least 80 percent of the total growth. Except as provided in paragraph (c)(6)(ii), risk-weighted assets of insured depository institu- the sum of the aggregate risk-weighted assets to be tions controlled by the holding company are acquired in the proposal and the aggregate riskwell-managed; weighted assets acquired by the acquiring bank (ii) No poorly managed institutions. No insured de- holding company in all other qualifying transacpository institution controlled by the acquiring bank tions does not exceed 35 percent of the consoliholding company has received 1 of the 2 lowest dated risk-weighted assets of the acquiring bank composite ratings at the later of the institution's most holding company. For purposes of this paragraph recent examination or subsequent review by the ap- "other qualifying transactions" means any transacpropriate federal banking agency for the institution; tion approved under this section or section 225.23 (iii) Recently acquired institutions excluded. Any in- during the 12 months prior to filing the notice under sured depository institution that has been acquired by this section; and the bank holding company during the 12-month (B) Individual size limitation. The total risk- weighted period preceding the date on which written notice is assets to be acquired do not exceed $7.5 billion; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

286 Federal Reserve Bulletin • April 1997 (ii) Small bank holding companies. Paragraph emergency exists requiring expeditious action, and may (c)(6)(i)(A) shall not apply if, immediately following act during the notice period or without providing notice consummation of the proposed transaction, the con- to the primary banking supervisor if the Board finds that solidated risk-weighted assets of the acquiring bank it must act immediately to prevent probable failure. holding company are less than $300 million; (5) Primary banking supervisor. For purposes of this (7) Supervisory actions. During the 12-month period section and section 225.15(b), the primary banking suending on the date on which the bank holding company pervisor for an institution is: proposes to consummate the proposed transaction, no (i) The Office of the Comptroller of the Currency, in formal administrative order, including a written agree- the case of a national banking association or District ment, cease and desist order, capital directive, prompt bank; corrective action directive, asset maintenance agree- (ii) The appropriate supervisory authority for the State ment, or other formal enforcement action, is or was in which the bank is chartered, in the case of a State outstanding against the bank holding company or any bank; insured depository institution subsidiary of the holding (iii) The Director of the Office of Thrift Supervision, company, and no formal administrative enforcement pro- in the case of a savings association. ceeding involving any such enforcement action, order, or (e) Branches and agencies of foreign banking organizadirective is or was pending; tions. For purposes of this section, a U.S. branch or agency (8) Interstate acquisitions. Board approval of the trans- of a foreign banking organization shall be considered to be action is not prohibited under section 3(d) of the BHC an insured depository institution. A U.S. branch or agency Act; of a foreign banking organization shall be subject to para- (9) Other supervisory considerations. Board approval of graph (c)(3)(ii) of this section only to the extent it is the transaction is not prohibited under the informational insured by the Federal Deposit Insurance Corporation in sufficiency or comprehensive home country supervision accordance with section 6 of the International Banking Act standards set forth in section 3(c)(3) of the BHC Act; of 1978 (12 U.S.C. 3104). and (10) Notification. The acquiring bank holding company Section 225.15—Procedures for other bank has not been notified by the Board, in its discretion, prior acquisition proposals. to the expiration of the period in paragraph (b)(1) of this section that an application under section 225.15 is re- (a) Filing application. Except as provided in secquired in order to permit closer review of any financial, tion 225.14, an application for the Board's prior approval managerial, competitive, convenience and needs or other under this subpart shall be governed by the provisions of matter related to the factors that must be considered this section and shall be filed with the appropriate Reserve under this part. Bank on the designated form. (d) Comment by primary banking supervisor — (1) Notice. (b) Notice to primary banking supervisor. Upon receipt of Upon receipt of a notice under this section, the appropri- an application under this subpart, the Reserve Bank shall ate Reserve Bank shall promptly furnish notice of the promptly furnish notice and a copy of the application to the proposal and a copy of the information filed pursuant to primary banking supervisor of each bank to be acquired. paragraph (a) of this section to the primary banking The primary supervisor shall have 30 calendar days from supervisor of the insured depository institutions to be the date of the letter giving notice in which to submit its acquired. views and recommendations to the Board. (2) Comment period. The primary banking supervisor (c) Accepting application for processing. Within 7 calendar shall have 30 calendar days (or such shorter time as days after the Reserve Bank receives an application under agreed to by the primary banking supervisor) from the this section, the Reserve Bank shall accept it for processing date of the letter giving notice in which to submit its as of the date the application was filed or return the views and recommendations to the Board. application if it is substantially incomplete. Upon accept- (3) Action subject to supervisor's comment. Action by ing an application, the Reserve Bank shall immediately the Board or the Reserve Bank on a proposal under this send copies to the Board. The Reserve Bank or the Board section is subject to the condition that the primary bank- may request additional information necessary to complete ing supervisor not recommend in writing to the Board the record of an application at any time after accepting the disapproval of the proposal prior to the expiration of the application for processing. comment period described in paragraph (d)(2) of this (d) Action on applications—(1) Action under delegated section. In such event, any approval given under this authority. The Reserve Bank shall approve an applicasection shall be revoked and, if required by section 3(b) tion under this section within 30 calendar days after the of the BHC Act, the Board shall order a hearing on the acceptance date for the application, unless the Reserve proposal. Bank, upon notice to the applicant, refers the application (4) Emergencies. Notwithstanding paragraphs (d)(2) and to the Board for decision because action under delegated (d)(3) of this section, the Board may provide the primary authority is not appropriate. banking supervisor with 10 calendar days' notice of a (2) Board action. The Board shall act on an application proposal under this section if the Board finds that an under this subpart that is referred to it for decision Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 287 within 60 calendar days after the acceptance date for the proposal filed under this subpart. A comment shall be application, unless the Board notifies the applicant that considered timely for purposes of this subpart if the the 60-day period is being extended for a specified comment, together with all supplemental information, is period and states the reasons for the extension. In no submitted in writing in accordance with the Board's event may the extension exceed the 91-day period pro- Rules of Procedure and received by the Board or the vided in section 225.16(f). The Board may, at any time, appropriate Reserve Bank prior to the expiration of the request additional information that it believes is neces- latest public comment period provided in paragraph (b) sary for its decision. of this section. (2) Extension of comment period—(i) In general. The Board may, in its discretion, extend the public com- Section 225.16—Public notice, comments, hearings, ment period regarding any proposal submitted under and other provisions governing applications and this subpart. notices. (ii) Requests in connection with obtaining application or notice. In the event that an interested person has (a) In general. The provisions of this section apply to all requested a copy of a notice or application submitted notices and applications filed under section 225.14 and under this subpart, the Board may, in its discretion section 225.15. and based on the facts and circumstances, grant such (b) Public notice—(1) Newspaper publication—(i) Loca- person an extension of the comment period for up to tion of publication. In the case of each notice or 15 calendar days. application submitted under section 225.14 or section (iii) Joint requests by interested person and acquiring 225.15, the applicant shall publish a notice in a news- company. The Board will grant a joint request by an paper of general circulation, in the form and at the interested person and the acquiring bank holding comlocations specified in section 262.3 of the Rules of pany for an extension of the comment period for a Procedure (12 C.F.R. 262.3); reasonable period for a purpose related to the statu- (ii) Contents of notice. A newspaper notice under this tory factors the Board must consider under this subparagraph shall provide an opportunity for interested part. persons to comment on the proposal for a period of at (3) Substantive comment. A comment will be considered least 30 calendar days; substantive for purposes of this subpart unless it in- (iii) Timing of publication. Each newspaper notice volves individual complaints, or raises frivolous, published in connection with a proposal under this previously-considered or wholly unsubstantiated claims paragraph shall be published no more than 15 calen- or irrelevant issues. dar days before and no later than 7 calendar days (d) Notice to Attorney General. The Board or Reserve following the date that a notice or application is filed Bank shall immediately notify the United States Attorney with the appropriate Reserve Bank. General of approval of any notice or application under (2) Federal Register notice, (i) Publication by Board. section 225.14 or section 225.15. Upon receipt of a notice or application under section (e) Hearings. As provided in section 3(b) of the BHC Act, 225.14 or section 225.15, the Board shall promptly the Board shall order a hearing on any application or notice publish notice of the proposal in the Federal Register under section 225.15 if the Board receives from the priand shall provide an opportunity for interested per- mary supervisor of the bank to be acquired, within the sons to comment on the proposal for a period of no 30-day period specified in section 225.15(b), a written more than 30 days; recommendation of disapproval of an application. The (ii) Request for advance publication. A bank holding Board may order a formal or informal hearing or other company may request that, during the 15-day period proceeding on the application or notice, as provided in prior to filing a notice or application under sec- section 262.3(i)(2) of the Board's Rules of Procedure. Any tion 225.14 or section 225.15, the Board publish no- request for a hearing (other than from the primary supervitice of a proposal in the Federal Register. A request sor) shall comply with section 262.3(e) of the Rules of for advance Federal Register publication shall be Procedure (12 C.F.R. Part 262.3(e)). made in writing to the appropriate Reserve Bank and (f) Approval through failure to act—(1) Ninety-one day shall contain the identifying information prescribed rule. An application or notice under section 225.14 or by the Board for Federal Register publication; section 225.15 shall be deemed approved if the Board (3) Waiver or shortening of notice. The Board may fails to act on the application or notice within 91 calenwaive or shorten the required notice periods under this dar days after the date of submission to the Board of the section if the Board determines that an emergency exists complete record on the application. For this purpose, the requiring expeditious action on the proposal, or if the Board acts when it issues an order stating that the Board Board finds that immediate action is necessary to pre- has approved or denied the application or notice, reflectvent the probable failure of an insured depository institu- ing the votes of the members of the Board, and indicattion. ing that a statement of the reasons for the decision will (c) Public comment—(1) Timely comments. Interested per- follow promptly. sons may submit information and comments regarding a (2) Complete record. For the purpose of computing the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

288 Federal Reserve Bulletin • April 1997 commencement of the 91-day period, the record is com- resulting from the exercise of dissenting shareholders' plete on the latest of: rights under state or federal law;3 (i) The date of receipt by the Board of an application (2) No shareholder, or group of shareholders acting in or notice that has been accepted by the Reserve Bank; concert, will, following the reorganization, own or con- (ii) The last day provided in any notice for receipt of trol 10 percent or more of any class of voting shares of comments and hearing requests on the application or the bank holding company, unless that shareholder or notice; group of shareholders was authorized, after review un- (iii) The date of receipt by the Board of the last der the Change in Bank Control Act of 1978 (12 U.S.C. relevant material regarding the application or notice 1817<j)) by the appropriate federal banking agency for that is needed for the Board's decision, if the material the bank, to own or control 10 percent or more of any is received from a source outside of the Federal Re- class of voting shares of the bank;4 serve System; or (3) The bank is adequately capitalized (as defined in (iv) The date of completion of any hearing or other section 38 of the Federal Deposit Insurance Act proceeding. (12 U.S.C. 1831o)); (g) Exceptions to notice and hearing requirements. (4) The bank received at least a composite "satisfacto- (1) Probable bank failure. If the Board finds it must act ry" rating at its most recent examination, in the event immediately on an application or notice in order to that the bank was examined; prevent the probable failure of a bank or bank holding (5) At the time of the reorganization, neither the bank company, the Board may modify or dispense with the nor any of its officers, directors, or principal shareholdnotice and hearing requirements of this section. ers is involved in any unresolved supervisory or enforce- (2) Emergency. If the Board finds that, although immedi- ment matters with any appropriate federal banking ate action on an application or notice is not necessary, an agency; emergency exists requiring expeditious action, the Board (6) The company demonstrates that any debt that it shall provide the primary supervisor 10 days to submit incurs at the time of the reorganization, and the proposed its recommendation. The Board may act on such an means of retiring this debt, will not place undue burden application or notice without a hearing and may modify on the holding company or its subsidiary on a pro forma or dispense with the other notice and hearing require- basis;5 ments of this section. (7) The holding company will not, as a result of the (h) Waiting period. A transaction approved under sec- reorganization, acquire control of any additional bank or tion 225.14 or section 225.15 shall not be consummated engage in any activities other than those of managing until 30 days after the date of approval of the application, and controlling banks; and except that a transaction may be consummated: (8) During this period, neither the appropriate Reserve (1) Immediately upon approval, if the Board has deter- Bank nor the Board objected to the proposal or required mined under paragraph (g) of this section that the appli- the filing of an application under section 225.15 of this cation or notice involves a probable bank failure; subpart. (2) On or after the 5th calendar day following the date of (b) Contents of notice. A notice filed under this paragraph approval, if the Board has determined under para- shall include: graph (g) of this section that an emergency exists requir- (1) Certification by the notificant's board of directors ing expeditious action; or that the requirements of 12 U.S.C. 1842(a)(C) and this (3) On or after the 15th calendar day following the date section are met by the proposal; of approval, if the Board has not received any adverse (2) A list identifying all principal shareholders of the comments from the United States Attorney General re- bank prior to the reorganization and of the holding lating to the competitive factors and the Attorney Gen- company following the reorganization, and specifying eral has consented to the shorter waiting period. Section 225.17—Notice procedure for one-bank 3. A shareholder of a bank in reorganization will be considered to holding company formations. have the same proportional interest in the holding company if the shareholder interest increases, on a pro rata basis, as a result of either the redemption of shares from dissenting shareholders by the bank or (a) Transactions that qualify under this section. An acquisibank holding company, or the acquisition of shares of dissenting tion by a company of control of a bank may be consum- shareholders by the remaining shareholders. mated 30 days after providing notice to the appropriate 4. This procedure is not available in cases in which the exercise of Reserve Bank in accordance with paragraph (b) of this dissenting shareholders' rights would cause a company that is not a bank holding company (other than the company in formation) to be section, provided that all of the following conditions are required to register as a bank holding company. This procedure also is met: not available for the formation of a bank holding company organized (1) The shareholder or shareholders who control at least in mutual form. 67 percent of the shares of the bank will control, imme- 5. For a banking organization with consolidated assets, on a pro forma basis, of less than $150 million (other than a banking organizadiately after the reorganization, at least 67 percent of the tion that will control a de novo bank), this requirement is satisfied if shares of the holding company in substantially the same the proposal complies with the Board's policy statement on small proportion, except for changes in shareholders' interests bank holding companies (Appendix C of this part). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 289 the percentage of shares held by each principal share- Subpart C—Nonbanking Activities and Acquisitions holder in the bank and proposed to be held in the new by Bank Holding Companies holding company; (3) A description of the resulting management of the proposed bank holding company and its subsidiary bank, Section 225.21—Prohibited Nonbanking Activities including: and Acquisitions; Exempt Bank Holding (i) Biographical information regarding any senior of- Companies. ficers and directors of the resulting bank holding company who were not senior officers or directors of the bank prior to the reorganization; and (a) Prohibited nonbanking activities and acquisitions. Ex- (ii) A detailed history of the involvement of any cept as provided in section 225.22 of this subpart, a bank officer, director, or principal shareholder of the result- holding company or a subsidiary may not engage in, or ing bank holding company in any administrative or acquire or control, directly or indirectly, voting securities criminal proceeding; and or assets of a company engaged in, any activity other than: (4) Pro forma financial statements for the holding com- (1) Banking or managing or controlling banks and other pany, and a description of the amount, source, and terms subsidiaries authorized under the BHC Act; and of debt, if any, that the bank holding company proposes (2) An activity that the Board determines to be so to incur, and information regarding the sources and closely related to banking, or managing or controlling timing for debt service and retirement. banks as to be a proper incident thereto, including any (c) Acknowledgment of notice. Within 7 calendar days incidental activities that are necessary to carry on such following receipt of a notice under this section, the Reserve an activity, if the bank holding company has obtained Bank shall provide the notificant with a written acknowl- the prior approval of the Board for that activity in edgment of receipt of the notice. This written acknowledg- accordance with the requirements of this regulation. ment shall indicate that the transaction described in the (b) Exempt bank holding companies. The following bank notice may be consummated on the 30th calendar day after holding companies are exempt from the provisions of this the date of receipt of the notice if the Reserve Bank or the subpart: Board has not objected to the proposal during that time. (1) Family-owned companies. Any company that is a (d) Application required upon objection. The Reserve Bank "company covered in 1970" (as defined in section 2(b) or the Board may object to a proposal during the notice of the BHC Act), more than 85 percent of the voting period by providing the bank holding company with a securities of which was collectively owned on June 30, written explanation of the reasons for the objection. In such 1968, and continuously thereafter, by members of the case, the bank holding company may file an application for same family (or their spouses) who are lineal descenprior approval of the proposal pursuant to section 225.15 of dants of common ancestors. this subpart. (2) Labor, agricultural, and horticultural organizations. Any company that was on January 4, 1977, both a bank 4. Subpart C is revised to read as follows: holding company and a labor, agricultural, or horticultural organization exempt from taxation under section 501 of the Internal Revenue Code (26 U.S.C. 501(c)). Subpart C—Nonbanking Activities and Acquisitions (3) Companies granted hardship exemption. Any bank by Bank Holding Companies holding company that has controlled only one bank since before July 1, 1968, and that has been granted an exemption by the Board under section 4(d) of the BHC Section Act, subject to any conditions imposed by the Board. (4) Companies granted exemption on other grounds. Any company that acquired control of a bank before December 10, 1982, without the Board's prior approval 225.21 Prohibited nonbanking activities and acquisitions; under section 3 of the BHC Act, on the basis of a narrow exempt bank holding companies. interpretation of the term demand deposit or commercial 225.22 Exempt nonbanking activities and acquisitions. loan, if the Board has determined that: 225.23 Expedited action for nonbanking proposals by (i) Coverage of the company as a bank holding comwell-run bank holding companies. pany under this subpart would be unfair or represent 225.24 Procedures for other nonbanking proposals. an unreasonable hardship; and 225.25 Hearings, alteration of activities, and other mat- (ii) Exclusion of the company from coverage under ters. this regulation is consistent with the purposes of the 225.26 Factors considered in acting on nonbanking pro- BHC Act and section 106 of the Bank Holding Composals. pany Act Amendments of 1970 (12 U.S.C. 1971, 225.27 Procedures for determining scope of nonbanking 1972(1)). The provisions of section 225.4 of subactivities. part A of this part do not apply to a company exempt 225.28 List of permissible nonbanking activities. under this paragraph. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

290 Federal Reserve Bulletin • April 1997 Section 225.22—Exempt nonbanking activities and (d) Nonbanking acquisitions not requiring prior Board acquisitions. approval. The Board's prior approval is not required under this subpart for the following acquisitions: (a) Certain de novo activities. A bank holding company (1) DPC acquisitions, (i) Voting securities or assets, may, either directly or indirectly, engage de novo in any acquired by foreclosure or otherwise, in the ordinary nonbanking activity listed in section 225.28(b) (other than course of collecting a debt previously contracted operation of an insured depository institution) without ob- (DPC property) in good faith, if the DPC property is taining the Board's prior approval if the bank holding divested within two years of acquisition. company: (ii) The Board may, upon request, extend this two- (1) Meets the requirements of paragraphs (c)(1), (2), year period for up to three additional years. The and (6) of section 225.23; Board may permit additional extensions for up to 5 (2) Conducts the activity in compliance with all Board years (for a total of 10 years), for shares, real estate or orders and regulations governing the activity; and other assets where the holding company demon- (3) Within 10 business days after commencing the activ- strates that each extension would not be detrimental ity, provides written notice to the appropriate Reserve to the public interest and either the bank holding Bank describing the activity, identifying the company or company has made good faith attempts to dispose companies engaged in the activity, and certifying that of such shares, real estate or other assets or disposal the activity will be conducted in accordance with the of the shares, real estate or other assets during the Board's orders and regulations and that the bank holding initial period would have been detrimental to the company meets the requirements of paragraphs (c)(1), company. (2), and (6) of section 225.23. (iii) Transfers of DPC property within the bank hold- (b) Servicing activities. A bank holding company may, ing company system do not extend any period for without the Board's prior approval under this subpart, divestiture of the property. furnish services to or perform services for, or establish or (2) Securities or assets required to be divested by subsidacquire a company that engages solely in servicing activi- iary. Voting securities or assets required to be divested ties for: by a subsidiary at the request of an examining federal or (1) The bank holding company or its subsidiaries in state authority (except by the Board under the BHC Act connection with their activities as authorized by law, or this regulation), if the bank holding company divests including services that are necessary to fulfill commit- the securities or assets within two years from the date ments entered into by the subsidiaries with third parties, acquired from the subsidiary. if the bank holding company or servicing company (3) Fiduciary investments. Voting securities or assets complies with the Board's published interpretations and acquired by a bank or other company (other than a trust does not act as principal in dealing with third parties; that is a company) in good faith in a fiduciary capacity, and if the voting securities or assets are: (2) The internal operations of the bank holding company (i) Held in the ordinary course of business; and or its subsidiaries. Services for the internal operations of (ii) Not acquired for the benefit of the company or its the bank holding company or its subsidiaries include, shareholders, employees, or subsidiaries. but are not limited to: (4) Securities eligible for investment by national bank. (i) Accounting, auditing, and appraising; Voting securities of the kinds and amounts explicitly (ii) Advertising and public relations; eligible by federal statute (other than section 4 of the (iii) Data processing and data transmission services, Bank Service Corporation Act, 12 U.S.C. 1864) for indata bases, or facilities; vestment by a national bank, and voting securities ac- (iv) Personnel services; quired prior to June 30, 1971, in reliance on sec- (v) Courier services; tion 4(c)(5) of the BHC Act and interpretations of the (vi) Holding or operating property used wholly or Comptroller of the Currency under section 5136 of the substantially by a subsidiary in its operations or for its Revised Statutes (12 U.S.C. 24(7)). future use; (5) Securities or property representing 5 percent or less (vii) Liquidating property acquired from a subsidiary; of a company. Voting securities of a company or prop- (viii) Liquidating property acquired from any sources erty that, in the aggregate, represent 5 percent or less of either prior to May 9, 1956, or the date on which the the outstanding shares of any class of voting securities company became a bank holding company, whichever of a company, or that represent a 5 percent interest or is later; and less in the property, subject to the provisions of (ix) Selling, purchasing, or underwriting insurance, 12 C.F.R. 225.137. such as blanket bond insurance, group insurance for (6) Securities of investment company. Voting securities employees, and property and casualty insurance. of an investment company that is solely engaged in (c) Safe deposit business. A bank holding company or investing in securities and that does not own or control nonbank subsidiary may, without the Board's prior ap- more than 5 percent of the outstanding shares of any proval, conduct a safe deposit business, or acquire voting class of voting securities of any company. securities of a company that conducts such a business. (7) Assets acquired in ordinary course of business. As- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 291 sets of a company acquired in the ordinary course of may grant requests for up to three one-year extensions of business, subject to the provisions of 12 C.F.R. 225.132, the two-year period. if the assets relate to activities in which the acquiring (g) Grandfathered activities and securities. Unless the company has previously received Board approval under Board orders divestiture or termination under secthis regulation to engage. tion 4(a)(2) of the BHC Act, a "company covered in (8) Asset acquisitions by lending company or industrial 1970," as defined in section 2(b) of the BHC Act, may: bank. Assets of an office(s) of a company, all or substan- (1) Retain voting securities or assets and engage in tially all of which relate to making, acquiring, or servic- activities that it has lawfully held or engaged in continuing loans if: ously since June 30, 1968; and (i) The acquiring company has previously received (2) Acquire voting securities of any newly formed com- Board approval under this regulation or is not re- pany to engage in such activities. quired to obtain prior Board approval under this regu- (h) Securities or activities exempt under Regulation K. A lation to engage in lending activities or industrial bank holding company may acquire voting securities or banking activities; assets and engage in activities as authorized in Regula- (ii) The assets acquired during any 12-month period tion K (12 C.F.R. Part 211). do not represent more than 50 percent of the riskweighted assets (on a consolidated basis) of the ac- Section 225.23—Expedited action for certain quiring lending company or industrial bank, or more nonbanking proposals by well-run bank holding than $100 million, whichever amount is less; companies. (iii) The assets acquired do not represent more than 50 percent of the selling company's consolidated as- (a) Filing of notice—(1) Information required. A bank sets that are devoted to lending activities or industrial holding company that meets the requirements of parabanking business; graph (c) of this section may satisfy the notice require- (iv) The acquiring company notifies the Reserve Bank ment of this subpart in connection with the acquisition of the acquisition within 30 days after the acquisition; of voting securities or assets of a company engaged in and nonbanking activities that the Board has permitted by (v) The acquiring company, after giving effect to the order or regulation (other than an insured depository transaction, meets the Board's Capital Adequacy institution),1 or a proposal to engage de novo, either Guidelines (Appendix A of this part), and the Board directly or indirectly, in a nonbanking activity that the has not previously notified the acquiring company that Board has permitted by order or by regulation, by proit may not acquire assets under the exemption in this viding the appropriate Reserve Bank with a written paragraph. notice containing the following: (e) Acquisition of securities by subsidiary banks— (i) A certification that all of the criteria in para- (1) National bank. A national bank or its subsidiary may, graph (c) of this section are met; without the Board's approval under this subpart, acquire (ii) A description of the transaction that includes or retain securities on the basis of section 4(c)(5) of the identification of the companies involved in the trans- BHC Act in accordance with the regulations of the action, the activities to be conducted, and a commit- Comptroller of the Currency. ment to conduct the proposed activities in conformity (2) State bank. A state-chartered bank or its subsidiary with the Board's regulations and orders governing the may, insofar as federal law is concerned, and without the conduct of the proposed activity; Board's prior approval under this subpart: (iii) If the proposal involves an acquisition of a going (i) Acquire or retain securities, on the basis of sec- concern: tion 4(c)(5) of the BHC Act, of the kinds and amounts (A) If the bank holding company has consolidated explicitly eligible by federal statute for investment by assets of $150 million or more, an abbreviated a national bank; or consolidated pro forma balance sheet for the acquir- (ii) Acquire or retain all (but, except for directors' ing bank holding company as of the most recent qualifying shares, not less than all) of the securities of quarter showing credit and debit adjustments that a company that engages solely in activities in which reflect the proposed transaction, consolidated the parent bank may engage, at locations at which the pro forma risk-based capital ratios for the acquiring bank may engage in the activity, and subject to the bank holding company as of the most recent quarsame limitations as if the bank were engaging in the ter, a description of the purchase price and the activity directly. (f) Activities and securities of new bank holding companies. A company that becomes a bank holding company may, for a period of two years, engage in nonbanking 1. A bank holding company may acquire voting securities or assets activities and control voting securities or assets of a non- of a savings association or other insured depository institution that is bank subsidiary, if the bank holding company engaged in not a bank by using the procedures in section 225.14 of subpart B if the bank holding company and the proposal qualify under that section such activities or controlled such voting securities or assets as if the savings association or other institution were a bank for on the date it became a bank holding company. The Board purposes of that section. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

292 Federal Reserve Bulletin • April 1997 terms and sources of funding for the transaction, assets of insured depository institutions controlled and the total revenue and net income of the com- by the acquiring bank holding company; and pany to be acquired; (C) No insured depository institution controlled by (B) If the bank holding company has consolidated the acquiring bank holding company is undercapiassets of less than $150 million, a pro forma parent- talized; only balance sheet as of the most recent quarter (2) Well-managed organization—(i) Satisfactory examishowing credit and debit adjustments that reflect nation ratings. At the time of the transaction, the the proposed transaction, a description of the pur- acquiring bank holding company, its lead insured chase price and the terms and sources of funding depository institution, and insured depository institufor the transaction and the sources and schedule for tions that control at least 80 percent of the total retiring any debt incurred in the transaction, and the risk-weighted assets of insured depository institutions total assets, off-balance sheet items, revenue and controlled by such holding company are wellnet income of the company to be acquired; managed; (C) For each insured depository institution whose (ii) No poorly managed institutions. No insured de- Tier 1 capital, total capital, total assets or risk- pository institution controlled by the acquiring bank weighted assets change as a result of the transac- holding company has received one of the two lowest tion, the total risk-weighted assets, total assets, composite ratings at the later of the institution's most Tier 1 capital and total capital of the institution on a recent examination or subsequent review by the appro forma basis; propriate federal banking agency for the institution. (iv) Identification of the geographic markets in which (iii) Recently acquired institutions excluded. Any incompetition would be affected by the proposal, a sured depository institution that has been acquired by description of the effect of the proposal on competi- the bank holding company during the 12-month tion in the relevant markets, a list of the major com- period preceding the date on which written notice is petitors in that market in the proposed activity if the filed under paragraph (a) of this section may be exaffected market is local in nature, and, if requested, cluded for purposes of paragraph (c)(2)(ii) of this the market indexes for the relevant market; and section if: (v) A description of the public benefits that can rea- (A) The bank holding company has developed a sonably be expected to result from the transaction. plan acceptable to the appropriate federal banking (2) Waiver of unnecessary information. The Reserve agency for the institution to restore the capital and Bank may reduce the information requirements in para- management of the institution; and graphs (l)(iii) and (iv) as appropriate. (B) All insured depository institutions excluded (b)(1) Action on proposals under this section. The Board or under this paragraph represent, in the aggregate, the appropriate Reserve Bank shall act on a proposal less than 10 percent of the aggregate total risksubmitted under this section, or notify the bank holding weighted assets of all insured depository institucompany that the transaction is subject to the procedure tions controlled by the bank holding company; in section 225.24, within 12 business days following the (3) Pemissible activity, (i) The Board has determined by filing of all of the information required in paragraph (a) regulation or order that each activity proposed to be of this section. conducted is so closely related to banking, or manag- (2) Acceptance of notice if expedited procedure not ing or controlling banks, as to be a proper incident available. If the Board or the Reserve Bank determines, thereto; and after the filing of a notice under this section, that a bank (ii) The Board has not indicated that proposals to holding company may not use the procedure in this engage in the activity are subject to the notice procesection and must file a notice under section 225.24, the dure provided in section 225.24; notice shall be deemed accepted for purposes of sec- (4) Competitive criteria—(i) Competitive screen. In the tion 225.24 as of the date that the notice was filed under case of the acquisition of a going concern, the acquisithis section. tion, without regard to any divestitures proposed by (c) Criteria for use of expedited procedure. The procedure the acquiring bank holding company, does not cause: in this section is available only if: (A) The acquiring bank holding company to control (1) Well-capitalized organization—(i) Bank holding in excess of 35 percent of the market share in any company. Both at the time of and immediately after relevant market; or the proposed transaction, the acquiring bank holding (B) The Herfindahl-Hirschman index to increase company is well-capitalized; by more than 200 points in any relevant market (ii) Insured depository institutions. Both at the time of with a post-acquisition index of at least 1800; and and immediately after the transaction: (ii) Other competitive factors. The Board has not (A) The lead insured depository institution of the indicated that the transaction is subject to close scruacquiring bank holding company is well- tiny on competitive grounds; capitalized; (5) Size of acquisition—(i) In general—(A) Limited (B) Well-capitalized insured depository institutions growth. Except as provided in paragraph (c)(5)(ii), control at least 80 percent of the total risk-weighted the sum of aggregate risk-weighted assets to be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 293 acquired in the proposal and the aggregate risk- (1) Engaging de novo in listed activities. A bank holding weighted assets acquired by the acquiring bank company seeking to commence or to engage de novo, holding company in all other qualifying transac- either directly or through a subsidiary, in a nonbanking tions does not exceed 35 percent of the consoli- activity listed in section 225.28 shall file a notice condated risk-weighted assets of the acquiring bank taining a description of the activities to be conducted holding company. For purposes of this paragraph, and the identity of the company that will conduct the "other qualifying transactions" means any transac- activity. tion approved under this section or section 225.14 (2) Acquiring company engaged in listed activities. A during the 12 months prior to filing the notice under bank holding company seeking to acquire or control this section; voting securities or assets of a company engaged in a (B) Consideration paid. The gross consideration to nonbanking activity listed in section 225.28 shall file a be paid by the acquiring bank holding company in notice containing the following: the proposal does not exceed 15 percent of the (i) A description of the proposal, including a descripconsolidated Tier 1 capital of the acquiring bank tion of each proposed activity, and the effect of the holding company; and proposal on competition among entities engaging in (C) Individual size limitation. The total risk- each proposed activity in each relevant market with weighted assets to be acquired do not exceed relevant market indexes; $7.5 billion; (ii) The identity of any entity involved in the proposal, (ii) Small bank holding companies. Paragraph and, if the notificant proposes to conduct the activity (c)(5)(i)(A) shall not apply if, immediately following through an existing subsidiary, a description of the consummation of the proposed transaction, the con- existing activities of the subsidiary; solidated risk-weighted assets of the acquiring bank (iii) A statement of the public benefits that can reasonholding company are less than $300 million; ably be expected to result from the proposal; (6) Supervisory actions. During the 12-month period (iv) If the bank holding company has consolidated ending on the date on which the bank holding company assets of $150 million or more: proposes to consummate the proposed transaction, no (A) Parent company and consolidated pro forma formal administrative order, including a written agree- balance sheets for the acquiring bank holding comment, cease and desist order, capital directive, prompt pany as of the most recent quarter showing credit corrective action directive, asset maintenance agree- and debit adjustments that reflect the proposed ment, or other formal enforcement order is or was out- transaction; standing against the bank holding company or any in- (B) Consolidated pro forma risk-based capital and sured depository institution subsidiary of the holding leverage ratio calculations for the acquiring bank company, and no formal administrative enforcement pro- holding company as of the most recent quarter; and ceeding involving any such enforcement action, order, or (C) A description of the purchase price and the directive is or was pending; and terms and sources of funding for the transaction; (7) Notification. The bank holding company has not (v) If the bank holding company has consolidated been notified by the Board, in its discretion, prior to the assets of less than $150 million: expiration of the period in paragraph (b) that a notice (A) A pro forma parent-only balance sheet as of the under section 225.24 is required in order to permit closer most recent quarter showing credit and debit adjustreview of any potential adverse effect or other matter ments that reflect the proposed transaction; and related to the factors that must be considered under this (B) A description of the purchase price and the part. terms and sources of funding for the transaction (d) Branches and agencies of foreign banking organiza- and, if the transaction is debt funded, one-year tions. For purposes of this section, a U.S. branch or agency income statement and cash flow projections for the of a foreign banking organization shall be considered to be parent company, and the sources and schedule for an insured depository institution. retiring any debt incurred in the transaction; (vi) For each insured depository institution whose Section 225.24—Procedures for other nonbanking Tier 1 capital, total capital, total assets or riskproposals. weighted assets change as a result of the transaction, the total risk-weighted assets, total assets, Tier 1 capi- (a) Notice required for nonbanking activities. Except as tal and total capital of the institution on a pro forma provided in section 225.22 and section 225.23, a notice for basis; and the Board's prior approval under section 225.21(a) to en- (vii) A description of the management expertise, intergage in or acquire a company engaged in a nonbanking nal controls and risk management systems that will be activity shall be filed by a bank holding company (includ- utilized in the conduct of the proposed activities; and ing a company seeking to become a bank holding com- (viii) A copy of the purchase agreements, and balance pany) with the appropriate Reserve Bank in accordance sheet and income statements for the most recent quarwith this section and the Board's Rules of Procedure ter and year-end for any company to be acquired. (12 C.F.R. 262.3). (3) Engaging in or acquiring company to engage in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

294 Federal Reserve Bulletin • April 1997 unlisted activities. A bank holding company seeking to (A) Approve the notice; or engage de novo in, or to acquire or control voting (B) Refer the notice to the Board for decision securities or assets of a company engaged in, any activ- because action under delegated authority is not ity not listed in section 225.28 shall file a notice contain- appropriate. ing the following: (ii) Return of incomplete notice. Within 7 calendar (i) Evidence that the proposed activity is so closely days of receipt, the Reserve Bank may return any related to banking or managing or controlling banks notice as informationally incomplete that does not as to be a proper incident thereto, or, if the Board contain all of the information required by this subpart. previously determined by order that the activity is The return of such a notice shall be deemed action on permissible for a bank holding company to conduct, a the notice. commitment to comply with all the conditions and (iii) Notice of action. The Reserve Bank shall limitations established by the Board governing the promptly notify the bank holding company of any activity; and action or referral under this paragraph. (ii) The information required in paragraphs (a)(1) (iv) Close of public comment period. The Reserve or (a)(2) of this section, as appropriate. Bank shall not approve any notice under this para- (b) Notice provided to Board. The Reserve Bank shall graph (1) of this section prior to the third business day immediately send to the Board a copy of any notice re- after the close of the public comment period, unless ceived under paragraphs (a)(2) or (a)(3) of this section. an emergency exists that requires expedited or imme- (c) Notice to public—(1) Listed activities and activities diate action. approved by order—(i) In a case involving an activity (2) Board action—(i) Internal schedule. The Board listed in section 225.28 or previously approved by the seeks to act on every notice referred to it for decision Board by order, the Reserve Bank shall notify the within 60 days of the date that the notice is filed with Board for publication in the Federal Register immedi- the Reserve Bank. If the Board is unable to act within ately upon receipt by the Reserve Bank of: this period, the Board shall notify the notificant and (A) A notice under this section; or explain the reasons and the date by which the Board (B) A written request that notice of a proposal expects to act. under this section or section 225.23 be published in (ii) Extension of required period for action — the Federal Register. Such a request may request (A) In general. The Board may extend the 60-day that Federal Register publication occur up to period required for Board action under para- 15 calendar days prior to submission of a notice graph (d)(2)(i) of this section for an additional under this subpart. 30 days upon notice to the notificant. (ii) The Federal Register notice published under this (B) Unlisted activities. If a notice involves a proparagraph shall invite public comment on the pro- posal to engage in an activity that is not listed in posal, generally for a period of 15 days. section 225.28, the Board may extend the period (2) New activities—(i) In general. In the case of a notice required for Board action under paragraph (d)(2)(i) under this subpart involving an activity that is not of this section for an additional 90 days. This listed in section 225.28 and that has not been previ- 90-day extension is in addition to the 30-day extenously approved by the Board by order, the Board shall sion period provided in paragraph (d)(2)(ii)(A) of send notice of the proposal to the Federal Register for this section. The Board shall notify the notificant publication, unless the Board determines that the noti- that the notice period has been extended and exficant has not demonstrated that the activity is so plain the reasons for the extension. closely related to banking or to managing or control- (3) Requests for additional information. The Board or ling banks as to be a proper incident thereto. The the Reserve Bank may modify the information require- Federal Register notice shall invite public comment ments under this section or at any time request any on the proposal for a reasonable period of time, gener- additional information that either believes is needed for ally for 30 days. a decision on any notice under this section. (ii) Time for publication. The Board shall send the (4) Tolling of period. The Board or the Reserve Bank notice required under this paragraph to the Federal may at any time extend or toll the time period for action Register within 10 business days of acceptance by the on a notice for any period with the consent of the Reserve Bank. The Board may extend the 10-day notificant. period for an additional 30 calendar days upon notice to the notificant. In the event notice of a proposal is Section 225.25—Hearings, alteration of activities, not published for comment, the Board shall inform the and other matters. notificant of the reasons for the decision. (d) Action on notices—(1) Reserve Bank action—(i) In (a) Hearings—(1) Procedure to request hearing. Any regeneral. Within 30 calendar days after receipt by the quest for a hearing on a notice under this subpart shall Reserve Bank of a notice filed pursuant to paragraphs comply with the provisions of 12 C.F.R. 262.3(e). (a)(1) or (a)(2) of this section, the Reserve Banks (2) Determination to hold hearing. The Board may order shall: a formal or informal hearing or other proceeding on a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 295 notice as provided in 12 C.F.R. 262.3(i)(2). The Board requirements of this subpart if the Board finds that an shall order a hearing only if there are disputed issues of emergency exists that requires the Board to act immedimaterial fact that cannot be resolved in some other ately and the primary federal regulator of the institution manner. concurs. (3) Extension of period for hearing. The Board may extend the time for action on any notice for such time as Section 225.26—Factors Considered in Acting on is reasonably necessary to conduct a hearing and evalu- Nonbanking Proposals. ate the hearing record. Such extension shall not exceed 91 calendar days after the date of submission to the (a) In general. In evaluating a notice under section 225.23 Board of the complete record on the notice. The proce- or section 225.24, the Board shall consider whether the dures for computation of the 91 -day rule as set forth in notificant's performance of the activities can reasonably be section 225.16(f) apply to notices under this subpart that expected to produce benefits to the public (such as greater involve hearings. convenience, increased competition, and gains in effi- (b) Approval through failure to act. (1) Except as provided ciency) that outweigh possible adverse eifects (such as in paragraph (a) of this section or section 225.24(d)(4), a undue concentration of resources, decreased or unfair comnotice under this subpart shall be deemed to be approved petition, conflicts of interest, and unsound banking practicat the conclusion of the period that begins on the date the es). complete notice is received by the Reserve Bank or the (b) Financial and managerial resources. Consideration of Board and that ends 60 calendar days plus any applica- the factors in paragraph (a) of this section includes an ble extension and tolling period thereafter. evaluation of the financial and managerial resources of the (2) Complete notice. For purposes of paragraph (b)(1) of notificant, including its subsidiaries and any company to be this section, a notice shall be deemed complete at such acquired, the effect of the proposed transaction on those time as it contains all information required by this sub- resources, and the management expertise, internal control part and all other information requested by the Board or and risk-management systems, and capital of the entity the Reserve Bank. conducting the activity. (c) Notice to expand or alter nonbanking activities— (c) Competitive effect of de novo proposals. Unless the (1) De novo expansion. A notice under this subpart is record demonstrates otherwise, the commencement or exrequired to open a new office or to form a subsidiary to pansion of a nonbanking activity de novo is presumed to engage in, or to relocate an existing office engaged in, a result in benefits to the public through increased competinonbanking activity that the Board has previously ap- tion. proved for the bank holding company under this regula- (d) Denial for lack of information. The Board may deny tion, only if: any notice submitted under this subpart if the notificant (i) The Board's prior approval was limited geographi- neglects, fails, or refuses to furnish all information recally; quired by the Board. (ii) The activity is to be conducted in a country (e) Conditional approvals. The Board may impose condioutside of the United States and the bank holding tions on any approval, including conditions to address company has not previously received prior Board permissibility, financial, managerial, safety and soundness, approval under this regulation to engage in the activ- competitive, compliance, conflicts of interest, or other conity in that country; or cerns to ensure that approval is consistent with the relevant (iii) The Board or appropriate Reserve Bank has noti- statutory factors and other provisions of the BHC Act. fied the company that a notice under this subpart is required. Section 225.27—Procedures for determining scope (2) Activities outside United States. With respect to of nonbanking activities. activities to be engaged in outside the United States that require approval under this subpart, the procedures of (a) Advisory opinions regarding scope of previously apthis section apply only to activities to be engaged in proved nonbanking activities—(1) Request for advisory directly by a bank holding company that is not a qualify- opinion. Any person may submit a request to the Board ing foreign banking organization, or by a nonbank sub- for an advisory opinion regarding the scope of any sidiary of a bank holding company approved under this permissible nonbanking activity. The request shall be subpart. Regulation K (12 C.F.R. 211) governs other submitted in writing to the Board and shall identify the international operations of bank holding companies. proposed parameters of the activity, or describe the (3) Alteration of nonbanking activity. Unless otherwise service or product that will be provided, and contain an permitted by the Board, a notice under this subpart is explanation supporting an interpretation regarding the required to alter a nonbanking activity in any material scope of the permissible nonbanking activity. respect from that considered by the Board in acting on (2) Response to request. The Board shall provide an the application or notice to engage in the activity. advisory opinion within 45 days of receiving a written (d) Emergency savings association acquisitions. In the case request under this paragraph. of a notice to acquire a savings association, the Board may (b) Procedure for consideration of new activities— modify or dispense with the public notice and hearing (1) Initiation of proceeding. The Board may, at any time, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

296 Federal Reserve Bulletin • April 1997 on its own initiative or in response to a written request if the bank holding company and its affiliates do not from any person, initiate a proceeding to determine have an interest in, or participate in managing or whether any activity is so closely related to banking or developing, a real estate project for which it arranges managing or controlling banks as to be a proper incident equity financing, and do not promote or sponsor the thereto. development of the property. (2) Requests for determination. Any request for a Board (iii) Check-guaranty services. Authorizing a subscribdetermination that an activity is so closely related to ing merchant to accept personal checks tendered by banking or managing or controlling banks as to be a the merchant's customers in payment for goods and proper incident thereto, shall be submitted to the Board services, and purchasing from the merchant validly in writing, and shall contain evidence that the proposed authorized checks that are subsequently dishonored. activity is so closely related to banking or managing or (iv) Collection agency services. Collecting overdue controlling banks as to be a proper incident thereto. accounts receivable, either retail or commercial. (3) Publication. The Board shall publish in the Federal (v) Credit bureau services. Maintaining information Register notice that it is considering the permissibility of related to the credit history of consumers and provida new activity and invite public comment for a period of ing the information to a credit grantor who is considat least 30 calendar days. In the case of a request ering a borrower's application for credit or who has submitted under paragraph (b) of this section, the Board extended credit to the borrower. may determine not to publish notice of the request if the (vi) Asset management, servicing, and collection ac- Board determines that the requester has provided no tivities. Engaging under contract with a third party in reasonable basis for a determination that the activity is asset management, servicing, and collection2 of assets so closely related to banking, or managing or controlling of a type that an insured depository institution may banks as to be a proper incident thereto, and notifies the originate and own, if the company does not engage in requester of the determination. real property management or real estate brokerage (4) Comments and hearing requests. Any comment and services as part of these services. any request for a hearing regarding a proposal under this (vii) Acquiring debt in default. Acquiring debt that is section shall comply with the provisions of sec- in default at the time of acquisition, if the company: tion 262.3(e) of the Board's Rules of Procedure (A) Divests shares or assets securing debt in default (12 C.F.R. 262.3(e)). that are not permissible investments for bank holding companies, within the time period required Section 225.28—List of permissible nonbanking for divestiture of property acquired in satisfaction activities. of a debt previously contracted under section 225.12(b);3 (a) Closely related nonbanking activities. The activities (B) Stands only in the position of a creditor and listed in paragraph (b) of this section are so closely related does not purchase equity of obligors of debt in to banking or managing or controlling banks as to be a default (other than equity that may be collateral for proper incident thereto, and may be engaged in by a bank such debt); and holding company or its subsidiary in accordance with the (C) Does not acquire debt in default secured by requirements of this regulation. shares of a bank or bank holding company. (b) Activities determined by regulation to be permissible — (viii) Real estate settlement servicing. Providing real (1) Extending credit and servicing loans. Making, ac- estate settlement services.4 quiring, brokering, or servicing loans or other extensions (3) Leasing personal or real property. Leasing personal of credit (including factoring, issuing letters of credit or real property or acting as agent, broker, or adviser in and accepting drafts) for the company's account or for leasing such property if: the account of others. (i) The lease is on a nonoperating basis;5 (2) Activities related to extending credit. Any activity (ii) The initial term of the lease is at least 90 days; usual in connection with making, acquiring, brokering or servicing loans or other extensions of credit, as determined by the Board. The Board has determined that the 2. Asset management services include acting as agent in the liquidation or sale of loans and collateral for loans, including real estate and following activities are usual in connection with making, other assets acquired through foreclosure or in satisfaction of debts acquiring, brokering or servicing loans or other exten- previously contracted. sions of credit: 3. For this purpose, the divestiture period for property begins on the (i) Real estate and personal property appraising. Per- date that the debt is acquired, regardless of when legal title to the property is acquired. forming appraisals of real estate and tangible and 4. For purposes of this section, real estate settlement services do not intangible personal property, including securities. include providing title insurance as principal, agent, or broker. (ii) Arranging commercial real estate equity financ- 5. The requirement that the lease be on a nonoperating basis means ing. Acting as intermediary for the financing of com- that the bank holding company may not, directly or indirectly, engage mercial or industrial income-producing real estate by in operating, servicing, maintaining, or repairing leased property during the lease term. For purposes of the leasing of automobiles, the arranging for the transfer of the title, control, and risk requirement that the lease be on a nonoperating basis means that the of such a real estate project to one or more investors, bank holding company may not, directly or indirectly: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 297 (iii) In the case of leases involving real property: ings, financing transactions and similar transactions, (A) At the inception of the initial lease, the elfect of and conducting financial feasibility studies;6 the transaction will yield a return that will compen- (iv) Providing information, statistical forecasting, and sate the lessor for not less than the lessor's full advice with respect to any transaction in foreign exinvestment in the property plus the estimated total change, swaps, and similar transactions, commodities, cost of financing the property over the term of the and any forward contract, option, future, option on a lease from rental payments, estimated tax benefits, future, and similar instruments; and the estimated residual value of the property at (v) Providing educational courses, and instructional the expiration of the initial lease; and materials to consumers on individual financial man- (B) The estimated residual value of property for agement matters; and purposes of paragraph (b)(3)(iii)(A) of this section (vi) Providing tax-planning and tax-preparation sershall not exceed 25 percent of the acquisition cost vices to any person. of the property to the lessor. (7) Agency transactional services for customer (4) Operating nonbank depository institutions — investments—(i) Securities brokerage. Providing securi- (i) Industrial banking. Owning, controlling, or operat- ties brokerage services (including securities clearing ing an industrial bank, Morris Plan bank, or industrial and/or securities execution services on an exchange), loan company, so long as the institution is not a bank. whether alone or in combination with investment ad- (ii) Operating savings association. Owning, control- visory services, and incidental activities (including ling, or operating a savings association, if the savings related securities credit activities and custodial serassociation engages only in deposit-taking activities, vices), if the securities brokerage services are relending, and other activities that are permissible for stricted to buying and selling securities solely as agent bank holding companies under this subpart C. for the account of customers and do not include (5) Trust company functions. Performing functions or securities underwriting or dealing. activities that may be performed by a trust company (ii) Riskless principal transactions. Buying and sell- (including activities of a fiduciary, agency, or custodial ing in the secondary market all types of securities on nature), in the manner authorized by federal or state law, the order of customers as a "riskless principal" to the so long as the company is not a bank for purposes of extent of engaging in a transaction in which the comsection 2(c) of the Bank Holding Company Act. pany, after receiving an order to buy (or sell) a secu- (6) Financial and investment advisory activities. Acting rity from a customer, purchases (or sells) the security as investment or financial advisor to any person, includ- for its own account to offset a contemporaneous sale ing (without, in any way, limiting the foregoing): to (or purchase from) the customer. This does not (i) Serving as investment adviser (as defined in sec- include: tion 2(a)(20) of the Investment Company Act of 1940, (A) Selling bank-ineligible securities7 at the order 15 U.S.C. 80a-2(a)(20)), to an investment company of a customer that is the issuer of the securities, or registered under that act, including sponsoring, orga- selling bank-ineligible securities in any transaction nizing, and managing a closed-end investment com- where the company has a contractual agreement to pany; place the securities as agent of the issuer; or (ii) Furnishing general economic information and ad- (B) Acting as a riskless principal in any transaction vice, general economic statistical forecasting services, involving a bank-ineligible security for which the and industry studies; company or any of its affiliates acts as underwriter (iii) Providing advice in connection with mergers, (during the period of the underwriting or for acquisitions, divestitures, investments, joint ventures, 30 days thereafter) or dealer.8 leveraged buyouts, recapitalizations, capital structur- (iii) Private placement services. Acting as agent for the private placement of securities in accordance with the requirements of the Securities Act of 1933 (1933 6. Feasibility studies do not include assisting management with the planning or marketing for a given project or providing general opera- (1) Provide servicing, repair, or maintenance of the leased vehicle tional or management advice. during the lease term; 7. A bank-ineligible security is any security that a State member (2) Purchase parts and accessories in bulk or for an individual bank is not permitted to underwrite or deal in under 12 U.S.C. 24 and vehicle after the lessee has taken delivery of the vehicle; 335. (3) Provide the loan of an automobile during servicing of the leased 8. A company or its affiliates may not enter quotes for specific vehicle; bank-ineligible securities in any dealer quotation system in connection (4) Purchase insurance for the lessee; or with the company's riskless principal transactions; except that the (5) Provide for the renewal of the vehicle's license merely as a company or its affiliates may enter "bid" or "ask" quotations, or service to the lessee where the lessee could renew the license publish "offering wanted" or "bid wanted" notices on trading syswithout authorization from the lessor. tems other than NASDAQ or an exchange, if the company or its The bank holding company may arrange for a third party to provide affiliate does not enter price quotations on different sides of the market these services or products. for a particular security during any two-day period. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

298 Federal Reserve Bulletin • April 1997 Act) and the rules of the Securities and Exchange (7) A state member bank is authorized to invest Commission, if the company engaged in the activity in the asset underlying the contract; does not purchase or repurchase for its own account (2) The contract requires cash settlement; or the securities being placed, or hold in inventory un- (3) The contract allows for assignment, terminasold portions of issues of these securities. tion, or offset prior to delivery or expiration, and (iv) Futures commission merchant. Acting as a futures the company makes every reasonable effort to commission merchant (FCM) for unaffiliated persons avoid taking or making delivery; and in the execution, clearance, or execution and clear- (C) Forward contracts, options,10 futures, options ance of any futures contract and option on a futures on futures, swaps, and similar contracts, whether contract traded on an exchange in the United States or traded on exchanges or not, based on an index of a abroad if: rate, a price, or the value of any financial asset, (A) The activity is conducted through a separately nonfinancial asset, or group of assets, if the contract incorporated subsidiary of the bank holding com- requires cash settlement, pany, which may engage in activities other than (iii) Buying and selling bullion, and related activities. FCM activities (including, but not limited to, per- Buying, selling and storing bars, rounds, bullion, and missible advisory and trading activities); and coins of gold, silver, platinum, palladium, copper, and (B) The parent bank holding company does not any other metal approved by the Board, for the comprovide a guarantee or otherwise become liable to pany's own account and the account of others, and the exchange or clearing association other than for providing incidental services such as arranging for those trades conducted by the subsidiary for its own storage, safe custody, assaying, and shipment. account or for the account of any affiliate. (9) Management consulting and counseling activities — (v) Other transactional services. Providing to custom- (i) Management consulting. ers as agent transactional services with respect to (A) Providing management consulting advice:11 swaps and similar transactions, any transaction de- (1) On any matter to unaffiliated depository instiscribed in paragraph (b)(8) of this section, any trans- tutions, including commercial banks, savings and action that is permissible for a state member bank, and loan associations, savings banks, credit unions, any other transaction involving a forward contract, industrial banks, Morris Plan banks, cooperative option, futures, option on a futures or similar contract banks, industrial loan companies, trust compa- (whether traded on an exchange or not) relating to a nies, and branches or agencies of foreign banks; commodity that is traded on an exchange. (2) On any financial, economic, accounting, or (8) Investment transactions as principal— audit matter to any other company. (i) Underwriting and dealing in government obliga- (B) A company conducting management consulting tions and money market instruments. Underwriting activities under this subparagraph and any affiliate and dealing in obligations of the United States, gen- of such company may not: eral obligations of states and their political subdivi- (1) Own or control, directly or indirectly, more sions, and other obligations that state member banks than 5 percent of the voting securities of the of the Federal Reserve System may be authorized to client institution; and underwrite and deal in under 12 U.S.C. 24 and 335, (2) Allow a management official, as defined in including banker's acceptances and certificates of de- 12 C.F.R. 212.2(h), of the company or any of its posit, under the same limitations as would be applica- affiliates to serve as a management official of the ble if the activity were performed by the bank holding client institution, except where such interlocking company's subsidiary member banks or its subsidiary relationship is permitted pursuant to an exempnonmember banks as if they were member banks. tion granted under 12 C.F.R. 212.4(b) or other- (ii) Investing and trading activities. Engaging as prin- wise permitted by the Board. cipal in: (A) Foreign exchange; (B) Forward contracts, options, futures, options on 10. This reference does not include acting as a dealer in options based on indices of bank-ineligible securities when the options are futures, swaps, and similar contracts, whether traded on securities exchanges. These options are securities for purtraded on exchanges or not, based on any rate, poses of the federal securities laws and bank-ineligible securities for price, financial asset (including gold, silver, plati- purposes of section 20 of the Glass-Steagall Act, 12 U.S.C. 337. num, palladium, copper, or any other metal ap- Similarly, this reference does not include acting as a dealer in any proved by the Board), nonfinancial asset, or group other instrument that is a bank-ineligible security for purposes of of assets, other than a bank-ineligible security,9 if: section 20. A bank holding company may deal in these instruments in accordance with the Board's orders on dealing in bank-ineligible securities. 11. In performing this activity, bank holding companies are not authorized to perform tasks or operations or provide services to client institutions either on a daily or continuing basis, except as necessary 9. A bank-ineligible security is any security that a state member to instruct the client institution on how to perform such services for bank is not permitted to underwrite or deal in under 12 U.S.C. 24 and itself. See also the Board's interpretation of bank management con- 335. sulting advice (12 C.F.R. 225.131). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 299 (C) A company conducting management consulting (B) Limited to ensuring the repayment of the outactivities may provide management consulting ser- standing balance due on the extension of credit14 in vices to customers not described in paragraph the event of the death, disability, or involuntary (b)(9)(i)(A)( 1) of this section or regarding matters unemployment of the debtor. not described in paragraph (b)(9)(i)(A)(2) of this (ii) Finance company subsidiary. Acting as agent or section, if the total annual revenue derived from broker for insurance directly related to an extension of those management consulting services does not ex- credit by a finance company15 that is a subsidiary of a ceed 30 percent of the company's total annual bank holding company, if: revenue derived from management consulting ac- (A) The insurance is limited to ensuring repayment tivities. of the outstanding balance on such extension of (ii) Employee benefits consulting services. Providing credit in the event of loss or damage to any propconsulting services to employee benefit, compensa- erty used as collateral for the extension of credit; tion and insurance plans, including designing plans, and assisting in the implementation of plans, providing (B) The extension of credit is not more than administrative services to plans, and developing em- $10,000, or $25,000 if it is to finance the purchase ployee communication programs for plans. of a residential manufactured home16 and the credit (iii) Career counseling services. Providing career is secured by the home; and counseling services to: (C) The applicant commits to notify borrowers in (A) A financial organization12 and individuals cur- writing that: rently employed by, or recently displaced from, a (7) They are not required to purchase such insurfinancial organization; ance from the applicant; (B) Individuals who are seeking employment at a (2) Such insurance does not insure any interest of financial organization; and the borrower in the collateral; and (C) Individuals who are currently employed in or (J) The applicant will accept more comprehenwho seek positions in the finance, accounting, and sive property insurance in place of such singleaudit departments of any company. interest insurance. (10) Support services—(i) Courier services. Providing (iii) Insurance in small towns. Engaging in any insurcourier services for: ance agency activity in a place where the bank hold- (A) Checks, commercial papers, documents, and ing company or a subsidiary of the bank holding written instruments (excluding currency or bearer- company has a lending office and that: type negotiable instruments) that are exchanged (A) Has a population not exceeding 5,000 (as among banks and financial institutions; and shown in the preceding decennial census); or (B) Audit and accounting media of a banking or (B) Has inadequate insurance agency facilities, as financial nature and other business records and determined by the Board, after notice and opportudocuments used in processing such media.13 nity for hearing. (ii) Printing and selling MICR-encoded items. Print- (iv) Insurance-agency activities conducted on May I, ing and selling checks and related documents, includ- 1982. Engaging in any specific insurance-agency acing corporate image checks, cash tickets, voucher tivity17 if the bank holding company, or subsidiary checks, deposit slips, savings withdrawal packages, conducting the specific activity, conducted such activand other forms that require Magnetic Ink Character ity on May 1, 1982, or received Board approval to Recognition (MICR) encoding. (11) Insurance agency and underwriting—(i) Credit insurance. Acting as principal, agent, or broker for insurance (including home mortgage redemption in- 14. Extension of credit includes direct loans to borrowers, loans surance) that is: purchased from other lenders, and leases of real or personal property (A) Directly related to an extension of credit by the so long as the leases are nonoperating and full-payout leases that meet bank holding company or any of its subsidiaries; the requirements of paragraph (b)(3) of this section. 15. Finance company includes all non-deposit-taking financial instiand tutions that engage in a significant degree of consumer lending (excluding lending secured by first mortgages) and all financial institutions specifically defined by individual states as finance companies and that engage in a significant degree of consumer lending. 16. These limitations increase at the end of each calendar year, beginning with 1982, by the percentage increase in the Consumer 12. Financial organization refers to insured depository institution Price Index for Urban Wage Earners and Clerical Workers published holding companies and their subsidiaries, other than nonbanking by the Bureau of Labor Statistics. affiliates of diversified savings and loan holding companies that en- 17. Nothing contained in this provision shall preclude a bank gage in activities not permissible under section 4(c)(8) of the Bank holding company subsidiary that is authorized to engage in a specific Holding Company Act (12 U.S.C. 1842(c)(8)). insurance-agency activity under this clause from continuing to engage 13. See also the Board's interpretation on courier activities in the particular activity after merger with an affiliate, if the merger is (12 C.F.R. 225.129), which sets forth conditions for bank holding for legitimate business purposes and prior notice has been provided to company entry into the activity. the Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

300 Federal Reserve Bulletin • April 1997 conduct such activity on or before May 1, 1982.18 A (12) Community development activities—(i) Financing bank holding company or subsidiary engaging in a and investment activities. Making equity and debt specific insurance agency activity under this clause investments in corporations or projects designed primay: marily to promote community welfare, such as the (A) Engage in such specific insurance agency activ- economic rehabilitation and development of lowity only at locations: income areas by providing housing, services, or jobs (7) In the state in which the bank holding com- for residents. pany has its principal place of business (as de- (ii) Advisory activities. Providing advisory and related fined in 12 U.S.C. 1842(d)); services for programs designed primarily to promote (2) In any state or states immediately adjacent to community welfare. such state; and (13) Money orders, savings bonds, and traveler's (3) In any state in which the specific insurance- checks. The issuance and sale at retail of money orders agency activity was conducted (or was approved and similar consumer-type payment instruments; the sale to be conducted) by such bank holding company of U.S. savings bonds; and the issuance and sale of or subsidiary thereof or by any other subsidiary traveler's checks. of such bank holding company on May 1, 1982; (14) Data processing, (i) Providing data processing and and data transmission services, facilities (including data (B) Provide other insurance coverages that may processing and data transmission hardware, software, become available after May 1, 1982, so long as documentation, or operating personnel), data bases, those coverages insure against the types of risks as advice, and access to such services, facilities, or data (or are otherwise functionally equivalent to) cover- bases by any technological means, if: ages sold or approved to be sold on May 1, 1982, (A) The data to be processed or furnished are by the bank holding company or subsidiary. financial, banking, or economic; and (v) Supervision of retail insurance agents. Supervis- (B) The hardware provided in connection therewith ing on behalf of insurance underwriters the activities is offered only in conjunction with software deof retail insurance agents who sell: signed and marketed for the processing and trans- (A) Fidelity insurance and property and casualty mission of financial, banking, or economic data, insurance on the real and personal property used in and where the general purpose hardware does not the operations of the bank holding company or its constitute more than 30 percent of the cost of any subsidiaries; and packaged offering. (B) Group insurance that protects the employees of (ii) A company conducting data processing and data the bank holding company or its subsidiaries. transmission activities may conduct data processing (vi) Small bank holding companies. Engaging in any and data transmission activities not described in parainsurance-agency activity if the bank holding com- graph (b)(14)(i) of this section if the total annual pany has total consolidated assets of $50 million or revenue derived from those activities does not exceed less. A bank holding company performing insurance- 30 percent of the company's total annual revenues agency activities under this paragraph may not engage derived from data processing and data transmission in the sale of life insurance or annuities except as activities. provided in paragraphs (b)(ll)(i) and (iii) of this section, and it may not continue to engage in 5. Subpart D is amended as follows: insurance-agency activities pursuant to this provision more than 90 days after the end of the quarterly (A) Section 225.31, paragraph (d)(2)(h), is reporting period in which total assets of the holding amended by removing the words "as defined in company and its subsidiaries exceed $50 million. 12 C.F.R. 206.2(k)"; and (vii) Insurance-agency activities conducted before (B) Section 225.32 is removed. 1971. Engaging in any insurance-agency activity performed at any location in the United States directly or 6. Subpart E is revised to read as follows: indirectly by a bank holding company that was engaged in insurance-agency activities prior to January 1, 1971, as a consequence of approval by the Subpart E—Change in Bank Control Board prior to January 1, 1971. Section 18. For the purposes of this paragraph, activities engaged in on May 1, 1982, include activities carried on subsequently as the result of 225.41 Transactions requiring prior notice. an application to engage in such activities pending before the Board 225.42 Transactions not requiring prior notice. on May 1, 1982, and approved subsequently by the Board or as the 225.43 Procedures for filing, processing, publishing, and result of the acquisition by such company pursuant to a binding acting on notices. written contract entered into on or before May 1, 1982, of another company engaged in such activities at the time of the acquisition. 225.44 Reporting of stock loans. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 301 Subpart E—Change in Bank Control (d) Rebuttable presumption of concerted action. The following persons shall be presumed to be acting in concert Section 225.41—Transactions requiring prior for purposes of this subpart: notice. (1) A company and any controlling shareholder, partner, trustee, or management official of the company, if both (a) Prior notice requirement. Any person acting directly or the company and the person own voting securities of the indirectly, or through or in concert with one or more state member bank or bank holding company; persons, shall give the Board 60 days' written notice, as (2) An individual and the individual's immediate family; specified in section 225.43 of this subpart, before acquiring (3) Companies under common control; control of a state member bank or bank holding company, (4) Persons that are parties to any agreement, contract, unless the acquisition is exempt under section 225.42. understanding, relationship, or other arrangement, (b) Definitions (1) Acquisition includes a purchase, assign- whether written or otherwise, regarding the acquisition, ment, transfer, or pledge of voting securities, or an voting, or transfer of control of voting securities of a increase in percentage ownership of a state member state member bank or bank holding company, other bank or a bank holding company resulting from a re- than through a revocable proxy as described in secdemption of voting securities. tion 225.42(a)(5) of this subpart; (2) Acting in concert includes knowing participation in a (5) Persons that have made, or propose to make, a joint joint activity or parallel action towards a common goal filing under sections 13 or 14 of the Securities Exchange of acquiring control of a state member bank or bank Act of 1934 (15 U.S.C. 78m or 78n), and the rules holding company whether or not pursuant to an express promulgated thereunder by the Securities and Exchange agreement. Commission; and (3) Immediate family includes a person's father, mother, (6) A person and any trust for which the person serves as stepfather, stepmother, brother, sister, stepbrother, step- trustee. sister, son, daughter, stepson, stepdaughter, grandparent, (e) Acquisitions of loans in default. The Board presumes an grandson, granddaughter, father-in-law, mother-in-law, acquisition of a loan in default that is secured by voting brother-in-law, sister-in-law, son-in-law, daughter- securities of a state member bank or bank holding comin-law, the spouse of any of the foregoing, and the pany to be an acquisition of the underlying securities for person's spouse. purposes of this section. (c) Acquisitions requiring prior notice — (1) Acquisition of (f) Other transactions. Transactions other than those set control. The acquisition of voting securities of a state forth in paragraph (c) of this section resulting in a person's member bank or bank holding company constitutes the control of less than 25 percent of a class of voting securiacquisition of control under the Bank Control Act, re- ties of a state member bank or bank holding company are quiring prior notice to the Board, if, immediately after not deemed by the Board to constitute control for purposes the transaction, the acquiring person (or persons acting of the Bank Control Act. in concert) will own, control, or hold with power to vote (g) Rebuttal of presumptions. Prior notice to the Board is 25 percent or more of any class of voting securities of not required for any acquisition of voting securities under the institution. the presumption of control set forth in this section, if the (2) Rebuttable presumption of control. The Board pre- Board finds that the acquisition will not result in control. sumes that an acquisition of voting securities of a state The Board shall afford any person seeking to rebut a member bank or bank holding company constitutes the presumption in this section an opportunity to present views acquisition of control under the Bank Control Act, re- in writing or, if appropriate, orally before its designated quiring prior notice to the Board, if, immediately after representatives at an informal conference. the transaction, the acquiring person (or persons acting in concert) will own, control, or hold with power to vote Section 225.42—Transactions not requiring prior 10 percent or more of any class of voting securities of notice. the institution, and if: (i) The institution has registered securities under sec- (a) Exempt transactions. The following transactions do not tion 12 of the Securities Exchange Act of 1934 require notice to the Board under this subpart: (15 U.S.C. 781); or (1) Existing control relationships. The acquisition of (ii) No other person will own, control, or hold the additional voting securities of a state member bank or power to vote a greater percentage of that class of bank holding company by a person who: voting securities immediately after the transaction.1 (i) Continuously since March 9, 1979 (or since the institution commenced business, if later), held power to vote 25 percent or more of any class of voting securities of the institution; or (ii) Is presumed, under section 225.41(c)(2) of this 1. If two or more persons, not acting in concert, each propose to subpart, to have controlled the institution continuacquire simultaneously equal percentages of 10 percent or more of a ously since March 9, 1979, if the aggregate amount of class of voting securities of the state member bank or bank holding company, each person must file prior notice to the Board. voting securities held does not exceed 25 percent or Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

302 Federal Reserve Bulletin • April 1997 more of any class of voting securities of the institution (iii) Acquisition of voting securities in satisfaction of or, in other cases, where the Board determines that the a debt previously contracted (DPC) in good faith. person has controlled the bank continuously since (2) The following acquisitions of voting securities of a March 9, 1979; state member bank or bank holding company, which (2) Increase of previously authorized acquisitions. Un- would otherwise require prior notice under this subpart, less the Board or the Reserve Bank otherwise provides are not subject to the prior notice requirements if the in writing, the acquisition of additional shares of a class acquiring person does not reasonably have advance of voting securities of a state member bank or bank knowledge of the transaction, and provides the written holding company by any person (or persons acting in notice required under section 225.43 to the appropriate concert) who has lawfully acquired and maintained con- Reserve Bank within 90 calendar days after the transactrol of the institution (for purposes of section 225.41(c) tion occurs: of this subpart), after complying with the procedures and (i) Acquisition of voting securities resulting from a receiving approval to acquire voting securities of the redemption of voting securities by the issuing bank or institution under this subpart, or in connection with an bank holding company; and application approved under section 3 of the BHC Act (ii) Acquisition of voting securities as a result of (12 U.S.C. 1842; section 225.11 of subpart B of this actions (including the sale of securities) by any third part) or section 18(c) of the Federal Deposit Insurance party that is not within the control of the acquiror. Act (Bank Merger Act, 12 U.S.C. 1828(c)); (3) Nothing in paragraphs (b)(1) or (b)(2) of this section (3) Acquisitions subject to approval under BHC Act or limits the authority of the Board to disapprove a notice Bank Merger Act. Any acquisition of voting securities pursuant to section 225.43(h) of this subpart. subject to approval under section 3 of the BHC Act (12 U.S.C. 1842; section 225.11 of subpart B of this part), or section 18(c) of the Federal Deposit Insurance Section 225.43—Procedures for filing, processing, Act (Bank Merger Act, 12 U.S.C. 1828(c)); publishing, and acting on notices. (4) Transactions exempt under BHC Act. Any transaction described in sections 2(a)(5), 3(a)(A), or 3(a)(B) of (a) Filing notice. (1) A notice required under this subpart the BHC Act (12 U.S.C. 1841(a)(5), 1842(a)(A), and shall be filed with the appropriate Reserve Bank and 1842(a)(B)), by a person described in those provisions; shall contain all the information required by paragraph 6 (5) Proxy solicitation. The acquisition of the power to of the Bank Control Act (12 U.S.C. 18170X6)), or prevote securities of a state member bank or bank holding scribed in the designated Board form. company through receipt of a revocable proxy in con- (2) The Board may waive any of the informational nection with a proxy solicitation for the purposes of requirements of the notice if the Board determines that it conducting business at a regular or special meeting of is in the public interest. the institution, if the proxy terminates within a reason- (3) A notificant shall notify the appropriate Reserve able period after the meeting; Bank or the Board immediately of any material changes (6) Stock dividends. The receipt of voting securities of a in a notice submitted to the Reserve Bank, including state member bank or bank holding company through a changes in financial or other conditions. stock dividend or stock split if the proportional interest (4) When the acquiring person is an individual, or group of the recipient in the institution remains substantially of individuals acting in concert, the requirement to prothe same; and vide personal financial data may be satisfied by a current (7) Acquisition of foreign banking organization. The statement of assets and liabilities and an income sumacquisition of voting securities of a qualifying foreign mary, as required in the designated Board form, together banking organization. (This exemption does not extend with a statement of any material changes since the date to the reports and information required under paragraphs of the statement or summary. The Reserve Bank or the 9, 10, and 12 of the Bank Control Act (12 U.S.C. Board, nevertheless, may request additional information, 1817(j)(9), (10), and (12)) and section 225.44 of this if appropriate. subpart.) (b) Acceptance of notice. The 60-day notice period speci- (b) Prior notice exemption. (1) The following acquisitions fied in section 225.41 of this subpart begins on the date of of voting securities of a state member bank or bank receipt of a complete notice. The Reserve Bank shall notify holding company, which would otherwise require prior the person or persons submitting a notice under this subnotice under this subpart, are not subject to the prior part in writing of the date the notice is or was complete and notice requirements if the acquiring person notifies the thereby accepted for processing. The Reserve Bank or the appropriate Reserve Bank within 90 calendar days after Board may request additional relevant information at any the acquisition and provides any relevant information time after the date of acceptance. requested by the Reserve Bank: (c) Publication—(1) Newspaper announcement. Any per- (i) Acquisition of voting securities through inheri- son(s) filing a notice under this subpart shall publish, in tance; a form prescribed by the Board, an announcement solic- (ii) Acquisition of voting securities as a bona fide gift; iting public comment on the proposed acquisition. The and announcement shall be published in a newspaper of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 303 general circulation in the community in which the head (7) Standing. No person (other than the acquiring peroffice of the state member bank to be acquired is located son) who submits comments or information on a notice or, in the case of a proposed acquisition of a bank filed under this subpart shall thereby become a party to holding company, in the community in which its head the proceeding or acquire any standing or right to particoffice is located and in the community in which the head ipate in the Board's consideration of the notice or to office of each of its subsidiary banks is located. The appeal or otherwise contest the notice or the Board's announcement shall be published no earlier than 15 action regarding the notice. calendar days before the filing of the notice with the (d) Time period for Board action—(1) Consummation of appropriate Reserve Bank and no later than 10 calendar acquisition — days after the filing date; and the publisher's affidavit of (i) The notificant(s) may consummate the proposed a publication shall be provided to the appropriate Re- acquisition 60 days after submission to the Reserve serve Bank. Bank of a complete notice under paragraph (a) of this (2) Contents of newspaper announcement. The newspa- section, unless within that period the Board disapper announcement shall state: proves the proposed acquisition or extends the 60-day (i) The name of each person identified in the notice as period, as provided under paragraph (d)(2) of this a proposed acquiror of the bank or bank holding section. company; (ii) The notificant(s) may consummate the proposed (ii) The name of the bank or bank holding company to transaction before the expiration of the 60-day period be acquired, including the name of each of the bank if the Board notifies the notificant(s) in writing of the holding company's subsidiary banks; and Board's intention not to disapprove the acquisition. (iii) A statement that interested persons may submit (2) Extensions of time period, (i) The Board may extend comments on the notice to the Board or the appropri- the 60-day period in paragraph (d)(1) of this section ate Reserve Bank for a period of 20 days, or such for an additional 30 days by notifying the acquiring shorter period as may be provided, pursuant to para- person(s). graph (c)(5) of this section. (ii) The Board may further extend the period during (3) Federal Register announcement. The Board shall, which it may disapprove a notice for two additional upon filing of a notice under this subpart, publish an- periods of not more than 45 days each, if the Board nouncement in the Federal Register of receipt of the determines that: notice. The Federal Register announcement shall con- (A) Any acquiring person has not furnished all the tain the information required under paragraphs (c)(2)(i) information required under paragraph (a) of this and (c)(2)(ii) of this section and a statement that inter- section; ested persons may submit comments on the proposed (B) Any material information submitted is substanacquisition for a period of 15 calendar days, or such tially inaccurate; shorter period as may be provided, pursuant to para- (C) The Board is unable to complete the investigagraph (c)(5) of this section. The Board may waive publi- tion of an acquiring person because of inadequate cation in the Federal Register, if the Board determines cooperation or delay by that person; or that such action is appropriate. (D) Additional time is needed to investigate and (4) Delay of publication. The Board may permit delay in determine that no acquiring person has a record the publication required under paragraphs (c)(1) and of failing to comply with the requirements of the (c)(3) of this section if the Board determines, for good Bank Secrecy Act, subchapter II of Chapter 53 of cause shown, that it is in the public interest to grant such Title 31, United States Code. delay. Requests for delay of publication may be submit- (iii) If the Board extends the time period under this ted to the appropriate Reserve Bank. paragraph, it shall notify the acquiring person(s) of (5) Shortening or waiving notice. The Board may the reasons therefor and shall include a statement of shorten or waive the public comment or newspaper the information, if any, deemed incomplete or inaccupublication requirements of this paragraph, or act on a rate. notice before the expiration of a public comment period, (e) Advice to bank supervisory agencies. (1) Upon acceptif it determines in writing that an emergency exists, or ing a notice relating to acquisition of securities of a state that disclosure of the notice, solicitation of public com- member bank, the Reserve Bank shall send a copy of the ment, or delay until expiration of the public comment notice to the appropriate state bank supervisor, which period would seriously threaten the safety or soundness shall have 30 calendar days from the date the notice is of the bank or bank holding company to be acquired. sent in which to submit its views and recommendations (6) Consideration of public comments. In acting upon a to the Board. The Reserve Bank also shall send a copy notice filed under this subpart, the Board shall consider of any notice to the Comptroller of the Currency, the all public comments received in writing within the pe- Federal Deposit Insurance Corporation, and the Office of riod specified in the newspaper or Federal Register Thrift Supervision. announcement, whichever is later. At the Board's op- (2) If the Board finds that it must act immediately in tion, comments received after this period may, but need order to prevent the probable failure of the bank or bank not, be considered. holding company involved, the Board may dispense Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

304 Federal Reserve Bulletin • April 1997 with or modify the requirements for notice to the state (2) The foreign bank or its affiliate also shall file a copy supervisor. of the report with its appropriate Federal banking (f) Investigation and report. (1) After receiving a notice agency. under this subpart, the Board or the appropriate Reserve (3) Any shares of the state member bank held by the Bank shall conduct an investigation of the competence, foreign bank or any affiliate of the foreign bank as experience, integrity, and financial ability of each person principal must be included in the calculation of the by and for whom an acquisition is to be made. The number of shares in which the foreign bank or its affili- Board shall also make an independent determination of ate has a security interest for purposes of paragraph (a) the accuracy and completeness of any information re- of this section. quired to be contained in a notice under paragraph (a) of (b) Definitions. For purposes of paragraph (a) of this secthis section. In investigating any notice accepted under tion: this subpart, the Board or Reserve Bank may solicit (1) Foreign bank shall have the same meaning as in information or views from any person, including any section 1(b) of the International Banking Act of 1978 bank or bank holding company involved in the notice, (12 U.S.C. 3101). and any appropriate state, federal, or foreign governmen- (2) Credit outstanding includes any loan or extension of tal authority. credit; the issuance of a guarantee, acceptance, or letter (2) The Board or the appropriate Reserve Bank shall of credit, including an endorsement or standby letter of prepare a written report of its investigation, which shall credit; and any other type of transaction that extends contain, at a minimum, a summary of the results of the credit or financing to the person or group of persons. investigation. (3) Group of persons includes any number of persons (g) Factors considered in acting on notices. In reviewing a that the foreign bank or any affiliate of a foreign bank notice filed under this subpart, the Board shall consider the has reason to believe: information in the record, the views and recommendations (i) Are acting together, in concert, or with one another of the appropriate bank supervisor, and any other relevant to acquire or control shares of the same insured deposinformation obtained during any investigation of the no- itory institution, including an acquisition of shares of tice. the same depository institution at approximately the (h) Disapproval and hearing—(1) Disapproval of notice. same time under substantially the same terms; or The Board may disapprove an acquisition if it finds (ii) Have made, or propose to make, a joint filing adverse effects with respect to any of the factors set forth under section 13 or 14 of the Securities Exchange Act in paragraph 7 of the Bank Control Act (12 U.S.C. of 1934 (15 U.S.C. 78m or 78n), and the rules promul- 1817(j)(7)) (i.e., competitive, financial, managerial, gated thereunder by the Securities and Exchange banking, or incompleteness of information). Commission regarding ownership of the shares of the (2) Disapproval notification. Within three days after its same insured depository institution. decision to issue a notice of intent to disapprove any (c) Exceptions. Compliance with paragraph (a) of this proposed acquisition, the Board shall notify the acquir- section is not required if: ing person in writing of the reasons for the action. (1) The person or group of persons referred to in that (3) Hearing. Within 10 calendar days of receipt of the paragraph has disclosed the amount borrowed and the notice of the Board's intent to disapprove, the acquiring security interest therein to the Board or appropriate person may submit a written request for a hearing. Any Reserve Bank in connection with a notice filed under hearing conducted under this paragraph shall be in accor- section 225.41 of this subpart, or another application dance with the Rules of Practice for Formal Hearings filed with the Board or Reserve Bank as a substitute for a (12 C.F.R. Part 263). At the conclusion of the hearing, notice under section 225.41 of this subpart, including an the Board shall, by order, approve or disapprove the application filed under section 3 of the BHC Act proposed acquisition on the basis of the record of the (12 U.S.C. 1842) or section 18(c) of the Federal Deposit hearing. If the acquiring person does not request a hear- Insurance Act (Bank Merger Act, 12 U.S.C. 1828(c)), or ing, the notice of intent to disapprove becomes final and an application for membership in the Federal Reserve unappealable. System; or (2) The transaction involves a person or group of persons that has been the owner or owners of record of the stock for a period of one year or more; or, if the Section 225.44—Reporting of stock loans. transaction involves stock issued by a newly chartered bank, before the bank is opened for business. (a) Requirements. (1) Any foreign bank or affiliate of a (d) Report requirements. (1) The consolidated report shall foreign bank that has credit outstanding to any person or indicate the number and percentage of shares securing group of persons, in the aggregate, which is secured, each applicable extension of credit, the identity of the directly or indirectly, by 25 percent or more of any class borrower, and the number of shares held as principal by of voting securities of a state member bank, shall file a the foreign bank and any affiliate thereof. consolidated report with the appropriate Reserve Bank (2) A foreign bank, or any affiliate of a foreign bank, for the state member bank. shall file the consolidated report in writing within Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 305 30 days of the date on which the foreign bank or affiliate any other person identified by the Board or Reserve Bank, first believes that the security for any outstanding credit whether or not hired as an employee, with significant consists of 25 percent or more of any class of voting influence over, or who participates in, major policymaking securities of a state member bank, decisions of the regulated institution, (e) Other reporting requirements. A foreign bank, or any (d) Troubled condition for a regulated institution means an affiliate thereof, that is supervised by the System and is institution that: required to report credit outstanding that is secured by the (1) Has a composite rating, as determined in its most shares of an insured depository institution to another Fed- recent report of examination or inspection, of 4 or 5 eral banking agency also shall file a copy of the report with under the Uniform Financial Institutions Rating System the appropriate Reserve Bank. or under the Federal Reserve Bank Holding Company Rating System; 7. Subpart F is amended by removing section 225.51. (2) Is subject to a cease-and-desist order or formal written agreement that requires action to improve the Section 225.51—[Removed! financial condition of the institution, unless otherwise informed in writing by the Board or Reserve Bank; or (3) Is informed in writing by the Board or Reserve Bank 8. Subpart G is amended by revising the heading to read as that it is in troubled condition for purposes of the refollows: quirements of this subpart on the basis of the institution's most recent report of condition or report of exam- Subpart G—Appraisal Standards for Federally ination or inspection, or other information available to Related Transactions the Board or Reserve Bank. 9. Subpart H, consisting of sections 225.71 through 225.73, Section 225.72—Director and officer appointments; is revised to read as follows: prior notice requirement. Subpart H—Notice of Addition or Change of Directors and Senior Executive Officers (a) Prior notice by regulated institution. A regulated institution shall give the Board 30 days' written notice, as Section specified in section 225.73, before adding or replacing any member of its board of directors, employing any person as 225.71 Definitions. a senior executive officer of the institution, or changing the 225.72 Director and officer appointments; prior notice responsibilities of any senior executive officer so that the requirement. person would assume a different senior executive officer 225.73 Procedures for filing, processing, and acting on position, if: notices; standards for disapproval; waiver of no- (1) The regulated institution is not in compliance with tice. all minimum capital requirements applicable to the institution as determined on the basis of the institution's Section 225.71—Definitions. most recent report of condition or report of examination or inspection; (a) Director means a person who serves on the board of (2) The regulated institution is in troubled condition; or directors of a regulated institution, except that this term (3) The Board determines, in connection with its review does not include an advisory director who: of a capital restoration plan required under section 38 of (1) Is not elected by the shareholders of the regulated the Federal Deposit Insurance Act or subpart B of the institution; Board's Regulation H, or otherwise, that such notice is (2) Is not authorized to vote on any matters before the appropriate. board of directors or any committee thereof; (b) Prior notice by individual. The prior notice required by (3) Solely provides general policy advice to the board of paragraph (a) of this section may be provided by an indidirectors and any committee thereof; and vidual seeking election to the board of directors of a (4) Has not been identified by the Board or Reserve regulated institution. Bank as a person who performs the functions of a director for purposes of this subpart. Section 225.73—Procedures for filing, processing, (b) Regulated institution means a state member bank or a and acting on notices; standards for disapproval; bank holding company. waiver of notice. (c) Senior executive officer means a person who holds the title or, without regard to title, salary, or compensation, performs the function of one or more of the following (a) Filing notice—(1) Content. The notice required in positions: president, chief executive officer, chief operating section 225.72 shall be filed with the appropriate Reofficer, chief financial officer, chief lending officer, or chief serve Bank and shall contain: investment officer. Senior executive officer also includes (i) The information required by paragraph 6(A) of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

306 Federal Reserve Bulletin • April 1997 Change in Bank Control Act (12 U.S.C. appealing party wishes to be considered in the appeal, 1817(j)(6)(A)) as may be prescribed in the designated and state whether the appealing party is requesting an Board form; informal hearing. (ii) Additional information consistent with the Federal (2) Written notice of the final decision of the Board shall Financial Institutions Examination Council's Joint be sent to the appealing party within 60 days of the Statement of Guidelines on Conducting Background receipt of an appeal, unless the appealing party's request Checks and Change in Control Investigations, as set for an informal hearing is granted. forth in the designated Board form; and (3) The disapproved individual may not serve as a (iii) Such other information as may be required by the director or senior executive officer of the state member Board or Reserve Bank. bank or bank holding company while the appeal is (2) Modification. The Reserve Bank may modify or pending. accept other information in place of the requirements of (e) Informal hearing—(1) An individual or regulated instisection 225.73(a)(1) for a notice filed under this subpart. tution whose notice under this section has been disap- (3) Acceptance and processing of notice. The 30-day proved may request an informal hearing on the notice. A notice period specified in section 225.72 shall begin on request for an informal hearing shall be in writing and the date all information required to be submitted by the shall be submitted within 15 days of a notice of disapnotificant pursuant to section 225.73(a)(1) is received by proval. The Board may, in its sole discretion, order an the appropriate Reserve Bank. The Reserve Bank shall informal hearing if the Board finds that oral argument is notify the regulated institution or individual submitting appropriate or necessary to resolve disputes regarding the notice of the date on which all required information material issues of fact. is received and the notice is accepted for processing, and (2) An informal hearing shall be held within 30 days of a of the date on which the 30-day notice period will request, if granted, unless the requesting party agrees to expire. The Board or Reserve Bank may extend the a later date. 30-day notice period for an additional period of not (3) Written notice of the final decision of the Board shall more than 60 days by notifying the regulated institution be given to the individual and the regulated institution or individual filing the notice that the period has been within 60 days of the conclusion of any informal hearing extended and stating the reason for not processing the ordered by the Board, unless the requesting party agrees notice within the 30-day notice period. to a later date. (b) Commencement of service—(1) At expiration of period. (f) Waiver of notice—(1) Waiver requests. The Board or A proposed director or senior executive officer may Reserve Bank may permit an individual to serve as a begin service after the end of the 30-day period and any senior executive officer or director before the notice extension as provided under paragraph (a)(3) of this required under this subpart is provided, if the Board or section, unless the Board or Reserve Bank disapproves Reserve Bank finds that: the notice before the end of the period. (i) Delay would threaten the safety or soundness of (2) Prior to expiration of period. A proposed director or the regulated institution or a bank controlled by a senior executive officer may begin service before the end bank holding company; of the 30-day period and any extension as provided (ii) Delay would not be in the public interest; or under paragraph (a)(3) of this section, if the Board or the (iii) Other extraordinary circumstances exist that jus- Reserve Bank notifies in writing the regulated institution tify waiver of prior notice. or individual submitting the notice of the Board's or (2) Automatic waiver. An individual may serve as a Reserve Bank's intention not to disapprove the notice. director upon election to the board of directors of a (c) Notice of disapproval. The Board or Reserve Bank shall regulated institution before the notice required under this disapprove a notice under section 225.72 if the Board or subpart is provided if the individual: Reserve Bank finds that the competence, experience, char- (i) Is not proposed by the management of the reguacter, or integrity of the individual with respect to whom lated institution; the notice is submitted indicates that it would not be in the (ii) Is elected as a new member of the board of best interests of the depositors of the regulated institution directors at a meeting of the regulated institution; and or in the best interests of the public to permit the individual (iii) Provides to the appropriate Reserve Bank all the to be employed by, or associated with, the regulated institu- information required in section 225.73(a) within tion. The notice of disapproval shall contain a statement of two (2) business days after the individual's election. the basis for disapproval and shall be sent to the regulated (3) Effect on disapproval authority. A waiver shall not institution and the disapproved individual. affect the authority of the Board or Reserve Bank to (d) Appeal of a notice of disapproval—(1) A disapproved disapprove a notice within 30 days after a waiver is individual or a regulated institution that has submitted a granted under paragraph (f)(1) of this section or the notice that is disapproved under this section may appeal election of an individual who has filed a notice and is the disapproval to the Board within 15 days of the serving pursuant to an automatic waiver under paraeffective date of the notice of disapproval. An appeal graph (f)(2) of this section. shall be in writing and explain the reasons for the appeal and include all facts, documents, and arguments that the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 307 10. Section 225.125 is amended by revising paragraphs (f) repaying such debt, a question arises as to the probable and (g) to read as follows: effect upon the financial condition of the holding company and its subsidiary bank or banks. Section 225.125—Investment adviser activities The Board believes that a high level of debt at the parent holding company impairs the ability of a bank holding company to provide financial assistance to its subsidiary (f) In the Board's opinion, the Glass-Steagall Act provi- bank(s) and, in some cases, the servicing requirements on sions, as interpreted by the U.S. Supreme Court, forbid a such debt may be a significant drain on the resources of the bank holding company to sponsor, organize, or control a bank(s). For these reasons, the Board has not favored the mutual fund. However, the Board does not believe that use of acquisition debt in the formation of bank holding such restrictions apply to closed-end investment companies companies or in the acquisition of additional banks. Neveras long as such companies are not primarily or frequently theless, the Board has recognized that the transfer of ownengaged in the issuance, sale, and distribution of securities. ership of small banks often requires the use of acquisition A bank holding company should not act as investment debt. The Board, therefore, has permitted the formation adviser to an investment company that has a name similar and expansion of small bank holding companies with debt to the name of the holding company or any of its subsidiary levels higher than would be permitted for larger holding banks, unless the prospectus of the investment company companies. Approval of these applications has been given contains the disclosures required in paragraph (h) of this on the condition that small bank holding companies demsection. In no case should a bank holding company act as onstrate the ability to service acquisition debt without investment adviser to an investment company that has straining the capital of their subsidiary banks and, further, either the same name as the name of the holding company that such companies restore their ability to serve as a or any of its subsidiary banks, or a name that contains the source of strength for their subsidiary banks within a word "bank." relatively short period of time. (g) In view of the potential conflicts of interests that may In the interest of continuing its policy of facilitating the exist, a bank holding company and its bank and nonbank transfer of ownership in banks without compromising bank subsidiaries should not purchase in their sole discretion, in safety and soundness, the Board has, as described below, a fiduciary capacity (including as managing agent), securi- adopted the following procedures and standards for the ties of any investment company for which the bank holding formation and expansion of small bank holding companies company acts as investment adviser unless, the purchase is subject to this policy statement. specifically authorized by the terms of the instrument creating the fiduciary relationship, by court order, or by the law 1. Applicability of Policy Statement of the jurisdiction under which the trust is administered. This policy statement applies only to bank holding companies with pro forma consolidated assets of less than $150 million that: Section 225.145—[Amended] (i) Are not engaged in any nonbanking activities involving significant leverage,1 and (ii) Do not have a significant amount of outstanding 11. Section 225.145, paragraph (a) the fifth sentence is debt that is held by the general public. amended by removing the words "increasing their assets at an annual rate exceeding 7 percent during any 12-month While this policy statement primarily applies to the period after August 10, 1988," and the last sentence by formation of small bank holding companies, it also applies removing "225.51 and". to existing small bank holding companies that wish to acquire an additional bank or company and to transactions 12. Appendix C is revised to read as follows: involving changes in control, stock redemptions, or other shareholder transactions.2 APPENDIX C TO PART 225—SMALL BANK HOLDING 2. Ongoing Requirements COMPANY POLICY STATEMENT The following guidelines must be followed on an ongoing Policy Statement on Assessment of Financial and basis for all organizations operating under this policy state- Managerial Factors ment. In acting on applications filed under the Bank Holding Company Act, the Board has adopted, and continues to 1. A parent company that is engaged in significant off-balance sheet follow, the principle that bank holding companies should activities would generally be deemed to be engaged in activities that involve significant leverage. serve as a source of strength for their subsidiary banks. 2. The appropriate Reserve Bank should be contacted to determine When bank holding companies incur debt and rely upon the manner in which a specific situation may qualify for treatment the earnings of their subsidiary banks as the means of under this policy statement. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

308 Federal Reserve Bulletin • April 1997 A. Reduction in parent company leverage: Small 3. Core Requirements for All Applicants bank holding companies are to reduce their parent company debt consistent with the requirement that In assessing applications or notices by organizations suball debt be retired within 25 years of being incurred. ject to this policy statement, the Board will continue to take The Board also expects that these bank holding into account a full range of financial and other information companies reach a debt to equity ratio of .30:1 or about the applicant, and its current and proposed subsidiarless within 12 years of the incurrence of the debt.3 ies, including the recent trend and stability of earnings, The bank holding company must also comply with past and prospective growth, asset quality, the ability to debt servicing and other requirements imposed by meet debt servicing requirements without placing an undue its creditors. strain on the resources of the bank(s), and the record and B. Capital adequacy: Each insured depository sub- competency of management. In addition, the Board will sidiary of a small bank holding company is ex- require applicants to meet the following requirements: pected to be well-capitalized. Any institution that is A. Minimum down payment: The amount of acquisinot well-capitalized is expected to become well- tion debt should not exceed 75 percent of the purchase capitalized within a brief period of time. price of the bank(s) or company to be acquired. When C. Dividend restrictions: A small bank holding the owner(s) of the holding company incurs debt to company whose debt to equity ratio is greater than finance the purchase of the bank(s) or company, such 1.0:1 is not expected to pay corporate dividends debt will be considered acquisition debt even though until such time as it reduces its debt to equity ratio it does not represent an obligation of the bank holding to 1.0:1 or less and otherwise meets the criteria set company, unless the owner(s) can demonstrate that forth in sections 225.14(c)(l)(ii), 225.14(c)(2), and such debt can be serviced without reliance on the 225.14(c)(7) of Regulation Y.4 resources of the bank(s) or bank holding company. B. Ability to reduce parent company leverage: The Small bank holding companies formed before the effec- bank holding company must clearly be able to reduce tive date of this policy statement may switch to a plan that its debt to equity ratio and comply with its loan adheres to the intent of this statement provided they com- agreement(s) as set forth in paragraph 2A above. ply with the requirements set forth above. Failure to meet the criteria in this section would normally result in denial of an application. 4. Additional Application Requirements for 3. The term debt, as used in the ratio of debt to equity, means any borrowed funds (exclusive of short-term borrowings that arise out of Expedited/Waived Processing current transactions, the proceeds of which are used for current transactions), and any securities issued by, or obligations of, the A. Expedited notices under sections 225.14 and holding company that are the functional equivalent of borrowed funds. 225.23 of Regulation Y: A small bank holding com- The term equity, as used in the ratio of debt to equity, means the pany proposal will be eligible for the expedited prototal stockholders' equity of the bank holding company as defined in accordance with generally accepted accounting principles. In deter- cessing procedures set forth in sections 225.14 and mining the total amount of stockholders' equity, the bank holding 225.23 of Regulation Y if the bank holding company company should account for its investments in the common stock of is in compliance with the ongoing requirements of subsidiaries by the equity method of accounting. this policy statement, the bank holding company Ordinarily the Board does not view redeemable preferred stock as a meets the core requirements for all applicants noted substitute for common stock in a small bank holding company. Nevertheless, to a limited degree and under certain circumstances, the Board above, and the following requirements are met: will consider redeemable preferred stock as equity in the capital (i) The parent bank holding company has a accounts of the holding company if the following conditions are met: pro forma debt to equity ratio of 1.0:1 or less. (1) The preferred stock is redeemable only at the option of the (ii) The bank holding company meets all of the issuer, and (2) The debt to equity ratio of the holding company would be at criteria for expedited action set forth in secor remain below .30:1 following the redemption or retirement of tions 225.14 or 225.23 of Regulation Y. any preferred stock. B. Waiver of stock redemption filing: A small bank Preferred stock that is convertible into common stock of the holding holding company will be eligible for the stock recompany may be treated as equity. 4. Dividends may be paid by small bank holding companies with demption filing exception for well-capitalized bank debt to equity at or below 1.0:1 and otherwise meeting the require- holding companies contained in section 225.4(b)(6) if ments of sections 225.14(c)(l)(ii), 225.14(c)(2), and 225.14(c)(7) if the following requirements are met: the dividends are reasonable in amount, do not adversely affect the (i) The parent bank holding company has a ability of the bank holding company to service its debt in an orderly manner, and do not adversely affect the ability of the subsidiary banks pro forma debt to equity ratio of 1.0:1 or less. to be well-capitalized. It is expected that dividends will be eliminated (ii) The bank holding company is in compliance if the holding company is: with the ongoing requirements of this policy state- (1) Not reducing its debt consistent with the requirement that the ment and meets the requirements of secdebt to equity ratio be reduced to .30:1 within 12 years of consumtions 225.14(c)( l)(ii), 225.14(c)(2), and mation of the proposal, or (2) Not meeting the requirements of its loan agreement(s). 225.14(c)(7) of Regulation Y. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 309 FINAL RULE—AMENDMENT TO REGULATION Z The additions and revisions read as follows: The Board of Governors is amending 12 C.F.R. Part 226, its Regulation Z (Truth in Lending). The amendment to the official staff commentary provides guidance on issues relat- Subpart A—General ing to the treatment of certain fees paid in connection with mortgage loans. It addresses new tolerances for accuracy in disclosing the amount of the finance charge and other affected cost disclosures. In addition, the update discusses Section 226.4—Finance Charge issues such as the treatment of debt cancellation agreements and a creditor's duties if providing periodic state- 4(a) Definition. ments via electronic means. Effective February 28, 1997, 12 C.F.R. Part 226 is amended as follows: 4(a)(1) Charges by third parties. 1. Choosing the provider of a required service. An example of a third-party charge included in the finance Part 226—Truth in Lending (Regulation Z) charge is the cost of required mortgage insurance, even if the consumer is allowed to choose the insurer. 2. Annuities associated with reverse mortgages. Some 1. The authority citation for Part 226 continues to read as creditors offer annuities in connection with a reverse follows: mortgage transaction. The amount of the premium is a finance charge if the creditor requires the purchase of the Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5). annuity incident to the credit. Examples include the following: 2. In Supplement I to Part 226, under Introduction, the last (i) The credit documents reflect the purchase of an sentence in paragraph 5. is revised to read as follows: annuity from a specific provider or providers. (ii) The creditor assesses an additional charge on consumers who do not purchase an annuity from a Supplement I—Official Staff Interpretations specific provider. (iii) The annuity is intended to replace in whole or in part the creditor's payments to the consumer either Introduction immediately or at some future date. 4(a)(2) Special rule; closing agent charges. 5. Comment designations. * * * Comments to the appendi- 1. General. This rule applies to charges by a third party ces may be cited, for example, as Comment app. A-1. serving as the closing agent for the particular loan. An example of a closing agent charge included in the finance charge is a courier fee where the creditor requires 3. Supplement I to Part 226, under Section 226.2— the use of a courier. Definitions and Rules of Construction, paragraph 2(a)(25), 2. Required closing agent. If the creditor requires the use is amended by removing the last two sentences of the of a closing agent, fees charged by the closing agent are second paragraph of paragraph 6. included in the finance charge only if the creditor requires the particular service, requires the imposition of 4. In Supplement I to Part 226, under Section 226.4— the charge, or retains a portion of the charge. Fees Finance Charge, the following amendments are made: charged by a third-party closing agent may be otherwise a. Under 4(a) Definition., paragraphs 3. and 4. are re- excluded from the finance charge under section 226.4. moved and paragraphs 5. through 7. are redesignated as For example, a fee that would be paid in a comparable paragraphs 3. through 5., respectively, and new para- cash transaction may be excluded under section graphs 4(a)(1), 4 (a)(2), and 4(a)(3) are added after the 226.4(a); a lump-sum fee for real-estate closing costs end of the text of 4(a); may be excluded under section 226.4(c)(7). b. Under 4(b) Examples of finance charges., a new paragraph 4(b)(10) is added; 4(a)(3) Special rule; mortgage broker fees. c. Under 4(c) Charges excluded from the finance 1. General. A fee charged by a mortgage broker is charge., under paragraph 4(c)(5)., paragraph 2. is re- excluded from the finance charge if it is the type of fee vised; that is also excluded when charged by the creditor. For d. Under 4(d), the heading is revised, and a new para- example, to exclude an application fee from the finance graph 4(d)(3) is added; and charge under section 226.4(c)(1), a mortgage broker e. Under 4(e) Certain security interest charges., para- must charge the fee to all applicants for credit, whether graphs l.i. and 2. are revised. or not credit is extended. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

310 Federal Reserve Bulletin • April 1997 2. Coverage. This rule applies to charges paid by con- considered insurance. Creditors may use the model sumers to a mortgage broker in connection with a con- credit insurance disclosures only if the debt cancellation sumer credit transaction secured by real property or a coverage constitutes insurance under state law. dwelling. 3. Compensation by lender. The rule requires all mort- 4(e) Certain security interest charges. gage broker fees to be included in the finance charge. 1. Examples. Creditors sometimes compensate mortgage brokers un- (i) Excludable charges. Sums must be actually paid to der a separate arrangement with those parties. Creditors public officials to be excluded from the finance charge may draw on amounts paid by the consumer, such as under section 226.4(e)(1) and (3). Examples are points or closing costs, to fund their payment to the charges or other fees required for filing or recording broker. Compensation paid by a creditor to a mortgage security agreements, mortgages, continuation statebroker under an agreement is not included as a separate ments, termination statements, and similar documents, component of a consumer's total finance charge (al- as well as intangible property or other taxes even though this compensation may be reflected in the finance when the charges or fees are imposed by the state charge if it comes from amounts paid by the consumer to solely on the creditor and charged to the consumer (if the creditor that are finance charges, such as points and the tax must be paid to record a security interest). (See interest). comment 4(a)-5 regarding the treatment of taxes, generally.) 4(b) Examples of finance charges. 2. Itemization. The various charges described in section 4(b)(10) Debt cancellation fees. 226.4(e)(1) and (3) may be totaled and disclosed as an 1. Definition. Debt cancellation coverage provides for aggregate sum, or they may be itemized by the specific payment or satisfaction of all or part of a debt when a fees and taxes imposed. If an aggregate sum is disclosed, specified event occurs. The term includes guaranteed a general term such as security interest fees or filing fees automobile protection or "GAP" agreements, which pay may be used. or satisfy the remaining debt after property insurance benefits are exhausted. 5. In Supplement I to Part 226, under Section 226.5— 4(c) Charges excluded from the finance charge. General Disclosure Requirements, under Paragraph 5(b)(2)(ii)., Paragraph 4(c)(5). paragraph 3. is revised to read as follows: 2. Other seller-paid amounts. Mortgage insurance premiums and other finance charges are sometimes paid at Subpart B—Open-End Credit or before consummation or settlement on the borrower's behalf by a noncreditor seller. The creditor should treat Section 226.5—General Disclosure Requirements the payment made by the seller as seller's points and exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge. A creditor who gives disclo- 5(b) Time of disclosures. sures before the payment has been made should base them on the best information reasonably available. 5(b)(2) Periodic statements. 4(d) Insurance and debt cancellation coverage. Paragraph 5(b)(2)(ii). 4(d)(3) Voluntary debt cancellation fees. 3. Calling for periodic statements. The creditor may permit 1. General. Fees charged for the specialized form of consumers to call for their periodic statements, but may not debt cancellation agreement known as guaranteed autorequire them to do so. If the consumer wishes to pick up mobile protection ("GAP") agreements must be disthe statement and the plan has a free-ride period, the closed according to section 226.4(d)(3) rather than acstatement (including a statement provided by electronic cording to section 226.4(d)(2) for property insurance. means) must be made available in accordance with the 2. Disclosures. Creditors can comply with section 14-day rule. 226.4(d)(3) by providing a disclosure that refers to debt cancellation coverage whether or not the coverage is Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 311 6. In Supplement I to Part 226, under Section 226.17— A. If disclosures are made in a regular transaction General Disclosure Requirements, the following amend- on July 1, the transaction is consummated on ments are made: July 15, and the actual annual percentage rate vara. Under 17(c) Basis of disclosures and use of estimates., ies by more than '/x of 1 percentage point from the text is added under 17(c)(2)(H); and disclosed annual percentage rate, the creditor must b. Under 17(f) Early disclosures., paragraphs 1. intro- either redisclose the changed terms or furnish a ductory text, l.i., the last sentence of l.ii. and l.iii. are complete set of new disclosures before consummarevised and a heading is added to paragraph l.ii; and a tion. Redisclosure is required even if the disclonew paragraph 17(f)(2) is added preceding 17(g). The sures made on July 1 are based on estimates and additions and revisions read as follows: marked as such. B. In a regular transaction, if early disclosures are marked as estimates and the disclosed annual percentage rate is within Vs of 1 percentage point of Subpart C—Closed-End Credit the rate at consummation, the creditor need not redisclose the changed terms (including the annual percentage rate). Section 226.17—General Disclosure Requirements (ii) Nonmortgage loan. * * * (See section 226.18(d)(2) of this part.) iii. Mortgage loan. At the time TILA disclosures are 17(c) Basis of disclosures and use of estimates. prepared in July, the loan closing is scheduled for July 31 and the creditor does not plan to collect perdiem interest at consummation. Consummation actually occurs on August 5, and per-diem interest for the Paragraph 17(c)(2)(H). remainder of August is collected as a prepaid finance 1. Per-diem interest. This paragraph applies to any nu- charge. Assuming there were no other changes requirmerical amount (such as the finance charge, annual ing redisclosure, the creditor may rely on the disclopercentage rate, or payment amount) that is affected by sures prepared in July that were accurate when they the amount of the per-diem interest charge that will be were prepared. However, if the creditor prepares new collected at consummation. If the amount of per-diem disclosures in August that will be provided at consuminterest used in preparing the disclosures for consumma- mation, the new disclosures must take into account tion is based on the information known to the creditor at the amount of the per-diem interest known to the the time the disclosure document is prepared, the disclo- creditor at that time. sures are considered accurate under this rule, and affected disclosures are also considered accurate, even if the disclosures are not labeled as estimates. For exam- Paragraph 17(f)(2). ple, if the amount of per-diem interest used to prepare 1. Irregular transactions. For purposes of this paradisclosures is less than the amount of per-diem interest graph, a transaction is deemed to be "irregular" accordcharged at consummation, and as a result the finance ing to the definition in footnote 46 of section charge is understated by $200, the disclosed finance 226.22(a)(3). charge is considered accurate even though the understatement is not within the $100 tolerance of section 7. In Supplement I to Part 226, under Section 226.18— 226.18(d)(1), and the finance charge was not labeled as Content of Disclosures, the following amendments are an estimate. In this example, if in addition to the undermade: statement related to the per-diem interest, a $90 fee is a. Under 18(c) Itemization of amount financed., paraincorrectly omitted from the finance charge, causing it to graph 4. is revised; be understated by a total of $290, the finance charge is b. Under 18(d) Finance charge., a new paragraph 18(d)(2) considered accurate because the $90 fee is within the is added; tolerance in section 226.18(d)(1). c. 18(n) is amended by revising the heading and adding a new paragraph 2. 17(f) Early disclosures. The additions and revisions read as follows: 1. Change in rate or other terms. Redisclosure is required for changes that occur between the time disclosures are made and consummation if the annual percent- Section 226.18—Content of Disclosures age rate in the consummated transaction exceeds the limits prescribed in this section, even if the initial disclosures would be considered accurate under the tolerances 18(c) Itemization of amount financed. in sections 226.18(d) or 226.22(a). To illustrate: (i) General. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

312 Federal Reserve Bulletin • April 1997 4. RESPA transactions. The Real Estate Settlement Pro- tion differs from the estimate originally disclosed cedures Act (RESPA) requires creditors to provide a by more than V% of 1 percentage point in regular transacgood faith estimate of closing costs and a settlement tions or lA of 1 percentage point in irregular statement listing the amounts paid by the consumer. transactions, as defined in footnote 46 of sec- Transactions subject to RESPA are exempt from the tion 226.22(a)(3). * * * requirements of section 226.18(c) if the creditor complies with RESPA's requirements for a good faith estimate and settlement statement. The itemization of the 9. In Supplement I to Part 226, Section 226.22— amount financed need not be given, even though the Determination of the Annual Percentage Rate, is amended content and timing of the good faith estimate and settle- by adding new paragraphs 22(a)(4) and 22(a)(5) to read as ment statement under RESPA differ from the require- follows: ments of sections 226.18(c) and 226.19(a)(2). If a creditor chooses to substitute RESPA's settlement statement for the itemization when redisclosure is required under section 226.19(a)(2), the statement must be delivered to Section 226.22—Determination of the Annual the consumer at or prior to consummation. The disclo- Percentage Rate 22(a) Accuracy of the annual sures required by sections 226.18(c) and 226.19(a)(2) percentage rate. may appear on the same page or on the same document as the good faith estimate or the settlement statement, so long as the requirements of section 226.17(a) are met. 22(a)(4) Mortgage loans. 1. Example. If a creditor improperly omits a $75 fee 18(d) Finance charge. from the finance charge on a regular transaction, the understated finance charge is considered accurate under section 226.18(d)(1), and the annual percentage rate 18(d)(2) Other credit. corresponding to that understated finance charge also is 1. Tolerance. When a finance charge error results in a considered accurate even if it falls outside the tolerance misstatement of the amount financed, or some other of V% o f1 percentage point provided under section dollar amount for which the regulation provides no 226.22(a)(2). Because a $75 error was made, an annual specific tolerance, the misstated disclosure does not viopercentage rate corresponding to a $100 understatement late the act or the regulation if the finance charge error is of the finance charge would not be considered accurate. within the permissible tolerance under this paragraph. 22(a)(5) Additional tolerance for mortgage loans. 18(n) Insurance and debt cancellation. 1. Example. This paragraph contains an additional tolerance for a disclosed annual percentage rate that is incorrect but is closer to the actual annual percentage rate 2. Debt cancellation. Creditors may use the model credit than the rate that would be considered accurate under the insurance disclosures only if the debt cancellation covertolerance in section 226.22(a)(4). To illustrate: in an age constitutes insurance under state law. Otherwise, irregular transaction subject to a lA of 1 percentage point they may provide a parallel disclosure that refers to debt tolerance, if the actual annual percentage rate is 9.00 cancellation coverage. percent and a $75 omission from the finance charge corresponds to a rate of 8.50 percent that is considered 8. In Supplement I to Part 226, under Section 226.19— accurate under section 226.22(a)(4), a disclosed APR of 8.65 percent is within the tolerance in section Certain Residential Mortgage and Variable-Rate Transac- 226.22(a)(5). In this example of an understated finance tions, under 19(a)(2) Redisclosure required., the first sencharge, a disclosed annual percentage rate below 8.50 or tence of paragraph 1. is revised to read as follows: above 9.25 percent will not be considered accurate. 10. In Supplement I to Part 226, Section 226.23—Right of Section 226.19—Certain Residential Mortgage and Rescission is amended by adding new 23(g), and 23(h) Variable-Rate Transactions preceding the References to read as follows: Paragraph 19(a)(2) Redisclosure required. Section 23—Right of Rescission 1. Conditions for redisclosure. Creditors must make new disclosures if the annual percentage rate at consumma- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 313 23(g) Tolerances for accuracy. and alfected disclosures are also considered accurate, even if the disclosures were not labeled as estimates. 23(g)(2) One percent tolerance. (See comment 17(c)(2)(H)-1 generally.) 1. New advance. The phrase "new advance" has the same meaning as in comment 23(f)-4. 12. In Supplement I to Part 226, under Section 226.32— Requirements for Certain Closed-End Home Mortgages, 23(h) Special Rules for Foreclosures. the following amendments are made: 1. Rescission. Section 226.23(h) applies only to transac- a. Under Paragraph 32(b)(l)(i)., paragraph 1. is revised; tions that are subject to rescission under section and 226.23(a)(1). b. Under Paragraph 32(c)(3)., a new paragraph 2. is added. The revisions and additions read as follows: Paragraph 23(h)(l)(i). 1. Mortgage broker fees. A consumer may rescind a loan Section 226.32—Requirements for Certain in foreclosure if a mortgage broker fee that should have Closed-End Home Mortgages been included in the finance charge was omitted, without regard to the dollar amount involved. If the amount of the mortgage broker fee is included but misstated the 32(b) Definitions. rule in section 226.23(h)(2) applies. Paragraph 32(b)(l)(i). 23(h)(2) Tolerance for disclosures. 1. General. Section 226.32(b)(l)(i) includes in the total "points and fees" items defined as finance charges un- 1. General. This section is based on the accuracy of the der section 226.4(a) and 226.(4)(b). Items excluded from total finance charge rather than its component charges. the finance charge under other provisions of section 226.4 are not included in the total "points and fees" under paragraph 32(b)(l)(i), but may be included in 11. In Supplement I to Part 226, under Section 226.31— "points and fees" under paragraphs 32(b)(1)(H) and General Rules, the following amendments are made: 32(b)(l)(iii). Interest, including per-diem interest, is excluded from "points and fees" under section a. Under Paragraph 31(c)(1) paragraph 1. is redesignated 226.32(b)(1). as paragraph 1. under Paragraph 31(c)., and paragraph 2., under Paragraph 31 (c)(1) is redesignated as paragraph 1; and 32(c) Disclosures. b. Under 31(d), a new paragraph 31(d)(3) is added. The revisions and additions read as follows: Paragraph 32(c)(3) Regular payment. Subpart E—Special Rules for Certain Home Mortage Transactions 2. Balloon payments. If a loan with a term of five years or more provides for a balloon payment, the balloon payment must be disclosed. For a loan with a term of Section 226.31—General Rules less than five years, a balloon payment is prohibited. * * * * * 31(d) Basis of disclosures and use of estimates. 13. In Supplement I to Part 226, under Section 226.33— Requirements for Reverse Mortgages, under Paragraph 33(a)(2), in paragraph 2., the third and fourth sentences are 31(d)(3) Per-diem interest. revised and a new sentence is added at the end of the paragraph to read as follows: 1. Per-diem interest. This paragraph applies to the disclosure of any numerical amount (such as the finance charge, annual percentage rate, or payment amount) that is alfected by the amount of the per-diem interest charge Section 226.33—Requirements for Reverse that will be collected at consummation. If the amount of Mortgages per-diem interest used in preparing the disclosures for consummation is based on the information known to the 33(a) Definition. creditor at the time the disclosure document is prepared, the disclosures are considered accurate under this rule, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

314 Federal Reserve Bulletin • April 1997 Paragraph 33(a)(2). ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT Orders Issued Under Section 3 of the Bank Holding Company Act 2. Definite term or maturity date. * * * An obligation may state a definite maturity date or term of repayment Bank of Taiwan and still meet the definition of a reverse-mortgage trans- Taipei, Taiwan action if the maturity date or term of repayment used would not operate to cause maturity prior to the occur- Order Approving Retention of Shares of a Bank Holding rence of any of the maturity events recognized in the Company and Acquisition of Shares of a Bank regulation. For example, some reverse mortgage programs specify that the final maturity date is the borrow- Bank of Taiwan, Taipei, Taiwan ("BOT"), a foreign bank er's 150th birthday; other programs include a shorter subject to the Bank Holding Company Act ("BHC Act"), term but provide that the term is automatically extended has requested the Board's approval under section 3 of the for consecutive periods if none of the other maturity BHC Act (12 U.S.C. § 1842) to retain its ownership of events has yet occurred. These programs would be per- 12.84 percent of the voting shares of First Commercial missible. Bank, Taipei, Taiwan ("FCB"), and to thereby indirectly acquire more than 5 percent of the voting shares of FCB Taiwan California Bank, Alhambra, California ("Bank"), 14. In Supplement I to Part 226, under Appendices G and a de novo state-chartered bank. FCB separately has re- H—Open-end and Closed-end Model Forms and Clauses, quested the Board's approval under section 3 of the BHC a new paragraph 2. is added to read as follows: Act to acquire all the voting shares of Bank and thereby become a bank holding company.1 Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (61 Federal Register 7791 (1996)). The time for filing comments has expired, and the Board has considered the APPENDICES G AND H—OPEN-END AND CLOSED-END application and all comments received in light of the MODEL FORMS AND CLAUSES factors set forth in section 3 of the BHC Act. BOT, with total consolidated assets equivalent to $59.2 billion, is the largest commercial bank in Taiwan.2 2. Debt cancellation coverage. This regulation does not BOT operates a branch in Los Angeles, California, and an authorize creditors to characterize debt cancellation fees as agency in New York, New York. Taiwan owns all the insurance premiums for purposes of this regulation. Credivoting shares of BOT. tors may provide a disclosure that refers to debt cancella- As noted above, BOT has filed this application in contion coverage whether or not the coverage is considered nection with FCB's proposal to establish Bank as a de novo insurance. Creditors may use the model credit insurance state-chartered bank. Accordingly, the Board concludes disclosures only if the debt cancellation coverage constithat consummation of this proposal would not have a tutes insurance under state law. significantly adverse effect on competition or the concentration of banking resources in any relevant banking market. In addition, based on all the facts of record, the Board 15. In Supplement I to Part 226, under APPENconcludes that convenience and needs considerations are DIX H—CLOSED-END MODEL FORMS AND CLAUSES, consistent with approval of the proposal. a new sentence is added to the end of paragraph 11. to read as follows: Financial, Managerial, and Other Supervisory Considerations Under section 3 of the BHC Act, as amended by the Foreign Bank Supervision Enhancement Act of 1991,3 the Board may not approve an application involving a foreign APPENDIX H—CLOSED-END MODEL FORMS AND bank unless the bank is "subject to comprehensive supervi- CLAUSES sion or regulation on a consolidated basis by the appropri- 11. Models H-8 and H-9. * * * The prior version of model form H-9 is substantially similar to the current version and 1. See First Commercial Bank, 83 Federal Reserve Bulletin 309 (1997). creditors may continue to use it, as appropriate. Creditors 2. Asset data are as of June 30, 1996, and reflect the exchange rate are encouraged, however, to use the current version when then in effect. Ranking data are as of December 31, 1995. reordering or reprinting forms. 3. Pub. L. No. 102-242, § 201 et seq., 105 Stat. 2286 (1991). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 315 ate authorities in the bank's home country."4 The Board visory factors the Board must consider under section 3 of previously has determined, in connection with an applica- the BHC Act. tion by BOT under the International Banking Act Based on the foregoing and all other facts of record, (12 U.S.C. § 3101 et seq.) ("IBA"), that BOT was subject including the commitments provided by BOT, the Board to comprehensive supervision on a consolidated basis by has determined that the application should be, and hereby its home country authorities.5 Based on all the facts of is, approved. Should any restrictions on access to informarecord, the Board has determined that the requirements of tion on the operations or activities of BOT or any of its section 3(c)(3)(B) of the BHC Act regarding comprehen- affiliates subsequently interfere with the Board's ability to sive supervision and regulation on a consolidated basis are determine the compliance by BOT or its affiliates with met in this case. applicable federal statutes, the Board may require termina- The BHC Act also requires the Board to determine that tion of any of BOT's or its affiliates' direct or indirect the foreign bank has provided adequate assurances that it activities in the United States. The commitments and conwill make available to the Board such information on its ditions relied on by the Board in reaching this decision, operations and activities and those of its affiliates that the including the commitments discussed in this order, shall be Board deems appropriate to determine and enforce compli- deemed to be conditions imposed in writing by the Board ance with the BHC Act and the IBA. The Board has in connection with its findings and decisions, and, as such, reviewed restrictions on disclosure in jurisdictions where may be enforced in proceedings under applicable law. BOT has material operations and has communicated with This transaction shall not be consummated before the relevant authorities concerning access to information. BOT fifteenth calendar day following the effective date of this has committed that, to the extent not prohibited by applica- order, or later than three months after the effective date of ble law, it will make available to the Board such informa- this order, unless such period is extended for good cause by tion on the operations of BOT and any of its affiliates that the Board or the Federal Reserve Bank of San Francisco, the Board deems necessary to determine and enforce com- acting pursuant to delegated authority. pliance with the BHC Act, the IBA, and other applicable By order of the Board of Governors, effective Februfederal law. BOT also has committed to cooperate with the ary 24, 1997. Board to obtain any waivers or exemptions that may be necessary in order to enable BOT to make any such infor- Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and mation available to the Board. In light of these commit- Governors Kelley, Phillips, and Meyer. ments and other facts of record, the Board has concluded that BOT has provided adequate assurances of access to JENNIFER J. JOHNSON Deputy Secretary of the Board any appropriate information that the Board may request. For these reasons, based on all the facts of record, and First Commercial Bank subject to the conditions noted below, the Board has con- Taipei, Taiwan cluded that the supervisory factors it is required to consider under section 3(c) of the BHC Act are consistent with Order Approving the Formation of a Bank Holding approval. Company The Board also must consider the financial and managerial resources of a foreign bank that files an application First Commercial Bank, Taipei, Taiwan ("FCB"), a forunder section 3 of the BHC Act. BOT must comply with eign bank subject to the Bank Holding Company Act minimum capital standards that conform to the Basle Capi- ("BHC Act"), has requested the Board's approval under tal Accord, as implemented by Taiwan. BOT's capital section 3 of the BHC Act (12 U.S.C. § 1842) to become a exceeds the minimum standards and is equivalent to the bank holding company by acquiring all the voting shares of capital that would be required of a United States banking FCB Taiwan California Bank, Alhambra, California organization. Based on these and other facts of record, ("Bank"), a de novo state-chartered bank.1 including confidential examination and supervisory infor- Notice of the proposal, affording interested persons an mation, the Board concludes that financial and managerial opportunity to submit comments, has been published factors are consistent with approval, as are all other super- (60 Federal Register 45,485 (1995)). The time for filing comments has expired, and the Board has considered the 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 Regulation K. See 12 C.F.R. 225.13(b)(5). Regulation K provides that a 1. Bank of Taiwan, Taipei, Taiwan ("BOT"), controls 12.84 percent foreign bank may be considered subject to consolidated supervision if of the voting shares of FCB. BOT operates a branch in Los Angeles, the Board determines that the bank is supervised or regulated in such a California, and an agency in New York, New York, and is subject to manner that its home country supervisor receives sufficient informa- the BHC Act in the same manner and to the same extent as a bank tion on the worldwide operations of the foreign bank, including the holding company. See 12 U.S.C. § 3106(a). Accordingly, BOT also relationship of the bank and its affiliates, to assess the foreign bank's has requested the Board's approval to acquire more than 5 percent of overall financial condition and compliance with law and regulation. the voting shares of a bank holding company and a bank upon See 12 C.F.R. 211.24(c)(l)(ii). consummation of the proposal. See Bank of Taiwan, 83 Federal 5. See Bank of Taiwan, 79 Federal Reserve Bulletin 541 (1993). Reserve Bulletin 308 (1997). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

316 Federal Reserve Bulletin • April 1997 application and all comments received in light of the The BHC Act also requires the Board to determine that factors set forth in section 3 of the BHC Act. the foreign bank has provided adequate assurances that it FCB, with total consolidated assets equivalent to will make available to the Board such information on its $33 billion, is the fourth largest commercial bank in Tai- operations and activities and those of its affiliates that the wan.2 FCB operates a branch in Los Angeles, California, Board deems appropriate to determine and enforce compliand an agency in New York, New York. Taiwan directly ance with the BHC Act and the IBA. The Board has and indirectly owns or controls approximately 71 percent reviewed restrictions on disclosure in jurisdictions where of the voting shares of FCB.3 FCB has material operations and has communicated with FCB proposes to establish Bank as a de novo state- relevant authorities concerning access to information. FCB chartered bank.4 Accordingly, the Board concludes that has committed that, to the extent not prohibited by applicaconsummation of this proposal would not have a signifi- ble law, it will make available to the Board such informacantly adverse effect on competition or the concentration of tion on the operations of FCB and any of its affiliates that banking resources in any relevant banking market. In addi- the Board deems necessary to determine and enforce comtion, based on all the facts of record, the Board concludes pliance with the BHC Act, the IBA, and other applicable that convenience and needs considerations are consistent federal law. FCB also has committed to cooperate with the with approval of the proposal. Board to obtain any waivers or exemptions that may be necessary in order to enable FCB to make any such infor- Financial, Managerial, and Other Supervisory mation available to the Board. In light of these commit- Considerations ments and other facts of record, the Board has concluded that FCB has provided adequate assurances of access to Under section 3 of the BHC Act, as amended by the any appropriate information that the Board may request. Foreign Bank Supervision Enhancement Act of 1991,5 the For these reasons, based on all the facts of record, and Board may not approve an application involving a foreign subject to the conditions noted below, the Board has conbank unless the bank is "subject to comprehensive supervi- cluded that the supervisory factors it is required to consider sion or regulation on a consolidated basis by the appropri- under section 3(c) of the BHC Act are consistent with ate authorities in the bank's home country."6 The Board approval.8 previously has determined, in applications under the Inter- The Board also must consider the financial and managenational Banking Act (12 U.S.C. § 3101 et seq.) ("IBA"), rial resources of a foreign bank that files an application that certain Taiwan banks were subject to comprehensive under section 3 of the BHC Act. FCB must comply with supervision on a consolidated basis by their home country minimum capital standards that conform to the Basle Capiauthorities.7 In this case, the Board has determined that tal Accord, as implemented by Taiwan. FCB's capital FCB is supervised on substantially the same terms and exceeds the minimum standards and is equivalent to the conditions as those other Taiwan banks. Based on all the capital that would be required of a United States banking facts of record, the Board has concluded that FCB is organization. Based on these and other facts of record, subject to comprehensive supervision and regulation on a including confidential examination and supervisory inforconsolidated basis by its home country supervisors. mation, the Board concludes that financial and managerial factors are consistent with approval, as are all other supervisory factors the Board must consider under section 3 of 2. Asset data are as of June 30, 1996, and reflect the exchange rate the BHC Act. then in effect. Ranking data are as of December 31, 1995. Based on the foregoing and all other facts of record, 3. The Taiwan authorities directly own 51 percent of FCB's shares and control another 20 percent of the bank's shares through other including the commitments provided by FCB, the Board banks that are controlled by Taiwan. has determined that the application should be, and hereby 4. The California State Banking Department and the Federal De- is, approved. Should any restrictions on access to informaposit Insurance Company have approved Bank's applications for a tion on the operations or activities of FCB or any of its charter and federal deposit insurance, respectively. affiliates subsequently interfere with the Board's ability to 5. Pub. L. No. 102-242, § 201 et seq., 105 Stat. 2286 (1991). 6. 12 U.S.C. § 1842(c)(3)(B). As provided in Regulation Y, the determine the compliance by FCB or its affiliates with Board determines whether a foreign bank is subject to consolidated applicable federal statutes, the Board may require terminahome country supervision under the standards set forth in Regulation tion of any of FCB's or its affiliates' direct or indirect K. See 12 C.F.R. 225.13(b)(5). Regulation K provides that a foreign activities in the United States. The commitments and conbank may be considered subject to consolidated supervision if the Board determines that the bank is supervised or regulated in such a ditions relied on by the Board in reaching this decision, manner that its home country supervisor receives sufficient information on the worldwide operations of the foreign bank, including the relationship of the bank and its affiliates, to assess the foreign bank's overall financial condition and compliance with law and regulation. 8. Because Taiwan will control Bank, transactions between Bank See 12 C.F.R. 211.24(c)(l)(ii). and other companies controlled by Taiwan will be subject to sec- 7. See Taiwan Business Bank, 81 Federal Reserve Bulletin 746 tion 23A and section 23B of the Federal Reserve Act. 12 U.S.C. (1995); The Farmers Bank of China, 81 Federal Reserve Bulletin 620 §§ 371c, 371c-l. FCB and Bank have committed that Bank will adopt (1995); Chiao Tung Bank, 79 Federal Reserve Bulletin 543 (1993); and maintain appropriate internal control procedures and operational Bank of Taiwan, 79 Federal Reserve Bulletin 541 (1993); United safeguards to assure that all transactions with, or for the benefit of, an World Chinese Commercial Bank, 79 Federal Reserve Bulletin 146 affiliate are in compliance with the requirements of sections 23A and (1993); and Taipei Bank, 79 Federal Reserve Bulletin 143 (1993). 23B of the Federal Reserve Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 317 including the commitments discussed in this order, shall be deposits of AI and FBC represent less than 1 percent of deemed to be conditions imposed in writing by the Board total deposits in commercial banking organizations in the in connection with its findings and decisions, and, as such, state. may be enforced in proceedings under applicable law. This transaction shall not be consummated before the Interstate Analysis fifteenth calendar day following the effective date of this order, or later than three months after the effective date of Section 3(d) of the BHC Act, as amended by section 101 of this order, unless such period is extended for good cause by the Riegle-Neal Interstate Banking and Branching Effithe Board or the Federal Reserve Bank of San Francisco, ciency Act of 1994, allows the Board to approve an appliacting pursuant to delegated authority. cation by a bank holding company to acquire control of a By order of the Board of Governors, effective Febru- bank located in a state other than the home state of such ary 24, 1997. bank holding company, if certain conditions are met.4 For purposes of the BHC Act, Susquehanna's home state is Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Pennsylvania, and Susquehanna would acquire banks in Governors Kelley, Phillips, and Meyer. New Jersey. The conditions for an interstate acquisition under section 3(d) are met in this case.5 In view of all the JENNIFER J. JOHNSON facts of record, the Board is permitted to approve the Deputy Secretary of the Board proposal under section 3(d) of the BHC Act. Susquehanna Bancshares, Inc. Competitive Considerations Lititz, Pennsylvania The BHC Act prohibits the Board from approving an Order Approving the Acquisition of Bank Holding application if the proposal would result in a monopoly, or Companies would substantially lessen competition in any relevant banking market, unless the Board finds that the anticom- Susquehanna Bancshares, Inc., Lititz, Pennsylvania ("Suspetitive effects of the proposal are clearly outweighed in quehanna"), a bank holding company within the meaning the public interest by the probable effect of the proposal in of the Bank Holding Company Act ("BHC Act"), has meeting the convenience and needs of the community.6 requested the Board's approval under section 3 of the BHC AI and FBC compete directly in the Philadelphia, Pennsyl- Act (12 U.S.C. § 1842) to acquire Atcorp, Inc., Marlton, vania, banking market.7 On consummation of the proposal, New Jersey ("AI"), and its subsidiary bank, Equity Na- Susquehanna would become the 23d largest commercial tional Bank, Atco, New Jersey ("Equity Bank"); and banking institution in the market, controlling deposits of Farmers Banc Corp. ("FBC") and its subsidiary bank, approximately $195 million, representing less than 1 per- Farmers National Bank ("Farmers Bank"), both of Mullica cent of total deposits in commercial banks or thrift institu- Hill, New Jersey.1 tions in the market.8 Based on all the facts of record, Notice of the proposal, affording interested persons an including the small increase in market concentration as opportunity to submit comments, has been published (61 Federal Register 60,706 (1996)). The time for filing comments has expired, and the Board has considered the 4. Pub. L. No. 103-328, 108 Stat. 2338 (1994). A bank holding proposal and all comments received in light of the factors company's home state is the state in which the operations of the bank holding company's banking subsidiaries were principally conducted set forth in section 3 of the BHC Act. on July 1, 1966, or the date on which the company became a bank Susquehanna, with total consolidated assets of approxiholding company, whichever is later. mately $3 billion, operates five banks and three savings 5. See 12 U.S.C. § 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and associations in Pennsylvania and Maryland and engages in (B). Susquehanna is adequately capitalized and adequately managed. certain permissible nonbanking activities.2 Susquehanna is Equity Bank and Farmers Bank have been in existence and continuously operated for more than five years. In addition, on consummation the 12th largest commercial banking organization in Pennof the proposal, Susquehanna and its affiliates would control less than sylvania, controlling approximately $1.3 billion in depos- 10 percent of the total amount of deposits of insured depository its, representing less than 1 percent of total deposits in institutions in the United States, and less than 30 percent of the total commercial banks in the state.3 AI and FBC are, respec- amount of deposits of insured depository institutions in New Jersey. 6. 12 U.S.C. § 1842(c). tively, the 44th and 64th largest commercial banking orga- 7. The Philadelphia banking market consists of Bucks, Chester, nizations in New Jersey, controlling approximately Delaware, Montgomery, and Philadelphia Counties in Pennsylvania; $124 million and $72 million in deposits. The combined and Burlington, Camden, and Salem Counties, the City of Trenton, and the Mercer County townships of Ewing, Hamilton, and Lawrence in New Jersey. 1. Susquehanna would acquire AI and FBC separately by merging 8. Market share data are based on calculations in which the deposits each company with a shell subsidiary corporation of Susquehanna. of thrift institutions are included at 50 percent. The Board previously AI and FBC would be the surviving corporations of these mergers and has indicated that thrift institutions have become, or have the potential would become separate subsidiary bank holding companies of Susque- to become, significant competitors of commercial banks. See WM hanna. Bancorp, 76 Federal Reserve Bulletin 788 (1990); National City 2. Asset data are as of September 30, 1996. Corporation, 70 Federal Reserve Bulletin 743 (1984). Thus, the 3. Deposit data are as of June 30, 1995. Board has regularly included thrift deposits in the calculation of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

318 Federal Reserve Bulletin • April 1997 measured by the Herfindahl-Hirschman Index ("HHI")9 sidiary bank, Farmers First Bank, Lititz, Pennsylvania and the number of competitors that would remain in the ("Susquehanna Bank"), have inadequate records of lendmarket, the Board concludes that the proposal would not ing to LMI and minority neighborhoods. have a significantly adverse effect on competition or the To help to address the credit needs of LMI and minority concentration of banking resources in the Philadelphia neighborhoods in the communities to be served in New banking market or any other relevant banking market. Jersey, Susquehanna has developed preliminary plans for a three-year lending program at Equity Bank and Farmers Other Factors Under the BHC Act Bank, including lending goals for affordable home mortgage loans to first-time LMI homebuyers, home improve- The BHC Act also requires the Board, in acting on an ment loans, and community development loans. Those application, to consider the financial and managerial re- goals would supplement the current lending and commusources of the companies and banks involved, the conve- nity development programs of Equity Bank and Farmers nience and needs of the communities to be served, and Bank. In addition, the record indicates that Susquehanna certain other supervisory factors. provides a full range of retail credit and deposit products and services, including home mortgage loans, consumer A. Supervisory Factors installment loans, small business loans, and lifeline checking accounts. Susquehanna has stated that these products The Board has carefully considered the financial and man- and services, some of which are not currently offered by agerial resources and future prospects of Susquehanna, AI, Equity Bank and Farmers Bank, would be offered in the FBC, and their respective subsidiary banks and other super- markets the banks serve. visory factors in light of all the facts of record. The facts The Board also notes that Susquehanna has policies and include supervisory reports of examination assessing the programs in place to assist in ascertaining and meeting the financial and managerial resources of the organizations and credit needs of the communities served by its subsidiary confidential financial information provided by Susque- banks. The Susquehanna CRA Officers Committee ("Comhanna. Based on these and all other facts of record, the mittee") was formed in 1990 to provide oversight for the Board concludes that all the supervisory factors under the activities of Susquehanna's subsidiary banks under the BHC Act, including financial and managerial resources, Community Reinvestment Act (12 U.S.C. § 2901 et seq.) weigh in favor of approval of the proposal. ("CRA").10 The Committee performs a variety of functions designed to exchange information and ideas involv- B. Convenience and Needs Factor ing CRA-related activities. In addition, the Committee provides services to support subsidiary banks in ascertain- The Board also has carefully considered the effect of the ing and assisting to meet the credit needs of their commuproposal on the convenience and needs of the communities nities, including compiling and analyzing data on CRAto be served in light of all the facts of record. As part of related activities, reviewing community demographics and that review, the Board considered comments from New marketing techniques by using Susquehanna's Marketing Jersey Citizen Action ("Protestant") alleging that Susque- Central Information File software, discussing unique ashanna has not taken adequate steps to assess the demo- pects of and approaches to individual markets and commugraphic characteristics and banking needs of neighbor- nities, and discussing methods to assess and meet the credit hoods with predominately low- and moderate-income needs of all members of the communities served by the ("LMI") and minority residents ("LMI and minority bank.11 neighborhoods") served by AI and FBC and has not devel- Performance Examinations. The Board has long held oped an adequate plan to serve those areas. Protestant also that consideration of the convenience and needs factor alleges, based on data filed under the Home Mortgage includes a review of the records of the relevant depository Disclosure Act (12 U.S.C. § 2801 et seq.) ("HMDA"), that institutions under the CRA. As provided in the CRA, the Equity Bank, Farmers Bank, and Susquehanna's lead sub- Board evaluates this factor in light of examinations by the market share on a 50-percent weighted basis. See, e.g., First Hawai- 10. The Committee is chaired by a Susquehanna corporate officer ian, Inc., 11 Federal Reserve Bulletin 52 (1991). and has as its voting members the CRA officers of each affiliate. 9. The HHI would remain unchanged at 1390 points after consum- Nonvoting members of the Committee include Susquehanna's corpomation of the proposal. Under the revised Department of Justice rate directors of marketing and compliance, the manager of its CRA/ Merger Guidelines, 49 Federal Register 26,823 (June 29, 1984), a HMDA support unit, and affiliate representatives involved in marketmarket in which the post-merger HHI is between 1000 and 1800 is ing, lending, and compliance. The Committee meets at least quarterly, considered to be moderately concentrated. The Justice Department has and more frequently if necessary. informed the Board that a bank merger or acquisition generally will 11. The Committee has implemented a number of programs that not be challenged (in the absence of other factors indicating anticom- support the CRA-related activities of Susquehanna subsidiary banks, petitive eifects) unless the post-merger HHI is at least 1800 and the including uniform formats for CRA self-assessment, CRA programs, merger increases the HHI by more than 200 points. The Justice office closing and relocation policies, and fair lending policies. The Department has stated that the higher than normal HHI thresholds for Committee also has initiated a comprehensive CRA data compilation screening bank mergers for anticompetitive effects implicitly recog- and analytical software system and has created a CRA review task nizes the competitive effect of limited-purpose lenders and other force to assist subsidiary banks in analyzing their CRA-related activinon-depository financial entities. ties and preparing for CRA performance examinations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 319 primary federal supervisor of the CRA performance community development activities. For example, the bank records of the relevant institutions. An institution's most invested as a limited partner in a nonprofit housing develrecent CRA performance evaluation is a particularly impor- oper that created The Umbrella Works, which rehabilitated tant consideration in the applications process because it a building in a low-income neighborhood of Lancaster to represents a detailed on-site evaluation of an institution's provide 82 apartments for LMI households, and Oak Botoverall record of performance under the CRA by its pri- tom, which produced 54 housing units for low-income mary federal supervisor.12 households in Quarryville, Pennsylvania.15 Susquehanna All of Susquehanna's subsidiary banks received "out- Bank also renovated an abandoned paper mill in Lititz, standing" or "satisfactory" ratings for CRA performance Pennsylvania, to use as administrative offices and to proin their most recent evaluations by their primary federal vide additional office space for lease. In addition, the bank supervisor. Susquehanna Bank received an "outstanding" has extended more than $4 million in loans to local rating in its most recent examination as of September 1994 churches and participated in a $360,000 revolving loan to by the Federal Deposit Insurance Corporation ("1994 Ex- the Spanish American Civic Association to rehabilitate amination"). Three of Susquehanna's four remaining sub- homes for LMI Hispanic residents in the City of Lansidiary banks also received "outstanding" ratings for CRA caster.16 performance in their most recent evaluations. Equity Bank HMD A Data and Record of Lending. The Board has received a "satisfactory" rating for CRA performance carefully reviewed the 1994 and 1995 HMDA data refrom the Office of the Comptroller of the Currency ported by Susquehanna Bank, Equity Bank, and Farmers ("OCC") as of March 1996, and Farmers Bank received a Bank in light of the Protestant's contentions about the "satisfactory" rating for CRA performance from the OCC institutions' lending records. These data generally indicate as of December 1993. that Susquehanna Bank's origination rates for loans to The 1994 Examination concluded that Susquehanna applicants from LMI census tracts and minority applicants Bank's lending activities reflected an overall responsive- were significantly higher than the origination rates for ness to meeting identified community credit needs. FDIC loans to those applicants for lenders in the market in the examiners commended the bank's strong efforts in ascer- aggregate. For example, in 1994, Susquehanna Bank origitaining and meeting the credit needs of LMI loan appli- nated loans to 84 percent of its LMI applicants, compared cants in the Lancaster, Pennsylvania, Metropolitan Statisti- to an origination rate of 70 percent for lenders in the cal Area, noting that the bank had received applications for market in the aggregate, and during 1995 originated loans and originated a substantially higher percentage of to 81 percent of its LMI applicants, compared to an originahousing-related loans than other area lenders in the aggre- tion rate of 61 percent for other area lenders. Also in 1994, gate. In addition, the 1994 Examination concluded that Susquehanna Bank originated loans to 93 percent of its Susquehanna Bank had achieved a reasonable penetration Hispanic applicants and 83 percent of its African-American of all segments of its delineated community, including LMI applicants, compared to origination rates of 70 percent and neighborhoods. Examiners also noted that the bank primar- 62 percent, respectively, for lenders in the market in the ily promoted its credit products and services through news- aggregate.17 paper, radio, and television advertising, including a Span- The Board also has carefully reviewed other informaish language newspaper and a Spanish language radio tion, particularly the 1994 Examination and examination station. The bank also employs bilingual personnel to reports for Equity Bank and Farmers Bank, which provide facilitate communication with Hispanic customers.13 an on-site evaluation of compliance with the fair lending To respond to housing-related credit needs identified by laws. Examiners found no evidence of prohibited discrimithe participation of its officers in community organizations, nation or other illegal credit practices at the banks, and Susquehanna Bank established an adjustable rate home concluded that they were in satisfactory compliance with mortgage loan program to lend up to 95 percent of the the substantive provisions of the fair lending laws. Examinproperty's value and initiated its participation in the Fed- ers also found no evidence of any practices by the banks eral National Mortgage Association (Fannie Mae) Community Home Buyer's Plan, which permits the bank to employ more flexible underwriting criteria in low-income areas.14 15. Since the 1994 Examination, Farmers First also has invested in a The 1994 Examination also found that the bank was an limited partnership that developed The Wagon Werks, a renovated building in Columbia, Pennsylvania, that provides housing for lowactive lender to and investor in organizations engaged in income senior citizens. As of December 31, 1996, the bank had approximately $500,000 invested in its housing-related limited partnerships. 12. The Statement of the Federal Financial Supervisory Agencies 16. Susquehanna Bank also offers two basic checking account plans Regarding the Community Reinvestment Act (54 Federal Register that require no minimum balance and charge low fees. At the time of 13,742, 13,745 (1989)) provides that a CRA examination is an impor- the 1994 Examination, Susquehanna Bank had 2,649 such accounts, tant and often controlling factor in consideration of an institution's which were generally held by low-income and retired customers. As CRA record and that reports of these examinations will be given great of December 31, 1996, the bank had 2,983 such accounts with an weight in the applications process. average balance of $575 per account. 13. Susquehanna states that Spanish language mortgage loan docu- 17. HMDA data for Equity Bank and Farmers Bank indicate that ments also are available. those banks also have higher origination rates for applicants in LMI 14. During 1996, the bank made 33 loans for $1.8 million in the census tracts and minority applicants than those of other lenders in the aggregate under this program. market in the aggregate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

320 Federal Reserve Bulletin • April 1997 that were intended to discourage applications for the types Union Planters Corporation of credit listed in the institutions' CRA statements. Memphis, Tennessee Conclusion on the Convenience and Needs Factor. The Board has carefully considered the entire record in its Order Approving Acquisition of a Bank review of the convenience and needs factor under the BHC Act, including all the information provided by Protestant. Union Planters Corporation, Memphis, Tennessee ("Union Based on all the facts of record, and for the reasons Planters"), a bank holding company within the meaning of discussed above, the Board concludes that considerations the Bank Holding Company Act ("BHC Act"), has rerelating to the convenience and needs factor, including the quested the Board's approval under section 3 of the BHC CRA performance records of the relevant institutions, are Act (12 U.S.C. § 1842) to acquire at least 19 percent and up consistent with approval of the approval.18 to 100 percent of the voting shares of First National Bank, Pontotoc, Mississippi ("Bank").1 Notice of the proposal, affording interested persons an Conclusion opportunity to submit comments, has been published (61 Federal Register 69,096) (1996)). The time for filing comments has expired, and the Board has considered the Based on all the facts of record, the Board has determined proposal and all comments received in light of the factors that this application should be, and hereby is, approved. set forth in section 3 of the BHC Act. The Board's approval is specifically conditioned on com- Union Planters, controlling assets of $11.2 billion,2 operpliance by Susquehanna with all the commitments made in ates depository institutions in Tennessee, Alabama, Arkanconnection with this application. The commitments and sas, Kentucky, Louisiana, Mississippi, and Missouri. Union conditions relied on by the Board in reaching its decision Planters is the third largest commercial banking organizaare deemed to be conditions imposed in writing by the tion in Mississippi, controlling deposits of $2.1 billion, Board in connection with its findings and decision and, as representing approximately 9.7 percent of total deposits in such, may be enforced in proceedings under applicable commercial banking organizations in the state.3 Bank is the law. 30th largest commercial banking organization in Missis- The proposed acquisitions shall not be consummated sippi, controlling deposits of $115.2 million, representing before the fifteenth calendar day following the effective less than 1 percent of total deposits in commercial banking date of this order, and not later than three months after the organizations in the state. On consummation of this proeffective date of this order, unless such period is extended posal, Union Planters would remain the third largest comby the Board or by the Federal Reserve Bank of Philadel- mercial banking organization in the state, and would conphia, acting pursuant to delegated authority. trol deposits of $2.2 billion, representing approximately By order of the Board of Governors, effective Febru- 10.2 percent of total deposits in commercial banking orgaary 3, 1997. nizations in the state. Section 3(d) of the BHC Act, as amended by section 101 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and of the Riegle-Neal Interstate Banking and Branching Effi- Governors Kelley, Phillips, and Meyer. Absent and not voting: Gover- ciency Act of 1994, allows the Board to approve an applinors Lindsey and Yellen. cation by a bank holding company to acquire control of a bank located in a state other than the home state of such JENNIFER J. JOHNSON bank holding company, if certain conditions are met.4 For Deputy Secretary of the Board purposes of the BHC Act, the home state of Union Planters is Tennessee, and Union Planters proposes to acquire a bank in Mississippi. The conditions for an interstate acqui- 1. Union Planters has contracted to purchase at least 19 percent of 18. Protestant requests that the Board withhold approval of the Bank's voting shares and intends to acquire all the bank's voting proposal until Susquehanna develops a more appropriate plan for the stock. Union Planters also has requested approval to acquire voting New Jersey communities to be served. The Board is required under shares of Bank's proposed parent holding company, Pontotoc Bancapplicable law and its regulations to act on applications under the shares, Pontotoc, Mississippi, which currently is seeking the Board's BHC Act within specified time periods. The Board notes, moreover, approval to become a bank holding company. that Protestant's comments on Susquehanna's anticipated CRA-related 2. All asset data are as of March 31, 1996. activities after consummation of the proposal have been carefully 3. All deposit data are as of June 30, 1995, adjusted to reflect considered in light of all the facts of record, including Susquehanna's acquisitions approved and mergers consummated through Decempreliminary plans for the institutions to be acquired, its CRA-related ber 31, 1996. policies and programs, and its record of ascertaining and meeting the 4. Pub. L. No. 103-328, 108 Stat. 2338 (1994). A bank holding credit needs of its service communities. Based on this review, and for company's home state is that state in which the operations of the bank the reasons discussed above, the Board concludes that the record is holding company's banking subsidiaries were principally conducted sufficient for the Board to act on the proposal at this time, and that on July 1, 1966, or the date on which the company became a bank delay or denial of the proposal is not warranted. holding company, whichever is later. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 321 sition enumerated in section 3(d) are met in this case.5 In In cases similar to this one, the Board has indicated that view of all the facts of record, the Board is permitted to the BHC Act contemplates proposals that would allow a approve the proposal under section 3(d) of the BHC Act. bank holding company to acquire less than a majority of the voting shares of a bank or bank holding company.7 Competitive Considerations Union Planters proposes to become the largest shareholder of Bank and has the capacity to serve as a source of The BHC Act prohibits the Board from approving an managerial and financial strength to Bank. Union Planters application under section 3 of the BHC Act if the proposal contends, moreover, that the acquisition of at least would result in a monopoly or substantially lessen compe- 19 percent of Bank's voting shares is a first step in acquirtition in any relevant banking market, unless the Board ing control of Bank.8 The Board has considered the finanfinds that the anticompetitive effects of the proposal are cial and managerial resources of Bank in light of relevant clearly outweighed in the public interest by the probable reports of examination, and other supervisory information. effect of the proposal in meeting the convenience and Based on all the facts of record, the Board concludes that needs of the community to be served. Union Planters and the financial and managerial resources of the organizations Bank do not compete with each other in any relevant involved in this proposal are consistent with approval, as banking market. Based on all the facts of record, the Board are the other supervisory factors that the Board is required concludes that consummation of this proposal would not to consider under section 3 of the BHC Act. result in any significantly adverse effect on competition or on the concentration of banking resources in any relevant B. Convenience and Needs Factor banking market. The Board also has carefully considered the effect of the Other Factors Under the BHC Act proposed acquisition on the convenience and needs of the community to be served in light of all the facts of record. The BHC Act also requires the Board to consider the As part of that review, the Board has considered comments financial and managerial resources of the companies and opposing the proposal from Bank's management and a banks involved, the convenience and needs of the commu- number of local residents who commended the products nities to be served, and certain other supervisory factors. and services offered by Bank and objected to the acquisition of a locally owned bank.9 A. Supervisory Factors In reviewing the convenience and needs considerations in the proposal, the Board notes that Union Planters pro- The Board has carefully considered the financial and man- vides a full range of financial services through its banking agerial resources and future prospects of Union Planters and nonbanking subsidiaries, including credit card serand Bank, and other supervisory factors in light of all the vices, housing-related loans from its mortgage subsidiary, facts of record. The facts include comments from the discount brokerage and trust services, large credit limits, management of Bank opposing the acquisition by Union and an extensive ATM network. Union Planters has stated Planters of at least 19 percent of Bank's voting shares.6 that if it acquires Bank, it would offer these services, some of which are not available through Bank, in communities currently served by Bank. Union Planters also states that if Bank were merged into a Union Planters subsidiary bank, 5. 12 U.S.C. §§ 1842(d)(1)(A) and (B) and 1842(d)(2)(A) and (B). Union Planters anticipates that operational decisions would Union Planters is adequately capitalized and adequately managed. Bank has been in existence and continuously operated for more than five years, as required by Mississippi law. Miss. Code Ann. § 81—7- 19(2) (1995). On consummation, Union Planters and its affiliates would control less than 10 percent of the total amount of deposits of insured depository institutions in the United States, and less than Planters, are sufficient for the Board to make a determination regard- 25 percent of the total deposits of all offices located in Mississippi of ing the statutory factors in the BHC Act, and that these factors do not commercial banks, savings banks, savings and loan associations, and require the Board to review Union Planters' strategy for acquiring credit unions, as required by state law. See Miss. Code Ann. additional voting shares of Bank. § 81-7-19(4) (1995). 7. See Hudson Financial Associates, 72 Federal Reserve Bulletin 6. Bank's management contends that Union Planters' proposed 150 (1986); City Holding Company, 71 Federal Reserve Bulletin 575 approximately 19 percent interest would make Bank less attractive to (1985). prospective purchasers thereby lowering the price of the bank's stock. 8. Mississippi law requires a bank holding company to acquire, The Board is required to review proposals under the BHC Act in light within six months of acquiring an interest in a bank in Mississippi, of all the facts of record and the statutory factors specified in section 3 sufficient voting shares to lawfully vote to merge the acquired instituof the Act. Courts have concluded that issues relating only to the price tion with a subsidiary of the bank holding company, even if such received by shareholders for their voting securities, as raised by the merger does not occur. If an acquiring institution is unable to fulfill comments in this case, do not relate to a factor required to be the requirement within the statutory time period or extension of the considered under the BHC Act. See Western Bancshares v. Board of time period granted by the Mississippi Commissioner of Banking and Governors, 480 F.2d 749 (10th Cir. 1973). Management also main- Consumer Finance, the acquiring institution must reduce its interest to tains that the Union Planters application is incomplete because it fails below 5 percent of the acquired institution's voting shares. See Miss. to describe how Union Planters would acquire the remaining voting Code. Ann. § 81-7-19(3) (1995). shares of Bank. The Board concludes that the facts of record, includ- 9. Several commenters stated that community banks acquired by ing information on the financial and managerial resources of Union Union Planters stopped providing personalized customer services. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

322 Federal Reserve Bulletin • April 1997 continue to be made by local management, and that Union income neighborhoods. There was no evidence of practices Planters has no current intention to alter the pricing of that were intended to discourage potential applicants, and loans or deposits or discontinue other services provided by UP Northeast was found to be in compliance with the Bank. substantive provisions of fair lending laws. Based on all The Board also has long held that consideration of the the facts of record, the Board concludes that convenience convenience and needs factor includes a review of the and needs considerations are consistent with approval. records of the relevant depository institutions under the In light of the foregoing and all the facts of record, the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) Board has determined that the application should be, and ("CRA"). As provided in the CRA, the Board evaluates hereby is, approved.12 The Board's approval of the prothis factor in light of examinations by the primary federal posal is conditioned on compliance by Union Planters with supervisor of the CRA performance records of the relevant the commitments made in connection with the application institutions. An institution's most recent CRA performance and with the conditions stated or referenced in this order. evaluation is a particularly important consideration in the The commitments and conditions relied on by the Board in applications process because it represents a detailed on-site reaching this decision shall be deemed to be conditions evaluation of the institution's overall record of perfor- imposed in writing by the Board in connection with its mance under the CRA by its primary federal supervisor.10 findings and decision, and, as such, may be enforced in All of Union Planters's subsidiary banks that have been proceedings under applicable law. examined for CRA performance received "satisfactory" or The acquisition shall not be consummated before the better ratings from their primary federal supervisor in their fifteenth calendar day following the effective date of this most recent performance examinations. In particular, Union order, or later than three months after the effective date of Planters's five subsidiary banks in Mississippi received this order, unless such period is extended for good cause by "satisfactory" ratings in their most recent examinations for the Board or the Federal Reserve Bank of St. Louis, acting CRA performance. Bank also received a "satisfactory" pursuant to delegated authority. rating from its primary federal supervisor, the Office of the By order of the Board of Governors, effective Febru- Comptroller of the Currency ("OCC"), at its most recent ary 24, 1997. examination for CRA performance. The Board has also considered the CRA-related activi- Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and ties of Union Planters Bank of Northeast Mississippi, New Governors Kelley, Phillips, and Meyer. Albany, Mississippi ("UP Northeast"), a relatively small Union Planters subsidiary that serves communities near JENNIFER J. JOHNSON Bank.11 OCC examiners concluded that ascertainment ef- Deputy Secretary of the Board forts by UP Northeast, though limited, were generally effective in identifying credit needs within the community. The examiners particularly noted the bank's ascertainment efforts that resulted in the creation of a low-income, firsttime homebuyers program to assist in addressing housingrelated credit needs. Examiners also found that UP Northeast's overall CRArelated lending efforts were sufficient to address affirmatively a significant portion of identified community credit needs through a number of products. The bank's geographic distribution of loans, applications and declinations 12. Some commenters requested that the Board hold a public were considered by examiners to be reasonable, and its meeting or hearing on this application. Section 3(b) of the BHC Act does not require the Board to hold a public hearing or meeting on an community delineation did not exclude low- and moderateapplication unless the appropriate supervisory authority for the bank to be acquired makes a timely written recommendation of denial of the proposal. No supervisory agency has recommended denial of the proposal. Under the Board's Rules of Procedure, the Board may, in its discretion, hold a public hearing or meeting on an application to 10. The Statement of the Federal Financial Supervisory Agencies clarify factual issues relating to the application and to provide an Regarding the Community Reinvestment Act (54 Federal Register opportunity for testimony, if appropriate. 12 C.F.R. 262.3(e) and 13,742 and 13,745 (1989)) provides that a CRA examination is an 262.25(d). Commenters have had an ample opportunity to present important and often controlling factor in the consideration of an their views, and have submitted substantial written comments that institution's CRA record and that reports of these examinations will have been carefully considered by the Board. Those comments fail to be given great weight in the applications process. demonstrate why the written submissions do not adequately present 11. UP Northeast has deposits of approximately $270 million and is the commenters' views and what, if any, additional matters would be located 25 miles from Bank. Union Planters indicates that a merger of addressed at a hearing or meeting. For these reasons, and based on all Bank and UP Northeast would be likely if Union Planters acquires the facts of record, the Board has determined that a public meeting or voting shares sufficient to require the merger. UP Northeast received a hearing is not required or warranted to clarify the factual record in the "satisfactory" CRA performance rating from the OCC as of Septem- proposal or otherwise warranted in this case. Accordingly, commentber 1994. UP Northeast was named First National Bank of New ers' requests for a public meeting or hearing on the proposal are Albany at the time of the examination and changed its name in 1995. denied. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 323 Orders Issued Under Section 4 of the Bank Holding and dealing in bank-ineligible securities are so closely Company Act related to banking as to be proper incidents thereto within the meaning of section 4(c)(8) of the BHC Act.4 Bank of The Bank of New York Company, Inc. New York has committed that Company will conduct the New York, New York proposed underwriting and dealing activities using the same methods and procedures, and subject to the same Order Approving a Notice to Engage in Underwriting prudential limitations as those established by the Board in and Dealing in All Types of Debt and Equity Securities the Section 20 Orders and other cases. on a Limited Basis The Board also has determined that the conduct of these securities underwriting and dealing activities is consistent The Bank of New York Company, Inc., New York, New with section 20 of the Glass-Steagall Act (12 U.S.C. York ("Bank of New York"), a bank holding company § 377), provided that the company engages in only limited within the meaning of the Bank Holding Company Act underwriting and dealing activities.5 Effective March 6, ("BHC Act"), has requested the Board's approval under 1997, the Board increased from 10 percent to 25 percent section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) the amount of total revenue that a section 20 subsidiary and section 225.23 of the Board's Regulation Y (12 C.F.R. may derive from underwriting and dealing in bank- 225.23) to expand the activities of its section 20 subsidiary, ineligible securities.6 Bank of New York has committed BNY Capital Markets, Inc., New York, New York ("Com- that Company will conduct its underwriting and dealing pany"), to include underwriting and dealing in, to a limited activities in bank-ineligible securities subject to the extent, all types of debt and equity securities except owner- Board's revenue test.7 ship interests in open-end investment companies. Under section 4(c)(8) of the BHC Act, the Board consid- Notice of the proposal, affording interested persons an ers the financial and managerial resources of the notificant opportunity to submit comments, has been published and its subsidiaries and the effect of the transaction on such (62 Federal Register 1118 (1997)). The time for filing resources.8 The Board has reviewed the capitalization of comments has expired, and the Board has considered the Bank of New York and Company in accordance with the notice and all comments received in light of the factors set standards set forth in the Section 20 Orders and finds the forth in section 4(c)(8) of the BHC Act. capitalization of each to be consistent with approval. With Bank of New York, with total consolidated assets of respect to Company, this determination is based on all the approximately $52.4 billion, is the 16th largest banking facts of record, including Bank of New York's projections organization in the United States. Bank of New York's two of the volume of Company's underwriting and dealing subsidiary banks operate in New York, Delaware, New activities in bank-ineligible securities. On the basis of all Jersey, and Connecticut.1 Company currently engages in the facts of record, including the foregoing, the Board has limited underwriting and dealing in bank-ineligible securi- concluded that financial and managerial considerations are ties2 as permitted under section 20 of the Glass-Steagall consistent with approval of this notice. Act (12 U.S.C. § 377).3 Company is, and will continue to be, a broker-dealer registered with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and is a 4. See Canadian Imperial Bank of Commerce, 76 Federal Reserve Bulletin 158 (1990); J.P. Morgan & Co. Incorporated, et at., 75 member of the National Association of Securities Dealers, Federal Reserve Bulletin 192 (1989), aff'd sub nom. Securities Indus- Inc. ("NASD"). Company, therefore, is subject to the tries Ass' n v. Board of Governors of the Federal Reserve System, 900 record-keeping and reporting obligations, fiduciary stan- F.2d 360 (D.C. Cir. 1990); Citicorp, et al, 73 Federal Reserve dards, and other requirements of the Securities Exchange Bulletin 473 (1987), aff'd sub nom. Securities Industry Ass'n v. Board Act of 1934, the SEC, and the NASD. of Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir. 1988), cert, denied, 486 U.S. 1059 (1988) (collectively, "Section 20 The Board previously has determined that, subject to the Orders"). prudential framework of limitations established in previous 5. See Section 20 Orders. Compliance with the revenue limitation decisions to address the potential for conflicts of interests, shall be calculated in accordance with the method stated in the Section unsound banking practices, or other adverse effects ("sec- 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 (1989) and tion 20 firewalls"), the proposed activities of underwriting 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 48,953 (1996) (collectively, "Modifi- 1. Asset and ranking data are as of September 30, 1996. cation Orders"). 2. As used in this order, "bank-ineligible securities" refers to all 6. Revenue Limit on Bank-Ineligible Activities of Subsidiaries of types of debt and equity securities that a bank may not underwrite or Bank Holding Companies Engaged in Underwriting and Dealing in deal in directly under section 16 of the Glass-Steagall Act (12 U.S.C. Securities, 61 Federal Register 68,750 (1996). § 24(7)). 7. Company also may engage in activities that are necessary inci- 3. Company has authority to underwrite and deal in, to a limited dents to the proposed underwriting and dealing activities. Unless extent, certain municipal revenue bonds, family mortgage-related Company receives specific approval under section 4(c)(8) of the BHC securities, commercial paper, and consumer-receivable-related securi- Act to conduct the activities independently, any revenues from the ties. See Bank of New York Company, Inc., 82 Federal Reserve incidental activities must be counted as ineligible revenues subject to Bulletin 748 (1996). Company also is authorized to engage in a the Board's revenue limitation. variety of other nonbanking activities. 8. See 12 C.F.R. 225.24. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

324 Federal Reserve Bulletin • April 1997 In order to approve this proposal, the Board also must infrastructure and other policies and procedures necessary find that the performance of the proposed activities by to comply with the requirements of this order and the Bank of New York can reasonably be expected to produce Section 20 Orders. Accordingly, Company may commence benefits that would outweigh possible adverse effects under underwriting and dealing in all types of debt and equity the proper incident to banking standard of section 4(c)(8) securities as permitted by, and subject to the other condiof the BHC Act. Based on the facts of record in the notice tions of, this order and the Section 20 Orders. and the framework established in prior decisions, consum- The Board's determination also is subject to all the terms mation of this proposal is not likely to result in any and conditions set forth in Regulation Y, including those in significantly adverse effects, such as undue concentration sections 225.7 and 225.23(g) (12 C.F.R. 225.7 and of resources, decreased or unfair competition, conflicts of 225.23(g)), and to the Board's authority to require modifiinterests, or unsound banking practices. The Board expects cation or termination of the activities of a bank holding that consummation of the proposal would provide added company or any of its subsidiaries the Board finds necesconvenience to Bank of New York's customers and would sary to assure compliance with, or to prevent evasion of, increase the level of competition among existing providers the provisions and purposes of the BHC Act and the of these services. Accordingly, the Board has determined Board's regulations and orders issued thereunder. The that the performance of the proposed activities by Bank of Board's decision is specifically conditioned on compliance New York can reasonably be expected to produce public with all the commitments made in connection with this benefits that outweigh possible adverse effects under the notice, including the commitments discussed in this order proper incident to banking standard of section 4(c)(8) of and the conditions set forth in the Board regulations and the BHC Act. orders noted above. The commitments and conditions shall For the reasons set forth in this order and in the Sec- be deemed to be conditions imposed in writing by the tion 20 Orders, the Board has concluded that Bank of New Board in connection with its findings and decision, and, as York's proposal to engage through Company in the pro- such, may be enforced in proceedings under applicable posed activities is consistent with the Glass-Steagall Act, law. and that the proposed activities are so closely related to This proposal shall not be consummated later than three banking as to be proper incidents thereto within the mean- months after the effective date of this order, unless such ing of section 4(c)(8) of the BHC Act, provided that Bank period is extended for good cause by the Board or the of New York limits the activities of Company as specified Reserve Bank, acting pursuant to delegated authority. in this order and the Section 20 Orders, as modified by the By order of the Board of Governors, effective Febru- Modification Orders. ary 12, 1997. On the basis of the record, the Board has determined to, and hereby does, approve this notice subject to all the Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and terms and conditions discussed in this order and in the Governors Kelley, Phillips, and Yellen. Absent and not voting: Gover- Section 20 Orders, as modified by the Modification Orders. nor Meyer. The Board's approval of this proposal extends only to JENNIFER J. JOHNSON activities conducted within the limitations of those orders Deputy Secretary of the Board and this order, including the Board's reservation of authority to establish additional limitations to ensure that Company's activities are consistent with safety and soundness, Canadian Imperial Bank of Commerce Toronto, Canada avoidance of conflicts of interests, and other relevant considerations under the BHC Act. Underwriting and dealing in any manner other than as approved in this order and the Order Approving a Notice to Engage in Certain Section 20 Orders (as modified by the Modification Or- Nonbanking Activities ders) is not authorized for Company. Included among the conditions set forth in the Section Canadian Imperial Bank of Commerce, Toronto, Canada 20 Orders is a condition that Company may not commence ("Canadian Imperial"), a bank holding company within the proposed underwriting and dealing activities until the the meaning of the Bank Holding Company Act ("BHC Board has determined that Bank of New York and Com- Act"), has requested the Board's approval under secpany have established policies and procedures to ensure tion 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and compliance with the section 20 firewalls and the other section 225.23 of the Board's Regulation Y (12 C.F.R. requirements of this order and the Section 20 Orders, 225.23) to engage de novo through its wholly owned including computer, audit, and accounting systems, inter- subsidiary, CIBC Investment Corporation, New York, New nal risk management controls, and the necessary opera- York ("Company"), in trading for its own account, for tional and managerial infrastructure for underwriting and purposes other than hedging, in futures, options, and opdealing in all types of debt and equity securities. On the tions on futures contracts based on securities indices and basis of a recent review by the Federal Reserve Bank of money market instruments. New York ("Reserve Bank") and all the facts of record, Notice of the proposal, affording interested persons an the Board has determined that Bank of New York and opportunity to submit comments, has been published Company have in place the managerial and operational (62 Federal Register 1889 (1997)). The time for filing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 325 comments has expired, and the Board has considered the public . . . that outweigh possible adverse effects, such as notice and all comments received in light of the factors set undue concentration of resources, decreased or unfair comforth in section 4(c)(8) of the BHC Act. petition, conflicts of interests, or unsound banking practic- Canadian Imperial, with total consolidated assets of ap- es."6 As part of its evaluation of these factors, the Board proximately $147.4 billion,1 is the second largest banking considers the financial condition and managerial resources organization in Canada.2 In the United States, Canadian of the notificant and its subsidiaries and the effect the Imperial operates a branch in Chicago, Illinois; agencies in transaction would have on such resources.7 Based on all New York, New York, Los Angeles and San Francisco, the facts of record, including relevant reports of examina- California, and Atlanta, Georgia; and a representative of- tion, the Board has concluded that financial and managerial fice in Houston, Texas. Canadian Imperial also engages considerations are consistent with approval of the proposal. through its subsidiary, Wood Gundy Securities Corpora- In reviewing the proposal under the proper incident to tion, New York, New York, in a broad range of permissible banking standard, the Board also has considered Companonbanking activities in the United States, including under- ny's proposed risk management policies and procedures. writing and dealing in, to a limited extent, debt and equity The Board notes that Canadian Imperial has substantial securities that are not eligible to be underwritten by a experience in trading derivative contracts based on securimember bank ("bank-ineligible securities"). ties and securities indices. The Board also notes that Com- Canadian Imperial proposes that Company trade for its pany, as a registered broker/dealer, must comply with the own account, for purposes other than hedging, in options, SEC's net capital rules.8 Canadian Imperial has committed options on futures, and futures on certain securities indices that Company would conduct its proposed trading activiand money market instruments ("derivative contracts").3 ties pursuant to the risk management policies and proce- Canadian Imperial has stated that Company will not under- dures that the Board has relied on in other cases to address write any securities, act as a dealer in any securities (in- the credit, market, and operational risks arising out of cluding acting as a market-maker, specialist, or registered similar derivative contracts transactions.9 The Board has options trader on any exchange), purchase or sell securities carefully reviewed these policies, procedures, systems, and on behalf of customers, or otherwise hold itself out to the controls. On the basis of this review, and all of the facts of public as being willing to buy and sell securities as princi- record, the Board believes that Company's risk managepal.4 Company will execute its trades through affiliated or ment policies, procedures, systems, and controls include unaffiliated broker-dealers and futures commission mer- the principal components of an effective system capable of chants ("FCMs"). monitoring and controlling the risks inherent in the pro- The Board previously has determined that the proposed posed activities.10 trading activities are closely related to banking within the There is no evidence in the record to indicate that meaning of section 4(c)(8) of the BHC Act.5 In order to Canadian Imperial's proposal would result in any undue approve this notice, the Board also must consider whether concentration of resources or decreased or unfair competithe performance of the proposed activities is a proper tion. In addition, the Board believes that Company's conincident to banking, that is, whether the activities proposed duct of the proposed trading activities could lead to greater "can reasonably be expected to produce benefits to the market efficiency and increased liquidity for the derivative contracts that Company proposes to trade. Accordingly, the Board has concluded that the balance of the public interest 1. Asset data are as of October 31, 1996, and are based on the factors it is required to consider under the proper incident exchange rate applicable on that date. to banking standard of section 4(c)(8) of the BHC Act is 2. Ranking data are as of December 31, 1995. 3. Certain of the derivative contracts that Company would trade are favorable and consistent with approval of this notice. bank-ineligible securities for purposes of section 20 of the Glass- Based on the foregoing, and in light of all the facts of Steagall Act. See Swiss Bank Corporation, 82 Federal Reserve Bulle- record, the Board has determined that the notice should be, tin 685,687 n.8 (1996). and hereby is, approved. Approval of this notice is specifi- 4. Canadian Imperial has stated that Company will be registered as a broker-dealer with the Securities and Exchange Commission ("SEC") cally conditioned on compliance by Canadian Imperial under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) with all the commitments made in connection with the and will be a member of the National Association of Securities proposal and with the conditions stated or referred to in Dealers, Inc. ("NASD"). Company will, therefore, be subject to the this order. The Board's determination also is subject to all recordkeeping and reporting obligations and other requirements of the Securities Exchange Act of 1934, the SEC, and the NASD. 5. See Swiss Bank Corporation, 81 Federal Reserve Bulletin 185 (1995) ("Swiss Bank Order"); see also Swiss Bank Corporation, 76 6. 12 U.S.C. § 1843(c)(8). Federal Reserve Bulletin 759 (1991). The Board has proposed adding 7. See 12 C.F.R. 225.24; see also The Fuji Bank, Limited, 75 the trading activities proposed by Canadian Imperial to the list of Federal Reserve Bulletin 94 (1989); Bayerische Vereinsbank AG, 73 permissible activities in Regulation Y. Specifically, the Board has Federal Reserve Bulletin 155 (1987). proposed to permit bank holding companies to trade and invest in 8. See 12 C.F.R. 240.15c3-l. futures, options, and similar contracts based on financial or nonfinan- 9. See Swiss Bank Order at 195 & n.57; Long-Term Credit Bank of cial assets, or an index or group of such assets — provided a state Japan, Limited, 79 Federal Reserve Bulletin 345 (1993). member bank is authorized to invest in the asset underlying the 10. Because Company would not engage in investment advisory, contract; the contract requires cash settlement; or the contract allows brokerage, and other customer activities, Company would avoid the assignment, offset or termination prior to delivery. See 61 Federal potential for conflicts of interest in conducting the proposed trading Register 47,242, 47,254, 47,275 (1996). activity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

326 Federal Reserve Bulletin • April 1997 the terms and conditions set forth in Regulation Y, includ- eral Deposit Insurance Act (12 U.S.C. § 1828(c)) ("Bank ing those in sections 225.7 and 225.23(g) (12 C.F.R. 225.7 Merger Act") and section 5(d)(3) of the Federal Deposit and 225.23(g)), and to the Board's authority to require Insurance Act (12 U.S.C. § 1815(d)(3)) ("FDI Act"), as modification or termination of the activities of a bank amended by section 2201 of the Economic Growth and holding company or any of its subsidiaries as the Board Regulatory Paperwork Reduction Act of 1996 (Pub. L. No. finds necessary to assure compliance with, and to prevent 104-208, 110 Stat. 3009), to merge First Federal with and evasion of, the provisions of the BHC Act and the Board's into Marine Bank, and to establish branch offices pursuant regulations and orders issued thereunder. In approving the to section 9 of the Federal Reserve Act (12 U.S.C. § 321).1 proposal, the Board has relied on all the facts of record and Notice of the proposal, affording interested persons an all the representations and commitments made by Cana- opportunity to submit comments, has been published dian Imperial. These commitments and conditions shall be (61 Federal Register 58,559 (1996)). As required by the deemed to be conditions imposed in writing by the Board Bank Merger Act, reports on the competitive effects of the in connection with its findings and decisions, and may be merger were requested from the United States Attorney enforced in proceedings under applicable law. General, Department of Justice ("Attorney General"), the This transaction shall not be consummated later than Federal Deposit Insurance Corporation ("FDIC"), and the three months after the effective date of this order, unless Office of Thrift Supervision ("OTS"). The time for filing such period is extended for good cause by the Board or the comments has expired, and the Board has considered the Federal Reserve Bank of New York, acting pursuant to applications and all the facts of record, including all comdelegated authority. ments received, in light of the factors set forth in the BHC By order of the Board of Governors, effective Febru- Act, the Bank Merger Act, the FDI Act, and the Federal ary 18, 1997. Reserve Act. Marine Bank is the fifth largest depository institution in Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and New York state, holding $14.8 billion in deposits,2 repre- Governors Kelley, Phillips, and Meyer. senting approximately 4.1 percent of the total deposits in depository institutions in the state.3 First Federal is the JENNIFER J. JOHNSON sixteenth largest depository institution in the state, control- Deputy Secretary of the Board ling deposits of $4.3 billion. On consummation of this proposal, Marine Bank would become the fourth largest HSBC Holdings PLC depository institution in the state, controlling deposits of London, United Kingdom $19.1 billion, representing 5.3 percent of the deposits in depository institutions in the state. HSBC Holdings BV The Board previously has determined by regulation that Amsterdam, The Netherlands the operation of a savings association by a bank holding company is closely related to banking within the meaning HSBC Americas, Inc. of section 4(c)(8) of the BHC Act.4 In making this determi- Bulfalo, New York nation, the Board requires that savings associations acquired by bank holding companies conform their direct and Marine Midland Bank indirect activities to those permissible for bank holding Buffalo, New York companies under section 4 of the BHC Act and Regulation Y. Notificant has committed to conform the activities Order Approving the Acquisition of a Savings of First Federal and its subsidiaries to those permissible Association, the Merger of Savings Association into a under section 4(c)(8) of the BHC Act.5 State Member Bank, and the Establishment of Branches HSBC Holdings PLC, London, United Kingdom, HSBC 1. Notificant proposes to acquire CTUS, merge it into HSAI, and Holdings BV, Amsterdam, The Netherlands, and HSBC immediately thereafter merge First Federal into Marine Bank. On Americas, Inc., Buffalo, New York ("HSAI") (collective- consummation of the proposal, the nonbanking subsidiaries of First Federal would become subsidiaries of Marine Bank. The branches that ly, "Notificant"), bank holding companies within the would be established as an incident to the First Federal/Marine Bank meaning of the Bank Holding Company Act ("BHC Act"), merger are listed in Appendix A. have requested the Board's approval under section 4(c)(8) 2. State deposit data are as of June 30, 1996, and market data are as of the BHC Act of 1956 (12 U.S.C. § 1843(c)(8)) and of June 30, 1995. section 225.23 of the Board's Regulation Y to acquire all 3. In this context, depository institutions include commercial banks, savings banks, and savings associations. the voting shares of CTUS, Inc., Wilmington, Delaware 4. 12 C.F.R. 225.25(b)(9). ("CTUS"), and its wholly owned subsidiary, First Federal 5. As noted, the nonbanking subsidiaries of First Federal would Savings and Loan Association of Rochester, Rochester, become subsidiaries of Marine Bank. Accordingly, Notificant and New York ("First Federal"). Marine Bank have committed to engage through these subsidiaries only in activities that are permissible for a state member bank. Marine Midland Bank, Buffalo, New York ("Marine Notificant also has committed not to engage in activities through any Bank"), a wholly owned subsidiary of HSAI, also has inactive First Federal subsidiaries without prior Federal Reserve requested Board approval under section 18(c) of the Fed- System approval. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 327 Competitive Considerations effect on competition in the Buffalo, Ithaca, Elmira- Corning, Rochester, and Binghamton banking markets.11 The Bank Merger Act prohibits the Board from approving The Board has long considered the cluster of products an application if the proposal would result in a monopoly, and services offered by insured institutions to be the approor would substantially lessen competition in any relevant priate product market for evaluating mergers and acquisibanking market, unless the Board finds that the anticom- tions of insured depository institutions, and the Supreme petitive effects of the proposal are clearly outweighed in Court has indicated that it is this cluster of products and the public interest by the probable effect of the proposal in services that, as a matter of trade reality, makes banking a meeting the convenience and needs of the community.6 distinct line of commerce.12 The courts have continued to Marine Bank and First Federal compete directly in the follow this position and several recent studies support the following banking markets: Binghamton, Buffalo, Elmira- conclusion that both businesses and households still seek Corning, Ithaca, Rochester, and Syracuse, New York bank- to obtain this cluster of services.13 After carefully considering markets and the Metropolitan New York/New Jersey ing all the facts of record in light of relevant Board and banking market ("Metro NY/NJ").7 The Board has care- judicial precedents, the Board concludes that the approprifully reviewed the competitive effects of this proposal in ate product market in this case is the cluster of banking these markets in light of all the facts of record, including products and services.14 the number of competitors that would remain in the mar- The Board and the courts also have concluded that the kets, the characteristics of the markets, and the projected relevant banking market for analyzing the competitive increase in the concentration of total deposits in depository effects of a proposal must reflect the commercial and institutions8 in the markets ("market deposits"), as mea- banking realities and should consist of the local area where sured by the Herfindahl-Hirschman Index ("HHI") under the financial institutions involved offer their services and the Department of Justice Merger Guidelines ("DOJ where local customers can practicably turn for alterna- Guidelines"),9 and comments on the competitive effects of tives.15 Banking markets, therefore, generally are larger the proposal. than an individual institution's service area, and competing Two commenters maintained that the proposal would financial institutions need not serve the same set of customhave an adverse effect on competition for mortgage loans ers in order to affect or be affected by pricing and product in Buffalo, and that the geographic scope of the Rochester decisions by each other or other financial institutions, market as defined by the Federal Reserve Bank of New York ("Reserve Bank") is too broad.10 Commenters alleged generally that the proposal would have an adverse 11. These commenters included NYSRA, BCCRAC, and an individual. 12. See First Hawaiian, Inc., 79 Federal Reserve Bulletin 966, 966-68 (1993); SouthTrust Corporation, 78 Federal Reserve Bulletin 6. 12 U.S.C. § 1828(c)(5)(B). 710 (1992); United States v. Philadelphia National Bank, 374 U.S. 7. The geographic scope and market data for these banking markets 321, 357 (1963) ("Philadelphia National"). Accord United States v. are described in Appendix B. Deposit data for the appendix are as of Connecticut National Bank, 418 U.S. 656 (1974); United States v. June 30, 1995. Phillipsburg National Bank, 399 U.S. 350 (1969) ("U.S. v. Phillips- 8. Market share data before consummation are based on calculations burg"). in which the deposits of thrift institutions are included at 50 percent. 13. See United States v. Central State Bank, 621 F. Supp. 1276 The Board has previously indicated that thrift institutions have be- (W.D. Mich,1985), aff'd per curiam, 817 F.2d 22 (6th Cir.1987); see come, or have the potential to become, significant competitors of also Elliehausen and Wolken, "Banking Markets and the Use of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin Financial Services by Households," 78 Federal Reserve Bulletin 169 788 (1990); National City Corporation, 70 Federal Reserve Bulletin (1992) (households continue to purchase the unique set of services 743 (1984). Because the deposits of First Federal would be transferred and products as a bundle); and Elliehausen and Wolken, "Banking to a commercial bank under this proposal, they are included at Markets and the Use of Financial Services by Small- and Medium- 100 percent in the calculation of the pro forma market share. See Sized Businesses," 76 Federal Reserve Bulletin 726 (1990) (business- Norwest Corporation, 78 Federal Reserve Bulletin 452 (1992); First es tend to purchase other banking products and services from the Banks, Inc., 76 Federal Reserve Bulletin 669 (1990). financial institutions where they maintain their primary transaction 9. Under the revised DOJ Guidelines, 49 Federal Register 26,823 accounts). (June 29, 1984), a market in which the post-merger HHI is more than 14. If mortgage lending were an appropriate product market, con- 1800 is considered highly concentrated. The Department of Justice summation of the proposal would not exceed the DOJ Guidelines. The has informed the Board that a bank merger or acquisition generally HHI would increase by approximately 205 points to 1042 after the will not be challenged (in the absence of other factors indicating acquisition of First Federal. In addition, numerous other competitors anticompetitive effects) unless the post-merger HHI is at least 1800 would remain in the market. In this light, and based on all the facts of and the merger increases the HHI by more than 200 points. The record, the Board concludes that consummation of the proposal would Department of Justice has stated that the higher than normal HHI not result in significantly adverse competitive effects on mortgage thresholds for screening bank mergers for anticompetitive effects lending in the Buffalo banking market or any other relevant banking implicitly recognize the competitive effect of limited-purpose lenders market. and other non-depository financial entities. 15. See St. Joseph Valley Bank, 68 Federal Reserve Bulletin 673, 10. The commenters, which included the New York State Reinvest- 674 (1982). The key question to be considered in making this decision ment Alliance ("NYSRA") and the Broome County CRA Coalition "is not where the parties to the merger do business or even where they ("BCCRAC"), contended that the Rochester market as defined by the compete, but where, within the area of competitive overlap, the effect Reserve Bank should be disaggregated into three separate markets, but of the merger on competition will be direct and immediate." Philadeldid not define the scope of such markets. phia National, at 357 (1963); U.S. v. Phillipsburg, at 364-65. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

328 Federal Reserve Bulletin • April 1997 because factors indicating economic integration transmit of the existing and proposed institutions and the convecompetitive forces over larger areas.16 nience and needs of the community to be served. In applying these principles, the Reserve Bank has employed a methodology that defines the retail banking mar- A. Supervisory Factors ket around major cities or population concentrations by identifying a market core as cities or counties that contain The Board has carefully considered the financial and mansubstantial employment opportunities and then grouping agerial resources and the future prospects of the institusurrounding counties with significant patterns of commut- tions involved in the proposal in light of all the facts of ing into those cores as part of the same banking market. record. The facts include supervisory reports of examina- The criteria for adding counties to the market delineation tion assessing the financial and managerial resources of the become more stringent as the counties become more re- organizations and confidential financial information promote from the core.17 Based on all the facts of record, the vided by Marine Bank. Based on all the facts of record, the Board concludes that the appropriate banking market is the Board concludes that all supervisory factors under the Rochester banking market, which is approximated by Gen- Bank Merger Act, including financial and managerial reesee, Livingston, Monroe, Ontario, Seneca, Wayne, and sources, weigh in favor of approving the proposal. Yates Counties and parts of Allegany, Orleans, Steuben, and Wyoming Counties, all in New York.18 B. Convenience and Needs Considerations Consummation of the proposal would not exceed the threshold levels of market concentration, as measured by The Board also has carefully considered the effect of the the HHI, in any of the seven banking markets in the state.19 proposed acquisition on the convenience and needs of the Numerous competitors also would remain in each of the community to be served in light of all the facts of record. markets. In addition, the Board sought comments from the As part of that review, the Board has considered comments Attorney General, the OTS, and the FDIC on the competi- from commenters criticizing the CRA performance record tive effects of this proposal. The Attorney General has of Marine Bank and First Federal.20 Three commenters indicated that the proposal would not likely have any maintained that the 1995 Home Mortgage Disclosure Act significantly adverse competitive effects in any of the mar- (12 U.S.C. § 2801 et seq.) ("HMDA") data for Marine kets in which Marine Bank and First Federal compete. The Bank and First Federal demonstrate a poor record of mar- OTS and the FDIC did not object to consummation of the keting and lending to low- to moderate-income ("LMI") proposal. Based on all the facts of record, and for the and minority residents in some of the areas where the reasons discussed in this order, and after carefully consider- institutions are located.21 Several commenters raised issues ing public comments on the competitive factor, the Board regarding potential branch closings, particularly in LMI concludes that consummation of the proposal would not communities.22 have a significantly adverse effect on competition or the Marine Bank provides a full range of financial services, concentration of banking resources in any relevant banking including trust, investment, management and custodial sermarket. vices, commercial lending, discount brokerage, and Small Business Administration ("SBA") loans and other small Other Factors business deposit and loans services. Marine Bank also would provide increased access to automated teller ma- The Bank Merger Act also requires the Board to consider chines (ATMs), account products, and expanded student the financial and managerial resources and future prospects 20. Those commenters included NYSRA, BCCRAC, the Rural Opportunities, Inc. ("ROI"), and several individual commenters. 21. BCCRAC and NYSRA also contended that the 1995 HMDA 16. See Pennbancorp, 69 Federal Reserve Bulletin 548 (1983). data for Marine Bank in the Binghamton, Buffalo, Syracuse, Albany, 17. For a detailed discussion of the Reserve Bank's methodology Rochester and Metro NY/NJ MSAs, and for First Federal in the defining banking markets, see David Holdsworth, "Definition of Binghamton, Rochester, and Metro NY/NJ MSAs, indicate disparities Banking Markets in New Jersey and New York," manuscript, Federal in the rate of denials and originations for housing-related loans by race Reserve Bank of New York, December 1994. The Board also has and income levels and evidence illegal discrimination. The commentconsidered the results of an informal survey of banks located primar- ers raised similar challenges to 1995 HMDA data reported by Marine ily in counties outside the Rochester Metropolitan Statistical Area Bank's mortgage subsidiary, Marine Midland Mortgage Company ("Rochester MSA"), which have been included within the Reserve ("MMMC"). The Board has reviewed this data and, for purposes of Bank's definition of the Rochester banking market. The survey con- this order, refers to Marine Bank and MMMC collectively as "Marine firmed that those banks compete with banks that are located com- Bank." pletely within the Rochester MSA. 22. The ROI contended that the proposal would reduce the supply of 18. Commenters provided no facts to support a smaller geographic affordable housing products and resources in the Rochester area. The market. If only the Rochester MSA were considered to be the relevant ROI requested that the Board condition approval of the proposal on geographic market, however, consummation of the proposal would Marine Bank's becoming a member in the Federal Home Loan Bank not exceed the DOJ Guidelines. The HHI in the Rochester MSA System ("FHLBS"), which would enable the bank to obtain FHLBS would increase by 264 points to 1288 following consummation of this funds for affordable housing purposes. Marine Bank states that it proposal. intends to become a member of the FHLBS and participate as a 19. The changes in the HHI for each market and other market data member in the FHLBS's affordable housing and community investare discussed in Appendix B. ment programs. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 329 loan programs. Accordingly, the proposed acquisition and Bank extended or participated in loans totalling more than merger would result in these services, many of which are $53 million under these affordable housing loan programs. not available through First Federal, being offered in the The bank also is involved in loan programs offered by communities currently served by First Federal. the State of New York Mortgage Agency ("SONYMA"), Performance Examinations. The Board has long held including the Low Interest Program, the Low Down Paythat consideration of the convenience and needs factor ment Program, and the Modest Means Program. These includes a review of the records of the relevant depository SONYMA programs, which are designed to increase lendinstitutions under the Community Reinvestment Act ing to LMI borrowers, generally offer low interest rates (12 U.S.C. § 2901 et seq.) ("CRA").23 As provided in the and/or low down payment options. In 1995 and the first CRA, the Board evaluates this factor in light of examina- nine months of 1996, Marine Bank extended or particitions by the primary federal supervisor of CRA perfor- pated in loans totalling more than $42 million under the mance records of the relevant institutions. An institution's SONYMA affordable housing loan programs.26 most recent CRA performance evaluation is a particularly In addition, Marine Bank engages in a number of comimportant consideration in the applications process because munity development activities throughout its service comit represents a detailed on-site evaluation of the institu- munities in the state. For example, examiners noted that tion's overall record of performance under the CRA by its Marine Bank participated with other banks in providing primary federal supervisor.24 $1.5 million in financing to two non profit corporations that Marine Bank received a "satisfactory" rating at the most provide loans and home purchase counseling in Albany, recent examination of its CRA performance by the Reserve Schenectady, and Rensselear Counties. Marine Bank also Bank, as of May 30, 1995 ("Marine Examination"). First extended a $4.4 million revolving line of credit to an Federal received a "satisfactory" rating for CRA perfor- organization in New York City that provides construction, mance at its most recent examination by the OTS, as of rehabilitation and permanent mortgage financing for LMI September 3, 1996 ("First Federal Examination"). The multi-family housing in New York City, Westchester Board also has considered confidential information con- County and the lower Hudson Valley region. In addition, cerning CRA performance examinations of Marine Mid- the bank participates in the Neighborhood Housing Serland and First Federal. vices of New York City's Home Ownership Center, which Lending Record. Marine Bank engages in housing- provides home purchase and debt counseling to clients in related and small business activities that are designed to Brooklyn. assist in meeting the credit needs of its entire community. Examiners noted that, in Binghamton, Marine Bank ap- For example, Marine Bank offers a variety of affordable proved a $1.5 million mortgage in 1995 for renovation of a housing loan programs with flexible guidelines to meet the vacant downtown building and creation of a downtown credit needs of LMI borrowers, including the Marine 97 technology center. The bank also participated with local 2/1 Option Program, the Federal National Mortgage Asso- banks in Broome County in issuing a loan to prevent the ciation ("FNMA") Community Home Buyer Program, the insolvency of the local Urban League. In addition, examin- FNMA Fannie 97 Program, and the Federal Home Loan ers noted that Marine Bank approved a mortgage loan to a Mortgage Corporation Affordable Gold Program. Those not-for-profit day care facility in Buffalo, which provides programs have lower down payment requirements, partial services to approximately 220 children of LMI families. In financing for down payments, less restrictive debt-to- 1995, Marine Bank approved a revolving line of credit for income qualifying ratios, and higher minimum loan Rochester Neighborhood Housing Services for residential amounts to help fit the needs of individual borrowers.25 rehabilitation loans to individuals who cannot qualify un- During 1995 and the first nine months of 1996, Marine der traditional bank credit standards. Examiners also noted that Marine Bank provided funding to an organization that provides affordable housing for LMI persons in the Brigh- 23. In acting on a proposal to acquire a savings association under ton area of Syracuse.27 section 4(c)(8) of the BHC Act, the Board also reviews the record of the relevant depository institution under the CRA. 24. The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA examination is an important and often controlling factor in the consid- 26. The Marine Examination also found that Marine Bank was an eration of an institution's CRA record and that reports of these active lender of Federal Housing Administration ("FHA") and Veterexaminations will be given great weight in the applications process. ans Administration ("VA") loans. Examiners noted that in 1994 and 54 Federal Register 13,742 and 13,745 (1989). the first quarter of 1995, the bank originated 893 FHA loans totalling 25. The Marine 97 2/1 Option program permits borrowers to finance more than $55 million and 375 VA loans totalling more than up to 97 percent of the purchase price of a home. The buyer provides $28 million. 2 percent of the remaining 3 percent down payment, and 1 percent 27. Marine Bank states that it will continue First Federal's participamay be a gift to or separately financed by the buyer. Marine Bank tion in 19 community development projects throughout the state. states that it intends to continue all of First Federal's residential Marine Bank also states that it intends to continue the construction mortgage lending programs, including those designed particularly for and sale of affordable housing by First Federal's community develop- LMI and minority borrowers such as the Afford-a-Home Program. ment subsidiary, B.H.D. Properties, Inc. ("BHD"). For example, The Afford-A-Home Program offers flexible underwriting guidelines, Marine Bank will continue BHD's participation with the City of such as higher debt-to-income qualifying ratios, waivers of cash Rochester in the development of First Place, a 50-unit affordable reserve requirements, and minimum down payments of 5 percent of housing development in Rochester's Marketview Heights section. which 2 percent may come from a gift or grant. BHD, which is building the homes in First Place with local minority- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

330 Federal Reserve Bulletin • April 1997 In addition, Marine Bank participates in a variety of The Board is concerned when the record of an institution small business lending programs. For example, since 1994 indicates such disparities, and it believes that all banks are the bank has participated in the New York State Excelsior obligated to ensure that their lending practices are based on Linked Deposit Program, an arrangement under which criteria that assure not only safe and sound lending, but Marine Bank provides low-interest loans to small busi- also assure equal access to credit by creditworthy applinesses and, in return, the state deposits a corresponding cants regardless of race. The Board recognizes, however, amount of state government funds in Marine Bank time that HMDA data alone provide an incomplete measure of deposit accounts at a reduced interest rate. Examiners an institution's lending in its community because these noted that, during the first quarter of 1995, Marine Bank data cover only a few categories of housing-related lending made six loans totalling $3.1 million under this program. and provide limited information about the covered loans.30 Marine Bank also provided capitalization funding to Ibero HMDA data, therefore, have limitations that make the data American Investors Corporation, a minority enterprise an inadequate basis, absent other information, for concludsmall business investment corporation that provides loans ing that an institution has engaged in illegal discrimination and investments to businesses owned by minorities and in lending. women. In addition, Marine Bank annually supports the In light of the limitations of HMDA data, the Board has Syracuse Area Small Business Loan Program, a non-profit carefully reviewed other information, particularly examinacorporation formed by a consortium of banks in Syracuse tion reports that provide an on-site evaluation of complithat acts as an agent in identifying small business loan ance by Marine Bank and First Federal with the fair applicants for loan requests under $50,000. Marine Bank lending laws. Examiners found no evidence of prohibited also committed to make an equity investment in the New discrimination or other illegal credit practices at Marine York Community Investment Corporation, which provides Bank or First Federal, and concluded that both institutions loans to small businesses that do not qualify for conven- were in compliance with the substantive provisions of the tional credit. In 1996, Marine Bank provided funding to the fair lending laws.31 Examiners also found no evidence of Community Commercial Development Partnership, a coop- any practices by Marine Bank or First Federal that were erative loan program in Rochester designed to meet the intended to discourage applications for the types of credit needs of small businesses. listed in the institution's CRA statement. Reserve Bank The Marine Examination found that Marine Bank is an examiners specifically noted that Marine Bank solicits active SB A lender. Examiners noted that, as of April 1995, applications from all segments of its communities, includ- Marine Bank had a total of 880 SB A-guaranteed loans ing LMI census tracts. outstanding totalling $103.5 million. In 1994 and the first Marine Bank has a number of policies and procedures in three months of 1995, the bank originated 302 combined place to ensure compliance with fair lending laws and the SBA (7A), SB A Low Doc, and SBA 504 guaranteed loans bank's underwriting guidelines. For example, Marine Bank with a total amount of $54.2 million.28 has implemented a second review process for all denied The Board also has carefully reviewed the 1993, 1994, applications, a loan denial appeal process, centralized and 1995 HMDA data reported by Marine Midland and credit centers to ensure consistent application of loan un- First Federal in light of the contentions about the institu- derwriting guidelines, and a quality control program. After tions' lending records.29 The 1995 HMDA data for Marine the bank's 1995 CRA performance examination, it also Bank generally indicate an increase in the number of loan revised and expanded its fair lending compliance training applications from and loans extended to minority borrow- programs and focussed its CRA training programs on iners and borrowers who reside in LMI census tracts. In other creasing loans to minorities, LMI borrowers, and to borrespects, however, the data show disparities in application rowers who reside in LMI census tracts. and origination rates to loan applicants who are minorities Ascertainment and Marketing. Since the Marine Examior residents of LMI census tracts compared to applicants nation, Marine Bank has taken a number of steps to who are not minorities or residents of LMI census tracts. strengthen its program to ascertain the credit needs of, and market its products and programs to, all the bank's communities.32 In January 1995, Marine Bank hired a Community Relations Manager to develop and monitor the bank's ascertainment of community needs. Marine Bank's manowned building contractors, will refer home buyer applicants to Marine Bank for the mortgage application process. 28. During 1994 and 1995, Marine Bank ranked as the second largest SBA lender in the state. 30. The data, for example, do not provide a basis for an independent 29. Two commenters contended that the percentage of loans in the assessment of whether an applicant who was denied credit was, in 1995 HMDA data for Broome County where the race of the borrower fact, creditworthy. Credit history problems and excessive debt levels was designated as "not applicable" is significant and, consequently, relative to income — reasons most frequently cited by a credit denial that Marine Bank may have violated HMDA reporting requirements — are not available from the HMDA data. by failing to provide the race of the borrower as required by law. The 31. Examiners noted isolated technical violations by Marine Bank facts of record, including confidential supervisory information relating that were not considered to be inconsistent with the substantive to Marine Bank's record of compliance with consumer lending laws, provisions of the fair lending laws, and Marine Bank has initiated do not support these contentions. The Board notes, moreover, that it steps to address those matters. has sufficient supervisory authority to address any weaknesses in 32. BCCRAC and NYSRA contended that bank's CRA policies Marine Bank's compliance with HMDA reporting requirements. have not shown meaningful improvement since the 1995 examination. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 331 agement monitors the bank's ascertainment program general matter, that any branch closings or consolidations through quarterly meetings of the Senior CRA Committee, that might result from the proposed merger would likely be which includes the Chief Executive Officer, the Chief Oper- due to Marine Bank and First Federal having branches in ating Officer, and the Chief Credit Officer of the bank. close proximity. Since the Marine Examination, the bank has expanded its Marine Bank represents that the policies and procedures ascertainment efforts by establishing CRA Advisory Coun- for branch closings under its Branch Closure Policy Statecils,33 conducting structured community assessment sur- ment and Procedures ("Marine Policy") would be folveys, implementing a more formal officer calling program, lowed for any branch closings, consolidations or relocaand conducting formal and informal focus groups. Marine tions resulting from the proposal. Under this policy, before Bank also has contracted with a marketing firm to conduct a branch is considered for closure, Marine Bank must a credit needs survey in the South Bronx. consider a variety of factors, including the availability of in addition, the bank has expanded its marketing efforts other financial services in the branch's service area and the in order to increase loans to minorities, LMI borrowers, banking alternatives to customers affected by the closure. and borrowers residing in LMI census tracts.34 As part of The Marine Policy requires the bank, moreover, to conits media plan for mortgage, installment, and small busi- sider actions that would minimize the impact of a branch ness lending, Marine Bank uses advertisements on radio closing on the affected neighborhood. Marine Bank also is and in minority print media, including Spanish and Chi- required to give at least 90 days written notice of all branch nese language publications, to increase its lending in LMI closings subject to the Joint Agency Policy Statement on and minority communities. Marine Bank also conducts Branch Closings ("Joint Policy Statement").37 mortgage, consumer loan, and small business seminars.35 As part of the Marine Examination, examiners reviewed Branches. Commenters have expressed concern that branches closed pursuant to the Marine Policy. Examiners branch closings resulting from the proposal would ad- found that Marine had complied with its branch closing versely effect the community, particularly LMI neighbor- policy in closing two branches since its last examination hoods.36 and had provided timely advance notice to the appropriate Marine Bank states that it will not have a final branch regulatory agencies, including supporting reasons for the closing plan until after consummation of the proposal, closing, and to the affected customers. Examiners did not pending an analysis of each office's facilities, physical note any adverse effects on the communities where characteristics, lease terms, and the needs of the customers branches were closed. in the office's service area. Marine Bank projects, as a In weighing the convenience and needs factor in this application, the Board has taken into account Marine Bank's branch closing policy and its record of closing 33. Marine Bank has CRA Advisory Councils in Albany, Brooklyn, branches as reviewed in the CRA performance examinaand Buffalo, and plans to establish similar councils in Rochester, tion process. Examiners have determined the policy is Syracuse, Newburgh, and lower Manhattan. adequate and have found that it was consistently applied to 34. Marine Bank adopted a minority marketing plan that focuses on Marine Bank's branch closings. African-American and Hispanic customers throughout the state and Asian-American customers in New York City. Since 1993, Marine To ensure compliance with the Joint Policy Statement Bank has increased the percentage of its print media spending in and the FDI Act and to permit the Board to monitor Marine minority publications from 3 percent to 11.5 percent. Furthermore, the Bank's continued efforts to serve the convenience and number of print advertisements in minority publications as a percentneeds of its community, Marine Bank must provide a copy age of the bank's total ad insertions, increased from 3 percent in 1993 of its proposed plan for branch closures, consolidations and to 20 percent through the first quarter of 1996. 35. In 1996, Marine Bank conducted or participated in more than relocations as soon as available to the Reserve Bank. For 120 workshops and conferences relating to home ownership through- branches to be closed in LMI or minority census tracts, out the state. Marine Bank's plan that is submitted to the Reserve Bank 36. Three commenters also objected that branch closing and certain should indicate how Marine Bank would continue to help other information has been improperly kept confidential by Marine Bank. As noted above, Marine Bank does not expect to have a branch meet the convenience and needs of the affected community. closing plan until after consummation of the proposal and has requested confidential treatment for the preliminary information provided in connection with the proposal. Two commenters asserted that this information should be disclosed under the Board's application 37. See Federal Register 49,083 (1993) (interpreting section 42 of processing procedures that generally prohibit ex parte communica- the FDI Act (12 U.S.C. § 1831r-l)). Under these provisions, all tions during the processing of an application. The Board notes that its insured depository institutions are required to submit a notice of any rules regarding access to information under the Freedom of Informa- proposed branch closing to the appropriate federal banking agency no tion Act ("FOIA") provide the appropriate framework for considering later than 90 days before the date of closure that contains: a commenter's challenge to confidential treatment accorded an appli- (1) the identity of the branch to be closed and the proposed closing cant's submissions. One commenter requested the confidential submis- date; sions by Marine Bank concerning its preliminary branch closing (2) a detailed statement of the reasons for the decision to close the information under the FOIA. This commenter's challenges were re- branch; and viewed under the Board's rules and denied. The Board's rules do not (3) statistical or other information supporting closure consistent provide commenters with access to information that is otherwise with the institution's written policy for branch closings. Marine exempt from disclosure under the FOIA. This commenter has been Bank has stated that it will follow its branch closing procedures for provided with all non-confidential submissions by Marine Bank that branches that will be consolidated or relocated, as well as for those respond to particular issues raised by its comments. that will be closed. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

332 Federal Reserve Bulletin • April 1997 Marine Bank also must notify the Reserve Bank of any concludes that the potential for adverse effects, if any, proposed changes to this plan for a period of two years or under the factors required to be considered under section until the Reserve Bank conducts the next CRA perfor- 4(c)(8) of the BHC Act would be outweighed by the public mance examination of Marine Bank after consummation of benefits. Accordingly, the Board has determined that the the proposal, whichever period is shorter. The Board also proposal can reasonably be expected to produce public will review the record of branch closures resulting from the benefits under the proper incident to banking standard of proposal in future applications to expand the operations of section 4(c)(8) of the BHC Act. The Board also has re- Notificant or Marine Bank. viewed the proposal in light of the considerations under the Conclusion on Convenience and Needs Factor. The FDI Act40 and the Federal Reserve Act, and concludes that Board has carefully considered all the facts of record, the facts of record are consistent with approval. including comments received from all commenters and responses to those comments and the CRA performance Conclusion records of Marine Bank and First Federal, including relevant reports of examination from their primary federal Based on the foregoing and all the facts of record, the supervisors. Based on a review of the entire record, the Board has determined that the notice and applications Board concludes that convenience and needs consider- should be, and hereby are, approved.41 The Board's apations, including the CRA records of performance of both proval of this proposal is specifically conditioned on comorganizations, are consistent with approval of this propos- pliance by Marine Bank with all the commitments made in al.38 connection with this proposal, including the commitments and conditions discussed in this order.42 The Board's deter- Other Considerations In order to approve the proposal under section 4(c)(8) of 40. Specifically under section 5(d)(3) of the FDI Act, the Board the BHC Act, the Board also must determine that the concludes that: proposed activities are a proper incident to banking, that is, (1) The transaction will not result in the transfer of any federally insured deposit insurance from one federal deposit insurance fund that the proposal "can reasonably be expected to produce to the other; benefits to the public, such as greater convenience, in- (2) Marine Bank currently meets, and on consummation of the creased competition, or gains in efficiency, that outweigh proposed transaction will continue to meet, all applicable capital possible adverse effects, such as decreased or unfair com- standards; and petition, conflicts of interests, or unsound banking practic- (3) The proposed transaction would comply with the interstate banking provision of the BHC Act if First Federal were a state bank es."39 As noted, the proposal would result in enhancement that Notificant was applying to acquire directly. 12 U.S.C. and expansion of the banking services available in the § 1815(d)(3). markets currently served by First Federal. Moreover, for 41. Two commenters requested that the Board hold a public hearing the reasons previously discussed, the financial and manage- or meeting on the proposal to review Marine Bank's fair lending record. The Board is not required under the Bank Merger Act or the rial resources, future prospects, and CRA performance Federal Reserve Act to hold a public hearing or meeting in this case. records of the organizations involved in the proposal are The Board's rules provide for a hearing on notices under section 4 of consistent with approval, and the potential effect on compe- the BHC Act if there are disputed issues of material fact that cannot be tition is minimal. There also is no evidence that the pro- resolved in some other manner. See 12 C.F.R. 225.23(f). Commenters posal would result in such adverse effects as decreased or have not identified any disputes of material fact relating to the proposal. unfair competition, conflicts of interests, or unsound bank- Under the Board's rules, the Board also may, in its discretion, hold a ing practices. Based on all the facts of record, the Board public hearing or meeting on an application or notice to clarify factual issues related to the notice and to provide an opportunity for testimony, if appropriate. 12 C.F.R. 262.3(e) and 262.25(d). The Board has 38. Two commenters asserted that Marine Bank does not offer carefully considered these requests in light of all the facts of record. In deposit products, service fees, and interest rates comparable to those the Board's view, interested parties have had ample opportunity to offered by First Federal. Marine Bank stated that it offers several present written submissions, and they have submitted substantial no-cost or low-cost account products with low minimum balance written comments that have been considered by the Board. Commentrequirements, including its "basic checking" account and "Good ers' requests fail to show why a written presentation would not sufiice Deal checking" account products. Marine Bank also offers various and to summarize what evidence would be presented at a hearing or combinations of linked deposit, loan and investment services, known meeting. 12 C.F.R. 262.3(e). After a careful review of all the facts of as "Marinextra," which reduce overall maintenance and transactional record, the Board concludes that commenters' request disputes the costs based on combined household balances. The Board notes that weight that should be accorded to, and the conclusions that may be the CRA requires the federal banking agencies to encourage deposi- drawn from, the existing facts of record, but do not identify any tory institutions to help meet the credit needs of the community, and genuine dispute about facts that are material to the Board's decision. does not establish a statutory preference for, nor require the provision On the basis of all the facts of record, the Board has determined that a of, any specific type of credit or service. In addition, the CRA does not public hearing or meeting is not necessary to clarify the factual record impose any limitation on the fees or surcharges that can be charged for in these notices and applications, and is not otherwise warranted in services. The record indicates that Marine Bank offers a full range of this case. Accordingly, the request for a public hearing or meeting on banking services in its delineated community, and there is no evidence the proposal is hereby denied. in the Marine Examination, or in the record of this proposal, that the 42. Three commenters have requested that the Board extend the fees charged by the bank are discriminatory or based on any factor public comment period for the proposal until Marine Bank releases that would be prohibited by law. information on its branch closings, including a branch closing plan, 39. 12 U.S.C. § 1843(c)(8). that can be reviewed and commented on by these commenters. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 333 mination also is subject to all the conditions set forth in (13) 1095 Avenue of the Americas Regulation Y, including those in sections 225.7 and (14) 15 80 Westchester Avenue 225.25(g) (12 C.F.R. 225.7 and 225.23(g)), and to the (15) 6912 18th Avenue Board's authority to require such modification or termina- (16) 1271 Avenue of the Americas tion of the activities of a bank holding company or any of (17) 245 First Avenue its subsidiaries as the Board finds necessary to ensure (18) 1499 West Avenue compliance with, and to prevent evasion of, the provisions (19) 569 West 235th Street of the BHC Act and the Board's regulations and orders (20) 63rd Drive & Saunder issued thereunder. Approval of the proposal is further (21) 44-04 Kissena Boulevard subject to Marine Bank obtaining any approvals required (22) 86-26 Broadway under applicable federal or state laws. The commitments (23) 137-61 Queens Boulevard and conditions referred to in this order shall be deemed to (24) 35^48 Junction Boulevard be conditions imposed in writing by the Board in connec- (25) 2960 Victory Boulevard tion with its findings and decision, and, as such, may be (26) 961 Kings Highway enforced in proceedings under applicable law. (27) 244 South Main Street The proposed merger shall not be consummated before the fifteenth day after the elfective date of this order, and Rochester none of the proposed transactions shall be consummated (28) One First Federal Plaza later than three months after the effective date of this order, (29) 228 East Main Street unless such period is extended by the Board or by the (30) 1940 Monroe Avenue Reserve Bank, acting pursuant to delegated authority. (31) 525 Titus Avenue By order of the Board of Governors, effective Febru- (32) 1998 Empire Boulevard ary 3, 1997. (33) 3687 Dewey Avenue (34) 3195 Monroe Avenue Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and (35) 2108 Chili Avenue Governors Kelley, Phillips, and Meyer. Absent and not voting: Gover- (36) 1100 Jefferson Road nors Lindsey and Yellen. (37) 1552 Ridge Road West (38) 2362 Lyell Avenue JENNIFER J. JOHNSON (39) 1485 Penfield Road Deputy Secretary of the Board (40) 3228 Chili Avenue (41) 3177 Latta Road (42) 2315 East Main Street APPENDIX A (43) 1882 East Avenue Branches to be established by Marine Bank in New York Buffalo City (44) 4574 Main Street (1) 217 Broadway* (45) 2016 Genesee Street (2) 4411 Lexington Avenue (46) 2 Cathedral Park (47) 1989 Clinton Street (3) One East Fordham Road (4) 107-60 Queens Boulevard (48) 8200 Transit Road (5) 8515 Bay Parkway (49) 366 Kenmore Avenue (6) 1756 Crosby Avenue Syracuse (7) 3478 Boston Road (50) 250 South Clinton Street (8) 3825 East Tremont Avenue (51) Grant Blvd. & Teall Avenue (9) 929 McLean Avenue, Yonkers (10) 4395 White Plains Road Binghamton (11) 2030 Flatbush Avenue (52) 247 Main Street (12) 330 Route 21 IE, Middletown (53) 33 West State Street Kenmore Board is required under applicable law and its regulations to act on (54) 1750 Sheridan Drive applications and notices within specified time periods. The Board (55) 2981 Delaware Avenue notes, moreover, that the commenters have had a reasonable opportunity to comment as provided under the Bank Merger Act, and the Board's application processing procedures and have, in fact, submit- Other locations in New York ted substantial comments that have been considered by the Board. (56) 4707 Lake Road, Brockport Based on all the facts of record, and for the reasons discussed above, (57) 980 Ridge Road East, Webster the Board concludes that the record is sufficient to act on the proposal at this time, and that delay or denial of the proposal on grounds of (58) 750 West Miller Street, Newark informational insufficiency is not warranted. (59) 2155 Penfield Road, Penfield Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

334 Federal Reserve Bulletin • April 1997 (60 149 French Road, Cheektowaga York). Marine Bank is the second largest depository insti- (61 8503 Main Street, Williamsville tution in the Elmira-Corning market, controlling $198 mil- (62 825 Fairport Road, East Rochester lion in deposits, representing 15 percent of the total market (63 300 North Tioga Street, Ithaca deposits. First Federal is the 14th largest depository institu- (64 107 Oakdale Mall, Johnson City tion in the Elmira-Corning market, controlling $12 million (65 18 Lake Street, Oswego in deposits, representing 0.9 percent of the total pre- (66 133 North Main Street, Horseheads acquisition market deposits. Following consummation of (67 32 Washington Street, Endicott the merger, Marine Bank would control 16.6 percent of the (68 One Main Street, Sidney market deposits, and would remain the second largest (70 124 Delaware Street, Walton depository institution in the market. The HHI would in- (71 19 East Central Avenue, Pearl River crease by 31 points to 1402. (72 147 Seventh Street, Garden City (4) Ithaca (approximated by Thompkins County and parts (73 117 East Route 59, Nanuet of Cortland and Schuyler Counties, all in New York). (74 4050 Merrick Road, Seaford Marine Bank is the sixth largest depository institution in (75 99 Pondfield Road, Bronxville the Ithaca market, controlling $40 million in deposits, (76 Tops Plaza-Michael Road, Orchard Park representing 4.8 percent of the total market deposits. First (77 953 Payne Avenue, North Tonawanda Federal is the eighth largest depository institution in the (78 83 Main Street, Batavia Ithaca market, controlling $18 million in deposits, repre- (79 46 Main Street, Hamburg senting 2.1 percent of the total pre-acquisition market (80 2435 Grand Island Blvd., Grand Island deposits. Following consummation of the merger, Marine (81 350 Orchard Park Road, West Seneca** Bank would control 8.8 percent of the market deposits, and would become the third largest depository institution in the * Relocating to 253 Broadway, New York City. market. The HHI would not increase. ** Under construction. (5) Metropolitan New York/New Jersey (approximated by Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmoth, Morris, Ocean, Passaic, Somerset, Sussex, Union and War- APPENDIX B ren Counties and parts of Mercer County in New Jersey; Bronx, Dutchess, Kings, Nassau, New York, Orange, Put- Banking Markets and Market Data nam, Queens, Richmond, Rockland, Suffolk, Sullivan, Ulster and Westchester Counties in New York; Pike County, (1) Binghamton (approximated by Broom and Tioga Coun- PA; and 24 municipalities in Fairfield and Litchfield Counties and parts of Chenango County, in New York and ties in Connecticut). Marine Bank is the 12th largest depos- Susquehanna County in Pennsylvania). Marine Bank is the itory institution in the Metro NY/NJ market, controlling fourth largest depository institution in the Binghamton $5.5 billion in deposits, representing 1.6 percent of the market, controlling $267 million in deposits, representing total market deposits. First Federal is the 36th largest 11.8 percent of the total deposits in depository institutions depository institution in the Metro NY/NJ market, controlin the market ("market deposits"). First Federal is the 11th ling $1 billion in deposits, representing 0.3 percent of the largest depository institution in the Binghamton market, total pre-acquisition market deposits. Following consumcontrolling $47 million in deposits, representing 2.1 per- mation of the merger, Marine Bank would control cent of the total pre-acquisition market deposits. Following 2.3 percent of the market deposits, and would become the consummation of the merger, Marine Bank would control eighth largest depository institution in the market. The HHI 15.6 percent of the market deposits, and would become the would not increase. third largest depository institution in the market. The HHI (6) Rochester (approximated by Genesee, Livingston, for the market would increase by 54 points to 1338. Monroe, Ontario, Seneca, Wayne, and Yates Counties and (2) Buffalo (approximated by Erie and Niagara Counties parts of Allegany, Orleans, Steuben, and Wyoming Counand parts of Cattaraugus, Orleans and Wyoming Counties, ties, all in New York). Marine Bank is the second largest all in New York). Marine Bank is the second largest depository institution in the Rochester market, controlling depository institution in the Buffalo market, controlling $1.5 billion in deposits, representing 13.3 percent of the $3,385 billion in deposits, representing 23.1 percent of the total market deposits. First Federal is the eighth largest total market deposits. First Federal is the eighth largest depository institution in the Rochester market, controlling depository institution in the Buffalo market, controlling $580 million in deposits, representing 5.1 percent of the $319 million in deposits, representing 2.2 percent of the total pre-acquisition market deposits. Following consumtotal pre-acquisition market deposits. Following consum- mation of the merger, Marine Bank would control mation of the merger, Marine Bank would control 22.4 percent of the market deposits, and would become the 26.9 percent of the market deposits, and would remain the largest depository institution in the market. The HHI would second largest depository institution in the market. The increase 231 points to 1156. HHI would increase by 117 points to 2221. (7) Syracuse (approximated by Cayuga, Onondaga, and (3) Elmira-Corning (approximated by Chemung County Oswego Counties and parts of Cortland and Madison and parts of Schuyler and Steuben Counties, all in New Counties, all in New York). Marine Bank is the fourth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 335 largest depository institution in the Syracuse market, con- York ("WSI"), in providing discount brokerage services trolling $830 million in deposits, representing 11.6 percent pursuant to section 225.25(b)(15) of Regulation Y of the total market deposits. First Federal is the 20th largest (12 C.F.R. 225.25(b)(15)). depository institution in the Syracuse market, controlling Company proposes to develop, market, and sell com- $36 million in deposits, representing 0.5 percent of the puter software to WSI and other broker/dealers and finantotal pre- acquisition market deposits. Following consum- cial institutions3 that would permit customers of those mation of the merger, Marine Bank would control entities to purchase and sell securities over the Internet 12.6 percent of the market deposits, and would become the using personal computers.4 Company's software would be third largest depository institution in the market. The HHI maintained on a host computer operated by a broker or the would increase by 8 points to 1581. broker's service provider and would be available for use by customers after accessing the Internet through an unaffili- The Toronto-Dominion Bank ated Internet service provider. The software would enable Toronto, Canada customers to initiate transactions and to obtain information concerning their securities brokerage accounts. Company Waterhouse Investor Services, Inc. also would provide software maintenance and product sup- New York, New York port.5 The proposed activities appear to be the type of data Order Approving Notices to Engage in Certain Data processing and transmission activities that are permissible Processing Activities for bank holding companies under section 4(c)(8) of the BHC Act and section 225.25(b)(7) of Regulation Y. The The Toronto-Dominion Bank, Toronto, Canada ("TDB"), Board previously has determined by regulation that providand its wholly owned subsidiary, Waterhouse Investor Ser- ing data processing and data transmission services, facilivices, Inc., New York, New York ("Waterhouse"), bank ties (including hardware and software), data bases or acholding companies within the meaning of the Bank Hold- cess to such operations by any technological means is ing Company Act ("BHC Act"), have requested the closely related to banking and, therefore, permissible for Board's approval under section 4(c)(8) of the BHC Act bank holding companies under section 4(c)(8) of the BHC (12 U.S.C. § 1843(c)(8)) and section 225.23(a) of the Act if the data involved in the proposed activity are finan- Board's Regulation Y (12 C.F.R. 225.23(a)) to acquire cial, banking, or economic in nature.6 The Board also has 50 percent of the voting shares of Marketware Interna- approved the development and sale by bank holding comtional, Inc., Holmdel, New Jersey ("Company"), and panies of software designed to permit customers to conduct thereby engage in certain data processing activities pursu- basic banking transactions and personal financial manageant to section 225.25(b)(7) of Regulation Y (12 C.F.R. ment on their personal computers,7 and software designed 225.25(b)(7)).1 Company proposes to develop and sell to process and transmit financial, banking or economic data computer software that would allow brokerage customers from the customer to a financial institution over the Interto purchase and sell securities over the Internet by means net.8 Based on the foregoing and all other facts of record, of personal computers. the Board has concluded that the activities proposed by Notice of the proposal, affording interested persons an Company are closely related to banking within the meanopportunity to submit comments, has been published (62 Federal Register 1118 and 3900 (1997)). The time for filing comments has expired, and the Board has considered 3. For purposes of this order, "financial institution" means a bank, the proposal and all comments received in light of the bank holding company, thrift institution, thrift holding company, and factors set forth in section 4(c)(8) of the BHC Act. subsidiaries of these companies. TDB, with total consolidated assets of $93.5 billion, is 4. Company's software systems would perform two functions: (a) permit retail customers to have computer access to their securithe fifth largest commercial bank in Canada.2 In the United ties brokerage accounts, and States, TDB operates a branch in New York, New York; an (b) allow broker/dealers and financial institutions to integrate agency in Houston, Texas; representative offices in New customer-generated electronic brokerage transactions with their York, New York, and Chicago, Illinois; and, through Wa- back-office operations. 5. TDB indicates that software maintenance and product support terhouse, a bank in White Plains, New York. TDB engages encompass: through its subsidiaries in a broad range of permissible (1) Enhancements to the computer software and other routine nonbanking activities in the United States, including under- modifications related to application problems identified by Compawriting and dealing in debt and equity securities to a ny's broker/dealer and financial institution client base; and limited extent. TDB also engages through Waterhouse's (2) Support provided to Company's client base to resolve problems encountered in software development and implementation. subsidiary, Waterhouse Securities, Inc., New York, New 6. See 12 C.F.R. 225.25(b)(7). 7. The Royal Bank of Canada, 82 Federal Reserve Bulletin 363 (1996). 1. The remaining 50 percent of Company would be owned by two 8. See Cardinal Bancshares, Inc., 82 Federal Reserve Bulletin 674 individuals, each controlling 25 percent. (1996) ("Cardinal Order"). See also Citicorp, 72 Federal Reserve 2. Asset data are as of October 31, 1996, and are based on the Bulletin 497 (1986) (stating that processing services involving on- line exchange rate between Canadian and U.S. dollars applicable on that transactions and quotation data for financial instruments such as date. stocks, bonds and mutual funds are closely related to banking). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

336 Federal Reserve Bulletin • April 1997 ing of the BHC Act and constitute permissible data pro- Based on all the facts of record, the Board has detercessing and transmission services under Regulation Y.9 mined that the balance of the public interest factors it is In order to approve the proposal, the Board also must required to consider under the proper incident to banking determine that the proposed activities are a proper incident standard of section 4(c)(8) of the BHC Act is favorable, to banking; that is, that the proposal "can reasonably be and consistent with approval of the proposal. expected to produce benefits to the public, such as greater Based on the foregoing and all the facts of record, the convenience, increased competition, or gains in efficiency, Board has determined that the proposal should be, and that outweigh possible adverse effects, such as undue con- hereby is, approved. Approval of the proposal is specificentration of resources, decreased or unfair competition, cally conditioned on compliance by TDB, Waterhouse, and conflicts of interests, or unsound banking practices."10 As Company with all the commitments made in connection part of its review of these factors, the Board has considered with the proposal and with the conditions referred to in this the financial and managerial resources of TDB, Water- order. The Board's determination also is subject to all the house, and Company, and the effect the proposal would conditions set forth in Regulation Y, including those in have on such resources.11 Based on all the facts of record, sections 225.7 and 225.23(g) of Regulation Y (12 C.F.R. the Board has concluded that financial and managerial 225.7 and 225.23(g)), and to the Board's authority to considerations are consistent with approval of the proposal. require such modification or termination of the activities of The Board expects that the proposed activities would a bank holding company or any of its subsidiaries as the result in benefits to consumers, broker/dealers, and finan- Board finds necessary to ensure compliance with, and to cial institutions. Company's software would enable securi- prevent evasion of, the provisions of the BHC Act and the ties brokerage customers to initiate transactions and com- Board's regulations and orders issued thereunder. For purmunicate with their brokers using personal computers poses of this action, these commitments and conditions during business and non-business hours. The software shall be deemed to be conditions imposed in writing by the would provide broker/dealers and financial institutions with Board in connection with its findings and decision, and, as additional means of making their securities brokerage ser- such, may be enforced in proceedings under applicable vices available to the public and, thereby, could produce law. additional sources of transaction volume and resulting fee This transaction shall not be consummated later than income. Company's entry into this market also would three months after the effective date of this order, unless increase the level of competition among existing providers such period is extended for good cause by the Board or by of these software products. In addition, there is no evi- the Federal Reserve Bank of New York, acting pursuant to dence in the record that consummation of the proposal delegated authority. would produce any significant adverse effects, such as By order of the Board of Governors, effective Februdecreased or unfair competition, undue concentration of ary 18, 1997. resources, or conflicts of interests. The Board previously has considered the risks presented Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and when banking services are made available over the Internet Governors Kelley, Phillips, and Meyer. and noted that the nature of these risks is not different from those associated with more traditional banking opera- JENNIFER J. JOHNSON tions.12 The purchase and sale of securities over the Inter- Deputy Secretary of the Board net presents similar risks, and Company's proposed software uses various security measures, including ORDERS ISSUED UNDER INTERNATIONAL BANKING ACT cryptography and a user identification system, to attempt to maintain the privacy of transactions and to protect the Land Bank of Taiwan underlying data.13 Taipei, Taiwan Order Approving Establishment of a Branch 9. See 12 C.F.R. 225.25(b)(7). TDB and Waterhouse have committed that Company will provide the proposed services in accordance Land Bank of Taiwan ("Bank"), Taipei, Taiwan, a foreign with the limitations established in Regulation Y. bank within the meaning of the International Banking Act 10. 12 U.S.C. § 1843(c)(8). ("IBA"), has applied under section 7(d) of the IBA 11. See 12 C.F.R. 225.24. See also The Fuji Bank, Limited, 75 Federal Reserve Bulletin 94 (1989); and Bayerische Vereinsbank, AG, (12 U.S.C. § 3105(d)) to establish a state-licensed branch 73 Federal Reserve Bulletin 155 (1987). in Los Angeles, California. The Foreign Bank Supervision 12. See Cardinal Order, 82 Federal Reserve Bulletin at 676. Enhancement Act of 1991 ("FBSEA"), which amended 13. In the Cardinal Order, the Board recommended that banking the IBA, provides that a foreign bank must obtain the organizations considering whether to provide services over the Interapproval of the Board to establish a branch in the United net analyze carefully the associated risks, and evaluate carefully whether those risks were consistent with their policies relating to the States. security of customer information and other data. Similarly, the Board Notice of the application, affording interested persons an expects organizations considering whether to use Company's software opportunity to submit comments, has been published in a to conduct a careful analysis of the risks presented in order to mitigate the possibility that such activities would result in unsound banking or newspaper of general circulation in Los Angeles, Califorfinancial practices. nia (Los Angeles Times, July 4, 1995). The time for filing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 337 comments has expired, and all comments have been con- mation. Bank is supervised and regulated by the Ministry sidered. and the Taiwan Central Bank ("Central Bank"), which Bank, with assets equivalent to approximately share responsibility for the supervision of banks in Taiwan. $41.0 billion, is the third largest bank in Taiwan.1 Bank is The Banking Law of Taiwan grants the Ministry overall wholly owned by Taiwan through its agent, the Ministry of authority for the regulation and supervision of banks in Finance ("Ministry"). Taiwan, including Bank.3 The Ministry has delegated the Bank operates 82 branches throughout Taiwan. In addi- authority to the Central Bank to act as the primary examtion, Bank operates eight domestic representative offices iner of banks in Taiwan, in which capacity the Central and an offshore banking unit in Taiwan. Bank has no Bank conducts mandatory annual examinations. subsidiaries. The Board previously has determined, in connection Bank's primary purpose for establishing the proposed with applications involving other banks in Taiwan, that branch is to provide banking services to existing clients these banks were subject to home country supervision on a operating in Los Angeles, California, and to facilitate consolidated basis.4 Bank is supervised by the Ministry and international trade between the United States and Asia. the Central Bank on substantially the same terms and Bank does not engage directly or indirectly in any non- conditions as such other banks. Based on all the facts of banking activities in the United States, and, after establish- record, the Board has determined that Bank is subject to ing the proposed branch, would be a qualifying foreign comprehensive supervision and regulation on a consolibanking organization within the meaning of Regulation K dated basis by its home country supervisors. (12 C.F.R. 211.23(b)). The Board has also taken into account the additional Bank has received approval to establish the proposed standards set forth in section 7 of the IBA (see 12 U.S.C. branch from the Taiwan authorities. The California State § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). As noted above, Banking Department also has approved Bank's application Bank has received the consent of its home country authorito establish the proposed branch. ties to establish the proposed state-licensed branch. In order to approve an application by a foreign bank to Bank must comply with the minimum capital standards establish a branch in the United States, the IBA and Regu- of the Basle Accord, as implemented by Taiwan. Bank's lation K require the Board to determine that the foreign capital exceeds these minimum standards and can be conbank applicant engages directly in the business of banking sidered equivalent to capital that would be required of a outside of the United States, and has furnished to the Board U.S. banking organization. Managerial and other financial the information it needs to assess the application ade- resources of Bank are also considered consistent with quately. The Board must also determine that the foreign approval, and Bank appears to have the experience and bank is subject to comprehensive supervision or regulation capacity to support the proposed branch. Bank has estabon a consolidated basis by its home country supervisor lished controls and procedures for the proposed branch in (12 U.S.C. § 3105(d)(2); 12 C.F.R. 211.24)). The Board order to ensure compliance with U.S. law, as well as may also take into account additional standards as set forth controls and procedures for its worldwide operations generin the IBA and Regulation K (12 U.S.C. § 3105(d)(3)-(4); ally. 12 C.F.R. 211.24(c)). As noted above, Bank engages directly in the business of banking outside the United States. Bank also has provided the Board with the information necessary to assess the (ii) Obtain information on the condition of the bank and its application through submissions that address the relevant subsidiaries and offices through regular examination reports, issues. audit reports, or otherwise; Regulation K provides that a foreign bank will be con- (iii) Obtain information on the dealings with and relationship sidered to be subject to comprehensive supervision or between the bank and its affiliates, both foreign and domestic; (iv) Receive from the bank financial reports that are consolidated regulation on a consolidated basis if the Board determines on a worldwide basis, or comparable information that permits that the bank is supervised and regulated in such a manner analysis of the bank's financial condition on a worldwide consolthat its home country supervisor receives sufficient infor- idated basis; mation on the foreign bank's worldwide operations, includ- (v) Evaluate prudential standards, such as capital adequacy and ing the relationship of the foreign bank to any affiliate, to risk asset exposure, on a worldwide basis. These are indicia of comprehensive, consolidated supervision. No assess the overall financial condition of the foreign bank single factor is essential and other elements may inform the Board's and its compliance with law and regulation (12 C.F.R. determination. 211.24(c)(1)).2 3. This authority permits the Ministry, among other things, to issue With respect to the issue of supervision by home country licenses, limit activities and expansion, conduct examinations, set minimum capital and liquidity ratios, limit credit extensions, restrict authorities, the Board has considered the following infordirector interlocks, define qualifications for management, and take enforcement actions. 4. See Taipei Bank, 79 Federal Reserve Bulletin 143 (1993); United 1. All data are as of September 30, 1996, unless otherwise noted. World Chinese Commercial Bank, 79 Federal Reserve Bulletin 146 2. In assessing this standard, the Board considers, among other (1993); Bank of Taiwan, 79 Federal Reserve Bulletin 541 (1993); factors, the extent to which the home country supervisors: Chiao Tung Bank, 79 Federal Reserve Bulletin 543 (1993); The (i) Ensure that the bank has adequate procedures for monitoring Farmers Bank of China, 81 Federal Reserve Bulletin 620 (1995); and controlling its activities worldwide; Taiwan Business Bank, 81 Federal Reserve Bulletin 746 (1995). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

338 Federal Reserve Bulletin • April 1997 The Board has reviewed the restrictions on disclosure in Bank's U.S. operations or the compliance by Bank or its relevant jurisdictions in which Bank operates and has com- affiliates with applicable federal statutes, the Board may municated with relevant authorities about access to infor- require termination of any of Bank's direct or indirect mation. Bank has committed that it will make available to activities in the United States. Approval of the application the Board such information on the operations of Bank and also is specifically conditioned on compliance by Bank any affiliate of Bank that the Board deems necessary to with the commitments made in connection with this applidetermine and enforce compliance with the IBA, the Bank cation, and with the conditions in this order.5 The commit- Holding Company Act of 1956, as amended, and other ments and conditions referred to above are conditions applicable federal law. To the extent that the provision of imposed in writing by the Board in connection with its such information is prohibited or impeded by law, Bank decision, and may be enforced in proceedings under has committed to cooperate with the Board to obtain any 12 U.S.C. § 1818 or 12 U.S.C. § 1847 against Bank, its consents or waivers that might be required from third offices, and its affiliates. parties in connection with disclosure of such information. By order of the Board of Governors, effective Febru- In addition, subject to certain conditions, the Ministry and ary 24, 1997. the Central Bank may share information on Bank's operations with other supervisors, including the Board. In light Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and of these commitments and other facts of record, and sub- Governors Kelley, Phillips, and Meyer. ject to the condition described below, the Board concludes that Bank has provided adequate assurances of access to JENNIFER J. JOHNSON any necessary information the Board may request. Deputy Secretary of the Board On the basis of all the facts of record, and subject to the commitments made by Bank, and the terms and conditions set forth in this order, the Board has determined that 5. The Board's authority to approve the establishment of the pro- Bank's application to establish a state-licensed branch posed office parallels the continuing authority of the State of Califorshould be, and hereby is, approved. If any restrictions on nia to license offices of a foreign bank. The Board's approval of the access to information on the operations or activities of application does not supplant the authority of the State of California and the California State Banking Department ("Department") to Bank and any affiliates subsequently interfere with the license the proposed office of Bank in accordance with any terms or Board's ability to determine the safety and soundness of conditions that the Department may impose. INDEX OF ORDERS ISSUED OR ACTIONS TAKEN BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (OCTOBER 1,1996- 31,1996) Bulletin Volume Applicant Merged or Acquired Bank or Activity Date of Approval and Page Banca di Roma S.p.A., To establish branches in New York, October 9, 1996 82,1144 Rome, Italy New York, and Chicago, Illinois, and agencies in San Francisco, California, and Houston, Texas BancSecurity Corporation, Marshalltown Financial Corporation, December 9, 1996 83, 122 Marshalltown, Iowa Marshalltown, Iowa Marshalltown Savings Bank, FSB, Marshalltown, Iowa Bank of Boston Corporation, BancBoston Securities, Inc., November 12, 1996 83, 42 Boston, Massachusetts Boston, Massachusetts Bank of Montreal, Multinet International Bank, December 4, 1996 83,127 Montreal, Quebec, Canada New York, New York The Bank of Nova Scotia, Toronto, Ontario, Canada Canadian Imperial Bank of Commerce, Toronto, Ontario, Canada Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 339 Index of Orders Issued or Actions Taken—Continued Bulletin Volume Applicant Merged or Acquired Bank or Activity Date of Approval and Page The Chase Manhattan Corporation, New York, New York First Chicago NBD Corporation, Chicago, Illinois National Bank of Canada, Montreal, Quebec, Canada Royal Bank of Canada, Montreal, Quebec, Canada The Toronto Dominion Bank, Toronto, Ontario, Canada Barnett Banks, Inc., Southeast Switch, Inc., December 9, 1996 83, 131 Jacksonville, Florida Maitland, Florida Crestar Financial Corporation, Internet, Inc., Richmond, Virginia Reston, Virginia First Union Corporation, Alabama Network, Inc., Charlotte, North Carolina Birmingham, Alabama NationsBank Corporation, Charlotte, North Carolina Southern National Corporation, Winston-Salem, North Carolina Wachovia Corporation, Winston-Salem, North Carolina The Chase Manhattan Bank, Chemical Bank New Jersey, N.A., October 28, 1996 82,1139 New York, New York Morristown, New Jersey Community First Bankshares, Inc., Mountain Parks Financial Corp., December 2, 1996 83,110 Fargo, North Dakota Denver, Colorado Mountain Parks Bank, Denver, Colorado Country Bank Shares Corporation, Belleville Bancshares Corporation, December 9, 1996 83,112 Mount Horeb, Wisconsin Belleville, Wisconsin Belleville State Bank, Belleville, Wisconsin First Commercial Corporation, The Oklahoma National Bank of Duncan, November 6, 1996 83, 41 Little Rock, Arkansas Duncan, Oklahoma Arvest Bank Group, Inc., TRH Bank Group, Inc., Bentonville, Arkansas Norman, Oklahoma TRH Oklahoma, Inc., Norman, Oklahoma First State Bancshares of Blakely, Inc., First Southwest Bancorp, Inc., November 6, 1996 83, 46 Blakely, Georgia Donalsonville, Georgia First Federal Savings Bank of Southwest Georgia, Donalsonville, Georgia Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

340 Federal Reserve Bulletin • April 1997 Index of Orders Issued or Actions Taken—Continued Bulletin Volume Applicant Merged or Acquired Bank or Activity Date of Approval and Page First Union Corporation, Home Financial Corporation, October 15, 1996 82, 1123 Charlotte, North Carolina Hollywood, Florida Home Savings Bank, FSB, Hollywood, Florida GB Bancorporation, Pacific Commerce Bank, December 18, 1996 83,115 San Diego, California Chula Vista, California GB Bancorporation, Rancho Vista National Bank, December 18, 1996 83,117 San Diego, California Vista, California The Governor and Company of the Bank BBOI Worldwide LLC, October 21, 1996 82,1129 of Ireland, Denver, Colorado Dublin, Ireland Bank of Ireland Asset Management (U.S.) Limited, Dublin, Ireland Berger Associates, Inc., Denver, Colorado Hongkong Bank of Canada, Hongkong Shanghai Banking November 27, 1996 83,51 Vancouver, British Columbia, Canada Corporation, Limited, Hong Kong, and to establish state-licensed branches in Portland, Oregon, and Seattle, Washington Ida Grove Bancshares, Inc., Pierson Bancorporation, December 20, 1996 83,119 Ida Grove, Iowa Pierson, Iowa American Bancshares, Inc., Farmers Savings Bank, Holstein, Iowa Pierson, Iowa Istituto Bancario San Paolo di Torino, To establish a federally-licensed branch in October 15, 1997 82,1147 S.p.A., New York, New York Turin, Italy JDOB Inc., Centennial National Bank, December 20, 1996 83, 121 Sandstone, Minnesota Walker, Minnesota Nacogdoches Commercial Bancshares, Security National Bank, October 9, 1996 82,1121 Inc., Nacogdoches, Texas Nacogdoches, Texas NationsBank Corporation, Boatmen's Bancshares, Inc., December 16, 1996 83, 148 Charlotte, North Carolina St. Louis, Missouri NB Holdings Corporation, Charlotte, North Carolina River Valley Bancorp, Citizens National Bank of Madison, October 28, 1996 82,1136 Madison, Indiana Madison, Indiana Royal Bank of Canada, Integrion Financial Network, LLC, December 2, 1996 83, 135 Montreal, Quebec, Canada White Plains, New York Norwest Corporation, Minneapolis, Minnesota Stichting Prioriteit ABN AMRO Holding, Amsterdam, The Netherlands Stichting Administratiekantoor Amsterdam, The Netherlands ABN AMRO Holding, Amsterdam, The Netherlands ABN AMRO Holding N.V., Amsterdam, The Netherlands Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 341 Index of Orders Issued or Actions Taken—Continued Bulletin Volume Applicant Merged or Acquired Bank or Activity Date of Approval and Page ABN AMRO Bank N.V., Amsterdam, The Netherlands ABN AMRO North America, Inc., Chicago, Illinois South Central Texas Bancshares, Inc., Fayette Savings Association, November 18, 1996 83, 47 Flatonia, Texas La Grange, Texas Stichting Prioriteit ABN AMRO Holding, ChiCorp Inc., December 11, 1996 83,138 Amsterdam, The Netherlands Chicago, Illinois Stichting Administratiekantoor ABN AMRO Holding, Amsterdam, The Netherlands ABN AMRO Holding N.V., Amsterdam, The Netherlands ABN AMRO Bank N.V., Amsterdam, The Netherlands The Sumitomo Bank, Limited, To establish a state-licensed branch in November 6, 1996 83, 54 Osaka, Japan New York, New York Unibanco - Uniao de Bancos Brasileiros, To establish a representative office in October 9, 1996 82,1148 S.A., Miami, Florida Sao Paulo, Brazil Unidanmark A/S, Aros Securities Inc., December 16, 1996 83, 146 Copenhagen, Denmark New York, New York Unibank A/S, Copenhagen, Denmark 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 3 Applicant(s) Bank(s) Effective Date Community Capital Corporation, The Bank of Belton, February 12, 1997 Greenwood, South Carolina Belton, South Carolina Bank of Barnwell County, Barnwell, South Carolina FirstBank Holding Company of Colorado, FirstBank of Evergreen, February 27, 1997 Lakewood, Colorado Evergreen, Colorado Section 4 The Bank of New York Company, Inc., Well Fargo Bank, N.A., February 6, 1997 New York, New York San Francisco, California BNY Western Trust Company, New York, New York Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

342 Federal Reserve Bulletin • April 1997 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 The Bancshares, Inc., The Bank, Atlanta January 30, 1997 Jennings, Louisiana Jennings, Louisiana Bank of Whitman Employee Stock Whitman Bancorporation, Inc., San Francisco January 24, 1997 Ownership Plan, Colfax, Washington Colfax, Washington BankWest Financial, Inc., BankWest, N.A., Minneapolis January 24, 1997 Kalispell, Montana Kalispell, Montana BOK Financial Corporation, First TexCorp, Inc., Kansas City February 14, 1997 Tulsa, Oklahoma Dallas, Texas Brickyard Bancorp, Inc., Sysco Financial, Inc., Chicago February 20, 1997 Northbrook, Illinois Lincolnwood, Illinois Brickyard Bank, Lincolnwood, Illinois BSM Bancorp, Bank of Santa Maria, San Francisco January 29, 1997 Santa Maria, California Santa Maria, California Buckeye Bancshares, Inc., First Community Bank, N.A., Dallas January 28, 1997 Dover, Delaware Alice, Texas CBC Holding Company, Community Banking Company of Atlanta February 5, 1997 Fitzgerald, Georgia Fitzgerald, Fitzgerald, Georgia Coastal Bend Bancshares, Inc. Buckeye Bancshares, Inc., Dallas January 28, 1997 Alice, Texas Dover, Delaware First Community Bank, N.A., Alice, Texas The Colonial BancGroup, Inc., Shamrock Holding, Inc., Atlanta February 18, 1997 Montgomery, Alabama Evergreen, Alabama The Union Bank, Evergreen, Alabama County Bancorp, Inc., Investors Community Bank, Chicago February 14, 1997 Manitowoc, Wisconsin Manitowoc, Wisconsin Damen Financial Corporation, Damen National Bank, Chicago February 12, 1997 Schaumburg, Illinois Schaumburg, Illinois First Commercial Corporation, W.B.T. Holding Company, St. Louis January 22, 1997 Little Rock, Arkansas Memphis, Tennessee United American Bank, Memphis, Tennessee FJSB Bancshares, Inc., The Fort Jennings State Bank, Cleveland January 24, 1997 Fort Jennings, Ohio Fort Jennings, Ohio Fulton Financial Corporation, The Woodstown National Bank & Trust Philadelphia January 27, 1997 Lancaster, Pennsylvania Company, Woodstown, New Jersey Heartland Financial USA, Inc. Cottage Grove State Bank, Chicago January 27, 1997 Dubuque, Iowa Cottage Grove, Wisconsin Intra Financial Corp., Farmers State Bancshares of Sabetha, Kansas City February 19, 1997 Clyde, Kansas Inc., Sabetha, Kansas Iron Horse Bancshares, Inc., The Peoples State Bank, Chicago February 4, 1997 Mazomanie, Wisconsin Mazomanie, Wisconsin Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 343 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Laguna Bancshares, Inc., Laguna Bancshares of Delaware, Inc., Dallas February 11, 1997 Big Lake, Texas Dover, Delaware Big Lake Bank, N.A., Big Lake, Texas Laguna Bancshares of Delaware, Big Lake Bank, N.A., Dallas February 11, 1997 Inc., Big Lake, Texas Dover, Delaware Laguna Madre Bancshares, Inc., Laguna Madre Delaware Bancshares, Dallas February 7, 1997 South Padre Island, Texas Inc., Dover, Delaware First National Bank of South Padre Island, South Padre Island, Texas Laguna Madre Delaware First National Bank of South Padre Dallas February 7, 1997 Bancshares, Inc., Island, Dover, Delaware South Padre Island, Texas Michigan Heritage Bancorp, Inc. Michigan Heritage Bank, Chicago January 29, 1997 Novi, Michigan Novi, Michigan Mid-Missouri Bancshares, Inc., Continental Security Bancshares, Inc., St. Louis February 3, 1997 Nevada, Missouri Springfield, Missouri Continental Security Bank, Deepwater, Missouri NCF Financial Corporation, Nelson County Federal Savings Bank, St. Louis February 19, 1997 Bardstown, Kentucky Bardstown, Kentucky Old Kent Financial Corporation, Old Kent Bank, National Association, Chicago January 30, 1997 Grand Rapids, Michigan Jonesville, Michigan Park National Corporation, First-Knox Banc Corp., Cleveland February 14, 1997 Newark, Ohio Mount Vernon, Ohio The First-Knox National Bank of Mount Vernon, Mount Vernon, Ohio The Farmers and Savings Bank, Loudonville, Ohio Platte Valley Financial Services Platte Valley National Banc, Inc., Kansas City February 11, 1997 Companies, Inc., Scottsbluff, Nebraska Scottsbluff, Nebraska Platte Valley National Bank, Scottsbluff, Nebraska First Morrill Co., Morrill, Nebraska Platte Valley National Bank, Morrill, Nebraska RBC, Inc., Robertson Banking Company, Atlanta January 29, 1997 Demopolis, Alabama Demopolis, Alabama River Cities Bancshares, Inc., River Cities Bank, Chicago January 28, 1997 Wisconsin Rapids, Wisconsin Wisconsin Rapids, Wisconsin Security National Corporation, Security National Bank of South Chicago January 28, 1997 Sioux City, Iowa Dakota, Dakota Dunes, South Dakota River Falls Bancshares, Inc., River Falls State Bank, Minneapolis February 19, 1997 River Falls, Wisconsin River Falls, Wisconsin Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

344 Federal Reserve Bulletin • April 1997 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Summit Financial Corporation, City View Finance Co., Inc., Richmond January 29, 1997 Greenville, South Carolina Columbia, South Carolina Williamsburg Finance Co., Kingstree, South Carolina TRP Acquisition Corporation, Trans Pacific Bancorp, San Francisco February 13, 1997 Burr Ridge, Illinois San Francisco, California Trans Pacific National Bank, San Francisco, California Union Planters Community SBT Bancshares, Inc., St. Louis January 28, 1997 Bancorp, Inc., Selmer, Tennessee Memphis, Tennessee Union Planters Corporation, SBT Bancshares, Inc., St. Louis January 28, 1997 Memphis, Tennessee Selmer, Tennessee Selmer Bank and Trust Company, Selmer, Tennessee Vernon Bancshares, Inc., The Waggoner National Bank of Dallas February 3, 1997 Dover, Delaware Vernon, Vernon, Texas Waggoner National Bancshares, Vernon Bancshares, Inc., Dallas February 3, 1997 Inc., Dover, Delaware Vernon, Texas The Waggoner National Bank of Vernon, Vernon, Texas Waterfield Bank Corp., First National Bank of Mitchell, St. Louis February 11, 1997 Indianapolis, Indiana Mitchell, Indiana Section 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Arkansas National Bancshares, Inc. NATNET LLC, St. Louis January 17, 1997 Bentonville, Arkansas Bentonville, Arkansas Bank of Montreal, Cebra, Inc., Chicago January 24, 1997 Toronto, Ontario, Canada Toronto, Ontario, Canada Community First Bankshares, Inc., Lakefield Agency, Minneapolis February 18, 1997 Fargo, North Dakota Lakefield, Minnesota Deutsche Bank AG, German American Capital Corporation, New York February 7, 1997 Frankfurt, Germany New York, New York Transatlantic Capital Company, L.L.C, New York, New York National City Bancshares, Inc., First Federal Savings Bank of St. Louis January 27, 1997 Evansville, Indiana Leitchfield, Leitchfield, Kentucky NationsBank Corporation, First Federal Savings Bank of Richmond February 19, 1997 Charlotte, North Carolina Brunswick, Georgia, Brunswick, Georgia Norwest Corporation, Reliable Financial Services, Inc., Minneapolis February 11, 1997 Minneapolis, Minnesota San Juan, Puerto Rico Norwest Financial Services, Inc. Des Moines, Iowa Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 345 Section 4—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Norwest Corporation, The United Group, Inc., Minneapolis January 31, 1997 Minneapolis, Minnesota Charlotte, North Carolina Norwest Financial Services, Inc., Des Moines, Iowa Norwest Corporation, Statewide Mortgage Company, Minneapolis January 30, 1997 Minneapolis, Minnesota Birmingham, Alabama Synovus Financial Corp., Golden Retriever Systems, L.L.C. Atlanta February 11, 1997 Columbus, Georgia Chandler, Arizona TB&C Bancshares, Inc., Columbus, Georgia Total System Services, Inc., Columbus, Georgia Vital Processing Services, L.L.C. Columbus, Georgia Sections 3 and 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date BostonFed Bancorp, Inc., Broadway Capital Corp., Boston January 23, 1997 Burlington, Massachusetts Chelsea, Massachusetts Boston Federal Savings Bank, Burlington, Massachusetts APPLICATIONS APPROVED UNDER BANK MERGER ACT By the Secretary of the Board Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request to the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Applicant(s) Bank(s) Effective Date Manufacturers and Traders Trust Company, The East New York Savings Bank, February 28, 1997 Buffalo, New York Brooklyn, New York 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 Adams Bank and Trust, First State Bank, Kansas City February 19, 1997 Ogallala, Nebraska Lodgepole, Nebraska Bank of the West, NationsBank of Texas, N.A., Dallas February 3, 1997 El Paso, Texas Dallas, Texas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

346 Federal Reserve Bulletin • April 1997 Federal Reserve Banks—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Crestar Bank, Citizens Bank of Maryland, Richmond January 29, 1997 Vienna, Virginia Laurel, Maryland Citizens Bank of Washington, National Association, Washington, D.C. Humboldt Bank, California Federal Bank, F.S.B., San Francisco February 12, 1997 Eureka, California San Francisco, California La Salle State Bank, Community Bank of Utica, Chicago February 13, 1997 La Salle, Illinois Utica, Illinois Tri-City Bank & Trust Company, Greene County Bank, Atlanta February 20, 1997 Blountville, Tennessee Greeneville, Tennessee PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the 1996). Action seeking declaratory and injunctive relief in- Federal Reserve Banks in which the Board of Governors is not validating a new regulation issued by the Board under the named a party. Truth in Lending Act relating to treatment of fees for debt cancellation agreements. On October 18, 1996, the district court denied plaintiffs' motion for a temporary restraining The New Mexico Alliance v. Board of Governors, No. 96order. On January 17, 1997, the parties filed cross-motions 9552 (10th Cir., filed December 24, 1996). Petition for for summary judgment. review of a Board order dated December 16, 1996, approving the acquisition by NationsBank Corporation and NB Clifford v. Board of Governors, No. 96-1342 (D.C. Cir., filed Holdings Corporation, both of Charlotte, North Carolina, of September 17, 1996). Petition for review of Board order Boatmen's Bancshares, Inc., St. Louis, Missouri. Also on dated August 21, 1996, denying petitioners' motion to December 24, 1996, petitioners moved for an emergency dismiss enforcement action against them. On November 4, stay of the Board's order. The motion for a stay was denied 1996, the Board filed a motion to dismiss the petition. by the 10th Circuit on January 3, 1997; on January 6, 1997, Artis v. Greenspan, No. 96-CV-02105 (D. D.C., filed Septempetitioners' application for emergency stay was denied by ber 11, 1996). Class complaint alleging race discrimination the Supreme Court. in employment. On December 20, 1996, the Board moved to dismiss the action. Artis v. Greenspan, No. 1:96CV02619 (D.D.C., filed Novem- Leuthe v. Board of Governors, No. 96-5725 (E.D. Pa., filed ber 19, 1996). Employment discrimination action. On De- August 16, 1996). Action against the Board and other cember 20, 1996, the Board moved to dismiss the action. Federal banking agencies challenging the constitutionality of the Office of Financial Institution Adjudication. On Janu- First Baird Bancshares, Inc. v. Board of Governors, ary 24, 1997, the agencies filed a motion to dismiss the No. 96-1426 (D.C. Cir., filed November 18, 1996). Petition action. for review of Board order dated November 6, 1996, approving applications of First Commercial Corporation, Little Long v. Board of Governors, No. 96-9526 (10th Cir., filed Rock, Arkansas, Arvest Bank Group, Inc., Bentonville, July 31, 1996). Petition for review of Board order dated Arkansas, and TRH Bank Group, Inc., Norman, Oklahoma, July 2, 1996, assessing a civil money penalty and cease and to acquire all the shares of The Oklahoma National Bank of desist order for violations of the Bank Holding Company Duncan, Duncan, Oklahoma. On November 20, 1996, the Act. The Board's brief in opposition to the petition was Court denied petitioners' motion for a stay. On January 3, filed November 27, 1996. 1997, the parties filed a joint motion to dismiss. lnteramericas Investments, Ltd. v. Board of Governors, No. Snyder v. Board of Governors, No. 96-1403 (D.C. Cir., filed 96-60326 (5th Cir., filed May 8, 1996). Petition for review October 23, 1996). Petition for review of Board order dated of order imposing civil money penalties and cease and September 11, 1996, prohibiting John K. Snyder and desist order in enforcement case. Petitioners' brief was filed Donald E. Hedrick from further participation in the banking on July 26, 1996, and the Board's brief was filed on industry. On November 21, 1996, the Board moved to September 27, 1996. On August 20, petitioners' motion for dismiss the petition. a stay of the Board's orders pending judicial review was American Bankers Insurance Group, Inc. v. Board of Gover- denied by the Court of Appeals. Oral argument was held on nors, No. 96-CV-2383-EGS (D.D.C., filed October 16, February 4, 1997. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 347 Kuntz v. Board of Governors, No. 96-1079 (D.C. Cir., filed to acquire certain data processing assets of National City March 7, 1996). Petition for review of a Board order dated Corporation, Cleveland, Ohio, through a joint venture sub- February 7, 1996, approving applications by The Fifth sidiary. On April 23, 1996, the court vacated the Board's Third Bank, Cincinnati, Ohio, and The Fifth Third Bank of order. On July 31, 1996, the full court granted the Board's Columbus, Columbus, Ohio, to acquire certain assets and suggestion for rehearing en banc, and vacated the April 23 assume certain liabilities of 25 branches of NBD Bank, panel decision. On January 7, 1997, the court dismissed the Columbus, Ohio. On February 13, 1997, the court granted action on the parties' stipulation of voluntary dismissal. the Board's motion to dismiss the action. In re Subpoena Duces Tecum, Misc. No. 95-06 (D.D.C., filed Research Triangle Institute v. Board of Governors, No. January 6, 1995). Action to enforce subpoena seeking pre- 1:96CV00102 (M.D.N.C., filed February 12, 1996). Con- decisional supervisory documents sought in connection with tract dispute. On February 14, 1997, the court granted the an action by Bank of New England Corporation's trustee in Board's motion to dismiss the action. On February 24, bankruptcy against the Federal Deposit Insurance Corpora- 1997, the plaintiff filed a notice of appeal of the district tion. The Board filed its opposition on January 20, 1995. court's decision. Oral argument on the motion was held July 14, 1995. Inner City Press!Community on the Move v. Board of Gover- Board of Governors v. Pharaon, No. 91-CIV-6250 (S.D. New nors, No. 96-4008 (2nd Cir., filed January 19, 1996). Peti- York, filed September 17, 1991). Action to freeze assets of tion for review of a Board order dated January 5, 1996, individual pending administrative adjudication of civil approving the applications and notices by Chemical Bank- money penalty assessment by the Board. On September 17, ing Corporation to merge with The Chase Manhattan Cor- 1991, the court issued an order temporarily restraining the poration, both of New York, New York, and by Chemical transfer or disposition of the individual's assets. Bank to merge with The Chase Manhattan Bank, N.A., both of New York, New York. Petitioners' motion for an emergency stay of the transaction was denied following oral FINAL ENFORCEMENT DECISION ISSUED BY THE BOARD argument on March 26, 1996. The Board's brief on the OF GOVERNORS merits was filed July 8, 1996. The case has been consolidated for oral argument and decision with Lee v. Board of In the Matter of Governors, No. 95-4134 (2d Cir.); oral argument was held on January 13, 1997. Ghaith R. Pharaon Kuntz v. Board of Governors, No. 95-1485 (D.C. Cir., filed BCCI Holdings (Luxembourg) S.A. September 21, 1995). Petition for review of Board order Luxembourg dated August 23, 1995, approving the applications of The Fifth Third Bank, Cincinnati, Ohio, to acquire certain assets Bank of Credit and Commerce International S.A. and assume certain liabilities of 12 branches of PNC Bank, Luxembourg Ohio, N.A., Cincinnati, Ohio, and to establish certain branches. On February 13, 1997, the court granted the Board's motion to dismiss the action. Docket Nos. Lee v. Board of Governors, No. 95—4134 (2nd Cir., filed 91-037-E-I1 August 22, 1995). Petition for review of Board orders dated 91-037-CMP-I1 July 24, 1995, approving certain steps of a corporate reorganization of U.S. Trust Corporation, New York, New York, Final Decision and the acquisition of U.S. Trust by Chase Manhattan Corporation, New York, New York. On September 12, This is an administrative proceeding of the Board of Gov- 1995, the court denied petitioners' motion for an emergency ernors of the Federal Reserve System (the "Board"), based stay of the Board's orders. The Board's brief was filed on on the issuance on September 13, 1991 of its "Notice of April 16, 1996. Oral argument, consolidated with Inner City Assessment of a Civil Money Penalty Issued Pursuant to Press!Community on the Move v. Board of Governors, took Section 8(b) of the Bank Holding Company Act of 1956, place on January 13, 1997. As Amended, and Amended Notice of Intent to Prohibit Beckman v. Greenspan, No. 95-35473 (9th Cir., filed May 4, Issued Pursuant to Section 8(e) of the Federal Deposit 1995). Appeal of dismissal of action against Board and Insurance Act, As Amended" (the "Amended Notice"). others seeking damages for alleged violations of constitu- The Amended Notice alleges that Bank of Credit and tional and common law rights. The appellants' brief was Commerce International ("BCCI")1 violated Section 3(a) filed on June 23, 1995; the Board's brief was filed on July 12, 1995. Money Station, Inc. v. Board of Governors, No. 95-1182 1. "BCCI" refers to BCCI Holdings (Luxembourg), S.A., Luxem- (D.C. Cir., filed March 30, 1995). Petition for review of a bourg ("BCCI Holdings") and all of its related entities, including its Board order dated March 1, 1995, approving notices by subsidiary bank, the Bank of Credit and Commerce International, S.A., Luxembourg ("BCCI, S.A."), ICIC Holdings, its subsidiary Bank One Corporation, Columbus, Ohio; CoreStates Finanbank, International Credit and Investment Company (Overseas) Limcial Corp., Philadelphia, Pennsylvania; PNC Bank Corp., ited, George Town, Cayman Islands ("ICIC Overseas"), ICIC Invest- Pittsburgh, Pennsylvania; and KeyCorp, Cleveland, Ohio, ments, Ltd. ("ICIC Investments") (also a subsidiary of ICIC Hold- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

348 Federal Reserve Bulletin • April 1997 of the Bank Holding Company Act (the "BHC Act"), BCCI planned to acquire an existing bank in the United 12 U.S.C. § 1842(a), by causing BCCI to become a bank States. holding company without prior Board approval by secretly BCCI apparently knew it could not obtain regulatory acquiring an 85 percent interest in Independence Bank, a approval at that time to acquire a United States bank, state-chartered non-member insured depository institution however, because neither BCCI's undisclosed losses nor its located in Encino, California ("Independence Bank"). The illicit attempts to conceal them would survive the scrutiny Amended Notice also alleges that BCCI violated Sec- of the application process. BCCI therefore decided to action 5(c) of the BHC Act, 12 U.S.C. § 1844(c), by filing quire a United States bank through a nominee, who would false and misleading reports with the Board which failed to acquire the bank on behalf of BCCI and with BCCI funds disclose BCCI's interest in Independence Bank. The in exchange for various kinds of compensation. While the Amended Notice further alleges that Respondent Ghaith R. nominee would possess the credentials necessary to receive Pharaon ("Pharaon") is an institution-affiliated party of regulatory approval as the ostensible owner of the bank, BCCI pursuant to 12 U.S.C. § 1813(u),2 and that as such BCCI would in reality control the bank. One bank BCCI Pharaon "caused, brought about, participated in, or aided selected for this undertaking was Independence Bank. The and abetted" BCCI's violations of the BHC Act. The nominee BCCI selected was Ghaith Pharaon. Amended Notice seeks the imposition against Pharaon of BCCI and Pharaon signed an agreement, undisclosed to an industry-wide prohibition order and of civil money United States banking regulators, pursuant to which penalties in the amount of $37 million. Pharaon would acquire and hold as the registered owner 100 percent of the shares of Independence Bank. In reality, Overview pursuant to this agreement, Pharaon was to hold only 15 percent of the stock as beneficial owner and 85 percent The first BCCI institution was organized in 1972. By 1985, as the nominee of BCCI. BCCI funded Pharaon's acquisi- BCCI had operations in nearly seventy countries, including tion of the Independence Bank shares through loans to the United States. Also by that time, BCCI had accumu- Pharaon under which BCCI would have no recourse to lated losses which far exceeded its stated capital. BCCI Pharaon personally, but only to the shares themselves. concealed these losses from banking regulators around the BCCI approved the appointment of four of the five memworld in many ways, including embezzling from its cus- bers of the board of directors of Independence Bank, and tomers, creating fictitious loans to disguise actual non- also filled senior management positions at Independence performing loans, and making secret investments through Bank with BCCI personnel. nominees in high-growth enterprises. BCCI intended that The plan envisioned that, at a later time (and presumably the profits resulting from these secret investments, together after BCCI had improved its financial condition), BCCI with the proceeds of normal banking activities, would would attempt to obtain regulatory approval to purchase enable BCCI to recoup its losses. Independence Bank from Pharaon, thus making BCCI's Before BCCI had successfully recouped its losses, how- existing holding company a bank holding company subject ever, the Luxembourg banking authorities refused to con- to supervision under United States law by the Federal tinue to serve as BCCI's home country supervisor.3 Forced Reserve System. However, BCCI's various plans to recoup to find a new home country supervisor for its worldwide its losses were not successful, and BCCI failed on July 5, banking operations, BCCI decided to establish its home 1991. The Board initiated these proceedings in September country in the United States and therefore to be supervised of 1991, and Independence Bank itself failed in January of by United States banking regulators. To accomplish this, 1992. Recommended Decision, Exceptions and Summary of Final Decision ings), ICIC Staff Benefit Trust and ICIC Foundation, unless the context requires reference to a specific BCCI entity. See Recommended Decision at 1 n. 1. After a nineteen-day hearing, Administrative Law Judge 2. "Institution-affiliated party" is defined in Section 3(u) of the Walter J. Alprin issued his Recommended Decision on Federal Deposit Insurance Act (the "FDI Act") as "any director, April 12, 1996 (the "Recommended Decision" or "RD"). officer, employee, or controlling stockholder (other than a bank hold- In the Recommended Decision, Judge Alprin found that ing company) of, or agent for, an insured depository institution." Pharaon was an institution-affiliated party of BCCI who 12 U.S.C. § 1813(u). These proceedings are instituted under the civil money penalty provisions of the BHC Act, 12 U.S.C. § 1847(b), and violated Sections 3 and 5 of the BHC Act by participating under the prohibition provisions of the FDI Act, 12 U.S.C. § 1818(e). in BCCI's acquisition of unauthorized control of Indepen- Section 1818(e) is applicable with respect to bank holding companies dence Bank through acts of personal dishonesty. RD at 3. by operation of 12 U.S.C. § 1818(b)(3), which provides that 12 U.S.C. Judge Alprin recommended the imposition of civil money § 1818(b)-(s) and 12 U.S.C. § 1818(u) "shall apply to any bank holding company, ... in the same manner as they apply to a State penalties in the amount of $37 million and the institution of member insured depository institution." an industry-wide prohibition order against Pharaon, both as 3. Under the principles governing international bank supervision, sought in the Amended Notice. supervision of an international financial organization is divided be- Board Enforcement Counsel ("Board Enforcement tween the country where the institution is chartered, its "home coun- Counsel" or 'BEC') and Pharaon filed exceptions to the try," and any country where an institution conducts business, a "host country." See RD at 10-11. Recommended Decision, and each party filed a response to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 349 the other's exceptions. BEC excepted only to the amount nominee (RD at 88-99, 103-104), and through financing of civil money penalties recommended by Judge Alprin, arrangements (RD at 99-102, 103-104). Judge Alprin also arguing that Judge Alprin should have recommended the found that BCCI, without obtaining prior Board approval, imposition of $111,595,000 sought by BEC instead of the controlled the appointment of a majority of Independence $37,000,000 he recommended. Pharaon excepted "to virtu- Bank's directors within the meaning of Section 2(a)(2)(B) ally every finding of fact, and to all conclusions of law" in of the BHC Act. RD at 102-104. the Recommended Decision. Pharaon's Exceptions ("PE") at 2.4 A. Control Under Section 2(a)(2)(A) of the BHC Act Upon review of the entire administrative record herein, including all post-trial submissions of the parties, the Board (1) The Acquisition Agreement. Judge Alprin found that adopts the Administrative Law Judge's Recommended De- Pharaon illegally acted on behalf of BCCI as its undiscision, Recommended Findings of Preliminary Fact and closed agent when he became the registered holder of the Recommended Conclusions of Law, except as specifically stock of Independence Bank pursuant to the terms of a supplemented or modified herein. The Board accordingly written agreement, undisclosed to United States banking determines that the attached Final Order of Prohibition and regulators, between Pharaon and BCCI (the "Acquisition Assessment of Civil Money Penalty shall issue against Agreement"). The Acquisition Agreement is a three-page Pharaon. document titled "Memorandum re: Acquisition of Shares of Independance [siclBank of [sic](the Bank)," dated Discussion May 17, 1985 and signed by Pharaon and by Swaleh Naqvi ("Naqvi") on behalf of ICIC Overseas. I. Direct or Indirect Control of Independence Bank Pharaon vigorously disputes that the Acquisition Agreement granted control of Independence Bank for purposes Section 3(a) of the BHC Act requires prior Board approval of the BHC Act to ICIC Overseas, to BCCI or to anyone before a company becomes a bank holding company. other than Pharaon.5 PE at 144-156. Pharaon argues first 12 U.S.C. § 1842(a). A "bank holding company" includes that the parties never implemented the Acquisition Agreeany company which has control over any bank. 12 U.S.C. ment and/or never considered it to be valid and effective. § 1841(a)(1). Section 2(a)(2) of the BHC Act defines PE at 38, 145-148. Pharaon further argues that to the "control" as follows: extent the Acquisition Agreement permitted BCCI to have Any company has control over a bank or over any illegal control over Independence Bank, that agreement company if— was illegal and unenforceable and therefore a nullity. Id. (A) The company directly or indirectly or acting The Board concurs in Judge Alprin's finding that the through one or more other persons owns, controls, Acquisition Agreement "has been clearly demonstrated to or has power to vote 25 per centum or more of any be a written expression of the intent of the parties, subject class of voting securities of the bank or company; to intermediate changes but never varying the intended (B) The company controls in any manner the elec- goal." RD at 98. tion of a majority of the directors or trustees of the Pharaon argues next that the Acquisition Agreement was bank or company; or or was intended to be an option agreement. See, e.g., PE at (C) The Board determines, after notice and opportu- 37, 42, 145-148. Judge Alprin found that the Acquisition nity for hearing, that the company directly or indi- Agreement was not intended to be an option agreement, rectly exercises a controlling influence over the given the intent of the parties thereto, the action of the management or policies of the bank or company. parties in accordance therewith enabling BCCI to control Independence Bank, an economic analysis thereof, and the 12 U.S.C. § 1841(a)(2). Under Section 11(a) of the Board's evidence that Pharaon knew the difference between a true Regulation Y, implementing this statutory provision, a option agreement and a nominee agreement like the Acquiprior application to the Board for the formation of a bank sition Agreement. RD at 92-96. The Board concurs in holding company is required. 12 C.F.R. 225.11(a). Judge Alprin's finding that the Acquisition Agreement In the Recommended Decision, Judge Alprin found that constituted a nominee agreement which Pharaon and BCCI BCCI, without obtaining prior Board approval, controlled intended to enter and did in fact enter and carry out, and more than 25 percent of the voting shares of Independence Bank within the meaning of Section 2(a)(2)(A) of the BHC Act through its affiliated entities and through Pharaon as its 5. Judge Alprin found that BCCI controlled ICIC Overseas, on whose behalf Naqvi executed the Acquisition Agreement. Specifically, Judge Alprin found that: BCCI controlled ICIC Staff Benefit 4. Pharaon in his exceptions failed to "set forth page or paragraph Trust under Section 2(g)(2)(C) of the BHC Act; ICIC Staff Benefit references to the specific parts of the administrative law judge's Trust controlled ICIC Holdings within the meaning of Section recommendations to which exception is taken," as required by Sec- 2(a)(2)(A) of the BHC Act because one-half of all the shares of ICIC tion 39(c)(2) of the Board's Uniform Rules of Practice and Procedure Holdings were held in a fiduciary capacity for the benefit of ICIC Staff applicable to these proceedings. 12 C.F.R. 263.39(c)(2). Because of Benefit Trust; and ICIC Holdings controlled ICIC Overseas within the this failure, the Board assumes that Pharaon excepted to the Recom- meaning of Section 2(a)(2)(A) of the BHC Act because ICIC Overmended Decision in its entirety. seas was ICIC Holdings' wholly-owned subsidiary. RD at 88-92. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

350 Federal Reserve Bulletin • April 1997 through which BCCI controlled Independence Bank for [one director] could arguably have been 'selected by purposes of the BHC Act. BCCI' and [that director] believed he was working for (2) Control Through Financing Arrangements. The Rec- Pharaon." PE at 85-86 (emphasis in original). However, ommended Decision set forth in detail how BCCI financed Pharaon has failed to refute Judge Alprin's findings that the acquisition of 100 percent of the stock of Independence BCCI exercised control over four of the five seats on Bank (RD at 34-51, 99-102), and the nature of the finan- Independence Bank's board of directors through BCCI's cial arrangements between BCCI and Pharaon (RD at direct appointment, recruitment, consent to appoint and 51-60), particularly the significant number and dollar rejection of proposed candidates. RD at 102-103. Thereamount of non-recourse loans extended to Pharaon (RD at fore, the Board concurs in Judge Alprin's finding that 51-56). Judge Alprin noted that prior Board decisions had BCCI impermissibly controlled Independence Bank found preferential financing arrangements for the acquisi- through its ability to control the appointment of a majority tion of bank stock effective to transfer control of an ac- of the directors of Independence Bank. quired bank for purposes of the BHC Act. RD at 99-102. Applying that precedent, Judge Alprin concluded that by C. Conclusion On Section 3(a) of the BHC Act virtue of the financing arrangements BCCI extended for the purchase of the Independence Bank stock, BCCI con- For the foregoing reasons, the Board concludes that BCCI trolled more than 25 percent of the voting shares of Inde- violated Section 3(a) of the BHC Act because BCCI conpendence Bank, and that therefore BCCI violated Section trolled Independence Bank within the meaning of Section 3(a) of the BHC Act. RD at 102. 2(a)(2)(A) and Section 2(a)(2)(B) of the BHC Act. The Pharaon argues that the precedents which Judge Alprin Board further concludes that, through his participation in discussed are inapposite because they involved applica- BCCI's violation, Pharaon violated Section 3(a) of the tions decisions rather than civil money penalties. Neither BHC Act within the meaning of Section 8(b)(5) of the Pharaon nor BCCI ever applied to the Board for approval BHC Act. of BCCI's acquisition of Independence Bank. On the contrary, Pharaon and BCCI agreed to avoid seeking regula- II. Participation in Filing False and Misleading tory approval by having Pharaon act as BCCI's undis- Reports Under Section 5 of the BHC Act closed nominee in acquiring Independence for the benefit of BCCI, because they realized that BCCI could not pass Foreign banks operating branches or agencies within the regulatory scrutiny. See, e.g., RD at 17 27; RD at 18 29; United States are required to file annual "Y-7" reports RD at 27 43-44. The fact that those control decisions with the Board by a regulation implementing the Board's involved applicants following proper procedures does not authority under the BHC Act to require reports. 12 U.S.C. mean that they do not apply to BCCI's acquisition of § 1844(c); 12 C.F.R. 225.5(b); 12 C.F.R. 225.2(c)(2). Un- Independence Bank. Rather, they support the position that der this requirement, BCCI Holdings,6 as an entity control- BCCI controlled Independence Bank. ling a foreign bank that operated agencies in the United Pharaon also argues that Pharaon, and not BCCI, bore States, filed Y-7 reports with the Federal Reserve in 1986, the risk in the Independence Bank acquisition and that 1987, 1988 and 1989. In each of these Y-7 reports, BCCI therefore control could not be imputed to BCCI. Specifi- Holdings stated that it had no ownership interests in banks cally, Pharaon argues that he and not BCCI bore the risk of in the United States, even though BCCI in reality had a the acquisition because he "paid at least the interest on one beneficial interest in Independence Bank. See RD at 77-78. account," (PE at 155 n.105) and because he "never re- Judge Alprin found that BCCI's Y-7 reports were false ceived full indemnification from BCCI in connection with and misleading because, contrary to the statements in those his acquisition of Independence Bank." PE at 155. Even if reports, BCCI in fact controlled Independence Bank. RD at true, these assertions would not refute control by BCCI. 104. Judge Alprin found that Pharaon participated in BC- Moreover, they are outweighed by the other evidence of CI's violation of Section 5(c) by filing an application with record establishing that BCCI and not Pharaon bore all or the California State Banking Department and a notice with virtually all risk associated with the acquisition of Indepen- the Federal Deposit Insurance Corporation (the "FDIC"), dence Bank. Accordingly, the Board concurs in Judge both of which falsely indicated that Pharaon was the sole Alprin's finding that, within the meaning of Section owner of Independence Bank. Id. Pharaon argues that 2(a)(2)(A) of the BHC Act, BCCI controlled the shares of because there is no evidence that Pharaon knew what a Y-7 Independence Bank and that, through this control, BCCI was, what a Y-7 contains, or even whether BCCI filed violated Section 3(a) of the BHC Act. RD at 102. Y-7's or any other reports with the Board, he cannot have "participated" in BCCI's violation of Section 5(c). PE at B. Ability to Appoint Majority of Directors 157-158. The Board concurs in Judge Alprin's rejection of this Judge Alprin concluded that BCCI also violated Sec- argument. Both Pharaon and BCCI knew that the successtion 3(a) of the BHC Act through its control of the election of a majority of the directors of Independence Bank within the meaning of Section 2(a)(2)(B) of the BHC Act. RD at 102-103. Pharaon contends in his exceptions that "only 6. See note 1 supra. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 351 ful execution of their scheme to defraud government regu- reduce the amount of civil money penalties sought against lators and avoid regulatory scrutiny required that BCCI's Pharaon. RD at 114-121. In particular, Judge Alprin found interest in Independence Bank remain secret. Pharaon was, that Pharaon had failed to offer any evidence of a substanand intended to be, an integral part of this scheme. Pharaon tive change in his financial or economic position since was indispensable to the illusion, reflected in the Y-7 1985, when he represented his net worth to be nearly $500 reports and in all reports to United States banking regula- million. RD at 114. In addition, Judge Alprin found that tors, that he, and not BCCI, controlled Independence Bank. there was no evidence of good faith and that Pharaon's This illusion could not have been sustained had Pharaon violations were "especially grave." RD at 115. Furthernot continued to act as BCCI's nominee, and had he more, Judge Alprin found that Pharaon violated other laws himself not submitted false reports to the California State in addition to his violations of Sections 3 and 5 of the BHC Banking Department and to the FDIC. Had Pharaon not Act. RD at 119. Finally, Judge Alprin found that "[t]he filed deceptive reports with the California State Banking record in this matter includes no factors that would tend to Department and the FDIC (or had Pharaon failed to file mitigate civil money penalties against Pharaon." RD at reports at all), the fraudulent scheme reflected in BCCI's 121. Judge Alprin observed, however, that "insofar as the Y-7 reports would have been exposed and brought to an transactions with Independence are concerned, Pharaon did end more quickly. Instead, Pharaon's participation enabled not enjoy any material financial or other benefit." RD at that deception to remain undetected for over four years. 127. The BHC Act states that the Board may impose a civil In addition, Judge Alprin "undertook an application" of money penalty upon "[a]ny company which violates, and the factors set forth in the Interagency Policy Regarding any individual who participates in a violation of, any the Assessment of Civil Money Penalties by the Federal provision of this chapter, or any regulation or order issued Financial Institutions Regulatory Agencies, 45 Federal pursuant thereto." 12 U.S.C. § 1847(b)(1). The BHC Act Register 59,423 (1980) ("Interagency Policy"), in arriving defines "violation" as "includ[ingl any action (alone or at the recommended penalty amount. RD at 126-127, as with another or others) for or toward causing, bringing corrected by "Corrections to Recommended Decision" about, participating in, counseling, or aiding or abetting a (April 15, 1996). Judge Alprin concluded that applying the violation." 12 U.S.C. § 1847(b)(5). The combined applica- Interagency Policy in this case "resulted in computation of tion of these two statutory provisions encompasses any a civil money penalty of slightly over $151 million, while kind of participation by an individual in aiding or abetting the cap on such computation remains at the maximum a violation of the BHC Act. Even unknowing participation penalty, here at most just over $111 million." Id. comes within this definition of a "violation." "This ex- Both parties excepted to the recommended amount of tremely broad definition clearly includes any action, inten- civil money penalties. Board Enforcement Counsel argued tional or inadvertent, by which [an individual] participates that Judge Alprin should have imposed the maximum in' the bank's violation of the [statute]." Lowe v. FDIC, penalty of $111,595,000. Based upon an order entered 958 F.2d 1526, 1535 (11th Cir. 1992) (construing parallel earlier in the case bifurcating this enforcement proceeding language in 12 U.S.C. § 1828(j)(4)). Therefore, even if to limit it to the acquisition of Independence Bank, Judge Pharaon were unaware of all of the details through which Alprin refused to increase the amount of penalties sought. the scheme was implemented, it does not negate his status RD at 112-113. As a result, Judge Alprin recommended as a violator of the BHC Act. Accordingly, the Board the imposition of civil money penalties in the amount of concurs in Judge Alprin's findings and conclusion that $37 million as requested in the Amended Notice, stating Pharaon violated Section 5(c) of the BHC Act by partici- that "in spite of the egregiousness of Pharaon's wilful, pating in BCCI's violation of Section 5(c). knowing, continuing violations engaged in with absolute disregard for accuracy of reports or for any consideration III. Civil Money Penalties and Order of Prohibition of the requirements of law,. .. [$37 million] is a very meaningful figure, in line with the gravity of the offenses, A. Civil Money Penalties the intentional nature of the actions, [and] the attempts to conceal the nature of the transactions" that also took into In the Recommended Decision, Judge Alprin recom- account both Pharaon's financial means and the failure to mended the imposition of civil money penalties in the establish an evidentiary link between Pharaon and the amount of $37 million, the same amount sought in Board Independence Bank transactions by themselves. RD at 127, Enforcement Counsel's Amended Notice. RD at 127. In so as corrected by "Corrections to Recommended Decision" doing, Judge Alprin evaluated in the circumstances of this (April 15, 1996). The Board concurs in Judge Alprin's enforcement proceeding the statutory factors required to be findings and reasoning on this issue, and accordingly conconsidered in assessing a civil money penalty.7 Judge Al- curs in the determination in the Recommended Decision prin found that none of the mitigating factors applied to not to impose civil money penalties in excess of the amount originally sought. 7. Section 8(b) of the BHC Act, 12 U.S.C. § 1847(b), incorporates the mitigation factors set forth in Section 8(i)(2)(G) of the FDI Act, 12 U.S.C. § 1818(i)(2)(G); specifically: Respondent's financial re- history of previous violations; and 'such other matters as justice may sources; Respondent's good faith; the gravity of the violation; the require." Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

352 Federal Reserve Bulletin • April 1997 In addition to his Constitutional challenges to the amount ingly, the Board rejects Pharaon's exceptions on the issue of the recommended penalty,8 Pharaon in his exceptions of scienter. argues that Judge Alprin erroneously failed to reduce the amount in response to Pharaon's lack of financial gain (3) Comportment with Board Guidelines from the violations (PE at 163-164), that there is no Pharaon claims in his exceptions that Judge Alprin failed evidence that he intended to violate the BHC Act (PE at to comport with Board guidelines in arriving at the recom- 165-167), that the penalty assessed "does not comport mended amount of civil money penalties. Pharaon argues with the Board's own guidelines" (PE at 167), and that that Judge Alprin failed to set forth his analysis of the case there is no evidence of Pharaon's current financial condi- under the Interagency Policy. PE at 162. However, Judge tion (PE at 169). As discussed below, the Board rejects Alprin concluded that such an analysis would have resulted each of these arguments. in a figure far in excess of the statutory maximum, let alone the amount sought by Board Enforcement Counsel. RD at (1) Pharaon's Lack of Financial Gain 126-127, as corrected by "Corrections to Recommended Pharaon argues that "[he] was found to have received no Decision" (April 15, 1996). Accordingly, the Board is pecuniary gain whatsoever." PE at 163. However, in the unable to discern any prejudice to Pharaon by the absence Recommended Decision Judge Alprin's recommendation of an analysis which would have produced an unusable, is not based on any finding of pecuniary gain, but rather the and unused, result. "gravity of the offenses, the intentional nature of the ac- Similarly, Pharaon argues that in bringing this enforcetions, the attempts to conceal the nature of the transactions, ment action for the recovery of $37 million in civil money the expected levels of profit and the realities of loss." RD penalties, the Board "ignored its own procedures" (PE at at 127. Indeed, a finding of financial gain might well have 161), referring to a 1991 supervisory letter relating to the resulted in the recommendation of a higher penalty. assessment of civil money penalties. PE at 167, citing SR The Recommended Decision notes that the longstanding 91-13 (FIS) (June 3, 1991). The supervisory letter was an nature of the relationship between Pharaon and BCCI, and internal guideline and does not have the status of a regulathe manner in which Pharaon and BCCI structured and tion. It was not issued pursuant to a notice of proposed conducted that relationship, do not permit a determination rulemaking or a public comment period as required under that a specific reward was or was not tied to a specific the Administrative Procedure Act (5 U.S.C. § 551), nor transaction. RD at 110-111, 127. The record is clear that was it published with the Board's formally adopted rules in Pharaon and BCCI never contemplated a disaggregated the Code of Federal Regulations.9 Accordingly, it is a series of actions and rewards, but rather that the overall general statement of Board policy that is not binding on the plan would yield profits in which Pharaon would share. Board. See Used Equipment Sales, Inc. v. Department of The parties to the relationship made it impossible to deter- Transportation, 54 F.3d 862, 867 (D.C. Cir. 1995); Amrep mine the benefit Pharaon derived from service as BCCI's Corp. v. Federal Trade Commission, 768 F.2d 1171, 1178 nominee for the acquisition of control of Independence (10th Cir. 1985). Indeed, even if it were more formally part Bank. of the Board's decisional process, it would not bind the Board. See OTS v. Rapp, 52 F.3d 1510, 1522 (10th Cir. (2) Pharaon's Lack of Intent to Violate the BHC Act 1995) (OTS never intended to bind itself to its matrix; Pharaon argues that, in order to impose civil money penal- "petitioners had no reasonable or legally protected expecties in this case, Board Enforcement Counsel was required tation that the OTS would apply matrix methodology in specifically to prove that Pharaon intended to violate the their case").10 Accordingly, the Board rejects Pharaon's BHC Act and Regulation Y. PE at 165. It is clear from the exceptions on this point. statutory text that a showing of intent or scienter is not necessary to impose civil money penalties. Congress is (4) Pharaon's Current Financial Condition explicit when it intends to require scienter for banking Pharaon claims that the recommended amount of civil offenses. See 12 U.S.C. § 1818(i)(2) (providing three money penalties cannot stand because Board Enforcement "tiers" of increasing amounts of civil money penalties for, Counsel failed to introduce evidence of Pharaon's current respectively, "violations," "reckless" activities, and financial condition. See, e.g., PE at 169; Transcript at "knowing" violations). The civil money penalty provi- 3659:2-5 (Oct. 18, 1995). For his part, Pharaon claims that sions for violation of the BHC Act, on the other hand, have he could not introduce evidence of his own current finanno such requirement, demonstrating a conscious legislative choice. There is therefore no basis in the BHC Act for Pharaon's asserted scienter requirement. Furthermore, even 9. In practice; the letter is used for guidance in recommending the if there were such a requirement, the record is clear that initiation of enforcement actions, and has never been used by the Board in determining the amount of a final assessment. Pharaon and BCCI intentionally violated U.S. banking 10. Pharaon attempted improperly to introduce this supervisory laws by intentionally deceiving and making affirmative letter through a declaration of counsel attached to his exceptions. The misrepresentations to U.S. banking regulators. Accord- Board need not consider any matter so submitted, since it constitutes an attempt to introduce additional evidence into the record after the conclusion of the hearing, and does not address the matters contained in or omitted from the Recommended Decision. See 12 C.F.R. 8. See infra at 4., pp. 24-29. 263.39(c)(1). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 353 cial condition because "BEC did everything possible to esty and his willful and continuing disregard for the safety prevent Pharaon from testifying." PE at 169. However, and soundness of Independence Bank. RD at 128-130. such evidence could have been introduced other than Pharaon excepts to these findings, asserting that: he did not through Pharaon's own testimony. The fact that Pharaon commit an unlawful act; no loss to Independence Bank was failed to offer any evidence to rebut the record evidence of shown; the evidence did not support the conclusion that his great wealth does not shift the burden to Board Enforce- depositors' interests could have been prejudiced; and ment Counsel to introduce mitigation evidence on Phara- Pharaon did not benefit from the alleged violation. PE at on 's behalf. Stanley v. Board of Governors of the Federal 174-178. The Board rejects all of these exceptions. The Reserve System, 940 F.2d 267, 274 (7th Cir. 1991) ("An Board concurs in the Recommended Decision's findings as awkward state of affairs would arise if the Board was to each of the elements supporting the imposition of an required to bear full responsibility for proving the financial order of prohibition. RD at 128-130.11 Accordingly, the condition of the individual Directors who obviously op- Board also concurs in the Recommended Decision's conpose higher penalties and whose self-interest is served by clusion that imposition of an order of prohibition upon painting as grim a picture as possible of their respective Pharaon is appropriate. financial conditions"). As Judge Alprin found in the Recommended Decision: IV. Pharaon's Constitutional Claims In 1985, [Pharaon] declared his net worth to be almost half-a-billion [sic] dollars. Having established this as Pharaon presses two principal constitutional challenges to a point of consideration the Enforcement Counsel met this enforcement proceeding generally and to the impositheir burden of proof, and during the hearing, Pharaon tion of civil money penalties in particular. First, Pharaon offered no evidence to indicate any substantive change argues that the amount of civil money penalties imposed in in his financial or economic position since 1985. the Recommended Decision violates the Eighth Amend- RD at 114. The Board concurs in Judge Alprin's findings ment's Excessive Fines Clause. PE at 136. Second, on this issue, and accordingly rejects Pharaon's exceptions. Pharaon argues that the penalty amount is so large that it violates his Fifth Amendment substantive due process (5) Conclusion on Civil Money Penalties rights. PE at 172. In summary, the BHC Act authorizes civil money penalties in the amount of $5,000 per day (pre-FIRREA) and A. Eighth Amendment Excessive Fines Claim $25,000 per day (post-FIRREA) for each day the violation continues. In this case, application of these amounts would Pharaon's primary arguments with respect to the Eighth result in a penalty of over $111 million. The $37 million Amendment rely upon cases under the Double Jeopardy amount of civil money penalties recommended clearly falls Clause.12 On that basis, Pharaon argues that the Board is within the Board's statutory authorization in light of the required to determine whether the civil money penalty facts of this case: that Pharaon and BCCI intended to provisions in the BHC Act can be described as "solely violate U.S. banking laws by deceiving U.S. banking regu- remedial" in purpose. See PE at 133-134. However, the lators; that the Section 3 violation continued for more than Supreme Court has recently clarified that whether a civil five years; and that the Section 5 violations commenced, proceeding imposes "punishment" for Double Jeopardy continued and grew during that same period. Accordingly, Clause purposes is substantively and analytically distinct upon review of the evidence and the arguments of the from other constitutional punishment analyses. U.S. v. Ursparties, the Board rejects the exceptions of both parties to ery, 116 S. Ct. 2135, 2147 (1996) ("Ursery"). Accord- Judge Alprin's recommendation for the amount of civil ingly, Pharaon's argument that the Board must determine money penalties in this enforcement proceeding. The whether the civil money penalty provisions in the BHC Act Board concurs with the Recommended Decision's recom- are "solely remedial" is simply inapposite for an analysis mendation of civil money penalties in this case in the under the Excessive Fines Clause.13 amount of $37 million. B. Order of Prohibition 11. The Board need not address Pharaon's "no benefit" argument, because the Board concurs in Judge Alprin's findings that the evidence establishes the alternative elements supporting the imposition Judge Alprin found that Pharaon, as an institution-affiliated of an order of prohibition: harm to the institution, and potential party of BCCI, was subject to prohibition by the Board prejudice to its depositors. 12 U.S.C. § 1818(e)(l)(B)(i)-(ii). because the evidence established the statutory require- 12. Pharaon bases these arguments on a line of Supreme Court cases ments for the imposition of an order of prohibition. RD at beginning with U.S. v. Halper, 490 U.S. 435 (1989), which set forth the circumstances under which a civil penalty may constitute "punish- 128-130, citing 12 U.S.C. § 1818(e)(1). Specifically, Judge ment" for purposes of the Double Jeopardy Clause's prohibition Alprin found: that Pharaon had violated the BHC Act and against multiple punishments for the same offense. other laws and regulations; that Pharaon had participated in 13. "It is unnecessary in a case under the Excessive Fines Clause to unsafe and unsound banking practices; that Pharaon's mis- inquire at a preliminary stage whether the civil sanction imposed in that particular case is totally inconsistent with any remedial goal. conduct resulted in a loss to Independence Bank and poten- Because the second stage of inquiry under the Excessive Fines Clause tially prejudiced the interests of its depositors; and that asks whether the particular sanction in question is so large as to be Pharaon's misconduct demonstrated his personal dishon- "excessive," a preliminary-stage inquiry that focused on the dispro- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

354 Federal Reserve Bulletin • April 1997 The only case Pharaon cites that is relevant to his Eighth Pharaon's conduct constituting violations of Section 3 Amendment Excessive Fines claim is Austin v. U.S., and Section 5 of the BHC Act was carried out and contin- 509 U.S. 602 (1993) ("Austin"), where the Court held that ued over a period of several years. As more fully described an in rem civil forfeiture that is not solely remedial is supra, Pharaon's violations of Section 3 and Section 5 of reviewable under the Eighth Amendment's Excessive Fines the BHC Act concealed from United States banking author- Clause.14 The Supreme Court has expressly refused to ities the unauthorized control of a United States bank by an establish a test for determining whether a forfeiture is entity in direct contravention of the letter and purposes of constitutionally excessive. Austin, 509 U.S. at 622-623. the BHC Act. Pharaon's conduct giving rise to liability "Prudence dictates that we allow the lower courts to con- under the BHC Act was fully intentional, continuing and sider that question [of establishing a multifactor test for extremely serious. As set forth in the Recommended Decidetermining constitutional excessiveness] in the first in- sion, the total fine permitted under the applicable statutes stance." Id. in this case, calculated at the statutory maximum for each The lower courts that have accepted Austin s invitation day that each violation of the BHC Act continued, exceeds to craft such a test have rejected proportionality tests that $111 million. RD at 106-109. Moreover, Judge Alprin simply compare the size of the penalty with the size of any considered a list of factors specified in the Interagency actual damages or government loss. Instead, these deci- Policy, and concluded that this application would result in sions look to the nature of the conduct which gave rise to a penalty far in excess of the $37 million penalty recomliability. "One way to consider what proportion of this mended. For these reasons, the Board does not believe that award is excessive is to examine the nature of the conduct, Austin and its progeny require that the Board find that rather than simply adopting a mathematical proportion." $37 million constitutes an excessive fine for Eighth U.S. v. Gilbert Smith Realty Co., Inc., 840 F. Supp. 71, Amendment purposes, given "the egregiousness of Phara- 74-75 (E.D. Mich. 1993) (emphasis added);15 U.S. v. Ad- on's willful, knowing, continuing violations engaged in vance Tool Co., 902 F. Supp. 1011 (W.D. Mo. 1995), aff'd, with absolute disregard for accuracy of reports or for any 86 F.3d 1159 (8th Cir. 1996).16 consideration of the requirements of law." RD at 127, as corrected by "Corrections to Recommended Decision" (April 15, 1996). portionality of a particular sanction would be duplicative of the B. Substantive Due Process Claim excessiveness analysis that would follow." Ursery, 116 S. Ct. at 2146 (citations omitted). Relying upon BMW of North America v. Gore, 116 S. Ct. 14. Even Austin is not squarely on point. In Austin, the petitioner 1589 (1996) ("BMW"), Pharaon claims that "the penalty had pleaded guilty to one count of possessing cocaine with intent to distribute. Based on that conviction, the United States subsequently here is "grossly out of proportion to the severity of the filed an in rem action seeking forfeiture of petitioner's mobile home offense" and has entered the 'zone of arbitrariness that and auto body shop under 21 U.S.C. § 881. Id. at 604-605. Thus, violates the due process clause[.]' " PE at 172 (citations Austin concerned whether an in rem civil forfeiture proceeding was omitted). In BMW, the Court found that a punitive damages subject to the Excessive Fines Clause. However, Ursery holds that in award violated the Fourteenth Amendment Due Process rem civil forfeiture proceedings are different in form and in substance from in personam civil penalty proceedings such as the instant admin- Clause. BMW, 116 S. Ct. at 1592-1595, 1604. The statute istrative proceeding. "We acknowledged in Austin that our categorical giving rise to liability in BMW set forth no monetary approach under the Excessive Fines Clause was wholly distinct from standards for the imposition of punitive damages. Id. at the case-by-case approach of Halper [determining when a civil pen- 1603-1604.17 As more fully discussed supra, the civil alty may constitute punishment under the Double Jeopardy Clause]." money penalty provisions at issue in this case, in contrast, Ursery, 116 S. Ct. at 2146. 15. In Gilbert Smith Realty, the court found that the defendant had embody a considered congressional calibration of penalty "violated the False Claims Act 58 times: by making 7 [false] state- to violation. Therefore, the Board finds no basis for Pharaments to the local housing authority, and by endorsing 51 rent checks, on's reliance on BMW in this case and, accordingly, no each governed by a contract that stated an endorsement constitutes violation of substantive due process.18 certification of non-receipt of additional rent beyond the amount allowed." Gilbert Smith Realty, 840 F. Supp. at 72. The District Court concluded that "defendants actually made seven certifications to the housing authority directly that were false claims in every sense of the word" and found that a penalty in the amount of $35,000 ($5,000 for each of the 7 false statements) was not excessive, but that imposing a 17. In the absence of such standards, the Supreme Court in BMW $255,000 penalty based on the endorsement of each specific check looked to three factors in determining the reasonableness of a punitive would constitute an excessive fine. Id. at 75. damages award: "the degree of reprehensibility of the defendant's 16. In Advance Tool, the defendant was found liable under the False conduct" (id. at 1599 (footnote omitted)), the "ratio [of a punitive Claims Act for submitting 686 invoices to GSA which defendant damages award] to the actual harm inflicted on the plaintiff" (id. at knew to be false because defendant did not provide what the invoices 1601), and "[c]omparing the punitive damages award and the civil or purported to show had been delivered. Advance Tool, 902 F. Supp. at criminal penalties that could be imposed for comparable misconduct 1015-1016. The court looked to the substance of the conduct to . . . ." (id. at 1603). determine the permissible amount of the penalty. "In the case at bar, 18. Finally, Pharaon also argues that this enforcement proceeding is [defendant] supplied GSA with 73 different types of tools [which were "the functional equivalent of a criminal prosecution which the Board not as represented by the invoices]. The Court finds that a civil penalty is unauthorized to conduct in any capacity . . . ." PE at 126. An of $5,000.00 per tool in the amount of $365,000 does not violate the identical argument was rejected by the District Court in Gilbert Smith Excessive Fines Clause." Id. at 1018-1019. Realty. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 355 For all the foregoing reasons, the Board rejects all of (emphasis added) ("for any alleged bias arising out of this Pharaon's constitutional attacks upon this enforcement pro- or prior proceedings, recusal is required only if a 'fair trial ceeding and upon the amount of civil money penalties [for this particular party] is impossible' "). Accordingly, recommended therein. the Board finds that Pharaon's due process rights were not violated because of bias on the part of Judge Alprin.20 V. Pharaon's Charge of Bias Against Judge Alprin VI. Discovery Issues Pharaon argues that this enforcement proceeding violated his Fifth Amendment due process rights because it "was Pharaon claims that Board Enforcement Counsel's alleged fatally infected with Judge Alprin's bias against Pharaon." failure to produce documents, including "Brady" docu- PE at 137. Pharaon bases this argument primarily upon a ments and other documents relating to Pharaon, constitutes quotation from a section of Judge Alprin's disentitlement grounds for refusing to accept the Recommended Decision. ruling on summary adjudication, which was subsequently PE at 140-142. However, a review of the transcript of the reversed by the Board. To a lesser extent, Pharaon bases hearing in this matter shows that all Pharaon's discovery this argument on "the fact that Judge Alprin has ruled in arguments were specifically considered and addressed durfavor of the agencies in all. .. the cases he has heard," and ing the hearing, except for Pharaon's argument that Board on Judge Alprin's rulings against Pharaon during the con- Enforcement Counsel's failure to disclose an alleged imduct of this enforcement proceeding. PE at 137-140. munity agreement between Naqvi and the New York The Supreme Court has stated that where a judge is County District Attorney deprived Pharaon of a fair trial. alleged to be biased, the alleged bias and prejudice must PE at 140-142. The Board has considered this argument, stem from a source "outside the judicial proceeding at and rejects it.21 Furthermore, in reversing Judge Alprin's hand" to support disqualification on that ground. Liteky v. recommendation of disentitlement on summary disposition U.S., 114 S. Ct. 1147, 1152 (1994), citing U.S. v. Grinnell and remanding this proceeding, the Board specifically au- Corp., 384 U.S. 563, 583 (1966). The basis upon which thorized Judge Alprin "to use his plenary powers over the Pharaon most strongly relies for his bias charge, however, conduct of the proceedings to ensure that Pharaon's fugitivis a quotation from a ruling in this case, i.e., part of the ity does not disrupt this proceeding, and may invoke sancvery judicial proceeding at hand.19 This and Judge Alprin's tions such as restrictions on discovery . . . ." Accordingly, other rulings against Pharaon during the course of this the Board denies Pharaon's discovery exceptions. administrative proceeding cannot constitute the basis for a claim of judicial bias. Hansen v. C.I.R., 820 F.2d 1464, VII. Miscellaneous 1467 (9th Cir. 1987) (manner in which judge conducted trial, and judge's trial rulings adverse to defendant, did not A. Judge Alprin's Credibility Determinations violate defendant's due process rights to fair trial). Similarly, Pharaon has failed to meet the heavy burden Without actually basing exceptions on this issue, Pharaon necessary to establish that Judge Alprin's prior rulings in argues that Judge Alprin incorrectly found Board Enforcefavor of banking agencies constitute bias. McBeth v. Nissan Motor Corp. U.S.A., 921 F. Supp. 1473, 1478 (D.S.C. 1996), citing Liteky v. U.S., 114 S. Ct. 1147, 1158 (1994) 20. In any event, Pharaon's charge of bias is not timely under either the Administrative Procedure Act or the Board's Uniform Rules of The due process claim is procedural. Defendants argue that Practice and Procedure. 5 U.S.C. § 556(b); 12 C.F.R. 263.39(b)(2). because the fine is essentially punishment, it requires the stan- The Administrative Procedure Act "requires that such a claim [of bias dards of a criminal jury trial to impose the fine. There is no on the part of the ALJ] be raised as soon as practicable after a party support for this argument, and it loses. has reasonable cause to believe that grounds for disqualification exist. Id. at 73. It will not do for a claimant to suppress his misgivings while waiting 19. The statement in question comes from Judge Alprin's recom- anxiously to see whether the decision goes in his favor. A contrary mendation on summary disposition: "Unless the Board considers as a rule would only countenance and encourage unacceptable inefficiency matter of policy that it requires further graphic public display of oral in the administrative process. The APA-mandated procedures [set testimony, and the presentation of mountains of supporting documen- forth in § 556(b)] afford every party ample opportunity to enforce and tary exhibits, with the attendant costs, solely as to the involvement of preserve its due process rights." Gibson v. F.T.C., 682 F.2d 554, 565 Pharaon, there is no reason for a full oral hearing herein." Administra- (5th Cir. 1982), quoting Marcus v. Director, Office of Workers' Comtive Law Judge's Order Granting Summary Disposition Against Re- pensation Programs, 548 F.2d 1044, 1051 (D.C. Cir. 1976). For spondent, and Issuing Recommended Decision Prohibiting Respon- example, assuming Judge Alprin's ruling on disentitlement constident from Future Participation in Federally Insured Depository tuted a proper ground for a charge of judicial bias, the time to raise Institutions and Imposing a Civil Money Penalty in the Sum of such a claim was no later than the time this proceeding was remanded $37,000,000 (July 20, 1993) at 10. This statement on its face does not to Judge Alprin by the Board, not now. evince bias, but merely articulates one legal consequence of Judge 21. Assuming for purposes of argument that the evidence in ques- Alprin's recommendation that Pharaon be disentitled, i.e., that the tion constitutes Brady material required to be disclosed, the Board Board need not hold a hearing if it adopted Judge Alprin's disentitle- finds that Pharaon has failed to demonstrate that its non-disclosure ment recommendation. However, the Board "decline[dj to invoke the was "material" and "deprived Pharaon's counsel of material informadoctrine of disentitlement" and remanded this case to Judge Alprin tion necessary to conduct cross-examinations of the Board's main for trial. Decision on Recommendation of Summary Disposition witnesses" such that it "deprive[d] [Pharaon] of a fair trial." PE at (July 12, 1994) at 2. 142. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

356 Federal Reserve Bulletin • April 1997 ment Counsel's main witnesses to be credible. PE at 115— • The request of Pharaon for oral argument is denied. 122, 126. Judge Alprin specifically addressed the issue of So ordered, this 31st day of January, 1997. witness credibility in the Recommended Decision, declining to "concur with the outmoded legal concept that falso Board of Governors of the in unis, falso in omnibus," and expressly finding that the Federal Reserve System Board Enforcement Counsel's two main witnesses were not inherently unreliable solely because they are convicted JENNIFER J. JOHNSON felons. RD at 82-85. Furthermore, Judge Alprin noted that Deputy Secretary of the Board the testimony of these witnesses was supported almost completely throughout by documentation. RD at 83. In addition, Judge Alprin noted that: FINAL ENFORCEMENT ORDERS ISSUED BY THE BOARD The burden of initial proof by preponderance of the OF GOVERNORS evidence was on [BEC1.... If there was any contrary testimony, in addition to that of Respondent, it was The Asahi Bank, Ltd. the responsibility of Respondent to produce it, and he Tokyo,Japan failed to do so. If there were any documentation in refutation, much of which would perforce be in Re- The Asahi Bank, Ltd. spondent's possession rather than or in addition to New York Branch that of [BEC], it was clear that Respondent would New York, New York have been able to present it, with adequate explanation where required. The Federal Reserve Board announced on February 13, Id. Finally, the Board has previously held that credibility 1997, the joint issuance with the New York State Banking determinations are uniquely within the province of the Department of a Cease and Desist Order against The Asahi administrative law judge as the trier of fact. In the Matter Bank, Ltd., Tokyo, Japan, and The Asahi Bank, Ltd., of Interamericas Investments, Ltd. and Peter Ulrich, 82 branch in New York, New York. The Board also issued an Federal Reserve Bulletin 609, 615 (April 9, 1996), and Order of Assessment of a Civil Money Penalty against the cases cited therein. Accordingly, the Board sees no basis bank and branch. for disturbing the administrative law judge's determinations as to credibility. WRITTEN AGREEMENTS APPROVED BY FEDERAL RESERVE BANKS B. Request for Oral Argument Cuyamaca Bank Finally, Pharaon in his Exceptions requested oral argu- Santee, California ment. Oral argument is a discretionary procedure. See 12 C.F.R. 263.29(c). The Board finds that the arguments The Federal Reserve Board announced on February 7, have been sufficiently presented in the pleadings before the 1997, the execution of a Written Agreement between the Board. Therefore, the Board hereby denies the request for Cuyamaca Bank, Santee, California, and the Federal Reoral argument. serve Bank of San Francisco. OmniBanc Corporation River Rouge, Michigan Conclusion The Federal Reserve Board announced on February 7, As more fully set forth supra, the Board hereby adopts the 1997, the execution of a Written Agreement between Om- Recommended Decision, and accordingly further deter- niBanc Corporation, River Rouge, Michigan, and the Fedmines that: eral Reserve Bank of Chicago. The Federal Reserve Board • The exceptions of Pharaon to the Recommended also announced the execution of a Written Agreement by Decision are denied, and between the OmniBank, a subsidiary of OmniBanc • The exceptions of BEC to the Recommended Deci- Corporation, the Federal Reserve Bank of Chicago, and the sion are denied', and Michigan Financial Institution Bureau. 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 A31 New security issues—Tax-exempt state and local Policy Instruments 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 A33 Domestic finance companies—Assets and Federal Reserve Banks liabilities, and consumer, real estate, and business credit A10 Condition and Federal Reserve note statements All Maturity distribution of loan and security Real Estate holdings A34 Mortgage markets A35 Mortgage debt outstanding Monetary and Credit Aggregates A12 Aggregate reserves of depository institutions Consumer Credit and monetary base A13 Money stock, liquid assets, and debt measures A36 Total outstanding A15 Deposit interest rates and amounts outstanding— A36 Terms commercial and BIF-insured banks Flow of Funds Commercial Banking Institutions— A37 Funds raised in U.S. credit markets Assets and Liabilities A39 Summary of financial transactions A40 Summary of credit market debt outstanding A16 All commercial banks A41 Summary of financial assets and liabilities A17 Domestically chartered commercial banks A18 Large domestically chartered commercial banks A19 Small domestically chartered commercial banks DOMESTIC NONFINANCIAL STATISTICS A20 Foreign-related institutions 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 • April 1997 DOMESTIC NONFINANCIAL STATISTICS- A56 Banks' own claims on unaffiliated foreigners CONTINUED A57 Claims on foreign countries— Combined domestic offices and foreign branches Selected Measures—Continued Reported by Nonbanking Business A48 Gross domestic product and income Enterprises in the United States A49 Personal income and saving A58 Liabilities to unaffiliated foreigners INTERNATIONAL STATISTICS A59 Claims on unaffiliated foreigners Summary Statistics Securities Holdings and Transactions A50 U.S. international transactions—Summary A60 Foreign transactions in securities A51 U.S. foreign trade A61 Marketable U.S. Treasury bonds and A51 U.S. reserve assets notes—Foreign transactions A51 Foreign official assets held at Federal Reserve Banks Interest and Exchange Rates A52 Selected U.S. liabilities to foreign official A61 Discount rates of foreign central banks institutions A61 Foreign short-term interest rates A62 Foreign exchange rates Reported by Banks in the United States A52 Liabilities to and claims on foreigners A63 GUIDE TO STATISTICAL RELEASES AND A53 Liabilities to foreigners SPECIAL TABLES A55 Banks' own claims on foreigners A56 Banks' own and domestic customers' claims on foreigners A64 INDEX TO STATISTICAL TABLES 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 • April 1997 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted1 1996r 1996r 1997 MMoonneettaarryy oorr ccrreeddiitt aaggggrreeggaattee Q1 Q2 Q3 Q4 Sept. Oct. Nov. Dec. Jan. Reserx'es of depository institutions2 1 Total -7.9 -6.4 -16.4 -16.9 -21.1 -28.4 -6.2 7.0 -18.3 2 Required -8.5 -5.7 -16.6 -18.3 -23.3 -27.9 -7.4 -2.4 -13.9 3 Nonborrowed -6.5 -7.6 -17.6 -16.0 -22.0 -26.7 -4.5 8.5 -15.7 4 Monetary base3 1.5 3.0 5.4 5.1 4.9 3.1 6.3 9.2 3.0 Concepts of money, liquid assets, and debt4 5 Ml -3.5 -1.4 -6.5 -7.4 -7.2 -14.4 -.2 1.1 -1.4 6 M2 5.3 4.5 3.4 5.0 4.0 3.9 6.8 7.5 5.2 7 M3 6.6 6.3 5.4 8.5 8.0 9.3 7.6 11.4 7.2 8 L 4.6 6.3 5.7 7.2 9.0 4.6 8.8 8.4 n.a. 9 Debt 5.0 5.7 5.3 4.9 4.0 4.9 5.7 4.8 n.a. Nontransaction components 10 In M25 9.3 7.0 7.7 10.2 8.7 11.4 9.6 10.0 7.8 11 In M3 only6 11.5 13.4 12.9 21.0 22.5 28.7 10.2 25.1 14.0 Time and savings deposits Commercial banks 12 Savings, including MMDAs 21.6 12.1 12.0 16.9 12.0 18.7 18.2 15.1 13.8 13 Small time7 3.3 -1.0 3.8 4.8 5.4 4.1 5.3 4.3 -.2 14 Large time8,9 10.3 18.6 18.0 28.7 19.8 44.5 16.7 35.3 22.8 Thrift institutions 15 Savings, including MMDAs -2.5 6.5 .2 .8 .7 4.3 -2.6 2.6 5.2 16 Small time7 -2.4 -3.0 -.3 2.2 2.7 4.8 -.7 -2.7 1.0 17 Large time8 7.8 -3.0 9.0 9.3 18.7 6.1 9.1 -1.5 30.3 Money market mutual funds 18 Retail 14.6 16.3 16.3 17.2 16.8 17.1 15.2 21.6 13.0 19 Institution-only 21.4 12.0 20.7 19.8 27.5 12.2 16.2 30.0 -12.0 Repurchase agreements and Eurodollars 20 Repurchase agreements10 2.1 13.9 -3.7 6.4 15.7 13.0 -1.2 -3.7 17.8 21 Eurodollars10 11.9 10.9 8.1 32.8 34.2 62.9 -9,0 45.5 32.8 Debt components4 22 Federal 3.0 4.7 3.8 3.2 1.0 3.8 4.2 2.9 n.a. 23 Nonfederal 5.7 6.0 5.8 5.5 5.1 5.3 6.2 5.5 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 Ml. 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 Dec. 18 Dec. 25 Jan. 1 Jan. 8 Jan. 15 Jan. 22 Jan. 29 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 430,854 440,343r 440,474 441,229 439,565 U.S. government securities2 2 Bought outright—System account 392,296 392,674 391,762 392,786 392,654 392,382 391,911 391,642 391,658 3 Held under repurchase agreements 3,219 11,332 9,214 11,764 11,908 16,590 12,417 10,447 5,660 Federal agency obligations 4 Bought outright 2,245 2,228 2,098 2,225 2,225 2,225 2,225 2,079 2,050 5 Held under repurchase agreements 9670 1,0310 1,7850 4920 9550 1,3504 1,6300 2,3420 1,8080 6 Acceptances Loans to depository institutions 7 Adjustment credit 77 114 25 85 118 40 43 26 15 8 Seasonal credit 1005 670 108 680 700 570 109 107 107 9 Extended credit 10 Float 789 l,238r 1,153 1,288 l,324r 2,596 1,252 845 1,372 11 Other Federal Reserve assets 31,155 31,659 31,903 31,766 32,253 32,401 31,731 32,166 31,545 12 Gold stock 11,049 11,048 11,048 11,048 11,048 11,048 11,048 11,048 11,048 13 Special drawing rights certificate account 9,718 9,718 9,636 9,718 9,718 9,718 9,718 9,718 9,718 14 Treasury currency outstanding 24,895r 24,957' 25,017 24,956r 24,968r 24,981 24,995 25,009 25,023 ABSORBING RESERVE FUNDS 15 Currency in circulation 436,982r 444,554r 443,340 442,46 lr 446,277' 448,286 443,904 441,700 16 Treasury cash holdings 276 257 248 257 249 249 247 247 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 4,939 5,749 6,186 7,169 5,694 6,326 4,479 5,512 6,524 18 Foreign 169 178 185 175 201 171 177 182 214 19 Service-related balances and adjustments .. 6,896 6,975 7,173 7,122 6,919 6,887 6,875 7,205 7,571 20 Other 352 335 331 353 300 435 246 316 349 21 Other Federal Reserve liabilities and capital .. 14,263 14,412 14,318 14,653 14,570 14,341 14,006 14,495 14,449 22 Reserve balances with Federal Reserve Banks" 12,638 13,607r 11,879 14,006 13,033' 15,101 12,671 13,480 8,860 End-of-month figures Wednesday figures Jan. 22 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 437,242 451,339' 433,795 452,762 452,335 U.S. government securities2 2 Bought outright—System account 392,662 390,907 391,728 392,587 395,381 390,907 392,321 389,379 391,872 3 Held under repurchase agreements 7,548 19,971 7,720 22,621 11,908 19,971 9,775 14,648 4,246 Federal agency obligations 4 Bought outright 2,237 2,225 2,038 2,225 2,225 2,225 2,225 2,055 2,038 5 Held under repurchase agreements 2,7630 1,6120 1,2850 1,1504 9550 1,6102 2,1840 2,9100 1,5500 6 Acceptances Loans to depository institutions 7 Adjustment credit 111 57 16 178 36 57 33 131 7 8 Seasonal credit 760 290 104 700 690 290 108 104 107 9 Extended credit 10 Float 951 4,296' 57 1,976 2,721' 5,292 186 401 3,383 11 Other Federal Reserve assets 30,894 32,243 30,937 31,951 32,338 32,243 32,065 32,168 31,558 12 Gold stock 11,049 11,048 11,048 11,049 11,048 11,048 11,048 11,048 11,048 13 Special drawing rights certificate account 9,718 9,718 9,400 9,718 9,718 9,718 9,718 9,718 9,718 14 Treasury currency outstanding 24,930' 24,981' 25,051 24,956' 24,968r 24,981 24,995 25,009 25,023 ABSORBING RESERVE FUNDS 15 Currency in circulation 440,951' 450,663' 438,399 444,469' 448,590' 450,663 446,673 443,070 441,497 16 Treasury cash holdings 273 249 249 249 249 249 246 247 249 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 4,857 7,742 6,770 9,989 6,479 7,742 5,062 7,521 8,578 18 Foreign 170 167 167 163 214 167 169 171 169 19 Service-related balances and adjustments . . . 7,110 6,887 7,174 7,122 6,919 6,887 6,875 7,205 7,571 20 Other 292 892 359 358 265 892 236 352 339 21 Other Federal Reserve liabilities and capital ., 14,219 13,829 13,384 14,464 14,676 13,829 13,953 14,432 14,310 22 Reserve balances with Federal Reserve Banks" 15,067 16,656' 12,793 21,669 13,976' 17,652 11,353 14,481 7,747 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 NonfinancialS tatistics • April 1997 1.12 RESERVES AND BORROWINGS Depository Institutions' Millions of dollars Prorated monthly averages of biweekly averages RReesseerrvvee ccllaassssiiffiiccaattiioonn 1994 1995 1996 1996 1997 Dec. Dec. Dec.r July Aug. Sept. Oct. Nov. Dec.r Jan. 1 Reserve balances with Reserve Banks2 24,658 20.440 13,395 15,392 14,761 13,688 12,800 12,895 13,395 11,712 2 Total vault cash3 40,378 42,094r 44,426 42,774r 42,5 llr 43,652r 42,925r 42,745r 44,426 47,172 3 Applied vault cash4 36.682 37,460 37,848 37,451 36,880 37,309 36,749 36,862 37,848 38,931 4 Surplus vault cash5 3,696 4,634r 6,578 5,323r 5,631r 6,343r 6,175r 5,883r 6,578 8,241 5 Total reserves6 61,340 57,900 51,243 52,843 51,642 50,997 49,550 49,756 51,243 50,644 6 Required reserves 60,172 56,622 49,819 51,778 50,681 49,959 48,556 48,721 49,819 49,418 7 Excess reserve balances at Reserve Banks7 1,168 1,278 1,424 1,065 961 1,038 994 1,035 1,424 1,225 8 Total borrowings at Reserve Banks8 209 257 155 368 334 368 287 214 155 45 9 Seasonal borrowings 100 40 68 284 309 306 212 109 68 19 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 1997 Oct. 9 Oct. 23 Nov. 6 Nov. 20 Dec. 4 Dec. 18 Jan. lr Jan. 15 Jan. 29 Feb. 12 1 Reserve balances with Reserve Banks2 12,653 13,141 12,371 12,914 13,182 12,837 14,063 13,060 10,286 11,088 2 Total vault cash3 43,947r 42,207r 43,032r 42,506r 42,908 44,684 44,615 46,140 48,679 45,130 3 Applied vault cash4 37,258 36,267 37,021 36,768 36,898 37,913 38,070 39,029 39,076 37,668 4 Surplus vault cash5 6,689r 5,940r 6,01 r 5,738r 6,010 6,771 6,545 7.112 9,603 7,463 5 Total reserves6 49,911 49,408 49,392 49,682 50,080 50,750 52,132 52,089 49,362 48,755 6 Required reserves 48,839 48,470 48,388 48,678 48,983 49,338 50,595 50,859 48,140 47,698 7 Excess reserve balances at Reserve Banks7 1,072 938 1,004 1,004 1,097 1,411 1,537 1,230 1,222 1,057 8 Total borrowings at Reserve Banks8 402 286 161 143 346 112 143 53 32 34 9 Seasonal borrowings 274 205 154 108 86 67 64 18 18 18 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 Banks' Millions of dollars, averages of daily figures 1996 1997 SSoouurrccee aanndd mmaattuurriittyy Dec. 2 Dec. 9 Dec. 16 Dec. 23 Dec. 30 Jan. 6 Jan. 13 Jan. 20 Jan. 27 Federal funds purchased, repurchase agreements, and other selected borrowings From commercial banks in the United States 1 For one day or under continuing contract 90,123 94,694 84,450 83,209 79,414 81,449 77,086 74,812 76,367 2 For all other maturities 14,828 13,478 14,638 15,099 14,794 13,253 14,492 15,048 13,680 From other depository institutions, foreign banks and official institutions, and U.S. government agencies 3 For one day or under continuing contract 16,887 19,083 17,451 17,772 17,621 20,235 22,186 19,394 18,971 4 For all other maturities 20,795 17,905 17,920 17.490 17,396 15,807 16,252 16,446 17,374 Repurchase agreements on U.S. government and federal agency securities Brokers and nonbank dealers in securities 5 For one day or under continuing contract 13,966 14,381 11,892 12,129 11,918 14,304 11,905 9,531 11,512 6 For all other maturities 33,433 32,227 33,089 34,380 33,095 31,265 36,294 38,712 39,099 All other customers 7 For one day or under continuing contract 39,635 40,910 42,461 42,664 40,870 42,759 44,455 44,339 43,943 8 For all other maturities 15,309 14,086 13,594 13,609 14,510 13,411 13,421 13,687 14,260 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 78,599 78,244 72,768 71,436 69,786 79,374 71,093 67,421 74,581 10 To all other specified customers2 23,836 23,103 25,224 25,127 22,237 23,418 24,138 21,634 20,929 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 AI 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit' Seasonal credit2 Extended credit3 FFeeddeerraall RReesseerrvvee BBaannkk 3/ O 7/ n 9 7 Effective date Previous rate 3/ O 7/ n 9 7 Effective date Previous rate 3/ O 7/ n 9 7 Effective date Previous rate Boston 5.00 2/1/96 5.25 5.25 2/27/97 5.30 5.75 2/27/97 5.80 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 5.25 2/27/97 5.30 5.75 2/27/97 5.80 Range of rates for adjustment credit in recent years4 Range (or F.R. Bank Range (or F.R. Bank Range (or F.R. Bank Effective date level)—All of level)—All of Effective date level)—All of F.R. Banks N.Y. F.R. Banks N.Y. F.R. Banks N.Y. In effect Dec. 31, 1977 1981—Nov. 2 13-14 13 1988—Aug. 9 6-6.5 6.5 6 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 27 7 7 12 7 7 23 11.5 11.5 July 3 7-7.25 7.25 Aug. 2 11-11.5 11 1990—Dec. 19 6.5 6.5 10 7.25 7.25 3 11 11 Aug. 21 7.75 7.75 16 10.5 10.5 1991—Feb. 1 6-6.5 6 Sept. 22 8 8 27 10-10.5 10 4 6 6 Oct. 16 8-8.5 8.5 30 10 10 Apr. 30 5.5-6 5.5 20 8.5 8.5 Oct. 12 9.5-10 9.5 May 2 5.5 5.5 Nov. 1 8.5-9.5 9.5 13 9.5 9.5 Sept. 13 5-5.5 5 3 9.5 9.5 Nov. 22 9-9.5 9 17 5 5 26 9 9 Nov. 6 4.5-5 4.5 1979—J A ul u y g . 2 1 0 7 10- 1 1 0 0 .5 1 10 0 . 5 Dec. 1145 8 8 . . 5 5 - - 9 9 9 8 .5 Dec. 20 7 3.5 4 - .5 4 .5 4 3 . . 5 5 20 10.5 10.5 17 8.5 8.5 24 3.5 3.5 Sept. 19 10.5-11 11 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 8 8 18 3.5 3.5 19 13 1133 Aug. 16 3.5-4 4 May 29 12-13 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 13 111-112 11 17 4.75 4.75 16 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 11 11 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 1981—May 85 13 13 22 5.5 5.5 13-14 14 In effect Mar. 7, 1997 5.00 5.00 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 • April 1997 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS1 Requirement TTyyppee ooff ddeeppoossiitt Percentage of deposits Effective date Net transaction accounts2 1 $0 million-$49.3 million3 33333 11111/////22222/////9999977777 2 More than $49.3 million4 1111100000 11111/////22222/////9999977777 00000 1111122222/////2222277777/////9999900000 00000 1111122222/////2222277777/////9999900000 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 with the reserve Reserve Bulletin. Under the Monetary Control Act of 1980, depository institutions maintenance period beginning January 2, 1997, for depository institutions that report weekly, include commercial banks, mutual savings banks, savings and loan associations, credit and with the period beginning January 16, 1997, for institutions that report quarterly, the unions, agencies and branches of foreign banks, and Edge Act corporations. exemption was raised from $4.3 million to $4.4 million. 2. Transaction accounts include all deposits against which the account holder is permitted 4. The reserve requirement was reduced from 12 percent to 10 percent on to make withdrawals by negotiable or transferable instruments, payment orders of with- Apr. 2, 1992, for institutions that report weekly, and on Apr. 16, 1992, for institutions that drawal, or telephone or preauthorized transfers for the purpose of making payments to third report quarterly. persons or others. However, accounts subject to the rules that permit no more than six 5. For institutions that report weekly, the reserve requirement on nonpersonal time deposits preauthorized, automatic, or other transfers per month (of which no more than three may be with an original maturity of less than 1 '/S years was reduced from 3 percent to 1 x/i percent for by check, draft, debit card, or similar order payable directly to third parties) are savings the maintenance period that began Dec. 13, 1990, and to zero for the maintenance period that deposits, not transaction accounts. began Dec. 27, 1990. For institutions that report quarterly, the reserve requirement on 3. The Monetary Control Act of 1980 requires that the amount of transaction accounts nonpersonal time deposits with an original maturity of less than 1 '/> years was reduced from 3 against which the 3 percent reserve requirement applies be modified annually by 80 percent of percent to zero on Jan. 17, 1991. the percentage change in transaction accounts held by all depository institutions, determined The reserve requirement on nonpersonal time deposits with an original maturity of V/i as of June 30 of each year. Effective with the reserve maintenance period beginning January 2, years or more has been zero since Oct. 6, 1983. 1997, for depository institutions that report weekly, and with the period beginning January 16, 6. The reserve requirement on Eurocurrency liabilities was reduced from 3 percent to zero 1997, for institutions that report quarterly, the amount was decreased from $52.0 million to in the same manner and on the same dates as the reserve requirement on nonpersonal time $49.3 million. deposits with an original maturity of less than 1 Vi 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 1996 TTyyppee ooff ttrraannssaaccttiioonn 11999944 11999955 11999966 aanndd mmaattuurriittyy June July Aug. Sept. Oct. Nov. Dec. U.S. TREASURY SECURITIES Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 17,484 10,932 9,901 3,311 0 0 0 0 6,502 0 2 Gross sales 0 0 0 0 0 0 0 0 0 0 3 Exchanges 376,277 398,487 400,152 31,726 32,368 34,271 32,791 38,661 29,037 27,247 4 Redemptions 0 900 0 0 0 0 0 0 0 0 Others within one year 5 Gross purchases 1,238 390 1,275 0 0 1,240 0 0 0 0 6 Gross sales 0 0 0 0 0 0 0 0 0 0 7 Maturity shifts 0 0 29,070 0 2,807 2,780 2,371 1,623 3,818 2,259 8 Exchanges -21,444 0 -41,394 0 -4,415 -3,580 -2,890 -1,770 -5,655 -1,950 9 Redemptions 0 0 2,015 0 0 0 0 0 0 0 One to five years 10 Gross purchases 9,168 4,966 3,177 0 0 1,279 0 0 0 0 11 Gross sales 0 0 0 0 0 0 0 0 0 0 12 Maturity shifts -6,004 0 -24,087 0 -2,807 -1,409 -2,371 -1,623 -2,102 -2,259 13 Exchanges 17,801 0 31,458 0 3,694 1,780 2,890 1,395 2,715 1,950 Five to ten years 14 Gross purchases 3,818 1,239 776 0 0 297 0 0 0 0 15 Gross sales 0 0 0 0 0 0 0 0 0 0 16 Maturity shifts -3,145 0 -1,531 0 0 -1,371 0 0 1,716 0 17 Exchanges 2,903 0 6,666 0 721 900 0 375 1,470 0 More than ten years 18 Gross purchases 3,606 3,122 1,965 0 0 900 0 0 0 0 19 Gross sales 0 0 0 0 0 0 0 0 0 0 20 Maturity shifts -918 0 -20 0 0 0 0 0 0 0 21 Exchanges 775 0 3,270 0 0 900 0 0 1,470 0 All maturities 22 Gross purchases 35,314 20,649 17,094 3,311 0 3,716 0 0 6,502 0 23 Gross sales 0 0 0 0 0 0 0 0 0 0 24 Redemptions 2,337 2,376 787 0 0 0 0 0 0 0 Matched transactions 25 Gross purchases 1,700,836 2,197,736 3,083,315 248,534 267,438 265,397 234,992 268,304 227,577 272,117 26 Gross sales 1,701,309 2,202,030 3,085,685 249,277 268,975 264,536 238,036 267,128 226,505 273,872 Repurchase agreements 27 Gross purchases 309,276 331,694 457,568 43,048 46,151 45,202 36,014 33,836 36,383 85,924 28 Gross sales 311,898 328,497 450,359 41,666 37,779 56,286 33,374 33,020 36,665 73,501 29 Net change in U.S. Treasury securities 29,882 17,175 21,147 3,950 6,836 -6,508 -404 1,993 7,293 10,669 FEDERAL AGENCY OBLIGATIONS Outright transactions 30 Gross purchases 0 0 0 0 0 0 0 0 0 0 31 Gross sales 0 0 0 0 0 0 0 0 0 0 32 Redemptions 1,002 1,303 1,637 40 52 0 27 63 10 12 Repurchase agreements 33 Gross purchases 52,696 36,851 75,354 5,138 3,145 8,500 4,536 12,683 9,264 7,796 34 Gross sales 52,696 36,776 74,842 6,488 2,863 7,544 4,436 11,051 9,471 8,947 35 Net change in federal agency obligations -1,002 -1,228 -1,125 -1,390 231 956 73 1,569 -217 -1,163 36 Total net change in System Open Market Account. .. 28,880 15,948 20,021 2,560 7,066 -5,552 -331 3,562 7,076 9,506 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 • April 1997 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements1 Millions of dollars Wednesday End of month AAccccoouunntt 1997 1996 1997 Jan. 1 Jan. 8 Jan. 15 Jan. 22 Jan. 29 Nov. 30 Dec. 31 Jan. 31 Consolidated condition statement ASSETS 1 Gold certificate account 11,048 11,048 11.048 11,048 11,048 11,049 11,048 11,048 2 Special drawing rights certificate account 9,718 9,718 9,718 9,718 9,400 9,718 9,718 9,400 3 Coin 591 587 617 651 676 621 591 703 Loans 4 To depository institutions 85 51 145 24 80 188 85 30 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 2,225 2,225 2,055 2,038 2,038 2,237 22,,222255 2,038 8 Held under repurchase agreements 1,612 2,184 2,910 1,550 2,530 2,763 1,612 1,285 9 Total U.S. Treasury securities 410,878 402,096 404,027 396,118 405,859 400,210 410,878 399,448 10 Bought outright2 390,907 392,321 389,379 391,872 391,933 392,662 390,907 391,728 11 Bills 190,647 192,060 189,724 192,218 192,279 192,401 190,647 192,074 12 Notes 150,922 150,922 150,315 150,315 150,315 150,922 150,922 150,315 13 Bonds 49,339 49,339 49.339 49,339 49,339 49,339 49,339 49,339 14 Held under repurchase agreements 19,971 9,775 14,648 4,246 13,926 7,548 19,971 7,720 15 Total loans and securities 414,800 406,556 409,136 399,730 410,507 405,397 414,800 402,801 16 Items in process of collection 12,761 7,519 7,321 12,830 6,276 3,609 12,761 4,343 17 Bank premises 1,233 1,236 1,236 1,236 1,236 1,221 1.233 1,235 Other assets 18 Denominated in foreign currencies" 19,264 19,272 19,279 19,286 19,294 19,338 19,264 18,241 19 All other4 11,725 11,602 11,751 11,103 12,801 10,332 11,725 11,494 20 Total assets 481,140 467,538 470,106 465,603 471,238 461,286 481,140 459,267 LIABILITIES 21 Federal Reserve notes 426,522 422,511 418,924 417,374 415,621 416,915 426,522 414,299 22 Total deposits 33,325 24,792 30,511 24,408 35,702 27,450 33,325 27,603 23 Depository institutions 24,524 19,325 22,467 15,321 25,288 22,131 24,524 20,307 24 U.S. Treasury—General account 7,742 5,062 7,521 8,578 9,874 4,857 7,742 6,770 25 Foreign—Official accounts 167 169 171 169 199 170 167 167 26 Other 892 236 352 339 341 292 892 359 27 Deferred credit items 7,464 6,282 6,238 9,511 5.542 2,702 7,464 3,981 28 Other liabilities and accrued dividends5 4,732 4,465 4,814 4,591 4,654 4,730 4.732 4,618 29 Total liabilities 472,043 458,050 460,488 455,884 461,519 451,796 472,043 450,501 CAPITAL ACCOUNTS 30 Capital paid in 4,602 4,600 4,678 4,689 4.692 4,587 4,602 4,676 31 Surplus 4,496 4,496 4,496 4,496 4,496 3,860 4,496 4,083 32 Other capital accounts 0 393 444 535 531 1,043 0 8 33 Total liabilities and capital accounts 481,140 467,538 470,106 465,603 471,238 461,286 481,140 459,267 MEMO 34 Marketable U.S. Treasury securities held in custody for foreign and international accounts 618,074 617,935 621,744 616.303 619,362 614,599 661188,,007744 662255,,226600 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Banks) 526,826 524,851 523,662 523,724 523,096 529,197 526,826 523,455 36 LESS: Held by Federal Reserve Banks 100,304 102,340 104.737 106,350 107,475 112,282 100,304 109,156 37 Federal Reserve notes, net 426,522 422,511 418,924 417,374 415,621 416,915 426,522 414,299 Collateral held against notes, net 38 Gold certificate account 11,048 11,048 11,048 11,048 11,048 11,049 11,048 11,048 39 Special drawing rights certificate account 9,718 9,718 9.718 9,718 9,400 9,718 9,718 9,400 40 Other eligible assets 0 0 0 0 0 0 0 0 41 U.S. Treasury and agency securities 405,756 401,745 398,159 396,608 395,174 396,148 405,756 393,851 42 Total collateral 426,522 422,511 418,924 417,374 415,621 416,915 426,522 414,299 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 End of month TTTyyypppeee ooofff hhhooollldddiiinnnggg aaannnddd mmmaaatttuuurrriiitttyyy 1997 1996 1997 Jan. 1 Jan. 8 Jan. 15 Jan. 22 Jan. 29 Nov. 30 Dec. 31 Jan. 31 1 Total loans 85 51 145 24 80 188 85 30 2 Within fifteen days' 75 42 137 24 80 140 75 25 3 Sixteen days to ninety days 10 9 8 0 0 48 11 5 4 Total U.S. Treasury securities 410,878 402,096 404,027 396,118 405,859 392,662 410,878 399,448 5 Within fifteen days' 27,846 23,316 22,325 18,660 28,394 7,741 27,846 16,270 6 Sixteen days to ninety days 89,036 89,639 88,328 84,285 84,017 92,763 89,036 96,790 7 Ninety-one days to one year 122,780 117,925 123,035 122,835 123,110 120,633 122,780 117,103 8 One year to five years 95,607 95,608 94,730 94,730 94,730 95.917 95,607 93,677 9 Five years to ten years 33,782 33,782 33,782 33,782 33,782 33,782 3,782 33,782 10 More than ten years 41,826 41,826 41,826 41,826 41,826 41,826 41,826 41,826 11 Total federal agency obligations 3,837 4,409 4,965 3,588 4,568 2,237 3,837 3,323 12 Within fifteen days' 2,062 2,371 2,927 1,711 2,691 339 2,062 1,446 13 Sixteen days to ninety days 541 797 797 636 650 644 541 679 14 Ninety-one days to one year 232 240 240 240 226 242 232 197 15 One year to five years 520 520 520 520 520 520 520 520 16 Five years to ten years 457 457 457 457 457 467 457 457 17 More than ten years 25 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 Nonfinancial Statistics • April 1997 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1996 1997 11999933 11999944 11999955 11999966 IItteemm DDeecc.. DDeecc.. DDeecc.. DDeecc.. June July Aug. Sept. Oct. Nov. Dec. Jan. Seasonally adjusted AAAADDDDJJJJUUUUSSSSTTTTEEEEDDDD FFFFOOOORRRR CCCCHHHHAAAANNNNGGGGEEEESSSS IIIINNNN RRRREEEESSSSEEEERRRRVVVVEEEE RRRREEEEQQQQUUUUIIIIRRRREEEEMMMMEEEENNNNTTTTSSSS2222 1111 TTTToooottttaaaallll rrrreeeesssseeeerrrrvvvveeeessss3333 60.52 59.36 56.36 50.17 54.11 53.20 52.27 51.35 50.14 49.88 50.17 49.40 2222 NNNNoooonnnnbbbboooorrrrrrrroooowwwweeeedddd rrrreeeesssseeeerrrrvvvveeeessss4444 60.44 59.16 56.11 50.01 53.73 52.83 51.94 50.98 49.85 49.66 50.01 49.36 3333 NNNNoooonnnnbbbboooorrrrrrrroooowwwweeeedddd rrrreeeesssseeeerrrrvvvveeeessss pppplllluuuussss eeeexxxxtttteeeennnnddddeeeedddd ccccrrrreeeeddddiiiitttt5555 60.44 59.16 56.11 50.01 53.73 52.83 51.94 50.98 49.85 49.66 50.01 49.36 4444 RRRReeeeqqqquuuuiiiirrrreeeedddd rrrreeeesssseeeerrrrvvvveeeessss 59.46 58.20 55.09 48.74r 52.96 52.13 51.31 50.31 49.14 48.84 48.74r 48.18 5555 MMMMoooonnnneeeettttaaaarrrryyyy bbbbaaaasssseeee6666 386.93r 418.53r 434.6 lr 452.92r 439.69r 442.24r 444.16r 445.99r 447.12r 449.47r 452.92r 454.05 Not seasonally adjusted 6666 TTTToooottttaaaallll rrrreeeesssseeeerrrrvvvveeeessss7777 62.37 61.13 58.02 51.61 53.87 53.05 51.88 51.27 49.85 50.08 51.61 50.67 7777 NNNNoooonnnnbbbboooorrrrrrrroooowwwweeeedddd rrrreeeesssseeeerrrrvvvveeeessss 62.29 60.92 57.76 51.45 53.48 52.69 51.55 50.90 49.56 49.87 51.45 50.63 8888 NNNNoooonnnnbbbboooorrrrrrrroooowwwweeeedddd rrrreeeesssseeeerrrrvvvveeeessss pppplllluuuussss eeeexxxxtttteeeennnnddddeeeedddd ccccrrrreeeeddddiiiitttt5555 62.29 60.92 57.76 51.45 53.48 52.69 51.55 50.90 49.56 49.87 51.45 50.63 9999 RRRReeeeqqqquuuuiiiirrrreeeedddd rrrreeeesssseeeerrrrvvvveeeessss8888 61.31 59.96 56.74 50.18r 52.72 51.99 50.92 50.23 48.85 49.05 50.18r 49.45 11110000 MMMMoooonnnneeeettttaaaarrrryyyy bbbbaaaasssseeee9999 390.59 422.51 439.03 456.80 439.89 443.22 444.58 445.55 445.44 449.27 456.80 455.57 NNNNOOOOTTTT AAAADDDDJJJJUUUUSSSSTTTTEEEEDDDD FFFFOOOORRRR CCCCHHHHAAAANNNNGGGGEEEESSSS IIIINNNN RRRREEEESSSSEEEERRRRVVVVEEEE RRRREEEEQQQQUUUUIIIIRRRREEEEMMMMEEEENNNNTTTTSSSS'''' 11111111 TTTToooottttaaaallll rrrreeeesssseeeerrrrvvvveeeessss1111'''' 62.86 61.34 57.90 51.24r 53.69 52.84 51.64 51.00 49.55 49.76 51.24r 50.64 11112222 NNNNoooonnnnbbbboooorrrrrrrroooowwwweeeedddd rrrreeeesssseeeerrrrvvvveeeessss 62.78 61.13 57.64 51.09 53.30 52.48 51.31 50.63 49.26 49.54 51.09 50.60 11113333 NNNNoooonnnnbbbboooorrrrrrrroooowwwweeeedddd rrrreeeesssseeeerrrrvvvveeeessss pppplllluuuussss eeeexxxxtttteeeennnnddddeeeedddd ccccrrrreeeeddddiiiitttt5555 62.78 61.13 57.64 51.09 53.30 52.48 51.31 50.63 49.26 49.54 51.09 50.60 11114444 RRRReeeeqqqquuuuiiiirrrreeeedddd rrrreeeesssseeeerrrrvvvveeeessss 61.80 60.17 56.62 49.82 52.54 51.78 50.68 49.96 48.56 48.72 49.82 49.42 11115555 MMMMoooonnnneeeettttaaaarrrryyyy bbbbaaaasssseeee11112222 397.62 427.25 444.45 463.49 445.95 449.29 450.77 451.72 451.91 455.90 463.49 462.72 11116666 EEEExxxxcccceeeessssssss rrrreeeesssseeeerrrrvvvveeeessss11113333 1.06 1.17 1.28 1.42 1.15 1.07 .96 1.04 .99 1.04 1.42 1.23 11117777 BBBBoooorrrrrrrroooowwwwiiiinnnnggggssss ffffrrrroooommmm tttthhhheeee FFFFeeeeddddeeeerrrraaaallll RRRReeeesssseeeerrrrvvvveeee .08 .21 .26 .16 .39 .37 .33 .37 .29 .21 .16 .05 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 MEASURES' Billions of dollars, averages of daily figures 1996r 1997 1993 1994 1995 1996 IItteemm Dec/ Dec.' Dec.r Dec.' Oct. Nov. Dec. Jan. Seasonally adjusted Measures2 1 Ml 1,129.8 1,150.7 1,129.0 1,080.9 1,080.1 1,079.9 1,080.9 1,079.6 2 M2 3,486.6 3,502.1 3,655.0 3,833.0 3,787.8 3,809.3 3,833.0 3,849.7 3 M3 4,254.4 4,328.7 4,594.8 4,936.6 4,859.7 4,890.3 4,936.6 4,966.1 4 L 5,169.3 5,312.4 5,704.2 6,073.5 5,987.4 6,031.3 6,073.5 n.a. 5 Debt 12,506.5 13,148.4 13,866.9 14,611.4 14,484.9 14,553.1 14,611.4 n.a. MI components 6 Currency3 322.2 354.4 372.6 395.2 390.2 392.5 395.2 397.0 7 Travelers checks4 7.9 8.5 8.9 8.6 8.6 8.6 8.6 8.6 8 Demand deposits5 385.2 384.1 391.1 402.6 398.3 402.2 402.6 401.9 9 Other checkable deposits6 414.5 403.8 356.5 274.5 283.1 276.7 274.5 272.1 Nontransaction components 10 In M27 2,356.8 2,351.4 2,526.0 2,752.1 2,707.7 2,729.4 2,752.1 2,770.0 11 In M3 only8 767.8 826.6 939.8 1,103.6 1,071.9 1,081.0 1,103.6 1,116.5 Commercial banks 12 Savings deposits, including MMDAs 785.2 752.4 776.0 903.7 879.2 892.5 903.7 914.1 13 Small time deposits9 468.3 503.2 576.0 592.2 587.5 590.1 592.2 592.1 14 Large time deposits10' " 271.9 298.4 344.7 420.4 402.8 408.4 420.4 428.4 Thrift institutions 15 Savings deposits, including MMDAs 434.0 397.2 361.1 367.1 367.1 366.3 367.1 368.7 16 Small time deposits9 314.3 314.3 357.7 352.5 353.5 353.3 352.5 352.8 17 Large time deposits10 61.5 64.7 75.1 79.3 78.8 79.4 79.3 81.3 Money market mutual funds 18 Retail 354.9 384.3 455.2 536.6 520.5 527.1 536.6 542.4 19 Institution-only 209.5 198.5 246.9 299.3 288.1 292.0 299.3 296.3 Repurchase agreements and Eurodollars 20 Repurchase agreements12 158.6 182.9 182.1 195.0 195.8 195.6 195.0 197.9 21 Eurodollars'2 66.4 82.1 91.0 109.6 106.4 105.6 109.6 112.6 Debt components 22 Federal debt 3,323.3 3,492.2 3,638.8 3,780.4 3,758.2 3,771.4 3,780.4 n.a. 23 Nonfederal debt 9,183.1 9,656.2 10,228.1 10,831.0 10,726.8 10,781.8 10,831.0 n.a. Not seasonally adjusted Measures2 24 Ml 1,153.7 1,174.4 1,152.8 1,102.9 1,076.7 1,085.1 1,102.9 1,085.8 25 M2 3,506.6 3,522.5 3,675.3 3,851.5 3,777.6 3,812.2 3,851.5 3,851.3 26 M3 4,274.8 4,348.8 4,614.3 4,953.6 4,855.5 4,898.5 4,953.6 4,971.5 27 L 5,197.7 5,340.2 5,732.2 6,098.2 5,973.6 6,039.5 6,098.2 n.a. 28 Debt 12,508.5 13,150.0 13,867.4 14,610.5 14,447.0 14,534.4 14,610.5 n.a. Ml components 29 Currency3 324.8 357.5 376.2 397.9 388.9 392.8 339977..99 395.6 30 Travelers checks4 7.6 8.1 8.5 8.3 8.6 8.4 8.3 8.2 31 Demand deposits5 401.8 400.3 407.3 418.9 398.6 407.7 418.9 405.8 32 Other checkable deposits6 419.4 408.6 360.8 277.7 280.6 276.2 277.7 276.1 Nontransaction components 33 In M27 2,352.9 2,348.1 2,522.6 2,748.6 2,700.9 2,727.1 2,748.6 2,765.5 34 In M3 only8 768.2 826.3 939.0 1,102.1 1,077.9 1,086.3 1,102.1 1,120.2 Commercial banks 35 Savings deposits, including MMDAs 784.3 751.7 775.3 902.7 878.8 894.3 902.7 909.0 36 Small time deposits9 466.8 501.5 573.8 590.0 586.8 588.6 590.0 591.4 37 Large time deposits10' " 272.0 298.9 345.7 421.9 407.4 413.1 421.9 424.7 Thrift institutions 38 Savings deposits, including MMDAs 433.4 396.8 360.8 366.6 366.9 367.1 366.6 366.6 39 Small time deposits9 313.3 313.2 356.3 351.2 353.1 352.5 351.2 352.3 40 Large time deposits10 61.5 64.8 75.4 79.6 79.7 80.4 79.6 80.6 Money market mutual funds 41 Retail 355.0 385.0 456.3 538.1 515.3 524.6 538.1 546.2 42 Institution-only 210.6 199.8 248.2 300.5 284.7 292.6 300.5 304.8 Repurchase agreements and Eurodollars 43 Repurchase agreements'2 156.6 179.6 178.0 189.7 198.8 194.4 189.7 195.9 44 Eurodollars12 67.6 83.2 91.8 110.4 107.3 105.8 110.4 114.2 Debt components 45 Federal debt 3,329.5 3,499.0 3,645.9 3,787.9 3,740.9 3,771.4 3,787.9 n.a. 46 Nonfederal debt 9,179.0 9,651.0 10,221.4 10,822.6 10,706.2 10,763.1 10,822.6 n.a. Footnotes appear on following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic NonfinancialS tatistics • April 1997 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 Affairs, 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 M1. 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 banks' 1996 1997 1995 1996 IItteemm Dec. Dec.r May June July Aug. Sept. Oct. Nov. Dec/ Jan. Interest rates (annual effective yields) INSURED COMMERCIAL BANKS 1 Negotiable order of withdrawal accounts2 1.91 n.a. 1.88 1.89 1.90 1.91 1.90 1.91 1.98 n.a. n.a. 2 Savings deposits2-3 3.10 n.a. 2.89 2.87 2.88 2.86 2.84 2.85 2.85 n.a. n.a. Interest-bearing time deposits with balances of less than $100,000, by maturity 3 7 to 91 days 4.10 4.03 4.03 4.08 4.13 4.17 4.11 4.11 4.08 4.03 4.03 4 92 to 182 days 4.68 4.63 4.51 4.55 4.59 4.60 4.61 4.60 4.60 4.63 4.63 5 183 days to 1 year 5.02 5.00r 4.88 4.95 5.00 5.00 5.04 5.02 4.99 5.00 5.01 6 More than 1 year to 2 x/i years 5.17 5.22 5.10 5.18 5.25 5.25 5.29 5.27 5.23 5.22 5.25 7 More than 2V1 years 5.40 5.46 5.36 5.46 5.50 5.50 5.54 5.52 5.48 5.46 5.49 BIF-INSURED SAVINGS BANKS4 8 Negotiable order of withdrawal accounts2 1.91 n.a. 1.81 1.80 1.81 1.81 1.84 1.90 1.92 n.a. n.a. 9 Savings deposits2-3 2.98 n.a. 2.84 2.86 2.88 2.86 2.84 2.80 2.82 n.a. n.a. Interest-bearing time deposits with balances of less than $100,000, by maturity 10 7 to 91 days 4.43 4.66 4.49 4.54 4.64 4.64 4.59 4.64 4.67 4.66 4.75 11 92 to 182 days 4.95 5.02 4.83 4.91 5.01 5.06 5.11 5.08 5.03 5.02 5.05 12 183 days to 1 year 5.18 5.28 4.96 5.02 5.09 5.26 5.33 5.32 5.29 5.28 5.32 13 More than 1 year to 2 years 5.33 5.53 5.26 5.35 5.41 5.59 5.61 5.60 5.56 5.53 5.58 14 More than 2Vi years 5.46 5.72 5.38 5.51 5.60 5.80 5.82 5.79 5.76 5.72 5.77 Amounts outstanding (millions of dollars) INSURED COMMERCIAL BANKS 15 Negotiable order of withdrawal accounts2 248,417 n.a. 208,570 201,037 204,980 190,696 190,033 188,803 167,503 n.a. n.a. 16 Savings deposits2,3 776,466 n.a. 839,319 838,385 835,033 860,719 852,336 859,524 896,820 n.a. n.a. 17 Personal 615,113 n.a. 668,788 667,802 662,465 683,081 675,576 680,596 713,672 n.a. n.a. 18 Nonpersonal 161,353 n.a. 170,531 170,583 172,568 177,638 176,759 178,928 183,148 n.a. n.a. Interest-bearing time deposits with balances of less than $100,000, bv maturity 19 7 to 91 days 32,170 32,929r 30,383 31,483 31,690 32,907 32,695 32,428 32,044 32,929 32,775 20 92 to 182 days 93,941 92,296r 95,911 94,654 93,941 91,235 91,167 91,195 92,503 92,296 94,916 21 183 days to 1 year 183,834 201,441r 193,821 194,900 197,108 200,038 200,008 199,397 201,281 201,441 201,401 22 More than 1 year to 2'/5 years 208,601 213,198r 208,932 209,390 208,906 209,618 211,234 213,012 214,405 213,198 213,769 23 More than 2w years 199,002 199,91 lr 198,922 198,935 198,224 199,755 198,324 199,126 198,539 199,911 197,769 24 IRA and Keogh plan deposits 150,067 151,364r 151,652 151,690 150,873 151,048 151,309 151,276 151,389 151,364 150,682 BIF-INSURED SAVINGS BANKS4 25 Negotiable order of withdrawal accounts2 11,918 n.a. 11,715 11,255 10,889 10,682 9,838 9,938 9,710 n.a. n.a. 26 Savings deposits2-3 68,643 n.a. 67,630 66,938 66,854 67,431 67,980 67,975 68,102 n.a. n.a. 27 Personal 65,366 n.a. 64,121 63,642 63,557 63,927 64,425 64,326 64,369 n.a. n.a. 28 Nonpersonal 3,277 n.a. 3,510 3,296 3,296 3,504 3,555 3,649 3,733 n.a. n.a. Interest-bearing time deposits with balances of less than $100,000, by maturity 29 1 to 91 days 2,001 2,426r 2,349 2,229 2,368 2,316 2,540 2,503 2,405 2,426 2,542 30 92 to 182 days 12,140 13,008 13,955 13,725 13,587 13,440 13,474 13,300 13,074 13,008 13,117 31 183 days to 1 year 25,686 28,800r 28,121 27,950 28,506 29,339 29,383 29,659 29,329 28,800 29,517 32 More than 1 year to 2'/5 years 27,482 29,098 25,444 25,513 26,132 26,199 27,192 28,063 28,573 29,098 29,181 33 More than 2w years 22,866 22,253 22,661 22,593 22,563 22,477 22,348 22,156 21,823 22,253 21,847 34 IRA and Keogh plan accounts 21,408 20,469 20,683 21,116 21,051 21,052 21,002 20,983 20,627 20,469 20,258 1. BIF, Bank Insurance Fund. Data in this table also appear in the Board's H.6 (508) 2. Owing to statistical difficulties associated in part with the implementation of sweep Special Supplementary Table monthly statistical release. For ordering address, see inside accounts, estimates for NOW and savings accounts are not available beginning December front cover. Estimates are based on data collected by the Federal Reserve System from a 1996. stratified random sample of about 425 commercial banks and 75 savings banks on the last day 3. Includes personal and nonpersonal money market deposits. of each month. Data are not seasonally adjusted and include IRA and Keogh deposits and 4. Includes both mutual and federal savings banks. 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 • April 1997 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1 A. All commercial banks Billions of dollars Monthly averages Wednesday figures Account 1996 1996r 1997 1997 Jan. July Aug. Sept. Oct. Nov. Dec. Jan. Jan. 8 Jan. 15 Jan. 22 Jan. 29 Seasonally adjusted Assets 1 Bank credit 3,628.4 3,682.5 3,674.5 3,693.2 3,719.4 3,743.8 3,771.2 3,806.9 3,797.0 3,787.8 3,821.0 3,818.1 2 Securities in bank credit 989.9 982.1 972.1 968.9 970.2 982.0 992.3 1,005.9 998.4 990.9 1,016.1 1,016.4 3 U.S. government securities 702.1 707.7 702.2 703.3 703.7 707.8 707.4 705.9 710.4 699.5 705.6 707.8 4 Other securities 287.8 274.5 269.9 265.6 266.5 274.2 284.9 300.0 288.0 291.5 310.5 308.6 5 Loans and leases in bank credit2 .. . 2,638.4 2,700.3 2,702.4 2,724.2 2,749.2 2,761.8 2,778.9 2,800.9 2,798.6 2,796.9 2,805.0 2,801.8 6 Commercial and industrial 721.8 744.7 746.9 761.0 770.5 776.2 787.0 790.9 789.2 790.4 792.0 791.5 7 Real estate 1,086.0 1,105.2 1,109.4 1,112.2 1,115.9 1,120.5 1,125.8 1,131.7 1,130.4 1,129.9 1,131.8 1,134.1 8 Revolving home equity 79.4 79.9 80.5 81.2 83.2 84.2 85.3 85.8 85.6 85.7 85.8 85.9 9 Other 1,006.5 1,025.3 1,028.9 1,030.9 1,032.7 1,036.4 1,040.5 1,046.0 1,044.8 1,044.2 1,046.0 1.048.2 10 Consumer 497.5 510.7 512.8 515.8 518.3 519.0 519.2 521.1 520.8 520.8 522.0 521.6 11 Security3 88.1 78.1 72.3 73.8 76.6 77.4 79.0 82.7 83.9 80.4 83.9 81.5 12 Other loans and leases 245.1 261.6 261.0 261.5 267.7 268.6 267.9 274.5 274.3 275.4 275.3 273.0 13 Interbank loans 203.6 196.9 197.6 205.3 203.9 212.4 204.6 198.2 191.1 195.6 204.6 198.7 14 Cash assets4 230.0 220.0 223.3 224.2 226.2 232.8 232.3 232.1 234.7 220.7 244.3 230.6 15 Other assets5 230.9 252.6 257.8 260.1 254.6 262.1 271.6 266.4 263.0 265.8 271.1 264.1 16 Total assets6 4,236.2 4,294.5 435.7 4325.2 43463 4393.4 4,422.1 4,4463 4,428.1 4,412.5 4,483.9 4,454.6 Liabilities 17 Deposits 2,681.2 2,733.3 2,751.0 2,772.2 2,782.2 2,822.6 2,858.9 2,876.7 2,874.7 2,875.7 2,886.0 2,862.4 18 Transaction 780.3 741.7 733.3 725.4 715.3 719.6 719.1 715.4 706.8 709.9 734.2 709.3 19 Nontransaction 1,900.9 1,991.6 2,017.6 2,046.8 2,066.9 2,102.9 2,139.8 2,161.3 2,167.9 2,165.8 2,151.8 2,153.0 20 Large time 421.4 453.1 458.8 471.7 480.1 490.5 509.5 520.1 519.1 517.1 515.0 526.7 21 Other 1,479.5 1,538.5 1,558.8 1,575.1 1,586.8 1,612.4 1,630.3 1,641.2 1,648.9 1,648.7 1,636.8 1,626.4 22 Borrowings 693.4 699.0 701.5 706.2 687.4 707.8 706.5 725.3 717.0 702.8 736.7 743.8 23 From banks in the U.S 297.8 287.0 290.1 295.5 290.5 303.3 308.8 305.7 301.3 302.4 307.8 309.6 24 From others 395.6 412.0 411.4 410.7 396.9 404.5 397.7 419.6 415.6 400.3 428.9 434.2 25 Net due to related foreign offices 267.7 257.3 247.7 251.0 243.9 237.0 229.3 219.4 219.9 219.2 220.2 218.0 26 Other liabilities 235.2 223.0 222.2 221.9 244.1 253.4 261.2 271.3 265.6 263.7 279.6 275.0 27 Total liabilities 3,877.4 3,912.5 3,922.4 3,9513 3,957.5 4,020.8 4,055.9 4,092.7 4,077.2 4,061.4 4,1223 4,099.2 28 Residual (assets less liabilities)7 358.8 382.0 373.3 373.9 388.8 372.7 366.2 353.6 351.0 351.1 361.6 355.4 Not seasonally adjusted Assets 29 Bank credit 3,626.7 3,679.6 3,675.7 3,695.6 3,721.1 3,748.0 3,770.0 3,805.2 3,798.6 3,791.4 3,812.8 3,812.6 30 Securities in bank credit 982.8 980.7 976.5 969.6 970.1 980.6 978.3 997.1 988.2 983.1 1,005.7 1,008.8 31 U.S. government securities 696.3 705.3 704.5 704.4 704.3 708.2 703.2 699.9 702.3 694.4 700.4 702.0 32 Other securities 286.4 275.4 271.9 265.2 265.9 272.4 275.1 297.2 285.9 288.7 305.3 306.8 33 Loans and leases in bank credit2 . . . 2,643.9 2,698.9 2,699.2 2,726.0 2,751.0 2,767.4 2,791.7 2,808.1 2,810.3 2,808.4 2,807.1 2,803.8 34 Commercial and industrial 719.7 745.8 743.0 755.9 766.9 774.3 784.0 788.6 786.3 787.6 789.0 789.9 35 Real estate 1,087.6 1,105.3 1,110.9 1,115.2 1,119.0 1,124.8 1,130.6 1,133.7 1,134.0 1,133.7 1,132.8 1,134.0 36 Revolving home equity 79.4 80.0 80.8 81.8 83.7 84.6 85.4 85.8 85.7 85.7 85.8 85.9 37 Other 1,008.2 1,025.3 1,030.1 1,033.4 1,035.3 1,040.2 1,045.3 1,048.0 1,048.3 1,048.0 1,047.0 1,048.1 38 Consumer 502.5 508.7 513.1 518.0 518.5 519.4 523.9 526.7 528.1 527.1 526.9 526.0 39 Security3 87.1 76.6 70.8 73.0 76.5 78.8 80.3 81.9 82.5 80.5 82.2 81.1 40 Other loans and leases 247.1 262.5 261.3 263.9 270.0 270.0 272.9 277.1 279.4 279.4 276.1 272.8 41 Interbank loans 213.0 194.5 192.9 199.6 198.7 216.7 213.9 208.0 204.1 210.7 210.3 203.1 42 Cash assets4 240.7 216.8 212.3 221.5 227.1 239.8 248.6 242.5 238.1 244.3 257.6 230.0 43 Other assets5 231.2 254.2 260.8 262.6 252.0 260.9 271.4 267.0 262.6 266.7 268.2 267.2 44 Total assets6 4,255.1 4,287.9 4,284.2 4321.4 4^413 4,407.8 4,446.1 4,465.5 4,446.1 4,456.1 4,492.0 4,456.1 Liabilities 45 Deposits 2,686.7 2,724.7 2,740.4 2,772.8 2,787.0 2,839.7 2,891.1 2,880.6 2,896.5 2,904.9 2,872.2 2,834.4 46 Transaction 792.7 734.8 720.4 723.9 713.0 729.8 752.2 726.8 730.4 742.2 730.9 696.7 47 Nontransaction 1.893.9 1,990.0 2,020.0 2,048.9 2,074.0 2,109.8 2,138.9 2,153.8 2,166.1 2,162.7 2,141.4 2,137.8 48 Large time 418.8 450.5 459.1 469.8 485.5 495.0 509.7 516.8 515.1 514.0 512.2 523.4 49 Other 1,475.1 1,539.4 1,560.9 1,579.2 1,588.5 1,614.8 1,629.2 1,637.0 1,651.0 1,648.7 1,629.2 1,614.3 50 Borrowings 691.6 712.6 707.1 710.5 679.7 697.5 698.8 719.6 702.4 700.0 740.3 736.3 51 From banks in the U.S 296.5 296.0 295.4 298.0 283.9 297.1 303.5 299.9 293.9 297.8 305.7 301.7 52 From others 395.2 416.6 411.8 412.5 395.8 400.4 395.3 419.7 408.5 402.2 434.6 434.6 53 Net due to related foreign offices 277.3 251.9 243.4 245.2 245.4 234.2 228.2 229.7 223.5 227.4 237.3 232.9 54 Other liabilities 233.3 221.8 221.6 222.4 243.2 257.2 257.2 268.5 260.6 259.4 275.0 276.7 55 Total liabilities 3,888.9 3,911.0 3,912.6 3,950.9 3,9553 4,0285 4,075.2 4,098.4 4,083.0 4,091.7 4,124.8 4,080.4 56 Residual (assets less liabilities)7 366.2 376.9 371.6 370.6 386.0 379.2 370.9 367.2 363.2 364.4 367.3 375.7 MEMO 57 Revaluation gains on off-balance-sheet items8 n.a. n.a. n.a. n.a. 62.3 65.5 69.5 88.4 79.4 81.7 96.5 95.1 58 Revaluation losses on off-balancesheet items8 n.a. n.a. n.a n.a. 58.3 60.5 64.3 84.2 74.7 77.4 93.4 90.4 Footnotes appear on page A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A17 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued B. Domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures Account 1996 1996R 1997 1997 Jan. July Aug. Sept. Oct. Nov. Dec. Jan. Jan. 8 Jan. 15 Jan. 22 Jan. 29 Seasonally adjusted Assets 1 Bank credit 3,186.1 3,215.9 3,210.0 3,225.6 3,237.6 3,246.7 3,260.9 3,284.6 3,279.2 3,270.5 3,295.5 3,291.3 2 Securities in bank credit 849.1 833.9 824.6 822.4 820.8 822.3 824.9 834.0 829.3 823.0 841.6 841.0 3 U.S. government securities 639.0 627.6 621.3 620.4 620.6 619.7 618.2 622.8 624.6 617.9 624.3 625.3 4 Other securities 210.1 206.2 203.3 202.0 200.2 202.5 206.7 211.2 204.7 205.1 217.3 215.8 5 Loans and leases in bank credit2 2,337.0 2,382.0 2,385.4 2,403.2 2,416.7 2,424.4 2,436.0 2,450.6 2,449.9 2,447.5 2,453.9 2,450.2 6 Commercial and industrial 539.0 550.6 552.6 560.3 563.5 565.3 569.6 571.0 569.3 570.8 571.8 571.2 1 Real estate 1,050.8 1,072.2 1,076.4 1,079.4 1,083.0 1,087.8 1,093.3 1,099.2 1,097.8 1,097.3 1,099.4 1,101.4 8 Revolving home equity 79.4 79.9 80.5 81.2 83.2 84.2 85.3 85.8 85.6 85.7 85.8 85.9 9 Other 971.4 992.2 995.8 998.1 999.8 1,003.6 1,008.0 1,013.4 1,012.2 1,011.7 1,013.7 1,015.4 10 Consumer 497.5 510.7 512.8 515.8 518.3 519.0 519.2 521.1 520.8 520.8 522.0 521.6 11 Security3 55.0 46.0 42.5 44.7 44.0 42.9 43.6 45.4 47.5 44.9 46.0 43.4 12 Other loans and leases 194.7 202.5 201.3 203.1 207.9 209.4 210.3 213.9 214.3 213.6 214.7 212.7 13 Interbank loans 180.6 177.7 181.2 185.0 183.0 191.5 181.8 174.4 170.1 171.0 181.5 172.4 14 Cash assets4 199.4 191.9 194.8 194.7 196.4 201.7 200.9 200.2 203.2 188.5 212.8 198.2 15 Other assets5 181.8 209.8 214.1 219.0 220.7 225.6 234.1 227.0 225.7 225.9 230.8 224.5 16 Total assets6 3,691.2 3,737.9 3,742.8 3,766.9 3,780.1 3,808.1 3,8203 3,829.1 3,820.8 3,798.8 3,863.7 3,829.6 Liabilities 17 Deposits 2,514.7 2,553.7 2,570.7 2,586.3 2,584.4 2,617.6 2,637.7 2,645.9 2,644.3 2,645.4 2,660.2 2,626.7 18 Transaction 769.5 731.0 722.9 715.7 704.7 709.1 708.3 704.5 696.1 698.9 723.1 698.4 19 Nontransaction 1,745.2 1,822.7 1,847.9 1,870.6 1,879.6 1,908.5 1,929.4 1,941.4 1,948.2 1,946.5 1,937.1 1,928.3 20 Large time 270.8 287.8 292.2 298.9 295.4 299.6 303.0 303.0 303.1 301.7 302.0 303.8 21 Other 1,474.4 1,535.0 1,555.7 1,571.7 1,584.3 1,608.9 1,626.3 1,638.4 1,645.0 1,644.8 1,635.1 1,624.5 22 Borrowings 579.7 576.0 572.9 583.4 568.7 579.5 581.1 593.8 593.7 576.7 601.6 604.2 23 From banks in the U.S 268.2 256.2 255.6 261.5 257.1 267.9 272.6 274.4 271.6 275.5 274.0 277.2 24 From others 311.4 319.8 317.3 321.9 311.6 311.7 308.5 319.4 322.1 301.2 327.6 327.0 25 Net due to related foreign offices 91.4 79.1 74.5 74.7 76.6 70.9 68.9 72.0 68.1 66.4 76.3 77.0 26 Other liabilities 156.6 151.1 152.8 153.1 169.3 173.2 177.9 180.0 178.7 174.5 185.8 180.6 27 Total liabilities 3342.4 3359.9 3370.9 3397.5 3398.9 3,441.2 3,465.5 3,491.7 3,484.8 3,463.0 3323.8 3,4883 28 Residual (assets less liabilities)7 348.7 378.0 371.9 369.4 381.2 366.8 354.8 337.4 336.0 335.8 339.9 341.1 Not seasonally adjusted Assets 29 Bank credit 3,185.3 3,211.6 3,207.8 3,229.4 3,240.6 3,251.4 3,263.9 3,285.9 3,285.0 3,277.0 3,292.3 3,286.8 30 Securities in bank credit 843.7 832.3 825.8 824.2 820.8 821.3 817.4 829.3 825.3 819.0 836.6 835.1 31 U.S. government securities 631.9 626.3 622.1 622.5 621.7 620.2 616.5 615.9 617.8 611.3 617.2 617.3 32 Other securities 211.8 206.0 203.6 201.7 199.1 201.1 200.9 213.4 207.5 207.8 219.4 217.8 33 Loans and leases in bank credit2 2,341.6 2,379.3 2,382.0 2,405.1 2,419.7 2,430.1 2,446.5 2,456.6 2,459.7 2,458.0 2,455.7 2,451.7 34 Commercial and industrial 537.0 550.7 548.6 556.4 561.1 563.5 566.2 568.8 566.5 568.2 569.3 569.7 35 Real estate 1,052.5 1,072.4 1,077.8 1,082.3 1,086.0 1,091.6 1,098.0 1,101.2 1,101.4 1,101.2 1,100.5 1,101.4 36 Revolving home equity 79.4 80.0 80.8 81.8 83.7 84.6 85.4 85.8 85.7 85.7 85.8 85.9 37 Other 973.0 992.4 997.0 1,000.5 1,002.2 1,007.0 1,012.6 1,015.4 1,015.7 1,015.5 1,014.7 1,015.5 38 Consumer 502.5 508.7 513.1 518.0 518.5 519.4 523.9 526.7 528.1 527.1 526.9 526.0 39 Security3 54.0 44.6 41.0 43.9 43.8 44.3 44.9 44.7 46.1 45.0 44.3 42.9 40 Other loans and leases 195.7 203.0 201.5 204.5 210.3 211.2 213.5 215.2 217.6 216.5 214.7 211.7 41 Interbank loans 189.9 175.3 176.6 179.3 177.7 195.8 191.1 184.1 183.2 186.1 187.2 176.8 42 Cash assets4 209.8 188.6 183.8 192.7 196.9 208.5 216.1 210.2 206.3 211.4 225.9 197.5 43 Other assets5 183.0 212.1 216.3 221.1 218.4 224.1 233.2 228.4 225.6 228.1 229.4 228.0 44 Total assets6 3,711.5 3,730.6 3,726.9 3,764.6 3,7763 3,8223 3,846.7 3,851.7 3,843.0 3,845.8 3,878.1 3,8323 Liabilities 45 Deposits 2,519.9 2,547.2 2,561.6 2,587.2 2,583.8 2,632.1 2,667.1 2,649.6 2,666.4 2,674.4 2,645.4 2,598.7 46 Transaction 781.9 724.1 710.2 713.7 702.4 719.3 740.7 715.9 719.7 731.1 719.8 685.8 47 Nontransaction 1,738.0 1,823.1 1,851.5 1,873.5 1,881.4 1,912.8 1,926.4 1,933.7 1,946.7 1,943.3 1,925.5 1,912.9 48 Large time 269.4 286.6 292.9 296.6 295.2 300.3 299.7 301.7 300.2 300.2 301.1 303.6 49 Other 1,468.5 1,536.5 1,558.6 1,576.9 1,586.3 1,612.5 1,626.7 1,632.0 1,646.5 1,643.1 1,624.4 1,609.3 50 Borrowings 580.8 582.0 573.6 586.5 564.3 572.7 574.4 591.0 580.4 575.5 608.5 602.7 51 From banks in the U.S 265.7 263.8 260.3 264.6 253.0 261.5 266.5 267.3 261.8 268.3 272.8 268.0 52 From others 315.1 318.2 313.3 321.9 311.3 311.1 307.9 323.8 318.7 307.2 335.7 334.6 53 Net due to related foreign offices 93.0 76.9 72.2 70.9 78.2 68.4 66.2 73.6 65.1 67.1 82.0 82.1 54 Other liabilities 155.4 151.6 151.8 153.8 170.0 176.4 175.2 178.0 175.6 172.3 182.7 181.1 55 Total liabilities 3,349.1 3357.7 3359.2 3398.4 33963 3,449.6 3,482.8 3,4923 3,4873 3,4893 3,518.6 3,4643 56 Residual (assets less liabilities)7 362.4 372.9 367.7 366.2 380.0 372.7 363.8 359.4 355.5 356.5 359.5 368.0 MEMO .57 Revaluation gains on off-balance-sheet items8 n.a. n.a. n.a. n.a. 32.4 33.1 36.2 47.3 41.9 42.9 53.4 50.7 58 Revaluation losses on off-balancesheet items8 n.a. n.a. n.a. n.a. 28.9 28.9 31.8 43.9 38.3 39.7 50.6 46.6 59 Mortgage-backed securities9 n.a n.a. n.a. n.a. 236.4 238.4 242.3 245.8 244.4 243.9 247.6 247.3 Footnotes appear on page A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Nonfinancial Statistics • April 1997 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued C. Large domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures Account 1996 1996r 1997 1997 Jan. July Aug. Sept. Oct. Nov. Dec. Jan. Jan. 8 Jan. 15 Jan. 22 Jan. 29 Seasonally adjusted Assets 1 Bank credit 1,823.9 1,801.8 1,788.2 1.797.3 1.807.3 1.810.5 1.818.7 1.832.4 1,827.6 1,820.1 1.843.4 1,836.0 2 Securities in bank credit 442.2 416.3 406.8 405.3 405.8 408.7 411.2 416.5 411.0 406.3 424.9 422.4 3 U.S. government securities 310.5 289.8 283.6 283.4 286.0 286.5 284.9 287.0 288.3 282.8 289.3 288.2 4 Trading account 21.3 20.8 20.2 20.9 21.2 21.5 19.4 17.2 19.8 15.5 16.8 16.9 5 Investment account 289.3 269.0 263.4 262.5 264.7 265.0 265.4 269.8 268.5 267.4 272.5 271.3 6 Other securities 131.6 126.5 123.2 121.9 119.9 122.2 126.4 129.5 122.7 123.4 135.6 134.2 7 Trading account 59.2 58.1 56.9 56.4 55.1 57.8 60.9 64.5 57.7 59.0 71.2 68.1 8 Investment account 72.4 68.5 66.2 65.5 64.8 64.4 65.5 65.0 65.0 64.4 64.4 66.1 9 State and local government. . 21.6 20.6 20.5 20.3 20.2 20.2 20.3 20.5 20.4 20.3 20.3 20.6 10 Other 50.8 47.9 45.8 45.1 44.5 44.2 45.2 44.5 44.5 44.1 44.1 45.5 11 Loans and leases in bank credit- . . . 1,381.7 1,385.5 1,381.4 1.392.0 1.401.4 1.401.8 1.407.5 1,415.9 1,416.6 1,413.9 1,418.4 1,413.6 12 Commercial and industrial 367.9 371.7 372.7 378.9 381.5 381.8 384.5 385.1 384.0 385.4 385.8 384.5 13 Real estate 560.9 556.7 556.6 556.1 558.4 559.2 561.1 561.3 561.5 560.3 561.3 561.7 14 Revolving home equity 53.1 53.1 53.2 53.5 53.7 54.2 54.9 55.0 54.9 55.0 55.0 55.1 15 Other 507.9 503.7 503.3 502.6 504.7 505.0 506.2 506.3 506.5 505.3 506.3 506.6 16 Consumer 272.1 277.6 277.9 279.4 279.2 278.9 279.1 282.1 280.8 281.6 282.7 283.2 17 Security1 49.3 41.0 37.3 39.5 39.0 37.8 38.5 40.3 42.4 39.8 40.9 38.4 18 State and local government 11.4 11.2 11.1 10.8 10.9 11.1 11.3 11.1 11.1 11.1 11.1 11.1 19 All other 120.0 127.3 125.7 127.2 132.4 132.9 133.0 135.9 136.8 135.7 136.6 134.7 20 Interbank loans 119.7 130.1 131.9 133.8 132.0 137.9 126.8 119.9 116.6 115.4 126.6 119.2 21 Cash assets4 134.7 127.6 129.4 128.2 128.2 132.3 130.5 130.5 135.6 120.1 138.6 130.0 22 Other assets1 132.8 154.3 158.0 161.6 163.5 167.7 175.6 168.7 169.0 167.8 171.4 165.5 23 Total assets6 2,174.4 2,177.0 2,170.8 2,184.2 2,194.2 2,211.9 2,215.1 2,215.6 2,212.4 2,187.4 2,244.2 2,215.1 Liabilities 24 Deposits 1,322.9 1,335.0 1.339.1 1.345.6 1.355.1 1.366.4 1.373.6 1,366.2 1.368.9 1,363.7 1,375.3 1.353.7 25 Transaction 435.2 408.0 400.3 392.7 387.0 387.3 385.7 382.7 378.6 377.5 395.9 378.3 26 Nontransaction 887.7 926.9 938.8 952.9 968.1 979.1 987.9 983.6 990.3 986.2 979.3 975.4 27 Large time 125.0 136.9 139.8 146.5 151.8 153.4 155.1 153.4 154.1 152.1 152.2 153.8 28 Other 762.7 790.0 799.0 806.4 816.3 825.7 832.8 830.2 836.2 834.1 827.1 821.6 29 Borrowings 442.2 420.6 411.9 420.5 404.3 414.4 415.9 426.1 427.4 413.7 432.2 432.3 30 From banks in the U.S 192.4 177.0 172.9 177.7 170.7 181.5 188.5 187.9 186.9 190.7 186.9 187.8 31 From others 249.8 243.6 239.0 242.7 233.6 232.9 227.4 238.2 240.5 223.0 245.2 244.5 32 Net due to related foreign offices 85.4 73.4 70.1 68.9 73.2 68.7 66.1 68.0 64.4 62.6 72.3 72.6 33 Other liabilities 124.9 123.4 125.7 126.3 141.2 146.2 151.9 155.5 154.2 150.1 161.5 155.3 34 Total liabilities 1,975.2 1,952.3 1,946.8 1,961.3 1,973.8 1,995.7 2.007.5 2,015.8 2,014.9 1,990.2 2,041.2 2,013.9 35 Residual (assets less liabilities)7 199.1 224.7 224.0 223.0 220.4 216.2 207.5 199.7 197.5 197.2 203.0 201.2 Not seasonally adjusted Assets 36 Bank credit 1.825.2 1.797.1 1.786.3 1,797.0 1.807.8 1.813.6 1.818.9 1,835.6 1.833.2 1.827.1 1,842.9 1,836.3 37 Securities in bank credit 438.3 415.6 409.9 406.7 406.9 409.3 404.1 413.2 408.7 403.2 420.7 418.7 38 U.S. government securities 304.8 289.3 286.2 285.0 288.1 288.7 283.6 281.3 282.9 277.1 282.8 282.3 39 Trading account 20.2 19.9 20.9 21.0 22.0 22.7 18.1 16.3 17.7 15.1 16.6 16.2 40 Investment account 284.6 269.3 265.3 264.0 266.1 266.0 265.5 265.0 265.2 261.9 266.2 266.1 41 Other securities 133.5 126.3 123.7 121.7 118.8 120.6 120.5 131.9 125.8 126.2 137.9 136.4 42 Trading account 60.6 58.7 57.8 56.2 53.5 55.4 54.4 66.4 60.3 61.1 73.1 69.9 43 Investment account 72.9 67.6 65.9 65.5 65.3 65.3 66.1 65.5 65.5 65.1 64.9 66.5 44 State and local government. . 21.6 20.2 20.3 20.3 20.2 20.3 20.4 20.5 20.4 20.4 20.4 20.6 45 Other 51.3 47.4 45.6 45.2 45.0 44.9 45.7 45.0 45.1 44.7 44.5 45.9 46 Loans and leases in bank credit: . . . 1.386.9 1,381.5 1.376.4 1.390.3 1.400.8 1.404.3 1.414.8 1.422.4 1,424.5 1.423.8 1,422.2 1,417.6 47 Commercial and industrial 365.9 371.7 369.9 376.0 379.7 380.8 381.6 382.9 380.9 382.7 383.4 383.2 48 Real estate 563.0 556.5 556.9 556.9 559.1 560.8 563.9 563.7 564.8 564.2 563.0 562.7 49 Revolving home equity 53.1 53.1 53.4 53.7 54.0 54.5 54.9 55.1 55.0 55.1 55.1 55.1 50 Other 509.9 503.4 503.5 503.1 505.1 506.3 508.9 508.6 509.7 509.1 507.9 507.6 51 Consumer 276.2 275.7 278.3 280.6 278.7 278.6 283.0 286.8 287.1 286.9 286.9 286.4 52 Security' 48.1 39.7 35.9 38.9 38.9 39.0 39.5 39.4 40.6 39.6 39.2 38.1 53 State and local government 11.3 11.2 11.2 10.9 10.9 11.2 11.2 11.0 10.9 11.0 11.0 11.0 54 All other 122.3 126.7 124.3 127.0 133.4 133.9 135.6 138.7 140.2 139.4 138.7 136.3 55 Interbank loans 127.6 130.3 128.2 129.8 126.4 137.4 133.0 128.4 123.7 127.9 133.8 126.5 56 Cash assets4 142.7 124.6 120.8 127.5 127.6 136.3 141.8 138.3 135.3 138.7 150.1 130.6 57 Other assets-1 133.0 156.7 160.0 163.1 161.5 165.6 174.1 169.1 167.6 169.2 170.4 167.9 58 Total assets6 2,192.0 2,172.2 2,158.5 2,180.6 2,186.8 2,216.4 2,231.3 2.235.6 2,223.8 2,227.0 2,261.6 2,225.7 Liabilities 59 Deposits 1.329.8 1.331.8 1.332.9 1.344.5 1.352.2 1.373.3 1.389.7 1,372.4 1,380.0 1.388.9 1.371.0 1,343.1 60 Transaction 443.4 403.4 391.1 391.5 384.1 393.8 406.9 390.3 388.8 401.0 394.7 372.9 61 Nontransaction 886.5 928.4 941.8 953.0 968.1 979.5 982.8 982.2 991.2 987.9 976.3 970.2 62 Large time 124.9 136.5 140.7 144.5 151.2 153.7 152.7 153.4 152.8 152.3 152.6 154.3 63 Other 761.5 791.9 801.1 808.5 816.9 825.8 830.0 828.8 838.4 835.7 823.7 815.9 64 Borrowings 441.0 427.0 414.5 424.0 399.9 409.0 409.7 421.7 414.6 409.3 434.9 429.6 65 From banks in the U.S 189.3 183.2 177.8 180.1 167.1 176.9 182.9 181.1 178.0 183.8 183.9 179.7 66 From nonbanks in the LIS 251.6 243.9 236.7 243.9 232.8 232.2 226.7 240.6 236.6 225.5 251.1 249.9 67 Net due to related foreign offices 86.9 71.2 67.8 65.0 74.8 66.2 63.4 69.7 61.4 63.3 78.0 77.7 68 Other liabilities 123.3 123.6 124.6 127.2 141.9 149.5 149.6 153.3 151.0 147.9 158.1 155.3 69 Total liabilities 1,981.0 1,953.7 1,939.8 1,960.7 1,968.8 1,998.0 2,012.4 2,017.0 2,006.9 2,0093 2,042.1 2,005.7 70 Residual (assets less liabilities)7 211.0 218.5 218.8 219.9 218.0 218.4 218.9 218.6 216.9 217.6 219.5 220.0 MEMO 71 Revaluation gains on off-balance-sheet items8 n.a. n.a. n.a. n.a. 32.4 33.1 36.2 47.3 41.9 42.9 53.4 50.7 72 Revaluation losses on off-balancesheet items* n.a. n.a. n.a. n.a. 28.9 28.9 31.8 43.9 38.3 39.7 50.6 46.6 Digitized for FR/i AMSoErtgRag e-backed securities1' n.a. n.a. n.a. n.a. 186.7 188.1 190.9 192.7 191.4 190.7 194.1 194.3 http://fraser.stlouisfed.org/ Footnotes appear on page A21. Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A19 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued D. Small domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures Account 1996 1996r 1997 1997 Jan. July Aug. Sept. Oct. Nov. Dec. Jan. Jan. 8 Jan. 15 Jan. 22 Jan. 29 Seasonally adjusted Assets 1 Bank credit 1,362.2 1,414.1 1.421.9 1,428.4 1,430.3 1,436.2 1,442.2 1,452.2 1.451.5 1,450.4 1,452.1 1,455.3 ? Securities in bank credit 406.9 417.5 417.8 417.2 415.0 413.5 413.7 417.5 418.3 416.7 416.7 418.6 U.S. government securities 328.4 337.8 337.6 337.0 334.7 333.2 333.4 335.8 336.3 335.0 335.0 337.0 4 Other securities 78.5 79.7 80.1 80.1 80.3 80.3 80.4 81.7 82.0 81.7 81.6 81.6 ft Lo C an o s m a m nd e r le c a ia s l e s a i n n d b i a n n d k u c s r t e ri d a i l t 2 9 1 5 7 5 1 . . 3 1 9 1 9 7 6 8 . . 5 9 1,0 1 0 7 4 9 . . 1 9 1,0 1 1 8 1 1 . . 2 4 1,0 1 1 8 5 1 . . 3 9 1,0 1 2 8 2 3. . 4 6 1,0 1 2 85 8 . . 1 5 1.0 1 3 86 4 . . 0 7 1.0 1 3 8 3 5 . . 2 3 1,0 1 3 8 3 5. . 4 7 1,0 1 3 8 5 6 . . 5 0 1,0 1 3 8 6 6. . 7 7 7 Real estate 489.9 515.4 519.8 523.3 524.6 528.6 532.2 537.9 536.4 537.1 538.1 539.7 8 Revolving home equity 26.4 26.9 27.3 27.8 29.5 29.9 30.4 30.8 30.7 30.7 30.8 30.9 9 Other 463.5 488.5 492.5 495.5 495.1 498.6 501.8 507.1 505.7 506.4 507.3 508.8 in Consumer 225.4 233.2 234.8 236.3 239.2 240.1 240.0 239.0 240.0 239.2 239.3 238.4 11 Security3 5.7 5.1 5.1 5.2 5.0 5.1 5.2 5.1 5.0 5.1 5.1 5.0 i? Other loans and leases 63.3 64.0 64.5 65.0 64.6 65.4 66.1 66.8 66.5 66.8 67.0 66.9 n Interbank loans 60.9 47.7 49.4 51.2 51.0 53.6 55.0 54.5 53.5 55.6 54.9 53.2 14 Cash assets4 64.7 64.4 65.4 66.6 68.2 69.4 70.4 69.7 67.6 68.4 74.2 68.2 15 Other assets1 49.0 55.5 56.2 57.4 57.2 57.9 58.5 58.3 56.8 58.1 59.4 59.0 16 Total assets6 1,516.8 1,560.9 1,572.0 1,582.7 1,585.8 1,596.2 1,605.2 1,613.5 1,608.4 1,611.4 1,619.5 1,614.6 Liabilities 17 Deposits 1,191.8 1,218.8 1.231.6 1,240.6 1,229.3 1,251.1 1,264.0 1.279.6 1,275.4 1,281.6 1,284.9 1.272.9 18 Transaction 334.3 323.0 322.5 322.9 317.7 321.8 322.6 321.8 317.5 321.3 327.1 320.1 19 Nontransaction 857.5 895.8 909.1 917.7 911.5 929.4 941.4 957.8 957.9 960.3 957.8 952.9 ?o Large time 145.8 150.9 152.4 152.3 143.6 146.2 147.9 149.6 149.0 149.6 149.8 150.0 71 Other 711.7 744.9 756.7 765.4 768.0 783.1 793.5 808.2 808.9 810.7 808.0 802.9 27 Borrowings 137.5 155.4 161.0 162.9 164.3 165.1 165.2 167.7 166.3 163.0 169.4 171.9 23 From banks in the U.S 75.9 79.2 82.7 83.8 86.4 86.4 84.0 86.4 84.7 84.8 87.1 89.4 24 From others 61.6 76.2 78.3 79.1 77.9 78.7 81.1 81.2 81.6 78.2 82.4 82.5 2,5 Net due to related foreign offices 6.1 5.7 4.4 5.9 3.4 2.2 2.7 4.0 3.8 3.8 4.0 4.3 26 Other liabilities 31.8 27.8 27.1 26.9 28.1 27.1 26.0 24.5 24.4 24.4 24.3 25.4 27 Total liabilities 1,367.2 1,407.6 1,424.1 1,436.3 1,425.1 1,445.5 1,457.9 1,475.8 1,469.9 1,472.8 1,482.6 1,474.6 28 Residual (assets less liabilities)7 149.6 153.3 147.9 146.4 160.7 150.6 147.3 137.7 138.4 138.6 136.8 140.0 Not seasonally adjusted Assets 29 Bank credit 1,360.1 1.414.5 1,421.4 1,432.4 1,432.8 1.437.7 1,445.0 1,450.3 1.451.9 1,450.0 1.449.4 1,450.5 30 Securities in bank credit 405.4 416.8 415.9 417.5 413.9 411.9 413.3 416.1 416.7 415.8 415.9 416.5 31 U.S. government securities 327.1 337.0 336.0 337.5 333.6 331.5 332.9 334.5 334.9 334.2 334.4 335.0 3? Other securities 78.3 79.7 79.9 80.0 80.3 80.4 80.4 81.5 81.7 81.6 81.5 81.4 33 Loans and leases in bank credit2 954.7 997.8 1.005.6 1.014.9 1,018.9 1,025.8 1.031.7 1.034.2 1.035.2 1,034.2 1,033.5 1,034.0 34 Commercial and industrial 171.1 178.9 178.6 180.4 181.4 182.7 184.6 186.0 185.6 185.5 185.9 186.5 35 Real estate 489.4 515.9 520.9 525.4 526.8 530.8 534.1 537.5 536.6 537.0 537.5 538.7 36 Revolving home equity 26.3 26.9 27.4 28.1 29.7 30.1 30.4 30.7 30.7 30.6 30.7 30.7 37 Other 463.1 488.9 493.5 497.3 497.1 500.7 503.6 506.8 506.0 506.3 506.9 508.0 38 Consumer 226.3 233.0 234.9 237.3 239.8 240.8 240.9 239.9 241.0 240.2 240.0 239.5 39 Security3 5.8 4.9 5.1 5.1 4.9 5.3 5.4 5.2 5.5 5.4 5.1 4.9 40 Other loans and leases 62.1 65.1 66.0 66.6 66.0 66.1 66.7 65.6 66.5 66.1 65.0 64.5 41 Interbank loans 62.3 45.0 48.4 49.5 51.3 58.4 58.0 55.8 59.5 58.2 53.4 50.3 47 Cash assets4 67.1 64.0 63.1 65.1 69.3 72.1 74.3 71.8 71.0 72.7 75.8 66.9 43 Other assets' 49.9 55.4 56.3 57.9 56.9 58.4 59.1 59.2 58.0 58.9 58.9 60.1 44 Total assets6 1,519.5 1,558.3 1,568.4 1,584.0 1,589.5 1,605.8 1,615.4 1,616.1 1,619.2 1,618.8 1,616.5 1,606.8 Liabilities 45 Deposits 1,190.1 1,215.4 1,228.8 1,242.8 1,231.6 1,258.8 1,277.4 1,277.1 1,286.4 1,285.5 1,274.3 1,255.6 46 Transaction 338.6 320.7 319.1 322.2 318.2 325.4 333.8 325.6 330.8 330.1 325.1 312.9 47 Nontransaction 851.5 894.7 909.6 920.5 913.3 933.3 943.6 951.6 955.5 955.4 949.2 942.7 48 Large time 144.5 150.1 152.2 152.1 144.0 146.6 147.0 148.3 147.4 147.9 148.5 149.3 49 Other 707.0 744.6 757.5 768.4 769.4 786.8 796.6 803.2 808.2 807.4 800.7 793.4 50 Borrowings 139.8 155.0 159.1 162.5 164.5 163.6 164.7 169.4 165.8 166.3 173.6 173.1 51 From banks in the U.S 76.4 80.6 82.5 84.6 85.9 84.7 83.5 86.2 83.8 84.5 88.9 88.3 5? From others 63.5 74.4 76.6 78.0 78.6 79.0 81.2 83.2 82.1 81.7 84.7 84.7 53 Net due to related foreign offices 6.1 5.7 4.4 5.9 3.4 11 2.7 4.0 3.8 3.8 4.0 4.3 54 Other liabilities 32.1 28.0 27.2 26.6 28.1 27.0 25.5 24.7 24.6 24.4 24.5 25.8 55 Total liabilities 1,368.1 1,404.0 1,419.5 1,437.7 1,427.5 1,451.5 1,470.4 1,475.2 1,480.6 1,480.0 1,476.5 1,458.8 56 Residual (assets less liabilities)7 151.5 154.4 148.9 146.3 162.0 154.3 144.9 140.8 138.6 138.8 140.0 147.9 MEMO 57 Mortgage-backed securities9 n.a. n.a. n.a. 8.2 49.7 50.2 51.5 53.1 53.0 53.2 53.5 53.1 Footnotes appear on page A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Financial Statistics • April 1997 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued E. Foreign-related institutions Billions of dollars Monthly averages Wednesday figures Account 1996 1996r 1997 1997 Jan. July Aug. Sept. Oct. Nov. Dec. Jan Jan. 8 Jan. 15 Jan. 22 Jan. 29 Seasonally adjusted Assets 1 Bank credit 442.3 466.6 464.4 467.6 481.9 497.1 510.3 522.3 517.8 517.3 525.6 526.8 2 Securities in bank credit 140.8 148.2 147.5 146.5 149.4 159.7 167.4 171.9 169.1 167.9 174.5 175.3 3 U.S. government securities 63.2 80.0 80.9 82.9 83.1 88.0 89.2 83.1 85.7 81.6 81.3 82.5 4 Other securities 77.7 68.2 66.6 63.6 66.3 71.7 78.2 88.8 83.3 86.3 93.2 92.8 5 Loans and leases in bank credit2 . . . 301.5 318.3 316.9 321.0 332.4 337.4 342,9 350.4 348.7 349.3 351.0 351.5 6 Commercial and industrial 182.7 194.2 194.3 200.7 207.1 211.0 217.4 219.9 219.8 219.5 220.2 220.3 7 Real estate 35.2 33.1 33.1 32.8 32.9 32.8 32.5 32.5 32.5 32.5 32.3 32.8 8 Security3 33.1 32.0 29.8 29.1 32.7 34.5 35.4 37.2 36.4 35.5 37.9 38.2 y Other loans and leases 50.5 59.1 59.7 58.4 59.8 59.2 57.6 60.7 59.9 61.8 60.6 60.3 10 Interbank loans 23.1 19.2 16.4 20.3 20.9 20.9 22.8 23.8 21.0 24.6 23.1 26.3 ii Cash assets4 30.6 28.1 28.5 29.5 29.8 31.1 31.4 31.9 31.5 32.2 31.5 32.4 12 Other assets5 49.1 42.8 43.7 41.1 33.9 36.5 37.4 39.4 37.3 39.9 40.3 39.7 13 Total assets6 545.0 556.6 553.0 5583 5663 585.4 601.8 617.2 607.4 613.7 620.2 625.0 Liabilities 14 Deposits 166.5 179.5 180.3 186.0 197.8 205.0 221.2 230.9 230.5 230.4 225.8 235.7 15 Transaction 10.8 10.6 10.5 9.7 10.5 10.6 10.8 10.9 10.7 11.0 11.1 10.9 16 Nontransaction 155.7 168.9 169.8 176.2 187.3 194.4 210.4 220.0 219.8 219.3 214.6 224.7 17 Large time 150.6 165.3 166.7 172.9 184.7 190.9 206.5 217.1 216.0 215.4 213.0 222.8 18 Other 5.2 3.6 3.1 3.4 2.6 3.6 4.0 2.8 3.8 3.9 1.7 1.9 19 Borrowings 113.7 123.0 128.6 122.8 118.7 128.3 125.4 131.5 123.2 126.1 135.0 139.6 20 From banks in the U.S 29.6 30.8 34.6 34.0 33.4 35.5 36.2 31.3 29.7 27.0 33.8 32.5 21 From others 84.1 92.2 94.1 88.8 85.3 92.8 89.2 100.1 93.5 99.1 101.2 107.1 22 Net due to related foreign offices 176.2 178.2 173.2 176.3 167.3 166.1 160.4 147.4 151.8 152.8 143.9 141.0 23 Other liabilities 78.5 71.8 69.4 68.7 74.8 80.1 83.4 91.3 86.9 89.2 93.8 94.4 24 Total liabilities 534.9 552.6 5513 553.8 558.6 5793 590.4 601.0 592.4 5983 5983 610.7 25 Residual (assets less liabilities)7 10.1 4.0 1.5 4.6 7.6 5.9 11.4 16.2 15.0 15.3 21.7 14.3 Not seasonally adjusted Assets 26 Bank credit 441.4 468.0 467.9 466.2 480.5 496.7 506.1 519.3 513.5 514.4 520.4 525.7 27 Securities in bank credit 139.1 148.4 150.7 145.4 149.3 159.4 160.9 167.8 162.9 164.0 169.1 173.6 28 U.S. government securities 64.4 79.0 82.4 81.9 82.6 88.0 86.7 84.1 84.5 83.1 83.2 84.7 29 Trading account n.a. n.a. n.a. n.a. 18.8 22.0 20.2 17.0 17.2 16.2 15.9 17.6 30 Investment account n.a. n.a. n.a. n.a. 63.7 66.0 66.5 67.1 67.2 66.9 67.3 67.1 31 Other securities 74.7 69.3 68.3 63.5 66.7 71.4 74.2 83.8 78.4 80.9 85.9 88.9 32 Trading account n.a. n.a. n.a. n.a 48.2 52.3 55.0 61.4 56.6 58.3 63.4 66.2 33 Investment account n.a. n.a. n.a. n.a. 18.5 19.1 19.2 22.4 21.9 22.7 22.5 22.7 34 Loans and leases in bank credit2 . . . 302.3 319.6 317.2 320.8 331.3 337.3 345.2 351.4 350.6 350.4 351.4 352.1 35 Commercial and industrial 182.7 195.2 194.4 199.5 205.9 210.8 217.8 219.8 219.8 219.4 219.7 220.3 36 Real estate 35.2 32.9 33.1 32.9 33.1 33.2 32.7 32.5 32.6 32.5 32.3 32.6 37 Security3 33.1 32.0 29.8 29.1 32.7 34.5 35.4 37.2 36.4 35.5 37.9 38.2 38 Other loans and leases 51.4 59.5 59.8 59.3 59.7 58.8 59.3 61.9 61.8 62.9 61.5 61.1 39 Interbank loans 23.1 19.2 16.4 20.3 20.9 20.9 22.8 23.8 21.0 24.6 23.1 26.3 40 Cash assets4 30.9 28.2 28.5 28.8 30.1 31.3 32.5 32.3 31.8 32.9 31.8 32.6 41 Other assets5 48.2 42.0 44.5 41.5 33.6 36.8 38.2 38.6 37.0 38.6 38.8 39.2 42 Total assets6 543.6 5573 5573 556.8 565.0 5853 599.4 613.8 603.2 6103 613.9 623.6 Liabilities 43 Deposits 166.8 177.5 178.8 185.6 203.2 207.6 223.9 231.0 230.1 230.5 226.9 235.7 44 Transaction 10.8 10.6 10.3 10.1 10.6 10.6 11.5 11.0 10.7 11.1 11.0 10.9 45 Nontransaction 156.0 166.9 168.5 175.4 192.6 197.0 212.5 220.0 219.4 219.4 215.8 224.9 46 Large time 149.4 163.9 166.2 173.2 190.4 194.8 209.9 215.1 215.0 213.8 211.1 219.8 47 Other 6.6 3.0 2.3 2.3 2.2 2.3 2.6 5.0 4.4 5.6 4.8 5.0 48 Borrowings 110.9 130.6 133.6 123.9 115.3 124.9 124.4 128.6 122.0 124.5 131.8 133.6 49 From banks in the U.S 30.8 32.2 35.1 33.3 30.9 35.6 37.0 32.6 32.2 29.5 33.0 33.7 50 From others 80.1 98.3 98.5 90.6 84.4 89.3 87.4 96.0 89.8 95.0 98.8 100.0 51 Net due to related foreign offices 184.3 175.0 171.2 174.3 167.3 165.8 162.0 156.1 158.3 160.3 155.3 150.8 52 Other liabilities 77.9 70.2 69.8 68.6 73.2 80.8 82.0 90.5 85.0 87.1 92.3 95.6 53 Total liabilities 539.8 5533 5533 552.4 559.0 579.0 592.4 606.1 5953 602.4 606.2 615.8 54 Residual (assets less liabilities)7 3.8 4.0 3.9 4.4 6.0 6.5 7.1 7.7 7.7 7.9 7.7 7.7 MEMO 55 Revaluation gains on off-balance-sheet items8 n.a. n.a. n.a. n.a. 29.9 32.4 33.4 41.1 37.4 38.7 43.2 44.4 56 Revaluation losses on off-balancesheet items8 n.a. n.a. n.a. n.a. 29.4 31.6 32.6 40.3 36.3 37.7 42.8 43.9 Footnotes appear on page A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A21 NOTES TO TABLE 1.26 NOTE. Tables 1.26, 1.27, and 1.28 have been revised to reflect changes in the Board's H.8 quantities of balance sheet items acquired in mergers are removed from past data for the bank statistical release, "Assets and Liabilities of Commercial Banks in the United States." Table group that contained the acquired bank and put into past data for the group containing the 1.27, "Assets and Liabilities of Large Weekly Reporting Commercial Banks," and table 1.28, acquiring bank. Balance sheet data for acquired banks are obtained from Call Reports, and a "Large Weekly Reporting U.S. Branches and Agencies of Foreign Banks," are no longer ratio procedure is used to adjust past levels. being published in the Bulletin. Instead, abbreviated balance sheets for both large and small 2. Excludes federal funds sold to, reverse RPs with, and loans made to commercial banks domestically chartered banks have been included in table 1.26, parts C and D. Data are both in the United States, all of which are included in "Interbank loans." merger-adjusted and break-adjusted. In addition, data from large weekly reporting U.S. 3. Consists of reverse RPs with brokers and dealers and loans to purchase and carry branches and agencies of foreign banks have been replaced by balance sheet estimates of all securities. foreign-related institutions and are included in table 1.26, part E. These data are break- 4. Includes vault cash, cash items in process of collection, balances due from depository adjusted. institutions, and balances due from Federal Reserve Banks. The not-seasonally-adjusted data for all tables now contain additional balance sheet items, 5. Excludes the due-from position with related foreign offices, which is included in "Net which were available as of October 2, 1996. due to related foreign offices." 1. Covers the following types of institutions in the fifty states and the District of 6. Excludes unearned income, reserves for losses on loans and leases, and reserves for Columbia: domestically chartered commercial banks that submit a weekly report of condition transfer risk. Loans are reported gross of these items. (large domestic); other domestically chartered commercial banks (small domestic); branches 7. This balancing item is not intended as a measure of equity capital for use in capital and agencies of foreign banks, and Edge Act and agreement corporations (foreign-related adequacy analysis. On a seasonally adjusted basis this item reflects any differences in the institutions). Excludes International Banking Facilities. Data are Wednesday values or pro seasonal patterns estimated for total assets and total liabilities. rata averages of Wednesday values. Large domestic banks constitute a universe; data for 8. Fair value of derivative contracts (interest rate, foreign exchange rate, other commodity small domestic banks and foreign-related institutions are estimates based on weekly samples and equity contracts) in a gain/loss position, as determined under FASB Interpretation No. 39. and on quarter-end condition reports. Data are adjusted for breaks caused by reclassifications 9. Includes mortgage-backed securities issued by U.S. government agencies, U.S. of assets and liabilities. government-sponsored enterprises, and private entities. The data for large and small domestic banks presented on pp. A18 and A19 are adjusted to remove the estimated effects of mergers between these two groups. The adjustment for mergers changes past levels to make them comparable with current levels. Estimated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic NonfinancialS tatistics • April 1997 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December 1996 Item D 19 e 9 c 2 . D 19 e 9 c 3 . D 19 e 9 c 4 . D 19 e 9 c 5 . D 19 e 9 c 6 . July Aug. Sept. Oct. Nov. Dec. Commercial paper (seasonally adjusted unless noted otherwise) 1 All issuers 545,619 555,075 595,382 674,904 775,371 734,731 753,276 757,155 757,718 766,556 775,371 Financial companies' 2 Dealer-placed paper2, total. 226,456 218,947 223,038 275,815 361,147 317,426 329,026 336,833 349,288 354,400 361,147 3 Directly placed paper3, total 171,605 180,389 207,701 210,829 229,662 222,583 230,318 226,599 225,977 228,553 229,662 4 Nonfinancial companies4 147,558 155,739 164,643 188,260 184,563 194,722 193,932 193,724 182,454 183,603 184,563 Bankers dollar acceptances (not seasonally adjusted)5 5 Total 38,194 32,348 29,835 29,242 25,754 By holder 6 Accepting banks 10,555 12,421 11,783 7 Own bills 9,097 10,707 10,462 8 Bills bought from other banks 1,458 1,714 1,321 Federal Reserve Banks6 9 Foreign correspondents 1,276 725 410 10 Others 26,364 19,202 17,642 By basis 11 Imports into United States 12,209 10,217 10,062 12 Exports from United States 8,096 7,293 6,355 13 All other 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 are 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 Date of change Av r e a r te a ge PPeerriioodd Av r e a r te a ge PPeerriioodd Av r e a r t a e g e 1994—Mar. ?4 6.25 1994 7.15 —Jan 8.50 1996—Jan 8.50 Apr. 19 6.75 1995 8.83 Feb 9.00 Feb 8.25 May 17 7.25 1996 8.27 Mar 9.00 Mar. 8.25 Aug. 16 7.75 Apr 9.00 Apr. 8.25 Nov. 1*1 8.50 1994—Jan. . 6.00 Mav 9.00 May 8.25 her) 6.00 June 9.00 June 8.25 1995—Feb. 1 9.00 Mar. 6.06 July 8.80 July 8.25 July 7 8.75 Apr. 6.45 Aug 8.75 Aug 8.25 Dec. 7(1 8.50 May 6.99 Sept 8.75 Sept 8.25 1996—Feb. 1 J Ju u l n y e . 7 7 . . 2 2 5 5 O No ct v 8 8. . 7 7 5 5 O No ct v 8 8 . . 2 2 5 5 Aug. 7.51 Dec 8.65 Dec 8.25 Sept. 7.75 Oct. . 7.75 1997—Jan 8.25 Nov. 8.15 Feb 8.25 Dec. 8.50 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 1997 1997, week ending IItteemm 11999944 11999955 11999966 Oct. Nov. Dec. Jan. Jan. 3 Jan. 10 Jan. 17 Jan. 24 Jan. 31 MONEY MARKET INSTRUMENTS 1 Federal funds''2'3 4.21 5.83 5.30 5.24 5.31 5.29 5.25 5.37 5.28 5.19 5.19 5.18 2 Discount window borrowing2'4 3.60 5.21 5.02 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Commercial paper 3 1-month 4.43 5.93 5.43 5.37 5.39 5.70 5.43 5.71 5.43 5.43 5.42 5.44 4 3-month 4.66 5.93 5.41 5.43 5.41 5.51 5.45 5.55 5.45 5.47 5.44 5.45 5 6-month 4.93 5.93 5.42 5.45 5.40 5.44 5.48 5.49 5.47 5.51 5.48 5.48 Finance paper, directly placed3,5,7 6 1-month 4.33 5.81 5.31 5.25 5.25 5.41 5.31 5.37 5.31 5.30 5.29 5.30 7 3-month 4.53 5.78 5.29 5.31 5.29 5.33 5.32 5.35 5.31 5.32 5.32 5.32 8 6-month 4.56 5.68 5.21 5.28 5.23 5.25 5,30 5.29 5.30 5.28 5.31 5.31 Bankers acceptances3,5,8 9 3-month 4.56 5.81 5.31 5.32 5.29 5.35 5.34 5.34 5.34 5.34 5.33 5.33 10 6-month 4.83 5.80 5.31 5.36 5.29 5.33 5.35 5.32 5.35 5.36 5.36 5.36 Certificates of deposit, secondary market3,9 11 1-month 4.38 5.87 5.35 5.28 5.30 5.50 5.35 5.45 5.36 5.34 5.33 5.34 12 3-month 4.63 5.92 5.39 5.41 5.38 5.44 5.43 5.45 5.42 5.44 5.42 5.42 13 6-month 4.96 5.98 5.47 5.51 5.43 5.47 5.54 5.50 5.53 5.55 5.54 5.53 14 Eurodollar deposits, 3-month3,10 4.63 5.93 5.38 5.41 5.38 5.43 5.44 5.44 5.44 5.44 5.44 5.44 U.S. Treasury bills Secondary market3,5 15 3-month 4.25 5.49 5.01 4.99 5.03 4.91 5.03 5.05 5.03 5.03 5.04 5.04 16 6-month 4.64 5.56 5.08 5.11 5.07 5.04 5.10 5.12 5.10 5.08 5.12 5.10 17 1-year 5.02 5.60 5.22 5.25 5.14 5.18 5.30 5.25 5.31 5.30 5.30 5.30 Auction average3,5,11 18 3-month 4.29 5.51 5.02 5.01 5.03 4.87 5.05 5.08 5.02 5.04 5.03 5.06 19 6-month 4.66 5.59 5.09 5.12 5.07 5.02 5.11 5.11 5.11 5.11 5.11 5.12 20 1-year 5.02 5.69 5.23 5.34 5.20 5.16 5.31 n.a. 5.31 n.a. n.a. n.a. U.S. TREASURY NOTES AND BONDS Constant maturities12 21 1-year 5.32 5.94 5.52 5.55 5.42 5.47 5.61 5.55 5.61 5.61 5.61 5.62 22 2-year 5.94 6.15 5.84 5.91 5.70 5.78 6.01 5.90 5.99 6.01 6.03 6.03 23 3-year 6.27 6.25 5.99 6.08 5.82 5.91 6.16 6.06 6.15 6.15 6.17 6.17 24 5-year 6.69 6.38 6.18 6.27 5.97 6.07 6.33 6.22 6.33 6.33 6.34 6.36 25 7-year 6.91 6.50 6.34 6.42 6.10 6.20 6.47 6.36 6.47 6.46 6.47 6.50 26 10-year 7.09 6.57 6.44 6.53 6.20 6.30 6.58 6.45 6.57 6.56 6.58 6.62 27 20-year 7.49 6.95 6.83 6.90 6.58 6.65 6.91 6.76 6.89 6.90 6.92 6.95 28 30-year 7.37 6.88 6.71 6.81 6.48 6.55 6.83 6.67 6.80 6.81 6.84 6.89 Composite 29 More than 10 years (long-term) 7.41 6.93 6.80 6.87 6.55 6.63 6.89 6.75 6.88 6.89 6.90 6.93 STATE AND LOCAL NOTES AND BONDS Moody's series13 30 5.77 5.80 5.52 5.52 5.43 5.38 5.40 5.38 5.44 5.42 5.40 5.37 31 Baa 6.17 6.10 5.79 5.73 5.69 5.63 5.71 5.70 5.76 5.73 5.69 5.66 32 Bond Buyer series14 6.18 5.95 5.76 5.72 5.59 5.64 5.72 5.70 5.71 5.72 5.72 5.73 CORPORATE BONDS 33 Seasoned issues, all industries15 8.26 7.83 7.66 7.68 7.41 7.50 7.71 7.59 7.72 7.69 7.71 7.76 Rating group 34 7.97 7.59 7.37 7.39 7.10 7.20 7.42 7.29 7.42 7.39 7.41 7.48 35 Aa 8.15 7.72 7.55 7.58 7.31 7.41 7.63 7.50 7.62 7.62 7.63 7.69 36 A 8.28 7.83 7.69 7.70 7.41 7.51 7.71 7.60 7.71 7.69 7.71 7.75 37 Baa 8.63 8.20 8.05 8.07 7.79 7.89 8.09 7.99 8.11 8.07 8.10 8.12 38 A-rated, recently offered utility bonds'6 8.29 7.86 7.77 7.83 7.54 7.63 7.93 7.83 7.95 7.93 8.00 7.92 MEMO Dividend-price ratio17 39 Common stocks 2.82 2.56 2.19 2.11 2.01 2.01 1.95 2.01 1.99 1.94 1.90 1.95 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. AI 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.I5 (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 • April 1997 1.36 STOCK MARKET Selected Statistics 1996 1997 IInnddiiccaattoorr 11999944 11999955 11999966 May June July Aug. Sept. Oct. Nov. Dec. Jan. Prices and trading volume (averages of daily figures)' Common stock prices (indexes) 1 New York Stock Exchange (Dec. 31, 1965 = 50) 254.16 291.18 357.98 354.84 358.32 345.06 354.59 360.96 373.54 388.75 391.61 403.58 2 Industrial 315.32 367.40 453.57 452.63 458.30 438.58 444.91 459.69 473.98 490.60 494.38 509.18 3 Transportation 247.17 270.14 327.30 334.66 331.57 316.57 321.61 323.12 332.80 348.32 352.28 359.40 4 Utility 104.96 110.64 126.36 124.86 123.60 122.66 122.37 121.12 130.04 135.88 128.55 131.95 5 Finance 209.75 238.48 303.94 290.43 294.42 287.89 302.95 308.16 324.42 345.30 350.01 361.45 6 Standard & Poor's Corporation (1941-43 = 10)2 460.42 541.72 670.49 661.23 668.50 644.06 662.68 674.88 701.46 735.67 743.25 766.22 7 American Stock Exchange (Aug. 31, 1973 = 50)3 449.49 498.13 570.86 600.93 591.99 550.16 554.88 564.87 574.46 583.21 582.96 585.09 Volume of trading (thousands of shares) 8 New York Stock Exchange 290,652 345,729 409,740 404,184 392,413 398,245 333,343 400,951 420,835 443,521 431,538 526,631 9 American Stock Exchange 17,951 20,387 22,567 28,127 23,903 21,281 17,916 19,449 18,780 22,151 23,648 24,019 Customer financing (millions of dollars, end-of-period balances) 10 Margin credit at broker-dealers4 61,160 76,680 97,400 86,100 87,160 79,860 82,980 89,300 88,740 91,680 97,400 99,460 Free credit balances at brokers5 11 Margin accounts6 14,095 16,250 22,540' 16,890 16,800 17,700 17,520 17,940 19,890 20,020 22,540r 22,870 12 Cash accounts 28,870 34,340 40,430 33,760 33,775 32,935 32,680 35,360 36,610 36,650 40,430 41,280 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 6. Series initiated in June 1984. address, see inside front cover. 7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant 2. In July 1976 a financial group, composed of banks and insurance companies, was added to the Securities Exchange Act of 1934, limit the amount of credit that can be used to to the group of stocks on which the index is based. The index is now based on 400 industrial purchase and carry "margin securities" (as defined in the regulations) when such credit is stocks (formerly 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and collateralized by securities. Margin requirements on securities are the difference between the 40 financial. market value (100 percent) and the maximum loan value of collateral as prescribed by the 3. On July 5, 1983, the American Stock Exchange rebased its index, effectively cutting Board. Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May 1, previous readings in half. 1936; Regulation G, effective Mar. 11, 1968; and Regulation X, effective Nov. 1, 1971. 4. Since July 1983, under the revised Regulation T, margin credit at broker-dealers has On Jan. 1, 1977, the Board of Governors for the first time established in Regulation T the included credit extended against stocks, convertible bonds, stocks acquired through the initial margin required for writing options on securities, setting it at 30 percent of the current exercise of subscription rights, corporate bonds, and government securities. Separate report- market value of the stock underlying the option. On Sept. 30, 1985, the Board changed the ing of data for margin stocks, convertible bonds, and subscription issues was discontinued in required initial margin, allowing it to be the same as the option maintenance margin required April 1984. by the appropriate exchange or self-regulatory organization; such maintenance margin rules 5. Free credit balances are amounts in accounts with no unfulfilled commitments to must be approved by the Securities and Exchange Commission. brokers and are subject to withdrawal by customers on demand. 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 1997 11999944 11999955 11999966 Aug. Sept. Oct. Nov. Dec. Jan. U.S. budget' 1 Receipts, total 1,258,627 1,351,830 1,453,062 99,996 157,668 99,656 97,849 148,489 150,718 2 On-budget 923,601 1,000,751 1,085,570 71,505 125,806 73,644 70,018 119,528 113,841 3 Off-budget 335,026 351,079 367,492 28,491 31,862 26,012 27,831 28,961 36,877 4 Outlays, total 1,461,731 1,515,729 1,560,330 141,828 121,971 139,915 135,727 129,666 137,354 5 On-budget 1,181,469 1,227,065 1,259,872 113,840 89,981 113,290 106,327 120,429 110,552 6 Off-budget 279,372 288,664 300,458 27,987 31,989 26,625 29,400 9,237 26,802 7 Surplus or deficit (-), total -203,104 -163,899 -107,268 -41,831 35,697 -40,259 -37,878 18,823 13,364 8 On-budget -258,758 -226,314 -174,302 -42,335 35,825 -39,646 -36,309 -901 3,289 9 Off-budget 55,654 62,415 67,034 504 -127 -613 -1,569 19,724 10,075 Source of financing (total) 10 Borrowing from the public 185,344 171,288 129,712 16,160 -5,892 15,588 45,459 -12,321 -16,776 11 Operating cash (decrease, or increase (-)) 16,564 -2,007 -6,276 23,705 -31,159 18,592 -673 -6,488 -3,785 12 Other2 1,196 -5,382 -16,168 1,966 1,354 6,079 -6,908 -14 7,197 MEMO 13 Treasury operating balance (level, end of period) 35,942 37,949 44,225 13,066 44,225 25,633 26,306 32,794 36,579 14 Federal Reserve Banks 6,848 8,620 7,700 5,149 7,700 5,897 4,857 7,742 6,770 15 Tax and loan accounts 29,094 29,329 36,525 7,917 36,525 19,736 21,449 25,052 29,809 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 • April 1997 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1 Millions of dollars Fiscal year Calendar year SSSooouuurrrccceee ooorrr tttyyypppeee 1995 1996 1996 1997 11999955 11999966 HI H2 HI H2 Nov. Dec. Jan. RECEIPTS 1 All sources 1,351,830 l,453,062r 711,003 656,865 767,099 707,551 97,849 148,489 150,718 2 Individual income taxes, net 590,244 656,417 307,498 292,393 347,285 323,884 46,270 59,423 87,239 3 Withheld 499,927 533,080 251,398 256,916 264,177 279,988 46,989 52,690 55,426 4 Nonwithheld 175,855 212,168 132,001 45,521 162,782 53,491 2,003 7,582 33,576 5 Refunds 85,538 88,897 75,959 10,058 79,735 9,604 2,724 850 1,763 Corporation income taxes 6 Gross receipts 174,422 189,055 92,132 88,302 96,480 95,364 3,522 40,436 6,285 7 Refunds 17,418 17,231 10,399 7,518 9,704 10,053 1,183 1,479 1,477 8 Social insurance taxes and contributions, net ... 484,473 509,414 261,837 224,269 277,767 240,326 39,952 40,687 48,794 9 Employment taxes and contributions2 451,045 476,361 241,557 211,323 257,446 227,777 36,967 40,057 47,302 10 Unemployment insurance 28,878 28,584 18,001 10,702 18,068 10,302 2,574 259 1,137 11 Other net receipts3 4,550 4,469 2,279 2,247 2,254 2,245 411 371 355 12 Excise taxes 57,484 54,014 27,452 30,014 25,682 27,016 4,678 4,559 4,219 13 Customs deposits 19,301 18,670 8,848 9,849 8,731 9,294 1,219 1,520 1,468 14 Estate and gift taxes 14,763 17,189 7,425 7,718 8,775 8,835 1,394 1,371 1,615 15 Miscellaneous receipts4 28,561 25,534 16,211 11,839 12,087 12,886 1,997 1,973 2,574 OUTLAYS 16 All types 1,515,729 1,560,330 761,289 752,856 785,368 799,856r 135,727 129,666r 137,354 17 National defense 272,066 265,748 135,648 132,887 132,601r 138,319 24,911 23,085 22,137 18 International affairs 16,434 13,496 4,797 6,908 8,074 8,770 814 1,371 1,405 19 General science, space, and technology 16,724 16,709 8,611 7,969 8,898r 9,498 1,586 1,590 1,429 20 Energy 4,936 2,836 2,358 1,992 1,355 801 -96 201 -52 21 Natural resources and environment 22,078 21,614 10,273 11,384 10,239r 11,592 1,888 2,150 2,018 22 Agriculture 9,778 9,159 4,039 3,073 71 10,771 1,405 2,240 2,169 23 Commerce and housing credit -17,808 -10,646 -13,471 -3,941 -6,861 -6,154r -4,535 — 838r -1,531 24 Transportation 39,350 39,565 18,193 20,725 18,290r 21,233 3,386 3,209 2,895 25 Community and regional development 10,641 10,685 5,073 5,569 5,237 6,157r 990 749r 1,005 26 Education, training, employment, and social services 54,263 52,001 25,893 26,295 26,137 26,175 4,973 3,799 4,676 27 Health 115,418 119,378 59,057 57,111 59,957 61,429 10,060 10,558 10,762 28 Social security and Medicare 495,701 523,901 251,975 251,386 264,649 269,409 45,936 44,779 46,641 29 Income security 220,493 225,989 117,190 104,760 121,032 107,046 19,646 17,278 19,587 30 Veterans benefits and services 37,890 36,985 19,269 18,687 18.164 21,133 5,156 3,088 3,281 31 Administration of justice 16,216 17,548 8,051 8,092 9,020r 9,602 1,897 1,563 1,745 32 General government 13,835 11,892 5.796 7,602 4,641 6,641 200 1,687 982 33 Net interest5 232,169 241,090 116,169 119,348 120,578r 122,627 20,144 19,997 21,092 34 Undistributed offsetting receipts6 -44,455 -37,620 -17,631 -26,995 -16,716 -25,196 -2,635 -6,839 -2,888 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 I998\ 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 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 1 Federal debt outstanding 4,827 4,891 4,978 5,001 5,017 5,153 5,197 5,260 5,357 2 Public debt securities 4,800 4,864 4,951 4,974 4,989 5,118 5,161 5,225 5,323 3 Held by public 3,543 3,610 3,635 3,653 3,684 3,764 3,739 3,778 n.a. 4 Held by agencies 1,257 1,255 1,317 1,321 1,305 1,354 1,422 1,447 n.a. 5 Agency securities 27 27 27 27 28 36 36 35 34 6 Held by public 27 26 27 27 28 28 28 27 n.a. 7 Held by agencies 0 0 0 0 0 8 8 8 n.a. 8 Debt subject to statutory limit 4,711 4,775 4,861 4,885 4,900 5,030 5,073 5,137 5,237 9 Public debt securities 4,711 4,774 4.861 4,885 4,900 5,030 5,073 5,137 5,237 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 5,500 5,500 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 US. TREASURY Types and Ownership Billions of dollars, end of period 1996 TTyyppee aanndd hhoollddeerr 11999933 11999944 11999955 11999966 Q1 Q2 Q3 Q4 1 Total gross public debt 4,535.7 4,800.2 4,988.7 5,323.2 5,117.8 5,161.1 5,224.8 5,323.2 By type 2 Interest-bearing 4,532.3 4,769.2 4,964.4 5,317.2 5,083.0 5,126.8 5,220.8 5,317.2 3 Marketable 2,989.5 3,126.0 3,307.2 3,459.7 3,375.1 3,348.4 3,418.4 3,459.7 4 Bills 714.6 733.8 760.7 777.4 811.9 773.6 761.2 777.4 5 Notes 1,764.0 1,867.0 2,010.3 2,112.3 2,014.1 2,025.8 2,098.7 2,112.3 6 Bonds 495.9 510.3 521.2 555.0 534.1 534.1 543.5 555.0 7 Nonmarketable1 1,542.9 1,643.1 1,657.2 1,857.5 1,707.9 1,778.3 1,802.4 1,857.5 8 State and local government series 149.5 132.6 104.5 101.3 96.5 97.8 95.7 101.3 9 Foreign issues2 43.5 42.5 40.8 37.4 40.4 37.8 37.5 37.4 10 Government 43.5 42.5 40.8 47.4 40.4 37.8 37.5 47.4 11 Public .0 .0 .0 .0 .0 .0 .0 .0 12 Savings bonds and notes 169.4 177.8 181.9 182.4 183.0 183.8 184.2 182.4 13 Government account series3 1,150.0 1,259.8 1,299.6 1,505.9 1,357.7 1,428.5 1,454.7 1,505.9 14 Non-interest-bearing 3.4 31.0 24.3 6.0 34.8 34.3 4.0 6.0 By holder 4 15 U.S. Treasury and other federal agencies and trust funds 1,153.5 1,257.1 1,304.5 1,353.8 1,422.4 1,447.0 16 Federal Reserve Banks 334.2 374.1 391.0 381.0 391.0 390.9 17 Private investors 3,047.4 3,168.0 3,294.9 3,382.8 3,347.3 3,396.2 18 Commercial banks 322.2 290.1 278.3 281.0 285.0 280.0 19 Money market funds 80.8 67.6 71.3 87.3 82.2 85.3 20 Insurance companies 234.5 240.1 250.8 256.0 258.0 240.0 21 Other companies 213.0 226.5 228.8 n.a. 229.0 230.9 249.1 n.a. 22 State and local treasuries5'6 605.9 483.4 352.2 336.8 340.0 300.0 Individuals 23 Savings bonds 171.9 180.5 185.0 185.8 186.5 186.8 24 Other securities 137.9 150.7 162.7 161.4 161.1 167.2 25 Foreign and international7 623.0 688.6 862.1 930.3 958.2 1,027.7 26 Other miscellaneous investors6'8 658.3 840.5 903.7 915.2 845.4 860.1 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 • April 1997 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions' Millions of dollars, daily averages 1996 1996, week ending 1997, week ending Item Oct. Nov. Dec. Dec. 4 Dec. 11 Dec. 18 Dec. 25 Jan. 1 Jan. 8 Jan. 15 Jan. 22 Jan. 29 OUTRIGHT TRANSACTIONS2 By type of security 1 U.S. Treasury bills 46,500 48,828 48,957 51,501 55,470 58,612 38,766 37,030 51,775 47,443 41,017 41,075 Coupon securities, by maturity 2 Five years or less 99,043 101,712 89,775 85,598 120,422 112,455 72,174 43,851 92,580 120.490 121,511 113,315 3 More than five years 53,211 62,469 50,436 56,359 65,565 68,412 34,018 21,031 51,136 57,872 47,757 58,845 4 Federal agency 30,349 33,010 34,571 34,415 33,041 36,674 35,498 33,046 37,737 35,055 34,683 34,473 5 Mortgage-backed 40,500 44,279 33,754 46,106 59,605 35,581 16,225 7,422 62,491 50,999 30,001 33,766 By type of counterparty With interdealer broker 6 U.S. Treasury 114,131 120,115 104,432 104,562 139,705 127,703 81,471 54,113 112,516 127,881 122,617 124,947 7 Federal agency 848 823 584 718 613 668 479 447 1,029 1,192 1,146 1,147 8 Mortgage-backed 14,927 1166,,551111 11,606 14,486 19,357 13,807 5,827 2,784 19,219 15,616 11,648 10,394 With other 9 U.S. Treasury 84.624 92,894 84,737 88,895 101,752 111,776 63,487 47,799 82,975 97,924 87,668 88,289 10 Federal agency 29,502 32,187 33,987 33,698 32,428 36,006 35,019 32,599 36,709 33,863 33,536 33,325 11 Mortgage-backed 25,573 27,767 22,148 31,620 40,248 21,774 10,398 4,638 43,272 35,383 18,353 23,371 FUTURES TRANSACTIONS3 By type of deliverable security 12 U.S. Treasury bills 96 180 300 667 214 200 256 n.a. 289 221 106 176 Coupon securities, by maturity 13 Five years or less 1,029 1,423 1,635 1,859 2,910 1,557 979 626 1,394 1,500 1,267 1,295 14 More than five years 11,938 14,514 12,347 12,821 17,869 14,013 10,116 5,237 13,066 14,732 12,630 14,056 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 3,143 2,345 1,626 2,637 1,877 1,137 1,638 1,153 4,475 2,435 3,224 2,767 19 More than five years 4,548 4,881 3,559 3,577 3,928 4,408 3,777 1,803 4,135 5,036 4,849 6,008 20 Federal agency 0 0 0 0 0 0 0 0 0 0 0 0 21 Mortgage-backed 1,113 874 494 548 653 602 129 484 624 463 316 316 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 1997, week ending Oct. Nov. Dec. Dec. 4 Dec. 11 Dec. 18 Dec. 25 Jan. 1 Jan. 8 Jan. 15 Jan. 22 Positions2 NET OUTRIGHT POSITIONS3 By type of security 1 US. Treasury bills 607 8,847 14,525 17,011 22,945 15,313 13,028 3,871 10,493 5,963 5,555 Coupon securities, by maturity 2 Five years or less 384 5,631 -7,743 2,409 -8,909 -9,597 -6,356 -12,607 -6,697 -7,078 -6,300 3 More than five years -17,347 -17,797 -22,372 -19,313 -21,141 -21,893 -23,886 -24,641 -23,761 -25,389 -23,626 4 Federal agency 25,339 25,228 23,348 23,818 26,366 24,945 23,540 17,424 27,151 25,797 24,014 5 Mortgage-backed 39,361 42,015 43,300 39,571 45,233 45,617 42,121 42,201 37,959 39,337 35,474 NET FUTURES POSITIONS4 By type of deliverable security 6 U.S. Treasury bills -1,315 -1,872 -2,418 -2,705 -1,890 -2,467 -2,385 -2,825 -1,963 -1,702 -2,116 Coupon securities, by maturity 7 Five years or less 667 -1,285 -75 -2,261 349 843 29 -305 -356 569 597 8 More than five years -10,401 -15,889 -13,806 -14,802 -14,088 -13,260 -14,444 -12,705 -8,197 -6,231 -9,072 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 US. Treasury bills 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 12 Five years or less -1,261 -1,779 -3,036 -2,569 -2,146 -2,914 -3,886 -3,535 -3,807 -3,735 -2,743 13 More than five years -1,433 423 1,526 1,061 1,791 1,491 1,699 1,368 523 529 -172 14 Federal agency 0 0 0 0 0 0 0 0 0 0 0 15 Mortgage-backed 2,343 1,585 1,054 941 1,179 654 1,232 1,244 1,264 967 984 Financing5 Reverse repurchase agreements 16 Overnight and continuing 253,416 264,568 255,137 286,573 265,542 248,671 230,772 258,011 269,405 292,423 273,371 17 Term 501,087 487,521 437,241 422,001 455,010 448,479 463,017 383,490 450,694 484,735 499,494 Securities borrowed 18 Overnight and continuing 182,438r 190,478' 194,674 196,775' 197,089 194,704 189,200 196,807 199,817 200,979 196,784 19 Term 74,114r 69,309r 73,195 64,91 LR 71,634 74,200 80,679 70,637 74,331 78,666 82,326 Securities received as pledge 20 Overnight and continuing 3,576r 3,617r 5,484 3,993' 4,735 5,155 6,620 6,412 6,453 6,897 5,137 21 Term 31r 40r 5 5' n.a. n.a. n.a. n.a. 8 24 23 Repurchase agreements 22 Overnight and continuing 572,193 577,005 564,075 607,879 593,342 579,589 531,360 520,796 576,187 600,211 585,752 23 Term 445,809 447,089 393,364 366,756 406,167 401,929 424,994 349,274 409,830 445,471 446,183 Securities loaned 24 Overnight and continuing 3,860 3,646 3,419 3,248 3,120 3,061 3,730 3,937 3,712 3,843 3,443 25 Term 3,566 3,613 4,117 n.a. n.a. n.a. n.a. 4,117 n.a. 3,832 3,844 Securities pledged 26 Overnight and continuing 43,365 49,960 58,532 53,681 54,641 55,184 58,815 69,883 58,433 57,317 57,355 27 Term 6,843 4,294 1,682 1,462 1,440 1,378 1,955 2,148 1,894 2,387 2,548 Collateralized loans 28 Overnight and continuing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 29 Term n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 30 Total 13,787 14,254 10,025 12,708 14,557 8,212 6,956 8,645 8,353 8,696 10,806 MEMO: Matched book6 Securities in 31 Overnight and continuing 252,532 264,391 254,678 278,870 267,009 255,178 233,858 247,872 277,020 291,332 279,622 32 Term 498,543 479,031 434,522 412,129 454,641 446,507 462,095 379,829 454,385 486,331 496,235 Securities out 33 Overnight and continuing 362,320 357,386 334,841 358,492 352,896 338,440 311,026 321,596 343,682 368,703 356,229 34 Term 398,155 394,147 341,796 325,513 354,481 348,847 370,693 295,911 355,706 395,492 397,689 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 elfect 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 • April 1997 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period 1996 Agency 11999922 11999933 11999944 11999955 July Aug. Sept. Oct. Nov. 1 Federal and federally sponsored agencies 483,970 570,711 738,928 844,611 885,400 892,294 896,670 901,089 2 Federal agencies 41,829 45,193 39,186 37,347 30,939 30,730 30,599 30,800 3 Defense Department' 7 6 6 6 6 6 6 6 4 Export-Import Bank2,3 7,208 5,315 3,455 2,050 1,853 1,853 1,828 1,828 5 Federal Housing Administration4 374 255 116 97 62 78 82 82 n.a. 6 Government National Mortgage Association certificates of participation5 n.a. 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 n.a. n.a. n.a. n.a. 8 Tennessee Valley Authority 23,580 29,885 27,536 29,429 28,956 28,793 28,683 28,884 9 United States Railway Association6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10 Federally sponsored agencies7 442,141 523,452 699,742 807,264 854,461 861,564 866,071 870,289 882,191 11 Federal Home Loan Banks 114,733 139,512 205,817 243,194 251,169 253,847 254,920 253,836 252,868 12 Federal Home Loan Mortgage Corporation 29,631 49,993 93,279 119,961 146,534 148,729 146,954 148,435 158,158 13 Federal National Mortgage Association 166,300 201,112 257,230 299,174 310,503 312,374 319,153 321,110 324,378 14 Farm Credit Banks8 51,910 53,123 53,175 57,379 60,294 60,219 60,126 59,712 59,797 15 Student Loan Marketing Association9 39,650 39,784 50,335 47,529 46,053 46,459 44,962 47,225 46,991 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 Corporation'2 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 MEMO 19 Federal Financing Bank debt'3 154,994 128,187 103,817 78,681 62,233 61,971 62,846 61,051 Lending to federal and federally sponsored agencies 2 2 0 1 E Po x s p t o a r l t- S I e m r p v o ic r e t 6 Bank3 1 7 0 , , 2 4 0 4 2 0 5 9, , 7 3 3 0 2 9 3 8, , 0 4 7 4 3 9 2 5, , 7 0 6 4 5 4 n 1 . , a 8 . 47 n 1 . , a 8 . 47 n 1 . , a 8 . 22 n 1 . , a 8 . 22 22 Student Loan Marketing Association 4,790 4,760 n.a. n.a. n.a. n.a. n.a. n.a. 23 Tennessee Valley Authority 6,975 6,325 3,200 3,200 n.a. 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. n.a. Other lending14 25 Farmers Home Administration 42,979 38,619 33.719 21,015 19,575 19,757 18,700 18,700 26 Rural Electrification Administration 18,172 17,578 17,392 17,144 16,844 16,847 16,751 16,753 27 Other 64,436 45,864 37,984 29,513 23,967 23,520 25,573 23,776 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 Markets and Corporate Finance A31 1.45 NEW SECURITY ISSUES Tax-Exempt State and Local Governments Millions of dollars 1996 1997 TTyyppee ooff oo iiss rr ss uu uu ee ss ee oo rr iissssuueerr,, 11999944 11999955 11999966 June July Aug. Sept. Oct. Nov. Dec. Jan. 1 All issues, new and refunding1 153,950 145,657 171,222r 17,481 11,643 12,493 11,693 16,750 14,520 17,431r 10,225 By type of issue 2 General obligation 54,404 56,980 60,409 6,707 4,345 4,074 3,024 5,467 5,134 4,755 4,123 3 Revenue 99,546 88,677 110,813r 10,774 7,298 8,419 8,669 11,283 9,386 12,676r 6,102 By type of issuer 4 State 19,186 14,665 13,651 1,074 671 376 874 1,769 1,351 663 722 5 Special district or statutory authority2 95,896 93,500 113,228r 10,700 7,241 8,433 8,137 10,923 9,091 12,315r 6,218 6 Municipality, county, or township 38,868 37,492 44,343 5,707 3,731 3,684 2,682 4,058 4,078 4,453 3,285 7 Issues for new capital 105,972 102,390 112,298r 13,998 8,602 7,093 7,837 12,113 8,656 i2,3ir 6,164 By use of proceeds 8 Education 21,267 23,964 26,851 3,356 2,206 2,337 1,522 2,693 1,530 2,306 1,963 9 Transportation 10,836 11,890 12,324 1,399 580 622 850 2,907 1,164 736 806 10 Utilities and conservation 10,192 9,618 9,791 839 716 417 720 1,441 1,102 1,006 756 11 Social welfare 20,289 19,566 24,583 3,114 2,222 2,348 2,100 1,573 1,974 3,294 1,252 12 Industrial aid 8,161 6,581 6,287 708 396 274 439 556 460 1,081 232 13 Other purposes 35,227 30,771 32,462r 4,582 2,482 1,095 2,206 2,943 2,426 3,888r 1,155 1. Par amounts of long-term issues based on date of sale. SOURCE. Securities Data Company beginning January 1990; Investment Dealer's 2. Includes school districts. Digest before then. 1.46 NEW SECURITY ISSUES U.S. Corporations Millions of dollars 1996 TTyyppee ooff iissssuuee,, ooffffeerriinngg,, 11999944 11999955 11999966 oorr iissssuueerr May June Julyr Aug. Sept. Oct. Nov. Dec. 1 All issues' 583,240 n.a. n.a. 69,396r 66,966r 40,245 43,977r 60,252r 57,513r 56,781r 50,554 2 Bonds2 498,039 573,206 n.a. 55,814 53,926 32,493 38,215 53,585r 44,648 43,455r 38,873 By type of offering 3 Public, domestic 365,222 408 •i()4' 386,280 46,745 44,925 26,481 32,135 44,367r 38,136 38,126r 35,312 4 Private placement, domestic3 76,065 87,492 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5 Sold abroad 56,755 76,910 74,793 9,069 9,001 6,012 6,081 9,218 6,512 5,329 3,561 By industry group 6 Manufacturing 43,423 61,070 41,959 5,887 6,009 4,066 2,882 4,030 6,673 4,086 5,325 7 Commercial and miscellaneous 40,735 50 689' 34,076 4,933 4,272 2,662 2,611 3,170 4,845 4,051 1,697 8 Transportation 6,867 8,430r 5,111 819 906 535 293 620 436 270 301 9 Public utility 13,322 13,75 lr 8,161 691 1,144 1,046 129 229 799 424 389 10 Communication 13,340 22 999' 13,320 1,097 2,231 647 1,450 829 700 425 495 11 Real estate and financial 380,352 416,269' 358,446 42,386 39,365 23,537 30,851 44,707r 31,196 34,199r 30,668 12 Stocks2 85,155 n.a. n a. 13,582r 13,040r 7,752 5,762r 6,667r 12,865r 13,326r 11,681 By type of offering 13 Public preferred 12,570 10,964 35,861 1,660 3,287r 1,794 l,168r 1,890 3,855 5,656 8,128 14 Common 47,828 57 809 82,554 1 l,724r 9,710r 5,958 4,594r 4,777r 9,0 !0r 7,67 r 3,553 15 Private placement3 24,800 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. By industry group 16 Manufacturing 17,798 2,505r 2,670r 1,759 l,023r 787r l,570r 1,560r 883 17 Commercial and miscellaneous 15,713 n a. n.a. 5,913r 6,708r 2,628 2,143r 3,080r 5,700r 3,940r 2,843 18 Transportation 2,203 322 197 104 143 0 42 355 54 19 Public utility 2,214 297 569 300 306 212 100 210 203 20 Communication 494 l,223r 837 1,097 51 0 480r 42 20 21 Real estate and financial 46,733 3,322r 2,059 1,863 2,098r 2,5 89r 4,974r 7,219r 7,678 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 • April 1997 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets1 Millions of dollars 1996 IItteemm 11999944 11999955 May June July Aug. Sept. Oct. Nov. Dec. 1 Sales of own shares2 841,286 871,415 96,501 88,115 93,053 86,225 84,171 92,730 87,958 122,792 2 Redemptions of own shares 699,823 699,497 69,419 69,072 76,485 64,993 65,601 72,537 65,949 87,949 3 Net sales3 141,463 171,918 27,082 19,044 16,568 21,232 18,570 20,193 22,009 34,843 4 Assets4 1,550,490 2,067,337 2,356,307 2,363,024 2,297,216 2,366,030 2,474,339 2,517,049 2,652,884 2,637,398 5 Cash5 121,296 142,572 145,554 144,275 148,647 155,129 156,689 149,937 146,044 137,973 6 Other 1,429,195 1,924,765 2,201,752 2,218,749 2,147,337 2,210,901 2,317,651 2,367,112 2,506,840 2,499,425 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 US. 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 1995 1996 AAccccoouunntt 11999944 11999955 11999966 Qt Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 Profits with inventory valuation and capital consumption adjustment 529.5 586.6 n.a. 560.0 562.3 612.5 611.8 645.1 655.8 661.2 n.a. 2 Profits before taxes 531.2 598.9 n.a. 594.5 589.6 607.2 604.2 642.2 644.6 635.6 n.a. 3 Profits-tax liability 195.3 218.7 n.a. 217.3 214.2 224.5 218.7 233.4 236.4 233.4 n.a. 4 Profits after taxes 335.9 380.2 n.a. 377.2 375.3 382.8 385.5 408.8 408.1 402.2 n.a. 5 Dividends 211.0 227.4 244.2 221.7 224.6 228.5 234.7 239.9 243.1 245.2 248.7 6 Undistributed profits 124.8 152.8 n.a. 155.5 150.8 154.3 150.8 168.9 165.1 156.9 n.a. 7 Inventory valuation -13.3 -28.1 -7.2 -51.9 -42.3 -9.3 -8.8 -17.4 -11.0 2.0 -2.5 8 Capital consumption adjustment 11.6 15.9 23.3 17.4 15.0 14.6 16.5 20.4 22.3 23.6 26.9 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 1995 1996 AAccccoouunntt 11999933 11999944 11999955 Ql Q2 Q3 Q4 Ql Q2 Q3r ASSETS 1 Accounts receivable, gross2 482.8 551.0 614.6 568.5 586.9 594.7 614.6 621.8 631.4 642.0 2 Consumer 116.5 134.8 152.0 135.8 141.7 146.2 152.0 151.9 154.6 154.8 3 Business 294.6 337.6 375.9 351.9 361.8 362.4 375.9 380.9 383.7 387.0 4 Real estate 71.7 78.5 86.6 80.8 83.4 86.1 86.6 89.1 93.1 100.2 5 LESS: Reserves for unearned income 50.7 55.0 63.2 58.9 62.1 61.2 63.2 61.5 59.6 58.9 6 Reserves for losses 11.2 12.4 14.1 12.9 13.7 13.8 14.1 14.2 14.1 14.7 7 Accounts receivable, net 420.9 483.5 537.3 496.7 511.1 519.7 537.3 546.1 557.7 568.4 8 All other 170.9 183.4 210.7 194.6 198.1 198.1 210.7 212.8 216.1 226.8 9 Total assets 591.8 666.9 748.0 691.4 709.2 717.8 748.0 758.9 773.8 795.2 LIABILITIES AND CAPITAL 10 Bank loans 25.3 21.2 23.1 21.0 21.5 21.8 23.1 23.5 26.2 27.5 11 Commercial paper 159.2 184.6 184.5 181.3 181.3 178.0 184.5 184.8 186.9 189.4 Debt 12 Owed to parent 42.7 51.0 62.3 52.5 57.5 59.0 62.3 62.3 68.4 71.9 13 Not elsewhere classified 206.0 235.0 284.7 254.4 264.4 272.1 284.7 291.4 301.3 311.5 14 All other liabilities 87.1 99.5 106.2 102.5 102.1 102.4 106.2 105.7 100.1 102.8 15 Capital, surplus, and undivided profits 71.4 75.7 87.2 79.7 82.5 84.4 87.2 91.1 90.9 92.1 16 Total liabilities and capital 591.8 666.9 748.0 691.4 709.2 717.8 748.0 758.9 773.8 795.2 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 July Aug. Sept. Oct.r Nov.r Dec. Seasonally adjusted 1 Total 615,618 691,616 749,894 729,747 738,487 739,183 749,165 758,266 749,894 2 Consumer 176,085 198,861 211,831 211,988 212,105 212,979 212,511 212,775 211,831 3 Real estate2 78,910 87,077 101,115 97,023 99,806 100,317 102,933 104,776 101,115 4 Business 360,624 405,678 436,948 420,736 426,576 425,887 433,720 440,715 436,948 Not seasonally adjusted 5 Total 620,975 697,340 755,831 723,049 732,117 735,269 747,970 758,276 755,831 6 Consumer 178,999 202,101 215,177 209,959 211,342 213,827 213,026 214,227 215,177 7 Motor vehicles 61,609 70,061 73,540 75,736 74,433 76,333 75,917 75,304 73,540 8 Other consumer3 73,221 81,988 80,984 79,112 78,928 78,451 77,527 77,868 80,984 9 Securitized motor vehicles4 31,897 33,633 35,644 34,381 35,830 34,846 34,603 34,177 35,644 10 Securitized other consumer4 12,272 16,419 25,009 20,730 22,151 24,197 24,979 26,878 25,009 11 Real estate2 78,479 86,606 100,571 97,276 100,295 100,182 103,184 104,943 100,571 12 Business 363,497 408,633 440,083 415,814 420,480 421,260 431,760 439,106 440,083 13 Motor vehicles 118,197 133,277 143,052 133,325 135,063 138,615 139,966 142,210 143,052 14 Retail loans5 21,514 25,304 28,793 28,649 28,404 28,875 29,088 28,825 28,793 15 Wholesale loans6 35,037 36,427 32,337 26,888 28,188 30,294 30,515 32,262 32,337 16 Leases 61,646 71,546 81,922 77,788 78,471 79,446 80,363 81,123 81,922 17 Equipment 157,953 177,297 184,942 183,119 182,816 181,111 179,997 182,080 184,942 18 Loans7 49,358 59,109 60,991 57,216 55,528 56,132 58,735 60,181 60,991 19 Leases 108,595 118,188 123,951 125,903 127,288 124,979 121,262 121,899 123,951 20 Other business8 61,495 65,363 71,110 64,397 68,367 67,290 74,055 75,345 71,110 21 Securitized business assets4 25,852 32,696 40,979 34,973 34,234 34,244 37,742 39,471 40,979 22 Retail loans 4,494 4,723 5,148 4,613 4,700 4,600 4,650 5,402 5,148 23 Wholesale loans 14,826 21,327 24,732 23,988 23,151 23,170 23,183 23,391 24,732 24 Leases 6,532 6,646 11,099 6,372 6,383 6,474 9,909 10,678 11,099 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 • April 1997 1.53 MORTGAGE MARKETS Mortgages on New Homes Millions of dollars except as noted 1996 1997 IItteemm 11999944 11999955 11999966 July Aug. Sept. Oct. Nov. Dec. Jan. Terms and yields in primary and secondary markets PRIMARY MARKETS Terms' 1 Purchase price (thousands of dollars) 170.4 175.8 182.4 194.0 184.8 187.1 183.9 188.1 170.8 172.4 2 Amount of loan (thousands of dollars) 130.8 134.5 139.2 144.2 141.1 141.7 139.0 143.3 129.9 133.6 3 Loan-to-price ratio (percent) 78.8 78.6 78.2 76.2 77.7 77.2 77.7 78.0 79.3 79.7 4 Maturity (years) 27.5 27.7 27.2 26.7 27.2 27.7 27.4 27.4 27.5 27.9 5 Fees and charges (percent of loan amount)2 1.29 1.21 1.21 1.25 1.38 1.28 1.11 1.19 1.01 1.02 Yield (percent per year) 6 Contract rate1 7.26 7.65 7.56 7.80 7.85 7.77 7.76 7.60 7.63 7.65 7 Effective rate1'3 7.47 7.85 7.77 8.01 8.08 7.98 7.95 7.80 7.79 7.81 8 Contract rate (HUD series)4 8.58 8.05 8.03 8.28 8.45 8.23 8.01 7.73 7.91 7.94 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (Section 203)5 8.68 88..1188 8.19 8.56 88..5588 8.56 8.00 8.14 8.06 8.06 10 GNMA securities6 7.96 7.57 7.48 7.84 7.68 7.85 7.53 7.19 7.33 7.51 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings !end of period) 11 Total 222,057 253.511 287,052 272,458 275,133 278,003 279,544 283,835 287,052 288,504 1? FHA/VA insured 27,558 28,762 30,592 30,830 30,803 30,840 30,815 30,744 30,592 30,352 13 Conventional 194,499 224,749 256,460 241,628 244,330 247,163 248,729 253,091 256,460 258,152 14 Mortgage transactions purchased (during period) 62,389 56,598 68,618 5,345 5,360 5,353 4,235 6,805 6,178 4,128 Mortgage commitments (during period) 15 Issued7 54,038 56,092 65,859 5,036 5,673 4,264 5.199 6,533 3,991 4,384 16 To sell8 1,820 360 130 0 0 53 0 4 28 71 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of period f 17 Total 72,693 107,424 137,755 125,574 127,345 129,426 132,259 135,270 137,755 138,935 18 FHA/VA insured 276 267 220 205 201 197 227 223 220 220 19 Conventional 72,416 107,157 137,535 125,369 127,144 129,229 132,032 135,047 137,535 138,715 Mortgage transactions (during period) 20 Purchases 124,697 98,470 128,566 9,934 9,643 8,687 9.538 9,198 9,943 9,507 21 Sales 117,110 85,877 119,702 9,496 8,994 8,167 8.797 8,456 9,220 9,204 22 Mortgage commitments contracted (during period)9 136,067 118,659 128,995 10,626 8,992 9,315 8,214 9,032 9,905 9,022 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 Q3 Q4 Q1 Q2 Q3P 1 All holders 4,091,827 4,266,932 4,472,718 4,657,899 4,706,615 4,781,996 4,869,404 4,949,067 By type of property 2 One- to four-family residences 3,036,251 3,225,545 3,429,424 3,587,143 3,626,329 3,689,189 3,757,694 3,824,932 3 Multifamily residences 274,234 270,824 275,705 284,201 287,994 291,893 296,974 301,129 4 Nonfarm, nonresidential 700,604 689,365 684,618 702,202 707,673 715,696 728,193 735,659 5 80,738 81,198 82,971 84,352 84,620 85,217 86,543 87,347 By type of holder 6 Major financial institutions 1,769,187 1,768,093 1,815,845 1,895,350 1,888,970 1,901,524 1,925,040 1,951,812 7 Commercial banks2 894,513 940,595 1,004,322 1,072,844 1,080,366 1,087,207 1,099,585 1,112,970 8 One- to four-family 507,780 556,660 611,391 661,907 663,614 665,935 670,735 676,753 9 Multifamily 38,024 38,657 39,360 42,894 43,842 44,700 45,127 45,753 10 Nonfarm, nonresidential 328,826 324,413 331,004 344,219 349,081 352,641 359,162 365,640 11 Farm 19,882 20,866 22,567 23,824 23,829 23,931 24,561 24,825 12 Savings institutions3 627,972 598,437 596,191 604,614 596,789 602,631 612,889 627,999 13 One- to four-family 489,622 470,000 477,626 488,869 482,351 489,634 499,021 513,133 14 Multifamily 69,791 67,367 64,343 63,605 61,988 60,540 60,809 61,444 15 Nonfarm, nonresidential 68,235 60,765 53,933 51,849 52,162 52,155 52,739 53,102 16 Farm 324 305 289 291 288 302 320 320 17 Life insurance companies 246,702 229,061 215,332 217,892 211,815 211,686 212,565 210,842 18 One- to four-family 11,441 9,458 7,910 7,701 7,476 7,472 7,503 7,440 19 Multifamily 27,770 25,814 24,306 24,638 23,920 23,906 24,007 23,802 20 Nonfarm, nonresidential 198,269 184,305 173,539 175,910 170,783 170,681 171,402 169,944 21 Farm 9,222 9,484 9,577 9,643 9,636 9,627 9,653 9,656 22 Federal and related agencies 286,263 327,014 319,327 314,353 313,760 312,950 314,694 311,697 23 Government National Mortgage Association 30 22 6 2 2 2 2 2 24 One- to four-family 30 15 6 2 2 2 2 2 25 Multifamily 0 7 0 0 0 0 0 0 26 Farmers Home Administration4 41,695 41,386 41,781 41,858 41,791 41,594 41,547 41,575 27 One- to four-family 16,912 15,303 13,826 12,914 12,643 12,327 11,982 11,630 28 Multifamily 10,575 10,940 11,319 11,557 11,617 11,636 11,645 11.652 29 Nonfarm, nonresidential 5.158 5,406 5,670 6,096 6,248 6,365 6,552 6,681 30 Farm 9,050 9,739 10,966 11,291 11,282 11,266 11,369 11,613 31 Federal Housing and Veterans' Administrations 12,581 12,215 10,964 9,535 9,809 8,439 8,052 6,627 32 One- to four-family 5,153 5,364 4,753 4,918 5,180 4,228 3,861 3,190 33 Multifamily 7,428 6,851 6,211 4,617 4,629 4,211 4,191 3,438 34 Resolution Trust Corporation 32,045 17,284 10,428 4,889 1,864 0 0 0 35 One- to four-family 12,960 7,203 5,200 2,299 691 0 0 0 36 Multifamily 9,621 5,327 2,859 1,420 647 0 0 0 37 Nonfarm, nonresidential 9,464 4,754 2,369 1,170 525 0 0 0 38 Farm 0 0 0 0 0 0 0 0 39 Federal Deposit Insurance Corporation 0 14,112 7,821 5,015 4,303 5,553 5,016 4,025 40 One- to four-family 0 2,367 1,049 618 492 839 840 675 41 Multifamily 0 1,426 1,595 722 428 1,099 955 766 42 Nonfarm, nonresidential 0 10,319 5,177 3,674 3,383 3,616 3,221 2,584 43 Farm 0 0 0 0 0 0 0 0 44 Federal National Mortgage Association 137,584 166,642 178,059 182,229 183,782 183,531 186,041 185,221 45 One- to four-family 124,016 151,310 162,160 166,393 168,122 167,895 170,572 170,083 46 Multifamily 13,568 15,332 15,899 15,836 15,660 15,636 15,469 15,138 47 Federal Land Banks 28,664 28.460 28,555 28,151 28,428 28,891 29,362 29,579 48 One- to four-family 1,687 1,675 1,671 1,656 1,673 1,700 1,728 1,740 49 Farm 26,977 26,785 26,885 26,495 26,755 27,191 27,634 27,839 50 Federal Home Loan Mortgage Corporation 33,665 46,892 41,712 42,673 43,781 44,939 44,674 44,668 51 One- to four-family 31,032 44.345 38,882 39,239 39,929 40,877 40,477 40,304 52 Multifamily 2.633 2,547 2,830 3,434 3,852 4,062 4,197 4,364 53 Mortgage pools or trusts^ 1,433,183 1,562,925 1,717,991 1,795,041 1,853,607 1,894,686 1,946,135 1,987,981 54 Government National Mortgage Association 419,516 414,066 450,934 463,654 472,292 475.829 485,441 497,248 55 One- to four-family 410,675 404,864 441,198 453,114 461,447 464,650 473,950 485,303 56 Multifamily 8,841 9,202 9,736 10,540 10,845 11,179 11,491 11,945 57 Federal Home Loan Mortgage Corporation 407,514 447,147 490,851 503,370 515,051 524,327 536,671 545,608 58 One- to four-family 401,525 442,612 487,725 500,417 512,238 521,722 534,238 543,341 59 Multifamily 5,989 4,535 3,126 2,953 2,813 2,605 2,433 2,267 60 Federal National Mortgage Association 444,979 495,525 530,343 559,585 582,959 599,546 621,285 636,362 61 One- to four-family 435,979 486,804 520,763 548,400 569,724 585,527 606,271 619,869 62 Multifamily 9,000 8,721 9,580 11,185 13,235 14,019 15,014 16,493 63 Farmers Home Administration 38 28 19 12 11 10 9 7 64 One- to four-family 8 5 3 2 2 1 1 0 65 Multifamily 0 0 0 0 0 0 0 0 66 Nonfarm, nonresidential 17 13 9 5 5 5 4 4 67 Farm 13 10 7 5 4 4 4 3 68 Private mortgage conduits 161,136 206,159 245,844 268,420 283,294 294,974 302,729 308,756 69 One- to four-family6 139,637 171,988 194,145 207,679 214.635 219,392 221,380 224,280 70 Multifamily 6,305 8,701 14,925 18,903 21,279 24,477 26,809 28,141 71 Nonfarm, nonresidential 15,194 25,469 36,774 41,838 47,380 51,104 54,541 56,336 72 Farm 0 0 0 0 0 0 0 0 73 Individuals and others7 603,194 608,901 619,555 653,155 650,279 672,835 683,535 697,576 74 One- to four-family 447,795 455,572 461,117 491,015 486,111 506,987 515,134 527,190 75 Multifamily 64,688 65,398 69,615 71,896 73,239 73,823 74,826 75,926 76 Nonfarm, nonresidential 75,441 73,922 76,142 77,441 78,105 79,129 80,573 81,369 77 15,270 14,009 12,681 12,804 12,824 12,896 13,002 13,091 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 • April 1997 1.55 CONSUMER CREDIT1 Millions of dollars, amounts outstanding, end of period 1996r HHoollddeerr aanndd ttyyppee ooff ccrreeddiitt 11999944 11999955 11999966 July Aug. | Sept. Oct. Nov. Dec. Seasonally adjusted 11 TToottaall 966,457 1,103,296 1,195,369 1,169,116 1,177,482 1,178,600 1,185,444 1,190,531 1,195,369 22 AAuuttoommoobbiillee 317,182 350,848 377,269 373,555 373,525 374,476 376,768 376,671 377,269 33 RReevvoollvviinngg 339,337 413,894 462,764 451,018 454,252 453,722 456,366 460,395 462,764 44 OOtthheerr22 309,939 338,554 355,336 344,543 349,705 350,402 352,310 353,465 355,336 Not seasonally adjusted 5 Total 990,247 1,131,881 1,227,074 1,159,379 1,174,309 1,182,632 1,187,202 1,198,411 1,227,074 By major holder 6 Commercial banks 462,923 507,753 528,194 510,222 516,719 517,145 519,006 519,553 528,194 V Finance companies 134,830 152,624 154,524 154,848 153,361 154,784 153,443 153,171 154,524 8 Credit unions 119,594 131,939 146,425 138,249 140,635 141,968 144,423 145,075 146,425 9 Savings institutions 38,468 40,106 47,780 43,038 43,986 44,934 45,883 46,831 47,780 10 Nonfinancial business3 86,621 85,061 79,597 69,885 70,996 68,513 67,900 69,708 79,597 11 Pools of securitized assets4 147,811 214,398 270,554 243,137 248,612 255,288 256,547 264,073 270,554 By major type of credit5 12 Automobile 319,715 354,055 380,898 372,377 374,974 377,898 381,069 380,846 380,898 13 Commercial banks 141,895 149,094 152,909 153,872 154,451 153,143 154,566 154,287 152,909 14 Finance companies 61,609 70,626 73,540 75,736 74,433 76,333 75,916 75,303 73,540 13 Pools of securitized assets4 36,376 44,411 51,079 46,397 47,465 48,135 48,020 48,242 51,079 16 Revolving 357,307 435,674 487,011 444,651 451,294 453,656 455,854 464,055 487,011 17 Commercial banks 182,021 210,298 222,996 207,291 209,757 211,185 213,150 214,233 222,996 18 Nonfinancial business3 56,790 53,525 46,901 40,465 41,258 38,816 38,105 39,275 46,901 19 Pools of securitized assets4 96,130 147,934 189,147 171,641 174,640 177,958 178,590 183,987 189,147 20 Other 313,225 342,152 359,165 342,351 348,041 351,078 350,279 353,510 359,165 21 Commercial banks 139,007 148,361 152,289 149,059 152,511 152,817 151,290 151,033 115522,,228899 22 Finance companies 73,221 81,998 80,984 79,112 78,928 78,451 77,527 77,868 8800,,998844 23 Nonfinancial business3 29,831 31,536 32,696 29,420 29,738 29,697 29,795 30,433 32,696 24 Pools of securitized assets4 15,305 22,053 30,328 25,099 26,507 29,195 29,937 31,844 30,328 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. Data in this table also appear in the Board's G.19 (421) monthly 4. Outstanding balances of pools upon which securities have been issued; these balances statistical release. For ordering address, see inside front cover. are no longer carried on the balance sheets of the loan originator. 2. Comprises mobile home loans and all other loans that are not included in automobile or 5. Totals include estimates for certain holders for which only consumer credit totals are revolving credit, such as loans for education, boats, trailers, or vacations. These loans may be available. secured or unsecured. 1.56 TERMS OF CONSUMER CREDIT1 Percent per year except as noted 1996 IItteemm 11999944 11999955 11999966 June July Aug. Sept. Oct. Nov. Dec. INTEREST RATES Commercial banks2 1 48-month new car 8.12 9.57 9.05 n.a. n.a. 9.11 n.a. 9.03 2 24-month personal 13.19 13.94 13.54 n.a. n.a. 13.37 n.a. n.a. 13.62 n.a. Credit card plan 3 All accounts 15.69 16.02 15.63 n.a. n.a. 15.65 n.a. n.a. 15.62 4 Accounts assessed interest 15.77 15.79 15.50 n.a. n.a. 15.64 n.a. n.a. 15.52 n.a. Auto finance companies 5 New car 9.79 11.19 9.89 9.53 9.81 10.49 10.52 10.40 10.31 9.25 6 Used car 13.49 14.48 13.53 13.62 13.77 13.92 13.87 13.75 13.56 13.42 OTHER TERMS3 Maturity (months) 7 New car 54.0 54.1 51.6 50.4 50.5 51.4 51.9 52.5 52.3 52.3 8 Used car 50.2 52.2 51.4 51.6 51.7 51.3 51.0 51.1 50.3 49.9 Loan-to-value ratio 9 New car 92 92 91 91 91 92 91 89 90 90 10 Used car 99 99 100 100 100 100 100 101 102 100 Amount financed (dollars) 11 New car 15,375 16,210 16,987 16,854 16,926 16,927 17,182 17,435 17,719 17,670 12 Used car 10,709 11,590 11,711 12,249 12,242 12,132 12,108 12,326 12,393 6,847 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. Data in this table also appear in the Board's G.19 (421) monthly 3. At auto finance companies, 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 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr Q1 Q2 Q3 Q4 Ql Q2 Q3 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors.... 481.7 543.0 627.0 621.2 720.4 845.7 866.0 578.7 591.4 874.5 693.7 670.4 By sector and instrument 7 Federal government 278.2 304.0 256.1 155.9 144.4 247.8 184.7 86.0 59.3 239.9 62.4 161.3 Treasury securities 292.0 303.8 248.3 155.7 142.9 249.0 183.1 85.6 54.1 242.2 60.2 164.4 4 Budget agency securities and mortgages -13.8 .2 7.8 .2 1.5 -1.2 1.6 .4 5.1 -2.3 2.2 -3.1 5 Nonfederal 203.5 239.0 370.9 465.4 576.0 597.9 681.3 492.7 532.1 634.6 631.3 509.1 By instrument Commercial paper -18.4 8.6 10.0 21.4 18.1 6.0 34.3 18.1 14.1 30.1 10.7 -16.5 7 Municipal securities 87.8 30.5 74.8 -29.3 -44.2 -54.9 -2.2 -107.2 -12.6 -14.2 36.9 -76.2 8 Corporate bonds 78.8 67.6 75.2 23.3 73.3 53.0 98.4 59.8 82.0 60.9 71.5 73.8 9 Bank loans n.e.c -40.9 -13.7 3.6 73.2 99.6 145.5 99.1 75.3 78.5 29.8 78.8 132.9 in Other loans and advances -48.5 10.1 -9.4 54.4 59.0 82.5 57.3 35.2 61.0 32.9 26.9 56.9 n Mortgages 158.4 130.9 155.2 196.0 228.6 228.2 239.5 255.0 191.7 363.6 318.7 268.0 17 Home mortgages 173.6 187.6 185.8 203.9 196.9 209.9 190.8 227.9 159.1 319.1 248.8 224.2 n Multifamily residential -5.5 -10.4 -6.0 1.7 10.5 6.6 10.9 11.3 13.3 13.8 18.4 14.7 14 Commercial -10.0 -47.8 -25.0 -11.3 19.5 10.0 36.1 13.7 18.2 28.4 46.1 26.0 IS Farm .4 1.4 .5 1.8 1.6 1.7 1.7 2.2 1.1 2.4 5.3 3.2 16 Consumer credit -13.7 5.0 61.5 126.3 141.6 137.6 155.0 156.4 117.5 131.5 87.8 70.2 By borrowing sector 17 Household 183.8 198.3 255.9 372.4 383.1 382.3 389.9 424.6 335.6 461.0 398.4 332299..77 18 Nonfinancial business -61.9 19.5 52.7 136.4 241.5 269.8 300.4 178.4 217.4 186.2 202.7 255.9 19 Corporate -53.0 34.1 46.5 121.7 205.1 230.4 268.3 140.5 181.3 139.8 158.4 215.9 ?,n Nonfarm noncorporate -11.0 -16.0 4.2 11.9 34.8 38.5 29.1 34.4 37.1 46.3 37.2 41.6 ?i Farm 2.1 1.3 2.0 2.8 1.6 .8 3.0 3.5 -1.0 .1 7.1 -1.5 22 State and local government 81.6 21.1 62.3 -43.4 -48.6 -54.2 -9.0 -110.3 -20.9 -12.5 30.1 -76.5 73 Foreign net borrowing in United States 14.8 23.7 70.4 -15.3 69.5 67.1 45.5 88.3 76.9 49.2 36.6 105.8 74 Open market paper 6.4 5.2 -9.0 -27.3 13.6 43.2 -8.7 23.7 -3.9 -8.4 9.6 38.6 75 Bonds 15.0 16.8 82.9 12.2 48.3 13.9 51.2 55.2 72.7 47.9 11.1 59.4 26 Bank loans n.e.c 3.1 2.3 .7 1.4 8.5 8.1 5.6 8.2 11.9 8.7 15.1 4.7 27 Other loans and advances -9.8 -.6 -4.2 -1.6 -.8 1.9 -2.6 1.3 -3.9 1.1 .7 3.1 28 Total domestic plus foreign 496.5 566.7 697.4 606.0 789.9 912.8 911.4 667.0 668.3 923.7 730.3 776.3 Financial sectors 29 Total net borrowing by financial sectors 155.6 240.0 292.2 466.7 446.7 267.7 439.9 507.0 572.0 330.3 687.5 453.7 By instrument 30 U.S. government-related 145.7 155.8 165.3 287.5 205.1 86.7 196.5 227.7 309.5 143.8 302.0 244.4 31 Government-sponsored enterprise securities 9.2 40.3 80.6 176.9 106.9 62.9 127.2 101.5 136.1 37.4 132.9 84.0 32 Mortgage pool securities 136.6 115.6 84.7 115.4 98.2 23.8 69.3 126.2 173.4 106.5 169.1 160.4 33 Loans from U.S. government .0 .0 .0 -4.8 .0 .0 .0 .0 .0 .0 .0 .0 34 9.8 84.2 126.9 179.2 241.6 181.0 243.4 279.3 262.5 186.5 385.5 209.3 35 Open market paper -32.0 -.7 -6.2 41.6 42.6 37.6 33.9 43.7 55.1 17.8 105.7 85.2 36 Corporate bonds 69.9 82.7 120.1 117.5 184.7 167.6 182.3 217.6 171.6 143.8 201.8 74.7 37 Bank loans n.e.c 8.8 2.2 -13.0 -12.3 5.5 -5.0 20.7 7.9 -1.8 24.9 23.6 9.6 38 Other loans and advances -37.3 -.6 22.4 22.6 3.4 -24.5 1.3 4.9 32.0 -5.5 48.6 33.9 39 Mortgages .5 .6 3.6 9.8 5.3 5.2 5.2 5.2 5.6 5.5 5.8 5.8 By borrowing sector 4n Commercial banking -13.2 10.0 13.4 20.1 22.5 21.7 39.0 38.9 -9.7 -32.6 40.1 11.1 41 Savings institutions -44.7 -7.0 11.3 12.8 2.6 -18.9 -7.2 5.1 31.5 11.0 42.1 31.2 42 Credit unions .0 .0 .2 .2 -.1 -.3 -.1 .1 .0 -.1 -.2 .3 43 Life insurance companies .0 .0 .2 .3 -.1 .0 .1 -.1 -.4 2.5 .3 -4.4 44 Government-sponsored enteiprises 9.1 40.2 80.6 172.1 106.9 62.9 127.2 101.5 136.1 37.4 132.9 84.0 45 Federally related mortgage pools 136.6 115.6 84.7 115.4 98.2 23.8 69.3 126.2 173.4 106.5 169.1 160.4 46 Issuers of asset-backed securities (ABSs) 54.0 58.5 83.3 68.5 132.3 67.6 113.2 164.8 183.5 132.8 128.2 86.2 47 Finance companies 17.7 -1.6 .2 50.2 51.6 80.2 52.0 19.8 54.3 47.1 68.4 30.9 48 Mortgage companies -2.4 8.0 .0 -11.5 .4 -7.4 14.8 4.0 -10.0 20.0 16.0 6.6 49 Real estate investment trusts (REITs) 1.2 .3 3.4 13.7 5.4 5.2 5.2 5.2 6.0 5.9 6.5 6.7 5n Brokers and dealers 3.7 2.7 12.0 .5 -5.0 -29.5 -.1 2.1 7.7 -31.8 13.2 5.6 51 Funding corporations -6.5 13.2 2.9 24.2 32.0 62.5 26.4 39.4 -.4 31.6 70.9 35.0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A171 Domestic Nonfinancial Statistics • April 1997 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS'—Continued 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999911 11999922 11999933 11999955 Ql Q2 Q3 Q4 Ql Q2 Q3 All sectors 52 Total net borrowing, all sectors 652.1 806.6 989.6 1,072.7 1,236.5 1,180.5 1,351.3 1,174.0 1,240.3 1,254.0 1,417.8 1,229.9 53 Open market paper -44.0 13.1 -5.1 35.7 74.3 86.8 59.5 85.5 65.3 39.5 126.0 107.3 54 U.S. government securities 424.0 459.8 421.4 448.1 349.5 334.5 381.1 313.7 368.8 383.7 364.4 405.7 55 Municipal securities 87.8 30.5 74.8 -29.3 -44.2 -54.9 -2.2 -107.2 -12.6 -14.2 36.9 -76.2 56 Corporate and foreign bonds 163.6 167.1 278.2 153.0 306.3 234.5 331.9 332.5 326.3 252.5 284.5 207.9 57 Bank loans n.e.c -29.1 -9.3 -8.6 62.3 113.5 148.7 125.4 91.4 88.6 63.3 117.5 147.1 58 Other loans and advances -95.6 8.9 8.7 70.7 61.6 59.8 56.0 41.3 89.2 28.6 76.2 94.0 59 Mortgages 158.9 131.5 158.8 205.8 233.9 233.4 244.7 260.3 197.2 369.1 324.5 273.9 60 Consumer credit -13.7 5.0 61.5 126.3 141.6 137.6 155.0 156.4 117.5 131.5 87.8 70.2 Funds raised through mutual funds and corporate equities 61 Total net issues 224.1 312.5 453.6 152.2 155.3 50.1 147.0 196.8 227.3 295.6 416.5 141.4 62 Corporate equities 76.9 103.4 129.9 23.3 -18.6 -34.0 -18.0 -5.2 -17.2 8.0 65.3 -60.7 63 Nonfinancial corporations 18.3 27.0 21.3 -44.9 -73.8 -60.0 -71.3 -92.8 -71.2 -85.2 -16.0 -98.4 64 Financial corporations 28.0 44.0 45.2 20.1 4.5 9.6 12.5 -.6 -3.5 3.4 11.7 11.9 65 Foreign shares purchased by U.S. residents 30.7 32.4 63.4 48.1 50.7 16.4 40.8 88.2 57.4 89.8 69.7 25.8 66 Mutual funds 147.2 209.1 323.7 128.9 173.9 84.1 165.0 202.0 244.5 287.6 351.2 202.1 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 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999911 11999922 11999933 11999944 11999955 Qi Q2 Q3 Q4 Ql Q2 Q3 NET LENDING IN CREDIT MARKETS2 1 Total net lending in credit markets 652.1 806.6 989.6 1,072.7 1,236.5 1,180.5 1,351.3 1,174.0 1,240.3 1,254.0 1,417.8 1,229.9 2 Domestic nonfederal nonfinancial sectors 113.7 105.3 77.1 248.4 -101.0 9.1 -161.5 -67.7 -183.9 -74.9 212.0 -185.6 Households 38.0 98.5 65.2 293.3 32.7 155.1 -117.3 189.3 -96.4 12.4 184.9 -93.2 4 Nonfinancial corporate business 30.7 27.8 9.1 49.6 -6.0 -41.7 37.7 -53.1 33.0 -4.4 53.9 35.7 5 Nonfarm noncorporate business -5.3 -.1 -1.1 .2 .3 .3 .3 .3 .3 .4 .4 .4 6 State and local governments 50.3 -20.9 3.9 -94.8 -127.9 -104.5 -82.2 -204.2 -120.8 -83.3 -27.3 -128.6 7 Federal government 10.5 -11.9 -18.4 -24.2 -21.5 -13.1 -24.2 -24.3 -24.4 -20.7 -15.2 -26.3 8 Rest of the world 13.3 98.4 129.3 132.3 272.7 249.9 322.2 361.0 157.6 341.1 268.2 470.9 9 Financial sectors 514.6 614.9 801.6 716.2 1,086.4 934.6 1,214.8 905.0 1,291.0 1,008.5 952.8 971.1 10 Monetary authority 31.1 27.9 36.2 31.5 12.7 18.4 16.7 -4.1 19.7 16.9 9.4 19.3 11 Commercial banking 80.8 95.3 142.2 163.4 265.9 333.0 319.4 244.8 166.2 121.7 190.1 195.2 12 U.S. chartered banks 35.7 69.5 149.6 148.1 186.5 178.7 222.4 227.0 118.1 80.5 125.5 123.6 13 Foreign banking offices in United States 48.5 16.5 -9.8 11.2 75.4 153.5 86.6 25.6 36.1 44.2 57.5 72.8 14 Bank holding companies -1.5 5.6 .0 .9 -.3 -1.5 5.3 -9.6 4.6 -5.1 5.3 -1.8 15 Banks in U.S. affiliated areas -1.9 3.7 2.4 3.3 4.2 2.4 5.2 1.8 7.4 2.1 1.7 .7 16 Savings institutions —158.9 -79.0 -23.3 6.7 -7.5 17.8 -11.7 32.2 -68.4 34.1 45.2 40.0 17 Credit unions 12.8 17.7 21.7 28.1 16.2 11.6 22.8 11.0 19.5 22.1 34.8 13.9 18 Bank personal trusts and estates 10.0 8.0 9.5 7.1 -18.8 -10.8 -20.6 -23.7 -20.2 -18.1 -12.3 -9.3 19 Life insurance companies 86.5 78.5 100.9 66.4 99.1 134.9 135.5 72.9 53.2 48.7 2.4 45.4 20 Other insurance companies 30.0 6.7 27.7 24.9 21.5 20.8 20.9 21.9 22.3 23.6 23.7 24.9 21 Private pension funds 35.4 41.1 45.9 47.0 61.3 58.9 57.2 50.5 78.5 82.6 127.5 45.9 22 State and local government retirement funds 33.8 5.9 21.1 30.7 22.7 62.9 4.9 2.6 20.2 58.7 50.0 32.5 23 Money market mutual funds 32.7 4.7 20.4 30.0 86.5 56.4 134.4 30.0 125.1 175.0 18.4 88.5 24 Mutual funds 80.1 126.2 159.5 -7.1 52.5 -13.4 23.4 58.0 141.9 67.5 63.7 34.2 25 Closed-end funds 12.8 18.2 14.4 -3.3 13.3 8.4 15.1 16.7 13.2 10.9 9.8 9.0 26 Government sponsored enterprises 15.1 68.8 88.6 120.6 88.9 22.2 93.0 50.0 190.5 39.4 127.8 85.9 27 Federally related mortgage pools 136.6 115.6 84.7 115.4 98.2 23.8 69.3 126.2 173.4 106.5 169.1 160.4 28 Asset-backed securities issuers (ABSs) 50.0 53.7 80.8 61.9 112.1 55.5 100.9 154.4 137.4 113.0 118.1 59.4 29 Finance companies -9.2 7.5 -9.0 68.2 64.2 85.1 67.2 50.8 53.7 40.9 38.9 38.7 30 Mortgage companies 11.2 .1 .0 -22.9 -3.4 -14.4 29.9 7.3 -36.4 47.9 -17.3 13.2 31 Real estate investment trusts (REITs) -.7 1.1 .6 4.7 1.8 1.8 1.8 1.8 1.9 1.9 1.7 2.4 32 Brokers and dealers 17.5 -1.3 14.8 -44.2 90.1 30.5 146.2 -1.8 185.6 -109.0 -72.0 23.6 33 Funding corporations 7.0 18.2 -34.9 -12.7 9.2 31.2 -11.4 3.5 13.7 124.1 23.8 47.8 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Net flows through credit markets 652.1 806.6 989.6 1,072.7 1,236.5 1,180.5 1,351.3 1,174.0 1,240.3 1,254.0 1,417.8 1,229.9 Other financial sources 35 Official foreign exchange -5.9 -1.6 .8 -5.8 8.8 17.8 10.3 9.0 -1.9 -.9 1.6 -26.6 36 Special drawing rights certificates .0 -2.0 .0 .0 2.2 .0 .0 8.6 .0 .0 .0 -1.8 37 Treasury currency .0 .2 .4 .7 .6 .7 .7 .8 .0 .0 .0 2.3 38 Foreign deposits -26.5 -3.5 -18.5 54.0 33.5 34.6 110.8 -29.5 18.2 85.0 .9 45.4 39 Net interbank transactions -3.4 49.4 50.5 89.7 10.0 -22.3 -4.8 -13.5 80.6 -89.2 -52.1 -90.6 40 Checkable deposits and currency 86.3 113.5 117.3 -9.7 -12.8 31.3 100.2 -113.1 -69.3 43.3 4.5 110.7 41 Small time and savings deposits 1.5 -57.2 -70.3 -40.0 96.5 29.8 95.6 145.6 114.9 212.5 -4.6 36.9 42 Large time deposits -58.5 -73.2 -23.5 19.6 65.6 108.8 74.4 80.2 -.9 55.1 83.5 161.4 43 Money market fund shares 41.6 4.5 20.2 43.3 142.3 74.2 221.1 122.9 151.1 244.0 4.1 147.4 44 Security repurchase agreements -16.5 43.1 71.2 78.3 110.7 172.5 115.6 95.0 59.8 -19.1 117.7 -24.7 45 Corporate equities 76.9 103.4 129.9 23.3 -18.6 -34.0 -18.0 -5.2 -17.2 8.0 65.3 -60.7 46 Mutual fund shares 147.2 209.1 323.7 128.9 173.9 84.1 165.0 202.0 244.5 287.6 351.2 202.1 47 Trade payables 31.0 46.6 52.4 114.0 96.3 85.0 80.7 129.3 90.1 62.7 126.8 99.4 48 Security credit 51.4 4.6 61.4 -.1 26.7 -5.4 30.1 32.3 49.7 120.6 -37.7 -25.2 49 Life insurance reserves 25.9 28.0 36.0 34.5 44.9 50.7 57.6 33.1 38.3 20.1 42.8 43.0 50 Pension fund reserves 201.6 241.9 250.5 251.9 240.3 271.8 290.4 211.2 187.8 258.4 287.4 220.8 51 Taxes payable -7.4 9.7 5.2 3.2 1.3 12.0 1.0 2.4 -10.2 5.6 6.6 -1.3 52 Investment in bank personal trusts 16.1 -7.1 1.6 18.8 -47.7 -44.3 -45.6 -63.9 -37.1 -47.3 -20.2 -13.5 53 Noncorporate proprietors' equity .5 16.7 19.7 25.9 41.3 41.7 39.9 45.3 38.3 38.1 23.4 44.0 54 Miscellaneous 262.3 264.9 353.4 268.0 501.3 320.9 422.2 426.5 835.5 570.0 279.0 379.7 55 Total financial sources 1,476.4 1,797.5 2,371.5 2,171.3 2,753.7 2,410.5 3,098.7 2,492.9 3,012.5 3,108.6 2,697.9 2,478.7 Liabilities not identified as assets (-) 56 Treasurv currency -.6 -.2 -.2 -.2 -.5 -.2 -.4 -.3 -1.0 -1.1 -1.0 1.4 57 Foreign deposits -24.0 -2.8 -7.0 44.9 27.2 41.6 101.5 -55.7 21.5 61.4 23.6 22.6 58 Net interbank liabilities 26.2 -4.9 4.2 -2.7 -3.1 -.4 -.9 12.3 -23.6 10.9 -26.9 -9.2 59 Security repurchase agreements -10.7 4.1 34.2 32.4 2.8 68.9 -52.4 26.6 -31.9 -34.5 82.5 -85.9 60 Taxes payable -2.2 11.9 11.1 8.6 8.7 -7.5 31.0 9.3 2.2 -23.2 24.9 11.8 61 Miscellaneous -13.2 -32.2 -139.7 -106.0 -7.5 -251.4 15.1 -34.8 241.0 -198.1 -259.5 -41.9 Floats not included in assets ( —) 62 Federal government checkable deposits -13.1 .7 -1.5 -4.8 -6.0 4.6 -18.6 3.8 -13.8 8.6 -10.5 28.0 63 Other checkable deposits 4.5 1.6 -1.3 -2.8 -3.8 -3.6 -3.8 -3.2 -4.7 -3.8 -4.2 -4.0 64 Trade credit 36.1 11.3 -4.0 -3.1 -23.3 48.9 30.0 -46.7 -125.5 43.1 25.6 -33.0 65 Total identified to sectors as assets 1,473.3 1,808.1 2,475.6 2,205.1 2,759.2 2,509.6 2,997.1 2,581.6 2,948.4 3,245.2 2,843.3 2,588.9 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 • April 1997 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING' Billions of dollars, end of period 1995 1996 11999955 Ql Q2 Q3 Q4 Ql Q2 Q3 Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 11,894.6 12,536.4 13,163.8 13,884.2 13,339.7 13,547.7 13,700.5 13,884.2 14,080.4 14,228.8 14,406.5 By sector and instrument 2 Federal government 3,080.3 3,336.5 3,492.3 3,636.7 3,557.9 3,583.5 3,603.4 3,636.7 3,717.2 3,693.8 3,733.1 Treasury securities 3,061.6 3,309.9 3,465.6 3,608.5 3,531.5 3,556.7 3,576.5 3,608.5 3,689.6 3,665.5 3,705.7 4 Budget agency securities and mortgages 18.8 26.6 26.7 28.2 26.4 26.8 26.9 28.2 27.6 28.2 27.4 5 Nonfederal 8,814.2 9,199.9 9,671.5 10,247.5 9,781.8 9,964.2 10,097.1 10,247.5 10,363.2 10,535.0 10,673.4 By instrument 6 Commercial paper 107.1 117.8 139.2 157.4 149.8 162.9 163.3 157.4 174.2 181.7 7 Municipal securities and loans 1,302.8 1,377.5 1,348.2 1,304.0 1,335.4 1,331.7 1,308.2 1,304.0 1,302.0 1,307.8 1,291.5 8 Corporate bonds 1,154.5 1,229.7 1,253.0 1,326.3 1,266.3 1,290.9 1,305.8 1,326.3 1,341.5 1,359.4 1,377.9 9 Bank loans n.e.c 672.2 675.9 749.0 848.6 782.7 810.7 824.3 848.6 853.9 876.8 904.3 10 Other loans and advances 686.5 677.1 737.8 796.8 762.6 776.9 782.1 796.8 809.3 815.7 826.2 11 Mortgages 4,088.7 4,258.0 4,454.0 4,682.6 4,494.1 4,560.3 4,635.2 4,682.6 4,756.6 4,842.5 4,920.8 12 Home mortgages 3,037.4 3,225.5 3,429.4 3,626.3 3,465.0 3,519.0 3,587.1 3,626.3 3,689.2 3,757.7 3,824.9 13 Multifamily residential 272.5 267.9 269.5 280.1 271.2 273.9 276.7 280.1 283.5 288.1 291.8 14 Commercial 698.1 683.4 672.1 691.6 674.6 683.6 687.0 691.6 698.7 710.2 716.7 13 Farm 80.7 81.2 83.0 84.6 83.4 83.8 84.4 84.6 85.2 86.5 87.3 16 Consumer credit 802.4 863.9 990.2 1,131.9 990.9 1,030.8 1,078.2 1,131.9 1,125.8 1,151.0 1,179.7 By borrowing sector 17 Households 4,021.5 4,279.7 4,651.8 5,034.9 4,696.9 4,801.4 4,925,9 5,034.9 5,094.8 5,203.3 5,306.6 18 Nonfinancial business 3,696.8 3,761.9 3,904.9 4,146.4 3,982.8 4,066.0 4,098.8 4,146.4 4,203.8 4,263.0 4,314.5 19 Corporate 2,437.6 2,496.5 2,624.8 2,829.9 2,695.4 2,767.3 2,790.0 2,829.9 2,878.3 2,923.0 2,963.9 20 Nonfarm noncorporate 1,122.9 1,127.1 1,139.0 1,173.8 1,148.5 1,155.9 1,164.0 1,173.8 1,185.2 1,194.7 1,204.5 21 Farm 136.3 138.3 141.2 142.7 138.9 142.8 144.8 142.7 140.3 145.3 146.1 22 State and local government 1,095.9 1,158.2 1,114.8 1,066.2 1,102.2 1,096.8 1,072.4 1,066.2 1,064.6 1,068.7 1,052.4 23 Foreign credit market debt held in United States 315.2 385.6 370.4 439.9 385.7 396.8 419.8 439.9 450.8 459.6 487.0 24 Commercial paper 77.7 68.7 41.4 55.0 50.9 48.1 55.8 55.0 51.5 53.4 64.8 '25 Bonds 147.2 230.1 242.3 290.6 245.8 258.6 272.4 290.6 302.5 305.3 320.2 26 Bank loans n.e.c 23.9 24.6 26.1 34.6 28.2 29.6 31.6 34.6 36.8 40.5 41.7 27 Other loans and advances 66.4 62.1 60.6 59.7 60.8 60.5 60.0 59.7 60.0 60.4 60.4 28 Total credit market debt owed by nonfinancial sectors, domestic and foreign 12,209.8 12,921.9 13,534.2 14,324.1 13,725.4 13,944.5 14,120.3 14,324.1 14,531.2 14,688.4 14,893.6 Financial sectors 29 Total credit market debt owed by financial sectors 3,025.0 3,322.6 3,794.6 4,243.9 3,861.5 3,971.9 4,096.3 4,243.9 4,324.7 4,496.6 4,607.6 By instrument 30 Federal government-related 1,720.0 1,885.2 2,172.7 2,377.8 2,196.2 2,247.1 2,300.1 2,377.8 2,416.6 2,493.5 2,550.3 31 Government-sponsored enterprises securities 443.1 523.7 700.6 807.5 716.3 748.1 773.5 807.5 816.9 850.1 871.1 32 Mortgage pool securities 1,272.0 1,356.8 1,472.1 1,570.3 1,479.9 1,499.0 1,526.6 1,570.3 1,599.7 1,643.4 1,679.2 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 1,866.0 1,665.3 1,724.8 1,796.2 1,866.0 1,908.1 2,003.1 2,057.3 35 Open market paper 394.3 393.5 442.8 488.0 454.1 462.8 473.6 488.0 491.9 518.5 539.6 36 Corporate bonds 738.4 858.5 973.5 1,158.2 1,012.3 1,056.4 1,112.6 1,158.2 1,190.8 1,239.8 1,260.7 37 Bank loans n.e.c 80.5 67.6 55.3 60.8 53.4 58.4 60.3 60.8 66.4 72.2 74.4 38 Other loans and advances 86.6 108.9 131.6 135.0 125.4 125.7 127.0 135.0 133.6 145.8 154.2 39 Mortgages 5.4 8.9 18.7 24.0 20.0 21.3 22.6 24.0 25.4 26.9 28.3 By borrowing sector 40 Commercial banks 80.0 84.6 94.5 102.6 95.0 99.9 102.0 102.6 100.5 103.6 106.7 41 Bank holding companies 114.6 123.4 133.6 148.0 137.7 142.9 150.3 148.0 141.3 148.4 148.0 42 Savings institutions 88.4 99.6 112.4 115.0 107.7 105.9 107.2 115.0 117.8 128.3 136.1 43 Credit unions .0 .2 .5 .4 .4 .3 .4 .4 .4 .3 .4 44 Life insurance companies .0 .2 .6 .5 .6 .6 .6 .5 1.1 1.2 .1 45 Government-sponsored enterpnses 447.9 528.5 700.6 807.5 716.3 748.1 773.5 807.5 816.9 850.1 871.1 46 Federally related mortgage pools 1,272.0 1,356.8 1,472.1 1,570.3 1,479.9 1,499.0 1,526.6 1,570.3 1,599.7 1,643.4 1,679.2 47 Issuers of asset-backed securities (ABSs) 404.3 487.6 556.1 688.4 570.0 596.8 639.8 688.4 718.2 748.9 772.6 48 Brokers and dealers 21.7 33.7 34.3 29.3 26.9 26.8 27.4 29.3 21.4 24.6 26.1 4y Finance companies 390.4 390.5 440.7 492.3 456.7 467.2 471.9 492.3 499.8 514.4 521.9 50 Mortgage companies 30.2 30.2 18.7 19.1 16.9 20.6 21.6 19.1 24.1 28.1 29.8 51 Real estate investment trusts (REITs) 13.9 17.4 31.1 36.5 32.4 33.7 35.0 36.5 38.0 39.6 41.3 52 Funding corporations 161.6 169.9 199.3 233.9 221.1 230.0 239.9 233.9 245.6 265.6 274.5 All sectors 53 Total credit market debt, domestic and foreign.... 15,234.8 16,244.5 17,328.8 18,568.0 17,586.9 17,916.3 18,216.6 18,568.0 18,855.9 19,185.0 19,501.2 54 Open market paper 579.0 580.0 623.5 700.4 654.7 673.8 692.7 700.4 717.6 753.6 777.4 55 U.S. government securities 4,795.5 5,216.9 5,665.0 6,014.6 5,754.1 5,830.6 5,903.5 6,014.6 6,133.8 6,187.2 6,283.4 56 Municipal securities 1,302.8 1,377.5 1,348.2 1,304.0 1,335.4 1,331.7 1,308.2 1,304.0 1,302.0 1,307.8 1,291.5 57 Coiporate and foreign bonds 2,040.1 2,318.3 2,468.8 2,775.1 2,524.4 2,605.9 2,690.8 2,775.1 2,834.9 2,904.6 2,958.8 58 Bank loans n.e.c 776.6 768.0 830.4 943.9 864.3 898.7 916.2 943.9 957.0 989.6 1,020.5 59 Other loans and advances 844.2 852.9 929.9 991.5 948.8 963.2 969.1 991.5 1,002.9 1,021.8 1,040.9 60 Mortgages 4,094.1 4,266.9 4,472.7 4,706.6 4,514.2 4,581.6 4,657.9 4,706.6 4,782.0 4,869.4 4,949.1 61 Consumer credit 802.4 863.9 990.2 1,131.9 990.9 1,030.8 1,078.2 1,131.9 1,125.8 1,151.0 1,179.7 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 1995 1996 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999922 11999944 11999955 Q1 Q2 Q3 Q4 QL Q2 Q3 CREDIT MARKET DEBT OUTSTANDING2 1 1155,,223344..88 1166,,224444..55 1177,,332288..88 1188,,556688..00 1177,,558866..99 1177,,991166..33 1188,,221166..66 18,568.0 1188,,885555..99 1199,,118855..00 1199,,550011..22 2 Domestic nonfederal nonfinancial sectors 2,688.8 2,758.7 3,037.4 2,901.2 3,001.7 2,950.9 2,953.4 2,901.2 2,857.8 2,882.4 2,858.7 3 Households 1,635.0 1,688.5 2,012.2 2,009.6 2,033.1 1,987.9 2,055.5 2,009.6 2,013.0 2,023.4 2,020.7 4 Nonfinancial corporate business 257.8 271.5 321.1 315.1 292.6 303.5 290.6 315.1 291.3 307.9 320.1 5 Nonfarm noncorporate business 38.1 37.0 37.2 37.5 37.3 37.3 37.4 37.5 37.6 37.7 37.8 6 State and local governments 757.9 761.7 666.9 539.0 638.7 622.1 569.9 539.0 515.9 513.4 480.2 7 Federal government 236.1 231.7 207.5 186.1 204.2 198.2 192.2 186.1 180.8 177.0 170.5 8 Rest of the world 1,023.0 1,147.8 1,254.7 1,561.8 1,324.0 1,402.1 1,493.4 1,561.8 1,653.6 1,718.2 1,837.2 9 Financial sectors 11,286.9 12,106.3 12,829.1 13,918.9 13,057.1 13,365.2 13,577.6 13,918.9 14,163.8 14,407.3 14,634.8 10 Monetary authority 300.4 336.7 368.2 380.8 367.1 375.7 370.6 380.8 379.6 386.3 386.2 11 Commercial banking 2,948.6 3,090.8 3,254.3 3,520.1 3,327.8 3,410.1 3,473.2 3,520.1 3,541.6 3,590.8 3,641.6 12 U.S. chartered banks 2,571.9 2,721.5 2,869.6 3,056.1 2,906.5 2,963.7 3,023.7 3,056.1 3,068.8 3,101.3 3,135.3 13 Foreign banking offices in United States 335.8 326.0 337.1 412.6 373.6 396.0 401.1 412.6 422.2 437.1 454.2 14 Bank holding companies 17.5 17.5 18.4 18.0 18.0 19.3 16.9 18.0 16.8 18.1 17.6 15 Banks in U.S. affiliated areas 23.4 25.8 29.2 33.4 29.8 31.1 31.5 33.4 33.9 34.3 34.5 16 Savings institutions 937.4 914.1 920.8 913.3 925.3 922.4 930.4 913.3 921.8 933.1 943.1 17 Credit unions 197.1 218.7 246.8 263.0 248.1 255.0 258.5 263.0 267.0 276.9 281.0 18 Bank personal trusts and estates 231.5 240.9 248.0 229.2 245.3 240.2 234.2 229.2 224.7 221.6 219.3 19 Life insurance companies 1,309.1 1,420.6 1,487.1 1,586.2 1,523.1 1,557.1 1,575.5 1,586.2 1,600.5 1,601.0 1,612.6 20 Other insurance companies 389.4 422.7 446.4 468.7 451.9 457.3 463.0 468.7 474.5 480.2 486.4 21 Private pension funds 571.7 617.6 664.6 725.9 679.3 693.6 706.2 725.9 746.5 778.4 789.8 22 State and local government retirement funds 402.3 423.4 454.1 476.8 469.4 470.9 470.6 476.8 491.1 504.0 511.4 23 Money market mutual funds 408.6 429.0 459.0 545.5 480.6 508.0 505.7 545.5 595.6 594.7 606.6 24 Mutual funds 566.4 725.9 718.8 771.3 719.3 724.8 739.2 771.3 792.4 807.9 816.2 25 Closed-end funds 67.7 82.0 78.7 92.0 80.8 84.6 88.7 92.0 94.8 97.2 99.5 26 Government-sponsored enterprises 457.8 546.4 667.0 756.0 671.9 695.9 708.4 756.0 765.2 797.8 819.3 27 Federally related mortgage pools 1,272.0 1,356.8 1,472.1 1,570.3 1,479.9 1,499.0 1,526.6 1,570.3 1,599.7 1,643.4 1,679.2 28 Asset-backed securities issuers (ABSs) 378.0 458.8 520.7 632.7 531.5 555.2 595.7 632.7 657.6 685.7 702.8 29 Finance companies 496.4 482.8 551.0 615.2 568.5 586.9 594.7 615.2 621.7 632.6 637.1 30 Mortgage companies 60.5 60.4 37.5 34.1 33.9 41.4 43.2 34.1 46.1 41.7 45.0 31 Real estate investment trusts (REITs) 8.1 8.6 13.3 15.1 13.8 14.2 14.7 15.1 15.6 16.1 16.6 32 Brokers and dealers 122.7 137.5 93.3 183.4 101.0 137.5 137.0 183.4 156.2 138.2 144.1 33 Funding corporations 161.3 132.5 127.5 139.3 138.6 135.5 141.4 139.3 171.8 179.6 196.9 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Total credit market debt 15,234.8 16,244.5 17,328.8 18,568.0 17,586.9 17,916.3 18,216.6 18,568.0 18,855.9 19,185.0 19,501.2 Other liabilities 35 Official foreign exchange 51.8 53.4 53.2 63.7 64.1 67.1 65.1 63.7 62.1 61.4 54.3 36 Special drawing rights certificates 8.0 8.0 8.0 10.2 8.0 8.0 10.2 10.2 10.2 10.2 9.7 37 Treasury currency 16.5 17.0 17.6 18.2 17.8 18.0 18.2 18.2 18.2 18.2 18.8 38 Foreign deposits 267.7 271.8 324.6 361.4 333.3 361.0 353.6 361.4 382.7 382.9 394.3 39 Net interbank liabilities 138.5 189.3 280.0 290.7 272.8 265.9 267.2 290.7 266.3 249.9 230.0 40 Checkable deposits and currency 1,134.4 1,251.7 1,242.0 1,229.3 1,193.7 1,246.2 1,200.3 1,229.3 1,183.3 1,212.3 1,221.7 41 Small time and savings deposits 2,293.5 2,223.2 2,183.3 2,279.7 2,200.2 2,222.6 2,255.8 2,279.7 2,342.3 2,340.1 2,345.5 42 Large time deposits 415.2 391.7 411.2 476.9 441.2 456.3 477.5 476.9 493.6 511.1 552.3 43 Money market fund shares 539.5 559.6 602.9 745.3 634.0 678.5 702.7 745.3 816.9 809.5 838.1 44 Security repurchase agreements 399.9 471.1 549.4 660.1 603.4 629.3 655.5 660.1 666.2 692.1 688.8 45 Mutual fund shares 992.5 1,375.4 1,477.3 1,852.8 1,553.3 1,661.0 1,782.0 1,852.8 1,994.3 2,130.6 2,221.7 46 Security credit 217.7 279.0 279.0 305.6 269.5 277.9 286.2 305.6 326.9 318.6 312.6 47 Life insurance reserves 434.8 470.8 505.3 550.2 518.0 532.4 540.6 550.2 555.2 565.9 576.7 48 Pension fund reserves 4,225.4 4,638.5 4,846.9 5,567.1 5,030.8 5,224.2 5,439.5 5,567.1 5,749.7 5,897.7 6,061.0 49 Trade payables 995.1 1,048.2 1,162.2 •1,258.5 1,155.1 1,177.5 1,211.1 1,258.5 1,246.0 1,278.6 1,304.8 50 Taxes payable 79.7 84.9 88.0 89.3 94.3 89.2 91.9 89.3 94.3 90.3 92.1 51 Investment in bank personal trusts 660.6 691.3 699.4 767.4 719.7 739.7 758.6 767.4 781.6 790.9 799.5 52 Miscellaneous 4,784.5 5,173.0 5,436.9 5,839.8 5,516.4 5,574.1 5,684.4 5,839.8 5,974.4 5,988.9 6,102.2 53 Total liabilities 32,890.0 35,442.4 37,496.2 40,934.0 38,212.4 39,145.2 40,017.0 40,934.0 41,820.1 42,534.3 43,325.3 Financial assets not included in liabilities ( + ) 54 Gold and special drawing rights 19.6 20.1 21.1 22.1 22.7 22.9 22.1 22.1 22.1 22.0 21.2 55 Corporate equities 5,456.8 6,280.0 6,263.3 8,389.9 6,797.5 7,348.4 7,972.4 8,389.9 8,875.8 9,170.9 9,387.4 56 Household equity in noncorporate business 2,460.1 2,495.5 2,587.5 2,699.6 2,607.2 2,641.1 2,655.0 2,699.6 2,736.1 2,758.3 2,772.0 Liabilities not identified as assets (—) 57 Treasury currency -4.9 -5.1 -5.4 -5.8 -5.4 -5.5 -5.6 -5.8 -6.1 -6.3 -6.0 58 Foreign deposits 217.6 232.6 278.7 309.0 289.1 314.5 300.6 309.0 324.4 330.3 335.9 59 Net interbank transactions -9.3 -4.7 -6.5 -9.0 -2.7 -2.9 .1 -9.0 -2.6 -8.0 -11.6 60 Security repurchase agreements 41.9 76.1 108.5 111.2 130.7 110.2 131.2 111.2 106.7 118.2 113.0 61 Taxes payable 25.2 26.8 35.4 44.1 20.5 35.9 39.1 44.1 23.9 38.0 42.4 62 Miscellaneous -698,8 -816.7 -876.0 -911.7 -877.2 -830.6 -793.8 -911.7 -981.8 -1,057.0 -1,039.9 Floats not included in assets (—) 63 Federal government checkable deposits 6.8 5.6 3.4 3.1 4.2 2.0 .6 3.1 .0 -3.4 -1.7 64 Other checkable deposits 42.0 40.7 38.0 34.2 33.3 35.7 27.3 • 34.2 29.6 31.8 23.1 65 Trade credit -251.1 -248.0 -252.0 -275.4 -295.1 -306.2 -330.0 -275.4 -326.5 -336.2 -354.5 66 Total identified to sectors as assets 41,457.1 44,930.6 47,044.0 52,745.9 48,342.6 49,804.6 51,297.2 52,745.9 54,286.6 55,378.2 56,405.2 1. Data in this table also appear in the Board's Z. 1 (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund shares. 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 • April 1997 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, and indexes 1992 = 100, except as noted 1996 1997 MMeeaassuurree 11999944 11999955 11999966 May June July Aug. Sept. Oct/ Nov/ Dec. Jan. 1 Industrial production1 108.6 112.1 115.2r 114.8 115.5 115.5 115.8 116.0 116.2 117.1 117.7 117.7 Market groupings 2 Products, total 106.8 109.3 111.9 111.4 112.3 112.3 112.2 112.7 112.8 113.9 114.2r 114.3 3 Final, total 107.1 109.9 112.8r 112.2 113.1 113.4 113.0 113.3 113.6 114.7 115.3r 115.7 4 Consumer goods 107.4 108.9 110.4r 110.0 110.8 110.7 110.1 110.5 110.8 112.1 112.8r 112.9 5 Equipment 106.6 111.6 116.8 116.0 117.1 118.1 117.9 118.1 118.4 119.1 119.6r 120.5 6 Intermediate 106.1 107.5 109.3r 108.9 109.7 108.9 110.0 110.6 110.2 111.5 110.7r 110.2 7 Materials 111.3 116.6 120.3 120.1 120.5 120.5 121.5 121.2 121.7 122.2 123.2r 123.0 Industry groupings 8 Manufacturing 109.4 113.2 116.4r 115.7 116.4 117.0 117.2 117.4 117.6 118.5 119.4r 119.1 9 Capacity utilization, manufacturing (percent)2. . 83.1 83.1 82.1 82.0 82.3 82.4 82.3 82.1 82.0 82.4 82.7r 82.2 10 Construction contracts3 117.7r 121.7r 129.7r 134.0r 133.0r 131.0 134.0' 137.0r 132.0 125.0 128.0r 120.0 11 Nonagricultural employment, total4 112.0 115.0 117.3 117.0 117.2 117.5 117.8 117.8 118.0 118.2 118.4 118.7 12 Goods-producing, total 96.9 98.1 98.3 98.3 98.4 98.3 98.5 98.3 98.4 98.6 98.7 98.9 13 Manufacturing, total 96.4 97.2 96.2 96.3 96.3 96.2 96.3 96.0 96.1 96.1 96.2 96.3 14 Manufacturing, production workers 97.5 98.7 97.5 97.5 97.5 97.4 97.5 97.2 97.3 97.4 97.4 97.5 15 Service-producing 116.8 120.3 123.3 123.0 123.3 123.6 123.9 124.0 124.3 124.4 124.7 125.0 16 Personal income, total 148.4 157.7 166.4 165.2 166.6 166.7 167.7 168.6 168.8 169.8 171.2 n.a. 17 Wages and salary disbursements 142.6 150.9 159.7 158.3 160.3 159.8 161.1 162.2 162.0 163.2 165.2 n.a. 18 Manufacturing 124.9 130.4 135.3 135.1 135.8 135.8 136.9 136.7 136.7 137.3 139.4 n.a. 19 Disposable personal income5 149.3 158.2 166.2 165.1 166.4 166.5 167.4 168.2 168.4 169.4 170.8 n.a. 20 Retail sales5 144.8 152.3r 159.8 160.4 159.4 159.6 159.6 160.7 161.8 161.7 162.r 163.0 Prices6 21 Consumer (1982-84=100) 148.2 152.4 156.9 156.6 156.7 157.0 157.3 157.8 158.3 158.6 158.6 159.1 22 Producer finished goods (1982=100) 125.5 127.9 131.3 131.1 131.7 131.5 131.9 131.8r 132.5 132.5 132.7 132.6 1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For 4. Based on data from U.S. Department of Labor, Employment and Earnings. Series covers the ordering address, see the inside front cover. The latest historical revision of the industrial employees only, excluding personnel in the armed forces. production index and the capacity utilization rates was released in January 1997. See 5. Based on data from U.S. Department of Commerce, Survey of Current Business. "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- 6. Based on data not seasonally adjusted. Seasonally adjusted data for changes in the price ments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. The article contains a indexes can be obtained from the U.S. Department of Labor, Bureau of Labor Statistics, description of the new aggregation system for industrial production and capacity utilization. Monthly Labor Review. For a detailed description of the industrial production index, see "Industrial Production: 1989 NOTE. Basic data (not indexes) for series mentioned in notes 4 and 5, and indexes for series Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), pp. mentioned in notes 3 and 6, can also be found in the Survey of Current Business. 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. 2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data seasonally adjusted 1996 1997 CCaatteeggoorryy 11999944 11999955 11999966 June July Aug. Sept. Oct. Nov/ Dec/ Jan. HOUSEHOLD SURVEY DATA1 1 Civilian labor force2 131,056 132,304 133,943 133,709 134,165 133,898 134,291 134,636 134,831 113355,,002222 135,848 Employment 2 Nonagricultural industries3 119,651 121,460 123,264 123,182 123,419 123,570 123,768 124,167 124,290 124,429 125,112 3 Agriculture 3,409 3,440 3,443 3,408 3,470 3,418 3,480 3,450 3,354 3,426 3,468 Unemployment 4 Number 7,996 7,404 7,236 7,119 7,276 6,910 7,043 7,019 7,187 7,167 7,268 5 Rate (percent of civilian labor force) 6.1 5.6 5.4 5.3 5.4 5.2 5.2 5.2 5.3 5.3 5.4 ESTABLISHMENT SURVEY DATA 6 Nonagricultural payroll employment4 114,172 117,203 119,549 119,537 119,772 120,052 120,050 120,311 120,492 120,753 121,024 7 Manufacturing 18,321 18,468 18,282 18,298 18,267 18,291 18,241 18,254 18,262 18,276 18,294 8 Mining 601 580 570 575 570 570 567 566 566 564 564 9 Contract construction 4,986 5,158 5,405 5,401 5,427 5,437 5,449 5,464 5,491 5,519 5,533 10 Transportation and public utilities 5,993 6,165 6,318 6,329 6,333 6,342 6,337 6,338 6,350 6,341 6,357 11 Trade 26,670 27,585 28,178 28,143 28,256 28,275 28,321 28,446 28,508 28,585 28,611 12 Finance 6,896 6,830 6,977 6,967 6,987 6,999 7,009 7,026 7,038 7,054 7,063 13 Service 31,579 33,107 34,360 34,378 34,448 34,532 34,607 34,709 34,780 34,880 35,047 14 Government 19,128 19,310 19,459 19,446 19,484 19,606 19,519 19,508 19,497 19,534 19,555 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 1996 1996 1996 SSeerriieess Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 Output (1992=100) Capacity (percent of 1992 output) Capacity utilization rate (percent)2 1 Total industry 113.1 114.8 115.8 117.0 136.7 137.9 139.2 140.5 82.8 83.3 83.2 83.3 2 Manufacturing 114.0 115.8 117.2 118.5 139.6 141.0 142.5 143.9 81.7 82.1 82.3 82.3 3 Primary processing3 110.1 111.7 113.2 113.9 129.1 129.9 130.7 131.5 85.3 86.0 86.6 86.7 4 Advanced processing 115.9 117.8 119.1 120.7 144.7 146.5 148.2 150.0 80.1 80.4 80.4 80.5 5 Durable goods 122.3 125.4 127.2 128.2 150.0 152.2 154.5 156.9 81.6 82.4 82.3 81.7 6 Lumber and products 107.1 111.0 110.5 110.6 127.3 128.2 129.1 130.0 84.1 86.6 85.6 85.0 7 Primary metals 114.0 116.5 118.6 119.3 127.6 128.7 129.8 131.0 89.3 90.5 91.4 91.1 8 Iron and steel 113.3 115.8 117.9 119.2 128.8 130.3 131.9 133.5 88.0 88.8 89.4 89.3 9 Nonferrous 114.6 117.2 119.4 119.4 125.9 126.5 127.1 127.8 91.0 92.7 93.9 93.4 10 Industrial machinery and equipment 150.7 154.6 158.9 161.5 166.9 171.6 176.3 181.3 90.3 90.1 90.1 89.1 11 Electrical machinery 159.0 162.3 164.5 167.5 186.0 193.2 200.6 208.5 85.5 84.0 82.0 80.3 12 Motor vehicles and parts 120.6 130.4 131.3 126.4 173.6 174.9 176.1 177.3 69.5 74.6 74.5 71.3 13 Aerospace and miscellaneous transportation equipment 81.5 83.8 86.7 90.6 121.0 120.6 120.2 119.8 67.4 69.5 72.2 75.7 14 Nondurable goods 105.1 105.5 106.5 108.1 128.5 129.0 129.6 130.1 81.8 81.8 82.2 83.1 15 Textile mill products 104.5 106.5 107.9 107.7 128.7 129.4 130.1 130.8 81.2 82.3 82.9 82.3 16 Paper and products 105.2 107.9 109.0 109.8 121.9 122.4 122.9 123.3 86.3 88.2 88.7 89.1 17 Chemicals and products 106.8 107.3 109.2 112.0 136.7 137.9 139.2 140.3 78.1 77.8 78.4 79.8 18 Plastics materials 117.3 122.1 125.3 127.3 129.5 131.8 92.1 94.3 95.1 19 Petroleum products 105.6 106.0 106.7 107.8 113.4 113.5 113.7 113.8 93.1 93.4 93.9 94.7 20 Mining 100.8 103.5 103.7 103.9 113.9 113.7 113.7 113.7 88.5 91.0 91.2 91.4 21 Utilities 113.4 114.0 110.5 111.6 123.9 124.5 125.2 125.9 91.6 91.6 88.2 88.7 22 Electric 113.4 114.0 110.8 111.6 122.1 122.8 123.6 124.4 92.9 92.8 89.6 89.7 1973 1975 Previous cycle5 Latest cycle6 1996 1997 High Low High Low High Low Jan. Aug. Sept. Oct/ Nov/ Dec. Jan.p Capacity utilization rate (percent)2 1 Total industry 89.2 72.6 87.3 71.1 85.3 78.1 82.4 83.2 83.1 83.0 83.4 83.5 83.3 2 Manufacturing 88.5 70.5 86.9 69.0 85.7 76.6 81.5 82.3 82.1 82.0 82.4 82.7 82.2 3 Primary processing3 91.2 68.2 88.1 66.2 88.9 77.8 85.0 86.5 86.6 86.7 86.6 86.7 86.0 4 Advanced processing 87.2 71.8 86.7 70.4 84.2 76.1 79.9 80.4 80.2 79.9 80.5 80.9 80.6 5 Durable goods 89.2 68.9 87.7 63.9 84.5 73.2 81.4 82.5 81.9 81.5 81.8 81.9 81.5 6 Lumber and products 88.7 61.2 87.9 60.8 93.6 75.5 82.9 86.3 85.5 84.2 86.7 84.2 83.4 7 Primary metals 100.2 65.9 94.2 45.1 92.7 73.7 87.8 91.2 91.8 93.5 89.6 90.2 89.2 8 Iron and steel 105.8 66.6 95.8 37.0 95.2 71.8 87.6 89.6 88.7 92.6 87.7 87.5 86.7 9 Nonferrous 90.8 59.8 91.1 60.1 89.3 74.2 88.3 93.2 95.7 94.7 92.2 93.5 92.4 10 Industrial machinery and equipment 96.0 74.3 93.2 64.0 85.4 72.4 89.7 90.5 89.6 89.1 89.2 89.1 88.7 11 Electrical machinery 89.2 64.7 89.4 71.6 84.0 75.1 84.8 82.0 81.3 80.5 80.2 80.4 78.7 12 Motor vehicles and parts 93.4 51.3 95.0 45.5 89.1 55.9 73.6 75.4 71.9 68.5 72.7 72.7 73.8 13 Aerospace and miscellaneous transportation equipment 78.4 67.6 81.9 66.6 87.3 79.2 65.8 72.0 73.3 74.6 75.6 76.8 77.5 14 Nondurable goods 87.8 71.7 87.5 76.4 87.3 80.7 81.6 82.0 82.4 82.7 83.0 83.6 83.1 15 Textile mill products 91.4 60.0 91.2 72.3 90.4 77.7 79.8 82.7 82.2 82.4 82.9 81.8 81.4 16 Paper and products 97.1 69.2 96.1 80.6 93.5 85.0 86.5 88.0 88.4 87.4 89.4 90.4 90.2 17 Chemicals and products 87.6 69.7 84.6 69.9 86.2 79.3 78.4 78.1 78.6 79.5 79.6 80.4 80.2 18 Plastics materials 102.0 50.6 90.9 63.4 97.0 74.8 91.6 94.9 95.4 94.0 92.4 19 Petroleum products 96.7 81.1 90.0 66.8 88.5 85.1 92.8 94.8 94.0 95.3 94.4 94.5 93.2 20 Mining 94.3 88.2 96.0 80.3 86.8 86.1 86.9 91.9 91.0 91.0 91.0 92.3 91.6 21 Utilities 96.2 82.9 89.1 75.9 92.6 83.4 91.0 88.5 88.6 89.0 89.9 87.1 89.4 22 Electric 99.0 82.7 88.2 78.9 95.0 87.1 92.4 90.2 89.6 90.2 90.6 88.2 90.3 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 January 1997. See primary metals; and fabricated metals. "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- 4. Advanced processing includes foods; tobacco; apparel; furniture and fixtures; printing ments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. The article contains a and publishing; chemical products such as drugs and toiletries; agricultural chemicals; leather description of the new aggregation system for industrial production and capacity utilization. and products; machinery; transportation equipment; instruments; and miscellaneous manufac- For a detailed description of the industrial production index, see "Industrial Production: 1989 tures. Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), pp. 5. Monthly highs, 1978-80; monthly lows, 1982. 187-204. 6. Monthly highs, 1988-89; monthly lows, 1990-91. 2. Capacity utilization is calculated as the ratio of the Federal Reserve's seasonally adjusted index of industrial production to the corresponding index of capacity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A44 Domestic Nonfinancial Statistics • April 1997 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data seasonally adjusted 1992 1996 1997 pro- 1996 GGrroouupp por- avg. tion Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct.r Nov/ Dec. Jan.p Index (1992 = 100) MAJOR MARKETS 1 Total index 100.0 115.2 112.4 113.8 113.2 114.3 114.8 115.5 115.5 115.8 116.0 116.2 117.1 117.7 117.7 2 Products 60.5 111.9 109.1 110.8 110.4 111.0 111.4 112.3 112.3 112.2 112.7 112.8 113.9 114.2 114.3 3 Final products 46.3 112.8 109.8 111.7 111.1 112.1 112.2 113.1 113.4 113.0 113.3 113.6 114.7 115.3 115.7 4 Consumer goods, total 29.1 110.4 108.3 109,9 109.4 109.8 110.0 110.8 110.7 110.1 110.5 110.8 112.1 112.8 112.9 5 Durable consumer goods 6.1 126.2 121.1 124.7 120.8 125.7 126.9 129.9 129.7 128.0 127.1 124.5 127.1 129.4 128.0 6 Automotive products 2.6 125.8 121.1 125.6 115.1 126.0 126.9 130.0 132.1 128.7 127.7 122.0 127.4 128.0 130.1 7 Autos and trucks 1.7 132.6 126.2 133.0 111.2 135.0 135.0 137.7 145.7 138.7 134.6 125.7 133.8 135.7 138.7 8 Autos, consumer .9 120.3 115.3 121.6 93.5 126.1 129.0 133.3 137.8 132.5 129.9 112.3 123.5 116.2 120.2 y Trucks, consumer .7 147.2 142.3 150.3 135.4 150.3 147.3 148.7 161.3 152.3 146.6 147.4 152.4 164.9 167.0 10 Auto parts and allied goods .9 114.6 112.1 113.7 117.7 111.9 114.0 117.4 112.4 113.5 116.2 114.4 116.4 115.5 116.5 n Other 3.5 126.4 121.1 123.9 124.7 125.3 126.7 129.7 128.0 127.5 126.6 126.2 126.8 130.2 126.4 12 Appliances, televisions, and air conditioners 1.0 173.4 157.4 164.4 165.8 170.2 172.0 180.1 181.1 175.9 174.2 176.5 177.1 186.0 170.7 13 Carpeting and furniture .8 109.9 106.8 108.0 110.8 109.1 112.4 114.6 107.0 111.1 110.5 108.6 110.8 109.5 109.5 14 Miscellaneous home goods 1.6 107.9 107.2 108.6 108.0 108.0 108.1 108.7 108.5 108.0 107.6 106.5 106.4 109.4 109.3 13 Nondurable consumer goods 23.0 106.5 105.1 106.2 106.6 105.9 105.8 106.0 106.0 105.6 106.3 107.3 108.3 108.7 109.1 16 Foods and tobacco 10.3 106.2 104.6 105.8 106.8 105.7 105.3 105.8 105.9 105.4 106.1 106.6 107.2 108.8 108.6 17 Clothing 2.4 95.5 94.5 96.5 95.8 96.1 95.9 95.6 95.4 95.4 95.1 95.5 95.3 95.4 94.0 18 Chemical products 4.5 112.8 111.1 111.3 110.5 110.0 110.5 110.6 112.6 111.3 113.5 115.5 117.2 119.0 119.7 iy Paper products 2.9 101.1 98.5 99.8 99.7 100.0 100.7 100.2 101.4 101.8 101.9 102.9 102.9 103.2 102.4 20 Energy 2.9 111.6 111.8 112.8 114.1 112.8 112.8 113.2 109.1 109.4 109.4 110.7 113.6 109.1 112.9 21 Fuels .8 106.7 104.4 106.7 106.9 106.4 106.8 106.7 106.7 107.7 105.4 108.1 107.8 107.4 106.2 22 Residential utilities 2.1 113.6 115.0 115.4 117.1 115.5 115.4 116.0 109.9 110.0 110.9 111.7 116.0 109.7 115.7 23 Equipment 17.2 116.8 112.4 114.8 113.9 115.9 116.0 117.1 118.1 117.9 118.1 118.4 119.1 119.6 120.5 24 Business equipment 13.2 126.6 122.0 124.6 122.6 125.1 125.0 126.6 128.1 127.7 128.3 128.8 129.9 130.5 131.5 25 Information processing and related 5.4 143.2 135.9 139.4 139.8 140.5 140.8 143.9 144.1 144.6 146.3 147.4 147.1 148.0 149.3 26 Computer and office equipment 1.4 297.0 246.0 258.0 265.4 272.2 279.7 289.4 301.7 306.2 314.3 318.8 323.6 328.4 332.6 27 Industrial 4.0 126.9 126.0 127.7 127.1 127.5 126.5 126.3 127.2 126.7 126.3 127.0 127.0 127.4 127.0 28 Transit 2.5 100.0 93.5 96.7 87.4 97.5 97.5 100.6 104.1 103.0 103.8 101.9 106.9 107.0 110.2 29 Autos and trucks 1.2 115.3 111.9 115.6 95.2 118.5 118.0 120.8 126.5 120.9 117.7 109.4 115.9 113.1 116.9 30 Other 1.3 116.4 114.2 114.9 114.7 114.7 115.3 114.3 118.0 116.1 115.5 118.7 120.2 120.6 120.9 31 Defense and space equipment 3.3 77.0 74.8 76.4 77.6 77.4 77.9 77.0 77.7 77.9 77.7 77.0 76.2 76.8 75.9 32 Oil and gas well drilling .6 120.5 109.0 113.2 119.8 123.7 127.0 127.8 122.1 122.6 117.5 120.2 120.7 123.6 130.8 33 Manufactured homes .2 162.0 155.6 156.4 162.5 164.8 165.7 167.9 163.0 167.4 165.6 165.3 159.8 34 Intermediate products, total 14.2 109.3 106.9 108.1 108.4 107.7 108.9 109.7 108.9 110.0 110.6 110.2 111.5 110.7 110.2 35 Construction supplies 5.3 116.7 110.8 113.3 115.5 114.2 116.1 118.3 117.5 119.2 119.8 117.7 119.5 117.3 116.5 36 Business supplies 8.9 105.0 104.6 105.0 104.3 103.9 104.6 104.6 103.9 104.6 105.3 105.8 106.8 106.7 106.4 37 Materials 39.5 120.3 117.5 118.5 117.7 119.5 120.1 120.5 120.5 121.5 121.2 121.7 122.2 123.2 123.0 38 Durable goods materials 20.8 134.0 130.2 131.5 129.5 132.6 133.5 134.0 134.5 136.2 135.5 135.8 136.4 138.1 137.8 39 Durable consumer parts 4.0 129.0 131.0 128.3 117.0 130.1 130.6 130.4 131.1 133.9 128.3 126.6 130.1 131.7 131.6 40 Equipment parts 7.6 159.2 149.6 154.0 154.6 155.7 157.2 158.9 159.6 161.7 162.6 163.4 165.3 168.3 169.0 41 Other 9.2 118.1 115.9 116.8 116.8 117.2 117.8 117.9 118.2 119.2 119.2 120.0 118.8 119.5 118.5 42 Basic metal materials 3.1 113.1 109.0 111.3 112.0 112.1 112.2 112.6 112.9 113.6 114.7 117.2 114.0 115.4 114.5 43 Nondurable goods materials 8.9 106.5 104.1 104.5 104.4 105.5 105.9 106.2 107.4 106.5 106.9 108.0 108.7 109.5 109.4 44 Textile materials 1.1 106.4 102.2 103.6 104.6 105.6 106.1 106.3 109.9 107.4 107.1 108.4 108.6 106.8 106.0 45 Paper materials 1.8 107.3 104.7 104.9 104.4 106.9 106.4 105.2 109.1 108.2 107.0 108.0 110.8 111.5 111.9 46 Chemical materials 3.9 105.9 103.7 103.5 103.5 104.1 104.7 105.3 106.1 106.2 106.8 109.3 108.2 109.9 109.6 47 Other 2.1 106.2 104.7 105.9 105.4 106.5 107.1 108.0 107.1 104.7 106.2 103.9 107.5 107.3 107.5 48 Energy materials 9.7 103.8 102.5 103.5 104.5 104.2 104.6 104.8 102.4 104.0 103.9 103.9 103.9 103.7 103.7 49 Primary energy 6.3 102.6 100.9 102.6 103.9 104.0 103.5 103.5 101.7 103.2 102.2 102.0 101.7 102.2 101.4 50 Converted fuel materials 3.3 106.1 105.4 105.3 105.7 104.6 106.7 107.2 103.9 105.4 107.0 107.5 108.0 106.7 108.0 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.1 114.9 112.1 113.4 113.4 113.9 114.4 115.0 114.9 115.4 115.7 116.1 116.8 117.4 117.4 52 Total excluding motor vehicles and parts 95.1 114.6 111.6 113.1 113.5 113.5 114.0 114.7 114.6 115.0 115.4 115.9 116.5 117.1 117.0 53 Total excluding computer and office equipment 98.2 112.9 110.6 111.9 111.2 112.2 112.6 113.2 113.1 113.4 113.5 113.7 114.5 115.0 115.0 54 Consumer goods excluding autos and trucks . 27.4 109.2 107.3 108.6 109.2 108.4 108.7 109.3 108.9 108.6 109.2 109.9 110.8 111.5 111.5 55 Consumer goods excluding energy 26.2 110.3 107.8 109.5 108.8 109.4 109.6 110.4 110.9 110.2 110.6 110.8 111.8 113.3 112.9 56 Business equipment excluding autos and trucks 12.0 127.7 123.0 125.5 125.3 125.8 125.7 127.2 128.2 128.3 129.3 130.7 131.3 132.2 133.0 57 Business equipment excluding computer and office equipment 12.1 115.8 113.6 115.6 113.1 115.3 114.7 115.8 116.8 116.1 116.3 116.6 117.5 117.8 118.7 58 Materials excluding energy 29.8 125.4 122.1 123.1 121.7 124.2 124.9 125.4 126.1 127.0 126.6 127.1 127.8 129.2 128.9/ 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 SIC pro- 1996 Group code por- avg. Apr. May July Aug. Sept. Oct/ Nov.' Index (1992 = 100) MAJOR INDUSTRIES 59 Total index 100.0 115.2 112.4 113.8 113.2 114.3 114.8 115.5 115.5 115.8 116.0 116.2 117.1 117.7 117.7 60 Manufacturing 85.4 116.4 113.4 114.8 113.9 115.2 115.7 116.4 117.0 117.2 117.4 117.6 118.5 119.4 119.1 61 Primary processing 26.5 112.2 109.5 110.1 110.8 111.0 111.7 112.6 113.0 113.1 113.5 113.8 113.8 114.1 113.4 62 Advanced processing 58.9 118.4 115.2 117.1 115.4 117.3 117.6 118.3 118.9 119.2 119.3 119.5 120.8 121.9 122.0 63 Durable goods 45.0 125.8 121.5 123.6 121.8 124.6 125.2 126.3 126.9 127.5 127.2 127.1 128.4 129.2 129.1 64 Lumber and products "24 2.0 109.8 105.3 106.3 109.7 110.3 110.4 112.4 109.3 111.4 110.7 109.2 112.8 109.7 109.0 65 Furniture and fixtures 25 1.4 108.9 107.4 107.9 105.8 108.1 110.3 109.5 108.1 108.8 108.8 110.4 111.0 110.5 110.4 66 Stone, clay, and glass products 32 2.1 111.0 110.1 109.1 108.7 108.5 109.8 111.3 114.1 111.8 113.1 111.7 112.1 111.4 110.4 67 Primary metals 33 3.1 117.1 111.7 114.6 115.6 116.1 116.3 117.0 118.0 118.3 119.5 122.1 117.4 118.5 117.6 68 Iron and steel 331,2 1.7 116.5 112.3 113.9 113.8 114.6 115.7 117.1 118.0 118.2 117.4 123.2 117.1 117.3 116.7 69 Raw steel 331PT .1 112.2 112.3 111.2 112.7 112.1 112.9 114.9 113.3 113.6 112.6 111.5 108.7 112.5 109.2 70 Nonferrous 333-6,9 1.4 117.6 111.0 115.3 117.6 117.9 116.9 116.8 117.9 118.5 121.8 120.7 117.7 119.7 118.5 71 Fabricated metal products.. . 34 5.0 118.6 116.7 117.9 117.6 117.8 118.4 118.9 119.1 119.4 119.3 119.3 119.5 119.4 118.9 72 Industrial machinery and equipment 35 8.0 156.4 148.3 151.4 152.5 153.3 154.3 156.1 157.7 159.6 159.4 159.9 161.7 162.9 163.8 73 Computer and office equipment 357 1.8 297.0 251.8 263.6 270.8 277.3 284.7 294.3 306.5 310.8 319.0 323.6 328.5 333.4 337.6 74 Electrical machinery 36 7.3 163.3 155.8 161.0 160.3 161.1 161.8 164.0 163.8 164.6 165.2 165.6 167.1 169.8 168.3 75 Transportation equipment. . . 37 9.5 106.2 103.3 104.4 94.9 106.4 106.8 107.1 109.5 109.3 107.3 105.3 109.6 110.5 112.0 76 Motor vehicles and parts . 371 4.9 127.1 127.6 127.4 106.8 130.3 130.5 130.4 134.1 132.8 127.0 121.2 128.8 129.3 131.5 77 Autos and light trucks . 371PT 2.6 124.6 118.4 124.8 103.0 127.1 127.6 130.4 137.3 131.0 127.4 117.3 125.7 125.7 128.8 78 Aerospace and miscellaneous transportation equipment 372-6,9 4.6 85.7 79.7 81.9 82.8 83.2 83.8 84.3 85.7 86.5 87.9 89.4 90.6 91.8 92.7 79 Instruments 38 5.4 102.8 101.0 102.9 102.9 102.3 102.4 103.3 102.3 103.0 103.0 103.4 103.0 103.6 103.4 80 Miscellaneous 39 1.3 112.9 110.3 112.4 112.5 112.0 112.2 113.1 113.0 112.9 113.0 113.0 114.1 116.6 116.6 81 Nondurable goods 40.4 106.3 104.6 105.3 105.4 105.2 105.5 105.9 106.4 106.2 106.9 107.4 108.0 108.9 108.5 82 Foods ' ' 20 9.4 106.4 104.8 105.7 106.2 105.9 105.6 106.1 106.5 105.5 106.2 107.1 107.6 108.9 109.2 83 Tobacco products 21 1.6 105.6 104.1 107.4 111.3 106.3 103.7 105.1 102.5 104.1 104.9 104.0 105.6 108.4 104.8 84 Textile mill products 22 1.8 106.7 102.5 104.0 107.0 105.3 106.1 108.0 108.7 107.7 107.2 107.6 108.4 107.2 106.8 85 Apparel products 23 2.2 98.2 96.8 99.2 98.1 99.0 99.0 99.0 98.3 98.5 98.2 97.8 97.5 97.4 96.6 86 Paper and products 26 3.6 108.0 105.3 104.6 105.8 107.5 107.8 108.5 110.2 108.1 108.8 107.6 110.2 111.5 111.5 87 Printing and publishing 27 6.7 98.5 98.2 99.2 97.6 96.9 97.9 97.1 97.6 97.9 99.1 99.7 100.3 100.1 99.3 88 Chemicals and products .... 28 9.9 108.8 106.8 107.0 106.6 106.9 107.2 107.9 109.0 108.7 109.7 111.3 111.7 113.1 113.2 89 Petroleum products 29 1.4 106.5 105.2 106.0 105.7 105.5 106.2 106.3 105.3 107.8 106.9 108.4 107.4 107.6 106.1 90 Rubber and plastic products . 30 3.5 120.6 118.2 118.6 119.3 118.0 119.8 120.9 120.7 122.0 122.8 121.4 121.7 123.3 121.4 91 Leather and products 31 .3 80.0 80.1 81.7 81.2 81.1 80.7 81.0 80.0 79.5 79.4 78.4 77.3 79.5 77.9 92 Mining 6.9 103.0 99.0 100.8 102.8 102.9 103.2 104.4 103.1 104.5 103.4 103.4 103.4 104.9 104.2 93 Metal 10 .5 101.9 97.0 97.1 101.7 99.4 100.9 101.7 103.1 104.0 105.3 105.6 102.6 104.3 105.2 94 Coal 12 1.0 105.9 96.6 101.2 105.9 105.3 108.0 108.9 102.7 109.6 106.2 107.5 108.8 109.6 104.0 95 Oil and gas extraction 13 4.8 100.4 98.0 98.9 100.2 100.9 100.5 101.5 100.9 101.1 100.5 100.0 100.4 101.8 102.3 96 Stone and earth minerals 14 .6 118.4 112.1 117.4 117.9 116.3 117.4 120.6 120.6 121.7 118.5 120.0 117.6 120.7 117.1 97 Utilities 7.7 112.4 112.5 113.3 114.4 113.5 114.6 114.0 109.4 110.8 111.1 111.9 113.1 109.8 113.0 98 Electric 491,493PT 6.2 112.5 112.6 113.6 114.0 113.1 114.8 114.2 110.1 111.5 110.9 112.0 112.7 110.0 112.9 99 Gas 492,493PT 1.6 112.2 112.3 112.2 115.8 115.0 113.6 113.6 107.1 108.5 111.8 111.3 114.6 109.3 113.4 SPECIAL AGGREGATES 100 Manufacturing excluding motor vehicles and parts 80.5 115.7 112.5 114.1 114.3 114.3 114.8 115.6 116.0 116.3 116.8 117.3 117.9 118.8 118.4 101 Manufacturing excluding office and computing machines ... 83.6 113.7 111.3 112.6 111.6 112.8 113.2 113.8 114.3 114.4 114.5 114.7 115.5 116.3 111166..11 Gross value (billions of 1992 dollars, annual rates) MAJOR MARKETS 102 Products, total 2,001.9 2,233.3 2,203.1 2,240.3 2,220.1 2,249.1 2,255.7 2,274.2 2,276.1 2,272.9 2,273.4 2,270.7 2,298.7 2,299.9 2,304.9 103 Final 1,552.1 1,736.9 1,720.2 1,752.5 1,727.8 1,760.0 1,761.9 1,775.7 1,782.8 1,773.6 1,771.6 1,771.8 1,793.0 1,798.8 1,806.8 104 Consumer goods 1,049.6 1,146.8 1,144.1 1,163.2 1,150.9 1,164.3 1,165.5 1,172.5 1,171.6 1,165.5 1,163.0 1,164.7 1,179,6 1,184.6 1,186.8 105 Equipment 502.5 589.4 575.6 588.7 576.3 595.0 595.7 602.4 610.5 607.4 607.8 606.3 612.6 613.4 619.3 106 Intermediate 449.9 496.7 483.3 488.5 492.3 489.9 494.4 499.0 494.3 499.7 502.1 499.3 506.1 501.9 499.2 1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For ments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. For a detailed the ordering address, see the inside front cover. The latest historical revision of the industrial description of the industrial production index, see "Industrial Production: 1989 Developproduction index and the capacity utilization rates was released in January 1997. See ments and Historical Revision," Federal Reserve Bulletin, vol. 76, (April 1990), pp. 187-204. "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- 2. Standard industrial classification. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A46 Domestic Nonfinancial Statistics • April 1997 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted 1996 1it em . QQ, Mar. Apr. May June July Aug. Sept. Oct.' Nov.' Dec. Private residential real estate activity (thousands of units except as noted) NEW UNITS 1 Permits authorized 1,372 1,332 1,427 1,423 1,459 1,452 1,415 1,457 1,423 1,399 1,362 1,418 1,422 2 One-family 1,068 997 1,070 1,097 1,115 1,098 1,085 1,073 1,078 1,040 1,011 1,025 1,015 3 Two-family or more 303 335 357 326 344 354 330 384 345 359 351 393 407 4 Started 1,457 1,354 1,475 1,429r l,522r 1,476' 1,488' 1,492' 1,515' 1,470' 1,407 1,486 1,323 5 One-family 1,198 1,076 1,160 l,156r l,215r 1,142' 1,214' 1,164' 1,222' 1,148' 1,104 1,133 1,005 6 Two-family or more 259 278 315 273' 307r 334 274' 328' 293' 322' 303 353 318 7 Under construction at end of period1 762 776 797 816 826 826 829 823 820 826 823 828 820 8 One-family 558 547 557 581 591 590 596 592 593 592 586 585 577 9 Two-family or more 204 229 241 235 235 236 233 231 227 234 237 243 243 10 Completed 1,347 1,313 1,410 1,391 1,350 1,408 1,418 1,447 1,445 1,377 1,368 1,417 1,462 11 One-family 1,160 1,066 1,125 1,112 1,073 1.120 1,128 1,145 1,151 1,118 1,120 1,136 1,149 12 Two-family or more 187 247 285 279 277 288 290 302 294 259 248 281 313 13 Mobile homes shipped 304 340 363 368r 373r 366' 372 366' 369 372' 364 354 338 Merchant builder activity in one-family units 14 Number sold 670 665 757 713 740 734 733 780 820 779' 672 791 783 15 Number for sale at end of period' 337 372 327 368 369 362 356 353 343 330' 333 330 327 Price of units sold (thousands of dollars)2 16 Median 130.4 133.4 139.6 137.0 140.0 136.4 140.0 144.2 137.0 139.0' 142.0 146.5 142.0 17 Average 153.7 157.6 165.9 162.1 170.0 163.3 166.5 168.4 159.7 167.4' 167.0 174.2 173.2 EXISTING UNITS (one-family) 18 Number sold 3,946 3,801 4,085 4,200 4,200 4,280 4,160 4,150 4,140 4,030 3,970 4,010 3,870 Price of units sold (thousands of dollars)2 19 Median 109.6 112.2 118.0 115.7 116.5 117.6 122.9 121.5 122,3 117.8 116.6 117.4 118.8 20 Average 136.4 138.4 144.6 140.1 141.9 144.4 150.2 149.6 149.9 144.7 143.6 144.2 147.1 Value of new construction (millions of dollars)3 CONSTRUCTION 21 Total put in place 527,063 547,079 568,680 556,983 564,623 558,481 563,122 559,312 564,715 572,262 579,994 591,571 587,661 22 Private 400,007 410,197 427,227 419,726 424,233 418,120 423,106 419,293 426,703 428,361 433,874 443,539 441,531 23 Residential 238,873 236,598 246,409 245,881 248,013 247,486 246,909 244,931 246,019 246,407 244,268 247,010 248,011 24 Nonresidential 161,134 173,599 180,818 173,845 176,220 170,634 176,197 174,362 180,684 181,954 189,606 196,529 193,520 25 Industrial buildings 28,947 32,301 30,037 30,593 30,285 27,310 28,755 28,770 27,082 29,656 32,920 31,613 28,927 26 Commercial buildings 59,728 67,528 70,313 65,503 67,565 65,834 69,280 68,262 72,146 70,672 74,310 77,414 77,026 27 Other buildings 26,961 26,923 29,344 27,884 27,457 27.723 28,533 28,514 29,764 29,812 30,404 32,564 32,537 28 Public utilities and other 45,498 46,847 51,124 49,865 50,913 49,767 49,629 48,816 51,692 51,814 51,972 54,938 55,030 29 Public 127,056 136,884 141,448 137,257 140,390 140,361 140,016 140,020 138,012 143,901 146,120 148,032 146,130 30 Military 2,319 3,005 2,901 3,126 3,168 3,020 3,140 2,439 2,307 2,583 3,082 2,378 2,427 31 Highway 37,673 38,161 39,464 39,527 39.454 37,715 38,308 39,194 36,507 40,485 39,409 40,278 42,477 32 Conservation and development 6,370 6,389 5,734 5,811 5,956 5,756 6,004 5,793 5,660 5,473 6,097 5,953 5,395 33 Other 80,694 89,329 93,349 88,793 91,812 93,870 92,564 92,594 93,538 95,360 97,532 99,423 95,831 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 1996r 1996r 1997 JJJaaannn... 11999966 11999977 111999999777 111 JJaann.. JJaann.. Mar. June Sept. Dec. Sept. Oct. Nov. Dec. Jan. CONSUMER PRICES2 (1982-84=100) 1 All items 2.7 3.0 4.0 2.9 3.1 3.3 .3 .3 .3 .3 .1 159.1 ? 2.4 3.6 3.8 4.3 5.3 3.4 .5 .5 .4 .0 -.3 156.5 Energy items .8 7.9 13.7 4.9 1.1 16.2 .2 1.1 1.2 1.5 .8 113.3 4 All items less food and energy 3.0 2.5 3.0 2.5 2.7 2.4 .3 .2 .2 .2 .1 167.5 Commodities 1.9 .9 2.3 .0 1.1 .9 .4 .1 .1 .1 .1 141.5 6 Services 3.4 3.3 3.4 3.4 3.4 3.1 .3 .2 .3 .3 .1 182.4 PRODUCER PRICES (1982=100) 7 Finished goods 2.2 2.5 2.5 2.5 2.5 4.3 .3 .2 .2 .6 -.3 132.6 8 Consumer foods 2.2 2.5 1.5 5.3 4.6 2.4 .4 .7 .0 -.1 -1.0 134.0 9 Consumer energy 2.5 10.4 13.8 2.5 7.0 27.3 .7 1.2 1.5 3.4 -.2 86.7 10 Other consumer goods 2.4 .8 .0 2.2 .6 .3 .1 -.1 .0 .1 .0 145.1 11 Capital equipment 1.8 .5 .3 .6 1.2 -.3 .1 -.3 .1 .1 .0 139.0 Intermediate materials 12 Excluding foods and feeds 2.0 .8 -1.0 .6 1.0 2.2 .3 .0 .2 .4 .2 126.4 13 Excluding energy 1.7 -.5 -3.5 .0 .0 .0 .2 -.2 .1 .1 .1 134.1 Crude materials 14 Foods 12.2 -2.0 1.7 47.4 -9.4 -28.2 -3.5 -3.2 -2.2 -2.7 -1.0 112.4 15 Energy 11.9 50.1 52.8 -14.1 18.7 169.7 -3.3 2.1 7.7 16.5 12.9 117.2 16 Other -6.9 -3.7 -8.6 -9.3 -2.6 -1.6 .5 .1 -.5 .0 2.0 156.1 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 • April 1997 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1995 1996 AAccccoouunntt 11999944 11999955 11999966 04 Q1 Q2 Q3 Q4 GROSS DOMESTIC PRODUCT 1 Total 6,935.7 7,253.8 7,580.0 7,350.6 7,426.8 7,545.1 7,616.3 7,731.7 By source 2 Personal consumption expenditures 4,700.9 4,924.9 5,152.0 4,990.5 5,060.5 5,139.4 5,165.4 5,242.6 3 Durable goods 580.9 606.4 632.2 612.8 625.2 637.6 630.5 635.5 4 Nondurable goods 1,429.7 1,485.9 1,545.1 1,494.2 1,522.1 1,544.7 1,546.5 1,567.2 5 Services 2,690.3 2,832.6 2,974.7 2,883.5 2,913.2 2,957.1 2,988.5 3,039.9 6 Gross private domestic investment 1,014.4 1,065.3 1,119.8 1,064.0 1,068.9 1,096.0 1,156.2 1,158.2 7 Fixed investment 954.9 1,028.2 1,100.5 1,046.2 1,070.7 1,088.0 1,119.6 1,123.9 8 Nonresidential 667.2 738.5 790.4 749.7 769.0 773.8 807.0 811.7 y Structures 180.2 199.7 213.7 204.0 208.4 207.4 213.5 225.6 10 Producers' durable equipment 487.0 538.8 576.6 545.7 560.6 566.3 593.5 586.1 N Residential structures 287.7 289.8 310.2 296.5 301.7 314.2 312.6 312.2 12 Change in business inventories 59.5 37.0 19.3 17.8 -1.7 8.0 36.6 34.3 13 Nonfarm 48.0 39.6 20.5 19.9 2.7 11.3 35.4 32.4 14 Net exports of goods and services -94.4 -94.7 -99.6 -67.2 -86.3 -99.2 -120.2 -92.5 LB Exports 719.1 807.4 855.4 837.0 839.5 850.0 844.3 887.7 16 Imports 813.5 902.0 954.9 904.2 925.8 949.2 964.5 980.2 17 Government consumption expenditures and gross investment 1,314.7 1,358.3 1,407.7 1,363.4 1,383.7 1,408.8 1,414.8 1,423.5 18 Federal 516.4 516.6 524.1 507.7 518.6 529.6 525.5 522.9 19 State and local 798.4 841.7 883.6 855.7 865.1 879.2 889.3 900.6 By major type of product 20 Final sales, total 6,876.2 7,216.7 7,560.7 7,332.8 7,428.6 7,537.1 7,579.6 7,697.4 21 Goods 2,534.4 2,662.2 2,784.5 2,698.0 2,749.3 2,782.0 2,785.0 2,821.8 22 Durable 1,086.2 1,147.3 1,218.9 1,166.4 1,192.1 1,219.1 1,225.5 1,238.9 23 Nondurable 1,448.3 1,515.0 1,565.6 1,531.7 1,557.1 1,562.9 1,559.5 1,582.9 24 Services 3,746.5 3,926.9 4,105.8 3,992.4 4,027.9 4,087.0 4,122.0 4,186.1 25 Structures 595.3 627.6 670.4 642.3 651.4 668.0 672.6 689.6 26 Change in business inventories 59.5 37.0 19.3 17.8 -1.7 8.0 36.6 34.3 27 Durable goods 31.9 34.9 16.2 27.3 12.3 9.9 34.7 7.8 28 Nondurable goods 27.7 2.2 3.2 -9.4 -14.0 -1.9 2.0 26.5 MEMO 29 Total GDP in chained 1992 dollars 6,608.7 6,742.9 6,911.0 6,780.7 6,814.3 6,892.6 6,928.4 7,008.7 NATIONAL INCOME 30 Total 5,501.6 5,813.5 n.a. 5,927.4 6,015.3 6,118.7 6,203.0 n.a. 31 Compensation of employees 4,009.8 4,222.7 4,448.5 4,301.1 4,344.3 4,420.9 4,482.9 4,546.0 32 Wages and salaries 3,257.3 3,433.2 3,630.1 3,501.1 3,540.2 3,606.5 3,659.6 3,714.0 33 Government and government enterprises 602.5 621.7 641.1 626.9 634.0 638.9 644.6 647.0 34 Other 2,654.8 2,811.5 2,988.9 2,874.2 2,906.1 2,967.5 3,015.1 3,067.0 33 Supplement to wages and salaries 752.4 789.5 818.5 800.1 804.1 814.4 823.3 832.0 36 Employer contributions for social insurance 350.2 365.5 382.3 369.8 375.0 380.4 384.6 389.1 SI Other labor income 402.2 424.0 436.2 430.2 429.1 434.0 438.6 442.9 38 Proprietors' income1 450.9 478.3 518.1 486.7 499.5 515.2 526.3 531.5 39 Business and professional' 415.9 449.3 471.9 454.9 461.1 469.4 474.6 482.5 40 Farm1 35.0 29.0 46.2 31.8 38.4 45.8 51.8 49.0 41 Rental income of persons" 116.6 122.2 127.2 125.8 126.9 124.5 127.0 130.5 42 Corporate profits' 529.5 586.6 n.a. 611.8 645.1 655.8 661.2 n.a. 43 Profits before tax3 531.2 598.9 n.a. 604.2 642.2 644.6 635.6 n.a. 44 Inventory valuation adjustment -13.3 -28.1 -7.2 -8.8 -17.4 -11.0 2.0 -2.5 45 Capital consumption adjustment 11.6 15.9 23.3 16.5 20.4 22.3 23.6 26.9 46 Net interest 394.9 403.6 n.a. 401.9 399.5 402.3 405.6 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 1995 1996 AAccccoouunntt 11999944 11999955 11999966 Q4 Ql Q2 Q3 Q4 PERSONAL INCOME AND SAVING 1 Total personal income 5,753.1 6,115.1 6,452.8 6,234.5 6,308.5 6,412.4 6,501.4 6,588.8 2 Wage and salary disbursements 3,241.8 3,430.6 3,630.1 3,500.2 3,538.2 3,606.5 3,659.6 3,715.9 3 Commodity-producing industries 824.9 863.5 902.8 873.9 878.7 900.3 911.0 921.0 4 Manufacturing 621.1 648.4 672.6 654.7 654.8 671.8 678.5 685.1 Distributive industries 739.2 783.7 827.7 800.7 810.5 822.3 832.4 845.4 6 Service industries 1,075.2 1,161.6 1,258.5 1,198.6 1,215.1 1,244.9 1,271.6 1,302.6 7 Government and government enterprises 602.5 621.7 641.1 626.9 634.0 638.9 644.6 647.0 8 Other labor income 402.2 424.0 436.2 430.2 429.1 434.0 438.6 442.9 9 Proprietors' income1 450.9 478.3 518.1 486.7 499.5 515.2 526.3 531.5 10 Business and professional1 415.9 449.3 471.9 454.9 461.1 469.4 474.6 482.5 11 Farm1 35.0 29.0 46.2 31.8 38.4 45.8 51.8 49.0 12 Rental income of persons2 116.6 122.2 127.2 125.8 126.9 124.5 127.0 130.5 13 Dividends 199.6 214.8 230.6 221.7 226.6 229.3 231.5 234.8 14 Personal interest income 663.7 717.1 738.0 727.2 726.1 733.1 742.9 749.9 15 Transfer payments 956.3 1,022.6 1,080.1 1,041.4 1,063.0 1,075.6 1,085.1 1,096.8 16 Old age survivors, disability, and health insurance benefits 472.9 507.4 539.2 516.1 529.9 536.3 541.7 548.7 17 LESS: Personal contributions for social insurance 278.1 294.5 307.6 298.8 301.0 305.8 309.7 313.7 18 EQUALS: Personal income 5,753.1 6,115.1 6,452.8 6,234.5 6,308.5 6,412.4 6,501.4 6,588.8 19 LESS: Personal tax and nontax payments 731.4 794.3 863.8 807.2 824.9 870.6 872.5 887.1 20 EQUALS: Disposable personal income 5,021.7 5,320.8 5,589.0 5,427.3 5,483.5 5,541.8 5,628.9 5,701.6 21 LESS: Personal outlays 4,832.3 5,071.5 5,314.5 5,144.7 5,218.1 5,300.7 5,329.8 5,409.5 22 EQUALS: Personal saving 189.4 249.3 274.4 282.6 265.4 241.1 299.1 292.2 MEMO Per capita (chained 1992 dollars) 23 Gross domestic product 25,349.8 25,628.8r 26,030.1 25,684.5 25,753.3 25,990.0 26,066.2 2266,,330088..99 24 Personal consumption expenditures 17,158.2r 17,399.6r 17,667.1 17,459.9 17,570.2 17,675.7 17,657.9 17,764.0 25 Disposable personal income 18,330.0 18,799.0 19,166.0 18,986.0 19,041.0 19,063.0 19,242.0 19,318.0 26 Saving rate (percent) 3.8 4.7 4.9 5.2 4.8 4.3 5.3 5.1 GROSS SAVING 27 Gross saving 1,056.3 1,151.8 n.a. 1,220.6 1,217.9 1,244.5 1,314.0 n.a. 28 Gross private saving 1,006.7 1,071.8 n.a. 1,138.9 1,133.8 1,121.6 1,196.1 n.a. 7,9 Personal saving 189.4 249.3 274.4 282.6 265.4 241.1 299.1 292.2 30 Undistributed corporate profits1 123.2 140.6 n.a. 158.4 171.8 176.3 182.5 n.a. 31 Corporate inventory valuation adjustment -13.3 -28.1 -7.2 -8.8 -17.4 -11.0 2.0 -2.5 Capital consumption allowances 37 Corporate 441.0 454.0 473.8 463.6 465.6 471.0 477.2 481.5 33 Noncorporate 237.7 225.2 235.0 233.4 229.1 233.2 237.4 240.2 34 Gross government saving 49.6 80.0 n.a. 81.7 84.1 122.9 117.8 n.a. 35 Federal -119.6 -87.9 n.a. -80.7 -82.0 -54.1 -48.4 n.a. 36 Consumption of fixed capital 70.6 73.8 72.5 73.8 73.2 72.6 72.3 71.9 37 Current surplus or deficit (-), national accounts -190.2 -161.7 n.a. -154.5 -155.2 -126.7 -120.8 n.a. 38 State and local 169.2 167.9 n.a. 162.4 166.1 177.0 166.3 n.a. 39 Consumption of fixed capital 69.4 72.9 76.5 74.3 75.1 76.0 77.1 78.0 40 Current surplus or deficit (-), national accounts 99.7 95.0 n.a. 88.1 91.0 101.0 89.2 n.a. 41 Gross investment 1,090.4 1,150.9 n.a. 1,173.9 1,167.9 1,187.0 1,215.9 n.a. 42 Gross private domestic investment 1,014.4 1,065.3 1,119.8 1,064.0 1,068.9 1,096.0 1,156.2 1,158.2 43 Gross government investment 212.3 221.9 233.0 220.1 228.8 235.1 234.2 233.9 44 Net foreign investment -136.4 -136.3 n.a. -110.2 -129.9 -144.2 -174.6 n.a. 45 Statistical discrepancy 34.1 -.9 n.a. -46.7 -50.0 -57.5 -98.1 n.a. 1. With inventory valuation and capital consumption adjustments. SOURCE. U.S. Department of Commerce, Survey of Current Business. 2. With capital consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 International Statistics • April 1997 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 Q3 Q4 QL Q2 Q3 1 Balance on current account -99,936 -148,405 -148,154 -37,688 -30,435 -34,869 -40,210 -47,961 ? Merchandise trade balance2 -132,609 -166,121 -173,424 -42,548 -38,026 -42,730 -46,996 -51,593 3 Merchandise exports 456,832 502,463 575,940 144,984 149,422 150,028 153,095 149,937 4 Merchandise imports -589,441 -668,584 -749,364 -187,532 -187,448 -192,758 -200,091 -201,530 Military transactions, net 880 1,963 3,585 1,120 978 489 725 710 6 Other service transactions, net 59,691 59,779 64,776 17,093 17,657 18,014 17,694 17,049 7 Investment income, net 9,742 -4,159 -8,016 -4,361 -1,890 262 -2,264 -4,705 8 U.S. government grants -16,823 -15,816 -10,959 -2,933 -2,799 -4,259 -2,364 -2,502 9 U.S. government pensions and other transfers -4,081 -4,544 -3,420 -964 -731 -960 -1,029 -1,034 10 Private remittances and other transfers -16,736 -19,506 -20,696 -5,095 -5,624 -5,685 -5,976 -5,886 11 Change in U.S. government assets other than official reserve assets, net (increase, —) -342 -341 -280 252 -199 -152 --335533 7722 12 Change in U.S. official reserve assets (increase, -) -1,379 5,346 -9,742 -1,893 191 17 -523 7,489 13 0 0 0 0 0 0 0 0 14 Special drawing rights (SDRs) -537 -441 -808 362 -147 -199 -133 884488 15 Reserve position in International Monetary Fund -44 494 -2,466 -991 -163 -849 -220 --118833 16 Foreign currencies -797 5,293 -6,468 -1,264 501 1,065 -170 6,824 17 Change in U.S. private assets abroad (increase, —) -192,889 -155,700 -297,834 -37,954 -98,206 -68,615 -49,850 -62,237 18 Bank-reported claims3 29,947 -8,161 -69,146 8,476 -7,272 1,714 -74 -32,482 19 Nonbank-reported claims 1,581 -32,804 -34,219 7,500 -14,278 -12,707 -3,374 20 U.S. purchases of foreign securities, net -146,253 -60,270 -98,960 -35,839 -32,539 -34,420 -20,200 -21,314 21 U.S. direct investments abroad, net -78,164 -54,465 -95,509 -18,091 -44,117 -23,202 -26,202 -8,441 77 Change in foreign official assets in United States (increase, +) 72,153 40,253 109,757 39,186 11,369 52,021 13,566 23,642 23 U.S. Treasury securities 48,952 30,745 68,813 20,489 12,984 55,600 -3,384 25,335 24 Other U.S. government obligations 4,062 6,077 3,734 518 764 52 1,258 1,217 25 Other U.S. government liabilities4 1,713 2,344 1,082 -71 1,249 -156 220 755 76 Other U.S. liabilities reported by U.S. banks 14,841 3,560 32,862 18,478 -3,908 -3,264 14,187 -2,080 27 Other foreign official assets5 2,585 -2,473 3,266 -228 280 -211 1,285 -1,585 78 Change in foreign private assets in United States (increase, +) 178,843 245,123 314,705 79,630 87,860 47,450 86,983 100,357 29 U.S. bank-reported liabilities3 20,859 111,842 25,283 -21,542 32,765 -35,571 1,925 265 30 U.S. nonbank-reported liabilities 10,489 -7,710 34,578 6,945 11,272 6,506 7,296 31 Foreign private purchases of U.S. Treasury securities, net 24,381 34,225 99,340 37,269 1,734 11,832 31,212 41,982 32 Foreign purchases of other U.S. securities, net 80,092 57,006 95,268 31,971 27,321 35,993 29,122 32,961 33 Foreign direct investments in United States, net 43,022 49,760 60,236 24,987 14,768 28,690 17,428 25,149 34 Allocation of special drawing rights 0 0 0 0 0 0 0 0 35 Discrepancy 43,550 13,724 31,548 -41,533 29,420 4,148 -9,613 -21,362 36 Due to seasonal adjustment -7,407 1,153 6,279 -801 -8,699 37 Before seasonal adjustment 43,550 i 3,724 31,548 -34,126 28,267 -2,131 -8,812 -12,663 MEMO Changes in official assets 38 U.S. official reserve assets (increase, -) -1.379 5,346 -9,742 -1,893 191 17 --552233 7,489 39 Foreign official assets in United States, excluding line 25 (increase, +) 70,440 37,909 108,675 39,257 10,120 52,177 1133,,334466 22,887 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line 22) -3,717 -1,529 3,959 6,147 -1,435 -992 55,,555555 55,,334477 1. Seasonal factors are not calculated for lines 12-16, 18-20, 22-34, and 38^t0. 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 1996 IItteemm 11999944 11999955 11999966 June July Aug.r Sept.r Oct.r Nov. Dec.p 1 Goods and services, balance -104,381 -105,064 -114,229 -8,370 -11,755 -10,494 -11,438 -8,006 -7,939 -10,287 2 Merchandise -166,123 -173,424 -187,617 -14,620 -17,492 -16,424 -17,525 -14,092 -14,273 -16,578 3 Services 61,742 68,360 73,388 6,250 5,737 5,930 6,087 6,086 6,334 6,291 4 Goods and services, exports 698,301 786,529 835,653 69,725r 67,249 69,678 68,839 71,723 72,521 71,395 5 Merchandise 502,462 575,939 611,721 50,97 r 48,779 51,094 50,297 52,877 53,293 52,159 6 Services 195,839 210,590 223,932 18,754 18,470 18,584 18,542 18,846 19,228 19,236 7 Goods and services, imports -802,682 -891,593 -949,882 -78,095r -79,004 -80,172 -80,277 -79,729 -80,460 -81,682 8 Merchandise -668,585 -749,363 -799,338 -65,591r -66,271 -67,518 -67,822 -66,969 -67,566 -68,737 9 Services -134,097 -142,230 -150,544 -12,504 -12,733 -12,654 -12,455 -12,760 -12,894 -12,945 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 1996 1997 AAsssseett 11999933 11999944 11999955 June July Aug. Sept. Oct. Nov. Dec. Jan.p I Total 73,442 74,335 85,832 83,455 85,099 76,781 75,509 75,558 75,444 75,090 68,200 2 Gold stock, including Exchange Stabilization Fund' 11,053 11,051 11,050 11,050 11,050 11,050 11,050 11,049 11,049 11,049 11,048 3 Special drawing rights2'3 9,039 10,039 11.037 11,046 11,216 10,307 10,177 10,226 10,386 10,312 9,793 4 Reserve position in International Monetary Fund2 11,818 12,030 14,649 15,282 15,665 15,597 15,421 15,517 15,516 15,435 14,372 5 Foreign currencies4 41,532 41,215 49,096 46,077 47,168 39,827 38,861 38,765 38,493 38,294 32,987 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 1996 1997 AAsssseett 11999933 11999944 11999955 June July Aug. Sept. Oct. Nov. Dec. Jan.p 1 Deposits 386 250 386 182 166 171 265 176 170 167 167 Held in custody 2 U.S. Treasury securities2 379,394 441,866 522,170 572,839 580,277 590,367 609,801 619,987 634,165 638,049 646,130 3 Earmarked gold3 12,327 12,033 11,702 11,296 11,273 11,217 11,210 11,204 11,198 11,197 11,765 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 • April 1997 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1996 IItteemm 11999944 11999955 June July Aug. Sept. Oct. Nov. Dec.p 1 Total1 520,934 630,867 696,384 699,525 703,875 719,557 722,701r 737,466 752,233 By type 2 Liabilities reported by banks in the United States 73,386 107,343 118,258 113,445 111,034 116,328 109,937r 107,014 111,949 3 U.S. Treasury bills and certificates3 139,571 168,534 187,171 186,061 118899,,772266 182,122 118866,,118800 197,692 119933,,443355 U.S. Treasury bonds and notes 4 Marketable 254,059 293,690 327,821 337,450 341,037 358,225 363,063 366,903 380,464 5 Nonmarketable4 6,109 6,491 5,941 5,980 6,018 6,057 5,890 5,928 5,967 6 U.S. securities other than U.S. Treasury securities5 47,809 54,809 57,193 56,589 56,060 56,825 57,631 59,929 60,418 By area / Europe1 215,374 222,406 245,368 245,405 246,760 246,342 246,542 250,873 252,963 8 17,235 19,473 21,250 20,153 21,662 21,351 21,764 21,360 21,343 9 Latin America and Caribbean 41,492 66,720 70,153 68,020 69,076 69,338 70,479r 76,976 81,689 10 236,824 310,966 346,103 350,747 354,266 369,471 371,210 375,253 382,928 11 Africa 4,180 6,296 6,997 6,910 6,722 6,944 6,587 7,034 7,380 12 Other countries 5,827 5,004 6,511 8,288 5,387 6,109 6,117 5,968 5,928 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 Dec. Mar. June Sept. 1 Banks' liabilities 72,796 78,259 89,308 109,763 107,514 111,651 111,140 2 Banks' claims 62,799 62,017 60,711 74,016 69,159 65,864 68,195r 3 Deposits 24,240 20,993 19,661 22,696 22,208 20,876 23,93 lr 4 Other claims 38,559 41,024 41,050 51,320 46,951 44,988 44,264 5 Claims of banks' domestic customers2 4,432 12,854 10,878 6,145 6,353 7,464 7,130 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 1996 IItteemm 11999944 11999955 11999966 June July Aug. Sept. Oct. Nov. Dec.p BY HOLDER AND TYPE OF LIABILITY 1 Total, all foreigners 1,014,996 1,099,548 1,134,427 1,097,671 1,088,244 1,074,289 1,089,888 l,120,227r 1,114,197 1,134,427 2 Banks' own liabilities 718,591 753,460 756,088 731,143 718,715 701,959 722,802 753,557R 738,420 756,088 3 Demand deposits 23,386 24,448 27,112 27,369 24,992 23,147 25,504 23,867' 27,662 27,112 4 Time deposits2 186,512 192,556 188,741 189,456 193,491 196,561 192,463 197,386 192,541 188,741 5 Other3 113,215 140,115 139,043 149,173 144,309 129,039 148,499 146,556' 141,341 139,043 6 Own foreign offices4 395,478 396,341 401,192 365,145 355,923 353,212 356,336 385,748 376,876 401,192 7 Banks' custodial liabilities5 296,405 346,088 378,339 366,528 369,529 372,330 367,086 366,670 375,777 378,339 8 U.S. Treasury bills and certificates6 162,938 197,355 220,837 218,608 217,548 219,949 212,478 214,609 225,046 220,837 9 Other negotiable and readily transferable instruments7 42,539 52,200 64,036 51,528 56,345 55,552 57,702 54,045 54,568 64,036 10 Other 90,928 96,533 93,466 96,392 95,636 96,829 96,906 98,016 96,163 93,466 11 Nonmonetary international and regional organizations8 . .. 8,606 11,039 13,274 12,158 11,742 12,675 14,443 16,115' 14,570 13,274 12 Banks' own liabilities 8,176 10,347 12,765 10,914 10,545 12,084 13,843 15,284' 13,232 12,765 13 Demand deposits 29 21 29 123 22 49 26 67 46 29 14 Time deposits2 3,298 4,656 5,815 4,052 3,747 4,738 5,441 6,005 4,906 5,815 Ii Other3 4,849 5,670 6,921 6,739 6,776 7,297 8,376 9,212' 8,280 6,921 16 Banks' custodial liabilities5 430 692 509 1,244 1,197 591 600 831 1,338 509 17 U.S. Treasury bills and certificates6 281 350 244 874 865 345 399 600 11,,008888 244 18 Other negotiable and readily transferable instruments7 149 341 265 370 330 246 201 231 226 265 19 Other 0 1 0 0 2 0 0 0 24 0 20 Official institutions' 212,957 275,877 305,384 305,429 299,506 300,760 298,450 296,117' 304,706 305,384 21 Banks' own liabilities 59,935 83,396 79,256 91,925 83,812 81,462 85,969 83,648' 82,657 79,256 22 Demand deposits 1,564 2,098 1,510 2,211 2,211 1,459 2,049 1,316 2,181 1,510 23 Time deposits2 23,511 30,716 33,662 38,916 37,137 37,708 34,902 35,551' 35,292 33,662 24 Other3 34,860 50,582 44,084 50,798 44,464 42,295 49,018 46,781 45,184 44,084 25 Banks' custodial liabilities5 153,022 192,481 226,128 213,504 215,694 219,298 212,481 212,469 222,049 226,128 26 U.S. Treasury bills and certificates6 113399,,557711 116688,,553344 119933,,443355 187,171 186,061 118899,,772266 182,122 118866,,118800 197,692 119933,,443355 27 Other negotiable and readily transferable instruments7 13,245 23,603 32,265 25,900 29,262 29,281 30,051 25,085 24,000 32,265 28 Other 206 344 428 433 371 291 308 1,204 357 428 29 Banks10 678,532 691,464 680,301 654,108 646,031 635,007 649,430 678,641 667,835 680,301 30 Banks' own liabilities 563,617 567,886 562,552 530,411 523,939 510,274 524,645 554,225 546,851 562,552 31 Unaffiliated foreign banks 168,139 171,545 161,360 165,266 168,016 157,062 168,309 168,477 169,975 161,360 32 Demand deposits 10,633 11,758 13,694 12,380 11,809 11,116 12,764 11,156 13,304 13,694 33 Time deposits2 111,171 103,472 91,168 90,481 95,128 94,867 91,906 96,223 94,345 91,168 34 Other3 46,335 56,315 56,498 62,405 61,079 51,079 63,639 61,098 62,326 56,498 35 Own foreign offices4 1 '395,478 396,341 401,192 365,145 355,923 353,212 356,336 385,748 376,876 401,192 36 Banks' custodial liabilities5 114,915 123,578 117,749 123,697 122,092 124,733 124,785 124,416 120,984 117,749 37 U.S. Treasury bills and certificates6 11,264 15,872 13,886 18,241 18,091 18,670 18,556 16,865 14,227 13,886 38 Other negotiable and readily transferable instruments7 14,506 13,035 12,322 11,021 10,359 10,864 11,298 12,455 13,295 12,322 39 Other 89,145 94,671 91,541 94,435 93,642 95,199 94,931 95,096 93,462 91,541 40 Other foreigners 114,901 121,168 135,468 125,976 130,965 125,847 127,565 129,354' 127,086 135,468 41 Banks' own liabilities 86,863 91,831 101,515 97,893 100,419 98,139 98,345 100,400' 95,680 101,515 42 Demand deposits 11,160 10,571 11,879 12,655 10,950 10,523 10,665 11,328' 12,131 11,879 43 Time deposits2 48,532 53,712 58,096 56,007 57,479 59,248 60,214 59,607' 57,998 58,096 44 Other3 27,171 27,548 31,540 29,231 31,990 28,368 27,466 29,465 25,551 31,540 4 4 5 6 Ba U nk .S s . ' T cu re s a to su d r ia y l b li i a ll b s i l a i n ti d e s c 5 ertificates6 2 1 8 1 , , 0 8 3 2 8 2 2 1 9 2 , , 3 5 3 9 7 9 3 1 3 3 , , 9 2 5 7 3 2 2 1 8 2 , , 0 3 8 2 3 2 3 1 0 2 , , 5 5 4 3 6 1 2 1 7 1 , , 7 2 0 0 8 8 2 1 9 1 , , 2 4 2 0 0 1 2 1 8 0 , , 9 9 5 6 4 4 3 1 1 2 , , 4 0 0 3 6 9 3 11 3 33 , ,, 9 22 5 77 3 22 47 Other negotiable and readily transferable instruments7 14,639 15,221 19,184 14,237 16,394 15,161 16,152 16,274 17,047 19,184 48 Other 1,577 1,517 1,497 1,524 1,621 1,339 1,667 1,716 2,320 1,497 MEMO 49 Negotiable time certificates of deposit in custody for foreigners 17,895 9,103 9,934 9,645 7,922 8,276 10,466 11,657 10,540 9,934 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 • April 1997 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States1—Continued June July Aug. Sept. Oct. Nov. Dec.p AREA 50 Total, all foreigners 1,014,996 1,099,548 1,134,427 1,097,671 1,088,244 1,074,289 1,089,888 l,120,227r 1,114,197 1,134,427 51 Foreign countries 1,006,390 1,088,509 1,121,153 1,085,513 1,076,502 1,061,614 1,075,445 l,104,112r 1,099,627 1,121,153 52 Europe 390,869 362,819 366,340 363,220 355,894 355,380 350,316 37 l,282r 379,116 366,340 53 Austria 3,588 3,537 5,101 3,209 3,002 4,683 6,017 6,816 6,250 5,101 54 Belgium and Luxembourg 21,877 24,792 23,676 20,856 22,093 25,155 22,482 23,232 21,006 23,676 55 Denmark 2,884 2,921 2,450 2,796 2,871 2,501 2,652 1,802 2,790 2,450 56 Finland 1,436 2,831 1,463 1,589 1,200 1,113 812 1,509 1,557 1,463 57 France 44,365 39,218 33,404 40,583 36,342 37,363 37,094 41,069 38,920 33,404 58 Germany 27,109 24,035 24,554 25,876 24,375 23,128 23,599 23,522 21,650 24,554 59 Greece 1,400 2,014 1,811 1,690 1,811 1,722 1,854 1,666 2,222 1,811 60 Italy 10,885 10,868 10,701 12,103 12,785 12,552 12,509 12,793 10,262 10,701 61 Netherlands 16,033 13,745 10,995 12,159 11,863 11,460 9,626 12,017 11,133 10,995 62 Norway 2,338 1,394 1,288 1,388 1,435 1,556 1,622 1,552 1,882 1,288 63 Portugal 2,846 2,761 1,865 1,401 1,784 1,328 1,473 1,388 1,723 1,865 64 Russia 2,726 7,948 7,571 6,938 6,047 4,988 4,761 5,602 8,215 7,571 65 Spain 14,675 10,011 16,921 20,314 19,366 17,505 20,359 17,665 18,228 16,921 66 Sweden 3,094 3,246 1,302 2,693 2,738 1,591 1,814 1,424 1,521 1,302 67 Switzerland 40,724 43,625 44,215 39,006 39,626 39,074 42,226 32,541 38,116 44,215 68 Turkey 3,341 4,124 6,724 4,926 5,619 7,272 7,992 8,019 7,311 6,724 69 United Kingdom 163,733 139,183 150,260 143,258 137,668 136,242 132,424 158,018r 164,826 150,260 70 Yugoslavia11 245 177 206 217 208 207 214 216 232 206 71 Other Europe and other former U.S.S.R.12 27,770 26,389 21,833 22,218 25,061 25,940 20,786 20,43 r 21,272 21,833 72 Canada 24,768 30,468 38,031 33,391 28,811 30,727 33,199 35,153 33,057 38,031 73 Latin America and Caribbean 423,847 440,212 464,931 432,734 438,641 424,120 433,522 444,440r 438,265 464,931 74 Argentina 17,203 12,235 13,794 13,579 12,501 13,320 11,989 11,701 13,860 13,794 75 Bahamas 104,014 94,991 87,915 85,265 93,362 87,994 86,625 101,007 91,184 87,915 76 Bermuda 8,424 4,897 5,299 4,312 4,205 4,150 4,880 4,910 6,443 5,299 77 Brazil 9,145 23,797 27,663 25,902 23,183 24,518 23,817 24,083 26,920 27,663 78 British West Indies 229,599 239,083 250,372 234,550 234,205 227,024 233,782 229,493r 226,502 250,372 79 Chile 3,127 2,826 2,915 2,921 2,833 2,462 3,205 2,767 2,728 2,915 80 Colombia 4,615 3,659 3,256 3,642 3,329 3,263 2.889 2,968 2,838 3,256 81 Cuba 13 8 21 10 10 14 33 17 18 21 82 Ecuador 875 1,314 1,767 1,301 1,405 1,433 1,449 1,383 1,574 1,767 83 Guatemala 1,121 1,275 1,282 1,073 1,092 1,176 1,181 1,207 1,235 1,282 84 Jamaica 529 481 628 534 562 625 623 580 564 628 85 Mexico 12,227 24,560 31,251 24,771 26,312 24,399 26,808 27,673r 27,982 31,251 86 Netherlands Antilles 5,217 4,673 5,956 5,163 5,532 3,615 5,290 5,076r 4,437 5,956 87 Panama 4,551 4,265 4,077 3,878 3,852 3,994 3,950 4,056r 4,002 4,077 88 Peru 900 974 834 1,013 1,029 1,077 936 1,024r 942 834 89 Uruguay 1,597 1,836 1,888 1,769 1,836 1,799 1,751 1,841r 1,753 1,888 90 Venezuela 13,986 11,808 17,361 14,899 15,261 15,029 15,596 16,369r 17,377 17,361 91 Other 6,704 7,530 8,652 8,152 8,132 8,228 8,718 8,285r 7,906 8,652 92 Asia 154,346 240,595 236,744 239,593 236,006 237,624 243,208 239,416 233,803 236,744 China 93 Mainland 10,066 33,750 30,441 25,483 28,587 34,224 32,068 26,998 29,411 30,441 94 Taiwan 9,844 11,714 15,991 16,650 16,125 14,775 15,721 15,450 16,614 15,991 95 Hong Kong 17,104 20,197 18,741 18,216 17,058 18,609 17,485 17,053 18,712 18,741 96 India 2,338 3,373 3,936 4,012 3,954 4,012 3,793 3,709 3,832 3,936 97 Indonesia 1,587 2,708 2,307 2,316 2,561 2,161 2,204 2,436 2,401 2,307 98 Israel 5,157 4,041 6,042 5,168 4,444 4,364 4,134 7,162 5,723 6,042 99 Japan 62,981 109,193 107,017 114,131 112,737 109,262 112,537 112,600 103,678 107,017 100 Korea (South) 5,124 5,749 6,003 6,679 5,622 5,406 5,908 5,545 5,897 6,003 101 Philippines 2,714 3,092 3,365 2,970 3,041 2,539 3,429 3,191 3,264 3,365 102 Thailand 6,466 12,279 10,912 12,253 11,713 10,691 11,759 11,972 12,729 10,912 103 Middle Eastern oil-exporting countries13 15,494 15,582 14,303 13,379 12,947 13,891 14,715 13,032r 13,145 14,303 104 Other 15,471 18,917 17,686 18,336 17,217 17,690 19,455 20,268r 18,397 17,686 105 Africa 6,524 7,641 8,071 7,509 7,558 7,259 7,440 7,058 7,671 8,071 106 Egypt 1,879 2,136 2,012 1,831 2,114 1,920 1,894 1,904 1,901 2,012 107 Morocco 97 104 112 115 133 121 78 74 66 112 108 South Africa 433 739 458 666 648 632 482 435 641 458 109 Zaire 9 10 10 6 13 6 6 11 10 10 110 Oil-exporting countries14 1,343 1,797 2,608 2,013 1,928 2,075 2,051 1,940 2,384 2,608 111 Other 2,763 2,855 2,871 2,878 2,722 2,505 2,929 2,694 2,669 2,871 112 Other 6,036 6,774 7,036 9,066 9,592 6,504 7,760 6,763 7,715 7,036 113 Australia 5,142 5,647 5,468 7,981 8,387 5,465 5,522 4,786 6,196 5,468 114 Other 894 1,127 1,568 1,085 1,205 1,039 2,238 1,977 1,519 1,568 115 Nonmonetary international and regional organizations. . . 8,606 11,039 13,274 12,158 11,742 12,675 14,443 16,115r 14,570 13,274 116 International15 7,537 9,300 11,401 10,824 10,303 10,988 12,761 14,336r 12,772 11,401 117 Latin American regional16 613 893 1,339 527 831 1,024 1,193 1,304 1,172 1,339 118 Other regional17 456 846 534 807 608 663 489 475 626 534 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 States' Payable in U.S. Dollars Millions of dollars, end of period 1996 AArreeaa oorr ccoouunnttrryy 11999944 11999955 11999966 June July Aug. Sept. Oct. Nov. Dec.p 1 Total, all foreigners 483,220 532,539 600,887 536,045 544,126 546,607 544,717 563,488r 575,495r 600,887 2 Foreign countries 478,629 530,608 598,283 533,016 542,012 544,575 543,019 560,410r 574,022r 598,283 3 Europe 123,358 132,150 166,509 146,160 143,424 150,054 155,277 165,634 168,794r 166,509 4 Austria 692 565 1,662 1,088 1,128 849 988 1,197 1,097 1,662 5 Belgium and Luxembourg 6,738 7,624 6,727 6,921 7,021 7,018 6,903 6,828 6,403 6,727 6 Denmark 1,129 403 492 432 319 230 408 480 651 492 7 Finland 512 1,055 971 1,013 1,629 1,296 1,350 1.068 l,228r 971 8 France 12,146 15,033 15,250 11,767 10,570 11,570 12,078 12,792 12,198r 15,250 9 Germany 7,608 9,263 8,475 11,831 9,497 7,559 8,670 8,546 7,195 8,475 10 Greece 604 469 568 563 527 433 397 426 571 568 11 Italy 6,043 5,370 6,439 5,721 6,023 6,625 5,870 5,007 5,918 6,439 12 Netherlands 2,959 5,346 7.080 6,546 6,360 6,565 6,956 7,386 7,350 7,080 13 Norway 504 665 808 1,243 1,397 1,342 1,199 1,617 1,894 808 14 Portugal 938 888 418 704 667 548 484 517 341 418 15 Russia 973 660 1.669 440 514 794 1,135 1,413 1,533 1,669 16 Spain 3,530 2,166 3,211 2,519 3,341 3,073 4,152 3,885 4,181 3,211 17 Sweden 4,098 2,080 2,673 2,799 2,802 2,726 2,976 2,919 2,882 2,673 18 Switzerland 5,746 7,474 19,798 12,145 9,520 9,266 10,930 16,110 18,071 19,798 19 Turkey 878 803 1,109 1,042 1,018 1,044 1,083 962 1,131 1,109 20 United Kingdom 66,824 67,784 85,057 75,689 77,775 85,355 85,732 89,961 92,182 85,057 21 Yugoslavia2 265 147 115 164 159 87 87 118 112 115 22 Other Europe and other former U.S.S.R.3 1,171 4,355 3,987 3,533 3,157 3,674 3,879 4,402 3,856r 3,987 23 Canada 18,490 20,874 26,436 22,242 23,981 25,132 25,343 23,066 22,013r 26,436 24 Latin America and Caribbean 223,523 256,944 274,234 239,977 253,177 249,693 240,634 243,634r 253,76Ir 274,234 25 Argentina 5,844 6,439 7,390 6,448 6,592 7,062 7,101 7,057 7,212 7,390 26 Bahamas 66,410 58,818 71,885 60,608 59,300 62,297 61,830 61,991 64,91 lr 71,885 27 Bermuda 8,481 5,741 4,103 3,620 3,579 3,052 3,640 4,438r 5,019r 4,103 28 Brazil 9,583 13,297 17,397 15,076 15,197 15,155 15,261 15,417 16,141 17,397 29 British West Indies 95,741 124,037 105,485 102,838 101,043 99,363 102,157 105,891 105,234 105,485 30 Chile 3,820 4,864 5,128 4,388 4,321 4,174 4,388 4,288r 4,554r 5,128 31 Colombia 4,004 4,550 6,255 4,538 4,512 4,725 4,723 4,811 4,960 6,255 32 Cuba 0 0 0 0 0 0 0 0 0 0 33 Ecuador 682 825 1,031 962 897 932 965 957 952 1,031 34 Guatemala 366 457 620 452 463 476 507 546 568 620 35 Jamaica 258 323 345 359 346 335 339 362 365r 345 36 Mexico 17,749 18,024 18,407 16,816 16,971 17,540 17,715 17,742 17,993 18,407 37 Netherlands Antilles 1,396 9,229 25,209 12,888 29,224 23,713 11,207 9,406 15,074 25,209 38 Panama 2,198 3,008 2,786 2,567 2,211 2,211 2,257 2,354 2,62 r 2,786 39 Peru 997 1,829 2,727 2,395 2,568 2,463 2,541 2,563 2,629r 2,727 40 Uruguay 503 466 589 623 589 562 530 547 551 589 41 Venezuela 1,831 1,661 1,692 1,390 1,402 1,728 1,513 1,636 1,626 1,692 42 Other 3,660 3,376 3,185 4,009 3,962 3,905 3,960 3,628 3,351r 3,185 43 107,079 115,431 122,638 118,251 114,986 113,912 113,702 120,092 120,860r 122,638 China 44 Mainland 836 1,023 1,401 2,141 1,349 2,033 1,700 1,420 1,292 1,401 45 Taiwan 1,448 1,713 1,894 1,500 1,312 1,023 1,700 1,305 1,413 1,894 46 Hong Kong 9,161 12,821 12,802 15,997 13,412 12,464 13,882 12,975 13,550 12,802 47 India 994 1,846 1,946 1,794 1,785 2,118 1,975 2,190 2,027 1,946 48 Indonesia 11,,447700 1,696 1,757 1,562 1,744 1,572 1,653 1,577 l,636r 1,757 49 Israel 668888 739 633 620 659 667 576 1,017 624 633 50 Japan 59,151 61,468 60,038 53,831 53,441 54,583 52,326 59,343 59,886 60,038 51 Korea (South) 10,286 14,070 18,989 19,246 18,624 17,644 17,608 17,032 18,080 18,989 52 Philippines 662 1,318 1,697 1,289 1,265 1,205 1,255 1,335 1,519 1,697 53 Thailand 2,902 2,612 2,685 3,194 2,824 2,864 2,705 2,699 2,820 2,685 54 Middle Eastern oil-exporting countries4 13,748 9,639 10,424 8,348 9,478 9,489 10,111 11,372 10,311 10,424 55 Other 5,733 6,486 8,372 8,729 9,093 8,250 8,211 7,827 7,702 8,372 56 Africa 3,050 2,742 2.776 2,741 2,605 2,735 2,757 2,638 2,557 2,776 57 Egypt 225 210 247 198 216 221 241 204 212 247 58 Morocco 429 514 524 639 602 577 565 543 587 524 59 South Africa 671 465 584 515 441 512 572 614 551 584 60 Zaire 2 1 0 1 1 11 1 1 0 0 61 Oil-exporting countries5 856 552 422 474 470 462 429 414 427 422 62 Other 867 1,000 999 914 875 952 949 862 780 999 63 Other 3,129 2,467 5,690 3,645 3,839 3,049 5,306 5,346 6,037 5,690 64 Australia 2,186 1,622 4,577 2,363 3,020 2,439 3,641 3,798 4,336 4,577 65 Other 943 845 1,113 1,282 819 610 1,665 1,548 1,701 1,113 66 Nonmonetary international and regional organizations6 . . . 4,591 1,931 2,604 3,029 2,114 2,032 1,698 3,078 1,473 2,604 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 • April 1997 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 1996 TTyyppee ooff ccllaaiimm 11999944 11999955 June July Aug. Sept. Oct. Nov. Dec.p 1 Total 599,499 655,306 660,084 688,310 2 Banks' claims 483,220 532,539 600,887 536,045 544,126 546,607 544,717 563,488r 575,495 600,887 3 Foreign public borrowers 23,416 22,518 21,924 22,946 20,234 18,875 22,719 24,929 20,106 21,924 4 Own foreign offices' 283,015 307,427 343,118 307,510 297,799 299,828 311,588 330,377 335,089 343,118 5 Unaffiliated foreign banks 109,346 101,595 113,576 105,546 108,921 111,881 109,616 108,778r 108,584 113,576 6 Deposits 59,368 37,658 33,983 33,998 36,145 39,338 35,286 36,239' 32,982 33,983 / Other 49,978 63,937 79,593 71,548 72,776 72,543 74,330 72,539' 75,602 79,593 8 All other foreigners 67,443 100,999 122,269 100,043 117,172 116,023 100,794 99,404' 111,716 122,269 9 Claims of banks' domestic customers3 116,279 122,767 124,039 143,593 10 Deposits 6644,,882299 58,519 7700,,440033 8800,,669955 11 Negotiable and readily transferable instruments4 3366,,000088 4444,,116611 3377,,333311 4466,,449911 12 Outstanding collections and other claims 15,442 20,087 16,305 16,407 MEMO 13 Customer liability on acceptances 8,427 8,410 9,335 9,396 14 Dollar deposits in banks abroad, reported by nonbanking business enterprises in the United States5 32,796 30,717 42,491 31,136 32,270 33,527 34,125 40,326 41,581 42,491 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 aarreeaa22 11999922 11999933 11999944 Dec. Mar. June Sept. 1 Total 195,119 202,566 200,070 225,027 233,482 228,571 231,389r By borrower 2 Maturity of one year or less 163,325 172,662 168,359 178,857 193,870 185,881 187,302 3 Foreign public borrowers 17,813 17,828 15,435 14,995 19,544 14,847 15,523 4 All other foreigners 145,512 154,834 152,924 163,862 174,326 171,034 171,779 5 Maturity of more than one year 31,794 29,904 31,711 46,170 39,612 42,690 44,087' 6 Foreign public borrowers 13,266 10,874 7,838 7,522 8,131 8,126 6,922 7 All other foreigners 18,528 19,030 23,873 38,648 31,481 34,564 37,165' By area Maturity of one year or less 8 Europe 53,300 57,413 55,770 55,622 57,979 57,138 57,075 9 Canada 6,091 7,727 6,690 6,751 5,470 6,806 8,811 10 Latin America and Caribbean 50,376 60,490 58,877 72,504 84,385 78,622 79,622 11 Asia 45,709 41,418 39,851 40,296 40,312 38,078 37,199 12 Africa 1,784 1,820 1,376 1,295 1,326 1,279 1,320 13 All other3 6,065 3,794 5,795 2,389 4,398 3,958 3,275 Maturity of more than one year 14 Europe 5,367 5,310 4,203 4,995 6,835 8,193 7,134 15 Canada 3,287 2,581 3,505 2,751 2,563 3,689 3,533 16 Latin America and Caribbean 15,312 14,025 15,717 27,681 19,368 19,511 21,382' 17 Asia 5,038 5,606 5,318 8,036 8,466 9,291 9,928 18 Africa 2,380 1,935 1,583 1,421 1,449 1,410 1,349 19 All other3 410 447 1,385 1,286 931 596 761 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. Banks1 Billions of dollars, end of period 1994 1995 1996 Area or country 11999922 11999933 Sept. Dec. Mar. June Sept. Dec. Mar. June Sept. 1 Total 344.7 407.7 486.4 497.3r 543.1 528.8 531.2r 551.9 573.0r 607.7r 609.8r 2 G-10 countries and Switzerland 131.3 161.8 182.6 190.6 211.5 204.4 200.0 206.0 202.2r 222. r 234.9' 3 Belgium and Luxembourg .0 7.4 9.6 7.0 10.2 9.4 10.7 13.6 11.0 7.9 11.8 4 France 15.3 12.0 20.7 19.1 19.9 19.9 18.0 19.4 17.9 18.0 17.6 5 Germany 9.1 12.6 24.0 24.7 31.2 30.0 27.5 27.3 31.5 31.4 36.0 6 Italy 6.5 7.7 11.6 11.8 10.6 10.7 12.6 11.5 13.2 14.9 16.4 7 Netherlands .0 4.7 3.4 3.6 3.5 4.3 4.4 3.7 3.0 4.7 6.3 8 Sweden 2.3 2.7 2.6 2.7 3.1 3.1 2.9 2.7 3.3 2.7 3.0 9 Switzerland 4.8 5.9 5.5 5.1 5.7 6.2 6.6 6.7 5.2 6.3 6.3 10 United Kingdom 59.7 84.3 78.4 85.7r 90.1 87.1 80.3 82.4 84.7r 101.5r 101.1' 11 Canada 6.3 6.9 10.2 10.0 10.8 11.3 13.0 10.3 9.7 11.1 13.7 12 Japan 18.8 17.6 16.5 20.7 26.2 22.7 24.0 28.5 22.7r 23.6r 22.8 13 Other industrialized countries 24.0 25.6 42.6 45.2 44.1 43.3 50.2 50.2 61.3 55.5 63.5' 14 Austria 1.2 .4 1.0 1.1 .9 .7 1.2 .9 1.3 1.2 1.0 15 Denmark .9 1.0 1.0 1.3 1.7 1.1 1.8 2.6 3.4 3.3 1.8 16 Finland .7 .4 .8 .9 1.1 .5 .7 .8 .7 .6 .6 17 Greece 3.0 3.2 4.3 4.5 4.9 5.0 5.1 5.7 5.6 5.6 6.1 18 Norway 1.2 1.7 1.6 2.0 2.4 1.8 2.3 3.2 2.1 2.3 3.0 19 Portugal .4 .8 1.0 1.2 1.0 1.2 1.9 1.3 1.6 1.6 1.4 20 Spain 8.9 9.9 14.0 13.6 14.1 13.3 13.3 11.6 17.5 13.6 17.3 21 Turkey 1.3 2.1 1.8 1.6 1.4 1.4 2.0 1.9 2.0 2.3r 2.8 22 Other Western Europe 1.7 2.6 1.0 2.7 2.5 2.6 3.0 4.7 3.8 3.4 4.8 23 South Africa 1.7 1.1 1.2 1.0 1.5 1.4 1.3 1.2 1.7 2.0 1.9 24 Australia 2.9 2.3 15.0 15.4 12.6 14.3 17.4 16.4 21.7 19.6r 22.8' 25 OPEC2 15.8 17.4 21.7 23.9 19.5 20.3 22.4 22.1 21.2 20.1 19.4 26 Ecuador .6 .5 .4 .5 .5 .7 .7 .7 .8 .9 1.0 27 Venezuela 5.2 5.1 3.9 3.7 3.5 3.5 3.0 2.7 2.9 2.3 2.3 28 Indonesia 2.7 3.3 3.3 3.8 4.0 4.1 4.4 4.8 4.7 4.9 5.5 29 Middle East countries 6.2 7.4 13.0 15.0 10.7 11.4 13.6 13.3 12.3 11.5 10.1 30 African countries 1.1 1.2 1.1 .9 .7 .6 .6 .6 .6 .5 .4 31 Non-OPEC developing countries 72.6 83.1 93.2 96.0 98.5 103.6 104.0 112.6 118.1 126.1 125.7' Latin America 32 Argentina 6.6 7.7 10.5 11.2 11.4 12.3 10.9 12.9 12.7 14.1 16.2 33 Brazil 10.8 12.0 9.3 8.4 9.2 10.0 13.6 13.7 18.3 21.7 18.1 34 Chile 4.4 4.7 5.5 6.1 6.4 7.1 6.4 6.8 6.4 6.7 6.7 35 Colombia 1.8 2.1 2.4 2.6 2.6 2.6 2.9 2.9 2.9 2.8 3.1 36 Mexico 16.0 17.8 19.8 18.4 17.9 17.6 16.3 17.3 16.1 15.4 16.4 37 Peru .5 .4 .6 .5 .6 .8 .7 .8 .9 1.2 1.4 38 Other 2.6 3.1 2.8 2.7 2.4 2.6 2.6 2.8 3.1 3.0r 3.0' Asia China 39 Mainland .7 2.0 1.0 1.1 1.1 1.4 1.7 1.8 3.3 2.9 2.6 40 Taiwan 5.2 7.3 6.9 9.2 8.5 9.0 9.0 9.4 9.7 9.8 10.3 41 India 3.2 3.2 3.9 4.2 3.8 4.0 4.4 4.4 4.7 4.2 3.8 42 Israel .4 .5 .4 .4 .6 .7 .5 .5 .5 .6 .5 43 Korea (South) 6.6 6.7 14.4 16.2 16.9 18.7 18.0 19.1 19.3r 21.7r 21.9' 44 Malaysia 3.1 4.4 3.9 3.1 3.9 4.1 4.3 4.4 4.7 5.0 5.1 45 Philippines 3.6 3.1 2.9 3.3 3.0 3.6 3.3 4.1 3.9 4.7 5.4 46 Thailand 2.2 3.1 3.5 2.1 3.3 3.8 3.9 4.9 5.2 5.4 4.7 47 Other Asia 3.1 3.1 3.4 4.7 4.9 3.5 3.7 4.5 4.3 4.8r 4.1 Africa 48 Egypt .2 .4 .3 .3 .4 .4 .4 .4 .5 .5 .6 49 Morocco .6 .7 .7 .6 .6 .9 .9 .7 .7 .8 .7 50 Zaire .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 51 Other Africa3 1.0 .8 .9 .8 .7 .6 .8 .9 .8 .8 1.0 52 Eastern Europe 3.1 3.2 3.0 2.7 2.3 1.8 3.4 4.2 6.2 5.0 5.4 53 Russia4 1.9 1.6 1.1 .8 .7 .4 .6 1.0 1.4 1.0 1.8 54 Yugoslavia5 .6 .6 .5 .5 .4 .3 .4 .3 .3 .3 .3 55 Other .6 .9 1.5 1.4 1.2 1.0 2.3 2.8 4.5 3.7 3.3 56 Offshore banking centers 58.1 73.0 77.2 72.2 84.8 82.8r 86.9 99.2 101.2r 106.2' 106.1 57 Bahamas 6.9 10.9 13.8 10.2 12.5 8.4 12.6 11.0 13.9 17.3 14.8 58 Bermuda 6.2 8.9 6.0 8.4 8.7 8.4 6.1 6.3 5.3 4.1 4.0 59 Cayman Islands and other British West Indies 21.5 18.0 21.5 20.8 19.8 24.3r 24.4r 32.4r 28.8' 26.1' 32.1 60 Netherlands Antilles 1.1 2.6 1.7 1.3 .9 2.4 5.5 9.9 10.7 13.0 11.5 61 Panama6 1.9 2.4 1.9 1.3 1.1 1.3 1.3 1.4 1.6 1.7 1.7 62 Lebanon . 1 63 Hong Kong 13.9 18/7 203 19^9 22^5 23! 1 23^6' 25.ff 25.3r 27.8 26.4 64 Singapore 6.5 11.2 11.8 10.1 19.2 14.8 13.3 13.1 15.4 15.9 15.4 65 Other' .0 .1 .0 .1 .0 .0 .1 .1 .1 .1 .1 66 Miscellaneous and unallocated8 39.7 43.4 65.8 66.7 82.2 72.3 64.0 57.3 62.2 72.3 54.3 1. The banking offices covered by these data include U.S. 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 US. 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 US. 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 • April 1997 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1995 1996 TTyyppee ooff lliiaabbiilliittyy,, aanndd aarreeaa oorr ccoouunnttrryy 11999922 11999933 11999944 June Sept. Dec. Mar. June Scpt.p 1 Total 45,511 50,597 54,309 49,973 47,673 46,448 49,907 48,990 51,105 2 Payable in dollars 37,456 38,728 38,298 34,281 33,908 33,903 36,273 35,385 36,402 3 Payable in foreign currencies 8,055 11,869 16,011 15,692 13,765 12,545 13,634 13,605 14,703 By type 4 Financial liabilities 23,841 29,226 32,954 29,282 26,237 24,241 26,570 24,844 25,107 5 Payable in dollars 16,960 18,545 18,818 15,028 13,872 12,903 13,831 12,212 11,256 6 Payable in foreign currencies 6,881 10,681 14,136 14,254 12,365 11,338 12,739 12,632 13,851 7 Commercial liabilities 21,670 21,371 21,355 20,691 21,436 22,207 23,337 24,146 25,998 8 Trade payables 9,566 8,802 10,005 10,527 10,061 11,013 10,815 11,081 11,605 9 Advance receipts and other liabilities 12,104 12,569 11,350 10,164 11,375 11,194 12,522 13,065 14,393 10 Payable in dollars 20.496 20,183 19,480 19,253 20,036 21,000 22,442 23,173 25,146 11 Payable in foreign currencies 1,174 1,188 1,875 1,438 1,400 1,207 895 973 852 By area or country Financial liabilities 12 Europe 13,387 18,810 21,703 18,223 16,401 15,622 16,950 1166,,443344 16,054 13 Belgium and Luxembourg 414 175 495 778 347 369 483 449988 547 14 France 1,623 2,539 1,727 1,101 1,365 999 1,679 1,011 1,220 15 Germany 889 975 1,961 1,589 1,670 1,974 2,161 1,850 2,276 16 Netherlands 606 534 552 530 474 466 479 444 519 17 Switzerland 569 634 688 1,056 948 895 1,260 1,156 830 18 United Kingdom 8,610 13,332 15,543 12,138 10,518 10,138 10,246 10,790 9,821 19 Canada 544 859 629 893 797 632 1,166 951 881 20 Latin America and Caribbean 4,053 3,359 2,034 1,950 1,904 1,783 1,876 969 1,018 21 Bahamas 379 1,148 101 81 79 59 78 31 50 22 Bermuda 114 0 80 138 144 147 126 28 25 23 Brazil 19 18 207 58 111 57 57 8 9 24 British West Indies 2,850 1,533 998 1,030 930 866 946 826 764 25 Mexico 12 17 0 3 3 12 16 11 4 26 Venezuela 6 5 5 4 3 2 2 1 0 27 5,818 5,956 8,403 8,023 6,947 5,988 6,390 6,351 6,927 28 Japan 4,750 4,887 7,314 7,141 6,308 5,436 5,980 6,051 6,602 29 Middle Eastern oil-exporting countries' 19 23 35 25 25 27 26 26 25 30 Africa 6 133 135 151 149 150 131 72 132 31 Oil-exporting countries2 0 123 123 122 122 122 122 61 121 32 All other3 33 109 50 42 39 66 57 67 95 Commercial liabilities 33 Europe 7,398 6,827 6,773 6,776 7,263 7,700 8,425 7,916 8,654 34 Belgium and Luxembourg 298 239 241 311 349 331 370 326 427 35 France 700 655 728 504 528 481 648 678 657 36 Germany 729 684 604 556 660 767 867 839 959 il Netherlands 535 688 722 448 566 500 659 617 668 38 Switzerland 350 375 327 432 255 413 428 516 409 39 United Kingdom 2,505 2,039 2,444 2,902 3,351 3,568 3,525 3,266 3,664 40 Canada 1,002 879 1,037 1,146 1,219 1,040 959 998 1,094 41 Latin America and Caribbean 1,533 1,658 1,857 1,836 11,,660077 1,740 2,110 2,301 2,306 42 Bahamas 3 21 19 3 11 1 28 35 33 43 Bermuda 307 350 345 397 219 205 570 509 355 44 Brazil 209 214 161 107 143 98 128 119 159 45 British West Indies 33 27 23 12 5 56 10 10 15 46 Mexico 457 481 574 420 357 416 468 475 441 47 Venezuela 142 123 276 204 175 221 243 283 332 48 Asia 10,594 10,980 10,741 9,978 10,275 10,421 10,474 11,389 12,229 49 Japan 3,612 4,314 4,555 3,531 3,475 3,315 3,725 3,943 4,150 50 Middle Eastern oil-exporting countries' 1,889 1,534 1,576 1,790 1,647 1,912 1,747 1,784 1,951 51 Africa 568 453 428 481 589 619 708 924 1,013 52 Oil-exporting countries2 309 167 256 252 241 254 254 435 404 53 Other3 575 574 519 474 483 687 661 618 702 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 1995 1996 TTyyppee ooff ccllaaiimm,, aanndd aarreeaa oorr ccoouunnttrryy 11999922 11999933 11999944 June Sept. Dec. Mar. June Sept. 1 Total 45,073 49,159 57,888 58,051 53,424 52,509 55,406 58,845 57,230 2 Payable in dollars 42,281 45,161 53,805 54,138 49,696 48,711 51,007 54,000 52,555 3 Payable in foreign currencies 2,792 3,998 4,083 3,913 3,728 3,798 4,399 4,845 4,675 By type 4 Financial claims 26,509 27,771 33,897 34,574 29,891 27,398 30,772 33,994 32,857 5 Deposits 17,695 15,717 18,507 22,046 17,974 15,133 17,595 18,364 18,941r 6 Payable in dollars 16,872 15,182 18,026 21,351 17,393 14,654 17,044 17,926 18,317r 7 Payable in foreign currencies 823 535 481 695 581 479 551 438 624 8 Other financial claims 8,814 12,054 15,390 12,528 11,917 12,265 13,177 15,630 13,916r 9 Payable in dollars 7,890 10,862 14,306 11,370 10,689 10,976 11,290 13,233 1 l,827r 10 Payable in foreign currencies 924 1,192 1,084 1,158 1,228 1,289 1,887 2,397 2,089 11 Commercial claims 18,564 21,388 23,991 23,477 23,533 25,111 24,634 24,851 24,373 12 Trade receivables 16,007 18,425 21,158 21,326 21,409 22,998 22,123 22,276 22,010 13 Advance payments and other claims 2,557 2,963 2,833 2,151 2,124 2,113 2,511 2,575 2,363 14 Payable in dollars 17,519 19,117 21,473 21,417 21,614 23,081 22,673 22,841 22,411 15 Payable in foreign currencies 1,045 2,271 2,518 2,060 1,919 2,030 1,961 2,010 1,962 By area or country Financial claims 16 Europe 9,331 7,299 7,936 7,927 7,840 7,609 8,929 9,241 8,500 17 Belgium and Luxembourg 8 134 86 155 160 193 159 151 126 18 France 764 826 800 730 753 803 1,015 679 733 19 Germany 326 526 540 356 301 436 320 296 272 20 Netherlands 515 502 429 601 522 517 486 488 520 21 Switzerland 490 530 523 514 530 498 470 461 431 22 United Kingdom 6,252 3,585 4,649 4,790 4,924 4,303 5,568 6,169 5,333 23 Canada 1,833 2,032 3,581 3,705 3,526 2,851 5,269 4,773 4,502 24 Latin America and Caribbean 13,893 16,224 19,536 21,159 15,345 14,500 13,827 17,644 17,184 25 Bahamas 778 1,336 2,424 2,355 1,552 1,965 1,538 2,168 1,746 26 Bermuda 40 125 27 85 35 81 77 84 113 27 Brazil 686 654 520 502 851 830 1,019 1,242 1,417 28 British West Indies 11,747 12,699 15,228 17,013 11,816 10,393 10,100 13,024 12,809 29 Mexico 445 872 723 635 487 554 461 392 411 30 Venezuela 29 161 35 27 50 32 40 23 17 31 864 1,657 1,871 1,235 2,160 1,579 1,890 1,571 1,826 32 Japan 668 892 953 471 1,404 871 1,171 852 1,001 33 Middle Eastern oil-exporting countries' 3 3 141 3 4 3 13 9 13 34 Africa 83 99 373 138 188 276 277 197 176 35 Oil-exporting countries2 9 1 0 9 6 5 5 5 13 36 All other3 505 460 600 410 832 583 580 568 669 Commercial claims 37 8 451 9 105 9 540 9,200 8,862 9 824 9,776 9,812 9,162 38 Belgium and Luxembourg 189 184 213 218 224 231 247 239 213 39 France 1,537 1,947 1,881 1,669 1,706 1,830 1,803 1,658 1,525 40 Germany 933 1,018 1,027 1,023 997 1,070 1,410 1,335 1,239 41 Netherlands 552 423 311 341 338 452 442 481 420 42 Switzerland 362 432 557 612 438 520 579 602 588 43 United Kingdom 2,094 2,377 2,556 2,469 2,479 2,656 2,607 2,651 2,514 44 Canada 1,286 1,781 1,988 2,003 1,971 1,951 2,045 2,074 2,032 45 Latin America and Caribbean 3,043 3,274 4,117 4,370 4,359 4,364 4,151 4,340 4,156 46 Bahamas 28 11 9 21 26 30 30 28 14 47 Bermuda 255 182 234 210 245 272 273 264 290 48 Brazil 357 460 612 777 745 898 809 837 857 49 British West Indies 40 71 83 83 66 79 106 103 119 50 Mexico 924 990 1,243 1,109 1,026 993 870 1,021 901 51 Venezuela 345 293 348 319 325 285 308 313 302 52 4,866 6,014 6,982 6,516 6,826 7,312 7,100 6,883 7,216 53 Japan 1,903 2,275 2,655 2,011 1,998 1,870 2,010 1,877 1,918 54 Middle Eastern oil-exporting countries' 693 704 708 707 775 974 1,024 879 930 55 Africa 554 493 454 478 544 654 667 688 716 56 Oil-exporting countries2 78 72 67 60 74 87 107 83 142 57 Other3 364 721 910 910 971 1,006 895 1,054 1,091 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 • April 1997 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1996 1996 Transaction, and area or country 1995 1996 J D an ec .- . June July Aug. Sept. Oct. Nov. Dec.p US. corporate securities STOCKS 1 Foreign purchases 462,950 625,598 625,598 43,374 49,557 46,136 42,599 57,758 67,406 57,054 2 Foreign sales 451,710 612,366 612,366 42,361 52,211 44,071 42,550 56,751 65,470 56,629 3 Net purchases, or sales (-) 11,240 13,232 13,232 1,013 -2,654 2,065 49 1,007 1,936 425 4 Foreign countries 11,445 13,306 13,306 1,013 -2,653 2,051 75 1,013 1,939 454 5 Europe 4,912 6,332 6,332 -308 -386 3,310 200 447 53 -226 6 France -1,099 -2,343 -2,343 -339 -188 -209 -109 -219 -237 -1,064 7 Germany -1,837 1,101 1,101 218 363 83 -85 116 -8 -18 8 Netherlands 3,507 1,365 1,365 129 124 219 -13 -132 139 -160 9 Switzerland -2,283 2,706 2,706 78 615 538 -123 144 682 -470 10 United Kingdom 8,066 3,928 3,928 -416 -1,490 2,551 475 909 464 1,490 11 Canada -1,517 2,253 2,253 81 31 —250 191 742 736 -9 12 Latin America and Caribbean 5,814 5,558 5,558 42 -1,077 1,046 252 -653 959 994 13 Middle East1 -337 -1,602 -1,602 -114 -15 -179 -153 15 -57 -7 14 Other Asia 2,503 898 898 1,359 -1,347 -1,642 -575 511 259 -232 15 Japan -2,725 -318 -318 802 -611 -791 104 313 -525 -343 16 Africa 2 -81 -81 -4 33 -33 -6 5 -23 10 1/ Other countries 68 -52 -52 -43 108 -201 166 -54 12 -76 18 Nonmonetary international and regional organizations -205 -74 -74 0 -1 14 -26 -6 -3 -29 BONDS2 19 Foreign purchases 293,533 421,750 421,750 35,152 27,962 32,333 37,407 40.668r 47,406 42,381 20 Foreign sales 206,951 295,013 295,013 25,688 17,458 20,901 23,858 30,277 34,667 32,880 21 Net purchases, or sales (—) 86,582 126,737 126,737 9,464 10,504 11,432 13,549 10,391r 12,739 9,501 22 Foreign countries 87,036 126,566 126,566 9,449 10,387 11,453 13,551 10,406r 12,749 9,501 23 Europe 70,318 74,945 74,945 5,020 6,502 6,184 8,350 6,279r 55,,771100 4,593 24 France 1,143 5,200 5,200 337 345 169 565 713 9988 252 25 Germany 5,938 5,136 5,136 40 255 626 381 -260 209 -27 2 2 6 / N Sw et i h tz e e r r la la n n d d s 1, 4 4 9 6 4 3 2, 8 4 8 4 2 0 22,,44 8888 44 22 00 2 5 3 3 3 4 2 4 5 2 8 1 1 2 4 5 6 4 2 0 4 3 4 5 9 9 3 -1 5 3 3 2 3 - 1 3 4 0 8 28 United Kingdom 57,591 54,585 54,585 3,800 4,790 4,305 6,231 5,316r 4,357 4,321 29 Canada 2,569 4,230 4,230 314 514 474 122 181 435 391 30 Latin America and Caribbean 6,141 22,872 22,872 770 1,811 1,272 1,144 2,954 2,222 2,890 31 Middle East1 1,869 1,637 1,637 218 205 201 65 211 513 412 32 Other Asia 5,659 22,607 22,607 3,140 1,186 3,243 3,681 787 3,727 1,143 33 Japan 2,250 13,193 13,193 1,912 905 2,583 1,963 1,037 2,245 894 34 Africa 234 600 600 50 31 17 109 45 132 79 35 Other countries 246 -325 -325 -63 138 62 80 -51 10 -7 36 Nonmonetary international and regional organizations -454 171 171 15 117 -21 -2 -15 -10 0 Foreign securities 37 Stocks, net purchases, or sales (—) -50,291 -57,876 -57,876 -7,527 -5,139 -1,197 -1,733 —2,329r -2,206 -5,389 38 Foreign purchases 345,540 459,288 459,288 36,728 37,643 34,016 31,195 40,117r 48,253 42,997 39 Foreign sales 395,831 517,164 517,164 44,255 42,782 35,213 32,928 42,446r 50,459 48,386 40 Bonds, net purchases, or sales ( —) -48,405 -45,217 -45,217 -2,035 -3,418 -5,189 -4,430 -5,771 -1,233 -10,427 41 Foreign purchases 889,541 1,118,141 1,118,141 82,833 80,692 84,461 113,087 116,354 105,181 98,644 42 Foreign sales 937,946 1,163,358 1,163,358 84,868 84,110 89,650 117,517 122,125 106,414 109,071 43 Net purchases, or sales (-), of stocks and bonds .... -98,696 -103,093 -103,093 -9,562 -8,557 -6,386 -6,163 —8,100r -3,439 -15,816 44 Foreign countries -97,891 -102,222 -102,222 -9,509 -8,620 -6,244 -5,637 —8,122r -3,471 -15,805 45 Europe -48,125 -56,257 -56,257 -8,506 -5,960 -5,298 -5,505 —6,093r -2,710 -10,293 46 Canada -7,812 -5,717 -5,717 -470 807 882 222 -574 -258 -2,196 47 Latin America and Caribbean -7,634 -7,420 -7,420 975 -2,181 -1,470 -1,277 937 3,943 -1,497 48 -34,056 -27,647 -27,647 -1,401 -1,174 -1,016 971 -819 -4,073 -783 49 Japan -25,072 -5,904 -5.904 -1,229 231 486 2,456 656 -585 2,195 50 Africa -327 -1,529 -1,529 -116 -53 -25 -49 -468 -115 36 51 Other countries 63 -3,652 -3,652 9 -59 683 1 -1,105 -258 -1,072 52 Nonmonetary international and regional organizations -805 -871 -871 -53 63 -142 -526 22 32 -11 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 Transactions' Millions of dollars; net purchases, or sales (—) during period 1996 1996 AArreeaa oorr ccoouunnttrryy 11999955 11999966 Jan.- June July Aug. Sept. Oct. Nov. Dec.p Dec. 1 Total estimated 134,115 244,171 244,171 8,520 47,960 12,340 14,738 24,321 20,831r 47,560 2 Foreign countries 133,676 246,013 246,013 9,331 48,396 12,304 14,895 23,784 22,023r 46,417 3 Europe 49,976 117,409 117,409 5,674 18,471 7,103 13,104 12,992 8,478r 14,676 4 Belgium and Luxembourg 591 1,481 1,481 221 -39 73 489 -320 330 370 5 Geimany 6,136 18,072 18,072 1,196 1,233 467 -264 2,813 3,449 1,499 6 Netherlands 1,891 -529 -529 1,067 694 -237 116 -423 729 855 7 Sweden 358 2,350 2,350 -29 322 -282 431 169 -45 26 8 Switzerland -472 480 480 -842 395 -730 718 -599 -54 -517 9 United Kingdom 34,754 64,428 64,428 5,130 11,245 7,623 7,977 10,121 — 152r 7,265 10 Other Europe and former U.S.S.R 6,718 31,127 31,127 -1,069 4,621 189 3,637 1,231 4,221 5,178 11 Canada 252 2,725 2,725 -139 1,734 -988 -215 -1,744 313r -780 1? Latin America and Caribbean 48,609 25,540 25,540 1,524 23,991 -491 -19,359 1,479 12,906r 15,228 13 Venezuela -2 -69 -69 13 16 146 -45 -29 -68 212 14 Other Latin America and Caribbean 25,152 13,233 13,233 -4,434 986 3,088 -1,547 926 2,922' 5,292 15 Netherlands Antilles 23,459 12,376 12,376 5,945 22,989 -3,725 -17,767 582 10,052 9,724 16 32,467 97,962 97,962 2,851 3,964 6,327 20,713 9,889 1,298 16,744 17 16,979 41,508 41,508 805 2,384 2,924 4,875 6,629 1,337 7,593 18 Africa 1,464 1,085 1,085 22 -31 163 30 -13 -12 -2 19 Other 908 1,292 1,292 -601 267 190 622 1,181 -960 551 20 Nonmonetary international and regional organizations 439 -1,842 -1,842 -811 -436 36 -157 537 -1,192 1,143 21 International 9 -1,390 -1,390 -747 -395 -287 -52 338 -1,146 773 22 Latin American regional 261 -779 -779 7 -3 347 -90 -4 -2 252 MEMO 23 Foreign countries 133,676 246,013 246,013 9,331 48,396 12,304 14,895 23,784 22,023r 46,417 24 Official institutions 39,631 86,774 86,774 -6,648 9,629 3,587 17,188 4,838 3,840 13,561 25 Other foreign 94,045 159,239 159,239 15,979 38,767 8,717 -2,293 18,946 18,183r 32,856 Oil-exporting countries 76 Middle East2 3,075 10,232 10,232 793 -219 323 4,969 -1,876 337 2,279 27 2 1 1 -1 0 -1 1 0 0 0 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 Feb. 28, 1997 Rate on Feb. 28, 1997 Country Country Month effective Austria.. . 2.5 Apr. 1996 Germany .. . 2.5 Belgium.. 2.5 Apr. 1995 Italy 6.75 Canada. . 3.25 Nov. 1996 Japan .5 Denmark , 3.25 Apr. 1996 Netherlands . 2.5 France2 .. 3.10 Jan. 1997 Switzerland . 1.0 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 1997 TTyyppee oorr ccoouunnttrryy 11999944 11999955 11999966 Aug. Sept. Oct. Nov. Dec. Jan. Feb. 1 Eurodollars 4.63 5.93 5.38 5.41 5.49 5.41 5.38 5.43 5.44 5.36 2 United Kingdom 5.45 6.63 5.99 5.72 5.75 5.93 6.27 6.31 6.28 6.16 3 Canada 5.57 7.14 4.49 4.30 4.10 3.54 3.05 3.16 3.18 3.16 4 Germany 5.25 4.43 3.21 3.20 3.02 3.04 3.09 3.13 3.03 3.08 5 Switzerland 4.03 2.94 1.92 2.21 1.82 1.56 1.80 1.99 1.72 1.61 6 Netherlands 5.09 4.30 2.91 2.90 2.70 2.82 2.92 2.99 2.94 2.95 7 France 5.72 6.43 3.81 3.84 3.63 3.39 3.35 3.33 3.23 3.22 8 Italy 8.45 10.43 8.79 8.77 8.42 7.99 7.40 7.22 7.21 7.33 9 Belgium 5.65 4.73 3.19 3.21 3.04 3.02 3.03 3.01 3.00 3.10 10 Japan 2.24 1.20 .58 .62 .53 .52 .51 .51 .53 .54 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 • April 1997 3.28 FOREIGN EXCHANGE RATES1 Currency units per dollar except as noted 1996 1997 CCoouunnttrryy//ccuurrrreennccyy uunniitt 11999944 11999955 11999966 Sept. Oct. Nov. Dec. Jan. Feb. 1 Australia/dollar2 73.161 74.073 78.283 79.279 79.179 79.684 79.661 77.756 76.768 2 Austria/schilling 11.409 10.076 10.589 10.610 10.748 10.640 10.923 11.289 11.785 3 Belgium/franc 33.426 29.472 30.970' 31.056 31.471 31.153 31.992' 33.087 34.556 4 Canada/dollar 1.3664 1.3725 1.3638 1.3694 1.3508 1.3381 1.3622 1.3494 1.3556 5 China, P.R./yuan 8.6397' 8.3700 8.3389' 8.3341 8.3299 8.3294 8.3290 8.3260 8.3227 6 Denmark/krone 6.3561 5.5999 5.8003' 5.8057 5.8576 5.8053 5.9428 6.1199 6.3867 7 Finland/markka 5.2340 4.3763 4.5948 4.5421 4.5694 4.5512 4.6388 4.7766 4.9792 8 France/franc 5.5459 4.9864 5.1158 5.1307 5.1652 5.1156 5.2427 5.4145 5.6536 9 Germany/deutsche mark 1.6216 1.4321 1.5049 1.5080 1.5277 1.5118 1.5525 1.6047 1.6747 10 Greece/drachma 242.50 231.68 240.82 239.67 239.76 238.38 245.70 251.54 262.42 11 Hong Kong/dollar 7.7290 7.7357 7.7345 7.7328 7.7322 7.7323 7.7355 7.7397 7.7474 12 India/rupee 31.394 32.418 35.506' 35.870 35.804 35.839' 35.882 35.904 35.891 13 Ireland/pound2 149.69 160.35 159.95 160.96 160.83 166.45 165.93 163.11 158.60 14 Italy /lira 1,611.49 1,629.45 1,542.76 1,520.48 1,523.82 1,513.66 1,528.44 1,567.91 1,655.00 15 Japan/yen 102.18 93.96 108.78 109.93 112.41 112.30 113.98 117.91 122.96 16 Malaysia/ringgit 2.6237 2.5073 2.5154 2.5009 2.5074 2.5234 2.5251 2.4900 2.4866 17 Netherlands/guilder 1.8190 1.6044 1.6863 1.6905 1.7141 1.6958 1.7420 1.8023 1.8812 18 New Zealand/dollar2 59.358 65.625 68.765 69.640 70.071 70.975 70.501 70.088 69.084 19 Norway/krone 7.0553 6.3355 6.4594 6.4613 6.4810 6.3554 6.4716 6.4589 6.6323 20 Portugal/escudo 165.93 149.88 154.28 153.99 154.28 152.83 156.54 160.53 168.24 21 Singapore/dollar 1.5275 1.4171 1.4100 1.4086 1.4124 1.4025 1.3999 1.4061 1.4193 22 South Africa/rand 3.5526 3.6284 4.3011' 4.5039' 4.5799 4.6577 4.6873 4.6402 4.4557 23 South Korea/won 806.93 772.69 805.00 822.40 828.24 830.56 841.92 854.07 868.39 24 Spain/peseta 133.88 124.64 126.68 127.11 128.60 127.28 130.69 134.79 141.85 25 Sri Lanka/rupee 49.170 51.047 55.289 56.050 57.016 56.987 56.730 57.278 57.772 26 Sweden/krona 7.7161 7.1406 6.7082 6.6427 6.6006 6.6269 6.8283 7.0692 7.4069 27 Switzerland/franc 1.3667 1.1812 1.2361 1.2343 1.2586 1.2752 1.3290 1.3913 1.4541 28 Taiwan/dollar 26.465 26.495 27.468 27.500 27.532 27.522 27.516 27.477 27.554 29 Thailand/baht 25.161 24.921 25.359 25.407 25.474 25.459 25.600 25.726 25.957 30 United Kingdom/pound2 153.19 157.85 156.07 155.93 158.63 166.23 166.39 165.85 162.56 MEMO 31 United States/dollar3 91.32 84.25 87.34 87.46 87.99 86.97 88.71r 91.01 94.52 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 December 1996 A72 SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference Title and Date Issue Page Assets and liabilities of commercial banks March 31, 1994 November 1996 A64 June 30, 1994 November 1996 A68 September 30, 1994 November 1996 A72 December 31, 1994 November 1996 A76 March 31, 1995 November 1996 A80 June 30, 1995 November 1996 A84 September 30, 1995 November 1996 A88 December 31, 1995 November 1996 A92 March 31, 1996 November 1996 A96 June 30, 1996 November 1996 A100 September 30, 1996 February 1997 A64 Terms of lending at commercial banks February 1996 May 1996 A68 May 1996 August 1996 A64 August 1996 November 1996 A104 November 1996 February 1997 A68 Assets and liabilities of U.S. branches and agencies of foreign banks December 31, 1995 May 1996 A72 March 31, 1996 September 1996 A64 June 30, 1996 November 1996 A108 September 30, 1996 February 1997 A72 Pro forma balance sheet and income statements for priced service operations September 30, 1995 January 1996 A68 March 31, 1996 July 1996 A64 June 30, 1996 October 1996 A64 September 30, 1996 January 1997 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 Index to Statistical Tables References are to pages A3-A62 although the prefix "A" is omitted in this index ACCEPTANCES, bankers (See Bankers acceptances) FARM mortgage loans, 35 Assets and liabilities (See also Foreigners) Federal agency obligations, 5, 9, 10, 11, 28, 29 Commercial banks, 16-21 Federal credit agencies, 30 Domestic finance companies, 33 Federal finance Federal Reserve Banks, 10 Debt subject to statutory limitation, and types and ownership Foreign-related institutions, 20 of gross debt, 27 Automobiles Receipts and outlays, 25, 26 Consumer credit, 36 Treasury financing of surplus, or deficit, 25 Production, 44, 45 Treasury operating balance, 25 Federal Financing Bank, 30 Federal funds, 6, 23, 25 BANKERS acceptances, 5, 10, 22, 23 Federal Home Loan Banks, 30 Bankers balances, 16-21. (See also Foreigners) Federal Home Loan Mortgage Corporation, 30, 34, 35 Bonds (See also U.S. government securities) Federal Housing Administration, 30, 34, 35 New issues, 31 Federal Land Banks, 35 Rates, 23 Business activity, nonfinancial, 42 Federal National Mortgage Association, 30, 34, 35 Business loans (See Commercial and industrial loans) Federal Reserve Banks Condition statement, 10 Discount rates (See Interest rates) CAPACITY utilization, 43 U.S. government securities held, 5, 10, 11, 27 Capital accounts Federal Reserve credit, 5, 6, 10, 11 Commercial banks, 16-21 Federal Reserve notes, 10 Federal Reserve Banks, 10 Federally sponsored credit agencies, 30 Central banks, discount rates, 61 Finance companies Certificates of deposit, 23 Assets and liabilities, 33 Commercial and industrial loans Business credit, 33 Commercial banks, 16-21 Loans, 36 Weekly reporting banks, 18 Paper, 22, 23 Commercial banks Float, 5 Assets and liabilities, 16-21 Flow of funds, 37^tl Commercial and industrial loans, 16-21 Foreign currency operations, 10 Consumer loans held, by type and terms, 36 Foreign deposits in U.S. banks, 5 Deposit interest rates of insured, 15 Foreign exchange rates, 62 Real estate mortgages held, by holder and property, 35 Foreign-related institutions, 20 Time and savings deposits, 4 Foreign trade, 51 Commercial paper, 22, 23, 33 Foreigners Condition statements (See Assets and liabilities) Claims on, 52, 55, 56, 57, 59 Construction, 42, 46 Liabilities to, 51, 52, 53, 58, 60, 61 Consumer credit, 36 Consumer prices, 42 Consumption expenditures, 48, 49 GOLD Corporations Certificate account, 10 Profits and their distribution, 32 Stock, 5,51 Security issues, 31, 61 Government National Mortgage Association, 30, 34, 35 Cost of living (See Consumer prices) Gross domestic product, 48, 49 Credit unions, 36 Currency in circulation, 5,13 Customer credit, stock market, 24 HOUSING, new and existing units, 46 DEBT (See specific types of debt or securities) INCOME, personal and national, 42, 48, 49 Demand deposits, 16—21 Industrial production, 42, 44 Depository institutions Insurance companies, 27, 35 Reserve requirements, 8 Interest rates Reserves and related items, 4, 5, 6, 12 Bonds, 23 Deposits (See also specific types) Consumer credit, 36 Commercial banks, 4, 16—21 Deposits, 15 Federal Reserve Banks, 5, 10 Federal Reserve Banks, 7 Interest rates, 15 Foreign central banks and foreign countries, 61 Discount rates at Reserve Banks and at foreign central banks and Money and capital markets, 23 foreign countries (See Interest rates) Mortgages, 34 Discounts and advances by Reserve Banks (See Loans) Prime rate, 22 Dividends, corporate, 32 International capital transactions of United States, 50-61 International organizations, 52, 53, 55, 58, 59 EMPLOYMENT, 42 Inventories, 48 Eurodollars, 23, 61 Investment companies, issues and assets, 32 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Investments (See also specific types) Residential mortgage loans, 34, 35 Commercial banks, 4, 16-21 Retail credit and retail sales, 36, 42 Federal Reserve Banks, 10, 11 Financial institutions, 35 SAVING Flow of funds, 37^11 National income accounts, 48 LABOR force, 42 Savings institutions, 35, 36, 37^1 Life insurance companies (See Insurance companies) Savings deposits {See Time and savings deposits) Loans (See also specific types) Securities (See also specific types) Commercial banks, 16—21 Federal and federally sponsored credit agencies, 30 Federal Reserve Banks, 5, 6, 7, 10, 11 Foreign transactions, 60 Financial institutions, 35 New issues, 31 Insured or guaranteed by United States, 34, 35 Prices, 24 Special drawing rights, 5, 10, 50, 51 State and local governments MANUFACTURING Holdings of U.S. government securities, 27 Capacity utilization, 43 New security issues, 31 Production, 43, 45 Rates on securities, 23 Margin requirements, 24 Stock market, selected statistics, 24 Member banks (See also Depository institutions) Stocks (See also Securities) Federal funds and repurchase agreements, 6 New issues, 31 Reserve requirements, 8 Prices, 24 Mining production, 45 Mobile homes shipped, 46 Monetary and credit aggregates, 4, 12 Student Loan Marketing Association, 30 Money and capital market rates, 23 Money stock measures and components, 4, 13 TAX receipts, federal, 26 Mortgages (See Real estate loans) Thrift institutions, 4. (See also Credit unions and Savings Mutual funds, 13, 32 institutions) Time and savings deposits, 4, 13, 15, 16-21 Mutual savings banks (See Thrift institutions) Trade, foreign, 51 Treasury cash, Treasury currency, 5 NATIONAL defense outlays, 26 Treasury deposits, 5, 10, 25 National income, 48 Treasury operating balance, 25 UNEMPLOYMENT, 42 OPEN market transactions, 9 U.S. government balances Commercial bank holdings, 16-21 PERSONAL income, 49 Treasury deposits at Reserve Banks, 5, 10, 25 Prices U.S. government securities Consumer and producer, 42, 47 Bank holdings, 16-21, 27 Stock market, 24 Dealer transactions, positions, and financing, 29 Prime rate, 22 Federal Reserve Bank holdings, 5, 10, 11, 27 Foreign and international holdings and Producer prices, 42, 47 Production, 42, 44 transactions, 10, 27, 61 Profits, corporate, 32 Open market transactions, 9 Outstanding, by type and holder, 27, 28 Rates, 23 REAL estate loans U.S. international transactions, 50-62 Banks, 16-21, 35 Utilities, production, 45 Terms, yields, and activity, 34 Type of holder and property mortgaged, 35 Repurchase agreements, 6 VETERANS Administration, 34, 35 Reserve requirements, 8 Reserves WEEKLY reporting banks, 18 Commercial banks, 16-21 Wholesale (producer) prices, 42, 47 Depository institutions, 4, 5, 6, 12 Federal Reserve Banks, 10 U.S. reserve assets, 51 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 Federal Reserve Board of Governors and Official Staff ALAN GREENSPAN, Chairman EDWARD W. KELLEY, JR. ALICE M. RIVLIN, Vice Chair SUSAN M. PHILLIPS 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 GLENN B. CANNER, Senior Adviser RICHARD SPILLENKOTHEN, Director JOHN J. MINGO, Senior 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 DIVISION OF CONSUMER MICHAEL G. MARTINSON, Assistant Director 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

A67 LAURENCE H. MEYER 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. RADEBAUGH, JR., Assistant Director ELIZABETH B. RIGGS, Assistant Director RICHARD C. STEVENS, Assistant Director Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

68 Federal Reserve Bulletin • April 1997 Federal Open Market Committee and Advisory Councils FEDERAL OPEN MARKET COMMITTEE MEMBERS ALAN GREENSPAN, Chairman WILLIAM J. MCDONOUGH, Vice Chairman J. ALFRED BROADDUS, JR. LAURENCE H. MEYER SUSAN M. PHILLIPS JACK GUYNN MICHAEL H. MOSKOW ALICE M. RIVLIN EDWARD W. KELLEY, JR. ROBERT T. PARRY ALTERNATE MEMBERS THOMAS M. HOENIG THOMAS C. MELZER ERNEST T. PATRIKIS JERRY L. JORDAN CATHY E. MINEHAN STAFF DONALD L. KOHN, Secretary and Economist ROBERT A. EISENBEIS, Associate Economist NORMAND R.V. BERNARD, Deputy Secretary MARVIN S. GOODFRIEND, Associate Economist JOSEPH R. COYNE, Assistant Secretary WILLIAM C. HUNTER, Associate Economist GARY P. GILLUM, Assistant Secretary DAVID E. LINDSEY, Associate Economist J. VIRGIL MATTINGLY, JR., General Counsel FREDERIC S. MISHKIN, Associate Economist THOMAS C. BAXTER, JR., Deputy General Counsel LARRY J. PROMISEL, Associate Economist MICHAEL J. PRELL, Economist CHARLES J. SIEGMAN, Associate Economist EDWIN M. TRUMAN, Economist LAWRENCE SLIFMAN, Associate Economist JACK BEEBE, Associate Economist DAVID J. STOCKTON, Associate Economist PETER R. FISHER, Manager, System Open Market Account FEDERAL ADVISORY COUNCIL WALTER V. SHIPLEY, President CHARLES E. NELSON, 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 ROBERT W. GILLESPIE, Fourth District CHARLES E. NELSON, Tenth District KENNETH D. LEWIS, Fifth District CHARLES T. DOYLE, Eleventh District STEPHEN A. HANSEL, 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

A69 CONSUMER ADVISORY COUNCIL JULIA W. SEWARD, Richmond, Virginia WILLIAM N. LUND, Augusta, Maine RICHARD S. AMADOR, Los Angeles, California ERROL T. LOUIS, Brooklyn, New York WAYNE-KENT A. BRADSHAW, LOS Angeles, California PAUL E. MULLINGS, McLean, Virginia THOMAS R. BUTLER, Riverwoods, Illinois CAROL PARRY, New York, New York ROBERT A. COOK, Crofton, Maryland PHILIP PRICE, JR., Philadelphia, Pennsylvania HERIBERTO FLORES, Springfield, Massachusetts RONALD A. PRILL, Minneapolis, Minnesota EMANUEL FREEMAN, Philadelphia, Pennsylvania LISA RICE, Toledo, Ohio DAVID C. FYNN, Cleveland, Ohio JOHN R. RINES, Detroit, Michigan ROBERT G. GREER, Houston, Texas SISTER MARILYN ROSS, Omaha, Nebraska KENNETH R. HARNEY, Chevy Chase, Maryland MARGOT SAUNDERS, Washington, D.C. GAIL K. HILLEBRAND, San Francisco, California GAIL SMALL, Lame Deer, Montana TERRY JORDE, Cando, North Dakota YVONNE S. SPARKS, St. Louis, Missouri FRANCINE C. JUSTA, New York, New York GREGORY D. SQUIRES, Milwaukee, Wisconsin JANET C. KOEHLER, Jacksonville, Florida GEORGE P. SURGEON, Chicago, Illinois EUGENE I. LEHRMANN, Madison, Wisconsin THEODORE J. WYSOCKI, JR., Chicago, Illinois THRIFT INSTITUTIONS ADVISORY COUNCIL DAVID F. HOLLAND, Burlington, Massachusetts, President CHARLES R. RINEHART, Irwindale, California, Vice President BARRY C. BURKHOLDER, Houston, Texas STEPHEN D. HAILER, Akron, Ohio DAVID E. A. CARSON, Bridgeport, Connecticut EDWARD J. MOLNAR, Harleysville, Pennsylvania MICHAEL T. CROWLEY, JR., Milwaukee, Wisconsin GUY C. PINKERTON, Seattle, Washington DOUGLAS A. FERRARO, Englewood, Colorado TERRY R. WEST, Jacksonville, Florida WILLIAM A. FITZGERALD, Omaha, Nebraska FREDERICK WILLETTS, III, Wilmington, North Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Federal Reserve Board Publications For ordering assistance, write PUBLICATIONS SERVICES, Securities Credit Transactions Handbook. $75.00 per year. MS-127, Board of Governors of the Federal Reserve System, The Payment System Handbook. $75.00 per year. Washington, DC 20551 or telephone (202) 452-3244 or FAX Federal Reserve Regulatory Service. Four vols. (Contains all (202) 728-5886. You may also use the publications order four Handbooks plus substantial additional material.) $200.00 form available on the Board's World Wide Web site per year. (http://www.bog.frb.fed.us). When a charge is indicated, payment Rates for subscribers outside the United States are as follows should accompany request and be made payable to the Board of and include additional air mail costs: Governors of the Federal Reserve System or may be ordered via Federal Reserve Regulatory Service, $250.00 per year. Mastercard or Visa. Payment from foreign residents should be Each Handbook, $90.00 per year. drawn on a U.S. bank. FEDERAL RESERVE REGULATORY SERVICE FOR PERSONAL COMPUTERS. Diskettes; updated monthly. Standalone PC. $300 per year. Network, maximum 1 concurrent user. $300 per year. BOOKS AND MISCELLANEOUS PUBLICATIONS Network, maximum 10 concurrent users. $750 per year. THE FEDERAL RESERVE SYSTEM—PURPOSES AND FUNCTIONS. Network, maximum 50 concurrent users. $2,000 per year. 1994. 157 pp. Network, maximum 100 concurrent users. $3,000 per year. ANNUAL REPORT. Subscribers outside the United States should add $50 to cover ANNUAL REPORT: BUDGET REVIEW, 1995-96. additional airmail costs. FEDERAL RESERVE BULLETIN. Monthly. $25.00 per year or $2.50 THE U.S. ECONOMY IN AN INTERDEPENDENT WORLD: A MULTIeach in the United States, its possessions, Canada, and COUNTRY MODEL, May 1984. 590 pp. $14.50 each. Mexico. Elsewhere, $35.00 per year or $3.00 each. INDUSTRIAL PRODUCTION—1986 EDITION. December 1986. ANNUAL STATISTICAL DIGEST: period covered, release date, num- 440 pp. $9.00 each. ber of pages, and price. FINANCIAL FUTURES AND OPTIONS IN THE U.S. ECONOMY. 1981 October 1982 239 pp. $ 6.50 December 1986. 264 pp. $10.00 each. 1982 December 1983 266 pp. $ 7.50 FINANCIAL SECTORS IN OPEN ECONOMIES: EMPIRICAL ANALY- 1983 October 1984 264 pp. $11.50 SIS AND POLICY ISSUES. August 1990. 608 pp. $25.00 each. 1984 October 1985 254 pp. $12.50 RISK MEASUREMENT AND SYSTEMIC RISK: PROCEEDINGS OF A 1985 October 1986 231 pp. $15.00 JOINT CENTRAL BANK RESEARCH CONFERENCE. 1996. 1986 November 1987 288 pp. $15.00 578 pp. $25.00 each. 1987 October 1988 272 pp. $15.00 1988 November 1989 256 pp. $25.00 1980-89 March 1991 712 pp. $25.00 1990 November 1991 185 pp. $25.00 EDUCATION PAMPHLETS 1991 November 1992 215 pp. $25.00 Short pamphlets suitable for classroom use. Multiple copies are 1992 December 1993 215 pp. $25.00 available without charge. 1993 December 1994 281 pp. $25.00 1994 December 1995 190 pp. $25.00 1990-95 November 1996 404 pp. $25.00 Consumer Handbook on Adjustable Rate Mortgages Consumer Handbook to Credit Protection Laws SELECTED INTEREST AND EXCHANGE RATES—WEEKLY SERIES OF A Guide to Business Credit for Women, Minorities, and Small CHARTS. Weekly. $30.00 per year or $.70 each in the United Businesses States, its possessions, Canada, and Mexico. Elsewhere, Series on the Structure of the Federal Reserve System $35.00 per year or $.80 each. The Board of Governors of the Federal Reserve System The Federal Open Market Committee THE FEDERAL RESERVE ACT and other statutory provisions affect- Federal Reserve Bank Board of Directors ing the Federal Reserve System, as amended through August Federal Reserve Banks 1990. 646 pp. $10.00. Organization and Advisory Committees REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL A Consumer's Guide to Mortgage Lock-Ins RESERVE SYSTEM. A Consumer's Guide to Mortgage Settlement Costs ANNUAL PERCENTAGE RATE TABLES (Truth in Lending— A Consumer's Guide to Mortgage Refinancings Regulation Z) Vol. 1 (Regular Transactions). 1969. 100 pp. Home Mortgages: Understanding the Process and Your Right Vol. II (Irregular Transactions). 1969. 116 pp. Each volume to Fair Lending $2.25. How to File a Consumer Complaint GUIDE TO THE FLOW OF FUNDS ACCOUNTS. 672 pp. $8.50 each. Making Deposits: When Will Your Money Be Available? FEDERAL RESERVE REGULATORY SERVICE. Loose-leaf; updated Making Sense of Savings monthly. (Requests must be prepaid.) SHOP: The Card You Pick Can Save You Money Consumer and Community Affairs Handbook. $75.00 per year. Welcome to the Federal Reserve Monetary Policy and Reserve Requirements Handbook. $75.00 When Your Home is on the Line: What You Should Know per year. About Home Equity Lines of Credit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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

A72 Maps of the Federal Reserve System 9 BOSTON MINNEAPOLIS • 7 12 I NEW YORK CHICAGO! CLEVELAND JPiH ILADELPHIA 10 4 SAN FRANCISCO KANSAS CITY RICHMOND ST. LOUIS 8 11 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 num- of Puerto Rico and the U.S. Virgin Islands; the San Franber and Reserve Bank city (shown on both pages) and by cisco Bank serves American Samoa, Guam, and the Comletter (shown on the facing page). monwealth of the Northern Mariana Islands. The Board of In the 12th District, the Seattle Branch serves Alaska, Governors revised the branch boundaries of the System and the San Francisco Bank serves Hawaii. most recently in February 1996. 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

A73 1-A 2-B 3-C 4-D 5 -E Baltimore MD v*/ 1 CT VT wv NC NH Buffalo B| •Cincinnati • Charlotte MA S NY car RI sc BOSTON NEW YORK PHILADELPHIA CLEVELAND RICHMOND 6-F 7-G 8-H •Nashville KY Mi Birmingham m £ j m ^ Detroit® Louisville IIAA M ^— Jacksonville •Memphis IL New Orleans FL IN Little! Miami ATLANTA CHICAGO ST. LOUIS 9-1 MT MN • Helena _ m so m VllNNEAPOLIS I 10-J 12-L WY 1 NE CO Omaha* — * MO Denver HM 1 OklahomaCity OK KANSAS CITY 11-K TX Salt Lake City NM RI PasoL ^Houston •Los Angeles San A DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A74 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 William C. Brainard Cathy E. Minehan Frederick J. Mancheski Paul M. Connolly NEW YORK* 10045 John C. Whitehead William J. McDonough Thomas W. Jones Ernest T. Patrikis Buffalo 14240 Bal Dixit Carl W. Turnipseed1 PHILADELPHIA 19105 Donald J. Kennedy Edward G. Boehne Joan Carter William H. Stone, Jr. CLEVELAND* 44101 G. Watts Humphrey, Jr. Jerry L. Jordan David H. Hoag Sandra Pianalto Cincinnati 45201 George C. Juilfs Charles A. Cerino1 Pittsburgh 15230 John T. Ryan, III Harold J. Swart1 RICHMOND* 23219 Claudine B. Malone J. Alfred Broaddus, Jr. Robert L. Strickland Walter A. Varvel Baltimore 21203 Rebecca Hahn Windsor William J. Tignanelli1 Charlotte 28230 Dennis D. Lowery Dan M. Bechter1 ATLANTA 30303 Hugh M. Brown Jack Guynn David R. Jones Patrick K. Barron James M. Mckee Birmingham 35283 D. Bruce Carr Fred R. Herr1 Jacksonville 32231 Patrick C. Kelly James D. Hawkins1 Miami 33152 Kaaren Johnson-Street James T. Curry III Nashville 37203 James E. Dalton, Jr. Melvyn K. Purcell New Orleans 70161 Jo Ann Slaydon Robert J. Musso CHICAGO* 60690 Lester H. McKeever, Jr. Michael H. Moskow Arthur C. Martinez 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 Robert D. Nabholz, Jr. Robert A. Hopkins Louisville 40232 John A. Williams Thomas A. Boone Memphis 38101 John V. Myers Martha L. Perine MINNEAPOLIS 55480 Jean D. Kinsey Gary H. Stern David A. Koch Colleen K. Strand Helena 59601 Matthew J. Quinn John D. Johnson KANSAS CITY 64198 A. Drue Jennings Thomas M. Hoenig Jo Marie Dancik Richard K. Rasdall Denver 80217 Peter I. Wold Carl M. Gambs1 Oklahoma City 73125 Barry L. Eller Kelly J. Dubbert Omaha 68102 Arthur L. Shoener Bradley C. Cloverdyke DALLAS 75201 Roger R. Hemminghaus Robert D. McTeer, Jr. Cece Smith Helen E. Holcomb El Paso 79999 Alvin T. Johnson Sammie C. Clay Houston 77252 I. H. Kempner, III Robert Smith, III1 San Antonio 78295 H. B. Zachry, Jr. James L. Stull1 SAN FRANCISCO .... 94120 Judith M. Runstad Robert T. Parry Gary G. Michael John F. Moore Los Angeles 90051 Anne L. Evans Mark L. Mullinix1 Portland 97208 Carol A. Whipple Raymond H. Laurence1 Salt Lake City 84125 Gerald R. Sherratt Andrea P. Wolcott Seattle 98124 Richard R. Sonstelie Gordon R. G. Werkema2 *Additional offices of these Banks are located at Lewiston, Maine 04240; Windsor Locks, Connecticut 06096; East Rutherford, New Jersey 07016; 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. Executive Vice President Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis