Federal Reserve Bulletin, 1998-06

VOLUME 84 • NUMBER 6 • JUNE 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 391 PROFITS AND BALANCE SHEET 429 STATEMENTS TO THE CONGRESS DEVELOPMENTS AT U.S. COMMERCIAL Alan Greenspan, Chairman, Board of Gover- BANKS IN 1997 nors, discusses adapting Medicare to meet our U.S. commercial banks had another excellent long-run needs and says that the consensus year in 1997. Their return on equity remained in among economists is that technology is a drivthe elevated range that it has occupied for five ing force behind rising medical costs and that a consecutive years, and their return on assets structure that provides appropriate incentives for reached a new high. Banks maintained their the development and application of technology profitability while also adding significantly to is key to a well-functioning health care system, assets. The year's strong economic growth before the National Bipartisan Commission on increased the demand for credit; banks more the Future of Medicare, April 20, 1998. than met that demand, gaining market share. In 433 Edward W. Kelley, Jr., member, Board of Govaddition, banks departed from the pattern of ernors, discusses the Year 2000 computer sysrecent years by sharply increasing their holdings tems issue and the Federal Reserve's efforts to of securities. Compared with 1996, banks earned address it and says that the Federal Reserve a somewhat lower average rate on their interestcompleted assessment of its applications in earning assets and paid a bit more on their 1997, has renovated its most significant applicaliabilities, but these developments were more tions, and is testing internally using dedicated than offset by higher fee income and increased Year 2000 computer systems; also, this project efficiency. Loan losses remained low relative to is being closely coordinated among the Reserve loans. Banks, the Board, numerous vendors and service providers, and approximately 13,000 cus- 420 U.S. TREASURY AND FEDERAL RESERVE tomers and government agencies, before the FOREIGN EXCHANGE OPERATIONS Senate Committee on Commerce, Science and Transportation, April 28, 1998. During the first quarter of 1998, the dollar appreciated 2.8 percent against the German mark and 438 Laurence H. Meyer, member, Board of Gover- 2.2 percent against the Japanese yen. On a tradenors, discusses issues related to mergers among weighted basis against Group of Ten currencies, U.S. banking organizations and other financial the dollar appreciated 1.9 percent. Although services firms and says that the increased pace the dollar was little changed on net over the of bank mergers since the early 1980s has period, other asset prices experienced significant greatly reduced the number of U.S. banking appreciation. Global bond and equity markets organizations and resulted in a substantially reached record highs, and many Asian marhigher nationwide concentration of banking kets rebounded from earlier weakness. The U.S. assets; however, concentration in local banking monetary authorities did not intervene in the markets has remained virtually unchanged, and foreign exchange markets during the quarter. there continues to be substantial new bank entry; also the ongoing and rapid pace of change in the 426 INDUSTRIAL PRODUCTION AND CAPACITY banking and financial services industry rein- UTILIZATION FOR APRIL 1998 forces the need for financial modernization legislation, before the House Committee on Bank- Industrial production rose 0.1 percent in April, ing and Financial Services, April 29, 1998. to 127.8 percent of its 1992 average, after a revised 0.3 percent increase in March and 451 Edward M. Gramlich, member, Board of Goverdeclines in February and January. The rate of nors, discusses improving the consumer price industrial capacity utilization decreased 0.3 per- index (CPI) and says that the Bureau of Labor centage point in April, to 81.9 percent. Statistics has made laudable progress in improv- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

ing the accuracy of the CPI but that the hard For the intermeeting period ahead, the Comwork must continue if the CPI is to keep up with mittee adopted a directive that called for mainan ever-changing economy; in particular, some taining conditions in reserve markets that were of the concerns involve how prices are adjusted consistent with an unchanged federal funds rate to account for quality change and the introduc- of about 5V2 percent and that did not include a tion of new goods and also the consensus that a presumption about the direction of a change, if price index that tracks the cost of purchasing a any, in the stance of policy during the intermeetfixed market basket of goods and services, as ing period. the CPI now does, represents an upper bound on changes in the true cost of living, before the 469 LEGAL DEVELOPMENTS Subcommittee on Human Resources of the Various bank holding company, bank service House Committee on Government Reform and corporation, and bank merger orders; and pend- Oversight, April 29, 1998. ing cases. 454 ANNOUNCEMENTS AI FINANCIAL AND BUSINESS STATISTICS Resignation of Susan M. Phillips as a member These tables reflect data available as of of the Board of Governors. April 28, 1998. Amendments to Regulation B. Amendment to the Basle Accord and proposal A3 GUIDE TO TABULAR PRESENTATION for principles governing on-balance-sheet A4 Domestic Financial Statistics netting. A42 Domestic Nonfinancial Statistics Availability of revised lists of over-the-counter A50 International Statistics stocks and of foreign stocks subject to margin regulations. A63 GUIDE TO STATISTICAL RELEASES AND SPECIAL TABLES Publication of the 84th Annual Report, 1997 and of the Annual Report: Budget Review, 1998-99. A64 INDEX TO STATISTICAL TABLES Changes in Board staff. A66 BOARD OF GOVERNORS AND STAFF 457 MINUTES OF THE FEDERAL OPEN MARKET COMMITTEE MEETING HELD ON A68 FEDERAL OPEN MARKET COMMITTEE AND FEBRUARY 3-4, 1998 STAFF; ADVISORY COUNCILS At its meeting on February 3-4, 1998, the Committee approved without change the tentative A70 SCHEDULE OF RELEASE DATES FOR ranges for 1998 that it had established in July of PERIODIC RELEASES last year. In keeping with its usual procedures under the Humphrey-Hawkins Act, the Com- A72 FEDERAL RESERVE BOARD PUBLICATIONS mittee would review its ranges at midyear, or sooner if interim conditions warranted, in A74 MAPS OF THE FEDERAL RESERVE SYSTEM light of the growth and velocity behavior of the aggregates and ongoing economic and financial A76 FEDERAL RESERVE BANKS, BRANCHES, developments. AND OFFICES Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

PUBLICATIONS COMMITTEE Lynn S. Fox, Chairman • S. David Frost • Donald L. Kohn • J. Virgil Mattingly, Jr. I. Michael J, Prell D Dolores S. Smith LJ Richard Spillenkothen J\ Edwin M. Truman The Federal Reserve Bulletin is issued monthly under the direciion of the staff publications committee. This committee is responsible for opinions expressed exct'pi in official statements and signed articles. It is assisted by the Economic Editing Section headed by S. Ellen Dykes, the Multimedia Technologies Center under (he dircciion 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

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 William B. English and William R. Nelson, of the I \[L\IV,;II>. ui tHIIIIIIL'K'NII kink [lriitiuhilin'. I1.' '()-'>? Board's Division of Monetary Affairs, prepared this Percent article. Thomas C. Allard assisted in the preparation of the data, and Lisa X. Chen provided research Return on equity y» —- 15 assistance. f V — 10 U.S. commercial banks had another excellent year in 1997. Their return on equity remained in the elevated Ill Ml II M II range that it has occupied for five consecutive years, 1 II M 1 II 1*1 II II and their return on assets reached a new high (chart 1). Banks maintained their profitability while i.o also adding significantly to assets. The year's strong economic growth increased demand for credit, and banks more than met that demand, gaining market JJ share. In addition, banks departed from the pattern of 1970 1975 1980 1985 1990 1995 recent years by sharply increasing their holdings of securities. Compared with 1996, banks earned a grew about in line with assets. As has been true for slightly lower average rate on their interest-earning several years, virtually all bank assets were at instituassets and paid a bit more on their liabilities, but tions classified as "well-capitalized" at the end of these developments were more than offset by higher 1997. Only one bank—a small one—failed last year. fee income and increased efficiency. Loan losses Consolidation continued in 1997. In June, most of remained low relative to loans.1 the remaining legal restrictions on interstate mergers The advance in bank profits helped boost bank were removed, and several bank holding companies holding company stock prices substantially last year. combined subsidiary banks that had been operating With banks retaining a slightly larger fraction of in separate regions. Partly as a result, the number of income, dividend growth slowed relative to the large banks declined to 9,217, down from 9,575 at the end increases of recent years. The resulting increase in of 1996 and far below the peak, reached in 1984, of retained income helped boost bank capital, which about 14,500 (chart 2). At year-end 1997, the largest 100 banks accounted for two-thirds of bank assets, up I. Except where otherwise indicated, data in this article are from from about half in 1991. the quarterly Reports of Condition and Income (Call Reports) for insured domestic commercial banks and nondeposit trust companies (hereafter, banks). The data consolidate information from foreign and domestic offices and have been adjusted to take account of mergers Il\i..\\( /' SHI FT I)IM:Iomit \T\ (see appendix). Size categories, based on assets at the start of each quarter, are as follows: (he 10 largest banks, large banks (those ranked 11 through 100 by size), medium-sized banks (those ranked 101 Bank assets grew 9lA percent in 1997, the fastest through 1,000 by size), and small banks (those not among the largest growth in more than a decade (table 1). Demand for 1,000 banks). At the start of the fourth quarter of 1997, the approximate asset size of the banks in those groups were as follows: the credit was strong, and banks were generally willing 10 largest banks, more than $70 billion; large banks, $6 billion to lenders. As a result, loans increased 8V4 percent, a bit $70 billion; medium-sized banks, $300 million to $6 billion; small faster than in 1996.2 In addition, securities, which banks, less than $300 million. Many of the data series reported here begin in 1985 because the Call Reports were significantly revised at the start of that year. Data from before 1985 are taken from Federal Deposit Insurance Corporation, Statistics on Banking (FDIC, 1997). 2. The growth rates have been adjusted to remove the effects of an The dala are also available on the World Wide Web site of the FDIC accounting change that lowered measured growth in loans and (http://www.fdic.gov/databank/sob/). Data shown may not match data increased measured growth in federal funds sold. Before 1997, sales published in earlier years because of revisions and corrections. In the of federal funds by foreign offices were classified as loans. Starting in tables, components may not sum to totals because of rounding. 1997, they are classified as federal funds sold. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

392 Federal Reserve Bulletin • June 1998 2. Nuinhfi <>l coiiiiiK'ivJLiI banks, and pn\vi!lai;c ol asscis years. C&I loans increased in part because inventory al the largest 100 hanks. lL)7O-47 accumulation and fixed investment by businesses apparently outstripped their internally generated Thousands funds last year; at nonfinancial corporations, the excess of capital expenditures over internal funds Number rose to $45 billion, up from $6'/2 billion in 1996 (chart 3). The borrowing needs of nonfinancial corporations were further increased because, as has been I I I I I 1 1 I I I 1 I It I I II I I I I II I true for several years, they retired a large volume of Ftrosni equity, on net, via stock buybacks and during corporate acquisitions. 70 Banks expanded their share of outstanding non- Percentage of assets at largest 100 '— 60 mortgage business credit to its highest level since 1989 (chart 4). In part, this expansion reflected a — .10 substantial rise in the number of mergers and acqui- I I I I I I I 1 I I I I I I I I I I i I I I I I I I I sitions among middle-market firms, which are more I970 I975 1985 1990 1995 likely to be financed by bank loans than are the combinations of large corporations. Those responhad been about unchanged for the past few years, dents that reported stronger demand for business expanded nearly 9 percent. Non-interest-earning loans on the Federal Reserve's quarterly Senior Loan assets, which make up about 13 percent of total Officer Opinion Survey on Bank Lending Practices assets, expanded 11 [A percent, in large part because (BLPS) last year most commonly attributed the of growth in the gross positive fair value of derivaincreased demand to mergers and acquisitions; in tives. Core deposit growth picked up, but not enough addition, banks cited financing for inventories and for to keep pace with assets; managed liabilities and plant and equipment. equity made up the difference. Banks also expanded their market share by competing more vigorously for business loans. Although only small fractions of the respondents to the BLPS to Businesses said they had eased standards on business loans in 1997, large fractions indicated they had eased loan The value of commercial and industrial (C&I) loans terms, particularly the spreads of loan rates over their on bank balance sheets expanded nearly \2]A perbank's cost of funds (chart 5). These results are cent, the second largest annual increase in seventeen somewhat at odds with the Federal Reserve's quarterly Survey of Terms of Business Lending (STBL), .v. FinaiK'iii^ tiiip ami net cuuily n.-liii"iiiciil al uoiitjuu which showed a slight widening of the average spread lumtinuiiL'tal corporations, ivyo-1-)? Blllkminf dollars Hunk loans as a ^It iiiai kL-l ik'hi. HoMhtiaikial !')"/() i): — 100 Net equity retirement Percent 75 — 40 — 35 1993 1995 1997 — 25 NOTK The data are four-quarter moving averages. The financing gap is (he difference between capital expenditures and internally generated funds. Net L± I I I 1 I I I I I I I I I I I 1 1 equity retirement is funds used to repurchase equity less funds raised in equity 1970 1975 19S0 1985 1990 1995 markets. SOURCE. Federal Reserve Board. Statistical Release Z.I. "Flow of Funds SOURCE. Federal Reserve Board, Statistical Release Z.I, "Flow of Funds Accounts of the United States." table F. 102. Accounts of the United States." table L. 101. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 393 \I!IMI;II ink's ri| jj h ol h;il;nii. Percent MEMO: Dec. 1997 Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 level (billions or dollans) Assets 4.33 5.35 2.64 1.33 2.19 5.68 8.06 7.61 6.03 9.22 4,971 Interest-earning assets 4.04 5.61 2.23 1.98 2.53 6.56 5.77 7.76 5.60 8.88 4.281 Loans and leasts (net) 5.93 6.24 2.37 -2.65 -1.04 6.05 9.83 10.63 8.02 8.38 2,885 Commercial and industrial 1.84 2.97 -.67 -9.10 -4.10 .52 9.33 12,26 7.24 12.15 791 Real estate 12.43 12.69 8.79 2,73 1.94 6.13 7.90 8.33 5.44 9.20 1,135 Booked in domestic offices 11.99 13.02 855 2.W 2.57 6.17 7.64 8.48 5,50 9.42 1.207 One- to four-family residential 14.60 16.13 14.00 7.76 7.53 11.08 10,09 10.06 4.65 9.69 713 Other 9.84 10.34 3.62 -1.93 -2.86 .22 4.35 6.25 6,75 9.04 494 Booked In foreign offices 27.03 2.99 16.64 -2.35 -17.80 4^67 18.35 2.81 3.18 .34 28 Consumer 7.64 6.18 .38 -2.55 -1.66 9.06 16.01 9.98 4.44 -117 544 Other loans and leases -3.09 -.94 -5.68 -4.01 9.97 5.29 14.23 22.28 13.78 372 Loan loss reserves and unearned income -4.20 10.29 .35 -3.78 -4.85 -5.82 -2.22 .47 .06 -.69 58 Securities 3.27 5.08 8.46 16.23 12.29 12.26 -161 .59 .82 8.85 1.006 Investment account 2.93 4.04 8.19 14.42 11.44 8.11 -1.73 -1.55 -1.14 8.66 861 US. Treasury -5.80 -13.79 3.50 32.01 23.95 7.24 -8.46 -19.21 -14.30 -8.88 151 US. government agency and corporation obligations 22.54 33.41 24.02 15.88 12.77 9.62 .87 6.43 3.62 14.19 500 Other -2.46 -5.35 -6.70 -2.56 -5.20 6.09 149 4.33 1.71 11.20 210 Trading account 8.58 20.62 11,87 38.88 21.01 51.84 -20.46 18.51 14.44 9.97 145 Other -5.82 2.49 -11.70 2.82 1.57 -7.90 3.25 7.64 -.90 12.81 390 Non-imcresl-earning assets 6.45 3.50 5.51 -3.10 -.32 -.86 25.65 6.63 8.89 11.35 690 Liabilities 4.05 5.43 2J7 101 1.35 5.12 8.31 7.23 589 9.12 4,557 Core deposits 5.48 5.75 738 5.25 5.09 1.49 -.17 3.97 4.12 4.52 2.494 Transaction deposits 165 .93 2.43 3.38 14.62 5,47 -.33 -3.09 -3.45 -4.58 757 Savings and small time deposits .. 7.29 8.71 10.51 6.24 .18 -.85 -.08 8.37 8.34 9.05 1.737 Managed liabilities' 2.27 5.13 -6.15 -6.19 -6.07 12.30 17,57 10.61 9.48 13.83 1.720 Deposits booked in foreign offices -7.77 -1.07 -5.8S 3,81 -5.85 15.06 30.89 5.13 4.27 11.13 526 Large time 9.22 5.00 -5.68 -19.73 -26.20 8.72 19.61 21.16 2O.J3 379 Subordinated notes and debentures -4.25 16.98 20.99 4.69 34.90 10.82 9.23 6.61 17.74 21.00 62 Other managed liabilities 5.45 9.86 -8.06 -1.39 6.94 22.18 1191 11.63 7.83 12.22 753 Other -.06 3.29 4.43 -4.18 -1.02 15.30 79.17 20.50 2.57 23.77 344 Equity capital 8.76 4.18 6.64 5.98 13.75 12.58 5.24 12.07 7.66 10.34 414 MEMO Commercial real estate loons2 n.a. n.a. n.a. -154 -4.03 -.60 4.00 6.35 7.66 9.85 496 Mortgage backed securities ... 19.06 41.00 34.39 19.27 10.37 9.66 -3.12 .67 2.03 14.18 380 NOTE. Data are from year-end to year-end. 2. Measured as the sum of construction and land development loans secured n.a. Not available. by real estate; real estate loans secured by nonfarm nonresidential properties; 1. Measured as the sum of deposits in foreign offices, large time deposits in real estate loans secured by multifamily residential properties; and loans to domestic offices, federal funds purchased and securities sold under agreements finance commercial real estate, construction, and land development activities to resell, demand notes issued to the U.S. Treasury, subordinated notes and not secured by real estate. debentures, and other borrowed money. on business loans last year (chart 6). Nevertheless, off their balance sheets.3 With these loans off the the average of measured spreads reported in the books, the measured growth in business loans last STBL narrowed over the preceding several years, so year understates the expansion of bank-originated results from both surveys are broadly indicative of credit. However, the understatement was small aggressive pricing of business loans. Spreads on the largest loans are the narrowest 3. This explanation presumes that the increase in the expected relative to historical norms. Partly as a result, several return on equity that occurs when capital is allocated to riskier assets increases the value of the bank's stock, but this need not be true. Just large banks established programs last year to package as selling $100 of safe stock and buying $100 of risky stock leaves and sell "collateralized loan obligations" (CLOs)— one's net worth unchanged, replacing low-risk assets with high-risk securities backed by large commercial and industrial assets should leave the value of the bank's stock essentially unaffected so long as the bank must pay appropriately higher rates on its lialoans. Respondents to the November 1997 BLPS bilities. However, the rates banks pay on insured deposits are insensiattributed the recent interest in CLOs to a desire by tive to a broad range of riskiness in bank assets, and the sensitivity banks to deploy their capital more efficiently by of many other bank liabilities at the largest banks may be muted by the perception that regulators might be unwilling to allow such institumoving relatively high quality loans (which have the tions to fail because of the damage to the financial system that could same regulatory capital requirement as riskier loans) result. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

394 Federal Reserve Bulletin • June 1998 ;UKI Spread of C'«SLI liKtn rate wi IMU-IKIL-IJ I'alcial j'umls [')')()-•>•,' In- -,uc ul luatt. 1<>,S7-'J7 Net percentage of selected large banks All loans that tightened standards — 75 — — 2.S Large and medium — 50 — — 2.0 — 25 — — 1.5 Four-quarter moving average — 1.0 I I I _| Net percentage of selected large banks that More than $1,000,000 increased spreads over their cosl of funds — 2.5 — 2.0 — 1.5 25 — 1.0 — 50 I 1991 1993 1993 1997 $100,000 lo $1,000,000 NOTE. Net percentage is the percentage of banks reporting a tightening of standards or an increase in spreads less the percentage reporting an easing or decrease. The definition for firm size suggested for, and generally used by, survey respondents is that medium firms are those with sales of between $50 million and $250 million. SOURCE. Federal Reserve Board, Senior Loan Officer Opinion Survey on Bank Lending Practices. because the bulk of the CLO activity involved loans by foreign rather than U.S. banks. Nonetheless, the Less than SI00,000 survey results suggest that CLOs have the potential to — 5.0 shift significant amounts of C&l loans off the books of domestic banks over time. — 4.5 Banks' holdings of commercial real estate loans — 4.0 increased more than 93A percent last year. The growth — 3.5 of these loans has been picking up for the past four years following a sharp pullback in the early 1990s. 1987 1989 1991 1993 1995 1997 A variety of indicators show continued improvement in the condition of the commercial real estate indus- NOTE. The data are weighted by loan volume. SOURCE. Federal Reserve Board, Statistical Release E.2, "Survey of Terms try, including falling vacancy rates and rising prices of Business Lending." for properties. Commercial real estate loans have grown much more rapidly in recent years at smaller mercial mortgage loans on the books of commercial banks; after adjusting for the effect of mergers, these banks; by this measure, CMBSs and bank loans were loans at the largest 100 banks increased 4!/a percent the two leading sources of finance for commercial last year, whereas growth at the remaining banks was real estate activities. 15'/2 percent. The losses on such loans in the early 1990s were concentrated at large banks, which may I .onus lo Households therefore remain relatively more cautious. Growth at large banks may also have been held down somewhat In contrast to business loans, consumer loans on by the issuance of commercial mortgage-backed banks' books contracted 2'A percent last year. Sevsecurities (CMBSs); many of the respondents to the eral factors contributed to the decline, including re- August 1997 BLPS—particularly the largest banks— duced demand for such loans by households, which reported that they had issued CMBSs. These securiin turn partly reflected a substitution toward home ties were virtually nonexistent ten years ago. In 1997, equity loans; a tightening of terms and standards on however, the increase in the outstanding dollar consumer loans by some banks; and the increased amount of CMBSs exceeded the increase in the comsecuritization of consumer loans. Consumer credit Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 395 from all sources grew 4V? percent last year, down Net pcrcemaL.'c of selected commercial bunk*- ih;il from 8 percent in 1996 and 14 percent in the two tightened standards tor credit cards and other consumer loans. I'W6 ')7 preceding years. As is typical over an economic expansion, the Percent deceleration has been more pronounced for consumer credit than for spending on consumer durables; the Credit cuds growth of the latter slowed from 9VA percent in 1994 to 4 percent last year. In the early stages of an expan- — 40 sion, net increases in consumer debt tend to be large because an upturn in spending for consumer durables boosts loan originations, while past low levels of originations keep debt repayments low. But as the — 20 economy continues to expand, the growth of repayments provides more of an offset to new originations, resulting in smaller net additions to the stock of debt. As discussed below, the average repayment perfor- 1996 1997 mance of consumer loans deteriorated significantly in NOTf. Net percentage is the percentage of banks reporting a tightening of 1995-96 and remained poor last year. In response, for standards less the percentage reporting an easing. the past two years a large percentage of banks tight- SOURCE. Federal Reserve Board, Senior Loan Officer Opinion Survey on Bank Lending Practices. ened their standards on consumer loans, according to responses to the BLPS (chart 7). But the percentages Consumer loans were likely also depressed last reporting tightening were lower in the second half of year because many households refinanced them with 1997, suggesting that many banks felt that they had loans backed by real estate, which typically have altered their standards sufficiently. Some banks also lower interest rates and for which interest payments reported imposing lower credit limits on credit cards are generally tax deductable. Borrowing under home and raising finance charges on outstanding balances. equity lines of credit at banks increased 15 percent While these adjustments may have made credit card in 1997, and closed-end residential real estate loans lines harder to acquire for less creditworthy cus- secured by junior liens increased 103/4 percent. Realtomers, banks apparently remained eager to attract estate-secured borrowing from nonbanks, particularly more creditworthy borrowers. Reportedly, credit card finance companies, was also strong. When asked in solicitations continued at a record pace, and the value the February 1997 BLPS to account for the strength of credit card lines grew 1 PA percent. By the end of in home equity loans, most banks cited increased 1997 the aggregate credit card utilization rate—credit demand from households or specific encouragement drawn on credit card lines relative to the total size of by the banks to consolidate unsecured consumer such lines—had fallen to less than one-third. credit with such loans. Despite the decline in consumer loans on the books of banks, outstanding consumer loans originated by S. Secunli/ed shaiv of oiiislandin;; consumer loans banks grew nearly 4 percent last year. The decline in origin.ileii hv kinks. 19NN 47 loans on the books resulted from an increase of more Percent than 20 percent in the volume of loans originated by banks and then securitized; at the end of the year, these off-balance-sheet amounts accounted for nearly — 30 30 percent of consumer loans originated by banks (chart 8). Given the marked deterioration in the performance of consumer loans in recent years, banks may be inclined to reduce the amount of such loans appearing on their balance sheets. In addition, banks evidently find securitization frequently to be a less — tO expensive way of funding consumer loans than funding them on their balance sheets.4 J I 4. For information on [he securitization of credit card loans, see 1989 1991 1993 1995 1997 William R. Nelson and Brian K. Reid, "Profits and Balance Sheet SouRCh. Federal Reserve Board. Statistical Releases H.8, "Assets and Lia- Developments at U.S. Commercial Banks in 1995," Federal Reserve bilities of Commercial Banks in the United States." and C.19, "Consumer Bulletin, vol. 82 (June 1996), p. 488. Credit." Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

396 Federal Reserve Bulletin L: June 1998 '). AYLTULV r:iLo un new. I'KcJ rale iliin\-\var moriiMLVs. Secnritii's ami ihe montage ivImaiKiny index', IWH l)7 Banks' holdings of securities increased more than Percent 83/4 percent last year after declining in 1994 and Mortgage rate changing little in 1995 and 1996. Securities also expanded sharply earlier in the 1990s, but that increase occurred during a period of weak loan demand and strong inflows of core deposits; it may also have reflected banks' efforts to comply with new Index. 1990.Q1 = I regulatory standards that imposed larger capital Refinancing index requirements on loans than on securities.5 The — 15 strength in securities last year, by contrast, coincided with substantial loan growth and thus does not seem to indicate any diminution in the demand for loans or in the willingness of banks to provide them. Indeed, responses to the May 1998 BLPS indicated that the 1991 1993 1993 1997 growth in securities was due in part to an increased SOURC(-:. The mortgage rate is from the Federal Home Loan Mortgage Corporation; the refinancing index is from the Mortgage Bankers Association. willingness on the part of some banks to boost leverage in an effort to raise return on equity. Many responses also attributed the growth to mergers: Home mortgages secured by first liens also acceler- Some banks were expanding their balance sheets in ated in 1997, expanding SVA percent. Some of the line with capital accumulated because their holding strength in mortgages reflected the high level of companies had recently participated in pooling-ofresidential construction activity last year, although interest mergers and therefore were constrained from increased construction activity generally raises the buying back stock. level of mortgages only gradually. Toward the end of Securities in investment accounts at banks the year, the low level of mortgage interest rates expanded S3A percent last year. Within investment induced large numbers of borrowers to refinance accounts, mortgage-backed securities, which account existing mortgages (chart 9). The resulting increase for about half of the securities in such accounts, in refinancing activity likely contributed to the expan- increased much more rapidly than the remaining sion of banks' holdings of mortgages because some types of securities. The 10 percent growth in interesthouseholds increase their mortgage size and take earning trading account securities was concentrated cash out when refinancing. The added cash may be in securities booked at domestic offices; foreign used to pay down other debts, so the heightened level office trading accounts declined somewhat. The of refinancing probably contributed a bit to the weakdecline in trading account securities booked in forness in consumer loans discussed above. The high eign offices was largely in the fourth quarter, when level of refinancing activity may also have boosted the turmoil in East Asia probably induced banks to mortgage loans on banks' books temporarily, as presell some securities and reduced the value of some viously securitized loans were replaced by new loans that they kept. that appear on the balance sheets of the refinancing Non-interest-earning trading account assets were institution, at least for a while. boosted by a $42Vi billion rise in the gross positive As has been true for several years, real estate loans fair value of derivatives written on interest rates, at banks were also boosted somewhat by banks' exchange rates, and equity, commodity, and other acquisition of savings institutions; last year such prices (see box "Off-Balance-Sheet Activity"). Much acquisitions added about 2 percentage points to the of this gain was probably the result of an increase in growth of real estate loans at banks. Banks have been the value of exchange-rate contracts in the fourth absorbing savings institutions since the savings and quarter, most likely because of the large depreciations loan crisis in the late 1980s. Partly as a result, banks of several East Asian currencies at that time. Banks have become bigger players in the mortgage busitypically hold offsetting positions in such contracts, ness, which had previously been dominated by thrift so large movements in exchange rates generally institutions. At the end of the fourth quarter, single family mortgages accounted for nearly as large a share of bank assets (14'/2 percent) as did C&I loans 5. Core deposits consist of demand deposits, NOW accounts, sav- (15% percent). ings and money market deposit accounts, and small (that is, less than $100,000) time deposits. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 397 increase bank assets and liabilities without greatly the most common form of retail sweep program—but affecting net worth. Exchange-rate-based derivative they accelerated the creation of programs that sweep contracts in a negative position, which are recorded funds from household demand deposits; on net, as liabilities on the balance sheet, also increased the amount moved by the initiation of new sweep substantially in the fourth quarter. programs—$84 billion—was about 25 percent lower than in 1996. With core deposits growing more slowly than l.iubililic* assets, banks funded their robust growth last year largely with managed liabilities, which increased Bank core deposits grew 4'/a percent last year, about 13% percent. Large time deposits, deposits in foreign the same rate as in 1996 and only half as fast as the offices, and subordinated debt all expanded at doublerise in bank assets. Core deposit growth was rela- digit rates last year. During the past five years of tively slow, in part because banks set deposit rates substantial growth of bank assets, the share funded low in comparison to market rates, as they have done by managed liabilities rose from 28[A percent to for several years. For example, the average rate paid nearly 34 percent, a level just below that in the late by banks on their interest-bearing core deposits was 1980s. 1 VA percentage points below the yield on six-month Historically, banks have increased their reliance on Treasury bills last year. By contrast, the average managed liabilities during periods of rapid asset difference was only V* percentage point from 1987 to growth (chart 11), perhaps because they cannot prof- 1993 (chart 10). Yields available on core deposits itably attract new core deposits quickly enough to were especially low relative to the returns on bond keep up with rapidly growing assets. Managed liabiliand stock mutual funds last year, and households' ties can generally be raised in large amounts with substitution toward such funds likely continued to little or no change in the rates paid for the funds. The depress the growth of core deposits. public's demand for core deposits, however, is much Within core deposits, savings accounts expanded less sensitive to rates, so banks would have to rapidly, mainly because of the ongoing introduction increase deposit rates substantially to induce large of "sweep" programs. These programs automatically inflows over relatively short periods of time. Thus, move funds out of transactions deposits, against even though core deposits on average are less expenwhich banks must hold non-interest-bearing reserves, sive than managed liabilities, the latter may still be into savings accounts, against which banks do not the more profitable means for banks to finance rapid have to hold reserves. Sweep programs thus release growth in assets, with reliance on those liabilities funds that banks can invest in interest-earning assets. declining when asset growth is weak. In 1997, banks slowed the initiation of programs that Bank borrowing from the Federal Home Loan sweep funds out of NOW accounts—until last year Bank System (FHLB) grew significantly last year, rising by more than a half and reaching about 1 percent of bank assets by year-end. Membership in the It'll mk'ivsl I ;ik FHLB was limited to thrift institutions until 1989, BCIMM 11. Annual diangu in the ralio nl' inaiuiycd liabilities to Money market mutual funds asM'lv aikl iirnvvlh of assets, 1 yKd-97 renxni 1987 1989 1991 1993 1995 1997 NOTE. The rale for core deposils is Ihe average for NOW accounts, savings and money market deposit accounts, and small time deposils, and il excludes demand deposits, which do not bear interest; see also text note 5. SOURCE. Federal Reserve Board, Statistical Release H.I5, "Selected Interest Rates"; and IBC's Money Fund Report. 1*187 1989 1991 1993 1995 1997 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

398 Federal Reserve Bulletin • June 1998 OfT-Balance-Sheet Activity Off-balance-sheet activities are of three general types. The is then obligated to repay the funds to the bank. If the first involves a promise by the bank to provide funds on customer's commitments are financial, such as repaying demand (for example, a loan commitment) or as a guarantee holders of commercial paper, the letter is called a financial (as with certain letters of credit). The obligation does not standby letter of credit. If the commitments are not finanappear on the balance sheet because the funds have not been cial, such as the delivery of merchandise or the completion extended. The meaning of "off-balance-sheet" is somewhat of a construction project, the letter is called a performance more obscure when applied to the second type of activity, standby letter of credit. Banks' potential obligations under derivatives, because the value of most derivatives is financial standby letters equaled 3% percent of their assets reported on the balance sheet—as an asset if the value is last year; potential obligations under performance standby positive or as a liability if the value is negative. Derivatives letters totaled about 1 percent of assets. are assets whose payments are derived from the performance of other assets; it is the underlying assets that are off Derivatives the balance sheet. The third type of activity, loan securitization, is generally spoken of as an off-balance-sheet activity Derivatives can be roughly classified into two types: forbecause the securitized loans typically are moved off of wards and options. Forwards are agreements to buy or sell banks' balance sheets. The table provides the year-end amounts of selected off-balance-sheet items in dollars and Selected off-balance-sheet items, year-end as a percentage of assets. 1997 Percentage of assets Item (billions of Commitments dollars) 1990 1997 Unused commitments equaled $3 trillion at the end of 1997, Unused commitments 3,040.7 33.0 61.2 nearly two-thirds of assets. The rise in unused lines as a Letters of credit share of assets since 1990 is almost entirely attributable to Commercial 29.2 .9 .6 the growth of credit card lines, which tripled as a percent- Standby Financial 185.9 3.7 3.7 age of assets over the period and accounted for more than Performance 44.4 1.7 .9 half of unused commitments last year. Unused residential Derivatives (excluding and commercial real estate lines and unused lines for securi- credit derivatives) Interest rate ties underwriting summed to less than 10 percent of unused Notional amount 17,176.1 98.1 345.5 commitments last year, other unused lines, primarily com- Fair value Positive 162.8 n.a. 3.3 mercial and industrial, accounted for the remainder. Negative 161.3 n.a. 3.2 Exchange rate Notional amount 7,832.5 104.3 157.6 Fair value Letters of Credit Positive 192.2 n.a. 3.9 Negative 185.5 n.a. 3.7 Banks issue commercial and standby letters of credit. Com- Other Notional amount 493.7 2.4 9.9 mercial letters of credit are issued specifically to facilitate Fair value payment for goods. They are arranged by the buyer to Positive 22.9 n.a. .5 Negative guarantee payment to the seller of the goods, who receives 27.7 n.a. .6 funds from the bank only when the terms of the purchase Credit derivatives (notional amount) are fulfilled. Commercial letters of credit equaled less than Guarantor 33.4 n.a. .7 1 percent of bank assets last year. Beneficiary 63.7 n.a. 1.3 A standby letter of credit is a promise by the issuing bank Assets transferred with recourse 230.6 n.a. 4.6 to pay a specific sum to a third party if the issuing bank's customer fails to fulfill specific commitments; the customer n.a. Not available. when the Financial Institutions Reform, Recovery, capital arose from a 30 percent increase in retained and Enforcement Act allowed qualifying commercial income. Retained income increased so much partly banks to join; more than half of all commercial banks because net income was strong, but also because the had become members by the end of 1997. proportion of income retained by banks rose, from 24VA percent in 1996 to 2VA percent last year. With Capini! the increased rate of retention, dividends rose just 8 percent, well below the 29 percent annual rate Bank equity grew 10'A percent last year, a bit faster posted between 1993 and 1996. About one-fourth of than assets. More than one-third of the growth in the increase in capital was new capital, acquired Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 399 Off-Balance-Sheet Activity—Continued something for a specific price at a designated future date; More than 90 percent of derivatives (by notional amount) options give the holder the opportunity, but not the obliga- were held in trading accounts last year. Such holdings tion, to buy or sell something at a specific price, typically frequently arise either as financial institutions trade among during an agreed-upon interval.1 Swaps, in which the themselves or when a nonbank customer wishes to purchase income streams from two assets are exchanged at specified a derivative and the bank acts as a counterparty. Given the future dates, are essentially a combination of several for- volatility of these assets, banks rarely allow a position to be ward contracts. Most derivatives contracts held by banks unmatched for very long. As a result, at any given time, the are based on interest rates or exchange rates. At banks, the positive and negative fair values of banks' derivatives holdmost common forms of interest rate contracts are swaps; ings tend to be about equal. exchange-rate contracts are most commonly forwards; and Another type of derivative contract, an option, is a other derivatives are most often options. "credit derivative," which allows parties to transfer the Derivatives contracts are reported for accounting pur- credit risk of an underlying asset. Generally, the derivatives poses in terms of their fair value, which is the price at which are structured so that the seller (guarantor) will pay the the contract could be replaced, and their notional value, buyer (beneficiary) if an asset held by the beneficiary dewhich is generally the value of the underlying asset used in faults, thus allowing the beneficiary to hold the asset withthe computation of the payment streams. For example, an out being exposed to some or all of the credit risk of the interest rate swap is commonly written so that its initial fair asset. At the end of last year, the notional value of credit value is zero, that is, so that the present values of the bank's derivatives on which banks were the guarantors equaled obligation to its counterparty and the counterparty's obliga- % percent of bank assets, and the notional value of credit tion to the bank are equal, even if the notional value—the derivatives on which banks were the beneficiary equaled reference amount used for calculating the income stream 1 V* percent of assets. being swapped—is in the millions of dollars. The difference between notional and fair values given in Securitization the example is reflected in the aggregate values: The total notional amount of banks' holdings of derivatives (exclud- Although loan securitization is often spoken of as an offing credit derivatives, which are discussed below) at the end balance-sheet activity, securitized assets are reported as an of last year equaled $25 Vi trillion, while the gross fair value off-balance-sheet item only if the assets have been transof the derivatives (positive and negative) was about ferred with recourse; that is, if the bank has removed the $750 billion. Notional amounts can be useful as one indicaasset from its balance sheet but remains exposed to some of tor of the change in the amount of derivatives activity over the risk of loss posed by the asset. When residential morttime. However, because notional amounts are so far gages are securitized through one of the federal housing removed from the actual value of derivatives, they vastly agencies, for example, the originating bank has no responsioverstate the exposure of the institutions. bility for the repayment of the loan (although it may service Derivatives holdings are concentrated at the largest the mortgages for a fee), and thus the loan is not an banks. At the end of last year, more than 99 percent of off-balance-sheet item. In contrast, credit card securitizaderivatives, measured either by notional amount or gross tions are typically structured so that if the repayment perforfair value, were held at the top 100 banks. Furthermore, mance of the underlying accounts deteriorates sufficiently, about 90 percent of derivatives (again by either measure) the originating bank is obliged to repurchase the remaining were held at the top 10 banks. securitized loans over a fairly short period. Most of the loans that are reported as off-balance-sheet items on the I. For additional information on the use and holdings of derivatives by Call Report, which equaled 4Vi percent of bank assets last banks, see "Derivatives Disclosures by Major US. Banks, 1995," Federal year, were credit card loans. Reserve Bulletin, vol. 82 (September 1996), pp. 791-805. generally from the issuance of stock or the injection Capital for regulatory purposes, which excludes of funds from parent holding companies. Most of the both goodwill and net unrealized gains on investment remaining growth in capital arose from two sources: account securities, increased only TA percent, a bit the increase in goodwill arising from bank mergers less than assets; hence, the average leverage ratio and the increase in net unrealized gains on invest- edged down over the year (chart 12). Industryment account securities available for sale.6 average risk-weighted capital ratios (total and tier 1) also declined slightly over the year.7 Even though 6. Goodwill is ihe difference between the acquisition price and the net fair value of the identifiable assets and liabilities acquired. Unrealized gains on available-for-sale investment account securities are the 7. The tier 1 ratio is the ratio of tier 1 capital lo risk-weighted difference between the fair value of the securities and their amortized assets, and the total ratio is the ratio of the sum of tier 1 and tier 2 cost. {Footnote continues on next page) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

400 Federal Reserve Bulletin • June 1998 Kcuukitory capital rulios and sluice i>! industry ally all banks remained well capitalized: At the end ii.ssL'ls ui vidl-eapiuiliA'1.1 hunks. I1)1)I-47 of the year, 97l/2 percent of bank assets were at well-capitalized banks.8 Regulatory capital ratios Total (fier I + tier 2) ratio TRENDS IS PROFITABILITY — 13 The 1997 rise of 123/4 percent in the net income of U.S. commercial banks boosted the industry's return — 10 on assets to 1.25 percent, a new record, and its return on equity to more than 14% percent (table 2). With profits strong, bank holding company stock prices advanced rapidly over the first three quarters of the year (chart 13). In the fourth quarter, however, bank J I I I holding company stocks, especially those of money center banks, were buffeted by concerns that eco- Share of industry assets nomic problems in Asia would depress earnings. at well-capitalized banks Nonetheless, for the year as a whole, stock prices — 100 of the money center companies about matched the broader market, while those of regional banking com- — 80 panies easily surpassed both. Rates of commercial bank profitability averaged — 60 over the past five years are higher than in the previous five-year period and significantly exceed longer- — 40 term averages. For example, the industry's [43A percent average return on equity over the past five years was about 5l/i percentage points higher than the 1991 1992 1993 1994 1995 1996 1997 average over the previous five years and 4 percent- NOTE. For definition of capital ratios, see text note 7. age points higher than the average for the forty years from 1948 to 1987.9 The improvement in the 1993-97 returns over the 1988-92 returns is primasecurities, which generally have low risk weights, rily the result of a much-reduced level of loss proviincreased a bit more rapidly than loans, which genersioning relative to loans. The decline in provisioning ally carry high risk weights, risk-weighted assets in turn resulted from the vastly improved quality increased more rapidly than total assets because of of assets: Troubled sovereign and commercial real rapid growth in the selected off-balance-sheet items estate credits extended in the 1970s and 1980s were that are included in risk-weighted assets on a creditworked out, and the sustained economic expansion equivalent basis. The risk-weighted credit-equivalent contributed to a low level of losses on more recent amount of these items increased 30 percent from lending. The high level of profits also reflects banks' year-end 1996 to year-end 1997, raising their share of risk-weighted assets to nearly 20 percent. Despite the slight declines, average capital ratios remain high 8. Well-capitalized banks are those with a total capital ratio greater relative to regulatory standards. Furthermore, virtu- than 10, a tier 1 ratio greater than 6, a leverage ratio greater than 5, and a composite CAMELS rating of I or 2. 9. Over the past two five-year periods, the return on assets improved even more than the return on equity. The increasing imporcapital to risk-weighted assets. Tier I capital consists mainly of tance of off-balance-sheet activities in recent years, however, makes common equity (excluding intangible assets such as goodwill and comparisons of return on assets over long periods of time potentially excluding net unrealized gains on investment account securities classi- misleading. Nevertheless, a large fraction of banking is still tied to fied as available for sale) and certain perpetual preferred stock. Tier 2 traditional on-balance-sheet items, and in interpreting changes in net capital consists primarily of subordinated debt, non-tier-1 preferred income over shorter periods, assets remain a useful scaling factor for slock, and loan-loss reserves. Risk-weighted assets are calculated by separating the effects of growth from those of improved profitability. multiplying the amount of assets and the credit-equivalent amount of By contrast, return on equity should not be affected by changes in the off-balance-sheet items (an estimate of the potential credit exposure relative importance of off-balance-sheet activity because investors posed by the item) by the risk weight for each category, where the risk expect to receive an appropriate return on their investment regardless weights rise from zero to I as the credit risk of the assets increases. of whether activities are on or off the balance sheet. Returns on equity The leverage ratio is the ratio of tier 1 capital to average tangible may, however, have been affected at least temporarily by the substanassets. Tangible assets are equal to total assets less assets excluded tial increases in capital-to-asset ratios in recent years, which have in from common equity in the calculation of tier 1 capital. part been a response to regulatory changes. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 401 Selected income and expense items as a proportion ol asscis. 1941 97 Percent Item 1991 1992 1993 1994 1995 1996 1997 Net inlerest income , 3.62 3.89 3.90 3.78 3.72 3.73 3.67 Nonimcrcst Income 1.81 1.95 2.13 2.00 2.02 2.18 2.23 Noninterestexpense , 3.75 3.86 3,94 3.75 3.64 3.71 3.61 Loss provisioning ... 1.03 .78 .47 .28 .31 .37 M Realized gttiiu on invcsuncnl account securities . .09 .11 .09 -.01 .01 .03 .04 Income before taxes and cxlramtllnary items . .73 1.32 1.70 1.73 1.81 1.85 1.93 Taxes and extraordinary items .. .22 .41 JO J8 .63 .65 .68 Net income (itturn on Sssew) . .51 .91 1,20 1.15 1.18 1,20 1.25 Dividends .45 .41 .62 .73 .75 .91 .90 Retained income .07 .49 .58 .42 .43 .30 .3S MEMO Return on equity 7.71 1X64 15.32 14.63 14.69 14.53 14.87 efforts to limit costs, which have helped lower shorter-term market rates on balance changed little the share of revenue needed to cover noninterest over the year, the average rate earned on assets edged expenses. Over a longer period, noninterest income slightly lower as the distribution of bank assets has accounted for an increasing share of bank reve- shifted toward those that carry lower interest rates. nue as banks have shifted away from traditional On the liability side, the net interest margin has been intermediation and toward such fee-based activities squeezed by the need to fund rapid asset growth with as servicing loans funded by others and selling and managed liabilities, on which the average rate paid servicing mutual funds and annuities. substantially exceeds that paid on core deposits. The net interest margin has been drifting lower since 1993 but remains high relative to the levels of Interest Income and Expense the late 1980s. Some reports in the financial press in the early 1990s attributed the rise in bank net interest Net interest income as a percentage of average assets margins at that time to the concurrent rapid decline in declined 6 basis points last year because of a decline short-term market interest rates and to the steepening in banks' net interest margin (net interest income as a of the yield curve that accompanied that decline. percentage of interest-earning assets, chart 14). The Underlying this explanation is the assumption that narrowing of the net interest margin was produced rates on liabilities adjust more frequently than rates by a slight decline in the average rate received on on assets at many banks. The validity of the assumpinterest-earning assets and an increase in the average tion is hard to assess directly because of the difficulty rate paid on interest-bearing liabilities. Although Ncl MIILTV'SI iiKi 'i.Tlll ill III lilt.' slope Ot lh»J \ lL-kl C'LH \ L\ 1 976-97 I .v Stock price indexes. I'W7 -Apiil I'WS fades, January I. IW?= KM Percent Net interest margin — 175 Regional bank holding companies 3.8 — 150 I I I 1 I I I I I I Yield carve 125 Money center bank holding companies 100 J I I I 1 i I I I 1 I I I I i I I 1997 1998 1977 1981 1985 1989 1993 1997 NoTt. The holding company indexes are for seven money center companies NOTE. Net interest margin is net interest income divided by interest-earning and forry-two regional companies as defined by Dow Jones. assets. The slope of the yield curve is the yield on the ten-year Treasury note SOURCE. DOW Jones and Standard and Poor's. less the coupon-equivalent yield on the three-month Treasury bill. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

402 Federal Reserve Bulletin • June 1998 of measuring the repricing frequency of many bank liabilities. Finally, compared with the early 1990s, assets and liabilities. However, this assumption is not banks have been funding a significantly larger fracconsistent with past movements in the net interest tion of assets with capital, and the returns paid on margin and the slope of the yield curve, which do not capital are not included in interest expense. More suggest a tight link between them; nor is such a link broadly, to the extent that banks must pay higher evident between net interest margins and changes in returns on equity than on borrowed money, the rise in the slope of the yield curve. For example, since the capital ratios gives banks a strong incentive to boost early 1990s the yield curve has flattened consider- net interest margins to raise the return on assets and ably, but the net interest margin, while trending thereby keep the return on equity from deteriorating. lower, has remained fairly wide. Similarly, during periods of very steep (or steepening) yield curves in the 1980s, the net interest margin showed little if any response. j\i»)inli'rcsi Income Rather than being a response to a very steep yield curve, the sharp widening of the net interest margin Noninterest income increased 5 basis points as a in the early 1990s likely reflected two other factors. percentage of assets last year. The types of noninter- First, margins had been compressed in the late 1980s est income that expanded most were earnings from by competition among banks for loans and funding fiduciary activities and the "other fee income" comsources as well as by the elevated rates that some ponent of the broad category "other noninterest troubled banks and thrift institutions were paying for income," which includes, among other things, credit funds. Second, a number of banks may not have had card fees, mortgage servicing fees, fees from the sale the capital levels they needed to meet the risk-based and servicing of mutual funds and annuities, ATM capital rules phased in between 1990 and 1992. With surcharges, and fee income from securitized loans. In bank equity prices depressed at that time, capital was particular, fee income from securitized credit card expensive to raise, and so these banks were under loans likely increased last year because of the high pressure to limit balance sheet expansion and boost volume of securitization noted earlier. Through the profits. Their consequently less aggressive efforts to first three quarters of 1997, higher trading revenue bid for deposits and make loans likely led to a widen- also buoyed noninterest income, but trading results ing of spreads between loan and deposit rates. During were depressed in the fourth quarter by the effects of this time, competitive pressures on margins may also the economic problems in Asia (discussed below). have eased as troubled institutions were recapitalized On balance, trading revenues over the year were or closed. about unchanged as a share of assets. Since 1993, banks' increasingly competitive stance Taking a longer perspective, a shift by banks away in loan markets has contributed to some narrowing from traditional intermediation and toward fee-based of the net interest margin. However, the resulting income sources has been enlarging the share of nonsqueeze on banks' margins has been mitigated by interest income in bank revenue for more than a three other factors. First, margins were supported decade. Since the mid-1980s, noninterest income has until last year by the shift of bank assets away increased from about 26 percent to about 38 percent from securities, which generally yield relatively low of total bank revenue (defined as net interest income returns, toward loans, especially loans to households. plus noninterest income, chart 15). Since the early In addition, respondents to the November 1997 BLPS 1990s, the buLk of the increase has come from "other indicated that the average rate earned on business fee income," which has risen from about 12 percent loans had been boosted over the previous year by an to more than 15 percent of revenue since 1991. The increase in their average risk, which in turn primarily second largest contributor to the rise is the nonfee reflected an increase in loans used to finance mergers component of other noninterest income, which and acquisitions. includes revenue from the provision of data process- A second factor supporting the net interest margin ing services, income from unconsolidated subsidihas been the relatively low level of rates paid on aries, and gains from sales of assets other than securiretail deposits as gauged by the difference between ties and trading assets (including bank premises, other deposit rates and market interest rates in earlier years. real estate owned by banks, and loans). Before 1991, Although the lower level of rates has increased data on these two income components were not banks' reliance on relatively expensive managed lia- reported separately; the share of revenue contributed bilities, it has kept down the cost of core deposits, by the two combined increased roughly 4'/> percentwhich continue to account for more than half of bank age points between 1985 and 1990. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 403 15. NunmUTCM income and ii\ ci'inpnuL' increased 6% percent, the largest rise since 1986. as a share ollolal rcYCMlk1. ll'SS-LJ7 Industry employment expanded 2 percent, after several years of essentially no growth, and labor costs per employee continued to rise at about the same rate Tbial noninterest income seen in recent years. Similarly, occupancy costs increased roughly 53A percent, just below the year- — 35 earlier pace but considerably faster than over the previous several years. The number of bank offices rose 23/4 percent last year, the largest advance since 1994 and the third largest since 1981. Despite the pickup in these expense categories last year, the banking industry has restrained the growth in labor and occupancy costs since the mid-1980s. Since 1985, after adjusting for inflation, consolidated assets increased nearly 30 percent and revenues expanded about 60 percent. By contrast, employment declined 2 percent and the number of bank offices increased less than 20 percent. Thus, average reve- II 1 I I I 1 I I I I nue generated per employee increased more than 60 percent, while revenue per office rose more than Other nonraierest in 30 percent. Furthermore, over the same period, the inflation-adjusted occupancy cost per bank office fell 3 percent, a decline influenced perhaps by a shift of some banks toward smaller branches in supermarkets and other nontraditional locations. By contrast, other noninterest expense increased substantially as a share of revenue in the late 1980s 1985 19S9 1993 1997 and early 1990s, and only a part of that rise has been NOTE. Components of "other noninteresl income" were first included in the reversed since 1991. The earlier rise likely resulted, March 1991 Call Reports. 1<>. Noiiinteit-si expense and its o>nipimtnls Noninterest Expense as a pervemajie of total revenue. I9S5-'J7 Percent Banks also benefited last year from a reduction Total in noninterest expense relative to both assets and revenues (chart 16). The bulk of the improvement was produced by a decline in "other noninterest expense," a broad category that accounts for nearly half of noninterest expense and includes deposit insurance premiums, losses on the sale of assets other than securities and trading assets, amortization of I I I I I I I intangible assets, expenditures for information pro- Components cessing services provided by others, advertising, and merger restructuring charges. In part, last year's Salaries and bendta improvement reflected a temporary rise in expenses in 1996 owing to a large special charge for mergerrelated costs and a one-time assessment to recapital- Other ize the Savings Association Insurance Fund, which — 20 was paid by banks that had acquired the deposits of thrift institutions. Premises and fixed assets Labor costs and occupancy costs, the other components of noninterest expense, grew more slowly than industry revenue last year but expanded rapidly i i i i i I i i i i i in comparison with earlier in the decade. Labor costs 1985 1989 1993 1997 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

404 Federal Reserve Bulletin D June 1998 at least in part, from collection costs and legal oss pmvisiitnini; and IKT diarac-olls expenses generated by the high level of problem :i pcrccnlagt; nl loans. I'Mil v)7 loans at that time. With these expenses presumably Percenl down considerably since then, noninterest expense has probably been supported more recently by Loss provisioning increases in servicing and administrative costs gener- — 2,0 ated by the rapid growth in consumer loans, particularly credit card loans, as well as by the costs associ- -^ 1,5 ated with the growing volume of off-balance-sheet and fee-based activities. — L0 Loss Provisioning and Loan Quality Provisioning for loan and lease losses as a percentage Mill I t 1 of assets edged higher last year. Nonetheless, with 1981 1985 1989 1903 1997 charge-offs remaining relatively low, provisioning as NOTE. Nei charge-offs are charge-offs net of recoveries. a share of loans has risen only a little from its 1994 trough (chart 17). The low level of charge-offs, in The apparent stabilization in measures of conturn, reflects the excellent overall performance of sumer loan quality was mirrored in a flattening of the bank loan portfolios thus far in this expansion. This trajectory of household bankruptcy filings in the secoverall outcome, however, masks substantial differ- ond half of last year after two years of double-digit ences between the results for loans to businesses annual increases. Two factors have likely contributed and those for loans to households. Delinquency and importantly to the plateauing of these measures of charge-off rates on loans to businesses declined financial distress. First, as noted above, some banks sharply earlier in the decade and have remained very have selectively tightened lending standards in an low (chart 18, top panels), whereas those on loans to effort to reduce loan losses. Second, the household households, and especially on credit card loans, have debt burden (interest payments and required principal increased substantially since late 1994 (chart 18, botpayments as a percentage of disposable income) has tom panels). Consumer delinquency rates flattened changed little recently after increasing steadily out early last year, however, and by late in the year, between 1994 and 1996 (chart 19). This stability charge-offs showed signs of stabilizing. reflects the slowing of consumer loan growth and the The flattening of loss rates on loans to households lower interest rates paid by households, which in turn last year was reflected in the results for credit card resulted from mortgage refinancing and the substitubanks.10 Profitability at these institutions has been tion of mortgage credit for consumer loans. much higher than for the industry as a whole for In contrast, the low and declining burden of busiseveral years, as strong noninterest income and the ness debts likely contributed to the low delinquency high spread on credit card loans have more than and charge-off rates on loans to businesses in recent compensated for the relatively high level of noninter- years. The business debt burden (nonfinancial corpoest expense and loan losses. However, credit card rate interest payments as a percentage of cash flow) banks' earnings deteriorated considerably between has declined since its peak in 1990 for three reasons: mid-1995 and early 1997 before rebounding in the the reduction in the general level of interest rates, second half of last year. For the year as a whole, the significant declines in corporate leverage in the early return on equity for credit card banks averaged nearly 1990s, and strong growth in profits. However, the 18 percent, considerably below the 25 percent to debt burden of the nonfinancial business sector lev- 30 percent returns posted between 1988 and 1995 but eled out recently as profit growth moderated while only about 1 Vi percentage points lower than in 1996. debt growth remained strong. With total charge-offs about matching loss provi- 10. Credit card banks are defined as banks among the top 1,000 for sioning in each of the past several years, banks' which credit card loans are more than half of assets. Primarily as a reserves have been about flat, and the rapid pace of result of consolidation in this market segment, the number of credit card banks dropped from more than 40 at the end of 1995 to just 29 at loan growth has unwound about half of the 1980s the end of last year. See William R. Nelson and Ann L. Owen, increase in the ratio of reserves to loans (chart 20). "Profits and Balance Sheet Developments at U.S. Commercial Banks Although reserves have been declining relative to in 1996," Federal Reserve Bulletin, vol. 83 (June 1997), pp. 476-77. for a discussion of the profitability of credit card banks. charge-offs since 1994, they remain relatively high Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 405 I«S. Dclinc|iicnt\ and dwrjie-oi't rates, hy is pc of loan, I'WI-1)'? Percent Delinquency rues for loans to businesses Charge-off rates for loans to businesses 12 / \ / \ Coninieirml real estate — 1 Delinquency rates for loans to households Charge-off rates for loans to households Residential real estate Other consumer Residential real estate J J I 1991 1993 1995 1997 1991 1993 1995 NOTE. The data are seasonally adjusted. Delinquent loans are loans that delinquent loans divided by the end-of-period level of outstanding loans. The are nol accruing interest and those that are accruing interest but are more than charge-off rate is the annualized amount of charge-offs over the period, net of thirty days past due. The delinquency rate is the end-of-period level of recoveries, divided by the average level of outstanding loans over the period. by historical standards, as one would expect with liffects of lite Economic Difficulties in A.sia aggregate loan losses near their cyclical lows as a percentage of loans and the economy performing Profits at several large U.S. banks were reduced by exceptionally well. the effects of economic problems in some of the industrializing economies in Asia. These problems emerged last summer when the Thai baht dropped Dchi burden ;inJ hous . 1 'JS5—*J7 sharply following a decision by the Thai authorities to no longer defend the baht's peg. Subsequently, Percent Businesses 20. MoLisutL's ol ws tor loan und ICLIM" IUSM".. 197(1—47 Perctnl Reserves as a percentage I I 1 I I of loans Households I I 1 I I I I I ! I I I I I I Ratio of reserves to charge-offs 1985 1987 1989 1991 1993 1995 1997 NOTE, For businesses (nonnnancial corporations only), the debt burden is calculated as interest payments as a percentage of cash flow; for households, it is an estimate of interest payments and required principal payments as a percentage of disposable income. I 1 I [ I I .11 I I ] I I I I I I I 1 I SOURCE. National income and product accounts and the Federal Reserve 1977 1981 1985 1989 1993 1997 System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

406 Federal Reserve Bulletin • June 1998 International Operations of U.S. Banks The share of U.S. bank assets that were booked at foreign fourths of their income, at foreign offices. On the other offices increased about one-fourth, from 12 percent to hand, at one of the banks, a "super regional" institution, 15 percent, between the end of 1993 and the end of 1997 foreign operations accounted for less than 4 percent of (table).1 The share of bank profits earned at foreign offices assets and an even smaller share of income. peaked at more than 16 percent in 1993 and was roughly 12 percent over the 1994 to 1996 period; the share dipped further in 1997 because foreign office results suffered in the Share of U.S. bank assets and net income booked second half of the year from the economic problems in at foreign offices, 1993-97 Asia. Percent Responses to the Federal Reserve's Quarterly Report of Year Assets Net income Assets and Liabilities of Large Foreign Offices of U.S. Banks provide data on the geographical distribution of the 1993 12.2 16.3 assets and liabilities of major foreign branches and subsidi- 1994 13.2 11.9 aries of U.S. banks. As has been the case for some time, 1995 13.6 11.6 about half of the assets reported on the survey at the end of 1996 14.8 12.0 1997 were booked in European branches and subsidiaries. 1997 15.f 10.2 The bulk of the European assets were booked in the United Ql 14.9 16.2 Q2 15.2 14.6 Kingdom, a share reflecting, at least in part, the importance Q3 15.5 84 of London's financial markets. Nearly one-fourth of the Q4 15.1 2.3 reported assets were booked in Asian branches and subsidiaries, with the largest volumes in Hong Kong and Sin- NOTE. For definition of foreign offices, see box note I. gapore. Large shares were also booked in the Caribbean (primarily the Cayman Islands and the Bahamas), with considerably smaller volumes in Latin America and else- Share of U.S. bank assets booked at foreign offices, where. The location in which an asset is booked is often a by bank size, year-end 1997 strong indicator of the nationality of the customer or the Percent nature of the asset, but the interactions between U.S. and foreign regulations or tax laws can also influence the booking site. — 60 Not surprisingly, banks with by far the largest share of assets and earnings at foreign offices were the largest banks (those with assets of more than $150 billion) (chart). Among these five banks, however, the scope of international operations varied considerably. Two of the banks held roughly three-fourths of their assets, and booked more than three- — 15 I. Foreign offices include Edge Act and agreement subsidiaries and international banking facilities (IBFs). Edge Act and agreement subsidiaries are federally or state-chartered corporations, respectively, that are domiciled in More than 50-100 10-50 1-10 0.25-1 Less than the United States but engage in international banking activities. An IBF is a 150 0.25 set of asset and liability accounts that cover selected international trans- Assets (billions of dollars) actions of the U.S. offices of the bank. For more detail on the structure of foreign operations of U.S. banks, see James V. Houpt, International Trends NOTE. For definition of foreign offices, see be* note 1. Banks that are for U.S. Banks and Banking Markets, Staff Studies 156 (Board of Governors subsidiaries of other banks are not separately included because their assets of the Federal Reserve System, 1988). are already accounted for in the consolidated assets of their parent banks. other East Asian economies experienced downward the condition of the financial system had been pressure on their currencies and equity prices and strained by bankruptcies of a number of major indusupward pressure on interest rates. The turbulence trial conglomerates in 1997. spread to Taiwan and Hong Kong in the fall. In In response, authorities in Thailand, Indonesia, and Taiwan, the authorities allowed some downward Korea negotiated international support packages with adjustment of the Taiwan dollar, whereas in Hong the International Monetary Fund and other interna- Kong the peg to the dollar has been maintained at the tional financial institutions, as well as bilateral assiscost of somewhat elevated interest rate levels. Near tance programs with other countries. Markets in these the end of the year, the crisis spread to Korea, where countries were kept turbulent into 1998, however, by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 407 i. l:\p(>Nui'e ol I .S. bankin;j oreaniAlliiillv 10 H"ollbli_-i Asian L'COMI )|]HCv relative to capital \car-aid IW Percent MEMO: Country All reporting Money center Super regional Other total exposure (billions of dollars) Indonesia 2.6 6.2 1.4 .3 9.0 Korea 7.4 17 2 30 14 253 Thailand 2.7 6.8 .6 .4 9.4 Total 1Z7 30.2 5.0 2.1 43.6 Selected other economies' 19.9 50.1 6.7 1.4 68.1 NOTE. Exposures include the institutions' lending and derivatives I. Mainland China, Hong Kong, Taiwan, Malaysia, the Philippines, and exposures for cross-border as well as local-office operations. Respondents Singapore. may file information on one bank or on the bank holding company as a SOURCE. Federal Financial Institutions Examination Council, Country Expowhole. Capital is defined as equity, subordinated debt, and loan loss reserves. sure Report. concerns about the magnitude of the countries' finan- either from wider spreads on Asian currency concial problems and in some cases about the willing- tracts or an increased volume of trades in such conness or ability of their governments to undertake tracts. By contrast, gains on interest rate positions difficult reforms. On balance, the currencies of these fell more than half, and substantial losses on equity, countries depreciated significantly relative to the U.S. commodity, and other exposures reversed all of the dollar in 1997, with the Indonesian rupiah dropping gains attained on such contracts over the first three the most (about 58 percent), followed by the Korean quarters of the year. Reportedly, these losses reflected won (44 percent) and the Thai baht (42 percent). those on positions not only in Asia but also in other The effects of the financial crisis in Asia on the emerging markets, including those in Latin America earnings of U.S. banking organizations were concen- and Eastern Europe, that suffered from the Asian trated on a fairly small number of large institutions downdraft. with relatively large exposures to the region (see box Despite the Asia-related troubles in the fourth quar- "International Operations of U.S. Banks"). For the ter, however, net trading revenues for the year as a three most troubled Asian economies (Indonesia, whole were nearly 6 percent higher than in 1996 Korea, and Thailand), the total exposure of reporting because of the strong results in the first three quarters banking organizations amounted to roughly 13 per- of the year. Also, the largest U.S. banks continued cent of capital (table 3). Most of this exposure was at to report strong total earnings in the fourth quarter, six large money center organizations (which include thanks to extraordinarily robust domestic earnings five of the largest ten banks either directly or through and higher-than-usual realized gains on investment a parent bank holding company), which had expoaccount securities. sures totaling about 30 percent of capital. The effect of the problems in Asia showed up primarily in the trading income of the top ten banks, Dr:vu.ot'Mi:.\Ts i,\ /wv which averaged $1.9 billion per quarter over the first three quarters of the year but fell to just $810 million During the first quarter of 1998, assets at the domesin the fourth quarter (table 4). Trading income related tic offices of U.S. commercial banks expanded someto foreign exchange positions was strong in the fourth what more rapidly than they did last year. Growth in quarter, suggesting that some U.S. banks benefited commercial and industrial loans picked up a bit further from its already robust 1997 pace, and the surge 4. Trailing re\enue M llu- Ion I.IILICM L'.S. Iv.mkv in refinancing activity that followed the decline in In lypii ot L'xpo.iiitf. l'W;i-c)7 interest rates late last year and early this year sup- Millions of dollars ported growth in real estate loans. By contrast, the Year Total Interest Foreign Equity and value of consumer loans on banks' books declined rate exchange other over the quarter, as a moderate increase in bank- 1995 4,830 2,632 1.772 426 originated loans outstanding was more than offset by 1996 ,..,.. 6,213 3,621 1373 618 increased securitization. The pace of securities acqui- 1MB ...... 6,570 3,549 3,039 -18 m ...... 2,052 1,221 505 326 sitions slowed a bit from its rapid pace late last year Q2 ...... 1,609 822 698 88 but remained quite strong. Q3 2,099 1,081 813 205 Stock prices of the largest banking companies 04 810 425 1.023 -637 have, on balance, increased sharply this year, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

408 Federal Reserve Bulletin H June 1998 although they have remained volatile. In part, the rise as of the date of the merger goes unreported by the likely reflected the market's belief that the economic acquiring institution subsequent to the merger. situation in Asia might be stabilizing and the conse- In contrast, "pooling of interest accounting" comquent fading of concerns about the effects of the bines the balance sheets and income statements of the Asian crisis on future earnings. In addition, the effects merging banks; the income statement of the succesof both anticipated and announced mergers involving sor institution for the year of the merger includes the large banking organizations substantially boosted income earned by each entity before the merger. the stock prices of some of the affected companies, at Beginning in 1995, data exist on the accounting least for a time. Finally, investors pushed the broader method used for each bank merger. To calculate the equity markets sharply higher, as incoming economic adjustment required for mergers before 1995, we use data were seen by the markets as increasing the the income data reported by the individual banks likelihood of continued healthy growth with low involved in the transaction to evaluate which of the inflation. Over the first four months of 1998, stocks accounting methods was the more likely to have been of money center banks advanced 18'/2 percent, and employed. regional bank stocks rose 12 percent. By contrast, the The income data in this article include an estimate broader market, as measured by the S&P 500, rose of the income earned by banks acquired under 143/i percent. purchase-accounting rules during the part of the year Initial reports of first-quarter profits of bank hold- preceding the date of the merger. The estimate is ing companies generally showed a continuation of based on the income reported by the acquired bank last year's trends, with gains in noninterest income for those quarters preceding the merger and includes about offsetting weaker net interest income. A few an estimate of the income earned in the quarter of the large banks reported costs relating to problems in merger. Asia, but trading income rebounded from the poor Two other situations that lead to discrepancies results posted in the fourth quarter of 1997. between actual industry income for a year and that reported on the fourth-quarter Call Reports are bank closures and the adoption by banks of "push down" accounting during the year." Methods similar to M'i'i-\ni\: M>jrs!\n:xrs i nir: Ri-:ijoRTi:n those used for purchase mergers are used to estimate B.\.\K l.XCUMI: 1 >M.\ the income earned by such banks that is not reported at year-end. Income and expense items are reported on quarterly In recent years the cumulative effects of the adjust- Call Reports on a year-to-date basis. Complete indusments made to reported data have boosted industry try income for a given year cannot, however, be net income about Vi percent relative to the aggregate collected from the year-end Call Reports because a income reported on fourth-quarter Call Reports. This number of factors can lead to dicrepancies between increase in net income raised the average return on income in a year and income reported at year-end. assets about Vi basis point. The effects were consider- The data used in this article have been adjusted to ably larger in some earlier years. eliminate, as far as possible, such discrepancies. The most common problem is bank mergers 11. When the ownership of a bank changes substantially (for handled under "purchase accounting." Under that example, when it is bought by a holding company but retains its method, the balance sheet items of the acquired bank separate corporate existence), its assets and liabilities may be revalued are marked to market and then combined with those according to the price paid by the acquiring firm for some or all of its shares. (In most cases revaluation is required.) Income items subseof the acquiring bank; the difference between the quently reported on the Call Report include earnings only since the purchase price of the bank and the balance sheet date of the revaluation. This change in accounting basis is called value of identifiable assets and liabilities is reported push-down accounting because the revaluation adjustments made in the purchase by the acquiring firm are "pushed down" to the books of as the intangible asset item "goodwill." The year-tothe acquired firm. Data on the banks applying push-down accounting date flow of income and expense of the acquired bank are available only since 1995. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 409 A. 1. Kt'purt ol mourn.'. ..{ is Millions of dollars Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Gross interest income , 274,271 317,046 320.404 290,657 256,415 244,739 257.064 302,423 313,516 338,160 Taxable equivalent 279.842 321.251 324,054 293,844 259.394 247,617 259,821 305,058 315.974 340395 Loans 202.943 237,815 238.829 214,999 185.938 178,422 189,762 227,296 239,719 255,442 Securities 42,202 46,713 51,031 52,766 51.825 48,677 48,299 51.005 50395 52,658 Gross federal funds sold and reverie repurchase agreements 10.671 13,059 12,571 9.146 5.913 4.796 6.415 9.743 9,251 13,654 Other 18,455 19.461 17.971 13,747 12.739 12,843 12,587 14,382 13,950 16,406 Gross interest expense 166,430 205,078 204,949 168,469 122,517 105.613 110,849 147.965 150.187 164.471 Deposiis 130,387 157.466 161,483 139,413 98,809 79,501 79.106 105,285 107,492 117332 Gross federal funds purchased and repurchase agreements 18.965 24,898 22,778 14.436 9,263 8,442 12,476 18,422 16,779 20,435 Other 17.078 22,713 20,687 14,622 14,441 17,669 19.269 24.258 25,914 26,705 Net interest income 107,841 111,968 115.455 122,188 133,898 139.126 146,215 154,458 163,329 173,689 Taxable equivalent . 113.412 116,173 119,105 125,375 136,877 142,004 148,972 157,093 165,787 176,124 Loss provisioning' 19,812 31,297 32,282 34.866 26,813 16,841 10,993 12.663 16.302 19,066 Noninierest income 45.737 51,599 55,684 61.089 67.044 75,847 77.223 83,844 95.278 105,761 Service charges on deposits .... 9.536 10,270 11,446 12.883 14,126 14.898 15.281 16.052 17,042 18353 Income from fiduciary activities 7,5M 8,313 8,886 9,499 10,452 11.199 12.124 12,890 14,260 16,605 Trading income 3,691 4,051 4,854 5,954 6.273 9,238 6,249 6,337 7,527 8.037 Other 24,980 28,965 30,497 32.750 36,193 40.513 43,572 4S.564 56,449 62.567 Noninteresl expense 103,095 108,993 116,606 124643 132.815 140321 144.905 151,096 162.504 170.981 Salaries, wages, and employee benefits . 47,148 49,412 52,111 53.801 55,484 58,506 60,904 63.994 67,811 72,342 Expenses of premises and fixed assets . 16,007 16,697 17,547 17,982 18.152 18,577 18,978 19.750 20,889 22,079 Otter 39.939 42,885 46.948 54,859 59,181 63.438 65.023 67,351 73,802 76359 Net noninterest expense 57358 57,394 60.922 65354 65,771 64,674 67.682 67,252 67.226 65,220 Realized gains on investment account securities 277 800 474 2.898 3,957 3,054 -560 480 1,118 1,827 income before taxes and extraordinary items 30.948 24.079 22.725 24.665 45,273 60,663 66,989 75,023 80,920 91.229 Twees. 10,002 9.547 7,749 8,285 14,450 19.861 22,430 26,239 28.451 32.009 Extraordinary Items 812 312 650 995 401 2,085 -17 28 26 Ntt Income 21,757 14,843 15,626 17375 31,224 42,886 44,542 48,811 52,558 59,246 Cash dividends declared . 13,288 14,127 13,965 15.088 14,226 22.068 28,164 31,105 39,620 42,830 Retained income . ... 8,469 716 1,661 2,288 16,997 20,817 16377 17,707 12,939 16,417 1. Includes provisions for loan and lease losses and for allocated transfer risk. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

410 Federal Reserve Bulletin • June 1998 .V... .iiul IIL'IHIIL' ;iik1 L' W. all I.'..S. bailk^, A. All banks Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Balance sheet items as a percentage of average net consolidated assets Interest-earning assets 88.00 87.94 87.82 88.04 88.33 88.50 86.55 86.48 86.80 86.5$ Loans and levies, net 59.80 60.64 60.53 59.55 57.30 56.25 56.07 58.39 59.89 58.70 Commercial and industrial 19.50 19.09 18.50 17.33 15.78 14.88 14.51 15.20 15:60 1S.78 US. 16.55 16.54 15.99 15.00 13.54 12.72 12.35 12.87 13.07 13.18 FOK_ 2.95 2.55 2.51 2.33 2.24 2.16 2.16 2.33 2.53 2.60 Consumer 11.72 11.89 11.77 11.45 11.00 11.00 11.43 I2.lt 1Z21 11.44 Credit card 3.47 3.69 3.78 3.88 3.80 3.88 4.21 4.72 4.87 435 Installment and other ., 8.25 8.20 7.99 7.57 7.20 7.11 7.22 7.39 7,34 6.89 Real estate , 20.86 22.50 23.86 24.87 24,87 24.80 24.43 25.00 25.06 JS.Ol In domestic offices 20.18 21.78 23.10 24.11 24,18 24.18 23.80 24.36 24.43 24.40 Construction and land development 4.06 4.16 4.00 3.41 2.64 1.99 1.65 1.59 1.63 1,73 Farmland .49 .51 .51 .S3 M .57 .56 .56 36 .55 One- to four-family residential 9.21 10.15 11.21 12.27 12.91 13.49 13.74 14.41 14.43 144a Hone equity 1.14 1.42 1.67 1.95 2.09 2.07 1.91 1.88 1.85 1.94 Other 8.07 8.73 9.54 10.32 10.83 11.42 11.84 12.54 1237 12.48 Multifamily residential .59 .60 .62 .66 .73 .79 .79 .81 .85 .83 Nonfarm nonresidential 5.83 6.36 6.76 7.23 7.32 7.33 7.07 fr.97 6.96 6.88 In foreign offices .68 .72 .76 .76 .69 .62 .63 .65 .63 .61 Depository institutions 2.04 1.76 1.60 1.42 1.24 1.08 1.42 1.88 2.29 1.90 Foreign governments 1.22 1.03 .78 .75 .73 .67 .41 .30 .26 ,18 Agricultural production .98 .96 .96 1.01 1.02 .99 1.00 .96 .92 .90 Other fc»as.......,...., , 4.52 4.31 3.93 3.60 3.50 3.56 3:34 3.15 3.3<§ ite l^e-rmanetag receivables . , 1.06 1.10 1.12 1.09 1.03 .9S» 1,03 1.19 1.51 1.8? LESS Unearned income on loans -.50 -.48 -.42 -.36 -.28 -.21 -.16 -.14 -42 ^.09 LESS: Lois reserves' -1.61 -1.52 -1.57 -1.62 -1.60 -1.51 -1.36 -1.27 -131 -m Securities 18.45 18.39 19.09 20.70 23.52 25.37 24.27 2154 ma 20.41 Investment account 17.17 17.14 17.63 18.93 21.18 2Z50 21.60 19.38 18.20 17*23 Debt 17.17 16.84 17.37 18.62 20.82 22.12 21.21 18.97 17.75 IS73 US. Treasury 5.60 4.98 4.57 5.06 6.49 7.08 6.77 5.25 «0 im US. government agency and corporation obligations 4.88 6.04 7.56 8.75 9.86 10.73 10.24 9.8 < 9.75 9i74 Government-backed Mortgage pools .. 2.59 3.27 4.08 4.51 4.52 4.74 4.67 4.46 4.80 434 Coltateralized mortgage obligations ... n.a. n.a. 1.25 2.07 3.12 3.72 3.24 2J7 2.11 im Other 2.29 2.77 2.22 2.16 2.21 2,27 2,33 &® 2.S3 186 State and local government 3.69 3.15 2.64 2.28 2.08 2.06 2,02 1.80 1.68 1,59 Private mortgage-backed securities n.a. n.n. n.a. .94 .82 .73 .64 .62 .61 .50 Other 2.99 2.68 2.59 1.59 1.58 1.52 1.54 1.49 Mi im Equity' , n.a. .30 .27 .31 .37 .38 .39 .41 AS .50 Trading account .... 1.28 1.25 1.46 1.77 2.34 2.87 2.67 2.55 2,81 Gross federal funds sold and reverse RPs 4.55 4.33 4.46 4.58 4.54 4.27 3.82 3,93 3.82 5,18 Interest-bearing balances at depositaries 5.21 4.58 3.75 3.21 2.97 2.62 2.40 2^3 %m am Non-interest-emning assets 12.00 12.06 12.18 11.96 11.67 11.50 13,45 13iS2 1330 t£ft2 Revaluation gains on off-balance-sheet items3 .. n.a. n.a. n.a. n.a. n.a. n.a. 2.61 2,90 Z59 Other 12.00 12.06 12.18 11.96 11.67 11.50 10.84 10.62 10.95 10.82 Liabilities 93.84 93.64 93.60 93.33 92.82 92.15 92.12 9159 91.73 91.58 Interest-bearing liabilities , 75.40 76.02 76.53 76.58 75.32 73.92 71.86 71.87 71.62 71.37 Deposits ,, 62.06 62.58 63.44 64.45 62.94 60.26 57.34 56.28 55.87 55.01 In foreign offices 10.41 9.68 9.26 8.55 8.37 8.32 9,39 10.27 10.Q1 10.02 In domestic offices 51.66 52.90 54.18 55.90 54.56 51.94 47.96 46.01 45,86 44.99 Other checkable deposit's 6.25 6.12 6.19 6.72 7.65 8.24 7,80 6.63 4.73 3:62 Savings (including MMDAs) 17.60 16.28 16.59 18.00 20.28 20.91 19.60 17.47 18.71 19.13 Small-denomination time deposits 16.25 18.38 19.96 21.30 19.21 16.98 15.33 1414 15.97 15.17 Large-denomination time deposits 11.55 12.13 11.44 9.89 7.42 5.81 5.23 5.77 6.42 7.08 Gross federal funds purchased and RPs 8.02 8.22 8.03 7.09 7.02 7.47 7.60 7.70 7.18 8.13 Other -, 5.31 5.22 5.07 5.03 5.36 6.19 6.92 7.88 8.57 8,22 Non-interest-bearinf liabilities 18.45 17.62 17.07 16.75 17.50 18.23 20.26 20.12 20.1.1 20.21 Demand deposits in domestic offices 14.25 13.49 12.79 12.59 13.24 13.86 13.49 12.68 12,82 12.16 Revaluation losses on off-balance-sheet items1 n.a. n.a. n.a. n.a. n.a. n.a. 2.32 2.88 2.14 2u54 Other 4.20 4.13 4.27 4.16 4.27 4.37 4.45 4<57 5.14 5.41 Capital account 6.16 6.36 6.40 6,67 7.18 7.85 7.88 8.01 8.27 8.42 MEMO Commercial real estate loans n.a. n.a. n.a. 12.02 11.34 10.63 9.94 9.83 9.91 9.98 Other real estate owned .39 .39 .50 .75 .82 .63 .36 .19 .14 .11 Managed liabilities 35.83 35.78 34.31 31.05 28.70 28.28 29.61 32.10 3Z73 34,09 Average net consolidated assets (billions of dollars) 3,048 3,187 3,338 3,379 3,442 3.566 3,863 4,149 4,376 4,733 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 41', A.I I iiiiiinui\l A. All banks lion 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Effective interest rate (percent)4 Rales tamed Interest-earning assets 10.06 11.13 10.67 9.57 8.27 7.61 7.61 8.33 8.15 8.14 Taxable equivalent 10.27 11.29 10.80 9.69 8.37 7.71 7.70 8.40 8.23 8.21 Loans and leases, gross 10.87 12.02 11.49 10.40 9.20 8.69 8.62 9.25 9.0] 9.01 Net or loss provisions 9.81 10.44 9.94 8.72 7.87 7.87 8.12 8.73 8.40 8.34 Securities ", 8.38 8.73 8.79 8.18 7.04 6.08 5.96 6.50 6.42 6.50 Taxable equivalent 9.07 9.25 9.21 8.56 7.34 6.36 6.20 6.73 6.66 6.74 Investment account 8.07 8.55 8.67 8.25 7.11 6.07 5.79 6.34 6.35 6.45 US. government and other debt 8.25 8.83 8.92 8.43 7.18 6.07 5.80 6.42 6.47 6.60 Stale and local 7.39 7.45 7.39 7.25 6.81 6.25 5.87 5.81 5.56 5.41 Equity* n.a. 7.70 7.34 6.20 5-32 4.79 4.79 5.50 5.23 5.15 Trading account 12.63 11.11 10.15 7.53 6.40 6.16 7.41 7.73 6.87 6.76 Gross federal funds sold and reverse RPs 7.54 9.17 8.08 5.69 3.58 3.04 4.26 5.63 5.20 5.45 Interest-bearing balances at depositories .. 8.71 10.59 9.96 8.44 7.31 6.61 5.71 6.84 6.21 6.26 Rales paid Inlercst-bearin^ liabilities 7.28 8.53 8.04 6.54 4.75 4.01 4.01 4.99 4.82 4.92 Interest-bearingdeposits 6.86 7.87 7.57 6.34 4.51 3.65 3.53 4.47 4.34 4.39 In foreign offices 8.91 10.87 10.71 8.54 7.32 6.82 5.59 6.12 5.55 5.44 In domestic offices 6.45 7.32 7.02 6.00 4.07 3.14 3.14 4.11 4.07 4.16 Other checkable deposits 4.77 4.83 4.79 4.34 2.70 1.99 1.85 2.06 2.04 2.25 Savings (including MMDAs) 5.55 6.18 5.99 5.11 3.25 2.50 2.58 3.19 2.99 2.93 Large-denomination time deposits5 .. 7.49 8.66 8.03 6.69 4.90 4.00 4.09 5.46 5.40 5.44 Small-denomination time deposits' .. 7.34 8.29 7.97 6.93 5.15 4.19 4.17 5.44 5.40 5.54 dross federal funds purchased and RPs .. 7.43 9.20 7.97 5.75 3.64 3.07 4.18 5.64 5.12 5.17 Other interest-bearing liabilities 10.61 13.76 12.26 8.65 7.87 8.02 7.25 7.45 6.95 6.94 Income and expense as a percentage of average net consolidated assets Gross interest income 9.00 9.95 9.60 8.60 7.45 6.86 6.65 7.29 7.16 7.14 Taxable equivalent 9.18 10.08 9.71 8.70 7.54 6.94 6.73 7.35 7.22 7.20 Loans 6.66 7.46 7.15 6.36 5.40 5.00 4.91 5.48 5.48 5.40 Securities 1.38 1.47 1.53 1.56 1.51 1.37 1.25 1.23 1.16 1.11 Gross Federal funds sold and reverse RPs .35 .41 .38 .27 .17 .13 .17 .23 .21 .29 Other .61 .61 .54 .41 .37 .36 .33 .35 .32 .35 Gross interest expense 5.46 6,44 6.14 4.99 3.56 2.96 2.87 3.57 3.43 3.47 Deposits 4.28 4.94 4.84 4.13 2.87 2.23 2.05 2.54 2.46 X48 Gross federal funds purchased and RPs .62 .78 .68 .43 .27 .24 .32 .44 .38 .43 Other .56 .71 .62 ,43 .42 .50 .50 .58 .59 .56 Net interest income 3.54 3.51 3.46 3.62 3.89 3.90 3.78 3.72 3.73 3.67 Taxable equivalent , 3.72 3.65 3.57 3.71 3.98 3.98 3.86 3.79 3.79 3.72 Lost provisioning" .65 .98 .97 1.03 .78 .47 .28 .31 .37 .40 Noninterest income 1.50 1.62 1.67 1.81 1.95 2.13 2.00 2.02 2.18. 2.23 Service charges on deposits .31 .32 .34 .38 .41 .42 .40 .39 .39 .39 Income from fiduciary activities .25 .26 .27 .28 .30 Jl .31 .31 .33 .35 Trading income .12 .13 .15 .18 .iS .26 .16 .15 .17 .17 Interest rale exposures n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. .09 .08 Foreign exchange exposures n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. .06 Equity, commodity, and other exposures n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. .02 Other .82 .91 .91 .97 1.05 1.14 1.13 1.17 1.29 1.32 Noninlercst expense 3.38 3.42 3.49 3.75 3.86 3.94 3.75 3.64 3.71 3.61 Salaries, wages, and employee benefits . 1.55 1.55 1.56 1.59 1.61 1.64 1.58 1.54 1.55 1.53 Expense* of premises and fixed assets . .53 .52 .53 .53 .53 .52 .49 .48 .48 .47 Oilier 1.31 1.35 1.41 1.62 1.72 1.78 1.68 1.62 1.69 1.62 Net noninterest expense 1.88 1.80 1.83 1.94 1.91 1.81 1.75 1.62 1.54 1.38 Realized gains on investment account securities .01 .03 .01 .09 .11 .09 -.01 .01 .03 .04 Income before taxes and extraordinary items ... 1.02 .76 .68 .73 1.32 1.70 1.73 1.81 1.85 1.93 Taxes .33 .30 .23 .25 .42 .56 .58 .63 .65 .68 Extraordinary items .03 .01 .02 .03 .01 .06 * * Net income (return on assets) .71 .47 .47 .51 .91 1.20 1.15 1.18 1.20 1.25 Cash dividends declared .44 .44 .42 .45 .41 .62 .73 .75 .91 .90 Retained income .28 .02 .05 .07 .49 .58 .42 .43 .30 .35 MEMO: Return on equity 11.60 7.33 7.31 7.71 12.64 15.32 14.63 14.69 14.53 14.87 * In absolute value, less than 0.005 percent. n.a. Not available. MMDA Money markei deposit accouni. RP Repurchase agreemeni. CD Certificate of deposit. 1. Includes Ihe allowance for loan and lease losses and ihe allocated transfer risk reserve. 2. As in the Call Reports, equity securities are combined with "other debt securities" before 1989. 3. Before 1994, the nelted value of off-balance-sheet ilems appeared in "trading account securities" if a gain and "other non-interest bearing liabilities" if a loss. 4. When possible, based on the average of quarterly balance sheel data reported on schedule RC-K of the quarterly Call Reports. 5. Before 1997, data for large time open accounts are included in small-denomination time deposits. 6. Includes provisions for loan and lease losses and lor allocated transfer risk. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

412 Federal Reserve Bulletin • June 1998 A._\ I'm Iliiliv) omiiKiMliun, ink'icsl r;:k'v iiid inamie and :.S. hunk-.. B. Ten largest banks by assets Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Balance sheet items as a percentage of average net consolidated assets Interest-earning assets 85.22 85.16 84.85 85.41 85.16 84.79 76.97 77.02 79.94 81.61 Loans and leases, net 58.69 59.66 61.69 62.14 58.34 55.57 49.91 50.05 5351 50.90 Commercial and industrial 23.36 22.61 22.91 22.42 20.32 18.65 1643 16.16 17.17 16.90 US. addressees 13.01 13.18 13.39 13.44 12.00 10.75 9.16 8.66 959 10.24 Foreign addressees 10.36 9.43 9.53 8.97 8.32 7.90 121 7.50 7.59 6.65 Consumer 6.19 6.21 6.87 7.20 7.31 7.33 659 6.60 6.22 6.40 Credit card , 2.08 1.99 2.20 2.53 2.61 2.50 2.28 1.96 1.23 134 Installment and other 4.10 4.22 4.67 4.67 4.70 4.83 4.31 4.65 4.99 5.06 Real estate 15.46 18.02 20.56 21.68 19.93 1834 16.21 15.82 1653 17.42 In domestic offices 12.80 15.05 17.36 18.37 17.07 15.99 13.80 13.48 14.44 15.69 Construction and land development 3.48 3.60 3.79 3.42 2.48 1.59 .84 .58 51 .68 Farmland .06 .08 .08 .08 .07 .07 .06 .06 .06 .09 One- to four-family residential 5.83 7.45 9.31 10.34 10.08 10.29 9.69 9.62 10.43 11.02 Home equity .76 1.04 1.31 1.63 1.63 1.60 1.40 1.40 153 1.70 Other 5.07 6.41 8.00 8.71 8.46 8.68 8.29 8.22 8.90 9J1 Multifamily residential .65 .68 .68 .57 .58 .53 .41 .38 .38 .39 Nonfarm nonresidential 2.78 3.23 3.51 3.95 3.86 3.51 2.79 2.83 3.05 352 In foreign offices 2.66 2.97 3.20 3.32 2.85 2.55 2.41 2.35 2.09 1.73 Depository institutions 5.21 4.56 3.64 3.05 2.56 2.35 3.37 4.95 6.06 4.14 Foreign governments 3.63 3.34 2.76 2.88 2.75 2.46 1.27 .90 .69 .45 Agricultural production .33 .31 .31 .31 .28 .27 .25 .21 23 31 Other Joans 6.23 6.36 6.05 5.61 6.05 6.82 6.44 5.85 6.42 42! Lease-financing receivables 1.44 1.49 1.60 1.68 LSI 1.30 1.14 1.14 159 234 Less: Unearned income on loans -.43 -.45 -.39 -.35 -.27 -.21 -.16 -.14 -.11 -.07 LESS: LOSS reserves' -2.74 -2.77 -2.63 -2.34 -2.08 -1.94 -1.63 -1.45 -1.31 -1.09 ' Securities 12.96 13.13 14.03 15.58 19.13 22.74 20.43 19.53 19.83 20.00 Investment account 8.67 9.05 9.22 9.38 10>70 12.45 11.68 lti.65 10.60 10.97 Debt 8.67 8.83 8.98 9.08 10.36 12.08 11.30 10.27 10.22 1055 US. Treasury 1.41 1.29 1.09 135 2.30 2.39 2.17 2.03 1.93 156 US. government agency and corporation obligations 1.94 2.29 2.91 3.46 4.45 6.14 5.16 4.46 459 5.34 Government-backed mortgage pools .. 1.84 2.07 2.24 2.26 2.43 3.30 2.79 2.89 358 4.26 Collateralized mortgage obligations -.. n.a. n.a. .54 1.12 1.97 2.76 2.31 1.50 .95 .93 Other .10 .22 .14 .08 .05 .08 .06 .08 .06 .15 State and local government 1.80 1.58 1.08 .77 .66 .59 .60 .49 .39 51 Private mortgage-backed securities n.a. n.a. n.a. .48 .33 .38 .43 .32 .30 .32 Other 3.52 3.68 3.90 3.01 2.62 2.59 2.94 2.97 3.01 2.81 Equity2 n.a. .22 .24 .30 .33 .36 .38 .38 .38 Al Trading account 4.29 4.08 4.81 6.19 8.43 10.30 8.74 8.88 9.23 9.03 Gross federal funds sold and reverse RPs 4.61 4.12 2.88 2.96 3.23 2.71 2.68 3.20 3.10 756 Interest-bearing balances at depositories 8.97 8.26 6.25 4.74 4.45 3.76 3.95 4.25 3.50 3.15 Non-interest-earning assets 14.78 14.84 15.15 14.59 14.84 15.21 23.03 22.98 20.06 18.39 Revaluation gains on off-balance-sheet items' .. n.a. n.a. n.a. n.a. n.a. n.a. 9.89 10.77 7.63 7.37 Other 14.78 14.84 15.15 14.59 14.84 15.21 13.14 12.21 12.43 11.02 Liabilities 95.41 95.11 95.29 94.97 94.44 93.24 93.42 93.59 93.04 92.61 Interest-bearing liabilities 73.76 74.17 73.97 74.62 73.08 71.56 64.33 63.37 64.45 65.82 Deposits 57.67 57.56 57.95 57.67 55.73 52.91 48.20 47.49 47.87 47.36 In foreign offices 31.49 30.08 29.66 28.47 27.16 25.51 26.10 28.36 26.41 22.18 In domestic offices 26.18 27.49 28.28 29.19 28.56 27.41 22.10 19.12 21.46 25.18 Other checkable deposits 2.68 2.70 2.74 3.00 3.38 3.45 2.91 2.30 1.61 1.21 Savings (including MMDAs) 11.42 11.32 12.05 13.50 14.91 15.33 12.70 10.56 12.31 14.26 Small-denomination time deposits 5,03 5.64 6.16 6.55 5.72 5.09 3.98 4.04 4.68 S.82 Large-denomination time deposits 7.05 7.82 7.33 614 4.56 3.53 2.51 2.23 2.86 3.89 Gross federal funds purchased and RPs 6.40 6.72 6.90 6.80 6.19 6.70 5.83 6.17 5.88 10.26 Other 9.69 9.89 9.13 10.15 11.16 11.94 10.29 9.71 10.69 8.20 Non-interest-bearing liabilities 21.65 20.94 21.32 20.35 21.36 21.68 29.09 30.22 2859 26.79 Demand deposits in domestic offices 11.93 11.60 10.93 10.36 11.05 11.27 10.15 8.88 9.73 8.98 Revaluation losses on off-balance-sheet items1 n.a. n.a. n.a. n.a. n.a. n.a. 8.7S 10.68 7.27 753 Other 9.71 9.34 10.39 9.99 10.30 10.41 10.20 10.66 11.59 10.27 Capital account 4.59 4.89 4.71 5.03 5.56 6.76 658 6.41 656 739 MEMO Commercial real estate loans n.a. n.a. n.a. 9.05 8.01 6.46 4.65 4.40 4.65 5.44 Other real estate owned .22 .23 .42 .78 1.13 1.02 58 .27 .18 .13 Managed liabilities 56.41 56.13 54.79 53.23 50.82 49.23 46,21 47.94 47.39 46.02 Average net consolidated assets (billions of dollars) 685 693 725 717 775 818 949 1,051 1,189 1515 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 413 A 1. — ( nuliiukxl B. Ten largest banks by assets Hem 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Effective interest rule (percent)4 Rates tamed Interest-earning assets 10.76 1231 11.65 9,92 8.67 8.15 8.20 7.7J Taxable equivalent 10.88 1231 11.70 9.95 fc72 8.20 8.18 »32 7.74 Loom and leases, gross 1135 13.19 12.29 10.46 936 9.07 8.89 8.84 832 8i25 Net of loss provisions 10.70 10:87 11.10 8.58 731 7.95 8.38 862 8.11 7.93 Securities 10.54 10.11 9.85 8.52 738 6.69 7.09 7.4t 6.80 6.70 Taxable equivalent 11.05 10.08 10.00 8.63 734 6.77 7.19 7.47 6.85 6.85 Investment account 8.70 9.20 934 $.99 7.96 6.90 6.57 7.06 MX 6.61 US. government and other debt 8.9S 9.60 9.68 9.29 9,13 6.99 6.70 7.22 6.86 6.80 Stale and local 7.74 7.69 754 7.6? 7.40 6.99 635 6JB 5.73 5.55 n.a. 7.03 5.82 4.22 4M 3:72 3.27 4.03 3.84 3147 Trading account , 14.33 1113 lO;7S 734 <fc6* 645 7.79 7.83 6.90 6.81 Gross federal funds sold and reverse RPs 731 8,98 8.01 5.60 3.65 m 4.52 5.20 4.92 5i45 Interest-bearing balances at depositories 9.13 10.88 11.06 10JJ5 9J 7.27 7.15 6.71 6.91 Rata paid 834 Interest-bearing liabilities 8,75 10.74 10.18 7.71 3.60 5.41 5.88 5.44 SAI Interest-bearing deposits 7.77 94? 9.03 7.09 4i50 432 4.99 4J7 4.54 in foreign offices 9.00 10.96 11.11 8.76 mi 6.04 6.07 5.62 S;S2 In domestic offices 6.28 7.28 6.81 *47 235 3.42 3.32 349 Other checkable deposits , <U3 4*40 435 3.93 236 1.10 1.29 1.32 L97 Savings (including MMDAs) 5,55 <W» 6.21 5# m 1,28 135 3.U 176 168 Large-denomination time deposits' 7,75 8.87 7.9$ 6J0 2,1* 3.12 3.73 4.62 5.17 Small-denomination time deposits* 7.11 8.26 7.76 3.55 180 5.08 4J8 SAi Gross federal funds purchased and RPs 7.43 9.27 7.75 3M 4J08 5.22 •4.93 5.02 Other interest-bearing liabilities 14.02 1931 17.2? 1L20 326 10.87 9.80 8.86 9.13 iLliS Income and expense u a pemeowge of avenge net consolidated aisets Cross interest income 932 1032 10.37 8.77 «.37 6.42 6.31 Taxable equivalent 9.63 10.83 10.43 8.80 6.40 6.43 6X1 633 Loans 6.93 823 756 «,I77 552 4.49 4.44 4.48 431 Securities .75 .83 -86 .86 .77 .75 .71 n Grosx federal funds sold and reverse RPs .40 37 35 .11 .15 .21 .18 Other 1.44 139 130 1.04 .97 t.00 .88 A5 Gr D os e s p o in s t i e ts rest expense 6 4 J J J 6 m 7 5 . . 6 4 S 1 4 1 , 8 2 1 3 2 4 . . 4 06 8 3 1 4 1 5 5 2 3 2. . 4 7 3 4 3 2 3 M 2 3 . J 8 5 2 Gross federal funds purchased and RPs .58 5.37 .64 .43 M .24 35 31 126 Other 1.37 .72 1.60 1.15 135 1.13 .95 .95 .75 Net interest income 3.01 1.92 2:72 296 3.16 186 2.68 173 176 Taxable equivalent 3.12 1 2, 8 8 2 2 177 2.99 3.19 188 170 ITS 17* Loss provisioning* .40 1.45 .77 .64 .26 .11 •16 Noninlercst income 2.07 119 127 140 199 133 112 Service charges on deposits .19 32 •36 30 .26 .32 T In r c a o d m in e g f i r n o c m om fi e duciary activities ...., . .4 2 1 3 m 3 .5 1 2 3 •6 3 4 3 .9 9 1 31 3 .4 4 3 Inieresi rate exposures At n.a. tWL Foreign exchange exposures na. its. DA •17 Equity, commodity, and other exposures. aa. TU- rua. *5 Other 1,24 aa. iat 1.16 138 1.18 US 1104 Non 3.29 1J9 335 3.83 4.13 3.56 f isi 33* Salaries, wages, and employee benefits 1.63 3.43 1.74 1.79 IM 137 1.45 Expense* of premises and fixed i .60 1.66 .65 .66 .66 -50 .47 1.05 .62 138 133 Net noninterest expense 1.21 1.15 1 1 . . 1 2 6 8 1.44 1 I . J 1 9 4 wo L 1. 3 1 4 6 1.23 1.12 R In e c a o l m ize e d b g ef a o i r n e s t o a n x e in s v a e n st d m e e x n tr t a a o c r c d o in u a n r t y s e it c e u m ri s t ie .. s . 1 . . 0 4 3 3 1 . . 0 2 3 4 . . 6 0 9 2 3 .0 4 4 I . J 1 O 3 1 . 3 0 9 2 1 T .4 0 4 3 1 . . 0 4 4 4 1^ .0 5 8 6 T E a xt x r e a s ordinary items . .0 4 8 4 3 . . 0 1 8 3 6 X .0 > 6 . . 1 0 7 3 . . 5 1 3 6 k AS • J55 J58 Net income (return on assets) 1.07 -.19 .48 .21 1.13 .88 .92 ,98 Cash dividends declared .38 37 •26 .21 .28 J7 .70 82 Retained income 69 -SI .21 * .85 33 31 51 MEMO: Return on equity 23.30 -3.92 10.13 4.23 10.91 16.75 13.86 13.78 13.21 1321 * In absolute value, less than 0.005 percent. n.a. Not available. MMDA Money market deposit account. RP Repurchase agreement. CD Certificate of deposit. 1. Includes the allowance for loan and lea.se losses and the allocated transfer risk reserve. 2. As in the Call Reports, equity securities are combined with "other debt securities" before 1989. 3. Before 1994, the netted value of off-balance-sheet items appeared in "trading account securities" if a gain and "other non-interest bearing liabilities" if a loss. 4. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Reports. 5. Before 1997, data for large time open accounts are included in small-denomination time deposits. 6. Includes provisions for loan and lease losses and for allocated transfer risk. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

414 Federal Reserve Bulletin • June 1998 A \ I 'i il I 11 I i >. i il M ] K v,| I h l|! 'Hkl'.-.l ;,lk'N .11 M. I ![H .,(1 I. S kmkv I'JSS '»? C. Banks ranked 1 lih through 100th by assets [am 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Balance sheet items as a percentage of average net consolidated assets Interest-earning assets , 87,23 86,91 86.81 86.88 87.97 8836 88.16 8831 87.75 86.95 Loans and leases, net ,,.,......,.,........,. 61.99 62.61 61.22 60.08 58.30 5733 58.56 62.68 64.24 63.85 Commercial and industrial 23.45 22.75 21.76 20.53 18.83 18.03 18.03 19.26 18.95 19.00 US, addressees 21.43 21.23 20.44 19.30 17.78 17.05 16.99 18.10 17.71 17.77 Foreign addressees .,, , 2.02 1.53 1.33 1.24 1.05 .98 1,04 1.16 1.24 1.22 Consumer 12.20 12.97 12.25 11.66 11.72 11.47 1X62 14.23 15.67 15.63 Credit card , 4.85 5.82 5.48 5.04 5.16 5.23 5.99 7.34 8.26 8.52 Installment and other ,,., 7.35 7.16 6.76 6.62 6.56 6.24 6.63 6.89 7.40 7.11 Real estate , ., 17.94 19.09 20.21 21.51 21.89 22.11 2126 23.25 23.26 22.97 In domestic offices 17.65 18.85 20.04 21.37 21.78 2X01 22.17 23.10 23.10 22.82 Construction and land development .., 5.27 5.25 4.91 4.00 3.02 2,08 i.63 1.50 1.55 1.69 Farmland ..... -. ....... .11 ,12 .12 .12 .14 .13 .14 .13 .13 .14 One- to four-family residwsiaj 6.85 7.54 8.53 10.17 11.36 12.30 12.98 14.16 14.15 13.87 Home equity 1.17 1.41 1.67 2.07 2.50 X54 233 2.19 2.08 2.22 Other 5.68 6.13 6.S6 S.10 8.83 9.76 10.65 11.97 12.07 11.65 Multifamily residential .43 .45 .46 .54 .66 .71 .71 .77 .89 .93 Nonfarm nonresidential - 4.99 5.49 6,01 6.53 6.61 6.79 6.72 6.54 6.37 6.19 In foreign offices ................ .29 .24 .18 .14 .11 .10 .09 .15 .16 .15 Depository institutions ., , 1,84 1.55 1.57 1.58 1.43 1.30 1.49 1.59 1.50 1.27 Foreign governments T 1.22 .88 .52 .39 .33 ,30 .28 .20 .20 .09 Agricultural production .29 .29 .28 .31 .31 .29 29 .26 .28 .28 Other loans ,..., 5.54 5.17 4.82 4.55 4.28 4,05 3.47 332 3.30 3,21 Lease-financing receivables 1.69 1.73 1.67 1.53 1.49 1.47 1.60 1.96 2.41 2.69 LESS: Unearned income on loans -37 -.34 -.26 -22 -.17 -.11 -.07 -.07 -.06 -.05 LESS Loss reserves1 -1.80 -L4S -1,60 -1.76 -1.79 -1.60 -1.41 -1.32 -127 -1.24 Securities , ,, 15.54 15.21 16.19 17.38 20.38 21.97 21.19 18.64 16.87 15.82 Investment account , 14,73 14.38 15.32 16.25 19.24 20.60 19.82 17.88 16.06 15.08 Debt 14,73 14,15 15.14 16.02 18.99 20.34 19.50 17.51 15.62 14.59 U.S. Treasury 4.89 4.10 3,42 3.78 5.88 7.05 6.85 4.82 3.34 2.82 U.S. government agency and corporation obligations 3.58 5.01 7.42 8.43 9.26 9.55 9.28 9.40 9.12 8.9$ Government-backed mortgage pools 2.96 4.03 5.32 5.38 5.22 5.21 5.30 5.06 5.42 5.(7 Collaleralized mortgage obligations . n.a, n,a. 1.56 2.48 3.54 3.71 3.07 2.82 2.16 2.13 Other .61 .98 .54 .57 .50 .63 .91 1.51 1.54 1.69 State and local government 3,32 2.70 2.03 1.63 1.46 131 1.21 1.11 .99 .88 Private mortgage-backed securities .... n,a. n.a. n.a. 1.09 1.05 1.06 .93 1.02 .96 .73 Other 2.94 2.34 2,27 1.10 1.34 137 1.22 1.16 1.21 1.18 Equity2 n.a. .23 .18 .22 ,25 .26 32 37 .44 .49 Trading account .82 .83 .88 1.13 1.14 1.37 1.37 .76 .80 .73 Gross federal funds sold and reverse RPs 3.68 3.71 4.41 4.90 4.78 4.98 5.11 4.52 4.26 4.39 Inlerest-bearing balances at depositories 6.01 5.38 4.98 4.51 4.52 4.08 3.30 2.47 2.38 2.89 Non-interest-earning assets 12.77 13.09 13.19 13.12 12.03 11.64 11.84 11.69 12.25 13.05 Revaluation gains on off-balance-sheet items3. tt.a. n.a. n.a. na. n.a, n.a. .57 JO .51 .69 Other 12.77 13.09 13.19 13.12 12.03 11.64 11.28 11.18 11.75 1236 Liabilities 94.77 94.45 94.35 93.93 93.13 92.56 92.47 92.23 92.02 91.84 Interest-bearing liabilities , 75.34 76.23 77.02 76.07 74.66 73.38 72.86 74.05 73.14 7163 Deposits 55.02 56.45 57.46 59.24 56.99 54.22 53.03 52.32 51.81 51.46 In foreign offices 9.68 8.63 7.84 6.69 6.20 6.78 8,05 8,12 7.52 7.84 In domestic offices 45.34 47.82 49.62 52.54 50,79 47.43 44.98 44.20 44.30 43,62 Other checkable deposits 4,68 4.67 4.75 5.36 6.26 7.21 6.91 5.62 3.06 1.94 Savings (including MMDAs) 15.67 14.58 15.50 17.62 20.21 20.60 20.13 18.78 20.76 21.08 Small-denomination time deposits 11.05 13.49 15.59 17.99 15.98 14.19 13.26 14.24 14.09 13.43 Large-denomination time deposits ...... 13.95 15.08 13,78 11.56 8.34 5.44 4.68 5.55 6.39 7.17 Gross federal funds purchased aad RPs 13,72 13.22 13.03 10.94 11.43 11.93 11,48 1137 10.00 9.35 Other 6.59 6,57 6.S3 5.89 6.22 7.23 834 1036 1132 11.81 Non-interest-bearing liabilities 19,44 18.22 17.33 17.87 18.47 19.18 19.62 18.18 18.89 19.21 Demand deposits in domestic offices 15.04 13.86 13.23 13.76 15.38 15.27 14.26 14.47 14.16 Revaluation losses on off-baiance-sheet items* n.a, n.a. n.a. n.a. n.a. n.a. .53 .49 .49 .68 Other 4.40 4.36 4.10 4.10 3.95 3.80 3.82 3,43 3.93 4.37 Capital account S.23 5,55 5.65 6,07 B.S7 7.44 7J3 7:77 7.M MEMO Commercial real estate loans ,.. n.a, n.a. n.a. 11.83 11.09 10.29' 9.69 9,42 «8 ft.42 Other real estate owned .31 .30 .46 .76 .70 .47 .25 .13 .08 .06 Managed liabilities 44.37 43.90 41.59 35.49 32.59 31.76 32.89 35,68 MM Average net consolidated assets (billions of dollars) 870 940 995 1,006 1,003 1,082 1,204 1,338 1,450 1,664 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 415 A. 2.—Conlinuuii C. Banks ranked I llh through 100th by assets Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Effective interest rate (percent)4 Roles earned Interest-earning assets 9.89 11.10 10.46 9.30 7.97 7.35 7.29 8.31 8.17 831 Taxable equivalent 10.10 11.27 10.55 9.39 8.07 7.45 7.37 8.37 8.24 836 Loans and leases, gross 10.50 11.74 11.09 9.96 8.75 8.25 8.22 9.10 8.89 9.02 Nel of loss provisions 9.21 9.87 9.08 7.98 7.45 7.46 7.68 8.49 8.06 8.11 Securities 8.22 8.76 8.86 8.23 7.00 6.05 5.70 6.38 6.42 6.50 Taxable equivalent 8.93 936 9.18 8.57 7.30 6.32 5.92 6.56 6.66 6.69 Investment account 8.25 8.77 8.92 8.37 7.12 6.14 5.70 6.34 6.42 6.52 VS. government and other debt 8.53 9.09 9.18 8.51 7.16 6.14 5,69 6.38 6.50 6.63 Slate and local 7.29 7.41 7.32 7.23 6.80 6.30 6.04 6.05 5.85 5.S8 Equity1 n.a. 8.73 8.09 7.36 6.71 5.20 5.00 5.68 4.84 5.06 Trading account 7.68 8.66 8.01 6.46 4.73 4.74 5.75 7.27 6.57 6.05 Gross federal funds sold and reverse RPs 7.76 9.35 8.15 5.80 3.70 3.11 4.31 5.91 5.31 145 Interest-bearing balances at depositories .. 8.88 11.35 9.72 8.15 6.76 6.50 4.69 6.78 5.84 5.76 Raits paid Interest-bearing liabilities 7.36 8.66 7.96 6.41 4.43 3.76 3.72 4.94 4.71 4.79 InteresMwaring deposits 7.02 8.14 7.55 6.27 4.30 3,51 3.25 4.35 4.16 4.22 In foreign offices 8.92 1J.08 10.08 8.39 7.26 7.37 4.60 6.30 5.31 5.23 In domestic offices 6.62 7.6! 7.15 6.01 3.96 2.98 3.03 4.01 3.97 4.05 Other checkable deposits 4.54 4.57 4.67 4.21 2.43 1.70 1.62 1.89 1.79 2.00 Savings (including MMDAs) 5.64 6.42 6.07 5.04 3.07 2.33 2.46 3.11 2.91 2.84 Large-denomination time deposits5 .. 7.71 8.75 8.11 6.77 5.10 4.30 4.21 5.70 5.50 5.46 Small-denomination time deposits' .. 7.58 8.72 8.09 6.96 5.07 4.06 4.18 5.35 5.27 5.43 Gross federal funds purchased and RPs .. 7,50 935 8.12 5.75 3.57 3,04 4.28 5.86 5.20 530 Other interest-bearing liabilities 8.62 10.23 9.27 6.55 5.77 5.97 5.24 6.43 5.95 5.84 Income and expense as a percentage of average net consolidated assets Gross interest income 8.74 9.77 9.31 8.24 7.12 6.58 6.46 7.40 7.25 7.26 TMtblc equivalent 8.92 9.91 9.39 8.31 7.19 6.64 6.51 7.46 7.29 7.30 Loans 6.70 7.51 7.01 6.15 5.23 4.84 4.91 5.79 5.81 5.87 Securities 1.21 1.26 1.37 1.36 1.37 1.26 1.13 1.13 1.03 .98 Gross federal funds sold and reverse RPs .26 .36 .38 .28 .18 .15 .21 .27 .23 .22 SI .65 .56 .45 .34 .32 .21 .21 .18 .19 Gross interest expense 5.47 6.50 6.08 4.80 3.26 2.74 2.67 3.62 3.40 341 Deposits 3.87 4.59 4.36 3.75 2.48 1.93 1.73 2.29 2.19 2.23 Grass federal funds purchased and RPs 1.03 1.24 1.12 .67 .43 .38 .51 .67 .55 .51 Other .56 .66 .60 .38 .35 .43 .43 .66 .67 .68 Net'nuewstineome 3.27 3.27 33 3.43 3.86 3.84 3.79 3.78 3.85 3.85 Taxable equivalent . 3.46 3.41 3.31 3.51 3.93 3.91 3.85 3.84 3.89 3.89 Loss provisioning 6 1.20 1.27 1.22 .78 .47 .32 .39 .54 .60 Noninterest income 1.62 1.86 1.84 2.05 2.25 2.29 2.25 2.38 2.61 2.76 Service charges on deposits .31 .31 .34 .41 .44 .46 .45 .44 .44 .44 Income from fiduciary activities .35 .35 .33 .36 .38 38 .39 .40 .43 .44 Trading income .07 .08 .08 .10 .09 .14 .08 .09 .08 .08 Interest rate exposure* n.a. na. n.a. n.a. n.a. n.a. n.a. n.a. m .02 Foreign exchange exposures n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. .05 Equity, commodity, and other exposures. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. .04 Otter .89 1.12 1.09 1.19 1.33 1.32 1.33 1.45 .01 1.80 1.67 Noninterest expense 3.30 3.M 3.44 3.77 3.98 3.95 3.86 3.79 3.86 3.85 Salaries, wages, and employee benefits . 1.48 1.47 1.47 1.52 1.53 1.52 1.50 1.47 1.51 1.51 Expenses of premises and fixed assets . .50 JO .50 .51 .49 .47 Al .47 .46 Ofci 1.32 1.37 1.48 1.74 1.95 1.95 1.89 1.85 .48 1.88 1.87 1.68 1.47 1.60 1.73 1.73 1.65 1.61 1.41 1.09 1.24 ReaBwd gains on investment account securities .04 .03 .14 .15 .09 -.01 .02 .02 .02 Income before taxes and extraordinary items ,.. .77 .65 .38 .62 1.50 1.81 1.85 2.01 2.09 2.19 .28 .18 .15 .19 .48 .56 .63 .70 .75 .77 .02 .01 .03 .03 * * * Net income (return on assets) .51 .47 .24 .47 1.04 1.25 1.22 1.31 1.34 1.42 C»»hdrvidendsdeclared ... .42 .40 .38 .47 .46 .76 .86 .85 1.09 .94 Retained income .99 J36 -.14 .58 .49 .36 .46 ,25 .48 MBMOi Return on equity 9.67 8.41 4.18 7.71 15.16 16.86 16.27 16.84 16.79 17.37 * In absolute value, less than 0.005 percent. n.a. Not available, MMDA Money market deposit account. RP Repurchase agreement. CD Certificate of deposit. 1. Includes the allowance for loan and lease losses and ihe allocated transfer risk reserve. 2. As in the Call Reports, equity securities are combined with "other debt securities" before 1989. 3. Before 1994. the netted value of off-balance-sheet items appeared in "trading account securities" if a gain and "other non-interest bearing liabilities" if a loss. 4. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Reports. 5. Before 1997, data for large lime open accounts are included in small-denomination time deposits. 6. Includes provisions for loan and lease losses and for allocated transfer risk. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

416 Federal Reserve Bulletin • June 1998 A 2. I'liiili'lin I'liinpiiMlHMi. mlcrcM i.ilrv ;itid IIILDIDL1 LLIU] C\!icnsc. j\\ I S banks. D. Banks ranked 101st through 1,000lh by assets Item 1988 198? 1990 1991 1992 1993 1W* ms 1996 1997 Balance sheet itfms ,u a pcrcentagp. of average net consolirtutBd assets Interest-earning assets 88.88 88.98 88.84 88.91 89.02 89.55 90.09 90.13 90.13 90 31 Loans and leases, net 63.03 63.62 63.09 61.03 58.49 57.94 59.75 62.23 62.62 62.28 Commercial and industrial 17.83 17.68 16.69 15.05 13.33 12.19 12.07 12.68 12,79 12.46 U.S. addressees 17.67 17.53 16.56 14.89 13.16 12.03 11.90 12.52 12.61 12.23 Foreign addressees .16 .15 .13 .16 .18 .16 .16 .16 .18 33 Consumer 15.91 15.49 15.48 15.10 14.18 14.83 15.85 16.38 15.S8 13.98 Credit card 4.83 5.22 5.71 5.37 5.63 6.06 6.45 6,66 5.45 Installment and other 10.70 10.66 10.26 9.40 8.80 9.20 9.79 9.94 9.22 8.53 Real estale 24.28 25.97 27.01 27.53 28.11 28.61 29.42 30.77 31.37 33.25 In domestic offices 24.27 25.95 26.99 27.48 28.07 28.59 29.39 30.75 31.34 33.23 Construction and land development ... 4.73 4.82 4.37 3.67 2.86 2.26 Z08 2.2) 2.38 2.69 Mainland .27 .27 .28 .28 .32 .34 .36 .40 .46 .53 One- to four-family residential 10.64 11.56 12.49 13.23 14.26 15.17 16.24 17.47 17.34 (8.16 Home equity 1.73 2.08 2.31 2.53 2.56 2.50 2.33 2.36 2.31 2.31 Othei 8.91 9.48 10.18 10.70 11.69 12.67 13.91 15.11 15.03 15.86 Multifacnily residential .67 .70 .73 .80 .96 1.07 1.13 1.21 1.29 1.29 Nonfarm nonresidenlial 7.97 8.61 9.11 9.50 9.69 9.75 9.57 9.46 9.87 Ifl.56 In foreign offices .01 .01 .03 .05 .04 .02 .03 .02 .02 .02 Depository institutions 1.01 .92 1.05 .93 .80 ,43 .40 .35 .48 .60 Foreign governments .20 .16 .09 .07 .05 .03 .02 .02 .02 .02 Agricultural production .47 .45 .47 .49 .54 .56 .62 .69 .71 .74 Other loans 4.23 3.77 3.16 2.81 2.47 2.16 2.0! 1.80 1.70 L51 Lease-financing receivables .78 .82 .83 .85 .78 .77 .83 .90 1.01 1,00 Lass: Unearned income on loans -.60 -.56 -.50 -.40 -.30 -.21 -.15 -.12 -.10 -.10 LESS: LOSS reserves' -1.07 -1.07 -1.20 -1.42 -1.49 -1.44 -1.30 -1.23 ~r.22 -US Securities 18.52 18.75 19.34 21.28 24.13 25.92 2S.71 23.06 22.68 13.45 Investment account 18.25 18.38 18.87 20.92 23.78 23.64 25.40 22.86' 22.56 23.34 Debt 18.25 18.02 18.54 20.55 23.32 25.16 24.95 22.39 22.04 22.73 U.S. Treasury 6.52 5.91 5.44 6.16 7.75 8.64 8.26 6.47 5.61 4.95 U.S. government agency and corporation obligations 4.81 6.07 7.75 9.35 11.08 12.32 12.67 12.21 12.66 13.96 Govemmenl-backed mortgage pools 2.33 3.03 3.83 4.51 4.74 4.97 5.57 5.42 5.69 6.23 CoIIateralized mortgage obligations .... n.a. n.a. 1.72 2.74 3.95 4.82 *.39 3.55 3.12 3,02 Other 2.48 3.04 2.19 2.11 2.39 2^3 2,71 3.25 3.85 4.72 Stale and local government 4.10 3.50 3.11 2.65 2,27 2.26 2.29 2.13 2.24 2.45 Private mortgage-backed .securities .... n.a. n.a. n.a. 1.16 1.01 .84 .75 .68 .76 .59 Other 7 2.82 2.55 2.25 1.23 1.21 1.10 .99 .89 .77 .78 Equity2 n.a. .35 .32 .37 .46 .48 .44 .47 .52 .61 Trading account .28 .38 .4« .37 .35 .28 .31 .20 .12 .10 Gross federal funds sold and reverse RPs .... 4.45 4.11 4.51 4.71 4.92 4.48 3.64 3.91 3.87 3.59 Interest-bearing balances at depositories 2.87 2.49 1,90 1.90 1.47 1.20 .98 .93 .96 .99 Mon-interest-earning assets 11.12 11.02 11.16 11.09 10.98 10.45 9.91 9.87 9.87 9.69 Revaluation gains on off-balance-sheet items3 n.a. n.a. n.a. n.a. n.a. n.a. .02 .05 .02 Other 11.12 11.02 11.16 11.09 10.98 10.45 9.90 9.83 9.85 9.69 Uabttities 93.34 93.28 93.07 92.89 92,47 91.85 91.62 91.36 91.06 90.7? Interest-bearing liabilities 75.59 76.42 •77.04 77.25 75.98 74.42 74.77 75.02 75.06 75.18 Deposits 63.00 63.74 65.05 66.33 65.66 63.03 60.38 59.39 59.99 61.50 (n foreign offices 2.04 2.09 1.65 1.76 (.56 1.43 1,69 1.71 1.33 1.24 In domestic offices 50.97 61.65 63.40 64.58 64.10 61.62 58.69 57.87 58.66 6026 Other checkable deposits 7.39 7.14 7.31 7.83 9.14 9.94 9,70 8.53 6.21 4.99 Savings (including MMDAsi 21.27 1942 19.69 20.79 23.34 24-06 22.92 20.72 22.50 23.60 Small-denomination time deposits 19.34 22.08 24.09 25.23 23.56 20.77 19.29 21.08 21.61 22.04 Large-denomination time deposits 12.96 12.91 12.31 10.73 8.06 6.85 6.78 7.55 834 9.65 Cross federal funds purchased and RPs 8.63 9.21 8.43 7.46 7.17 7.43 8.4S 8.30 8.19 7.09 Other .1.96 3.47 3.56 3.45 3.15 3.93 5.94 7.14 6.88 6.59 Non-interest-bcaring liabilities 17.74 16;85 16.03 15.64 16.49 17.43 16.85 16.34 16.00 1S.62 Demand deposits in domestic offices 15.84 14,86 14.07 13.57 14.39 15.07 14.58 14.05 13.84 13.17 Revaluation losses on off-balance-sheet items'. n.a. n.a. n.a. n.a. n.a. n.a. .02 .05 .02 .01 Other 1.90 1.99 1.96 2.07 2.10 236 2.25 2.24 2.14 2.44 Capital account 6.66 6.72 6.93 7.-11 7.53 8.38 8,64 8.94 921 MEMO Commercial real estate loans ... n.a. n.a. n.a. 14.64 13.91 13.37 13.05 1S.17 15.83 1479 Olhsr reaj estate owned .42 A3 .52 .77 .80 .57 .28 47 .13 .11 Managed liabilities 27.63 27.73 26.00 23.46 20.00 19.69 22.89 W.72 24.78 24,61 Average net consolidated assets (billions of dollars) 839 892 937 961 968 977 1,032 1,094 1,076 968 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 All A.2.—Cuniiniit-'il D. Banks ranked 101st through l.OOOch by assets Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Effective interest rate (percent)-* Interest-earning assets 9.91 10.75 10.42 9.55 8.14 7.43 7.58 M3 8.40 "fiotable equivalent 10.15 10.96 10.57 9.69 &Z3 7,55 7.68 8J2 8.49 Loans and leases, gross 10.76 11.61 11.21 10.42 9.11 8.57 8.64 9.44 9M Net of loss provisions 9.61 10.45 9.48 8.71 7,83 7.76 8.11 8.76 8J9 Securities 7.83 8.34 8.52 8.10 6.88 5.78 5.69 6.22 6.30 Taxable equivalent 8,57 8.97 9.00 8.54 7.19 6.10 5.93 6.49 64? Investment account , 7.84 8.35 8.49 8.12 6.90 5.79 5.® 6.23 6.30 US. government and other debt 8.04 8.64 8.76 8.30 6.95 5.76 3.61 6.28 6.40 Stale and local 7.16 7.28 73 7.25 6.83 6.30 5.92 5.81 sM Equity2 n.a. 7.00 6.94 6.02 5D8 4.95 5.30 60S 00 Trading account 6.96 7.61 9.92 6.86 5.61 4.74 5.29 155 5.94 Gross federal funds sold and reverse RPs .. 7.44 9.05 7.99 5.64 347 3.02 4.06 5,44 S.24 Interest-bearing balances at depositories 7:82 9.21 8.52 6.81 4.61 3.51 4.28 6.09 5.54 Rota paid Interest-bearing liabilities 6.71 7.72 7.26 6.10 4.19 3.33 337 4.64 4.57 4.66 Interest-bearingdeposits 6.49 7.36 7.05 6.05 4.17 3.26 331 4.23: 4.26 433 In foreign offices 7.65 8.98 8.12 6.38 4.25 3.35 431 5J4 5.43 5.43 In domestic offices •••--. 6.45 731 7.02 6.04 4,17 3.25 3.28 4.20 4,23 *3> Other checkable deposits 4.77 4.S8 4.75 4M 2.67 2.02 W 2.02 1.96 XV Savings (including MMDAs) 5.53 6.13 5.98 113 3,33 2,58 2.64 S.23 3.11 im Large-denominmion time deposits5 7.42 8.70 8.04 662 4.76 3,90 4.23 Ul 5.47 $m Sroil-denominaiioo time deposits5 7.45 831 8.03 7.08 5.35 4,4ft 4.40 533 5;S7 537 Gross federal funds purchased and RPs 7.40 9.01 7.86 5.61 3.46 195 4.12 5161 S.J6 5.M Otter interest-bearing [labilities 7.43 908 8.28 6.80 5.28 4.44 4.92 6.28 5.89 6.09 Income and expense as a percentage of average net consolidated assets Groat interest income 8.87 9.68 9.38 8,63 736 6.75 6.90 7;® 7J7 7.75 Taxable equivalent 9.09 9.86 9.51 8.75 7,46 6.84 6.99 7.77 7.75 7M Loans 6.89 7.52 7.21 6.51 SM 5.07 5.26 539 198 6.01 Securities 1.43 1.54 1.60 1.70 l& 1.49 IMS 1.42 1.42 isa Grots federal funds sold and reverse RPs .32 38 .36 27 .17 .14 .14 .20 ,19 Other .24 .25 :20 .15 .08 .06 .06 m .06 .06 Cms interest expense 5.02 5.84 5:54 4.67 3.16 2.46 2.65 3M 3A1 Deposits 4.09 4.69 4.58 4.02 2.75 2.07 2.01 £35 ,$#>• Z7Q Grots federal funds purchased and RPs .64 .83 .67 .42 45 .22 .35 .46 4J 37 Other .29 .31 .29 .23 ,17 .17 •29 •45 M .40 Net interest income 3.85 3.84 3.83 3.96 419 4.28 4.25 4,23 4.27 439 Taxable equivalent 4.07 4.02 3.97 4.08 4.30 4J8 4.34 432 435 4.36 Loss provisioning6 .74 .75 1.12 1.07 .77 .47 31 .43 SO Si Noninterest income 1.36 1.38 1.50 1.65 1.69 1.84 1.86 (.84 1.88 2.07 Service charges on deposits .34 .36 .37 .40 .44 .45 .42 .40 Income from fiduciary activities .25 IS .26 .27 .28 .29 .28 21 28 M Tra I F n d o t i r e n e r g i e g s i n t n c r e a o x t m c e h e e a x n p g o e s u e r x e p s osures n n . . . a a 0 . . 3 n n . .a . a 0 . . 4 n n . . . 0 a a 2 . . n n . . . a 0 a . 4 . n. m u. n n . . . a a 0 . . 3 • n U . . a 0 t . i 2 N n. . f a 0 c . 3 m .0) • . . 0 0 1 1 Equity, commodity, and other exposures n.a. n.a. n.a. n.a. n.a. n.s. n,a. HA .01 Other .74 .74 .84 .94 iua. 1.08 1.14 1,12 • 133 Nonlmereu expense 3.50 3.45 3.50 3.7& 3. . 8 9 7 5 3,92 3.78 3 x .6 m 8 . 1 3 . . 1 6 6 8 S O C a x t l h p a e e r r a ie g s e , s w o a f g p e r s e , m an is d e s e m an p d lo f y ix e e e d b a e s n s e e f t it s s . 1 1 . . . 5 5 4 1 0 9 1 1 . . . 4 4 4 8 9 9 1 1 . . . 5 4 4 5 7 ? 1 1 . . . 4 7 4 8 9 9 1 1 . . . 4 5 8 9 1 7 U 1 . . 4 9 J 8 3 1 1 . . . 4 8 4 6 3 9 i M n 1 1 , . . 8 4 4 f 5 3 t Net noninterest expense 2.14 2.07 2.01 2.11 2,18 2.08 L.92 184 1,81 1.66 m Realized gains on investment account securities . .01 .01 .09 .10 ,06 -.05 .02 Income before taxes and extraordinary items .98 1.02 .72 .86 1.35 1.78 1.96 1.96 1.98 2,10 Taxes .32 .32 .21 .29 .44 .61 .67 .68 Extraordinary items .01 .03 .04 * Net income (return on assets) .67 .71 .51 .60 .91 1.22 1.29 1.28 1.29 137. Cash dividends declared .48 .48 .53 .58 .48 .79 .81 .87 1.04 1.10 Retained income .18 .23 -.02 .02 .43 .43 .48 .41 M .28 M8M0: Return on equity 10.00 10.54 7.37 8.45 12.13 14.93 15.40 14.83 14.45 14.91 * In absolute value, less than 0.005 percent. n.a. Not available. MMDA Money market deposit account. RP Repurchase agreement. CD Certificate of deposit. 1. Includes the allowance for loan and lease losses and Ihc allocated transfer risk reserve. 2. As in the Call Reports, equity securities are combined with "other debt securities" before 1989. 3. Before 1994, the netted value of off-balance-sheet items appeared in "trading account securities" if a gain and "other non-interest bearing liabilities" if a loss. 4. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Reports. 6. Includes provisions for loan and lease losses and for allocated transfer risk. 5. Before 1997, data for large time open accounts are included in small-denomination time deposits. 6. Includes provisions for loan and lease losses and for allocated transfer risk. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

418 Federal Reserve Bulletin H June 1998 A,2 PiiiUiilii. Lt'iiipuMliiiri. mtoicM i;ik'-. ,-iiul immik1 and M'. ,ill 1. .S. h;inkv !'.JS<S 97 t\. Banks not ranked among the 1,000 largest by assets Item 1988 1989 1990 1991 1993 1994 1995 1996 1:997 Balance sheet items as a poranuge of average net consolidated asaels Interest-earning assets 90.81 90.90 91.06 91.24 9139 91.74 Mm '9j*o4t Loans and leases, net 53.88 54.84 54.74 54.05 33.0* 32.94 54.64 56.61 l37.M> SIM Commercial and industrial IZ34 1X10 11.53 10.59 ».?4 9.24 9.11 9:65 957 10.J7 US addressees 12.32 12.07 11.49 10.55 9,70 9.20 9.26 9.90 t0t09 Co F n o su re m ig e n r flddressees 11 . 4 0 8 2 U, , 4 0 6 3 .04 10 . . 0 4 4 9 9, . 6 0 9 4 1•M: ^ . 3 0 7 5 9 J 3 0 4 6 9. m 46 'i)i . O 08 7 Credit card .86 .93 1.00 1.08 1.00 *96 m 1* Installment and other 10.62 10.53 10.20 9.41 8.68 8.25 841 833 8.38 8.15 Real estate 26.02 27.36 28.35 29.31 30.15 31.09 32.19 3335 34.09 3534 In domestic office) 2602 27.36 28.35 29.31 30.15 31.09 32.19 33.55 34.08 3534 Construction and land development 2.22 Z29 237 2.18 1.98 J.93 2.14 238 2*1, m Farmland ., 1.74 1.82 1.86 IS3 2,06 2.20 2.34 2.48 .ass. S.68 One- to four-family residential 14.06 1481 1537 15.99 16.44 16.82 1&95 1*46 VIM 18.16 Home equity .73 .94 1.16 1.29 1.34 137 1.21 130 u\$ 124 Other 13.32 13.86 14.21 14.69 15.10 1534: I5V73 1&25 ny» Mullifainily rettdeittial .61 .62 .66 .71 .77 M .93 .95 J$2 Nonfann nofliesidential 7.40 7.82 8.09 830 SM 930 9,83 10.28 1034 10.92 In foreign offices * * * « * ' «: * Depository institutions .31 ,26 .23 .20 .13' .12 .13 .16 .17 .17 Foreign governments .02 .01 .01 .01 JM .01 *' Agricultural production 3.25 3.2S 3.30 3/48 335/ 3.58 3.89 3.95 3.92 4<0S Outer loan* 1.75 1.67 I.4J 1.24 .99 Ml 76 "M .70 Lease-financing receivables 19 .19 .18 .17 .17 J8 .20 .22' ,23: 55 Less: Unearned income on loans -.61 -.60 -.51 -.4a -36 -31 -30 -ax -,24 Lass: Loss reserves' -.88 -.88 -789 -.93 -.97 -.95 -.93 -.88 Securities 27.9S 27.92 28.38 29.98 33.06 3JM» 3030 2931 Investment account 27.93 27.85 23.28 29.92 3iO4 33.00 32.86 30.47 29.48 Debt 27.93 27.45 27.92 29.55 31.60 3X42 30.02 28.99 US. Treasury 9.73 S.84 S.77 9.24 10.25 10.81 9.19 US. government agency and corporation obligations 9.80 11.37 12.43 13.81 1a5.CM 15.80 1535 15,12 IS37 Government-backed mortgage pools .. 322 3.76 438 539 •3a§ 4.81 4.19 Coiiateralized mortgage obligations n.a. D.a- ,90 1,53 3.33 3.11 2.76 Sta O te th a e n r d local government 6 5 . . 5 6 8 5 4 7 . .6 9 1 4 4 6 , .9 5 3 6 6 4 . , 6 2 7 6 6.85 7 4 . . 0 7 9 0 7.43 4 8 . .1 6 8 9 Private mortgage-backed securities IU. n.a. 1UU .89 .20 Other 172 2.29 2.15 t.35. '1 8t Bqtiity* ma. 40 .36 .38 .44 .45 Trading account .OS .07 .10 .06 .04 03 Gross federal funds sold and reverse RPs 5.76 5.74 6.13 5.M interest-bearing balances at depositories 3.19 2,40 1.81 1.57 1.16 .77 .67 No R D e - v ii a tf l e u r a e t s i t o - n e a g m a i i n n g s o a n ss o e r ts T-balance-aheei Item*3 .. n 9 . . a 1 . 9 n 9 . . a 1 . 0 n 8 j .9 u 4 n 8 . . a 7 . 6 m 4.68 8^8 8.30 Other 9.19 9.10 8.94 8.76 .aim. 830 8.16 8.61 liabilities 91.61 9L44 91.40 9138 90.43 90.03 89.81 Interest-bearing liabilities 76.94 77.13 77.83 7S.4Q! B35 76.19 75.74 Docouls 74.84 75.00 75.79 76:41 75.74 13: M 72.70 I I n n d fo o r m ei e g s n t ic o f o fi f c f e ic s es 74. . 8 0 1 4 74 . . 0 9 6 3 75. . 7 07 2 76 . . 0 3 8 4 75§ 73. 0 0 9 5 72 , 3 1 9 1 72 . 3 1 3 0 Other checkable deposits 10.64 10.38 10.45 10.98 1331 12.37 n.is 1138 Savings (including MMDAi) 21.92 1931 18.73 1935 1.10 23.23 20.41 19,01 Small-denomination time deposit)! 3055 3346 35.37 35,86 w 2s«r 30.92 Large-denomination time deposits 11.27 11.38 11.17 tats 8.89 Gross federal funds purchased and KPx 1.35 135 136 136 U89 1.78 Other .75 .7,8 ,67 m .73 U.# 1.25 Non-interest-bearing Liabilities 14.67 14.31 1425 1430 Demand deposits in domestic offices 13.58 13.09 .68 123J 1334 13.23 Revaluation losses on off-balance-sheet hems1 n.a. O-98 it*. Other 1.09 L2I 11.8* 1.01 ••»,90 L07 1.10 rua. Capital account 839 B.56 8.60 81..6124 8^93 937 9.97 M»l» 1030 MEMO Commercial real estate loans 11,74 134)2 13.72 Other real estate owned 65 ,63 .61 66 .6* .35 .25 M 46 Managed liabilities 13.41 13.59 13.29 12.22 1037 10,09 10.83 12,05 13.03 14.07 Average net consolidated assets (billions of dollars) 654 662 681 695 «97 679 686 661 647 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Profits and Balance Sheet Developments at U.S. Commercial Banks in 1997 419 •\ I— E. Banks noi ranked among the 1,000 largest by assets Item 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Effective interest rale (percent)4 Rates earned Inleresl-carning assets 9.76 10.50 10.31 9.64 8.43 7.62 7.57 8.37 8.40 850 Taxable equivalent 10.01 10.72 10.52 9.82 8.59 7.78 7.72 8.52 8.55 8.64 Loans and leases, gross 11.03 11.76 11.60 11.02 9.83 9.13 9.00 9.80 9.82 9.81 Net of loss provisions 10.00 10.87 10.65 10.09 9.05 8.62 8.65 9.38 937 937 Securities 7.93 8.37 8.42 8.04 6.99 5.92 5.61 6.08 6.10 6.25 Taxable equivalent 8.64 9.01 8.99 8.53 7.40 6.33 5.99 6.48 6.52 6.65 Investment account 7.92 8.36 8.41 8.04 6.99 5.92 5.61 6.08 6.10 6.25 US. government and other debt 8.01 8.53 8.59 8.19 7.06 5.91 5.59 6.16 6.23 6.43 Stale and local 7.57 7.57 7.46 7.17 6.70 6.09 5.69 5.63 5.44 533 Equity2 n.a. 8.12 8.30 7.13 5.64 5.16 552 6.26 6.06 6.45 Trading account 14.88 14.84 12.13 8.41 7.14 4.83 6.03 6.12 6.48 7.70 Gross federal funds sold and reverse RPs 7.68 9.25 8.12 5.66 3.51 2.95 4.08 5.95 5.34 553 Interest-bearing balances at depositories . 8.07 9.11 8.55 7.35 5.59 4.53 4.64 5.89 6.10 5.72 Kates paid Interest-bearing liabilities 6.42 7.16 7.02 6.18 4.44 3.54 3.49 4.46 451 4.61 Interest-bearing deposits 6.36 7.10 6.96 6.15 4.44 353 3.44 438 4.44 454 In foreign offices 7.62 9.35 7.57 5.95 3.97 2.91 3.92 5.73 11.43 4.17 In domestic offices 6.36 7.10 6.96 6.15 4.44 3.53 3.44 4.38 4.43 454 Other checkable deposits 5.00 5.09 5.02 4.61 3.14 2.42 2.29 150 141 246 Savings (including MMDAs) 5.48 5.82 5.73 5.18 3.62 2.91 2.83 3.32 354 3.36 Large-denomination time deposits* . 7.13 8.35 7.92 6.74 4.90 3.96 4.12 5.55 5.49 553 Small-denomination time deposits' . 7.18 8.03 7.88 6.98 5.36 4.39 4.28 5.51 5.60 5.67 Gross federal funds purchased and RPs . 6.81 8.52 8.03 5.72 3.74 3.17 4.12 5.61 5.07 5.22 Other interest-bearing liabilities 7.63 8.31 7.84 6.94 5.00 4.64 4.98 6.45 6.74 6.18 ncome and expense as a percentage of average net consolidated assets Gross interest income 8.96 9.65 9.51 8.92 7.79 7,05 7.01 7,77 7.79 7.90 Taxable equivalent 9.18 9.85 9.68 9.07 7.94 7.19 7.15 7.90 7.92 8.02 Loans 6,02 6.53 6.44 6.05 5.30 4.91 4.98 5.63 5.72 5.86 Securities 2.21 2.33 2.38 2.40 2.24 1.95 1.84 1.85 1.80 1.76 Gross federal funds sold and reverse RPs ... .47 .57 .53 .34 .18 .14 .15 .25 .24 .24 Other .26 .23 .17 .12 .07 .05 .04 .04 .04 .04 Gross interest expense 4.92 5.50 5.44 4.83 3.45 2.72 2.65 3.37 3.40 347 Deposits 4.76 5.32 5.28 4.71 3.36 2.63 252 3.19 352 3.28 Gross federal funds purchased and RPs .10 .12 .11 .07 .05 .04 .07 .10 .08 .08 Olher .06 .06 .05 .05 .04 .04 .06 .08 .10 .11 Net interest income 4.04 4.15 4.07 4.09 4.34 4.33 4.36 4.40 4.40 442 Taxable equivalent 4.26 4.35 4.24 4.24 4.49 4.48 4.50 4.53 452 454 Loss provisioning0 .56 .50 .53 .51 .42 .27 .19 2A Jfi .26 Noninterest income .92 1.00 1.01 1.08 1.16 1.25 1.30 1.38 1.42 1.45 Service charges on deposits .41 .41 .42 .44 .45 .45 .44 .44 .44 .44 Income from fiduciary activities .12 .14 .14 .14 .16 .16 .17 .22 .19 .20 Trading income • .01 .01 .01 .01 .01 * .01 • * Interest rate exposures n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 9 * Foreign exchange exposures n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. * * Equity, commodity, and other exposures.,. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. * Olher .39 .44 .44 .49 .55 .64 .69 .71 .78 .80 Noniniercsi expense , 3.44 3.49 3.49 3.60 3.67 3.74 3.78 3.80 3.70 3.72 Salaries, wages, and employee benefits 1.62 1.65 1.64 1.65 1.69 1.72 1.75 1.79 1.77 1.80 Expenses of premises and fixed assets .51 .51 .49 .49 .49 .48 .49 .50 .49 .49 Olher 1.32 1.33 1.36 1.47 1.49 1.53 1.55 1.51 1.45 1.42 Nel noninterest expense 2.53 2.49 2.48 2.53 2.51 2.48 2.48 242 2.29 2.27 Realized gains on investment account securities .01 .01 * .06 .09 .07 -.03 * .01 .01 Income before taxes and extraordinary items ... .96 1.17 1.06 1.10 1.50 1.64 1.66 1.75 1.85 150 Taxes .29 .37 .34 .35 .47 .51 .51 .55 59 Extraordinary items .02 .02 .02 .01 .02 .05 * • * • Net income (return on assets) .68 .83 .74 .77 1.04 1.19 1.15 1.20 1.26 131 Cash dividends declared .46 .52 .49 .47 .51 .56 .57 62 .64 .73 Retained income .22 .30 .25 .30 53 .63 .58 58 .62 58 MEMO: Return on equity 8.11 9.66 8.61 8.95 11.64 12.65 12.05 12.04 1236 1Z7O * In absolute value, less than 0.005 percent. n.a. Not available. MMDA Money market deposit account. RP Repurchase agreement. CD Certificate of deposit. 1. Includes the allowance for loan and lease iosses and the allocated transfer risk reserve. 2. As in the Call Reports, equity securities are combined with "other debt securities" before 1989. 3. Before 1994, the netted value of off-balance-sheet items appeared in "trading account securities" if a gain and "other non-interest bearing liabilities" if a loss. 4. When possible, based on the average of quarterly balance sheet data reported on schedule RC-K of the quarterly Call Reports. 5. Before 1997, data for large lime open accounts are included in small-denomination time deposits. 6. Includes provisions for loan and lease losses and for allocated transfer risk. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

420 Treasury and Federal Reserve Foreign Exchange Operations This quarterly report describes U.S. Treasury and and by comments from Japanese politicians calling System foreign exchange operations for the period for measures to stimulate Japan's economy. The dolfrom January through March 1998. It was presented lar later rebounded as expectations for additional by Peter R. Fisher, Executive Vice President, Federal Japanese stimulus waned and as market participants Reserve Bank of New York, and Manager, System refocused on the diverging economic outlooks for Open Market Account. Daniel Osborne was primar- the United States and Japan. Although the dollar was ily responsible for preparation of the report. little changed on net over the period, other asset prices experienced significant appreciation. Global During the first quarter of 1998, the dollar appreci- bond and equity markets reached record highs, and ated 2.8 percent against the German mark and many Asian markets rebounded from earlier weak- 2.2 percent against the Japanese yen. On a trade- ness. The U.S. monetary authorities did not intervene weighted basis against Group of Ten (G-10) curren- in the foreign exchange markets during the quarter. cies, the dollar appreciated 1.9 percent.1 Against the mark, the dollar traded in a relatively narrow range through most of the period. This range reflected mar- SlRONG PERFORMANCE OF U.S. AND ket expectations of stable monetary policy in both the El -ROPEAN STOCKS AND BONDS United States and Germany as well as reduced volatility in European currencies, as expectations for a Expectations of steady U.S. monetary policy solidismooth progression toward the European Economic fied over the period as market participants focused on and Monetary Union (EMU) solidified. Against the the countervailing effects of a drag from the slowyen, the dollar retreated from five-year highs reached down of Asian economies and the continued signs of early in the period, as it was pressured lower by the strong domestic demand in the United States. Compossibility of official intervention to support the yen ments by Chairman Greenspan and Governor Meyer in early January were interpreted as suggesting concern over the potential deflationary effect of an 1. The dollar's movements on a trade-weighted basis against ten Asian economic slowdown on the U.S. economy. As major currencies are measured using an index developed by staff members of the Board of Governors of the Federal Reserve System. a result, there was some speculation that the next 1. Spot exchange rale ol the. dollar against the Japanese yen 2. Spot exchange rate ol the dollar ayainst the German mark and volatility implied by option prices, I1M7:(>I- [WS:QI and volatility implied hy option prices. I<-)97:Q-I— |WN:QI Japucw >«a per US, dollar Percent per year nmafteptrlUkMbr One-month volatilities n ,K Spot cirfaoge rate UW 134 - —r t4 14 1JM m/v 12 1^0 12 126 - V — 10 1.76 ' »^k . m W 1.72 112 fXJkk/\J S|*u cxdmigt rate — g One-month volatilities ^» B I.6K 1 1 1 i 1 1 1 1 1 1 1 1 1 Oct. Nov. Dec. Jan. Feb. Mar. Oct. Nov. Dec. An. Feb. M*r. 1997 1998 1997 1998 NOTE. Data are daily. NOTE. Data are daily. SOURCE. Federal Reserve Bank of New York;Reulers. SOURCE. Federal Reserve Bank of New York;Reuters. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

421 move by the Federal Open Market Committee !. l\S. mid [European cquih markets. (FOMC) could be an ease. The yield implied by the Indca.Jin.2-IM) April 1998 contract on federal funds futures declined to levels below the 5.50 percent funds target— reaching a low of 5.31 percent on January 9—and the benchmark thirty-year Treasury bond yield fell to an all-time low of 5.69 percent on January 12. Expectations for FOMC policy shifted to a more balanced view after Chairman Greenspan's Humphrey-Hawkins testimony on February 24. Mart:to ket participants interpreted the testimony as emphasizing a domestic environment of tight labor markets — 100 and strong domestic demand, while depicting less concern over the potential effect of the Asian slowdown. After the testimony, the implied yield on the contract on April federal funds futures rebounded to Jan. Feb. M«r. 1998 levels higher than 5.50 percent, while the benchmark NOTE. Data are daily. bond yield reached a high for the quarter of 6.07 per- SOURCE. Bloomberg L.P. cent on March 3. Expectations for steady policy solidified despite subsequent evidence of tight labor fell 10 basis points, to 3.73 percent, while the yield markets and strong domestic demand, and the thirty- on ten-year government bonds declined 51 basis year benchmark yield fell 13 basis points from its points to close at an all-time low of 4.86 percent on peak, to end the period at 5.94 percent. Low inflation March 24. Also underpinning the rally were expectaand anticipation of diminished issuance of Treasury tions that continued fiscal consolidation in Europe securities supported this decline. would further diminish bond issuance. In Germany, expectations for steady monetary pol- Against this background of stable monetary policy, icy also solidified amid a benign inflationary outlook, reduced volatility, low inflation, and falling yields, concern over high unemployment levels, and the investor risk appetites appeared to be on the rise. ongoing belief that official European interest rates Equity markets in the United States and Europe would converge to German levels ahead of the EMU. reached record highs, with the Dow Jones Industrial Also contributing to the steady policy outlook was Average rising 11.3 percent during the quarter and continued concern over the potential deflationary both German and French benchmark indexes rising effect of an Asian economic slowdown on German 20.7 and 29.2 percent respectively. Southern Eurogrowth. The yield implied by three-month German pean stock markets performed even better, as prosmark forward rate agreements three months hence pects for lower interest rates ahead of the EMU and cross-border corporate consolidation fueled gains of more than 40 percent in Portugal, Italy, and Spain. i. I '.S. ;jnil < iermaii lxf> l'nrw;ird r;ik" Lij!iwnu.'nt Percent RELATIVELY NARROW TRADING RANGE OE THE German DOLLAR AGAINST THE MARK The dollar traded in a DM 1.78-1.85 range against the mark through most of the period. Implied volatility on one-month dollar-mark options declined 4 percentage points to reach an eight-month low of 7.95 percent on March 25, while longer-dated risk 3.6 reversals remained largely neutral, apparently reflecting expectations that the dollar would continue to trade within a narrow range. In addition, the expec- Jin. Feb. Mat. 1998 tations of relatively steady policy in both countries, the concurrent rallies in both U.S. and European Nori;. A 3x6 forward rale agreement (FRA) refers to the yield on a threemonth deposit with a value dale three months hence and a maturity date six equity markets, and perceptions of a smooth progresmonths hence. sion toward the EMU all contributed to the limited SOURCE. Reuters. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

422 Federal Reserve Bulletin n June 1998 l;.S. and Kuro|)L-an Icii-year bond yields, I Dollar \uu iine-niiMHli and iv.elw-mnnl risk w\ L-rsals. I')OS:Q1 Perceia Percent Germany 4-8 .5 Ftb, Mar. im Jan. Mar. NOTE. Dala are daily. SOURCE. Bloomberg L.P. NOTL. Dala arc daily. SOURCE. J.P. Morgan volatility of the dollar-mark exchange rate. Late in the period, the dollar traded to highs near DM 1.85, of the need for a ¥30 trillion plan to support the as sales of the mark against the British pound and the banking sector, focusing attention on potential banksteady widening of U.S.-German interest rate differ- ing reform measures. The yen was further supported entials weighed on the German currency. The spread by gains in the Nikkei index, triggered by a governof U.S. ten-year bonds over comparable German ment proposal to change land valuation accounting instruments increased 57 basis points to close the methods and alter capital requirements of Japanese period at 82 basis points. banks. These factors contributed to an unwinding of long dollar positions by market participants, and the dollar reached a low of ¥123.17 on February 10. REBOUND OI- rut DOLLAR FROM PERIOD In subsequent weeks, the dollar began to reverse its LOWS AGAINST THE YEN AMI!) INCREASING downward trend as market participants increasingly UNCERTAINTY RECARDING THE JAPANESE adopted the view that the proposed stimulus mea- ECONOMIC OUTLOOK sures would not provide a significant boost to the Japanese economy. Market participants' expectations After having reached five-year highs against the yen for the Japanese economy deteriorated amid continearly in the period, the dollar declined more than ued signs of domestic weakness, as evidenced by 8 percent by mid-February then rebounded to end the record unemployment, weak private consumption period slightly stronger than at the end of 1997. The data, and high inventory levels. The release of the dollar traded to a five-year high of ¥134.30 on January 6, as market participants continued to focus on - IHTK hniaik hnrul \k'kl. the diverging economic outlooks in the United States Jan. 'WK Mar. 27, I'WS and Japan, but reversed its upward trend in subsequent weeks. Early in the quarter, signs of stabiliza- Percent tion in other Asian markets diminished the dollar's perceived "safe-haven" status. Moreover, market uncertainty regarding potential intervention by the Japanese monetary authorities in support of the yen — 1.8 also contributed to the dollar's weakness, with Japanese Vice Finance Minister Sakakibara warning on numerous occasions that excessive yen weakness was 1.6 not desirable. Various comments from Japanese politicians suggesting that significant economic stimulus measures would be forthcoming also contributed to uncertainty regarding the direction of the dollar-yen Jan. Feb. Mar. 1998 exchange rate. In an address to the Japanese parliament on January 12, Prime Minister Hashimoto spoke NOTE. Dala 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 423 February 20 package did little to alter market senti- 9. Asian ;»ul I..iiin AmmcLin equity markets. ment toward Japan's economic prospects, and the dollar continued to strengthen, rising nearly two yen Index. Od. 1 =too on the day of the release to close at ¥127.82. Treasury Secretary Rubin's reiteration that a strong dollar n Indonesia 100 was in the United States' best interest also contributed to yen weakness. Reports of widening scandals 90 involving Japanese monetary officials helped lift the A\ MA/ dollar above ¥130 by mid-March. However, further 80 gains were restrained by expectations that both the ¥ 70 yen and Japanese assets might be supported through ^J Hon Kon* _ fiscal year-end. Despite the uncertain outlook for the K 60 dollar against the yen in the near term, the options KoresL V V r market suggested more positive dollar sentiment 1 I 1 1 1 T 1 Oct. Nov. Dec. Jan. Ijfeh. Mir. in the longer term. Twelve-month risk reversals 1997 1998 remained skewed toward dollar calls, reflecting a NOIL. Dala are daily higher cost of protection against a sharp appreciation SOURCE. BloombereL.P. of the dollar against the yen. Further reflecting market uncertainty over the Japanese economic outlook, Thailand to adhere to measures agreed upon with the the benchmark Japanese bond yield declined from a International Monetary Fund (IMF) and the arrangehigh of 1.82 percent on January 29, to a new low of ments by international creditors to restructure Korean 1.49 percent on March 25. short-term external debt payments also encouraged a reallocation of investor funds back into these markets. As local demand for dollars to repay dollar- A RELATIVELY MUTED PERFORMANCE FOR denominated debt subsided, and as international I HE DOLLAR AMID A REBOUND IN ASIAN investor inflows resumed, the currencies of many MARKETS AND A DECLINE IN VOLATILITY Asian countries rebounded, led by a 17.6 percent appreciation of the Thai baht against the U.S. dollar. Against the backdrop of steady Group of Three Asian equities responded positively to the return of monetary policies, strengthening bond and equity capital inflows, with the Korean KOSPI index rising markets in the United States and Europe, and declin- nearly 53 percent by early March, before retracing ing volatility in key asset prices, several emerging to post a gain on the quarter of 27.8 percent. The improved sentiment in Asia helped Latin American markets recovered some of the losses posted in previand Eastern European equity markets rebound as ous months. Efforts by international organizations to well, with Brazilian stocks posting a 17.2 percent stabilize the region also lent support to these markets. gain during the period. As global equity markets The steps taken by the governments of Korea and rebounded, emerging market bond yields fell, with yield spreads of dollar-denominated Korean and Thai Bciii/hmavk Asian horn! yield spivack over debt issues over U.S. Treasury securities declining I'.S. Treasury s vurilios. 19l->7".<,)4 [99S:OI L nearly 200 basis points. Similarly, a decline in risk premiums in Asia contributed to declines in yield Basis poinli spreads of Latin American and Eastern European i Indonesia Brady bonds over U.S. Treasury securities. — h A n — 800 Korea i While sentiment toward most emerging markets improved, sentiment toward Indonesia remained — Thailand W- 600 In V cautious, given its government's perceived unwillingness to move ahead with reforms that had pre- — 400 viously been agreed upon with the IMF. Yield spreads of dollar-denominated Indonesian debt issues over — 200 U.S. Treasury securities widened 25 basis points over i i i i 1 the period. However, uncertainty in Indonesia had Oct. Nov. Dec. Jan. Feb. Mar. a limited effect on regional markets as investors 1997 1998 appeared increasingly willing to differentiate between NOTE. Dala are daily. countries. SOURCE. Bloomberg,L.P.; HSBC Markets. Inc. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

424 Federal Reserve Bulletin • June 1998 TREASURY AND FEDERAL RESERVE FOREIGN government securities held directly or under repur- EXCHANGE RESER\I:S chase agreement. As of March 31, outright holdings of government securities by U.S. monetary authori- The U.S. monetary authorities did not undertake any ties totaled $7.0 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 $16.6 bil- through transactions executed directly in the market lion for the Federal Reserve System and $13.6 billion or through agreements with official institutions. Govfor the Exchange Stabilization Fund. The U.S. mone- ernment securities held under repurchase agreement tary authorities invest all of their foreign currency by the U.S. monetary authorities totaled $10.7 billion balances in a variety of instruments that yield market- at the end of the quarter. Foreign currency reserves related rates of return and have a high degree of are also invested in deposits at the Bank for Internaliquidity and credit quality. A significant portion of tional Settlements and in facilities at other official these balances is invested in German and Japanese institutions. • 1. Foreign exchange hokliiiL's of I .S. moncliiry Liulhorilie.s kiscd on cunviil exi'luniuc mlus, l')lJX:OI Millions of dollars Quarterly changes in balances by source Balance. Balance, Item Dec. 31.1997 Net purchases Impact of Investment Quieney Interest accrual Mar. 31. 1«9 and tales1 sales3 income valuation (net) and other adjustments' FEDERAL RESERVE Deutsche marks 11486.7 ,0 96.9 -317.7 .0 1U6S.9 Japanese yen 5.473.4 .0 1.8 -113.8 .0 5.361.4 Interestreceivuble*4 82.9 -9.9 73.0 Other cash flow from investments' . 3.2 7.5 10.7 Total izam.% 98.7 -431.5 ~ZA 16,711.0 U.S. TltEASUtY EXCHANGE STABILIZATION FUND Deutsche marks 5.815.6 .0 48.3 -160.8 .0 5.703.1 Japanese yen 8,024.6 .0 1.S -165.7 .0 7,860.4 Interest receivables* 38.S -1.8 36.7 Other cash flow from investments1. 5.9 12.3 18.2 Total 13,884.6 49.8 M.5 13,618.4 1. Purchases and sales include foreign currency sales and purchases related lo 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-markei exchange rales; represents the differ- 4. Interest receivables for the ESF are revalued at month-end exchange rales. 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. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Treasury and Federal Reserve Foreign Exchange Operations 425 1. Net prolits or losses (-> on I .S. Treasury ('urri'ncy arrangements, March 31, l<-tLW anil Federal Reserve foreign exchange operations Millions of dollars based on historical cost ol acquisition exchange rates. Amount of Outstanding. [nsiiluiion facility Mar. 31. 1998 Millions of dollars Federal Reserve US. Treasury Reciprocal Currency Period and Item Federal Exchange Arrangements Reserve Stabilization Fund Austrian National Baak , 250 tt National Bon* of Belgium 1,000 ir&Mdtffof^jnt/fcf awrf tosses on Bank of Canada 2,000 fnr^fwtmtnrffrTTri" OltO ttaOHUW, Nmional Bank of Dennwfc 250 Baiik of England 3,000 6&3 -375.3 BankirfFmnce 2,000 291J. 434.6 Deulschc Bundesbaitk ... • • 6,000 38741 S93 Bsakoritaly. 3.000 Baaleori«tBa 5,000 Bai& Of Mexico 3,000 JtQjtfjpQftuttt ctbft'ctuy sales, N«hcrlandf Bank .. 500 £s4c»iI4V t&ftf~misK 31, lyyo Bank of Norway ., 390 Xt .0 Bank of Sweden 300 .0 .0 Swiw National Bunk 4,000 .« .o Bant for International Statements Dollars against Swiss francs 600 Valuation profits and lasses on Dollars against other autiwrized ourstiutdSng assets and liabilities, European currencies ........... 1,250 Mttr.3l.im -251.4 -536.1 "fitful 32,400 C 17*5 263.1 U.S. Treajury EMtaige Stabilization Fund Currency AirangcnKnts Deutsche Bundesbank .......... 1,000 0 Bank of Mexico 3,000 0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

426 Industrial Production and Capacity Utilization for April 1998 Released for publication May 15 The output of mines decreased 0.2 percent, and the output of utilities decreased 1.9 percent. At 127.8 per- Industrial production rose 0.1 percent in April after a cent of its 1992 average, total industrial production revised 0.3 percent increase in March and declines in in April was 3.8 percent higher than it was in February and January. In manufacturing, production April 1997. The rate of industrial capacity utilirose 0.3 percent after two months of declines; manu- zation decreased 0.3 percentage point in April, to facturing output was still below its December level. 81.9 percent. Industrial production indexes Ratio scale, 1992= 100 Ratio scale, 1992= 100 r—' _ Consumer goods 130 _ Intermediate products 130 V 120 120 Durable / Construction supplies ^ ^ —J 110 110 Nondurable - Business supplies — 100 100 90 90 1 i i i i 1 1 1 1 Equipment 150 _ Materials 150 Business - 130 130 110 _ Durable goods s^ 1 10 Nondurable goods -- 90 - and energy —- 90 Defense and space " ~ \. 1 1 1 I 1 1 1 1 1 1 1 1 1990 1992 1994 1996 1998 1990 1992 1994 1996 1998 Capacity utilization Percent of capacity Percent of capacity - 85 - 85 - 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, April. Capacity is an index of potential industrial production. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

427 Industrial production and capacity utilization, April 1998 Industrial production, index, 1992=100 Percentage change Category 1998 1998' Apr. 1997 to Jan.' Feb.' Mar.r Apr.!" Jan.' Feb.' Mar.' Apr.P Apr. 1998 Total 127.8 127.4 127.7 127.8 -.1 -.3 .3 .1 3.8 Previous estimate 127.7 127.5 127.7 ... -.2 -.2 .2 Major market groups Products, total2 121.3 120.6 121.0 121.2 .3 -.6 .3 .2 3.4 Consumer goods 116.6 115.2 115.5 115.5 .6 -1.2 .2 .0 1.8 Business equipment 147.3 146.7 147.8 149.2 -.9 -.4 .8 1.0 8.2 Construction supplies 125.2 125.9 125.1 124.9 1.6 .6 -.7 -.1 2.5 138.2 138.2 138.5 138.5 -.5 .0 .2 .0 4.5 Major industry1 groups Manufacturing 131.1 130.7 130.5 130.8 .2 -.4 -.2 .3 4.3 Durable 148.3 147.8 148.1 148.7 -.2 -.3 .2 .4 6.6 113 6 113.1 112.4 112.6 .6 -.4 -.6 .2 1.6 Mining 108.4 107.8 107.4 107.2 2.6 -.5 -.4 -.2 1.6 Utilities 108.7 108.5 115.1 112,8 -4.9 -.2 6.0 -1.9 .3 Capacity utilization, percent MEMO Capacity, percentage 1997 1998 change, Average, Low, High, Apr. 1997 1967-97 1982 1988-89 to Apr. Jan.r Feb.' Mar.' Apr.P Apr. 1998 Total 82.1 71.1 85.4 82.6 82.9 82.3 82.2 81.9 4.7 Previous estimate 82.8 82.3 82.2 81.1 69.0 85.7 81.6 82.1 81.5 81.0 80.8 5.4 Advanced processing 80.5 70.4 84.2 79.6 80.3 79.6 79.1 79.1 6.3 Primary processing 82.4 66.2 88.9 86.2 86.1 85.6 85.1 84.8 3.4 87.5 80.3 88.0 89.5 91.6 91.1 90.7 90.5 .6 Utilities 87.3 75.9 92.6 89.2 85.4 85.2 90.2 88.4 1.2 NOTE. Data seasonally adjusted or calculated from seasonally adjusted 2. Contains components in addition to those shown, monthly data. r Revised, I. Change from preceding month. p Preliminary. MARKET GROUPS having slowed earlier in the year. Although the output of computers accelerated in the first quarter, the The production of consumer goods remained flat output of most other types of equipment slowed. The in April: The output of durable goods rose 0.9 per- April increase resulted from gains in most groups cent, and the output of non-energy nondurable goods other than industrial equipment, in which output edged up, but these increases were offset by a declined 0.7 percent. ] .7 percent decline in the production of energy The production of construction supplies declined goods, most notably in residential sales of elec- for a second consecutive month. However, its April tricity and gas. The production increase within level remained well above its level at the end of the durable consumer goods category was wide- last year. The output of materials stayed unchanged spread. The output of automotive products advanced continuing its sluggish behavior of recent months. 0.8 percent but remained well below the high at While the production of durable materials edged up the end of last year. Home computing equipment, in April, the output of nondurable and energy materiappliances, and carpeting also posted significant als decreased. Among durable goods materials, the gains. Within the non-energy nondurable consumer output of parts for consumer goods, which had spiked goods category, the strength in food products was up in the fourth quarter, decreased 0.3 percent after a nearly offset by declines in the production of substantial decline in the first quarter. The output of cigarettes, clothing, consumer chemicals, and paper equipment parts grew once more at a moderate rate; products. semiconductors and parts for computers and electronic communication equipment posted the most The output of business equipment increased significant gains. 1.0 percent; a second month of strong gains after Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

428 Federal Reserve Bulletin • June 1998 INDUSTRY GROUPS textiles, apparel, paper, and chemicals were more than offset by strength in other industries; the largest Durable goods production increased 0.4 percent after gain came in rubber and plastics products. having posted a small gain in March and declines The operating rate in manufacturing declined, earlier in the year. Increases in lumber, furniture and to 80.8 percent. The utilization rate in advancedfixtures, computer and office equipment, semiconduc- processing industries remained flat at a low level, tors, motor vehicles and parts, and instruments were while the rate for primary-processing industries fell just partially offset by weakness elsewhere. In par- for the fourth consecutive month. The operating rate ticular, the output of primary and fabricated metals in advanced-processing industries was 1.4 percentage and of aircraft and parts declined once more. Non- points below its long-run average, whereas the utilidurable goods production increased 0.2 percent and zation rate in primary-processing industries was still is just 1.6 percent above its level in April 1997. significantly above its long-run average. • Continuing weaknesses in the production of tobacco, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

429 Statements to the Congress Statement by Alan Greenspan, Chairman, Board of that matter, a decreasing share, in itself need not Governors of the Federal Reserve System, before the indicate a problem. National Bipartisan Commission on the Future of For most goods or services, prices reflect both the Medicare, April 20, 1998 cost of the resources used to produce that good or service and the value of that good or service to I am pleased to be here today and encouraged that the consumers. Thus, prices are vital in the allocation President and the Congress are undertaking a funda- of resources to their highest value uses. That is the mental reassessment of the Medicare program. Since process that maximizes standards of living. House- Medicare was established more than thirty years ago, holds purchase most products directly from their it has provided the elderly with access to medical income and assets. But some outlays, such as those to care. But the growth of Medicare outlays has contin- repair or replace a home damaged by fire, are potenued to outstrip the growth of the rest of the federal tially too large and uncertain to easily budget. Under budget, and we have been able to avert a full-blown such circumstances, individuals can gain from poolfinancing crisis only through a series of marginal ing their risks through private insurance. adjustments to the program. As you well know, the Medical care has increasingly fallen into that catepressures will become increasingly intense as the gory as costs have swelled. Clearly, individuals benebaby boomers start to retire around the end of the fit from having insurance because it relieves them of next decade. concern about the possibility of devastating medical The challenge of adapting Medicare to meet our expenses. But, as is its purpose, insurance reduces long-run needs is formidable and will require difficult individuals' sensitivity to the total underlying ecochoices. Delay could be costly. Action now would nomic cost of care. Because individuals do not pay give all parties greater opportunity to adjust to a the full incremental cost of services covered by insurrevamped program and would limit the severity of ance, they have less incentive to restrain the use of the possible dislocations that could result. medical care and the adoption of technologies that You will be hearing from health experts who will divert resources from other highly valued nonmedical offer detailed information on Medicare options. You goods and services. Indeed, there is a tendency for will also be considering how the burden of financing the insured to seek any medical service expected to the elderly's medical care should be split between the offer at least some benefit, regardless of its cost in government—and thus funded by taxpayers—and the real resources. It also is probable that this system elderly themselves. But, at a more fundamental level, supports the development of more new technology you must address the basic question of how much our and greater diffusion of existing technology than nation is willing to expend for the ever-increasing would be the case if all medical care were purchased capabilities of medicine and, in the process, how we directly from family resources. Such behavior is a allocate the economy's scarce resources between manifestation of so-called "moral hazard," which is a Medicare and our many other competing needs. characteristic of virtually all insurance markets. Of These latter issues will be the subject of my remarks course, the private insurance system, reflecting the today. supply and demand for medical services, will adjust In some ways, health care is like any other good or prices, that is, premiums, to cover costs. service; and, in the absence of regulation, the share But as medical costs have risen, they have exerted of consumer income going to medical care would pressure on profit margins of businesses and indireflect the tradeoff of choices against other consumer rectly on real wages of workers. Presumably in desires. That share will vary from individual to indi- response, we have witnessed considerable innovation vidual depending on their incomes and their need in recent years in private markets for medical insurfor medical care. There is no predetermined share of ance in an endeavor to contain inefficiencies and income that should, in any abstract sense, be devoted excess costs. The rapid expansion of managed care, to health care—either for an individual or for an in its many forms, is the clearest evidence of these economy as a whole—and an increasing share, or for efforts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

430 Federal Reserve Bulletin • June 1998 In the public sector, Medicare was initially de- care in order to hold down costs. In part, this is signed to supply the elderly with insurance coverage accomplished by offering incentives to providers to similar in structure and scope to that enjoyed by the practice cost-effective medicine. For example, we are non-elderly population. Clearly, it remains an excep- seeing a closer scrutinizing of services delivered by tionally popular program, but it has not kept pace highly paid medical specialists, some of whom have with changes in the private health care system. experienced a decline in compensation in recent Unlike the market-driven private insurance system, years. cost pressures in Medicare are reflected mainly in the It is regrettable, but probably inevitable, that movfederal budget. There are no automatic signals such ing from an unconstrained fee-for-service system to a as those that balance supply and demand for medical more cost-effective one is perceived by some patients care in the private sector. Hence, in managing Medi- as a major reduction in the quality of care. While the care, we must be particularly sensitive to the fact that, extent is arguable, any shift away from nearly unlimlike any product, medical care is produced ultimately ited use of even only marginally beneficial proceby the work of individuals, and the more human dures will be seen as a reduction in quality, irrespeceffort that is expended to provide medical care, the tive of the size of the savings of real resources less effort that is available for making other highly devoted to that marginal increment of care. There is valued products. always one more test that will reduce the risk, how- Thus, a key question confronting this commis- ever infinitesimal, of a misdiagnosis. sion is whether the current stance of public policy, Businesses' efforts to rein in payments for health lacking a market test, is altering medical demand in a insurance are also forcing employees to think more way that distorts economic choices and lowers over- about the tradeoffs between additional companyall productivity and standards of living. If Medicare financed medical insurance and higher wages. is to be sustained as a viable program, it is impor- These developments have helped stem the uptrend tant that this question ultimately be answered in the in the share of gross domestic product going to health negative. care, which caused so much concern just a few years If the answer is ambiguous, or in the affirmative, ago. Nonetheless, Americans still devote a far higher the commission may wish to recommend that the share of GDP to medical care than do inhabitants Medicare program be reshaped in a way that would of any other major industrial country. In the past encourage beneficiaries and medical providers to few years, medical costs have amounted to about make more cost-effective decisions than many do 13'/2 percent of our GDP, compared, for example, now. If successful, this approach would reduce the with about 10 percent for Germany and France and resources used per unit of health care produced, pre- about 7 percent for Japan, Sweden, and the United sumably lower overall health care expenditure growth Kingdom. from an unsustainable trajectory, and help ensure From an accounting perspective, the difference continued access to affordable care for Medicare between the percentage of GDP that we devote to beneficiaries. health care and the percentage in Germany or France As I noted, the private medical marketplace has appears to reflect mainly our higher pay for doctors been moving rapidly in this direction in recent years. and other medical practitioners relative to the aver- The adjustments have not always gone smoothly, age wage in the economy and our measured higher but institutions, acting on behalf of individuals, are administrative costs. It is difficult to obtain compaincreasingly confronting the tradeoffs between the rable net administrative cost estimates because our consumption of health care and the consumption of system includes a closer monitoring of costs by priother goods and services. That process may have vate insurers, which presumably reduces other costs. received a push in 1989 when the Financial Account- Among the industrial countries that devote the lower ing Standards Board circulated a draft rule to require shares of GDP to health spending, the health share companies to record future contingent medical costs in the United Kingdom, for example, is further for retirees on their balance sheets and make appro- depressed relative to ours by fewer doctors per capita priate charges against current income. That rule was and less high tech equipment. Almost certainly, our subsequently adopted and, perhaps by happenstance, system produces the most sophisticated, and perhaps roughly coincided with the onset of a major effort by the highest quality, medical care in the world. But we American businesses to contain medical costs for all have little evidence that, as a result, our population is workers. any healthier, on average, than those populations that In any event, much of the working-age population devote fewer resources to health care, recognizing, of now belongs to health plans that actively manage course, that health outcomes depend on a host of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 431 other influences in addition to the level of medical transplantation was a huge technological advance expenditures. whose effectiveness was greatly enhanced by Whether the share of our GDP going to medical improvements in immunosuppressant drugs. care will remain flat over the next few years—or Despite the consensus among economists that techwhether it will start rising again—is uncertain. But it nology is a driving force behind rising medical costs, almost surely will increase as the baby boomers the empirical evidence in this area has been limited. move into the age brackets in which medical costs Fortunately, that situation is beginning to change. tend to accelerate. Indeed, on average, medical out- Some recent studies that focus on specific medical lays for persons aged sixty-five and older are nearly conditions provide useful insights into both the costfour times the size of those for persons aged nineteen decreasing and cost-increasing aspects of technology. to sixty-four and roughly seven times those for per- For example, analysts have documented a sizable sons younger than age nineteen. Currently, 121/2 per- saving in the cost of treating cataracts, which thirty cent of the U.S. population is age sixty-five or older. years ago required a long operation and extended This share is not much greater than it was twenty hospital stay but is now routinely done on an outyears ago, indicating that aging alone has played a patient basis.1 In contrast, a separate study exhibited relatively minor role in explaining the growth in the potential for technology to raise costs.2 This study aggregate health spending over the past two decades. examined the appreciable increase in Medicare out- But by 2030, shortly after the last of the baby lays to treat heart attacks between 1984 and 1991, boomers has turned sixty-five, the elderly are which the authors attributed entirely to the dramatic expected to account for about a fifth of the popula- expansion of intensive cardiac surgeries. tion. A simple calculation suggests that, all else being The new technologies also carried other significant equal, the projected change in the age distribubenefits, contributing both to enormous improvetion of the population over the next thirty years will ments in the postoperative vision of cataract patients add nearly 20 percent to the level of health care and to longer life expectancies and higher quality of spending. life among heart attack survivors. Parenthetically, Demographics aside, the trajectory of health spend- this is the same measurement issue that chronically ing in coming years will depend importantly on the bedevils economists who try to allocate changes course of technology, which has been a key driver of in dollar outlays on medical procedures between per person health costs. To be sure, technological changes in price and changes in real output. The innovation improves the quality of medical care, but problem arises for any good or service for which its effects on overall costs are not always clear cut. changing technology is greatly affecting the charac- Technological innovation can decrease the cost of a teristics and quality of the output. given course of treatment and thus has the potential Measurement issues aside, the fundamental point to reduce overall costs. But it also can expand the here is that a structure that provides appropriate range of treatment options, with the potential of incentives for the development and application of adding to overall costs. Advances in arthroscopic technology is key to a well-functioning health care surgery, for example, have greatly reduced the cost system. In this case, an appropriate incentive is one and difficulty of repairing many kinds of knee dam- that encourages technologies whose benefits are at age, but the new techniques doubtless have contrib- least equal to their economic costs, while discouraguted to the enormous increase in the number of knee ing those that do not meet that standard. It is still too surgeries that are performed each year. soon to know how the evolving incentive structure The future path of medical, indeed all, technology in private insurance markets will affect the pace of is exceptionally difficult to forecast. Many effective medical technology.3 However, a recent analysis pronew technologies result from synergies of two or vides some preliminary evidence that managed care more previously developed technologies. Remark- may be fostering a more efficient use of technology. ably, when the laser was invented about forty years If the results continue to be borne out in the marketago, lawyers at Bell Labs reportedly did not rush to seek patents because they thought it had little bearing 1. Matthew D. Shapiro and David W. Wilcox, "Mistneasurement on Bell System interests. In fact, its full potential in the Consumer Price Index: An Evaluation," Macroeconomics could not be realized until the development of fiber Annual (National Bureau of Economic Research, 1996). 2. David M. Cutler and Mark McClellan, "The Determinants of optics, and the synergy of the two is one of the most Technological Change in Heart Attack Treatment," Working Paper powerful and versatile advances in telecommunica- 5751 (National Bureau of Economic Research, September 1996). tions technology in the twentieth century. Examples 3. David M. Cutler and Louise Sheiner, "Managed Care and the Growth of Medical Expenditures," Working Paper 6140 (National in medicine abound as well. For instance, organ Bureau of Economic Research, August 1997). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

432 Federal Reserve Bulletin • June 1998 place, we may be seeing the beginning of a signifi- much it raises average life expectancy or reduces cant restraining effect on the growth of health costs morbidity. over the long run. It is difficult to discern a consistent American Clearly, the jury is still out on many of the changes standard in these matters. When it comes to medical in private health insurance markets, and some may care, we seem to hold life as an unequivocal value turn out to be unsuitable for Medicare. But some of with pressures to fend off death by any means, these ideas, especially those that improve efficiency regardless of the costs in real resources. Yet we or foster greater cost-consciousness among users and tolerate more than 40,000 motor-vehicle-related providers of health care, are worthy of study. In that fatalities a year when modest restrictions on car use regard, some Medicare beneficiaries, attracted by could lower the casualty rate. The value of travel the rich benefits packages offered by some health freedom and convenience clearly outweighs life as maintenance organizations and frustrated by high an inviolate value. People demonstrate through Medigap premiums, have enrolled in these plans, their behavior a willingness to risk life for other and the Balanced Budget Act of 1997 expanded values. Indeed, risk is inherent in life and can be the range of options available to participants. None- contained but never eliminated. Given the disparity theless, Medicare remains largely a fee-for-service between the way we deal with risks in health and the program. Unless its disparities with the private sector way we deal with risks in other aspects of our lives, are addressed, political support for Medicare may one might expect a more calibrated real cost-benefit well begin to wane, especially if escalating Medicare analysis to emerge eventually as health care policy costs force tax increases or reductions in other gov- matures. ernment programs that serve important functions. Before concluding, I would like to offer a few Regardless of what changes are eventually put into points about the experience of the Social Security place, the nation should be prepared to revisit the Commission of 1982 that may be relevant to your issue of Medicare reform—perhaps many times—as deliberations. First, I believe that the commission, unanticipated technological changes alter medical which I chaired, succeeded, if that is the word, practice and private insurance markets evolve. Other because, from the start, it was integrated with the broad economic and social trends—for example, un- political system. I kept President Reagan's Chief of foreseen changes in labor market activity among the Staff James Baker informed of our deliberations on elderly—may also make adjustments in the structure an ongoing basis. Robert Ball, the former Social of Medicare desirable. Security Commissioner and social insurance profes- Perhaps the hardest issue with which you will have sional, kept the Speaker informed. Many members of to grapple is the very real possibility that the pro- the Congress also were members of the commission: jected demands by Medicare recipients exceed a real- Senators Dole, Heinz, and Moynihan and Congressistic estimate of our budgetary capabilities. Medical men Archer, Conable, and Pepper. The interplay rationing is anathema to the American psyche, though between the deliberations of the commission and it often appears in subtle forms. We know, for exam- parallel policy discussions in the White House and ple, that we can never offer all new technologies or the Congress was continuous, ensuring political supmedical procedures immediately to all patients who port for the final product. Had we not done that, the would benefit. In practice, new technologies are allo- report would have ended up on the dust-filled shelves cated by physicians who use their own criteria to along with the many fruitless commission reports of choose the recipients. In this case, the system likely the past. works largely because an innovation that was not In the end, the large majority of the commissionpreviously available does not seem to be missed ers, the President, and much of the congressional except by the most knowledgeable. That might not be leadership signed onto the principal recommendaperceived as fair, but the thought of our political tions in the commission's final report. Tactically, we system attempting to improve the process gives me chose to do something unusual to help ensure that our great concern. recommendations would be implemented. As with all Medical decisions have always raised difficult ethi- tightly crafted compromises, pulling one provision cal considerations. We expend vast resources to pro- might have caused the whole structure to unravel. long life a few weeks or a few months whereas some Therefore, Robert Ball and I, the designated presentother democracies rely more on hospice care and ers of the commission's findings to the Congress, restrict the use of scarce equipment, especially among agreed to defend the report in total. The internal older persons. We practice super high tech medicine debates within the commission were behind us, and although, as I suggested earlier, it is not clear how we exhibited a unified front to the Congress. In the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 433 end, the legislation that passed differed little from the recent years has been instrumental in lowering longcommission's recommendations. term interest rates—a key factor in our current eco- In conclusion, programs to support a rapidly nomic vitality. Unless this discipline can be susexpanding aged population threaten budget balance tained, our overall economic performance will be in the early decades of the next century. Preemptive seriously jeopardized. If this commission can assist action could avoid wrenching disruptions to our fed- in expediting the seemingly necessary adjustments to eral medical programs and our economy. The longer Medicare, the nation will owe you an enormous debt we wait, the more difficult the adjustments. More- of gratitude. over, I have no doubt that the budget discipline of Statement by Edward W. Kelley, Jr., Member, Board A few economists already are suggesting that Y2Kof Governors of the Federal Reserve System, before related disruptions will induce a deep recession in the Committee on Commerce, Science and Transpor- the year 2000. That is probably a stretch, but I do not tation, US. Senate, April 28, 1998 think that we shall escape unaffected. Some of the more frightening scenarios are not without a certain I am pleased to appear before the committee today to plausibility if this challenge were being ignored. But discuss the Year 2000 computer systems issue and it is not being ignored. While it is probable that the Federal Reserve's efforts to address it. The stakes preparations may in some instances prove to be are enormous, nothing less than the preservation of a inadequate or ineffective, an enormous amount of safe and sound financial system that can continue to work is being done in anticipation of the rollover of operate in an orderly manner when the clock rolls the millennium. It is impossible today to forecast the over at midnight on New Year's Eve and the millen- impact of this event, and the range of possibilities nium arrives. So much has been written about the runs from minimal to extremely serious. In that spirit, difficulties ascribed to the Year 2000 challenge that let me review with you some of the ways in which by now almost everyone is familiar with the basic the millennium bug already is influencing the U.S. issue—specifically, that information generated by economy and discuss some of the possible outcomes computers may be inaccurate or that programs may for economic activity early in the next century. be terminated because they cannot process Year 2000 Corporate business is spending vast amounts of dates. The Federal Reserve System has developed money to tackle the Y2K problem. To try to get a and is executing a comprehensive plan to ensure its handle on the magnitude of these Y2K expenditures, own Year 2000 readiness, and the bank supervision we have reviewed the most recent 10-K reports filed function is well along in a cooperative, interagency with the Securities and Exchange Commission by effort to promote timely remediation and testing by approximately 95 percent of the firms in the Fortune the banking industry. This morning I shall first focus 500. These are the largest businesses in our economy, on the potential macroeconomic consequences of the with revenues of about $5!/2 trillion annually, and are Year 2000 issue. Then I shall discuss actions being likely to be on the cutting edge of efforts to deal with taken by the Federal Reserve System to address its the millennium bug. Before the end of the decade, internal systems, including Reserve Bank testing with these firms report that they expect to spend about depository institutions, and its bank supervision $11 billion in dealing with the Y2K problem. (Of this efforts. total, financial corporations are planning expenditures of $3'/2 billion, while companies in the nonfinancial sector have budgeted funds of around $7'/2 billion.) THE MACROECONOMIC EFFECTS OF THE MILLENNIUM BUG These estimates undoubtably understate the magnitude of the Y2K reprogramming efforts. In culling The Year 2000 (Y2K) problem will touch much more through the 10-K reports, we found that many compathan just our financial system and could temporarily nies reported incurring no additional costs associated have adverse effects on the performance of the over- with Y2K remediation efforts. I doubt that such firms all U.S. economy as well as the economies of many, are unaware of the problem. Rather, I suspect that or all, other nations if it is not corrected. The spec- some firms did not view their Y2K spending as trum of possible outcomes is broad, for the truth of having a "material" effect on their bottom line, and the matter is that this episode is unique. We have no some companies probably have funded Y2K programs with monies already budgeted to their informaprevious experiences to give us adequate guideposts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

434 Federal Reserve Bulletin • June 1998 tion technology functions. Making an allowance for net effect of Y2K remediation efforts might shave a all costs—whether explicitly stated or not—and rec- tenth or two a year off the growth of our nation's ognizing that these Fortune 500 firms are only part overall labor productivity, and a more substantial of the picture, an educated guess of the sunk cost effect is possible if some of the larger estimates of of Y2K remedial efforts in the U.S. private sector Y2K costs are used in these calculations. The effects might be roughly $50 billion. To put this number on real gross domestic product are likely to be someinto perspective, the Gartner Group has estimated what smaller than this but could still total a tenth of a that Y2K remediation efforts will total $300 billion to percentage point or so a year over the next two years. $600 billion on a worldwide basis. The U.S. economy The United States is not alone in working to deal accounts for about one-fifth of world output, and thus with the millennium bug. Efforts by our major tradour estimate seems broadly consistent with the lower ing partners also are under way, although in many end of their range. Given the experience of our own cases they probably are not yet at so advanced a stage Y2K efforts to date, I would expect to see costs rise as in this country. In Europe, the need to reprogram further once all these Y2K programs are fully under computer systems to handle the conversion to the way—ultimately pushing costs up within the Gartner euro seems to have taken precedence over Y2K Group range. efforts, although there may be efficiencies in dealing Corporate efforts to deal with the Y2K problem are with the two problems at once. The financial difficulaffecting economic activity in a variety of ways. On ties of Japan and other Asian economies certainly the positive side, an important element in some Y2K have diverted attention and resources in those counprograms is the replacement of aging computer sys- tries from the Y2K problem, increasing the risk of a tems with modern, state-of-the-art hardware and soft- Y2K shock from one or more of these countries. But, ware. Such capital expenditures—which I should note on the positive side, large multinational corporations are not included in the $50 billion cost estimate—will are acutely aware of the Y2K problem, and their raise the level of productivity in those enterprises, remediation efforts are independent of national and, in general, the need to address the Y2K problem boundaries. There are also anecdotal reports that has increased the awareness on the part of senior many of these companies are extending their influexecutives of the complexity and importance of man- ence by demanding that their extensive networks of aging corporate information technology resources. smaller suppliers prepare themselves as a condition The increased replacement demand also has contrib- of maintaining their business relationship. uted to the spectacular growth recently in this coun- Obviously, a great deal of work either is planned or try's computer hardware and software industries—a is under way to deal with the Year 2000 problem. But process that I would expect to continue for a while what if something slips through the cracks and we longer. But, ultimately, we are largely shifting the experience the failure of some "mission critical" timing of these investment expenditures: Today's systems? How will a computer failure in one industry added growth is likely "borrowed" from spending at affect the ability of other industries to continue to some time in the future. And as if analyzing the operate smoothly? The number of possible scenarios dynamics of this situation were not already compli- of this type is endless, and today no one can say with cated enough, some firms may "freeze" their sys- any confidence how severe any Y2K disruptions tems in the middle of 1999—effectively forgoing the could be or how a failure in one sector would influinstallation of new hardware and software systems ence activity in others. just before the millennium. This, too, could influence We have many examples of how economic activity spending on computer equipment—shifting some of was affected by disruptions to the physical infrastrucit from 1999 into 2000. ture of this country. Although the Y2K problem While Year 2000 remediation efforts may give a clearly is unique, some of these disruptions to our temporary boost to economic activity in some sec- physical infrastructure may be useful in organizing tors, the net effect probably is negative. I suspect that our thinking about the consequences of short-lived the majority of Y2K expenditures should be viewed interruptions in our information infrastructure. In as increased outlays for maintenance of existing sys- early 1996, a major winter storm paralyzed large tems, which are additional costs on businesses. Other portions of the country. Commerce ground to a halt than the very valuable ability to maintain its opera- for up to a week in some areas, but activity bounced tions into the year 2000, few quantifiable benefits back rapidly once the roads were cleared again. accrue to the firm, and overall productivity gains are Although individual firms and households were reduced by the extra hours devoted to reprogramming adversely affected by these disruptions, in the aggreand testing. Conservative estimates suggest that the gate the economy quickly recovered most of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 435 output lost due to the storm. In this instance, the ties transactions between depository institutions in shock to our physical infrastructure was transitory in the United States. These systems are critical national nature, and, critically, the recovery process was under utility services, moving funds much as the national way before any adverse "feedback" effects were power grid moves electricity. Fedwire is a largeproduced. Last summer's strike by workers at the value payments mechanism for U.S. dollar interbank United Parcel Service is a second example. UPS is a funds transfers and U.S. government securities transmajor player in the package delivery industry in this fers primarily used by depository institutions and country, and the strike disrupted the shipping patterns government agencies. These applications, as well as of many businesses. Some sales were lost, but in the supporting accounting systems and other payment many instances alternative shipping services were applications such as the automated clearinghouse found for high-priority packages. Some businesses (ACH), run on mainframe computer systems operwere hurt by the strike, but its effect on economic ated by Federal Reserve Automation Services, the activity was small in the aggregate. We hope that any internal organizational unit that processes applica- Y2K shock to our information infrastructure would tions on behalf of the Federal Reserve Banks and also be transitory and would share the characteristics operates the Federal Reserve's national communicaof these shocks to our physical infrastructure. tions network. What can monetary policy do to offset any macro- The Reserve Banks also operate check processing economic effects? The truthful answer is "not much." systems that provide check services to depository Just as we were not able to plow the streets in 1996 or institutions and the U.S. government. In addition deliver packages in 1997, the central bank will be to centralized applications on the mainframe, the unable to reprogram the nation's computers for the Reserve Banks operate a range of applications in a year 2000. The Y2K problem is primarily an issue distributed computing environment, supporting busiaffecting the aggregate "supply" side of the econ- ness functions such as currency distribution, banking omy, whereas the Federal Reserve's monetary policy supervision and regulation, research, public informaworks mainly on aggregate "demand." We all under- tion, and human resources. The scope of the Federal stand how creating more money and lowering the Reserve's Year 2000 activities includes remedialevel of short-term interest rates give a boost to tion of all of these processing environments and interest-sensitive sectors (such as homebuilding), but the supporting telecommunications network, called these tools are unlikely to be very effective in gener- FEDNET. Our Year 2000 preparations also address ating more Y2K remediation efforts or accelerating our computerized environmental and facilities manthe recovery process if a company experiences some agement systems, such as power, heating and cooltype of Year 2000 disruption. We will, of course, be ing, voice communications, elevators, and vaults. ready if people want to hold more cash on New Year's Eve 1999, and we will be prepared to lend to financial institutions through the discount window YEAR 2000 READINESS OE INTERNAL SYSTEMS under appropriate circumstances or to provide needed reserves to the banking system. But there is nothing The Federal Reserve is giving the Year 2000 its monetary policy can do to offset the direct effects of highest priority, consistent with our goal of maintaina severe Y2K disruption. As a result, our Year 2000 ing the stability of the nation's financial markets and focus has been in areas in which we can make a payments systems, preserving public confidence, and difference: conforming our own systems, overseeing supporting reliable government operations. The Fedthe preparations of the banking industry, preparing eral Reserve completed assessment of its applications the payments system, and contingency planning. in 1997; our most significant applications have been Additionally, we are doing all we can to increase renovated; and internal testing is under way using awareness of this problem and to energize preparadedicated Y2K computer systems and datetions both here at home and in other parts of the simulation tools. Changes to mission critical comworld. puter programs, as well as system and useracceptance testing, are on schedule to be completed by year-end 1998. Further, systems supporting the BACKGROUND ON FEDERAL RESERVE delivery of critical financial services that interface YEAR 2000 PREPARATIONS with the depository institutions will be Year 2000 ready by this July and a depository institution test program will be in place at that time. This schedule The Federal Reserve operates several payments appliwill permit approximately eighteen months for cuscations that process and settle payments and securi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

436 Federal Reserve Bulletin • June 1998 tomer testing, to which we are dedicating consider- the banking industry to address this challenge. able support resources. Accordingly, the Federal Reserve and the other bank- Our Y2K project is being closely coordinated ing supervisors that make up the Federal Financial among the Reserve Banks, the Board of Governors, Institutions Examination Council have been working numerous vendors and service providers, approxi- closely to orchestrate a uniform supervisory approach mately 13,000 customers, and government agencies. to supervising the banking industry's efforts to ensure We are stressing effective, consistent, and timely its readiness. Detailed information about our supercommunication, both internal and external, to pro- visory program is attached as an addendum to this mote awareness and commitment at all levels of our testimony and is readily available on a web site own organization and the financial services industry, maintained by the Federal Reserve on behalf of these more generally. agencies.1 A significant challenge in meeting our Y2K readiness objectives is our reliance on commercial hard- PREPARING THE PAYMENTS SYSTEMS ware and software products and services. Much of our information processing and communications In order to ensure the readiness of the payments infrastructure, as well as our administrative functions system, the Federal Reserve has prepared a special and other operations, is composed of hardware and central environment for the testing of high-risk dates, software products from third-party vendors. As a such as the rollover to the Year 2000 and leap year. result, we must coordinate with numerous vendors Testing will be conducted through a combination of and manufacturers to ensure that all of our hardware, future-dating our computer systems to verify the software, and services are Year 2000 ready. In many readiness of our infrastructure and testing critical cases, compliance requires upgrading, or, in some future dates within interfaces to other institutions. cases, replacing, equipment and software. We have a Internal testing is expected to be completed by July, complete inventory of vendor components used in and external testing with customers and other counour mainframe, telecommunications, and distributed terparties will then commence and continue throughcomputing environments, and vendor coordination out 1999. Network communications components are and system change are progressing well. We are also being tested and certified in a special test lab particularly sensitive to telecommunications, an environment. We have published a detailed schedule essential infrastructure element in our ability to mainof testing opportunities for Fedwire, ACH transtain a satisfactorily high level of financial and busiactions, and other services provided by the Federal ness services. We have been working with our finan- Reserve. Our test environments have been configured cial institutions and our telecommunications servicers to provide flexible and nearly continuous access by to find ways to facilitate preparations and testing customers. The Reserve Banks are implementing proprograms that will ensure Y2K readiness. Nonethecesses to identify which depositories have tested with less, this is an area that many financial institutions us, so that we may follow up on any laggards. regard as needing attention. We strongly support the We are also researching, in conjunction with our Federal Communications Commission's (FCC's) procounterparties, the benefits of Y2K testing that would gram to draw increased attention to the Y2K issue span the entire business process. As part of this effort, and the progress of the telecommunications compathe Federal Reserve is coordinating with the Clearing nies in the United States. House for Interbank Payment Systems and the Society for Worldwide Interbank Financial Telecommuni- OVERSIGHT OF BANKING INDUSTRY cation to provide a common test day for customers PREPARATIONS of all three systems on September 26, 1998. The New York Clearing House is coordinating an effort Ultimately, the boards of directors and senior man- to establish common global test dates among major agement of banks and other financial institutions funds transfer systems during April and May 1999. must shoulder the responsibility for ensuring that the We are also coordinating with the international institutions they manage are able to provide high community of financial regulators to help mobilize quality and continuous services beginning on the first global preparations more generally. These efforts are business day in January of the Year 2000 and beyond. This critical obligation must be among the very highest of priorities for bank management and boards of 1. The attachment to this statement is available from Publications Services, Mail Stop 127, Board of Governors of the Federal Reserve directors. Nevertheless, bank supervisors can provide System, Washington, DC 20551, and also on the Board's site on the guidance, encouragement, and strong incentives to World Wide Web (http://www.bog.frb.fed.US). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 437 discussed more fully in the addendum. In particular, We are currently focusing on contingency planning through the auspices of the Bank for International for external Y2K-related disruptions, such as those Settlements, international regulators for banking, affecting utility companies, telecommunications prosecurities, and insurance along with global payments viders, large banks, and difficulties abroad that affect specialists recently jointly hosted a Year 2000 round- U.S. markets or institutions. The Federal Reserve has table, which was attended by more than fifty coun- established higher standards for testing institutions tries. A joint council was formed that will promote that serve as the backbone for the transactions that readiness and serve as a global clearing house on support domestic and international financial markets Year 2000 issues. In the final analysis, however, the and whose failure could pose a systemic risk to the regulatory community recognizes that it cannot solve payments system. the problem for the financial industry. Every financial We recognize that, despite their best efforts, some institution must complete its own program and thor- depository institutions may experience operating difoughly test its applications with counterparties and ficulties, either as a result of their own computer customers if problems are to be avoided. problems or those of their customers, counterparties, or others. These problems could be manifested in a number of ways and could involve temporary fund- CONTINGENCY PLANNING ing difficulties. The Federal Reserve plans to be prepared to provide information to depository institu- Despite our intensive efforts to prepare our computer tions on the balances in their accounts with us systems, we must also make plans for dealing with throughout the day so that they can identify shortfalls problems that might occur at the Year 2000 rollover. and seek funding in the market. The System will also As you know, the Federal Reserve has been involved be prepared to lend in appropriate circumstances and in contingency planning and has dealt with various with adequate collateral to depository institutions types of emergencies for many years. In response to when market sources of funding are not reasonably past disasters, we worked closely with the affected available. financial institutions to ensure that adequate supplies Our preparations for possible liquidity difficulties of cash were available to the community and that extend as well to the foreign bank branches and backup systems supported our operations without agencies in the United States that may be adversely interruption during the crisis period. These efforts affected directly by their own computer systems or primarily focused on the orderly resumption of busi- through difficulties caused by the linkage and depenness operations resulting from hardware failures or dence on their parent bank. Such circumstances processing-site problems. In addition to disruptions would necessitate coordination with the home counto hardware or processing sites, Y2K contingency try supervisor. Moreover, consistent with current polplanning must be directed at potential software fail- icy, foreign central banks will be expected to provide ures and interdependency problems with financial liquidity support to any of their banking organizaand nonfinancial counterparties. Within this context, tions that experience a funding shortfall. business resumption is made more difficult because we cannot fall back to an earlier version of a software package because this version itself may not have CLOSING REMARKS been readied for the Year 2000. Y2K disruptions to utility services or depository institutions can also To sum up, the macroeconomic effects of Year 2000 directly affect the Federal Reserve's ability to con- preparations are quite complex. As I have discussed, duct business. So, in order to plan for the continuity some industries may benefit in the near term from of services, it may be necessary to consider available increased sales associated with the accelerated pace alternate ways to provide services if a Year 2000 of replacement of obsolete computer systems, and problem is identified. their customers presumably will have more produc- The Federal Reserve has formed a task force to tive systems in place sooner than might otherwise address the contingency readiness of our payments have been the case. But, in the aggregate, preparing applications. Although we have no grounds for antici- for the Y2K problem is likely exerting a slight drag pating that specific failures could occur and we can- on the U.S. economy. The Y2K problem, in effect, not act as an operational backstop for the nation's raises the rate of depreciation of the nation's stock of financial industry, we view it as our responsibility to plant and equipment. It forces businesses to devote take action to ensure that we are as well positioned as additional programming resources simply to maintain possible to address major failures should they occur. the existing flow of services from its computers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

438 Federal Reserve Bulletin • June 1998 As a provider of financial services to the economy, unique to our experience in many ways, and because we are on schedule with our own internal remedia- the impact of computer-driven systems has become tion efforts and will shortly begin testing our inter- so ubiquitous, the event is unlikely to be trouble free. faces with financial institutions. While we have made While we cannot predict with any certainty, there significant progress in our Year 2000 preparations, clearly is the potential for problems to develop, but our challenge now is to ensure that our efforts remain these need not be traumatic if we all do our part in on schedule and that problems are addressed in a preparation. As the world's largest economy, the timely fashion. In particular, we shall be paying heaviest burden of preparation falls on the United special attention to the testing needs of depository States. But it is truly a worldwide issue, and, to the institutions and the financial industry and are pre- extent that some are not adequately prepared and pared to adjust our support for them as required by experience breakdowns of unforeseeable dimension, experience. we shall all be affected accordingly. There is much As a bank supervisor, the Federal Reserve will work to be done. We intend to do our utmost and continue to address the financial services industry's hope and trust that others will do likewise. preparedness, monitor progress, and target for special In this spirit, I want to commend the committee for supervisory attention those institutions that are most inviting this panel to testify together on Y2K issues. in need of assistance. In addition, we shall track the This is the first time that the Board has testified next Y2K progress of external vendors and critical infra- to representatives of the Departments of Commerce structure suppliers, such as telecommunications and and Transportation, and the FCC. This is wholly electrical power utilities. appropriate because our success in preparing for the The problems presented to the world by the poten- millennium will ultimately depend very much on one tial for computer failures as the millennium arrives another's efforts. are real and serious. Because these problems are Statement by Laurence H. Meyer, Member, Board of financial services, meet the convenience and needs of Governors of the Federal Reserve System, before the local communities, and allow U.S. financial services Committee on Banking and Financial Services, U.S. firms to evolve with the needs of the marketplace. House of Representatives, April 29, 1998 My statement today will discuss how, within the context of existing law, the Federal Reserve is pursu- I am pleased to appear before this committee on ing these goals and will review the potential ecobehalf of the Federal Reserve Board to discuss issues nomic effects of bank mergers. I will also argue that related to mergers among U.S. banking organizations the consolidation of the U.S. financial services indusand other financial services firms. The past two try reinforces the need for legislation to modernize decades have seen a steady and sometimes breathtak- our banking and financial systems. ing consolidation of our banking system, a process One of the reasons we are here today is the recent that will likely continue for quite some time. This announcements of several large and interesting mergongoing consolidation is in many ways a natural ers. My statement purposely does not include any response to our rapidly changing banking environ- substantive discussion of specific mergers and acquiment. However, the very large mergers and acqui- sitions that have been proposed recently. Several of sitions of recent years, and those approved or the recently announced proposals will require that a announced in the past few weeks, have raised a company obtain the Board's approval under the Bank number of public policy questions and concerns in Holding Company Act. Each proposal subject to the the minds of many observers. Bank Holding Company Act will be thoroughly As the committee knows well, this is not the first reviewed by the Board on a case-by-case basis in time the Board has testified on the subject of bank conformance with current law and under the Board's mergers. The Board continues to believe that the well-established policies and procedures. It is imporprimary objectives of public policy in this area should tant to note, however, that the Bank Holding Combe to ensure a safe and sound banking system, pre- pany Act does not give the Board unfettered discreserve the benefits of competition for consumers of tion in acting on such proposals. Instead, the Bank Holding Company Act specifies the factors that the NOTE. The attachments to this statement are available from Publi- Board must review in these cases, and the Board's cations Services, Mail Stop 127, Board of Governors of the Federal power to approve or deny a proposal is significantly Reserve System, Washington, DC 20551, and on the Board's site on limited by these factors. the World Wide Web (http://www.bog.frb.fed.US). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 439 These factors include the competitive effects of the description of recent trends in merger activity and proposal, the financial and managerial resources and overall U.S. banking structure. The statistical tables future prospects of the companies and banks involved at the end of my statement provide some detail that in the proposal, and the effects of the proposal on the may be of interest to the committee. convenience and needs of the community to be served, including the performance record of the depository institutions involved under the Commu- Bank Mergers nity Reinvestment Act. In addition, the Board may enforce compliance with the requirements of the There have been more than 7,000 bank mergers since Bank Holding Company Act and must be assured of 1980. The pace accelerated from 190 mergers with access to information needed to enforce compliance. $10.2 billion in acquired assets in 1980, to 649 with The Bank Holding Company Act also establishes $123.3 billion in acquired assets in 1987. In the nationwide and individual state deposit limits for 1990s, the pace of both the number and dollar volinterstate bank acquisitions and consolidated home ume of bank mergers has remained high. Through country supervision standards for foreign banks. In March of this year, the rapid pace of merger activity proposals involving the acquisition of a nonbanking has continued. For example, if only the five largest company, the Board must consider whether perfor- mergers or acquisitions approved or announced since mance of the activity by a bank holding company December are completed, a total of more than affiliate can reasonably be expected to produce $500 billion in banking assets would have been benefits to the public, such as greater convenience, acquired. increased competition, or gains in efficiency that out- The incidence of "mega-mergers," or mergers weigh possible adverse effects such as undue concen- among very large banking organizations, is a truly tration of resources, decreased or unfair competition, remarkable aspect of current bank merger activity. conflicts of interests or unsound banking practices. But it is useful to recall that very large mergers began The Board is not granted authority under the Bank to occur with growing frequency after 1980. In 1980, Holding Company Act to disapprove a proposal that there were no mergers or acquisitions of commercial meets all of these statutory factors. Thus the Board banking organizations in which both parties had more could not deny a proposal because, for example, the than $1.0 billion in total assets. The years 1987 Board does not like this particular combination of through 1996 brought growing numbers of such firms or because it believes that a different combina- acquisitions and, reflecting changes in state and fedtion of companies would be more profitable, efficient, eral laws, an increasing number of these involved or desirable. The Board must consider the proposal interstate acquisitions by bank holding companies. that is presented to the Board and whether the particu- The largest mergers in U.S. banking history took lar companies involved in the application before the place or were approved during the 1990s—including Board meet the statutory factors. Similarly, the Board Chase-Chemical, Wells Fargo-First Interstate, cannot deny a proposal simply because the compa- NationsBank-Barnett, and First Union-CoreStates. nies involved are large unless the effect of the pro- And while these mergers set size precedents, the posal may be to substantially lessen competition in recently proposed mergers of Citicorp and Travelers, violation of the standards in the federal antitrust laws and NationsBank and BankAmerica, if consummated, or to contravene one of the other factors in the Bank would set a new standard for sheer size in U.S. Holding Company Act. Later in my statement, I will banking organizations. discuss the methodology the Board uses in assessing each of these aspects of a proposed merger. As an initial matter, I can assure you on behalf of the Board National Banking Structure that none of the applicants or potential applicants has been given any prior indication of the Board's views The high level of merger activity since 1980, along on their proposals or whether their proposals will be with a large number of bank failures, is reflected in a approved or disapproved by the Board. steady decline in the number of U.S. banking organizations from 1980 through 1997. In 1980, there were more than 12,000 banking organizations, defined as TRENDS IN MERGERS AND BANKING bank holding companies plus independent banks; STRUCTURE banks numbered nearly 14,500. By 1997, the number It is useful to begin a discussion of the public policy of organizations had fallen to about 7,100 and the and other implications of bank mergers with a brief number of banks to just more than 9,000. The number Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

440 Federal Reserve Bulletin • June 1998 of organizations had declined more than 40 percent merger activity. Each merger is somewhat unique and and the number of banks by more than one-third. likely reflects more than one motivation. For exam- The trends I have just described must be placed in ple, a recent study of scale economies in banking perspective because taken by themselves they hide suggests that efficiencies associated with larger size some of the key dynamics of the banking industry. are likely to be exhausted after about $10 billion to There are some other important characteristics of $25 billion in assets. In addition, some lines of busi- U.S. banking. While there were about 1,450 commer- ness, such as securities underwriting and market makcial bank failures and more than 7,000 bank acquisi- ing, require quite large levels of activity to be viable. tions between 1980 and 1997, some 3,600 new banks Increased competitive pressures caused by rapid were formed. Similarly, while more than 18,000 bank technological change and the resulting blurring of branches were closed, the same period saw the open- distinctions between banks and other types of finaning of nearly 35,000 new branches. Perhaps even cial firms, lower barriers to entry due to deregulation, more important, the total number of banking offices and increased globalization also contribute to merger increased sharply from about 53,000 in 1980 to activity. Global competition appears to be especially more than 71,000 in 1997, a 35 percent rise, and the important for banks that specialize in corporate cuspopulation per banking office declined. This includes tomers and wholesale services, especially among the former thrift offices that were acquired by banking very largest institutions. Today, for example, almost organizations. Fewer banking organizations clearly 40 percent of the U.S. domestic commercial and has not meant fewer banking offices serving the industrial bank loan market is accounted for by public. foreign-owned banks. These trends have been accompanied by a substan- More generally, greater competition has forced tial increase in the share of total banking assets inefficient banks to become more efficient, accept controlled by the largest banking organizations. For lower profits, close up shop, or—in order to exit a example, the proportion of domestic banking assets market in which they cannot survive—merge with accounted for by the 100 largest banking organiza- another bank. Other possible motives for mergers tions went from just more than one-half in 1980, to include the simple desire to achieve market power or nearly three-quarters in 1997. The increase in nation- the desire by management to build empires and enwide concentration reflects, to a large degree, a hance compensation. Some mergers probably occur response by the larger banking organizations to the as an effort to prevent the acquiring bank from itself removal of state and federal restrictions on geo- being acquired, or, alternatively, to enhance a bank's graphic expansion both within and across states. The attractiveness to other buyers. industry is moving from many separate state banking Many of these factors are also motivating mergers structures toward a nationwide banking structure that between bank and nonbank financial firms. However, would have existed already had legal restrictions not in these cases, a key causal factor is the ongoing stood in the way. The increased opportunities for blurring of distinctions between what were, not very interstate banking are allowing many banking organilong ago, quite different financial services. Today, zations to reach for the twin goals of geographic risk as the Board has testified on many occasions, it is diversification and new sources of "core" deposits. increasingly difficult to differentiate between many As I will discuss shortly, it may well be that the products and services offered by commercial banks, retail banking industry is moving toward a structure investment banks, and insurance companies. Thus, more like that of some other local market industries we should not find it surprising that firms in each of such as clothing and department store retailing. As in these industries should seek partners in the others. banking, clothing and department store customers tend to rely on stores located near their home or workplace. These stores may be entirely local or may Local Market Banking Structure be part of regional or national organizations. Thus, it should perhaps not be surprising that banks, now Given the Board's statutory responsibility to apply freed of barriers to geographic expansion, are taking the antitrust laws so as to ensure competitive banking advantage of the opportunity to operate throughout markets, it is critical to understand that nationwide the country as have firms in other retail industries. concentration statistics are generally not the appro- But, it would be a mistake to think that adjustment priate metric for assessing the competitive effects of to a new statutory environment—and the increased mergers. Moreover, the extent to which mergers can opportunities for geographic diversification—were increase national concentration is limited by the prothe only reasons for the current volume of bank visions in the Riegle-Neal Act of 1994 that amended Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 441 the Bank Holding Company Act and established banks can be formed fairly easily, and some key national (10 percent) and state-by-state (30 percent) regulatory barriers, such as restrictions on interstate deposit concentration limits for interstate bank acqui- banking, have been all but eliminated. sitions. States may establish a higher or lower limit, Third, the evidence overwhelmingly shows that and initial entry into a state by acquisition is not banks from outside a market usually do not increase subject to the Riegle-Neal statewide 30 percent limit. their market share after entering a new market by Beyond this, the Board has a statutory responsibil- acquisition. Studies indicate that, when a local bank ity to apply the antitrust laws so as to ensure competi- is acquired by a large out-of-market bank, there is tive local banking markets. Evidence indicates that normally some loss of market share. The new owners in the vast majority of cases the relevant concern are not able to retain all of the customers of the for competition analysis is competition in local bank- acquired bank. Anecdotal evidence suggests that ing markets. While one can identify specific local some other banks in the market mount aggressive markets that have experienced increases in con- campaigns to lure away customers of the bank being centration, from 1980 through 1997, in both urban acquired. and rural markets, the average percentage of bank Fourth, it is important to emphasize that small deposits accounted for by the three largest firms banks have been, and continue to be, able to retain has remained steady or actually declined slightly, their market share and profitability in competition even as nationwide concentration has increased with larger banks. Our staff has done repeated studies substantially. Essentially similar trends are apparent of small banks; all these studies indicate that small when local market bank concentration is measured banks continue to perform as well as, or better than, by the Herfindahl-Hirschman Index (HHI) the their large counterparts, even in the banking markets sum of the squares of the market shares. Because dominated by the major banks. This may be due, in of the importance of local banking markets, I part, to more personalized service. But whatever the would like to provide somewhat more detail on reason, based on this experience, we expect that there the implications of bank mergers for local market will continue to be a large number of banks remainconcentration. ing in the future. Metropolitan Statistical Areas (MSAs) and non- Despite a continued high level of merger activity, MSA counties are often used as proxies for urban and studies based on historical experience suggest that in rural banking markets. The average three-firm de- about a decade there may be about 3,000 to 4,000 posit concentration ratio for urban markets decreased banking organizations, down from about 7,000 today. 3 percentage points between 1980 and 1997. Average Although the top ten or so banking organizations will concentration in rural counties declined 1.7 per- almost certainly account for a larger share of banking centage points. Similarly, the average bank-deposit- assets than they do today, the basic size distribution based HHI for both urban and rural markets fell of the industry will probably remain about the same. between 1980 and 1997. When thrift deposits are That is, there will be a few very large organizations given a 50 percent weight in these calculations, aver- and an increasing number of smaller organizations as age HHIs are sharply lower than the bank-only HHIs we move down the size scale. It seems reasonable in a given year, but the HHIs trend slightly upward to expect that a large number of small, locally orisince 1984. On balance, the three-firm concen- ented banking organizations will remain. Moreover, size does not appear to be an important determining tration ratios and the HHI data strongly suggest factor even for international competition. Only very that, despite the fact that there were more than recently have U.S. banks begun to appear, once again, 7,000 bank mergers between 1980 and 1996, local among the world's twenty largest in terms of assets. banking market concentration has remained about Yet those U.S. banks that compete in world markets the same. are consistently among the most profitable and best Why haven't all of these mergers increased avercapitalized in the world, as well as being ranked as age local market concentration? There are a number the most innovative. of reasons. First, many mergers are between firms operating primarily in different local banking mar- Finally, administration of the antitrust laws has kets. While these mergers may increase national or almost surely played a role in restricting local market state concentration, they do not tend to increase con- concentration. At a minimum, banking organizations centration in local banking markets and thus do not have been deterred from proposing seriously antireduce competition. competitive mergers. And in some cases, to obtain Second, as I have already pointed out, there is new merger approval, applicants have divested banking entry into banking markets. In most markets, new assets and deposits in certain local markets where the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

442 Federal Reserve Bulletin • June 1998 merger would have otherwise resulted in excessive presumption that the merger is acceptable on comconcentration. petitive grounds, but if they are not, a more thorough Overall, then, the picture that emerges is that of economic analysis is required. These guidelines are a dynamic U.S. banking structure adjusting to the not applied mechanistically, because there are other removal of long-standing legal restrictions on geo- factors that may influence competition. These factors graphic expansion, technological change, and greatly may vary from case to case and market to market. increased domestic and international competition. Some of these factors are described below. Even as the number of banking organizations has declined, the number of banking offices has contin- • Potential competition, or the possibility that ued to increase in response to the demands of con- other firms may enter the market, may be regarded as sumers, and measures of local banking concentration a significant procompetitive factor. have remained quite stable. In such an environment, • Thrift institution deposits are now typically it is potentially very misleading to make broad gener- accorded 50 percent weight in calculating market alizations without looking more deeply into what lies shares and HHIs. A higher percentage may be applied below the surface. In part for the same reasons that if thrift institutions in the relevant market look very make generalizations difficult, the Federal Reserve much like banks, as indicated by the substantial exerdevotes considerable care and substantial resources cise of their transactions account, commercial lendto analyzing individual merger applications. ing, and consumer lending powers. • Competition from other depository and nonbank financial institutions may also be given weight beyond that already given within the framework of FEDERAL RESERVE METHODOLOGY FOR the merger guidelines. Added weight is appropriate if ANALYZING PROPOSED BANK MERGERS such entities are particularly important in providing substitutes for the basic banking services used by This section of my statement discusses in some detail most households and small businesses. the Board's policies and procedures for evaluating • If the bank being acquired is not a reasonably proposed bank mergers and acquisitions. active competitor in a market, its market share might be given a smaller weight in the analysis of competition than otherwise. Competitive Criteria Reviewed in Mergers • If the firm to be acquired is located in a declining market, this may be viewed as mitigating adverse While competition in the banking industry is, and structural effects. likely will remain, robust despite bank merger activ- • Competitive issues may be reduced in impority, some individual bank mergers affect individual tance if the bank to be acquired has failed or is about local markets. When considering the competitive to fail. In such a case, it may be desirable to allow effects of a proposed bank acquisition, the Board is some adverse competitive effects if this means that required to apply the competitive standards contained banking services will continue to be available to local in the Sherman and Clayton Antitrust Acts. customers rather than be severely restricted or per- The Board's analysis of competition begins with haps eliminated. defining the geographic areas that are likely to be • A very high level of the HHI could raise quesaffected by a merger. Evidence suggests that small tions about the competitive effects of a merger even if businesses and households tend to obtain their finan- the change in the HHI is less than the Justice Departcial services in their local area. With this basic local ment criterion. market orientation of households and small busi- • Economies of scale are considered to be a posinesses in mind, the staff calculates bank market tive factor in appropriate cases unless the economies shares and a local market index of concentration, the could be achieved in a less anticompetitive manner. HHI, which is widely accepted as a sensitive measure • Finally, other factors unique to a market or firm of market concentration. The resulting market share would be considered if they are relevant to the analyand both the level and change in the HHI are also key sis of competition. elements of the Department of Justice merger guidelines. The Board relies on these guidelines as a pre- When a merger cannot be justified using any of the liminary screen of proposed mergers. If the resulting criteria I have just outlined, some applications are market share and the level and change in the HHI are approved only after the applicant proposes divestiture within Justice Department guidelines, there is a of offices to remedy competition problems. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 443 Safety and Soundness Criteria they provide a key source of information about the institution's record. The law now requires that these In acting upon merger applications, the Board is examinations reflect a state-by-state and MSA-byrequired to consider financial and managerial MSA evaluation, and this will be particularly helpful resources and the future prospects of the firm. In in judging the performance of large organizations. In doing so, the Board's goal is to promote and protect addition, the public may comment during the processthe safety and soundness of the banking system, and ing of the application, and this is often an important to encourage prudent acquisition behavior. Indeed, additional source of insight. Besides analyzing these except in very special circumstances, usually involv- comments, our staff prepares extensive documentaing failing banks, the Board will not approve a tion concerning the institutions involved, including merger or acquisition unless the resulting organiza- analysis of projected branch closings, the record of tion is expected to be strong and viable. service as reflected in Home Mortgage Disclosure The Board expects that holding company parents Act data, and other material. will be a source of strength to their bank subsidiaries. The Board expects that banking organizations that In doing so, the Board generally requires that the apply for mergers and acquisitions will have policies holding company applicant and its subsidiaries be in and procedures that are working well to address their at least satisfactory overall condition, and that any CRA responsibilities. This is commonly understood weaknesses be addressed before Board action on a by prospective applicants, and large organizations proposal. The holding company applicant must be have typically committed substantial resources able to demonstrate the ability to make the proposed toward building an acceptable record. Nevertheless, acquisition without unduly diverting financial and we scrutinize all the data available to us very caremanagerial resources from the needs of its existing fully, as reflected in the Board's orders, which often subsidiary banks. focus in large part on CRA and related matters. In These general principles apply regardless of the short, ensuring that CRA records are consistent with size or type of acquisition—banking or nonbanking. approval is a very significant part of the Board's The financial and managerial analysis of an applica- consideration of these cases. tion includes an evaluation of the existing organization, including bank and nonbank subsidiaries, the parent company, and the consolidated organization, THE SUPERVISION OF LARGE, COMPLEX as well as an evaluation of the entity to be acquired. BANKING ORGANIZATIONS Also included in this analysis are the financial and accounting effects of the transaction, that is, the pur- It is clear that mergers of very large financial instituchase price, the funding and sources thereof, and any tions and future, unknown combinations of large U.S. purchase accounting adjustments. Numerous factors banking and financial institutions raise questions are analyzed for strengths and weaknesses, including about how such giant organizations can or will be earnings, asset quality, cash flow, capital, risk man- supervised. To be sure, supervising large or diversiagement, internal controls, and compliance with law fied institutions presents challenges to the Federal and regulation. Reserve in its oversight of bank holding companies. More coordination, for instance, has been and will be needed throughout the Federal Reserve System Community Reinvestment Act Criteria to ensure that such diverse, nationwide institutions The Community Reinvestment Act (CRA) requires receive effective and efficient oversight. In some that supervisory agencies assess each insured deposi- cases, we must also do more to coordinate with other tory institution's record of safely and soundly meet- supervisory authorities, both banking and nonbanking the credit needs of its entire community, includ- ing, domestically and abroad. These challenges are ing low- and moderate-income neighborhoods. The not unexpected and, indeed, were recognized with the CRA performance of banking organizations that seek advent of full interstate banking and the continued the Board's approval to acquire a bank or thrift is an trend of consolidation within the U.S. and internaimportant part of the "convenience and needs" cri- tional banking systems. We have, for example, had in place for some time formal efforts to coordinate state teria that must be considered by the Board. and federal supervisory activities to provide more In making its judgment, the Board pays particular effective oversight of state-chartered banks with attention to CRA examination findings. In recent interstate activities and to do so with minimum buryears, these examinations have focused more on hard den to the supervised institutions. measures of performance, rather than just efforts, and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

444 Federal Reserve Bulletin • June 1998 The emergence of very large, nationwide and mul- to those of securities firms and to the activities of tiproduct financial firms also requires that we review many other financial and nonfinancial firms. Joint and revise our staffing requirements to ensure that statements on sound practices issued in recent years personnel are properly located and sufficiently by the Basle Committee on Bank Supervision and the trained. Developing and maintaining sufficient num- International Organization of Securities Commisbers of examiners and supervisory personnel with sions help to underscore that point. Similarly, many expertise in understanding and evaluating deriva- of the oversight and capital adequacy concerns of the tives, trading, and other capital market activities, for Federal Reserve and other bank regulators are shared example, has been and remains a challenge. These by regulators of other financial institutions. Through activities can be complex and are becoming ever efforts of the Joint Forum on Financial Conglomermore important elements of large U.S. banking orga- ates, which includes regulators for banking, securinizations. Individuals familiar with them are in wide ties, and insurance industries worldwide, we are demand. working to develop frameworks for adequate supervision and regulation of complex internationally To the extent possible, the Federal Reserve will active financial institutions. By emphasizing critical continue to rely on the supervisory and regulatory aspects of risk management through our supervisory activities of other agencies, as we do now with the process and working with other agencies as well, the evolving, yet more traditionally structured, bank Federal Reserve is, and can remain, sufficiently posiholding companies of today. But the rapidly changing tioned, we believe, to provide continued "umbrella" nature of the U.S. banking and financial system oversight to the consolidated activities of banking requires that administrative and managerial considerorganizations. ations receive prompt and perhaps heightened attention. The Board believes that both the existing super- Importantly, H.R. 10 recognizes the need for convisory structure and the provisions of H.R. 10 would solidated supervision in effectively supervising finanaccommodate an adequate supervisory and regula- cial conglomerates. H.R. 10 also recognizes the effectory process in the environment that is taking shape. tiveness of the holding company framework in As this committee knows, the supervisory practices helping to insulate depository institutions and the of the Federal Reserve, and of the other U.S. banking federal safety net from the risks of new activities, and agencies as well, have evolved in recent years toward that the holding company framework better accoma "risk focused" approach: one that emphasizes modates effective functional regulation of activities the importance of an institution's risk-management that are already heavily regulated. policies and procedures, its risk-measurement and H.R. 10 preserves the Board's authority, as the information systems, and its internal controls. While consolidated supervisor, to obtain information from reviewing asset quality clearly remains important, and to examine financial holding companies and their less emphasis than before is placed on the current subsidiaries, and to establish capital standards on condition of an institution's balance sheet, particu- financial holding companies as appropriate. The bill larly in the case of large, internationally active orga- also retains the Board's authority to take administranizations. It places increased reliance and supervisory tive actions to preserve the safety and soundness of focus on the role of senior management and boards of depository institutions in a financial conglomerate directors—that is, on the adequacy of corporate gov- and to enforce compliance with the Bank Holding ernance and the management and control process. Company Act. Indeed, that is properly where the primary responsi- H.R. 10 does place some limitations on the Board's bility and focus must reside. Moreover, for many of current authority under the Bank Holding Company the new instruments, such as derivatives, we have Act. These changes, often grouped under the term increasingly relied on market discipline and dis- "Fed -light," are primarily in two areas. The first closure and have been impressed with their effec- changes recognize that insurance companies and tiveness. This approach has become necessary, we securities brokers and dealers are already extensively believe, in response to technological and financial regulated. Accordingly, H.R. 10 includes sensible innovations and to the growing complexity, transac- provisions that enhance functional regulation, require tion volume, and increased pace in world financial the Board to use examination reports of other funcmarkets today. tional regulators, improve coordination and information sharing among supervisors, and resolve potential As the Federal Reserve has found in revamping its conflicts between regulatory schemes. The bill would own supervisory policies and practices, many of the retain the Board's authority to take administrative fundamental principles of sound risk management actions, including examining a functionally regulated that apply to traditional activities of banks also apply Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 445 affiliate, where the Board has reasonable cause to be included in H.R. 10, generally accepted accountbelieve that an affiliate is engaged in activities that ing principles will govern all public reports of deposipose a material risk to an affiliated depository insti- tory institutions that seek funding in the market. tution. These provisions in H.R. 10, we believe, Under GAAP, the financial statements and the capital strengthen the overall supervisory framework of the of a parent depository institution must fully reflect new financial services companies permitted under the financial condition, capital and losses of its H.R. 10. subsidiaries. H.R. 10 also reduces somewhat the Board's author- Prudential controls, even if supplemented by capiity in supervising companies that own only uninsured tal deductions for purposes of regulatory reporting wholesale financial institutions. These provisions are requirements, are not sufficient to limit the impact of based on the premise that reduced supervision of the losses at a subsidiary because the capital of the holding company is appropriate when none of the depository institution parent is directly exposed to, depository institution subsidiaries of the holding and must reflect, the losses experienced by its subcompany are federally insured. Importantly, the sidiaries. Thus, losses experienced by a subsidiary Board's supervisory authority is only adjusted and is directly jeopardize the financial condition of the parnot eliminated over this type of holding company, ent depository institution. and the Board has full authority to examine and Moreover, subsidiaries of depository institutions supervise the wholesale financial institution itself in directly benefit from and place at risk the federal the same manner as any other bank with access to the deposit insurance funds and the guarantee of the Board's discount window and payment system. taxpayer. The Board believes that it would be a There are other important provisions of H.R. 10 mistake to consider that a subsidiary of a depository that affect supervision. For example, H.R. 10 institution can be effectively insulated from its parent expressly grants the Board authority to establish pru- depository institution in the same way that an affiliate dential controls on transactions and relationships can be separated from the depository institution. For between a depository institution and any affiliate these reasons, the Board strongly opposes provisions (other than a subsidiary of a depository institution) in that would broaden the authority of subsidiaries of which the prudential control may be in the public depository institutions. interest to avoid significant risk to the depository Aside from the issue that bank operating subsidiinstitution, to enhance financial stability, to enhance aries raise with respect to expansion of the nation's customer privacy, to avoid conflicts of interest, or sovereign credit, and on which the Board feels to promote national treatment among foreign and strongly, an issue is emerging with respect to our domestic institutions. The Board believes that this is ability to supervise the complex institutions that a key provision that would enhance the separation would arise if the current trend in bank mergers and afforded by the holding company structure and better acquisitions continues and if the operating subsidiary limit the expansion of the federal safety net to new authority is expanded. In particular, if in the future nonbank affiliates. the central bank did not have the understanding and It is the strong belief that the benefits of the federal adequate supervisory authority to engage giant finansafety net and the obligation of the taxpayer should cial institutions during a systemic crisis, the Federal not be extended to new activities that motivates the Reserve would be seriously impaired in its ability to Board to oppose expanding the new affiliation author- meet its statutory responsibility to maintain the stability to subsidiaries of depository institutions. Prob- ity of the financial system. Put differently, while the lems experienced at an affiliate of a depository insti- economic desirability and efficiency of large financial tution are more readily addressed by prudential institutions is primarily up to their shareholders and controls than problems that arise at a subsidiary of customers, the effect of such institutions on systemic the depository institution. stability is very much a public policy concern. And when it comes to controlling systemic risk, the cen- A holding company subsidiary is not part of a tral bank must be able to play a substantive role. depository institution. A subsidiary of a depository institution, on the other hand, has always been con- More generally, a critical question raised by the sidered to be a department of the bank and, more creation of very large and diverse banking organizaimportant, under generally accepted accounting prin- tions relates to the potential effect of future banking ciples (GAAP) is consolidated into the financial state- problems on systemic risk and the federal safety net. ments of the parent depository institution. This may Research supports the view that more geographically seem like a technical point, but it is a very significant diversified firms exhibit, other things equal, less risk. difference. No matter what accounting regime may Geographically diversified firms are less dependent Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

446 Federal Reserve Bulletin • June 1998 upon the economic fortunes of any one locality, by locally owned institutions. The prospect of loss of region, industry, or group of industries. In addition, these local ties is troubling to many. Moreover, this is such firms are not dependent upon a limited area for occurring at the same time as banks are unbundling their core deposits, thereby helping to ensure a more and explicitly pricing individual services that were stable source of funds. But the issue of systemic risk not previously priced separately. The combination clearly highlights the importance of developing and of new fees and the specter of more impersonal maintaining adequate laws, regulations, and super- service has, quite understandably, raised widespread visory structures that are sufficiently compatible with concerns. the banking and financial system we have. It seems We do not wish to minimize these concerns. Howimportant to emphasize, at this point, that "bailouts" ever, there are two reasons to hope the impact will be and concepts of "too big to fail" can be easily modest: (1) many mergers have not been between misunderstood and misconstrued. banks operating primarily in the same local banking The point, it seems, relates to one's view of bank markets and (2) the effects of intramarket mergers failures and bailouts. Whom should the safety net can be, and thus far have been, limited by both protect? Certainly not shareholders or responsible market forces and antitrust constraints on such mergdirectors or senior managements. These individuals ers. As a consequence, customers should still enjoy should clearly lose their investments or jobs when the benefits of competition. banks fail. And, over time, pieces of any organization, no matter how large, can be sold and the total firm reduced in size. The public policy objectives are Competition to protect the financial system and insured depositors, and to resolve banking problems in an orderly way. Even in those places in which in-market mergers Moreover, with passage of the Federal Deposit Insur- have occurred, evidence to date suggests that the ance Corporation Improvement Act of 1991, the Fed- effect on competition has on average not been suberal Reserve and the FDIC are strictly limited in their stantial. This, of course, does not mean that users of abilities to provide liquidity or financial assistance to bank services will never be harmed by mergers. No weak banks and potential acquirers, no matter what policy can guarantee that result. But the trends in their size. By enacting this legislation, the Congress local market concentration I discussed earlier indimade clear its intent to ensure that discount window cate that market forces and the Board's application of lending extends only to solvent institutions or to antitrust standards to within-market merger applicaweak banks only for relatively short periods of time. tions generally have preserved competition. In addi- For its part, the FDIC must resolve bank failures tion, the Board's policies have almost certainly disusing the "least cost" approach. And the circum- couraged some potential bank mergers before an stances under which the least cost approach can be application was ever filed. Moreover, many urban relaxed are rather severe. In sum, we believe the markets could see a relatively large number of structure currently in place in the United States to in-market mergers before antitrust guidelines would address weak or failing banking institutions provides be violated. an adequate balance of discipline and flexibility to resolve future problems. Branch Closings POTENTIAL IMPLICATIONS OF BANK MERGERS In-market bank mergers often lead to some branch closings, raising concerns that consumer convenience The rapid rate of bank mergers has raised a number may be harmed. Indeed, the possibility of branch of questions regarding the potential effects of closings is often one of the more controversial banking consolidation on those consumers whose aspects of a proposed merger. Branch closings and demands for banking services are primarily local in their impact on the convenience and needs of the nature and on the performance of the merged banks. local community are, of course, one of the key factors reviewed in a bank's CRA examination, and thus are Effects of Mergers on Locally Limited carefully considered by the Board in our evaluation Customers of a proposed merger. In particular, we review very carefully the impact on low- and moderate-income Historically, banking in the United States has had a communities. In addition, Board staff have recently distinctly local flavor with many communities served been examining the effect of bank mergers on office Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 447 closings more generally, and I would like to summa- way. For example, a study that examined the reacrize some of the key preliminary findings. tions of other banks in markets in which mergers Board staff investigated relationships between bank occurred found that increases in the supply of small mergers and changes in the number of banking business lending by these other banks tend to offset offices, looking separately at rural and urban markets. much, if not all, of any initial negative effects of This research indicates that mergers between institu- mergers on small business lending. Indeed, when tions operating in the same local market have tended mergers of large banks are announced, it is quite to be associated with reductions in the number of common to read press reports of other in-market banking offices in neighborhoods served by the banks' expectations of taking business away from the bank being acquired. The strongest relationships are newly formed entity. observed in neighborhoods in which the merging New profit opportunities in small business lending institutions both had offices. However, these effects may also encourage the creation of other new banks. were partially offset by office openings by competi- In fact, it is not uncommon for some of the loan tors, either de novo or through the acquisition of officers of an acquired bank to leave and form their divested offices of the merged firms. Moreover, look- own bank. Further studies suggest that new banks, ing at the nationwide data, the observed relationships regardless of why they were formed, tend to lend between mergers and office closings do not appear larger portions of their assets to small businesses than to be systematically different between low- and do even other small banks of comparable size. moderate-income areas and other localities. Over the long term, at least two factors are likely to These results suggest that the issue of office clos- improve the prospects for small business finance. ings is more complex than is frequently portrayed. First, rapid technological changes applied to the pro- Offices in markets served by both of the merging cess of loan evaluation will, in all probability, confirms tend to be reduced, perhaps in an effort by the tinue to lower the cost of assessing the creditworthimerged firms to achieve operational efficiencies. ness of small businesses. Indeed, we see this process Low- and moderate-income neighborhoods do not at work today in the increasing use of credit scoring appear to be disproportionately affected by such clos- techniques in evaluating the extension of relatively ings. Importantly, new entrants tend to partially offset small loans to small businesses. Significantly, credit the merger-induced reduction in banking offices, sug- scoring technology has the potential to allow banks gesting that, as new profit opportunities arise, other located outside local markets to compete against firms will come in. Moreover, the exploitation of within-market institutions for small business lending. such opportunities is much easier today than even A second important factor is the role of nonbank two years ago before the full implementation of inter- lenders in small business finance. Such lenders have state banking. Put differently, if consumers demand traditionally played an important role in small busilocational convenience, banks of all sizes will need ness finance, and in the future, such firms are likely to, and are now able to, respond if they expect to to be an increasingly important source of funds for remain viable competitors for retail customers. small businesses. Small Business Lending Community Lending An often-expressed concern with bank mergers, and As yet, there are no studies of the effects of mergers especially with mergers involving very large banks, on community lending comparable to the studies is that small business lending will be impaired. This done for small business lending. However, I suspect concern springs in part from some research that indi- that mergers—large or small—do not have negative cates that, on average, large banks devote relatively effects on community lending. Given prior commitmodest portions of their portfolios to small business ments often made by acquirers, mergers may even loans and that consolidations involving large banking have a positive effect, and the merger application organizations tend to result in reduced small business process provides an opportunity for discussion of lending. community needs. In addition, if there are profitable Such results, however, likely provide a misleading opportunities—as I believe there are in community picture of the effects of mergers on small business lending—it seems reasonable to expect that those lending. A deeper evaluation suggests that it is far same market forces that provide for small business from clear that small business lending is, on net and loans (and new bank offices) would also operate in after a transition period, harmed in any significant the market for community lending after mergers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

448 Federal Reserve Bulletin • June 1998 Moreover, large institutions have the experience, Typically, such studies have found that banks operatexpertise, and resources that enable them to be quite ing in more concentrated markets exhibit somewhat active and innovative in the community development higher profits than do banks in less concentrated process. Larger institutions are often at the forefront markets. These higher profits may reflect the lesser of efforts to develop affordable home mortgage degree of competition in more concentrated markets. programs and small business and microenterprise Other studies have looked across banking markets financing programs, and they provide considerable for differences in the prices that banks charge or pay resources to support both local and national nonprofit their loan and deposit customers. For the most part, intermediaries that focus on lower income areas. In such studies have found that banks located in relaaddition, the core of a bank's CRA evaluation is the tively concentrated markets tend to charge higher adequacy of its community-based lending programs, rates for certain types of loans, particularly small the record of which is reviewed frequently and espe- business loans, and tend to offer lower interest rates cially whenever a bank is involved in a merger. on certain types of deposits, particularly transactions accounts, than do banks in less concentrated markets. In general, these studies support the need to maintain Bank Fees antitrust constraints if locally limited bank customers are to continue to receive competitively priced bank- The level and variety of bank fees is another concern ing services. frequently voiced over bank mergers. We are not A related issue is whether mergers lead to greater aware of any studies that have looked specifically at bank efficiency and thus a healthier, more competithe effects of mergers on the level of fees that banks tive banking firm. Studies that are relevant to the charge their customers. A few findings, however, effect of mergers on bank efficiency may be divided have some relevance to the question of how mergers into those that do and those that do not look directly might affect fees. There is evidence that larger banks at the effects of mergers. charge higher fees than smaller banks, but a study A large number of studies have sought to deterthat investigated this issue in more detail found that mine whether larger banking organizations exhibit this differential appeared to be due to the dispropor- lower average costs than do small organizations. tionate presence of larger banks in large urban areas, Although most earlier studies found weak evidence in which costs tend to be higher. There is substantial of scale economies, recent research using data from evidence that banks that are part of multistate organi- the 1990s finds that cost advantages of large firms zations tend to charge higher fees in general than exist for banks up to about $10 billion to $25 billion do banks that are not, and this difference cannot be in assets. In one study, significant scale economies explained by locational factors. existed within each of several size classes of banks, from less than $50 million in assets to more than $10 billion. Thus, simply by achieving larger size, Effects of Mergers on Bank Performance many bank mergers may have the potential to yield greater efficiency. Federal Reserve System staff and others have con- In addition to scale economies, there is some eviducted numerous studies over many years on the dence that, after mergers, banks may reallocate their effects of bank mergers and acquisitions on bank internal resources to more profitable activities than performance. Some of these studies have focused on smaller banks. As I indicated earlier, there is also the effect of mergers on bank profits and prices, while some evidence that geographic diversification by others have looked at the potential for cost savings banks is associated with a reduced level of risk, and and efficiencies derived from mergers. thus there is the potential for improved safety and Of those studies concerned with profits and prices, soundness. some have examined the effects of mergers directly, Another strand of research has attempted to disalthough most studies have approached this issue cover whether there are important differences in the more indirectly by considering how bank profits and efficiency with which banks use inputs to produce a prices differ across banking markets. Each type of given level of services. These studies, which essenstudy is relevant to an assessment of the impact of tially focus on the efficiency effects of management bank mergers on performance. skills, suggest that some banks, both large and small, Studies of differences in bank profitability across are just a lot better than others at using their inputs, markets with varying degrees of concentration repre- such as labor and capital, in a productive way. In sent the oldest type of study relevant to the issue. addition, they suggest the potential for substantial Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 449 efficiency gains from mergers if management would company. The Bank Holding Company Act states move toward best industry practices, although this that the Board may extend this two-year period for up could presumably be achieved without a merger. to three one-year periods if, at the time of each In the past several years, numerous researchers extension, the Board finds that an extension "would have sought to determine whether past mergers have not be detrimental to the public interest." resulted in cost savings. If so, this could be good for This provision was more commonly relied on in bank customers as well. Many such studies examine the past, when larger numbers of companies were expenses before and after the merger and, in some registering as bank holding companies subsequent to cases, compare them to the same changes observed passage of the 1970 amendments to the Bank Holdconcurrently in banks that did not participate in merg- ing Company Act. Nonetheless, it is still the law ers. Other research has examined how the stock mar- today. ket reacted to merger announcements. Most of these Nonbanking provisions of the Bank Holding studies have not found evidence of efficiency gains Company Act highlight one of the key reasons from mergers. Evidence on the relative efficiency why H.R. 10 is important legislation. As recently of acquiring and acquired firms is mixed. Let me announced proposals are demonstrating, the marketemphasize that most of these studies are based on place believes that consumers and shareholders many mergers and thus provide the basis for statisti- would benefit from the combination of firms that cally valid generalizations. provide financial services beyond those permitted A fairly recent set of case studies by Board staff under the current Bank Holding Company Act. examined nine bank mergers that were selected for Indeed, the Board has long supported legislative study because they were of the type that seemed most change that would allow all types of financial service likely to yield efficiency gains. These involved large providers to exist under one roof within the holding banks generally with substantial market overlap, and company framework. most occurred during the early 1990s, a time when To be sure, current law permits a wide range of efficiency was receiving a lot of attention in banking. mergers among financial service providers. The com- The studies found clear evidence of efficiency gains bining of securities and brokerage firms with banks is in only four of the nine mergers but significant cost a prime example. In this regard, it is noteworthy that cutting in all nine. Finally, on the issue of efficiency, since early last year bank holding companies have in the evolving world of high technology and global either purchased or announced their intention to purmarkets for corporate banking, there is greater chase at least twenty-four securities firms. emphasis on efficiency in order to survive. This The fact remains, however, that current law does factor has probably played a role in the efficiency not permit the combination of all types of financial gains realized in some of the individual recent large services providers, and even those deals that have mergers. already been announced cannot reach their full potential without legislation that broadens the ability of depository institutions to affiliate with insurance com- THE AFFILIATION OF BANKS AND NONBANKS panies, securities firms, and other financial services AND THE NEED FOR LEGISLATIVE REFORM suppliers. Thus, the Board remains a strong supporter of financial modernization legislation and urges the The Bank Holding Company Act also applies to the Congress to pass H.R. 10. acquisition of nonbanking companies by bank hold- H.R. 10 effectively addresses the need for financial ing companies. These provisions have been the focus modernization by allowing the affiliation of deposiof much speculation in recent weeks, so I think it is tory institutions, insurance companies, securities important to take a moment to discuss what these firms, and other financial services providers. Critiprovisions say. As an initial matter, the Bank Holding cally, H.R. 10 allows broader affiliations within a Company Act contemplates that companies that are framework that provides the best insulation of not now bank holding companies and that have made insured depository institutions from the risks of investments that are not permissible for bank holding broader affiliations, restrains the expansion of the companies will decide to acquire a bank and thereby federal safety net to these new affiliates, and assures a become a bank holding company. To address this level playing field for companies affiliated with situation, the Bank Holding Company Act specifi- depository institutions and companies that are indecally provides that a company may retain, for a pendent of depository institutions. period of two years, any investment that the company As I discussed at some length earlier in my statehas on the day before it becomes a bank holding ment, H.R. 10 also includes key measures that pro- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

450 Federal Reserve Bulletin • June 1998 vide for meaningful but controlled umbrella super- ing blurring of distinctions between different types of vision of financial holding companies and that financial services are other important motivating facpreserve and enhance the functional regulation of tors for the current merger movement. insurance companies, securities firms, depository The increased pace of bank mergers since the early institutions, and other regulated companies within 1980s has greatly reduced the number of U.S. bankthe financial holding company. In addition, H.R. 10 ing organizations and resulted in a substantially includes provisions designed to enhance consumer higher nationwide concentration of banking assets. protection and to improve disclosure of the distinc- However, concentration in local banking markets, tion between insured deposits and uninsured invest- which is normally considered most important for the ment products. analysis of possible competitive effects, has remained H.R. 10 provides effective limits on the mixing of virtually unchanged. In addition, there continues to banking and commerce, all of which should be be substantial new bank entry. In short, the U.S. retained. Indeed, we would prefer smaller limits for banking structure is highly dynamic, and sweeping now. The mixing of commerce and banking has the generalizations are extremely difficult to make. potential of spreading the federal safety net subsidy The dynamic nature of U.S. banking means that over a wide range of activities, and of undermining analysis of the potential competitive, safety and the safety and soundness of insured banks. With the soundness, convenience and needs, and CRA effects prospect of financial services holding companies with of individual bank merger proposals must be done on greater than $1 trillion in assets on the horizon, the a case-by-case, market-by-market basis. The Federal Board continues to urge caution in addressing the Reserve devotes considerable resources to this end removal of the current legal barriers between com- and has well-developed policies and procedures merce and banking. Restricting large financial con- within the context of existing law. However, the rapid glomerates to generating only 5 percent of their reve- pace of change in the American banking and financial nues from nonfinancial businesses would still allow systems, and particularly the large size of some instisuch conglomerates the possibility to purchase any tutions, create a number of major challenges. These one of all but the top 250 nonfinancial companies challenges are particularly complex in the superfrom the current universe of nonfinancial firms. A visory area. In recent years, the Federal Reserve has large financial conglomerate could own literally hun- moved to put increased focus on an institution's risk dreds of nonfinancial entities without hitting the per- management and corporate governance practices, as centage restrictions incorporated in H.R. 10 because well as discipline imposed by counterparts themsuch restrictions are simply not very meaningful in a selves, and has sought to move supervisory practice world of giant financial institutions. Thus, it is critical forward in the international arena. While we believe that H.R. 10 retain its ongoing $500 million cap on that the current mechanisms for addressing weak or the dollar amount of revenues that can be generated failing banking organizations of any size are adeby nonfinancial businesses. The Board strongly quate, this is clearly an area that will receive continbelieves that now is not the time to modify such a ued intense attention. fundamental structural rule as the separation of bank- To date, the available evidence suggests that recent ing and commerce. There will be ample opportunity mergers have not resulted in substantial adverse to revisit this issue in the future once the market has effects on the vast majority of consumers of banking adjusted to financial modernization legislation and services. It is certainly possible that some customers there has been some assessment of its value. have been disadvantaged by some mergers. And mergers can no doubt be very disruptive to bank employees as functions are consolidated and reorga- CONCLUSION nized. But research on the effects of mergers on branch closings and small business loans suggests The recent wave of large bank mergers and merger that, while mergers may initially result in some announcements reflects to a large degree a natural branch closings and possibly some reduction in small response to new opportunities for geographic expan- business loans, market responses tend to offset much, sion and diversification as legal restrictions are and sometimes all, of these effects. removed. The industry is moving away from a legally It seems clear that substantial harm to consumers fragmented banking structure toward a nationwide would occur if mergers were allowed to decrease banking structure. The search for cost economies, competitive pressures significantly. However, market pressures brought by increased domestic and interna- developments and the removal of geographic restrictional competition, and efforts to respond to the ongo- tions on bank entry into new markets have signifi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 451 cantly lessened the chances for anticompetitive improved efficiency, but others do not. Research does effects. In addition, the antitrust standards enforced suggest that the potential for substantial efficiency by the bank regulatory agencies and the Department gains is there if well-managed firms take over and of Justice have helped to ensure the maintenance of change the management practices of inefficient banks. competition. Given the continuing pressures for cost minimization The evidence on whether bank mergers result in in banking, it seems plausible to argue that some of performance and efficiency gains is mixed. Greater this potential will be realized in the future. geographic diversification appears to result in The ongoing and rapid pace of change in the improved performance, including the potential for banking and financial services industry reinforces the greater safety and soundness. And recent evidence on need for financial modernization legislation. The economies of scale indicates that such economies Board believes that H.R. 10 provides a sound framemay be achieved by banks of up to moderate but work for achieving such modernization and urges the certainly not giant size. Some mergers lead to Congress to move expeditiously on this matter. Statement by Edward M. Gramlich, Member, Board rapid innovation. But while these steps are impresof Governors of the Federal Reserve System, before sive, the hard work must continue if the CPI is to the Subcommittee on Human Resources of the Com- keep up with an ever-changing economy. mittee on Government Reform and Oversight, U.S. The hearings that this subcommittee held last year House of Representatives, April 29, 1998 on the CPI provided a very clear summary of the arguments surrounding some of the difficult measure- I am pleased to appear before you to discuss improv- ment problems confronting the BLS and the range of ing the consumer price index (CPI). I begin by thank- professional opinions concerning the quantitative siging this subcommittee for holding today's hearing nificance of those problems. A useful categorization and for its past work in examining the issue of bias in divides these issues into two parts. The first relates to the CPI. Although these issues are difficult and com- the formula used by the BLS for building up the plex, your demonstrated interest has helped keep the overall CPI from the individual prices collected by focus on ways to improve the index further. field representatives. Although these issues are quite technical, they are fairly well understood by the The consumer price index plays a central role in BLS and by economists outside the statistical agenmany aspects of private and public decisionmaking: cies. The second set of issues concerns the indi- The CPI is the key price measure for indexation of vidual prices themselves and, in particular, how federal spending and tax programs, and many conthese prices are adjusted to account for quality tracts in the private sector are linked to the CPI. In change and the introduction of new goods. These addition, the CPI is used for inflation-adjusting the issues are extremely difficult—both conceptually and Treasury's indexed bonds, which help to provide a practically—and there is much less consensus about reading on expectations of future inflation and on real the quantitative significance of the bias associated interest rates. The CPI is also among the inflation with new goods and quality change. Research into all measures examined in the conduct of monetary polof these questions has continued over the past year, icy. Thus, it is essential that the nation strive for as but, to my knowledge, there have been few major accurate a measure as possible. developments that would alter significantly the opin- In that regard, the Bureau of Labor Statistics (BLS) ions voiced by the witnesses at last April's hearing. has made laudable progress in the past several years. Sample rotation problems that were uncovered by BLS researchers have largely been eliminated. The measurement in the categories of rent, computers, IMPROVING THE CPI Pharmaceuticals, and health care services has been improved. Looking ahead, the recently announced Rather than rehash arguments surrounding the diffidecision to apply the geometric-mean aggregation cult and controversial aspects of price measurement procedure should largely rectify so-called lower-level related to new goods and quality change, a more substitution bias. The shift in emphasis from geogra- useful approach might be to seek common ground phy to product categories for sample rotation pro- among the participants in this discussion. This means vides an opportunity for the BLS to ameliorate some pushing forward where there is greater agreement on of the bias associated with new goods, provided that the set of issues related to the aggregation formulas it actively rotates the sample for products undergoing used to build up the CPI. As some have put it, we Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

452 Federal Reserve Bulletin • June 1998 should first go after the "low-hanging fruit" on our able lag. In any case, using data from recent decades, statistical trees. In that regard, a striking aspect of the several studies have constructed indexes that take full hearings that the subcommittee held last year was the account of consumer substitution and have used these virtual unanimity that a price index that tracks the indexes as benchmarks to compare with the actual cost of purchasing a fixed market basket of goods and CPI. Through such comparisons, it is possible to services, such as the CPI now does, represents an assess the amount of bias in the CPI arising from upper bound on changes in the true cost of living. I upper-level consumer substitution. Although estidoubt there exists a professor teaching microeconom- mates depend on the time period considered and ics who does not routinely demonstrate this charac- other particulars of these studies, this research teristic of fixed-weight price indexes to his or her broadly suggests that correcting upper-level substituclasses. The reason is that consumers respond to tion bias could be expected to reduce the rate of changes in relative prices by altering the composition change in the CPI about 0.2 percentage point per of their purchases, and this response lowers the cost year; for example, if the current CPI showed an to them of the price changes. increase of 2.0 percent over a year, then after having Consider a couple of examples. If chicken goes on corrected for this type of substitution bias, the CPI sale, some consumers would buy more chicken and could be expected to show an increase of about less beef or pork. Also, as computer prices have 1.8 percent. Although this might not sound large, a fallen dramatically in recent years, consumers have bias of this size compounded over many years would increased their purchases of computers. At present, have marked implications for any program or conhowever, the market basket used in constructing the tract that is linked to the CPI. CPI changes only once every ten years. Although the BLS has just updated this market basket, the current methodology for the CPI will lock this market basket REDUCING UPPER-LEVEL SUBSTITUTION BIAS in place for the next decade, implying that consumers are assumed not to do any substitution at all over this To correct fully for upper-level substitution bias it period. Under these procedures, the CPI will fail to would be necessary to know how market baskets capture the ways in which consumers adjust their change on a regular basis in order to capture the spending patterns to take advantage of changes in substitution among different items. The expenditure relative prices. data required for such calculations are obtained from We should distinguish between two levels of sub- the Consumer Expenditure Survey. And because of stitution bias. In the discussion here, I am focusing on collection and processing time, these data are availwhat has been termed "upper-level" substitution able only with a lag, so that the figures for 1997 are bias. Based on surveys of what consumers buy, the not expected to be available until later this year. BLS has a list of 211 items in the typical consumer's Thus, the data from the Consumer Expenditure Surmarket basket. Upper-level substitution bias arises vey cannot be used to construct a "real time" price from substitution among these items that is not index that fully captures consumers' substitution captured by the CPI, such as between chicken and among items. This lag is the reason BLS's experibeef or between breakfast cereal and other breakfast mental superlative index is produced only with a items. In addition, consumers also make substitutions delay. But the important question should not be among different varieties of the same item in their whether it is possible to construct a perfect index, but market baskets, such as when consumers switch rather whether techniques are available for creating a between different brands of breakfast cereal. By early monthly cost-of-living index that would represent an 1999, the BLS will have largely accounted for this improvement over the CPI as currently constructed. "lower-level" substitution when it implements a The answer is "yes." The Boskin Commission, geometric-means formula to combine individual which included my distinguished colleague Robert prices at the lowest level in the index. Gordon, suggested as a possible solution the use of a Although the CPI as currently constructed does not "trailing Tornqvist" price index. This index would account for the upper-level substitution possibilities use the Tornqvist index formula—which can capavailable to consumers, indexes that do take account ture substitution among items—and would update of such substitutions can be calculated; economists weights each year. To be operational in real time, refer to them as superlative indexes because of their this index would need to use lagged, or trailing, desirable properties. Indeed, on an experimental weights. For example, average weights from 1994-95 basis, the BLS already produces superlative indexes, could be used for calculating 1997 changes in the but these indexes are available only with a consider- cost of living. Another approach has been sug- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 453 gested by Matthew Shapiro and David Wilcox. They A TWO-TRACK APPROACH have devised a so-called constant elasticity of substitution—or CES—index that appears to largely Let me raise one further issue that would inevitably eliminate upper-level substitution bias. In contrast to arise from such a study. Even the best real-time the current setup that assumes no substitution among approximation to a superlative index would not match items, the class of CES indexes imposes a positive the superlative index that ultimately could be condegree of substitution among all items, and alterna- structed once expenditure share data ultimately tive CES indexes would impose different degrees of became available. To deal with this problem, the substitutability. These authors searched to find the Boskin Commission suggested pursuing a two-track degree of substitutability that provided the closest approach. For the first track, the BLS could continue approximation to a benchmark "superlative" index to publish a monthly index in real time that would but that can be implemented on a monthly basis never be revised. This index would be much like the in real time. There may well be other approaches current CPI except that—going forward—it could be worthy of serious consideration to rectify the prob- based on an aggregation formula that minimizes lem of upper-level substitution bias. upper-level substitution bias. For the second track, the BLS could publish, with a lag, a superlative index that incorporated full information on changing expenditure shares and could be revised subsequently to MOVING FORWARD incorporate other improvements to the CPI as well. To spur progress on this issue, about which there This two-track approach has advantages and disappears to be considerable agreement, one approach advantages. On the positive side, the two-track that this subcommittee could consider would be to approach would provide indexes for users with commission a study of substitution bias to be under- diverse needs: a never-revised index for those for taken by the staff of the BLS. The BLS could be whom revisions would impose operational difficulties asked to compare their current procedures with those and a second revisable index that would be the best that have been proposed by other researchers. Specifi- possible measure of changes in the cost of living. On cally, I would suggest that they determine which of the negative side, I am concerned that the publication these alternative approaches provides the most timely of two different price indexes as part of the CPI and accurate approximation to the "superlative" program might generate some confusion. If this conindexes published by the BLS, recalling that while fusion were judged to be a serious problem, the BLS these superlative indexes may be the "best," they are could alternatively produce a single measure that was available only with a considerable lag. In evaluating revised and, ultimately, incorporated all information the alternatives, the objective should not be to estab- on spending patterns in the best possible way. For lish a "perfect" measure—such a goal is unattain- example, the CPI for April could be initially conable. Rather, the objective should be to produce the structed using one of the approximations to a superlabest measure of the cost of living that can be con- tive index that I described above, but when full data structed in real time from existing knowledge and on consumer expenditure shares became available data. some months later, the level of the CPI for April could be revised to be an exact superlative index At the same time, the subcommittee could recomrather than a close approximation. Were this to be mend the establishment of a formal panel of outside done, government and private contracts that are experts to review the BLS's evaluation of the alternalinked to the CPI would have to alter their indexation tives and to provide an independent assessment of the procedures. BLS study to the committee. The panel could also consult with the research staff of the BLS on the Returning to my primary message, a study of subdesign of the study and the interpretation of the stitution bias and an outside review panel hold the results. If differences remained after completion of promise of forming the basis of a reasonable profesthe study, the panel of experts would provide a sional consensus on limited technical changes that mechanism for independent assessment of alternative would correct substitution bias and make the CPI a approaches that could be helpful to this subcommit- more accurate measure of the cost of living. Such a tee's oversight responsibilities. consensus is critical for maintaining public support and confidence in our statistical programs. That confidence can only be enhanced when the government is striving to develop the most accurate measures possible. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

454 Announcements SUSAN M. PHILLLIPS: RESIGNATION AS A REGULATION B: AMENDMENTS MEMBER OF THE BOARD OF GOVERNORS The Federal Reserve Board on April 1, 1998, Susan M. Phillips on May 4, 1998, announced her amended some model forms in its Regulation B resignation as a member of the Board of Governors (Equal Credit Opportunity) to reflect changes to disof the Federal Reserve System, effective June 30, closures required by recent amendments to the Fair 1998. Governor Phillips will join George Washington Credit Reporting Act. University as Dean of the School of Business and Statutory changes require that additional disclo- Public Management. A copy of her letter of resigna- sures be given to a consumer who is denied credit tion follows: based on information from an affiliate or from a consumer reporting agency. The new model forms May 1, 1998 went into effect on April 30. The Honorable William Jefferson Clinton The President of the United States The White House BASLE ACCORD: AMENDMENT AND PROPOSAL Washington, DC 20500 FOR PRINCIPLES GOVERNING Dear Mr. President: ON-BALANCE-SHEET NETTING 1 hereby submit my resignation as a Member of the Board of Governors of the Federal Reserve System, effec- The Basle Committee on Banking Supervision on tive June 30, 1998. April 8, 1998, issued two announcements relating to It has been my honor to serve as a Member of the Board the Basle Accord, which is an international agreeand the Federal Open Market Committee during a period ment setting minimum capital requirements for of impressive growth for broad segments of the United banks. States economy. Indeed the current expansion is remarkable for both its sustained length and the accompanying One announcement is an amendment to the Accord decline in the rate of inflation. reducing the risk weight for claims on (and claims I have been privileged to work with distinguished guaranteed by) certain securities firms incorporated colleagues on the Board and the FOMC under the outstand- in countries of the Organization for Economic Cooping leadership of Chairman Alan Greenspan. We have all eration and Development from 100 percent to 20 perworked diligently to accommodate significant changes to cent. To qualify for the preferential risk weight, the nation's financial institutions in a manner which will securities firms must be subject to supervisory and not only reduce unnecessary regulatory burden but also facilitate sustainable economic growth in an increasingly regulatory arrangements and, in particular, capital complex, global and technological environment. In order requirements that are comparable to those applied to for U.S. financial institutions to continue to finance eco- banks under the Basle Accord. nomic growth, they must be able to compete both domesti- In the United States this amendment, in general, cally and internationally. Given the significant changes and would provide a reduced capital charge for claims on integration of the world's financial markets and of market or guaranteed by broker-dealers registered with the participants, I believe that significant revisions in this country's banking laws are now required. As that process Securities and Exchange Commission (SEC) and moves forward, continued involvement by the Federal their direct subsidiaries that are subject to supervision Reserve as the nation's central bank in the supervision of and capital requirements. The capital requirements financial institutions and the payments system will ensure generally would be the SEC's net capital rule or, for that the Board is best able to contribute not only to the securities firms operating in Europe, the European nation's sustained economic growth but also to financial Union's Capital Adequacy Directive. Claims on the stability. holding companies and affiliates of such brokerdealers or securities firms not subject to capital Sincerely, requirements generally would retain their 100 percent risk weighting. The Federal Reserve intends to Susan M. Phillips Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

455 initiate a rulemaking to propose this revision to its that have a "ready market" for purposes of the net risk-based capital rules for state member banks and capital rule of the Securities and Exchange Commisbank holding companies. sion (SEC) may be included on the foreign list. The The second announcement sets forth principles SEC effectively treats all stocks included on the governing on-balance-sheet netting for capital pur- Financial Times/Standard & Poor's Actuaries World poses. The statement solicits industry comment by Indices (FT/S&P-AW Indices) as having a "ready June 30, 1998. market" for capital purposes. The Board is adding The announcements are accessible on the Internet seventy-three foreign stocks and deleting sixty-one, at the Bank for International Settlements Web site based on changes to the FT/S&P-AW Indices. The (http://www.bis.org). Comments on the netting pro- revised foreign list now contains 1,942 securities posal may be submitted to the Basle Supervisors displayed in order of country. Committee by fax at Oil 41 61 280 9100. It is unlawful for any person to cause any representation to be made that inclusion of a stock on the OTC list or the foreign list indicates that the Board or AVAILABILITY OF REVISED LISTS OF the SEC has in any way passed upon the merits of OVER-THE-COUNTER STOCKS AND OF FOREIGN any such stock or transaction therein. Any references STOCKS SUBJECT TO MARGIN REGULATIONS to the Board in connection with these lists or any stocks thereon in any advertisement or similar com- The Federal Reserve Board published on April 24, munication is unlawful. 1998, a revised list of over-the-counter (OTC) stocks that meet the margin criteria in Regulation T (Credit by Brokers and Dealers). Also published was a ANNUAL REPORT: PUBLICATION revised list of foreign equity securities that meet the margin criteria in Regulation T. The lists were effec- The 84th Annual Report, 1997, of the Board of Govtive May 11, 1998, and supersede the previous lists ernors of the Federal Reserve System, covering that were effective February 9, 1998. operations for the calendar year 1997 is available for The changes that have been made to the revised distribution. Copies may be obtained on request to OTC List, which now contains 4,852 OTC stocks, are Publications Services, Mail Stop 127, Board of Govas follows: ernors of the Federal Reserve System, Washington, DC 20551. Also available from Publications Services • One hundred sixty stocks have been included for is a separately printed companion document, Annual the first time, 120 under National Market System Report: Budget Review, 1998-99, which describes (NMS) designation the budgeted expenses of the Federal Reserve System for 1998, the Board's two-year budget for • Fifty-three stocks previously on the list have 1998-99, and income and expenses for 1996 and been removed for substantially failing to meet the 1997. Both reports are also available at http:// requirements for continued listing www.bog.frb.fed.us/—the Board's World Wide Web • One hundred five stocks have been removed for site. reasons such as listing on a national securities exchange or involvement in an acquisition. Lenders subject to Regulation T and borrowers CHANGES IN BOARD STAFF subject to Regulation X (Borrowers of Securities Credit) who are required under Section 224.3(a) to The Federal Reserve Board on May 4, 1998, conform credit they obtain to Regulation T must announced the appointment of Lynn S. Fox as Assiscontinue to use the OTC list until publication of the tant to the Board for public affairs, effective June 1. next OTC list, anticipated for August 1998. An She will succeed Joseph R. Coyne, Assistant to the amendment to Regulation T that will make all stocks Board, who is retiring at the end of May. At the same trading in the NASDAQ Stock Market marginable at time, the Board announced the appointments of brokers and dealers will be effective January 1, 1999. Jennifer J. Johnson as Secretary of the Board to The Board will cease publication of the OTC list at succeed William W. Wiles, who is retiring at the end that time. of May, and Robert de V. Frierson as Associate The foreign list is composed of foreign equity Secretary, also effective June 1. securities that are eligible for margin treatment at Before joining the Board staff in 1986, Ms. Fox, broker-dealers. Effective July 1, 1996, foreign stocks currently Deputy Congressional Liaison, worked on Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

456 Federal Reserve Bulletin • June 1998 banking issues for Congressman John LaFalce of Ms. Smith is a graduate of the University of Texas, New York and for the House Banking Subcommittee the Georgetown University Law Center, and the on Economic Stabilization. She joined the Board's Stonier Graduate School of Banking. staff in 1986 as Congressional Liaison Assistant, a Mr. Loney began his Board career in 1975 and had position in which she served until 1988. been Associate Director with responsibility for com- In 1990 she became Director of Corporate Rela- pliance examinations, applications processing, comtions for Harvey Mudd College in Claremont, Cali- munity affairs, and fair lending enforcement. As fornia but returned to the Board in 1992 as Special Deputy Director, Mr. Loney will provide operational Assistant for Congressional Liaison. She was named oversight of designated functional areas (Complito her current position in 1994. She holds a B.A. in ance, Fair Lending Enforcement, Community Affairs, American Studies from Smith College and an M.B.A and Consumer Advisory Council) and will assist the from George Washington University. director in overseeing all other division functions Ms. Johnson joined the Board's staff in 1975 as an (Regulations, Consumer Complaints, Consumer Poliattorney in the Legal Division and progressed to cies, Information Resources, and Administration). Mr. Loney is a graduate of Michigan State Univer- Senior Counsel in 1982. She left the Board in 1986 to sity, the University of Michigan Law School, and the become Vice President at Shawmut Bank, where she Stonier Graduate School of Banking. was later promoted to General Counsel and Secretary. She rejoined the Board in 1989 as Associate Ms. Hurt joined the Board in 1983 and had been Secretary and was promoted to Deputy Secretary in serving as Managing Counsel, directing one of two 1994. She holds an A.B. in economics and sociology units of regulatory attorneys. She has responsibility from Mount Holyoke College and a J.D. from the for several regulations, including Truth in Lending, University of Pennsylvania. Electronic Fund Transfers, and Consumer Leasing. Mr. Frierson joined the Legal Division as an attor- As Assistant Director, Ms. Hurt will supervise the ney in 1987, was promoted to Senior Attorney in division's regulatory work. She holds undergraduate 1988, Managing Senior Counsel in 1991, and Assis- and law degrees from the American University. tant General Counsel in 1994. He holds a B.A. in Ms. Braunstein joined the Board in 1987. She had English and a J.D. from the University of Virginia. been serving as the Manager of the Community The Federal Reserve Board on April 7, 1998, Affairs program. In her new position as Assistant announced major changes in the management struc- Director, Ms. Braunstein will continue to oversee the ture of its Division of Consumer and Community Consumer Affairs program as Community Affairs Affairs, including the appointment of a new Division Officer and will serve as the liaison between the Director. Effective June 1 is the appointment of Board and the Consumer Advisory Council. She is a Dolores S. Smith as Division Director to succeed graduate of the American University. Griffith L. Garwood, who is retiring on May 31. Ms. English will continue to have oversight Ms. Smith had been serving as an Associate Director responsibility for the Consumer Complaints, Conof the Division. sumer Policies, Information Resources, and Adminis- At the same time, the Board promoted Glenn E. tration functions. Ms. McNulty will supervise the Loney to Deputy Director from Associate Director Reserve Bank Oversight, Applications, and Fair and named Adrienne D. Hurt and Sandra F. Braun- Lending Enforcement functions. stein to the official staff as Assistant Directors. They Other recent retirees from the official staff are the join Maureen P. English and Irene Shawn McNulty as following: Assistant Directors. Ms. Smith joined the Board in 1975 and has been In the Division of International Finance, Larry responsible for all of the regulatory work within the Promisel, Senior Associate Director, and Charles J. division since 1992 and for the Consumer Advisory Siegman, Senior Adviser Council since 1980. As Director, she will oversee the In the Division of Research and Statistics, Martha division's work in administering federal consumer Bethea, Associate Director protection, fair lending, and community reinvestment In the Office of Staff Director for Management, statutes and regulations; overseeing the examination George E. Livingston, Senior Adviser, David L. of state member banks for compliance; participating Shannon, Senior Adviser, and Fred Horowitz, in the bank holding company application process; Adviser directing the System's Community Affairs program; In the Office of Inspector General, Brent L. Bowen, and overseeing the consumer complaint process. Inspector General. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

457 Minutes of the Federal Open Market Committee Meeting Held on February 3-4, 1998 A meeting of the Federal Open Market Committee Messrs. Alexander, Hooper, and Ms. Johnson, was held in the offices of the Board of Governors of Associate Directors, Division of International Finance, Board of Governors the Federal Reserve System in Washington, D.C., on Tuesday, February 3, 1998, at 2:30 p.m. and contin- Mr. Reinhart, Assistant Director, Division of ued on Wednesday, February 4, 1998, at 9:00 a.m. Monetary Affairs, Board of Governors Messrs. Brayton1 and Rosine,1 Senior Economists, Present: Division of Research and Statistics, Mr. Greenspan, Chairman Board of Governors Mr. McDonough, Vice Chairman Mr. Ferguson Ms. Garrett and Mr. Nelson,1 Economists, Division of Mr. Gramlich Monetary Affairs, Board of Governors Mr. Hoenig Mr. Jordan Ms. Low, Open Market Secretariat Assistant, Mr. Kelley Division of Monetary Affairs, Board of Mr. Meyer Governors Ms. Minehan Ms. Phillips Mr. Rives, First Vice President, Federal Reserve Ms. Rivlin Bank of St. Louis Messrs. Boehne, McTeer, Moskow, and Stern, Messrs. Beebe, Eisenbeis, Hunter, Ms. Krieger, Alternate Members of the Federal Open Market Messrs. Lang, Rolnick, and Rosenblum, Senior Committee Vice Presidents, Federal Reserve Banks of San Francisco, Atlanta, Chicago, New York, Philadelphia, Minneapolis, and Dallas Messrs. Broaddus, Guynn, and Parry, Presidents of respectively the Federal Reserve Banks of Richmond, Atlanta, and San Francisco respectively Mr. Hetzel, Vice President, Federal Reserve Bank of Richmond Mr. Kohn, Secretary and Economist Mr. Bernard, Deputy Secretary Mr. Coyne, Assistant Secretary In the agenda for this meeting, it was reported that Mr. Gillum, Assistant Secretary advices of the election of the following members and Mr. Mattingly, General Counsel alternate members of the Federal Open Market Com- Mr. Baxter, Deputy General Counsel mittee for the period commencing January 1, 1998, Mr. Prell, Economist and ending December 31, 1998, had been received Mr. Truman, Economist and that these individuals had executed their oaths of office. Ms. Browne, Messrs. Cecchetti, Dewald, Hakkio, The elected members and alternate members were Lindsey, Promisel, Simpson, Sniderman, and Stockton, Associate Economists as follows: William J. McDonough, President of the Federal Reserve Mr. Fisher, Manager, System Open Market Account Bank of New York, with Ernest T. Patrikis, First Vice President of the Federal Reserve Bank of New York, Mr. Ettin, Deputy Director, Division of Research as alternate; and Statistics, Board of Governors 1. Attended portions of meeting relating to the Committee's review Mr. Slifman, Associate Director, Division of of the economic outlook and establishment of its monetary and debt Research and Statistics, Board of Governors ranges for 1998. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

458 Federal Reserve Bulletin • June 1998 Cathy E. Minehan, President of the Federal Reserve Bank On the recommendation of the Manager, the Comof Boston, with Edward G. Boehne, President of the mittee at this meeting unanimously approved two Federal Reserve Bank of Philadelphia, as alternate; changes in the Authorization for Domestic Open Market Operations. Jerry L. Jordan, President of the Federal Reserve Bank of First, the Committee amended paragraph l(a) of Cleveland, with Michael H. Moskow, President of the the Authorization to raise from $8 billion to $12 bil- Federal Reserve Bank of Chicago, as alternate; lion the limit on intermeeting changes in System account holdings of U.S. government and federal Robert D. McTeer, Jr., President of the Federal Reserve agency securities. The increase was the first perma- Bank of Dallas, as voting alternate pending the election of a President of the Federal Reserve Bank nent change in the limit since February 1990, when it of St. Louis; was raised from $6 billion to $8 billion. The Manager indicated that the Committee had approved tempo- Thomas M. Hoenig, President of the Federal Reserve Bank rary increases several times during the past year and of Kansas City, with Gary H. Stern, President of the that the existence of a permanent $12 billion limit Federal Reserve Bank of Minneapolis, as alternate. would have obviated the need for most of the increases. A permanent increase to $12 billion would By unanimous vote, the following officers of the reduce the number of occasions requiring special Federal Open Market Committee were elected to Committee action, while still calling the need for serve until the election of their successors at the first particularly large changes to the Committee's attenmeeting of the Committee after December 31, 1998, tion. The Committee concurred in the Manager's with the understanding that in the event of the disconview that a $4 billion increase was appropriate. tinuance of their official connection with the Board of Second, the Committee terminated the Manager's Governors or with a Federal Reserve Bank, they authority to conduct transactions in bankers accepwould cease to have any official connection with the tances. This involved the deletion of paragraph l(b), Federal Open Market Committee: which authorized purchases or sales of prime bankers Alan Greenspan Chairman acceptances in the open market, and also the deletion William J. McDonough Vice Chairman of the reference in paragraph l(c), which authorized Donald L. Kohn Secretary and Economist repurchase agreements in such market instruments. Normand R.V. Bernard Deputy Secretary The Manager indicate that operations in bankers Joseph R. Coyne Assistant Secretary Gary P. Gillum Assistant Secretary acceptances were not a practical means of affecting J. Virgil Mattingly, Jr. General Counsel reserves under current circumstances, given the Thomas C. Baxter, Jr. Deputy General Counsel ample availability of U.S. Treasury obligations in the Michael J. Prell Economist market. Indeed, the Committee previously had de- Edwin M. Truman Economist cided in 1977 to suspend transactions on an outright basis in bankers acceptances and had completed the Lynn E. Browne, Stephen G. Cecchetti, System's disengagement from this market in 1984 by William G. Dewald, Craig S. Hakkio, David E. Lindsey, Larry J. Promisel, instructing the Manager to discontinue the use of Thomas D. Simpson, Mark S. Sniderman, repurchase agreements involving bankers accepand David J. Stockton, Associate Economists tances. While those decisions had left open the possibility of resuming transactions in bankers accep- By unanimous vote, the Federal Reserve Bank of tances and no changes had been made in the New York was selected to execute transactions for Authorization, the Committee agreed that the existing the System Open Market Account until the adjournauthority no longer served a practical purpose. ment of the first meeting of the Committee after Accordingly, the amended Authorization for Domes- December 31, 1998. tic Open Market Operations was unanimously By unanimous vote, Peter R. Fisher was selected to approved in the form shown below. serve at the pleasure of the Committee as Manager, System Open Market Account, on the understanding that his selection was subject to being satisfactory to AUTHORIZATION FOR DOMESTIC the Federal Reserve Bank of New York. OPEN MARKET OPERATIONS Amended February 3, 1998 Secretary's note: Advice subsequently was received that the selection of Mr. Fisher as Manager was satisfactory to the board of directors of the Federal Reserve Bank of 1. The Federal Open Market Committee authorizes and New York. directs the Federal Reserve Bank of New York, to the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 459 extent necessary to carry out the most recent domestic account and foreign and international accounts maintained policy directive adopted at a meeting of the Committee: at the Bank. Transactions undertaken with such accounts (a) To buy or sell U.S. Government securities, includ- under the provisions of this paragraph may provide for a ing securities of the Federal Financing Bank, and securities service fee when appropriate. that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States in With Mr. Jordan dissenting, the Authorization for the open market, from or to securities dealers and foreign Foreign Currency Operations shown below was and international accounts maintained at the Federal reaffirmed. Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices, and, for such Account, to exchange maturing U.S. Government and Federal agency securities with AUTHORIZATION FOR FOREIGN CURRENCY the Treasury or the individual agencies or to allow them to mature without replacement; provided that the aggregate OPERATIONS amount of U.S. Government and Federal agency securities Reaffirmed February 3, 1998 held in such Account (including forward commitments) at the close of business on the day of a meeting of the Committee at which action is taken with respect to a 1. The Federal Open Market Committee authorizes and domestic policy directive shall not be increased or directs the Federal Reserve Bank of New York, for System decreased by more than $12.0 billion during the period Open Market Account, to the extent necessary to carry out commencing with the opening of business on the day the Committee's foreign currency directive and express following such meeting and ending with the close of busi- authorizations by the Committee pursuant thereto, and in ness on the day of the next such meeting; conformity with such procedural instructions as the Committee may issue from time to time: (b) To buy U.S. Government securities and securities A. To purchase and sell the following foreign currenthat are direct obligations of, or fully guaranteed as to cies in the form of cable transfers through spot or forward principal and interest by, any agency of the United States, transactions on the open market at home and abroad, from dealers for the account of the Federal Reserve Bank including transactions with the U.S. Treasury, with the U.S. of New York under agreements for repurchase of such Exchange Stabilization Fund established by Section 10 of securities or obligations in 15 calendar days or less, at rates the Gold Reserve Act of 1934, with foreign monetary that, unless otherwise expressly authorized by the Commitauthorities, with the Bank for International Settlements, tee, shall be determined by competitive bidding, after and with other international financial institutions: applying reasonable limitations on the volume of agreements with individual dealers; provided that in the event Austrian schillings Italian lire Government securities or agency issues covered by any Belgian francs Japanese yen such agreement are not repurchased by the dealer pursuant Canadian dollars Mexican pesos to the agreement or a renewal thereof, they shall be sold in Danish kroner Netherlands guilders the market or transferred to the System Open Market Pounds sterling Norwegian kroner Account. French francs Swedish kronor 2. In order to ensure the effective conduct of open German marks Swiss francs market operations, the Federal Open Market Committee authorizes and directs the Federal Reserve Banks to lend B. To hold balances of, and to have outstanding for- U.S. Government securities held in the System Open Mar- ward contracts to receive or to deliver, the foreign currenket Account to Government securities dealers and to banks cies listed in paragraph A above. participating in Government securities clearing arrange- C. To draw foreign currencies and to permit foreign ments conducted through a Federal Reserve Bank, under banks to draw dollars under the reciprocal currency such instructions as the Committee may specify from time arrangements listed in paragraph 2 below, provided that to time. drawings by either party to any such arrangement shall be 3. In order to ensure the effective conduct of open fully liquidated within 12 months after any amount outmarket operations, while assisting in the provision of short- standing at that time was first drawn, unless the Committerm investments for foreign and international accounts tee, because of exceptional circumstances, specifically maintained at the Federal Reserve Bank of New York, the authorizes a delay. Federal Open Market Committee authorizes and directs the D. To maintain an overall open position in all foreign Federal Reserve Bank of New York (a) for System Open currencies not exceeding $25.0 billion. For this purpose, Market Account, to sell U.S. Government securities to such the overall open position in all foreign currencies is defined foreign and international accounts on the bases set forth in as the sum (disregarding signs) of net positions in indiparagraph l(a) under agreements providing for the resale vidual currencies. The net position in a single foreign by such accounts of those securities within 15 calendar currency is defined as holdings of balances in that curdays on terms comparable to those available on such rency, plus outstanding contracts for future receipt, minus transactions in the market; and (b) for New York Bank outstanding contracts for future delivery of that currency, account, when appropriate, to undertake with dealers, sub- i.e., as the sum of these elements with due regard to sign. ject to the conditions imposed on purchases and sales of 2. The Federal Open Market Committee directs the Fedsecurities in paragraph l(b), repurchase agreements in U.S. eral Reserve Bank of New York to maintain reciprocal Government and agency securities, and to arrange corre- currency arrangements ("swap" arrangements) for the Syssponding sale and repurchase agreements between its own tem Open Market Account for periods up to a maximum of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

460 Federal Reserve Bulletin • June 1998 12 months with the following foreign banks, which are Currency Subcommittee consists of the Chairman and Vice among those designated by the Board of Governors of the Chairman of the Committee, the Vice Chairman of the Federal Reserve System under Section 214.5 of Regulation Board of Governors, and such other member of the Board N, Relations with Foreign Banks and Bankers, and with the as the Chairman may designate (or in the absence of approval of the Committee to renew such arrangements on members of the Board serving on the Subcommittee, other maturity: Board members designated by the Chairman as alternates, and in the absence of the Vice Chairman of the Committee, his alternate). Meetings of the Subcommittee shall be Amount of arrangement called at the request of any member, or at the request of the Foreign bank (millions of dollars equivalent) Manager, System Open Market Account ("Manager"), for the purposes of reviewing recent or contemplated opera- Austrian National Bank 250 tions and of consulting with the Manager on other matters National Bank of Belgium 1,000 Bank of Canada 2.000 relating to his responsibilities. At the request of any mem- National Bank of Denmark 250 ber of the Subcommittee, questions arising from such Bank of England 3,000 Bank of France 2.000 reviews and consultations shall be referred for determina- German Federal Bank 6,000 tion to the Federal Open Market Committee. Bank of Italy 3,000 Bank of Japan 5,000 7. The Chairman is authorized: Bank of Mexico 3,000 A. With the approval of the Committee, to enter into Netherlands Bank 500 Bank of Norway 250 any needed agreement or understanding with the Secretary Bank of Sweden 300 of the Treasury about the division of responsibility for Swiss National Bank 4.000 foreign currency operations between the System and the Bank for International Settlements: Treasury; Dollars against Swiss francs 600 B. To keep the Secretary of the Treasury fully advised Dollars against authorized European currencies other than Swiss francs 1,250 concerning System foreign currency operations, and to consult with the Secretary on policy matters relating to foreign currency operations; Any changes in the terms of existing swap arrange- C. From time to time, to transmit appropriate reports ments, and the proposed terms of any new arrangements and information to the National Advisory Council on Interthat may be authorized, shall be referred for review and national Monetary and Financial Policies. approval to the Committee. 8. Staff officers of the Committee are authorized to 3. All transactions in foreign currencies undertaken transmit pertinent information on System foreign currency under paragraph l.A. above shall, unless otherwise operations to appropriate officials of the Treasury expressly authorized by the Committee, be at prevailing Department. market rates. For the purpose of providing an investment 9. All Federal Reserve Banks shall participate in the return on System holdings of foreign currencies, or for the foreign currency operations for System Account in accorpurpose of adjusting interest rates paid or received in dance with paragraph 3 G(l) of the Board of Governors' connection with swap drawings, transactions with foreign Statement of Procedure with Respect to Foreign Relationcentral banks may be undertaken at non-market exchange ships of Federal Reserve Banks dated January 1, 1944. rates. 4. It shall be the normal practice to arrange with foreign With Mr. Jordan dissenting, the Foreign Currency central banks for the coordination of foreign currency transactions. In making operating arrangements with for- Directive shown below was reaffirmed. eign central banks on System holdings of foreign currencies, the Federal Reserve Bank of New York shall not commit itself to maintain any specific balance, unless FOREIGN CURRENCY DIRECTIVE authorized by the Federal Open Market Committee. Any agreements or understandings concerning the administra- Reaffirmed February 3, 1998 tion of the accounts maintained by the Federal Reserve Bank of New York with the foreign banks designated by 1. System operations in foreign currencies shall genthe Board of Governors under Section 214.5 of Regulation erally be directed at countering disorderly market condi- N shall be referred for review and approval to the tions, provided that market exchange rates for the U.S. Committee. dollar reflect actions and behavior consistent with the IMF 5. Foreign currency holdings shall be invested to ensure Article IV, Section 1. that adequate liquidity is maintained to meet anticipated 2. To achieve this end the System shall: needs and so that each currency portfolio shall generally A. Undertake spot and forward purchases and sales have an average duration of no more than 18 months of foreign exchange. (calculated as Macaulay duration). When appropriate in B. Maintain reciprocal currency ("swap") arrangeconnection with arrangements to provide investment facil- ments with selected foreign central banks and with the ities for foreign currency holdings, U.S. Government Bank for International Settlements. securities may be purchased from foreign central banks C. Cooperate in other respects with central banks under agreements for repurchase of such securities within of other countries and with international monetary 30 calendar days. institutions. 6. All operations undertaken pursuant to the preceding 3. Transactions may also be undertaken: paragraphs shall be reported promptly to the Foreign A. To adjust System balances in light of probable Currency Subcommittee and the Committee. The Foreign future needs for currencies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 461 B. To provide means for meeting System and Trea- tion with the Subcommittee is not feasible in the time sury commitments in particular currencies, and to facilitate available): operations of the Exchange Stabilization Fund. A. Any operation that would result in a change in the C. For such other purposes as may be expressly System's overall open position in foreign currencies authorized by the Committee. exceeding $300 million on any day or $600 million since 4. System foreign currency operations shall be the most recent regular meeting of the Committee. conducted: B. Any operation that would result in a change on A. In close and continuous consultation and coopera- any day in the System's net position in a single foreign tion with the United States Treasury; currency exceeding $150 million, or $300 million when the B. In cooperation, as appropriate, with foreign mone- operation is associated with repayment of swap drawings. tary authorities; and C. Any operation that might generate a substantial C. In a manner consistent with the obligations of the volume of trading in a particular currency by the System, United States in the International Monetary Fund regarding even though the change in the System's net position in that exchange arrangements under the IMF Article IV. currency might be less than the limits specified in l.B. D. Any swap drawing proposed by a foreign bank not Mr. Jordan dissented in the votes on the Foreign exceeding the larger of (i) $200 million or (ii) 15 percent of the size of the swap arrangement. Currency Authorization and the Foreign Currency 2. The Manager shall clear with the Committee (or with Directive because these policy instruments provide the Subcommittee, if the Subcommittee believes that conthe basis for foreign exchange market transactions. sultation with the full Committee is not feasible in the time He believes that the primary mission of the Federal available, or with the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in Reserve is to achieve and maintain a stable purthe time available): chasing power of the U.S. dollar. That objective is A. Any operation that would result in a change in the best achieved when open market transactions are System's overall open position in foreign currencies restricted to purchases and sales of U.S. government exceeding $ 1.5 billion since the most recent regular meetsecurities. When compatible with the System's pri- ing of the Committee. mary objective, foreign exchange transactions are B. Any swap drawing proposed by a foreign bank exceeding the larger of (i) $200 million or (ii) 15 percent of redundant to open market operations. Often, howthe size of the swap arrangement. ever, foreign exchange transactions conflict with the 3. The Manager shall also consult with the Subcommit- System's primary objective, requiring opposite tee or the Chairman about proposed swap drawings by the adjustments in System holdings of U.S. Treasury System and about any operations that are not of a routine obligations. Moreover, holdings of foreign securities character. expose the Reserve Banks to foreign exchange translation losses resulting from the depreciation of for- On January 16, 1998, the continuing rules, regulaeign currencies relative to a strong and stable U.S. tions, authorizations, and other instructions of the dollar. Committee were distributed with the advice that, in By unanimous vote, the Procedural Instructions accordance with procedures approved by the Comwith Respect to Foreign Currency Operations shown mittee, they were being called to the Committee's below were reaffirmed. attention before the February 3-4 organization meeting to give members an opportunity to raise any questions they might have concerning them. Members were asked to indicate if they wished to have PROCEDURAL INSTRUCTIONS WITH RESPECT TO any of the instruments in question placed on the FOREIGN CURRENCY OPERATIONS agenda for consideration at this meeting, and no Reaffirmed February 3, 1998 requests for consideration were received. By unanimous vote, the minutes of the meeting of In conducting operations pursuant to the authorization and the Federal Open Market Committee held on Decemdirection of the Federal Open Market Committee as set ber 16, 1997, were approved. forth in the Authorization for Foreign Currency Operations The Manager of the System Open Market Account and the Foreign Currency Directive, the Federal Reserve reported on developments in foreign exchange and Bank of New York, through the Manager, System Open Market Account ("Manager"), shall be guided by the international financial markets in the period since the following procedural understandings with respect to con- previous meeting on December 16, 1997. There were sultations and clearances with the Committee, the Foreign no System open market transactions in foreign cur- Currency Subcommittee, and the Chairman of the Commitrencies during this period, and thus no vote was tee. All operations undertaken pursuant to such clearances required of the Committee. shall be reported promptly to the Committee. 1. The Manager shall clear with the Subcommittee (or The Manager of the System Open Market Account with the Chairman, if the Chairman believes that consulta- also reported on developments in domestic financial Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

462 Federal Reserve Bulletin • June 1998 markets and on System open market transactions in after having surged in the third quarter, and spending government securities and federal agency obligations on nondurables edged down. By contrast, expendiduring the period from December 17, 1997, through tures for consumer services grew at a somewhat February 3, 1998. By unanimous vote, the Commit- faster rate. Recent surveys indicated that consumer tee ratified these transactions. confidence remained at a very high level. The Committee then turned to a discussion of the Housing demand continued to exhibit considerable economic and financial outlook, the ranges for the strength at year-end in the context of sharp declines growth of money and debt in 1998, and the imple- in fixed mortgage rates in recent months, further mentation of monetary policy over the intermeeting sizable gains in employment and household income, period ahead. A summary of the economic and finan- and very positive consumer assessments of homecial information available at the time of the meeting buying conditions. Applications for mortgages to purand of the Committee's discussion is provided below, chase homes increased to a new monthly high in followed by the domestic policy directive that was December; the pace of sales of existing homes rose approved by the Committee and issued to the Federal further in the fourth quarter; and sales of new homes Reserve Bank of New York. in November (latest available monthly data) were at The information reviewed at this meeting sug- their highest monthly pace in more than ten years. gested that the economy continued to expand at a Housing starts edged lower in December but robust pace during the closing months of 1997. Both remained close to the highs of the current expansion. employment and industrial output recorded substan- After unusually strong increases earlier in the year, tial increases in the fourth quarter. While spending real business fixed investment declined slightly in the for final goods and services by U.S. residents deceler- fourth quarter. However, the outlook for further ated noticeably, inventory investment strengthened growth remained positive, with corporate cash flow and the deficit in international trade in goods and still healthy and the user cost of capital still low. Data services appeared to have narrowed. Tighter labor on shipments of nondefense capital goods in Decemmarkets brought some acceleration in wages, but ber indicated a rebound in business spending on falling import and energy prices helped to hold down capital goods, notably for office, computing, and price inflation over the closing months of the year. communications equipment, after sizable declines in Labor demand expanded rapidly in the fourth quar- the October-November period. Business spending on ter; a sharp increase in nonfarm payroll employment nonresidential structures declined slightly in the in December followed large advances in October and fourth quarter despite rising real estate prices and November, and the average workweek edged up on falling vacancy rates. balance over the three-month period. Job gains were The pace of business inventory investment eviwidely spread across industries. In the fourth quarter, dently picked up somewhat in the fourth quarter. In new hires in manufacturing accounted for more than manufacturing, inventories climbed further in half of that sector's total for the year, and construc- November (latest monthly data available), and the tion employment also registered an unusually large stock-shipments ratio was at the top of its narrow rise compared with earlier in 1997. Job growth surged range for the past twelve months. The accumulation in retail trade and persisted at a rapid pace in service- of wholesale stocks continued its strong upward producing industries. The civilian unemployment trend, and by November the inventory-sales ratio for rate, at 4.7 percent in December, was near its low for the wholesale sector had reversed its 1996 decline. In the current economic expansion. the retail sector, inventories declined slightly in Industrial production continued to advance at a November after having changed little in October; the brisk pace in the fourth quarter. Growth in the manu- inventory-sales ratio for this sector was near -the facturing of durable goods remained strong despite bottom of its range for the last twelve months. sharply slower, though still substantial, expansion in The nominal deficit on U.S. trade in goods and the output of computing and office equipment. The services narrowed substantially on average in Octoproduction of nondurable goods picked up after hav- ber and November from its level in the third quarter. ing been sluggish earlier in the year. Capacity utiliza- The value of exports rose appreciably in the Octobertion in manufacturing was at a relatively high rate in November period, with the largest increases occurthe fourth quarter, but available information sugring in automotive and agricultural products. The gested few bottlenecks. average value of imports for October and November Consumer spending, in real terms, rose at a slower changed little from the third-quarter rate. Imports of though still appreciable rate in the fourth quarter. consumer goods and machinery rose, but they were Purchases of durable goods increased moderately about offset by declines in automotive products, com- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 463 puters, and, to a lesser extent, a wide variety of other over the turbulence in Asia and its potential implicaproducts. The available information indicated that tions for the U.S. economy. Share prices in U.S. economic expansion remained healthy in most of the equity markets moved up slightly on net, perhaps foreign G-7 countries, although slowing somewhat partly in response to the bond market rally, while from the third quarter. In Asia, weakness in economic equity markets in some other countries, notably in activity in Japan continued into the fourth quarter, Asia, remained unsettled. and persisting financial turmoil was having strong In foreign exchange markets, the dollar appreciated adverse effects on the economies of a number of on balance over the intermeeting period. The dollar developing countries. rose considerably further against the currencies of Consumer price inflation remained low in Decem- many of the emerging market economies in Asia ber, damped by a sizable further drop in energy prices amid continuing market concerns about the adequacy and a small decline in food prices. Excluding food of reforms that would be undertaken in the affected and energy items, an acceleration in the costs of countries and the magnitude and availability of interservices, notably medical care and shelter, provided a national financial assistance that would be needed to slight boost to core consumer price inflation in support those efforts. The dollar also gained slightly December. For the year as a whole, prices of core on average in relation to the currencies of the other consumer items rose considerably less than in 1996, G-10 currencies. A sizable advance by the dollar in part reflecting the effect of declining import prices. relative to the German mark was largely reversed late At the producer level, prices of all finished goods and in the intermeeting period; incoming information suggesting greater strength in the German economy lifted of the core finished goods component declined furthe value of the mark and tended to offset growing ther in December. For the year 1997, the core proconcern about the likely effect of the Asian crisis on ducer price index was little changed after a relatively Germany. The dollar declined somewhat on balance small rise the previous year; the total index, weighed against the yen as heightened prospects for domestic down by falling prices of finished food and energy fiscal stimulus in Japan fostered hopes of a less weak items, partially reversed its 1996 increase. Prices also performance of the Japanese economy. remained subdued at earlier stages of processing in 1997, with prices of crude materials falling substan- M2 and M3 continued to grow at relatively rapid tially. Labor costs, as measured by the hourly com- rates in December and apparently also in January. pensation of private industry workers, increased at Recent gains in nominal income evidently underappreciably faster rates in the fourth quarter and for pinned much of the greater-than-expected strength in the year. M2 in January; also contributing were a pickup in At its meeting on December 16, 1997, the Commit- mortgage refinancing activity and, perhaps, depositor tee adopted a directive that called for maintaining transfers of funds from market instruments whose conditions in reserve markets that were consistent yields had declined relative to those on M2 assets. with an unchanged federal funds rate averaging Large increases in repurchase agreements contributed around 5Vi percent. In light of the increased uncer- to rapid growth of M3 in January; the rise in M3 tainties in the outlook and the possibility that the next helped to finance further solid expansion of bank change in policy might be in either direction, the credit. From the fourth quarter of 1996 to the fourth quarter of 1997, M2 increased at a rate somewhat Committee adopted a directive that did not include a above the upper bound of its range for the year and presumption about the likely direction of any adjust- M3 at a rate substantially above the upper bound of ment to policy during the intermeeting period. its range. Total domestic nonfinancial debt expanded Reserve market conditions associated with this direcin 1997 at a pace somewhat below the middle of its tive were expected to be consistent with some modrange, reflecting the slow rise in the federal debt. eration in the growth of M2 and M3 over coming months. The staff forecast prepared for this meeting indi- Open market operations were directed throughout cated that the expansion of economic activity would the intermeeting period toward maintaining reserve slow appreciably during the next few quarters and conditions consistent with the intended federal funds remain moderate in 1999. The staff analysis sugrate average of around 5 Vz percent, and the effective gested that slower growth abroad and the considerrate averaged close to that level despite some largely able rise that already had occurred in the foreign anticipated upward pressures in reserve markets exchange value of the dollar would exert substantial around year-end. Most other domestic market interest restraint on the demand for U.S. exports and subject domestic producers to even stiffer competition from rates moved down on balance during the intermeeting imports. An anticipated reduction in the desired rate period, apparently as a result of increased concerns Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

464 Federal Reserve Bulletin • June 1998 of inventory accumulation would add to the restraint of 1997, the central tendency of the projections for on the expansion. As output growth slowed, pres- 1998 now pointed to slightly more strength in real sures on resources would be expected to diminish GDP and appreciably less inflation than the forecasts somewhat. Nonetheless, it was expected that, consis- prepared at the time of the July 1997 meeting. The tently measured, inflation would increase to some forecasts of the rate of expansion in real GDP in 1998 degree over the ensuing period through 1999, owing had a central tendency of 2 to 23A percent and a full in part to an abatement of restraining forces from range of PA to 3 percent. Such growth was expected foreign exchange and oil markets. to be associated with a civilian unemployment rate in In the Committee's discussion of current and pro- a range of 4'/2 to 5 percent in the fourth quarter of spective economic conditions, members commented this year, implying little or no change from the curthat the performance of the economy continued to be rent level. With regard to nominal GDP growth in quite favorable. They noted that the economy had 1998, the forecasts were mainly in a range of 33A to entered the new year with considerable momentum 4'/2 percent, with an overall range of 3'/2 to 5 percent. and very few indications that growth was moderating Projections of the rate of inflation, as measured by from what appeared to be an unsustainable rate. the consumer price index, had a central tendency of Nonetheless, their assessments of the various factors PA to 2'/t percent, on the high side of the outcome bearing on the outlook led them to conclude that for 1997 when the rise in the index was held down by appreciably slower economic growth was in the off- damped increases in food prices and declines in ing for the year ahead, possibly to a pace in the energy prices. These forecasts took account of likely vicinity of current estimates of the economy's long- further technical improvements in the CPI by the run growth potential. Many emphasized that the pros- Bureau of Labor Statistics that would trim the pects for declining net exports as a consequence of reported rate. The projections were based on indithe dollar's appreciation and the crises in a number of vidual views concerning what would be an appropri- Asian economies were a key factor in the outlook for ate policy over the projection horizon to foster the some slowing in the expansion. In addition, a moder- Committee's longer-term goals. ating rate of inventory accumulation appeared likely The members stressed that the potential extent of after the rapid buildup during 1997. At the same time, the negative effects of developments in Asia on the high levels of confidence and generally accommoda- nation's trade balance represented a key uncertainty tive financial conditions supported expectations of in the economic outlook. On the whole, those effects persisting, though likely diminishing, strength in con- had been quite limited thus far. Anecdotal reports sumer spending and business fixed investment. The indicated that a number of domestic producers, notamembers acknowledged that their forecasts were sub- bly of agricultural, lumber, and wood products, had ject to a great deal of uncertainty because there was experienced some cancellations or postponements of little precedent to guide them in their evaluation of orders from Asian customers and there was some the extent and likely effect of Asian market turmoil. evidence of increased imports from those nations. In the circumstances, the risks of a considerable Exports to affected Asian nations were likely to be deviation on the upside or the downside of their held back by declining incomes and rising prices of current forecasts were unusually high. Partly as a U.S. products in local currencies, and reportedly also consequence, the outlook for inflation was quite ten- by difficulties that importing firms in Asia were tative as well. Moreover, questions persisted about encountering in securing financing. The eventual the level and growth of sustainable output. Members effects of the Asian financial turmoil on the U.S. trade observed that price inflation had remained subdued, balance and the overall economy were unknown—in and by some measures had declined, in recent months part because in some key countries needed reforms despite very tight labor markets and indications of had yet to be implemented and markets to stabilize— somewhat faster increases in labor compensation. but they clearly seemed likely to become more pro- In keeping with the practice at meetings just before nounced in coming months. Net exports also would the Federal Reserve's semiannual monetary policy be held down by the appreciation of the dollar against report to the Congress and the Chairman's associated the currencies of the industrial countries that had testimony, the members of the Committee and the occurred earlier in 1997 before the Asian crisis Federal Reserve Bank presidents not currently serv- intensified. ing as members had provided individual projections Another factor viewed as likely to exert a moderatof the growth in real and nominal GDP, the rate of ing effect on the growth of economic activity was the unemployment, and the rate of inflation for the year expectation of some slowing in inventory investment. ahead. Based on developments over the second half In the past year, businesses had added to inventories Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 465 at a rate that exceeded the rise in final sales, and labor compensation associated with tight labor somewhat reduced accumulation to a pace more in markets. line with that of final sales was seen as a reasonable Residential construction activity had remained expectation. Some members expressed reservations, relatively robust in recent months and was expected however, about the extent of any weakening in inven- to be well maintained over coming quarters. Positive tory accumulation in light of the relatively favorable indications for the housing outlook included relaeconomic conditions that they believed were likely to tively low mortgage interest rates, very favorable persist over the year ahead. measures of cash flow affordability, and quite posi- Members viewed further growth in consumer tive homebuying attitudes as expressed in recent spending as likely to remain the major factor in surveys. While these factors were expected to help sustaining the expansion in overall economic activity. sustain the housing sector over coming months, mem- Consumer sentiment was at or close to historically bers noted that housing construction had been high high levels according to recent surveys, evidently for some time and some cited anecdotal evidence of reflecting the strong uptrend in employment and softening activity in some parts of the country. On income and to some extent the very large cumulative balance, only modest, if any, slippage from current increase in stock market wealth over the course of levels of home construction activity seemed likely recent years. Some also noted that consumer debt over the year ahead. burdens, while large, were manageable and that such With regard to the outlook for inflation, members burdens would be lessened for many consumers by referred to widespread indications of increasingly their refinancing of home mortgages at the lower tight labor markets and to statistical and anecdotal mortgage rates now prevailing. Evidence of strength reports of faster increases in labor compensation. in the consumer sector was supported by upbeat Labor cost increases in recent quarters had been anecdotal reports of retail sales during the holiday especially rapid in a large segment of the service season and more recently. While the growth in per- sector, where foreign competition was not a factor. sonal expenditures was likely to moderate somewhat Some members commented, however, that there were from its recent pace, members did not rule out a more reasons to discount the sharp fourth-quarter increase ebullient consumer sector in the context of substan- in the employment cost index because to a large tial further growth in disposable incomes, favorable extent it was the result of nonrecurring developments financing conditions for purchases of homes, automo- in a limited number of industries. Despite the upward biles, and other consumer durables, and the high level trend in labor compensation, gains in productivity of stock market prices. clearly had kept increases in unit labor costs at a very Business fixed investment also was expected to modest level; and with unit nonlabor costs continuing provide substantial support to continued economic to decline, overall unit cost increases had remained expansion, though some moderation in purchases of not far above zero. In these circumstances—and in business equipment seemed likely after the excep- the context of highly competitive conditions in many tionally rapid rates of growth in such investments in markets, declines in input prices and in the prices of recent years. Business sentiment remained generally many commodities, including oil—rising labor costs optimistic, and both debt and equity financing contin- seemed to pose little risk of an upward impetus to ued to be readily available on attractive terms to most inflation in coming months. business borrowers. However, early signs of faltering The longer-run outlook for inflation was more profit trends in some industries, in part related to clouded and under some scenarios less promising. developments in Asia, appeared to have introduced Inflation expectations had been moving down accorda cautionary note among some business planners. ing to recent surveys, and in the context of relatively Members also referred to emerging signs of specu- modest increases in consumer prices expected over lative overbuilding in some areas, especially of coming months such expectations could continue to commercial structures. Even so, in the absence of move lower, thereby constraining increases in comunanticipated weakness in consumer expenditures, pensation and prices. Nonetheless, some of the faca variety of favorable factors seemed likely to sus- tors that had helped to moderate price increases— tain relatively robust spending on business structures including declining oil prices, the appreciation of the and equipment over the year ahead. The latter dollar, and restrained increases in health insurance included increased opportunities to cut costs and costs—were not likely to continue to exert benign enhance efficiency by investing in relatively inexpen- effects on inflation as time went on. More fundamensive high tech equipment in a period characterized tally, the productivity improvement that had held by strong competition in many markets and rising down producer costs could not necessarily be counted Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

466 Federal Reserve Bulletin • June 1998 on to continue to offset such costs, especially if the and a sustainable rate of real economic growth. The economic expansion remained sufficiently rapid to tentative ranges for 1998 had been derived in this put additional pressures on available labor resources. way, and Committee members saw no reason to In keeping with the requirements of the Full change those ranges at this time. Indeed, adjusting Employment and Balanced Growth Act of 1978 (the the ranges to center them more closely on growth Humphrey-Hawkins Act), the Committee reviewed rates deemed likely to be more consistent with the the ranges for growth of the monetary and debt Committee's expectations for economic activity and aggregates in 1998 that it had established on a tenta- prices could foster the misinterpretation that the tive basis at its meeting in July 1997. Those ranges Committee had become much more confident of the included expansion of 1 to 5 percent for M2 and 2 to stability and predictability of velocity and was plac- 6 percent for M3, measured from the fourth quarter ing greater emphasis on M2 and M3 as gauges of the of 1997 to the fourth quarter of 1998. The associated thrust of monetary policy. Several members comrange for growth of total domestic nonfinancial debt mented, however, that the adoption of ranges cenwas provisionally set at 3 to 7 percent for 1998. The tered on the Committee's expectations for growth of tentative ranges for 1998 were unchanged from the the monetary aggregates should be reconsidered in ranges that had been adopted initially for 1995 (in the future if the members were to become more July of that year for M3). confident about the relationship between the growth In reviewing the tentative ranges, the members of the money and measures of aggregate economic took note of a staff projection indicating that, given performance. The Committee also agreed that the the members' expectations for the performance of the range for nonfinancial debt for 1998 should be left economy and prices and assuming no major changes unchanged. The tentative range readily encompassed in interest rates, M2 likely would grow in 1998 in the the pace seen as likely to be associated with the upper half of its tentative range, and M3 somewhat members' forecasts for economic activity and prices. above the top of its range. The staff analysis antici- Accordingly, the following statement of longer-run pated that the velocity of M2 would continue its policy for 1998 was approved for inclusion in the recent pattern of relatively stable behavior that was domestic policy directive: more in line with historical experience than had been the case in the early 1990s. The velocity of M3 was The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and projected to continue to decline at a somewhat faster promote sustainable growth in output. In furtherance of rate than historical experience would indicate, reflectthese objectives, the Committee at this meeting established ing the greater use by business firms of institution- ranges for growth of M2 and M3 of 1 to 5 percent and 2 to only money market funds as a cash management tool 6 percent respectively, measured from the fourth quarter of and the needs of depository institutions for appre- 1997 to the fourth quarter of 1998. The range for growth of total domestic nonfinancial debt was set at 3 to 7 percent ciable non-M2 funding to finance brisk loan growth. for the year. The behavior of the monetary aggregates will The staff projected that the debt of the domestic continue to be evaluated in the light of progress toward nonfinancial sectors would grow around or perhaps price level stability, movements in their velocities, and slightly above the middle of its tentative range, re- developments in the economy and financial markets. flecting the credit needs of businesses facing a weaker Votes for this action: Messrs. Greenspan, McDonough, earnings outlook and larger merger-related retire- Ferguson, Gramlich, Hoenig, Jordan, Kelley, McTeer, ments of equity. Meyer, and Mses. Minehan, Phillips, and Rivlin. Votes In their discussion of the ranges for M2 and M3, against this action: None. the members noted that the apparently greater predictability of velocity in recent years could not be In the Committee's discussion of policy for the counted on to persist, given changes in financial intermeeting period ahead, all the members endorsed markets that had made investment alternatives more a proposal to maintain an unchanged policy stance. readily available. As a consequence, substantial The economy currently was performing very well uncertainty still surrounded projections of money and the outlook over the near term was for subdued growth consistent with the Committee's basic objec- inflation and continued solid economic growth. Over tives for monetary policy. In this environment, the a longer horizon, the range of possible outcomes was members did not see any firm basis for deviating unusually wide, and the direction that policy would from their recent practice of setting ranges that, need to move to promote sustained expansion and assuming velocity behavior in line with historical damped inflation was unclear. At this point, the extent patterns, would serve as benchmarks for monetary to which the still largely anticipated external drag expansion consistent with longer-run price stability from events in Asia would offset the strong upward Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 461 momentum in domestic demand was a source of that a slightly higher or a slightly lower federal funds major uncertainty. In addition, it was impossible to rate might be acceptable during the intermeeting predict whether or when the tightness in labor period. The reserve conditions contemplated at this markets would exert a more pronounced effect on meeting were expected to be consistent with some labor costs and ultimately on price inflation. Even the moderation in the growth of M2 and M3 over coming thrust of the current stance of monetary policy as it months. was transmitted through financial markets was open The Federal Reserve Bank of New York was authoto some question. On the one hand, a real federal rized and directed, until instructed otherwise by the funds rate that was on the high side of historical Committee, to execute transactions in the System experience and a substantially stronger dollar sug- Account in accordance with the following domestic gested some restraint. From a different perspective, policy directive: however, financial conditions seemed to be quite stimulative as evidenced by lower nominal and per- The information reviewed at this meeting suggests that haps real intermediate and long-term interest rates, economic activity continued to grow rapidly during the rising equity prices, ready credit availability, and closing months of 1997. Nonfarm payroll employment increased sharply further in December after posting very rapid growth of the broad measures of money and large gains in other recent months; the civilian unemploycredit. While the members differed to some extent in ment rate, at 4.7 percent, remained near its low for the their forecasts of major trends in the economy and in current economic expansion. Industrial production continthe risks of alternative outcomes, they agreed that, ued to advance at a brisk pace in the fourth quarter. under foreseeable circumstances, needed adjustments Consumer spending rose appreciably in the quarter, and housing starts remained close to the highs of the current to policy probably could be made on a timely basis expansion. Business fixed investment weakened following once the balance of underlying forces became more exceptionally strong increases in the second and third evident. Accordingly, a steady policy would not incur quarters; nonfarm inventory accumulation appears to have an unacceptable risk of a seriously deteriorating eco- picked up somewhat. The nominal deficit on U.S. trade in goods and services narrowed significantly on average in nomic performance. In the interim, the greater risk October and November from its level in the third quarter. would be to make a preemptive policy move on the Price inflation has remained subdued despite appreciably basis of inadequate evidence regarding underlying faster increases in worker compensation in recent months. economic trends. Most interest rates have declined on balance since the In the Committee's discussion of possible inter- day before the Committee meeting on December 16, 1997. meeting adjustments to policy, all the members Share prices in U.S. equity markets have moved up somewhat over the period; equity markets in some other counagreed that prevailing uncertainties indicated the tries, notably in Asia, have remained volatile. In foreign desirability of retaining a symmetric instruction in exchange markets, the value of the dollar has risen over the the directive. While a number of members expressed intermeeting period relative to the currencies of several the view that the next policy move was likely to be a Asian developing countries, but it has registered only a small increase on average in relation to the currencies of tightening action and one member saw a greater major industrial nations. probability of an easing action, the uncertainties were M2 and M3 continued to grow at relatively rapid rates in sufficiently great to warrant remaining sensitive to December and apparently also in January. From the fourth the need for a policy change in either direction. quarter of 1996 to the fourth quarter of 1997, M2 expanded Accordingly, a symmetric directive would signal the at a rate somewhat above the upper bound of its range for Committee's readiness to respond promptly to devel- the year and M3 at a rate substantially above the upper bound of its range. Total domestic nonfinancial debt opments that might threaten the economy's satisfacexpanded in 1997 at a pace somewhat below the middle of tory performance. its range. At the conclusion of the Committee's discussion, The Federal Open Market Committee seeks monetary all the members indicated their support of a directive and financial conditions that will foster price stability and promote sustainable growth in output. In furtherance of that called for maintaining conditions in reserve marthese objectives, the Committee at this meeting established kets that were consistent with an unchanged federal ranges for growth of M2 and M3 of 1 to 5 percent and 2 to funds rate of about 5Vi percent, and all also favored a 6 percent respectively, measured from the fourth quarter of directive that did not include a presumption about the 1997 to the fourth quarter of 1998. The range for growth of direction of a change, if any, in the stance of policy total domestic nonfinancial debt was set at 3 to 7 percent for the year. The behavior of the monetary aggregates will during the intermeeting period. Accordingly, in the continue to be evaluated in the light of progress toward context of the Committee's long-run objectives for price level stability, movements in their velocities, and price stability and sustainable economic growth, and developments in the economy and financial markets. giving careful consideration to economic, financial, In the implementation of policy for the immediate future, and monetary developments, the members decided the Committee seeks conditions in reserve markets consis- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

468 Federal Reserve Bulletin • June 1998 tent with maintaining the federal funds rate at an average It was agreed that the next meeting of the Commitof around 5'/2 percent. In the context of the Committee's tee would be held on Tuesday, March 31, 1998. long-run objectives for price stability and sustainable eco- The meeting adjourned at 10:50 a.m. nomic growth, and giving careful consideration to economic, financial, and monetary developments, a slightly higher federal funds rate or a slightly lower federal funds Donald L. Kohn rate might be acceptable in the intermeeting period. The Secretary contemplated reserve conditions are expected to be consistent with some moderation in the growth in M2 and M3 over coming months. Votes for this action: Messrs. Greenspan, McDonough, Ferguson, Gramlich, Hoenig, Jordan, Kelley, Meyer, McTeer, Mses. Minehan, Phillips, and Rivlin. Votes against this action: None Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

469 Legal Developments FINAL RULE—AMENDMENTS TO REGULATIONS T AND X Computer Language Research, Inc.: $.01 par common Consolidated Stainless, Inc.: $.01 par common The Board of Governors is amending 12 C.F.R. Parts 220 Consumers Financial Corporation: 8.5% Series A, conand 224, its Regulations T and X (Securities Credit Trans- vertible preferred actions; List of Marginable OTC Stocks; List of Foreign Country Star Restaurants, Inc.: $.001 par common Margin Stocks). The List of Marginable OTC Stocks (OTC List) is composed of stocks traded over-the-counter Datamarine International, Inc.: $.01 par common (OTC) in the United States that qualify as margin securi- Deflecta-Shield Corporation: $.01 par common ties under Regulation T, Credit by Brokers and Dealers. Deswell Industries, Inc.: Warrants (expire 07-17-2000) The List of Foreign Margin Stocks (Foreign List) is composed of foreign equity securities that qualify as margin Equitex, Inc.: $.001 par common securities under Regulation T. The OTC List and the Foreign List are published four times a year by the Board. First Enterprise Financial Group, Inc.: $.01 par common This document sets forth additions to and deletions from First Robinson Financial Corporation: $.01 par common the previous OTC List and the previous Foreign List. General Acceptance Corporation: No par common Effective May 11, 1998, 12 C.F.R. Parts 220 and 224 are amended as set forth below. Accordingly, pursuant to the Helisys, Inc.: $.001 par common authority of sections 7 and 23 of the Securities Exchange Hemasure, Inc.: $.01 par common Act of 1934, as amended (15 U.S.C. 78g and 78w), and in accordance with 12 C.F.R. 220.2 and 220.11, there is set Intel Corporation: Warrants (expire 03-14-1998) forth below a listing of deletions from and additions to the OTC List and the Foreign List. Kaman Corporation: Depositary Shares KWG Resources, Inc.: No par common Deletions From The List Of Marginable OTC Stocks Manhattan Bagel Company, Inc.: No par common Molten Metal Technology, Inc.: $.01 par common Stocks Removed For Failing Continued Listing Requirements North Coast Energy, Inc.: Series B, $.01 par cumulative convertible preferred 4Health, Inc.: Warrants (expire 01-15-1998) Northwest Teleproductions, Inc.: $.01 par common Accumed International, Inc.: No par common Aegis Consumer Funding Group, The: $.01 par common Omnis Technology Corporation: $.01 par common American United Global, Inc.: $.01 par common; Warrants (expire 07-31-1998) Photran Corporation: No par common Amtrust Capital Corporation: $.01 par common Precision Standard, Inc.: $.0001 par common Aps Holding Corporation: Class A, $.01 par common Procept, Inc.: $.01 par common Arnold Palmer Golf Company: $.50 par common Quality Dino Entertainment, Ltd.: No par common Bane One Corporation (Ohio): Series C, no par convertible preferred Reliance Acceptance Group, Inc.: $.01 par common BankUnited Financial Corporation (Florida): Series 1993, $.01 Rheometric Scientific, Inc.: No par common par non-cumulative convertible preferred; $.01 par non- Rose's Holdings, Inc.: No par common; Warrants cumulative perpetual preferred (expire 04-28-2002) Bird Corporation: $1.00 par common Boyds Wheels, Inc.: No par common SI Diamond Technology, Inc.: $.001 par common Cam Designs, Inc.: Warrants (expire 07-24-2000) Telegen Corporation: No par common Campo Electronics, Appliances and Computers, Inc.: $.10 TLII Liquidating Corporation: $.01 par common par common Chantal Pharmaceutical Corporation: $.01 par common Universal Hospital Services, Inc.: $.01 par common Cityscape Financial Corporation: $.01 par common Universal Seismic Associates, Inc.: $.0001 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

470 Federal Reserve Bulletin • June 1998 VDC Corporation. Ltd.: $.10 par common Heartstream, Inc.: $.001 par common Videolan Technologies, Inc.: $.01 par common Hector Communications Corporation: $.01 par common Holmes Protection Group, Inc.: $.01 par common Stocks Removed For Listing On A National Homecorp, Inc.: $.01 par common Securities Exchange Or Being Involved In An Hugoton Energy Corporation: No par common Acquisition ILC Technology, Inc.: No par common Aaron Rents, Inc.: $.50 par common: $1.00 par common Impact Systems, Inc.: No par common Advantage Bancorp, Inc. (Wisconsin): $.01 par common Individual, Inc.: $.01 par common International Petroleum Corporation: No par common Allied Holdings, Inc.: No par common Amti Communications Corporation: $.20 par common Kapson Senior Quarters Corporation: $.01 par common America First Participating/Preferred Equity Mortgage LP: Key Florida Bancorp, Inc.: $.01 par common Exchangeable units of limited partnership American Greetings Corporation: Class A, $1.00 par common Laser Industries Limited: Ordinary shares; (par NIS 0.0001) American Vanguard Corporation: $.10 par common Lexford, Inc.: No par common Amerus Life Holdings, Inc.: Class A, no par common Life Bancorp, Inc. (Virginia): $.01 par common Arbor Drugs, Inc.: $.01 par common Lin Television Corporation: $.01 par common ATC Group Services, Inc.: $.01 par common: Class C, Warrants (expire 04-30-1998) MacDermid, Incorporated: No par common Autobond Acceptance Corporation: No par common MAS Technology Limited: American Depositary Receipts Mid Continent Bancshares, Inc. (Kansas): $. 10 par common Bally Total Fitness Holding Corporation: $.01 par common Midwest Federal Financial Corporation: $.01 par common Bally's Grand, Inc.: $.01 par common: Warrants ML Bancorp, Inc. (Pennsylvania): $.01 par common (expire 08-19-2000) Mobile Gas Service Corporation: $2.50 par common BGS Systems, Inc.: $.10 par common Moovies, Inc.: $.001 par common Blimpie International, Inc.: $.01 par common Brooks Fiber Properties, Inc.: $.01 par common Netcom On-Line Communication Services, Inc.: $.01 par common Cannon Express, Inc.: $.01 par common New Jersey Steel Corporation: $.01 par common Chartwell Leisure, Inc.: $.01 par common Norwich Financial Corp.: $1.00 par common Chips and Technologies, Inc.: $.01 par common Chittenden Corporation: $1.00 par common Omni Insurance Group, Inc.: $.01 par common Comrnnet Cellular, Inc.: $.001 par common Onbancorp, Inc. (New York): $1.00 par common Communications Central, Inc.: $.01 par common Oregon Metallurgical Corporation: $1.00 par common CompuServe Corporation: $.01 par common Orion Network Systems, Inc.: $.01 par common Continental Circuits Corporation: $.01 par common Pembridge. Inc.: No par common Cotelligent Group, Inc.: $.01 par common Perpetual Bank, A Federal Savings Bank (South Carolina): Covenant Bancorp, Inc.: $5.00 par common $ 1.00 par common Cypros Pharmaceutical Corporation: No par common Perseptive Biosystems, Inc.: $.01 par common Plasti-Line, Inc.: $.001 par common DBA Systems, Inc.: $.10 par common Proxima Corporation: $.001 par common Puretec Corporation: $.01 par common El Chico Restaurants, Inc.: $.10 par common Emerald Isle Bancorp, Inc. (Massachusetts): $1.00 Raptor Systems, Inc.: $1.00 par common par common Redwood Trust, Inc.: $.01 par common; 9.74% Class B, $.01 par cumulative convertible preferred FFVA Financial Corporation: $.10 par common Reeds Jewelers, Inc.: $.10 par common First Alert, Inc.: $.01 par common Rottlund Company, Inc., The: $.01 par common First State Corporation: $1.00 par common First United Bancorporation (South Carolina): $1.67 Sagebrush, Inc.: No par common par common Sanco Corporation: $.01 par common Fort Wayne National Corporation: No par common Shared Technologies Fairchild, Inc.: $.001 par common Fulcrum Technologies, Inc.: No par common Shorewood Packaging Corporation: $.01 par common Signature Brands USA, Inc.: $.01 par common George Mason Bankshares, Inc. (Virginia): $1.66 par common Software Artistry, Inc.: No par common Grante Financial, Inc.: $.001 par common Spine-Tech, Inc.: $.01 par common Great Financial Corporation: $.01 par common Spinnaker Industries, Inc.: No par common; Class A, no Gulf South Medical Supply, Inc.: $.01 par common par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments All Stage Stores, Inc.: $.01 par common Colony Bankcorp, Inc.: $10.00 par common State of the Art, Inc.: No par common Columbia Financial of Kentucky, Inc.: No par common Steck-Vaughn Publishing Corporation: $.01 par common Columbia Sportswear Company: No par common Stokely USA, Inc.: $.05 par common Commnet Cellular, Inc.: $.001 par common Suburban Ostomy Supply Co., Inc.: No par common Compass International Services Corporation: $.01 Symetrics Industries, Inc.: $.25 par common par common Complete Business Solutions, Inc.: No par common Technology Modeling Associates, Inc.: No par common Condor Technology Solutions, Inc.: $.01 par common Tysons Financial Corporation: $5.00 par common Cowlitz Bancorporation: No par common Culturalaccess Worldwide, Inc.: $.01 par common Universal Outdoor Holdings, Inc.: $.01 par common Curagen Corporation: $.01 par common Cytoclonal Pharmaceutics, Inc.: $.01 par common Video Services Corporation: $.01 par common Visigenic Software, Inc.: $.001 par common Decoma International, Inc.: Class A, common shares Dispatch Management Services Corporation: $.01 Wausau Paper Mills Corporation: $.50 par common par common Docucorp International, Inc.: $.01 par common Xpedite Systems, Inc.: $.01 par common Doubleclick, Inc.: $.001 par common Drypers Corporation: $.001 par common Additions to The List of Marginable OTC Stocks Dura Automotive Systems, Inc.: Convertible Trust Preferred ACSYS, Inc.: No par common E-Net, Inc.: $.01 par common Advance Financial Bancorp.: $.10 par common Earthshell Corporation: $.01 par common Allergan Specialty Therapeutics, Inc.: Class A, $.01 EDAC Technologies Corporation: $.0025 par common par common Elcotel, Inc.: Redeemable warrants Altair International, Inc.: No par common Elder-Beerman Stores Corporation, The: No par common Ambassador Bank of the Commonwealth: $4.00 par common EnergySouth, Inc.: $2.50 par common American Champion Entertainment, Inc.: $.0001 par common Esquire Communications, Ltd.: $.01 par common American Dental Partners, Inc.: $.01 par common Exodus Communications: $.001 par common American Safety Insurance Group, Ltd.: $.01 par common Extended Systems Incorporated: $.001 par common Annapolis National Bancorp, Inc.: $.01 par common Annuity and Life re Holdings, Ltd.: $1.00 par common Fidelity Bankshares, Inc.: Trust preferred securities Artisan Components, Inc.: $.001 par common First Consulting Group, Inc.: $.001 par common Asha Corporation: $.0001 par common First South Africa Corporation: $.01 par common Associated Materials Incorporated: $.0025 par common Flagstar Bancorp, Inc.: Class A, preferred Astropower, Inc.: $.01 par common Florafax International, Inc.: $.01 par common Atlantic Gulf Communities Corporation: Warrants Series A, Forsoft, Ltd.: Ordinary shares (ISL .001) (expire 06-23-2004); Warrants Series B, (expire Frontier Financial Corporation: No par common 06-23-2004); Warrants Series C, (expire 06-23-2004) Atlantic Pharmaceuticals, Inc.: $.001 par common Gaston Federal Bancorp, Inc.: $1.00 par common Atlantic Realty Trust: Shares of beneficial interest GB Foods Corporation: $.08 par common Aviation Group, Inc.: $.01 par common Genesis Microchip, Inc.: No par common Getty Images, Inc.: $.01 par common Bank Rhode Island: $1.00 par common Global Telesystems Group, Inc.: $.10 par common Big Buck Brewery & Steakhouse, Inc.: $.01 par common Grand Court Lifestyles, Inc.: $.01 par common Birner Dental Management Services, Inc.: No par common BMJ Medical Management, Inc.: $.001 par common GST Telecommunications, Inc.: No par common BNC Mortgage, Inc.: $.001 par common Gulf West Banks, Inc.: No par common Bolle, Inc.: $.01 par common Brokline Bancorp, Inc.: $.01 par common Hawker Pacific Aerospace: No par common Headlands Mortgage Company. No par common C & F Financial Corporation: $1.00 par common Henley Healthcare, Inc.: $.01 par common Capital Automotive Reit: Shares of beneficial interest Herbalife International, Inc.: DECS Trust III Career Education Corporation: $.01 par common Heritage Bancorp, Inc. (South Carolina): $.01 par common Cavalry Bancorp, Inc.: No par common Hollis-Eden Pharmaceuticals: $.01 par common CCA Companies, Inc.: $.001 par common Home Loan Financial Corporation: No par common Century Bancshares, Inc.: $1.00 par common Hopfed Bancorp, Inc. (Kentucky): $.01 par common Coast Federal Litigation Contingent Payment Rights Trust: Horizon Medical Products, Inc.: $.001 par common Contingent Payment Rights Horizon Offshore, Inc.: $1.00 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

472 Federal Reserve Bulletin • June 1998 Icon CMT Corporation: $.001 par common Queen Sand Resources, Inc.: $.0015 par common Independence Community Bank Corporation: $.01 par common Republic Banking Corporation of Florida: $.01 par common Indigo Aviation Akiebolag: American Depositary Shares Richmond County Financial Corporation: $.01 par common Industrial Holdings, Inc.: Series D, warrants Royal Olympic Cruise Lines, Inc.: $.01 par common (expire 01-14-2000) Information Analysis Incorporated: $.01 par common Second National Financial Corporation: $2.50 par common International Bancshares Corporation: $1.00 par common Shire Pharmaceuticals Group, PLC: American Depositary International Fibercom, Inc.: No par common Shares Investors Real Estate Trust: No par shares of beneficial Shoe Pavilion, Inc.: $.001 par common interest SI Technologies, Inc.: $.01 par common Isomet Corporation: $ 1.00 par common Smed International, Inc.: No par common ISS Group, Inc.: $.001 par common Smith Corona Corporation: $.001 par common Sonosight, Inc.: $.01 par common Jameson Inns. Inc.: Series A, preferred South Umpqua State Bank: $.833 par common JPS Textile Group: $.01 par common Southbank Shares, Inc.: $.01 par common Sportsman's Guide, Inc., The: $.01 par common Ladish Co., Inc.: $.01 par common Sterling Financial Corporation (Pennsylvania): $5.00 Level 3 Communications, Inc.: $.01 par common par common LJL Biosystems, Inc.: $.001 par common Steven Myers & Associates, Inc.: No par common Lundin Oil AB: Global Depositary Receipts (.50 SEK) Sunpharm Corporation: $.0001 par common Surmodics, Inc.: $.05 par common Market Financial Corporation: No par common Symphonix Devices, Inc.: $.001 par common Mercury Computer Systems: $.01 par common Micromuse, Inc.: $.01 par common Transgene S.A.: American Depositary Receipts Midwest Bane Holdings, Inc.: $.01 par common Millenium Sports Management, Inc.: Warrants United Investors Realty Trust: No par common (expire 06-30-1998) Universal Display Corporation: $.10 par common Miller Exploration Company: $.01 par common USN Communications, Inc.: $.01 par common MTI Technology Corporation: $.001 par common Multimedia Games, Inc.: Class A warrants Verisign, Inc.: $.001 par common (expire 11-12-2001) Viagrafix Corporation: $.01 par common Visual Networks, Inc.: $.01 par common Nanogen, Inc.: $.001 par common Vysis, Inc.: $.001 par common Nara Bank National Association: $3.00 par common National City Bancshares, Inc. (Indiana): Cumulative Webster Financial Corporation: Series B, 8.625% cumulative Trust Preferred redeemable preferred NET.BNK, Inc.: S.01 par common North American Scientific, Inc.: $.01 par common Williams Industries, Inc.: $.01 par common North Valley Bancorp: No par common Wilshire Real Estate Investment Trust, Inc.: $.001 Northern Bank of Commerce: $1.00 par common par common Norwood Financial Corporation: $. 10 par common Nutmeg Federal Savings & Loan Association: $.005 Deletions From the Foreign Margin List par common Nutraceutical International Corporation: $.01 par common Australia Omega Worldwide, Inc.: $.10 par common AAPC Limited: Ordinary shares, par A$0.50 On Stage Entertainment, Inc.: $.01 par common ICI Australia Limited: Ordinary shares, par A$1.00 Online System Services, Inc.: No par common Optelecom, Inc.: $.03 par common Brazil Paulson Capital Corporation: No par common Brasmotor S.A.: No par preferred PC Connection, Inc.: $.01 par common Companhia Siderurgica Belgo Mineir: No par common Penn Octane Corporation: $.01 par common Companhia Siderurgica Belgo Mineir: No par non-voting, Pennsylvania Manufacturers Corporation: $5.00 par common preferred Pittsburgh Home Financial Corporation: 8.56% cumulative Companhia Siderurgica Tubarao: No par non-voting, trust preferred Preferred B Pizza Inn, Inc.: $.01 par common Companhia Vidraria Santa Marina on: No par common Province Healthcare Company: $.01 par common Light Servicios de Electricidade S.A.: No par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments All Canada South Africa Dominion Textile Inc.: No par common Kloof Gold Mining Company Limited: Ordinary shares, par 0.25 South Norcen Energy Resources Limited: No par Subordinate-voting Spain France Sociedad Espannola de Carburos: Bearer shares, par Bertrand Faure SA: Ordinaryshares, par 5 French 1000 pesetas Cetelem SA: Ordinary shares, par 45 French United Kingdom Compagnie Bancaire SA: Ordinary shares, par 100 French Allied Colloids Group PLC: Ordinary shares, par 10 p Germany Burton Group PLC, The: Ordinary shares, par 10 p Kwik Save Group PLC: Ordinary shares, par 10 p Adidas AG: Bearer shares par DM 50 Reuters Holdings PLC: B Ordinary, par 2.5 p T&N PLC: Ordinary shares, par LI Victori Holding AG: Registered shares, par DM 50 Vendome Luxury Group PLC: Ordinary shares, par 10 p Japan Additions to the Foreign Margin List Amada Metrecs Co., Ltd.: ¥50 par common Australia Aoki International Co., Ltd.: ¥50 par common Asahi Diamond Industrial Co., Ltd.: ¥50 par common Orica Limited: Ordinary shares, par A$1.00 Cosmo Securities Co., Ltd.: ¥50 par common Daiichi Corp.:: ¥50 par common Brazil Daiken Corp.: ¥50 par common Green Cross Corporation: ¥50 par common Companhia Siderurgica Tubarao On: B preferred shares Heiwado Co., Ltd.: ¥50 par common Companhia Siderurgica Tubarao PN: Preferred B Shares Hokkaido Bank, Ltd.: ¥50 par common Light Servicios de Electricidade: No par common Hokkoku Bank, Ltd.: ¥50 par common Izumi Co., Ltd.: ¥50 par common Denmark Kankaku Securities Co., Ltd: ¥50 par common Kayaba Industry Co., Ltd.: ¥50 par common Ratin A/S: Series B, par 1 Danish krone Kenwood Corp.: ¥50 par common Ratin A/S: Series A, par 1 Danish krone Koa Oil Co., Ltd.: ¥50 par common Kyodo Printing Co., Ltd.: ¥50 par common Germany Maruetsu Inc.: ¥50 par common Mitsubishi Cable Industries, Ltd.: ¥50 par common Adidas-Salomon AG: Bearer shares, par DM 50 Mitsui Real Estate Sales Co., Ltd.: ¥50 par common Ergo Versicherumgs Gruppe: Ordinary shares, par DM 5 Noritz Corp.: ¥50 par common Okamoto Industries, Inc.: ¥50 par common Greece Okasan Securities Co., Ltd.: ¥50 par common Rengo Co., Ltd.: ¥50 par common Alpha Credit Bank, S.A.: Common registered, par Greek SXL Corp.: ¥50 par common Aluminium Co. of Greece, S.A.: Common registered, Sankyo Aluminium Industry Co., Ltd.: ¥50 par common par US$27.50 Shinmaywa Industries, Ltd.: ¥50 par common Aluminium Co. of Greece, S.A.: Preference, par Greek drach- SS Pharmaceutical Co., Ltd.: ¥50 par common mas 700 Tadano, Ltd.: ¥50 par common Toagosei Co., Ltd.: ¥50 par common Aspis Pronia General Insurances: Common registered, Tokyotokeiba Co., Ltd.: ¥50 par common par Greek Toyo Communication Equipment Co.: ¥50 par common Athens Medical Center, S.A.: Common registered, par Greek Toyo Engineering Corp.: ¥50 par common Attica Enterprises, S.A.: Common, par Greek drachmas 200 Toyo Exterior Co., Ltd.: ¥50 par common Bank of Piraeus, S.A.: Common registered, par Greek Toyota Auto Body Co., Ltd.: ¥50 par common Chipita International, S.A.: Common bearer, par Greek drach- Uniden Corp. ¥50 par common mas Wako Securities Co., Ltd.: ¥50 par common Commercial Bank of Greece: Common registered, par Greek Norway Delta Dairy, S.A.: Common, par Greek drachmas 200 Storli ASA: B Ordinary Common, par 10 Norwegian Delta Dairy, S.A.: Preference, par Greek drachmas 200 Storli ASA: A Ordinary Common, par 10 Norwegian Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

474 Federal Reserve Bulletin • June 1998 Elais Oleaginous Production, S.A.: Common, par Greek drach- Banco Mello, S.A.: Registered, par ESC 1,000 mas 575 Banco Totta & Acores, S.A.: Registered, par ESC 1,000 Elval Aluminum Process Co., S.A.: Commonbearer, par Greek BCP (Banco Comercial Portugues): Registered, par ESC 1,000 drachmas BPI-SGPS (Banco Portugeues de): Registered, par ESC 1,000 Ergo Bank, S.A.: Common registered, par Greek Brisa (Auto-Estradas de Portugal): Registered, par ESC 1,000 Ethniki General Insurance co., S.A.: Common registered, Cimpor (Cimentos de Portugal): Registered, par ESC 1,000 par Greek Companhia de Seguros Tranquilidade: Registered, par Goodys, S.A.: Common bearer, par Greek drachmas ESC 1,000 Halkor, S.A.: Common bearer, par Greek drachmas Credito Predial Portuguese, S.A.: Registered, par ESC 1,000 Hellas Can-Packaging Manufacturers: Common, par Greek EDP (Electricidade de Portugal), Registered, par ESC 1,000 drachmas 300 Inparsa (Industrial Participacoes): Ordinary, par ESC 1,000 Hellenic Bottling Co., S.A.: Common bearer, par Greek drach- Jeronimo Martins (Estabelecimentos): Ordinary, par mas ESC 1,000 Hellenic Sugar Industry, S.A.: Common bearer, par Greek Portucei Industrial, S.A.: Registered, par ESC 1,000 drachmas Portugal Telecom, S.A., Registered, par ESC 1,000 Hellenic Telecom Organization, S.A.: Common registered, Semapa, S.A.: Ordinary, par ESC 1,000 par Greek Sonae Industria, S.A.: Ordinary, par ESC 1,000 Heracles General Cement Co.: Common registered, par Greek Sonae Investimentos (Societe): Ordinary, par ESC 1,000 Intracom, S.A.: Preference registered, par Greek Telecel Communicacoes Pessoais: Ordinary, par ESC 1,000 Intracom, S.A.: Common registered, par Greek Intrasoft, S.A.: Common registered, par Greek Singapore Ionian & Popular Bank of Greece: Common registered, par Greek Inchcape Motors, Ltd.: Ordinary shares, par S$.50 Michaniki, S.A.: Common registered, par Greek Michaniki, S.A.: Preference registered, par Greek South Africa Mytilineos Holdings, S.A.: Common bearer, par Greek drachmas Gold Fields, Limited: Ordinary shares, par .01 South N.I.B.I.D. (National Investment Bank): Common registered, par Greek United Kingdom N.I.B.I.D. (National Investment Bank): Preference registered, par Greek Debenhams PLC: Ordinary shares, par 10 p National Bank of Greece: Common registered, par Greek Reuters Group PLC: Ordinary shares, par 25 p National Mortgage Bank, S.A.: Common registered, par Greek Papastratos Cigarette Co., S.A.: Common, par Greek drachmas 200 ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT Silver & Baryte Ores Mining Co.: Common bearer, par Greek drachmas Orders Issued Under Section 3 of the Bank Holding Titan Cement Co.: Preference registered, par Greek Company Act Titan Cement Co.: Common registered, par Greek PAB Bankshares, Inc. Italy Valdosta, Georgia Banca di Roma, SPA: Ordinary shares, par 500 lira Order Approving Merger of Bank Holding Companies Mexico PAB Bankshares, Inc. ("PAB"), a bank holding company within the meaning of the Bank Holding Company Act Grupo Modelo S.A.: Class C, No par common ("BHC Act"), has requested the Board's approval under Television Azteca S.A. (CPO): No par common section 3 of the BHC Act to merge with Investors Financial Tubos de Acero Mexico S.A.: No par common Corporation ("Investors"), and thereby acquire Bainbridge National Bank, both in Bainbridge, Georgia. Norway Notice of the proposal, affording interested persons an opportunity to submit comments, has been published Odfjell ASA: B Ordinary shares, par 10 Norwegian (63 Federal Register 11,446 (1998)). The time for filing Odfjell ASA: A Ordinary shares, par 10 Norwegian comments has expired, and the Board has considered the proposal and all comments received in light of the factors Portugal set forth in section 3 of the BHC Act. PAB owns three depository institutions in Georgia and is Banco Espinto Santo e Comercial de: Registered, par the 28th largest depository institution in the state, control- ESC 1,000 ling approximately $247.3 million in deposits, representing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 475 less than 1 percent of total deposits in depository institu- Commuting data from the Census Bureau for 1990 show tions in Georgia.1 Investors is the 130th largest depository that more than 20 percent of Seminole County residents institution in Georgia, controlling approximately $64.3 mil- commute to Decatur County for employment. Decatur lion in deposits, representing less than 1 percent of total County also offers area residents the opportunity to purdeposits in depository institutions in the state. On consum- chase products and services at six shopping centers, several mation of the proposal, PAB would become the 20th larg- major department stores, and a number of restaurants. Data est depository institution, controlling deposits of $311.6 from the Georgia Highway Department for 1996 show that million, representing less than 1 percent of total deposits in approximately 22 percent of Seminole County's residents depository institutions in Georgia. travel daily to Decatur County. Residents of Decatur and Seminole Counties also have access to the same newspa- Competitive Considerations pers and radio stations.7 Check clearing data for a two-day period from the sub- The BHC Act prohibits the Board from approving a pro- sidiary banks of PAB and Investors in Decatur County also posal if it would result in a monopoly or if the effect of the show that approximately 10 percent of the checks proproposal may be substantially to lessen competition in any cessed were drawn on banks in Seminole County. In addirelevant market, unless the Board finds that the anticom- tion, deposit data from PAB's subsidiary bank in Decatur petitive effects of the proposed transaction are clearly County show that the bank has a deposit relationship with outweighed in the public interest by the probable effect of approximately 8 percent of the households in Seminole the transaction in meeting the convenience and needs of County. Interviews with senior managers of banks in Decathe community to be served.2 tur County and in Seminole County, moreover, indicated PAB and Investors compete in the Bainbridge banking that the banks in each county substantially compete for market, which is defined by the Federal Reserve Bank of customers in the other county and that the banks have Atlanta ("Reserve Bank") as an area approximated by significant customer bases in the other county. Decatur and Seminole Counties in Georgia.3 PAB contends The facts of record, however, do not support expanding that the area delineated by the Reserve Bank should be the banking market as suggested by PAB. Bainbridge is expanded to include adjacent areas that encompass Talla- approximately 42 miles northwest of Tallahassee; 52 miles hassee, Florida ("Tallahassee"); Dothan, Alabama ("Do- southeast of Dothan; and 57 miles southwest of Albany. than'"); and Albany and Cairo, Georgia. Commuting data indicate that approximately 4 percent of The Board concludes, however, that the appropriate mar- the employees in the Bainbridge area commute to jobs in ket for analyzing the competitive effects of the proposal is the Tallahassee Metropolitan Statistical Area ("MSA"), the Bainbridge banking market as previously defined.4 The and data from the Georgia Highway Department indicate Board bases its conclusion on an analysis of employment that less than 3.5 percent of residents in the Bainbridge opportunities, commuting data, shopping patterns, check area travel daily to Tallahassee. Neither the Tallahassee clearing and deposit data, interviews with local bankers, MSA nor the Tallahassee Ranally Metropolitan Area and other facts of record indicating that there is substantial ("RMA") include either Decatur or Seminole Counties, commuting, travel, and commercial interaction between confirming that there is insufficient economic integration to Decatur and Seminole Counties. warrant considering these counties to be within the same banking market as Tallahassee.8 Commuting data also indi- Decatur County has a significantly larger population than Seminole County,5 and some of the area's largest cate that a de minimis percentage of Bainbridge area resiemployers are in Bainbridge, which is in Decatur County.6 dents commute to the Dothan MSA, the Albany MSA, or Cairo, Georgia, and there are no other indications of economic integration to support including these areas within 1. State deposit data are as of June 30, 1997. In this context, the Bainbridge banking market.9 depository institutions include commercial banks, savings banks, and In light of these, and all facts of record, the Board savings associations. 2. 12U.S.C. § l842(c)(l)(B). concludes that the Bainbridge banking market reflects com- 3. Decatur and Seminole Counties are adjacent rural counties in the southwestern corner of Georgia. Both counties border Florida, and Seminole County also borders Alabama. 4. The Board and the courts have found that the relevant banking 7. A free weekly newspaper published in Bainbridge circulates to a market for analyzing the competitive effects of a proposal must reflect significant percentage of households in Seminole County. In addition, commercial and banking realities and should consist of the local area two radio stations in Decatur County broadcast to surrounding areas, where local customers can practicably turn for alternatives. See including Seminole County. Decatur and Seminole Counties also are St. Joseph Valley Bank, 68 Federal Reserve Bulletin 673. 674 (1982). in the same local telephone calling area. See also United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 374 8. An MSA designation is made by the Office of Management and (1963); United States v. Phillipsburg Nat'l Bank, 399 U.S. 350 (1969). Budget on the basis of an area's population and includes surrounding 5. Data from the United States Census Bureau for 1990 show that counties with strong economic and social ties to a central county. An Decatur County has a population of approximately 26,500 and Semi- RMA is a privately defined compact geographic area with relatively nole County has a population of approximately 9,250. high population density that is linked by commuting, retail, and 6. Bainbridge has a population of 11,231 and is the largest town in wholesale trade patterns. the two counties. Employers in Bainbridge include one manufacturer 9. The MSA designations for Albany and Dothan do not include that employs more than 1000 workers and four organizations that each Decatur or Seminole Counties. The RMA designations that include employ 400 workers. these cities also do not include Decatur or Seminole Counties. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

476 Federal Reserve Bulletin • June 1998 mercial and banking realities and represents an area where counties in Georgia. Since 1995, three bank holding comlocal customers can practicably turn for alternatives. Ac- panies, including PAB, have entered the banking market by cordingly, the relevant banking market for considering the acquiring banks that only operated in the Bainbridge bankcompetitive effects of the proposal is the Bainbridge bank- ing market. ing market as denned above. The Board concludes that the potential adverse competi- Consummation of the proposal would exceed the Depart- tive effects of the proposal would be substantially mitiment of Justice Merger Guidelines ("DOJ Guidelines") in gated by these considerations. The Justice Department the Bainbridge banking market.10 In the Bainbridge bank- reviewed the proposal and advised the Board that consuming market, PAB is the third largest depository institution, mation of the proposal would not likely have any significontrolling $52.9 million in deposits, representing cantly adverse competitive effects in the Bainbridge bank- 15.1 percent of total deposits in depository institutions in ing market or any other relevant banking market. Based on the market ("market deposits")." Investors is the largest all the facts of record, and for the reasons discussed above, depository institution in the market, controlling $64.3 mil- the Board concludes that consummation of the proposal is lion in deposits, representing 18.4 percent of market depos- not likely to result in any significantly adverse effects on its. On consummation of the proposal, PAB would become competition or on the concentration of banking resources the largest depository institution in the market, controlling in the Bainbridge banking market or any other relevant $117.2 million in deposits, representing 33.6 percent of banking market. market deposits. The HHI would increase by 557 points to 2036. Other Considerations The Bainbridge banking market presents unique considerations in analyzing the competitive effects of the proposal. Although it is a small rural banking market with The BHC Act requires the Board, in acting on an applicatotal market deposits of approximately $350 million, seven tion, to consider the financial and managerial resources and competitors would remain in the market after consumma- future prospects of the companies and banks involved, the tion of the proposal. Five competitors each would control convenience and needs of the communities to be served, significant shares of market deposits after consummation and certain supervisory factors. The Board has reviewed of the proposal that range from approximately 10 percent these factors in light of the record, including supervisory to approximately 18 percent of market deposits. Given the reports of examination assessing the financial and managesize of the market, the number of competitors and the rial resources of the organizations. Based on all the facts of relative size of the remaining competitors are significant record, the Board concludes that the financial and manageand unique factors that substantially mitigate the potential rial resources and the future prospects of PAB, Investors, competitive effects of the transaction. and their respective subsidiary banks are consistent with approval, as are the other supervisory factors the Board The Bainbridge banking market also has some charactermust consider under section 3 of the BHC Act. In addition, istics that make it attractive for entry. Data for 1997 show considerations related to the convenience and needs of the that deposits per office in the Bainbridge banking market communities to be served, including the records of perforare greater than the averages for other non-MSA counties mance of the institutions under the Community Reinvestin Georgia. In the Bainbridge banking market, total bankment Act, are consistent with approval of the proposal. ing deposits have increased by 39.6 percent between 1993 and 1997, compared to 20.9 percent in other non-MSA Conclusion 10. Under the revised DOJ Guidelines, 49 Federal Register 26,823 (June 29, 1984), a market in which the post-merger Herfindahl- Based on the foregoing, and in light of all the facts of Hirschman Index ("HHI") exceeds 1800 is considered highly concenrecord, the Board has determined that the application trated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence should be, and hereby is, approved. The Board's approval of other factors indicating anticompetitive effects) unless the post- is specifically conditioned on compliance by PAB with all merger HHI is at least 1800 and the merger increases the HHI by more the commitments made in connection with the application. than 200 points. The Department of Justice has stated that the higher For the purposes of this action, the commitments and than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited- conditions relied on by the Board in reaching its decision purpose lenders and other non-depository financial entities. are deemed to be conditions imposed in writing by the 11. Market share data used to analyze the competitive effects of the Board in connection with its findings and decision and, as proposal are as of June 30, 1997. These data are based on calculations such, may be enforced in proceedings under applicable in which the deposits of thrift institutions are included at 50 percent. law. The Board previously has indicated that thrift institutions have become, or have the potential to become, significant competitors of The acquisition of the banks shall not be consummated commercial banks. See Midwest Financial Group, 75 Federal Reserve before the fifteenth calendar day following the effective Bulletin 386 (1989); National City Corporation, 70 Federal Reserve date of this order, or later than three months after the Bulletin 743 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted effective date of this order, unless such period is extended basis. See, e.g., First Hawaiian. Inc., 77 Federal Reserve Bulletin 52 for good cause by the Board or by the Reserve Bank, (1991). acting pursuant to delegated authority. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments All By order of the Board of Governors, effective April 27, section 4(c)(8) of the BHC Act.3 The Board requires that 1998. savings associations acquired by bank holding companies conform their direct and indirect activities to those that are Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and permissible for bank holding companies under section 4 of Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich. the BHC Act. North Fork has committed to cease or otherwise address the activities of Bancorp that are not JENNIFER J. JOHNSON permissible for a bank holding company under sec- Deputy Secretary of the Board tion 4(c)(8) of the BHC Act and Regulation Y.4 In order to approve the proposal, the Board also is Orders Issued Under Section 4 of the Bank Holding required by section 4(c)(8) of the BHC Act to determine Company Act that the acquisition by North Fork of the proposed interest in Bancorp "can reasonably be expected to produce bene- North Fork Bancorporation, Inc. fits to the public ... that outweigh possible adverse effects, Melville, New York such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound bank- Order Approving Notice to Acquire Shares of a Savings ing practices."5 As part of its consideration of these fac- Association tors, the Board has carefully considered comments submitted by Bancorp and Inner City Press/Community on the North Fork Bancorporation, Inc. ("North Fork"), a bank Move ("ICP") opposing the proposal. holding company within the meaning of the Bank Holding Bancorp contends that North Fork's minority investment Company Act ("BHC Act"), has requested the Board's would adversely affect its ability to compete and to pursue approval under section 4(c)(8) of the BHC Act long-term business opportunities, retain employees and (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's customers, and focus on its strategic business plans. ICP Regulation Y (12 C.F.R. 225.24) to acquire up to contends that North Fork's proposed investment would not 9.9 percent of the voting shares of Long Island Bancorp, support or stabilize Bancorp and would disrupt the local Inc. ("Bancorp"), and thereby acquire an interest in Banbanking market. corp's wholly owned subsidiary, The Long Island Savings North Fork has not applied to control Bancorp and has Bank, FSB ("Savings Bank"), both in Melville, New made a number of commitments that the Board has relied York.1 on in other cases to determine that an investing bank Notice of the proposal, affording interested persons an holding company would not be able to exercise a controlopportunity to submit comments, has been published ling influence over another depository institution for pur- (63 Federal Register 11,446 (1998)). The time for filing poses of the BHC Act.6 The commitments include a comcomments has expired, and the Board has considered the mitment not to exercise or seek to exercise a controlling notice and all comments received in light of the factors set influence over the management or policies of Bancorp or forth in section 4(c)(8) of the BHC Act. its subsidiaries; not to seek or accept any representation on North Fork, with total consolidated assets of approxithe board of directors of Bancorp or any of its subsidiaries; mately $6.8 billion, owns North Fork Bank, Melville, not to attempt to influence the dividend policies, loan New York ("NFB"). North Fork is the 14th largest bankdecisions, or operations of Bancorp or any of its subsidiaring organization in New York, controlling deposits of approximately $6 billion, representing approximately 1.5 percent of total deposits in depository institutions in the state.2 Bancorp, with total consolidated assets of approximately $6 billion, is the 18th largest depository institution 3. 12 C.F.R. 225.28(b)(4). Bancorp contends that, because North in New York, controlling deposits of approximately Fork has in the past made similar minority investments in other $3.7 billion, representing less than 1 percent of total depos- depository institution holding companies, North Fork's notice should be construed as a request to engage in the activity of making minority its in depository institutions in the state. investments in depository institutions. The BHC Act and the Board's The Board previously has determined by regulation that Regulation Y include a specific requirement that a bank holding the operation of a savings association by a bank holding company receive Board approval prior to acquiring more than company is closely related to banking for purposes of 5 percent of the voting shares of a bank or a savings association. North Fork has filed the required notice under section 4(c)(8) of the BHC Act to acquire more than 5 percent of the shares of Bancorp and Savings Bank, which are engaged in activities that the Board has 1. After North Fork filed notice with the Board to make the determined to be closely related to banking. proposed investment in Bancorp, Bancorp entered into an agreement 4. Savings Bank engages in certain real estate development and with Astoria Financial Corporation, Lake Success, New York insurance sales activities that are impermissible for bank holding ("Astoria"), under which Astoria would purchase, subject to regula- companies. North Fork has committed that within two years of intory approval, all the voting shares of Bancorp, including those held or creasing its interest in the voting shares of Bancorp to 5 percent or acquired by North Fork. more it will either acquire control of Bancorp and cause Bancorp to 2. Asset data are as of December 31, 1997, state deposit data are as cease all impermissible activities or reduce its interest in the voting of June 30, 1997, and incorporate North Fork's acquisitions through shares of Bancorp to below 5 percent. February 1998. In this context, depository institutions include com- 5. 12 U.S.C. § 1843(c)(8). mercial banks, savings banks, and savings associations. 6. These commitments are set forth in the Appendix. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

478 Federal Reserve Bulletin • June 1998 ies.7 Under the BHC Act, North Fork is prohibited from banking market.10 If North Fork and Bancorp are considacquiring more than 9.9 percent of Bancorp's voting stock, ered as a combined entity, the Herfindahl-Hirschman Inor otherwise exercising a controlling influence over Ban- dex ("HHI") would not increase in the relevant banking corp, without further Board approval. North Fork, there- market and numerous competitors would remain in the fore, may not participate in the deliberations or decision market.11 Thus, any potential elimination of competition making of the board of directors of Bancorp or any of its between the two entities is not expected to substantially subsidiaries without prior Board approval.8 The Board has lessen competition in the Metropolitan New York/New adequate supervisory authority to monitor and enforce Jersey banking market or in any relevant banking market. North Fork's compliance with its commitments, including As part of the Board's evaluation of the public interest the authority to initiate a control proceeding against North factors in this case, the Board has carefully reviewed the Fork if facts come to the Board's attention that North Fork financial and managerial resources of North Fork, Bancorp, or any of its subsidiaries or affiliates in fact controls and their respective subsidiaries, and the effect the transac- Bancorp for purposes of the BHC Act. The Board believes tion would have on such resources in light of all the facts that the commitments provided by Bancorp substantially of record.12 These facts include confidential financial informitigate the potential that consummation of the proposal mation from North Fork and reports of examination and would result in the adverse effects alleged by Bancorp and other supervisory information received from the appropri- ICP. ate federal and state supervisors of the affected organiza- Although the proposal involves a minority investment, tions assessing the financial and managerial resources of section 4(c)(8) of the BHC Act requires that the Board the organizations.13 Based on all the facts of record, the consider the competitive effects of the proposal. The Board has noted that one company need not acquire control of another company in order substantially to lessen competi- 10. The Metropolitan New York/New Jersey banking market intion between them and that the specific facts of each case cludes New York City; Nassau, Orange, Putnam, Rockland, Suffolk, will determine whether a minority investment would have Sullivan, and Westchester Counties in New York; Bergen, Essex, significantly anticompetitive effects.9 North Fork and Ban- Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren, and a portion of Mercer Counties in corp compete in the Metropolitan New York/New Jersey New Jersey; Pike County in Pennsylvania; and portions of Fairfield and Litchfield Counties in Connecticut. 11. If North Fork was deemed to control Bancorp, the HHI for the 7. Bancorp and ICP allege that North Fork violated the passivity Metropolitan New York/New Jersey banking market would decrease commitments provided in connection with previous minority invest- from 796 to 786 on consummation of the proposal. Market share data ments made by North Fork in Suffolk Bancorp, Inc., Riverhead, New are as of June 30. 1996, and are based on calculations in which the York ("Suffolk"), and Sunrise Bancorp, Inc., Farmingdale, New York deposits of thrift institutions, other than Savings Bank, are included at ("Sunrise"), and took actions inconsistent with the passivity commit- 50 percent. The Board previously has indicated that thrift institutions ments initially offered to the Board in connection with North Fork's have become, or have the potential to become, significant competitors proposed acquisition of more than 5 percent of the voting shares of of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin Haven Bancorp, Woodside, New York ("Haven"). The Board consid- 788 (1990); National City Corporation, 70 Federal Reserve Bulletin ered similar allegations regarding the commitments that North Fork 742 (1984). Because the Board has analyzed the competitive factors in made in connection with its passive investment in Suffolk and deter- this case as if North Fork and Savings Bank were a combined entity, mined that no violations occurred. See North Fork Bancorporation, the deposits of Savings Bank are included at 100 percent in the Inc., 82 Federal Reserve Bulletin 338. 339 (1996). The Board also has calculation of pro forma market share. See Norwest Corporation, 78 considered commenters' allegations regarding the commitments made Federal Reserve Bulletin 452 (1992); First Banks, Inc. 76 Federal by North Fork in connection with its application to acquire up to Reserve Bulletin 669 (1990). 9.9 percent of Sunrise. On the basis of all the facts of record, including 12. Bancorp contends that the proposal would adversely affect its confidential supervisory information, the Board concludes that com- financial condition because Bancorp would be forced to redeem the menters' allegations do not reflect adversely on the managerial re- shares held by North Fork at a premium. The Board has considered sources of North Fork or warrant enforcement action by the Board. Bancorp's comments in light of confidential examination and supervi- The Board notes that North Fork did not acquire more than 5 percent sory reports assessing the financial condition of Bancorp. Bancorp of the voting shares of Haven and did not make any binding passivity also maintains that Suffolk's financial condition was adversely afcommitments to the Board with respect to Haven. fected by its redemption of the shares acquired by North Fork. The 8. Bancorp maintains that North Fork intends to control Bancorp Board notes that Suffolk remained well capitalized after the transacbecause North Fork has discussed potential business combinations tion. with Bancorp's management. The Board previously has noted that 13. ICP argues that allegations regarding the activities of a senior general expressions of interest in negotiating a business combination executive of NFB and North Fork contained in two lawsuits raise with an institution do not violate the passivity commitments or the adverse managerial considerations. Documents filed in connection BHC Act's prohibition against exercising a controlling influence over with these lawsuits asserted that certain business transactions between the management or policies of a banking organization. See GB Ban- NFB and acquaintances of the senior executive were not handled in corporation, 83 Federal Reserve Bulletin 115 (1997). accordance with the bank's normal procedures. The Board notes that 9. See Emigrant Bancorp Inc., 82 Federal Reserve Bulletin 555 these lawsuits were resolved in favor of NFB and that no findings of (1996), Mansura Bancshares, Inc., 79 Federal Reserve Bulletin 37 improper activities were made against NFB or its management. The (1993) ("Mansura"); and SunTrust Banks, Inc., 76 Federal Reserve Board also has considered ICP's contentions in light of confidential Bulletin 542 (1990). It is possible, for example, that the acquisition of reports of examination and other supervisory information from NFB's a substantial ownership interest in a competitor or a potential compet- appropriate federal supervisor, the Federal Deposit Insurance Corporaitor of the acquiring firm might alter the market behavior of both firms tion ("FDIC"), and the New York State Banking Department in such a way as to weaken or eliminate independent action at each ("NYSBD"), regarding the managerial resources of NFB. The Board organization and increase the likelihood of cooperative operations. notes that ICP submitted similar comments to the FDIC in connection See Mansura at 38. with NFB's application to merge with North Side Savings Bank, New Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 479 Board concludes that the financial and managerial re- NFB's record of ascertaining the credit needs of its entire sources of the organizations involved in the proposal are service community, NFB's branch locations and branch consistent with approval. closing policies, and NFB's compliance with fair lending In acting on applications to acquire a savings associa- laws. The Board also carefully reviewed North Fork's tion, the Board also reviews the records of performance of record of lending in light of 1995 and 1996 HMDA data the relevant depository institutions under the Community filed by North Fork. For the reasons set forth in detail in Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA").14 that order, and incorporated herein by reference, the Board As provided in the CRA, the Board evaluates the record of concluded that the CRA performance record of North Fork performance of an institution in light of examinations by was consistent with approval under the BHC Act. the appropriate federal supervisors of the CRA records of The Board also has carefully reviewed North Fork's performance of the relevant institutions. An institution's final HMDA data for 1997 that became available after the most recent CRA performance evaluation is a particularly N.Y. Bancorp Order. These data show that the number of important consideration in the application process because loans made by North Fork in census tracts with predomiit represents a detailed on-site evaluation of the institu- nantly minority populations decreased slightly in 1997 tion's overall record of performance under the CRA by its compared to 1996. The data also show that North Fork appropriate federal regulator.15 increased the number of loans it made to LMI individuals NFB received an overall rating of "satisfactory" from and in LMI census tracts in 1997 compared to 1996. The the FDIC at its most recent evaluation for CRA perfor- data also reflect some disparities in the rate of loan originamance, as of March 1997 ("1997 Examination"). In addi- tions, denials, and applications by racial group and income level in certain areas. tion, the NYSBD rated NFB's CRA performance "satisfactory" as of the same date.16 Savings Bank also received an The Board is concerned when an institution's record overall rating of "outstanding" from its appropriate federal indicates such disparities and believes that all banks are regulator, the Office of Thrift Supervision, as of February obligated to ensure that their lending practices are based on 1996. criteria that assure not only safe and sound banking, but ICP contends, based primarily on data filed under the also equal access to credit by creditworthy applicants re- Home Mortgage Disclosure Act (12 U.S.C. § 2901 et seq.) gardless of race. The Board recognizes, however, that ("HMDA"), that North Fork's lending activities, including HMDA data alone provide an incomplete measure of an loans secured by 1-4 family dwellings ("owner-occupied institution's lending in its community and have limitations housing"), in low- to moderate-income ("LMI") commu- that make the data an inadequate basis, absent other infornities and communities with predominantly minority popu- mation, for concluding that an institution has engaged in lations are inadequate.17 The Board recently reviewed illegal discrimination in making lending decisions.19 North Fork's record of CRA performance in light of simi- Because of the limitations of HMDA data, the Board has lar comments submitted by ICP in connection with approv- carefully reviewed other information, particularly examinaing North Fork's application to acquire New York Ban- tion reports that provide an on-site evaluation of complicorp, Inc., Douglaston, New York.18 ance by NFB with the fair lending laws. In the 1997 In the N. Y. Bancorp Order, the Board carefully reviewed Examination, FDIC examiners found no evidence of proa number of aspects of North Fork's CRA performance, hibited discriminatory practices or of any practices inincluding NFB's lending programs designed to assist in tended to discourage applications for the types of credit set meeting the housing-related credit needs of LMI individu- forth in the bank's CRA statement.20 NYSBD examiners als and communities, small business lending activities, also found no evidence of any prohibited discriminatory or illegal credit practices in their 1997 evaluation of NFB. FDIC examiners also concluded that NFB's management York, New York, in 1996, and that the FDIC found that the manage- had demonstrated a commitment to making loans in LMI rial resources of NFB were consistent with approved of that transac- census tracts and to LMI individuals and favorably noted tion under the Bank Merger Act (12 U.S.C. § 1828(c)). that the bank had a formal review process for all denied 14. See Bane One Corporation, 83 Federal Reserve Bulletin 602 (1997). loan applications. Based on a review of the entire record in 15. The Statement of the Federal Financial Supervisory Agencies this case, including the Board's previous review in the N.Y. Regarding the Community Reinvestment Act provides that a CRA Bancorp Order, the Board concludes that the CRA perforexamination is an important and often controlling factor in the consideration of an institution's CRA record and reports of these examinations will be given great weight in the applications process. See 54 Federal Register 13,742 and 13,745 (1989). 16. See N.Y. Banking Law § 28-b. 17. ICP also maintains that North Fork charges higher fees for 19. The data, for example, do not provide a basis for an independent banking services and pays lower interest rates on deposits than other assessment of whether an applicant who was denied credit was. in depository institutions in New York. There are no facts in the record fact, creditworthy. Credit history problems and excessive debt levels indicating that North Fork's pricing for bank services is based on any relative to income (reasons most frequently cited for a credit denial) factor that would be prohibited under law. The Board previously has are not available from HMDA data. concluded, moreover, that the CRA does not impose any limitation on 20. As noted in the N.Y. Bancorp Order, FDIC examiners noted the ability of a depository institution to price its products and services. certain technical violations of the fair lending laws during the 1997 18. See North Fork Bancorporation, Inc., 84 Federal Reserve Examination, but stated that these matters were addressed by the Bulletin 290 (1998) ("N.Y. Bancorp Order"). bank's management during the examination. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

480 Federal Reserve Bulletin D June 1998 mance records of NFB and Savings Bank are consistent conditions referred to in this order. The Board's determinawith approval of the proposal.21 tion is also subject to all the conditions in Regulation Y, The Board also has considered the commenters' conten- including those in sections 225.7 and 225.25(c) (12 C.F.R. tions that the proposal would not result in any public 225.7 and 225.25(c)), and to the Board's authority to benefits. The requirement under section 4 of the BHC Act require such modification or termination of the activities of that the Board must determine that public benefits from a a holding company or any of its subsidiaries as the Board proposal can reasonably be expected to outweigh potential finds necessary to assure compliance with, or to prevent adverse effects necessarily involves a balancing process evasion of, the provisions and purposes of the BHC Act that takes into account the extent of the potential for and the Board's regulations and orders issued thereunder. adverse effects. The commitments and conditions relied on by the Board in The Board believes that there is a public benefit to be reaching this decision shall be deemed to be conditions derived from permitting capital markets to operate and imposed in writing by the Board in connection with its from permitting bank holding companies to make poten- findings and decision, and, as such, may be enforced in tially profitable passive investments in financial institu- proceedings under applicable law. tions, when these investments are consistent, as in this This transaction shall not be consummated later than case, with the relevant considerations under the BHC Act.22 three months after the effective date of this order, unless Based on all the facts of record, and for the reasons such period is extended for good cause by the Board or the previously discussed in this order, the Board concludes that Federal Reserve Bank of New York, acting pursuant to the proposal is not likely to result in the adverse effects delegated authority. alleged by Bancorp and ICP or other adverse effects, such By order of the Board of Governors, effective April 13, as undue concentration of resources, decreased or unfair 1998. competition, conflicts of interests, or unsound banking practices. Accordingly, based on all the facts of record, the Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Board has determined that consummation of the proposal Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich. can reasonably be expected to produce public benefits that JENNIFER J. JOHNSON would outweigh any likely adverse effects under the proper Deputy Secretary of the Board incident to banking standard of section 4(c)(8) of the BHC Act. Based on the foregoing and all the facts of record, the Appendix Board has determined that the notice should be, and hereby is, approved.23 The Board's approval of the proposal is As part of this proposal, North Fork has committed that specifically conditioned on compliance by North Fork with it will not, without the Board's prior approval: the commitments made in connection with this notice and (1) Exercise or attempt to exercise a controlling influence 21. The Board continues to expect NFB to address the areas for over the management or policies of Long Island Bancorp improvement in its lending performance discussed in the NX Bancorp ("Bancorp") or any of its subsidiaries; Order, and will consider North Fork's progress in this regard in (2) Have or seek to have any employees or representatives connection with future applications by North Fork to acquire depositserve as an officer, agent, or employee of Bancorp or any of taking facilities. its subsidiaries; 22. See, e.g., Mercantile Bancorporation Inc., 83 Federal Reserve Bulletin 683, 688 (1997); South Central Texas Bancshares, Inc., 83 (3) Take any action causing Bancorp or any of its subsidiar- Federal Reserve Bulletin 47, 51 n. 20 (1997). ies to become a subsidiary of North Fork or any of its 23. ICP requests that the Board hold a public hearing or meeting to subsidiaries; investigate and resolve disputed issues of fact involving the allega- (4) Acquire or retain shares that would cause the combined tions contained in the lawsuits against NFB and its senior management. The Board's rules provide for a hearing on notices under sec- interests of North Fork or any of its subsidiaries and its tion 4 of the BHC Act to acquire a savings association only if there are officers, directors, and affiliates to exceed 9.9 percent of the disputed issues of material fact that cannot be resolved in some other outstanding voting shares of Bancorp or any of its subsidmanner. See 12 C.F.R. 225.25(a)(2). After a careful review of all the iaries; facts of record, the Board has concluded that ICP's contentions amount to a dispute concerning the weight that should be accorded to, (5) Propose a director or slate of directors in opposition to and the conclusions that the Board should draw from, the facts of a nominee or slate of nominees proposed by the managerecord, but do not identify disputed issues of fact that are material to ment or board of directors of Bancorp or any of its subsidthe Board's decision. The Board also notes that interested parties have iaries; had an ample opportunity to present their views, and ICP has submitted substantial written comments that have been considered by the (6) Attempt to influence the dividend policies or practices Board. ICP's request fails to demonstrate why a written presentation of Bancorp or any of its subsidiaries; would not suffice and to summarize the evidence that would be (7) Solicit or participate in soliciting proxies with respect presented at a hearing or meeting. For these reasons, and based on all to any matter presented to the shareholders of Bancorp or the facts of record, the Board has determined that a public meeting or hearing is not necessary to clarify the factual record on the notice and any of its subsidiaries; is not warranted in this case. Accordingly, ICP's request for a public (8) Attempt to influence the loan and credit decisions or hearing or meeting on this notice is hereby denied. policies of Bancorp or its bank subsidiary, the pricing of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 481 services, any personnel decision, the location of any of- and all comments received in light of the factors set forth fices, branching, the hours of operation, or similar activi- in section 4(c)(8) of the BHC Act. ties of Bancorp or any of its subsidiaries; Notificant, with total assets of approximately $19.9 bil- (9) Dispose or threaten to dispose of shares of Bancorp or lion, is the largest banking organization in Puerto Rico, and any of its subsidiaries in any manner as a condition of the 42nd largest banking organization in the United States.2 specific action or nonaction by Bancorp or any of its Notificant controls approximately $10.1 billion in deposits subsidiaries; in the United States, and operates branches in New Jersey, (10) Enter into any banking or nonbanking transactions Florida, Illinois, Texas, and California. Notificant also enwith Bancorp or any of its subsidiaries, except that North gages in a number of nonbanking activities in the United Fork and each of North Fork's directors, senior executive States. officers, related parties, and affiliates may establish and The Board has determined by regulation3 that the followmaintain deposit accounts with any bank subsidiaries of ing proposed activities are closely related to banking and Bancorp, provided that the aggregate balance of all such permissible for bank holding companies under secaccounts do not exceed $500,000 and that the accounts are tion 4(c)(8) of the BHC Act: maintained on substantially the same terms as those pre- (i) Credit and credit related activities; vailing for comparable accounts of persons unaffiliated (ii) Leasing activities; with Bancorp or any of its subsidiaries; or (iii) Financial and investment advisory services; (11) Seek or accept representations on the board of direc- (iv) Transactional services; tors of Bancorp or any of its subsidiaries. North Fork also (v) Investment and trading services; has committed that it will: (vi) Insurance activities related to extensions of credit; (12) No later than two years following the date of increas- and ing its interest in the voting shares of Bancorp to more than (vii) Issuing and selling consumer payment instru- 5 percent, either: ments.4 (i) Acquire control of Bancorp and cause Bancorp and its subsidiaries to cease all activities impermissible for The Board also has determined by order that (i) check a bank holding company, or cashing and wire transmission services,5 and (ii) bill pay- (ii) Reduce its interest in the voting shares of Bancorp ment services6 are closely related to banking. Notificant to 5 percent or less. has committed to conduct each of these activities in accordance with Regulation Y and the relevant Board interpreta- Popular, Inc. tions and orders. Hato Rey, Puerto Rico Order Approving Notice to Engage in Nonbanking Activities 2. Asset data are as September 30, 1997. Ranking data are as of Popular, Inc. ("Notificant"), a bank holding company December 31, 1996. within the meaning of the Bank Holding Company Act 3. See 12 C.F.R. 225.28(b)(l), (b)(3), (b)(6), (b)(7), (b)(8)(ii), ("BHC Act"), has requested the Board's approval under 4. These activities include selling prepaid telephone cards and section 4(c)(8) of the BHC Act (12U.S.C. § 1843(c)(8)) prepaid cellular phone time, and receiving payments for additional and section 225.24(a) of the Board's Regulation Y time from cellular phone customers. Notificant would not, however, (12 C.F.R. 225.24(a)) to acquire through its wholly owned sell or rent cellular phones. subsidiary, Popular Cash Express, Orlando, Florida ("Cash 5. See Midland Bank, PLC, 76 Federal Reserve Bulletin 860 (1990); Express"), certain assets of Florida Exchange, Ltd. and Norwest Corporation, 81 Federal Reserve Bulletin 974 (1995), and 81 Federal Reserve Bulletin 1130 (1995). Notificant has committed that Mirando-J., Inc., both in Oak Park, Illinois (together its check cashing and wire transfer services would be conducted in the "Companies").1 Cash Express would engage in the nonsame manner regardless of whether the transaction involved an affilibanking activities discussed below. ated or non-affiliated depository institution. Notificant also states that Notice of the proposal, affording interested persons an a customer would not be permitted to wire transfer funds to an account maintained by the customer in an affiliated depository institution or opportunity to submit comments, has been published (62 open an account at an affiliated depository institution through Cash Federal Register 61,127 (1997)). The time for filing com- Express. Cash Express and Notificant also would not generally crossments has expired, and the Board has considered the notice market products and services. Cash Express would make loans from affiliates available in a manner similar to a loan production office and in compliance with applicable branching laws. 6. Notificant's bill payment services would include the transfer of funds to the payee by the following means: 1. Cash Express is a third-tier subsidiary of Notificant and a direct (i) By wire transfer or money order from Cash Express, subsidiary of Popular North America, Inc., a bank holding company (ii) By transfer of funds using a third party provider, or registered under the BHC Act. Popular North America, a second-tier (iii) By transfer of funds using hardware and software provided by a subsidiary of Notificant is a direct subsidiary of Popular International payee under an agreement with Cash Express. See Bane One Bank, Inc., also a registered bank holding company under the BHC Corporation, 80 Federal Reserve Bulletin 139 (1994), and see, e.g., Act. Popular International Bank, Inc. is a wholly owned direct subsid- Norwest Corporation, 81 Federal Reserve Bulletin 91A (1995), and iary of Notificant. 81 Federal Reserve Bulletin 1130 (1995). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

482 Federal Reserve Bulletin • June 1998 Notificant also proposes to provide the following gov- that the proposed activities involving government services ernment services at Cash Express offices: are closely related to banking. (i) Postage stamps and postage-paid envelopes; In order to approve the proposal, the Board also must (ii) Vehicle registration services, including the sale, find that the performance of the proposed activities by distribution and renewal of license plates and license Notificant "can reasonably be expected to produce benefits tags for motor vehicles; to the public . . . that outweigh possible adverse effects, (iii) Public transportation tickets and tokens; and such as undue concentration of resources, decreased or (iv) Notary public services.7 unfair competition, conflicts of interests, or unsound banking practices." 12 U.S.C. § 1843(c)(8). As part of its evalu- Section 4(c)(8) of the BHC Act provides that a bank ation of these factors, the Board considers the financial holding company may, with the Board's approval, engage resources of the Notificant and its subsidiaries and the in any activity that the Board determines to be closely effect of the transaction on those resources." Based on all related to banking.8 An activity may be deemed to be the facts of record, the Board has concluded that financial closely related to banking if it is demonstrated that: and managerial considerations are consistent with approval (i) Banks generally provide the proposed services; of the proposal. (ii) Banks generally provide services that are opera- The Board also has carefully considered the competitive tionally or functionally so similar to the proposed effects of the proposed acquisition of the assets of Compaservices as to equip them particularly well to provide nies. The record reflects that there are few overlaps in the the proposed services; or services provided by Companies and Notificant. To the (iii) Banks generally provide services that are so inte- extent that Notificant and Companies offer different types grally related to the proposed services as to require of products, the proposed acquisition would result in no their provision in a specialized form.9 loss of competition. In those markets in which the product offerings of Notificant and Companies overlap, there are Banks generally are permitted to provide customers ac- numerous existing and potential competitors. Consummacess to the type of government services involved in the tion of the proposal, therefore, would have a de minimis proposal. Banks are permitted to: effect on competition, and the Board has determined that (i) Sell postage stamps; the proposal would not result in any significantly adverse (ii) Provide vehicle registration and licensing services competitive effects in any relevant market. as agent for state departments of motor vehicles; The Board expects that the proposed transaction would (iii) Provide notary public services; and give Notificant an increased ability to serve the needs of its (iv) Dispense public transportation tickets from auto- customers and would allow Notificant to provide existing mated teller machines ("ATMs").10 and new customers with a broader range of products and services. Public benefits also would be derived from pro- The proposed services, moreover, further the public policy viding government services at locations that are convenient objective of providing easier access to government ser- for customers. Additionally, there are public benefits to be vices. Based on all the facts of record, the Board concludes derived from permitting capital markets to operate so thai bank holding companies may make potentially profitable investments in nonbanking companies when those investments are consistent, as in this case, with the relevant 7. Cash Express also would provide services that are incidental to the proposed activities, such as providing mailboxes and related considerations under the BHC Act, and from permitting services, photocopying, and sending facsimiles. Revenue from the banking organizations to allocate their resources in the incidental activities would not exceed 10 percent of the total annual manner they believe is most efficient. revenues earned by Cash Express. Based on the foregoing and all the other facts of record, 8. 12U.S.C. § 1843(c)(8). 9. See National Courier Association v. Board of Governors of the including the commitments made by Notificant, the Board Federal Reserve System, 516 F.2d 1229, 1237 (D.C. Cir. 1975). In has determined that the performance of the proposed activaddition, the Board may consider any other basis that may demon- ities by Notificant can reasonably be expected to produce strate that the proposed activity has a reasonable or close connection benefits to the public that would outweigh any possible or relationship to banking or managing or controlling banks. See Board Statement Regarding Regulation Y, 49 Federal Register 806 adverse effects under the proper incident to banking stan- (1984); Securities Industry Association v. Board of Governors of the dard of section 4(c)(8) of the BHC Act. Federal Reserve System, 468 U.S. 207, 210-211 n.5 (1984). 10. See, e.g., 12 C.F.R. 7.1010 and OCC Interpretive Letter No. 718 Conclusion (March 14, 1996) (postage stamps, act as agent for the state in selling and renewing license plates and license tags, and public transportation tickets from ATMs); and OCC Conditional Approval Letter No. 267 Based on all the facts of record, including all the commit- (January 12, 1998) (notary services). See. e.g., Corbet v. Devon Bank ments and representations made by Notificant, and subject 299 N.E.2d 521, 529 (111. App. Ct. 1988); and Legal Interpretation § 1.3 of Title 3 of the New York Compilation of Rules and Regulation (January 31, 1969) (New York trust companies can, under the New York Banking Law, provide vehicle registration and licens- 11. See 12 C.F.R. 225.26; The Fuji Bank, Limited, 75 Federal ing services as agent of the New York State Department of Motor Reserve Bulletin 94 (1989); Bayerishe Vereinbank AG, 73 Federal Vehicles). Reserve Bulletin 155 (1987). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 483 to all the terms and conditions set forth in this order, the (1) Extending credit and servicing loans, pursuant to Board has determined that the notice should be, and hereby section 225.28(b)(l) of Regulation Y (12 C.F.R. is, approved.12 This determination is subject to all the 225.28(b)(l)); conditions set forth in the Board's Regulation Y, including (2) Engaging in activities related to extending credit, those in sections 225.7 and 225.25(g) (12 C.F.R. 225.7 and pursuant to section 225.28(b)(2)(ii), (vi) and (vii) of 225.25(g)), and to the Board's authority to require modifi- Regulation Y (12 C.F.R. 225.28(b)(2)(2)(ii), (vi) and cation or termination of the activities of a bank holding (vii)); company or any of its subsidiaries as the Board finds (3) Providing leasing services, pursuant to secnecessary to assure compliance with, or to prevent evasion tion 225.28(b)(3) of Regulation Y (12 C.F.R. of, the provisions and purposes of the BHC Act and the 225.28(b)(3)); Board's regulations and orders issued thereunder. The (4) Performing functions or activities that may be Board's decision is specifically conditioned on compliance performed by a trust company, pursuant to secwith all the commitments and representations made in the tion 225.28(b)(5) of Regulation Y (12 C.F.R. notice, including the commitments and conditions dis- 225.28(b)(5)); cussed in this order. The commitments, representations, (5) Providing financial and investment advisory serand conditions relied on in reaching this decision shall be vices, pursuant to section 225.28(b)(6) of Regulation Y deemed to be conditions imposed in writing by the Board (12 C.F.R. 225.28(b)(6)); in connection with its findings and decision, and, as such, (6) Providing securities brokerage, riskless principal, may be enforced in proceedings under applicable law. private placement, futures commission merchant, and This proposal shall not be consummated later than three other agency transactional services, pursuant to section months after the effective date of this order, unless such 225.28(b)(7) of Regulation Y (12 C.F.R. 225.28(b)(7)); period is extended for good cause by the Board or the (7) Underwriting and dealing in government obligations Federal Reserve Bank of New York, acting pursuant to and money market instruments in which state member delegated authority. banks may underwrite and deal under 12 U.S.C. §§ 335 By order of the Board of Governors, effective April 2, and 24(7) ("bank-eligible securities"), and engaging in 1998. investing and trading activities, and buying and selling bullion and related activities, pursuant to section Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and 225.28(b)(8) of Regulation Y (12 C.F.R. 225.28(b)(8)); Governors Kelley, Phillips, Ferguson, and Gramlich. Absent and not (8) Providing management consulting and employee voting: Governor Meyer. benefit consulting services, pursuant to section 225.28(b)(9) of Regulation Y (12 C.F.R. 225.28(b)(9)); WILLIAM W. WILES (9) Engaging in general insurance agency activities, Secretary of the Board pursuant to section 225.28(b)(l l)(vii) of Regulation Y (12 C.F.R. 225.28(b)(ll)(vii));1 U.S. Bancorp (10) Underwriting and dealing in, to a limited extent, all Minneapolis, Minnesota types of debt and equity securities other than interests in open-end investment companies ("bank-ineligible secu- Order Approving Notice to Engage in Nonbanking rities"); Activities (11) Providing administrative and other services to openend investment companies ("mutual funds");2 and U.S. Bancorp, Minneapolis, Minnesota ("USB"), a bank (12) Acting as the general partner of private investment holding company within the meaning of the Bank Holding limited partnerships that invest in assets in which a bank Company Act ("BHC Act"), has requested the Board's holding company is permitted to invest. approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Notice of the proposal, affording interested persons an Regulation Y (12 C.F.R. 225.24) to acquire all the voting opportunity to submit comments, has been published securities of Piper Jaffray Companies, Inc. ("Piper Jaf- (63 Federal Register 11,682 (1998)). The time for filing fray"), and thereby acquire control of its subsidiaries, comments has expired, and the Board has considered the including Piper Jaffray, Inc. ("Company"), all in Minnenotice and all comments received in light of the factors set apolis, Minnesota. USB would thereby engage in the folforth in section 4(c)(8) of the BHC Act. lowing nonbanking activities: 12. Notificant indicates that it may provide the proposed services in the future by using technologies that are not described in the notice or 1. USB is authorized to engage in insurance agency activities discussed in the order. Notificant must consult with the Federal pursuant to section 4(c)(8)(G) of the BHC Act, which authorizes those Reserve System before commencing any new activity that is not bank holding companies that engaged in insurance agency activities described in this order to ensure that the activity will satisfy the prior to 1971 with Board approval to engage in insurance agency criteria in the BHC Act and Regulation Y, and to allow the Federal activities. Reserve System an opportunity to consider whether a separate notice 2. A list of the administrative services that USB would provide is should be reviewed in any particular case. included in the Appendix. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

484 Federal Reserve Bulletin • June 1998 USB, with total consolidated assets of approximately USB has committed that Company will conduct its un- $71.3 billion, is the 15th largest banking organization in derwriting and dealing activities using the methods and the United States.3 USB operates subsidiary banks in procedures and subject to the prudential limitations estab- 17 states, and engages through other subsidiaries in a broad lished by the Board in the Section 20 Orders. USB also has range of permissible nonbanking activities. Company is, committed that Company will conduct its bank-ineligible and following consummation of the proposal will continue securities underwriting and dealing activities subject to the to be, registered as a broker-dealer with the Securities and Board's revenue restriction.7 As a condition of this order, Exchange Commission ("SEC") under the Securities Ex- USB is required to conduct its bank-ineligible securities change Act of 1934 (15 U.S.C. § 78a et seq.), a member of activities subject to the revenue restrictions and Operating the National Association of Securities Dealers, Inc. Standards established for section 20 subsidiaries ("Operat- ("NASD"), and registered as a futures commission mer- ing Standards").8 chant with the Commodity Futures Trading Commission ("CFTC") under the Commodity Exchange Act (7 U.S.C. Other Activities Approved by Regulation or Order § 2 et seq.). Accordingly, Company is, and will continue to be, subject to the record-keeping and reporting obligations, The Board previously has determined that the proposed fiduciary standards, and other requirements of the Securi- credit and credit-related activities; leasing activities; trust ties Exchange Act of 1934, the Commodity Exchange Act, company activities; financial and investment advisory acthe SEC, CFTC, and NASD. tivities; securities brokerage, riskless principal, private USB recently received Board approval to establish U.S. placement, futures commission merchant, and other agency Bancorp Investments, Minneapolis, Minnesota ("USB- transactional activities; bank-eligible securities underwrit- Investments"), and thereby engage in underwriting and ing and dealing, investment and trading, and buying and dealing, to a limited extent, in certain types of bank- selling bullion and related activities; management and emineligible securities and other permissible nonbanking ac- ployee benefits consulting services; and insurance agency tivities.4 USB intends to merge USB-Investments into activities to be conducted by USB after consummation of Company by March 31, 1999, with Company surviving the the proposal are closely related to banking within the merger. meaning of section 4(c)(8) of the BHC Act.9 In addition, the Board previously has determined by order that the Underwriting and Dealing in Bank-Ineligible Securities The Board has determined that—subject to the framework modified by the Order Approving Modifications to the Section 20 of prudential limitations established in previous decisions Orders, 75 Federal Resen'e Bulletin 751 (1989); 10 Percent Revenue to address the potential for conflicts of interests, unsound Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding banking practices, or other adverse effects—underwriting Companies Engaged in Underwriting and Dealing in Securities, 61 and dealing in bank-ineligible securities is so closely re- Federal Register 48,953 (1996); and Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies Engaged in lated to banking as to be a proper incident thereto within Underwriting and Dealing in Securities, 61 Federal Register 68,750 the meaning of section 4(c)(8) of the BHC Act.5 The Board (1996) (collectively, "Modification Orders"). In light of the fact that also has determined that underwriting and dealing in bank- USB proposes to acquire a going concern, the Board believes that ineligible securities is consistent with section 20 of the allowing Company to calculate compliance with the revenue limita- Glass-Steagall Act (12 U.S.C. § 377), provided that the tion on an annualized basis during the first year after consummation of the acquisition and thereafter on a rolling quarterly average basis company engaged in the activity derives no more than would be consistent with the Section 20 Orders. See Dauphin Deposit 25 percent of its gross revenues from underwriting and Corporation, 11 Federal Reserve Bulletin 672 (1991). The Board also dealing in bank-ineligible securities.6 believes that, in light of the fact that USB-Investments recently began operations, permitting USB-Investments to calculate compliance with the revenue limitation on an annualized basis during the first year of its operations and thereafter on a rolling quarterly average basis is 3. Asset and ranking data are as of December 31, 1997. consistent with the Section 20 Orders. 4. See U.S. Bancorp, 84 Federal Reserve Bulletin 62 (1998). 7. As noted above, USB intends to merge USB-Investments into 5. See J.P. Morgan & Co. Inc., et. ai, 75 Federal Reserve Bulletin Company by March 31, 1999. Until such merger occurs, USB will 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of operate Company as a separate corporate entity and both USB- Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. Investments and Company will be independently subject to the 1990); Citicorp, 73 Federal Reserve Bulletin 473 (1987), aff'd sub 25-percent revenue limitation on underwriting and dealing in banknom. Securities Industry Ass 'n v. Board of Governors of the Federal ineligible securities. See Citicorp, 73 Federal Reserve Bulletin 473, Reserve System, 839 F.2d 47 (2d Cir.), cert, denied, 486 U.S. 1059 486 n. 45 (1987). aff'd sub nom. Securities Industry Ass'n v. Board of (1988), as modified by Review of Restrictions on Director, Officer and Governors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert, Employee Interlocks, Cross-Marketing Activities, and the Purchase denied, 486 U.S. 1059 (1988). and Sale of Financial Assets Between a Section 20 Subsidiary and an 8. 12C.F.R. 225.200. Company may provide services that are Affiliated Bank or Thrift. 61 Federal Register 57,679 (1996). Amend- necessary incidents to the proposed underwriting and dealing activiments to Restrictions in the Board's Section 20 Orders, 62 Federal ties. Unless Company receives specific approval under section 4(c)(8) Register 45,295 (1997); and Clarification to the Board's Section 20 of the BHC Act to conduct the activities independently, any revenues Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 from the incidental activities must be treated as ineligible revenues Orders"). subject to the Board's revenue limitation. 6. Compliance with the revenue limitation shall be calculated in 9. See I2C.F.R. 225.28(b)(l), (2), (3), (5). (6), (7), (8), (9), and accordance with the method stated in the Section 20 Orders, as Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 485 proposed mutual fund administration services and private cedures and controls. On the basis of the Reserve Bank's investment limited partnership activities are permissible review and all other facts of record, including the commitfor bank holding companies.10 USB has committed that it ments provided in this case and the proposed managerial will conduct these activities in accordance with the limita- and risk management systems of Company, the Board has tions set forth in Regulation Y and the Board's orders and concluded that financial and managerial considerations are interpretations relating to each of the activities." consistent with approval of the notice. The Board has carefully considered the competitive ef- Other Considerations fects of the proposal. USB represents that USB- Investments and Company offer largely complementary In order to approve this notice, the Board also must deter- services with few significant overlaps. USB has indicated mine that the proposed activities "can reasonably be ex- that USB-Investments has focused on bank-eligible securipected to produce benefits to the public, such as greater ties underwriting, private placement, and fixed-income debt convenience, increased competition, or gains in efficiency, trading activities, and has not developed the type of merger that outweigh possible adverse effects, such as undue con- and acquisition advisory and equity underwriting, dealing, centration of resources, decreased or unfair competition, research, and distribution services offered by Company. To conflicts of interests, or unsound banking practices."12 As the extent that USB-Investments and Company offer differpart of its review of these factors, the Board considers the ent types of products and services, the proposed acquisition financial and managerial resources of the notificant and its would result in no loss of competition. In those markets subsidiaries and the effect the transaction would have on where the product offerings of USB's nonbanking subsidsuch resources.13 iaries and Piper Jaffray overlap, such as securities broker- In considering the financial resources of the notificant, age, investment advisory, trust and insurance agency activthe Board has reviewed the capitalization of USB and ities, there are numerous existing and potential competitors. Company in accordance with the standards set forth in the Consummation of the proposal, therefore, would have a Section 20 Orders and finds the capitalization of each to be de minimis effect on competition in the market for these consistent with approval. This determination is based on all services, and the Board has concluded that the proposal the facts of record, including USB's projections of the would not have any significantly adverse competitive effects in any relevant market. volume of Company's underwriting and dealing activities in bank-ineligible securities. In order to approve the proposal, the Board also must The Board also has reviewed the managerial resources find that the performance of the proposed activities by of each of the entities involved in this proposal in light of Applicant can reasonably be expected to produce beneexamination reports and other supervisory information. In fits that would outweigh possible adverse effects under connection with the proposal, the Federal Reserve Bank of the proper incident to banking standard of section Minneapolis ("Reserve Bank") has reviewed the policies 4(c)(8) of the BHC Act. Under the framework estaband procedures of Company to ensure compliance with this lished in this and prior decisions, consummation of the order and the Section 20 Orders, including Company's proposal is not likely to result in any significantly adoperational and managerial infrastructure, computer, audit, verse effects, such as undue concentration of resources, and accounting systems and internal risk management pro- decreased or unfair competition, conflicts of interests, or unsound banking practices. The Board expects that consummation of the proposal would provide added convenience to the customers of USB 10. See Mellon Bank Corporation, 79 Federal Reserve Bulletin 626 (1993); Commerzbank AG, 83 Federal Reserve Bulletin 678 (1997) and Piper Jaffray. USB has indicated that consummation of ("Commerzbank"); Bankers Trust New York Corporation, 83 Federal the proposal would expand the range of products and Reserve Bulletin 780 (1997) ("Bankers Trust"); Meridian Bancorp, services available to its customers and those of Piper Inc., 80 Federal Reserve Bulletin 736 (1994). Company also would Jaffray. USB also has stated that the acquisition would provide transfer agency services to the funds that are provided advisory or administrative services by Company or an affiliate. See permit it to further diversify its nonbanking operations, 12 C.F.R. 225.1250). thereby making it less vulnerable to economic fluctuations 11. USB has committed that it will engage in the proposed mutual in individual business lines. fund advisory and administrative activities in a manner consistent Based on all the facts of record, the Board has deterwith previous orders, and has committed that Company will cease its mutual fund distribution activities prior to consummation. See Com- mined that performance of the proposed activities by USB merzbank; Bankers Trust. USB does not propose to have any officer or can reasonably be expected to produce public benefits that director interlocks with the mutual funds to which Company or its outweigh any adverse effects of the proposal. Accordingly, affiliates provide advisory or administrative services. USB also has the Board has determined that the performance of the provided the commitments previously relied on by the Board to proposed activities by USB is a proper incident to banking address the potential adverse effects that could arise from USB's proposal to serve as general partner of private investment limited for purposes of section 4(c)(8) of the BHC Act. partnerships that invest in assets in which a bank holding company may invest, and to assure that such activities are conducted in accor- Conclusion dance with applicable law. See Dresdner Bank AG, 84 Federal Reserve Bulletin 361 (1998). On the basis of all the facts of record, the Board has 12. 12U.S.C. § 1843(c)(8). 13. See 12 C.F.R. 225.26. determined that the notice should be, and hereby is, ap- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

486 Federal Reserve Bulletin • June 1998 proved, subject to all the terms and conditions described in (6) Providing legal and other regulatory advice to the this order. The Board's approval of the proposal extends Funds in connection with their other administrative funconly to activities conducted within the limitations of this tions; order, including the Board's reservation of authority to (7) Providing office facilities and clerical support for the establish additional limitations to ensure that Company's Funds; activities are consistent with safety and soundness, avoid- (8) Developing and implementing procedures for monitorance of conflicts of interests, and other relevant consider- ing compliance with regulatory requirements and compliations under the BHC Act. Underwriting and dealing in ance with the Funds' investment objectives, policies, and any manner other than as approved in this order is not restrictions as established by the Funds' boards; within the scope of the Board's approval and is not autho- (9) Providing routine fund accounting services and liaison rized for Company. with outside auditors; The Board's determination is subject to all the terms and (10) Preparing and filing tax returns, and monitoring tax conditions set forth in Regulation Y, including those in compliance; sections 225.7 and 225.25(c) (12 C.F.R. 225.7 and (11) Reviewing and arranging for payment of Fund ex- 225.25(c)), and to the Board's authority to require modifi- penses; cation or termination of the activities of a bank holding (12) Providing communication and coordination services company or any of its subsidiaries as the Board finds with regard to the Funds' investment adviser, transfer necessary to ensure compliance with, or to prevent evasion agent, custodian, distributor and other service organizaof, the provisions and purposes of the BHC Act and the tions that render recordkeeping or shareholder communica- Board's regulations and orders issued thereunder. The tion services; Board's decision is specifically conditioned on compliance (13) Reviewing and providing advice to the distributor, the with all the commitments made in connection with this Funds and the investment adviser regarding sales literature notice, including the commitments discussed in this order and marketing plans for the Funds; and the conditions set forth in this order and the Board (14) Providing information to the distributor's personnel regulations and orders noted above. The commitments and concerning fund performance and administration; conditions are deemed to be conditions imposed in writing (15) Providing marketing support with respect to sales of by the Board in connection with its findings and decision, the Funds through financial intermediaries, including parand, as such, may be enforced in proceedings under appli- ticipating in seminars, meetings and conferences designed cable law. to present information concerning the operations of the This proposal shall not be consummated later than three Funds; months after the effective date of this order, unless such (16) Providing reports to the Funds' board with regard to period is extended for good cause by the Board or the the activities of the Funds; and Reserve Bank, acting pursuant to delegated authority. (17) Providing telephone shareholder services through a By order of the Board of Governors, eifective April 20, toll-free number. 1998. Orders Issued Under Sections 3 and 4 of the Bank Voting for this action: Chairman Greenspan. Vice Chair Rivlin, and Holding Company Act Governors Kelley, Phillips, Meyer, and Ferguson. Absent and not voting: Governor Gramlich. First Midwest Bancorp, Inc. Itasca, Illinois JENNIFER J. JOHNSON Deputy Secretary of the Board Order Approving the Acquisition of a Bank Holding Company Appendix First Midwest Bancorp, Inc. ("First Midwest"), a bank List of Administrative Services holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (1) Maintaining and preserving certain records of the (12 U.S.C. § 1842) to acquire Heritage Financial Services, Funds, including financial and corporate records; Inc., Tinley Park, Illinois ("Heritage"), and Heritage Bank, (2) Computing dividends, performance data and financial Blue Island, Illinois.1 First Midwest also has requested the information regarding the Funds; Board's approval under section 4(c)(8) of the BHC Act (3) Furnishing statistical and research data; (4) Preparing and filing with the SEC and state securities regulators registration statements, notices, reports and other 1. First Midwest would merge Heritage with and into a wholly materials required to be filed under applicable laws; owned subsidiary, First Midwest Acquisition Corporation ("Acquisi- (5) Preparing reports and other informational materials tion Corp."), that would be formed solely for the purpose of effecting the acquisition. In connection with the proposal, Acquisition Corp. has regarding the Funds including proxies and other shareapplied to become a bank holding company. First Midwest also has holder communications; requested approval of an option to purchase up to 19.9 percent of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 487 (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's banking market would increase by 126 points to 1273.5 In Regulation Y (12C.F.R. 225.24) to acquire Heritage's the Chicago banking market, First Midwest would become nonbanking subsidiaries, Heritage Trust Company, Tinley the 11th largest depository institution, controlling deposits Park, Illinois ("Heritage Trust"), and First National Bank of approximately $ 1.7 billion, representing approximately of Lockport, Lockport, Illinois ("Lockport"), and thereby 1.3 percent of market deposits. The HHI for the banking engage in trust company activities. market would increase by 1 point to 834. Based on all the Notice of the proposal, affording interested persons an facts of record, including the small increases in concentraopportunity to submit comments, has been published tion as measured by the HHI numbers and the number of (63 Federal Register 9233 and 16,815 (1998)). The time competitors that would remain in each banking market, the for filing comments has expired, and the Board has consid- Board concludes that consummation of the proposal would ered the proposal and all comments received in light of the not have a significantly adverse effect on competition or on factors set forth in sections 3 and 4 of the BHC Act. the concentration of banking resources in the Joliet or First Midwest is the 12th largest depository institution in Chicago banking markets or any other relevant banking Illinois, controlling $2.2 billion in deposits, representing market. approximately 1 percent of total deposits in insured depository institutions in the state ("state deposits").2 Heritage is Financial, Managerial, and Other Supervisory Factors the 26th largest depository institution in Illinois, controlling $1.1 billion in deposits, representing less than 1 per- The Board also has carefully considered the financial and cent of state deposits. On consummation of the proposal, managerial resources and future prospects of First Mid- First Midwest would become the ninth largest depository west, Heritage, and their respective subsidiary banks in institution in Illinois, controlling $3.3 billion in deposits, light of all the facts of record, including supervisory rerepresenting approximately 1.6 percent of state deposits. ports of examination assessing the financial and managerial resources of the organizations and financial information Competitive Considerations provided by First Midwest. Based on all the facts of record, including relevant reports of examinations of the compa- The BHC Act prohibits the Board from approving an nies and banks involved in the proposal, the Board conapplication under section 3 of the BHC Act if the proposal cludes that the financial and managerial resources and would result in a monopoly or if the proposal would future prospects of First Midwest, Heritage, and their subsubstantially lessen competition in any relevant banking sidiary banks are consistent with approval, as are the other market and the Board has not found that the anticompeti- supervisory factors the Board must consider under sective effects of the proposal are clearly outweighed in the tion 3 of the BHC Act. public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be Convenience and Needs Considerations served. First Midwest and Heritage compete directly in the Illi- The Board also has carefully considered the effect of the nois banking markets of Joliet and Chicago.3 After con- proposal on the convenience and needs of the communities summation of the proposal, First Midwest would become to be served in light of all the facts of record, including the largest depository institution in the Joliet banking mar- comments received on the effect the proposal would have ket, controlling deposits of approximately $758.6 million, on the communities to be served by the combined organizarepresenting approximately 20.8 percent of total deposits tions. Commenters contended that First Midwest's subsidin depository institutions in the market ("market depos- iary bank, First Midwest Bank, N.A., Moline, Illinois its").4 The Herfindahl-Hirschman Index ("HHI") for the ("First Midwest Bank"), does not provide adequate lending and banking services to low-and moderate-income ("LMI") and minority communities, particularly the African-American community in Lake County, Illinois, voting stock of Heritage if certain events occur. The option would expire on consummation of the proposal. 2. State deposit and ranking data are as of June 30, 1997. 3. The Joliet banking market is defined as Will County, except the townships of Florence, Wilmington, Reed, Custer, and Wesley; the 5. Under the revised Department of Justice Merger Guidelines, 49 township of Aux Sable in Grundy County; and the townships of Federal Register 26,823 (1984), a market in which the post-merger Neausay and Seward in Kendall County, all in Illinois. The Chicago HHI is between 1000 and 1800 is considered moderately concenbanking market is defined as all of Cook, DuPage, and Lake Counties trated, and a market in which the post-merger HHI is below 1000 is in Illinois. considered unconcentrated. The Justice Department has informed the 4. Market share data are as of June 30, 1996. In this context, Board that a bank merger or acquisition generally will not be chaldepository institutions include commercial banks, savings banks, and lenged (in the absence of other factors indicating anticompetitive savings associations. Market share data are based on calculations in effects) unless the post-merger HHI is at least 1800 and the merger or which the deposits of thrift institutions are included at 50 percent. The acquisition increases the HHI by at least 200 points. The Justice Board previously has indicated that thrift institutions have become, or Department has stated that the higher than normal threshold for an have the potential to become, significant competitors of commercial increase in the HHI when screening bank mergers and acquisitions for banks. See WM Bancorp, 76 Federal Resenv Bulletin 788 (1990); anticompetitive effects implicitly recognizes the competitive effect of National City Corporation, 70 Federal Resen'e Bulletin 743 (1984). limited-purpose lenders and other nondepository financial entities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

488 Federal Reserve Bulletin a June 1998 one of three counties that comprise the Chicago banking monthly maintenance fee. Its "Small Business Checking market.6 Account" and "Not-for-Profit Checking Account" are CRA Performance Examinations. The Board has long low-fee accounts available to small businesses and not-forheld that consideration of the convenience and needs factor profit organizations.8 includes a review of the records of the relevant depository First Midwest Bank makes available a variety of credit institutions under the Community Reinvestment Act products to small businesses operating in LMI census (12 U.S.C. § 2901 et seq.) ("CRA"). As provided in the tracts.9 The bank also participates in federal and state CRA, the Board evaluates the convenience and needs government-sponsored small business and small farm loan factor in light of examinations of the CRA performance programs, including programs offered by the Small Busirecords of the relevant institutions by their appropriate ness Administration, the Farmers Home Administration, federal supervisors. An institution's most recent CRA per- and the Illinois Farm Development Authority. formance evaluation is a particularly important consider- First Midwest Bank participates in numerous community ation in the applications process because it represents a development organizations that serve LMI communities detailed, on-site evaluation of the institution's overall throughout its assessment area. The bank's community record of performance under the CRA by its appropriate development efforts in Lake County have included particifederal supervisor.7 pating in several micro-loan pools, providing operating First Midwest Bank received a "satisfactory" CRA per- support to several affordable housing organizations, investformance rating from the Office of the Comptroller of the ing in the Chicago Equity Fund, which funds the develop- Currency ("OCC") at its most recent examination, as of ment of low-income housing in the six-county Chicago August 29, 1996. Heritage Bank received a "satisfactory" Metropolitan area, and providing loan commitments for rating from its appropriate federal supervisor, the Federal construction of several low-income housing projects. Deposit Insurance Corporation, at its most recent examination for CRA performance, as of February 10, 1997. Conclusion on Convenience and Needs Considerations. Examiners found no evidence of prohibited discrimination or other illegal credit practices at First Midwest Bank The Board has carefully considered all the facts of record, or Heritage Bank and found no violations of fair lending including the public comments received, responses to the laws. Examiners also found that First Midwest Bank's comments, and the CRA performance records of the subdelineation of its local community was reasonable and did sidiary banks of First Midwest and Heritage, including not arbitrarily exclude LMI areas, and that the bank's relevant reports of examination. Based on a review of the services reasonably penetrated all markets in its assessment entire record, and for the reasons discussed in this order, area. In addition, examiners determined that First Midwest the Board has concluded that convenience and needs con- Bank effectively made loans throughout its service areas, siderations, including the CRA performance records of the including in LMI areas and to LMI individuals. subsidiary banks of First Midwest and Heritage, are consis- In reviewing the convenience and needs factor, the Board tent with approval. notes that First Midwest Bank offers a range of financial products to assist in meeting the credit and banking needs Nonbanking Activities of its communities. The bank offers several programs to assist in meeting the credit needs of LMI borrowers, in- First Midwest also has filed notice under section 4(c)(8) of cluding affordable home mortgage products designed spe- the BHC Act to acquire Heritage Trust and Lockport and cifically for LMI borrowers and residences in LMI census thereby engage in trust company activities. The Board tracts. The programs feature flexible underwriting guide- previously has determined by regulation that trust company lines and low down payments. First Midwest also offers the "Believer Loan" program, which is designed to help individuals establish or rebuild credit. In addition, First Mid- 8. A commenter contended that there are no full service banks in the west Bank has designed several basic banking accounts for LMI areas of Lake County, Illinois. First Midwest indicates that it its LMI customers. Its "Thrifty Checking Account" has a operates 12 full service banking offices in Lake County, three of which small minimum balance requirement and a reduced are in LMI census tracts. The commenter also alleged that First Midwest Bank does not have a commercial loan officer or ATM at its North Chicago branch. First Midwest has stated that it intends to install an ATM at this branch in the near future and that loan officers 6. Some commenters alleged that First Midwest Bank illegally from any First Midwest branch are available to meet with individuals discriminated against them in specific banking transactions. These and companies in the North Chicago area. comments and First Midwest Bank's response, based on a review of 9. Several commenters alleged that First Midwest's small business the available loan or account files, were forwarded to the bank's lending practices were inflexible and discriminated against African appropriate federal supervisor, the Office of the Comptroller of the Americans. As noted, examiners found no evidence of illegal discrim- Currency, for consideration. ination. First Midwest Bank's CRA performance examination, more- 7. The Statement of the Federal Financial Supervisory Agencies over, commented favorably on the bank's small business lending Regarding the Community Reinvestment Act provides that a CRA activities. In 1996, the bank originated approximately 14 percent of examination is an important and often controlling factor in the consid- the total dollar amount of its small business loans to businesses in eration of an institution's CRA record and that reports of these LMI census tracts. First Midwest Bank also originated 27 percent of examinations will be given great weight in the applications process. the total dollar amount of its small business loans in Lake County to See 54 Federal Register {"i.lAl and 13,745 (1989). businesses in LMI census tracts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 489 activities are closely related to banking for purposes of in this order. The Board's approval is specifically condisection 4(c)(8) of the BHC Act, and First Midwest has tioned on compliance by First Midwest with all the comcommitted to conduct these activities in accordance with mitments made in connection with the proposal. Regulation Y and relevant Board interpretations and or- The Board's determination on the nonbanking activities ders.10 also is subject to all the terms and conditions set forth in In order to approve the proposal, the Board also must Regulation Y, including those in sections 225.7 and determine that the performance of the proposed activities is 225.25(c) of Regulation Y (12 C.F.R. 225.7 and a proper incident to banking, that is, that the proposed 225.25(c)), and to the Board's authority to require such transaction "can reasonably be expected to produce bene- modification or termination of the activities of a bank fits to the public . . . that outweigh possible adverse effects, holding company or any of its subsidiaries as the Board such as undue concentration of resources, decreased or finds necessary to ensure compliance with, and to prevent unfair competition, conflicts of interests, or unsound bank- evasion of, the provisions of the BHC Act and the Board's ing practices."11 As part of the Board's evaluation of these regulations and orders issued thereunder. The commitfactors, the Board considers the financial and managerial ments and conditions relied on by the Board in reaching resources of the notificant and its subsidiaries, including this decision are deemed to be conditions imposed in any company to be acquired, and the effect the transaction writing by the Board in connection with its findings and would have on such resources.12 Based on all the facts of decision and, as such, may be enforced in proceedings record, the Board has concluded that financial and manageunder applicable law. rial considerations are consistent with approval of the The acquisition of Heritage Bank shall not be consumnotice under section 4 of the BHC Act for the reasons mated before the fifteenth calendar day following the effecdiscussed above. tive date of this order, and the proposal shall not be The Board also has carefully considered the competitive consummated later than three months after the effective effects of the proposed acquisition of Heritage Trust and date of this order, unless such period is extended for good Lockport. First Midwest operates a trust company subsid- cause by the Board or by the Federal Reserve Bank of iary that competes with Heritage Trust and Lockport; how- Chicago, acting pursuant to delegated authority. ever, the relevant markets for trust company services are By order of the Board of Governors, effective April 13, unconcentrated, and there are numerous providers of such 1998. services. As a result, the Board has concluded that consummation of the proposal would not have a significantly Voting for this action: Chairman Greenspan, Vice Chair Rivlin. and adverse effect on competition for trust company services. Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich. The Board expects, moreover, that the acquisition of JENNIFER J. JOHNSON Heritage by First Midwest would provide added conve- Deputy Secretary of the Board nience to customers of Heritage and First Midwest. Consummation of the proposal also is likely to result in increased operating efficiencies for the combined First Union Corporation organization. Additionally, there are public benefits to be Charlotte, North Carolina derived from permitting capital markets to operate so that bank holding companies may make potentially profitable Order Approving the Merger of Bank Holding investments in nonbanking companies when, as in this Companies case, those investments are consistent with the relevant considerations under the BHC Act, and from permitting First Union Corporation ("First Union"), a bank holding banking organizations to allocate their resources in the company within the meaning of the Bank Holding Commanner they believe is most efficient. Based on all the facts pany Act ("BHC Act"), has requested the Board's apof record, the Board has determined that consummation of proval under section 3 of the BHC Act (12 U.S.C. § 1842) the proposal can reasonably be expected to produce public to merge with CoreStates Financial Corp ("CoreStates") benefits that would outweigh any likely adverse effects and thereby acquire CoreStates Bank, N.A., Philadelphia, under the proper incident to banking standard of sec- Pennsylvania ("CoreStates Bank"), and CoreStates Bank tion 4(c)(8) of the BHC Act. of Delaware, N.A., Wilmington, Delaware ("CoreStates Delaware").1 First Union also has requested the Board's approval under section 4(c)(8) of the BHC Act Conclusion Based on the foregoing and all the other facts of record, the 1. First Union also has requested approval to acquire interests Board has determined that this transaction should be, and currently held by CoreStates in less than 25 percent of the voting hereby is, approved subject to all the terms and conditions shares of each of First Commercial Bank of Philadelphia and United Bank, both of Philadelphia, Pennsylvania. First Union has committed to observe certain commitments previously made by CoreStates that are designed to assure that First Union will not exercise a controlling 10. See 12 C.F.R. 225.28(b)(5). influence over the management and policies of these institutions. See 11. 12 U.S.C. § 1843(c)(8). CoreStates Financial Corp, 82 Federal Reserve Bulletin 430, 431 n.l 12. See 12 C.F.R. 225.26. (1996). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

490 Federal Reserve Bulletin • June 1998 (12 U.S.C. § 1843(c)(8» to acquire the nonbanking subsid- Factors Governing Board Review of Transaction iaries of CoreStates and, under section 25 of the Federal Reserve Act (12 U.S.C. § 601), to acquire CoreStates The Board is charged with considering a number of spe- Bank's foreign branches. See Appendix A.2 cific factors when reviewing the acquisition of a bank or First Union has total consolidated assets of approxi- bank holding company under the BHC Act. These factors mately $157.3 billion, and is the sixth largest commercial are the competitive effects of the proposal in the relevant banking organization in the United States, controlling ap- geographic markets; the financial and managerial resources proximately 3.2 percent of the total banking assets of and future prospects of the companies and banks involved insured commercial banks in the United States.3 First in the transaction; the convenience and needs of the com- Union National Bank, Charlotte, North Carolina munity to be served, including the records of performance ("FUNB"), which is a wholly owned subsidiary of First under the Community Reinvestment Act (12 U.S.C. § 2901 Union, operates in North Carolina, Florida, Georgia, South et seq.) ("CRA") of the insured depository institutions Carolina, Tennessee, Virginia, Maryland, Pennsylvania, involved in the transaction; and the availability of informa- New Jersey, New York, Connecticut, and the District of tion needed to determine and enforce compliance with the Columbia. First Union also owns First Union Bank of BHC Act.5 Delaware, Wilmington, Delaware ("Delaware Bank"), In order to permit interested members of the public an which operates in Delaware. First Union also engages in a opportunity to submit comments to the Board on these number of permissible nonbanking activities nationwide. factors, the Board published notice of the proposal and CoreStates has total consolidated assets of approxi- provided a period for public comment. The Board extended mately $48.5 billion, and is the 23rd largest commercial the public comment period to allow the public to comment banking organization in the United States, controlling ap- on a CRA plan proposed by First Union for the proximately 1 percent of total nationwide banking assets. Philadelphia/New Jersey/Delaware region. In total, the CoreStates operates in Pennsylvania, New Jersey, and public comment period provided interested persons approx- Delaware, and engages through subsidiaries in a variety of imately 57 days to submit written comments on the propospermissible nonbanking activities. On consummation of al.6 the proposal, and accounting for the proposed divestitures, Because of the significant public interest in this pro- First Union would remain the sixth largest commercial posal, particularly in the Philadelphia area, the Board also banking organization in the United States, with total con- held a public meeting to allow interested persons to present solidated assets of approximately $205.8 billion, represent- direct testimony regarding the various factors that the ing approximately 4.2 percent of total nationwide banking Board is charged with reviewing under the BHC Act. More assets. than 80 commenters appeared and testified at the public First Union is the fifth largest commercial banking orga- meeting, and many of the commenters who testified also nization in Pennsylvania, controlling deposits of approxi- submitted written comments. Testimony was presented at mately $5.6 billion, representing approximately 3.3 percent the meeting by representatives of community and nonof all deposits held by depository institutions in the state.4 profit organizations, members of the United States Con- CoreStates is the second largest commercial banking orga- gress, small business owners, customers of First Union and nization in Pennsylvania, controlling deposits of approxi- CoreStates, CoreStates employees, local and state governmately $25.1 billion, representing approximately 14.6 per- ment officials, and other interested individuals. Through cent of deposits held by depository institutions in the public comment period and the public meeting, the Pennsylvania. On consummation of the proposal, and ac- Board received more than 235 comments on the proposal. counting for the proposed divestitures, First Union would Commenters submitted information and expressed views become the largest depository institution in Pennsylvania, supporting and opposing the proposed acquisition. Comcontrolling deposits of approximately $29.7 billion, repre- menters in support of the proposal commended First Union senting approximately 17.3 percent of deposits in the state. for its lending and other financial support of specific com- First Union also would control approximately 15.2 per- munity development projects, including its funding of afcent and 2.1 percent of state deposits in New Jersey and fordable mortgage and home improvement loan programs Delaware, respectively. State deposit and ranking data for directly and through intermediaries, and its leadership in First Union and CoreStates in these states are described in developing and funding loan pools in several states. Com- Appendix B. menters also commended First Union's small business lending activities, including its participation in micro- 2. In addition, First Union has requested the Board's approval to hold and exercise an option to purchase up to 19.9 percent of the 5. In cases involving a foreign bank, the Board also is charged with voting shares of CoreStates if certain events occur. The option would considering whether the foreign bank is subject to comprehensive expire on consummation of the proposal. supervision or regulation on a consolidated basis by appropriate 3. Asset and ranking data are as of December 31, 1997, and reflect authorities in the foreign bank's home country. First Union's acquisition of Signet Banking Corporation, Richmond. 6. Notice of the proposal was published in the Federal Register Virginia. (63 Federal Register 4266 (1998)) and in local newspapers in accor- 4. For this purpose, depository institutions include commercial dance with the Board's Rules of Procedure. See also Press Release banks, savings banks, and savings associations. dated February 25. 1998. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 491 lending programs. Many commenters praised First Union's The Board received a number of comments from individfive-year, $13 billion community reinvestment plan for uals and organizations regarding the competitive aspects of Pennsylvania, New Jersey, and Delaware ("CRA Plan"). the proposal. A substantial majority of the commenters Other commenters noted favorably First Union's commit- discussing this factor believed that the acquisition would ment to maintain the current level of charitable contribu- have significantly adverse anticompetitive effects such as tions of CoreStates and First Union in the three-state area, increased fees, reduced customer convenience, and reand to establish a $100 million charitable foundation to duced availability and quality of banking and nonbanking support community needs within the region. Commenters products in the banking markets where First Union and in support included customers and community organiza- CoreStates compete. Many commenters focused on the tions from throughout the areas currently served by First City of Philadelphia and argued that the level of concentra- Union as well as from the Philadelphia/New Jersey/ tion resulting from the proposal would significantly exceed Delaware area. the Department of Justice Merger Guidelines ("DOJ Commenters opposed to the merger expressed concerns Guidelines") in Philadelphia. These commenters estimated regarding the loss of a large financial institution with that the post-merger concentration in Philadelphia, as meaheadquarters in Philadelphia and the effect the merger sured by the Herfindahl-Hirschman Index ("HHI") under would have on competition, branch closings, and local the DOJ Guidelines, would increase by 628 points to 3429, civic leadership, particularly in low- and moderate-income and that First Union would control more than 50 percent of ("LMI") and inner city neighborhoods in the City of the total deposits in depository institutions in Philadel- Philadelphia. A number of commenters believed that a phia.8 Several commenters contended that the level of large out-of-state banking organization like First Union increases in market share and concentration in Philadelphia would not serve their communities as well as a local violated the Supreme Court's decision regarding another organization like CoreStates. Other commenters cited Philadelphia-based bank merger in United States v. Philaweaknesses they perceived in the performance record of delphia National Bank, 31A U.S. 321, 357 (1963) {"Phila- First Union under the CRA, particularly in the communi- delphia National'). ties served by CoreStates. Commenters also discussed po- Product Market. In order to determine the effect of a tential adverse effects of the proposal on individuals and on particular transaction on competition, it is necessary to communities, including the effects of layoffs, the potential designate the area of effective competition between the reduction in the availability and quality of banking ser- parties. The courts have held that the area of effective vices, and other concerns. competition is decided by reference to the "line of com- In evaluating the statutory factors under the BHC Act, merce," or product market, and a geographic market. The the Board carefully considered the information and views Board and the courts traditionally have recognized that the presented by all commenters. The Board also considered appropriate product market for evaluating bank mergers all of the information presented in the application and in and acquisitions is the cluster of products (various kinds of supplemental filings by First Union and reports filed by the credit) and services (such as checking accounts and trust relevant companies and publicly available information and administration) offered by banking institutions.9 other reports. In addition, the Board reviewed confidential Geographic Market. Once the relevant product market supervisory information, including examination reports re- has been defined, it is necessary to identify the appropriate garding the companies and depository institutions involved, geographic market in which competition for the supply of, and information provided by the other federal banking and demand for, this line of commerce occurs. In defining agencies and the Department of Justice. For the reasons the relevant geographic market in the case of bank acquisidiscussed below, and after a careful review of all the facts tions, the Board and the courts consistently have held that of record, the Board concludes that the statutory factors it the geographic market for the cluster of banking services is is required to consider under the BHC Act are consistent with approval of the proposal. 8. See 49 Federal Register 26,823 (June 29, 1984). Under the DOJ Competitive Factor Guidelines, a market in which the post-merger HHI is more than 1800 is considered to be highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will The BHC Act prohibits the Board from approving an not be challenged (in the absence of other factors indicating anticomapplication under section 3 of the BHC Act if the proposal petitive effects) unless the post-merger HHI is at least 1800 and the would result in a monopoly or if the effect of the proposal merger increases the HHI by more than 200 points. The Department may be substantially to lessen competition in any relevant of Justice has stated that the higher than normal threshold for an increase in HHI when screening bank mergers and acquisitions for market, unless the Board finds that the anticompetitive anticompetitive effects implicitly recognizes the competitive effects of effects of the proposal are clearly outweighed in the public limited-purpose and other nondepository financial entities. interest by the probable effect of the proposal in meeting 9. See Chemical Banking Corporation, 82 Federal Reserve Bulletin the convenience and needs of the community to be served.7 239 (1996) ("Chemical Order") and studies cited therein. The Supreme Court has emphasized that it is the cluster of products and services that, as a matter of trade reality, makes banking a distinct line of commerce. See Philadelphia National, 374 U.S. at 357. Accord United States v. Connecticut National Bank, 418 U.S. 656 (1974); 7. 12U.S.C. § 1842(c)(l)(B). United States v. Phillipsburg National Bank, 399 U.S. 350 (1969). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

492 Federal Reserve Bulletin • June 1998 local in nature.10 The geographic scope of the local market and central New Jersey.14 Approximately 33 percent of is defined by the area in which competition between depos- Philadelphia's work force resides outside the city. More itory institutions can reasonably be expected to have a than 10 percent of the residents in the Pennsylvania coundirect effect on the price and supply of the cluster of ties of Bucks, Delaware, and Montgomery commute to banking products and services.11 jobs in the City of Philadelphia.15 In addition, approxi- In determining the relevant geographic market, the mately 16 percent of the residents in Camden County, New Board reviews a number of factors that identify the geo- Jersey, commute to Philadelphia, and 14 percent and graphic area over which competitive forces act to affect the 20 percent of the residents in the New Jersey counties of pricing and availability of banking products and services. Burlington and Gloucester, respectively, commute to Cam- These include data regarding worker commuting patterns, den County.16 as indicated by census data; population density; degree of The four counties closest to Philadelphia—Camden economic integration; the availability and geographic reach County in New Jersey and Bucks, Delaware, and Montof various modes of advertising; the presence of shopping, gomery Counties in Pennsylvania—have direct and subemployment, health care, and other necessities; the avail- stantial links to the city. The Southeastern Pennsylvania ability of transportation systems and routes; branch bank- Transportation Authority ("SEPTA") operates nine reing patterns; deposit and loan activity; and other similar gional rail lines to central Philadelphia and three light rail factors that indicate the geographic scope of competition.12 lines to its terminal at 69th Street, where they connect with First Union and CoreStates operate and compete in sev- the subway-elevated line to the rest of the city. These lines eral areas in Pennsylvania, New Jersey, and Delaware. As operate in Bucks, Delaware, Chester, and Montgomery noted above, several commenters questioned the appropri- Counties in Pennsylvania, and Mercer County in New ate definition of the banking market for the Philadelphia Jersey.17 Eight major highways, including three interstate area. The definition of the appropriate market was not highways, and ten secondary roads provide access from contested in the other markets in which First Union and Burlington, Camden, and Gloucester Counties in New Jer- CoreStates compete. The Board has, therefore, paid special sey to the Pennsylvania counties in the Philadelphia bankattention to defining the relevant geographic banking mar- ing market. Ten bridges cross the Delaware River, which ket in the Philadelphia area. separates Philadelphia from New Jersey, and more than 350,000 vehicles use these bridges daily. A. Relevant Geographic Banking Market for the Newspapers and other media serve an area that includes Philadelphia Area these Pennsylvania and New Jersey counties. Philadelphia's principal newspaper, The Philadelphia Inquirer, is Philadelphia is the fifth largest city in the United States, with a population of approximately 1.5 million people.13 Philadelphia serves as a hub for financial, commercial, 14. A county is a net importer of labor when its payroll employment health, recreational, and other services throughout the met- (the number of workers employed in the county regardless of where they live) exceeds its resident employment (the number of workers ropolitan area that surrounds the city. There is substantial who live in the county regardless of where they work) by at least and continuous economic development and integration be- 10 percent. tween the City of Philadelphia and the surrounding nine 15. Approximately 11 percent of Bucks County's residents, approxcounties, in particular Bucks, Chester, Delaware, and imately 23 percent of Delaware County's residents, and approxi- Montgomery Counties in Pennsylvania; and Burlington, mately 16 percent of Montgomery County's residents commute to Philadelphia. In addition, approximately 13 percent of Chester Coun- Camden, Gloucester, and Salem Counties and the southty's residents commute to Montgomery County, which is contiguous western portion of Mercer County, in New Jersey. Com- to Philadelphia. muting data for 1990 from the U.S. Bureau of the Census 16. Commuting data for Salem County, New Jersey, show that it is indicate that the City of Philadelphia is one of the largest also part of a multi-county market. Overall, 40 percent of Salem County's residents work outside the county and commute to other net importers of labor in eastern Pennsylvania and southern counties in the following percentages: Gloucester County, New Jersey (10.4 percent); Philadelphia Primary Metropolitan Statistical Area (an area smaller than the Philadelphia MSA) (7.3 percent); New Castle County, Delaware (10.6 percent); Cumberland County, New Jersey (8.8 percent); and other areas (approximately 3 percent). Since 10. See Chemical Order at 241; see also Sunwest Financial Ser- 17.7 percent of Salem County's residents commute to jobs within the vices, Inc., 73 Federal Reserve Bulletin 463 (1987); Pikeville National Philadelphia banking market, Salem County has been included within Corporation, 71 Federal Resen•£• Bulletin 240 (1985); Wyoming Ban- its delineation. corporation, 68 Federal Reserve Bulletin 313 (1982), aff'd. 729 E2d 17. The New Jersey Transit agency operates trains between Phila- 687 (10th Cir. 1984). See also Connecticut National, 418 U.S. at delphia and Atlantic City, New Jersey, that have a number of stations 667-68. in Camden and Burlington Counties, New Jersey, and operates at least 11. Philadelphia National, 374 U.S. at 359, quoting Tampa Electric 20 bus lines between central Philadelphia and locations in Burlington, Co. v. Nashville Coal Co., 365 U.S. 320. 327 (1961). Camden, and Gloucester Counties. These bus lines also connect 12. See Crestar Bank, 81 Federal Reserve Bulletin 200, 201 n.5 directly with nine stations in Camden County that serve the Delaware (1995); Pennbancorp, 69 Federal Reserve Bulletin 548 (1983); River Port Authority's high-speed rail system between central Phila- St. Joseph Valley Bank, 68 Federal Reserve Bulletin 673 (1982); delphia and Lindenwold in Camden County, New Jersey ("PATCO"). U.S. Bancorp, 67 Federal Reserve Bulletin 60, 61 n.2 (1981). PATCO runs every 5-8 minutes during rush hour and every 10-15 13. Population data are from the 1990 decennial census by the minutes at other times and averages approximately 39,000 riders U.S. Bureau of the Census. daily. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 493 the largest newspaper in the area and has a significant The Board believes that the suggested market definitions circulation in the New Jersey counties of Burlington, Cam- are too narrow and do not adequately reflect the degree to den, and Gloucester.18 Philadelphia television and radio which competition among banking institutions is transmitstations also are predominant in the Pennsylvania counties ted throughout the broader Philadelphia area.21 As exand these New Jersey counties. In addition, Philadelphia plained above, there are significant commuting, advertisprovides area residents with a number of financial, trans- ing, overlap of banking activities and offices, economic portation, cultural, educational, medical, retail, and recre- integration, and other factors that transmit competition ational services that are not available in the outlying coun- within the multi-county Philadelphia area. These data indities. cate that, although an individual customer may not have A number of commercial banks and thrift institutions in easy access to all bank competitors in the market, the flow Philadelphia also have substantial presences in New Jersey. of a significant number of customers, of economic activity, For example, a number of depository institutions in the and of information regarding the price and availability of Philadelphia banking market, including the six largest de- banking products and services in the banking market is an pository institutions in the market, maintain branches in effective check on the price and supply of the cluster of New Jersey and Pennsylvania. First Union and CoreStates, banking products and services throughout the broader Philmoreover, each use a single system for pricing products adelphia banking market. Accordingly, based on all the and services in Pennsylvania and New Jersey, and office facts of record, and for the reasons discussed above, the hours for each organization's subsidiary banks are almost Board believes that the relevant banking market for consididentical throughout this region. ering the competitive effects of the proposal in the Philadel- Lending data filed under the Home Mortgage Disclosure phia area is comprised of Philadelphia, Bucks, Chester, Act (12 U.S.C. § 2801 et seq.) ("HMDA") and small busi- Delaware, and Montgomery Counties in Pennsylvania; and ness lending data submitted under the CRA regulations of Burlington, Camden, Gloucester, and Salem Counties and the federal supervisory agencies indicate that depository the southwestern portion of Mercer County, in New Jersey. institutions compete throughout Philadelphia and the surrounding nine counties. In particular, these data show that B. Competitive Analysis in the Philadelphia banks originate loans throughout the area. Banking Market The area that includes the City of Philadelphia and the surrounding nine counties closely approximates the area First Union is the fourth largest of 118 depository institudesignated as a Ranally Metropolitan Area ('"RMA"). An tions in the Philadelphia banking market, and controls RMA is a privately defined compact geographic area with deposits of approximately $5.5 billion, representing aprelatively high population density that is linked by com- proximately 7.9 percent of market deposits. CoreStates is muting, retail, and wholesale trade patterns.19 The banking the largest depository institution in the market, and conmarket also closely approximates the area designated as trols deposits of approximately $22 billion, representing the Philadelphia Metropolitan Statistical Area ("MSA") by approximately 31.5 percent of market deposits. On a comthe Office of Management and Budget.20 MSA designa- bined basis, First Union and CoreStates would control tions are made on the basis of an area's population and approximately 39.4 percent of market deposits,22 and the include surrounding counties with strong economic and social ties to a central county. 21. Other commenters argued that the Board is bound in this case by Several commenters argued that the Philadelphia metrothe definition of the Philadelphia banking market set out by the politan area consists of smaller banking markets that are Supreme Court in 1963 in its opinion analyzing the merger of Philarelevant in considering the competitive effects of the trans- delphia National Bank and Girard Trust Corn Exchange Bank. See action, such as the City of Philadelphia or certain neighbor- Philadelphia National, 374 U.S. at 357-62. In Philadelphia National, the Supreme Court determined that the appropriate market for analyzhoods within the city. Commenters supported these market ing the competitive effects of that merger was the area defined by the definitions by arguing that these smaller areas are where City of Philadelphia (which comprises Philadelphia County) and the vast majority of local residents can practicably and Bucks, Montgomery, and Delaware Counties in Pennsylvania. conveniently turn for banking alternatives. The Court has consistently recognized that competitive analysis must reflect the competitive and economic realities of the marketplace. See United States v. Marine Bancorporation, 418 U.S. 602. 630-31 (1974); Brown Shoe Co. v. United States, 370 U.S. 294, 18. Circulation data for The Philadelphia Inquirer indicate that the 322 n.38 (1962). The Board believes that current data, which reflect penetration level in these New Jersey counties is approximately significant developments in population density, commuting patterns, 75 percent of the penetration level for the newspaper in Philadelphia transportation systems, advertising and media coverage, and other County. commercial and economic activity, in addition to significant broaden- 19. The RMA differs from the Philadelphia banking market adopted ing of the branching and other powers of banks and thrifts in the by the Board in that the RMA excludes some outlying areas in 35 years since the Court considered Philadelphia National, support a Gloucester, Burlington, and Salem Counties, New Jersey, and some broader geographic market today, and are consistent with the legal outlying areas in Bucks, Montgomery, and Chester Counties, Pennsyl- framework established by the Court for defining the relevant geovania, and includes part of Monmouth County and more of Mercer graphic market. County, New Jersey, and part of New Castle County, Delaware. 22. Market share deposit data are as of June 30, 1997. Market share 20. The Philadelphia MSA differs from the Philadelphia banking data before consummation are based on calculations in which the market adopted by the Board in that the Philadelphia MSA excludes deposits of thrift institutions are included at 50 percent, except as all of Mercer County, New Jersey. discussed in the order. The Board previously has indicated that thrift Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

494 Federal Reserve Bulletin • June 1998 HHI would increase approximately 496 points to 1958, an As the Board has indicated in previous cases, in a market amount that would exceed the DOJ Guidelines in a highly in which the competitive effects of a proposal as measured concentrated market. by market indexes and market share exceed the DOJ In order to address the potential anticompetitive effects Guidelines, the Board will consider whether other factors of the proposal in the Philadelphia banking market, First tend to mitigate the competitive effects of the proposal. Union has committed to divest 23 branches. Fourteen of The number and strength of factors necessary to mitigate the divested branches would be located in the City of the competitive effects of a proposal depend on the level of Philadelphia, and the nine remaining branches would be market concentration and size of the increase in market located in the adjoining Pennsylvania counties of Delaware concentration.27 and Montgomery.23 The branches proposed to be divested In this case, the Board believes that a number of factors account for approximately $866.9 million in deposits, and help mitigate the competitive effects of the proposal in the would either bring a new competitor into the market or Philadelphia banking market.28 For example, the Board has enhance the competitive presence of a current competitor.24 taken account of the significant number of competitors that In addition, three savings associations that operate in the would remain in the market following this transaction and market are significant commercial lenders and provide a the structure and size of other competitors. The Philadelrange of consumer, mortgage, and other banking products phia banking market would have more than 50 commercial and services. Competition from these savings associations banks and 65 thrifts remaining as competitors of First more closely approximates competition from commercial Union. Five competing bank holding companies each have banks, and the Board concludes that deposits controlled by more than $25 billion of total assets, and at least an these organizations should be weighted at 100 percent.25 In additional seven bank holding companies and at least four this light, and accounting for the proposed divestitures, the thrifts or thrift holding companies each have more than HHI would increase by not more than 410 points to 1872, $1 billion of total assets. Numerous branches of depository and First Union would have a post-merger market share of institutions would remain in the banking market after conapproximately 38.1 percent.26 summation.29 institutions have become, or have the potential to become, significant the level of commercial lending activity of this institution does not yet competitors of commercial banks. See Midwest Financial Group, 75 approximate the level of commercial lending activities of banks or the Federal Reserve Bulletin 386 (1989); National City Corporation, 70 savings associations noted above, il does exceed the national average Federal Resen'e Bulletin 743 (1984). Thus, the Board has regularly for savings associations. If deposits controlled by Sovereign were included thrift deposits in the calculation of market share on a weighted at 75 percent, Ihe HHI would increase 404 points to 1847 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 77 Federal and First Union would control 37.8 percent of market deposits. Reserve Bulletin 52 (1991). 27. See NationsBank Corporation, 84 Federal Reserve Bulletin 129 23. With respect to each market in which First Union has committed (1998); First of Waverh Corporation, 84 Federal Reserve Bulletin to divest offices to mitigate the anticompetitive effects of the proposal, 111(1998). First Union has committed to execute sales agreements for the pro- 28. Several commenters argued that the Philadelphia National case posed divestitures with a purchaser determined by the Board to be precludes the approval of a merger where the resulting bank has a competitively suitable prior to consummation of the proposal, and to post-merger market share greater than 30 percent. The Board notes complete the divestitures within 180 days of consummation. First that the Court in Philadelphia National and other cases found that Union also has committed that, in the event it is unsuccessful in "[no] particular percentage share was deemed critical." 374 U.S. at completing any divestiture within 180 days of consummation, it will 365. Instead, the proposed merger in Philadelphia National was transfer the unsold branch(es) to an independent trustee that is accept- enjoined because "[t]here is nothing in the record of this case to rebut able to the Board and that will be instructed to sell the branches the inherently anticompetitive tendency manifested by these percentpromptly. BankAmerica Corporation, 78 Federal Resen'e Bulletin ages." 374 U.S. at 366. Accordingly, Philadelphia National and 338 (1992); United New Mexico Financial Corporation, 77 Federal modern antitrust analysis confirm that market share must be consid- Reserve Bulletin 484 (1991). ered in light of all the facts of record, including factors that tend to 24. Deposit amounts for all divestitures by First Union are based on mitigate the potential anticompetitive effects of market concentration. summary of deposit data reported to the Federal Deposit Insurance See United States v. Marine Bancorporation, 418 U.S. 602, 631 Corporation by all market competitors, as of June 30, 1997. Based on (1974); United States v. Citizens & Southern Nat'l Bank, 422 U.S. 86, data reported by First Union as of April 7, 1998, the offices proposed 120 (1975); United States v. Baker Hughes, Inc., 908 F.2d 981 (D.C. to be divested would control approximately $936 million of deposits. Cir. 1990); Hospital Corp. of America v. Federal Trade Commission, 25. The Board previously has indicated that, when analyzing the 807 F.2d 1381 (7th Cir. 1986), cert, denied, 481 U.S. 1038 (1987). competitive effects of a proposal, it may consider the competitiveness This methodology has been adopted in the DOJ Guidelines and of savings associations at a level greater than 50 percent of the savings repeatedly confirmed by the courts. See, e.g., United States v. Internaassociation's deposits if appropriate. See Banknorth Group, Inc., 75 tional Harvester Co., 564 F.2d 769 (7th Cir. 1977) (court considered Federal Resen'e Bulletin 703 (1989). In the Philadelphia banking the number and power of competitors in the market, the background market, Firstrust Savings Bank, Peoples Bancorp MHC, and Progress of growth and resources of the companies involved, the relationship of Financial Corp. each maintain a significantly greater percentage of their lines of commerce, and the physical, economic, and legal barriers their assets in commercial loans than the national average for thrifts of to entry); FTC v. National Tea Co., 603 F.2d 694 (8th Cir. 1979) (court 1.7 percent. The record also indicates that these thrifts have separate considered the weakness of the acquiring firm as a competitor, the commercial lending departments with commercial lending officers, status of the market as "relatively competitive," and the likelihood and that the thrifts plan to continue to increase their commercial that the acquiring firm would fail without the merger); and Kennecott lending in the Philadelphia banking market. Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195 (2d Cir. 1978) (court considered ease of entry and concentration trends). 26. Another savings association in the market. Sovereign Bancorp Inc., has recently increased its commercial loan portfolio and commer- 29. If market indexes were measured in terms of the number of cial lending activities in the Philadelphia banking market. Although branch offices of depository institutions, the Philadelphia banking Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 495 Two large Pennsylvania-based commercial banking or- divestitures, the number and strength of competitors in the ganizations also would remain as competitors. PNC Bank market, the attractiveness of the market for entry by out-of- Corporation, the second largest competitor in the Philadel- market competitors, the number of recent entries into the phia banking market, is the 13th largest commercial bank- market, and other factors mitigate the potentially adverse ing organization in the nation by total assets,30 and would competitive effects of the proposal in the Philadelphia continue to control approximately 15 percent of market banking market.36 deposits and operate 171 branches in the market. Mellon Bank Corporation, the third largest competitor in the mar- C. Competitive Analysis of Other Relevant Banking ket, is the 25th largest commercial banking organization in Markets the nation by total assets,31 and would continue to control approximately 12 percent of market deposits and operate First Union and CoreStates also compete in six other 132 branches in the banking market. banking markets: Metropolitan New York-New Jersey; The Philadelphia banking market is attractive for entry Atlantic City, New Jersey; Vineland, New Jersey; Lehigh to out-of-market competitors and has experienced signifi- Valley, Pennsylvania; Scranton/Wiikes Barre, Pennsylvacant entry recently.32 Philadelphia is the fourth largest nia; and Wilmington, Delaware.37 First Union proposes to metropolitan area in the country.33 The Philadelphia bank- divest nine branches in the Lehigh Valley, Pennsylvania, ing market exceeds the national average for total deposits banking market that control approximately $223 million in per banking office and median household income.34 Data deposits. Consummation of the proposal would be consisshow that median household income, deposits per banking tent with the DOJ Guidelines.38 In this light, the Board office, population per banking office, and increases in total concludes that the proposed divestiture, the number of deposits in the Philadelphia banking market are greater competitors that would remain in each market, the characthan the averages for other Pennsylvania MSAs. Entry into teristics of each market, the projected increase in concenthe Philadelphia banking market, moreover, is not subject tration in market deposits as measured by the HHI under to substantial legal restrictions.35 the DOJ Guidelines, and the resulting market shares would The attractiveness of this market for entry has been mitigate the competitive effects of the proposal in these six demonstrated by recent entry by new competitors. Since banking markets. June 1995, five depository institutions have entered the Philadelphia banking market de novo, and five other depos- D. Views of Other Agencies and Conclusion itory institutions have entered the banking market by acquisition. The Department of Justice reviewed the proposal and ad- Based on all the facts of record, the Board concludes that vised the Board that, in light of the proposed divestitures in the considerations discussed above, including the proposed the Philadelphia and Lehigh Valley banking markets, consummation of the proposal would not likely have a significantly adverse effect on competition in any relevant banking market. The Office of the Comptroller of the Currency market would be moderately concentrated after consummation of the ("OCC") and the Federal Deposit Insurance Corporation proposal, and the HHI would increase 310 points to 1068. First Union would control approximately 26.7 percent of the total number of ("FDIC") also have not objected to consummation of the branches in the banking market. proposal. 30. PNC Bank Corporation has total assets of approximately Based on all the facts of record, and for the reasons $75.1 billion, as of December 31, 1997. 31. Mellon Bank Corporation has total assets of approximately discussed above, the Board has determined that consumma- $44.9 billion, as of December 31, 1997. tion of the proposal would not be likely to result in a 32. A commenter asserted that job losses and branch closings significantly adverse effect on competition or on the conresulting from the proposal could adversely affect the attractiveness of the market to out-of-market competitors. These matters are discussed later in the order. 33. Research suggests that substantially more entry takes place in 36. A commenter proposed that the Board establish absolute limits large banking markets than in small banking markets. See Amel, Dean on bank mergers and acquisitions. This methodology was reviewed by and Liang, J. Nellie, "Determinants of Entry and Profits in Local the Board in NationsBank Corporation, 84 Federal Reserve Bulletin Banking Markets," Review of Industrial Organization, February 12, 129, 131 n.13 (1998). For the reasons discussed more fully in the 1997, at 59-78. NationsBank order, the Board concluded that its current approach, 34. The national average for total deposits per banking office in an which takes into account the principles suggested by the commenter MSA is $46.4 million, and the national median family income is while at the same time permitting consideration of a variety of other $35,056. In the Philadelphia banking market, total deposits per bank- factors that may affect competition in a particular banking market, ing office average $48.9 million, and the median family income is provides a more complete economic analysis of the competitive $35,684. effects in a local banking market. 35. New Jersey and Pennsylvania expressly permit banks from the 37. These banking markets are delineated in Appendix B. Market other state to acquire all, or any portion of the branch network of, an data for the markets after consummation of the proposal, except for in-state bank. See N.J. Stat. Ann. § 9A-133.1 (1997); Pa. Stat. Ann. tit. the Lehigh Valley banking market, are set forth in Appendix C. 7, § 1602 (1997). New Jersey and Pennsylvania also permit unre- 38. Accounting for the proposed divestitures, First Union would stricted in-state branching. Section 3(d) of the BHC Act allows the control 31.6 percent of market deposits and would become the largest Board to approve an application by a bank holding company to of 37 depository institutions in the Lehigh Valley banking market. The acquire a bank located in a state other than the home state of such HHI would increase 389 points to 1383. See also the banking markets bank holding company. 12 U.S.C. § 1842(d). discussed in Appendix C. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

496 Federal Reserve Bulletin • June 1998 centration of banking resources in the Philadelphia banking ers commended First Union for providing small business market, the six remaining banking markets, or in any other credit and support, sponsoring community development relevant banking market.39 Accordingly, subject to comple- activities directly and through intermediaries, participating tion of the proposed divestitures, the Board has determined in programs that provided affordable housing and mortgage that competitive factors are consistent with approval of the financing for LMI individuals, and providing support for proposal. non-profit organizations. Other commenters related their favorable experiences with specific programs or services Convenience and Needs Factor offered by First Union. A number of commenters commended First Union's CRA plan for Pennsylvania, New The BHC Act requires the Board to consider the conve- Jersey, and Delaware. nience and needs of the communities, in connection with More than 100 commenters either opposed the proposal, its review of the acquisition of a bank. The CRA requires requested that the Board approve the merger subject to that the Board take into account, as part of its review of a conditions suggested by the commenter, or expressed conproposal to acquire a depository institution, the record of cerns about the CRA performance record of First Union.42 performance of each relevant depository institution in help- A number of these commenters contended that First Union ing to meet the credit needs of the institution's entire has an inadequate record of lending to LMI and minority community, including LMI neighborhoods, consistent with borrowers and in census tracts with predominately LMI the safe and sound operation of the institution.40 and minority residents, particularly in the Philadelphia MSA, the Bronx, and Delaware. Other commenters main- A. Public Comments Regarding Convenience and tained that CoreStates's record in Pennsylvania of making housing-related loans to LMI and minority borrowers and Needs Factor small business loans in LMI and minority census tracts was In order to aid the Board in collecting information regard- significantly better than First Union's record. A number of ing the effect of the proposal on the convenience and needs commenters expressed concern about the effects of proposof affected communities and regarding the performance als by First Union to close branches in Pennsylvania, New Jersey, and Delaware. Particular concern was expressed records of the relevant depository institutions under the that branch closings would reduce the availability of bank- CRA, the Board provided an extended period for public ing services generally, and would have a disproportionate comment on the proposal and convened a public meeting adverse effect on LMI customers, LMI neighborhoods, and regarding the proposal in Philadelphia. As noted above, elderly individuals, particularly in the greater Philadelphia more than 235 interested members of the public either area. Other commenters noted that First Union's represensubmitted written remarks or provided testimony at the tations regarding branch closures in LMI census tracts public meeting. expired after two years.43 Summary of Comments. More than 130 commenters supported the proposal or commented favorably about First Commenters also maintained that First Union's banking Union's CRA-related activities.41 Many of these comment- products and services did not meet the needs of lowincome, elderly, or other customers with special needs in 39. A number of commenters urged the Board to consider the competitive effect of First Union's proposed acquisition of The Money Store in the Philadelphia banking market. The Board notes that the (9) members of the U.S. House of Representatives and the U.S. effect on competition of First Union's acquisition of The Money Store Senate; and will be subject to review either by the Board under the BHC Act or (he (10) representatives of community and non-profit organizations in OCC under its regulations, and that First Union has not sought North Carolina, Florida, Georgia, Virginia, Maryland, and Tennesapproval of this transaction from the Board at this time. In the event see. approval of the acquisition of The Money Store is sought from the 42. These commenters included: Board, the Board will analyze that transaction in light of the combina- (1) members of the U.S. House of Representatives and the U.S. tion of First Union and CoreStates in the relevant markets. Senate; 40. 12U.S.C. §2903. (2) Community Legal Services, Inc.; 41. These commenters included: (3) Philadelphia branch of the NAACP; (1) the mayors of Philadelphia, Pennsylvania, Charleston, South (4) Philadelphia Welfare Rights Organization; Carolina, and Atlanta, Georgia; (5) Philadelphia Legal Assistance; (2) Eastern Philadelphia Organizing Project, Philadelphia, Pennsyl- (6) Inner City Press/Community on the Move, Bronx, New York; vania; (7) Philadelphia Unemployment Project; (3) Philadelphia Association of Community Development Corpora- (8) Action Alliance of Senior Citizens of Greater Philadelphia; tions, Philadelphia, Pennsylvania; (9) Consumer Education & Protection Association; (4) Pennsylvania Low Income Housing Coalition, Glenside, Penn- (10) Delaware Community Reinvestment Action Council, Inc., sylvania; Wilmington, Delaware; and (5) Community Action Committee of the Lehigh Valley, Inc., (11) state and local government officials, including two Philadel- Bethlehem, Pennsylvania; phia councilmen, three Pennsylvania representatives, and the Trea- (6) Delaware County Legal Assistance Association, Inc., Chester, surer of Pennsylvania. All organizations are located in Philadelphia, Pennsylvania; Pennsylvania, unless otherwise indicated. (7) Mayor's Commission on Puerto Rican/Latin Affairs, Philadel- 43. One commenter criticized First Union as unresponsive to conphia, Pennsylvania; cerns expressed by community groups when it closed a branch in (8) Save Our Waterfront. Camden, New Jersey; Baltimore, Maryland. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 497 Philadelphia. Other commenters considered the basic bank- National Bank of North Carolina, Charlotte, North Caroing accounts offered by First Union to be inadequate, lina ("FUNB-NC"), which primarily served communities particularly for customers who receive benefit payments in North Carolina before the consolidation, received an from Pennsylvania by electronic benefits transfer ("EBT") "outstanding" CRA performance rating from the OCC, as because these customers cannot qualify for First Union's of May 1997. First Union National Bank, Summit, New direct-deposit, no-fee banking account.44 Some comment- Jersey ("FUNB-Summit"), which served communities in ers claimed that First Union does not have enough safe and Pennsylvania, New Jersey, and New York before the conaccessible automated teller machines ("ATMs") in LMI solidation, also received an "outstanding" CRA perforand minority census tracts. Commenters also asserted that mance rating from the OCC, as of May 1997.47 In addition, First Union should increase its hours of operation, improve Delaware Bank received a "satisfactory" rating for CRA its customer service, cash checks for non-customers with- performance from its primary federal supervisor, the FDIC, out requiring a thumbprint, and offer more banking prod- at its most recent CRA performance examination, as of ucts in LMI and minority census tracts. October 1995. Several commenters criticized First Union's level of CoreStates Bank received an "outstanding" CRA perforparticipation in particular affordable housing programs and mance rating from the OCC, as of September 1997. Coreits level of charitable contributions. Many of these com- States Delaware received a "satisfactory" CRA performenters compared First Union's performance in commu- mance rating from the OCC, as of August 1997. nity redevelopment and charitable activities in Pennsylva- Examiners found no evidence of prohibited discriminania unfavorably to CoreStates's efforts, which were tion or other illegal credit practices at the subsidiary banks characterized as exemplary. Other commenters expressed of First Union or CoreStates. The examinations also conconcern that First Union would reduce or terminate finan- cluded that the banks' delineations of the local communicial support for specific programs currently provided by ties they served were reasonable and did not arbitrarily CoreStates. exclude LMI communities. In addition, the banks solicited Commenters also expressed concern about the economic and accepted credit applications from all segments of their effects that job reductions by First Union would have on delineated communities. Examiners also determined that individuals and on the Philadelphia area. Several comment- loans made by the banks were reasonably distributed ers argued that First Union's job assistance programs for throughout the local communities they served, including most employees who would be displaced as a result of the LMI communities, and served all members of the commuacquisition would not address adequately the effects of job nities, including LMI individuals. losses and criticized the bonus packages awarded to senior First Union's presence in the Pennsylvania/New Jersey/ employees leaving CoreStates. Delaware region is smaller than CoreStates's presence, and, after consummation of the proposal. First Union B. CRA Performance Evaluations would have a significantly expanded service community in Pennsylvania. To meet its increased responsibilities under As provided in the CRA, the Board has evaluated the the CRA, First Union indicates that it will implement the convenience and needs factor in light of examinations of CRA-related policies and programs developed in its home the CRA performance records of the relevant institutions state operations and in other states it serves, and may retain conducted by the primary federal supervisor. An institu- some aspects of the CRA policies and programs of Coretion's most recent CRA performance evaluation is a partic- States, including community development policies that ularly important consideration in the applications process have been successful for CoreStates. Consequently, the because it represents a detailed on-site evaluation of the Board has taken into account First Union's CRA perforinstitution's overall record of performance under the CRA mance record in its home state and in other states it serves by its primary federal supervisor.45 as well as its performance in the region currently served by Core- First Union has consolidated its subsidiary banks, except States. Delaware Bank, into its lead bank, FUNB. Before the consolidation, banks representing more than 88 percent of C. First Union's Lending Record Generally and in the total banking assets of First Union received "outstand- the Region ing" ratings from their primary federal supervisors at their most recent CRA performance examinations.46 First Union First Union offers a variety of programs through its subsidiaries that assist LMI borrowers to obtain affordable housing. The First Union Affordable Home Mortgage Program 44. Pennsylvania makes all EBTs through direct deposit in one features reduced down payment requirements, flexible depository institution that is under contract with the state. 45. The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA examination is an important and often controlling factor in the consid- tains the most recent CRA performance ratings for First Union's eration of an institution's CRA record and that reports of these banks. examinations will be given great weight in the applications process. 47. Some commenters questioned the thoroughness of the examina- 54 Federal Register 13.742 and 13,745 (1989). tions and ratings conferred on certain national bank subsidiaries of 46. First Union's other banks were all rated "satisfactory" for CRA First Union. The Board has provided these comments to the OCC for performance by their primary federal supervisors. Appendix D con- consideration. 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498 Federal Reserve Bulletin • June 1998 funding of closing costs, increased debt-to-income ratios, a implemented a number of specific programs at individual waiver of mortgage insurance, and flexible underwriting First Union banks. Although First Union has recently criteria. The Neighborhood Development Mortgage Pro- merged these banks into a single bank, it has retained the gram, offered to LMI borrowers purchasing homes in LMI programs discussed below in addition to others tailored to census tracts, features reduced down payment require- the needs of specific communities. ments, increased debt-to-income ratios, and below-market CRA Performance in Home State. As noted, First interest rates. The Community Partnership Mortgage Pro- Union's lead subsidiary bank in North Carolina, gram, which involves home ownership counseling pro- FUNB-NC, received an "outstanding" rating for its CRA vided by a participating non-profit community organiza- performance record. Examiners commended the bank for tion, features funding for up to 100 percent of the purchase effectively determining credit needs in North Carolina and price, reduced closing costs, increased debt-to-income ra- for responding to those needs in a constructive manner. tios, and a waiver of mortgage insurance. The Agency The 1997 examination found that the CRA was an integral Mortgage Program is available for home buyers with lim- part of the planning and philosophy of the bank's board of ited funds for a down payment, and features financing for directors and that the board and senior management, at the up to 97 percent of the value of the property, flexible bank and the holding company level, were actively infunding for closing costs, a higher permissible debt-to- volved in the bank's CRA program. The bank's lending income ratio, and financial counseling. Home mortgage patterns showed a reasonable distribution of loans throughloans also are offered through programs sponsored by the out all its communities, including LMI neighborhoods. Federal Housing Administration ("FHA") and other FUNB-NC offered a wide range of products and services government-sponsored mortgage programs. to meet the identified credit needs of its communities. The First Union originates approximately $400 million of bank determined that affordable housing loans were the affordable home purchase mortgage loans annually. Its primary credit need in its delineated community, and origiportfolio of these loans increased from 13,839 loans in nated affordable home mortgage purchase loans through 1995, totalling $685 million, to 23,926 loans in 1996, several programs, including the First Union Affordable totalling $1.5 billion. First Union also offers special home Home Mortgage Program, the Neighborhood Development improvement loans to LMI borrowers, which feature repay- Mortgage Program, and the Community Partnership Mortment periods of up to 15 years and an annual 2 percent gage Program, to meet this need. From October 1995 to interest rebate for timely payments. As of November 1997, October 1996, the bank originated 16 percent of all its more than 4,600 loans, totalling $33.2 million, were out- mortgage loans, totalling $102 million, to borrowers in standing under this program. LMI census tracts. FUNB-NC also participated in First Union has sponsored grant applications under the government-sponsored affordable housing programs. From Federal Home Loan Bank of Atlanta's Affordable Housing January 1995 through October 1996, the bank made loans Program for 49 projects that have resulted in $17.6 million totalling $52.6 million through programs sponsored by the of subsidies for affordable housing for LMI individuals and FHA, the Veterans Administration ("VA"), and the Federal households, making First Union the second largest pro- National Mortgage Administration. gram participant in the nation. Through its Capital Markets In addition, FUNB-NC engaged in small business lend- Affordable Housing Unit, First Union has invested more ing, including loans to businesses in LMI census tracts. As than $500 million in housing projects providing low in- of October 1996, FUNB-NC had originated 18 percent of come housing tax credits, and has been senior manager for its small business loans, totalling $42 million, in LMI more than $100 million of bonds issued to finance multi- census tracts. From January 1995 through October 1996, family housing developments. During 1996 and 1997, First the bank also made approximately $7 million in loans Union provided more than $800 million in financing to through programs sponsored by the Small Business Adminapproximately 700 for-profit and non-profit affordable istration ("SBA"). housing developments. Community development activities during the period First Union has established a Small Business Banking covered by the 1997 examination totalled 78 projects, Division ("SBBD") to respond to loan requests by small supporting affordable housing efforts, small business loan business owners within 24 hours of the request. First pools, and economic rehabilitation programs for depressed Union's SBBD originated $643 million in small business urban areas, that generated approximately $31 million in loans in 1995 and $1.1 billion in small business loans in loans. These activities included a $2.6 million loan to the 1996. Overall, First Union originated a total of approxi- East Carolina Community Development Corporation to mately $4.7 billion in small business loans during 1996. construct a 44-unit apartment complex for the elderly in First Union has committed more than $4.5 million to fund Morehead, North Carolina; and a $5 million commitment more than 21 micro-loan pools for business loans up to to the Charlotte-Mecklenburg Housing Partnership for de- $25,000 that are administered by local community develop- velopment of affordable housing for LMI households in the ment corporations. First Union invested approximately City of Charlotte and throughout Mecklenburg County. $5.8 million during 1995 and 1996 in minority-owned CRA Record of FUNB-Summit. Examiners found that banks, credit unions, community development financial FUNB-Summit showed a high level of responsiveness to institutions, and community development corporations. the credit needs of communities in Pennsylvania, New As discussed below, First Union has developed and Jersey, and New York, and had introduced several new Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 499 credit products since the prior CRA performance examina- FUNB-Summit under programs sponsored by the SBA tion to help address the credit needs of LMI individuals doubled from $4 million in 1995 to $8 million in 1996.52 and neighborhoods. For example, FUNB-Summit intro- The Board also has reviewed FUNB-Summit's lending duced First Union's affordable home purchase mortgage record in New York, particularly in the Bronx.53 In 1996, loan programs and originated 263 loans under these pro- the bank made 144 Coalition Mortgage Program loans in grams in 1996, totalling $20 million. First Union also New York, totalling approximately $22.3 million.54 Examretained the bank's Coalition Mortgage Program, which iners considered FUNB-Summit's lending penetration to featured a below-market interest rate, reduced fees, no be strong in all census tract income levels, and commented points, increased debt-to-income ratios, and flexible under- that a majority of the loans were originated in concentrated writing terms. FUNB-Summit made 748 loans under the LMI areas, notably the Bronx. FUNB-Summit also participrogram in 1996, totalling approximately $77 million.48 pated as a limited partner in three projects designed to Examiners favorably commented that a majority of the provide affordable housing in the Bronx during the period loans in Pennsylvania were originated in concentrated LMI covered by the 1997 examination.55 areas, notably in the Philadelphia MSA.49 FUNB-Summit The 1997 CRA performance examination of FUNBalso increased its emphasis on lending under FHA and VA Summit noted that FUNB-Summit was responsive to comaffordable housing programs. FHA loan originations in- munity economic development needs, and that its participacreased 39 percent from 1995 to 1996, and VA loan origi- tion in community development projects was significant. nations increased from 20 loans to 90 loans during this During 1996, FUNB-Summit, through its subsidiary comperiod.50 munity development corporation ("CDC"), funded The 1997 CRA performance examination indicated that 22 projects and an additional 20 loans from loan pools HMDA data for 1995 showed that, in the Philadelphia within its delineated communities, for a total of $13.6 MSA, FUNB-Summit was the fifth largest originator of million in loan commitments. The bank and the CDC residential mortgage loans made in LMI census tracts and together made more than $50 million in qualifying commuthe fourth largest originator to LMI borrowers. These data nity development loans.56 These loans were made to also showed that the bank was the largest originator of projects to provide alfordable housing and to support small residential mortgage loans made in LMI census tracts and business development, redevelopment of LMI areas, comto LMI borrowers in New Jersey. The 1997 examination munity non-profit organizations, and businesses owned by noted that FUNB-Summit significantly reduced its overall minorities or women. housing-related lending from 1995 to 1996, but HMDA CRA Record of Delaware Bank. Delaware Bank has total data indicate that it did not reduce the percentage of assets of $114 million, representing less than 1 percent of housing-related loans it made to LMI and minority borrow- First Union's total banking assets, and operates primarily ers and to borrowers in LMI and minority census tracts. as a small commercial lender. The most recent publicly Instead, such loans increased or remained constant as a available CRA performance examination found that the percentage of all housing-related loans the bank made in a bank participated in a local community investment corporalarge majority of the areas served by the bank.51 Overall, tion and made several loans to private developers to acthe percentage of the bank's total loan originations in LMI quire and rehabilitate government-subsidized rental houscensus tracts nearly doubled, from 9 percent to 17 percent. ing for low-income households, and that the bank's The 1997 examination also commended the bank's sub- housing-related loans demonstrated a reasonable distribustantial increase in small business lending from $3 million tion throughout the community it serves. The Board also in 1995 to $85 million in 1996. In addition, loans made by has reviewed information regarding the bank's CRArelated activities since this examination, including its community development activities, and supervisory information from the FDIC. 48. The bank made 204 loans under this program in Pennsylvania, totalling approximately $9.5 million, and 400 loans under this pro- 52. In 1996, SBA loans by FUNB-Summit totalled $1.6 million in gram in New Jersey, totalling approximately $44.8 million. Pennsylvania and $5.3 million in New Jersey. 49. The bank also was a participating lender in other programs 53. The bank's delineated community in New York includes the designed to assist LMI borrowers in obtaining home purchase and entire counties of Westchester, Rockland, Putnam, Orange, Dutchess, home improvement financing, including the New Jersey Citizens and Ulster and 155 census tracts in Bronx County, New York. Action Home Improvement Loan Plan, Trenton Mortgage Plan, 54. HMDA data for 1995 reviewed in the 1997 examination showed Lehigh Valley Mortgage Loan Pool, and Philadelphia Home Improve- that, in New York, FUNB-Summit was the tenth largest originator of ment Loan program. residential mortgage loans in LMI census tracts and the fifth largest 50. FHA loans in Pennsylvania increased from 18 loans, totalling originator to LMI borrowers. $1.5 million in 1995, to 35 loans, totalling $3.1 million in 1996. In 55. These projects were designed to provide housing for LMI or New Jersey, FHA loans increased from 28 loans, totalling $3 million elderly residents in the Bronx. First Union committed construction in 1995, to 38 loans, totalling $4.2 million in 1996. financing and equity investments qualifying for tax credits totalling 51. The percentage of loan originations to African Americans approximately $20.5 million for the three projects. increased from 3.9 percent to 7.2 percent in the Pennsylvania assess- 56. First Union's community development lending from January ment area, from 5.3 percent to 11.1 percent in the Philadelphia MSA, 1995 to February 1997 was allocated approximately as follows: New and from 3.3 percent to 8.4 percent in New Jersey. The percentage of Jersey—$25.8 million, Philadelphia MSA—$13 million. Northeastern loan originations to Hispanics in these areas also increased. Pennsylvania—$8.9 million, and New York—$3.2 million. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

500 Federal Reserve Bulletin • June 1998 HMDA Data. The Board also has considered First First Union's lending record, which shows that First Union's lending record in light of comments regarding the Union's banks assist significantly in helping to meet the HMDA data of its subsidiaries. The data generally show credit needs of their local communities, including LMI that First Union provided a significant volume of housing- neighborhoods.60 related credit to minority borrowers and to borrowers in CRA Plan. In connection with the proposal, First Union LMI areas. For example, FUNB-Summit originated nearly has announced a five-year, $13 billion CRA Plan for Penn- 23,000 residential housing-related loans in 1996, totalling sylvania, New Jersey and Delaware.61 This program reapproximately $1.1 billion, and was the largest originator flects an increase of 5 to 10 percent above the lending of home mortgage refinance loans and home improvement currently done by First Union and CoreStates on a comloans in its delineated community.57 bined basis in these same communities. Implementation of The data also reflect certain disparities in the rates of the CRA plan would have significant public benefits in the loan originations and denials among members of different Pennsylvania/New Jersey/Delaware region, including in racial groups and persons at different income levels.58 The particular in LMI areas. Board is concerned when the record of an institution indi- Private CRA Agreements. First Union has entered into a cates such disparities in lending, and believes that all banks number of agreements with various community organizaare obligated to ensure that their lending practices are tions, including organizations representing specific Pennbased on criteria that ensure not only safe and sound sylvania and New Jersey communities served by the Corlending but also equal access to credit by creditworthy eStates and First Union banks. The Board recognizes that applicants regardless of their race or income level. The communications by depository institutions with commu- Board recognizes, however, that HMDA data alone provide nity groups provide a valuable method of assessing and an incomplete measure of an institution's lending in its determining how an institution can best address the credit community because these data cover only a few categories needs of the community. Neither the CRA nor the agenof housing-related lending. HMDA data, moreover, pro- cies' CRA regulations, however, require depository instituvide only limited information about the covered loans.59 tions to enter into agreements with any organization. The HMDA data, therefore, have limitations that make them an Board, therefore, has viewed such agreements and their inadequate basis, absent other information, for concluding enforceability as private contractual matters between the that an institution has not adequately assisted in meeting its parties and has focused on the existing record of perforcommunities' credit needs or has engaged in illegal lend- mance by the applicant and the programs that the applicant ing discrimination. Because of the limitations of HMDA has in place to serve the credit needs of its communities. data, the Board has considered those data carefully in light Several commenters have criticized provisions in these of other information. agreements that they believe severely restrict the ability of As noted, OCC examiners found no evidence of prohib- community organizations and their members to protest ited discrimination or other illegal credit practices at First Union's banks. Examiners reviewed the banks' policies 60. Several commenters contended that the lending activities of and procedures for complying with fair lending laws and First Union's nonbanking subsidiaries and First Union's proposed regulations, conducted comparative file analyses for racial purchase of The Money Store raise fair lending law issues. They and gender discrimination, and did not find any violations. alleged that The Money Store has a history of abusive lending The Board also has considered the HMDA data in light of practices and maintained that First Union would "steer" customers illegally to The Money Store, where they would be charged higher interest rates on loans. The Board notes that primary authority for enforcement of the fair lending laws for nonbanking companies is 57. One commenter contended that First Union's HMDA data are conferred by statute on the Federal Trade Commission and the Departquestionable and must be closely scrutinized because of alleged ment of Housing and Urban Development. First Union's subsidiary HMDA reporting violations by First Union Home Equity Bank, N.A., banks—which account for a substantial majority of First Union's total Charlotte, North Carolina ("FUHEB"). FUHEB accounts for less assets and total revenues—have satisfactory records of compliance than 1 percent of the banking assets of First Union. First Union has with fair lending laws. In addition, commenters' contentions against begun a systematic evaluation of FUHEB's HMDA reporting and First Union's nonbanking subsidiaries rely in large measure on committed to the OCC, the bank's primary federal supervisor, to take HMDA data that, as noted above, are inadequate to show illegal prompt action to address any deficiencies. The OCC will monitor discrimination. Commenters also presented no facts to show that FUHEB's compliance through its supervisory process. See Decision customers would be illegally "steered" by First Union to The Money of the OCC approving First Union's merger with Signet Bank, Rich- Store. The acquisition of The Money Store, moreover, is subject to mond, Virginia (Corporate Decision No. 97-96, at 14 n.21, dated review by a federal banking agency under a proceeding that is November 9. 1997). separate from this application, and issues related to the acquisition of 58. Commenters alleged that the dollar amount of First Union's The Money Store will be reviewed at that time. HMDA-related lending in eastern Philadelphia is inadequate when 61. The major elements of the CRA Plan include: (1) $875 million compared to its share of market deposits in the area. in mortgage loans for LMI communities; (2) $10 billion in small 59. The data, for example, do not account for the possibility that an business/small farm loans; and (3) $750 million in community develinstitution's outreach efforts may attract a larger proportion of margin- opment loans. ally qualified applicants than other institutions attract and do not First Union also pledges to continue CoreStates's corporate contriprovide a basis for an independent assessment of whether an applicant butions, which total approximately $17 million annually, for five who was denied credit was, in fact, creditworthy. Credit history years. In addition, First Union intends to fund a $100 million charitaproblems and excessive debt levels relative to income (reasons most ble foundation to serve Pennsylvania, New Jersey, and Delaware that frequently cited for a credit denial) are not available from HMDA would focus on community revitalization. First Union estimates that data. the foundation would begin operations by mid-year 1998. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 501 applications by First Union. The Board believes it is impor- the proposal on CoreStates employees and on employment tant that the federal and state banking agencies have access in the areas currently served by CoreStates.64 First Union to complete information regarding the performance records has indicated that it will take a number of steps to miniof depository institutions and the credit needs of the com- mize any adverse effects of the proposal on employment or munity. Although some community organizations have ar- the economy.65 First Union proposes to minimize the numgued that no restriction should be allowed on their ability ber of jobs lost in the greater Philadelphia area by adding to comment to the agencies, other community organiza- approximately 3000 new jobs in the area and by reducing tions believe that an organization has a valuable right to jobs through attrition. First Union projects that, after acnegotiate with a depository institution regarding the organi- counting for new jobs and attrition, approximately 1330 zation's support of a depository institution that provides employees will be displaced as a result of the proposal. funding to the community. First Union also intends to provide at least $39 million for First Union has responded that it does not view its a job training and assistance program in order to reduce the agreements as limiting the ability of any party to comment impact of the proposal on affected employees, including in any way to the federal banking agencies, in the applica- providing outplacement services for unemployed Coretion process or otherwise, regarding a proposal involving States employees for a period of one year and making First the acquisition of a bank or branch in the party's home Union's $16 million fund for job retraining available to state.62 First Union also represents that, even outside the CoreStates employees for up to two and one-half years party's home state, the agreements do not limit a party's after their notice of termination. ability to comment to a federal banking agency in the examination process, as part of a CRA evaluation, or in D. Branch Closings any other context outside the application process. In addition, the agreements do not restrict the ability of an organi- First Union and CoreStates together operate 378 branches zation to include comments at any time and in any manner in the Philadelphia banking market, including 64 branches in First Union's public CRA file, or to comment at any in LMI census tracts. First Union has preliminarily identitime on the credit or banking needs of any community, or fied 74 branches that may be consolidated into a nearby to protest any application by First Union if First Union is branch or closed, and approximately 23 branches, includnot in substantial compliance with the agreement. More- ing five branches in LMI areas, that would be divested to over, First Union represents that no agreement restricts the address the competitive effects of the proposal in the Philaability of any party at any time, including in any applica- delphia banking market. First Union has committed that it tion, to criticize First Union's failure to abide by its agree- will not, for at least two years and with two exceptions, ment. close any branch in an LMI census tract or a census tract In light of the above, the Board does not believe that it with a 40 percent or higher minority population in Pennsylshould interfere with these agreements. The Board is not a vania, New Jersey, or Delaware unless another First Union party to agreements between a depository institution and or CoreStates branch that would remain open is within any organization and believes these agreements are private one-third of a mile from the closed branch.66 On this basis, matters between the parties.63 The Board also notes that First Union projects that it will close no more than eight First Union continues to have a responsibility to help serve branches in LMI census tracts in the Philadelphia banking the credit needs of its entire community, including LMI market. After consummation of the proposal, taking into neighborhoods, with or without private CRA agreements. account the divestiture of branches to mitigate competitive Comments Regarding Job Losses. A number of com- effects and branches that are under consideration for conmenters expressed substantial concern about the effect of 64. Several commenters expressed concern that First Union would conduct its layoffs in a discriminatory manner. These commenters 62. First Union has submitted portions of an agreement with a noted First Union's recent settlement of a lawsuit in the District of Pennsylvania community organization as representative of the provi- Columbia that alleged employment discrimination in layoffs after an sion governing protests by organizations with an agreement with First acquisition by First Union. The settlement does not support this Union. First Union has stated that any agreement it has made is allegation. There was no finding or admission of wrongdoing on the governed by the representations discussed above. part of First Union in connection with the settlement. In addition, the 63. One commenter alleged that First Union attempted to intimidate Equal Employment Opportunity Commission has jurisdiction to detera community organization into refraining from providing adverse mine whether companies are in compliance with equal employment information to the Board by threatening to reduce the bank's support opportunity statutes under the regulations of the Department of Labor. of the group's fund-raising efforts and, more generally, the bank's See 41 C.F.R. 60-1.7(a) and 60-1.40. lending in the community. First Union denies that it did or would 65. The effect of a proposed acquisition on employment in a threaten retaliation against a community, and the community organiza- community is not among the factors included in the BHC Act, and the tion in question has indicated that it has reached an agreement with convenience and needs factor has been interpreted consistently by the First Union that would result in an increase in First Union's lending in federal banking agencies, the courts, and Congress to relate to the the area. The Board notes that First Union's record of assisting in effect of a proposal on the availability and quality of banking services serving the credit needs of the community is subject to regular in the community. See Wells Fargo & Company, 82 Federal Reserve examination under the CRA and that diminished or discontinued Bulletin 445, 457 (1996). CRA-related activities in a community will be carefully scrutinized in 66. The two exceptions are not in Philadelphia County. The Board evaluating an institution's record of CRA performance without regard has considered additional confidential information provided by First to the status of privately-negotiated CRA agreements. Union regarding these exceptions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

502 Federal Reserve Bulletin • June 1998 solidation or closure. First Union would continue to oper- The Board expects that First Union will apply its branch ate a total of approximately 281 branches in the market, closing policies in determining whether to close branches including 51 branches in LMI areas. This network of in connection with the proposal. First Union's record of blanches would be the most extensive in the Philadelphia closing branches as a result of this proposal will be subject banking market, including LMI areas in that market. to review by the OCC in connection with its next CRA Before First Union closes a branch, it requires its CRA performance evaluation, and to review by the Board in coordinator for the state in which the branch is located to connection with future applications to establish a deposit arrange for meetings with community organizations to facility. First Union must submit in writing to the Federal discuss the proposed closing and provides these organiza- Reserve Bank of Richmond any changes to its preliminary tions a period of not less than 30 days in which to respond. plans for closing branches in LMI census tracts prior to All responses are documented by the CRA coordinator modifying these plans during the two years after consumand, along with reports reviewing the other factors consid- mation of the proposal. ered, are presented to the state branch closing coordinator for a recommendation. If the recommendation is closure, it E. Conclusion on Convenience and Needs must be approved by the bank's senior management, in- Considerations cluding the board of directors. After a final decision is made, contacts with community organizations are contin- The Board recognizes that this proposal represents a major ued to assist in addressing concerns about the closing. The transaction that will particularly affect communities in the branch closing policies of all First Union's banks have Philadelphia area. Consideration of the effects of the probeen reviewed by the OCC and the FDIC in connection posal on the convenience and needs of these communities with their most recent CRA performance examinations and and other communities served by CoreStates is an imporfound to be satisfactory. tant component of the Board's review of the proposal. Several commenters complained that FU-Summit had a Some commenters have expressed concern about spepoor record of closing branches, particularly in LMI areas cific aspects of First Union's record in certain geographical in New Jersey and Philadelphia. In the 1997 CRA perfor- areas and about whether First Union, with its base in North mance examination, OCC examiners reviewed Carolina, will be responsive to the needs of communities in FU-Summit's record of closing branches, including a re- the Pennsylvania/New Jersey/Delaware area. As explained view of sample branch closing files, and concluded that the above, the information in this case demonstrates that First branch closings were reasonable. Examiners also con- Union has a strong overall record of helping to meet the cluded that the bank's branch network following the clos- convenience and needs of communities that it serves. This ings provided reasonable access to the services of the bank record has been demonstrated over time and through the to all segments of the delineated community. The examin- course of several CRA performance examinations. The ers noted that, after the branch closings, a majority of the record also reflects that First Union has shown a commitbank's branches served LMI census tracts. Many branches ment to address the credit needs of new communities into which it expands. offered extended weekday operating hours and were open on Saturdays. OCC examiners also found the bank's branch The Board also has considered carefully the concerns closing policy to be comprehensive and consistent with expressed by commenters about First Union's lending regulatory guidelines. record, its branch closing plans, the availability of various In addition to these factors, the Board has considered banking products and services to LMI customers and custhat federal banking law provides a specific mechanism for tomers with special needs, and other comments.68 The addressing branch closings. Federal law requires an in- Board has weighed these concerns in light of all the facts sured depository institution to provide notice to the public of record, including the overall CRA record of First Union, and to the appropriate regulatory agency at least 30 days before closing any branch. The requirement applies any time a branch is closed, whether in connection with an tion's written branch closing policy. First Union's branch closing acquisition or at any time after completion of an acquisi- policy follows these procedures. 68. As discussed above, several commenters criticized the basic tion. This requirement for public notice cannot be limited banking accounts offered by First Union and, in particular, questioned by any commitment to the Board or to any community their availability to customers who receive benefits electronically. The organization. The law does not authorize federal regulators Board has considered the full range of credit products and banking to prevent the closing of any branch.67 services provided by First Union, which include products and services that assist in meeting the credit and banking needs of LMI individuals, such as its two basic banking accounts. The Board also has considered revisions proposed by First Union to make its basic banking products more accessible to customers who receive benefits electronically from 67. Section 42 of the Federal Deposit Insurance Act (12US.C. Pennsylvania. There is no evidence in the record that the fees charged § 1831 r-1), as implemented by the Joint Policy Statement Regarding by First Union are based on a factor that would be prohibited under Branch Closings (58 Federal Register 49,083 (1993)), requires that a law. Although the Board has recognized that banks help serve the bank provide the public with at least 30 days notice and the primary banking needs of their communities by making banking services federal supervisor with at least 90 days notice before the date of the available at nominal or no charge, neither the CRA nor the primary proposed branch closing. The bank also is required to provide reasons regulators of the banks involved in this transaction require an instituand other supporting data for the closure, consistent with the institu- tion to limit the fees charged for its services. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 503 reports of examinations for CRA performance, information Section 3(d) of the BHC Act allows the Board to approvided by First Union, and information from other com- prove an application by a bank holding company to acquire menters regarding the record of First Union in meeting the a bank located in a state other than the home state of such credit and banking needs of its communities. The Board bank holding company if certain conditions are met. For also has considered the location of branches that First purposes of the BHC Act, the home state of First Union is Union proposes to maintain and its efforts to assure that its North Carolina, and CoreStates operates in Pennsylvania, products and services are widely available throughout the New Jersey, and Delaware.70 All of the conditions for an entire community it serves. In addition, the Board has interstate acquisition enumerated in section 3(d) of the taken account of the plans announced by First Union to BHC Act are met in this case.71 In view of all the facts of strengthen its record of CRA performance in the communi- record, the Board is legally permitted under section 3(d) of ties served by CoreStates after consummation of the pro- the BHC Act to approve the acquisition. posal. The Board concludes, after considering all of these facts of record, that the convenience and needs factor, Nonbanking Activities including the CRA performance records of the subsidiary banks of First Union and CoreStates, is consistent with First Union also has filed notice, pursuant to section 4(c)(8) approval. of the BHC Act, to acquire the nonbanking subsidiaries of CoreStates and thereby engage in commercial lending, Financial, Managerial, Supervisory, and Interstate trust company functions, financial and investment advisory Factors services, agency transactional services (other than acting as a futures commission merchant), investing and trading The Board has carefully considered the financial and man- activities as a principal, underwriting and dealing in, to a agerial resources and future prospects of First Union, limited extent, certain bank-ineligible securities, credit- CoreStates, and their respective subsidiary banks, and other related insurance underwriting, community development supervisory factors in light of all the facts of record, activities, and data processing activities through an ATM including the public comments.69 The Board notes that the and point-of-sale network. The Board previously has deterbank holding companies and their subsidiary banks are mined by regulation or order that each of these activities is currently well capitalized and are expected to remain so closely related to banking within the meaning of secafter consummation of the proposal. tion 4(c)(8) of the BHC Act.72 First Union proposes to The Board also has considered other aspects of the conduct these activities in accordance with Regulation Y financial condition and resources of the two organizations, and all relevant Board interpretations and orders. the structure of the proposal, and the managerial resources In order to approve the proposal, the Board also must of each of the entities and the combined organization. In determine that the performance of the proposed activities is connection with the Board's assessment of the financial a proper incident to banking, that is, that the proposed and managerial resources of First Union and CoreStates, transaction "can reasonably be expected to produce benethe Board has considered its supervisory experience with fits to the public . .. that outweigh possible adverse effects, the two companies and that of other federal supervisory such as undue concentration of resources, decreased or authorities, including assessments of the organizations' unfair competition, conflicts of interests, or unsound bankefforts to ensure Year 2000 readiness. The Board also has ing practices."73 As part of its evaluation of these factors, considered the financial and other terms in the proposed the Board considers the financial and managerial resources merger agreement between First Union and CoreStates. Based on these and other facts of record, the Board concludes that considerations relating to the financial and 70. A bank holding company's home state is the state in which the managerial resources and future prospects of First Union, operations of the bank holding company's banking subsidiaries were CoreStates, and their respective subsidiaries are consistent principally conducted on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. with approval of the proposal, as are the other supervisory 12U.S.C. § 1841(o)(4)(C). factors that the Board must consider under section 3 of the 71. 12 U.S.C. §§ 1842(d)(l)(A) and (B) and 1842(d)(2)(A) and (B). BHC Act. First Union is adequately capitalized and adequately managed, as defined by applicable law. Neither New Jersey nor Pennsylvania state law imposes age requirements on interstate bank acquisitions, and CoreStates's subsidiary bank in Delaware has been in existence for the minimum period of time necessary to satisfy age requirements 69. These comments included allegations of improper conduct by established by applicable Delaware state law. See Del. Code Ann. officials at a bank acquired by CoreStates, which are the subject of a tit. 5, § 795 (1997) (5 years). On consummation of the proposal, First pending lawsuit, and comments regarding First Union's recent settle- Union and its affiliates would control less than 10 percent of the total ment of an administrative proceeding with the State of Florida involv- amount of deposits of insured depository institutions in the United ing allegations of inadequate disclosures in the sale of nondepository States, and less than 30 percent of the total amount of deposits of investment products and of unlicensed securities brokerage activities. insured depository institutions in each of Pennsylvania, New Jersey, The Board has considered the comments in light of supervisory and Delaware. reports of examination assessing the managerial resources of the 72. See 12 C.F.R. 225.28(b)(l), (5), (6), (7), (8)(ii), (1 l)(i), (12), and institutions involved and the financial resources of First Union in the (14); CoreSiates Financial Corporation, 83 Federal Reserve Bulletin event that damages are awarded to the commenter in the individual 838(1997). lawsuit. 73. See 12 U.S.C. § 1843(c)(8). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

504 Federal Reserve Bulletin D June 1998 of the notificant, its subsidiaries, and any company to be hereby is, approved.76 In reaching its conclusion, the Board acquired; the effect the transaction would have on such has considered all the issues raised in public comments resources; and the management expertise, internal control filed in connection with the proposal in light of the factors and risk management systems, and capital of the entity that the Board is required to consider under the BHC Act conducting the activity.74 For the reasons discussed above, and concludes that the comments do not warrant a delay or and based on all the facts of record, the Board has con- denial of the proposal.77 cluded that financial and managerial considerations are The Board's approval of the proposal is specifically consistent with approval of these notices. conditioned on compliance by First Union with all the The Board also has considered carefully the competitive commitments made in connection with the proposal and effects of the proposed acquisition of CoreStates's non- the conditions in this order, including First Union's divestibanking subsidiaries. The Board notes that the market for ture commitments. The Board's determination on the proeach of the nonbanking services is unconcentrated, and that there are numerous providers of the services. Consummation of the proposal, therefore, would have a de minimis 76. Some commenters requested that formal hearing procedures be effect on competition, and the Board has determined that followed in this case in order to allow commenters to question the proposal would not have a significantly adverse effect witnesses and to compel disclosure of information. Section 3(b) of the BHC Act does not require the Board to hold a public hearing on an on competition in any relevant market. application unless the appropriate supervisory authority for the bank First Union has indicated that the proposal would pro- to be acquired makes a timely written recommendation of denial. The vide added convenience to CoreStates's customers, to First Board did not receive such a recommendation in this case. Under its Union's customers, and to the public by improving conve- rules, the Board may, in its discretion, hold a public hearing or meeting on an application to acquire a bank if a hearing is necessary nience and expanding services available to customers of or appropriate to clarify factual issues related to the application and to both institutions.75 Additionally, there are public benefits to provide an opportunity for testimony, if appropriate. 12 C.F.R. be derived from permitting capital markets to operate so 225.16(e). The Board used its discretion in this case to hold a public that bank holding companies can make potentially profit- meeting and, as discussed in detail throughout this order, the public meeting provided information to clarify factual issues and appropriable investments in nonbanking companies when those ately provided individuals the opportunity to testify. Based on all the investments are consistent, as in this case, with the relevant facts of record, the Board has concluded that a formal public hearing considerations under the BHC Act, and from permitting as advocated by some commenters is not required or warranted in this banking organizations to allocate their resources in the case. manner they consider to be most efficient. The Board also 77. Commenters requested that the Board delay action on the proposal until the Board could conduct on-site surveys to determine believes that the conduct of the proposed activities within the proposal's effects on competition and the convenience and needs the framework established in this order, prior orders, and of local communities. Some commenters believed that the Board Regulation Y is not likely to result in adverse effects, such should not act until the specific locations of the branches to be closed as undue concentration of resources, decreased or unfair were disclosed to the public and subjected to public comment. Other competition, conflicts of interests, or unsound banking commenters requested additional time to respond to information provided to them in the applications process or to negotiate agreements practices, that would not be outweighed by the public with First Union. benefits of the proposal, such as increased consumer conve- The requests for delay do not warrant postponement of the Board's nience and gains in efficiency. Accordingly, based on all consideration of the case. Although the BHC Act does not require it, the facts of record, the Board has determined that the the Board provides a public comment period of at least 30 days in every case involving a bank acquisition in order to allow interested balance of public benefits that the Board must consider persons an opportunity to provide information, analyses, and arguunder the proper incident to banking standard of secments regarding all aspects of the proposal, including the CRA tion 4(c)(8) of the BHC Act is favorable and consistent performance record of an applicant and other relevant companies. In with approval of the proposal. The Board also concludes this case, the Board extended the public comment period to permit that all the factors required to be considered under sec- commenters approximately 57 days in which to comment. The Board also held a public meeting at which more than 80 commenters tion 25 of the Federal Reserve Act and the Board's Regulapresented their views through direct testimony. These commenters tion K are consistent with approval of the acquisition by were granted an additional seven days after the public meeting to First Union of the foreign branches of CoreStates Bank. submit supplemental information. In the Board's view, commenters have had ample opportunity to submit their views, and, in fact, have provided substantial written submissions and oral testimony that has Conclusion been considered carefully by the Board in acting on the application. The Board's Rules of Procedure do not guarantee commenters an Based on the foregoing and all the facts of record, the opportunity to continue the process of submitting additional com- Board has determined that the proposal should be, and ments in rebuttal to an applicant's response after the close of the period for submitting public comments. These rules permit a meaningful opportunity for the public to comment on a proposal within the time constraints of the BHC Act, and comments and responses in this case were submitted in accordance with the Board's rules. For these reasons, and based on a review of all the facts of record, the Board 74. See 12 C.F.R. 225.26. concludes that the record in this case is sufficient to warrant Board 75. Several commenters questioned whether any public benefits consideration and action on the proposal at this time, and that further would result from the proposal on account of the anticipated loss of delay of consideration of the proposal or denial of the proposal on the banking alternatives and increase in fees and maintained that any grounds discussed above or on the basis of informational insufficiency public benefits would accrue only to shareholders and senior officers is not warranted. of CoreStates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 505 posed nonbanking activities also is subject to all the condi- to section 225.28(b)(6) of Regulation Y (12 C.F.R. tions set forth in Regulation Y, including those in sections 225.28(b)(6)). 225.7 and 225.25(c) (12C.F.R. 225.7 and 225.25(c)), and (4) CoreStates Securities Corporation, Philadelphia, and to the Board's authority to require modification or termina- thereby engage in financial and investment advisory activition of the activities of a bank holding company or any of ties, securities brokerage activities, riskless-principal transits subsidiaries as the Board finds necessary to assure actions, providing private placement services and other compliance with, or to prevent evasion of, the provisions transactional services, and investing and trading activities and purposes of the BHC Act and the Board's regulations as a principal, pursuant to sections 225.28(b)(6), (7)(i)-(iii), and orders issued thereunder. For purposes of this action, (7)(v), and (8)(ii) of Regulation Y (12 C.F.R. 225.28(b)(6), the commitments and conditions relied on in reaching this (7)(i)-(iii), (7)(v), and (8)(ii)), and underwriting and dealdecision shall be deemed to be conditions imposed in ing in, to a limited extent, certain municipal revenue bonds, writing by the Board in connection with its findings and 1—4 family mortgage-related securities, consumer decision, and, as such, may be enforced in proceedings receivable-related securities, and commercial paper, as preunder applicable law. viously approved by the Board in CoreStates Financial The acquisition of CoreStates's banks may not be con- Corporation, 83 Federal Reserve Bulletin 838 (1997). summated before the fifteenth calendar day after the effec- (5) Meridian Securities, Inc., Reading, and thereby engage tive date of this order, and the proposal may not be con- in securities brokerage activities, pursuant to section summated later than three months after the effective date of 225.28(b)(7) of Regulation Y (12 C.F.R. 225.28(b)(7)). this order, unless such period is extended for good cause by (6) Pennco Life Insurance Company, Phoenix, Arizona, the Board or the Federal Reserve Bank of Richmond, and thereby engage in underwriting credit-related insuracting pursuant to delegated authority. ance for loans made by affiliates, pursuant to section By order of the Board of Governors, effective April 13, 225.28(b)(ll) of Regulation Y (12 C.F.R. 225.28(b)(l 1)). 1998. (7) Meridian Life Insurance Company, Reading, and thereby engage in underwriting credit-related insurance for Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and loans made by affiliates, pursuant to section 225.28(b)(ll) Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich. of Regulation Y (12 C.F.R. 225.28(b)(l 1)). (8) Princeton Life Insurance Company, Lancaster, and JENNIFER J. JOHNSON thereby engage in underwriting credit-related insurance for Deputy Secretary of the Board loans made by affiliates, pursuant to section 225.28(b)(ll) of Regulation Y (12 C.F.R. 225.28(b)(ll)). (9) CoreStates Community Development Corporation, Inc., Philadelphia, and thereby engage in investments to pro- Appendix A mote community welfare, including acquiring, rehabilitating, and selling real estate to provide affordable housing, A. Nonbanking Subsidiaries of CoreStates Financial Corp1 pursuant to section 225.28(b)(12) of Regulation Y (12 C.F.R. 225.28(b)(12)). (10) Electronic Payment Services, Inc., Wilmington, Dela- (1) Congress Financial Corporation, New York, New York, ware, and thereby engage in processing and transmitting and thereby engage in factoring services, asset based lending, and commercial finance, pursuant to section banking, financial, or economic data through the operation 225.28(b)(l) of Regulation Y (12 C.F.R. 225.28(b)(l)). of a point-of-sale network and automated teller machine (2) Meridian Asset Management, Inc., Valley Forge, and network, pursuant to section 225.28(b)(14) of Regulation thereby engage in non-fiduciary custodian and agency ser- Y (12 C.F.R. 225.28(b)(14)). vices and trust services, pursuant to section 225.28(b)(5) of Regulation Y (12 C.F.R. 225.28(b)(5)), and, through sub- B. Foreign Branches of CoreStates Bank, N.A. sidiaries of Meridian Asset Management, Inc., investment advisory services, pursuant to section 225.28(b)(6) of Reg- (1) Hong Kong: 12/F Asia Pacific, Finance Tower, ulation Y (12 C.F.R. 225.28(b)(6)). 3 Garden Road, Hong Kong, Peoples (3) McGlinn Capital Management, Inc., Reading, and Republic of China. thereby engage in investment advisory services, pursuant (2) London: Centurion House, 24 Monument Street, London, England. (3) Nassau: P.O. Box 6313, Nassau, Bahamas. (4) Taipei: 17th Floor, 44 Ching Shan, North Road, Sec. 2, Taipei, Taiwan. (5) Tokyo: Yamato International Building, 8F, 1. All subsidiaries are in Pennsylvania unless otherwise indicated. Subsidiaries also include their majority owned companies. Nihonbashi, ChuoKu, Tokyo, Japan. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

506 Federal Reserve Bulletin • June 1998 Appendix B son, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Warren, and a portion of A. State Deposit and Ranking Data for New Jersey Mercer Counties in New Jersey; Pike County in Pennsylvaand Delaware nia; and portions of Fairfield and Litchfield Counties in Connecticut. New Jersey (4) Philadelphia: Philadelphia, Bucks, Chester, Delaware, and Montgomery Counties in Pennsylvania; Burlington, First Union is the second largest commercial banking orga- Camden, Gloucester, and Salem Counties in New Jersey; nization in New Jersey, controlling deposits of approxi- and the City of Trenton and the townships of Ewing, mately $13.2 billion, representing 10.3 percent of all de- Hamilton, and Lawrence in Mercer County in New Jersey. posits held by depository institutions in the state ("state (5) Scranton/Wilkes-Barre: Columbia, Lackawanna, Ludeposits"). CoreStates is the sixth largest commercial zerne, Wayne, and Wyoming Counties and the townships banking organization in New Jersey, controlling deposits of Ararat, Auburn, Brooklyn, Clifford, Dimock, Gibson, of approximately $6.2 billion, representing 4.9 percent of Harford, Herrick, Lathrop, Lenox, and Springville in Susstate deposits. On consummation of the proposal, First quehanna County in Pennsylvania. Union would remain the second largest commercial bank- (6) Vineland: Cumberland County in New Jersey. ing organization in the state, controlling deposits of ap- (7) Wilmington: New Castle County in Delaware and Cecil proximately $19.4 billion, representing 15.2 percent of County in Maryland. state deposits in New Jersey. Appendix C Delaware Market data for banking markets, except Philadelphia First Union is the 29th largest commercial banking organi- and Lehigh Valley. zation in Delaware, controlling deposits of approximately $57.9 million, representing less than 1 percent of all state (1) Atlantic City: First Union would control 15.1 percent of deposits. CoreStates is the tenth largest commercial bank- market deposits and would become the second largest of ing organization in Delaware, controlling deposits of ap- 15 depository institutions in the market. The HHI would proximately $828.8 million, representing approximately increase 43 points to 1667. 2 percent of state deposits. On consummation of the pro- (2) Metropolitan New York-New Jersey: First Union would posal, First Union would become the tenth largest deposi- control 4.8 percent of market deposits and would become tory institution in the state, controlling deposits of approxi- the fifth largest of 303 depository institutions in the market. mately $886.7 million, representing 2.1 percent of state The HHI would increase 7 points to 758. deposits in Delaware. (3) Scranton/Wilkes-Barre: First Union would control 8.2 percent of market deposits and would become the third B. Banking Markets Where First Union and largest of 35 depository institutions in the market. The HHI CoreStates Compete would increase 34 points to 996. (4) Vineland: First Union would control 10.8 percent of (1) Atlantic City: Atlantic and Cape May Counties in New market deposits and would become the fourth largest of Jersey. 13 depository institutions in the market. The HHI would (2) Lehigh Valley: Carbon, Lehigh, and Northhampton increase 42 points to 1471. Counties in Pennsylvania. (5) Wilmington: First Union would control 10.6 percent of (3) Metropolitan New York-New Jersey: New York City, market deposits and would become the third largest of Nassau, Orange, Putnam, Rockland, Suffolk, Sullivan, and 20 depository institutions in the market. The HHI would Westchester Counties in New York; Bergen, Essex, Hud- increase 15 points to 2338. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 507 Appendix D Most Recent CRA Performance Ratings of Banks Before the Consolidation of First Union National Bank Bank Agency Rating Date occ First Union National Bank. Outstanding 5/31/97 Charlotte, North Carolina First Union National Bank, occ Outstanding 5/31/97 Jacksonville, Florida First Union National Bank, occ Outstanding 5/31/97 Atlanta, Georgia First Union National Bank, occ Outstanding 5/31/97 Rockville, Maryland First Union National Bank, occ Outstanding 5/31/97 Greenville, South Carolina First Union National Bank, occ Outstanding 5/31/97 Nashville, Tennessee First Union National Bank, occ Outstanding 5/31/97 Roanoke, Virginia First Union National Bank, occ Outstanding 5/31/97 Washington, D.C. First Union National Bank, occ Outstanding 5/31/97 North Summit, New Jersey First Union Bank of FDIC Satisfactory 1/21/97 Connecticut, Stamford, Connecticut First Union Bank of FDIC Satisfactory 10/31/95 Delaware, Wilmington, Delaware Signet Bank, FRB Satisfactory 1/15/96 Richmond, Virginia Signet Bank, N.A. OCC Satisfactory 12/21/92 Washington, D.C. First Union Home Equity OCC Satisfactory 5/31/97 Bank, N.A., Charlotte, North Carolina Boca Raton First National OCC Satisfactory 10/26/95 Bank, Boca Raton, Florida APPLICATIONS APPROVED UNDER BANK HOLDING COMPANY ACT By the Secretary of the Board Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request to the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Section 3 Applicant(s) Bank(s) Effective Date Community Trust Bancorp, Inc.. Community Trust Bank of West Virginia, April 20, 1998 Pikeville, Kentucky N.A., Williamson, West Virginia Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

508 Federal Reserve Bulletin • June 1998 Section 3—Continued Applicant(s) Bank(s) Effective Date Cullen/Frost Bankers, Inc.. Overton Bancshares, Inc, April 10, 1998 San Antonio, Texas Fort Worth, Texas Overton Bancorporation, Fort Worth, Texas Overton Bank and Trust, N.A., Fort Worth, Texas The New Galveston Company, Overton Bancorporation, April 10, 1998 San Antonio, Texas Fort Worth, Texas Overton Bank and Trust, N.A., Fort Worth, Texas Norwest Corporation, First Bank, April 16, 1998 Minneapolis, Minnesota Katy, Texas Norwest Corporation, First Bank of Grants, April 27, 1998 Minneapolis, Minnesota Grants, New Mexico Union Planters Corporation, Peoples First Corporation, April 1, 1998 Memphis, Tennessee Paducah, Kentucky The Peoples First National Bank and Trust Company, Paducah, Kentucky Union Planters Holding Corporation, Peoples First Corporation, April I, 1998 Memphis, Tennessee Paducah, Kentucky The Peoples First National Bank and Trust Company, Paducah, Kentucky Section 4 Applicant(s) Bank(s) Effective Date First Chicago NBD Corporation, Roney & Co., L.L.C. April 9, 1998 Chicago, Illinois Detroit, Michigan National City Corporation, Sterling Ltd. Co., April 2, 1998 Cleveland, Ohio Pepper Pike, Ohio Sterling Management Co., Pepper Pike, Ohio SLC Capital, Inc., Pepper Pike, Ohio Norwest Corporation, Forecast Home Mortgage LLC, April 7, 1998 Minneapolis, Minnesota Los Angeles, California Norwest Corporation, WMC Mortgage Corporation, April 2, 1998 Minneapolis, Minnesota Woodland Hills, California Spring Mountain Escrow Company, Woodland Hills, California Wachovia Corporation, Hunt, Dupree, Rhine & Associates, Inc., April 28, 1998 Winston-Salem, North Carolina Greenville, South Carolina Retirement Plan Securities, Inc., Greenville, South Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 509 Sections 3 and 4 Applicant(s) Bank(s) Effective Date Mercantile Bancorporation Inc., CBT Corporation, April 13, 1998 St. Louis, Missouri Paducah, Kentucky Ameribanc, Inc., Citizens Bank and Trust Company of St. Louis, Missouri Paducah, Paducah, Kentucky Bank of Marshall County, Benton, Kentucky Pennyrile Citizens Bank and Trust Company, Hopkinsville, Kentucky Graves County Bank, Inc., Mayfield, Kentucky United Commonwealth Bank, FSB, Murray, Kentucky 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 America's First Bancorp, Inc., America's First Bank, National Richmond April 8, 1998 Washington, D.C. Association, Washington, D.C. BB&T Corporation, Franklin Bancorporation, Inc., Richmond April 23, 1998 Winston-Salem, North Carolina Washington, D.C. BB&T Financial Corporation of Virginia, Winston-Salem, North Carolina Bethany Bankshares, Inc., Gallatin/New Hampton Bancshares, Kansas City April 1, 1998 Bethany, Missouri Inc., Albany, Missouri BOC Financial Corp., Bank of the Carolinas, Richmond April 9, 1998 Landis, North Carolina Landis, North Carolina Landis Savings Bank, SSB, Landis, Carolina Capitol Bancorp Limited, Biltmore Community Bank, Chicago April 22, 1998 Lansing, Michigan Phoenix, Arizona Sun Community Bancorp Limited, Phoenix, Arizona Capitol Bancorp Limited, Southern Arizona Community Bank, Chicago April 22, 1998 Lansing, Michigan Tucson, Arizona Sun Community Bancorp Limited, Phoenix, Arizona Central Iowa Bancorporation, Conrad Bancorporation, Chicago April 2, 1998 Iowa City, Iowa Conrad, Iowa Community Bank Capital Bank of North Georgia, Atlanta April 1, 1998 Corporation, Alpharetta, Georgia Alpharetta, Georgia Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

510 Federal Reserve Bulletin • June 1998 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Community Banks of Florida, Inc., Community Bank of Naples, N.A., Atlanta April 7, 1998 Naples. Florida Naples, Florida Cumberland Bancorp, Inc., The Bank of Mason, Atlanta April 7, 1998 Carthage, Tennessee Mason, Tennessee Farmers State Corporation, Community Bank New Ulm, Minneapolis April 3, 1998 Mountain Lake, Minnesota New Ulm, Minnesota Firstand Company, First State Bank, Kansas City April 7, 1998 Hordville, Nebraska Hordville, Nebraska First Citizens Bane Corp, The Farmers State Bank of New Cleveland April 7, 1998 Sandusky, Ohio Washington, Ohio, New Washington, Ohio First Neighborhood Bancshares, First Neighborhood Bancshares Inc., Chicago April 16, 1998 Inc., Employee Stock Ownership Toledo, Illinois Plan, The First National Bank of Toledo, Toledo, Illinois Toledo, Illinois The First State Bank of Newman, Newman, Illinois Greenup National Corp., Greenup, Illinois The Greenup National Bank, Greenup, Illinois First York Ban Corp., NebraskaLand National Bank, Kansas City April 17, 1998 York, Nebraska North Platte, Nebraska Flag Financial Corporation, Three Rivers Bancshares, Inc., Atlanta April 22, 1998 LaGrange, Georgia Milan, Georgia Bank of Milan, Milan, Georgia Founders Financial Corporation, Founders Trust Personal Bank, Chicago April 21, 1998 Grand Rapid, Michigan Grand Rapids, Michigan GB&T Bancshares, Inc., Gainesville Bank & Trust, Atlanta April 2, 1998 Gainesville, Georgia Gainesville, Georgia Greater Bay Bancorp, Pacific Rim Bancorporation, San Francisco April 22, 1998 Palo Alto, California San Francisco, California Golden Gate Bank, San Francisco, California Heartland Financial USA, Inc.. New Mexico Bank & Trust, Chicago April 14, 1998 Dubuque, Iowa Albuquerque, New Mexico Heritage Capital Corporation, Heritage Bank of Ashland, Inc., Cleveland April 20, 1998 Ashland, Kentucky Ashland, Kentucky Interchange Financial Services The Jersey Bank for Savings, New York April 21, 1998 Corporation, Montvale, New Jersey Saddle Brook, New Jersey ISB Financial Corp., Conrad Bancorporation, Chicago April 2. 1998 Iowa City, Iowa Conrad, Iowa First State Bank, Conrad, Iowa Kanbanc, Inc., State Bank of Colony, Kansas City April 1, 1998 Kansas City, Missouri Colony. Kansas LB Bancorp, Inc., Liberty Bank, Chicago April 2, 1998 Milwaukee, Wisconsin Milwaukee, Wisconsin Mid-America Bancorp, Inc., Heartland Bank, Kansas City April 10, 1998 Jewell, Kansas Jewell, Kansas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 511 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date NATCOM Bancshares, Inc., National Bank of Commerce in Minneapolis April 15, 1998 Superior, Wisconsin Superior, Superior, Wisconsin Northern Trust Corporation, Trustbank Financial Corporation, Chicago April 17, 1998 Chicago, Illinois Denver, Colorado Trust Bank of Colorado, Denver, Colorado The Peoples BancTrust Company, Elmore County Bancshares, Inc., Atlanta April 15, 1998 Inc., Tallassee, Alabama Selma, Alabama Bank of Tallassee, Tallassee, Alabama Premier Holdings-Nevada, Inc., South Central Texas Bancshares- Dallas April 9, 1998 Carson City, Nevada Delaware, Inc., Wilmington, Delaware Security Bank Holding Company, Family Security Bank, San Francisco April 15, 1998 Coos Bay, Oregon Brookings, Oregon Security Bank Holding Company ESOP, Coos Bay, Oregon Shorebank Corporation, Shorebank Detroit Corporation, Chicago April 9, 1998 Chicago, Illinois Detroit, Michigan Shorebank, Detroit, Michigan Shorebank Detroit Corporation, ShoreBank, Chicago April 9, 1998 Detroit, Michigan Detroit, Michigan OmniBank, River Rouge, Michigan South Tulsa Financial Corporation, Bank South, N.A., Kansas City April 20, 1998 Tulsa, Oklahoma Tulsa, Oklahoma State of Franklin Bancshares, Inc., State of Franklin Savings Bank, Atlanta April 23, 1998 Johnson City, Tennessee Johnson City, Tennessee Texas United Bancshares, Inc., Premier Bancshares, Inc., Dallas April 9, 1998 La Grange, Texas La Grange, Texas South Central Texas Bancshares, Inc.. Flatonia, Texas Traditional Bancorporation, Inc., Traditional Bank of Kentucky, Inc., Cleveland March 23, 1998 Mt. Sterling, Kentucky Lexington, Kentucky Tri-County Financial Group, Inc., Farmers State Bank of McNabb, Chicago April 15, 1998 Mendota, Illinois McNabb, Illinois Section 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Bancshares of Missouri, Inc., Jesse James Festival Grounds, L.L.C., Kansas City April 2, 1998 Kearney, Missouri Kearney, Missouri Bankers Trust New York BT Alex. Brown Incorporated, New York April 6, 1998 Corporation, New York, New York New York, New York NatWest Securities Corporation, New York, New York Carolina First Corporation, Resource Processing Group, Inc., Richmond April 15, 1998 Greenville, South Carolina Columbia, South Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

512 Federal Reserve Bulletin • June 1998 Section A—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Citizens & Northern, First National Bank of Canton, Philadelphia April 10, 1998 Wellsboro, Pennsylvania Canton, Pennsylvania Davis Bancorporation, Inc., FBC Financial Corporation, Kansas City March 24, 1998 Davis, Oklahoma Claremore, Oklahoma Deutsche Bank AG, Roland Berger & Partner Holding New York April 3, 1998 Frankfurt am Main, Federal GmbH, Republic of Germany Munich, Federal Republic of Germany First Centralia Bancshares, Inc., FBC Financial Corporation, Kansas City March 24, 1998 Centralia, Kansas Claremore, Oklahoma Independent Bank Corporation, First Home Financial, Chicago March 31, 1998 Ionia, Michigan Grand Rapids, Michigan Mid-Atlantic Community Johnson Mortgage Company LLC, Richmond March 30, 1998 BankGroup, Inc., Newport News, Virginia Gloucester, Virginia Morrill & Janes Bancshares, Inc., FBC Financial Corporation, Kansas City March 24, 1998 Hiawatha, Kansas Claremore, Oklahoma Morrill Bancshares, Inc., FBC Financial Corporation, Kansas City March 24, 1998 Sabetha, Kansas Claremore, Oklahoma Neighborhood Bancorp, Neighborhood Housing Development San Francisco April 10, 1998 San Diego, California Corporation, San Diego, California New Independent Bancshares, Inc., New Washington Reinsurance St. Louis March 30, 1998 New Washington, Indiana Company, Ltd., New Washington, Indiana Onaga Bancshares, Inc., FBC Financial Corporation, Kansas City March 24, 1998 Onaga, Kansas Claremore, Oklahoma Royal Bank of Canada, CheckFree Corporation, New York March 27, 1998 Montreal, Quebec, Canada Norcross, Georgia Integrion Financial Network, LLC, Atlanta, Georgia Stichting Prioriteit ABN AMRO CheckFree Corporation, Chicago April 10, 1998 Holding, Norcross, Georgia Amsterdam, The Netherlands Stichting Administratiekantoor ABN AMRO Holding, Amsterdam, The Netherlands ABN AMRO Holding N.V., Amsterdam, The Netherlands ABN AMRO North America, Inc., Chicago, Illinois Integrion Financial Network, LLC, Atlanta, Georgia Stichting Prioriteit ABN AMRO Holding, Amsterdam, The Netherlands Stichting Administratiekantoor ABN AMRO Holding, Amsterdam, The Netherlands Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 513 Section 4—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date ABN AMRO Holding N.V., Sage Clearing Limited Partnership, Chicago April 3, 1998 Amsterdam, The Netherlands San Francisco, California ABN AMRO Bank N.V., Sage Clearing Corporation, Amsterdam, The Netherlands San Francisco, California ABN AMRO Incorporated, Chicago, Illinois Union Planters Corporation, Capital Savings Bancorp, Inc., St. Louis April 16, 1998 Memphis, Tennessee Jefferson City, Missouri Union Planters Holding Corporation, Capital Savings Bank, FSB, Memphis, Tennessee Jefferson City, Missouri Westdeutsche Landesbank Thomas Cook Inc., New York March 31, 1998 Girozentrale, New York, New York Dusseldorf, Germany Interpayment Services Limited, London, England APPLICATIONS APPROVED UNDER BANK MERGER ACT By Federal Reserve Banks Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request to the Reserve Banks. Applicant(s) Bank(s) Reserve Bank Effective Date American Bank of Montana, American Bank, Minneapolis April 10, 1998 Bozeman, Montana Whitefish, Montana Bank of Commerce, Rancho Vista National Bank, San Francisco April 17, 1998 San Diego, California Vista, California Colonial Bank, Premier Bank, Atlanta April 15, 1998 Montgomery, Alabama Atlanta, Georgia F&M Bank-Northern Virginia, The Bank of Alexandria, Richmond April 21, 1998 Fairfax, Virginia Alexandria, Virginia Fifth Third Bank of Central The Fifth Third Bank of Kentucky, Cleveland April 9, 1998 Kentucky, Inc., Louisville, Kentucky Paris, Kentucky The Jersey Bank for Savings, Interchange Bank, New York April 21, 1998 Montvale, New Jersey Saddle Brook, New Jersey The Richwood Banking Company, National City Bank of Columbus, Cleveland March 25, 1998 Richwood, Ohio Columbus, Ohio ShoreBank, OmniBank, Chicago April 9, 1998 Detroit, Michigan River Rouge, Michigan Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

514 Federal Reserve Bulletin • June 1998 PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the bankruptcy against the Federal Deposit Insurance Corpora- Federal Reserve Banks in which the Board of Governors is not tion. On November 10, 1997, the court denied appellant's named a party. request for expedited consideration of the appeal. Oral argument is scheduled for May 4, 1998. Research Triangle Institute v. Board of Governors, No. 97- Clarkson v. Greenspan, No. 97-CV-2035 (D.D.C., filed Sep- 1719 (U.S. Supreme Court, filed April 28, 1998). Petition tember 5, 1997). Freedom of Information Act case. On for writ of certiorari to review dismissal by the United January 20, 1998, the Board filed a motion to dismiss the States Court of Appeals for the Fourth Circuit of a contract action. claim against the Board. Bettersworth v. Board of Governors, No. 97-CA-624 (W.D. Inner City Press/Community on the Move v. Board of Gover- Tex., filed August 21, 1997). Privacy Act case. nors, No. 97-1514 (U.S. Supreme Court, filed March 12, Wilkins v. Warren, No. 98-1320 (4th Cir. 1998). Appeal of 1998). Petition for writ of certiorari to review dismissal by District Court dismissal of action involving customer disthe United States Court of Appeals for the District of pute with a bank. Columbia Circuit of a petition for review of a Board order Greeff v. Board of Governors, No. 97-1976 (4th Cir., filed dated May 14, 1997, approving the application of Bane One June 17, 1997). Petition for review of a Board order dated Corporation, Inc., Columbus, Ohio, to merge with First May 19, 1997, approving the application of by Allied Irish USA, Inc., Dallas, Texas. Banks, pic, Dublin, Ireland, and First Maryland Bancorp, Logan v. Greenspan, No. l:98CV00049 (D.D.C., filed Janu- Baltimore, Maryland, to acquire Dauphin Deposit Corporaary 9, 1998). Employment discrimination complaint. tion, Harrisburg, Pennsylvania, and thereby acquire Dau- Goldman v. Department of the Treasury, No. 1-97-CV-3798 phin's banking and nonbanking subsidiaries. (N.D. Ga., filed December 23, 1997). Declaratory judgment Maunsell v. Greenspan, No. 97-6131 (2d Cir., filed May 22, action challenging Federal Reserve notes as lawful money. 1997). Appeal of district court dismissal of action for com- On March 2, 1998, the Board filed a motion to dismiss the pensatory and punitive damages for alleged violations of action. civil rights by federal savings bank. Kerr v. Department of the Treasury, No. CV-S-97-01877- DWH (S.D. Nev., filed December 22, 1997). Challenge to Vickery v. Board of Governors, No. 97-1344 (D.C. Cir., filed income taxation and Federal Reserve notes. May 9, 1997). Petition for review of a Board order dated April 14, 1997, prohibiting Charles R. Vickery, Jr., from Allen v. Indiana Western Mortgage Corp., No. 97-7744 RJK further participation in the banking industry. Oral argument (CD. Cal., filed November 12, 1997). Customer dispute was heard on February 24, 1998, and on March 3, 1998, the with a bank. court of appeals affirmed the Board's order. Patrick v. United States, No. 97-75564 (E.D. Mich., filed November 7, 1997). Action for damages arising out of tax Pharaon v. Board of Governors, No. 97-1114 (D.C. Cir., filed dispute. February 28, 1997). Petition for review of a Board order Leulhe v. Office of Financial Institution Adjudication, No. dated January 31, 1997, imposing civil money penalties and 97-1826 (3d Cir., filed October 22, 1997). Appeal of district an order of prohibition for violations of the Bank Holding Company Act. Oral argument was held on December 8, court dismissal of action against the Board and other Fed- 1997, and on February 10, 1998, the court of appeals eral banking agencies challenging the constitutionality of affirmed the Board's order. On March 26, 1998, petitioner the Office of Financial Institution Adjudication. Oral argufiled a motion for rehearing and rehearing en bane. ment is scheduled for May 23, 1998. Patrick v. United States, No. 97-75017 (E.D. Mich., filed The New Mexico Alliance v. Board of Governors, No. 98- September 30, 1997). Action for damages arising out of tax 1049 (D.C. Cir., transferred as of January 21, 1998). Petidispute. tion for review of a Board order dated December 16, 1996, Artis v. Greenspan, No. 97-5235 (D.C. Cir., filed Septem- approving the acquisition by NationsBank Corporation and ber 19, 1997). Appeal of district court order dismissing NB Holdings Corporation, both of Charlotte, North Caroemployment discrimination class action. lina, of Boatmen's Bancshares, Inc., St. Louis, Missouri. On Towe v. Board of Governors, No. 97-71143 (9th Cir., filed January 21, 1998, the United States Court of Appeals for September 15, 1997). Petition for review of a Board order the Tenth Circuit ordered the petition transferred to the dated August 18, 1997, prohibiting Edward Towe and United States Court of Appeals for the District of Columbia Thomas E. Towe from further participation in the banking Circuit. On March 23, 1998, the Board moved to dismiss industry. the petition. Branch v. Board of Governors, No. 97-5229 (D.C. Cir., filed American Bankers Insurance Group, Inc. v. Board of Gover- September 12, 1997). Appeal of district court order denying nors, No. 96-CV-2383-EGS (D.D.C., filed October 16, motion to compel production of pre-decisional supervisory 1996). Action seeking declaratory and injunctive relief indocuments and testimony sought in connection with an validating a new regulation issued by the Board under the action by Bank of New England Corporation's trustee in Truth in Lending Act relating to treatment of fees for debt Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 515 cancellation agreements. On October 18, 1996, the district individual pending administrative adjudication of civil court denied plaintiffs' motion for a temporary restraining money penalty assessment by the Board. On September 17, order. On April 13, 1998, the district court granted the 1991, the court issued an order temporarily restraining the Board's motion for summary judgment. transfer or disposition of the individual's assets. On March Board of Governors v. Pharaon, No. 91-CIV-6250 (S.D. New 16, 1998, the district court granted in part and denied in part York, filed September 17, 1991). Action to freeze assets of the Board's motion for summary judgment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Al 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 A32 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 A36 Total outstanding Commercial Banking Institutions— 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

A2 Federal Reserve Bulletin • June 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 RE1T Real estate investment trust FHA Federal Housing Administration REMIC Real estate mortgage investment eonduic 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 VA Department of Veterans Affairs GENERAL INFORMATION In many of the tables, components do not sum to totals because of include not fully guaranteed issues) as well as direct obligarounding. tions of the Treasury. 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 Financial Statistics • June 1998 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted' 1997 Monetary or credit aggregate Q3 04 Ql Reserves of depository institutions^ 1 Total -14.3 -1.8 -1.3 -6.1 10.6 8.5 -21.2 -14.1' 9.5 2 Required -15.0 -2.4 -4.1 -6.1 5.1 7.0 -24.5 -7.8' 15.4 3 Nonborrowed -16.0 -3.4 .7 -4.9 13.7 4.1 -18.4 -10.2' 10.0 4 Monetary base3 3.7 6.3 8.1 6.6 10.9 9.9 5.8 3.5 4.0 Concepts of money, liquid assets, and debt SMI -4.5 .3 2.8 8.2 7.6 -3.0 2.8 4.8 6 M2 4.4 5.4 6.8 7.8 7.3 6.8 7.2 9.3 8.1 7 M3 7.7 8.1 10.2' 11.1 12.4' 12.0' 10.6' 8.4' 13.8 8 L 8.4 7.1 9.6' 13.7' 12.7' 13.4' -81.9 n.a. 9 Debt 5.0 4.2 5.7' 6.5 6.2 5.9 6.4 n.a. Nontransaction components 10 InM25 7.9 7.3 9.0 9.6 7.0 6.5 10.9 11.6 9.3 11 In M3 only6 18.9 16.9 20.8' 21.3 28.3' 28.3' 20.7' 5.6' 30.6 Time and savings deposits Commercial banks 12 Savings, including MMDAs 11.0 9.6 16.3 13.6 11.9 13.6 14.5' 13.0' 12.3 13 Small lime7 5.6 7.1 3.1 .8 5.6 1.0 .2 -.2 -.6 14 Large time" 24.1 17.2 14.0 21.1 22.6 19.9 8.5' 30.8' 37.5 Thrift institutions 15 Savings, including MMDAs 6.0 1.0 1.4' 7.6 -.6 5.4' 6.4' 13.6' 11.6 16 Small time7 -2.9 -5.2 -3.5 -.9 -9.0 .0 4.2 -2.8 -5.9 17 Large lime 4.3 9.8 5.3 13.6 11.5 11.4 29.6 2.7 -6.9 Money market mutual funds 18 Retail 13.5 16.0 15.6 19.2 14.4 4.8 22.9 28.0 21.0 19 Institution-only 18.0 19.7 22.0 18.9 7.6 34.5 14.7 12.3 22.5 Repurchase agreements and Eurodollars 20 Repurchase agreements10 6.8 13.4 38.3 32.4 77.9 9.3 52.6 -25.9 87.6 21 Eurodollars10 32.2 18.6' 23.4' 14.6 34.2' 81.01 21.6' -40.0' -42.2 Debt components4 22 Federal .4 -.6 .9 .3 2.2 .0 23 Nonfederal 6.6 5.9 7.4 8.6 7.6 7.9 8.8 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 ail 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 US. 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 lime deposits. seasonally adjusted separately, and adding this result to seasonally adjusted Ml. 8. Large lime deposils 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 al 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' Millions of dollars Average of Average of daily figures for week ending on date indicated dally figures 1998 Jan. Mar. Feb. 11 Feb. 18 Feb. 25 Mar. 4 Mar. 11 Mar. 18 Mar. 25 SUPPLYING RESERVE FUNDS Reserve Bank credit outstanding 468,720 463,965 464,620 466,130 466,322 468.358 466,500 U.S. government securities2 Bought outright—System account3. .. 429,845 427,988 431.767 427,093 428,138 428,618 428,922 430,335 432,541 432,887 Held under repurchase agreements .. 4,155 2,720 2,313 274 2,799 5,743 4,000 2,850 2,216 1,113 Federal agency obligations Bought outright 685 678 641 682 675 675 675 667 625 625 Held under repurchase agreements . . 833 573 1,245 163 617 442 2,008 2.415 1,478 174 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions Adjustment credit 51 6 25 78 15 3 2 19 Seasonal credit 18 11 22 9 12 13 19 20 26 Extended credit 0 0 0 0 0 0 0 0 0 0 Float 1,228 440 464 937 368 134 78 558 532 455 Other Federal Reserve assets 31,769 31,505 31,026 32,087 31.934 30,489 30,625 30,638 30,945 31,201 12 Gold stock 11,046 11,047 11,049 11,046 11.047 11,049 11,050 11,049 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 9,200 14 Treasury currency outstanding 25,544 25,703 25,761 25,690 25,704 25,718 25,732 25,746 25,760 25.774 ABSORBING RESERVE FUNDS 15 Currency in circulation 474,085 471,834 473,771 470.576 473,053 472,853 472,861 473,893 474,061 473,754 16 Treasury cash holdings 224 227 254 223 227 229 241 245 256 260 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 6,507 4,969 5,455 5,062 4,969 4,400 5,447 4,867 6,294 5,181 18 Foreign 188 178 174 163 164 172 216 159 176 164 19 Service-related balances and adjustments ... 7,198 7.063' 6,993 7.117 7,030 6,953 6,990 7,126 6,976 7,003 20 Other 421 395 369 422 404 371 370 376 372 357 21 Other Federal Reserve liabilities and capital . . 16,016 16.114 16,176 16,140 16,154 16,139 16,197 16.409 16,178 16,089 22 Reserve balances with Federal Reserve Banks4 9.971 9.135' 10,302 7,501 8,571 10,979 9,981 10,402 10.055 9,716 End-of-month figures Wednesday figures Feb. 18 Feb. 25 Mar. 4 Mar. Mar. 18 Mar. 25 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 463,567 465,614 475,593 466,801 467,625 476.128 465,074 469,283 472.764 U.S. government securities 2 Bought outright—System account' .... 428,043 428.619 433,182 429,481 428.001 429.189 429,091 432,521 432,708 434.119 3 Held under repurchase agreements 800 3,645 6.846 1.915 4,302 12,080 3,098 6,940 3,001 5,735 Federal agency obligations 4 Bought outright 685 675 625 675 675 675 675 625 625 625 5 Held under repurchase agreements .... 1,268 2,107 1,450 1,140 1,070 1.610 1,415 3,419 1,220 1,045 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 0 2 2 3 4 2 2 8 Seasonal credit 12 27 14 12 13 16 16 23 30 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float 671 -202 1,503 1.053 3,379 1,116 353 386 539 -532 11 Other Federal Reserve assets 32.077 30,757 31,959 32,522 30.184 31.442 30,424 31,084 31,165 31.735 12 Gold stock 11,046 11.050 11.049 11,047 11,048 11,050 11,049 11,050 11,049 11.049 13 Special drawing rights certincate account .... 9.200 9,200 9,200 9,200 9,200 9.200 9,200 9,200 9,200 9,200 14 Treasury currency outstanding 25,676 25,732 25,788 25,690 25,704 25,718 25,732 25,746 25,760 25,774 ABSORBING RESERVE FUNDS 15 Currency in circulation 468.337 472,029 475,091 472.372 474,118 473.257 474,356 475,059 474,719 474,518 16 Treasury cash holdings 220 241 265 227 227 241 243 255 259 265 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 5,552 5.037 5,490 4.401 4.699 4.398 4,778 4,556 5,745 4,819 18 Foreign 215 243 167 152 170 194 242 159 156 159 19 Service-related balances and adjustments .. 7,276 6.9901 6,847 7,117 7,030 6,953 6,990 7,126 6,976 7.003 20 Other 343 349 354 402 405 374 380 379 357 364 21 Other Federal Reserve liabilities and capital . 15,969 16,256 15,708 15,972 15,933 15,931 15,908 16,031 15,879 15,914 22 Reserve balances with Federal Reserve Banks4 11,576 10,449' 17.708 12,095 10,995 20,749 8,157 17,424 11,203 15,745 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 Financial Statistics • June 1998 1.12 RESERVES AND BORROWINGS Depository Institutions1 Millions of dollars Prorated monthly averages of biweekly averages Reserve classification 1995 1996 1997 Dec. Dec. Dec. Sept. Oct. Nov. Dec. Feb.' Mar. 1 Reserve balances with Reserve Banks2 20,440 13,395 10,673 9,742 9,990 10,559 10,673 9,733 9.394 10,140 2 Total vault cash 42,094 44,379 43,970 43,056 41,730 42,114 43,970 46,672 42,562 40,993 3 Applied vault cash4 37.460 37,848 37,206 36,314 35,631 35,892 37,206 37,762 35,580 35,369 4 Surplus vault cash5 4,634 6,532 6,763 6,742 6,099 6,222 6,763 8,910 6,982 5,623 5 Total reserves6 57.900 51,243 47,880 46,056 45,621 46,451 47,880 47,495 44,974 45,509 6 Required reserves 56,622 49,819 46,196 44,761 44,225 44,834 46,196 45,714 43,450 44,191 7 Excess reserve balances at Reserve Banks7 1,278 1,424 1,683 1,295 1,396 1,617 1,683 1,780 1,524 1,319 8 Total borrowings at Reserve Banks8 257 155 324 438 270 153 324 210 58 41 9 Seasonal borrowings 40 68 79 368 227 115 79 18 12 22 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 Feb. 11 Feb. 25 Mar. 11' Mar. 25 Apr. 8 1 Reserve balances with Reserve Banks 11.022 9,678 11,595 11,500 8,176 8,750 9,726 10,210 9,878 10,625 2 Total vault cash3 42,175 44,267 44,058 44,958 48,839 44,560 41,199 41,597 40,594 40,815 3 Applied vault cash4 36,068 36,965 37,692 37,976 37,827 36,462 34,892 35,555 35,154 35,532 4 Surplus vault cash5 6,108 7,302 6,366 6,982 11,012 8,098 6.307 6,042 5,441 5,283 5 Total reserves6 47,090 46.643 49,286 49,476 46,003 45,212 44,618 45,765 45,031 46,157 6 Required reserves 45,357 45.170 47,403 47,659 44,213 43.648 43,132 44,209 43,893 44,854 7 Excess reserve balances at Reserve Banks7 1.733 1.473 1,883 1,817 1,790 1,563 1,485 1.556 1,138 1,302 8 Total borrowings at Reserve Banks 119 240 454 209 242 67 59 19 34 101 9 Seasonal borrowings 95 85 71 22 16 9 13 17 23 30 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 dunng 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 nonbonowed reserves. is, those whose required reserves exceed their vault cash) plus the amount of vault cash applied during Ihe 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 A7 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit Seasonal credit Extended credit :ral Reserve Bank On Previous rate On On Effective date Previous rate 5/8/98 5/8/98 5/8/98 Boston 2/1/96 5.50 6.00 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 5.25 Range of rates for adjustment credit in recent years4 Range (or F.R. Bank Range (or F.R. Bank Range (or F.R. Bank Effective date level)—All of level)—All of Effective date level)—All of F.R. Banks N.Y. F.R. Banks N.Y. F.R. Banks N.Y. In effect Dec. 31, 1977 1981—Nov. 2 13-14 13 18—Aug. 9 . 6-6.5 6.5 6 13 13 6.5 6.5 1978—Jan. 9 . 6-6.5 6.5 Dec. 4 12 12 20 . 6.5 6.5 1989—Feb. 24 6.5-7 7 May 11 . 6.5-7 7 1982—July 20 11.5-12 11.5 27 7 12 . 7 7 23 11.5 11.5 7 July 3 . 7-7.25 7.25 Aug. 2 11-11.5 11 1990—Dec. 19 . 6.5 10 . 7.25 7.25 3 11 11 6.5 Aug. 21 . 7.75 7.75 16 10.5 10.5 1991—Feb. 1 6 Sept. 22 . 8 8 27 1O-10.5 10 4 6-6.5 6 Oct. 16 . 8-8.5 8.5 30 10 10 Apr. 30 6 5.5 20 . 8.5 8.5 Oct. 12 9.5-10 9.5 May 2 5.5-6 5.5 Nov. 1 . 8.5-9.5 9.5 13 9.5 9.5 Sept. 13 5.5 5 3 . 9.5 9.5 Nov. 22 9-9.5 9 17 5-5.5 5 26 9 9 Nov. 6 5 4.5 1979—July 20 . 10 10 Dec. 14 8.5-9 9 7 4.5-5 4.5 Aug. 17 . 10-10.5 10.5 15 8.5-9 8.5 Dec. 20 4.5 3.5 20 . 10.5 10.5 17 8.5 8.5 24 3.5^1.5 3.5 Sept. 19 . 10.5-11 11 3.5 21 . 11 11 1984— Apr. 9 8.5-9 9 1992—July 2 3-3.5 3 Oct. 8 . 11-12 12 13 9 9 7 3 3 10 . 12 12 Nov. 21 8.5-9 8.5 26 8.5 8.5 1994—May 17 3-3.5 3.5 1980—Feb. 15 . 12-13 13 Dec. 24 18 3.5 3.5 19 . 13 13 Aug. 16 3.5-4 4 May 29 . 12-13 13 1985—May 20 7.5-8 7.5 18 4 4 30 . 12 12 24 7.5 7.5 Nov. 15 4-4.75 4.75 June 13 . 11-12 11 17 4.75 4.75 16 . 11 11 1986—Mar. 7 7-7.5 7 July 28 . 10-11 10 10 7 7 1995—Feb. 1 4.75-5.25 5.25 29 . 10 10 Apr. 21 6.5-7 6.5 5.25 5.25 Sept. 26 . 11 11 23. 6.5 6.5 Nov. 17 . 12 12 July 11 6 6 1996—Jan. 31 5.00-5.25 5.00 Dec. 5 . 12-13 13 Aug. 21 5.5-6 5.5 Feb. 5 5.00 5.00 8 . 13 13 22 5.5 5.5 1981—May 5 13-14 14 In effect May 8, 1998 14 14 1987—Sept. 4 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 Financial Statistics • June 1998 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS1 Requirement Type of deposit Percentage of Effective date deposits Net transaction accounts2 1 $0 million-$47.8 million3 3 1/1/98 2 More than $47 8 million4 10 1/1/98 0 12/27/90 0 12/27/90 1. Required reserves must be held in the form of deposits with Federal Reserve Banks succeeding calendar year by 80 percent of the percentage increase in the total reservable or vault cash. Nonmember institutions may maintain reserve balances with a Federal liabilities of all depository institutions, measured on an annual basis as of June 30. No Reserve Bank indirectly, on a pass-through basis, with certain approved institutions. For corresponding adjustment is made in the event of a decrease. The exemption applies only to previous reserve requirements, see earlier editions of the Annual Report or the Federal accounts that would be subject to a 3 percent reserve requirement. Effective 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 11/2 years was reduced from 3 percent to 1 l/l 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 deposiis, 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 l/i years was reduced from 3 against which the 3 percent reserve requirement applies be modified annually by 80 percent of percent to zero on Jan. 17, 1991. the percentage change in transaction accounts held by all depository institutions, determined The reserve requirement on nonpersonal time deposits with an original maturity of V/z 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 l/i years (see note 5). Under the Garn-St Germain Depository Institutions Act of 1982, the Board adjusts the amount of reservable liabilities subject to a zero percent reserve requirement each year for the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A9 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1 Millions of dollars 1997 Type of transaction and maturity Aug. Sept. U.S. TREASURY SECURITIES2 Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 10,932 9,901 9,147 0 0 0 0 4,545 0 0 2 Gross sales 0 0 0 0 0 0 0 0 0 0 3 Exchanges 405,296 426,928 419,347 35,666 28,328 39,313 33,485 26,905 41,731 29,290 4 For new bills 405,296 426,928 418,997 35.666 28,328 39.313 33,485 26,905 41,731 29,290 5 Redemptions 900 0 0 0 0 0 0 0 2.000 0 Others within one year 6 Gross purchases 390 524 5.748 0 644 0 1,462 1,947 0 0 7 Gross sales 0 0 0 0 0 0 0 0 0 0 8 Maturity shifts 43,574 30,512 43,473 7,487 1,596 3,193 5,231 1,748 3.447 6,098 9 Exchanges -35,407 -41,394 -27,499 -2,780 -2,382 -1,267 -4,126 -2,329 -400 -6,128 10 Redemptions 1.776 2,015 0 0 0 416 0 0 478 0 One to five years 11 Gross purchases 5,366 3,898 20,299 0 2,697 0 3,323 4,471 0 0 12 Gross sales 0 0 0 0 0 0 0 0 0 0 13 Maturity shifts -34,646 -25,022 -39,744 -5,247 -1,596 -3,193 -4,883 -1,748 -3,447 -3,213 14 Exchanges .... 26,387 31,459 20,274 1,170 2,382 1,267 1,651 2,329 0 3,383 Five to ten years 15 Gross purchases 1,432 1,116 3,101 0 0 770 485 613 0 0 16 Gross sales 0 0 0 0 0 0 0 0 0 0 17 Maturity shifts -3,093 -5,469 -1,954 -2,240 0 0 31 0 0 -2,884 18 Exchanges 7,220 6,666 5,215 0 0 1,295 0 400 1,420 More than ten years 19 Gross purchases 2,529 1,655 5,827 0 0 648 954 1,214 0 0 20 Gross sales 0 0 0 0 0 0 0 0 0 0 21 Maturity shifts -2,253 -20 -1,775 0 0 0 -379 0 0 0 22 Exchanges . 1,800 3,270 2,360 730 0 0 1,180 0 0 1,325 All maturities Gross purchases 20,649 17,094 44,122 0 3,341 1,418 6.224 12,790 0 0 Gross sales . .. 0 0 0 0 0 0 0 0 0 0 Redemptions ... 2,676 2,015 1,996 0 0 416 0 0 2,478 0 Matched transactions 26 Gross purchases 2,197,736 3,092,399 3,586,584 317,008 311,153 316,425 272,474 353,726 332,581 326,812 27 Gross sales 2,202,030 3,094,769 3,588,905 315.439 312,083 318,485 269,586 355,668 332.795 326,245 Repurchase agreements 28 Gross purchases 331,694 457,568 810,485 54,561 77.109 75,323 73,618 97,932 45.543 33,428 29 Gross sales 328,497 450,359 809,268 50,340 74,960 78,157 73,064 87,160 65,932 30,583 30 Net change in U.S. Treasury securities 16,875 19.919 41,022 5,790 4,560 -3,893 9,666 21,620 -23,080 3,412 FEDERAL AGENCY OBLIGATIONS Outright transactions 31 Gross purchases 0 0 0 0 0 0 0 0 32 Gross sales 0 0 0 0 0 0 0 0 33 Redemptions 1,003 409 1,540 179 105 215 26 10 Repurchase agreements 34 Gross purchases 36,851 75,354 160,409 13,131 9,796 15,639 23,054 20,056 13,107 9,615 35 Gross sales 36,776 74,842 159,369 11,252 11,196 15,157 20,976 21,186 13,232 8,776 36 Net change in federal agency obligations -928 103 -500 1,700 -1,505 267 2,052 -1,130 -125 829 37 Total net change in System Open Market Account. 15,948 20,021 40,522 7,490 3,055 -3,626 11,718 20,490 -23,204 4J41 1. Sales, redemptions, and negative figures reduce holdings of the System Open Market 2. Transactions exclude changes in compensation for the effects of inflation on the principal Account; all odier figures increase such holdings. of inflation-indexed securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic Financial Statistics • June 1998 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements' Millions of dollars Wednesday End of month Account 1998 1998 Feb. 25 Mar. 4 Mar. 11 Mar. 18 Mar. 25 Jan. 31 Feb. 28 Mar. 31 Consolidated condition statement ASSFTS 1 Gold certificate account 11.050 11,049 11,050 11,049 11.049 11,046 11,050 11.049 2 Special drawing rights certificate account 9,200 9,200 9,200 9,200 9,200 9,200 9.200 9.200 3 Coin 569 565 551 536 538 556 588 527 //win i 4 To depository institutions 17 18 18 26 38 24 13 29 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 1 Bought outright 675 675 625 625 625 685 675 625 8 Held under repurchase agreements 1.610 1.415 3,419 1,220 1.045 1,268 2.107 1.450 9 Total U.S. Treasury securities 441,269 432,189 439,461 435,709 439.854 428,843 432,264 440,028 10 Bought outright'1 429.189 429,091 432,521 432,708 434,119 428,043 428,619 433.182 11 Rills 196,057 195,959 195,626 195,812 196,196 194.909 195,488 195,258 12 Notes 172,400 172,400 176,164 176,165 176,435 173.727 172,400 176,436 13 Bonds 60,732 60,732 60,732 60,732 61,488 59.407 60,732 61,488 14 Held under repurchase agreements 12,080 3.098 6.940 3.001 5,735 800 3,645 6,846 15 Total loans and securities 443,571 434,297 443,523 437,579 441,561 430,820 435,058 442,131 16 Items in process of collection 7,199 8,130 7.155 7,193 6,490 5.185 4,488 9,691 17 Bank premises 1.276 1,276 1.279 1,280 1.280 1.273 1.275 1,279 Other assets 18 Denominated in foreign currencies' 17,048 17,208 17.216 17,224 17,232 17,019 17.203 16.711 19 All other4 . . . 13,006 11,860 12.536 12,632 13.191 13.693 12.327 13.930 20 Total assets 502,918 493,586 502,510 496,692 500,541 488,792 491,188 504,519 I.IARII ITIHS 21 Federal Reserve notes 448.349 449.433 450.119 449,753 449.546 443,438 447.126 450.095 23 Tntal deposits 32.440 20,747 29,922 24,224 28,933 24,937 23,155 30,456 23 Depository institutions 27.475 15.346 24,828 17,967 23.590 18,826 17,525 24,445 24 U.S. Treasury—General account 4,398 4,778 4,556 5,745 4.819 5,552 5,037 5.490 25 Foreign—Official accounts 194 242 159 156 159 215 243 167 26 Other 374 380 379 357 364 343 349 354 27 Deterred credit items 6,198 7,498 6,439 6,836 6.148 4.449 4.652 8,260 28 Other liabilities and accrued dividends^ 4,716 4.558 4,840 4,692 4.693 4.635 4,696 4,601 29 Total liabilities 491,704 482,236 491,320 485.505 489,320 477,458 479,628 493,412 30 Capital paid in 5 478 5.479 5,428 5,430 5,454 5,477 5,478 5,471 31 Surplus 5.220 5.220 5.220 5,220 5.220 5,220 5,220 5,202 517 650 542 536 547 636 861 434 33 Total liabilities and capital accounts 502,918 493386 502,510 496,692 500,541 488,792 491,188 504,519 MEMO 34 Marketable U.S. Treasury securities held in custody for foreign and international accounts 606.419 609.177 610,249 613,342 611,157 607,873 605,360 613,236 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Banks) 548,745 549,622 550,756 551,759 552,573 547,998 549.260 553,090 36 1 PSS: Held by Federal Reserve Banks 100,395 100,189 100,637 102,006 103,027 104.561 102,133 102.995 37 Federal Reserve notes, net 448,349 449,433 450,119 449,753 449,546 443.438 447,126 450,095 Collateral held against notes, net 38 Gold certificate account 11,050 11,049 11,050 11.049 11,049 11,046 11,050 11,049 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 428.099 429,183 429,869 429,504 429.297 423.192 426.876 429.846 42 Total collateral 448,349 449,433 450,119 449,753 449,546 443,438 447,126 450,095 1. Some of the data in this lable 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 A11 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding Millions of dollars Wednesday End nf month Type of holding and maturity 1998 1998 Feb. 25 Mar. 4 Mar. 11 Mar. 18 Mar. 25 Jan. 31 Feb. 28 Mar. 31 1 Total loans 17 18 18 26 38 24 62 29 2 Within fifteen days' 12 2 2 26 38 21 56 17 3. Sixteen days to ninety days 5 16 16 n.a n.a. 2 6 12 4 Total US. Treasury securities2 441,269 432,189 439,461 435,709 439,855 428,843 432,264 440,028 5 Within fifteen days' 26.410 17,394 14,600 15,517 18,845 9.133 12.674 20,423 6 Sixteen days to ninety days 91,811 97.786 98.503 93,598 93,078 104.808 103.213 94.170 7 Ninety one days to one year 139.269 132,552 139.638 139,873 140,183 131.151 132.599 I37.R3R 8 One year to five years 94,305 94,983 97.245 97,245 97,246 94.136 94.305 97.095 9 Five years to ten years 39,841 39,841 39.841 39.842 40,125 41.106 39.841 40,126 10 More than ten years 49,633 49,633 49.633 49.633 50,376 48.308 49.633 50,376 11 Total federal agency obligations 2,285 2,090 4,044 1,845 1,670 1,953 2,782 2,075 12 Within fifteen days' 1,660 1,465 3,419 1.220 1,045 1.278 2.157 1.510 13 Sixteen days lo ninety days 44 44 74 74 74 94 J4 14 14 Ninety-one days lo one year 150 150 175 175 175 150 150 175 15 One year to five years 151 151 126 126 126 151 151 126 16 Five years lo ten years 255 255 225 225 225 255 255 225 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 Financial Statistics D June 1998 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1994 1995 1996 1997 Dec. Dec. Dec. Dec. Aug. Sept. Seasonally adjusted ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS1 1 Total reserves3 59.40 56.39 50.06 47.20 47.41 46.67 46.45 46.87 47.20 46.36 45.82 46.18 2 Nonborrowed reserves4 59.20 56.13 49.91 46.87 46.82 46.23 46.18 46.71 46.87 46.15 45.76 46.14 3 Nonborrowed reserves plus extended credit5.... 59.20 56.13 49.91 46.87 46.82 46.23 46.18 46.71 46.87 46.15 45.76 46.14 4 Required reserves 58.24 55.11 48.64 45.51 46.16 45.37 45.06 45.25 45.51 44.58 44.29' 44.86 5 Monetary base6 418.18 434.23 452.47 480.58 467.02 469.68 472.35 476.64 480.58 482.91 484.32 485.95 Not seasonally adjusted 6 Total reserves7 61.13 58.02 51.52 48.56 47.09 46.55 46.16 47.05 48.56 47.50 45.00 45.56 7 Nonborrowed reserves 60.92 57.76 51.37 48.23 46.49 46.11 45.89 46.90 48.23 47.29 44.94 45.51 8 Nonborrowed reserves plus extended credit1. .. 60.92 57.76 51.37 48.23 46.49 46.11 45.89 46.90 48.23 47.29 44.94 45.51 9 Required reserves8 59.96 56.74 50.10 46.87 45.83 45.25 44.77 45.44 46.87 45.72 43.47' 44.24 10 Monetary base 422.51 439.03 456.72 485.47 467.24 468.63 470.70 476.94 485.47 484.42 481.37' 484.04 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS 11 Total reserves" 61.34 57.90 51.24 47.88 46.65 46.06 45.62 46.45 47.88 47.50 44.97 45.51 12 Nonborrowed reserves 61.13 57.64 51.09 47.56 46.05 45.62 45.35 46.30 47.56 47.29 44.92' 45.47 13 Nonborrowed reserves plus extended credit5. .. 61.13 57.64 51.09 47.56 46.05 45.62 45.35 46.30 47.56 47.29 44.92' 45.47 14 Required reserves 60.17 56.62 49.82 46.20 45.39 44.76 44.23 44.83 46.20 45.71 43.45 44.19 15 Monetary base12 427.25 444.45 463.49 491.92 474.01 475.32 477.28 483.50 491.92 491.62 488.43 491.00 16 Excess reserves13 1.17 1.28 1.42 1.68 1.25 1.30 1.40 1.62 1.68 1.78 1.52 1.32 17 Borrowings from the Federal Reserve .21 .26 .16 .32 .60 .44 .27 .15 .32 .21 .06 .04 1. Latest monthly and biweekly figures are available from the Board's H.3 (502) weekly 8. To adjust required reserves for discontinuities that are due to regulatory changes in statistical release. Historical data starting in 1959 and estimates of the effect on required reserve requirements, a multiplicative procedure is used to estimate what required reserves reserves of changes in reserve requirements are available from the Money and Reserves would have been in past periods had current reserve requirements been in effect. Break- Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve adjusted required reserves include required reserves against transactions deposits and nonper- System. Washington, DC 20551. sonal time and savings deposits (but not reservable nondeposit liabilities). 2. Figures reflect adjustments for discontinuities, or "breaks," associated with regulatory 9. The break-adjusted monetary base equals (1) break-adjusted total reserves (line 6), plus changes in reserve requirements. (See also table 1.10.) (2) the (unadjusted) currency component of the money stock, plus (3) (for all quarterly 3. Seasonally adjusted, break-adjusted total reserves equal seasonally adjusted, break- reporters on the "Report of Transaction Accounts, Other Deposits and Vault Cash" and for all adjusted required reserves (line 4) plus excess reserves (line 16). those weekly reporters whose vault cash exceeds their required reserves) the break-adjusted 4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally adjusted, difference between current vault cash and the amount applied to satisfy current reserve break-adjusted total reserves (line 1) less total borrowings of depository institutions from the requirements. Federal Reserve (line 17). 10. Reflects actual reserve requirements, including those on nondeposit liabilities, with no 5. Extended credit consists of borrowing at the discount window under the terms and adjustments to eliminate the effects of discontinuities associated with regulatory changes in conditions established for the extended credit program to help depository institutions deal reserve requirements. with sustained liquidity pressures. Because there is not the same need to repay such 11. Reserve balances with Federal Reserve Banks plus vault cash used to satisfy reserve borrowing promptly as with traditional short-term adjustment credit, the money market effect requirements. of extended credit is similar to that of nonborrowed reserves. 12. The monetary base, not break-adjusted and not seasonally adjusted, consists of (1) total 6. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally reserves (line 11), plus (2) required clearing balances and adjustments to compensate for float adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency at Federal Reserve Banks, plus (3) the currency component of the money stock, plus (4) (for component of the money stock, plus (3) (for all quarterly reporters on the "Report of all quarterly reporters on the "Report of Transaction Accounts, Other Deposits and Vault Transaction Accounts, Other Deposits and Vault Cash" and for all those weekly reporters Cash" and for all those weekly reporters whose vault cash exceeds their required reserves) the whose vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference between current vault cash and the amount applied to satisfy current reserve difference between current vault cash and the amount applied to satisfy current reserve requirements. Since the introduction of contemporaneous reserve requirements in February requirements. 1984, currency and vault cash figures have been measured over the computation periods 7. Break-adjusted total reserves equal break-adjusted required reserves (line 9) plus excess ending on Mondays. reserves (line 16). 13. Unadjusted total reserves (line 11) less unadjusted required reserves (line 14). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A13 1.21 MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES' Billions of dollars, averages of daily figures 1998 1996 1997 Dec. Dec. Jan. Mar. Seasonally adjusted Measures 1 Ml 1,150.7 1.128.7 1,082.8 1,076.0 1.076.0 1,073.3 1,075.8 1,080.1 2 M2 3,503.0 3.651.2 3,826.1 4,040.2 4.040.2 4,064.6 4,096.1 4,123.8 3 M3 4,333.6 4.595.6 4,935.5 5,382.6' 5.382.6' 5,430.2' 5,468.2' 5,530.9 4 L 5,315.8 5,702.2 6,088.3 6,625.8' 6,625.8' 6,700.0' 6,243.0 n.a. 5 Debt 12.998.7 13,699.2 14,419.9 15,152.7' 15,152.7' 15,227.2' 15,308.9 n.a. Ml components 6 Currency3 354.3 372.4 394.9 425.5 425 5 427.5 431.0 432.4 7 Travelers checks4 8.5 8.9 8.6 8.2 8.2 8.2 8.1 8.1 8 Demand deposits5 384.0 391.0 403.6 397.1 397.1 392.7 391.8 390.9 9 Other checkable deposits6 403.9 356.4 275.9 245.1 245.1 244.9 245.0 248.7 Nontransaaion components 10 In M27 2,352.3 2,522.6 2,743.2 2,964.3' 2,964.3' 2,991.3' 3,020.3' 3,043.7 11 In M3 only8 830.6 944.4 1,109.4 1.342.4' 1,342.4' 1.365.6' 1,372.0' 1,407.0 Commercial banks 12 Savings deposits, including MMDAs. . . 752.6 775.0 904.8 1,020.9 1,020.9 1,033.2' 1,044.4 1,055.1 13 Small time deposits9 503.2 575.8 594.5 621.6 621.6 621.7 621.6 621.3 14 Large time deposits10 " 298.7 345.4 413.2 495.8 495.8 499.3' 512.1' 528.1 Thrift institutions 15 Savings deposits, including MMDAs .. . 397.3 359.7 366.9 376.6' 376.6' 378.6 382.9' 386.6 16 Small time deposits9 314.2 357.2 354.3 343.6 343.6 344.8 344.0 342.3 17 Large time deposits10 64.7 74.2 78.0 85.2 85.2 87.3 87.5 87.0 Money market mutual funds 18 Retail 385.0 454.9 522.8 601.6 601.6 613.1 627.4 638.4 19 Institution-only 203.1 253.9 310.3 376.2 376.2 380.8 384.7 391.9 Repurchase agreements and Eurodollars 20 Repurchase agreements12 183.3 194.2 234.8 234.8 245.1 239.8 257.3 21 Eurodollars'2 80.8 113.7 150.3' 150.3' 153.0' 147.9' 142.7 Debt components 22 Federal debt 3,491.9 3,638.5 3,780.0 3,797.3 3,797.3 3,797.4 3,794.9 23 Nonfederal debt 9.506.7 10.060.7 10,639.9 11,355.4' 11,355.4' 11,429.8' 11,514.0 Not seasonally adjusted Measures 24 Ml 1,174.4 1,152.4 1.104.9 1,097 5 1,097.5 1.078.1 1,063.3 1.073.6 25 M2 3,523.4 3,672.0 3,845.4 4.059.2' 4,059.2' 4,066.5' 4,082.8' 4,135.0 26 M3 4,353.2 4,615.2 4,953.4 5,399.9' 5,399.9' 5,434.3' 5,466.0' 5,549.6 27 L 5,344.6 5,732.7 6,116.4' 6,651.7' 6,651.7' 6,701.8' 6,238.9 n.a. 28 Debt 13,000.6 13,699.8 14,419.3 15,151.9' 15,151.9' 15,207.0' 15,268.8 Ml components 29 Currency 357.5 376.2 397.9 429.0 429.0 426.4 428.9 431.5 30 Travelers checks4 8.1 8.5 8.3 7.9 7.9 7.9 7.8 7.9 31 Demand deposits 400.3 407.2 419.9 412.9' 412.9' 396.2 382.9 385.1 32 Other checkable deposits6 408.6 360.5 278.8 247.6 247.6 248.2 243.6 249.2 Nontransaciion components 33 In M27 2,349.0 2,519.6 2,740.5 2,961.7' 2,961.7' 2,987.8' 3,019.5 3,061.3 34 In M3 only8 829.7 943.2 1,108.0 1,340.7' 1,340.7' 1,367.8' 1,383.2' 1,414.6 Commercial banks 35 Savings deposits, ncluding MMDAs 751.7 774.1 903 3 1,019.0 1,019.0 1,028.9 1.039.9 1,060.1 36 Small time deposit9 501.5 573.8 592.7 620.0 620.0 621.3' 621.9' 621.7 37 Large time deposi 298.9 345.8 413.6 496.3 496.3 491.8' 508.6' 526.7 Thrift institutions 38 Savings deposits,including MMDAs. 396.8 359.2 366.4 375.9' 375.9' 377.(1 381.2 388.4 39 Small time deposi 313.2 355.9 353.2 342.7 342.7 344.6 344.1' 342.5 40 Large time deposi 64.8 74.3 78.1 85.3 85.3 86.0 86.9 86.8 Money market mutual funds 41 Retail 385.9 456.4 524.8 604.1 604.1 616.0 632.4 648.6 42 Institution-only 204.6 255.8 312.7 378.9 378.9 389.8 397.7 400.2 Repurchase agreements and Eurodollars 43 Repurchase agreements12 179.6 178.0 188.8 228.2 228.2 243.9 239.8 256.2 44 Eurodollars12 81.8 89.4 114.7 152.0' 152.0' 156.3' 150.3' 144.7 Debt components 45 Federal debt 3,499.0 3.645.9 3,787.9 3,805.8 3,805.8 3,792.5 3.795.3 46 Nonfederal debt. . 9,501.6 10,053.9 10,631.3 11,346.1' 11,346.1' 11,414.5' 11,473.5 Footnotes appear on following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Financial Statistics • June 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 adjusled 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 (US. 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 floai. 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, adjusled (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at dirift institutions. Seasonally month-averaged (dial 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 ai 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 adjusled separately, and adding this result to seasonally share draft account balances, and demand deposits at thrift institutions. adjtisled MI. 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 Liabilities' A. All commercial banks Billions of dollars Monthly averages Wednesday figures Account 1997 1997' 1998' 1998 Mar.' Sept. Oct. Nov. Dec. Jan. Feb. Mar. Mar. 4 Mar. 11 Mar. 18 Mar. 25 Seasonally adjusted Assets 1 Bank credit 3,851.7 4,004.1 4,026.2 4,068.9 4,089.9 4,143.9 4,175.7 4.217.1 4,206.4 4,217.2 4,206.8 4,211.9 2 Securities in bank credit 1,007.8 1,037.0 1,045.4 1,077.0 1,083.8 1.102.7 1,107.8 1,125.9 1,123.9 1,123.9 1,121.4 1,121.3 3 U.S. government securities 704.1 724.3 731.1 742.2 746.6 758.0 766.0 777.4 788.7 778.9 773.2 771.5 4 Other securities 303.7 312.7 314.3 334.9 337.2 344.7 341.8 348.5 335.2 345.0 348.2 349.8 5 Loans and leases in bank credit ... 2,843.9 2,967.1 2,980.7 2.991.9 3.0O6.O 3,041.2 3,067.9 3,091.2 3,082.5 3,093.3 3,085.4 3,090.6 6 Commercial and industrial 799.7 837.5 841.5 844.4 852.2 862.5 870.1 871.0 877.6 875.8 870.4 867.9 7 Real estate .. 1,155.3 1,214.1 1,217.2 1,225.3 1,228.9 12326 1,246.2 1,258.7 1,255.1 1,258.8 1257 3 1,258.6 8 Revolving home equity 87.4 95.8 96.4 97.4 98.4 98.9 99.4 99.2 99.2 99.1 99.1 98.9 9 Other 1 067 9 1,118.3 1,120.8 1.128.0 1 1304 1,133.7 1 1468 1 1595 1 155 9 1,159.6 1 158 1 1 159 7 10 Consumer 516.0 515.1 508.0 507.7 507.7 504.8 503^5 5(&8 505.4 502.7 503^9 5034 11 Security1 86.9 96.1 104.2 99.3 96.8 116.4 118.0 116.9 110.7 116.6 114.0 117.7 12 Other loans and leases 286.0 304.3 309.7 315.2 320.6 324.9 330.1 341.8 333.7 339.4 339.7 343.1 13 Interbank loans 217.5 199.8 200.9 206.0 214.2 204.0 199.0 212.9 204.2 200.3 206.2 223.7 14 Cash assets4 240.3 258.0 265.9 277.4 267.3 268.7 268.8 279.9 271.8 279.3 274.8 284.6 15 Other assets' 271.4 288.0 288.8 294.0 294.6 296.4 297.7 293.6 295.1 295.4 291.8 2S7.9 16 Total assets' 4324.9 4,693.3 4,7253 4,789* 4*09.2 4*56.5 4*84.4 4,946.6 4,920.5 4,9354 4,9218 4,951.3 Liabilities 17 Deposits 2,915.8 3,048.0 3,065.7 3,105.3 3,111.6 3,112.9 3.149.5 3,189.0 3,181.3 3,173.5 3,165.7 3,188.4 18 Transaction 700.0 687.6 685.5 693.0 686.8 678.2 6846 6954 6896 686.4 684.8 7040 19 Nontransaction 2,215.8 2,360.4 2,380.2 2,412.3 2,424.8 2.434.7 2,4*4.8 2.493.5 2,491.8 2,487.2 2,480.9 2.484.3 20 Large time 551.9 612.2 619.8 633.1 636.8 642.2 658.6 672.9 664.4 669.7 670.5 675.0 21 Other 1,663.9 1,748.2 1,760.4 1,779.2 1,788.0 1,792.5 1,806.3 1 820 7 1,827.3 1,817.4 1,810.3 1,809.3 22 Borrowings 736.7 771.0 800.2 814.0 818.8 824.9 856.9 848.2 846.2 854.6 861.0 23 From banks in the US 308.3 295.3 292.9 300.3 304.2 290.9 292.1 307.0 299.6 302.3 292.1 313.1 24 From others 428.4 475.6 507.3 513.7 514.6 534.0 534.0 549.9 548.6 543.9 562.5 547.9 25 Net due to related foreign offices 220.2 204.7 196.4 192.3 202.4 231.7 222.8 200.4 204.1 222.2 206.1 190.0 26 Other liabilities 274.0 270.8 282.8 293.6 293.8 306.2 300.7 292.9 299.5 299.7 285.1 283.7 27 Total liabilities 4,146.7 4,294.4 4345.1 4,405.2 4,426.6 4475.7 4499.1 4339.2 4333.1 4341.6 43113 4323.1 28 Residual (assets less liabilities)7 378.2 398.9 380.2 384.6 382.6 380.8 385.3 407.3 387.4 393.9 411.3 428.3 Not seasonally adjusted Assets 29 Bank credit 3,842.4 3,996.7 4.031.0 4,076.6 4,099.5 4,151.2 4,173.1 4,207.5 4,208.4 4.206.9 4,197.5 4,190.8 30 Securities in bank credit 1,009.2 1,028.8 1,043.7 1,076.6 1,078.9 1,103.3 1,111.3 1,127.2 1,129.6 1,128.4 1,121.7 1,115.7 31 U.S. government securities 706.5 720.3 729.6 743.7 744.6 754.7 765.0 780.7 790.5 781.6 776.6 773.6 32 Other securities 302.8 308.4 314.0 332.9 334.4 348.5 346.3 346.5 339.1 346.9 345 1 342.0 33 Loans and leases in bank credit2 . . . 2,833.2 2,967.9 2,987.4 3,000.0 3.020.6 3,048.0 3,061.8 3,080.3 3,078.8 3,078.5 3,075.8 3,075.2 34 Commercial and industrial 803.0 832.5 839.4 843.1 850.4 860.2 869.9 874.5 880.5 875.3 874.7 871.6 35 Real estate 1,149.3 1,218.7 1,223.4 1.231.5 1,232.3 1,232.7 1.240.9 1,252.1 1,249.0 1.253.6 1,250.5 1,250.8 36 Revolving home equity 86.6 96.5 97.2 98.1 98.7 99.1 99.0 98.1 98.5 98.3 98.1 97.7 37 Other 1,062.7 1,122.2 1.126.2 1,133.4 1,133.6 1,133.5 1,141.9 1,154.0 1,150.5 1,155.3 1.152.4 1,153.0 38 Consumer 509.6 517.9 509.9 510.3 514.0 511.6 503.0 496.3 500.7 496.3 497.2 496.4 39 Security3 87.6 93.9 104.4 100.1 99.3 116.6 119.5 117.8 114.9 117.1 116.0 117.6 40 Other loans and leases 283.8 304.9 310.3 315.0 324.5 326.9 328.4 339.6 333.7 336.2 337.3 338.8 41 Interbank loans 216.4 195.2 196.9 211.4 223.7 211.0 202.0 212.5 210.8 202.5 205.5 213.1 42 Cash assets4 231.0 256.0 270.0 287.5 286.8 280.0 268.9 268.3 265.3 266.1 265.2 262.2 43 Other assets5 271.1 289.0 288.0 295.1 294.9 294.8 298.8 293.4 298.1 296.4 290.6 285.9 44 Total assets6 4305.1 4,680.0 4,7293 4*13* 4,848.2 4*80.7 4*86.2 4,925.0 4,925.7 4,915.1 4,902.1 4*95.4 Liabilities 45 Deposits 2,9064 3,050.5 3,068.6 3,123.4 3,144.0 3,119 0 3,136.7 3,179.8 3,181.8 3,168.1 3,156.1 3.153.6 46 Transaction 687.8 682.8 681.8 703.8 721.0 6902 677.9 683.1 687.4 673.8 672.0 670.3 47 Nontransaction 2,218.6 2,367.7 2,386.8 2,419.6 2,422.9 2,428.8 2,458.8 2,496.6 2.494.4 2,494.4 2.484.1 2,483.3 48 Large time 550.3 613.9 623.6 638.8 641.3 640.5 657.5 670.3 664.1 668.0 667.6 672.5 49 Other 1,668.2 1,753.8 1,763.3 1,780.8 1,781.6 1,788.3 1,801.3 1.826.3 1,830.4 1,826.3 1,816.5 1,810.8 50 Borrowings . . 729.3 773.1 796.3 811.5 816.8 831.3 826.6 848.9 842.6 829.7 852.5 855.3 51 From banks in the U S 305.5 294.2 289.5 300.6 307 9 294.4 293.0 304.6 2987 297.5 291.3 311.0 52 From others 423.8 478.9 506.8 510.9 508.8 536.9 533.6 544.3 543.8 532.2 561.2 544.4 53 Net due to related foreign offices .... 219.0 204.3 193.7 188.4 200.3 231.8 2209 198.8 197.4 213.5 203.3 198.1 54 Other liabilities 274.2 270.6 282.5 295.2 294.7 306.2 301.9 293.1 300.8 300.5 2S5.2 283.7 55 Total liabilities 4,128.9 4,2983 4341.1 4.418.5 4,455.8 4,4883 4,486.2 43203 4322.6 4311.8 4,497.1 4,490* 56 Residual (assets less liabilities)7 376.1 381.5 388.4 395.4 392.4 392.4 400.0 404.4 403.1 403.3 405.0 404.7 MEMO 57 Revaluation gains on off-balance-sheet items^ 91.4 80.8 79.8 84.3 82.7 92.8 87.8 87.5 82.8 89.8 86.8 84.1 58 Revaluation losses on off-balancesheet items8 87.3 81.8 81.4 85.6 86.0 95.6 90.1 89.6 84.4 91.7 89.2 85.7 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics • June 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued B. Domestically chartered commercial banks Billions of dollars Monthlyaverages Wednesd.y figures Account 1997 1997' 1998' 1998 Marl Sept. Oct. Nov. Dec. Jan. Feb. Mar. Mar. 4 Mar. 11 Mar. 18 Mar. 25 Seasonally adjusted Assets ] Bank credit 3,329.0 3.466.8 3,486 9 3,519.5 3.545.1 3,577.4 3 608 1 3 652 1 3,632 9 3,644.6 3 653.7 3,651.5 2 Securities in bank credit 840.0 857.4 868.9 883.9 896.1 911.6 916.1 929.8 924.8 927.6 935.4 926.4 3 U.S. government securities 625.0 641.8 650.5 662.9 670.4 678.6 683.6 691.3 694.2 692.5 697.1 687.5 4 Other securities 215.0 215.6 218.5 221.0 225.7 232.9 232.4 238.5 230.6 235.1 238.3 238.9 5 Loans and leases in bank credit- 2,489.0 2,609.4 2,617.9 2,635.6 2,649.0 2,665.8 2,692.0 2,722.4 2,708.1 2,717.0 2,718.3 2,725.1 6 Commercial and industrial 581.9 615.3 619.0 622.9 630.8 638.9 646.9 650.0 650.4 648.4 649.3 650.3 7 Real estate 1.123.4 1,186.1 1.189.8 1,198.7 1.202.9 1.206.1 1,220.2 1,234.0 1,229.6 1,233.3 1,232.6 1,234.5 8 Revolving home equity 87.4 95.8 96.4 97.4 98.4 98.9 99.4 99.2 99.2 99.1 99.1 98.9 9 Other 1,036.0 1,090.3 1,093.3 1,101.3 1,104.5 1,107.2 1,120.8 1,134.8 1,130.4 1,134.2 1,133.4 1,135.6 10 Consumer 516.0 515.1 508.0 507.7 507.7 504.8 503.5 502.8 505.4 502.7 TO3.9 503.4 11 Security3 47.2 52.5 57.5 57.6 53.0 61.5 63.2 68.0 61.2 67.7 66.5 69.1 12 Other loans and leases 220.6 240.5 243.6 248.7 254.6 254.6 258.2 267.6 261.5 264.9 266.0 267.7 13 Interbank loans 194.5 181.4 180.4 182.4 183.0 176.2 174.4 192.3 188.0 183.8 182.7 200.0 14 Cash assets4 207.3 223.8 231.6 242.5 233.8 236.5 236.8 246.4 239.7 246.3 241.9 250.2 15 Other assets^ 231.1 245.2 246.5 249.3 252.6 255.2 256.0 251.5 254.0 251.7 250.4 246.4 16 Total assets6 3,906.1 4,060.8 4,089.1 4,137.4 4,158.1 4,189.0 4,218.8 4,285.7 4,257.9 4,269.8 4,272.3 4,291.6 Liabilities 17 Deposits 2,674.1 2,784.8 2,798.0 2,832.4 2,839.1 2,841.1 2,866.4 2,901.6 2,896.1 2,888.4 2,881.9 2,901.3 18 Transaction 689.7 676.5 675.0 682.7 677.0 668.2 674.6 685.0 679.4 675.8 675.1 693.8 19 Nontransaction 1,984.4 2,108.2 2,123.0 2,149.7 2,162.1 2,173.0 2,191.8 2,216.7 2,216.7 2,212.7 2.206.8 2.207.5 20 Large time 324.6 360.7 365.7 373.9 376.9 382.3 387.1 397.7 391.2 397.2 398.0 399.5 21 Other 1,659.8 1.747.6 1,757.3 1 775.8 1.785.2 1,790.7 1,804.7 1.819.0 1,825.5 1,815.4 1,808.8 1,808.0 22 Borrowings 602.2 626.3 644.3 657.7 669.3 676.0 682.0 703.6 695.6 700.4 710.3 705.5 23 From banks in the US 274.8 260.4 259.1 271.3 278.3 267.5 269.5 281.2 274.4 279.7 272.4 286.3 24 From others 327.4 365.9 385.2 386.3 391.0 408 5 412.5 422.4 421 2 420.7 437 9 419.2 25 Net due to related foreign offices 72.9 79.1 77.9 75.2 80.8 91.2 87.7 81.7 73.5 85.3 80.6 84.0 26 Other liabilities 181.2 176.6 191.2 197.6 198.2 209.7 203.2 198.9 204.6 201.5 193.2 193.5 27 Total liabilities 3,530.4 3,66«.8 3,711.5 3,762.9 3,787.4 3,818.1 3,839.3 3,885.9 3.869.8 3,875.6 3,865.9 3,884.3 28 Residual (assets less liabilities)7 375.7 394.1 377.5 374.5 370.7 370.8 379.5 399.8 388.1 394.2 406.3 407.2 Not seasonslly adjusted Assets 29 Bank credit 3,319.6 3,462.3 3,491.9 3.532.4 3,555.7 3.587.8 3,606.1 3.642.9 3.631.8 3,636.2 3,643.8 3,633.4 30 Securities in bank credit 842.8 850.5 866.4 887.1 895.1 917.4 922.6 933.1 931.0 933.7 936.8 925.5 31 U.S. government securities 626.7 637.7 648.5 663.3 668.6 677.3 683.3 693.8 695.4 694.1 698.5 689.5 32 Other securities 216.2 212.8 217.8 223.8 226.4 240.1 239.3 239.2 235.6 239.6 238.4 236.1 33 Loans and leases in bank credit2 2,476.8 2,611.8 2,625.5 2,645.3 2.660.7 2,670.3 2,683.5 2,709.8 2,700.8 2,702.4 2,707.0 2,707.8 34 Commercial and industrial 584.5 611.3 617.2 621.9 628.2 635.7 645.7 652.9 652.5 648.8 652.8 653.2 35 Real estate 1,117.3 1.190.7 1,195.7 1,204.6 1,206.3 1,206.1 1.214.7 1.227.4 1,223.2 1,228.0 1,225.7 1,226.8 36 Revolving home equity 86.6 96.5 97.2 98.1 98.7 99.1 99.0 98.1 98.5 98.3 98.1 97.7 37 Other 1,030.8 1,094.2 1,098.4 1,106.5 1.107.6 1,107.0 1,115.8 1,129.3 1,124.7 1,129.7 1,127.6 1,129.0 38 Consumer 509.6 517.9 509.9 510.3 514.0 511.6 503.0 496.3 500.7 496.3 497.2 496.4 39 Security' 47.3 50.6 57.6 58.6 54.3 61.6 64.5 68.2 64.2 68.0 67.8 68.1 40 Other loans and leases 218.1 241.3 245.1 249.9 257.9 255.4 255.5 265.1 260.3 261.4 263.4 263.4 41 Interbank loans 193.4 176 7 176.4 187.7 192.5 183 1 177.4 191 9 194 7 186.0 182.1 189.4 42 Cash assets4 198.9 221.7 235.4 251.8 251.7 247.8 237.5 236.0 234.1 234.3 233.5 229.0 43 Other assets' 230.9 246.2 246.7 249.8 252.2 253.3 255.7 251.3 255.0 250.9 249.4 245.6 44 Total assets' 3,887.1 4,050.3 4,094.2 4,165.2 4,195.6 4,215.9 4,220.3 4,265.5 4,258.8 4,250.7 4,252.3 4,240.9 Liabilities 45 Deposits 2,664.0 2,786.0 2,801.2 2,851.1 2,868.3 2,849.2 2,855.9 2,891.2 2,897.4 2,883.3 2,871.1 2,863.0 46 Transaction 677.5 671.3 671.3 693.6 710.7 680.2 668.2 672.8 677.5 663.4 662.4 660.1 47 Nontransaction 1,986.4 2,114.7 2,129.8 2,157.5 2,157.6 2,168.9 2,187.7 2,218.4 2,220.0 2,219.9 2 208 7 2 202 9 48 Large time 321.6 363.4 368.7 378.3 377.2 381.6 387.4 393.1 390.6 394.6 393.2 '393.0 49 Other 1,664.8 1,751.3 1 761 2 1,779.2 1,780.4 1,787.4 1,800.3 1,825.3 1.829.4 1.825.4 1,815.5 1 809 8 50 Borrowings 594.9 628.5 640.5 655.2 667.3 682.4 682.6 695.5 690.0 684.0 708.2 699.9 51 From banks in the US 272.1 259.4 255.7 271.6 282.1 271.0 270.4 278.8 273.5 274.9 271.6 284.2 52 From others 322.8 369.1 384.8 383.5 385.2 411.5 412.2 416.8 416.5 409.0 436.6 415.7 53 Net due to related foreign offices 72.5 80.2 76.0 70.6 73.8 86.5 84.5 80.9 69.5 83.3 79.8 86.1 54 Other liabilities 181.2 176.6 191.2 197.6 198.2 209.7 203.2 198.9 204.6 201.5 193.2 193.5 55 Total liabilities 3,512,6 3,671.3 3,708.9 3,774.5 3,807,6 3,827.8 3,826.2 3,866.6 3,861.5 3,852.1 3,852.3 3,842.5 56 Residual (assets less liabilities)7 374.6 379.0 385.3 390.7 388.0 388.0 394.1 399.0 397.3 398.6 400.0 398.4 MEMO 57 Revaluation gains on off-balance-sheet items8. 49.0 37.5 38.2 41.5 41.3 50.1 47.3 47.5 43.9 48.9 47.3 45.7 58 Revaluation losses on off-balancesheet items* 43.2 40.0 41.3 43.6 44.2 52.9 49.5 49.8 46 2 51.4 50.0 47.7 59 Mortgage-backed securities9 248.8 259.3 265.9 275.3 281.2 289.8 294.1 299.6 298.5 296.9 302.1 300.1 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A17 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued C. Large domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures Account 1997 1997' 1998r 1998 Mar.' Sept. Oct. Nov. Dec. Jan. Feb. Mar. Mar. 4 Mar. 11 Mar. 18 Mar. 25 Season*lly adjusted Assets 1Bank credit 2,001.5 2,063.1 2,076.6 2,091.9 2,105.8 2,134.8 2,159.9 2,199.5 2.176.8 2,190.9 2,203.5 2,201.4 2 Securities in bank credit 444.7 454.0 462.7 473.9 482.9 500.9 506.9 518.7 510.4 514.6 525.8 517.9 3 U.S. government securities 310.5 320.8 327.0 337.5 342.8 353.4 360.0 368.3 367.0 367.2 375.2 367.0 4 Trading account 18.7 23.4 25.0 26.7 27.3 29.1 28.0 27.5 27.9 27.8 28.6 27.6 5 Investment account 291.8 297.3 302.0 310.9 315.4 324.3 332.1 340.8 339.0 339.4 346.6 339.4 6 Other securities 134.2 133.2 135.7 136.3 140.1 147.5 146.8 150.5 143.5 147.4 150.6 150.9 7 Trading account 68.9 61.7 63.6 63.7 63.7 69.9 67.9 71.2 66.1 70.4 71.3 71.1 8 Investment account 65.3 71.5 72.1 72.6 76.5 77.7 79.0 79.2 77.4 77.0 79.3 79.8 9 State and local government. . 21.0 22.2 22.3 22.3 22.1 22.5 22.7 22.8 22.7 22.6 22.8 22.9 10 Other 44.3 49.3 49.8 50.3 543 55.1 56.2 564 54.7 544 565 57.0 11 Loans and leases in bank credit2 . .. 1,556.8 1,609.1 1,613.9 1,618.0 1,622.9 1,633.9 1,653.0 1,680.8 1,666.3 1,676.3 1,677.6 1,683.5 12 Commercial and industrial 413.1 434.3 436.9 438.9 445.7 451.8 458.3 461.1 4619 460.1 460.7 461.1 13 Bankers acceptances 1.8 1.5 1.3 1.3 1.2 1.2 1.2 1.3 1.2 1.2 1.2 1.2 14 Other 411.3 432.8 435.6 437.6 444.5 450.6 457.0 459.9 461.9 460.2 460.7 461.0 15 Real estate 635.0 649.6 649.4 6506 649.6 647.2 6564 668.2 664.5 6677 667.4 668.3 16 Revolving home equity 62.2 67.3 67.7 68.2 68.8 69.4 69.8 69.7 69.7 69.7 69.7 69.4 17 Other 572.8 582.3 581.7 582.4 580.8 577.8 586.6 598.5 594.8 598.0 597.7 598.9 18 Consumer 308.0 303.2 298.9 296.6 295.2 294.0 293.0 294.4 295.2 293.8 295.1 295.1 19 Security* 42.4 47.7 52.4 52.1 47.3 55.9 57.4 61.8 54.9 61.5 60.4 63.1 20 Federal funds sold to and repurchase agreements with broker-dealers 25.9 30.8 35.3 35.7 30.9 39.5 All 43.7 39.1 42.7 42.5 44.8 21 Other 16.5 16.9 17.1 16.4 16.4 16.4 16.2 18.1 15.9 18.8 17.9 183 22 State and local government 11.4 11.3 11.1 11.0 10.9 10.8 10.8 10.6 10.6 10.6 10.6 10.5 23 Agricultural 9.2 9.2 9.3 9.6 9.6 9.5 9.5 9.6 9.5 9.6 9.6 9.6 24 Federal funds sold to and repurchase agreements with others 6.4 7.4 8.9 8.9 11.1 7.7 6.1 7.1 6.5 6.0 7.5 7.2 25 All other loans 63.8 69.2 68.6 71.2 72.3 73.2 76.7 81.3 77.6 80.9 79.8 81.5 26 Lease-financing receivables 67.6 77.2 78.4 79.2 81.1 83.7 84.8 86.7 85.6 86.0 86.5 87.0 27 Interbank loans 145.3 127.5 124.0 126.6 127.0 119.8 1171 127.2 126.2 122.7 118.0 132.2 28 Federal funds sold to and repurchase agreements with commercial banks 95.6 80.7 77.7 81.9 82.2 76.3 68.9 80.3 75.5 76.3 73.2 87.3 29 Other 49.7 46.8 46.3 44.7 44.8 43.4 48.2 46.9 50.7 46.4 44.8 449 30Cash assets4 142.5 153.2 160.9 169.8 162.1 164.5 163.9 172.7 167.1 172.7 170.4 176.6 31Other assets-^ 177.2 182.7 184.6 184.6 189.6 191.3 190.7 186.5 190.0 186.1 186.3 182.3 32Total assets6 2,4293 2,489.8 2,509.4 2^47.8 2^73.6 2394^ 2,649.0 2,623.1 2,635.6 2,641.4 2,655.7 Liabilities 33Deposits 1,498.5 1,524.6 1,531.7 1,554.1 1,555.4 1,554.0 1,573.0 1,600.7 1,594.8 1,591.6 1,587.4 1,602.0 34 Transaction 396.4 377.2 376.0 382.4 378.4 370.9 375.1 382.7 378.6 377.3 375.9 387.5 35 Nontrans action 1,102.1 1,147.4 1 155 7 1 171.7 1,176.9 1,183.1 1,197.8 1,218.0 1,216.2 1,214.3 1,211.5 1,214.5 36 Large time 171.4 197.3 200.5 206.5 209.1 213.7 216.3 226.5 220.1 226.2 2274 228.6 37 Other 930.7 950.2 955.2 965.2 967.8 969.4 981.5 991.5 996.1 988.2 9841 985.9 38Borrowings 457.3 471.8 490.7 503.5 511.3 517.8 522.8 542.2 534.7 537.2 549.2 544.8 39 From banks in the U S 200.4 185.4 187.9 200.6 205.7 195.1 196.9 208.8 202.2 207.1 200.4 213.8 40 From others 256.9 286.3 302.9 302.9 305.6 322.7 325.9 333.3 332.6 330.1 348.8 331.1 41 Net due to related foreign offices 68.9 74.2 72.8 70.2 76.5 87.0 81.6 77.6 69.3 80.7 76.2 80.5 42 Other liabilities 156.0 149.3 163.4 168.8 169.1 180.9 173.8 168.5 174.4 171.3 162.7 162.8 43 Total liabilities 2,180.7 2^58.6 2^96.7 23123 2339.7 2351.2 2389.0 23733 2380.9 23754 239O.I 44 Residual (assets less liabilities)7 248.6 269.9 250.8 239.6 235.5 233.9 243.6 259.9 249.8 254.7 265.9 265.6 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Financial Statistics • June 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued C. Large domestically chartered commercial banks—Continued Monthly averages Wednesdly figures Account 1997 1997' 1998' 1998 Mar.' Sept. Oct. Nov. Dec. Jan. Feb. Mar. Mar. 4 Mar. 11 Mar. 18 Mar. 25 Not seasonally adjusted Assets 45 Bank credit 1,995.8 2,056.0 2,081.6 2 105.3 2,115.8 2,150.4 2,166.4 2,193.9 2,184.3 2,189.0 2,197.4 2,184.6 46 Securities in bank credit 446.1 447.6 462.9 480.1 483.7 508.3 515.5 520.6 518.9 521.0 526.0 513.8 47 U.S. government securities 311.0 316.9 327.2 340.7 342.6 353.4 361.8 369.7 370.6 369.2 375.4 366.0 48 Trading account 19.2 23.4 26.1 28.0 26.9 28.2 28.4 2S.3 30.6 29.9 29.8 26.5 49 Investment account 291.7 293.5 301.1 312.7 315.6 325.3 333.4 341.3 339.9 339.3 345.6 339.5 50 Mortgage-backed securities. 187.8 192.7 198.3 206.9 211.7 219.8 222.6 227.3 225.7 224.1 229.4 227.7 51 Other 103.9 100.8 102.8 105.8 104.0 105.5 110.8 114.1 114.3 115.3 116.2 111.8 52 One year or less 27.8 27.9 26.5 29.1 27.7 26.6 28.5 29.2 29.6 30.8 29.8 28.2 53 Between one and five years 59.0 50.1 53.1 53.9 53.6 52.5 51.6 51.6 51.7 51.5 52.5 50.3 54 More than five years 17.2 22.9 23.3 22.9 22.6 26.4 30.7 33.3 32.9 32.9 33.9 33.4 55 Other securities 135.1 130.7 135.7 139.4 1412 154.9 153.7 1510 148.3 151.8 150.6 147 7 56 Trading account 69.8 59.4 63.3 65.9 63.9 76.6 74.6 71.7 70.7 74.5 71.2 68.0 57 Investment account 65.3 71.3 72.3 73.5 77.2 78.3 79.1 79.3 77.7 77.3 79.4 79.7 58 State and local government .. 20.9 22.3 22.4 22.3 22.2 22.5 22.7 22.7 22.7 22.6 22.7 22.8 59 Other 44.4 49.0 50.0 51.2 55.1 55.8 56.4 56.5 55.0 54.8 56.7 57.0 60 Loans and leases in bank credit2 .. 1,549.8 1,608.5 1,618.8 1,625.2 1.632.0 1,642.0 1,651.0 1,673.3 1,665.4 1,668.0 1,671.4 1,670.8 61 Commercial and industrial 414.7 431.7 436.6 439.0 443.7 449.4 457.4 463.0 463.7 460.1 463.1 462.5 62 Bankers acceptances 1.7 1.5 1.4 1.4 1.3 1.2 1.2 1.2 1.2 1.2 1.2 1.2 63 Other 413.1 430.2 435.2 437.7 442.4 448.2 456.2 461.8 462.5 458.9 461.9 461.3 64 Real estate 631.3 652.5 653 0 6545 652.1 650.3 6547 6639 661.4 665.1 663.1 662.6 65 Revolving home equity 61.4 67.8 68.3 68.8 69.2 69.8 69.4 68.8 69.0 68.9 68.8 68.4 66 Other 352.0 362.4 360.6 360.6 357.9 357.5 361.4 370.9 367.9 372.5 370.1 369.6 67 Commercial 217.9 222.3 224 1 225 1 2250 223 1 223 9 224.3 2245 223.7 224.2 224.6 68 Consumer 303.7 305.0 299.9 297.5 299.1 299.0 292.7 289.9 292.1 289.4 290.3 290.3 69 Security' 42.5 45.8 52.5 53.1 48.6 56.0 58.7 61.9 57.9 61.8 61.7 62.1 70 Federal funds sold to and repurchase agreements with broker-dealers 26.0 29.3 35.5 36.6 31.3 39.6 42.5 43.9 41.7 43.6 43.9 43.6 71 Other 16.5 16.5 17.0 16.5 17.3 16.4 16.3 18.0 16.2 18.3 17.7 18.5 72 State and local government 11.4 11.3 11.2 11.1 11.0 10.8 10.8 10.6 10.6 10.6 10.6 10.5 73 Agricultural 8.9 9.5 9.5 9.6 9.6 9.4 9.1 9.2 9.1 92 9.2 9.2 74 Federal funds sold to and repurchase agreements with others 6.4 7.4 8.9 8.9 11.1 77 61 71 65 6.0 75 7.2 75 All other loans 62.8 68.8 69.1 72.3 75.5 73.9 75.3 80.4 77.4 78.9 78.9 78.9 76 Lease-financing receivables 68.1 76.4 78.0 79.2 81.3 85.5 86.1 87.3 86.6 86.8 87.1 87.5 77 Interbank loans 140.9 126.1 120.8 128.6 132.4 125.3 116.1 123.0 124.7 117.9 114.5 122.9 78 Federal funds sold to and repurchase agreements with commercial banks 92.2 79.8 74.8 83.6 86.3 80.3 68.1 76.9 75.2 72.3 69.9 79.3 79 Other 48.7 46.3 46.1 45.0 46.1 45.0 48.0 46.0 49.5 45.6 44.5 43.6 80 Cash assets4 135.9 151.8 164.8 176.6 176.4 174.6 164.8 164.0 161.7 162.5 164.0 159.4 81 Other assets5 177.2 182.7 184.6 184.6 189.6 191.3 190.7 186.5 190.0 186.1 186.3 182.3 82 Total assets6 2,412.8 2/179.5 2^15.1 2,5583 2,577.4 2,605.1 2,6013 2,630J 2,623.7 2,618.7 2.625.4 2,612J Liabilities 83 Deposits 1 487 6 1,529.3 I 5368 15663 1,576.8 1,563.4 1,565.5 1,588.7 1,592.4 1,583.0 1376.9 I 569 8 84 Transaction 387.7 374.2 373.9 388.9 401.6 380.5 372.0 373.6 376.3 366.7 367.5 363.6 85 Nontransaction 1,099.9 1,155.1 1,162.8 1,177.4 1.175.2 1,182.8 1,193 4 1,215.1 1,216.1 1,216.2 1.209.5 1.206.2 86 Large time 168.4 200.0 203.4 2110 209.4 2130 216.7 221.9 2195 223.5 222.7 222.1 87 Other 931.6 955.1 959.4 966.4 965.9 969.8 976.7 993.2 996.6 992.7 986.8 984.1 88 Borrowings 453.2 470.9 486.4 501.4 508.6 523.3 525 3 537.3 533.0 526.7 550.0 540.6 89 From banks in the U S 199.0 183.3 1849 201.8 209.4 198.1 1986 207.6 202.9 204.7 200.6 211.9 90 From nonbanks in the U.S 254.2 287.6 30L6 299.6 299.2 325.2 326.6 329.8 330.1 322.0 349.4 328.7 91 Net due to related foreign offices .... 68.6 75.3 70.8 65.6 69.5 82.3 78.4 76.8 65.3 78.8 75.4 82.6 92 Other liabilities 156.0 149.3 163.4 168.8 169.1 180.9 173.8 168.5 174.4 171.3 162.7 162.8 93 Total liabilities 2,1653 2J24.8 2,257.4 2302.1 2324.0 2349.9 2342.9 2371.4 2365.2 2^359.8 2365.0 2355.7 94 Residua! (assets less liabilities)7 247.5 254.7 257.7 256.2 253.4 255.2 258.4 259.1 258.5 258.9 260.4 256.8 MEMO 95 Revaluation gains on off-balancesheet items8 49.0 37.5 382 41.5 41.3 50.1 47.3 47.5 43.9 48.9 47.3 45.7 96 Revaluation losses on off-balancesheet items8 43.2 40.0 41.3 43.6 44.2 52.9 49.5 49.8 46.2 51.4 50.0 47.7 97 Mortgage-backed securities9 208.0 211.2 216.9 225.4 230.2 238.7 242.6 247.7 246.2 244.5 250.0 247.8 98 Pass-through securities 140.8 145.0 149.6 154.5 157.5 162.5 165.0 169.4 167.2 165.3 171.9 170.7 99 CMOS, REMICs, and other mortgage-backed securities. . . 67.3 66.3 67.3 70.9 72.7 76.1 77.6 78.3 79.0 79.2 78.1 77.2 100 Net unrealized gains (losses) on available-for-sale securities10 . . . 0.6 1.8 2.5 2.4 2.2 3.0 3.3 3.0 2.9 3.0 3.0 3.0 101 Offshore credit to U.S. residents" .. 32.9 34.1 34.2 34.4 34.2 35.5 36.2 35.2 35.1 34.8 35.5 35.0 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 Liabilities'—Continued D. Small domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures 1998' Mar.r Sept. Oct. Jan. Mar. Mar. 4 Mar. 11 Mar. 18 Mar. 25 Seasonally adjusted Assets 1 Bank credit 1,327.5 1,403.7 1,410.2 1,427.6 1,439.2 1,442.6 1,448.2 1.452.6 1,456.1 1,453.7 1,450.2 2 Securities in bank credit 395.3 403.4 406.2 410.1 413.2 410.7 409.2 411.0 414.3 413.0 409.6 3 U.S. government securities . . 314.5 321.0 323.5 325.4 327.6 325.3 323.6 323.0 327.2 325.3 3219 4 Other securities 80.9 82.4 82.7 84.7 85.6 85.4 85.6 88.0 87.1 87.7 87.6 5 Loans and leases in bank credit2.. 932.2 1.000.3 1.004.0 1,017.5 1,026.0 1,031.9 1,039.0 1,041.5 1,041.7 1,040.7 1,040.7 6 Commercial and industrial .. 168.8 181.0 182.1 184.1 185.1 187.1 188.6 188.9 188.5 188.3 188.6 7 Real estate 488.4 536.5 540.4 548.2 553.4 559.0 564.0 565.9 565.2 565.8 565.3 8 Revolving home equity .. . 25.2 28.5 28.7 29.2 29.6 29.5 29.6 29.5 29.5 29.5 29.4 9 Other 463.1 508.0 511.7 519.0 523.8 529.5 534.4 536.5 535.7 536.3 535.9 10 Consumer 208.0 211.9 209.1 211.0 212.4 210.7 210.4 208.2 210.1 208.8 208.8 11 Security3 4.8 4.7 5.2 5.5 5.7 5.6 5.8 6.2 6.3 6.1 6.1 12 Other loans and leases 62.2 66.1 67.2 68.8 69.4 69.5 70.1 72.2 71.7 71.6 71.8 13 Interbank loans 49.2 53.8 56.4 55.8 56.1 56.4 57.3 65.1 61.8 61.1 64.8 14 Cash assets4 64.8 70.5 70.6 72.7 71.7 72.1 72.9 73.7 72.6 73.6 71.5 15 Other assets5 53.8 62.5 61.9 64.7 63.0 63.9 65.2 64.9 63.9 65.4 64.0 16 Total assets6 1,476* 1,571.0 1,579.6 1,601.1 1.6103 1,6153 1.6240 1,636.6 1*34.7 1,634.1 1,630.8 Liabilities 17 Deposits 1.175.5 1060.2 1,266.3 1,278.3 1,283.7 1,287.2 1,293.4 1,300.9 1,301.3 1,296.8 1094.5 18 Transaction 293.3 299.3 299.0 300.3 298.6 297.3 299.5 302.3 300.8 298.4 299.2 19 Nontransaction 882.2 960.8 967.3 978.0 985.2 989.9 993.9 998.7 1.000.5 998.3 995.3 20 Large time 153.2 163.4 165.3 167.4 167.8 168.6 170.7 171.2 171.1 171.0 170.6 21 Other 729.0 797.4 802.0 810.6 817.4 821.4 823.2 827.5 829.4 827.3 824.7 22 Borrowings 144.9 154.6 153.6 154.2 157.9 158.2 159.2 161.4 160.9 163.2 161.1 23 From banks in the US 74.4 75.0 71.2 70.7 72.5 72.4 72.6 72.4 72.3 72.6 72.1 24 From others 70.5 79.6 82.4 83.4 85.4 85.8 86.6 89.1 88.6 90.6 89.0 25 Net due to related foreign offices. 3.9 4.9 5.2 5.0 4.3 4.2 6.1 4.1 4.1 4.5 4.4 26 Other liabilities 25.3 27.3 27.8 28.8 29.1 28.8 29.4 30.4 30.2 30.2 30.5 27 Total liabilities 1349.7 1.446.9 1,452,9 1/1663 1,475.1 1,478.5 1,488.1 1,49&8 1,4963 1,494.7 1,490.5 28 Residual (assets less liabilities)'.. 127.1 124.2 126.7 134.8 135.2 136.8 135.8 139.8 138.2 139.4 140.3 Not seasonally adjusted Assets 29 Bank credit 1,323.7 1,406.2 1,410.3 1,427.0 1,439.9 1,437.3 1,439.6 1,448.9 1,447.5 1,447.1 1,446.4 30 Securities in bank credit .... 396.7 402.9 403.5 407.0 411.3 409.1 407.1 412.4 412.1 412.7 410.8 31 U.S. government securities . 315.7 320.8 321.3 322.6 326.1 323.8 321.5 324.2 324.9 324.9 323.0 32 Other securities 81.0 82.1 82.2 844 85.3 85.3 85.6 88.3 87.2 87.8 87.8 33 Loans and leases in bank credit2. 927.0 1,003.3 1,006.7 1,020.0 1.028.6 1.028.2 1,032.5 1,036.5 1,035.4 1,034.4 1,035.6 34 Commercial and industrial . 169.7 179.6 180.6 182.9 184.6 186.3 188.2 189.9 188.8 188.7 189.8 35 Real estate 486.0 538.2 542.7 550.1 554.3 556.0 560.3 563.6 562.0 563.0 562.8 36 Revolving home equity .. 25.1 28.7 28.9 29.3 29.5 29.4 29.5 29.4 29.5 29.4 29.3 37 Other 460.9 509.5 513.8 520.8 524.8 526.6 530.7 534.3 532.5 533.6 533.4 38 Consumer 205.9 212.9 210.0 212.7 214.8 212.5 210.3 206.3 208.5 206.8 206.9 39 Security' 4.8 4.7 5.2 5.5 5.7 5.6 5.8 6.2 6.3 6.1 6.1 40 Other loans and leases 60.5 67.9 68.3 68.8 69.2 68.0 67.9 70.4 69.9 69.7 70.0 41 Interbank loans 52.5 50.7 55.6 59.2 60.1 57.9 61.3 68.9 70.0 68.1 67.6 42 Cash assets4 62.9 69.9 70.6 75.2 75.3 73.2 72.7 72.0 72.3 71.8 69.5 43 Other assets5 53.7 63.5 62.1 65.2 62.5 61.9 64.9 64.9 64.7 63.0 44 Total assets6 1,4743 1,570.8 1379.1 1,606.9 1,618.1 1.610.8 1,634.9 1,635.0 1,631.9 1,626.8 Liabilities 45 Deposits 1,176.4 1,256.7 1,264.4 1,284.8 1,291.5 1,285.8 1,290.4 1,302.5 1,305.0 1,300.4 1,294.1 46 Transaction 289.9 297.1 297.4 304.6 309.2 299.7 296.1 299.2 301.2 296.7 294.9 47 Nontransaction 886.5 959.6 967.0 980.2 982.3 986.2 994.3 1,003.3 1,003.8 1,003.7 999.3 48 Large time 153.2 163.4 165.3 167.4 167.8 168.6 170.7 171.2 171.1 171.0 170.6 49 Other 733.3 796.2 801.7 812.8 814.5 817.6 823.6 832.1 832.8 832.6 828.7 50 Borrowings 141.6 157.6 154.0 153.8 158.7 159.1 157.4 158.2 157.0 157.3 158.2 51 From banks in the U.S 73.0 76.1 70.8 69.8 72.7 72.8 71.8 71.2 70.6 70.2 71.0 52 From others 68.6 81.5 83.2 83.9 86.0 86.3 85.6 87.0 86.4 87.0 87.1 53 Net due to related foreign offices 3.9 4.9 5.2 5.0 4.3 4.2 6.1 4.1 4.1 4.5 4.4 54 Other liabilities 25.3 27.3 27.8 28.8 29.1 28.8 29.4 30.4 30.2 30.2 30.5 55 Total liabilities 1347.2 1,4463 1,451.4 1,4714 1,483.6 1,478.0 1,4833 1,495.2 1,4963 1,492.4 1,487.2 56 Residua! (assets less liabilities)7. 127.1 124 3 127.6 134.5 134.5 132.7 135.6 139.7 138.7 139.6 139.6 MEMO 57 Mortgage-backed securities9 .... 48.1 50.1 51.3 51.5 52.1 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Financial Statistics • June 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued E. Foreign-related institutions Billions of dollars Monthly averages Wednesday figures Account 1997 1997' 1998' 1998 Mar.' Sept. Oct. Nov. Dec. Jan. Feb. Mar. Mar. 4 Mar. 11 Mar. 18 Mar. 25 Seasonally adjusted Assets 1 Bank credit 522.7 537.3 539.3 549.4 544.7 566.5 567.6 565.0 573.5 572.6 553.1 560.4 2 Securities in bank credit 167.8 179.6 176.5 193.1 187.7 191.1 191.7 196.2 199.1 196.3 186.0 194.9 3 U.S. government securities 79.1 82.5 80.6 79.2 76.3 79.4 82.4 86.1 94.5 86.4 76.1 84.0 4 Other securities 88.7 97.1 95.9 113.8 111.5 111.8 109.3 110.0 104.6 109.9 109.9 110.9 5 Loans and leases in bank credit2 . .. 354.9 357.7 362.8 356.3 357.0 375.4 375.9 368.8 374.4 376.2 367.0 365.5 6 Commercial and industrial 217.9 222.3 222.5 221.4 221.3 223.7 223.1 221.0 227.2 227.4 221.1 217.5 7 Real estate 31.9 28.0 27.5 26.6 25.9 26.5 26.0 24.7 25.5 25.4 24.7 24.1 8 Security3 39.7 43.6 46.7 41.7 43.8 54.9 54.9 48.9 49.5 48.9 47.5 48.5 9 Other loans and leases 65.5 63.8 66.1 66.5 66.0 70.3 71.9 74.2 72.2 74.5 73.8 75.4 10 Interbank loans . . 230 18.4 205 236 31.1 27 8 24.6 20.6 16.2 16.5 23.4 23.7 11 Cash assets4 33.1 34.2 34.4 34.9 33.5 32.2 32.0 33.4 32.0 33.0 32.9 34.4 12 Other assets5 40.3 42.8 42.3 44.7 42.0 41.2 41.6 42.1 41.1 43.8 41.3 41.5 13 Total assets6 618.8 632.4 636.2 6523 651.1 6673 665.6 660.9 662.6 665.6 6503 659.8 Liabilities 14 Deposits 241.7 263.2 267.7 272.8 272.5 271.7 283.1 287.3 285.2 2851 283.8 287.1 15 Transaction .. 10.3 110 10.4 103 9.8 10.0 100 10.4 10.1 10.6 9.7 10.2 16 Nontransaction 231.4 252.1 257.2 262.6 262.7 261.7 273.1 276.9 275.1 274.5 274.1 276.9 17 Large time 227.3 251.5 254.1 259.3 259.9 259.9 271.5 275.2 273.2 272.5 272.5 275.6 18 Other 4.1 0.6 3.1 33 2.8 1.8 1.6 1.7 1.9 2.0 1.6 1.3 19 Borrowings 134.5 144.6 155.8 156.3 149.5 148.9 144.0 153.3 152.6 145.7 144.3 155.5 20 From banks in the US 33.4 34.9 33.8 29.0 25.9 23.4 22.6 25.8 25.2 22.6 19.7 26.8 21 From others 101.1 109.7 122.0 127.3 123.6 125.4 121.4 127.5 127.4 123.2 124.6 128.7 22 Net due to related foreign offices 147.3 125.6 118.5 117.1 121.7 140.5 135.2 118.7 130.7 136.9 125.5 106.0 23 Other liabilities 92.7 94.2 91.6 96.0 95.5 96.5 97.5 94.0 94.8 98.2 91.9 90.2 24 Total liabilities 6163 627.7 633.5 64Z2 639.2 6573 659.8 6533 6633 666.0 6453 638.7 25 Residual (assets less liabilities)7 2.5 4.8 2.7 10.1 11.9 10.0 5.8 7.5 -0.7 -0.4 5.0 21.1 Not seasonally adjusted Assets 26 Bank credit 522.9 534.4 539.1 544.2 543.8 563.4 567.0 564.6 576.5 570.8 553.6 557.5 27 Securities in bank credit 166.4 178.3 177.3 189.5 183.9 185.8 188.7 194.1 198.6 194.7 184.9 190.1 28 U.S. government securities 79.8 82.7 81.1 80.3 75.9 77.5 81.7 86.9 95.0 87.4 78.1 84.2 29 Trading account . . 17.8 170 14.3 16.0 13.7 13.4 14.0 17.6 23.8 16.0 10.5 17.1 30 Investment account 62.0 65.7 66.7 64.3 62.2 62.4 67.6 69.7 71.2 71.4 67.7 67.0 31 Other securities 86.6 95.6 96.2 109.1 107.9 108.4 107.1 107.3 103.5 107.3 106.8 106.0 32 Trading account 52.3 55.1 55.6 60.9 60.0 61.5 61.4 59.8 57.7 60.5 58.4 58.6 33 Investment account 34.3 40.5 40.6 48.3 47.9 48.1 45.7 47.0 45.8 46.8 48.3 47.3 34 Loans and leases in bank credit- . . . 356.5 356.1 361.9 354.7 359.9 377.6 378.3 370.5 378.0 376.1 368.8 367.4 35 Commercial and industrial ...... 218.5 221.2 222.2 221.2 222.2 224.5 224.3 221.6 228.0 226.5 221.9 218.4 36 Real estate 31.9 28.0 27.8 26.9 26.0 26.5 26.2 24.7 25.7 25.6 24.8 24.0 37 Security3 40.3 43.3 46.7 41.6 45.0 55.0 55.0 49.6 50.7 49.1 48.2 49.5 38 Other loans and leases 65.7 63.6 65.2 65.1 66.7 71.6 72.9 74.5 73.5 74.8 74.0 75.5 39 Interbank loans 23.0 18.4 20.5 23.6 31 1 27.8 24.6 206 16.2 16.5 23.4 23 7 40 Cash assets4 32.1 34.3 34.6 35.7 35J 32.2 31.4 32.3 31.2 31.8 31.7 33^2 41 Other assets5 40.2 42.8 41.3 45.3 42.7 41.6 43.1 42.1 43.2 45.5 41.2 40.3 42 Total assets6 617.9 629.7 6353 648.6 6523 664.8 665.9 659.4 666.9 664.4 649.8 6543 Liabilities 43 Deposits 242.4 264.5 267.5 272.3 275.6 269.8 280.9 288.5 284.3 284.8 285.0 290.6 44 Transaction 10.2 11.5 10.5 10.2 10.3 10.0 9.8 10.4 9.9 10.4 9.6 10.2 45 Nontransaction 232.2 253.0 257.0 262.1 265.3 259.9 271.1 278.2 274.5 274.4 275.4 280.4 46 Large tirne 228.8 250.5 254.9 260.5 2642 258.9 270.1 277.2 273.5 2734 274.4 279.5 47 Other 3.4 2.4 2.1 1.6 \2 1.0 1.0 1.0 1.0 1.0 1.0 1.0 48 Borrowings 134 5 144 6 155.8 156.3 1495 148.9 144.0 153 3 152 6 145.7 144.3 155 5 49 From banks in the US 33.4 34.9 33.8 29.0 25.9 23.4 22.6 25.8 25.2 22.6 19.7 2&8 50 From others 101.1 109.7 122.0 127.3 123.6 125.4 121.4 127.5 127.4 123.2 124.6 128.7 51 Net due to related foreign offices 146.5 124.1 117.7 117.8 126.5 145.3 136.5 117.9 128.0 130.2 123.5 112.0 52 Other liabilities 93.0 94.0 91.3 97.6 96.5 96.5 98.7 94.2 96.2 99.0 92.1 90.1 53 Total liabilities 6163 627J 632.2 6440 648.2 6603 660.0 654.0 661.0 659.6 644.8 6483 54 Residual (assets less liabilities)7 1.6 2.5 3.1 4.6 4.4 4.3 5.9 5.5 5.8 4.8 4.9 6.2 MEMO 55 Revaluation gains on off-balance-sheet items^ 42.4 43.3 41.6 42.8 41.4 42.6 40.5 40.0 38.9 40.9 39.5 38.4 56 Revaluation losses on off-balancesheet items8 44.1 41.8 40.2 42.0 41.8 42.7 40.6 39.8 38.2 40.3 39.2 38.0 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 stales 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-hacked securities issued by U.S. government agencies, U.S. and on quarter-end condition reports. Data are adjusted for breaks caused by ^classifications 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 ND. 115. Data are reported net of tax effects. Data shown are remove the estimated effects 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 ] 1. 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 Financial Statistics • June 1998 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December 1997 1998 Item D 19 e 9 c 3 . D 19 e 9 c 4 . D 19 e 9 c 5 . D 19 e 9 c 6 . D 19 e 9 c 7 . Sept. Oct. Nov. Dec. Jan. Feb. Commercial paper (seasonally adjusted unless noted otherwise) 1 AH issuers 555,075 59532 674,904 775,371 966,699 908,640 921,769 940,524 966,699 973,761 1.004,662 Financial companies1 2 Dealer-placed paper2, total 218,947 223,038 275,815 361,147 513,307 475,792 483,489 483,475 513,307 509,950 520,940 3 Directly placed paper , total 180,389 207,701 210.829 229,662 252,536 235.030 237,544 249,781 252,536 254,926 268,001 4 Nonfinancial companies 155,739 164,643 188,260 184,563 200.857 197,818 200,736 207,268 200,857 208,886 215,721 Bankers dollar acceptances (not seasonally adjusted)5 5 Total 32,348 29,835 29,142 25,754 By holder 1 11 6 Accepting banks 12,421 11,783 7 Own bills 10,707 10,462 8 Bills bought from other banks 1,714 1,321 Federal Reserve Banks6 \ 9 Foreign correspondents 725 410 a. na. na. na. na. na. na. na. 10 Others 19,202 17.642 n na. By basis 11 Imports into United States 10,217 10,062 12 Exports from United States 7,293 6,355 13 All other 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 Loans' Percent per year Dale 0] change Rate Period Av r e a r te age Period Av r e a r te age Period Av r e a r te age 1995—Jan. 1 8.50 1995 8.83 1996—Jan 8.50 1997—Jan 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 Mar 9.00 July 8.25 July 8.50 1997—Mar. 26 8.50 Apr 9.00 Aug 8.25 Aug 8.50 May 9.00 Sept 8.25 Sept 8.50 June 9.00 Oct 8.25 Oct 8.50 July 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 Feb 8.50 Dec 8.65 Mar 8.50 Apr 8.50 1. The prime rate is one of several base rates that banks use to price short-term business Report. Data in this table also appear in the Board's H.15 (519) weekly and G.13 (415) loans. The table shows the date on which a new rate came to be the predominant one quoted monthly statistical releases. For ordering address, see inside front cover. by a majority of the twenty-five largest banks by asset size, based on the most recent Call Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A23 1.35 INTEREST RATES Money and Capital Markets Percent per year; figures are averages of business day data unless otherwise noted 1997 1998 1998. week ending Item 1995 1996 1997 Dec. Jan. Feb. Mar. Feb. 27 Mar. 6 Mar. 13 Mar. 20 Mar. 27 MONEY MARKET INSTRUMENTS 1 Federal funds12'3 5.83 5.30 5.46 5.50 5.56 5.51 5.49 5.51 5.60 5.45 5.47 5.43 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 paper' ~ 'b Nonnnancial n.a. n.a. 5.57 5.78 5.46 5.47 5.51 5.49 5.50 5.51 5.50 5.52 4 2-month n.a. n.a. 5.57 5.71 5.44 5.44 5.49 5.47 5.48 5.49 5.50 5.48 5 3-month n.a. n.a. 5.56 5.67 5.42 5.42 5.46 5.44 5.46 5.47 5.46 5.46 Financial 6 1-month n.a. n.a. 5.59 5.80 5.48 5.49 5.53 5.50 5.54 5.52 5.51 5.53 n.a. n.a. 5.59 5.72 5.46 5.47 5.51 5.50 5.51 5.50 5.50 5.51 8 3-month 5 60 5 70 5 44 5 45 5 49 5 47 5 50 5 49 5 48 5 49 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. 5 93 5 49 5 6"> Finance paper, directly placed (historical)3t5"7'8 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. 5 68 5 21 5 48 Bankers acceptances*^ 5.81 5.31 5.54 5.75 5.48 5.46 5.50 5.48 5.51 5.51 5.50 5.50 16 6-month 5.80 5.31 5.57 5.68 5.45 5.41 5.46 5.44 5.47 5.46 5.46 5.46 Certificates of deposit, secondary marker' ° 17 1-month 5.87 5.35 5.54 5.88 5.53 5.53 5.58 5.55 5.58 5.57 5.58 5.58 18 3-month 5.92 5.39 5.62 5.80 5.54 5.54 5.58 5.56 5.59 5.58 5.58 5.59 5 98 5 47 5 73 5 82 5 56 5 55 5 61 5 58 5 61 5 60 5 59 5 61 5 93 5 38 5 61 5 79 5 53 5 53 5 56 5 54 5 56 5 56 5 55 5 56 US. Treasury bills Secondary market • 21 3-month 5.49 5.01 5.06 5.16 5.04 5.09 5.03 5.16 5.08 4.97 5.02 5.05 22 6-month 5.56 5.08 5.18 5.24 5.03 5.07 5.04 5.11 5.08 5.02 5.05 5.02 13 1-vear 5.60 5.22 5.32 5.24 4.98 5.04 5.11 5.14 5.15 5.09 5.08 5.12 Auction average •• 24 3-month 5.51 5.02 5.07 5.16 5.09 5.11 5.03 5.14 5.12 4.97 4.99 5.03 5.59 5.09 5.18 5.24 5.07 5.07 5.04 5.04 5.13 5.01 5.03 4.99 26 1-year 5.69 5.23 5.36 5.18 5.07 4.97 5.13 n.a. 5.13 n.a. n.a. n.a. U.S. TREASURY NOTES AND BONDS Constant maturities 27 1-year 5.94 5.52 5.63 5.53 5.24 5.31 5.39 5.42 5.43 5.37 5.36 5.39 28 2-year 6.15 5.84 5.99 5.72 5.36 5.42 5.56 5.54 5.61 5.53 5.51 5.57 29 3-year 6.25 5.99 6.10 5.74 5.38 5.43 5.57 5.55 5.62 5.53 5.50 5.59 30 5-year 6.38 6.18 6.22 5.77 5.42 5.49 5.61 5.60 5.69 5.57 5.54 5.62 31 7-year 6.50 6.34 6.33 5.83 5.53 5.60 5.71 5.69 5.80 5.69 5.63 5.69 32 10-year . .. 6.57 6.44 6.35 5.81 5.54 5.57 5.65 5.63 5.75 5.62 5.57 5.63 33 20-year 6.95 6.83 6.69 6.07 5.88 5.96 6.01 6.00 6.11 5.99 5.95 5.99 34 30-year 6 71 661 5 99 5 81 5 89 5 95 5 94 6 05 5 93 5 89 5 92 Composite 6 93 6 80 6 67 6 06 5 87 5 94 600 5 99 6 10 5 98 5 94 5 97 STATE AND LOCAL NOTES AND BONDS Moody's series1* *b Aaa 5.80 5.52 5.32 5.03 4.88 4.92 5.03 4.95 5.04 5.02 5.06 4.99 37 Baa 6.10 5.79 5.50 5.17 5.04 5.09 5.25 5.16 5.26 5.25 5.28 5.21 38 Bond Buyer series15 5.95 5.76 5.52 5.19 5.06 5.10 5.21 5.14 5.25 5.20 5.19 5.20 CORPORATE BONDS 39 Seasoned issues, all industries16 7.83 7.66 7.54 7.03 6.89 6.95 7.00 6.99 7.09 6.99 6.95 6.98 Rating group 40 Aaa 7.59 7.37 7.27 6.76 6.61 6.67 6.72 6.71 6.81 6.70 6.66 6.69 41 Aa 7.72 7.55 7.48 6.99 6.82 6.88 6.93 6.93 7.02 6.93 6.89 6.90 42 A 7.83 7.69 7.54 7.05 6.93 7.01 7.05 7.04 7.13 7.04 7.00 7.03 43 Baa 8.20 8.05 7.87 7.32 7.19 7.25 7.32 7.28 7.40 7.30 7.27 7.30 44 A-rated, recently offered utility bonds 7.86 7.77 7.71 7.10 6.97 7.02 7.11 7.08 7.17 7.06 7.06 7.14 MEMO Dividend-price ratio 45 Common stocks 2.56 2.19 1.77 1.62 1.62 1.55 1.48 1.53 1.52 1.49 1.46 1.44 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 aveiages 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. Al rating. Based on Thursday figures. 5. Quoted on a discount basis. [6. Daily figures from Moody's Investors Service. Based on yields to maturity on selected 6. An average of offering rales 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 or" deposit. the price index. 11. Bid rates for Eurodollar deposits ai approximately 11:00 a.m. London time. Data are NOTE. Some of the data in this table also appear in the Board's H.I5 tS19> weekly and Digitizedfo fr oinrd FicaRtioAnS puErpRos es only. G.13 (415) monthly statistical releases. For ordering address, see inside front cover. http://frase12r.. sAtluoctuioins fdeatde .foorrg da/ ily data; weekly and monthly averages computed on an issue-date basis. Federal Reserve Bank of St. Louis

A24 Domestic Financial Statistics • June 1998 1.36 STOCK MARKET Selected Statistics 1997 1998 Indicator 1995 1996 1997 July Aug. Sept. Oct Nov. Dec. Jan. Feb. Mar. Prices and trading volume averages of daily figures) Common stock prices (indexes) 1 New York Stock Exchange (Dec. 31, 1965 = 50) 291.18 357.98 456.99 480.94 482.39 489.74 499.25 492.14 504.66 504.13 532.15 560.70 2 Industrial 367.40 453.57 574.97 610.42 609.54 617.94 625.22 615.65 623.57 624.61 660.91 693.13 3 Transportation 270.14 327.30 415.08 433.75 439.71 451.63 466.04 453.56 461.04 458.49 485.73 508.06 4 Utility 110.64 126.36 143.87 144.25 143.82 145.96 157.83 153.53 165.74 146.25 170.96 191.67 5 Finance 238.48 303.94 424.84 441.59 446.93 459.86 476.70 465.35 490.30 479.81 508.97 539.47 6 Standard & Poor's Corporation (1941-43 = 10)2 541.72 670.49 873.43 925.29 927.74 937.02 951.16 938.92 962.37 963.36 1,023.74 1,076.83 7 American Stock Exchange (Aug. 31, 1973 = 5O)3 498.13 570.86 628.34 635.28 645.59 678.05 702.43 674.37 667.89 665.72 685.73 722.37 Volume of trading (thousands of shares) 8 New York Stock Exchange 345.729 409.740 523,254 543.006 506.205 541,204 606,513 531.449 541,134 632.895 610.958 619.366 9 American Stock Exchange 20,387 22.567 n.a. 25.562 24,095 28,252 32,873 27,741 27.624 28,199 26,808 28,943 Customer financing (millions of dollars, end-of-period balances) 10 Margin credit at broker-dealers4 76,680 97,400 126,090 116,190 119,810 126,050 128,190 127,330 126,090 127,790 135,590 140,340 Free credit balances at brokers 11 Margin accounts 16,250 22,540 31,410 24,290 23,375 23,630 26,950 26,735 31,410 29,480 27,450 27,430 12 Cash accounts 34,340 40,430 52,160 43,985 42,960 43,770 47,465 45,470 52,160 48.620 48,640 51.340 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 13 Margin stocks 70 80 65 55 65 50 14 Convertible bonds 50 60 50 50 50 50 15 Short sales 70 80 65 55 65 50 1. Daily data on prices are available upon request to the Board of Governors. For ordering 6. Series initiated in June 1984. address, see inside front cover. 7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant 2. In July 1976 a financial group, composed of banks and insurance companies, was added to the Securities Exchange Act of 1934. limit the amount of credit that can be used to to the group of stocks on which the index is based. The index is now based on 400 industrial purchase and carry "margin securities" (as defined in the regulations) when such credit is stocks (formerly 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and collateralized by securities. Margin requirements on securities are the difference between the 40 financial. market value (100 percent) and the maximum loan value of collateral as prescribed by the 3. On July 5. 1983, the American Slock 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 al 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 Type of account or operation 1997 1998 Oct. US. budget' 1 Receipts, total 1,351,830 1,453,062 1,579,292 114,898 103,481 167,998 162.610 97,952 117,930 2 On-budget 1.000,751 1,085,570 1,187,302 87,083 73,690 135,340 123,367 65,051 80,647 3 Off-budget 351,079 367,492 391,990 27,815 29,791 32,658 39,243 32.901 37,283 4 Outlays, total 1,515,729 1,560,512 1,601,235 150,866 120,830 154,359 137,231 139,701 131,743 5 On-budget 1,227,065 1,259,608 1,290,609 123,863 91,327 146,647 108,843 109.393 101,967 6 Off-budget 288,664 300,904 310,626 26,999 29,504 7,712 28.388 30,309 29,775 7 Surplus or deficit (-), total -163,899 -107,450 -21,943 -35,964 -17,349 13.639 25.379 -41.750 -13,813 8 On-budget -226,314 -174,038 -103.307 -36,780 -17,637 -11.307 14,524 -44.342 -21,320 9 Off-budget 62,415 66,588 81,364 816 287 24,946 10.855 2.592 7,508 Source of financing (total) 10 Borrowing from the public 171,288 129,712 38,171 6,315 29,108 -1,771 -24,807 30,565 20,137 11 Operating cash (decrease, or increase (-)). . . -2,007 -6,276 604 23,360 483 -12,107 -8,422 24.027 -11,352 12 Other2 -5,382 -15,986 -16,832 6,289 -12,242 239 7,850 -12.842 5,028 MEMO 13 Treasury operating balance (level, end of period) 37,949 44,225 43,621 20,261 19,778 31,885 40,307 16,280 27,632 14 Federal Reserve Banks 8,620 7,700 7,692 4,616 5,127 5,444 5,552 5,037 5,490 15 Tax and loan accounts 29,329 36,525 35,930 15,645 14,651 26,441 34,756 11,243 22,141 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 Financial Statistics • June 1998 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1 Millions of dollars Fiscal year Calendar year Source or type 1996 1996 H2 H2 Feb. 1 All sources 1,453,062 1,579,292 767,099 707,551 845,527 773,810 162,610 97,952 117,930 2 Individual income taxes, net 656,417 737,466 347,285 323,884 400,436' 354,072 95,798 42,209 39,662 3 Withheld 533,080 580,207 264,177 279,988 292,252 306,865 56,628 54,225 55,290 4 Nonwithheld 212,168 250,753 162,782 53,491 191.050 58,069 40,039 2.914 7,332 5 Refunds 88,897 93,560 79,735 9,604 82,926 10,869 870 14,941 22,973 Corporation income taxes 6 Gross receipts 189,055 204,493 96,480 95,364 106,451 104,659 6,888 3,598 23,153 7 Refunds 17,231 22,198 9,704 10,053 9.635 10,135 2,481 2,769 3,661 8 Social insurance taxes and contributions, net . 509,414 539,371 277,767 240,326 288,251 260,795 51,765 44,749 48,027 9 Employment taxes and contributions2 476,361 506,751 257.446 227,777 268.357 247,794 50,395 41,825 47,389 10 Unemployment insurance 28,584 28,202 18,068 10,302 17,709 10,724 1,036 2,589 301 11 Other net receipts" 4.469 4,418 2,254 2,245 2,184 2,280 333 335 337 12 Excise taxes 54,014 56,924 25.682 27,016 28,084 31,132 4,679 4,791 4,499 13 Customs deposits 18,670 17,928 8.731 9,294 8,619 9,679 1,387 1,454 1,412 14 Estate and gift taxes 17,189 19,845 8,775 8,835 10,477 10.262 1,808 1,500 1,845 15 Miscellaneous receipts 25,534 25,465 12,087 12,888 12,866 13.347 2,768 2,420 2,994 OUTLAYS 16 All types 1,560,512 1,601,235 785,368 800,176 797,418 824,360 137,231 139,701 131,743 17 National defense 265.748 270,473 132,599 139,402 132,725 140,873 20,927 20,492 20,326 18 International affairs 13,496 15,228 8,076 8,532 5.740 9,420 740 364 979 19 General science, space, and technology 16,709 17,174 8,897 8,260 8,939 10,040 1,498 1,404 1,617 20 Energy 2,844 1,483 1,356 695 803 411 291 -43 40 21 Natural resources and environment 21,614 21,369 10.254 10,307 9,627 11,106 1,636 1,746 1,556 22 Agriculture 9,159 9,032 73 11,037 1,465 10,590 1,967 329 283 23 Commerce and housing credit -10,472 -14,624 -6,885 -5,899 -7,575 -3,526 -403 -1,065 -972 24 Transportation 39,565 40,767 18,290 21,512 16.847 20,414 2,574 2,504 2,734 25 Community and regional development 10,685 11,005 5,245 5,498 5,675' 5,749 783 669 503 26 Education, training, employment, and social services 52,001 53,008 25.979 27,524 25,080 6,535 27 Health 119,378 123,843 59,989 61,595 61,809' 63,552 11,162 9,735 10,876 28 Social security and Medicare 523,901 555,273 264,647 269,412 278,863' 283,109 46,929 46,810 45,815 29 Income security 225,989 230,886 121.186 107,631 124,034 106,353 20,133 28,194 22.853 30 Veterans benefits and services 36,985 39,313 18,140 21,109 17,696 22,077 3,331 3,386 1,883 31 Administration of justice 17,548 20,197 9.015 9,583 10,643 10.212 1,718 2,026 1,764 32 General government 11,892 12,768 4,641 6,546 6,623 7,302 836 108 1,012 33 Net interest5 241.090 244,013 120,576 122,573 122,654 122,620 20,570 19,901 20,651 34 Undistributed offsetting receipts6 -37,620 -49,973 -16,716 -25.142 -24.235' -22,795 -2,504 -3,394 -3,064 1. Functional details do not sum to total outlays for calendar year data because revisions to 4. Deposits of earnings by Federal Reserve Banks and other miscellaneous receipts. monthly totals have not been distributed among functions. Fiscal year total for receipts and 5. Includes interest received by trust funds. outlays do not correspond to calendar year data because revisions from the Budget have not 6. Rents and royalties for the outer continental shelf, U.S. government contributions for been fully distributed across months. employee retirement, and certain asset sales. 2. Old-age, disability, and hospital insurance, and railroad retirement accounts. SOURCE. Fiscal year totals: U.S. Office of Management and Budget. Budget of the U.S. 3. Federal employee retirement contributions and civil service retirement and Government, Fiscal Year 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 A27 1.40 FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION Billions of dollars, end of month 1996 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 1 Federal debt outstanding 5,153 5,197 5,260 5,357 5,415 5,410 5,446 5,536 2 Public debt securities 5,118 5,161 5,225 5,323 5,381 5,376 5,413 5,502 5,542 3 Held by public 3,764 3,739 3,778 3,826 3,874 3,805 3,815 3,847 n.a. 4 Held by agencies 1,354 1,422 1,447 1,497 1,507 1,572 1,599 1,656 n.a. 5 Agency securities 36 36 35 34 34 34 33 34 6 Held by public 28 28 27 27 26 26 26 27 7 Held by agencies 7 7 7 8 Debt subject to statutory limit 5,030 5,073 5,137 5,237 5,294 5,290 5,328 5,417 5,457 9 Public debt securities 5,030 5,073 5,137 5,237 5,294 5,290 5,328 5,416 5,456 10 Other debt1 0 0 0 0 0 0 0 0 0 MEMO 11 Statutory debt limit 5,500 5,500 5,500 5,500 5,500 5,500 5,950 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 Type and holder Q2 Q3 Q4 Ql 1 Total gross public debt 4,800.2 4,988.7 5,323.2 5,502.4 5,376.2 5,413.2 5,502.4 5,542.4 By type 2 Interest-bearing 4,769.2 4,964.4 5,317.2 5,494.9 5,370.5 5,407.5 5,494.9 5,535.3 3 Marketable 3,126.0 3,307.2 3,459.7 3,456.8 3,433.1 3,439.6 3,456.8 3,467.1 4 Bills 733.8 760.7 777.4 715.4 704.1 701.9 715.4 720.1 5 Notes 1,867.0 2,010.3 2,112.3 2,106.1 2,132.6 2,122.2 2,106.1 2,091.9 6 Bonds 510.3 521.2 555.0 587.3 565.4 576.2 587.3 598.7 7 Inflation-indexed notes n.a. n.a. n.a. 33.0 15.9 24.4 33.0 41.5 8 Nonmarketable2 1,643.1 1,657.2 1,857.5 2,038.1 1,937.4 1,967.9 2,038.1 2,068.2 9 State and local government series 132.6 104.5 101.3 124.1 107.9 111.9 124.1 139.1 10 Foreign issues 42.5 40.8 37.4 36.2 35.4 34.9 36.2 35.4 11 Government 42.5 40.8 47.4 36.2 35.4 34.9 36.2 36.4 12 Public .0 .0 .0 .0 .0 .0 .0 .0 13 Savings bonds and notes 177.8 181.9 182.4 181.2 182.7 182.7 181.2 181.2 14 Government account series4 1,259.8 1,299.6 1,505.9 1,666.7 1,581.5 1,608.5 1,666.7 1,681.5 15 Non-interest-bearing 31.0 24.3 6.0 7.5 5.7 5.6 7.5 7.2 By holder5 16 U.S. Treasury and other federal agencies and trust funds 1,257.1 1,304.5 1,497.2 1,655.7 1,571.6 1,598.5 1,655.7 17 Federal Reserve Banks 374.1 391.0 410.9 451.9 426.4 436.5 451.9 18 Private investors 3,168.0 3,294.9 3,411.2 3,393.4 3,361.7 3,388.9 3,393.4 19 Commercial banks 290.4 278.7 261.7 260.0 265.7 261.6 260.0 20 Money market funds 67.6 71.5 91.6 87.8 77.4 75.8 87.8 21 Insurance companies 240.1 241.5 214.1 214.0 216.0 214.4 214.0 22 Other companies 224.5 228.8 258.5 265.0 261.0 266.5 265.0 23 State and local treasuries6-7 540.2 421.5 363.7 334.0 345.3 336.4 334.0 Individuals 24 Savings bonds 180.5 185.0 187.0 186.5 186.3 186.2 186.5 25 Other securities 150.7 162.7 169.6 168.4 169.1 168.6 168.4 26 Foreign and international8 688.6 862.2 1,131.8 1,278.2 1,221.7 1,266.8 1,278.2 27 Other miscellaneous investors7'9 785.5 843.0 733.2 599.4 619.2 612.6 599.4 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 Financial Statistics • June 1998 1.42 US. GOVERNMENT SECURITIES DEALERS Transactions1 Millions of dollars, daily averages 1998, week ending Feb. 25 Mar. 18 Mar. 25 OUTRIGHT TRANSACTIONS2 By type of security 1 U.S. Treasury bills 38,244 26,208 41,042 38,845 42,516 40,062 52,010 29,466 Coupon securities, by maturity 2 Five years or less 95,901 89,024 122,614 142,424 119,673 115,005 96,774 144,026 144,196 114,812 111,392 126,020 3 More than five years 54,749 51,980 83,227 73,818 84,007 85,646 81,756 80,096 86,775 63,331 61,967 58,701 4 Inflation-indexed 475 254 787 312 Federal agency 493 554 298 570 267 336 5 Discount notes 31,824 38,475 38,211 36,799 Coupon securities, by maturity 36,835 33,716 37,428 41,752 35,848 36,241 6 One year or less 1,294 1,900 2,126 1,355 7 More than one year, but less than 1,738 2,363 1,736 1,559 1,362 3,195 or equal to five years 3,479 2,451 3,019 2,284 4,516 5,714 3,531 8 More than five years 3,452 1,941 4,035 2,725 1,730 2,615 2,556 3,618 3,067 4,149 9 Mortgage-backed 45,285 49,482 2,676 71,237 64,142 76,390 60,202 59,363 54,896 1,996 58,456 1,593 64,305 92,600 48,003 By type of counterparty With interdealer broker 10 U.S. Treasury 107,366 94,063 140,336 149,055 141,253 137,698 121,505 150,835 156,972 122,352 119,449 126,289 11 Federal agency 1,143 1,224 1,987 1,510 1,710 2,125 1,653 2,205 2,179 2,227 2,047 1,519 12 Mortgage-backed 13,748 16,441 21,100 24,645 21,494 24,869 20,000 19,274 17,854 27,155 19,820 17,348 With other 13 U.S. Treasury 81,528 73,148 107,038 106,587 105,241 102,181 97,340 112,916 126,579 90,301 83,689 92,376 14 Federal agency 41,873 30,169 42,715 39,989 43,941 36,737 42,737 45,264 49,402 40,598 42,704 43,659 15 Mortgage-backed 31,538 33,042 43,204 46,592 42,647 51,520 40,203 40,089 37,041 65,445 38,636 30,655 FUTURES TRANSACTIONS3 By type of deliverable security 16 U.S. Treasury bills 404 165 262 120 258 401 77 381 549 Coupon securities, by maturity 17 Five years or less 2,534 2,107 2,552 2,318 1,946 1,400 1,662 4,049 4,383 2,204 3,099 1,503 18 More than five years 13,394 11,345 16,583 17,318 15,655 13,897 15,610 18,522 21.785 16.104 16,901 14,111 19 Inflation-indexed 0 0 Federal agency 0 0 0 0 0 0 0 0 20 Discount notes 0 Coupon securities, by maturity 0 0 0 0 0 0 0 0 21 One year or less 0 22 More than one year, but less than 0 0 0 0 0 0 0 0 or equal to five years 0 0 0 0 0 0 0 0 0 23 More than five years 0 0 0 0 0 0 0 0 0 24 Mortgage-backed 0 0 0 0 0 0 0 0 0 OPTIONS TRANSACTIONS4 By type of underlying security 25 US. Treasury bills 0 0 Coupon securities, by maturity 26 Five years or less 1,831 2,173 2,652 2,099 2,856 2,588 1,878 2,885 3,467 2,674 1,703 2,282 27 More than five years 4,487 3,742 6,194 6,588 5,091 5,288 5,160 8,496 6,425 6,807 4,239 5,129 28 Inflation-indexed t t 0 0 0 0 0 0 0 0 Federal agency 0 0 29 Discount notes 0 Coupon securities, by maturity n.a. 0 0 30 One year or less 31 More than one year, but less than 0 0 or equal to five years 0 0 0 0 0 0 0 0 32 More than five years 0 0 0 0 0 0 0 0 0 0 0 0 33 Mortgage-backed 632 428 636 600 622 380 739 881 0 754 417 646 602 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 January 28, 1998. 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 A29 1.43 U.S. GOVERNMENT SECURITIES DEALERS Positions and Financing1 Millions of dollars 1997 1998 1998, week ending Jan. 28 Feb. 4 Feb. 11 Feb. 18 Feb. 25 Mar. 4 Mar. 11 Mar. 18 NET OUTRIGHT POSITIONS3 By type of security 1 U.S. Treasury bills 18,205 12,567 8,517 5,154 7.900 4,244 14,147 4,839 14,758 16,613 Coupon securities, by maturity 2 Five years or less -21,352 -12,119 -7,847 -7,108 -9,565 -6,257 -6,557 -6,581 -15,232 -16,412 -13,544 3 More than five years -16,759 -17,495 -21,431 -20,561 -15,096 -21,399 -20,445 -25,823 -22,004 -26,879 -22,672 4 Inflation-indexed 1,506 1,457 Federal agency 1.422 1,792 1,639 1.359 1,004 958 1,164 5 Discount notes 19,303 22,402 Coupon securities, by maturity 18,759 20,376 20,133 14,677 16,681 22,161 15,785 6 One year or less 3,123 1,924 7 More than one year, but less than 3,013 1,579 3,001 3,811 3,449 3,971 3,453 or equal to five years 6,251 4,932 5,541 5,667 7,118 7,763 8 More than five years 5,753 9,624 6,118 8,636 9,281 9,312 7,880 9,507 10,037 9 Mortgage-backed 44,132 46,961 8,898 42,751 8,128 57,244 52,185 43,055 8,680 54.641 53,106 50,013 47,110 48,178 NET FUTURES POSITIONS4 Bv type of deliverable security 10 U.S. Treasury bills -2,635 -3,588 -4,872 -4,165 -4,027 -4,904 -4,891 -5,300 -4,878 -4,374 -3,218 Coupon securities, by maturity 11 Five years or less 3,578 -1,082 -752 -410 -2,909 -2,667 -1,554 1,041 4,283 3,834 762 12 More than five years -27,114 -25,767 -18,954 -20,159 -21,845 -20,163 -22,654 -15,126 -12,575 -12.165 -18,719 13 Inflation-indexed 0 Federal agency 0 0 0 0 0 0 0 0 14 Discount notes 0 Coupon securities, by maturity 0 0 0 0 0 0 0 0 15 One year or less 0 16 More than one year, but less than 0 0 0 0 0 0 0 0 or equal to five years 0 0 0 0 0 0 0 0 0 17 More than five years 0 0 0 0 0 0 0 0 0 18 Mortgage-backed 0 0 0 0 0 0 0 0 0 NET OPTIONS POSITIONS By type of deliverable security 19 U.S. Treasury bills Coupon securities, by maturity 20 Five years or less -757 -667 -1,366 -653 -1,253 -1,027 -1,246 -2,157 -743 641 2,782 21 More than five years 3,226 3,022 2,729 2,132 3,202 2,169 3,356 2,563 2,328 3,500 3,258 22 Inflation-indexed n.a. n.a. n.a. n.a. n.a. n.a. Federal agency 23 Discount notes 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 24 One year or less 0 0 0 0 0 0 0 0 0 25 More than one year, but less than or equal to five years 0 0 0 0 0 0 0 0 0 26 More than five years i.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 27 Mortgage-backed 907 860 -50 234 690 1,813 2,148 1,253 1,098 Financing Reverse repurchase agreements 28 Overnight and continuing 304,385 324,675 352,684 314,422 350,352 329,281 374,844 341,612 384,527 364,022 355,137 29 Term 654,600 746,499 722,028 806,323 786,654 848.506 626,731 667,730 689,804 736,348 786,546 Securities borrowed 30 Overnight and continuing 200,401 214,345 209,166 212,450 213,321 218,106 211,427 217,293 220,176 210,707 31 Term 92.672 80.881 89,298 84,324 82,349 76,158 80,410 84,980 86,934 90,597 Securities received as pledge 32 Overnight and continuing 5.939 5,127 4,208 4,435 4,502 4,445 4,357 4,144 3,063 2,893 2,674 33 Term 286 152 237 166 165 261 267 231 224 258 174 Repurchase agreements 34 Overnight and continuing 648,786 715,197 735,160 706,615 733,169 728,930 768,739 703,572 747,707 739,482 758,664 35 Term 586,741 686,432 639,985 718,382 701.852 744,488 550,147 602,252 611,323 647,681 698,755 Securities loaned 36 Overnight and continuing 7,927 8,157 8,531 7,794 8,446 8,573 8,593 8,087 9,436 9,332 9,502 37 Term 4,591 4,645 3,880 4,471 4,430 4,113 3,481 3,510 4,393 4,137 4,851 Securities pledged 38 Overnight and continuing 53,643 52,182 55,551 50.907 51,715 54,489 59,232 55,989 53,529 54,320 55,238 39 Term 3,566 5,019 3,111 6,057 5,235 4,703 1.087 2,185 3,451 3,587 6,311 Collateralized loans 40 Total 13,891 14,467 9,536 11,896 10,541 7.304 8,416 11,863 11,895 12,454 1. Data for positions and financing are obtained from reports submitted to the Federal securities are included when the time to delivery is more than five business days. Forward Reserve Bank of New York by the U.S. government securities dealers on its published list of contracts for mortgage-backed agency securities are included when the time to delivery is primary dealers. Weekly figures are close-of-business Wednesday data. Positions for calendar more than thirty business days. days of the report week are assumed to be constant. Monthly averages are based on the 4. Futures positions reflect standardized agreements arranged on an exchange. All futures number of calendar days in the month. positions are included regardless of time to delivery. 2. Securities positions are reported at market value. 5. Overnight financing refers to agreements made on one business day that mature on the 3. Net outright positions include immediate and forward positions. Net immediate posi- next business day; continuing contracts are agreements that remain in effect for more than one tions include securities purchased or sold (other than mortgage-backed agency securities) that business day but have no specific maturity and can be terminated without advance notice by have been delivered or are scheduled to be delivered in five business days or less and either party; term agreements have a fixed maturity of more than one business day. Financing "when-issued" securities that settle on the issue date of offering. Net immediate positions for data are reported in terms of actual funds paid or received, including accrued interest. mortgage-backed agency securities include securities purchased or sold that have been NOTE, "n.a." indicates that data are not published because of insufficient activity. delivered or are scheduled to be delivered in thirty business days or less. Major changes in the report form filed by primary dealers induced a break in the dealer data Forward positions reflect agreements made in the over-the-counter market that specify series as of the week ending January 28, 1998. Digitizedd efloayre dF RdeAlivSeryE. RFo rward contracts for U.S. Treasury securities and federal agency debt http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic Financial Statistics • June 1998 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period 1998 Agency 1997 Sept. 1 Federal and federally sponsored agencies. 738,928 844,611 925,823 1,022,609 983,599 1,003,177 1,014,907 1,022,609 1,032,486 2 Federal agencies. 39,186 37,347 29,380 27,792 27,392 27.356 27,500 27,792 27,110 3 Defense Department 6 6 6 6 6 6 6 6 6 4 Export-Import Bank2" 3,455 2,050 1,447 552 1,326 1,295 1,295 552 682 5 Federal Housing Administration4 116 97 84 102 68 93 102 133 6 Government National Mortgage Association certificates of participation n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 7 Postal Service6 8,073 5,765 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Tennessee Valley Authority 27,536 29,429 27,853 27,786 27,386 27,350 27,494 27.786 27,104 United States Railway Association6 n.a. n.a. n.a. n.a. n.a. n.a. 10 Federally sponsored agencies7 699,742 807,264 896,443 994,817 956,207 975,821 987.407 994.817 1,005,376 11 Federal Home Loan Banks . 205,817 243,194 263,404 313,919 295,212 302,310 308.745 313.919 311,385 12 Federal Home Loan Mortgage Corporation .. . 93,279 119,961 156,980 169,200 160,050 172,433 174.900 169,200 181,948 13 Federal National Mortgage Association 257,230 299,174 331,270 369,774 358,003 356,149 361.602 369,774 370,524 14 Farm Credit Banks8 53,175 57,379 60,053 63,517 61,612 61,093 61,093 63,517 61,317 15 Student Loan Marketing Association 50,335 47,529 44,763 37,717 40,531 43,000 40,321 37,717 39,375 16 Financing Corporation10 8,170 8,170 8,170 8,170 8,170 8,170 8,170 8,170 8,170 17 Farm Credit Financial Assistance Corporation" 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 IS Resolution Funding Corporation 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 MEMO 19 Federal Financing Bank debt13 103,817 78,681 58,172 49,090 49,944 48,698 32,523 49,090 48321 Lending to federal and federally sponsored agencies 20 Export-Import Bank 3,449 2.044 1,431 1,326 1,295 1,295 21 Postal Service6 8,073 5,765 n.a. n.a. n.a. n.a. n.a. 22 Student Loan Marketing Association n.a. n.a. n.a. n.a. n.a. 23 Tennessee Valley Authority 3,200 3,200 n.a. n.a. n.a. n.a. 24 United States Railway Association6 n.a. n.a. n.a. n.a. n.a. n.a. Other lending^ 25 Farmers Home Administration 33,719 21.015 18,325 13,530 13,895 13,530 13,530 13,530 13,530 26 Rural Electrification Administration 17,392 17,144 16,702 14,898 14,917 14,819 14.819 14,898 14.841 27 Other 37,984 29.513 21,714 20,110 19,716 19,054 2,879 20,110 19,950 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 1998 Type of issue or issuer, or use Aug. Sept. Oct. Nov. Dec. Feb. Mar. 1 All issues, new and refunding 145,657 171,222 214,693 17,401 21,499 21,898 20,207 21^42 16,770 21,306 27,858 By type of issue 2 General obligation 56.980 60,409 69,934 5,062 3,590 7,837 5,713 8,005 5,608 9,893 9,597 3 Revenue 88,677 110,813 134,989 11,518 17,909 14,061 14,494 13,337 11,162 11,413 18,261 By type of issuer 4 State 14,665 13,651 18,237 1,352 1,278 2,392 509 1,702 1,268 2,420 2,375 5 Special district or statutory authority2 93,500 113,228 134,919 10,480 14,890 13,195 13,586 15,600 11,794 14,228 19,624 6 Municipality, county, or township 37,492 44,343 70,558 4,803 16,592 13,920 5,920 4,098 3,708 4,658 5,859 7 Issues for new capital 102,390 112,298 127,928 8,915 10.158 12,981 12,979 13,487 9,696 12,538 15,134 By use of proceeds 8 Education 23,964 26,851 31,860 2.781 1,943 2,647 2,973 2,981 2,338 3,525 4,297 9 Transportation 11,890 12,324 13,951 1,276 2,654 1,215 1,420 1,144 1,521 1,760 771 10 Utilities and conservation 9,618 9,791 12,219 576 907 1,402 1,217 683 598 687 1,866 11 Social welfare 19,566 24,583 27,794 1,481 2,305 2,341 4,090 2,940 1,540 2,903 3,104 12 Industrial aid 6,581 6,287 6,667 799 441 729 574 897 448 581 1,236 13 Other purposes 30,771 32,462 35,095 2,024 1,908 4,642 2,705 4,842 3,251 3,082 3,860 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 1998 Type of issue, offering, 1995 or issuer July Sept. Oct. Nov. Dec. Jan. Feb. 1 All issues1 673,779 n.a. 67,305 85,001 71,219 58,350 63,992 74,008r 76,720 2 Bonds2 573,206 n.a. 57,886 46,576 75,166 58,166 46.543 55,973 66492' 65,575 By type of offering 3 Public, domestic 408,804 465,489 537,778 46,415 40,840 60,226 46,967' 42,969 54,443 55,944' 53,159 4 Private placement, domestic3 . 87,492 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5 Sold abroad 76,910 83,433 103,118 11,471 5,736 14,941 11,199 3,574 1,530 10,648 12,416 flv industry group 6 Manufacturing 61,070 49,476 47,064 8,480 5,087 3,534 4,668 2,152 2,976 10,059' 4,455 7 Commercial and miscellaneous 50,689 40,544 42,480 4.466 3,196 4,330 7,982 1,166 1,978 5,497' 3,320 8 Transportation 8,430 5,722 11,352 544 406 296 1,322 299 448 2,233 1,410 9 Public utility 13.751 9,498 16,660 3,674 1,407 1,357 1,664 1,590 1,372 [MCf 953 10 Communication 22,999 14,525 12,055 1,304 278 1.829 342 1,586 923 2,360' 2,509 11 Real estate and financial 416,269 429,157 511,285 39,419 36,202 63.820 42,189 39,750 48,276 44,803' 52,928 12 Stocks2 100,573 9,419 5,541 9,835 13,053 11,807 8,019 7,416 11,145 By type of offering 13 Public preferred 10,917 33,208 29,814 678 645 1,878 1,824 1,060 3.578 3,607 3,861 14 Common 57,556 83,052 82,392 8,741 4,895 7,957 11,229 10,747 4,441 3,809 7,284 15 Private placement3 32,100 n.a. By industry group 16 Manufacturing 21,545 1,056 836 1,294 17 Commercial and miscellaneous 27.844 2.804 1.673 3,714 18 Transportation 804 563 139 472 19 Public utility 1.936 483 48 405 20 Communication 1,077 120 52 235 21 Real estate and financial 47,367 3,875 2,371 3,885 6,583 5,449 5,257 5,675 5,585 I 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 Financial Statistics • June 1998 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets1 Millions of dollars 1997' 1998' Item 1996' 1997 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. 934,595 1,190,900 98,496 101,503 115,343 94,478 110,452 119,488 114,219 128,448 2 Redemptions of own shares 702,711 918,728 77,637 72,279 91,654 66,135 89,982 92,621 81,688 96,889 3 Net sales3 231.885 272,172 20,859 29,224 23,689 28,343 20,471 26,867 32,532 31,558 4 Assets4 2,624,463 3,409,315 3,182,253 3,368,362 3,284,252 3,356,347 3,409,315 3,459354 3,675,392 3,844,616 5 Cash5 138,559 174,154 173,299 178,786 179,909 186,582 174,154 183,648 180,415 177,291 6 Other 2,485,904 3,235,161 3,008,954 3,189,576 3,104,343 3,169,765 3,235,161 3,275,706 3,494,977 3,667,324 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 Ql Q2 Q3 Q4 01 Q2 Q3 Q4 1 Profits with inventory valuation and capital consumption adjustment 650.0 735.9 805.0 717.7 738.5 739.6 747.8 779.6 795.1 827.3 818.1 2 Profits before taxes 622.6 676.6 729.8 664.9 682.2 679.1 680.0 708.4 719.8 753.4 737.3 3 Profits-tax liability 213.2 229.0 249.4 226.2 232.2 231.6 226.0 241.2 244.5 258.2 253.6 4 Profits after taxes 409.4 447.6 480.3 438.7 450.0 447.5 454.0 467.2 475.3 495.2 483.7 5 Dividends 264.4 304.8 336.1 300.7 303.7 305.7 309.1 326.8 333.0 339.1 345.6 6 Undistributed profits 145.0 142.8 144.2 138.0 146.4 141.8 144.9 140.3 142.3 156.1 138.1 7 Inventory valuation -24.3 -2.5 5.5 -5.1 -5.4 -2.7 3.3 3.5 5.9 3.6 9.2 8 Capital consumption adjustment . 51.6 61.8 69.7 57.9 61.6 63.2 64.4 67.7 69.4 70.3 71.6 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 Account 1995 1996 1997 Q2 Q3 Q4 Ql Q2 Q3 Q4 ASSETS 607.0 637.1 663.5 626.7 628.1 637.1 648.0 651.6 660.5 663.5 2 Consumer 233.0 244.9 256.8 240.6 244.4 244.9 249.4 255.1 254.5 256.8 301.6 309.5 318.8 305.7 301.4 309.5 315.2 311.7 319.5 318.8 72 4 82 7 87 9 80 4 82 2 82 7 83 4 84 8 86 4 87 9 5 LESS: Reserves for unearned income 60.7 55.6 52.7 57.2 54.8 55.6 51.3 57.2 54.6 52.7 12.8 13.1 13.0 12.7 12.9 13.1 12.8 133 127 13 0 533.5 568.3 597.8 556.7 560.5 568.3 583.9 581.2 593.1 597.8 8 All other 250 9 2900 3124 258 7 268 7 290 0 289 6 306 8 289 1 3124 9 Total assets 784.4 858.3 910.2 815.4 829.2 858.3 873.4 887.9 882 3 910 2 LIABILITIES AND CAPITAL 15.3 19.7 24.1 17.7 18.3 19.7 18.4 18.8 20.4 24.1 11 Commercial paper 168.6 177.6 201.5 169.6 173.1 177.6 185.3 193.7 189.6 201.5 Debt 51.1 60.3 64.7 56.3 57.9 60.3 61.0 60.0 61.6 64.7 300.0 332.5 328.9 319.0 322.3 332.5 324.6 345.3 322.8 328.9 14 All other liabilities 163.6 174.7 189.6 163.2 164.8 174.7 189.2 171.4 190.1 189.6 85.9 93 5 101.3 89.7 92 8 93 5 94 9 98 7 97 9 101 1 16 Total liabilities and capital 784.4 858.3 910.1 815.4 829.2 858.3 873.4 887.9 882.3 910.1 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 Receivables' Billions of dollars, amounts outstanding 1998 Type of credit 1995 1996 1997 Sept. Seasonally adjusted 1 Total 682.4 762.4 810.4' 799.0 802.7 805.7 810.4r 811.8' 821.6 2 Consumer 281.9 306.6 326.9 322.6 324.4 323.7 326.9 325.6 328.0 3 Real estate 72.4 111.9 121.1 120.7 121.5 121.7 121.1 122.1 124.1 4 Business 328.1 343.8 362.4' 355.8 356.8 360.3 362.4' 364.1' 369.5 Not seasonally adjusted 5 Total 689.5 769.7 818.1' 795.3 806.9 818.1r 813.0r 820.1 6 Consumer 285.8 310.6 330.9 323.3 324.2 325.4 330.9 327.0 326.5 7 Motor vehicles loans 81.1 86.7 87.0 88.5 86.8 86.0 87.0 87.4 84.7 8 Motor vehicle leases 80.8 92.5 96.8 96.1 95.9 96.4 96.8 94.6 94.9 9 Revolving2 28.5 32.5 38.6 34.9 34.7 34.8 38.6 37.6 37.0 10 Other3 42.6 33.2 34.4 35.0 35.3 35.5 34.4 35.2 35.5 Securitized assets 11 Motor vehicle loans 34.8 36.8 44.3 39.7 42.6 42.5 44.3 42.8 45.3 12 Motor vehicle leases 3.5 8.7 10.8 10.0 9.9 11.0 10.8 10.7 10.6 13 Revolving n.a. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 14 Other 14.7 20.1 19.0 19.0 18.9 19.2 19.0 18.7 18.5 15 Real estate 72.4 111.9 121.1 120.7 121.5 121.7 121.1 122.1 124.1 16 One- to four-family n.a. 52.1 59.0 56.6 58.5 59.4 59.0 59.8 62.2 17 Other n.a. 30.5 28.9 29.8 29.3 29.0 28.9 29.3 29.4 Securitized real estate assets4 18 One- to four-family n.a. 28.9 33.0 34.0 33.5 33.0 33.0 32.8 32.3 19 Other n.a. 0.4 0.2 0.3 0.3 0.2 0.2 0.2 0.2 20 Business 331.2 347.2 366.1' 351.4 355.1 359.8 366.1' 363.9' 369.5 21 Motor vehicles 66.5 67.1 63.5 67.4 61.2 62.0 63.5 61.8 64.8 22 Retail loans 21.8 25.1 25.6 26.0 26.5 26.3 25.6 26.1 26.4 23 Wholesale loans5 36.6 33.0 27.7 31.8 25.0 25.8 111 25.7 28.2 24 Leases 8.0 9.0 10.2 9.6 9.7 9.8 10.2 10.1 10.2 25 Equipment 8.0 9.0 10.2 199.0 198.5 198.9 203.9' 204.1' 203.2 26 Loans 8.0 9.0 10.2 51.9 50.3 49.6 51.5' 50.7' 49.7 27 Leases 8.0 9.0 10.2 147.1 148.2 149.4 152.3 153.4 153.5 28 Other business receivables6 8.0 9.0 10.2 53.1 54.7 54.0 5i.r 52.0' 55.5 Securitized assets4 29 Motor vehicles 8.0 9.0 10.2 19.6 28.4 32.4 33.0 31.5 31.2 30 Retail loans 8.0 9.0 10.2 2.2 2.1 2.5 2.4 2.3 2.2 31 Wholesale loans 8.0 9.0 10.2 17.4 26.3 29.8 30.5 29.2 29.0 32 Leases 8.0 9.0 10.2 0.0 0.0 0.0 0.0 0.0 0.0 33 Equipment 8.0 9.0 10.2 9.6 9.7 9.9 10.7 10.4 10.8 34 Loans 8.0 9.0 10.2 3.6 3.8 4.1 4.2 3.9 4.3 35 Leases 8.0 9.0 10.2 6.0 5.8 5.8 6.5 6.5 6.5 36 Other business receivables6 8.0 9.0 10.2 2.6 2.7 2.6 4.0 4.0 4.0 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 Financial Statistics • June 1998 1.53 MORTGAGE MARKETS Mortgages on New Homes Millions of dollars except as noted 1997 1998 Item 1995 1996 1997 Sept. Oct. Nov. Dec. Jan. Feb. Mar. Terms and yields in primary and secondary markets PRIMARY MARKETS Terms' 175.8 182.4 180.1 190.6 183.4 184.0 190.7 184.1 195.3 191.7 2 Amount of loan (thousands of dollars) 134.5 139.2 140.3 147.0 142.4 143.5 149.8 142.3 148.5 149.5 78.6 78.2 80.4 79.3 80.1 80.8 81.0 80.5 78.6 81.0 27.7 27.2 28.2 28.3 28.1 28.6 28.2 28.5 28.0 28.3 5 Fees and charges (percent of loan amount)2 1.21 1.21 1.02 1.12 0.94 0.95 0.96 0.91 0.99 0.95 Yield (percent per year) 7.65 7.56 7.57 7.43 7.39 7.26 7.25 7.13 7.09 7.03 7 Effective rate1'3 7.85 7.77 7.73 7.61 7.54 7.40 7.40 7.27 7.24 7.17 8 Contract rate (HUD series)4 8.05 8.03 7.76 7.51 7.48 7.38 7.25 7.16 7.22 n.a. SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (Section 203)5 8.18 8.19 7.89 7.52 7.53 7.51 7.17 7.08 7.06 n.a. 10 GNMA securities6 7.57 7.48 7.26 7.10 6.90 6.84 6.74 6.56 6.63 6.66 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 253,511 287,052 316,678 307,256 310,421 314,627 316,678 320,062 322,957 327,025 12 FHA/VA insured 28,762 30,592 31,925 31,847 32,080 31,878 31,925 31,621 31,650 31,965 224,749 256,460 284,753 275,409 278,341 282,749 284,753 288,441 291,307 295,060 14 Mortgage transactions purchased (during period) 56,598 68,618 70,465 6,544 7,619 8,166 6,692 7,647 8,630 12,095 Mortgage commitments (during period) 15 Issued7 56,092 65,859 69,965 7,573 9,190 5,123 6,275 12,199 10,587 14,057 16 To sell8 360 130 1,298 215 300 139 140 60 0 92 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of period)^ 17 Total 107,424 137,755 164,421 157,165 159,801 160,974 164,421 169,142 175,770 185,928 18 FHA/VA insured 267 220 177' 186 183 180 177' 173' nff 170 19 Conventional 107,157 137,535 164,244' 156,979 159,618 160,794 164.244' 168,969' 185,758 Mortgage transactions (during period) 175,600' 98,470 125,103 117,401' 10,362 12,175 11,152 15,979' 13,120 21,011 21 Sales . 85,877 119,702 114,258' 9,727 11,712' 10,832 14,587 12,702 12,481 19,085 13,610 22 Mortgage commitments contracted (during period)9 118,659 128,995 120,089 10,877 11,986 12,047 15,805 15,638 17,397 23,060 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 die 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 Type of holder and property Q4 01 Q2 Q4"> ! All holders. 4,392,093 4,606,303 4,929,430 4,929,430 4,986,602 5,076,193 5,176,094 5,277,185 fly type of property 2 One- to four-family residences . . . 3,357,475 3,533,295 3,761,711 3,761,711 3,806,572 3,870,145 3,946,690 4,019,228 3 Multifamily residences 274,625 287,297 312,558 312,558 316,582 323,069 327,991 338.135 4 Nonfarm, nonresidential 677,022 701,150 768,027 768,027 775,795 794,301 811,657 829,476 5 Farm 82,971 84,561 87,134 87,134 87,653 88,678 89.755 90,346 By type of holder 6 Major financial institution!; 1,819,806 1,894.420 1,979,114 1,979,114 1,993,046 2,033.655 2,066,259 2.084,728 Commercial banks 1,012,711 1,090,189 1,145.389 1,145,389 1,160,136 1,196,517 1.227,076 1,244,210 One- to four-family 615,861 669,434 698,508 698,508 708,802 733.670 752,011 762,421 Multifamily 39,346 43.837 46,675 46,675 47,618 49,124 49,648 51,100 Nonfarm. nonresidential 334,953 353.088 375,322 375,322 378,474 387,661 398,619 403,712 Farm 22,551 23,830 24,883 24,883 25,242 26,061 26,798 26,977 Savings institutions 596,191 596,763 628,335 628,335 626.381 629,062 629,757 629,726 One- to four-family 477,626 482,353 513,712 513,712 513,393 516,521 518,199 518,976 Multifamily 64,343 61,987 61,570 61,570 60,645 60,070 60,335 59,527 Nonfarm, nonresidential 53,933 52,135 52.723 52,723 52,007 52,132 50,878 50,870 Farm 289 288 331 331 336 338 344 353 Life insurance companies 210,904 207,468 205,390 205,390 206,529 208,077 209.426 210,792 One- to four-family 7,018 7,316 6,772 6,772 6,799 6,842 7,080 7,186 Multifamily 23,902 23,435 23,197 23,197 23,320 23,499 23,615 23,755 Nonfarm, nonresidential 170,421 167,095 165,399 165,399 166,277 167,548 168,374 169,377 Farm 9,563 9,622 10,022 10,022 10,133 10,188 10,358 10,473 22 Federal and related agencies . . 315,580 306,774 300,935 300,935 295,203 292,966 291,410 292,522 23 Government National Mortgage Association 6 2 2 2 6 7 7 24 One- to four-family 6 2 2 2 6 7 7 25 Multifamily 0 0 0 0 0 0 0 0 26 Farmers Home Administration4 41,781 41,791 41.596 41,596 41,485 41,400 41,332 41,195 27 One- to four-family 18,098 17,705 17,303 17,303 17,175 17,239 17,458 17,253 28 Mullifamily 11,319 11,617 11,685 11,685 11,692 11,706 11,713 11,720 29 Nonfarm, nonresidential 5,670 6,248 6,841 6,841 6,969 7,135 7,246 7,370 30 Farm 6,694 6,221 5,768 5,768 5,649 5.321 4,916 4.852 31 Federal Housing and Veterans' Administrations .. . 10,964 9,809 6.244 6,244 4,330 4,200 3,462 3.821 32 One- to four-family 4,753 5,180 3,524 3,524 2,335 2,299 2,810 3,091 33 Multifamily 6,211 4,629 2.719 2,719 1,995 1,900 652 730 34 Resolution Trust Corporation 10,428 1,864 0 0 0 0 0 0 35 One- to four-family . 5,200 691 0 0 0 0 0 0 36 Multifamily 2,859 647 0 0 0 0 0 0 37 Nonfarm, nonresidential 2,369 525 0 0 0 0 0 0 38 Farm 0 0 0 0 0 0 0 0 39 Federal Deposit Insurance Corporation 7,821 4,303 2,431 2,431 2,217 1.816 1.476 724 40 One- to four-family 1,049 492 365 365 333 272 221 109 41 Multifamily 1,595 428 413 413 377 309 251 123 42 Nonfarm. nonresidential 5,177 3,383 1,653 1,653 1,508 1,235 1.004 492 43 Farm 0 0 0 0 0 0 0 0 44 Federal National Mortgage Association 174,312 176,824 174,556 174,556 172,829 170,386 168,458 167,722 45 One- to four-family 158,766 161,665 160,751 160.751 159,634 157,729 156,363 156,245 46 Multifamily 15,546 15,159 13,805 13,805 13,195 12,657 12,095 11,477 47 Federal Land Banks 28,555 28,428 29,602 29,602 29,668 29,963 30,346 30,598 48 One- to four-family , ,, . 1,671 1,673 1,742 1.742 1,746 1,763 1,786 1,800 49 Farm 26,885 26.755 27,860 27,860 27,922 28,200 28,560 28,798 50 Federal Home Loan Mortgage Corporation 41,712 43.753 46,504 46.504 44,668 45,194 46,329 48,454 51 One- to four-family 38,882 39,901 41,758 41,758 39,640 40,092 40,953 42.629 52 Multifamily 2,830 3.852 4.746 4,746 5,028 5,102 5,376 5,825 53 Mortgage pools or trusts5 1,732,347 1,866,763 2.070,436 2,070,436 2,113,770 2,153,812 2,210.930 2.282.566 54 Government National Mortgage Association 450,934 472,283 506,340 506.340 513,471 520,938 529.867 536,810 55 One- to four-family 441,198 461,438 494.158 494,158 500,591 507,618 516,217 523,156 56 Multifamily 9,736 10,845 12,182 12,182 12,880 13.320 13,650 13,654 57 Federal Home Loan Mortgage Corporation 490.851 515,051 554,260 554,260 562,894 567,187 569,920 579,385 58 One- to four-family 487,725 512,238 551.513 551,513 560,369 564.445 567,340 576,846 59 Multifamily 3,126 2,813 2,747 2,747 2,525 2,742 2,580 2,539 60 Federal National Mortgage Association 530,343 582,959 650.780 650,780 663,668 673,931 690,919 709,582 61 One- to four-family 520,763 569,724 633,210 633,210 645,324 654,826 670,677 687,981 62 Multifamily 9,580 13,235 17,570 17,570 18,344 19,105 20,242 21,601 6.) Farmers Home Administration4 19 11 3 3 3 2 2 2 64 One- to four-family 3 2 0 0 0 0 0 0 6 6 6 5 6 7 M N Fa o u r n m lt f i a f . r a m m , i l n y onresidential 0 9 7 0 4 5 0 0 3 0 0 3 0 0 3 0 0 2 0 0 2 0 0 2 68 Private mortgage conduits . 260,200 296,459 359.053 359,053 373,734 391,753 420,222 456,787 69 One- to four-family6 208,500 227,800 261,900 261,900 271,100 279,450 299,400 318,000 Multifamily. 14,925 21.279 33,689 33,689 35,607 38,992 41,973 48,261 Nonfarm, nonresidential. . 36,774 47,380 63,464 63,464 67,027 73,312 78,849 90,526 Farm 0 0 0 0 0 0 0 0 73 Individuals and others 524,360 538,347 578,945 578,945 584,583 595,761 607,495 617,369 74 One- lo four-family 370,356 375.682 376,493 376,493 379,327 387,372 396,169 403.526 75 Mullifamily 69,306 73.533 81,560 81,560 83.354 84.543 85,861 87,823 76 Nonfarm, nonresidential 67,715 71,291 102,625 102,625 103,533 105.279 106,689 107,129 77 Farm 16,983 17,841 18,268 18,268 18,368 18,567 18,776 18,891 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:O4 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 Financial Statistics • June 1998 1.55 CONSUMER CREDIT1 Millions of dollars, amounts outstanding, end of period Holder and type of credit 1996 1997 Sept. Oct. Nov. Dec. Feb. Seasonally adjusted 1 Total 1,094,197 1,179,892 l,231,970r 1,224,466 l,233,908r l,228,050r l,231,970r 1,236360 1,243,626 2 Automobile . 364,231 392,370 415,335' 406,219 410,431 408,646' 415,335' 417,607 418,929 3 Revolving.. . 442,994 499,209 530,811 526,377 530,748 529,810 530,811 532,857 536,751 4 Other2 286,972 288,313 285,824' 291,870 292,729' 289,594' 285,824' 286,096 287,946 Not seasonally adjusted 5 Total 1,122,828 1,211,590 l,265,384r 1,227,314 1,233,408' 1,235,598' 1,265,384' 1,246,594 1,238.380 By major holder 6 Commercial banks 501,963 526,769 512,539' 507,549 506,291' 506,497' 512,539' 500,847 495,572 7 Finance companies 152,123 152,391 160,022 158,428 156,867 156,375 160,022 160,167 157,227 8 Credit unions 131,939 144,148 153,667 150,669 151,486 151,770 153,667 152,346 151,172 9 Savings institutions 40,106 44,711 47,172 48,487 48,049 47,611 47,172 46,733 46,295 10 Nonfinancial business 85,061 77,745 78,927 68,658 68,547 70,464 78,927 75,355 72,776 11 Pools of securitized assets4 211,636 265,826 313,057' 293,523 302,168 302,881' 313,057' 311,146 315,338 By major type of credit 12 Automobile 367,069 395,609 418,859' 409,812 414,950 412,869' 418,859' 415,840 414,613 13 Commercial banks 151,437 157,047 155,254 157,234 157,857 156,232 155,254 154,413 152,747 14 Finance companies 81,073 86,690 87,015 88,545 86,805 86,046 87,015 87,379 84,677 15 Pools of securitized assets4 44,635 51,719 64,950* 55,991 60,648 60,378' 64.9501 63,066 65,957 16 Revolving 464,134 522,860 555,869 524,281 527,479 532,907 555,869 541,379 536,095 17 Commercial banks 210,298 228,615 219,826 209,269 209,544 212,726 219,826 208,750 204,564 18 Finance companies 28,460 32,493 38,608 34,925 34,717 34,789 38,608 37,585 37,020 19 Nonfinancial business3 53,525 44,901 44,966 37,685 37,479 38,865 44,966 42,689 40,976 20 Pools of securitized assets 147,934 188,712 221,465 212,403 215,674 216,411 221,465 221,805 223,400 21 Other 291,625 293,121 290,656' 293,221 290,979' 289,822' 290,656' 289,375 287,672 22 Commercial banks 140,228 141,107 137,459' 141,046 138,890' 137,539' 137,459' 137,684 138,261 23 Finance companies 42,590 33,208 34,399 34,958 35,345 35,540 34,399 35,203 35,530 24 Nonfinancial business3 31,536 32,844 33,961 30,973 31,068 31,599 33,961 32,666 31,800 25 Pools of securitized assets4 19,067 25,395 26,642 25,129 25,846 26,092 26,642 26,275 25,981 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.I9 (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 1998 Item 1995 1996 1997 Aug. Sept. Oct. Nov. Dec. Jan. Feb. ImBREST RATES Commercial banks 9.57 9.05 9.02 8.99 8.96 8 87 2 24-month personal 13.94 13.54 13.90 13.84 n.a. n.a. 14.50 n.a. n.a. 14.01 Credit card plan 3 All accounts 16.02 15.63 15.77 15.78 n.a. n.a. 15.65 n.a. n.a. 15.65 15.79 15.50 15.57' 15.81' 15.62' 15 33 Auto finance companies 11 19 9.84 7 12 5 93 6 12 7 27 6 85 5 93 6 12 6 98 14.48 13.53 13.27 13.38 13.29 13 22 13 14 13 16 12 77 12 87 OTHER TERMS3 Maturity (months) 7 New car 54.1 51.6 54.1 55.5 55.4 54.4 53.7 53.5 52.8 52.6 8 Used car 52 2 51.4 51 0 51 2 50 8 50 6 50 5 50 5 52 2 52 5 Loan-tovalue ratio 92 91 92 93 93 92 91 92 92 92 10 Used car 99 100 99 99 99 101 99 99 98 97 Amount financed (dollars) 11 New car 16,210 16,987 18,077 18,329 18,520 18,779 18,923 19,121 18,944 18,825 12 Used car 11,590 12,182 12,281 12,204 12,190 12,287 12,389 12,547 12,391 12,356 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 7 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1 Billions of dollars; quarterly data at seasonally adjusted annual rates Transaction category or sector Q2 Q3 Q4 Ql Q2 03 Q4 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors. 575.2 704.2 719.7 758.8 694.9 686.8 638.7 724.2 612.6 722.3 By sector and instrument 2 Federal government 256.1 155.9 144.4 145.0 23.1 62.7 163.2 126.9 81.2 -97.1 40.9 67.4 3 Treasury securities 248.3 155.7 142.9 146.6 23.2 60.5 166.3 130.2 82.6 -97.3 41.9 65.6 4 Budget agency securities and mortgages 7.8 2 1.5 -1.6 -.1 2.2 -3.1 -3.3 -1.4 •2 -.9 1.7 5 Nonfederai 419.4 559.7 574.6 735.7 632.2 523.6 511.8 643.0 709.6 681.4 908.8 By instrument 6 Commercial paper 10.0 21.4 18.1 -.9 13.7 9.2 -14.2 -24.1 7.2 20.3 14.5 12.8 7 Municipal securities and loans 74.8 -35.9 -48.2 2.6 70.2 32.8 -64.7 41.6 43.7 95.9 51.8 89.3 8 Corporate bonds 75.2 23.3 73.3 72.5 90.7 71.5 67.8 89.9 79.4 86.1 122.9 74.4 9 Bank loans n.e.c 6.4 75.2 102.0 66.3 107.7 49.8 136.6 31.9 147.5 110.5 24.7 147.9 10 Other loans and advances -18.9 34.0 67.2 33.8 65.9 47.3 63.0 3.9 31.2 20.3 73.5 138.3 11 Mortgages 125.1 176.5 208.4 311.7 333.8 306.9 253.3 330.0 263.1 316.6 340.9 414.4 12 Home 156.6 179.0 175.8 262.1 257.5 248.5 238.5 249.6 229.9 226.5 261.5 312.2 13 Multifamily residential -6.6 2.0 10.7 17.8 21.0 17.6 12.0 27.6 10.8 21.3 15.1 36.6 14 Commercial -25.9 -6.8 20.2 29.2 52.1 35.9 .7 51.2 20.4 64.6 60.0 63.2 15 Farm 1.0 2.2 1.6 2.6 3.2 4.9 2.2 1.6 2.1 4.1 4.3 2.4 16 Consumer credit 60.7 124.9 138.9 88.8 53.8 114.7 81.9 38.6 70.8 60.0 53.0 31.5 By borrowing sector 17 Household 218.7 322.8 363.0 383.0 364.1 406.0 363.5 312.1 357.9 350.4 322.2 425.8 18 Nonfinancial business 52.3 141.9 245.7 190.3 311.7 204.9 220.4 159.9 244.5 279.1 317.3 405.9 19 Corporate 46.5 134.3 216.7 144.1 244.7 159.9 192.0 92.6 193.6 205.7 250.2 329.3 20 Nonfarm noncorporate 3.2 3.3 26.0 41.5 60.7 37.1 27.9 58.2 46.6 66.8 64.0 65.5 21 Farm 2.6 4.4 2.9 4.8 6.3 7.9 .6 9.2 4.3 6.7 3.1 11.1 22 State and local government 62.3 -45.3 -49.0 1.3 59.9 21.2 -60.3 39.8 40.6 80.0 41.8 77.0 23 Foreign net borrowing in United States 69.8 -14.0 71.1 70.5 51.5 36.1 105.7 87.9 26.3 56.4 87.8 35.5 24 Commercial paper -9.6 -26.1 13.5 11.3 3.7 9.6 37.5 4.4 15.5 10.4 -11.6 .7 25 Bonds 82.9 12.2 49.7 49.4 41.3 11.2 60.2 78.5 11.0 34.3 94.6 25.3 26 Bank loans n.e.c .7 1.4 8.5 9.1 8.5 15.1 4.7 7.8 -.7 11.5 7.3 15.7 27 Other loans and advances -4.2 -1.5 -.5 .8 -2.0 .1 3.4 -2.7 .5 2 -2.5 -6.1 28 Total domestic plus foreign 659.2 561.2 775.2 790.2 810.3 731.0 792.5 726.6 750.5 668.9 810.1 1,011.7 Financial sectors 29 Total net borrowing by financial sectors. .. 293.6 464.3 448.4 536.3 614.3 721.7 436.8 644.8 325.9 661.0 536.7 By instrument 30 Federal government-related 165.3 287.5 204.1 231.5 213.4 301.4 222.9 252.8 105.7 286.2 161.0 300.6 31 Government-sponsored enterprise securities 80.6 176.9 105.9 90.4 99.0 126.9 80.0 123.3 -8.9 198.1 46.4 160.4 32 Mortgage pool securities 84.7 115.4 98.2 141.1 114.4 174.5 142.9 129.6 114.6 88.1 114.6 140.3 33 Loans from U.S. government .0 -4.8 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 128.3 176.8 244.3 304.9 400.9 420.3 213.9 392.0 220.2 374.8 375.6 633.1 35 Open market paper -5.5 40.5 42.7 92.2 166.7 105.4 84.4 162.0 175.9 77.8 168.2 244.6 36 Corporate bonds 122.2 117.6 188.2 156.5 170.8 230.9 80.7 164.0 41.4 215.1 139.3 287.4 37 Bank loans n.e.c -14.4 -13.7 4.2 16.8 13.6 20.6 2.6 20.4 7.0 4.9 16.7 25.7 38 Other loans and advances 22.4 22.6 3.4 27.9 36.0 52.7 33.3 31.2 -20.1 63.0 37.5 63.3 39 Mortgages 3.6 9.8 5.9 11.4 14.0 10.8 12.9 14.3 16.0 14.0 14.0 12.0 By borrowing sector 40 Commercial banking 13.4 20.1 22.5 13.0 46.5 44.5 14.7 26.8 13.7 79.7 32.0 60.7 41 Savings institutions 11.3 12.8 2.6 25.5 19.8 42.1 25.8 23.0 -16.8 31.9 22.3 41.7 42 Credit unions .2 2 -.1 .1 .1 2 .3 .3 -.2 .2 2 .3 43 Life insurance companies .2 '.3 -.1 1.1 2 .3 -.4 2.0 .8 .1 2 -.3 44 Government-sponsored enterprises 80.6 172.1 105.9 90.4 99.0 126.9 80.0 123.3 -8.9 198.1 46.4 160.4 45 Federally related mortgage pools 84.7 111.4 98.2 141.1 114.4 174.5 142.9 129.6 114.6 88.1 114.6 140.3 46 Issuers of asset-backed securities (ABSs) 82.8 68.8 132.9 132.0 168.2 162.5 88.0 138.6 62.9 95.0 169.6 345.5 47 Finance companies -1.4 48.7 50.2 45.9 48.7 67.8 30.7 43.8 7.2 123.8 -2.9 66.6 48 Mortgage companies .0 -11.5 .4 12.4 4.8 16.0 1.7 12.1 5.9 5.0 3.6 4.9 49 Real estate investment trusts (REITs) 3.4 13.7 6.0 12.8 23.8 11.5 13.7 17.7 20.2 20.3 26.9 27.9 50 Brokers and dealers 12.0 .5 -5.0 -2.0 8.0 13.2 5.7 4.9 -2.9 34.9 -6.9 7.0 51 Funding corporations 6.3 23.1 34,9 64.1 80.7 62.7 33.7 123.0 129.4 -16.1 130.7 78.8 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 8 Domestic Financial Statistics • June 1998 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS'—Continued Transaction category or sector 1996 Q2 Q3 Q4 Ql Q2 Q3 Q4 All sectors 52 Total net borrowing, all sectors 952.7 1,025.5 1,223.7 1,326.5 1,424.6 1,452.7 1,229.3 1,371.5 1,076.4 1,329.9 1,346.7 1,945.5 53 Open market paper -5.1 35.7 74.3 102.6 184.1 124.2 107.7 142.3 198.6 108.5 171.1 258.1 54 U.S. government securities 421.4 448.1 348.5 376.5 236.5 364.1 386.1 379.7 186.9 189.1 201.9 368.0 55 Municipal securities 74.8 -35.9 -48.2 2.6 70.2 32.8 -64.7 41.6 43.7 95.9 51.8 89.3 56 Corporate and foreign bonds 280.3 153.2 311.1 278.4 302.8 313.6 208.7 332.4 131.8 335.5 356.8 387.1 57 Bank loans n.e.c -7.2 62.9 114.7 92.1 129.7 85.5 143.8 60.1 153.8 126.8 48.7 189.4 58 Other loans and advances -.8 50.3 70.1 62.5 99.8 100.1 99.7 32.4 11.7 83.6 108.5 195.6 59 Mortgages 128.7 186.2 214.2 323.1 347.8 317.7 266.1 344.4 279.1 330.6 354.9 426.4 60 Consumer credit 60.7 124.9 138.9 88.8 53.8 114.7 81.9 38.6 70.8 60.0 53.0 31.5 Funds raised through mutual funds and corporate equities 61 Total net Issues 429.7 125.2 143.9 230.5 217.8 380.4 71.9 156.0 197.7 183.0 313.9 176.6 62 Corporate equities 137.7 24.6 -3.5 -7.0 -41.2 75.9 -100.1 -20.3 -55.7 -57.9 10.2 -61.5 63 Nonfinancial corporations 21.3 -44.9 -58.3 -64.2 -79.9 .4 -127.6 -56.0 -78.8 -90.4 -60.4 -90.0 64 Foreign shares purchased by U.S. residents 63.4 48.1 50.4 58.8 38.0 70.1 32.7 42.3 47.0 53.0 62.2 -10.4 65 Financial corporations 53.0 21.4 4.4 -1.6 .7 5.4 -5.1 -6.7 -23.9 -20.6 8.4 38.8 66 Mutual fund shares 292.0 100.6 147.4 237.6 259.0 304.5 171.9 176.3 253.4 240.9 303.7 238.2 1. Data in this table also appear in the Board's Z.I (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 A39 1.58 SUMMARY OF FINANCIAL TRANSACTIONS1 Billions of dollars except as noted; quarterly data at seasonally adjusted annual rates 1996 Transaction category or sector 19% Q2 Q3 Q4 Ql Q2 03 NET LENDING IN CREDIT MARKETS2 1 Total net lending in credit markets 952.7 1,025.5 1,223.7 1326.5 1,424.6 1,452.7 1429.3 1,371.5 1,076.4 1,329.9 1346.7 2 Domestic nonfederal nonfinancial sectors 43.0 241.8 -85.7 -17.9 -115.2 311.1 -222.3 -158.5 -205.8 -66.3 -175.8 3 Household 2.4 278.5 -1.8 5.1 -101.7 274.9 -81.9 -22.8 -204.2 -30.0 -121.5 4 Nonfinancial corporate business 9.1 17.7 -2.4 13.5 5.3 37.4 -9.1 -5.9 58.0 -51.5 20.0 5 Nonfarm noncorporate business -1.1 .6 .3 .4 .7 .4 .4 .4 .5 .7 .8 6 State and local governments 32.6 -55.0 -81.8 -37.0 -19.6 -1.7 -131.7 -130.2 -60.2 14.5 -75.1 7 Federal government -18.4 -27.5 -.2 -7.7 4.9 -.1 -7.1 -4.1 1.9 5.6 3.0 8 Rest of the world 129.3 132.3 273.9 409.3 316.4 268.9 485.3 532.2 367.3 303.0 402.7 9 Financial sectors 798.8 678.9 1,035.7 942.9 1,218.5 872.8 973.4 1.001.9 913.0 1,087.5 1,116.8 10 Monetary authority 36.2 31.5 12.7 12.3 38.3 11.7 11.5 8.4 37.4 47.2 14.3 11 Commercial banking 142.2 163.4 265.9 187.5 324.3 179.7 196.1 248.3 308.1 309.2 209.8 12 U.S.-chartered banks 149.6 148.1 186.5 119.6 275.0 121.9 119.5 158.9 195.9 301.1 209.5 13 Foreign banking offices in United States -9.8 11.2 75.4 63.3 39.6 50.7 71.1 80.5 1O4.0 1.1 -.6 14 Bank holding companies .0 .9 -.3 3.9 5.4 5.4 4.8 10.5 2.2 5.1 -5.0 15 Banks in U.S.-affiliated areas 2.4 3.3 4.2 .7 4.2 1.7 .7 -1.6 6.1 1.8 5.8 16 Savings institutions -23.3 6.7 -7.6 19.9 -7.7 43.8 49.7 -47.9 -5.3 23.8 -42.1 17 Credit unions 21.7 28.1 16.2 25.5 15.7 33.0 21.1 24.3 18.5 25.7 15.7 18 Bank personal trusts and estates 9.5 7.1 -18.8 3.9 9.2 4.2 7.8 7.2 8.2 8.9 9.4 19 Life insurance companies 100.9 66.7 99.2 72.5 121.1 .9 123.2 118.1 94.3 175.0 107.0 20 Other insurance companies 27.7 24.9 21.5 22.5 23.3 30.5 14.2 27.7 -.1 27.9 32.4 21 Private pension funds 49.5 45.5 61.4 46.5 66.9 46.9 41.3 31.0 52.4 58.5 66.2 22 State and local government retirement funds 22.7 22.3 27.5 45.9 48.3 60.4 45.5 41.9 3.6 39.2 90.6 23 Money market mutual funds 20.4 30.0 86.5 88.8 84.5 27.0 83.0 81.3 65.2 19.7 123.6 24 Mutual funds 159.5 -7.1 52.5 48.9 74.7 54.3 27.5 25.3 61.9 91.6 103.6 25 Closed-end funds 20.0 -3.7 10.5 2.2 .8 2.2 2.2 2.2 2.7 1.3 .3 26 Government-sponsored enterprises 87.8 117.8 84.7 92.0 95.0 114.7 81.4 137.9 45.1 119.2 55.5 27 Federally related mortgage pools 84.7 115.4 98.2 141.1 114.4 174.5 142.9 129.6 114.6 88.1 114.6 28 Asset-backed securities issuers (ABSs) 80.2 61.7 111.1 101.8 129.8 135.7 62.0 89.6 39.3 80.2 107.0 29 Finance companies -20.9 48.3 49.9 18.4 22.2 36.3 13.2 -6.2 44.9 1.9 65.2 30 Mortgage companies .0 -24.0 -3.4 8.2 6.7 -26.8 3.4 4.1 -.3 10.0 7.2 31 Real estate investment trusts (REITs) .6 4.7 2.2 3.5 5.0 3.4 3.4 3.9 5.0 5.0 5.0 32 Brokers and dealers 14.8 -44.2 90.1 -15.7 15.9 -72.0 35.5 82.7 -14.5 -11.7 15.8 33 Funding corporations -35.3 -16.2 -24.6 17.2 30.4 12.3 8.6 -7.6 31.9 -33.1 15.6 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Net flows through credit markets 952.7 1,025.5 1,223.7 1324.5 1,424.6 1,229.3 U71.5 1,076.4 1^29.9 1346.7 Other financial sources 35 Official foreign exchange -5.8 -6.3 .7 1.6 -26.6 .7 -17.6 .4 2.4 36 Special drawing rights certificates .0 .0 2.2 -.5 -.5 .0 -1.8 .0 -2.1 .0 .0 37 Treasury currency .4 .7 .6 .0 .0 .0 2.3 -2.3 .4 .2 1.3 38 Foreign deposits -18.5 52.9 35.3 82.0 89.0 3.0 119.7 104.5 188.6 18.8 105.4 39 Net interbank transactions 50.5 89.8 9.9 -51.6 -40.2 -50.8 -97.2 17.6 -88.8 -43.7 -42.7 40 Checkable deposits and currency 117.3 -9.7 -12.7 15.8 41.1 3.9 105.9 -53.3 85.3 64.2 -49.2 41 Small time and savings deposits -70.3 -39.9 96.6 97.2 98.5 -3.2 94.2 90.1 157.9 24.5 46.6 42 Large time deposits -23.5 19.6 65.6 114.0 120.5 83.1 180.2 135.4 49.9 176.3 194.1 43 Money market fund shares 20.2 43.3 142.3 145.8 157.6 23.1 145.1 187.5 182.4 58.5 243.6 44 Security repurchase agreements 71.3 78.2 110.5 40.3 114.0 98.4 -15.9 83.3 32.8 193.7 115.9 45 Corporate equities 137.7 24.6 -3.5 -7.0 -41.2 75.9 -100.1 -20.3 -55.7 -57.9 10.2 46 Mutual fund shares 292.0 100.6 147.4 237.6 259.0 304.5 171.9 176.3 253.4 240.9 303.7 47 Trade payables 52.0 93.7 105.2 68.1 75.7 116.9 -15.9 97.2 66.8 63.4 131.9 48 Security credit 61.4 -.1 26.7 52.4 103.8 -34.8 5.3 125.2 117.1 137.4 79.7 49 Life insurance reserves 36.0 34.5 44.9 43.6 57.0 31.4 59.2 66.7 39.8 77.5 62.8 50 Pension fund reserves 255.6 246.1 233.9 227.2 298.6 195.6 221.6 277.0 243.3 337.3 311.8 51 Taxes payable 11.4 2.6 4.6 14.0 20.1 7.6 12.5 16.6 30.4 1.8 29.9 52 Investment in bank personal trusts .9 17.8 -49.7 12.5 26.4 11.8 19.2 19.8 23.5 26.3 28.9 53 Noncorporate proprietors' equity 24.6 59.0 39.5 22.6 15.8 19.6 44.5 5.9 22.6 19.7 19.7 54 Miscellaneous 345.6 250.8 462.9 490.7 544.1 415.3 413.4 656.5 587.8 633.3 406.6 55 Total financial sources 2,318.0 2,084.3 2,694.7 2,925.1 3.364.6 2,755.4 2,566.9 3355.8 2,994.4 3302.3 3349.2 Liabilities not identified as assets (—) 56 Treasury currency -.2 -.5 -1.0 -.6 -1.0 1.3 -3.1 -.3 -.5 57 Foreign deposits -5.7 43.0 25.7 55.8 68.3 26.6 86.3 37.3 178.0 -10.2 78.1 58 Net interbank liabilities 4.2 -2.7 -3.1 -3.3 -16.0 -22.5 -4.4 4.2 26.9 -24.4 -51.6 59 Security repurchase agreements 46.4 69.4 36.1 31.9 52.1 100.1 -90.6 132.6 -104.6 178.6 6.2 60 Taxes payable 15.8 16.6 17.8 16.3 20.5 23.2 20.3 21.6 12.2 28.3 11.2 61 Miscellaneous -190.1 -145.6 -110.6 -120.7 -283.0 -123.2 -240.1 19.0 -189.3 -321.4 -281.7 Floats not included in assets (—) 62 Federal government checkable deposits -1.5 -4.8 -6.0 .5 -2.7 27.1 -21.4 -9.4 16.1 2.1 63 Other checkable deposits -1.3 -2.8 -3.8 -4.0 -3.9 -4.7 -3.7 -2.6 -4.8 -3.4 64 Trade credit -4.3 .3 -29.1 -33.9 -33.4 -103.5 -42.7 15.2 -73.1 -17.2 65 Total identified to sectors as assets 2,454.5 2,111.1 2,768.2 2,983.6 3,563.4 2,763.6 2,875.4 3,212.0 3,068.4 3413.7 3,604.6 1. Data in this table also appear in the Board's Z.1 (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund shares. F. 1 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 • June 1998 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING1 Billions of dollars, end of period 1996 Transaction category or sector 1996 Q2 Q3 Q4 Ql Q2 Q3 Q4 Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 13,013.0 13.717.2 14,436.9 15,194.1 14,065.4 14.241.9 14,436.9 14,602.1 14,727.9 14.913.9 15,194.1 By sector and instrument 2 Federal government 3.492.3 3,636.7 3,781.8 3,804.9 3,693.8 3,733.1 3,781.8 3,829.8 3,760.6 3,771.2 3.804.9 3 Treasury securities 3,465.6 3,608.5 3,755.1 3,778.3 3,665.5 3,705.7 3,755.1 3,803.5 3,734.3 3,745.1 3,778.3 4 Budget agency securities and mortgages . . . 26.7 28.2 26.6 26.5 28.2 27.4 26.6 26.3 26.3 26.1 26.5 5 Nonfederal 9,520.7 10,371.6 10,508.8 10,655.1 10,772.3 10,967.3 By instrument 6 Commercial paper 139.2 157.4 156.4 168.6 181.7 173.0 156.4 168.7 179.3 176.6 168.6 7 Municipal securities and loans 1,341.7 1.293.5 1,296.0 1,366.2 1,297.9 1,281.7 1 296.0 1,305.2 1.326.7 1,338.9 1.366 2 8 Corporate bonds 1,253.0 1,326.3 1,398.8 1.489.5 1,359.4 1,376.4 1,398.8 1,418.7 1,440.2 1,470.9 1,489.5 9 Bank loans o.e.c 759.9 861.9 928.2 1,035.8 889.2 919.2 928.2 963.8 996.5 998.5 1,035.8 10 Other loans and advances 669.6 736.9 770.6 836.5 757.3 769.4 770.6 782.9 786.9 801.3 836.5 11 Mortgages 4,373.4 4,581.7 4,893.4 5.227.2 4,741.6 4,815.7 4,893.4 4,946.6 5,032.7 5,129.1 5,227.2 12 Home 3,357.5 3,533.3 3.761.7 4,019.2 3,633.7 3,704.1 3,761.7 3,806.6 3,870.1 3,946.7 4,019.2 13 Multifamily residential 268.4 279.2 300.7 321.6 290.8 293.8 300.7 303.4 308.7 312.5 321.6 14 Commercial 664.5 684.7 743.9 796.0 731.0 731.1 743.9 749.0 765.2 780.2 796.0 15 Farm 83.0 84.6 87.1 90.3 86.2 86.7 87.1 87.7 88.7 89.8 90.3 16 Consumer credit 983.9 1.122.8 1,211.6 1,265 4 1,144.5 1,173.5 1,211.6 1,186.4 1.205.0 1,227.3 1,265.4 By borrowing sector 17 Household..' 4.482.5 4,850.7 5,204.6 5.571.5 4,991.3 5,101.0 5,204.6 5,240.0 5,340.5 5,439.4 5,571.5 18 Nonfinancial business 3.921.7 4.162.2 4.381.7 4.689.0 4.309.6 4.352.1 4,381.7 4,454.2 4.531.4 4,598.0 4.689.0 19 Corporate 2.657.7 2,869.2 3,042.4 3,282.8 2.993.7 3,028.4 3,042.4 3,104.9 3,160.4 3,209.7 3,282.8 20 Nonfarm noncorporate 1,121.8 1,147.9 1.189.3 1.250.1 1,167.8 1,174.1 1,189.3 1,200.9 1,217.6 1,233.0 1,250.1 21 Farm 142.2 145.1 149.9 156.2 148.2 149.5 149.9 148.3 153.4 155.4 156.2 22 State and local government 1,116.5 1,067.6 1.068.9 1,128.7 1,070.7 1,055.7 1,068.9 1,078.1 1,095.4 1,105.2 1,128.7 23 Foreign credit market debt held in United States 371.8 442.9 513.4 558.8 462.6 490,2 513.4 517.8 531.6 548.7 558.8 24 Commercial paper 42.7 56.2 67.5 65.1 54.5 65.8 67.5 69.3 71.3 64.3 65.1 25 Bonds 242.3 291.9 341.3 382.6 306.7 321.7 341.3 344.1 352.7 376.3 382.6 26 Bank loans n.e.c 26.1 34.6 43.7 52.1 40.5 41.7 43.7 435 46.4 48.2 52.1 27 Other loans and advances 60.8 60.2 61.0 59.0 60.9 61.0 61.0 60.9 61.2 59.9 59.0 28 Total credit market debt owed by nonfinancial sectors, domestic and foreign 13,384.9 14,160.1 14,950.3 15,752.9 14,528.0 14,732.1 14,950.3 15,119.8 15,259.5 15,462.6 15,752.9 Financial sectors 29 Total credit market debt owed by financial sectors 3,797.3 4,248.4 4,784.7 5,366.0 4,511.9 4,624.1 4,784.7 4,861.4 5,029.4 5,133.7 5,366.0 By instrument 30 Federal government-related 2,172.7 2,376.8 2,608.3 2,821.7 2,489.4 2,545.1 2,608.3 2,634.7 2,706.2 2,746.5 2,821.7 31 Government-sponsored enterprise securities 700.6 806.5 896.9 995.9 846.1 866.1 896.9 894.7 944.2 955.8 995.9 32 Mortgage pool securities 1.472.1 1,570.3 1,711.4 1,825.8 1,643.3 1,679.0 1,711.4 1.740.0 1,762.1 1,790.7 1,825.8 33 Loans from US. government .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 1,624.6 1.871.5 2,176.4 2.544.3 2,022.5 2,079.0 2,176.4 2,226.7 2,323.2 2,387.2 2.544.3 35 Open market paper 441.6 486.9 579.1 745 7 517.3 538.6 579.1 623.0 642.5 684.7 745.7 36 Coiporate bonds 983.9 1,172.0 1,328.5 1,466.3 1,265.2 1,288.8 1,328.5 1,334.4 1.390.7 1,396.0 1.466.3 37 Bank loans n.e.c 48.9 53.1 69.8 834 63.9 64.2 69.8 71.3 72.9 76.5 83.4 38 Other loans and advances 131.6 135.0 162.9 198.9 146.8 155.1 162.9 157.9 173.7 183.0 198.9 39 Mortgages 18.7 24.6 36.0 50.0 29.2 32.4 36.0 40.0 43.5 47.0 50.0 By borrowing sector 40 Commercial banks 94.5 102.6 113.6 141.0 104.6 107.7 113.6 115.3 125.7 130.0 141.0 41 Bank holding companies 133.6 148.0 150.0 168.6 148.4 149.1 150.0 151.6 161.1 164.6 168.6 42 Savings institutions 112.4 115.0 140.5 160.3 128.3 134.8 140.5 136.3 144.3 149.8 160.3 43 Credit unions .5 .4 .4 .6 .3 .4 .4 .4 .4 .5 .6 44 Life insurance companies .6 .5 1.6 1.8 1.2 1.1 1.6 1.8 1.8 1.9 1.8 45 Government-sponsored enteiprises 700.6 806.5 896.9 995.9 846.1 866.1 896.9 894.7 944.2 955.8 995.9 46 Federally related mortgage pools 1,472.1 1.570.3 1,711.4 1.825.8 1,643.3 1.679.0 1,711.4 1,740.0 1,762.1 1,790.7 1,825.8 47 Issuers of asset-backed securities (ABSs) 554.1 687.0 819.1 998.4 756.6 781.2 819.1 829.8 852.5 908.8 998.4 48 Broken; and dealers 34.3 29.3 27.3 35.3 24.6 26.1 27.3 26.6 35.3 33.6 35.3 49 Finance companies 433.7 483.9 529.8 554.5 506.3 5137 529.8 528.4 557.8 532.7 554.5 50 Mortgage companies 18.7 19.1 31.5 36.4 28.1 28.5 31.5 33.0 34.3 35.2 36.4 51 Real estate investment trusts (REfTs) 31.1 37.1 49.9 73.7 42.0 45.4 49.9 54.9 60.0 66.7 Til 52 Funding corporations 211.0 248.6 312.7 373.8 282.0 291.0 312.7 348.6 350.0 363.4 373.8 All sector, 53 Total credit market debt, domestic and foreign 17,182.2 18,408.5 19,735.0 21,118.9 19,039.9 19,356.2 19,735.0 19,981.2 20,288.9 20,596.3 21,118.9 54 Open market paper 623.5 700.4 803.0 979.4 753.6 777.4 803.0 861.1 893.1 925.7 979.4 55 U.S. government securities 5,665.0 6,013.6 6,390.0 6.626.5 6,183.1 6,278.2 6,390.0 6,464.5 6,466.8 6.517.7 6,626.5 56 Municipal securities 1,341.7 1,293.5 1,296.0 1,366.2 1,297.9 1,281 7 1,296.0 1,305.2 1,326.7 1,338.9 1,366.2 57 Corporate and foreign bonds 2,479.1 2,790.3 3,068.7 3,338.4 2,931.3 2,986.8 3,068.7 3,097.2 3.183.6 3,243.2 3,338.4 58 Bank loans n.e.c 834.9 949.6 1,041.7 1.171.3 993.7 1,025.0 1,041.7 1.078.6 1,115.7 1.123.1 1.171.3 59 Other loans and advances 862.0 932.1 994.5 1.094.4 965.0 985.4 994.5 1,001.7 1.021.8 1,044.2 1.094.4 60 Mortgages 4.392.1 4.606.3 4,929.4 5,277.2 4,770.8 4,848.1 4,929.4 4.986.6 5.076.2 5,176.1 5.277.2 61 Consumer credit 983.9 1,122.8 1,211.6 1,265.4 1,144.5 1,173.5 1,211.6 1,186.4 1.205.0 1,227.3 1,265.4 1. Data in this table also appear in the Board's 2.1 (780) quarterly statistical release, tables L.2 through L.4. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A41 1.60 SUMMARY OF FINANCIAL ASSETS AND LIABILITIES1 Billions of dollars except as noted, end of period Transaction category or sector Q2 Q3 Q4 Ql Q2 Q3 Q4 CREDIT MARKET DEBT OUTSTANDING2 1 Total credit market assets 17,182.2 18,408.5 19,735.0 21,118.9 19,039.9 19,356.2 19,735.0 19,981.2 20,288.9 20,596.3 21,118.9 2 Domestic nonfederal nonfinancial sectors 2,998.6 2,877.8 2,905.0 2,753.7 2,936.2 2,896.5 2,905.0 2,825.6 2,785.6 2,725.9 2,753.7 3 Household 1,941.9 1,904.9 1,964.5 1,826.9 1,934.5 1,941.3 1,964.5 1,911.7 1,873.7 1,829.4 1.826.9 4 Nonfinancial corporate business 289.2 286.8 291.0 296.3 285.7 273.8 291.0 281.8 272.3 277.1 296.3 5 Nonfarm noncorporate business 37.6 37.9 38.3 39.0 38.1 38.2 38.3 38.5 38.6 38.8 39.0 6 State and local governments 729.9 648.1 611.1 591.5 677.8 643.2 611.1 593.6 600.9 580.5 591.5 7 Federal government 204.4 204.2 196.5 201.4 199.2 197.5 196.5 196.9 198.3 199.1 201.4 8 Rest of the world 1,254 8 1,563.1 1,953.6 2,270.0 1,722.2 1,844.8 1,953.6 2,051.1 2,125.3 2,227.3 2,270.0 9 Financial sectors 12,724.3 13,763.4 14,679.9 15,893.8 14,182.3 14,417.4 14,679.9 14,907.6 15,179.7 15,443.9 15.893.8 10 Monetary authority 368.2 380.8 393.1 431.4 386.3 386.2 393.1 397.1 412.4 412.7 431.4 11 Commercial banking 3,254.3 3,520.1 3,707.7 4,031.9 3,590.8 3,643.3 3,707.7 3,775.7 3,856.8 3,912.9 4,031.9 12 U.S.-chartered banks 2,869.6 3,056.1 3,175.8 3,450.8 3,101.3 3,135.3 3,175.8 3.218.1 3,295.2 3,351.9 3,450.8 13 Foreign banking offices in United States . .. 337.1 412.6 475.8 515.4 437.1 454.2 475.8 499.5 501.8 501.0 515.4 14 Bank holding companies 18.4 18.0 22.0 27.4 18.1 19.3 22.0 22.5 23.8 22.5 27.4 15 Banks in U.S.-affiliated areas 29.2 33.4 34.1 38.3 34.3 34.5 34.1 35.6 36.1 37.5 38.3 16 Savings institutions 920.8 913.3 933.2 925.5 932.7 945.2 933.2 931.9 937.8 927.3 925.5 17 Credit unions 246.8 263.0 288.5 304.2 276.9 282.6 288.5 291.2 299.2 303.6 304.2 18 Bank personal trusts and estates 248.0 229.2 233.1 242.3 229.4 231.3 233.1 235.2 237.4 239.7 242.3 19 Life insurance companies 1,482.6 1,581.8 1,654.3 1,775.4 1.596.7 1,627.0 1,654.3 1,680.2 1,724.1 1,750.4 1,775.4 20 Other insurance companies 446.4 468.7 491.2 514.4 480.7 484.2 491.2 491.2 498.1 506.2 514.4 21 Private pension funds 656.9 718.3 764.8 831.7 746.7 757.1 764.8 777.9 792.5 809.1 831.7 22 State and local government retirement funds 455.8 483.3 529.2 577.5 509.8 517.7 529.2 531.6 542.7 562.0 577.5 23 Money market mutual funds 459.0 545.5 634.3 718.8 594.7 606.6 634.3 659.0 656.5 678.7 718.8 24 Mutual funds 718.8 771.3 820.2 894.8 809.0 818.3 820.2 838.3 860.6 889.2 894.8 25 Closed-end funds 86.0 96.4 98.7 99.5 97.6 98.1 98.7 99.3 99.7 99.7 99.5 26 Government-sponsored enterprises 663.3 748.0 813.6 908.6 758.9 779.3 813.6 824.3 854.8 868.7 908.6 27 Federally related mortgage pools 1,472.1 1,570.3 1,711.4 1,825.8 1,643.3 1,679.0 1.711.4 1,740.0 1,762.1 1,790.7 1,825.8 28 Asset-backed securities issuers (ABSs) 516.8 627.9 729.7 859.5 686.0 704.1 729.7 734.5 753.5 783.1 859.5 29 Finance companies 476.2 526.2 544.5 566.7 539.9 538.3 544.5 552.4 553.1 564.4 566.7 30 Mortgage companies 36.5 33.0 41.2 47.9 39.3 40.2 41.2 41.1 43.6 45 4 47.9 31 Real estate investment trusts (REITs) 13.3 15.5 19.0 24.0 17.2 18.0 19.0 20.3 21.5 22.8 24.0 32 Brokers and dealers 93.3 183.4 167.7 183.6 138.2 147.1 167.7 164.1 161.2 165.1 183.6 33 Funding corporations 109.3 87.3 104.5 130.3 108.1 113.9 104.5 122.5 112.0 112.3 130.3 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Total credit market debt 17,182.2 18,408.5 19,735.0 21,118.9 19,039.9 19,356.2 19,735.0 19,981.2 20,288.9 20,596.3 21,118.9 Other liabilities 35 Official foreign exchange 53.2 63.7 53.7 48.9 61.4 54.3 53.7 46.3 46.7 46.1 48.9 36 Special drawing rights certificates 8.0 10.2 9.7 9.2 10.2 9.7 9.7 9.2 9.2 9.2 9.2 37 Treasury currency 17.6 18.2 18.2 18.2 18.2 18.8 18.2 18.3 18.3 18.7 18.2 38 Foreign deposits 324.6 359.2 438.1 527.0 385.2 415.1 438.1 485.2 489.9 516.2 527.0 39 Net interbank liabilities 280.1 290.7 240.8 198.9 250.0 225.8 240.8 210.2 197.1 186.9 198.9 40 Checkable deposits and currency 1,242.0 1,229.3 1,245.1 1,286.2 1,212.3 1,220.8 1,245.1 1,220.0 1,265.3 1,234.2 1,286.2 41 Small time and savings deposits 2,183.2 2,279.7 2,377.0 2,475.5 2,340.2 2,357.9 2,377.0 2,427.1 2,432.3 2,437.0 2,475.5 42 Large time deposits 411.2 476.9 590.9 711.4 511.1 557.2 590.9 606.0 646.7 696.1 711.4 43 Money market fund shares 602.9 745.3 891.1 1.048.7 809.5 838.1 891.1 950.8 952.4 1,005.1 1,048.7 44 Security repurchase agreements 549.5 660.0 700.3 814.3 692.0 687.6 700.3 713.3 765.1 792.5 814.3 45 Mutual fund shares 1,477.3 1,852.8 2,342.4 3.013.5 2.129.9 2,211.6 2,342.4 2,411.5 2,719.6 2,977.0 3,013.5 46 Security credit 279.0 305.7 358.1 461.9 318.6 317.8 358.1 380.0 414.8 432.2 461.9 47 Life insurance reserves 505.3 550.2 593.8 650.8 562.3 577.1 593.8 603.7 623.1 638.8 650.8 48 Pension fund reserves 4,880.1 5,600.5 6,313.8 7,453.9 5,901.1 6,030.9 6,313.8 6,414.7 6,940.1 7,325.1 7,453.9 49 Trade payables 1,141.5 1,246.7 1,314.8 1,390.5 1.269.7 1,263.0 1,314.8 1,300.6 1,322.2 1,351.3 1.390.5 50 Taxes payable 101.4 106.0 120.0 140.1 113.4 117.9 120.0 133.2 128.9 137.5 140.1 51 Investment in bank personal trusts 699.4 767.4 872.0 1,050.7 811.7 829.0 872.0 890.4 969.7 1,035.2 1.050.7 52 Miscellaneous 5,402.7 5,792.0 6,163.8 6,441.0 5,943.3 6,031.6 6,163.8 6,344.1 6,276.2 6,394.0 6,441.0 53 Total liabilities 37,341.4 40,762.9 44,378.5 48,859.7 42,379.7 43,120.4 44,378.5 45,146.0 46,506.6 47,829.3 48,859.7 Financial assets not included in liabilities (+) 54 Gold and special drawing rights 21.1 22.1 21.4 21.1 22.0 21.2 21.4 20.9 21.1 21.0 21.1 55 Corporate equities 6,237.9 8,331.3 10,061.1 12,958.6 9,105.0 9,340.5 10,061.1 10,072.3 11.719.8 12,804.6 12,958.6 56 Household equity in noncorporate business 3,419.1 3,625.4 3,836.5 4,087.6 3,727.1 3,792.1 3,836.5 3,914.9 4,052.3 4,111.8 4,087.6 Liabilities not identified as assets (—) 57 Treasury currency -5.4 -5.8 -6.8 -7.4 -6.3 -6.0 -6.8 -6.9 -7.0 -6.8 -7.4 58 Foreign deposits 276.2 301.2 354.1 422.4 326.1 347.7 354.1 398.6 396.0 415.6 422.4 59 Net interbank transactions -6.5 -9.0 -10.6 -28.3 -8.0 -11.6 -10.6 -1.6 -8.1 -22.1 -28.3 60 Security repurchase agreements 67.8 103.9 135.8 187.9 125.5 113.4 135.8 110.9 153.4 164.8 187.9 61 Taxes payable 48.8 60.8 73.2 93.2 61.0 67.7 73.2 70.6 72.5 82.3 93.2 62 Miscellaneous -977.7 -1.092.2 -1,414.2 -1,631.2 -1,222.4 -1,300.4 -1.414.2 -1,382.7 -1,439.6 -1,448.0 -1,631.2 Floats not included in assets (-) 63 Federal government checkable deposits . . 3.4 3.1 -1.6 -8.1 -3.4 -1.7 -1.6 -9.7 -6.8 -7.8 -8.1 64 Other checkable deposits 38.0 34.2 30.1 26.2 31.8 23.1 30.1 25.6 27.9 19.5 26.2 65 Trade credit -245.8 -274.9 -308.7 -353.2 -338.5 -377.8 -308.7 -363.8 -390.0 -419.9 -353.2 66 Total identified to sectors as assets 47,820.7 53,620.4 S9.446.2 67,225.5 56,268.0 57,419.8 59,446.2 60313.1 63301.4 65,989.1 67,225.5 1. Data in this table also appear in the Board's Z.I (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund shares. L. I 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 • June 1998 2,10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, and indexes 1992=100, except as noted 1995 1997 July Aug. Sept. 1 Industrial production1 124.5 125.2 125.6 127.9 127.7 127.5 Market groupings 2 Products, total 110.6 113.7 118.5 118 I 119.2 119.1 120.2 121.2 121.0' 121.2 120.9 120.9 3 Final, total 111.3 114.6 119.6 119.2 120.5 120.3 121.5 122.5 122.2' 122.6 121.9 121.9 4 Consumer goods 109.9 111.8 114.4 113.9 114.6 114.5 115.9 116.7 115.9' 116.6 115.6 115.7 5 Equipment 113.8 119.6 128.8 128.6 130.9 130.6 131.3 132.8 133.4' 133.2 133.2 133.2 6 Intermediate 108.3 110.8 115.1 114.6 115.3 115.2 116.3 117.3 117.4' 117.0 117.6 117.5 7 Materials 120.8 126.2 134.1 134.9 134.9 136.1 136.7 137.7 138.9' 138.1 138.0 138.7 Industry groupings 116.0 127.0 126.9 127.9 128.0 130.9 131.0 130.7 130.4 8 Manufacturing 9 Capacity utilization, manufacturing (percent)2 81.4 81.9 82.3 82.0 81.5 80.9 10 Construction contracts3 122.0 130.8 140.3' 140.0 139.0 140.0' 140.0' 140.0 140.0 140.0 138.0 131.0 11 Nonagricultural employment, total1 1 9 1 8 4 . . 3 9 1 9 1 9 7 . . 0 2 1 1 1 0 9 0 . . 9 3 1 1 2 0 0 0 . . 1 2 1 1 2 0 0 0 . . 1 4 1 1 2 0 0 0 . . 4 4 1 1 2 0 0 0 . . 7 6 1 1 2 0 1 0 . . 1 9 1 1 2 0 1 1 . . 5 3 1 1 0 2 1 1 . . 9 9 1 1 0 22 2 . . 1 0 1 1 2 0 2 1 . . 1 7 12 Goods-producing, total 97.5 97.2 97.6 97.5 97.7 97.7 97.9 98.1 98.3 98.5 98.6 98.6 13 Manufacturing, total 99.0 98.4 98.9 98.8 98.9 99.0 99.2 99.5 99.7 99.9 100.0 99.9 14 Manufacturing, production workers .... 120.2 123.0 126.2 126.5 126.5 126.8 127.2 127.6 127.9 128.3 128.6 128.6 15 Service-producing 158.2 167.0 176.8 176.7 177.8 178.3 179.2' 180.5' 181.3 182.4 183.5 n.a. 16 Personal income, total 150.9 159.8 170.6 170.3 171.7 172.3 173.5 175.6 176.4' 177.7 179.2 17 Wages and salary disbursements 130.4 135.7 142.0 141.1 142.1 142.8 144.4 145.7 146.4 146.5 146.8 18 Manufacturing 158.7 166.2 174.4 174.3 175.2 175.8 176.6 177.7 178.4' 179.8 180.8 n.a. 2 1 0 9 Re D ta i i s l p s o a s l a e b s5 le personal income 151.2 158.6 165.6 166.5 167.2 166.7 166.5 166.8 167.6 169.3 170.5 170.3 Prices'1 21 Consumer (1982-84=100) 152.4 156.9 160.5 160.5 160.8 161.2 161.6 161.5 161.3 161.6 161.9 162.2 22 Producer finished goods (1982= 100) 127.9 131.3 131.8 131.3 131.7 131.8 132.3 131.7' 131.1 130.2 130.1 129.7 1. Data in this table also appear in the Board's G.17 C419) 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 senes 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 1998' Category 1995 1996 1997 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. HOUSEHOLD SURVEY DATA1 1 Civilian labor force2 132,304 133,943 126.297 136,404 136,439 136,406 136,864 137,169 137,493 137,557 137,523 Employment 2 Nonagricultural industries3 121,460 123,264 126,159 126,368 126,339 126.583 127,191 127,392 127,764 127,829 127,862 3 Agriculture 3,440 3,443 3,399 3.379 3,422 3,327 3,384 3,385 3,319 3,335 3,132 Unemployment 4 Number 7,404 7,236 6,739 6,657 6,678 6,496 6,289 6,392 6,409 6,393 6,529 5 Rate (percent of civilian labor force) 5.6 5.4 4.9 4.9 4.9 4.8 4.6 4.7 4.7 4.6 4.7 ESTABLISHMENT SURVEY DATA 6 Nonagricultural payroll employment4 117,191 119,523 122,257 122,492 122,792 123,083 123,512 123,866 124,265 124,517 124,481 18,524 18,457 18,538 18,555 18,553 18,590 18.634 18,674 18,722 18,723 18,726 581 574 573 573 576 574 572 574 574 572 571 9 Contract construction 5,160 5,400 5,627 5,637 5,642 5,650 5,682 5,747 5,843 5,877 5,789 10 Transportation and public utilities 6,132 6,261 6,426 6.289 6.473 6.497 6.495 6.478 6,516 6,542 6.564 11 Trade 27,565 28.108 28,788 28.864 28.902 28,970 29,132 29,196 29,242 29,269 29,226 6,806 6.899 7,053 7.068 7.082 7,108 7,132 7,151 7,170 7,190 7,221 33 117 34,377 35,597 35,702 35.850 35.945 36,102 36,276 36,417 36,532 36,577 14 Government 19,305 19,447 19,655 19.804 19.714 19,749 19,763 19.770 19,781 19,812 19,807 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, seasonally 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 1998 Series Q2 Q3 Q4' Ql Q2 Q3 Q4 Ql Q2 Q3 Q4' Ql Output (1992=100) Capacity (percent of 1992 output) Capacity utilization rate (percent)2 1 Total industry 123.3 125.1 127.3 127.6 149.6 1513 153.0 82.4 82.7 83.2 2 Manufacturing 125.7 3 Primary processing3 117.7 118.5 119.8 120.3 136.9 138.0 139.2 140.4 86.0 85.8 86.0 85.6 4 Advanced processing4 129.7 132.1 135.3 135.9 163.2 165.7 168.1 170.7 79.5 79.8 80.4 79.6 5 Durable goods 140.2 143.7 147.2 148.1 173.8 177.2 180.6 184.2 80.7 81.1 81.5 80.4 6 Lumber and products 116.4 114.9 114.7 115.7 138.6 140.0 141.3 142.2 84.0 82.1 81.2 81.3 7 Primary metals 123.8 125.5 127.8 126.9 136.0 137.2 138.5 140.1 91.0 91.5 92.3 90.6 8 Iron and sieel 122.6 122.8 126.5 125.7 135.4 136.6 137.9 139.4 90.6 89.9 91.8 90.2 9 Nonferrous 125.3 128.8 129.4 128.4 136.4 137.7 138.9 140.7 91.8 93.5 93.2 91.3 10 Industrial machinery and equipment. 168.2 173.9 177.6 179.8 199.0 204.4 210.0 215.9 84.5 85.1 84.6 83.3 11 Electrical machinery 226.6 236.6 246.0 253.8 276.7 289.1 301.9 315.6 81.9 81.9 81.5 80.4 12 Motor vehicles and parts 130.5 136.7 144.0 137.6 182.6 184.7 186.7 188.8 71.4 74.0 77.1 72.9 13 Aerospace and miscellaneous transportation equipment 92.8 95.6 98.6 101.6 123.4 124.1 124.8 125.4 75.2 77.1 79.0 81.0 14 Nondurable goods 110.7 III I 112.6 112.9 134.3 135.0 135.7 136.5 82.4 82.3 82.9 82.7 15 Textile mill products . .. 108.5 110.9 111.5 110.2 131.1 131.7 132.3 132.9 82.8 84.3 84.3 82.9 16 Paper and products 112.2 114.1 113.5 113.4 125.5 126.0 126.7 127.4 89.4 90.5 89.6 89.0 17 Chemicals and products. 114.8 114.8 117.1 118.7 145.1 146.3 147.5 148.7 79.1 78.5 79.4 79.9 18 Plastics materials 127.6 130.6 131.4 138.1 140.0 141.9 92.4 93.3 92.6 19 Petroleum products 111.0 109.5 109.8 11L0 114.7 115.2 115.7 116.2 96.8 95.1 94.9 95.5 20 Mining 106.0 106.4 105.9 107.4 117.9 118.1 118.2 118.4 89.9 90.1 89.6 90.7 21 Utilities 111.7 114.0 115.5 111.8 126.3 126.7 127.1 127.4 88.5 90.0 90.9 87.7 22 Electric 111.3 114.2 115.7 112.4 124.6 125.0 125.4 125.7 89.3 91.4 92.3 89.4 1973 1975 Previous cycle5 Latest cycle 1997 1998 High Low High Low High Low Mar. Oct Dec.1 Jan." Feb. Mar.p Capacity utilization rate (percent) 1 Total industry 89.2 72.6 87.3 71.1 85.4 78.1 82.5 83.0 83.3 83.3 82.8 82.3 82.2 2 Manufacturing 88.5 70.5 86.9 69.0 85.7 76.6 81.6 81.9 82.3 82.3 82.0 81.5 3 Primary processing3 91.2 68.2 88.1 66.2 88.9 77.7 86.1 85.7 86.2 86.3 86.0 85.7 85.2 4 Advanced processing4 87.2 71.8 86.7 70.4 84.2 76.1 79.7 80.2 80.6 80.5 80.2 79.5 79.1 5 Durable goods 68.9 87.7 63.9 84.6 73.1 80.9 81.) 81.8 81.7 81.0 80.4 79.8 6 Lumber and products 88.7 61.2 87.9 60.8 93.6 75.5 83.5 80.1 82.8 80.7 80.8 81.8 81.4 7 Primary metals 100.2 65.9 94.2 45.1 92.7 73.7 90.2 92.3 93.1 91.6 91.9 90.8 89.1 8 Iron and steel 105.8 66.6 95.8 37.0 95.2 71.8 88.9 91.9 92.1 91.2 91.6 91.0 88.0 9 Nonferrous 90.8 59.8 91 1 60.1 89.3 74.2 91.8 92.8 94.4 92.3 92.4 90.9 90.5 10 Industrial machinery and equipment 96.0 74.3 93.2 64.0 85.4 72.3 84.6 84.8 84.6 84.3 83.9 83.1 82.8 11 Electrical machinery 89.2 64.7 89.4 71.6 84.0 75.0 82.3 80.9 82.0 81.6 81.4 80.6 79.3 12 Motor vehicles and parts 93.4 51.3 95.0 45.5 89.1 55.9 73.9 75.0 78.1 78.2 73.5 72.9 72.3 13 Aerospace and miscellaneous transportarjon equipment 78.4 67.6 81.9 66.6 87.3 79.2 74.0 78.2 78.5 80.5 81.1 81.2 80.7 14 Nondurable goods 87.8 71.7 87.5 76.4 87.3 80.7 82.6 82.8 83.0 83.0 83.2 82.7 82.3 15 Textile mill products 91.4 60.0 91.2 72.3 90.4 77.7 82.6 84.5 85.1 83.4 84.2 82.4 82.1 1 1 6 7 P C a h p e er m a ic nd a ls p r a o n d d u c p ts r o . d . u . cts . . 9 8 7 7 . . 1 6 6 6 9 9 . 7 2 9 8 6 4 . . 1 6 8 6 0 9 . 9 6 9 8 3 6 . . 5 2 7 8 9 5. . 0 3 7 8 8 9 . . 7 8 8 7 9 9 . . 2 3 7 8 8 9 . . 9 7 8 7 9 9 . . 9 9 8 80 8 . . 1 7 7 8< 9 ) . . 8 3 7 8 9 9. . 0 6 18 Plastics materials 102.0 50.6 90.9 63.4 97.0 74.8 92.9 91.2 93.0 93.7 93.9 19 Petroleum products 96.7 81.1 90.0 66.8 88.5 85.1 94.5 96.2 93.8 94.6 95.9 94.9 95.7 20 Mining 94.3 88.2 96.0 80.3 88.0 87.0 90.6 89.6 89.7 89.4 90.8 90.6 90.8 21 Utilities 96.2 82.9 89.1 75.9 92.6 83.4 87.0 92.0 90.7 89.9 86.4 86.4 90.5 22 Electric 99.0 82.7 88.2 78.9 95.0 87.1 89.0 94.3 91.5 91.0 87.7 88.4 92.1 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 rales 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 • June 1998 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value' Monthly data seasonally adjusted 1992 pro- 1997 Group por- avg. tion Apr. May June July Aug. Sept. Jan.' Feb. Mar.p Index (1992 = 100) MAJOR MARKETS 1 Total index. 100.0 124.5 122.5 123.1 123.3 123.5 124.5 125.2 125.6 126.5 127.5 127.9 127.7 127.5 127.7 2 Products 60.5 118.5 116.9 117.2 117.7 117.6 118.1 119.2 119.1 120.2 121.2 121.0 121.2 120.9 120.9 3 Final products 46.3 119.6 117.9 118.0 118.6 118.6 119.2 120.5 120.3 121.5 122.5 122.2 122.6 121.9 121.9 4 Consumer goods, total 29.1 114.4 113.4 113.4 113.9 113.5 113.9 114.6 114.5 115.9 116.7 115.9 116.6 115.6 115.7 5 Durable consumer goods 6.1 131.3 130.7 127.4 128.8 129.8 128.1 132.1 131.9 131.4 136.5 134.7 135.8 134.6 134.2 6 Automotive products 2.6 129.9 129.0 122.3 124.6 126.7 120.3 131.6 132.8 131.2 138.4 133.8 133.0 130.8 129.9 7 Autos and trucks 1.7 136.5 135.6 124.4 127.6 130.3 120.2 137.6 140.9 139.7 147.8 142.7 139.9 136.7 135.0 8 Autos, consumer .9 115.2 117.6 110.7 112.4 110.8 113.0 118.6 119.9 115.2 120.3 113.9 116.0 105.7 105.1 9 Trucks, consumer .7 159.1 158.5 142.7 147.3 154.2 131.9 161.2 166.5 168.6 179.8 175.7 168.2 171.6 168.7 10 Auto parts and allied goods .9 119.3 118.4 118.2 119.1 120.3 119.3 121.8 120.1 117.9 123.8 120.1 121.9 121.3 121.6 11 Other 3.5 132.3 132.0 131.4 132.1 132.3 134.4 132.5 131.1 131.5 135.0 135.3 138.0 137.6 137.6 12 Appliances, televisions, and air conditioners 1.0 168.6 166.9 164.2 166.5 165.4 174.8 169.8 166.0 169.4 177.2 178.7 186.1 189.5 189.2 13 Carpeting and furniture .8 117.0 116.7 116.7 117.7 119.0 116.4 117.7 116.2 116.5 122.1 116.8 122.9 119.2 118.8 14 Miscellaneous home goods 1.6 120.0 120.3 120.3 120.2 120.3 122.1 119.8 119.4 118.6 119.2 122.1 121.0 120.8 121.2 15 Nondurable consumer goods 23.0 110.2 109.1 109.9 110.1 109.4 110.3 110.3 110.2 112.1 111.8 111.3 111.9 110.9 111.1 16 Foods and tobacco 10.3 109.3 110.0 109.1 108.9 108.1 109.6 108.9 108.6 109.7 110.7 110.0 112.0 111.0 110.7 17 Clothing 2.4 95.9 96.1 96.5 95.8 95.4 95.8 96.0 96.0 96.4 95.1 95.1 94.7 93.3 92.0 18 Chemical products 4.5 119.1 115.9 118.4 119.3 119.1 117.3 119.4 119.4 123.0 121.3 121.8 123.4 122.6 123.0 19 Paper products 2.9 109.3 107.8 108.2 108.9 109.8 110.8 109.8 110.1 111.3 111.7 110.1 110.2 107.6 106.3 20 Energy 2.9 111.3 107.3 111.9 112.8 109.7 112.4 112.8 112.4 116.2 113.9 113.5 109.5 110.0 113.6 21 Fuels .8 109.3 108.2 109.6 111.3 111.5 108.8 111.0 110.8 112.0 106.7 109.3 110.5 110.9 110.8 22 Residential utilities 2.1 112.0 106.4 112.6 113.0 108.3 113.7 113.2 112.8 117.8 117.1 115.1 108.6 109.1 114.5 23 Equipment 17.2 128.8 125.8 126.0 126.8 127.7 128.6 130.9 130.6 131.3 132.8 133.4 133.2 133.2 133.2 24 Business equipment 13.2 141.9 137.5 137.9 139.0 140.2 141.6 144.6 144.4 145.5 147.5 148.6 147.6 147.0 146.8 25 Information processing and related 5.4 168.1 161.0 163.0 164.4 166.8 169.3 171.1 172.9 174.3 174.7 176.0 176.6 176.4 176.4 26 Computer and office equipment 1.1 385.6 348.8 358.4 365.3 375.8 391.6 407.1 414.6 420.3 427.3 440.1 454.4 464.8 475.1 27 Industrial 4.0 133.3 130.6 131.6 131.5 131.7 133.7 135.8 133.8 135.9 136.3 137.8 136.0 134.7 134.9 28 Transit 2.5 111.2 107.7 104.6 106.7 107.3 106.9 113.3 114.2 113.0 119.9 121.2 119.8 119.6 118.6 29 Autos and trucks 1.2 119.7 121.4 112.5 114.6 113.6 111.5 120.3 120.2 117.0 128.2 124.6 121.1 120.3 118.8 30 Other 1.3 135.0 132.6 134.4 135.2 136.3 136.3 137.9 135.1 137.5 137.3 136.2 133.5 133.3 133.8 31 Defense and space equipment 3.3 75.2 75.7 75.4 75.6 76.0 74.9 75.0 74.7 74.7 74.5 74.5 75.3 76.1 76.3 32 Oil and gas well drilling .6 149.7 154.8 151.4 150.7 150.9 152.1 153.2 153.1 149.1 150.0 145.9 154.0 158.9 158.6 33 Manufactured homes 139.1 139.4 142.9 141.9 139.1 143.5 139.5 137,2 136.9 138.1 132.4 144.0 148.6 34 Intermediate products, total . 14.2 115.1 114.1 114.7 114.9 114.7 114.6 115.3 115.2 116.3 117.3 117.4 117.0 117.6 117.5 35 Construction supplies 5.3 121.8 122.3 121.8 122.2 122.2 121.2 122.7 120.4 121.3 123.6 123.2 124.0 125.3 124.0 36 Business supplies 8.9 111.1 109.2 110.6 110.6 110.2 110.6 111.0 112.2 113.4 113.5 113.9 112.9 113.0 113.7 37 Materials . 39.5 134.1 131.3 132.5 132.4 133.0 134.9 134.9 136.1 136.7 137.7 138.9 138.1 138.0 138.7 38 Durable goods materials.... 20.8 158.2 153.0 155.1 155.4 156.9 159.3 160.3 161.3 163.2 165.0 166.5 166.1 166.1 165.9 39 Durable consumer parts .. 4.0 139.2 135.9 137.1 134.7 136.2 139.2 140.3 140.7 141.8 142.3 146.9 138.7 139.5 139.2 40 Equipment parts 7.6 221.9 210.0 213.4 216.7 220.0 224.6 227.6 229.6 233.3 237.9 240.9 245.3 246.1 247.1 41 Other 9.2 125.5 123.2 124.7 124.5 125.0 125.9 126.0 126.6 127.8 128.8 128.3 128.6 127.9 127.3 42 Basic metal materials . . 3.1 120.6 118.2 118.8 119.9 121.2 121.1 121.8 121.7 122.5 124.9 122.2 124.2 123.4 122.0 43 Nondurable goods materials. 8.9 113.0 112.5 113.0 111.8 111.9 113.5 112.3 113.3 113.1 114.4 116.0 114.5 115.4 115.2 44 Textile materials 1.1 109.3 106.3 109.4 106.1 108.1 112.3 108.4 111.4 111.9 111.0 112.5 108.1 108.5 108.7 45 Paper materials 1.8 112.6 112.5 112.6 112.6 110.9 113.8 114.3 112.7 113.4 112.2 113.7 112.6 112.4 112.8 46 Chemical materials 3.9 115.2 114.8 115.4 113.8 113.8 115.1 113.9 115.6 115.0 116.5 119.1 119.1 120.0 119.6 4 4 4 5 7 8 9 0 En O C P er r o t g i h n m y e v r a e m r r y t a e t e d e n ri e f a u r l g e s l y materials. . 2 9 6 3 . . . . 7 1 3 3 1 1 1 1 0 1 0 0 1 0 3 8 . . . . 7 3 9 3 1 1 1 1 1 0 0 0 0 3 6 1 . . . . 4 4 2 9 1 1 1 1 0 0 0 0 9 7 3 1 . . . . 7 6 7 7 1 1 1 1 0 0 0 0 2 3 9 6 . . . . 1 7 5 8 1 1 1 1 0 1 0 0 3 0 1 7 . . . . 2 8 0 3 1 1 1 1 1 0 0 0 0 9 4 2 . . . . 1 0 6 3 1 1 1 1 0 0 0 0 2 3 8 6 . . . . 4 9 6 8 1 1 1 1 0 0 1 0 9 5 1 2 . . . . 5 5 8 2 1 1 1 1 0 0 1 0 4 9 0 1 . . . . 7 7 0 6 1 1 1 1 0 1 0 0 3 3 1 8 . . . . 9 7 4 6 1 1 1 1 0 0 1 1 0 4 3 0 . . . . 7 2 3 9 1 1 1 1 0 0 0 0 9 3 1 5 . . . . 5 2 9 7 1 1 1 1 1 0 0 0 1 2 1 4 . . . . 6 3 0 9 1 1 1 1 1 0 0 0 1 5 2 9 . . . . 1 1 8 4 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.1 124.3 122.3 123.2 123.4 123.6 124.8 125.1 125.4 126.5 127.2 127.7 127.6 127.4 127.7 52 Total excluding motor vehicles and parts 95.1 123.8 121.9 122.7 123.0 123.1 124.3 124.6 124.8 125.9 126.6 127.0 127.2 126.9 127.2 53 Total excluding computer and office equipment 98.2 121.9 120.2 120.7 120.9 121.1 122.0 122.6 122.9 123.8 124.8 125.1 124.8 124.5 124.7 54 Consumer goods excluding autos and trucks 27.4 113.2 112.1 112.8 113.1 112.5 113.5 113.4 113.0 114.6 115.0 114.4 115.3 114.4 114.6 55 Consumer goods excluding energy 26.2 114.8 114.2 113.6 114.0 114.0 114.1 114.9 114.7 115.9 117.0 116.2 117.5 116.3 115.9 56 Business equipment excluding autos and trucks 139.5 141.0 141.9 143.4 145.2 147.5 147.3 149.0 149.7 151.5 150.7 150.1 57 Business equipment excluding computer and office equipment 12.1 129.1 126.0 126.0 126.9 127.7 128.6 131.2 130.8 131.8 133.5 134.4 133.0 132.) 131.7 58 Materials excluding energy 29.8 143.7 140.1 141.6 141.4 142.5 144.6 144.8 145.8 147.0 148.6 150.2 149.4 149.7 149.5 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A45 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1—Continued 1992 SIC pro- 1997 Group code por- avg. tion Apr. May July Aug. Sept. Jan.7 Feb. Mar. Index (1992= 100) MAJOR INDUSTRIES 59 Total index.. 100.0 124.5 122.5 123.1 123.3 123.5 124.5 125.2 125.6 126.5 127.5 127.9 127.7 127.5 127.7 60 Manufacturing 85.4 127.0 124.9 125.4 125.7 126.1 126.9 127.9 128.0 129.1 130.4 130.9 131.0 130.7 130.4 61 Primary processing 26.5 118.1 117.2 117.7 117.7 117.7 118.3 118.5 118.6 118.9 120.0 120.5 120.5 120.4 119.9 62 Advanced processing 58.9 131.4 128.6 129.2 129.6 130.2 131.2 132.5 132.7 134.1 135.5 136.1 136.2 135.8 135.7 63 Durable goods 45.0 142.3 138.7 139.5 140.1 141.2 142.4 144.3 144.4 145.5 147.7 148.6 148.2 148.2 147.9 64 Lumber and products 24 2.0 114.9 114.9 115.9 116.4 117.0 116.1 115.4 113.3 112.9 117.0 114.4 114.9 116.3 115.9 65 Furniture and fixtures 25 1.4 122.5 120.7 123.5 123.3 123.5 124.2 121.1 122.0 123.0 124.1 124.4 122.7 121.7 121.2 66 Stone, clay, and glass products 32 2.1 120.5 119.5 121.1 119.4 120.0 120.9 120.5 121.2 121.0 122.1 123.4 122.4 122.9 121.7 67 Primary metals 33 3.1 124.5 121.8 122.3 124.2 124.9 125.2 125.5 125.9 127.4 128.9 127.2 128.1 127.3 125.5 68 Iron and steel 331,2 1.7 122.8 119.6 121.2 123.9 122.6 122.2 121.8 124.5 126.4 127.0 126.1 127.2 126.8 123.3 69 Raw steel 331PT .1 115.9 114.0 115.1 115.4 114.9 115.5 116.1 119.2 117.7 120.9 119.2 122.8 123.7 120.6 70 Nonferrous 333-6,9 1.4 126.4 124.5 123.5 124.6 127.7 128.8 129.9 127.7 128.6 131.1 128.5 129.2 127.9 128.1 71 Fabricated metal products. . . 34 5.0 122.9 122.1 122.5 122.7 121.9 122.4 122.8 122.7 124.4 124.7 126.7 125.8 125.1 124.7 72 Industrial machinery and equipment 35 171.4 165.1 167.8 168.0 168.8 172.2 175.9 173.7 176.5 177.7 178.6 179.5 179.4 180.4 73 Computer and office equipment 357 1.8 382.3 344.2 354.1 361.4 372.3 388.5 403.9 412.0 418.0 425.7 438.3 452.7 463.6 473.5 74 Electrical machinery 36 7.3 231.5 220.8 223.7 226.3 229.7 235.5 236.8 237.5 240.8 247.4 249.9 253.0 254.3 254.1 75 Transportation equipment. . . 37 9.5 115.6 112.3 110.7 110.8 113.0 112.2 117.0 118.8 118.3 121.6 123.4 119.8 119.7 119.1 76 Motor vehicles and parts . 371 4.9 137.2 134.0 129.7 129.2 132.5 130.0 138.9 141.2 139.6 145.9 146.6 138.3 137.7 136.9 77 Autos and light trucks . 371PT 26 128.3 127.8 117.8 120.6 122.4 115.0 129.5 132.3 130.4 137.7 132.5 130.8 126.2 124.8 78 Aerospace and miscellaneous transportation equipment 372-6,9 4.6 94.4 91.0 92.0 92.7 93.8 94.6 95.5 96.8 97.3 97.9 100.6 101.5 101.9 101.4 79 Instruments 38 5.4 108.0 106.5 106.6 107.6 107.9 108.0 109.2 108.9 109.7 109.5 109.0 110.0 109.5 110.0 80 Miscellaneous 39 1.3 125 9 124.7 125.1 125.5 126.0 127.0 126.7 126.1 126.5 126.2 128.5 128.0 128.4 129.3 81 Nondurable goods 40.4 111.1 110.5 110.8 110.7 110.5 110.9 111.0 111.3 112.2 112.6 112.9 113.3 112.8 112.5 82 Foods 9.4 109.6 110.0 109.2 109.2 108.8 110.0 108.9 108.6 109.2 110.9 110.9 112.4 111.7 111.6 83 Tobacco products 1.6 112.7 114.2 113.0 111.5 109.0 110.5 112.5 112.0 118.8 115.9 110.1 112.3 111.7 110.3 84 Textile mill products 1.8 109.6 108.0 109.2 107.2 109.1 110.7 110.7 111.4 111.6 112.5 110.4 111.8 109.4 109.3 85 Apparel products 2.2 99.6 100.1 99.8 99.8 99.6 99.7 99.1 99.1 99.3 98.6 99.3 98.9 97.6 96.7 86 Paper and products 3.6 112.9 112.4 112.4 112.6 111.7 114.2 114.4 113.7 112.8 113.6 114.1 112.7 113.8 113.6 87 Printing and publishing 6.7 104.9 103.6 104.4 104.5 104.1 104.1 104.4 105.1 106.7 107.4 107.1 106.3 105.5 104.6 88 Chemicals and products .... 9.9 115.3 113.6 115.2 114.5 114.6 114.3 114.5 115.6 116.7 116.5 118.2 118.8 118.7 118.7 89 Petroleum products 1.4 109.4 108.0 110.1 111.4 111.3 108.9 109.7 110.1 111.2 108.6 109.7 111.3 110.3 111.3 90 Rubber and plastic products . 3.5 126.4 125.5 124.4 125.4 125.6 126.0 127.9 127.6 127.4 129.6 129.3 129.5 129.3 129.2 91 Leather and products .3 73.7 76.6 75.9 75.3 74.0 74.0 71.2 70.9 72.4 71.0 71.3 69.4 70.8 69.1 92 Mining 6.9 106.0 106.7 105.5 106.7 105.7 106.5 106.3 106.5 105.9 106.1 105.7 107.4 107.3 107.5 93 Metal .5 106.9 106.4 105.3 105.9 109.9 105.2 106.0 105.3 111.1 113.2 103.8 106.2 108.6 107.9 94 Coal 1.0 109.9 107.0 105.4 115.9 107.4 112.1 107.7 109.5 109.6 111.2 117.4 116.0 108.4 109.4 95 Oil and gas extraction 4.8 103.2 104.3 103.8 103.4 102.9 103.9 104.1 104.3 103.1 102.6 101.7 103.9 104.5 105.2 96 Stone and earth minerals .6 118.8 123.6 116.8 118.2 120.9 117.8 119.9 117.7 116.2 119.2 120.2 122.6 124.6 120.5 97 Utilities 7.7 112.5 109.6 112.5 111.8 110.9 113.8 113.0 115.1 116.9 115.3 114.3 110.0 110.1 115.4 98 Electric 491.493PT 6.2 113.1 110.6 112.7 110.4 110.7 113.8 113.1 115.7 118.1 114.7 114.2 110.2 111.1 115.9 99 Gas 491.493PT 1.6 It 1.0 105.4 111.5 117.1 111.9 113.5 112.5 112.7 111.9 117.8 115.0 109.2 106.2 113.2 SPECIAL AGGREGATES 100 Manufacturing excluding motor vehicles and pans 80.5 126.4 124.3 125.2 125.5 125.7 126.7 127.2 127.3 128.4 129.4 130.0 130.5 130.3 130.0 101 Manufacturing excluding office and computing machines ... 83.6 124.1 122.2 122.7 122.9 123.2 123.9 124.8 124.9 125.9 127.2 127.6 127.6 127.3 126.9 Gross value (billions of 1992 dollars, annual rates) MAJOR MARKETS 102 Products, total 2,001.9 2373.2 2.355.4 2,353.4 2365.8 2365.3 2368.4 2,402.0 2,396.9 2,416.1 2,442.2 2,435.3 2,441.0 2,433.9 2.433.2 103 Final 1,552.1 1,855.8 1.838.7 1,832.9 1.844.4 1,849.1 1,904.9 1,912.1 1,902.2 1.901.2 104 Consumer goods . 1.049.6 1,195.5 1.191.4 1,187.7 1,194.1 1,190.2 1,191.0 1,205.2 1,203.3 1,215.9 1,224.1 1,215.7 1,224.8 1,215.0 1,214.4 105 Equipment 502.5 660.0 646.8 644.8 649.8 654.1 657.8 674.0 672.3 674.5 686.9 689.4 687.4 687.4 687.0 106 Intermediate 449.9 518.1 517.2 520.6 521.7 521.0 519.9 523.7 522.2 526.5 532.3 531.4 530.1 532.4 532.6 1. Data in unstable also appear in the Board'sG. 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 • June 1998 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted 1997 1998 Item 1995 1996 1997 May June July Aug. Sept. Oct. Nov. Dec. Jan.' Feb. Private residential real estate activity (thousands of units except is noted) NEW UNITS 1,333 1,426 1,442 1,432 1,402 1,414 1,397 1,460 1,487 1,440 1,482 1,526 1,625 997 1,070 1,056 1,053 1,049 1,030 1,027 1,065 1,087 1,061 1,071 1,133 1,163 3 Two-family or more 335 356 387 379 353 384 370 395 400 379 411 393 462 4 Started 1,354 1,477 1,474 1,404 1,502 1,461 1,383 1,501 1,529 1,523 1,540 1,545 1,635 1,076 1,161 1,134 1,095 1,132 1,144 1,076 1,174 1,124 1,167 1,130 1,225 1.269 6 Two-family or more 278 316 340 309 370 317 307 327 405 356 410 320 366 7 Under construction at end of period1 776 820 834 815 828 836 834 843 853 862 870 885 554 584 570 565 566 570 567 571 574 575 578 589 1 9 0 Co T m w p o le -f te a d mily or more 1, 2 31 2 9 2 1,4 2 0 3 5 5 1.4 2 0 6 7 4 1, 2 38 5 7 0 1,3 2 0 6 7 2 1, 2 33 6 1 6 1,3 2 3 6 5 7 1, 2 43 7 3 2 1, 2 38 7 4 9 1, 2 43 8 2 7 1, 2 41 9 0 2 1,2 2 8 9 8 6 n 1 .a. 1,073 1,123 1,122 1,098 1,097 1.074 1,062 1.133 1,063 1,145 1,093 999 12 Two-family or more 247 283 285 289 210 257 273 300 321 287 317 289 341 361 354 354 153 356 154 351 349 352 353 362 377 Merchant builder activity in one-familv units 14 Number sold 667 757 803 764 810 808 799 809 805 875' 810' 852 893 15 Number for sale at end of period1 374 326 286 289 288 288 286 284 284 280 281 282 282 Price of units sold {thousands of dollars)1 133.9 140.0 145.9 141.0 145.0 145.9 144.0 146.3 141.5 145.0 145.0' 145.0 153.4 17 Average 158.7 166.4 175.8 170.7 179.4 175.5 170.7 177.5 172.9 175.4' 174.8' 178.3 179.3 EXISTING UNITS (one-family) 18 Number sold 3,812 4,087 4,215 4,190 4,120 4,180 4,280 4,300 4,380 4,390 4,370 4,370 4,770 Price of units sold {thousands of dollars)1 19 Median 113.1 118.2 124.1 123.1 127.2 126.5 127.5 125.8 124.4 124.3 125.9 126.1 124.5 20 Average 139.1 145.5 154.2 153.1 158.4 157.6 159.1 155.4 154.7 155.0 157.5 156.8 153.9 Value of new construction (millions of dollars)1 CONSTRUCTION 21 Total put in place 534,463 567,179 600,116r 595,763 594,195 603,002 603,684 605,748 611,742' 610,933' 616,027' 620,390 621,987 22 Private 407,370 435,929 461,401' 459,882 456.927 464,326 465,236 468,822 469,560' 470,041' 475,262' 481,726 481,999 23 Residential 231,230 246,659 259,575' 259,662 257.277 258,803 259,958 263,799 265.422' 267,207' 270,822' 275,725 278,788 176,140 189,271 201.826' 200,220 199.650 205,523 205,278 205.023 204,138' 202,834' 204,440' 206,001 203,211 25 Industrial buildings 32,505 31,997 30,707' 30,501 31,046 31,796 31,480 30,675 30,048' 29,352' 29,697' 30,385 28,694 26 Commercial buildings 68,223 74,593 80,823' 78,670 79,009 82,346 81,552 80,551 81,489' 81,511' 82,104' 82,425 80.951 27 Other buildings 27,089 30,525 36,998' 37,738 35,775 36,672 37.274 38,729 37,707' 37.681' 38,345' 37,990 38,069 48.323 52 156 53 298' 53 311 51820 54 709 54 972 55 068 54 894' 54 290' 54 294' 55 201 55 497 29 Public 127,092 131,250 138,715' 135,882 137,268 138,676 138,448 136,926 142,182' 140.893' 140.765' 138,663 139,988 30 Military 2,983 2,541 2,553' 2,548 2,580 2,738 2,767 2,451 2,827' 2,740' 2.234' 2,486 2,979 31 Highway 36,319 37,898 41,148' 40,694 41.531 41,087 41,715 40,126 39,484' 44,271 42,114' 42,480 44,698 32 Conservation and development 6,391 5,807 5,467' 5,242 4,952 5,002 5,469 6,177 4,859' 5,209' 5.910' 5,088 6,379 33 Other 81,399 85,005 89,547' 87,398 88,205 89,849 88,497 88,172 95,012' 88,673' 90.507' 88,609 85,932 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. Alt 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) Index level, 1997 1997 Mar. 1997 1998 1998 ' Mar. Mar. June Sept. Dec Nov. Dec. Mar. CONSUMER PRICES" (1982-84=100) 1 All items 2.8 2J .2 162.2 2 Food 3.3 2.0 2.1 2.8 1.5 1.3 .0 .3 .0 .0 159.7 3 Energy items 4.8 -8.6 -11.8 8.3 -7.7 -21.1 -1.8 -2.4 -2.2 -1.2 101.6 4 All items less food and energy. 2.5 2.6 1.7 2.4 2.4 .3 .1 172.6 5 Commodities .8 .6 -.3 .6 .8 -.1 143.1 6 Services 3.2 3.1 2.6 3.3 3.0 .2 189.4 PRODUCER PRICES (1982=100) 7 Finished goods 1.5 -1.8 -3.0 1.2 -1.2 -4.2 - 2r -.7 129.7 8 Consumer foods 2.4 -1.4 -3.5 -1.5 .9 -1.5 -.3' -.1 -.4 .4 -.4 133.3 9 Consumer energy 3.6 -10.4 -13.0 6.0 -6.1 -25.9 -.4' -.7' -3.7 -1.8 -1.9 74.4 10 Other consumer goods .9 .3 -.6 1.7 .0 .3 -.1 .0 -.1 .1 .1 145.8 11 Capital equipment .4 -.6 -.9 .6 -1.7 -.6 - r -.1 -.1 .0 137.9 Intermediate materials 12 Excluding foods and feeds . -1.6 -.6 -4.4 .1' -.2' -.5 -.4 123.6 13 Excluding energy .3 .0 -1.2 .1 .a -.1 -.1 134.0 Crude materials 14 Foods -1.8 -6.6 -10.8 -5.0 3.3 -12.7 -.1' -3.3 -.7 .7 106.6 15 Energy -4.3 -10.2 11.3 21.8 1.0 -52.6 4.6' -i4.r -7.3 -6.5 -4.3 69.2 16 Other .3 -6.8 -3.7 .3 -7.9 -15.0 -.4' -1.5' -2.2 .1 -1.9 148.7 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 homeownership. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A48 Domestic Nonfinancial Statistics • June 1998 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1996 1997 Account 1995 1996 1997' Q4 Ql Q2 03 04' GROSS DOMESTIC PRODUCT 1 Total 7,265.4 7,636.0 8,079.9 7,792.9 7,933.6 8,034.3 8,124.3 8,227.4 Bv source 2 Personal consumption expenditures 4.957.7 5.207.6 5,485.8 5,308.1 5,405.7 5,432.1 5,527.4 5.577.8 3 Durable goods 608.5 634.5 659.3 638.2 658.4 644.5 667.3 666.8 4 Nondurable goods 1,475.8 1.534.7 1.592.0 1.560.1 1,587.4 1,578.9 1,600.8 1,600.9 5 Services 2.873.4 3,038.4 3,234.5 3.109.8 3,159.9 3,208.7 3,259.3 3,310.0 6 Gross private domestic investment 1,038.2 1,116.5 1,242.5 1,151.1 1,193.6 1,242.0 1,250.2 1,284.1 7 Fixed investment 1,008.1 1.090.7 1,174.1 1,119.2 1.127.5 1.160.8 1,201.3 1,206.8 8 Nonresidential 723.0 781.4 846.9 807.2 811.3 836.3 872.0 868.0 9 Structures 200.6 215.2 230.2 227.0 227.4 226.8 232.9 233.9 10 Producers' durable equipment 522.4 566.2 616.7 580.2 583.9 609.5 639.1 634.2 11 Residential structures 285.1 309.2 327.2 312.0 316.2 324.6 329.3 338.8 12 Change in business inventories 30.1 25.9 68.4 31.9 66.1 81.1 48.9 77.2 13 Nonfarm 38.1 23.0 61.7 28.7 62.2 74.9 40.9 68.7 14 Net exports of °oods and services .... -86.0 -94.8 -101.1 -88.6 -98.8 -88.7 -111.3 -105.3 15 Exports 818.4 870.9 957.1 904.6 922.2 960.3 965.8 980.0 16 Imports 904.5 965.7 1,058.1 993.2 1.021.0 1,049.0 1,077.1 1,085.4 17 Government consumption expenditures and gross investment 1,355.5 1,406 7 1,452.7 1,422.3 1.433.1 1,449.0 1,457.9 1,470.9 18 Federal 509.6 5200 523.8 517.6 516.1 526.1 525.7 527.3 19 State and local 846.0 886.7 928.9 904.7 917.0 923.0 932.3 943.6 fly major type of product 20 Final sales total 7,235.3 7,610.2 8,011.5 7.761.0 7,867.4 7.953.2 8,075.3 8.150.2 21 Goods 2,637.9 2,759.3 2.876.7 2.795.0 2,838.4 2,854.9 2,903.2 2,910.4 22 Durable 1,133.9 1,212.0 1,284.0 1,233.5 1,248.0 1,275.3 1,305.3 1,307.3 23 Nondurable 1,503.9 1,547.3 1,592.8 1,561.5 1,590.4 1,579.6 1,597.9 1.603.1 24 Services 3,980.7 4,187.3 4.430.4 4.282.7 4,338.2 4,400.1 4,462.3 4,521.0 25 Structures 616.8 663.6 704.4 683.3 690.8 698.2 709.8 718.8 26 Change in business inventories 30.1 25.9 68.4 31.9 66.1 81.1 48.9 77.2 27 Durable goods 29.1 16.9 33.0 -1.1 31.8 46.8 18.6 34.8 28 Nondurable goods I.I 9.0 35.4 33.0 34.3 34.4 30.3 42.4 MEMO 29 Total GDP in chained 1992 dollars 6.742.1 6,928.4 7,188.8 7,017.4 7,101.6 7,159.6 7,214.0 7,280.0 NATIONAL INCOME 30 Total 5,912.3 6,254.5 6,649.7 6,376.5 6,510.0 6,599.0 6,699.6 6,790.1 31 Compensation of employees 4,215.4 4,426.9 4,703.6 4,520.7 4,606.3 4,663.4 4,725.2 4,819.6 32 Wages and salaries 3.442.6 3,633.6 3,878.6 3,718.0 3,792.7 3,842.7 3,897.3 3,981.6 33 Government and government enterprises 623.0 642.6 665.3 648.9 657.8 662.0 667.7 673.7 34 Other 2,819.6 2,991 0 3,213.3 3.069.0 3,134.9 3,180.8 3,229.6 3,307.9 35 Supplement to wages and salaries 772.9 793.3 825.0 802.7 813.6 820.7 827.9 837.9 36 Employer contributions for social insurance 366.0 385.7 408.4 393.6 401.3 405.6 410.2 416.6 37 Other labor income 406.8 407.6 416.6 409.1 412.3 415.1 417.7 421.4 38 Proprietors' income1 489.0 520.3 544.5 528.3 534.6 543.6 547.2 552.5 39 Business and professional1 465.5 483.1 503.8 487.9 494.4 500.0 506.3 514.3 40 Farm1 23.4 37.2 40.7 40.4 40.2 43.6 40.9 38.2 41 Rental income of persons 132.8 146.3 147.9 149.2 149.0 148.7 148.0 145.7 42 Corporate profits' 650.0 735.9 805.0 747.8 779.6 795.1 827.3 818.1 43 Profits before tax3 622.6 676.6 729.8 680 0 708.4 719.8 753.4 737.3 44 Inventory valuation adjustment -24.3 -2.5 5.5 33 3.5 5.9 3.6 92 45 Capital consumption adjustment 51.6 61.8 69.7 64.4 67.7 69.4 70.3 71.6 46 Net interest 425.1 425.1 448.7 430.6 440.5 448.1 451.8 454.2 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 1995 1996 1997 Q4 Ql Q2 03 04' PERSONAL INCOME AND SAVING Total personal income 6,150.8 6,495.2 6,873.9' 6,618.4 6,746.2 6,829.1 6,906.9 7,013.5 Wage and salary disbursements 3,429.5 3,632.5 3,877.4' 3,716.9 3,791.5 3.841.6 3,896.1 3.980.4 Commodity-producing industries 864.4 909.1 960.3' 927.8 942.9 952.8 961.4 984.1 Manufacturing 648.4 674.7 706.0' 685.6 694.1 700.3 706.0 723.4 Distributive industries 783.1 823.3 876.3' 840.6 856.8 867.0 880.8 900.6 Service industries 1,159.0 1.257.5 1.375.5 1.299.5 1,334.1 1.359.8 1.386.3 1,422.0 Government and government enterprises 623.0 642.6 665.3 648.9 657.8 662.0 667.7 673.7 Other labor income 406.8 407.6 416.6 409.1 412.3 415.1 417.7 421A Proprietors' income' 489.0 520.3 544.5 528.3 534.6 543.6 547.2 552.5 Business and professional1 465.5 483.1 503.8' 487.9 494 4 500.0 506.3 514.3 Farm 23.4 37.2 40.7 40.4 40.2 43.6 40.9 38.2 Rental income of persons2 132.8 146.3 147.9' 149.2 149.0 148.7 148.0 145.7 Dividends 251.9 291.2 321.5 295.2 312.5 318.3 324.5 330.7 Personal interest income 718.9 735.7 768.6' 749.8 757.2 766.1 772.6 778.4 Transfer payments 1,015.0 1,068.0 1,121.1 1,081.5 1,107.2 1,117.0 1,125.7 1,134.8 Old-age survivors, disability, and health insurance benefits 566.7 564.4 569.4 507.8 537.6 545.6 558.9 574.2 LESS: Personal contributions for social insurance 323.7 321.3 324.8 293.1 306.3 311.5 318.2 330.4 EQUALS: Personal income 6,873.9' 6,829.1 6,906.9 6,150.8 6,495.2 6,618.4 6,746.2 7,013.5 LESS: Personal tax and nontax payments 988.7 979.2 998.0 795.1 886.9 922.6 955.7 1,022.1 EQUALS: Disposable personal income 5.885.2' 5.849.9 5,908.9 5.355.7 5,608.3 5,695.8 5,790.5 5,991.4 LESS: Personal outlays 5.658.5' 5,602.8 5,700.8 5,101.1 5,368.8 5,475.4 5,574.6 5,755.6 EQUALS: Personal saving 226.7' 247.0 208.2 254.6 239.6 220.4 215.9 235.8 MEMO Per capita (chained 1992 dollars) Gross domestic product 25,615.7 26,085.8 26,834.0' 26,331.6 26,597.8 26,765.0 26.897.9 27,073.3 Personal consumption expenditures . 17,459.2 17,748.7 18.168.9' 17,847.8 18,045.2 18.053.9 18.255.7 18.319.6 Disposable personal income 18,861.0 19,116.0 19.493.0' 19.152.0 19,331.0 19,439.0 19,518.0 19,681.0 Saving rate (percent) 3.9' 3.9 GROSS SAVING Gross saving 1,165.5 1,267.8 1,394.3 1303.0 1,332.9 1,396.9 1,411.6 1,435.8 Gross private saving 1,093.1 1,125.5 1,164.2 1,131.4 1,134.0 1,178.1 1,159.6 1,185.2 Personal saving 254.6 239.6 226.7' 220.4 215.9 247.0 208.2 235.8 Undistributed corporate profits' 172.4 202.1 219.5 212.6 211.5 217.6 230.0 218.9 Corporate inventory valuation adjustment -24.3 -2.5 5.5' 3.3 3.5 5.9 3.6 9.2 Capital consumption allowances Corporate 428.9 452.3 475.6 462.0 467.4 472.6 478.0 484.5 Noncorporate 224.1 230.5 241.2 235.2 238.0 239.7 242.4 244.9 Gross government saving 72.4 142.3 2.10.1 171.6 198.9 218.8 251.9 250.6 Federal -103.6 -39.3 42.8 -5.9 15.9 34.7 60.8 59.7 Consumption of fixed capital 70.9 71.2 71.6 71.3 71.4 71.5 71.6 71.8 Current surplus or deficit ( —), national accounts -174.4 -110.5 -28.8 -77.1 -55.5 -36.8 -10.8 -12.1 State and local 176.0 181.5 187.3 177.5 182.9 184.1 191.1 190.9 Consumption of fixed capital 72.9 76.2 79.5 77 2 78.2 79.2 79.7 80.8 Current surplus or deficit (-), national accounts 103.1 105.3 107.8 100.4 104.7 104.9 111.4 110.1 41 Gross investment 1,137.2 1,207.9 138.3 1,243.5 1,268.6 1,323.4 1,308.4 1,332.7 42 Gross private domestic investment 1.038.2 1,116.5 1.242.5' 1.151.1 1,193.6 1.242.0 1.250.2 1,284.1 43 Gross government investment 213.4 224.3 226.0 225.3 223.3 227.4 227.1 226.1 44 Net foreign investment -114.4 -132.9 -160.2 -132.9 -148.4 -146.0 -168.9 -177.4 45 Statistical discrepancy -28.2 -59.9 -86.0 -103.2 -103.1 1. With inventory valuation and capital consumption adjustments. SOURCE. U.S. Department of Commerce, Sun'ey of Current Business. 2. With capital consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 International Statistics • June 1998 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data seasonally adjusted except as noted' 1996 1997 Item credits or debits 1995 1996 1997 Q4 Ql Q2 Q3 Q4» 1 Balance on current account -129,095 -148,184 -166,446 -36,874 -39,916 -37,795 -43,114 -45,619 2 Merchandise trade balance2 -173,560 -191,170 -198,934 -48,190 -49,844 -47,188 -52,001 -49,901 575.871 612,069 678,348 157,846 162,341 171.227 170,255 174,525 -749,431 -803,239 -877,282 -206,036 -212,185 -218,415 -222,256 -224.426 5 Military transactions, net 3,866 3,786 3,830 1,295 437 1,048 1,398 947 6 Olher service transactions, net 67,837 76,344 81,462 20,697 20.083 20,470 20,696 20,215 7 Investment income, net 6,808 2,824 -14,277 1,250 -2,015 -3,270 -4,137 -4,856 8 U.S. government grants -11,096 -14,933 -11,688 -5,499 -2,109 -2,245 -2,231 -5,103 9 U.S. government pensions and other transfers -3,420 -4,331 -4,075 -1,050 -988 -1,033 -1,031 -1,023 10 Private remittances and other transfers -19,530 -20,704 -22,763 -5,377 -5,480 -5,577 -5,808 -5,898 11 Change in U.S. government assets other than official reserve assets, net (increase, - > -549 -690 177 -284 -21 -268 461 5 12 Change in U.S. official reserve assets (increase, -) -9,742 6,668 -1,010 -315 4,480 -236 -730 -4.524 13 Gold 0 0 0 0 0 0 0 0 14 Special drawing rights (SDRs) -808 370 -350 -146 72 -133 -139 -150 15 Reserve position in International Monetary Fund -2,466 -1,280 -3,575 -28 1,055 54 -463 -4,221 16 Foreign currencies -6.468 7,578 2,915 -141 3,353 -157 -128 -153 17 Change in U.S. private assets abroad (increase, -) -296,916 -358,422 -426,105 -153,837 -132,756 -90,760 -110,427 -92,159 18 Bank-reported claims^ -75,108 -98,186 -151,076 -66,657 -62,026 -27,947 -30.602 -30.501 19 Nonbank-reported claims -34,997 -64,234 -76,298 -26,115 -29,466 -3.984 -17,848 20 U.S. purchases of foreign securities, net -100,074 -108,189 -79,287 -30,200 -14,510 -21,841 -39,214 -3.722 21 U.S. direct investments abroad, net -86,737 -87,813 -119,444 -30,865 -26,754 -36.988 -22,763 -32,936 22 Change in foreign official assets in United States (increase, -t-) 110,729 122,354 18,157 33,097 28,891 -5.374 21,867 -27,227 23 U.S. Treasury securities 68.977 111,253 -7,019 33.564 23,289 -12,108 6,686 -24,886 24 Other U.S. government obligations 3,735 4,381 4,048 1.854 651 644 2,667 86 25 Other U.S. government liabilities4 744 720 539 160 478 654 -510 -83 26 Other U.S. liabilities reported by U.S. banks3 34,008 4,722 21,274 -4,270 7,698 4,536 12,391 -3,351 3 265 I 278 685 I 789 -3 225 900 633 I 007 28 Change in foreign private assets in United States (increase, +) 340,505 425,201 672,340 161,482 153,391 148,433 161,425 209,090 29 US bank-reported liabilities 30.176 9,784 142,545 38,960 17,387 28,100 10,102 86,956 30 U.S. nonbank-reported liabilities 34,588 31,786 44,740 -2,912 15,210 -7,916 22,046 31 Foreign private purchases of U.S. Treasury securities, net 111,848 172,878 75,326 51,289 49,915 42,919 43,731 96,367 133,798 189,273 32.447 38,820 51.682 60,409 38,362 33 Foreign direct investments in United States, net 67,526 76,955 107,928 17.661 30,685 26,652 25,949 24.641 0 0 0 0 0 0 0 0 35 Discrepancy -14,931 -46,927 -97,113 -3,269 -14,069 -14.000 -29,482 -39,566 36 Due to seasonal adjustment 2,669 7,287 -1,485 -8,489 2,683 37 Before seasonal adjustment -14,931 -46.926 -97,113 -5,938 -21,356 -12,515 -20,993 -42,249 MEMO Changes in official assets 38 U.S. official reserve assets (increase, -) -9,742 6,668 -1,010 -315 4,480 -236 -730 -4,524 39 Foreign official assets in United States, excluding line 25 (increase. +1 109,985 121,634 17,618 32,937 28,413 -6.028 22,377 -27,144 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line 22) 4,239 12,278 12,782 3,315 9,272 2,287 2,619 -1,396 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 table 3.11, for reasons of coverage and timing. Military exports are excluded from 5. Consists of investments in U.S. corporate stocks and in debt securities of private merchandise trade data and are included in line 5. corporations and state and local governments. 3. Reporting banks include all types of depository institutions as well as some brokers and SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis. Survey of Current dealers. Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A51 3.11 U.S. FOREIGN TRADE1 Millions of dollars; monthly data seasonally adjusted 1997 1998 Item 1995 1996 1997 Aug. Sept. Oct. Nov. Dec. Jan. Feb.p 1 Goods and services, balance -101,857 -111,040 -113,684 -8,993 -10.996 -8.979 -8,904 -10,897 -11.619 -12,108 2 Merchandise -173,560 -191,170 -198,975 -16,578 -18.557 -16.498 -15,741 -17,703 -18,328 -18,565 71,703 80,130 85,291 7,585 7,561 7,519 6,837 6.806 6,709 6,457 4 Goods and services, exports 794.610 848,833 931,370 78,867 78,104 80,067 78,661 79,352 77,642 77,011 575,871 612,069 678,150 57,264 56.308 58,388 57,524 58,414 56,686 55,609 6 Services 218,739 236,764 253,220 21,603 21.796 21,679 21,137 20,938 20.956 21,402 7 Goods and services, imports -896,467 -959,873 -1,045,054 -87.860 -89.100 -89,046 -87,565 -90,249 -89.261 -89.119 -749,431 -803,239 -877,125 -73.842 -74,865 -74,886 -73,265 -76.117 -75,014 -74,174 9 Services -147,036 -156,634 -167.929 -14,018 -14,235 -14,160 -14,300 -14.132 -14,247 -14,945 1. Data show monthly values consistent with quarterly figures in the U.S. alance of SOURCE. FT900, U.S. Department of Commerce, Bureau of the Census and Bureau of payments accounts. Economic Analysis. 3.12 US. RESERVE ASSETS Millions of dollars, end of period 1997 1998 Asset 1994 1995 1996 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar.p 1 Total 74,335 85,832 75,090 66,640 67,148 68,036 67,112 69,954 70,003 70,632 69,354 2 Gold stock, including Exchange Stabilization Fund1 11,051 11.050 11,049 11,050 11,050 11,050 11,050 11,050 11,046 11.050 11,050 3 Special drawing rights2'3 10,039 11.037 10,312 9,985 9,997 10,132 10.120 10,027 9.998 10,217 10,108 4 Reserve position in International Monetary Fund2 12.030 14.649 15,435 13,959 14,042 14.243 14,571 18,071 18.039 18,135 17,976 5 Foreign currencies4 41.215 49.096 38,294 31,646 32,059 32,611 31,371 30,809 30.920 31,230 30,220 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 indicated, as follows: 1970—$867 million; 1971—$717 million: 1972—$710 million; 1979— $1,139 million; 1980—$1,152 million; 1981—$1,093 million; plus net transactions in SDRs. 4. Valued at current market exchange rates. WJIWIILIII^V I U«VJ IUI IMtw but IWIIW1WD Ul HIV1IIW1 W VS U1111 A V LI • * l^f IJI * ** >• J * •* I • llllVSka^ll M*f \t W \* • • **^*rf a 1980, sixteen currencies were used; since January 1981, five currencies have been used. U.S. 3.13 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS' Millions of dollars, end of period 1997 1998 Asset 1994 1995 1996 Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar.r 1 Deposits 250 386 167 169 188 190 167 457 215 243 167 Held in custody 2 U.S. Treasury securities2 441.866 522.170 638,049 660,461 655,406 638,100 635,092 620,885 625,219 621,956 630,602 3 Earmarked gold3 12.033 11,702 11,197 10,793 10,793 10,793 10,793 10,763 10,709 10,705 10,664 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 • June 1998 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1997' 1998 Item 1995 1996 Aug. Sept. Oct. Nov. Dec. Jan. Feb.p 1 Total1 630,918 758,624 793,648 803,721 798,696 791,668 776,986 778,915 777,095 By Type 2 Liabilities reported by banks in the United States2 107,394 113,098 128,728 138.276 153,804 147,796 135.026 140,511 137.693 3 U.S. Treasury bills and certificates 168,534 198,921 165,453 161,610 153,283 150.102 148,301 145,609 144.324 U.S. Treasury bonds and notes 4 Marketable 293,690 379,497 431,169 434,260 421,412 423,24.1 422,876 421,687 422,929 6,491 5,968 5,841 5,879 5,919 5,955 5,994 6,033 6,069 6 U.S. securities other than U.S. Treasury securities 54,809 61,140 62,457 63,696 64,278 64.572 64,789 65,075 66.080 By area 1 Europe' 222,406 257,915 272,666 276,694 280,589 272,680 263,078 261,505 260,718 19,473 21,295 20,959 21,233 19,418 19,275 18.749 18,339 19,065 9 Latin America and Caribbean 66,721 80,623 94,262 94,754 90,190 94,135 97,316 96,697 98.948 10 Asia 311,016 385,484 390,584 394,551 391,541 390,203 381.196 386,007 383,547 11 Africa 6,296 7,379 8,934 10,218 9.812 9,542 10,118 10,213 10.323 12 Other countries 5,004 5,926 6,241 6.269 7,144 5,831 6,527 6,152 4.492 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 US. government corporations and federally sponsored agencies, and 3. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official US. corporate stocks and bonds. institutions of foreign countries. SOURCE. Based on U.S. Department of the Treasury data and on daia 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-yeur maturity issue and beginning March 1990, 30-year maturity issue; Slates. 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 1997' Item 1994 1995 1996 Mar. June Sept. Dec 1 Banks' liabilities 89,258 109,713 103,383 110.102 110,224 120,105 116,738 2 Banks" claims 60,711 74.016 66,018 72,731 85,305 91,158 82.729 3 Deposits 19,661 22,696 22,467 26,390 28,900 32,154 28.355' 4 5 Cla O im th s e r o c f la b i a m n s k s' domestic customers v2 4 1 1 0 , , 0 8 5 7 0 8 51 6 . .1 3 4 2 5 0 4 1 3 0 , , 5 9 5 7 1 8 4 1 6 0 , . 3 1 4 9 1 6 5 1 6 0 , , 4 2 0 6 5 5 5 1 9 0 , , 0 2 0 1 4 0 54 8. . 4 3 7 7 6 4' 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 Slates 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

Bank-Reported Data A53 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States' Payable in U.S. dollars Millions of dollars, end of period Sept. Oct. Nov. Dec' Jan. Feb.1 BY HOLDER AND TYPE OF LIABILITY Total, all foreigners 1,099,549 1,162.148 1,283,270 l,192,430r l,200,331r l,226,033r l,240,488r 1,283,270 1,264,143 1,279,919 2 Banks' own liabilities 753.461 758,998 883.174 788,607 799,271' 824,677' 834,237' 883,174 864.040 876,116 3 Demand deposits 24.448 27,034 32,104 27,090' 28,332 33,503' 35,690 32,104 29,712 29,687 4 Time deposits 192.558 186,910 198.546 190,482' 187,840' 193,751' 191,970' 198,546 187,763 181,527 5 Other' 140.165 143,510 167,637 162.026 171,138' 193,950' 180,925 167,637 184,775 188,435 6 Own foreign offices4 396.290 401.544 484,887 409.009 411.961' 403,473' 425.652' 484,887 461,790 476,467 7 Banks' custodial liabilities5 346,088 403,150 400.096 403,823' 401,060' 401,356' 406 251' 400,096 400,103 403,803 8 U.S. Treasury bills and certificates1' 197,355 236,874 193,325 209.121 205,146 200,215 196.476 193.325 184,955 186,637 9 Other negotiable and readily transferable instruments7 52,200 72,011 93,604 89,096 95,108 99,882 93.604 96,945 99,343 10 Other 96,533 94,265 113,167 105.606' 104.-OS' 106.033' 109.893' 113,167 118,203 117,823 11 Nonmonetary international and regional organizations^ 11,039 13,972 11.390 10,569 11.806 13,914 12.469 11.390 11,255 16,259 12 Banks' own liabilities 10,347 13,355 11,186 10.068 11.524 13.509 12,205 11,186 11,063 15.930 13 Demand deposits 21 29 16 217 771 36 43 16 175 74 14 Time deposits 4,656 5,784 5,466 4,879 5,967 5,161 6,310 5,466 5,023 5,223 15 Other3 5,670 7,542 5,704 4,972 4,786 8,312 5.852 5.704 5,865 10,633 16 Banks' custodial liabilities5 692 617 204 501 405 264 204 192 329 17 U.S. Treasury bills and certificates6 350 352 69 166 53 148 46 69 85 149 18 Other negotiable and readily transferable instruments7 341 265 314 229 257 217 133 107 180 19 Other 1 0 21 0 0 1 0 0 20 Official institutions9 275.928 312,019 283,327 294,181' 299,886' 307,087' 297,898' 283,327 286,120 282,017 21 Banks' own liabilities 8.1,447 79,406 101,610 99,21 lr 105.454' 118,154' 109,988' 101,610 110,607 107,913 22 Demand deposits 2,098 1,511 2,314 2,181' 1.745 2,034 1,891 2,314 1,682 1.910 23 Time deposits2 30.717 33,336 41.120 40 418' 39.984' 41,770' 39.716' 41,120 38,306 36.582 24 Other3 50,632 44,559 58.176 56.612 63.725 74,350 68,381 58.176 70,619 69.421 25 Banks' custodial liabilities5 192,481 232,613 181,717 194 970 194,432 188,933 187,910 181.717 175,513 174,104 26 U.S. Treasury bills and certificates'1 168,534 198.921 148,301 165.453 161,610 153,283 150.102 148.301 145,609 144,324 27 Other negotiable and readily transferable instruments7 23,603 33.266 33,211 29.349 32,315 35,236 37,374 33,211 29,614 29,643 28 Other 344 426 205 168 507 414 434 205 290 137 29 Banks"1 691,412 694,835 816.199 730.209' 724,645' 732,963' 765,574' 816,199 791,980 798,587 30 Banks' own liabilities 567,834 562.898 642.459 566,266' 563,884' 568,367' 595,667' 642,459 617,742 621,857 31 Unaftiliated foreign banks 171,544 161,354 157.572 157,257' 151.923' 164.894' 170,015 157,572 155,952 145,390 32 Demand deposits 11,758 13,692 17.527 13,323 13,852 18,354 21,316 17,527 15,974 16,084 33 Time deposits2 103,471 89,765 83.809 81,790' 76,683' 83,162' 84,621 83,809 79,639 74,894 34 Other3 56,315 57,897 56,236 62,144 61,388' 63,378' 64,078 56,236 60,339 54,412 35 Own foreign offices4 396,290 401,544 484,887 409,009 411,961' 403,473' 425,652' 484.887 461.790 476,467 36 Banks' custodial liabilities5 123,578 131,937 173,740 163,943' 160.761' 164,596' 169,907' 173,740 174.238 176,730 37 U.S. Treasury bills and certificates6 15,872 23,106 31,915 30,629 30.012 33,085 32,995 31,915 27.607 30,620 38 Other negotiable and readily transferable instruments 13.035 17,027 35,333 33,960 32.886 32,065 33.826 35,333 35.266 35.107 39 Other 94,671 91,804 106,492 99,354' 97,863' 99.446' 103.086' 106,492 111.365 111.003 4ft Othei foreigners 121,170 141,322 172.354 157.471 163,994' 172,069' 164.547' 172.354 174,788 183,056 41 Banks' own liabilities 91,833 103,339 127.919 113,062 118,409' 124,647' 116.377' 127,919 124.628 130,416 42 Demand deposits 10,571 11,802 12,247 11,369 11,964 13,079' 12.440 12.247 11.881 11,619 43 Time deposits2 53,714 58,025 68,151 63.395 65,206' 63,658' 61,323' 68.151 64.795 64,828 44 Other3 27,548 33,512 47,521 38.298 41,239 47,910 42.614 47.521 47,952 53,969 45 Banks' custodial liabilities5 29.337 37.983 44,435 44.409 45,585 47,422 48.170 44,435 50,160 52,640 46 U.S. Treasury bills and certificates6 12,599 14.495 13,040 12.873 14,271 13,699 13.333 13,040 11,654 11,544 47 Other negotiable and readily transferable instruments 15.221 21.453 24,927 25,473 25,256 27,550 28,465 24.927 31.958 34,413 48 Other 1.517 2,035 6.468 6,063 6.058 6.173 6,372 6.468 6,548 6,683 MEMO 49 Negotiable time certificates of deposit in custody for foreigners 14,573 16,040 15,872 15,485 16.553 16,046 17.038 20,791 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" pf 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 foreiiggnn 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 Slates, other than long-term securities, hheld by or through reporting banks for foreign customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A54 International Statistics • June 1998 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States1—Continued 1996 Aug. Sept. Oct. Jan. Feb.p AREA 50 Total, all foreigners 1,099,549 1,162,148 1,283,270 1,192,430' 1,200,331r 1,226,033' 1^40,488' 1,283,270 1,264,143' 1,279,919 51 Foreign countries 1,088,510 1,148,176 1,271,880 1,181,861' 1,188,525' 1,212,119' 1,228,019' 1,271,880 1,252,888' 1,263,660 52 Europe 362,819 376,590 420,448 407,700 402.428' 418,988 425,584 420,448 401,473' 416,890 53 Austria 3.537 5,128 2,717 3.404 2,691 2.679 2,319 2,717 2,787 2,774 54 Belgium and Luxembourg 24.792 24,084 41,007 46,063 43,436 46,067 46,258 41,007 39,018 36,934 55 Denmark 2,921 2,565 1,514 1,736 2,867 2.359 2,157 1,514 1,625 1,465 56 Finland 2,831 1,958 2,246 1,751 2,163 1,997 1,969 2,246 2,177 2.136 57 France 39,218 35,078 46,607 41,213 43,065 45.057 45,653 46,607 44,773 44,990 58 Germany 24,035 24,660 23,737 22,626 25,201 22,117 23,040 23,737 21,988' 23,040 59 Greece 2,014 1,835 1,515 1,592 2,086 2,075 1,229 1,515 1,676 1,661 60 Italy 10,868 10,946 11.378 9,179 9,852 11,449 10,713 11,378 9,854 9,682 61 Netherlands 13,745 11,110 7,385 7,823 8,413' 8,119 7,010 7,385 6,287 7,043 62 Norway 1,394 1,288 317 604 1.321 1,022 1,793 317 955 845 63 Portugal 2,761 3,562 2,262 1,931 1,958 1,888 1,987 2.262 1,515 1,427 64 Russia 7,948 7,623 7,968 13,216 12,784 11,722 6,938 7.968 5,573 6,039 65 Spain 10,011 17,707 18,989 15,203 17,796 21,934 20,921 18,989 19,413 20,129 66 Sweden 3,246 1,623 1,628 2,317 2,024 1,348 1,614 1,628 1.415 2,055 67 Switzerland 43,625 44,538 39,258 41,076 36,862 37,075 39,665 39,258 37.414 37,231 68 Turkey 4,124 6,738 4,054 5,933 4,736 4,661 4,218 4,054 3,659 4,047 69 United Kingdom 139,183 153,420 181,865 167,914 159,189' 165,199 177,781 181,865 176.402' 189,745 70 Yugoslavia" 177 206 239 244 243 233 234 239 292 244 71 Other Europe and other former U.S.S.R.'2 26,389 22,521 25.762 23,875 25,741 31,987 30.085 25,762 24,650 25.403 72 Canada 30,468 38,920 28,341 27,629 29.592 30,282 30,921 28,341 29,035' 29.384 73 Latin America and Caribbean 440,213 467,529 536.342 496,645' 504.051' 502,099' 499,513' 536,342 530,305' 532.662 74 Argentina 12,235 13,877 20,199 18,033 16,643 17,700' 18,358' 20,199 19,215' 17.430 75 Bahamas 94.991 88,895 112,217 86,271 86,914 89,631' 92,390' 112,217 117,212' 110.744 76 Bermuda 4,897 5,527 6,911 7,786 6,084 6,209 6,012 6,911 6,279' 8,282 77 Brazil 23.797 27,701 31,037 31,567 33,575 31,680' 32,614' 31,037 31,857' 33.022 78 British West Indies 239,083 251,465 276,366 268,488' 274,964' 269,997' 263,763' 276,366 265,999' 273,513 79 Chile 2,826 2,915 4,072 3,353 3,327 3,579 3,283 4,072 4,514' 4 445 80 Colombia 3,659 3,256 3.652 2,587 2,657 3,478' 3,341' 3,652 3,559' 3.883 81 Cuba 8 21 66 60 55 71 57 66 63 58 82 Ecuador 1,314 1,767 2,078 1,512 1,508 1,671 1.704 2,078 1,876 1.987 83 Guatemala 1,276 1.282 1.494 1,389 1,449 1,399 1,361 1.494 1,492' 1,381 84 Jamaica 481 628 450 534 523 481 445 450 449 437 85 Mexico 24,560 31.240 33.972 30,804 32.640 32,749' 32,678' 33,972 33,230' 33.592 86 Netherlands Antilles 4,673 6.099 5.085 8,286 7.591' 6,069' 4,995' 5,085 5,777 5.413 87 Panama 4.264 4,099 4,241 3,805 3.835 4,109' 4,293' 4,241 3,921' 4,050 88 Peru 974 834 893 1,006 904 917 907 893 876' 913 89 Uruguay 1,836 1.890 2,382 2,070 1,997 2.184 2,247 2,382 2,201 2,245 90 Venezuela 11,808 17.363 21,601 20,229' 20,639' 20.699' 22,111' 21,601 22,340' 21,749 91 Other 7,531 8,670 9,626 8,865' 8,746' 9,476' 8,954' 9,626 9,445' 9,518 92 Asia 240.595 249,083 269,196 231,017 234,560 242,064' 255,000 269,196 274,303' 269.058 China 93 Mainland. 33.750 30,438 18,252 10,450 12,664 16,234' 17,433 18.252 20,153' 18,570 94 Taiwan... 11.714 15,995 11,760 11,803 13,460 15,207 13.586 11,760 12,936' 12,941 95 Hong Kong 20,197 18,789 17,722 17,647 18,533 19,755 18,886 17,722 18,002' 17.730 96 India 3,373 3,930 4,567 4,474 4,451 5,131 4.913 4,567 5,331 5.315 97 Indonesia 2,708 2,298 3,554 3,737 2,810 4,568 3,092 3,554 2,909' 2,988 98 Israel 4,041 6,051 6,283 5,202 4,534 4,200 3,745 6,283 7,192 7,190 99 Japan 109.193 117,316 143,401 119,581 118,536 116,852 133.690 143,401 138,685' 142,243 100 Korea (South) 5,749 5,949 12,955 9,646 9,327 8,597 9.982 12,955 11,703' 12,520 101 Philippines 3,092 3,378 3.250 2,541 2,409 2,505 2.558 3.250 2,530' 2,867 110022 TThhaaiillaanndd 12.279 10,912 6,501 4,956 6.545 6,988 5,824 6,501 5,858 4.676 103 Middle Eastern oil-exporting countries13. 15.582 16,285 14,959 15,325 14,279 14,436 14.017 14,959 16,059 13,485 110044 OOthher 18.917 17.742 25,992 25,655 27,012 27,591 27,274 25.992 32,945' 26,727 105 Africa 7,641 8,116 10,347 9,731 10,380 10,310 9,520 10,347 10,291 9.197 106 Egypt 2,136 2.012 1,663 1,973 2,050 1,742 1,836 1,663 1.949 1.664 107 Morocco 104 112 138 94 99 105 69 138 131 73 108 South Africa 739 458 2,158 1,694 2,047 2,028 1,615 2,158 1,685 1.645 109 Zaire 10 10 10 7 14 3 5 10 7 4 110 Oil-exporting countries 1,797 2,626 3,060 3,211 3,280 3,194 2,948 3,060 3,470 2.716 111 Other 2,855 2,898 3,318 2,752 2,890 3,238 3,047 3,318 3,049 2,575 112 Other 6.774 7,938 7.206 9,139 7,514 8,376 7,481 7,206 7,481' 6,469 113 Australia 5,647 6,479 6.304 7,917 6,391 7,284 6,283 6,304 6,385' 5,466 114 Other 1.127 1,459 902 1.222 1.123 1,092 1,198 902 1,096 1,003 115 Nonmonetary international and regional organizations. 11,039 13,972 11,390 10.569 11.806 13,914 12,469 11,390 11,255' 16,259 116 International15 9,300 12,099 10,217 9,434 10,634 11,943 10,926 10,217 10,031' 14,666 117 Latin American regional16 893 1,339 424 579 708 1,277 1,053 424 975 1,217 118 Other regional" 846 534 749 556 464 694 490 749 249 376 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 Ihe 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 Internationa) 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

Bank-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' Area or country 1996 1997 Aug. Sept. Nov. Dec. Jan. Feb.p [ Total, all foreigners... 532,444 599,925 708,197r 650,506 655,419 681,287 699,095 708,197 703,125 703,279 2 Foreign countries .... 530,513 597^21 705,734r 648,089 653,376 679,539 696,609 705,734 700,208 700,524 3 Europe .... 132,150 165,769 199,881' 189,759 199,256 213,472 215,077 199,881 204.763 211,999 4 Austria 565 1,662 1,354 1,739 1,371 1,913 2,034 1,354 1,917 1,934 5 Belgium and Luxembourg 7,624 6,727 6.641' 8,124 7,847 8,347 7,475 6,641 5,714 6,021 6 Denmark 403 492 980 811 1.082 896 844 980 1,531 907 7 Finland 1,055 971 1,233 1,773 1,889 1,808 1,259 1,233 1,492 1,554 8 France 15,033 15,246 16,239 16.232 17,531 16,831 19,817 16.239 21,474 18,963 9 Germany 9,263 8,472 12,676 8,685 11,724 11,617 13,245 12.676 10,849 10,752 10 Greece 469 568 402 481 499 463 401 402 504 504 11 Italy 5.370 6,457 6,2Vf 8,015 7,670 7,145 6,871 6.230 6,655 5,974 12 Netherlands 5,346 7,117 6,141 11,083 11,543 11,503 11,496 6.141 5,384 5,447 13 Norway 665 808 555 849 1,713 1,419 2,080 555 989 1,296 14 Portugal 888 418 777 732 563 615 695 777 655 533 15 Russia 660 1,669 1,248 2.192 1,927 2,054 2,207 1,248 1,297 1,143 16 Spain 2,166 3,211 2,942' 6,175 5,431 6,625 6,339 2,942 6,926 6,255 17 Sweden 2,080 1,739 1,854 1,639 1,659 1,838 1,804 1,854 1,736 1,838 18 Switzerland 7,474 19.798 28,846 24,338 25,393 29,779 29,399 28,846 28,515 29,102 19 Turkey 803 1,109 1,558 1,305 1,410 1,424 1,572 1,558 1,648 1,675 20 United Kingdom 67,784 85,234 103,143 90,226 93,825 102,405 100,870 103,143 99,302 110,307 21 Yugoslavia^ 147 115 52 76 75 75 74 52 53 53 22 Other Europe and other former U.S.S.R.-' . 4,355 3,956 7,010 5,284 6,104 6,715 6,595 7,010 8,122 7,741 23 Canada .. 20,874 26,436 27,170 24,452 23,523 22,815 24,765 27,170 25,155 24,872 24 Latin America and Caribbean 256,944 274,153 343,806' 298,829 302,678 303,917 317,508 343,806 345,779 345,383 25 Argentina 6,439 7,400 8,924' 7,277 7,243 8,129 8,761 8,924 9,076 9,402 26 Bahamas 58.818 71,871 89,379 70,031 66,073 73,838 72,739 89,379 90,823 84,982 27 Bermuda 5.741 4,129 8,782 9,840 9,353 8,008 6,552 8,782 9,385 8,917 28 Brazil 13,297 17,259 21,696' 19,249 19,429 20,134 20,390 21,696 22,541 24.188 29 British West Indies 124,037 105,510 145.471' 128,416 133,797 133,309 141,801 145,471 145,935 149,065 30 Chile 4,864 5,136 7.913 5,919 6.350 7,304 7,783 7.913 7.910 8,249 31 Colombia 4,550 6,247 6,945' 6.608 6,543 6,869 6,976 6,945 6,733 6,729 32 Cuba 0 0 0 0 0 0 3 0 0 0 33 Ecuador 825 1,031 1,311 1,199 1,218 1,307 1,292 1,311 1,390 1,398 34 Guatemala 457 620 886 689 764 761 787 886 863 868 35 Jamaica 323 345 424 375 374 364 405 424 410 401 36 Mexico 18,024 18,425 19,518' 18,680 18,770 18,584 18,904 19,518 20,510 21,103 37 Netherlands Antilles 9,229 25,209 17,838 18,399 20,335 12,274 17,064 17,838 16,031 15,598 38 Panama 3,008 2,786 4,364 3,471 3,555 3,958 4,089 4,364 4,074 4,232 39 Peru 1,829 2,720 3,491' 2,850 3,060 3,185 3,457 3,491 3.413 3,550 40 Uruguay 466 589 629 702 728 709 651 629 588 594 41 Venezuela 1,661 1,702 2,129' 1,750 1,716 1,642 1,921 2,129 2,257 2,334 42 Other 3,376 3,174 4,106' 3,374 3,370 3,542 3,933 4,106 3,840 3,773 43 Asia . . 115,336 122,478 125,007' 124,927 119,395 129,622 129,760 125,007 114,400 108,904 China 44 Mainland 1,023 1,401 1,579 2,574 2.798 2,345 2,102 1,579 2,534 1,988 45 Taiwan 1,713 1,894 921 1.521 1,250 1,271 1,000 921 847 820 46 Hong Kong 12,821 12,802 13,99c 13,183 13,568 15,338 15,151 13,990 14,548 13,477 47 India 1,846 1,946 2,200 2,110 2,086 2,360 2,501 2,200 2,299 2,172 48 Indonesia 1,696 1,762 2,611 2,579 2.713 2,731 2,774 2,611 2,346 2,243 49 Israel 739 633 768 749 907 1,539 1.201 768 946 987 50 Japan 61,468 59,967 59,546 54,427 52,480 59,437 60.195 59,546 52,904 51,891 51 Korea (South) 13,975 18,901 18.123' 21,695 19,983 19,927 19,258 18,123 14,429 12,741 52 Philippines 1,318 1,697 1,689 1,834 1,670 1,455 1,533 1,689 1,794 1,645 53 Thailand 2,612 2,679 2,259 2,641 2,479 2,317 2,180 2,259 2,164 2,138 54 Middle Eastern oil-exporting countriesJ 9,639 10,424 10,790 9.503 7,988 8,490 8,909 10,790 9.133 9,101 55 Other 6,486 8,372 10,531' 12,111 11,473 12,412 12,956 10,531 10,456 9,701 56 Africa 2,742 2,776 3,530 3,281 3,464 3,342 3,332 3,530 3,580 3,403 57 Egypt 210 247 247 288 251 245 282 247 279 304 58 Morocco 514 524 511 554 547 599 412 511 498 514 59 South Africa 465 584 805 489 655 557 743 805 694 573 60 Zaire 1 0 0 0 0 0 0 0 0 0 61 Oil-exporting countries5 552 420 1,212 1,178 1,123 1,111 1,091 1,212 1,324 1,219 62 Other 1,000 1,001 755 772 830 804 755 785 793 63 Other 2,467 5,709 6,340' 6,841 5,060 6,371 6,167 6,340 6,531 5,963 64 Australia . 1,622 4,577 5,299 5,266 4,314 5,296 4,962 5,299 5,419 5,139 65 Other 845 1,132 1,041' 1,575 746 1,075 1,205 1,041 1,112 824 66 Nonmonetary international and regional organizations6 1,931 2,604 2,463 2,417 2,043 1,748 2,486 2,463 2,917 2,755 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 Nigena 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." pans 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 • June 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' 1998 Type of claim 1995 1996 1997' Aug. Sept. Oct. Nov. Dec. Jan. Feb."" 1 Total 655,211 743.919 857,931 825,412 857,931 2 Banks' claims 532.444 599,925 708,197 650,506 655,419 681,287 699,095 708,197 703,125 703,279 3 Foreign public borrowers 22,518 22,216 20,660 28,258 28,875 29,795 27,739 20,660 30,184 27,029 4 Own foreign offices2 307,427 341,574 431,679 370,642 374,452 400,207 409,314 431,679 415,690 421,051 5 Unaffiliated foreign banks 101,595 113,682 109,225 115,348 104,744 115,095 122,350 109,225 111,009 106,412 37,771 33,826 31,010 37,123 31,056 31,711 33,850 31,010 30,670 26,500 7 Other 63,824 79,856 78,215 78,225 73,688 83,384 88,500 78,215 80,339 79,912 100,904 122.453 146.633 136,258 147,348 136,190 139,692 146,633 146,242 148.787 9 Claims of banks' domestic customers3 122,767 143,994 149,734 169,993 149,734 58.519 77,657 73,110 100,460 73,110 11 Negotiable and readily transferable instruments4 44,161 51,207 53,967 51.514 53,967 12 Outstanding collections and other 20,087 15,130 22,657 18,019 22,657 MEMO 13 Customer liability on acceptances 8,410 10,388 9,623 10.881 9,623 14 Dollar deposits in banks abroad, reported by nonbanking business enterprises in the 30,717 39,661 34,148 45,342 38,171 39,157 37,527 34,148 36,328 37,119 1. For banks' claims, data are monthly; for claims of banks' domestic customers, data are principally of amounts due from the head office or parent foreign bank, and from foreign for quarter ending with month indicated. branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank. Reporting banks include all types of depository institution as well as some brokers and 3. Assets held by reporting banks in the accounts of their domestic customers. dealers. 4. Principally negotiable time certificates of deposit, bankers acceptances, and commercial 2. For U.S. banks, includes amounts due from own foreign branches and foreign subsidiar- paper. ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory 5. Includes demand and time deposits and negotiable and nonnegotiable certificates of agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists deposit denominated in U.S. dollars issued by banks abroad. 3.20 BANKS' OWN CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Banks in the United States' Payable in U.S. Dollars Millions of dollars, end of period 1997' Maturity, by borrower and area 1995 Sept. 1 Total 202,282 224,932 258,106 276,217 272,014 280,968 276,507 By borrower 2 Maturity of one year or less 170,411 178,857 211,859 223,836 210,882 217,949 205,808 3 Foreign public borrowers 15,435 14,995 15,411 19,935 17,979 20,123 12,135 4 All other foreigners 154,976 163,862 196,448 203,901 192,903 197,826 193,673 5 Maturity of more than one year 31,871 46,075 46,247 52,381 61,132 63,019 70,699 6 Foreign public borrowers 7,838 7,522 6,790 8,903 11,406 8,752 8,525 7 All other foreigners 24,033 38,553 39,457 43,478 49,726 54,267 62,174 By area Maturity of one year or less 8 Europe 56,381 55,622 55,690 69,233 69.204 58,295 9 Canada 6,690 6,751 8,339 10,423 10,381 8,460 9,917 10 Latin America and Caribbean 59,583 72,504 103,254 96,942 87,059 99,918 97,242 11 Asia 40,567 40,296 38,078 36,484 38,435 34,629 33,955 12 Africa 1,379 1,295 1,316 1,451 1,899 2,157 2,211 13 Allother3 5,811 2.389 5,182 3,648 3,875 3,581 4,188 Maturity of more than one year 14 Europe 4,358 4,995 6,965 9,512 11,884 11,202 13,240 15 Canada 3,505 2,751 2,645 2,944 3,174 3,842 2,512 16 Latin America and Caribbean 15,717 27,681 24,943 26,797 31,001 34,988 42,069 17 Asia 5,323 7,941 9,392 10,772 12,509 10,393 10,159 18 Africa 1,583 1,421 1,361 1,204 1,264 1,236 1,236 19 All other3 1,385 1,286 941 1.152 1,300 1,358 1,483 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

Bank-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 1997' Area or country Sept. Sept. 1 Total 409.5 499.5 551.9 574.7 612.8 586.2 645.3 688.4 718.7 747.8 2 G-10 countries and Switzerland 161.9 191.2 206.0 203.4 226.9 220.0 228.3 255.9 274.0 268.4 3 Belgium and Luxembourg 7.4 7.2 13.6 11.0 11.4 11.3 11.7 15.2 10.8 12.5 4 France 12.0 19.1 19.4 17.9 18.0 17.4 16.6 21.5 19.3 21.6 5 Germany 12.6 24.7 27.3 31.5 31.4 33.9 29.8 34.0 35.1 37.3 6 Italy 7.7 11.8 11.5 13.2 14.9 15.2 16.0 16.4 23.1 22.4 7 Netherlands 47 3.6 3.7 3.1 4.7 5.9 4.0 4.6 7.1 7.7 8 Sweden 2.7 2.7 2.7 3.3 2.7 3.0 2.6 3.4 3.6 4.1 9 Switzerland 5.9 5.1 6.7 5.2 6.3 6.3 5.3 6.1 5.5 4.9 10 United Kingdom 84.4 85.8 82.4 84.7 101.6 90.5 104.7 112.7 119.9 115.9 11 Canada 6.9 10.0 10.3 10.8 12.2 14.8 14.0 17.0 17.5 15.8 12 Japan 17.6 21.1 28.5 22.7 23.6 21.7 23.7 25.1 32.1 26.2 13 Other industrialized countries 26.5 45.7 50.2 61.3 55.5 62.1 65.7 67.4 72.7 74.7 14 Austria .7 1.1 .9 1.3 1.2 1.0 1.1 2.0 1.6 1.8 15 Denmark 1.0 1.3 2.6 3.4 3.3 1.7 1.5 1.7 2.8 3.7 16 Finland .4 .9 .8 .7 .6 .6 .8 .7 1.4 1.9 17 Greece 3.2 4.5 5.7 5 6 5.6 6.1 6.7 6.3 6.1 6.2 18 Norway 1.7 2.0 3.2 2.1 2.3 3.0 8.0 5.3 4.7 4.6 19 Portugal .8 1.2 1.3 1.6 1.6 1.4 .9 1.0 1.2 1.4 20 Spain 9.9 13.6 11.6 17.5 13.6 16.1 13.2 15.0 16.2 14.6 21 Turkey 2.1 1.6 1.9 2.0 2.3 2.8 2.7 2.8 3.4 4.4 22 Other Western Europe 3.2 3.2 4.7 3.8 3.4 4.8 4.7 6.3 5.5 6.1 23 South Africa 1.1 1.0 1.2 1.7 2.0 1.7 2.0 1.9 1.9 1.9 24 Australia 2.3 15.4 16.4 21.7 19.6 22.8 24.0 24.5 27 8 28.1 25 OPEC2 17.6 24.1 22.1 21.2 20.1 19.2 19.7 22.1 22.5 23.2 26 Ecuador .5 .5 .7 .8 .9 .9 1.1 1.1 1.0 1.3 27 Venezuela 5.1 3.7 27 2.9 2.3 2.3 2.4 2.0 2.1 2.3 28 Indonesia 3.3 3.8 4.8 4.7 4.9 5.4 5.2 5.0 5.7 6.6 29 Middle East countries 7.6 15.3 13.3 12.3 11.5 10.2 10.7 13.3 12.6 11.8 30 African countries 1.2 .6 .6 .5 .4 .4 7 1.2 1.2 31 Non-OPEC developing countries 112.6 118.6 126.5 131.9 141 4 Latin America 32 Argentina 7.7 11.2 12.9 12.7 14.1 15.0 14.3 14.9 16.9 17.5 33 Brazil 12.0 8.4 13.7 18.3 21.7 17.8 20.7 22.7 28.3 27 4 34 Chile 4.7 6.1 6.8 6.4 6.7 6.6 7.0 7.1 7.9 8.3 35 Colombia 2.1 2.6 2.9 2.9 2.8 3.1 4.1 3.9 3.6 3.6 36 Mexico 17.9 18.4 17.3 16.1 15.4 16.3 16.2 17.9 17.4 17.1 37 Peru .4 .5 9 1.2 1.3 1.6 1.7 1.6 2.0 38 Other 3.1 2.7 3.1 3.0 3.0 3.3 3.6 3.7 3.8 Asia China 39 Mainland 2.0 1.1 1.8 3.3 2.9 2.6 2.5 2.7 3.6 4.3 40 Taiwan 7.3 9.2 9.4 9.7 9.8 10.4 10.3 10.5 10.6 9.7 41 India 3.2 4.2 4.4 4.7 4.2 3.8 4.3 4.9 5.3 5.0 42 Israel .5 .4 .5 .5 .6 .5 .5 1.0 I I 1.5 43 Korea (South) 6.7 16.2 19.1 19.3 21.7 21.9 21.5 14.9 16.6 16.5 44 Malaysia 4.4 3.1 4.4 5.2 5.3 5.5 6.0 6.5 6.4 5.6 45 Philippines 3.1 3.3 4.1 3.9 4.7 5.4 5.8 6.1 7.0 5.7 46 Thailand 3.1 2.1 4.9 5.2 5.4 4.8 5.7 6.8 7.3 6.2 47 Other Asia 3.1 4.7 4.5 4.3 4.8 4.1 4.1 4.4 4.8 4.6 Africa 48 Egypt .4 .6 .7 .9 1.1 .9 49 Morocco 7 .7 .7 .6 7 .7 51) Zaire 0 .0 .1 .0 .0 .0 51 Other Africa' .9 1.0 .9 .9 .9 .9 52 Eastern Europe 3.2 2.7 4.2 6.3 5.1 5.3 6.9 9.0 7.2 9.9 53 Russia4 1.6 .8 1.0 1 4 1.0 1.8 3.7 3.6 4.2 5.1 54 Other 1.6 1.9 3.2 4.9 4.1 3.5 3.2 5.4 3.0 4.7 55 Offshore banking centers 73.5 72.9 99.2 101.3 106.1 105.2 134.7 142.5 140.0 149.6 56 Bahamas 10.9 10.2 11.0 13.9 17.3 14.2 20.3 21.1 17.2 20.5 57 Bermuda 8.9 8.4 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 32.4 28.8 26.1 32.0 37.2 41.2 43.1 52.1 59 Netherlands Antilles 2.8 1.6 10.3 II.I 13.2 11.7 26.1 20.0 15.9 21.8 60 Panama5 2.4 1.3 1.4 1.6 1.7 1.7 2.0 2.2 2.7 2.3 61 Lebanon .1 .1 .1 I .1 .1 .1 .1 I I 62 Hong Kong, China 18.8 20.0 25.0 25.3 27.6 26.0 27.9 30.9 35.2 27.3 63 Singapore 11.2 10.1 13.1 15.4 15.9 15.5 16.7 20.3 17.7 15.9 64 Other* .1 .1 1 I .1 .1 .1 .1 .3 .1 65 Miscellaneous and unallocated7 43.6 66.9 57.6 62.6 72.7 50.0 59.6 59.6 57.6 80.8 I. 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, Nigena, 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 US. 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 • June 1998 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1996 1997 Type of liability, and area or country 1994 Sept. June Sept. Dec.p 54,309 46,448 54,798 51,604 54,798 58,750 55,184 55,476 58,245 Payable in dollars 38,298 33,903 38,956 36,374 38,956 39,944 38,494 39,583 41,838 Payable in foreign currencies 16,011 12,545 15,842 15,230 15,842 18,806 16,690 15,893 16,407 By type Financial liabilities 32,954 24,241 26,065 25,445 26,065 29,633 26,864 25,970 27,790 Payable in dollars 18,818 12,903 11,327 11,272 11,327 11,847 11,203 11,248 12,975 Payable in foreign currencies 14,136 11,338 14,738 14,173 14,738 17,786 15,661 14,722 14.815 Commercial liabilities 21,355 22,207 28,733 26,159 28,733 29,117 28,320 29,506 30,455 Trade payables 10,005 11,013 12,720 11,791 12,720 11,515 11,122 10,961 10,900 Advance receipts and other liabilities 11,350 11,194 16,013 14,368 16,013 17,602 17,198 18,545 19.555 Payable in dollars 19,480 21,000 27,629 25,102 27,629 28,097 27,291 28,335 28.863 Payable in foreign currencies 1,875 1.207 1,104 1,057 1,104 1,020 1.029 1,171 1,592 By area or country Financial liabilities Europe 21,703 15,622 16,195 16,086 16,195 20,081 18,530 18,019 19,121 Belgium and Luxembourg 495 369 632 547 632 769 238 89 186 France 1,727 999 1,091 1,220 1,091 1,205 1,280 1,334 1,684 Germany 1,961 1,974 1,834 2,276 1,834 1,589 1,765 1,730 2,018 Netherlands 552 466 556 519 556 507 466 507 494 Switzerland 688 895 699 830 699 694 591 645 776 United Kingdom 15,543 10,138 10,177 9,837 10,177 13,863 12.968 12,165 12,201 629 632 1,401 973 1,401 602 456 399 1.186 20 Latin America and Caribbean .. . 2,034 1,783 1.668 1,169 1,668 1,876 1.279 1,061 1.386 21 Bahamas 101 59 236 50 236 293 124 10 141 22 Bermuda 80 147 50 25 50 27 55 64 229 23 Brazil 207 57 78 52 78 75 97 52 143 24 British West Indies 998 866 1.030 764 1.030 965 769 663 604 25 Mexico 0 12 17 13 17 16 15 76 26 26 Venezuela 5 1 I 1 1 1 1 1 27 Asia 8,403 5,988 6,423 6,969 6,423 6,370 6,015 6,006 5,394 28 Japan 7,314 5.436 5,869 6,602 5,869 5,794 5,435 5,492 5,085 29 Middle Eastern oil-exporting countries 35 27 25 25 25 72 39 23 32 30 Africa 135 150 38 153 38 29 29 33 60 31 Oil-exporting countries2 123 122 0 121 0 0 0 0 0 32 All other' 643 Commercial liabilities 33 Europe 6.773 7,700 9,767 8.680 9,767 9,551 8,711 9,362 10,212 34 Belgium and Luxembourg 241 331 479 427 479 643 738 705 666 35 France 728 481 680 657 680 680 709 783 763 36 Germany 604 767 1,002 949 1,002 1,047 852 950 1,271 37 Netherlands 722 500 766 668 766 553 290 453 439 38 Switzerland 327 413 624 405 624 481 430 401 375 39 United Kingdom 2,444 3,568 4,303 3.663 4,303 4,165 3.827 3,834 4,083 1,037 1,040 1.090 1,144 1,090 1,068 1,136 1,150 1,171 41 Latin America and Caribbean 1,857 1,740 2,574 2,386 2,574 2,563 2,501 2,225 2,159 42 Bahamas 19 1 63 33 63 43 33 38 16 43 Bermuda 345 205 297 355 297 479 397 180 203 44 Brazil 161 98 196 198 196 201 225 233 212 45 British West Indies 23 56 14 15 14 14 26 23 11 4 4 6 7 M Ve e n x e i z c u o ela 5 2 7 7 4 6 4 22 1 1 6 6 3 6 2 5 8 4 34 4 1 6 6 3 6 2 5 8 6 3 3 1 3 8 5 3 9 0 4 4 5 3 6 2 2 2 5 25 6 9 4 48 Asia 10,741 10,421 13,422 12,227 13,422 13,968 13,926 14,682 14,958 49 Japan 4,555 3,315 4,614 4,149 4,614 4,502 4,460 4,587 4,499 50 Middle Eastern oil-exporting countries1. 1,576 1,912 2,168 1,951 2,168 2,495 2,420 2,984 3,109 51 Africa 428 619 1,040 1,020 1,040 1,037 941 929 52 Oil-exporting countries2 256 254 532 490 532 479 423 504 53 Other1. 519 840 1,158 1,085 I. 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 Type of claim, and area or country Sept. Dec. Mar. June Sept. 57,888 52,509 63,642 59,092 63,642 66,202 67,039 68,646 65,287 2 Payable in dollars 53,805 48,711 58,630 55,014 58,630 60,226 60,855 62,030 57.383 3 Payable in foreign currencies 4,083 3,798 5,012 4,078 5,012 5.976 6,184 6,616 7,904 By type 4 Financial claims 33,897 27,398 35,268 34,200 35,268 38,647 39,490 39,945 34,200 5 Deposits 18.507 15,133 21,404 19,877 21,404 20.250 22,896 21,837 18.431 6 Payable in dollars 18,026 14,654 20,631 19,182 20.631 18.599 21,405 20,278 16.582 7 Payable in foreign currencies 481 479 773 695 773 1,651 1.491 1,559 1.849 8 Other financial claims 15,390 12.265 13.864 14,323 13,864 18,397 16,594 18,108 15,769 9 Payable in dollars 14,306 10,976 12,069 12,234 12,069 15,381 13.337 14.795 11,576 10 Payable in foreign currencies 1.084 1,289 1,795 2,089 1,795 3,016 3.257 3,313 4,193 11 Commercial claims 23,991 25,111 28,374 24,892 28,374 27.555 27,549 28,701 31,087 12 Trade receivables 21,158 22,998 25,751 22,454 25,751 24,801 24,858 25,110 27,454 13 Advance payments and other claims 2.833 2,113 2,623 2,438 2,623 2.754 2,691 3,591 3,633 14 Payable in dollars 21,473 23,081 25,930 23.598 25,930 26,246 26,113 26,957 29,225 15 Payable in foreign currencies . .. 2,518 2,030 2.444 1,294 2,444 1,309 1,436 1,744 1,862 By area or country Financial claims 16 Europe 7,936 7,609 9,282 9,777 9,282 11,176 11,677 13,758 12,240 17 Belgium and Luxembourg 86 193 185 126 185 119 203 360 406 18 France 800 803 694 733 694 760 680 1.112 1.015 19 Germany 540 436 276 272 276 324 281 352 427 20 Netherlands 429 517 493 520 493 567 519 764 677 21 Switzerland 523 498 474 432 474 570 447 448 434 22 United Kingdom 4,649 4,303 6,119 6.603 6,119 7,937 8,604 9,150 7,578 23 Canada 3,581 2,851 3,445 4.502 3,445 4,917 6,422 4,279 3,313 24 Latin America and Caribbean 19.536 14,500 19,577 17,241 19,577 19,742 18,725 19,166 15.543 25 Bahamas 2,424 1,965 1.452 1,746 1.452 1,894 2.064 2,442 2,459 26 Bermuda 27 81 140 113 140 157 188 190 108 27 Brazil 520 830 1.468 1,438 1.468 1,404 1,617 1,501 1,313 28 British West Indies 15,228 10,393 15,182 12,819 15,182 15,176 13.553 12,947 10,311 29 Mexico 723 554 457 413 457 517 497 508 537 30 Venezuela 35 32 31 20 31 22 21 15 36 31 Asia 1,871 1,579 2,221 1,834 2,221 2,068 1,934 2,015 2,133 32 Japan 953 871 1.035 1,001 1,035 831 766 999 823 33 Middle Eastern oil-exporting countries1 141 3 22 13 12 20 15 11 34 Africa 373 276 174 177 174 182 179 174 319 35 Oil-exporting countries2 0 5 14 13 14 14 15 16 15 36 All other3 669 569 562 Commercial claims 37 Europe 9,540 9,824 10,443 9.288 10.443 9,863 9.603 10,486 12,098 38 Belgium and Luxembourg 213 231 226 213 226 364 327 331 328 39 France 1.881 1,830 1,644 1.532 1,644 1,514 1,377 1.642 1.793 40 Germany 1,027 1,070 1.337 1,250 1.337 1,364 1,229 1.395 1.612 41 Netherlands 311 452 562 424 562 582 613 573 597 42 Switzerland 557 520 642 594 642 418 389 381 551 43 United Kingdom 2,556 2,656 2,946 2,516 2,946 2,626 2.836 2,904 3.652 1,988 1,951 2.165 2,083 2,165 2,381 2.464 2,649 2,636 45 Latin America and Caribbean 4,117 4,364 5,276 4,409 5,276 5,067 5,241 5,028 5,742 46 Bahamas 9 30 35 14 35 40 29 ->2 27 47 Bermuda 234 272 275 290 275 159 197 128 244 48 Brazil 612 898 1,303 968 1,303 1,216 1,136 1,101 1.163 49 British West Indies 83 79 190 119 190 127 98 98 109 50 Mexico 1,243 993 1,128 936 1,128 1.102 1,140 1,219 1,385 51 Venezuela 348 285 357 316 357 330 451 418 576 52 Asia 6,982 7,312 8,376 7,289 8.376 8.348 8,460 8,576 8,691 53 Japan 2,655 1,870 2,003 1,919 2.003 2.065 2,079 2.048 1.973 54 Middle Eastern oil-exporting countries' 708 974 971 945 971 1,078 1,014 987 1,104 55 Africa 454 654 746 731 746 718 618 764 677 56 Oil-exporting countries2 67 87 166 142 166 100 81 207 119 57 Other'.. 1,006 1,368 1,092 1,178 1,163 1.198 1.243 1. Comprises Bahrain, [ran, 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 • June 1998 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1997' Transaction, and area or country 1996 1997' J F a e n b .- . Aug. Sept. Nov. Dec. Jan. Feb.!" U.S. corporate securities STOCKS 1 Foreign purchases 590,714 963,885 189,384 84,953 80,546 106,673 85,149 90,994 90,130 99,254 578,203 897,850 173,118 76,820 75,428 105,668 80,133 85,670 83,877 89,241 2 Foreign sales 12,511 66,035 16,266 8,133 5,118 1,005 5,016 5,324 6,253 10,013 3 Net purchases, or sales (—) 12,585 66,175 1638 8,176 5,123 1,023 5,024 5,358 63)5 10,003 4 Foreign countries 5,367 59,041 16,255 4,391 5,296 5,910 5,318 5,832 6,623 9,632 5 Europe -2,402 3,134 1,157 461 241 -80 -65 299 665 492 6 France 1,104 9,075 1,314 584 374 538 857 788 546 768 7 Germany 1,415 3,833 753 -118 820 757 579 409 613 140 8 Netherlands 2,715 7,845 1,815 557 -405 848 1,043 1,474 683 1,132 9 Switzerland 4,478 22,215 7,336 2,170 3,559 2,444 1,875 1,232 2,741 4,595 10 United Kingdom 2,226 -1,174 -732 -286 -560 -520 -344 -304 -254 -478 11 Canada 5,816 5,264 4,830 2,456 813 -4,091 -627 -1,224 2,646 2,184 1 1 2 3 L M a i t d in d le A m Ea e s r t i 1 ca and Caribbean .. . -1, 9 6 1 0 8 0 2, 1 0 7 6 1 1 -3 - , 4 6 3 3 9 9 1 - ,5 6 4 4 5 -51 3 9 2 -50 7 8 8 88 1 8 5 1,0 2 7 1 1 -2 - , 1 6 6 9 6 3 - - 2 9 7 4 3 6 14 Other Asia -372 4.780 -1,781 888 -313 229 709 551 -1,112 -669 15 Japan -85 471 47 2 94 80 -36 7 34 13 16 Africa -57 341 -14 132 -33 74 -190 -45 115 -129 17 Other countries 18 Nonmonetary international and -140 -42 -43 -5 -18 regional organizations BONDS2 393,953 614,253 125,116 62,622 50,709 58,462 52,632 52,484 57,331 67,785 19 Foreign purchases 268,487 477,786 94,404 48,283 41,201 48,772 43,171 44,301 50,103 44,435 20 Foreign sales 125,466 136,467 30,712 14,339 9,508 3,860 9,313 13,030 17,682 14,027 21 Net purchases, or sales (—) 125,295 135,875 30,712 14,271 9,507 3,948 12,998 17,714 13400 22 Foreign countries 77,570 74,301 13,893 7,603 5,843 2,395 4,575 5,286 8,607 2 2 2 2 2 2 2 3 3 3 3 3 3 4 5 6 7 8 9 0 1 2 3 4 E C L M O A u a a f i i N F G U l J r S t r n d i i i a o e r n w c a d e e n p a p r a d t r l i i n a e h e t m A a t A e n c z e d m a e E e s rl n r i a a e a l K y a s n r t n i i d 1 c n d s a g d a o n m d Caribbean 6 2 1 1 0 3 4 4 4 2 - 4 7 1 1 , , , , , , , , , , 5 6 5 7 4 4 4 1 1 6 7 1 6 2 0 8 3 6 7 0 7 6 3 7 3 4 9 2 3 6 9 7 9 7 0 0 5 3 1 6 4 3 2 3 6 9 7 1 1 , , , , , , , , , , 8 1 8 8 5 3 7 2 3 0 0 6 1 2 8 7 0 0 0 4 1 6 5 5 1 7 1 4 6 7 0 5 2 6 4 4 1 1 - 2 0 0 1 1 , , , - , , 2 3 7 4 8 1 9 8 6 5 0 7 3 4 3 0 9 7 1 2 2 6 1 0 4 6 9 8 8 8 5 3 6 9 6 - 6 2 3 2 , , , , - 3 6 5 2 1 9 9 1 5 4 0 0 5 7 3 2 0 1 9 1 9 4 4 2 7 5 4 6 3 6 6 0 4 4 - - 1 1 , , 5 , 6 3 6 6 1 1 1 5 2 - 0 1 0 3 2 3 7 0 9 6 1 1 3 0 8 4 8 5 7 9 1 5 3 - 2 3 - 5 5 - , , , , , 1 1 1 3 8 1 1 6 5 2 6 7 8 3 0 6 6 1 2 4 9 0 1 3 1 3 8 9 6 9 0 2 1 1 8 7 4 2 - - 3 2 3 - , , , 1 5 7 4 1 8 1 1 1 1 8 0 5 4 1 8 9 8 9 6 8 1 8 4 9 6 2 8 3 3 9 5 5 6 4 - -3 3 7 - 3 , , , , - 4 4 7 6 7 5 1 1 0 2 6 7 2 3 4 7 6 2 6 4 6 2 7 4 5 3 9 7 4 6 5 2 9 0 4 5 - - 1 , , , 9 4 4 7 2 2 0 1 3 4 5 3 8 6 7 7 8 4 1 4 5 0 8 3 5 0 8 4 9 4 2 8 4 9 6 5 2 , , , 2 4 2 8 8 6 1 1 1 5 4 1 7 6 8 0 2 3 9 9 1 1 3 9 2 6 8 0 1 6 9 5 4 2 0 35 Other countries 36 Nonmonetary international and 68 527 -32 regional organizations Foreign securities 37 Stocks, net purchases, or sales (—) -59,268 -40,243 -877 -7,893 -334 -2,820 2,045 1,541 150 -1,027 38 Foreign purchases 450,365 719,145 129,017 60,734 62,690 79,549 70,286 64,328 62,369 66,648 39 Foreign sales 509,633 759,388 129,894 68,627 63,024 82,369 68,241 62,787 62,219 67,675 40 Bonds, net purchases, or sales (—) -51,369 -47,241 -6,573 -5,214 -8,006 -739 -4,468 -3,062 -3,748 -2,825 41 Foreign purchases 1,114,035 1,466,784 195,448 123,203 121,636 163,626 111,000 115,302 95,235 100,213 42 Foreign sales 202,021 128,417 129,642 164,365 115,468 118,364 98,983 103,038 1,165,404 1,514,025 43 Net purchases, or sales (—), of stocks and bonds -7,450 -13,107 -8,340 -3,559 -2,423 -1,521 -3,598 -3,852 -110,637 -87,484 44 Foreign countries -13,036 -8,334 -3,394 -2^75 -1,435 -3,509 -3,812 -109,766 -87,428 45 Europe -57,139 -28,060 -5,773 -4,587 -5,544 -5,227 -2,528 909 -3,979 -1,794 46 Canada -7,685 -3,794 1,275 -1,453 -1,236 412 557 -78 841 434 47 Latin America and Caribbean -11,507 -25,043 1,396 -207 -146 1,899 -2,160 -2,918 825 571 48 Asia -27,831 -24,972 -4,117 -4,803 -709 889 1,684 936 -1,120 -2,997 49 Japan -5,887 -10,014 -2,230 95 -183 1,828 2,261 1,862 -404 -1,826 50 Africa -1,517 -3,296 -245 -703 -273 -1,027 -380 -74 -113 -132 51 Other countries -4,087 -2,263 143 -1,283 -426 -340 452 -210 37 106 52 Nonmonetary international and regional organizations -129 -71 -6 -165 -86 -89 -40 1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, 2. Includes state and local government securities and securities of U.S. government Saudi Arabia, and United Arab Emirates (Trucial States). agencies and corporations. Also includes issues of new debt securities sold abroad by U.S. corporations organized to finance direct investments abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Holdings and Transactions/Interest and Exchange Rates A61 3.25 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Transactions1 Millions of dollars; net purchases, or sales (—) during period 1997' Area or country Jan- Feb. Sept. 1 Total estimated 232,241 183,596 16,293 24,153 15,174 16,858 15,909 -9,398 6,336 9,957 2 Foreign countries 234,083 183.179 15,905 24,359 14.788 17,094 15,489 -7,788 5,814 10,091 3 Europe 118,781 144.920 25.231 19,216 19,152 23,102 10,158 -37 18,433 6,798 4 Belgium and Luxembourg 1,429 3.427 556 92 138 357 384 161 304 252 5 Germany 17,980 22,471 11 4,050 2.714 4,847 5.255 3,052 -1.085 1,096 6 Netherlands -582 1,746 -389 882 -3 334 375 -1,525 403 -792 7 Sweden 2,242 -465 -348 583 16 302 -67 -124 82 -430 8 Switzerland 328 6,028 4,109 -291 109 690 1,395 2,847 2,419 1,690 9 United Kingdom 65,658 98,253 17,754 13,465 12,856 18,779 5,640 -1,792 11,879 5,875 10 Other Europe and former U.S.S.R 31,726 13,460 3,538 435 3.322 -2,207 -2.824 -2,656 4,431 -893 11 Canada 2.331 -811 265 -839 -414 -730 730 -2,132 -1 266 12 Latin America and Caribbean 20,785 -2,541 -1,496 1,063 -769 -1,434 6,512 3,737 -3,619 2.123 13 Venezuela -69 655 101 25 -691 107 397 -36 4 97 14 Other Latin America and Caribbean 8,439 -536 4,660 -3,245 -2.880 -3,723 -723 2,485 1,711 2,949 15 Netherlands Antilles 12,415 -2,660 -6,257 4,283 2,802 2,182 6,838 1,288 -5,334 -923 16 Asia 89,735 39,047 -6,883 4,860 -4,614 -5.394 -1,002 -10,359 -8,231 1,348 17 Japan 41.366 20.360 -5,620 -3.458 -2,782 4.160 -4,784 -7,860 -6,384 764 18 Africa 1,083 1,523 213 218 461 45 -82 268 37 176 19 Other 1,368 1.041 -1,425 -159 972 1,505 -827 735 -805 -620 20 Nonmonetary international and regional organizations -1,842 417 -206 386 -236 420 -1,610 522 -134 21 International -1,390 552 222 -190 341 -74 451 -1,025 445 -223 22 Latin American regional -779 173 3 -117 -21 78 -24 -131 32 -29 MEMO 23 Foreign countries 234,083 183,179 15,905 24,359 14,788 17,094 15,489 -7,788 5.814 10,091 24 Official institutions 85,807 43,379 53 8,235 3,091 -12,848 1,831 -367 -1,189 1,242 25 Other foreign 148,276 139,800 15,852 16,124 11,697 29,942 13,658 -7,421 7,003 8,849 Oil-exporting countries 26 Middle East2 10,232 7,116 -2,002 3.455 -3,877 3,175 1,506 -2,411 409 27 Africa3 1 -13 1 -7 0 0 0 0 1. Official and private transactions in marketable U.S. Treasury securities having an 2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab original maturity of more than one year. Data are based on monthly transactions reports. Emirates (Trucial States). Excludes nonmarketable U.S. Treasury bonds and notes held by official institutions of foreign 3. Comprises Algeria. Gabon. Libya, and Nigeria. countries. 3.26 DISCOUNT RATES OF FOREIGN CENTRAL BANKS1 Percent per year, averages of daily figures Rate on Apr. 30, 1998 Rate on Apr. 30, 1998 Country Country Percent Month Percent Month effective effective 2.5 Apr. 1996 Germany 2.5 Apr. 1996 Belgium 2.75 Oct. L997 Italy 5.0 Apr. 1998 Canada 5.0 Jan, 1998 .5 Sept. 1995 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 Type or country 1995 1996 1997 Oct. Nov. Dec. Jan. Feb. Mar. Apr. 5.93 5.38 5.61 5.63 5.71 5.79 5.53 5.53 5.56 5.56 2 United Kingdom 6.63 5.99 6.81 7.24 7.52 7.60 7.49 7.46 7.47 7.41 3 Canada 7.14 4.49 3.59 3.83 4.02 4.61 4.68 5.02 4.93 4.94 4.43 3.21 3.24 3.51 3.68 3.67 3.51 3.45 3.44 3.56 2.94 1.92 1.58 1.73 1.91 1.56 1.27 .98 1.06 1.39 6 Netherlands 4.30 2.91 3.25 3.50 3.65 3.61 3.42 3.36 3.42 3.52 7 France 6.43 3.81 3.35 3.47 3.57 3.57 3.50 3.45 3.45 3.50 8 Italy 10.43 8.79 6.86 6.63 6.49 6.07 6.05 6.12 5.59 5.09 9 Belgium 4.73 3.19 3.40 3.76 3.72 3.61 3.47 3.53 3.61 3.69 10 Japan 1.20 .58 .58 .52 .53 .78 .77 .84 .74 .66 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 • June 1998 3.28 FOREIGN EXCHANGE RATES1 Currency units per dollar except as noted 1998 Country/currency unit 1995 Apr. 1 Australia/dollar" 74.073 78.283 74.368 69.526 66.187 65.659 67.436 66.963 65.231 2 Austria/schilling 10.076 10.589 12.206 12.182 12.510 12.765 12.735 12.852 12.760 3 Belgium/franc 29.472 30.970 35.807 35.737 36.748 37.536 37.417 37.699 37.424 4 Canada/dollar 1.3725 1.3638 1.3849 1.4128 1.4271 1.4409 1.4334 1.4166 1.4298 5 China, P.RYyuan 8.3700 8.3389 8.3193 8.3109 8.3099 8.3094 8.3072 8.3076 8.3058 6 Denmark/krone 5.5999 5.8003 6.6092 6.5937 6.7752 6.9190 6.9089 6.9661 6.9174 7 Finland/markka 4.3763 4.5948 5.1956 5.2217 5.3789 5.5006 5.4999 5.5467 5.5053 8 France/franc 4.9864 5.1158 5.8393 5.8001 5.9542 6.0832 6.0744 6.1257 6.0782 9 Germany/deutsche mark 1.4321 1.5049 1.7348 1.7323 1.7788 1.8165 1.8123 1.8272 1.8132 10 Greece/drachma 231.68 240.82 273.28 271.87 279.93 287.24 286.70 306.05 315.82 11 Hong Kong/dollar 7.7357 7.7345 7.7431 7.7314 7.7456 7.7425 7.7412 7.7458 7.7497 12 India/rupee 32.418 35.506 36.365 37.289 39.400 39.391 39.008 39.569 39.703 13 Ireland/pound2 160.35 159.95 151.63 150.30 145.33 138.19 137.71 136.72 138.94 14 Italy/lira 1,629.45 1,542.76 1,703.81 1,697.08 1,743.86 1,787.87 1,788.28 1,799.07 1,791.24 15 Japan/yen 93.96 108.78 121.06 125.38 129.73 129.55 125.85 129.08 131.75 16 Malaysia/ringgit 2.5073 2.5154 2.8173 3.3791 3.7907 4.4093 3.8148 3.7456 3.7376 17 Netherlands/guilder 1.6044 1.6863 1.9525 1.9524 2.0051 2.0472 2.0432 2.0598 2.0422 18 New Zealand/dollar2.... 65.625 68.765 66.247 62.420 59.137 57.925 58.286 57.261 55.339 19 Norway/krone 6.3355 6.4594 7.0857 7.0588 7.2630 7.5007 7.5530 7.5833 7.5315 20 Portugal/escudo 149.88 154.28 175.44 176.84 181.91 185.80 185.54 187.03 185.81 21 Singapore/dollar 1.4171 1.4100 1.4857 1.5820 1.6518 1.7477 1.6509 1.6188 1.6007 22 South Africa/rand 3.6284 4.3011 4.6072 4.8394 4.8706 4.9417 4.9337 4.9746 5.0459 23 South Korea/won 772.69 805.00 950.77 1,035.22 1,494.04 1,707.30 1,628.42 1,489.36 1,391.55 24 Spain/peseta 124.64 126.68 146.53 146.30 150.46 153.93 153.61 154.95 153.99 25 Sri Lanka/rupee 51.047 55.289 59.026 60.132 61.591 62.281 62.363 62.083 62.903 26 Sweden/krona 7.1406 6.7082 7.6446 7.5589 7.7977 8.0193 8.0723 7.9677 7.8238 27 Switzerland/franc 1.1812 1.2361 1.4514 1.4069 1.4393 1.4748 1.4631 1.4901 1.5051 28 Taiwan/dollar 26.495 27.468 28.775 31.794 32.502 34.117 32.948 32.524 33.016 29 Thailand/baht 24.921 25.359 31.072 39.092 44.309 52.983 45.987 41.366 39.654 30 United Kingdom/pound2. 157.85 156.07 163.76 168.89 165.97 163.50 164.08 166.19 167.23 MEMO 31 United States/dollar3 96.37 98.82 100.52 99.93 100.47 100.30 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 Resem Bulletin, vol. 64 (August 1978), p. 700). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A63 Guide to Statistical Releases and Special Tables STATISTICAL RELEASES—List Published Semiannually, with Latest Bulletin Reference Issue Page Anticipated schedule of release dates for periodic releases June 1998 A72 SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference Title and Date Issue Page Assets and liabilities of commercial banks March 31, 1997 September 1997 A64 June 30, 1997 November 1997 A64 September 30, 1997 February 1998 A64 December 31, 1997 May 1998 A64 Terms of lending at commercial banks May 1997 October 1997 A64 August 1997 November 1997 A68 November 1997 February 1998 A68 February 1998 May 1998 A66 Assets and liabilities of U.S. branches and agencies of foreign banks March 31, 1997 August 1997 A64 June 30, 1997 November 1997 A72 September 30, 1997 February 1998 A72 December 31, 1997 May 1998 A70 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

A64 Federal Reserve Bulletin • June 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, 11, 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, 12 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) INCOME, personal and national, 42, 48, 49 Demand deposits, 15-21 Industrial production, 42, 44 Depository institutions Insurance companies, 27, 35 Reserve requirements, 8 Interest rates Reserves and related items, 4, 5, 6, 12 Bonds, 23 Deposits (See also specific types) Consumer credit, 36 Commercial banks, 4, 15-21 Federal Reserve Banks, 7 Federal Reserve Banks, 5, 10 Foreign central banks and foreign countries, 61 Interest rates, 14 Money and capital markets, 23 Discount rates at Reserve Banks and at foreign central banks and Mortgages, 34 foreign countries (See Interest rates) Prime rate, 22 Discounts and advances by Reserve Banks (See Loans) International capital transactions of United States, 50-61 Dividends, corporate, 32 International organizations, 52, 53, 55, 58, 59 Inventories, 48 Investment companies, issues and assets, 32 EMPLOYMENT, 42 Investments (See also specific types) Eurodollars, 23, 61 Commercial banks, 4, 15-21 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A65 Federal Reserve Banks, 10, 11 Retail credit and retail sales, 36, 42 Financial institutions, 35 SAVING LABOR force, 42 Flow of funds, 37-41 Life insurance companies (See Insurance companies) National income accounts, 48 Loans (See also specific types) Savings institutions, 35, 36, 37^tl Commercial banks, 15-21 Savings deposits (See Time and savings deposits) Federal Reserve Banks, 5, 6, 7, 10, 11 Securities (See also specific types) Financial institutions, 35 Federal and federally sponsored credit agencies, 30 Insured or guaranteed by United States, 34, 35 Foreign transactions, 60 New issues, 31 Prices, 24 MANUFACTURING Special drawing rights, 5, 10, 50, 51 Capacity utilization, 43 State and local governments Production, 43, 45 Holdings of U.S. government securities, 27 Margin requirements, 24 New security issues, 31 Member banks (See also Depository institutions) Rates on securities, 23 Reserve requirements, 8 Stock market, selected statistics, 24 Mining production, 45 Stocks (See also Securities) Mobile homes shipped, 46 New issues, 31 Monetary and credit aggregates, 4, 12 Prices, 24 Money and capital market rates, 23 Student Loan Marketing Association, 30 Money stock measures and components, 4, 13 Mortgages (See Real estate loans) TAX receipts, federal, 26 Mutual funds, 13, 32 Thrift institutions, 4. (See also Credit unions and Savings Mutual savings banks (See Thrift institutions) institutions) Time and savings deposits, 4, 13, 15-21 NATIONAL defense outlays, 26 Trade, foreign, 51 National income, 48 Treasury cash, Treasury currency, 5 Treasury deposits, 5, 10, 25 Treasury operating balance, 25 OPEN market transactions, 9 UNEMPLOYMENT, 42 PERSONAL income, 49 U.S. government balances Prices Commercial bank holdings, 15-21 Consumer and producer, 42, 47 Treasury deposits at Reserve Banks, 5, 10, 25 Stock market, 24 U.S. government securities Prime rate, 22 Bank holdings, 15-21.27 Producer prices, 42, 47 Dealer transactions, positions, and financing, 29 Production, 42, 44 Federal Reserve Bank holdings, 5, 10, 11, 27 Profits, corporate, 32 Foreign and international holdings and 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, 5 ] Residential mortgage loans, 34, 35 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 Federal Reserve Bulletin • June 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 LYNN S. FOX, Assistant to the Board EDWIN M. TRUMAN, Staff Director DONALD J. WINN, Assistant to the Board LEWIS S. ALEXANDER, Associate Director THEODORE E. ALLISON, Assistant to the Board for Federal DALE W. HENDERSON, Associate Director Reserve System Affairs PETER HOOPER III, Associate Director WINTHROP P. HAMBLEY, Special Assistant to the Board KAREN H. JOHNSON, Associate Director BOB STAHLY MOORE, Special Assistant to the Board DAVID H. HOWARD, Senior Adviser DIANE E. WERNEKE, Special Assistant to the Board DONALD B. ADAMS, Assistant Director THOMAS A. CONNORS, Assistant Director LEGAL DIVISION DIVISION OF RESEARCH AND STATISTICS J. VIRGIL MATTINGLY, JR., General Counsel MICHAEL J. PRELL. Director SCOTT G. ALVAREZ, Associate General Counsel EDWARD C. ETTIN, Deputy Director RICHARD M. ASHTON, Associate General Counsel DAVID J. STOCKTON, Deputy Director OLIVER IRELAND, Associate General Counsel WILLIAM R. JONES, Associate Director KATHLEEN M. O'DAY, Associate General Counsel MYRON L. KWAST, Associate Director KATHERINE H. WHEATLEY, Assistant General Counsel PATRICK M. PARKINSON, Associate Director THOMAS D. SIMPSON, Associate Director LAWRENCE SLIFMAN, Associate Director OFFICE OF THE SECRETARY MARTHA S. SCANLON, Deputy Associate Director JENNIFER J. JOHNSON, Secretary PETER A. TINSLEY, Deputy Associate Director ROBERT DEV. FRIERSON, Associate Secretary DAVID S. JONES, Assistant Director BARBARA R. LOWREY, Associate Secretary and Ombudsman STEPHEN D. OLINER, Assistant Director STEPHEN A. RHOADES, Assistant Director JANICE SHACK-MARQUEZ, Assistant Director DIVISION OF BANKING CHARLES S. STRUCKMEYER, Assistant Director SUPERVISION AND REGULATION ALICE PATRICIA WHITE, Assistant Director RICHARD SPILLENKOTHEN, Director JOYCE K. ZICKLER, Assistant Director STEPHEN C. SCHEMERING, Deputy Director GLENN B. CANNER, Senior Adviser HERBERT A. BIERN, Associate Director JOHN J. MINGO, Senior Adviser ROGER T. COLE, Associate Director WILLIAM A. RYBACK, Associate Director GERALD A. EDWARDS, JR., Deputy Associate Director DIVISION OF MONETARY AFFAIRS STEPHEN M. HOFFMAN, JR., Deputy Associate Director DONALD L. KOHN, Director JAMES V. HOUPT, Deputy Associate 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. WASSOM, 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 DOLORES S. SMITH, Director WILLIAM SCHNEIDER, Project Director, GLENN E. LONEY, Deputy Director National Information Center SANDRA F. BRAUNSTEIN, Assistant Director MAUREEN P. ENGLISH, Assistant Director ADRIENNE D. HURT, 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 SHEILA CLARK, EEO Programs Director DAVID L. ROBINSON, Deputy Director (Finance and Control) JOHN R. WEIS, Adviser LOUISE L. ROSEMAN, Associate Director PAUL W. BETTGE, Assistant Director MANAGEMENT DIVISION JACK DENNIS, JR., Assistant Director EARL G. HAMILTON, Assistant Director S. DAVID FROST, Director STEPHEN J. CLARK, Associate Director, Finance Function JOSEPH H. HAYES, JR., Assistant Director DARRELL R. PAULEY, Associate Director, Human Resources JEFFREY C. MARQUARDT, Assistant Director Function MARSHA REIDHILL, Assistant Director DIVISION OF SUPPORT SERVICES OFFICE OF THE INSPECTOR GENERAL DONALD L. ROBINSON, Assistant Inspector General ROBERT E. FRAZIER, Director BARRY R. SNYDER. Assistant Inspector General 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

A68 Federal Reserve Bulletin • June 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. EDWARD W. KELLEY, JR. SUSAN M. PHILLIPS EDWARD M. GRAMLICH LAURENCE H. MEYER WILLIAM POOLE THOMAS M. HOENIG CATHY E. MINEHAN ALICE M. RIVLIN JERRY L. JORDAN 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 GARY P. GILLUM, Assistant Secretary CRAIG S. HAKKIO, Associate Economist J. VIRGIL MATTINGLY, JR., General Counsel DAVID E. LINDSEY, 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

A70 Federal Reserve Bulletin • June 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, Visa, or American Express. Payment from foreign COMPUTERS. CD Rom; updated monthly. residents should be 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, 1997. additional airmail costs. ANNUAL REPORT: BUDGET REVIEW, 1998-99. 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, The Federal Open Market Committee $35.00 per year or $.80 each. 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 166. THE ECONOMICS OF THE PRIVATE PLACEMENT MARKET, by BULLETIN Mark Carey, Stephen Prowse, John Rea, and Gregory Udell. January 1994. 111pp. Studies and papers on economic and financial subjects that are of general interest. Requests to obtain single copies of the full text or 167. A SUMMARY OF MERGER PERFORMANCE STUDIES IN BANKto be added to the mailing list for the series may be sent to ING, 1980-93, AND AN ASSESSMENT OF THE "OPERATING Publications Services. PERFORMANCE" AND "EVENT STUDY" METHODOLOGIES, by Stephen A. Rhoades. July 1994. 37 pp. 168. THE ECONOMICS OF THE PRIVATE EQUITY MARKET, by Staff Studies 1-157 are out of print. George W. Fenn, Nellie Liang, and Stephen Prowse. November 1995. 69 pp. 158. THE ADEQUACY AND CONSISTENCY OF MARGIN REQUIRE- 169. BANK MERGERS AND INDUSTRYWIDE STRUCTURE, 1980-94, MENTS IN THE MARKETS FOR STOCKS AND DERIVATIVE by Stephen A. Rhoades. February 1996. 29 pp. PRODUCTS, by Mark J. Warshawsky with the assistance of 170. THE COST OF IMPLEMENTING CONSUMER FINANCIAL REGU- Dietrich Earnhart. September 1989. 23 pp. LATIONS: AN ANALYSIS OF EXPERIENCE WITH THE TRUTH 159. NEW DATA ON THE PERFORMANCE OF NONBANK SUBSIDI- IN SAVINGS ACT, by Gregory Elliehausen and Barbara R. ARIES OF BANK HOLDING COMPANIES, by Nellie Liang and Lowery, December 1997. 17 pp. Donald Savage. February 1990. 12 pp. 171. THE COST OF BANK REGULATION: A REVIEW OF THE EVI- 160. BANKING MARKETS AND THE USE OF FINANCIAL SER- DENCE, by Gregory Elliehausen, April 1998. 35 pp. VICES BY SMALL AND MEDIUM-SIZED BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September 1990. 35 pp. REPRINTS OF SELECTED Bulletin ARTICLES 161. A REVIEW OF CORPORATE RESTRUCTURING ACTIVITY, 1980-90, by Margaret Hastings Pickering. May 1991. Some Bulletin articles are reprinted. The articles listed below are 21pp. those for which reprints are available. Beginning with the Janu- 162. EVIDENCE ON THE SIZE OF BANKING MARKETS FROM MORT- ary 1997 issue, articles are available on the Board's World Wide GAGE LOAN RATES IN TWENTY CITIES, by Stephen A. Web site (http://www.bog.frb.fed.us) under Publications, Federal Rhoades. February 1992. 11 pp. Reserve Bulletin articles. 163. CLEARANCE AND SETTLEMENT IN U.S. SECURITIES MAR- KETS, by Patrick Parkinson, Adam Gilbert, Emily Gollob. Limit of ten copies Lauren Hargraves, Richard Mead, Jeff Stehm, and Mary Ann Taylor. March 1992. 37 pp. FAMILY FINANCES IN THE U.S.: RECENT EVIDENCE FROM THE 164. THE 1989-92 CREDIT CRUNCH FOR REAL ESTATE, by SURVEY OF CONSUMER FINANCES. January 1997. James T. Fergus and John L. Goodman, Jr. July 1993. 20 pp. 165. THE DEMAND FOR TRADE CREDIT: AN INVESTIGATION OF MOTIVES FOR TRADE CREDIT USE BY SMALL BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September 1993. 18 pp. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A72 Federal Reserve Bulletin • June 1998 ANTICIPATED SCHEDULE OF RELEASE DATES FOR PERIODIC RELEASES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (PAYMENT MUST ACCOMPANY REQUESTS) Annual Annual Approximate Corresponding PPHAH or Hfitp to Release number and title USPS fax release Bulletin which data refer rate rate days1 table numbers2 Weekly Releases H.2. Actions of the Board: $55.00 n.a. Friday Week ended Applications and Reports previous Received Saturday H.3. Aggregate Reserves of $20.00 n.a. Thursday Week ended 1.20 Depository Institutions and previous the Monetary Base3 Wednesday H.4.1. Factors Affecting Reserve Balances $20.00 n.a. Thursday Week ended 1.11, 1.18 of Depository Institutions and previous Condition Statement of Wednesday Federal Reserve Banks3 H.6. Money Stock, Liquid Assets, $35.00 n.a. Thursday Week ended 1.21 and Debt Measures3 Monday of previous week H.8. Assets and Liabilities of $30.00 n.a. Friday Week ended 1.26A-E Commercial Banks in the previous United States3 Wednesday H.10. Foreign Exchange Rates3 $20.00 $20.00 Monday Week ended 3.28 previous Friday H. 15. Selected Interest Rates3 $20.00 $20.00 Monday Week ended 1.35 previous Friday Monthly Releases G.5. Foreign Exchange Rates3 $ 5.00 $ 5.00 First of month Previous month 3.28 G.13. Selected Interest Rates $ 5.00 $ 5.00 First Tuesday of Previous month 1.35 month G. 15. Research Library—Recent No charge n.a. First of month Previous month Acquisitions G.17. Industrial Production and $15.00 n.a. Midmonth Previous month 2.12,2.13 Capacity Utilization3 G.19. Consumer Credit3 $ 5.00 $ 5.00 Fifth working day Second month 1.55, 1.56 of month previous G.20. Finance Companies $ 5.00 n.a. Fifth working day Second month 1.51, 1.52 of month previous Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A73 Annual Annual Approximate Corresponding Period or date to Release number and title USPS fax release Bulletin rate rate days' which data refer table numbers2 Quarterly Releases E.2. Survey of Terms of Bank S 5.00 n.a. Midmonth of February, May, 4.23 Lending to Business March, June, August, and September, and November December E.7. List of OTC Margin Stocks No charge n.a. January, April, February, May, July, and August, and October November E. 11. Geographical Distribution of $ 5.00 n.a. 15th of March, Previous quarter Assets and Liabilities of June, Major Foreign Branches of September, and U.S. Banks December E. 15. Agricultural Finance Databook $ 5.00 n.a. End of March, January, April, June, July, and September, and October December E.16. Country Exposure Lending $ 5.00 n.a. January, April, Previous quarter Survey July, and October Z. 1. Flow of Funds Accounts $25.00 n.a. Second week of Previous quarter 1.57, 1.58, of the United States: March, June, 1.59, 1.60 Flows and Outstandings3 September, and December Annual Release C.2. Aggregate Summaries of Annual $ 5.00 n.a. February End of previous Surveys of Securities Credit June Extension 1. Please note that for some releases there is normally a certain variability in the release date because of reporting or processing procedures. Moreover, for all series unusual circumstances may, from time to time, result in a release date being later than anticipated. 2. The data in some releases are also reported in the Bulletin statistical appendix. 3. These releases are also available on the Board's World Wide Web site (http://www.bog.frb.fed.us) under Domestic and International Research, Statistical releases. n.a. Not available. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A74 Federal Reserve Bulletin • June 1998 Maps of the Federal Reserve System EWYORK 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

A75 1-A 2-B 3-C 4-D 5-E Pittsburgh Baltimore MD . NJ —wv icinnati :te BOSTON NEW YORK PHILADELPHIA CLEVELAND RICHMOND 6-F 7-G 8-H Birmingha sville ATLANTA CHICAGO 9-1 IP MINNEAPOLIS 10-J 12-L ^•^P1 ALASKA '""SHil K4 Ol KANSAS CITY 11-K DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 Federal Reserve Bulletin • June 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. Bechter' ATLANTA 30303 David R. Jones Jack Guynn John F. Wieland Patrick K. Barron James M. Mckee Birmingham 35283 Patricia B. Compton FredR. 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 William H. Poole 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' 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, HI' San Antonio 78295 H. B. Zachry, Jr. James L. Stull' SAN FRANCISCO 94120 Gary G. Michael Robert T. Parry Cynthia A. Parker John F. Moore Los Angeles 90051 Anne L. Evans MarkL. 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