Federal Reserve Bulletin, 1998-03

VOLUME 84 • NUMBER 3 • MARCH 1998 FEDERAL RESERVE BULLETIN BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, WASHINGTON, D.C. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table of Contents 155 MONETARY POLICY REPORT TO THE remains to be done to ensure that the projected CONGRESS surpluses in the federal budget actually materialize and that we remain on track to address our The U.S. economy turned in another excellent longer-run fiscal and demographic challenges performance in 1997. Growth was strong, the and that he has always emphasized that we unemployment rate declined to its lowest level should be aiming for budgetary surpluses and in nearly a quarter-century, and inflation slowed using the proceeds to retire outstanding federal further. Impressive gains were also made in debt, before the Senate Committee on the Budother important respects: The federal budget get, January 29, 1998. moved toward balance, capital investment rose sharply further, and labor productivity displayed 184 Susan M. Phillips, Member, Board of Governotable vigor. Although economic problems in nors, discusses circuit breakers for equity-related Asia are adding uncertainty to the outlook, the markets and says that the Federal Reserve supmembers of the Board of Governors and the ports revisions to the circuit breakers and that if Reserve Bank presidents think that the most a system of planned market closings such as the likely outcome for 1998 will be one of moderate circuit breakers is deemed desirable, it should be growth, low unemployment, and low inflation. structured in such a way that closings occur very rarely and then only when the market infrastructure would otherwise be placed at risk, before 174 TREASURY AND FEDERAL RESERVE the Subcommittee on Securities of the Senate FOREIGN EXCHANGE OPERATIONS Committee on Banking, Housing, and Urban Over the fourth quarter of 1997, a period marked Affairs, January 29, 1998. by dramatic developments in Asia, the dollar 186 Chairman Greenspan discusses the recent finanappreciated 8.3 percent against.the Japanese yen cial crisis in Asia and says that the root of the and 2.2 percent against the German mark. On a problems is poor public policy that has resulted trade-weighted basis against other Group of Ten in misguided investments and very weak financurrencies, the dollar appreciated 2.7 percent. cial sectors and further that convincing a sover- The U.S. monetary authorities did not intervene eign nation to alter destructive policies that in the foreign exchange markets during the impair its own performance and threaten conquarter. tagion to its neighbors is best handled by an international financial institution, such as the 180 INDUSTRIAL PRODUCTION AND CAPACITY IMF; also, to reduce the risk of systemic crises UTILIZATION FOR JANUARY 1998 in today's environment, an enhanced regime of Industrial production was unchanged in January market incentives, involving greater sensitivity as warmer-than-average weather led to a 4.0 per- to market signals, more information to make those signals more robust, and broader securities cent drop in the output of utilities. At 127.9 permarkets—coupled with better supervision—are cent of its 1992 average, total industrial producessential, before the House Committee on Banktion in January was 5.5 percent higher than ing and Financial Services, January 30, 1998. it was in January 1997. The rate of industrial capacity utilization edged down to 83.0 percent, still above its long-term average of 82.1 percent. 191 ANNOUNCEMENTS Appointments of new members to the Consumer 183 STATEMENTS TO THE CONGRESS Advisory Council. Alan Greenspan, Chairman, Board of Governors Issuance of the final report and recommendaof the Federal Reserve System, comments on tions of the Committee on the Federal Reserve the fiscal situation and says that much hard work in the Payments Mechanism. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Availability of preliminary figures on operating A63 GUIDE TO STATISTICAL RELEASES AND income of the Federal Reserve Banks. SPECIAL TABLES Standard holiday operating schedule announced A64 INDEX TO STATISTICAL TABLES for the Reserve Banks for 1999. Availability of revised lists of over-the-counter A66 BOARD OF GOVERNORS AND STAFF stocks and of foreign stocks subject to margin regulations. A68 FEDERAL OPEN MARKET COMMITTEE AND STAFF; ADVISORY COUNCILS 197 LEGAL DEVELOPMENTS A70 FEDERAL RESERVE BOARD PUBLICATIONS Various bank holding company, bank service corporation, and bank merger orders; and pend- A72 MAPS OF THE FEDERAL RESERVE SYSTEM ing cases. A74 FEDERAL RESERVE BANKS, BRANCHES, AI FINANCIAL AND BUSINESS STATISTICS AND OFFICES These tables reflect data available as of January 28, 1998 A3 GUIDE TO TABULAR PRESENTATION A4 Domestic Financial Statistics A42 Domestic Nonfinancial Statistics A50 International Statistics Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 Multimedia Technologies Center under the direction of Christine S. Griffith, and Publications Services supervised by Linda C. Kyles. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress Report submitted to the Congress on February 24, an adverse turn in the inflation trend that, more often 1998, pursuant to the Full Employment and Balanced than not, was accompanied by a worsening of eco- Growth Act of 1978 nomic performance on a variety of fronts, culminating in recession. Robust growth of spending early in the year height- MONETARY POLICY AND THE ened concerns among members of the Federal Open ECONOMIC OUTLOOK Market Committee (FOMC) that growing strains on productive resources might touch off a faster rate of The U.S. economy turned in another excellent perforcost and price rise that could eventually undermine mance in 1997. Growth was strong, the unemploythe expansion. Financial market participants seemed ment rate declined to its lowest level in nearly a to share these concerns: Intermediate- and long-term quarter-century, and inflation slowed further. Impresinterest rates began moving up in December 1996, sive gains were also made in other important respects: effectively anticipating Federal Reserve action. When The federal budget moved toward balance much more the FOMC firmed policy slightly at its March meetquickly than almost anyone had anticipated; capital ing by raising the intended federal funds rate from investment, a critical ingredient for long-run growth, 5LA percent to 5V2 percent, the market response was rose sharply further; and labor productivity, the ultismall. mate key to rising living standards, displayed notable The economy slowed a bit during the second and vigor. third quarters, and inflation moderated further. In Among the influences that have brought about this addition, the progress being made by the federal favorable performance are the sound fiscal and monegovernment in reducing the size of the deficit was tary policies that have been pursued in recent years. becoming more apparent. As a consequence, by the Budgetary restraint at the federal level has raised end of September, longer-term interest rates fell national saving, easing the competition for funds in 3A percentage point from their peaks in mid-April, our capital markets and thereby encouraging greater leaving them about LA percentage point below their private investment. Monetary policy, for its part, has levels at the end of 1996. The decline in interest sought to foster an environment of subdued inflation rates, along with continued reports of brisk growth in and sustainable growth. The experience of recent corporate profits, sparked increases in broad indexes years has provided additional evidence that the less of equity prices of 20 percent to 35 percent between households and businesses need to cope with a rising April and September. price level, or worry about the sharp fluctuations in Even with a more moderate pace of growth, labor employment and production that usually accompany markets continued to tighten, generating concern inflationary instability, the more long-term investamong the FOMC members over this period that ment, innovation, and enterprise are enhanced. rising costs might trigger a rise in inflation. Conse- The circumstances that prevailed through most of quently, at its meetings from May through November, 1997 required that the Federal Reserve remain espethe Committee adopted directives for the conduct of cially attentive to the risk of a pickup in inflation. policy that assigned greater likelihood to the possibil- Labor markets were already tight when the year ity of a tightening of policy than to the possibility of began, and nominal wages had started to rise faster an easing of policy. Even though the Committee kept than previously. Persistent strength in demand over the nominal federal funds rate unchanged, it saw the the year led to economic growth in excess of the rise in the real funds rate resulting from declining expansion of the economy's potential, intensifying inflation expectations, together with the increase in the pressures on labor supplies. In earlier business the exchange value of the dollar, as providing some expansions, such developments had usually produced measure of additional restraint against the possible emergence of greater inflation pressures. NOTE. The charts for the report are available on request from In the latter part of the year, developments in other Publications Services, Mail Stop 127, Board of Governors of the parts of the world began to alter the perceived risks Federal Reserve System, Washington, DC 20551. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

156 Federal Reserve Bulletin • March 1998 attending the U.S. economic outlook. Foreign econo- little trend in the fourth quarter. In light of the ongomies generally had seemed to be on a strengthening ing difficulties in Asia and the possible effects on the growth path when the Federal Reserve presented its United States, the FOMC not only left interest rates midyear monetary policy report to the Congress last unchanged in December, but shifted its instructions July. But over the remainder of the summer and to the Manager of the System Open Market Account during the autumn, severe financial strains surfaced to symmetry between ease and tightening in the near in a number of advanced developing countries in term. Asia, weakening somewhat the outlook for growth Some spillover from the problems in Asia has abroad and thus the prospects for U.S. exports. recently begun to appear in reports on business activ- Although the circumstances in individual countries ity in the United States. Customers in the advanced varied, the problems they encountered generally developing countries reportedly have canceled some resulted in severe downward pressures on the foreign of the orders they had previously placed with U.S. exchange values of their currencies; in many cases, firms, and companies more generally are expressing steep depreciations occurred despite substantial concerns about the possibilities of both reduced sales upward movement of interest rates. Asset values to Asia and more intense price competition here as in Asia, notably equity and real estate prices, also the result of the sharp changes in exchange rates. declined appreciably in some instances, leading Nonetheless, the available statistics suggest on balto losses by financial institutions that had either ance that overall growth of output and employment invested in those assets or lent against them; non- has remained brisk in the early part of 1998. financial firms began to encounter problems servic- Confronted with the marked crosscurrents deing their obligations. In many instances the debts of scribed above—involving both upside and downside nonfinancial and financial firms were denominated in risks to the growth of output and prospects for dollars and unhedged. Concerted international efforts inflation—the FOMC earlier this month once again to bring economic and financial stability to the region chose to hold its federal funds rate objective are under way, and some progress has been made, but unchanged. In credit markets, interest rates have it is evident that in several of the affected economies fallen further this year as the effects of the Asian the process of adjustment will be painful. Meanwhile, turmoil seemed even more likely to restrain any economic activity in Japan stagnated, in part because tendencies toward unsustainable growth and greater of the developments elsewhere in East Asia, and the inflation in the United States. With interest rates weaknesses in the Japanese financial system became lower and the negative effects of the Asian problems more apparent. seen by market participants as mostly limited to The steep depreciations of many Asian currencies particular sectors, broad indexes of equity prices have contributed to a substantial further appreciation of the risen appreciably, many to new highs. U.S. dollar. Measured against a broad set of currencies that includes those of the advanced developing countries of Asia, the exchange value of the dollar, Economic Projections for 1998 adjusted for relative consumer prices, has moved up about 8 percent since October and has increased The outlook for 1998 is clouded with a greater-thanabout 16 percent from its level at the end of 1996. usual degree of uncertainty. Part of that uncertainty is The dollar has also appreciated, on balance, against a reflection of the financial and economic stresses an index of currencies of the G-10 (Group of Ten) that have developed in Asia, the full consequences of industrial countries; this G-10 trade-weighted index which are difficult to judge. But there are some other of dollar exchange rates is up about 13 percent in significant question marks as well, many of them nominal terms since the end of 1996. growing out of the surprising performance of the U.S. The difficulties in Asia contributed to additional economy in 1997: Growth was considerably stronger declines of VA to V2 percentage point in the yields on and inflation considerably lower than Federal Reserve intermediate- and long-term Treasury securities in officials and most private analysts had anticipated. the United States between mid-autumn and the end Some of the key forces that gave rise to this of the year. These decreases were due in part to an favorable performance can be readily identified. An international flight to the safe haven of dollar assets, ongoing capital spending boom, encouraged in part but they also reflected expectations that these difficul- by declining prices of high-technology equipment, ties would exert a moderating influence on the growth provided stimulus to aggregate demand and at the of aggregate demand and inflation in the United same time created the additional capacity to help States. Equity prices were quite volatile but showed meet that demand. A further jump in labor productiv- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 157 ity that was fueled partly by the buildup of capital the lagged effects of the appreciation of the dollar helped firms overcome the production and pricing since 1995. Moreover, with the rise in the dollar's challenges posed by tight labor markets. A surpris- value making imports less expensive, some U.S. busiingly robust stock market bolstered the finances of nesses and consumers will likely switch from domeshouseholds and enabled them to spend more freely. tic to foreign sources for some of their purchases. But Falling world oil prices reduced the prices of petro- the timing and magnitude of these developments are leum products and helped hold down the prices of hard to predict. other energy-intensive goods. Finally, a rising dollar In contrast to the slower growth that seems to be in imposed additional restraint on inflation, as prices of prospect for exports, domestic spending seems likely imported goods fell appreciably. Circumstances as to maintain considerable strength in coming quarters. favorable as those of 1997 are not likely to persist, Households as a group are quite upbeat in their although several elements in the recent mix could assessments of their personal finances—as might be help maintain, for some time, a more favorable expected in conjunction with expanding job opporeconomic performance than historical relationships tunities, rising incomes, and huge gains in wealth. would suggest. Recently, many households have taken advantage In assessing the situation, the members of the of lower long-term interest rates by refinancing Board of Governors and the Reserve Bank presi- their home mortgages, and this will provide a little dents, all of whom participate in the deliberations of additional wherewithal for spending. Moreover, the the FOMC, think that the most likely outcome for decline in mortgage rates is also bolstering housing 1998 will be one of moderate growth, low unemploy- construction. ment, and low inflation. Most of them have placed Business outlays for fixed investment seem likely their point estimates of the rise in real gross domestic to advance at a relatively brisk pace in the coming product from the fourth quarter of 1997 to the fourth year, although gains as large as those of the past quarter of 1998 in the range of 2 percent to 23A per- couple of years may be difficult to match. Outlays for cent. The civilian unemployment rate in the fourth computers, which have dominated the investment quarter of 1998 is expected to be at about its recent surge of the past few years, should climb substanlevel. For the most part, the forecasts have the total tially further as businesses press ahead with new consumer price index for all urban consumers rising investment in the latest technologies, encouraged in between 13A percent and 2 XA percent this year. These part by ongoing price declines. With labor markets predictions do not differ appreciably from those tight, firms continue to see capital investment as the recently put forth by the Administration. key in efforts to increase efficiency and maintain Although developments in Asia over the past competitiveness. Internally generated funds remain few months have not yet affected aggregate U.S. adequate to cover the bulk of businesses' investment economic performance in a measurable way, these outlays, and those firms turning to the debt and equity influences will likely become more visible in coming markets are most often finding financing generously months. Growth of U.S. exports is expected to be available on good terms. Inventory growth will likely restrained by weaknesses in Asian economies and by put less pressure on business cash flow this year; after adding to stocks at a substantial clip in 1997, businesses seem likely to scale back such investment 1. Economic projections for 1998 somewhat, especially as they perceive a moderation Percent in sales increases. Federal Reserve governors The Federal Reserve policymakers' forecasts of and Reserve Bank presidents the average unemployment rate in the fourth quarter IInnddiiccaattoorr AAddmmiinniissttrraattiioonn n Central of 1998 are mostly around 43A percent. The persis- Ran§e tendency tence for another year of this degree of tightness in Change, fourth quarter the labor market means that firms will likely continue to fourth quarter1 Nominal GDP 333111666---555 333VVV444---444 <<<AAA 444...000 to face difficulties in finding workers and that hir- Real GDP2 111333///444---333 222---222%%% 222...000 Consumer price index3 .. lll'''///222---222'''///222 lll%%%---222'''///444 222...222 ing and retaining workers could become more costly. Indeed, there are indications that wage inflation Average level, fourth quarter picked up further at the end of last year. Improve- Civilian unemployment ments in labor productivity have become more siz- 444>>>///ttt---555 aaabbbooouuuttt 444%%% 555...000 able in the past couple of years, and if such gains can 1. Change from average for fourth quarter of 1997 to average for fourth quarter of 1998. be extended, wage increases of the magnitude of 2. Chain-weighted. those of 1997 need not translate into greater price 3. All urban consumers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

158 Federal Reserve Bulletin • March 1998 inflation. The more rapid growth in productivity is in depository credit and by the way in which that consistent with the high level of capital investment in increase was funded, as well as by the changing cash recent years, but the extent to which the trend in management practices of corporations, which have productivity has picked up is still uncertain. Further- been using the services of institution-only money more, if momentum in nominal wages continues to funds in M3. These factors boosted M3 growth last build, the pay increases will eventually squeeze profit year to 83A percent, 3 percentage points faster than margins and place upward pressures on prices, even nominal GDP—an unusually large decline in M3 with exceptional productivity gains. The strains in velocity. Going forward, it seems likely that M3 labor markets therefore constitute an ongoing infla- growth will continue to be buoyed by robust credit tionary risk that will have to be monitored closely. growth at depositories and continuing shifts in cash In the near term, however, there are several factors management. Thus, its velocity is likely to decline that should lessen the risk of a step-up in inflation. further, though the amount of decline is difficult to Manufacturing capacity remains ample, and bottle- predict. necks are not hampering production. The recent The relationship of M2 to spending in recent years appreciation of the dollar should damp inflation both has come back more into line with historical patterns because of falling import prices and because the in which the velocity of M2 tended to be fairly added competition from imports may induce domes- constant, except for the effects of the changing opportic producers to hold down prices. Oil prices have tunity cost of M2—the spread between yields that weakened considerably since the latter part of 1997 savers could earn holding short-term market instruin response to abundant supplies, the softening of ments and those that they could earn holding M2. demand in Asia, and a mild winter. Ample supplies In the early 1990s, M2 velocity departed from this and the prospect of softer global demand have been pattern, rising substantially and atypically. Even after depressing the prices of many other commodities, the unusual shift of the early 1990s died out, M2 both in agriculture and in industry. Perhaps most velocity continued to drift somewhat higher from important, as the low level of inflation that has pre- 1994 into 1997. That drift probably reflected some vailed in recent years gets built into wage agree- continued, albeit more moderate, redirection of savments, other contracts, and individuals' inflation ings into bond and equity markets, especially through expectations, it will provide an inertial force helping the purchase of mutual funds. However, last year the sustain the favorable price performance for a time. drift abated. There was little change, on balance, in Although many of the factors currently placing the opportunity cost of holding M2, and M2 velocity restraint on inflation are not necessarily long lasting, also was about unchanged, as M2 grew 5V2 percent, the Committee judged that their effect in 1998 would nearly the same as nominal GDP. Nevertheless, the about offset the pressures from tight labor markets. upward drift could resume in the years ahead as Consequently, the Board members and Reserve Bank financial innovations or perceptions of attractive presidents anticipate that the rate of price inflation returns lead households to further shift their savings will change little this year. Again in 1998, the FOMC away from M2 balances. Or velocity might be pushed will be monitoring a variety of price measures in downward if volatility or setbacks in bond and stock addition to the CPI for indications of changes in markets were to lead investors to seek the safety of inflation and will be assessing movements in the CPI M2 assets, which have stable principal. in the context of ongoing technical improvements by In light of the uncertainties about the behavior of the Bureau of Labor Statistics that are likely to damp velocities, the Committee followed its practice of the reported 1998 rise in that index. recent years and established the ranges for 1998 not as expectations for actual money growth, but rather as benchmarks for M2 and M3 behavior that would Money and Debt Ranges for 1998 In establishing the ranges for growth of broad mea- 2. Ranges for growth of monetary and debt aggregates sures of money over 1998, the Committee recognized Percent the considerable uncertainty that still exists about the behavior of the velocities of these aggregates. The Aggregate 1996 1997 1998 velocity of M3 (the ratio of nominal GDP to the M2 1-5 1-5 1-5 monetary aggregate) in particular has proved difficult M3 2-6 2-6 2-6 Debt 3-7 3-7 3-7 to predict. Last year, the growth of this aggregate NOTE. Change from average for fourth quarter of preceding year to average relative to spending was affected by the rapid increase for fourth quarter of year indicated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 159 be consistent with sustained price stability, assuming emergence after midyear of severe financial difficulvelocity change in line with pre-1990 historical expe- ties in several foreign economies, particularly among rience. Thus, the ranges for fourth-quarter to fourth- the advanced developing countries in Asia. quarter growth are unchanged from those in 1997: Meanwhile, inflation slowed from the already 1 percent to 5 percent for M2, and 2 percent to reduced rates of the previous few years. Although 6 percent for M3. Given the central tendency of the wages and total hourly compensation accelerated in a Committee's forecast for growth of nominal GDP of tight labor market, the inflationary impulse from that 33/ percent to AV2 percent, M2 is likely to be in the source was more than offset by other factors, includ- 4 range, perhaps in the upper half, if short-term interest ing rising competition from imports, the price rates do not change much and velocity continues restraint from increased manufacturing capacity, and recent patterns. For M3, however, a continuation of a sizable gain in labor productivity. recent velocity behavior could imply growth around the upper end of, if not above, the price-stability range. The Household Sector Debt of the nonfinancial sectors grew 4% percent in 1997, near the middle of the range of 3 percent to Consumption Spending, Income, and Saving 7 percent established by the Committee last February. As with the monetary aggregates, the Committee has Bolstered by increases in income and wealth, perleft the range for debt unchanged for 1998. The range sonal consumption expenditures rose substantially it has chosen encompasses the likely growth of debt during 1997—about 33/4 percent, according to the given Committee members' forecasts of nominal initial estimate. Expenditures strengthened for a wide GDP. Except for the 1980s, the growth of debt has variety of durable goods. Real outlays on home comtended to be reasonably in line with the growth of puters continued to soar, rising even faster than nominal GDP. they did over the previous few years. Strength also Although the ranges for money and debt are not set was reported in purchases of furniture and home as targets for monetary policy in 1998, the behavior appliances—products that tend to do well when home of these variables, interpreted carefully, can at times sales are strong. Consumer expenditures on motor provide useful information about the economy and vehicles rose moderately, on net, more than reversing the workings of the financial markets. The Commit- the small declines of the previous two years. Real tee will continue to monitor the movements of money expenditures on services increased more than 4 perand debt—along with a wide variety of other finan- cent in 1997, the largest gain of recent years. Personal cial and economic indicators—to inform its policy service categories such as recreation, transportation, deliberations. and education recorded large increases. Consumers also boosted their outlays for business services, including outlays related to financial transactions. ECONOMIC AND FINANCIAL DEVELOPMENTS Real disposable personal income—after-tax IN 1997 AND EARLY 1998 income adjusted for inflation—is estimated to have increased about 3% percent during 1997, a gain that The past year has been an exceptionally good one for was exceeded on only one occasion in the previous the U.S. economy. Initial estimates indicate that real decade. Income was boosted this past year by sizable GDP increased nearly 4 percent over the four quar- gains in wages and salaries and by another year of ters of 1997. Household and business expenditures large increases in dividends. continued to rise rapidly, owing in part to supportive Measured in terms of annual averages, the personal financial conditions, including a strong stock market, saving rate fell further in 1997, according to current ample availability of credit, and, from April onward, estimates. The 1997 average of 3.8 percent was about declining intermediate- and long-term interest rates. V2 percentage point below the 1996 average and In the aggregate, private domestic spending on con- roughly a full percentage point below the 1995 aversumption and investment rose nearly 5 percent on an age. It also was the lowest annual reading in several inflation-adjusted basis. The strength of spending, decades. Various surveys of households show conalong with a further sizable appreciation of the for- sumers to have become increasingly optimistic about eign exchange value of the U.S. dollar, brought a prospects for the economy, and this rising degree of surge of imports, the largest in many years. Export optimism may have led them to spend more freely growth, while lagging that of imports, also was sub- from current income. Support for additional spending stantial despite the appreciation of the dollar and the came from the further rise in the stock market, as the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

160 Federal Reserve Bulletin • March 1998 capital gains accruing to households increased the about 65% percent, a historical high. The rate had chances of their meeting longer-run net worth objec- fallen in the 1980s but has risen almost 2 percentage tives even as they consumed a larger proportion of points in this decade. current income. Household Finance Residential Investment Household net worth appears to have grown roughly Preliminary data indicate that real residential invest- $3!/2 trillion during 1997, ending at its highest mulment increased nearly 6 percent during 1997. Real tiple relative to disposable personal income on record. outlays for the construction of new single-family Most of this increase in net worth was the result of structures rose moderately, and outlays for the con- upward revaluations of household assets rather than struction of multifamily units continued to recover additional saving. In particular, capital gains on corfrom the extreme lows that were reached earlier in porate equities accounted for about three-fourths of the decade. Real outlays for home improvements and the increase in net worth. Flows of household assets brokers' commissions, categories that have a com- into mutual funds, pensions, and other vehicles for bined weight of more than 35 percent in total residen- holding equities indirectly were exceeded by outtial investment, moved up substantially from the final flows from directly held equities. quarter of 1996 to the final quarter of 1997. Spend- Household borrowing not backed by real estate, ing on mobile homes, a small part of the total, also including credit card balances, auto loans, and other advanced. consumer credit, increased 4-3A percent in 1997. The indicators of single-family housing activity These obligations grew at double-digit rates in 1994 were almost uniformly strong during the year. Sales and 1995, but their growth has slowed fairly steadily of houses surged, driven by declines in mortgage since then. Mortgage borrowing, by contrast, has interest rates and the increasingly favorable eco- experienced relatively muted swings in growth durnomic circumstances of households. Annual sales of ing the current expansion. Home mortgages are estinew single-family houses were up about 5'/2 percent mated to have grown 7 percent last year, only a bit from the number sold in the preceding year, and sales slower than in 1996. Within this category of credit, of existing homes moved up about 3 percent. House however, home equity loans have advanced sharply, prices moved up more quickly than prices in gen- reflecting in part the use of these loans in refinancing eral. Responding to the strong demand, starts of new and consolidating credit card and other consumer single-family units remained at a high level, only a obligations. touch below that of 1996; the annual totals for single- An element in the slowing of consumer credit family units have now exceeded 1 million units for growth may have been assessments by some housesix consecutive years, putting the current expansion holds that they were reaching the limits of their in single-family housing construction nearly on a par capacity for carrying debt and by some lenders that with that of the 1980s in terms of longevity and they needed to tighten selectively their standards for strength. In January of this year, starts of and permits granting new loans. In the mid-1990s, the percentage for single-family units were both quite strong. of household income required to meet debt obliga- Starts of multifamily units increased in 1997 for tions rose to the upper end of its historical range, in the fourth year in a row and were about double the large part because of a sharp rise in credit card debt. record low of 1993. The increased construction of Between 1994 and 1996 personal bankruptcies grew these units was supported by a firming of rents, at more than a 20 percent annual rate, to some extent abundant supplies of credit, and a reduction in because of households' rising debt burden; a change vacancy rates in some markets. The national vacancy in the federal bankruptcy law and a secular trend rate came down only slightly, however, and it has toward associating less social stigma with bankruptcy reversed only a portion of the sharp run-up that took also may have contributed. Over the same period, place in the 1980s. This January, starts of multi- delinquency and charge-off rates on consumer loans family units fell back to about the 1997 average after increased significantly. having surged to an exceptionally high level in the Last year, however, because the growth of housefourth quarter. hold debt only slightly outpaced that of income while The home-ownership rate—the number of house- interest rates drifted lower, the household debtholds that own their dwellings divided by the total service burden did not change. Reflecting in part the number of households—moved up further in 1997, to stability of the aggregate household debt burden, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 161 delinquency rates on many segments of consumer the future. Business outlays for equipment, which credit plateaued, although charge-off rates generally account for more than three-fourths of total business continued to rise somewhat. Personal bankruptcies fixed investment, moved up about 12 percent this advanced again last year but showed some signs of past year, making it the fourth year of the last five in leveling off in the third quarter. which the annual gains have exceeded 10 percent. As Some of the apparent leveling out of household in previous years of the expansion, real investment debt-repayment problems may also have resulted rose fastest for computers, the power of which continfrom efforts by lenders to stem the growth of losses ued to advance rapidly at the same time their prices on consumer loans. For the past two years, a continued to decline. Spending also moved up briskly large percentage of the respondents to the Federal for many other types of equipment, including com- Reserve's quarterly Senior Loan Officer Opinion Sur- munications equipment, commercial aircraft, indusvey on Bank Lending Practices have reported tight- trial machinery, and construction machinery. ened standards on consumer loans. But the percent- Real outlays for nonresidential construction, the ages reporting tightening have fallen a bit in the last remaining portion of business fixed investment, few surveys, suggesting that many banks feel that declined somewhat in 1997 after moving up in each they have now altered their standards sufficiently. of the four previous years. Construction of office Although banks pulled back a bit from consumer buildings continued to increase in 1997, but sluggishlending, most households had little trouble obtaining ness was apparent in the expenditure data for many credit in 1997. Bank restraint has most commonly other types of structures. Nonetheless, a tone of taken the form of imposing lower credit limits or underlying firmness was apparent in other indicators raising finance charges on outstanding balances; of market conditions. Vacancy rates declined, for credit card solicitations continued at a record pace. example, and rents seemed to be picking up. In some Furthermore, many respondents to the Federal areas of the country, more builders have been putting Reserve's January 1998 survey of loan officers said up new office buildings on "spec"—that is, undertaktheir banks had eased terms and standards on home ing new construction before occupants have been equity loans, providing consumers easier access to an lined up. The new projects are apparently being alternative source of finance. spurred to some degree by the ready availability of Mortgage rates fell last month to levels that led financing. many households to apply for loan refinancing. When Business inventory investment picked up considerhouseholds refinance, they may choose among ably in 1997. According to the initial estimate, the options that have differing implications for cash flow, level of inventories held by nonfarm businesses rose household balance sheets, and spending. Some house- about 5 percent in real terms over the course of holds may decide to reduce their monthly payments, the year after increasing roughly 2 percent in 1996. keeping the size of their mortgages unchanged. Accumulation was especially rapid in the commercial Others may keep their monthly payments unchanged, aircraft industry, in which production has been either speeding up their repayments or increasing ramped up in response to a huge backlog of orders their mortgages and taking out cash in the process, for new jets. With the rate of inventory growth outperhaps to augment current expenditures. In any case, pacing the growth of final sales last year, the stock-tothe wave of refinancings is likely having only a small sales ratio in the nonfarm sector ticked up slightly, effect on the overall economy because the current after a small decline in the preceding year. Although difference between the average rate on outstanding inventory accumulation does not seem likely to permortgages and the rate on new ones is not very large. sist at the pace of 1997, businesses in general do not appear to be uncomfortable with the levels of stocks they have been carrying. The Business Sector Investment Expenditures Corporate Profits and Business Finance Adjusted for inflation, businesses' outlays for fixed The economic profits of U.S. corporations (book profinvestment rose about 8 percent during 1997 after its after inventory valuation and capital consumption gaining about 12 percent during 1996. Spending con- adjustments) increased at more than a 14 percent tinued to be spurred by rapid growth of the economy, annual rate over the first three quarters of 1997, and favorable financial conditions, attractive purchase the profits of nonfinancial corporations from their prices for new equipment, and optimism about domestic operations grew at a WA percent annual Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

162 Federal Reserve Bulletin • March 1998 rate. In the third quarter, nonfinancial corporate prof- stock prices to earnings suggest that equity finance its amounted to nearly 14 percent of that sector's was also quite cheap last year. Nevertheless, the nominal output, up from IVA percent in 1982 and market for initial public offerings of equity was the highest share since 1969. The elevated profit cooler than in 1996—new issues were priced below share reflects both the high level of cash flow before the expected range more often than above it, and interest costs, which also stands at a multiyear peak first-day trading returns were smaller on average. relative to output, and the reductions in interest costs The pickup in business borrowing was widespread that have taken place in the 1990s. Fourth-quarter across funding sources. Outstanding commercial profit announcements indicate that year-over-year paper, which had declined a bit in 1996, posted strong growth in earnings was fairly strong; few corpora- growth in 1997, as did bank business loans. Gross tions reported that they had experienced much fallout issuance of bonds was extremely high, particularly yet from the events in Asia, but many warned that bonds with ratings below investment grade. Such profits in the first half of 1998 will be significantly lower-rated bonds made up nearly half of all issuaffected. ance, a new record. Although sales of new Despite the rapid growth in profits, the financing investment-grade bonds slowed a bit in the fall, corgap for nonfinancial corporations—capital expendi- porations were apparently waiting out the market tures less internal cash flow—widened, reflecting the volatility at that time, and issuance picked back up strong expansion of spending on capital equipment in January. Banks, real estate investment trusts, and and inventories. Furthermore, on net, firms continued commercial-mortgage-backed securities were the to retire a large volume of equity, adding further to most significant sources of funds for income borrowing needs, as substantial gross issuance was properties—residential apartments and commercial swamped by stock repurchases and merger-related buildings—the financing of which expanded further retirements. Given these financing requirements, the last year. growth of nonfinancial corporate debt picked up to more than a 7 percent rate last year. With the debt of nonfinancial corporations advanc- The Government Sector ing briskly, the ratio of their interest payments to cash flow was about unchanged last year, after several Federal Expenditures, Receipts, and Finance years of decline that had left it at quite a low level. Consequently, measures of debt-repayment difficul- Nominal outlays in the unified budget increased about ties also were very favorable last year: The default 21/2 percent in fiscal year 1997 after moving up rate on corporate bonds remained extremely low, and 3 percent in fiscal 1996. Fiscal 1997 was the sixth the number of upgrades of debt about equaled the consecutive year that the growth of spending was less number of downgrades. Similarly, only small percent- than the growth of nominal GDR During that period, ages of business loans at banks were delinquent spending as a percentage of nominal GDP fell from or charged off. The rate of business bankruptcies about 22 V2 percent to just over 20 percent. The set of increased a bit but was still fairly low. factors that have combined to bring about this result Businesses continued to find credit amply supplied includes implementation of fiscal policies aimed at advantageous terms last year. The spread between at reducing the deficit, which has helped slow the yields on investment-grade bonds and yields on Trea- growth of discretionary spending and spending on sury securities of similar maturities remained narrow, some social and health services programs, and the varying only a little during the year. The spreads on strength of the economy, which has reduced outlays below-investment-grade bonds fell over the year, for income support. touching new lows before widening a bit in the fall In nominal terms, small to moderate increases were and early this year; the widening occurred in large recorded in most major expenditure categories in part because these securities benefited less from the fiscal 1997. Net interest outlays, which have been flight to U.S. assets in response to events in Asia than accounting for about 15 percent of total unified outdid Treasury securities. Banks also appeared eager to lays in recent years, rose only a small amount in lend to businesses. Large percentages of the respon- 1997, as did nominal outlays for defense and those dents to the Federal Reserve's surveys, citing stiff for income security. Expenditures on Medicaid rose competition as the reason, said they had eased moderately for a second year after having grown very terms—particularly spreads—on business loans last rapidly for many years; spending in this category has year. Much smaller percentages reported having been restrained of late by the strong economy, the eased standards on these loans. The high ratios of low rate of inflation in the medical area, and policy Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 163 changes in the Medicaid program. Policy shifts and Last year saw the first issuance by the Treasury the strong economy also cut into outlays for food of inflation-indexed securities. The Treasury sold stamps, which fell about 10 percent in fiscal 1997. By indexed ten-year notes in January and April of last contrast, spending on Medicare continued to rise at year and again this January, and sold five-year notes about three times the rate of total federal outlays. in July and October; it also announced that it would Growth of outlays for social security also exceeded sell indexed thirty-year bonds this April. Investor the rate of rise of total expenditures. interest in the securities at those auctions was sub- Real federal outlays for consumption and gross stantial, with the ratios of received bids to accepted investment, the part of federal spending that is bids resembling those for nominal securities. As counted in GDP, were unchanged, on net, from the expected, most of the securities were quickly last quarter of 1996 to the final quarter of 1997. Real acquired by final investors, and the trading volume as outlays for defense, which account for about two- a share of the outstanding amount has been much thirds of the spending for consumption and invest- smaller than for nominal securities. ment, declined slightly, offsetting a small increase in An important macroeconomic implication of the nondefense outlays. Because of much larger declines reduced federal deficit is that the federal government in most other recent years, the level of real defense has ceased to be a negative influence on the level of outlays at the end of 1997 was down about 22 percent national saving. The improvement in the federal govfrom its level at the end of the 1980s; total real ernment's saving position in recent years has more outlays for consumption and investment dropped than accounted for a rise in the total gross saving of about 14 percent over that period. households, businesses, and governments, from about Federal receipts rose faster than nominal GDP for a 141/2 percent of gross national product earlier in the fifth consecutive year in fiscal 1997; receipts were decade, when federal government saving was at a 193A percent of GDP last year, up from 17% percent cyclical low and highly negative, to more than 17 perin fiscal 1992. The ratio tends to rise during business cent in the first three quarters of 1997. This rise in expansions, mainly because of cyclical increases in domestic saving, along with increased borrowing the share of profits in nominal GDP. In the past from abroad, has financed the rise in domestic investcouple of years, the ratio also has been boosted by the ment in this expansion. Still higher rates of saving tax increases included in the Omnibus Reconciliation and investment were the norm a couple of decades Act of 1993, by a rising income share of high-income ago, when the personal saving rate was a good bit taxpayers, and by receipts from surging capital gains above its level in recent years. realizations, which raise the numerator of the ratio but not the denominator because capital gains realizations are not part of GDP. In fiscal 1997, combined State and Local Governments receipts from individual income taxes and social insurance taxes, which account for about 80 percent The real outlays of state and local governments for of total receipts, moved up about 9!/2 percent, even consumption and investment moved up about 2 permore than in fiscal 1996. Receipts from the taxes on cent over the four quarters of 1997, similar to the corporate profits were up about 6 percent in fiscal average since the start of the 1990s. Investment 1997 after increasing about 9'/2 percent in the preced- expenditures, which have grown about 2V2 percent ing fiscal year. The total rise in receipts in fiscal per annum this decade, rose at only half that pace in 1997, coupled with the subdued rate of increase in 1997, according to the initial estimate. However, real nominal outlays, resulted in a budget deficit of consumption expenditures increased 2 LA percent last $22 billion, down from $107 billion in the preceding year, a touch above the average for the decade. Comfiscal year. pensation of government employees, which accounts With the budget moving close to balance, federal for about three-fifths of real consumption and investborrowing slowed sharply last year. The Treasury ment expenditures, rose about L3A percent in 1997 responded to the smaller-than-expected borrowing and has increased at an annual rate of only about need by reducing sales of bills in order to keep its 1XA percent since the end of the 1980s. auctions of coupon securities predictable and of suffi- The efforts of state and local governments to hold cient volume to maintain the liquidity of the second- down their labor expenses are also reflected in the ary markets. The result was an unusually large net recent data on nominal wages and hourly compensaredemption of bills, which at times pushed yields on tion. According to the employment cost indexes, short-term bills down relative to yields on other Trea- hourly compensation of the workers employed by sury securities and short-term private obligations. state and local governments increased 2 ]A percent Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

164 Federal Reserve Bulletin • March 1998 in 1997, a little less than in 1996 and the smallest dollar—contributed as well. Of the major trade cateannual increase in the seventeen-year history of the gories, increases in imports were sharpest for capital series. The increase in the average hourly wage of goods and consumer goods. state and local employees amounted to about 23A per- Export growth was also strong in 1997, particucent in 1997, roughly the same as the gain in 1996. larly during the first half of the year. The quantity of The average hourly cost of the benefit packages pro- exports of goods and services rose nearly 11 percent, vided to state and local employees rose only 1 XA per- after a rise of 9'A percent the preceding year. Despite cent, a percentage point less than the increase in further appreciation of the dollar, exports accelerated 1996. in response to the strength of economic activity With costs contained and receipts continuing to abroad. Output growth in most of our industrialrise with the growth of the economy, financial pres- country trading partners firmed in 1997 from the sures that were evident among state and local govern- moderate rates observed in 1996. Among our ments earlier in the expansion have diminished. The developing-country trading partners, robust growth increased breathing room in the budgets of recent continued through much of the year, but the onset of years is apparent in the consolidated current account crises in several Asian economies late in 1997 led to of these governments: Surpluses in that account, abrupt slowdowns in economic activity. Growth of excluding those that are earmarked for social insur- exports to Latin American countries and to Canada ance funds, had dipped to a low of about 1 Vi percent was particularly strong. Exports to Western Europe of nominal receipts in 1991, but they have been also increased at a healthy pace. larger than 3 percent of receipts in each of the past three years. State and local debt expanded about 53A percent Capital Flows last year after changing little in 1996 and declining in the two preceding years. In those earlier years, In the first three quarters of 1997, large increases municipal debt outstanding had been held down were reported in both foreign ownership of assets by the retirement of bonds that were "advance in the United States and U.S. ownership of assets refunded" in the early 1990s. In such operations, abroad, reflecting the continued trend toward the funds that had earlier been raised and set aside were globalization of both financial markets and the marused to refund debt as it became callable. By the end kets for goods. Little evidence of the gathering finanof 1996, however, the stock of such debt had appar- cial storm in Asia was apparent in the data on U.S. ently been largely worked down. capital flows through the end of September. Foreign official assets in the United States rose $46 billion in the first three quarters of 1997. The increases were External Sector concentrated in the holdings of certain industrial countries and members of OPEC. Although substan- Trade and the Current Account tial, these increases were below the pace for the first three quarters of 1996. The nominal trade deficit for goods and services was In contrast, increases in assets held by other for- $114 billion in 1997, little changed from the $111 bil- eigners in the first three quarters of 1997 surpassed lion deficit in 1996. For the first three quarters of the those recorded in 1996. In particular, net purchases of year, the current account deficit reached $160 billion U.S. Treasury securities by private foreigners rose at an annual rate, somewhat wider than the 1996 to $130 billion, net purchases of U.S. corporate and deficit of $148 billion. This deterioration of the cur- other bonds reached $96 billion, and net purchases of rent account largely reflects continued declines in net U.S. stocks were a record $55 billion. In addition, investment income, which for the first time recorded foreign direct investment in the United States also deficits in each of the first three quarters of the year. posted a new high of $78 billion, as the strong pace The quantity of imports of goods and services of acquisitions of U.S. companies by foreigners expanded strongly during 1997—about 13 percent continued. according to preliminary estimates—as the very rapid U.S. direct investment abroad in the first three growth experienced during the first half of the year quarters of 1997 also exceeded the 1996 pace, with a moderated slightly during the second half. The record net outflow of $88 billion. U.S. net purchases expansion was fueled by continued vigorous growth of foreign securities in the first three quarters of 1997 of U.S. GDR Additional declines in non-oil import were $74 billion, a little below the pace for 1996. prices—related in large part to the appreciation of the However, net purchases of stocks in Japan and bonds Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 165 in Latin America were up substantially. Banks in the rate would have fallen to an even lower level. United States reported a large increase in net claims Changes in the welfare system perhaps contributed to on foreigners in the first quarter but only a modest some extent to the small rise in participation in 1997, increase in the next two quarters combined. although this effect is difficult to disentangle from the normal tendency of participation to rise when the labor market is tight. Even though one-third of the The Labor Market adult population remained outside the labor force in 1997, the vast majority of those individuals likely Employment, Productivity, and Labor Supply were in pursuits that tended to preclude their workforce participation, such as retirement, schooling, or More than 3 million jobs were added to nonfarm housework. The percentage of the working age popupayrolls in 1997—a gain of nearly 23/4 percent, mea- lation interested in work but not actively seeking it sured from December to December. Patterns of hiring moved down further in 1997, to 21/4 percent in the mirrored the broadly based gains in output and spend- fourth quarter, a record low in the history of the ing. Manufacturing, construction, trade, transporta- series, which began in 1970. tion, finance, and services all exhibited appreciable strength. In manufacturing, the 1997 rise in the job count followed two years of little change. Elsewhere, Wages and Hourly Compensation the gains in 1997 came on top of substantial increases in other recent years. Especially rapid increases were According to the employment cost indexes, hourly posted this past year in some of the services indus- compensation in private industry increased 3.4 pertries, including computer services, management cent from December of 1996 to December of 1997. services, education, and recreation. Employment at This rise exceeded that of the previous year by suppliers of personnel, a category that includes the 0.3 percentage point and was 0.8 percentage point agencies that supply help on a temporary basis, also greater than the increase of 1995. Although the patincreased appreciably in 1997, but the gains in this terns of change in hourly pay have varied quite a bit category fell considerably short of those seen in by industry and occupation over the past two years, previous years of the expansion. Help-supply firms the overall step-up seems to have been prompted, reported that shortages of workers were limiting the in large part, by the tightening of labor markets. pace of their expansion. The implementation of a higher minimum wage also Labor productivity has risen rapidly over the past seems to have been a factor in some industries and two years. Revised data show the 1996 gain in output occupations, although its impact is difficult to assess per hour in the nonfarm business sector to have been precisely. about VA percent, and the increase in 1997 was The wage and salary component of hourly compenlarger still—about 2 XA percent, according to the first sation rose faster in 1997 than in any previous year of round of estimates. Although the average rate of the expansion. Annual increases in the employment productivity increase since the end of the 1980s still cost index for wages and salaries in private industry is only a little above 1 percent per year, the data for amounted to 2.8 percent in both 1994 and 1995, but the past two years provide hopeful indications that the increases of 1996 and 1997 were 3.4 percent and sustained high levels of investment in new technolo- 3.9 percent respectively. Wages and salaries in the gies may finally be translating into a stronger trend. service-producing industries accelerated nearly a full The civilian unemployment rate fell more than percentage point in 1997, pushed up, especially, by '/2 percentage point from the fourth quarter of 1996 to sharp pay increases in the finance, insurance, and real the fourth quarter of 1997, to an average of just under estate sector, in which commissions and bonuses 43A percent. The rate held steady at this level in have recently been boosted by high levels of mort- January of this year. For most of the past year, the gage refinancing and trading activity. By contrast, rate has been running somewhat below the minimum hourly wages in the goods-producing industries that was reached in the expansion of the 1980s. A slowed a couple of tenths of a percentage point in variety of survey data indicate that firms have had 1997; the annual gains in these industries have been increased difficulty filling jobs. around 3 percent, on average, in each of the past six After moving up a step in 1996, the labor force years. participation rate continued to edge higher in 1997. Although the costs of the fringe benefits that com- Without the increment to labor supply from increased panies provide to their employees also picked up in participation over these two years, the unemployment 1997, the yearly increase of 2.3 percent was not large Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

166 Federal Reserve Bulletin • March 1998 by historical standards. As in other recent years, during the year was about XA percentage point less benefit costs in 1997 were restrained by a variety than the increase during 1996. Only small portions of of influences. Most notably, the price of health care the slowdowns between 1996 and 1997 in the total continued to rise at a subdued pace, and the ongoing CPI and in the CPI excluding food and energy were strength of the economy limited the need for pay- the result of technical changes implemented by the ments by firms to state unemployment trust funds. Bureau of Labor Statistics.1 Even though some firms reported seeing renewed Other measures of aggregate price change also sharp increases in health care costs during the year, decelerated in 1997. The chain-type price index for the employment cost data suggest that most firms still gross domestic purchases—the broadest measure of were keeping those costs under fairly tight control. prices paid by U.S. households, businesses, and With nominal hourly compensation in almost all governments—increased about IV2 percent during industries moving ahead at a faster pace than infla- 1997 after moving up 2XA percent in 1996. The tion, workers' pay generally increased in real terms, chain-type price index for gross domestic product, a and the real gains were substantial in many occupa- measure of price change for the goods and services tions. Indeed, the employment cost index does not produced in this country (rather than the goods and capture some of the forms of compensation that services purchased), increased PA percent in the employers have been using to attract and retain latest year after rising 2LA percent in 1996. The workers—stock options and signing bonuses, for steeper slowing of the price index for aggregate purexample. chases relative to that for aggregate production was largely a reflection of the prices of imports, which fell faster in 1997 than in 1996. Falling computer prices were an important influence on many of these Prices measures of aggregate price change—more so than on the CPI, which gave small weight to computers Indications of a slowing of inflation in 1997 were through 1997 but has started weighting them more widespread in the various measures of aggregate heavily this year. price change. The consumer price index, which had In real terms, imports of goods and services picked up to more than a 3 percent rate of rise over account for approximately 15 percent of the total the four quarters of 1996, increased slightly less than purchases of households, businesses, and govern- 2 percent over the four quarters of 1997 as energy ments located in the United States. But that figure prices turned down and increases in food prices probably understates the degree of restraint that fallslowed. The CPI excluding food and energy— ing import prices have imposed on domestic inflaa widely used gauge of the underlying trend of tion, because the lower prices for imports also make inflation—rose only 2 LA percent in 1997 after domestic producers of competing products less likely increases of 3 percent in 1995 and 2VI percent in to raise prices. Prices have also been restrained by 1996. The CPI for commodities other than food and large additions to manufacturing capacity in this energy rose about V2 percent over the four quarters of country, amounting to more than 5 percent in each of 1997 after moving up slightly more than 1 percent in the past three years; this capacity growth helped to 1996. Price increases for non-energy services, which stave off the bottlenecks that so often have developed have a much larger weight than commodities in the in the more advanced stages of other postwar busicore CPI, also slowed a little in 1997; a 3 percent rise ness expansions. A gain in manufacturing production of more than 6 percent this past year was accompanied by only a moderate increase in the factory 3. Alternative measures of price change operating rate, which, at year-end, remained well Percent Price measure 1996 1997 1. Over the past three years, the Bureau of Labor Statistics has introduced a number of technical changes in its procedures for compil- Fixed-weight Consumer price index 3.2 1.9 ing the CPI, with the aim of obtaining a more accurate measure of Excluding food and energy 2.6 2.2 price change. Typically, the changes have only a small effect on the results for any particular year, but their cumulative effects are some- Chain-type Personal consumption expenditures ... 2.7 1.5 what larger and are tending to hold down the reported increases of Excluding food and energy 2.3 1.6 recent years relative to what would have been reported with no Gross domestic purchases 2.3 1.4 changes in procedures. Apart from the procedural changes, the Gross domestic product 2.3 1.8 reported rate of rise from 1998 forward will also be affected by an updating of the CPI market basket, an action that the BLS undertakes NOTE. Changes are based on quarterly averages and are measured to the fourth quarter of the year indicated from the fourth quarter of the preceding year. approximately every ten years. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 167 below the highs reached in other recent expansions Credit, Money, Interest Rates, and the peak for this expansion, which was recorded and Equity Prices about three years ago. Reflecting the ample domestic supply and the Credit and Depository Intermediation effects of competition from goods produced abroad, the producer price index for finished goods declined The debt of the domestic nonfinancial sectors grew at about 3A percent from the fourth quarter of 1996 a 43A percent rate last year, somewhat below the to the fourth quarter of 1997; excluding food and midpoint of the range established by the FOMC and energy, it rose only fractionally. Prices of domesti- less than in 1996, when it grew 5!/4 percent. The cally produced materials (other than food and energy) deceleration was accounted for entirely by the federal also rose only slightly, on net. The prices of raw component, which, because of the reduced budget industrial commodities, many of which are traded deficit, rose less than 1 percent last year after having in international markets, declined over the year; the risen 33A percent in 1996. Nonfederal debt grew weakness of prices in these markets was especially 6 percent, a bit more than in 1996, as the pickup in pronounced in late 1997, when the crises in Asia business borrowing more than offset the deceleration were worsening. Industrial commodity prices fell of household debt. further in the first couple of weeks of 1998, but Depository institutions increased their share of they since have changed little, on balance. The pro- credit flows in 1997, with credit on their books ducer price index fell sharply in January of this year; expanding 53A percent, up appreciably from growth the index excluding food and energy declined in 1996. The growth of bank credit, adjusted to slightly. remove the effects of mark-to-market accounting After moving up more than 4 percent in 1996, the rules, accelerated to an SlA percent pace, the largest consumer price index for food increased only 13A per- rise in ten years; and banks' share of domestic nonficent in 1997. Impetus for the large increase of 1996 nancial debt outstanding climbed to its highest level had come from a surge in the price of grain, which since 1988. Bank credit accelerated in part because peaked around the middle of that year; since then, banks' holdings of securities—which had run off in grain prices have dropped back considerably. An 1995 and had been flat in 1996—expanded at a brisk echo of the up-and-down price pattern for grains pace last year; securities account for one-fourth of appeared at retail in the form of sharp price increases total bank credit. Loans, which make up the remainfor meats, poultry, and dairy products in 1996 fol- der of bank credit, also advanced a bit more quickly lowed by small to moderate declines for most of last year than in 1996, though more slowly than in those products in 1997. Moderate price increases 1995. were posted at retail for most other food categories The increase in bank loans occurred despite a net last year. decline in consumer loans on banks' books resulting The CPI for energy has traced out an even bigger both from sharply slower growth in loans originated swing than the price of food over the past two by banks and from continued securitization of those years—a jump of lx/i percent over the four quarters loans. Real estate loans at banks, by contrast, posted of 1996 was followed by a decline of about 1 percent solid growth last year. This category of credit beneover the four quarters of 1997. As is usually the case fited from a pickup in home mortgages, the rapid in this sector, the key to these developments was the growth in home equity loans, which were substituting price of crude oil, which in 1997 more than reversed in part for consumer loans, an acceleration in comthe run-up of the preceding year. Prices of oil have mercial real estate lending, and the acquisition of been held down in recent months by ample world thrift institutions by banks. Commercial and indussupplies, the economic problems in Asia, and a mild trial loans expanded considerably last year, reflecting winter. both the general rise in the demand by businesses for Survey data on inflation expectations mostly funds and an increase in banks' share of the nonmortshowed moderate reductions during 1997 in respon- gage business credit market as they competed vigordents' views of the future rate of price increase, and ously for business loans by easing terms. some of the survey data for early 1998 have shown a The rapid growth of banks' assets was facilitated more noticeable downward shift in inflation expecta- by their continued high profitability and abundance tions. A lowering of inflation expectations has long of capital; at the end of the third quarter, nearly been viewed as an essential ingredient in the pursuit 99 percent of bank assets were at well-capitalized of price stability, and the recent data are a sign that institutions. Problems with the repayment perforprogress is still being made in that regard. mance of consumer loans—which, while not deterio- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

168 Federal Reserve Bulletin • March 1998 rating further, remained elevated by historical was rapid growth in institution-only money funds, standards—hurt some banks; however, overall loan which reflected gains by these funds in the provision delinquency and charge-off rates stayed quite low, of corporate cash management services. Corporations and measures of banks' profitability persisted at the that manage their own cash often keep their funds in elevated levels they have occupied for several years. short-term assets that are not included in M3. Profits at a few large bank holding companies were Although growth of M2 did not match that of M3, reduced in the fourth quarter by trading losses result- it increased at a brisk 5V2 percent rate last year. As ing from the events in Asia. Nonetheless, the profits the Committee had anticipated, the aggregate was of the industry as a whole remained robust. somewhat above the upper bound of its 1 percent to The profits and capital levels of thrift institutions, 5 percent annual range, which also had been chosen like those of banks, were high last year, and the to be consistent with expected M2 growth under thrifts also were aggressive lenders. The outstanding conditions of price stability. Because short-term interamount of credit extended by thrifts grew at about est rates responded only slightly to System tightening a V/2 percent pace last year, but this sluggishness in March, the opportunity cost of holding M2—the reflected entirely the acquisitions of thrifts by com- interest earnings forgone by owning M2 assets rather mercial banks; among thrifts not acquired during the than money market instruments such as Treasury year, asset growth was similar to that of banks. bills—was about unchanged over the year. As M2 grew at about the same rate as nominal GDP, velocity was also essentially unchanged. The ups and downs The Monetary Aggregates of M2 growth last year mirrored those of the growth Boosted in part by the need to fund substantial growth in nominal output. M2 expanded much more slowly in depository credit, M3 shot up last year, expanding in the second quarter than in the first, consistent with 83A percent; this growth was well above the 2 percent the cooling of nominal GDP growth and almost unto 6 percent annual range, which was intended to changed opportunity costs. In the second half of the suggest the rate of growth over the long run consis- year, M2 growth picked up, again pacing the growth tent with price stability. M3 was augmented by a shift of nominal GDP. In the fall, M2 may also have been in sources of funding—mostly at U.S. branches and boosted a little by the volatility in equity markets, agencies of foreign banks—from borrowings from which may have led some households to seek the related offices abroad, which are not included in M3, relative safety of M2 assets. to large time deposits issued in the United States, For several decades before 1990, M2 velocity which are. Also contributing to the strength in M3 responded positively to changes in its opportunity 4. Growth of money and debt Percent Domestic Period Ml M2 M3 nonfinancial debt Annual1 1987 6.3 4.2 5.8 9.9 1988 4.3 5.7 6.3 8.9 1989 .5 5.2 4.0 7.8 1990 4.2 4.1 1.8 6.8 1991 7.9 3.1 1.2 4.5 1992 14.4 1.8 .6 4.7 1993 10.6 1.3 1.1 5.1 1994 2.5 .6 1.7 5.1 1995 -1.6 3.9 6.1 5.4 1996 -4.5 4.6 6.9 5.2 1997 -1.2 5.6 8.7 4.7 Quarterly (annual rate)2 1997:1 -1.4 5.1 8.0 4.3 2 -4.5 4.4 7.7 4.7 3 .3 5.4 8.1 4.1 4 .8 6.8 9.8 5.2 NOTE. Ml consists of currency, travelers checks, demand deposits, and other standing credit market debt of the U.S. government, state and local governcheckable deposits. M2 consists of Ml plus savings deposits (including money ments, households and nonprofit organizations, nonfinancial businesses, and market deposit accounts), small-denomination time deposits, and balances in farms. retail money market funds. M3 consists of M2 plus large-denomination time 1. From average for fourth quarter of preceding year to average for fourth deposits, balances in institutional money market funds, RP liabilities (overnight quarter of year indicated. and term), and Eurodollars (overnight and term). Debt consists of the out- 2. From average for preceding quarter to average for quarter indicated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 169 costs and otherwise showed little net movement over predictable and must be maintained on only a twotime. This pattern was disturbed in the early 1990s in week average basis. As a result, the unavoidable part by households' apparent decision to shift funds daily mismatches between reserves made available out of lower-yielding M2 deposits into higher- through open market operations and desired reserves yielding stock and bond mutual funds, which raised typically have been fairly small, and their effect on M2 velocity even as opportunity costs were declin- the federal funds rate has been muted. However, ing. The movements in the velocity of M2 from 1994 banks also hold reserve balances at the Federal into 1997 appear to have again been explained Reserve to avoid overdrafts after making payments by changes in opportunity costs, along with some for themselves and their customers. This component residual upward drift. This drift suggests that some of the demand for reserves is difficult to predict, households may still have been in the process of varies considerably from day to day, and must be shifting their portfolios toward non-M2 assets. There fully satisfied each day. As required reserves have was no uptrend in velocity over the second half of declined, the demand for balances at the Federal last year, perhaps because of the declining yields Reserve has become increasingly dominated by these on intermediate- and long-term debt and the greater more changeable daily payment-related needs. Nonevolatility and lower average returns posted by stock theless, federal funds volatility did not increase mutual funds. However, given the aberrant behavior noticeably last year. In part this was because the of velocity during the 1990s in general, considerable Federal Reserve intervened more frequently than in uncertainty remains about the relationship between the past with open market operations of overnight the velocity and opportunity cost of M2 in the future. maturity in order to better match the supply of and Ml fell l!/4 percent last year. As has been true for demand for reserves each day. In addition, banks the past four years, the growth of this aggregate was made greater use of the discount window, increasing depressed by the adoption by banks of retail sweep the supply of reserves when the market was excesprograms, whereby balances in transactions accounts, sively tight. Significant further declines in reserve which are subject to reserve requirements, are balances, however, do risk increased federal funds "swept" into savings accounts, which are not. Sweep rate volatility, potentially complicating the money programs benefit depositories by reducing their market operations of the Federal Reserve and of the required reserves, which earn no interest. At the same private sector. One possible solution to this problem time, they do not restrict depositors' access to their is to pay banks interest on their required reserve funds for transactions purposes, because the funds are balances, reducing their incentive to avoid holding swept back into transactions accounts when needed. such balances. The initiation of programs that sweep funds out of NOW accounts—until last year the most common form of retail sweep programs—appears to be slow- Interest Rates and Equity Prices ing, but sweeps of household demand deposits have picked up, leaving the estimated total amount by Interest rates on intermediate- and long-term Treawhich sweep account balances increased last year sury securities moved lower, on balance, last year. similar to that in 1996. Adjusted for the initial reduc- Yields rose early in the year as market participants tion in transactions accounts resulting from the intro- became concerned that strength in demand would duction of new sweep programs, Ml expanded further tighten resource utilization margins and 6 ]A percent, a little above its sweep-adjusted growth increase inflation unless the Federal Reserve took in 1996. countervailing action. Over the late spring and sum- The drop in transactions accounts caused required mer, however, as growth moderated some and inflareserves to fall 7LA percent last year. Despite this tion remained subdued, these concerns abated sigdecline, the monetary base grew 6 percent, boosted nificantly, and longer-term interest rates declined. by a hefty advance in currency. Currency again bene- Further reductions came in the latter part of the year fited from foreign demand, as overseas shipments as economic problems mounted in Asia. On balance, continued at the elevated levels seen in recent years. between the end of 1996 and the end of 1997, the Moreover, domestic demand for currency expanded yields on ten-year and thirty-year Treasury bonds sharply in response to the strong domestic spending. fell about 70 basis points. Early this year, with the The Federal Reserve has been concerned that as economic troubles in Asia continuing, the desire of the steady decline in required reserves of recent years investors for less risky assets, along with further is extended, the federal funds rate may become sig- reductions in the perceived risk of strong growth and nificantly more volatile. Required reserves are fairly higher inflation, pushed yields on intermediate- and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

170 Federal Reserve Bulletin • March 1998 long-term Treasury securities down an additional that expected real earnings growth has increased 25 to 50 basis points, matching their levels of the late or that the risk premium over the real rate investors 1960s and the early 1970s, when the buildup of use when valuing those earnings has fallen, or both. inflation expectations was in its early stages. Survey estimates of stock analysts' expectations of Survey measures of expectations for longer- long-term nominal earnings growth are, in fact, the horizon inflation generally did move lower last year, highest observed in the fifteen years for which these but by less than the drop in nominal yields. As a data are available. Because inflation has trended result, estimates of the real longer-term interest rate down over the past fifteen years, the implicit forecast calculated by subtracting these measures of expected of the growth in real earnings departs even further inflation from nominal yields indicate a slight decline from past forecasts. However, even with this forecast in real rates over the year. In contrast, yields on the of real earnings growth, the current level of equity inflation-indexed ten-year Treasury note rose about a valuation suggests that investors are also requiring a quarter percentage point between mid-March (when lower risk premium on equities than has generally market participants seem to have become more com- been the case in the past, a hypothesis supported by fortable with the new security) and the end of the the low risk premiums evident in corporate bond year. The market for the indexed securities is suffi- yields last year. ciently small that their yields can fluctuate temporarily as a result of moderate shifts in supply or International Developments demand. Indeed, much of the rise in the indexed yield came late in the year, when, in an uncertain global The foreign exchange value of the dollar rose during economic environment, investors' heightened desire 1997 in terms of the currencies of most of the United for liquidity may have made nominal securities rela- States' trading partners. From the end of December tively more attractive. 1996 through the end of December 1997, the dollar With real interest rates remaining low and corpoon average gained 13 percent in nominal terms rate profits growing strongly, equities had another against the currencies of the other G-10 countries good year in 1997, and major stock indexes rose when those currencies are weighted by multilateral 20 percent to 30 percent. Although stocks began the trade shares. In terms of a broader index of currencies year well, they fell with the upturn in interest rates in that includes those of most industrial countries and February. As interest rates subsequently declined and several developing countries, the dollar on balance earnings reports remained quite upbeat, the markets rose nearly 14 percent in real terms during 1997.2 again advanced, with most broad indexes of stock The trading desk of the New York Federal Reserve prices reaching new highs in the spring. Advances Bank did not intervene in foreign exchange markets were much more modest, on balance, over the second during 1997. half of the year. Valuations seemed already to have During the first half of 1997, the dollar appreciated incorporated very robust earnings growth, and in in terms of the currencies of the other industrial October, deepening difficulties in Asia evidently led countries, as the continuing strength of U.S. ecoinvestors to lower their expectations for the earnings nomic activity raised expectations of further tightenof some U.S. firms, particularly high-technology ing of U.S. monetary conditions. Concerns about the firms and money center banks. More rapid price implications of the transition to European Monetary advances have resumed of late, as interest rates Union and perceptions that monetary policy was not fell further and investors apparently came to see likely to tighten significantly in prospective member the earnings consequences of Asian difficulties as countries also contributed to the tendency for the limited. dollar to rise in terms of the mark and other continen- Despite the strong performance of earnings and the tal European currencies. In response to varying indislower rise of stock prices since last summer, valuacators of the strength of the Japanese expansion, the tions seem to reflect a combination of expectations of dollar rose against the yen early in the year but then quite rapid future earnings growth and a historically moved back down through midyear. small risk premium on equities. The gap between the The crises in Asian financial markets dominated market's forward-looking earnings-price ratio and developments during the second half of the year and the real interest rate, measured by the ten-year Treasury rate less a survey measure of inflation expectations, was at the smallest sustained level last year 2. This index weights currencies in terms of the importance of each in the eighteen-year period for which these data are country in determining the global competitiveness of U.S. exports and adjusts nominal exchange rates for changes in relative consumer available. Declines in this gap generally imply either prices. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 171 resulted in substantial appreciation of the dollar in further, on balance, in terms of the Indonesian terms of the currencies of Korea and several coun- rupiah and is little changed in terms of the Korean tries in Southeast Asia. The dollar also appreciated won. against the yen in response to evidence of financial The emergence of the financial crisis is causing sector fragility in Japan and faltering Japanese eco- a marked slowdown in economic activity in these nomic activity, which were likely to be exacerbated Asian economies. During the first half of last year, by the negative impact of the Asian situation on real output continued to expand in most of these Japan. During the first weeks of 1998, the dollar has countries at about the robust rates enjoyed in 1996. changed little, on average, in terms of the currencies Since the onset of the crisis, domestic demand in of most other industrial countries, but it has moved these countries has been greatly weakened by disrupdown in terms of the yen. tion in financial markets, substantially higher domes- Pronounced asset-price fluctuations in Southeast tic interest rates, sharply reduced credit availability, Asia began in early July when the Thai baht dropped and heightened uncertainty. In addition, macrosharply immediately following the decision by economic policy has been tightened somewhat in authorities to no longer defend the baht's peg. Down- Thailand, the Philippines, Indonesia, and Korea in ward pressure soon emerged on the currencies and connection with international support packages from equity prices of other southeast Asian countries, in the International Monetary Fund (IMF) and other particular Indonesia and Malaysia. Weakening bal- international financial institutions, and in connecance sheet positions of nonfinancial firms and finan- tion with bilateral aid from individual countries. cial institutions, rising debt-service burdens, and Announcement of agreement with the IMF on the financial market stresses that resulted in part from support packages temporarily buoyed asset markets policies of pegging local currencies to the appreciat- in each country, but concerns about the willingness or ing dollar prompted closer scrutiny of Asian econo- ability of governments to undertake difficult reforms mies. As foreign creditors came to realize the extent and to achieve the stated macroeconomic goals to which these Asian financial systems were under- remained. Additional measures to tighten the Korean capitalized and inadequately supervised, they became program were announced in mid-December and less willing to continue to lend, making it even more included improved reserve management by the Bank difficult for the Asian borrowers to meet their for- of Korea, removal of certain interest rate ceilings, eign currency obligations. Turbulence spread to Hong and acceleration of capital account liberalization and Kong in October. The depreciation of currencies else- financial sector restructuring. With the encouragewhere in Asia, in particular the decision by Taiwan- ment of the authorities of the G-7 and other countries, ese authorities to allow some downward adjustment banks in industrial countries have generally rolled of the Taiwan dollar, led market participants to ques- over the majority of their foreign-currencytion the commitment of Hong Kong authorities to denominated claims on Korean banks during early the peg of the Hong Kong dollar to the U.S. dollar. In 1998, as a plan for financing the external obligations response, the Hong Kong Monetary Authority raised of Korean financial institutions was being formudomestic interest rates substantially to defend the lated. After the announcement on January 28 of an peg, driving down equity prices as a consequence. agreement in principle for the exchange of existing Near the end of the year, the crisis spread to Korea, claims on Korean banks for restructured loans carrywhose economy and financial system were already ing a guarantee from the Korean government, the vulnerable as a result of numerous bankruptcies won stabilized. In the case of Indonesia, the support of corporate conglomerates starting in January 1997; package was renegotiated and reaffirmed with the these bankruptcies of major nonfinancial firms IMF in mid-January, though important elements of further undermined Korean financial institutions the approach of the Indonesian authorities remain in and, combined with the depreciations in competitor question as this report is submitted. countries, contributed to a loss of investor confi- Signs that adjustment is proceeding within these dence. On balance, during 1997 the dollar appreci- Asian economies are already evident. For example, ated significantly in terms of the Indonesian rupiah Thailand and Korea have registered strong improve- (139 percent), the Korean won (100 percent), and ments in their trade balances in recent months. Equity the Thai baht (82 percent), while it moved up someprices have recovered in Thailand, Indonesia, and what less in terms of the Taiwan dollar (19 percent) Korea as well. At the same time, signs of rising and was unchanged in terms of the Hong Kong inflation are beginning to emerge. In particular, condollar, which remains pegged to the U.S. dollar. Since sumer prices have accelerated in recent months in year-end, the dollar has appreciated significantly these three countries. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

172 Federal Reserve Bulletin • March 1998 Spillover of the financial crisis to the economies of against the yen during 1997; so far in 1998, it has China, Hong Kong, and Taiwan has been limited to moved back down slightly, on balance. date. Steps to maintain the peg in Hong Kong have In Germany and France, output growth rose in resulted in elevated interest rates, sharply lower 1997 from its modest 1996 pace, boosted in both equity prices, and increased uncertainty. However, in countries by the strong performance of net exports. Taiwan, equity prices on balance rose nearly 18 per- Nevertheless, the dollar rose in terms of the mark and cent in 1997 and have risen somewhat further so far other continental European currencies through midthis year. Real output growth in these three econo- year, responding not only to stronger U.S. economic mies remained robust early in 1997 but may have activity but also to concerns about the timetable for slowed somewhat in China and Hong Kong in recent launching European Monetary Union (EMU), the months. process of the transition to a single currency, and the Financial markets in some Latin American coun- policy resolve of the prospective members. Later in tries also came under pressure in reaction to the the year the dollar moved back down slightly and intensification of the crises in Asia in late 1997. After then fluctuated narrowly in terms of the mark, as remaining quite stable earlier in the year, the Mexi- investors concluded that the transition to EMU was can peso dropped about 8 percent in terms of the likely to be smooth, with the euro introduced on time U.S. dollar in late October; since then, it has changed on January 1, 1999, and with a broad membership. little, on balance. In Brazil, exchange market tur- On balance, the dollar rose about 17 percent against bulence abroad lowered market confidence in the the mark during 1997 and has varied little since then. authorities' ability to maintain that country's man- In the United Kingdom and Canada, real output aged exchange rate regime; in response, short-term growth was vigorous in 1997. All the components of interest rates were raised 20 percentage points. The U.K. domestic demand continued to expand strongly. Brazilian exchange rate regime and the peg of the In Canada, more robust private consumption spend- Argentine peso to the dollar have held. Real output ing and less fiscal restraint boosted real GDP growth growth in Mexico and Argentina remained healthy from its moderate 1996 pace. Central bank official during 1997. In Brazil, growth fluctuated sharply lending rates were raised in both countries during the during the year, with the high domestic interest rates year to address the threat of rising inflation. The and tighter macroeconomic policy stance that were value of the pound eased slightly in terms of the put in place late in the year weakening domestic dollar over the year, whereas the Canadian dollar fell demand. During 1997, consumer price inflation more than 4 percent in terms of the U.S. dollar. Much slowed significantly in Mexico and Brazil and of the movement in the Canadian dollar came during remained very low in Argentina. the fourth quarter, as the crisis in Asia contributed to In Japan, the economic expansion faltered in the a weakening of global commodity prices and thus second quarter as the effects on domestic demand of a likely lessening of Canadian export earnings. The the April increase in the consumption tax exceeded Canadian dollar depreciated further early in 1998, expectations; in addition, crises in many of Japan's reaching historic lows against the U.S. dollar in Janu- Asian trading partners late in the year weakened ary, but it has rebounded with the tightening by the external demand and heightened concerns about the Bank of Canada in late January. fragility of Japan's financial sector. The dollar rose Long-term interest rates have generally declined in about 10 percent against the yen during the first four the other G-10 countries since the end of 1996. months of 1997 as economic activity in the United Japanese long-term rates have dropped about 90 basis States strengthened relative to that in Japan and as points, with most of the decrease coming in the interest rate developments, including the FOMC pol- second half of last year as evidence of sluggish icy move in March, favored dollar assets. These gains economic activity became more apparent. German were temporarily reversed in May and June as market long-term rates have also fallen about 80 basis points attention focused on the growing Japanese external as expectations of tightening by the Bundesbank surplus and tentative indications of improving real diminished, especially toward the end of the year. activity. However, subsequent evidence of disap- The turbulence in Asian asset markets likely contribpointing output growth, revelations of additional uted to inflows into bond markets in several of the problems in the financial sector, and concerns about industrial countries, including the United States. the implications of turmoil elsewhere in Asia for the Long-term rates in the United Kingdom have Japanese economy contributed to a rise in the dollar declined about 150 basis points. Legislation to in terms of the yen during the second half of the year. increase the independence of the Bank of England On net, the dollar appreciated nearly 13 percent and repeated tightening of monetary policy during Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary Policy Report to the Congress 173 the year reassured markets that some slowing of the some volatility in these markets, particularly in the very rapid pace of economic growth was likely and fourth quarter following severe equity price declines that the Bank would be aggressive in resisting infla- in many Asian markets, increases in equity price tion in the future. Three-month market interest rates indexes over 1997 ranged from 17 percent in the generally have risen in the other G-10 countries, United Kingdom to almost 60 percent in Italy. In although there have been exceptions. Rates have contrast, equity prices fell 20 percent in Japan. To moved up the most in Canada (more than 180 basis date this year, equity prices in the industrial countries points) and the United Kingdom (120 basis points), generally have risen. in response to several increases in official lending The price of gold declined more than 20 percent rates. German rates have risen about 40 basis points. in 1997 and fell further in early 1998, reaching lows Short-term rates in the countries that are expected not seen since the late 1970s. Open discussion and, to adopt a single currency on January 1 of next year in some cases, confirmation of central bank sales converged toward the relatively low levels of Ger- of gold contributed to the price decline. Downward man and French rates, with Italian rates declining adjustment of expectations of inflation in the indusmore than 100 basis points over the year. trial countries in general may have added to the Equity prices in the foreign G-10 countries other selling pressure on gold. More recently, the price of than Japan moved up significantly in 1997. Despite gold has moved up slightly, on net. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

174 Federal Reserve Bulletin • March 1998 Treasury and Federal Reserve Foreign Exchange Operations This quarterly report describes U.S. Treasury and was higher than the 0.7 percent range in the fourth System foreign exchange operations for the period quarter of 1996. The combined average intraday tradfrom October through December 1997. It was pre- ing range against both the yen and the mark fell to sented by Peter R. Fisher, Executive Vice President, 0.9 percent from 1.1 percent in the previous quarter, Federal Reserve Bank of New York, and Manager, marking the first decline since the third quarter of System Open Market Account. Andrew Jewell was 1996. primarily responsible for preparation of the report. Implied volatility moved higher, reflecting expectations for potentially large dollar moves. One-month In a period marked by dramatic developments in dollar-yen implied volatility peaked at more than Asia, the dollar appreciated 8.3 percent against the Japanese yen and 2.2 percent against the German 1. Spot exchange rate of the dollar against the Japanese yen mark. On a trade-weighted basis against Group of and volatility implied by option prices, 1997:H2 Ten (G-10) currencies, the dollar appreciated 2.7 percent.1 Against the yen, the dollar rose to its highest Japanese yen per U.S. dollar Percent per year levels since 1992 as market participants reacted to an 130 A / l yy 17 increasingly pessimistic economic outlook in Japan, kjf concern over the health of the Japanese financial 126 — — 15 sector, and spreading volatility in Asian financial A AKAA XjrtiVxs — 13 markets. Against the mark, the dollar initially weak- 122 — ened, pressured by the effect of Asian volatility on 118 AAjtj" \y v — ii markets in North and South America. However, the 1 f* One-month volatilities dollar later recovered amid a growing perception that P * — 9 114 \~J Spot exchange rate European economies were more exposed to events in , 7 Asia than previously thought and as market partici- 1 1 1 1 1 1 pants scaled back expectations of further monetary July Aug. Sept. Oct. Nov. Dec. 1997 tightening in Germany. The U.S. monetary authorities NOTE. Data are daily. did not intervene in the foreign exchange markets SOURCE. Federal Reserve Bank of New York; Reuters. during the quarter. 2. Spot exchange rate of the dollar against the German mark and volatility implied by option prices, 1997:H2 A FALL OF THE DOLLAR'S AVERAGE INTRADAY German marks per U.S. dollar Percent per year TRADING RANGE FROM THIRD-QUARTER One-month volatilities LEVELS AND A RISE IN IMPLIED VOLATILITY 1.86 — /H . 1. — 12 The dollar's average intraday trading range against the yen fell in the fourth quarter of 1997 to 1.0 per- UL J 1 J\. cent from 1.1 percent in the third quarter but was i.78 YL K W ^ A lf 10 higher than the 0.7 percent range in the fourth quarter JJI » VA f I v HJ \ / of 1996. The dollar's average intraday trading range 1.74 V^ /J — 8 Spot exchange rate U against the mark fell to 0.9 percent in the fourth 1.70 — W quarter from 1.1 percent in the previous quarter, but — 6 1 1 1 1 1 1 1 July Aug. Sept. Oct. Nov. Dec. 1997 1. The dollar's movements on a trade-weighted basis against ten major currencies are measured using an index developed by staff NOTE. Data are daily. members of the Board of Governors of the Federal Reserve System. SOURCE. Federal Reserve Bank of New York; Reuters. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Treasury and Federal Reserve Foreign Exchange Operations 175 14 percent in December, approaching highs for the 3. U.S. dollar against selected Asian currencies, 1997:Q4 year, as the dollar appreciated to its strongest levels in more than five years against the yen. One-month dollar-mark implied volatility rose more than 12 percent in late October after sharp losses in the dollar's value against the mark but later returned to levels of less than 10 percent as the dollar recovered. DEVELOPMENTS IN ASIA Movements in the U.S. dollar were influenced throughout the period by disruptions in Asian markets. Currency market turmoil in Southeast Asia continued, with the Thai baht, the Indonesian rupiah, the Philippine peso, the Malaysian ringgit, and the Singapore dollar reaching historic lows against the U.S. NOTE. Data are daily. dollar. In late October, focus shifted northward to the SOURCE. Bloomberg L.P. sustainability of the Hong Kong dollar peg after the decision by monetary authorities in Taiwan to allow Brady bonds over Treasuries. In the United States, the new Taiwan dollar to depreciate. In response to strong demand for U.S. Treasuries pushed down intermounting pressure on the Hong Kong dollar, the est rates, with the yield on the benchmark thirty-year Hong Kong Monetary Authority pushed interest bond falling 48 basis points to end the year at rates higher. With overnight rates trading as high as 5.92 percent. 150 percent and the one-month Hong Kong interbank As the period progressed, the focus in Asia shifted offered rate rising to 47.5 percent on October 23, the to deteriorating economic and financial conditions in Hong Kong dollar strengthened from HKD 7.75 to Korea. The Korean won weakened more than 5 per- HKD 7.71 against the U.S. dollar, then stabilized in cent against the dollar in October, reaching record later weeks around the HKD 7.73 level. Higher interlows, while stocks fell 27.2 percent. On Novemest rates, however, pressured stock prices and propber 17, the Bank of Korea announced it would stop erty values lower. On October 23, the benchmark intervening to support the won, a decision thought to Hang Seng index fell 10.4 percent, followed by a be prompted by declining levels of foreign currency 13.7 percent decline on October 28. reserves. Faced with a growing number of corporate Sharp losses in Hong Kong's stock market trig- failures, continued declines in its equity and currency gered abrupt reversals in equity markets across Asia, markets, and an increasing risk that Korean banks Europe, and the Americas. Benchmark stock indexes in Japan, Germany, Mexico, and the United States 4. Global benchmark stock indexes, 1997:Q4 fell 8.0, 9.7, 12.7, and 6.3 percent, respectively, in October, including a 7.2 percent drop in the Dow Index: Oct. t = 100 Jones Industrial Average on October 27. Stock markets in the United States, Mexico, and Europe later recovered to end the quarter little changed, while stocks in much of Asia remained under pressure. As global equity markets declined, credit spreads in fixed-income markets widened to reflect increased risk premiums. Yield spreads of dollar-denominated Asian debt issues over U.S. Treasuries reached record highs, with spreads of Thai and Indonesian sovereign debt widening more than 300 basis points and the spread of the benchmark Korean Development Bank issue widening more than 700 basis points. Similarly, heightened focus on risk premiums in emerging markets contributed to a substantial widening of yield spreads of Latin American and Eastern European NOTE. Data are daily. SOURCE. Bloomberg, L.P. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

176 Federal Reserve Bulletin • March 1998 and corporations would not be able to meet maturing 5. U.S. interest rates, 1997:Q4 foreign currency obligations, the Korean government Percent announced on November 22 that it was seeking funds from the International Monetary Fund (IMF). Despite agreement on an IMF-led loan package on Decem- — 6.4 ber 3, pressure on Korean markets continued into Thirty-year bond yield year-end as estimates of the country's short-term — 6.2 external debt increased. By late December, the won had depreciated more than 53 percent from its levels — — 6.0 at the start of the quarter, prompting an acceleration of aid disbursement and leading to meetings among — yv/ Three-month Eurodollar — 5.8 international creditors to discuss rolling over Korean deposit yield 1 1 1 1 short-term debt obligations. Korean stocks ended the Oct. Nov. Dec. quarter down 41.8 percent. 1997 NOTE. Data are daily. SOURCE. Bloomberg L.P. RESPONSE OF THE DOLLAR TO DEEPENING In addition, short-term money market rates in Japan PESSIMISM IN JAPAN rose rapidly, suggesting yen funding pressures. Late During October the dollar traded in a relatively nar- in the period, the bankruptcy of a large Japanese food row ¥120-122 range against the yen despite contin- trading company was viewed as an indication that ued signs of weakness in the Japanese economy and reduced access to credit had extended beyond the volatility in Southeast Asia. The September Tankan financial sector. In these circumstances, the Bank of survey of business sentiment, released on October 1, Japan adopted a more accommodative stance in its recorded the first erosion in sentiment among large monetary policy operations and reinstated its collatermanufacturers since August 1996. Gains in the dollar, alized lending facility, while discussion grew within however, were restrained by discussion of possible the Japanese government regarding the use of public fiscal stimulus measures to encourage economic funds to support the financial system and protect growth in Japan and by market participants' concerns depositors. that a higher dollar would lead to U.S.-Japan trade Meanwhile, the deteriorating situation in Korea, frictions. Subsequent measures proposed by the Japa- coupled with continued weakness in Southeast Asian nese government did little to alter increasingly nega- markets, cast further doubts on Japan's prospects for tive market sentiment toward Japan's economic out- near-term recovery. The December Tankan survey look. Japanese bond yields resumed their decline, and indicated that business sentiment had deteriorated reached new record lows in late October. On Novem- beyond consensus expectations, and the following ber 14, the Nikkei broke below 15,000 for the first week the Bank of Japan, in its monthly economic time in more than two years, and the dollar rose to review, acknowledged that Japan's economic growth ¥125.40. Problems in Japan's financial sector further under- 6. Japanese money market rates, 1997:Q4 mined sentiment. The closings of Sanyo Securities, Hokkaido Takushoku Bank, and Yamaichi Securities in November prompted concerns about the health of other Japanese financial institutions burdened with bad loans and possible unreported losses. Such concerns led to an increase in the premium paid by Japanese banks for dollar funding compared with non-Japanese institutions. In early December, some Japanese banks were required to pay a premium of more than 100 basis points to borrow one-month funds, compared with a premium of about 30 basis points in the fourth quarter of 1996. Although funding pressures eased later in the month, the premium Oct. Nov. Dec. paid by Japanese banks remained above levels paid in 1997 previous years, reflecting continued credit concerns. NOTE. Data are daily. SOURCE. Bloomberg L.P. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Treasury and Federal Reserve Foreign Exchange Operations 177 7. Tokyo stock price index (TOPIX), 1997:Q4 in October, with the Bundesbank's decision to raise interest rates 30 basis points on October 9 widely Index: Oct. 1 = 100 viewed as the first in a series of rate hikes in Ger- — 100 many and other core European countries ahead of the w TOPIX — — 95 European Economic and Monetary Union (EMU). v\ — 90 The dollar's steepest declines against the mark occurred later in the month and in early November \ T 85 after sharp losses in U.S. equities, as market partici- — r\ A — 80 pants considered the spillover effects of Asia on \ — 75 markets in the United States and Latin America. Initially, Germany and other European countries were \_/v/- 70 TOPIX banking sector perceived to be better insulated from Asia than the 1 1 1 United States—a factor that lent further support to Oct. Nov. Dec. 1997 the mark. NOTE. Data are daily. SOURCE. Bloomberg L.P. 9. German interest rates, 1997:Q4 had stalled. In this environment, the dollar continued its steady appreciation, reaching as high as ¥131.25 on December 15, its strongest level against the yen in more than five years. After the announcement of a one-time ¥2 trillion personal-income-tax cut and other stimulus measures on December 17, the dollar fell below ¥126 as Japanese Finance Minister Mitsuzuka confirmed reports of Japanese intervention to buy yen. However, the yen's strength was shortlived, and the dollar closed the year at ¥130.35. RECOVERY OF THE DOLLAR FROM INITIAL 1997 WEAKNESS AGAINST THE MARK NOTE. Data are daily. SOURCE. Bloomberg L.P. Against the mark, the dollar traded in a broad DM 1.70-1.80 range, posting declines early in the The dollar's appreciation later in the period folperiod but appreciating throughout most of Novem- lowed a return to relative stability in U.S. and Latin ber and December to end the quarter modestly higher. American markets and an unwinding of expectations Expectations of rising German interest rates contrib- for an accelerated timetable of interest rate hikes in uted to the dollar's downward bias against the mark Europe. On November 14, Bundesbank President Tietmeyer, in comments echoed by other European officials, noted that European central bank leaders 8. U.S.-German ten-year bond yield differential, 1997:Q4 had come to an understanding that interest rates Basis points German marks per U.S. dollar among the core nations would be oriented toward the lowest rates and not the average of all EMU partici- U.S.-German ten-year differential 60 i 4 * , 1.80 pants. Such statements, combined with benign German inflationary data and a growing perception that 178 50 VI F \ J \. European economies were also vulnerable to weakness in Asia, led market participants to scale back 40 -L J \ \ IT* 176 expectations of higher German interest rates into 30 — -I A/*I KJF* — 174 1998. The implied yield on June 1998 Euromark futures contracts, which rose to a high of 4.55 percent 20 — V \JI f Dollar-mark ( ^ on October 22, ended the period at 3.93 percent. The 1 ' 1 " 1 1 spread between ten-year U.S. and German govern- Oct. Nov. Dec. ment bond yields widened in the dollar's favor to a 1997 high of 58 basis points from an intraperiod low of NOTE. Data are daily. 12 basis points on October 27. SOURCE. Bloomberg, L.P. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

178 Federal Reserve Bulletin • March 1998 TREASURY AND FEDERAL RESERVE FOREIGN and Japanese government securities held directly or EXCHANGE RESERVES under repurchase agreement. As of December 31, outright holdings of government securities by U.S. The U.S. monetary authorities did not undertake any monetary authorities totaled $6.8 billion. intervention operations during this quarter. At the end Japanese and German government securities held of the quarter, the current values of the German mark under repurchase agreement are arranged either and Japanese yen reserve holdings totaled $17.0 bil- through transactions executed directly in the market lion for the Federal Reserve System and $13.8 billion or through agreements with official institutions. Govfor the Exchange Stabilization Fund. ernment securities held under repurchase agreements The U.S. monetary authorities invest all of their by the U.S. monetary authorities totaled $10.9 billion foreign currency balances in a variety of instruments at the end of the quarter. Foreign currency reserves that yield market-related rates of return and have a are also invested in deposits at the Bank for Internahigh degree of liquidity and credit quality. A signifi- tional Settlements and in facilities at other official cant portion of these balances is invested in German institutions. • 1. Foreign exchange holdings of U.S. monetary authorities based on current exchange rates, 1997:Q4 Millions of dollars Quarterly changes in balances by source BBaallaannccee,, BBaallaannccee,, IItteemm SSeepptt.. 3300,, 11999977 Net purchases Impact of Investment Currency Interest accrual DDeecc.. 3311,, 11999977 and sales' sales2 income ad v j a u l s u t a m ti e o n n t s3 (net) and other FEDERAL RESERVE Deutsche marks 11,609.5 .0 .0 85.7 -208.5 .0 11,486.7 Japanese yen 5,908.9 .0 .0 5.8 -441.3 .0 5,473.4 Interest receivables4 73.5 9.4 82.9 Other cash flow from investments5 ... .2 3.0 3.2 Total 17,592.1 91.5 -649.8 12.4 17,046.2 U.S. TREASURY EXCHANGE STABILIZATION FUND Deutsche marks 5,877.3 .0 .0 43.8 -105.5 .0 5,815.6 Japanese yen 8,662.5 .0 .0 8.8 -646.7 .0 8,024.6 Interest receivables4 37.6 .9 38.5 Other cash flow from investments 5 ... .5 5.4 5.9 Total 14,577.9 52.6 -752.2 6.3 13,884.6 1. Purchases and sales include foreign currency sales and purchases related to 3. Foreign currency balances are marked to market monthly at month-end official activity, swap drawings and repayments, and warehousing. exchange rates. 2. Calculated using marked-to-market exchange rates; represents the differ- 4. Interest receivables for the ESF are revalued at month-end exchange rates. ence between the sale exchange rate and the most recent revaluation exchange Interest receivables for the Federal Reserve System are carried at average cost rate. Realized profits and losses on sales of foreign currencies computed as the of acquisition and are not marked to market until interest is paid. difference between the historic cost-of-acquisition exchange rate and the sale 5. Cash flow differences from payment and collection of funds between exchange rate are shown in table 2. quarters. Tables 2 and 3 appear on page 179. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Treasury and Federal Reserve Foreign Exchange Operations 179 2. Net profits or losses (-) on U.S. Treasury 3. Currency arrangements, December 31, 1997 and Federal Reserve foreign exchange operations Millions of dollars based on historical cost-of-acquisition exchange rates, 1997:Q4 Institution Amount of Outstanding, facility Dec. 31, 1997 Millions of dollars Federal Reserve U.S. Treasury Reciprocal Currency Federal Exchange Arrangements Period and item Reserve Stabilization Fund Austrian National Bank 250 0 National Bank of Belgium . 1,000 Valuation profits and losses on Bank of Canada 2,000 outstanding assets and liabilities, National Bank of Denmark 250 Sept. 30, 1997 Bank of England 3,000 Deutsche marks 274.8 -269.8 Bank of France 2,000 Japanese yen 732.9 1,081.8 Deutsche Bundesbank 6,000 Total 1,007.7 812.0 Bank of Italy 3,000 Bank of Japan 5,000 Realized profits and losses Bank of Mexico 3,000 from foreign currency sales, Netherlands Bank ... 500 Sept. 30-Dec. 31, 1997 Bank of Norway 250 Deutsche marks .0 .0 Bank of Sweden 300 Japanese yen .0 .0 Swiss National Bank 4,000 Total .0 .0 Bank for International Settlements Dollars against Swiss francs 600 Valuation profits and losses on Dollars against other authorized outstanding assets and liabilities, European currencies 1,250 Dec. 31, 1997 Deutsche marks 66.3 -375.3 Total 32,400 0 Japanese yen 291.5 434.6 U.S. Treasury Total 357.8 59.3 Exchange Stabilization Fund Currency Arrangements Deutsche Bundesbank 1,000 Bank of Mexico 3,000 Total Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

180 Industrial Production and Capacity Utilization for January 1998 Released for publication February 17 decline in motor vehicle production slightly retarded the overall gain in factory output in January, but Industrial production was unchanged in January as motor vehicle output remained at a high level. At warmer-than-average weather led to a 4.0 percent 127.9 percent of its 1992 average, total industrial drop in the output of utilities. Production in the production in January was 5.5 percent higher than it manufacturing sector, moderating from the strong was in January 1997. The rate of industrial capacity pace seen last fall and summer, grew 0.4 percent utilization edged down to 83.0 percent, still above its in December and 0.3 percent in January. Another long-term average of 82.1 percent. Industrial production indexes Ratio scale, 1992 = 100 Ratio scale, 1992 = 100 _ Consumer goods _ Intermediate products Durable Construction supplies Nondurable Business supplies Materials Durable goods Nondurable goods and energy 1990 1992 1994 1996 1998 1990 1992 1994 1996 1998 Capacity utilization Percent of capacity Percent of capacity - 85 - 85 - 80 - 80 - 75 75 1984 1986 1988 1990 1992 1994 1996 1998 1984 1986 1988 1990 1992 1994 1996 1998 All series are seasonally adjusted. Latest series, January. Capacity is an index of potential industrial production. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

181 Industrial production and capacity utilization, January 1998 Industrial production, index, 1992=100 Percentage change CCCaaattteeegggooorrryyy 11999977 11999988 1997' 19981 JJaann.. 11999977 ttoo Oct.' Nov.r Dec.r Jan. P Oct/ Nov.r Dec.' Jan.P JJaann.. 11999988 Total 126.5 127.4 127.9 127.9 .8 .7 .4 .0 5.5 Previous estimate 126.5 127.5 128.1 .7 .8 .5 Major market groups Products, total2 120.2 121.2 121.3 121.3 1.0 .8 .1 .0 4.6 Consumer goods 115.9 116.6 116.5 116.4 1.3 .6 -.1 -.1 2.9 Business equipment 145.5 147.5 147.9 148.2 .8 1.4 .2 .2 9.9 Construction supplies 121.3 123.4 123.8 124.2 .7 1.8 .3 .3 4.2 Materials 136.7 137.3 138.5 138.6 .5 .5 .9 .0 6.8 Major industry groups Manufacturing 129.1 130.4 130.9 131.2 .8 1.0 .4 .3 6.3 Durable 145.5 147.6 148.3 148.8 .8 1.5 .4 .3 9.3 Nondurable 112.2 112.6 113.0 113.3 .8 .4 .3 .2 2.8 Mining 105.9 105.3 104.8 106.3 -.6 -.5 -.5 1.5 2.6 Utilities 116.9 114.2 115.9 111.3 1.5 -2.2 1.4 -4.0 -1.1 Capacity utilization, percent MEMO Capacity, ccceeennntttaaagggeee 1997 1997 1998 ccchhhaaannngggeee,,, Average, Low, High, JJJaaannn... 111999999777 1967-97 1982 1988-89 tttooo Jan. Oct.' Nov.' Dec.' Jan.? JJJaaannn... 111999999888 Total 82.1 71.1 85.4 82.4 83.0 83.2 83.3 83.0 4.7 Previous estimate 83.0 83.3 83.4 Manufacturing 81.1 69.0 85.7 81.4 81.9 82.3 82.3 82.1 5.3 Advanced processing 80.5 70.4 84.2 79.6 80.2 80.7 80.6 80.4 6.3 Primary processing . 82.4 66.2 88.9 85.5 85.7 86.0 86.1 86.1 3.4 Mining 87.5 80.3 88.0 88.2 89.6 89.1 88.6 89.9 .6 Utilities 87.3 75.9 92.6 89.5 92.0 89.9 91.1 87.4 1.3 NOTE. Data seasonally adjusted or calculated from seasonally adjusted 2. Contains components in addition to those shown, monthly data. r Revised, 1. Change from preceding month. p Preliminary. MARKET GROUPS The production of construction supplies increased further in January after a healthy gain in the fourth The output of consumer goods was little changed quarter of last year. The output of materials was flat from November and December levels. Within the in January, as moderate increases in durable and durables sector, automotive products fell for the sec- nondurable goods materials were offset by a weatherond consecutive month; the output of other durable related pullback in energy materials. Among durable consumer goods, especially appliances, rose sharply goods materials, the output of parts for highafter being little changed in December. The produc- technology equipment and for aircraft continued to tion of nondurable consumer goods slipped 0.2 per- increase rapidly; the output of parts for consumer cent, reversing the December increase. A sharp drop goods, particularly for motor vehicles, declined. in the residential use of utilities in January out- Among nondurable goods materials, the output of weighed the increase in the output of non-energy paper increased, while production in most other major nondurable consumer goods. groups was little changed. The growth in output of business equipment moderated recently; the rise of 0.2 percent in each of the past two months was well below the pace seen during INDUSTRY GROUPS most of 1997. The output of computers and commercial aircraft rose strongly, while output retreated for Posting more moderate gains than those of last sumother major business equipment components, most mer and fall, factories increased their output 0.4 pernotably industrial equipment. cent in December and 0.3 percent in January. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

182 Federal Reserve Bulletin • March 1998 output of durables rose just 0.3 percent as strong Capacity utilization for manufacturing edged down increases in computer and office equipment, aircraft, to 82.1 percent. Utilization in advanced-processing and electrical machinery were partially offset by a industries decreased 0.2 percentage point, to a level decrease in motor vehicles and parts. The production still around its long-run average. The operating rate of nondurables edged up 0.2 percent; strong gains in in primary-processing industries was unchanged, foods, textiles, and petroleum products were nearly remaining 3.7 percentage points above its long-run matched by decreases in a number of other industries. average. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

183 Statements to the Congress Statement by Alan Greenspan, Chairman, Board of be vigilant to the re-emergence of destabilizing Governors of the Federal Reserve System, before the influences—both higher inflation, and shortfalls in Committee on the Budget, U.S. Senate, January 29, demand and decreases in some prices that would 1998 press the disinflation process too far, too fast. One very favorable aspect of our economic per- In just a few weeks, the Federal Reserve Board will formance over the past few years has been the submit its semiannual report on monetary policy to remarkable improvement in the federal budget picthe Congress. That report, and my accompanying ture. The deficit dropped to its lowest level in more testimony, will give a detailed assessment of the than two decades in fiscal 1997, and yesterday the outlook for the U.S. economy and the implications for Congressional Budget Office (CBO) released promonetary policy. This morning, I would like to direct jections that show the budget remaining essentially most of my comments to the fiscal situation. But let in balance over the next few years, moving to annual me begin by offering a few observations about the surpluses equal to 1 percent of gross domestic prodcurrent direction of the economy. uct by the middle of the next decade. The reduction First, it is clear that the U.S. economy has been in federal borrowing to date and in prospect is exceptionally healthy, with robust gains in output, already paying off for the U.S. economy by helping employment, and income. At the same time, inflation hold down long-term interest rates and, in turn, prohas remained low—indeed, declining by most viding support to private capital spending and other measures—over the past year. interest-sensitive outlays. Second, to date, we have as yet experienced only But much hard work remains to be done to ensure the peripheral winds of the Asian crisis. But before that the projected surpluses actually materialize and spring is over, the abrupt current account adjustments that we remain on track to address our longer-run that financial difficulties are forcing upon several of fiscal and demographic challenges. The CBO projecour Asian trading partners will be showing through tions provide a good starting point: They are based here in reductions in demand for our exports and on sensible economic and technical assumptions and intensified competition from imports. All of this sug- thus offer a reasonable indication of how the budget gests that the growth of economic activity in this is likely to evolve over the next ten years if economic country will moderate from the recent brisk pace. conditions remain favorable and current budgetary Third, as I have noted previously, such a modera- policies remain in place. But, as the CBO highlights tion would appear helpful at this juncture. The growth in its latest report, such forecasts are subject to conof output has caused employment to rise much faster siderable error. Indeed, as recently as last winter, than the working-age population, and there are limits when fiscal 1997 was already well under way, both to how far this can go. Pressures in the labor market the CBO and the Office of Management and Budget likely contributed to the acceleration of wages in were still overestimating that year's deficit by more recent months. Since price inflation has been minimal than $100 billion. and domestic profit margins firm, productivity In the case of the CBO, about two-thirds of the appears to have accelerated sufficiently last year to error was in receipts, including nearly $50 billion damp increases in unit labor costs. How long that more tax receipts than would have been expected pattern can continue is still an unresolved issue. The based on the actual behavior of income as measured likelihood that we shall be seeing some lower prices in the national income and product accounts. This on imported goods as a result of the difficulties in overage helped lift the receipts share of GDP to a Asia may afford some breathing room from inflation historical high. Such "tax surprises" are nothing pressures. But they will not permanently suppress the new—in fact, in the early 1990s, growth of receipts risks inherent in tightened labor markets. Conversely, fell well short of expectations based on the trends a continuation of the Asian crisis should give us in aggregate income and the tax laws then in place. pause in assuming that our economy will remain And even after the fact, our knowledge about the robust indefinitely. As a consequence, we must sources of such surprises has been limited. Thus, we Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

184 Federal Reserve Bulletin • March 1998 cannot rule out the possibility that the forces behind This would put further downward pressure on longlast year's tax surge will prove transitory and dissi- term interest rates, which would enhance private capipate more rapidly than the CBO has assumed, imply- tal investment, labor productivity, and economic ing lower receipts and renewed deficits for the years growth. ahead. Indeed, all else equal, had the surprise fallen The outpouring of proposals for using the anticion the other side—downward instead of upward—we pated surplus does not bode well for the prospect would be looking at nontrivial budget deficits at least of maintaining fiscal discipline. In recent years the through the beginning of the coming decade. President and the Congress have been quite success- Moreover, the CBO projection assumes that discre- ful, contrary to expectations, in placing, and espetionary spending will be held to the statutory caps, cially holding, caps on discretionary spending. More which allow almost no growth in nominal outlays recently, they have started to confront the budget through fiscal 2002. Given the declining support for implications of the surge in retirements that is only further reductions in defense spending, keeping over- a decade away. We must not allow the recent good all discretionary spending within the caps is likely to news on the budget to lull us into letting down our require sizable, but as yet unspecified, real declines guard. Although many of the individual budget proin nondefense programs from current levels. Not posals may have merit, they must be considered in surprisingly, many observers are skeptical that the the context of a responsible budget strategy for the caps will hold, and battles over appropriations in longer run. coming years may well expose deep divisions that Over the decades our budgetary processes have could make the realization of the budget projections been biased toward deficit spending. Indeed, those less likely. In addition, although last year's legisla- processes are strewn with initiatives that had only a tion cut Medicare spending substantially, experience small projected budgetary cost but produced a sizable has highlighted the difficulty of controlling this pro- drain on the Treasury's coffers over time. As you are gram, raising the possibility that the savings will not well aware, programs can be easy to initiate or be so great as anticipated—especially if resistance expand but extraordinarily difficult to trim or shut develops among beneficiaries or providers. down once a constituency develops that has a stake in Uncertainties such as these argue for caution as maintaining the status quo. you begin work on the 1999 budget. We have no In closing, I want to commend Chairman Domeguarantee that the projected surpluses will actually nici and the committee for your insistence on fiscal materialize. An even more important consideration, responsibility and for years of persistent effort. Your though, is the need to address the erosion of the work has contributed importantly to shrinking the budget after the next decade, a task that will become budget deficit and bringing surpluses within sight. increasingly difficult the longer it is postponed. The These projections of surpluses, which are based on an favorable budget picture over the next decade, unless extrapolation of steady economic growth and substeps are taken, will almost inevitably turn to large dued inflation over the coming years, implicitly and sustained deficits as the baby boom generation assume that monetary and fiscal policymakers will moves into retirement, putting massive strains on the remain attentive to potential sources of instability. If social security and Medicare programs. this is the scenario that, in fact, unfolds and the Indeed, especially in light of these inexorable budget moves into surplus within the next few years, demographic trends, I have always emphasized that the increase in national saving will pay off handwe should be aiming for budgetary surpluses and somely in preparing our economy and our budget using the proceeds to retire outstanding federal debt. for the challenges of the twenty-first century. Statement by Susan M. Phillips, Member, Board of Financial Markets. At that time, the Working Group Governors of the Federal Reserve System, before was concerned about the potential for sharp declines the Subcommittee on Securities of the Committee on in prices and soaring trading volumes to overwhelm Banking, Housing, and Urban Affairs, US. Senate, the market infrastructure of trading, clearing, and January 29, 1998 credit systems. As the Working Group observed, threats to the market infrastructure can trigger ad hoc I am pleased to appear today to discuss circuit break- and destabilizing market closings. In recommending ers for equity-related markets. The introduction of circuit breakers, the Working Group intended to subcircuit breakers was one of the recommendations of stitute planned trading halts for unplanned ones ". . . the 1988 Report of the President's Working Group on without increasing the overall frequency of such dis- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 185 ruptions." Importantly, there was no presumption that has been made in these areas, as evidenced by circuit breakers could alter fundamental equity prices. the way systems and market participants handled As events have unfolded, equity prices have risen the market move on October 27, 1997. Disruptive, substantially over the past decade, but relatively ad hoc shutdowns seem much less likely to occur. minor changes have been made to the system of The combined force of these enhancements makes circuit breakers. We now face the prospect that the the case for circuit breakers less compelling today circuit breakers will be triggered relatively frequently than ten years ago. At a minimum, it argues for and in the absence of strains on system capacity higher triggers today. The original circuit breakers sufficient to overwhelm the financial system and cre- represented price declines of 12 percent and 20 perate an ad hoc or destabilizing shutdown. October 27 cent, but halts are now triggered by price moves of of last year provided the first illustration of these only 4Vi percent and 7 percent. possibilities. We are aware of no evidence that ad hoc In redesigning circuit breakers, the details are best market closings were imminent or that back offices left to be negotiated among the affected markets, with were overwhelmed at the time the circuit breakers the oversight of the relevant regulatory authorities. were tripped. Nonetheless, certain broad principles should be fol- The Federal Reserve Board supports revisions to lowed. The circuit breakers should be coordinated. the circuit breakers. The Board believes that markets The trading halts should not be triggered so freshould be allowed to remain open to ensure that quently as to create more disruptions than the equity portfolios can be valued reliably and that unplanned halts they are intended to prevent. The investors can adjust their holdings and thereby effec- system should be simple enough that market particitively manage their risks. The decision to close mar- pants have no trouble understanding when trading kets should neither be taken lightly nor be taken halts will be triggered. Finally, the system should frequently. Indeed, the evidence is inconclusive at embody a mechanism that allows periodic adjustbest as to whether circuit breakers are a useful feature ments to trigger levels. of our markets. If a system of planned market clos- One of the consequences of the way circuit breakings such as the circuit breakers is deemed desirable, ers functioned on October 27 is that the usual closing it should be structured in such a way that closings procedures on markets did not occur. This precipioccur very rarely and then only when the market tated current discussion about a redesign of circuit infrastructure would otherwise be placed at risk. breakers to facilitate the ability to trade at the close As part of the current reassessment of circuit break- and to establish closing prices. Normal business pracers, some have suggested halting trading for the tices assume that trades at the close will be possible day when prices decline a fairly large amount, say for managing market and credit risks and that these 20 percent, regardless of how early in the day that prices will be available for valuing portfolios. We the price decline occurs. This represents a significant support efforts to ensure that circuit breakers do not shift from the Working Group's original recommen- hinder these critical processes. dation, which did not contemplate a daily limit. The The subcommittee also has requested comment on Federal Reserve Board does not support this step. It Rule 80A of the New York Stock Exchange, which is an illusion to believe that investors' fears will be limits certain types of program trading when the Dow assuaged merely by closing markets. Such a closure Jones Industrial Average moves more than 50 points could well have the opposite effect—it might increase in a day. The Federal Reserve Board generally investor concerns, causing them to dump shares at refrains from taking a specific position on rules that the next opportunity. This, in turn, might exacerbate have been put in place by the individual markets. As difficulties reopening markets and maintaining liquid- I indicated earlier, however, the Board believes that, ity. In addition, when the incentive to trade is great, as a matter of principle, markets should be left to sophisticated investors will find ways of transacting, trade freely, except in very unusual circumstances. even when the domestic markets are closed, while Because the level at which the rule is triggered has small investors will be denied that opportunity. not been adjusted as prices have risen, the restriction The Working Group's original support for some recently has been triggered daily, even as markets form of planned trading halts should be placed in the continued to function well. In this light, the existing context of the other recommendations of the Report. Rule 80A restriction seems wholly unnecessary. The Group noted the need to strengthen the capital In summary, the Federal Reserve Board believes structure of market participants, the capacity of trad- that the goal of policy in this area is to make markets ing mechanisms, and the credit, clearing, and pay- more resilient to shocks rather than to pursue an ment systems that undergird trading. Much progress unrealistic aim of curbing volatility. Almost every Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

186 Federal Reserve Bulletin • March 1998 element of the market infrastructure has been take this added resiliency into account, or else the strengthened since the 1987 crash. These changes circuit breakers themselves run the risk of becoming have made our markets better able to withstand disruptive. shocks. The redesign of the circuit breakers should Statement by Alan Greenspan, Chairman, Board of and central Europe that, in turn, could have repercus- Governors of the Federal Reserve System, before the sions elsewhere, including the United States. Thus, Committee on Banking and Financial Services, U.S. while the probability of such an outcome may be House of Representatives, January 30, 1998 small, its consequences, in my judgment, should not be left solely to chance. We have observed that global The global financial system has been evolving rap- financial markets, as currently organized, do not idly in recent years. New technology has radically always achieve an appropriate equilibrium or at least reduced the costs of borrowing and lending across require time to stabilize. traditional national borders, facilitating the develop- Opponents of IMF support also argue that the ment of new instruments and drawing in new players. substantial financial backing, by cushioning the losses One result has been a massive increase in capital of imprudent investors, could exacerbate moral hazflows. Information is transmitted instantaneously ard. Moral hazard arises when someone can reap the around the world, and huge shifts in the supply and rewards from one's actions when things go well but demand for funds naturally follow. does not suffer the full consequences when things This burgeoning global system has been demon- go badly. Such a reward structure, obviously, could strated to be a highly efficient structure that has encourage excessive risk-taking. To be sure, this is a significantly facilitated cross-border trade in goods problem, though with respect to Asia some investors and services and, accordingly, has made a substantial have to date suffered substantial losses. Asian equity contribution to standards of living worldwide. Its losses, excluding Japan, since June 1997 worldwide efficiency exposes and punishes underlying economic are estimated to have exceeded $700 billion, of which weakness swiftly and decisively. Regrettably, it more than $30 billion has been lost by U.S. investors. also appears to have facilitated the transmission of Substantial further losses have been recorded in financial disturbances far more effectively than ever bonds and real estate. before. Moreover, the policy conditionality associated As I testified before this committee three years principally with IMF lending, which dictates ecoago, the then-emerging Mexican crisis was the first nomic and financial discipline and structural change, such episode associated with our new high tech inter- helps to mitigate some of the moral hazard concerns. national financial system. The current Asian crisis is Such conditionality is also critical to the success of the second. the overall stabilization effort. As I will be discussing We do not as yet fully understand the new system's in a moment, at the root of the problems is poor dynamics. We are learning fast and need to update public policy that has resulted in misguided investand modify our institutions and practices to reduce ments and very weak financial sectors. Convincing a the risks inherent in the new regime. Meanwhile, we sovereign nation to alter destructive policies that have to confront the current crisis with the institu- impair its own performance and threaten contagion tions and techniques we have. to its neighbors is best handled by an international Many argue that the current crisis should be financial institution, such as the IMF. What we have allowed to run its course without support from the in place today to respond to crises should be sup- International Monetary Fund (IMF) or the bilateral ported even as we work to improve those mechafinancial backing of other nations. They assert that nisms and institutions. allowing this crisis to play out, while doubtless hav- Accordingly, I fully back the Administration's ing additional negative effects on growth in Asia, and request to augment the financial resources of the engendering greater spillovers onto the rest of the IMF—U.S. participation in the New Arrangements to world, is not likely to have a large or lasting impact Borrow, and an increase in the U.S. quota in the IMF. on the United States and the world economy. Hopefully, neither will turn out not to be needed, and They may well be correct in their judgment. There no funds will be drawn. But it is better to have is, however, a small but not negligible probability it available if that turns out not to be the case, and that the upset in East Asia could have unexpectedly quick response to a pending crisis is essential. I also negative effects on Japan, Latin America, and eastern believe it is important to have mechanisms, such Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 187 as the Treasury Department's Exchange Stabilization denominated interest rates that were invariably lower Fund, that permit the United States in exceptional than those available in domestic currency. Western, circumstances to provide temporary bilateral finan- especially American, investors diversified some of cial support, often on short notice, under appropriate their huge capital gains of the 1990s into East Asian conditions and on occasion in cooperation with other investments. In hindsight, it is evident that those countries. economies could not provide adequate profitable In my testimony before this committee in mid- opportunities at reasonable risk to absorb such a November, I endeavored to outline the roots of the surge in funds. This surge, together with distortions current crisis. This morning I should like to carry the caused by government planning, has resulted in huge analysis a bit further. losses. With the inevitable slowdown, business losses Companies in Korea and many other Asian coun- and nonperforming bank loans surged. Banks' capitries have become formidable world class producers tal eroded rapidly and, as a consequence, funding in several manufacturing sectors using advanced sources have dried up, as fears of defaults have risen technologies, but in several cases they permitted dramatically. In an environment of weak financial leverage to rise to levels that could only be sustained systems, lax supervisory regimes, and vague guaranwith continued very rapid growth. Growth, however, tees about depositor or creditor protections, bank was destined to slow. runs have occurred in several countries and reached Asian economies to varying degrees over the past crisis proportions in Indonesia. Uncertainty and half century have tried to combine rapid growth with retrenchment have escalated. The state of confidence a much higher mix of government-directed produc- so necessary to the functioning of any economy has tion than has been evident in the essentially market- been torn asunder. Vicious cycles of ever-rising and driven economies of the West. Through government reinforcing fears have become contagious. Some inducements, several select, more sophisticated exchange rates have fallen to levels that are undermanufacturing technologies borrowed from the standable only in the context of a veritable collapse advanced market economies were applied to these of confidence in the functioning of an economy. generally low-productivity and, hence, low-wage A similar breakdown was also evident in Mexico economies. Thus, for selected products, exports three years ago, albeit to a somewhat lesser degree. In became competitive with those of the market econo- late 1994, the government was rapidly losing reserves mies, engendering rapid overall economic growth. in a vain effort to support a currency that had come There was, however, an inevitable limit to how under attack when the authorities failed to act expefar this specialized Asian economic regime could ditiously and convincingly to contain a burgeoning develop. As the process broadened beyond a few current account deficit financed in large part by subselect applications of advanced technologies, overall stantial short-term flows denominated in dollars. productivity continued to increase, and the associated These two recent crisis episodes have afforded us rise in the average real wage in these economies increasing insights into the dynamics of the evolving blunted somewhat the competitive advantage enjoyed international financial system, though there is much initially. As a consequence of the slackening of we do not yet understand. export expansion caused in part by losses in competi- With the new, more sophisticated financial markets tiveness because of exchange rates that were pegged punishing errant government policy behavior far to the dollar, which was appreciating against the yen, more profoundly than in the past, vicious cycles are aggregate economic growth slowed somewhat, even evidently emerging more often. For, once they are before the current crisis. triggered, damage control is difficult. Once the web For years, domestic savings and rapidly increasing of confidence, which supports the financial system, is capital inflows had been directed by governments breached, it is difficult to restore quickly. The loss of into investments that banks were required to finance. confidence can trigger rapid and disruptive changes As I pointed out in previous testimony, lacking a true in the pattern of finance, which, in turn, feed back on market test, much of that investment was unprofit- exchange rates and asset prices. Moreover, investor able. So long as growth was vigorous, the adverse concerns that weaknesses revealed in one economy consequences of this type of nonmarket allocation of may be present in others that are similarly situated resources were masked. Moreover, in the context of means that the loss of confidence can quickly spread pegged exchange rates that were presumed to con- to other countries. tinue, if not indefinitely, at least beyond the term of At one point the economic system appears stable, the loan, banks and nonbanks were willing to take the the next it behaves as though a dam has reached a risk to borrow dollars (unhedged) to obtain the dollar- breaking point, and water (read, confidence) evacu- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

188 Federal Reserve Bulletin • March 1998 ates its reservoir. The United States experienced such half of 1997. The combination of continued strong a sudden change with the decline in stock prices of demand for dollars to meet debt service obligations more than 20 percent on October 19, 1987. There is and the slowed new supply destabilized the previno credible scenario that can readily explain so abrupt ously fixed exchange rate regime. This created a a change in the fundamentals of long-term valuation marked increase in uncertainty and retrenchment, on that one day. Such market panic does not appear further reducing capital inflows, still further weakento reflect a simple continuum from the immediately ing local currency exchange rates. This vicious cycle previous period. The abrupt onset of such implosions will continue until either defaults or restructuring suggests the possibility that there is a marked divid- lowers debt service obligations or the low local ing line for confidence. When crossed, prices slip exchange rates finally induce a pickup in the supply into free fall—perhaps overshooting the long-term of dollars. equilibrium—before markets will stabilize. These virulent episodes appear to be at the root of But why do these events seem to erupt without our most recent breakdowns in Mexico and Asia. some readily evident precursor? Certainly, the more Their increased prevalence may, in fact, be a defining extended the risk-taking, or more generally, the lower characteristic of the new high tech international the discount factors applied to future outcomes, the financial system. We shall never be able to alter the more vulnerable are markets to a shock that abruptly human response to shocks of uncertainty and withtriggers a revision in expectations and sets off a drawal; we can only endeavor to reduce the imbalvicious cycle of contraction. ances that exacerbate them. Episodes of vicious cycles cannot be easily fore- Although, as indicated earlier, I do not believe we cast, as our recent experience with Asia has demon- are as yet sufficiently knowledgeable of the full comstrated. The causes of such episodes are complex and plex dynamics of our increasingly developing high often subtle. In the case of Asia, we can now say with tech financial system, enough insights have been some confidence that the economies affected by this gleaned from the crises in Mexico and Asia (and crisis faced a critical mass of vulnerabilities; ex ante, previous experiences) to enable us to list a few of the some were more apparent than others, but the combi- critical tendencies toward disequilibrium and vicious nation was not generally recognized as critical. cycles that will have to be addressed if our new Once the recent crisis was triggered in early July global economy is to limit the scope for disruptions with Thailand's forced abandonment of its exchange in the future. These elements have all, in times past, rate peg, it was apparently the lethal combination of been factors in international and domestic economic pegged exchange rates, high leverage, weak banking disruptions, but they appear more stark in today's and financial systems, and declining demand in Thai- market. land and elsewhere that transformed a correction into a collapse. Normally the presence of these factors would have produced a modest retrenchment, not the 1. Leverage. Certainly in Korea, probably in Thaikind of discontinuous fall in confidence that leads to land, and possibly elsewhere, a high degree of levera vicious cycle of decline. But with a significant part age (the ratio of debt to equity) appears to be a place of short-term liabilities, bank and nonbank, denomi- to start. Although the key role of debt in bank balance nated in foreign currencies (predominantly dollars), sheets is obvious, its role in the efficient functioning unhedged, the initial pressure on domestic currencies of the nonbank sector is also important. Nevertheless, led to a sharp crack in the fixed-exchange-rate struc- exceptionally high leverage often is a symptom of ture of many East Asian economies. The belief that excessive risk-taking that leaves financial systems local currencies could, virtually without risk of loss, and economies vulnerable to loss of confidence. It is be converted into dollars at any time was shattered. not easy to imagine the cumulative cascading of debt Investors, both domestic and foreign, endeavored instruments seeking safety in a crisis when assets are en masse to convert to dollars, as confidence in the heavily funded with equity. The concern is particuability of the local economy to earn dollars to meet larly relevant to banks and many other financial intertheir fixed obligations diminished. Local exchange mediaries, whose assets typically are less liquid than rates fell against the dollar, inducing still further their liabilities and so depend on confidence in the declines. payment of liabilities for their continued viability. The weakening of growth also led to lowered profit Moreover, both financial and nonfinancial businesses expectations and contracting net capital inflows of can employ high leverage to mask inadequate underdollars. This was an abrupt change from the pro- lying profitability and otherwise have inadequate nounced acceleration through 1996 and the first capital cushions to match their volatile environments. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 189 Excess leverage in nonfinancial business can create diation. Their breakdown induces a sharp weakening problems for lenders, including their banks; these in economic growth. A wider range of nonbank instiproblems can, in turn, spread to other borrowers that tutions, including viable debt and equity markets, rely on these lenders. Fortunately, since lending by are important safeguards of economic activity when nonfinancial firms to other businesses is less preva- banking fails. lent than bank lending to other banks, direct contagion is less likely. But the leverage of South Korea's 8. Inadequate Legal Structures. Finally, an effecchaebols, because of their size and the pervasive tive competitive market system requires a rule of law distress, has clearly been an important cause of bank that severely delimits government's arbitrary intruproblems with their systemic implications. sion into commercial disputes. 2. Interest Rate and Currency Risk. Banks, when Defaults and restructuring will not always be confronted with a generally rising yield curve, have a avoidable. Indeed, "creative destruction," as Joseph tendency to incur interest rate or liquidity risk by Schumpeter put it, is often an important element lending long and funding short. This exposes them to of renewal in a dynamic market economy, but an shocks, especially those institutions that have low efficient bankruptcy statute is required to aid in capital-asset ratios. When financial intermediaries, in this process, including in the case of cross-border addition, seek low-cost, unhedged foreign currency defaults. funding, the dangers of depositor runs, after a fall in Interest and currency risk-taking, excess leverage, the domestic currency, escalate. weak financial systems, and interbank funding are all encouraged by the existence of a safety net. In a 3. Weak Banking Systems. Banks play a crucial domestic context, it is difficult to achieve financial role in the financial market infrastructure. When they balance without a regulatory structure that seeks to are undercapitalized, have lax lending standards, and simulate the market incentives that would tend to are subjected to weak supervision and regulation, control these financial elements if there were not they become a source of systemic risk both domesti- broad safety nets. It is even more difficult to achieve cally and internationally. such a balance internationally among sovereign governments operating out of different cultures. Thus, 4. Interbank Funding, Especially in Foreign Cur- governments have developed a patchwork of arrangerencies. Despite its importance for distributing sav- ments and conventions governing the functioning of ings to their most valued use, short-term interbank the international financial system that I believe will funding, especially cross-border, may turn out to be need to be thoroughly reviewed and altered as necesthe Achilles' heel of an international financial system sary to fit the needs of the new global environment. A that is subject to wide variations in financial confi- review of supervision and regulation of private finandence. This phenomenon, which is all too common in cial institutions, especially those that are supported our domestic experience, may be particularly danger- by a safety net, is particularly pressing because those ous in an international setting. institutions have played so prominent a role in the emergence of recent crises. 5. Moral Hazard. The expectation that monetary As I have testified previously, I believe that, in this authorities or international financial institutions will rapidly expanding international financial system, the come to the rescue of failing financial systems and primary protection from adverse financial disturunsound investments has clearly engendered a sig- bances is effective counterparty surveillance, and nificant element of moral hazard and excessive risk- hence government regulation and supervision should taking. The dividing line between public and private seek to produce an environment in which counterparliabilities, too often, becomes blurred. ties can most effectively oversee the credit risks of potential transactions. 6. Weak Central Banks. To effectively support a Here a major improvement in transparency, includstable currency, central banks need to be independ- ing both accounting and public disclosure, is essenent, meaning that their monetary policy decisions are tial. To be sure, counterparties often exchange othernot subject to the dictates of political authorities. wise confidential information as a condition of a transaction. But broader dissemination of detailed 7. Securities Markets. Recent adverse banking disclosures of governments, financial institutions, and experiences have emphasized the problems that can firms is required if the risks inherent in our global arise if banks are almost the sole source of interme- financial structure are to be contained. A market Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

190 Federal Reserve Bulletin • March 1998 system can approach an appropriate equilibrium only regulation should address excess nonperforming if the signals to which individual market participants loans expeditiously. The expected values of the losses respond are accurate and adequate to the needs of the on these loans are, of course, a subtraction from adjustment process. Among the important signals are capital. But because these estimates are uncertain, product and asset prices, interest rates, debt by matu- they embody an additional risk premium that reduces rity, detailed accounts of central banks, and private the markets' best estimate of the size of effective enterprises. Blinded by faulty signals, a competitive equity capital even if capital is replenished. It is, free market system cannot reach a firm balance hence, far better to remove these dubious assets and except by chance. In today's rapidly changing mar- their associated risk premium from bank balance ketplace, producers need sophisticated signals to hone sheets and dispose of them separately, preferably production schedules and investment programs to promptly. respond to consumer demand. As a consequence of the unwinding of market There is sufficient bias in political systems of all restrictions and regulations and the rapid increase varieties to substitute hope (read, wishful thinking) in technology, the international financial system has for possibly difficult preemptive policy moves, both expanded at a pace far faster than either domestic with respect to financial systems and economic pol- gross domestic product or cross-border trade. To icy. There is often denial and delay in instituting reduce the risk of systemic crises in such an environproper adjustments. Recent propensities to obscure ment, an enhanced regime of market incentives, the need for change have been evidenced by unre- involving greater sensitivity to market signals, more ported declines in official reserves, issuance by gov- information to make those signals more robust, and ernments of the equivalent of foreign currency obli- broader securities markets—coupled with better gations, or unreported large forward short positions supervision—are essential. Obviously appropriate against foreign currencies. It is very difficult for macro policies, as ever, are assumed. But attention to political leaders to incur what they perceive as large micro details is becoming increasingly pressing. immediate political costs to contain problems that Nonetheless, it is reasonable to expect that despite they see (often dimly) as only prospective. endeavors at risk containment and prevention the Reality eventually replaces hope, but the cost of system may fail in some instances, triggering vicious delay is a more abrupt and disruptive adjustment than cycles and all the associated contagion for innocent would have been required if action had been more bystanders. A backup source of international finanpreemptive. Increased transparency for businesses, cial support provided only with agreed conditions to financial institutions, and governments is a key ingre- address underlying problems, the task assigned to the dient in fostering more discipline on private trans- IMF, can play an essential stabilizing role. The availactors and on government policymakers. Increased ability of such support must be limited because its transparency can counter political bias, in part, by size cannot be expected to expand at the pace of the exposing for all to see the risks to stability of current international financial system. I doubt if there will be policies as they develop. Under such conditions, fail- worldwide political support for that. ure to act would also be perceived as having political In closing, I should like to stress that the significant costs. I suspect that recent political foot dragging by degree of volatility that continues to exist in Asian governments in both developed and developing coun- markets indicates exceptionally high levels of uncertries on the issue of greater transparency is credible tainty, bordering on panic. It is not reasonable to evidence of its power and significance. expect that the substantial investments needed to Transparency, which is so important to foster safe implement meaningful structural reforms can proand sound lending practices, is, of course, less rele- ceed very far until we observe a simmering down of vant for local-currency lending if banks are guaran- frenetic changes in asset prices and exchange rates. teed with sovereign credits. Moreover, transparency That is likely to result only when stability of bankbecomes especially difficult to create for organiza- ing and financial systems generally is achieved. As tions and corporations with large interlocking owner- I indicated in my November testimony, the failure ships. Cross-holdings of stock lead too often to lend- of the fragile banking systems of East Asia to hold ing on the basis of association, not economic value. steady as financial pressures increased was a defining The list of problems that must be addressed to element in the developing crisis. The stabilization of achieve balance in our future global financial system those banking systems is crucial, if confidence, which could be significantly extended, but let me end with has been so thoroughly undercut in this most debilia notion that is relevant also to today's crisis. It is tating crisis, is to be restored. • becoming increasingly evident that supervision and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

191 Announcements APPOINTMENTS OF NEW MEMBERS TO THE Robert F. Elliott Prospect Heights, Illinois CONSUMER ADVISORY COUNCIL Mr. Elliott is Vice Chairman of Household International, a diversified financial services company engaged in making The Federal Reserve Board on January 14, 1998, loans and issuing credit cards in the United States, the named fourteen new members to its Consumer Advi- United Kingdom, and Canada. He has been with Housesory Council for three-year terms and designated a hold since 1964. He was named Assistant Director of new chairman and vice chairman of the council for commercial lending in 1982; he was promoted to Division 1998. General Manager of Household's Canadian company in 1985 and to President of the operation in 1986. He was The council, which consists of thirty members, appointed President of Household's private label credit advises the Board on the exercise of its responsibilicard business in 1987 and was named Group Executive and ties under the Consumer Credit Protection Act and on Chief Executive Officer of HFC in 1990. He was promoted other matters in the area of consumer financial ser- to his current position in 1997. Mr. Elliott is active in vices. The council meets three times a year in Wash- business associations and currently serves on the board of directors for the American Financial Services Association ington, D.C. and Junior Achievement. William N. Lund, Director of the Office of Consumer Credit Regulation for the State of Maine, was Dwight Golann designated chairman. His term runs through Decem- Boston, Massachusetts ber 1998. Yvonne S. Sparks was designated vice Mr. Golann is Professor of Law at Suffolk University Law chairman. Ms. Sparks is Vice President, Community School and is also a Visiting Scholar at Harvard Law Investment Department, at the NationsBank Commu- School. A specialist in alternative dispute resolution, he is nity Investment Group in St. Louis, Missouri. Her a senior mediator and trainer for JAMS/Endispute and is a term on the council ends in December 1999. Distinguished Neutral for the CPR Institute of Dispute Resolution. He chairs the dispute resolution programs for The fourteen new members are the following: the ADR committee in the American Bar Association's Section of Litigation and has just completed a three-year term as chair of the ABA's Consumer Financial Services Walter J. Boyer Committee. He previously served as chief of the Consumer Garland, Texas Protection Division, deputy chief of the Public Protection Bureau, and Assistant Attorney General for the Common- Mr. Boyer is President of United Central Bank, a minority- wealth of Massachusetts. Mr. Golann is the principal author owned bank that specializes in niche markets serving the and editor of Mediating Legal Disputes: Effective Stratelarge Asian populations of Texas. Mr. Boyer is active in gies for Lawyers and Mediators. many community and business organizations. He currently serves as President of the Dallas Business Association. Marva H. Harris Other past and present affiliations include service as board Pittsburgh, Pennsylvania member of the Garland Community Hospital, the Garland Advisory Police Council, and the Association of Women Ms. Harris is Senior Vice President and Manager of Com- Entrepreneurs. munity Development for PNC Bank Corporation, Pittsburgh, providing strategic guidance for initiatives that target the community development and economic revitalization of low- and moderate-income areas in all PNC Jeremy Eisler Bank markets. In 1997, Ms. Harris received the Carlow Ocean Springs, Mississippi College Women of Spirit award, in recognition of leader- Mr. Eisler is Director of Litigation for the South Missis- ship in business and community activities. In 1995, she sippi Legal Services Corporation, where he practices in the was among ten women from the Pittsburgh area to receive area of consumer law. The agency, located in Biloxi, the YWCA of Greater Pittsburgh's Tribute to Women Leadrepresents low-income individuals. Mr. Eisler is also the ership Award in Business and Industry. She is a member of Statewide Coordinator of Litigation and Training in the the Consumer Bankers Association's Community Reinarea of consumer law for Legal Services programs in vestment Act Committee. She is a founding board member Mississippi, and is a frequent lecturer on consumer law. He of the Pittsburgh Partnership for Neighborhood Develis a member of both the Mississippi and the North Carolina opment and the founding president of the Community Bars. Lender Credit Program. She has served on the board of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

192 Federal Reserve Bulletin • March 1998 directors for the Housing Authority of the City of Pitts- and the North Carolina Credit Union Network. Ms. Miller burgh. also serves on the advisory board of Credit Counselors of Greensboro. She is a representative to the Better Business Karla Irvine Bureau of Central North Carolina and the Greensboro Area Cincinnati, Ohio Chamber of Commerce. Ms. Irvine is Executive Director of Housing Opportunities Daniel W. Morton Made Equal (HOME) of Greater Cincinnati, Inc., a private Columbus, Ohio nonprofit corporation. HOME provides seminars and training on fair housing education issues and investigative Mr. Morton is a Vice President and Senior Counsel of The techniques in real estate sales and rentals. Ms. Irvine is a Huntington National Bank, a subsidiary of the Huntington member of the Executive Committee of the Cincinnati Bancshares, Inc., a bank holding company headquartered Branch of the National Association for the Advancement in Columbus, Ohio. He is responsible for providing legal of Colored Persons. She is a board member of the Greater advice with respect to retail deposit and consumer credit Cincinnati Mortgage Counseling Center, a group that pro- products, electronic banking, insurance, and other regulavides support for low- and moderate-income, first-time tory matters. He also works with the bank's Community homebuyers; a member of the Greater Cincinnati Housing Centered Banking group, which seeks alternative ways to Alliance, a group that funds neighborhood development bring banking products to low- and moderate-income percorporations to improve their performance; and a member sons. Mr. Morton serves on the Legal and Public Policy of Cincinnatus, a civic group. Committee of the Smart Card Forum, the Legal/Public Policy Working Group of The Bankers Roundtable, the Consumer Financial Services Committee of the Business Gwenn Kyzer Law Section of the American Bar Association, and various Allen, Texas committees of the Consumer Bankers Association. Ms. Kyzer is Vice President for Information Services for Experfan, a diversified information company that includes Charlotte Newton one of the three major credit reporting agencies in the Springfield, Virginia United States. Experfan is a global provider of consumer and business credit reporting, credit-scoring, and other Ms. Newton is Vice President of Consumer Affairs for analytical tools, and target-marketing information and ser- MasterCard International. She serves as vice chair of the vices. Ms. Kyzer's current responsibilities include expan- National Consumers League and is co-chair of the Corposion of the marketing information business and fair infor- rate Relations Committee recently established by the mation practices for Experfan's direct marketing business. National Association of Consumer Agency Administrators. Ms. Kyzer has more than twenty years' experience in the Ms. Newton serves on the National Commission on Family credit reporting and direct market industries, having previ- and Consumer Sciences National Standards as an adviser ously held senior positions with TRW and with Chilton on the development of curriculum review standards for Corporation. She serves on the board of directors of the teaching consumer science. She has previously served as American Mail Marketing Association and of the Direct president of the Virginia Citizens Consumer Council and Marketing Educational Foundation and serves on the Eth- as the executive director of the National Association of ics Policy Committee of the Direct Marketing Association. Consumer Agency Administrators. As a founder of the National Coalition of Consumer Education, she served on the board of directors during the organization's early years. John C. Lamb Sacramento, California David L. Ramp Minneapolis, Minnesota Mr. Lamb is Senior Staff Counsel for the California Department of Consumer Affairs, where he drafts and Mr. Ramp is an attorney who represents low-income clianalyzes consumer legislation and where he has conducted ents for the Legal Aid Society of Minneapolis, specializing consumer litigation and prepared and argued "friend of the in consumer and housing cases. He is the 1997 recipient of court" briefs. Mr. Lamb writes and edits the Consumer the Vern Countryman Consumer Law Award. This award Law Sourcebook, and serves as liaison to consumer orga- recognizes and honors the accomplishments of attorneys nizations. He is a member of the California State Bar's serving the public interest who, through the practice of Consumer Financial Services and Consumer Advocacy consumer law, have contributed significantly to the rights Committees and is also a member of the California District and welfare of low-income consumers. Mr. Ramp is a Attorneys Association's Consumer and Environmental Pro- member of the Minnesota State Bar and Hennepin County tection Council. Bar and serves on the bankruptcy panel of the Legal Advice Clinic. Martha W. Miller Greensboro, North Carolina Robert G. Schwemm Lexington, Kentucky Ms. Miller is President of Choice Federal Credit Union, a $38.5 million institution serving more than 34,000 mem- Mr. Schwemm is Professor of Law at the University of bers, primarily manufacturing employees paid on an hourly Kentucky, where he teaches courses in civil procedure, basis. She serves on a regional advisory committee of the constitutional law, and civil rights. He specializes in fair National Association of Federal Credit Unions and on the housing and fair lending laws, and is the author of Housing board of directors of the Carolina Credit Union Services Discrimination: Law and Litigation. Mr. Schwemm serves Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Announcements 193 as an adviser to the U.S. Department of Housing and Urban Gregory D. Squires, Professor, Department of Soci- Development, the U.S. Department of Justice, and various ology, University of Wisconsin-Milwaukee, Milwaukee, other public and private agencies concerned with fair hous- Wisconsin ing enforcement. George P. Surgeon, Chief Financial Officer and Exec- David J. Shirk utive Vice President, Shorebank Corporation, Chicago, Eugene, Oregon Illinois Mr. Shirk is Senior Vice President of Frontier Investment Theodore J. Wysocki, Jr., Executive Director, CANDO, Company, a full-service mortgage company; and is the Chicago, Illinois founder of RegWise, a regulatory compliance consulting firm. He is a Certified Mortgage Consultant, and in 1995 was named Mortgage Broker of the Year by the National Association of Mortgage Brokers. He served as chair of the Association's National Mortgage Reform task force in ISSUANCE OF THE FINAL REPORT AND 1996-97; he now serves on the Mortgage Reform Working Group, a roundtable of industry and consumer organiza- RECOMMENDATIONS OF THE COMMITTEE ON tions that is developing recommendations for the reform THE FEDERAL RESERVE IN THE PAYMENTS of the Truth in Lending Act and Real Estate Settlement MECHANISM Procedures Act. He is a past president of the Oregon Association of Mortgage Brokers. Mr. Shirk recently published a manual entitled High Cost Mortgages, How to The Federal Reserve on January 5, 1998, issued the Comply with Regulation Z Section 32: An Originator's final report and recommendations of its Committee Guide to Compliance. on the Federal Reserve in the Payments Mechanism. The Committee was appointed by Chairman Alan Council members whose terms continue through Greenspan in October 1996 to examine the payment 1998 and 1999 are the following: services provided by the Federal Reserve to depository institutions in recognition of the rapid changes Richard S. Amador, President and Chief Executive occurring in the financial services and technology Officer, CHARO Community Development Corporation, sectors. Los Angeles, California The Committee came to two general conclusions, Wayne-Kent A. Bradshaw, President and Chief Execu- which are discussed in detail in its full report: tive Officer, Family Savings Bank, FSB, Los Angeles, California • The Federal Reserve should remain a provider of both check collection and automated clearinghouse Heriberto Flores, President and Chief Executive Officer, Brightwood Development Corporation, Springfield, (ACH) services with the explicit goal of enhancing Massachusetts the efficiency, effectiveness, and convenience of both systems, while ensuring access for all depository Francine C. Justa, Executive Director, Neighborhood institutions. Housing Services of New York, New York, New York • The Federal Reserve should play a more active role, working closely and collaboratively with pro- Janet C. Koehler, Senior Manager of Electronic Commerce, AT&T Universal Card Services, Jacksonville, viders and users of the payments system, both to Florida enhance the efficiency of check and ACH services and to help evolve strategies for moving to the next Errol T. Louis, Central Brooklyn Federal Credit Union, generation of payment instruments. Brooklyn, New York Carol Parry, Executive Vice President, Chase Manhattan In reaching its conclusions, the committee under- Bank, New York, New York took a fundamental review of the role of the Federal Reserve in the payments system and considered how Philip Price, Jr. , Executive Director, The Philadelphia alternative roles for the Federal Reserve might Plan, Philadelphia, Pennsylvania enhance or undermine the integrity, efficiency, and accessibility of the payments system. Marilyn Ross, Executive Director, Holy Name Housing Corporation, Omaha, Nebraska The review involved a series of payments system forums held around the country to receive views of Margot Saunders, Managing Attorney, National Con- representatives from more than 450 institutions, sumer Law Center, Washington, D.C. including depository institutions of all sizes, clearinghouses, and other third-party service providers, con- Gail Small, Executive Director, Native Action, Lame Deer, Montana sumers, retailers, and academics. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

194 Federal Reserve Bulletin • March 1998 Discussions at these meetings focused on five their surplus accounts to the Treasury, as statutorily hypothetical scenarios depicting various alternative required. roles of the Federal Reserve, ranging from exiting the retail payments system to adopting a leadership role in the industry. STANDARD SCHEDULE PLANNED FOR THE The committee is composed of Vice Chair Alice FEDERAL RESERVE BANKS FOR 1999 M. Rivlin as Committee Chair, Governor Edward W. Kelley, Jr., President William J. McDonough of the The Federal Reserve Board announced on Janu- Federal Reserve Bank of New York, and President ary 28, 1998, that the Reserve Banks will adhere to a Thomas C. Melzer of the Federal Reserve Bank of standard holiday schedule next year and remain open St. Louis. for normal operations on December 31, 1999. The committee's final report and recommendations Although various financial and trade groups have are available from Publications Services, Mail Stop been considering whether a banking holiday on 127, Board of Governors of the Federal Reserve December 31, 1999, would ease potential disruptions System, Washington, DC 20551. that may be caused by the century date change, the Board believes that a banking holiday is not warranted. The Board said bank resources would be PRELIMINARY FIGURES AVAILABLE ON better spent preparing for the year 2000 changeover OPERATING INCOME OF THE FEDERAL rather than addressing the operating, financial, legal, RESERVE BANKS and other consequences that would flow from a datechange holiday. Preliminary figures announced on January 8, 1998, As part of its year 2000 preparations, the Federal indicate that operating income of the Federal Reserve Reserve plans a comprehensive program for banks to Banks amounted to $26,916 billion during 1997. Net test computers used for Fedwire transfers, automated income before payment of dividends, additions to clearinghouse transactions, and other central bank surplus, and payments to the Treasury totaled services for compliance with the date change. $21,793 billion. About $20,662 billion of this net A schedule will be issued shortly with actual testincome was distributed to the U.S. Treasury during ing beginning at midyear and continuing through 1997. 1999. This program will permit banks to send test Federal Reserve System income is derived primatransactions across a variety of dates pertaining to the rily from interest earned on U.S. government securicentury date change. Testing for depository instituties that the Federal Reserve has acquired through tions will be coordinated through their District Fedopen market operations. Income from the provision eral Reserve Banks. of financial services amounted to $790 million. Operating expenses of the twelve Reserve Banks and Branches totaled $1,813 billion. In addition, AVAILABILITY OF REVISED LISTS OF earnings credits in the amount of $361.6 million were OVER-THE-COUNTER STOCKS AND OF FOREIGN granted to depository institutions under the Monetary STOCKS SUBJECT TO MARGIN REGULATIONS Control Act of 1980. Assessments to Reserve Banks for Board expenditures totaled $174.4 million, and The Federal Reserve Board published on January 23, the cost of currency amounted to $364.5 million. 1998, a revised list of over-the-counter (OTC) stocks Net deductions from income amounted to that are subject to its margin regulations. Also pub- $2,577 billion, resulting primarily from unrealized lished was a revised list of foreign equity securities losses on assets denominated in foreign currencies that meet the margin criteria in Regulation T (Credit revalued to reflect current market exchange rates. by Brokers and Dealers). The lists were effective Statutory dividends to member banks were February 9, 1998, and supersede the previous lists $299.7 million. that were effective November 10, 1997. Under the policy established by the Board of Gov- The changes that have been made to the revised ernors at the end of 1964, all net income after the OTC list, which now contains 4,860 OTC stocks, are statutory dividend to member banks and the amount as follows: necessary to equate surplus to paid-in capital is transferred to the U.S. Treasury. In October 1996 and • One hundred eighty-eight stocks have been October 1997 the Reserve Banks also transferred included for the first time, 153 under National Market $106 million and $107 million, respectively, from System (NMS) designation Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Announcements 195 • Sixty-one stocks previously on the list have been Lenders subject to Regulation T and borrowers removed for substantially failing to meet the require- subject to Regulation X (Borrowers of Securities ments for continued listing Credit) who are required under Section 224.3(a) to • One hundred twenty stocks have been removed conform credit they obtain to Regulation T must for reasons such as listing on a national securities continue to use the OTC list until publication of the exchange or involvement in an acquisition. next OTC list, anticipated for May 1998. An amendment to Regulation T that will make all stocks trading Pursuant to amendments recently adopted by the in the NASDAQ Stock Market marginable at brokers Board, lenders subject to Regulation G (Securities and dealers will be effective January 1, 1999. The Credit by Persons other than Banks, Brokers, or Board will cease publication of the OTC list at that Dealers) will become subject to a revised Regula- time. tion U (Credit by Banks for Purchasing or Carrying The foreign list is composed of foreign equity Margin Stocks) on April 1, 1998, and Regulation G securities that are eligible for margin treatment at will be removed from the Code of Federal Regula- broker-dealers. Effective July 1, 1996, foreign stocks tions. Also on April 1, 1998, Regulation U will be that have a "ready market" for purposes of the revised so that lenders other than brokers and dealers Securities and Exchange Commission's (SEC) net will no longer be required to apply the Board's capital rule may be included on the foreign list. The margin requirements to all OTC stocks on the OTC SEC effectively treats all stocks included on the list. Instead, lenders subject to the revised Regulation Financial Times/Standard & Poor's Actuaries World U will be required to apply the Board's margin Indices (FT/S&P-AW Indices) as having a "ready requirements only to those OTC stocks that qualify as market" for capital purposes. The Board is adding NMS securities. The names of these securities are twenty-four foreign stocks and deleting thirty-eight, available at the National Association of Securities based on changes to the FT/S&P-AW Indices. The Dealers, Inc., and at the Securities and Exchange revised foreign list now contains 1,942 securities Commission. displayed in order of country. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

196 Federal Reserve Bulletin • March 1998 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

197 Legal Developments FINAL RULE—AMENDMENTS TO REGULATIONS G,T,U (b) Scope. AND X (1) This part provides a margin account and four special purpose accounts in which to record all financial rela- The Board of Governors is amending 12 C.F.R. Parts 207, tions between a customer and a creditor. Any transaction 220, 221, 224, and 265, its Regulations G, T, U and X not specifically permitted in a special purpose account (Securities Credit Transactions; Borrowing by Brokers and shall be recorded in a margin account. Dealers; and Rules Regarding Delegation of Authority). (2) This part does not preclude any exchange, national The final amendments include the extension of Regula- securities association, or creditor from imposing addition U to cover lenders formerly subject to Regulation G tional requirements or taking action for its own protecand the elimination of Regulation G. The amendments tion. reduce regulatory distinctions between broker-dealers, (3) This part does not apply to: banks, and other lenders and implement changes to the (i) Financial relations between a customer and a cred- Board's securities credit regulations to reflect changes to itor to the extent that they comply with a portfolio the Board's statutory authority under the Securities Ex- margining system under rules approved or amended change Act of 1934, as amended by the National Securities by the SEC; Markets Improvement Act of 1996. Conforming changes (ii) Credit extended by a creditor based on a good are also made to Regulation X, "Borrowers of Securities faith determination that the borrower is an exempted Credit" and the Board's Rules Regarding Delegation of borrower; Authority. (iii) Financial relations between a customer and a Effective April 1, 1998, 12 C.F.R. Parts 207, 220, 221, broker or dealer registered only under section 15C of 224, and 265 are amended as follows Compliance with the the Act; and revised Regulation T (12 C.F.R. Part 220) is optional until (iv) Financial relations between a foreign branch of a July 1, 1998. creditor and a foreign person involving foreign securities. Part 207—[Removed] Section 220.2—Definitions. 1. Part 207 is removed. The terms used in this part have the meanings given them in section 3(a) of the Act or as defined in this section as Part 220—Credit by Brokers and Dealers follows: (Regulation T) Affiliated corporation means a corporation of which all the common stock is owned directly or indirectly by the firm 2. The authority citation for Part 220 continues to read as or general partners and employees of the firm, or by the follows: corporation or holders of the controlling stock and employees of the corporation, and the affiliation has been ap- Authority: 15 U.S.C. 78c, 78g, 78q, and 78w. proved by the creditor's examining authority. Cash equivalent means securities issued or guaranteed by 3. Sections 220.1 through 220.12 are revised to read as the United States or its agencies, negotiable bank certififollows: cates of deposit, bankers acceptances issued by banking institutions in the United States and payable in the United Section 220.1—Authority, purpose, and scope. States, or money market mutual funds. Covered option transaction means any transaction involv- (a) Authority and purpose. Regulation T (this part) is ing options or warrants in which the customer's risk is issued by the Board of Governors of the Federal Reserve limited and all elements of the transaction are subject to System (the Board) pursuant to the Securities Exchange contemporaneous exercise if: Act of 1934 (the Act) (15 U.S.C. 78a et seq.). Its principal (1) The amount at risk is held in the account in cash, purpose is to regulate extensions of credit by brokers and cash equivalents, or via an escrow receipt; and dealers; it also covers related transactions within the (2) The transaction is eligible for the cash account by the Board's authority under the Act. It imposes, among other rules of the registered national securities exchange auobligations, initial margin requirements and payment rules thorized to trade the option or warrant or by the rules of on certain securities transactions. the creditor's examining authority in the case of an Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

198 Federal Reserve Bulletin • March 1998 unregistered option, provided that all such rules have Examining authority means: been approved or amended by the SEC. (1) The national securities exchange or national securi- Credit balance means the cash amount due the customer in ties association of which a creditor is a member; or a margin account after debiting amounts transferred to the (2) If a member of more than one self-regulatory organispecial memorandum account. zation, the organization designated by the SEC as the Creditor means any broker or dealer (as defined in sec- examining authority for the creditor. tions 3(a)(4) and 3(a)(5) of the Act), any member of a Exempted borrower means a member of a national securinational securities exchange, or any person associated with ties exchange or a registered broker or dealer, a substantial a broker or dealer (as defined in section 3(a)(18) of the portion of whose business consists of transactions with Act), except for business entities controlling or under com- persons other than brokers or dealers, and includes a bormon control with the creditor. rower who: Current market value of: (1) Maintains at least 1000 active accounts on an annual (1) A security means: basis for persons other than brokers, dealers, and per- (i) Throughout the day of the purchase or sale of a sons associated with a broker or dealer; security, the security's total cost of purchase or the net (2) Earns at least $10 million in gross revenues on an proceeds of its sale including any commissions annual basis from transactions with persons other than charged; or brokers, dealers, and persons associated with a broker or (ii) At any other time, the closing sale price of the dealer; or security on the preceding business day, as shown by (3) Earns at least 10 percent of its gross revenues on an any regularly published reporting or quotation ser- annual basis from transactions with persons other than vice. If there is no closing sale price, the creditor may brokers, dealers, and persons associated with a broker or use any reasonable estimate of the market value of the dealer. security as of the close of business on the preceding Exempted securities mutual fund means any security issued business day. by an investment company registered under section 8 of (2) Any other collateral means a value determined by the Investment Company Act of 1940 (15 U.S.C. 80a-8), any reasonable method. provided the company has at least 95 percent of its assets Customer excludes an exempted borrower and includes: continuously invested in exempted securities (as defined in (1) Any person or persons acting jointly: section 3(a)(12) of the Act). (i) To or for whom a creditor extends, arranges, or Foreign margin stock means a foreign security that is an maintains any credit; or equity security that: (ii) Who would be considered a customer of the (1) Appears on the Board's periodically published List creditor according to the ordinary usage of the trade; of Foreign Margin Stocks; or (2) Any partner in a firm who would be considered a (2) Is deemed to have a "ready market" under SEC Rule customer of the firm absent the partnership relationship; 15c3-l (17 C.F.R. 240.15c3-l) or a "no-action" posiand tion issued thereunder. (3) Any joint venture in which a creditor participates and Foreign person means a person other than a United States which would be considered a customer of the creditor if person as defined in section 7(f) of the Act. the creditor were not a participant. Foreign security means a security issued in a jurisdiction Debit balance means the cash amount owed to the creditor other than the United States. in a margin account after debiting amounts transferred to Good faith with respect to: the special memorandum account. (1) Margin means the amount of margin which a creditor Delivery against payment, Payment against delivery, or a would require in exercising sound credit judgment; C.O.D. transaction refers to an arrangement under which a (2) Making a determination or accepting a statement creditor and a customer agree that the creditor will deliver concerning a borrower means that the creditor is alert to to, or accept from, the customer, or the customer's agent, a the circumstances surrounding the credit, and if in possecurity against full payment of the purchase price. session of information that would cause a prudent per- Equity means the total current market value of security son not to make the determination or accept the notice or positions held in the margin account plus any credit bal- certification without inquiry, investigates and is satisfied ance less the debit balance in the margin account. that it is correct. Escrow agreement means any agreement issued in connec- Margin call means a demand by a creditor to a customer tion with a call or put option under which a bank or any for a deposit of additional cash or securities to eliminate or person designated as a control location under paragraph (c) reduce a margin deficiency as required under this part. of SEC Rule 15c3-3 (17 C.F.R. 240.15c3-3(c)), holding Margin deficiency means the amount by which the required the underlying asset or required cash or cash equivalents, is margin exceeds the equity in the margin account. obligated to deliver to the creditor (in the case of a call Margin equity security means a margin security that is an option) or accept from the creditor (in the case of a put equity security (as defined in section 3(a)(ll) of the Act). option) the underlying asset or required cash or cash equiv- Margin excess means the amount by which the equity in alent against payment of the exercise price upon exercise the margin account exceeds the required margin. When the of the call or put. margin excess is represented by securities, the current Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 199 value of the securities is subject to the percentages set forth long put or long call who has, or has been deemed to in section 220.12 (the Supplement). have, exercised the option the cash difference between Margin security means: the exercise price and the current assigned value of the (1) Any security registered or having unlisted trading option as established by the option contract. privileges on a national securities exchange; Underlying asset means: (2) After January 1, 1999, any security listed on the (1) The security or other asset that will be delivered Nasdaq Stock Market; upon exercise of an option; or (3) Any non-equity security; (2) In the case of a cash-settled option, the securities or (4) Any security issued by either an open-end invest- other assets which comprise the index or other measure ment company or unit investment trust which is regis- from which the option's value is derived. tered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8); (5) Any foreign margin stock; (6) Any debt security convertible into a margin security; Section 220.3—General provisions. (7) Until January 1, 1999, any OTC margin stock; or (8) Until January 1, 1999, any OTC security designated as qualified for trading in the national market system (a) Records. The creditor shall maintain a record for each under a designation plan approved by the Securities and account showing the full details of all transactions. Exchange Commission (NMS security). (b) Separation of accounts. Money market mutual fund means any security issued by (1) In general. The requirements of one account may not an investment company registered under section 8 of the be met by considering items in any other account. If Investment Company Act of 1940 (15 U.S.C. 80a-8) that is withdrawals of cash or securities are permitted under considered a money market fund under SEC Rule 2a-7 this part, written entries shall be made when cash or (17 C.F.R. 270.2a-7). securities are used for purposes of meeting requirements Non-equity security means a security that is not an equity in another account. security (as defined in section 3(a)(l 1) of the Act). (2) Exceptions. Notwithstanding paragraph (b)(1) of this Nonexempted security means any security other than an section: exempted security (as defined in section 3(a)(12) of the (i) For purposes of calculating the required margin for Act). a security in a margin account, assets held in the good OTC margin stock means any equity security traded over faith account pursuant to section 220.6(e)(l)(i) or (ii) the counter that the Board has determined has the degree of may serve in lieu of margin; national investor interest, the depth and breadth of market, (ii) Transfers may be effected between the margin the availability of information respecting the security and account and the special memorandum account pursuits issuer, and the character and permanence of the issuer to ant to sections 220.4 and 220.5. warrant being treated like an equity security treaded on a (c) Maintenance of credit. Except as prohibited by this national securities exchange. An OTC stock is not consid- part, any credit initially extended in compliance with this ered to be an OTC margin stock unless it appears on the part may be maintained regardless of: Board's periodically published list of OTC margin stocks. (1) Reductions in the customer's equity resulting from Payment period means the number of business days in the changes in market prices; standard securities settlement cycle in the United States, as (2) Any security in an account ceasing to be margin or defined in paragraph (a) of SEC Rule 15c6-l (17 C.F.R. exempted; or 240.15c6-l(a)), plus two business days. (3) Any change in the margin requirements prescribed Purpose credit means credit for the purpose of: under this part. (1) Buying, carrying, or trading in securities; or (d) Guarantee of accounts. No guarantee of a customer's (2) Buying or carrying any part of an investment con- account shall be given any effect for purposes of this part. tract security which shall be deemed credit for the pur- (e) Receipt of funds or securities. pose of buying or carrying the entire security. (1) A creditor, acting in good faith, may accept as Short call or short put means a call option or a put option immediate payment: that is issued, endorsed, or guaranteed in or for an account. (i) Cash or any check, draft, or order payable on (1) A short call that is not cash-settled obligates the presentation; or customer to sell the underlying asset at the exercise price (ii) Any security with sight draft attached. upon receipt of a valid exercise notice or as otherwise (2) A creditor may treat a security, check or draft as required by the option contract. received upon written notification from another creditor (2) A short put that is not cash-settled obligates the that the specified security, check, or draft has been sent. customer to purchase the underlying asset at the exercise (3) Upon notification that a check, draft, or order has price upon receipt of a valid exercise notice or as other- been dishonored or when securities have not been rewise required by the option contract. ceived within a reasonable time, the creditor shall take (3) A short call or a short put that is cash-settled obli- the action required by this part when payment or securigates the customer to pay the holder of an in the money ties are not received on time. 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200 Federal Reserve Bulletin • March 1998 (4) To temporarily finance a customer's receipt of secu- (2) A creditor may establish separate margin accounts rities pursuant to an employee benefit plan registered on for the same person to: SEC Form S-8 or the withholding taxes for an employee (i) Clear transactions for other creditors where the stock award plan, a creditor may accept, in lieu of the transactions are introduced to the clearing creditor by securities, a properly executed exercise notice, where separate creditors; or applicable, and instructions to the issuer to deliver the (ii) Clear transactions through other creditors if the stock to the creditor. Prior to acceptance, the creditor transactions are cleared by separate creditors; or must verify that the issuer will deliver the securities (iii) Provide one or more accounts over which the promptly and the customer must designate the account creditor or a third party investment adviser has investinto which the securities are to be deposited. ment discretion. (f) Exchange of securities. (b) Required margin. (1) To enable a customer to participate in an offer to (1) Applicability. The required margin for each long or exchange securities which is made to all holders of an short position in securities is set forth in section 220.12 issue of securities, a creditor may submit for exchange (the Supplement) and is subject to the following excepany securities held in a margin account, without regard tions and special provisions. to the other provisions of this part, provided the consid- (2) Short sale against the box. A short sale "against the eration received is deposited into the account. box" shall be treated as a long sale for the purpose of (2) If a nonmargin, nonexempted security is acquired in computing the equity and the required margin. exchange for a margin security, its retention, with- (3) When-issued securities. The required margin on a net drawal, or sale within 60 days following its acquisition long or net short commitment in a when-issued security shall be treated as if the security is a margin security. is the margin that would be required if the security were (g) Arranging for loans by others. A creditor may arrange an issued margin security, plus any unrealized loss on for the extension or maintenance of credit to or for any the commitment or less any unrealized gain. customer by any person, provided the creditor does not (4) Stock used as cover. willfully arrange credit that violates Parts 221 or 224 of (i) When a short position held in the account serves in this chapter. lieu of the required margin for a short put, the amount (h) Innocent mistakes. If any failure to comply with this prescribed by paragraph (b)(1) of this section as the part results from a mistake made in good faith in executing amount to be added to the required margin in respect a transaction or calculating the amount of margin, the of short sales shall be increased by any unrealized loss creditor shall not be deemed in violation of this part if, on the position. promptly after the discovery of the mistake, the creditor (ii) When a security held in the account serves in lieu takes appropriate corrective action. of the required margin for a short call, the security (i) Foreign currency. shall be valued at no greater than the exercise price of (1) Freely convertible foreign currency may be treated at the short call. its U.S. dollar equivalent, provided the currency is (5) Accounts of partners. If a partner of the creditor has marked-to-market daily. a margin account with the creditor, the creditor shall (2) A creditor may extend credit denominated in any disregard the partner's financial relations with the firm freely convertible foreign currency. (as shown in the partner's capital and ordinary drawing (j) Exempted borrowers. accounts) in calculating the margin or equity of the (1) A member of a national securities exchange or a partner's margin account. registered broker or dealer that has been in existence for (6) Contribution to joint venture. If a margin account is less than one year may meet the definition of exempted the account of a joint venture in which the creditor borrower based on a six-month period. participates, any interest of the creditor in the joint (2) Once a member of a national securities exchange or account in excess of the interest which the creditor registered broker or dealer ceases to qualify as an ex- would have on the basis of its right to share in the profits empted borrower, it shall notify its lender of this fact shall be treated as an extension of credit to the joint before obtaining additional credit. Any new extensions account and shall be margined as such. of credit to such a borrower, including rollovers, renew- (7) Transfer of accounts. als, and additional draws on existing lines of credit, are (i) A margin account that is transferred from one subject to the provisions of this part. creditor to another may be treated as if it had been maintained by the transferee from the date of its origin, if the transferee accepts, in good faith, a signed Section 220.4—Margin account. statement of the transferor (or, if that is not practicable, of the customer), that any margin call issued under this part has been satisfied. (a) Margin transactions. (ii) A margin account that is transferred from one (1) All transactions not specifically authorized for inclu- customer to another as part of a transaction, not undersion in another account shall be recorded in the margin taken to avoid the requirements of this part, may be account. treated as if it had been maintained for the transferee Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 201 from the date of its origin, if the creditor accepts in (2) Margin excess may be withdrawn or may be transgood faith and keeps with the transferee account a ferred to the special memorandum account (section signed statement of the transferor describing the cir- 220.5) by making a single entry to that account which cumstances for the transfer. will represent a debit to the margin account and a credit (8) Sound credit judgment. In exercising sound credit to the special memorandum account. judgment to determine the margin required in good faith (3) If a creditor does not receive a distribution of cash or pursuant to section 220.12 (the Supplement), the creditor securities which is payable with respect to any security shall make its determination for a specified security in a margin account on the day it is payable and withposition without regard to the customer's other assets or drawal would not be permitted under this paragraph (e), securities positions held in connection with unrelated a withdrawal transaction shall be deemed to have octransactions. curred on the day the distribution is payable. (c) When additional margin is required. (f) Interest, service charges, etc. (1) Computing deficiency. All transactions on the same (1) Without regard to the other provisions of this section, day shall be combined to determine whether additional the creditor, in its usual practice, may debit the followmargin is required by the creditor. For the purpose of ing items to a margin account if they are considered in computing equity in an account, security positions are calculating the balance of such account: established or eliminated and a credit or debit created on (i) Interest charged on credit maintained in the margin the trade date of a security transaction. Additional mar- account; gin is required on any day when the day's transactions (ii) Premiums on securities borrowed in connection create or increase a margin deficiency in the account and with short sales or to effect delivery; shall be for the amount of the margin deficiency so (iii) Dividends, interest, or other distributions due on created or increased. borrowed securities; (2) Satisfaction of deficiency. The additional required (iv) Communication or shipping charges with respect margin may be satisfied by a transfer from the special to transactions in the margin account; and memorandum account or by a deposit of cash, margin (v) Any other service charges which the creditor may securities, exempted securities, or any combination impose. thereof. (2) A creditor may permit interest, dividends, or other (3) Time limits. distributions credited to a margin account to be with- (i) A margin call shall be satisfied within one payment drawn from the account if: period after the margin deficiency was created or (i) The withdrawal does not create or increase a increased. margin deficiency in the account; or (ii) The payment period may be extended for one or (ii) The current market value of any securities withmore limited periods upon application by the creditor drawn does not exceed 10 percent of the current to its examining authority unless the examining au- market value of the security with respect to which thority believes that the creditor is not acting in good they were distributed. faith or that the creditor has not sufficiently determined that exceptional circumstances warrant such action. Applications shall be filed and acted upon Section 220.5—Special memorandum account. prior to the end of the payment period or the expiration of any subsequent extension. (a) A special memorandum account (SMA) may be main- (4) Satisfaction restriction. Any transaction, position, or tained in conjunction with a margin account. A single entry deposit that is used to satisfy one requirement under this amount may be used to represent both a credit to the SMA part shall be unavailable to satisfy any other requirement. and a debit to the margin account. A transfer between the (d) Liquidation in lieu of deposit. If any margin call is not two accounts may be effected by an increase or reduction met in full within the required time, the creditor shall in the entry. When computing the equity in a margin liquidate securities sufficient to meet the margin call or to account, the single entry amount shall be considered as a eliminate any margin deficiency existing on the day such debit in the margin account. A payment to the customer or liquidation is required, whichever is less. If the margin on the customer's behalf or a transfer to any of the customdeficiency created or increased is $1000 or less, no action er's other accounts from the SMA reduces the single entry need be taken by the creditor. amount. (e) Withdrawals of cash or securities. (b) The SMA may contain the following entries: (1) Cash or securities may be withdrawn from an ac- (1) Dividend and interest payments; count, except if: (2) Cash not required by this part, including cash depos- (i) Additional cash or securities are required to be ited to meet a maintenance margin call or to meet any deposited into the account for a transaction on the requirement of a self-regulatory organization that is not same or a previous day; or imposed by this part; (ii) The withdrawal, together with other transactions, (3) Proceeds of a sale of securities or cash no longer deposits, and withdrawals on the same day, would required on any expired or liquidated security position create or increase a margin deficiency. that may be withdrawn under section 220.4(e); and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

202 Federal Reserve Bulletin • March 1998 (4) Margin excess transferred from the margin account Section 220.7—Broker-dealer credit account. under section 220.4(e)(2). (a) Requirements. In a broker-dealer credit account, a creditor may effect or finance transactions in accordance with Section 220.6—Good faith account. the following provisions. (b) Purchase or sale of security against full payment. A In a good faith account, a creditor may effect or finance creditor may purchase any security from or sell any secucustomer transactions in accordance with the following rity to another creditor or person regulated by a foreign provisions: securities authority under a good faith agreement to (a) Securities entitled to good faith margin. promptly deliver the security against full payment of the (1) Permissible transactions. A creditor may effect and purchase price. finance transactions involving the buying, carrying, or (c) Joint back office. A creditor may effect or finance trading of any security entitled to "good faith" margin transactions of any of its owners if the creditor is a clearing as set forth in section 220.12 (the Supplement). and servicing broker or dealer owned jointly or individu- (2) Required margin. The required margin is set forth in ally by other creditors. section 220.12 (the Supplement). (d) Capital contribution. A creditor may extend and main- (3) Satisfaction of margin. Required margin may be tain credit to any partner or stockholder of the creditor for satisfied by a transfer from the special memorandum the purpose of making a capital contribution to, or purchasaccount or by a deposit of cash, securities entitled to ing stock of, the creditor, affiliated corporation or another "good faith" margin as set forth in section 220.12 (the creditor. Supplement), any other asset that is not a security, or any (e) Emergency and subordinated credit. A creditor may combination thereof. An asset that is not a security shall extend and maintain, with the approval of the appropriate be have a margin value determined by the creditor in examining authority: good faith. (1) Credit to meet the emergency needs of any creditor; (b) Arbitrage. A creditor may effect and finance for any or customer bona fide arbitrage transactions. For the purpose (2) Subordinated credit to another creditor for capital of this section, the term "bona fide arbitrage" means: purposes, if the other creditor: (1) A purchase or sale of a security in one market (i) Is an affiliated corporation or would not be considtogether with an offsetting sale or purchase of the same ered a customer of the lender apart from the subordisecurity in a different market at as nearly the same time nated loan; or as practicable for the purpose of taking advantage of a (ii) Will not use the proceeds of the loan to increase difference in prices in the two markets; or the amount of dealing in securities for the account of (2) A purchase of a security which is, without restriction the creditor, its firm or corporation or an affiliated other then the payment of money, exchangeable or con- corporation. vertible within 90 calendar days of the purchase into a (f) Omnibus credit. second security together with an offsetting sale of the (1) A creditor may effect and finance transactions for a second security at or about the same time, for the pur- broker or dealer who is registered with the SEC under pose of taking advantage of a concurrent disparity in the section 15 of the Act and who gives the creditor written prices of the two securities. notice that: (c) "Prime broker" transactions. A creditor may effect (i) All securities will be for the account of customers transactions for a customer as part of a "prime broker" of the broker or dealer; and arrangement in conformity with SEC guidelines. (ii) Any short sales effected will be short sales made (d) Credit to ESOPs. A creditor may extend and maintain on behalf of the customers of the broker or dealer credit to employee stock ownership plans without regard to other than partners. the other provisions of this part. (2) The written notice required by paragraph (f)(1) of (e) Nonpurpose credit. this section shall conform to any SEC rule on the hy- (1) A creditor may: pothecation of customers' securities by brokers or dealers. (1) Effect and carry transactions in commodities; (g) Special purpose credit. A creditor may extend the (ii) Effect and carry transactions in foreign exchange; following types of credit with good faith margin: (iii) Extend and maintain secured or unsecured non- (1) Credit to finance the purchase or sale of securities for purpose credit, subject to the requirements of para- prompt delivery, if the credit is to be repaid upon comgraph (e)(2) of this section. pletion of the transaction. (2) Every extension of credit, except as provided in (2) Credit to finance securities in transit or surrendered paragraphs (e)(l)(i) and (e)(l)(ii) of this section, shall for transfer, if the credit is to be repaid upon completion be deemed to be purpose credit unless, prior to extend- of the transaction. ing the credit, the creditor accepts in good faith from (3) Credit to enable a broker or dealer to pay for securithe customer a written statement that it is not purpose ties, if the credit is to be repaid on the same day it is credit. The statement shall conform to the require- extended. ments established by the Board. (4) Credit to an exempted borrower. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 203 (5) Credit to a member of a national securities exchange more than 35 calendar days prior to the date of or registered broker or dealer to finance its activities as a maturity or redemption of the old security; market maker or specialist. (2) The customer is entitled to the proceeds of the (6) Credit to a member of a national securities exchange redemption; and or registered broker or dealer to finance its activities as (3) The delayed payment does not exceed 103 an underwriter. percent of the proceeds of the old security. (ii) In the case of the purchase of a foreign security, within one payment period of the trade date or within Section 220.8—Cash account. one day after the date on which settlement is required to occur by the rules of the foreign securities market, provided this period does not exceed the maximum (a) Permissible transactions. In a cash account, a creditor, time permitted by this part for delivery against paymay: ment transactions. (1) Buy for or sell to any customer any security or other (2) Delivery against payment. If a creditor purchases for asset if: or sells to a customer a security in a delivery against (i) There are sufficient funds in the account; or payment transaction, the creditor shall have up to (ii) The creditor accepts in good faith the customer's 35 calendar days to obtain payment if delivery of the agreement that the customer will promptly make full security is delayed due to the mechanics of the transaccash payment for the security or asset before selling it tion and is not related to the customer's willingness or and does not contemplate selling it prior to making ability to pay. such payment; (3) Shipment of securities, extension. If any shipment of (2) Buy from or sell for any customer any security or securities is incidental to consummation of a transaction, other asset if: a creditor may extend the payment period by the number (i) The security is held in the account; or of days required for shipment, but not by more than one (ii) The creditor accepts in good faith the customer's additional payment period. statement that the security is owned by the customer (4) Cancellation; liquidation; minimum amount. A credor the customer's principal, and that it will be itor shall promptly cancel or otherwise liquidate a transpromptly deposited in the account; action or any part of a transaction for which the cus- (3) Issue, endorse, or guarantee, or sell an option for any tomer has not made full cash payment within the customer as part of a covered option transaction; and required time. A creditor may, at its option, disregard (4) Use an escrow agreement in lieu of the cash, cash any sum due from the customer not exceeding $1000. equivalents or underlying asset position if: (c) 90 day freeze. (i) In the case of a short call or a short put, the creditor (1) If a nonexempted security in the account is sold or is advised by the customer that the required securities, delivered to another broker or dealer without having assets or cash are held by a person authorized to issue been previously paid for in full by the customer, the an escrow agreement and the creditor independently privilege of delaying payment beyond the trade date verifies that the appropriate escrow agreement will be shall be withdrawn for 90 calendar days following the delivered by the person promptly; or date of sale of the security. Cancellation of the transac- (ii) In the case of a call issued, endorsed, guaranteed, tion other than to correct an error shall constitute a sale. or sold on the same day the underlying asset is pur- (2) The 90 day freeze shall not apply if: chased in the account and the underlying asset is to be (i) Within the period specified in paragraph (b)(1) of delivered to a person authorized to issue an escrow this section, full payment is received or any check or agreement, the creditor verifies that the appropriate draft in payment has cleared and the proceeds from escrow agreement will be delivered by the person the sale are not withdrawn prior to such payment or promptly. check clearance; or (b) Time periods for payment; cancellation or liquidation. (ii) The purchased security was delivered to another (1) Full cash payment. A creditor shall obtain full cash broker or dealer for deposit in a cash account which payment for customer purchases: holds sufficient funds to pay for the security. The (i) Within one payment period of the date: creditor may rely on a written statement accepted in (A) Any nonexempted security was purchased; good faith from the other broker or dealer that suffi- (B) Any when-issued security was made available cient funds are held in the other cash account. by the issuer for delivery to purchasers; (d) Extension of time periods; transfers. (C) Any "when distributed" security was distrib- (1) Unless the creditor's examining authority believes uted under a published plan; that the creditor is not acting in good faith or that the (D) A security owned by the customer has matured creditor has not sufficiently determined that exceptional or has been redeemed and a new refunding security circumstances warrant such action, it may upon applicaof the same issuer has been purchased by the cus- tion by the creditor: tomer, provided: (i) Extend any period specified in paragraph (b) of this (7) The customer purchased the new security no section; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

204 Federal Reserve Bulletin • March 1998 (ii) Authorize transfer to another account of any trans- and a creditor may borrow securities from an exempted action involving the purchase of a margin or ex- borrower without regard to the other provisions of this part. empted security; or (iii) Grant a waiver from the 90 day freeze. (2) Applications shall be filed and acted upon prior to Section 220.11—Requirements for the list of the end of the payment period, or in the case of the marginable OTC stocks and the list of foreign purchase of a foreign security within the period specified margin stocks. in paragraph (b)(l)(ii) of this section, or the expiration of any subsequent extension. (a) Requirements for inclusion on the list of marginable OTC stocks. Except as provided in paragraph (f) of this Section 220.9—Clearance of securities, options, and section, OTC margin stock futures. shall meet the following requirements: (1) Four or more dealers stand willing to, and do in fact, (a) Credit for clearance of securities. The provisions of make a market in such stock and regularly submit bona this part shall not apply to the extension or maintenance of fide bids and offers to an automated quotations system any credit that is not for more than one day if it is for their own accounts; incidental to the clearance of transactions in securities (2) The minimum average bid price of such stock, as directly between members of a national securities exdetermined by the Board, is at least $5 per share; change or association or through any clearing agency regis- (3) The stock is registered under section 12 of the Act, is tered with the SEC. issued by an insurance company subject to section (b) Deposit of securities with a clearing agency. The 12(g)(2)(G) of the Act, is issued by a closed-end investprovisions of this part shall not apply to the deposit of ment management company subject to registration pursecurities with an options or futures clearing agency for the suant to section 8 of the Investment Company Act of purpose of meeting the deposit requirements of the agency 1940 (15 U.S.C. 80a-8), is an American Depository if: Receipt (ADR) of a foreign issuer whose securities are (1) The clearing agency: registered under section 12 of the Act, or is a stock of an (i) Issues, guarantees performance on, or clears transissuer required to file reports under section 15(d) of the actions in, any security (including options on any Act; security, certificate of deposit, securities index or for- (4) Daily quotations for both bid and asked prices for the eign currency); or stock are continuously available to the general public; (ii) Guarantees performance of contracts for the pur- (5) The stock has been publicly traded for at least six chase or sale of a commodity for future delivery or months; options on such contracts; (6) The issuer has at least $4 million of capital, surplus, (2) The clearing agency is registered with the Securities and undivided profits; and Exchange Commission or is the clearing agency for (7) There are 400,000 or more shares of such stock a contract market regulated by the Commodity Futures outstanding in addition to shares held beneficially by Trading Commission; and officers, directors or beneficial owners of more than (3) The deposit consists of any margin security and 10 percent of the stock; complies with the rules of the clearing agency that have (8) There are 1,200 or more holders of record, as defined been approved by the Securities and Exchange Commisin SEC Rule 12g5-l (17 C.F.R. 240.12g5-l), of the sion or the Commodity Futures Trading Commission. stock who are not officers, directors or beneficial owners of 10 percent or more of the stock, or the average daily Section 220.10—Borrowing and lending securities. trading volume of such stock as determined by the Board, is at least 500 shares; and (a) Without regard to the other provisions of this part, a (9) The issuer or a predecessor in interest has been in creditor may borrow or lend securities for the purpose of existence for at least three years. making delivery of the securities in the case of short sales, (b) Requirements for continued inclusion on the list of failure to receive securities required to be delivered, or marginable OTC stocks. Except as provided in paraother similar situations. If a creditor reasonably anticipates graph (f) of this section, OTC margin stock shall meet the a short sale or fail transaction, such borrowing may be following requirements: made up to one standard settlement cycle in advance of (1) Three or more dealers stand willing to, and do in trade date. fact, make a market in such stock and regularly submit (b) A creditor may lend foreign securities to a foreign bona fide bids and offers to an automated quotations person (or borrow such securities for the purpose of relend- system for their own accounts; ing them to a foreign person) for any purpose lawful in the (2) The minimum average bid price of such stocks, as country in which they are to be used. determined by the Board, is at least $2 per share; (c) A creditor that is an exempted borrower may lend (3) The stock is registered as specified in parasecurities without regard to the other provisions of this part graph (a)(3) of this section; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 205 (4) Daily quotations for both bid and asked prices for the the list of foreign margin stocks an equity security, if in the stock are continuously available to the general public; judgment of the Board, such action is necessary or appro- (5) The issuer has at least $1 million of capital, surplus, priate in the public interest. and undivided profits; (g) Unlawful representations. It shall be unlawful for any (6) There are 300,000 or more shares of such stock creditor to make, or cause to be made, any representation outstanding in addition to shares held beneficially by to the effect that the inclusion of a security on the list of officers, directors, or beneficial owners of more than marginable OTC stocks or the list of foreign margin stocks 10 percent of the stock; and is evidence that the Board or the SEC has in any way (7) There continue to be 800 or more holders of record, passed upon the merits of, or given approval to, such as defined in SEC Rule 12g5-l (17 C.F.R. 240.12g5-l), security or any transactions therein. Any statement in an of the stock who are not officers, directors, or beneficial advertisement or other similar communication containing a owners of 10 percent or more of the stock, or the reference to the Board in connection with the lists or stocks average daily trading volume of such stock, as deter- on those lists shall be an unlawful representation. mined by the Board, is at least 300 shares. (c) Requirements for inclusion on the list of foreign margin Section 220.12—Supplement: Margin requirements. stocks. Except as provided in paragraph (f) of this section, a foreign security shall meet the following requirements The required margin for each security position held in a before being placed on the List of Foreign Margin Stocks: margin account shall be as follows: (1) The security is an equity security that is listed for (a) Margin equity security, except for an exempted secutrading on or through the facilities of a foreign securities rity, money market mutual fund or exempted securities exchange or a recognized foreign securities market and mutual fund, warrant on a securities index or foreign has been trading on such exchange or market for at least currency or a long position in an option: 50 percent of the six months; current market value of the security or the percentage set (2) Daily quotations for both bid and asked or last sale by the regulatory authority where the trade occurs, whichprices for the security provided by the foreign securities ever is greater. exchange or foreign securities market on which the (b) Exempted security, non-equity security, money market security is traded are continuously available to creditors mutual fund or exempted securities mutual fund: The marin the United States pursuant to an electronic quotation gin required by the creditor in good faith or the percentage system; set by the regulatory authority where the trade occurs, (3) The aggregate market value of shares, the ownership whichever is greater. of which is unrestricted, is not less than $1 billion; (c) Short sale of a nonexempted security, except for a (4) The average weekly trading volume of such security non-equity security: during the preceding six months is either at least 200,000 (1) 150 percent of the current market value of the shares or $1 million; and security; or (5) The issuer or a predecessor in interest has been in (2) 100 percent of the current market value if a security existence for at least five years. exchangeable or convertible within 90 calendar days (d) Requirements for continued inclusion on the list of without restriction other than the payment of money into foreign margin stocks. Except as provided in paragraph (f) the security sold short is held in the account, provided of this section, a foreign security shall meet the following that any long call to be used as margin in connection requirements to remain on the List of Foreign Margin with a short sale of the underlying security is an Stocks: American-style option issued by a registered clearing (1) The security continues to meet the requirements corporation and listed or traded on a registered national specified in paragraphs (c) (1) and (2) of this section; securities exchange with an exercise price that does not (2) The aggregate market value of shares, the ownership exceed the price at which the underlying security was of which is unrestricted, is not less than $500 million; sold short. and (d) Short sale of an exempted security or non-equity secu- (3) The average weekly trading volume of such security rity: 100 percent of the current market value of the security during the preceding six months is either at least 100,000 plus the margin required by the creditor in good faith. shares or $500,000. (e) Nonmargin, nonexempted equity security: 100 percent (e) Removal from the list. The Board shall periodically of the current market value. remove from the lists any stock that: (f) Put or call on a security, certificate of deposit, securities (1) Ceases to exist or of which the issuer ceases to exist; index or foreign currency or a warrant on a securities index or or foreign currency: (2) No longer substantially meets the provisions of para- (1) In the case of puts and calls issued by a registered graphs (b) or (d) of this section or the definition of OTC clearing corporation and listed or traded on a registered margin stock. national securities exchange or a registered securities (f) Discretionary authority of Board. Without regard to association and registered warrants on a securities index other paragraphs of this section, the Board may add to, or or foreign currency, the amount, or other position, speciomit or remove from the list of marginable OTC stocks and fied by the rules of the registered national securities Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

206 Federal Reserve Bulletin • March 1998 exchange or the registered securities association autho- Section 221.115—Accepting a purpose statement through the rized to trade the option or warrant, provided that all mail without benefit of face-to-face interview. such rules have been approved or amended by the SEC; Section 221.116—Bank loans to replenish working capital or used to purchase mutual fund shares. (2) In the case of all other puts and calls, the amount, or Section 221.117—When bank in "good faith" has not relied other position, specified by the maintenance rules of the on stock as collateral. creditor's examining authority. Section 221.118—Bank arranging for extension of credit by corporation. Sections 220.13-220.18—[Removed] Section 221.119—Applicability of plan-lender provisions to financing of stock options and stock purchase rights qualified or restricted under Internal Revenue Code. 4. Sections 220.13 through 220.18 are removed. Section 221.120—Allocation of stock collateral to purpose and nonpurpose credits to same customer. Section 220.126-[Removed and Reserved] Section 221.121—Extension of credit in certain stock option and stock purchase plans. Section 221.122—Applicability of margin requirements to 5. Section 220.126 is removed and reserved. credit in connection with Insurance Premium Funding Programs. 6. Part 221 is revised to read as follows: Section 221.123—Combined credit for exercising employee Part 221—Credit by Banks and Persons Other stock options and paying income taxes incurred as a result Than Brokers or Dealers for the Purpose of of such exercise. Purchasing or Carrying Margin Stock (Regula- Section 221.124—Purchase of debt securities to finance corpotion U) rate takeovers. Section 221.125—Credit to brokers and dealers. Section 221.1—Authority, purpose, and scope. Section 221.2—Definitions. Authority: 15 U.S.C. 78c, 78g, 78q, and 78w. Section 221.3—General requirements. Section 221.4—Employee stock option, purchase, and owner- Section 221.1—Authority, purpose, and scope. ship plans. Section 221.5—Special purpose loans to brokers and dealers. Section 221.6—Exempted transactions. (a) Authority. Regulation U (this part) is issued by the Section 221.7—Supplement: Maximum loan value of margin Board of Governors of the Federal Reserve System (the stock and other collateral. Board) pursuant to the Securities Exchange Act of 1934 (the Act) (15 U.S.C. 78a et seq.). Interpretations (b) Purpose and scope. (1) This part imposes credit restrictions upon persons Section 221.102—Application to committed credit where other than brokers or dealers (hereinafter lenders) that funds are disbursed thereafter. extend credit for the purpose of buying or carrying Section 221.103—Loans to brokers or dealers. margin stock if the credit is secured directly or indirectly Section 221.104—Federal credit unions. by margin stock. Lenders include "banks" (as defined in Section 221.105—Arranging for extensions of credit to be section 221.2) and other persons who are required to made by a bank. register with the Board under section 221.3(b). Lenders Section 221.106—Reliance in "good faith" on statement of may not extend more than the maximum loan value of purpose of loan. the collateral securing such credit, as set by the Board in Section 221.107—Arranging loan to purchase open-end section 221.7 (the Supplement). investment company shares. (2) This part does not apply to clearing agencies regu- Section Section 221.108—Effect of registration of stock subse- lated by the Securities and Exchange Commission or the quent to making of loan. Commodity Futures Trading Commission that accept Section 221.109— Loan to open-end investment company. deposits of margin stock in connection with: Section 221.110—Questions arising under this part. (i) The issuance of, or guarantee of, or the clearance Section 221.111—Contribution to joint venture as extension of transactions in, any security (including options on of credit when the contribution is disproportionate to the any security, certificate of deposit, securities index or contributor's share in the venture's profits or losses. foreign currency); or Section 221.112—Loans by bank in capacity as trustee. (ii) The guarantee of contracts for the purchase or sale Section 221.113—Loan which is secured indirectly by stock. of a commodity for future delivery or options on such Section 221.114—Bank loans to purchase stock of American contracts. Telephone and Telegraph Company under Employees' (3) This part does not apply to credit extended to an Stock Plan. exempted borrower. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 207 (c) Availability of forms. The forms referenced in this part Examining authority means: are available from the Federal Reserve Banks. (1) The national securities exchange or national securities association of which a broker or dealer is a member; Section 221.2—Definitions. or (2) If a member of more than one self-regulatory organi- The terms used in this part have the meanings given them zation, the organization designated by the Securities and in section 3(a) of the Act or as defined in this section as Exchange Commission as the examining authority for follows: the broker or dealer. Affiliate means: Exempted borrower means a member of a national securi- (1) For banks: ties exchange or a registered broker or dealer, a substantial (i) Any bank holding company of which a bank is a portion of whose business consists of transactions with subsidiary within the meaning of the Bank Holding persons other than brokers or dealers, and includes a bor- Company Act of 1956, as amended (12 U.S.C. rower who: 1841(d)); (1) Maintains at least 1000 active accounts on an annual (ii) Any other subsidiary of such bank holding com- basis for persons other than brokers, dealers, and perpany; and sons associated with a broker or dealer; (iii) Any other corporation, business trust, association, (2) Earns at least $10 million in gross revenues on an or other similar organization that is an affiliate as annual basis from transactions with persons other than defined in section 2(b) of the Banking Act of 1933 brokers, dealers, and persons associated with a broker or (12 U.S.C. 221a(c»; dealer; or (2) For nonbank lenders, affiliate means any person who, (3) Earns at least 10 percent of its gross revenues on an directly or indirectly, through one or more intermediar- annual basis from transactions with persons other than ies, controls, or is controlled by, or is under common brokers, dealers, and persons associated with a brokercontrol with the lender. dealer. Bank. Good faith with respect to: (1) Bank. Has the meaning given to it in section 3(a)(6) (1) The loan value of collateral means that amount (not of the Act (15 U.S.C. 78c(a)(6)) and includes: exceeding 100 percent of the current market value of the (i) Any subsidiary of a bank; collateral) which a lender, exercising sound credit judg- (ii) Any corporation organized under section 25(a) of ment, would lend, without regard to the customer's other the Federal Reserve Act (12 U.S.C. 611); and assets held as collateral in connection with unrelated (iii) Any agency or branch of a foreign bank located transactions. within the United States. (2) Making a determination or accepting a statement (2) Bank does not include: concerning a borrower means that the lender or its duly (i) Any savings and loan association; authorized representative is alert to the circumstances (ii) Any credit union; surrounding the credit, and if in possession of informa- (iii) Any lending institution that is an instrumentality tion that would cause a prudent person not to make the or agency of the United States; or determination or accept the notice or certification with- (iv) Any member of a national securities exchange. out inquiry, investigates and is satisfied that it is correct; Carrying credit is credit that enables a customer to main- In the ordinary course of business means occurring or tain, reduce, or retire indebtedness originally incurred to reasonably expected to occur in carrying out or furthering purchase a security that is currently a margin stock. any business purpose, or in the case of an individual, in the Current market value of: course of any activity for profit or the management or (1) A security means: preservation of property. (i) If quotations are available, the closing sale price of Indirectly secured. the security on the preceding business day, as appear- (1) Includes any arrangement with the customer under ing on any regularly published reporting or quotation which: service; or (i) The customer's right or ability to sell, pledge, or (ii) If there is no closing sale price, the lender may use otherwise dispose of margin stock owned by the cusany reasonable estimate of the market value of the tomer is in any way restricted while the credit remains security as of the close of business on the preceding outstanding; or business day; or (ii) The exercise of such right is or may be cause for (iii) If the credit is used to finance the purchase of the accelerating the maturity of the credit. security, the total cost of purchase, which may include (2) Does not include such an arrangement if: any commissions charged. (i) After applying the proceeds of the credit, not more (2) Any other collateral means a value determined by than 25 percent of the value (as determined by any any reasonable method. reasonable method) of the assets subject to the ar- Customer excludes an exempted borrower and includes rangement is represented by margin stock; any person or persons acting jointly, to or for whom a (ii) It is a lending arrangement that permits acceleratlender extends or maintains credit. ing the maturity of the credit as a result of a default or Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

208 Federal Reserve Bulletin • March 1998 renegotiation of another credit to the customer by an amount that exceeds the maximum loan value of the another lender that is not an affiliate of the lender; collateral securing the credit. (iii) The lender holds the margin stock only in the (2) Maintaining credit. A lender may continue to maincapacity of custodian, depositary, or trustee, or under tain any credit initially extended in compliance with this similar circumstances, and, in good faith, has not part, regardless of: relied upon the margin stock as collateral; or (i) Reduction in the customer's equity resulting from (iv) The lender, in good faith, has not relied upon the change in market prices; margin stock as collateral in extending or maintaining (ii) Change in the maximum loan value prescribed by the particular credit. this part; or Lender means: (iii) Change in the status of the security (from non- (1) Any bank; or margin to margin) securing an existing purpose credit. (2) Any person subject to the registration requirements (3) Arranging credit. No lender may arrange for the of this part. extension or maintenance of any purpose credit, except Margin stock means: upon the same terms and conditions under which the (1) Any equity security registered or having unlisted lender itself may extend or maintain purpose credit trading privileges on a national securities exchange; under this part. (2) Any OTC security designated as qualified for trading (b) Registration of nonbank lenders; termination of regisin the National Market System under a designation plan tration; annual report. approved by the Securities and Exchange Commission (1) Registration. Every person other than a person sub- (NMS security); ject to part 220 of this chapter or a bank who, in the (3) Any debt security convertible into a margin stock or ordinary course of business, extends or maintains credit carrying a warrant or right to subscribe to or purchase a secured, directly or indirectly, by any margin stock shall margin stock; register on Federal Reserve Form FR G-l (OMB control (4) Any warrant or right to subscribe to or purchase a number 7100-0011) within 30 days after the end of any margin stock; or calendar quarter during which: (5) Any security issued by an investment company regis- (i) The amount of credit extended equals $200,000 or tered under section 8 of the Investment Company Act of more; or 1940 (15 U.S.C. 80a-8), other than: (ii) The amount of credit outstanding at any time (i) A company licensed under the Small Business during that calendar quarter equals $500,000 or more. Investment Company Act of 1958, as amended (2) Deregistration. A registered nonbank lender may (15 U.S.C. 661); or apply to terminate its registration, by filing Federal (ii) A company which has at least 95 percent of its Reserve Form FR G-2 (OMB control number 7100assets continuously invested in exempted securities 0011), if the lender has not, during the preceding six (as defined in 15 U.S.C. 78c(a)(12)); or calendar months, had more than $200,000 of such credit (iii) A company which issues face-amount certificates outstanding. Registration shall be deemed terminated as defined in 15 U.S.C. 80a-2(a)(15), but only with when the application is approved by the Board. respect of such securities; or (3) Annual report. Every registered nonbank lender (iv) A company which is considered a money market shall, within 30 days following June 30 of every year, fund under SEC Rule 2a-7 (17 C.F.R. 270.2a-7). file Form FR G-4 (OMB control number 7100-0011). Maximum loan value is the percentage of current market (4) Where to register and file applications and reports. value assigned by the Board under section 221.7 (the Registration statements, applications to terminate regis- Supplement) to specified types of collateral. The maximum tration, and annual reports shall be filed with the Federal loan value of margin stock is stated as a percentage of its Reserve Bank of the district in which the principal office current market value. Puts, calls and combinations thereof of the lender is located. that do not qualify as margin stock have no loan value. All (c) Purpose statement. other collateral has good faith loan value. (1) General rule. Nonbank lender means any person subject to the registra- (i) Banks. Except for credit extended under paragraph tion requirements of this part. (c)(2) of this section, whenever a bank extends credit Purpose credit is any credit for the purpose, whether secured directly or indirectly by any margin stock, in immediate, incidental, or ultimate, of buying or carrying an amount exceeding $100,000, the bank shall require margin stock. its customer to execute Form FR U-l (OMB No. 7100-0115), which shall be signed and accepted by a duly authorized officer of the bank acting in good Section 221.3—General requirements. faith. (ii) Nonbank lenders. Except for credit extended un- (a) Extending, maintaining, and arranging credit. der paragraph (c)(2) of this section or section 221.4, (1) Extending credit. No lender, except a plan-lender, as whenever a nonbank lender extends credit secured defined in section 221.4(a), shall extend any purpose directly or indirectly by any margin stock, the noncredit, secured directly or indirectly by margin stock, in bank lender shall require its customer to execute Form Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 209 FR G-3 (OMB control number 7100-0018), which treated as a single credit solely for the purposes of the shall be signed and accepted by a duly authorized withdrawal and substitution provision of paragraph (f) of representative of the nonbank lender acting in good this section. faith. (4) If a lender extends purpose credit secured by any (2) Purpose statement for revolving-credit or multiple- margin stock and non-purpose credit to the same cusdraw agreements or financing of securities purchases on tomer, the lender shall treat the credits as two separate a payment-against-delivery basis. loans and may not rely upon the required collateral (i) Banks. If a bank extends credit, secured directly or securing the purpose credit for the nonpurpose credit. indirectly by any margin stock, in an amount exceed- (e) Exempted borrowers. ing $100,000, under a revolving-credit or other (1) An exempted borrower that has been in existence for multiple-draw agreement, Form FR U-l must be exe- less than one year may meet the definition of exempted cuted at the time the credit arrangement is originally borrower based on a six-month period. established and must be amended as described in (2) Once a member of a national securities exchange or paragraph (c)(2)(iv) of this section for each disburse- registered broker or dealer ceases to qualify as an exment if all of the collateral for the agreement is not empted borrower, it shall notify its lenders of this fact. pledged at the time the agreement is originally estab- Any new extensions of credit to such a borrower, includlished. ing rollovers, renewals, and additional draws on existing (ii) Nonbank lenders. If a nonbank lender extends lines of credit, are subject to the provisions of this part. credit, secured directly or indirectly by any margin (f) Withdrawals and substitutions. stock, under a revolving-credit or other multiple-draw (1) A lender may permit any withdrawal or substitution agreement, Form FR G-3 must be executed at the time of cash or collateral by the customer if the withdrawal or the credit arrangement is originally established and substitution would not: must be amended as described in paragraph (c)(2)(iv) (i) Cause the credit to exceed the maximum loan of this section for each disbursement if all of the value of the collateral; or collateral for the agreement is not pledged at the time (ii) Increase the amount by which the credit exceeds the agreement is originally established. the maximum loan value of the collateral. (iii) Collateral. If a purpose statement executed at the (2) For purposes of this section, the maximum loan time the credit arrangement is initially made indicates value of the collateral on the day of the withdrawal or that the purpose is to purchase or carry margin stock, substitution shall be used. the credit will be deemed in compliance with this part (g) Exchange offers. To enable a customer to participate in if: a reorganization, recapitalization or exchange offer that is (A) The maximum loan value of the collateral at made to holders of an issue of margin stock, a lender may least equals the aggregate amount of funds actually permit substitution of the securities received. A nonmargin, disbursed; or nonexempted security acquired in exchange for a margin (B) At the end of any day on which credit is stock shall be treated as if it is margin stock for a period of extended under the agreement, the lender calls for 60 days following the exchange. additional collateral sufficient to bring the credit (h) Renewals and extensions of maturity. A renewal or into compliance with section 221.7 (the Supple- extension of maturity of a credit need not be considered a ment). new extension of credit if the amount of the credit is (iv) Amendment of purpose statement. For any pur- increased only by the addition of interest, service charges, pose credit disbursed under the agreement, the lender or taxes with respect to the credit. shall obtain and attach to the executed Form FR U-l (i) Transfers of credit. or FR G-3 a current list of collateral which adequately (1) A transfer of a credit between customers or between supports all credit extended under the agreement. lenders shall not be considered a new extension of credit (d) Single credit rule. if: (1) All purpose credit extended to a customer shall be (i) The original credit was extended by a lender in treated as a single credit, and all the collateral securing compliance with this part or by a lender subject to part such credit shall be considered in determining whether 207 of this chapter in effect prior to April 1, 1998, or not the credit complies with this part, except that (See Part 207 appearing in the 12 C.F.R. Parts 200 to syndicated loans need not be aggregated with other 219 edition revised as of January 1, 1997), in a unrelated purpose credit extended by the same lender. manner that would have complied with this part; (2) A lender that has extended purpose credit secured by (ii) The transfer is not made to evade this part; margin stock may not subsequently extend unsecured (iii) The amount of credit is not increased; and purpose credit to the same customer unless the com- (iv) The collateral for the credit is not changed. bined credit does not exceed the maximum loan value of (2) Any transfer between customers at the same lender the collateral securing the prior credit. shall be accompanied by a statement by the transferor (3) If a lender extended unsecured purpose credit to a customer describing the circumstances giving rise to the customer prior to the extension of purpose credit secured transfer and shall be accepted and signed by a represenby margin stock, the credits shall be combined and tative of the lender acting in good faith. The lender shall Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

210 Federal Reserve Bulletin • March 1998 keep such statement with its records of the transferee credit is for any of the specific purposes and meets the account. conditions set forth in paragraph (c) of this section. (3) When a transfer is made between lenders, the trans- (b) Written notice. Prior to extending credit for more than a feree shall obtain a copy of the Form FR U-l or Form day under this section, the lender shall obtain and accept in FR G-3 originally filed with the transferor and retain the good faith a written notice or certification from the borcopy with its records of the transferee account. If no rower as to the purposes of the loan. The written notice or form was originally filed with the transferor, the trans- certification shall be evidence of continued eligibility for feree may accept in good faith a statement from the the special credit provisions until the borrower notifies the transferor describing the purpose of the loan and the lender that it is no longer eligible or the lender has informacollateral securing it. tion that would cause a reasonable person to question (j) Action for lender's protection. Nothing in this part shall whether the credit is being used for the purpose specified. require a bank to waive or forego any lien or prevent a (c) Types of special purpose credit. The types of credit that bank from taking any action it deems necessary in good may be extended and maintained on a good faith basis are faith for its protection. as follows: (k) Mistakes in good faith. A mistake in good faith in (1) Hypothecation loans. Credit secured by hypotheconnection with the extension or maintenance of credit cated customer securities that, according to written noshall not be a violation of this part. tice received from the broker or dealer, may be hypothecated by the broker or dealer under Securities and Exchange Commission (SEC) rules. Section 221.4—Employee stock option, purchase, (2) Temporary advances in payment-against-delivery and ownership plans. transactions. Credit to finance the purchase or sale of securities for prompt delivery, if the credit is to be repaid upon completion of the transaction. (a) Plan-lender; eligible plan. (3) Loans for securities in transit or transfer. Credit to (1) Plan-lender means any corporation, (including a finance securities in transit or surrendered for transfer, if wholly owned subsidiary, or a lender that is a thrift the credit is to be repaid upon completion of the transacorganization whose membership is limited to employees tion. and former employees of the corporation, its subsidiaries (4) Intra-day loans. Credit to enable a broker or dealer to or affiliates) that extends or maintains credit to finance pay for securities, if the credit is to be repaid on the the acquisition of margin stock of the corporation, its same day it is extended. subsidiaries or affiliates under an eligible plan. (5) Arbitrage loans. Credit to finance proprietary or (2) Eligible plan. An eligible plan means any employee customer bona fide arbitrage transactions. For the purstock option, purchase, or ownership plan adopted by a pose of this section bona fide arbitrage means: corporation and approved by its stockholders that pro- (i) Purchase or sale of a security in one market, vides for the purchase of margin stock of the corpora- together with an offsetting sale or purchase of the tion, its subsidiaries, or affiliates. same security in a different market at nearly the same (b) Credit to exercise rights under or finance an eligible time as practicable, for the purpose of taking advanplan. tage of a difference in prices in the two markets; or (1) If a plan-lender extends or maintains credit under an (ii) Purchase of a security that is, without restriction eligible plan, any margin stock that directly or indirectly other than the payment of money, exchangeable or secured that credit shall have good faith loan value. convertible within 90 calendar days of the purchase (2) Credit extended under this section shall be treated into a second security, together with an offsetting sale separately from credit extended under any other section of the second security at or about the same time, for of this part except sections 221.3(b)(1) and(b)(3). the purpose of taking advantage of a concurrent dis- (c) Credit to ESOPs. A nonbank lender may extend and parity in the price of the two securities. maintain purpose credit without regard to the provisions of (6) Market maker and specialist loans. Credit to a memthis part, except for sections 221.3(b)(1) and (b)(3), if such ber of a national securities exchange or registered broker credit is extended to an employee stock ownership plan or dealer to finance its activities as a market maker or (ESOP) qualified under section 401 of the Internal Reve- specialist. nue Code, as amended (26 U.S.C. 401). (7) Underwriter loans. Credit to a member of a national securities exchange or registered broker or dealer to finance its activities as an underwriter. Section 221.5— Special purpose loans to brokers (8) Emergency loans. Credit that is essential to meet and dealers. emergency needs of the broker-dealer business arising from exceptional circumstances. (9) Capital contribution loans. Capital contribution (a) Special purpose loans. A lender may extend and main- loans include: tain purpose credit to brokers and dealers without regard to (i) Credit that Board has exempted by order upon a the limitations set forth in sections 221.3 and 221.7, if the finding that the exemption is necessary or appropriate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 211 in the public interest or for the protection of investors, Section 221.7—Supplement: Maximum loan value provided the Securities Investor Protection Corpora- of margin stock and other collateral. tion certifies to the Board that the exemption is appropriate; or (ii) Credit to a customer for the purpose of making a (a) Maximum loan value of margin stock. The maximum subordinated loan or capital contribution to a broker loan value of any margin stock is fifty per cent of its or dealer in conformity with the SEC's net capital current market value. rules and the rules of the broker's or dealer's examin- (b) Maximum loan value of nonmargin stock and all other ing authority, provided: collateral. The maximum loan value of nonmargin stock (A) The customer reduces the credit by the amount and all other collateral except puts, calls, or combinations of any reduction in the loan or contribution to the thereof is their good faith loan value. broker or dealer; and (c) Maximum loan value of options. Except for options that (B) The credit is not used to purchase securities qualify as margin stock, puts, calls, and combinations issued by the broker or dealer in a public distribu- thereof have no loan value. tion. (10) Credit to clearing brokers or dealers. Credit to a member of a national securities exchange or registered Interpretations broker or dealer whose nonproprietary business is limited to financing and carrying the accounts of registered market makers. Section 221.101—Determination and effect of purpose of loan. Section 221.6—Exempted transactions. (a) Under this part the original purpose of a loan is controlling. In other words, if a loan originally is not for the A bank may extend and maintain purpose credit without purpose of purchasing or carrying margin stock, changes in regard to the provisions of this part if such credit is the collateral for the loan do not change its exempted extended: character. (a) To any bank; (b) However, a so-called increase in the loan is necessarily (b) To any foreign banking institution; on an entirely different basis. So far as the purpose of the (c) Outside the United States; credit is concerned, it is a new loan, and the question of (d) To an employee stock ownership plan (ESOP) qualified whether or not it is subject to this part must be determined under section 401 of the Internal Revenue Code (26 U.S.C. accordingly. 401); (c) Certain facts should also be mentioned regarding the (e) To any plan lender as defined in section 221.4(a) to determination of the purpose of a loan. Section 221.3(c) finance an eligible plan as defined in section 221.4(b), provides in that whenever a lender is required to have its provided the bank has no recourse to any securities pur- customer execute a "Statement of Purpose for an Extenchased pursuant to the plan; sion of Credit Secured by Margin Stock," the statement (f) To any customer, other than a broker or dealer, to must be accepted by the lender "acting in good faith." The temporarily finance the purchase or sale of securities for requirement of "good faith" is of vital importance here. Its prompt delivery, if the credit is to be repaid in the ordinary application will necessarily vary with the facts of the course of business upon completion of the transaction and particular case, but it is clear that the bank must be alert to is not extended to enable the customer to pay for securities the circumstances surrounding the loan. For example, if the purchased in an account subject to part 220 of this chapter; loan is to be made to a customer who is not a broker or (g) Against securities in transit, if the credit is not extended dealer in securities, but such a broker or dealer is to deliver to enable the customer to pay for securities purchased in an margin stock to secure the loan or is to receive the proaccount subject to part 220 of this chapter; or ceeds of the loan, the bank would be put on notice that the (h) To enable a customer to meet emergency expenses not loan would probably be subject to this part. It could not reasonably foreseeable, and if the extension of credit is accept in good faith a statement to the contrary without supported by a statement executed by the customer and obtaining a reliable and satisfactory explanation of the accepted and signed by an officer of the bank acting in situation. good faith. For this purpose, emergency expenses include (d) Furthermore, the purpose of a loan means just that. It expenses arising from circumstances such as the death or cannot be altered by some temporary application of the disability of the customer, or some other change in circum- proceeds. For example, if a borrower is to purchase Govstances involving extreme hardship, not reasonably fore- ernment securities with the proceeds of a loan, but is soon seeable at the time the credit was extended. The opportu- thereafter to sell such securities and replace them with nity to realize monetary gain or to avoid loss is not a margin stock, the loan is clearly for the purpose of purchas- "change in circumstances" for this purpose. ing or carrying margin stock. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

212 Federal Reserve Bulletin • March 1998 Section 221.102—Application to committed credit (b) The use by a lending bank of a statement in determinwhere funds are disbursed thereafter. ing the purpose of a particular loan is, of course, provided for by section 221.3(c). However, under that paragraph a The Board has concluded that the date a commitment to lending bank may accept such statement only if it is extend credit becomes binding should be regarded as the "acting in good faith." As the Board stated in the interpredate when the credit is extended, since: tation contained in section 221.101, the "requirement of (a) On that date the parties should be aware of law and 'good faith' is of vital importance"; and, to fulfill such facts surrounding the transaction; and requirement, "it is clear that the bank must be alert to the (b) Generally, the date of contract is controlling for pur- circumstances surrounding the loan." poses of margin regulations and Federal securities law, (c) Obviously, such a statement would not be accepted by regardless of the delivery of cash or securities. the bank in "good faith" if at the time the loan was made the bank had knowledge, from any source, of facts or Section 221.103—Loans to brokers or dealers. circumstances which were contrary to the natural purport of the statement, or which were sufficient reasonably to put Questions have arisen as to the adequacy of statements the bank on notice of the questionable reliability or comreceived by lending banks under section 221.3(c), "Pur- pleteness of the statement. pose Statement," in the case of loans to brokers or dealers (d) Furthermore, the same requirement of "good faith" is secured by margin stock where the proceeds of the loans to be applied whether the statement accepted by the bank is are to be used to finance customer transactions involving signed by the borrower or by an officer of the bank. In the purchasing or carrying of margin stock. While some either case, "good faith" requires the exercise of special such loans may qualify for exemption under sections diligence in any instance in which the borrower is not 221.1(b)(2), 221.4, 221.5 or 221.6, unless they do qualify personally known to the bank or to the officer who profor such an exemption they are subject to this part. For cesses the loan. example, if a loan so secured is made to a broker to furnish (e) The interpretation set forth in section 221.101 contains cash working capital for the conduct of his brokerage an example of the application of the "good faith" test. business (i.e., for purchasing and carrying securities for the There it was stated that "if the loan is to be made to a account of customers), the maximum loan value prescribed customer who is not a broker or dealer in securities, but in section 221.7 (the Supplement) would be applicable such a broker or dealer is to deliver margin stock to secure unless the loan should be of a kind exempted under this the loan or is to receive the proceeds of the loan, the bank part. This result would not be affected by the fact that the would be put on notice that the loan would probably be margin stock given as security for the loan was or included subject to this part. It could not accept in good faith a margin stock owned by the brokerage firm. In view of the statement to the contrary without obtaining a reliable and foregoing, the statement referred to in section 221.3(c) satisfactory explanation of the situation". which the lending bank must accept in good faith in (f) Moreover, and as also stated by the interpretation condetermining the purpose of the loan would be inadequate if tained in section 221.101, the purpose of a loan, of course, the form of statement accepted or used by the bank failed "cannot be altered by some temporary application of the to call for answers which would indicate whether or not the proceeds. For example, if a borrower is to purchase Govloan was of the kind discussed elsewhere in this section. ernment securities with the proceeds of a loan, but is soon thereafter to sell such securities and replace them with Section 221.104—Federal credit unions. margin stock, the loan is clearly for the purpose of purchasing or carrying margin stock". The purpose of a loan For text of the interpretation on Federal credit unions, see therefore, should not be determined upon a narrow analysis 12 C.F.R. 220.110. of the immediate use to which the proceeds of the loan are put. Accordingly, a bank acting in "good faith" should Section 221.105—Arranging for extensions of carefully scrutinize cases in which there is any indication credit to be made by a bank. that the borrower is concealing the true purpose of the loan, and there would be reason for special vigilance if margin For text of the interpretation on Arranging for extensions stock is substituted for bonds or nonmargin stock soon of credit to be made by a bank, see 12 C.F.R. 220. 111. after the loan is made, or on more than one occasion. (g) Similarly, the fact that a loan made on the borrower's Section 221.106—Reliance in "good faith" on signature only, for example, becomes secured by margin statement of purpose of loan. stock shortly after the disbursement of the loan usually would afford reasonable grounds for questioning the bank's (a) Certain situations have arisen from time to time under apparent reliance upon merely a statement that the purpose this part wherein it appeared doubtful that, in the circum- of the loan was not to purchase or carry margin stock. stances, the lending banks may have been entitled to rely (h) The examples in this section are, of course, by no upon the statements accepted by them in determining means exhaustive. They simply illustrate the fundamental whether the purposes of certain loans were such as to cause fact that no statement accepted by a lender is of any value the loans to be not subject to the part. for the purposes of this part unless the lender accepting the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 213 statement is " acting in good faith", and that "good faith" part as a loan for the purpose of purchasing or carrying requires, among other things, reasonable diligence to learn margin stock. This would not be altered by the fact that the the truth. open-end company had used, or proposed to use, its own funds or proceeds of the loan to redeem some of its own Section 221.107—Arranging loan to purchase shares, since mere application of the proceeds of a loan to open-end investment company shares. some other use cannot prevent the ultimate purpose of a loan from being to purchase or carry registered stocks. For text of the interpretation on Arranging loan to purchase open-end investment company shares, see 12 C.F.R. Section 221.110—Questions arising under this part. 220.112. (a) This part governs "any purpose credit" extended by a Section 221.108—Effect of registration of stock lender "secured directly or indirectly by margin stock" subsequent to making of loan. and defines "purpose credit" as "any credit for the purpose, whether immediate, incidental, or ultimate, of buying (a) The Board recently was asked whether a loan by a bank or carrying margin stock," with certain exceptions, and to enable the borrower to purchase a newly issued nonmar- provides that the maximum loan value of such margin gin stock during the initial over-the-counter trading period stock shall be a fixed percentage "of its current market prior to the stock becoming registered (listed) on a national value." securities exchange would be subject to this part. The (b) The Board of Governors has had occasion to consider Board replied that, until such stock qualifies as margin the application of the language in paragraph (a) of this stock, this would not be applicable to such a loan. section to the two following questions: (b) The Board has now been asked what the position of the (1) Loan secured by stock. First, is a loan to purchase or lending bank would be under this part if, after the date on carry margin stock subject to this part where made in which the stock should become registered, such bank con- unsecured form, if margin stock is subsequently depostinued to hold a loan of the kind just described. It is ited as security with the lender, and surrounding circumassumed that the loan was in an amount greater than the stances indicate that the parties originally contemplated maximum loan value for the collateral specified in this that the loan should be so secured? The Board answered part. that in a case of this kind, the loan would be subject to (c) If the stock should become registered, the loan would this part, for the following reasons: then be for the purpose of purchasing or carrying a margin (i) The Board has long held, in the closely related stock, and, if secured directly or indirectly by any margin purpose area, that the original purpose of a loan stock, would be subject to this part as from the date the should not be determined upon a narrow analysis of stock was registered. Under this part, this does not mean the technical circumstances under which a loan is that the bank would have to obtain reduction of the loan in made. Instead, the fundamental purpose of the loan is order to reduce it to an amount no more than the specified considered to be controlling. Indeed, "the fact that a maximum loan value. It does mean, however, that so long loan made on the borrower's signature only, for examas the loan balance exceeded the specified maximum loan ple, becomes secured by registered stock shortly after value, the bank could not permit any withdrawals or substi- the disbursement of the loan" affords reasonable tutions of collateral that would increase such excess; nor grounds for questioning whether the bank was entitled could the bank increase the amount of the loan balance to rely upon the borrower's statement as to the purunless there was provided additional collateral having a pose of the loan. 1953 Federal Reserve Bulletin 951 maximum loan value at least equal to the amount of the (See, section 221.106). increase. In other words, as from the date the stock should (ii) Where security is involved, standards of interprebecome a margin stock, the loan would be subject to this tation should be equally searching. If, for example, part in exactly the same way, for example, as a loan subject the original agreement between borrower and lender to this part that became under-margined because of a contemplated that the loan should be secured by mardecline in the current market value of the loan collateral or gin stock, and such stock is in fact delivered to the because of a decrease by the Board in the maximum loan bank when available, the transaction must be regarded value of the loan collateral. as fundamentally a secured loan. This view is strengthened by the fact that this part applies to a loan Section 221.109—Loan to open-end investment "secured directly or indirectly by margin stock." company. (2) Loan to acquire controlling shares. (i) The second question is whether this part governs a In response to a question regarding a possible loan by a margin stock-secured loan made for the business purbank to an open-end investment company that customarily pose of purchasing a controlling interest in a corporapurchases stocks registered on a national securities ex- tion, or whether such a loan would be exempt on the change, the Board stated that in view of the general nature ground that this part is directed solely toward purand operations of such a company, any loan by a bank to chases of stock for speculative or investment pursuch a company should be presumed to be subject to this poses. The Board answered that a margin stock- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

214 Federal Reserve Bulletin • March 1998 secured loan for the purpose of purchasing or carrying that value decline, and does not stand to gain or lose except margin stock is subject to this part, regardless of the through a change in value of the securities purchased, reason for which the purchase is made, (e) The Board is of the opinion that where the right of an (ii) The answer is required, in the Board's view, since individual to share in profits and losses of such a joint the language of this part is explicitly inclusive, cover- venture is disproportionate to his contribution to the vening "any purpose credit, secured directly or indirectly ture: by margin stock." Moreover, the withdrawal in 1945 (1) The joint venture involves an extension of credit by of the original section 2(e) of this part, which ex- the corporation to the individual; empted "any loan for the purpose of purchasing a (2) The extension of credit is to purchase or carry stock from or through a person who is not a member margin stock, and is collateralized by such margin stock; of a national securities exchange . . ." plainly implies and that transactions of the sort described are now subject (3) If the corporation is not a broker or dealer subject to to the general prohibition of section 221.3(a). Regulation T (12 C.F.R. Part 220), the credit is of the kind described by section 221.3(a). Section 221.111—Contribution to joint venture as Section 221.112—Loans by bank in capacity as extension of credit when the contribution is trustee. disproportionate to the contributor's share in the venture's profits or losses. (a) The Board's advice has been requested whether a bank's activities in connection with the administration of (a) The Board considered the question whether a joint an employees' savings plan are subject to this part. venture, structured so that the amount of capital contribu- (b) Under the plan, any regular, full-time employee may tion to the venture would be disproportionate to the right of participate by authorizing the sponsoring company to departicipation in profits or losses, constitutes an "extension duct a percentage of his salary and wages and transmit the of credit" for the purpose of this part. same to the bank as trustee. Voluntary contributions by the (b) An individual and a corporation plan to establish a joint company are allocated among the participants. A particiventure to engage in the business of buying and selling pant may direct that funds held for him be invested by the securities, including margin stock. The individual would trustee in insurance, annuity contracts, Series E Bonds, or contribute 20 percent of the capital and receive 80 percent in one or more of three specified securities which are listed of the profits or losses; the corporate share would be the on a stock exchange. Loans to purchase the stocks may be reverse. In computing profits or losses, each participant made to participants from funds of the trust, subject to would first receive interest at the rate of 8 percent on his approval of the administrative committee, which is comrespective capital contribution. Although purchases and posed of five participants, and of the trustee. The bank's sales would be mutually agreed upon, the corporation right to approve is said to be restricted to the mechanics of could liquidate the joint portfolio if the individual's share making the loan, the purpose being to avoid cumbersome of the losses equaled or exceeded his 20 percent contribu- procedures. tion to the venture. The corporation would hold the securi- (c) Loans are secured by the credit balance of the borrowties, and upon termination of the venture, the assets would ing participants in the savings fund, including stock, but first be applied to repayment of capital contributions. excluding (in practice) insurance and annuity contracts and (c) In general, the relationship of joint venture is created government securities. Additional stocks may be, but, in when two or more persons combine their money, property, practice, have not been pledged as collateral for loans. or time in the conduct of some particular line of trade or Loans are not made, under the plan, from bank funds, and some particular business and agree to share jointly, or in participants do not borrow from the bank upon assignment proportion to capital contributed, the profits and losses of of the participants' accounts in the trust. the undertaking. (d) It is urged that loans under the plan are not subject to (d) The incidents of the joint venture described in para- this part because a loan should not be considered as having graph (b) of this section, however, closely parallel those of been made by a bank where the bank acts solely in its an extension of margin credit, with the corporation as capacity of trustee, without exercise of any discretion. lender and the individual as borrower. The corporation (e) The Board reviewed this question upon at least one supplies 80 percent of the purchase price of securities in other occasion, and full consideration has again been given exchange for a net return of 8 percent of the amount to the matter. After considering the arguments on both advanced plus 20 percent of any gain. Like a lender of sides, the Board has reaffirmed its earlier view that, in securities credit, the corporation is insulated against loss by conformity with an interpretation not published in the retaining the right to liquidate the collateral before the Code of Federal Regulations which was published on page securities decline in price below the amount of its contribu- 874 of the 1946 Federal Reserve Bulletin (See 12 C.F.R. tion. Conversely, the individual—like a customer who bor- 261.10(f) for information on how to obtain Board publicarows to purchase securities—puts up only 20 percent of tions.), this part applies to the activities of a bank when it is their cost, is entitled to the principal portion of any appreci- acting in its capacity as trustee. Although the bank in that ation in their value, bears the principal risk of loss should case had at best a limited discretion with respect to loans Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 215 made by it in its capacity as trustee, the Board concluded borrower may amount to indirect security within the meanthat this fact did not affect the application of the regulation ing of this part. In an interpretation published at secto such loans. tion 221.110 it stated: "The Board has long held, in the . . . purpose area, that the original purpose of a loan should not be determined upon a narrow analysis of the technical Section 221.113—Loan which is secured indirectly circumstances under which a loan is made .... Where by stock. security is involved, standards of interpretation should be equally searching." In its pamphlet issued for the benefit (a) A question has been presented to the Board as to and guidance of banks and bank examiners, entitled "Queswhether a loan by a bank to a mutual investment fund is tions and Answers Illustrating Application of Regula- "secured . . . indirectly by margin stock" within the tion U", the Board said: "In determining whether a loan is meaning of section 221.(3)(a), so that the loan should be "indirectly" secured, it should be borne in mind that the treated as subject to this part. reason the Board has thus far refrained . . . from regulating (b) Briefly, the facts are as follows. Fund X, an open-end loans not secured by stock has been to simplify operations investment company, entered into a loan agreement with under the regulation. This objective of simplifying opera- Bank Y, which was (and still is) custodian of the securities tions does not apply to loans in which arrangements are which comprise the portfolio of Fund X. The agreement made to retain the substance of stock collateral while includes the following terms, which are material to the sacrificing only the form". question before the Board: (f) A wide variety of arrangements as to collateral can be (1) Fund X agrees to have an "asset coverage" (as made between bank and borrower which will serve, to defined in the agreements) of 400 percent of all its some extent, to protect the interest of the bank in seeing borrowings, including the proposed borrowing, at the that the loan is repaid, without giving the bank a conventime when it takes down any part of the loan. tional direct "security" interest in the collateral. Among (2) Fund X agrees to maintain an "asset coverage" of at such arrangements which have come to the Board's attenleast 300 percent of its borrowings at all times. tion are the following: (3) Fund X agrees not to amend its custody agreement (1) The borrower may deposit margin stock in the cuswith Bank Y, or to substitute another custodian without tody of the bank. An arrangement of this kind may not, it Bank Y's consent. is true, place the bank in the position of a secured (4) Fund X agrees not to mortgage, pledge, or otherwise creditor in case of bankruptcy, or even of conflicting encumber any of its assets elsewhere than with Bank Y. claims, but it is likely effectively to strengthen the bank's (c) In section 221.109 the Board stated that because of "the position. The definition of indirectly secured in secgeneral nature and operations of such a company", any tion 221.2, which provides that a loan is not indirectly "loan by a bank to an open-end investment company that secured if the lender "holds the margin stock only in the customarily purchases margin stock . . . should be pre- capacity of custodian, depositary or trustee, or under sumed to be subject to this part as a loan for the purpose of similar circumstances, and, in good faith has not relied purchasing or carrying margin stock" (purpose credit). The upon the margin stock as collateral," does not exempt a Board's interpretation went on to say that: "this would not deposit of this kind from the impact of the regulation be altered by the fact that the open-end company had used, unless it is clear that the bank "has not relied" upon the or proposed to use, its own funds or proceeds of the loan to margin stock deposited with it. redeem some of its own shares (2) A borrower may not deposit his margin stock with (d) Accordingly, the loan by Bank Y to Fund X was and is the bank, but agree not to pledge or encumber his assets a "purpose credit". However, a loan by a bank is not elsewhere while the loan is outstanding. Such an agreesubject to this part unless: it is a purpose credit; and it is ment may be difficult to police, yet it serves to some "secured directly or indirectly by margin stock". In the extent to protect the interest of the bank if only because present case, the loan is not "secured directly" by stock in the future credit standing and business reputation of the the ordinary sense, since the portfolio of Fund X is not borrower will depend upon his keeping his word. If the pledged to secure the credit from Bank Y. But the word assets covered by such an agreement include margin "indirectly" must signify some form of security arrange- stock, then, the credit is "indirectly secured" by the ment other than the "direct" security which arises from the margin stock within the meaning of this part. ordinary "transaction that gives recourse against a particu- (3) The borrower may deposit margin stock with a third lar chattel or land or against a third party on an obligation" party who agrees to hold the stock until the loan has described in the American Law Institute's Restatement of been paid off. Here, even though the parties may purport the Law of Security, page 1. Otherwise the word "indirect- to provide that the stock is not "security" for the loan ly" would be superfluous, and a regulation, like a statute, (for example, by agreeing that the stock may not be sold must be construed if possible to give meaning to every and the proceeds applied to the debt if the borrower fails word. to pay), the mere fact that the stock is out of the (e) The Board has indicated its view that any arrangement borrower's control for the duration of the loan serves to under which margin stock is more readily available as some extent to protect the bank. security to the lending bank than to other creditors of the (g) The three instances described in paragraph (f) of this Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

216 Federal Reserve Bulletin • March 1998 section are merely illustrative. Other methods, or combina- number of shares of that stock and would be indebted to tions of methods, may serve a similar purpose. The conclu- the lending bank in an amount approximately equal to the sion that any given arrangement makes a credit "indirectly amount he would pay for such shares. In these circumsecured" by margin stock may, but need not, be reinforced stances, the loan by the bank must be regarded as a loan by facts such as that the stock in question was purchased "for the purpose of purchasing" the stock, and therefore it with proceeds of the loan, that the lender suggests or insists is subject to the limitations prescribed by this part. This upon the arrangement, or that the loan would probably be conclusion follows from the provisions of this part, and it subject to criticism by supervisory authorities were it not may also be observed that a contrary conclusion could for the protective arrangement. largely defeat the basic purpose of the margin regulations, (h) Accordingly, the Board concludes that the loan by (e) Accordingly, the Board concluded that a loan of the Bank Y to Fund X is indirectly secured by the portfolio of kind described may not be made in an amount exceeding the fund and must be treated by the bank as a regulated the maximum loan value of the collateral, as prescribed by loan. the current section 221.7 (the Supplement). Section 221.114—Bank loans to purchase stock of Section 221.115—Accepting a purpose statement American Telephone and Telegraph Company under through the mail without benefit of face-to-face Employees' Stock Plan. interview. (a) The Board of Governors interpreted this part in connec- (a) The Board has been asked whether the acceptance of a tion with proposed loans by a bank to persons who are purpose statement submitted through the mail by a lender purchasing shares of stock of American Telephone and subject to the provisions of this part will meet the good Telegraph Company pursuant to its Employees' Stock Plan. faith requirement of section 221.3(c). Section 221.3(c) (b) According to the current offering under the Plan, an states that in connection with any credit secured by collatemployee of the AT&T system may purchase shares eral which includes any margin stock, a nonbank lender through regular deductions from his pay over a period of must obtain a purpose statement executed by the borrower 24 months. At the end of that period, a certificate for the and accepted by the lender in good faith. Such acceptance appropriate number of shares will be issued to the partici- requires that the lender be alert to the circumstances surpating employee by AT&T. Each employee is entitled to rounding the credit and if further information suggests purchase, as a maximum, shares that will cost him approx- inquiry, he must investigate and be satisfied that the stateimately three-fourths of his annual base pay. Since the ment is truthful. program extends over two years, it follows that the payroll (b) The lender is a subsidiary of a holding company which deductions for this purpose may be in the neighborhood of also has another subsidiary which serves as underwriter 38 percent of base pay and a larger percentage of "take- and investment advisor to various mutual funds. The sole home pay." Deductions of this magnitude are in excess of business of the lender will be to make "non-purpose" the saving rate of many employees. consumer loans to shareholders of the mutual funds, such (c) Certain AT&T employees, who wish to take advantage loans to be collateralized by the fund shares. Most mutual of the current offering under the Plan, are the owners of funds shares are margin stock for purposes of this part. shares of AT&T stock that they purchased under previous Solicitation and acceptance of these consumer loans will offerings. A bank proposed to receive such stock as collat- be done principally through the mail and the lender wishes eral for a "living expenses" loan that will be advanced to to obtain the required purpose statement by mail rather the employee in monthly installments over the 24-month than by a face-to-face interview. Personal interviews are period, each installment being in the amount of the employ- not practicable for the lender because shareholders of the ee's monthly payroll deduction under the Plan. The aggre- funds are scattered throughout the country. In order to gate amount of the advances over the 24-month period provide the same safeguards inherent in face-to-face interwould be substantially greater than the maximum loan views, the lender has developed certain procedures devalue of the collateral as prescribed in section 221.7 (the signed to satisfy the good faith acceptance requirement of Supplement). this part. (d) In the opinion of the Board of Governors, a loan of the (c) The purpose statement will be supplemented with sevkind described would violate this part if it exceeded the eral additional questions relevant to the prospective bormaximum loan value of the collateral. The regulation ap- rower's investment activities such as purchases of any plies to any margin stock-secured loan for the purpose of security within the last 6 months, dollar amount, and purchasing or carrying margin stock (section 221.3(a)). obligations to purchase or pay for previous purchases; Although the proposed loan would purport to be for living present plans to purchase securities in the near future, expenses, it seems quite clear, in view of the relationship of participations in securities purchase plans, list of unpaid the loan to the Employees' Stock Plan, that its actual debts, and present income level. Some questions have been purpose would be to enable the borrower to purchase modified to facilitate understanding but no questions have AT&T stock, which is margin stock. At the end of the been deleted. If additional inquiry is indicated by the 24-month period the borrower would acquire a certain answers on the form, a loan officer of the lender will Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 217 interview the borrower by telephone to make sure the loan that similar amounts were released to purchase the shares, is "non-purpose". Whenever the loan exceeds the "maxi- and over any extended period of time the result would be mum loan value" of the collateral for a regulated loan, a the same. Accordingly, the Board concluded that bank telephone interview will be done as a matter of course, loans made under the alternative proposal would similarly (d) One of the stated purposes of Regulation X (12 C.F.R. be subject to this part. Part 224) was to prevent the infusion of unregulated credit into the securities markets by borrowers falsely certifying the purpose of a loan. The Board is of the view that the Section 221.117—When bank in "good faith" has existence of Regulation X (12 C.F.R. Part 224), which not relied on stock as collateral. makes the borrower liable for willful violations of the margin regulations, will allow a lender subject to this part (a) The Board has received questions regarding the circumto meet the good faith acceptance requirement of section stances in which an extension or maintenance of credit will 221.3(c) without a face-to-face interview if the lender not be deemed to be "indirectly secured" by stock as adopts a program, such as the one described in paraindicated by the phrase, "if the lender, in good faith, has graph (c) of this section, which requires additional detailed not relied upon the margin stock as collateral," contained information from the borrower and proper procedures are instituted to verify the truth of the information received. in paragraph (2)(iv) of the definition of indirectly secured Lenders intending to embark on a similar program should in section 221.2. discuss proposed plans with their district Federal Reserve (b) In response, the Board noted that in amending this Bank. Lenders may have existing or future loans with the portion of the regulation in 1968 it was indicated that one prospective customers which could complicate the efforts of the purposes of the change was to make clear that the to determine the true purpose of the loan. definition of indirectly secured does not apply to certain routine negative covenants in loan agreements. Also, while the question of whether or not a bank has relied upon particular stock as collateral is necessarily a question of Section 221.116—Bank loans to replenish working fact to be determined in each case in the light of all capital used to purchase mutual fund shares. relevant circumstances, some indication that the bank had not relied upon stock as collateral would seem to be (a) In a situation considered by the Board of Governors, a afforded by such circumstances as the fact that: business concern (X) proposed to purchase mutual fund (1) The bank had obtained a reasonably current financial shares, from time to time, with proceeds from its accounts statement of the borrower and this statement could reareceivable, then pledge the shares with a bank in order to sonably support the loan; and secure working capital. The bank was prepared to lend (2) The loan was not payable on demand or because of amounts equal to 70 percent of the current value of the fluctuations in market value of the stock, but instead was shares as they were purchased by X. If the loans were payable on one or more fixed maturities which were subject to this part, only 50 percent of the current market typical of maturities applied by the bank to loans othervalue of the shares could be lent. wise similar except for not involving any possible ques- (b) The immediate purpose of the loans would be to tion of stock collateral. replenish X's working capital. However, as time went on, X would be acquiring mutual fund shares at a cost that would exceed the net earnings it would normally have Section 221.118—Bank arranging for extension of accumulated, and would become indebted to the lending credit by corporation. bank in an amount approximately 70 percent of the prices of said shares. (c) The Board held that the loans were for the purpose of (a) The Board considered the questions whether: purchasing the shares, and therefore subject to the limita- (1) The guaranty by a corporation of an "unsecured" tions prescribed by this part. As pointed out in sec- bank loan to exercise an option to purchase stock of the tion 221.114 with respect to a similar program for putting a corporation is an "extension of credit" for the purpose high proportion of cash income into stock, the borrowing of this part; against the margin stock to meet needs for which the cash (2) Such a guaranty is given "in the ordinary course of would otherwise have been required, a contrary conclusion business" of the corporation, as defined in section 221.2; could largely defeat the basic purpose of the margin regula- and tions. (3) The bank involved took part in arranging for such (d) Also considered was an alternative proposal under credit on better terms than it could extend under the which X would deposit proceeds from accounts receivable provisions of this part. in a time account for one year, before using those funds to (b) The Board understood that any officer or employee purchase mutual fund shares. The Board held that this included under the corporation's stock option plan who procedure would not change the situation in any significant wished to exercise his option could obtain a loan for the way. Once the arrangement was established, the proceeds purchase price of the stock by executing an unsecured note would be flowing into the time account at the same time to the bank. The corporation would issue to the bank a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

218 Federal Reserve Bulletin • March 1998 guaranty of the loan and hold the purchased shares as Section 221.119—Applicability of plan-lender collateral to secure it against loss on the guaranty. Stock of provisions to financing of stock options and stock the corporation is registered on a national securities ex- purchase rights qualified or restricted under Internal change and therefore qualifies as "margin stock" under Revenue Code. this part. (c) A nonbank lender is subject to the registration and other (a) The Board has been asked whether the plan-lender requirements of this part if, in the ordinary course of his provisions of section 221.4(a) and (b) were intended to business, he extends credit on collateral that includes any apply to the financing of stock options restricted or qualimargin stock in the amount of $200,000 or more in any fied under the Internal Revenue Code where such options calendar quarter, or has such credit outstanding in any or the option plan do not provide for such financing. calendar quarter in the amount of $500,000 or more. The (b) It is the Board's experience that in some nonqualified Board understood that the corporation in question had plans, particularly stock purchase plans, the credit arrangesufficient guaranties outstanding during the applicable cal- ment is distinct from the plan. So long as the credit endar quarter to meet the dollar thresholds for registration. extended, and particularly, the character of the plan-lender, (d) In the Board's judgment a person who guarantees a conforms with the requirements of the regulation, the fact loan, and thereby becomes liable for the amount of the loan that option and credit are provided for in separate docuin the event the borrower should default, is lending his ments is immaterial. It should be emphasized that the credit to the borrower. In the circumstances described, such Board does not express any view on the preferability of a lending of credit must be considered an "extension of qualified as opposed to nonqualified options; its role is credit" under this part in order to prevent circumvention of merely to prevent excessive credit in this area. the regulation's limitation on the amount of credit that can (c) Section 221.4(a) provides that a plan-lender may inbe extended on the security of margin stock. clude a wholly owned subsidiary of the issuer of the (e) Under section 221.2, the term in the ordinary course of collateral (taking as a whole, corporate groups including business means "occurring or reasonably expected to occur subsidiaries and affiliates). This clarifies the Board's intent in carrying out or furthering any business purpose...." that, to qualify for special treatment under that section, the In general, stock option plans are designed to provide a lender must stand in a special employer-employee relationcompany's employees with a proprietary interest in the ship with the borrower, and a special relationship of issuer company in the form of ownership of the company's stock. with regard to the collateral. The fact that the Board, for Such plans increase the company's ability to attract and convenience and practical reasons, permitted the employretain able personnel and, accordingly, promote the interest ing corporation to act through a subsidiary or other entity of the company and its stockholders, while at the same should not be interpreted to mean the Board intended the time providing the company's employees with additional lender to be other than an entity whose overriding interests incentive to work toward the company's future success. An were coextensive with the issuer. An independent corporaarrangement whereby participating employees may finance tion, with independent interests was never intended, regardthe exercise of their options through an unsecured bank less of form, to be at the base of exempt stock-plan loan guaranteed by the company, thereby facilitating the lending. employees' acquisition of company stock, is likewise designed to promote the company's interest and is, therefore, Section 221.120—Allocation of stock collateral to in furtherance of a business purpose. purpose and nonpurpose credits to same customer. (f) For the reasons indicated, the Board concluded that under the circumstances described a guaranty by the corpo- (a) A bank proposes to extend two credits (Credits A and ration constitutes credit extended in the ordinary course of B) to its customer. Although the two credits are proposed business under this part, that the corporation is required to to be extended at the same time, each would be evidenced register pursuant to section 221.3(b), and that such guaran- by a separate agreement. Credit A would be extended for ties may not be given in excess of the maximum loan value the purpose of providing the customer with working capital of the collateral pledged to secure the guaranty. (nonpurpose credit), collateralized by margin stock. Credit (g) Section 221.3(a)(3) provides that "no lender may ar- B would be extended for the purpose of purchasing or range for the extension or maintenance of any purpose carrying margin stock (purpose credit), without collateral credit, except upon the same terms and conditions on or on collateral other than stock. which the lender itself may extend or maintain purpose (b) This part allows a bank to extend purpose and nonpurcredit under this part". Since the Board concluded that the pose credits simultaneously or successively to the same giving of a guaranty by the corporation to secure the loan customer. This rule is expressed in section 221.3(d)(4) described above constitutes an extension of credit, and which provides in substance that for any nonpurpose credit since the use of a guaranty in the manner described could to the same customer, the lender shall in good faith require not be effectuated without the concurrence of the bank as much collateral not already identified to the customer's involved, the Board further concluded that the bank took purpose credit as the lender would require if it held neither part in "arranging" for the extension of credit in excess of the purpose loan nor the identified collateral. This rule in the maximum loan value of the margin stock pledged to section 221.3(d)(4) also takes into account that the lender secure the guaranties. would not necessarily be required to hold collateral for the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 219 nonpurpose credit if, consistent with good faith banking or takes fund shares which he already owns, and then uses practices, it would normally make this kind of nonpurpose the loan value (currently 50 percent as set by the Board) to loan without collateral. buy insurance. Usually, a funding company (the issuer) (c) The Board views section 221.3(d)(4), when read in will sell both the fund shares and the insurance through conjunction with section 221.3(c) and (f), as requiring that either independent broker/dealers or subsidiaries or affiliwhenever a lender extends two credits to the same cus- ates of the issuer. A typical plan may run for 10 or 15 years tomer, one a purpose credit and the other nonpurpose, any with annual insurance premiums due. To illustrate, assummargin stock collateral must first be identified with and ing an annual insurance premium of $300, the participant is attributed to the purpose loan by taking into account the required to put up mutual fund shares equivalent to maximum loan value of such collateral as prescribed in 250 percent of the premium or $600 ($600 x 50 percent section 221.7 (the Supplement). loan value equals $300 the amount of the insurance pre- (d) The Board is further of the opinion that under the mium which is also the amount of the credit extended). foregoing circumstances Credit B would be indirectly se- (b) The guidelines referenced in paragraph (a) of this cured by stock, despite the fact that there would be separate section also: loan agreements for both credits. This conclusion flows (1) Clarify an earlier 1969 Board interpretation to show from the circumstance that the lender would hold in its that the public offering price of mutual fund shares possession stock collateral to which it would have access (which includes the front load, or sales commission) with respect to Credit B, despite any ostensible allocation may be used as a measure of their current market value of such collateral to Credit A. when the shares serve as collateral on a purpose credit throughout the day of the purchase of the fund shares; Section 221.121—Extension of credit in certain and stock option and stock purchase plans. (2) Relax a 1965 Board position in connection with accepting purpose statements by mail. Questions have been raised as to whether certain stock (c) It is the Board's view that when it is clearly established option and stock purchase plans involve extensions of that a purpose statement supports a purpose credit then credit subject to this part when the participant is free to such statement executed by the borrower may be accepted cancel his participation at any time prior to full payment, by mail, provided it is received and also executed by the but in the event of cancellation the participant remains lender before the credit is extended. liable for damages. It thus appears that the participant has the opportunity to gain and bears the risk of loss from the Section 221.123—Combined credit for exercising time the transaction is executed and payment is deferred. In employee stock options and paying income taxes some cases brought to the Board's attention damages are incurred as a result of such exercise. related to the market price of the stock, but in others, there may be no such relationship. In either of these circum- (a) Section 221.4(a) and (b), which provides special treatstances, it is the Board's view that such plans involve ment for credit extended under employee stock option extensions of credit. Accordingly, where the security being plans, was designed to encourage their use in recognition purchased is a margin security and the credit is secured, of their value in giving an employee a proprietary interest directly or indirectly, by any margin security, the creditor in the business. Taking a position that might discourage the must register and the credit must conform with either the exercise of options because of tax complications would regular margin requirements of section 221.3(a) or the conflict with the purpose of section 221.4(a) and (b). special "plan-lender" provisions set forth in section 221.4, (b) Accordingly, the Board has concluded that the comwhichever is applicable. This assumes, of course, that the bined loans for the exercise of the option and the payment amount of credit extended is such that the creditor is of the taxes in connection therewith under plans complying subject to the registration requirements of section 221.3(b). with section 221.4(a)(2) may be regarded as purpose credit within the meaning of section 221.2. Section 221.122—Applicability of margin requirements to credit in connection with Insurance Premium Funding Programs. Section 221.124—Purchase of debt securities to finance corporate takeovers. (a) The Board has been asked numerous questions regarding purpose credit in connection with insurance premium (a) Petitions have been filed with the Board raising quesfunding programs. The inquiries are included in a set of tions as to whether the margin requirements in this part guidelines in the format of questions and answers. (The apply to two types of corporate acquisitions in which debt guidelines are available pursuant to the Board's Rules securities are issued to finance the acquisition of margin Regarding Availability of Information, 12 C.F.R. Part 261.) stock of a target company. A glossary of terms customarily used in connection with (b) In the first situation, the acquiring company, Company insurance premium funding credit activities is included in A, controls a shell corporation that would make a tender the guidelines. Under a typical insurance premium funding offer for the stock of Company B, which is margin stock program, a borrower acquires mutual fund shares for cash, (as defined in section 221.2). The shell corporation has Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

220 Federal Reserve Bulletin • March 1998 virtually no operations, has no significant business function tion. Because of the difficulty in predicting the outcome of other than to acquire and hold the stock of Company B, a contested takeover at the time that credit is committed to and has substantially no assets other than the margin stock the shell corporation, the Board believes that the purchasto be acquired. To finance the tender olfer, the shell corpo- ers of the debt securities could not, in good faith, lend ration would issue debt securities which, by their terms, without reliance on the margin stock as collateral. The would be unsecured. If the tender offer is successful, the presumption that the debt securities are indirectly secured shell corporation would seek to merge with Company B. by margin stock would not apply if there is specific evi- However, the tender offer seeks to acquire fewer shares of dence that lenders could in good faith rely on assets other Company B than is necessary under state law to effect a than margin stock as collateral, such as a guaranty of the short form merger with Company B, which could be con- debt securities by the shell corporation's parent company summated without the approval of shareholders or the or another company that has substantial non-margin stock board of directors of Company B. assets or cash flow. This presumption would also not apply (c) The purchase of the debt securities issued by the shell if there is a merger agreement between the acquiring and corporation to finance the acquisition clearly involves pur- target companies entered into at the time the commitment pose credit (as defined in section 221.2). In addition, such is made to purchase the debt securities or in any event debt securities would be purchased only by sophisticated before loan funds are advanced. In addition, the presumpinvestors in very large minimum denominations, so that the tion would not apply if the obligation of the purchasers of purchasers may be lenders for purposes of this part. See the debt securities to advance funds to the shell corporation section 221.3(b). Since the debt securities contain no direct is contingent on the shell's acquisition of the minimum security agreement involving the margin stock, applicabil- number of shares necessary under applicable state law to ity of the lending restrictions of this part turns on whether effect a merger between the acquiring and target companies the arrangement constitutes an extension of credit that is without the approval of either the shareholders or directors secured indirectly by margin stock. of the target company. In these two situations where the (d) As the Board has recognized, indirect security can merger will take place promptly, the Board believes the encompass a wide variety of arrangements between lenders lenders could reasonably be presumed to be relying on the and borrowers with respect to margin stock collateral that assets of the target for repayment. serve to protect the lenders' interest in assuring that a (g) In addition, the Board is of the view that the debt credit is repaid where the lenders do not have a conven- securities described in paragraph (b) of this section are tional direct security interest in the collateral. See sec- indirectly secured by margin stock because there is a tion 221.124. However, credit is not "indirectly secured" practical restriction on the ability of the shell corporation by margin stock if the lender in good faith has not relied on to dispose of the margin stock of the target company. the margin stock as collateral extending or maintaining Indirectly secured is defined in section 221.2 to include any credit. See section 221.2. arrangement under which the customer's right or ability to (e) The Board is of the view that, in the situation described sell, pledge, or otherwise dispose of margin stock owned in paragraph (b) of this section, the debt securities would by the customer is in any way restricted while the credit be presumed to be indirectly secured by the margin stock remains outstanding. The purchasers of the debt securities to be acquired by the shell acquisition vehicle. The staff issued by a shell corporation to finance a takeover attempt has previously expressed the view that nominally unse- clearly understand that the shell corporation intends to cured credit extended to an investment company, a substan- acquire the margin stock of the target company in order to tial portion of whose assets consist of margin stock, is effect the acquisition of that company. This understanding indirectly secured by the margin stock. See Federal Re- represents a practical restriction on the ability of the shell serve Regulatory Service 5-917.12. (See 12 C.F.R. corporation to dispose of the target's margin stock and to 261.10(f) for information on how to obtain Board publica- acquire other assets with the proceeds of the credit. tions.) This opinion notes that the investment company has (h) In the second situation, Company C, an operating substantially no assets other than margin stock to support company with substantial assets or cash flow, seeks to indebtedness and thus credit could not be extended to such acquire Company D, which is significantly larger than a company in good faith without reliance on the margin Company C. Company C establishes a shell corporation stock as collateral. that together with Company C makes a tender offer for the (f) The Board believes that this rationale applies to the debt shares of Company D, which is margin stock. To finance securities issued by the shell corporation described in para- the tender offer, the shell corporation would obtain a bank graph (b) of this section. At the time the debt securities are loan that complies with the margin lending restrictions of issued, the shell corporation has substantially no assets to this part and Company C would issue debt securities that support the credit other than the margin stock that it has would not be directly secured by any margin stock. The acquired or intends to acquire and has no significant busi- Board is of the opinion that these debt securities should not ness function other than to hold the stock of the target be presumed to be indirectly secured by the margin stock company in order to facilitate the acquisition. Moreover, it of Company D, since, as an operating business, Company is possible that the shell may hold the margin stock for a C has substantial assets or cash flow without regard to the significant and indefinite period of time, if defensive mea- margin stock of Company D. Any presumption would not sures by the target prevent consummation of the acquisi- be appropriate because the purchasers of the debt securities Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 221 may be relying on assets other than margin stock of Com- bank, except for the requirement of a purpose statement pany D for repayment of the credit. (12 C.F.R. 221.3(c)(l)(i) and (c)(2)(i)); and (3) Regulation U (12 C.F.R. Part 221), as it applies to Section 221.125—Credit to brokers and dealers. nonbank lenders, if the credit is obtained from any other lender outside the United States, except for the require- (a) The National Securities Markets Improvement Act of ment of a purpose statement (12 C.F.R. 221.3(c)(l)(ii) 1996 (Pub. L. 104-290, 110 Stat. 3416) restricts the and (c)(2)(ii)). Board's margin authority by repealing section 8(a) of the (b) Credit transactions within the United States. Any bor- Securities Exchange Act of 1934 (the Exchange Act) and rower who willfully causes credit to be extended in contraamending section 7 of the Exchange Act (15 U.S.C. 78g) to vention of Regulations T and U (12 C.F.R. Parts 220 and exclude the borrowing by a member of a national securities 221), and who, therefore, is not exempted by secexchange or a registered broker or dealer "a substantial tion 224.1(b)(1), must conform the credit to the margin portion of whose business consists of transactions with regulation that applies to the lender. persons other than brokers or dealers" and borrowing by a member of a national securities exchange or a registered Part 265—Rules Regarding Delegation of Authority broker or dealer to finance its activities as a market maker or an underwriter. Notwithstanding this exclusion, the 11. The authority citation for Part 265 continues to read as Board may impose such rules and regulations if it deter- follows: mines they are "necessary or appropriate in the public interest or for the protection of investors." Authority. 12 U.S.C. 248(i) and (k). (b) The Board has not found that it is necessary or appropriate in the public interest or for the protection of inves- 12. Section 265.11(f) is revised to read as follows: tors to impose rules and regulations regarding loans to brokers and dealers covered by the National Securities Section 265.11— Functions delegated to Federal Markets Improvement Act of 1996. Reserve Banks. Part 224—Borrowers of Securities Credit (Regulation X) (f) Securities. To approve applications by a registered lender for termination of the registration under sec- 7. The authority citation for Part 224 is revised to read as tion 221.3(b)(2) of Regulation U (12 C.F.R. 221.3(b)(2)). follows: Authority: 15 U.S.C. 78g. FINAL RULE—AMENDMENTS TO REGULATIONS G, T, U AND X 8. Section 224.1 is amended as follows: The Board of Governors is amending 12 C.F.R. Parts 207, a. Remove "G," and "207," from the last sentence in 220, 221 and 224, its Regulations G, T, U and X (Securities paragraph (a). Credit Transactions; List of Marginable OTC Stocks; List of Foreign Margin Stocks). The List of Marginable OTC b. Remove "G," from paragraph (b)(1). Stocks (OTC List) is composed of stocks traded over-thecounter (OTC) in the United States that have been deter- 9. Section 224.2 is amended by removing "G," from the mined by the Board of Governors of the Federal Reserve introductory text. System to be subject to the margin requirements under certain Federal Reserve regulations. The List of Foreign 10. Section 224.3 is revised to read as follows: Margin Stocks (Foreign List) is composed of foreign equity securities that have met the Board's eligibility criteria Section 224.3—Margin regulations to be applied by under Regulation T. The OTC List and the Foreign List are nonexempted borrowers. published four times a year by the Board. This document sets forth additions to and deletions from the previous OTC List and the previous Foreign List. (a) Credit transactions outside the United States. No bor- Effective February 9, 1998 - March 31, 1998, 12 C.F.R. rower shall obtain purpose credit from outside the United Parts 207 and 221 are amended as follows. Effective States unless it conforms to the following margin regula- February 9, 1998 -January 1, 1999, 12 C.F.R. Parts 220 and tions: 224 are amended as follows. Accordingly, pursuant to the (1) Regulation T (12 C.F.R. Part 220) if the credit is authority of sections 7 and 23 of the Securities Exchange obtained from a foreign branch of a broker-dealer; Act of 1934, as amended (15 U.S.C. 78g and 78w), and in (2) Regulation U (12 C.F.R. Part 221), as it applies to accordance with 12 C.F.R. 207.2(k) and 207.6 (Regulabanks, if the credit is obtained from a foreign branch of a tion G), 12 C.F.R. 220.2 and 220.17 (Regulation T), and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

222 Federal Reserve Bulletin • March 1998 12 C.F.R. 221.2(j) and 221.7 (Regulation U), there is set Meridian Point Realty Trust 83: No par shares of beneficial forth below a listing of deletions from and additions to the Micro-Integration Corporation: $.01 par common OTC List and the Foreign List. Midcom Communications, Inc.: $.0001 par common MVSI, Inc.: Warrants (expire 08-15-2000) From The List Of Marginable OTC Stocks NAL Financial Group, Inc.: $.15 par common Stocks Removed For Failing Continued Listing Neurobiological Technologies, Inc.: $.001 par common Requirements Niagara Corporation: Warrants (expire 08-13-2000) Nuko Information Systems, Inc.: $.001 par common Allergan Ligand Retinoid Therapeutics, Inc.: $.001 par common On-Gard Systems, Inc.: $.001 par common Alliance Imaging, Inc.: $.01 par common America First Financial Fund 1987: Beneficial unit certificates Pennichuck Corporation: $1.00 par common American Telecasting, Inc.: $.01 par common Premier Laser Systems, Inc.: Class A, warrants (expire Amscan Holdings, Inc.: $.10 par common 11-30-1999) Battery Technologies, Inc.: No par common Q-Entertainment, Inc.: No par common CAI Wireless Systems, Inc.: No par common Redwood Trust, Inc.: Warrants (expire 12-31-1997) Catalytica, Inc.: Warrants (expire 10-31-1997) Regent Bancshares Corp. (Pennsylvania): Series A, $.10 par Centura Software Corporation: $.01 par common convertible Chemtrak Incorporated: $.001 par common Cinergi Pictures Entertainment Inc.: $.01 par common Trans world Healthcare, Inc.: Warrants (expire 12-07-1997) Cypros Pharmaceutical Coproration: Class B, Warrants (expire 11-03-1997) U.S. Bancorp (Minnesota): Series A, preferred stock Egeorge Financial Corporation: $.10 par common Venture Seismic, Ltd.: Warrants (expire 11-06-2000) Ecogen Inc.: Warrants (expire 01-31-1998) Videolan Technologies, Inc.: Warrants (expire 08-10-2000) Elek-Tek, Inc.: $.01 par common Virogroup, Inc.: $.01 par common Vision-Sciences, Inc.: $.01 par common Faulding Inc.: $.01 par common FFBS Bancorp, Inc. (Mississippi): $.01 par common Washington Mutual, Inc.: Series C, $1.00 par non-cumulative First Banks, Inc. (Missouri): Class C, 9% increasing rate depositary shares Welcome Home, Inc.: $.01 par common Garnet Resources Corporation: $.01 par common Wellcare Management Group, Inc., The: $.01 par common Gateway Data Sciences Corporation: $.01 par common Western Pacific Airlines, Inc.: $.001 par common Geographies, Inc.: No par common, Warrants (expire 06-01-1999) Stocks Removed For Listing On A National Glasgal Communications, Inc.: Warrants (expire 09-21-1999) Securities Exchange Or Being Involved In An Grand Union Company, The: $1.00 par common Acquisition Housecall Medical Resources, Inc.: $.01 par common 1st United Bancorp (Florida): $.01 par common Hybridon, Inc.: $.001 par common ACC Consumer Finance Corporation: $.001 par common IITC Holdings, Ltd.: Class A, no par common Access Beyond, Inc.: $.01 par common International Verifact, Inc.: Redeemable Warrants (expire Adco Technologies, Inc.: $.01 par common 01-05-1998) Airways Corporation: $.01 par common Interstate National Dealer Services, Inc.: Warrants (expire All American Communications, Inc.: $.0001 par common; 07-22-1999) Class B, non-voting, $.0001 par common Allied Capital Advisers, Inc.: $.001 par common Kinetic Concepts, Inc.: $.001 par common Allied Capital Commercial Corporation: $.0001 par common KS Bancorp, Inc. (North Carolina): No par common Allied Capital Corporation: $1.00 par common Allied Capital Corporation II: $1.00 par common LTX Corporation: 13-'/2% convertible debentures Alltrista Corporation: No par common Alpine Lace Brands, Inc.: $.01 par common Macheezmo Mouse Restaurants, Inc.: No par common American National Bancorp, Inc.: $1.00 par common Maxcor Financial Group, Inc.: Series A, Warrants (expire American Recreation Company Holdings: $.01 par common 11-30-2001); Series B, Warrants (expire 11-30-2001) Andyne Computing Ltd.: No par common McMoran Oil & Gas Company: Rights (expire 11-13-1997) Arbor Health Care Company: $.03 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 223 ARV Assisted Living, Inc: No par common Jefferson Bankshares, Inc. (Virginia): $2.50 par common Atchison Casting Corporation: $.01 par common Atlas Air, Inc.: $.01 par common LB Financial, Inc.: $.01 par common Leasing Solutions, Inc.: No par common Bank Corporation of Georgia: $1.00 par common Lindsay Manufacturing Co.: $1.00 par common BDM International, Inc.: $.01 par common Belmont Homes, Inc.: $.10 par common Magna Bancorp, Inc. (Mississippi): $.01 par common Bowlin Outdoor Advertising & Travel: $.001 par common Magnetic Technologies Corporation: $.15 par common Box Worldwide, Inc., The: $.001 par common Mail Boxes Etc.: No par common Branford Savings Bank (Connecticut): No par common Medic Computer Systems, Inc.: $.01 par common Melamine Chemicals, Inc.: $.01 par common Cairn Energy USA, Inc: $.01 par common Modtech, Inc.: $.01 par common Calnetics Corporation: No par common Mosinee Paper Corporation: $2.50 par common Capital Bancorp (Florida): $1.00 par common Mustang Software, Inc.: No par common CB Commercial Real Estate Services: $.01 par common Central Fidelity Banks, Inc.: $5.00 par common National Health Enhancement Systems: $.001 par common Community Bank System, Inc. (New York): $1.25 par com- National Picture & Frame Company: $.01 par common mon Network General Corporation: $.01 par common Community Care of America, Inc.: $.01 par common NFO Worldwide, Inc.: $.01 par common Computational Systems, Inc.: No par common Computer Data Systems, Inc.: $.10 par common Offshore Energy Development: $.01 par common Cyrix Corporation: $.004 par common Orthodontic Centers of America Inc.: $.01 par common Data Documents Incorporated: $.01 par common Phonetel Technologies, Inc.: $0.01 par common Delchamps, Inc.: $.01 par common Physician Support Systems, Inc.: $.001 par common Doubletree Corporation: $.01 par common Physicians Health Services, Inc.: Class A, $.01 par common Pittencrieff Communications, Inc.: $.01 par common Elexsys International, Inc.: $1.00 par common Poe & Brown, Inc.: $.10 par common Endovascular Technologies, Inc.: $.00001 par common Premenos Technology Corporation: $.01 par common Exide Electronics Group, Inc.: $.01 par common Premier Parks, Inc.: $.05 par common Primary Bank (New Hampshire): $.01 par common Financial Institutions Insurance: $1.00 par common Pronet, Inc.: $.01 par common First Financial Corporation: $1.00 par common First Southeast Financial Corporation: $.01 par common Rexworks, Inc.: $.12 par common Firstplus Financial Group, Inc.: $.01 par common Robbins & Myers, Inc.: No par common Forest Oil Corporation: $.10 par common Rotech Medical Corporation: $.0002 par common Game Financial Corporation: $.01 par common Seaman Furniture Company, Inc.: $.01 par common Gateway Bancorp, Inc. (Kentucky): $.01 par common Sequana Therapeutics, Inc.: $.001 par common Glastonbury Bank & Trust Company: $2.50 par common Sho-Me Financial Corporation: $.01 par common Green, A.R Industries, Inc.: $1.00 par common Sirrom Capital Corporation: No par common; $.01 par com- Greenfield Industries, Inc.: $.01 par common mon; Class A, $.01 par common Ground Round Restaurants, Inc.: $.1667 par common Sullivan Dental Products, Inc.: $.01 par common Gynecare Inc.: $.01 par common Technology Service Group, Inc.: $.01 par common; Warrants Ha-Lo Industries, Inc.: No par common (expire 05-09-1999) Hayes Wheels International: $.01 par common Tecnol Medical Products, Inc.: $.001 par common Healthdyne, Inc.: $.01 par common Thompson PBE, Inc.: $.01 par common Hollywood Park, Inc.: $.01 par common Todhunter International, Inc.: $.01 par common Homegate Hospitality, Inc.: $.01 par common Transtexas Gas Corporation: $.01 par common HPR, Inc.: $.01 par common Triangle Bancorp, Inc. (North Carolina): No par common Tuesday Morning Corp.: $.01 par common Inacom Corp.: $.10 par common Tyson Foods, Inc.: Class A, $.10 par common Infinity Financial Technology, Inc.: No par common International Dairy Queen, Inc.: Class A, $.01 par common; USLD Communications Corporation: $.01 par common Class B, $.01 par common International Imaging Materials, Inc.: $.01 par common Vacation Break U.S.A., Inc.: $.01 par common Vectra Banking Corporation: $.01 par common; VBC Capital Jackson Hewitt Inc.: $.02 par common I Cumulative capital Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

224 Federal Reserve Bulletin • March 1998 Viewlogic Systems, Inc.: $.01 par common Denali, Inc.: $.01 par common Virginia First Financial Corporation: $1.00 par common Dental Care Alliance, Inc.: $.01 par common Dental/Medical Diagnostic Systems, Inc.: $.01 par common Walter Industries, Inc.: $.01 par common East Telecom Group PLC: American Depositary Receipts Zytec Corp: No par common Echostar Communications Corporation: Series C, $.01 par cumulative convertible preferred Additions to The List of Marginable OTC Stocks Edison Brothers Stores, Incorporated: $.01 par common Electric Lightwave, Inc.: Class A, $.01 par common Act Teleconferencing, Inc.: No par common Electronic Processing, Inc.: $.01 par common Advabtuca Restaurant Group, Inc.: $.01 par common; Energis, PLC: American Depositary Shares Warrants (expire 01-07-2005) ESG RE Limited: $1.00 par common Alydaar Software Corporation: $.001 par common Excel Switching Corporation: $.01 par common American Bingo & Gaming Corporation: $.001 par common American Educational Products, Inc.: $.05 par common Fallbrook National Bank: $.625 par common American Physician Partners, Inc.: $.001 par common Faroudja, Inc.: $.001 par common Ameripath, Inc.: $.01 par common Finet Holdings Corporation: $.01 par common Amsurg, Inc.: Class A, No par common; Class B, No par First Robinson Financial Corporation: $.01 par common common First SecurityFed Financial, Inc.: $.01 par common Amvestors Financial Corporation: Warrants (expire Flexilnternational Software, Inc.: $.01 par common 04-03-2002) Focal, Inc.: $.01 par common Applied Films Corporation: No par common Formula Systems (1985), Ltd.: American Depositary Receipts Applied Micro Circuits Corporation: $.01 par common Franklin Bank, National Association: Series A, noncumulative Atlantic Gulf Communities Corporation: A Warrants (expire exchangeable preferred 06-23-2004); B Warrants (expire 06-23-2004); Franchise Mortgage Acceptance Company: $.001 par com- C Warrants (expire 06-23-2004) mon Avteam, Inc.: $.01 par common Friendly Ice Cream Corporation: $.01 par common Bank of the Ozarks, Inc.: $.01 par common Gametech International, Inc.: $.001 par common Barbeques Galore Limited: American Depositary Receipts Gart Sports Company: $.01 par common Bay Bancshares, Inc. (Texas): $1.00 par common Gene Logic, Inc.: $.001 par common Beringer Wine Estates Holdings, Inc.: Class B, No par com- Gilat Communications, Ltd.: Ordinary Shares (NIS .01) mon Gold Banc Corporation, Inc.: $25 par preferred securities Bigmar, Inc.: $.001 par common Great Pee Dee Bancorp, Inc.: $.01 par common Bioanalytical Systems, Inc.: No par common Borel Bank & Trust Company (California): $.01 par common Hayes Corporation: $.01 par common Brass Eagle, Inc.: $.01 par common Healthworld Corporation: $.01 par common Bright Horizons, Inc.: $.01 par common Herbalife International, Inc.: Class B, $.01 par common Broughton Foods Company: $1.00 par common Heritage Financial Corporation: $.01 par common Herley Industries, Inc.: Warrants (expire 01-11-1999) C.H. Robinson Worldwide, Inc.: $.10 par common Holt's Cigar Holdings, Inc.: $.001 par common C3, Inc.: No par common Homecapital Investment Corporation: $.01 par common Canada Southern Petroleum Ltd.: $1.00 par limited voting Hurricanehyrdocarbons, Ltd.: Class A, No par common shares Hybrid Networks, Inc.: $.001 par common Capitol Bancorp, Ltd.: $10.00 par trust preferred Captec Net Lease Realty, Inc.: $.01 par common Casella Waste Systems, Inc.: Class A, $.01 par common I.C. Isaacs & Company, Inc.: $.0001 par common Cellegy Pharmaceuticals, Inc.: Warrants (expire 08-10-2000) Icos Vision Systems Corporation: No par common CFI Mortgage, Inc.: $.01 par common Imagemax, Inc.: No par common Colorado Medtech, Inc.: No par common Imaging Technologies Corporation: $.005 par common Colt Telecom Group, PLC: American Depositary Shares Imperial Credit Commercial Mortgage Investors: $.001 par Community First Bankshares, Inc.: Cumulative Capital Secu- common rities of CFB Capital II Indiana United Bancorp, Inc.: Cumulative trust preferred secu- Compu-Dawn, Inc.: $.01 par common rities Concord Communications, Inc.: $.01 par common Information Advantage, Inc.: $.01 par common Conning Corporation: $.01 par common Inmark Enterprises, Inc.: $.001 par common Consolidated Capital Corporation: $.001 par common Innovative Valve Technologies, Inc.: $.001 par common Cragar Industries, Inc.: $.01 par common International Aircraft Investors: $.01 par common Crosskeys Systems Corporation: No par common International Briguettes Holding: $.01 par ordinary shares Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 225 International Manufacturing Services, Inc.: Class A, $.001 par PRT Group: $.001 par common common International Sports Wagering, Inc.: $.001 par common Questa Oil & Gas Company: $.01 par common Intervu, Inc.: $.001 par common Quigley Corporation: $.0005 par common ITC Deltacom, Inc.: $.01 par common Realnetworks, Inc.: $.001 par common Javelin Systems, Inc.: $.01 par common Rock of Ages Corporation: Class A, $.01 par common KSB Bancorp, Inc.: $.01 par common Six Rivers National Bank (California): $5.00 par common Sky Network Television Limited: American Depositary Shares Laminating Technologies, Inc.: $.01 par common SNB Bancshares, Inc. (Georgia): $1.00 par common Landmark Systems Corporation: $.01 par common Somnus Medical Technologies, Inc.: $.001 par common Let's Talk Cellular & Wireless, Inc.: $.01 par common Southern Community Bancshares, Inc.: $.01 par common Line Capital, Inc.: $.001 par common Spectra-Physics Lasers, Inc.: $.01 par common Long Island Commercial Bank: $3.00 par common Spiros Development Corporation II, Inc.: Units (expire Lynx Therapeutics, Inc.: $.001 par common 12-31-1999) Sportsline USA, Inc.: $.01 par common Made2Manage Systems, Inc.: No par common Stirling Cooke Brown Holdings Limited: $.25 par ordinary Mahoning National Bancorp, Inc.: No par common, $1.00 shares stated value Success Bancshares, Inc. (Illinois): $.001 par common Mediware Information Systems, Inc.: $.10 par common Sun Bancorp, Inc. (New Jersey): $1.00 par common Metromedia Fiber Network, Inc.: Class A, $.01 par common Metronet Communications Corporation: Class B, non-voting T & W Financial Corporation: $.01 par common No par common Tekgraf, Inc.: $.001 par common; Warrants (expire Midway Airlines Corporation: $.01 par common 11-20-2002) MMC Networks, Inc.: $.001 par common Teligent, Inc.: Class A, $.01 par common Montgomery Financial Corporation: $.01 par common Telscape International, Inc.: $.001 par common Motor Cargo Industries, Inc.: No par common Tera Computer Company: $.01 par common MPW Industrial Services Group, Inc.: No par common Tier Technologies, Inc.: Class B, no par common Mystic Financial, Inc.: $.01 par common Timberland Bancorp, Inc.: $.01 par common Today's Man, Inc.: Warrants (expire 12-31-1999) N2K, Inc.: $.001 par common Topro, Inc.: $.0001 par common Nam Tai Electronics, Inc.: Warrants (expire 11-01-2000) Toymax International, Inc.: $.01 par common Nanophase Technologies Corporation: $.01 par common Transcoastal Marine Services, Inc. $.001 par common Neutral Posture Ergonomics, Inc.: $.01 par common Transit Group, Inc.: $.01 par common Novacare Employees Services, Inc.: $.01 par common Tri-County Bancorp, Inc.: $.10 par common Novamerican Steel, Inc.: No par common Tropical Sportswear International Corporation: $.01 par com- NRG Generating (U.S.), Inc.: $.01 par common mon Nymox Pharmaceutical Corporation: $2.00 par common U.S. Timberlands Company, LP: No par common OAO Technology Solutions, Inc.: $.01 par common U.S. Vision, Inc.: $.01 par common Omni Energy Services Corporation: $.01 par common Ubics, Inc.: $.01 par common Outsource International, Inc.: $.001 par common Unidyne Corporation: $.001 par common OYO Geospace Corporation: $.01 par common Union Community Bancorp.: No par common US Web Corporation: $.0001 par common Paper Warehouse, Inc.: $.01 par common Paula Financial: $.01 par common Vari-Lite International, Inc.: $.01 par common Pembridge, Inc.: No par common Virgin Express Holdings, PLC: American Depositary Shares Pennfed Financial Services, Inc.: $25.00 par cumulative trust VRB Bancorp (Oregon): No par common preferred stock Pennfirst Bancorp, Inc.: Cumulative trust preferred securities Warwick Community Bancorp, Inc.: $.01 par common Pericom Semiconductor Corporation: No par common Washington Scientific Industries, Inc.: $.10 par common Petroglyph Energy, Inc.: $.01 par common WHG Bancshares Corporation: $.10 par common Power Integration, Inc.: $.001 par common White Cap Industries, Inc.: $.01 par common Precision Auto Care, Inc.: $.01 par common WMF Group, Ltd.: $.01 par common Preview Travel, Inc.: $.001 par common Princeton Video Image, Inc.: No par common Young Innovations, Inc.: $.01 par common Priority Healthcare Corporation: Class B, $.01 par common Progenies Pharmaceuticals, Inc.: $.0013 par common Zymetx, Inc.: $.001 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

226 Federal Reserve Bulletin • March 1998 Deletions From the Foreign Margin List Sanyo Securities Co., Ltd.: ¥50 par common Toshoku Ltd.: ¥50 par common Australia Yamaichi Securities Co., Ltd.: ¥50 par common Arnotts Limited: Ordinary shares, par A$0.50 Mexico Bank of Melbourne Limited: Ordinary shares, par A$1.00 Cifra, S.A. de C.V.: Series A Common, par .30 Mexican Austria Cifra, S.A. de C.V.: Series B Common, par .30 Mexican Creditanstalt-Bankverein AG: Preferred shares, par 100 Norway Austrian Creditanstalt-Bankverein AG: Ordinary shares, par 1000 Storebrand AS: Convertible preferred A shares, par Austrian Creditanstalt-Bankverein AG: Participation Certificates, par Philippines 500 Ayala Corporation: Class B common shares, par 1 Belgium Ayala Land Inc.: Class B Common Shares, par 1 BBL (Banque Brux Lamb): Ordinary shares, No par Singapore Powerfin SA: No par participating certificates Haw Par Brothers International Ltd.: Ordinary shares, par Canada S$1.00 London Insurance Group Inc.: No par common Inchcape Berhad: Ordinary shares, par S$0.50 France Sweden Nordbanken AB: Restricted shares, par 12.50 Usinor Sacilor: Common shares par 40 French francs Sparbanken Sverige AB (Swedbank): Series A, par 10 Swed- Worms et Compagnie SCA: Registered shares, par 12 ish krona French Switzerland Germany Elektrowatt AG: Bearer shares, par 50 Swiss francs PWA (Papierwerke Waldhof-Aschaffenburg): Bearer shares, par DM 50 United Kingdom Hong Kong Cowie Group PLC: Ordinary shares, par 5 p Grand Metropolitan PLC: Ordinary shares, par 25 p China Light & Power Company, Limited: HK$5.00 par ordi- Guinness PLC: Ordinary shares, par 25 p nary shares Harrisons & Crosfield PLC: Ordinary shares, par 25 p Kowloon Motor Bus Company (1933) LTD: HK$1.00 par ordinary shares Mercury Asset Management Group PLC: Ordinary shares, par 5 P Ireland Redland PLC: Ordinary shares, par 25 p TR City of London Trust PLC: Ordinary shares, par 25 p Woodchester Investments PLC: A Ordinary shares, par .20 Irish Additions to the Foreign Margin List Italy Australia Banco Ambrosiano Yeneto SPA: Non-convertible savings Telstra Corporation: Ordinary shares, par A$1.00 shares, par Banco Ambrosiano Veneto SPA: Ordinary shares, par 1000 Austria lira Austrian Tabak: Ordinary shares, par 1000 Austrian Japan Belgium Hokkaido Takushoku Bank, Limited: ¥50 par common Japan Synthetic Rubber Co., Ltd.: ¥50 par common UCB SA: Ordinary shares, No par Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 227 France Orders Issued Under Section 4 of the Bank Holding Company Act France Telecom SA: Ordinary shares, par 25 French Fleet Financial Group, Inc. Usinor SA: Common, par 40 French francs Boston, Massachusetts Germany Order Approving a Notice to Engage in Nonbanking Activities Hoechst AG: Bearer shares, par DM 50 Fleet Financial Group, Inc., Boston, Massachusetts ("Fleet"), a bank holding company within the meaning of Hong Kong the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the CLP Holdings, Limited: HK$5.00 par ordinary shares BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of KMB Holdings, Limited: HK$1.00 par ordinary shares the Board's Regulation Y (12 C.F.R. 225.24) to acquire all the voting shares of The Quick & Reilly Group, Inc., Palm Italy Beach, Florida ("Q&R Group"), and the wholly owned subsidiaries of Q&R Group.1 In connection with this trans- Banca Intesa SPA: Ordinary shares, par 1000 lira action, Fleet proposes to engage in the following activities: Banca Intesa SPA: Non-convertible savings shares, par (1) Underwriting and dealing in, to a limited extent, all types of debt and equity securities (other than ownership interests in open-end investment companies) that a mem- Japan ber bank may not underwrite or deal in ("bank-ineligible securities");2 JSR Corporation: ¥50 par common (2) Providing administrative services to open-end invest- Rinnai Corporation: ¥50 par common ment companies; (3) Providing credit and credit related services, pursuant Mexico to sections 225.28(b)(1) and (2) of Regulation Y (12 C.F.R. 225.28(b)(1) and (2)); Cifra S.A. De CV: Series V, No par common (4) Providing financial and investment advisory services, pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)); Norway (5) Providing securities brokerage, riskless principal, private placement, and other agency transactional ser- Storebrand AS: A Common Shares, par 5 Norwegian vices, pursuant to section 225.28(b)(7) of Regulation Y (12 C.F.R. 225.28(b)(7)); Philippines (6) Underwriting and dealing in government obligations and money market instruments and buying and selling Ayala Corporation: Common, par 1 Philippine peso bullion and related activities, pursuant to section Ayalo Land, Inc.: Common, par 1 Philippine peso 225.28(b)(8) of Regulation Y (12 C.F.R. 225.28(b)(8)); and Singapore (7) Providing data processing services, pursuant to section 225.28(b)(14) of Regulation Y (12 C.F.R. 225.28(b)(14)), and activities incidental thereto. Haw Par Corporation: Ordinary shares, par S$1.00 Inchcape Motors, Ltd.: Ordinary shares, par S$.50 Notice of the proposal, affording interested persons an opportunity to submit comments, has been published Sweden (62 Federal Register 65,429 (1997)). The time for filing comments has expired, and the Board has considered the Forenings Sparbanken AB: Series A, par 10 Swedish krona Nordbanken Holding AB: Registered shares, par 12.50 United Kingdom 1. These subsidiaries include: Quick & Reilly, Inc., U.S. Clearing Corp., JJC Specialist Corp. ("JJC Specialist"), Nash, Weiss & Co. ("Nash Weiss"), SureTrade Corp., Quick & Reilly Limited, and Arriva PLC: Ordinary shares, par 5 p Financial Systemware, Inc. City of London PLC: Ordinary shares, par 25 p 2. As used in this order, "bank-ineligible securities" refers to all types of debt and equity securities that a bank may not underwrite or Diageo PLC: Ordinary shares, par 25 p deal in directly under section 16 of the Glass-Steagall Act (12 U.S.C. Elementis PLC: Ordinary shares, par 25 p § 24(7)). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

228 Federal Reserve Bulletin • March 1998 notice and all comments received in light of the factors set conduct of these securities underwriting and dealing activiforth in section 4(c)(8) of the BHC Act. ties is consistent with section 20 of the Glass-Steagall Act Fleet, with total consolidated assets of approximately (12 U.S.C. § 377), provided that the company engaged in $83.6 billion, is the 12th largest banking organization in underwriting and dealing activities derives no more than the United States. Fleet operates banking subsidiaries in six 25 percent of its gross revenues from underwriting and states and engages through subsidiaries in a broad range of dealing in bank-ineligible securities over a two-year peripermissible nonbanking activities.3 Q&R Group, with con- od.7 Fleet has committed that Company will conduct its solidated assets of $4.5 billion, engages directly and bank-ineligible securities underwriting and dealing activithrough its affiliates in securities brokerage and other re- ties subject to the Board's 25-percent revenue limit.8 No lated activities, including market-maker activities. In par- other Fleet company will engage in underwriting and dealticular, JJC Specialist serves as a specialist on the ing in bank-ineligible securities. As a condition of this New York Stock Exchange, and Nash Weiss serves as a order, Fleet is required to conduct its bank-ineligible secumarket-maker on the National Association of Securities rities activities subject to the revenue restriction and Oper- Dealers Automated Quotations System.4 ating Standards established for section 20 subsidiaries Fleet currently engages through Fleet Securities, Inc., in ("Operating Standards").9 limited underwriting and dealing in bank-ineligible securities, as permitted under section 20 of the Glass-Steagall Other Activities Approved by Regulation or Order Act (12 U.S.C. § 377).5 Fleet proposes to merge Fleet Securities, Inc., and Fleet Clearing Corporation, a subsid- The Board previously has determined by regulation that iary of Fleet, with the following subsidiaries of Q&R credit and credit-related activities; data processing activi- Group: JJC Specialist, Nash Weiss, and U.S. Clearing ties; financial and investment advisory services; brokerage, Corp. The combined organization ("Company"), which riskless principal, private placement, and other transacwill be named Fleet Securities, Inc., will be a broker-dealer tional activities; and bank-eligible underwriting and dealregistered with the Securities and Exchange Commission ing activities are closely related to banking within the ("SEC") under the Securities Exchange Act of 1934 meaning of section 4(c)(8) of the BHC Act.10 Fleet has (15 U.S.C. § 78a et seq.) and a member of the National committed that it will conduct each of these activities in Association of Securities Dealers, Inc. ("NASD"). Com- accordance with Regulation Y and the relevant Board pany, therefore, will be subject to the record-keeping and interpretations and orders. The Board also previously has reporting obligations, fiduciary standards, and other re- determined by order that providing investment company quirements of the Securities Exchange Act of 1934, the administrative services is closely related to banking within SEC, and the NASD. the meaning of section 4(c)(8) of the BHC Act.11 Underwriting and Dealing Activities The Board has determined that, subject to the framework of prudential limitations to address the potential for con- 57,679 (1996), and Amendments to Restrictions in the Board's Secflicts of interests, unsound banking practices, or other tion 20 Orders, 62 Federal Register 45,295 (1997) (collectively, the adverse effects, underwriting and dealing in bank-ineligible "Section 20 Orders"). 7. Compliance with the revenue limitation shall be calculated in securities is so closely related to banking as to be a proper accordance with the method stated in the Section 20 Orders, as incident thereto within the meaning of section 4(c)(8) of modified by the Order Approving Modifications to the Section 20 the BHC Act.6 The Board also has determined that the Orders, 75 Federal Reserve Bulletin 751 (1989), and 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), and Revenue Limit on Bank- 3. Asset and ranking data are as of September 30, 1997. Ineligible Activities of Subsidiaries of Bank Holding Companies En- 4. Fleet has represented that neither JJC Specialist nor Nash Weiss gaged in Underwriting and Dealing in Securities, 61 Federal Register has taken a market portion of more than 5 percent of any class of 68,750 (1996) (collectively, "Modification Orders"). voting shares of any company for which they act as market-maker. 8. Company may provide services that are necessary incidents to the 5. Fleet Securities, Inc., has authority to underwrite and deal in, to a proposed underwriting and dealing activities. Unless Fleet receives limited extent, certain municipal revenue bonds and commercial pa- specific approval under section 4(c)(8) of the BHC Act to conduct the per. See Fleet/Norstar Financial Group, Inc., 74 Federal Reserve activities independently, Company must treat any revenues from the Bulletin 819 (1988). Fleet Securities, Inc., also is authorized to engage incidental activities as bank-ineligible revenues subject to the Board's in a variety of other nonbanking activities. revenue limitation. 6. See J.P. Morgan & Co. Incorporated, et al., 75 Federal Reserve 9. See 12 C.F.R. 225.200. Bulletin 192 (1989), aff'd sub nom. Securities Industries Ass'n v. 10. See sections 225.28(b)(1), (2), (6), (7), (8), and (14) of Regula- Board of Governors of the Federal Reserve System, 900 F.2d 360 tion Y (12 C.F.R. 225.28(b)(1), (2), (6), (7), (8), and (14)). (D.C. Cir. 1990); Citicorp, et at., 73 Federal Reserve Bulletin 473 11. See Bankers Trust New York Corp., 83 Federal Reserve Bulletin (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Gover- 780 (1997), Commerzbank AG, 83 Federal Reserve Bulletin 678 nors of the Federal Reserve System, 839 F.2d 47 (2d Cir. 1988), cert, (1997), and Mellon Bank Corporation, 79 Federal Reserve Bulletin denied, 486 U.S. 1059 (1988); as modified by Review of Restrictions 626 (1993). The Board's approval of the proposal by Fleet to provide on Director, Officer and Employee Interlocks, Cross-Marketing Activi- administrative services to investment companies is subject to Fleet's ties, and the Purchase and Sale of Financial Assets Between a Section compliance with the prudential and other limitations relating to admin- 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register istrative services established by the Board in these orders. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 229 Proper Incident to Banking Standard The Board also has carefully considered the competitive effects of the proposed acquisition. To the extent that Fleet In order to approve this proposal, the Board must deter- and Q&R Group offer different types of products, the mine that the proposed activities are a proper incident to proposed acquisition would result in no loss of competibanking, that is, that the performance of the activities "can tion. In those markets in which Fleet and Q&R Group reasonably be expected to produce benefits to the public ... overlap, such as the market for securities brokerage serthat outweigh possible adverse effects, such as undue con- vices, there are numerous existing and potential competicentration of resources, decreased or unfair competition, tors. Consummation of the proposal, therefore, would have conflicts of interests, or unsound banking practices."12 a de minimis effect on competition in the markets for these As part of its review of these factors, the Board consid- services, and the Board concludes that the proposal would ered the financial resources of Fleet, and the effect the not result in any significantly adverse competitive effects in transaction would have on such resources. The Board also any relevant market. has reviewed the capitalization of Fleet and Fleet Securi- The Board expects that the proposed transaction would ties, Inc., in accordance with the standards set forth in the increase Fleet's ability to serve the needs of its customers, Section 20 Orders and finds the capitalization of each to be and would allow the combined organization to provide consistent with approval of the proposal. The Board's both existing and new customers with a broader range of determination about the capitalization of Fleet Securities, products and services through an expanded distribution Inc., is based on all the facts of record, including Fleet's channel. The Board also expects that the proposed acquisiprojections of the volume of Company's underwriting and tion would result in operational efficiencies, allowing the dealing activities in bank-ineligible securities. combined organization to be a more effective competitor. The Board also has reviewed the managerial resources Under the framework and conditions established in this of Fleet and each of the entities involved in the proposal.13 order and the Section 20 Orders, and based on all the facts The Board has reviewed these resources in light of relevant of record, the Board concludes that consummation of the reports of examination, and on the basis of these and all the proposal can reasonably be expected to produce public facts of record, including the commitments provided in this benefits that outweigh any adverse effects of the proposal. case, the Board has concluded that financial and manage- Accordingly, the Board has determined that performance rial considerations are consistent with approval of the of the proposed activities by Fleet is a proper incident to notice. banking for purposes of section 4(c)(8) of the BHC Act. Conclusion 12. 12 U.S.C. § 1843(c)(8). On the basis of the record, the Board has determined that 13. In its review of the statutory factors in this case, the Board has the notice should be, and hereby is, approved, subject to all considered comments filed in connection with this notice. One com- the terms and conditions discussed in this order and in the menter contends that an employee at a branch office of Fleet Bank, Section 20 Orders, as modified by Modification Orders.14 N.A., Jersey City, New Jersey, participated in a fraudulent scheme against the commenter, and argues that this reflects negatively on The Board's approval of this proposal extends only to Fleet's internal controls and risk management systems. The Board has activities conducted within the limitations of those orders reviewed commenter's contention in light of Fleet's extensive supervi- and this order, including the Board's reservation of authorsory record, which includes examination reports by appropriate superity to establish additional limitations to ensure that Fleet's visory authorities of the bank and information provided by Fleet activities are consistent with safety and soundness, avoidregarding its risk systems and internal controls. Another commenter alleges that Fleet financed the purchase of rehabilitated residential property in the Dorchester area of Boston at inflated prices, resulting in excessive debt service for minority and 14. Commenters have requested a hearing or a public meeting on low- to moderate-income purchasers of these properties. The Board the proposal. Section 4 of the BHC Act and the Board's rules previously has considered these allegations in connection with a prior thereunder provide for a hearing on an application to acquire a savings application by Fleet. See Fleet Financial Group, Inc., 82 Federal association if there are disputed issues of material fact that cannot be Reserve Bulletin 50 (1995). Fleet continues to deny any complicity resolved in some other manner. See 12 U.S.C. § 1843(c)(8). This case with redevelopers in these transactions and maintains that all loans does not involve the acquisition of a savings association. were made on the basis of independent appraisals. Fleet indicates that Under its rules, the Board may, in its discretion, hold a public it has worked with a community-based organization to improve mort- hearing or meeting on an application or notice to clarify factual issues gage products available in Dorchester, and that it continues to perform related to the notice and to provide an opportunity for testimony, if in a responsible and responsive manner in the Dorchester community. appropriate. See 12 C.F.R. 262.3(e) and 262.25(d). The Board has In addition, without alleging or providing any facts to show that carefully considered commenters' requests for a hearing in light of all Fleet has violated any law, the latter commenter contends that the the facts of record. In the Board's view, commenters have had ample underwriting criteria for the first-time home buyer programs of Fleet opportunity to present their views, and they have submitted written National Bank, Providence, Rhode Island, may have negative effects comments that have been carefully considered by the Board in acting on low- to moderate-income individuals. Fleet asserts that its flexible on the proposal. Commenters' requests fail to demonstrate why their mortgage programs provide a major source of financing for low- to written presentations do not adequately present their evidence, allegamoderate-income individuals. The Board notes that the Office of the tions, and views. For these reasons, and based on all the facts of Comptroller of the Currency, the primary federal regulator of Fleet record, the Board has determined that a public hearing or meeting is National Bank, and the Board have sufficient supervisory authority to not required or warranted to clarify the factual record in the proposal, address any violations of law by Fleet involving any of its home or otherwise warranted in this case. Accordingly, the request for a mortgage lending programs if any such violation is found. hearing on the proposal is hereby denied. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

230 Federal Reserve Bulletin • March 1998 ance of conflicts of interests, and other relevant consider- JENNIFER J. JOHNSON ations under the BHC Act. Underwriting and dealing in Deputy Secretary of the Board any manner other than as approved in this order and the Section 20 Orders, as modified by Modification Orders, is not authorized. ORDERS ISSUED UNDER INTERNATIONAL BANKING ACT The Board's approval of the proposal by Fleet to engage in underwriting and dealing in all types of debt and equity Bank of Scotland securities is conditioned on a determination by the Board Edinburgh, Scotland that Fleet and Company have established policies and procedures for debt and equity underwriting and dealing to Order Approving Establishment of a Representative ensure compliance with the requirements of this order, the Office Section 20 Orders, and Modification Orders, including computer, audit, and accounting systems, internal risk man- Bank of Scotland ("Bank"), Edinburgh, Scotland, a foragement controls, and the necessary operational and mana- eign bank within the meaning of the International Banking gerial infrastructure. Fleet has requested a delay in con- Act ("IBA"), has applied under section 10(a) of the IB A ducting the infrastructure review until after Fleet has (12 U.S.C. § 3107(a)) to establish a representative office in acquired Q&R Group in order to provide additional time Seattle, Washington. The Foreign Bank Supervision Enfor developing enhanced policies and procedures for the hancement Act of 1991 ("FBSEA"), which amended the proposed bank-ineligible securities activities, most of IBA, provides that a foreign bank must obtain the approval which are not currently conducted by Q&R Group. As part of the Board to establish a representative office in the of the request, Fleet has committed not to engage in any United States. bank-ineligible securities underwriting or dealing activity, Notice of the application, affording interested persons an not already conducted by Q&R Group or Fleet, until the opportunity to submit comments, has been published in a Board determines that a satisfactory infrastructure is in newspaper of general circulation in Seattle, Washington place. Accordingly, the Board has determined that Fleet (The Seattle Times, August 5, 1997). The time for filing may continue the current activities of Q&R Group while comments has expired, and the Board has considered the the infrastructure review is being conducted, subject to the application and all comments received. condition that, if the initial results of the infrastructure Bank, with approximately $77.1 billion in assets,1 is the review are not satisfactory to the Board, Fleet terminate, eighth largest bank in the United Kingdom. Bank's shares divest, or reduce the activities as the Board deems appro- are publicly traded and widely held. priate until a satisfactory review is achieved. Bank has an extensive worldwide network of branches The Board's determination also is subject to all the terms and subsidiaries and provides a wide range of banking and and conditions set forth in Regulation Y, including those in financial services throughout the United Kingdom and sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and internationally. In the United States, Bank operates a 225.25(c)), and to the Board's authority to require modifi- branch in New York, New York; and representative offices cation or termination of the activities of a bank holding in Houston, Texas; Chicago, Illinois; Jacksonville, Florida; company or any of its subsidiaries the Board finds neces- and Los Angeles, California. sary to assure compliance with, or to prevent evasion of, Bank proposes to establish the representative office in the provisions and purposes of the BHC Act and the Seattle in order to develop business opportunities in the Board's regulations and orders issued thereunder. The Pacific Northwest. The proposed representative office Board's decision is specifically conditioned on compliance would report to the New York branch, and all credit with the operating standards and with all the commitments decisions would be made by the New York branch or made in connection with this notice, including the commit- Bank's head office in Scotland. No funds would be solicments discussed in this order and the conditions set forth in ited, received or disbursed at or through the representative the Board regulations and orders noted above. The commit- office. ments and conditions shall be deemed to be conditions In acting on an application to establish a representative imposed in writing by the Board in connection with its office, the IBA and Regulation K provide that the Board findings and decision, and, as such, may be enforced in shall take into account whether the foreign bank engages proceedings under applicable law. directly in the business of banking outside of the United This proposal shall not be consummated later than three States and has furnished to the Board the information it months after the effective date of this order, unless such needs to assess the application adequately. The Board also period is extended for good cause by the Board or the shall take into account whether the foreign bank and any Federal Reserve Bank of Boston, acting pursuant to dele- foreign bank parent is subject to comprehensive supervigated authority. sion or regulation on a consolidated basis by its home By order of the Board of Governors, effective Janu- country supervisor (12 U.S.C. § 3107(a)(2); 12 C.F.R. ary 14, 1998. Voting for this action: Chairman Greenspan and Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich. Absent and not voting: Vice Chair Rivlin. 1. Asset data are as of February 28, 1997. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 231 211.24).2 The Board may also take into account additional the IBA, the Bank Holding Company Act of 1956, as standards as set forth in the IBA and Regulation K amended, and other applicable federal law. To the extent (12 U.S.C. § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)). As noted that the provision of such information to the Board may be above, Bank engages directly in the business of banking prohibited by law, Bank has committed to cooperate with outside the United States. Bank also has provided the the Board to obtain any necessary consents or waivers that Board with information necessary to assess the application might be required from third parties for disclosure of such through submissions that address the relevant issues. With information. In light of these commitments and other facts respect to supervision by home country authorities, the of record, and subject to the condition described below, the Board previously has determined, in connection with appli- Board concludes that Bank has provided adequate assurcations involving other banks in the United Kingdom, that ances of access to any necessary information the Board those banks were subject to home country supervision on a may request. consolidated basis.3 Bank is supervised by the Bank of On the basis of all the facts of record, and subject to the England on substantially the same terms and conditions as commitments made by Bank, as well as the terms and those other banks. Based on all the facts of record, the conditions set forth in this order, the Board has determined Board has determined that Bank is subject to comprehen- that Bank's application to establish a representative office sive supervision and regulation on a consolidated basis by should be, and hereby is, approved. Should any restrictions its home country supervisor. on access to information on the operations or activities of The Board also has taken into account the additional Bank and its affiliates subsequently interfere with the standards set forth in section 7 of the IBA and Regula- Board's ability to obtain information to determine and tion K (12 U.S.C. § 3105(d)(3),(4); 12 C.F.R. 211.24(c)(2)). enforce compliance by Bank or its affiliates with applicable The Bank of England has no objection to Bank's establish- federal statutes, the Board may require termination of any ment of the proposed representative office. of Bank's direct or indirect activities in the United States. With respect to the financial and managerial resources of Approval of this application is also specifically conditioned Bank, taking into consideration Bank's record of opera- on Bank's compliance with the commitments made in tions in its home country, its overall financial resources, connection with this application, and with the conditions in and its standing with its home country supervisors, the this order.4 The commitments and conditions referred to Board also has determined that financial and managerial above are conditions imposed in writing by the Board in factors are consistent with approval of the proposed repre- connection with its decision, and may be enforced in sentative office. Bank appears to have the experience and proceedings under 12 U.S.C. § 1818 against Bank and its capacity to support the proposed representative office and affiliates. has established controls and procedures for the proposed By order of the Board of Governors, effective Janurepresentative office to ensure compliance with U.S. law. ary 14, 1998. With respect to access to information about Bank's operations, the Board has reviewed the restrictions on Voting for this action: Chairman Greenspan and Governors Kelley, disclosure in relevant jurisdictions in which Bank operates Phillips, Meyer, Ferguson, and Gramlich. Absent and not voting: Vice Chair Rivlin. and has communicated with relevant government authorities regarding access to information. Bank has committed JENNIFER J. JOHNSON to make available to the Board such information on the Deputy Secretary of the Board operations of Bank and any of its affiliates that the Board deems necessary to determine and enforce compliance with Caja de Ahorros de Valencia, Castellon y Alicante, Bancaja 2. In assessing this standard, the Board considers, among other Valencia, Spain factors, the extent to which the home country supervisors: (i) Ensure that the bank has adequate procedures for monitoring Order Approving Establishment of an Agency and controlling its activities worldwide; (ii) Obtain information on the condition of the bank and its Caja de Ahorros de Valencia, Castellon y Alicante, Bansubsidiaries and offices through regular examination reports, audit reports, or otherwise; caja ("Bank"), Valencia, Spain, a foreign bank within the (iii) Obtain information on the dealings with and relationship meaning of the International Banking Act ("IBA"), has between the bank and its affiliates, both foreign and domestic; applied under section 7(d) of the IBA (12 U.S.C. § 3105(d)) (iv) Receive from the bank financial reports that are consolidated to establish an agency in Miami, Florida. The Foreign on a worldwide basis, or comparable information that permits Bank Supervision Enhancement Act of 1991 ("FBSEA"), analysis of the bank's financial condition on a worldwide consolidated basis; and (v) Evaluate prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis. 4. The Board's authority to approve the establishment of the pro- These are indicia of comprehensive, consolidated supervision. No posed office parallels the continuing authority of the State of Washingsingle factor is essential and other elements may inform the Board's ton to license offices of a foreign bank. The Board's approval of this determination. application does not supplant the authority of the State of Washington 3. See Coutts & Co. AG, 79 Federal Reserve Bulletin 636 (1993); and the Washington State Banking Department ("Department") to Singer & Friedlander, 79 Federal Reserve Bulletin 809 (1993); West license the proposed office of Bank in accordance with any terms or Merchant Bank Limited, 81 Federal Reserve Bulletin 519 (1995). conditions that the Department may impose. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

232 Federal Reserve Bulletin • March 1998 which amended the IBA, provides that a foreign bank must the foreign bank is subject to comprehensive supervision obtain the approval of the Board to establish an agency in or regulation on a consolidated basis by its home country the United States. supervisor (12 U.S.C. § 3105(d)(2); 12 C.F.R. 211.24). Notice of the application, affording interested persons an The Board also may take into account additional standopportunity to submit comments, has been published in a ards as set forth in the IBA and Regulation K newspaper of general circulation in Miami, Florida (The (12 U.S.C. § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)). Miami Herald, September 15, 1997). The time for filing As noted above, Bank engages directly in the business of comments has expired, and the Board has considered the banking outside of the United States. Bank also has proapplication and all comments received. vided the Board with the information necessary to assess Bank, with total consolidated assets of approximately the application through submissions that address the rele- $14.3 billion,1 is the fourth largest savings bank and the vant issues. parent entity of the ninth largest financial group in Spain. Regulation K provides that a foreign bank will be con- Bank is a not-for-profit organization whose operations are sidered to be subject to comprehensive supervision or controlled and governed by its general assembly and board regulation on a consolidated basis if the Board determines of directors. The Government of the Community of Valen- that the bank is supervised and regulated in such a manner cia has the power to elect 28 percent of Bank's general that its home country supervisor receives sufficient inforassembly and board of directors.2 Bank's depositors and mation on the foreign bank's worldwide operations, includthe municipalities in which Bank's branches are located ing the relationship of the foreign bank to any affiliate, to each has the power to elect an additional 28 percent of the assess the overall financial condition of the foreign bank general assembly and board of directors.3 and its compliance with law and regulation (12 C.F.R. Bank engages primarily in retail deposit-taking, public 211.24(c)(1)).4 and private sector lending, foreign exchange trading activi- With respect to the issue of supervision by home country ties, foreign debt conversion, and trade-related financing. authorities, the Board has considered the following infor- Bank operates more than 650 branches in Spain. In addi- mation. Bank is supervised and regulated by the Bank of tion, Bank owns a number of bank and nonbank subsidiar- Spain. The Board previously has determined that other ies that engage in commercial banking, financial broker- Spanish credit institutions are subject to comprehensive age, insurance services, travel services, valuations, real supervision on a consolidated basis by the Bank of Spain.5 estate sales and development, and repossessions. Bank's The Board has determined that Bank is supervised on only operations outside Spain consist of two subsidiaries in substantially the same terms and conditions as the Spanish the Cayman Islands that engage in the issuance of debt credit institutions previously considered by the Board. securities. Based on all the facts of record, the Board concludes that Bank's primary purpose for establishing the proposed Bank is subject to comprehensive supervision and regulaagency in Florida is to expand its international customer tion on a consolidated basis by its home country supervibase. The agency would provide correspondent, corporate, sor. and private banking services. Bank does not engage di- The Board also has taken into account the additional rectly or indirectly in any nonbanking activities in the standards set forth in section 7 of the IBA (see 12 U.S.C. United States, and it is a qualifying foreign banking organi- § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). As noted above, zation within the meaning of Regulation K (12 C.F.R. the Bank of Spain has indicated no objection to the estab- 211.23(b)). lishment of the proposed agency. The Bank of Spain, Bank's primary home supervisor, has indicated no objection to the establishment of the proposed agency. 4. In assessing this standard, the Board considers, among other factors, the extent to which the home country supervisors: In order to approve an application by a foreign bank to (i) Ensure that the bank has adequate procedures for monitoring establish an agency in the United States, the IBA and and controlling its activities worldwide; Regulation K require the Board to determine that the (ii) Obtain information on the condition of the bank and its foreign bank applicant engages directly in the business of subsidiaries and offices through regular examination reports, banking outside of the United States and has furnished to audit reports, or otherwise; (iii) Obtain information on the dealings with and relationship the Board the information it needs to assess the application between the bank and its affiliates, both foreign and domestic; adequately. The Board generally also must determine that (iv) Receive from the bank financial reports that are consolidated on a worldwide basis, or comparable information that permits analysis of the bank's financial condition on a worldwide consol- 1. Asset data are as of June 30, 1997. idated basis; and 2. The Community of Valencia is one of Spain's autonomous (v) Evaluate prudential standards, such as capital adequacy and regions and consists of three provinces: Castellon, Alicante, and risk asset exposure, on a worldwide basis. Valencia. The Government of the Community of Valencia ("GCV") These are indicia of comprehensive, consolidated supervision. No does not provide financial support to Bank, nor is it required to do so single factor is essential and other elements may inform the Board's by law or regulation. determination. 3. The remaining 16 percent of the general assembly and board of 5. See Banco de Sabadell, S.A., 79 Federal Reserve Bulletin 366 directors is elected by Bank's employees (11 percent) and the Royal (1993); Banco Santander, S.A., 79 Federal Reserve Bulletin 622 Society of Friends of the Valencian People (5 percent), the non-profit (1993); and Banco Exterior de Espana, S.A., 81 Federal Reserve civic improvement organization that founded Bank in 1878. Bulletin 616 (1995). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 233 Spain's risk-based capital standards conform to Euro- commitments made by Bank, as well as the terms and pean Union capital standards which are consistent with conditions set forth in this order, the Board has determined those established by the Basle Capital Accord ("Accord"). that Bank's application to establish a state-licensed agency Bank's capital is in excess of the minimum levels that should be, and hereby is, approved. Should any restrictions would be required by the Accord and is considered equiva- on access to information on the operations or activities of lent to capital that would be required of a U.S. banking Bank or its affiliates subsequently interfere with the organization. Managerial and other financial resources of Board's ability to obtain information to determine and Bank also are considered consistent with approval of the enforce compliance by Bank or its affiliates with applicable proposed agency, and Bank appears to have the experience federal statutes, the Board may require termination of any and capacity to support the proposed agency. Bank has of Bank's direct or indirect activities in the United States. established controls and procedures for the proposed Approval of this application is also specifically conditioned agency to ensure compliance with U.S. law, as well as on Bank's compliance with the commitments made in controls and procedures for its operations in general. connection with this application, and with the conditions in Finally, the Board has reviewed the restrictions on dis- this order.6 The commitments and conditions referred to closure in relevant jurisdictions in which Bank operates above are conditions imposed in writing by the Board in and has communicated with relevant government authori- connection with its decision, and may be enforced in ties about access to information. Bank has committed to proceedings under 12 U.S.C. § 1818 or 12 U.S.C. § 1847 make available to the Board such information on the oper- against Bank, its offices, and its affiliates. ations of Bank and any affiliate of Bank that the Board By order of the Board of Governors, effective Janudeems necessary to determine and enforce compliance with ary 21, 1998. the IBA, the Bank Holding Company Act of 1956, as amended, and other applicable Federal law. To the extent Voting for this action: Chairman Greenspan and Governors Kelley, that the provision of such information is prohibited or Phillips, Meyer, Ferguson, and Gramlich. Absent and not voting: Vice Chair Rivlin. impeded by law, Bank has committed to cooperate with the Board to obtain any necessary consents or waivers that JENNIFER J. JOHNSON might be required from third parties in connection with Deputy Secretary of the Board disclosure of such information. In addition, subject to certain conditions, the Bank of Spain may share information on Bank's operations with other supervisors, including 6. The Board's authority to approve the establishment of the prothe Board. In light of these commitments and other facts of posed agency parallels the continuing authority of the Florida Departrecord, and subject to the condition described below, the ment of Banking and Finance to license offices of a foreign bank. The Board concludes that Bank has provided adequate assur- Board's approval of the application does not supplant the authority of the State of Florida, and its agent, the Florida Department of Banking ances of access to any necessary information the Board and Finance, to license the proposed agency of Bank in accordance may request. with any terms or conditions that the Florida Department of Banking On the basis of all the facts of record, and subject to the and Finance may impose. 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 First Empire State Corporation, OnBank & Trust Co., January 9, 1998 Buffalo, New York Syracuse, New York Franklin First Savings Bank, Wilkes-Barre, Pennsylvania Olympia Financial Corp., Buffalo, New York ONBANCorp, Inc., Syracuse, New York Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

234 Federal Reserve Bulletin • March 1998 Section 3—Continued Applicant(s) Bank(s) Effective Date First Security Corporation, Rio Grande Bancshares, Inc., January 8, 1998 Salt Lake City, Utah Las Cruces, New Mexico First National Bank of Dona Ana County, Las Cruces, New Mexico First National Bank of Chaves County, Roswell, New Mexico Olympia Financial Corp., Manufacturers and Traders Trust Company, January 9, 1998 Buffalo, New York Buffalo, New York OnBank & Trust Co., Syracuse, New York Franklin First Savings Bank, Wilkes-Barre, Pennsylvania Section 4 Applicant(s) Bank(s) Effective Date National City Corporation, JBH Travel Audit, Inc., January 16, 1998 Cleveland, Ohio Denver, Colorado National Processing, Inc., Louisville, Kentucky Norwest Corporation, Oahe Ag Services, Inc., January 7, 1998 Minneapolis, Minnesota Pierre, South Dakota South Alabama Bancorporation, Inc. South Alabama Trust Company, Inc. January 5, 1998 Mobile, Alabama Mobile, Alabama Wachovia Corporation, Honor Technologies, Inc., January 9, 1998 Winston-Salem, North Carolina Maitland, Florida Wachovia Corporation, Security First Network Bank, January 23, 1998 Winston-Salem, North Carolina Atlanta, Georgia Security First Technologies, Inc., Atlanta, Georgia SecureWare, Inc., Atlanta, Georgia Sections 3 and 4 Applicant(s) Bank(s) Effective Date Fulton Financial Corporation, Keystone Heritage Group, Inc., January 6, 1998 Lancaster, Pennsylvania Lebanon, Pennsylvania Lebanon Valley National Bank, Lebanon, Pennsylvania Keystone Heritage Life Insurance Corporation, Lebanon, Pennsylvania Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 235 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 American State Financial Security Shares, Inc., Dallas December 29, 1997 Corporation, Abilene, Texas Lubbock, Texas Security State Bank, American State Financial Abilene, Texas Corporation of Delaware, Wilmington, Delaware Buckhead Community Bancorp, The Buckhead Community Bank, N.A., Atlanta January 22, 1998 Inc., Atlanta, Georgia Atlanta, Georgia Central Illinois Bancorp, Inc., CIB Bank, Chicago January 12, 1998 Champaign, Illinois Indianapolis, Indiana Century Bank Corp., Citizens Exchange Bank, Chicago January 21, 1998 Fairmount, Indiana Fairmount, Indiana Commerce Bancshares, Inc., Commerce Bank of Alabama, Atlanta January 8, 1998 Albertville, Alabama Albertville, Alabama Commerce Bancshares, Inc., Pittsburg Bancshares, Inc., Kansas City December 29, 1997 Kansas City, Missouri Pittsburg, Kansas CBI-Kansas, Inc., Kansas City, Missouri Community Bancshares of Community Bank, DeSoto County, Atlanta December 23, 1997 Mississippi, Inc., Southaven, Mississippi Forest, Mississippi FBOP Corporation, P.N.B. Financial Corporation, Chicago January 8, 1998 Oak Park, Illinois Chicago, Illinois Park National Bank and Trust of Chicago, Chicago, Illinois F & M Bancorporation, Inc., Bank of South Wayne, Chicago December 23, 1997 Kaukauna, Wisconsin South Wayne, Wisconsin F & M Bancorporation, Inc., Sentry Bancorp, Inc., Chicago December 23, 1997 Kaukauna, Wisconsin Edina, Minnesota F & M Merger Corporation, Cannon Valley Bank, Kaukauna, Wisconsin Dundas, Minnesota First Busey Corporation, Busey Business Bank, Chicago December 24, 1997 Urbana, Illinois Indianapolis, Indiana Firstrust Corporation, Peoples Bank of Louisiana, Atlanta January 13, 1998 New Orleans, Louisiana Amite, Louisiana First United Bancshares, Inc., Citizens National Bancshares of Hope, St. Louis January 16, 1998 El Dorado, Arkansas Inc., Hope, Arkansas Citizens National Bank of Hope, Hope, Arkansas Peoples Bank and Loan Company, Lewisville, Arkansas Gilford Bancorp, Inc., Employee Gilford Bancorp, Chicago January 16, 1998 Stock Ownership Plan, Gilford, Illinois Gilford, Illinois Gifford State Bank, Gifford, Illinois Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

236 Federal Reserve Bulletin • March 1998 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Glacier Bancorp, Inc., Glacier Bank, Minneapolis January 2, 1998 Kalispell, Montana Kalispell, Montana Hogan Investments, Inc., Hogan Investments Limited, Atlanta December 23, 1997 Forsyth, Georgia Forsyth, Georgia Hogan Investments Limited, Laurens Bancshares, Inc., Atlanta December 23, 1997 Forsyth, Georgia Dudley, Georgia Industry Bancshares, Inc., Citizens State Bank, Dallas January 21, 1998 Industry, Texas Buffalo, Texas J.R. Montgomery Bancorporation, Fort Sill National Bank, Kansas City December 24, 1997 Lawton, Oklahoma Fort Sill, Oklahoma Lakeland Bancorp, Inc., Metropolitan State Bank, New York January 2, 1998 Oak Ridge, New Jersey Montville, New Jersey Laurens Bancshares, Inc., Bank of Dudley, Atlanta December 23, 1997 Dudley, Georgia Dudley, Georgia Mellon Bank Corporation, United Bankshares Inc., Cleveland January 8, 1998 Pittsburgh, Pennsylvania Miami, Florida Midland Bancshares, Inc., The Midland Community Bank, Chicago December 23, 1997 Kincaid, Illinois Kincaid, Illinois Millbrook Bank System, Inc., Bank of Millbrook, New York January 6, 1998 Millbrook, New York Millbrook, New York Mississippi Valley Bancshares, Inc., Southwest Bank, St. Louis December 29, 1997 Clayton, Missouri Belleville, Illinois Narragansett Financial Corp., Citizens-Union Savings Bank, Boston December 19, 1997 Fall River, Massachusetts Fall River, Massachusetts National Commerce Bancorporation, Bancshares of West Memphis, Inc., St. Louis January 7, 1998 Memphis, Tennessee West Memphis, Arkansas National Commerce Community Bank of West Memphis, Bancorp, Inc. II, West Memphis, Arkansas Memphis, Tennessee National Commerce Bancorporation, First Citizens Bancshares Company, St. Louis January 7, 1998 Memphis, Tennessee Marion, Arkansas National Commerce Community Citizens Bank, Bancorp, Inc. I, Marion, Arkansas Memphis, Tennessee Newton Financial Management Williams Partners, L.P., Atlanta December 24, 1997 Company, LLC, Atlanta, Georgia Atlanta, Georgia Regions Financial Corporation, Greenville Financial Corporation, Atlanta January 8, 1998 Birmingham, Alabama Greenville, South Carolina Greenville National Bank, Greenville, South Carolina Regions Financial Corporation, St. Mary Holding Corporation, Atlanta January 14, 1998 Birmingham, Alabama Franklin, Louisiana The St. Mary Bank and Trust Company, Franklin, Louisiana SNB Bancorp, The Stissing National Bank of Pine New York January 6, 1998 Pine Plains, New York Plains, Pine Plains, New York VIB Corp., Valley Independent Bank, San Francisco December 29, 1997 El Centro, California El Centro, California Williams Partners, L.P., FNB Newton Bancshares, Inc., Atlanta December 24, 1997 Atlanta, Georgia Covington, Georgia Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 237 Section 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date AMCORE Financial, Inc., Midwest Federal Financial Corp., Chicago January 9, 1998 Rockford, Illinois Baraboo, Wisconsin Baraboo Federal Bank, F.S.B., Baraboo, Wisconsin B.T. Financial Services, Inc., Baraboo, Wisconsin Bank of the Ozarks, Inc., Heritage Banc Holding, Inc., St. Louis January 6, 1998 Little Rock, Arkansas Little Rock, Arkansas HEARTLAND Community Bank, F.S.B., Little Rock, Arkansas Bayerische Vereinsbank AG, Hypo Securities Inc., New York January 15, 1998 Munich, Federal Republic of New York, New York Germany F&M National Corporation, F&M Trust Company, Richmond December 23, 1997 Winchester, Virginia Winchester, Virginia First Business Bancshares, Inc., M2 Lease Funds LLC, Chicago January 14, 1998 Madison, Wisconsin Madison, Wisconsin First Western Bancorp, Inc., Jacobson Insurance Agency, Minneapolis January 6, 1998 Huron, South Dakota Sturgis, South Dakota Marshall & Ilsley Corporation, Advantage Bancorp, Inc., Chicago December 29, 1997 Milwaukee, Wisconsin Kenosha, Wisconsin Advantage Bank, FSB, Kenosha, Wisconsin Mellon Bank Corporation, Source2 Group, LLC, Cleveland December 24, 1997 Pittsburgh, Pennsylvania Pittsburgh, Pennsylvania Mercantile Bancorporation Inc., HomeCorp, Inc., St. Louis January 8, 1998 St. Louis, Missouri Rockford, Illinois HomeBanc, FSB, Rockford, Illinois Middle Georgia Corporation, Fairbanco Holding Company, Inc., Atlanta January 13, 1998 Ellaville, Georgia Fairburn, Georgia Fairburn Banking Company, Fairburn, Georgia Norwest Corporation, Heritage Trust Company, Minneapolis December 31, 1997 Minneapolis, Minnesota Grand Junction, Colorado Regions Financial Corporation, PALFED, Inc., Atlanta December 30, 1997 Birmingham, Alabama Aiken, South Carolina Palmetto Federal Savings Bank, Aiken, South Carolina Regions Financial Corporation, PALFED Investment Services, Inc., Atlanta January 9, 1998 Birmingham, Alabama Aiken, South Carolina Stockmens Financial Corporation, Electronic Commerce Management Kansas City December 30, 1997 Rushville, Nebraska Group, LLC, Greenwood Village, Colorado Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

238 Federal Reserve Bulletin • March 1998 Sections 3 and 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Regions Financial Corporation, First United Bancorporation, Atlanta January 14, 1998 Birmingham, Alabama Anderson, South Carolina Anderson National Bank, Anderson, South Carolina Spartanburg National Bank, Spartanburg, South Carolina Quick Credit Corporation, Anderson, South Carolina 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 Citizens Trust Bank, First Southern Bank, January 6, 1998 Atlanta, Georgia Lithonia, Georgia Manufacturers and Traders Trust Company, OnBank & Trust Co., January 9, 1998 Buffalo, New York Syracuse, New York Franklin First Savings Bank, Wilkes-Barre, Pennsylvania 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 Bank of Lancaster, Northern Neck State Bank, Richmond January 6, 1998 Kilmarnock, Virginia Warsaw, Virginia First Union National Bank, Charlotte, North Carolina Capital One Bank, Capital One, F.S.B., Richmond January 22, 1998 Glen Allen, Virginia Falls Church, Virginia Farmers Bank of Maryland, The Caroline County Bank, Richmond January 13, 1998 Annapolis, Maryland Greensboro, Maryland Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 239 PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the January 20, 1998, the Board filed a motion to dismiss the Federal Reserve Banks in which the Board of Governors is not action. named a party. Banking Consultants of America v. Board of Governors, No. 97-2791 (W.D. Tenn., filed September 2, 1997). Action to Logan v. Greenspan, No. 1:98CV00049 (D.D.C., filed Janu- enjoin investigation by the Board, the Office of the Compary 9, 1998). Employment discrimination complaint. troller of the Currency, and the Department of Labor. On Goldman v. Department of the Treasury, No. 1-97-CV-3798 January 23, 1998, the court granted the Board's motion to (N.D. Ga., filed December 23, 1997). Declaratory judgment dismiss the action. action challenging Federal Reserve notes as lawful money. Bettersworth v. Board of Governors, No. 97-CA-624 (W.D. Kerr v. Department of the Treasury, No. CV-S-97-01877- Tex., filed August 21, 1997). Privacy Act case. On Jan- DWH (S.D. Nev., filed December 22, 1997). Challenge to uary 5, 1998, the Board filed a motion to dismiss the action. income taxation and Federal Reserve notes. Wilkins v. Warren, No. 97-CV-590 (E.D. Va„ filed August 4, Allen v. Indiana Western Mortgage Corp., No. 97-7744 RJK 1997). Customer dispute with a bank. On October 31, 1997, (C.D. Cal., filed November 12, 1997. Customer dispute the Board filed a motion to dismiss. with a bank. Greeff v. Board of Governors, No. 97-1976 (4th Cir., filed Patrick v. United States, No. 97-75564 (E.D. Mich., filed June 17, 1997). Petition for review of a Board order dated November 7, 1997). Action for damages arising out of tax May 19, 1997, approving the application of by Allied Irish dispute. Banks, pic, Dublin, Ireland, and First Maryland Bancorp, Leuthe v. Office of Financial Institution Adjudication, No. Baltimore, Maryland, to acquire Dauphin Deposit Corpora- 97-1826 (3d Cir., filed October 22, 1997). Appeal of district tion, Harrisburg, Pennsylvania, and thereby acquire Daucourt dismissal of action against the Board and other Fed- phin's banking and nonbanking subsidiaries. eral banking agencies challenging the constitutionality of Inner City Press/Community on the Move v. Board of Goverthe Office of Financial Institution Adjudication. nors. No. 97-1394 (D.C. Cir., filed June 12, 1997). Petition Patrick v. United States, No. 97-75017 (E.D. Mich., filed to review a Board order dated May 14, 1997, approving the September 30, 1997). Action for damages arising out of tax application of Banc One Corporation, Inc., Columbus, Ohio, dispute. to merge with First USA, Inc., Dallas, Texas. On June 16, Artis v. Greenspan, No. 97-5234 (D.C. Cir., filed Septem- 1997, petitioners moved for a stay pending appeal. The ber 19, 1997). Appeal of district court order dismissing motion was denied on June 27, 1997. On December 12, employment discrimination action. On January 29, 1998, 1997, the Court granted the Board's motion to dismiss the the Court of Appeals granted the Board's motion for sum- petition. mary affirmance of the District Court's dismissal of the Maunsell v. Greenspan, No. 97-6131 (2d Cir., filed May 22, complaint. 1997). Appeal of district court dismissal of action for com- Artis v. Greenspan, No. 97-5235 (D.C. Cir., filed Septem- pensatory and punitive damages for alleged violations of ber 19, 1997). Appeal of district court order dismissing civil rights by federal savings bank. employment discrimination class action. Vickery v. Board of Governors, No. 97-1344 (D.C. Cir., filed Towe v. Board of Governors, No. 97-71143 (9th Cir., filed May 9, 1997). Petition for review of a Board order dated September 15, 1997). Petition for review of a Board order April 14, 1997, prohibiting Charles R. Vickery, Jr., from dated August 18, 1997, prohibiting Edward Towe and further participation in the banking industry. Oral argument Thomas E. Towe from further participation in the banking is scheduled for February 24, 1998. industry. Pharaon v. Board of Governors, No. 97-1114 (D.C. Cir., filed Branch v. Board of Governors, No. 97-5229 (D.C. Cir., filed February 28, 1997). Petition for review of a Board order September 12, 1997). Appeal of district court order denying dated January 31, 1997, imposing civil money penalties and motion to compel production of pre-decisional supervisory an order of prohibition for violations of the Bank Holding documents and testimony sought in connection with an Company Act. Oral argument was held on December 8, action by Bank of New England Corporation's trustee in 1997. bankruptcy against the Federal Deposit Insurance Corpora- Research Triangle Institute v. Board of Governors, No. 97tion. On November 10, 1997, the court denied appellant's 1282 (4th Cir., filed February 24, 1997). Appeal of district request for expedited consideration of the appeal. Oral court's dismissal of contract claim. Oral argument was held argument is scheduled for May 4, 1998. on October 30, 1997, and on December 29, 1997, the court Wilkins v. Reno, No. 97-2275 (4th Cir., filed September 12, of appeals affirmed the district court's dismissal of the 1997). Appeal of district court dismissal of complaint con- action. cerning customer dispute with bank. On December 9, 1997, The New Mexico Alliance v. Board of Governors, No. 96the court of appeals affirmed the district court's dismissal. 9552 (10th Cir., filed December 24, 1996). Petition for Clarkson v. Greenspan, No. 97-CV-2035 (D.D.C., filed Sep- review of a Board order dated December 16, 1996, approvtember 5, 1997). Freedom of Information Act case. On ing the acquisition by NationsBank Corporation and NB Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

240 Federal Reserve Bulletin • March 1998 Holdings Corporation, both of Charlotte, North Carolina, of validating a new regulation issued by the Board under the Boatmen's Bancshares, Inc., St. Louis, Missouri. Also on Truth in Lending Act relating to treatment of fees for debt December 24, 1996, petitioners moved for an emergency cancellation agreements. On October 18, 1996, the district stay of the Board's order. The motion for a stay was denied court denied plaintiffs' motion for a temporary restraining by the 10th Circuit on January 3, 1997; on January 6, 1997, order. On January 17, 1997, the parties filed cross-motions petitioners' application for emergency stay was denied by for summary judgment. the Supreme Court. On January 21, 1998, the Court ordered Board of Governors v. Pharaon, No. 91-CIV-6250 (S.D. New the petition transferred to the United States Court of Ap- York, filed September 17, 1991). Action to freeze assets of peals for the District of Columbia Circuit. individual pending administrative adjudication of civil American Bankers Insurance Group, Inc. v. Board of Gover- money penalty assessment by the Board. On September 17, nors, No. 96-CV-2383-EGS (D.D.C., filed October 16, 1991, the court issued an order temporarily restraining the 1996). Action seeking declaratory and injunctive relief in- transfer or disposition of the individual's assets. 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—Continued A27 Gross public debt of U.S. Treasury— DOMESTIC FINANCIAL STATISTICS Types and ownership A28 U.S. government securities Money Stock and Bank Credit dealers—Transactions A4 Reserves, money stock, liquid assets, and debt A29 U.S. government securities dealers— measures Positions and financing A5 Reserves of depository institutions and Reserve Bank A30 Federal and federally sponsored credit credit agencies—Debt outstanding A6 Reserves and borrowings—Depository institutions Securities Markets and Corporate Finance Policy Instruments A31 New security issues—Tax-exempt state and local governments and corporations A7 Federal Reserve Bank interest rates A32 Open-end investment companies—Net sales A8 Reserve requirements of depository institutions and assets A9 Federal Reserve open market transactions A3 2 Corporate profits and their distribution A32 Domestic finance companies—Assets and Federal Reserve Banks liabilities A33 Domestic finance companies—Owned and managed A10 Condition and Federal Reserve note statements receivables All Maturity distribution of loan and security holding Real Estate Monetary and Credit Aggregates A34 Mortgage markets—New homes A12 Aggregate reserves of depository institutions A35 Mortgage debt outstanding and monetary base A13 Money stock, liquid assets, and debt measures Consumer Credit Commercial Banking Institutions— A3 6 Total outstanding A36 Terms Assets and Liabilities A15 All commercial banks in the United States Flow of Funds A16 Domestically chartered commercial banks A17 Large domestically chartered commercial banks A37 Funds raised in U.S. credit markets A19 Small domestically chartered commercial banks A39 Summary of financial transactions A20 Foreign-related institutions A40 Summary of credit market debt outstanding A41 Summary of financial assets and liabilities Financial Markets A22 Commercial paper and bankers dollar DOMESTIC NONFINANCIAL STATISTICS acceptances outstanding A22 Prime rate charged by banks on short-term Selected Measures business loans A42 Nonfinancial business activity A23 Interest rates—Money and capital markets A42 Labor force, employment, and unemployment A24 Stock market—Selected statistics A43 Output, capacity, and capacity utilization A44 Industrial production—Indexes and gross value Federal Finance A46 Housing and construction A25 Federal fiscal and financing operations A47 Consumer and producer prices A26 U.S. budget receipts and outlays A48 Gross domestic product and income A27 Federal debt subject to statutory limitation A49 Personal income and saving Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

2 Federal Reserve Bulletin • March 1998 INTERNATIONAL STATISTICS Reported by Nonbanking Business Enterprises in the United States Summary Statistics A58 Liabilities to unaffiliated foreigners A50 U.S. international transactions A59 Claims on unaffiliated foreigners A51 U.S. foreign trade A51 U.S. reserve assets Securities Holdings and Transactions A51 Foreign official assets held at Federal Reserve A60 Foreign transactions in securities Banks A61 Marketable U.S. Treasury bonds and A52 Selected U.S. liabilities to foreign official notes—Foreign transactions institutions Interest and Exchange Rates Reported by Banks in the United States A61 Discount rates of foreign central banks A52 Liabilities to, and claims on, foreigners A61 Foreign short-term interest rates A53 Liabilities to foreigners A62 Foreign exchange rates A55 Banks' own claims on foreigners A56 Banks' own and domestic customers' claims on foreigners A63 GUIDE TO STATISTICAL RELEASES AND A56 Banks' own claims on unaffiliated foreigners SPECIAL TABLES A57 Claims on foreign countries—Combined domestic offices and foreign branches 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 p Preliminary HUD Department of Housing and Urban r Revised (Notation appears on column heading Development when about half of the figures in that column IMF International Monetary Fund are changed.) IO Interest only * Amounts insignificant in terms of the last decimal IPCs Individuals, partnerships, and corporations place shown in the table (for example, less than IRA Individual retirement account 500,000 when the smallest unit given is millions) MMDA Money market deposit account 0 Calculated to be zero MSA Metropolitan statistical area . . . Cell not applicable NOW Negotiable order of withdrawal ATS Automatic transfer service OCD Other checkable deposit BIF Bank insurance fund OPEC Organization of Petroleum Exporting Countries CD Certificate of deposit OTS Office of Thrift Supervision CMO Collateralized mortgage obligation PO Principal only FFB Federal Financing Bank REIT Real estate investment trust FHA Federal Housing Administration REMIC Real estate mortgage investment conduit FHLBB Federal Home Loan Bank Board RP Repurchase agreement FHLMC Federal Home Loan Mortgage Corporation RTC Resolution Trust Corporation 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 YA 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. Minus signs are used to indicate (1) a decrease, (2) a negative "State and local government" also includes municipalities, figure, or (3) an outflow. special districts, and other political 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 • March 1998 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted1 1997 1997 MMoonneettaarryy oorr ccrreeddiitt aaggggrreeggaattee Qi Q2 Q3 Q4 Aug.1" Sept. Oct.r Nov. Dec. Reserves of depository institutions" 1 Total -8.3 -14.3 -1.8 -1.3 13.5 -18.9 -5.5 10.6 8.5 2 Required -8.4 -15.0 -2.4 -4.1 12.6 -20.5 -8.3 5.1 7.0 3 Nonborrowed -7.2 -16.0 -3.4 .7 8.8 -15.0 -1.2 13.7 4.1 4 Monetary base'1 5.6 3.3 6.0 8.5 5.8 7.5 6.8 11.3 12.0 Concepts of money, liquid assets, and debt4 5 Ml -.7 -5.5 .2 -.3 8.5 -9.9 -3.8 7.5 5.3 6 M2 5.5r 3.8 4.9r 6.3 10.5 5.6r 4.6 6.9 6.9 7 M3 8.2r 6.8r 1.1' 9.4 11.0 8.5r 7.4 11.0 11.2 8 L 6.5r 8.3r 6.9r n.a. 11.6 7.7r 4.4 11.7 n.a. 9 Debt 4.2 4.7 3.8r n.a. 4.3 4.3 4.9 4.5 n.a. Nontransaction components 10 In M25 7.9r 7.4 6.7r 8.7 11.3 11.4r 7.7 6.7 7.4 11 In M3 only6 17.7r 17.3r 16.9r 19.2 12.7 17.8r 16.4 23.9r 24.7 Time and savings deposits Commercial banks 12 Savings, including MMDAs 14.0 10.7 8.6 15.9 14.4 19.2 16.0 11.9 16.8 13 Smalltime7 2.7 5.5 1.6' 3.4 1.4 4.f 3.3 5.1r 1.0 14 Large time8'9 17.4r 24.7r 18.9r 13.1 3.1 22.5r 6.0 19.0r 12.6 Thrift institutions 15 Savings, including MMDAs 2.7 5.8 1.2 .6 -1.0 1.3 .0 8.0 1 1 7 6 S L m ar a ge ll t t i i m m e e 7 8 1 - 2 .1 . 8 -2 5 .1 .6 ' — 11 4 . . 6 5 r -3 3 .1 .6 5. . 7 0 -4 5 . . 5 6 r -2 -. . 3 8 -9 7 . . 0 0 9. . 8 3 Money market mutual funds 18 Retail 12.5r 11.4 14.0r 14.3 31.4 24.0r 7.0 12.7r 2.2 19 Institution-only 15.5 12.5 21.3 23.8 18.9 35.4 22.7 3.8 45.4 Repurchase agreements and Eurodollars 20 Repurchase agreements10 10.7 4.2 9.3 42.2 8.7 -16.7 69.4 87.7 12.3 21 Eurodollars10 40.2 33.4 14.7r 3.6 44.1 18.6r -31.4 .9' 46.6 Debt components4 22 Federal 1.8 .4 -.6 n.a. 1.6 1.1 .5 .3 n.a. 23 Nonfederal 5.1 6.2 5.3 n.a. 5.2 5.4 6.3 5.9 n.a. 1. Unless otherwise noted, rates of change are calculated from average amounts outstand- amounts held by depository institutions, the U.S. government, money market funds, and ing during preceding month or quarter. foreign banks and official institutions. Seasonally adjusted M3 is calculated by summing large 2. Figures incorporate adjustments for discontinuities, or "breaks," associated with time deposits, institutional money fund balances, RP liabilities, and Eurodollars, each regulatory changes in reserve requirements. (See also table 1.20.) seasonally adjusted separately, and adding this result to seasonally adjusted M2. 3. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency securities, commercial paper, and bankers acceptances, net of money market fund holdings of component of the money stock, plus (3) (for all quarterly reporters on the "Report of these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term Transaction Accounts, Other Deposits and Vault Cash" and for all weekly reporters whose Treasury securities, commercial paper, and bankers acceptances, each seasonally adjusted vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference separately, and then adding this result to M3. between current vault cash and the amount applied to satisfy current reserve requirements. Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial 4. Composition of the money stock measures and debt is as follows: sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in the process of collection and Federal corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data, Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of which are derived from the Federal Reserve Board's flow of funds accounts, are breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at thrift institutions. Seasonally month-averaged (that is, the data have been derived by averaging adjacent month-end levels). adjusted Ml is computed by summing currency, travelers checks, demand deposits, and 5. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retail OCDs, each seasonally adjusted separately. money fund balances, each seasonally adjusted separately. M2: Ml plus (1) savings (including MMDAs), (2) small-denomination time deposits (time 6. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities deposits—including retail RPs—in amounts of less than $100,000), and (3) balances in retail (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and money market mutual funds (money funds with minimum initial investments of less than term) of U.S. addressees, each seasonally adjusted separately. $50,000). Excludes individual retirement accounts (IRAs) and Keogh balances at depository 7. Small time deposits—including retail RPs—are those issued in amounts of less than institutions and money market funds. Seasonally adjusted M2 is calculated by summing $100,000. All IRA and Keogh account balances at commercial banks and thrift institutions savings deposits, small-denomination time deposits, and retail money fund balances, each are subtracted from small time deposits. seasonally adjusted separately, and adding this result to seasonally adjusted M1. 8. Large time deposits are those issued in amounts of $100,000 or more, excluding those M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more). (2) booked at international banking facilities. balances in institutional money funds (money funds with minimum initial investments of 9. Large time deposits at commercial banks less those held by money market funds, $50,000 or more), (3) RP liabilities (overnight and term) issued by all depository institutions, depository institutions, the U.S. government, and foreign banks and official institutions. and (4) Eurodollars (overnight and term) held by U.S. residents at foreign branches of US. 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 CREDIT 1 Millions of dollars Average of Average of daily figures for week ending on date indicated daily figures Nov. 19 Nov. 26 Dec. 3 Dec. 10 Dec. 17 Dec. 24 Dec. 31 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 453,689 467,060 464,028 471,648 U.S. government securities2 2 Bought outright—System account3 413,890 416,535 427,860 417,448 419,912 419,942 424,393 430,419 429,198 3 Held under repurchase agreements 5,321 8,910 7,197 7,573 7,401 12,575 5,393 2,900 7,270 Federal agency obligations 4 Bought outright 789 685 685 685 685 685 685 685 5 6 Ac H ce e p ld ta n u c n e d s e r repurchase agreements 1,1570 0 1,1560 1,3030 1,7350 2,1660 9120 7980 1,4830 Loans to depository institutions 7 8 9 A E Se x d a t j e s u n o s d n tm e a d l e n c c t r r e e c d d r i e i t t d it 22 3 5 3 0 1419 0 0 25 7 2 90 1 7 1 3 00 10 4 00 4 9 4 00 0 0 9 7 2 80 10 Float 453 585 931 1,555 -280 366 1,604 486 907 11 Other Federal Reserve assets 31,820 32,102r 31,404 32,069 30,928r 31,192 30,925 31,040 31,936 12 Gold stock 11,050 11,050 11,049 11,050 11,050 11,050 11,050 11,049 11,049 13 Special drawing rights certificate account 9,200 9,200 9,200 9,200 9,200 9,200 9.200 9,200 9,200 14 Treasury currency outstanding 25,498r 25,559r 25,620 25,560r 25.574r 25,588 25,602 25,616 25,630 ABSORBING RESERVE FUNDS 15 Currency in circulation 460,733r 466,903r 475,678 467,156r 468,253r 471,8 472,194 473,095 477,146 16 Treasury cash holdings 244 244 230 247 244 230 231 229 Deposits, other than reserve balances, with Federal Reserve Banks 1 1 8 7 T Fo re re a i s g u n r y 5,3 1 8 8 6 9 5, 2 1 1 2 3 6 5,1 1 0 7 7 7 5, 2 0 7 5 0 9 5.01062 8 4,7 1 6 7 2 3 4,5 1 2 7 9 2 6,3 1 3 7 0 0 5,0 1 0 5 1 6 19 Service-related balances and adjustments . . 6,940 6,950r 6,922 6,880 6,81 lr 7,178 6,835 6,803 6,988 20 Other 377 364 354 346 339 410 348 379 333 21 Other Federal Reserve liabilities and capital . 16,016 16,140 16,025 16,191 16,144 15,603 15,544 16,192 16,343 22 Reserve balances with Federal Reserve Banks" 9,552 10,544r 10,939 10,476 9,346r 12,679 10.030 9,354 11,330 End-of-month figures Wednesday figures Dec. 3 Dec. 10 Dec. 17 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 455,998 463,694'' 471,888 466,091 476,015 475,609 U.S. government securities" B H o el u d g h u t n d o e u r t r r i e g p h u t— rch S a y s s e t em ag re a e c m co e u n n ts t 3 410 9 , , 7 8 6 6 7 2 41 1 9 0 , , 8 4 8 1 2 6 43 2 0 1 , , 7 1 3 88 6 418 7 , , 5 3 2 5 8 2 42102,,401281 41 1 9 7 , , 6 9 6 4 8 7 427 1 , , 7 5 1 0 6 0 430 9 , , 5 4 4 1 6 5 432 7 , , 0 1 5 2 9 3 Federal agency obligations Ac H B ce o e p l u d t g a h n u t c n e d o s e u r t r r ig e h p t u rchase agreements 1, 7 7 1 0 1 04 3, 6 7 8 8 5 0 2 2,6 6 5 8 2 5 0 2,6 6 0 8 1 5 0 6 8 8 6 5 20 1, 6 0 8 2 5 50 6850 0 0 1, 6 9 8 0 5 20 Loans to depository institutions Adjustment credit 24 3 2,001 2 103 14 894 21 E Se x a te s n on d a e l d c c r r e e d d i i t t 1501 87 0 305 1006 1000 880 805 840 750 Float -114 14' 721 348 -1,991 1,068 4,945 400 2,138 Other Federal Reserve assets 32,893 3i,oor 32,020 30,458 3 l,598r 31,304 31,146 32,111 31,606 12 Gold stock 11,050 11,051 11,047 11,050 11,051 11,050 11,050 11,049 11,048 13 Special drawing rights certificate account 9,200 9,200 9,200 9,200 9,200 9,200 9,200 9,200 9,200 14 Treasury currency outstanding 25.532r 25,588r 25,644 25,560r 25,574r 25,588 25,602 25,616 25,630 ABSORBING RESERVE FUNDS 15 Currency in circulation 461,542r 471,216r 482,428 467,713r 471,465r 472,801 473,497 475,357 480,548 16 Treasury cash holdings 237 234 225 246 234 230 231 229 229 Deposits, other than reserve balances, with Federal Reserve Banks 1 1 7 8 T Fo re re a i s g u n r y 4,6 1 1 9 6 0 5,1 1 2 6 7 7 5, 4 4 5 4 7 4 4,11286 0 3,9 1 6 9 3 2 4,2 1 1 7 1 3 4,4 1 9 6 9 0 7,4 1 9 5 3 4 4,9 1 4 5 9 7 19 Service-related balances and adjustments . . 6,962 7,178r 6,954 6,880 6,81 lr 7,178 6,835 6,803 6,986 20 Other 337 509 900 342 324 330 383 381 296 21 Other Federal Reserve liabilities and capital . 16,328 15,559 15,500 15,926 15,892 15,383 15,615 16,021 16,141 22 Reserve balances with Federal Reserve Banks4 11,567 1 l,780r 24,019 10,962 10,638r 17,422 10,724 15,442 12,181 1. Amounts of cash held as reserves are shown in table 1.12, line 2. 3. Includes compensation that adjusts for the effects of inflation on the principal of 2. Includes securities loaned—fully guaranteed by U.S. government securities pledged inflation-indexed securities. with Federal Reserve Banks—and excludes securities sold and scheduled to be bought back 4. Excludes required clearing balances and adjustments to compensate for float. under matched sale-purchase transactions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A6 Domestic Nonfinancial Statistics • March 1998 1.12 RESERVES AND BORROWINGS Depository Institutions' Millions of dollars Prorated monthly averages of biweekly averages RReesseerrvvee ccllaassssiiffiiccaattiioonn 1995 1996 1997 1997 Dec. Dec. Dec. June July Aug. Sept. Oct. Nov. Dec. 1 Reserve balances with Reserve Banks" 20,440 13.395 10.674 10,291 9.851 10,489 9,742 9,990 10.559 10,674 2 Total vault cash" 42,094 44,426 43.970 42.398 43,129 42.363 43,052 41,730 42,114 43,970 3 Applied vault cash4 37,460 37,848 37.206 36,319 36,529 36,156 36,314 35,631 35.892 37,206 4 Surplus vault cash" 4,634 6,578 6,763 6,079 6,600 6,208 6,738 6,100 6.222 6,763 5 Total reserves6 57,900 51,243 47,880 46,610 46,380 46,645 46,056 45,621 46.451 47,880 6 Required reserves 56,622 49,819 46,197 45,330 45,179 45,392 44,761 44,225 44,834 46,197 7 Excess reserve balances at Reserve Banks7 1,278 1,424 1.683 1,280 1,201 1,253 1.295 1,396 1,617 1.683 8 Total borrowings at Reserve Banks8 257 155 324 367 409 598 438 270 153 324 9 Seasonal borrowings 40 68 79 243 330 385 368 227 115 79 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 1997 Aug. 27 Sept. 10 Sept. 24 Oct. 8 Oct. 22 Nov. 5 Nov. 19 Dec. 3' Dec. 17 Dec. 31 1 Reserve balances with Reserve Banks" 10,754 10.417 9.201 9,883 9,756 10,451 10.234 11.022 9.678 11,582 2 Total vault cash3 41,480 42.573 43.588 42,603 41,098 41.940 42,129 42,175 44.267 44,058 3 Applied vault cash 35,596 36.507 36.170 36,329 35,177 35,718 35,817 36.068 36.965 37,693 4 Surplus vault cash5 5,884 6,066 7.418 6,275 5,921 6,222 6,312 6.108 7.302 6,365 5 Total reserves6 46,350 46,924 45.371 46,21 1 44,932 46.168 46,051 47.090 46,643 49,275 6 Required reserves 45,153 45,679 44,101 44,772 43,731 44.507 44,540 45.357 45.170 47,403 7 Excess reserve balances at Reserve Banks7 1,197 1,245 1,269 1.439 1,201 1,661 1.510 1.733 1.473 1,871 8 Total borrowings at Reserve Banks8 785 503 427 356 24 i 238 149 119 240 454 9 Seasonal borrowings 396 392 377 308 220 167 112 95 85 71 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. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A 7 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit Seasonal credit" Extended credir Federal Reserve Bank 2/ O 6/ n 9 8 2/ O 6/ n 9 8 Previous rate 2/ O 6/ n 9 8 Boston 2/1/96 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. 1/31/96 Range of rates for adjustment credit in recent years Range (or F.R. Bank Range (or F.R. Bank Range (or F.R. Bank 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 -Nov. 2 131-134 1 1 3 3 1988—Aug. 9 ... . 6-6.5 6.5 6 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 -July 20 11.5-12 11.5 27 ... . 7 7 12 7 7 23 11.5 1111.5 July 1 3 0 7 7 -7 .2 . 5 2 5 7 7 . . 2 2 5 5 Aug. 2 3 11-1111.5 11 1990—Dee. 19 6.5 6.5 Aug. 21 7.75 7.75 16 10.5 10.5 1991—Feb. 1 . . . . 6-6.5 6 O Se c p t. t . 2 1 2 6 8-8 8 .5 8 8 . 5 3 2 0 7 10-1100.5 110 0 Apr. 30 4 . .. . . . . . 5.5 6 - 6 5 6 . 5 20 8.5 8.5 Oct. 1123 9.5-10 9.5 May 2 ... . 5.5 5.5 Nov. 1 8.5-9.5 9.5 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. 61 .... ... . 4.5-5 4.5 1979—July 20 10 10 Dec. 14 8.5-9 9 4.5 4.5 Aug. 17 10-10.5 10.5 15 8.5-9 8.5 Dec. 20 ... . 3.5^1.5 3.5 20 10.5 1101.5 17 8.5 8.5 24 3.5 3.5 Sept. 2 1 1 9 10. 1 5 1 - 11 11 -Apr. 193 8.5-9 1992—July 12 ....... . 3-3.5 3 Oct. 180 11 1 - 2 1 2 1 12 2 Nov. 21 8.5 9 - 9 3 3 26 8.5 1994—May 17 3-3.5 3.5 1980—F M e a b y . 2 1 1 9 5 9 1 1 2 21 - - 1 13 3 3 1 1 1 3 3 3 1985--M De a c y . 2 2 0 4 7.5-8 7.5 Aug. 1 1 1 8 6 8 ... . 3 3 .5 4 .5 -4 4 4 3 .5 30 12 1121 24 7.5 7.5 Nov. 15 4-4.75 4.75 June 13 11-12 11 17 4.75 4.75 16 11 10 1986--Mar. 7 7-7.5 7 July 28 10-11 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 1123 July 11 6 6 1996—Jan. 31 5.00-5.25 5.00 Dec. 5 8 12 1 - 3 1 3 13 Aug. 2 2 1 2 5 5 .5 .5 -6 5 5 . . 5 5 Feb. 5 ... . 5.00 5.00 1981—May 5 13-14 14 In effect Feb. 6, 1998 5.00 5.00 8 14 14 -Sept. 141 5.5 6 - 6 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 Nonfinancial Statistics • March 1998 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS1 Type of deposit Net transaction accounts~ 1 $0 million-$47.8 million3 . 1/1/98 2 More than $47.8 million4 . 1/1/98 3 Nonpersonal time deposits" 12/27/90 4 Eurocurrency liabilities6. . . 12/27/90 1. Required reserves must be held in the form of deposits with Federal Reserve Banks succeeding calendar year by 80 percent of the percentage increase in the total reservable or vault cash. Nonmember institutions may maintain reserve balances with a Federal liabilities of all depository institutions, measured on an annual basis as of June 30. No Reserve Bank indirectly, on a pass-through basis, with certain approved institutions. For corresponding adjustment is made in the event of a decrease. The exemption applies only to previous reserve requirements, see earlier editions of the Annua! 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 1, 1998, for depository institutions that report weekly, include commercial banks, mutual savings banks, savings and loan associations, credit and with the period beginning January 15, 1998, for institutions that report quarterly, the unions, agencies and branches of foreign banks, and Edge Act corporations. exemption was raised from $4.4 million to $4.7 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'/> years was reduced from 3 percent to 1 '/2 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 1 '/5 as of June 30 of each year. Effective with the reserve maintenance period beginning January 1. years or more has been zero since Oct. 6, 1983. 1998, for depository institutions that report weekly, and with the period beginning January 15, 6. The reserve requirement on Eurocurrency liabilities was reduced from 3 percent to zero 1998, for institutions that report quarterly, the amount was decreased from $49.3 million to in the same manner and on the same dates as the reserve requirement on nonpersonal time $47.8 million. deposits with an original maturity of less than 1'/> years (see note 5). Under the Garn-St Germain Depository Institutions Act of 1982. the Board adjusts the amount of reservable liabilities subject to a zero percent reserve requirement each year for the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A 9 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1 Millions of dollars 1997 TTyyppee ooff ttrraannssaaccttiioonn 11999944 11999955 11999966 aanndd mmaattuurriittyy May June July Aug. Sept. Oct. Nov. U.S. TREASURY SECURITIES2 Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 17,484 10.932 9,901 0 596 0 0 0 0 0 2 Gross sales 0 0 0 0 0 0 0 0 0 0 3 Exchanges 380,327 405,296 426,928 47,456 33,022 35,948 35,666 28,328 39,313 33,485 4 For new bills 380,327 405,296 426.928 47,456 33,022 35,948 35,666r 28,328 39,313 33,485 5 Redemptions 0 900 0 0 0 0 0 0 0 0 Others within one year 6 Gross purchases 733 390 524 383 494 0 0 644 0 1,462 7 Gross sales 0 0 0 0 0 0 0 0 0 0 8 Maturity shifts 0 43,574 30,512 5.666 1,476 4,359 7,487 1,596 3,193 5,231 9 Exchanges -31,949 -35,407 -41.394 -4.229 -2,250 -1,087 -2,780 -2,382 -1,267 -4,126 10 Redemptions 2,337 1,776 2,015 0 0 598 0 0 416 0 One to five years 11 Gross purchases 9,916 5,366 3.898 1.102 2,797 0 0 2.697 0 3,323 12 Gross sales 0 0 0 0 0 0 0 0 0 0 13 Maturity shifts -6,004 -34,646 -25,022 -4,685 -1,476 -4,359 -5,247 -1,596 -3,193 -4,883 14 Exchanges 26,458 26.387 31,459 2,479 2,250 1,087 1,170 2,382 1,267 1,651 Five to ten years 15 Gross purchases 3,575 1.432 1,116 734 499 0 0 0 770 485 16 Gross sales 0 0 0 0 0 0 0 0 0 0 17 Maturity shifts -3,145 -3,093 -5,469 -981 0 0 -2,240 0 0 31 18 Exchanges 4,717 7,220 6,666 1,750 0 0 880 0 0 1,295 More than ten years 19 Gross purchases 3,606 2,529 1,655 988 906 0 0 0 648 954 20 Gross sales 0 0 0 0 0 0 0 0 0 0 21 Maturity shifts -918 -2,253 -20 0 0 0 0 0 0 -379 22 Exchanges 775 1,800 3,270 0 0 0 730 0 0 1,180 All maturities 23 Gross purchases 35,314 20,649 17,094 3,206 5,292 0 0 3,341 1,418 6,224 24 Gross sales 0 0 0 0 0 0 . 0 0 0 0 25 Redemptions 2,337 2,676 2,015 0 0 598 0 0 416 0 Matched transactions 26 Gross purchases 1,700.836 2,197,736 3,092,399 287,229 293,506 307,101 317,008 311,153 316,425 272,474 27 Gross sales 1,701,309 2.202,030 3,094,769 287,826 293,008 309,578 315,439 312,083 318,485 269,586 Repurchase agreements 28 Gross purchases 309,276 331,694 457,568 46,552 55,073r 44,087r 54,561 77,109 75,323r 73,618 29 Gross sales 311,898 328,497 450,359 89,477 47,070 53,217 50,340r 74,960r 78,157r 73,064 30 Net change in U.S. Treasury securities 29,882 16.875 19,919 -40,316 13,793r -12,205r 5,790r 4.5601" — 3,893r 9,666 FEDERAL AGENCY OBLIGATIONS Outright transactions 31 Gross purchases 0 0 0 0 0 0 0 0 0 0 32 Gross sales 0 0 0 0 0 0 0 0 0 0 33 Redemptions 942 1,003 409 0 474 287 179 105 2l5r 26 Repurchase agreements 34 Gross purchases 52,696 36,851 75,354 7,954 8,401 10,437 13,131 9.796 I5,639r 23,054 35 Gross sales 52,696 36,776 74,842 7,096 9,131 10,811 11,252 11,196 15,157 20,976 36 Net change in federal agency obligations -942 -928 103 858 -1.204 -661 1,700 -1,505 267r 2,052 37 Total net change in System Open Market Account . . . 28,940 15,948 20,021 -39,458 12,589r — 12,866r 7,490r 3,055r —3,626r 11,718 i. Sales, redemptions, and negative figures reduce holdings of the System Open Market 2. Transactions exclude changes in compensation for the etfects of inflation on the principal Account; all other figures increase such holdings. of inflation-indexed securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic Nonfinancial Statistics • March 1998 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements' Millions of dollars Wednesday End of month AAAccccccooouuunnnttt 1997 1997 Dec. 3 Dec. 10 Dec. 17 Dec. 24 Dec. 31 Oct. 31 Nov. 30 Dec. 31 Consolidated condition statement ASSETS 1 Gold certificate account 11,050 11.050 11,049 11,048 11,047 11,050 11,051 11,047 2 Special drawing rights certificate account 9,200 9.200 9,200 9,200 9,200 9,200 9,200 9,200 3 Coin 483 484 497 485 460 532 495 460 Loans 4 To depository institutions 191 99 978 96 2,035 175 90 2,035 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 685 685 685 685 685 711 685 685 8 Held under repurchase agreements 1,025 0 1,880 1,902 2,652 1,704 3,782 2,652 9 Total U.S. Treasury securities 437,615 429,216 439,961 439,182 451.924 420,629 430,298 451,924 10 Bought outright2 419,668 427.716 430,546 432,059 430,736 410,767 419,882 430,736 11 Bills 194,304 196.747 196,935 198,447 197,123 191,632 194,519 197,123 12 Notes 167,170 171.562 174,204 174,205 174,206 163,076 167,170 174,206 13 Bonds 58.193 59.407 59,407 59,407 59,407 56,059 58,193 59,407 14 Held under repurchase agreements 17.947 1.500 9.415 7,123 21,188 9,862 10,416 21,188 15 Total loans and securities 439,515 429,999 443,504 441,865 457,295 423,219 434,855 457,295 16 Items in process of collection 8,184 8.824 8,016 10,884 7,800 4,529 3,262 7,800 17 Bank premises 1,264 1.268 1,268 1,271 1,272 1,273 1,264 1,272 Other assets 18 Denominated in foreign currencies" 17,351 17.359 17,367 17,375 17,046 17,945 17,345 17,046 19 All other4 12,677 12.519 13,488 13,013 13,726 13,728 12,384 13,726 20 Total assets 499,725 490,703 504,388 505,142 517,847 481,475 489,856 517,847 LIABILITIES 21 Federal Reserve notes 447.926 448.610 450,467 455,632 457,469 436.780 446,357 457,469 22 Total deposits 29,606 19,689 30,474 25,499 37,639 23,852 25,073 37,639 23 Depository institutions 24.877 14,649 22,447 20.097 30,838 18.709 19.271 30,838 24 U.S. Treasury—General account 4,211 4.499 7,493 4,949 5,444 4,616 5.127 5,444 25 Foreign—Official accounts 173 160 154 157 457 190 167 457 26 Other 330 383 381 296 900 337 509 900 27 Deferred credit items 6.810 6.790 7,426 7,870 7.239 4,515 2,866 7,239 28 Other liabilities and accrued dividends" 4.900 4.653 4,941 4,932 4,846 4,936 4.908 4,846 29 Total liabilities 489,242 479,742 493,308 493,933 507,193 470,083 479,204 507,193 CAPITAL ACCOUNTS 30 Capital paid in 5.315 5.325 5.356 5,443 5,433 5.279 5,314 5,433 31 Surplus 4,386 4.389 4,389 4,389 5,220 4,389 4,348 5,220 32 Other capital accounts 782 1.248 1,335 1,377 0 1,724 990 0 33 Total liabilities and capital accounts 499,725 490,703 504,388 505,142 517,847 481,475 489,856 517,847 MEMO 34 Marketable U.S. Treasury securities held in custody for foreign and international accounts 624,477 627.306 615,850 603,376 602,834 624,722 618,612 602,834 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Banks) 548.856 550.179 552,564 551,126 549,600 548,595 547,796 549,600 36 LESS: Held by Federal Reserve Banks 100.930 101.569 102,097 95,494 92.131 111,815 101,440 92,131 37 Federal Reserve notes, net 447,926 448.610 450,467 455,632 457.469 436,780 446,357 457,469 Collateral held against notes, net 38 Gold certificate account 11,050 11.050 11,049 11,048 11,047 11,050 11,051 11,047 39 Special drawing rights certificate account 9,200 9.200 9,200 9,200 9,200 9,200 9,200 9,200 40 Other eligible assets 0 0 0 0 0 0 0 0 41 U.S. Treasury and agency securities 427,676 428.360 430,218 435,384 437,222 416,530 426,106 437,222 42 Total collateral 447,926 448,610 450,467 455,632 457,469 436,780 446,357 457,469 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 includes compensation that adjusts for the effects of inflation on 5. Includes exchange-translation account reflecting the monthly revaluation at market the principal of inflation-indexed securities. Excludes securities sold and scheduled to be exchange rates of foreign exchange commitments. bought back under matched sale-purchase transactions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks All 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding Millions of dollars Wednesday End of month TTTyyypppeee ooofff hhhooollldddiiinnnggg aaannnddd mmmaaatttuuurrriiitttyyy 1997 1997 Dec. 3 Dec. 10 Dec. 17 Dec. 24 Dec. 31 Oct. 31 Nov. 28 Dec. 31 1 Total loans 191 99 978 96 2,035 176 90 737 2 Within fifteen days' 114 17 971 96 2.014 96 35 734 3. Sixteen days to ninety days 76 82 7 n.a. 21 79 55 3 4 Total U.S. Treasury securities" 437,615 429,216 439,961 439,182 451,924 420,629 431,903 451,924 5 Within fifteen days' 28,878 14,641 17,689 19,907 34.147 15.483 17.366 34,147 6 Sixteen days to ninety days 92,662 99,052 98,487 95,600 95,648 90,393 97.369 95,648 7 Ninety-one days to one year 136,960 132,749 138,369 138,259 137.886 140,643 137,454 137,886 8 One year to five years 91,728 93,560 96,201 96,201 95,028 90,291 92,328 95,028 9 Five years to ten years 40,292 40,905 40,905 40,906 40,906 38,429 40,292 40,906 10 More than ten years 47,094 48,308 48,961 48,308 48,308 45.389 47,094 48,308 11 Total federal agency obligations 1,709 685 2,565 2,587 3,337 2,415 1,547 3,337 12 Within fifteen days' 1,025 0 1,880 1,902 2,652 1.730 862 2,652 13 Sixteen days to ninety days 10 10 60 60 60 n.a. 10 60 14 Ninety-one days to one year 197 242 192 192 192 202 197 192 15 One year to five years 198 153 153 153 153 203 198 153 16 Five years to ten years 255 255 255 255 255 255 255 255 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 2. Includes compensation that adjusts for the effects of inflation on the principal of accordance with maximum maturity of the agreements. inflation-indexed securities. . Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A12 Domestic Nonfinancial Statistics • March 1998 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1997 IItteemm 11999944 11999955 11999966 11999977 DDeecc.. DDeecc.. DDeecc.. DDeecc.. May June July Aug. Sept. Oct. Nov. Dec. Seasonally adjusted AADDJJUUSSTTEEDD FFOORR CCHHAANNGGEESS IINN RREESSEERRVVEE RREEQQUUIIRREEMMEENNTTSS-- 11 TToottaall rreesseerrvveess33 59.40 56.39 50.06 47.20 47.05 47.11 46.89 47.41 46.67 46.45 46.87 47.20 22 NNoonnbboorrrroowweedd rreesseerrvveess44 59.20 56.13 49.91 46.87 46.81 46.74 46.48 46.82 46.23 46.18 46.71 46.87 33 NNoonnbboorrrroowweedd rreesseerrvveess pplluuss eexxtteennddeedd ccrreeddiitt55 59.20 56.13 49.91 46.87 46.81 46.74 46.48 46.82 46.23 46.18 46.71 46.87 44 RReeqquuiirreedd rreesseerrvveess 58.24 55.11 48.64 45.51 45.81 45.83 45.68 46.16 45.37 45.06 45.25 45.51 55 MMoonneettaarryy bbaassee66 418.48 434.52 452.67 481.23 459.60 461.40 464.21 466.46 469.35 472.02 476.48 481.23 Not seasonally adjusted 6 Total reserves7 61.13 58.02 51.52 48.56 46.26 46.93 46.76 47.09 46.55 46.16 47.05 48.56 7 Nonborrowed reserves 60.92 57.76 51.37 48.23 46.02 46.56 46.35 46.49 46.11 45.89 46.90 48.23 8 Nonborrowed reserves plus extended credit5 60.92 57.76 51.37 48.23 46.02 46.56 46.35 46.49 46.11 45.89 46.90 48.23 9 Required reserves8 59.96 56.74 50.10 46.87 45.02 45.65 45.56 45.83 45.25 44.77 45.44 46.87 10 Monetary base9 422.51 439.03 456.72 485.49 458.29 461.81 465.55 467.24 468.63 470.67 476.90 485.49 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS10 11 Total reserves" 61.34 57.90 51.24 47.88 46.00 46.61 46.38 46.65 46.06 45.62 46.45 47.88 12 Nonborrowed reserves 61.13 57.64 51.09 47.56 45.75 46.24 45.97 46.05 45.62 45.35 46.30 47.56 13 Nonborrowed reserves plus extended credit5 61.13 57.64 51.09 47.56 45.75 46.24 45.97 46.05 45.62 45.35 46.30 47.56 14 Required reserves 60.17 56.62 49.82 46.20 44.76 45.33 45.18 45.39 44.76 44.23 44.83 46.20 15 Monetary base1- 427.25 444.45 463.49 491.93 465.22 468.78 472.58 474.01 475.32 477.25 483.46 491.93 16 Excess reserves13 1.17 1.28 1.42 1.68 1.24 1.28 1.20 1.25 1.30 1.40 1.62 1.68 17 Borrowings from the Federal Reserve .21 .26 .16 .32 .24 .37 .41 .60 .44 .27 .15 .32 1. Latest monthly and biweekly figures are available from the Board's H.3 (502) weekly 8. To adjust required reserves for discontinuities that are due to regulatory changes in statistical release. Historical data starting in 1959 and estimates of the effect on required reserve requirements, a multiplicative procedure is used to estimate what required reserves reserves of changes in reserve requirements are available from the Money and Reserves would have been in past periods had current reserve requirements been in effect. Break- Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve adjusted required reserves include required reserves against transactions deposits and nonper- System, Washington, DC 20551. sonal time and savings deposits (but not reservable nondeposit liabilities). 2. Figures reflect adjustments for discontinuities, or "breaks," associated with regulatory 9. The break-adjusted monetary base equals (1) break-adjusted total reserves (line 6), plus changes in reserve requirements. (See also table 1.10.) (2) the (unadjusted) currency component of the money stock, plus (3) (for all quarterly 3. Seasonally adjusted, break-adjusted total reserves equal seasonally adjusted, break- reporters on the "Report of Transaction Accounts, Other Deposits and Vault Cash" and for all adjusted required reserves (line 4) plus excess reserves (line 16). those weekly reporters whose vault cash exceeds their required reserves) the break-adjusted 4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally adjusted, difference between current vault cash and the amount applied to satisfy current reserve break-adjusted total reserves (line 1) less total borrowings of depository institutions from the requirements. Federal Reserve (line 17). 10. Reflects actual reserve requirements, including those on nondeposit liabilities, with no 5. Extended credit consists of borrowing at the discount window under the terms and adjustments to eliminate the effects of discontinuities associated with regulatory changes in conditions established for the extended credit program to help depository institutions deal reserve requirements. with sustained liquidity pressures. Because there is not the same need to repay such 11. Reserve balances with Federal Reserve Banks plus vault cash used to satisfy reserve borrowing promptly as with traditional short-term adjustment credit, the money market effect requirements. of extended credit is similar to that of nonborrowed reserves. 12. The monetary base, not break-adjusted and not seasonally adjusted, consists of (1) total 6. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally reserves (line 11), plus (2) required clearing balances and adjustments to compensate for float adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency at Federal Reserve Banks, plus (3) the currency component of the money stock, plus (4) (for component of the money stock, plus (3) (for all quarterly reporters on the "Report of all quarterly reporters on the "Report of Transaction Accounts, Other Deposits and Vault Transaction Accounts, Other Deposits and Vault Cash" and for all those weekly reporters Cash" and for all those weekly reporters whose vault cash exceeds their required reserves) the whose vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference between current vault cash and the amount applied to satisfy current reserve difference between current vault cash and the amount applied to satisfy current reserve requirements. Since the introduction of contemporaneous reserve requirements in February requirements. 1984, currency and vault cash figures have been measured over the computation periods 7. Break-adjusted total reserves equal break-adjusted required reserves (line 9) plus excess ending on Mondays. reserves (line 16). 13. Unadjusted total reserves (line 11) less unadjusted required reserves (line 14). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A13 1.21 MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES1 Billions of dollars, averages of daily figures 1997 IItteemm D 19 e 9 c 4 . 1 D 9 e 9 c 5 . D 19 e 9 c 6 . D 19 e 9 c 7 . Sept.r Oct.r Nov. Dec. Seasonally adjusted Measures' 1 Ml 1,150.7 1,129.0 1,081.1 1,068.7 1,060.8 1,057.4 1,064.0 1,068.7 2 M2 3,502.1 3,655.0 3,821,8r 4,020.7 3,959.8 3.975.0 3,997.8r 4,020.7 3 M3 4,327.3 4,592.5 4,920.5r 5,334.4 5,204.9 5,237.1 5,285.0r 5,334.4 4 L 5,308.4 5,697.6 6,071.7r n.a. 6,421.3 6,444.8 6.507.4 n.a. 5 Debt 13,072.0 13,768.0 14,483.0 n.a. 14,946.3 15,006.9 15,063.3 n.a. Ml components 6 Currency3 354.4 372.6 395.2 426.0 415.4 418.0 421.9 442266..00 7 Travelers checks4 8.5 8.9 8.6 8.2 8.1 8.1 8.2 8.2 8 Demand deposits5 384.1 391.1 402.6 391.6 390.6 386.4 391.0 391.6 9 Other checkable deposits6 403.8 356.5 274.8 242.8 246.7 244.8 243.0 242.8 Nontransaction components 10 In M27 2,351.4 2,526.0 2,740.7r 2,952.0 2,899.1 2,917.6 2,933.8r 2,952.0 11 In M3 only8 825.3 937.5 1,098.7 1,313.7 1,245.1 1,262.1 l,287.2r 1,313.7 Commercial banks 12 Savings deposits, including MMDAs 752.4 776.0 903.9 1,019.3 982.2 995.3 1,005.2 1,019.3 13 Small time deposits^ 503.2 576.0 592.0 619.9 615.1 616.8 619.4r 619.9 14 Large time deposits10' " 298.4 344.7 412.3 492.6 477.5 479.9 487.5r 492.6 Thrift institutions 15 Savings deposits, including MMDAs 397.2 361.1 367.1 377.4 374.5 374.9 374.9 377.4 16 Small time deposits9 314.3 357.7 353.7 343.9 346.5 346.4 343.8r 343.9 17 Large time deposits10 64.7 75.1 79.2 86.6 85.6 85.4 85.9r 86.6 Mone\ market mutual funds 18 Retail 384.3 455.2 523.9r 591.5 580.8 584.2 590.4r 591.5 19 Institution-only 198.5 246.9 299.3 359.5 338.9 345.3 346.4 359.5 Repurchase agreements and Eurodollars 20 Repurchase agreements'" 182.9 182.1 194.1 235.9 205.7 217.6 233.5 235.9 21 Eurodollars'" 80.8 88.7 113.9 139.1 137.4 133.8 133.9r 139.1 Debt components 22 Federal debt 3,491.9 3,638.5 3,780.0 n.a. 3,788.0 3,789.6 3,790.4 n.a. 23 Nonfederal debt 9,580.1 10.129.5 10,703.0 n.a. 11,158.3 11,217.3 11,272.9 n.a. Not seasonally adjusted Measures2 24 Ml 1,174.4 1,152.8 1,103.1 1,089.9 1,057.7 1,054.6 1,068.9 1,089.9 25 M2 3,522.5 3,675.3 3,840.2r 4,038.1 3,952.2 3,964.5 4,000.0r 4,038.1 26 M3 4,347.4 4,612.0 4,937.5r 5,349.2 5,192.0 5,233.8 5,292.9r 5,349.2 27 L 5,338.8 5,729.5 6,100.6' n.a. 6,402.7 6,434.5 6,517.7 n.a. 28 Debt 13,073.9 13,768.6 14,482.4 n.a. 14,912.8 14,970.8 15,043.6 n.a. A11 components 29 Currency3 357.5 376.2 397.9 429.0 414.2 417.3 422.4 429.0 30 Travelers checks4 8.1 8.5 8.3 7.9 8.4 8.2 8.0 7.9 31 Demand deposits5 400.3 407.3 418.9 407.4 389.6 386.5 396. r 407.4 32 Other checkable deposits6 408.6 360.8 278.0 245.6 245.4 242.6 242.5 245.6 Nontransaction components 33 In M27 2,348.1 2,522.6 2,737. lr 2,948.2 2,894.5 2,909.9 2,931.0r 2,948.2 34 In M3 only8 824.9 936.6 1,097.3 1,311.1 1,239.9 1,269.3 l,292.9r 1,311.1 Commercial banks 35 Savings deposits, including MMDAs 751.7 775.3 902.9 1,017.9 983.2 994.7 1,007.1 1,017.9 36 Small time deposits9 501.5 573.8 589.8 617.7 614.3 616.0 617.9r 617.7 37 Large time depositsia " 298.9 345.7 413.7 494.6 476.6 485.6 493.5r 494.6 Thrift institutions 38 Savings deposits, including MMDAs 396.8 360.8 366.7 376.9 374.9 374.7 375.6 376.9 39 Small time deposits9 313.2 356.3 352.4 342.6 346.0 345.9 343.0r 342.6 40 Large time deposits10 64.8 75.4 79.5 87.0 85.5 86.4 86.9 87.0 Money market mutual funds 41 Retail 385.0 456.3 525.4r 593.1 576.1 578.5 587.5r 593.1 42 Institution-only 199.8 248.2 300.5 360.5 333.1 341.2 346.8 360.5 Repurchase agreements and Eurodollars 43 Repurchase agreements'" 179.6 178.0 188.8 228.9 208.2 221.0 232.0 228.9 44 Eurodollars'" 81.8 89.4 114.7 140.1 136.5 135.1 133.7r 140.1 Debt components 45 Federal debt 3,499.0 3,645.9 3,787.9 n.a. 3,780.4 3,774.4 3,792.1 n.a. 46 Nonfederal debt 9,575.0 10,122.7 10,694.5 n.a. 11,132.5 11,196.4 11,251.5 n.a. Footnotes appear on following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Nonfinancial Statistics • March 1998 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 Ml. 7. Sum of (1) savings deposits (including MMDAs). (2) small time deposits, and (3) retail M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more) money fund balances. issued by all depository institutions, (2) balances in institutional money funds (money funds 8. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities with minimum initial investments of $50,000 or more), (3) RP liabilities (overnight and term) (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and issued by all depository institutions, and (4) Eurodollars (overnight and term) held by U.S. term) of U.S. addressees. residents at foreign branches of U.S. banks worldwide and at all banking offices in the United 9. Small time deposits—including retail RPs—are those issued in amounts of less than Kingdom and Canada. Excludes amounts held by depository institutions, the U.S. govern- $100,000. All IRAs and Keogh accounts at commercial banks and thrift institutions are ment. money market funds, and foreign banks and official institutions. Seasonally adjusted subtracted from small time deposits. M3 is calculated by summing large time deposits, institutional money fund balances. RP 10. Large time deposits are those issued in amounts of $100,000 or more, excluding those liabilities, and Eurodollars, each seasonally adjusted separately, and adding this result to booked at international banking facilities. seasonally adjusted M2. 11. Large time deposits at commercial banks less those held by money market funds, L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury depository institutions, the U.S. government, and foreign banks and official institutions. securities, commercial paper, and bankers acceptances, net of money market fund holdings of 12. Includes both overnight and term. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A15 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1 A. All commercial banks Billions of dollars Monthly averages Wednesday figures Account 1996 1997r 1997 Dec. June July Aug. Sept. Oct. Nov. Dec. Dec. 10 Dec. 17 Dec. 24 Dec. 31 Seasonally adjusted Assets 1 Bank credit 3,770.3r 3,922.3 3,957.6 3,971.2 3,996.0 4,030.2 4,075.4 4,110.4 4,094.9 4,095.3 4,125.9 4,134.6 7 Securities in bank credit 989.8r 1,010.2 1,031.6 1,025.4 1,032.1 1,046.1 1,081.1 1,101.6 1,093.3 1,090.3 1,108.1 1,116.9 U.S. government securities 705.4 724.9 726.7 715.5 724.4 731.9 745.3 751.5 741.4 740.4 756.0 769.3 4 Other securities 284.5r 285.3 305.0 309.9 307.6 314.2 335.8 350.1 351.9 349.8 352.1 347.7 Loans and leases in bank credit2 . .. 2,780.4r 2,912.1 2,926.0 2,945.7 2,963.9 2,984.1 2,994.2 3,008.8 3,001.6 3,005.0 3,017.8 3,017.7 6 Commercial and industrial 782.2 813.8 817.0 825.6 837.6 844.3 847.2 857.0 851.0 855.8 860.2 863.0 7 Real estate 1,129.0 1,189.4 1,198.2 1,205.5 1,214.0 1,219.3 1,225.8 1,225.9 1,228.5 1,224.5 1,224.9 1,225.6 8 Revolving home equity 84.8 91.9 93.2 94.3 95.5 96.4 97.4 98.3 98.0 98.2 98.6 98.6 9 Other l,044.2r 1,097.5 1,105.1 1,111.2 1,118.5 1,122.9 1,128.4 1,127.6 1,130.5 1,126.3 1,126.2 1,127.1 in Consumer 521.0 517.7 517.6 518.8 515.2 509.2 509.7 509.7 511.7 510.0 508.8 506.9 n Security3 78.5 92.6 93.5 93.3 94.5 104.4 97.6 97.1 95.0 97.0 98.5 100.1 17 Other loans and leases 269.8r 298.6 299.7 302.6 302.6 306.9 314.0 319.2 315.3 317.7 325.4 322.1 n Interbank loans 203.5 190.3 184.6 191.5 199.6 202.0 207.5 215.9 227.5 216.1 215.4 204.2 14 Cash assets4 231.1 248.0 245.3 262.9 258.9 269.3 279.1 268.9 280.7 265.2 271.8 259.2 15 Other assets5 262.2 286.2 282.1 283.9 284.2 293.9 303.8 305.7 304.6 293.1 306.6 318.7 16 Total assets6 4,410.6r 4,590.1 4,612.8 4,652.6 4,682.0 4,738.7 4,808.8 4,844.0 4,850.7 4,812.8 4362.9 4,859.7 Liabilities 17 Deposits 2,858.6 2,969.0 3,005.2 3,029.8 3,045.8 3,060.1 3,105.1 3,115.9 3,111.5 3,107.7 3,138.3 3,108.5 18 Transaction 718.5r 693.6 690.1 697.2 683.0 682.3 692.3 687.5 682.3 675.0 708.4 692.2 19 Nontransaction 2,140.(7 2,275.4 2,315.0 2,332.6 2,362.8 2,377.8 2,412.8 2,428.3 2,429.3 2,432.7 2,429.9 2,416.2 70 Large time 520.1 577.1 597.5 603.1 618.4 617.0 636.2 646.2 646.1 650.9 648.1 639.0 71 Other 1,619.9 1,698.3 1,717.5 1,729.5 1,744.5 1,760.8 1,776.6 1,782.1 1,783.2 1,781.8 1,781.8 1,777.3 77. Borrowings 705.8 730.1 730.3 744.9 767.2 807.6 828.3 832.3 848.3 823.8 822.6 833.7 73 From banks in the U.S 305.2 270.2 266.1 277.8 285.4 294.9 306.1 313.6 328.7 312.2 307.6 304.6 74 From others 400.5 459.9 464.1 467.1 481.8 512.8 522.2 518.7 519.6 511.6 515.0 529.1 75 Net due to related foreign offices 231.1 229.6 216.6 210.5 212.0 193.0 193.7 203.3 197.2 197.9 204.8 218.3 26 Other liabilities 258.8r 266.4 278.0 281.7 269.0 285.3 295.6 308.3 304.1 307.6 308.0 314.7 27 Total liabilities 4,054.1r 4,195.1 4,230.0 4,266.8 4,294.0 4346.1 4,422.7 4,459.8 4/161.1 4,437.0 4,473.6 4,475.2 28 Residual (assets less liabilities)7 356.5 395.1 382.8 385.8 388.0 392.6 386.1 384.2 389.6 375.9 389.3 384.5 Not seasonally adjusted Assets 79 Bank credit 3,169.6' 3,926.2 3,953.5 3,972.3 3,997.5 4,031.6 4,078.9 4,105.2 4,081.7 4,092.6 4,114.6 4,137.9 30 Securities in bank credit 976.2r 1,016.8 1,029.1 1,030.6 1,032.3 1,046.0 1,079.6 1,083.4 1,078.1 1,073.8 1,082.4 1,095.9 31 U.S. government securities 701.3 724.9 722.7 718.2 725.6 732.5 745.8 746.2 741.5 739.8 746.0 755.0 37 Other securities 274.9r 292.0 306.3 312.4 306.7 313.4 333.8 337.2 336.6 334.0 336.4 340.9 33 Loans and leases in bank credit2 .. . 2,793.4r 2,909.3 2,924.5 2,941.8 2,965.2 2,985.7 2,999.2 3,021.8 3,003.5 3,018.7 3,032.3 3,042.0 34 Commercial and industrial 779.1 817.2 818.2 821.4 831.8 840.2 845.0 853.3 842.4 851.0 858.6 863.5 35 Real estate 1,133.9 1,187.7 1,198.3 1,207.2 1,217.3 1,222.7 1,230.2 1,231.2 1,235.2 1,230.5 1,229.1 1,230.4 36 Revolving home equity 84.9 91.9 93.2 94.6 96.2 97.0 97.9 98.4 98.2 98.4 98.6 98.6 37 Other 1,049.0 1,095.8 1,105.1 1,112.6 1,121.2 1,125.6 1,132.3 1,132.8 1,137.0 1,132.1 1,130.5 1,131.8 38 Consumer 525.8 514.9 515.2 519.2 517.4 509.3 510.1 514.5 512.9 514.3 515.8 515.3 39 Security3 79.7 92.2 92.0 91.4 93.6 104.2 99.6 98.5 97.1 1003 99.3 99.6 40 Other loans and leases 274.9r 297.3 300.7 302.6 305.1 309.3 314.4 324.3 316.0 322.8 329.4 333.2 41 Interbank loans 212.8 187.7 182.3 187.1 194.1 196.8 212.2 225.3 237.1 228.4 218.6 214.8 47 Cash assets4 247.5 244.7 241.7 249.3 255.6 270.2 287.3 287.5 272.5 285.3 280.6 314.2 43 Other assets5 262.1 286.4 284.3 287.3 286.7 290.8 302.1 305.8 301.5 292.1 303.2 325.9 44 Total assets6 4,435.3r 4,588-3 4,605.1 4,639.0 4,677.0 4,732.9 4,823.5 4,866.8 4,835.6 4,841.4 4,860.2 4,935.9 Liabilities 45 Deposits 2,890.7 2,964.2 2,996.5 3,019.7 3,046.0 3,067.7 3,123.0 3,146.1 3,125.2 3,138.9 3,146.1 3,176.1 46 Transaction 751.6r 687.9 683.8 684.7 681.5 680.2 701.8 719.1 686.5 707.0 725.9 768.0 47 Nontransaction 2,139.1r 2,276.3 2,312.7 2,335.0 2,364.5 2,387.5 2,421.2 2,427.0 2,438.7 2,431.9 2,420.2 2,408.2 48 Large time 518.8 576.9 593.2 602.2 613.7 624.4 640.7 644.4 648.6 648.9 645.6 632.6 49 Other l,620.3r 1,699.4 1,719.5 1,732.8 1,750.8 1,763.1 1,780.5 1,782.6 1,790.1 1,783.0 1,774.6 1,775.6 50 Borrowings 698.0 750.5 744.7 749.8 770.5 797.7 815.2 822.5 820.7 819.3 818.5 829.3 51 From banks in the U.S 299.9 283.9 274.9 282.6 286.7 287.1 299.3 307.4 314.2 307.8 301.5 304.3 57 From others 398.1 466.6 469.8 467.2 483.7 510.6 515.8 515.0 506.5 511.5 517.1 525.0 53 Net due to related foreign offices 229.8 219.9 212.9 206.2 204.3 193.6 188.3 199.8 186.6 188.1 204.4 229.3 54 Other liabilities 254.7r 268.7 276.3 280.7 269.5 283.9 299.9 303.3 304.4 300.6 298.3 307.5 55 Total liabilities 4,0733r 4,2033 4,230.4 4,2563 4,290.2 4343.0 4,4263 4,471.7 4,437.0 4,446.9 4,4673 4^423 56 Residual (assets less liabilities)7 362.1 385.0 374.6 382.6 386.8 389.9 397.2 395.1 398.7 394.5 392.9 393.6 MEMO 57 Revaluation gains on off-balance-sheet items8 69.4 76.0 84.2 86.1 78.3 77.7 83.1 81.9 85.0 78.4 80.5 83.4 58 Revaluation losses on off-balancesheet items8 64.4 79.9 87.5 89.2 81.3 81.0 85.2 85.5 88.7 83.0 84.3 85.8 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics • March 1998 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 1997 1997 Dec. June July Aug. Sept.r Oct.' Nov/ Dec. Dec. 10 Dec. 17 Dec. 24 Dec. 31 Seasonally adjusted Assets 1 Bank credit 3,264.8r 3,388.3r 3,421.4r 3,438.5r 3,458.6 3,486.1 3,522.7 3,549.9 3,542.2 3,540.3 3,562.1 3,562.9 2 Securities in bank credit 824.91 836.51 851.51 847.51 849.7 864.9 884.8 901.1 896.8 895.2 905.6 910.1 3 U.S. government securities 618.6 635.2r 636.4r 629.8r 636.7 645.5 659.2 667.2 662.8 662.6 669.5 676.2 4 Other securities 206.3r 201.3r 215.1 217.7r 213.0 219.4 225.6 233.8 233.9 232.6 236.2 233.9 5 Loans and leases in bank credit2 2,439.9r 2,551.8r 2,569.9r 2,591.0r 2,608.9 2,621.1 2,637.9 2,648.8 2,645.4 2,645.0 2,656.5 2,652.8 6 Commercial and industrial 569.2 595.6 598.9 605.9 615.5 620.7 624.6 632.9 629.2 630.9 635.4 638.2 7 Real estate 1,097.0 l,159.9r l,169.7r l,177.1r 1,186.1 1,191.6 1,198.8 1,199.3 1,201.7 1,197.6 1,198.6 1,199.5 8 Revolving home equity 84.8 91.9 93.2 94.3 95.5 96.4 97.4 98.3 98.0 98.2 98.6 98.6 y Other l,012.2r l,068.0r l,076.6r l,082.9r 1,090.7 1,095.2 1,101.4 1,101.0 1,103.8 1,099.4 1,100.0 1,100.9 10 Consumer 521.0 517.7 517.6 518.8 515.2 509.2 509.7 509.7 511.7 510.0 508.8 506.9 n Security3 42.3 47.8 50.0 51.0 51.5 57.8 56.4 52.6 50.9 51.9 55.8 51.9 12 Other loans and leases 210.4r 230.8r 233.7r 238.2r 240.6 241.9 248.4 254.3 251.7 254.6 257.9 256.4 13 Interbank loans 181.8 171.6 166.0 173.5 181.6 181.9 184.3 185.4 191.4 185.6 185.6 176.5 14 Cash assets4 200.0 212.9 211.7 228.5 223.4 234.5 242.9 234.2 246.5 230.8 237.4 223.5 15 Other assets5 225.9 245.6 239.6 241.4 242.1 252.7 259.2 264.4 260.0 253.3 266.7 278.2 16 Total assets6 3,816.2 3,962.2r 3,982.1r 4,025.2r 4,049.3 4,098.7 4,152.6 4,177.1 4,183.4 4,153.4 4,195.4 4,184.4 Liabilities 17 Deposits 2,639.0 2,715.6 2,740.6 2,766.4 2,780.3 2,799.2 2,833.0 2,837.9 2,831.7 2,827.7 2,860.3 2,835.6 18 Transaction 708.3r 683.0r 679.5r 686.0r 672.2 671.9 681.6 677.0 671.0 665.2 697.5 681.9 19 Nontransaction l,930.7r 2,032.6r 2,061.lr 2,080.4r 2,108.1 2,127.3 2,151.4 2,160.9 2,160.8 2,162.5 2,162.8 2,153.7 20 Large time 313.6 336.9 346.2 353.4 366.1 368.9 377.2 381.3 380.0 383.2 383.4 378.9 21 Other 1,617. lr l,695.7r l,714.9r l,727.0r 1,742.0 1,758.4 1,774.2 1,779.7 1,780.8 1,779.4 1,779.4 1,774.8 22 Borrowings 584.0 591.7 595.2 607.4 623.9 645.8 663.2 675.0 684.3 662.1 677.7 676.4 23 From banks in the U.S 272.3 239.8 235.9 246.6 249.5 257.2 275.6 285.9 296.0 284.1 283.6 278.8 24 From others 311.7 351.8 359.4 360.8 374.3 388.6 387.7 389.1 388.3 378.1 394.1 397.6 25 Net due to related foreign offices 69.0 81.1 85.6 79.8 84.7 74.4 74.3 77.4 77.4 80.7 66.0 88.1 26 Other liabilities 175.8 177.1 182.6 185.7 174.9 191.9 198.5 209.8 202.9 207.6 211.1 219.3 27 Total liabilities 3,467.9r 3,565.5 3,604.1 3,639.4 3,663.7 3,711.3 3,769.1 3,800.1 3,796.4 3,778.2 3,815.0 3,819.4 28 Residual (assets less liabilities)7 348.2r 396.7r 378.0r 385.8r 385.5 387.4 383.5 377.0 387.0 375.2 380.3 365.0 Not seasonally adjusted Assets 29 Bank credit 3,267.8r 3,391.8r 3,416.8r 3,435.8r 3,462.2 3,488.9 3,527.2 3,550.1 3,536.0 3,544.0 3,557.0 3,569.1 30 Securities in bank credit 817.4r 842.4r 849.9r 849. lr 851.6 864.9 884.0 890.8 888.5 886.7 890.4 897.8 31 U.S. government securities 616.9 636.4r 635.0r 630.9r 638.9 647.0 660.2 664.5 664.4 663.0 663.8 666.4 32 Other securities 200.5r 206.0r 214.9 218.2 212.7 217.9 223.8 226.4 224.1 223.7 226.6 231.3 33 Loans and leases in bank credit2 2,450.5r 2,549.3r 2,566.9r 2,586.7r 2,610.6 2,624.1 2,643.2 2,659.3 2,647.5 2,657.4 2,666.6 2,671.3 34 Commercial and industrial 565.7 598.3 599.0 601.5 611.1 617.9 622.6 628.8 621.8 626.5 632.0 637.0 35 Real estate 1,101.7 l,158.3r l,169.9r 1,178.8r 1,189.4 1,194.8 1,202.8 1,204.5 1,208.1 1,203.4 1,202.9 1,204.1 36 Revolving home equity 84.9 91.9 93.2 94.6 96.2 97.0 97.9 98.4 98.2 98.4 98.6 98.6 37 Other 1,016.8 1,066.4r l,076.7r l,084.2r 1,093.2 1,097.8 1,104.9 1,106.1 1,109.9 1,105.0 1,104.2 1,105.5 38 Consumer 525.8 514.9 515.2 519.2 517.4 509.3 510.1 514.5 512.9 514.3 515.8 515.3 39 Security3 43.6 47.4 48.5 49.1 50.6 57.6 58.4 54.1 53.0 55.1 56.6 51.4 40 Other loans and leases 213.7r 230.4r 234.2r 238.0r 242.1 244.5 249.3 257.4 251.7 258.1 259.3 263.6 41 Interbank loans 191.1 169.1 163.8 169.1 176.1 176.8 189.0 194.7 201.0 197.9 188.9 187.2 42 Cash assets4 215.3 208.8 207.9 215.0 220.9 235.1 250.7 251.5 237.6 249.9 244.2 276.5 43 Other assets5 225.0 245.9 242.5 243.9 244.3 249.9 257.3 263.5 254.4 251.0 263.5 285.7 44 Total assets6 3,842.8r 3,959.1r 3,974.5r 4,006.9r 4,046.8 4,094.4 4,167.7 4,203.0 4,172.1 4,186.1 4,197.0 4,261.8 Liabilities 45 Deposits 2,668.4 2,710.4 2,734.9 2,758.5 2,781.4 2,798.9 2,847.3 2,865.1 2,842.0 2,856.3 2,863.4 2,901.2 46 Transaction 740.7r 611.4' 673.2r 673.8r 670.3 669.7 691.1 707.9 675.0 696.5 714.2 756.4 47 Nontransaction l,927.7r 2,033.0r 2,061.7r 2,084.7r 2,111.2 2,129.2 2,156.2 2,157.2 2,167.0 2,159.7 2,149.2 2,144.8 48 Large time 310.2 336.2 344.8 354.4 362.8 368.5 378.1 377.1 379.3 379.2 377.1 371.6 49 Other l,617.5r l,696.8r l,716.9r l,730.3r 1,748.3 1,760.6 1,778.1 1,780.1 1,787.6 1,780.5 1,772.1 1,773.1 50 Borrowings 577.5 607.1 600.8 607.1 626.2 640.7 655.4 667.2 659.8 660.2 674.5 674.5 51 From banks in the U.S 266.4 251.9 242.9 250.9 251.8 252.7 268.9 279.2 281.7 278.4 278.1 277.2 52 From others 311.1 355.3 357.9 356.2 374.5 388.0 386.5 388.0 378.0 381.8 396.3 397.3 53 Net due to related foreign offices 66.2 79.6 83.2 77.4 80.1 76.0 70.6 73.6 74.0 76.1 65.0 82.7 54 Other liabilities 173.2 178.4 183.1 184.2 175.5 192.5 202.1 206.4 202.0 203.4 205.3 214.0 55 Total liabilities 3,485.3 3,575.6 3,602.0 3,627.3 3,663.3 3,708.1 3,775.3 3,812.2 3,777.8 3,796.0 3,808.1 3,872.3 56 Residual (assets less liabilities)7 357.5r 383.5r 372.5r 379.6r 383.4 386.2 392.3 390.8 394.3 390.1 388.9 389.5 MEMO 57 Revaluation gains on off-balance-sheet items8 36.0 38.5 44.3 45.1 37.5 38.2 41.5 41.3 42.3 38.8 40.8 42.8 58 Revaluation losses on off-balancesheet items8 31.8 40.2 45.9 46.5 40.0 41.3 43.6 44.2 45.0 42.8 43.9 44.7 59 Mortgage-backed securities9 241.5 250.6r 254.5r 256.2r 258.8 263.7 272.9 278.9 276.4 279.5 279.2 281.7 Footnotes appear on p. 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 C. Large domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures AAAccccccooouuunnnttt 1996 1997r 1997 Dec/ June July Aug. Sept. Oct. Nov. Dec. Dec. 10 Dec. 17 Dec. 24 Dec. 31 Seasonally adjusted Assets 1 Bank credit 1,942.2 2,008.9 Z027.3 2,029.9 2,041.2 2,066.6 2,087.5 2,103.5 2,098.7 2,094.8 2,114.0 2,113.2 ?. Securities in bank credit 432.2 432.8 445.0 440.2 443.0 458.8 476.2 490.3 487.5 486.4 493.9 496.5 3 U.S. government securities 305.4 314.1 313.0 305.2 312.1 321.6 334.9 341.7 338.3 338.7 343.4 348.2 4 Trading account 19.6 22.2 23.7 20.6 23.3 25.2 26.5 29.4 28.4 28.3 29.8 32.0 5 Investment account 285.8 291.9 289.4 284.6 288.8 296.5 308.4 312.3 310.0 310.4 313.6 316.2 6 Other securities 126.8 118.7 132.0 135.0 130.9 137.2 141.3 148.6 149.2 147.6 150.4 148.3 7 Trading account 60.7 51.8 64.2 63.7 59.6 65.4 68.8 72.2 73.9 71.5 73.6 69.9 8 Investment account 66.1 66.9 67.8 71.4 71.3 71.8 72.5 76.5 75.3 76.1 76.8 78.4 9 State and local government.. 20.5 21.9 22.3 22.4 22.2 22.2 22.0 21.8 21.8 21.8 21.8 22.0 10 Other 45.6 45.0 45.4 48.9 49.0 49.6 50.5 54.6 53.6 54.3 55.0 56.4 11 Loans and leases in bank credit2 . . . 1,510.0 1,576.2 1,582.3 1,589.6 1,598.2 1,607.8 1,611.3 1,613.2 1,611.2 1,608.4 1,620.1 1,616.7 12 Commercial and industrial 401.3 419.7 420.6 425.5 433.4 437.9 439.4 445.8 442.6 444.2 448.5 449.8 13 Bankers acceptances 2.1 1.6 1.6 1.5 1.5 1.3 1.2 1.3 1.3 1.3 1.3 1.3 14 Other 399.2 418.0 419.0 424.0 431.9 436.6 438.2 444.5 441.4 442.9 447.1 448.6 15 Real estate 619.7 642.1 641.6 642.1 643.6 643.8 644.5 641.5 644.4 639.8 640.0 641.3 16 Revolving home equity 60.1 64.3 65.0 65.6 66.6 67.2 67.6 68.3 68.1 68.3 68.5 68.4 17 Other 559.6 577.8 576.6 576.5 577.0 576.7 576.9 573.2 576.4 571.5 571.5 572.9 18 Consumer 301.7 305.3 306.0 303.8 301.6 298.3 295.9 293.3 295.5 292.3 292.4 292.0 19 Security3 37.8 43.3 45.4 46.3 46.6 52.5 51.3 47.3 45.5 46.6 50.4 46.6 20 Federal funds sold to and repurchase agreements with broker-dealers 21.9 26.4 28.6 30.0 29.7 35.4 35.0 31.1 30.0 29.5 33.8 30.4 21 Other 15.9 16.9 16.9 16.3 16.9 17.1 16.2 16.2 15.5 17.1 16.7 16.1 22 State and local government 11.9 11.2 11.1 11.2 11.3 11.2 11.0 11.1 11.1 11.1 11.1 11.1 23 Agricultural 9.0 9.1 9.0 9.0 9.1 9.3 9.5 9.6 9.6 9.6 9.6 9.6 24 Federal funds sold to and repurchase agreements with others 5.7 6.5 7.4 6.4 6.6 8.9 10.7 12.4 11.4 12.3 12.8 1144..44 25 All other loans 61.9 66.7 66.5 69.2 68.9 67.9 69.9 71.4 70.8 72.1 74.1 69.8 26 Lease-financing receivables 61.0 72.3 74.5 76.3 77.2 78.0 79.1 80.9 80.2 80.5 81.3 82.0 27 Interbank loans 135.7 122.4 116.1 122.0 128.5 125.0 127.5 124.8 131.0 125.7 123.8 116.4 28 Federal funds sold to and repurchase agreements with commercial banks 86.0 70.3 70.1 74.4 81.2 78.4 81.8 80.8 85.9 81.7 80.5 72.7 29 Other 49.7 52.0 46.0 47.6 47.3 46.6 45.7 44.0 45.1 44.1 43.3 43.7 30 Cash assets4 139.8 144.5 143.7 157.0 151.4 164.2 170.2 162.9 174.6 160.8 164.7 153.3 31 Other assets5 178.7 185.7 178.0 177.7 180.3 188.2 192.5 199.0 192.9 191.2 199.4 213.5 32 Total assets6 2,359.0 2,424.5 2,427.9 2,449.8 2,464.9 2,507.4 2,541.2 2,553.7 2^60.7 2,536.2 2365.6 2,559.7 Liabilities 33 Deposits 1,483.0 1,500.1 1,494.8 1,509.0 1,516.9 1,525.5 1,545.8 1,548.5 1,545.5 1,545.2 1,565.5 1,541.9 34 Transaction 412.8 385.1 379.2 383.4 371.9 372.8 379.0 377.4 375.8 370.2 392.8 377.8 35 Nontransaction 1,070.1 1,115.1 1,115.6 1,125.5 1,145.0 1,152.7 1,166.7 1,171.1 1,169.6 1,175.0 1,172.7 1,164.0 36 Large time 165.0 180.0 184.7 190.3 200.5 201.8 208.1 210.2 209.6 213.5 211.7 206.2 37 Other 905.1 935.0 930.9 935.3 944.5 950.9 958.6 960.9 960.1 961.6 961.0 957.9 38 Borrowings 431.6 441.3 440.3 449.4 467.1 491.1 506.4 514.4 522.8 500.8 517.7 517.3 39 From banks in the U.S 187.5 159.3 158.7 168.7 175.5 182.8 200.7 209.7 219.1 206.6 208.2 203.9 40 From others 244.1 282.0 281.6 280.7 291.6 308.3 305.7 304.7 303.7 294.2 309.5 313.4 41 Net due to related foreign offices 66.3 77.3 80.8 75.3 79.9 69.2 69.3 73.1 73.5 76.6 61.6 83.4 42 Other liabilities 151.9 150.7 156.7 158.5 146.7 163.9 169.9 180.7 173.6 178.4 182.3 190.3 43 Total liabilities 2,132.8 2,169.4 2,17Z6 2,192.2 2,210.6 2,249.7 2,291.4 236.7 23153 2,301.1 2,327.1 2,332.9 44 Residual (assets less liabilities)7 226.2 255.1 255.2 257.5 254.2 257.7 249.8 236.9 245.4 235.1 238.5 226.8 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Nonfinancial Statistics • March 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued C. Large domestically chartered commercial banks—Continued Monthly averages Wednesday figures AAAccccccooouuunnnttt 1996 1997r 1997 Dec.r June July Aug. Sept. Oct. Nov. Dec. Dec. 10 Dec. 17 Dec. 24 Dec. 31 Not seasonally adjusted Assets 45 Bank credit 1,942.5 2,011.4 2,022.2 2,027.4 2,040.8 2,066.7 2,090.3 2,100.8 2,091.1 2,095.9 2,104.2 2,115.3 46 Securities in bank credit 425.1 436.9 444.2 443.6 444.5 459.7 476.9 480.5 480.3 478.1 477.4 484.9 47 U.S. government securities 304.1 313.4 312.5 307.9 313.8 324.1 337.5 339.3 340.7 339.4 336.7 339.3 48 Trading account 18.3 20.8 22.6 21.3 23.4 26.1 28.0 27.0 28.4 27.4 24.8 26.2 49 Investment account 285.9 292.6 289.9 286.7 290.4 298.0 309.5 312.3 312.3 312.0 311.9 313.1 50 Mortgage-backed securities. 180.3 188.2 189.6 188.6 190.4 196.1 204.6 209.2 207.6 209.6 210.4 212.7 51 Other 103.7 102.4 98.3 96.1 98.0 100.0 102.9 101.1 104.7 102.4 101.5 100.4 52 One year or less 27.6 27.9 26.3 26.2 27.0 25.7 28.3 26.9 29.1 27.4 27.6 24.5 53 Between one and five years 62.4 55.3 51.3 48.9 48.7 51.6 52.4 52.2 53.5 53.1 51.4 53.2 54 More than five years .... 13.7 19.2 20.8 21.0 22.2 22.6 22.3 22.1 22.0 21.9 22.6 22.7 55 Other securities 121.0 123.5 131.7 135.7 130.7 135.7 139.4 141.2 139.6 138.7 140.7 145.5 56 Trading account 54.2 57.0 64.9 64.8 59.4 63.3 65.9 63.9 63.3 61.8 63.2 66.7 57 Investment account 66.8 66.5 66.9 70.9 71.3 72.3 73.5 77.2 76.3 76.9 77.5 78.9 58 State and local government . . 20.6 21.9 21.9 22.2 22.2 22.2 22.1 22.0 21.9 21.9 22.0 22.1 59 Other 46.1 44.6 44.9 48.7 49.1 50.2 51.4 55.3 54.4 55.0 55.5 56.8 60 Loans and leases in bank credit2 . . 1,517.4 1,574.6 1,577.9 1,583.8 1,596.4 1,607.0 1,613.4 1,620.3 1,610.8 1,617.9 1,626.8 1,630.5 61 Commercial and industrial 398.3 421.2 420.7 422.2 430.0 435.7 438.1 442.2 436.3 440.6 445.1 448.4 62 Bankers acceptances 2.1 1.6 1.5 1.5 1.5 1.4 1.4 1.3 1.3 1.3 1.3 1.3 63 Other 396.2 419.6 419.2 420.8 428.5 434.4 436.8 440.9 435.0 439.2 443.8 447.1 64 Real estate 622.5 640.7 641.4 642.6 644.6 644.7 646.2 644.6 648.7 643.5 642.2 643.7 65 Revolving home equity 60.2 64.3 65.0 65.8 66.9 67.5 68.0 68.3 68.2 68.3 68.4 68.5 66 Other 345.0 355.3 355.4 356.2 355.9 354.1 354.1 351.3 359.0 352.9 351.5 353.6 67 Commercial 212.3 215.9 215.8 215.4 216.6 217.9 219.0 219.8 221.5 222.3 222.2 221.6 68 Consumer 305.6 304.3 303.8 304.3 303.0 297.8 295.6 297.3 296.3 295.7 298.2 299.5 69 Security3 38.8 43.0 44.1 44.4 45.7 52.4 53.0 48.5 47.1 49.6 51.2 45.9 70 Federal funds sold to and repurchase agreements with broker-dealers 22.0 26.0 27.9 28.5 29.3 35.5 36.5 31.3 31.6 30.7 32.9 29.0 71 Other 16.9 17.0 16.2 15.9 16.5 16.9 16.5 17.2 15.5 18.9 18.3 16.9 72 State and local government 11.8 11.2 11.2 11.3 11.4 11.2 11.1 11.1 11.1 11.1 11.1 11.1 73 Agricultural 8.9 9.2 9.3 9.3 9.4 9.4 9.5 9.5 9.4 9.4 9.5 9.7 74 Federal funds sold to and repurchase agreements with others 5.1 6.7 7.6 6.2 7.3 8.8 8.7 10.9 10.3 11.2 10.6 12.8 75 All other loans 65.1 66.2 65.9 68.0 68.5 69.0 72.1 75.1 71.3 76.2 77.5 76.5 76 Lease-financing receivables .... 61.2 72.2 74.0 75.4 76.5 78.0 79.1 81.2 80.2 80.6 81.4 83.0 77 Interbank loans 142.0 122.7 116.4 118.6 124.7 119.6 127.2 130.8 131.7 134.4 127.8 126.9 78 Federal funds sold to and repurchase agreements with commercial banks 89.5 71.7 69.5 71.3 78.0 73.3 81.9 84.5 85.9 88.2 81.2 79.4 79 Other 52.4 51.0 47.0 47.3 46.7 46.4 45.3 46.3 45.9 46.2 46.6 47.4 80 Cash assets4 151.3 141.8 140.3 145.8 150.6 163.7 175.3 176.3 166.8 176.8 170.8 193.6 81 Other assets5 177.3 187.9 180.9 180.2 182.0 185.7 189.9 197.4 188.4 188.9 198.3 215.2 82 Total assets6 2,375.5 2,426.8 2,422.8 2,435.0 2,4613 2,4993 2^46.0 2,568.7 2,541.4 2^59.5 2^64.7 2,6145 Liabilities 83 Deposits 1,499.0 1,496.8 1,492.5 1,503.7 1,515.8 1,522.9 1,552.3 1,562.7 1,544.7 1,561.8 1,563.0 1,584.4 84 Transaction 434.0 381.1 375.1 374.4 370.7 370.2 385.2 397.8 374.2 392.3 403.5 430.4 85 Nontransaction 1,065.0 1,115.8 1,117.4 1,129.3 1,145.1 1,152.8 1,167.1 1,164.9 1,170.5 1,169.5 1,159.5 1,154.0 86 Large time 162.6 179.8 184.2 191.6 197.5 201.0 208.6 207.1 209.0 210.4 206.7 200.9 87 Other 902.4 935.9 933.2 937.7 947.6 951.7 958.5 957.9 961.5 959.1 952.8 953.1 88 Bonrowings 425.5 453.0 445.8 450.6 470.1 485.9 500.3 507.2 501.9 500.2 513.2 513.1 89 From banks in the U.S 182.2 168.3 164.2 173.0 177.1 178.9 195.8 203.7 207.7 202.4 202.6 200.5 90 From nonbanks in the U.S 243.4 284.8 281.6 277.6 293.0 307.0 304.5 303.5 294.3 297.8 310.7 312.6 91 Net due to related foreign offices .... 63.4 75.8 78.4 72.9 75.3 70.8 65.6 69.3 70.1 72.0 60.6 78.0 92 Other liabilities 149.7 152.6 157.0 156.9 147.6 164.6 173.6 177.8 172.9 174.7 177.1 185.8 93 Total liabilities 2,137.7 2,178.2 2,173.7 2,184.1 2^08.9 2,244.2 2^91.8 2,317.0 2^89.6 2308.7 2314.0 23613 94 Residual (assets less liabilities)7 237.7 248.6 249.1 250.9 252.4 255.0 254.2 251.7 251.7 250.7 250.7 253.1 MEMO 95 Revaluation gains on off-balancesheet items8 36.0 38.5 44.3 45.1 37.5 38.2 41.5 41.3 42.3 38.8 40.8 42.8 96 Revaluation losses on off-balancesheet items8 31.8 40.2 45.9 46.5 40.0 41.3 43.6 44.2 45.0 42.8 43.9 44.7 97 Mortgage-backed securities9 203.6 207.3 207.7 206.9 208.8 214.4 222.8 228.3 225.7 228.6 228.3 230.9 98 Pass-through securities 136.0 142.9 143.5 142.2 143.7 148.4 153.2 156.9 154.4 157.3 157.4 158.2 99 CMOs, REMICs, and other mortgage-backed securities .. . 67.6 64.5 64.3 64.7 65.0 66.0 69.6 71.4 71.2 71.4 70.9 72.6 100 Net unrealized gains (losses) on available-for-sale securities10 . . . 2.8 2.6 3.1 3.7 3.3 3.9 3.6 3.5 3.4 3.4 3.3 4.0 101 Offshore credit to U.S. residents" . . . 31.7 33.4 33.7 34.0 34.1 34.2 34.4 34.2 33.9 34.1 34.6 34.4 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ 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 1997r 1997 Dec.r June July Aug. Sept. Oct. Nov. Dec. Dec. 10 Dec. 17 Dec. 24 Dec. 31 Seasonally adjusted Assets 1 Bank credit 1,322.6 1,379.4 1,394.1 1,408.7 1,417.4 1,419.5 1,435.2 1,446.4 1,443.4 1,445.4 1,4482 1,449.7 7 Securities in bank credit 392.7 403.7 406.5 407.3 406.7 406.1 408.6 410.8 409.2 408.9 411.8 413.6 3 U.S. government securities 313.2 321.2 323.3 324.6 324.6 323.9 324.3 325.6 324.5 323.9 326.0 328.0 4 Other securities 79.5 82.6 83.1 82.7 82.1 82.3 84.3 85.2 84.7 85.0 85.7 85.6 5 Loans and leases in bank credit2 929.9 975.7 987.7 1,001.4 1,010.7 1,013.4 1,026.6 1,035.6 1,034.2 1,036.6 1,036.4 1,036.1 6 Commercial and industrial 167.9 176.0 178.3 180.5 182.1 182.8 185.2 187.1 186.6 186.7 187.0 188.4 7 Real estate 477.3 517.8 528.1 535.0 542.6 547.8 554.3 557.8 557.3 557.8 558.6 558.1 8 Revolving home equity 24.6 27.6 28.1 28.6 28.9 29.3 29.8 30.0 29.9 30.0 30.1 30.1 9 Other 452.6 490.2 500.0 506.4 513.7 518.5 524.5 527.8 527.4 527.9 528.5 528.0 10 Consumer 219.3 212.4 211.6 215.0 213.6 210.9 213.9 216.4 216.2 217.7 216.4 214.9 11 Security3 4.5 4.5 4.6 4.7 4.9 5.3 5.2 5.4 5.4 5.3 5.4 5.3 12 Other loans and leases 61.0 65.0 65.1 66.2 67.5 66.7 68.1 69.0 68.6 69.0 69.1 69.4 13 Interbank loans 46.1 49.3 49.9 51.4 53.1 56.9 56.8 60.5 60.4 59.9 61.8 60.1 14 Cash assets4 60.1 68.4 68.1 71.5 71.9 70.2 72.7 71.3 71.9 70.0 72.7 70.2 15 Other assets5 47.1 59.9 61.6 63.6 61.8 64.4 66.8 65.4 67.1 62.2 67.2 64.7 16 Total assets6 1,457.2 1337.7 1,554.2 13755 1384.4 1591.2 1,611.4 1,623.4 1,622.7 1,6173 1,629.8 1,624.7 Liabilities 17 Deposits 1,156.0 1,215.5 1,245.8 1,257.4 1,263.4 1,273.7 1,287.3 1,289.4 1,286.2 1,282.5 1,294.8 1,293.7 18 Transaction 295.5 298.0 300.3 302.6 300.3 299.1 302.6 299.6 295.1 295.0 304.7 304.0 19 Nontransaction 860.5 917.5 945.5 954.8 963.1 974.6 984.7 989.8 991.1 987.5 990.1 989.7 20 Large time 148.6 156.9 161.4 163.1 165.6 167.1 169.1 171.0 170.4 169.7 171.7 172.7 21 Other 712.0 760.7 784.1 791.7 797.5 807.5 815.6 818.8 820.7 817.8 818.4 817.0 22 Borrowings 152.4 150.4 155.0 158.1 156.8 154.7 156.8 160.6 161.6 161.3 160.1 159.1 23 From banks in the U.S 84.8 80.6 77.2 78.0 74.0 74.4 74.9 76.2 76.9 77.4 75.4 74.9 24 From others 67.6 69.9 77.8 80.1 82.8 80.3 82.0 84.4 84.6 83.9 84.6 84.2 25 Net due to related foreign offices 2.7 3.8 4.8 4.5 4.8 5.2 5.0 4.3 3.9 4.1 4.4 4.7 26 Other liabilities 23.9 26.4 25.9 27.2 28.2 28.0 28.6 29.1 29.3 29.2 28.8 29.1 27 Total liabilities 1,335.1 1396.1 1,4315 1,4472 1,453.1 1,461.6 1^477.7 1,483.4 1,481.0 1,477.1 1/488.0 1,4865 28 Residual (assets less liabilities)7 122.1 141.6 122.8 128.3 131.3 129.7 133.7 140.0 141.6 140.1 141.8 138.2 Not seasonally adjusted Assets 7,9 Bank credit 1,325.3 1,380.3 1,394.6 1,408.4 1,421.3 1,422.2 1,436.9 1,449.3 1,444.9 1,448.1 1,452.8 1,453.8 30 Securities in bank credit 392.2 405.5 405.7 405.5 407.1 405.2 407.1 410.4 408.2 408.6 413.0 412.9 31 U.S. government securities 312.8 323.1 322.5 323.0 325.1 322.9 322.7 325.2 323.7 323.6 327.1 327.1 32 Other securities 79.5 82.5 83.1 82.5 82.0 82.3 84.4 85.2 84.5 85.0 85.9 85.8 33 Loans and leases in bank credit2 933.1 974.8 988.9 1,002.9 1,014.2 1,017.1 1,029.8 1,039.0 1,036.7 1,039.5 1,039.8 1,040.9 34 Commercial and industrial 167.4 177.2 178.3 179.3 181.1 182.2 184.4 186.6 185.5 185.9 186.8 188.6 35 Real estate 479.2 517.6 528.5 536.2 544.8 550.1 556.6 560.0 559.4 559.9 560.7 560.5 36 Revolving home equity 24.7 27.6 28.2 28.7 29.2 29.5 29.9 30.1 30.1 30.1 30.2 30.1 37 Other 454.5 490.0 500.4 507.5 515.6 520.7 526.7 529.8 529.3 529.8 530.5 530.3 38 Consumer 220.2 210.6 211.4 214.9 214.4 211.5 214.5 217.2 216.6 218.5 217.6 215.8 39 Security3 4.7 4.4 4.4 4.7 4.8 5.2 5.4 5.6 5.9 5.5 5.4 5.5 40 Other loans and leases 61.6 64.9 66.2 67.8 69.1 68.1 68.8 69.6 69.4 69.6 69.2 70.5 41 Interbank loans 49.1 46.4 47.4 50.5 51.4 57.1 61.8 63.9 69.3 63.4 61.0 60.3 42 Cash assets4 64.0 67.0 67.6 69.1 70.3 71.4 75.5 75.1 70.8 73.1 73.5 82.9 43 Other assets5 47.7 58.0 61.6 63.7 62.3 64.1 67.4 66.1 65.9 62.2 65.2 70.5 44 Total assets6 1,4673 13323 1351.7 1371.9 13855 1395.1 1,621.6 1,6343 1,630.7 1,626.6 1,6323 1,6473 Liabilities 45 Deposits 1,169.4 1,213.6 1,242.4 1,254.8 1,265.6 1,276.0 1,295.0 1,302.4 1,297.3 1,294.5 1,300.3 1,316.7 46 Transaction 306.6 296.3 298.1 299.4 299.6 299.6 305.9 310.1 300.9 304.3 310.6 326.0 47 Nontransaction 862.8 917.3 944.3 955.4 966.1 976.4 989.1 992.3 996.4 990.2 989.7 990.7 48 Large time 147.6 156.3 160.6 162.8 165.3 167.5 169.5 170.0 170.3 168.9 170.4 170.7 49 Other 715.1 760.9 783.7 792.6 800.8 808.9 819.5 822.2 826.1 821.4 819.3 820.0 50 Borrowings 151.9 154.1 155.0 156.6 156.1 154.8 155.1 160.0 157.8 159.9 161.2 161.4 51 From banks in the U.S 84.2 83.6 78.7 77.9 74.6 73.7 73.0 75.5 74.0 76.0 75.6 76.7 52. From others 67.7 70.5 76.2 78.7 81.5 81.0 82.0 84.5 83.8 83.9 85.7 84.7 53 Net due to related foreign offices 2.7 3.8 4.8 4.5 4.8 5.2 5.0 4.3 3.9 4.1 4.4 4.7 54 Other liabilities 23.5 25.9 26.1 27.3 27.9 28.0 28.5 28.6 29.1 28.7 28.2 28.1 55 Total liabilities 13475 1397.4 1,4283 1,443.2 1,454.4 1/163.9 1/1835 1,495.2 1,488.1 1/1873 1/194.1 1311.0 56 Residual (assets less liabilities)7 119.8 134.9 123.4 128.7 131.0 131.2 138.1 139.1 142.6 139.3 138.2 136.3 MEMO 57 Mortgage-backed securities9 38.0 43.2 46.8 49.2 50.1 49.3 50.1 50.6 50.8 50.9 50.9 50.8 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Financial Statistics • March 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued E. Foreign-related institutions Billions of dollars Monthly averages Wednesday figures Account 1996 1997 1997 Dec. June July Aug. Sept. Oct. Nov. Dec. Dec. 10 Dec. 17 Dec. 24 Dec. 31 Seasonally adjusted Assets 1 Bank credit 505.5r 533.9"" 536.2r 532.6r 537.5r 544.1" 552.6" 560.5 552.7 555.0 563.7 571.7 2 Securities in bank credit 164.9" 173.7r 180.2r 177.9" 182.4" 181.2" 196.3" 200.5 196.5 195.0 202.5 206.8 3 U.S. government securities 86.7 89.7 90.3 85.8 87.8 86.4 86.1 84.3 78.5 77.8 86.5 93.1 4 Other securities 78.2r 84.0" 89.9" 92.1r 94.6" 94.8" 110.2" 116.2 118.0 117.2 115.9 113.8 5 Loans and leases in bank credit2 .. . 340.6 360.3 356.1 354.7 355.0 362.9 356.3 360.0 356.2 360.0 361.3 364.9 6 Commercial and industrial 213.0 218.1 218.0 219.7 222.2 223.6 222.6 224.1 221.7 224.9 224.8 224.8 7 Real estate 32.0 29.5 28.5 28.3 27.9 27.7 27.0 26.5 26.8 26.9 26.3 26.2 8 Security3 36.2 44.8 43.5 42.2 43.0 46.6 41.1 44.4 44.1 45.2 42.7 48.2 9 Other loans and leases 59.3 67.8 66.0 64.4 62.0 65.0 65.6 64.9 63.6 63.0 67.5 65.7 10 Interbank loans 21.7 18.6 18.5 18.0 18.0 20.0 23.1 30.6 36.0 30.5 29.7 27.7 11 Cash assets4 31.1 35.1 33.6 34.4 35.5 34.8 36.2 34.7 34.2 34.4 34.4 35.6 12 Other assets5 36.4 40.6 42.5 42.6 42.0 41.3 44.5 41.4 44.6 39.7 39.9 40.5 13 Total assets6 594.5r 628.0" 630.6r 627.4" 6318" 640.0" 656.2" 666.9 667.4 659.4 667.5 6753 Liabilities 14 Deposits 219.6 253.3 264.6 263.4 265.6 260.9 272.1 278.0 279.8 280.0 278.0 272.9 15 Transaction 10.2 10.6 10.6 11.2 10.8 10.4 10.7 10.5 11.3 9.8 11.0 10.4 16 Nontransaction 209.3 242.8 253.9 252.2 254.8 250.5 261.4 267.4 268.5 270.2 267.0 262.5 17 Large time 206.5 240.2 251.4 249.7 252.3 248.1 259.0 265.0 266.1 267.8 264.6 260.1 18 Other 2.8 2.5 2.6 2.5 2.5 2.4 2.4 2.4 2.4 2.4 2.4 2.4 19 Borrowings 121.7 138.4 135.0 137.4 143.3 161.8 165.1 157.3 164.0 161.6 144.8 157.3 20 From banks in the U.S 32.9 30.4 30.3 31.2 35.9 37.7 30.5 27.7 32.7 28.1 24.0 25.8 21 From others 88.8 108.1 104.7 106.3 107.4 124.2 134.5 129.6 131.3 133.5 120.8 131.6 22 Net due to related foreign offices 162.0 148.5 130.9 130.6 127.3 118.6 119.4 125.9 119.7 117.1 138.8 130.2 23 Other liabilities 82.9r 89.3r 95.3r 96.0" 94.1" 93.4" 97.1" 98.5 101.2 100.0 96.9 95.4 24 Total liabilities 586.21" 629.6r 625.9" 627.4" 630.3" 634.8" 653.6" 659.7 664.7 658.7 6585 655.8 25 Residual (assets less liabilities)7 8.2 -1.6 4.8 0.0 2.5 5.2 2.6 7.2 2.6 0.7 9.0 19.5 Not seasonally adjusted Assets 26 Bank credit 501.7" 534.4r 536.8r 536.5r 535.4" 542.7" 551.7" 555.1 545.7 548.6 557.6 568.8 27 Securities in bank credit 158.8r 174.4r 179.1r 181.5" 180.7" 181.lr 195.6" 192.6 189.6 187.2 191.9 198.1 28 U.S. government securities 84.4 88.4 87.7 87.3 86.7 85.6 85.7 81.7 77.1 76.8 82.2 88.6 29 Trading account 19.1 17.8 17.0 18.3 17.2 15.1 17.6 15.9 11.4 12.5 17.5 21.1 30 Investment account 65.3 70.6 70.7 68.9 69.5 70.5 68.1 65.7 65.7 64.4 64.6 67.5 31 Other securities 74.4r 86.(7 91.4r 94.2r 94.0" 95.5" 110.0" 110.9 112.5 110.3 109.8 109.5 32 Trading account 50.7 57.3 59.9 61.0 61.0 62.3 69.4 69.9 71.4 68.5 69.5 70.7 33 Investment account 23.3 28.2 31.1 32.8 32.6 32.8 40.1 40.6 41.1 41.8 40.3 38.9 34 Loans and leases in bank credit2 . . . 342.9 360.0 357.6 355.1 354.6 361.6 356.1 362.6 356.1 361.4 365.7 370.6 35 Commercial and industrial 213.4 218.9 219.2 219.9 220.7 222.2 222.4 224.5 220.6 224.5 226.7 226.5 36 Real estate 32.2 29.3 28.4 28.4 28.0 27.9 27.4 26.7 27.1 27.0 26.3 26.3 37 Security3 36.2 44.8 43.5 42.2 43.0 46.6 41.1 44.4 44.1 45.2 42.7 48.2 38 Other loans and leases 61.2 67.0 66.5 64.6 63.0 64.9 65.1 66.9 64.2 64.7 70.1 69.7 39 Interbank loans 21.7 18.6 18.5 18.0 18.0 20.0 23.1 30.6 36.0 30.5 29.7 27.7 40 Cash assets4 32.2 35.9 33.8 34.3 34.7 35.2 36.5 36.0 34.9 35.5 36.3 37.7 41 Other assets5 37.1 40.5 41.7 43.4 42.4 40.9 44.8 42.3 47.2 41.1 39.8 40.3 42 Total assets6 5925" 629.1r 630.6" 632.1" 630J" 638.6" 655.9" 663.8 663.5 655.4 6633 674.1 Liabilities 43 Deposits 222.3 253.8 261.6 261.2 264.6 268.8 275.7 281.0 283.2 282.6 282.7 275.0 44 Transaction 10.9 10.5 10.6 10.9 11.2 10.5 10.7 11.2 11.5 10.5 11.7 11.6 45 Nontransaction 211.4 243.3 251.0 250.3 253.3 258.3 265.0 269.8 271.7 272.1 271.0 263.4 46 Large time 208.5 240.7 248.5 247.8 250.9 255.9 262.6 267.3 269.3 269.7 268.6 260.9 47 Other 2.8 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.4 2.4 2.4 2.5 48 Borrowings 120.6 143.3 143.9 142.6 144.2 157.1 159.8 155.2 160.9 159.1 144.1 154.8 49 From banks in the U.S 33.5 32.0 31.9 31.7 34.9 34.5 30.5 28.2 32.4 29.4 23.3 27.1 50 From others 87.0 111.3 112.0 110.9 109.3 122.6 129.3 127.0 128.5 129.7 120.7 127.7 51 Net due to related foreign offices 163.6 140.3 129.7 128.7 124.1 117.6 117.6 126.3 112.6 112.0 139.5 146.7 52 Other liabilities 81.6r 90.3r 93.2r 96.4r 94.0" 91.4" 97.9" 97.0 102.4 97.2 92.9 93.5 53 Total liabilities 588.0" 627.7r 628.4" 629.0" 626.9" 634.9" 651.0" 659.5 659.2 650.9 6592 670.0 54 Residual (assets less liabilities)7 4.5 1.5 2.2 3.0 3.4 3.7 4.9 4.3 4.3 4.4 4.0 4.1 MEMO 55 Revaluation gains on off-balance-sheet items8 33.4 37.6 39.9 41.1 40.8 39.5 41.6 40.6 42.6 39.6 39.7 40.5 56 Revaluation losses on off-balancesheet items8 32.6 39.7 41.7 42.6 41.4 39.8 41.6 41.3 43.6 40.2 40.4 41.1 Footnotes appear on p. 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 group that contained the acquired bank and put into past data for the group containing the statistical release, "Assets and Liabilities of Commercial Banks in the United States." Table acquiring bank. Balance sheet data for acquired banks are obtained from Call Reports, and a 1.27, "Assets and Liabilities of Large Weekly Reporting Commercial Banks," and table 1.28, ratio procedure is used to adjust past levels. "Large Weekly Reporting U.S. Branches and Agencies of Foreign Banks," are no longer 2. Excludes federal funds sold to, reverse RPs with, and loans made to commercial banks being published in the Bulletin. Instead, abbreviated balance sheets for both large and small in the United States, all of which are included in "Interbank loans." domestically chartered banks have been included in table 1.26, parts C and D. Data are both 3. Consists of reverse RPs with brokers and dealers and loans to purchase and carry merger-adjusted and break-adjusted. In addition, data from large weekly reporting U.S. securities. branches and agencies of foreign banks have been replaced by balance sheet estimates of all 4. Includes vault cash, cash items in process of collection, balances due from depository foreign-related institutions and are included in table 1.26, part E. These data are break- institutions, and balances due from Federal Reserve Banks. adjusted. 5. Excludes the due-from position with related foreign offices, which is included in "Net The not-seasonally-adjusted data for all tables now contain additional balance sheet items, due to related foreign offices." which were available as of October 2, 1996. 6. Excludes unearned income, reserves for losses on loans and leases, and reserves for 1. Covers the following types of institutions in the fifty states and the District of transfer risk. Loans are reported gross of these items. Columbia: domestically chartered commercial banks that submit a weekly report of condition 7. This balancing item is not intended as a measure of equity capital for use in capital (large domestic); other domestically chartered commercial banks (small domestic); branches adequacy analysis. On a seasonally adjusted basis this item reflects any differences in the and agencies of foreign banks, and Edge Act and agreement corporations (foreign-related seasonal patterns estimated for total assets and total liabilities. institutions). Excludes International Banking Facilities. Data are Wednesday values or pro 8. Fair value of derivative contracts (interest rate, foreign exchange rate, other commodity and rata averages of Wednesday values. Large domestic banks constitute a universe; data for equity contracts) in a gain/loss position, as determined under FASB Interpretation No. 39. small domestic banks and foreign-related institutions are estimates based on weekly samples 9. Includes mortgage-backed securities issued by U.S. government agencies, U.S. and on quarter-end condition reports. Data are adjusted for breaks caused by reclassifications government-sponsored enterprises, and private entities. of assets and liabilities. 10. Difference between fair value and historical cost for securities classified as available- The data for large and small domestic banks presented on pp. A17-19 are adjusted to for-sale under FASB Statement No. 115. Data are reported net of tax effects. Data shown are remove the estimated elfects of mergers between these two groups. The adjustment for restated to include an estimate of these tax effects. mergers changes past levels to make them comparable with current levels. Estimated 11. Mainly commercial and industrial loans but also includes an unknown amount of credit quantities of balance sheet items acquired in mergers are removed from past data for the bank extended to other than nonfinancial businesses. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic Nonfinancial Statistics • March 1998 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December 1997 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 . June July Aug. Sept. Oct. Nov. Commercial paper (seasonally adjusted unless noted otherwise) 1 All issuers 545,619 555,075 595,382 674,904 775,371 864,758 889,494 885,601 908,640 921,769 940,524 Financial companies' 2 Dealer-placed paper2, total . 226,456 218,947 223,038 275,815 361,147 414,475 440,262 437,340 475,792 483,489 483,475 3 Directly placed paper3, total 171,605 180,389 207,701 210,829 229,662 256,165 253,971 253,934 235,030 237,544 249,781 4 Nonfinancial companies4 147,558 155,739 164,643 188,260 184,563 194,119 195,260 194,327 197,818 200,736 207,268 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 11,,771144 1,321 Federal Reserve Banks6 9 Foreign correspondents 1,276 725 410 n.a. n.a. 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 Rate Period Av r e a r t a e g e Period Av r e a r t a e g e Period Av r e a r t a e g e 1995—Jan. 1 8.50 1995 8.83 1996—Jan 8.50 11999977-- 8.25 Feb. 1 9.00 1996 8.27 Feb 8.25 Feb 8.25 July 7 8.75 1997 8.44 Mar. 8.25 Mar 8.30 Dec. 20 8.50 Apr 8.25 Apr 8.50 1995--Jan 8.50 May 8.25 May 8.50 1996—Feb. 1 8.25 Feb 9.00 June 8.25 June 8.50 1997—Mar. 26 8.50 Mar 9.00 July 8.25 July 8.50 Apr. 9.00 Aug 8.25 Aug 8.50 Mav 9.00 Sept 8.25 Sept 8.50 June 9.00 Oct 8.25 Oct 8.50 Julv 8.80 Nov 8.25 Nov. 8.50 Aug 8.75 Dec 8.25 Dec 8.50 Sept 8.75 Oct 8.75 1998-—Jan 8.50 Nov 8.75 Dec 8.65 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 1997 1997, week ending IItteemm 11999955 11999966 11999977 Sept. Oct. Nov. Dec. Nov. 28 Dec. 5 Dec. 12 Dec. 19 Dec. 26 MONEY MARKET INSTRUMENTS 1 Federal funds''2'3 5.83 5.30 5.46 5.54 5.50 5.52 5.50 5.49 5.58 5.40 5.66 5.44 2 Discount window borrowing2'4 5.21 5.02 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Commercial paper3'4'5,6 Nonfinancial 3 1-month n.a. n.a. 5.57 5.49 5.49 5.53 5.78 5.56 5.68 5.74 5.82 5.90 4 2-month n.a. n.a. 5.57 5.48 5.48 5.59 5.71 5.64 5.67 5.71 5.72 5.75 5 3-month n.a. n.a. 5.56 5.48 5.51 5.60 5.67 5.64 5.67 5.69 5.66 5.67 Financial 6 1-month n.a. n.a. 5.59 5.51 5.50 5.55 5.80 5.55 5.74 5.79 5.83 5.90 7 2-month n.a. n.a. 5.59 5.51 5.50 5.65 5.72 5.70 5.72 5.72 5.73 5.76 8 3-month n.a. n.a. 5.60 5.51 5.55 5.64 5.70 5.66 5.71 5.72 5.71 5.72 Commercial paper (historical)3,5'6,7 9 1-month 5.93 5.43 5.54 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10 3-month 5.93 5.41 5.58 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 11 6-month 5.93 5.42 5.62 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Finance paper, directly placed (historical)3,5,1,8 12 1-month 5.81 5.31 5.44 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 13 3-month 5.78 5.29 5.48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 14 6-month 5.68 5.21 5.48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Bankers acceptances3,5,9 IS 3-month 5.81 5.31 5.54 5.54 5.57 5.66 5.75 5.72 5.77 5.78 5.77 55..7766 16 6-month 5.80 5.31 5.57 5.58 5.56 5.63 5.68 5.68 5.71 5.69 5.67 5.69 Certificates of deposit, secondary market3,10 17 1-month 5.87 5.35 5.54 5.56 5.55 5.61 5.88 5.64 5.90 5.88 5.88 5.92 18 3-month 5.92 5.39 5.62 5.60 5.65 5.74 5.80 5.78 5.81 5.81 5.80 5.82 19 6-month 5.98 5.47 5.73 5.71 5.72 5.78 5.82 5.81 5.83 5.85 5.80 5.82 20 Eurodollar deposits, 3-month3 " 5.93 5.38 5.61 5.59 5.63 5.71 5.79 5.76 5.80 5.81 5.79 5.78 U.S. Treasury bills Secondary market3'5 21 3-month 5.49 5.01 5.06 4.95 4.97 5.14 5.16 5.13 5.13 5.10 5.12 5.27 22 6-month 5.56 5.08 5.18 5.09 5.09 5.17 5.24 5.22 5.22 5.23 5.21 5.28 23 1-year 5.60 5.22 5.32 5.23 5.17 5.17 5.24 5.21 5.25 5.23 5.20 5.26 Auction average ' • 24 3-month 5.51 5.02 5.07 4.97 4.95 5.15 5.16 5.15 5.11 5.15 5.07 5.30 25 6-month 5.59 5.09 5.18 5.11 5.09 5.17 5.24 5.20 5.20 5.27 5.18 5.32 26 1-year 5.69 5.23 5.36 5.30 5.20 5.14 5.18 n.a. n.a. 5.18 n.a. n.a. U.S. TREASURY NOTES AND BONDS Constant maturities13 27 1-year 5.94 5.52 5.63 5.52 5.46 5.46 5.53 5.50 5.54 5.53 5.49 5.55 28 2-year 6.15 5.84 5.99 5.88 5.77 5.71 5.72 5.73 5.76 5.74 5.68 5.69 29 3-year 6.25 5.99 6.10 5.98 5.84 5.76 5.74 5.77 5.79 5.78 5.69 5.71 30 5-year 6.38 6.18 6.22 6.11 5.93 5.80 5.77 5.82 5.82 5.83 5.74 5.72 31 7-year 6.50 6.34 6.33 6.20 6.05 5.90 5.83 5.88 5.88 5.89 5.79 5.75 32 10-year 6.57 6.44 6.35 6.21 6.03 5.88 5.81 5.86 5.86 5.87 5.77 5.74 33 20-year 6.95 6.83 6.69 6.56 6.38 6.20 6.07 6.15 6.12 6.15 6.04 5.99 34 30-year 6.88 6.71 6.61 6.50 6.33 6.11 5.99 6.06 6.04 6.07 5.96 5.90 Composite 35 More than 10 years (long-term) 6.93 6.80 6.67 6.54 6.37 6.18 6.06 6.14 6.11 6.13 6.03 5.98 STATE AND LOCAL NOTES AND BONDS Moody's series'4 36 5.80 5.52 5.32 5.19 5.19 5.19 5.03 5.19 5.09 5.07 4.98 4.98 37 Baa 6.10 5.79 5.50 5.33 5.32 5.32 5.17 5.33 5.22 5.20 5.12 5.12 38 Bond Buyer series 5.95 5.76 5.52 5.39 5.38 5.33 5.19 5.29 5.25 5.21 5.17 5.14 CORPORATE BONDS 39 Seasoned issues, all industries'6 7.83 7.66 7.54 7.40 7.26 7.13 7.03 7.09 7.07 7.10 7.01 6.96 Rating group 40 7.59 7.37 7.27 7.15 7.00 6.87 6.76 6.83 6.81 6.84 6.74 6.69 41 Aa 7.72 7.55 7.48 7.34 7.20 7.07r 6.99 7.04 7.03 7.05 6.95 6.93 42 A 7.83 7.69 7.54 7.39 7.27 7.15 7.05 7.11 7.10 7.12 7.03 6.99 43 Baa 8.20 8.05 7.87 7.70 7.57 7.42 7.32 7.38 7.36 7.39 7.30 7.26 44 A-rated, recently offered utility bonds 7.86 7.77 7.71 7.58 7.44 7.24 7.10 7.20 7.23 7.07 7.05 7.05 MEMO Dividend-price ratio18 45 Common stocks 2.56 2.19 n.a. 1.65 1.61 1.65 1.62 1.63 1.59 1.60 1.61 1.67 1. The daily effective federal funds rate is a weighted average of rates on trades through 13. 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 14. General obligation bonds based on Thursday figures; Moody's Investors Service. current week; monthly figures include each calendar day in the month. 15. State and local government general obligation bonds maturing in twenty years are used 3. Annualized using a 360-day year for bank interest. in compiling this index. The twenty-bond index has a rating roughly equivalent to Moodys' 4. Rate for the Federal Reserve Bank of New York. A1 rating. Based on Thursday figures. 5. Quoted on a discount basis. 16. 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. 17. Compilation of the Federal Reserve. This series is an estimate of the yield on recently 7. Series ended August 29, 1997. offered, A-rated utility bonds with a thirty-year maturity and five years of call protection. 8. An average of offering rates on paper directly placed by finance companies. Weekly data are based on Friday quotations. 9. Representative closing yields for acceptances of the highest-rated money center banks. 18. Standard & Poor's corporate series. Common stock ratio is based on the 500 stocks in 10. An average of dealer offering rates on nationally traded certificates of deposit. the price index. 11. Bid rates for Eurodollar deposits at approximately 11:00 a.m. London time. Data are NOTE. Some of the data in this table also appear in the Board's H.15 (519) weekly and for indication purposes only. G.13 (415) monthly statistical releases. For ordering address, see inside front cover. 12. Auction date for daily data; weekly and monthly averages computed on an issue-date Digitized forb aFsiRs. ASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A24 Domestic Nonfinancial Statistics • March 1998 1.36 STOCK MARKET Selected Statistics 1997 IInnddiiccaattoorr 11999955 11999966 11999977 Apr. May June July Aug. Sept. Oct. Nov. Dec. Prices and trading volume (averages of daily figures)1 CCCCCCCooooooommmmmmmmmmmmmmooooooonnnnnnn ssssssstttttttoooooooccccccckkkkkkk ppppppprrrrrrriiiiiiiccccccceeeeeeesssssss (((((((iiiiiiinnnnnnndddddddeeeeeeexxxxxxxeeeeeeesssssss))))))) 1111111 NNNNNNNeeeeeeewwwwwww YYYYYYYooooooorrrrrrrkkkkkkk SSSSSSStttttttoooooooccccccckkkkkkk EEEEEEExxxxxxxccccccchhhhhhhaaaaaaannnnnnngggggggeeeeeee (((((((DDDDDDDeeeeeeeccccccc....... 33333331111111,,,,,,, 1111111999999966666665555555 ======= 55555550000000))))))) 291.18 357.98 456.99 401.00 433.36 457.07 480.94 482.39 489.74 499.25 492.14 504.66 2222222 IIIIIIInnnnnnnddddddduuuuuuussssssstttttttrrrrrrriiiiiiiaaaaaaalllllll 367.40 453.57 574.97 506.69 549.65 578.57 610.42 609.54 617.94 625.22 615.65 623.57 3333333 TTTTTTTrrrrrrraaaaaaannnnnnnssssssspppppppooooooorrrrrrrtttttttaaaaaaatttttttiiiiiiiooooooonnnnnnn 270.14 327.30 415.08 366.67 395.50 410.93 433.75 439.71 451.63 466.04 453.56 461.04 4444444 UUUUUUUtttttttiiiiiiillllllliiiiiiitttttttyyyyyyy 110.64 126.36 143.87 126.66 140.52 140.24 144.25 143.82 145.96 157.83 153.53 165.74 5555555 FFFFFFFiiiiiiinnnnnnnaaaaaaannnnnnnccccccceeeeeee 238.48 303.94 424.84 364.25 392.32 419.12 441.59 446.93 459.86 476.70 465.35 490.30 6666666 SSSSSSStttttttaaaaaaannnnnnndddddddaaaaaaarrrrrrrddddddd &&&&&&& PPPPPPPoooooooooooooorrrrrrr'''''''sssssss CCCCCCCooooooorrrrrrrpppppppooooooorrrrrrraaaaaaatttttttiiiiiiiooooooonnnnnnn (((((((1111111999999944444441111111-------44444443333333 ======= 11111110000000)))))))2222222 541.72 670.49 873.43 763.93 833.09 876.29 925.29 927.74 937.02 951.16 938.92 962.37 7777777 AAAAAAAmmmmmmmeeeeeeerrrrrrriiiiiiicccccccaaaaaaannnnnnn SSSSSSStttttttoooooooccccccckkkkkkk EEEEEEExxxxxxxccccccchhhhhhhaaaaaaannnnnnngggggggeeeeeee (((((((AAAAAAAuuuuuuuggggggg....... 33333331111111,,,,,,, 1111111999999977777773333333 ======= 55555550000000)))))))3333333 498.13 570.86 628.34 554.13 584.06 619.94 635.28 645.59 678.05 702.43 674.37 667.89 VVVVVVVooooooollllllluuuuuuummmmmmmeeeeeee ooooooofffffff tttttttrrrrrrraaaaaaadddddddiiiiiiinnnnnnnggggggg (((((((ttttttthhhhhhhooooooouuuuuuusssssssaaaaaaannnnnnndddddddsssssss ooooooofffffff ssssssshhhhhhhaaaaaaarrrrrrreeeeeeesssssss))))))) 8888888 NNNNNNNeeeeeeewwwwwww YYYYYYYooooooorrrrrrrkkkkkkk SSSSSSStttttttoooooooccccccckkkkkkk EEEEEEExxxxxxxccccccchhhhhhhaaaaaaannnnnnngggggggeeeeeee 345,729 409,740 523,254 473,094 479,907 516,241 543,006 506,205 541,204 606,513 531,449 541,134 9999999 AAAAAAAmmmmmmmeeeeeeerrrrrrriiiiiiicccccccaaaaaaannnnnnn SSSSSSStttttttoooooooccccccckkkkkkk EEEEEEExxxxxxxccccccchhhhhhhaaaaaaannnnnnngggggggeeeeeee 20,387 22,567 n.a. 19,122 19,634 23,277 25,562 24,095 28,252 32,873 27,741 27,624 Customer financing (millions of dollars, end-of-period balances) 11111110000000 MMMMMMMaaaaaaarrrrrrrgggggggiiiiiiinnnnnnn cccccccrrrrrrreeeeeeedddddddiiiiiiittttttt aaaaaaattttttt bbbbbbbrrrrrrroooooookkkkkkkeeeeeeerrrrrrr-------dddddddeeeeeeeaaaaaaallllllleeeeeeerrrrrrrsssssss4444444 76,680 97,400 126,090 98,870 106,010 113,440 116,190 119,810 126,050 128,190 127,330r 126,090 FFFFFFFrrrrrrreeeeeeeeeeeeee cccccccrrrrrrreeeeeeedddddddiiiiiiittttttt bbbbbbbaaaaaaalllllllaaaaaaannnnnnnccccccceeeeeeesssssss aaaaaaattttttt bbbbbbbrrrrrrroooooookkkkkkkeeeeeeerrrrrrrsssssss 11111111111111 MMMMMMMaaaaaaarrrrrrrgggggggiiiiiiinnnnnnn aaaaaaaccccccccccccccooooooouuuuuuunnnnnnntttttttsssssss6666666 16,250 22,540 31,410 22,700 22,050 23,860 24,290 23,375 23,630 26,950 26,735r 31,410 11111112222222 CCCCCCCaaaaaaassssssshhhhhhh aaaaaaaccccccccccccccooooooouuuuuuunnnnnnntttttttsssssss 34,340 40,430 52,160 37,560 39,400 41,840 43,985 42,960 43,770 47,465 45,470' 52,160 Margin requirements (percent of market value and effective date)7 Mar. 11, 1968 June 8, 1968 May 6, 1970 Dec. 6, 1971 Nov. 24, 1972 Jan. 3, 1974 11111113333333 MMMMMMMaaaaaaarrrrrrrgggggggiiiiiiinnnnnnn ssssssstttttttoooooooccccccckkkkkkksssssss 70 80 65 55 65 50 11111114444444 CCCCCCCooooooonnnnnnnvvvvvvveeeeeeerrrrrrrtttttttiiiiiiibbbbbbbllllllleeeeeee bbbbbbbooooooonnnnnnndddddddsssssss 50 60 50 50 50 50 11111115555555 SSSSSSShhhhhhhooooooorrrrrrrttttttt sssssssaaaaaaallllllleeeeeeesssssss 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 1997 11999955 11999966 11999977 July Aug. Sept. Oct. Nov. Dec. U.S. budget1 1 Receipts, total 1,351,830 1,453,062 1,579,292 109,178 103,483 174,770 114,898 103,481 167,998 2 On-budget 1,000,751 1,085,570 1,187,302 79,599 70,902 138,847 87,083 73,690 135,340 Off-budget 351,079 367,492 391,990 29,579 32,581 35,923 27,815 29,791 32,658 4 Outlays, total 1,515,729 1,560,512' 1,601,235 134,802 138,672 124,834 150,862 120,830 154,359 5 On-budget 1,227,065 1,259,608' 1,290,609 107,049 109,810 91,404 123,863 91,327 146,647 6 Off-budget 288,664 300,904r 310,626 27,753 28,862 33,429 26,999 29,504 7,712 7 Surplus or deficit (—), total -163,899 -107,450r -21,943 -25,624 -35,189 49,937 -35,964 -17,349 13,639 8 On-budget -226,314 — 174,038r -103,307 -27,450 -38,908 47,443 -36,780 -17,637 -11,307 9 Off-budget 62,415 66,588r 81,364 1,826 3,719 2,494 816 287 24,946 Source of financing (total) 10 Borrowing from the public 171,288 129,712 38,171 -1,408 30,348 -18,318 6,315 29,108 -1,771 11 Operating cash (decrease, or increase (-)) -2,007 -6,276 604 23,748 15,435 -31,545 23,360 483 -12,107 12 Other2 -5,382 - 15,986r -16,832 3,284 -10,594 -74 6,289 -12,242 239 MEMO 13 Treasury operating balance (level, end of period) 37,949 44,225 43,621 27,511 12,076 43,621 20,261 19,778 31,885 14 Federal Reserve Banks 8,620 7,700 7,692 5,014 4,700 7,692 4,616 5,127 5,444 15 Tax and loan accounts 29,329 36,525 35,930 22,496 7,376 35,930 15,645 14,651 26,441 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 • March 1998 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1 Millions of dollars Fiscal year Calendar year SSSooouuurrrccceee ooorrr tttyyypppeee 1996 1997 1997 11999966 11999977 HI H2 HI H2 Oct. Nov. Dec. RECEIPTS 1 All sources 1,453,062 1,579,292 767,099 707,551 845,527r 773,808 114,898 103,481 167,998 2 Individual income taxes, net 656,417 737,466 347,285 323,884 400,435 354,072 60,680 46,596 69,060 3 Withheld 533,080 580,207 264,177 279,988 292,252 306,865 55,270 47,581 64,604 4 Nonwithheld 212,168 250,753 162,782 53,491 191,050 58,069 6,299 2,053 5,240 5 Refunds 88,897 93,560 79,735 9,604 82,926 10,869 889 33,,004400 784 Corporation income taxes 6 Gross receipts 189,055 204,493 96,480 95,364 106,451 104,659 6,357 4,900 44,973 7 Refunds 17,231 22,198 9,704 10,053 9,635 10,135 3,103 987 936 8 Social insurance taxes and contributions, net . . . 509,414 539,371 277,767 240,326 288,251 260,795 38,784 42,488 45,149 9 Employment taxes and contributions2 476,361 506,751 257,446 227,777 268,357 247,794 36,928 39,629 44,297 10 Unemployment insurance 28,584 28,202 18,068 10,302 17,709 10,724 1,443 2,526 425 11 Other net receipts3 4,469 4,418 2,254 2,245 2,184 2,280 414 334 427 12 Excise taxes 54,014 56,924 25,682 27,016 28,084 31,132 5,082 5,202r 5,167 13 Customs deposits 18,670 17,928 8,731 9,294 8,619 9,679 1,802 l,323r 1,416 14 Estate and gift taxes 17,189 19,845 8,775 8,835 10,477 10,262 2,198 1,510 1,498 15 Miscellaneous receipts4 25,534 25,465 12,087 12,888 12,841r 13,345 3,097 2,450 1,671 OUTLAYS 16 All types l,560,512r 1,601,235 785,368 800,184 797,418 824,359 150,862 120,830 154,359 17 National defense 265,748 270,473 132,599 138,702 131,500 139,480 26,374 17,883 26,944 18 International affairs 13,496 15,228 8,076 8,596 5,779 9,518 724 955 4,534 19 General science, space, and technology 16,709 17,174 8,897 8,260 8,939 10,040 1,586 1,606 1,899 20 Energy 2,844r 1,483 1,356 703r 801 386 -163 -68 -267 21 Natural resources and environment 21,614 21,369 10,254 10,310 9,688 11,199 1,710 1,566 2,388 22 Agriculture 9,159 9,032 73 10,977 1,433 10,542 2,983 1,425 2,846 23 Commerce and housing credit -10,472r -14,624 -6,885 -5,899 -7,575 -3,526 -253 -714 -1,144 24 Transportation 39,565 40,767 18,290 22,211 18,046 21,823 3,913 3,014 3,681 25 Community and regional development 10,685 11,005 5,245 5,498r 5,699 5,712 1,014 916 843 26 Education, training, employment, and social services 52,001 53,008 25,979 27,549 25,227 26,895 4,289 4,517 4,688 27 Health 119,378 123,843 59,989 61,595 61,808 63,552 11,905 9,870 11,159 28 Social security and Medicare 523,901 555,273 264,647 269,412 278,817 283,109 49,471 42,864 50,500 29 Income security 225,989 230,886 121,186 107,602 123,874 106,295 20,292 14,694 19,951 30 Veterans benefits and services 36,985 39,313 18,140 21,109 17,697 22,077 5,234 1,864 4,931 31 Administration of justice 17,548 20,197 9,015 9,583 10,643 10,196 1,584 1,747 2,051 32 General government 11,892 12,768 4,641 6,546 6,574 7,230 1,460 713 2,504 33 Net interest5 241,090 244,013 120,576 122,573r 122,701 122,620 21,805 20,592 20,480 34 Undistributed offsetting receipts6 -37,620 -49,973 -16,716 -25,142 -24,234 -22,795 -3,067 -2,613 -3,629 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 conespond 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 1999; 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 1995 1996 1997 IItteemm Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 1 Federal debt outstanding 5,017 5,153 5,197 5,260 5,357 5,415 5,410 5,446 5,536 2 Public debt securities 4,989 5,118 5,161 5,225 5,323 5,381 5,376 5,413 5,502 3 Held by public 3,684 3,764 3,739 3,778 3,826 3,874 3,805 3,815 n.a. 4 Held by agencies 1,305 1,354 1,422 1,447 1,497 1,507 1,572 1,599 n.a. 5 Agency securities 28 36 36 35 34 34 34 33 34 6 Held by public 28 28 28 27 27 26 26 26 n.a. 7 Held by agencies 0 8 8 8 8 8 7 7 n.a. 8 Debt subject to statutory limit 4,900 5,030 5,073 5,137 5,237 5,294 5,290 5,328 5,417 9 Public debt securities 4,900 5,030 5,073 5,137 5,237 5,294 5,290 5,328 5,416 10 Other debt1 0 0 0 0 0 0 0 0 0 MEMO 11 Statutory debt limit 4,900 5,500 5,500 5,500 5,500 5,500 5,500 5,950 5,950 1. Consists of guaranteed debt of U.S. Treasury and other federal agencies, specified SOURCE. U.S. Department of the Treasury, Monthly Statement of the Public Debt of the participation certificates, notes to international lending organizations, and District of Colum- United States and Treasury Bulletin. bia stadium bonds. 1.41 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership Billions of dollars, end of period 1997 TTyyppee aanndd hhoollddeerr 11999944 11999955 11999966 11999977 Q1 Q2 Q3 Q4 1 Total gross public debt 4,800.2 4,988.7 5,323.2 5,502.4 5,380.9 5,376.2 5,413.2 5,502.4 By type 2 Interest-bearing 4,769.2 4,964.4 5,317.2 5,494.9 5,375.1 5,370.5 5,407.5 5,494.9 3 Marketable 3,126.0 3,307.2 3,459.7 3,456.8 3,504.4 3,433.1 3,439.6 3,456.8 4 Bills 733.8 760.7 777.4 715.4 785.6 704.1 701.9 715.4 5 Notes 1,867.0 2,010.3 2,112.3 2,106.1 2,131.0 2,132.6 2,122.2 2,106.1 6 Bonds 510.3 521.2 555.0 587.3 565.4 565.4 576.2 587.3 7 Inflation-indexed notes1 n.a. n.a. n.a. 33.0 7.4 15.9 24.4 33.0 8 Nonmarketable2 1,643.1 1,657.2 1,857.5 2,038.1 1,870.8 1,937.4 1,967.9 2,038.1 9 State and local government series 132.6 104.5 101.3 124.1 104.8 107.9 111.9 124.1 10 Foreign issues3 42.5 40.8 37.4 36.2 36.8 35.4 34.9 36.2 11 Government 42.5 40.8 47.4 36.2 36.8 35.4 34.9 36.2 12 Public .0 .0 .0 .0 .0 .0 .0 .0 13 Savings bonds and notes 177.8 181.9 182.4 181.2 182.6 182.7 182.7 181.2 14 Government account series4 1,259.8 1,299.6 1,505.9 1,666.7 1,516.6 1,581.5 1,608.5 1,666.7 15 Non-interest-bearing 31.0 24.3 6.0 7.5 5.8 5.7 5.6 7.5 By holder5 16 U.S. Treasury and other federal agencies and trust funds 1,257.1 1,304.5 1,497.2 1,506.8 1,571.6 1,598.5 17 Federal Reserve Banks 374.1 391.0 410.9 405.6 426.4 436.5 18 Private investors 3,168.0 3,294.9 3,411.2 3,451.7 3,361.7 3,388.9 19 Commercial banks 290.4 278.7 261.7 282.3 265.7 260.0 20 Money market funds 67.6 71.5 91.6 84.0 77.4 76.4 21 Insurance companies 240.1 241.5 214.1 214.3 203.4 192.0 22 Other companies 224.5 228.8 258.5 n a. 262.5 261.0 266.5 n.a. 23 State and local treasuries6'7 540.2 421.5 363.7 348.0 337.4 333.5 Individuals 24 Savings bonds 180.5 185.0 187.0 186.5 186.3 186.2 25 Other securities 150.7 162.7 169.6 168.9 169.1 168.6 26 Foreign and international8 688.6 862.2 1,131.8 11,,221155..44 1,246.9 1,292.4 27 Other miscellaneous investors7,9 785.5 843.0 733.2 668899..88 614.5 613.3 1. The U.S. Treasury first issued inflation-indexed notes during the first quarter of 1997. 8. Consists of investments of foreign balances and international accounts in the United 2. Includes (not shown separately) securities issued to the Rural Electrification Administra- States. tion, depository bonds, retirement plan bonds, and individual retirement bonds. 9. Includes savings and loan associations, nonprofit institutions, credit unions, mutual 3. Nonmarketable series denominated in dollars, and series denominated in foreign cur- savings banks, corporate pension trust funds, dealers and brokers, certain U.S. Treasury rency held by foreigners. deposit accounts, and federally sponsored agencies. 4. Held almost entirely by U.S. Treasury and other federal agencies and trust funds. SOURCE. U.S. Treasury Department, data by type of security, Monthly Statement of the 5. Data for Federal Reserve Banks and U.S. government agencies and trust funds are actual Public Debt of the United States; data by holder, Treasury Bulletin. holdings; data for other groups are Treasury estimates. 6. Includes state and local pension funds. 7. 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 Nonfinancial Statistics • March 1998 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions' Millions of dollars, daily averages 1997 1997, week ending Item Sept. Oct. Nov. Nov. 5 Nov. 12 Nov. 19 Nov. 26 Dec. 3 Dec. 10 Dec. 17 Dec. 24 Dec. 31 OUTRIGHT TRANSACTIONS2 By type of security 1 U.S. Treasury bills 40,266 41,086 43,506 48,825 49,707 38,000 42,517 35,218 51,698 38,376 33,558 29,390 Coupon securities, by maturity 2 Five years or less 110,548 132,174 118,847 143,998 109,318 110,315 125,279 92,007 118,669 110,937 89,852 59,127 3 More than five years 59,117 76,423 68,164 80,999 67,150 71,891 61,156 50,120 66,089 70,503 49,970 30,326 4 Federal agency 40,258 43,579 48,097 45,826 43,208 57,668 44,605 44,065 44,867 44,552 42,630 38,475 5 Mortgage-backed 48,520 58,174 63,657 64,854 85,206 62,243 48,623 56,118 75,721 42,624 33,167 17,590 By type of counterparty With interdealer broker 6 U.S. Treasury 120,687 145,596 132,153 155,495 127,443 128,119 133,112 96,334 137,469 129,162 100,678 59,126 7 Federal agency 1,513 1,377 1,250 1,625 1,020 1,263 1,258 934 1,775 1,245 995 567 8 Mortgage-backed 15,920 18,087 19,089 20,562 21,777 2211,,443333 1144,,118800 1166,,774433 2200,,996600 1133,,881155 1100,,778811 66,,111100 With other 9 U.S. Treasury 89,244 104,088 98,365 118,328 98,732 92,088 95,841 81,011 98,986 90,654 72,701 59,717 10 Federal agency 38,745 42,202 46,847 44,201 42,188 56,405 43,347 43,131 43,092 43,307 41,635 37,908 11 Mortgage-backed 32,600 40,088 44,569 44,293 63,429 40,810 34,443 39,375 54,761 28,809 22,386 11,480 FUTURES TRANSACTIONS3 By type of deliverable security 12 U.S. Treasury bills 291 228 262 398 378 235 90 390 314 380 570 352 Coupon securities, by maturity 13 Five years or less 2,393 1,848 2,040r l,829r 1,477 1,655 3,012 1,995 4,056 2,792 1,929 1,446 14 More than five years 16,903 21,358 16,937 18,687 16,547 17,078 17,300 10,718 16,278 18,919 12,655 5,743 15 Federal agency 0 0 0 0 0 0 0 0 0 0 0 0 16 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 0 OPTIONS TRANSACTIONS4 By type of underlying security 17 U.S. Treasury bills 0 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 18 Five years or less 1,768 2,274r 1,674 1,239 1,753 1,815 1,673 1,955 2,077 2,663 1,631 640 19 More than five years 5,063 6,825 6,346 4,932 6,641 9,182 4,596 3,974 6,020 4,646 4,714 2,468 20 Federal agency 0 0 0 0 0 0 0 0 0 0 0 0 21 Mortgage-backed 898 614 549 1,109 461 533 364 233 1,450 847 270 90 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 to be 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 1997 1997, week ending IItteemm Sept. Oct. Nov. Nov. 5 Nov. 12 Nov. 19 Nov. 26 Dec. 3 Dec. 10 Dec. 17 Dec. 24 Positions2 NET OUTRIGHT POSITIONS3 By type of security 1 U.S. Treasury bills 1,089 6,161 18,776 16,196 15,222 14,518 26,221 22,644 24,485 19,132 18,900 Coupon securities, by maturity 2 Five years or less -35,923 -31,681 -17,008 -9,799 -20,398 -23,948 -12,147 -16,446 -26,456 -26,116 -15,154 3 More than five years -15,703 -21,634 -18,763 -22,406 -21,048 -16,801 -18,187 -14,649 -18,580 -16,942 -15,934 4 Federal agency 32,961 34,843 28,049 28,125 26,904 28,932 28,481 27,660 30,840 28,165 28,239 5 Mortgage-backed 37,016 37,762 37,409 33,301 39,656 43,535 32,657 36,210 46,019 48,908 42,492 NET FUTURES POSITIONS4 By type of deliverable security 6 U.S. Treasury bills -626 -1,334 -3,141 -3,188 -3,239 -3,351 -3,470 -1,965 -2,625 -2,293 -2,708 Coupon securities, by maturity 7 Five years or less 5,650 3,079 2,358 2,948 2,892 2,544 1,164 2,448 6,764 5,049 1,225 8 More than five years -22,372 -22,760 -20,650 -20,579 -17,632 -21,998 -21,218 -22,670 -20,736 -28,707 -31,858 9 Federal agency 0 0 0 0 0 0 0 0 0 0 0 10 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 NET OPTIONS POSITIONS By type of deliverable security 11 U.S. Treasury bills 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 12 Five years or less 2,024' 2,573r 2,234 2,995 2,516 2,611 1,685 1,087 215 -1,193 -1,289 13 More than five years 5,368 4,444 3,838 5,087 5,695 2,743 2,089 4,004 2,188 4,064 3,486 14 Federal agency 0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15 Mortgage-backed 361 369 74 442 3 -29 -418 782 811 725 976 Financing5 Reverse repurchase agreements 16 Overnight and continuing 303,186 323,078 328,976 342,255 314,346 364,330 292,947 339,159 313,568 322,159 260,415 17 Term 619,579 713,746 688,464 759,225 791,196 604,595 659,037 618,503 670,168 672,927 719,458 Securities borrowed 18 Overnight and continuing 203,445 209,087 201,701 201,157 203,172 212,921 190,806 199,239 200,910 198,031 193,859 19 Term 92,992 96,609 94,469 95,513 98,066 93,321 94,686 88,500 92,201 94,742 100,459 Securities received as pledge 20 Overnight and continuing 6,934 7,407 6,306 6,741 6,296 6,020 6,188 6,487 5,954 5,941 5,797 21 Term 78 88 99 94 93 107 102 n.a. n.a. 286 n.a. Repurchase agreements 22 Overnight and continuing 647,675 685,099 679,506 705,779 692,864 723,091 592,189 699,819 688,769 704,310 579,768 23 Term 540,310 642,512 629,143 692,756 712,372 548,386 633,015 538,525 578,842 581,607 678,507 Securities loaned 24 Overnight and continuing 6,673 7,546 7,759 7,726 7,338 8,283 7,404 8,240 8,328 8,197 7,612 25 Term 3,314 3,365 3,828 3,215 3,328 3,488 4,966 4,069 3,939 3,667 4,736 Securities pledged 26 Overnight and continuing 54,253 51,116 50,941 49,520 48,917 53,410 51,949 50,174 48,791 50,042 51,718 27 Term 5,818 4,190 2,741 3,509 3,470 1,964 2,534 2,230 2,759 3,649 3,473 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 13,724 15,354 14,645 13,373 12,382 15,153 14,049 20,350 13,573 12,117 16,544 MEMO: Matched book6 Securities in 31 Overnight and continuing 276,476 303,512 300,635 314,872 289,275 324,363 271,743 311,754 292,408 297,079 247,980 32 Term 602,147 686,424 662,654 730,684 760,316 582,528 633,231 598,418 640,338 647,472 685,181 Securities out 33 Overnight and continuing 382,054 396,064 386,203 401,398 392,806 402,484 343,459 401,962 398,670 397,406 331,509 34 Term 462,807 552,735 544,801 602,116 628,303 475,738 534,607 465,730 497,699 501,630 557,276 1. Data for positions and financing are obtained from reports submitted to the Federal 4. Futures positions reflect standardized agreements arranged on an exchange. All futures Reserve Bank of New York by the U.S. government securities dealers on its published list of positions are included regardless of time to delivery. primary dealers. Weekly figures are close-of-business Wednesday data. Positions for calendar 5. Overnight financing refers to agreements made on one business day that mature on the days of the report week are assumed to be constant. Monthly averages are based on the next business day; continuing contracts are agreements that remain in effect for more than one number of calendar days in the month. business day but have no specific maturity and can be terminated without advance notice by 2. Securities positions are reported at market value. either party; term agreements have a fixed maturity of more than one business day. Financing 3. Net outright positions include immediate and forward positions. Net immediate posi- data are reported in terms of actual funds paid or received, including accrued interest. tions include securities purchased or sold (other than mortgage-backed agency securities) that 6. Matched-book data reflect financial intermediation activity in which the borrowing and have been delivered or are scheduled to be delivered in five business days or less and lending transactions are matched. Matched-book data are included in the financing break- "when-issued" securities that settle on the issue date of offering. Net immediate positions for downs given above. The reverse repurchase and repurchase numbers are not always equal mortgage-backed agency securities include securities purchased or sold that have been because of the "matching" of securities of different values or different types of collateralizadelivered or are scheduled to be delivered in thirty business days or less. tion. Forward positions reflect agreements made in the over-the-counter market that specify NOTE, "n.a." indicates that data are not published because of insufficient activity. delayed delivery. Forward contracts for U.S. Treasury securities and federal agency debt Major changes in the report form filed by primary dealers induced a break in the dealer data securities are included when the time to delivery is more than five business days. Forward series as of the week ending July 6, 1994. contracts for mortgage-backed agency securities are included when the time to delivery is more than thirty business days. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic NonfinancialS tatistics • March 1998 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period 1997 AAggeennccyy 11999933 11999944 11999955 11999966 June July Aug. Sept. Oct. 1 Federal and federally sponsored agencies 570,711 738,928 844,611 925,823 972,731 977,877 980,501 983,599 1,003,177 2 Federal agencies 45,193 39,186 37,347 29,380 27,646 27,738 27,484 27,392 27,356 3 Defense Department1 6 6 6 6 6 6 6 6 6 4 Export-Import Bank2'3 5,315 3,455 2,050 1,447 1,357 1,326 1,326 1,326 1,295 5 Federal Housing Administration4 255 116 97 84 37 43 46 68 68 6 Government National Mortgage Association certificates of participation5 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0 7 Postal Service6 9,732 8,073 5,765 n.a. n.a. n.a. n.a. n.a. 0 8 Tennessee Valley Authority 29,885 27,536 29,429 27,853 27,640 27,732 27,478 27,386 27,350 9 United States Railway Association6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0 10 Federally sponsored agencies7 523,452 699,742 807,264 896,443 945,085 950,139 953,017 956,207 975,821 11 Federal Home Loan Banks 139,512 205,817 243,194 263,404 290,028 291,931 292,174 295,212 302,310 12 Federal Home Loan Mortgage Corporation 49,993 93,279 119,961 156,980 161,900 161,476 165,690 160,050 172,433 13 Federal National Mortgage Association 201,112 257,230 299,174 331,270 345,462 348,599 348,115 358,003 356,149 14 Farm Credit Banks8 53,123 53,175 57,379 60,053 62,075 61,874 61,091 61,612 61,093 15 Student Loan Marketing Association9 39,784 50,335 47,529 44,763 44,841 45,536 45,211 40,531 43,000 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 Corporation11 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 18 Resolution Funding Corporation12 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 MEMO 19 Federal Financing Bank debt13 128,187 103,817 78,681 58,172 50,962 50,119 48,625 49,944 48,698 Lending to federal and federally sponsored agencies 20 Export-Import Bank3 5,309 3,449 2,044 1,431 1,357 1,326 1,326 1,326 1,295 21 Postal Service6 9,732 8,073 5,765 n.a. n.a. n.a. n.a. n.a. 0 22 Student Loan Marketing Association 4,760 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0 23 Tennessee Valley Authority 6,325 3,200 3,200 n.a. n.a. n.a. n.a. n.a. 0 24 United States Railway Association6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 0 Other lending14 25 Farmers Home Administration 38,619 33,719 21,015 18,325 15,455 18,700 14,300 13,895 13,530 26 Rural Electrification Administration 17,578 17,392 17,144 16,702 15,679 15,564 15,568 14,917 14,819 27 Other 45,864 37,984 29,513 21,714 18,471 14,529 17,431 19,716 19,054 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 1997 TTyyppee ooff iissssuuee oorr iissssuueerr,, 11999944 11999955 11999966 oorr uussee May June July Aug. Sept. Oct. Nov. Dec. 1 All issues, new and refunding1 153,950 145,657 171,222 15,447 19,376 16,740 16,580 21,499r 21,898r 20,207" 21,342 By type of issue 2 General obligation 54,404 56,980 60,409 5,741 6,145 7,679 5,062 3,590 7,837 5,713 88,,000055 3 Revenue 99,546 88,677 110,813 9,706 13,231 9,061 11,518 17,909r 14,06 lr 14,494" 13,337 By type of issuer 4 State 19,186 14,665 13,651 1,219 1,197 1,984 1,352 1,278 2,392 509 11,,770022 5 Special district or statutory authority2 95,896 93,500 113,228 9,666 13,810 10,715 10,480 14,890 13,195 13,586" 15,600 6 Municipality, county, or township 38,868 37,492 44,343 4,562 4,369 4,041 4,803 16,592r 13,920" 5,920" 4,098 7 Issues for new capital 105,972 102,390 112,298 10,507 14,536 9,279 8,915 10,158r 12,981" 12,979" 13,487 By use of proceeds 8 Education 21,267 23,964 26,851 2,844 3,498 2,701 2,781 1,943 2,647 2,973 2,981 9 Transportation 10,836 11,890 12,324 1,225 638 666 1,276 2,654 1,215 1,420 1,144 10 Utilities and conservation 10,192 9,618 9,791 1,608 1,615 1,182 576 907 1,402 1,217 683 11 Social welfare 20,289 19,566 24,583 1,291 4,438 1,789 1,481 2,305 2,341 4,090 2,940 12 Industrial aid 8,161 6,581 6,287 462 637 334 799 441 729 574 897 13 Other purposes 35,227 30,771 32,462 3,077 3,710 2,607 2,024 l,908r 4,642" 2,705" 4,842 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 1997 TTyyppee ooff iissssuuee,, ooffffeerriinngg,, 11999944 11999955 11999966 oorr iissssuueerr Apr. May June July Aug. Sept. Oct." Nov. 1 All issues' 583,240 673,779 n.a. 43,956 54,750 83,890 67,305 52,117" 84,781" 71,169 58,351 2 Bonds2 498,039 573,206 n a. 37,672 46,738 72,638 57,886 46,576" 75,216" 58,116 46,544 By type of offering 3 Public, domestic 365,222 408,804 386,280 29,797 38,594 60,979 46,415 4400,,884400"" 6600,,227766"" 4466,,998877 4422,,996699 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 7,875 8,144 11,660 11,471 5,736" 14,941 11,199 3,574 By industry group 6 Manufacturing 43,423 61,070 41,959 2,276 2,355 3,748 8,480 5,087" 3,534 4,668 22,,115522 7 Commercial and miscellaneous 40,735 50,689 34,076 6,201 2,104 2,771 4,466 3,196" 4,330" 7,982 1,166 8 Transportation 6,867 8,430 5,111 257 6,566 424 544 406 296 1,322 299 9 Public utility 13,322 13,751 8,161 47 653 1,377 3,674 1,407 1,357 1,664 1,590 10 Communication 13,340 22,999 13,320 500 300 576 1,304 278 1,829" 342 1,586 11 Real estate and financial 380,352 416,269 358,446 28,391 34,761 63,743 39,419 36,202" 63,870" 42,139 39,750 12 Stocks2 85,155 100,573 n.a. 6,284 8,012 11,252 9,419 5,541 9,565" 13,053 11,807 By type of offering 13 Public preferred 12,570 10,917 33,208 1,952 2,055 3,846 678 645 2,155" 1,824 1,060 14 Common 47,828 57,556 83,052 4,332 5,957 7,406 8,741 4,895 7,410" 11,229 10,747 15 Private placement3 24,800 32,100 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. By industry group 16 Manufacturing 17,798 21,545 847 1,594 1,627 1,056 836 1,294" 2,068" 22,,117766"" 17 Commercial and miscellaneous 15,713 27,844 n.a. 1,181 1,912 2,938 2,804 1,673 3,218" 3,438" 3,404" 18 Transportation 2,203 804 0 35 272 563 139 472" 197" 84" 19 Public utility 2,214 1,936 570 200 1,046 483 48 238" 559" 177" 20 Communication 494 1,077 25 0 374 120 52 235" 208" 517" 21 Real estate and financial 46.733 47,367 3,661 4,219 5,384 3,875 2,371 4,108" 6,583 5,449 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 • March 1998 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets1 Millions of dollars 1997 IItteemm 11999955 11999966 May June July Aug. Sept. Oct.r Nov. Dec. 1 Sales of own shares2 871,415 1,149,918 103,470 112,318 125,710 114358 116,021 126,824 110,231 161,993 2 Redemptions of own shares 699,497 853,460 76,337 86,759 90,095 84,366 86,449 98,109 76,115 115,638 3 Net sales3 171,918 296,458 27,133 25,559 35,615 29,992 29,572 28,715 34,117 46,355 4 Assets4 2,067,337 2,637,398 2,952,609 3,067,565 3,279,535 3,199,534 3,386,547 3,300,248 3375,197 3,430,898 5 Cash5 142,572 139,396 182,004 180,552 182,122 180,152 180,159 181,314 188,192 176,752 6 Other 1,924,765 2,498,002 2,770,606 2,887,013 3,097,413 3,019,382 3,206,388 3,118,934 3,187,005 3,254,145 1. Data on sales and redemptions exclude money market mutual funds but include 4. Market value at end of period, less current liabilities. limited-maturity municipal bond funds. Data on asset positions exclude both money market 5. Includes all U.S. Treasury securities and other short-term debt securities. mutual funds and limited-maturity municipal bond funds. SOURCE. Investment Company Institute. Data based on reports of membership, which 2. Includes reinvestment of net income dividends. Excludes reinvestment of capital gains comprises substantially all open-end investment companies registered with the Securities and distributions and share issue of conversions from one fund to another in the same group. Exchange Commission. Data reflect underwritings of newly formed companies after their 3. Excludes sales and redemptions resulting from transfers of shares into or out of money initial offering of securities. market mutual funds within the same fund family. 1.48 CORPORATE PROFITS AND THEIR DISTRIBUTION Billions of dollars; quarterly data at seasonally adjusted annual rates 1995 1996 1997 AAccccoouunntt 11999944 11999955 11999966 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 1 Profits with inventory valuation and capital consumption adjustment 570.5 650.0 735.9 685.7 717.7 738.5 739.6 747.8 779.6 795.1 827.3 2 Profits before taxes 535.1 622.6 676.6 634.1 664.9 682.2 679.1 680.0 708.4 719.8 753.4 3 Profits-tax liability 186.6 213.2 229.0 215.3 226.2 232.2 231.6 226.0 241.2 244.5 258.2 4 Profits after taxes 348.5 409.4 447.6 418.8 438.7 450.0 447.5 454.0 467.2 475.3 495.2 5 Dividends 216.2 264.4 304.8 274.4 300.7 303.7 305.7 309.1 326.8 333.0 339.1 6 Undistributed profits 132.3 145.0 142.8 144.5 138.0 146.4 141.8 144.9 140.3 142.3 156.1 7 Inventory valuation -16.1 -24.3 -2.5 .4 -5.1 -5.4 -2.7 3.3 3.5 5.9 3.6 8 Capital consumption adjustment 51.4 51.6 61.8 51.1 57.9 61.6 63.2 64.4 67.7 69.4 70.3 SOURCE. U.S. Department of Commerce, Survey of Current Business. 1.51 DOMESTIC FINANCE COMPANIES Assets and Liabilities1 Billions of dollars, end of period; not seasonally adjusted 1996 1997 AAccccoouunntt 11999944 11999955 11999966 Q1 Q2 Q3 Q4 Q1 Q2 Q3 ASSETS 1 Accounts receivable, gross2 543.7 607.0 637.1 613.7 626.7 628.1 637.1 647.2 650.7 656.8 2 Consumer 201.9 233.0 244.9 235.9 240.6 244.4 244.9 248.6 254.3 255.0 3 Business 274.9 301.6 309.5 303.5 305.7 301.4 309.5 315.2 311.7 313.1 4 Real estate 66.9 72.4 82.7 74.3 80.4 82.2 82.7 83.4 84.8 88.7 5 LESS; Reserves for unearned income 52.9 60.7 55.6 58.9 57.2 54.8 55.6 51.3 57.1 58.0 6 Reserves for losses 11.3 12.8 13.1 12.8 12.7 12.9 13.1 12.8 13.3 13.7 7 Accounts receivable, net 479.5 533.5 568.3 542.0 556.7 560.5 568.3 583.1 580.4 585.1 8 All other 216.8 250.9 290.0 255.0 258.7 268.7 290.0 289.9 307.1 310.5 9 Total assets 696.3 784.4 858.3 796.9 815.4 829.2 858.3 873.0 887.5 895.6 LIABILITIES AND CAPITAL 10 Bank loans 14.8 15.3 19.7 15.4 17.7 18.3 19.7 18.4 18.8 19.3 11 Commercial paper 171.6 168.6 177.6 168.2 169.6 173.1 177.6 185.3 193.7 190.2 Debt 12 Owed to parent 41.8 51.1 60.3 50.5 56.3 57.9 60.3 61.0 60.0 61.7 13 Not elsewhere classified 247.4 300.0 332.5 307.5 319.0 322.3 332.5 324.4 345.0 348.5 14 All other liabilities 146.2 163.6 174.7 165.6 163.2 164.8 174.7 189.1 171.3 177.2 15 Capital, surplus, and undivided profits 74.6 85.9 93.5 89.7 89.7 92.8 93.5 94.8 98.7 98.7 16 Total liabilities and capital 696.3 784.4 858.3 796.9 815.4 829.2 858.3 873.0 887.5 895.6 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. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Market and Corporate Finance A3 3 1.52 DOMESTIC FINANCE COMPANIES Owned and Managed Receivables1 Billions of dollars, amounts outstanding 1997 TTyyppee ooff ccrreeddiitt 11999944 11999955 11999966 June July Aug. Sept. Oct. Nov. Seasonally adjusted 11 TToottaall 607.3 682.4 762.4 783.7 789.5 796.9 801.0r 802.4r 803.0 22 CCoonnssuummeerr 244.4 281.9 306.6 321.7 323.3 322.7 322.6 324.4r 322.5 33 RReeaall eessttaattee 66.9 72.4 111.9 120.1 121.9 123.4 120.7 121.9 122.2 44 BBuussiinneessss 295.9 328.1 343.8 342.0 344.3 350.8 357.7r 356.1r 358.3 Not seasonally adjusted 5 Total 613.5 689.5 769.7 787.7 783.7 791.4 797.3r 800.6r 804.2 6 Consumer 248.0 285.8 310.6 321.8 322.2 322.4 323.3 324.3r 324.2 7 Motor vehicles loans 70.2 81.1 86.7 87.0 88.3 88.4 88.5 86.8 86.6 8 Motor vehicle leases 67.5 80.8 92.5 98.5 99.3 98.3 96.1 96.1 96.8 9 Revolving2 25.9 28.5 32.5 34.9 33.5 33.5 34.9 34.5 34.4 10 Other3 38.4 42.6 33.2 34.8 34.7 35.2 35.0 35.4 35.4 Securitized assets4 11 Motor vehicle loans 32.8 34.8 36.8 37.8 38.1 38.3 39.7 42.7 41.9 12 Motor vehicle leases 2.2 3.5 8.7 9.2 9.0 8.9 10.0 9.9 9.8 13 Revolving n.a. n.a. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 14 Other 11.2 14.7 20.1 19.7 19.4 19.7 19.0 18.9r 19.2 15 Real estate 66.9 72.4 111.9 120.1 121.9 123.4 120.7 121.9 122.2 16 One- to four-family n.a. n.a. 52.1 54.5 57.0 59.1 56.6 58.5 59.2 17 Other n.a. n.a. 30.5 30.3 30.1 30.1 29.8 29.7 29.8 Securitized real estate assets4 18 One- to four-family n.a. n.a. 28.9 35.0 34.4 33.9 34.0 33.5 33.0 19 Other n.a. n.a. 0.4 0.3 0.3 0.3 0.3 0.3 0.2 20 Business 298.6 331.2 347.2 345.9 339.6 345.6 353.3r 354.4r 357.8 21 Motor vehicles 62.0 66.5 67.1 70.7 63.6 65.2 67.4 61.1 61.6 22 Retail loans 18.5 21.8 25.1 25.2 24.4 25.4 26.0 26.4 26.2 23 Wholesale loans5 35.2 36.6 33.0 36.3 29.9 30.4 31.8 25.0 25.8 24 Leases 8.3 8.0 9.0 9.3 9.3 9.4 9.6 9.7 9.7 25 Equipment 8.3 8.0 9.0 188.8 191.3 194.9 199.0 197.5 197.0 26 Loans 8.3 8.0 9.0 52.6 51.7 51.3 51.9 50.1 49.2 27 Leases 8.3 8.0 9.0 136.2 139.6 143.6 147.1 147.4 147.8 28 Other business receivables6 8.3 8.0 9.0 52.2 51.8 53.0 54.5 54.7 53.9 Securitized assets4 29 Motor vehicles 8.3 8.0 9.0 21.3 19.9 19.8 19.6 28.4 32.4 30 Retail loans 8.3 8.0 9.0 2.5 2.4 2.3 2.2 2.1 2.5 31 Wholesale loans 8.3 8.0 9.0 18.7 17.4 17.5 17.4 26.3 29.8 32 Leases 8.3 8.0 9.0 0.0 0.0 0.0 0.0 0.0 0.0 33 Equipment 8.3 8.0 9.0 10.4 10.6 10.3 10.1 10.1 10.3 34 Loans 8.3 8.0 9.0 3.9 4.2 4.1 4.0 4.2 4.5 35 Leases 8.3 8.0 9.0 6.5 6.4 6.2 6.0 5.8 5.8 36 Other business receivables6 8.3 8.0 9.0 2.5 2.5 2.4 2.6r 2.7r 2.6 NOTE. This table has been revised to incorporate several changes resulting from the before deductions for unearned income and losses. Components may not sum to totals benchmarking of finance company receivables to the June 1996 Survey of Finance Compa- because of rounding. nies. In that benchmark survey, and in the monthly surveys that have followed, more detailed 2. Excludes revolving credit reported as held by depository institutions that are subsidiarbreakdowns have been obtained for some components. In addition, previously unavailable ies of finance companies. data on securitized real estate loans are now included in this table. The new information has 3. Includes personal cash loans, mobile home loans, and loans to purchase other types of resulted in some reclassification of receivables among the three major categories (consumer, consumer goods such as appliances, apparel, boats, and recreation vehicles. real estate, and business) and in discontinuities in some component series between May and 4. Outstanding balances of pools upon which securities have been issued; these balances June 1996. are no longer carried on the balance sheets of the loan originator. Includes finance company subsidiaries of bank holding companies but not of retailers and 5. Credit arising from transactions between manufacturers and dealers, that is, floor plan banks. Data in this table also appear in the Board's G.20 (422) monthly statistical release. For financing. ordering address, see inside front cover. 6. Includes loans on commercial accounts receivable, factored commercial accounts, and 1. Owned receivables are those carried on the balance sheet of the institution. Managed receivable dealer capital; small loans used primarily for business or farm purposes; and receivables are outstanding balances of pools upon which securities have been issued; these wholesale and lease paper for mobile homes, campers, and travel trailers. balances are no longer carried on the balance sheets of the loan originator. Data are shown Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A34 Domestic Nonfinancial Statistics • March 1998 1.53 MORTGAGE MARKETS Mortgages on New Homes Millions of dollars except as noted 1997 IItteemm 11999955 11999966 11999977 June July Aug. Sept. Oct. Nov. Dec. Terms and yields in primary and secondary markets PRIMARY MARKETS Terms1 1 Purchase price (thousands of dollars) 175.8 182.4 180.1 181.4 181.4 191.2 190.6 183.4 184.0 190.7 2 Amount of loan (thousands of dollars) 134.5 139.2 140.3 140.6 142.7 148.2 147.0 142.4 143.5 149.8 3 Loan-to-price ratio (percent) 78.6 78.2 80.4 79.9 81.2 79.8 79.3 80.1 80.8 81.0 4 Maturity (years) 27.7 27.2 28.2 28.0 28.7 28.2 28.3 28.1 28.6 28.2 5 Fees and charges (percent of loan amount)2 1.21 1.21 1.02 1.04 1.05 1.06 1.12 0.94 0.95 0.96 Yield (percent per year) 6 Contract rate1 7.65 7.56 7.57 7.79 7.62 7.42 7.43 7.39 7.26 7.25 7 Effective rate1'3 7.85 7.77 7.73 7.95 7.78 7.59 7.61 7.54 7.40 7.40 8 Contract rate (HUD series)4 8.05 8.03 7.76 7.82 7.62 7.67 7.51 7.48 7.38 7.25 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (Section 203)5 88..1188 8.19 7.89 8.02 7.61 8.02 7.52 7.53 7.51 7.17 10 GNMA securities6 7.57 7.48 7.26 7.37 7.04 7.16 7.10 6.90 6.84 6.74 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 253,511 287,052 316,316 297,471 300,439 304,528 307,256 310,421 314,627 316,316 12 FHA/VA insured 28,762 30,592 31,925 31,198 31,065 31,193 31,847 32,080 31,878 31,925 13 Conventional 224,749 256,460 284,753 266,273 269,374 273,335 275,409 278,341 282,749 284,753 14 Mortgage transactions purchased (during period) 56,598 68,618 70,465 3,594 6,417 7,606 6,544 7,619 8,166 6,692 Mortgage commitments (during period) 15 Issued7 56,092 65,859 69,965 6,196 6,956 5,960 7,573 9,190 5,123 6,275 16 To sell8 360 130 1,298 115 75 219 215 300 139 140 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of periodf 17 Total 107,424 137,755 164,421 149,250 151,582 155,169 157,165 159,801 160,974 164,421 18 FHA/VA insured 267 220 180 198 194 190 186 183 180 180 19 Conventional 107,157 137,535 164,241 149,052 151,388 154,979 156,979 159,618 160,794 164,241 Mortgage transactions (during period) 20 Purchases 98,470 128,566 121,490 8,884 8,374 9,917 10,496 12,648 11,836 17,045 21 85,877 119,702 114,260 8,321 7,757 9,187 9,727 11,713 10,832 14,587 22 Mortgage commitments contracted (during period)9 118,659 128,995 120,087 9,099 9,053 9,914 10,877 11,985 12,047 15,805 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 A35 1.54 MORTGAGE DEBT OUTSTANDING1 Millions of dollars, end of period 1996 1997 TTyyppee ooff hhoollddeerr aanndd pprrooppeerrttyy 11999933 11999944 11999955 Q3 Q4 Q1 Q2 Q3P 1 All holders 4,261,163 4,462,828 4,691,824 4,940,719 5,022,464 5,080,733 5,168,350 5,259,875 By type of property 2 One- to four-family residences 3,225,399 3,424,395 3,616,807 3,792,994 3,851,163 3,899,042 3,960,438 4,027,379 3 Multifamily residences 270,005 274,922 287,238 304,532 312,418 315,091 321,145 327,203 4 Nonfarm, nonresidential 685,021 680,540 703,218 756,462 771,749 778,947 798,089 815,534 5 80,739 82,971 84,561 86,732 87,134 87,653 88,679 89,759 By type of holder 6 Major financial institutions 1,763,410 1,811,018 1,884,714 1,945,088 1,968,859 1,982,764 2,023,400 2,055,789 7 Commercial banks2 940,603 1,003,923 1,080,483 1,112,914 1,135,133 1,149,854 1,186,264 1,216,606 8 One- to four-family 556,660 611,092 663,715 678,565 692,180 702,616 727,217 745,458 9 Multifamily 38,657 39,346 43,837 46,410 46,676 47,618 48,752 49,231 10 Nonfarm, nonresidential 324,420 330,934 349,101 363,124 371,394 374,377 384,234 395,116 11 Farm 20,866 22,551 23,830 24,815 24,883 25,242 26,061 26,800 12 Savings institutions3 598,435 596,191 596,763 628,037 628,335 626,381 629,059 629,757 13 One- to four-family 470,000 477,626 482,353 513,794 513,712 513,393 516,713 518,409 14 Multifamily 67,366 64,343 61,987 61,308 61,570 60,645 60,102 60,370 15 Nonfarm, nonresidential 60,764 53,933 52,135 52,614 52,723 52,007 51,906 50,634 16 Farm 305 289 288 320 331 336 338 344 17 Life insurance companies 224,372 210,904 207,468 204,138 205,390 206,529 208,077 209,426 18 One- to four-family 8,593 7,018 7,316 6,190 6,772 6,799 6,842 7,080 19 Multifamily 25,376 23,902 23,435 23,155 23,197 23,320 23,499 23,615 20 Nonfarm, nonresidential 180,934 170,421 167,095 165,096 165,399 166,277 167,548 168,374 21 Farm 9,469 9,563 9,622 9,697 10,022 10,133 10,188 10,358 22 Federal and related agencies 326,040 315,580 306,774 302,793 300,935 295,203 292,966 290,786 23 Government National Mortgage Association 22 6 2 2 2 6 7 7 24 One- to four-family 15 6 2 2 2 6 7 7 25 Multifamily 7 0 0 0 0 0 0 0 26 Farmers Home Administration4 41,386 41,781 41,791 41,575 41,596 41,485 41,400 41,332 27 One- to four-family 18,030 18,098 17,705 17,374 17,303 17,175 17,239 17,458 28 Multifamily 10,940 11,319 11,617 11,652 11,685 11,692 11,706 11,713 29 Nonfarm, nonresidential 5,406 5,670 6,248 6,681 6,841 6,969 7,135 7,246 30 Farm 7,012 6,694 6,221 5,869 5,768 5,649 5,321 4,916 31 Federal Housing and Veterans' Administrations 12,215 10,964 9,809 6,627 6,244 4,330 4,200 2,839 32 One- to four-family 5,364 4,753 5,180 3,190 3,524 2,335 2,299 843 33 Multifamily 6,851 6,211 4,629 3,438 2,719 1,995 1,900 1,996 34 Resolution Trust Corporation 17,284 10,428 1,864 0 0 0 0 0 35 One- to four-family 7,203 5,200 691 0 0 0 0 0 36 Multifamily 5,327 2,859 647 0 0 0 0 0 37 Nonfarm, nonresidential 4,754 2,369 525 0 0 0 0 0 38 Farm 0 0 0 0 0 0 0 0 39 Federal Deposit Insurance Corporation 14,112 7,821 4,303 4,025 2,431 2,217 1,816 1,476 40 One- to four-family 2,367 1,049 492 675 365 333 272 221 41 Multifamily 1,426 1,595 428 766 413 377 309 251 42 Nonfarm, nonresidential 10,319 5,177 3,383 2,584 1,653 1,508 1,235 1,004 43 Farm 0 0 0 0 0 0 0 0 44 Federal National Mortgage Association 165,668 174,312 176,824 175,472 174,556 172,829 170,386 168,457 45 One- to four-family 150,698 158,766 161,665 161,072 160,751 159,634 157,729 156,362 46 Multifamily 14,970 15,546 15,159 14,400 13,805 13,195 12,657 12,095 47 Federal Land Banks 28,460 28,555 28,428 29,579 29,602 29,668 29,963 30,346 48 One- to four-family 1,675 1,671 1,673 1,740 1,742 1,746 1,763 1,786 49 Farm 26,785 26,885 26,755 27,839 27,860 27,922 28,200 28,560 50 Federal Home Loan Mortgage Corporation 46,892 41,712 43,753 45,513 46,504 44,668 45,194 46,329 51 One- to four-family 44,345 38,882 39,901 41,149 41,758 39,640 40,092 40,953 52 Multifamily 2,547 2,830 3,852 4,364 4,746 5,028 5,102 5,376 53 Mortgage pools or trusts5 1,570,691 1,726,365 1,861,489 2,008,356 2,056,276 2,099,504 2,134,312 2,178,530 54 Government National Mortgage Association 414,066 450,934 472,283 497,018 506,340 513,471 520,938 529,867 55 One- to four-family 404,864 441,198 461,438 485,073 494,158 500,591 507,618 516,217 56 Multifamily 9,202 9,736 10,845 11,945 12,182 12,880 13,320 13,650 57 Federal Home Loan Mortgage Corporation 447,147 490,851 515,051 545,608 554,260 562,894 567,187 569,920 58 One- to four-family 442,612 487,725 512,238 543,341 551,513 560,369 564,445 567,340 59 Multifamily 4,535 3,126 2,813 2,267 2,747 2,525 2,742 2,580 60 Federal National Mortgage Association 495,525 530,343 582,959 636,362 650,780 663,668 673,931 690,919 61 One- to four-family 486,804 520,763 569,724 619,869 633,210 645,324 654,826 670,677 62 Multifamily 8,721 9,580 13,235 16,493 17,570 18,344 19,105 20,242 63 Farmers Home Administration4 28 19 11 7 3 3 2 2 64 One- to four-family 5 3 2 0 0 0 0 0 65 Multifamily 0 0 0 0 0 0 0 0 66 Nonfarm, nonresidential 13 9 5 4 0 0 0 0 67 Farm 10 7 4 3 3 3 2 2 68 Private mortgage conduits 213,925 254,218 291,185 329,360 344,894 359,468 372,253 387,822 69 One- to four-family6 179,755 202,519 222,526 244,884 247,740 256,834 259,950 267,000 70 Multifamily 8,701 14,925 21,279 28,141 33,689 35,607 38,992 41,973 71 Nonfarm, nonresidential 25,469 36,774 47,380 56,336 63,464 67,027 73,312 78,849 72 Farm 0 0 0 0 0 0 0 0 73 Individuals and others7 601,023 609,865 638,848 684,481 696,395 703,262 717,672 734,769 74 One- to four-family 446,408 448,027 470,187 476,075 486,433 492,248 503,426 517,568 75 Multifamily 65,380 69,602 73,474 80,193 81,419 81,864 82,959 84,111 76 Nonfarm, nonresidential 72,943 75,253 77,345 110,023 110,275 110,782 112,720 114,312 77 16,292 16,983 17,841 18,190 18,268 18,368 18,568 18,778 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 NonfinancialS tatistics • March 1998 1.55 CONSUMER CREDIT1 Millions of dollars, amounts outstanding, end of period 1997 HHoollddeerr aanndd ttyyppee ooff ccrreeddiitt 11999944 11999955 11999966 June July Aug. Sept. Oct.' Nov. Seasonally adjusted 11 TToottaall 959,748 1,094,197 1,179,892 1,211,741 l,216,066r l,222,150r 1,223,776r 1,235,179 1,230,966 22 AAuuttoommoobbiillee 327,863 364,231 392,370 399,808 403,239r 403,154' 405,665' 410,390 409,090 33 RReevvoollvviinngg 365,514 442,994 499,209 516,156 520,221' 523,686' 526,377' 529,891 528,080 44 OOtthheerr22 266,371 286,972 288,313 295,777 292,607' 295,310' 291,733' 294,899 293,796 Not seasonally adjusted 5 Total 983,933 1,122,828 1,211,590 1,205,034 1,209,179r l,220,506r l,226,618r 1,234,671 1,238,512 By major holder 6 Commercial banks 458,777 501,963 526,769 510,681 514,482 516,176 507,528 507,334 508,556 7 Finance companies 134,421 152,123 152,391 156,657 156,435 157,152 158,428 156,639 156,434 8 Credit unions 119,594 131,939 144,148 147,640 148,973 149,791 150,669 151,486 151,569 9 Savings institutions 38,468 40,106 44,711 46,483 47,152' 47,820' 48,487' 49,156 49,824 10 Nonfinancial business3 86,621 85,061 77,745 67,973 67,580' 68,556 68,524' 68,404 70,313 11 Pools of securitized assets4 146,052 211,636 265,826 275,600 274,557 281,011 292,982 301,652 301,816 By major type of credit5 12 Automobile 330,198 367,069 395,609 399,637 403,694' 405,740' 409,253' 414,908 413,318 13 Commercial banks 143,517 151,437 157,047 155,960 157,784 158,516 157,234 158,140 156,824 14 Finance companies 70,157 81,073 86,690 86,979 88,323 88,428 88,545 86,805 86,646 15 Pools of securitized assets4 36,689 44,635 51,719 53,024 52,672 52,427 55,432 60,113 59,340 16 Revolving 383,187 464,134 522,860 511,427 515,086' 520,777' 524,281' 526,627 531,167 17 Commercial banks 182,021 210,298 228,615 213,318 218,992 217,466 209,269 208,785 211,188 18 Finance companies 25,880 28,460 32,493 34,863 33,461 33,543 34,925 34,466 34,352 19 Nonfinancial business3 56,790 53,525 44,901 37,283 36,791 37,578 37,685 37,479 38,865 20 Pools of securitized assets4 96,130 147,934 188,712 196,806 196,456 202,444 212,403 215,674 216,363 21 Other 270,548 291,625 293,121 293,970 290,399' 293,989' 293,084' 293,136 294,027 22 Commercial banks 133,239 140,228 141,107 141,403 137,706 140,194 141,025 140,409 140,544 23 Finance companies 38,384 42,590 33,208 34,815 34,651 35,181 34,958 35,368 35,436 24 Nonfinancial business3 29,831 31,536 32,844 30,690 30,789' 30,978 30,839' 30,925 31,448 25 Pools of securitized assets4 13,233 19,067 25,395 25,770 25,429 26,140 25,147 25,865 26,113 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 1997 IItteemm 11999944 11999955 11999966 May June July Aug. Sept. Oct. Nov. INTEREST RATES Commercial banks2 1 48-month new car 8.12 9.57 9.05 9.20 n.a. n.a. 8.99 n.a. n.a. 8.96 2 24-month personal 13.19 13.94 13.54 13.81 n.a. n.a. 13.84 n.a. n.a. 14.50 Credit card plan 3 All accounts 15.69 16.02 15.63 15.75 n.a. n.a. 15.78 n.a. n.a. 15.65 4 Accounts assessed interest 15.77 15.79 15.50 15.72 n.a. n.a. 15.79 n.a. n.a. 15.57 Auto finance companies 5 New car 9.79 11.19 9.84 7.80 7.64 6.71 5.93 6.12 7.27 6.85 6 Used car 13.49 14.48 13.53 13.48 13.55 13.51 13.38 13.29 13.22 13.14 OTHER TERMS3 Maturity (months) 7 New car 54.0 54.1 51.6 53.2 53.3 54.6 55.5 55.4 54.4 53.7 8 Used car 50.2 52.2 51.4 51.3 51.3 51.4 51.2 50.8 50.6 50.5 Loan-to-value ratio 9 New car 92 92 91 93 93 94 93 93 92 91 10 Used car 99 99 100 99 99 99 99 99 101 99 Amount financed (dollars) 11 New car 15,375 16,210 16,987 18,060 18,171 18,281 18,329 18,520 18,779 18,923 12 Used car 10,709 11,590 12,182 12,261 12,239 12,307 12,204 12,190 12,287 12,389 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 A3 9 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1 Billions of dollars; quarterly data at seasonally adjusted annual rates 1996 1997 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr Ql Q2 Q3 Q4 Ql Q2 Q3 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors.... 539.9 619.6 594.0 698.2 714.2 857.1 695.7 677.6 626.3 691.7 562.8 646.6 By sector and instrument ?. Federal government 304.0 256.1 155.9 144.4 145.0 227.3 62.7 163.2 126.9 81.2 -97.1 40.9 3 Treasury securities 303.8 248.3 155.7 142.9 146.6 229.6 60.5 166.3 130.2 82.6 -97.3 41.9 4 Budget agency securities and mortgages .2 7.8 .2 1.5 -1.6 -2.3 2.2 -3.1 -3.3 -1.4 .2 -.9 5 Nonfederal 235.9 363.4 438.1 553.7 569.2 629.9 633.0 514.4 499.4 6(0.5 659.9 605.6 By instrument 6 Commercial paper 8.6 10.0 21.4 18.1 -.9 25.4 9.2 -14.2 -24.1 7.8 21.4 15.5 7 Municipal securities and loans 30.5 74.8 -35.9 -48.2 1.3 -4.1 30.2 -65.2 44.2 23.2 76.5 40.4 8 Coiporate bonds 67.6 75.2 23.3 73.3 72.5 60.9 71.5 67.8 89.9 79.4 86.1 122.9 9 Bank loans n.e.c -12.0 6.4 75.2 102.0 66.8 47.5 49.7 136.2 33.6 147.6 105.4 25.8 in Other loans and advances 5.7 -18.9 37.3 46.5 21.5 20.4 33.9 46.4 -14.5 15.5 4.0 51.0 11 Mortgages 131.5 155.3 191.9 223.1 319.2 359.9 323.7 261.6 331.6 267.5 308.7 307.4 i? 189.1 184.1 199.0 192.4 268.1 316.9 255.4 248.2 251.6 242.0 217.8 223.1 13 Multifamily residential -10.7 -6.0 1.7 10.4 17.7 13.9 18.4 11.9 26.8 5.4 19.6 19.6 14 Commercial -47.4 -23.9 -11.0 18.8 30.9 27.5 45.1 -.6 51.5 18.1 67.2 60.4 15 Farm .5 1.0 2.2 1.6 2.6 1.6 4.9 2.2 1.6 2.1 4.1 4.3 16 Consumer credit 3.9 60.7 124.9 138.9 88.8 119.9 114.7 81.9 38.6 69.6 57.8 42.7 By borrowing sector 17 Household 191.1 246.2 343.7 354.9 362.9 446.2 378.1 345.5 281.6 333.3 295.1 224455..99 18 Nonfinancial business 23.7 54.9 140.8 241.8 193.7 176.0 216.9 219.7 162.0 242.3 280.6 308.4 19 Corporate 39.6 49.1 135.3 213.7 147.9 131.7 172.2 193.0 94.6 190.0 205.4 240.8 20 Nonfarm noncorporate -16.4 3.2 2.2 26.6 43.4 44.2 38.5 29.2 61.5 48.1 67.6 63.2 21 Farm .5 2.6 3.3 1.5 2.4 .1 6.2 -2.5 6.0 4.2 7.6 4.4 22 State and local government 21.1 62.3 -46.4 -42.9 12.7 7.7 38.0 -50.8 55.8 35.0 84.2 51.3 23 Foreign net borrowing in United States 24.1 69.8 -14.0 71.1 70.5 52.3 36.1 105.7 87.9 26.2 56.3 82.2 24 Commercial paper 5.6 -9.6 -26.1 13.5 11.3 -6.3 9.6 37.5 4.4 15.4 10.3 -11.6 25 Bonds 16.8 82.9 12.2 49.7 49.4 47.7 11.2 60.2 78.5 11.0 34.3 89.2 26 Bank loans n.e.c 2.3 .7 1.4 8.5 9.1 8.7 15.1 4.7 7.8 -.7 11.5 7.3 27 Other loans and advances -.6 -4.2 -1.5 -.5 .8 2.3 .1 3.4 -2.7 .5 .2 -2.7 28 Total domestic plus foreign 564.0 689.3 579.9 769.2 784.7 909.5 731.9 783.3 714.2 718.0 619.1 728.7 Financial sectors 29 Total net borrowing by financial sectors 240.2 293.6 464.3 448.4 536.3 342.0 721.7 436.8 644.8 323.4 665.8 526.2 By instrument 30 Federal government-related 155.8 165.3 287.5 204.1 231.5 148.8 301.4 222.9 252.8 105.7 286.2 161.0 31 Government-sponsored enterprise securities 40.3 80.6 176.9 105.9 90.4 31.4 126.9 80.0 123.3 -8.9 198.1 46.4 32 Mortgage pool securities 115.6 84.7 115.4 98.2 141.1 117.4 174.5 142.9 129.6 114.6 88.1 114.6 33 Loans from U.S. government .0 .0 -4.8 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 84.4 128.3 176.8 244.3 304.9 193.2 420.3 213.9 392.0 217.7 379.7 365.2 35 Open market paper -1.1 -5.5 40.5 42.7 92.2 17.1 105.4 84.4 162.0 175.9 77.8 168.2 36 Corporate bonds 84.8 122.2 117.6 188.2 156.5 150.5 230.9 80.7 164.0 38.9 215.0 129.9 37 Bank loans n.e.c .7 -14.4 -13.7 4.2 16.8 23.4 20.6 2.6 20.4 7.0 9.9 15.6 38 Other loans and advances -.6 22.4 22.6 3.4 27.9 -5.5 52.7 33.3 31.2 -20.1 63.0 37.5 39 Mortgages .6 3.6 9.8 5.9 11.4 7.7 10.8 12.9 14.3 16.0 14.0 14.0 By borrowing sector 40 Commercial banking 10.0 13.4 20.1 22.5 13.0 -34.2 44.5 14.7 26.8 13.7 8811..77 3300..11 41 Savings institutions -7.0 11.3 12.8 2.6 25.5 11.0 42.1 25.8 23.0 -16.8 31.9 21.2 42 Credit unions .0 .2 .2 -.1 .1 -.1 -.2 .3 .3 -.2 .2 .2 43 Life insurance companies .0 .2 .3 -.1 1.1 2.5 .3 -.4 2.0 .8 .1 .2 44 Government-sponsored enterprises 40.2 80.6 172.1 105.9 90.4 31.4 126.9 80.0 123.3 -8.9 198.1 46.4 45 Federally related mortgage pools 115.6 84.7 115.4 98.2 141.1 117.4 174.5 142.9 129.6 114.6 88.1 114.6 46 Issuers of asset-backed securities (ABSs) 57.3 82.8 68.8 132.9 132.0 138.9 162.5 88.0 138.6 62.2 93.7 165.2 47 Finance companies -3.1 -1.4 48.7 50.2 45.9 41.4 67.8 30.7 43.8 6.4 124.6 .1 48 Mortgage companies 8.0 .0 -11.5 .4 12.4 20.0 16.0 1.7 12.1 5.9 10.0 2.6 49 Real estate investment trusts (REITs) .3 3.4 13.7 6.0 12.8 8.2 11.5 13.7 17.7 19.1 18.6 23.2 50 Brokers and dealers 2.7 12.0 .5 -5.0 -2.0 -31.8 13.2 5.7 4.9 -2.9 34.9 -6.9 51 Funding corporations 16.2 6.3 23.1 34.9 64.1 37.2 62.7 33.7 123.0 129.4 -16.1 129.3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A38 Domestic NonfinancialS tatistics • March 1998 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1—Continued 1996 1997 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999922 11999933 11999944 11999955 11999966 Q1 Q2 Q3 Q4 Ql Q2 Q3 All sectors 52 Total net borrowing, all sectors 804.2 982.9 1,044.3 1,217.7 1,321.0 1,251.5 1,453.5 1,220.1 1,359.0 1,041.4 1,284.9 1,255.0 53 Open market paper 13.1 -5.1 35.7 74.3 102.6 36.2 124.2 107.7 142.3 199.2 109.5 172.0 54 U.S. government securities 459.8 421.4 448.1 348.5 376.5 376.1 364.1 386.1 379.7 186.9 189.1 201.9 55 Municipal securities 30.5 74.8 -35.9 -48.2 1.3 -4.1 30.2 -65.2 44.2 23.2 76.5 40.4 56 Corporate and foreign bonds 169.1 280.3 153.2 311.1 278.4 259.1 313.6 208.7 332.4 129.3 335.4 341.9 57 Bank loans n.e.c -8.9 -7.2 62.9 114.7 92.6 79.5 85.5 143.5 61.8 153.8 126.7 48.7 58 Other loans and advances 4.6 -.8 53.6 49.3 50.2 17.2 86.7 83.0 14.0 -4.1 67.2 85.9 59 Mortgages 132.1 158.9 201.7 229.0 330.6 367.6 334.5 274.5 345.9 283.5 322.7 321.4 60 Consumer credit 3.9 60.7 124.9 138.9 88.8 119.9 114.7 81.9 38.6 69.6 57.8 42.7 Funds raised through mutual funds and corporate equities 61 Total net issues 293.9 422.1 124.8 145.1 236.6 319.1 386.6 78.4 162.2 201.8 211.3 310.5 62 Corporate equities 103.4 130.1 24.1 -2.3 -1.0 21.5 82.1 -93.5 -14.1 -51.6 -49.7 13.5 63 Nonfinancial corporations 27.0 21.3 -44.9 -58.3 -64.2 -73.6 .4 -127.6 -56.0 -78.8 -90.4 -60.4 64 Foreign shares purchased by U.S. residents 32.4 63.4 48.1 50.4 58.8 90.1 70.1 32.7 42.3 47.0 53.0 62.8 65 Financial corporations 44.0 45.4 20.9 5.6 4.4 5.1 11.6 1.5 -.4 -19.8 -12.3 11.1 66 Mutual fund shares 190.5 292.0 100.6 147.4 237.6 297.6 304.5 171.9 176.3 253.4 261.0 297.0 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical release, tables F.2 through F.4. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A3 9 1.58 SUMMARY OF FINANCIAL TRANSACTIONS1 Billions of dollars except as noted; quarterly data at seasonally adjusted annual rates 1996 1997 TTrraannssaaccttiioonn ccaatteeggoorryy oorr sseeccttoorr 11999922 11999933 11999944 11999955 11999966 Ql Q2 Q3 Q4 Ql Q2 Q3 NET LENDING IN CREDIT MARKETS2 1 Total net lending in credit markets 804.2 982.9 1,044.3 1,217.7 1,321.0 1,251.5 1,453.5 1,220.1 1,359.0 1,041.4 1,284.9 1,255.0 2 Domestic nonfederal nonfinancial sectors 117.9 80.7 258.2 -86.5 -7.5 -43.2 321.9 -184.6 -124.0 -257.4 -101.5 -244.2 3 Household 88.6 40.0 295.0 -2.1 37.0 -81.3 288.4 -21.9 -37.3 -226.7 -37.2 -259.0 4 Nonfinancial corporate business 27.8 9.1 17.7 -2.4 11.4 31.7 37.4 -12.7 -10.9 71.0 -52.5 17.1 5 Nonfarm noncorporate business -.1 -1.1 .6 .3 .4 .4 .4 .4 .4 .5 .7 .8 6 State and local governments 1.7 32.6 -55.0 -82.4 -56.2 6.0 -4.4 -150.4 -76.2 -102.2 -12.5 -3.1 7 Federal government -11.9 -18.4 -24.2 -21.0 -19.8 -19.3 -13.5 -23.9 -22.5 -12.9 -6.6 -8.5 8 Rest of the world 98.4 129.3 132.3 273.9 409.1 350.0 268.9 485.4 532.2 366.4 298.9 411.5 9 Financial sectors 599.8 791.3 677.9 1,051.3 939.2 964.0 876.3 943.2 973.3 945.2 1,094.1 1,096.2 10 Monetary authority 27.9 36.2 31.5 12.7 12.3 17.5 11.7 11.5 8.4 37.4 47.2 14.3 11 Commercial banking 95.3 142.2 163.4 265.9 187.8 126.0 179.7 196.1 249.4 308.0 309.2 209.7 12 U.S.-chartered banks 69.5 149.6 148.1 186.5 119.6 78.3 121.9 119.5 158.9 195.9 301.1 209.5 13 Foreign banking offices in United States 16.5 -9.8 11.2 75.4 63.3 50.8 50.7 71.1 80.5 104.0 1.1 -.6 14 Bank holding companies 5.6 .0 .9 -.3 3.9 -5.1 5.4 4.8 10.5 2.2 5.1 -4.9 15 Banks in U.S.-affiliated areas 3.7 2.4 3.3 4.2 1.0 2.1 1.7 .7 -.6 6.0 1.8 5.7 16 Savings institutions -79.0 -23.3 6.7 -7.6 19.9 34.1 44.7 49.7 -48.8 -5.3 23.8 -47.6 17 Credit unions 17.7 21.7 28.1 16.2 25.5 23.6 33.0 21.1 24.3 18.5 25.7 15.7 18 Bank personal trusts and estates 8.0 9.5 7.1 -18.8 3.9 -3.5 4.2 7.8 7.2 8.2 8.9 9.4 19 Life insurance companies 79.5 100.9 66.7 99.2 72.5 47.6 .9 123.2 118.1 94.3 172.5 133.2 20 Other insurance companies 6.7 27.7 24.9 21.5 22.5 17.6 30.5 14.2 27.7 3.9 27.9 17.3 21 Private pension funds 37.5 49.5 47.7 63.1 46.6 69.5 45.4 41.9 29.5 57.5 57.8 68.1 22 State and local government retirement funds 5.9 21.1 30.7 22.7 34.5 54.9 47.9 19.0 16.1 38.7 39.2 39.2 23 Money market mutual funds 4.7 20.4 30.0 86.5 88.8 164.1 27.0 83.0 81.3 65.2 19.7 123.6 24 Mutual funds 126.2 159.5 -7.1 52.5 48.9 88.5 54.3 27.5 25.3 61.9 103.6 102.0 25 Closed-end funds 18.2 14.4 -3.3 13.3 9.3 10.9 9.8 9.0 7.5 6.7 5.3 4.3 26 Government-sponsored enterprises 68.8 87.8 117.8 84.7 92.0 33.9 114.7 81.4 137.9 45.1 119.2 55.5 27 Federally related mortgage pools 115.6 84.7 115.4 98.2 141.1 117.4 174.5 142.9 129.6 114.6 88.1 114.6 28 Asset-backed securities issuers (ABSs) 53.1 80.2 61.7 111.1 101.8 119.7 135.7 62.0 89.6 38.7 78.9 102.6 29 Finance companies .4 -20.9 48.3 49.9 18.4 30.3 36.3 13.2 -6.2 44.9 1.9 46.9 30 Mortgage companies .1 .0 -24.0 -3.4 8.2 51.8 -26.8 3.4 4.1 -3.4 6.5 5.9 31 Real estate investment trusts (REITs) 1.1 .6 4.7 2.2 3.0 3.4 3.4 3.4 2.0 2.0 3.4 3.4 32 Brokers and dealers -1.3 14.8 -44.2 90.1 -15.7 -109.0 -72.0 35.5 82.7 -14.5 -22.7 36.9 33 Funding corporations 13.3 -35.6 -28.4 -8.6 18.0 65.7 21.2 -2.4 -12.3 22.8 -21.8 41.1 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Net flows through credit markets 804.2 982.9 1,044.3 1,217.7 1,321.0 1,251.5 1,453.5 1,220.1 1,359.0 1,041.4 1,284.9 1,255.0 Other financial sources 35 Official foreign exchange -1.6 .8 -5.8 8.8 -6.3 -.9 1.6 -26.6 .7 -17.6 .4 2.4 36 Special drawing rights certificates -2.0 .0 .0 2.2 -.5 .0 .0 -1.8 .0 -2.1 .0 .0 37 Treasury currency .2 .4 .7 .6 .0 .0 .0 2.3 -2.3 .4 .2 1.3 38 Foreign deposits -3.4 -18.5 52.9 35.3 82.0 100.8 3.0 119.7 104.5 188.6 18.8 79.3 39 Net interbank transactions 49.4 50.5 89.8 9.9 -51.6 -76.1 -50.8 -97.2 17.6 -88.8 -43.8 -77.3 40 Checkable deposits and currency 113.5 117.3 -9.7 -12.7 15.8 6.8 3.9 105.9 -53.4 85.3 64.2 -49.4 41 Small time and savings deposits -57.3 -70.3 -39.9 96.6 97.1 207.7 -3.2 94.2 89.6 157.9 24.5 44.0 42 Large time deposits -73.2 -23.5 19.6 65.6 113.9 57.4 83.1 180.2 134.8 49.9 176.3 196.5 43 Money market fund shares 4.5 20.2 43.3 142.3 145.8 227.6 23.1 145.1 187.5 182.4 58.5 243.6 44 Security repurchase agreements 43.2 71.3 78.2 110.5 40.3 -4.8 98.4 -15.9 83.3 33.8 195.3 137.9 45 Corporate equities 103.4 130.1 24.1 -2.3 -1.0 21.5 82.1 -93.5 -14.1 -51.6 -49.7 13.5 46 Mutual fund shares 190.5 292.0 100.6 147.4 237.6 297.6 304.5 171.9 176.3 253.4 261.0 297.0 47 Trade payables 46.6 52.0 93.7 105.2 68.8 74.1 116.9 -12.9 97.0 67.9 68.1 149.8 48 Security credit 4.6 61.4 -.1 26.7 52.4 114.0 -34.8 5.3 125.2 117.1 137.4 46.7 49 Life insurance reserves 28.0 36.0 34.5 44.9 43.6 19.0 32.5 56.6 66.3 44.2 85.9 49.6 50 Pension fund reserves 230.3 254.7 253.2 241.1 224.2 224.7 183.2 215.8 273.2 260.5 313.6 313.1 51 Taxes payable 10.6 11.4 2.6 4.6 12.9 19.4 7.6 7.8 16.8 28.6 1.1 9.5 52 Investment in bank personal trusts -7.1 .9 17.8 -49.7 12.5 -.6 11.8 19.2 19.8 23.5 26.3 28.9 53 Noncorporate proprietors' equity 35.4 11.4 43.4 27.8 8.5 6.5 5.4 31.1 -9.0 6.6 4.2 7.1 54 Miscellaneous 261.6 351.9 268.1 477.9 466.9 477.6 420.7 393.1 576.3 518.4 667.2 569.2 55 Total financial sources 1,781.2 2,332.8 2,111.2 2,700.4 2,883.9 3,023.7 2,742.4 2,520.7 3,249.1 2,899.9 3,294.2 3,317.6 Liabilities not identified as assets (—) 56 Treasury currency -.2 -.2 -.2 -.5 -1.0 -1.1 -1.0 1.3 -3.1 -.3 -.5 .5 57 Foreign deposits -2.7 -5.7 43.0 25.7 57.1 73.2 26.6 91.3 37.3 183.0 -.2 56.6 58 Net interbank liabilities -4.9 4.2 -2.7 -3.1 -3.3 9.3 -22.5 -4.4 4.2 26.9 -24.4 -51.5 59 Security repurchase agreements 4.8 46.1 57.2 55.0 25.7 27.6 124.7 -133.4 83.9 -120.5 139.3 20.9 60 Taxes payable 12.8 15.8 16.6 17.8 15.2 .3 23.2 15.6 21.8 10.4 27.5 -8.4 61 Miscellaneous -54.6 -186.4 -153.4 -85.9 -98.3 -165.0 -129.4 -165.5 66.5 -104.0 -318.9 -80.9 Floats not included in assets ( —) 62 Federal government checkable deposits .7 -1.5 -4.8 -6.0 .5 2.7 -6.6 27.1 -21.4 -9.4 16.1 2.1 63 Other checkable deposits 1.6 -1.3 -2.8 -3.8 -4.0 -2.8 -5.0 -4.7 -3.7 -2.6 -4.8 -3.4 64 Trade credit 11.4 -4.3 .3 -29.1 -34.8 10.4 .2 -105.9 -44.1 18.9 -70.1 -3.1 65 Total identified to sectors as assets 1,812.4 2,466.0 2,157.9 2,730.3 2,927.0 3,069.0 2,732.0 2,799.2 3,107.6 2,897.6 3,530.2 3,384.8 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund shares. F.l and F.5. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A40 Domestic Financial Statistics • March 1998 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING1 Billions of dollars, end of period 1996 1997 Q1 Q2 Q3 Q4 Ql Q2 Q3 Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 12,486.9 13,087.1 13,785.3 14,499.4 13,981.0 14,133.4 14,307.6 14,499.4 14,656.7 14,770.4 14,937.7 By sector and instrument 2 Federal government 3,336.5 3,492.3 3,636.7 3,781.8 3,717.2 3,693.8 3,733.1 3,781.8 3,829.8 3,760.6 3,771.2 Treasury securities 3,309.9 3,465.6 3,608.5 3,755.1 3,689.6 3,665.5 3,705.7 3,755.1 3,803.5 3,734.3 3,745.1 4 Budget agency securities and mortgages 26.6 26.7 28.2 26.6 27.6 28.2 27.4 26.6 26.3 26.3 26.1 5 Nonfederal 9,150.4 9,594.8 10,148.5 10,717.7 10,263.7 10,439.6 10,574.5 10,717.7 10,826.9 11,009.8 11,166.5 By instrument 6 Commercial paper 117.8 139.2 157.4 156.4 174.2 181.7 173.0 156.4 168.7 179.3 176.6 / Municipal securities and loans 1,377.5 1,341.7 1,293.5 1,294.8 1,290.3 1,296.1 1,279.8 1,294.8 1,298.8 1,315.5 1,324.9 8 Corporate bonds 1,229.7 1,253.0 1,326.3 1,398.8 1,341.5 1,359.4 1,376.4 1,398.8 1,418.7 1,440.2 1,470.9 y Bank loans n.e.c 684.8 759.9 861.9 928.6 871.8 889.3 919.2 928.6 964.3 995.8 998.0 10 Other loans and advances 629.3 673.0 719.4 741.0 728.8 736.4 744.3 741.0 749.3 749.2 758.0 n Mortgages 4,252.2 4,444.1 4,667.2 4,986.5 4,744.0 4,832.2 4,908.3 4,986.5 5,040.7 5,124.8 5,212.9 12 Home 3,225.4 3,424.4 3,616.8 3,851.2 3,682.8 3,720.2 3,793.0 3,851.2 3,899.0 3,960.4 4,027.4 13 Multifamily residential 267.0 268.7 279.1 300.5 282.6 290.9 293.8 300.5 301.9 306.8 311.7 14 Commercial 679.0 668.0 686.8 747.6 693.6 734.9 734.7 747.6 752.1 768.9 784.0 15 Farm 80.7 83.0 84.6 87.1 85.0 86.2 86.7 87.1 87.7 88.7 89.8 16 Consumer credit 859.0 983.9 1,122.8 1,211.6 1,113.2 1,144.5 1,173.5 1,211.6 1,186.4 1,205.0 1,225.2 By borrowing sector 17 Household 4,203.9 4,550.4 4,910.5 5,244.2 4,970.0 5,043.1 5,148.3 5,244.2 5,273.8 5,361.0 5,441.4 18 Nonfinancial business 3,784.7 3,929.0 4,165.5 4,388.3 4,220.6 4,315.9 4,358.3 4,388.3 4,460.1 4,537.5 4,601.6 19 Corporate 2,528.3 2,667.1 2,875.6 3,052.6 2,922.3 3,003.1 3,038.1 3,052.6 3,114.0 3,169.1 3,215.8 20 Nonfarm noncorporate 1,118.5 1,120.7 1,147.3 1,190.7 1,158.3 1,167.9 1,174.6 1,190.7 1,202.6 1,219.5 1,234.7 21 Farm 137.9 141.2 142.7 145.1 140.0 145.0 145.5 145.1 143.5 148.8 151.1 22 State and local government 1,161.8 1,115.4 1,072.5 1,085.1 1,073.1 1,080.6 1,068.0 1,085.1 1,093.0 1,111.3 1,123.5 23 Foreign credit market debt held in United States 385.8 371.8 442.9 513.4 453.6 462.6 490.2 513.4 517.8 531.6 547.3 24 Commercial paper 68.8 42.7 56.2 67.5 52.5 54.5 65.8 67.5 69.3 71.3 64.3 25 Bonds 230.1 242.3 291.9 341.3 303.8 306.7 321.7 341.3 344.1 352.7 374.9 2b Bank loans n.e.c 24.6 26.1 34.6 43.7 36.8 40.5 41.7 43.7 43.5 46.4 48.2 27 Other loans and advances 62.3 60.8 60.2 61.0 60.6 60.9 61.0 61.0 60.9 61.2 59.8 28 Total credit market debt owed by nonfinancial sectors, domestic and foreign 12,872.7 13,458.9 14,228.2 15,012.9 14,434.6 14,596.0 14,797.8 15,012.9 15,174.5 15,301.9 15,485.0 Financial sectors 29 Total credit market debt owed by financial sectors 3,325.3 3,797.3 4,248.4 4,784.7 4,329.3 4,511.9 4,624.1 4,784.7 4,860.7 5,030.0 5,131.7 By instrument 30 Federal government-related 1,885.2 2,172.7 2,376.8 2,608.3 2,414.0 2,489.4 2,545.1 2,608.3 2,634.7 2,706.2 2,746.5 31 Government-sponsored enterprise secunties 523.7 700.6 806.5 896.9 814.4 846.1 866.1 896.9 894.7 944.2 955.8 32 Mortgage pool securities 1.356.8 1,472.1 1,570.3 1,711.4 1,599.7 1,643.3 1,679.0 1,711.4 1,740.0 1,762.1 1,790.7 ii Loans from U.S. government 4.8 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 1,440.0 1,624.6 1,871.5 2,176.4 1,915.3 2,022.5 2,079.0 2,176.4 2,226.0 2,323.8 2,385.2 35 Open market paper 393.4 441.6 486.9 579.1 490.9 517.3 538.6 579.1 623.0 642.5 684.7 36 Corporate bonds 866.2 983.9 1,172.0 1,328.5 1,205.7 1,265.2 1,288.8 1,328.5 1,333.8 1,390.1 1,392.9 3/ Bank loans n.e.c 62.6 48.9 53.1 69.8 58.6 63.9 64.2 69.8 71.3 74.1 77.5 38 Other loans and advances 108.9 131.6 135.0 162.9 133.6 146.8 155.1 162.9 157.9 173.7 183.0 39 Mortgages 8.9 18.7 24.6 36.0 26.5 29.2 32.4 36.0 40.0 43.5 47.0 By borrowing sector 40 Commercial banks 84.6 94.5 102.6 113.6 100.5 104.6 107.7 113.6 115.3 125.7 130.0 41 Bank holding companies 123.4 133.6 148.0 150.0 141.4 148.4 149.1 150.0 151.6 161.6 164.6 42 Savings institutions 99.6 112.4 115.0 140.5 117.8 128.3 134.8 140.5 136.3 144.3 149.6 43 Credit unions .2 .5 .4 .4 .4 .3 .4 .4 .4 .4 .5 44 Life insurance companies .2 .6 .5 1.6 1.1 1.2 1.1 1.6 1.8 1.8 1.9 45 Government-sponsored enterprises 528.5 700.6 806.5 896.9 814.4 846.1 866.1 896.9 894.7 944.2 955.8 46 Federally related mortgage pools 1,356.8 1,472.1 1,570.3 1,711.4 1,599.7 1,643.3 1,679.0 1,711.4 1,740.0 1,762.1 1,790.7 47 Issuers of asset-backed securities (ABSs) 485.3 554.1 687.0 819.1 717.3 756.6 781.2 819.1 829.6 852.0 907.2 4488 Brokers and dealers 33.7 34.3 29.3 27.3 21.4 24.6 26.1 27.3 26.6 35.3 33.6 4499 Finance companies 385.1 433.7 483.9 529.8 491.1 506.3 513.7 529.8 528.2 557.8 533.5 50 Mortgage companies 30.2 18.7 19.1 31.5 24.1 28.1 28.5 31.5 33.0 35.5 36.2 51 Real estate investment trusts (REITs) 17.4 31.1 37.1 49.9 39.1 42.0 45.4 49.9 54.6 59.3 65.1 52 Funding corporations 180.3 211.0 248.6 312.7 261.3 282.0 291.0 312.7 348.6 350.0 363.1 All sectors 53 Total credit market debt, domestic and foreign.... 16,197.9 17,256.2 18,476.5 19,797.6 18,763.9 19,107.8 19,421.9 19,797.6 20,035.2 20,332.0 20,616.7 54 Open market paper 580.0 623.5 700.4 803.0 717.6 753.6 777.4 803.0 861.1 893.1 925.7 55 US. government securities 5,216.9 5,665.0 6,013.6 6,390.0 6,131.2 6,183.1 6,278.2 6,390.0 6,464.5 6,466.8 6,517.7 56 Municipal securities 1,377.5 1,341.7 1,293.5 1,294.8 1,290.3 1,296.1 1,279.8 1,294.8 1,298.8 1,315.5 1,324.9 5/ Corporate and foreign bonds 2,326.0 2,479.1 2,790.3 3,068.7 2,851.1 2,931.3 2,986.8 3,068.7 3,096.6 3,182.9 3,238.8 58 Bank loans n.e.c 772.0 834.9 949.6 1,042.1 967.1 993.8 1,025.1 1,042.1 1,079.1 1,116.2 1,123.6 59 Other loans and advances 805.3 865.3 914.6 964.9 923.0 944.1 960.4 964.9 968.1 984.1 1,000.9 60 MMoorrttggaaggeess 4,261.2 4,462.8 4,691.8 5,022.5 4,770.5 4,861.4 4,940.7 5,022.5 5,080.7 5,168.4 5,259.9 61 CCoonnssuummeerr ccrreeddiitt 859.0 983.9 1,122.8 1,211.6 1,113.2 1,144.5 1,173.5 1,211.6 1,186.4 1,205.0 1,225.2 1. Data in this table also appear in the Board's Z.l (780) quarterly statistical release, tables L.2 through L.4. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A3 9 1.60 SUMMARY OF FINANCIAL ASSETS AND LIABILITIES1 Billions of dollars except as noted, end of period 1996 1997 Transaction category or sector 1993 1994 1995 11999966 Q1 Q2 Q3 Q4 Q1 Q2 Q3 CREDIT MARKET DEBT OUTSTANDING2 1 Total credit market assets 16,197.9 17,256.2 18,476.5 19,797.6 18,763.9 19,107.8 19,421.9 19,797.6 20,035.2 20,332.0 20,616.7 2 Domestic nonfederal nonfinancial sectors 2,796.9 3,087.9 2,966.3 3,003.9 2,929.4 3,017.1 2,986.8 3,003.9 2,911.9 2,863.7 2,787.4 3 Household 1,703.5 2,031.3 1,994.0 2,076.1 1,971.1 2,044.1 2,056.5 2,076.1 2,017.7 1,977.9 1,899.2 4 Nonfinancial corporate business 271.5 289.2 286.8 298.2 273.6 285.7 282.3 298.2 292.6 283.4 288.0 5 Nonfarm noncorporate business 37.0 37.6 37.9 38.3 38.0 38.1 38.2 38.3 38.5 38.6 38.8 6 State and local governments 784.9 729.9 647.5 591.3 646.8 649.1 609.9 591.3 563.3 563.7 561.4 7 Federal government 231.9 207.8 186.7 166.9 181.8 178.5 172.6 166.9 163.6 162.0 160.0 8 Rest of the world 1,147.8 1,254.8 1,563.1 1,953.5 1,656.5 1,722.0 1,844.6 1,953.5 2,050.8 2,123.9 2,228.1 9 Financial sectors 12,021.3 12,705.7 13,760.4 14,673.2 13,996.1 14,190.3 14,417.8 14,673.2 14,908.9 15,182.4 15,441.2 10 Monetary authority 336.7 368.2 380.8 393.1 379.6 386.3 386.2 393.1 397.1 412.4 412.7 11 Commercial banking 3,090.8 3,254.3 3,520.1 3,707.9 3,541.6 3,590.8 3,643.3 3,707.9 3,776.0 3,857.1 3,913.1 12 U.S.-chartered banks 2,721.5 2,869.6 3,056.1 3,175.8 3,068.8 3,101.3 3,135.3 3,175.8 3,218.1 3,295.2 3,351.9 13 Foreign banking offices in United States 326.0 337.1 412.6 475.8 422.2 437.1 454.2 475.8 499.5 501.8 501.0 14 Bank holding companies 17.5 18.4 18.0 22.0 16.8 18.1 19.3 22.0 22.5 23.8 22.5 Ii Banks in U.S.-affiliated areas 25.8 29.2 33.4 34.4 33.9 34.3 34.5 34.4 35.9 36.3 37.7 16 Savings institutions 914.1 920.8 913.3 933.2 921.8 933.0 945.4 933.2 931.9 937.8 925.9 17 Credit unions 218.7 246.8 263.0 288.5 267.0 276.9 282.6 288.5 291.2 299.2 303.6 18 Bank personal trusts and estates 240.9 248.0 229.2 233.1 228.3 229.4 231.3 233.1 235.2 237.4 239.7 19 Life insurance companies 1,416.0 1,482.6 1,581.8 1,654.3 1,596.2 1,596.7 1,627.0 1,654.3 1,680.2 1,723.5 1,756.3 20 Other insurance companies 422.7 446.4 468.7 491.2 473.1 480.7 484.2 491.2 492.2 499.1 503.5 21 Private pension funds 611.4 659.2 722.3 768.8 739.6 751.0 761.4 768.8 783.2 797.7 814.7 22 State and local government retirement funds 423.4 454.1 476.8 511.3 491.9 505.0 506.3 511.3 522.5 533.6 540.0 23 Money market mutual funds 429.0 459.0 545.5 634.3 595.6 594.7 606.6 634.3 659.0 656.5 678.7 24 Mutual funds 725.9 718.8 771.3 820.2 795.9 809.0 818.3 820.2 838.3 863.5 891.7 25 Closed-end funds 82.0 78.7 92.0 101.3 94.8 97.2 99.5 101.3 103.0 104.3 105.4 26 Government-sponsored enterprises 545.5 663.3 748.0 813.6 755.8 758.9 779.3 813.6 824.3 854.8 868.7 27 Federally related mortgage pools 1,356.8 1,472.1 1,570.3 1,711.4 1,599.7 1,643.3 1,679.0 1,711.4 1,740.0 1,762.1 1,790.7 28 Asset-backed securities issuers (ABSs) 455.1 516.8 627.9 729.7 653.3 686.0 704.1 729.7 734.3 753.0 781.5 29 Finance companies 427.9 476.2 526.2 544.5 530.3 539.9 538.3 544.5 552.4 553.1 559.8 30 Mortgage companies 60.4 36.5 33.0 41.2 46.0 39.3 40.2 41.2 40.3 42.0 43.4 31 Real estate investment trusts (REITs) 8.6 13.3 15.5 18.5 16.3 17.2 18.0 18.5 19.0 19.9 20.7 32 Brokers and dealers 137.5 93.3 183.4 167.7 156.2 138.2 147.1 167.7 164.1 158.4 167.7 33 Funding corporations 117.9 97.3 91.3 109.3 113.2 116.8 119.8 109.3 124.8 116.9 123.4 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Total credit market debt 16,197.9 17,256.2 18,476.5 19,797.6 18,763.9 19,107.8 19,421.9 19,797.6 20,035.2 20,332.0 20,616.7 Other liabilities 35 Official foreign exchange 53.4 53.2 63.7 53.7 62.1 61.4 54.3 53.7 46.3 46.7 46.1 36 Special drawing rights certificates 8.0 8.0 10.2 9.7 10.2 10.2 9.7 9.7 9.2 9.2 9.2 37 Treasury currency 17.0 17.6 18.2 18.2 18.2 18.2 18.8 18.2 18.3 18.3 18.7 38 Foreign deposits 271.8 324.6 359.2 438.1 384.4 385.2 415.1 438.1 485.2 489.9 509.7 39 Net interbank liabilities 189.3 280.1 290.7 240.8 266.6 250.0 225.8 240.8 210.2 197.0 178.2 40 Checkable deposits and currency 1,251.7 1,242.0 1,229.3 1,245.1 1,183.3 1,212.3 1,220.8 1,245.1 1,220.0 1,265.3 1,234.1 41 Small time and savings deposits 2,223.1 2,183.2 2,279.7 2,376.8 2,342.4 2,340.2 2,357.9 2,376.8 2,427.0 2,432.1 2,436.2 42 Large time deposits 391.7 411.2 476.9 590.7 493.6 511.1 557.2 590.7 605.8 646.6 696.6 43 Money market fund shares 559.6 602.9 745.3 891.1 816.9 809.5 838.1 891.1 950.8 952.4 1,005.1 44 Security repurchase agreements 471.3 549.5 660.0 700.3 666.0 692.0 687.6 700.3 713.6 765.8 798.6 45 Mutual fund shares 1,375.4 1,477.3 1,852.8 2,342.4 1,997.0 2,129.9 2,211.6 2,342.4 2,411.5 2,720.9 2,981.1 46 Security credit 279.0 279.0 305.7 358.1 326.9 318.6 317.8 358.1 380.0 414.8 423.9 47 Life insurance reserves 470.8 505.3 550.2 593.8 555.0 563.1 577.2 593.8 604.8 626.3 638.7 48 Pension fund reserves 4,663.3 4,871.8 5,597.3 6,310.8 5,771.6 5,898.9 6,018.2 6,310.8 6,397.3 6,916.6 7,296.2 49 Trade payables 1,047.8 1,141.5 1,246.7 1,315.5 1,234.6 1,269.7 1,263.7 1,315.5 1,301.6 1,324.4 1,357.9 50 Taxes payable 98.8 101.4 106.0 118.9 116.2 113.4 116.7 118.9 131.6 127.1 130.7 51 Investment in bank personal trusts 691.3 699.4 767.4 872.0 793.7 811.7 829.0 872.0 890.4 969.7 1,035.2 52 Miscellaneous 5,106.5 5,377.4 5,781.0 6,128.0 5,943.3 5,933.2 6,016.3 6,128.0 6,297.5 6,238.4 6,393.4 53 Total liabilities 35,367.7 37,381.8 40,816.7 44,401.5 41,745.8 42,436.3 43,157.7 44,401.5 45,136.4 46,493.6 47,806.5 Financial assets not included in liabilities (+) 54 Gold and special drawing rights 20.1 21.1 22.1 21.4 22.1 22.0 21.2 21.4 20.9 21.1 21.0 55 Corporate equities 6,257.6 6,237.9 8,331.3 10,061.1 8,809.7 9,105.0 9,340.5 10,061.1 10,072.3 11,719.8 12,804.6 56 Household equity in noncorporate business 3,225.5 3,423.9 3,632.0 3,856.1 3,683.5 3,744.3 3,812.9 3,856.1 3,937.9 4,003.2 4,051.2 Liabilities not identified as assets (—) 57 Treasury currency -5.1 -5.4 -5.8 -6.8 -6.1 -6.3 -6.0 -6.8 -6.9 -7.0 -6.9 58 Foreign deposits 233.2 276.2 301.2 355.4 319.5 326.1 348.9 355.4 401.1 401.0 415.2 59 Net interbank transactions -4.7 -6.5 -9.0 -10.6 -2.6 -8.0 -11.6 -10.6 -1.6 -8.1 -22.1 60 Security repurchase agreements -1.4 55.8 110.8 136.6 121.7 149.1 126.4 136.6 107.7 140.3 155.5 61 Taxes payable 40.8 48.8 60.8 72.1 45.8 61.0 66.5 72.1 69.1 70.8 75.5 62 Miscellaneous -892.5 -991.5 -1,083.9 -1,373.7 -1,104.2 -1,222.3 -1,265.3 -1,373.7 -1,315.8 -1,379.9 -1,334.3 Floats not included in assets (—) 63 Federal government checkable deposits 5.6 3.4 3.1 -1.6 .0 -3.4 -1.7 -1.6 -9.7 -6.8 -7.8 64 Other checkable deposits 40.7 38.0 34.2 30.1 29.6 31.8 23.1 30.1 25.6 27.9 19.5 65 Trade credit -245.3 -245.8 -274.9 -309.7 -328.3 -338.5 -378.3 -309.7 -363.5 -388.4 -414.2 66 Total identified to sectors as assets 45,699.5 47,891.6 53,665.6 59,448.4 55,185.8 56,318.1 57,430.3 59,448.4 60,261.5 63,387.7 65,802.9 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. L.l and L.5. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A42 Domestic Nonfinancial Statistics • March 1998 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, and indexes 1992=100, except as noted 1997 MMeeaassuurree 11999955 11999966 11999977 Apr. May June July Aug. Sept. Oct. Nov/ Dec. 1 Industrial production1 114.5 118.5 124.5 123.1 123.3 123.5 124.5 125.2 125.6r 126.5r 127.5 128.1 Market groupings 2 Products, total 110.6 113.7 118.4 117.2 117.7 117.6 118.1 119.2 119. lr 120.0r 120.8 121.2 3 Final, total 111.3 114.6 119.6 118.0 118.6 118.6 119.2 120.5 120.3r 121.1 122.2 122.6 4 Consumer goods 109.9 111.8 114.4 113.4 113.9 113.5 113.9 114.6 114.5r 115.4 116.3 116.6 5 Equipment 113.8 119.6 128.7 126.0 126.8 127.7 128.6 130.9 130.6r 131.3 132.5 133.1 6 Intermediate 108.3 110.8 115.0 114.7 114.9 114.7 114.6 115.3 115.2r 116.4r 116.6 117.2 7 Materials 120.8 126.2 134.2 132.5 132.4 133.0 134.9 134.9 136.1r 136.9 138.3 139.3 Industry groupings 8 Manufacturing 116.0 120.2 127.0 125.4 125.7 126.1 126.9 127.9 128.01 128.9r 130.5 131.1 9 Capacity utilization, manufacturing (percent)2.. 82.8 81.4 81.7 81.6 81.4 81.3 81.5 81.8 81.6r 81.8 82.4 82.5 10 Construction contracts3 122.1 130.8 137.7 142 ff 144.0 144.0r 140.0r m.ff 139.0r 139.0r 133.0 130.0 11 Nonagricultural employment, total4 114.9 117.2 119.9 119.3 119.5 119.7 120.1 120.1 120.4 120.7 121.1 121.5 12 Goods-producing, total 98.3 99.0 100.3 100.0 100.1 100.2 100.2 100.4 100.4 100.6 100.9 101.2 13 Manufacturing, total 97.5 97.2 97.6 97.4 97.4 97.5 97.5 97.7 97.7 97.9 98.1 98.3 14 Manufacturing, production workers 99.0 98.4 98.9 98.6 98.7 98.8 98.8 98.9 99.0 99.2 99.5 99.8 15 Service-producing 120.2 123.0 126.2 125.5 125.7 126.0 126.5 126.5 126.8 127.2 127.6 128.0 16 Personal income, total 158.2 167.0 n.a. 174.9 175.5 176.5 176.7 177.8 178.3 179.4 180.7 n.a. 17 Wages and salary disbursements 150.9 159.8 n.a. 168.2 168.7 170.2 170.3 171.7 172.3 173.5 175.4 n.a. 18 Manufacturing 130.4 135.7 n.a. 140.7 140.9 141.0 141.1 142.1 142.8 144.4 145.5 n.a. 19 Disposable personal income5 158.7 166.2 n.a. 172.8 173.2 174.1 174.3 175.2 175.8 176.7 178.0 n.a. 20 Retail sales5 151.2 158.6 165.8 163.7 163.3 164.5 166.5 167.2 166.7 166.5r 167.0 168.2 Prices6 21 Consumer (1982-84=100) 152.4 156.9 160.5 160.2 160.1 160.3 160.5 160.8 161.2 161.6 161.5 161.3 22 Producer finished goods (1982=100) 127.9 131.3 131.8 131.6 131.6 131.6 131.3 131.7 131.8 132.4 131.8 131.1 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 December 1997. The recent 5. Based on data from U.S. Department of Commerce, Survey of Current Business. annual revision is described in an article in the February 1998 issue of the Bulletin. For a 6. Based on data not seasonally adjusted. Seasonally adjusted data for changes in the price description of the aggregation methods for industrial production and capacity utilization, see indexes can be obtained from the U.S. Department of Labor, Bureau of Labor Statistics, "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- Monthly Labor Review. ments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. For details about the NOTE. Basic data (not indexes) for series mentioned in notes 4 and 5, and indexes for series construction of individual industrial production series, see "Industrial Production: 1989 mentioned in notes 3 and 6, can also be found in the Survey of Current Business. Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), pp. Figures for industrial production for the latest month are preliminary, and many figures for 187-204. the three months preceding the latest month have been revised. See "Recent Developments in 2. Ratio of index of production to index of capacity. Based on data from the Federal Industrial Capacity and Utilization," Federal Reserve Bulletin, vol. 76 (June 1990), pp. Reserve, DRI McGraw-Hill, U.S. Department of Commerce, and other sources. 411-35. See also "Industrial Production Capacity and Capacity Utilization since 1987," 3. Index of dollar value of total construction contracts, including residential, nonresiden- Federal Reserve Bulletin, vol. 79 (June 1993), pp. 590-605. tial, and heavy engineering, from McGraw-Hill Information Systems Company, F.W. Dodge Division. 2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data seasonally adjusted 1997 CCaatteeggoorryy 11999955rr 11999966rr 11999977 May June July Aug. Sept. Oct/ Nov/ Dec. HOUSEHOLD SURVEY DATA1 1 Civilian labor force2 132,304 133,943 126,297 136,060r 136,206r 136,294r 136,404r 136,439r 136,406 136,864 113377,,116699 Employment 2 Nonagricultural industries3 121,460 123,264 126,159 126,076r 126,003r 126,209r 126,368r 126,339r 126,583 127,191 127,392 3 Agriculture 3,440 3,443 3,399 3,418r 3,389r 3,452r 3,379r 3,422r 3,327 3,384 33,,338855 Unemployment 4 Number 7,404 7,236 6,739 6,566r 6,814r 6,633r 6,657r 6,678r 6,496 6,289 6,392 5 Rate (percent of civilian labor force) 5.6 5.4 4.9 4.8 5.0 4.9r 4.9 4.9 4.8 4.6 4.7 ESTABLISHMENT SURVEY DATA 6 Nonagricultural payroll employment4 117,191 119,523 122,257 121,834 122,056 122,440 122,492 122,792 123,083 123,495 123,865 7 Manufacturing 18,524 18,457 18,538 18,498 18,518 18,514 18,555 18,553 18,590 18,639 18,678 8 Mining 581 574 573 576 574 574 573 576 574 572 572 9 Contract construction 5,160 5,400 5,627 5,628 5,622 5,625 5,637 5,642 5,650 5,680 5,730 10 Transportation and public utilities 6,132 6,261 6,426 6,431 6,434 6,443 6,289 6,473 6,497 6,498 6,488 11 Trade 27,565 28,108 28,788 28,656 28,713 28,823 28,864 28,902 28,970 29,103 29,168 12 Finance 6,806 6,899 7,053 7,029 7,034 7,058 7,068 7,082 7,108 7,132 7,155 13 Service 33,117 34,377 35,597 35,451 35,522 35,684 35,702 35,850 35,945 36,109 36,290 14 Government 19,305 19,447 19,655 19,565 19,639 19,719 19,804 19,714 19,749 19,762 19,784 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 1997 1997 1997 SSeerriieess Ql Q2 Q3r Q4 Ql Q2 Q3 Q4 Ql Q2 Q3r Q4 Output (1992=100) Capacity (percent of 1992 output) Capacity utilization rate (percent)2 1 Total industry 121.9 123.3 125.1 127.4 147.8 149.6 151.3 153.0 82.5 82.4 82.7 83.2 2 Manufacturing 124.2 125.7 127.6 130.2 152.3 154.3 156.3 158.3 81.6 81.5 81.6 82.2 3 Primary processing3 116.7 117.7 118.5 120.1 135.8 136.9 138.0 139.2 85.9 86.0 85.8 86.2 4 Advanced processing4 128.0 129.7 132.1 135.2 160.6 163.2 165.7 168.1 79.7 79.5 79.8 80.4 5 Durable goods 137.5 140.2 143.7 147.3 170.4 173.8 177.2 180.6 80.7 80.7 81.1 81.6 6 Lumber and products 113.5 116.4 114.9 114.2 137.3 138.6 140.0 141.3 82.7 84.0 82.1 80.8 7 Primary metals 120.9 123.8 125.5 128.5 134.7 136.0 137.2 138.5 89.8 91.0 91.5 92.8 8 Iron and steel 119.4 122.6 122.8 127.7 134.1 135.4 136.6 137.9 89.1 90.6 89.9 92.6 9 Nonferrous 122.7 125.3 128.8 129.4 135.2 136.4 137.7 138.9 90.8 91.8 93.5 93.2 10 Industrial machinery and equipment 163.9 168.2 173.9 177.7 193.3 199.0 204.4 210.0 84.8 84.5 85.1 84.6 11 Electrical machinery 216.4 226.6 236.6 246.4 264.4 276.7 289.1 301.9 81.9 81.9 81.9 81.6 12 Motor vehicles and parts 133.6 130.5 136.7 142.7 180.6 182.6 184.7 186.7 74.0 71.4 74.0 76.4 13 Aerospace and miscellaneous transportation equipment 89.9 92.8 95.6 98.6 122.7 123.4 124.1 124.8 73.3 75.2 77.1 79.1 14 Nondurable goods 110.3 110.7 111.1 112.6 133.6 134.3 135.0 135.7 82.6 82.4 82.3 82.9 15 Textile mill products 107.3 108.5 110.9 112.6 130.5 131.1 131.7 132.3 82.3 82.8 84.3 85.1 16 Paper and products 111.7 112.2 114.1 115.5 124.9 125.5 126.0 126.7 89.4 89.4 90.5 91.2 17 Chemicals and products 114.5 114.8 114.8 116.2 143.9 145.1 146.3 147.5 79.5 79.1 78.5 78.7 18 Plastics materials 126.8 127.6 130.6 136.3 138.1 140.0 93.0 92.4 93.3 19 Petroleum products 107.7 111.0 109.5 110.3 114.1 114.7 115.2 115.7 94.4 96.8 95.1 95.3 20 Mining 105.4 106.0 106.4 106.0 117.6 117.9 118.1 118.2 89.6 89.9 90.1 89.7 21 Utilities 110.8 111.7 114.0 115.4 125.8 126.3 126.7 127.1 88.1 88.5 90.0 90.8 22 Electric 111.5 111.3 114.2 115.4 124.2 124.6 125.0 125.4 89.8 89.3 91.4 92.1 1973 1975 Previous cycle5 Latest cycle6 1996 1997 High Low High Low High Low Dec. July Aug. Sept.r Oct/ Nov. Dec.p Capacity utilization rate (percent)2 1 Total industry 89.2 72.6 87.3 71.1 85.4 78.1 82.5 82.6 82.8 82.7 83.0 83.3 83.4 2 Manufacturing 88.5 70.5 86.9 69.0 85.7 76.6 81.5 81.5 81.8 81.6 81.8 82.4 82.5 3 Primary processing3 91.2 68.2 88.1 66.2 88.9 77.7 85.7 86.0 85.8 85.7 85.7 86.3 86.7 4 Advanced processing4 87.2 71.8 86.7 70.4 84.2 76.1 79.7 79.6 80.0 79.7 80.0 80.6 80.6 5 Durable goods 89.2 68.9 87.7 63.9 84.6 73.1 80.4 80.8 81.4 81.0 81.0 81.9 81.8 6 Lumber and products 88.7 61.2 87.9 60.8 93.6 75.5 80.8 83.2 82.5 80.7 79.9 81.5 81.0 7 Primary metals 100.2 65.9 94.2 45.1 92.7 73.7 90.0 91.5 91.4 91.5 92.3 92.8 93.3 8 Iron and steel 105.8 66.6 95.8 37.0 95.2 71.8 88.5 89.7 89.1 90.8 92.0 92.8 93.1 9 Nonferrous 90.8 59.8 91.1 60.1 89.3 74.2 91.9 93.8 94.3 92.5 92.8 93.1 93.7 10 Industrial machinery and equipment 96.0 74.3 93.2 64.0 85.4 72.3 85.0 85.0 86.1 84.2 84.7 84.5 84.6 11 Electrical machinery 89.2 64.7 89.4 71.6 84.0 75.0 82.0 82.7 81.9 81.0 80.9 81.8 82.1 12 Motor vehicles and parts 93.4 51.3 95.0 45.5 89.1 55.9 72.6 70.7 75.2 76.2 75.0 78.7 75.6 13 Aerospace and miscellaneous transportation equipment 78.4 67.6 81.9 66.6 87.3 79.2 72.2 76.4 76.9 77.9 78.1 78.6 80.5 14 Nondurable goods 87.8 71.7 87.5 76.4 87.3 80.7 82.9 82.3 82.2 82.3 82.7 83.0 83.2 15 Textile mill products 91.4 60.0 91.2 72.3 90.4 77.7 81.4 84.2 84.1 84.5 84.6 85.4 85.4 16 Paper and products 97.1 69.2 96.1 80.6 93.5 85.0 89.7 90.8 90.8 90.1 90.2 91.8 91.5 17 Chemicals and products 87.6 69.7 84.6 69.9 86.2 79.3 80.3 78.4 78.3 78.8 78.9 78.5 78.8 18 Plastics materials 102.0 50.6 90.9 63.4 97.0 74.8 93.9 94.4 92.0 93.6 91.2 19 Petroleum products 96.7 81.1 90.0 66.8 88.5 85.1 93.8 94.7 95.2 95.4 96.2 94.1 95.7 20 Mining 94.3 88.2 96.0 80.3 88.0 87.0 87.6 90.3 90.0 90.1 89.8 89.5 89.7 21 Utilities 96.2 82.9 89.1 75.9 92.6 83.4 89.8 89.9 89.2 90.8 92.0 90.1 90.3 22 Electric 99.0 82.7 88.2 78.9 95.0 87.1 90.8 91.2 90.5 92.5 93.6 91.3 91.3 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 December 1997. The recent primary metals; and fabricated metals. annual revision is described in an article in the February 1998 issue of the Bulletin. For a 4. Advanced processing includes foods; tobacco; apparel; furniture and fixtures; printing description of the aggregation methods for industrial production and capacity utilization, see and publishing; chemical products such as drugs and toiletries; agricultural chemicals; leather "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- and products; machinery; transportation equipment; instruments; and miscellaneous manufacments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. For details about the tures. construction of individual industrial production series, see "Industrial Production: 1989 5. Monthly highs, 1978-80; monthly lows, 1982. Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), pp. 6. Monthly highs, 1988-89; monthly lows, 1990-91. 187-204. 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 • March 1998 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data seasonally adjusted 1996 1997 1992 1997 GGrroouupp Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.r Oct.r Nov. Dec.p Index (1992 = 100) MAJOR MARKETS 1 Total index 100.0 124.5 120.9 121.3 122.1 122.5 123.1 123.3 123.5 124.5 125.2 125.6 126.5 127.5 128.1 2 Products 60.5 118.4 115.9 116.0 1)6.5 116.9 117.2 117.7 117.6 118.1 119.2 119.1 120.0 120.8 121.2 3 Final products 46.3 119.6 116.8 116.8 117.2 117.9 118.0 118.6 118.6 119.2 120.5 120.3 121.1 122.2 122.6 4 Consumer goods, total 29.1 114.4 113.6 113.2 113.1 113.4 113.4 113.9 113.5 113.9 114.6 114.5 115.4 116.3 116.6 b Durable consumer goods 6.1 131.3 128.4 128.0 129.4 130.7 127.4 128.8 129.8 128.1 132.1 131.9 131.1 136.1 135.9 6 Automotive products 2.6 130.0 125.9 127.4 128.5 129.0 122.3 124.6 126.7 120.3 131.6 132.8 131.2 138.5 135.0 7 Autos and trucks 1.7 136.5 133.2 134.8 135.1 135.6 124.4 127.6 130.3 120.2 137.6 140.9 139.7 147.7 142.8 8 Autos, consumer .9 115.2 112.3 114.5 116.5 117.6 110.7 112.4 110.8 113.0 118.6 119.9 115.2 120.3 113.9 y Trucks, consumer .7 159.1 159.1 160.0 158.6 158.5 142.7 147.3 154.2 131.9 161.2 166.5 168.6 179.7 175.9 10 Auto parts and allied goods .9 119.5 114.3 115.5 117.9 118.4 118.2 119.1 120.3 119.3 121.8 120.1 117.9 124.1 122.6 N Other 3.5 132.3 130.4 128.5 130.1 132.0 131.4 132.1 132.3 134.4 132.5 131.1 131.0 134.1 136.6 12 Appliances, televisions, and air conditioners 1.0 168.2 165.9 157.3 164.1 166.9 164.2 166.5 165.4 174.8 169.8 166.0 167.1 173.3 180.2 13 Carpeting and furniture .8 117.3 114.5 114.1 114.3 116.7 116.7 117.7 119.0 116.4 117.7 116.2 116.2 122.1 121.0 14 Miscellaneous home goods 1.6 120.0 118.8 119.0 119.1 120.3 120.3 120.2 120.3 122.1 119.8 119.4 118.7 119.0 121.6 lb Nondurable consumer goods 23.0 110.1 109.9 109.4 109.0 109.1 109.9 110.1 109.4 110.3 110.3 110.2 111.4 111.5 111.9 16 Foods and tobacco 10.3 109.3 109.5 109.1 109.2 110.0 109.1 108.9 108.1 109.6 108.9 108.6 109.1 110.4 110.9 17 Clothing 2.4 96.0 95.9 96.5 95.6 96.1 96.5 95.8 95.4 95.8 96.0 96.0 96.5 95.4 95.7 18 Chemical products 4.5 119.1 118.1 118.0 117.3 115.9 118.4 119.3 119.1 117.3 119.4 119.4 121.8 121.6 121.9 19 Paper products 2.9 109.4 108.0 106.5 107.1 107.8 108.2 108.9 109.8 110.8 109.8 110.1 111.3 111.3 110.9 20 Energy 2.9 111.1 112.0 110.5 108.3 107.3 111.9 112.8 109.7 112.4 112.8 112.4 115.2 112.6 113.6 21 Fuels .8 109.5 106.3 105.7 106.6 108.2 109.6 111.3 111.5 108.8 111.0 110.8 112.0 107.1 110.9 22 Residential utilities 2.1 111.6 114.5 112.5 108.7 106.4 112.6 113.0 108.3 113.7 113.2 112.8 116.2 114.9 114.5 23 Equipment 17.2 128.7 122.4 123.1 124.6 125.8 126.0 126.8 127.7 128.6 130.9 130.6 131.3 132.5 133.1 24 Business equipment 13.2 141.8 134.0 134.9 136.5 137.5 137.9 139.0 140.2 141.6 144.6 144.4 145.4 147.1 147.8 2b Information processing and related 5.4 168.2 157.1 157.8 160.9 161.0 163.0 164.4 166.8 169.3 171.1 172.9 174.2 174.7 176.8 26 Computer and office equipment 1.1 384.1 325.4 333.8 341.5 348.8 358.4 365.3 375.8 391.6 407.1 414.6 419.6 423.0 425.9 27 Industrial 4.0 133.3 129.3 130.0 129.8 130.6 131.6 131.5 131.7 133.7 135.8 133.8 136.0 136.4 137.5 28 Transit 2.5 110.8 102.0 103.3 105.2 107.7 104.6 106.7 107.3 106.9 113.3 114.2 112.8 118.0 117.2 29 Autos and trucks 1.2 119.0 114.9 116.4 118.2 121.4 112.5 114.6 113.6 111.5 120.3 120.2 117.0 124.6 117.6 30 Other 1.3 135.0 129.0 129.7 130.8 132.6 134.4 135.2 136.3 136.3 137.9 135.1 137.2 137.7 136.1 31 Defense and space equipment 3.3 75.3 76.2 75.5 75.6 75.7 75.4 75.6 76.0 74.9 75.0 74.7 74.7 75.1 75.2 32 Oil and gas well drilling .6 149.6 134.7 138.4 143.5 154.8 151.4 150.7 150.9 152.1 153.2 153.1 149.7 147.0 147.8 33 Manufactured homes .2 128.0 137.7 140.7 139.4 142.9 141.9 139.1 143.5 139.5 137.2 136.9 138.1 34 Intermediate products, total 14.2 115.0 113.0 113.5 114.1 114.1 114.7 114.9 114.7 114.6 115.3 115.2 116.4 116.6 117.2 3b Construction supplies 5.3 121.7 118.7 119.1 121.7 122.3 121.8 122.2 122.2 121.2 122.7 120.4 121.3 122.6 123.4 36 Business supplies 8.9 111.0 109.6 110.2 109.6 109.2 110.6 110.6 110.2 110.6 111.0 112.2 113.5 113.1 113.5 37 Materials 39.5 134.2 129.0 129.7 131.0 131.3 132.5 132.4 133.0 134.9 134.9 136.1 136.9 138.3 139.3 38 Durable goods materials 20.8 158.3 149.3 150.2 152.2 153.0 155.1 155.4 156.9 159.3 160.3 161.3 163.2 166.0 167.4 3y Durable consumer parts 4.0 139.3 134.3 136.2 136.3 135.9 137.1 134.7 136.2 139.2 140.3 140.7 141.7 145.4 144.9 40 Equipment parts 7.6 222.0 198.4 201.1 206.1 210.0 213.4 216.7 220.0 224.6 227.6 229.6 233.3 238.1 241.8 41 Other 9.2 125.7 122.9 122.6 123.5 123.2 124.7 124.5 125.0 125.9 126.0 126.6 127.8 129.2 130.3 42 Basic metal materials 3.1 120.8 117.8 116.7 118.3 118.2 118.8 119.9 121.2 121.1 121.8 121.7 122.5 124.9 125.3 43 Nondurable goods materials 8.9 112.9 111.4 111.6 112.6 112.5 113.0 111.8 111.9 113.5 112.3 113.3 113.2 114.3 114.8 44 Textile materials 1.1 109.3 106.1 107.0 108.0 106.3 109.4 106.1 108.1 112.3 108.4 111.4 112.0 111.3 112.5 4b Paper materials 1.8 113.1 110.8 110.4 112.0 112.5 112.6 112.6 110.9 113.8 114.3 112.7 114.6 115.3 115.3 46 Chemical materials 3.9 114.8 114.0 114.9 115.0 114.8 115.4 113.8 113.8 115.1 113.9 115.6 114.7 114.8 116.0 4/ Other 2.1 110.3 109.0 107.7 110.1 110.4 109.7 109.5 110.8 110.1 108.6 109.5 109.0 114.0 112.8 48 Energy materials 9.7 104.1 102.7 103.6 103.8 103.4 103.7 103.7 103.2 104.6 103.9 105.5 105.3 104.5 105.0 4y Primary energy 6.3 101.7 100.4 101.2 102.5 101.9 101.7 102.1 101.0 102.3 102.4 102.2 101.8 101.0 101.4 bO Converted fuel materials 3.3 108.7 107.0 108.0 106.2 106.2 107.6 106.8 107.3 109.0 106.8 111.8 111.9 111.2 111.9 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.1 124.4 120.8 121.1 121.9 122.3 123.2 123.4 123.6 124.8 125.1 125.4 126.4 127.2 128.1 52 Total excluding motor vehicles and parts 95.1 123.9 120.5 120.7 121.5 121.9 122.7 123.0 123.1 124.3 124.6 124.8 125.8 126.6 127.5 53 Total excluding computer and office equipment 98.2 122.0 118.8 119.1 119.8 120.2 120.7 120.9 121.1 122.0 122.6 122.9 123.7 124.8 125.4 54 Consumer goods excluding autos and trucks . 27.4 113.1 112.5 112.0 111.8 112.1 112.8 113.1 112.5 113.5 113.4 113.0 114.0 114.7 115.2 55 Consumer goods excluding energy 26.2 114.8 113.9 113.5 113.7 114.2 113.6 114.0 114.0 114.1 114.9 114.7 115.4 116.8 117.0 56 Business equipment excluding autos and trucks 12.0 144.5 136.3 137.1 138.6 139.5 141.0 141.9 143.4 145.2 147.5 147.3 148.9 149.8 151.4 57 Business equipment excluding computer and office equipment 12.1 129.0 123.2 123.8 125.1 126.0 126.0 126.9 127.7 128.6 131.2 130.8 131.7 133.3 133.9 58 Materials excluding energy 29.8 143.7 137.3 137.9 139.6 140.1 141.6 141.4 142.5 144.6 144.8 145.8 147.0 149.2 150.4 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 1996 1997 SIC2 pro- 1997 GGrroouupp code por- avg. tion Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.r Oct.r Nov. Dec.p Index (1992 = 100) MAJOR INDUSTRIES 59 Total index 100.0 124.5 120.9 121.3 122.1 122.5 123.1 123.3 123.5 124.5 125.2 125.6 126.5 127.5 128.1 60 Manufacturing 85.4 127.0 123.1 123.5 124.4 124.9 125.4 125.7 126.1 126.9 127.9 128.0 128.9 130.5 131.1 61 Primary processing 26.5 118.2 115.8 115.8 116.9 117.2 117.7 117.7 117.7 118.3 118.5 118.6 119.0 120.2 121.0 62 Advanced processing 58.9 131.4 126.7 127.2 128.1 128.6 129.2 129.6 130.2 131.2 132.5 132.7 133.9 135.6 136.2 63 Durable goods 45.0 142.4 135.3 136.1 137.8 138.7 139.5 140.1 141.2 142.4 144.3 144.4 145.4 147.8 148.8 64 Lumber and products 24 2.0 114.8 110.2 111.4 114.2 114.9 115.9 116.4 117.0 116.1 115.4 113.3 112.5 115.2 114.8 65 Furniture and fixtures 25 1.4 122.5 119.7 119.7 120.6 120.7 123.5 123.3 123.5 124.2 121.1 122.0 122.6 124.5 124.7 66 Stone, clay, and glass products 32 2.1 120.7 116.4 119.2 118.9 119.5 121.1 119.4 120.0 120.9 120.5 121.2 121.5 123.2 124.1 67 Primary metals 33 3.1 124.6 120.5 119.4 121.6 121.8 122.3 124.2 124.9 125.2 125.5 125.9 127.4 128.5 129.6 68 Iron and steel 331,2 1.7 123.1 118.0 118.8 119.9 119.6 121.2 123.9 122.6 122.2 121.8 124.5 126.5 127.9 128.8 69 Raw steel 331PT .1 116.0 112.4 111.9 112.4 114.0 115.1 115.4 114.9 115.5 116.1 119.2 117.7 120.9 121.5 70 Nonfenous 333-6,9 1.4 126.4 123.5 120.0 123.5 124.5 123.5 124.6 127.7 128.8 129.9 127.7 128.5 129.3 130.6 71 Fabricated metal products... 34 5.0 123.0 120.6 120.6 121.7 122.1 122.5 122.7 121.9 122.4 122.8 122.7 124.2 125.4 127.1 72 Industrial machinery and equipment 35 8.0 171.4 161.3 162.8 164.0 165.1 167.8 168.0 168.8 172.2 175.9 173.7 176.3 177.5 179.3 73 Computer and office equipment 357 1.8 380.8 319.9 328.6 336.6 344.2 354.1 361.4 372.3 388.5 403.9 412.0 417.5 421.4 424.8 74 Electrical machinery 36 7.3 231.6 210.5 211.1 217.4 220.8 223.7 226.3 229.7 235.5 236.8 237.5 240.8 247.0 251.5 75 Transportation equipment. . . 37 9.5 115.5 109.1 110.9 111.4 112.3 110.7 110.8 113.0 112.2 117.0 118.8 118.2 122.2 121.0 76 Motor vehicles and parts . 371 4.9 136.9 130.1 133.4 133.3 134.0 129.7 129.2 132.5 130.0 138.9 141.2 139.6 146.9 141.6 77 Autos and light trucks . 371PT 2.6 128.3 125.0 126.7 127.2 127.8 117.8 120.6 122.4 115.0 129.5 132.3 130.4 137.6 132.6 78 Aerospace and miscellaneous transportation equipment 372-6,9 4.6 94.4 88.4 88.9 89.9 91.0 92.0 92.7 93.8 94.6 95.5 96.8 97.2 98.0 110000..66 79 Instruments 38 5.4 108.2 106.3 105.9 107.2 106.5 106.6 107.6 107.9 108.0 109.2 108.9 109.7 110.2 110.4 80 Miscellaneous 39 1.3 125.6 123.4 124.0 125.0 124.7 125.1 125.5 126.0 127.0 126.7 126.1 126.5 125.2 127.1 81 Nondurable goods 40.4 111.1 110.3 110.2 110.4 110.5 110.8 110.7 110.5 110.9 111.0 111.3 112.0 112.7 113.1 82 Foods 20 9.4 109.6 109.0 109.3 109.4 110.0 109.2 109.2 108.8 110.0 108.9 108.6 109.3 111.0 111.1 83 Tobacco products 21 1.6 112.3 116.3 112.0 113.0 114.2 113.0 111.5 109.0 110.5 112.5 112.0 113.6 111.9 115.0 84 Textile mill products 22 1.8 109.8 105.9 107.0 107.0 108.0 109.2 107.2 109.1 110.7 110.7 111.4 111.7 112.9 113.1 85 Apparel products 23 2.2 99.7 100.0 100.5 99.5 100.1 99.8 99.8 99.6 99.7 99.1 99.1 99.3 98.8 100.0 86 Paper and products 26 3.6 113.4 111.7 110.8 111.9 112.4 112.4 112.6 111.7 114.2 114.4 113.7 114.0 116.3 116.1 87 Printing and publishing 27 6.7 104.8 103.2 103.2 103.3 103.6 104.4 104.5 104.1 104.1 104.4 105.1 106.7 107.4 106.8 88 Chemicals and products .... 28 9.9 115.1 114.9 115.2 114.6 113.6 115.2 114.5 114.6 114.3 114.5 115.6 116.1 115.8 116.6 89 Petroleum products 29 1.4 109.5 106.8 107.0 108.0 108.0 110.1 111.4 111.3 108.9 109.7 110.1 111.2 108.8 110.9 90 Rubber and plastic products . 30 3.5 126.5 124.7 123.3 125.0 125.5 124.4 125.4 125.6 126.0 127.9 127.6 127.4 129.7 130.2 91 Leather and products 31 .3 73.6 77.7 76.5 76.0 76.6 75.9 75.3 74.0 74.0 71.2 70.9 72.4 70.8 70.3 92 Mining 6.9 106.0 102.9 103.7 106.0 106.7 105.5 106.7 105.7 106.5 106.3 106.5 106.2 105.8 106.1 93 Metal 10 .5 107.6 107.2 105.5 106.2 106.4 105.3 105.9 109.9 105.2 106.0 105.3 111.1 113.7 111.3 94 Coal 12 1.0 109.8 108.2 107.4 110.4 107.0 105.4 115.9 107.4 112.1 107.7 109.5 109.6 111.2 115.9 95 Oil and gas extraction 13 4.8 103.2 99.7 101.1 102.8 104.3 103.8 103.4 102.9 103.9 104.1 104.3 103.4 102.4 101.9 96 Stone and earth minerals 14 .6 118.8 115.6 115.0 123.5 123.6 116.8 118.2 120.9 117.8 119.9 117.7 117.5 117.6 119.6 97 Utilities 7.7 112.5 112.7 112.5 110.3 109.6 112.5 111.8 110.9 113.8 113.0 115.1 116.7 114.5 114.9 98 Electric 491.493PT 6.2 113.1 112.5 112.9 111.0 110.6 112.7 110.4 110.7 113.8 113.1 115.7 117.2 114.5 114.5 99 Gas 492,493PT 1.6 111.0 113.6 111.2 107.9 105.4 111.5 117.1 111.9 113.5 112.5 112.7 114.9 114.3 116.2 SPECIAL AGGREGATES 100 Manufacturing excluding motor vehicles and parts 80.5 126.4 122.7 122.9 123.9 124.3 125.2 125.5 125.7 126.7 127.2 127.3 128.3 129.5 130.5 101 Manufacturing excluding office and computing machines ... 83.6 124.1 120.6 120.9 121.8 122.2 122.7 122.9 123.2 123.9 124.8 124.9 125.8 127.3 127.9 Gross value (billions of 1992 dollars, annual rates) MAJOR MARKETS 102 Products, total 2,001.9 2,372.2 2,327.3 2,332.0 2,344.1 2,355.4 2,353.4 2,365.8 2,365.3 2,368.4 2,402.0 2,396.9 2,411.6 2,432.5 2,437.9 103 Final 1,552.1 1,855.2 1,815.8 1,818.2 1,827.3 1,838.7 1,832.9 1,844.4 1,844.6 1,849.1 1,879.3 1,875.6 1,885.8 1,905.2 1,908.4 104 Consumer goods 1,049.6 1,195.7 1,188.6 1,185.8 1,187.6 1,191.4 1,187.7 1,194.1 1,190.2 1,191.0 1,205.2 1,203.3 1,211.5 1,221.3 1,224.5 105 Equipment 502.5 659.3 626.5 631.8 639.2 646.8 644.8 649.8 654.1 657.8 674.0 672.3 674.2 683.9 683.8 106 Intermediate 449.9 517.8 511.9 514.2 517.0 517.2 520.6 521.7 521.0 519.9 523.7 522.2 526.6 528.5 530.6 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 details about the the ordering address, see the inside front cover. The latest historical revision of the industrial construction of individual industrial production series, see "Industrial Production: 1989 production index and the capacity utilization rates was released in December 1997. The recent Developments and Historical Revision," Federal Reserve Bulletin, vol. 76, (April 1990), pp. annual revision is described in an article in the February 1998 issue of the Bulletin. For a 187-204. description of the aggregation methods for industrial production and capacity utilization, see 2. Standard industrial classification. "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A46 Domestic Nonfinancial Statistics • March 1998 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted 1997 Feb. Mar. Apr. May June July Aug. Sept.r Oct.r Nov. Private residential real estate activity (thousands of units except as noted) NEW UNITS 1 Permits authorized 1,372 1,333 1,426 1,438 1,457 1,442 1,432 1,402 1,414 1,397 1,460 1,487 1,440 2 One-family 1,069 997 1,070 1,069 1,034 1,060 1,053 1,049 1,030 1,027 1,065 1,087 1,061 3 Two-family or more 303 335 356 369 423 382 379 353 384 370 395 400 379 4 Started 1,457 1,354 1,477 1,554 1,479 1,483 1,402 1,503 1,465 1,395 1,507 1,527 1,531 5 One-family 1,198 1,076 1,161 1,237 1,142 1,133 1,098 1,134 1,149 1,091 1,181 1,122 1,161 6 Two-family or more 259 278 316 317 337 350 304 369 316 304 326 405 370 7 Under construction at end of period' 755 775 819 821 814 812 815 829 837 836 842 854 860 8 One-family 584 554 584 574 566 563 564 566 571 569 571 576 576 9 Two-family or more 171 221 235 247 248 249 251 263 266 267 271 278 284 10 Completed 1,346 1,319 1,407 1,572 1,471 1,460 1,388 1,318 1,320 1,325 1,431 1,375 1,409 11 One-family 1,161 1,073 1,124 1,267 1,156 1,158 1,101 1,096 1,069 1,053 1,142 1,058 1,140 12 Two-family or more 185 246 283 305 315 302 287 222 251 272 289 317 269 13 Mobile homes shipped 305 341 362 353 353 372 356 356 358 357 354 348 347 Merchant builder activity in one-family units 14 Number sold 670 667 757 826 825 765 764 802 812 798r 814 790 830 15 Number for sale at end of period1 340 374 326 300 287 291 288 288 288 286 287 288 285 Price of units sold (thousands of dollars)2 16 Median 130.0 133.9 140.0 143.0 148.0 150.0 141.0 145.0 145.9 144.0r 145.0 142.3 140.0 17 Average 154.5 158.7 166.4 171.1 172.7 179.5 170.7 179.4 175.5 170.7r 177.1 174.1 175.1 EXISTING UNITS (one-family) 18 Number sold 3,967 3,812 4,087 4,230 4,160 4,060 4,250 4,150 4,180 4,310 4,310 4,390 4,380 Price of units sold (thousands of dollars)2 19 Median 109.9 113.1 118.2 117.5 120.0 120.7 123.1 127.2 126.5 127.5 125.8 124.4 124.3 20 Average 136.8 139.1 145.5 144.7 147.5 150.4 153.1 158.4 157.6 159.1 155.4 154.7 155.0 Value of new construction (millions of dollars)3 CONSTRUCTION 21 Total put in place 518,644 534,463 567,179 592,365 593,908 596,907 595,763 594,195 603,002r 603,684r 605,748 614,271 609,032 22 Private 398,646 407,370 435,929 452,037 452,728 457,604 459,882 456,927 464,326r 465,236r 468,822 472,909 468,415 23 Residential 238,423 231,230 246,659 251,402 253,974 259,917 259,662 257,277 258,803r 259,958r 263,799 266,269 268,648 24 Nonresidential 160,223 176,140 189,271 200,635 198,754 197,687 200,220 199,650 205,523r 205,278r 205,023 206,640 199,767 25 Industrial buildings 28,893 32,505 31,997 32,161 30,520 29,331 30,501 31,046 31,796r 31,480* 30,675 30,461 28,245 26 Commercial buildings 59,480 68,223 74,593 83,107 81,015 76,545 78,670 79,009 82,346r 81,552r 80,551 81,905 80,429 27 Other buildings 26,988 27,089 30,525 35,561 36,012 38,229 37,738 35,775 36,672r 37,274r 38,729 38,770 36,840 28 Public utilities and other 44,862 48,323 52,156 49,806 51,207 53,582 53,311 53,820 54,709r 54,972r 55,068 55,504 54,253 29 Public 119,998 127,092 131,250 140,328 141,180 139,304 135,882 137,268 138,676r 138,448r 136,926 141,361 140,617 30 Military 2,310 2,983 2,541 2,564 2,232 2,408 2,548 2,580 2,738r 2,767r 2,451 2,800 2,717 31 Highway 36,933 36,319 37,898 41,060 41,473 42,356 40,694 41,531 41,087r 41,715r 40,126 40,111 44,367 32 Conservation and development 6,459 6,391 5,807 5,727 6,114 5,134 5,242 4,952 5,002r 5,469r 6,177 4,854 6,088 33 Other 74,297 81,399 85,005 90,977 91,361 89,406 87,398 88,205 89,849r 88,497r 88,172 93,596 87,445 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 1997 1997 DDDeeeccc... 11999966 11999977 111999999777 111 DDeecc.. DDeecc.. Mar. June Sept. Dec. Aug. Sept. Oct. Nov. Dec. CONSUMER PRICES2 (1982-84=100) 1 All items 3.3 1.7 1.8 1.0 2.5 1.5 .2 .2 .2 .1 .1 161.3 2 4.3 1.5 .3 1.5 3.4 1.3 .4 .1 .2 .2 -.1 158.7 3 Energy items 8.6 -3.4 -2.8 -14.7 11.9 -6.6 1.7 1.3 .1 -.2 -1.6 108.4 4 All items less food and energy 2.6 2.2 2.4 2.4 1.7 2.4 .1 2 2 .1 .2 170.7 Commodities 1.1 .4 1.1 .6 -.6 .6 -.3 2 .1 .0 .1 142.1 6 Services 3.3 3.0 2.7 3.5 2.4 3.3 .2 .2 .3 .1 .4 186.9 PRODUCER PRICES (1982=100) 7 Finished goods 2.8 -1.2 -3.3 -3.6 2.8 -.9 .3 .5 .1 -.2 -.2 131.1 S Consumer foods 3.4 -1.0 -2.0 -3.2 .3 .9 .2 .1 .4 -.1 -.1 134.2 9 Consumer energy 11.7 -6.4 -16.9 -15.1 12.4 -3.8 1.5r 1.2r .1 -.8 -.2 80.2 in Other consumer goods .8 .3 .6 -.6 1.7 -.3 .1 .5 .1 -.1 -.1 145.6 11 Capital equipment .4 -.5 .0 -.9 .6 -1.4 .0 .3 -.1 -.1 -.2 138.0 Intermediate materials i? Excluding foods and feeds .7 -.7 -1.9 -1.9 1.0 .0 .2' .R .1 .1 -.2 112255..22 13 Excluding energy -.9 .3 .6 .3 .3 .3 .0 .0 .1 .1 -.1 134.3 Crude materials 14 -1.0 -4.2 -2.8 -11.1 .7 -3.9 -,2r -.R .0 -.3 -.7 108.8 15 Energy 51.2 -23.9 -75.5 11.3 15.5 6.5 ,8r 3.0r 10.7 5.0 -12.6 83.4 16 Other -5.5 .1 15.7 -4.9 -1.5 -7.5 1.4' -,8r .3 -.7 -1.5 152.7 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 homeowncrship. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A48 Domestic Nonfinancial Statistics • March 1998 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1996 1997 AAccccoouunntt 11999944 11999955 11999966 Q3 Q4 Ql Q2 Q3 GROSS DOMESTIC PRODUCT 1 Total 6,947.0 7,265.4 7,636.0 7,676.0 7,792.9 7,933.6 8,034.3 8,124.3 By source 2 Personal consumption expenditures 4.717.0 4.957.7 5,207.6 5,227.4 5.308.1 5.405.7 5.432.1 5,527.4 3 Durable goods 579.5 608.5 634.5 634.5 638.2 658.4 644.5 667.3 4 Nondurable goods 1.428.4 1.475.8 1,534.7 1,538.3 1,560.1 1,587.4 1,578.9 1.600.8 Services 2.709.1 2,873.4 3.038.4 3,054.6 3,109.8 3,159.9 3.208.7 3,259.3 6 Gross private domestic investment 1.007.9 1.038.2 1.116.5 1,149.2 1,151.1 1,193.6 1.242.0 ),250.2 / Fixed investment 946.6 1,008.1 1.090.7 1.112.0 1,119.2 1,127.5 1,160.8 1.201.3 8 Nonresidential 660.6 723.0 781.4 798.6 807.2 811.3 836.3 872.0 y Structures 184.5 200.6 215.2 217.7 227.0 227.4 226.8 232.9 1U Producers' durable equipment 476.1 522.4 566.2 580.9 580.2 583.9 609.5 639.1 11 Residential structures 286.0 285.1 309.2 313.5 312.0 316.2 324.6 329.3 12 Change in business inventories 61.2 30.1 25.9 37.1 31.9 66.1 81.1 48.9 13 Nonfarm 50.5 38.1 23.0 31.3 28.7 62.2 74.9 40.9 14 Net exports of goods and services -90.9 -86.0 -94.8 -114.0 -88.6 -98.8 -88.7 -111.3 15 Exports 721.2 818.4 870.9 863.7 904.6 922.2 960.3 965.8 16 812.1 904.5 965.7 977.6 993.2 1,021.0 1,049.0 1.077.1 17 Government consumption expenditures and gross investment 1.313.0 1,355.5 1,406.7 1.413.5 1,422.3 1,433.1 1.449.0 1.457.9 18 Federal 510.2 509.6 520.0 521.6 517.6 516.1 526.1 525.7 19 State and local 802.8 846.0 886.7 891.9 904.7 917.0 923.0 932.3 By major type of product 20 Final sales, total 6.885.7 7,235.3 7,610.2 7,638.9 7,761.0 7,867.4 7.953.2 8,075.3 21 Goods 2.520.2 2,637.9 2,759.3 2,760.7 2.795.0 2.838.4 2,854.9 2.903.2 22 Durable 1,072.5 1,133.9 1.212.0 1,216.3 1,233.5 1,248.0 1,275.3 1.305.3 23 Nondurable 1,447.6 1.503.9 1,547.3 1,544.4 1.561.5 1,590.4 1.579.6 1,597.9 24 Services 3.772.4 3,980.7 4,187.3 4.208.1 4,282.7 4,338.2 4.400.1 4.462.3 23 Structures 593.2 616.8 663.6 670.1 683.3 690.8 698.2 709.8 26 Change in business inventories 61.2 30.1 25.9 37.1 31.9 66.1 81.1 48.9 27 Durable goods 33.6 29.1 16.9 33.3 -1.1 31.8 46.8 18.6 28 Nondurable goods 27.7 1.1 9.0 3.9 33.0 34.3 34.4 30.3 MEMO 29 Total GDP in chained 1992 dollars 6,610.7 6,742.1 6,928.4 6,943.8 7,017.4 7,101.6 7,159.6 7,214.0 NATIONAL INCOME 30 Total 5.590.7 5,912.3 6,254.5 6,303.3 6,376.5 6,510.0 6,599.0 6,699.6 31 Compensation of employees 4.012.0 4.215.4 4,426.9 4,461.0 4,520.7 4,606.3 4.663.4 4.725.2 32 Wages and salaries 3.254.0 3,442.6 3.633.6 3,664.0 3,718.0 3,792.7 3,842.7 3,897.3 33 Government and government enterprises 602.2 623.0 642.6 645.5 648.9 657.8 662.0 667.7 34 Other 2.651.8 2.819.6 2.991.0 3,018.4 3.069.0 3,134.9 3,180.8 3,229.6 35 Supplement to wages and salaries 758.0 772.9 793.3 797.0 802.7 813.6 820.7 827.9 36 Employer contributions for social insurance 353.0 366.0 385.7 388.6 .393.6 401.3 405.6 410.'' 3/ Other labor income 405.0 406.8 407.6 408.4 409.1 412.3 415.1 417.7 38 Proprietors' income1 471.6 489.0 520.3 523.8 528.3 534.6 543.6 547.2 39 Business and professional1 434.7 465.5 483.1 483.7 487.9 494.4 500.0 506.3 40 Farm' 36.9 23.4 37.2 40.1 40.4 40.2 43.6 40.9 41 Rental income of persons" 124.4 132.8 146.3 148.0 149.2 149.0 148.7 148.0 42 Corporate profits' 570.5 650.0 735.9 739.6 747.8 779.6 795.1 827.3 43 Profits before tax3 535.1 622.6 676.6 679.1 680.0 708.4 719.8 753.4 44 Inventory valuation adjustment -16.1 -24.3 -2.5 -2.7 3.3 3.5 5.9 3.6 43 Capital consumption adjustment 51.4 51.6 61.8 63.2 64.4 67.7 69.4 70.3 46 Net interest 412.3 425.1 425.1 430.9 430.6 440.5 448.1 451.8 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 1996 1997 AAccccoouunntt 11999944 11999955 11999966 Q3 Q4 Ql Q2 Q3 PERSONAL INCOME AND SAVING 1 Total personal income 5,791.8 6,150.8 6,495.2 6,541.9 6,618.4 6,746.2 6,829.1 6,906.9 2 Wage and salary disbursements 3,240.7 3,429.5 3,632.5 3,662.8 .3.716.9 3,791.5 3.841.6 3,896.1 3 Commodity-producing industries 824.4 864.4 909.1 917.2 927.8 942.9 952.8 961.4 4 Manufacturing 620.8 648.4 674.7 680.1 685.6 694.1 700.3 706.0 f.5t Distributive industries 741.4 783.1 823.3 829.0 840.6 856.8 867.0 880.8 Service industries 1,072.7 1,159.0 1.257.5 1,271.1 1,299.5 1,334.1 1,359.8 1.386.3 7 Government and government enterprises 602.2 623.0 642.6 645.5 648.9 657.8 662.0 667.7 8 Other labor income 405.0 406.8 407.6 408.4 409.1 412.3 415.1 417.7 9 Proprietors' income1 471.6 489.0 520.3 523.8 528.3 534.6 543.6 547.2 10 Business and professional' 434.7 465.5 483.1 483.7 487.9 494.4 500.0 506.3 1 1 Farm1 36.9 23.4 37.2 40.1 40.4 40.2 43.6 40.9 12 Rental income of persons" 124.4 132.8 146.3 148.0 149.2 149.0 148.7 148.0 13 Dividends 204.8 251.9 291.2 292.0 295.2 312.5 318.3 324.5 14 Personal interest income 668.1 718.9 735.7 742.7 749.8 757.2 766.1 772.6 15 Transfer payments 954.7 1.015.0 1.068.0 1,072.4 1,081.5 1,107.2 1,117.0 1.125.7 16 Old age survivors, disability, and health insurance benefits 473.0 507.8 537.6 540.0 545.6 558.9 564.4 569.4 17 LESS: Personal contributions for social insurance 277.5 293.1 306.3 308.2 311.5 318.2 321.3 324.8 18 EQUALS: Personal income 5,791.8 6,150.8 6,495.2 6.541.9 6,618.4 6,746.2 6,829.1 6,906.9 19 LESS: Personal tax and nontax payments 739.1 795.1 886.9 897.3 922.6 955.7 979.2 998.0 20 EQUALS: Disposable personal income 5,052.7 5,355.7 5,608.3 5,644.6 5,695.8 5.790.5 5.849.9 5,908.9 21 LESS: Personal outlays 4,842.1 5,101.1 5,368.8 5,390.6 5,475.4 5,574.6 5.602.8 5,700.8 22 EQUALS: Personal saving 210.6 254.6 239.6 254.0 220.4 215.9 247.0 208.2 MEMO Per capita (chained 1992 dollars) 23 Gross domestic product 25,357.0 25,615.9 26,085.8 26,114.4 26,331.6 26,597.8 26,765.0 26,897.9 24 Personal consumption expenditures 17,207.2 17,459.3 17.748.9 17,744.2 17.847.8 18,045.2 18,053.9 18.255.7 25 Disposable personal income 18,431.0 18,861.0 19.116.0 19,161.0 19,152.0 19,331.0 19,439.0 19,518.0 26 Saving rate (percent) 4.2 4.8 4.3 4.5 3.9 3.7 4.2 3.5 GROSS SAVING 27 Gross saving 1,079.2 1,165.5 1,267.8 1,295.9 1,303.0 1,332.9 1,396.9 1,411.6 28 Gross private saving 1,030.2 1,093.1 1.125.5 1,145.1 1.131.4 1,134.0 1.178.1 1,159.6 29 Personal saving 210.6 254.6 239.6 254.0 220.4 215.9 247.0 208.2 30 Undistributed corporate profits' 167.6 172.4 202.1 202.3 212.6 211.5 217.6 230.0 31 Corporate inventory valuation adjustment -16.1 -24.3 -2.5 -2.7 3.3 3.5 5.9 3.6 Capital consumption allowances 32 Corporate 412.3 428.9 452.3 455.5 462.0 467.4 447722..66 447788..00 33 Noncorporate 226.3 224.1 230.5 232.2 235.2 238.0 239.7 242.4 34 Gross government saving 49.0 72.4 142.3 150.8 171.6 198.9 218.8 251.9 35 Federal -117.2 -103.6 -39.3 -28.3 -5.9 15.9 34.7 60.8 36 Consumption of fixed capital 69.5 70.9 71.2 71.2 71.3 71.4 71.5 71.6 37 Current surplus or deficit ( —), national accounts -186.7 -174.4 -110.5 -99.5 -77.1 -55.5 -36.8 -10.8 38 State and local 166.2 176.0 181.5 179.1 177.5 182.9 184.1 191.1 39 Consumption of fixed capital 69.4 72.9 76.2 76.5 77.2 78.2 79.2 79.7 40 Current surplus or deficit ( —), national accounts 96.8 103.1 105.3 102.6 100.4 104.7 104.9 111.4 41 Gross investment 1,093.8 1,137.2 1,207.9 1,216.4 1,243.5 1,268.6 1,323.4 1,308.4 4? Gross private domestic investment 1,007.9 1,038.2 1.116.5 1,149.2 1,151.1 1.193.6 1,242.0 1.250.2 43 Gross government investment 206.0 213.4 224.3 223.6 225.3 223.3 227.4 227.1 44 Net foreign investment -120.0 -114.4 -132.9 -156.4 -132.9 -148.4 - 146.0 -168.9 45 Statistical discrepancy 14.6 -28.2 -59.9 -79.5 -59.5 -64.3 -73.5 -103.2 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 • March 1998 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data seasonally adjusted except as noted1 1996 1997 IItteemm ccrreeddiittss oorr ddeebbiittss 11999944 11999955 11999966 03 Q4 Ql Q2 Q3P 1 Balance on current account - 133,538 - 129,095 - 148,184 -42,833 -36,874 -39,972 -37,852 -42.156 2 Merchandise trade balance" -166.192 -173.560 -191,170 -52,493 -48,190 -49,787 -47.134 -51,549 3 Merchandise exports 502,398 575,871 612,069 150,764 157,846 162,527 171.411 170,579 4 Merchandise imports -668,590 -749,431 -803,239 -203,257 -206,036 -212,314 -218.545 -222,128 5 Military transactions, net 1.874 3.866 3.786 792 1,295 437 1,048 1,040 6 Other service transactions, net 59.902 67.837 76,344 19,185 20,697 20,050 20,441 20,878 7 investment income, net 9.723 6,808 2.824 -1,370 1,250 -1.990 -3.247 -3,321 8 U.S. government grants -15.671 -11.096 -14.933 -2.690 -5.499 -2,109 -2,245 -2,252 9 U.S. government pensions and other transfers -4.544 -3,420 -4,331 -1,064 -1.050 -1,083 -1.128 -1,099 10 Private remittances and other transfers -18.630 -19,530 -20,704 -5,193 -5,377 -5.490 -5,587 -5,853 11 Change in U.S. government assets other than official reserve assets, net (increase. —) -352 -549 -690 162 -284 -21 -268 482 12 Change in U.S. official reserve assets (increase, —) 5.346 -9.742 6,668 7,489 -315 4,480 -236 -730 13 Gold 0 0 0 0 0 0 0 0 14 Special drawing rights (SDRs) -441 -808 370 848 -146 72 -133 -139 15 Reserve position in International Monetary Fund 494 -2.466 -1,280 -183 -28 1,055 54 -463 16 Foreign currencies 5.293 -6.468 7,578 6,824 -141 3,353 -157 -128 17 Change in U.S. private assets abroad (increase. —) -165,510 -296.916 -358,422 -85,193 -153.837 - 132,428 -90,431 -101,316 18 Bank-reported claims -4.200 -75.108 -98,186 -33,589 -66,657 -62,026 -27,947 -22,760 19 Nonbank-reported claims -31,739 -34.997 -64,234 -17.294 -26,115 -29,466 -3,984 20 U.S. purchases of foreign securities, net -60,309 -100.074 -108,189 -23,206 -30.200 -14,510 -21,841 -37,995 21 U.S. direct investments abroad, net -69.262 -86.737 -87,813 -11.104 -30.865 -26,426 -36,659 -24,661 77 Change in foreign official assets in United States (increase, +) 40.385 110.729 122,354 24,089 33.097 28,891 -5,374 22,498 23 U.S. Treasury securities 30.750 68,977 111,253 25.472 33.564 23,289 -12,108 6,485 24 Other U.S. government obligations 6,077 3,735 4,381 1.217 1,854 651 644 2.663 25 Other U.S. government liabilities4 2,366 744 720 907 160 478 654 16 26 Other U.S. liabilities reported bv U.S. banks .3.665 34,008 4,722 -1.922 -4,270 7,698 4,536 12,705 27 Other foreign official assets'1 -2.473 3.265 1.278 -1,585 1.789 -3,225 900 629 28 Change in foreign private assets in United States (increase, +) 256.952 340.505 425.201 134.540 161,482 153,347 148.389 147,042 29 U.S. bank-reported liabilities" 104.338 30,176 9.784 2,040 38,960 17,387 28.100 14,102 30 U.S. nonbank-reported liabilities -7.710 34.588 31,786 20.610 -2,912 15.210 -7,916 31 Foreign private purchases of U.S. Treasury securities, net 57.674 111,848 172,878 50,798 75.326 51,289 49,915 43,494 32 Foreign purchases of other U.S. securities, net ... 56.971 96.367 133,798 35,115 32,447 38,820 51,682 60,770 33 Foreign direct investments in United States, net 45.679 67,526 76.955 25,977 17.661 .30,641 26,608 21.076 34 Allocation of special drawing rights 0 0 0 0 0 0 0 0 35 Discrepancy -3.283 -14.931 -46,927 -38,254 -3,269 -14,297 -14,228 -25,820 36 Due to seasonal adjustment -7,830 2,669 7,059 -1,713 -8,560 37 Before seasonal adjustment -3.284 -14,931 -46,926 -30,424 -5,938 -21,356 -12,515 -17,260 MEMO Changes in o{ficial tissets 38 U.S. official reserve assets (increase. —) 5,346 -9,742 6,668 7,489 -315 4,480 -236 -730 39 Foreign official assets in United States, excluding line 25 38,019 109,985 121,634 23,182 32,937 28,413 -6.028 22,482 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line ~>2) -1,529 4.239 12,278 5,263 3,315 9,272 2,287 3,170 1. Seasonal factors are not calculated for lines 12-16, 18-20, 22-34. and 38-40. 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 tabic 3.1 1. 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 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 1997 IItteemm 11999944 11999955 11999966 May June July Aug. Sept. Oct. Nov.p 1 Goods and services, balance -104,416 -101,857 -111,040 -9,189 -8,337 -9,744 -9,055 -11,228 -9,091 -8,037 2 Merchandise -166,192 -173,560 -191,170 -16,363 -15,244 -16,848 -16,559 -18,538 -16,479 -15,098 3 Services 61,776 71,703 80,130 7,174 6,907 7,104 7,504 7,310 7,388 7,061 4 Goods and services, exports 699,646 794,610 848,833 77,989 78,365 77,845 78,890 78,116 80,230 79,197 5 Merchandise 502,398 575,871 612,069 56,871 57,378 56,745 57,326 56,370 58,450 57,781 6 Services 197,248 218,739 236,764 21,118 20,987 21,100 21,564 21,746 21,780 21,416 7 Goods and services, imports -804.062 -896,467 -959,873 -87,178 -86,702 -87,589 -87,945 -89,344 -89,321 -87,234 8 Merchandise -668,590 -749,431 -803,239 -73,234 -72,622 -73,593 -73,885 -74,908 -74,929 -72,879 9 Services -135,472 -147,036 -156,634 -13,944 -14,080 -13,996 -14,060 -14,436 -14,392 -14,355 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 1997 AAsssseett 11999944 11999955 11999966 May June July Aug. Sept. Oct. Nov. Dec.p 1 Total 74,335 85,832 75,090 65,873 67,813 66,120 66,640 67,148 68,036 67,112 69,957 2 Gold stcck, including Exchange Stabilization Fund1 11,051 11,050 11,049 11,051 11,050 11.051 11,050 11,050 11,050 11,050 11,050 3 Special drawing rights-3 10,039 11,037 10,312 9,726 10,023 9,810 9,985 9,997 10,132 10,120 10,027 4 Reserve position in International Monetary- Fund- 12,030 14,649 15,435 13,660 13,805 13,677 13,959 14,042 14,243 14,571 18,071 5 Foreign currencies4 41,215 49,096 38,294 31,436 32,935 31,582 31,646 32,059 32,611 31,371 30,809 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 1997 AAsssseett 11999944 11999955 11999966 May June July Aug. Sept. Oct. Nov. Dec.p 1 Deposits 250 386 167 176 178 175 169 188 190 167 457 Held in custody 2 U.S. Treasury securities2 441,866 522,170 638,049 662,747 652,077 653,157 660,461 655,406 638,100 635,092 620,885 3 Earmarked gold3 12,033 11,702 11,197 10,868 10,794 10,793 10,793 10,793 10,793 10,793 10,763 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 • March 1998 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1997 IItteemm 11999955rr 11999966rr May1" June' Julyr Aug/ Sept/ Oct. Nov.p 1 Total1 630,918 758,624 785,330 781,245 781,414 793,548 803,621 798,596 791,153 By type 2 Liabilities reported by banks in the United States" 107,394 113,098 127,273 125,785 129,797 128,628 138,176 153,704 147,281 3 U.S. Treasury bills and certificates'1 168,534 198,921 178,366 163,950 161,270 165,453 161,610 153,283 150,102 U.S. Treasury bonds and notes 4 Marketable 293,690 379,497 414,956 425,347 422,934 431,169 434,260 421,412 423,547 5 Nonmarketable4 6,491 5,968 5,730 5,767 5,804 5,841 5,879 5,919 5,955 6 U.S. securities other than U.S. Treasury securities5 54,809 61,140 59,005 60,396 61,609 62,457 63,696 64,278 64,268 By area 1 Europe1 222,406 257,915 269,187 274,026 272,159 272,566 276,594 280,489 272,630 8 Canada 19,473 21,295 20,201 20,582 21,112 20,959 21,233 19,418 19,275 9 Latin America and Caribbean 66,721 80,623 81,248 88,838 93,117 94,262 94,754 90,190 93,735 10 Asia 311,016 385.484 402,850 382,911 380,702 390,584 394,551 391,541 390,138 11 Africa 6,296 7,379 8,643 8,890 8,882 8,934 10,218 9,812 9,542 12 Other countries 5,004 5.926 3,199 5,996 5,440 6,241 6,269 7,144 5,831 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 States' Payable in Foreign Currencies Millions of dollars, end of period 1996 1997 IItteemm 11999933 11999944 11999955 Dec. Mar. Juner Sept. 1 Banks' liabilities 78,259 89,258 109,713 103,383 109,238 109,433 118,477r 2 Banks' claims 62.017 60,711 74,016 66,018 72,589 84,623 89,568 3 Deposits 20,993 19,661 22,696 22,467 24,542 26,461 28,961 4 Other claims 41,024 41,050 51,320 43,551 48,047 58,162 60,607 5 Claims of banks' domestic customers" 12,854 10,878 6,145 10,978 10,196r 10,265 10,210 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 1997 IItteemm 11999944 11999955 11999966 May June July' Aug. Sept. Oct. Nov.p BY HOLDER AND TYPE OF LIABILITY 1 Total, all foreigners 1,014,996 1,099,549 l,162,148r l,193,679r l,184,712r 1,200,323 l,192,443r l,198,563r 1,225,799 1,239,870 2 Banks' own liabilities 718,591 753,461 758,998 812,753r 801,908r 807,103 788,607' 797,480' 824,420 833,596 3 Demand deposits 23,386 24,448 27.034 26,204 29,545r 27,655 27,107' 28,332' 33,551 35,725 4 Time deposits' 186,512 192,558 186,910r 183,083r 186,904r 189,352 190,465' 187,475' 193,424 191,643 3 Other3 113,215 140,165 143,510r 163,974r 166,849r 177,279 162,026' 171,113' 193,895 181,091 6 Own foreign offices4 395,478 396,290 401,544 439,492 418,610r 412,817 409,009' 410,560' 403,550 425,137 1 Banks' custodial liabilities5 296,405 346,088 403,l50r 380,926r 382,804' 393,220 403,836' 401,083 401,379 406,274 8 U.S. Treasury bills and certificates6 162,938 197,355 236,874 207,894 205,792 202,630 209,121 205,946 200,215 196,476 9 Other negotiable and readily transferable instruments7 42,539 52,200 72,011 72,716 75,235 88,057 89,096 90,686 95,108 99,882 10 Other 90,928 96,533 94,265r 100,316r 10I,777r 102,533 105,619' 104,451 106,056 109,916 11 Nonmonetary international and regional organizations8 . . . 8,606 11,039 13,972 12,547 13,952 11,796 10,569 11,806 13,914 12,469 12 Banks' own liabilities 8,176 10,347 13,355 12,332 13,496 11,384 10,068 11,524 13,509 12,205 13 Demand deposits 29 21 29 16 775 86 217 771 36 43 14 Time deposits" 3,298 4,656 5,784 4,857 6,669 4,726 4,879 5,967r 5,161 6,310 15 Other3 4,849 5,670 7,542 7,459 6,052 6,572 4,972 4,786' 8,312 5,852 16 Banks' custodial liabilities5 430 692 617 215 456 412 501 282 405 264 17 U.S. Treasury bills and certificates6 281 350 352 122 65 47 166 53 148 46 18 Other negotiable and readily transferable instruments7 149 341 265 88 383 365 314 229 257 217 19 Other 0 1 0 5 8 0 21 0 0 1 20 Official institutions9 212,957 275,928 312,019 305,639r 289,735' 291,067 294,081' 299,786' 306,987 297,383 21 Banks' own liabilities 59,935 83,447 79,406 93,045r 97,680' 102,366 99,111' 105,354' 118,054 109,473 22 Demand deposits 1,564 2,098 1,511 1,855 1,482 1,711 2,198' 1,745 2,034 1,867 23 Time deposits" 23,511 30,717 33,336 36,627 39,849' 42,145 40,301' 39,884' 41,670 "39,626 24 Other3 34,860 50,632 44,559 54,563r 56,349' 58,510 56,612 63,725' 74,350 67,980 25 Banks' custodial liabilities5 153,022 192,481 232,613 212,594 192,055 188,701 194,970 194,432 188,933 187,910 26 U.S. Treasury bills and certificates6 139,571 168,534 198,921 178,366 163,950 161,270 165,453 161,610 153,283 150,102 27 Other negotiable and readily transferable instruments7 13,245 23,603 33,266 33,976 27,676 26,878 29,349 32,315 35,236 37,374 28 Other 206 344 426 252 429 553 168 507 414 434 29 Banks10 678,532 691,412 694,835 718,322' 727,626' 734,459 730,322' 723,002' 733,083 765,684 30 Banks' own liabilities 563,617 567,834 562,898 591,067r 575,788' 573,819 566,366' 562,218' 568,464 595,754 31 Unaffiliated foreign banks 168,139 171,544 161,354 151,575r 157,178 161,002 157,357 151,658' 164,914 170,617 32 Demand deposits 10,633 11,758 13,692 12,686 14,800 13,700 13,323 13,852' 18,354 21,324 33 Time deposits" 111,171 103,471 89,765r 80,323r 79,281' 80,131 81,890' 76,443' 83,172 84,583 34 Other3 46,335 56,315 57,897r 58,566r 63,097' 67,171 62,144' 61,363' 63,388 64,710 35 Own foreign offices4 395,478 396,290 401,544 439,492 418,610' 412,817 409,009' 410,560' 403,550 425,137 36 Banks' custodial liabilities5 114,915 123,578 131,937 127,255 151,838 160,640 163,956 160,784 164,619 169,930 37 U.S. Treasury bills and certificates6 11,264 15,872 23,106 1144,,112277 27,115 28.642 30,629 30,012 3333,,008855 32,995 38 Other negotiable and readily transferable instruments7 14,506 13,035 17,027 18,918 28,866 35,522 33,960 32,886 32,065 33,826 39 Other 89,145 94,671 91,804 94,210 95,857 96,476 99,367 97,886 99,469 103,109 40 Other foreigners 114,901 121,170 141,322r 157,17 LR 153,399' 163,001 157,471' 163,969' 171,815 164,334 41 Banks' own liabilities 86,863 91,833 103,339 116,309 114,944' 119,534 113,062' 118,384' 124,393 116,164 42 Demand deposits 11,160 10,571 11,802 11,647 12,488' 12,158 11,369 11,964' 13,127 12,491 43 Time deposits" 48,532 53,714 58,025 61,276 61,105' 62,350 63,395' 65,181' 63,421 61,124 44 Other3 27,171 27,548 33,512 43,386 41,351' 45,026 38,298' 41,239' 47,845 42,549 45 Banks' custodial liabilities5 28,038 29,337 37,983r 40,862r 38,455' 43,467 44,409' 45,585 47,422 48,170 46 U.S. Treasury bills and certificates6 11,822 12,599 14,495 15,279 14,662 12,671 12,873 14,271 13,699 13,333 47 Other negotiable and readily transferable instruments7 14,639 15,221 21,453 19,734 18,310 25,292 25,473 25.256 27,550 28,465 48 Other 1,577 1,517 2,035r 5,849r 5,483' 5,504 6,063' 6,058 6,173 6,372 MEMO 49 Negotiable time certificates of deposit in custody for foreigners 17,895 9,103 14,573 15,070r 15,771 16,453 16,040 15,872 15,485 16,553 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 • March 1998 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States'—Continued 1997 IItteemm 11999944 11999955 11999966 May June July Aug. Sept. Oct. Nov.11 AREA 50 Total, all foreigners 1,014,996 1,099,549 l,162,148r l,193,679r l,184,712r l,200,323r l,192,443r l,198,563r l,225,799r 1,239,870 51 Foreign countries 1.006,390 1.088.510 1.148,176r l,181,132r l,170,760r l,188,527r l,181,874r t,186,757r l,211,885v 1,227,401 52 Europe 390.869 362.819 376.590 382.293R 395,718 411.680 407.700 402.063'" 418,988' 425,619 53 Austria 3.588 3.537 5.128 .3,231 3,252 3,257 3.404 2,691 2,679 2.319 54 Belgium and Luxembourg 21.877 24.792 24,084 21.256 41,286 45,291 46,063 43,4.36 46,067' 46.258 55 Denmark 2,884 2.921 2.565 2.112 2,098 2.289 1.736 2.867 2,359 2.157 .16 Finland 1.436 2.831 1.958 1,868 1,851 1,814 1.751 2,163 1.997 1.969 5/ France 44.365 39.218 35.078 38,742 41.21 1 43,464 41,213 43.065 45.057 45.688 58 Germanv 27,109 24.035 24.660 26.081 26.086 24,978 22.626 25.201 22.117 23.040 59 Greece 1.400 2.014 1.835 2,296 1.701 1,726 1,592 2.086 2,075 1,229 60 Italv 10.885 10.868 10,946 9.691 10.191 9.490 9.179 9,852 1 1,449 10.713 61 Netherlands 16.033 13.745 11.110 8,702 8.292 8,440 7,823 8.388 8,119 7,010 62 Norwav 2,338 1.394 1,288 1,121 841 846 604 1,321 1,022' 1,793 63 Portugal 2.846 2.761 3,562 2.712 2.582 2.075 1.931 1,958 1.888 1,987 64 Russia 2.726 7.948 7,623 9.582 12.302 13,604 13,216 12,784 11.722 6,938 65 Spain 14,675 10.011 17.707 15.027 16.274 15,158 15.203 17,796 21.934 20.921 66 Sweden 3.094 3.246 1.623 1.658 1.514 1.925 2,317 2,024 1,348 1.614 6/ Switzerland 40.724 43.625 44.538 44,028 39,124 44,283 41.076 36.862 37,065' 39,650 68 Turkey 3.341 4.124 6,738 6.757 6,545 6.594 5.933 4.736 4,661' 4.218 69 United Kingdom 163.733 139.183 153.420 163.267' 156,127 161,672 167.914 158.849' 165,199' 177,781 /() Yugoslavia" 245 177 206 324 228 267 244 243 233' 734 11 Other Europe and other former U.S.S.R.'- 27.770 26.389 22.521 23.838 24.213 24.507 23.875 25,741 31.997 30,100 72 Canada 24.768 30.468 38.920 38.441 37,976' 30.445'' 27.6291" 29.592 .30,282' 30,921 73 Latin America and Caribbean 423.847 440.213 467.529'' 495.1 12' 496.530' 500,824'' 496.658' 502,648'' 501.854'" 498.879 / 4 Argentina 17,20.3 12.235 13,877 16.486 18.229 17.100 18.0.33 16,643 17.557 18.214 / 5 Bahamas 104.014 94.991 88.895 100,935 90,166 92,136 86,271 86,914 89,630' 91,710 lb Bermuda 8.424 4.897 5.527 6.358 5,358 5,919 7.786 6,084 6.209 6,167 II Brazil 9,145 23.797 27.701 25.452 26.058 28,340 31.567 33.575 31.675 32,609 18 British West Indies 229.599 239.083 251.465' 268.589' 272.447' 265,291' 268.485' 273.570' 270,004'' 263.908 / 9 Chile 3.127 2.826 2,915 3.239 3.371 3,440 3.353 3.327 3,579' 3,283 80 Colombia 4.615 3.659 3.256 2,776 2.836 2,652 2.587 2.657 3.395 3,266 81 Cuba 13 8 21 54 55 54 60 55 71 57 82 Ecuador 875 1.314 1,767 1.608 1,466 1.640 1,512 1.508 1,671 1,704 83 Guatemala 1.121 1.276 1,282 1,457 1,497 1.455 1.389 1.449 1.399 1,361 84 Jamaica 529 481 628 472 465 532 534 523 481 445 85 Mexico 12,227 24.560 31,240 28.423' 33.1 11' 34.779' .30,804 32,640 32.748 37,668 86 Netherlands Antilles 5,217 4.673 6.099 3.755 6.134 10,986 8.286 7,566 6.059 4.987 8/ Panama 4.551 4.264 4.099 4.026 3.976 4,424 3.805 3.835 4.107 4,291 88 Peru 900 974 834 1,117 919 958 1,006 904 917 907 89 Uruguay 1.597 1.836 1.890 2,062 2,153 2.392 2,070 1,997 2,184 2.247 90 Venezuela 13.986 11.808 17.363 18.899 19.197' 19.124' 20,159 20.580' 20.639' 22.050 91 Other 6,704 7.531 8.670 9.404 9.092' 9.602 8,951' 8,821' 9.529' 9.005 92 Asia 154.346 240.595 249.083 249,131 222,848'' 227.759' 231.017'' 234.560' 242.075'' 254.981 China 93 Mainland 10.066 33.750 30.438 29.429 7.283 9.480 10.450 12.664' 16.244'' 17.447 94 Taiwan 9.844 11.714 15.995 12.442 12.363 13.464 11,803 13.460' 15.207' 13,586 95 Hong Kong 17.104 20.197 18.789 19.397 20.2.36 18.737 17.647 18.533' 19.690' 18,816 96 India 2.338 3.373 3.930 4,367 4.241 4,555 4.474 4.451 5,131 4,913 9/ Indonesia 1.587 2.708 2.298 2,770 2,531 2,817 3,737 2,810 4.568 3,092 98 Israel 5.157 4.041 6.051 6,416 5.751 5.180 5.202 4,534 4,200 3,748 99 Japan 62.981 109.193 117.316 118,921 118,413 1 18.410 119.581 118,5.36 116,852 133,694 100 Korea (South) 5.124 5.749 5.949 7.866 7.657 8.928 9,646 9,327 8.663 10.047 101 Philippines 2.714 3.092 3.378 2.387 2.469 2,908 2,541 2,409 2.505 2.552 102 Thailand 6,466 12.279 10.912 7.808 6.159 5.262 4.956 6.545 6.988' 5,854 H)J Middle Eastern oil-exporting countries'' 15,494 15.582 16.285 14.425 13,086' 14,306' 15.325' 14,279' 14.436' 14,018 104 Other 15.471 18.917 17.742 22.903 22,659' 23.712' 25.655' 27,012' 27.591' 27,214 105 Africa 6,524 7.641 8.116 9.821 9.970 9.734 9,731 10.380'' 10,310' 9.520 106 Egypt 1.879 2.136 2.012 2.257 1.986 1.921 1,973 2,050 1.742 1.836 10/ Morocco 97 104 112 91 65 112 94 99 105 69 108 South Africa 43.3 739 458 1,985 1.758 1.697 1.694 2,047' 2.028' 1,615 109 Zaire 9 10 10 9 17 8 7 14 3 5 110 Oil-exporting countries'4 1.343 1.797 2.626 2.731 3.153 2.981 3.211 3,280 3.194 2.948 1 11 Other 2,763 2.855 2.898 2.748 2.991 3.015 2,752 2.890 3,238' .3.047 112 Other 6.036 6.774 7.938 6,334 7.718 8,085'' 9.139 7.514 8,376 7,481 113 Australia 5.142 5.647 6.479 4,991 6.433 6.782 7,917 6,391 7.284 6,283 114 Other 894 1.127 1.459 1,343 1.285 1,303' 1.222 1,123 1.092 1,198 115 Nonmonetary international and regional organizations. . . 8.606 11.039 13.972 12.547 13.952 11.796 10.569 11.806 13.914'' 12.469 1 16 International " 7.537 9.300 12.099 10.873 12.297 10,341 9,434 10.634 1 1,943' 10.926 1 17 Latin American regional"' 613 893 1.339 1.435 1,071 794 579 708 1,277 1.053 1 18 Other regional17 456 846 534 239 584 661 556 464 694 490 11. Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 15. Principally the International Bank for Reconstruction and Development. Excludes 12. Includes the Bank for International Settlements. Since December 1992. has "holdings of dollars" of the International Monetary Fund. included all parts of the former U.S.S.R. (except Russia), and Bosnia. Croatia, and Slovenia. 16. Principally the Inter-American Development Bank. 13. Comprises Bahrain, Iran, Iraq. Kuwait, Oman. Qatar, Saudi Arabia, and United Arab 17. Asian. African, Middle Eastern, and European regional organizations, except the Bank Emirates (Trucial States). for International Settlements, which is included in "Other Europe." 14. Comprises Algeria, Gabon, Libya, and Nigeria. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A55 3.18 BANKS' OWN CLAIMS ON FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period 1997 AArreeaa oorr ccoouunnttrryy 11999944 11999955 11999966 May June July" Aug." Sept." Oct. Nov.'' 1 Total, all foreigners 485,432 532,444 599,925r 632,643r 651,457r 646,504 650,453 656,676 682,894 698,937 2 Foreign countries 480,841 530,513 597,321r 630,311r 649,527r 645,351 648,036 654,633 681,146 696,451 3 Europe 124,124 132.150 165.769r 196,207'' 192,392 186.365 189.759 199,261 213.886 215,397 4 Austria 692 565 1.662 1,440 1.394 1.690 1.739 1,371 1,913 2,034 5 Belgium and Luxembourg 6,923 7.624 6,727 8,022' 8.164' 8.094 8,124 7,847 8,347 7,461 6 Denmark 1.129 403 492 924 981 806 811 1.082 896 844 7 Finland 512 1.055 971 1,121 1,414 1,247 1.773 1,889 1,808 1.261 S France 12.149 15,033 15,246 17,291r 16,759' 18,689 16.232 17,531 17,043 19.891 9 Germany 7.623 9,263 8,472 9,054 10,024 8.351 8,685 11,724 11.617 13.305 10 Greece 604 469 568 477 630 461 481 499 463 401 1 1 Italv 6,044 5,370 6,457 6.478 7.865 7,443 8,015 7,670 7.146 6,870 12 Netherlands 2.960 5,346 7,117' 8.190 10,687 12,050 11.083 11,548 11.504 11.496 1.3 Norway 504 665 808 1,199 750 745 849 1.713 1,419 2.080 14 Portugal 938 888 418 306 468 439 732 563 615 695 15 Russia 973 660 1,669 1,881 2.020 2,098 2,192 1.927 2.054 2.207 16 Spain 3,536 2.166 3.211 5,854 6.811 6,496 6,175 5.431 6.624 6,338 17 Sweden 4,098 2,080 1,739 1,870 2,539 1.740 1,639 1,659 1,838 1.804 18 Switzerland 5,747 7.474 19.798 24,574 22,523 24,883 24.338 25,393 29,980 29.599 19 Turkey 878 803 1.109 1,306 1.392 1.362 1.305 1,410 1.424 1.572 20 United Kingdom 66,863 67.784 85.234r 101.679' 94,070 84,162 90,226 93,825 102,405 100.870 21 Yugoslavia- 265 147 115 79 75 75 76 75 75 74 22 Other Europe and other former U.S.S.R.1 1.686 4,355 3,956 4,462 3.826 5,534 5,284 6,104 6,715 6.595 23 Canada 18,490 20,874 26,436 31.613 35.916 26,289 24,442 23,513 22,814 24.755 24 Latin America and Caribbean 224,229 256,944 274,153' 264,404' 281,258" 300,339 298.786 302,528 305,147 316.617 25 Argentina 5,854 6,439 7,400 7,251 7.293 7,088 7.277 7,243 8.138 8.757 26 Bahamas 66,410 58.818 71,871 65,546 66.804 69.819 70,031 66,074 73.837 72,739 27 Bermuda 8.533 5.741 4,129' 6.629' 7,112 8,252 9,829 9,342 8.097 6,552 28 Brazil 9,583 13,297 17,259 18.588 18,757 18,879 19,249 19.422 20.130 20,385 29 British West Indies 96,373 124,037 105.510 106.898 122.088 134.438 128,373 133.778 134,577 141.084 30 Chile 3,820 4,864 5,136 5,745 5.599 5.686 5,919 6,235 7,189 7.782 31 Colombia 4.004 4.550 6.247 6,041 6.324 6,419 6.608 6,543 6,862 6,968 32 Cuba 0 0 0 0 0 0 0 0 0 3 33 Ecuador 682 825 1,031 1,092 1,132 1,165 1.199 1.218 1,307 1.292 34 Guatemala 366 457 620 619 651 679 689 764 760 787 35 Jamaica 258 323 345 328 336 359 375 374 364 405 36 Mexico 17,749 18,024 18,425 19,168 19,201 19,585 18.680 18,770 18.584 18.759 37 Netherlands Antilles 1,404 9.229 25,209 14.759 14,016 15,759 18,399 20,325 12.274 17.064 38 Panama 2,198 3,008 2,786 3,347 3,183 3.272 3,482 3,566 3,957 4.108 39 Peru 997 1.829 2.720 2.580 2,597 2.697 2,850 3.060 3,184 3,456 40 Uruguav 503 466 589 735 705 778 702 728 709 651 41 Venezuela 1,832 1.661 1,702 1,710 1,801 1,734 1,750 1.716 1,636 1.915 42 Other 3.663 3,376 3,174 3,368 3,659" 3,730 3,374 3,370 3,542 3.910 43 107,800 115,336 122,478 128,728r 129,761" 122.517 124,927 120.807 129,589 130.183 China 44 Mainland 836 1.023 1,401 2,168 2,036" 2,385 2,574 2.798 2,345 2.102 45 Taiwan 1,448 1,713 1,894 1,500 1,851 1,523 1,521 1,250 1,271 1.000 46 Hong Kong 9 222 12,821 12,802 14,969 16,014 12.247 13,188 13.573 15.343 15,156 47 India 994 1,846 1,946 2,257 2,342 2.184 2.110 2,086 2.360 2,501 48 Indonesia 1,472 1,696 1,762 2,438" 2.539" 2,524 2,579 2,713 2.698 2,746 49 Israel 688 739 633 909 631 855 749 907 1,539 1.201 50 Japan 59,569 61,468 59,967 56.484 59,679 55,592 54,427 52,480 59.437 60.568 51 Korea (South) 10,286 13,975 18,901 20,864 20,606 21,274 21,690 19,978 19,922 19.253 52 Philippines 663 1,318 1,697 1,937 2,119 1,723 1,834 1,670 1,455 1.533 53 Thailand 2,902 2,612 2,679 3.069 3.187 2.825 2,641 2,479 2,317 2,100 54 Middle Eastern oil-exporting countries4 13,982 9,639 10.424 10.607" 9.115 9,751 9,503 7.988 8,490 8,909 55 Other 5,738 6,486 8,372 11,526 9,642' 9.634 12,111 12,885 12,412 13,114 5ft Africa 3,053 2.742 2.776 2,847 3.273 3,125 3.281 3.464 3,342 3,332 57 Egypt 225 210 247 270 312 267 288 251 245 282 58 Morocco 429 514 524 463 465 463 554 547 599 412 59 South Africa 674 465 584 569 602 493 489 655 557 743 60 Zaire 2 1 0 0 0 0 0 0 0 0 61 Oil-exporting countries5 856 552 420 679 1,129 1.134 1,178 1.123 1,111 1,091 62 Other 867 1,000 1,001 866 765 768 772 888 830 804 63 Other 3,145 2,467 5.709 6,512 6,927 6.716 6.841 5,060 6,368 6,167 64 Australia 2,192 1,622 4.577 4,088 5,042 4.938 5.266 4,314 5,296 4,962 65 Other 953 845 1,132 2,424 1,885 1.778 1.575 746 1.072 1.205 66 Nonmonetary international and regional organizations6.. . 4.591 1,931 2,604 2,332 1,930 1,153 2,417 2.043 1,748 2,486 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 • March 1998 3.19 BANKS' OWN AND DOMESTIC CUSTOMERS' CLAIMS ON FOREIGNERS Reported by Banks in the United States' Payable in U.S. Dollars Millions of dollars, end of period 1997 TTyyppee ooff ccllaaiimm 11999966rr Mayr Juner July' Aug.r Sept.1" Oct. Nov.p 1 Total 601,814 655,211 743,919 813,714 826,669 2 Banks' claims 485,432 532,444 599,925 632,643 651,457 646,504 650,453 656,676 682,894 698,937 3 Foreign public borrowers 23,416 22,518 22,216 27,264 29,399 26,923 28,263 30,287 29,795 28,112 4 Own foreign offices2 283,015 307,427 341,574 367,982 379,426 370,506 370,599 374,443 401,467 408,509 5 Unaffiliated foreign banks 110,410 101,595 113,682 113,084 119,545 117,694 115,343 104,749 115,298 122,813 6 Deposits 59,368 37,771 33,826 34,586 35,794 36,006 35,436 29,509 30,358 32,373 / Other 51,042 63,824 79,856 78,498 83,751 81,688 79,907 75,240 84,940 90,440 8 All other foreigners 68,591 100,904 122,453 124,313 123,087 131,381 136,248 147,197 136,334 139,503 9 Claims of banks' domestic customers' 116,382 122,767 143,994 162,257 169,993 10 Deposits 64,829 58,519 77,657 94,591 101,683 11 Negotiable and readily transferable instruments4 36,111 44,161 51,207 50,301 5500,,229911 12 Outstanding collections and other claims 15,442 20,087 15,130 17,365 18,019 MEMO 13 Customer liability on acceptances 8,427 8,410 10,388 11,437 10,854 14 Dollar deposits in banks abroad, reported by nonbanking business enterprises in the United States5 32,796 30,717 39,661 42,097 36,210 38.213 45,342 38,181 39.076 37,395 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 US. dollars issued by banks abroad. 3.20 BANKS' OWN CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Banks in the United States' Payable in U.S. Dollars Millions of dollars, end of period 1996 1997r MMaattuurriittyy,, bbyy bboorrrroowweerr aanndd aarreeaa"" 11999933 11999944 11999955 Dec. Mar. June Sept. 1 Total 202,566 202,282 224,932 258,106r 276,025 271,894 282,234 fiv borrower 2 Maturity of one year or less 172,662 170,411 178,857 21 l,859r 223,721 211,140 219,343 3 Foreign public borrowers 17,828 15,435 14,995 15,411 19,876 17,979 21,535 4 All other foreigners 154,834 154.976 163,862 196,448r 203,845 193,161 197,808 5 Maturity of more than one year 29,904 31.871 46,075 46,247r 52,304 60,754 62,891 6 Foreign public borrowers 10,874 7.838 7,522 6,790r 8,835 11,220 8,752 7 All other foreigners 19,030 24,033 38,553 39,457r 43,469 49,534 54,139 Bv area Maturity of one year or less 8 Europe 57,413 56.381 55,622 55,690r 74,888 69,233 69,213 9 Canada 7,727 6,690 6,751 8,339 10,423 10,320 8,460 10 Latin America and Caribbean 60,490 59,583 72,504 103,254 96,892 87,059 99,902 11 Asia 41,418 40.567 40,296 38,078 36,478 38,434 36,030 12 Africa 1,820 1.379 1.295 1,316 1,451 1,899 2,157 13 All other3 3,794 5,811 2,389 5,182 3,589 4,195 3,581 Maturity of more than one year 14 Europe 5,310 4,358 4,995 6,965r 9,512 11,835 11,198 15 Canada 2,581 3,505 2,751 2,645 2,934 3,164 3,832 16 Latin America and Caribbean 14,025 15,717 27.681 24,943r 26,797 31,001 34,873 17 5,606 5,323 7,941 9,392 10,773 12,510 10,394 18 Africa 1,935 1,583 1,421 1,361 1,204 1,264 1,236 19 All other3 447 1,385 1,286 941 1,084 980 1,358 1. Reporting banks include all types of depository institutions as well as some brokers and 2. Maturity is time remaining until maturity, dealers. 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A57 3.21 CLAIMS ON FOREIGN COUNTRIES Held by U.S. and Foreign Offices of U.S. Banks' Billions of dollars, end of period 1995 1996 1997 AArreeaa oorr ccoouunnttrryy 11999933 11999944 Sept. Dec. Mar. June Sept. Dec. Mar. June Sept. 1 Total 409.5 499.5 535.3 551.9 574.7r 614.9 587.9r 646.9r 649.2 680.4 712.7r 2 G-10 countries and Switzerland 161.9 191.2 203.0 206.0 203.4 229.0 221.71" 229.9r 233.0 251.8 250.0r 3 Belgium and Luxembourg 7.4 7.2 11.0 13.6 11.0 11.4 11.3 11.7 14.1 9.3 11.3 4 France 12.0 19.1 18.0 19.4 17.9 18.0 17.4 16.6 19.7 17.9 20.1 5 Germany 12.6 24.7 27.5 27.3 31.5 33.5 35.5 31.4 33.7 35.8 36.6r 6 Italy 7.7 11.8 12.6 11.5 13.2 14.9 15.2 16.0 14.4 20.2 19.3 7 Netherlands 4.7 3.6 4.5 3.7 3.1r 4.7 5.9 4.0r 4.5 6.4 7.2 8 Sweden 2.7 2.7 2.9 2.7 3.3 2.7 3.0 2.6 3.4 3.6 4.1 9 Switzerland 5.9 5.1 6.6 6.7 5.2 6.3 6.3 5.3 6.0 5.4 4.8 10 United Kingdom 84.4 85.8 80.4 82.4 84.7 101.6 90.5 104.7r 99.2 110.6 108.8 11 Canada 6.9 10.0 12.9 10.3 10.8 12.2 14.8 14.0 16.3 15.7 15. r 12 Japan 17.6 21.1 26.6 28.5 22.7 23.6 21.7 23.7 21.7 26.8 22.6 13 Other industrialized countries 26.5 45.7 50.5 50.2 61.3 55.5 62.1 65.7 66.4 71.7 73.8 14 Austria .7 1.1 1.2 .9 1.3 1.2 1.0 1.1 1.9 1.5 1.7 15 Denmark 1.0 1.3 1.8 2.6 3.4 3.3 1.7 1.5 1.7 2.8 3.7 16 Finland .4 .9 .7 .8 .7 .6 .6 .8 .7 1.4 1.9 17 Greece 3.2 4.5 5.1 5.7 5.6 5.6 6.1 6.7 6.3 6.1 6.2 18 Norway 1.7 2.0 2.3 3.2 2.1 2.3 3.0 8.0 5.3 4.7 4.6 19 Portugal .8 1.2 1.9 1.3 1.6 1.6 1.4 .9 1.0 1.1 1.4 20 Spain 9.9 13.6 13.3 11.6 17.5 13.6 16.1 13.2 14.4 15.4 13.9 21 Turkey 2.1 1.6 2.0 1.9 2.0 2.3 2.8 2.7 2.8 3.4 4.4 22 Other Western Europe 3.2 3.2 3.3 4.7 3.8 3.4 4.8 4.7 6.3 5.5 6.1 23 South Africa 1.1 1.0 1.3 1.2 1.7 2.0 1.7 2.0 1.9 1.9 1.9 24 Australia 2.3 15.4 17.4 16.4 21.7 19.6 22.8 24.0 24.4 27.8 28.1 25 OPEC2 17.6 24.1 22.7 22.1 21.2 20.1 19.2 19.7 21.8 22.2 22.1 26 Ecuador .5 .5 .7 .7 .8 .9 .9 1.1 1.1 .9 1.2 27 Venezuela 5.1 3.7 3.0 2.7 2.9 2.3 2.3 2.4 1.9 2.1 2.2 28 Indonesia 3.3 3.8 4.4 4.8 4.7 4.9 5.4 5.2 4.9 5.6 6.5 29 Middle East countries 7.6 15.3 13.9 13.3 12.3 11.5 10.2 10.7 13.2 12.4 11.0r 30 African countries 1.2 .9 .6 .6 .6 .5 .4 .4 .7 1.2 1.1 31 Non OPEC developing countries 83.2 96.0 104.1 112.6 118.6 126.5 124.4r 130.3 128.1 140.5 136.2r Latin America 32 Argentina 7.7 11.2 10.9 12.9 12.7 14.1 15.0 14.3 14.3 16.4 17.0 33 Brazil 12.0 8.4 13.6 13.7 18.3 21.7 17.8 20.7 22.0 27.3 25.9 34 Chile 4.7 6.1 6.4 6.8 6.4 6.7 6.6 7.0 6.8 7.6 7.9 35 Colombia 2.1 2.6 2.9 2.9 2.9 2.8 3.1 4.1 3.7 3.3 3.4 36 Mexico 17.9 18.4 16.3 17.3 16.1 15.4 16.3r 16.2 17.2 16.6 16.1 37 .4 .5 .7 .8 .9 1.2 1.3 1.6 1.6 1.4 1.8 38 Other 3.1 2.7 2.6 2.8 3.1 3.0 3.0 3.3 3.4 3.4 3.6 Asia China 39 Mainland 2.0 1.1 1.7 1.8 3.3 2.9 2.6 2.5 2.7 3.6 4.3 40 Taiwan 7.3 9.2 9.0 9.4 9.7 9.8 10.4 10.3 10.5 10.6 9.7 41 3.2 4.2 4.4 4.4 4.7 4.2 3.8 4.3 4.9 5.3 4.9 42 .5 .4 .5 .5 .5 .6 .5 .5 .6 .8 1.0 43 Korea (South) 6.7 16.2 18.0 19.1 19.3 21.7 21.9 21.5 14.6 16.3 16.2 44 Malaysia 4.4 3.1 4.3 4.4 5.2 5.3 5.5 6.0 6.5 6.4 5.6 45 Philippines 3.1 3.3 3.3 4.1 3.9 4.7 5.4 5.8 6.0 7.0 5.7 46 Thailand 3.1 2.1 3.9 4.9 5.2 5.4 4.8 5.7 6.8 7.3 6.2 47 Other Asia 3.1 4.7 3.7 4.5 4.3 4.8 4.1 4.1 4.3 4.7 4.5 Africa 48 Egypt .4 .3 .4 .4 .5 .5 .6 .7 .9 I.I .9 49 Morocco .7 .6 .9 .7 .7 .8 .7 .7 .6 .6 .7 50 .0 .0 .0 .0 .0 .0 .0 .1 .0 .0 .0 51 Other Africa3 .8 .8 .8 .9 .8 .8 1.0 .9 .9 .9 .9 52 Eastern Europe 3.2 2.7 3.4 4.2 6.3 5.1 5.3 6.9 8.9 7.1 9.6 53 Russia4 1.6 .8 .6 1.0 1.4 1.0 1.8 3.7 3.5 4.2 4.9 54 Other 1.6 1.9 2.8 3.2 4.9 4.1 3.5 3.2 5.4 2.9 4.7 55 Offshore banking centers 73.5 72.9 87.5 99.2 101.3 106.1 105.2 134.7 131.3 129.6 140.9r 56 Bahamas 10.9 10.2 12.6 11.0 13.9 17.3 14.2 20.3 20.9 16.1 19.8 57 Bermuda 8.9 8.4 6.1 6.3 5.3 4.1 4.0 4.5 6.7 7.9 9.8 58 Cayman Islands and other British West Indies 18.4 21.4 25.1 32.4 28.8 26.1 32.0 37.2 32.8 35.1 45.7 59 Netherlands Antilles 2.8 1.6 5.7 10.3 11.1 13.2 11.7 26.1 19.9 15.8 21.7 60 Panama3 2.4 1.3 1.3 1.4 1.6 1.7 1.7 2.0 2.0 2.6 2.6 61 Lebanon .1 .1 .1 .1 .1 .1 .1 .1 .1 .1 .1 62 Hong Kong, China 18.8 20.0 23.7 25.0 25.3 27.6 26.0 27.9 30.8 35.2 27.2 63 Singapore 11.2 10.1 13.3 13.1 15.4 15.9 15.5 16.7 17.9 16.7 14.1 64 Other" .1 .1 .1 .1 .1 .1 .1 .1 .1 .3 .1 65 Miscellaneous and unallocated7 43.6 66.9 64.2 57.6 62.6 72.7 50.0 59.6 59.6 57.6 80.2 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 U.S. banks. The data also include other types of U.S. depository 3. Excludes Liberia. Beginning March 1994 includes Namibia. institutions as well as some types of brokers and dealers. To eliminate duplication, the data 4. As of December 1992, excludes other republics of the former Soviet Union. are adjusted to exclude the claims on foreign branches held by a U.S. office or another foreign 5. Includes Canal Zone. branch of the same banking institution. 6. Foreign branch claims only. These data are on a gross claims basis and do not necessarily reflect the ultimate country 7. Includes New Zealand, Liberia, and international and regional organizations. risk or exposure of U.S. banks. More complete data on the country risk exposure of U.S. banks 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 • March 1998 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1996 1997 TTyyppee ooff lliiaabbiilliittyy,, aanndd aarreeaa oorr ccoouunnttrryy 11999933 11999944 11999955 June Sept. Dec. Mar. June Sept.P 1 Total 50,597 54,309 46,448 48,943r 51,604r 54,798r 55,068r 52,950 52,445 2 Payable in dollars 38,728 38,298 33.903 35,338r 36,374r 38,956r 39,114r 37,398 37,485 3 Payable in foreign currencies 11,869 16.011 12,545 13,605 15,230 15,842r 15,954r 15,552 14,960 By type 4 Financial liabilities 29,226 32,954 24.241 24,797r 25,445r 26,065r 25,95 lr 24,630 22,946 5 Payable in dollars 18,545 18,818 12,903 12,165r 1 l,272r 1 l,327r 11,017' 10.107 9,157 6 Payable in foreign currencies 10,681 14,136 11,338 12,632 14,173 14,738r 14,934r 14,523 13,789 7a Commercial liabilities 21,371 21,355 22,207 24,146 26,159 28,733 29,117 28,320 29,499 Trade payables 8,802 10,005 11,013 11,081 11,791 12,720 11,515 11,122 10,954 y Advance receipts and other liabilities 12,569 11,350 11,194 13,065 14,368 16,013 17,602 17,198 18.545 10 Payable in dollars 20,183 19,480 21,000 23,173 25,102 27,629 28,097 27,291 28,328 n Payable in foreign currencies 1,188 1,875 1,207 973 1,057 1,104 1,020 1,029 1,171 By area or country Financial liabilities 12 Europe 18,810 21,703 15,622 16,387r 16,086r 16,195r 16,399r 16,327 15,026 13 Belgium and Luxembourg 175 495 369 498 547 632 769 238 89 14 France 2,539 1,727 999 1,011 1,220 1,091 1,205 1,280 1,334 15 Germany 975 1,961 1,974 1,850 2,276 1,834 1,589 1,765 1,730 16 Netherlands 534 552 466 444 519 556 507 466 507 17 Switzerland 634 688 895 1.156 830 699 694 591 645 18 United Kingdom 13,332 15,543 10,138 10,743r 9,837r 10,177r 10,18 lr 10,765 9,172 19 Canada 859 629 632 951 973 1,401 602 456 399 20 Latin America and Caribbean 3,359 2.034 1,783 969 1,169 1,668 1,876 1.279 1,061 21 Bahamas 1,148 101 59 31 50 236 293 124 10 22 Bermuda 0 80 147 28 25 50 27 55 64 23 Brazil 18 207 57 8 52 78 75 97 52 24 British West Indies 1,533 998 866 826 764 1,030 965 769 663 25 Mexico 17 0 12 11 13 17 16 15 76 26 Venezuela 5 5 2 1 1 1 1 1 1 27 Asia 5,956 8,403 5,988 6,351 6,969 6,423r 6,370r 5,984 5,975 28 Japan 4,887 7,314 5,436 6,051 6,602 5,869r 5,794r 5,435 5,492 2y Middle Eastern oil-exporting countries' 23 35 27 26 25 25 72 39 23 30 Africa 133 135 150 72 153 38 29 29 33 31 Oil-exporting countries" 123 123 122 61 121 0 0 0 0 32 All other3 109 50 66 67 95 340 675 555 452 Commercial liabilities 33 Europe 6,827 6,773 7,700 7,916 8,680 9,767 9,551 8,711 9,364 34 Belgium and Luxembourg 239 241 331 326 427 479 643 738 705 35 France 655 728 481 678 657 680 680 709 783 36 Germany 684 604 767 839 949 1,002 1,047 852 951 37 Netherlands 688 722 500 617 668 766 553 290 453 38 Switzerland 375 327 413 516 405 624 481 430 401 39 United Kingdom 2,039 2,444 3.568 3,266 3,663 4,303 4,165 3,827 3,834 40 Canada 879 1,0.37 1.040 998 1,144 1,090 1.068 1,136 1,151 41 Latin America and Caribbean 1,658 1,857 1,740 2,301 2,386 2.574 2.563 2,501 2,226 42 Bahamas 21 19 1 35 33 63 43 33 38 43 Bermuda 350 345 205 509 355 297 479 397 180 44 Brazil 214 161 98 119 198 196 201 225 233 45 British West Indies 27 23 56 10 15 14 14 26 23 46 Mexico 481 574 416 475 446 665 633 594 562 47 Venezuela 123 276 221 283 341 328 318 304 322 48 10,980 10,741 10.421 11,389 12,227 13,422 13,968 13,926 14,686 49 Japan 4,314 4,555 3.315 3,943 4,149 4,614 4,502 4,460 4,587 50 Middle Eastern oil-exporting countries' 1,534 1,576 1.912 1,784 1,951 2,168 2,495 2,420 2,984 51 Africa 453 428 619 924 1,020 1,040 1,037 941 907 52 Oil-exporting countries" 167 256 254 462 490 532 479 423 504 53 Other3 574 519 687 618 702 840 930 1,105 1,165 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 1996 1997 TTyyppee ooff ccllaaiimm,, aanndd aarreeaa oorr ccoouunnttrryy 11999933 11999944 11999955 June Sept. Dec. Mar. June Sept.1' 1 Total 49,159 57,888 52,509 60,195 59,092 63,642 64,91 lr 66,127 67,266 2 Payable in dollars 45,161 53,805 48,711 55,350 55.014 58,630 60,747' 61.404 62.665 3 Payable in foreign currencies 3,998 4,083 3,798 4,845 4,078 5.012 4,164' 4.723 4.601 By type 4 Financial claims 27,771 33,897 27,398 35,251 34,200 35.268 37,356' 38.578 38.513 5 Deposits 15,717 18,507 15,133 19,507 19.877 21,404 19.625' 22,282 21.233 6 Payable in dollars 15,182 18,026 14,654 19,069 19.182 20.631 18.547' 21.373 20.271 7 Payable in foreign currencies 535 481 479 438 695 773 1,078r 909 962 y8 Other financial claims 12,054 15,390 12,265 15,744 14,323 13,864 17.731' 16.296 17.280 Payable in dollars 10,862 14,306 10,976 13.347 12,234 12.069 15.954" 13,918 15.383 10 Payable in foreign currencies 1,192 1,084 1,289 2,397 2,089 1.795 1,777 2,378 1,897 11 Commercial claims 21,388 23,991 25,111 24,944 24,892 28,374 27.555 27,549 28,753 12 Trade receivables 18.425 21,158 22,998 22,353 22.454 25.751 24,801 24,858 25.148 13 Advance payments and other claims 2,963 2,833 2,113 2.591 2,438 2,623 2,754 2,691 3.605 1145 Payable in dollars 19.117 21,473 23.081 22,934 23,598 25,930 26,246 26.113 27,011 Payable in foreign currencies 2,271 2,518 2,030 2,010 1,294 2.444 1.309 1,436 1,742 By area or country Financial claims 16 Europe 7.299 7.936 7,609 10,498 9,777 9.282 9.885r 10,765 12,325 17 Belgium and Luxembourg 134 86 193 151 126 185 119 203 360 18 France 826 800 803 679 733 694 760' 680 1,112 19 Germany 526 540 436 296 272 276 324 281 352 20 Netherlands 502 429 517 488 520 493 567 519 764 21 Switzerland 530 523 498 461 432 474 570 447 448 22 United Kingdom 3,585 4,649 4,303 7,426 6,603 6,119 6.646' 7.692 7.727 23 Canada 2,032 3,581 2.851 4,773 4,502 3,445 4.917 6.422 4.278 24 Latin America and Caribbean 16,224 19,536 14,500 17,644 17,241 19,577 19,742 18.725 19.168 25 Bahamas 1.336 2,424 1,965 2,168 1.746 1.452 1.894 2,064 2.477 26 Bermuda 125 27 81 84 113 140 157 188 189 27 Brazil 654 520 830 1,242 1,438 1,468 1,404 1,617 1.501 28 British West Indies 12,699 15.228 10,393 13,024 12,819' 15,182 15.176' 13,552 12.912 29 Mexico 872 723 554 392 413 457 51272 49281 508 30 Venezuela 161 35 32 23 20 31 15 31 Asia 1,657 1,871 1.579 1.571 1,834 2,221 2.068 1.934 2.015 32 Japan 892 953 871 852 1,001 1,035 8311 2 766 999 33 Middle Eastern oil-exporting countries' 3 141 3 9 13 22 20 15 34 Africa 99 373 276 197 177 174 182 17195 174 35 Oil-exporting countries" 1 0 5 5 13 14 14 16 36 All other3 460 600 583 568 669 569 562 553 553 Commercial claims 37 Europe 9.105 9,540 9,824 9.842 9.288 10,443 9,863 9.603 10.343781 38 Belgium and Luxembourg 184 213 231 239 213 226 364 327 39 France 1.947 1.881 1,830 1.659 1,532 1,644 1.514 1.377 1.640 40 Germany 1.018 1,027 1,070 1,335 1,250 1.337 1,364 1,229 1.393 41 Netherlands 423 31 1 452 481 424 562 582 613 358731 42 Switzerland 432 557 520 602 594 642 418 389 43 United Kingdom 2,377 2,556 2,656 2,658 2,516 2.946 2,626 2.836 2.903 44 Canada 1,781 1,988 1,951 2,074 2,083 2,165 2.381 2,464 2.643 4 4 6 5 Lat B in a h A am m a e s r ica and Caribbean 3,27 1 4 1 4,117 9 4,36 3 4 0 4,34 2 7 8 4,40 1 9 4 5.27 3 6 5 5.06 4 7 0 5,24 2 1 9 5.01222 47 Bermuda 182 234 272 264 290 275 159 197 128 48 Brazil 460 612 898 838 968 1,303 1.216 1.136 1.100 4 5 9 0 B M r e it x i i s c h o West Indies 99 7 0 1 1.2 8 4 3 3 99 7 3 9 1.0 1 2 0 1 3 9 1 3 1 6 9 1,1 1 2 9 8 0 1.1 3 10 3 272 0 1.1 9 4 8 0 1,2 9 2 8 2 51 Venezuela 293 348 285 313 316 357 451 418 52 Asia 6,014 6,982 7,312 6,939 7,289 8.376 8.348 8.460 8.572 53 Japan 2,275 2,655 1,870 1.877 1,919 2,003 2,065 2.079 2,046 54 Middle Eastern oil-exporting countries' 704 708 974 903 945 971 1.078 1.014 989 5 5 5 6 Af O ric il a - exporting countries" 49 7 3 2 45 6 4 7 65 8 4 7 68 8 8 3 7 1 3 4 1 2 7 1 4 6 6 6 7 1 1 0 8 0 61 8 8 1 726047 57 Other3 721 910 1.006 1.054 1,092 1,368 1,178 1.163 1.284 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 • March 1998 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1997 1997 Transaction, and area or country 1995 1996' J N an o .— v. May' June' July' Aug.' Sept.' Oct. Nov.P U.S. corporate securities STOCKS 1 Foreign purchases 462,950 590,714 871.426 77.610 82,289 85,138 84,953 80,546 105.207 85,150 2 Foreign sales 451,710 578,203 808.765 71.137 72,211 74,715 76,820 75,428 102,253 80,133 3 Net purchases, or sales (—) 11,240 12,511 62,661 6,473 10,078 10,423 8,133 5,118 2,954 5,017 4 Foreign countries 11,445 12,585 62,767 6,492 10,089 10,412 8,176 5,123 2,972 5,025 5 Europe 4.912 5.367 53.198 2,475 5,659 6,108 4,391 5,296 5,899 5,318 6 France -1,099 -2,402 2.835 240 -605 1,187 461 241 -80 -65 / Germany -1,837 1,104 8.276 556 858 1,080 584 374 527 857 8 Netherlands 3,507 1.415 3.426 384 117 88 -118 820 759 579 9 Switzerland -2,283 2,715 6,369 185 1,043 922 557 -405 846 1.043 10 United Kingdom 8,066 4.478 20.983 304 2,669 1,167 2,170 3,559 2,444 1,875 1 1 Canada -1,517 2,226 -869 24 32 -489 -286 -560 -519 -344 12 Latin America and Caribbean 5.814 5,816 8,446 2,413 2.140 3,968 2,456 813 -2,133 -627 13 Middle East1 -337 -1,600 152 -244 163 -51 -64 32 79 16 14 Other Asia 2,503 918 990 1,549 2,247 686 1,545 -519 -508 888 15 Japan -2,725 -372 4,229 1,763 1,121 849 888 -313 229 709 16 Africa 2 -85 464 3 81 99 ? 94 80 -36 1 / Other countries 68 -57 386 272 -233 91 132 -33 74 -190 18 Nonmonetary international and regional organizations -205 -74 -106 -19 -11 11 -43 -5 -18 -8 BONDS2 19 Foreign purchases 293.533 393,953 560.603 44,568 56,305 62,627 62,605 50,762 57,965 51,910 20 Foreign sales 206.951 268.487 435.118 34.831 44,245 46,045 48,283 41,297 44,421 49,177 21 Net purchases, or sales ( —) 86,582 125,466 125.485 9,737 12,060 16,582 14,322 9,465 13,544 2,733 22 Foreign countries 87,036 125,295 124,904 9,829 11,928 16,568 14,254 9,464 13,017 2,821 23 Europe 70.318 77,570 68,418 5.949 8,181 10,182 7,586 5.843 3.108 1,593 24 France 1.143 4.460 3.368 -2 102 522 275 300 142 546 25 Germany 5,938 4,439 3.216 181 -94 1,606 34 638 120 165 26 Netherlands 1,463 2,107 3,151 976 203 -79 602 135 369 185 2/ Switzerland 494 1.170 -768 6 176 -378 -304 -501 -109 490 28 United Kingdom 57,591 60.509 52.648 4,135 6,982 7,284 6,577 4.109 2,121 -684 29 Canada 2.569 4.486 5.587 522 -89 281 557 624 866 459 30 Latin America and Caribbean 6,141 17,737 27.609 2,444 1,757 3,283 2,110 1,265 3,720 3,884 31 Middle East1 1.869 1,679 1.499 -179 16 -9 -44 -1 -183 184 32 Other Asia 5,659 23.762 20.239 914 1,901 2,700 3,916 1,591 5,634 -3.497 33 Japan 2.250 14.173 13.118 449 1,683 1,885 2.996 -613 5.207 -2.883 34 Africa 234 624 956 48 56 104 103 8 11 88 3.1 Other countries 246 -563 596 131 106 27 26 134 -139 110 36 Nonmonetary international and regional organizations -454 171 581 -92 132 14 68 1 527 -88 Foreign securities 37 Stocks, net purchases, or sales ( —) -50,291 -59.268 -39,501 -3,777 -5,746 -7,532 -7,892 -170 -1,757 3,217 38 Foreign purchases 345.540 450,365 653.950 56.692 63,401 68.868 60,740 62,687 78,771 70,176 39 Foreign sales 395.831 509,633 693.451 60,469 69,147 76.400 68,632 62,857 80,528 66,959 40 Bonds, net purchases, or sales ( —) -48,405 -51.369 -43.383 -1.357 -12,910 -11,337 -4,852 -7,963 -597 -4,699 41 Foreign purchases 889,541 1.114,035 1.357.363 123.618 117,928 133,992 123.558 122,266 164.416 110,999 42 Foreign sales 937,946 1,165.404 1,400.746 124,975 130.838 145,329 128,410 130,229 165,013 115,698 43 Net purchases, or sales ( —), of stocks and bonds .... -98,696 -110,637 -82,884 -5,134 -18,656 -18,869 -12,744 -8,133 -2,354 -1,482 44 Foreign countries -97,891 -109,766 -82,914 -5,191 -18,672 -18,906 -12,673 -8,127 -2,189 -1,434 45 Europe -48,125 -57.139 -26.994 302 -2,133 -10,412 -4.590 -5,501 -4,363 -1,392 46 Canada -7,812 -7.685 -4.182 -836 -1,353 -1,815 -1,451 -1,153 336 85 47 Latin America and Caribbean -7,634 - 11.507 -21.529 -1,486 -8,544 -2.421 -207 -112 1.939 -2,123 48 Asia -34,056 -27,831 -25.686 -3,401 -5,779 -3,938 -4,802 -707 1,066 1,709 49 Japan -25,072 -5.887 -11.723 -2.860 -4,944 -2,370 95 -183 1,963 2,260 50 Africa -327 -1,517 -2.863 14 -596 -72 -703 -273 -874 -174 M Other countries 63 -4.087 -1.660 216 -267 -248 -920 -381 -293 461 52 Nonmonetary international and regional organizations -805 -871 30 57 16 37 -71 -6 -165 -48 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 US. 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 1997 1997 AArreeaa oorr ccoouunnttrryy 11999955 11999966'' Jan.— Mayr June1 Julyr Aug.' Sept.r Oct. Nov.P Nov. 1 Total estimated 134,115 232,241 192,953 7,216 22,844 2,949 23,966 16,045 15,464 16,430 2 Foreign countries 133,676 234.083 190,860 7,373 21,894 2,681 24.161 15,659 15,670 15.985 3 Europe 49,976 118,781 146,041 9,817 8,163 12,032 19,029 20,022 23,118 10,400 4 Bel ilium and Luxembourg 591 1.429 3,266 309 -37 298 92 138 357 384 5 Germany 6,136 17,980 19,419 721 1,096 6.428 4,050 2,714 4,847 5,255 6 Netherlands 1,891 -582 3,271 194 -408 378 882 -3 334 375 7 Sweden 358 2,242 -340 90 135 2 583 16 302 -67 8 Switzerland -472 328 3,383 -121 346 344 -291 109 892 1,395 9 United Kingdom 34,754 65.658 100,922 6,931 3,048 2,745 13.130 13,874 18,593 5.882 10 Other Europe and former U.S.S.R 6,718 31,726 16.120 1,693 3.983 1,837 583 3,174 -2,207 -2.824 1 1 Canada 252 2,331 1,327 322 1,373 719 -839 -414 -730 730 1? Latin America and Caribbean 48,609 20,785 -7,692 -10,111 1,381 -5,358 1.063 -769 -2.848 6,512 1 1 Venezuela -7 -69 595 93 635 57 25 -691 11 397 14 Other Latin America and Caribbean 25,152 8,439 -3,062 1,388 2,902 -1,266 -3.245 -2,880 -3,764 -723 15 Netherlands Antilles 23,459 12,415 -5,225 -11,592 -2,156 -4,149 4,283 2,802 905 6,838 16 Asia 32,467 89,735 49,618 7,514 8,474 -3,347 4,849 -4,614 -5,424 -748 17 Japan 16,979 41,366 28,169 7.657 5,972 2,612 -3,458 -2.782 4,160 -4.834 IX Africa 1,464 1,083 1,255 27 341 194 218 461 45 -82 19 Other 908 1,368 311 -196 2,162 -1.559 -159 973 1,509 -827 20 Nonmonetary international and regional organizations 439 -1,842 2.093 -157 950 268 -195 386 -206 445 ->] International 9 -1,390 1,577 -172 1,068 14 -190 341 -74 451 22 Latin American regional 261 -779 304 -2 -145 70 -117 -21 78 -24 MEMO 73 Foreign countries 133,676 234,083 190,860 7,373 21,894 2,681 24,161 15,659 15,670 15,985 ~>4 Official institutions 39,631 85,807 44,050 3.607 10,391 -2,413 8,235 3,091 -12,848 2,135 25 Other foreign 94,045 148,276 146,810 3,766 11,503 5,094 15,926 12,568 28,518 13,850 Oil-eyportin ? countries Middle Fast" 3,075 10.232 8,622 521 -1,735 -2,251 3.455 52 -3,877 33,,117755 27 Africa" 2 1 -13 -6 0 0 -7 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 BANKS' Percent per year, averages of daily figures Rate on Jan. 30. 1998 Rate on Jan. 30, 1998 Country Country Month Month effective effective Austria. . 2.5 Apr. 1996 Germany . . . 2.5 Apr. 1996 Belgium. 2.75 Oct. 1997 Italy 5.5 Dec. 1997 Canada.. 5.0 Jan. 1998 Japan .5 Sept. 1995 Denmark 3.5 Oct. 1997 Netherlands . 2.5 Apr. 1996 France" . 3.3 Oct. 1997 Switzerland . 1.0 Sept. 1996 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 RATES' Percent per year, averages of daily figures 1997 1998 TTyyppee oorr ccoouunnttrryy 11999955 11999966 11999977 July Aug. Sept. Oct. Nov. Dec. Jan. 1 Eurodollars 5.93 5.38 5.61 5.61 5.58 5.59 5.63 5.71 5.79 5.53 2 United Kingdom 6.63 5.99 6.81 6.93 7.12 7.19 7.24 7.52 7.60 7.49 3 Canada 7.14 4.49 3.59 3.57 3.67 3.66 3.83 4.02 4.61 4.68 4 Germany 4.43 3.21 3.24 3.06 3.19 3.24 3.51 3.68 3.67 3.51 5 Switzerland 2.94 1.92 1.58 1.43 1.39 1.36 1.73 1.91 1.56 1.27 6 Netherlands 4.30 2.91 3.25 3.17 3.33 3.35 3.50 3.65 3.61 3.42 7 France 6.43 3.81 3.35 3.27 3.31 3.29 3.47 3.57 3.57 3.50 8 Italv 10.43 8.79 6.86 6.87 6.85 6.65 6.63 6.49 6.07 6.05 9 Belgium 4.73 3.19 3.40 3.39 3.55 3.55 3.76 3.72 3.61 3.47 10 Japan 1.20 .58 .58 .67 .58 .55 .52 .53 .78 .77 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 • March 1998 3.28 FOREIGN EXCHANGE RATES' Currency units per dollar except as noted 1997 1998 CCoouunnttrryy//ccuurrrreennccyy uunniitt 11999955 11999966 11999977 Aug. Sept. Oct. Nov. Dec. Jan. 1 Australia/dollar 74.073 78.283 74.368 74.036 72.310 71.971 69.526 66.187 65.659 2 Austria/schilling 10.076 10.589 12.206 12.946 12.568 12.360 12.182 12.510 12.765 3 Belgium/franc 29.472 30.970 35.807 38.011 36.876 36.266 35.737 36.748 37.536 4 Canada/dollar 1.3725 1.3638 1.3849 1.3905 1.3872 1.3869 1.4128 1.4271 1.4409 5 China, P.R./yuan 8.3700 8.3389 8.3193 8.3187 8.3171 8.3135 8.3109 8.3099 8.3094 6 Denmark/krone 5.5999 5.8003 6.6092 7.0109 6.8001 6.6922 6.5937 6.7752 6.9190 7 Finland/markka 4.3763 4.5948 5.1956 5.5046 5.3455 5.2674 5.2217 5.3789 5.5006 8 France/franc 4.9864 5.1158 5.8393 6.2010 6.0031 5.8954 5.8001 5.9542 6.0832 9 Germany/deutsche mark 1.4321 1.5049 1.7348 1.8400 1.7862 1.7575 1.7323 1.7788 1.8165 10 Greece/drachma 231.68 240.82 273.28 288.41 281.69 276.84 271.87 279.93 287.24 11 Hong Kong/dollar 7.7357 7.7345 7.7431 7.7436 7.7440 7.7373 7.7314 7.7456 7.7425 12 India/rupee 32.418 35.506 36.365 36.009 36.476 36.302 37.289 39.400 39.391 13 Ireland/pound" 160.35 159.95 151.63 145.34 148.06 146.92 150.30 145.33 138.19 14 Italy/lira 1,629.45 1,542.76 1.703.81 1,797.12 1,743.22 1,721.09 1,697.08 1.743.86 1,787.87 15 Japan/yen 93.96 108.78 121.06 117.93 120.89 121.06 125.38 129.73 129.55 16 Malaysia/ringgit 2.5073 2.5154 2.8173 2.7589 3.0254 3.2972 3.3791 3.7907 4.4093 17 Netherlands/guilder 1.6044 1.6863 1.9525 2.0709 2.0116 1.9800 1.9524 2.0051 2.0472 18 New Zealand/dollar 65.625 68.765 66.247 64.211 63.604 63.556 62.420 59.137 57.925 19 Norway/krone 6.3355 6.4594 7.0857 7.6224 7.3008 7.0807 7.0588 7.2630 7.5007 20 Portugal/escudo 149.88 154.28 175.44 186.50 181.49 179.07 176.84 181.91 185.80 21 Singapore/dollar 1.4171 1.4100 1.4857 1.4977 1.5164 1.5597 1.5820 1.6518 1.7477 22 South Africa/rand 3.6284 4.3011 4.6072 4.6856 4.6890 4.7145 4.8394 4.8706 4.9417 23 South Korea/won 772.69 805.00 950.77 898.71 912.50 929.42 1,035.22 1,494.04 1,707.30 24 Spain/peseta 124.64 126.68 146.53 155.51 150.75 148.32 146.30 150.46 153.93 25 Sri Lanka/rupee 51.047 55.289 59.026 59.189 59.713 59.723 60.132 61.591 62.281 26 Sweden/krona 7.1406 6.7082 7.6446 7.9886 7.6887 7.5765 7.5589 7.7977 8.0193 27 Switzerland/franc 1.1812 1.2361 1.4514 1.5128 1.4702 1.4516 1.4069 1.4393 1.4748 28 Taiwan/dollar 26.495 27.468 28.775 28.824 28.731 29.696 31.794 32.502 34.117 29 Thailand/baht 24.921 25.359 31.072 32.399 35.256 37.543 39.092 44.309 52.983 30 United Kingdom/pound" 157.85 156.07 163.76 160.35 160.13 163.30 168.89 165.97 163.50 MEMO 31 United States/dollar3 84.25 87.34 96.38 99.96 98.29 97.07 96.37 98.82 100.52 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 1997 All SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference Title and Date Issue Page Assets and liabilities of commercial banks December 31, 1996 May 1997 A64 March 31, 1997 September 1997 A64 June 30, 1997 November 1997 A64 September 30, 1997 February 1998 A64 Terms of lending at commercial banks February 1997 May 1997 A68 May 1997 October 1997 A64 August 1997 November 1997 A68 November 1997 February 1998 A68 Assets and liabilities of U.S. branches and agencies of foreign banks December 31, 1996 May 1997 All March 31, 1997 August 1997 A64 June 30, 1997 November 1997 All September 30, 1997 February 1998 All Pro forma balance sheet and income statements for priced service operations September 30, 1996 January 1997 A64 March 31, 1997 July 1997 A64 June 30, 1997 October 1997 A68 September 30, 1997 January 1998 A64 Residential lending reported under the Home Mortgage Disclosure Act 1994 September 1995 A68 1995 September 1996 A68 1996 September 1997 A68 Disposition of applications for private mortgage insurance 1996 ! September 1997 A76 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

64 Federal Reserve Bulletin • March 1998 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, U, 28, 29 Commercial banks, 15-21 Federal credit agencies, 30 Domestic finance companies, 32, 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, 23, 25 BANKERS acceptances, 5,10, 22, 23 Federal Home Loan Banks, 30 Bankers balances, 15-21. (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 Federal National Mortgage Association, 30, 34, 35 Business activity, nonfinancial, 42 Federal Reserve Banks Business loans (See Commercial and industrial loans) Condition statement, 10 Discount rates (See Interest rates) U.S. government securities held, 5, 10, 11, 27 CAPACITY utilization, 43 Federal Reserve credit, 5, 6, 10, 11 Capital accounts Federal Reserve notes, 10 Commercial banks, 15-21 Federally sponsored credit agencies, 30 Federal Reserve Banks, 10 Finance companies Central banks, discount rates, 61 Assets and liabilities, 32 Certificates of deposit, 23 Business credit, 33 Commercial and industrial loans Loans, 36 Commercial banks, 15-21 Paper, 22, 23 Weekly reporting banks, 17, 18 Float, 5 Commercial banks Flow of funds, 37—41 Assets and liabilities, 15-21 Foreign currency operations, 10 Commercial and industrial loans, 15-21 Foreign deposits in U.S. banks, 5 Consumer loans held, by type and terms, 36 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, 32 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) Demand deposits, 15-21 INCOME, personal and national, 42, 48, 49 Depository institutions Industrial production, 42, 44 Reserve requirements, 8 Insurance companies, 27, 35 Reserves and related items, 4, 5, 6, 12 Interest rates Deposits (See also specific types) Bonds, 23 Commercial banks, 4, 15-21 Consumer credit, 36 Federal Reserve Banks, 5, 10 Federal Reserve Banks, 7 Discount rates at Reserve Banks and at foreign central banks and Foreign central banks and foreign countries, 61 foreign countries (See Interest rates) Money and capital markets, 23 Discounts and advances by Reserve Banks (See Loans) Mortgages, 34 Dividends, corporate, 32 Prime rate, 22 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

A65 Investments (See also specific types) SAVING Commercial banks, 4, 15-21 Flow of funds, 37-41 Federal Reserve Banks, 10, 11 National income accounts, 48 Financial institutions, 35 Savings institutions, 35, 36, 37-41 Savings deposits (See Time and savings deposits) LABOR force, 42 Securities (See also specific types) Life insurance companies (See Insurance companies) Federal and federally sponsored credit agencies, 30 Loans (See also specific types) Foreign transactions, 60 Commercial banks, 15-21 New issues, 31 Federal Reserve Banks, 5, 6, 7, 10, 11 Prices, 24 Financial institutions, 35 Special drawing rights, 5, 10, 50, 51 Insured or guaranteed by United States, 34, 35 State and local governments Holdings of U.S. government securities, 27 MANUFACTURING New security issues, 31 Capacity utilization, 43 Rates on securities, 23 Production, 43, 45 Stock market, selected statistics, 24 Margin requirements, 24 Stocks (See also Securities) Member banks (See also Depository institutions) New issues, 31 Reserve requirements, 8 Prices, 24 Mining production, 45 Mobile homes shipped, 46 Student Loan Marketing Association, 30 Monetary and credit aggregates, 4, 12 Money and capital market rates, 23 TAX receipts, federal, 26 Money stock measures and components, 4, 13 Thrift institutions, 4. (See also Credit unions and Savings Mortgages (See Real estate loans) institutions) Mutual funds, 13, 32 Time and savings deposits, 4, 13, 15-21 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 OPEN market transactions, 9 UNEMPLOYMENT, 42 U.S. government balances PERSONAL income, 49 Commercial bank holdings, 15-21 Prices Treasury deposits at Reserve Banks, 5, 10, 25 Consumer and producer, 42, 47 U.S. government securities Stock market, 24 Bank holdings, 15-21,27 Prime rate, 22 Dealer transactions, positions, and financing, 29 Producer prices, 42, 47 Federal Reserve Bank holdings, 5, 10, 11, 27 Production, 42, 44 Foreign and international holdings and Profits, corporate, 32 transactions, 10, 27, 61 Open market transactions, 9 REAL estate loans Outstanding, by type and holder, 27, 28 Banks, 15-21, 35 Rates, 23 Terms, yields, and activity, 34 U.S. international transactions, 50-62 Type of holder and property mortgaged, 35 Utilities, production, 45 Reserve requirements, 8 Reserves VETERANS Administration, 34, 35 Commercial banks, 15-21 Depository institutions, 4, 5, 6, 12 WEEKLY reporting banks, 17, 18 Federal Reserve Banks, 10 Wholesale (producer) prices, 42, 47 U.S. reserve assets, 51 Residential mortgage loans, 34, 35 Retail credit and retail sales, 36, 42 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

66 Federal Reserve Bulletin • March 1998 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 Adviser THEODORE E. ALLISON, Assistant to the Board for Federal CHARLES J. SIEGMAN, Senior Adviser Reserve System Affairs LEWIS S. ALEXANDER, Associate Director LYNN S. FOX, Deputy Congressional Liaison DALE W. HENDERSON. Associate Director WINTHROP P. HAMBLEY, Special Assistant to the Board PETER HOOPER III, Associate Director BOB STAHLY MOORE, Special Assistant to the Board KAREN H. JOHNSON, Associate Director DIANE E. WERNEKE, Special Assistant to the Board DAVID H. HOWARD, Senior Adviser DONALD B. ADAMS, Assistant Director THOMAS A. CONNORS, Assistant Director LEGAL DIVISION J. VIRGIL MATTINGLY, JR., General Counsel DIVISION OF RESEARCH AND STATISTICS SCOTT G. ALVAREZ, Associate General Counsel MICHAEL J. PRELL, Director RICHARD M. ASHTON, Associate General Counsel EDWARD C. ETTIN, Deputy Director OLIVER IRELAND, Associate General Counsel DAVID J. STOCKTON, Deputy Director KATHLEEN M. O'DAY, Associate General Counsel MARTHA BETHEA, Associate Director ROBERT DEV. FRIERSON, Assistant General Counsel WILLIAM R. JONES, Associate Director KATHERINE H. WHEATLEY, Assistant General Counsel MYRON L. KWAST, Associate Director PATRICK M. PARKINSON, Associate Director THOMAS D. SIMPSON, Associate Director OFFICE OF THE SECRETARY LAWRENCE SLIFMAN, Associate Director WILLIAM W. WILES, Secretary MARTHA S. SCANLON, Deputy Associate Director JENNIFER J. JOHNSON, Deputy Secretary PETER A. TINSLEY, Deputy Associate Director BARBARA R. LOWREY, Associate Secretary and Ombudsman DAVID S. JONES, Assistant Director STEPHEN D. OLINER, Assistant Director STEPHEN A. RHOADES, Assistant Director DIVISION OF BANKING JANICE SHACK-MARQUEZ, Assistant Director SUPERVISION AND REGULATION CHARLES S. STRUCKMEYER, Assistant Director RICHARD SPILLENKOTHEN, Director ALICE PATRICIA WHITE, Assistant Director STEPHEN C. SCHEMERING, Deputy Director JOYCE K. ZICKLER, Assistant Director HERBERT A. BIERN, Associate Director GLENN B. CANNER, Senior Adviser ROGER T. COLE, Associate Director JOHN J. MINGO, Senior Adviser WILLIAM A. RYBACK, Associate Director GERALD A. EDWARDS, JR., Deputy Associate Director DIVISION OF MONETARY AFFAIRS STEPHEN M. HOFFMAN, JR., Deputy Associate Director JAMES V. HOUPT, Deputy Associate Director DONALD L. KOHN, Director DAVID E. LINDSEY, Deputy Director JACK P. JENNINGS, Deputy Associate Director BRIAN F. MADIGAN, Associate Director MICHAEL G. MARTINSON, Deputy Associate Director RICHARD D. PORTER, Deputy Associate Director SIDNEY M. SUSSAN, Deputy Associate Director VINCENT R. REINHART, Assistant Director MOLLY S. WA.SSOM, Deputy Associate Director NORMAND R.V. BERNARD, Special Assistant to the Board HOWARD A. AMER, Assistant Director NORAH M. BARGER, Assistant Director DIVISION OF CONSUMER BETSY CROSS, Assistant Director AND COMMUNITY AFFAIRS RICHARD A. SMALL, Assistant Director WILLIAM SCHNEIDER, Project Director, GRIFFITH L. GARWOOD, Director National Information Center GLENN E. LONEY, Associate Director DOLORES S. SMITH, Associate Director 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 EDWARD M. GRAMLICH ROGER W. FERGUSON, JR. OFFICE OF DIVISION OF RESERVE BANK OPERATIONS STAFF DIRECTOR FOR MANAGEMENT AND PAYMENT SYSTEMS S. DAVID FROST, Staff Director CLYDE H. FARNSWORTH, JR., Director GEORGE E. LIVINGSTON, Senior Adviser to the Board DAVID L. ROBINSON, Deputy Director (Finance and Control) DAVID L. SHANNON, Senior Adviser to the Board LOUISE L. ROSEMAN, Associate Director JOHN R. WEIS, Adviser PAUL W. BETTGE, Assistant Director JACK DENNIS, JR., Assistant Director MANAGEMENT DIVISION EARL G. HAMILTON, Assistant Director JOSEPH H. HAYES, JR., Assistant Director S. DAVID FROST, Director SHEILA CLARK, EEO Programs Director JEFFREY C. MARQUARDT, Assistant Director STEPHEN J. CLARK, Associate Director, Finance Function FLORENCE M. YOUNG, Assistant Director DARRELL R. PAULEY, Associate Director, Human Resources Function OFFICE OF THE INSPECTOR GENERAL BRENT L. BOWEN, Inspector General DIVISION OF SUPPORT SERVICES DONALD L. ROBINSON, Assistant Inspector General BARRY R. SNYDER, Assistant Inspector General 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 • March 1998 Federal Open Market Committee and Advisory Councils FEDERAL OPEN MARKET COMMITTEE MEMBERS ALAN GREENSPAN, Chairman WILLIAM J. MCDONOUGH, Vice Chairman ROGER W. FERGUSON, JR. JERRY L. JORDAN CATHY E. MINEHAN EDWARD M. GRAMLICH EDWARD W. KELLEY, JR. SUSAN M. PHILLIPS THOMAS M. HOENIG LAURENCE H. MEYER ALICE M. RIVLIN ALTERNATE MEMBERS EDWARD G. BOEHNE MICHAEL H. MOSKOW GARY H. STERN ROBERT D. MCTEER, JR. ERNEST T. PATRIKIS STAFF DONALD L. KOHN, Secretary and Economist STEPHEN G. CECCHETTI, Associate Economist NORMAND R.V. BERNARD, Deputy Secretary WILLIAM G. DEWALD, Associate Economist JOSEPH R. COYNE, Assistant Secretary CRAIG S. HAKKIO, Associate Economist GARY P. GILLUM, Assistant Secretary DAVID E. LINDSEY, Associate Economist J. VIRGIL MATTINGLY, JR., General Counsel LARRY J. PROMISEL, Associate Economist THOMAS C. BAXTER, JR., Deputy General Counsel MARK S. SNIDERMAN, Associate Economist MICHAEL J. PRELL, Economist THOMAS D. SIMPSON, Associate Economist EDWIN M. TRUMAN, Economist DAVID J. STOCKTON, Associate Economist LYNN E. BROWNE, Associate Economist PETER R. FISHER, Manager System Open Market Account FEDERAL ADVISORY COUNCIL THOMAS H. JACOBSEN, President CHARLES T. DOYLE, Vice President WILLIAM M. CROZIER, JR., First District NORMAN R. BOBINS, Seventh District DOUGLAS A. WARNER III, Second District THOMAS H. JACOBSEN, Eighth District WALTER E. DALLER, JR., Third District RICHARD A. ZONA, Ninth District ROBERT W. GILLESPIE, Fourth District C. Q. CHANDLER, Tenth District KENNETH D. LEWIS, Fifth District CHARLES T. DOYLE, Eleventh District STEPHEN A. HANSEL, Sixth District DAVID A. COULTER, 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 WILLIAM N. LUND, Augusta, Maine, Chairman YVONNE S. SPARKS, St. Louis, Missouri, Vice Chairman RICHARD S. AMADOR, Los Angeles, California MARTHA W. MILLER, Greensboro, North Carolina WALTER J. BOYER, Garland, Texas DANIEL W. MORTON, Columbus, Ohio WAYNE-KENT A. BRADSHAW, Los Angeles, California CHARLOTTE NEWTON, Springfield, Virginia JEREMY EISLER, Ocean Springs, Mississippi CAROL PARRY, New York, New York ROBERT F. ELLIOT, Prospect Heights, Illinois PHILIP PRICE, JR., Philadelphia, Pennsylvania HERIBERTO FLORES, Springfield, Massachusetts DAVID L. RAMP, Minneapolis, Minnesota DWIGHT GOLANN, Boston, Massachusetts MARILYN ROSS, Omaha, Nebraska MARVA H. HARRIS, Pittsburgh, Pennsylvania MARGOT SAUNDERS, Washington, D.C. KARLA IRVINE, Cincinnati, Ohio ROBERT G. SCHWEMM, Lexington, Kentucky FRANCINE C. JUSTA, New York, New York DAVID J. SHIRK, Eugene, Oregon JANET C. KOEHLER, Jacksonville, Florida GAIL SMALL, Lame Deer, Montana GWENN KYZER, Allen, Texas GREGORY D. SQUIRES, Milwaukee, Wisconsin JOHN C. LAMB, Sacramento, California GEORGE P. SURGEON, Chicago, Illinois ERROL T. LOUIS, Brooklyn, New York THEODORE J. WYSOCKI, JR., Chicago, Illinois THRIFT INSTITUTIONS ADVISORY COUNCIL CHARLES R. RINEHART, Irwindale, California, President WILLIAM A. FITZGERALD, Omaha, Nebraska, Vice President GAROLD R. BASE, Piano, Texas F. WELLER MEYER, Falls Church, Virginia DAVID A. BOCHNOWSKI, Munster, Indiana EDWARD J. MOLNAR, Harleysville, Pennsylvania DAVID E. A. CARSON, Bridgeport, Connecticut GUY C. PINKERTON, Seattle, Washington RICHARD P. COUGHLIN, Stoneham, Massachusetts TERRY R. WEST, Jacksonville, Florida STEPHEN D. HAILER, Akron, Ohio FREDERICK WILLETTS, III, Wilmington, North Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

70 Federal Reserve Bulletin • March 1998 Federal Reserve Board Publications For ordering assistance, write PUBLICATIONS SERVICES, Federal Reserve Regulatory Service. Four vols. (Contains all MS-127, Board of Governors of the Federal Reserve System, four Handbooks plus substantial additional material.) $200.00 Washington, DC 20551, or telephone (202) 452-3244, or FAX per year. (202) 728-5886. You may also use the publications order Rates for subscribers outside the United States are as follows form available on the Board's World Wide Web site and include additional air mail costs: (http://www.bog.frb.fed.us). When a charge is indicated, payment Federal Reserve Regulatory Service, $250.00 per year. should accompany request and be made payable to the Board of Each Handbook, $90.00 per year. Governors of the Federal Reserve System or may be ordered via FEDERAL RESERVE REGULATORY SERVICE FOR PERSONAL Mastercard or Visa. Payment from foreign residents should be COMPUTERS. Diskettes; updated monthly. drawn on a U.S. bank. Standalone PC. $300 per year. Network, maximum 1 concurrent user. $300 per year. Network, maximum 10 concurrent users. $750 per year. BOOKS AND MISCELLANEOUS PUBLICATIONS Network, maximum 50 concurrent users. $2,000 per year. THE FEDERAL RESERVE SYSTEM—PURPOSES AND FUNCTIONS. Network, maximum 100 concurrent users. $3,000 per year. 1994. 157 pp. Subscribers outside the United States should add $50 to cover ANNUAL REPORT, 1996. additional airmail costs. ANNUAL REPORT: BUDGET REVIEW, 1995-96. THE U.S. ECONOMY IN AN INTERDEPENDENT WORLD: A MULTI- FEDERAL RESERVE BULLETIN. Monthly. $25.00 per year or $2.50 COUNTRY MODEL, May 1984. 590 pp. $14.50 each. each in the United States, its possessions, Canada, and INDUSTRIAL PRODUCTION—1986 EDITION. December 1986. Mexico. Elsewhere, $35.00 per year or $3.00 each. 440 pp. $9.00 each. ANNUAL STATISTICAL DIGEST: period covered, release date, num- FINANCIAL FUTURES AND OPTIONS IN THE U.S. ECONOMY. ber of pages, and price. December 1986. 264 pp. $10.00 each. 1981 October 1982 239 pp. $ 6.50 FINANCIAL SECTORS IN OPEN ECONOMIES: EMPIRICAL ANALY- 1982 December 1983 266 pp. $ 7.50 SIS AND POLICY ISSUES. August 1990. 608 pp. $25.00 each. 1983 October 1984 264 pp. $11.50 RISK MEASUREMENT AND SYSTEMIC RISK: PROCEEDINGS OF A 1984 October 1985 254 pp. $12.50 JOINT CENTRAL BANK RESEARCH CONFERENCE. 1996. 1985 October 1986 231 pp. $15.00 578 pp. $25.00 each. 1986 November 1987 288 pp. $15.00 1987 October 1988 272 pp. $15.00 1988 November 1989 256 pp. $25.00 1980-89 March 1991 712 pp. $25.00 EDUCATION PAMPHLETS 1990 November 1991 185 pp. $25.00 Short pamphlets suitable for classroom use. Multiple copies are 1991 November 1992 215 pp. $25.00 available without charge. 1992 December 1993 215 pp. $25.00 1993 December 1994 281 pp. $25.00 1994 December 1995 190 pp. $25.00 Consumer Handbook on Adjustable Rate Mortgages 1990-95 November 1996 404 pp. $25.00 Consumer Handbook to Credit Protection Laws A Guide to Business Credit for Women, Minorities, and Small Businesses SELECTED INTEREST AND EXCHANGE RATES—WEEKLY SERIES OF Series on the Structure of the Federal Reserve System CHARTS. Weekly. $30.00 per year or $.70 each in the United The Board of Governors of the Federal Reserve System States, its possessions, Canada, and Mexico. Elsewhere, $35.00 per year or $.80 each. The Federal Open Market Committee Federal Reserve Bank Board of Directors REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL Federal Reserve Banks RESERVE SYSTEM. A Consumer's Guide to Mortgage Lock-Ins ANNUAL PERCENTAGE RATE TABLES (Truth in Lending— A Consumer's Guide to Mortgage Settlement Costs Regulation Z) Vol. I (Regular Transactions). 1969. 100 pp. A Consumer's Guide to Mortgage Refinancings Vol. II (Irregular Transactions). 1969. 116 pp. Each volume Home Mortgages: Understanding the Process and Your Right $5.00. to Fair Lending GUIDE TO THE FLOW OF FUNDS ACCOUNTS. 672 pp. $8.50 each. How to File a Consumer Complaint FEDERAL RESERVE REGULATORY SERVICE. Loose-leaf; updated Making Deposits: When Will Your Money Be Available? monthly. (Requests must be prepaid.) Making Sense of Savings Consumer and Community Affairs Handbook. $75.00 per year. SHOP: The Card You Pick Can Save You Money Monetary Policy and Reserve Requirements Handbook. $75.00 Welcome to the Federal Reserve per year. When Your Home is on the Line: What You Should Know Securities Credit Transactions Handbook. $75.00 per year. About Home Equity Lines of Credit The Payment System Handbook. $75.00 per year. Keys to Vehicle Leasing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A71 STAFF STUDIES: Only Summaries Printed in the 165. THE DEMAND FOR TRADE CREDIT: AN INVESTIGATION OF BULLETIN MOTIVES FOR TRADE CREDIT USE BY SMALL BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September Studies and papers on economic and financial subjects that are of general interest. Requests to obtain single copies of the full text or 1993. 18 pp. to be added to the mailing list for the series may be sent to 166. THE ECONOMICS OF THE PRIVATE PLACEMENT MARKET, by Mark Carey, Stephen Prowse, John Rea, and Gregory Udell. Publications Services. January 1994. 111 pp. 167. A SUMMARY OF MERGER PERFORMANCE STUDIES IN BANK- Staff Studies 1-157 are out of print. ING, 1980-93, AND AN ASSESSMENT OF THE "OPERATING PERFORMANCE" AND "EVENT STUDY" METHODOLOGIES, 158. THE ADEQUACY AND CONSISTENCY OF MARGIN REQUIRE- by Stephen A. Rhoades. July 1994. 37 pp. MENTS IN THE MARKETS FOR STOCKS AND DERIVATIVE 168. THE ECONOMICS OF THE PRIVATE EQUITY MARKET, by PRODUCTS, by Mark J. Warshawsky with the assistance of George W. Fenn, Nellie Liang, and Stephen Prowse. Novem- Dietrich Earnhart. September 1989. 23 pp. ber 1995. 69 pp. 159. NEW DATA ON THE PERFORMANCE OF NONBANK SUBSIDI- 169. BANK MERGERS AND INDUSTRYWIDE STRUCTURE, 1980-94, ARIES OF BANK HOLDING COMPANIES, by Nellie Liang and by Stephen A. Rhoades. February 1996. 29 pp. Donald Savage. February 1990. 12 pp. 170. THE COST OF IMPLEMENTING CONSUMER FINANCIAL REGU- 160. BANKING MARKETS AND THE USE OF FINANCIAL SER- LATIONS: AN ANALYSIS OF EXPERIENCE WITH THE TRUTH VICES BY SMALL AND MEDIUM-SIZED BUSINESSES, by IN SAVINGS ACT, by Gregory Elliehausen and Barbara R. Gregory E. Elliehausen and John D. Wolken. September Lowery, December 1997. 17 pp. 1990. 35 pp. 161. A REVIEW OF CORPORATE RESTRUCTURING ACTIVITY, 1980-90, by Margaret Hastings Pickering. May 1991. 21 pp. REPRINTS OF SELECTED Bulletin ARTICLES 162. EVIDENCE ON THE SIZE OF BANKING MARKETS FROM MORT- Some Bulletin articles are reprinted. The articles listed below are GAGE LOAN RATES IN TWENTY CITIES, by Stephen A. those for which reprints are available. Beginning with the Janu- Rhoades. February 1992. 11 pp. ary 1997 issue, articles are available on the Board's World Wide 163. CLEARANCE AND SETTLEMENT IN U.S. SECURITIES MAR- Web site (http://www.bog.frb.fed.us) under Publications, Federal KETS, by Patrick Parkinson, Adam Gilbert, Emily Gollob, Reserve Bulletin articles. Lauren Hargraves, Richard Mead, Jeff Stehm, and Mary Ann Taylor. March 1992. 37 pp. Limit of ten copies 164. THE 1989—92 CREDIT CRUNCH FOR REAL ESTATE, by James T. Fergus and John L. Goodman, Jr. July 1993. FAMILY FINANCES IN THE U.S.: RECENT EVIDENCE FROM THE 20 pp. SURVEY OF CONSUMER FINANCES. January 1997. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

72 Federal Reserve Bulletin • March 1998 Maps of the Federal Reserve System 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 ME Pittsburgh Baltimore MD \ CT ^ JMm> * ,/ / OH VT • i ' • NH • Cincinnati Buffalo •'I MA« F NY Cf ^RI NJ sc BOSTON NEW YORK PHILADELPHIA CLEVELAND RICHMOND 6-F 7-G 8-H KY Ml Birmingham fti tL ) IN ' 1 tetroii • Ltniisville MS • - TN AH J LA • Memphis iNew Orleans IN - CHICAGO ST. LOUIS 9-1 flflRflMhr flHHBVH M H H B MM Ml • •• tmmmsgm W1 SD MINNEAPOLIS 10-J 12-L WY NM 11-K Salt Lake City NM LA •Los DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

74 Federal Reserve Bulletin • March 1998 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 William O. Taylor 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 Joan Carter Edward G. Boehne Charisse R. Lillie 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 Robert B. Schaub RICHMOND* 23219 Claudine B. Malone J. Alfred Broaddus, Jr. Robert L. Strickland Walter A. Varvel Baltimore 21203 Daniel R. Baker William J. Tignanelli1 Charlotte 28230 Dennis D. Lowery Dan M. Bechter1 ATLANTA 30303 David R. Jones Jack Guynn John F. Wieland Patrick K. Barron James M. Mckee Birmingham 35283 Patricia B. Compton Fred R. Herr1 Jacksonville 32231 Judy Jones James D. Hawkins1 Miami 33152 R. Kirk Landon James T. Curry III Nashville 37203 Frances F. Marcum Melvyn K. Purcell New Orleans 70161 Lucimarian Roberts 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 Temporarily vacant Susan S. Elliott W. LeGrande Rives Little Rock 72203 Betta M. Carney Robert A. Hopkins Louisville 40232 Roger Reynolds Thomas A. Boone Memphis 38101 Carol G. Crawley Martha L. Perine MINNEAPOLIS 55480 David A. Koch Gary H. Stern James J. Howard Colleen K. Strand Helena 59601 William P. Underriner John D. Johnson KANSAS CITY 64198 Jo Marie Dancik Thomas M. Hoenig Terrence P. Dunn Richard K. Rasdall Denver 80217 Peter I. Wold Carl M. Gambs 1 Oklahoma City 73125 Barry L. Eller Kelly J. Dubbert Omaha 68102 Arthur L. Shoener Steven D. Evans DALLAS 75201 Roger R. Hemminghaus Robert D. McTeer, Jr. James A. Martin Helen E. Holcomb El Paso 79999 Patricia Z. Holland-Branch Sammie C. Clay Houston 77252 Edward O. Gaylord Robert Smith, III1 San Antonio 78295 H. B. Zachry, Jr. James L. Stull1 SAN FRANCISCO 94120 Gary G. Michael Robert T. Parry Cynthia A. Parker John F. Moore Los Angeles 90051 Anne L. Evans Mark L. Mullinix1 Portland 97208 Carol A. Whipple Raymond H. Laurence1 Salt Lake City 84125 Richard E. Davis Andrea P. Wolcott Seattle 98124 Richard R. Sonstelie Gordon R. G. Werkema2 * Additional offices of these Banks are located at 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

A75 Publications of Interest FEDERAL RESERVE CONSUMER CREDIT PUBLICATIONS The Federal Reserve Board publishes a series of Shop . . . The Card You Pick Can Save You Money pamphlets covering individual credit laws and topics, is designed to help consumers comparison shop when as pictured below. looking for a credit card. It contains the results of the Three booklets on the mortgage process are avail- Federal Reserve Board's survey of the terms of credit able: A Consumer's Guide to Mortgage Lock-Ins, A card plans offered by credit card issuers throughout Consumer's Guide to Mortgage Refinancings, and the United States. Because the terms can affect the A Consumer's Guide to Mortgage Settlement Costs. amount an individual pays for using a credit card, the These booklets were prepared in conjunction with the booklet lists the annual percentage rate (APR), annual Federal Home Loan Bank Board and in consultation fee, grace period, type of pricing (fixed or variable with other federal agencies and trade and consumer rate), and a telephone number for each card issuer groups. The Board also publishes the Consumer surveyed. Handbook to Credit Protection Laws, a complete Copies of consumer publications are available free guide to consumer credit protections. This forty-four- of charge from Publications Services, Mail Stop 127, page booklet explains how to shop and obtain credit, Board of Governors of the Federal Reserve System, how to maintain a good credit rating, and how to Washington, DC 20551. Multiple copies for classdispute unfair credit transactions. room use are also available free of charge. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

76 Federal Reserve Bulletin • March 1998 Publications of Interest FEDERAL RESERVE REGULATORY SERVICE To promote public understanding of its regulatory func- The Payment System Handbook deals with expedited tions, the Board publishes the Federal Reserve Regu- funds availability, check collection, wire transfers, and latory Service, a four-volume loose-leaf service con- risk-reduction policy. It includes Regulations CC, J, and taining all Board regulations as well as related statutes, EE, related statutes and commentaries, and policy interpretations, policy statements, rulings, and staff statements on risk reduction in the payment system. opinions. For those with a more specialized interest in For domestic subscribers, the annual rate is $200 for the Board's regulations, parts of this service are pub- the Federal Reserve Regulatory Service and $75 for lished separately as handbooks pertaining to monetary each Handbook. For subscribers outside the United policy, securities credit, consumer affairs, and the pay- States, the price including additional air mail costs is ment system. $250 for the Service and $90 for each Handbook. These publications are designed to help those who The Federal Reserve Regulatory Service is also availmust frequently refer to the Board's regulatory materi- able on diskette for use on personal computers. For a als. They are updated monthly, and each contains cita- standalone PC, the annual subscription fee is $300. For tion indexes and a subject index. network subscriptions, the annual fee is $300 for 1 con- The Monetary Policy and Reserve Requirements current user, $750 for a maximum of 10 concurrent Handbook contains Regulations A, D, and Q, plus users, $2,000 for a maximum of 50 concurrent users, related materials. and $3,000 for a maximum of 100 concurrent users. The Securities Credit Transactions Handbook con- Subscribers outside the United States should add $50 tains Regulations G, T, U, and X, dealing with exten- to cover additional airmail costs. For further informasions of credit for the purchase of securities, together tion, call (202) 452-3244. with related statutes, Board interpretations, rulings, All subscription requests must be accompanied by a and staff opinions. Also included are the Board's list check or money order payable to the Board of Goverof marginable OTC stocks and its list of foreign margin nors of the Federal Reserve System. Orders should be stocks. addressed to Publications Services, mail stop 127, Board The Consumer and Community Affairs Handbook of Governors of the Federal Reserve System, Washingcontains Regulations B, C, E, M, Z, AA, BB, and DD, ton, DC 20551. and associated materials. GUIDE TO THE FLOW OF FUNDS ACCOUNTS A recent Federal Reserve publication, Guide to the Flow dures as seasonal adjustment, extrapolation, and of Funds Accounts, explains in detail how the U.S. interpolation. financial flow accounts are prepared. The accounts, The balance of the Guide contains explanatory tables which are compiled by the Division of Research and corresponding to the tables of financial flows data that Statistics, are published in the Board's quarterly Z.l appeared in the September 1992 Z.l release. These statistical release, "Flow of Funds Accounts, Flows and tables give, for each data series, the source of the data or Outstandings." The Guide updates and replaces Intro- the methods of calculation, along with annual data for duction to Flow of Funds, published in 1980. 1991 that were published in the September 1992 release. The 670-page Guide begins with an explanation of Guide to the Flow of Funds Accounts is available for the organization and uses of the flow of funds accounts $8.50 per copy from Publications Services, Board of and their relationship to the national income and Governors of the Federal Reserve System, Washington, product accounts prepared by the U.S. Department of DC 20551. Orders must include a check or money order, Commerce. Also discussed are the individual data in U.S. dollars, made payable to the Board of Governors series that make up the accounts and such proce- of the Federal Reserve System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A77 Federal Reserve Statistical Releases Available on the Commerce Department's Economic Bulletin Board The Board of Governors of the Federal Reserve to the releases can be obtained by subscription. System makes some of its statistical releases avail- For further information regarding a subscription to able to the public through the U.S. Department of the economic bulletin board, please call (202) 482- Commerce's economic bulletin board. Computer ac- 1986. The releases transmitted to the economic bulcess letin board, on a regular basis, are the following: Reference Number Statistical release Frequency of release H.3 Aggregate Reserves Weekly/Thursday H.4.1 Factors Affecting Reserve Balances Weekly/Thursday H.6 Money Stock Weekly/Thursday H.8 Assets and Liabilities of Insured Domestically Chartered Weekly/Monday and Foreign Related Banking Institutions H.10 Foreign Exchange Rates Weekly/Monday H. 15 Selected Interest Rates Weekly/Monday G.5 Foreign Exchange Rates Monthly/end of month G. 17 Industrial Production and Capacity Utilization Monthly/midmonth G.19 Consumer Installment Credit Monthly/fifth business day Z. 1 Flow of Funds Quarterly Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis