Federal Reserve Bulletin, 1998-09

VOLUME 84 D NUMBER 9 • SEPTEMBER 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 703 BANK MERGER POLICY AND THE NEW 722 INDUSTRIAL PRODUCTION AND CAPACITY CRA DATA UTILIZATION FOR JULY 1998 Data now being collected under the Community Industrial production declined 0.6 percent in Reinvestment Act can be used to examine sev- July, to 126.8 percent of its 1992 average, after eral issues related to analyses of the competitive a drop of 1.1 percent in June; the June decline effects of proposed bank mergers and bank hold- was larger than previously estimated. From May ing company acquisitions. This article looks at to July, capacity utilization in manufacturing, two of those issues: whether locally based com- mining, and electric and gas utilities dropped mercial banks and savings institutions face sig- 1.9 percentage points, to 80.5 percent. nificant competition in small business lending from institutions based outside local banking markets, and whether measured levels of market 725 STATEMENTS TO THE CONGRESS concentration differ significantly when calcu- Laurence H. Meyer, member, Board of Goverlated on the basis of small business loan originanors, comments on the "discussion draft" of the tions rather than bank deposits, as has traditionregulatory relief bill and highlights those provially been done. sions of the legislation that the Board supports and believes are particularly significant in reduc- 716 TREASURY AND FEDERAL RESERVE ing burden and promoting efficient bank regula- FOREIGN EXCHANGE OPERATIONS tion. Governor Meyer states that the Board has long endorsed regulatory relief to ensure regu- Throughout the second quarter of 1998, the latory equity for all participants in the financial Japanese yen weakened consistently, depreciatservices industry, minimize the chances that ing 4.1 percent against the U.S. dollar and federal safety net subsidies will be expanded 6.2 percent against the German mark. Continued into new activities and beyond the confines of pessimism about the outlook for the Japanese insured depository institutions, guarantee adeeconomy pressured the yen to eight-year lows quate federal supervision of financial organiagainst the dollar. This contrasted with the relazations, and ensure the continued safety and tively positive outlooks for the United States soundness of financial organizations, in testiand Europe, with the dollar benefiting from mony before the Subcommittee on Financial continued low inflation and a strong domestic Institutions and Consumer Credit of the House economy while the mark benefited from opti- Committee on Banking and Financial Services, mism toward European monetary union. During July 16, 1998. the first two weeks of June, the yen's decline accelerated, a development that put downward 730 Edward M. Gramlich, member, Board of Goverpressure on other regional currencies as mar- nors, discusses key policy questions in regard to ket participants increasingly doubted that effec- possible reforms to the Truth in Lending Act tive reforms of the Japanese banking system (TILA) and the Real Estate Settlement Proceand stimulus of the economy would be forth- dures Act (RESPA) in connection with recomcoming. Then, on June 17, the U.S. monetary mendations for new legislation presented in a authorities intervened in the foreign exchange joint report by the Federal Reserve Board and markets by selling a total of $833 billion against the Department of Housing and Urban Developthe Japanese yen. The operation was conducted ment to the Congress. Governor Gramlich states in cooperation with the Japanese monetary that the report focuses on four broad policy authorities. questions concerning closed-end home-secured Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

loans: the effectiveness of the finance charge on Agriculture, Nutrition, and Forestry on and the annual percentage rate (APR), the relia- July 30, 1998.) bility of settlement cost disclosures, the timing of disclosures, and substantive protections to 746 ANNOUNCEMENTS target abusive lending practices, in testimony before the Subcommittee on Financial Institu- Statement by Chairman Greenspan on the death tions and Regulatory Relief and the Subcommit- of William McChesney Martin. tee on Housing Opportunity and Community Development of the Senate Committee on Bank- Revision to Regulation H and recission of Reguing, Housing, and Urban Affairs, July 17, 1998. lation P. (Governor Gramlich presented identical testi- Amendment to Regulation DD. mony before the Subcommittee on Financial Institutions and Consumer Credit and the Sub- Appointment of Governor Ferguson as Chaircommittee on Housing and Community Opporman of the Year 2000 Council. tunity of the House Committee on Banking and Financial Services on July 22, 1998.) Publication of a joint report on legislative recommendations of ways to simplify and improve 735 Alan Greenspan, Chairman, Board of Gover- consumer disclosures in home-secured loans. nors, presents the Federal Reserve's midyear report on monetary policy and states that over- Availability of data on mortgage lending transall, the performance of the U.S. economy con- actions in 1997 at institutions covered by the tinues to be impressive and that the task is to Home Mortgage Disclosure Act. maintain disciplined economic policies and Availability of revised lists of over-the-counter thereby contribute to maintaining and extending stocks and of foreign stocks subject to margin these gains in the years ahead, in testimony regulations. before the Senate Committee on Banking, Housing, and Urban Affairs, July 21, 1998. (Chair- Scheduling of an additional day for the public man Greenspan presented identical testimony meeting on the proposed acquisition of Bankbefore the Subcommittee on Domestic and Inter- America by NationsBank. national Monetary Policy of the House Committee on Banking and Financial Services on Accessibility to the Board's World Wide Web July 22, 1998.) site through a new address. Changes in Board staff. 742 Chairman Greenspan presents the Federal Reserve Board's views on the regulation of over-the-counter (OTC) derivatives and 750 MINUTES OF THE FEDERAL OPEN MARKET addresses the fundamental underlying issue, that COMMITTEE MEETING HELD is, whether it is appropriate to apply the Com- ON MAY 19, 1998 modity Exchange Act (CEA) to OTC derivatives (and, indeed, to financial derivatives gener- At its meeting on May 19, 1998, the Committee ally) in order to achieve the CEA's objectives— adopted a directive that called for maintaining deterring market manipulation and protecting conditions in reserve markets that were consisinvestors. In conclusion, Chairman Greenspan tent with an unchanged federal funds rate of states that the Board continues to believe that, about 5'/2 percent and that contained a bias aside from safety and soundness regulation of toward the possible firming of reserve condiderivatives dealers under the banking or securi- tions and a higher federal funds rate. ties laws, regulation of derivatives transactions that are privately negotiated by professionals is 757 LEGAL DEVELOPMENTS unnecessary, in testimony before the House Committee on Banking and Financial Services, Various bank holding company, bank service July 24, 1998. (Chairman Greenspan presented corporation, and bank merger orders; and pendsimilar testimony before the Senate Committee ing cases. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Al FINANCIAL AND BUSINESS STATISTICS A82 BOARD OF GOVERNORS AND STAFF These tables reflect data available as of COMMITTEE AND Ag4 fEDERAL Op£N MARKET July I), 19J8. STAFF; ADVISORY COUNCILS A3 GUIDE TO TABULAR PRESENTATION ^ ^^ ^^ p BQARD UBUCATl0NS A4 Domestic Financial Statistics A42 Domestic Nonfinancial Statistics A88 MAPS OF THE FEDERAL RESERVE SYSTEM A50 International Statistics A90 FEDERAL RESERVE BANKS, BRANCHES, A63 GUIDE TO STATISTICAL RELEASES AND AND OFFICES SPECIAL TABLES A80 INDEX TO STATISTICAL TABLES PUBLICATIONS COMMITTEE Lynn S. Fox, Chairman \~\ S. David Frost • Donald L. Kohn [ .. J. Virgil Mattingly, Jr. • Michael J. Prell • Dolores S. Smith • Richard Spillenkothen • Edwin M. Truman The Federal Reserve Bulletin is issued monthly under the direction of the staff publications committee. This committee is responsible for opinions expressed except in official statements and signed articles. It is assisted by the Economic Editing Section headed by S. Ellen Dykes, the Multimedia Technologies Center under the direction of Christine S. Griffith, and Publications Services supervised by Linda C. Kylcs. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Merger Policy and the New CRA Data Anthony W. Cyrnak, of the Board's Division of Re- ined in recent years, however, as industry observers search and Statistics, prepared this article. Dennis W. have questioned whether competition in local bank- Campbell provided research assistance. ing markets might be better measured on the basis of some other variable, notably loans to small busi- One consequence of the current merger trend in the nesses.2 Competition in small business lending, some banking industry has been heightened interest in have argued, is more local than is competition for the analytical framework and data used by federal deposits and better reflects the competitive realities authorities to assess the competitive effects of bank of local banking markets. mergers and bank holding company acquisitions (see box "Federal Antitrust Review of Bank Mergers"). 2. See, for example, "Are Deposits the Best Antitrust Measure?" Although the analytical methods used by the bank Bank Mergers & Acquisitions, vol. 12 (December 1997), pp. 1—4. regulatory agencies and the Department of Justice are similar, some differences have emerged over time. Two issues related to these differences can now be examined using data collected for the first time as a Federal Antitrust Review of Bank Mergers result of 1995 changes in the regulations implementing the Community Reinvestment Act (CRA). All proposed mergers of insured banks and proposed One of the issues is whether locally based commer- acquisitions by bank holding companies must be approved by a federal banking regulator. The review of cial banks and savings institutions ("in-market" the proposal is conducted by the regulatory agency that firms) face significant competition in small business would be the primary regulator for the surviving banking lending from banks and savings institutions based institution. If the resulting institution would be a national outside local banking markets ("out-of-market" bank, the Office of the Comptroller of the Currency firms). This issue is important because, in the view of reviews the proposal. If it would be a state-chartered some banking industry observers, the presence and bank that is not a member of the Federal Reserve System, competitive influence of out-of-market firms in local the Federal Deposit Insurance Corporation reviews the banking markets warrant greater recognition by bank- proposal. And if the proposal involves an acquisition by a ing regulators and the Department of Justice. If the bank holding company or the resulting bank would be a competitive role of out-of-market institutions were state-chartered member of the Federal Reserve System, more fully recognized, they argue, more banking the Federal Reserve is the reviewer. The Department of Justice, which has general enforcement authority under markets would be viewed as structurally competitive, federal antitrust laws, reviews proposed mergers and and bank mergers within these markets would raise acquisitions approved by the banking regulators. fewer antitrust concerns.1 The new CRA data can Proposals for banking consolidations are reviewed shed some light on this issue by providing informaunder two primary federal statutes, the Bank Merger Act tion about the number of, and lending activity of, of I960 (as amended in 1966) and the Bank Holding out-of-market small business lenders in urban and Company Act of 1956 (as amended in 1970). The legal rural banking markets. standards applied by the banking regulators under these The other issue is whether levels of concentration statutes correspond to the standards set forth in the Sherwithin U.S. banking markets differ significantly when man Antitrust Act of 1890 and the Clayton Act of 1914. measured by small business loan originations rather Specifically, no bank merger or bank holding company than by bank deposits. Legal precedent and economic acquisition may be approved if the effect of the merger or acquisition would be to create a monopoly (Sherman theory have traditionally supported the use of total Act) or may substantially lessen competition or tend to bank deposits as the basis on which to calculate create a monopoly in a particular market (Clayton Act). market concentration. This practice has been reexam- Importantly, the Clayton Act does not define the term "substantially." Court decisions, as well as the legislative history of this act, however, make it clear that the term 1. To simplify discussion, the term mergers hereafter refers to must be examined in the context of each industry. both mergers of banks and acquisitions of banks by bank holding companies. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

704 Federal Reserve Bulletin _l September 1998 Concentration, the HHI, and the Department of Justice Merger Guidelines Market concentration is an important factor in the competi- structural effect of a merger of any firms in a market. In tive analyses of mergers and acquisitions conducted by addition, the squaring of market shares gives greater weight federal bank regulatory agencies and the Department of to firms that have large market shares. This weighting of the Justice. Both theoretical models and empirical studies sug- largest competitors in a market is consistent with economic gest that higher levels of market concentration are generally theories that predict weak competition in markets in which associated with less competition, higher prices, and greater a few competitors hold a large combined market share. profitability. These relationships are consistent with the A merger of two banking competitors will increase the "structure-conduct-performance" paradigm, which sug- HHI in their shared market. (Mathematically, the increase is gests that there is a causal relationship between the structure equal to the product of the two firms' market shares times of a market (the number and size distribution of firms two.) The amount of the increase and the level to which the within a market and factors affecting the ability of new HHI would rise after the merger are key elements in the firms to enter that market), the behavior of firms within that structural analysis of bank mergers. In the Department of market (competition, collusion, or other competitive strate- Justice's guidelines, markets with an HHI of less than 1000 gies), and the performance of firms in that market (typically, are considered "unconcentrated"; those with an HHI of profits, prices, or firm growth). 1000 to 1800 are "moderately concentrated"; and those The Department of Justice has for many years published with an HHI greater than 1800 are "highly concentrated." formal guidelines that identify structural changes resulting The department's merger guidelines for nonbanking from mergers that are likely to cause the department to industries generally indicate that a merger that increases the challenge a merger. Since 1982, the department has based HHI 50 points or less in a highly concentrated market is its merger guidelines on the Herrindahl-Hirschman index of unlikely to have adverse competitive effects and ordinarily concentration (HHI). This measure, which is also used by would not be challenged on antitrust grounds. The departthe bank regulatory agencies, is calculated by squaring the ment's guidelines for the banking industry are more lenient, market share of each firm competing in a defined geo- largely in recognition of the widespread presence of nongraphic banking market and then summing the squares. The banking providers of financial services. In particular, in HHI can range from zero in a market having an infinite 1985, the department stated that it would not ordinarily number of firms to 10,000 in a market having just one firm challenge a proposed bank merger unless the rise in the HHI (with a 100 percent market share).1 would be more than 200 points in a highly concentrated The HHI is a static measure and, therefore, gauges mar- market. This practice was subsequently adopted by the ket concentration at a single point in time. Algebraically, it Federal Reserve System as part of its Rules Regarding can be depicted as Delegation of Authority, an administrative procedure that allows certain mergers to be approved directly by the Reserve Banks. (Proposed bank mergers that raise substan- HHI= I tive issues must normally be acted upon by the Board of Governors following a formal review and voting process.) where MS is the market share of the ith firm and n is the Although these structural guidelines constitute a critical number of firms in the market. screening device for the Department of Justice and the The HHI is a particularly useful tool for bank merger banking regulators, the analysis of other economic factors is analysis because it accounts for the presence of every also an integral part of the assessment of the competitive competitor in a market and provides a measure of the effects of consolidation. These factors can include, for example, market economic conditions, trends in concentra- I. A more complete discussion of the HHI h presented in Stephen A. tion, and the competitiveness of other banking and thrift Rhoadcs, "The Herh'ndah!-Hir.vchman Index." Federal Reserve Bulletin. vol. 79 (March 1993). pp.188-81). institutions. The measurement of market concentration plays a tition is being analyzed. The use of different data, key role in the competitive analysis of proposed bank moreover, is likely to result in different calculated mergers (see box "Concentration, the HHI, and the levels of concentration. Thus, the choice of a product Department of Justice Merger Guidelines"). Gener- market and the type of data used to measure concenally, banking regulators and the Department of Jus- tration could influence the regulatory outcome of a tice intensively review any proposed merger that merger proposal. would add significantly to and result in a high degree The new CRA data make it possible to consider of market concentration. Importantly, concentration this second issue by examining the level of concentraindexes can be calculated using various types of data tion within U.S. banking markets using a base other depending on the type of product for which compe- than bank deposits, namely small business loan origi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Merger Policy and the New CRA Data 705 nations. The results of this examination may suggest market be defined in order to determine whether whether, on average, antitrust standards are likely to the merging banks provide substitutable products to be more or less difficult to meet when concentration essentially the same group of customers. If they do, it measures are based on small business loans rather can be assumed that they operate within the same than on deposits. product and geographic markets and that their merger would lessen competition. For such mergers, regulators must then determine whether the loss of competition may be substantial. i>\ ! AM..-// !C i >i />' \XKL\t, ,\ Y/y/AV'V/ /Y.)/./< •)' Generally, the expected loss of competition is assumed to be serious if the market share of the Antitrust policy in the United States generally recogsurviving bank would increase significantly, to a high nizes that competition results in lower prices and level, and if the merger would increase market better service for consumers. Thus, a primary goal of concentration substantially, to a high level. In such banking antitrust policy is to prevent the creation of, a case, banking regulators would be unlikely to or an increase in, market power such that a firm could approve the merger unless significant mitigating impose above-competitive prices and earn excess factors were present. Even if such a merger were profits at the expense of consumers. approved by a bank regulatory agency, it could be Mergers in the banking industry are subject to challenged by the Department of Justice. To minithe same antitrust standards as are mergers in other mize regulatory uncertainty and to provide a more industries. This principle was made clear by the U.S. consistent interpretation of merger-induced structural Supreme Court in its 1963 decision involving the changes within banking markets, the Department of proposed merger of two competing Philadelphia Justice has for many years published formal guidebanking institutions.3 In that case (Philadelphia lines that indicate which mergers are likely to exceed National Bank) the Court made three findings that its antitrust standards. To a large extent, the banking have become fundamental tenets of banking antitrust regulators have adopted these standards as part of policy in the United States. First, antitrust laws apply their merger analyses. to banking mergers, and the legal standards for judging mergers in the banking industry are the same as A significant aspect of Philadelphia National Bank those embodied in the Sherman Antitrust Act of 1890 was that it established legal precedents for defining a and the Clayton Act of 1914. Second, commercial single product market (the "cluster" of products and banking is a distinct line of commerce in which banks services) and for defining geographic banking marprovide a unique "cluster" of products and services kets as being local in extent. Since 1963, these defininot provided by any other type of financial institu- tions have been used widely and have been supported tion.4 Third, commercial banks compete in local mar- by both agency and court decisions.6 However, the kets, primarily because of their need to provide con- definitions have been controversial, particularly in venient service to their customers. recent years as the number of nonbank firms that provide bank-like financial products on a nationwide In reaching its decision, the Supreme Court valibasis has increased. Some observers believe that the dated the "structural" approach to analyzing the relevant product market in banking is no longer a competitive effects of bank mergers. In this approach, single cluster of products and services provided only the likely competitive effect of a proposed bank by commercial banks. Nor do they believe that geomerger is presumed to be indicated by the merger's graphic banking markets are local in extent. Rather, effect on such structural variables as market concenthey argue, banks provide multiple and largely distration, market shares, and the number of competitors crete financial products in broad geographic markets in the banking market.5 The structural approach that in some instances are national in extent. Not requires that both a product market and a geographic surprisingly, some of these observers believe that a banking antitrust policy based on the cluster product market and local geographic markets is no longer 3. United Slates v. Philadelphia National Bank, 374 U.S. 321 relevant and does not reflect competitive realities. (1963). 4. The Court noted that, among other products and services, Above all, they argue, current policy may be unduly demand deposits, trust administration, and various types of credit such restrictive. as commercial lending are uniquely supplied by commercial banks and constitute key elements of the banking cluster. 5. Other approaches to merger analysis may emphasize the likely effects on the behavior of the merger participants and may exam- 6. See. for example, United States v. Marine Bancorporcnion, 418 ine business strategy, activity, and pricing as guides to assessing U.S. 602 (1974): and United States v. Central Slate Bank, 621 F. Supp. competition. 1276, 1292 (W.D. Mich., 1985), Aft"d 817 K2d, 22 (6th Cir., 1987). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

706 Federal Reserve Bulletin C September 1998 1)1! n A7.W/,V IX Mi.R(,!.R ,\X\[YSIS 1 HE CRA DATA Federal banking regulators and the Department of The data on small business loans used in this analysis Justice commonly take the structural approach in came primarily from depository institutions reportassessing the competitive effects of proposed bank ing under the Community Reinvestment Act— mergers, and their methods of analysis are generally independent commercial banks and savings institusimilar. Some differences exist, however. One impor- tions (savings banks and savings and loan associatant example is that the Federal Reserve continues to tions) with total assets of $250 million or more and define the product market as the "cluster" of prod- institutions of any size if owned by a holding comucts and services described in Philadelphia National pany with total assets of $1 billion or more.7 The Bank, whereas the Department of Justice typically CRA data cover the 1996 originations of small busidisaggregates the product market into two or more ness loans by 1,871 institutions—1,460 commercial customer classes—usually banking services for con- banks and 411 savings institutions.8 These institusumers and banking services for small businesses tions ("CRA reporters"), which constitute 16 percent (mainly lending). of all U.S. commercial banks and savings institu- The separation of customer classes typically results tions, reported having originated 2.4 million small in some differences in the way proposed mergers are business loans in 1996 totaling $145 billion. These analyzed. Among the aspects of merger analysis that loans accounted for about two-thirds of the total may be affected are the definition of geographic dollar volume of small business loans made by all markets, the competitive role accorded thrift institu- depository institutions in the United States in that tions and nonbanking firms, and divestiture policy. year. Perhaps most important, the separation of customer Included among the CRA reporters are banks classes affects the choice of data with which to calcu- whose primary activity is credit card lending. Twelve late concentration, a key variable in bank merger credit card banks reported having originated credit analysis. In particular, whereas the Federal Reserve card small business loans in 1996.9 These instirelies on commercial bank and thrift deposits as the tutions, though small in number, can have a large measure of the cluster of products and services, the effect on analytical results, particularly in urban Justice Department may use business lending and ser- markets. Overall, they accounted for 30 percent of vices, or it may use commercial bank deposits only. all small business loans reported under the CRA, These differences in analytical methods stem though only 2.9 percent of the dollar volume of such largely from differing assumptions about bank behav- loans. ior, consumer preferences, and the competitiveness of The CRA loan data are geocoded, that is, reported banking markets. The use of deposits as a proxy for a by geographic location of the borrower (census tract bank's ability to provide the cluster of products and or block number area), making it possible to aggreservices to customers embodies two key assumptions. One assumption is that the product mix of a bank is a matter of managerial prerogative, and that this mix, which includes business loans, can be changed easily. The other is that all banks within a geographic bank- 7. Some loan data came from other sources; see footnote 11. ing market influence the pricing of products, even if For additional information on the new CRA data, see Raphael W. Bostic and Glenn B. Canner, "New Information on Lending to Small they do not offer an identical range of products and Businesses and Small Farms: The 1996 CRA Data," Federal Reserve services. Bulletin, vol. 84 (January 1998), pp. 1-21. The practice of disaggregating the product market 8. Small business loans arc defined as commercial and industrial loans having an original amount of $1 million or less. This definition rests largely on the assumption that retail banking of a small business loan for CRA purposes is the same as that used for services and business banking services (and possibly the Report of Condition and Income (Call Report), the quarterly report others) are distinct products that face different supply submitted by banks to their primary regulator and the FD1C, and for the Thrift Financial Report, the quarterly report submitted by savings and demand conditions. For example, competition and loan associations to the Office of Thrift Supervision. By focusing to provide the financial services used by small busi- on loan amount, the term refers to a small loan made to a business of nesses (primarily small business lending) is often any size; such a loan may or may not be a loan to a small business. See box "When Is a Small Business Loan Not a Loan to a Small regarded as weaker and more locally limited than Business?" competition to provide the retail services used by 9. The CRA regulations direct institutions that issue credit cards to households. Thus, mergers that affect competition the employees of small businesses to report all of the credit card lines within the business customer class may require closer opened on a particular day as a single business loan, with the "amount of the loan" equivalent to the sum of the available credit lines of those antitrust scrutiny. credit card accounts opened on that day. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Merger Policy and the New CRA Data 707 gate lending data for in-market and out-of-market When Is a Small Business Loan Not a Loan CRA reporters by geographic market.10 to a Small Business? "Small business loans" are often not loans to small SMALL 3USIMSS !.I:.\;MN(_; ACTIVITY businesses but, rather, small loans to businesses that are quite large. This distinction can be important to policy- The CRA data for urban and rural markets were makers seeking to preserve or create credit opportunities analyzed separately because such markets generally for small firms. have different economic characteristics, structures, For this article, small business loans are defined as and degrees of competition. they are for reporting by lenders under the Community Reinvestment Act (CRA reporters)—commercial and industrial loans of $1 million or less extended to businesses of any size. However, because CRA reporters Urban Markets must indicate separately the number and dollar volume of small business loans made to firms having annual Much of the merger activity in recent years has been revenues of $ I million or less, the data can be used to in large metropolitan banking markets. Proponents of determine the proportion of small business loans made to mergers often argue that out-of-market lenders are an small businesses (when a small business is defined as one important source of small business credit in these having annual revenues of $1 million or less).1 large markets but that their influence on competition In urban markets, 54.4 percent of small business loans is largely overlooked. To assess the competitive originated in 1996 by CRA reporters were made to importance of out-of-market lenders in these markets, "small" firms. In-market CRA reporters made 60 percent of their small business loans to small firms, compared the data were aggregated across metropolitan statistiwith only 47 percent for out-of-market CRA lenders. cal areas (MSAs)—the 313 urban population centers Thus, it appears that out-of-market lenders make a greater in the United States that are frequently used in ecoproportion of their small business loans to "large" firms nomic research and merger analysis as approxima- (those having annual revenues of more than $1 million). tions for urban geographic banking markets. One possible explanation for this finding is that firms eventually outgrow their local banking institutions and need to go out of market to obtain financing, particularly Presence of Small Business CRA Lenders when they are in small markets. For CRA reporters as a group, the proportion of small business loans extended to firms having annual revenues of $1 million or less Every MSA has at least one in-market institution increases as market population decreases. This inverse reporting small business lending (CRA reporter), and relationship probably reflects the relative scarcity of la/ge these reporters constitute a sizable proportion of the businesses in smaller markets. total number of institutions within these markets Similar results were found for rural markets; however, (table 1)." Perhaps more important, the average numthe proportion of small business loans made to small ber of out-of-market reporters in MSAs of all sizes is firms across rural markets of all sizes was somewhat quite large relative to the number of all in-market higher. In rural markets. CRA reporters made 68 percent institutions. In fact, for all but the largest MSA size of their small business loans to firms having annual category, the number of out-of-market CRA reporters revenues of $1 million or less. As with urban markets, exceeds the number of in-market firms. This is a in-market reporters made a higher proportion of their potentially important finding because it supports the small business loans to smaller firms (78 percent) than claims of some merger advocates that, on average, a did out-of-market CRA reporters (45 percent). Also as relatively large number of out-of-market banks and with urban markets, the data generally show an inverse relationship between market population and the proportion of small business loans extended to small firms. 10. In addition. CRA reporters must indicate the number and dollar volume of their small business loans by size class ($100,000 or less, $100,001-$250,000, or $250,001-$ I million) and the number and 1. There is no commonly accepted criterion defining a "small busi- dollar volume of loans to firms having annual revenues of $1 million ness." The 1993 National Survey of Small Business Finances (sponsored or less. by the Federal Reserve Board and the U.S. Small Business Administra- 11. Data for institutions not reporting small business loans under tion), which defines small businesses as those having fewer Ihan 500 (he Community Reinvestment Act ("nonreporters") were taken from employees, notes that about 84 percent of all small businesses have or derived from the Call Report, the Thrift Financial Report, and the annual revenues of less than $ I million. For a discussion of that survey, Summary of Deposits report (which is submitted both by banks and by see Rebel A Cole, John D. Wolkcn, and R. Louise Woodbum, "Bank and Nonbank Competition for Small Business Credit: Evidence from the 1987 savings and loan associations to their primary regulator and the and 1993 National Surveys of Small Business Finances." Federal Reserve FD1C). Population data used to categorize both urban and rural Bulletin, vol. 82 (November 1996), pp. 983-95. markets by size were derived from 1994 regional economic accounts, Bureau of Economic Analysis, U.S. Department of Commerce. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

708 Federal Reserve Bulletin LI September 1998 I. Average number of selected lypt's of lending insliluiions per urban market, by type i>f institution anil M/L1 nf market. Market population (thousands) All urban Type of lending institution More than Less than markets 1,000-5.000 500-999 250-499 5.000 250 All in-markct institutions 203 60 28 19 13 27 In-market CRA reporters 58 18 11 9 6 10 Out-of-market CRA reporters 105 65 39 27 19 32 Excluding credit card banks 103 63 37 25 17 30 MEMO Ratio of in-market CRA reporters to all in-market institutions .29 .30 .39 .47 .46 .37 Ratio of out-of-mnrke! CRA reporters to all in-market institutions .52 1.08 1.39 1.42 1.46 1.19 Ratio or out-of-market CRA reporters to all institutions' .34 .52 .58 .59 .59 .54 Number of markets 4 51 42 70 146 313 Noi!;. Urban markets are metropolitan statistical areas as defined by the U.S. I. Denominator is all in-market institutions plus out-of-market CRA Department of Commerce. All markets have at least one in-market CRA reporters. reporter. savings institutions make small business loans in lenders account for a considerably smaller number of urban markets. loans than might be suggested by their presence Of course, the mere presence of out-of-market relative to in-market firms. small business lenders—even in large relative Interestingly, not only is the share of small businumbers—does not necessarily demonstrate that such ness loans originated by out-of-market reporters confirms are an important competitive force within urban siderably less than that originated by in-market firms markets. They may have a relatively small presence (in terms of number made), but this market share in terms of number or dollar volume of small busi- decreases steadily as the population of the MSA ness loans originated. decreases. The data show, therefore, that as urban markets decrease in population, so does the importance of out-of-market lenders, as measured by their Number of Loans share of the small business loans originated. As will be seen later, this relationship also exists for rural Although in-market CRA reporters typically consti- markets of different sizes. tute less than half of all in-market firms (table 1, first The direct relationship between market population memo item), these reporters, in each MSA size cate- and the market share of out-of-market firms has sevgory, account for about two-thirds of the estimated eral possible explanations. One is that out-of-market number of small business loans made by all in-market lenders simply view smaller markets as being potenfirms (table 2).12 The dominance of in-market CRA tially less profitable and, therefore, expend relatively reporters is not particularly surprising: Because of less effort on developing a lending business in such the asset-size criteria for reporting under the CRA, markets. Another is that businesses in small markets reporters tend to be the larger firms within banking have strong and long-standing ties to local lenders markets—and in many markets these institutions are that are not easily competed away by out-of-market the most active small business lenders. firms. A number of observers have noted that the A more important observation is that the average credit conditions faced by a small business are likely number of small business loans originated by out- to be influenced by the nature of the borrower-lender of-market reporters is, for each MSA size category, relationship. In particular, when credit relationships considerably smaller than the average number of are of long standing, lenders are likely to have better small business loans originated by in-market firms. information about borrowers, and this knowledge This result is noteworthy because out-of-market lend- may result in more favorable terms on business loans. ers outnumber in-market lenders in all but one MSA Thus, a small business borrower probably has an size category (table 1). Thus, out-of-market CRA incentive (in addition to convenience) to develop and maintain a close relationship with a lender that is based in its banking market.13 12. Small business loan originations by each in-market nonreporter were estimated by (1) multiplying the ratio of its small business loans outstanding io its deposits by its local, in-market deposits and then (2) multiplying (hat product by 60 percent, the approximate ratio of 13. This issue was recently discussed in Katherine Samolyk, small business loan originations to small business loans outstanding "Small Business Credit Markets: Why Do We Know So Little about for all CRA reporters. Them?" FDIC Banking Review, vol. 10, no. 2 (1997), pp, 14-32. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Merger Policy and the New CRA Data 709 Average number ul small business loans originati'il por urban market, by l\pc of k'luliriLL institiuiivi ami si/I' of markel, I'Wn Market population (thousands i Type of lending institution All urban More than 1.000-5.000 500-999 250-499 Less than markets 5,000 250 All in-market institutions' 44.291 14.409 5.601 3J38 1,775 5,239 Ill-market CRA reporters 29.443 9,646 4.106 2.340 1,140 3.554 Out-of-maricet CRA reporters 29.579 7.370 2,297 1,039 466 2.337 Excluding credit cam banks 4,728 1.321 504 244 121 454 Mf.Mo Ratio of loans by in-iaarket CRA reporters to loans by all in-markel institutions .66 .67 .73 .70 .64 .68 Ratio of loans by out-of-market CRA reporters to loans by all in-markel institutions .67 .51 .41 .31 .26 .45 Ratio of loans by out-of-market CRA reporters to loans by all institutions3 .40 .34 .29 .24 .21 .31 Excluding credit card banks .10 .08 .08 ,07 .06 .08 NOTF.. See general note to table 1. 2. Denominator is loans made by all in-murket institutions plus loans made I. Covers loans reported by CRA reporters and estimated loans by by out-of-market CRA reporters. nonreporters. When the small business loan originations of credit lower absolute level of aggregate loan demand typicard banks are deducted from the out-of-market cally associated with smaller banking markets. totals, the number of loans made by out-of-market A large proportion of the dollar volume of small CRA lenders falls sharply (table 2). For example, in business lending by in-market firms is accounted for the largest MSAs, the average number of small busi- by in-market CRA reporters (first memo item). This ness loans by out-of-market firms drops from 29,579 finding is noteworthy because it suggests that the to only 4,728. All other MSA size categories exhibit small business lending activity of all banks and savsimilar proportional declines. ings associations based within urban markets can be The effect of these declines, not surprisingly, is to approximated rather closely by using only data from substantially reduce the market shares held by out-of- CRA reporters. For example, for all MSAs commarket CRA reporters. For example, for the largest bined, in-market CRA reporters accounted for 88 per- MSAs, the share of small business loans originated cent of the average dollar volume of all small busiby out-of-market firms declines from 40 percent to ness loans originated by in-market lenders (though just 10 percent when credit card banks are excluded. they originated only 68 percent of the number of such Similar sharp declines occur for all other MSA size loans across all MSAs). categories. For all MSAs combined, the share Perhaps the most important observation from the declines from 31 percent to just 8 percent. data in table 3 is that out-of-market CRA reporters The competitive significance of credit card banks account, on average, for a relatively small proportion is not clear. The new CRA data do indicate that they of the dollar volume of small business lending in account, on average, for a significant proportion of urban markets (third memo item). This finding is small business loans within urban markets. However, somewhat surprising, given that out-of-market CRA whether a credit card small business loan is the reporters generally outnumber in-market firms in functional and competitive equivalent of other small urban markets and account for a sizable proportion business loans is arguable. Certainly, national sur- of small business loans in these markets by number. veys of small business lending have demonstrated Across all MSAs, the average volume of small that many small businesses regularly use credit cards business lending by all in-market firms in 1996 was as a source of credit. However, several factors sug- $388.5 million, compared with only $32.8 million for gest that credit card loans may differ from other small out-of-market CRA reporters. Thus, out-of-market business loans. For example, the average credit card CRA reporters accounted, on average, for only 8 perloan is considerably smaller, and the credit standards cent of the average dollar volume of small business associated with credit card loans may not be as strin- loan originations across all MSAs (third memo item). gent as those for conventional small business loans. This small market share in terms of dollar volume contrasts sharply with the share held by out-ofmarket CRA reporters in terms of number of loans Dollar Volume ol' Loans (31 percent, table 2) and their relative presence in urban markets (54 percent of lenders are out-of- The average dollar volume of small business loan market CRA reporters, table 1). Similarly small dollar originations within MSAs declines as MSA popushares are found for each MSA size category. lation decreases (table 3). This pattern reflects the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

710 Federal Reserve Bulletin D September 1998 Avi-rauL- ilulku volume <>] smal loans oriyinuU'il |vr urban market, by lype ul' and \i/c iif miirki-'t. I lWd Millions of dollars Market population (thousands) All urban Type of lending institution More than Less than markets 1,000-5,000 500-999 250-499 5,000 250 All in-market institutions' 3573.8 1.119.5 415.7 224.2 105.6 388.5 In-market CRA reporters 3,424.2 985.1 378.0 201.4 90.6 342.4 Out-of-market CRA reporters 351.1 97.3 35.3 16.5 8.6 32.8 Excluding credit card banks 214.9 65.9 26.1 12.5 7.0 23.0 MEMO Ratio of volume by in-market CRA reporters to volume by all in-market institutions ... .86 .88 .91 .90 .86 .88 Ratio of volume by out-of-market CRA reporters to volume by all in-market institutions .09 .09 .08 .07 D8 .08 Ratio of volume by out-of-market CRA reporters to volume by all institutions2 .. .08 .08 .08 .07 .08 .08 Excluding credit card banks .05 .06 .06 .05 .06 .06 NOTF.. See general note to table 1. 2. Denominator is volume of loans made by all in-market institutions plus I. Covers loans reported by CRA reporters and estimated loans by volume made by out-of-market CRA reporters. nonreporters. The results for urban markets appear to provide of-market CRA reporters, on average, outnumber important evidence regarding the competitive role of in-market firms. In rural markets, however, out-ofout-of-market firms in such markets. Specifically, the market CRA reporters account for a smaller propor- 1996 CRA data show that out-of-market lenders are, tion of small business loan originations by numon average, both numerous and active small business ber of loans, and a somewhat higher proportion by lenders compared with in-market firms. However, dollar volume of loans. The higher proportion of these lenders account, on average, for only a small dollar lending suggests that out-of-market lenders proportion (typically 7 percent or 8 percent) of the are a relatively more important source of competition dollar volume of small business lending in MSAs of for small business lending in rural markets than in various sizes. Moreover, when credit card banks are urban markets. excluded, the share of originations by out-of-market CRA reporters, in terms of dollar volume, is even less Presence ol Siiin.ll Business CRA Lenders (typically 5 percent or 6 percent). The majority of rural markets (non-MSA counties that have at least one banking or savings institution) Rural Markets are quite small and have a population of less than 25,000 (table 4). A large proportion of these mar- Proposals for bank mergers in rural markets often kets (68 percent) have at least one in-market CRA raise particularly serious antitrust issues. Typically, reporter. rural markets are more highly concentrated than Rural markets, on average, have six in-market urban markets and have relatively few competitors. banking and savings institutions, and two of the six Many rural markets are not attractive for new entry are CRA reporters. Not surprisingly, the number of because of their small population and modest eco- both in-market institutions and in-market CRA nomic prospects. Thus, any adverse competitive reporters declines with market population. effects resulting from a bank merger are likely to The average number of out-of-market CRA reportpersist. As in urban markets, however, parties to ers in rural markets (as in urban markets) is larger proposed bank mergers frequently argue that com- than the average number of in-market institutions; for petition in rural markets is understated because the example, for all rural markets, the average ratio of regulatory agencies and the Department of Justice in out-of-market CRA reporters to all in-market firms is their analyses do not take into account the competi- 1.67. Moreover, the ratio of out-of-market reporters tive influence of out-of-market banks and savings to in-market firms is inversely related to market size. institutions. This relationship, which also characterizes urban The data considered here provide some evidence markets, indicates that out-of-market competitors relevant to this argument. In general, they are consis- have a relatively greater presence in smaller markets tent with the data for urban markets in that out- than in larger markets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Merger Policy and the New CRA Data 711 4. Avcr;ii!c inimrvr <>t' sdeeted types of Icndini! insiitiuions per rural iinn kcE. In type of institution :ind si/c of m;irkei. Market population (thousands) All rural Type of lending institution markets More than 100 50-100 25-49 Less than 25 In-markci institutions 12 9 7 4 6 In-market CRA reporters 6 4 3 2 2 Out-of-market CRA reporters 18 14 12 8 10 Excluding credit card banks 16 12 10 7 8 MEMO Ratio of in-market CRA reporters to all in-markel institutions .50 .44 .43 .50 .33 Ratio of oul-of-rnarket CRA reporters to all in-market institutions 1.50 1.56 1.71 2.00 1.67 Ratio of oul-of-market CRA reporters to all institutions' .60 .61 .63 .67 .63 Number of markets 26 199 485 1,561 2,271 Number of markets with an in-market CRA reporter 26 195 450 881 1,552 NOTE. Rural markets are non-MSA counties that have al least one banking or 1. Denominator is ull in-markel institutions plus oul-of-market CRA savings institution. Data are for rural markets that have al leas! one CRA reporters. reporter. Number of Loans The share of small business loans made by out-ofmarket CRA reporters generally declines as market The relative number of small business loans made by population decreases (table 5, third memo item). This in-market and out-of-market lenders is a potentially finding is somewhat surprising, given that the numimportant gauge for determining the level of compe- ber of such firms relative to the total number of tition in a banking market. For rural markets, as for in-market institutions increases as market population urban markets, the number of small business loans decreases (table 4, second memo item). This relationoriginated in 1996 diminished with market popula- ship, which also exists for urban markets, may reflect tion (table 5). This pattern most likely reflects the a preference by small firms in small, more concenlower loan demand associated with smaller markets trated markets to borrow from local institutions. and fewer business borrowers of all sizes. The proportion of in-market loans originated by in-market CRA lenders declines as market population Dollar Volume ol' Loans decreases (first memo item). For example, the proportion of in-market loans made by in-market CRA As in urban markets, in-market CRA reporters lenders is 0.65 for the largest rural markets, com- account for most of the dollar volume of small busipared with 0.44 for the smallest rural markets. For all ness lending by in-market institutions in rural marrural markets, the ratio is 0.51, somewhat smaller kets, averaging 74 percent across all rural markets than the 0.68 ratio for urban markets (table 2). (table 6). However, the relative volume of lending by Average number of small business loans originated per rural markel, hy type <il k'ndinj: insiitiitinii and size ol' market, I Wd Market population (thousands) All rural Type of lending institution markets More than 100 50-100 25-49 Less than 25 All in-market institutions1 961 870 507 213 398 In-market CRA reporters 625 514 236 94 201 Qut-of-market CRA reporters 366 185 92 40 80 Excluding credit card banks 106 64 44 22 36 MEMO Ratio of loans by in-market CRA reporters to loans by all in-market institutions .65 .59 .47 .44 .51 Ratio of loans by out-of-market CRA reporters to loans by all in-market institutions .38 .21 .18 .19 .20 Ratio of loans by out-of-market CRA reporters to loans by all institutions2 .28 .18 .15 .16 .17 Excluding credit card banks .10 .07 .08 .09 .08 NOTE. See general note to table 4. 2. Denominator is loans made by all in-markel institutions plus loans made I. Covers loans reported by CRA reporters and estimated loans by by out-of-market CRA reporters. nonreporters. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

712 Federal Reserve Bulletin D September 1998 -\\LT:L!JL" dollar volume nl small IHI\MII>N loans nriymaU'd per rural market, by lypo nl lendinj; iiisiiitumn and s\/c nl' maikt't. Millions of dollars Market population (thousands) All rural Type of lending institution markets Mora than 100 50-100 25-4t Less thai 25 All in-market institutions' 53.8 43.7 18,5 63 15.6 In-markel CRA reporters ..-...-. .. 46.S JS.S 13.0 4.0 11.5 Out-of-market CRA reporters 7.? 4.9 3.1 1.S 2J Excluding credit card banks ,* 6.3 4.3 2.9 1.4 2.3 MEMO Ratio of volume by in-market CRA reporter* to volume by all in-market institutions ... .817 Jl .70 .63 .74 Ratio of volume by oui-of-nwket CRA reporters to volume by alt uvrnaritfit insfitutions ,14 .11 .17 .24 .16 Ratio of volume by ouHrt'-martaH CRA reporters to volume by all institutions* .. .13 .10 .14 .19 .14 Excluding credit card banks , .10 .09 .14 .18 .13 NOTF. See general note to table 4. 2. Denominator is volume of loans made by all in-market institutions plus I. Covers loans reported by CRA reporters and estimated loans by volume made by out-of-market CRA reporters. nonreporters. out-of-market CRA reporters is somewhat larger in appear to be more important, accounting, on averrural markets than in urban markets. Out-of-market age, for about 14 percent of small business lending CRA reporters account, overall, for 14 percent of the volume. average dollar volume of small business lending in rural markets (third memo item), compared with SMALL BUSINLSS LOAN CONCENTRATION 8 percent in urban markets (table 3). In the smallest rural markets, out-of-market CRA reporters account Indexes of concentration, as noted earlier, are a key for an average of 19 percent of the volume of small component of the competitive analyses of bank mergbusiness loans. ers conducted by the bank regulatory agencies and the Department of Justice (see box on concentration and the Herfindahl-Hirschman index). The new CRA f Oitt-of-Market CRA Lenders data enable the construction of concentration indexes based on small business loan originations and the An overall judgment as to whether out-of-market comparison of these indexes with more traditional CRA lenders are an important competitive force indexes based on bank deposits. An analysis of these within local banking markets (that is, are able to concentration measures provides evidence that is releaffect prices and services) is difficult to make and is a vant to the competitive analysis of bank mergers. matter for additional research. The data indicate that in both urban and rural markets, the average number of out-of-market CRA reporters, relative to the aver- Urban Markets age number of in-market institutions, is not trivial. In urban markets, out-of-market CRA lenders constitute HHIs for urban markets were calculated in four ways. 54 percent of all institutions that extend small busi- Two of the measures were based on deposits, and two ness loans, in rural markets, 63 percent. Out-of- were based on small business loan originations. One market CRA lenders also account for a sizable pro- of the deposits-based HHIs was calculated using the portion of small business loans, by number, in local deposits of commercial banking institutions only— banking markets—an average of 31 percent in urban the measure often used by the Department of Justice markets and 17 percent in rural markets—though to approximate concentration in small business loan these percentages fall sharply when credit card banks markets. The other deposits-based measure, "stanare excluded. dard deposits," was calculated using commercial Out-of-market reporters seem to be less significant bank deposits plus 50 percent of thrift institution when small business lending is measured by dollar (savings association) deposits—the measure typically volume. In urban markets, they account for only used by the Federal Reserve. A portion of thrift 8 percent of small business loan volume, including institution deposits are included in the latter measure loans by credit card banks; in rural markets, they because these institutions generally provide competi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Merger Policy and the New CRA Data 713 tion for a portion of the "cluster" of banking prod- The data also show that the loan-based HHIs are ucts, namely banking services for households; in smaller than the deposits-based HHIs for the largest many cases they provide little or no competition for urban markets but increase rapidly as population small business services. decreases and exceed the deposits-based HHIs for the One of the loan-based HHIs was calculated using smaller urban markets. Significantly, the inclusion of the dollar volume of loans originated by only originations by out-of-market CRA reporters has a in-market institutions, including CRA reporters and pronounced effect in lowering the level of loan connonreporters. The other was calculated using the centration for urban markets. For all urban mardollar volume of loans originated by in-market insti- kets, for instance, the average loan-based HHI falls tutions plus out-of-market CRA reporters, A compari- from 2130 to 1816 when out-of-market lenders are son of the two indexes provides a measure of the included. This finding further supports the notion that average effect of out-of-market lenders on small busi- out-of-market lenders may influence concentration ness loan concentration. and competition in urban banking markets. Their In all but one instance, concentration rises as urban importance in reducing loan concentration, moreover, market population declines (table 7). This is a com- appears to increase as market population decreases. mon finding and reflects the tendency of smaller Comparable declines occur for all but the largest size markets to have fewer banking 6rms, each holding a category of urban markets. relatively large individual market share. And, as discussed in the box on concentration and the HHI, the mathematical properties of the HHI are such that Rural Markets large individual market shares have the effect of rapidly increasing the level of the HHI. Because very high HHI values are typical for markets The inclusion of thrift deposits causes the average with fewer than four competitors, the HHIs for rural HHI to decline substantially from the level of the markets were calculated in two ways—for markets banks-only HHI. For example, for all urban markets, with one or more institutions and for those with four the average banks-only HHI is 1991 and the average or more institutions (table 8). The findings are similar standard-deposits HHI is 1639. to those for urban markets: Higher levels of the HHI, The disparity between the average banks-only and both deposits-based and loan-based, are associated standard-deposits HHIs across all urban markets calls with progressively smaller markets; the effect of attention to the analytical differences between the including out-of-market CRA lenders in the loan- Department of Justice and the Federal Reserve Sys- based HHIs is pronounced; and as the population of tem. The Department of Justice has often used the the market decreases, the deconcentrating effect of banks-only HHI as a proxy for small business out-of-market lenders appears to increase. loan competition but has only occasionally included thrift institutions in its HHI calculations. The Federal Reserve, in contrast, typically includes 50 per- Effects of Data Choice on Measures cent of thrift deposits in its calculations of concentra- of Market Concentration tion. Thus, for any bank merger proposal, these two antitrust authorities can have different initial percep- In general, the proportion of urban markets that are tions of market concentration. highly concentrated (HHI above 1800) or very highly Mill in nili,in imirkciv h\ tin cuL'ulaiuin ,IM<! size of kvl. Market population (thousands) All urban Basts for calculating HHI markets More than 5,(XX) 1.000-5.000 500-999 250-499 Less than 250 Dollar volume of deposit.* Banks-only total deposits 1505 1812 1885 1829 2170 1991 Standard deposits' 1009 1360 1528 1560 1815 1639 Dollar volume of halts Small business loan originations by ali in-inarket institutions2 67S 1364 1707 2006 2617 2130 Small business loan originations by all institutions * 576 1160 1443 1743 2220 1816 1. Commercial bank deposits plus 50 percent of thrift institution deposits. 3. Covers loans made by all in-market institutions and by out-of-market CRA 2. Covers loans reported by CRA reporters and estimated loans by reporters. nonreporters. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

714 Federal Reserve Bulletin • September 1998 A\LTLIUL' Hill in rural marked, hv basis for calculation, number of irixiiuilinib in market, and si/.o ot market. Market population (thousands) Basis for calculating HHI and All rural number of institutions in market markets More than 100 50-100 25-49 Less than 25 Dollar volume of deposits Banks-only total deposits One or more institutions 2681 2556 2888 4784 4145 2660 2530 2810 3172 2955 Standard deposits One or more institutions 1968 2146 2532 4526 3844 1964 2113 2452 2867 2611 Dollar volume of lams Small business loan originations by all in-mnrket institutions 2580 3269 4425 6768 5812 2580 3245 4306 5563 4756 Small business loan originations by oil institutions 3059 2581 3109 4453 3955 Four or more institutions 2059 2575 3023 3734 3305 NOTE. See notes to table 7. concentrated (HHI above 2200) can vary consider- ers are included. The same general relationship exists ably depending on the choice of data used in the HHI for rural markets, but the vast majority of these calculation (table 9). In rural markets, however, the markets are very highly concentrated regardless of choice of data matters much less because the vast the way the HHI is measured. majority of rural markets are highly concentrated regardless of which of the four HHI measures is CONCLUSIONS AND LIMITATIONS considered. In both urban and rural markets, the standard- Overall, the new CRA data provide support for the deposits HHI generates the largest proportion of view that out-of-market lenders may be an important unconcentrated or moderately concentrated markets source of small business lending in many markets. (HHI of 1800 or less). For example, 64 percent of The data indicate that out-of-market lenders are relaurban markets are so rated when HHIs are calculated tively numerous throughout both urban and rural using bank deposits plus 50 percent of thrift deposits, banking markets, and in most markets they outnumcompared with only 46 percent when only bank ber in-market institutions. Also, in many markets, deposits are used. out-of-market lenders appear to account for a sizable Urban markets are most concentrated when cal- proportion of small business loans, by number, culations are based on the small business lending although their share of such loans declines steadily of in-market lenders. For example, 60 percent of all with market population. Notably, if the loans of credit urban markets are highly or very highly concentrated card banks are excluded, the average market share of when HHIs are based on the dollar volume of small loans provided by out-of-market lenders declines to business loans originated by in-market institutions. half or less, suggesting that credit card loans account The proportion falls to 43 percent when small busi- for a large proportion of the lending activity of outness loans originated by out-of-market CRA report- of-market reporters. Pcrcentaue Jisinhution of urban and rural markets bv decree at concenlnttiiui, J Moderately Highly Very highly Unconcemrated concentrated concentrated concentrated Basis for calculating HHI (HHIM50) ami looo-isoo) (HHI 1801-2200) (HHI above 2200) Urban Rural Urban Rural Urban Rural Urban Rural Dollar volume af deposits Banks-only total deposits 4.2 .2 42.2 6.6 23.3 8.7 30.4 84.6 Standard deposits 10.2 .3 54.0 11.0 20.8 11.2 15.0 77.5 Dollar volume of loans Small business loan origination!! by all in-market institutions ..... 4.8 8.5 35.1 .7 21.1 2.2 39.0 88.6 Small business loan originations by all institutions .. 13.4 » 43.5 5.9 14.4 9.7 28.8 84.3 NOTE. Distributions may not sum to 100 because of rounding. See notes to • Less than 0.05 percent. table 7. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank Merger Policy and the New CRA Data 715 The lending activity of out-of-market CRA report- levels can vary widely depending on the data underers seems least significant when the dollar volume of lying the index. On average, concentration is lowloans extended by such firms is considered. In urban est when HHIs are calculated using "standard markets, these firms account, on average, for about deposits"—commercial bank deposits plus 50 per- 8 percent of the dollar volume of small business cent of thrift deposits—and highest when calculated lending (6 percent if credit card banks are excluded). using the small business loan originations of only In rural markets, their share is higher (14 percent in-market lenders. across all rural markets), suggesting that out-of- Finally, it should be noted that the 1996 CRA data market small business lenders may have a greater used in this study are the first of this sort to be influence on competition in rural markets than in collected, and that data for later years could yield urban markets. different results. Also, in this study the small business The competitive role played by out-of-market lend- lending activity of nonreporting in-market instituers (as gauged by their presence, number of loans, tions, although believed to be only a small proportion and dollar lending volume) is, however, quite vari- of overall lending activity in most markets, had to be able across individual markets. Thus, the competitive estimated. The findings also do not account for the impact of proposed mergers must be assessed on a lending activity of out-of-market firms that are not market-by-market basis. An important complement CRA reporters. Although nonreporters are smaller to the analysis reported here would be research to institutions and are less likely to make loans in mardetermine whether out-of-market lenders influence kets in which they do not have offices, the inclusion loan rates and whether they extend credit to a broad of loans by these firms would probably have a further base of business borrowers within local markets. moderating effect on loan-based HHIs. These limita- Indexes of concentration based on the new CRA tions notwithstanding, the new CRA data provide a data suggest that concentration for small business potentially valuable source of new information that is loans is generally higher than concentration for likely to be helpful in the competitive analysis of deposits, particularly in rural markets. However, HHI bank mergers. 1A Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

716 Treasury and Federal Reserve Foreign Exchange Operations This quarterly report describes U.S. Treasury and ated. In April U.S. treasuries traded in a volatile System foreign exchange operations for the period manner, with the benchmark thirty-year bond yield from April through June 1998. It was presented by rising above 6.00 percent after the April 27 publi- Peter R. Fisher, Executive Vice President, Federal cation of a press release reporting that at its March Reserve Bank of New York, and Manager, System meeting, the Federal Open Market Committee Open Market Account. Daniel Osborne was prima- (FOMC) had shifted toward a tightening bias. The rily responsible for preparation of the report. benchmark bond yield subsequently traded back below 6.00 percent after the April 30 release of the Throughout the second quarter of 1998, the Japanese employment cost index, which was interpreted as yen weakened consistently, depreciating 4.1 percent suggesting lower-than-expected labor cost growth for against the U.S. dollar and 6.2 percent against the the first quarter. German mark. Continued pessimism about the outlook for the Japanese economy pressured the yen to I. Spul iwth.iiuii.1 rule nt' Ilk' ilnlkir .is.\iinM ilu1 .l.ip.niCM.* \ jn eight-year lows against the dollar. This pessimism ;uul opium implied vnliililiiv. IWS'HI contrasted with the relatively positive outlooks for the United States and Europe, with the dollar benefit- t1 > 1*11 JKT I.S. dutlar Percent per year ing from continued low inflation and a strong domes- One-month volatilities UN tic economy while the mark benefited from optimism A -1- 18 14-1 toward the European Monetary Union (EMU). During the first two weeks of June, the yen's decline 1411 JA/ INrr 16 accelerated, putting downward pressure on other lih A regional currencies as market participants increas- r> \ — 14 "Vr\AArV~V ^j ingly doubted that effective reforms of the Japanese banking system and stimulus of the economy would I2X \J\J — 12 be forthcoming. 124 W Split I'YihiiiiKi' nilf |_ - 1 i 1 1 On June 17 the U.S. monetary authorities inter- Jan. Feb. Mar. Apr. May June vened in the foreign exchange markets, selling a total 1998 of $833 million against the Japanese yen. The opera- SOURCL. Federal Reserve Bank of New York; Reuters. tion, which was divided evenly between the U.S. Treasury Department's Exchange Stabilization Fund 2. Spin L'XL'IKIU'JL1 ntlL1 ol llic iloilai' ;IJ;;IIII-.I ilv < i'jnnan imirk and the Federal Reserve System, was conducted in id hi npl n >n-in i pi it'll \ nl;ililil\. I'f'S'H I cooperation with the Japanese monetary authorities. Crnnin tntirk> fitT I1 Js. dtillur Percent per year 2.110 Spiil t'vchan("t rale Si I'I'ORI iOR U.S. ASSETS FROM SICKS OF I.Mfc — 13 \.n MODERATION IN THE DOMESTIC FXONOMY AND KX/'ECTAHONS OF STEADY MONETARY I.XK — 11 FOLIO I.N4 [Vw\. A. \M U.S. economic data during the second quarter contin- V ued to show strong economic activity and low infla- 1.72 One-monlh volatilities tion, although increasing signs of slower growth i i i 1 1 I appeared as the period progressed. This environment Jan. Feb. Mar. Apr. May June supported expectations of a steady near-term interest 1998 rate policy, although at times this sentiment fluctu- SOURCE. Federal Reserve Bank of New York; Reuters. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

717 3. U.S. Treasury yields. IWS:Q2 of business sentiment and Moody's revision of Japan's sovereign debt outlook from stable to negative on April 3 contributed to perceptions of a wors- U.S. intervention ening Japanese economy. Within the first three trad- — 6.1 ing sessions in April, the Nikkei stock index declined 6.1 percent, to 15,518, and the yen depreciated from — 5.9 ¥133.18 to levels above ¥135. The yen subsequently regained all of its losses, appreciating to ¥131.22 on — S.7 April 8, after comments by Japanese politicians indicating forthcoming economic stimulus measures. 5.5 On April 9 the Japanese government announced details of its fiscal stimulus package, including ¥4 trillion in temporary tax cuts. The yen declined to Apr. May June ¥133.64 as market participants concluded that the planned stimulus measures would not adequately SOUFUT.. Bloomberg L.P. revive the Japanese economy. Later, during the early This outlook of low inflation and moderating New York session, the yen rose against the dollar growth appeared to be supported by Federal Reserve on the basis of reports that the Japanese monetary Chairman Alan Greenspan's June 10 testimony on authorities had intervened in the market—buying the state of the economy to the Joint Economic yen and selling dollars. Japanese Finance Minister Committee of the Congress. In his testimony, the Matsunaga confirmed the intervention, announcing Chairman stated, "the current economic performance, that Japan had taken "decisive action" in the foreign with its combination of strong growth and low infla- exchange market. U.S. Treasury Secretary Robert tion, is as impressive as any I have witnessed in my Rubin stated, "We welcome Prime Minister Hashihalf-century of daily observation of the American moto's announcement of steps to stimulate the Japaeconomy." Further reflecting on inflation, the Chair- nese economy." and noted that "what is crucial is man stated that although "consumer price inflation that Japan move quickly to put in place a strong has moved up in the second quarter . . . the rate of program." He also said that "we share the concern rise remains quite moderate overall." expressed by the Japanese Prime Minister about recent weakness in the yen, and in that context we Chairman Greenspan's testimony reinforced perwelcome the action undertaken by the Japanese ceptions of a favorable U.S. economic outlook amidst authorities in the exchange market to support the volatility in the financial markets of emerging counvalue of the yen." On April 10 the yen appreciated to tries and amidst the resultant decline in risk appetite. ¥127.38 amid reports that the Japanese monetary Strong demand for treasuries pushed the nominal authorities were intervening heavily in Asian foreign benchmark thirty-year Treasury yield to record lows, exchange markets. while two-year through ten-year Treasury yields declined below the 5.50 percent federal funds target Despite the yen's gains, sentiment toward the yen rate. continued to remain negative, with twelve-month risk reversals continuing to be skewed toward yen puts, reflecting a higher cost of protection against a sharp WEAKENING OF THE YEN IN RESPONSE TO A depreciation of the yen against the dollar. Subse- DETERIORATING ECONOMIC OUTLOOK IN ASIA quently, the Group of Seven (G-7) finance ministers and central bank governors met on April 15 and Throughout the quarter, the yen was pressured by issued a statement emphasizing the importance of anticipation of renewed capital flows out of Japan avoiding excessive yen depreciation and encouraging after the March 31 conclusion of the Japanese fiscal steps to stimulate Japanese domestic demand and year, the beginning of Japan's liberalization of its reduce external imbalances. foreign exchange laws, and continued weakness in Meanwhile, pressure on other Asian currency and the Japanese economy and financial system. Anticipa- capital markets re-emerged, as social unrest in Indotion of falling demand for yen assets from Japanese nesia and potential military tensions in the Indian investors overshadowed concerns about potential for- subcontinent led to a diminishing investor appetite eign exchange intervention and possible reaction to for risk. In Indonesia, the Jakarta JCI stock index fell Japan's growing current account surplus. The April 2 17.6 percent during the quarter, and the rupiah release of the weaker-than-expected Tankan survey declined to record lows above IDR 16,500 per dollar. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

718 Federal Reserve Bulletin • September 1998 4. Asian equity markets, IWS:Q2 (i. Moscow, Times slock index. l'WS:Q2 Index. April 1 » 100 US. intervention Japan — 100 80 — — 70 Korea xr- 60 Thailand J Apr. May June Apr. May June 1998 1998 SOURCE. Bloomberg L.P. SOURCE. Bloomberg L.P. With the KOSPI stock index declining 38.1 percent on Russian debt instruments rose higher than 80 perduring the quarter, Korean markets weakened on cent on the basis of concerns about the government's continued signs of economic contraction and height- inability to correct its fiscal imbalance and show ened labor unrest. In Hong Kong, warnings of the progress on structural reforms, and concerns about possibility of recession from Hong Kong officials and the effect of declines in commodity prices, particdata indicating that first-quarter GDP had contracted ularly oil, on Russian exports. Commodity price 2 percent led to a 25.8 percent decline in the Hang declines also pressured the currencies of Canada, Seng stock index during the second quarter. Hong Mexico, Australia, and South Africa, with a number Kong one-month interbank rates climbed as high as of these currencies reaching new record lows. The 20.5 percent, and implied yields on three-month for- Canadian dollar depreciated nearly 3.5 percent during ward contracts for Hong Kong dollars rose to quarter the quarter and reached CAD 1.4735 per U.S. dollar highs near 15 percent in mid-June. on June 15, because of concerns about the effect on Declines in Asian markets and evidence of eco- the Canadian economy of diminishing exports to nomic contraction in several Asian countries helped Asia and higher nominal U.S. interest rates. focus investor attention on the weaknesses in other In Japan, economic data releases continued to reinmarkets. The Russian Moscow Times stock index force negative market sentiment. Japan's unemploydeclined 53.5 percent during the quarter and yields ment rate reached 4.1 percent in April, its highest level since World War II. The yen depreciated beyond 5. Selected CUMVMCV values a.c.iinsl the U.S. dollar. ll>l).S:(J2 the ¥136 level after the Birmingham Group of Eight Iraki. April 1» 100 U.S. intervention 7. Japanese henehnwk bond yield. !WR:Q2 U.S. intervention — 100 Canada -— 1.6 — 1.4 — 1.2 Apr. May Apr- May June 1998 1998 SOURCE. Bloomberg L.P. SOURCE. Bloomberg L.P. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Treasury and Federal Reserve Foreign Exchange Operations 719 summit meeting in mid-May. This meeting and the X. IloMui —\cn one-imnill) .iiul l risk G-7 finance ministers' meeting of the prior week were viewed by many market participants as evi- Perctnl dence that the G-7 had moved toward a tolerance of Vr yen depreciation that had not been present at the Twelve-month /'A April 15, G-7 meeting of finance ministers and cen- — 0.5 — ^ v^ tral bank governors. In late May, the yen declined to f Dollar calls favored / 1 \A a seven-year low of ¥139.25, and the Japanese benchmark bond yield established record lows. Subsequent \ \ Yen calls favored / n commentary from numerous Asian and European / ' \- 0-5 1 One-month monetary officials stating concern over the weak V — US. intervention — 1.0 yen's effect on global stability underscored market pessimism. Further yen declines stalled ahead of the 1 1 1 June 10, G-7 meeting of deputy finance ministers, but Apr. May June resumed upon news that the meeting did not discuss 1998 ways to address the yen's decline. SOURCE. J.P. Morgan. The yen's depreciation accelerated after early June. During the June 17 morning session in New York, Concern about a rapid move beyond the ¥140 level the foreign exchange desk intervened on behalf of became a focal point for further declines in other the U.S. monetary authorities—selling dollars and markets, starting in Asia and extending through other buying yen. The operation began at 7:55 a.m., with markets. Market nervousness about the risks of a the dollar trading at ¥142.21, and the desk operated further round of currency depreciation in Asia intermittently until about 9:20 a.m. As the operation increased after certain Chinese officials voiced disbegan, Japanese Prime Minister Hashimoto issued a satisfaction with the effect of yen depreciation on statement in which he pledged to "make every effort Chinese trade and economic conditions. Also, marto restore [the Japanese] banking system to health ket participants initially viewed Secretary Rubin's [and] to achieve domestic demand-led growth. . . ." June 11 remarks in a congressional hearing on eco- Japanese Finance Minister Matsunaga further elabonomic conditions in Japan as stressing the negative rated on the Prime Minister's statement, promising to effects of Japanese economic fundamentals and (1) dispose of banks' bad assets more aggressively, downplaying prospects for coordinated intervention in the foreign exchange market. The yen rapidly (2) accelerate the restructuring of financial instideclined to an eight-year low of ¥146.67 on June 15, tutions, (3) improve the transparency of Japanese and one-month implied volatility on dollar-yen banks, and (4) enhance bank supervision standards. options reached multiyear highs. Comments from Later, Treasury Secretary Rubin issued the followsenior Japanese officials that the dollar-yen exchange ing statement: rate did not reflect economic fundamentals and This morning, the Prime Minister of Japan outlined his repeated warnings of "decisive action" from Japa- Government's plans to restore the health of the Japanese nese authorities did little to stem the yen's slide. financial system and to strengthen domestic demand. We look forward to implementation of a comprehensive action program that will create the conditions that are essential for a healthy and prosperous economy. Japan has the financial PURCHASES OF YEN IN THE MARKET H) resources and the capacity to deal with the challenges it (is. MONETARY AUTHORITIES faces. Asia and the international community as a whole have a large stake in Japan's success. The June 16 Tokyo trading session was notably vola- In the context of Japan's plans to strengthen its economy, the U.S. monetary authorities operated in the tile, with the yen initially declining to a new low of exchange market this morning in cooperation with the ¥146.78, then abruptly retracing its decline as a Japamonetary authorities of Japan. We are prepared to continue nese wire service indicated that U.S. officials were to cooperate in exchange markets, as appropriate. considering a trip to Tokyo to discuss Japan's economic situation. As market participants reacted to the Over the course of the morning, the U.S. monetary possibility that measures to address yen weakness authorities sold $833 million against the yen. The were under consideration, the yen continued to amount was evenly split between the U.S. Treasury strengthen during the June 17 Tokyo trading ses- Department's Exchange Stabilization Fund and the sion, gaining more than one yen from Tuesday's Federal Reserve System. The intervention was coor- New York close of ¥143.30. dinated with the operations of the Japanese monetary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

720 Federal Reserve Bulletin D September 1998 authorities. The yen continued to appreciate through- France continued to rise, with the German DAX and out the remainder of the New York session, climbing the French CAC-40 stock indexes up 14.6 percent more than five yen to intraday highs near ¥136 before and 8.5 percent for the quarter and 38.3 and 40.2 perclosing at ¥136.51. cent for the year respectively. European credit mar- After the intervention, the yen initially extended its kets rallied, with the yield on the German ten-year gains, largely on market expectations of further eco- benchmark bond reaching record lows. nomic and financial policy developments in Japan in In early May, expectations for tighter monetary the near term. However, in market participants' view, policy in Germany contributed to further mark such expectations diminished when the June 20 meet- strength. After the selection of the founding members ing of the Deputies of the Manila Framework Group of the EMU, Bundesbank officials alluded to taking and the G-7 Deputies in Tokyo concluded with no EMU considerations into account more when connew public commitments from Japanese officials. ducting monetary policy. These comments height- The dollar ended the quarter at ¥138.88. ened expectations for a German rate increase, as market participants speculated that the Bundesbank might seek to quell inflationary pressures in certain STRENGTHENING OF THE MARK AGAINST BOTH EMU member countries. THE DOLLAR AND THE YEN RESULTING FROM Toward the latter half of the quarter, the mark gave CONFIDENCE IN THE EMU AND SIGNS OF back nearly half of its gains against the dollar as GROWTH IN CORE EUROPE expectations for tighter monetary policy in Germany The mark strengthened against both the dollar and the diminished given the benign inflation environment yen during the second quarter. Against the dollar, the in core European countries, renewed weakness in mark traded within a DM 1.76-1.86 range through emerging markets, and concerns over developments most of the period, climbing more than 10 pfennigs in Russia. Reflecting these developments, the implied from early quarter lows but partially retracing these yield on the December 1998 Euromark contract gains toward the latter half of the quarter. The mark's declined 22 basis points from peak levels in midinitial appreciation resulted from a removal of April. The dollar ended the quarter at DM 1.8080, residual uncertainty regarding the EMU after formal after having declined 2.2 percent. selection of eleven first-round members at the May 1-3 European Union summit. Confidence in the TREASURY AND FEDERAL RESERVE single currency was not significantly diminished by FOREIGN EXCHA NGF. RESER VFS the protracted debate over the selection of Wim Duisenburg as the European Central Bank's first At the end of the quarter, the current values of the president, nor by the debate over the length of his German mark and Japanese yen reserve holdings term, which some viewed as potentially compromis- totaled $17.3 billion for the Federal Reserve System ing the central bank's future credibility. European and $13.9 billion for the Exchange Stabilization asset markets benefited from the positive EMU out- Fund. The U.S. monetary authorities invest all of look as well as from shifts of portfolio preferences their foreign currency balances in a variety of instrufrom riskier asset markets. Equities in Germany and ments that yield market-related rates of return and that have a high degree of liquidity and credit quality. '). CJcmiiin bonchniuik bond yiekl, IWS:Q2 A significant portion of these balances is invested in German and Japanese government securities held Percent directly or under repurchase agreement. As of June 30, outright holdings of government securities by U.S. monetary authorities totaled $7.1 billion. Japanese and German government securities held under repurchase agreement are arranged either through transactions executed directly in the market or through agreements with official institutions. Government securities held under repurchase agreement by the U.S. monetary authorities totaled $11.3 billion at the end of the quarter. Foreign currency reserves are also invested in deposits at the Bank for Interna- Apr. May June 1998 tional Settlements and in facilities at other official institutions. • SOURCE. Bloomberg L.P. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Treasury and Federal Reserve Foreign Exchange Operations 721 injiN ul' I'.S. moiniarv anlhuriiic-. lntsi.\l nil t'liirvnl cx ii.'e lulev Millions of dollars Quarterly changes in balances by source Balance, Balance, liem Mar. 31, 1998 Net purchases Impact of Investment Currency Interest accrual June 30, 1998 and .sales1 sales2 income ad v ju al s u tm ati e o n n ts3 (net) and other FEDERAL RESERVE Deutsche marks 11,265.9 .0 94.8 291.3 .0 11,652.0 Japanese yen 5,361.4 416.7 4.3 -192.6 .0 5,589.8 Interest receivables4 73.0 7.5 80.5 Other cash flow from investments5 . 10.7 -.2 10.5 Total 16,711.0 416.7 99.1 98.7 7.3 17,332.8 U.S. TREASURY EXCHANGE STABILIZATION FUND Deutsche marks 5,703.1 .0 .0 47.6 -147.5 .0 5.898.2 Japanese yen 7.860.4 416.7 .0 5.9 -282.9 .0 8,000.1 Interest receivables4 36.7 5.3 42.0 Other cash flow from investments * , 18.2 -.3 17.9 Total 13,618.4 416.7 53.5 -135.4 5.0 13,958.2 1. Purchases and sales include foreign currency sales and purchases related to 3. Foreign currency balances are marked to market monthly at month-end official activity, swap drawings and repayments, and warehousing. exchange rates. 2. Calculated using marked-to-market exchange rates; represents the differ- 4. Interest receivables for the ESF are revalued at month-end exchange rales. ence between the sale exchange rate and the most reqent revaluation exchange Interest receivables for the Federal Reserve System are carried at average cost rale. 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 cosl-of-acquisilion exchange rate and the sale 5. Cash flow differences from payment and collection of funds between exchange rale are shown in table 2. quarters. \L'1 pruliis nr U>-,M;N I-J on I'.S. I'iv;istn\ (.'uiTi'iiLA arranLvniL'iitv .Itnu and FL'IIIT.II ROM-TV^ luiviiin eiclianpL" operations. Millions of dollars hascd on historical L-I>si ><l-;i(-L|insiiinn L'M'hanju- rales. Amount of Outstanding, 1')<}«: Q2 Institution facility June 30. 1998 Millions of dollars Federal Reserve U.S. Treasury Reciprocal Currency Federal Exchange Arrangements Period and item Reserve Stabilization Fund Austrian National Bank 250 0 National Bank of Belgium 1,000 Valuation profits and losses on Bank of Canada 2,000 outstanding assets and liabilities. National Bank of Denmark 250 Mar. 31, 1998 Bank of England 3,000 Deutsche marks -251.4 -536.1 Bank of France 2.000 Japanese yen 174.5 263.1 Deutsche Bundesbank 6,000 Total -76.9 -273.0 Bank of Italy 3,000 Bank of Japan 5,000 Realized profits and losses Bank of Mexico 3,000 from foreign currency sates. Netherlands Bank 500 Mar. 31. l998-June'3O, 1998 Bank of Norway 250 Deutsche marks .0 .0 Bank of Sweden 300 Japanese yen .0 .0 Swiss National Bank 4.000 Total .0 .0 Bank for International Settlements Dollars against Swiss francs 600 Valuation profits and losses on Dollars against other authorized outstanding assets and liabilities, European currencies 1.250 June 30, 1998 Deutsche marks 39.9 -388.6 Total 32,400 Japanese yen -18.2 -20.2 U.S. Treasury Total ... 21.7 -408.8 Exchange Stabilization Fund Currency Arrangements Deutsche Bundesbank 1,000 Bank of Mexico 3,000 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

722 Industrial Production and Capacity Utilization for July 1998 Released for publication August 14 late July. Motor vehicle assemblies dropped from a seasonally adjusted annual rate of 12.4 million units Industrial production declined 0.6 percent in July in May to 8.3 million units in July; output of motor after a drop of 1.1 percent in June; the June decline vehicle parts also contracted sharply. Excluding was larger than previously estimated. Some of the motor vehicles and parts, industrial production edged downward revision for June was the result of more up in July after having declined 0.4 percent in June; complete information on production losses associated included in this special aggregate are industries, with strikes at key General Motors parts plants, such as primary and fabricated metals and tires, that which began in early June and were settled in supply the automobile industry and were affected Industrial production indexes Ratio scale, 1992= 100 Ratio scale, 1992= 100 _ Consumer goods 130 _ Intermediate products 130 r 120 120 Durable / 1 10 110 ~~"—-^ Nondurable - 100 Business supplies — 100 - 90 90 i i i 1 I _ Equipment Materials 150 150 Business ^ ^ /^ - - 130 130 Durable goods 110 110 ^ Nondurable goods -- 90 and energy 90 Defense andspace \ ~ ^^ 1 1 1 1 | J I I I I I 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 scries are seasonally adjusted. Latest series, July. Capacity is an index of potential industrial production. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

723 Industrial production and capacity utilization, July 1998 Industrial production, index, 1992=100 Percentage change Category 1998 1998' July 1997 to Apr.' May' Juner July' Apr.' May' June' July July 1998 Total 128.4 128.9 127.5 126.8 .3 .4 -1.1 -.6 1.8 Previous estimate 128.5 128.9 128.1 ... .4 .3 -.6 Major market groups Products, total: . . 121.8 122.3 121.3 120.4 .4 .5 -.9 -.7 2.0 Consumer goods 116.5 117.0 115.3 114.3 .4 .5 -1.5 -.9 .3 Business equipment 150.2 150.3 150.8 149.4 1.0 .0 .3 -.9 5.6 Construction supplies 124.7 126.1 125.7 126.1 .4 1.1 -.3 .3 4.0 Materials 139.1 139.6 137.6 137.0 .3 .4 -1.4 -.4 1.5 Major imiitstrv groups 131.6 131.7 130.2 129.3 .6 .1 -1.2 -.7 1.8 Durable 149.7 150.2 147.9 146.2 .7 .4 -1.5 -1.2 2.7 Nondurable 1132 113.0 112.1 111.9 .5 -.2 -.7 -.2 .9 Mining 107.4 107.7 105.7 106.1 -.5 .2 -1.9 .4 -.4 Utilities 111.8 116.8 117.5 117.4 -2.2 4.5 .6 .0 3.2 Capacity utilization, percent MfMO Capacity, percentage 1997 1998 change, Average, Low, High, July 1997 1967-97 1982 1988-89 July Apr.r May' June' Julyi" to July 1998 Total 82.1 71.1 85.4 82.6 82.4 82.4 81.2 80.5 4.5 82.4 82.4 81.6 Manufacturing . 81.1 69.0 85.7 81.5 81.4 81.1 79.9 79.0 5.1 Advanced processing 80.5 70.4 84.2 79.6 79.6 79.5 78.0 76.9 6.0 Primary processing 82.4 66.2 88.9 86.0 85.4 85.0 84.1 83.6 3.2 Vlining 87.5 80.3 88.0 90.3 90.6 90.8 89.0 89.3 .7 Utilities 87.3 75.9 92.6 89.9 87.6 91.4 91.9 91.8 1.1 NOTE. Data seasonally adjusted or calculated from seasonally adjusted 2. Contains components in addition to those shown, monthly data. r Revised, 1. Change from preceding month. p Preliminary. by the shutdowns. At 126.8 percent of its 1992 aver- and paper products, has been weak, on balance, over age, industrial production in July was 1.8 percent the past few months. higher than it had been in July 1997; excluding the The production of business equipment fell 0.9 peroutput of motor vehicles and parts, the twelve-month cent, largely because of the drop in business vehicles. increase was 3.0 percent. From May to July, capacity The output of industrial equipment declined after a utilization in manufacturing, mining, and electric and large gain in June. Led by gains in computers and gas utilities dropped 1.9 percentage points, to farm machinery, the production of information pro- 80.5 percent. cessing and other equipment advanced again. The output of construction supplies rose 0.3 percent and was 4 percent above the level reached last MARKET GROUPS July. The production of materials, which had declined 1.4 percent in June, eased another 0.4 percent. The The output of consumer goods, which declined weakening was most evident in durable goods materi- 0.9 percent in July, reflected the drop in motor vehi- als used to make motor vehicles; the output of concles. In other categories of consumer goods, the pro- sumer durable parts fell another 5Vi percent after duction of appliances and air conditioners rebounded having declined nearly 10 percent in June. In addifrom a dip, and the output of home electronics contin- tion, basic metals fell for a third month. The output ued to advance. The production of consumer nondu- index for nondurable materials eased for a third rables eased slightly further after a loss in June. month, with widespread weakness in textile, paper, Within this group, the output of non-energy products, and chemical materials. Energy materials rebounded 1.0 percent from a decline of the same size in June. which includes foods, clothing, chemical products, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

724 Federal Reserve Bulletin • September 1998 INDUSTRY GROUPS bit of its June drop while the output at utilities was flat. Manufacturing output fell 0.7 percent in July, having The factory operating rate fell 0.9 percentage point, declined 1.2 percent in June; the production of motor to 79.0 percent, and was more than 2 percentage vehicles and parts fell about 15 percent in each points below the level in May. Much of this drop-off month, and the output of primary and fabricated reflects the effects of the strike-induced plunge in the metals weakened as well. The output of most other output of motor vehicles and related parts and materidurable goods industries, such as computers, aircraft, als. However, the operating rates in miscellaneous instruments, and lumber, advanced in July. The pro- manufactures, paper and products, and some other duction of nondurables eased for a third month; it has nondurable industries have also moved lower in fallen about 1 percent since April, with declines in recent months, as has the rate for oil and gas well the output of paper and products, foods, apparel, drilling. Utilization rates remained relatively high for and leather and products. In July, mining recouped a petroleum refining and electric utilities. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

725 Statements to the Congress Statement by Laurence H. Meyer, Member, Board some of these provisions, but I do not wish these of Governors of the Federal Reserve System, before objections to detract from the central message of my the Subcommittee on Financial Institutions and Con- testimony—that the nation's banking system needs sumer Credit of the Committee on Banking and reform of the type embodied in this legislation. Financial Services, U.S. House of Representatives, July 16, 1998 PAST EFFORTS TO ALLEVIATE BURDEN The Board of Governors appreciates this opportunity By way of background, it is important to note that the to comment on the discussion draft regulatory relief legislation being considered by the subcommittee bill. The Board welcomes this legislation and sup- today builds on the accomplishments of two prior ports its purpose of revising outdated banking stat- reform measures that many members of this subcomutes that are imposing costs without providing com- mittee worked hard to enact. The Community Develmensurate benefits to the safety and soundness of opment and Regulatory Improvement Act of 1994 depository institutions, enhancing consumer protec- (1994 Act) and the Economic Growth and Paperwork tion, or expanding credit availability. As the members Reduction Act of 1996 (1996 Act) were useful meaof this subcommittee are aware, unnecessary regula- sures that achieved meaningful reductions in regulatory burdens hinder the ability of banking organiza- tory burden. tions to compete effectively in the broader financial In the 1994 Act, the Congress alleviated the paperservices marketplace and, ultimately, adversely affect work burden for banking organizations seeking to the availability and prices of banking services and gain federal approval to form new holding companies credit products to consumers. and to engage in certain nonbanking transactions, In my testimony today, I would like to highlight enhanced the efficiency of the regulatory process those provisions of this legislation that the Board by eliminating unnecessary applications and filing supports and believes are particularly significant in requirements, and streamlined the examination and reducing burden and promoting efficient regulation. audit procedures of the federal banking agencies. For example, the Board strongly endorses the mea- Two years later, the Congress passed the 1996 Act, sures in this bill that would immediately allow banks which permitted well-capitalized and well-managed to pay interest on demand deposits and the Federal institutions to commence previously approved non- Reserve System to pay interest on the required and banking activities without filing an application. In excess reserve balances held by depository institu- the 1996 Act, the Congress also passed important tions at the Federal Reserve Banks. The Board also reforms to consumer protection statutes that allevistrongly supports the protections embodied in title V ated the burdens imposed by these statutory proviof this bill, the Bank Examination Report Privilege sions on financial institutions without undercutting Act, which promote effective bank supervision by the goals of the consumer protection laws. enhancing the cooperative exchange of information The Board supported these prior reform efforts, between supervised financial institutions and their which—coupled with the Board's independent initiaregulators. (Attached to this statement is an appendix tives to make our regulations simpler, less burdencontaining an expanded discussion of the provisions some, and more transparent—have had a bottom-line, governing interest on reserves and interest on demand practical effect: Fewer applications need to be filed deposits.)1 with the Board, and banking organizations have Although there is much in the draft bill that the saved substantial regulatory, legal, compliance, and Board favors, there are a few provisions with which other costs. In short, these statutory and regulatory the Board has concerns. I would like to point out changes have enhanced the competitiveness of banking organizations and have benefited the customers 1. The attachments to this statement are available from Publica- of these financial institutions. Nonetheless, as the tions Services. Mail Stop 127, Board of Governors of the Federal authors of this bill have recognized, more can and Reserve System, Washington, DC 20551, and on the Board's site on the World Wide Web (http://www.federalreserve.gov). should be done. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

726 Federal Reserve Bulletin • September 1998 THE PROVISIONS OF THIS BILL demand deposits held by businesses. The current prohibition of interest on the demand accounts of The draft bill contains important additional reform businesses is an anachronism that no longer serves provisions that would further eliminate obsolete and any public policy purpose. This prohibition was enunnecessary regulations. The Board applauds many acted in the 1930s, at a time when the Congress was of the measures contained in this bill, which we concerned that large money center banks might bid believe would eliminate restrictions that no longer deposits away from country banks to make loans to serve a useful purpose and would thereby enhance stock market speculators. Regardless of whether this the ability of U.S. banking institutions to operate rationale for the prohibition was ever valid, it is efficiently and effectively in increasingly competitive certainly not applicable today: Funds flow freely financial markets. around the country and among banks of all sizes. The absence of interest on demand deposits is no bar to the movement of money from depositories with Interest on Demand Deposits and Reserve surpluses—whatever their size or location—to the Balances markets where funds can be profitably employed. The Board strongly endorses section 101 of the draft Moreover, although the prohibition has no current bill, which would permit the Federal Reserve to pay policy purpose, it imposes a significant burden both interest on required and excess reserve balances that on banks and on those holding demand deposits, depository institutions maintain at Federal Reserve especially small banks and small businesses. Smaller Banks. Because required reserve balances do not banks complain that they are unable to compete for currently earn interest, banks and other depository the deposits of businesses precisely because of their institutions employ costly procedures to reduce such inability to offer interest on demand deposit accounts. balances to a minimum. The costs of designing and Small banks, unlike their larger counterparts, lack the maintaining the systems that facilitate these reserve systems to offer compensating balance schemes and avoidance techniques represent a significant waste of sweep accounts that allow these banks to offer busiresources for the economy. In addition, because some nesses credit for, or interest on, excess demand balsmall banks do not have the volume of deposits ances. Small businesses, which often earn no interest needed to justify these costs, the current system of on their demand deposits because they do not have reserve avoidance techniques tends to place smaller account balances large enough to justify the fees institutions at a competitive disadvantage. charged for sweep programs, stand to gain the most The reserve avoidance measures utilized by deposi- from eliminating the prohibition of interest on tory institutions currently also could complicate demand deposits. the implementation of monetary policy. Declines in For these reasons, the Board strongly supports the required reserve balances through avoidance schemes immediate repeal of the prohibition of interest on could lead to increased volatility in the federal funds demand deposits, as accomplished in section 102 rate. The draft bill's authorization of interest pay- the bill. Section 102 also presents an alternative that ments on excess reserves would be a useful addition would ultimately allow payment of interest on to the tools that the Federal Reserve possesses to deal demand deposits and, during a transition period, with such contingencies. would authorize a fully reservable, twenty-four- If increased volatility in the federal funds rate did transaction money market deposit account (MMDA). become a persistent feature of the money market, Although some transition period in the implementait would affect other overnight interest rates, raising tion of direct payments on demand deposits would funding risks for large banks, securities dealers, and not be objectionable, a relatively short period would other money market participants. Suppliers of funds be appropriate, rather than the six-year delay proto the overnight markets, including many small banks posed in the alternative. The twenty-four-transaction and thrift institutions, also would face greater uncer- MMDA under the alternative would be fully reservtainty about the returns they would earn. Accord- able and therefore would not contribute to further ingly, allowing the Board to pay interest on required declines in required reserve balances and the complireserve balances would not only eliminate economic cations that might entail for the implementation of inefficiencies but also alleviate risks that could affect monetary policy. With a relatively short transition monetary policy and the smooth functioning of the period, the alternative would be acceptable to the money markets. Board in preference to the status quo. The Board also strongly supports section 102 of The draft bill's alternative language also includes a the bill, which would permit payment of interest on provision granting the Federal Reserve increased Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 111 flexibility in setting reserve requirements. At present, Elimination of Duplicative Approval we have no intention of either increasing or decreas- Requirements ing reserve requirement ratios within the limits that we are already allowed by law. However, it is impos- Section 310 of the draft bill would provide an opporsible to know in advance the contingencies that the tunity to eliminate needlessly duplicative filing and Federal Reserve may have to address, and the added approval requirements for bank holding companies flexibility in setting reserve requirement ratios might seeking to acquire a depository institution and merge be a useful tool at some time in the future. it with an existing subsidiary. Currently, a bank holding company must obtain two sets of identical approvals before engaging in such a transaction. The bank holding company first must file an application Bank Examination Report and obtain prior approval under the Bank Holding Privilege Company Act to acquire the depository institution, and then the holding company must file another appli- The Board endorses title V of the bill, the Bank cation and obtain a second approval under the Bank Examination Report Privilege Act (BERPA). BERPA Merger Act to merge the acquired institution, which would take three steps to promote effective super- is by now already a subsidiary of the holding comvision of banking organizations by helping to pre- pany, with one of its other subsidiaries. serve candor in communications between such insti- The dual approval requirement is needlessly reduntutions and their examiners. First, BERPA would dant. Under the Bank Holding Company Act, the clarify that a supervised institution may voluntarily Board is required to consider the financial, managedisclose information that is protected by the insti- rial, and competitive effects of the entire merger tution's own privileges, such as the attorney-client transaction, including any part of the transaction that privilege, to a federal banking agency without waiv- involves the purchase of nonbanking assets. By coning those privileges as to third parties. Some courts trast, under the Bank Merger Act, the appropriate have ruled that disclosure of information to exam- federal banking agency reviews only that portion iners waives an institution's privileges in private of the transaction that concerns the surviving bank. civil litigation, and, as a result, some institutions have Accordingly, the Bank Merger Act review is subattempted to withhold information from their super- sumed in the larger Bank Holding Company Act visors. By ensuring that privileges are not waived review process. In addition, the statutory factors that when data are given to examiners, BERPA would the appropriate federal banking agencies are required overcome the present reluctance of many institutions to consider under the Bank Holding Company and to disclose information for fear of losing common- the Bank Merger Acts are identical, and, frequently, law privileges. the agencies undertake the two statutory reviews Second, BERPA would establish uniform proce- simultaneously. For these reasons, the Bank Merger dures that govern how a third party may seek to Act review rarely, if ever, raises any issues that have obtain confidential supervisory information from a not been fully vetted in the Bank Holding Company banking agency. BERPA would require third parties Act applications process. to request such information directly from the federal Section 310 would provide the option for eliminatbanking agencies, under regulations and procedures ing the duplicative review process by permitting bank adopted by the agencies. Third parties may turn to the holding companies that have already obtained courts only after having exhausted their administra- approval to acquire an institution under the Bank tive remedies. Finally, BERPA would define what Holding Company Act, then to merge that institution constitutes confidential supervisory information and with an existing subsidiary without obtaining a secwould strengthen the protection afforded to such ond approval under the Bank Merger Act. To ensure information. that any special issues that may be raised by a spe- By protecting disclosures by depository institu- cific bank merger may be reviewed by the relevant tions to their examiners and by safeguarding supervi- bank supervisor, section 310 would, nevertheless, sory information, BERPA would prevent unwarranted require that the federal banking agency responsible disclosures that would have a chilling effect on the for supervising the bank resulting from the merger examinations process. Taken together, these mea- receive advance notice of the proposed merger. sures would enhance the ability of the federal bank- Importantly, section 310 also would allow that ing agencies to assess and to protect the safety and agency to require a full application under the Bank soundness of depository institutions. Merger Act if that agency determines that special Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

728 Federal Reserve Bulletin • September 1998 concerns or circumstances warrant such review of a legislation that cause us concern as they are drafted. transaction. These provisions, as currently drafted, may give certain entities unfair competitive advantages, may result in changes to the law that the subcommittee did not Other Burden Reduction Provisions intend, may harm the safety and soundness of depository institutions, or are unnecessary. There are other parts of this draft bill, as well, that would relieve regulatory burden without giving rise to safety and soundness, supervisory, consumer pro- Nonbank Banks tection, or other policy concerns. For example, section 312 would eliminate the outdated and largely Two provisions of the draft bill would eliminate redundant requirement in section 1 l(m) of the Fed- limitations that have been applied to nonbank banks. eral Reserve Act, which currently sets a rigid ceiling Section 221 would allow nonbank banks to offer on the percentage of bank capital and surplus that business credit cards, even when these business loans may be represented by loans collateralized by securi- are funded by insured demand deposits. Section 222 ties. Current supervisory policy, as well as national would liberalize the divestiture requirements that and state bank lending limits, addresses concerns apply when companies violate the nonbank bank regarding concentrations of credit more comprehen- operating limitations. Eliminating these restrictions sively than section ll(m) but does so without the on nonbank banks, at first glance, may have intuitive unnecessary constraining effects of this section of the appeal. However, there are important reasons why the Federal Reserve Act. Board is concerned about these provisions. Section 313 would eliminate section 3(f) of the Nonbank banks—which, despite their popular Bank Holding Company Act, which applies certain name, are federally insured, national or staterestrictions that govern the nonbanking activities of chartered banks—came into existence by exploiting bank holding companies to the activities conducted a loophole in the law. By means of this loophole, directly by savings banks under state law. Since the industrial, commercial, and other companies were enactment of section 3(f), the courts have found that able to acquire insured banks and to mix banking and the insurance and other nonbanking prohibitions of commerce in a manner that was then, and remains the Bank Holding Company Act do not apply to the today, statutorily prohibited for banking organizadirect activities of banks. Eliminating section 3(f) tions. In 1987, in the Competitive Equality Banking would put savings banks that are subsidiaries of bank Act (CEBA), the Congress closed the nonbank-bank holding companies on equal competitive footing with loophole. At that time, the Congress chose not to their state bank counterparts, allowing savings banks require the fifty-seven companies operating nonbank and their subsidiaries to engage in those activities banks to divest these institutions. Instead, the Conthat are permissible for state banks under state law. gress permitted the companies owning these banks to In another area, the alternative consumer credit retain their ownership so long as they complied with disclosure mechanisms permitted by sections 401 and a carefully crafted set of limitations on the activities 402 will be less burdensome to creditors and just as of nonbank banks and their parents. In a unique helpful to consumers as the disclosure requirements statutory explanation of legislative purpose, the Conembodied in current law. The Congress has already gress stated in CEBA that these limitations were eliminated the requirement that creditors disclose a necessary to prevent the owners of nonbank banks historical table for closed-end variable rate loans. from competing unfairly with bank holding compa- Taking similar action with respect to open-end vari- nies and independent banks. able rate home-secured loans, and permitting credi- Fewer than twenty-five nonbank banks currently tors to make alternative disclosures to meet their claim the grandfather rights accorded in CEBA. The obligations with regard to credit advertising under the Board is concerned that removal of the limitations Truth in Lending Act, would reduce regulatory bur- and restrictions that apply to nonbank banks would dens without sacrificing consumer protections. enhance advantages that this relative handful of organizations already possess over other owners of banks and would give rise to the potential adverse effects AREAS OF CONCERN about which the Congress has in the past expressed concern. In addition, removal of limitations would Although the Board supports most of the provisions permit the increased combination of banking and in the draft bill, there are a few sections of the commerce for a select group of commercial compa- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 729 nies, a mixture that the House recently considered Call Report Simplification and decided not to permit in the context of a broader Finally, the subcommittee specifically requested comeffort to modernize our financial laws. ment on section 302 of the draft bill, which restates section 307 of the Riegle Community Development and Regulatory Improvement Act (Riegle Act). The Financing Corporation Payments Board and the other banking agencies, working through the Federal Financial Institutions Exami- The Board also has some concerns about section 103 nation Council, have made substantial progress in of the draft bill, which authorizes the use of "excess implementing the mandate of section 307 of the net income" of a deposit insurance fund to pay Riegle Act. interest on Financing Corporation (FICO) bonds and Thus far, the federal banking agencies have elimito reduce FICO interest assessments of the fund's nated approximately 80 Call Report data items; members. The proposal would divert resources from placed revised Call Report instructions and forms on the "deposit insurance purposes" of the funds to the Internet; adopted Generally Accepted Accounting other, non-insurance purposes—a diversion that Principles as the reporting basis for all Call Reports; would create a troubling precedent that could be produced a draft core report; condensed four sets of difficult to resist in the future. Call Report instructions into one; provided an index More fundamentally, it is not clear if the provision for Call Report instructions; implemented an elecwould ensure that the deposit insurance funds have tronic filing requirement for all institutions submitan adequate level of reserves. There is no "correct" ting Call Reports; placed much of the Call Report level of reserves and no level that can be deemed data on the Internet; and reported to the Congress on "excess." There are always unforeseen problems— recommendations to enhance efficiency for filers and most recently, Asian instabilities and potential users. The agencies are currently surveying deposi- "year 2000" problems. Nor can we simply assume tory institutions to identify additional Call Report the indefinite continuation of the current economic items that could be eliminated, while retaining items expansion. As a result, the Board believes that it that are essential for safety and soundness and other would be more prudent not to divert "excess" public policy purposes. The significant progress that reserves but, instead, to allow bank insurance fund has been made by the agencies to date and the agenreserves to grow to provide greater protection against cies' ongoing efforts suggest that this section of the future unforeseen problems in the banking system. draft bill is not necessary. CLOSING THOUGHTS Extensions of Credit to Executive Officers The Board applauds the efforts of the subcommittee Section 311 of the draft bill would allow a member to continue to eliminate unnecessary governmentbank to extend credit to the bank's executive officers imposed burdens. The subcommittee has fashioned (1) in the form of a home equity credit line of up to legislation that, in the main, builds upon past suc- $100,000, so long as the credit line is secured by the cesses in regulatory reform and relieves regulatory officer's primary residence, and (2) in an unlimited burdens on banking organizations. In some areas, amount, so long as the loan is overcollateralized by however, the draft bill may not achieve meaningful readily marketable assets. The Board believes the reform but instead would lead to competitive inequiprovision regarding the home equity line should be ties or raise safety and soundness and other concerns. clarified to indicate that the amount of the credit line The Board has long endorsed regulatory relief and may not exceed the value of the real estate held as financial modernization strategies that ensure regulacollateral. In addition, the Board believes that the tory equity for all participants in the financial serprovision allowing unlimited extensions of credit vices industry, that minimize the chances that federal secured by readily marketable assets goes too far: safety net subsidies will be expanded into new activi- Loans to executive officers and to other insiders ties and beyond the confines of insured depository should be carefully circumscribed and subject to institutions, that guarantee adequate federal superquantitative limits. The Board and the Federal vision of financial organizations, and that ensure the Deposit Insurance Corporation, which we understand continued safety and soundness of financial organizarecommended these provisions, are working together tions. The Board would be pleased to work with the to suggest a clarification of this section of the bill and subcommittee and its able staff to reach these goals in to address these issues. this and future legislative efforts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

730 Federal Reserve Bulletin • September 1998 Statement by Edward M. Gramlich, Member, Board (installment) loans such as automobile or home mortof Governors of the Federal Reserve System, before gage loans, and for open-end (revolving) credit plans the Subcommittee on Financial Institutions and Reg- such as credit cards or home-equity lines of credit. ulatory Relief and the Subcommittee on Housing Additional rules govern reverse mortgages and mort- Opportunity and Community Development of the gages on which borrowers pay rates and fees above a Committee on Banking, Housing, and Urban Affairs, certain amount. U.S. Senate, July 17, 1998 (Governor Gramlich presented identical testimony THE REAL ESTATE SETTLEMENT before the Subcommittee on Financial Institutions PROCEDURES ACT and Consumer Credit and the Subcommittee on Housing and Community Opportunity of the Commit- RESPA seeks to protect consumers from unnecessartee on Banking and Financial Services, U.S. House of ily high real estate settlement costs, by providing Representatives, July 22, 1998.) them with information about the costs required to close a mortgage transaction and by prohibiting cer- Despite a number of congressional actions designed tain business practices. The two key RESPA cost to give mortgage borrowers greater information and disclosures are the good faith estimate of settlement protection, today's mortgage lending process can still costs and the settlement statement. The good faith be characterized as confusing, costly, and far less estimate provides consumers with an itemized estithan optimal. Hence the Federal Reserve Board and mate of the costs they are expected to pay at closing. the Department of Housing and Urban Development The settlement statement records the actual costs (HUD) were eager to respond to the Congress's paid, such as fees for survey, appraisal, credit report, request to make recommendations for improvement. title examination and insurance, loan points, mort- At the outset, I should say we have enjoyed our gage broker's fees, and amounts to be held in cooperative working relationship with HUD. reserve accounts. RESPA also imposes other disclosure requirements in the mortgage-servicing process, We have spent two years considering possible including initial and annual escrow account statereforms in the Truth in Lending Act (TILA) and ments and notice of the transfer of loan servicing. the Real Estate Settlement Procedures Act (RESPA), RESPA is implemented by HUD's Regulation X. two related but distinct statutes. We have concluded that meaningful TILA-RESPA reform can be RESPA prohibits kickbacks, referral fees, and achieved only through new legislation. Recommenda- unearned fees because these practices were found to tions for such legislation are contained in the joint unnecessarily increase the cost of settlement services report we are delivering to the Congress. to consumers. RESPA also limits the amounts credi- The report identifies four key policy questions. tors can collect for escrow accounts, prohibits sell- After giving some background, my testimony today ers's requiring a purchaser-borrower to obtain title covers those four questions. insurance from a particular title company, and provides rights for consumers when loan servicing is transferred. THE TRUTH IN LENDING ACT TILA is intended to promote the informed use of THE AGENCIES' ACTIONS REGARDING REFORM consumer credit, primarily through disclosure, though with some substantive restrictions. It requires credi- The Board and HUD have worked steadily since tors to highlight the cost of credit as a dollar amount 1996 to respond to the congressional mandate to (the finance charge) and as an annual percentage rate reform and simplify TILA and RESPA disclosures. (the APR). TILA requires additional disclosures for a Initially the agencies considered whether congresloan secured by a consumer's home and permits sional goals could be achieved by changing adminconsumers to rescind certain transactions that involve istrative rules, but ultimately we decided that signifitheir principal dwelling. The Board's Regulation Z cant harmonizing of TILA and RESPA could come implements the act, and an official staff commentary about only through legislation. interprets the regulation. In April 1997, the Board published a notice seek- The disclosure rules that creditors must follow ing comments on possible statutory changes. Genervary depending on the type of credit being offered. ally, creditors supported reform to TILA and RESPA For example, there are separate rules for closed-end to improve clarity and certainty for compliance. Con- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 731 sumer advocates supported changes that would result The Board and HUD recommend that the APR and in more user friendly disclosures provided early finance charge concepts be retained, and that the definition of the finance charge (which affects the APR) be expanded enough to allow shopping among creditors, and that to include all costs the consumer is required to pay in order were more accurate to avoid unexpected charges at to close the loan. The agencies also recommend that the the loan closing. interest rate on the note and a more informative explana- The Board and HUD have also hosted public meet- tion of the APR be added as disclosures so that consumers can better understand the distinction between the two rates. ings. In July 1997, the agencies jointly sponsored a forum to give interested parties an opportunity to Most of the attention given to TILA reform has present their views on the issues of simplifying and focused on two issues: Should the APR be retained as reforming TILA and RESPA. Some speakers disa measure of the overall cost of credit, and should the cussed extensive reforms to the entire disclosure definition of a finance charge be revised to include scheme for real-estate-secured lending, while others more (or fewer) costs. The same cost items are cautioned the Board and HUD against mere tinkering included in both concepts, but the finance charge is with the current law. expressed as the full dollar cost of borrowing over all The forum followed hearings that the Board had years, while the APR is that dollar cost expressed as held in June 1997, in Los Angeles, Atlanta, and an annualized percentage rate, comparable to an inter- Washington, D.C., on home-equity lending and the est rate. so-called high cost loans covered by the Home Own- In principle, TILA defines the finance charge very ership and Equity Protection Act of 1994 (HOEPA). broadly, as any charge payable directly or indirectly Although the focus of the hearings was HOEPA, by the consumer and imposed directly or indirectly there was also discussion of TILA's finance charge by the creditor as an incident to or a condition of the and the APR. The agencies also have met extensively extension of credit. Under this definition, the finance with representatives of consumer groups and the charge should include interest, points, and transaction industries involved in the mortgage-lending process, fees. including member organizations of the Mortgage But in practice the finance charge and the corre- Reform Working Group, a private-sector group sponding APR have never disclosed the full cost of formed in 1997 to deliberate on possible reforms to credit. Because of legislated exceptions, TILA does TILA and RESPA. not include a number of charges in the finance charge, The Board also commissioned consumer surveys most notably many closing costs associated with and focus groups. The studies provided insight into real-estate-secured loans, such as fees for appraisals information consumers use to shop for credit and on and title insurance. consumers' understanding of the APR and other cost While some favor dropping the APR altogether, disclosures. And at several of its meetings in recent the Board believes in improving it. It is familiar to years, the Board's Consumer Advisory Council has consumers, even though they may not fully underconsidered efforts to reform and simplify TILA and stand it. It is simple and potentially comparable to the RESPA. straight mortgage rate. It is easier for consumers to evaluate competing products with a single figure than by using a number of different costs such as interest, FOUR MAJOR POLICY QUESTIONS DISCUSSED points, and closing costs. If more costs were included IN REPORT ON TILA-RESPA REFORM in the finance charge and reflected in the APR, the APR would become an even better measuring rod. The issues involved in mortgage loan reform are Also, including the interest rate on the TILA dishighly complex. To facilitate the Congress's study of closure with the APR could help consumers better the central issues of reform, our report focuses on understand the difference between the two (currently four broad policy questions concerning closed-end the interest rate is not disclosed). A chart showing the home-secured loans: the effectiveness of the finance treatment of various items under TILA and our procharge and the APR (a TILA question), the reliability posed standard is given in attachment A.1 of settlement cost disclosures (a RESPA question), The key to improving the usefulness of the APR the timing of disclosures (both), and substantive prois in revising the definition of the finance charge. tections to target abusive lending practices (both). 1. Should the finance charge and APR disclosures 1. The attachments to this statement are available from Publications Services, Mail Stop 127, Board of Governors of the Federal be eliminated, or should they be modified and Reserve System. Washington, DC 20551, and on the Board's site on retained? the World Wide Web (http://www.federalreserve.gov). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

732 Federal Reserve Bulletin • September 1998 TILA's current "some fees in, some fees out" and may be thought to prevent volume-based disapproach produces a finance charge and APR that for counts. The agencies recommend a dual disclosure consumers is incomplete as a measure of the cost of system in which creditors could choose between credit and for creditors is unnecessarily complicated. guaranteeing the closing costs, hence entitling the Indeed, the Congress recognized the need for pos- creditor to an exemption under section 8, and providsible changes and asked the Board to study the feasi- ing estimated closing costs that are accurate within a bility of a more inclusive finance charge. prescribed tolerance. This system would provide an The Board and the HUD believe that the finance incentive to creditors and others to guarantee costs charge should be defined as the costs the consumer is without forcing them to guarantee. We believe the required to pay to get credit. Under this approach, dual approach also offers an opportunity for the marmany fees now excluded from the finance charge ket to test whether guaranteed cost arrangements would be included. But this test would still exclude offer economical and efficient means for consumers costs that are paid in comparable cash transactions to obtain mortgage loans. (such as property taxes) and costs for optional services (such as credit life insurance). We believe that 3. Should the timing rules for providing cost dissuch a required-to-pay definition would provide both closures to consumers be changed—and should crediconsumers and creditors with the most consistent basis for comparison shopping. tors be required to provide disclosures before imposing substantial fees? 2. Should creditors be required to provide firmer quotes for closing costs disclosed under RESPA? The Board and HUD recommend that consumers be given cost disclosures for home-secured loans as early as possible in the shopping process. The Board recommends The Board and HUD recommend that creditors be that disclosures be provided not later than three days after required to give consumers more reliable closing cost application. HUD recommends even earlier disclosure, information to promote shopping and competition. Credialong with a limitation on application fees. tors should be given a choice between guaranteeing settle- The Board and HUD also recommend that three days ment costs and providing a good faith estimate that is prior to closing, creditors should be required to redisclose accurate within a specified tolerance. HUD testimony dissignificant changes in the APR or other material disclocusses additional HUD recommendations. sures and provide an accurate copy of the settlement statement. For nonpurchase home-secured transactions in which RESPA requires creditors to list all costs they the right of rescission currently applies, the Board recomanticipate the consumer will have to pay to close a mends that consumers also receive a notice of a pre-closing right to a refund at that time, to replace the existing loan. A good faith estimate is provided at or soon rescission period in most instances. after application, and a settlement statement containing the actual costs is provided at closing. The Board and HUD believe that an essential ele- Currently in home-secured transactions, consumers ment of mortgage reform is to create incentives for receive RESPA or TILA disclosures at several differcreditors to provide firmer cost disclosures to con- ent times. Generic information, such as consumer sumers. The agencies are concerned, for example, education booklets, are provided at or before applicathat some costs in the good faith estimate are signifi- tion. Certain loan-specific disclosures are given at or cantly lower than those actually charged at closing several days after application, others are given at or and that other costs are left off the good faith estimate several days before the time of closing. (The chart altogether. To the extent that discrepancies exist, the in attachment B identifies the timing requirements good faith estimate is unreliable as a shopping tool. under the two statutes.) Requiring firmer figures for RESPA's early closing The Congress has asked the Board and HUD to cost disclosures would also improve the finance simplify and improve the timing of the disclosures charge and APR disclosures under TILA because under the two laws. The disclosure process would be many of the costs that go into those disclosures simplified for creditors if the timing requirements for would be more accurate. providing disclosures could be made more consistent. The Board and HUD have considered a number of It would be further improved if the disclosures were ways for ensuring that closing costs are estimated given when they could be of most help to consumers. more accurately. We agree that it would be appro- Another consideration is the extent to which shoppriate to provide an incentive to creditors, such as ping may be impeded by the payment of fees before giving an exemption for creditors and service provid- consumers receive cost disclosures about their morters to RESPA's section 8, which prohibits certain fees gage loan. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 733 The Board and HUD agree that consumers should For transactions subject to this right of rescission, be given cost disclosures as early as possible in the the Board also recommends that the disclosures given shopping process. The agencies differ somewhat in three days before closing also include a notice of the their approaches on this issue, but in either case right not to complete the transaction and receive a consumers would get better information sooner than refund. As an incentive to provide accurate discloat present. sures in these transactions, the Board recommends The Board recommends that the initial cost disclo- that creditors be allowed to fund the loan at closing sures be provided no later than three days after appli- (assuming the consumer chooses to complete the cation. HUD recommends even earlier disclosure. transaction), when such a notice has been provided The Board and HUD believe that rapid advances in and when there are no material changes in the disclotechnology (such as automated underwriting) will sures. If the consumer chooses not to complete the permit creditors to disclose firm costs at earlier stages loan transaction, the creditor would be required to of the loan origination process, and the Board refund all fees, as is currently the case. If at closing believes that the marketplace may lead creditors to there are material changes, closing can still occur but the standard contemplated by HUD. However, the consumers would still have the three-day right to Board believes that while some creditors can provide rescind, which they would be free to waive. closing costs at first contact with consumers, others cannot. Even fewer creditors can fully underwrite the loan to determine the interest rate and points within 4. Should additional substantive consumer proteca few days. The Board believes its more flexible tions be added to the statutes? approach strikes the appropriate balance of encouraging greater certainty in cost figures at an early stage without mandating a standard that is currently impos- The Board and HUD recommend that substantive protecsible for many creditors. tions be adopted that will target abusive lending practices without unduly interfering with the flow of credit or nar- The Board recognizes that the ability to compari- rowing consumers' options in legitimate transactions. The son shop will be curtailed for many consumers if they agencies recommend restrictions against balloon payments must pay more than a nominal amount to obtain and the advance collection of lump-sum premiums for credit insurance for loans covered by HOEPA. The Board disclosures, regardless of when the disclosures are and HUD also recommend requiring certain minimum provided. But unlike HUD, the Board does not supstandards for notice procedures creditors must follow in all port a limitation on fees, which could constrict the home foreclosures. HUD testimony discusses additional supply of credit. The Board believes that creditors HUD recommendations. will keep fees reasonable as they realize savings from the increased use of technology and as competition in mortgage lending increases. TILA was amended by HOEPA to address abusive With regard to subsequent disclosures, the Board practices. HOEPA applies to home-secured loans and the HUD both recommend that three days before with rates or fees above a specified amount. The rate closing creditors be required to redisclose significant test for a HOEPA-covered loan is met if the APR at changes in the APR or other material disclosures and the time of closing exceeds by more than 10 percentto provide an accurate copy of the settlement state- age points the yield on Treasury securities of compament. Consumers would receive final cost disclosures rable maturity. The dollar test is met if the total points three days before closing (rather than at closing, the and fees exceed 8 percent of the loan amount or a current practice), which will allow them to study the certain dollar figure, whichever is greater. (The dollar disclosures in an unpressured environment. Redisclo- figure is adjusted annually; for 1998 it is $435.) sure at closing would be required if there were mate- Home-purchase loans, reverse mortgages, and openrial changes from the disclosures provided three days end lines of credit are exempt. before closing. While HOEPA was an important step in curtail- TILA now provides that, in certain transactions ing abusive practices, unfortunately they persist. The secured by a consumer's principal home, the con- report discusses various ways to deal with abusive sumer has three business days after becoming obli- lending practices. For example, the report discusses gated on the debt to rescind the transaction. This right the problem of loan "flipping," in which loans of rescission was created to allow consumers time to are refinanced repeatedly and consumers' equity is reexamine their credit contracts and cost disclosures stripped by excessive fees added to the loan amount. and to reconsider whether they want to place their These loans are made to appear attractive by monthly home at risk by offering it as security for the credit. payments that are kept low, but they are often accom- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

734 Federal Reserve Bulletin • September 1998 panied by a large balloon payment that the consumer finance charge and APR if it is truly optional and if must then refinance. the premium amount is disclosed. The report discusses possible ways to control flip- Consumer advocates express concern about highping, including additional limitations on balloon pressure sales tactics used on consumers to purchase payments and the ability to finance closing costs for high-priced credit insurance. The insurance is someloans subject to the HOEPA. The report also dis- times sold with a single premium collected up front. cusses a number of approaches to avoid unwarranted If for some reason the mortgage loan is closed premaforeclosures on consumers' homes, including coun- turely, it is often difficult for consumers to get back seling and uniform notice requirements that inform the unused portion of their premium. consumers about the foreclosure process and what Regulation of insurance, including the allowable steps must be taken—and by when—to forestall fore- premium rates, has historically been a matter for state closure. While it is difficult to control abusive lend- law. The Board and HUD believe, however, that ing practices, the Board and HUD believe that protec- some abusive practices could be eliminated by protions against these practices should be a part of any hibiting the advance collection of premiums on legislation enacted to simplify and reform TILA and HOEPA-covered loans, so that consumers would pay RESPA. The Board and HUD further believe that any for insurance periodically—and only for the time the new rules should be part of a multifaceted approach loan is actually outstanding. This means that terminathat also includes counseling, education, and volun- tion of the loan automatically would cancel both the tary industry action. coverage and any liability for future payments. The Board believes that certain protections, nar- The final recommendation addressing abusive rowly drawn, clearly address some abusive practices. lending practices concerns notices that should be These fit the criteria of being narrowly tailored rules provided to consumers in general (HOEPA and nonthat will not unduly restrict credit and limit choice. HOEPA) before foreclosure. The Board and HUD The Board and HUD join in two recommendations believe that consumers who have been victims of to protect consumers who obtain HOEPA-covered abusive practices must be provided adequate opporloans; one addresses balloon payments, and the other tunity to assert their rights in order to avoid unwaraddresses single-premium credit insurance. ranted foreclosures. Currently, balloon payments are prohibited for For the most part, the procedures that a creditor HOEPA-covered loans with maturities of less than must follow for foreclosure are governed by state five years. This prohibition is an important first step law, local practice, and the terms of the relevant to curb the flipping that occurred before HOEPA was contract documents. These procedures include the enacted. While most creditors believe low monthly amount or type of notice that consumers are entitled payments and a balloon payment can be a useful tool to regarding impending foreclosure. Some states in some cases and should be permitted, the current require creditors to provide actual notices to conless-than-five-year rule can still be criticized because sumers, but in other states notice by publication is it allows creditors to flip mortgages with balloon deemed sufficient. In some states a judicial process is loans that mature in five years. For HOEPA loans, followed; the creditor must file a lawsuit and obtain a consumers may be just as unlikely to repay or refi- judgment in order to obtain permission to sell the nance the loan at better rates after five years than property. Other states allow the use of a nonjudicial they are after two or three years. Hence the Board process, in which the creditor merely notifies the believes that HOEPA balloon notes should be further borrower that the home will be advertised and sold, restricted either by lengthening the prohibition thereby placing the burden on the homeowner to take period, applying stronger prohibitions to a subset of legal action to prevent the sale. In some cases con- HOEPA loans, or prohibiting HOEPA balloon notes sumers do not receive adequate information about the altogether. foreclosure and options that are available to them. The Board and HUD also recommend limiting Requiring a minimum standard for the type of creditors' ability to collect up front certain credit notice creditors must provide to consumers before insurance premiums on HOEPA-covered loans. Cur- foreclosure raises issues concerning preemption of rently, TILA has some limitations regarding the sale state law. However, to avoid unannounced forecloof credit insurance (for life, disability, and unemploy- sures on consumers' homes, the Board and HUD ment). It permits creditors to exclude the cost of recommend that before any foreclosure sale, creditors premiums for optional insurance from the disclosed must first provide a written explanation of any rights Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 735 the consumer may have to cure the delinquency or This concludes my discussion of the four key quesredeem the property. Consumers should also be noti- tions in reforming TILA-RESPA. We look forward fied of steps they must take to exercise their rights, to working further with HUD and the Congress to the process that will be followed in any foreclosure, make the recommended changes. and information about the availability of third-party credit counseling. Statement by Alan Greenspan, Chairman, Board of was whether the consequences of the turmoil in Asia Governors of the Federal Reserve System, before the would be sufficient to check inflationary tendencies Committee on Banking, Housing, and Urban Affairs, that might otherwise result from the strength of US. Senate, July 21, 1998 domestic spending and tightening labor markets. After the economy's surge in 1996 and, especially, (Chairman Greenspan presented identical testimony last year, resource utilization, particularly that of the before the Subcommittee on Domestic and Interna- labor force, had risen to a very high level. Although tional Monetary Policy of the Committee on Banking some signs pointed to stepped-up increases in producand Financial Services, U.S. House of Representa- tivity, the speed at which the demand for goods and tives, July 22, 1998.) services had been growing clearly exceeded the rate of expansion of the economy's long-run potential to I appreciate this opportunity to present the Federal produce. Maintenance of such a pace would put even Reserve's midyear report on monetary policy.1 greater pressures on the economy's resources, threat- Overall, the performance of the U.S. economy conening the balance and longevity of the expansion. tinues to be impressive. Over the first part of the year, However, it appeared likely that the difficulties we experienced further gains in output and employbeing encountered by Asian economies, by cutting ment, subdued prices, and moderate long-term interinto U.S. exports, would be a potentially important est rates. Important crosscurrents, however, have been factor slowing the growth of aggregate demand in the impacting the economy. With labor markets very United States. But uncertainties about the timing and tight and domestic final demand retaining considerdimensions of that development were considerable able momentum, the risks of a pickup in inflation given the difficulties in assessing the extent of the remain significant. But inventory investment, which problems in East Asia. was quite rapid late last year and early this In the event, the contraction of output and incomes year, appears to have slowed, perhaps appreciably. in a number of Asian economies has turned out to be Moreover, the economic and financial troubles in more substantial than most had anticipated. More- Asian economies are now demonstrably restraining over, financial markets in Asia and in emerging mardemands for U.S. goods and services—and those ket economies generally have remained unsettled, troubles could intensify and spread further. Weighportending further difficult adjustments. The contracing these forces, the Federal Open Market Committion in Asian economies, along with the rise in tee (FOMC) chose to keep the stance of policy the foreign exchange value of the dollar over 1997, unchanged over the first half of 1998. However, prompted a sharp deterioration in the U.S. balance of should pressures on labor resources begin to show trade in the first quarter. Nonetheless, the American through more impressively in cost increases, policy economy proved to be unexpectedly robust in that action may need to counter any associated tendency period. The growth of real gross domestic product for prices to accelerate before it undermines this not only failed to slow, it climbed further, to about a extraordinary expansion. 5!/2 percent annual rate in the first quarter, according to the current national income accounts. Domestic RECENT DEVELOPMENTS private demand for goods and services—including personal consumption expenditures, business invest- When I appeared before your subcommittee in Februment, and residential expenditures—was exceptionary, I noted that a key question for monetary policy ally strong. Evidently, optimism about jobs, incomes, and prof- 1. See "Monetary Policy Report to the Congress," Federal Reserve Bulletin, vol. 84 (August 1998), pp. 585-603. its, high and rising wealth-to-income ratios, low Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

736 Federal Reserve Bulletin • September 1998 financing costs, and falling prices for high tech goods Indeed, readings on the elements that make up the fed the appetites of households and businesses for real GDP have led many analysts to anticipate a consumer durables and capital equipment. In addi- decline in that measure in the second quarter, after tion, inventory investment contributed significantly the first-quarter surge. Given the upcoming revisions to growth in the first quarter; indeed, the growth of to the national income accounts, such assessments stocks of materials and goods outpaced that of overall would have to be regarded as conjectural. It is worth output by a wide margin during the first quarter, noting in any case that other indicators of output, adding PA percentage points to the annualized including worker hours and manufacturing producgrowth rate of GDP. Although accumulation of some tion, show a somewhat steadier, though slowing, path products likely was unintended, surveys indicate that over the first half of the year. And underlying trends much of the stockbuilding probably reflected firms' in domestic final demand have remained strong, confidence in the prospects for continued growth. imparting impetus to the continuing economic As evidence piled up that the economy continued expansion. to run hot during the winter, the Federal Reserve's During the first half of the year, measures of concerns about inflationary pressures mounted. resource utilization diverged. Pressures on manu- Domestic demand clearly had more underlying facturing facilities appeared to be easing. Plant capacmomentum than we had anticipated, supported in ity was growing rapidly as a result of vigorous investpart by financial conditions that were quite accommo- ment. And growth of industrial output was dropping dative. Credit remained extremely easy for most bor- off from its brisk pace of 1997, importantly reflecting rowers to obtain; intermediate- and long-term interest the deceleration in world demand for manufacrates were at relatively low levels; equity prices tured goods that resulted from the Asian economic soared higher, despite some disappointing earnings difficulties. reports; and growth in the monetary aggregates was But labor markets, in contrast, became increasingly rapid. Indeed, the crises in Asia, by lowering longer- taut during the first half. Total payroll jobs rose about term U.S. interest rates—through stronger prefer- one-and-one-half million over the first six months of ences for dollar investments and expectations of the year. The civilian unemployment rate dropped to slower growth ahead—and by reducing commodity a bit below 4'/2 percent in the second quarter, its prices, probably added to the positive forces boosting lowest level in three decades. Firms resorted to a domestic spending in the first half, especially in the variety of tactics to attract and retain workers, such as interest-sensitive housing sector. The robust expanpaying various types of monetary bonuses and raising sion of demand tightened labor markets further, basic wage rates. But, at least through the first quargiving additional impetus to the upward trend in ter, the effects of a rising wage bill on production labor costs. Inflation was low—though, given the costs were moderated by strong gains in productivity. lags with which monetary policy affects the econ- Indeed, inflation stayed remarkably damped during omy and prices, we had to be mainly concerned not the first quarter. The consumer price index as well as with conditions at the moment but with those likely broader measures of prices indicates that inflation to prevail many months ahead. In these circummoved down further, even as the economy strengthstances, the Federal Open Market Committee elected ened. Although declining oil prices contributed to in March to move to a state of heightened alert this development, pricing leverage in the goodsagainst inflation but left the stance of policy producing sector more generally was held in check unchanged. by reduced demand from Asia that, among other Although national income and product data for the things, has led to a softening of commodity prices, a second quarter have not yet been published, growth strong dollar that has contributed to bargain prices on of U.S. output appears to have slowed sharply. The many imports, and rising industrial capacity. Service auto strike has brought General Motor's production price inflation, less influenced by international events, essentially to a halt, probably reducing real GDP has remained steady at about a 3 percent rate since in the second quarter about V2 percentage point at before the beginning of the crisis. an annual rate. The limited available information Some elements in the goods price mix clearly were on inventory investment suggests that stockbuilding transitory. Indeed, the more recent price data suggest dropped markedly from its unsustainable pace of the that overall consumer price inflation moved up in the first quarter. In addition to the slower pace of invensecond quarter. But, even so, the increase remained tory building, Asian economies have continued to moderate. deteriorate, further retarding our exports in recent In any event, it would be a mistake for monetary months. policy makers to focus on any single index in gaug- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 737 ing inflation pressures in the economy. Although est rates have allowed many households to purchase much public attention is directed to the consumer homes and to refinance outstanding debt. The reducprice index (CPI), the Federal Reserve monitors a tion in debt-servicing costs has contributed to an wide variety of aggregate price measures. Each is apparent stabilization of the financial strains on the designed for a particular purpose and has its own household sector that seemed to emerge a couple of strengths and weaknesses. Price pressures appear years ago and has buoyed consumer demand. especially absent in some of the measures in the To a considerable extent, investors seem to be national income accounts, which are available expecting that low inflation and stronger productivity through the first quarter. The chain-weight price index growth will allow the extraordinary growth of profits for personal consumption expenditures excluding to be extended into the distant future. Indeed, expecfood and energy, for example, rose 1.5 percent over tations of earnings growth over the longer term have the year ending in the first quarter, considerably less been undergoing continual upward revision by secuthan the 2.3 percent rise in the core CPI over the rity analysts since early 1995. These rising expectasame period. An even broader price measure, that for tions have, in turn, driven stock prices sharply higher overall GDP, rose 1.4 percent. These indexes, while and credit spreads lower, perhaps in both cases to certainly subject to many of the measurement diffi- levels that will be difficult to sustain unless the virtuculties the Bureau of Labor Statistics has been grap- ous cycle continues. In any event, primarily because pling with in the CPI, have the advantages that their of the rise in stock prices, about $12!/2 trillion has been added to the value of household assets since the chain-weighting avoids some aspects of so-called end of 1994. Probably only a few percent of these substitution bias and that already published data can largely unrealized capital gains have been transbe revised to incorporate new information and meaformed into the purchase of goods and services in surement techniques. Taken together, while the variconsumer markets. But that increment to spending, ous price indexes show some differences, the basic combined with the sharp increase in equipment message is that inflation to date has remained low. investment, which has stemmed from the low cost of both equity and debt relative to expected profits on capital, has been instrumental in propelling the econ- ECONOMIC FUNDAMENTALS: omy forward. THE VIRTUOUS CYCLE The consequences for the American worker have So far this year, our economy has continued to enjoy been dramatic and, for the most part, highly favora virtuous cycle. Evidence of accelerated productivity able. A great many chronically underemployed has been bolstering expectations of future corporate people have been given the opportunity to work, and earnings, thereby fueling still further increases in many others have been able to upgrade their skills as equity values, and the improvements in productivity a result of work experience, extensive increases in have been helping to reduce inflation. In the context on-the-job training, or increased enrollment in techniof subdued price increases and generally supportive cal programs in community colleges and elsewhere. credit conditions, rising equity values have provided In addition, former welfare recipients appear to have impetus to spending and, in turn, the expansion of been absorbed into the work force in significant output, employment, and productivity-enhancing numbers. capital investment. Government finances have been enhanced as well. The essential precondition for the emergence, and Widespread improvement has been evident in the persistence, of this virtuous cycle is arguably the financial positions of state and local governments. In decline in the rate of inflation to near price stability. the federal sector, the taxes paid on huge realized In recent years, continued low product price inflation capital gains and other incomes related to stock marand expectations that it will persist have promoted ket advances, coupled with taxes on markedly higher stability in financial markets and fostered perceptions corporate profits, have joined with restraint on spendthat the degree of risk in the financial outlook has ing to produce a unified budget surplus for the first time in nearly three decades. The important steps been moving ever lower. These perceptions, in turn, taken by the Congress and the Administration to put have reduced the extra compensation that investors federal finances on a sounder footing have added to require for making loans to, or taking ownership national saving, relieving pressures on credit marpositions in, private firms. With risks in the domestic kets. The paydown of debt associated with the federal economy judged to be low, credit and equity capital surplus has helped to hold down longer-term interest have been readily available for many businesses, rates, which in turn has encouraged capital formation fostering strong investment. And low mortgage inter- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

738 Federal Reserve Bulletin D September 1998 and reduced debt burdens. Maintaining this disci- ments are all around us, and the benefits are evident plined budget stance would be most helpful in sup- not only in high tech industries but also in production porting a continuation of our current robust economic processes that have long been part of our industrial performance in the years ahead. economy. The fact that economic performance has strength- Those technological innovations and the rapidly ened as inflation subsided should not have been sur- declining cost of capital equipment that embodies prising, given that risk premiums and economic dis- them in turn seem to be a major factor behind the incentives to invest in productive capital diminish recent enlarged gains in productivity. Evidently, plant as the economy approaches price stability. But the managers who were involved in planning capital extent to which strong growth and high labor force investments anticipated that a significant increase in utilization have been joined with low inflation over the real rates of return on facilities could be achieved an extended period is, nevertheless, exceptional. So by exploiting emerging new technologies. If that had far, at least, the adverse wage-price interactions that been a mistake on their part, one would have played so central a role in pressuring inflation higher expected capital investment to run up briefly and then in many past business expansions—eventually bring- start down again when the lower-than-anticipated ing those expansions to an end—have not played a rates of return developed. But we have instead seen significant role in the current expansion. sustained gains in investment, indicating that hoped- For one thing, increases in hourly compensation for rates of return apparently have been realized. have been slower to pick up than in most other recent Notwithstanding a reasonably optimistic interpretaexpansions, although, to be sure, wages have started tion of the recent productivity numbers, it would not to accelerate in the past couple of years as the labor be prudent to assume that even strongly rising promarket has become progressively tighter. In the first ductivity, by itself, can ensure a noninflationary few years of the expansion, the subdued rate of rise in future. Certainly wage increases, per se, are not inflahourly compensation seemed to be, in part, a reflec- tionary, unless they exceed productivity growth, tion of greater concerns among workers about job thereby creating pressure for inflationary price security. We now seem to have moved beyond that increases that can eventually undermine economic phase of especially acute concern, though the flux of growth and employment. Because the level of protechnology may still be leaving many workers with ductivity is tied to an important degree to the stock of fears of job skill obsolescence and a willingness to capital, which turns over only gradually, increases in trade wage gains for job security. In the past couple the trend growth of productivity probably also occur of years, of course, workers have not had to press rather gradually. By contrast, the potential for abrupt especially hard for nominal pay gains to realize siz- acceleration of nominal hourly compensation is able increases in their real wages. In contrast to the surely greater. pattern that developed in several previous business As 1 have noted in previous appearances before the expansions, when workers required substantial Congress, economic growth at rates experienced on increases in pay just to cover increases in the cost of average over the past several years would eventually living, consumer prices have been generally well- run into constraints as the reservoir of unemployed behaved in the current expansion. people available to work is drawn down. The annual A couple of years ago—almost at the same time increase in the working-age population (from 16 to that increases in total hourly compensation began 64 years of age), including immigrants, has been trending up in nominal terms—evidence of a long- approximately 1 percent a year in recent years. Yet awaited pickup in the growth of labor productivity employment, measured by the count of persons who began to show through more strongly in the data; are working rather than by the count of jobs, has been and this accelerated increase in output per hour rising 2 percent a year since 1995, despite the accelhas enabled firms to raise workers' real wages while eration in the growth of output per hour. The gap holding the line on price increases. Gains in produc- between employment growth and population growth, tivity usually vary with the strength of the economy, amounting to about 1.1 million persons a year on and the favorable results that we have observed dur- average since the end of 1995, has been made up, in ing the past two years or so, when the economy has part, by a decline in the number of individuals who been growing more rapidly, almost certainly over- are counted as unemployed—those persons who are state the degree of structural improvement. But evi- actively seeking work—of approximately 650,000 a dence continues to mount that the trend of productiv- year, on average, over the past two and one-half ity has accelerated, even if the extent of that pickup is years. The remainder of the gap has reflected a rise in as yet unclear. Signs of major technological improve- labor force participation that can be traced largely to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 739 a decline of almost 300,000 a year in the number of Conditions in Asia are of particular concern. individuals (aged 16 to 64) wanting a job but not Aggregate output of the Asian developing economies actively seeking one. Presumably, many of the per- has plunged, with particularly steep declines in sons who once were in this group have more recently Korea, Malaysia, Thailand, and Indonesia. Even become active and successful job seekers as the econ- the economies of the stalwart tigers—Hong Kong, omy has strengthened, thereby preventing a still Singapore, and Taiwan—have softened. Economic sharper drop in the official unemployment rate. In growth in China has also slowed, largely because of June, the number of persons aged 16 to 64 who the currency depreciations among its neighbors and wanted to work but who did not have jobs was the sharp declines in their demand for imports. 10.6 million on a seasonally adjusted basis, roughly Russia has also experienced some spillover from 6 percent of the working-age population. Despite an the Asian difficulties, but Russia's problems are uptick in joblessness in June, this percentage is only mostly homegrown. Large fiscal deficits stem from fractionally above the record low reached in May for high effective marginal tax rates that encourage these data, which can be calculated back to 1970. avoidance and do not raise adequate revenue. This Nonetheless, a strong signal of inflation pressures and the recent declines in prices of oil and other building because of compensation increases mark- commodities have rendered Russian financial maredly in excess of productivity gains has not yet kets and the ruble vulnerable, particularly in an enviclearly emerged in this expansion. Among nonfinan- ronment of heightened concern about all emerging cial corporations (our most recent source of data on markets. The Russian government has recently proconsolidated income statements), trends in costs seem mulgated a set of new policy measures in connection to have accelerated from their lows, but the rates of with an expanded International Monetary Fund supincrease in both unit labor costs and total unit costs port package in an effort to address these problems. are still quite low. In Latin America, conditions vary: Economies that Still, the gap between the growth in employment are heavily dependent on exports of oil and other and that of the working-age population will inevita- commodities have suffered as prices of those items bly close. What is crucial to sustaining this unprec- have fallen, and several countries in that region have edented period of prosperity is that it close rea- received more intensive scrutiny in international capisonably promptly, given already stretched labor tal markets, but, on the whole, Latin American econoresources, and that labor markets find a balance con- mies continue to perform reasonably well. sistent with sustained growth marked by compen- Disappointingly, economic activity in Japan—a sation gains in line with productivity advances. crucial engine of Asian economic growth—has Whether these adjustments will occur without mone- turned down after a long period of subpar growth. tary policy action remains an open question. Gross domestic product fell at a 5'/4 percent annual rate in the first quarter. More recently, confidence of households and businesses has continued to erode, FOREIGN DEVELOPMENTS the sharp contraction elsewhere in Asia has fed back While the United States has been benefiting from a onto Japan, and the dwindling domestic demand for virtuous economic cycle, a number of other econo- goods and services in that country has been further mies unfortunately have been spiraling in quite the constrained by a mounting credit crunch. Nonperopposite direction. The United States, Canada, and forming Joans have risen sharply as real estate values Western Europe have been enjoying solid economic fell after the bursting of the asset bubble in 1991. growth, with relatively low inflation and declining Problems in the banking sector, exacerbated by the unemployment, but the economic performance in broader Asian financial crisis, have led to market many developing and transition nations and Japan concerns about the adequacy of the capital of many has been deteriorating. How quickly the latter erosion Japanese banks and have engendered a premium in is arrested and reversed will be a key factor in shap- the market for Japanese banks' borrowing. This ing U.S. economic and financial trends in the period resulting squeeze to profit margins has led to a relucahead. With all that is at stake, it would be difficult to tance to lend in dollars or yen. In response to the overstate how crucial it is that the authorities in the weakening economy and deteriorating banking situarelevant economies promptly implement effective tion, the Japanese yen has tended to weaken signifipolicies to correct the structural problems underlying cantly, in often-volatile markets, against the dollar recent weaknesses and to promote sustainable eco- and major European currencies. nomic growth before patterns of reinforcing contrac- As you know, we have sought to be helpful in tion become difficult to contain. the Japanese government's efforts to stabilize their Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

740 Federal Reserve Bulletin • September 1998 economy and financial system, reflecting our aware- THE ECONOMIC OUTLOOK ness of the important role that Japanese financial and economic performance plays in the world economy, The Federal Open Market Committee believes that including that of the United States. We have con- the conditions for continued growth with low inflasulted with the relevant Japanese authorities on tion are in place here in the United States. As I noted methods for resolving difficulties in their banking previously, an important issue for policy is how the system and have urged them to take effective mea- imbalance of recent years between the demand for sures to stimulate their economy. I believe that the labor and the growth of the working-age population Japanese authorities recognize the urgency of the is resolved. In that regard, we see a slowing in the situation. growth of aggregate demand as a necessary element That a number of foreign economies are currently in the mix. experiencing difficulties is not surprising. Although At this time, some of the key factors that have many had previously realized a substantial measure supported strong final demand by domestic purchasof success in developing their economies, a number ers remain favorable. Although real short-term interhad leaned heavily on command-type systems rather est rates have risen as the federal funds rate has been than relying primarily on market mechanisms. This held unchanged while inflation expectations have characteristic has been evident not only in their indus- declined, the financial conditions that have fostered trial sectors but in banking where government inter- the strength in demand are still in place. With their vention is typically heavy, where long-standing per- incomes and wealth having been on a strong upward sonal and corporate relationships are the predominant track, American consumers remain quite upbeat. For factor in financing arrangements, and where market- businesses, decreasing costs of and high rates of based credit assessments are the exception rather than return on investment, as well as the scarcity of labor, the rule. Recent events confirm that these sorts of could keep capital spending elevated. These factors structures are ill suited to today's dynamic global suggest some risk that the labor market could get economy, in which national economies must be even tighter. And even if it does not, under prevailing capable of adapting flexibly and rapidly to changing tight labor markets increasingly confident workers conditions. might place gradually escalating pressures on wages Responses in countries currently experiencing dif- and costs, which would eventually feed through to ficulties have varied considerably. Some have reacted prices. quickly and, in general terms, appropriately. But in But a number of factors likely will serve to damp others, a variety of political considerations appear to growth in aggregate demand, helping to foster a have militated against prompt and effective action. reasonably smooth transition to a more sustainable As a consequence, the risks of further adverse rate of growth and reasonable balance in labor mardevelopments in these economies remain substantial. kets. We have yet to see the full effects of the crisis And given the pervasive interconnections of virtually in East Asia on U.S. employment and income. Resiall economies and financial systems in the world dential and business fixed investment already have today, the associated uncertainties for the United reached such high levels that further gains approach- States and other developed economies remain sub- ing those experienced recently would imply very stantial as well. rapid growth of the stocks of housing and plant and In the current circumstances, we need to be aware equipment relative to income trends. Moreover, busithat monetary policy tightening actions in the United ness investment will be damped if recent indications States could have outsized effects on very sensitive of a narrowing in domestic operating profit margins financial markets in Asia, a development that could prompt a reassessment of the expected rates of return have substantial adverse repercussions on U.S. finan- on investment in plant and equipment. Reduced proscial markets and, over time, on our own economy. pects for the return to capital would not only affect But while we must take account of such foreign investment directly but could also affect consumption interactions, we must be careful that our responses if stock prices adjust to a less optimistic view of ultimately are consistent with a monetary policy earnings prospects. aimed at optimal performance of the U.S. economy. Of course, the demand for labor that is consistent Our objectives relate to domestic economic perfor- with a particular rate of output growth also could be mance, and price stability and maximum sustainable lowered if productivity growth were to increase more. economic growth here at home would best serve the And, on the supply side of the labor market, faster long-run interests of troubled financial markets and growth of the labor force could emerge as the result economies abroad. of increased immigration or delayed retirements. 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Statements to the Congress 1A\ Nonetheless, it appears most probable that the neces- come to a halt, at least for a time, and, with the sary slower absorption of labor into employment will cost-saving shift to managed care having been largely reflect, in part, a deceleration of output growth, as a completed, the potential for businesses to achieve consequence of evolving market forces. Failing that, further savings in that regard appears to be rather firming actions on the part of the Federal Reserve limited at this point. There have been a few striking may be necessary to ensure a track of expansion that instances this past year of employers boosting outlays is capable of being sustained. for health benefits by substantial amounts. Thus, members of the Board of Governors and Given that compensation costs are likely to accelerpresidents of the Federal Reserve Banks anticipate a ate at least a little further, productivity trends and slowing in the rate of economic growth. The central profit margins will be key to determining price pertendency of their forecasts is that real GDP will rise formance in the period ahead. Whether the recent 3 percent to 3'A percent over 1998 as a whole and strong performance of productivity can be extended 2 percent to 2'/2 percent in 1999. With the rise in the remains to be seen. It does seem likely that productivdemand for workers coming into line with that of the ity calculated for the entire economy using GDP data labor force, the unemployment rate is expected to weakened in the second quarter. This development change little from its current level, finishing next year clearly owed, at least in some degree, to the decelerain the neighborhood of 4'/2 percent to 43/4 percent. tion of output in that period. In manufacturing, where Inflation performance will be affected by develop- our data are better measured, productivity appears ments abroad as well as those here at home. The still to have registered a solid increase. We will be extent and pace of recovery of Asian economies closely monitoring a variety of indicators to assess currently experiencing a severe downturn will have how productivity is performing in the months ahead. important implications for prices of energy and other Monetary policymakers see the most likely outcommodities, the strength of the dollar, and competi- come as modestly higher inflation rates in the next tive conditions on world product markets. Should the one and one-half years. The central tendency of situation abroad remain unsettled, these factors would monetary policymakers' CPI inflation forecasts is for probably continue to contribute to good price perfor- an increase of 1% percent to 2 percent during 1998 mance in the United States in the period ahead. But it and 2 percent to 2Vi percent next year. As noted, the is important to recognize that the damping influence ebbing of the special factors reducing inflation over of these factors on inflation is mostly temporary. the past year or so, such as the decline in oil prices, At some point, the dollar will stop rising, foreign will account for some of this uptick. But the Federal demand will begin to recover, and oil and other Open Market Committee will need to remain particucommodity prices will stop falling and could even larly alert to the possibility that more fundamental back up some. Indeed, a brisk snap-back in foreign imbalances are increasing inflationary pressures. The economic activity, should that occur, would add, at Committee would need to resist vigorously any least temporarily, to price pressures in the United tendency for an upward trend, which could become States. embedded in the inflationary process. On a more fundamental level, it is the balance of The Committee recognizes that significant risks supply and demand in labor and product markets in attend the outlook: One is that the impending conthe United States that will have the greatest effect on straint from domestic labor markets could bind more inflation rates here. As I noted previously, wage and abruptly than it has to date, intensifying inflation benefit costs have been remarkably subdued in the pressures. The other is the potential for further current expansion. Nonetheless, an accelerating trend adverse developments abroad, which could reduce in wages has been apparent for some time. the demand for U.S. goods and services more sharply In addition, a gradual upward tilt in benefit costs than anticipated and which would thereby ease preshas become evident of late. A variety of factors— sures on labor markets. While we expect that the including the strength of the economy and rising situation will develop relatively smoothly, the Comequity values, which have reduced the need for pay- mittee believes that, given the current tightness in ments into unemployment trust funds and pension labor markets, the potential for accelerating inflation plans, and the restructuring of the health care is probably greater than the risk of protracted, excessector—have been working to keep benefit costs in sive weakness in the economy. In any case, it will check in this expansion. But, in the medical area at need to continue to monitor evolving circumstances least, the most recent developments suggest that the closely and adjust the stance of monetary policy, as favorable trend may have run its course. The slowing appropriate, in order to help establish conditions conof price increases for medical services seems to have sistent with progress toward the Federal Reserve's Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

742 Federal Reserve Bulletin • September 1998 goals of price stability and maximum sustainable omy and inflation. Therefore, we will be carefully economic growth. evaluating the aggregates, relative both to forecasts and to their ranges, in the context of other readings on other variables in our efforts to promote optimum RANGES FOR MONEY AND CREDIT GROWTH macroeconomic conditions. Indeed, recognition of the benefits of low inflation and our commitment to the Federal Reserve's statutory objective of price stability were once again CONCLUDING COMMENTS dominant in the Committee's semiannual review of the ranges for the monetary and debt aggregates. The As I have stated in previous testimony, the recent FOMC noted that the behavior of the monetary aggre- economic performance, with its combination of gates had been somewhat more predictable over the strong growth and low inflation, is as impressive as past few years than it had been earlier in the 1990s. any I have witnessed in my near half-century of daily The rapid growth of M2 and M3 over the first half of observation of the American economy. Although the the year, which lifted those measures above the upper reasons for this development are complex, our sucends of the target ranges established in February, was cess can be attributed in part to sound economic consistent with the unexpectedly strong advance in policy. The Congress and the Administration have aggregate demand. However, movements in velocity successfully balanced the budget and, indeed, remain difficult to predict. achieved a near-term surplus, a development that The FOMC will continue to interpret the monetary tends to boost national saving and investment. The ranges as benchmarks for the achievement of price Federal Reserve has pursued monetary conditions stability under conditions of historically normal consistent with maximum sustainable long-run velocity behavior. Consistent with that interpretation, growth by seeking price stability. These policies have the Committee decided to retain the current ranges helped bring about a healthy macroeconomic envifor the monetary aggregates for 1998, as well as the ronment for productivity-boosting investment and range for debt, and to carry them over on a provi- innovation, factors that have lifted living standards sional basis to next year. Although near-term pros- for most Americans. The task before us is to maintain pects for velocity behavior are uncertain, the Com- disciplined economic policies and thereby contribute mittee recognizes that monetary growth does appear to maintaining and extending these gains in the years to provide some information about trends in the econ- ahead. Statement by Alan Greenspan, Chairman, Board of ity in this area.1 In my testimony I shall step back Governors of the Federal Reserve System, before the from these issues of immediate concern and address Committee on Banking and Financial Services, U.S. the fundamental underlying issue, that is, whether it House of Representatives, July 24, 1998 is appropriate to apply the Commodity Exchange Act (CEA) to over-the-counter derivatives (and, indeed, (Chairman Greenspan presented similar testimony to financial derivatives generally) in order to achieve before the Committee on Agriculture, Nutrition, and the CEA's objectives—deterring market manipula- Forestry, U.S. Senate, July 30, 1998.) tion and protecting investors. I am pleased to be here today to present the Federal THE CEA AND ITS OBJECTIVES Reserve Board's views on the regulation of over-thecounter (OTC) derivatives. Under Secretary Hawke The Commodity Exchange Act of 1936 and its predehas already addressed the specific questions raised in cessor the Grain Futures Act of 1922 were a response your letter of invitation. The Board generally agrees to the perceived problems of manipulation of grain with the Treasury Department's views on these 1. It also supports the legislation to amend the banking and insolissues. In particular, the Board supports a standstill vency laws that has been recommended by the President's Working of attempts by the Commodity Futures Trading Com- Group on Financial Markets. This legislation would shore up the mission (CFTC) to impose new regulations on OTC infrastructure of U.S. markets and enhance their competitiveness. The legislation recognizes that the traditional insolvency process can create derivatives as a minimalist approach to our longserious risks to counterparties to financial transactions because of the standing concerns about CFTC assertions of author- price volatility of financial assets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 743 markets that were particularly evident in the latter tutes a futures contract, a wide range of off-exchange part of the nineteenth and early part of the twentieth transactions would have been brought potentially centuries. For example, endeavors to corner markets within the scope of the CEA. The Treasury Departin wheat, while rarely successful, often led to tempo- ment was particularly concerned about the prospect rary, but sharp, increases in prices that engendered that the foreign exchange markets might be found to very large losses to those short sellers of futures fall within the act's scope. Aside from the difficulty contracts who had no alternative but to buy and of manipulating these markets, the Treasury argued deliver grain under their contractual obligations. that participants in OTC markets, primarily banks Because quantities of grain following a harvest are and other financial institutions, and large corporagenerally known and limited, it is possible, at least in tions, did not need the consumer protections of the principle, to corner a market. Commodity Exchange Act. Consequently, Treasury It is not possible to corner a market for financial proposed and the Congress included a provision in futures when the underlying asset or its equivalent is the 1974 Act, the "Treasury Amendment," which in essentially unlimited supply. Financial derivative excluded ofT-exchange derivative transactions in forcontracts are fundamentally different from agricul- eign currency (as well as government securities and tural futures owing to the nature of the underlying certain other financial instruments) from the newly asset from which the derivative contract is "derived." expanded CEA. What the Treasury did not envision, Supplies of foreign exchange, government securities, and the Treasury Amendment did not protect, was the and certain other financial instruments are being con- subsequent development and spectacular growth of tinuously replenished, and large inventories held a much wider range of OTC derivative contracts— throughout the world are immediately available to be swaps on interest rates, exchange rates, and prices of offered in markets if traders endeavor to create an commodities and securities. artificial shortage. Thus, unlike commodities whose supply is limited to a particular growing season and finite carryover, the markets for financial instruments POTENTIAL APPLICATION OF THE CEA TO OTC and their derivatives are deep and, as a consequence, DERIVATIVES are extremely difficult to manipulate. The type of regulation that is applied to crop futures appears The vast majority of privately negotiated OTC conwholly out of place and inappropriate for financial tracts are settled in cash rather than through delivery. futures, whether traded on organized exchanges Cash settlement typically is based on a rate or price or over the counter, and accordingly, the Federal in a highly liquid market with a very large or vir- Reserve Board sees no need for it. tually unlimited deliverable supply, for example, The early legislation on the trading of commodity LIBOR or the spot dollar-yen exchange rate. To be futures was primarily designed to discourage forms sure, there are a limited number of OTC derivative of speculation that were seen as exacerbating price contracts that apply to nonfinancial underlying assets. volatility and hurting farmers. In addition, it included There is a significant business in oil-based derivaprovisions designed primarily to protect small inves- tives, for example. But unlike farm crops, especially tors in commodity futures, whose participation had near the end of a crop season, private counterparties been increasing and was viewed as beneficial. The in oil contracts have virtually no ability to restrict the Commodity Futures Trading Commission Act of worldwide supply of this commodity. (Even OPEC 1974 (1974 Act) did not make any fundamental has been less than successful over the years.) Nor changes in the objectives of derivatives regulation. can private counterparties restrict supplies of gold, another commodity whose derivatives are often However, it expanded the scope of the CEA quite traded over the counter, where central banks stand significantly. In addition to creating the CFTC as an ready to lease gold in increasing quantities should the independent agency and giving the CFTC exclusive price rise. jurisdiction over commodity futures and options, the 1974 Act expanded the CEA's definition of a "com- To be sure, a few, albeit growing, types of OTC modity" beyond a specific list of agricultural com- contracts such as equity swaps and some credit modities to include "all other goods and articles, derivatives have a limited deliverable supply. Howexcept onions, . . . and all services, rights, and inter- ever, unlike crop futures, where failure to deliver has ests in which contracts for future delivery are pres- additional significant penalties, costs of failure to ently or in the future dealt in." deliver in OTC derivatives are almost always limited Given this broadened definition of a commodity to actual damages. There is no reason to believe and an equally broad interpretation of what consti- either equity swaps or credit derivatives can influence Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

744 Federal Reserve Bulletin • September 1998 the price of the underlying assets any more than Nonetheless, I see no reason to question the underconventional securities trading does. Thus, manipula- lying stability of the OTC markets, or the overall tors attempting to corner a market, even if successful, effectiveness of private market discipline, or the would have great difficulty in inducing sellers in prudential supervision of the derivatives activities privately negotiated transactions to pay significantly of banks and other regulated participants. The huge higher prices to offset their contracts or to purchase increase in the volume of OTC transactions reflects the underlying assets. the judgments of counterparties that these instru- Finally, the prices established in privately negoti- ments provide extensive protection against undue ated transactions are not widely disseminated or used asset concentration risk. They are clearly perceived to directly or indiscriminately as the basis for pricing add significant value to our financial structure, both other transactions. Counterparties in the OTC mar- here in the United States and internationally. kets can easily recognize the risks to which they Accordingly the Federal Reserve Board sees no would be exposed by failing to make their own reason why these markets should be encumbered independent valuations of their transactions, whose with a regulatory structure devised for a wholly economic and credit terms may differ in significant different type of market process in which supplies respects. Moreover, they usually have access to other, of underlying assets are driven by the vagaries of often more reliable or more relevant sources of infor- weather and seasons. Inappropriate regulation dismation. Hence, any price distortions in particular torts the efficiency of our market system and as a transactions could not affect other buyers or sellers of consequence impedes growth and improvement in the underlying asset. standards of living. Professional counterparties to privately negotiated contracts also have demonstrated their ability to protect themselves from losses from fraud and counter- APPLICATION OF THE CEA TO CENTRALIZED party insolvencies. They have managed credit risks MARKETS FOR DERIVATIVES quite effectively through careful evaluation of counterparties, the setting of internal credit limits, and Recently, some participants in the OTC markets have judicious use of netting and collateral agreements. In shown interest in utilizing centralized mechanisms particular, they have insisted that dealers have finan- for clearing or executing OTC derivatives transaccial strength sufficient to warrant a credit rating of A tions. For example, the London Clearing House plans or higher. This, in turn, provides substantial protec- to introduce clearing of interest rate swaps and fortion against losses from fraud. Dealers are established ward rate agreements in the second half of 1999, and institutions with substantial assets and significant the Electronic Broking Service, a brokerage system investments in their reputations. When they have for foreign exchange contracts, reportedly is planning been seen to engage in deceptive practices, the pro- to begin brokering forward rate agreements. The fessional counterparties that have been victimized latter service may not be offered in the United States, have been able to obtain redress under laws applica- however, because of the threat of application of the ble to contracts generally. Moreover, the threat of CEA. legal damage awards provides dealers with strong Even some who argue that privately negotiated and incentives to avoid misconduct. bilaterally settled derivatives transactions should be A far more powerful incentive, however, is the fear excluded from the CEA, nonetheless believe that of loss of the dealer's good reputation, without which such transactions should be subject to the CEA if it cannot compete effectively, regardless of its finan- they are centrally executed or cleared, for fear that cial strength or financial engineering capabilities. In such facilities can foster price manipulation. Leaving these respects, derivatives dealers bear no resem- aside our concern about the regulatory regime of blance to the "bucket shops" whose activities appar- financial futures generally, the Federal Reserve Board ently motivate the exchange trading requirement. is particularly concerned that the vast majority of the I do not mean to suggest that counterparties will instruments currently traded in the OTC markets not not in the future suffer significant losses on their OTC be subject to the CEA, even if they become suffiderivatives transactions. Since 1994 the effectiveness ciently standardized to be centrally executed or of their risk-management skills has not been tested by cleared. To be sure, OTC contracts between counterwidespread major declines in underlying asset prices. parties would then have many similarities to I have no doubt derivatives losses will mushroom at exchange-traded contracts. But they would still retain the next significant downturn as will losses on hold- distinct characteristics that would leave them ecoings of other risk assets, both on and off exchange. nomically far short of standardization. For example, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 745 participants in trade execution systems may seek to sional trading of financial futures. However, the pilot retain counterparty credit limits, and participants in program proposed by the CFTC evidently has not clearing systems likely will resist constraints on their met the competitive and business requirements of the ability to customize the economic terms of contracts. futures exchanges—no contracts are currently trading To force full standardization would reduce the eco- under the program. Last year, the Agriculture Comnomic value of a bilateral contract to both parties and mittees of the House and the Senate both attempted to the marketplace as a whole. The 1992 Act as we to craft legislation that would spur development of read it authorized exemption of all OTC derivatives such a new regulatory framework but were unable to transactions between professional counterparties from achieve consensus on the best approach. In any event, the CEA, whether or not they are centrally executed if progress toward a more appropriate regime is not or cleared. Even with centralized execution or clear- forthcoming soon, the Congress should seriously coning, the most relevant attributes of these markets sider passage of legislation that would mandate would not resemble those of the agricultural futures progress. markets and hence would not be susceptible to manipulation. CONCLUSION HARMONIZING REGULATION OF THE OTC In conclusion, the Board continues to believe that, MARKETS AND FUTURES EXCHANGES aside from safety and soundness regulation of derivatives dealers under the banking or securities laws, Beyond question, the centralized execution and clear- regulation of derivatives transactions that are priing of what to date have been privately negotiated vately negotiated by professionals is unnecessary. and bilaterally cleared transactions would narrow the Moreover, the Board questions whether the CEA as existing differences between exchange-traded and currently implemented is an appropriate framework OTC derivatives transactions. However, that is not a for professional trading of financial futures on reason to extend the CEA to cover OTC transactions. exchanges. The key elements of the CEA were put in As we have argued, doing so is unnecessary to place in the 1920s and 1930s to regulate the trading achieve the public policy objectives of the CEA. of agricultural futures by the general public. The vast Moreover, as the economic differences between OTC majority of financial futures traded simply are not as and exchange-traded contracts are narrowing, it is susceptible to manipulation as agricultural and other commodity futures where supplies are more limited. becoming more apparent that OTC market partici- And participants in financial futures markets are prepants share this conclusion; their decision to trade dominantly professionals that simply do not require outside the regulated environment implies they do the customer protections that may be needed by the not see the benefits of the CEA as outweighing its general public. Regulation that serves no useful purcosts. Instead, the Federal Reserve believes that the pose hinders the efficiency of markets to enlarge fact that OTC markets function so effectively without standards of living. In choosing a particular reguthe benefits of the CEA provides a strong argument latory regime it is important to remember that no for development of a less burdensome regulatory system will fully eliminate inappropriate or illegal regime for financial derivatives traded on futures activities. Banking examiners, for example, find it exchanges. To reiterate, the existing regulatory difficult to unearth fraud and embezzlement in their framework for futures trading was designed in the early stages. Securities regulators have difficulty fer- 1920s and 1930s for the trading of grain futures by reting out malfeasance. Even trading on exchanges the general public. Like OTC derivatives, exchangedoes not in itself eliminate all endeavors at manipulatraded financial derivatives generally are not as sustion, as the Hunt brothers' 1979-80 fiasco in silver ceptible to manipulation and are traded predomidemonstrated. The primary source of regulatory nantly by professional counterparties. effectiveness has always been private traders being Indeed, the Congress has rejected the notion of knowledgeable of their counterparties. Government a "one-size-nts-aH" approach to regulation of regulation can only act as a backup. It should be exchange trading. The exemptive authority that the careful to create net benefits to markets. • Congress gave the CFTC in 1992 permitted it to create a less restrictive regulatory regime for profes- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

746 Announcements STATEMENT BY CHAIRMAN GREENSPAN ON THE for certain time accounts; the rule applies only to DEATH OF WILLIAM MCCHESNEY MARTIN time accounts with maturities longer than one year that do not compound but that require interest distri- Chairman Alan Greenspan of the Federal Reserve butions at least annually. Board on July 28, 1998, issued the following statement: APPOINTMENT OF GOVERNOR FERGUSON AS William McChesney Martin served with notable distinc- CHAIRMAN OF THE YEAR 2000 COUNCIL tion from 1951 to 1970 as the eighth Chairman of the Federal Reserve Board. He set a masterful example of The Joint Year 2000 Council on July 21, 1998, leadership during his tenure, playing a key role in fostering an extraordinary period of growth and prosperity for the announced the appointment of Federal Reserve Board U.S. economy. Crucially, Chairman Martin moved the Fed- Governor Roger W. Ferguson, Jr., as chairman of the eral Reserve from being an adjunct of the Treasury Departcouncil effective immediately. ment to the independent status we know today. His tenure The council is composed of senior representatives as Chairman is unmatched in longevity, and his remarkable contributions to the entire Federal Reserve System were of the Basle Committee on Banking Supervision, the memorialized in the naming of a Federal Reserve Board Committee on Payment and Settlement Systems, the building for him in 1974.1 extend my deepest sympathy to International Association of Insurance Supervisors, his wife and family in their loss. and the International Organization of Securities Commissions. The council was formed in April of this year to REVISION TO REGULATION H AND RESCISSION address issues associated with the Year 2000 com- OF REGULATION P puter challenge within the global financial supervisory community. Information on the council's The Federal Reserve Board on July 7, 1998, activities is available on the Bank for International announced adoption of a final rule that revises Regu- Settlements' web site (http://www.bis.org). lation H (Membership of State Banking Institutions in the Federal Reserve System). This rule removes outdated material, updates and reorganizes the PUBLICATION OF A JOINT REPORT ON remaining material, and incorporates provisions LEGISLATIVE RECOMMENDATIONS OF WAYS TO designed to reduce the burden on state member SIMPLIFY AND IMPROVE CONSUMER banks. DISCLOSURES IN HOME-SECURED LOANS The Board is also rescinding Regulation P (Minimum Security Devices and Procedures for Federal The Federal Reserve Board on July 17, 1998, pub- Reserve Banks and State Member Banks), which is lished with the Department of Housing and Urban no longer necessary because its provisions have been Development a report on legislative recommenincorporated into Regulation H. Regulation P redations to the Congress on ways to simplify and quires each bank to adopt appropriate security proceimprove consumer disclosures under the Truth in dures. The final rules are effective October 1, 1998. Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The report focuses on four broad policy issues REGULATION DD: AMENDMENT concerning closed-end home-secured loans. The Board and HUD recommended the following: The Federal Reserve Board on July 27, 1998, made final an interim rule amending Regulation DD (Truth • Revising TILA's annual percentage rate (APR) in Savings), regarding the disclosure of the annual to better reflect the overall cost of credit by defining percentage yield (APY). The rule permits institutions the finance charge to include costs the consumer is to disclose an APY equal to the contract interest rate required to pay to obtain the loan Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

747 • Requiring firmer settlement cost disclosures identify the geographic location, usually by census under RESPA through either guaranteed closing costs tract. The statements give information about three or estimated costs within a tolerance characteristics of applicants or borrowers: race or • Revising and streamlining the timing require- national origin, sex, and annual income. ments under TILA and RESPA to provide consumers By early August, the FFIEC will send aggregate with cost information earlier in the mortgage process and individual disclosure statements to a central • Adding substantive protections to protect con- depository in each metropolitan area for public sumers against abusive lending practices. inspection. The location of these central depositories can be obtained by calling the FFIEC To obtain a copy of the joint report, contact Pub- (202-634-6526) or by visiting the FFIEC s web site lications Services, Board of Governors of the Fed- (www.ffiec.gov) at this page: www.ffiec.gov/hmdacf/ eral Reserve System, Washington, DC 20551, or centdep/main.cfm. phone 202-452-3244. The report will also be avail- In addition, the FFIEC makes HMDA data directly able through the Federal Reserve Banks and on available to the public in various formats, including the Board's World Wide Web site (http:// magnetic tape, PC diskette, and CD-ROM, and at the www.federalreserve.gov). FFIEC web site. Some are available in paper form (tables for 1997 showing the nationwide aggregates and key demographic information for metropolitan areas, for instance). An order form can be obtained AVAILABILITY OF DATA ON MORTGAGE by calling 202-452-2016 (an automated response sys- LENDING TRANSACTIONS IN 1997 AT tem) and selecting menu option 3 or by faxing a INSTITUTIONS COVERED BY THE HMDA request for an order form to 202-452-6497. The order form is also available at the FFIEC web site. The The Federal Financial Institutions Examination order form is complete with descriptions of the Council (FFIEC) announced on July 14, 1998, the various reports, prices, and formats. Advance orders availability of data on mortgage lending transactions may be placed to be filled when the data become in 1997 at individual institutions in metropolitan available. areas throughout the nation. These data, in the form The FFIEC also provides data from the nation's of disclosure statements, are available from the 7,925 eight private mortgage insurance (PMI) companies. lenders covered by the Home Mortgage Disclosure The 1997 PMI data include information on approxi- Act (HMDA). mately 1.2 million applications for mortgage insur- The FFIEC prepares and distributes the HMDA ance, about 1.0 million of which were to insure home statements for individual lenders on behalf of its purchase mortgages and 0.2 million of which were to member agencies—the Comptroller of the Currency, insure mortgages to refinance existing obligations. the Federal Deposit Insurance Corporation, the Office These data will be available at individual PMI comof Thrift Supervision, the National Credit Union panies, at the central depositories in each metropoli- Administration, and the Federal Reserve System— tan area, and from the FFIEC. By early August, the and the Department of Housing and Urban Develop- data will be available at central depositories and from ment. Lenders are required to make the disclosure the FFIEC in the same types of reports and in the statements available at their home offices within three same formats as the HMDA data. business days of receiving the statements. In addi- Questions about a HMDA report for a specific tion, for other metropolitan statistical areas (MSAs) lender should be directed to the lender's supervisory in which they have offices, lenders must either make agency at its number in the following list: a copy of the statements available at one branch per MSA or provide a copy on written request. Federal Reserve System, HMDA Assistance The disclosure statements cover home purchase Line—202-452-2016 and home improvement loans and contain informa- Federal Deposit Insurance Corporation—800-934tion about loan originations, loan purchases, and 3342 applications that did not result in a loan. The 1997 Office of Thrift Supervision, Reports Division— data include a total of 16.4 million reported loans and 972-281-2068 applications, an increase of about 11 percent from Comptroller of the Currency, Community and Con- 1996 that primarily reflects a large increase (19 per- sumer Policy—202-874-4446 cent) in refinancing activity in 1997. For most loans National Credit Union Administration, Office of relating to property located in MSAs, the statements Examination—703-518-6392 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

748 Federal Reserve Bulletin • September 1998 Department of Housing and Urban Development, included these stocks on its foreign list since 1996, Office of Housing—202-755-7530 the recent amendments allow broker-dealers to extend credit on such stocks without regard to the foreign list. The complete edition of the foreign list AVAILABILITY OF REVISED LISTS OF OVER-THE- now contains ninety-four securities displayed in order COUNTER STOCKS AND OF FOREIGN STOCKS of country. SUBJECT TO MARGIN REGULATIONS It is unlawful for any person to cause any representation to be made that inclusion of a stock on the The Federal Reserve Board published on July 24, OTC list or the foreign list indicates that the Board or 1998, a revised list of over-the-counter (OTC) market the SEC has in any way passed upon the merits of stocks that meet the margin criteria in Regulation T any such stock or transaction therein. Any references (Credit by Brokers and Dealers). Also published was to the Board in connection with these lists or any a complete edition of the list of foreign equity securi- stocks thereon in any advertisement or similar comties that meet the margin criteria in Regulation T. The munication is unlawful. lists were effective August 10, 1998, and supersede the previous lists that were effective May 11, 1998. The changes that have been made to the revised SCHEDULING OF AN ADDITIONAL DAY FOR THE OTC List, which now contains 4,836 OTC stocks, are MEETING ON THE PROPOSED ACQUISITION OF as follows: BANKAMERICA BY NATIONSBANK • One hundred eighty stocks have been included The Federal Reserve Board on July 6, 1998, for the first time, 148 under National Market System announced the scheduling of an additional day, (NMS) designation July 10, and a time change for the public meeting • Seventy-six stocks previously on the list have in San Francisco on the proposal by NationsBank been removed for substantially failing to meet the Corporation, Charlotte, North Carolina, to acquire requirements for continued listing BankAmerica Corporation, San Francisco, California. • One hundred twenty-two stocks have been The Board on June 19 had announced a public removed for reasons such as listing on a national meeting on the proposal for July 9. The Presiding securities exchange or involvement in an acquisition. Officer extended the meeting to a second day, July 10, to accommodate timely requests to testify at Lenders subject to Regulation T and borrowers the public meeting. In addition, the meetings on both subject to Regulation X (Borrowers of Securities days began at 8:00 a.m. PDT, instead of 9:00 a.m. Credit) who are required under Section 224.3(a) to PDT, at the Federal Reserve Bank of San Francisco, conform credit they obtain to Regulation T must use 101 Market Street, San Francisco, California. the OTC list until publication of the last OTC list, Additional information about the public meeting which is anticipated for November 1998. An amend- was contained in the Notice of Public Meeting issued ment to Regulation T that will make all stocks trading by the Board on June 19. in the NASDAQ Stock Market marginable at brokers and dealers without the need for the Board to publish an OTC list will be effective January 1, 1999; there- ACCESSIBILITY TO THE BOARD'S WORLD WIDE fore the November 1998 OTC list will expire on Jan- WEB SITE THROUGH A NEW ADDRESS uary 1, 1999. Pursuant to amendments recently adopted by the On July 20, 1998, the Board's public web site Board that became effective for all broker-dealers on became accessible through a new address: (http:// July 1, 1998, the foreign list is composed of those www.federalreserve.gov). The original address foreign equity securities that have been found to meet (http://www.bog.frb.fed.us) continues to work, and the criteria in section 220.11 of Regulation T. Addi- both addresses point to the same web site. tional foreign equity securities qualify as foreign margin securities if they are deemed by the Securities and Exchange Commission (SEC) to have a "ready CHANGES IN BOARD STAFF market" for purposes of SEC Rule 15c3-l. This includes all foreign stocks listed on the Financial The Board of Governors announced on August 4, Times/Standard & Poor's Actuaries World Indices 1998, the promotion of Richard C. Stevens from (FT/S&P-AW Indices). Although the Board has Assistant Director to Deputy Director and the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Announcements 749 appointment of Maureen Hannan to the official staff and the appointment of William C. Whitesell to the as Assistant Director, both in the Division of Informa- official staff as Assistant Director in the Division of tion Resources Management. Monetary Affairs. Mrs. Hannan joined the Board's staff in 1979. Mr. Whitesell joined the Board's staff in 1987. As In 1992 she became manager for the information Assistant Director and Chief of the Money and systems supporting the Federal Reserve System's Reserves Projections Section, he will have expanded National Information Center. responsibilities for participation in oversight of the On August 12, 1998, the Board of Governors division's research and analysis program. He holds announced the promotion of Vincent R. Reinhart an M.B.A. from the University of Pennsylvania and a from Assistant Director to Deputy Associate Director Ph.D. from New York University. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

750 Minutes of the Federal Open Market Committee Meeting Held on May 19, 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, May 19, 1998, at 9:00 a.m. Mr. Reinhart, Assistant Director, Division of Monetary Affairs, Board of Governors Present: Mr. Greenspan, Chairman Ms. Garrett, Economist, Division of Monetary Affairs, Mr. McDonough, Vice Chairman Board of Governors Mr. Ferguson Mr. Gramlich Ms. Low, Open Market Secretariat Assistant, Mr. Hoenig Division of Monetary Affairs, Board of Mr. Jordan Governors Mr. Kelley Mr. Meyer Mr. Kumasaka, Research Assistant, Division of Ms. Minehan Monetary Affairs, Board of Governors Ms. Phillips Mr. Poole Messrs. Eisenbeis, Goodfriend, Hunter, Lang, Ms. Rivlin Rolnick, and Rosenblum, Senior Vice Presidents, Federal Reserve Banks of Atlanta, Messrs. Boehne, McTeer, Moskow, and Stern, Richmond, Chicago, Philadelphia, Minneapolis, Alternate Members of the Federal Open Market and Dallas respectively Committee Messrs. Altig, Bentley, and Judd, Vice Presidents, Messrs. Broaddus, Guynn, and Parry, Presidents of the Federal Reserve Banks of Richmond, Federal Reserve Banks of Cleveland, New York, Atlanta, and San Francisco respectively and San Francisco respectively Mr. Kohn, Secretary and Economist By unanimous vote, the minutes of the meeting Mr. Gillum, Assistant Secretary of the Federal Open Market Committee held on Mr. Mattingly, General Counsel March 31, 1998, were approved. Mr. Prell, Economist Mr. Truman, Economist The Manager of the System Open Market Account reported on developments in foreign exchange mar- Ms. Browne, Messrs. Cecchetti. Dewald, Hakkio, kets during the period March 31, 1998, through Lindsey, Simpson, and Stockton, Associate May 18, 1998. There were no System open market Economists transactions in foreign currencies during this period, Mr. Fisher, Manager, System Open Market Account and thus no vote was required of the Committee. The Manager also reported on developments in Mr. Winn, Assistant to the Board, Office of Board domestic financial markets and on System open mar- Members, Board of Governors ket transactions in government securities and federal agency obligations during the period March 31, 1998, Ms. Fox, Deputy Congressional Liaison, Office of Board Members, Board of Governors through May 18, 1998. By unanimous vote, the Committee ratified these transactions. Mr. Ettin, Deputy Director, Division of Research and The Manager informed the Committee of his inten- Statistics, Board of Governors tion to discuss with market participants proposed changes in the procedures for lending securities from Messrs. Madigan and Slifman, Associate Directors, Divisions of Monetary Affairs and Research and the System Open Market Account. The changes Statistics respectively, Board of Governors would be intended to adapt the lending program to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

751 the evolving structure of the U.S. Treasury securities Industrial production rose somewhat over March market. They are designed to make System securities and April after having weakened earlier in the year. lending more effective at helping to relieve occa- Part of the slowdown this year, following rapid sional significant shortages of particular securities, growth in the second half of last year, was attributwhich could cause disruptions to the market. In a able to weakness in utility output associated with brief discussion, Committee members sought clarifi- unusually warm winter weather across much of the cation of some of the proposed details of the new country. More importantly, though, manufacturing program and how it would fit with the Federal output had changed little on balance in recent months. Reserve's broader responsibilities. Action to amend In April, a pickup in the production of business paragraph 2 of the Authorization for Domestic Open equipment, particularly of information processing Market Operations would be required at a later equipment, was largely offset by further declines in date when the details of the new program had the output of construction supplies, basic metals, and been decided upon after discussions with market nondurable materials. The production of consumer participants. goods was unchanged. The factory operating rate The Committee then turned to a discussion of the eased further in April, reflecting the continuing brisk economic and financial outlook, and the implementa- expansion in manufacturing facilities and slow tion of monetary policy over the intermeeting period growth in output. ahead. A summary of the economic and financial Consumer spending had remained strong this year information available at the time of the meeting and in the context of robust gains in income and houseof the Committee's discussion is provided below, hold net worth and of very favorable consumer sentifollowed by the domestic policy directive that was ment. Total retail sales rose appreciably in April, approved by the Committee and issued to the Federal boosted by increases in purchases of automobiles and Reserve Bank of New York. nondurable goods. Housing demand and residential The information reviewed at this meeting sug- construction activity also continued to increase at a gested that the economy continued to expand rapidly rapid pace this year. Home sales were at very high in 1998. Strength in consumption, business outlays levels, reflecting the continuing improvement in for durable equipment, and homebuilding boosted housing affordability as a result of declining mortgrowth in domestic final demand to a very rapid pace gage rates. Although housing starts slipped in April, in the first quarter, and there had been indications they remained at an elevated level. of slower expansion since then. However, weakening Business fixed investment rebounded sharply in net exports were exerting a considerable drag on the first quarter from a small decline in the fourth economic growth. Moreover, the extraordinary pace quarter of 1997. A surge in expenditures on producof inventory investment thus far this year might fore- ers' durable equipment, notably on computers, comshadow less robust expansion ahead. Payroll employ- munications equipment, and heavy trucks, more than ment remained on a brisk uptrend, but industrial offset continued weakness in outlays for nonresidenproduction decelerated sharply after having surged in tial structures. While available indicators pointed the second half of last year. Despite indications of to further substantial gains in equipment purchases persisting pressures on employment costs associated over coming months, data on construction contracts with tight labor markets, consumer price inflation offered little evidence of a pickup in nonresidential remained subdued, importantly reflecting large construction activity in the near term, even though declines in energy prices. vacancy rates were declining and office rents were Nonfarm payroll employment registered another rising. large increase in April after a small decline in March; Business inventories increased at a very rapid pace these data, along with the still-low level of initial in the first quarter, but with sales strong, inventoryclaims for unemployment insurance in recent weeks, sales ratios remained within their ranges over the past suggested that labor demand had remained robust year. In manufacturing, stock accumulation slowed in thus far in 1998. Hiring in the trade, finance and real March after having increased fairly rapidly in Januestate, and services industries was brisk in April; ary and February. At the wholesale level, inventories employment in construction retraced part of an appar- rose about in line with sales during the quarter, and ently weather-related drop in March. The number of in the retail sector inventories built up at a greatly manufacturing jobs declined in April for a second accelerated pace in the first quarter. consecutive month. The civilian unemployment rate The nominal deficit on U.S. trade in goods and fell sharply, to 4.3 percent in April, after having services widened substantially in January and Febaveraged around 43A percent since last November. ruary from its average monthly rate in the fourth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

752 Federal Reserve Bulletin • September 1998 quarter. The value of exports declined considerably reserve conditions and a higher federal funds rate. in the January-February period, with most of the The reserve conditions associated with this directive drop attributable to reduced sales to Asian countries. were expected to be consistent with considerable The decrease in exports was concentrated in agricul- moderation in the growth in M2 and M3 over the tural products, industrial supplies, and machinery. months ahead. The value of imports rose slightly, largely reflecting Open market operations throughout the intermeethigher amounts of imported automotive products and ing period were directed toward maintaining reserve higher service payments. The available information conditions consistent with the intended average of suggested that economic growth in continental around 5 lA percent for the federal funds rate. Though Europe strengthened in the first quarter, with strong tax flows were heavy at times and reserves were domestic demand apparently offsetting the effects drained from depository institutions as tax payments of Asian turmoil on foreign trade. Robust domestic spilled into Treasury deposits at the Federal Reserve demand also continued to buoy the Canadian econ- Banks, the federal funds rate averaged a little below omy. By contrast, economic activity in Japan con- its intended level over the period. Most other market tracted in the first quarter and decelerated sharply interest rates declined slightly on balance over the further in Asian countries that had experienced finan- intermeeting period; incoming data suggested that cial turmoil. labor markets remained tight and that the economy Consumer prices were unchanged in March and retained considerable upward momentum, but market rose moderately in April. Energy prices were down participants evidently gave greater weight to informaslightly further in April after having declined mark- tion indicating that wage and price inflation was well edly in previous months, and food prices increased a contained in the first quarter. Share prices in U.S. little; excluding food and energy, consumer price equity markets rose further despite some reports of inflation picked up in April as prices of services soft corporate earnings, and equity prices in most accelerated and prices of tobacco surged higher. Over other industrial countries also reached new highs. the course of recent months, core consumer inflation In foreign exchange markets, the trade-weighted had accelerated to rates that were somewhat above value of the dollar in terms of major currencies those registered earlier. Even so, on a year-over-year changed little on balance over the period. The dollar basis, the increases in total and core consumer prices declined considerably against the German mark and were substantially smaller over the twelve months other continental European countries amid signs of ended in April than they had been in the year-earlier strong growth in the German economy and further period; falling import prices apparently helped damp progress in resolving the outstanding issues associthe goods component of the index. At the producer ated with next year's launch of the euro; French and level, price inflation of finished goods other than German interest rates also rose slightly over the food and energy picked up a bit in April, but it was period. The dollar appreciated somewhat against the considerably lower over the twelve months ended in yen; the announcement of a large fiscal stimulus April than over the year-earlier interval. Inflation at package and Japan's intervention in support of the earlier stages of production also remained subdued. yen did not offset indications of further weakening in The rate of increase in hourly compensation of pri- the Japanese economy and related declines in Japavate industry workers slowed in the first quarter, nese interest rates. Other Asian financial markets reflecting smaller advances in both the wage and came under renewed pressure after a brief period of benefit components of the index; however, compensa- relative calm. The currencies of several key Asian tion costs accelerated appreciably on a year-over- emerging market economies depreciated consideryear basis, primarily as a result of faster growth in ably against the dollar; and in sharp contrast to the wages and salaries. performance of equity markets in most industrial At its meeting on March 31, 1998, the Committee countries, prices in Asian equity markets declined adopted a directive that called for maintaining con- substantially on balance over the period to near their ditions in reserve markets that were consistent with lows of late 1997 or early 1998. an unchanged federal funds rate averaging around M2 and M3 expanded briskly further in April, but 5'/2 percent. However, in light of increased concerns data for late April and early May showed M2 declinthat growth in aggregate demand might outpace the ing and M3 leveling out; much of the fluctuation in expansion of the economy's potential for some time, M2 during the April-May period appeared to be possibly generating inflationary imbalances in labor related to movements of funds associated with unusumarkets, the Committee decided that the directive ally heavy nonwithheld tax payments and a surge in should include a bias toward the possible firming of mortgage refinancings to take advantage of lower Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 753 long-term rates. On balance, the underlying growth conclusive evidence of appreciable moderation in the of these aggregates seemed to be slowing from the pace of the overall economic expansion. Nonetheless, pace of the first quarter. The moderation in M3 partly they generally believed that substantial moderation in reflected a reduced need for non-M2 sources of funds the expansion was a likely prospect in coming quarat a time when bank credit expansion seemed to be ters, largely as a consequence of a marked slowing in slowing. Growth of total domestic nonfinancial debt inventory investment from the clearly unsustainable apparently had slipped somewhat after picking up pace of the first quarter and, to a lesser extent, from earlier in the year. some further weakness in net exports. The outlook The staff forecast prepared for this meeting indi- for the latter was especially uncertain, and the weakcated that the expansion of economic activity would ness could be greater than previously anticipated slow considerably during the next few quarters and owing to renewed turmoil in emerging Asian econoremain moderate in 1999. Reduced growth of foreign mies and pronounced weakness in Japan. Whether economic activity and the lagged effects of the siz- the moderation in U.S. economic growth would be able rise that had occurred in the foreign exchange sufficient to forestall cost increases arising from tight value of the dollar were expected to place substantial labor markets that in turn would add to pressures on restraint on the demand for U.S. exports and to add to prices was open to question. To date, developments the pressures on domestic producers to hold down in business costs had been relatively benign, owing to prices to meet import competition. An anticipated an important extent to somewhat faster productivity sharp slowdown in the pace of inventory accumula- growth. This circumstance and a number of one-time tion also would damp domestic production as the influences holding down costs and prices had congrowth of stocks was brought into balance with the tained inflation at rates that were lower than those expected more moderate trajectory of final sales. The seen in several decades, and probably would continue staff analysis suggested that further strong gains in to do so for a while. But the members generally were income, along with the surge in household net worth concerned that inflation might begin to rise over the over the past several years, would support brisk, intermediate term, especially if labor markets tightthough gradually diminishing, gains in consumer ened further. spending. Housing demand, fostered by the favorable In their assessment of the factors underlying the cash flow affordability of home ownership, was persisting strength of aggregate final demand, memexpected to remain at a generally high level, though bers took particular note of the effect of accommodathe anticipated slowing in income growth over the tive financial conditions. The rapid growth in conprojection period would damp residential construc- sumer spending was being bolstered by large gains in tion activity somewhat. Substantial increases in stock market wealth; and the strength in housing and capital spending would continue, but slower growth other interest-sensitive consumer expenditures also in business sales and profits would produce a grad- reflected declines in nominal, and perhaps in real, ual deceleration. While pressures on production intermediate- and long-term interest rates and the resources were likely to abate to a degree as output ample availability of loans. Likewise, the ready availgrowth slowed, inflation was expected to increase ability of equity and debt financing on favorable somewhat from its recent pace in response to rising terms was a key factor in the continuing robust compensation costs associated with persisting tight- growth of business investment. Indeed, some memness in labor markets, a limited rebound in energy bers expressed concern that the widespread perprices, and a diminishing drag on non-oil import ceptions of reduced risk or complacency that had prices. bolstered equity prices beyond levels that seemed In the Committee's discussion of current and pro- justified by fundamentals were beginning to be felt in spective economic developments, members noted the a variety of other markets as well, including commerexceptional strength in domestic final demand and cial and residential properties, business ventures, and viewed robust further expansion in such demand as land. In the view of a number of members, rapid highly likely. Final purchases were being supported growth of the monetary aggregates, though it had by accommodative financial conditions, especially a slowed very recently, was a further indication that rising equity market, by ebullient consumer sen- financial conditions were not restraining economic timent, and by business spending on productivity- activity. enhancing equipment. While there were limited Despite the failure of domestic demand to moderindications of weakness in some sectors of the ate in line with their earlier expectations, the memeconomy—such as manufacturing, energy, and agri- bers were persuaded that appreciable slowing in the culture in some areas—the members did not see growth of economic activity was a likely prospect Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

754 Federal Reserve Bulletin • September 1998 over the course of coming quarters even though its months and added to concerns about the outlook for exact timing and extent were unknown. Key elements inflation. Though the first-quarter data had not sugin this assessment were the outlook for inventories gested as steep an increase as a number of observers and net exports. The surge in inventory accumulation had anticipated, labor compensation clearly was in the first quarter did not appear to have resulted in trending higher. But as suggested by the rise until overall stock imbalances as evidenced by stock-sales recently in profit margins, businesses had been able ratios or anecdotal reports. Even so, growth in to realize productivity gains that tended to offset the inventory investment at a pace sharply exceeding the faster increases in compensation costs. Indeed, while sustainable growth of final sales was unlikely to the most recent data were difficult to read, once likely continue for an extended period. Given the ample revisions were taken into account productivity availability of industrial capacity and the related improvements could well be on a steeper uptrend absence of pressures on lead or delivery times, busi- than had been estimated earlier. Even so, the memness firms did not need to build precautionary stocks. bers remained concerned that if pressures on labor Thus, inventory investment was likely to respond to resources continued to intensify, the associated the expected deceleration in final sales over coming increases in labor compensation would at some point quarters. Some members expressed reservations significantly exceed the gains in productivity. The about the probable extent of the deceleration in the resulting pressures on prices might be muted, but period ahead, especially in the context of their expec- probably only for a time, by the inability of many tations of a still relatively robust uptrend in final business firms in highly competitive markets to raise sales. their prices or to raise them sufficiently to offset Developments in Asia clearly were having adverse rising costs. Some members emphasized that a numeffects on a number of U.S. industries, but the overall ber of developments that had held down prices, effects on the U.S. economy appeared to have been including the dollar's sizable appreciation last year, limited thus far. Indeed, the direct effects of the Asian the drop in world oil prices, and the downtrend in financial and economic problems on U.S. trade over employee benefit cost increases, were unlikely to be time needed to be weighed against their indirect but repeated over the coming year and could even be positive effects in the near term in helping to hold reversed to a degree. Members acknowledged, howdown U.S. interest rates and in reducing the prices of ever, that the nexus between labor market tightness, oil and other imported commodities. However, mem- accelerating labor costs, and the effects on price bers were concerned that, as evidenced by the most inflation was very difficult to ascertain and analyses recent developments, conditions in Asian financial based on earlier patterns that pointed to rising inflamarkets and economies were deteriorating further, tion had proved consistently wrong in recent years. with potentially adverse consequences for net U.S. In the Committee's discussion of monetary policy exports. Of particular concern in this regard was for the intermeeting period ahead, a majority of the possibility of worsening economic conditions in the members indicated that they preferred or could Japan and the negative implications not only for U.S. accept an unchanged policy. These members also trade with Japan but for worldwide trade and finan- expressed a preference for retaining the asymmetric cial markets. Some members also commented that instruction in the directive that the Committee had unsettled financial and economic conditions in East adopted at the previous meeting. In this view, the Asia could tend to exacerbate the economic problems uncertainties in the outlook for economic expansion of several important emerging economies in other and inflation remained sufficiently great to warrant a parts of the world, including major Latin American continued wait-and-see policy stance. Considerations trading partners of the United States. On balance, underlying this view included the possibility that forecasts of a limited further drag on U.S. net exports financial and economic conditions in Asia might from developments in Asia were subject to substan- worsen further and exert a stronger retarding effect tial uncertainty, with the risks tilted toward a greater on the performance of the U.S. economy than preseffect on the U.S. economy than had been anticipated ently seemed to be in train. A good deal of uncerearlier. Moreover, the lingering effects of the dollar's tainty also surrounded the potential extent to which appreciation last year against a broad array of curren- developments in the domestic economy, notably the cies would continue to depress the nation's foreign pace of inventory accumulation over coming months, trade position for some time. might foster slower economic expansion and the The decline in the unemployment rate to its lowest related degree to which pressures in labor markets level in nearly three decades underscored anecdotal would be affected. Moreover, considerable questions reports of further tightening in labor markets in recent remained about the relationship of labor market pres- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 755 sures to inflation. In these circumstances, it was pos- was accommodating excessive strength in aggregate sible that inflation would continue to be contained, demand that very likely would be felt in higher though the risks clearly seemed to be tilted in the inflation before long. Prompt tightening was needed direction that action would become necessary at some to avert the necessity of stronger and potentially point to keep inflation low. disruptive policy actions later to contain inflation. While a delay in implementing a tighter policy that All the members who intended to vote for an ultimately proved to be needed to curb rising inflation unchanged policy at this meeting supported the reteninvolved some risks, many of the members concurred tion of a directive that was biased toward restraint. In in the view that the potential costs of postponing their view, current developments did not call for any action for a limited time were small. By some mea- policy action, at least at this meeting, but because sures, inflation had continued to drop in the first they felt the risks were tilted in the direction of rising quarter, and the appreciation of the dollar, reduced inflation, a policy tightening move, possibly in the commodity prices, and low—if not declining— near future, was a likely though not an inevitable inflation expectations would help to hold down nomi- prospect. nal wage increases and price pressures for some time, At the conclusion of the Committee's discussion, even if, as a number of members suspected, the all but two of the members supported a directive that economy was now producing beyond its long-run called for maintaining conditions in reserve markets potential. Forecasts of rising inflation had proved that were consistent with an unchanged federal funds unreliable and needed to be viewed in light of rate of about 5'/2 percent and that contained a bias the considerable uncertainties surrounding them. The toward the possible firming of reserve conditions and members recognized, however, that the longer any a higher federal funds rate. Accordingly, in the conneeded action was delayed, the more important it text of the Committee's long-run objectives for price would be to take prompt and perhaps vigorous action stability and sustainable economic growth, and once the danger of rising inflation became clearer. giving careful consideration to economic, financial, Another reason for not taking action at this meet- and monetary developments, the Committee decided ing was the possibility that even a modest tightening that a somewhat higher federal funds rate would be action could have outsized effects on the already very acceptable or a slightly lower federal funds rate might sensitive financial markets in Asia. The resulting be acceptable during the intermeeting period. The unsettlement could have substantial adverse repercus- reserve conditions contemplated at this meeting were sions on U.S. financial markets and, over time, on the expected to be consistent with considerable modera- U.S. economy. Many of the members emphasized, tion in the growth of M2 and M3 over the months however, that market considerations could not be ahead. allowed to jeopardize the effective conduct of a U.S. The Federal Reserve Bank of New York was authomonetary policy aimed at an optimal performance of rized and directed, until instructed otherwise by the the U.S. economy. Indeed, such a performance would Committee, to execute transactions in the System best serve the interests of troubled financial markets Account in accordance with the following domestic and economies abroad. policy directive: A number of members indicated that the decision was a close call for them. In this regard, some empha- The information reviewed at this meeting suggests that sized that financial conditions were very accommoda- economic activity has continued to grow rapidly in 1998. Nonfarm payroll employment registered another substantive in terms of the ample availability of financing to tial increase in April after a slight decline in March, and most borrowers on very attractive terms and increases the civilian unemployment rate fell to 4.3 percent in April. in equity prices. Several expressed concern that the However, factory output has changed little on balance in persistence of quite rapid monetary growth this year recent months. Retail sales grew appreciably in April, and consumer spending as a whole has been very strong this was symptomatic of a monetary policy that was not year. Residential sales and construction also have strengthpositioned to restrain ebullient domestic demand sufened this year. Business fixed investment rebounded ficiently, even if short-term real interest rates were sharply in the first quarter after having declined slightly in quite high. Although some of these members could the fourth quarter, and available indicators point to continuaccept postponing action for the present to await ing strength over coming months. Business inventories appear to have increased very rapidly in the first quarter. further information on the balance of risks, two The nominal deficit on U.S. trade in goods and services members, while acknowledging the uncertainties that widened substantially in January and February from its surrounded the economic outlook, indicated a strong average monthly rate in the fourth quarter. Despite indicapreference for tightening the stance of policy at tions of persisting pressures on employment costs associthis meeting. They believed that current policy ated with tight labor markets, price inflation has remained Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

756 Federal Reserve Bulletin • September 1998 subdued this year, primarily as a consequence of large thought, the growth rate of aggregate demand over declines in energy prices. the past two years clearly had exceeded the econo- Most market interest rates have declined slightly on my's long-run growth potential. Without a reduction balance over the intermeeting period. Share prices in U.S. of aggregate demand growth, inflation would rise. In equity markets have moved up a little further. In foreign exchange markets, the trade-weighted value of the dollar in his view, the Federal Reserve should therefore take terms of major currencies has changed little on net over the prompt action to reduce money growth to limit the period. However, the dollar has risen on balance against rise in inflation and to avoid an increase in longerthe currencies of key emerging market economies, particuterm inflation expectations, which would tend to larly those in Asia. Equity markets in Asia have fallen destabilize aggregate employment and financial substantially over the period to near their lows of late 1997, while those in Europe have risen to new highs. markets. M2 and M3 expanded briskly further in April, but data Mr. Jordan also noted that the monetary and credit for late April and early May show M2 declining and M3 aggregates had accelerated further from already rapid leveling out. The swing in these measures seemed to be growth rates in 1997. In his view, these high growth related largely to movements of funds associated with tax rates were fueling unsustainably rapid increases of payments. Expansion of total domestic nonfinancial debt appears to have moderated somewhat after a pickup earlier real estate and other asset prices, and reports of "too in the year. much cash chasing too few deals" were becoming The Federal Open Market Committee seeks monetary more frequent. Anticipated gains on both real and and financial conditions that will foster price stability and financial investments had risen relative to the cost promote sustainable growth in output. In furtherance of of borrowed funds. In these circumstances, it was these objectives, the Committee at its meeting in February established ranges for growth of M2 and M3 of 1 to increasingly likely that the Committee would face a 5 percent and 2 to 6 percent respectively, measured from choice between smaller increases in interest rates the fourth quarter of 1997 to the fourth quarter of 1998. sooner versus larger increases later. He added that The range for growth of total domestic non-financial debt maximum sustainable economic growth occurs when was set at 3 to 7 percent for the year. The behavior of the businesses and households act on the assumption that monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in the dollar will maintain its value over time, and their velocities, and developments in the economy and nothing he had heard from consumer groups, bankfinancial markets. ers, or other business people in his District led him to In the implementation of policy for the immediate future, believe that decisions were being made in the expecthe Committee seeks conditions in reserve markets consistation that the purchasing power of the dollar would tent with maintaining the federal funds rate at an average be stable. Furthermore, expectations that market of around 5'/2 percent. In the context of the Committee's long-run objectives for price stability and sustainable eco- values of income-producing investments would connomic growth, and giving careful consideration to eco- tinuously rise relative to underlying earning streams nomic, financial, and monetary developments, a somewhat were not consistent with a stable purchasing power of higher federal funds rate would or a slightly lower federal money. He also believed that the view that real interfunds rate might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be est rates currently were high was not confirmed by consistent with considerable moderation in the growth in observed behavior. Bankers told him that both con- M2 and M3 over coming months. sumers and businesses believed that credit was cheap and plentiful. These potentially inflationary condi- Votes for this action: Messrs. Greenspan, McDonough, tions and imbalances in the economy were not condu- Ferguson, Gramlich, Hoenig, Kelley, Meyer, Mses. cive to sustained maximum growth. Minehan, Phillips, and Rivlin. Votes against this action: Messrs. Jordan and Poole. It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, June 30- Mr. Poole dissented because he believed that the July 1, 1998. sustained increase in money growth in recent quarters The meeting adjourned at 1:35 p.m. and associated accommodative conditions in the credit markets pointed to rising inflation. Although faster productivity growth suggested that trend output Donald L. Kohn growth might be modestly higher than previously Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

757 Legal Developments FINAL RULE—AMENDMENT TO REGULATION H Section 208.3—Application and conditions for membership in the Federal Reserve System. The Board of Governors is amending 12 C.F.R. Parts 208 Section 208.4—Capital adequacy. and 250, Subpart A of Regulation H (Membership of State Section 208.5—Dividends and other distributions. Banking Institutions in the Federal Reserve System; Mis- Section 208.6—Establishment and maintenance of branches. cellaneous Interpretations), regarding the general provi- Section 208.7—Prohibition against use of interstate branches sions for membership in the Federal Reserve System, and primarily for deposit production. Subpart E of Regulation H, regarding Interpretations, in order to reduce regulatory burden, simplify and update Subpart B—Investments and Loans requirements, and eliminate several obsolete interpreta- Section 208.20—Authority, purpose, and scope. tions. As part of the final rule the Board is reissuing prior Section 208.21—Investments in premises and securities. Subparts B and C. Prior Subparts B and C have not been Section 208.22—Community development and public welfare significantly amended but have been relettered (as Subparts investments. D and E, respectively) to reflect the fact that prior Subpart Section 208.23—Agricultural loan loss amortization. A was broken into four new Subparts (Subparts A, B, C Section 208.24—Letters of credit and acceptances. and F). Prior Subpart D, regarding safety and soundness standards, has been incorporated into new Subpart A. The Section 208.25—Loans in areas having special flood hazards. final rule does not amend in any way Appendices A Subpart C—Bank Securities and Securities-Related through E to Part 208. This final rule to modernize Subpart Activities A of Regulation H is in accordance with the Board's policy of reviewing its regulations as well as the Board's review Section 208.30—Authority, purpose, and scope. of regulations under section 303 of the Riegle Community Section 208.31—State member banks as transfer agents. Development and Regulatory Improvement Act of 1994. Section 208.32—Notice of disciplinary sanctions imposed by Effective October 1, 1998, 12 C.F.R. Parts 208 and 250 registered clearing agency. are amended as follows: Section 208.33—Application for stay or review of disciplinary sanctions imposed by registered clearing agency. Part 208—Membership of State Banking Section 208.34—Recordkeeping and confirmation of certain Institutions in the Federal Reserve System securities transactions effected by State member banks. (Regulation H) Section 208.35—Qualification requirements for transactions in certain securities. [Reserved] 1. The authority citation for Part 208 is revised to read as Section 208.36—Reporting requirements for State member follows: banks subject to the Securities Exchange Act of 1934. Section 208.37—Government securities sales practices. Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321- 338a, 37Id, 461, 481-486, 601, 611, 1814, Subpart D—Prompt Corrective Action. 1816, 1818, 1823(j), 1828(o), 1831o, 1831p-l, Section 208.40—Authority, purpose, scope, other supervisory 1831r-l, 1835a, 1882, 2901-2907, 3105, 3310, authority, and disclosure of capital categories. 3331-3351, and 3906-3909; 15 U.S.C. 78b, Section 208.41—Definitions for purposes of this subpart. 781(b), 781(g), 781(i), 78o-4(c)(5), 78q, 78q-l, Section 208.42—Notice of capital category. and 78w; 31 U.S.C. 5318; 42 U.S.C. 4012a, Section 208.43—Capital measures and capital category defini- 4104a, 4104b, 4106 and 4128. tions. Section 208.44—Capital restoration plans. 2. The table of contents to Part 208 is revised to read as Section 208.45—Mandatory and discretionary supervisory acfollows: tions under section 38. Subpart A—General Membership and Branching Subpart E—Real Estate Lending and Appraisal Requirements Standards Section 208.1—Authority, purpose, and scope. Section 208.50—Authority, purpose, and scope. Section 208.2—Definitions. Section 208.51—Real estate lending standards. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

758 Federal Reserve Bulletin • September 1998 Subpart F—Miscellaneous Requirements licensed by a State. This part 208 does not govern banks eligible for membership under section 2 or 19 of Section 208.60—Authority, purpose, and scope. the Act.1 Any bank desiring to be admitted to the Section 208.61—Bank security procedures. System under the provisions of section 2 or 19 should Section 208.62—Suspicious activity reports. communicate with the Federal Reserve Bank with Section 208.63—Procedures for monitoring Bank Secrecy Act which it would like to become a member, compliance. (c) Purpose and scope of Subpart A. This Subpart A Section 208.64—Frequency of examination. describes the eligibility requirements for membership of state-chartered banking institutions in the System, Subpart G—Interpretations the general conditions imposed upon members, including capital and dividend requirements, as well as the Section 208.100—Sale of bank's money orders oflF premises requirements for establishing and maintaining as establishment of branch office. branches. Section 208.101—Obligations concerning institutional customers. Section 208.2—Definitions. Appendix A to Part Section 208—Capital Adequacy For the purposes of this part: Guidelines for State Member Banks: Risk-Based Measure (a) Board of Directors means the governing board of any institution performing the usual functions of a board of Appendix B to Part Section 208—Capital Adequacy directors. Guidelines for State Member Banks: Tier 1 (b) Board means the Board of Governors of the Federal Leverage Measure Reserve System. (c) Branch. Appendix C to Part Section 208—Interagency (1) Branch means any branch bank, branch office, Guidelines for Real Estate Lending Policies branch agency, additional office, or any branch place of business that receives deposits, pays Appendix D to Part Section 208—Interagency checks, or lends money. A branch may include a Guidelines Establishing Standards for Safety and temporary, seasonal, or mobile facility that meets Soundness these criteria. (2) Branch does not include: Appendix E to Part Section 208—Capital Adequacy (i) A loan origination facility where the pro- Guidelines for Slate Member Banks; Market Risk ceeds of loans are not disbursed; Measure (ii) An office of an affiliated or unaffiliated institution that provides services to customers of 3. Subparts A through E are revised and Subparts F and G the member bank on behalf of the member are added to read as follows: bank so long as the institution is not established or operated by the bank; Subpart A—General Membership and Branching (iii) An automated teller machine; Requirements (iv) A remote service unit; (v) A facility to which the bank does not permit Section 208.1—Authority, purpose, and scope. members of the public to have physical access for purposes of making deposits, paying (a) Authority. Subpart A of Regulation H (12 C.F.R. Part checks, or borrowing money (such as an of- Section 208, Subpart A) is issued by the Board of fice established by the bank that receives Governors of the Federal Reserve System (Board) deposits only through the mail); or under 12 U.S.C. 24, 36; sections 9, 11, 21, 25 and 25A (vi) A facility that is located at the site of, or is an of the Federal Reserve Act (12 U.S.C. 321-338a, extension of, an approved main office or 248(a), 248(c), 481^86, 601 and 611); sections 1814, branch. The Board determines whether a fa- 1816, 1818, 1831o, 1831p-l, 1831r-l and 1835a of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1814, 1816, 1818. 1831o, 1831p-l, 1831 r-1, and 1. Under section 2 of the Federal Reserve Act, every national bank 1835); and 12 U.S.C. 3906-3909. in any state shall, upon commencing business, or within 90 days after (b) Purpose and scope of Part 208. The requirements of admission into the Union of the State in which it is located, become a this part 208 govern State member banks and state member of the System. Under section 19 of the Federal Reserve Act, banks applying for admission to membership in the national banks and banks organized under local laws, located in a dependency or insular possession or any part of the United States Federal Reserve System (System) under section 9 of outside of the States of the United States and the District of Columbia, the Federal Reserve Act (Act), except for section are not required to become members of the System but may. with the 208.7, which also applies to certain foreign banks consent of the board, become members of the System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 759 cility is an extension of an existing main or on the date its Federal Reserve Bank stock is branch office on a case-by-case basis. credited to its account (or its deposit is accepted, if (d) Capital stock and surplus means, unless otherwise it is a mutual savings bank not authorized to provided in this part, or by statute, Tier 1 and Tier 2 purchase Reserve Bank stock) in accordance with capital included in a member bank's risk-based capital the Board's Regulation I (12 C.F.R. Part 209). (under the guidelines in appendix A of this part) and (b) Factors considered in approving applications for the balance of a member bank's allowance for loan and membership. Factors given special consideration by lease losses not included in its Tier 2 capital for the Board in passing upon an application are: calculation of risk-based capital, based on the bank's (1) Financial condition and management. The finanmost recent consolidated Report of Condition and In- cial history and condition of the applying bank and come filed under 12 U.S.C. 324. the general character of its management. (e) Eligible bank means a member bank that: (2) Capital. The adequacy of the bank's capital in (1) Is well capitalized as defined in Subpart D of this accordance with section 208.4, and its future earnpart; ings prospects. (2) Has a composite Uniform Financial Institutions (3) Convenience and needs. The convenience and Rating System (CAMELS) rating of 1 or 2; needs of the community. (3) Has a Community Reinvestment Act (CRA) (4) Corporate powers. Whether the bank's corporate (12 U.S.C. 2906) rating of "Outstanding" or powers are consistent with the purposes of the "Satisfactory;" Federal Reserve Act. (4) Has a compliance rating of 1 or 2; and (c) Expedited approval for eligible banks and bank hold- (5) Has no major unresolved supervisory issues out- ing companies. standing (as determined by the Board or appropri- (1) Availability of expedited treatment. The expedited ate Federal Reserve Bank in its discretion). membership procedures described in paragraph (f) State bank means any bank incorporated by special (c)(2) of this section are available to: law of any State, or organized under the general laws (i) An eligible bank; and of any State, or of the United States, including a (ii) A bank that cannot be determined to be an Morris Plan bank, or other incorporated banking insti- eligible bank because it has not received tution engaged in a similar business. compliance or CRA ratings from a bank reg- (g) State member bank or member bank means a state ulatory authority, if it is controlled by a bank bank that is a member of the Federal Reserve System. holding company that meets the criteria for expedited processing under section 225.14(c) Section 208.3—Application and conditions for of Regulation Y (12 C.F.R. 225.14(c)). membership in the Federal Reserve System. (2) Expedited procedures. A completed membership application filed with the appropriate Reserve (a) Applications for membership and stock. Bank will be deemed approved on the fifteenth (1) State banks applying for membership in the Fed- day after receipt of the complete application by the eral Reserve System shall file with the appropriate Board or appropriate Reserve Bank, unless the Federal Reserve Bank an application for member- Board or the appropriate Reserve Bank notifies the ship in the Federal Reserve System and for stock bank that the application is approved prior to that in the Reserve Bank,2 in accordance with this part date or the Board or the appropriate Federal Reand section 262.3 of the Rules of Procedure, lo- serve Bank notifies the bank that the application is cated at 12 C.F.R. 262.3. not eligible for expedited review for any reason, (2) Board approval. If an applying bank conforms to including, without limitation, that: all the requirements of the Federal Reserve Act (i) The bank will offer banking services that are and this section, and is otherwise qualified for materially different from those currently ofmembership, the Board may approve its applica- fered by the bank, or by the affiliates of the tion subject to such conditions as the Board may proposed bank; prescribe. (ii) The bank or bank holding company does not (3) Effective date of membership. A State bank be- meet the criteria under section 208.3(c)(l); comes a member of the Federal Reserve System (iii) The application contains a material error or is otherwise deficient; or (iv) The application raises significant supervisory, compliance, policy or legal issues that have not been resolved, or a timely substan- 2. A mutual savings bank not authorized to purchase Federal tive adverse comment is submitted. A com- Reserve Bank stock may apply for membership evidenced initially by ment will be considered substantive unless it a deposit, but if the laws under which the bank is organized are not involves individual complaints, or raises frivamended at the first session of the legislature after its admission to olous, previously considered, or wholly unauthorize the purchase, or if the bank fails to purchase the stock within six months of the amendment, its membership shall be terminated. substantiated claims or irrelevant issues. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

760 Federal Reserve Bulletin • September 1998 (d) Conditions of membership. poses and Appendix B to this part for leverage (1) Safety and soundness. Each member bank shall at measurement purposes. all times conduct its business and exercise its powers with due regard to safety and soundness. Section 208.5—Dividends and other distributions. (The Interagency Guidelines Establishing Standards for Safety and Soundness prescribed pursu- (a) Definitions. For the purposes of this section: ant to section 39 of the FDI Act (12U.S.C. (1) Capital surplus means the total of surplus as re- 1831p-l), as set forth as Appendix D to this part portable in the bank's Reports of Condition and apply to all member banks.) Income and surplus on perpetual preferred stock. (2) General character of bank's business. A member (2) Permanent capital means the total of the bank's bank may not, without the permission of the perpetual preferred stock and related surplus, com- Board, cause or permit any change in the general mon stock and surplus, and minority interest in character of its business or in the scope of the consolidated subsidiaries, as reportable in the Recorporate powers it exercises at the time of admis- ports of Condition and Income. sion to membership. (b) Limitations. The limitations in this section on the (3) Compliance with conditions of membership. Each payment of dividends and withdrawal of capital apply member bank shall comply at all times with this to all cash and property dividends or distributions on Regulation H (12 C.F.R. Part 208) and any other common or preferred stock. The limitations do not conditions of membership prescribed by the apply to dividends paid in the form of common stock. Board. (c) Earnings limitations on payment of dividends. (e) Waivers. (1) A member bank may not declare or pay a dividend (1) Conditions of membership. A member bank may if the total of all dividends declared during the petition the Board to waive a condition of mem- calendar year, including the proposed dividend, bership. The Board may grant a waiver of a condi- exceeds the sum of the bank's net income (as tion of membership upon a showing of good cause reportable in its Reports of Condition and Income) and, in its discretion, may limit, among other during the current calendar year and the retained items, the scope, duration, and timing of the net income of the prior two calendar years, unless waiver. the dividend has been approved by the Board. (2) Reports of affiliates. Pursuant to section 21 of the (2) "Retained net income" in a calendar year is equal Federal Reserve Act (12U.S.C. 486), the Board to the bank's net income (as reported in its Report waives the requirement for the submission of re- of Condition and Income for such year), less any ports of affiliates of member banks, unless such dividends declared during such year.3 The bank's reports are specifically requested by the Board. net income during the current year and its retained (f) Voluntary withdrawal from membership. Voluntary net income from the prior two calendar years is withdrawal from membership becomes effective upon reduced by any net losses incurred in the current cancellation of the Federal Reserve Bank stock held by or prior two years and any required transfers to the member bank, and after the bank has made due surplus or to a fund for the retirement of preferred provision to pay any indebtedness due or to become stock.4 due to the Federal Reserve Bank in accordance with the Board's Regulation I (12 C.F.R. Part 209). Section 208.4—Capital adequacy. 3. In the case of dividends in excess of net income for the year, a bank generally is not required to carry forward negative amounts (a) Adequacy. A member bank's capital, as defined in Ap- resulting from such excess. Instead, the bank may attribute the excess pendix A to this part, shall be at all times adequate in to the prior two years, attributing the excess first to the earlier year and relation to the character and condition of its assets and then to the immediately preceding year. If the excess is greater than the bank's previously undistributed net income for the preceding two to its existing and prospective liabilities and other coryears, prior Board approval of the dividend is required and a negative porate responsibilities. If at any time, in light of all the amount would be carried forward in future dividend calculations. circumstances, the bank's capital appears inadequate in However, in determining any such request for approval, the Board relation to its assets, liabilities, and responsibilities, the could consider any request for different treatment of such negative amount, including advance waivers for future periods. This applies bank shall increase the amount of its capital, within only to earnings deficits that result from dividends declared in excess such period as the Board deems reasonable, to an of net income for the year and does not apply to other types of current amount which, in the judgment of the Board, shall be earnings deficits. adequate. 4. State member banks are required to comply with state law (b) Standards for evaluating capital adequacy. Standards provisions concerning the maintenance of surplus funds in addition to common capital. Where the surplus of a State member bank is less and guidelines by which the Board evaluates the capithan what applicable state law requires the bank to maintain relative to tal adequacy of member banks include those in Appen- its capital stock account, the bank may be required to transfer amounts dices A and E to this part for risk-based capital pur- from its undivided profits account to surplus. 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Legal Developments 761 (d) Limitation on withdrawal of capital by dividend or subject to the Board's Regulation K (12 C.F.R. otherwise. Part 211). (1) A member bank may not declare or pay a dividend (3) Public notice of branch applications. if the dividend would exceed the bank's undivided (i) Location of publication. A State member profits as reportable on its Reports of Condition bank wishing to establish a branch in the and Income, unless the bank has received the prior United States or its territories must publish approval of the Board and of at least two- thirds of notice in a newspaper of general circulation the shareholders of each class of stock outstand- in the form and at the locations specified in ing. section 262.3 of the Rules of Procedure (2) A member bank may not permit any portion of its (12 C.F.R. 262.3). permanent capital to be withdrawn unless the with- (ii) Contents of notice. The newspaper notice drawal has been approved by the Board and by at referred to in paragraph (a)(3) of this section least two-thirds of the shareholders of each class shall provide an opportunity for interested of stock outstanding. persons to comment on the application for a (3) If a member bank has capital surplus in excess of period of at least 15 days. that required by law, the excess amount may be (iii) Timing of publication. Each newspaper notransferred to the bank's undivided profits account tice shall be published no more than 7 calenand be available for the payment of dividends if: dar days before and no later than the calendar (i) The amount transferred came from the earn- day on which an application is filed with the ings of prior periods, excluding earnings appropriate Reserve Bank. transferred as a result of stock dividends; (4) Public comment. (ii) The bank's board of directors approves the (i) Timely comments. Interested persons may transfer of funds; and submit information and comments regarding (iii) The transfer has been approved by the Board. a branch application under section 208.6. A (e) Payment of capital distributions. All member banks comment shall be considered timely for puralso are subject to the restrictions on payment of poses of this subpart if the comment, together capital distributions contained in section 208.45 of with all supplemental information, is submit- Subpart D of this part implementing section 38 of the ted in writing in accordance with the Board's FDIAct(12U.S.C. 1831o). Rules of Procedure (12 C.F.R. 262.3) and (f) Compliance. A member bank shall use the date a received by the Board or the appropriate Redividend is declared to determine compliance with this serve Bank prior to the expiration of the section. public comment period provided in paragraph (a)(3)(ii) of this section. (ii) Extension of comment period. The Board Section 208.6—Establishment and maintenance of may, in its discretion, extend the public combranches. ment period regarding any application under section 208.6. In the event that an interested person requests a copy of an application sub- (a) Branching. mitted under section 208.6, the Board may, (1) To the extent authorized by state law, a member in its discretion and based on the facts and bank may establish and maintain branches (includ- circumstances, grant such person an extening interstate branches) subject to the same limita- sion of the comment period for up to tions and restrictions that apply to the establish- 15 calendar days. ment and maintenance of national bank branches (b) Factors considered in approving domestic branch ap- (12 U.S.C. 36 and 1831u), except that approval of plications. Factors given special consideration by the such branches shall be obtained from the Board Board in passing upon a branch application are: rather than from the Comptroller of the Currency. (1) Financial condition and management. The finan- (2) Branch applications. A State member bank wish- cial history and condition of the applying bank and ing to establish a branch in the United States or its the general character of its management; territories must file an application in accordance (2) Capital. The adequacy of the bank's capital in with the Board's Rules of Procedure, located at accordance with section 208.4, and its future earn- 12 C.F.R. 262.3, and must comply with the public ings prospects; notice and comment rules contained in paragraphs (3) Convenience and needs. The convenience and (a)(3) and (a)(4) of this section. Branches of mem- needs of the community to be served by the ber banks located in foreign nations, in the overbranch; seas territories, dependencies, and insular posses- (4) CRA performance. In the case of branches with sions of those nations and of the United States, deposit-taking capability, the bank's performance and in the Commonwealth of Puerto Rico, are under the Community Reinvestment Act Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

762 Federal Reserve Bulletin • September 1998 (12U.S.C. 2901 et seq.) and Regulation BB its judgment, based on reports of condition, exam- (12C.F.R. Part 228); and inations, or other information, there has been a (5) Investment in bank premises. Whether the bank's change in the bank's condition, financial or otherinvestment in bank premises in establishing the wise, that warrants reconsideration of the apbranch is consistent with section 208.21. proval. (c) Expedited approval for eligible banks and bank hold- (e) Branch closings. A member bank shall comply with ing companies. section 42 of the FDI Act (FDI Act), 12U.S.C. (1) Availability of expedited treatment. The expedited 1831r-l, with regard to branch closings. branch application procedures described in para- (f) Branch relocations. A relocation of an existing branch graph (c)(2) of this section are available to: does not require filing a branch application. A reloca- (i) An eligible bank; and tion of an existing branch, for purposes of determining (ii) A bank that cannot be determined to be an whether to file a branch application, is a movement eligible bank because it has not received that does not substantially affect the nature of the compliance or CRA ratings from a bank reg- branch's business or customers served. ulatory authority, if it is controlled by a bank holding company that meets the criteria, for expedited processing under section 225.14(c) Section 208.7—Prohibition against use of interstate of Regulation Y (12 C.F.R. 225.14(c)). branches primarily for deposit production. (2) Expedited procedures. A completed domestic branch application filed with the appropriate Re- (a) Purpose and scope— serve Bank will be deemed approved on the fifth (1) Purpose. The purpose of this section is to impleday after the close of the comment period, unless ment section 109 (12 U.S.C. 1835a) of the Rieglethe Board or the appropriate Reserve Bank notifies Neal Interstate Banking and Branching Efficiency the bank that the application is approved prior to Act of 1994 (Interstate Act). that date (but in no case will an application be (2) Scope. approved before the third day after the close of the (i) This section applies to any State member public comment period) or the Board or the appro- bank that has operated a covered interstate priate Federal Reserve Bank notifies the bank branch for a period of at least one year, and that the application is not eligible for expedited any foreign bank that has operated a covered review for any reason, including, without limita- interstate branch licensed by a State for a tion, that: period of at least one year. (i) The bank or bank holding company does not (ii) This section describes the requirements immeet the criteria under section 208.6(c)(l); posed under 12 U.S.C. 1835a, which requires (ii) The application contains a material error or is the appropriate Federal banking agencies (the otherwise deficient; or Board, the Office of the Comptroller of the (iii) The application or the notice required under Currency, and the Federal Deposit Insurance paragraph (a)(3) of this section, raises signif- Corporation) to prescribe uniform rules that icant supervisory, Community Reinvestment prohibit a bank from using any authority to Act, compliance, policy or legal issues that engage in interstate branching pursuant to the have not been resolved, or a timely substan- Interstate Act, or any amendment made by tive adverse comment is submitted. A com- the Interstate Act to any other provision of ment will be considered substantive unless it law, primarily for the purpose of deposit proinvolves individual complaints, or raises friv- duction. olous, previously considered, or wholly un- (b) Definitions. For purposes of this section, the following substantiated claims or irrelevant issues. definitions apply: (d) Consolidated applications. (1) Bank means, unless the context indicates other- (1) Proposed branches; notice of branch opening. A wise: member bank may seek approval in a single appli- (i) A State member bank as that term is defined cation or notice for any branches that it proposes in 12 U.S.C. 1813(d)(2);and to establish within one year after the approval (ii) A foreign bank as that term is defined in date. The bank shall, unless notification is waived, 12 U.S.C. 3101(7) and 12 C.F.R. 211.21. notify the appropriate Reserve Bank not later than (2) Covered interstate branch means any branch of a 30 days after opening any branch approved under State member bank, and any uninsured branch of a a consolidated application. A bank is not required foreign bank licensed by a State, that: to open a branch approved under either a consoli- (i) Is established or acquired outside the bank's dated or single branch application. home state pursuant to the interstate branch- (2) Duration of branch approval. Branch approvals ing authority granted by the Interstate Act or remain valid for one year unless the Board or the by any amendment made by the Interstate appropriate Reserve Bank notifies the bank that in Act to any other provision of law; or Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 763 (ii) Could not have been established or acquired (2) Guidelines. The Board will use the following conoutside of the bank's home state but for the siderations as guidelines when making the deterestablishment or acquisition of a branch de- mination pursuant to paragraph (d)(l) of this section: scribed in paragraph (b)(2)(i) of this section. (i) Whether covered interstate branches were (3) Home state means: formerly part of a failed or failing depository (i) With respect to a state bank, the state that institution; chartered the bank; (ii) Whether covered interstate branches were ac- (ii) With respect to a national bank, the state in quired under circumstances where there was which the main office of the bank is located; a low loan-to-deposit ratio because of the and nature of the acquired institution's business (iii) With respect to a foreign bank, the home or loan portfolio; state of the foreign bank as determined in (iii) Whether covered interstate branches have a accordance with 12U.S.C. 31O3(c) and high concentration of commercial or credit 12 C.F.R. 211.22. card lending, trust services, or other special- (4) Host state means a state in which a bank estab- ized activities, including the extent to which lishes or acquires a covered interstate branch. the covered interstate branches accept depos- (5) Host state loan-to-deposit ratio generally means, its in the host state; with respect to a particular host state, the ratio of (iv) The Community Reinvestment Act ratings total loans in the host state relative to total depos- received by the bank, if any, under 12 U.S.C. its from the host state for all banks (including 2901 etseq.; institutions covered under the definition of (v) Economic conditions, including the level of "bank" in 12U.S.C. 1813(a)(l)) that have that loan demand, within the communities served state as their home state, as determined and up- by the covered interstate branches; dated periodically by the appropriate Federal (vi) The safe and sound operation and condition banking agencies and made available to the public. of the bank; and (6) State means state as that term is defined in (vii) The Board's Regulation BB—Community 12U.S.C. 1813(a)(3). Reinvestment (12 C.F.R. Part 228) and inter- (7) Statewide loan-to-deposit ratio means, with re- pretations of that regulation, spect to a bank, the ratio of the bank's loans to its (e) Sanctions— deposits in a state in which the bank has one or (1) In general. If the Board determines that a bank is more covered interstate branches, as determined not reasonably helping to meet the credit needs of by the Board. the communities served by the bank in the host (c) Loan-to-deposit ratio screen— state, and that the bank's statewide loan-to-deposit (1) Application of screen. Beginning no earlier than ratio is less than 50 percent of the host state one year after a bank establishes or acquires a loan-to-deposit ratio, the Board: covered interstate branch, the Board will consider (i) May order that a bank's covered interstate whether the bank's statewide loan-to-deposit ratio branch or branches be closed unless the bank is less than 50 percent of the relevant host state provides reasonable assurances to the satisloan-to-deposit ratio. faction of the Board, after an opportunity for (2) Results of screen. public comment, that the bank has an accept- (i) If the Board determines that the bank's state- able plan under which the bank will reasonwide loan-to-deposit ratio is 50 percent or ably help to meet the credit needs of the more of the host state loan-to-deposit ratio, communities served by the bank in the host no further consideration under this section is state; and required. (ii) Will not permit the bank to open a new (ii) If the Board determines that the bank's state- branch in the host state that would be considwide loan-to-deposit ratio is less than ered to be a covered interstate branch unless 50 percent of the host state loan-to-deposit the bank provides reasonable assurances to ratio, or if reasonably available data are in- the satisfaction of the Board, after an opporsufficient to calculate the bank's statewide tunity for public comment, that the bank will loan-to-deposit ratio, the Board will make a reasonably help to meet the credit needs of the credit needs determination for the bank as community that the new branch will serve. provided in paragraph (d) of this section. (2) Notice prior to closure of a covered interstate (d) Credit needs determination— branch. Before exercising the Board's authority to (I) In general. The Board will review the loan portfo- order the bank to close a covered interstate branch, lio of the bank and determine whether the bank is the Board will issue to the bank a notice of reasonably helping to meet the credit needs of the the Board's intent to order the closure and will communities in the host state that are served by schedule a hearing within 60 days of issuing the the bank. notice. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

764 Federal Reserve Bulletin • September 1998 (3) Hearing. The Board will conduct a hearing sched- defined in the FFIEC Consolidated Reports uled under paragraph (e)(2) of this section in ac- of Condition and Income; and cordance with the provisions of 12 U.S.C. 1818(h) (ii) The bank: and 12 C.F.R. Part 263. (A) Has a CAMELS composite rating of 1 or 2 under the Uniform Interagency Bank Rating System5 (or an equivalent rating under a comparable rating system) as of Subpart B—Investments and Loans the most recent examination of the bank; and Section 208.20—Authority, purpose, and scope. (B) Is well capitalized and will continue to be well capitalized, in accordance with (a) Authority. Subpart B of Regulation H (12 C.F.R. Part Subpart D of this part, after the invest- Section 208, subpart B) is issued by the Board of ment or loan. Governors of the Federal Reserve System under (b) Investments in securities. Member banks are subject to 12 U.S.C. 24; sections 9, 11 and 21 of the Federal the same limitations and conditions with respect to Reserve Act (12 U.S.C. 321-338a, 248(a), 248(c), and purchasing, selling, underwriting, and holding invest- 481-486); sections 1814, 1816, 1818, 1823(j), 1831o, ment securities and stocks as are national banks under 1831p-l and 1831r-l of the FDT Act (12 U.S.C. 1814, 12 U.S.C. 24,1 7th. To determine whether an obliga- 1816, 1818, 1823(j), 1831o, 1831p-l and 183lr-l); tion qualifies as an investment security for the purand the National Flood Insurance Act of 1968 and the poses of 12 U.S.C. 24, 17th, and to calculate the Flood Disaster Protection Act of 1973, as amended limits with respect to the purchase of such obligations, (42 U.S.C. 4001-4129). a state member bank may look to part 1 of the rules of (b) Purpose and scope. This Subpart B describes certain the Comptroller of the Currency (12 C.F.R. Part 1) and investment limitations on member banks, statutory reinterpretations thereunder. A state member bank may quirements for amortizing losses on agricultural loans consult the Board for a determination with respect to and extending credit in areas having special flood the application of 12 U.S.C. 24, f 7th, with respect to hazards, as well as the requirements for issuing letters issues not addressed in 12 C.F.R. Part 1. The proviof credit and acceptances. sions of 12 C.F.R. Part 1 do not provide authority for a state member bank to purchase securities of a type or amount that the bank is not authorized to purchase Section 208.21—Investments in premises and under applicable state law. securities. (a) Investment in bank premises. No state member bank Section 208.22—Community development and shall invest in bank premises, or in the stock, bonds, public welfare investments. debentures, or other such obligations of any corporation holding the premises of such bank, or make loans (a) Definitions. For purposes of this section: to or upon the security of any such corporation un- (1) Low- or moderate-income area means: less: (i) One or more census tracts in a Metropolitan (1) The bank notifies the appropriate Reserve Bank at Statistical Area where the median family inleast fifteen days prior to such investment and has come adjusted for family size in each census not received notice that the investment is subject tract is less than 80 percent of the median to further review by the end of the fifteen day family income adjusted for family size of the notice period; Metropolitan Statistical Area; or (2) The aggregate of all such investments and loans, (ii) If not in a Metropolitan Statistical Area, one together with the amount of any indebtedness in- or more census tracts or block-numbered arcurred by any such corporation that is an affiliate eas where the median family income adjusted of the bank (as defined in section 2 of the Banking for family size in each census tract or block- Act of 1933, as amended, 12 U.S.C. 221a), is less numbered area is less than 80 percent of the than or equal to the bank's perpetual preferred median family income adjusted for family stock and related surplus plus common stock plus size of the State. surplus, as those terms are defined in the FFIEC (2) Low- and moderate-income persons has the same Consolidated Reports of Condition and Income; or meaning as low- and moderate-income persons as (3) (i) The aggregate of all such investments and defined in 42 U.S.C. 5302(a)(20)(A). loans, together with the amount of any indebtedness incurred by any such corporation that is an affiliate of the bank, is less than or equal to 150 percent of the bank's perpetual 5. See F.R.R.S. 3-1575 for an explanation of the Uniform Interpreferred stock and related surplus plus comagency Bank Rating System. (For availability. See 12 C.F.R. mon stock plus surplus, as those terms are 261.10(f).) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 765 (3) Small business means a business that meets the majority of which (based on full-time size-eligibility standards of 13 C.F.R. 121.802(a)(2). equivalent positions) will be held by (b) Investments not requiring prior Board approval. Not- low- and moderate-income persons; and withstanding the provisions of section 5136 of the (F) Providing technical assistance, credit Revised Statutes (12 U.S.C. 24, f7th) made applicable counseling, research, and program develto member banks by paragraph 20 of section 9 of the opment assistance to low- and moderate- Federal Reserve Act (12 U.S.C. 335), a member bank income persons, small businesses, or may. make an investment, without prior Board ap- nonprofit corporations to help achieve proval, if the following conditions are met: community development; (1) The investment is in a corporation, limited partner- (2) The investment is permitted by state law; ship, or other entity, and: (3) The investment will not expose the member bank (i) The Board has determined that an investment to liability beyond the amount of the investment; in that entity or class of entities is a public (4) The aggregate of all such investments of the memwelfare investment under paragraph 23 of ber bank does not exceed the sum of five percent section 9 of the Federal Reserve Act of its capital stock and surplus; (12 U.S.C. 338a), or a community develop- (5) The member bank is well capitalized or adement investment under Regulation Y quately capitalized under sections 208.43(b)(l) (12 C.F.R. 225.25(b)(6)); or and (2); (ii) The Comptroller of the Currency has deter- (6) The member bank received a composite CAMELS mined, by order or regulation, that an invest- rating of "1" or "2" under the Uniform Financial ment in that entity by a national bank is a Institutions Rating System as of its most recent public welfare investment under section 5136 examination and an overall rating of "1" or "2" of the Revised Statutes (12 U.S.C. 24 (Elev- as of its most recent consumer compliance examienth)); or nation; and (iii) The entity is a community development fi- (7) The member bank is not subject to any written nancial institution as defined in section agreement, cease-and-desist order, capital direc- 103(5) of the Community Development tive, prompt-corrective-action directive, or memo- Banking and Financial Institutions Act of randum of understanding issued by the Board or a 1994 (12 U.S.C. 4702(5)); or Federal Reserve Bank. (iv) The entity, directly or indirectly, engages (c) Notice to Federal Reserve Bank. Not more than solely in or makes loans solely for the pur- 30 days after making an investment under paraposes of one or more of the following com- graph (b) of this section, the member bank shall advise munity development activities: its Federal Reserve Bank of the investment, including (A) Investing in, developing, rehabilitating, the amount of the investment and the identity of the managing, selling, or renting residential entity in which the investment is made. property if a majority of the units will be (d) Investments requiring Board approval. occupied by low- and moderate-income (1) With prior Board approval, a member bank may persons, or if the property is a ' 'qualified make public welfare investments under paragraph low-income building" as defined in sec- 23 of section 9 of the Federal Reserve Act tion 42(c)(2) of the Internal Revenue (12 U.S.C. 338a), other than those specified in Code (26 U.S.C. 42(c)(2)); paragraph (b) of this section. (B) Investing in, developing, rehabilitating, (2) Requests for Board approval under this paramanaging, selling, or renting nonresiden- graph (d) shall include, at a minimum: tial real property or other assets located (i) The amount of the proposed investment; in a low- or moderate-income area and (ii) A description of the entity in which the intargeted towards low- and moderate- vestment is to be made; income persons; (iii) An explanation of why the investment is a (C) Investing in one or more small busi- public welfare investment under paragraph nesses located in a low- or moderate- 23 of section 9 of the Federal Reserve Act income area to stimulate economic (12 U.S.C. 338a); development; (iv) A description of the member bank's potential (D) Investing in, developing, or otherwise liability under the proposed investment; assisting job training or placement facili- (v) The amount of the member bank's aggregate ties or programs that will be targeted to- outstanding public welfare investments under wards low- and moderate-income persons; paragraph 23 of section 9 of the Federal (E) Investing in an entity located in a low- or Reserve Act; moderate-income area if the entity creates (vi) The amount of the member bank's capital long-term employment opportunities, a stock and surplus; and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

766 Federal Reserve Bulletin • September 1998 (vii) If the bank investment is not eligible under (iv) The remaining unpaid balance of any loans paragraph (b) of this section, explain the rea- described in paragraphs (a)(4)(i), (ii) and (iii) son or reasons why it is ineligible. of this section that have been charged off (3) The Board shall act on a request under this para- since January 1, 1984, and that qualify for graph (d) within 60 calendar days of receipt of a deferral under this section. request that meets the requirements of paragraph (b) (1) Provided there is no evidence that the loss resulted (d)(2) of this section, unless the Board notifies the from fraud or criminal abuse on the part of the requesting member bank that a longer time period bank, the officers, directors, or principal shareholdwill be required. ers, a participating bank may amortize in its Re- (e) Divestiture of investments. A member bank shall di- ports of Condition and Income: vest itself of an investment made under paragraph (b) (i) Any loss on a qualified agricultural loan that or (d) of this section to the extent that the investment the bank would be required to reflect in its exceeds the scope of, or ceases to meet, the require- financial statements for any period between ments of paragraphs (b)(l) through (b)(4) or paragraph and including 1984 and 1991; or (d) of this section. The divestiture shall be made in the (ii) Any loss that the bank would be required to manner specified in 12 C.F.R. 225.140, Regulation Y, reflect in its financial statements for any pefor interests acquired by a lending subsidiary of a bank riod between and including 1983 and 1991 holding company or the bank holding company itself resulting from a reappraisal or sale of in satisfaction of a debt previously contracted. agriculturally-related other property. (2) Amortization under this section shall be computed over a period not to exceed seven years .on a quarterly straight-line basis commencing in the Section 208.23—Agricultural loan loss first quarter after the loan was or is charged off so amortization. as to be fully amortized not later than December 31, 1998. (a) Definitions. For purposes of this section: (c) Accounting for amortization. Any bank that is permit- (1) Accepting official means: ted to amortize losses in accordance with paragraph (b) (i) The Reserve Bank in whose district the bank of this section may restate its capital and other relevant is located; or accounts and account for future authorized deferrals (ii) The Director of the Division of Banking Su- and authorizations in accordance with the instructions pervision and Regulation in cases in which to the FFIEC Consolidated Reports of Condition and the Reserve Bank cannot determine that the Income. Any resulting increase in the capital account bank qualifies. shall be included in qualifying capital pursuant to (2) Agriculturally related other property means any Appendix A of this part. property, real or personal, that the bank owned on (d) Conditions of participation. In order for a bank to January 1, 1983, and any additional property that maintain its status as a participating bank, it shall: it acquired prior to January 1, 1992, in connection (1) Adhere to the approved capital plan and obtain the with a qualified agricultural loan. For the purposes prior approval of the accepting official before makof paragraph (d) of this section, the value of such ing any modifications to the plan; property shall include the amount previously (2) Maintain accounting records for each asset subject charged off as a loss. to loss deferral under the program that document (3) Participating bank means an agricultural bank (as the amount and timing of the deferrals, repaydefined in 12U.S.C. 1823(j)(4)(A)) that, as of ments, and authorizations; January 1, 1992, had a proposal for a capital (3) Maintain the financial condition of the bank so that restoration plan accepted by an accepting official it does not deteriorate to the point where it is no and received permission from the accepting offi- longer a viable, fundamentally sound institution; cial, subject to paragraphs (d) and (e) of this (4) Make a reasonable effort, consistent with safe and section, to amortize losses in accordance with sound banking practices, to maintain in its loan paragraphs (b) and (c) of this section. portfolio a percentage of agricultural loans, includ- (4) Qualified agricultural loan means: ing agriculturally-related other property, not less (i) Loans that finance agricultural production or than the percentage of such loans in its loan portfoare secured by farm land for purposes of lio on January 1, 1986; and Schedule RC-C of the FFIEC Consolidated (5) Provide the accepting official, upon request, with Report of Condition or such other compara- any information the accepting official deems necble schedule; essary to monitor the bank's amortization, its com- (ii) Loans secured by farm machinery; pliance with the conditions of participation, and its (iii) Other loans that a bank proves to be suffi- continued eligibility. ciently related to agriculture for classification (e) Revocation of eligibility for loss amortization. The as an agricultural loan by the Board; and failure to comply with any condition in an acceptance, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 767 with the capita] restoration plan, or with the conditions Section 208.25—Loans in areas having special stated in paragraph (d) of this section, is grounds for flood hazards. revocation of acceptance for loss amortization and for an administrative action against the bank under 12 U.S.C. 1818(b). In addition, acceptance of a bank (a) Purpose and scope. for loss amortization shall not foreclose any adminis- (1) Purpose. The purpose of this section is to impletrative action against the bank that the Board may ment the requirements of the National Flood Insurdeem appropriate. ance Act of 1968 and the Flood Disaster Protec- (f) Expiration date. The terms of this section will no tion Act of 1973, as amended (42 U.S.C. 4001longer be in effect as of January 1, 1999. 4129). (2) Scope. This section, except for paragraphs (f) and (h) of this section, applies to loans secured by Section 208.24—Letters of credit and acceptances. buildings or mobile homes located or to be located in areas determined by the Director of the Federal (a) Standby letters of credit. For the purpose of this section, Emergency Management Agency to have special standby letters of credit include every letter of credit (or flood hazards. Paragraphs (f) and (h) of this secsimilar arrangement however named or designated) that tion apply to loans secured by buildings or mobile represents an obligation to the beneficiary on the part of homes, regardless of location. the issuer: (b) Definitions. For purposes of this section: (1) To repay money borrowed by or advanced to or (1) Act means the National Flood Insurance Act of for the account of the account party; or 1968, as amended (42 U.S.C. 4001-4129). (2) To make payment on account of any evidence of (2) Building means a walled and roofed structure, indebtedness undertaken by the account party; or other than a gas or liquid storage tank, that is (3) To make payment on account of any default by the principally above ground and affixed to a permaparty procuring the issuance of the letter of credit nent site, and a walled and roofed structure while in the performance of an obligation.6 in the course of construction, alteration, or repair. (b) Ineligible acceptance. An ineligible acceptance is a (3) Community means a State or a political subdivitime draft accepted by a bank, which does not meet the sion of a State that has zoning and building code requirements for discount with a Federal Reserve jurisdiction over a particular area having special Bank. flood hazards. (c) Bank's lending limits. Standby letters of credit and (4) Designated loan means a loan secured by a buildineligible acceptances count toward member banks' ing or mobile home that is located or to be located lending limits imposed by state law. in a special flood hazard area in which flood (d) Exceptions. A standby letter of credit or ineligible insurance is available under the Act. acceptance is not subject to the restrictions set forth in (5) Director of FEMA means the Director of the Fedparagraph (c) of this section if prior to or at the time of eral Emergency Management Agency. issuance of the credit: (6) Mobile home means a structure, transportable in (1) The issuing bank is paid an amount equal to the one or more sections, that is built on a permanent bank's maximum liability under the standby letter chassis and designed for use with or without a of credit; or permanent foundation when attached to the re- (2) The party procuring the issuance of a letter of quired utilities. The term mobile home does not credit or ineligible acceptance has set aside suffi- include a recreational vehicle. For purposes of this cient funds in a segregated, clearly earmarked section, the term mobile home means a mobile deposit account to cover the bank's maximum home on a permanent foundation. The term mobile liability under the standby letter of credit or ineli- home includes a manufactured home as that term gible acceptance. is used in the National Flood Insurance Program. (7) NFIP means ihe National Flood Insurance Program authorized under the Act. (8) Residential improved real estate means real estate upon which a home or other residential building is located or to be located. (9) Servicer means the person responsible for: (i) Receiving any scheduled, periodic payments 6. A standby letter of credit does not include: from a borrower under the terms of a loan, (1) Commercial letters of credit and similar instruments, where the including amounts for taxes, insurance preissuing bank expects the beneficiary to draw upon the issuer, and miums, and other charges with respect to the which do not guaranty payment of a money obligation; or property securing the loan; and (2) A guaranty or similar obligation issued by a foreign branch in accordance with and subject to the limitations of 12C.F.R. Part 211 (ii) Making payments of principal and interest (Regulation K). and any other payments from the amounts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

768 Federal Reserve Bulletin • September 1998 received from the borrower as may be re- a servicer acting on its behalf, shall pay the amount quired under the terms of the loan. owed to the insurance provider from the escrow ac- (10) Special flood hazard area means the land in the count by the date when such premiums are due. flood plain within a community having at least a (f) Required use of standard flood hazard determination one percent chance of flooding in any given year, form. as designated by the Director of FEMA. (1) Use of form. A member bank shall use the stan- (11) Table funding means a settlement at which a loan dard flood hazard determination form developed is funded by a contemporaneous advance of loan by the Director of FEMA (as set forth in Appenfunds and an assignment of the loan to the person dix A of 44 C.F.R. Part 65) when determining advancing the funds. whether the building or mobile home offered as (c) Requirement to purchase flood insurance where avail- collateral security for a loan is or will be located in able. a special flood hazard area in which flood insur- (1) In general. A member bank shall not make, in- ance is available under the Act. The standard flood crease, extend, or renew any designated loan un- hazard determination form may be used in a less the building or mobile home and any personal printed, computerized, or electronic manner. property securing the loan is covered by flood (2) Retention of form. A member bank shall retain a insurance for the term of the loan. The amount of copy of the completed standard flood hazard deterinsurance must be at least equal to the lesser of the mination form, in either hard copy or electronic outstanding principal balance of the designated form, for the period of time the bank owns the loan or the maximum limit of coverage available loan. for the particular type of property under the Act. (g) Forced placement of flood insurance. If a member Flood insurance coverage under the Act is limited bank, or a servicer acting on behalf of the bank, to the overall value of the property securing the determines at any time during the term of a designated designated loan minus the value of the land on loan that the building or mobile home and any perwhich the property is located. sonal property securing the designated loan is not (2) Table funded loans. A member bank that acquires covered by flood insurance or is covered by flood a loan from a mortgage broker or other entity insurance in an amount less than the amount required through table funding shall be considered to be under paragraph (c) of this section, then the bank or its making a loan for the purposes of this section. servicer shall notify the borrower that the borrower (d) Exemptions. The flood insurance requirement pre- should obtain flood insurance, at the borrower's exscribed by paragraph (c) of this section does not apply pense, in an amount at least equal to the amount with respect to: required under paragraph (c) of this section, for the (1) Any State-owned property covered under a policy remaining term of the loan. If the borrower fails to of self-insurance satisfactory to the Director of obtain flood insurance within 45 days after notifica- FEMA, who publishes and periodically revises the tion, then the member bank or its servicer shall purlist of States falling within this exemption; or chase insurance on the borrower's behalf. The member (2) Property securing any loan with an original princi- bank or its servicer may charge the borrower for the pal balance of $5,000 or less and a repayment term cost of premiums and fees incurred in purchasing the of one year or less. insurance. (e) Escrow requirement. If a member bank requires the (h) Determination fees. escrow of taxes, insurance premiums, fees, or any (1) General. Notwithstanding any Federal or State other charges for a loan secured by residential im- law other than the Flood Disaster Protection Act proved real estate or a mobile home that is made, of 1973, as amended (42 U.S.C. 4001-4129), any increased, extended, or renewed after October 1, 1996, member bank, or a servicer acting on behalf of the the member bank shall also require the escrow of all bank, may charge a reasonable fee for determining premiums and fees for any flood insurance required whether the building or mobile home securing the under paragraph (c) of this section. The member bank, loan is located or will be located in a special flood or a servicer acting on its behalf, shall deposit the flood hazard area. A determination fee may also include, insurance premiums on behalf of the borrower in an but is not limited to, a fee for life-of-loan monitorescrow account. This escrow account will be subject to ing. escrow requirements adopted pursuant to section 10 of (2) Borrower fee. The determination fee authorized by the Real Estate Settlement Procedures Act of 1974 paragraph (h)(l) of this section may be charged to (12 U.S.C. 2609) (RESPA), which generally limits the the borrower if the determination: amount that may be maintained in escrow accounts for (i) Is made in connection with a making, incertain types of loans and requires escrow account creasing, extending, or renewing of the loan statements for those accounts, only if the loan is otherthat is initiated by the borrower; wise subject to RESPA. Following receipt of a notice (ii) Reflects the Director of FEMA's revision or from the Director of FEMA or other provider of flood updating of flood plain areas or flood-risk insurance that premiums are due, the member bank, or zones; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 769 (iii) Reflects the Director of FEMA's publication and the servicer for the period of time the bank of a notice or compendium that: owns the loan. (A) Affects the area in which the building or (4) Alternate method of notice. Instead of providing mobile home securing the loan is lo- the notice to the borrower required by paragraph cated; or (i)(l) of this section, a member bank may obtain (B) By determination of the Director of satisfactory written assurance from a seller or les- FEMA, may reasonably require a deter- sor that, within a reasonable time before the commination whether the building or mobile pletion of the sale or lease transaction, the seller or home securing the loan is located in a lessor has provided such notice to the purchaser or special flood hazard area; lessee. The member bank shall retain a record of (iv) Results in the purchase of flood insurance the written assurance from the seller or lessor for coverage by the lender or its servicer on the period of time the bank owns the loan. behalf of the borrower under paragraph (g) of (5) Use of prescribed form of notice. A member bank this section. will be considered to be in compliance with the (3) Purchaser or transferee fee. The determination fee requirement for notice to the borrower of this authorized by paragraph (h)(l) of this section may paragraph (i) by providing written notice to the be charged to the purchaser or transferee of a loan borrower containing the language presented in apin the case of the sale or transfer of the loan. pendix A of this section within a reasonable time (i) Notice of special flood hazards and availability of before the completion of the transaction. The no- Federal disaster relief assistance. When a member tice presented in appendix A of this section satisbank makes, increases, extends, or renews a loan se- fies the borrower notice requirements of the Act. cured by a building or a mobile home located or to be (j) Notice of servicer's identity. located in a special flood hazard area, the bank shall (1) Notice requirement. When a member bank makes, mail or deliver a written notice to the borrower and to increases, extends, renews, sells, or transfers a the servicer in all cases whether or not flood insurance loan secured by a building or mobile home located is available under the Act for the collateral securing or to be located in a special flood hazard area, the the loan. bank shall notify the Director of FEMA (or the (1) Contents of notice. The written notice must in- Director's designee) in writing of the identity of clude the following information: the servicer of the loan. The Director of FEMA (i) A warning, in a form approved by the Direc- has designated the insurance provider to receive tor of FEMA, that the building or the mobile the member bank's notice of the servicer's idenhome is or will be located in a special flood tity. This notice may be provided electronically if hazard area; electronic transmission is satisfactory to the Direc- (ii) A description of the flood insurance purchase tor of FEMA's designee. requirements set forth in section 102(b) of (2) Transfer of sen'icing rights. The member bank the Flood Disaster Protection Act of 1973, as shall notify the Director of FEMA (or the Direcamended (42 U.S.C. 4012a(b)); tor's designee) of any change in the servicer of a (iii) A statement, where applicable, that flood in- loan described in paragraph (j)(l) of this section surance coverage is available under the NFIP within 60 days after the effective date of the and may also be available from private insur- change. This notice may be provided electroniers; and cally if electronic transmission is satisfactory to (iv) A statement whether Federal disaster relief the Director of FEMA's designee. Upon any assistance may be available in the event of change in the servicing of a loan described in damage to the building or mobile home paragraph (j)(l) of this section, the duty to provide caused by flooding in a Federally declared notice under this paragraph (j)(2) shall transfer to disaster. the transferee servicer. (2) Timing of notice. The member bank shall provide the notice required by paragraph (i)(l) of this Appendix A to Section 208.25—Sample Form of section to the borrower within a reasonable time Notice before the completion of the transaction, and to the servicer as promptly as practicable after the Notice of Special Flood Hazards and bank provides notice to the borrower and in any Availability of Federal Disaster Relief Assistance event no later than the time the bank provides other similar notices to the servicer concerning We are giving you this notice to inform you that: hazard insurance and taxes. Notice to the servicer The building or mobile home securing the loan for may be made electronically or may take the form which you have applied is or will be located in an area with of a copy of the notice to the borrower. special flood hazards. (3) Record of receipt. The member bank shall retain a The area has been identified by the Director of the record of the receipt of the notices by the borrower Federal Emergency Management Agency (FEMA) as a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

770 Federal Reserve Bulletin D September 1998 special flood hazard area using FEMA's Flood Insurance l(a)(2) of the FDI Act (12U.S.C. 1818, 1831p- Rate Map or the Flood Hazard Boundary Map for the l(a)(2)); and sections 78b, 781(b), 781(g), 78I(i), 78ofollowing community: . This 4(c)(5), 78o-5, 78q, 78q-l, and 78w of the Securities area has a one percent (1%) chance of a flood equal to or Exchange Act of 1934 (15 U.S.C. 78b, 781(b), 781(g), exceeding the base flood elevation (a 100-year flood) in 78l(i), 78o-4(c)(5), 78o-5, 78q, 78q-l, 78w). any given year. During the life of a 30-year mortgage loan, (b) Purpose and scope. This Subpart C describes the rethe risk of a 100-year flood in a special flood hazard area is quirements imposed upon member banks acting as 26 percent (26%). transfer agents, registered clearing agencies, or sellers Federal law allows a lender and borrower jointly to of securities under the Securities Exchange Act of request the Director of FEMA to review the determination 1934. This Subpart C also describes the reporting of whether the property securing the loan is located in a requirements imposed on member banks whose securispecial flood hazard area. If you would like to make such a ties are subject to registration under the Securities request, please contact us for further information. Exchange Act of 1934. The community in which the property securing the loan is located participates in the National Flood Insurance Program (NFIP). Federal law will not allow us to make you Section 208.31—State member banks as transfer the loan that you have applied for if you do not purchase agents. flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew (a) The rules adopted by the Securities and Exchange flood insurance on the property, Federal law authorizes and Commission (SEC) pursuant to section 17A of the requires us to purchase the flood insurance for you at your Securities Exchange Act of 1934 (15 U.S.C. 78q-l) expense. prescribing procedures for registration of transfer • Flood insurance coverage under the NFIP may be pur- agents for which the SEC is the appropriate regulatory chased through an insurance agent who will obtain the agency (17 C.F.R. 240.17Ac2-l) apply to member policy either directly through the NFIP or through an bank transfer agents. References to the "Commisinsurance company that participates in the NFIP. Flood sion" are deemed to refer to the Board. insurance also may be available from private insurers that (b) The rules adopted by the SEC pursuant to section 17A do not participate in the NFIP. prescribing operational and reporting requirements for • At a minimum, flood insurance purchased must cover the transfer agents (17 C.F.R. 240.17Ac2-2 and lesser of: 240.17Ad-l through 240.17Ad-16) apply to member (1) The outstanding principal balance of the loan; or bank transfer agents. (2) The maximum amount of coverage allowed for the type of property under the NFIP. Flood insurance coverage under the NFIP is limited to the Section 208.32—Notice of disciplinary sanctions overall value of the property securing the loan minus the imposed by registered clearing agency. value of the land on which the property is located. • Federal disaster relief assistance (usually in the form of a (a) Notice requirement. Any member bank or any of its low-interest loan) may be available for damages incurred subsidiaries that is a registered clearing agency pursuin excess of your flood insurance if your community's ant to section 17A(b) of the Securities Exchange Act participation in the NFIP is in accordance with NFIP of 1934 (the Act), and that: requirements. (1) Imposes any final disciplinary sanction on any Flood insurance coverage under the NFIP is not participant therein; available for the property securing the loan because the (2) Denies participation to any applicant; or community in which the property is located does not (3) Prohibits or limits any person in respect to access participate in the NFIP. In addition, if the non- to services offered by the clearing agency, shall participating community has been identified for at least file with the Board (and the appropriate regulatory one year as containing a special flood hazard area, proper- agency, if other than the Board, for a participant or ties located in the community will not be eligible for applicant) notice thereof in the manner prescribed Federal disaster relief assistance in the event of a Feder- in this section. ally declared flood disaster. (b) Notice of final disciplinary actions. (1) Any registered clearing agency for which the Subpart C—Bank Securities and Securities-Related Board is the appropriate regulatory agency that Activities takes any final disciplinary action with respect to any participant shall promptly file a notice thereof Section 208.30—Authority, purpose, and scope. with the Board in accordance with paragraph (c) (a) Authority. Subpart C of Regulation H (12 C.F.R. Part of this section. For the purposes of this paragraph Section 208, Subpart C) is issued by the Board of (b), final disciplinary action means the imposition Governors of the Federal Reserve System under of any disciplinary sanction pursuant to section 12U.S.C. 24, 92a, 93a; sections 1818 and 1831p- 17A(b)(3)(G) of the Act, or other action of a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 771 registered clearing agency which, after notice and Board is the appropriate regulatory agency, that opportunity for hearing, results in final disposition takes any final action that denies or conditions the of charges of: participation of any person, or prohibits or limits (i) One or more violations of the rules of the access, to services offered by the clearing agency, registered clearing agency; or shall promptly file notice thereof with the Board (ii) Acts or practices constituting a statutory dis- (and the appropriate regulatory agency, if other qualification of a type defined in paragraph than the Board, for the affected person) in accor- (iv) or (v) (except prior convictions) of sec- dance with paragraph (e) of this section; but such tion 3(a)(39) of the Act. action shall not be considered a final disciplinary (2) However, if a registered clearing agency fee action for purposes of paragraph (b) of this section schedule specifies certain charges for errors made where the action is based on an alleged failure of by its participants in giving instructions to the such person to: registered clearing agency which are de minimis (i) Comply with the qualification standards preon a per error basis, and whose purpose is, in part, scribed by the rules of the registered clearing to provide revenues to the clearing agency to agency pursuant to section 17A(b)(4)(B) of compensate it for effort expended in beginning to the Act; or process an erroneous instruction, such error (ii) Comply with any administrative requirecharges shall not be considered a final disciplinary ments of the registered clearing agency (inaction for purposes of this paragraph (b). cluding failure to pay entry or other dues or (c) Contents of final disciplinary action notice. Any notice fees, or to file prescribed forms or reports) filed pursuant to paragraph (b) of this section shall not involving charges of violations that may consist of the following, as appropriate: lead to a disciplinary sanction. (1) The name of the respondent and the respondent's (2) However, no such action shall be considered final last known address, as reflected on the records of pursuant to this paragraph (d) that results merely the clearing agency, and the name of the person, from a notice of such failure to comply to the committee, or other organizational unit that person affected, if such person has not sought an brought the charges. However, identifying infor- adjudication of the matter, including a hearing, or mation as to any respondent found not to have otherwise exhausted the administrative remedies violated a provision covered by a charge may be within the registered clearing agency with respect deleted insofar as the notice reports the disposition to such a matter. of that charge and, prior to the filing of the notice, (e) Contents of notice required by paragraph (d) of this the respondent does not request that identifying section. Any notice filed pursuant to paragraph (d) of information be included in the notice; this section shall consist of the following, as appropri- (2) A statement describing the investigative or other ate: origin of the action; (1) The name of each person concerned and each (3) As charged in the proceeding, the specific provi- person's last known address, as reflected in the sion or provisions of the rules of the clearing records of the clearing agency; agency violated by the respondent, or the statutory (2) The specific grounds upon which the action of the disqualification referred to in paragraph (b)(2) of clearing agency was based, and a statement dethis section, and a statement describing the answer scribing the answer of the person concerned; of the respondent to the charges; (3) A statement setting forth findings of fact and con- (4) A statement setting forth findings of fact with clusions as to each alleged failure of the person to respect to any act or practice in which the respon- comply with qualification standards or administradent was charged with having engaged in or omit- tive obligations, and a statement of the clearing ted; the conclusion of the clearing agency as to agency in support of its resolution of the principal whether the respondent violated any rule or was issues raised in the proceeding; subject to a statutory disqualification as charged; (4) The date upon which such action became or will and a statement of the clearing agency in support become effective; and of its resolution of the principal issues raised in the (5) Such other matters as the clearing agency deems proceedings; relevant. (5) A statement describing any sanction imposed, the (f) Notice of final action based on prior adjudicated statureasons therefor, and the date upon which the tory disqualifications. Any registered clearing agency sanction became or will become effective; and for which the Board is the appropriate regulatory (6) Such other matters as the clearing agency may agency that takes any final action shall promptly file deem relevant. notice thereof with the Board (and the appropriate (d) Notice of final denial, prohibition, termination or limi- regulatory agency, if other than the Board, for the tation based on qualification or administrative rules. affected person) in accordance with paragraph (g) of (1) Any registered clearing agency, for which the this section, where the final action: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

772 Federal Reserve Bulletin • September 1998 (1) Denies or conditions participation to any person, regulatory organization, if available to the clearing or prohibits or limits access to services offered by agency; the clearing agency; and (4) If the summary action is based upon the provisions (2) Is based upon a statutory disqualification of a type of section 17A(b)(5)(C)(ii) of the Act, a statement defined in paragraph (A), (B) or (C) of section describing the default of any delivery of funds or 3(a)(39) of the Act, consisting of a prior convic- securities to the clearing agency; tion, as described in subparagraph (E) of section (5) If the summary action is based upon the provisions 3(a)(39) of the Act. However, no such action shall of section 17A(b)(5)(C)(iii) of the Act, a statement be considered final pursuant to this paragraph (f) describing the financial or operating difficulty of that results merely from a notice of such disquali- the participant based upon which the clearing fication to the person affected, if such person has agency determined that the suspension and closing not sought an adjudication of the matter, including of accounts was necessary for the protection of the a hearing, or otherwise exhausted the administra- clearing agency, its participants, creditors, or intive remedies within the clearing agency with re- vestors; spect to such a matter. (6) The nature and effective date of the suspension; (g) Contents of notice required by paragraph (f) of this and section. Any notice filed pursuant to paragraph (f) of this (7) Such other matters as the clearing agency deems section shall consist of the following, as appropriate: relevant. (1) The name of each person concerned and each person's last known address, as reflected in the Section 208.33—Application for stay or review of records of the clearing agency; disciplinary sanctions imposed by registered (2) A statement setting forth the principal issues clearing agency. raised, the answer of any person concerned, and a statement of the clearing agency in support of its (a) Stays. The rules adopted by the Securities and Exresolution of the principal issues raised in the change Commission (SEC) pursuant to section 19 of proceeding; the Securities Exchange Act of 1934 (15 U.S.C. 78s) (3) Any description furnished by or on behalf of the regarding applications by persons for whom the SEC is person concerned of the activities engaged in by the appropriate regulatory agency for stays of discithe person since the adjudication upon which the plinary sanctions or summary suspensions imposed by disqualification is based; registered clearing agencies (17 C.F.R. 240.19d-2) ap- (4) A copy of the order or decision of the court, ply to applications by member banks. References to appropriate regulatory agency, or self-regulatory the "Commission" are deemed to refer to the Board. organization that adjudicated the matter giving (b) Reviews. The regulations adopted by the Securities and rise to the statutory disqualification; Exchange Commission pursuant to section 19 of the (5) The nature of the action taken and the date upon Securities and Exchange Act of 1934 (15 U.S.C. 78s) which such action is to be made effective; and regarding applications by persons for whom the SEC is (6) Such other matters as the clearing agency deems the appropriate regulatory agency for reviews of final relevant. disciplinary sanctions, denials of participation, or pro- (h) Notice of summary suspension of participation. Any hibitions or limitations of access to services imposed registered clearing agency for which the Board is the by registered clearing agencies (17 C.F.R. 240.19dappropriate regulatory agency that summarily sus- 3(a)-(f)) apply to applications by member banks. Refpends or closes the accounts of a participant pursuant erences to the ' 'Commission'' are deemed to refer to to the provisions of section 17A(b)(5)(C) of the Act the Board. The Board's Uniform Rules of Practice and shall, within one business day after such action be- Procedure (12 C.F.R. Part 263) apply to review proceedings under this section 208.33 to the extent not comes effective, file notice thereof with the Board and inconsistent with this section 208.33. the appropriate regulatory agency for the participant, if other than the Board, of such action in accordance with paragraph (i) of this section. Section 208.34—Recordkeeping and confirmation of (i) Contents of notice of summary suspension. Any notice certain securities transactions effected by State pursuant to paragraph (h) of this section shall contain member banks. at least the following information, as appropriate: (1) The name of the participant concerned and.the (a) Exceptions and safe and sound operations. participant's last known address, as reflected in the (1) A State member bank may be excepted from one records of the clearing agency; or more of the requirements of this section if it (2) The date upon which the summary action became meets one of the following conditions of paraor will become effective; graphs (a)(l)(i) through (a)(l)(iv) of this section: (3) If the summary action is based upon the pro- (i) De minimis transactions. The requirements visions of section 17A(b)(5)(C)(i) of the Act, a of paragraphs (c)(2) through (c)(4) and paracopy of the relevant order or decision of the self- graphs (e)(l) through (e)(3) of this section Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 113 shall not apply to banks having an average of (3) Completion of the transaction effected by or less than 200 securities transactions per year through a state member bank shall mean: for customers over the prior three calendar (i) For purchase transactions, the time when the year period, exclusive of transactions in gov- customer pays the bank any part of the purernment securities; chase price (or the time when the bank makes (ii) Government securities. The recordkeeping the book-entry for any part of the purchase requirements of paragraph (c) of this section price if applicable); however, if the customer shall not apply to banks effecting fewer than pays for the security prior to the time pay- 500 government securities brokerage transac- ment is requested or becomes due, then the tions per year; provided that this exception transaction shall be completed when the bank shall not apply to government securities transfers the security into the account of the transactions by a State member bank that has customer; and filed a written notice, or is required to file (ii) For sale transactions, the time when the bank notice, with the Federal Reserve Board that it transfers the security out of the account of acts as a government securities broker or a the customer or, if the security is not in the government securities dealer; bank's custody, then the time when the secu- (iii) Municipal securities. The municipal securi- rity is delivered to the bank; however, if the ties activities of a State member bank that are customer delivers the security to the bank subject to regulations promulgated by the prior to the time delivery is requested or Municipal Securities Rulemaking Board shall becomes due then the transaction shall be not be subject to the requirements of this completed when the banks makes payment section; and into the account of the customer. (iv) Foreign branches. The requirements of this (4) Crossing of buy and sell orders shall mean a section shall not apply to the activities of security transaction in which the same bank acts as foreign branches of a State member bank. agent for both the buyer and the seller. (2) Every State member bank qualifying for an ex- (5) Customer shall mean any person or account, inemption under paragraph (a)(l) of this section that cluding any agency, trust, estate, guardianship, or conducts securities transactions for customers other fiduciary account, for which a State member shall, to ensure safe and sound operations, main- bank effects or participates in effecting the purtain effective systems of records and controls re- chase or sale of securities, but shall not include a garding its customer securities transactions that broker, dealer, bank acting as a broker or dealer, clearly and accurately reflect appropriate informa- municipal securities broker or dealer, or issuer of tion and provide an adequate basis for an audit of the securities which are the subject of the transacthe information, tions. (b) Definitions. For purposes of this section: (6) Debt security as used in paragraph (c) of this (1) Asset-backed security shall mean a security that is section shall mean any security, such as a bond, serviced primarily by the cash flows of a discrete debenture, note or any other similar instrument pool of receivables or other financial assets, either which evidences a liability of the issuer (including fixed or revolving, that by their terms convert into any security of this type that is convertible into cash within a finite time period plus any rights or stock or similar security) and fractional or particiother assets designed to assure the servicing or pation interests in one or more of any of the timely distribution of proceeds to the security foregoing; provided, however, that securities isholders. sued by an investment company registered under (2) Collective investment fund shall mean funds held the Investment Company Act of 1940, 15 U.S.C. by a State member bank as fiduciary and, consis- 80a-1 et seq., shall not be included in this definitent with local law, invested collectively as fol- tion. lows: (7) Government security shall mean: (i) In a common trust fund maintained by such (i) A security that is a direct obligation of, or bank exclusively for the collective invest- obligation guaranteed as to principal and inment and reinvestment of monies contributed terest by, the United States; thereto by the bank in its capacity as trustee, (ii) A security that is issued or guaranteed by a executor, administrator, guardian, or custo- corporation in which the United States has a dian under the Uniform Gifts to Minors Act; direct or indirect interest and which is desigor nated by the Secretary of the Treasury for (ii) In a fund consisting solely of assets of retire- exemption as necessary or appropriate in the ment, pension, profit sharing, stock bonus or public interest or for the protection of invessimilar trusts which are exempt from Federal tors; income taxation under the Internal Revenue (iii) A security issued or guaranteed as to princi- Code (26 U.S.C.). pal and interest by any corporation whose Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

774 Federal Reserve Bulletin • September 1998 securities are designated, by statute specifi- any profit-sharing agreement or in any oil, cally naming the corporation, to constitute gas, or other mineral royalty or lease, any exempt securities within the meaning of the collateral-trust certificate, preorganization laws administered by the Securities and Ex- certificate or subscription, transferable share, change Commission; or investment contract, voting-trust certificate, (iv) Any put, call, straddle, option, or privilege on for a security, any put, call, straddle, option, a security as described in paragraphs (b)(7) or privilege on any security, or group or (i), (ii), or (iii) of this section other than a put, index of securities (including any interest call, straddle, option, or privilege that is therein or based on the value thereof), any traded on one or more national securities instrument commonly known as a "securiexchanges, or for which quotations are dis- ty"; or any certificate of interest or participaseminated though an automated quotation tion in, temporary or interim certificate for, system operated by a registered securities receipt for, or warrant or right to subscribe to association. or purchase, any of the foregoing, (8) Investment discretion with respect to an account (ii) But does not include a deposit or share acshall mean if the State member bank, directly or count in a federally or state insured deposiindirectly, is authorized to determine what securi- tory institution, a loan participation, a letter ties or other property shall be purchased or sold by of credit or other form of bank indebtedness or for the account, or makes decisions as to what incurred in the ordinary course of business, securities or other property shall be purchased or currency, any note, draft, bill of exchange, or sold by or for the account even though some other bankers acceptance which has a maturity at person may have responsibility for such invest- the time of issuance of not exceeding nine ment decisions. months, exclusive of days of grace, or any (9) Municipal security shall mean a security which is renewal thereof the maturity of which is likea direct obligation of, or obligation guaranteed as wise limited, units of a collective investment to principal or interest by, a State or any political fund, interests in a variable amount (master) subdivision thereof, or any agency or instrumental- note of a borrower of prime credit, or U.S. ity of a State or any political subdivision thereof, Savings Bonds. or any municipal corporate instrumentality of one (c) Recordkeeping. Except as provided in paragraph (a) of or more States, or any security which is an indus- this section, every State member bank effecting securitrial development bond (as defined in 26 U.S.C. ties transactions for customers, including transactions 103(c)(2) the interest on which is excludable from in government securities, and municipal securities gross income under 26 U.S.C. 103(a)(l), by rea- transactions by banks not subject to registration as son of the application of paragraph (4) or (6) of municipal securities dealers, shall maintain the follow- 26 U.S.C. 103(c) (determined as if paragraphs ing records with respect to such transactions for at (4)(A), (5) and (7) were not included in 26 U.S.C. least three years. Nothing contained in this section 103(c)), paragraph (1) of 26 U.S.C. 103(c) does shall require a bank to maintain the records required not apply to such security. by this paragraph in any given manner, provided that (10) Periodic plan shall mean: the information required to be shown is clearly and (i) A written authorization for a State member accurately reflected and provides an adequate basis for bank to act as agent to purchase or sell for a the audit of such information. Records may be maincustomer a specific security or securities, in a tained in hard copy, automated, or electronic form specific amount (calculated in security units provided the records are easily retrievable, readily or dollars) or to the extent of dividends and available for inspection, and capable of being reprofunds available, at specific time intervals, and duced in a hard copy. A bank may contract with third setting forth the commission or charges to be party service providers, including broker/dealers, to paid by the customer or the manner of calcu- maintain records required under this part. lating them (including dividend reinvestment (1) Chronological records of original entry containing plans, automatic investment plans, and em- an itemized daily record of all purchases and sales ployee stock purchase plans); or of securities. The records of original entry shall (ii) Any prearranged, automatic transfer or sweep show the account or customer for which each such of funds from a deposit account to purchase a transaction was effected, the description of the security, or any prearranged, automatic re- securities, the unit and aggregate purchase or sale demption or sale of a security with the funds price (if any), the trade date and the name or other being transferred into a deposit account (in- designation of the broker/dealer or other person cluding cash management sweep services). from whom purchased or to whom sold; (11) Security shall mean: (2) Account records for each customer which shall (i) Any note, stock, treasury stock, bond, deben- reflect all purchases and sales of securities, all ture, certificate of interest or participation in receipts and deliveries of securities, and all re- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 775 ceipts and disbursements of cash with respect to broker/dealer from such customer in connectransactions in securities for such account and all tion with the transaction; other debits and credits pertaining to transactions (vi) The amount of any remuneration received or in securities; to be received by the bank from the customer (3) A separate memorandum (order ticket) of each and the source and amount of any other reorder to purchase or sell securities (whether exe- muneration to be received by the bank in cuted or canceled), which shall include: connection with the transaction, unless remu- (i) The account(s) for which the transaction was neration is determined pursuant to a written effected; agreement between the bank and the cus- (ii) Whether the transaction was a market order, tomer, provided, however, in the case of limit order, or subject to special instructions; Government securities and municipal securi- (iii) The time the order was received by the trader ties, this paragraph (d)(2)(vi) shall apply only or other bank employee responsible for ef- with respect to remuneration received by the fecting the transaction; bank in an agency transaction. If the bank (iv) The time the order was placed with the elects not to disclose the source and amount broker/dealer, or if there was no broker/ of remuneration it has or will receive from a dealer, the time the order was executed or party other than the customer pursuant to this canceled; paragraph (d)(2)(vi), the written notification (v) The price at which the order was executed; must disclose whether the bank has received and or will receive remuneration from a party (vi) The broker/dealer utilized; other than the customer, and that the bank (4) A record of all broker/dealers selected by the bank will furnish within a reasonable time the to effect securities transactions and the amount of source and amount of this remuneration upon commissions paid or allocated to each such broker written request of the customer. This election during the calendar year; and is not available, however, if, with respect to a (5) A copy of the written notification required by purchase, the bank was participating in a paragraphs (d) and (e) of this section. distribution of that security; or with respect (d) Content and time of notification. Every State member to a sale, the bank was participating in a bank effecting a securities transaction for a customer tender offer for that security; shall give or send to such customer either of the (vii) The name of the broker/dealer utilized; or, following types of notifications at or before comple- where there is no broker/dealer, the name of tion of the transaction or; if the bank uses a broker/ the person from whom the security was purdealer's confirmation, within one business day from chased or to whom it was sold, or the fact the bank's receipt of the broker/dealer's confirmation: that such information will be furnished within (1) A copy of the confirmation of a broker/dealer a reasonable time upon written request; relating to the securities transaction; and if the (viii)In the case of a transaction in a debt security bank is to receive remuneration from the customer subject to redemption before maturity, a or any other source in connection with the transac- statement to the effect that the debt security tion, and the remuneration is not determined pur- may be redeemed in whole or in part before suant to a prior written agreement between the maturity, that the redemption could affect the bank and the customer, a statement of the source yield represented and that additional informaand the amount of any remuneration to be re- tion is available on request; ceived; or (ix) In the case of a transaction in a debt security (2) A written notification disclosing: effected exclusively on the basis of a dollar price: (i) The name of the bank; (A) The dollar price at which the transaction (ii) The name of the customer; was effected; (iii) Whether the bank is acting as agent for such (B) The yield to maturity calculated from the customer, as agent for both such customer dollar price; provided, however, that this and some other person, as principal for its paragraph (c)(2)(ix)(B) shall not apply own account, or in any other capacity; to a transaction in a debt security that (iv) The date of execution and a statement that either has a maturity date that may be the time of execution will be furnished within extended by the issuer with a variable a reasonable time upon written request of interest payable thereon, or is an assetsuch customer specifying the identity, price backed security that represents an interand number of shares or units (or principal est in or is secured by a pool of receivamount in the case of debt securities) of such ables or other financial assets that are security purchased or sold by such customer; subject to continuous prepayment; (v) The amount of any remuneration received or (x) In the case of a transaction in a debt security to be received, directly or indirectly, by any effected on the basis of yield: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

776 Federal Reserve Bulletin • September 1998 (A) The yield at which the transaction was other than an agency capacity, in which instance effected, including the percentage the bank shall, upon request of the person having amount and its characterization (e.g., the power to terminate the account or, if there is current yield, yield to maturity, or yield no such person, upon the request of any person to call) and if effected at yield to call, the holding a vested beneficial interest in such actype of call, the call date, and the call count, give or send to such person the written price; and notification within a reasonable time. The bank (B) The dollar price calculated from the may charge such person a reasonable fee for proyield at which the transaction was ef- viding this information; fected; and (3) Accounts, where the bank exercises investment dis- (C) If effected on a basis other than yield to cretion in an agency capacity, in which instance: maturity and the yield to maturity is (i) The bank shall give or send to each customer lower than the represented yield, the not less frequently than once every three yield to maturity as well as the repre- months an itemized statement which shall sented yield; provided, however, that this specify the funds and securities in the cusparagraph (c)(2)(x)(C) shall not apply to tody or possession of the bank at the end of a transaction in a debt security that either such period and all debits, credits and transhas a maturity date that may be extended actions in the customer's accounts during by the issuer with a variable interest rate such period; and payable thereon, or is an asset-backed (ii) If requested by the customer, the bank shall security that represents an interest in or give or send to each customer within a reais secured by a pool of receivables or sonable time the written notification deother financial assets that are subject to scribed in paragraph (c) of this section. The continuous prepayment; bank may charge a reasonable fee for provid- (xi) In the case of a transaction in a debt security ing the information described in paragraph that is an asset-backed security which repre- (c) of this section; sents an interest in or is secured by a pool of (4) A collective investment fund, in which instance receivables or other financial assets that are the bank shall at least annually furnish a copy of a subject continuously to prepayment, a state- financial report of the fund, or provide notice that ment indicating that the actual yield of such a copy of such report is available and will be asset-backed security may vary according to furnished upon request, to each person to whom a the rate at which the underlying receivables regular periodic accounting would ordinarily be or other financial assets are prepaid and a rendered with respect to each participating acstatement of the fact that information con- count. This report shall be based upon an audit cerning the factors that affect yield (including made by independent public accountants or interat a minimum, the estimated yield, weighted nal auditors responsible only to the board of direcaverage life, and the prepayment assumptions tors of the bank; underlying yield) will be furnished upon writ- (5) A periodic plan, in which instance the bank: ten request of such customer; and (i) Shall (except for a cash management sweep (xii) In the case of a transaction in a debt security, service) give or send to the customer a writother than a government security, that the ten statement not less than every three security is unrated by a nationally recognized months if there are no securities transactions statistical rating organization, if that is the in the account, showing the customer's funds case. and securities in the custody or possession of (e) Notification by agreement; alternative forms and times the bank; all service charges and commisof notification. A State member bank may elect to use sions paid by the customer in connection the following alternative procedures if a transaction is with the transaction; and all other debits and effected for: credits of the customer's account involved in (1) Accounts (except periodic plans) where the bank the transaction; or does not exercise investment discretion and the (ii) Shall for a cash management sweep service bank and the customer agree in writing to a differ- or similar periodic plan as defined in section ent arrangement as to the time and content of the 208.34(b)(10)(ii) give or send its customer a notification; provided, however, that such agree- written statement in the same form as prement makes clear the customer's right to receive scribed in paragraph (e)(3) above for each the written notification pursuant to paragraph (c) month in which a purchase or sale of a secuof this section at no additional cost to the cus- rity takes place in a deposit account and not less tomer; than once every three months if there are no (2) Accounts (except collective investment funds) securities transactions in the account subject to where the bank exercises investment discretion in any other applicable laws or regulations; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 111 (6) Upon the written request of the customer the bank from this requirement are transactions for the shall furnish the information described in para- benefit of the officer or employee over which the graph (d) of this section, except that any such officer or employee has no direct or indirect information relating to remuneration paid in con- influence or control, transactions in mutual fund nection with the transaction need not be provided shares, and all transactions involving in the to the customer when paid by a source other than aggregate $10,000 or less during the calendar the customer. The bank may charge a reasonable quarter. For purposes of this paragraph (g)(4), fee for providing the information described in the term securities does not include government paragraph (d) of this section. securities. (f) Settlement of securities transactions. All contracts for the purchase or sale of a security shall provide for Section 208.35—Qualification requirements for completion of the transaction within the number of transactions in certain securities. [Reserved] business days in the standard settlement cycle for the security followed by registered broker dealers in the Section 208.36—Reporting requirements for State United States unless otherwise agreed to by the parties member banks subject to the Securities Exchange at the time of the transaction. Act of 1934. (g) Securities trading policies and procedures. Every State member bank effecting securities transactions for cus- (a) Filing requirements. Except as otherwise provided in tomers shall establish written policies and procedures this section, a member bank whose securities are subproviding: ject to registration pursuant to section 12(b) or section (1) Assignment of responsibility for supervision of all 12(g) of the Securities Exchange Act of 1934 (the officers or employees who: 1934 Act) (15 U.S.C. 781 (b) and (g)) shall comply (i) Transmit orders to or place orders with with the rules, regulations, and forms adopted by the broker/dealers; Securities and Exchange Commission (Commission) (ii) Execute transactions in securities for custom- pursuant to sections 12, 13, 14(a), 14(c), 14(d), 14(f) ers; or and 16 of the 1934 Act (15 U.S.C. 781, 78m, 78n(a), (iii) Process orders for notification and/or settle- (c), (d), (f) and 78p). The term "Commission" as used ment purposes, or perform other back office in those rules and regulations shall with respect to functions with respect to securities transac- securities issued by member banks be deemed to refer tions effected for customers; provided that to the Board unless the context otherwise requires. procedures established under this paragraph (b) Elections permitted for member banks with total assets (g)(l)(iii) should provide for supervision and of $150 million or less. reporting lines that are separate from supervi- (1) Notwithstanding paragraph (a) of this section or sion of personnel under paragraphs (g)(l)(i) the rules and regulations promulgated by the Comand (g)(l)(ii) of this section; mission pursuant to the 1934 Act a member bank (2) For the fair and equitable allocation of securities that has total assets of $150 million or less as of and prices to accounts when orders for the same the end of its most recent fiscal year, and no security are received at approximately the same foreign offices, may elect to substitute for the time and are placed for execution either individu- financial statements required by the Commission's ally or in combination; Form 10-Q, the balance sheet and income state- (3) Where applicable and where permissible under ment from the quarterly report of condition relocal law, for the crossing of buy and sell orders quired to be filed by the bank with the Board on a fair and equitable basis to the parties to the under section 9 of the Federal Reserve Act transaction; and (12 U.S.C. 324) (Federal Financial Institutions Ex- (4) That bank officers and employees who make in- amination Council Form 033 or 034). vestment recommendations or decisions for the (2) A member bank qualifying for and electing to file accounts of customers, who participate in the de- financial statements from its quarterly report of termination of such recommendations or deci- condition pursuant to paragraph (b)(l) of this secsions, or who, in connection with their duties, tion in its form 10-Q shall include earnings per obtain information concerning which securities are share or net loss per share data prepared in accorbeing purchased or sold or recommended for such dance with GAAP and disclose any material conaction, must report to the bank, within ten days tingencies, as required by Article 10 of the Comafter the end of the calendar quarter, all transac- mission's Regulation S-X (17 C.F.R. 210.10-01), tions in securities made by them or on their behalf, in the Management's Discussion and Analysis of either at the bank or elsewhere in which they Financial Condition and Results of Operations sechave a beneficial interest. The report shall iden- tion of Form 10-Q. tify the securities purchased or sold and indicate (c) Required filings. the dates of the transactions and whether the (1) Place and timing of filing. All papers required to transactions were purchases or sales. Excluded be filed with the Board, pursuant to the 1934 Act Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

778 Federal Reserve Bulletin • September 1998 or Regulations thereunder, shall be submitted to (B) Include a statement of the grounds of the Division of Banking Supervision and Regula- objection; and tion, Board of Governors of the Federal Reserve (C) Include the name of each exchange, if System, 20th Street and Constitution Avenue, any, with which the statement, report, or NW., Washington, DC 20551. Material may be document is filed. filed by delivery to the Board, through the mails, (3) The copies of the confidential portion and the or otherwise. The date on which papers are actu- application filed in accordance with this paragraph ally received by the Board shall be the date of shall be enclosed in a separate envelope marked filing thereof if all of the requirements with re- "CONFIDENTIAL TREATMENT," and adspect to the filing have been complied with. dressed to Secretary, Board of Governors of (2) Filing fees. No filing fees specified by the Com- the Federal Reserve System, Washington, DC mission's rules shall be paid to the Board. 20551. (3) Public inspection. Copies of the registration state- (4) Pending determination by the Board on the objecment, definitive proxy solicitation materials, re- tion filed in accordance with this paragraph, the ports, and annual reports to shareholders required confidential portion shall not be disclosed by the by this section (exclusive of exhibits) shall be Board. available for public inspection at the Board's of- (5) If the Board determines to sustain the objection, a fices in Washington, DC, as well as at the Federal notation to that effect shall be made at the appro- Reserve Banks of New York, Chicago, and San priate place in the statement, report, or document. Francisco and at the Reserve Bank in the district in (6) If the Board determines not to sustain the objecwhich the reporting bank is located. tion because disclosure of the confidential portion (d) Confidentiality of filing. Any person filing any state- is in the public interest, a finding and determinament, report, or document under the 1934 Act may tion to that effect shall be entered and notice of the make written objection to the public disclosure of any finding and determination sent by registered or information contained therein in accordance with the certified mail to the person. following procedure: (7) If the Board determines not to sustain the objec- (1) The person shall omit from the statement, report, tion, pursuant to paragraph (d)(6) of this section, or document, when it is filed, the portion thereof the confidential portion shall be made available to that the person desires to keep undisclosed (herein- the public: after called the confidential portion). The person (i) 15 days after notice of the Board's determishall indicate at the appropriate place in the state- nation not to sustain the objection has been ment, report, or document that the confidential given, as required by paragraph (d)(6) of this portion has been omitted and filed separately with section, provided that the person filing the the Board. objection has not previously filed with the (2) The person shall file the following with the copies Board a written statement that he intends, in of the statement, report, or document filed with the good faith, to seek judicial review of the Board: finding and determination; or (i) As many copies of the confidential portion, (ii) 60 days after notice of the Board's determieach clearly marked "CONFIDENTIAL nation not to sustain the objection has been TREATMENT," as there are copies of the given as required by paragraph (d)(6) of this statement, report, or document filed with the section and the person filing the objection has Board. Each copy of the confidential portion filed with the Board a written statement of shall contain the complete text of the item intent to seek judicial review of the finding and, notwithstanding that the confidential and determination, but has failed to file a portion does not constitute the whole of the petition for judicial review of the Board's answer, the entire answer thereto; except that determination; or in case the confidential portion is part of a (iii) Upon final judicial determination, if adverse financial statement or schedule, only the par- to the party filing the objection. ticular financial statement or schedule need (8) If the confidential portion is made available to the be included. All copies of the confidential public, a copy thereof shall be attached to each portion shall be in the same form as the copy of the statement, report, or document filed remainder of the statement, report, or docu- with the Board. ment; and (ii) An application making objection to the dis- Section 208.37—Government securities sales closure of the confidential portion. The appli- practices. cation shall be on a sheet or sheets separate from the confidential portion, and shall: (a) Scope. This subpart is applicable to state member (A) Identify the portion of the statement, re- banks that have filed notice as, or are required to file port, or document that has been omitted; notice as, government securities brokers or dealers Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 779 pursuant to section 15C of the Securities Exchange Act (a) Authority. Subpart D of Regulation H (12 C.F.R. Part (15 U.S.C. 78o-5) and Department of the Treasury Section 208, Subpart D) is issued by the Board of rules under section 15C (17C.F.R. 400.1(d) and Governors of the Federal Reserve System (Board) Part 401). under section 38 (section 38) of the FDI Act as added (b) Definitions. For purposes of this section: by section 131 of the Federal Deposit Insurance Corpo- (1) Bank that is a government securities broker or ration Improvement Act of 1991 (Pub. L. 102-242, dealer means a state member bank that has filed 105 Stat. 2236 (1991)) (12 U.S.C. 1831o). notice, or is required to file notice, as a govern- (b) Purpose and scope. This subpart D defines the capital ment securities broker or dealer pursuant to sec- measures and capital levels that are used for determintion 15C of the Securities Exchange Act ing the supervisory actions authorized under section 38 (15 U.S.C. 78o-5) and Department of the Treasury of the FDI Act. (Section 38 of the FDI Act establishes rules under section 15C (17C.F.R. 400.1(d) and a framework of supervisory actions for insured deposi- Part 401). tory institutions that are not adequately capitalized.) (2) Customer does not include a broker or dealer or a This subpart also establishes procedures for submisgovernment securities broker or dealer. sion and review of capital restoration plans and for (3) Government security has the same meaning as this issuance and review of directives and orders pursuant term has in section 3(a)(42) of the Securities Ex- to section 38. Certain of the provisions of this subpart change Act of 1934 (15 U.S.C. 78c(a)(42)). apply to officers, directors, and employees of state (4) Non-institutional customer means any customer member banks. Other provisions apply to any comother than: pany that controls a member bank and to the affiliates (i) A bank, savings association, insurance com- of the member bank. pany, or registered investment company; (c) Other supervisory authority. Neither section 38 nor (ii) An investment adviser registered under sec- this subpart in any way limits the authority of the tion 203 of the Investment Advisers Act of Board under any other provision of law to take super- 1940 (15 U.S.C. 8Ob-3); or visory actions to address unsafe or unsound practices (iii) Any entity (whether a natural person, corpo- or conditions, deficient capital levels, violations of ration, partnership, trust, or otherwise) with law, or other practices. Action under section 38 of the total assets of at least $50 million. FDI Act and this subpart may be taken independently (c) Business conduct. A bank that is a government securi- of, in conjunction with, or in addition to any other ties broker or dealer shall observe high standards of enforcement action available to the Board, including commercial honor and just and equitable principles of issuance of cease and desist orders, capital directives, trade in the conduct of its business as a government approval or denial of applications or notices, assesssecurities broker or dealer. ment of civil money penalties, or any other actions authorized by law. (d) Recommendations to customers. In recommending to a customer the purchase, sale or exchange of a govern- (d) Disclosure of capital categories. The assignment of a ment security, a bank that is a government securities bank under this subpart within a particular capital broker or dealer shall have reasonable grounds for category is for purposes of implementing and applying believing that the recommendation is suitable for the the provisions of section 38. Unless permitted by the customer upon the basis of the facts, if any, disclosed Board or otherwise required by law, no bank may state by the customer as to the customer's other security in any advertisement or promotional material its capiholdings and as to the customer's financial situation tal category under this subpart or that the Board or any and needs. other Federal banking agency has assigned the bank to (e) Customer information. Prior to the execution of a a particular capital category. transaction recommended to a non-institutional customer, a bank that is a government securities broker or dealer shall make reasonable efforts to obtain informa- Section 208.41—Definitions for purposes of this tion concerning: subpart. (1) The customer's financial status; (2) The customer's tax status; (3) The customer's investment objectives; and For purposes of this subpart, except as modified in this (4) Such other information used or considered to be section or unless the context otherwise requires, the terms reasonable by the bank in making recommenda- used have the same meanings as set forth in section 38 and tions to the customer. section 3 of the FDI Act. Subpart D—Prompt Corrective Action (a) Control— (1) Control has the same meaning assigned to it in Section 208.40—Authority, purpose, scope, other section 2 of the Bank Holding Company Act supervisory authority, and disclosure of capital (12 U.S.C. 1841), and the term controlled shall be categories. construed consistently with the term control. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

780 Federal Reserve Bulletin • September 1998 (2) Exclusion for fiduciary ownership. No insured de- (Call Report), minus intangible assets as provided in pository institution or company controls another the definition of tangible equity. At its discretion the insured depository institution or company by vir- Federal Reserve may calculate total assets using a tue of its ownership or control of shares in a bank's period-end assets rather than quarterly average fiduciary capacity. Shares shall not be deemed to assets. have been acquired in a fiduciary capacity if the (j) Total risk-based capital ratio means the ratio of qualiacquiring insured depository institution or com- fying total capital to weighted risk assets, as calculated pany has sole discretionary authority to exercise in accordance with the Board's Capital Adequacy voting rights with respect to the shares. Guidelines for State Member Banks: Risk-Based Mea- (3) Exclusion for debts previously contracted. No in- sure (Appendix A to this part). sured depository institution or company controls another insured depository institution or company Section 208.42—Notice of capital category. by virtue of its ownership or control of shares acquired in securing or collecting a debt previ- (a) Effective date of determination of capital category. A ously contracted in good faith, until two years member bank shall be deemed to be within a given after the date of acquisition. The two-year period capital category for purposes of section 38 of the FDI may be extended at the discretion of the appropri- Act and this subpart as of the date the bank is notified ate Federal banking agency for up to three oneof, or is deemed to have notice of, its capital category, year periods. pursuant to paragraph (b) of this section. (b) Controlling person means any person having control (b) Notice of capital category. A member bank shall be of an insured depository institution and any company deemed to have been notified of its capital levels and controlled by that person. its capital category as of the most recent date: (c) Leverage ratio means the ratio of Tier L capital to (1) A Report of Condition and Income (Call Report) average total consolidated assets, as calculated in acis required to be filed with the Board; cordance with the Board's Capital Adequacy Guide- (2) A final report of examination is delivered to the lines for State Member Banks: Tier 1 Leverage Meabank; or sure (Appendix B to this part). (3) Written notice is provided by the Board to the (d) Management fee means any payment of money or bank of its capital category for purposes of section provision of any other thing of value to a company or 38 of the FDI Act and this subpart or that the individual for the provision of management services or bank's capital category has changed as provided in advice to the bank, or related overhead expenses, inparagraph (c) of this section or section 208.43(c). cluding payments related to supervisory, executive, (c) Adjustments to reported capital levels and capital managerial, or policy making functions, other than category— compensation to an individual in the individual's ca- (1) Notice of adjustment by bank. A member bank pacity as an officer or employee of the bank. shall provide the Board with written notice that an (e) Risk-weighted assets means total weighted risk assets, adjustment to the bank's capital category may as calculated in accordance with the Board's Capital have occurred no later than 15 calendar days fol- Adequacy Guidelines for State Member Banks: Risklowing the date that any material event occurred Based Measure (Appendix A to this part). that would cause the bank to be placed in a lower (f) Tangible equity means the amount of core capital capital category from the category assigned to the elements in the Board's Capital Adequacy Guidelines bank for purposes of section 38 and this subpart on for State Member Banks: Risk-Based Measure (Apthe basis of the bank's most recent Call Report or pendix A to this part), plus the amount of outstanding report of examination. cumulative perpetual preferred stock (including related (2) Determination by Board to change capital catesurplus), minus all intangible assets except mortgage gory. After receiving notice pursuant to paraservicing rights to the extent that the Board determines graph (c)(l) of this section, the Board shall deterthat mortgage servicing rights may be included in mine whether to change the capital category of the calculating the bank's Tier 1 capital. bank and shall notify the bank of the Board's (g) Tier 1 capital means the amount of Tier 1 capital as determination. defined in the Board's Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure (Appendix A to this part). Section 208.43—Capital measures and capital (h) Tier 1 risk-based capital ratio means the ratio of category definitions. Tier 1 capital to weighted risk assets, as calculated in accordance with the Board's Capital Adequacy Guide- (a) Capital measures. For purposes of section 38 and this lines for State Member Banks: Risk-Based Measure subpart, the relevant capital measures are: (Appendix A to this part). (1) The total risk-based capital ratio; (i) Total assets means quarterly average total assets as (2) The Tier 1 risk-based capital ratio; and reported in a bank's Report of Condition and Income (3) The leverage ratio. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 781 (b) Capital categories. For purposes of section 38 and this ized member bank to comply with certain mandatory subpart, a member bank is deemed to be: or discretionary supervisory actions as if the bank were (1) ' "Well capitalized'' if the bank: in the next lower capital category (except that the (i) Has a total risk-based capital ratio of Board may not reclassify a significantly undercapital- 10.0 percent or greater; and ized bank as critically undercapitalized) (each of these (ii) Has a Tier 1 risk-based capital ratio of actions are hereinafter referred to generally as ' 'reclas- 6.0 percent or greater; and sifications") in the following circumstances: (iii) Has a leverage ratio of 5.0 percent or greater; (1) Unsafe or unsound condition. The Board has deand termined, after notice and opportunity for hearing (iv) Is not subject to any written agreement, or- pursuant to 12 C.F.R. 263.203, that the bank is in der, capital directive, or prompt corrective unsafe or unsound condition; or action directive issued by the Board pursuant (2) Unsafe or unsound practice. The Board has deterto section 8 of the FDI Act, the International mined, after notice and opportunity for hearing Lending Supervision Act of 1983 (12 U.S.C. pursuant to 12 C.F.R. 263.203, that, in the most 3907), or section 38 of the FDI Act, or any recent examination of the bank, the bank received regulation thereunder, to meet and maintain a and has not corrected, a less-than-satisfactory ratspecific capital level for any capital measure. ing for any of the categories of asset quality, (2) ' 'Adequately capitalized'' if the bank: management, earnings, liquidity, or sensitivity to (i) Has a total risk-based capital ratio of market risk. 8.0 percent or greater; and (ii) Has a Tier 1 risk-based capital ratio of Section 208.44—Capital restoration plans. 4.0 percent or greater; and (iii) Has: (a) Schedule for filing plan. (A) A leverage ratio of 4.0 percent or (1) In general. A member bank shall file a written greater; or capital restoration plan with the appropriate Re- (B) A leverage ratio of 3.0 percent or greater serve Bank within 45 days of the date that the if the bank is rated composite 1 under bank receives notice or is deemed to have notice the CAMELS rating system in the most that the bank is undercapitalized, significantly unrecent examination of the bank and is dercapitalized, or critically undercapitalized, unnot experiencing or anticipating signifi- less the Board notifies the bank in writing that the cant growth; and plan is to be filed within a different period. An (iv) Does not meet the definition of a "well capi- adequately capitalized bank that has been required, talized" bank. pursuant to section 208.43(c), to comply with su- (3) ' 'Undercapitalized'' if the bank has: pervisory actions as if the bank were undercapital- (i) A total risk-based capital ratio that is less ized is not required to submit a capital restoration than 8.0 percent; or plan solely by virtue of the reclassification. (ii) A Tier 1 risk-based capital ratio that is less (2) Additional capital restoration plans. Notwiththan 4.0 percent; or standing paragraph (a)(l) of this section, a bank (iii) Except as provided in paragraph (b)(2)(iii)(B) that has already submitted and is operating under a of this section, has a leverage ratio that is less capital restoration plan approved under section 38 than 4.0 percent; or and this subpart is not required to submit an addi- (iv) A leverage ratio that is less than 3.0 percent, tional capital restoration plan based on a revised if the bank is rated composite 1 under the calculation of its capital measures or a reclassifica- CAMELS rating system in the most recent tion of the institution under section 208.43(c), examination of the bank and is not experienc- unless the Board notifies the bank that it must ing or anticipating significant growth. submit a new or revised capital plan. A bank that (4) "Significantly undercapitalized'' if the bank has: is notified that it must submit a new or revised (i) A total risk-based capital ratio that is less capital restoration plan shall file the plan in writthan 6.0 percent; or ing with the appropriate Reserve Bank within (ii) A Tier 1 risk-based capital ratio that is less 45 days of receiving such notice, unless the Board than 3.0 percent; or notifies the bank in writing that the plan is to be (iii) A leverage ratio that is less than 3.0 percent. filed within a different period. (5) "Critically undercapitalized" if the bank has a (b) Contents of plan. All financial data submitted in conratio of tangible equity to total assets that is equal nection with a capital restoration plan shall be preto or less than 2.0 percent. pared in accordance with the instructions provided on (c) Reclassification based on supervisory criteria other the Call Report, unless the Board instructs otherwise. than capital. The Board may reclassify a well capital- The capital restoration plan shall include all of the ized member bank as adequately capitalized and may information required to be filed under section 38(e)(2) require an adequately-capitalized or an undercapital- of the FDI Act. A bank that is required to submit a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

782 Federal Reserve Bulletin • September 1998 capital restoration plan as the result of a reclassifica- under this subpart shall be limited to the tion of the bank pursuant to section 208.43(c) shall lesser of: include a description of the steps the bank will take to (A) An amount equal to 5.0 percent of the correct the unsafe or unsound condition or practice. No bank's total assets at the time the bank plan shall be accepted unless it includes any perfor- was notified or deemed to have notice mance guarantee described in section 38(e)(2)(C) of that the bank was undercapitalized; or that Act by each company that controls the bank. (B) The amount necessary to restore the rel- (c) Review of capital restoration plans. Within 60 days evant capital measures of the bank to the after receiving a capital restoration plan under this levels required for the bank to be classisubpart, the Board shall provide written notice to the fied as adequately capitalized, as those bank of whether the plan has been approved. The capital measures and levels are defined Board may extend the time within which notice regard- at the time that the bank initially fails to ing approval of a plan shall be provided. comply with a capital restoration plan (d) Disapproval of capital plan. If the Board does not under this subpart. approve a capital restoration plan, the bank shall sub- (ii) Limit on duration. The guarantee and limit of mit a revised capital restoration plan within the time liability under section 38 and this subpart specified by the Board. Upon receiving notice that its shall expire after the Board notifies the bank capital restoration plan has not been approved, any that it has remained adequately capitalized undercapitalized member bank (as denned in section for each of four consecutive calendar quar- 208.43(b)(3)) shall be subject to all of the provisions ters. The expiration or fulfillment by a comof section 38 and this subpart applicable to signifi- pany of a guarantee of a capital restoration cantly undercapitalized institutions. These provisions plan shall not limit the liability of the comshall be applicable until such time as the Board ap- pany under any guarantee required or proproves a new or revised capital restoration plan submit- vided in connection with any capital restorated by the bank. tion plan filed by the same bank after (e) Failure to submit capital restoration plan. A member expiration of the first guarantee. bank that is undercapitalized (as defined in section (iii) Collection on guarantee. Each company that 208.43(b)(3)) and that fails to submit a written capital controls a bank shall be jointly and severally restoration plan within the period provided in this liable for the guarantee for such bank as section shall, upon the expiration of that period, be required under section 38 and this subpart, subject to all of the provisions of section 38 and this and the Board may require and collect paysubpart applicable to significantly undercapitalized in- ment of the full amount of that guarantee stitutions. from any or all of the companies issuing the (f) Failure to implement capital restoration plan. Any guarantee. undercapitalized member bank that fails in any mate- (2) Failure to provide guarantee. In the event that a rial respect to implement a capital restoration plan bank that is controlled by a company submits a shall be subject to all of the provisions of section 38 capital restoration plan that does not contain the and this subpart applicable to significantly undercapi- guarantee required under section 38(e)(2) of the FDI talized institutions. Act, the bank shall, upon submission of the plan, be (g) Amendment of capital plan. A bank that has filed an subject to the provisions of section 38 and this subapproved capital restoration plan may, after prior writ- part that are applicable to banks that have not submitten notice to and approval by the Board, amend the ted an acceptable capital restoration plan. plan to reflect a change in circumstance. Until such (3) Failure to perform guarantee. Failure by any comtime as a proposed amendment has been approved, the pany that controls a bank to perform fully its bank shall implement the capital restoration plan as guarantee of any capital plan shall constitute a approved prior to the proposed amendment. material failure to implement the plan for purposes (h) Notice to FD1C. Within 45 days of the effective date of of section 38(f) of the FDI Act. Upon such failure, Board approval of a capital restoration plan, or any the bank shall be subject to the provisions of amendment to a capital restoration plan, the Board section 38 and this subpart that are applicable to shall provide a copy of the plan or amendment to the banks that have failed in a material respect to Federal Deposit Insurance Corporation. implement a capital restoration plan. (i) Performance guarantee by companies that control a bank. (1) Limitation on Liability. Section 208.45—Mandatory and discretionary (i) Amount limitation. The aggregate liability supervisory actions under section 38. under the guarantee provided under section 38 and this subpart for all companies that (a) Mandatory supervisory actions. control a specific member bank that is re- (1) Provisions applicable to all banks. All member quired to submit a capital restoration plan banks are subject to the restrictions contained in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 783 section 38(d) of the FDI Act on payment of capital follow the procedures for issuing directives under distributions and management fees. 12 C.F.R. 263.202 and 263.204, unless otherwise pro- (2) Provisions applicable to undercapitalized, signifi- vided in section 38 or this subpart. cantly undercapitalized, and critically undercapitalized banks. Immediately upon receiving notice Subpart E—Real Estate Lending and Appraisal or being deemed to have notice, as provided in Standards section 208.42 or section 208.44, that the bank is undercapitalized, significantly undercapitalized, or criti- Section 208.50—Authority, purpose, and scope. cally undercapitalized, the bank shall become subject (a) Authority. Subpart E of Regulation H (12 C.F.R. Part to the provisions of section 38 of the FDI Act: 208, Subpart E) is issued by the Board of Governors of (i) Restricting payment of capital distributions the Federal Reserve System under section 304 of the and management fees (section 38(d)); Federal Deposit Insurance Corporation Improvement (ii) Requiring that the Board monitor the condi- Act of 1991, 12U.S.C. 1828(o) and Title 11 of the tion of the bank (section 38(e)(l)); Financial Institutions Reform, Recovery, and Enforce- (iii) Requiring submission of a capital restoration ment Act (12 U.S.C. 3331-3351). plan within the schedule established in this (b) Purpose and scope. This subpart E prescribes stansubpart (section 38(e)(2)); dards for real estate lending to be used by member (iv) Restricting the growth of the bank's assets banks in adopting internal real estate lending policies. (section 38(e)(3)); and The standards applicable to appraisals rendered in (v) Requiring prior approval of certain expanconnection with federally related transactions entered sion proposals (section 3(e)(4)). into by member banks are set forth in 12 C.F.R. (3) Additional provisions applicable to significantly Part 225, Subpart G (Regulation Y). undercapitalized, and critically undercapitalized banks. In addition to the provisions of section 38 of the FDI Act described in paragraph (a)(2) of Section 208.51—Real estate lending standards. this section, immediately upon receiving notice or being deemed to have notice, as provided in sec- (a) Adoption of written policies. Each state bank that is a tion section 208.42 or section 208.44, that the member of the Federal Reserve System shall adopt and bank is significantly undercapitalized, or critically maintain written policies that establish appropriate limundercapitalized, or that the bank is subject to the its and standards for extensions of credit that are provisions applicable to institutions that are signif- secured by liens on or interests in real estate, or that icantly undercapitalized because the bank failed to are made for the purpose of financing permanent imsubmit or implement in any material respect an provements to real estate. acceptable capital restoration plan, the bank shall (b) Requirements of lending policies. become subject to the provisions of section 38 of (1) Real estate lending policies adopted pursuant to the FDI Act that restrict compensation paid to this section shall be: senior executive officers of the institution (sec- (i) Consistent with safe and sound banking praction 38(f)(4)). tices; (4) Additional provisions applicable to critically un- (ii) Appropriate to the size of the institution and dercapitalized banks. In addition to the provisions the nature and scope of its operations; and of section 38 of the FDI Act described in para- (iii) Reviewed and approved by the bank's board graphs (a)(2) and (a)(3) of this section, immedi- of directors at least annually. ately upon receiving notice or being deemed to (2) The lending policies shall establish: have notice, as provided in section 208.32, that the (i) Loan portfolio diversification standards; bank is critically undercapitalized, the bank shall (ii) Prudent underwriting standards, including become subject to the provisions of section 38 of loan-to-value limits, that are clear and meathe FDI Act: surable; (i) Restricting the activities of the bank (sec- (iii) Loan administration procedures for the tion 38(h)(l)); and bank's real estate portfolio; and (ii) Restricting payments on subordinated debt of (iv) Documentation, approval, and reporting rethe bank (section 38(h)(2)). quirements to monitor compliance with the (b) Discretionary supervisory actions. In taking any action bank's real estate lending policies. under section 38 that is within the Board's discretion (c) Monitoring conditions. Each member bank shall monito take in connection with: A member bank that is tor conditions in the real estate market in its lending deemed to be undercapitalized, significantly undercap- area to ensure that its real estate lending policies italized, or critically undercapitalized, or has been continue to be appropriate for current market condireclassified as undercapitalized, or significantly under- tions. capitalized; an officer or director of such bank; or a (d) Interagency guidelines. The real estate lending policies company that controls such bank, the Board shall adopted pursuant to this section should reflect consid- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

784 Federal Reserve Bulletin • September 1998 eration of the Interagency Guidelines for Real Estate that may aid in their identification and prose- Lending Policies (contained in Appendix C of this cution. Such procedures may include, but are part) established by the Federal bank and thrift supervi- not limited to: maintaining a camera that sory agencies. records activity in the banking office; using identification devices, such as prerecorded Subpart F—Miscellaneous Requirements serial-numbered bills, or chemical and electronic devices; and retaining a record of any Section 208.60—Authority, purpose, and scope. robbery, burglary, or larceny committed against the bank; (a) Authority. Subpart F of Regulation H (12 C.F.R. Part (iii) Provide for initial and periodic training of 208, Subpart F) is issued by the Board of Governors of officers and employees in their responsibilithe Federal Reserve System under sections 9, 11, 21, ties under the security program and in proper 25 and 25A of the Federal Reserve Act (12U.S.C. employee conduct during and after a bur- 321-338a, 248(a), 248(c), 481^186, 601 and 611), glary, robbery, or larceny; and section 7 of the International Banking Act (12 U.S.C. (iv) Provide for selecting, testing, operating, and 3105), section 3 of the Bank Protection Act of 1968 maintaining appropriate security devices, as (12 U.S.C. 1882), sections 1814, 1816, 1818, 1831o, specified in paragraph (c)(2) of this section. 1831p-l and 1831r-l of the FDI Act (12 U.S.C. 1814, (2) Security devices. Each member bank shall have, at 1816, 1818, 1831o, 1831p-l and 1831r-l), and the a minimum, the following security devices: Bank Secrecy Act (31 U.S.C. 5318). (i) A means of protecting cash and other liquid (b) Purpose and scope. This subpart F describes a member assets, such as a vault, safe, or other secure bank's obligation to implement security procedures to space; discourage certain crimes, to file suspicious activity (ii) A lighting system for illuminating, during the reports, and to comply with the Bank Secrecy Act's hours of darkness, the area around the vault, requirements for reporting and recordkeeping of cur- if the vault is visible from outside the bankrency and foreign transactions. It also describes the ing office; examination schedule for certain small insured mem- (iii) Tamper-resistant locks on exterior doors and ber banks. exterior windows that may be opened; (iv) An alarm system or other appropriate device Section 208.61—Bank security procedures. for promptly notifying the nearest responsible law enforcement officers of an attempted (a) Authority, purpose, and scope. Pursuant to section 3 of or perpetrated robbery or burglary; and the Bank Protection Act of 1968 (12 U.S.C. 1882), (v) Such other devices as the security officer member banks are required to adopt appropriate secu- determines to be appropriate, taking into conrity procedures to discourage robberies, burglaries, and sideration: the incidence of crimes against larcenies, and to assist in the identification and prose- financial institutions in the area; the amount cution of persons who commit such acts. It is the of currency and other valuables exposed to responsibility of the member bank's board of directors robbery, burglary, or larceny; the distance of to comply with the provisions of this section and the banking office from the nearest responsiensure that a written security program for the bank's ble law enforcement officers; the cost of the main office and branches is developed and imple- security devices; other security measures in mented. effect at the banking office; and the physical (b) Designation of security officer. Upon becoming a characteristics of the structure of the banking member of the Federal Reserve System, a member office and its surroundings. bank's board of directors shall designate a security (d) Annual reports. The security officer for each member officer who shall have the authority, subject to the bank shall report at least annually to the bank's board approval of the board of directors, to develop, within a of directors on the implementation, administration, and reasonable time, but no later than 180 days, and to effectiveness of the security program. administer a written security program for each banking (e) Reserve Banks. Each Reserve Bank shall develop and office. maintain a written security program for its main office (c) Security program. and branches subject to review and approval of the (1) The security program shall: Board. (i) Establish procedures for opening and closing for business and for the safekeeping of all Section 208.62—Suspicious activity reports. currency, negotiable securities, and similar valuables at all times; (a) Purpose. This section ensures that a member bank files (ii) Establish procedures that will assist in identi- a Suspicious Activity Report when it detects a known fying persons committing crimes against the or suspected violation of Federal law, or a suspicious institution and that will preserve evidence transaction related to a money laundering activity or a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 785 violation of the Bank Secrecy Act. This section applies the bank believes that it was either an actual or to all member banks. potential victim of a criminal violation, or series (b) Definitions. For the purposes of this section: of criminal violations, or that the bank was used to (1) FinCEN means the Financial Crimes Enforcement facilitate a criminal transaction, even though there Network of the Department of the Treasury. is no substantial basis for identifying a possible (2) Institution-affiliated party means any institution- suspect or group of suspects. affiliated party as that term is denned in 12 U.S.C. (4) Transactions aggregating $5,000 or more that 1786(r), or 1813(u) and 1818(b) (3), (4) or (5). involve potential money laundering or violations (3) SAR means a Suspicious Activity Report on the of the Bank Secrecy Act. Any transaction (which form prescribed by the Board. for purposes of this paragraph (c)(4) means a (c) SARs required. A member bank shall file a SAR with deposit, withdrawal, transfer between accounts, the appropriate Federal law enforcement agencies and exchange of currency, loan, extension of credit, the Department of the Treasury in accordance with the purchase or sale of any stock, bond, certificate of form's instructions by sending a completed SAR to deposit, or other monetary instrument or invest- FinCEN in the following circumstances: ment security, or any other payment, transfer, or (1) Insider abuse involving any amount. Whenever delivery by, through, or to a financial institution, the member bank detects any known or suspected by whatever means effected) conducted or at- Federal criminal violation, or pattern of criminal tempted by, at or through the member bank and involving or aggregating $5,000 or more in funds violations, committed or attempted against the or other assets, if the bank knows, suspects, or has bank or involving a transaction or transactions reason to suspect that: conducted through the bank, where the bank believes that it was either an actual or potential (i) The transaction involves funds derived from victim of a criminal violation, or series of criminal illegal activities or is intended or conducted violations, or that the bank was used to facilitate a in order to hide or disguise funds or assets criminal transaction, and the bank has a substantial derived from illegal activities (including, basis for identifying one of its directors, officers, without limitation, the ownership, nature, employees, agents or other institution-affiliated source, location, or control of such funds or parties as having committed or aided in the com- assets) as part of a plan to violate or evade mission of a criminal act regardless of the amount any law or regulation or to avoid any transacinvolved in the violation. tion reporting requirement under federal law; (2) Violations aggregating $5,000 or more where a (ii) The transaction is designed to evade any suspect can be identified. Whenever the member regulations promulgated under the Bank Sebank detects any known or suspected Federal crecy Act; or criminal violation, or pattern of criminal viola- (iii) The transaction has no business or apparent tions, committed or attempted against the bank or lawful purpose or is not the sort in which the involving a transaction or transactions conducted particular customer would normally be exthrough the bank and involving or aggregating pected to engage, and the bank knows of no $5,000 or more in funds or other assets, where the reasonable explanation for the transaction afbank believes that it was either an actual or poten- ter examining the available facts, including tial victim of a criminal violation, or series of the background and possible purpose of the criminal violations, or that the bank was used to transaction. facilitate a criminal transaction, and the bank has a (d) Time for reporting. A member bank is required to file a substantial basis for identifying a possible suspect SAR no later than 30 calendar days after the date of or group of suspects. If it is determined prior to initial detection of facts that may constitute a basis for filing this report that the identified suspect or filing a SAR. If no suspect was identified on the date of group of suspects has used an "alias," then infor- detection of the incident requiring the filing, a member mation regarding the true identity of the suspect or bank may delay filing a SAR for an additional group of suspects, as well as alias identifiers, such 30 calendar days to identify a suspect. In no case shall as drivers' licenses or social security numbers, reporting be delayed more than 60 calendar days after addresses and telephone numbers, must be re- the date of initial detection of a reportable transaction. ported. In situations involving violations requiring immediate attention, such as when a reportable violation is on- (3) Violations aggregating $25,000 or more regardgoing, the financial institution shall immediately noless of a potential suspect. Whenever the member tify, by telephone, an appropriate law enforcement bank detects any known or suspected Federal authority and the Board in addition to filing a timely criminal violation, or pattern of criminal viola- SAR. tions, committed or attempted against the bank or involving a transaction or transactions conducted (e) Reports to state and local authorities. Member banks through the bank and involving or aggregating are encouraged to file a copy of the SAR with state and $25,000 or more in funds or other assets, where local law enforcement agencies where appropriate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

786 Federal Reserve Bulletin • September 1998 (f) Exceptions. (b) Establishment of compliance program. On or before (1) A member bank need not file a SAR for a robbery April 27, 1987, each bank shall develop and provide or burglary committed or attempted that is re- for the continued administration of a program reasonported to appropriate law enforcement authorities. ably designed to assure and monitor compliance with (2) A member bank need not file a SAR for lost, the recordkeeping and reporting requirements set forth missing, counterfeit, or stolen securities if it files a in the Bank Secrecy Act (31 U.S.C. 5311, et seq.) and report pursuant to the reporting requirements of the implementing regulations promulgated thereunder 17 C.F.R. 240.17f-l. by the Department of Treasury at 31 C.F.R. Part 103. (g) Retention of records. A member bank shall maintain a The compliance program shall be reduced to writing, copy of any SAR filed and the original or business approved by the board of directors, and noted in the record equivalent of any supporting documentation for minutes. a period of five years from the date of the filing of the (c) Contents of compliance program. The compliance pro- SAR. Supporting documentation shall be identified gram shall, at a minimum: and maintained by the bank as such, and shall be (1) Provide for a system of internal controls to assure deemed to have been filed with the SAR. A member ongoing compliance; bank must make all supporting documentation avail- (2) Provide for independent testing for compliance to able to appropriate law enforcement agencies upon be conducted by bank personnel or by an outside request. party; (h) Notification to board of directors. The management of (3) Designate an individual or individuals responsible a member bank shall promptly notify its board of for coordinating and monitoring day-to-day comdirectors, or a committee thereof, of any report filed pliance; and pursuant to this section. (4) Provide training for appropriate personnel. (i) Compliance. Failure to file a SAR in accordance with this section and the instructions may subject the member bank, its directors, officers, employees, agents, or Section 208.64—Frequency of examination. other institution affiliated parties to supervisory action. (j) Confidentiality of SARs. SARs are confidential. Any (a) General. The Federal Reserve examines insured memmember bank subpoenaed or otherwise requested to ber banks pursuant to authority conferred by 12 U.S.C. disclose a SAR or the information contained in a SAR 325 and the requirements of 12 U.S.C. 1820(d). The shall decline to produce the SAR or to provide any Federal Reserve is required to conduct a full-scope, information that would disclose that a SAR has been on-site examination of every insured member bank at prepared or filed citing this section, applicable law least once during each 12-month period. (e.g., 31U.S.C. 5318(g)), or both, and notify the (b) 18-month rule for certain small institutions. The Fed- Board. eral Reserve may conduct a full-scope, on-site exami- (k) Safe harbor. The safe harbor provisions of 31 U.S.C. nation of an insured member bank at least once during 5318(g), which exempts any member bank that makes each 18-month period, rather than each 12-month a disclosure of any possible violation of law or regulaperiod as provided in paragraph (a) of this section, if tion from liability under any law or regulation of the the following conditions are satisfied: United States, or any constitution, law or regulation of (1) The bank has total assets of $250 million or less; any state or political subdivision, covers all reports of (2) The bank is well capitalized as defined in suspected or known criminal violations and suspicious Subpart D of this part (section 208.43); activities to law enforcement and financial institution (3) At the most recent examination conducted by eisupervisory authorities, including supporting docuther the Federal Reserve or applicable State bankmentation, regardless of whether such reports are filed ing agency, the Federal Reserve found the bank to pursuant to this section or are filed on a voluntary be well managed; basis. (4) At the most recent examination conducted by either the Federal Reserve or applicable State bank- Section 208.63—Procedures for monitoring Bank ing agency, the Federal Reserve assigned the bank Secrecy Act compliance. a CAMELS rating of 1 or 2; (5) The bank currently is not subject to a formal (a) Purpose. This section is issued to assure that all state enforcement proceeding or order by the FDIC, member banks establish and maintain procedures rea- OCC, or Federal Reserve System; and sonably designed to assure and monitor their compli- (6) No person acquired control of the bank during the ance with the provisions of the Bank Secrecy Act preceding 12-month period in which a full-scope, (31 U.S.C. 5311, et seq.) and the implementing regula- on-site examination would have been required but tions promulgated thereunder by the Department of for this section. Treasury at 31 C.F.R. Part 103, requiring recordkeep- (c) Authority to conduct more frequent examinations. This ing and reporting of currency transactions. section does not limit the authority of the Federal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 787 Reserve to examine any member bank as frequently as (c) In recommending to a customer the purchase, sale, or the agency deems necessary. exchange of any government security, the bank shall have reasonable grounds for believing that the recommendation is suitable for the customer upon the basis Subpart G—Interpretations of the facts, if any, disclosed by the customer as to the customer's other security holdings and financial situa- Section 208.100—Sale of bank's money orders off tion and needs. premises as establishment of branch office. (d) The interpretation in this section concerns only the manner in which a bank determines that a recommen- (a) The Board of Governors has been asked to consider dation is suitable for a particular institutional cuswhether the appointment by a member bank of an tomer. The manner in which a bank fulfills this suitagent to sell the bank's money orders, at a location ability obligation will vary, depending on the nature of other than the premises of the bank, constitutes the the customer and the specific transaction. Accordingly, establishment of a branch office. the interpretation in this section deals only with guid- (b) Section 5155 of the Revised Statutes (12U.S.C. 36), ance regarding how a bank may fulfill customerwhich is also applicable to member banks, defines the specific suitability obligations under section term branch as including "any branch bank, branch 208.37(d).7 office, branch agency, additional office, or any branch (e) While it is difficult to define in advance the scope of a place of business ... at which deposits are received, or bank's suitability obligation with respect to a specific checks paid, or money lent." The basic question is institutional customer transaction recommended by a whether the sale of a bank's money orders by an agent bank, the Board has identified certain factors that may amounts to the receipt of deposits at a branch place of be relevant when considering compliance with section business within the meaning of this statute. 208.37(d). These factors are not intended to be require- (c) Money orders are classified as deposits for certain ments or the only factors to be considered but are purposes. However, they bear a strong resemblance to offered merely as guidance in determining the scope of traveler's checks that are issued by banks and sold off a bank's suitability obligations. premises. In both cases, the purchaser does not intend (f) The two most important considerations in determining to establish a deposit account in the bank, although a the scope of a bank's suitability obligations in making liability on the bank's part is created. Even though recommendations to an institutional customer are the they result in a deposit liability, the Board is of the customer's capability to evaluate investment risk indeopinion that the issuance of a bank's money orders by pendently and the extent to which the customer is an authorized agent does not involve the receipt of exercising independent judgement in evaluating a deposits at a "branch place of business" and accordbank's recommendation. A bank must determine, ingly does not require the Board's permission to estabbased on the information available to it, the customer's lish a branch. capability to evaluate investment risk. In some cases, the bank may conclude that the customer is not capa- Section 208.101—Obligations concerning ble of making independent investment decisions in institutional customers. general. In other cases, the institutional customer may have general capability, but may not be able to under- (a) As a result of broadened authority provided by the stand a particular type of instrument or its risk. This is Government Securities Act Amendments of 1993 more likely to arise with relatively new types of instru- (15U.S.C. 78o-3 and 78o-5), the Board is adopting ments, or those with significantly different risk or sales practice rules for the government securities mar- volatility characteristics than other investments generket, a market with a particularly broad institutional ally made by the institution. If a customer is either generally not capable of evaluating investment risk or component. Accordingly, the Board believes it is aplacks sufficient capability to evaluate the particular propriate to provide further guidance to banks on their product, the scope of a bank's customer-specific oblisuitability obligations when making recommendations gations under section 208.37(d) would not be diminto institutional customers. ished by the fact that the bank was dealing with an (b) The Board's Suitability Rule, section 208.37(d), is institutional customer. On the other hand, the fact that fundamental to fair dealing and is intended to promote a customer initially needed help understanding a potenethical sales practices and high standards of profestial investment need not necessarily imply that the sional conduct. Banks' responsibilities include having a reasonable basis for recommending a particular security or strategy, as well as having reasonable grounds for believing the recommendation is suitable for the 7. The interpretation in this section does not address the obligation customer to whom it is made. Banks are expected to related to suitability that requires that a bank have "... a 'reasonable basis' to believe that the recommendation could be suitable for at least meet the same high standards of competence, professome customers." In the Matter of the Application of F.J. Kaufman sionalism, and good faith regardless of the financial and Company of Virginia and Frederick J. Kaufman, Jr., 50 SEC 164 circumstances of the customer. (1989). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

788 Federal Reserve Bulletin • September 1998 customer did not ultimately develop an understanding important information regarding its portfolio or and make an independent investment decision. investment objectives. (g) A bank may conclude that a customer is exercising (j) Banks are reminded that these factors are merely independent judgement if the customer's investment guidelines that will be utilized to determine whether a decision will be based on its own independent assess- bank has fulfilled its suitability obligation with respect ment of the opportunities and risks presented by a to a specific institutional customer transaction and that potential investment, market factors and other invest- the inclusion or absence of any of these factors is not ment considerations. Where the bank has reasonable dispositive of the determination of suitability. Such a grounds for concluding that the institutional customer determination can only be made on a case-by-case is making independent investment decisions and is basis taking into consideration all the facts and circumcapable of independently evaluating investment risk, stances of a particular bank/customer relationship, asthen a bank's obligations under section 208.25(d) for a sessed in the context of a particular transaction, particular customer are fulfilled.8 Where a customer (k) For purposes of the interpretation in this section, an has delegated decision-making authority to an agent, institutional customer shall be any entity other than a such as an investment advisor or a bank trust depart- natural person. In determining the applicability of the ment, the interpretation in this section shall be applied interpretation in this section to an institutional custo the agent. tomer, the Board will consider the dollar value of the securities that the institutional customer has in its (h) A determination of capability to evaluate investment portfolio and/or under management. While the interrisk independently will depend on an examination of pretation in this section is potentially applicable to any the customer's capability to make its own investment institutional customer, the guidance contained in this decisions, including the resources available to the cussection is more appropriately applied to an institutional tomer to make informed decisions. Relevant considercustomer with at least $10 million invested in securiations could include: ties in the aggregate in its portfolio and/or under (1) The use of one or more consultants, investment management. advisers, or bank trust departments; (2) The general level of experience of the institutional customer in financial markets and specific experi- Part 250—Miscellaneous Interpretations ence with the type of instruments under consideration; (3) The customer's ability to understand the economic 1. The authority citation for Part 250 continues to read as features of the security involved; follows: (4) The customer's ability to independently evaluate how market developments would affect the secu- Authority: 12U.S.C. 78, 248(i) and 371c(e). Sections rity; and 250.120 through 250.123, 250.140, 250.161, 250.162 [Re- (5) The complexity of the security or securities in- moved] volved. (i) A determination that a customer is making indepen- 2. Sections 250.120, 250.121, 250.122, 250.123, 250.140, dent investment decisions will depend on the nature of 250.161, 250.162 are removed. the relationship that exists between the bank and the customer. Relevant considerations could include: Sections 250.300 through 250.302 [Removed] (1) Any written or oral understanding that exists between the bank and the customer regarding the nature of the relationship between the bank and 3. The undesignated center heading preceding section the customer and the services to be rendered by 250.300 and sections 250.300 through 250.302 are rethe bank; moved. (2) The presence or absence of a pattern of acceptance of the bank's recommendations; (3) The use by the customer of ideas, suggestions, FINAL RULE—AMENDMENT TO REGULATION I market views and information obtained from other government securities brokers or dealers or market The Board of Governors is amending 12 C.F.R. Part 209, professionals, particularly those relating to the its Regulation I (Issue and Cancellation of Federal Reserve same type of securities; and Bank Capital Stock), regarding the issue and cancellation (4) The extent to which the bank has received from of Federal Reserve Bank Capital Stock in order to reduce the customer current comprehensive portfolio in- regulatory burden and simplify and update requirements. formation in connection with discussing recom- The amendments modernize Regulation I in accordance mended transactions or has not been provided with the Board's policy of regular review of its regulations and the Board's review of its regulations pursuant to section 303 of the Riegle Community Development and Regu- 8. See footnote 7 in paragraph (d) of this section. latory Improvement Act of 1994. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 789 Effective October 1, 1998, 12 C.F.R. Part 209 is amended Reserve Bank. The bank shall pay for the stock (or as follows: deposit) in accordance with section 209.4 of this regulation. Part 209—Issue and Cancellation of Federal (b) Issuance of stock; acceptance of deposit. Upon autho- Reserve Bank Capital Stock (Regulation I) rization to commence business by the Comptroller of the Currency in the case of a national bank in organiza- Section 209.1—Authority, purpose, and scope. tion or upon approval of conversion by the Comptrol- Section 209.2—Banks desiring to become member banks. ler of the Currency in the case of a state nonmember Section 209.3—Cancellation of Reserve Bank stock. bank converting to a national bank, or when all appli- Section 209.4—Amounts and payments. cable requirements have been complied with in the Section 209.5—The share register. case of a state bank approved for membership, the Reserve Bank shall issue the appropriate number of shares by crediting the bank with the appropriate num- Authority: 12U.S.C. 222, 248, 282, 286-288, 321, 323, ber of shares on its books. In the case of a national or 327-328, 333, 466. state member bank in organization, such issuance shall be as of the date the bank opens for business. In the Section 209.1—Authority, purpose, and scope. case of a mutual savings bank not authorized to purchase Reserve Bank shares, the Reserve Bank shall (a) Authority. This part is issued pursuant to 12U.S.C. accept the deposit in place of issuing shares. The 222, 248, 282, 286-288, 321, 323, 327-328, and 466. bank's membership shall become effective on the date (b) Purpose. The purpose of this part is to implement the of such issuance or acceptance. provisions of the Federal Reserve Act relating to the issuance and cancellation of Federal Reserve Bank (c) Location of bank. stock upon becoming or ceasing to be a member bank, (1) General rule. For purposes of this part, a national or upon changes in the capital and surplus of a member bank or a state bank is located in the Federal bank, of the Federal Reserve System. Reserve District that contains the location specified in the bank's charter or organizing certificate, (c) Scope. This part applies to member banks of the Fedor, if no such location is specified, the location of eral Reserve System, to national banks in process of its head office, unless otherwise determined by the organization, and to state banks applying for member- Board under paragraph (c)(2) of this section. ship. National banks and locally-incorporated banks located in United States dependencies and possessions (2) Board determination. If the location of a bank as are eligible (with the consent of the Board) but not specified in paragraph (c)(l) of this section, in the required to apply for membership under section 19(h) judgment of the Board of Governors of the Federal of the Federal Reserve Act, 12 U.S.C. 466.1 Reserve System (Board), is ambiguous, would impede the ability of the Board or the Reserve Banks to perform their functions under the Federal Re- Section 209.2—Banks desiring to become member serve Act, or would impede the ability of the bank banks. to operate efficiently, the Board will determine the Federal Reserve District in which the bank is (a) Application for stock or deposit. Each national bank in located, after consultation with the bank and the process of organization,2 each nonmember state bank relevant Reserve Banks. The relevant Reserve converting into a national bank, and each nonmember Banks are the Reserve Bank whose District constate bank applying for membership in the Federal tains the location specified in paragraph (c)(l) of Reserve System under Regulation H, 12 C.F.R. Part this section and the Reserve Bank in whose Dis- 208, shall file with the Federal Reserve Bank (Reserve trict the bank is proposed to be located. In making Bank) in whose district it is located an application for this determination, the Board will consider any stock (or deposit in the case of mutual savings banks applicable laws, the business needs of the bank, not authorized to purchase Reserve Bank stock3) in the the location of the bank's head office, the locations where the bank performs its business, and the locations that would allow the bank, the Board, 1. If such a bank desires to become a member bank under the and the Reserve Banks to perform their functions provisions of section 19(h) of the Federal Reserve Act, it should communicate with the Federal Reserve Bank with which it desires to efficiently and effectively. do business. 2. A new national bank organized by the Federal Deposit Insurance Corporation under section 1 l(n) of the Federal Deposit Insurance Act (12 U.S.C. 1821(n)) should not apply until in the process of issuing stock pursuant to section 11 (n)(15) of that act. Reserve Bank approval a deposit. (See section 208.3(a) of Regulation H, 12 C.F.R. of such an application shall not be effective until the issuance of a Part 208.) The membership of the savings bank shall be terminated if certificate by the Comptroller of the Currency pursuant to sec- the laws under which it is organized are not amended to authorize tion ll(n)(16)of that act. such purchase at the first session of the legislature after its admission, 3. A mutual savings bank not authorized to purchase Federal or if it fails to purchase such stock within six months after such an Reserve Bank stock may apply for membership evidenced initially by amendment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

790 Federal Reserve Bulletin • September 1998 Section 209.3—Cancellation of Reserve Bank stock. transfer the amount paid in for those shares, plus accrued dividends (at the rate specified (a) Application for cancellation. Any bank that desires to in paragraph (d) of section 209.4) and subject withdraw from membership in the Federal Reserve to paragraph (e)(2) of section 209.4 (or, in System, voluntarily liquidates or ceases business, is the case of a mutual savings bank member merged or consolidated into a nonmember bank, or is not authorized to purchase Federal Reserve involuntarily liquidated by a receiver or conservator or Bank stock, the amount of its deposit, adotherwise, shall promptly file with its Reserve Bank an justed in a like manner), to the Reserve Bank application for cancellation of all its Reserve Bank of the bank's new District or of the surviving stock (or withdrawal of its deposit, as the case may be) bank; and and payment therefor in accordance with sec- (ii) The Reserve Bank of the member bank's new tion 209.4. District or of the surviving bank shall issue (b) Involuntary termination of membership. If an applica- the appropriate number of shares by crediting tion is not filed promptly after a cessation of business the bank with the appropriate number of by a state member bank, a vote to place a member shares on its books (or, in the case of a bank in voluntary liquidation, or the appointment of a mutual savings bank, by accepting the dereceiver for (or a determination to liquidate the bank posit or an appropriate increase in the deposby a conservator of) a member bank, the Board may, it). after notice and an opportunity for hearing where (e) Voluntary withdrawal. Any bank withdrawing volunrequired under Section 9(9) of the Federal Reserve Act tarily from membership shall give six months written (12U.S.C. 327), order the membership of the bank notice, and shall not cause the withdrawal of more than terminated and all of its Reserve Bank stock canceled. 25 percent of any Reserve Bank's capital stock in any (c) Effective date of cancellation. Cancellation in whole of calendar year, unless the Board waives these requirea bank's Reserve Bank capital stock shall be effective, ments. in the case of: (1) Voluntary withdrawal from membership by a state Section 209.4—Amounts and Payments. bank, as of the date of such withdrawal; (2) Merger into, consolidation with, or (for a national (a) Amount of subscription. The total subscription of a bank) conversion into, a State nonmember bank, member bank (other than a mutual savings bank) shall as of the effective date of the merger, consolida- equal six percent of its capital and surplus. Whenever tion, or conversion; and any member bank (other than a mutual savings bank) (3) Involuntary termination of membership, as of the experiences a cumulative increase or decrease in capidate the Board issues the order of termination. tal and surplus requiring a change in excess of the (d) Exchange of stock on merger or change in location. lesser of 15 percent or 100 shares of its Reserve Bank (1) Merger of member banks in the same Federal capital stock, it shall file with the appropriate Reserve Reserve District. Upon a merger or consolidation Bank an application for issue or cancellation of Reof member banks located in the same Federal serve Bank capital stock in order to adjust its Reserve Reserve District, the Reserve Bank shall cancel Bank capital stock subscription to equal six percent of the shares of the nonsurviving bank (or in the case the member bank's capital and surplus. Such applicaof a mutual savings bank not authorized to pur- tion shall be filed promptly after the first report of chase Reserve Bank stock, shall credit the deposit condition that reflects the increase or decrease occato the account of the surviving bank) and shall sioning the adjustment. In addition, every member credit the appropriate number of shares on its bank shall file an application for issue or cancellation books to (or in the case of a mutual savings bank of Reserve Bank capital stock if needed in order to not authorized to purchase Reserve Bank stock, adjust its Reserve Bank capital stock subscription to shall accept an appropriate increase in the deposit equal six percent of the member bank's capital and of) the surviving bank, subject to paragraph (e)(2) surplus as shown on its report of condition as of of section 209.4. December 31 of each year promptly after filing such (2) Change of location or merger of member banks in report. different Federal Reserve Districts. Upon a deter- (b) Capital Stock and Surplus defined. Capital stock and mination under paragraph (c)(2) of section 209.2 surplus of a member bank means the paid-in capital that a member bank is located in a Federal Reserve stock4 and paid-in surplus of the bank, less any deficit District other than the District of the Reserve Bank in the aggregate of its retained earnings, gains (losses) of which it is a member, or upon a merger or on available for sale securities, and foreign currency consolidation of member banks located in different translation accounts, all as shown on the bank's most Federal Reserve Districts— (i) The Reserve Bank of the member bank's former District, or of the nonsurviving mem- 4. Capital stock includes common stock and preferred stock (includber bank, shall cancel the bank's shares and ing sinking fund preferred stock). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 791 recent report of condition. Paid-in capital stock and books by the number of shares required to be paid-in surplus of a bank in organization means the canceled and shall pay therefor a sum equal to the amount which is to be paid in at the time the bank cash subscription paid on the canceled stock plus commences business. accrued dividends (at the rate specified in para- (c) Mutual savings banks. The total subscription of a graph (d) of this section), such sum not to exceed member bank that is a mutual savings bank shall equal the book value of the stock.5 six-tenths of 1 percent of its total deposit liabilities as (2) In the case of any cancellation of Reserve Bank shown on its most recent report of condition. When- stock under this Part, the Reserve Bank may first ever any member bank that is a mutual savings bank apply such sum to any liability of the bank to the experiences a cumulative increase or decrease in total Reserve Bank and pay over the remainder to the deposit liabilities as shown on its most recent report of bank (or receiver or conservator, as appropriate). condition requiring a change in its holding of Reserve Bank stock in excess of the lesser of 15 percent or 100 Section 209.5—The share register. shares, it shall file with the appropriate Reserve Bank an application for issue or cancellation of Reserve (a) Electronic or written record. A member bank's hold- Bank capital stock in order to adjust its Reserve Bank ing of Reserve Bank capital stock shall be represented capital stock subscription to equal six-tenths of 1 per- by one (or at the option of the Reserve Bank, more cent of the member bank's total deposit liabilities. than one) notation on the Reserve Bank's books. Such Such application shall be filed promptly after the first books may be electronic or in writing. Upon any issue report of condition that reflects the increase or de- or cancellation of Reserve Bank capital stock, the crease occasioning the adjustment. In addition, every Reserve Bank shall record the member bank's new member bank that is a mutual savings bank shall file share position in its books (or eliminate the bank's an application for issue or cancellation of Reserve share position from its books, as the case may be). Bank capital stock if needed in order to adjust its (b) Certification. A Reserve Bank may certify on request Reserve Bank capital stock subscription to equal sixas to the number of shares held by a member bank and tenths of 1 percent of its total deposit liabilities as purchased before March 28, 1942, or as to the purshown on its report of condition as of December 31 of chase and cancellation dates and prices of shares caneach year promptly after filing such report. A mutual celled, as the case may be. savings bank that is applying for or has a deposit with the appropriate Reserve Bank in lieu of Reserve Bank capital stock shall file for acceptance or adjustment of FINAL RULE—AMENDMENT TO REGULATION P its deposit in a like manner. (d) Payment for subscriptions. Upon approval by the Re- The Board of Governors is amending 12 C.F.R. Part 216, serve Bank of an application for capital stock (or for a its Regulation P (Security Procedures), which is no longer deposit in lieu thereof), the applying bank shall pay the necessary since its provisions have been incorporated into Reserve Bank one-half of the subscription amount plus Regulation H (Membership of State Banking Institutions in accrued dividends. For purposes of this part, dividends the Federal Reserve System), as issued by the Board. shall accrue at the rate of one half of one percent per Regulation P requires each bank to adopt appropriate secumonth calculated on the basis of a 360-day year of rity procedures. twelve 30-day months. Upon payment (and in the case Effective October 1, 1998, 12 C.F.R. Part 216 is amended of a national bank in organization or state nonmember as follows: bank converting into a national bank, upon authorization or approval by the Comptroller of the Currency), Part 216—[Removed] the Reserve Bank shall issue the appropriate number of shares by crediting the bank with the appropriate number of shares on its books. In the case of a mutual 1. Part 216 is removed. savings bank not authorized to purchase Reserve Bank stock, the Reserve Bank will accept the deposit or addition to the deposit in place of issuing shares. The FINAL RULE—AMENDMENT TO REGULATIONS T remaining half of the subscription or additional sub- ANDX scription (including subscriptions for deposits or additions to deposits) shall be subject to call by the Board. The Board of Governors is amending 12 C.F.R. Parts 220 and 224, its Regulations T and X (Securities Credit Trans- (e) Payment for cancellations. (1) Upon approval of an application for cancellation of Reserve Bank capital stock, or (in the case of involuntary termination of membership) upon the 5. Under sections 6 and 9(10) of the Act, a Reserve Bank is under no obligation to pay unearned accrued dividends on redemption of its effective date of cancellation specified in seccapital stock from an insolvent member bank for which a receiver has tion 209.3(c)(3), the Reserve Bank shall reduce been appointed or from state member banks on voluntary withdrawal the bank's shareholding on the Reserve Bank's from or involuntary termination of membership. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

792 Federal Reserve Bulletin • September 1998 actions; List of Marginable OTC Stocks; List of Foreign Help at Home, Inc.: $.02 par common; Warrants (expire Margin Stocks). The List of Marginable OTC Stocks (OTC 12-05-2000) List) is composed of stocks traded over-the-counter ("OTC") in the United States that qualify as margin secu- Impco Technologies, Inc.: Warrants (expire 03-07-1998) rities under Regulation T, Credit by Brokers and Dealers. Insite Vision Incorporated: $.01 par common The List of Foreign Margin Stocks ("Foreign List") is International Precious Metals Corporation: No par common composed of foreign equity securities that qualify as margin securities under Regulation T. The OTC List and the London Financial Corporation: No par common Foreign List are published four times a year by the Board. Effective August 10, 1998, and in accordance with Manatron, Inc.: No par common 12 C.F.R. Parts 220 and 224, there is set forth below a listing of deletions from and additions to the OTC List and National Medical Financial Services Corporation: $.01 par a complete edition of the Foreign List. common Neorx Corporation: Warrants (expire 04-25-1998) Deletions from the List of Marginable OTC Stocks Nitches, Inc.: No par common North American Palladium Ltd.: No par common Stocks Removed for Failing Continued Listing Novametrix Medical Systems, Inc.: Class A, Warrants (expire Requirements 12-08-1998) NSA International, Inc.: $.05 par common Altris Software, Inc.: No par common Nu-Tech Bio-Med, Inc.: $.01 par common American Cinemastores Inc.: $.001 par common American International Petroleum Corp.: Class A, Warrants Pacific Chemical, Inc.: $4.75 par common (expire 04-09-1998) Paris Corporation: $.004 par common Aquagenix Inc.: $.01 par common; Warrants (expire Photo Control Corporation: $.08 par common 09-13-1999) Physician Computer Network, Inc.: $.01 par common Provident American Corporation: $1.00 par common Ariely Advertising, Limited: Ordinary Shares Atkinson, Guy F., Company of California: No par common Questron Technology, Inc.: Series B, convertible preferred Autoinfo. Inc.: $.01 par common Raster Graphics, Inc.: $.001 par common Biocircuits Corporation: $.001 par common Republic Security Financial Corporation (Florida): Series C, BPI Packaging Technologies, Inc.: Series A, $.01 par redeem- 7 percent par cumulative convertible preferred able convertible preferred Builders Transport, Incorporated: $.01 par common; 8 percent Scios Inc.: Class D, Warrants (expire 06-30-1998) convertible debentures due 2005 Search Financial Services, Inc.: $.01 par common Semi-Tech Corporation: Class A, sub-voting shares Care Group, Inc., The: $.001 par common Serengeti Eyewear, Inc.: $.001 par common; Warrants (expire Clean Diesel Technologies, Inc.: $.05 par common 09-29-2000) Clevetrust Realty Investors: $1.00 par shares of beneficial Smartserv Online, Inc.: $.01 par common interest SMED International, Inc.: No par common Consumers Financial Corporation: No par common Sovereign Bancorp, Inc. (Pennsylvania): Series B, 6-'/4 per- Cygne Designs, Inc.: $.01 par common cent cumulative convertible preferred Star Technologies, Inc.: $5.00 par common Daily Journal Corporation: $.01 par common Submicron Systems Corporation: $.0001 par common Data Systems Network Corporation: $.01 par common Sumitomo Bank of California, The: Depositary Shares Swisher International, Inc.: $.01 par common; Warrants Data Translation, Inc.: $.01 par common (expire 06-30-1998) Eagle Finance Corp.: $.01 par common TAT Technologies, Ltd.: Ordinary shares (par NIS .15) Enex Resources Corporation: $.05 par common Transcor Waste Services, Inc.: $.001 par common Equimed, Inc.: No par common Transcrypt International, Inc.: $.01 par common Transnet Corporation: $.01 par common Fastcomm Communications Corporation: $.01 par common Fine Host Corporation: $.01 par common Ultrafem, Inc.: $.001 par common First Dynasty Mines Limited: No par common First Financial Bancorp, Inc. (Illinois): $.10 par common V Band Corporation: $.01 par common Firstar Corporation: American Depositary Shares Valley Systems, Inc.: $.01 par common Vermont Teddy Bear Co., Inc.: $.05 par common Geotek Communications Inc.: $.01 par common View Tech, Inc.: Warrants (expire 06-16-1998) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 793 Vinings Investment Properties Trust: No par shares of benefi- Eagle Financial Corporation: $.01 par common cial interest Environment/One Corporation: $.10 par common Eselco, Inc.: $.01 par common Wilsons, The Leather Experts: Warrants (expire 05-27-2000) First American Corporation: $5.00 par common Stocks Removed for Listing on a National First Commerce Corporation: $5.00 par common Securities Exchange or Being Involved in an First Shenango Bancorp, Inc. (Pennsylvania): $.10 par com- Acquisition mon Firstbank of Illinois Co.: $1.00 par common FP Bancorp, Inc.: No par common 3-D Geophysical, Inc.: S.01 par common Franklin Bancorporation, Inc.: $.10 par common ACC Corporation: $.015 par common Gorefront Group, Inc., The: $.01 par common Accelgraphics, Inc.: $.001 par common Grand Prix Association of Long Beach, Inc.: No par common Accugraph Corporation: Class A, No par common Great Wall Electronic International Ltd.: American Depositary Receipts Aloette Cosmetics, Inc.: No par common Grist Mill Co.: $.10 par common Ameriwood Industries International Corporation: $1.00 par common Harcor Energy Company: $.10 par common Artistic Greetings, Incorporated: $.10 par common Heritage Bancorp, Inc. (Pennsylvania): $5.00 par common Authentic Specialty Foods, Inc.: $1.00 par common Heritage Financial Services, Inc.: $.625 par common Holophane Corporation: $.01 par common BCB Financial Services Corporation: $2.50 par common Hon Industries, Inc.: $1.00 par common Beverly Bancorporation, Inc.: $.01 par common House of Fabrics, Incorporated: $.01 par common Boardwalk Casino, Inc.: $.001 par common IBAH, Inc.: $.01 par common California Community Bancshares Corporation: $.10 par com- Indiana Community Bank, SB: No par common mon Intelligent Electronics, Inc.: $.01 par common California State Bank (California): No par common International Murex Technologies Corporation: No par Callon Petroleum Company: $.01 par common; Series A, common $.01 par convertible exchangeable preferred International Verifact, Inc.: No par common Cameron Ashley Building Products, Inc.: No par common Intime Systems International, Inc.: Class A, $.01 par common Capital Savings Bancorp Inc. (Missouri): $.01 par common IPC Information Systems, Inc.: $.01 par common Carriage Services, Inc.: Class A, $.01 par common CBT Corporation: No par common Jabil Circuit, Inc.: $.01 par common Cenfed Financial Corporation: $.01 par common Joachim Bancorp, Inc. (Missouri): $.01 par common Century Financial Corporation: $.835 par common Charter Bank, S.B. (Illinois): $1.00 par common Lancit Media Entertainment, Ltd.: $.001 par common Checkmate Electronics, Inc.: $.01 par common Learmonth & Burchett Management Systems, Inc.: American Chemi-Trol Chemical Co.: No par common Depositary Receipts Chicago Miniature Lamp, Inc.: $.01 par common Logic Works, Inc.: $.01 par common Children's Discovery Centers of America, Inc.: Class A, $.01 par common Mastering, Inc.: $.001 par common Medicus Systems Corporation: $.01 par common Citfed Bancorp, Inc. (Ohio): $.01 par common Meritrust Federal Savings Bank (Louisiana): $ 1.00 par com- Cobancorp, Inc. (Ohio): No par common mon Company Doctor, The: $.01 par common Micronics Computers, Inc.: $.01 par common Compscript, Inc.: $.0008 par common Milestone Scientific, Inc.: $.001 par common Contour Medical, Inc.: $.001 par common Monroe, Inc.: $.01 par common Corcom, Inc.: No par common MTL, Inc.: $.01 par common Core Laboratories, N.V.: Ordinary shares (par NIS .03) Cross Medical Products, Inc.: $.01 par common Network Long Distance, Inc.: $.0001 par common Dart Group Corporation: Class A, $1.00 par common Ocwen Asset Investment Group: $.01 par common Dataflex Corporation: No par common Orbital Sciences Corporation: $.01 par common Devon Group, Inc.: $.01 par common DLB Oil & Gas, Inc.: $.01 par common Peoples First Corporation: No par common Donnelley Enterprise Solutions, Incorporated: $.01 par corn- Perpetual Midwest Financial, Inc.: $.01 par common Petsec Energy Ltd.: American Depositary Receipts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

794 Federal Reserve Bulletin • September 1998 Pinnacle Financial Services, Inc.: $10.00 par common American Xtal Technology, Inc.: $.001 par common Poughkeepsie Financial Corporation: $.01 par common Amkor Technology, Inc.: $.001 par common Prosource, Inc.: Class A, $.01 par common Amresco Capital Trust: $.01 par common shares of beneficial interest Quiksilver, Inc.: $.01 par common Answerthink Consulting Group, Inc.: $.01 par common Architel Systems Corporation: No par common Redfed Bancorp Inc. (California): $.01 par common Aris Corporation: Warrants (expire 02-15-2000) Regal Cinemas, Inc.: No par common ARM Holdings PLC: American Depositary Shares Republic Automotive Parts, Inc.: $.50 par common Aspec Technology, Inc.: $.001 par common Rexx Environmental Corporation: $.02 par common Asymetrix Learning Systems, Inc.: $.01 par common Ryan, Teck & Co., Inc.: $.10 par common ATG, Inc.: No par common Atlantic Data Services, Inc.: $.01 par common Sage Laboratores, Inc.: $.10 par common Aztec Technology Partners, Inc.: $.001 par common ScopusTechnology, Inc.: $.001 par common Sealright Co., Inc.: $.10 par common Balance Bar Company: $.01 par common Search Financial Services, Inc.: $.01 par convertible preferred BCSB Bankcorp: $.01 par common SFX Broadcasting, Inc.: Class A, $.01 par common; Class B, BEBE Stores, Inc.: $.01 par common Warrants (expire 03-23-1999) Bel Fuse, Inc.: Class B, $.10 par common Showbiz Pizza Time, Inc.: $.10 par common Blue Rhino Corporation: $.001 par common Sigma Circuits, Inc.: $.001 par common Bridgestreet Accommodations, Inc.: $.01 par common Signature Resorts, Inc.: $.01 par common Brightstar Information Technology Group, Inc.: $.001 par Simulation Sciences, Inc.: $.001 par common common Somatogen, Inc.: $.001 par common Brio Technology, Inc.: $.001 par common Source Services Corporation: $.02 par common Broadcom Corporation: Class A, $.001 par common Southwest Bancshares, Inc. (Illinois): $.01 par common Star Gas Partners, L.P.: Shares of beneficial interest Caliber Learning Network, Inc.: $.01 par common Sterling West Bancorp (California): No par common Capital Beverage Corporation: $.001 par common Summit Care Corporation: No par common Carreker-Antinori, Inc.: $.01 par common Cellnet Funding LLC: Preferred securities Ticketmaster Group, Inc.: No par common Central Coast Bancorp.: No par common Tracor, Inc.: $.01 par common; Series A, Warrants (expire Century Bancorp, Inc. (Massachusetts): Trust preferred secu- 12-31-2001) rity Trescom International, Inc.: $.01 par common Charles River Associates, Inc.: No par common Trusted Information Systems, Inc.: $.01 par common Chastain Capital Corporation: $.01 par common Citadel Communications Corporation: $.001 par common Ultra Pac, Inc.: No par common Cleveland Indians Baseball Company, Inc.: No par common Clinichem Development, Inc.: Class A, No par common Walsh International, Inc.: $.01 par common Collateral Therapeutics, Inc.: $.001 par common Waverly, Inc.: $2.00 par common Colorado Business Bancshares, Inc.: $.01 par common Wheels Sports Group, Inc.: $.01 par common Com21, Inc.: $.001 par common White River Corporation: $.01 par common Combichem, Inc.: $.001 par common Williams-Sonoma, Inc.: No par common Conrad Industries, Inc.: $.01 par common Covol Technologies, Inc.: $.001 par common XLConnect Solutions, Inc.: $.01 par common Coyote Sports, Inc.: $.001 par common CTI Industries Corporation: No par common Yurie Systems, Inc.: $.01 par common Cumulus Media, Inc.: Class A, $.01 par common Cunningham Graphics International, Inc.: No par common Additions to the List of Marginable OTC Stocks Cybershop International, Inc.: $.001 par common A.C.L.N. Limited: $.01 par ordinary shares Adams Golf, Inc.: $.001 par common DA Consulting Group, Inc.: $.01 par common Albion Bane Corporation (New York): $.01 par common Depomed, Inc.: No par common Allegiance Telecom, Inc.: $.01 par common Docucorp International, Inc.: $.01 par common Alpha Industries, Inc.: $.25 par common Dorel Industries, Inc.: No par common American Aircarriers Support, Inc.: $.001 par common Drovers Bancshares Corporation: $5.00 par common American Bancorporation (West Virginia): Trust preferred Dynatec International, Inc.: $.01 par common securities of American Bancorp Capital American Bancshares, Inc. (Florida): Cumulative trust pre- European Micro Holdings, Inc.: $.01 par common ferred ($10.00 liquidation preference) Evolving Systems, Inc.: $.001 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 795 PFD Financial Corporation: No par common Mason-Dixon Bancshares, Inc. (Maryland): $20.00 par Fields Aircraft Spares, Inc.: $.05 par common preferred stock Fine.Com International Corporation: $6.50 par common Master Graphics, Inc.: $.001 par common First Bank of Philadelphia: $2.00 par common Metropolitan Financial Corporation: Trust preferred securities First Kansas Financial Corporation: $.10 par common MGC Communications, Inc.: $.001 par common First Virtual Corporation: $.001 par common Microstrategy, Incorporated: $.001 par common Flour City International, Inc.: $.0001 par common Mid-State Bancshares: No par common FNB Corp. (Virginia): $5.00 par common MIPS Technologies, Inc.: $.001 par common Mobius Management Systems, Inc.: $.0001 par common Genesis Direct, Inc.: $.01 par common Gentle Dental Service Corporation: No par common National City Bancshares, Inc. (Indiana): Cumulative Trust Gilman & Ciocia, Inc.: Warrants (expire 09-09-1998) Preferred Global Imaging Systems, Inc.: $.01 par common Navigant International, Inc.: $.001 par common Go2Net, Inc.: $.01 par common Netgravity, Inc.: $.001 par common Golden State Bancorp, Inc.: Litigation tracking warrants Niagara Bancorp, Inc.: $.01 par common Griffin Land & Nurseries, Inc.: $.01 par common Guaranty Bancshares, Inc.: $1.00 par common Pacalta Resources, Ltd.: No par common Pacifichealth Laboratories, Inc.: $.0025 par common Hastings Entertainment, Inc.: $.01 par common Palatin Technologies: $.01 par common Hauppauge Digital, Inc.: $.01 par common Paradign Geophysical, Ltd.: Oredinary shares (NIS .5 par) Headway Corporate Resources, Inc.: No par common PBOC Holdings, Inc.: $.01 par common Herbalife International, Inc.: DECS Trust III PDS Financial Corporation: Warrants (expire 05-04-2003) High Country Bancorp, Inc.: $.01 par common Petro Union, Inc.: Common Hines Horticulture, Inc.: $.01 par common Philadelphia Consolidated Holding Company: Growth Prides Horizon Group Properties, Inc.: $.01 par common (expire 04-29-2001); Income Prides (expire 04-29-2001) Horizon Organic Holding Corporation: $.001 par common Pittsburgh Home Financial Corporation: 8.56 percent cumula- Hudson River Bancorp, Inc.: $.01 par common tive trust preferred Hyperion Telecommunications, Inc.: Class A, $.01 par PNB Financial Group: No par common common Point of Sale Limited: Ordinary shares Pointe Financial Corporation: $.01 par common ICON PLC: American Depositary Shares Professional Detailing, Inc.: $.01 par common Industrial Holdings, Inc.: Series D, Warrants (expire Protran Corporation: No par common 01-14-2000) Provant, Inc.: $.01 par common Industrial Services of America, Inc.: $.01 par common PVC Container Corporation: $.01 par common Inktomi Corporation: $.001 par common Innotrac Corporation: $.10 par common Rainbow Rentals, Inc.: No par common International Integration Incorporated: $.01 par common Realty Information Group, Inc.: $.01 par common International Isotopes, Inc.: $.01 par common Regency Bancorp: No par common Interplay Entertainment Corporation: $.001 par common Restoration Hardware, Inc.: $.0001 par common IVI Checkmate Corporation: $.01 par common Rock Financial Corporation: $.01 par common JPS Packaging Company: $.01 par common SCC Communications Corporation: $.001 par common School Specialty, Inc.: $.001 par common King Pharmaceuticals, Inc.: No par common SFX Entertainment, Inc.: Class A Voting, $.01 par common Knight/Trimark Group, Inc.: Class A, $.01 par common Silicon Valley Bancshares, Inc. (California): Cumulative trust Kuala Healthcare, Inc.: $.06 par common preferred securities Software.net Corporation: No par common Leukosite, Inc.: $.01 par common Sognizant Technology Solutions Corporation: Class A, Lexington B&L Financial Corporation: $.01 par common $.01 par common Liberty Bancorp, Inc.: $1.00 par common Somanetics Corporation: $.01 par common LJ International, Inc.: $.01 par common; Warrants (expire Source Information Management Company, The: $.01 par 04-16-2002) common LMI Aerospace, Inc.: $.02 par common Southside Bancshares, Inc.: $2.50 par common; No par cumulative trust preferred securities Main Street Bancorp, Inc.: $1.00 par common SQL Financials International, Inc.: $.0001 par common Manhattan Associates, Inc.: $.01 par common Stet Hellas Telecommunications SA: American Depositary Marine Transport Corporation: $.01 par common Shares Mariner Capital Trust Preferred: $10.00 par preferred security Stolt Comex Seaway S.A.: American Depositary Shares Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

796 Federal Reserve Bulletin • September 1998 Success Bancshares, Inc. (Illinois): 8.95 percent cumulative Daiwa Kosho Lease Co., Ltd.: ¥50 par common trust preferred securities Denki Kagaku Kogyo: ¥50 par common SVB Financial Services, Inc.: $2.08 par common Eighteenth Bank, Ltd.: ¥50 par common Furukawa Co., Ltd.: ¥50 par common TCI Music, Inc.: Class A, $.01 par common; Series A, con- Futaba Corp.: ¥50 par common vertible preferred Futaba Industrial Co., Ltd.: ¥50 par common Teardrop Golf Company: $.01 par common Higo Bank, Ltd.: ¥50 par common Technisource, Inc.: $.01 par common Hitachi Construction Machinery Co., Ltd.: ¥50 par common Telesystem International Wireless, Inc.: No par common Hitachi Software Engineering Co., Ltd.: ¥50 par common Trans Global Services, Inc.: $.01 par common Hitachi Transport System, Ltd.: ¥50 par common Hokkoku Bank, Ltd.: ¥50 par common U.S. Home & Garden, Inc.: $.001 par common Hokuetsu Bank, Ltd.: ¥50 par common U.S. Office Products Company: $.001 par common Hoikuetsu Paper Mills, Ltd.: ¥50 par common Ultimate Software Group, Inc.: $.01 par common Iyo Bank, Ltd.: ¥50 par common United Community Financial Corporation: No par common Jaccs Co., Ltd.: ¥50 par common United Panam Financial Corporation: $.01 par common Japan Airport Terminal Co., Ltd.: ¥50 par common United Road Services, Inc.: $.001 par common Japan Securities Finance Co., Ltd.: ¥50 par common United Tennessee Bankshares, Inc.: No par common Kuroku Bank, Ltd.: ¥50 par common Ursus Telecom Corporation: $.01 par common Kagoshima Bank, Ltd.: ¥50 par common US LEC Corporation: Class A, $.01 par common Kamigumi Co., Ltd.: ¥50 par common USBancorp, Inc.: Capital Trust 1 Katokichi Co., Ltd.: ¥50 par common Keisei Electric Railway Co., Ltd.: ¥50 par common V.I. Technologies, Inc.: $,01 par common Keiyo Bank, Ltd.: ¥50 par common Verio, Inc.: $.001 par common Kiyo Bank, Ltd.: ¥50 par common Komori Corp.: ¥50 par common Warwick Valley Telephone Company: No par common Konami Co., Ltd.: ¥50 par common Washington Banking Company: No par common Kurimoto, Ltd.: ¥50 par common Waste Connections, Inc.: $.01 par common Kyowa Exeo Corp.: ¥50 par common Waste Systems International, Inc.: $.01 par common Kyudenko Corp.: ¥50 par common Workflow Management, Inc.: $.001 par common Maeda Road Construction Co., Ltd.: ¥50 par common Matsushita Seiko Co., Ltd.: ¥50 par common Complete Foreign Margin List Max Co., Ltd.: ¥50 par common Meidensha Corp.: ¥50 par common Germany Michinoku Bank, Ltd.: ¥50 par common Musashino Bank, Ltd.: ¥50 par common Gehe AG: Ordinary shares, par DM 50 Namco, Ltd.: ¥50 par common Hoechst AG: Ordinary shares, par DM 50 Nichicon Corp.: ¥50 par common Nichimen Corp.: ¥50 par common Hong Kong Nihon Unisys, Ltd. ¥50 par common Nippon Comsys Corp.: ¥50 par common Peregrine Investment Holdings Ltd.: Ordinary, par HK $0.60 Nippon Trust Bank, Ltd.: ¥50 par common Sun Hung Kai Properties Limited: HK $0.50 par ordinary Nishi-Nippon Bank, Ltd.: ¥50 par common shares Nishi-Nippon Railroad Co., Ltd.: ¥50 par common Nissan Chemical Industries, Ltd.: ¥50 par common Japan Nissan Fire & Marine Insurance Co., Ltd.: ¥50 par common NOF Corporation: ¥50 par common Aiwa Co., Ltd.: ¥50 par common Ogaki Kyoritsu Bank, Ltd.: ¥50 par common Akita Bank, Ltd.: ¥50 par common Q.P. Corp.: ¥50 par common Aomori Bank, Ltd.: ¥50 par common Rinnai Corporation: ¥50 par common Asatsu Inc.: ¥50 par common Ryosan Co., Ltd.: ¥50 par common Bandai Co., Ltd.: ¥50 par common Sagami Railway Co., Ltd.: ¥50 par common Bank of Kinki, Ltd.: ¥50 par common Saibu Gas Co., Ltd.: ¥50 par common Bank of Nagoya. Ltd.: ¥50 par common Sakata Seed Corp.: ¥50 par common Chudenko Corp.: ¥50 par common Sanki Engineering Co., Ltd.: ¥50 par common Chugoku Bank, Ltd.: ¥50 par common Santen Pharmaceutical Co., Ltd.: ¥50 par common Clarion Co., Ltd.: ¥50 par common Sanyo Securities Co., Ltd.: ¥50 par common Credit Saison Co., Ltd.: ¥50 par common Shimadzu Corp.: ¥50 par common Daihatsu Motor Co., Ltd.: ¥50 par common Shimamura Co., Ltd.: ¥50 par common Dainippon Screen MFG. Co., Ltd.: ¥50 par common Sumitomo Rubber Industries, Ltd.: ¥50 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 797 Suruga Bank, Ltd.: ¥50 par common Taiyo Yuden Co., Ltd.: ¥50 par common 3. Section 230.8 is amended by revising paragraph Takara Standard Co., Ltd.: ¥50 par common (c)(6)(iii) to read as follows: Takasago Thermal Engineering Co.: ¥50 par common Takuma Co., Ltd.: ¥50 par common Section 230.8—Advertising. Toho Bank, Ltd.: ¥50 par common Toho Gas Co., Ltd. ¥50 par common (c) * * * Tokyo Ohka Kogya Co., Ltd.: ¥50 par common (6) * * * Tokyo Sowa Bank, Ltd.: ¥50 par common (iii) Required interest payouts. For noncom- Tokyo Tatemono Co., Ltd.: ¥50 par common pounding time accounts with a stated matu- Tokyo Tomin Bank, Ltd.: ¥50 par common rity greater than one year that do not com- Toshiba Ceramics Co., Ltd.: ¥50 par common pound interest on an annual or more frequent Uni-Charm Corp.: ¥50 par common basis, that require interest payouts at least Ushio, Inc.: ¥50 par common annually, and that disclose an APY deter- Yamaha Motor Co., Ltd.: ¥50 par common mined in accordance with section E of Ap- Yamanashi Chuo Bank, Ltd.: ¥50 par common pendix A of this part, a statement that interest Yodogawa Steel Works, Ltd.: ¥50 par common cannot remain on deposit and that payout of interest is mandatory. United Kingdom 4. In Part 230, Appendix A is amended by revising Racal Electronics PLC: Ordinary shares, par value 25 p section E of Part I to read as follows: Appendix A To Part 230—Annual Percentage Yield FINAL RULE—AMENDMENT TO REGULATION DD Calculation The Board of Governors is amending 12 C.F.R. Part 230, its Regulation DD (Truth in Savings), permitting institu- E. Time Accounts with a Stated Maturity Greater than One tions to disclose an annual percentage yield ("APY") equal Year that Pay Interest At Least Annually to the contract interest rate for time accounts with maturities greater than one year that do not compound but that 1. For time accounts with a stated maturity greater than one require interest distributions at least annually. year that do not compound interest on an annual or more Effective August 28, 1998, 12 C.F.R. Part 230 is frequent basis, and that require the consumer to withamended as follows: draw interest at least annually, the annual percentage yield may be disclosed as equal to the interest rate. Part 230—Truth in Savings (Regulation DD) 1. The authority citation for Part 230 continues to read as Example follows: (I) If an institution offers a $ 1,000 two-year certificate of deposit that does not compound and that pays Authority: 12 U.S.C. 4301, et seq. out interest semi-annually by check or transfer at a 6.00% interest rate, the annual percentage yield 2. Section 230.4 is amended by revising the sentence at the may be disclosed as 6.00%. end of paragraph (b)(6)(iii) to read as follows: 2. For time accounts covered by this paragraph that are also stepped-rate accounts, the annual percentage yield may Section 230.4—Account disclosures. be disclosed as equal to the composite interest rate. (b) Example (6) (1) If an institution offers a $1,000 three-year certifi- (iii) * * * For accounts with a stated maturity cate of deposit that does not compound and that greater than one year that do not compound pays out interest annually by check or transfer at a interest on an annual or more frequent basis, 5.00% interest rate for the first year, 6.00% interthat require interest payouts at least annually, est rate for the second year, and 7.00% interest and that disclose an APY determined in ac- rate for the third year, the institution may compute cordance with section E of Appendix A of the composite interest rate and APY as follows: this part, a statement that interest cannot re- (a) Multiply each interest rate by the number of main on deposit and that payout of interest is days it will be in effect; mandatory. (b) Add these figures together; and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

798 Federal Reserve Bulletin • September 1998 (c) Divide by the total number of days in the Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and is a term. member of the National Association of Securities Dealers, (2) Applied to the example, the products of the inter- Inc. ("NASD"). Company, therefore, is subject to the est rates and days the rates are in effect are (5.00% record-keeping and reporting obligations, fiduciary stanx 365 days) 1825, (6.00% x 365 days) 2190, and dards, and other requirements of the Securities Exchange (7.00% x 365 days) 2555, respectively. The sum Act of 1934, the SEC, and the NASD. of these products, 6570, is divided by 1095, the The Board previously has determined — subject to the total number of days in the term. The composite framework of prudential limitations established in previous interest rate and APY are both 6.00%. decisions to address the potential for conflicts of interests, unsound banking practices, or other adverse effects — that ORDERS ISSUED UNDER BANK HOLDING underwriting and dealing in bank-ineligible securities are COMPANY ACT so closely related to banking as to be proper incidents thereto within the meaning of section 4(c)(8) of the BHC Orders Issued Under Section 4 of the Bank Holding Act.4 The Board also has determined that conduct of bank- Company Act ineligible securities underwriting and dealing is consistent with section 20 of the Glass-Steagall Act Commerce Bancorp, Inc. (12 U.S.C. § 377), provided that the company engaged in Cherry Hill, New Jersey the activity derives no more than 25 percent of its gross revenues from underwriting and dealing in bank-ineligible securities.5 Order Approving a Notice to Engage in Underwriting and Dealing in All Types of Debt and Equity Securities Commerce has committed that Company will conduct its on a Limited Basis underwriting and dealing activities using the methods and procedures and subject to the prudential limitations estab- Commerce Bancorp, Inc. ("Commerce"), a bank holding lished by the Board in the Section 20 Orders and other company within the meaning of the Bank Holding Com- previous cases. Commerce also has committed that Company Act ("BHC Act"), has requested the § Board's ap- pany will conduct its bank-ineligible securities underwritproval under section 4(c)(8) of the BHC Act (12U.S.C. ing and dealing activities subject to the Board's revenue § 1843(c)(8)) and section 225.24 of the Board's Regula- restrictions. As a condition of this order, Commerce is tion Y (12C.F.R. 225.23) to expand the activities of its required to conduct its bank-ineligible securities activities section 20 subsidiary, Commerce Capital Markets, Inc., subject to the revenue limitations and Operating Standards Philadelphia, Pennsylvania ("Company"), to include un- established for section 20 subsidiaries ("Operating Standerwriting and dealing in, to a limited extent, all types of dards").6 debt and equity securities (other than ownership interests In order to approve the proposal, the Board also must in open-end investment companies). determine that the proposed activities are a proper incident Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (63 Federal Register 28,386 (1998)). The time for filing com- 4. See J.P. Morgan & Co. Incorporated, et al.. 75 Federal Reserve ments has expired, and the Board has considered the notice Bulletin 192 (1989), aff'd sub nom. Securities Industries Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 and all comments received in light of the factors set forth (D.C. Cir. 1990); Citicorp, et al, 73 Federal Reserve Bulletin 473 in section 4(c)(8) of the BHC Act. (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Gover- Commerce, with total consolidated assets of approxi- nors of the Federal Reserve System. 839 F.2d 47 (2d Cir.), cert, mately $4 billion, operates subsidiary banks in New Jersey denied, 486 U.S. 1059 (1988); as modified by Review of Restrictions and Pennsylvania.1 Company currently engages in limited on Director, Officer and Employee Interlocks, Cross-Marketing Activities, and the Purchase and Sale of Financial Assets Between a Secunderwriting and dealing in bank-ineligible securities,2 as tion 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal permitted under section 20 of the Glass-Steagall Act Register 57,679 (1996); Amendments to Restrictions in the Board's (12 U.S.C. § 377).3 Company currently is, and will con- Section 20 Orders, 62 Federal Register 45,295 (1997); and Clarificatinue to be, a broker-dealer registered with the Securities tion to the Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders"). and Exchange Commission ("SEC") under the Securities 5. Compliance with the revenue limitation shall be calculated in accordance with the method stated in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 1. Asset data are as of December 31, 1997. Orders, 75 Federal Reserve Bulletin 751 (1989), and 10 Percent 2. As used in this order, "bank-ineligible securities" refers to all Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank types of debt and equity securities that a member bank may not Holding Companies Engaged in Underwriting and Dealing in Securiunderwrite or deal in directly under section 16 of the Glass-Steagall ties, 61 Federal Register 48,953 (1996) (collectively, "Modification Act. See 12 U.S.C. § 335. Orders"). 3. Company has authority to underwrite and deal in, to a limited 6. 12C.F.R. 225.200. Company may provide services that are extent, certain municipal revenue bonds, 1-4 family mortgage-related necessary incidents to the proposed underwriting and dealing activisecurities, commercial paper, and consumer-receivable-related securi- ties. Unless Company receives specific approval under section 4(c)(8) ties. See Commerce Bancorp, Inc., 84 Federal Reserve Bulletin 358 of the BHC Act to conduct the activities independently, any revenues (1998). Company also is authorized to engage in a variety of other from the incidental activities must be treated as ineligible revenues nonbanking activities. See id. subject to the Board's revenue limitation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 799 to banking, that is, that the proposed transaction "can ny's activities are consistent with safety and soundness, reasonably be expected to produce benefits to the public avoidance of conflicts of interests, and other relevant con- . . . that outweigh possible adverse effects, such as undue siderations under the BHC Act. Underwriting and dealing concentration of resources, decreased or unfair competi- in any manner other than as approved in this order and the tion, conflicts of interests, or unsound banking practices."7 Section 20 Orders (as modified by the Modification Or- As part of its evaluation of these factors, the Board consid- ders) is not authorized for Company. ers the financial and managerial resources of the notificant, The Board's approval of this proposal to underwrite and its subsidiaries, and any company to be acquired, and the deal in all types of debt and equity securities also is effect the transaction would have on such resources.8 The conditioned on a determination that Commerce and Com- Board has reviewed the capitalization of Commerce and pany have established policies and procedures to ensure Company in accordance with the standards set forth in the compliance with the Operating Standards and the other Section 20 Orders and finds the capitalization of each to be requirements of this order and the Section 20 Orders, consistent with approval. With respect to Company, this including computer, audit, and accounting systems, interdetermination is based on all the facts of record, including nal risk management controls, and the necessary operaprojections of the volume of Company's underwriting and tional and managerial infrastructure for underwriting and dealing activities in bank-ineligible securities. The Board dealing in all types of debt and equity securities ("infraalso has reviewed the managerial resources of Commerce structure review"). After notification that this condition and Company in light of relevant reports of examination has been satisfied, Company may commence the proposed and all the facts of record. On the basis of all the facts of underwriting and dealing activities, subject to the other record, the Board has concluded that financial and manage- conditions of this order, the Section 20 Orders, and the rial considerations are consistent with approval of this Modification Orders. notice. The Board's determination is subject to all the terms and As noted above, Commerce has committed that Com- conditions set forth in Regulation Y, including those in pany will conduct its bank-ineligible securities underwrit- sections 225.7 and 225.25(c) (12C.F.R. 225.7 and ing and dealing activities in accordance with the prudential 225.25(c)), and to the Board's authority to require modififramework established by the Board's Section 20 Orders. cation or termination of the activities of a bank holding Under the framework and conditions established in this company or any of its subsidiaries that the Board finds order and the Section 20 Orders, the Board concludes that necessary to assure compliance with, or to prevent evasion consummation of this proposal is not likely to result in any of, the provisions and purposes of the BHC Act and the significantly adverse eifects, such as undue concentration Board's regulations and orders issued thereunder. The of resources, decreased or unfair competition, conflicts of Board's decision is specifically conditioned on compliance interests, or unsound banking practices. The Board also with all the commitments made in connection with this expects that the proposed expansion of the underwriting notice, including the commitments discussed in this order and dealing services of Company would provide added and the conditions set forth in the Board's regulations and convenience to Commerce's customers, lead to improved orders noted above. The commitments and conditions shall methods of meeting customers' financing needs, and in- be deemed to be conditions imposed in writing by the crease the level of competition among existing providers of Board in connection with its findings and decision and, as these services. Accordingly, the Board has determined that such, may be enforced in proceedings under applicable performance of the proposed activities by Commerce can law. reasonably be expected to produce public benefits that This proposal shall not be consummated later than three outweigh possible adverse eifects under the proper incident months after the effective date of this order, unless such to banking standard of section 4(c)(8) of the BHC Act. period is extended for good cause by the Board or the On the basis of the record, the Board has determined that Federal Reserve Bank of Philadelphia, acting pursuant to the notice should be, and hereby is, approved, subject to all delegated authority. the terms and conditions discussed in this order and in the By order of the Board of Governors, effective July 13, Section 20 Orders, as modified by the Modification Orders. 1998. The Board's approval of this proposal extends only to activities conducted within the limitations of those orders Voting for this action: Governors Kelley, Meyer, Ferguson, and and this order, including the Board's reservation of author- Gramlich. Absent and not voting: Chairman Greenspan and Vice Chair Rivlin. ity to establish additional limitations to ensure that Compa- ROBERT DEV. FRIERSON 7. SeeUUS.C. § 1843(c)(8). 8. See 12C.F.R. 225.26(b). Associate Secretary of the Board Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

800 Federal Reserve Bulletin • September 1998 APPLICATIONS APPROVED UNDER BANK HOLDING COMPANY ACT By the Secretary of the Board Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request to the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Section 3 Applicant(s) Bank(s) Effective Date First Financial Bancorporation, Ameribanc, Inc., July 31, 1998 Iowa City, Iowa St. Louis, Missouri McLaughlin Bancshares, Inc., First Petersburg Bancshares, Inc., July 27, 1998 Rails, Texas Petersburg, Texas First State Bank, Petersburg, Texas Mercantile Bancorporation, Inc., Financial Services Corporation of the July 20, 1998 St. Louis, Missouri Midwest, Rock Island, Illinois Ameribanc, Inc., Rock Island Bank, N.A., St. Louis, Missouri Bettendorf, Iowa Mercantile Bancorporation, Inc.. First Financial Bancorporation, July 31, 1998 St. Louis, Missouri Iowa City, Iowa First National Bank Iowa, N.A., Iowa City, Iowa Old Kent Financial Corporation, First Evergreen Corporation, July 31, 1998 Grand Rapids, Michigan Evergreen Park, Illinois Section 4 Applicant(s) Bank(s) Effective Date First National of Nebraska, Inc., Insync Investments, Ltd., July 23, 1998 Omaha, Nebraska Omaha, Nebraska Norwest Corporation, Southwest Partners, Inc., July 29, 1998 Minneapolis, Minnesota San Diego, California Norwest Mortgage, Inc., Des Moines, Iowa Norwest Ventures, LLC, Des Moines, Iowa Sections 3 and 4 Applicant(s) Bank(s) Effective Date Norwest Corporation, First Bancshares of Valley City, Inc.. July 16, 1998 Minneapolis, Minnesota Valley City, North Dakota First National Bank of Valley City, Valley City, North Dakota First State Bank of Casselton, Casselton, North Dakota Litchville State Bank, Litchville, North Dakota People Insurance Agency, Inc., Valley City, North Dakota Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 801 Section 3 and 4—Continued Applicant(s) Bank(s) Effective Date Norwest Corporation, Little Mountain Bancshares, Inc., July 1, 1998 Minneapolis, Minnesota Monticello, Minnesota First National Bank of Monticello, Monticello, Minnesota By Federal Reserve Banks Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request to the Reserve Banks. Section 3 Applicant(s) Bank(s) Reserve Bank Effective Date The 1855 Bancorp, Sandwich Bancorp, Inc., Boston July 15, 1998 New Bedford, Massachusetts Sandwich, Massachusetts Alliance Bancshares, Inc., Alliance Bank, Atlanta July 17, 1998 Orlando, Florida Orlando, Florida AmCorp Financial, Inc., First State Bank, Kansas City July 14, 1998 Ardmore, Oklahoma Morton, Texas Anchor Financial Corporation, M&M Financial Corporation, Richmond July 7, 1998 Myrtle Beach, South Carolina Marion, South Carolina First National South, Marion, South Carolina Anchor Financial Corporation, ComSouth Bankshares, Inc., Richmond July 7, 1998 Myrtle Beach, South Carolina, Columbia, South Carolina Bank of Columbia, N.A., Columbia, South Carolina Bank of Charleston, National Association, Charleston, South Carolina Arizona Bancshares, Inc., First State Bank, San Francisco July 1, 1998 Flagstaff, Arizona Flagstaff, Arizona Citizens Bancshares, Inc., NSD Bancorp, Inc., Cleveland June 26, 1998 Salineville, Ohio Pittsburgh, Pennsylvania Community First Bankshares, Inc., Guardian Bancorp, Minneapolis July 6, 1998 Fargo, North Dakota Salt Lake City, Utah Guardian State Bank, Salt Lake City, Utah Eggemeyer Advisory Corp., State National Bancshares, San Francisco July 15, 1998 Rancho Santa Fe, California Lubbock, Texas Castle Creek Capital, L.L.C.. State National Bank of West Texas, Rancho Santa Fe, California Lubbock, Texas Castle Creek Capital Partners Sierra Bank, Fund-I, L.P., Truth or Consequences, New Mexico Rancho Santa Fe, California El Paso Bancshares, Inc., Peoples, Inc., Kansas City July 17, 1998 Monument, Colorado Ottawa, Kansas Financial Bancshares, Inc., Arizona Bancshares, Inc., Kansas City July 9, 1998 Holton, Kansas Flagstaff, Arizona Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

802 Federal Reserve Bulletin • September 1998 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date First American Bankshares, Inc., Jefferson County Bancorp, Inc., Chicago July 22, 1998 Fort Atkinson, Wisconsin Jefferson, Wisconsin Jefferson County Bank, Jefferson, Wisconsin First Region Bancshares, Inc., First Sentinel Bank, Richmond July 15, 1998 Richlands, Virginia Richlands, Virginia Fort Madison Financial Company, Bank of Dallas City, Chicago July 16, 1998 Fort Madison, Iowa Dallas City, Illinois Gold Bane Corporation, Inc., First State Bancorp, Inc., Kansas City July 16, 1998 Leawood, Kansas Pittsburg, Kansas Gold Bane Acquisition Corporation VII, Inc., Leawood, Kansas Gold Bane Corporation, Inc., Northwest Bancshares, Kansas City July 15, 1998 Leawood, Kansas Colby, Kansas Gold Bane Acquisition Corporation VI, Inc., Leawood, Kansas Gold Bane Corporation, Inc., Tri-County Bancshares, Inc., Kansas City July 3, 1998 Leawood, Kansas Linn, Kansas Gold Bane Acquisition Corporation II, Inc., Leawood, Kansas Habersham Bancorp, Empire Bank Corp., Atlanta July 16, 1998 Cornelia, Georgia Homerville, Georgia Empire Banking Co., Homerville, Georgia Hancock Holding Company, American Security Bancshares, Inc., Atlanta July 15, 1998 Gulfport, Mississippi Ville Platte, Louisiana American Security Bank, Ville Platte, Louisiana Heritage Bancorp, Inc., The Heritage Bank, Richmond July 22, 1998 McLean, Virginia McLean, Virginia Horizons Bancorp, Inc., Horizons Bank, Dallas June 24, 1998 Monroe, Louisiana Monroe, Louisiana JDOB, Inc., Lakeland National Bank, Minneapolis July 8, 1998 Sandstone, Minnesota Lino Lakes, Minnesota Larch Bancorporation, Inc., Exchange State Agency, Chicago July 8, 1998 Larchwood, Iowa Hills, Minnesota Larch Bancorporation, Inc., Exchange State Bancorporation, Inc., Chicago July 3, 1998 Larchwood, Iowa Hills, Minnesota LeMars Acquisition Corp., LeMars Bancorporation, Inc., Chicago July 9, 1998 LeMars, Iowa LeMars, Iowa LeMars Bank and Trust Company, LeMars, Iowa Marquette Bancshares, Inc., Dakota Bancshares, Inc., Minneapolis July 15, 1998 Minneapolis, Minnesota Minneapolis, Minnesota Marquette Bank Nebraska, N.A., O'Neill, Nebraska Marquette Bank South Dakota, N.A., Sioux Falls, South Dakota Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 803 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date Midwest Bancorporation, Inc. & Midwest Bancorporation, Inc., St. Louis July 15, 1998 Affiliates Employee Stock Poplar Bluff, Missouri Ownership Plan, Poplar Bluff, Missouri National City Bancshares, Inc., Community First Financial, Inc., St. Louis July 22, 1998 Evansville, Indiana Maysville, Kentucky Community First Bank, N.A., Maysville, Kentucky Community First Bank of Kentucky, Warsaw, Kentucky National City Bancshares, Inc., Hoosier Hills Financial Corporation, St. Louis July 22, 1998 Evansville, Indiana Osgood, Indiana The Ripley County Bank, Osgood, Indiana National City Bancshares, Inc., Trigg Bancorp, Inc., St. Louis July 22, 1998 Evansville, Indiana Cadiz, Kentucky Trigg County Farmers Bank, Cadiz, Kentucky National Commerce Bancorporation, CBC Bancshares, Inc., St. Louis June 24, 1998 Memphis, Tennessee Collierville, Tennessee The Citizens Bank, Collierville, Tennessee N.A. Corporation, North American Banking Company, Minneapolis July 6, 1998 Roseville, Minnesota Roseville, Minnesota One Valley Bancorp, Inc., Summit Bankshares, Inc., Richmond July 2, 1998 Charleston, West Virginia Raphine, Virginia Bank of Rockbridge, Raphine, Virginia Albert J. Ortte Family Limited Metairie Bank & Trust Company, Atlanta July 2, 1998 Partnership, Metairie, Louisiana Metairie, Louisiana PASL Holding Corp., Metropolitan National Bank, New York June 26, 1998 New York, New York New York, New York MetBank Holding Corp., New York, New York Peoples Bancorporation, Inc., Bank of Anderson, National Richmond July 7, 1998 Easley, South Carolina Association, Anderson, South Carolina Peoples Service Company, Peoples Banking Company, St. Louis July 7, 1998 Nixa, Missouri Springfield, Missouri Peoples Bank of the Ozarks, Nixa, Missouri Citizens Bank of the Ozarks, Camdenton, Missouri Peoples Bank of Fordland, Fordland, Missouri Plymouth Bancorp, Inc., Plymouth Savings Bank, Boston June 30, 1998 Wareham, Massachusetts Wareham, Massachusetts RSI Bancorp, MHC, The Rahway Savings Institution, New York July 13, 1998 Rahway, New Jersey Rahway, New Jersey RSI Bancorp, Inc., Rahway, New Jersey Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

804 Federal Reserve Bulletin D September 1998 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date San Juan Bank Holding Company, Islanders Bank, San Francisco July 1, 1998 Friday Harbor, Washington Friday Harbor, Washington Security Bank Holding Company McKenzie State Bank, San Francisco July 3, 1998 ESOP, Springfield, Oregon Coos Bay, Oregon Security Bank Holding Company, Coos Bay, Oregon Service Bancorp, MHC, Summit Bancorp, Inc., Boston July 10, 1998 Medway, Massachusetts Medway, Massachusetts Sherwood Bane Corporation, The Sherwood State Bank, Cleveland July 15, 1998 Sherwood, Ohio Sherwood, Ohio SNB Bancshares, Inc., Crossroads Bancshares, Inc., Atlanta July 9, 1998 Macon, Georgia Perry, Georgia Crossroads Bank of Georgia, Perry, Georgia Synovus Financial Corp., Comunity Bank Capital Corporation, Atlanta July 22, 1998 Columbus, Ohio Alpharetta, Georgia TB&C Bancshares, Inc., Bank of North Georgia, Columbus, Georgia Alpharetta, Georgia UCBH Holdings, Inc., United Commercial Bank, San Francisco July 14, 1998 San Francisco, California San Francisco, California Union Planters Corporation, AMBANC Corp., St. Louis June 24, 1998 Memphis, Tennessee Vincennes, Indiana Union Planters Holding Corporation, AmBank Indiana, N.A., Memphis, Tennessee Vincennes, Indiana AmBank Illinois, N.A., Robinson, Illinois West Burlington Bancorporation, West Burlington Bank, Chicago June 24, 1998 West Burlington, Iowa West Burlington, Iowa Whitney Holding Corporation, First National Bancorp of Greenville, Atlanta July 1, 1998 New Orleans, Louisiana Inc., Greenville, Alabama The First National Bank of Greenville, Greenville, Alabama Winter Trust of 12/3/74, Peoples Trust of 1987, Kansas City July 17, 1998 Monument, Colorado Ottawa, Kansas Section 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date BB&T Corporation, Maryland Federal Bancorp, Inc., Richmond July 14, 1998 Winston-Salem, North Carolina Hyattsville, Maryland BB&T Corporation, W.E. Stanley & Company, Inc., Richmond June 29, 1998 Winston-Salem, North Carolina Greensboro, North Carolina Corporate Compensation Plans of N.C.. Inc., Greensboro, North Carolina Corporate Group Services, Inc., Greensboro, North Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 805 Section 4—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Blackhawk Bancorp, Inc., First Financial Bancorp, Inc., Chicago July 16, 1998 Beloit, Wisconsin Belvidere, Illinois First Federal Savings Bank, Belvidere, Illinois Central Bancshares, Inc., Pioneer Financial Corporation, Cleveland July 13, 1998 Lexington, Kentucky Lexington, Kentucky Deutsche Bank, AG, German American New York July 14, 1998 Frankfurt an Main, Germany Capital Corporation, New York, New York Heartland Financial USA, Inc., Arrow Motors, Inc., Chicago June 29, 1998 Dubuque, Iowa Milwaukee, Wisconsin Mellon Bank Corporation, Prime Advisors, Inc., Cleveland June 26, 1998 Pittsburgh, Pennsylvania Kirkland, Washington MBC Investments Corporation, Pittsburgh, Pennsylvania Minnwest Corporation, To engage de novo in the nonbank Minneapolis July 10, 1998 Minnetonka, Minnesota activities of lending and leasing NationsBank Corporation, Morgan Stanley Dean Witter & Co., Richmond July 17, 1998 Charlotte, North Carolina New York, New York NationsBanc Montgomery Securities LLC, San Francisco, California Republic Bancshares, Inc., Lochaven Federal Savings and Loan Atlanta July 3, 1998 St. Petersburg, Florida Association, Winter Park, Florida UnionBancorp, Inc., Sainet, Chicago June 24, 1998 Ottawa, Illinois Streator, Illinois Sections 3 and 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Farmers Bancshares, Inc., Leitchfield Deposit Bancshares, Inc., St. Louis June 30, 1998 Hardinsburg, Kentucky Leitchfield, Kentucky Leitchfield Bancshares Insurance, Inc., Leitchfield, Illinois Leitchfield Deposit Bank & Trust Company, Leitchfield, Kentucky UST Corp., Affiliated Community Bancorp, Boston July 23, 1998 Boston, Massachusetts Waltham, Massachusetts APPLICATIONS APPROVED UNDER BANK MERGER ACT By the Secretary of the Board Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request to the Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Applicant(s) Bank(s) Effective Date Old Kent Bank, First National Bank of Evergreen Park, July 31, 1998 Grand Rapids, Michigan Evergreen Park, Illinois Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

806 Federal Reserve Bulletin • September 1998 By Federal Reserve Banks Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request to the Reserve Banks. Applicant(s) Bank(s) Reserve Bank Effective Date BancFirst, The Security Bank & Trust Company, Kansas City July 9. 1998 Oklahoma City, Oklahoma Lawton, Oklahoma The Bank of Marion, First-Citizens Bank & Trust Company, Richmond July 14, 1998 Marion, Virginia Raleigh, North Carolina Citizens Bank, First of America Bank, N.A., Chicago July 16, 1998 Flint, Michigan Kalamazoo, Michigan The Citizens Banking Company, The First National Bank of Chester, Cleveland July 3, 1998 Salineville, Ohio Chester, West Virginia Exchange Bank & Trust Company, BankFirst, Kansas City July 8, 1998 Perry, Oklahoma Oklahoma City, Oklahoma Hanover Bank, Regency Bank, Richmond July 2, 1998 Mechanicsville, Virginia Richmond, Virginia First Community Bank, Forest, Virginia M&I Bank of Shawano, M&I Bank S.S.B., Chicago July 10, 1998 Shawano, Wisconsin Sheboygan. Wisconsin Sentinel Interim Bank, First Sentinel Bank, Richmond July 15, 1998 Richlands, Virginia Richlands, Virginia PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the ing the Federal Reserve Bank of New York as receiver for Federal Reserve Banks in which the Board of Governors is not those assets. named a party. Board of Governors v. Pharaon, No. 98-6101 (2d Cir., filed May 4, 1998). Appeal of partial denial of Board's motion Pharaon v. Board of Governors, No. 98-103 (U.S. Supreme for summary judgment in action to freeze assets of individ- Court, filed July 15, 1998). Petition for writ of certiorari ual pending administrative adjudication of civil money penseeking review of the decision of the Court of Appeals for alty assessment by the Board. On May 22, 1998, the appelthe District of Columbia Circuit affirming the Board's order lee filed a cross-appeal from the partial final judgment. dated January 31, 1997, imposing civil money penalties and Research Triangle Institute v. Board of Governors, No. 97an order of prohibition for violations of the Bank Holding 1719 (U.S. Supreme Court, filed April 28, 1998). Petition Company Act. for writ of certiorari to review dismissal by the United Inner City Press/Community on the Move v. Board of Gover- States Court of Appeals for the Fourth Circuit of a contract nors, No. 98-CIV-4608 (DLC) (S.D.N.Y., filed June 30, claim against the Board. The Board filed its opposition to 1998). Freedom of Information Act case. On July 1, 1998, the writ on June 30, 1998. the court denied plaintiffs motion for a temporary restrain- Fenili v. Davidson, No. C-98-01568-CW (N.D. California, ing order extending the public comment period on the filed April 17, 1998). Tort and constitutional claim arising application by Travelers Group Inc. to acquire Citicorp. out of return of a check. On June 5, 1998, the Board filed its Clarkson v. Greenspan, No. 98-5349 (D.C. Cir., filed July 29, motion to dismiss. 1998). Appeal of district court order granting Board's mo- Inner City Press/Community on the Move v. Board of Govertion fur summary judgment in a Freedom of Information nors, No. 97-1514 (U.S. Supreme Court, filed March 12, Act case. 1998). Petition for writ of certiorari to review dismissal by Board of Governors v. Carrasco, No. 98 Civ. 3474 (LAK) the United States Court of Appeals for the District of (S.D.N.Y., filed May 15, 1998). Action to freeze assets of Columbia Circuit of a petition for review of a Board order individual pending administrative adjudication of civil dated May 14, 1997, approving the application of Bane One money penalty assessment by the Board. On May 26, 1998, Corporation, Inc., Columbus, Ohio, to merge with First the court issued a preliminary injunction restraining the USA, Inc., Dallas, Texas. On June 22, 1998, the Supreme transfer or disposition of the individual's assets and appoint- Court denied certiorari. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 807 Wilkins v. Warren, No. 98-1320 (4th Cir., filed March 2, ENFORCEMENT DECISION ISSUED BY THE BOARD OF 1998). Appeal of District Court dismissal of action involv- GOVERNORS ing customer dispute with a bank. Logan v. Greenspan, No. l:98CV00049 (D.D.C., filed Janu- In the Matter of a Notice to Prohibit Further ary 9, 1998). Employment discrimination complaint. Participation Against Goldman v. Department of the Treasury, No. 1-97-CV-3798 Richard Salmon (N.D. Ga., filed December 23, 1997). Declaratory judgment Former Vice President action challenging Federal Reserve notes as lawful money. On March 2, 1998, the Board filed a motion to dismiss the Bank of the Desert action. Indio, California Kerr v. Department of the Treasury, No. CV-S-97-01877- DWH (S.D. Nev., filed December 22, 1997). Challenge to Docket No. AA-OCC-EC-97-05 income taxation and Federal Reserve notes. Allen v. Indiana Western Mortgage Corp., No. 91-11AA RJK Final Decision (CD. Cal., filed November 12, 1997). Customer dispute with a bank. This is an administrative proceeding pursuant to the Federal Deposit Insurance Act ("FDI Act") in which the Patrick v. United States, No. 97-75564 (E.D. Mich., filed Office of the Comptroller of the Currency of the United November 7, 1997). Action for damages arising out of tax States of America ("OCC") seeks to prohibit the Respondispute. dent, Richard Salmon ("Salmon") from further participa- Leuthe v. Office of Financial Institution Adjudication, No. tion in the affairs of any financial institution because of his 97-1826 (3d Cir., filed October 22, 1997). Appeal of district conduct as a Vice President and Loan Administrator at the court dismissal of action against the Board and other Fed- Bank of the Desert, N.A., Indio, California (the "Bank"). eral banking agencies challenging the constitutionality of Under the FDI Act, the OCC may initiate a prohibition the Office of Financial Institution Adjudication. On June 8, proceeding against a former employee of a national bank, 1998, the court of appeals affirmed the district court's but the Board must make the final determination whether dismissal of the action. to issue an order of prohibition. Upon review of the administrative record, the Board Patrick v. United States, No. 97-75017 (E.D. Mich., filed issues this Final Decision adopting the Recommended De- September 30, 1997). Action for damages arising out of tax cision ("Recommended Decision") of Administrative Law dispute. Judge Walter Alprin (the "ALJ"), and orders the issuance Artis v. Greenspan. No. 97-5235 (D.C. Cir., filed Septem- of the attached Order of Prohibition. ber 19, 1997). Appeal of district court order dismissing employment discrimination class action. I. Statement of the Case Towe v. Board of Governors, No. 97-71143 (9th Cir., filed September 15, 1997). Petition for review of a Board order A. Statutory Framework dated August 18, 1997, prohibiting Edward Towe and Thomas E. Towe from further participation in the banking Under the FDI Act and the Board's regulations, the ALJ is industry. responsible for conducting an administrative hearing on a notice of intent to prohibit participation. 12 U.S.C. In re: Subpoena Duces Tecum Served on the Office of the § 1818(e)(4). Following the hearing, the ALJ issues a Comptroller of the Currency, No. 97-5229 (D.C. Cir., filed recommended decision that is referred to the deciding September 12, 1997). Appeal of district court order denying agency together with any exceptions to those recommendamotion to compel production of pre-decisional supervisory tions filed by the parties. The Board makes the final finddocuments and testimony sought in connection with an ings of fact, conclusions of law, and determination whether action by Bank of New England Corporation's trustee in to issue an order of prohibition in the case of a prohibition bankruptcy against the Federal Deposit Insurance Corporaorder sought by the OCC. Id.; 12 C.F.R. 263.40. tion. On June 26, 1998, the court of appeals reversed and remanded the case to the district court. The FDI Act sets forth the substantive basis upon which a federal banking agency may issue against a bank official Bettersworth v. Board of Governors, No. 97-CA-624 (W.D. an order of prohibition from further participation in bank- Tex., filed August 21, 1997). Privacy Act case. ing. In order to issue such an order pursuant to section Greeff v. Board of Governors, No. 97-1976 (4th Cir., filed 1818(e)(l), the Board must make each of three findings: June 17, 1997). Petition for review of a Board order dated (1) that the respondent engaged in identified misconduct, May 19, 1997, approving the application by Allied Irish including a violation of law or regulation, an unsafe or Banks, pic, Dublin, Ireland, and First Maryland Bancorp, unsound practice, or a breach of fiduciary duty; Baltimore, Maryland, to acquire Dauphin Deposit Corpora- (2) that the conduct had a specified effect, including finantion, Harrisburg, Pennsylvania, and thereby acquire Dau- cial loss to the institution or gain to the respondent; phin's banking and nonbanking subsidiaries. and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

808 Federal Reserve Bulletin • September 1998 (3) that the respondent's conduct involved culpability of shortly after his arrival at the Bank, Salmon used his a certain degree — either personal dishonesty or a position as Vice President and loan administrator to origiwillful or continuing disregard for the safety or sound- nate a series of fictitious loans totaling almost $1,949,000. ness of the institution. 12U.S.C. § 1818(e)(l)(A) - (C). These activities were exposed shortly after Salmon resigned from the Bank in May 1996. In all, 24 nominee B. Procedural History loans were identified in which Salmon used fictitious credit, collateral, and biographical information to cause the On June 26, 1997, the OCC initiated three proceedings Bank to lend funds to fictitious persons or to persons who against Salmon: a Notice of Intention to Prohibit Further neither requested, nor received the proceeds of, the loans. Participation, Notice of Assessment of Civil Money Penalty, and Notice of Charges (together, the "Notices")- The Most loans, including the first fictitious loan from the Notices alleged that Salmon engaged in unsafe and un- Bank, were originated in amounts large enough to both pay sound banking practices, violations of law, and breaches of off previous fictitious loans and to provide Salmon with fiduciary duty during his tenure as Vice President and Loan excess funds. At the time of Salmon's resignation, sixteen Administrator at the Bank. The OCC alleged that Salmon loans remained outstanding, and the Bank incurred losses caused the Bank to extend credit to fictitious borrowers as of over $800,000 in connection with those loans. Proceeds part of a loan kiting scheme, and that Salmon used the loan from the 24 fraudulent loans were traced to Salmon for his proceeds for his personal benefit. Salmon filed an answer personal benefit. Salmon typically deposited the excess to the Notices but asserted his Fifth Amendment right funds into two checking accounts he controlled at the Bank under the United States Constitution to refuse to respond to in the names of Adam and Joni Zettler and Michael Platt. the charges on the ground that his answers might incrimi- Funds from these accounts were used to pay Salmon's nate him. personal expenses, including credit card debt, or applied to extensions of credit secured by Salmon from various other On October 28-29, 1997, a hearing was held before the lenders. A portion of one loan was used to settle a lawsuit ALJ at which the OCC presented witnesses and called brought against Salmon and his parents in connection with Salmon to testify. Salmon again invoked his Fifth Amendan apparently fraudulent loan extended by his prior emment rights and refused to answer questions at the hearing. ployer to his parents. In addition, Salmon used the loan Salmon presented no witnesses or documentary evidence proceeds to pay off the mortgage on his residence and to in his defense. purchase two vehicles. In his Recommended Decision, the ALJ permitted an amendment to the Notices to charge violations of the Salmon used his position at the Bank to originate the Bank's legal lending limit and restrictions on loans to loans, creating fictitious credit reports, altered title and executive officers, as authorized by the rules, to conform to insurance documents, and forged loan documents. In most the evidence. The ALJ then found that the charges detailed if not all cases, the collateral listed for the loans did not in the Notices had been proved, and recommended issuexist.2 ance of an order of prohibition. Neither the OCC nor Salmon filed exceptions to the Recommended Decision.1 B. Legal Conclusions II. Discussion Salmon's actions in this matter satisfy every one of the various alternative findings of misconduct, effect, and cul- Salmon's failure to file exceptions to an ALJ's Recompability required for an order of prohibition. Originating mended Decision is a waiver of any objection he has to that fictitious loans as part of a loan kiting scheme is certainly decision. 12 C.F.R. 263.39(b). Nonetheless, the Board has an unsafe or unsound banking practice.3 In the Matter of reviewed the record in this matter to assure that substantial John W. Van Dyke, Jr., No. AA-EC-87-88 (June 13, 1988), evidence in the record supports the factual and legal conaff'd sub nom. Van Dyke v. Board of Governors, 876 F.2d clusions of the ALJ and warrants imposition of the prohibi- 1377 (8th Cir. 1989) (check kite constitutes unsafe or tion order. The Board finds that the allegations contained in unsound practice); In the Matter of William Vasa, 81 Fedthe OCC's Notices and proved at the hearing meet the eral Reserve Bulletin 1171 (1995) (fictitious loans are statutory criteria for the issuance of an order of prohibition unsafe or unsound practice). The practice also quite obviand adopts the Recommended Decision of the ALJ except ously involves a breach of a bank officer's fiduciary duty of as specifically supplemented or modified herein. loyalty to put the interests of his institution, its depositors, A. Facts 2. Because Salmon invoked his Fifth Amendment right not to testify The record of the hearing confirms the ALJ's recomin this civil proceeding, the Board is entitled to draw an adverse mended findings concerning Salmon's actions. Beginning inference against him. Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). 3. An unsafe or unsound practice is generally understood to be one that is contrary to generally accepted standards of prudent operations, 1. The ALJ also recommended the entry of a cease and desist order the possible consequences of which, if continued, would be abnormal requiring restitution by Salmon of the amounts lost by the Bank as a risk or loss or damage to the institution, its shareholders, or the result of the fictitious loans, and a civil money penalty of $25,000. On insurance fund. Financial Institutions Supervisory Act of 1966: Hear- July 8, 1998, the OCC adopted the ALJ's recommendations in this ings on S. 3158 Before the House Committee on Banking and Curregard. rency, 89th Cong., 2nd Sess., at 49-50 (1966). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 809 and its shareholders before his own. Here, Salmon's ac- Order of Prohibition tions for his own benefit resulted in a substantial decrease in the Bank's capital and depressed the sales price paid to WHEREAS, pursuant to section 8(e) of the Federal Deshareholders when the Bank was sold. Moreover, Salmon's posit Insurance Act, as amended (the "Act")(12 U.S.C. § actions also violated statutory and regulatory limits. Total 1818(e)), the Board of Governors of the Federal Reserve loans and extensions of credit by a national bank to any System ("the Board") is of the opinion, for the reasons set one borrower cannot exceed 15% of a bank's unimpaired forth in the accompanying Final Decision, that a final capital. 12 U.S.C. § 84. The loans to Salmon reflected be- Order of Prohibition should issue against RICHARD tween 38 and 40% of the Bank's unimpaired capital. In SALMON ("Salmon"); addition, federal law and the Board's Regulation O place NOW, THEREFORE, IT IS HEREBY ORDERED, pursurestrictions on loans to executive officers such as Salmon; ant to section 8(e) of the Federal Deposit Insurance Act, as these restrictions were also violated by the fictitious loans. amended, (12 U.S.C. § 1818(e)), that: 12 U.S.C. §§ 375a, 375b; 12 C.F.R. 215.4, 215.5, 215.6. 1. In the absence of prior written approval by the Board, Salmon's actions resulted in both personal gain and in and by any other Federal financial institution regulaloss to the Bank, thus satisfying both of the alternative tory agency where necessary pursuant to section "effects" requirements for a prohibition order. Salmon 8(e)(7)(B) of the Act (12 U.S.C. § 1818(e)(7)(B)), benefitted from the loan kiting scheme by using the pro- Locci is hereby prohibited: ceeds of the fictitious loans to satisfy his personal debts (a) From participating in the conduct of the affairs of and to purchase personal items. For its part, the Bank was any bank holding company, any insured deposirequired to charge off more than $800,000 on the loans that tory institution specified in subsection 8(e)(7)(A) remained open after Salmon's departure. of the Act (12 U.S.C. § 18l8(e)(7)(A)); Finally, Salmon's actions meet all of the alternative (b) From soliciting, procuring, transferring, attemptstandards for culpability. His actions showed personal dising to transfer, voting or attempting to vote any honesty, in that he falsified bank records, forged signatures, proxy, consent, or authorization with respect to and misled the Bank as to the identity of its borrowers. Van any voting rights in any institution described in Dyke, supra, 876 F.2d at 1379 ("personal dishonesty" met subsection 8(e)(7)(A) of the Act (12 U.S.C. where action involves "fraud and a lack of integrity"). § 1818(e)(7)(A)); Moreover, Salmon's actions evidenced both a continuing (c) From violating any voting agreement previously and a willful disregard for the Bank's safety or soundness. approved by the appropriate Federal banking Over a period of four years, he repeatedly put the Bank's agency; or (d) from voting for a director, or from capital at risk by originating these fictitious loans with no serving or acting as an institution-affiliated party ability to repay them except through additional fraudulent as defined in section 3(u) of the Act, (12 U.S.C. loans. He thus engaged in "willful disregard" by engaging § 1813(u)), such as an officer, director, or emin deliberate misconduct that exposed the Bank to abnorployee. mal risk of loss or harm, and in "continuing disregard" by engaging in voluntary conduct with heedless indifference 2. This Order, and each provision hereof, is and shall to the consequences to the institution. Grubb v. FDIC, 34 remain fully effective and enforceable until expressly F.3d 956, 961-62 (10th Cir. 1994). stayed, modified, terminated or suspended in writing by the Board. In sum, all elements necessary for the issuance of a prohibition order are presented in this case. This Order shall become effective at the expiration of thirty Conclusion days after service is made. For these reasons, the Board orders the issuance of the By Order of the Board of Governors, this 27th day of attached Order of Prohibition. July, 1998. By Order of the Board of Governors, this 27th day of July, 1998. Board of Governors of the Board of Governors of the Federal Reserve System Federal Reserve System JENNIFER J. JOHNSON JENNIFER J. JOHNSON Secretary of the Board Secretary of the Board Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

810 Federal Reserve Bulletin • September 1998 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 NONF1NANCIAL 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 • September 1998 INTERNATIONAL STATISTICS Securities Holdings and Transactions A60 Foreign transactions in securities Summary Statistics A61 Marketable U.S. Treasury bonds and A50 U.S. international transactions notes—Foreign transactions A51 U.S. foreign trade A51 U.S. reserve assets Interest and Exchange Rates A51 Foreign official assets held at Federal Reserve A61 Discount rates of foreign central banks Banks A61 Foreign short-term interest rates A52 Selected U.S. liabilities to foreign official A62 Foreign exchange rates institutions A63 GUIDE TO STATISTICAL RELEASES AND Reported by Banks in the United States SPECIAL TABLES A52 Liabilities to, and claims on, foreigners A53 Liabilities to foreigners SPECIAL TABLES A55 Banks' own claims on foreigners A64 Residential lending reported under the A56 Banks' own and domestic customers' claims on Home Mortgage Disclosure Act, 1997 foreigners A72 Disposition of applications for private mortgage A56 Banks' own claims on unaffiliated foreigners insurance, 1997 A57 Claims on foreign countries—Combined A76 Small loans to businesses and farms, 1997 domestic offices and foreign branches A79 Community Development lending reported under the Community Reinvestment Act, 1997 Reported by Nonbanking Business Enterprises in the United Slates A80 INDEX TO STATISTICAL TABLES A58 Liabilities to unaffiliated foreigners A59 Claims on unaffiliated foreigners Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 Guide to Tabular Presentation SYMBOLS AND ABBREVIATIONS c Corrected G-10 Group of Ten e Estimated GNMA Government National Mortgage Association n.a. Not available GDP Gross domestic product P Preliminary HUD Department of Housing and Urban r Revised (Notation appears on column heading Development when about half of the figures in that column IMF International Monetary Fund are changed.) IO Interest only * Amounts insignificant in terms of the last decimal IPCs Individuals, partnerships, and corporations place shown in the table (for example, less than IRA Individual retirement account 500,000 when the smallest unit given is millions) MMDA Money market deposit account 0 Calculated to be zero MSA Metropolitan statistical area Cell not applicable NOW Negotiable order of withdrawal ATS Automatic transfer service OCD Other checkable deposit BIF Bank insurance fund OPEC Organization of Petroleum Exporting Countries CD Certificate of deposit OTS Office of Thrift Supervision CMO Collateralized mortgage obligation PO Principal only FFB Federal Financing Bank REIT Real estate investment trust FHA Federal Housing Administration REMIC Real estate mortgage investment conduit FHLBB Federal Home Loan Bank Board RP Repurchase agreement FHLMC Federal Home Loan Mortgage Corporation RTC Resolution Trust Corporation FmHA Farmers Home Administration SCO Securitized credit obligation FNMA Federal National Mortgage Association SDR Special drawing right FSLIC Federal Savings and Loan Insurance Corporation SIC Standard Industrial Classification G-7 Group of Seven 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 • September 1998 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted1 1997 1998 1998 Monetary or credit aggreg31e Q3 Q4 Ql Q2 Feb. Mar. Apr. May June Reserves of depository institutions2 1 Total -3.0 -2.7 -1 9 -3.8 -20.1 8.5 -2.3 -9.6' -5.2 2 Required -3.7 -5.6 -L8 -2.5 -14.0 14.5 -3.1 -4.7' -18.1 3 Nonborrowed -4.7 -.8 -.7 -4.3 -16.3 9.0 -3 1 -11.7' -7.8 4 Monetary base3 6.2 7.9 69 4.1 3.4' 4.1 33' 4.7 6.2 Concepts of money, liquid assets, and debt 5 Ml .3 9 3 0 .3 3.1 5.1 -.3 -3 1' -3.3 6M1 5.6 7.1 8 0 7.3 9.6 8.3 9.5 28 5.3 7 M3 8 2 10 0 11.0' 9.6 8.9' 14.4' 10.2' 6.0' 5.3 8 L 7.2 9.2 12.1' 11.6' 11.8' 3.1' | 7 9 Debt 4.5 s'i 6.2 n.a. 6.7 6.5 49 4.2 n.a. Nontransaction components 10 In M25 7.6 9.4 9.9 9.8 11.9 9.4 12.9 4.8 8.3 11 In M3 only6 16.8 19.3 20.2' 16,4 6.8' 32.8' 12.5' 15.8' 5.2 Time and savings deposits Commercial banks 12 Savings, including MMDAs 9.6 16.3 13.6 14.2 13.2 12.1 25.9 .2 11.2 13 Small time7 8.1 4.5 1.5 -.8 4 -.2 .4' -3.8' -.8 14 Large time8-9 17.2 9.9 19.8 13.9 36.5 45.9 -7.1' 7.4 5.3 Thrift institutions 15 Savings, including MMDAs 1.0 1.4 7.6 11.8 13.6 11.6 10.6 16.3 3.9 16 Small time7 -5.2 -3.1 -.4 -6.8 -2.8 -5.6 -10.8 -6.0 -3.2 17 Large time8 10.0 5.4 144 1.1 4.1 -8.2 13.8 -17.7 16.6 Money market mutual funds 18 Retail 16.3 16.0 19.6 21.0 28.7 21.6 18.0 19.8 20.7 19 Institution-only 19.7 22.0 18.9 36.5 12.3 22.5 51.7 38.7 28.7 Rcputchase agreements and Eurodollars 20 Repurchase agreements10 13.4 38.3 32.8 13 2 -26.9 88.5 -.9' 6.5 -34.8 21 Eurodollars10 18.6 24.3' 7.8' -14 3 -50.0' -55.6' .0' 17.9' .9 Debt components4 22 Federal .0 .4 .0 n.a -1.2 1.4 -2.7 -57 n.a. 23 Nonfederal 6.1 7.6 8.3 n.a 9.4 8.2' 7.4 7.5 n.a. 1. Unless otherwise noted, rates of change are calculated from average amounts outstand- amounls 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 securilies. 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 Vaull 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 markel debt of the domestic nonfinancial 4. Composition of the money stock measures and debt is as follows: sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in the process of colleclion 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 uhat is, discontinuities in the data have been smoothed into the series) and credil union share draft accounts, and demand deposits al thrift institutions. Seasonally month-averaged (that is, the daia have been derived by averaging adjacent monih-end levels). adjusted M1 is computed by summing currency, travelers checks, demand deposits, and 5 Sum of (1) savings deposits (including MMDAs). (21 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 amounls of less than $100,000), and (3) balances in retail (overnight and lerm) issued by depository institutions, and (4) Eurodollars (overnight and money market mutual funds (money funds with minimum initial investments of less than term) of U.S. addressees, each seasonally adjusted separately. $50,000). Excludes individual retirement accounts (IRAs) and Keogh balances at depository 7. Small lime deposits—including retail RPs—are (hose 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 time deposits are those issued in amounts of $100,000 or more, excluding those M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more), (2) booked at international banking facilities. balances in institutional money funds (money funds with minimum initial investments of 9. Large time deposits at commercial banks less those held by money market funds, $50,000 or more), (3) RP liabilities (overnight and term) issued by all depository institutions, depository institutions, the U.S. government, and foreign banks and official institutions. and (4) Eurodollars (overnight and term) held by US residents at foreign branches of U.S. 10. Includes both overnight and term. banks worldwide and at all banking offices in the United Kingdom and Canada. Excludes Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Money Stock and Bank Credit A5 1.11 RESERVES OF DEPOSITORY INSTITUTIONS AND RESERVE BANK CREDIT1 Millions of dollars d A ai v ly er a fi g g e u r o e f s Average of daily figures for week ending on date indicated Factor Apr. May May 13 May 20 May 27 June 3 June 10 June 17 June 24 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 474,688 471.939' 480,045 473,983 471,967' 476,544 472,499 480,335 U.S. government securities' 2 Bought outright—System account1 437,525 438,825 441,368 434,600 441,514 440,583 441,353 440,534 442,202 441.898 3 Held under repurchase agreements 3,566 442 4,853 0 421 0 2,838 0 2,060 4,144 Federal agency obligations 4 Bought outright 584 551 549 551 551 551 551 551 551 551 5 Held under repurchase agreements 667 66 736 0 150 0 593 0 814 483 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 44 58 80 153 6 75 35 112 71 6 8 Seasonal credit 40 95 160 73 97 117 129 132 157 180 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float 446 605' 779 1,069 746 295' 398 701 829 1,162 I ] Other Federal Reserve assets 31,817 31,297 31.522 32,653 30,499 30,346 30,648 30,469 30,864 31,912 12 Gold stock 11,049 11,048 11,048 11,048 11,048 11.049 11,049 11,048 11,048 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 25,759' 25,792' 25.825 25,791' 25,792' 25,793' 25,794 25,808 25.822 25,836 ABSORBING RESERVE FUNDS 15 Currency in circulation 476,326' 479,018' 481,524 478,356' 478,397' 481,340 481,445 481,623 481,204 16 Treasury cash holdings 273 247 211 248 247 226 224 207 204 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 9,708 5,474 10,401 6.055 5,428 5,179 5,341 5,031 6,982 12,769 18 Foreign 177 165 165 166 167 172 161 162 159 164 19 Service-related balances and adjustments ... 6,800 6,721 6,809 6,644 6.782 6,738 6.674 6,587 6,759 6.958 20 Other 375 364 332 ill 368 359 320 336 337 333 21 Other Federal Reserve liabilities and capital 16,177 16,617 16,691 16,463 16,505 16,722 16,709 16,913 16.880 22 Reserve balances with Federal Reserve Banks4 10,859 9,374 9,790 6,600 12,172 7,999 11,803 8,061 10,637 7,909 End-of-month figures Wednesday figures Apr. May May 13 May 20 May 27 June 3 June 10 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 493,041 475,856' 496,967 471,338 474,436' 482,526 488,041 U.S. government securities' 2 Bought outright—System account^ 441,322 440,980 439,773 437,644 442,820 442,643 441,582 439,240 442,164 441,495 3 Held under repurchase agreements 15,731 2.997 18,681 0 2,945 0 4.194 0 6,678 11.495 Federal agency obligations 4 Bought outright 551 551 526 551 551 551 551 551 551 551 5 Held under repurchase agreements 1,955 230 1,865 0 1.050 0 1,330 0 1,237 1,180 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 25 4 773 10 25 1 213 728 33 3 8 Seasonal credit 61 132 189 79 110 124 121 142 166 193 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float -478 253' 1.416 240 554 628' 1,268 -1,517 183 3 11 Other Federal Reserve assets 33,874 30,709 33,743 32.814 30,312 30,490 30,833 30.598 31,514 33,122 12 Gold stock 11,048 11,049 11,047 11,048 11,048 11.049 11,048 11,048 11,048 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 25,790' 25,794' 25,850 25,791' 25,792' 25,793' 25,794 25,808 25,822 25,836 ABSORBING RESERVE FUNDS 15 Currency in circulation 476,739' 480,726' 483,865 479,204' 479,848' 482,201' 482,129 482,577 482,355 482,065 16 Treasury cash holdings 275 226 204 248 238 226 226 207 204 204 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 28,014 5.693 18,140 5,127 4,697 5,013 5,211 5,087 8,273 22,464 18 Foreign 162 156 201 155 174 179 162 152 176 154 19 Service-related balances and adjustments 6,751 6,674 7,018 6.644 6,782 6,738 6,674 6,587 6,759 6,958 20 Other 360 309 296 373 371 311 334 346 326 325 21 Other Federal Reserve liabilities and capital . 16,894 16,743 17,073 16.168 16,251 16,294 16,454 16,656 16,709 16,667 22 Reserve balances with Federal Reserve Banks4 9,885 11,371' 16.269 9,457 16,044 9,516' 14,945 4,185 13,794 5,291 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 • September 1998 1.12 RESERVES AND BORROWINGS Depository Institutions1 Millions of dollars Proraled monthly averages of biweekly averages Reserve classification 1995 1996 1997 1997 1998 Dec. Dec. Dec. Dec. Jan. Feb. Mar. Apr. May June 1 Reserve balances with Reserve Banks2 20,440 13,395 10,673 10,673 9,733 9,394 10,140 11,053 9.646 9,669 2 Total vault cash' 42,281 44,525 44,707 44,707 47,336 43,167 41,598 41,214' 41,481' 42,634 3 Applied vault cash4 37,460 37,848 37,206 37,206 37,762 35,580 35,370 35,423 35,159' 35,428 4 Surplus vault cash5 4,821 6,678 7,500 7,500 9,574 7,587 6,228 5,791' 6,322 7,207 5 Total reserves6 57.900 51,243 47,880 47,880 47,495 44,974 45,509 46,475' 44.805' 45,097 6 Required reserves 56,622 49,819 46,196 46,196 45,714 43,450 44,193 45,131 43,655' 43,473 7 Excess reserve balances at Reserve Banks 1,278 1,424 1,683 1,683 1,780 1,524 1,316' 1,345 1,150 1,623 8 Total borrowings at Reserve Banks 257 155 324 324 210 58 41 72 153 251 9 Seasonal borrowings 40 68 79 79 18 12 22 41 94 159 10 Extended credit' 0 0 0 0 0 0 0 0 0 0 Biweekly averages of daily figures for two week periods ending on dales indicated 1998 Feb. 25 Mar. 11 Mar. 25 Apr. 8 Apr. 22 May 6 May 20 June 3' June 17 July 1 1 Reserve balances with Reserve Banks2 9.726 10,210 9,878 10,623 11,991 9,841 9,365 9,898 9,340 9,971 2 Total vault cash3 41,804 42,202 41,199 41,420 40,813' 41,711' 41,544' 41,276 43,591 41,918 3 Applied vault cash4 34,892 35,555 35,154 35,534' 35,185 35,727 35,066 34,969 35,867 35,061 4 Surplus vault cash 6,912 6,647 6,046 5,886' 5.627' 5,984' 6,478' 6,306 7,724 6,857 5 Total reserves6 44,618 45,765 45,031 46,157' 47,176 45,568 44,430 44,867 45,206 45,032 6 Required reserves 43,132 44,209 43,893 44,865 45,736 44,339 43,409 43,597 43,676 43,227 7 Excess reserve balances at Reserve Banks7 1,485 1,556 1,138 1,291' 1,441 1,230 1,022 1,270 1,530 1,805 8 Total borrowings at Reserve Banks* 59 19 34 101 51 81 165 178 236 285 9 Seasonal borrowings 13 17 23 30 37 61 85 123 145 184 iO Extended credit** 0 0 0 0 0 0 0 0 0 0 1. Data in this table also appear in the Board's H.5 (502) weekly statistical release. For 5. Total vault cash (line 2) less applied vault cash (line 3). ordering address, see inside front cover Dala are not break-adjusted or seasonally adjusted, 6. Reserve balances with Federal Reserve Banks (line 1) plus applied vault cash 2. Excludes required clearing balances and adjustments to compensate for float and (line 3). includes other off-balance-sheet "as-of' adjustments. 7. Total reserves (line 5) less required reserves (line 6). 3. Total "lagged" vault cash held by depository institutions subject to reserve 8. Also includes adjustment credit. requirements. Dates refer to the maintenance periods during which the vault cash may be used 9. Consists of borrowing at the discount window under the terms and conditions estabto satisfy reserve requirements. The maintenance period for weekly reporters ends sixteen lished for the extended credit program to help depository institutions deal with sustained days after the lagged computation period during which the vault cash is held. Before Nov. 25, liquidity pressures. Because there is not the same need to repay such borrowing promptly as 1992, the maintenance period ended thirty days after the lagged computation period. with traditional short-term adjustment credit, the money market effect of extended credit is 4. All vault cash held during the lagged computation period by "bound" institutions (that similar to that of nonborrowed reserves. is, those whose required reserves exceed their vault cash) plus the amount of vault cash applied during the maintenance period by "nonbound" institutions (that is, those whose vault cash exceeds their required reserves) to satisfy current reserve requirements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A7 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit1 Seasonal credit Extended credit Federal Reserve Bank On Effective date On Previous rate On 8/7/98 8/7/98 8/7/98 Boston 5.00 2/1/96 5.55 New York.. .. 1/31/96 Philadelphia.. 1/31/96 Cleveland 1/31/96 Richmond.... 2/1/96 Atlanta 1/31/96 Chicago 2/1/96 St. Louis 2/5/96 Minneapolis.. 1/31/96 Kansas City . . 2/1/96 Dallas 1/31/96 San Francisco. 5.00 1/31/96 5.55 Range of rates for adjustment credit in recent years4 Range (or F.R. Bank Range (or Range (or F.R. Bank level)—All of level)—All level)—All of F.R. Banks NY. F.R. Banks F.R. Banks N.Y. In effect Dec. 31, 1977 1981—Nov. 2 13-14 13 1988—Aug. 9 .... 6-6.5 6.5 6 13 13 11 .... 6.5 6.5 1978—Jan. 9 6-6.5 6.5 Dec. 4 12 12 20 6.5 6.5 1989—Feb. 24 . ... 6.5-7 May II 6.5-7 7 1982—July 20 11.5-12 11.5 27 .... 7 12 7 7 23 11.5 11.5 July 3 7-7.25 7.25 Aug. 2 11-11.5 II 1990—Dec. 19 .. .. 6.5 10 7.25 7.25 II II Aug. 21 7.75 7.75 16 .............. 10.5 10.5 1991—Feb. I 6-6.5 6 Sept. 22 8 8 27 10-10.5 10 4 .... 6 6 Oct. 16 8-8.5 8.5 30 10 10 Apr. 30 .... 5.5-6 5.5 20 8.5 8.5 Oct. 12 9.5-10 9.5 May 2 .... 5.5 5.5 Nov. 1 8.5-9.5 9.5 13 9.5 9.5 Sept. 13 .... 5-5.5 5 3 9.5 9.5 Nov. 22 9-9.5 9 17 .... 5 5 26 9 9 Nov. 6 .... 4.5-5 4.5 1979—July 20 10 10 Dec. 14 8.5-9 9 7 4.5 4.5 Aug. 17 10-10.5 10.5 15 8.5-9 8.5 Dec. 20 . ... 3.5-1.5 3.5 20 10.5 10.5 17 8.5 8.5 24 .... 3.5 3.5 Sept. 19 10.5-11 11 21 11 11 1984—Apr. 9 8.5-9 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 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 II 17 .... 4.75 4.75 16 II II 1986—Mar. 7 7-7.5 7 July 28 10-11 10 10 7 7 1995—Feb. 1 4.75-5.25 5.25 Sept. 2 2 9 6 I 1 I 0 1 I 1 0 I 2 Apr. 2 2 3 1 6 6 .5 .5 -7 6 6 . . 5 5 9 5.25 5.25 Nov. 17 12 13 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 14 22 5.5 5.5 1981— May 5 13-14 14 In effect Aug. 7, 1998 . . 14 1987—Sept. 4 5.5-6 6 11 6 6 1. Available on a short-term basis to help depository institutions meet temporary needs for of the Federal Reserve Bank, this time period may be shortened. Beyond this initial period, a funds that cannot be met through reasonable alternative sources. The highest rate established flexible rate somewhat above rates charged on market sources of funds is charged. The rate for loans to depository institutions may be charged on adjustment credit loans of unusual size ordinarily is reestablished on the first business day of each two-week reserve maintenance that result from a major operating problem at the borrower's facility. period, but it is never less than the discount rate applicable to adjustment credit plus 50 basis 2. Available to help relatively small depository institutions meet regular seasonal needs for points. funds that arise from a clear pattern of intrayearly movements in their deposits and loans and 4. For earlier data, see the following publications of the Board of Governors: Banking and that cannot be met through special industry lenders. The discount rale 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 • September 1998 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS' Type of deposit Net transaction accounts^ 1 $0 million-$47.8 million3.. 1/1/98 2 More than $47.8 million4 .. 1/1/98 3 Nonpersonal time deposits5. 12/27/90 4 Eurocurrency liabilities6.... 12/27/90 1. Required reserves must be held in the form of deposits with Federal Reserve Banks succeeding calendar year by 80 percent of the percentage increase in the total reservable or vault cash. Nonmember institutions may maintain reserve balances with a Federal liabilities of all depository institutions, measured on an annual basis as of June 30. No Reserve Bank indirectly, on a pass-through basis, with certain approved institutions. For corresponding adjustment is made in the event of a decrease. The exemption applies only to previous reserve requirements, see earlier editions of the Annual Report or the Federal accounts that would be subject to a 3 percent reserve requirement. Effective with the reserve Reserve Bulletin. Under the Monetary Control Act of 1980, depository institutions maintenance period beginning January t, 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 ihe purpose of making payments to third report quarterly. persons or others. However, accounts subject to ihe 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 monih (of which no more than three may be with an original maturity of less than I x/i years was reduced from 3 percent to 1 xfi 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 thai deposits, not transaction accounts. began Dec. 27, 1990. For institutions that report quarterly, the reserve requiremenl 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/z 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 11/2 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 dales as the reserve requirement on nonpersonal time $47.8 million. deposits with an original maturity of less than 1 l/l years (see note 5). Under the Garn-St Germain Depository Institutions Act of 1982, the Board adjusts the amount of reservable liabilities subject ta 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 1998 Type of transaction and maturity 1995 Dec. Feb. Mar. Apr. May U.S. TREASURY SECURITIES' Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 10,932 9,901 9,147 0 4,545 0 0 0 3,550 0 2 Gross sales 0 0 0 0 0 0 0 0 0 0 3 Exchanges 405,296 426,928 436,257' 33,485 32,575' 41,731 35,495' 34,025' 46,802' 35,190 4 For new bills 405,296 426,928 435,907' 33,485 32,575' 41,731 35,495' 34,025' 46,802' 35.190 5 Redemptions 900 0 0 0 0 2,000 0 0 0 0 Others wilhin one year 6 Gross purchases 390 524 5,549' 1,462 1,947 0 0 0 1,369 0 7 Gross sales 0 0 0 0 0 0 0 0 0 0 8 Maturity shifts 43.574 30,512 41,716' 5,220' 1,548' 3,447 6,098 1.964 4,369 6,951 9 Exchanges -35,407 -41,394 -27,499 -4,126 -2,329 -400 -6,128 -5,736 -2,601 -4,990 10 Redemptions 1,776 2.015 1,996 0 0 478 0 0 286 0 One to five years 11 Gross purchases 5,366 3,898 19,680' 3,323 4,471 0 0 3,763 2,993 0 12 Gross sales 0 0 0 0 0 0 0 0 0 0 13 Maturity shifts -34,646 -25,022 -37,987' -4,872' -1,548' -3,447 -3,213 -1,964 -4,369 -6,620 14 Exchanges 26,387 31,459 20,274 1,651 2,329 0 3,383 5,736 2,201 2,270 Five to ten years 15 Gross purchases 1,432 1.116 3,849' 535' 613 0 0 283 495 0 16 Gross sales 0 0 0 0 0 0 0 0 0 0 17 Maturity shifts -3,093 -5,469 -1,954 31 0 0 -2,884 0 0 -331 18 Exchanges 7,220 6,666 5,215 1,295 0 400 1,420 0 0 2,720 More than ten years 19 Gross purchases 2,529 1,655 5,897' 904' 1,214 0 0 743 0 0 20 Gross sales 0 0 0 0 0 0 0 0 0 0 21 Maturity shifts -2,253 -20 -1,775 -379 0 0 0 0 0 0 22 Exchanges 1,800 3,270 2,360 1,180 0 0 1,325 0 400 0 All maturities 23 Gross purchases 20,649 17,094 44,122 6,224 12.790 0 0 4,789 8,407 0 24 Gross sales 0 0 0 0 0 0 0 0 0 0 25 Redemptions 2,676 2,015 1,996 0 0 2,478 0 0 286 0 Matched transactions 26 Gross purchases 2,197,736 3,092,399 3,577,954' 272,474 353,726 332,581 326,812 364.307 354,756' 367,934 27 Gross sales 2,202,030 3,094.769 3,580,274' 269,586 355.668 332,795 326,245 364,537 354,741' 368.281 Repurchase agreements 28 Gross purchases 331,694 457.568 810,485 73,618 97,932 45,544 33,428 40,211 59,548 7,722 29 Gross sales 328,497 450.359 809,268 73,064 87,160 65,932 30,583 37,010 50,663 20.456 30 Net change in U.S. Treasury securities 16,875 19,919 41,022 9,666 21,620 -23,079 3,412 7,760 17,021 -13,081 FEDERAL AGENCY OBLIGATIONS Outright transactions 31 Gross purchases 0 0 0 0 0 0 32 Gross sales 0 0 0 0 0 0 33 Redemptions 1,003 409 1,540 26 50 74 Repurchase agreements 34 Gross purchases 36,851 75,354 160,409 23,054 20,056 12,488 9,615 17,685 13,547 1,575 35 Gross sales 36,776 74,842 159,369 20,976 21,186 13,872 8,776 18.342 13,042 3,300 36 Net change in federal agency obligations -928 103 -500 2,052 -1,130 -1,384 829 -707 431 -1,725 37 Total net change in System Open Market Account 15,948 20,021 40^22 11,718 20,490 -24,4*3 4,241 7,053 17,452 -14,806 I. 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 pnncipal Account; all other hgures increase such holdings. of inflation-indexed securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic Financial Statistics • September 1998 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements1 Millions of dollars Wednesday May 27 June 3 June 10 June 17 June 24 Apr. 30 May 31 June 30 Consolidated condition statement 1 Gold certificate account 11,049 11,048 11,048 11,048 11,049 11,048 11,049 11,047 2 Special drawing rights certificate account .. 9,200 9,200 9,200 9,200 9,200 9,200 9,200 9,200 3 Coin 404 383 398 407 411 463 407 392 Loans 4 To depository institutions 125 334 870 199 196 86 136 963 5 Other 0 0 0 0 0 0 0 0 6 Acceptances held under repurchase agreements 0 0 0 0 0 0 0 0 Federal agency obligations 7 Bought outright 551 551 551 551 551 551 551 526 8 Held under repurchase agreements 0 1,330 0 1,237 1,180 1,955 230 1,865 9 Total US. Treasury securities 442,643 445,776 439,240 448,842 452^*90 457,053 443,977 458,454 10 Bought outright2 442,643 441,582 439,240 442,164 441,495 441,322 440,980 439,773 11 Bills 200,140 199,078 196,734 199,657 198.987 198.823 198,476 197,264 12 Notes 180,590 180,590 180,591 180,592 180.593 180,586 180,590 180,594 13 Bonds 61,914 61,914 61,914 61,914 61,915 61,913 61,914 61,915 14 Held under repurchase agreements .. 0 4,194 0 6,678 11,495 15,731 2,997 18,681 15 Total loans and securities 443,319 447,991 440,661 450,829 454,916 459,645 444,893 461,807 16 Items in process of collection 10,106 8,708 6,924 8,361 6,396 4,997 5,165 10,126 17 Bank premises 1,287 1,286 1,293 1,293 1,291 1,284 1,287 1,290 Other assets 18 Denominated in foreign currencies3 17,164 17,001 17,010 17,018 17,443 17,132 16,995 17,366 19 Allother4 11,979 12,472 12,271 13,167 14,432 15,417 12,356 15,126 20 Total assets. 504,508 508,090 498,803 511,324 515,138 519,187 501,352 526,355 21 Federal Reserve notes . . 457,038 456,944 457,373 457,144 456,844 451,687 455,565 458,610 22 Total deposits 22,159 27,227 18,446 30,568 35,603 45,106 24,112 42,287 23 Depository institutions 16,656 21,520 12,860 21,793 12,660 16,570 17,954 23,651 24 U.S. Treasury—General account 5,013 5,211 5,087 8,273 22,464 28,014 5.693 18,140 25 Foreign—Official accounts 179 162 152 176 154 162 156 201 26 Other 311 334 346 326 325 360 309 296 27 Deferred credit items 9,016 7,465 6,328 6,903 6,025 5,500 4,931 8,385 28 Other liabilities and accrued dividends5 4,639 4,907 4,821 4,802 4,741 5,155 4,993 4,850 29 Total liabilities . 492,853 496,542 486,968 499,417 503,212 507,449 489,602 514,132 CAPITAL ACCOUNTS 30 Capital paid in 5,720 5,726 5,789 5,786 5,789 5,475 5,721 5,791 31 Surplus 5,220 5,220 5,220 5,220 5.220 5.220 5,218 5,220 32 Other capital accounts 714 601 826 900 916 1.043 811 1,212 33 Total liabilities and capital accounts 504.508 508,090 498,803 511,324 515,138 519,187 501,352 526,355 MEMO 34 Marketable U.S. Treasury securities held in custody for foreign and international accounts 606,305 603,316 603,167 595,350 595,723 604,758 606,393 600,373 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Banks) . 565,846 567,000 567,057 567,083 567,476 560,384 566,773 567,155 36 LESS: Held by Federal Reserve Banks 108,807 110,056 109,683 109,940 110,633 108,697 111,209 108,545 37 Federal Reserve notes, net 457,038 456,944 457,373 457,144 456,844 451,687 455,565 458,610 Collateral held against notes, net 38 Gold certificate account 11,049 11,048 11,048 11,048 11,049 11,048 11,049 11,047 39 Special drawing rights certificate account . .. 9,200 9,200 9,200 9,200 9,200 9,200 9,200 9,200 40 Other eligible assets 0 0 0 0 0 0 0 0 41 U.S. Treasury and agency securities 436,790 436,696 437,126 436,896 436,594 431,438 435,316 438,363 42 Total collateral 457,038 456,944 457,373 457,144 456,844 451,687 455,565 458,610 1. Some of the data in this table also appear in the Board's H.4.1 (503) weekly statistical 3. Valued monthly at market exchange rates. release. For ordering address, see inside front cover. 4. Includes special investment account at the Federal Reserve Bank of Chicago in Treasury 2. Includes securities loaned—fully guaranteed by U.S. Treasury securities pledged with bills maturing within ninety days. Federal Reserve Banks—and includes compensation that adjusts for the effects of inflation on 5. Includes exchange-translation account reflecting the monthly revaluation at market the principal of inflation-indexed securities. Excludes securities sold and scheduled to be exchange rates of foreign exchange commitments. bought back under matched sale-purchase transactions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Banks Al 1 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding Millions of dollars Wednesday Type of holding and maturity May 27 June 24 Apr. 30 May 31 1 Total loans. 196 86 136 2 Within fifteen days 116 233 760 187 172 62 78 859 9 101 110 12 24 24 58 104 3. Sixteen days to ninety days 442,643 445.776 439,240 448,842 452,990 457,364 443,976 458,634 4 Total US. Treasury securities'. 16,211 11,955 7,655 18,465 26,209 21,350 5.745 27,389 5 Within fifteen days' 96,740 98,531 95,934 94,535 97,168 91,141 102,385 93,433 6 Sixteen days to ninety days 139,033 143,714 144 074 144,264 138,034 154,703 145,188 145,693 7 Ninety-one days to one year 96.868 97,784 97,785 97,785 97.786 98,772 98,145 8 One year to five years 43,013 43,014 43,014 43,014 43,015 40.622 43,013 43,016 9 Five years to ten years 50,777 50,777 50,777 50,778 50,778 50,777 50,777 50,778 10 More than ten years 11 Total federal agency obligations 551 1,881 551 1,788 1,731 2,209 781 2391 12 Within fifteen days' 0 1,330 0 1,262 1,205 1,658 230 1,865 13 Sixteen days to ninety days 50 75 75 98 98 0 75 98 14 Ninety-one days to one year 125 125 148 100 100 175 125 104 15 One year to five years 126 126 103 103 103 126 126 99 16 Five years to ten years 225 200 200 200 200 225 200 200 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 2. Includes compensation thai 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 • September 1998 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE' Billions of dollars, averages of daily figures 1997 1998 1994 1995 1996 1997 Dec. Dec. Dec. Dec. Nov. Dec. Jan. Feb. Mar. Apr May' June Seasonally adjusted ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS- 59.41 56.40 50.08 46.67 46.31 4667 46.50 45.72 46.05 45.96 45.59 45.39 2 Nonborrowed reserves4 59.20 56.14 49.93 46.35 46.16 46.35 46.29 45.66 46.01 45.89 45.44 45.14 3 Nonbonowed reserves plus extended credit5 59.20 56.14 49.93 46.35 46.16 46.35 46.29 45.66 46.01 45.89 45.44 45.14 4 Required reserves 58.24 55.12 48.66 44.99 44.69 44.99 44.72 44 20 44.73 44.61 44.44 43.77 5 Monetary base6 418.12 434.17 452.38 480.15 476.19 480.15 482.84' 48423' 485.86' 487.20' 489.10 491.63 Not seasonslly adjusted 6 Total reserves 61.13 58.02 51.52 47.97 46.53 47.97 47.49 44.99 45.55 46.53 44.87 45.17 60 92 57 76 51.37 47 65 46.38 47 65 47.28 44 94 45.50 46 45 44.71 44.92 8 Nonborrowed reserves plus extended credit5 60.92 57.76 51.37 47.65 46.38 47.65 47.28 44.94 45.50 46.45 44.1 i 44.92 59.96 56 74 50.10 46.29 44.91 46.29 45.71 43.47 44.23 45.18 43.72 43.55 10 Monetary base9 422.51 439.03 456.72 485.11 476.62 485.11 484.41' 481.35' 484.00' 487.36' 488.28 491.18 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS10 11 Total reserves" 61 34 57 90 51.24 47 88 46.45 47.88 47.50 44 97 45.51 46.48 44.81 45.10 12 Nonborrowed reserves 61.13 57.64 51.09 47.56 46.30 47.56 47.29 44.92 45.47 46.40 44.65 44.85 13 Nonborrowed reserves plus extended credit5 61.13 57.64 51.09 47.56 46.30 47.56 47.29 44.92 45.47 46.40 44.65 44.85 14 Required reserves 60.17 56.62 49.82 46.20 44.83 46.20 45.71 43.45 44.19 45.13 43.66 43.47 15 Monetary base'" 427.25 444.45 463.49 491.92 483.50 491.92 491.61' 488.41' 490.96' 494.11' 494.95 497.93 16 Excess reserves11 1.17 1.28 1.42 1.68 1.62 1.68 1.78 1.52 1.32 1.35 1.15 1.62 17 Borrowings from the Federal Reserve .21 .26 .16 .32 .15 .32 .21 .06 .04 .07 .15 .25 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 pasl 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 discontinuiiies associated with regulatory changes in conditions established for ihe 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 10 compensate for floal adjusted, break-adjusted total reserves (line I), 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 "Repon of all quarterly reporters on Ihe "Report of Transaction Accounts. Oiher 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 1994 1995 1996 1997 Dec. Dec Dec. Dec. Mar. Apr. May June Seasonally adjusted Measures1 I Ml 1,150.7 1,128.7 1,082.8 1,076.0 1,081.1 1,080.8 1,078.0' 1,075.0 2 M2 3,503.0 3,651.2 3,826.1 4,045.8 4.132.3 4,164.9' 4,174.5' 4,193.0 3 M3 4,333.6 4,595.6 4,931.1 5,374.9 5.527.1' 5,574.3' 5,602.4' 5,627.1 4 L 5,315.8 5,702.2 6,083.6' 6,609.4 6.808.2' 6,825.6' 6,835.1 n.a. 5 Debt 13,003.1 13,702.3 14,432.2 15,170.7 15.413.9' 15.477.3' 15,532.0 n.a. MI components 354.3 372.4 394.9 425.5 432.4 433.7 435.5' 438.2 7 Travelers checks4 8.5 8.9 8.6 8.2 8.1 8.0 80 7.8 384.0 391.0 403.6 397.1 391.2 388.6 388.0 383.4 9 Other checkable deposits6 403.9 356.4 275.9 245.2 249.5 250.5 246.4' 245.6 Nontransaction components 10 In M27 2,352 3 2,522.6 2.743.2 2,969.7 3.051.2 3,084.1 3,096.5 3,118.0 II In M3 only3 830.6 944.4 1,105.0 1.329.1 1,394.9' 1.409.4' 1,427.9' 1,434.1 Commercial banks 12 Savings deposits, including MMDAs 752.6 775.0 904.8 1.020.9 1.055.2 1,078.0 1,078.2 1,088.3 13 Small time deposits9 503.2 575.8 594.5 625.7 626.2 626.4' 624.4 624.0 14 Large time deposits10' " 298.7 345.4 413.2 487.5 524.2 521.1' 524.3' 526.6 Thrift institutions 15 Savings deposits, including MMDAs 397 3 359.7 366.9 376.6 386.6 390.0 395 1 396.6 16 Small time deposits9 314.2 357.2 354.3 343.9 342.9 339.8 338.1 337.2 64 7 74 2 78 0 85 4 87 2 88 2 86 9 88 1 Money market mutual funds 18 Retail 385.0 454.9 522.8 602.6 640.3 649.9 660.6 672.0 19 Institution-only 203.1 253.9 310.3 376.2 391.9 408.8 422.0 432.1 Repurchase agreements and Eurodollars 183.3 182.4 194.2 234.8 257.6 257.4' 258.8' 251.3 88 6 109 2 145 3' 133 9r 133 9' 135 9' 136 0 Debt components 22 Federal debt 3,492.4 3,638.9 3,780.6 3.798.4 3.797.3 3,788 9 3,770.8 n.a. 23 Nonfedera) debl 9.510 7 10.063 4 10,651.6 11,372.3 11,616.7' 11,688 5' 11,761.1 n.a. Not seasonally adjusted Measures' 24 Ml 1,174.4 1,152.4 1,104.9 1.097.6 1.074.6 1.086.1' 1,068.6' 1,074.2 25 M2 3,523.4 3.672.0 3,845.4 4.064.7 4.143.4' 4,185.6' 4.153.9' 4,188.1 26 M3 4 353 2 4,615.2 4,948.9 5,392.1 5,545.8' 5,588.9' 5,580.3' 5,617.1 27 L 5,344.6 5,732 7 6,111.6' 6,634.9 6,830.5' 6,846.9' 6,813.0 n.a. 28 Debt 13,004.5 13,702.5 14,431.0 15.168.8 15.391.2' 15,450.8' 15.494.5 n.a. Ml components 357.5 376.2 397 9 429.0 431 4' 413 7 436.1' 438.3 30 Travelers checks4 8.1 8.5 8.3 7.9 7.9 7.9 7.9 8.0 31 Demand deposits5 400 3 407.2 419.9 413.0 385.4 388.7 380.3 382.8 32 Other checkable deposits 4(18.6 360.5 278.8 247.7 249.9 255.9 244.4 245.2 Nontransaction components 33 In M27 2,349.0 2,519.6 2,740.5 2.967.1 3,068.8' 3,099.5 3.085.3 3,113.9 14 In Ml only* 829 7 943 2 1 101 5 1 327 4 1 402 3' 1 40? 2' 1 426 5' 1 429 0 Commercial banks 35 Savings deposits, including MMDAs 751.7 774.1 903.3 1,019.0 1,060.2 1,083.3 1,076.7 1,091.5 36 Small time deposits9 501.5 571.8 592.7 624.1 626.6 627.2 625.0 624.4 37 Large time deposits10' '' 298.9 345.8 413.6 487.9 522.9 517.6' 525.5' 525.5 Thrift institutions 38 Savings deposils. including MMDAs 396.8 359.2 366.4 375.9 388.4 391.9 394.7 397.7 39 Small time deposit 313.2 355.9 353.2 343.0 343.1 340.2 338.5 337.4 40 Large time deposits10 64.8 74.3 78.1 85.4 87.0 87.6 87.2' 88.0 Money market mutual funds 41 Retail 385.9 456.4 524.8 605.1 650.5 656.9 650.4 662.9 42 Institution-only 204.6 255.8 312.7 378.9 4O0.2 405.8 414.1 424.5 Repurchase agreements and Eurodollars 43 Repurchase agreements'2 179.6 178.0 188.8 228.2 256.5 257.8' 262.8' 256.4 44 Eurodollars'- 81.8 89.4 110.3 146.9 135.8' 1.14 4' 136.9' 134.5 Debt components 45 Federal debt 3,499.0 3,645.9 3,787.9 3,805.8 3,820.7 3,800.5 3,765.9 n.a. 9,505.5 10,056.6 10,643.1 11.363.1 1 1.570.5' 11.650.3' 11.728.6 n.a. Footnote? appear on following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Financial Statistics • September 1998 NOTES TO TABLE 1.21 1. Latest monthly and weekly figures are available from the Board's H.6 (508) weekly these assets. Seasonally adjusted L is computed by summing US savings bonds, short-term statistical release. Historical data starting in 1959 are available from the Money and Reserves Treasury securities, commercial paper, and bankers acceptances, each seasonally adjusted Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve separately, and then adding this result to M3. System, Washington, DC 20551. Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial 2. Composition of the money stock measures and debt is as follows: sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (I) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in the process of collection and Federal corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data, Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of which are derived from the Federal Reserve Board's flow of funds accounts, are breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at thrift institutions. Seasonally month-averaged (that is, the data have been derived by averaging adjacent month-end levels). adjusted Ml is computed by summing currency, travelers checks, demand deposits, and 3. Currency outside the U.S. Treasury. Federal Reserve Banks, and vaults of depository OCDs, each seasonally adjusted separately. institutions. M2: Ml plus (1) savings deposits (including MMDAs), (2) small-denomination time 4. Outstanding amount of U.S. dollar-denominated travelers checks of nonbank issuers. deposits (time deposits—including retail RPs—in amounts of less than $100,000), and (3) Travelers checks issued by depository institutions are included in demand deposits. balances in retail money market mutual funds (money funds with minimum initial invest- 5. Demand deposits at commercial banks and foreign-related institutions other than those ments of less than $50,000). Excludes individual retirement accounts (IRAs) and Keogh owed to depository institutions, the U.S. government, and foreign banks and official institubalances at depository institutions and money markel funds. Seasonally adjusted M2 is tions, less cash items in the process of collection and Federal Reserve float. calculated by summing savings deposits, small-denomination time deposits, and retail money 6. Consists of NOW and ATS account balances at all depository institutions, credit union fund balances, each seasonally adjusted separately, and adding this result to seasonally share draft account balances, and demand deposits at thrift institutions. adjusted Ml. 7. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retail M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more) money fund balances. issued by all depository institutions, (2) balances in institutional money funds (money funds 8. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities with minimum initial investments of $50,000 or more), (3) RP liabilities (overnight and term) (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and issued by all depository institutions, and (4) Eurodollar!; (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 1997' 1998' Feb. Mar. Apr May June 3 June 17 June 24 Seasonally adjusted Assets 1 Bank credit 3,923.3' 4,094.0 4,148.8 4,179.5 4,218.5 4,214.2 4.241.2 4,253.7 4,249.2 4.243.9 4,251.2 4,258.5 2 Securities in bank credit \fB1.9 1,082.6 1,104.4 1.108.5 1,126.8 1,106.7 1.121.8 1,115.1 1,123.6 1.115.2 1.108.3 1,113.5 3 U.S. government securities . . 716.91 747.0 760.6 768.0 779.7 763.2 769.9 752.9 769.7 754.5 742.3 747.2 4 Other securities 291.ff 335.6 343 8 340.5 347.1 343.5 351.9 362.1 353.9 360.7 366.0 366.3 5 Loans and leases in bank credit 2,915.4' 3,011.4 3,044.3 3,071.0 3,091.7 3,107.5 3,119.4 3,138.6 3,125.7 3,128.7 3,142.9 3,145.1 6 Commercial and industrial .. 817.2 851.6 861.7 869.1 871.0 869.8 878.5 890.7 884.7 887.5 892.4 891.2 7 Real estate 1,189.9 1,230.2 1,233.4 1,247.6 1.259.8 1,266.9 1,268.5 1,270.5 1,271.0 1,267.9 1.271.5 1,271.2 8 Revolving home equity . . 92.3 97.6 98.0 98.2 98.3 98.5 98.1 97.6 97.6 97.6 97.7 97.7 9 Other 1,097.6 1,132.6 1,135.4 1,149.5 1.161.5 1,168.4 1,170.3 1.172.8 1.173.3 1.170.2 1,173.8 1,173.5 10 Consumer 518.2' 507.9 505.1 503.4 502 7 505.1 505.2 500.1 504.0 502.0 502.0 501.1 11 Security1 92.7 96.7 116.2 117.9 116.9 115.2 119.9 126.2 119.2 123.1 127.2 130.8 12 Other loans and leases .... 297.5' 325.0 327.8 333.0 341.3 350.5 347.3 351.2 346.8 348.2 349.9 350.8 13 Interbank loans 190.8' 209.4 201.3 199.8 216.7 213.3 202.0 218.0 206.7 215.6 207.4 219.3 14 Cash assets4 249.7 263.1 265.4 269.1 281.0 274.2 256.0 256.0 238.6 259.7 254.2 257.1 15 Other assets5 288.0 295.2 291.4 294.5 291.9 306.8 313.8 314.2 310.5 319.1 310.4 314.0 16 Total assets6 4395.1r 4,805.0 43502 4,951.1 4,955.5 4,9844 4,947.6 4,980.8 4,965.7 4,991.4 Liabilities 17 Deposits 2,974.1 3,109.3 3.114.8 3,151.4 3,190.8 3.203.7 3,199.1 3,220.4 3,205.6 3.226.3 3,214.4 3,217.1 J8 Transaction 693.9 686.8 678.4 684.9 695.7 693.5 684.3 684.4 661.2 684.5 676.9 692.9 19 Nonlransaction 2280.2 2,422.5 2,436.4 2,466.5 2,495.2 2,510.2 2.514.8 2,536.0 2344.4 2,541.8 2,537.5 2,524.3 20 Large time 580.5 634.9 644.3 660.5 674.9 672.6 674.7 683.6 684.6 688.2 689.5 683.5 21 Other 1,699.8 1.787.6 1,792.1 1.806.0 1.820.3 1,837.6 1,840.1 1.852.4 1,859.9 1.853.7 1.848.0 1,840.8 22 Borrowings 740.9 818.6 828.9 829.2 859.9 874.1 867.4 866.1 863.3 861.2 867.0 858.7 23 From banks in the US 283.9 304.1 291.2 292.3 307.1 307.4 286.1 294.5 291.3 300.4 291.4 278.1 24 From others 457.0 514.6 537.7 536.9 552.8 566.7 581.3 571.6 572.0 560.8 575.6 580.5 25 Net due to related foreign offices .. . 217.5 194.9 230.6 223.0 201.4 175.5 168.0 164.8 162.0 162.4 157.1 167.4 26 Other liabilities 271.1 280.1 293.7 296.8 290.7 289.6 295.8 303.4 296.3 309.8 296.2 300.7 27 Total liabilities 4J03.6 4,402.9 4.468.0 4300.4 434Z8 4^419 4^303 4354.7 43273 4359.7 4334£ 4.543.X 28 Residual (assets less liabilities)' 391.5' 402.1 382.2 385.9 408.4 408.2 425.2 429.7 420.3 421.1 430.9 447.6 Not seasonally adjusted Assets 29 Bank credit 3,924.9' 4,103.8 4,156.0 4,176.9 4.208.9 4,218.8 4,236.0 4,255.0 4,257.8 4247.8 4,252.4 4,247.4 30 Securities in bank credit 1,011.3 1,077.8 1,104.9 1,111.9 1,128.2 1,117.4 1,126.4 1,117.9 1,133.2 1,123.5 1,108.3 1,111.7 31 US. government securities 719.3' 745.0 757.3 766.9 783.0 771 6 774.4 755.3 776.8 760.6 744.1 747.4 32 Other securities 292.0' 332.8 347.6 345.0 345.1 345.8 352.0 362.6 356.4 362.9 364.2 364.4 33 Loans and leases in bank credit2 . . . 2,913.6' 3,026.1 3,051.1 3,064.9 3,080.8 3,101.4 3,109.6 3,137.1 3,124.6 3,124.3 3,144.1 3,135.6 34 Commercial and industrial 819.6 849.9 859.4 869.0 874.5 877.3 884.0 893.4 889.7 888.1 895.4 892.9 35 Real estate 1,187.6 1,233.6 1,233.5 1,242.3 1.253.3 1,260.5 1,262.2 1.268.0 1,267.2 1,267.0 1.267.5 1,267.0 36 Revolving home equity 92.0 97.9 98.3 97.7 97.3 97.6 97.8 97.3 97.2 97.1 97.3 97.6 37 Other 1,095.6 1,135.7 1,135.3 1.144.6 1,156.0 1,162.8 1,164.4 1,170.7 1,170.0 1,169.9 1,170.2 1,169.5 38 Consumer 515.3' 514.2 511.9 502.9 496.2 500.1 499.9 497.3 499.8 498.2 499.1 499.3 39 Security' 92.8 99.3 116.4 119.4 117.7 116.8 119.5 126.2 118.6 124.1 130.8 127.8 40 Other loans and leases 298.3' 329.1 329.9 331.3 339.0 346.8 344.0 352.3 349.3 346.9 351.3 348.7 41 Interbank loans 188.2' 218.8 208.1 202.8 216.2 216.1 197.6 214.8 209.6 215.2 206.9 204.6 42 Cash assets4 244.8 282.2 276.4 269.3 269.4 269.5 251.6 250.9 252.9 240.4 255.5 236.3 43 Other assets* 286.4 295.6 289.9 295.6 291.8 304.8 313.3 312.5 312.0 316.6 307.8 309.7 44 Total assets" 4387.6 4*13.7 4,874.1 4,9293 4,952.1 4X1.1 4^75.7 4,974.7 4.962,4 44»65.1 4,9403 Liabilities 45 Deposits 2,966.0 3,141.7 3,120.9 3,138.7 3,181.6 3.203.1 3,182.7 3,212.4 3,228.2 3,220.0 3,216.7 3,164.8 46 Transaction 688.4 721.0 690.4 678.2 683.4 698.7 672.6 679.4 678.2 669.1 681.6 655.3 47 Nontransaction 2,277.5 2,420.6 2,4305 2.460.4 2.498.3 2,504.5 2,510.1 2,533.0 2,550.0 2,550.9 2.535.2 2,509.4 48 Large time 578.5 639.4 642.6 659.5 672.4 667.1 675.0 681.3 685.8 689.9 687.0 680.0 49 Other 1,699.0 1,781.3 1.787.9 1.801.0 1.825.9 1,837.4 1,835.2 1,851.7 1,864.2 1,861.1 1.848.2 1,829.4 50 Borrowings 748.3 816.6 835.3 829.8 851.8 874.1 872.9 873.4 866.2 847.8 875.5 882.7 51 From banks in the US 286.5 307.9 294.7 293.2 304.7 306.7 287.2 296.4 291.8 295.2 293.6 285.5 52 From others 461.8 508.8 540.6 536.5 547.1 567.4 585.7 577.0 574.4 552.5 582.0 597.2 53 Net due to related foreign offices 219.9 193.6 231.0 221.1 199.7 174.8 178.4 172.3 171.6 168.6 162.4 178.7 54 Other liabilities 270.1 281.0 293.8 298.0 290.9 288.8 295.2 302.5 295.6 309.2 295.0 299.6 55 Total liabilities 4,2043 4.433.11 4,481.0 4/1873 4324.1 43403 43293 4360.7 4361.6 4345.6 4349.7 4325.7 56 Residual (assets less liabilities)7 383.3 410.7 393.1 400.5 405.5 411.3 411.9 415.0 413.1 416.8 415.5 414.7 MEMO 57 Revaluation gains on off-balance-sheet items8 77.9 82.4 93.1 87.2 83.3 85.3 92.1 88.4 94.3 90.9 91.3 58 Revaluation losses on off-balancesheet items8 80.9 85.7 95.6 89.3 84.4 84.8 90.4 87.1 93.0 87.6 90.8 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics • September 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued B. Domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures 1997 1997r 1998' 1998 Feb. Mar. Apr. May Seasonally adjusted Assets 1 Bank credit 3,392.2r 3,550.0 3,580.1 3,610.9 3,652.5 3,656.4 3,676.9 3,685.8 3,684.8 3,681.8 3,686.7 3,686.7 2 Securities in bank credit 841.1 895.5 911.3 915.5 929.5 915.1 927.7 919.3 927.0 923.3 916.2 915.5 3 U.S. government securities 633.7 670.5 679.1 684.0 691.9 675.0 681.6 666.1 679.3 670.8 661.3 660.8 4 Other securities 207.5 224.9 232.2 231.6 237.6 240.1 246.2 253.2 247.7 252.5 255.0 254.7 5 Loans and leases in bank credit2 2,551.0' 2,654.6 2,668.8 2,695.3 2,723.0 2,741.3 2,749.2 2,766.4 2,757.8 2,758.5 2,770.5 2,771.2 6 Commercial and industrial 595.8 630.3 638.5 646.6 650.7 655.5 665.0 675.3 670.8 673.4 676.4 675.9 7 Real estate 1,160.0 1,204.3 1,206.9 1,221.7 1,235.2 1,243.3 1,245.4 1,247.6 1,248.1 1,245.0 1,248.6 1.248.2 8 Revolving home equity 92.3 97.6 98.0 98.2 98.3 98.5 98.1 97.6 97.6 97.6 97.7 97.7 9 Other 1,067.8 1,106.6 1,108.9 1,123.6 1,136.9 1,144.7 1,147.3 1,150.0 1,150.4 1,147.3 1,150.9 1,150.5 10 Consumer 518.2' 507.9 505.1 503.4 502.7 505.1 505.2 500.1 504.0 502.0 502.0 501.1 11 Security' 47.2 53.0 61.4 63.1 67.9 63.6 61.8 67.6 62.0 62.7 67.5 72.3 12 Other loans and leases 229.8' 259.1 256.8 260.5 266.5 273.9 271.9 275.9 273.0 275.4 276.0 273.8 13 Interbank loans 172.0' 178.1 173.2 175.0 195.8 192.4 181.2 194.7 184.7 188.7 184.9 198.5 14 Cash assets4 214.7 229.5 232.5 236.5 246.9 238.9 221.5 220.9 204.3 224.6 219.8 222.8 15 Other assets5 246.3 253.0 251.1 252.3 249.3 264.0 272.0 273.8 269.2 276.7 271.6 273.4 16 Total assets6 3,»68.7r 4,154.1 4,180.6 4,218.2 4,287.8 4.294.6 4,294.2 4,317.9 4,285.8 4,314.6 4,305.7 4,324.1 Liabilities 17 Deposits 2,721.9 2.836.8 2,841.3 2,866.6 2,901.9 2,911.3 2,904.8 2,918.3 2,904.1 2.920.9 2.909.5 2,916.0 18 Transaction 683.4 677.0 668.2 674.8 685.1 682.4 673.8 673.6 651.4 674.7 667.0 682.8 19 Nontransaction 2,038.6 2.159.8 2,173.1 2,191.9 2,216.8 2,228.9 2,231.0 2,244.7 2,252.7 2,246.2 2,242.5 2,233.2 20 Large time 339.9 375.0 382.8 387.7 398.3 392.2 390.9 391.6 391.9 391.6 393.6 391.6 21 Other 1,698.7 1,784.8 1,790.3 1,804.2 1,818.6 1,836.7 1,840.1 1,853.1 1,860.8 1,854.6 1,849.0 1,841.6 22 Borrowings 597.6 669.1 679.2 684.3 705.8 705.0 699.0 692.6 694.6 695.4 694.1 686.5 23 From banks in the US 252.0 278.3 267.7 269.7 281.3 280.8 262.3 262.4 263.3 271.6 259.6 248.9 24 From others 345.6 390.9 411.4 414.7 424.5 424.1 436.8 430.2 431.4 423.7 434.5 437.6 25 Net due to related foreign offices 75.8 73.2 91.0 88.3 82.9 77.2 70.9 71.7 65.1 66.7 69.4 75.4 26 Other liabilities 179.6 184.6 197.5 199.4 196.7 199.4 202.3 208.7 202.2 213.0 204.7 207.4 27 Total liabilities 3,575.0 3,763.7 3,809.0 3,838.7 3,887.4 3,892.9 3,877.0 3,891.3 3,866.0 3,895.9 3377.7 3,885.3 28 Residual (assets less liabilities)7 393.7' 390.4 371.6 379.6 400.4 401.7 417.2 426.6 419.8 418.7 428.0 438.7 Not seasonally adjusted Assets 29 Bank credit 3,391.5' 3,560.8 3,590.5 3,608.8 3,643.3 3,661.2 3,670.2 3,684.1 3,686.5 3,681.5 3,686.2 3.675.5 30 Securities in bank credit 842.1 894.4 917.1 922.0 932.8 924.3 928.5 919.1 929.9 926.4 914.3 912.4 31 U.S. government securities ...... 636.0 668.8 677.8 683.6 694.5 684.8 685.5 668.4 684.7 675.9 663.3 661.8 32 Other securities 206.1 225.6 239.4 238.4 238.4 239.5 242.9 250.6 245.2 250.4 251.0 250.6 33 Loans and leases in bank credit2 2,549.3' 2,666.3 2,673.3 2,686.8 2,710.4 2,736.9 2,741.7 2,765.0 2,756.6 2,755.1 2,771.8 2,763.1 34 Commercial and industrial 598.3 627.7 635.3 645.4 653.5 663.0 671.1 678.1 675.6 674.6 679.6 677.7 35 Real estate 1,157.9 1,207.6 1,207.0 1,216.2 1,228.6 1,237.0 1,239.2 1,245.3 1,244.5 1,244.3 1,244.8 1,244.2 36 Revolving home equity 920 97.9 98.3 97.7 97.3 97.6 97.8 97.3 97.2 97.1 97.3 97.6 37 Other 1,065.9 1,109.7 1,108.7 1,118.5 1,131.3 1,139.4 1,141.4 1,148.0 1,147.3 1.147.2 1,147.4 1,146.7 38 Consumer 515.3' 514.2 511.9 502.9 496.2 500.1 499.9 497.3 499.8 498.2 499.1 499.3 39 Security3 47.4 54.3 61.5 64.4 68.1 65.7 61.8 67.7 61.7 64.1 71.0 69.9 40 Other loans and leases 230.4' 262.6 257.7 257.9 264.0 271.1 269.7 276.6 275.0 273.8 277.3 272.1 41 Interbank loans 169.4' 187.4 180.1 178.0 195.4 195.2 176.7 191.5 187.5 188.3 184.4 183.7 42 Cash assets4 208.9 247.1 243.5 237.2 236.4 235.9 217.4 214.8 217.5 204.6 220.1 201.1 43 Other assets5 245.5 252.5 249.1 251.9 249.1 264.3 271.0 272.9 270.3 274.1 270.1 270.8 44 Total assets6 3,958.8r 4,1913 4,207.1 4,219.7 4,267.6 4,299.8 4,278.2 4306.0 4304.5 4,291.2 4303.4 4,273.9 Liabilities 45 Deposits 2,712.3 2,866.1 2,849.3 2,856.1 2,891.5 2,912.4 2,885.6 2,908.6 2,922.5 2,911.0 2,910.7 2,861.9 46 Transaction 677.9 710.7 680.3 668.3 672.9 688.0 662.3 668.6 668.3 659.7 671.7 645.2 47 Nontransaction 2,034.3 2,155.3 2,169.0 2,187.8 2,218.6 2,224.5 2,223.3 2,240.0 2,254.2 2,251.3 2,239.0 2,216.7 48 Large time 337.9 375.2 382.1 388.0 393.7 388.0 389.1 389.3 391.0 391.2 391.8 388.2 49 Other 1,696.4' 1,780.1 1,786.9 1,799.8 1,824.9 1,836.4 1,834.2 1,850.8 1,863.2 1,860.1 1,847.2 1,828.5 50 Borrowings 605.0 667.1 685.6 684.9 697.7 704.9 704.5 699.9 697.5 681.9 702.6 710.5 51 From banks in the US 254.6 282.0 271.2 270.6 278.8 280.1 263.4 264.3 263.7 266.5 261.8 256.3 52 From others 350.4 385.1 414.4 414.3 418.8 424.8 441.1 435.6 433.8 415.4 440.8 454.2 53 Net due to related foreign offices 79.6 67.1 86.5 85.1 82.1 77.9 80.5 79.8 75.7 75.0 76.6 85.2 54 Other liabilities 179.6 184.6 197.5 199.4 196.7 199.4 202.3 208.7 202.2 213.0 204.7 207.4 55 Total liabilities 3,576.5 3,784.8 3,811.0 3,825.6 3,868.0 3,894.7 3,872.8 3,897.1 3,897.9 3,880.7 3,894.6 3,865.0 56 Residual (assets less liabilities)7 382.3' 406.5 388.2 394.1 399.6 405.1 405.3 408.9 406.6 410.5 408.7 408.9 MEMO 57 Revaluation gains on off-balance-sheet items8 49.9 45.6 50.5 47.5 52.2 50.1 58 Revaluation losses on off-balancesheet items8 40.2 43.9 52.6 49.2 49.6 45.3 46.3 50.1 47.7 52.0 47.8 50.6 59 Mortgage-backed securities9 ........ 252.9 281.0 289.7 293.8 299.4 293.4 294.8 286.8 292.9 287.2 284.7 285.3 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 1997' 1997' 1998' Feb. Mar. Apr. May June 3 June 10 June 17 June 24 Seasonally adjusted Assets 1 Bank credit 2,035.1 2,114.5 2,141.4 2,166.8 2,203.4 2,203.1 2,215.5 2,215.6 2.219.5 2,216.6 2,218.0 2,214.3 2 Securities in bank credit 442.6 483.2 501.6 507.5 519.2 506.4 515.3 507.5 514.9 511.3 506.9 504.1 3 U.S. government securities .... 317.4 343.7 354.7 361.3 369.4 356.1 359.6 346.2 358.5 350.1 343.6 341.4 4 Trading account 21.8 27.4 29.1 28.0 27.5 23.7 24.5 24.6 29.3 28.9 23.0 22.1 5 Investment account 295.6 316.3 325.6 333.3 341.9 332.4 335.1 321.5 329.2 321.2 320.6 319.3 6 Other securities 125.2 139.5 147.0 146.2 149.8 150.2 155.7 161.3 156.4 161.2 163.3 162.7 7 Trading account 58.6 63.3 69.6 67.5 70.9 69.4 74.4 78.3 74.0 78.7 80.2 79.7 8 Investment account 66.7 76.2 77.4 78.7 78.9 80.9 81.3 83.1 82.4 82.5 83.1 83.0 9 State and local government 21.8 22.1 22.5 22.7 22.8 23.0 22.8 22.2 22.5 22.4 22.2 22.2 10 Other 44.9 54.0 54.9 56.0 56.2 57.9 58.5 60.9 59.9 60.1 60.9 60.8 11 Loans and leases in bank credit2 . 1,592.5 1,631.4 1,639.7 1,659.3 1,684.2 1,696.7 1,700.3 1,708.1 1,704.6 1,705.3 1,711.0 1,710.2 12 Commercial and industrial .... 422.5 445.8 452.3 458.9 462.7 465.7 473.0 481.5 478.0 480.6 482.7 481.8 13 Bankers acceptances 1.6 1.2 1.2 1.2 1.3 1.2 1.2 1.2 1.2 1.2 1.2 1.2 14 Other 420.9 444.6 451.1 457.6 461.4 464.5 471.8 480.3 478.2 480.8 482.9 482.0 15 Real estate 652.7 652.4 649.0 658.6 669.6 673.4 673.2 669.0 674.0 670.5 669.6 667.2 16 Revolving home equity .... 65.2 68.2 68.7 68.7 69.0 69.3 68.8 68.0 68.1 68.2 68.1 68.0 17 Other 587.5 584.3 580.4 589.9 600.6 604.1 604.5 601.1 606.0 602.3 601.5 599.2 18 Consumer 308.4 295.9 294.8 293.5 295.2 299.4 299.0 294.0 298.0 296.8 295.3 293.8 19 Security1 42.8 47.3 55.8 57.3 61.7 57.3 55.8 61.4 55.6 56.3 61.3 66.5 20 Federal funds sold to and repurchase agreements with broker-dealers .... 26.2 31.0 39.4 41.2 43.7 39.7 37.6 42.9 37.9 37.7 43.1 47.9 21 Other 16.7 16.3 16.4 16.2 18.0 17.6 18.3 18.5 17.7 18.6 18.2 18.6 22 State and local government .. . 11.2 11.0 10.7 10.7 10.7 II.I 11.4 11.2 11.3 11.3 11.2 11.2 23 Agricultural 9.2 9.6 9.5 9.5 9.6 9.7 9.7 9.6 9.6 9.7 9.7 9.7 24 Federal funds sold to and repurchase agreements with others 6.8 11.2 7.7 6.1 7.1 7.2 5.6 5.6 4.6 4.9 6.0 5.6 25 All other loans 65.8 76.6 75.6 79.3 80.4 82.6 80.1 82.2 80.4 81.8 82.2 81.1 26 Lease-financing receivables . .. 73.0 81.5 84.2 85.3 87.3 90.3 92.5 93.4 93.1 93.4 93.1 93.2 27 Interbank loans 123.4 122.5 117.4 118.1 131.2 126.4 115.1 125.4 114.7 122.3 115.2 129.8 28 Federal funds sold to and repurchase agreements with commercial banks 73.2 82.7 76.8 69.3 80.8 74.8 64.0 72.9 62.8 70.7 64.2 77.0 29 Other 50.2 39.8 40.6 48.8 50.3 51.5 51.1 52.5 51.9 51.5 51.1 52.8 30 Cash assets4 147.7 158.4 160.9 164.1 173.7 164.7 147.3 146.0 133.4 149.2 146.9 146.8 31 Other assets5 189.2 190.5 188.0 187.8 185.1 195.8 201.1 199.2 197.3 199.8 197.8 198.0 32 Total assets6 2.458J 1549.1 1570.8 2^99.9 16563 16517 2*41.6 2*49.0 2/07.6 2*50.4 2,640.6 2*51.7 Liabilities 33 Deposits 1,519.4 1,557.1 1,555.8 1,575.0 1,602.8 1.604.9 1590.6 1.590.6 1,585.2 1,598.1 1,585.3 1,585.0 34 Transaction 389.0 379.7 372.2 376.5 384.0 382.5 374.3 372.3 357.5 376.3 368.3 375.9 35 Nontransaction 1,130.4 1,177.3 1,183.6 1,198.5 1,218.8 1,222.4 1,2)6.3 1,218.3 1,227.7 1,221.8 1,217.1 1,209.1 36 Large time 184.8 207.7 212.6 215.3 225.4 218.1 215.0 215.8 215.3 215.0 216.8 214.7 37 Other 945.5 969.6 971.1 983.2 993.4 1.004.3 1,001.2 1,0025 1,012.4 1,006.8 1,000.3 994.4 38 Borrowings 447.1 511.4 521.1 525.2 544.6 542.5 534.5 527.4 529.0 528.4 529.4 523.4 39 From banks in the US 174.5 205.8 195.3 197.0 209.0 208.1 188.6 187.6 188.1 196.1 185.6 175.3 40 From others 272.6 305.5 325.8 328.2 335.6 334.4 345.9 339.8 340.9 332.3 343.7 348.1 41 Net due to related foreign offices 72.0 68.9 86.8 82.2 78.8 73.7 67.1 67.8 61.3 62.8 66.0 71.5 42 Other liabilities 153.8 155.5 169.1 170.4 166.6 168.8 171.3 177.6 171.0 181.4 173.6 176.0 43 Total liabilities 2,1913 2£»18 2317 2,1517 23918 2389.8 23<&5 23633 2J4&5 2370.7 2JS4J! 2355.9 44 Residual (assets less liabilities)7 ... 265.8 256.3 238.0 247.2 263.5 262.9 278.1 285.7 281.1 279.7 286.4 295.8 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Financial Statistics • September 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued C. Large domestically chartered commercial banks—Continued Monthly averages Wednesday figures Account 1997' 1997' 1998' 1998 June Dec. Jan. Feb. Mar. Apr. May June June 3 June 10 June 17 June 24 Not seasonally adjusted Assets 45 Bank credit 2,029.9 2,124.6 2,156.9 2,173.3 2.197.8 2.202.1 2,201.8 2,209.2 2,215.8 2,209.0 2,213.2 2,197.4 46 Securities in bank credit 440.4 484.0 509.1 516.1 521.1 510.0 511.9 504.2 514.7 510.2 501.5 497.1 47 U.S. government secunties 316.9 343.5 354.8 363.1 370.8 360.8 360.3 345.8 361.5 351.7 342.7 338.8 48 Trading account 20.8 27.0 28.2 28.4 28.3 23.9 23.7 23.7 29.8 29.1 22.4 19.8 49 Investment account 296.1 316.5 326.6 3.34.6 342.5 336.9 336.6 322.2 331.7 322.6 320.3 319.0 50 Mongage-backed securities .. 190.4 212.1 220.4 223.0 227.6 221.2 221.0 212.5 218.6 213.1 210.7 211.0 51 Other 105.7 104.4 106.2 111.6 114.8 1157 115.6 109.6 113.0 109.5 109.6 108.0 52 One year or less 29.0 28.2 27.2 29.2 29.9 31.1 29.6 29.7 26.8 28.5 30.8 30.6 53 One to five years 56.9 53.4 52.4 51.4 51.3 50.7 49.3 46.1 47.1 45.9 45.2 44.7 54 More than five years 19.8 22.7 26.6 31.0 33.6 33.9 36.7 33.8 39.1 35.1 33.7 32.7 55 Other securities . . 123.5 140.5 154.3 153.0 150.3 149.2 151.5 158.3 153.2 1585 158.9 158.3 56 Trading account 57.0 63.6 76.2 74.2 71.4 69.0 70.9 75.5 70.9 76.2 75.7 75.6 57 Investment account 66.5 76.9 78.0 78.8 79.0 80.2 806 82.9 82 3 823 83 I 82 6 58 State and local government .. 21.9 22.2 22.5 22.7 22.7 22.9 22.7 22.4 22.6 22.5 22.4 22.5 59 Other 44.6 54.8 55.6 56.1 56.3 57.3 57.9 60.5 59.7 59.8 60.7 60.2 60 Loans and leases in bank credit2 .. 1,589.5 1,640.6 1,647.9 1,657.2 1,676.7 1,692.1 1,689.9 1,705.0 1,701.1 1,698.8 1,711.7 1,700.3 61 Commercial and industrial 423.3 443.8 449.9 458.0 464.6 470.8 476.6 482.6 480.6 479.9 484.2 481.9 62 Bankers acceptances 1.6 1.3 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 63 Other 421.8 442.4 4487 456.8 463.4 469.6 475.4 481.4 479.4 478.7 483.0 480.7 64 Real estate 650.1 654.9 652.1 656.9 665.3 667.5 665.4 666.1 669.1 667.7 666.0 662.9 65 Revolving home equity .... 65.0 68.5 69.0 68.3 68.0 68.3 68.3 67.7 67.7 67.6 67.8 67.8 66 Other 362.4 358.8 357.5 361.7 370.4 371.2 368.3 371.0 372.5 372.8 371.1 367.8 67 Commercial 222 5 227.6 225.6 226.8 226.8 227.9 228.8 227.4 229.0 227.2 227.2 227.3 68 Consumer 307.0 299.8 299.9 293.2 290.6 295.3 294.9 292.8 295.4 294.5 294.1 293.2 69 Security1 43.1 48.6 55.9 58.7 61.9 59.4 55.9 61.6 55.3 57.8 64.8 64.1 70 Federal funds sold to and repurchase agreements with broker-dealers .... 26.0 31.3 39.5 42.4 43.9 41.6 37.5 42.6 37.6 39.6 45.8 44.7 71 Other . 17.0 17.3 16.4 16.3 18.0 17.8 18.4 19.0 17.7 18.1 19.0 19.4 72 State and local government .... 11.2 11.1 10.7 10.7 10.7 11.0 11.3 11.2 11.2 11.2 11.2 73 Agricultural 9.3 9.6 9.4 9.1 9.2 9.3 9.5 9.7 9.6 9.7 9.8 9.8 74 Federal funds sold to and repurchase agreements with others 6.8 11.2 7.7 6.1 7.1 7.2 5.6 5.6 4.6 4.9 6.0 5.6 75 All other loans 65.9 80.0 76.3 77.9 79.5 81.6 78.8 82.4 82.5 80.2 82.9 78.8 76 Lease-financing receivables .... 72.7 81.8 86.0 86.6 87.9 90.0 91.8 93.0 92.6 92.9 92.7 92.8 77 Interbank loans 123.6 127.9 122.7 117.1 126.9 127.1 114.4 125.9 117.3 119.6 118.1 125.0 78 Federal funds sold to and repurchase agreements with commercial banks 73.6 86.9 80.7 68.5 77.5 76.0 63.7 73.2 64.8 67.8 66.1 73.2 79 Other 50.1 41.0 42.0 48.6 49.4 51.1 50.8 52.7 52.5 51.8 52.0 51.8 80 Cash assets1 143.0 172.3 170.8 165.0 164.9 162.3 143 3 140.9 141.5 133.0 147.2 130.9 81 Other assets5 189.2 190.5 188.0 187.8 185.1 195.8 201.1 199.2 197.3 199.8 197.8 198.0 82 Total assets6 44484 457H5 4601.9 46064 4637.8 46504 46234 4637.9 4634.5 2,624.0 4639.0 4614.2 Liabilities 83 Deposits 1,513.2 1,578.5 1,565.2 1,567.5 1,590.8 1,597.6 1,571 0 1 584.2 1,594.0 1,586.2 1,588.4 1.549.0 84 Transaction 385.4 402.9 381.9 373.4 374.9 384.4 365^0 368.9 366.9 3612 372.9 350.7 85 Nontransaclion 1,127.8 1,175.6 1,183.4 1,194.1 1,215.9 1,213.2 1,206.0 1,215.3 1.227.0 1,224.0 1,215.5 1,198.4 86 Large time 182.8 207.9 211.9 215.6 220.9 213.8 213.3 213.4 214.4 214.6 215.0 211.3 87 Other 944.9 967.7 971 5 978.4 995.1 999.4 992.7 I.0O2.0 1 012 6 1,009.5 1,000.5 987.1 88 Borrowings 454.1 508.6 526.6 527.6 539.7 544.3 539.5 534.3 533.8 519.4 538.3 542.2 89 From banks in the US 176.6 209.5 198.3 198.8 207.7 207.8 188.9 189.0 188.9 192.5 187.7 180.1 90 From nonbanks in the US 277.5 299.1 328.2 328.8 332.0 336.5 350.6 345.3 344.9 326.9 350.6 362.1 91 Net due to related foreign offices ... 75.8 62.8 82.3 79.0 78.0 74.4 76.7 76.0 71.9 71.1 73.2 81.3 92 Other liabilities 153.8 155.5 169.1 170.4 166.6 168.8 171.3 177.6 171.0 181.4 173.6 176.0 93 Total liabilities 2,196.8 4305.4 4343.2 4344.5 4375.1 2385.1 43740 4370.6 4358.1 4373.5 2348J 94 Residual (assets less liabilities)7 251.6 273.0 258.7 261.9 262.7 265.3 264.9 265.8 263.9 265.9 265.5 265.7 MEMO 95 Revaluation gains on off-balancesheet items* 38.5 41.0 49.9 47.0 47.2 43.9 45.6 50.5 47.5 52.2 49.8 50.1 96 Revaluation losses on off-balancesheet items8 40.2 43.9 52.6 49.2 49.6 45.3 46.3 50.1 47.7 52.0 47.8 50.6 97 Mongage-backed securities9 209.5 230.1 238.8 242.5 247.6 241.0 241.8 233.8 239.6 234.0 231.9 232.2 98 Pass-through securities 143.7 157.7 162.9 165.2 169.7 165.1 164.5 156.7 162.5 157.0 155.7 155.8 99 CMOs, REMICs, and other mortgage-backed securities .. 65.7 72.4 75.8 77.3 77.9 75.9 77.3 77.1 77.2 77.0 76.3 76.4 100 Net unrealized gains (losses) on available-for-sale securities10 . .. 0.5 2.1 3.0 3.3 2.9 3.0 2.8 3.2 3.4 3.2 3.2 3.2 101 Offshore credit to U.S. residents" .. 33.4 34.2 35.5 36.2 35.2 35.5 36.0 36.1 36.6 36.2 36.0 36.3 Footnotes appeat on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A19 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued D. Small domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures 1997' 1997' 1998' June Dec. Ian. Feb. Mar. Apr. May June 3 June 10 Seasonally adjusted Assets 1 Bank credit 1,357.0 1,435.5 1,438.7 1,444.1 1,449.1 1,453.4 1,461.4 1.470.2 1.465.3 1.465.2 1,468.8 1.472.5 2 Securities in bank credit 398.5 412.3 409.7 408.0 410.3 408.7 412.5 411.8 412.2 412.1 409.3 411.4 3 U.S. government securities . . 316.3 326.9 324.4 322.7 322.5 318.9 322.0 319.9 320.8 320.7 317.7 319.4 4 Other securities 82.2 85.5 85.2 85.4 87.8 89.8 90.5 91.9 91.4 91.3 91.6 92.0 5 Loans and leases in bank credit2 . 958.5 1,023.2 1,029.1 1,036.1 1,038.8 1,044.6 1,048.9 1.058.4 1,053.2 1,053.2 1,059.5 1,061 1 6 Commercial and industrial .. 173.4 184.5 186.2 187.7 188.0 189.8 192.0 193.8 192.8 192.8 193.7 194.1 7 Real estate 507.3 551.8 557.9 563.1 565.6 569.8 572.1 578.6 574.0 574.5 579.1 581.0 8 Revolving home equity . . 27.1 29.5 29.4 29.5 29.3 29.2 29.4 29.7 29.6 29.5 29.7 29.8 9 Other 480.3 522.4 528.6 533.7 536.3 540.6 542.8 548.9 544.4 545.0 549.4 551.3 10 Consumer 209.9 212.0 210.3 209.9 207.6 205.7 206.2 206.1 206.0 205.2 206.7 2073 [ I Security1 4.3 5.7 5.5 5.7 6.2 6.3 5.9 6.1 6.4 6.4 6.2 5.8 12 Other loans and leases 63.7 69.2 69.1 69.6 71.5 73.0 72.6 73.8 73.9 74 3 73.8 72.9 13 Interbank loans 48.6 55.5 55.9 56.9 64.7 66.0 66.1 69.3 70.0 66.5 69.6 68.7 14 Cash assets4 67.0 71.2 71.6 72.4 73.3 74.2 74.2 74.8 70.9 75.4 72.9 76.0 15 Other assets5 57 1 62.5 63.1 64.5 64.2 68.1 70.9 74.6 71.9 76.9 73.8 75.4 16 Total assets6 1,510.6 1,605.0 1,609.8 1,6183 1,631.5 1,641.9 1,652.6 1,668.9 1,658.2 1,664.2 1,665.1 1,672.4 Liabilities 17 Deposits 1.202.5 1,279.7 1,285.5 1,291.7 1,299.1 1,306.5 1,314.1 1,327.8 1,318.8 1,322.8 1,324.2 1,331.0 18 Transaction 294.3 297.2 296.1 298.3 301.1 300.0 299.4 301.3 293.9 298.4 298.7 306.8 19 Nontransaction 908.2 982.5 989.4 993.4 998.1 1.006.5 1,014.7 1,026.5 1,025.0 1,024.4 1,025.5 1,024.2 20 Large time 155.1 167.3 170.2 172.4 172.9 174.2 175.9 175.9 176.6 176.7 176.8 176.9 21 Other 753.2 815.2 819.2 8210 825.2 832.3 838.9 850.6 848.4 847.8 848.7 847.3 22 Borrowings 150.5 157.8 158.1 159.1 161.2 162.5 164.6 165.2 165.6 167.0 164.8 163.1 23 From banks in the US 77.5 72.4 72.4 72.6 72.3 72.7 73.7 74.8 75.2 75.5 74.0 73.6 24 From others 72.9 85.3 85.7 86.5 88.9 89.8 90.9 90.4 90.4 91.5 90.7 89.5 25 Net due to related foreign offices 3.8 4.3 4.2 6.1 4.1 3.5 3.8 3.8 3.8 3.9 34 3.9 26 Other liabilities 25.9 29.1 28.5 29.0 30.7 31.0 31.2 31.2 31.5 31.2 31.3 30.1 27 Total liabilities 1^82.7 1/170.9 1,4763 1,485.9 1,503.1 1,513.5 1^28.0 1,519.4 1,525.2 1,523.5 13294 1,494.6 28 Residual (assets less liabilities)7 . 127.9 134.1 133.6 132.4 138.8 139.1 140.9 138.7 138.9 141.6 143.0 137.0 Not seasonally adjusted Assets 29 Bank credit 1,361.6 1,436.1 1,433.5 1,435.6 1,445.4 1,459.0 1,468.4 1.474.9 1,470.7 1,472.5 1,472.9 1,478.1 30 Securities in bank credit 401.7 410.4 408.1 405.9 411.7 414.3 416.6 414.9 415.2 416.2 412.8 415.3 31 U.S. government securities . . 319.1 325.3 323.0 320.6 323.7 324.0 325.2 322.6 323.2 324.2 320.6 323.0 32 Other securities 82.6 85.1 85.1 85.4 88.0 90.3 91.4 92.3 92.1 92.0 92.1 92.3 33 Loans and leases in bank credit- 959.9 1,025.7 1,025.5 1,029.6 1,033.8 1,044.8 1,051.8 1.060.0 1,055.5 1,056.3 1,060.1 1,062.9 34 Commercial and industrial .. 175.0 183.9 185.4 187.3 188.9 192.2 194.5 195.5 195.0 194.7 195.4 195.7 35 Real estate 507.9 552.7 554.9 559.4 563.3 569.5 573.8 579.2 575.3 576.6 578.8 581.3 36 Revolving home equity .. 27.0 29.4 29.2 29.4 29.2 29.3 29.5 29.6 29.5 29.5 29.6 29.7 37 Other 480.9 523.3 525.7 529.9 534.0 540.2 544.3 549.6 545.8 547.1 549.2 551.6 38 Consumer 208.2 214.4 212.0 209.8 205.6 204.7 204.9 204.5 204.4 203.8 205.0 206.1 39 Security' 4.3 5.7 5.5 5.7 6.2 6.3 5.9 6.1 6.4 6.4 6.2 5.8 40 Other loans and leases 64.4 69.0 67.6 67.4 mi 72.0 72.6 74.7 74.3 74.9 74.7 74.0 4 4 4 1 3 2 O C In a t t h s e h e r r b a a a n s s s k s e e t t l s s o 4 * ans 4 5 5 5 6 6 . . . 8 0 3 5 7 6 9 4 2 . . . 6 8 0 5 7 61 7 2 . . . 1 4 8 6 7 6 2 4 0 . . . 3 2 9 6 6 7 4 1 8 . . . 1 5 5 6 7 6 8 8 3 . . . 1 5 6 6 7 6 2 4 9 . . . 3 1 9 6 7 7 5 3 3 . . . 6 9 8 7 7 7 0 6 3 . . . 2 0 0 6 7 7 8 1 4 . . . 7 7 3 6 7 7 6 2 2 . . . 3 9 3 7 5 7 0 2 8 . . . 2 8 7 1,510.5 1,6119 1,6053 1,6133 1,629.8 1,649.4 1.654.8 1,668.1 1,669.9 1,667.2 1,664.4 1,659.7 44 Total assets'1 Liabilities 1,199.1 1,287.5 1,284.1 1,288.7 1,300.7 1,314.8 1,314.6 1,324.4 1,328.6 1,324.7 1,322.3 1,312.8 45 Deposits 292.5 307.9 298.4 294.9 298.0 303.6 297.3 299.7 301.4 297.5 298.8 294.5 46 Transaction 906.6 979.7 985.6 993.8 1,002.7 1,011.2 1,017.3 1,024.7 1,027.2 1,027.3 1,023.5 1,018.3 47 Nontransaction 155.1 1673 170.2 1724 172.9 174.2 175.9 175.9 176.6 176.7 176.8 176.9 48 Large time 751.5 812.4 815.4 821.4 829.8 837.1 841.5 848.8 850.6 850.6 846.7 841.4 49 Other 151.0 158.5 159.0 157.3 158.0 160.6 165.0 165.7 163.7 162.5 164.3 168.3 50 Borrowings 78.1 72.6 72.9 71.8 71.2 72.3 74.4 753 74.8 74.0 74.1 76.2 51 From banks in the US 72.9 86.0 86.2 85.5 86.8 88.3 90.5 90.3 88.9 88.5 90.2 92.1 52 From others 3.8 4.3 4.2 6.1 4.1 3.5 3.8 3.8 3.8 3.9 3.4 3.9 53 Net due to related foreign offices 25.9 29.1 28.5 29.0 30.1 30.7 31.0 31.2 31.2 31.5 31.2 31.3 54 Other liabilities 1379.8 L479.4 1,475.8 1,481.1 1,492.9 1309.6 1314.4 1325.1 1327.2 1322.6 1321.1 13163 55 Total liabilities 130.7 133.4 129.5 132.2 136.9 139.8 140.4 143.1 142.7 144.6 143.2 143.3 56 Residual (assets less liabilities}7 . MEMO 50.9 50.9 51.3 51.8 52.4 53.2 53.2 52.7 57 Mortgage-backed securities'3 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Financial Statistics • September 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued E. Foreign-related institutions Billions of dollars Monthly averages Wednesday figures Account 1997' 1997' 1998' 1998 June Dec. Jan. Feb. Mar. Apr. May June June 3 June 10 June 17 June 24 Seasonally adjusted Assets 1 Bank credit 531.1 544.0 568.6 568.6 566.0 557.8 564.3 567.9 564.4 562.1 564.5 571.8 2 Securities in bank credit 166.8 187.2 193.1 192.9 197.3 191.6 194.1 195.7 196.6 191.9 192.1 198.0 3 U.S. government securities 83.2 76.5 81.5 84.1 87.8 88.2 88.3 86.8 90.4 83.7 81.1 86.4 4 Other securities 83.5 110.7 111.6 108.9 109.5 103.4 105.8 108.9 106.1 108.2 111.0 111.6 5 Loans and leases in bank credit- . . 364.4 356.8 375.6 375.7 368.7 366.2 370.2 372.2 167.8 370.2 172.4 373.8 6 Commercial and industrial 221.3 221.3 223.2 222.5 220.3 214.2 213.5 215.4 213.9 214.0 216.0 215.3 7 Real estate 29.9 25.9 26.5 25.9 24.6 23.7 23.1 22.9 22.9 22.9 22.9 23.0 8 Security* 45.5 43.8 54.8 54.8 49.0 51.7 58.1 58.6 57.3 60.4 59.7 58.6 9 Other loans and leases 67.7 65.8 71.0 72.4 74.7 76.6 75.5 75.3 73.8 72.8 738 77.0 10 Interbank loans 18.8 31.3 28.0 24.8 20.9 20.9 20.8 23.3 22.1 26.9 22.5 20.9 11 Cash assets4 35.0 33.5 32.9 32.6 34.1 35.3 34.5 35.1 34.3 35.1 34.4 34.3 12 Other assets* 41.7 42.3 40.4 42.2 42.7 42.8 41.8 40.5 41.3 42.3 38.8 40.6 13 Total assets' 626.4 650.9 669.7 668.0 663.4 656.6 6613 666.5 661.8 6662 660.0 667.4 Liabilities 14 Deposits . .. 252 2 272.5 273.5 284.8 288.9 292.4 294.3 302.0 301.6 305.4 304.9 301.1 15 Transaction 10.5 9.8 10.2 10.1 10.6 11.1 10.6 10.7 9.8 9.8 10.0 10.1 16 Nontransaction 241.7 262.7 263.3 274.7 278.3 281.3 283.8 291.3 291.7 295.6 295.0 291.1 17 Borrowings 143.3 149.5 149.7 144.8 154.1 169.1 168.4 173.5 168.7 165.9 173.0 172.2 18 From banks in the US 31.9 25.8 23.5 22.6 25.8 26.6 23.9 32.1 28.0 28.8 31.9 29.3 19 From others 111.4 1237 126.2 122.2 128.3 142.5 144.5 1414 140.7 137 1 141 1 142 9 20 Net due to related foreign offices 141.6 121.7 139.6 134.7 118.5 98.3 97.1 93.2 96.9 95.7 87.7 91.9 ^ 1 Other liabilities 91.5 95.5 96.2 97.4 94.0 90.2 93.5 94.7 94.2 95.8 91.5 93.3 22 Total liabilities 628.6 639.2 659.1 661.7 655.4 650.0 6533 663.4 661.4 663.S 657.1 658J 23 Residual (assets less liabilities)7 .... -2.2 11.7 10.6 6.3 7.9 6.5 8.0 3.1 04 2.4 2.9 8.9 Not seasonally adjusted Assets 24 Bank credit 533.4 543.1 565.5 568.1 565.6 557.6 565.9 570.9 571.3 566.3 566.3 571.8 25 Securities in bank credit 169.2 183.3 187.7 189.9 195.3 193.1 197.9 198.8 203.1 197.1 194.0 199.3 26 US. government securities 83.3 76.2 79.5 83.3 88.5 86.8 88.9 86.9 92.1 84.7 80.8 85.6 27 Trading account 16.4 13.7 14.6 14.1 17.6 18.3 20.4 18.2 21.4 14.8 13.5 16.8 28 Investment account 66.9 62.5 64.9 69.2 70.9 68.6 68.5 68.7 70.7 69.9 67.3 68.7 29 Other securities 85.8 107.2 108.2 106.6 106.8 106.2 109.0 111.9 111.1 112.4 113.2 113.8 30 Trading account 50.1 60.0 62.9 61.3 59.7 58.2 59.8 6.3.1 62.2 62.5 62.0 63.9 31 Investment account 35.8 41A 45.3 45.3 47.1 48.1 49.2 48.9 48.9 49.9 51.2 49.9 32 Loans and leases in bank credit2 .. . 364.2 359.7 377.8 378.1 370.3 364.5 367.9 372.1 368.0 1692 372.3 372.5 33 Commercial and industrial 221.3 222.2 224.1 223.6 221.0 214.3 212.9 215.3 214.0 213.4 215.7 215.2 34 Real estate .... 29.6 26.0 26.5 26.1 24.7 23.5 23.0 22 7 227 22.7 22.8 22 8 35 Security* 45.3 45.0 54.9 55.0 49.7 51.1 57.7 58.5 56.9 60.0 59.8 58.0 36 Other loans and leases 68.0 66.5 72.3 73.4 75.0 75.6 74.4 75.6 74.3 73.1 74.0 76.5 37 Interbank loans 18.8 31.3 28.0 24.8 20.9 20.9 20.8 23.3 22.1 26.9 22.5 20.9 38 Cash assets4 35.9 35.1 32.8 32.0 330 33.6 342 36.1 35.4 35.8 35 5 35.2 39 Other assets' 40.9 43.1 40.8 43.7 42.7 40.5 42.3 39.6 41.7 42.4 37.7 38.8 40 Total assets6 628.7 6514 666.9 6683 661.9 6523 663.0 669.6 670.2 671.2 661.7 666.6 Liabilities 41 Deposits 253.7 275.6 271.6 282.5 290.1 290.7 297.1 303.8 305.6 309.1 306.1 302.9 42 Transaction 10.5 10.3 10.1 9.9 10.5 10.7 10.3 10.8 9.8 9.4 9.9 10.1 43 Nontransaction 243.2 265.3 261.4 272.6 279.6 280.0 286.8 293.0 295.8 299.7 296.1 292.7 44 Borrowings 143.3 149.5 149.7 144.8 154.1 169.1 168.4 173.5 168.7 165.9 172.9 172.2 45 From banks in the U.S 31.9 25.8 23.5 22.6 25.8 26.6 23.9 32.1 28.0 28.8 31.8 29.2 46 From others 111.4 123.7 126.2 122.2 128.3 142.5 144.5 141.4 140.7 137.1 141 1 141.0 47 Net due to related foreign offices .... 140.3 126.5 144.5 136.0 117.6 96.9 98.0 92.4 95.9 93.5 85.7 93.3 48 Other liabilities 90.5 96.5 96.3 98.5 94.2 89.3 92.9 93.8 93.5 96.3 90.3 92.3 49 Total liabilities 627.8 648J 662.0 661.9 656.1 646.1 656.4 663.6 663.7 664.8 655.0 660.7 50 Residual (assets less liabilities)7 .... 1.0 4.2 4.9 6.4 5.9 6.3 6.5 6.0 6.5 6.3 6.7 5.8 MEMO 51 Revaluation gains on off-balance-sheet 39.4 41.4 43.2 40.4 40.0 39.4 39.7 41.5 40.8 42.1 41 1 41.2 52 Revaluation losses on off-balancesheet items8 40.7 41.8 42.9 40.6 39.8 39.0 38.4 40.3 39.4 41.0 39.8 40.2 Footnoies appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities All 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. adj listed. 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-backed 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 No. 115. Data are reported net of tax effects. Data shown are remove the estimated effects of mergers between these two groups. The adjustmeni for restated to include an estimate of these tax effects. mergers changes past levels to make them comparable with current levels. Estimated 11. Mainly commercial and industrial loans but also includes an unknown amount of credit quantities of balance sheet items acquired in mergers are removed from past data for the bank extended to other than nonfinancial businesses. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic Financial Statistics • September 1998 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December 1997 D 19 e 9 c 3 . D 19 e 9 c 4 . 1 D 9 e 9 c 5 . D 19 e 9 c 6 . D 19 e 9 c 7 . Feb. Apr. May Commercial paper (seasonally adjusted unless noted otherwise) 1 All issuers 555,075 595.382 674,904 775,371 966,699 96S.699 973,761 1.004,662 1,049,222 1,041.681 1,053,995 Financial companies' 2 Dealer-placed paper2, total . 218,947 223,038 275.815 361,147 513,307 513.307 509,950 520,940 550,670 558,817 569,065 3 Directly placed paper1, tolal. 180.389 207.701 210,829 229.662 252.536 252.536 254,926 268,001 282,083 275.415 274,469 4 Nonfinancial companies4 155,739 164,643 184,563 200,857 208,886 215,721 216,469 207,449 210,460 Bankers dollar acceptances (not seasonally adjusted) 5 Tolal 32,348 29,835 25,754 By holder 6 Accepting banks 12,421 11.78? 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 10 Others 19,202 17,642 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 Date of change Rate Period Av r e a r t a e ge Period Av r e a r l a e ge Period Av r e a r t a e ge 1995—Jan. 1 8.50 1995 8.83 1996—Jan 8.50 1997—Jan 8.25 Feb. 1 900 ISVf) .,,, ,.... 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. ! 8.25 Feb 9.00 June 8.25 June 8.50 Mar. 9.00 July 8.25 July 850 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 825 Oct 8.50 July 8.80 Nov 8.25 Nov 8 50 Aug 8.75 Dec 8.25 Dec 850 Sept 8.75 Oct 8.75 1998—Jan 8.50 Nov 8.75 Feb 8.50 Dec 8.65 Mar. 8.50 Apr 850 Mav 8 50 June 8.50 July 8.50 I. The prime rate is one of several base rates that banks use 10 price short-term business Report. Data in this table also appear in the Board's H.15 (519) weekly and G.I3 (415) loans. The table shows the date on which a new rate came to be ihe 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 1998 1998, week ending Item 1995 1996 1997 Mar. Apr. May June May 29 June 5 June 12 June 19 June 26 MONEY MARKET INSTRUMENTS 1 Federal funds123 5.83 5.30 5.46 5.49 5.45 5.49 5.56 5.45 5.63 5.43 5.58 5.42 5 21 5 02 5 00 5 00 5 00 5 00 5 00 5 00 Commercial paper* 6 Nonfinancial n.a. n.a. 5.57 5.51 5.49 5.49 5.51 5.50 5.50 5.49 5.52 5.54 4 2-month n.a. n.a. 5.57 5.49 5.48 5.49 5.50 5.50 5.49 5.49 5.50 5.52 5 56 546 5 46 5 48 5 49 Financial 6 J-month n.a. n.a. 5.59 5.53 5.51 5.50 5.53 5.51 5.51 5.51 5.53 5.54 n.a. n.a. 5.59 5.51 5.49 5.50 5.52 5.50 5.51 5.51 5.52 5.54 8 3-month n.a. n.a. 5.60 5.49 5.48 5.50 5.50 5.49 5.50 5.50 5.50 5.51 Commercial paper (historical )x5b7 5.93 5.43 5.54 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10 3-month 5.93 5.41 5.58 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 11 6-monih 5.93 5.42 5.62 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Finance paper, directly placed (historical)*-51* 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-monih 5.78 5.29 5.48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 14 6-month 5.68 5.21 5.48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Bankers acceptances*59 5.81 5.31 5.54 5.50 5.48 5.48 5.50 5.48 5.50 5.50 5.48 5.50 16 6-month 5.80 5.31 5.57 5.46 5.44 5.44 5.47 5.44 5.49 5.45 5.48 5.46 Certificates of deposit, secondary market 17 1-month 5.87 5.35 5.54 5.58 5.56 5.56 5.57 5.56 5.56 5.56 5.56 5.58 18 3-month 5.92 5.39 5.62 5.58 5.58 5.59 5.60 5.59 5.59 5.59 5.59 5.60 19 6-month 5.98 5.47 5.73 5.61 5.63 5.67 5.65 5.66 5.65 5.65 5.63 5.65 20 Eurodollar deposits, 3-month1 " 5.93 5.38 5.61 5.56 5.56 5.57 5.57 5.57 5.57 5.56 5.57 5.56 US. Treasury bills Secondary market1-5 5.49 5.01 5.06 5.03 4.95 5.00 4.98 4.95 4.95 5.00 5.04 4.93 22 6-month 5.56 5.08 5.18 5.04 5.06 5.14 5.12 5.15 5.11 5.14 5.12 5.11 23 1 -year 5.60 5.22 5.32 5.11 5.10 5.16 5.13 5.15 5.14 5.14 5.12 5.13 Auction average15 l2 24 3-month 5.51 5.02 5.07 5.03 5.00 5.03 4.99 5.02 4.95 5.00 5.01 4.99 25 6-month 5.59 5.09 5.18 5.04 5.08 5.15 5.12 5.17 5.11 5.16 5.07 5.12 5 23 5 36 5 13 5 12 5 15 5 13 5 15 5 13 U.S. TREASURY NOTES AND BONDS Constant maturities1^ 27 1-year 5.94 5.52 5.63 5.39 5.38 5.44 5.41 5.43 5.42 5.42 5.40 5.41 28 2-year 6.15 5.84 5.99 5.56 5.56 5.59 5.52 5.56 5.55 5.52 5.51 5.51 29 3-year 6.25 5.99 6.10 5.57 5.58 5.61 5.52 5.56 5.55 5.52 5.49 5.52 30 5-year 6.38 6.18 6.22 5.61 5.61 5.63 5.52 5.57 5.57 5.53 5.51 5.50 31 7-year 6.50 6.34 6.33 5.71 5.70 5.72 5.56 5.65 5.62 5.56 5.54 5.54 32 10-year 6.57 6.44 6.35 5.65 5.64 5.65 5.50 5.57 5.57 5.51 5.47 5.46 33 20-year 6.95 6.83 6.69 6.01 6.00 6.01 5.80 5.93 5.89 5.81 5.77 5.75 34 30-year 6 88 671 6 61 5 95 5 92 5 93 5 70 5 83 5 80 S 72 5 67 5 65 Composite 35 More than 10 years (long-ierm) 6.93 6.80 6.67 6.00 5.98 5.99 5.78 5.91 5.87 5.79 5.75 5.74 STATE AND LOCAL NOTES AND BONDS Moody's series*4 36 Aaa 5.80 5.52 5 32 5.03 5.00 5.04 4.97 4.98 4.92 4.98 4.96 5.00 37 Baa 6.10 5.79 5.50 5.25 5.21 n.a. n.a. 5.20 5.15 5.16 4.90 5.09 38 Bond Buyer series'* 5.95 5.76 5.52 5.21 5.23 5.20 5.12 5.13 5.13 5.08 5.11 5.14 CORPORATE BONDS 39 Seasoned issues, all industries16 7.83 7.66 7.54 7.00 6.99 6.98 6.83 6.91 6.88 6.83 6.80 6.82 Rating group 40 Aaa 7.59 7 37 7.27 6.72 6.69 6.69 6.53 6.61 6.59 6.52 6.49 6.53 41 Aa 7.72 7.55 7.48 6.93 6.90 6.91 6.78 6.86 6.84 6.79 6.75 6.77 42 A 7.83 7.69 7.54 7.05 7.03 7.03 6.88 6.95 6.93 6.88 6.84 6.88 43 Baa 8.20 8.05 7.87 7.32 7.33 7.30 7.13 7.21 7.19 7.13 7.10 7.13 7 86 7 77 7 71 7 11 7 10 7 16 6 98 704 706 6 94 6 96 6.92 MEMO Dividend-price ratio 2.56 2.19 1.77 1.48 1.43 1.45 1.45 1.46 1.48 1.44 1.45 1.41 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: US. Depart- New York brokers. ment of the Treasury. 2. Weekly figures are averages of seven calendar days ending on Wednesday of the 14. General obligation bonds based on Thursday figures; Moody's Investors Service. current week; monthly figures include each calendar day in the month. 15. State and local government general obligation bonds maturing in twenty years are used 3. Annualized using a 360-day year Tor bank interest. in compiling this index. The twenty-bond index has a rating roughly equivalent to Moodys' 4. Rate for the Federal Reserve Bank of New York. A1 rating. Based on Thursday figures. 5. Quoted on a discount basis. 16. Daily figures from Moody's Investors Service. Based on yields to maturity on selected 6. An average of offering rates on commercial paper for firms whose bond rating is AA or long-term bonds. the equivalent. 17. Compilation of the Federal Reserve. This series is an estimate of the yield on recently 7. Series ended August 29, 1997. offered, A-rated utility bonds with a thirty-year maturity and five years of call protection. 8. An average of offering rates on paper directly placed by finance companies. Weekly data are based on Friday quotations. 9. Representative closing yields for acceptances of the highest-rated money center banks. 18. Standard & Poor's corporate series. Common stock ratio is based on the 500 stocks in 10. An average of dealer offering rates on nationally traded certificates of deposit. the price index. 11. Bid rates for Eurodollar deposits at approximately 11:00 a.m. London time. Data are NOTE. Some of the data in this table also appear in the Board's H.15 (519) weekly and for indication purposes only. G. 13 (415) monthly statistical releases. For ordering address, see inside front cover. Digitized f1o2r. FARuctAioSn EdaRte for daily data; weekly and monthly averages computed on an issue-date http://frabsaesirs..stlouisfed.org/ Federal Reserve Bank of St. Louis

A24 Domestic Financial Statistics • September 1998 1.36 STOCK MARKET Selected Statistics 1997 1997 Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June Prices and trading volume (averages of daily figures) Common slock prices (indexes) 1 New York Stock Exchange (Dec. 31, 1965 = 50) 291.18 357.98 456.99 499.25 492.14 504.66 504.13 532.15 560.70 578.05 574.46 569.76 2 Industrial 367.40 453.57 574.97 625.22 615.65 623.57 624.61 660.91 693.13 711.89 712.39 731.01 3 Transportation 270.14 327.30 415.08 466.04 453.56 461.04 458.49 485.73 508.06 523.73 505.02 492.98 4 Utility 110.64 126.36 143.87 157.83 153.53 165.74 146.25 170.96 191.67 207.32 198.25 188.26 5 Finance. 238.48 303.94 424.84 476.70 465.35 490.30 479.81 508.97 539.47 563.07 551.28 548.57 6 Standard & Poor's Corporation (1941-43 = 10)2 541.72 670.49 873.43 951.16 938.92 962.37 963.36 1,023.74 1,076.83 1,112.20 1,108.42 1,108.39 7 American Stock Exchange (Aug. 31,1973 = 50)' 498.13 570.86 628.34 702.43 674.37 667.89 665.72 685.73 722.37 742.33 735.02 Volume of trading (thousands of shares) 8 New York Stock Exchange 345,729 409,740 523,254 606,513 531,449 541,134 632,895 610,958 619,366 647,110 569,239 605,576 9 American Stock Exchange 20,387 22,567 n.a. 32,873 27,741 27,624 28,199 26,808 28,943 29,544 27,004 25,447 Customer financing (millions of dollars, end-of-period balances) 10 Margin credit at broker-dealers4 76,680 97,400 126,090 128,190 127^30 126,090 127,790 135390 140,340 140040 143,600 146,980 Free credit balances at brokers^ 11 Margin accounts6 16,250 22,540 31.410 26,950 26,735 31,410 29,480 27,450 27,430 28,160 26,200 30,560 12 Cash accounts 34,340 40,430 52,160 47,465 45,470 52,160 48,620 48,640 51,340 51,050 47,770 51.205 Margin requirements (percent of market value and effective date) Mar. II, 1968 June 8, 1968 May 6, 1970 Dec. 6, 1971 Nov. 24, 1972 Jan. 3, 1974 13 Margin stocks ... 70 65 55 65 50 14 Convertible bonds 50 60 50 50 50 50 15 Short sales 70 65 55 65 50 1. Daily data on prices are available upon request to the Board of Governors. For ordering 6. Series initiated in June 1984. address, see inside front cover. 7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant 2. In July 1976 a financial group, composed of banks and insurance companies, was added to the Securities Exchange Act of 1934, limit the amount of credit that can be used to to the group of stocks on which the index is based. The index is now based on 400 industrial purchase and carry "margin securities" (as defined in the regulations) when such credit is stocks (formerly 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and collateralized by securities. Margin requirements on securities are the difference between the 40 financial. market value (100 percent) and the maximum loan value of collateral as prescribed by the 3. On July 5, 1983, the American Stock Exchange rebased its index, effectively cutting Board. Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May I, previous readings in half. 1936; Regulation G, effective Mar. 11, 1968; and Regulation X, effective Nov. 1, 1971. 4. Since July 1983, under the revised Regulation T, margin credit at broker-dealers has On Jan. 1, 1977, the Board of Governors for the first time established in Regulation T the included credit extended against stocks, convertible bonds, stocks acquired through the initial margin required for writing options on securities, setting it at 30 percent of the current exercise of subscription rights, corporate bonds, and government securities. Separate report- market value of the stock underlying the option. On Sept. 30, 1985, the Board changed the ing of data for margin stocks, convertible bonds, and subscription issues was discontinued in required initial margin, allowing it to be the same as the option maintenance margin required April 1984. by the appropriate exchange or self-regulatory organization; such maintenance margin rules 5. Free credit balances are amounts in accounts with no unfulfilled commitments to must be approved by the Securities and Exchange Commission. brokers and are subject to withdrawal by customers on demand. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A25 1.38 FEDERAL FISCAL AND FINANCING OPERATIONS Millions of dollars Fiscal year Calendar year Type of account or operation 1995 1996 Feb. Apr. May June US. budget* 1 Receipts, total 1.351,830 1,453.062 1,579,292 162,610 97,952 117,930 261,002 95,278 187,860 2 On-budget 1,000,751 1,085,570 1,187,302 123,367 65,051 80,647 216.988 61,790 144,973 3 Off-budget 351,079 367,492 391,990 39,243 32,901 37,283 44.014 33,488 42,887 4 Outlays, total 1,515,729 1.560,512 1,601,235 137,231 139,701 131.743 136.400 134,057 136,754 5 On-budget 1,227,065 1.259,608 1,290,609 108.843 109,393 101.967 108.569 102,381 125,606 6 Off-budget 288.664 300,904 310,626 28,388 30.309 29.775 27,830 31,676 11,148 7 Surplus or deficit (-), cotal -163,899 -107,450 -21,943 25,379 -41,750 -13.813 124,603 -38,779 51,106 8 On-budget -226,314 -174.038 -103,307 14,524 -44,342 -21,320 108.419 -40,591 19,367 9 Off-budget 62,415 66,588 81,364 10,855 2,592 7,508 16.184 1,812 31,739 Source of financing (total) 10 Borrowing from the public 171,288 129,712 38,171 -24,807 30,565 20,137 -60,587 -8,597 -12,618 11 Operating cash (decrease, or increase (-)).. -2.007 -6.276 604 -8,422 24,027 -11,352 -60.398 51,899 -36,144 12 Other1 -5,382 -15,986 -16,832 7,850 -12,842 5,028 -3,618 -4,523 -2,344 MEMO 13 Treasury operating balance (level, end of period) 37.949 44,225 43,621 40,307 16,280 27.632 88,030 36,131 72,275 14 Federal Reserve Banks 8,620 7.700 7,692 5.552 5,037 5,490 28.014 5,693 18,140 15 Tax and loan accounts 29,329 36,525 35,930 34,756 11,243 22,141 60.016 30,438 54,135 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: US. 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 US. Government; fiscal year totals: US. Office of Management accrued interest payable to the public; allocations of SDRs; deposit funds; miscellaneous and Budget, Budget of the US. 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 • September 1998 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS' Millions of dollars Fiscal year Calendar year Source or type 1997 1998 1998 1997 Apr. May 1 All sources .. 1,453,062 1,579,292 707,552 845327 773,812 922,632 261,002 95,278 187,860 2 Individual income taxes, net 656,417 737.466 323,884 400,436 354,072 447,514 158,284 29,974 81,587 3 Withheld 533,080 580,207 279,988 292,252 306,865 316,309 51,811 49,854 48,501 4 Nonwithheld 212,168 250,753 53,491 191,050 58,069 219,136 129,520 4,196 35,135 5 Refunds 88,897 93,560 9,604 82.926 10,869 87.989 23,059 24,086 2.060 Corporation income taxes 6 Gross receipts 189,055 204,493 95,364 106,451 104,659 109,353 29,910 4,706 41.098 7 Refunds 17,231 22.198 10.053 9,635 10,135 14,220 2,549 1,447 1,313 8 Social insurance taxes and contributions, net . 509,414 539,371 240.326 288,251 260,795 312,713 61,465 51,239 55,468 9 Employment taxes and contributions2 476,361 506.751 227.777 268,357 247,794 293,520 56,544 42,560 54,807 10 Unemployment insurance 28,584 28.202 10.302 17,709 10,724 17.080 4,589 8,273 292 11 Other net receipts' 4,469 4,418 2,245 2,184 2,280 2,112 332 406 369 12 Excise taxes 54,014 56,924 27,016 28,084 31,132 29.922 5,742 4,841 5,370 13 Customs deposits 18,670 17.928 9,294 8,619 9,679 8,546 1.428 1,297 1,568 14 Estate and gift taxes 17,189 19,845 8,835 10,477 10,262 12,971 4,198 1,845 1,775 15 Miscellaneous receipts4 25,534 25,465 12,889 12,866 13,348 15,837 2.525 2,823 2,307 OUTLAYS 16 All types .. 1,560,512 1,601,235 800,177 797,418 824,370 815386 136,400 134,057 136,754 17 National defense 265,748 270,473 139,402 132,698 140,873 129,351 22,065 23,212 22,329 18 International affairs 13,496 15,228 8,532 5,740 9,420 4,610 1,460 720 347 19 General science, space, and technology. 16,709 17,174 8.260 8.938 10,040 9,426 1,702 1,548 1,657 20 Energy 2,844 1,483 695 803 411 957 -34 42 661 21 Natural resources and environment .... 21,614 21,369 10,307 9,628 11.106 10,051 1,575 1,574 1.964 22 Agriculture 9,159 9,032 11,037 1,465 10,590 2,387 119 -451 140 23 Commerce and housing credit -10,472 -14,624 -5,899 -7,575 -3,526 -2,483 -814 791 -20 24 Transportation 39,565 40,767 21,512 16,847 20.414 16,196 2,511 2,746 3.127 25 Community and regional development . 10,685 11,005 5,498 5.678 5.749 4,863 1,121 873 914 26 Education, training, employment, and social services 52,001 53,008 27,524 25,080 26,851 25,928 4,428 2,798 4,237 27 Health 119,378 123,843 61,595 61,809 63.552 65,053 11,259 10,419 11,602 28 Social security and Medicare .. . 523,901 555,273 269.412 278,863 283,109 286,305 48.351 46,831 51,569 29 Income security 225,989 230,886 107,631 124.034 106,353 125,196 20,757 18,705 14,554 30 Veterans benefits and services .. 36.985 39.313 21,109 17,697 22,077 19,615 4.056 3,604 3,355 31 Administration of justice 17.548 20,197 9,583 10,670 10,212 11,287 1,757 1,781 2,241 32 General government 11,892 12,768 6,546 6,623 7,302 6,139 1,178 925 2,080 33 Net interest5 241,090 244,013 122,573 122,655 122,620 122,345 20,961 20,855 19,407 34 Undistributed offsetting receipts6 -37.620 -49,973 -25,142 -24.235 -22,795 -21,340 -6,054 -2.916 -3,408 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: US. Office of Management and Budget, Budget of the US. 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 US. Government. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance All 1.40 FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION Billions of dollars, end of month 1996 1997 1998 Item June 30 Sept. 30 Dec. 31 Mar. 31 June in Sept. 30 Dec. 31 Mar. 31 June 30 1 Federal debt outstanding 5,197 5,260 5,357 5,415 5,410 5,446 5,536 5373 5,578 2 Public debt securities 5.161 5,225 5,323 5.381 5,376 5,413 5.502 5,542 5.548 3 Held by public 3,739 3,778 3,826 3,874 3,805 3,815 3,847 3,872 n.a. 4 Held by agencies 1,422 1.447 1,497 1.507 1,572 1,599 1.656 1.670 n.a. 5 Agency securities 36 35 34 34 34 33 34 31 30 6 Held by public 28 27 27 26 26 26 27 26 n.a. 7 Held by agencies 8 8 8 8 7 7 7 5 n.a. 8 Debt subject to statutory limit 5,073 5,137 5,237 5,294 5,290 5,328 5,417 5,457 5,460 9 Public debt securities 5,073 5.137 5,237 5,294 5.290 5,328 5,416 5,456 5,460 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 5.950 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 Stales and Treasury Bulletin. bia stadium bonds. 1.41 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership Billions of dollars, end of period 1998 Type and holder 1994 1996 Q3 04 Ql 1 Total gross public debt 4,800.2 4,988.7 5,323.2 5,502.4 5,413.2 5,502.4 5,542.4 5,547.9 By type 2 Interest-bearing 4,769.2 4,964.4 5,317.2 5,494.9 5,407.5 5,494.9 5,535.3 5,540.2 3 Marketable 3,126.0 3,307.2 3,459.7 3.456.8 3,439.6 3,456.8 3,467.1 3,369.5 4 Bills 733.8 760.7 777.4 715.4 701.9 715.4 720.1 641.1 5 Notes 1,867,0 2.010.3 2,112.3 2,106.1 2,122.2 2,106.1 2,091.9 2.064 6 6 Bonds 5/0.3 521.2 555.0 587 3 576.2 587 3 598.7 598.7 7 Inflation-indexed notes and bonds' n.a. n.a n.a. 33.0 24.4 33 0 41.5 50.1 8 Noninarketable" 1,643.1 1,657.2 1.857.5 2,038.1 1.967.9 2,038 I ?,068.2 2.170.7 9 State and local government series . 132.6 104.5 101.3 124.1 111.9 124.1 139.1 155.0 10 FFoorreeiiggnn iissssuueess"1 42.5 40.8 37.4 36.2 34.9 36.2 35.4 36 0 11 Governmen! 42.5 40.8 47.4 36.2 34.9 36.2 36.4 36.0 12 Public .0 .0 .0 0 .0 .0 .0 .0 13 Savings bonds and notes 177.8 181.9 182.4 1X1.2 182.7 181.2 181.2 180.7 14 Government account series4 1,259.8 1.299.6 1,505.9 1,666.7 1.608.5 1,666.7 1,681.5 1,769.1 15 Non-interest-bearing 31.0 24.3 6.0 7.5 5.6 7.5 7.2 7.7 By holder5 16 U.S. Treasury and other federal agencies and trust fund; 1,257.1 1,304 5 1,497.2 1,655.7 1,598.5 1.655.7 1,670.4 17 Federal Reserve Banks 374.1 391.0 410.9 451.9 436.5 451.9 400.0 18 Private investors 3.168.0 3,294.9 3.411.2 3.393.4 3,388.9 3.393 4 3.430.7 19 Commercial banks 290.4 278.7 261.8' 269.8 261.8 269 8 275.0 20 Money market funds 67.6 71.5' 91.6' 88.9 75.8 88 s 84.8 21 Insurance companies 240.1 241.5 214.1' 224.9 222.7 224.9 225.5 22 Other companies 224.5' 228.8 258.5 265.0 266.5 265.0 268.1 23 State and local treasuries6-7 541.0' 469 6' 482.5' 493.0 486.6 493.0 494.6 Individuals 24 Savings bonds 180.5 185.0 187.0 186.5 186.2 186.5 186.3 25 Other securities 150.7 162.7 169.6 168.4 168.6 168.4 165.8 26 Foreign and international8 . 688.6 862 2 1,135.6' 1,278.0 1,266.0 1.278.0 1.288.0 27 Other miscellaneous investors7' 784.6' 794.9' 610.5' 418.8 454.5 418.8 442.5 1. The U.S. Treasury first issued inflation-indexed securities during the first quarter ot 7. In March 1996, in a redefinition of series, fully defeased debt backed by nonmarketable 1997. federal securities was removed from "Other miscellaneous investors" and added to "State and 2. Includes (not .shown separately) securities issued to the Rural Electrification Administra- local treasuries." The data shown here have been revised accordingly. tion, depository bonds, retirement plan bonds, and individual retirement bonds. 8. Consists of investments of foreign balances and international accounts in the United 3. Nonmarketable series denominated in dollars, and series denominated in foreign cur- Slates. rency held by foreigners. 9. Includes savings and loan associations, nonprofit institutions, credit unions, mutual 4. Held almost entirely by U.S. Treasury and other federal agencies and trust funds. savings banks, corporate pension trust funds, dealers and brokers, certain U.S. Treasury 5. Data for Federal Reserve Banks and U.S government agencies and trust funds are actual deposit accounts, and federally sponsored agencies. holdings; dala for other groups are Treasury estimates. SOURCE. U.S. Treasury Department, data by type of security, Monthly Statement of the 6. Includes slate and local pension funds. Public Debt of the United Stales: data by holder, Treasury Bulletin Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A28 Domestic Financial Statistics • September 1998 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions1 Millions of dollars, daily averages 1998 1998, week ending Item Mar. Apr. May Apr. 29 May 6 May 13 May 20 May 27 June 3 June 10 June 17 June 24 OUTRIGHT TRANSACTIONS2 By type of security 1 U.S. Treasury bills 35,701 38.290 31,384 38,463 33,191 26,997 28,682 35.436 37.393 27.119 30,849 31,816 Coupon securities, by maturity 2 Five years or less 119,974 112,975 115,270 132,337 133,880 125,667 90,080 112,805 119,962 95,567 137,966 105,264 3 More than five years 64,952 65,132 75,845 63,256 79,709 80,015 67,683 77,873 74,041 79,855 97,329 66,052 4 Inflation-indexed 412 1,720 673 1,083 1,101 871 552 298 370 559 791 362 Federal agency 5 Discount notes 38,968 39,114 35,571 36,834 34,486 30,572 38,697 36,436 40,697 36,576 34,742 35,005 Coupon securities, by maturity 6 One year or less 2,086 1,620 1,290 2,141 1,130 1,189 974 1,569 2,093 2.398 1,406 1,741 7 More than one year, but less than or equal to five years 4,051 4,041 2,676 3,774 3,535 2.606 2,325 2,521 2,320 2,865 5,075 2,391 8 More than five years 2,425 3,118 2,903 2,354 3,988 3,540 1,520 2.109 4,189 3.209 3,030 2,195 9 Mortgage-backed 62,728 67,799 62,597 55,953 65,172 89,857 45,313 40.504 76,692 94,057 69,278 57,055 By type of counterparty With interdealer broker 10 U.S. Treasury 125,029 120,163 124,671 129,930 134,955 134,625 103,942 127,882 124,619 114,370 149,485 115,646 11 Federal agency 2,101 2,417 2,034 1,831 2,759 2,428 1,384 1.456 2,375 2,264 2,650 1,704 12 Mortgage-backed 19,793 21,335 20,318 16,318 20,903 30,793 16,107 12,525 19,072 26,454 21,858 16,219 13 Wi U th . S o . t T he re r asury 96,010 97,954 98,501 105,210 112,926 98,926 83,054 98,530 107,147 88,730 117,450 87,848 14 Federal agency 45,429 45.476 40,407 43,272 40,381 35,479 42.132 41,178 46,923 42,784 41,602 39,628 15 Mortgage-backed 42,934 46,463 42,279 39,635 44,269 59,064 29,206 27,979 57,620 67,603 47,420 40,835 FUTURES TRANSACTIONS3 By type of deliverable security 16 U.S. Treasury bills 289 173 139 39 202 231 74 57 108 249 334 46 Coupon securities, by maturity 17 Five years or less 2,555 2,084 2,337 2,417 2,199 1,667 1,788 3,040 4,255 2,644 3,294 1,871 18 More than five years 15,909 14,015 13,900 14,885 13,430 12,396 12,057 17,433 16,142 15,281 21,273 13,596 19 Inflation-indexed 0 0 0 0 0 0 0 0 0 0 0 0 Federal agency 20 Discount notes 0 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 21 One year or less 0 0 0 0 0 0 0 0 0 0 0 0 22 More than one year, but less than or equal to five years 0 0 0 0 0 0 0 0 0 0 0 0 23 More than five years 0 0 0 0 0 0 0 0 0 0 0 0 24 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 0 OPTIONS TRANSACTIONS4 By type of underlying security 25 U.S. Treasury bills 0 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 26 Five years or less 2,305 2,407 2,110 2,828 2,735 2,119 1,457 1,957 2,774 1,309 1,372 1,500 27 More than five years 5,422 5,815 6,263 0 5,044 6,318 7,135 7,112 4,685 4,903 6,086 5,244 28 Inflation-indexed 0 25 109 0 n.a. 240 n.a 0 0 0 0 0 Federal agency 29 Discount notes 0 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 30 One year or less 0 0 0 0 0 0 0 0 0 0 0 0 31 More than one year, but less than or equal to five years 0 0 0 0 0 0 n.a. 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 602 750 535 0 603 618 427 539 455 874 801 683 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 lo be evenly distnbuted 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 1998 1998, wesk ending Item Mar. Apr. May Apr. 29 May 6 May 13 May 20 May 27 June 3 June 10 June 17 Positions2 NET OUTRIGHT POSITIONS' B\ type of security 1 U.S.'Treasury bills 16,723 16,747 7,500 8,359 11,566 9,031 3,450 5,814 8,760 4,453 -1,131 Coupon securities, by maturity 2 Five years or less -11,431 -17,750 -25,842 -23,201 -29,578 -25,584 -28,624 -23,346 -20,186 -24,154 -21,456 3 More than five years -23,667 -27,081 -24,468 -34,907 -29,821 -29,783 -23,874 -20,515 -15,091 -10,460 -8,448 4 Inflation-indexed 1,099 2,058 1,968 2,092 2,176 2,098 2.132 1,775 1,481 1,343 1,167 Federal agency 5 Discount notes 16,943 18,148 16,837 16,103 15,075 18,257 16.571 15,338 20,087 22,241 17,011 Coupon securities, by maturity 6 One year or less 3.593 3,215 2,715 2,538 2,982 2,603 2,443 2,772 2.889 2,596 1,762 7 More than one year, but less than or equal to five years 7,378 8,394 7,646 8,694 7,746 8,045 8,141 7,335 6,476 5,914 7,662 8 More than rive years 9.095 11,588 11,182 10,984 12,315 11,718 1 1,338 10,328 9,765 11,107 11.014 9 Mortgage-backed 51,110 55,843 56,867 49,240 54,756 62,528 55.492 51,339 62,204 69,747 74,736 NET FUTURES POSITIONS4 By type of deliverable security 10 U.S. Treasury bills .' -2,503 -1,040 -433 -1,312 -966 -466 -217 -251 -272 -238 279 Coupon securities, by maturity 11 Five years or less 2,023 698 2,910 3.898 3.129 1,858 2.967 4,147 2,156 1,313 -2,890 12 More than five years -15,929 -15,744 -21.492 -8,843 -13.543 -16,865 -22,468 -26,980 -30,203 -37,146 -34,285 13 Inflation-indexed 0 0 0 0 0 0 0 0 0 0 0 Federal agency 14 Discount notes 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 15 One year or less 0 0 0 o 0 0 0 0 0 0 0 16 More than one year, but less than or equal to five years 0 0 0 0 0 0 0 0 0 0 0 17 More than five years 0 0 0 0 0 0 0 0 0 0 0 18 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 NET OPTIONS POSITIONS By type of deliverable security 19 U.S. Treasury bills ' 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 20 Five years or less 1,215 628 825 -319 1,903 2,147 1,214 -113 -2,145 -2,522 -1.476 21 More than five years 3,020 1,561 7 -145 929 453 52 -667 -1,058 -420 -748 22 Inflation-indexed n.a. 70 n.a. 126 n.a. n.a. n.a. n.a. n.a. 0 0 Federal agency 23 Discount notes 0 0 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 0 0 25 More than one year, but less than or equal to five years 0 0 n. a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 26 More than five years n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 27 Mortgage-backed 1,119 435 660 1,413 566 659 667 583 929 1,667 2,058 Financing Reverse repurchase agreements 28 Overnight and continuing 359.012 365,357 368,407 370,855 361,782 341,254 390,603 371,186 382,159 329,190 338,660 29 Term 758,517 822.709 793,992 862,109 840.643 875,843 732,919 756,646 753,008 803,727 830,448 Securities borrowed 30 Overnight and continuing 213.254 208,558 216,006 209,488 214,956 214.832 218,560 214,923 217,059 217,413 223.799 31 Term 89,659 99,303 100.113 102,952 102,290 104,623 99,240 97,063 95,824 98.899 98,125 Securities received as pledge 32 Overnight and continuing 2,526 2,591 3,131 2,491 2,732 3,288 3,394 3,063 3.116 2,924 2,927 33 Term n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Repurchase agreements 34 Overnight and continuing 740.803 788,452 761,206 771,881 757,011 752,310 781.666 749,674 767,445 740,156 757,836 35 Term 671,254 726,216 710,585 773,149 748.465 791,540 654.576 677,027 668,836 718,453 751.130 Securities loaned 36 Overnight and continuing 9,825 11,640 10,871 11,446 11,426 11,594 10,653 10,346 10.071 11,003 11,023 37 Term 4,240 2,120 2,734 1.934 1,915 1,890 3,429 3.388 3,081 3,321 3.411 Securities pledged 38 Overnight and continuing 52,797 48,773 49,489 47,059 49,555 49,217 50,613 49,113 48,555 51,525 57,787 39 Term 5,181 5,693 4,961 5,292 5,102 5,137 4,856 4,672 5,129 5,264 5,331 Collaleralized loans 40 Total 12,421 11,714 11.607 5.580 9,297 11,466 10,618 14,307 12.327 12,724 10,640 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 rive 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. delayed delivery. Forward contracts for US. Treasury securities and federal agency debt Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic Financial Statistics • September 1998 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period Agency 1995 1996 Apr. 1 Federal and federally sponsored agencies 738,928 844,611 925,823 1,022,609 1,022,609 1,032,486 1,038,348 1,059,043 1,048,661 2 Federal agencies 39.186 37.347 29.380 27.792 27,792 27.110 27.101 27,227 27.104 3 Defense Department 6 6 6 6 6 6 6 6 6 4 Export-Import Bank2" 3,455 2,050 1,447 552 552 682 549 549 542 5 Federal Housing Administration 116 97 102 102 133 79 97 102 6 Government National Mortgage Association certificates of participation5 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. 8 Tennessee Valley Authority 27,536 29,429 27,853 27,786 27,786 27,104 27,095 27,221 27,098 9 United States Railway Association n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10 Federally sponsored agencies7 699,742 807,264 896,443 994,817 994,817 1,005,376 1,011.247 1,031,816 1,021,557 11 Federal Home Loan Banks 205,817 243,194 263,404 313,919 313,919 311,385 312,017 317,967 323,208 12 Federal Home Loan Mortgage Corporation 93,279 119,961 156,980 169,200 169,200 181,948 184,100 193,300 200,800 13 Federal National Mortgage Association 257,230 299,174 331,270 369,774 369,774 370,524 373,574 381,093 395,977 14 Farm Credit Banks8 53,175 57,379 60,053 63,517 63,517 61,317 61,177 62,327 62,799 15 Student Loan Marketing Association 50,335 47,529 44,763 37,717 37,717 39,375 39,570 36,310 36,256 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 Assislance^Cotporation11 1,261 1.261 1,261 1.261 1,261 1,261 1,261 1,261 1,261 18 Resolution Funding Corporation13 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 MEMO 19 Federal Financing Bank debt" 103,817 78,681 58,172 49,090 49,090 48,321 47341 45,487 44,893 Lending to federal and federally sponsored agencies 20 Export-Import Bank? 3,449 2,044 1,431 552 549 21 Postal Service6 8,073 5,765 n.a. n.a. n.a. 22 Student Loan Marketing Association n.a. n.a. n.a. n.a. 23 Tennessee Valley Authority 3,200 3,200 n.a. n.a. n.a. 24 United States Railway Association6 n.a. n.a. n.a. Other lending** 25 Farmers Home Administration 33,719 21,015 18,325 13,530 13,530 13,530 13.160 13.030 12,380 26 Rural Electrification Administration 17,392 17,144 16,702 14,898 14,898 14,841 14,852 14.315 14,203 27 Other 37,984 29,513 21,714 20.110 20,110 19,401 18,780 17,593 17,768 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 Type of issue or issuer, or use Apr. May June 1 AH issues, new and refunding ... 145,657 171,222 214,694 20.207 21,342 16,770 21306 27,859 20,271 22,862 29,665 By type of issue 2 General obligation 56.980 60,409 69,934 5.713 8,005 5,608 9,893 9,597 8,154 4,827 10,135 3 Revenue 88,677 110,813 134,989 14,494 13,337 11,162 11,413 18,261 12,117 18,035 19,530 By type of issuer 4 State 14,665 13,651 18,237 509 1,702 1.268 2,420 2,375 3,548 1,146 2,809 5 Special district or statutory authority2 93,500 113,228 134,919 13,586 15,600 11,794 14,228 19,629 12,504 16,865 18,099 6 Municipality, county, or township 37,492 44,343 70,558 5,920 4,098 3,708 4,658 5,859 4,219 4,851 7,220 7 Issues for new capital 102,390 112,298 135,519 12,979 13,487 9,696 12^38 15,134 12,616 15,281 19341 By use of proceeds 8 Education 23,964 26,851 31,860 2,973 2,981 2.338 3,525 4,297 4,080 2,819 4,911 9 Transportation 11,890 12.324 13.951 1,420 1.144 1.521 1,760 771 1.089 1.043 2,962 10 Utilities and conservation . . . 9,618 9,791 12,219 1,217 683 598 687 1,866 749 5,971 2,368 11 Social welfare 19,566 24,583 27,794 4,090 2,940 1,540 2,903 3,104 n.a. n.a. n.a. 12 Industrial aid 6,581 6,287 6,667 574 897 448 581 1,236 678 576 563 13 Other purposes 30,771 32,462 35,095 2,705 4,842 3,251 3,082 3,860 3,255 2,482 5,279 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, or issuer 1997 Jan. Feb. Apr. May 1 All issues' 673,779 n.a. 72,131' 58,959r 64,463r 73,614' 68,578r 108,994' 76,7»9r 77,164 2 Bonds2 572,998r n.a. 58,166 46,543 55,973 66,198 57396 89,723 64329 62,713 By type of offering 3 Public, domestic 408,707' 465,489 537,880' 46,967 42,969 54,443 55,647 50,453 55,452 56,965 4 Private placement, domestic3 87,492 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5 Sold abroad 76,799' 83,433 103,188 11,199 3.574 1,530 10,551 6,943 7,946 8,878 5,748 By industry group 6 Nonfinanciai 156,763' 119,765' 130,116' 15,977 6,794 7,696 21,039 12,133 17,301 16,985 12,856 7 Financial 416,235' 429,157' 510,953' 42,189 39,750 48,276 45,159 45,263 72,422 47,345 49,857 8 Stocks2 100,573 13,053 11,807 8,019 7,416 10,965 18,371 11,717 13,888 By Type of offering 9 Public 146,446 244,012 235,760 13,965 12,416 8,490 7,667 11,182 18.399 12,470 14,451 10 Private placement3 32,100 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. By industry group 11 Nonfinanciai 52,707 80.460 60.386 6.897 6,861 3.039 1,761 5,737 10,756 5,551 9,269 12 Financial 20,5 J 6 41.546 57,494 7.068 5,555 5,451 5,906 5,445 8,515 6,919 5,182 1. Figures represent gross proceeds of issues maturing in more than one year; they are the 2. Monthly data cover only public offerings. principal amount or number of units calculated by multiplying by the offering price. Figures 3. Monthly data are not available. exclude secondary offerings, employee stock plans, investment companies other than closed- SOURCE. Beginning July 1993, Securities Data Company and the Board of Governors of end, intracorporate transactions, and Yankee bonds. Stock data include ownership securities the Federal Reserve System. issued by limited partnerships. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A32 Domestic Financial Statistics • September 1998 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets' Millions of dollars 1997 1998 Item 19% 1997 Nov. Dec. Jan. Feb. Mar. Apr. Mayr June 934,595 1,190,900 94,478 110,452 119,488 114,219 128348 123.828 113,593 122,049 702,711 918.728 66,135 89,982 92.621 81,688 97,248 97,087 84.421 97.746 3 Net sales'.. 231,885 272,172 28,343 20,471 26,867 32.532 31,100 31,741 29.172 24,303 4 Assets4 2,624,463 3,409,315 3,356,347 3,409,315 3,459,354 3,675^92 3,843,971 3,909,932 3,882,061 3,982,551 5 Cashs 138.559 174,154 186,582 174,154 183,648 180,415 174,058 170,045 171.425 177,845 2,485 904 3,235,161 3 169,765 3.235,161 3,275,706 3,494,977 3,669,913 3,739,887 3.710,636 3.804,706 1. Data include stock, hybrid, and bond mutual funds and exclude money market mutual 4. Market value at end of period, less current liabilities. funds. 5. Includes all U.S. Treasury securities and other short-term debt securities. 2. Excludes reinvestment of net income dividends and capital gains distributions and share SOURCE. Investment Company Institute. Data based on reports of membership, which issue of conversions from one fund to another in the same group. comprises substantially all open-end investment companies registered with the Securities and 3. Excludes sales and redemptions resulting from transfers of shares into or oul of money Exchange Commission. Data reflect underwritings of newly formed companies after their market mutual funds within the same fund family. initial offering of securilies. 1.48 CORPORATE PROFITS AND THEIR DISTRIBUTION Billions of dollars; quarterly data at seasonally adjusted annual rates 1996 Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql 1 Profits with inventory valuation and capital consumption adjustment 650.0 735.9 805.0 738.5 739.6 747.8 779.6 795.1 827.3 818.1 827.7 2 Profits before taxes 622.6 676.6 729.8 682.2 679.1 680.0 708.4 719.8 753.4 737.3 723.8 3 Profits-tax liability 213.2 229.0 249.4 232.2 231.6 226.0 241.2 244.5 258.2 253.6 246.0 4 Profits after taxes 409.4 447.6 480.3 450.0 447.5 454.0 467.2 475.3 495.2 483.7 477.9 5 Dividends 264.4 304.8 336.1 303.7 305.7 309.1 326.8 333.0 339.1 345.6 352.2 6 Undistributed profits 145.0 142.8 144.2 146.4 141.8 144.9 140.3 142.3 156.1 138.1 125.7 7 Inventory valuation -24.3 -2.5 5.5 -5.4 -2.7 3.3 3.5 5.9 3.6 9.2 30.1 8 Capital consumption adjustment... 51.6 61.8 69.7 61.6 63.2 64.4 67.7 69.4 70.3 71.6 73.7 SOURCE. U.S. Department of Commerce, Survey of Current Business. 1.51 DOMESTIC FINANCE COMPANIES Assets and Liabilities' Billions of dollars, end of period; not seasonally adjusted 1997 Q4 Ql Q2 Q3 Q4 Ql 02 ASSETS 1 Accounts receivable, gross 607.0 637.1 663.3 637.1 648.0 651.6 660.5 663.3 666.8 2 Consumer 233.0 244.9 256.8 244.9 249.4 255.1 254.5 256.8 251.3 3 Business 301.6 309.5 318.5 309.5 315.2 311.7 319.5 318.5 325.9 4 Real estate 72.4 82.7 87.9 82.7 83.4 84.8 86.4 87.9 89.6 5 LESS: Reserves for unearned income 60.7 55.6 52.7 55.6 51.3 57.2 54.6 52.7 52.1 6 Reserves for losses 12.8 13.1 13.0 13.1 12.8 13.3 12.7 13.0 13.1 7 Accounts receivable, net 533.5 568.3 597.6 568.3 583.9 581.2 593.1 597.6 601.6 250.9 290.0 312.4 290.0 289.6 306.8 289.1 312.4 329.9 8 All other 9 Total assets 910.0 882.3 910.0 931.5 LIABILITIES AND CAPITAL 10 Bank loans 16 1 8 5 . . 6 3 17 1 7 9 . . 6 7 20 2 1 4 . . 5 1 17 1 7 9 . . 6 7 18 1 5 8 . . 3 4 19 1 3 8 . . 7 8 1 2 8 0 9 . . 4 6 2 2 0 4 1 . . 1 5 21 2 1 2 . . 7 0 11 Commercial paper Debt 12 Owed to parent 51.1 60.3 64.7 60.3 61.0 60.0 616 64.7 64.6 13 Not elsewhere classified 300.0 332.5 328.8 332.5 324.6 345.3 322.8 328.8 338.1 14 All other liabilities 163.6 174.7 189.6 174.7 189.2 171.4 190.1 189.6 193.0 15 Capital, surplus, and undivided profits 85.9 93.5 101.3 93.5 94.9 98.7 97.9 101.3 102.0 16 Total liabilities and capital 784.4 858.3 910.0 858.3 873.4 887.9 882.3 910.0 931.5 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 A33 1.52 DOMESTIC FINANCE COMPANIES Owned and Managed Receivables1 Billions of dollars, amounts outstanding Type of credit Apr. May Seasonally adjusted 1 Total 682.4 2 Consumer 281.9 306.6 326.9 326.9 324.9 326.2 326.7 329.0r 329.9 3 Real estate 72.4 111.9 121.1 121.1 121.9 123.7 121.6 121.9 125.1 4 Business 328.1 343.8 362.4 362.4 364.3 371.1 369.9 372.8 375.6 Not seasonally adjusted 5 Total 769.7 818.1 818.1 812.2 819.6 819.4 825.0' 832.7 6 Consumer 285.8 310.6 330.9 330.9 326.2 324.8 326.4' 329.0 7 Motor vehicles loans 81.1 86.7 87.0 87.0 87.4 84.7 90.6 89.6 8 Motor vehicle leases 92.5 96.8 96.8 94.5 94.7 95.2 95.9 95.9 9 Revolving2 28.5 32.5 38.6 38.6 37.6 36.9 36.3 30.1' 30.2 10 Other' 42.6 33.2 34.4 34.4 34.5 34.1 33.0 33.4 33.5 Securitized assets4 11 Motor vehicle loans 34.8 36.8 44.3 44.3 42.8 45.3 45.0 42.8 45.7 12 Motor vehicle leases 3.5 8.7 10.8 10.8 10.7 10.6 10.5 10.4 10.8 13 Revolving 0.0 0.0 0.0 0.0 0.0 0.0 5.3 5.3 14 Other 14.7 20.1 19.0 19.0 18.7 18.5 18.2 18.1 18.1 15 Real estate 72.4 111.9 121.1 121.1 121.9 123.7 121.6 121.9 125.1 16 One- to four-family 52.1 59.0 59.0 59.8 62.2 61.5 62.4 65.2 17 Other 30.5 28.9 28.9 29.1 29.0 28.1 28.1 28.1 Securitized real estate assets4 18 One- to four-family n.a. 28.9 33.0 33.0 32.8 32.3 31.8 31.2 30.7 19 Other n.a. 0.4 0.2 0.2 0.2 0.2 0.2 0.2 1.0 20 Business 331.2 347.2 366.1 366.1 364.0 371.1 372.7 376.7 378.6 21 Motor vehicles 66.5 67.1 63.5 63.5 61.8 64.8 67.8 68.2 69.1 22 Retail loans 21.8 25.1 25.6 25.6 26.1 26.4 27.3 28.3 29.3 23 Wholesale loans5 36.6 33.0 27.7 27.7 25.6 28.2 30.2 29.5 29.5 24 Leases 8.0 9.0 10.2 10.2 10.1 10 2 10.2 10.4 10.4 25 Equipment 188.0 194.8 203.9 203.9 204.2 204.7 206.5 207.8 209.3 26 Loans 58.5 59.9 51.5 51.5 50.7 49.9 50.8 51.2 51.3 27 Leases 129.4 134.9 152.3 152.3 153.5 154.8 155.7 156.7 158.0 28 Other business receivables6.. 47.2 47.6 51.1 51.1 52.1 55.6 51.6 54.0 54.3 Securitized assets4 29 Motor vehicles 20.6 24.0 33.0 33.0 31.5 31.2 32.1 31.6 31.0 30 Retail loans 1.8 2.7 2.4 2.4 2.3 2.2 2.0 1.9 1.9 31 Wholesale loans 18.8 21.3 30.5 30.5 29.2 29.0 30.0 29.6 29.2 32 Leases n.a. .0 .0 0.0 0.0 0.0 0.0 0.0 0.0 33 Equipment 8.2 11.3 10.7 10.7 10.4 10.8 10.5 10.3 10.2 34 Loans 5.3 4.7 4.2 4.2 3.9 4.3 4.2 4.1 4.0 35 Leases 6.6 6.5 6.5 6.5 6.5 6.3 6.2 6.2 36 Other business receivables' 2.4 4.0 4.0 4.0 4.0 4.2 4.7 4.7 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 • September 1998 1.53 MORTGAGE MARKETS Mortgages on New Homes Millions of dollars except as noted 1997 1998 Dec. Jan. Feb. Mar. Apr. May June Terms and yields in primary and secondary markets PRIMARY MARKETS Terms1 1 Purchase price (thousands of dollars) 175.8 182.4 180.1 190.7 184.1 195.3 191.7 189.5 195.6 193.7 2 Amount of loan (thousands of dollars) 134.5 139.2 140.3 149.8 142.3 148.5 149.5 147.1 150.2 151.0 3 Loan-to-price ratio (percent) 78.6 78.2 80.4 81.0 80.5 78.6 81.0 80.4 79.1 81.0 27.7 27.2 28.2 28.2 28.5 28.0 28.3 28.4 28.3 28.3 5 Fees and charges (percent of loan amount)2 1.21 1.21 1.02 .96 .91 .99 .95 .87 .85 .85 Yield (percent per year) 7.65 7.56 7.57 7.25 7.13 7.09 7.03 7.05 7.05 7.03 7 Effective rate'-1 7.85 7.77 7.73 7.40 7.27 7.24 7.17 7.19 7.18 7.16 8.05 8.03 7.76 7.25 7.16 7.22 7.16 7.20 7.11 7.08 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (Section 2O3)5 8.18 8.19 7.89 7.17 7.08 7.06 7.09 7.37 7.07 7.07 10 GNMA securities' 7.57 7.48 7.26 6.74 6.56 6.63 6.66 6.63 6.63 6.54 Activity in secondary markeIs FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 253,511 287,052 316,678 316,678 320,062 322,957 327,025 333,571 343,922 349,249 12 FHA/VA insured 28,762 30,592 31,925 31,925 31.621 31,650 31,965 32,734 32,771 32,896 224,749 256,460 284,753 284,753 288,441 291,307 295,060 300,837 311,151 316,353 14 Mortgage transactions purchased (during period) 56,598 68,618 70,465 6.692 7,647 8,630 12,095 14,668 17,423 11,916 Mortgage commitments (during period) 15 Issued7 56,092 65,859 69,965 6,275 12,199 10,587 14,057 17,556 10.612 16,921 16 To sell8 360 130 1,298 140 60 0 92 0 0 0 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end ofperiod)^ 17 Total 107,424 137,755 164,421 164,421 169,142 175,770 185,928 189,471 192.603 196,634 18 FHA/VA insured 267 220 177 177 173 170 166 162 160 160 19 Conventional 107,157 137.535 164,244 164,244 168,969 175,600 185,762 189,309 192,443 196,474 Mortgage transactions (during period) 20 Purchases 98.470 125,103 117,401 15.979 13,120 13,610 21,011 25,132 23,743 22,394 21 Sales . . . . 85,877 119,702 114,258 14,587 12,702 12,481 19,085 24,479 23,338 21,133 22 Mortgage commitments contracted (during period)9 118,659 128,995 120,089 15,805 15,638 17,397 23,060 24,468 26.100 20,008 1. Weighted averages based on sample surveys of mortgages originated by major institu- 6. Average net yields to investors on fully modified pass-through securities backed by tional lender groups for purchase of newly built homes; compiled by the Federal Housing mortgages and guaranteed by the Government National Mortgage Association (GNMA), Finance Board in cooperation with the Federal Deposit Insurance Corporation. assuming prepayment in twelve years on pools of thirty-year mortgages insured by the 2. Includes all fees, commissions, discounts, and "points" paid (by the borrower or the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. seller) to obtain a loan. 7. Does not include standby commitments issued, but includes standby commitments 3. Average effective interest rate on loans closed for purchase of newly built homes, converted. assuming prepayment at the end of ten years. 8. Includes participation loans as well as whole loans. 4. Average contract rate on new commitments for conventional first mortgages; from U.S. 9. Includes conventional and government-underwritten loans. The Federal Home Loan Department of Housing and Urban Development (HUD). Based on transactions on the first Mortgage Corporation's mortgage commitments and mortgage transactions include activity day of the subsequent month. under mortgage securities swap programs, whereas the corresponding data for FNMA 5. Average gross yield on thirty-year, minimum-downpayment first mortgages insured exclude swap activity. by the Federal Housing Administration (FHA) for immediate delivery in the private secondary market. Based on transactions on first day of subsequent month. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Real Estate A35 1.54 MORTGAGE DEBT OUTSTANDING1 Millions of dollars, end of period 1998 Type of holder and property Ql Q2 Q3 Q4 Ql" 1 All holders 4,395,888 4,608,162 4,936,041 4,991,477 5,070,645 5,189,141 5,28831 5,383,193 By type of property 2 One- to four-family residences .. . 3,355,868 3,530,400 3,761,560 3,806,060 3,860,806 3,958,109 4,030,312 4,097,033 3 Multifamily residences 275,005 287,483 312,388 315,282 320,601 323,349 332,200 339.789 4 Nonfarm, nonresidential 682,044 705,719 774,960 782,482 800,560 817,924 835,372 854,949 5 Farm 82,971 84,561 87,134 87,653 89.759 90,417 91,422 By type of holder 6 Major financial institutions 1,819,806 1,894,420 1,979,114 1,993,046 2,033,662 2,068,022 2,086,747 2,118,968 7 Commercial banks2 1,012,711 1.090,189 1,145,389 1,160,136 1,196,524 1.227,151 1,244,146 1,269,973 8 One- to four-family 615,861 669,434 698,508 708,802 733,737 752,334 762,580 779,924 9 Multifamily 39,346 43,837 46,675 47,618 49.118 49,169 50,643 51,777 10 Nonfarm, nonresidential .... 334,953 353,088 375,322 378.474 387,608 398,847 403,945 410,818 11 Farm 22,551 23.830 24,883 25,242 26,061 26,800 26,978 27,453 12 Savings institutions3 596,191 596.763 628,335 626,381 629,062 631,444 631,809 636,759 13 One- to four-family 477,626 482,353 513,712 513.393 516,521 519,564 520,660 526,984 14 Multifamily 64,343 61,987 61,570 60,645 60,070 60,348 59,543 58,884 15 Nonfarm, nonresidential .... 53,933 52,135 52,723 52,007 52,132 51,187 51,251 50,522 16 Farm 289 288 331 336 338 346 354 369 17 Life insurance companies 210,904 207,468 205.390 206,529 208,077 209,426 210.792 212,235 18 One- to four-family 7,018 7,316 6,772 6,799 6,842 7,080 7,186 7,321 19 Multifamily 23,902 23,435 23,197 23,320 23,499 23,615 23,755 23,902 20 Nonfarm, nonresidential .... 170,421 167,095 165,399 166,277 167,548 168,374 169,377 170,423 21 Farm 9,563 9,622 10,022 10,133 10,188 10,358 10,473 10,589 22 Federal and related agencies .... 315,580 306,774 300,935 295,203 292,966 291,410 292,581 293,499 23 Government National Mortgage Association . . 6 2 2 6 7 7 24 O" ne- to f-o ur-f-a mi.l.y . . . 6 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 41,485 41,400 41,332 41,195 40,972 27 One- to four-family 18,098 17,705 17,303 17.175 17,239 17,458 17,253 17,160 28 Multifamily 11,319 11,617 11,685 11.692 11,706 11,713 11,720 11,714 29 Nonfarm, nonresidential 5,670 6,248 6,841 6,969 7,135 7,246 7,370 7,369 30 Farm 6,694 6.221 5,768 5,649 5,321 4,916 4,852 4,729 31 Federal Housing and Veterans' Administrations 10,964 9,809 6,244 4,330 4,200 3,462 3,821 3,694 32 One- to four-family 4,753 5,180 3,524 2,335 2,299 2,810 3,091 2,966 33 Multifamily 6,211 4,629 2,719 1,995 1,900 652 730 729 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 2,217 1,816 1,476 724 786 40 One- to four-family 1,049 492 365 333 272 221 109 118 41 Multifamily 1,595 428 413 377 309 251 123 134 42 Nonfarm, nonresidential 5,177 3,383 1,653 1,508 1,235 1,004 492 534 43 Farm 0 0 0 0 0 0 0 0 44 Federal National Mortgage Association 174,312 176,824 174,556 172,829 170,386 168,458 167,722 166,670 45 One- to four-family 158,766 161,665 160,751 159,634 157,729 156,363 156,245 155,876 46 Multifamily 15,546 15,159 13,805 13,195 12,657 12,095 11,477 10,794 47 Federal Land Banks 28,555 28,428 29,602 29,668 29,963 30,346 30,657 31,005 48 One- to four-family 1,671 1.673 1,742 1,746 1,763 1,786 1,804 1,824 49 Farm 26,885 26.755 27,860 27,922 28,200 28,560 28,853 29,181 50 Federal Home Loan Mortgage Corporation 41,712 43,753 46,504 44,668 45,194 46,329 48,454 50,364 51 One- to four-family 38,882 39,901 41,758 39,640 40.092 40,953 42,629 44,440 52 Multifamily 2,830 3,852 4,746 5,028 5,102 5,376 5,825 5,924 53 Mortgage pools or trusts 1.732,347 1,866,763 2,070,436 2,113,770 2,153,812 2,210,930 2,282,566 2,334,416 54 Government National Mortgage Association . 450,934 472,283 506,340 513,471 520.938 529,867 536,810 533,011 55 One- to four-family 441,198 461,438 494.158 500,591 507,618 516,217 523.156 519,152 56 Multifamily 9,736 10,845 12,182 12,880 13,320 13,650 13,654 13,859 57 Federal Home Loan Mortgage Corporation . . 490,851 515,051 554.260 562,894 567,187 569,920 579,385 583,144 58 One- to four-family 487.725 512,238 551.513 560,369 564,445 567,340 576,846 580,715 59 Multifamily 3,126 2,813 2,747 2,525 2,742 2,580 2,539 2,429 60 Federal National Mortgage Association 530,343 582,959 650,780 663,668 673,931 690,919 709,582 730,832 61 One- to four-family 520,763 569,724 633,210 645,324 654,826 670.677 687,981 708,125 62 Multifamily 9.580 13,235 17,570 18,344 19,105 20,242 21,601 22,707 63 Farmers Home Administration4 19 II 3 3 2 2 2 2 64 One- to four-family 3 0 0 0 0 0 0 65 Multifamily 0 0 0 0 0 0 0 0 66 Nonfarm, nonresidential 9 5 0 0 0 0 0 0 67 Farm 7 4 3 3 2 2 2 68 Private mortgage conduits 260,200 296,459 359,053 373,734 391,753 420,222 456,787 487,427 69 One- to four-family6 208,500 227,800 261,900 271,100 279,450 299,400 318,000 336,824 70 Multifamily 14,925 21,279 33,689 35.607 38,992 41,973 48,261 54,680 71 Nonfarm, nonresidential 36,774 47,380 63,464 67,027 73,312 78,849 90.526 102,447 72 Farm 0 0 0 0 0 0 0 0 73 Individuals and others . . 528,155 540,206 585,556 589,458 590,206 618,779 626,408 636,310 74 One- to four-family .... 368,749 372,786 376,341 378,815 377,966 405,900 412.763 422,120 75 Multifamily 69,686 73,719 81,389 82,054 82,081 81,684 82,329 82,257 76 Nonfarm, nonresidential 72,738 75,859 109,558 110,220 111,591 112,418 112,411 112,834 77 Farm 16,983 17,841 18,268 18,368 18,567 18,777 18,905 19,099 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, stale 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-guaranleed securities sold to the Federal Financing Bank were reallocated from SOURCE. Based on data from various institutional and government sources. Separation of FmHA mortgage pools to FmHA mortgage holdings in 1986:Q4 because of accounting nonfarm mortgage debt by type of property, if not reported directly, and interpolations and changes by the Farmers Home Administration. extrapolations, when required for some quarters, are estimated in part by the Federal Reserve. 5. Outstanding principal balances of mortgage-backed securities insured or guaranteed by Line 69 from Inside Mortgage Securities and other sources. the agency indicated. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A36 Domestic Financial Statistics • September 1998 1.55 CONSUMER CREDIT1 Millions of dollars, amounts outstanding, end of period 1997 1998 Holder and type of credit 1995 1996 1997 Dec. Jan. Feb. Mar. Apr.' May Seasonally adjusted 1 Total 1,094,197 1,179,892 1,230,695 1,230,695 l,236,068r l,243,719r 1,246,134' 1,251,740 1,252,066 1 Automobile 364,231 392.370 413,453 413,453 415,344' 416,468' 419,287' 420,388 421,437 442.994 499,209 530,801 530,801 532,626' 536,106' 536,319' 538,033 534,700 4 Other 286,972 288,313 286,441 286,441 288,099' 291,145' 290,528' 293,319 295,929 Not seasonally adjusted 5 Total 1,122,828 1,211,590 1,264,103 1.264,103 l,246,131r 1,238,496' 1,234,683' 1,240,457 1,241.436 By major holder 501,963 526,769 512,563 512.563 501,975 497,804 492,221 502.185 499,496 7 Finance companies 152,123 152,391 160,022 160,022 159,493 155,675 156,140 153.988 153,216 131,939 144,148 152,362 152.362 151,024 149,804 149,334 149.119 149,775 9 Savings institutions 40,106 44,711 47,172 47,172 47,144' 47,115' 47,087' 47.059 47,030 85,061 77,745 78,927 78,927 75,349' 72,761' 72,652' 64,984 65,091 11 Pools of securitized assets4 211,636 265,826 313,057 313,057 311,146 315,337 317,249 323,122 326,828 By major type of credit 12 Automobile 167,069 395,609 416,962 416,962 413,586' 412,177' 415,230' 415,396 417,401 13 Commercial banks 151,437 157,047 155,254 155,254 154,413 152,747 153,627 150,613 150,763 14 Finance companies 81,073 86,690 87,015 87,015 87,379 84,685 86,834 90,564 89,569 15 Pools of securitized assets4 44,635 51,719 64,950 64,950 63,066 65,957 65.062 63,596 65,734 16 Revolving 464.134 522,860 555,858 555,858 541,144' 535,451' 530.364' 531,115 529,900 17 Commercial banks 210,298 228,615 219,826 219,826 208,750 204,564 197.264 204,928 202,310 18 Finance companies 28,460 32,493 38,608 38,608 37,603 36.851 36.273 30.058 30,155 19 Nonfinancial business3 53,525 44.901 44,966 44,966 42,689 40.976 41,246 33,487 33,412 20 Pools of securitized asselsJ 147,934 188,712 221,465 221,465 221.805 223.400 226.562 233,871 235,550 21 Other 291.625 293,121 291,283 291,283 291,401' 290.868' 289.089' 293,946 294.135 22 Commercial banks 140,228 141,107 137,483 137,483 138.812 140.493 141.330 146,644 146,423 23 Finance companies 42,590 33,208 34,399 34,399 34,511 34,139 33,033 33,366 33,492 24 Nonfinancial business3 31,536 32,844 33,961 33,961 32,660' 31,785' 31,406' 31,497 31,679 25 Pools of securitized assets4 19,067 25,395 26,642 26,642 26,275 25,980 25,625 25,655 25,544 1. The Board's series on amounts of credit covers most short- and intermediate-term credit 3. Includes retailers and gasoline companies. extended to individuals. Data in this table also appear in the Board's G.19 (421) monthly 4. Outstanding balances of pools upon which securities have been issued; these balances statistical release. For ordering address, see inside front cover. are no longer carried on the balance sheets of the loan originator. 2. Comprises mobile home loans and all other loans that are not included in automobile or 5. Totals include estimates for certain holders for which only consumer credit totals are revolving credit, such as loans for education, boats, trailers, or vacations. These loans may be available. secured or unsecured. 1.56 TERMS OF CONSUMER CREDIT1 Percent per year except as noted 1997 1998 Item 1995 1996 1997 Nov. Dec. Jan. Feb. Mar. Apr. May INTEREST RATES Commercial banks1 1 48-month new car 9.57 9.05 9.02 8.96 n.a. n.a. 8.87 n.a. n.a. 8.69 13.94 13.54 13.90 14.50 n.a. 14.01 13.76 Credit card plan 3 All accounts 15.90' 15.63 15.77 15.65 n.a. n.a. 15.65 n.a. n.a. 15.67 4 Accounts assessed interest 15.64' 15.50 15.57 15.62 n.a. n.a. 15.33 n.a. n.a. 15.62 Auto finance companies 11.19 9.84 7.12 6.85 5.93 6.12 6.98 5.94 6.20 6.07 14 48 13 53 13 27 13 14 13 16 12 77 12 87 12 79 12 76 12 73 OTHER TERMS' Maturity {months) 54 1 51 6 54 1 53 7 53 5 52 8 52 6 51 S 50 7 50 8 8 Used car 52.2 51.4 51.0 50.5 50.5 52.2 52.5 52.6 52.9 52.9 Loan-to-value ratio 92 91 92 91 92 92 92 92 91 93 10 Used car 99 100 99 99 99 98 97 97 98 99 Amount financed (dollars) 11 New car 16,210 16,987 18,077 18,923 19,121 18,944 18,825 18,932 18,922 18,793 12 Used car 11,590 12,182 12,281 12.389 12,547 12,391 12,356 12,431 12,716' 12,607 I. 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. Al auto finance companies. statistical release. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A37 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS' Billions of dollars; quarterly data at seasonally adjusted annual rates 1997 Transaction category or sector Q3 Q4 Ql Q2 Q3 Q4 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors. 574.6 702.8 727.8 764.2 685.5 625.4 712.3 624.4 786.9 933.4 By sector and instrument 2 Federal government 256.1 155.9 144.4 145.0 23.1 155.3 112.3 64.9 -43.5 30.3 40.8 3 Treasury securities 248.3 155.7 142.9 146.6 23.2 158.4 115.6 66.3 -43.8 31.2 39.0 4 Budget agency securities and mortgages 7.8 2 1.5 -1.6 -.1 -3.1 -3.3 -1.4 .2 -.9 1.7 5 Nonfederal 418.7 558.3 582.8 741.1 530.2 513.1 647.4 667.9 756.6 892.6 By instrument 6 Commercial paper 10.0 21.4 18.1 -.9 13.7 -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 71.4 -64.7 41.6 43.4 96.7 56.4 89.3 8 Corporate bonds 75.2 23.3 73.3 72.5 90.7 67.8 89.9 79.4 86.1 122.9 74.4 9 Bank loans n.e.c 6.4 75.2 102.3 66.2 101.5 138.3 27.2 143.1 105.0 16.8 141.0 10 Other loans and advances -18.9 34.0 67.2 33.8 66.8 63.0 3.9 37.5 18.5 76.3 134.9 11 Mortgages 123.7 175.8 206.7 320.0 344.5 258.1 336.0 266.0 281.4 419.2 411.4 12 Home 156.2 178.5 174.5 264.9 268.8 239.7 249.9 228.4 191.2 344.5 310.9 13 Multifamily residential -6.8 1.9 10.6 18.6 17.2 12.9 27.1 9.5 18.8 7.7 33.0 14 Commercial -26.7 -6.9 19.9 33.9 55.2 3.3 57.4 25.9 67.3 62.7 64.9 15 Farm 1.0 2.2 1.6 2.6 3.3 2.2 1.6 2.1 4.1 4.3 2.6 16 Consumer credit 60.7 124.9 138.9 88.8 52.5 81.9 38.6 70.8 60.0 50.5 28.8 By borrowing sector 17 Household 205.9 309.3 348.9 372.7 350.3 355.2 298.5 339.2 292.5 381.4 388.0 18 Nonfinancial business 51.3 141.7 245.5 195.8 311.3 224.9 163.3 252.9 274.7 311.6 406.0 19 Corporate 45.5 134.1 218.6 146.5 241.5 193.4 92.9 200.3 199.6 242.8 323.4 20 Nonfarra noncorporate 3.2 3.3 23.9 44.5 63.5 30.9 61.2 48.3 68.5 65.7 71.3 21 Farm 2.6 4.4 2.9 4.8 6.4 .6 9.2 4.3 6.7 3.1 11.3 22 State and local government 74.7 -32.3 -36.0 14.3 79.5 -49.9 51.4 55.3 100.7 63.6 98.6 23 Foreign net borrowing in United Slates 69.8 -14.0 71.1 70.5 51.5 105.7 87.9 26.3 56.4 87.8 35.5 24 Commercial paper -9.6 -26.1 13.5 11.3 3.7 37.5 4.4 15.5 10.4 -11.6 7 25 Bonds 82.9 12.2 49.7 49.4 41.3 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 4.7 7.8 -.7 11.5 7.3 15.7 27 Other loans and advances -4.2 -1.5 -.5 .8 -2.0 3.4 -2.7 .5 2 -2.5 -6.1 28 Total domestic plus foreign 657.8 560.5 773.8 798.3 815.7 791.2 713.3 738.6 680.8 874.7 968.9 Financial sectors 29 Total net borrowing by financial sectors . 468.4 456.4 556.2 649.2 456.5 664.0 342.5 679.6 603.1 971.7 By instrument 30 Federal government-related 287.5 204.1 231.5 212.8 222.9 252.8 105.7 286.2 161.0 298.1 31 Government-sponsored enterprise securitie; 176.9 105.9 90.4 98.4 80.0 123.3 -8.9 198.1 46.4 157.9 32 Mortgage pool securities 84.7 115.4 98.2 141.1 114.4 142.9 129.6 114.6 88.1 114.6 140.3 33 Loans from U.S. government .0 -4.8 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 129.1 180.9 252.3 324.7 436.5 233.6 411.1 236.8 393.4 442.1 673.5 35 Open market paper -5.5 40.5 42.7 92.2 166.7 84.4 162.0 175.9 77.8 168.2 244.6 36 Corporate bonds 123.1 121.8 196.7 179.7 206.8 104.0 187.9 63.4 234.8 202.0 327.0 37 Bank loans n.e.c -14.4 -13.7 3.9 16.9 19.7 .9 25.1 11.4 10.3 24.3 32.8 38 Other loans and advances 22.4 22.6 3.4 27 9 35.6 33.3 31.2 -20.1 63.0 37.5 61.7 39 Mortgages 3.6 9.8 5.6 7.9 7.8 11.0 4.9 6.2 7.5 10.1 7.3 By borrowing sector 40 Commercial banking 13.4 20.1 22.5 13.0 46.1 14.7 26.8 13.7 77.3 32.0 61.4 41 Savings institutions 11.3 12.8 2.6 25.5 19.7 25.8 23.0 -16.8 31.9 22.3 41.7 42 Credit unions .2 .2 -.1 .1 .1 .3 .3 -.2 .2 .2 .3 43 Life insurance companies 3 -.1 1.1 2 - 4 2.0 .8 .1 .2 -.3 44 Government-sponsored enterprises 172.1 105.9 90.4 98^4 80.0 123.3 -8.9 198.1 46.4 157.9 45 Federally related mortgage pools 84.7 115.4 98.2 141.1 114.4 142.9 129.6 114.6 88.1 114.6 140.3 46 Issuers of asset-backed securities (ABSs) . 83.6 72.9 141.1 153.6 203.3 109.6 160.2 84.5 116.5 231.0 381.2 47 Finance companies -1.4 48.7 50.2 45.9 48.7 30.7 43.8 7.2 123.8 -2.9 66.5 48 Mortgage companies .0 -11.5 .4 12.4 4.8 1.7 12.1 5.9 5.0 3.6 4.9 49 Real estate investment trusts (REITs) 3.4 13.7 5.7 11.0 24.8 11.8 15.2 15.1 19.8 32.0 32.1 50 Brokers and dealers 12.0 .5 -5.0 -2.0 8.1 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 33.7 123.0 129.4 -16.1 130.7 78.7 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A38 Domestic Financial Statistics • September 1998 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS'—Continued 1996 Transaction category or sector 1995 1996 1997 Q3 Q4 Ql Q2 Q3 Q4 01 AH sectors 52 Total net borrowing, all sectors 952.2 1,028.9 1,230.2 1,354.5 1,464.9 1,247.7 1,377.3 1,081.1 1360.4 1,477.8 1,940.5 1,830.0 53 Open market paper -5.1 35.7 74.3 102.6 184.1 107.7 142.3 198.6 108.5 171.1 258.1 346.6 54 U.S. government securities 421.4 448.1 348.5 376.5 235.9 378.2 365.1 170.6 242.6 191.3 338.9 197.2 55 Municipal securities 74.8 -35.9 -48.2 2.6 71.4 -64.7 41.6 43.4 96.7 56.4 89.3 124.3 56 Corporate and foreign bonds 281.2 157.3 319.6 301.7 338.8 232.0 356.2 153.8 355.2 419.5 426.6 470.3 57 Bank loans n.e.c -7.2 62.9 114.7 92.1 129.6 143.8 60.1 153.8 126.8 48.4 189.5 88.4 58 Other loans and advances -.8 50.3 70.1 62.5 100.4 99.7 32.4 17.9 81.7 111.3 190.5 117.8 59 Mortgages 127.3 185.6 212.3 327.9 352.3 269.1 340.9 mi 288.9 429.3 418.7 428.5 60 Consumer credit 60.7 124.9 138.9 88.8 52.5 81.9 38.6 70.8 60.0 50.5 28.8 56.9 Funds raised through mutual funds and corporate equities 61 Total net issues 429.7 125.2 143.9 230.5 184.S 71.9 156.0 186.1 131.8 291.1 128.8 258.1 62 Corporate equities 137.7 24.6 -3.5 -7.0 -79.0 -100.1 -20.3 -67.3 -109.1 -12.6 -126.9 -78.2 63 Nonfinancial corporations 21.3 -44.9 -58.3 -64.2 -114.8 -127.6 -56.0 -90.4 -141.6 -83.2 -144.1 -109.6 64 Foreign shares purchased by U.S. residents 63.4 48.1 50.4 58.8 38.0 32.7 42.3 47.0 53.0 62.2 -10.4 9.3 65 Financial corporations 53.0 21.4 4.4 -1.6 -2.1 -5.1 -6.7 -23.9 -20.6 8.4 27.6 22.1 66 Mutual fund shares 292.0 100.6 147.4 237.6 263.4 171.9 176.3 253.4 240.9 303.7 255.7 336.2 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 TRANSACTIONS' Billions of dollars except as noted; quarterly data at seasonally adjusted annual rates 1997 Transaction category or sector Q3 Q4 01 Q2 Q3 Q4 NET LENDING IN CREDIT MARKETS Total net lending in credit markets 952.2 1,028.9 1,230.2 1,354.5 1,464.9 1,247.7 1,377.3 1,081.1 1,360.4 1,477.8 1,940.5 2 Domestic nonfederal nonfinancial sectors 41.6 241.1 -92.6 7.2 -97.3 -202.6 -145.2 -193.4 -21.4 -164.4 -9.8 3 Household 1.0 277.8 2.8 11.5 -109.5 -106.5 -36.6 -245.9 -10.3 -158.9 -23.0 4 Nonfinancial corporate business 9.1 17.7 -8.8 15.0 9.9 -10.0 -33.2 77.9 -53.3 34.4 -19.5 5 Nonfarm noncorporate business -1.1 .6 4.7 44 2.7 4.4 4.4 2.5 2.7 2.8 2.9 6 State and local governments 32.6 -55.0 -91.4 -23.7 -.3 -90.5 -79.9 -27.9 39.5 -42.7 29.8 7 Federal government -18.4 -27.5 -7.7 4.9 -7.1 -4.1 1.9 5.6 3.0 9.1 8 Rest of the world 129.3 132.3 273^9 409.3 320.4 485.3 532.2 373.6 301.2 405.4 201.4 9 Financial sectors 799.7 683.0 1,049.1 945.8 1.236.9 972.1 994.5 898.9 1,075.0 1.233.7 1,739.8 10 Monetary authority 36.2 31.5 12.7 12.3 38.3 11.5 8.4 37.4 47.2 14.3 54.3 1 I Commercial banking 142.2 163.4 265.9 187.5 324.8 196.1 248.3 308.1 309.2 209.8 472.2 12 U.S.-chartered banks 149.6 148.1 186.5 119.6 274.9 119.5 158.9 195.9 301.1 209.5 393.1 13 Foreign banking offices in United States -9.8 11.2 75.4 63.3 40.2 71.1 80.5 104.0 1.1 -.6 56.4 14 Bank holding companies .0 .9 -.3 3.9 5.4 4.8 10.5 2.2 5.1 -5.0 19.4 15 Banks in US-affiliated areas 2.4 3.3 4.2 .7 4.2 7 -1.6 6.1 1.8 5.8 3.2 16 Savings institutions -23.3 6.7 -7.6 19.9 -4.7 49.7 -47.9 -5.3 23.8 -35.3 -2.0 17 Credit unions 21.7 28.1 16.2 25.5 16.8 21.1 24.3 18.5 28.3 14.4 5.8 J8 Bank personal trusts and estates 9.5 7.1 -8.3 -7.7 7.6 -14.8 -2.5 3.4 10.7 7.3 8.8 19 Life insurance companies 100.9 66.7 99.2 72.5 113.2 123.2 118.1 94.3 175.0 107.0 76.4 20 Other insurance companies 27.7 24.9 21.5 22.5 23.3 14.2 27.7 -.1 27.9 32 4 32.8 21 Private pension funds 49.5 45.5 61.3 48.3 67.6 42.7 34.1 55.0 58.5 66.2 90.7 22 State and local government retirement funds .. 22.7 22.3 27.5 45.9 36.6 45.5 41.9 3.6 39.2 90.6 13.0 23 Money market mutual funds 20.4 30.0 86.5 88.8 84.5 83.0 81.3 65.2 19.7 123.6 129.3 24 Mutual funds 159.5 -7.1 52.5 48.9 79.3 27.5 25.3 61.9 91.6 103.6 60.0 25 Closed-end funds 20.0 -3.7 10.5 2 2 1.2 2.2 2.2 2.7 1.3 .3 .4 26 Government-sponsored enterprises S7.8 117.8 84.7 92J) 95.0 81.4 137.9 45.1 119.2 55.5 160.0 27 Federally related mortgage pools 84.7 115.4 98.2 141.1 114.4 142.9 129.6 114.6 88.1 114.6 140.3 28 Asset-backed securities issuers (ABSs) 81.0 65.8 119.3 123.4 164.9 83.6 111.2 60.9 101.7 168.4 328.4 29 Finance companies -20.9 48.3 49.9 18.4 21.9 13.2 -6.2 44.9 1.9 65.2 -24.3 30 Mortgage companies .0 -24.0 -3.4 8.2 16.4 3.4 4.1 -1.3 -24.4 82.9 8.3 31 Real estate investment trusts (REITs) .6 4.7 2.2 2.0 -2.0 3.4 -2.1 -2.1 -2.1 -2.1 -1.7 32 Brokers and dealers 14.8 -44.2 90.1 -15.7 13.7 35.5 82.7 -14.5 -11.7 15.8 65.3 33 Funding corporations -35.3 -16.2 -29.7 9.8 24.4 7.0 -24.0 6.5 -30.0 -.7 121.7 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Net flows through credit markets 952.2 1,028.9 1,230.2 1,354.5 1,464.9 1,247.7 1,377.3 1,081.1 1,360.4 1,477.8 1,940.5 Other financial sources 35 Official foreign exchange -5.8 -6.3 .7 -26.6 .7 -17.6 .4 2.4 17.5 36 Special drawing rights certificates . . .0 .0 2.2 -.5 -.5 -1.8 .0 -2.1 .0 .0 .0 37 Treasury currency .4 .7 .6 .0 .0 2.3 -2.3 .4 .2 1.3 -1.9 38 Foreign deposits -18.5 52.9 35.3 82.0 89.0 119.7 104.5 188.6 18.8 105.4 43.1 39 Net interbank transactions 50.5 89.8 9.9 -51.6 -46.3 -97.2 17.6 -86.1 -46.4 -42.6 -10.0 40 Checkable deposits and currency . . 117.3 -9.7 -12.7 15.8 41.5 105.9 -53.3 85.3 64.2 -49.2 65.6 41 Small time and savings deposits -70.3 -39.9 96.6 97.2 97.1 94.2 90.1 157.9 24.5 53.8 152.3 42 Large time deposits -23.5 19.6 65.6 114.0 122.5 180.2 135.4 49.9 176.3 194.1 69.9 43 Money market fund shares 20.2 4? 3 142.3 145.8 157.6 145.1 187.5 182 4 58.5 243.6 146.0 44 Security repurchase agreements 71.3 78.2 110.4 40.0 115.2 -16.7 84.3 36.5 198.0 121.1 105.3 45 Corporate equities 137.7 24.6 -3.5 -7.0 -79.0 -100.1 -20.3 -67.3 -109.1 -12.6 -126.9 46 Mutual fund shares 292.0 100.6 147.4 237.6 263.4 171.9 176.3 253.4 240.9 303.7 255.7 47 Trade payables 52.0 93.7 101.9 72.1 96.3 -14.7 109.3 63.1 63.1 135.5 123.3 48 Security credit 61.4 -.1 26.7 52.4 110.1 5.3 125.2 117.1 137.4 79.7 106.3 49 Life insurance reserves 36.0 34.5 44.9 43.6 56.0 59.2 66.7 39.8 77.5 62.8 43.7 50 Pension fund reserves 255.6 246.1 233.4 232.1 290.2 225.0 283.9 256.8 337.3 321.8 244.7 51 Taxes payable 11.4 2.6 5.1 15.0 13.9 13.5 17.6 31.0 2.4 30.5 -8.4 52 Investment in bank personal trusts .9 17.8 4.0 -8.6 75.0 -17.4 -4.2 68.8 71.8 80.8 78.4 53 Noncorporate proprietors' equity ... 25.5 57.5 53.8 30.8 22.5 51.3 17.6 33.1 25.7 28.5 2.8 54 Miscellaneous 346.6 251.0 444.3 434.9 584.4 406.1 572.6 632.3 529.8 531.1 644.6 55 Total financial sources 2,319.3 2,086.4 2,747.2 2,893.8 3,474.5 2,552.9 3,286.6 3,104.4 3,231.6 3,669.4 3,892.7 Liabilities not identified as assets (—) 56 Treasury currency -.2 -.2 -.5 -1.0 -.6 1.3 -3.1 - 3 -.5 -2.4 57 Foreign deposits -5.7 43.0 25.1 55.4 71.5 86.1 36.1 178.7 -10.5 83.1 34.7 58 Net interbank liabilities 4.2 -2.7 -3.1 -3.3 -19.8 -4.4 4.2 26.9 -24.4 -51.6 -30.0 59 Security repurchase agreements 46.4 69.4 22.9 -.7 71.9 -101.2 114.7 -91.5 172.1 27.4 179.9 60 Taxes payable 15.8 16.6 17.8 16.3 14.1 20.3 21.6 12.2 28.3 11.2 4.9 61 Miscellaneous -164.2 -144.2 -211.7 -249.7 -124.5 -8.2 -104.2 -372.5 -212.1 -310.0 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 -19.5 63 Other checkable deposits -1.3 -2.8 -3.8 -4.0 -3.9 -4.7 -3.7 -2.6 -4.8 -3.4 -4.8 64 Trade credit -4.3 .3 -12.2 -32.2 3.8 -102.5 -41.2 13.1 -72.0 68.6 5.5 65 Total identified to sectors as assets 2,430.0 2,111.8 2,918.8 2,952.6 3,589.7 2,755.5 3,187.5 3,081.5 3,499.8 3,743.2 4,034.6 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. 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 • September 1998 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING1 Billions of dollars, end of period Transaction category or sector Q4 Ql Q2 04 Ql Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 13,016.8 13,719.6 14,447.4 15,210.1 14,252.1 14,447.4 14,613.7 14,729.1 14,933.9 15,210.1 15,435.2 Sv sector and instrument 1 Federal government 3,492.3 3,636.7 3,781.8 3,804.9 3.733.1 3,781.8 3,829.8 3,760.6 3,771.2 3,804.9 3,830.8 3 Treasury securities 3,465.6 3,608.5 3,755.1 3,778.3 3,705.7 3,755.1 3,803.5 3.734.3 3,745.1 3,778.3 3,804.8 4 Budget agency securities and mortgages . 26.7 28.2 26.6 26.5 27.4 26.6 26.3 26.3 26.1 26.5 25.9 5 Nonfederal 9,524.5 10,082.8 10,665.6 10,519.0 10.665.6 10,783.9 11.604.4 By instrument 6 Commercial paper 139.2 157.4 156.4 168.6 173.0 156.4 168.7 179.3 176.6 168.6 193.1 7 Municipal securities and loans 1,341.7 1,293.5 1,296.0 1,367.5 1,281.7 1,296.0 1,305.1 1,326.8 1,340.2 1.367.5 1,397.1 8 Corporate bonds 1,253.0 1,326.3 1,398.8 1,489.5 1,376.4 1,398.8 1,418.7 1,440.2 1,470.9 1,489.5 1,528.8 9 Bank loans n.e.c 759.9 862.1 928.3 1,029.8 920.5 928.3 962.9 994.2 994.2 1,029.8 1,045.1 10 Other loans and advances 669.6 736.9 770.6 837.4 769.4 770.6 784.4 788.0 803.1 837.4 865.7 11 Mortgages 4,377.2 4.583.9 4,903.8 5.248.3 4,824.6 4,903.8 4,957.7 5,035.0 5,151.0 5,248.3 5,341.2 12 Home 3,355.9 3.530.4 3,761.6 4.030.3 3,703.8 3,761.6 3,806.1 3,860.8 3,958.1 4,030.3 4,097.0 13 Multifamily residential 268.8 279.5 301.7 319.0 295.0 301.7 304.1 308.8 310.7 319.0 325.9 14 Commercial 669.5 6894 753.4 808.6 739.0 753.4 759.9 776.7 792.4 808.6 826.8 15 Farm 83.0 84.6 87.1 90.4 86.7 87.1 87.7 88.7 89.8 90.4 91.4 16 Consumer credit 983.9 1,122.8 1,211.6 1,264.1 1,1735 1,211.6 1,186.4 1,205.0 1,226.7 1,264.1 1,233.5 By borrowing sector 17 Household 4,446.2 4,800.4 5,143.9 5,497.0 5,043.7 5,143.9 5,174.6 5,260.7 5,374.4 5,497.0 5,546.5 18 Nonfinancial business 3,927.1 4,167.3 4,392.3 4,699.3 4,361.9 4,392.3 4,466.9 4,543.0 4,608.2 4,699.3 4,818.3 19 Corporate 2,663.1 2,876.5 3,052.1 3.289.3 3,038.1 3.052.1 3,116.3 3,170.2 3,217.6 3,289.3 3,387.1 20 Nonfarm noncorporate 1,121.8 1.145.8 1,190.2 1,253.7 1.174.3 1.190.2 1,202.2 1,219.3 1,235.2 1,253.7 1,275.9 21 Farm 142.2 145.1 149.9 156.3 149.5 149.9 148.3 153.4 155.4 156.3 155.3 22 State and local government 1.151.1 1.115.1 1.129.4 1.209.0 I.I 13.4 1,129.4 1,142.4 1,164.8 1,180.1 1,209.0 1,239.6 23 Foreign credit market debt held in United States 371.8 442.9 513.4 558.8 490.2 513.4 517.8 531.6 54S.7 558.8 571.3 24 Commercial paper 42 7 56.2 67.5 65.1 65.8 67.5 69.3 71.3 64.3 65.1 76.7 25 Bonds 242.3 291.9 341.3 382.6 321.7 341.3 344.1 352.7 376.3 382.6 384.7 26 Bank loans n.e.c 26.1 34.6 43.7 52.1 41.7 43.7 43.5 46.4 48.2 52.1 53.5 27 Other loans and advances 60.8 60.2 61.0 59.0 61.0 61.0 60.9 61.2 59.9 59.0 56.4 28 Total credit market debt owed by nonfinandal sectors, domestic and foreign 13,388.7 14,162.5 14,960.8 15,768.9 14,742.3 14,960.8 15,131.5 15,260.7 15,482.6 15,768.9 16,006.5 Financial sectors 29 Total credit market debt owed by financial sectors 3,822.2 4,281.2 4,837.3 5,453.5 4,672.0 4,837.3 4,918.2 5,090.9 5,211.8 5,4S3.5 5,655.7 fly instrument 30 Federal government-related 2,172.7 2,376.8 2,608.3 2,821.0 2,545.1 2,608.3 2,634.7 2,706.2 2,746.5 2,821.0 2,877.9 31 Government-sponsored enterprise securities . 700.6 806.5 896.9 995.3 866.1 896.9 894.7 944.2 955.8 995.3 1,030.9 32 Mortgage pool securities 1,472.1 1.570.3 1,711.4 1,825.8 1,679.0 1,711.4 1,740.0 1,762.1 1,790.7 1,825.8 1,847.0 33 Loans from U.S. government .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 1,649.5 1,904.4 2,229.1 2.632.5 2,126.9 2,229.1 2,283.5 2.384.7 2,465.3 2,632.5 2,777.9 35 Open market paper 441.6 486.9 579.1 745.7 538.6 579.1 623.0 642.5 684.7 745.7 804.9 36 Corporate bonds 1,008.8 1,205.4 1,385.1 1,558.9 1.339.4 1.385.1 1.396.5 1,457.7 1,478.6 1,558.9 1,630.3 37 Bank loans n.e.c 48.9 52.8 69.7 89.4 62.8 69.7 72,2 75.2 80.7 89.4 94.0 38 Other loans and advances 131.6 135.0 162.9 198.5 155.1 162.9 157.9 173.7 183.0 198.5 206.6 39 Mortgages 18.7 24.3 32.2 40.0 31.0 32.2 33.8 35.6 38.2 40.0 42.0 By borrowing sector 40 Commercial banks 94.5 102.6 113.6 140.6 107.7 113.6 115.3 125.7 130.0 140.6 148.7 41 Bank holding companies 133.6 148.0 150.0 168.6 149.1 150.0 151.6 160.5 164.0 168.6 181.3 42 Savings institutions 112.4 115.0 140.5 160.3 134.8 140.5 136.3 144.3 149.8 160.3 162.7 43 Credit unions .5 .4 .4 .6 .4 .4 .4 .4 .5 .6 .7 44 Life insurance companies .6 .5 1.6 1.8 1.1 1.6 1.8 1.8 1.9 1.8 1.8 45 Government-sponsored enterprises 700.6 806.5 896.9 995.3 866.1 896.9 894.7 944.2 955.8 995.3 1,030.9 46 Federally related mortgage pools 1,472.1 1,570.3 1,711.4 1,825.8 1,679.0 1,711.4 1,740.0 1,762.1 1,790.7 1,825.8 1,847.0 47 Issuers of asset-backed securities (ABSs) ... . 579.0 720.1 873.8 1.088.1 830.5 873.8 889.9 918.0 989.6 1.088.1 1,142.7 48 Brokers and dealers 34.3 29.3 27.3 35.3 26.1 27.3 26.6 35.3 33.6 35.3 35.1 49 Finance companies 431.7 483.9 529.8 554.5 513.7 529.8 528.4 557.8 532.7 554.5 571.8 50 Mortgage companies 18.7 19.1 31.5 36.4 28.5 31.5 33.0 34.3 35.2 36.4 38.5 51 Real estate investment trusts (REITs) 31.1 36.8 47.8 72.6 44.0 47.8 51.6 56.6 64.6 72.6 81.7 52 Funding corporations 211.0 248.6 312.7 373.8 291.0 312.7 348.6 350.0 363.4 373.8 412.9 53 Total credit market debt, domestic and foreign 17,210.9 18,443.7 19,798.2 21,222.4 19,4143 19,798.2 20,049.6 2031.6 20,694.4 21J22.4 21,662.2 54 Open market paper 623.5 700.4 803.0 979.4 777.4 803.0 861.1 893.1 925.7 979.4 1.074.8 55 US. government securities 5,665.0 6,013.6 6,390.0 6,625.9 6,278.2 6,390.0 6,464.5 6,466.8 6,517.7 6,625.9 6,708.6 56 Municipal securities 1,341.7 1,293.5 1,296.0 1,367.5 1,281.7 1,296.0 1,305.1 1,326.8 1,340.2 1,367.5 1,397.1 57 Corporate and foreign bonds 2,504.0 2,823.6 3,125.3 3,431.0 3,037.5 3,125.3 3,159.3 3,250.6 3,325.9 3,431.0 3,543.8 58 Bank loans n.e.c 834.9 949.6 1,041.7 1,171.3 1,025.0 1,041.7 1,078.6 1,115.7 1,123.1 1.171.3 1,192.6 59 Other loans and advances 862.0 932.1 994.5 1,094.9 985.4 994.5 1,003.2 1,022.9 1,046.0 1.094.9 1.128.7 60 Mortgages 4,395.9 4,608.2 4,936.0 5,288.3 4,855.6 4,936.0 4,991.5 5,070.6 5,189.1 5,288.3 5,383.2 61 Consumer credit 983.9 1,122.8 1,211.6 1,264.1 1,173.5 1,211.6 1,186.4 1,205.0 1,226.7 1,264.1 1,233.5 1. Data in this table also appear in the Board's Z. I (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 LIABILITIES' Billions of dollars except as noted, end of period Transaction category or sector 1995 Q3 04 Ql Q2 Q3 Q4 01 CREDIT MARKET DEBT OUTSTANDING' 1 Total credit market assets 17,210.9 18,443.7 19,798.2 21,222.4 19,414.3 19,798.2 20,049.6 20,351.6 20,694.4 21,222.4 21,662.2 2 Domestic nonfederal nonfinancial sectors 3,002.4 2.874.6 2.926.9 2,793.6 2,911.5 2.926.9 2,854.7 2.812.5 2,758.3 2,793.6 2,736.5 3 Household 1,945.7 1,913.3 1,979.3 1,833.8 1,955.9 1,979.3 1,920.2 1,873.7 1,822.7 1,833.8 1,783.5 4 Nonfinancial corporate business 289.2 280.4 286.0 295.9 275.7 286.0 281.8 271.9 280.3 295.9 292.3 5 Nonfarm noncorporate business 37.6 42.3 46.7 49.4 45.6 46.7 47.4 48.0 48.7 49.4 50.2 6 State and local governments 729.9 638.6 614.8 614.5 634.4 614.8 605.4 618.9 606.6 614.5 610.5 7 Federal government 204.4 204.2 196.5 201.4 197.5 196 5 196.9 198.3 199.1 201.4 204.8 8 Rest of the world 1,254.8 1,563.1 1,953.6 2,274.0 1,844.8 1,953.6 2.052.7 2,126.4 2,229.1 2,274.0 2,340.0 9 Financial sectors 12,749.2 13,801.8 14,721.2 15.953.4 14,460.5 14,721.2 14.945.4 15,214.3 15,507.8 15,953.4 16,381.0 10 Monetary authority 368.2 380.8 393.1 431.4 386.2 393.1 397.1 412.4 412.7 431.4 433.8 11 Commercial banking 3,254.3 3.520.1 3.707.7 4.032.5 3,643.3 3.707.7 3,775.7 3,856.8 3.912.9 4,032.5 4.095.8 12 U.S.-chartered banks 2,869.6 3,056.1 3,175.8 3.450.7 3,135.3 3,175.8 3.218.1 3,295.2 3,351.9 3,450.7 3.507.1 13 Foreign banking offices in United Stales 337.1 412.6 475.8 516.1 454.2 475.8 499.5 501.8 501.0 516.1 517.7 14 Bank holding companies 18.4 18.0 22.0 27.4 19.3 22.0 22.5 23.8 22.5 27.4 31.2 15 Banks in U.S.-affiliated areas 29.2 33.4 34.1 38.3 34.5 34.1 35.6 36.1 37.5 38.3 39.7 16 Savings institutions 920.8 913.3 933.2 928.5 945.2 933.2 931.9 937.8 929.0 928.5 930.5 17 Credit unions 246.8 263.0 288.5 305.3 282.6 288.5 291.2 299.9 303.9 305.3 307.5 18 Bank personal trusts and estates 248.0 239.7 232.0 239.5 232.6 232.0 232.8 235.5 237.3 239.5 240.1 19 Life insurance companies 1,482.6 1,581.8 1,654.3 1,767.4 1,627.0 1,654.3 1.680.2 1,724.1 1.750.4 1,767.4 1,795.7 20 Other insurance companies 446.4 468.7 491.2 514.4 484.2 491.2 491.2 498.1 506.2 514.4 520.8 21 Private pension funds 656.9 718.2 766.5 834.2 758.0 766.5 780.3 794.9 811.5 834.2 852.3 22 Stale and Icca] government retirement funds 455.8 483.3 529.2 565.8 517.7 529.2 531.6 542.7 562.0 565.8 577.0 23 Money market mutual funds 459.0 545.5 634.3 718.8 606.6 634.3 659.0 656.5 678.7 718.8 770.1 24 Mutual funds 718.8 771.3 820.2 899.5 818.3 820.2 838.3 860.6 889.2 899.5 931.6 25 Closed-end funds 86.0 96.4 98.7 99.8 98.1 98.7 99.3 99.7 99.7 99.8 100.0 26 Government-sponsored enterprises 663.3 748.0 813.6 908.6 779.3 813.6 824.3 854.8 868.7 908.6 949.5 27 Federally related mortgage pools 1,472.1 1,570.3 1,711.4 1,825.8 1,679.0 1,711.4 1,740.0 1.762.1 1,790.7 1,825.8 1.847.0 28 Asset-backed securities issuers (ABSs) 541.7 661.0 784.4 949.2 753.4 784.4 794.6 819.0 863.9 949.2 991.5 29 Finance companies 476.2 526.2 544.5 566.4 538.3 544.5 552.4 553.1 564.4 566.4 571.6 30 Mortgage companies 36.5 33.0 41.2 57.6 40.2 41.2 40.9 34.8 55.5 57.6 60.2 31 Real estate investment trusts (REITs) 13.3 15.5 17.5 15.5 18.0 17.5 17.0 16.5 15.9 15.5 15.0 32 Brokers and dealers 93.3 183.4 167.7 181.4 147.1 167.7 164.1 161.2 165.1 181.4 244.8 33 Funding corporations 109.3 82.2 92.0 111.7 105.4 92.0 103.6 93.8 90.1 111.7 1459 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Total credit market debt 17,210.9 18,443.7 19,798.2 21,222.4 19,414.3 19,798.2 20,049.6 20,351.6 20,694.4 21,222.4 11,662.2 Other liabilities 35 Official foreign exchange 53.2 63.7 53.7 48.9 54.3 53.7 46.3 46.7 46.1 48.9 48.2 36 Special drawing rights certificates 8.0 10.2 9.7 9.2 9.7 9.7 9.2 9.2 9.2 9.2 9.2 37 Treasury currency 17.6 18.2 18.2 18.2 18.8 18.2 18.3 18.3 18.7 18.2 18.3 38 Foreign deposits 324.6 359.2 438.1 527.0 415.1 438.1 485.2 489.9 516.2 527.0 540.1 39 Net interbank liabilities 280.1 290.7 240.8 192.8 225.8 240.8 210.9 197.1 186.9 192.8 201.2 40 Checkable deposits and currency I 242.0 1.229.3 1,245.1 1.286.6 1,220.8 1,245.1 1.220.0 1.265.3 1,234.2 1,286.6 1,259.8 41 Small lime and savings deposits 2.1832 2,279.7 2,377.0 2 474 1 2,357.9 2.377.0 2.427.1 2.432.3 2.438.8 2,474.1 2,526.0 42 Large time deposits 411.2 476.9 590.9 713.4 557.2 590.9 606.0 646.7 696.1 713.4 742.4 43 Money market fund shares 602.9 745.3 891.1 1,048.7 838.1 891.1 950.8 952.4 1,005.1 1,048.7 1,132.9 44 Security repurchase agreements 549.5 659.9 699.9 815.1 686.9 699.9 713.8 766.7 795.4 815.1 881.1 45 Mutual fund shares 1.477.3 1.852.8 2,342.4 2,994.7 2,211.6 2,342.4 2,411.5 2,719.6 2,977.0 2,994.7 3,348.4 46 Security credit 279.0 305.7 358.1 468.2 317.8 358.1 380.0 414.8 432.2 468.2 498.6 47 Life insurance reserves 505.3 550.2 593.8 649.7 577.1 593.8 603.7 623.1 638.8 649.7 663.0 48 Pension fund reserves 4,880.1 5,599.6 6,329.5 7,452.2 6,039.8 6,329.5 6,417.1 6,942.5 7,331.8 7,452.2 8,036.2 49 Trade payables 1,141.5 1,243.4 1,315.5 1,411.8 1,260.6 1,315.5 1,300.4 1,321.9 1,351.9 1.411.8 1,401.7 50 Taxes payable 101.4 106.5 121.5 135.4 119.1 121.5 134.8 130.7 139.5 135.4 147 1 51 Investment in bank persona] trusts 699.4 803.0 871.7 1,082.8 843.1 871.7 888.7 982.9 1.058.9 1,082.8 1,173.1 52 Miscellaneous 5,397.3 5.767.7 6.082.7 6,489.0 5,972.2 6,082.7 6.276.5 6,224.3 6.396.9 6.489.0 6,725.1 53 Total liabilities 37,364.7 40,805.7 44,377.7 49,040.3 43,140.3 44,377.7 45,150.1 46,536.0 47,968.1 49,040.3 51,014.5 Financial assets not included in liabilities ( + ) 54 Gold and special drawing rights 21.1 22.1 21.4 21.1 21.2 21.4 20.9 21.1 21.0 21.1 21.2 55 Corporate equities 6,237.9 8,331.3 10,061.1 12,958.6 9,340.5 10,061.1 10.072.3 11,719.8 12,804.6 12,958.6 14,618.6 56 Household equity in noncorporate business 3,422.6 3,647.5 3.863.3 4,156.7 3,817.7 3,863.3 3,947.1 4,030.7 4,093.1 4,156.7 4,203.9 Liabilities not identified as assets ( —) 57 Treasury currency -5.4 -5.8 -6.8 -7.4 -6.0 -6.8 -6.9 -7.0 -6.8 -7.4 -7.5 58 Foreign deposits 276.2 300.6 353.1 424.6 347.0 353.1 397.8 395.2 416.0 424.6 425 2 59 Net interbank transactions -6.5 -9.0 -10.6 -32.1 -11.6 -10.6 -1.6 -8.1 -22.1 -32.1 -2.2 60 Security repurchase agreements 67.8 90.7 90.0 162.0 72.1 90.0 68.4 109.2 126.0 162.0 203.8 61 Taxes payable 48.8 61.3 74.7 88.5 68.9 74.7 72.3 74.3 84.2 88.S 84.9 62 Miscellaneous -983.1 -1,260.8 -1,650.8 -1.960.4 -1,492.7 -1,650.8 -1,606.0 -1,745.9 -1,789.5 -1,960.4 -2,070.6 Floats not included in assets (-) 63 Federal government checkable deposits . . 3.4 3.1 -1.6 -8.1 -1.7 -1.6 -9.7 -6.8 -7.8 -8.1 -10.4 64 Other checkable deposits 38.0 34.2 30.1 26.2 23.1 30.1 25.6 27.9 19.5 26.2 19.9 65 Trade credit -245.8 -258.1 -290.3 -297.5 -359.7 -290.3 -345.8 -371.8 -380.2 -297.5 -364.2 66 Total identified to sectors as assets 47,852.8 53,850.5 59,735.7 67,780.8 57,680.3 59,735.7 60^96.4 63,840.5 66,447.6 67,780.8 71,579.2 I. 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.S. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A42 Domestic Nonfinancial Statistics • September 1998 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, and indexes 1992=100, except as noted 1997 1998 Measure 1995 1996 1997 Oct. Nov. Dec. Jan, Feb. Mar.' Apr' May' June 1 Industrial production1 114.5 118.5 124.5 126.5 127.5 127.9 127.8 127.3 128.0 128.5 128.9 128.1 Marker groupings 2 Producls, lota) 110.6 113.7 118.5 120.2 121.2 121.0 121.3 120.6 121.3 121.9 122.1 121.4 3 Final, lolal 111.3 114.6 119.6 121.5 122,5 122.2 122.6 121.5 122.6 123.3 123.5 122.5 109.9 111.8 114.4 115.9 116.7 115.9 116.6 115.1 116.0 116.7 116.9 115.5 113.8 1196 128.8 131.3 132.8 133.4 133.1 133.1 134.3 135.0 135.3 134.9 6 Intermediate 108.3 110.8 115.1 116.3 117.3 117.4 117.4 117.6 117.3 117.6 118.0 118.0 7 Materials 120.8 126.2 134.1 136.7 137.7 138.9 138.2 138.2 138.7 139.2 139.7 138.8 Industry groupings 8 Manufacturing 116.0 120,2 127.0 129.1 130.4 130.9 131.1 130.6 130.8 131.6 131.7 130.9 9 Capacity utilization, manufacturing (percenl) . 82.8 81,4 81.7 81.9 82.3 82.3 82.1 81.4 81.2 81.4 81.1 80.3 10 Construction contracts 122.0' 130,8' 141.3' 143.0' 143.0' 143.0' 143.0' 143.0 139.0 142.0 139.0 132.0 11 Nonagncullural employment, total4 114.9 1172 119.9 121.2 121.6 121.9 122.3 122.4 122.5 122.8 123.1 123.3 12 Goods-producing, total 98.3 99,0 100.3 101.5 101.7 102.1 102.5 102.6 102.4 102.7 102.5 102.5 97.5 97.2 97.6 98.5 98.7 98.9 99.1 99.1 99.1 99,1 99.0 14 Manufacturing, production workers 99.0 98.4 98.9 99.9 100.1 100.4 100.5 100.6 100.5 100.4 100.2 100.0 120.2 123.0 126.2 127.5 127.9 128.2 128.6 128.8 128.9 129.3 129.7 130.0 158.2 167.0 176.8 179.2 180.5 181.3 182.3 183.4 184.0 184.8 185.7 n.a. 17 Wages and salary disbursements 150.9 159.8 170.6 173.5 175.6 176.4 177.7 179.1' 179.5 180.3 181.4 n.a. 18 Manufacturing 130.4 135.7 142.0 144.4 145.7 146.4 146.7' 147.2' 147.5 147.3 147.3 n.a. 19 Disposable personal income5 158.7 166.2 174.4 176.6 177.7 178.4 179.0 179.8' 180.5 181.1 182.0 n.a. 20 Retail sales5 151.5 159.6 166.9 167.8 168.4 169.1 170.8 172.2 172.4 173.7 175.8 176.0 Priced 21 Consumer (1982-84=100) 152.4 156.9 160.5 161.6 161.5 161,3 161.6 161.9 162,2 162.5 162.8 163.0 22 Producer rinished goods (1982=100) 127.9 131.3 131.8 132.3 131.7 131,1 1.10.3 130.2' 129.7 130.0 130.4 130.6 1. Data in this table also appear in the Board's G.I7 (419) monthly statistical release. For 4 Based on data from U.S. Department of Labor, Employment and Earnings. Series covers the ordering address, see the inside front cover. The latest historical revision of the industrial employees only, excluding personnel in the armed forces. production index and the capacity utilization rales 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 Lxthor Review. ments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. For details about the NOTE Basic data (not indexes) for series mentioned in notes 4 and 5, and indexes for series construction of individual industrial production series, see "Industrial Production: 1989 mentioned in notes 3 and 6, can also be found in the Survey of Current Business. Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), pp. Figures for industrial production for the latest monih 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 Nov. Dec. Jan. Feb. Mar. Apr.' May' June HOUSEHOLD SURVEY DATA1 1 Civilian labor force- 132,304 133,943 126,297 136,864 137,169 137.493 137,557 137.523 137,242 137.364 137,447 Employment 121,460 123,264 126,159 127.191 127,392 127,764 127,829 127,862 128,033 128.118 127,867 3,440 3,443 3,399 3,384 3,385 3,319 3,335 3,132 3,350 3,335 3,343 Unemployment 4 Number 7,404 7,236 6,739 6,289 6.392 6.409 6,393 6,529 5.859 5,910 6,237 5 Rate (percent of civilian labor force) 5.6 5.4 4.9 4.6 4.7 4.7 4.6 4.7 4.3 4.3 4.5 ESTABLISHMENT SURVEY DATA 6 Nonagricultural payroll employment4 117,191 119,523 122,257 123,944 124,289 124,640 124,832 124,914 125,234 125,543 125,748 7 Manufacturing 18,524 18.457 18,538 18,758 18,791 18,824 18,822 18.829 18,827 18,805 18,776 8 Mining 581 574 573 591 592 592 590 587 582 579 578 9 Contract construction 5,160 5,400 5,627 5,750 5,810 5,881 5,902 5,860 5,930 5,917 5,937 10 Transportation and public utilities 6,132 6,261 6,426 6.456 6,451 6,473 6,494 6,504 6.513 6,530 6,544 11 Trade 27,565 28,108 28,788 28.917 28,976 29,039 29,052 29,042 29,133 29,227 29,295 12 Finance 6,806 6,899 7,053 7,172 7,194 7,213 7,232 7,258 7,289 7,310 7,340 13 Service 33,117 34.377 35,597 36,638 36,795 36,932 37,020 37,106 37,196 37.349 37.485 19,305 19.447 19.655 19,662 19,680 19,686 19,720 19,728 19,764 19.826 19.793 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 ihe 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 Ihe 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 Q3 Qlr Q2 Q3 Q4 Qlr Q2 Q3 Q4 Qlr Q2 Output (1992=100) Capacity (percent of 1992 output) Capacity utilization rate (percent) 1 Total industry 125.1 127.3 127.7 128.5 153.0 1S4.8 156.5 82.7 83.2 82.5 82.1 2 Manufactunng 82.2 81.6 3 Primary processing1 118.5 119.8 120.2 119.9 138.0 139.2 140.4 141.4 85.8 86.0 85.6 84.8 4 Advanced processing4 132.1 135.3 136.2 137.2 165.7 168.1 170.7 173.1 79.8 80.4 79.8 79.2 5 Durable goods 143.7 147.2 148.2 149.6 177.2 180.6 184.1 187.6 81.1 81.5 80.5 79.7 6 Lumber and products 114.9 114.7 115.7 116.7 140.0 141.3 142.2 142.6 82.1 81.2 81.3 81.8 7 Primary metals 125.5 127 8 128.2 126.3 137.2 138.5 140.1 141.8 91.5 92.3 91.5 89.1 8 Iron and steel 122.8 126.5 127.2 124.1 136.6 137.9 139.4 141.3 89.9 91.8 91.3 87.9 9 Nonferrous 128.8 129.4 129.3 128.8 137.7 138.9 140.6 142.1 93.5 93.2 92.0 90.6 10 Industrial machinery and equipment 173.9 177.6 181.2 188.2 204.4 210.0 215.8 221.4 85.1 84.6 84.0 85.0 11 Electrical machinery 236.6 246.0 254.0 259.1 289.1 301.9 315.4 328.6 81.9 81.5 80.5 78.8 12 Motor vehicles and parts 136.7 144.0 137.2 135.0 184.7 186.7 188.8 190.8 74.0 77.1 72.7 70.7 13 Aerospace and miscellaneous transportation equipment 95.6 98.6 101.3 101.5 124.1 124.8 125.5 126.3 77.1 79.0 80.7 80.4 14 Nondurable goods 111.1 112.6 113.1 112.9 135.0 135.7 136.4 137.0 82.3 82.9 82.9 82.4 15 Textile mill products 110.9 111.5 110.1 109.8 131.7 132.3 132 8 133.2 84.3 84.3 82.9 82.5 16 Paper and products 114.1 113.5 113.1 112.4 126.0 126.7 127.4 128.1 90.5 89.6 88.8 87.8 17 Chemicals and products 114.8 117.1 118.0 118.1 146.3 147.5 148.6 149.4 78.5 79.4 79.4 79.1 18 Plastics materials 130.6 131.4 130.8 130.9 140.0 141.9 143.6 145.0 93.3 92.6 91.1 90.3 19 Petroleum products 109.5 109.8 113.0 113.5 115.2 115.7 116.2 117.2 95.1 94.9 97.2 96.9 20 Mining 106.4 105.9 108.4 106.9 IIS I 118.2 118.4 118.6 90.1 89.6 91.6 90.2 21 Utilities 114.0 115.5 110.4 115.5 126.7 127.1 127.4 127.7 90.0 90.9 86.6 90.4 22 Electric 114.2 115.7 112.1 116.6 125.0 125.4 125.7 126.1 91.4 92.3 89.2 92.5 1975 Previous cycle Latest cycle 1998 High Low High Low High Low June Jan, Feb. Mar/ Apr/ May June1* Capacity utilization rate (percent) 1 Total industry 89.2 72.6 87.3 71.1 85.4 78.1 82.3 82.9 82.2 82.4 82.4 82.4 81.6 2 Manufacturing 88.5 70.5 86.9 69.0 85.7 76.6 81.3 82.1 81.4 81.2 81.4 81.1 3 Primary processing3 91.2 68.2 88.1 66.2 88.9 77.7 85.8 86.1 85.5 85.1 85.3 84.7 84.3 4 Advanced processing4 87.2 71.8 86.7 70.4 84.2 76.1 79.4 80.3 79.6 79.5 79.7 79.5 78.5 5 Durable goods 89.2 68.9 87.7 63.9 84.6 73.1 80.7 81.0 80.2 80.2 80.3 80.1 78.8 6 Lumber and products 88.7 61.2 87.9 60.8 936 75.5 84.2 80.8 82.0 81.2 81.8 82.0 81.6 7 Primary metals 100.2 65.9 94.2 45.1 92.7 73.7 91.6 92.7 91.4 90.3 90.0 89.2 88.0 8 Iron and steel 105.8 66.6 95.8 37.0 95.2 71.8 90.3 92.2 91.1 90.5 89.5 88.1 86.0 9 Nonferrous 90.8 59.8 91.1 60.1 89.3 74.2 93.3 93.6 92.0 90.3 90.8 90.6 905 10 Industrial machinery and equipment 96.0 74.3 93.2 64.0 85.4 72.3 84.0 84.3 83.1 84.4 84.9 85.0 85.2 11 Electrical machinery 89.2 64.7 89.4 71.6 84.0 75.0 81.7 81.4 80.5 79.7 79.6 78.9 78.0 12 Motor vehicles and parts 93.4 51.3 95.0 45.5 89.1 55.9 72.3 73.5 72.4 72.1 72.7 74.0 65.6 13 Aerospace and miscellaneous transportation equipment 78.4 67.6 81.9 66.6 87.3 79.2 75.9 81.3 80.6 80 4 80.0 80.4 80.9 14 Nondurable goods 87.8 71.7 87.5 76.4 87.3 80.7 82.1 83.4 82.8 82.4 82.8 82.3 82.1 15 Textile mill products 91.4 60.0 91.2 72.3 90.4 111 83.1 84.3 82.5 81.9 82.0 83.1 82.3 16 Paper and products 97.1 69.2 96.1 80.6 93.5 85.0 88.9 88.4 90.0 88.1 88.3 87.7 87.4 17 Chemicals and products 87.6 69.7 84.6 69.9 86.2 79.3 78.8 80.1 79.1 79.0 79.4 78.8 79.0 18 Plastics materials 102.0 50.6 90.9 63.4 97.0 74.8 92.0 93.9 90.3 89.0 91.8 89.9 89.2 19 Petroleum products 96.7 81.1 90.0 66.8 88.5 85.1 96.9 96.7 96.3 98.6 98.1 96.2 96.3 20 Mining 94.3 88.2 96.0 80.3 88.0 87.0 89.6 91.6 91.9 91.2 90.3 91.0 89.1 21 Utilities 96.2 82.9 89.1 75.9 92.6 83.4 87.7 85.4 84.9 89.6 88.9 91.0 91.3 22 Electric 99.0 82.7 88.2 78.9 95.0 87.1 88.7 87.7 87.9 91.8 90.7 93.4 93.5 1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For 3. Primary processing includes textiles; lumber; paper; industrial chemicals; synthetic the ordering address, see the inside front cover. The latest historical revision of the industrial materials; fertilizer materials; petroleum products; rubber and plastics; stone, clay, and glass; production index and the capacity utilization rates was released in December 1997. The recent primary metals; and fabricated metals. annual revision is described in an article in the February 1998 issue of the Bulletin. For a 4. Advanced processing includes foods; tobacco; apparel; furniture and fixtures; printing description of the aggregation methods for industrial production and capacity utilization, see and publishing; chemical products such as drugs and toiletries; agricultural chemicals; leather "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- and products; machinery; transportation equipment; instruments; and miscellaneous manufacments." Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. For details about the tures. construction of individual industrial production series, see "Industrial Production: 1989 5. Monthly highs, 1978-80; monthly lows, 1982. Developments and Historical Revision." Federal Reserve Bulletin, vol. 76 (April 1990), pp. 6. Monthly highs, 1988-89; monthly lows, 1990-91. 187-204. 2. Capacity utilization is calculated as the ratio of the Federal Reserve's seasonally adjusted index of industrial production to the corresponding index of capacity. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A44 Domestic Nonfinancial Statistics • September 1998 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data seasonally adjusted 1992 1998 pro- 1997 Group por- avg. tion June July Aug. Sept Oct. Nov. Dec. Jan. Mar.' Apr/ May Junep Index (1992= 100) MAJOR MARKETS 1 Total index 10O.O 124.5 123.5 124.5 125.2 125.6 126.5 127.5 127.9 127.8 127.3 128.0 128.5 128.9 128.1 2 Products 60.5 118.5 117.6 118.1 119.2 119.1 120.2 121.2 121.0 121.3 120.6 121.3 121.9 122.1 121.4 3 Final products 46.3 119.6 118.6 119.2 120.5 120.3 121.5 122.5 122.2 122.6 121.5 122.6 123.3 123.5 122.5 4 Consumer goods, total 29.1 114.4 113.5 113.9 114.6 114.5 115.9 116.7 115.9 116.6 115.1 116.0 116.7 116.9 115.5 5 Durable consumer goods 6.1 131.3 129.8 128.1 132.1 131.9 131.4 136.5 134.7 135.6 134.3 135.2 136.5 138.5 131.0 6 Automotive products 2.6 129.9 126.7 120.3 131.6 132.8 131.2 138.4 133.8 132.6 131.0 132.4 134.5 136.1 122.2 7 Autos and trucks 1.7 136.5 130.3 120.2 137.6 140.9 139.7 147.8 142.7 139.9 137.2 137.7 140.2 142.3 117.6 8 Autos, consumer .9 115.2 110.8 113.0 118.6 119.9 115.2 120.3 113.9 116.0 105.7 107.4 108.3 109.3 94.6 9 Trucks, consumer .7 159.1 154.2 131.9 161.2 166.5 168.6 179.8 175.7 168.2 172.7 172.0 176.0 179.3 144.1 10 Auto pans and allied goods .9 119.3 120.3 119.3 121.8 120.1 117.9 123.8 120.1 120.9 121.0 123.7 125.3 126.0 127.3 11 Other 3.5 132.3 132.3 134.4 132.5 131.1 131.5 135.0 135.3 138.0 136.9 137.4 138.1 140.5 138.1 12 Appliances, televisions, and air conditioners 1.0 168.6 165.4 174.8 169.8 166.0 169.4 177.2 178.7 186.4 188.6 192.5 194.7 200.1 195.9 13 Carpeting and furniture .8 117.0 119.0 116.4 117.7 116.2 116.5 122.1 116.8 122.5 117.7 116.5 117.4 122.6 119.1 14 Miscellaneous home goods 1.6 120.0 120.3 122.1 119.8 119.4 118.6 119.2 122 A 121.0 120.7 120.8 120.7 120.4 119.3 15 Nondurable consumer goods 23.0 110.2 109.4 110.3 110.3 110.2 112.1 111.8 111.3 112.0 110.4 111.3 111.8 111.6 111.6 16 Foods and tobacco 10.3 109.3 108.1 109.6 108.9 108.6 109.7 110.7 110.0 113.0 111.8 111.3 112.1 112.0 111.3 17 Clothing 2.4 95.9 95.4 95.8 96.0 96.0 96.4 95.1 95.1 95.2 93.5 94.7 94.7 93.2 93.0 18 Chemical products 4.5 119.1 19.1 117.3 119.4 119.4 123.0 121.3 121.8 122.9 121.8 122.2 123.4 122.9 123.9 19 Paper products 2.9 109.3 109.8 110.8 109.8 110.1 111.3 111.7 110.1 110.2 107.8 106.2 106.5 105.7 106.2 20 Energy 2.9 111.3 109.7 112.4 112.8 112.4 116.2 113.9 113.5 107.4 104.6 112.6 112.0 113.6 113.8 21 Fuels .8 109.3 111.5 108.8 111.0 110.8 112.0 106.7 109.3 110.5 110.0 111.3 111.7 109.7 110.3 22 Residential utilities 2.1 112.0 108.3 113.7 113.2 112.8 117.8 117.1 115.1 105.4 101.5 112.8 111.6 115.1 115.1 23 Equipment 17.2 128.8 127.7 128.6 130.9 130.6 131.3 132.8 133.4 133.1 133.1 134.3 135.0 135.3 134.9 24 Business equipment 13.2 141.9 140.2 141.6 144.6 144.4 145.5 147.5 I486 147.3 146.8 148.7 150.2 150.5 150.6 25 Information processing and related 5.4 168.1 166.8 169.3 171.1 172.9 174.3 174.7 176.0 175.4 178.0 179.7 182.5 183.4 184.7 26 Computer and office equipment 1.1 385.6 375.8 391.6 407.1 414.6 420.3 427.3 440.1 457.1 476.1 499.2 515.1 533.3 543.4 27 Industrial 4.0 133.3 131.7 133.7 135.8 133.8 135.9 136.3 137.8 136.4 134.2 137.4 137.7 136.3 139.3 28 Transit 2.5 1112 107.3 106.9 113.3 114.2 113.0 119.9 121.2 119.8 117.9 117.8 119.0 121.9 115.6 29 Autos and trucks 1.2 119.7 113.6 111.5 120.3 120.2 117.0 128.2 124.6 121.1 116.4 117.1 119.4 122.7 107.7 30 Other 1.3 135.0 136.3 136.3 137.9 135.1 137.5 137.3 136.2 133.6 132.7 135.2 136.3 135.2 136.7 31 Defense and space equipment 3.3 75.2 76.0 74.9 75.0 74.7 74.7 74.5 74.5 75.7 75.9 75.3 75.1 75.4 75.8 32 Oil and gas well drilling .6 149.7 150.9 152.1 153.2 153.1 149 1 150.0 145.9 154.0 158.9 158.6 150.5 148.1 137.5 33 Manufactured homes .2 139.1 139.1 143.5 139.5 137.2 136.9 138.1 132.4 144.0 148.6 145.4 146.9 146.7 145.9 34 Intermediate products, total 14.2 115.1 114.7 114.6 115.3 115.2 116.3 117.3 117.4 117.4 117.6 117.3 117.6 118.0 118.0 35 Construction supplies .... 5.3 121.8 122.2 121.2 122.7 120.4 121.3 123.6 123.2 125.2 126.2 124.2 124.0 125.3 125.0 36 Business supplies 8.9 111.1 110.2 110.6 111.0 112.2 113.4 113.5 113.9 112.9 112.6 113.2 113.9 113.6 113.9 37 Materials 39.5 134.1 133.0 134.9 134.9 136.1 136.7 137.7 138.9 138.2 138.2 138.7 139.2 139.7 138.8 38 Durable goods materials.... 20.8 158.2 156.9 159.3 160.3 161.3 163.2 165.0 166.5 166.2 165.8 166.4 167.7 167.9 166.5 39 Durable consumer parts . . 4.0 139.2 136.2 139.2 140.3 140.7 141.8 142.3 146.9 138.5 139.3 139.3 141.6 142.8 135.1 40 Equipment parts 7.6 221.9 220.0 224.6 227.6 229.6 233.3 237.9 240.9 245.5 245.7 247.7 249.6 250.4 251.8 41 Other 9.2 125.5 125.0 125.9 126.0 126.6 127.8 128.8 128.3 128.8 127.7 127.8 128.4 127.8 127.7 42 Basic metal materials .. 3.1 120.6 121.2 121.1 121.8 121.7 122.5 124.9 122.2 125.0 125.4 122.8 122.1 122.1 121.2 43 Nondurable goods materials. 8.9 113.0 111.9 113.5 112.3 113.3 113.1 114.4 116.0 114.5 114.8 113.5 114.0 113.3 113.2 44 Textile materials 1.1 109.3 108.1 112.3 108.4 111.4 111.9 111.0 112.5 107.9 108.5 107.6 107.7 107.2 107.3 45 Paper materials 1.8 112.6 110.9 113.8 114.3 112.7 113.4 112.2 113.7 112.3 114.0 111.8 111.9 110.7 110.0 46 Chemical materials 3.9 115.2 113.8 115.1 113.9 115.6 115.0 116.5 119.1 119.2 117.6 116.6 117.5 116.4 116.6 4 4 7 8 En O er t g h y e r materials 9 2 . . 7 1 1 1 1 0 0 3 . . 3 9 1 10 1 3 0 . . 2 8 1 1 1 0 0 4 . . 1 6 1 1 0 0 8 3 . . 6 9 1 1 0 0 9 5 . . 5 5 1 10 0 4 9 . . 7 0 1 1 1 0 3 3 . . 7 9 1 10 1 4 3 . . 2 3 1 10 0 3 9 . . 7 4 1 10 1 3 2 . . 7 5 1 1 0 1 6 1 . . 0 5 1 10 1 5 1 . . 1 6 H 10 I 7 S .2 1 10 1 6 1 . . 5 9 49 Primary energy 6.3 101.7 101.0 102.3 102.4 102.2 101.7 101.4 100.7 102.8 103.0 104.0 102.8 105.1 103.9 50 Converted fuel materials- . 3.3 108.3 107.3 109.0 106.8 111.8 110.6 108.6 110.9 105.5 105.0 109.6 109.4 111.3 111.7 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.1 124.3 123.6 124.8 125.1 125.4 126.5 127.2 127.7 127.7 127.3 128.0 128.5 128.7 128.5 52 Total excluding motor vehicles and parts 95.1 123.8 123.1 124.3 124.6 124.8 125.9 126.6 127.0 127.3 126.9 127.5 128.0 128.3 128.2 53 Total excluding computer and office equipment 121.9 121.1 122.0 122.6 122.9 123.8 124.8 125.1 124.9 124.3 124.8 125.3 125.6 124.7 54 Consumer goods excluding autos and true 27.4 113.2 112.5 113.5 113.4 113.0 114.6 115.0 114.4 115.4 113.9 114.8 115.4 115.5 115.3 55 Consumer goods excluding energy 26.2 114.8 114.0 14.1 114.9 114.7 115.9 117.0 116.2 117.9 116.5 116.4 117.3 117.3 115.7 56 Business equipment excluding autos and trucks 143.4 145.2 147.5 147.3 149.0 149.7 151.5 150.5 150.5 152.6 153.9 153.9 57 Business equipment excluding computer a office equipment 12.1 129.1 127.7 128.6 131.2 130.8 131.8 133.5 134.4 132.7 131.7 133.0 134.0 133.9 133.7 58 Materials excluding energy 29.8 143.7 142.5 144.6 144.8 145.8 147.0 148.6 150.2 149.4 149.3 149.2 150.3 150.1 149.2 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 1998 SIC pro- 1997 Group code por- avg. July Aug. Sept. Oct. Nov. Dec. Jan. Mar.' Apr.' May June11 Index (1992 = 100) MAJOR INDUSTRIES 59 Total index 10O.0 124.5 123.5 124.5 125.2 125.6 126.5 127.5 127.9 127.8 127.3 128.0 128.5 128.9 128.1 60 Manufacturing 85.4 127.0 126.1 126.9 127.9 128.0 129.1 130.4 130.9 131.1 130.6 130.8 131.6 131.7 130.9 61 Primary processing 26.5 118.1 117.7 118.3 118.5 118.6 118.9 120.0 120.5 120.6 120.1 119.8 120.4 119.8 119.5 62 Advanced processing 58.9 131.4 130.2 131.2 132.5 132.7 134.1 135.5 136.1 136.4 135.8 136.3 137 3 137.6 136.6 63 Durable goods 45.0 142.3 141.2 142.4 144.3 144.4 145.5 147.7 148.6 148.3 147.8 148.6 149.6 150.3 148.8 64 Lumber and pproducts 24 2.0 114.9 117.0 116.1 115.4 113.3 112.9 117.0 114.4 114.8 116.7 115.6 116.6 116.9 116.6 65 FFuir niture andd ffiixtures 25 1.4 122.5 123.5 124.2 J21.1 122.0 123.0 124.1 124.4 122.5 120.4 123.0 122.5 122.5 122.1 66 Stone, clay, and glass products 32 2.1 120.5 120.0 120.9 120.5 121.2 121.0 122.1 123.4 122.3 121.4 120.7 119.8 120.2 120.6 67 Primary metals 33 3.1 124.5 124.9 125.2 125.5 125.9 127.4 128.9 127.2 129.3 128.1 127.1 127.1 126.4 125.2 68 [ran and steel 331,2 1.7 122.8 122.6 122.2 121.8 124.5 126.4 127.0 126.1 127.9 127.0 126.7 125.9 124.5 122.0 69 Raw steel 331PT .1 115.9 114.9 115.5 116.1 119.2 117.7 120.9 119.2 122.8 123.7 119.5 122.8 122.3 116.2 70 Nonferrous 333-6,9 1.4 126.4 127.7 128.8 129.9 127.7 128.6 131.1 128.5 131.0 129.4 127.5 128.6 128.8 129.1 71 Fabricated metal products.. 34 5.0 122.9 121.9 122.4 122.8 122.7 124.4 124.7 126.7 125.6 124.3 125.0 125.9 125.9 125.0 72 Industrial machinery and equipment 35 8.0 171.4 168.8 172.2 175.9 173.7 176.5 177.7 178.6 180.3 179.4 183.8 186.3 188.1 190.3 Computer and office equipment 357 1.8 382.3 372.3 388.5 403.9 412.0 418.0 425.7 438.3 457.1 476.6 5O0.5 517.0 536.0 546.4 74 Electrical machinery 36 7.3 231.5 2297 235.5 236.8 237.5 240.8 247.4 249.9 252.9 254.1 254.9 257.9 259.3 260.0 75 Transportation equipment.. 37 9.5 115.6 113.0 112.2 117.0 118.8 118.3 121.6 123.4 119.9 118.8 118.7 119.4 121.2 114.0 76 Motor vehicles and parts 371 4.9 137.2 132.5 130.0 138.9 141.2 139.6 145.9 146.6 138.3 136.7 136.6 138.3 141.1 125.5 77 Autos and light trucks 371PT 2.6 128.3 122.4 115.0 129.5 132.3 130.4 137.7 132.5 130.8 126.7 127.4 129.5 131.3 109.4 78 Aerospace and miscellaneous transportation equipment 372-6.9 4.6 94.4 93.8 94.6 95.5 96.8 97.3 97.9 100.6 101.8 101.1 101.0 100.8 101.5 102.4 79 Instruments 38 5.4 108.0 107.9 108.0 109.2 108.9 109.7 109.5 109.0 109.0 109.6 109.9 110.2 109.8 109.6 80 Miscellaneous 39 1.3 125.9 126.0 127.0 126.7 126.1 126.5 126.2 128.5 128.0 128.4 128.5 129.1 127.1 127.0 81 Nondurable goods 40.4 111.1 110.5 110.9 111.0 111.3 112.2 112.6 112.9 113.6 113.0 112.6 113.3 112.7 112.6 82 Foods .. 9.4 109.6 108.8 110.0 108.9 108.6 109.2 110.9 110.9 112.9 112.0 111.4 112.3 112.1 111.5 83 Tobacco products 1.6 112.7 109.0 110.5 112.5 112.0 118.8 115.9 110.1 116.9 115.9 114.7 114.9 114.9 114.1 84 Textile mill products 1.8 109.6 109.1 110.7 110.7 111.4 111.6 112.5 110.4 111.8 109.6 108.9 109.1 110.6 109.7 85 Apparel products 2.2 99.6 99.6 99.7 99.1 99.1 99.3 98.6 99.3 99.3 97.7 98.2 98.3 97.1 96.4 Paper and products 3.6 112.9 111.7 114.2 114.4 113.7 112.8 113.6 114.1 112.4 114.6 112.4 112.9 112.3 112.1 Printing and publishing. . .. 6.7 104.9 104.1 104.1 104.4 105.1 106.7 107.4 107.1 106.5 105.6 105.0 105.1 104.8 104.9 Chemicals and products . .. 9.9 115.3 114.6 114.3 114.5 115.6 116.7 116.5 118.2 118.7 117.6 117.7 118.5 117.7 118.2 89 Petroleum products 1.4 109.4 111.3 108.9 109.7 110.1 111.2 108.6 109.7 112.3 111.9 114.8 114.6 112.7 1132 90 Rubber and plastic products 3.5 126.4 125.6 126.0 127.9 127.6 127.4 129.6 129.3 129.3 129.4 129.7 131.8 130.3 130.3 91 Leather and products .3 73.7 74.0 74.0 71.2 70.9 72.4 71.0 71.3 69.4 70.8 69.4 68.2 67.7 67.2 92 Mining 6.9 106.0 105.7 106.5 106.3 106.5 105.9 106.1 105.7 108.4 108.8 108.0 107.0 108.0 105.8 93 Metal .5 106.9 109.9 105.2 106.0 105.3 111.1 113.2 103.8 105.3 119.5 105.5 102.9 104.0 103.7 94 Coal 1.0 109.9 107.4 112.1 107.7 109.5 109.6 111.2 117.4 116.0 1084 109.4 110.6 118.2 1117 95 Oil and gas extraction 4.8 103.2 102.9 103.9 104.1 104.3 103.1 102.6 101.7 105.0 105.9 106.5 104.8 104.5 102.8 96 Stone and earth minerals .6 118.8 120.9 117.8 119.9 117.7 116.2 119.2 120.2 124.3 122.6 117.2 120.8 121.6 121.7 97 Utilities... 7.7 112.5 110.9 113.8 113.0 115.1 116.9 115.3 114.3 108.7 108.2 114.3 113.5 116.2 116.7 98 Electric . 491.493PT 6.2 113.1 110.7 113.8 113.1 115.7 118.1 114.7 114.2 110.2 110.6 115.6 114.2 117.8 118.0 99 Gas. . . . 492.493PT 1.6 111.0 111.9 113.5 112.5 112.7 111.9 117.8 115.0 103.0 99.0 109.5 1107 110.3 112.0 SPECIAL AGGREGATES 100 Manufacturing excluding motor vehicles and parts 80.5 126.4 125.7 126.7 127.2 127.3 128.4 129.4 130.0 130.7 130.2 130.5 131.3 131.1 131.2 101 Manufacturing excluding office and computing machines . . . 83.6 124.1 123.2 123.9 124.8 124.9 125.9 127.2 127.6 127.8 127.1 127.2 127.9 127.8 127.0 Gross value (billions of 1992 dollars, annual rates) MAJOR MARKETS 102 Products, total 2,001.9 2,373.2 2,365.3 2,368.4 2,402.0 2^96.9 2,416.1 2,442.2 2,435.3 2,442.8 2,427.7 2,442.6 2,457.2 2,463.5 2,435.8 103 Final 1,552.1 1,855.8 1,844.6 1,849.1 1,879.3 1,875.6 1,890.6 1,911.0 1,904.9 1,911.9 1,895.0 1,911.5 1,924.8 1,929.3 1,900.7 104 Consumer goods .... 1,049.6 1,195.5 1,190.2 1,191.0 1,205.2 1,203.3 1,215.9 1,224.1 1,215.7 1,224.6 1,209.6 1,219.2 1,227.4 1.227.9 1,205.6 105 Equipment 502.5 660.0 654.1 657.8 674.0 672.3 674.5 686.9 689.4 687.3 685.5 692.6 6977 701.7 695.6 106 Intermediate 449.9 518.1 521.0 519.9 523.7 522.2 526.5 532.3 531.4 532.0 533.3 532.1 533.6 535.4 535.6 1. Data in this table also appear in the Board's G.I7 (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 • September 1998 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted Item Aug. Sept. Oct. Nov. Dec. Jan. Mar.' Apr. May Private residential real estate activity (thousands of units except as noted) NEW UNITS 1 Permits authorized 1,333 1,426 1,442 1,445 1,475 1,502 1,475 1,467 1,553 1,635 1,569 1,517 1,543 2 One-family 997 1,070 1,056 1,059 1,084 1,106 1,102 1,094 1,142 1,176 1,136 1,145 1,152 3 Two-family or more 335 356 387 386 391 396 373 373 411 459 433 372 391 4 Started 1,354 1,477 1,474 1,383 1,501 1,529 1,523 1,540 1,545 1,616 1,585 1.546 1,530 5 One-family 1,076 1,161 1,134 1,076 1,174 1,124 1.167 1,130 1,225 1,263 1,239 1,237 1,219 6 Two-family or more 278 316 340 307 327 405 356 410 320 353 346 309 311 7 Under construction at end of period1 776 820 834 834 843 853 862 872 888 907 911 911 915 8 One-family 554 584 570 567 571 574 575 580 593 609 616 619 625 9 Two-family or more 222 235 264 267 272 279 287 292 295 298 295 292 290 10 Completed 1,319 1,405 1,407 1,335 1,433 1,384 1,432 1,413 1,314 1,461 1,486 1,500 1,455 11 One-family 1,073 1,123 1,122 1,062 1,133 1,063 1,145 1,094 1,007 1,142 1,130 1,189 1,101 12 Two-family or more 247 283 285 273 300 321 287 319 307 319 356 311 354 13 Mobile homes shipped 341 361 354 354 351 349 352 353 362 377 374 370 374 Merchant builder activity in one-family units 14 Number sold 667 757 803 799 809 805 875 805 853 878' 836 891 901 15 Number for sale at end of period1. 374 326 287 286 284 284 280 282 281 281 285 286 286 Price of units sold (thousands of dollars)' 16 Median 133.9 140.0 145.9 144.0 146.3 141.5 145.0 145.9 148.0 156.0' 152.7 147.9 150.0 17 Average 158.7 166.4 175.8 170.7 177.5 172.9 175.4 175.8 178.6 181.6' 178.5 175.7 184.8 EXISTING UNITS (one-family) 18 Number sold 3,812 4,087 4.215 4,280 4.300 4,380 4.390 4,370 4,370 4,770 4,890 4,770 4,830 Price of units sold (thousands of dollars)1 19 Median 113.1 II 8.2 124.1 127.5 125.8 124.4 124.3 125.9 126.1 124.5 127.1 128.2 130.5 20 Average 139.1 145.5 154.2 159.1 155.4 154.7 155.0 157.5 156.8 153.9 157.2 159.7 162.3 Value of new construction (millions of dollars)^ CONSTRUCTION 21 Total put in place 538,158' 581,813' 618,051r 623,429r 623,305r 626,608r 623,068' 626,290' 633,714r 638,180' 639,913 643,383 633,548 22 Private 408,012' 444,743' 470,969' 475,498' 475,885' 477,539' 475,340' 478.363' 487,807' 490,896' 494,333 497,459 493.395 23 Residential 231,191' 255,570' 265,536' 263,496' 266,077' 268,623' 268,893' 273.020' 278,956' 282,496' 286,045 288,694 286,565 24 Nonresidential 176.821' 189,173' 205.433' 212.002' 209,808' 208.916' 206.447' 205,343' 208,851' 208,400' 208,288 208,765 206,830 25 Industrial buildings 32.535' 32,563' 31,417' 33,403' 32,220' 30,870' 30,075' 29,794' 31,055' 30,936' 31,474 31,438 29.454 26 Commercial buildings .. . 68,245' 75,722' 83,727' 85,457' 83,473' 83,838' 83.601' 83,214' 85,807' 84,152' 83,981 84,947 85.473 27 Other buildings 27,084' 30,637' 37,382' 37,748' 39,083' 38,372' 38,341' 39.275' 37,694' 39,151' 37,812 38,958 37,802 28 Public utilities and other. 48,957' 50,252' 52,906' 55,394' 55,032' 55,836' 54,430' 53.060' 54,295' 54,161' 55,021 53,422 54,101 29 Public 130,147' 137,070' 147,082' 147,931' 147,421' 149,069' 147,728' 147,927' 145,907' 147,284' 145,580 145,924 140,152 30 Military 2.983 2.639' 2.625' 2,812' 2,630' 2,806' 2,889' 2,342' 2 474' 2,916' 2,818 2,616 2,263 31 Highway 38.126' 41,326' 45,246' 45,930' 44,309' 43.144' 47,416' 45.306' 46,067' 45,561' 45,559 46,014 43.423 32 Conservation and development. 6.371' 5,926' 5,628' 5,479' 6,180' 5,148' 5,068' 6.422' 5,281' 6,305' 5,488 4,978 4.998 33 Other 82,667' 87,179' 93,583' 93,710' 94,302' 97,971' 92,355' 93.857' 92,085' 92,502' 91,715 92,316 89.468 1. Not at annual rates. SOURCE. Bureau of the Census estimates for all series except (1) mobile homes, which are 2. Not seasonally adjusted. private, domestic shipments as reported by the Manufactured Housing Institute and season- 3. Recent data on value of new construction may not be strictly comparable with data for ally adjusted by the Census Bureau, and (2) sales and prices of existing units, which are previous periods because of changes by the Bureau of the Census in its estimating techniques. published by the National Association of Realtors. All back and cun-ent 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 C m ha o n n g th e s f e ro a m rli e 1 r 2 Change f ( r a o n m n u 3 al m ra o t n e t ) hs earlier Change from 1 month earlier Index level, 1998 June 1997 1998 1998' June June Sept. Dei Mar. June Feb. Mar. Apr. May CONSUMER PRICES" (1982-84=100) 1 All items 2.3 1.7 2.3 2.5 163.0 2 Food 2.6 2.2 1.5 1.3 3.0 .0 .0 .1 160.1 3 Energy items -.7 -5.9 8.3 -7.7 -21.1 -1.9 -2.2 -1.2 -.1 105.7 4 All items less food and energy. 2.4 2.2 1.7 2.4 2.4 2.6 .3 .1 .3 .1 173.0 5 Commodities .9 .4 -.3 .6 1.1 -.1 .1 .0 142.8 6 Services 3.1 3.1 2.6 3.3 3.2 .2 .4 .2 190.3 PRODUCER PRICES (1982=100) 7 Finished goods 1.2 -1.2 -4.2 1.2 -.4' .2 -.1 130.6 8 Consumer foods -.3 -1.5 1.5 -2.1 .9 .2 -.4 .4 .1 133.6 9 Consumer energy -1.3 -8.3 6.0 -5.7 -26.2 -4.1 1.8' -2.1' -.1 -1.7 76.7 10 Other consumer goods .3 1.7 1.7 -.3 .6 4.8 .2' .3 .5 .3 147.2 11 Capital equipment -.1 -.6 .6 -2.0 -.3 -.6 .0 -.2 .0 137.3 Intermediate materials 12 Excluding foods and feeds . .. . -.2 -1.4 -.6 -4.4 -1.6 -.3' -.3' _ 2 -.3 123.9 13 Excluding energy .1 -.4 .0 -1.2 -.9 -.1 -.1 -.1 -.1 133.7 Crude materials 14 Foods -13.7 -5.1 -5.0 4.1 -13.4 -4.1 - 7 .6' .3 -1.4 .1 105.6 15 Energy 2.1 -12.6 21.8 5.4 -54.6 .0 -4.3' -3.5' 3.5 .6 -3.9 69.2 16 Other 1.4 -6.7 .3 -8.2 -14.7 -3.7 -.3' -1.7' -.9 .5 -.5 146.8 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 El September 1998 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1998 1997 Ql Q2 Q3 Q4 Ql' CROSS DOMESTIC PRODUCT 1 Total . 7,265.4 7,636.0 8,079.9 7,933.6 8,034.3 8,124.3 8,227.4 8,3593 By source 2 Personal consumption expenditures ... 4,957.7 5,207.6 5,485.8 5,405.7 5,432.1 5,527.4 5,577.8 5,667.3 3 Durable goods 608.5 634.5 659.3 658.4 644.5 667.3 666.8 687.4 4 Nondurable goods 1,475.8 1,534.7 1,592.0 1,587.4 1,578.9 1,600.8 1.600.9 1.621.5 5 Services 2,873.4 3,038.4 3,234.5 3.159.9 3.208.7 3,259.3 3,310.0 3,358.4 6 Gross private domestic investment 1,038.2 1,116.5 1,242.5 1,193.6 1,242.0 1,250.2 1,284.1 1,359.5 7 Fixed investment 1,008.1 1,090.7 1.174.1 1,127.5 1,160.8 1,201.3 1,206.8 1.250.7 8 Nonresidential 723.0 781.4 846.9 811.3 836.3 872.0 868.0 897.9 9 Structures 200.6 215.2 230.2 227.4 226.8 232.9 233.9 233.6 10 Producers' durable equipment ... 522.4 566.2 616.7 583.9 609.5 639.1 634.2 664.3 II Residential structures 285.1 309.2 327.2 316.2 324.6 329.3 338.8 352.8 12 Change in business inventories . 30.1 25.9 68.4 66.1 81.1 48.9 77.2 108.8 13 Nonfarm 38.1 23.0 61.7 62.2 74.9 40.9 68.7 101.6 14 Net exports of goods and services -86.0 -94.8 -101.1 -98.8 -88.7 -111.3 -105.3 -130.2 15 Exports 818.4 870.9 957.1 922.2 960.3 965.8 980.0 965.0 16 Imports 904.5 965.7 1,058.1 1,021.0 1,049.0 1,077.1 1,085.4 1,095.2 17 Government consumption expenditures and gross investment. 1,355.5 1,406.7 1,452.7 1,433.1 1,449.0 1,457.9 1,470.9 1,462.6 18 Federal 509.6 520.0 523.8 516.1 526.1 525.7 527.3 515.1 19 State and local 846.0 886.7 928.9 917.0 923.0 932.3 943.6 947.5 By major type of product 20 Final sales, tgtal 7,235.3 7,610.2 8,011.5 7,867.4 7,953.2 8,075.3 8,150.2 8,250.5 21 Goods 2.637.9 2,759.3 2,876.7 2,838.4 2.854.9 2,903.2 2,910.4 2,954.1 22 Durable 1,133.9 1,212.0 1,284.0 1,248.0 1.275.3 1,305.3 1,307.3 1,335.5 23 Nondurable 1,503.9 1,547.3 1,592.8 1,590.4 1,579.6 1,597.9 1,603.1 1,618.6 24 Services 3.980.7 4,187.3 4,430.4 4,338.2 4,400.1 4,462.3 4,521.0 4,564.5 25 Structures 616.8 663.6 704.4 690.8 698.2 709.8 718.8 731.8 26 Change in business inventories 30.1 25.9 68.4 66.1 81.1 48.9 77.2 108.8 27 Durable goods 29.1 16.9 33.0 318 46.8 18.6 34.8 53.0 28 Nondurable goods 1.1 9.0 35.4 34.3 34.4 30.3 42.4 55.8 MEMO 29 Total GDP in chained 1992 dollars 6,742.1 6,928.4 7,188.8 7,101.6 7,159.6 7,214.0 7,280.0 7,375.7 NATIONAL INCOME 30 Total 5,912.3 6.254.S 6,649.7 6,510.0 6,599.0 6,699.6 6,790.1 6,905.6 31 Compensation of employees 4,215.4 4,426.9 4,703.6 4,606.3 4,663.4 4,725.2 4,819.6 4,914.5 32 Wages and salaries 3.442.6 3,633.6 3,878.6 3,792.7 3.842.7 3,897.3 3,981.6 4,064.1 33 Government and government enterprises 623.0 642.6 665.3 657.8 662.0 667.7 673.7 682.0 34 Other 2.819.6 2,991.0 3,213.3 3,134.9 3.180.8 3,229.6 3,307.9 3,382.1 35 Supplement to wages and salaries 772.9 793.3 825.0 813.6 820.7 827.9 837.9 850.4 36 Employer contributions for social insurance 366.0 385.7 408.4 401.3 405.6 410.2 416.6 425.3 37 Other labor income 406.8 407.6 416.6 412.3 415.1 417.7 421.4 425.1 38 Proprietors' income1 489.0 520.3 544.5 534.6 543.6 547.2 552.5 554.5 39 Business and professional' 465.5 483.1 503.8 494.4 500.0 506.3 514.3 523.5 40 Farm1 23.4 37.2 40.7 40.2 43.6 40.9 38.2 31.0 41 Rental income of persons2 132.8 146.3 147.9 149.0 148.7 148.0 145.7 144.0 42 Corporate profits' 650.0 735.9 805.0 779.6 795.1 827.3 818.1 827.7 43 Profits before tax3 ... 622.6 676.6 729.8 708.4 719.8 753.4 737.3 723.8 44 Inventory valuation adjustment -24.3 -2.5 5.5 3.5 5.9 3.6 9.2 30.1 45 Capital consumption adjustment 51.6 61.8 69.7 67.7 69.4 70.3 71.6 73.7 46 Net interest 425.1 425.1 448.7 440.5 448.1 451.8 454.2 465.1 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 1997 Ql Q2 Q3 04 Ql' PERSONAL INCOME AND SAVING 1 Total personal income 6,150.8 6,495.2 6,873.9 6,746.2 6,829.1 6,906.9 7,013.5 7,125.4 2 Wage and salary disbursements 3,429.5 3,632.5 3.877.4 3,791.5 3,841.6 3.896.1 3,980.4 4,063.0 3 Commodity-producing industries 864.4 909.1 960.3 942.9 952.8 961.4 984.1 998.6 4 Manufacturing 648.4 674.7 706.0 694.1 700.3 706.0 723.4 731.6 5 Distributive industries 783.1 823.3 876.3 856.8 867.0 880.8 900.6 918.4 6 Service industries 1.159.0 1.257.5 1,375.5 1,334.1 1,359.8 1,386.3 1,422.0 1,464.0 7 Government and government enterprises 623.0 642.6 665.3 657.8 662.0 667.7 673.7 682.0 8 Other labor income 406.8 407.6 416.6 412.3 415.1 417.7 421.4 425.1 9 Proprietors' income1 489.0 520.3 544.5 534.6 543.6 547.2 552.5 554.5 10 Business and professional 465.5 483.1 503.8 494.4 500.0 506.3 514 3 523.5 11 Farm' 23.4 37.2 40.7 40.2 43.6 40.9 38.2 31.0 12 Rental income of persons2 132.8 146.3 147.9 149.0 148.7 148.0 145.7 144.0 13 Dividends 251.9 291.2 321.5 312.5 318.3 324.5 330.7 336.8 14 Personal interest income 718.9 735.7 768.6 757.2 766.1 772.6 778.4 785.4 15 Transfer payments 1,015.0 1,068.0 1,121.1 1,107.3 1,117.0 1,125.7 1,134.8 1,154.8 16 Old-age survivors, disability, and health insurance benefits . 566.7 564.4 569.4 507.8 537.6 558.9 574.2 585.2 17 LESS: Personal contributions for social insurance 323.7 321.3 324.8 293.1 306.3 318.2 330.4 338.1 18 EQUALS: Personal income 6,873.9 6,829.1 6.906.9 6,150.8 6.495.2 6,746.2 7,013.5 7,125.4 19 LESS: Persona! tax and nontax payments 988.7 979.2 998.0 795.1 886.9 955.7 1,022.1 1,059.8 20 EQUALS: Disposable personal income 5,885.2 5,849.9 5.908.9 5.355.7 5,608.3 5,790.5 5,991.4 6,065.6 21 LESS: Personal outlays 5,658.5 5,602.8 5.700.8 5,101.1 5,368.8 5,574.6 5,755.6 5,844.6 22 EQUALS: Personal saving 226.7 247.0 208.2 254.6 239.6 215.9 235.8 221.0 MEMO Per capita (chained 1992 dollars) 23 Gross domestic product 25,615.7 26,085.8 26,834.0 26,597.8 26,765.0 26,897.9 27,073.3 27,378.2 24 Personal consumption expenditures 17,459.2 17,748.7 18,168.9 18.045.2 18,053.9 18,255.7 18,319.6 18,554.9 25 Disposable personal income 18,861.0 19.116.0 19,493.0 19,331.0 19,439.0 19,518.0 19,681.0 19,857.0 26 Saving rate (percent) 4.8 3.9 4.2 3.5 GROSS SAVING 27 Gross saving 1,165.5 1,267.8 1,394.3 1,332.9 1,396.9 1,411.6 1,435.8 1,495.6 28 Gross private saving 1.093.1 1.125.5 1.164.2 1,134.0 1,178.1 1,159.6 1,185.2 1,188.1 29 Personal saving 254.6 239.6 226.7 215.9 247.0 208.2 235.8 221.0 30 Undistributed cotporate profits' 172.4 202.1 219.5 211.5 217.6 230.0 218.9 229.5 31 Corporate inventory valuation adjustment -24.3 -2.5 5.5 3.5 5.9 3.6 9.2 30.1 Capital consumption allowances 32 Corporate 428.9 452.3 475.6 467.4 472.6 478.0 484.5 489.8 33 Noncorporate 224.1 230.5 241.2 238.0 239.7 242.4 244.9 246.5 34 Gross government saving 72.4 142.3 230.1 198.9 218.8 251.9 250.6 307.5 35 Federal -103.6 -39.3 42.8 15.9 34.7 60.8 59.7 119.0 36 Consumption of fixed capital 70.9 71.2 71.6 71.4 71.5 71.6 71.8 71.5 37 Current surplus or deficit (-), national accounts -174.4 -110.5 -28.8 -55.5 -36.8 -10.8 -12.1 47.5 38 State and local 176.0 181.5 187.3 182.9 184.1 191.1 190.9 188.6 39 Consumption of fixed capital 72.9 76.2 79.5 78.2 79.2 79.7 80.8 81.3 40 Current surplus or deficit (-), national accounts 103.1 105.3 107.8 104.7 104.9 111.4 110.1 107.3 41 Gross investment 1,137.2 1,207.9 1J08.3 1,268.6 U23.4 1,308.4 1,332.7 1397.6 42 Gross private domestic investment 1,038.2 1,116.5 1,242.5 1,193.6 1,242.0 1,250.2 1,284.1 1.359.5 43 Gross government investment 213.4 224.3 226.0 223.3 227.4 227.1 226.1 223.2 44 Net foreign investment -114.4 -132.9 -160.2 -148.4 -146.0 -168.9 -177.4 -185.2 45 Statistical discrepancy -2S.2 -59.9 -86.0 1. With inventory valuation and capital consumption adjustments. SOURCE. US Department of Commerce, Sumy of Current Business. 2. With capital consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 International Statistics • September 1998 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data seasonally adjusted except as noted1 1997 1998 [tern credits or debits 1995 Ql Q2 Q3 Q4 Qlp 1 Balance on current account s -115.254 -134.915 -155,215 -36.990 -35,090 -38.094 -45,043 -47,210 2 Merchandise trade balance' -173,729 -191,337 -197,954 -49,723 -49,096 -49.296 -49,839 -55,698 3 Merchandise exports 575,845 611,983 679,325 163,499 169,240 172,302 174,284 171,469 4 Merchandise imports -749.574 -803,320 -877,,279 -213,222 -218,336 -221.598 -224,123 -227,167 5 Military transactions, net 4,769 4,684 6,781 1.542 2,191 1,945 1.103 1,530 6 Other service transactions, net 69,069 78,079 80,967 20,051 20,390 20,246 20,277 19,306 7 Investment income, net 19,275 14,236 -5,318 14 460 -1,544 -4,247 -3.124 8 U.S. government grants -11,170 -15,023 -12,090 -2,241 -2,274 -2.362 -5,213 -2,257 9 U.S. government pensions and other transfers -3,431 -4,442 -4,193 -1,013 -1,055 -1,056 -1,069 -1,071 10 Private remittances and other transfers -20,035 -21,112 -23,408 -5,620 -5,706 -6,027 -6,055 -5,896 11 Change in U.S. government assets other than official reserve assets, net (increase, —) -708 174 -22 -269 436 29 -426 12 Change in U.S. official reserve assets (increase, -) -9,742 6,668 -1,010 4,480 -236 -7.30 -4,524 -444 13 Gold 0 0 0 0 0 0 0 14 Special drawing nghis (SDRs) 370 -350 72 -133 -139 -150 -182 15 Reserve position in International Monetary Fund -2,466 -1,280 -3,575 1,055 54 -463 -4221 -85 16 Foreign currencies -6,468 7,578 2,915 3,353 -157 -128 -153 -177 17 Change in U.S. private assets abroad (increase, —) -317,122 -374,761 -477.666 -149,597 -86,101 -123,023 -118,946 -43,877 18 Bank-reported claims1 -75,108 -91,555 -147.439 -63,698 -26,625 -29,ill -27,539 12.903 19 Nonbank-reported claims -45,286 -86,333 - 120,403 -37,880 -9,825 -24,791 -47,907 20 U.S. purchases of foreign securities, net -100,074 -115,801 -87,981 -15.521 -23,263 -41,167 -8,030 -5,173 21 U.S. direct investments abroad, net -96,654 -81,072 -121,843 -32,498 -26,388 -27,488 -35,470 -30.924 22 Change in foreign official assets in United States (increase, +-) 109,768 127,344 15.817 26,949 -5,411 21,258 -26,979 10,181 23 U.S. Treasury securities 68,977 115,671 -7,270 22.311 -11,689 6,686 -24,578 11,337 24 Other U.S. government obligations 3,735 5,008 4,334 754 827 2,667 86 2,610 25 Other U.S. government liabilities4 -217 -362 -2,521 -587 -523 -1,167 -244 -1,059 26 Other U.S. liabilities reported by U.S. banks3 34,008 5,704 21.928 7.696 5,043 12,439 -3,250 -1,751 27 Other foreign official assets5 3,265 1,323 -654 -3.225 931 633 1,007 -956 28 Change in foreign private assets in United States (increase, +) 355,681 436,013 717,624 154,786 155,184 160,180 247,470 80,712 29 U.S. bank-reported liabilities 30,176 16,478 148,059 17,743 28,067 12,606 89,643 -41,199 30 U.S. nonbank-reported liabilities 59,637 39,404 107,779 28,840 5,274 26,275 47,390 31 Foreign private purchases of U.S. Treasury securities, net 99,548 154,996 146,710 33,363 42,614 35,432 35,301 -1,363 32 Foreign purchases of other U.S. securities, net 96,367 130,151 196,845 45,477 54,258 60.327 36,783 76,656 33 Foreign direct investments in United Slates, net 57,653 77,622 93,449 25.879 20,149 18,964 28,453 25,020 34 Allocation of special drawing rights 0 0 0 0 0 0 0 0 35 Discrepancy -22.742 -59.641 -99,724 394 -28,077 -20,027 -52,007 1,064 36 Due to seasonal adjustment 5.812 685 -10,018 3,528 6,260 37 Before seasonal adjustment -59,641 -99,724 -5,418 -28,762 -10,009 -55.535 -5,196 MEMO Changes in official assets 38 U.S. official reserve assets (increase, -) -9,742 6,668 - 1,010 4,480 -2.36 -730 -4,524 -444 39 Foreign official assets in United States, excluding line 25 (increase, +) 109.985 127,706 18.338 27,536 -4,888 22,425 -26.735 11.240 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line 22) 14,911 10,822 7,103 1,970 3,031 -1.282 1. Seasonal factors are not calculated for lines 12-16, 18-20, 22-34, and 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 slocks and in debt securities of private merchandise Irade dala and are included in line 5. corporations and stale 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 TRADE' Millions of dollars; monthly data seasonally adjusted 1997 1998 Item 1995 1996 1997 Nov. Dec. Jan. Feb. Mar. Apr. Mayp 1 Goods and services, balance -101,857 -111,040 -113,684 -9,600 -10,205 -9.935 -11,720 -13.208 -14,274 -15,745 2 Merchandise -173,560 -191,170 -198,975 -16,605 -16,962 -17,075 -18,120 -20,503 -21,335 -22,803 3 Services 71,703 80,130 85,291 7,005 6,757 7,140 6,400 7.295 7,061 7,058 4 Goods and services, exports 794,610 848,833 931,370 79,088 79,784 79,571 77,684 79,148 77,219 76,230 5 Merchandise 575,871 612,069 678,150 57,482 58,336 57,902 56,350 57,217 55,335 54,357 6 Services 218,739 236,764 253,220 21,606 21,448 21,669 21,334 21,931 21.884 21,873 7 Goods and services, imports -896,467 -959.873 -1,045,054 -88,688 -89,989 -89,506 -89,404 -92,356 -91,493 -91,975 8 Merchandise -749,431 -803,239 -877,125 -74,087 -75,298 -74.977 -74,470 -77,720 -76,670 -77,160 9 Services -147,036 -156,634 -167,929 -14,601 -14,691 -14,529 -14,934 -14,636 -14,823 -14,815 1. Data show monthly values consistent with quarterly figures in the U.S. balance of SOURCE. FT900, U.S. Department of Commerce, Bureau of the Census and Bureau of payments accounts. Economic Analysis. 3.12 US. RESERVE ASSETS Millions of dollars, end of period 1997 1998 Asset 1994 1995 1996 Nov. Dec. Jan. Feb. Mar. Apr. May Junep 1 Total 74,335 85,832 75,090 67,112 69,954 70,003 70,632 69^54 70,328 70,723 71,161 2 Gold stock, including Exchange Stabilization Fund1 11,051 11,050 11,049 11,050 11,050 11.046 11,050 11,050 11,048 11,049 11,047 10,039 11,037 10,312 10,120 10,027 9,998 10,217 10,108 10,188 10,296 10,001 4 Reserve position in International Monetary Fund2 12,030 14,649 15.435 14,571 18,071 18,039 18,135 17,976 18,218 18,957 18,945 5 Foreign currencies4 41,215 49,096 38,294 31,371 30,809 30,920 31,230 30,220 30,874 30,421 31,168 1. Gold held "under earmark" at Federal Reserve Banks for foreign and international SDR holdings and reserve positions in the IMF also have been valued on this basis since July accounts is not included in the gold stock of the United States; see table 3.13, line 3. Gold 1974. stock is valued at $42.22 per fine troy ounce. 3. Includes allocations of SDRs by the International Monetary Fund on Jan. 1 of the year 2. Special drawing rights (SDRs) are valued according lo a technique adopted by the indicated, as follows: 1970—$867 million; 1971—$717 million; 1972—$710 million; 1979— International Monetary Fund (IMF) in July 1974. Values are based on a weighted average of $1,139 million; 1980—$1,152 million; 1981—$1,093 million; plus net transactions in SDRs. exchange rates for the currencies of member countries. From July 1974 through December 4. Valued ai current market exchange rates. 1980, sixteen currencies were used; since January 1981, five currencies have been used. U.S. 3.13 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS1 Millions of dollars, end of period 1997 1998 Asset 1994 1995 1996 Nov. Dec. Jan. Feb. Mar. Apr. May Junep 1 Deposits 250 386 167 167 457 215 243 167 162 156 200 Held in custody 2 U.S. Treasury securities2 441,866 522,170 638,049 635.092 620,885 625,219 621,956 630,602 622,220 622,557 616,569 3 Earmarked gold' 12,033 11,702 11,197 10,793 10,763 10,709 10.705 10,664 10,651 10,641 10,617 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 nonmarketabie 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 • September 1998 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1997' Item 1995 Nov. Dec. Feb.' Mar. Apr. May1 1 Total1 630,918 758,624 793,220 778,538 780,587 780393 790,921 788,265' 788,981 fly type 2 Liabilities reported by banks in the United States . 107,394 113,098 148,096 135,326 140,931 139,739 134,719 144,929 144,518 3 U.S. Treasury bills and certificates3 168,534 198,921 150,102 148,301 145,609 144,324 153,335 138,418 137,652 U.S. Treasury bonds and notes 4 Marketable 293,690 379,497 423,823 423.456 422,267 423,509 429,642 431,158' 432,971 5 Nonmarketable4 6,491 5,968 5,955 5,994 6,033 6,069 6,110 6,149 6,189 6 U.S. securities other than U.S. Treasury securities5 . 54,809 61,140 65,244 65,461 65.747 66,752 67,115 67,611' 67,651 By area 1 Europe1 222,406 257,915 272,705 263,103 261,680 261,133 259,053 268,848' 269,611 8 Canada 19,473 21,295 19,275 18,749 18,339 19.065 20,280 20,254 20,122 9 Latin America and Caribbean 66,721 80,623 94,435 97,616 96,997 99.381 98,028 101,191 102,963 10 Asia 311,016 385,484 391,430 382,423 387,204 385,378 397,283 381,982' 380,381 11 Africa 6,296 7,379 9.542 10,118 10,213 10,518 11,440 11,281 10,574 12 Other countries 5,004 5,926 5.831 6,527 6,152 4,916 4,835 4,707 5,328 1. Includes the Bank for International Settlements. Venezuela, beginning December 1990, 30-year maturity issue; Argentina, beginning April 2. Principally demand deposits, time deposits, bankers acceptances, commercial paper, 1993, 30-year maturity issue. negotiable time certificates of deposit, and borrowings under repurchase agreements. 5. Debt securities of U.S. government corporations and federally sponsored agencies, and 3. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official U.S. corporate stocks and bonds. institutions of foreign countries. SOURCE. Based on U.S. Department of the Treasury data and on data reported to the 4. Excludes notes issued to foreign official nonreserve agencies. Includes current value of department by banks (including Federal Reserve Banks) and securities dealers in the United zero-coupon Treasury bond issues to foreign governments as follows: Mexico, beginning States, and on the 1989 benchmark survey of foreign portfolio investment in the United March 1988, 20-year maturity issue and beginning March 1990, 30-year maturity issue; 3.16 LIABILITIES TO, AND CLAIMS ON, FOREIGNERS Reported by Banks in the United States1 Payable in Foreign Currencies Millions of dollars, end of period 1997 1998 Item 1994 1995 1996 June Sept. Dec' Mar.' 89,258 109,713 103,383 110,224 120,105 117,524 100,054 2 Banks' claims 60,711 74,016 66,018 85,305 91,158 83,038 82,119 19,661 22,696 22,467 28,900 32,154 28,661 28,076 4 Other claims 41,050 51,320 43,551 56.405 59,004 54,377 54,043 5 Claims of banks' domestic customers" 10,878 6,145 10,978 10,251' 10,090' 8,191 7,926 1. Data on claims exclude foreign currencies held by US. monetary authorities. 2. Assets owned by customers of Ihe reporting bank located in the United States that represent claims on foreigners held by reporting banks for the accounts of the domestic customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 Jan. Feb. Mar. Apr. May1 BY HOLDER AND TYPE OF LIABILITY 1 Total, all foreigners 1,099,549 1,162,148 l,283,248r 1,242,826' 1,283,248' 1,267,169' 1,283,616' 1,255,043' 1,270,429' 1,262,304 2 Banks' own liabilities 753,461 758,998 883,238 836,663' 883,238 867,140' 879,659 843,906 861,562' 854,067 3 Demand deposits 24,448 27,034 32,104 35,690 32,104 29.716 29,691 32,588 32.102' 31,200 A Time deposits2 192,558 186,910 198,470' 194,173' 198,470' 187,617' 183,285' 183,109 185,889' 187,638 5 Other3 140,165 143,510 167,713' 181,125' 167,713' 185.049' 189,527' 188.425 204.193' 192,681 6 Own foreign offices'* 396,290 401,544 484,951 425.675' 484,951 464.758' 477,156 439,784 439,378' 442,548 7 Banks' custodial liabilities5 346,088 403,150 400.010' 406,163' 400,010' 400,029 403,957' 411.137' 408,867' 408,237 8 US. Treasury bills and certificates6 197,355 236,874 193,239' 196,388' 193,239' 184,881 186,564 191,571 174,256' 173,872 9 Other negotiable and readily transferable instruments 52,200 72,011 93.604 99,882 93,604 96.945 99,370 96,332 111,366' 107,749 10 Other 96,533 94,265 113.167 109,893 113,167 118,203 118.023' 123,234' 123.245 126,616 11 Nonmonetary international and regional organizations8 11.039 13.972 11,390 12.469 11.390 11,240 16,184' 15,246' 14,793 14,186 12 Banks' own liabilities 10,347 13,355 11,186 12.205 11,186 11.048 15,855' 14,925' 14,377 13,559 13 Demand deposits 21 29 16 43 16 175 74 98 365 229 14 Time deposits 4,656 5,784 5.466 6,310 5,466 5,023 5,316' 5.957' 6,646 7,029 15 Other3 5.670 7,542 5.704 5,852 5,704 5.850 10,465' 8,870' 7.366 6,301 16 Banks' custodial liabilities5 692 617 204 264 204 192 329 321 416 627 17 U.S. Treasury bills and certificates6 350 352 69 46 69 85 149 247 344 359 18 Other negotiable and readily transferable instruments7 341 265 133 133 107 180 72 72 268 19 Other I 0 2 2 0 0 2 0 0 20 Official instituiions9 275,928 312,019 283.627' 298,198' 283,627' 286,540' 284,063' 288,054' 283.347 282,170 21 Banks' own liabilities 83.447 79,406 101,910' 110,288' 101,910' 111.027' 109,959' 104,006' 105,731 106,183 22 Demand deposits 2,098 1,511 2.314 1,891 2.314 1,682 1,910 2,051 2.532 2,052 23 Time deposits2 30.717 33,336 41,420' 40,016' 41.420' 38,726' 37.242' 40,265' 38,865' 37,885 24 Other1 50,632 44,559 58,176 68,381 58,176 70,619 70,807' 61,690' 64.334' 66,246 25 Banks' custodial liabilities5 192,481 232.613 181,717 187,910 181,717 175,513 174,104 184,048 177,616 175,987 26 U.S. Treasury bills and certificates6 168,534 198,921 148.301 150.102 148,301 145,609 144,324 153,335 138,418 137,652 27 Other negotiable and readily transferable instruments 23,603 33.266 33,211 37,374 33,211 29,614 29,643 30.183 38.745 38,010 Other 344 426 205 434 205 290 137 530 453 325 29 Banks10 691,412 694,835 815,963' 765,297' 815.963' 794,648' 799,916 763,349 776,269' 783,041 30 Banks' own liabilities 567,834 562,898 642,223' 595.390' 642,223' 620,410' 623,186 585,083 596,509' 602,167 31 Unaffiliated foreign banks . 171,544 161.354 157.272' 169,715' 157,272' 155,652' 146,030 145,299 157,131 159,619 32 Demand deposits 11,758 13,692 17,527 21,316 17,527 15.974 16,084 18,350 17.152 16,111 33 Time deposits2 103,471 89,765 83.433' 84,121' 83,433' 79.051' 75,255' 70,060 72,703' 74,670 34 Other3 56.315 57.897 56.312' 64,278' 56.312' 60,627' 54,691' 56.889 67.276' 68,838 35 Own foreign offices4 396,290 401,544 484,951 425,675' 484,951 464,758' 477.156 439,784 439,378' 442,548 36 Banks' custodial liabilities 123,578 131,937 171,740 169,907 173,740 174,238 176,730 178,266 179,760' 180,874 37 U.S. Treasury bills and certificates6 15,872 23,106 31,915 32,995 31,915 27,607 30.620 28,499 26,650 26.919 38 Other negotiable and readily transferable instruments 13,035 17,027 35,333 33,826 35,333 35,266 35,107 34,962 37.942' 38,170 39 Other 94,671 91,804 106,492 103,086 106,492 111.365 111,003 114,805 115,168 115,785 40 Other foreigners 121,170 141,322 172,268' 166,862' 172,268' 174,741' 183,453' 188.394' 196,020 182,907 41 Banks' own liabilities 91,833 103,339 127.919 118,780' 127,919 124.655' 130,659 139,892 144,945 132,158 42 Demand deposits 10,571 11,802 12,247 12,440 12,247 11,885 11,623 12,089 12,053' 12,808 43 Time deposits 53,714 58,025 68,151 63,726' 68,151 64,817 65,472 66,827 67,675' 68,054 Other 27,548 33.512 47,521 42,614 47.521 47,953' 53,564 60.976 65.217 51,296 45 Banks' custodial liabilities 29,337 37.983 44.349' 48.082' 44.349' 50.086 52,794' 48,502' 51.075 50.749 46 U.S. Treasury bills and certificates'' 12,599 14,495 12,954' 13,245' 12,954' 11,580 11,471 9,490 8.844' 8,942 47 Other negotiable and readily transferable instruments7 15,221 21,453 24,927 28,465 24,927 31.958 34,440 31,115 34,607' 31,301 Other 1,517 2,035 6,468 6,372 6,468 6,548 6,883' 7,897' 7,624 10,506 MEMO 49 Negotiable time certificates of deposit in custody for foreigners 9,103 14.573 16,553 16.046 17,038 20,791 22,384 22.471' 23.408 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 US. banks, includes amounts owed to own foreign branches and foreign subsidiar- American Development Bank, and the Asian Development Bank. Excludes "holdings of ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory dollars" of the International Monetary Fund. agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists 9. Foreign central banks, foreign central governments, and the Bank for International principally of amounts owed to the head office or parent foreign bank, and to foreign Settlements. branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank. 10. Excludes central banks, which are included in "Official institutions." 5. Financial claims on residents of the United States, other than long-term securities, held by or through reporting banks for foreign customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A54 International Statistics • September 1998 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States'—Continued 1995 1996 Ian. Feb. Apr. May1 AREA 50 Total, all foreigners 1,099,549 1,162,148 1,283,248' 1,242,826" 1,283,248' 1,267,169' 1,283,616' 1,255,043' 1,270,429' 1,262304 51 Foreign countries 1,088,510 1,148,176 l,271,858r 1,230,357' 1,271,858' 1,255,929' 1,267,432' 1,239,797' 1,255,636' 1.248,118 52 Europe 362.819 376,590 420,401' 425.496' 420,401' 401,604' 419,986' 390,718' 406,359' 405,839 53 Austria 3,537 5,128 2,717 2,319 2,717 2,787 2,774 2,375 2,957' 3,012 5 5 4 5 B D e e l n g m iu a m rk and Luxembourg 2 2 4 , , 9 7 2 9 1 2 24 2 , , 0 56 8 5 4 41 1 , . 0 5 0 1 7 4 46 2 , , 2 15 5 7 8 41 1 , , 0 5 0 1 7 4 39 1 , , 0 62 1 5 8 38 1 , , 1 21 7 5 8 33 1 , , 2 09 4 4 4 38 2, , 5 5 8 3 8 0' 35 1 , , 5 44 1 3 8 56 Finland 2,831 1,958 2,246 1,969 2,246 2,177 2,136 1,549 1,768 1,365 57 France 39,218 35,078 46,607 45,653 46,607 44,773 44,990 44,027 48,468 47,869 58 Germany 24,035 24,660 23,737 23,040 23,737 21,988 23,290 20,971 24,895 26,467 59 Greece 2.014 1,835 1,515 1.229 1,515 1,676 1,663 1,988 2,351 2.578 60 Italy 10.868 10,946 11,378 10.713 11,378 9,854 9,804 9,631 10,600 11,127 61 Netherlands 13.745 11,110 7,385 7.010 7,385 6,287 7,043 8,208 8,051 7,265 62 Norway 1,394 1,288 317 1.793 317 955 845 346 514 774 63 Portugal 2.761 3,562 2,262 1,987 2,262 1,515 1,437 1,426 2.279' 2,160 64 Russia 7,948 7,623 7,968 6,938 7,968 5,573 6,118 6,466 5,381 3,952 65 Spain 10,011 17,707 18,989 20,921 18,989 19,413 20,137 16,315 18,071 15,520 66 Sweden 3.246 1.623 1.628 1.614 1,628 1,415 2,055 1,967 1,785 2,197 67 Switzerland 43.625 44,538 39,172' 39.577' 39,172' 37,340 37,157 35,463 32,341 33,893 68 Turkey 4,124 6,738 4,054 4,218 4,054 3,659 4,047 4,154 4,340 4,467 69 United Kingdom 139,183 153,420 181,904 177,781 181,904 176,457 191,181 174,198 172,829' 178,214 70 Yugoslavia" 177 206 239 234 239 292 244 236 246 270 71 Other Europe and other former U.S.S.R. 26.389 22,521 25,762 30,085 25,762 24,800' 25,672' 27,060' 28,365' 27,748 72 Canada 30,468 38,920 28,341 30,921 28,341 29,035 29,470 27,121 27.398 26,081 73 Latin America and Caribbean 440.213 467,529 536,365 501,941' 536,365 532,748' 533,880' 529,404' 552,832' 552,116 74 Argentina 12,235 13,877 20,199 18.358 20,199 19,215 18,278 18,835 17,766 16,938 75 Bahamas 94,991 88,895 112,217 92.390 112,217 117,604' 110,882 109,041 112,510 114,227 76 Bermuda 4,897 5,527 6,911 6.012 6,911 6,279 8,283 8,273 6.657 7.142 77 Brazil 23,797 27,701 31,037 32,614 31,037 31,857 33.026 34,017 36,777 39,513 78 British West Indies 239,083 251,465 276,389 266,191' 276,389 268,034' 273.464' 261,500' 273,565' 277,974 79 Chile 2,826 2,915 4,072 3,283 4,072 4,514 4,450 3,975 4,330' 4,230 80 Colombia 3.659 3,256 3,652 3.341 3,652 3,584 3,904 4,200 4,212 4,383 81 Cuba 8 21 66 57 66 63 58 55 57 59 82 Ecuador 1,314 1,767 2,078 1,704 2,078 1,867 1.997 1,814 1,737 1,783 83 Guatemala 1,276 1.282 1,494 1,361 1,494 1,492 1,382 1,438 1,478 1,353 84 Jamaica 481 628 450 445 450 449 437 431 449 439 85 Mexico 24,560 31,240 33,972 32,678 33,972 33,230 33,611 35,708 37,559 37,981 86 Netherlands Antilles 4,673 6,099 5,085 4.995 5,085 5,777 5,417 11,351 17,569 7,447 87 Panama 4,264 4,099 4.241 4,293 4,241 3,921 4,087 3,958 4,211 4,106 88 Peru 974 834 893 907 893 876 912 878 878 964 89 Uruguay 1,836 1,890 2,382 2,247 2,382 2,201 2,247 2,228 2,097 • 1,991 90 Venezuela 11,808 17,363 21,601 22.111 21,601 22,339 21,887 21,474 20,696 21,600 91 Other 7,531 8,670 9,626 8,954 9,626 9.446' 9,558 10,228 10.284 9,986 92 Asia 240,595 249,083 269.198 254,998' 269,198 274,770' 267,957 275,215 251,423 244,857 China 93 Mainland 33,750 30.438 18,252 17,433 18.252 20,153 18,575 20,743 20.122' 20,209 94 Taiwan 11,714 15,995 11,760 13,586 11,760 12,936 12,942 13,619 13,776' 12,648 95 Hong Kong 20,197 18,789 17,722 18,886 17,722 18,002 17,797 17,825 19,762' 18,105 96 India 3,373 3,930 4,567 4,913 4,567 5,331 5,265 5,586 4,813 4.882 97 Indonesia 2,708 2,298 3,554 3.092 3,554 2,909 2,989 4,015 4,266 3,197 98 Israel 4,041 6,051 6,281 3,743' 6,281 7,190 7,197 7,589 7,348 6,251 99 Japan 109.193 117,316 143,401 133,690 143,401 138.686' 140,426 137,700 113.283' 111,623 100 Korea (South) 5,749 5.949 12.959 9.982 12,959 12,171' 12.530 11,233 13,71 lr 14.058 101 Philippines 3.092 3,378 3,250 2,558 3,250 2,530 2,872 3,009 2,870 2,802 102 Thailand 12,279 10,912 6,501 5,824 6,501 5,858 4,676 9,073 7,928 8,882 103 Middle Eastern oil-exporting countries13 15,582 16,285 14,959 14,017 14,959 16,059 14,146 14,613 14,771' 12,928 104 Other 18.917 17.742 25,992 27.274 25,992 32,945 26,736 28,606 26,449 26,904 105 Africa 7,641 8,116 10,347 9,520 10,347 10,291 9,670 11,385 11,160 10,965 106 Egypt 2,136 2,012 1.663 1.836 1,663 1,949 1.670 1,449 1,236 1,460 107 Morocco 104 112 138 69 138 131 73 88 131 115 108 South Africa 739 458 2,158 1,615 2,158 1,685 1,825 2,547 2,556 2,465 109 Zaire 10 10 10 5 10 7 4 10 3 5 110 Oil-exporting countries14 1,797 2,626 3,060 2,948 3,060 3,470 2,959 3,515 3.622 3,411 111 Other 2.855 3,318 3.047 3,318 3,049 2,619 3,016 2.902 2,841 112 Other 6,774 7,938 7,206 7,481 7,206 7,481 6,469 5,954 6,464 8,260 113 Australia ... 5,647 6.479 6,304 6,283 6,304 6,385 5.466 4,989 5,450 7,416 114 Other .... 1,127 1,459 902 1.198 902 1,096 1,003 965 1,014 844 115 Nonmonetary international and regional organizations 11,039 13,972 11,390 12,469 11,390 11,240 16,184' 15,246' 14,793 14,186 116 International15 9.300 12,099 10,217 10.926 10,217 10,016 14,591' 14,331' 13.330 12,509 117 Latin American regional16 893 1,339 424 1.053 424 975 1,217 536 762 830 118 Other regional17 846 534 749 490 749 249 376 379 701 847 11. Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 15. Principally the International Bank for Reconstruction and Development. Excludes 12. Includes the Bank for International Settlements. Since December 1992, has "holdings of dollars" of the International Monetary Fund. included all parts of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia. 16. Principally the Inter-American Development Bank. 13. Comprises Bahrain. Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab 17. Asian, African, Middle Eastern, and European regional organizations, except the Bank Emirates (Trucial States) for Internalional 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 States' Payable in U.S. Dollars Millions of dollars, end of period Area or country Nov. Dec. Jan. Feb. Apr. May1 1 Total, all foreigners 532,444 599,925 708,233 699,132r 708,233 703,190' 703,984r 687,643r 701,385 705,697 2 Foreign countries 530,513 597,321 705,770 696,646' 705,770 700,273' 701,229' 684,695' 698,092 703,305 3 Europe 132.150 165,769 199,880 215,077 199,880 204,763 212,307' 205,525 208,502 209,910 4 Austria 565 1,662 1,354 2,034 1,354 1,917 1,934 1,566 1,827 2,132 5 Belgium and Luxembourg 7.624 6,727 6,641 7,475 6,641 5,714 6,021 6,145 5,527 6,123 6 Denmark 403 492 980 844 980 1,531 907 895 968 1.286 7 Finland 1,055 971 1,233 1,259 1,233 1.492 1,554 1,686 1,018 931 8 France 15.033 15,246 16,239 19,817 16,239 21,474 18,963 18,206 17,383 16,482 9 Germany 9,263 8,472 12,676 13.245 12,676 10,849 10,752 13,047 16,731 15,104 10 Greece 469 568 402 401 402 504 504 503 442 428 11 Italy 5,370 6,457 6,230 6,871 6,230 6.655 5,974 6,601 6,938 6,538 12 Netherlands 5.346 7,117 6,141 11,496 6,141 5.384 5,447 6,618 5.851 3,975 13 Norway 665 808 555 2,080 555 989 1,296 850 662 736 14 Portugal 888 418 777 695 777 655 533 589 935 1,496 15 Russia 660 1,669 1,248 2,207 1,248 1,297 1,143 1,115 1,133 1,117 16 Spain 2.166 3,211 2,942 6,339 2,942 6.926 6,255 5.778 7,458 6,218 17 Sweden 2,080 1,739 1,854 1,804 1,854 1,736 2,184 2,798 2,975 3,181 18 Switzerland 7,474 19,798 28,846 29,399 28,846 28,515 29,006 31,306 25,069 29,319 19 Turkey 803 1,109 1,558 1,572 1,558 1.648 1,675 1,914 2,324 2,386 20 United Kingdom 67,784 85,234 103,143 100,870 103,143 99,302 110,357' 97,588 103,275 104,404 21 Yugoslavia2 147 115 52 74 52 53 53 61 59 19 22 Other Europe and other former US.S.R.3 4.355 3,956 7,009 6,595 7,009 8,122 7.749' 8,259 7,927 8.035 23 Canada 20,874 26,436 27.176 24,765 27,176 25.155 24,872 29,827 25,785 24,961 24 Latin America and Caribbean 256,944 274,153 343,820 317,522' 343,820 345.787 345,643' 338,909' 354,302 361,765 25 Argentina 6,439 7,400 8,924 8,761 8,924 9,076 9,402 8,726 8.540 8,224 26 Bahamas 58,818 71,871 89,379 72,739 89,379 90,823 84,982 77,585' 82.711 78,083 27 Bermuda 5,741 4,129 8,782 6,552 8,782 9,385 8,917 8,997 9,462 8,894 28 Brazil 13,297 17,259 21,696 20,390 21,696 22.541 23,987 25,283 26,033 25,971 29 British West Indies 124,037 105,510 145,471 141.801 145,471 145,935 149,520' 147,910 159,649 168,131 30 Chile 4,864 5,136 7,913 7,783 7,913 7,910 8,249 8,171 8,444 8,482 31 Colombia 4,550 6,247 6,945 6.976 6,945 6,733 6,729 6,783 6,772 7,208 32 Cuba 0 0 0 3 0 0 0 0 0 0 33 Ecuador 825 1.031 1.311 1,292 1,311 1,390 1.398 1,476 1,522 1.501 34 Guatemala 457 620 886 787 886 863 868 904 955 955 35 Jamaica 323 345 424 405 424 410 401 364 373 385 36 Mexico 18,024 18,425 19,518 18,904 19,518 20,515 21,107 20,680 20,913 21,220 37 Netherlands Antilles 9,229 25,209 17,838 17,064 17,838 16,026 15,594 17,618 14,073 17.352 38 Panama 3,008 2,786 4,364 4,089 4,364 4,074 4,232 4,108 4,422 4,422 39 Peru 1,829 2.720 3,491 3,457 3,491 3,413 3,550 3,538 3,644 3,793 40 Uruguay 466 589 629 651 629 588 594 920 773 807 41 Venezuela 1,661 1,702 2,129 1,921 2,129 2,257 2,334 2,169 2,194 2,375 42 Other 3,376 3,174 4,120 3.947' 4,120 3,848 3,779 3,677 3,822 3,962 43 Asia 115,336 122,478 125,024 129.783' 125,024 114,457' 109,041' 101,351' 99,185 96,952 China 44 Mainland 1,023 1,401 1,579 2,102 1,579 2,534 1,988 2,762 2,965 2,990 45 Taiwan 1,713 1,894 921 1,000 921 847 820 740 895 667 46 Hong Kong 12.821 12,802 13,990 15,151 13,990 14,569' 13,520' 12,628' 10,162 12,884 47 India 1,846 1,946 2,200 2,501 2,200 2,299 2,172 1.927 1,807 1,912 48 Indonesia 1,696 1,762 2,634 2,797' 2,634 2,361 2,266 2,289 2,212 2,100 49 Israel 739 633 768 1,201 768 946 987 812 874 907 50 Japan 61,468 59,967 59,540 60,195 59,540 52,904 51,891 46.660 44,970 42,071 51 Korea (South) 13,975 18,901 18,123 19,258 18,123 14,450' 12,812' 11,520 10,852 12,062 52 Philippines 1,318 1,697 1,689 1,533 1,689 1,794 1,645 1,813 1,561 1,614 53 Thailand 2,612 2,679 2,259 2,180 2,259 2,164 2,138 2,144 1,971 1,906 54 Middle Eastern oil-exporting countries4 9,639 10,424 10,790 8,909 10,790 9,133 9,101 8,921 11,028 9,338 55 Other 6,486 8,372 10,531 12,956 10,531 10.456 9,701 9,135 9,888 8,501 56 Africa 2.742 2,776 3.530 3,332 3,530 3.580 3,403 3,567 3,337 3,693 57 Egypt 210 247 247 282 247 279 304 289 294 281 58 Morocco 514 524 511 412 511 498 514 518 483 490 59 South Africa 465 584 805 743 805 694 573 559 490 859 60 Zaire 1 0 0 0 0 0 0 0 0 0 61 Oil-exporting countriess 552 420 1,212 1,091 1,212 1,324 1,219 1.364 1.194 1,078 62 Other 1,000 1,001 755 804 755 785 793 837 876 985 63 Other 2,467 5,709 6.340 6,167 6,340 6,531 5,963 5,516 6.981 6,024 64 Australia 1,622 4,577 5.299 4,962 5.299 5,419 5,139 5,011 6,513 5,704 65 Other 845 1,132 1.041 1,205 1,041 1,112 824 505 468 320 66 Nonmonetary international and regional organizations6 . . 2.604 2,463 2,486 2,463 2,948 2.392 1. Reporting banks include all types of depository institutions as well as some brokers and 4. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab dealers. Emirates (Trucial States). 2 Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 5. Comprises Algeria, Gabon, Libya, and Nigeria. 3. Includes the Bank for International Settlements. Since December 1992, has included all 6. Excludes the Bank for International Settlements, which is included in "Other Europe." parts of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A56 International Statistics • September 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 Nov. Dec' Jan.' Feb.' Mar.' Apr. Mayp 1 Total 655^11 743,919 852,860r 852,860 842,456 2 Banks' claims 532,444 599,925 708,233 699,132' 708,233 703.190 703.984 687.643 701,385 705,697 3 Foreign public borrowers 22,518 22,216 20,660 27,739 20,660 30,195 27,041 28,226 32,463 28.999 4 Own foreign offices 307,427 341.574 431,685 409,314 431,685 415,708 421,733 402,387 411,584 416,759 5 Unaffiliated foreign banks 101,595 113,682 109,224 122,350 109,224 111,015 106,600 107,802 104,426 105.362 6 Deposits 37,771 33.826 31,042 33,962' 31,042 30,768 26,559 25,657 24,324 21.282 7 Other 63,824 79,856 78,182 88,388' 78,182 80,247 80,041 82,145 80,102 84,080 8 All other foreigners 100,904 122.453 146,664 139,729' 146,664 146,272 148.610 149,228 152,912 154,577 9 Claims of banks' domestic customers1 122,767 143,994 144.627' 144,627 154,813 58,519 77.657 73.110 73,110 85,406 11 Negotiable and readily transferable 44,161 51.207 53,967 53,967 51,594 12 Outstanding collections and other claims 20,087 15.130 17,550' 17,550 17,813 MEMO 13 Customer liability on acceptances 8,410 10.388 9.624 9,624 7,496 14 Dollar deposits in banks abroad, reported by nonbanlring business enterprises in the 30,717 39,661 34,046 37,541 34.046 35,831 36,615 31,958 31,633 32,384 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 1998 Maturity, by borrower and area Sept. 1 Total 202,282 224,932 258,106 272,029r 281,0OOr 276,558 285,516 Bv borrower 2 Maturity of one year or less 170,411 178,857 211,859 210,897' 217.981' 205,859 214,832 3 Foreign public borrowers . . . 15,435 14,995 15,411 17,979 20,123 12,134 16,944 4 All other foreigners 154.976 163,862 196.448 192,918' 197,858' 193,725 197,888 5 Maturity of more than one year 31,871 46.075 46,247 61,132 63.019 70,699 70,684 6 Foreign public borrowers . . . 7,838 7,522 6,790 11,406 8.752 8,525 11,312 7 All other foreigners 24,033 38.553 39,457 49,726 54,267 62,174 59.372 By area Maturity of one year or less 8 Europe 56,381 55.622 55,690 69,233 69.204 58.294 69.245 9 Canada 6,690 6.751 8,339 10,381 8,460 9,917 9.304 10 Latin America and Caribbean 59.583 72,504 103,254 87.065' 99,929' 97.277 101,012 11 Asia 40,567 40,296 38,078 38,444' 34,650' 33,972 28,748 12 Africa 1.379 1,295 1,316 1,899 2,157 2,211 2,239 13 All other1 5,811 2,389 5,182 3,875 3.581 4,188 4,284 Maturity of more than one year 14 F.urope 4,358 4,995 6,965 11,884 11,202 13,240 15,118 15 Canada 3,505 2,751 2,645 3,174 3,842 2.512 2,752 16 Latin America and Caribbean 15.717 27,681 24,943 31,001 34,988 42,069 39,338 17 Asia 5,323 7,941 9,392 12,509 10,393 10,159 10,729 18 Africa 1,583 1,421 1,361 1,264 1,236 1,236 1,243 19 All other1 1,385 1,286 941 1,300 1,358 1,483 1,504 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 1996 Area or country Sept. June Sept. 1 Total. .. 499.5 551.9 574.7 612.8 586.2 645.3 688.4 718.7 747.8 764.9 2 G-IO countries and Switzerland .. . 191.2 206.0 203.4 226.9 220.0 228.3 255.9 274.0 268.4 261.6 .1 Belgium and Luxembourg 7.2 13.6 11.0 11.4 11.3 11.7 15.2 10.8 12.5 11.5 4 France 19.1 19.4 17.9 18.0 17.4 16.6 21.5 19.3 21.6 17.6 5 Germany 24.7 27.3 31.5 31.4 33.9 29.8 34.0 35.1 37.3 32.4 6 Italy 11.8 11.5 13.2 14.9 15.2 16.0 16.4 23.1 22.4 17.5 7 Netherlands 3.6 3.7 3.1 4.7 5.9 4.0 4.6 7.1 7.7 6.7 8 Sweden 2.7 2.7 3.3 2.7 3.0 2.6 3.4 3.6 4.1 3.3 9 Switzerland 5.1 6.7 5.2 6.3 6.3 5.3 6.1 5.5 4.9 7.2 10 United Kingdom 85.8 82.4 84.7 101.6 90.5 104.7 112.7 119.9 115.9 119.9 11 Canada 10.0 I0..1 10.8 12.2 14.8 14.0 17.0 17.5 15.8 14.0 12 Japan 21.1 28.5 22.7 23.6 21.7 23.7 25.1 32.1 26.2 31.6 13 Other industrialized countries . 45.7 50.2 61.3 55.5 62.1 65.7 67.4 72.7 74.7 65.5 14 Austria 1.1 .9 1.3 1.2 1.0 1.1 2.0 1.6 1.8 1.5 15 Denmark 1.3 2.6 3.4 3.3 1.7 1.5 1.7 2.8 3.7 2.4 16 Finland .9 .8 .7 .6 .6 .8 .7 1.4 1.9 1.3 17 Greece 4.5 5.7 5.6 5.6 6.1 6.7 6.3 6.1 6.2 5.1 18 Norway 2.0 3.2 2.1 2.3 3.0 8.0 5.3 4.7 4.6 3.6 19 Portugal 1.2 1.3 1.6 1.6 1.4 .9 1.0 1.2 1.4 1.1 20 Spain 13.6 11.6 17.5 13.6 16.1 13.2 15.0 16.2 14.6 12.3 21 Turkey 1.6 1.9 2.0 2.3 2.8 2.7 2.8 3.4 4.4 4.5 22 Other Western Europe 3.2 4.7 3.8 3.4 4.8 4.7 6.3 5.5 6.1 8.2 23 South Africa 1.0 1.2 1.7 2.0 1.7 2.0 1.9 1.9 1.9 2.2 24 Australia 15.4 16.4 21.7 19.6 22.8 24.0 24.5 27.8 28.1 23.2 25 OPECZ 24.1 22.1 21.2 20.1 19.2 19.7 22.1 22.5 23.2 26.3 26 Ecuador .5 .7 .8 .9 .9 1.1 1.1 1.0 1.3 1.3 27 Venezuela 3.7 2.7 2.9 2.3 2.3 2.4 2.0 2.1 2.3 2.6 28 Indonesia 3.8 4.8 4.7 4.9 5.4 5.2 5.0 5.7 6.6 6.8 29 Middle East countries 15.3 13.3 12.3 11.5 10.2 10.7 13.3 12.6 11.8 14.4 30 African couniries .9 .6 .6 .5 .4 .4 .7 1.2 1.2 31 Non-OPEC developing countries . 96.0 112.6 118.6 126.5 124.4 130.3 131.9 141.4 143.7 Lalin America Argentina 11.2 12.9 12.7 14.1 15.0 14.3 14.9 16.9 17.5 18.8 Brazil 8.4 13.7 18.3 21.7 17.8 20.7 22.7 28.3 27.4 29.9 Chile 6.1 6.8 6.4 6.7 6.6 7.0 7.1 7.9 8.3 9.2 Colombia 2.6 2.9 29 2.8 3.1 4.1 3.9 3.6 3.6 37 Mexico 18.4 17.3 16.1 15.4 16.3 16.2 17.9 17.4 17.1 18.3 Peru .5 .9 1.2 1.3 1.6 1.7 1.6 2.0 2.1 Other 2.7 3.1 3.0 3.0 3.3 3.6 3.7 3.8 4.3 Asia China 39 Mainland .. . I.I 1.8 3.3 2.9 2.6 2.5 2.7 3.6 4.3 40 Taiwan 9.2 9.4 9.7 9.8 10.4 10.3 10.5 10.6 9.7 9.0 41 India 4.2 4.4 4.7 4.2 3.8 4.3 4.9 5.3 5.0 5.0 42 Israel .4 .5 .5 .6 .5 .5 1.0 1.1 1.5 1.2 43 Korea (South) . 16.2 19.1 19.3 21.7 21.9 21.5 14.9 16.6 16.5 15.9 44 Malaysia 3.1 4.4 5.2 5.3 5.5 6.0 6.5 6.4 5.6 5.1 45 Philippines 3.3 4.1 3.9 4.7 5.4 5.8 6.1 7.0 5.7 5.7 46 Thailand 2.1 4.9 5.2 5.4 4.8 5.7 6.8 7.3 6.2 5.4 47 Other Asia 4.7 4.5 4.3 4.8 4.1 4.1 4.4 4.8 4.6 4.4 Africa Egypt .4 .6 .7 .9 1.1 .9 Morocco .7 .7 .7 .6 .7 .7 Zaire .0 .0 .1 .0 .0 .0 Other Africa3.. .9 1.0 .9 .9 .9 .9 52 Eastern Europe. 4.2 6.3 5.1 5.3 6.9 9.0 7.2 9.9 9.2 53 Russia4 1.0 1.4 1.0 1.8 3.7 3.6 4.2 5.1 5.1 54 Other 3.2 4.9 4.1 3.5 3.2 5.4 3.0 4.7 4.0 55 Offshore banking centers 72.9 99.2 101.3 106.1 105.2 134.7 142.5 140.0 149.6 159.4 56 Bahamas 10.2 11.0 13.9 17.3 14.2 20.3 21.1 17.2 20.5 31.1 57 Bermuda 8.4 6.3 5.3 4.1 4.0 4.5 6.7 7.9 9.8 9.8 58 Cayman Islands and other British West Indies . :i.4 32.4 28.8 26.1 32.0 37.2 41.2 43.1 52.1 51.5 6 5 0 9 P N a e n th am er a la 5 nds Antilles 1 1 . . 6 3 10 1. . 4 3 il 1 l .6 13 1. . 7 2 11 1 . . 7 7 26 2 . . 1 0 2 2 0 . . 2 0 1 2 5 . . 7 9 21 2 . . 8 3 14 3 . . 7 4 61 Lebanon .1 .1 .1 .1 .1 .1 .1 .1 I .1 62 Hong Kong, China 20.0 25.0 25.3 27.6 26.0 27.9 30.9 35.2 27.3 32.3 63 Singapore 10.1 13.1 15.4 15.9 15.5 16.7 20.3 17.7 15.9 16.7 6 6 4 5 Mi O sc th e e ll r a * n . e . o u . s and unallocated7 66. . 9 1 57. . 6 1 62. . 6 1 72. . 7 1 50. . 0 1 59.6 I 57. . 6 3 80. . 8 1 99. . 1 1 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, Nigeria, Qatar, Saudi Arabia, and United include U.S. agencies and branches of foreign banks. Beginning March 1994, the data include Arab Emirates); and Bahrain and Oman (not formally members of OPEC). large foreign subsidiaries of U.S. banks. The data also include other types of US. 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 Ihe 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 (he same banking institution. 6. Foreign branch claims only. These data are on a gross claims basis and do not necessarily reflect the ultimate country 7. Includes New Zealand, Liberia, and international and regional organizations. risk or exposure of U.S. banks. More complete data on the country risk exposure of U.S. banks are available in the quarterly Country Exposure Lending Survey published by the Federal Financial Institutions Examination Council. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A58 International Statistics • September 1998 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1998 Type of liability, and area or country Sept. 1 Total 54,309 46,448 54,798 54,798 58,667 55,341 58,295 55,260 2 Payable in dollars 38,298 33,903 38,956 38,956 39,861 38,651 39.746 41,888 40,919 3 Payable in foreign currencies 16,011 12,545 15,842 15,842 18.806 16,690 15,893 16,407 14,341 By Type 4 Financial liabilities 32,954 24.241 26.065 26.065 29.633 27.103 26,209 27,790 25.172 5 Payable in dollars 18,818 12,903 11.327 11,327 11,847 11.442 11,487 12,975 12,135 6 Payable in foreign currencies 14,136 11.338 14.738 14,738 17,786 15.661 14,722 14,815 13,037 7 Commercial liabilities 21,355 22.207 28.733 28.733 29,034 28,238 29.430 30,505 30,088 8 Trade payables 10,005 11,013 12,720 12,720 11,432 11,040 10.885 10,904 10,204 9 Advance receipts and other liabilities . .. 11,350 11,194 16,013 16,013 17,602 17,198 18.545 19.601 19,884 10 Payable in dollars 19,480 21,000 27.629 27,629 28,014 27,209 28,259 28.913 28,784 11 Payable in foreign currencies 1,875 1,207 1,104 1,104 1,020 1,029 1,171 1.592 1,304 By area or country Financial liabilities 12 Europe 21,703 15.622 16,195 16,195 20,081 18,530 18,019 19.121 17,596 13 Belgium and Luxembourg 495 369 632 632 769 238 89 186 127 14 France 1,727 999 1,091 1,091 1,205 1.280 1,334 1,684 1.325 15 Germany 1,961 1,974 1,834 1,834 1,589 1,765 1,730 2.018 1,636 16 Netherlands 552 466 556 556 507 466 507 494 472 17 Switzerland 688 895 699 699 694 591 645 776 345 18 United Kingdom 15,543 10,138 10,177 10,177 13,863 12,968 12,165 12.201 11,846 19 Canada 629 632 1,401 1,401 602 456 399 1,186 20 Latin America and Caribbean 2,034 1.783 1,668 1,668 1,876 1,285 1,067 1,386 965 21 Bahamas 101 59 236 236 293 124 10 141 17 22 Bermuda 80 147 50 50 27 55 64 229 86 23 Brazil 207 57 78 78 75 97 52 143 91 24 British West Indies 998 866 1.030 1,030 965 775 669 604 517 25 Mexico 0 12 17 17 16 15 76 26 21 26 Venezuela 5 2 1 1 1 1 1 27 Asia 8,403 5,988 6,423 6,423 6,370 6,248 6,239 5,394 5,024 28 Japan 7.314 5,436 5,869 5,869 5,794 5,668 5.725 5,085 4,767 29 Middle Eastern oil-exporting countries1 35 27 25 25 72 39 23 32 23 30 Africa 135 150 38 38 29 29 33 60 33 123 122 0 0 0 0 0 0 0 31 Oil-exporting countries2 340 675 32 All other1 Commercial liabilities 6,773 7,700 9,767 9,767 9,524 8,683 9.343 10,228 9.957 33 Europe 241 331 479 479 639 736 703 666 565 34 Belgium and Luxembourg 728 481 680 680 679 708 782 764 840 35 France 604 767 1,002 1,002 1,043 845 945 1,274 1,069 36 Germany 722 500 766 766 551 288 452 439 444 37 Netherlands 327 413 624 624 480 429 400 375 408 38 Switzerland 2,444 3,568 4,303 4,303 4,158 3.818 3.829 4,043 39 United Kingdom 40 Canada 1,037 1,040 1,090 1.090 1,068 1,136 1.150 1,175 1.348 41 Latin America and Caribbean 1,857 1,740 2,574 2.574 2,562 2,500 2,224 2,176 2,136 42 Bahamas 19 1 63 63 43 33 38 16 27 43 Bermuda 345 205 297 297 479 397 180 203 174 44 Brazil 161 98 196 196 200 225 233 220 249 45 British West Indies 23 56 14 14 14 26 23 12 5 46 Mexico 574 416 665 665 633 594 562 565 520 47 Venezuela 276 221 328 328 318 304 322 261 219 48 Asia 10,741 10,421 13.422 13,422 13,915 1.3,875 14,628 14,966 14.678 49 Japan 4,555 3,315 4,614 4,614 4.465 4,430 4.553 4,500 4.374 50 Middle Eastern oil-exporting countries' 1.576 1.912 2.168 2,168 2,495 2,420 2,984 3,111 3.138 51 Africa 428 619 1,040 1,040 1,037 941 929 874 833 52 Oil-exporting countries2 256 254 532 532 479 423 504 408 376 53 Other3 687 1,103 1.156 1,086 1.136 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 Mar. Sept. Dec. Mar.p 57,888 52,509 63,642 68,102 68,266 70,760 70,077 73,473 2 Payable in dollars 53.805 48,711 58,630 58,630 62,126 62,082 64,144 62,173 66,010 3 Payable in foreign currencies 4,083 3,798 5,012 5,012 5,976 6.184 6,616 7,904 7,463 By type 4 Financial claims 33,897 27,398 35,268 35,268 40,547 40,717 42,059 38,908 42,123 5 Deposits 18,507 15.133 21,404 21,404 22,150 24,106 23,951 23,139 21,019 6 Payable in dollars 18,026 14,654 20,631 20,631 20,499 22,615 22,392 21,290 19,322 7 Payable in foreign currencies 481 479 773 773 1,651 1,491 1,559 1,849 1,697 8 Other financial claims 15.390 12,265 13,864 13,864 18,397 16,611 18,108 15,769 21,104 9 Payable in dollars 14,306 10,976 12,069 12,069 15,381 13,354 14,795 11,576 16,814 10 Payable in foreign currencies 1,084 1,289 1,795 1,795 3,016 3,257 3,313 4,193 4,290 11 Commercial claims 23,991 25,111 28.374 28,374 27,555 27.549 28,701 31.169 31.350 12 Trade receivables 21,158 22,998 25.751 25.751 24,801 24,858 25,110 27,536 27,535 13 Advance payments and other claims . 2,833 2,113 2.623 2,623 2.754 2,691 3.591 3,633 3,815 14 Payable in dollars 21,473 23,081 25.930 25,930 26,246 26,113 26,957 29,307 29,874 15 Payable in foreign currencies 2.518 2,030 2,444 2,444 1,309 1,436 1,744 1,862 1,476 By area or country Financial claims Europe 7.936 7.609 9,282 9,282 13.076 12,904 15.862 16,948 16,009 Belgium and Luxembourg . 86 193 185 185 119 203 360 406 378 France 800 803 694 694 760 680 1,112 1.015 902 Germany 540 436 276 276 324 281 352 427 391 Netherlands 429 517 493 493 567 519 764 677 911 Switzerland 523 498 474 474 570 447 448 434 401 United Kingdom 4.649 4,303 6,119 6,119 9.837 9,814 11,254 12.286 11,113 3,581 2.851 3,445 3,445 4,917 6,422 4,279 3,313 4,688 24 Latin America and Caribbean 19.536 14,500 19,577 19,577 19,742 18.725 19,176 15,543 18,207 25 Bahamas 2.424 1,965 1.452 1,452 1,894 2,064 2,442 2,459 1.316 26 Bermuda 27 81 140 140 157 188 190 108 66 27 Brazil 520 830 1,468 1,468 1,404 1,617 1,501 1,313 1.408 28 British West Indies 15,228 10,393 15,182 15,182 15,176 13,553 12,957 10.311 13.551 29 Mexico 723 554 457 457 517 497 508 537 967 30 Venezuela 35 32 31 31 22 21 15 36 47 31 Asia 1,871 1,579 2,221 2,221 2,068 1,934 2.015 2.133 2,174 32 Japan 953 871 1,035 1,035 831 766 999 823 791 33 Middle Eastern oil-exporting countries' 141 3 22 22 12 20 15 9 34 Africa 373 Tib 174 174 182 179 174 319 325 35 Oil-exporting countries2 0 5 14 14 14 15 16 15 16 36 All other1 569 562 553 553 652 720 Commercial claims 37 Europe 9,540 9.824 10,443 10,443 9,863 9,603 10,486 12,120 12,945 38 Belgium and Luxembourg 213 231 226 226 364 327 331 328 2.12 39 France 1,881 1,830 1,644 1,644 1,514 1,377 1,642 1,796 1,939 40 Germany 1,027 1,070 1,337 1,337 1,364 1,229 1.395 1,614 1,670 41 Netherlands 311 452 562 562 582 613 573 597 534 42 Switzerland 557 520 642 642 418 389 381 554 475 43 United Kingdom 2,556 2.656 2.946 2,946 2,626 2,836 2.904 3,660 4,834 44 Canada 1.988 1,951 2,165 2,165 2,381 2,464 2,649 2,660 3.036 45 Latin America and Caribbean 4,117 4,364 5,276 5,276 5.067 5,241 5.028 5,750 5,888 46 Bahamas 9 30 35 35 40 29 22 27 13 47 Bermuda 234 272 275 275 159 197 128 244 238 48 Brazil 612 898 1.303 1,303 1,216 1,136 1.101 1,162 1,411 49 British West Indies 83 79 190 190 127 98 98 109 88 50 Mexico 1,243 993 1.128 1,128 1,102 1,140 1,219 1,392 1.302 51 Venezuela 348 285 357 357 330 451 418 576 441 52 Asia 6.982 7,312 8,376 8,376 8,348 8,460 8,576 8,713 7,634 53 Jappan ., 2.655 1,870 2.003 2,003 2,065 2,079 2,048 1,976 1,712 54 Middle Eastern oil-exporting countries' 708 974 971 971 1.078 1,014 987 1,107 987 55 Africa 454 654 746 746 718 618 764 680 614 56 Oil-exporting countries 67 87 166 166 100 81 207 119 123 57 Other3 1,006 1,368 1,368 1.178 1,163 1,246 1,233 1. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab 2. Comprises Algeria, Gabon, Libya, and Nigeria. Emirates (Trucial States). 3 Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A60 International Statistics • September 1998 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1997' Transaction, and area or country 1996 1997' J M an a . y - Feb.1 Apr. Mayp U.S. corporate securities STOCKS 1 Foreign purchases 590,714 961.423 552,317 84,730 90,699 89,801 99.011 124,729 120,907 117,869 578,203 895,365 510,648 79,833 85,341 83.507 88,995 111,958 116,649 109,539 2 Foreign sales 12,5U 66,058 41,669 4,897 5,358 6,294 10,016 12,771 4,258 8330 3 Net purchases, or sales (-> 12485 66,215 41,756 4,905 5,392 6,346 10,006 12,775 4,279 8350 4 Foreign countries 5.367 59,167 43,830 5,302 5,889 6,664 9,617 10,499 6,219 10,831 5 Europe -2,402 3,135 3,285 -65 299 664 492 831 449 849 1 1 1 1 1 1 1 6 7 8 9 2 3 4 5 6 0 1 A M L O C a f a t i J h r G S F N t U n d i i a e w r c n a d e e n p a r a d r l t i i a n e h m A t t a A n e z c e m d e a e B s r r n l i a e l a a K y a s r n n t i i d 1 c n d s a g d a o n m d Caribbean .. . -1 4 2 2 5 - 1 1 , 3 . , . . - 6 , , 7 4 8 9 2 1 4 8 7 0 0 1 1 1 7 1 2 5 2 0 8 4 5 5 6 8 6 - 2 1 4 2 9 3 7 5 2 , , . , , , , , 4 8 4 7 0 4 8 2 0 3 1 3 7 5 6 8 4 7 6 0 4 1 4 2 9 6 8 8 4 6 - - 1 2 2 5 2 6 - - 4 1 , , , , , , , 6 4 5 8 8 0 2 9 9 3 0 9 3 8 5 3 2 1 7 0 1 9 3 5 4 7 5 8 9 0 - - 1 1, , 4 6 - 7 8 5 8 9 0 4 2 3 0 7 3 8 0 4 1 8 7 5 8 9 4 7 3 2 6 -1 - 1 1 1 , , , . 3 4 5 7 2 4 0 2 3 5 0 2 8 2 7 7 7 1 5 7 8 1 8 4 5 5 8 - - 2 1 2 2 - - , , , , 1 2 6 5 6 6 1 7 6 6 5 9 3 1 8 4 1 9 4 6 4 3 4 3 3 6 2 7 6 4 - 2 - - - 1 . . , 4 2 6 9 7 1 5 1 1 6 7 6 4 6 8 7 3 4 1 1 3 7 4 8 3 2 0 3 3 -1 3 2 - - 1 , , . , 2 1 6 5 4 5 1 4 9 0 7 2 5 2 6 8 1 5 0 1 0 7 7 2 6 3 0 6 6 -3 1 1 , , , 9 5 6 5 3 1 1 4 5 5 7 8 4 9 5 6 5 2 6 5 4 9 7 4 5 1 3 8 3 -1 2 2 1 - - - - , , 2 . 5 2 6 3 , 2 2 8 9 5 0 0 3 3 1 3 7 3 6 3 8 7 7 3 0 4 5 4 4 0 17 Other countries -57 342 -539 -190 -45 115 -129 -112 -344 -69 18 Nonmonetary international and regional organizations .... -157 -34 -52 19 Foreign purchases 393,953 610,118 336,211 52,222 52.164 57.548 67,418 70,079 75,872 65,294 268,487 475,959 249,405 48.793 43.174 44.394 49,991 50,208 52,229 52,583 20 Foreign sales 21 Net purchases, or sales (-) . 125,466 134,159 86,806 3,429 8,990 13,154 17,427 19,871 23,643 12,711 22 Foreign countries 125,295 133,596 86,378 3,517 8,979 13,122 17,358 19,732 23,513 12,653 2 2 2 2 2 22 3 4 5 6 7 89 E C u a F N G U S r n o r w a e n e a p d r t i i n e h t m a t e c z e d e a e r n r la l K y a n n i d n d s gdom 7 6 4 4 4 7 0 2 1 , , , , , , , 5 4 5 4 4 1 17 7 0 0 6 8 3 0 0 9 7 0 6 9 7 54 1 3 2 3 6 , , . , , , 1 6 2 3 7 5 1 3 3 6 0 4 7 8 4 1 2 0 4 6 7 4 3 9 8 2 2 2 1 1 , , , , , , . 8 9 5 0 9 1 0 7 5 1 8 7 8 5 1 1 5 9 6 2 0 - 1, 5 4 7 5 1 1 9 3 5 4 1 8 6 6 5 9 6 2 5 5 4 4 - 2, , - 4 4 6 7 7 2 6 7 2 7 5 3 5 7 4 5 7 1 3 7 4 5 - 1 , , , 4 2 7 1 4 4 3 7 8 6 7 0 2 3 4 9 0 2 9 5 6 8 , , 2 4 2 1 1 1 2 7 1 6 9 9 1 5 2 9 6 4 9 4 3 1 9 2 . , 4 7 2 3 3 8 6 0 2 5 6 4 3 6 0 7 8 4 9 9 3 1 1 3 8 1 , , , 3 5 7 7 7 4 6 3 7 2 2 6 3 3 3 2 0 7 2 9 4 5 - , , 1 - 1 6 5 7 0 1 3 1 2 9 3 8 7 3 5 9 4 2 5 30 Latind America and Caribbean 17,737 34.734 24,696 3,884 7,220 5,339 5,512 4,835 2,257 6,753 31 Middle East' 1.679 2.155 1,598 199 142 78 820 522 69 109 32 Other Asia 23,762 16.996 6,270 -3.193 -3,531 485 2.428 1.166 2,078 113 33 Japan 14,173 9.357 4,253 -2.883 -3,763 -958 886 742 2,904 679 34 Africa 624 1,005 120 88 49 142 36 -72 45 -31 35 Other countries -563 811 908 116 165 244 195 212 262 -5 36 Nonmonetary international and regional organizations . . . 171 69 Foreign securities 37 Stocks, net purchases, or sales (—) -59,268 -40,931 -5,983 1,727 1,435 83 -1,205 -1,643 -159 -3,059 38 Foreign purchases 450,365 755,842 375,183 73.510 70,435 63,573 68,782 81,297 80,591 80,940 39 Foreign sales 509,633 796,773 381,166 71 783 69.000 63.490 69,987 82,940 80,750 83,999 40 Bonds, net purchases, or sales (—) -51,369 -45,917 -14,505 -4,167 -3,099 -3.539 -2,691 2.797 -9,629 -1,443 41 Foreign purchases 1,114,035 1,490,498 557,994 113.491 117,165 97.927 102.429 132.740 117.121 107,777 42 Foreign sales 572.499 117.658 120.264 101,466 105.120 129,943 126,750 109,220 1,165.404 1,536,415 43 Net purchases, or sales (-), of stocks and bonds . . . -20,488 -2,440 -1,664 -3,456 -3,896 1,154 -9,788 -4,502 -110,637 -86,848 44 Foreign countries -20,533 -2,392 -1.578 -3367 -3,854 1,182 -9,824 -4,«70 -109,766 -86,764 45 Europe -27,898 -3,901 -2.483 823 -4,009 -1.816 4.841 -40 -2,877 46 Canada -57,139 -2,890 -1,791 528 -51 987 600 -1,561 -481 -1,336 47 Latin America and Caribbean -7.685 -25,264 -4,762 -2,210 -2,943 834 512 569 -5,817 -860 48 Asia -11,507 -25,131 -8,967 1,700 876 -1.109 -3,099 -2,598 -2,779 618 49 Japan -27,831 -10,001 -1,298 2,270 1,887 -414 -1,831 -1,732 2,019 660 50 Africa -5,887 -3,293 -830 -381 -74 -115 -151 -169 -305 -90 51 Other countries -1,517 ~2,288 -282 454 -209 45 100 100 -402 -125 -4,087 52 Nonmonetary international and regional organizations -84 -48 -86 -89 -42 -28 36 168 I. 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 1998 Area or country 1996 1997' Jan.- Jan. Apr Mayp May 1 Total estimated 232,241 184,171 38,943 15,909 -9,398 5,512 9,957 -4,091 6,078 21,487 2 Foreign countries 234,083 183,688 37,899 15,489 -7,788 4.990 10,091 -5.287 6,769 21.336 3 Europe 118,781 144,921 31,474 10,158 -37 18.215 6.798 -857 6,530 788 4 Belgium and Luxembourg 1,429 3,427 1,271 384 161 304 252 704 -165 176 5 Germany 17,980 22,471 936 5,255 3,052 -1,085 1,096 1.897 -829 -143 6 Netherlands -582 1,746 -1,651 375 -1,525 403 -792 -1,733 130 341 7 Sweden 2,242 -465 34 -67 -124 82 -430 400 -202 184 8 Switzerland 328 6,028 3,840 1,395 2,847 2,419 1.690 170 -483 44 9 United Kingdom 65,658 98,253 17.114 5.640 -1,792 11,879 5,875 -3,705 5,785 -2,720 10 Other Europe and former U.S.S.R 31,726 13,461 9.930 -2 824 -2,656 4,213 -893 1.410 2,294 2,906 11 Canada 2,331 -811 982 730 -2,132 266 -517 1,457 -223 12 Latin America and Caribbean 20,785 -2,554 2,174 6,512 3,737 -3,619 2,123 -8.383 -7,981 20.034 13 Venezuela -69 655 -352 397 -36 4 97 -128 14 -339 14 Other Latin America and Caribbean 8,439 -549 3,683 -723 2,485 1,711 2,949 -11 -632 -334 15 Netherlands Antilles 12,415 -2.660 -1,157 6,838 1,288 -5,334 -923 -8.244 -7,363 20,707 16 Asia 89,735 39,567 5,753 -1.002 -10,359 -8,757 1,348 3,522 7,966 1,674 17 Japan 41.366 20,360 2,214 -4,784 -7,860 -6,484 764 -168 6,301 1,801 18 Africa 1,083 1,524 282 -82 268 -43 176 154 -18 13 19 Other 1,368 1,041 -2.766 -827 735 -805 -620 794 -1,185 -950 20 Nonmonetary international and regional organizations -1,842 483 1,044 420 -1,610 522 -134 1,196 -691 151 21 Internationa] -1.390 621 543 451 -1.025 445 -223 900 -715 136 22 Latin American regional -779 170 -24 -131 32 -29 10 -4 -1 MEMO 23 Foreign countries 234,083 183,688 37,899 15,489 -7,788 4,990 10,091 -5,287 6,769 21,336 24 Official institutions 85,807 43,959 9,515 1,831 -367 -1,189 1,242 6,133' 1,516 1,813 25 Other foreign 148,276 139,729 28,384 13,658 -7,421 6.179 8,849 -11,420' 5,253 19,523 Oil-exporting countries 26 Middle East! 10,232 7,636 -106 3,175 -1,506 -2,411 409 1,325 -380 951 27 Africa' 1 -12 1 0 0 1 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 July 31, 1998 Rate on July 31, 1998 Country Country Percent e M ffe o c n ti t v h e Percent e M ffe o c n ti t v h e Austria 2.5 Apr. 1996 Germany 2.5 Apr. 1996 Belgium 2.75 Oct. 1997 Italy 50 Apr. 1998 Canada 5.0 Jan. 1998 Japan .5 Sept. 1995 Denmark 3.75 May 1998 Netherlands 2.5 Apr. 1996 France2 3.3 Oct. 1997 Switzerland 1.0 Sepl. 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 1998 Type or country 1995 1996 1997 Jan. Feb. Mar. Apr. May June July 5.93 5.38 5.61 5.53 5.53 5.56 5.56 5.57 5.57 5.57 2 United Kingdom 6.63 5.99 6.81 7.49 7.46 7.47 7.41 7.37 7.61 7.67 3 Canada 7.14 4.49 3.59 4.68 5.02 4.93 4.94 5.09 5.10 5.10 4.43 3.21 3.24 3.51 3.45 3.44 3.56 3.55 3.49 3.46 2.94 1.92 1.58 1.27 .98 1.06 1.39 1.52 1.81 1.98 4 30 291 3 25 3 42 3 36 3.42 3.52 3.53 3.51 3.46 7 France 6.43 3.81 3.35 3.50 3.45 3.45 3.50 3.50 3.47 3.44 8 Italy 10 43 8 79 6 86 6 05 6 12 5 59 5 09 4.98 4 99 4.75 473 3.19 3.40 3.47 3.53 3.61 3.69 3.67 3.62 3.59 1.20 .58 .58 .77 .84 .74 .66 .56 .57 .67 1. Rales 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 • September 1998 3.28 FOREIGN EXCHANGE RATES' Currency units per dollar except as noted Country/currency unit Apr. May July 1 Australia/dollar2 74.073 78.283 74.368 67.436 66.963 65.231 63.124 60.456 61.802 2 Austria/schilling 10.076 10.589 12.206 12.735 12.852 12.760 12.491 12.615 12.650 3 Belgium/franc 29.472 30.970 35.807 37.417 37.699 37.424 36.624 36.981 37.074 4 Canada/dollar 1.3725 1.3638 1.3849 1.4334 1.4166 1.4298 1.4452 1.4655 1.4869 5 China, PR./yuan 8.3700 8.3389 8.3193 8.3072 8.3076 8.3058 8.3084 8.3100 8.3100 6 Denmark/krone 5.5999 5.8003 6.6092 6.9089 6.9661 6.9174 6.7662 6.8294 6.8499 7 Finland/markka 4.3763 4.5948 5.1956 5.4999 5.5467 5.5053 5.3966 5.4503 5.4653 8 France/franc 4.9864 5.1158 5.8393 6.0744 6.1257 6.0782 5.9528 6.0118 6.0280 9 German y/deutsche mark. 1.4321 1.5049 1.7348 1.8123 1.8272 1.8132 1.7753 1.7928 1.7976 10 Greece/drachma 231.68 240.82 273.28 286.70 306.05 315.82 307.22 304.24 299.35 11 Hong Kong/dollar 7.7357 7.7345 7.7431 7.7412 7.7458 7.7497 7.7490 7.7471 7.7483 12 India/rupee 32.418 35.506 36.365 39.008 39.569 39.703 40.469 42.367 42.612 13 Ireland/pound2 160.35 159.95 151.63 137.71 136.72 138.94 141.74 140.51 139.88 14 Italy/lira 1,629.45 1,542.76 1,703.81 1,788.28 1,799.07 1,791.24 1,750.79 1,766.32 1,772.42 15 Japan/yen 93.96 108.78 12106 125.85 129.08 131.75 134.90 140.33 140.79 16 Malaysia/ringgit 2.5073 2.5154 2.8173 3.8148 3.7456 3.7376 3.8204 4.0006 4.1591 17 Netherlands/guilder 1.6044 1.6863 1.9525 2.0432 2.0598 2.0422 2.0005 2.0208 2.0267 18 New Zealand/dollar2.. .. 65.625 68.765 66.247 58.286 57.261 55.339 53.876 51.231 51.847 19 Norway/krone 6.3355 6.4594 7.0857 7.5530 7.5833 7.5315 7.4539 7.5785 7.6246 20 Portugal/esc udo 149.88 154.28 175.44 185.54 187.03 185.81 181.87 183.58 183.93 21 Singapore/dollar 1.4171 1.4100 1.4857 1.6509 1.6188 1.6007 1.6374 1.6941 1.7085 22 South Africa/rand 3.6284 4.3011 4.6072 4.9337 4.9746 5.0459 5.0927 5.3910 6.2285 23 South Korea/won 772.69 805.00 950.77 1,628.42 1,489.36 1,391.55 1,399.05 1,397.77 1,295.76 24 Spain/peseta 124.64 126.68 146.53 153.61 154.95 153.99 150.81 152.18 152.58 25 Sri Lanka/rupee 51.047 S5.289 59.026 62.363 62.083 62.903 64.261 65.150 65.908 26 Sweden/krona 7.1406 6.7082 7.6446 8.0723 7.9677 7.8238 7.7026 7.9174 7.9942 27 Switzerland/franc 1.1812 1.2361 1.4514 1.4631 1.4901 1.5051 1.4790 1.4949 1.5136 28 Taiwan/dollar 26.495 27.468 28.775 32.948 32.524 33.016 33.466 34.553 34.387 29 Thailand/baht 24.921 25.359 31.072 45.987 41.366 39.654 39.198 42.332 41.300 30 United Kingdom/pound 157.85 156.07 163.76 164.08 166.19 167.23 163.82 165.04 164.37 MEMO 31 Uniied Stales/dollar3 96.38 99.93 100.47 100.30 99.61 100.90 101.38 1. Averages of certified noon buying rates in New York for cable transfers. Data in this 3. Index of weighted-average exchange value of US, dollar against the currencies of ten table also appear in the Board's G.5 (405) monthly statistical release. For ordering address, industrial countries. The weight for each of the ten countries is the 1972-76 average world see inside front cover. trade of that country divided by the average world trade of all ten countries combined. Series 2. Value in U.S. cents. revised as of August 1978 (see Federal Reserve Bulletin, vol. 64 (August 1978), p, 700). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A63 Guide to Statistical Releases and Special Tables STATISTICAL RELEASES—List Published Semiannually, with Latest Bulletin Reference Issue Page Anticipated schedule of release dates for periodic releases June 1998 A72 SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference Title and Date Issue Page Assets and liabilities of commercial banks June 30, 1997 '. November 1997 A64 September 30, 1997 February 1998 A64 December 31, 1997 May 1998 A64 March 31, 1998 August 1998 A64 Terms of lending at commercial banks August 1997 November 1997 A68 November 1997 February 1998 A68 February 1998 May 1998 A66 May 1998 August 1998 A67 Assets and liabilities of U.S. branches and agencies of foreign banks June 30, 1997 November 1997 A72 September 30, 1997 February 1998 A72 December31, 1997 May 1998 A70 March 31, 1998 August 1998 A72 Pro forma balance sheet and income statements for priced service operations June 30, 1997 October 1997 A68 September 30, 1997 January 1998 A64 March 31, 1998 July 1998 A64 Residential lending reported under the Home Mortgage Disclosure Act 1995 September 1996 A68 1996 September 1997 A68 1997 September 1998 A68 Disposition of applications for private mortgage insurance 1996 September 1997 A76 1997 September 1998 A72 Small loans to businesses and farms 1997 September 1998 A76 Community development lending reported under the Community Reinvestment Act 1997 " September 1998 A79 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A64 Special Tables • September 1998 4.34 RESIDENTIAL LENDING ACTIVITY OF FINANCIAL INSTITUTIONS COVERED BY HMDA, 1985-97 Number Item 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1 Loans or applications (millions)2 1.98 2.83 3.42 3.39 3.13 6.59 7.89 12.01 15.38 12.19 11.23 14.81 16.41 2 Reporting institutions 8,072 8,898 9,431 9,319 9,203 9,332 9,358 9,073 9,650 9.858 9,539 9.328 7,925 3 Disclosure reports 12,567 12,329 13,033 13,919 14,154 24,041 25,934 28,782 35,976 38,750 36.611 42,946 47,416 1. Before 1990, includes only home purchase, home refinancing, and home improvement 2. Revised from preliminary data published in Glenn B. Canner and Dolores S. Smith, loans originated by covered institutions; beginning in 1990 (first year under revised reporting "Home Mortgage Disclosure Act: Expanded Data on Residential Lending," Federal Reserve system), includes such loans originated and purchased, applications approved but not ac- Bulletin, vol. 77 (November 1991), p. 861. to reflect corrections and the reporting of cepted by the applicant, applications denied or withdrawn, and applications closed because additional data. information was incomplete. SOURCE. FFIEC, Home Mortgage Disclosure Act. 4.35 APPLICATIONS FOR HOME LOANS REPORTED UNDER HMDA, 1997 By Type of Dwelling, Purpose of Loan, and Loan Program Thousands One- to four-family dwellings Multifamily Loan program All dwellings Home purchase Home refinancing Home improvement All 1 FHA 887.3 168.3 259.0 1,314.6 .5 1,315.1 2 VA 251.9 78.7 * 331.1 331.1 3 FmHA 25.2 2.7 3.2 31.2 31.2 4 Conventional 5,584.4 5,135.3 1,894.1 12,613.8 38.9 12,652.7 5 Total 6,748.8 5,385.1 2,156.8 14,290.7 39.5 14,330.1 •Fewer than 500. SOURCE. FFIEC, Home Mortgage Disclosure Act. 1. Multifamily dwellings are those for five or more families. 4.36 HOME LOANS ORIGINATED BY LENDERS REPORTED UNDER HMDA, 1997 By Type of Dwelling, Purpose of Loan, and Type of Lender Percent One- to four-family dwellings Type of lender Home purchase Multifamily All ref H in o an m c e ing imp H ro o v m em e ent All dwellings FHA-insured VA- FmHA- Conventional All guaranteed insured 1 Commercial bank 8.3 10.0 14.2 24.6 20.9 27.8 61.4 28.8 48.7 28.8 2 Savings association . .. 7.7 8.3 6.2 20.0 17.2 14.5 7.6 15.0 35.4 15.0 3 Credit union .2 2.5 .2 2.1 1.8 3.4 11.8 3.7 .5 3.7 4 Mortgage company2 . . . 83.8 79.3 79.4 53.3 60.2 54.2 19.1 52.6 15.4 52.5 5 Total 100 100 100 100 100 100 100 100 100 100 MEMO Distribution of loans 5 Number 703,367 194,887 19,484 3,037,366 3,955,104 2,789,364 1,026,240 7,770,708 26,419 7,797,127 7 Percent 9.0 2.5 2 39.0 50.7 35.8 13.2 99.7 .3 100.0 *Less than 0.05 percent. 2. Comprises all covered mortgage companies, including those affiliated with a commer- 1. Multifamily dwellings are those for five or more families. cial bank, savings association, or credit union. SOURCE. FFIEC, Home Mortgage Disclosure Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Home Mortgage Disclosure A65 4.37 APPLICATIONS FOR LOANS FOR ONE- TO FOUR-FAMILY HOMES REPORTED UNDER HMDA, 1997 By Purpose of Loan and Characteristics of Applicant and Census Tract Home purchase Home refinancing Home improvement Government-backed Conventional Characteristic MEMO MEMO Percentage of Percentage of Number Percent characteristic's Number Percent characteristic's Number Percent Number Percent home purchase home purchase loans loans APPLICANT Racial/ethnic identity 1 American Indian or Alaskan Native . .. 4,961 .4 10.9 40,448 .8 89.1 17,967 .5 8,836 .6 2 Asian or Pacific 19,275 1.7 11.6 146.290 2.8 88.4 97,863 2.5 23,643 1.5 3 Black 163,223 14.7 26.1 461,438 8.8 73.9 380,768 9.7 174,153 11.4 157,293 14.1 34.0 305,829 5.9 66.0 206,998 5.3 142,716 9.3 5 White 724,621 65.1 15.0 4,120,221 78.9 85.0 3,048,561 77.8 1,126,516 73.5 6 Other 8,023 .7 15.3 44,321 .8 84.7 90,780 2.3 30,769 2.0 7 All 35,144 3.2 25.5 102,696 2.0 74.5 74,138 1.9 25,757 1.7 8 Total 1.112,540 100.0 17.6 5,221,243 100.0 82.4 3,917,075 100.0 1332^90 100.0 Income (percentage of MSA median)1 9 Less than 50 110,978 11.2 21.0 418,194 10.9 79.0 460,907 11.3 274,683 15.6 10 50-79 332,511 33.5 29.3 804,155 20.9 70.7 870,649 21.4 401.519 22.8 11 80-99 208,675 21.0 28.5 524,057 13.6 71.5 599,518 14.8 266,427 15.1 12 100-119 141,258 14.2 23.8 451,711 11.7 76.2 518.399 12.8 221.688 12.6 13 120 pr more 198,800 20.0 10.7 1,654,771 42.9 89.3 1,612,058 39.7 595.534 33.8 14 Total 992,222 100.0 20.5 3,852,888 100.0 79.5 4,061,531 1O0.O 1,759,851 100.0 CENSUS TRACT Racial/ethnic compostion (minorities as percentage of population) 15 Less than 10 374,043 37,8 15.9 1,973,673 50.6 84.1 2,099,580 48.6 757,917 44.1 16 10-19 223,258 22.6 20.6 859,528 22.0 79.4 809,103 18.7 312,928 18.2 17 20-49 249,274 25.2 26.0 709,345 18.2 74.0 748,923 17.3 320,405 18.6 18 50-79 81,661 8.3 26.8 222,770 5.7 73.2 310,589 7.2 144,307 8.4 19 80-100 61 569 62 31 3 134 879 35 68 7 348 865 8 1 183 337 10 7 20 Total 989,805 100.0 20.2 3,900,195 100.0 79.8 4,317,060 100.0 1,718,894 100.0 Income' 21 Low 22,503 2.2 24.3 70,213 I.S 75.7 149,058 3.5 76,110 4.3 22 Moderate 163,582 16.3 25.2 484,305 12.4 74.8 663,825 15.4 326,022 18.6 21 Middle 574,138 57.3 22.8 1,948,314 49.9 77.2 2,215,296 51.3 912,269 52.0 24 Upper 242,239 24.2 14.8 1,398,913 35.9 85 2 1,292,333 29.9 438.680 25.0 25 Tolill 1,002,462 100.0 20.4 3,901,745 100.0 79.6 4320412 100.0 1,753,081 100.0 Location 4 26 Central city 458,445 45.2 22.9 1,542,713 38.8 77.1 1,777,710 40.5 792.018 44.4 27 Non-central city 556.111 54.8 18.6 2,428,868 61.2 81.4 2,610,154 59.5 993.062 55.6 28 Total 1,014,556 100.0 20.3 3,971,581 100.0 79.7 4,387,864 100.0 1,785,080 100.0 NOTE. Lenders reported 13,009,405 applications for home loans in 1996. Not all character- median family income for the MSA in which the trad is located. Categories are defined as istics were reported for all applications; thus the number of applications being distributed by follows: Low income, median family income for census tract less than 50 percent of median characteristic varies by characteristic. family income for MSA; Moderate income, median family income for census tract at least 50 1. Loans backed by the Federal Housing Administration, the Department of Veterans and less than 80 percent of MSA median; Middle income, median family income at least 80 Affairs, or the Farmers Home Administration. percent and less than 120 percent of MSA median; Upper income, median family income 120 2. Median family income of the metropolitan statistical area (MSA) in which the property percent and greater of MSA median. related to the loan is located. 4. For census tracts located in MSAs. 3. Census tracts are categorized by the median family income for the tract relative to the SOURCE. FFIEC, Home Mortgage Disclosure Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 Special Tables • September 1998 4.38 APPLICATIONS FOR LOANS FOR ONE- TO FOUR-FAMILY HOMES REPORTED UNDER HMDA, 1997 By Purpose of Loan, with Denial Rate, and by Characteristic of Applicant Home purchase Home refinancing Home improvement Applicant Government-backed2 Conventional characteristic' Distribution Denial rate Distribution Denial rate Distribution Denial rate Distribution Denial rate American Indian or Alaskan Native 1 One male 34.00 13.50 30.20 53.00 28.50 25.70 32.70 37.40 2 Two males 1.50 13.30 1.40 53.90 2,70 15.50 1.90 22.20 3 One female 25.80 10.80 27 40 53.80 23,90 25.20 28.60 41.50 4 Two females 1.80 10.00 2.30 59.20 1,60 27.70 1.30 51.30 5 One male and one female 36.80 9.90 38.70 49.40 43,30 22.70 35.50 32.30 6 Total3 100.00 11.40 100.00 51.90 100.00 24.10 100.00 36.80 Asian or Pacific Islander 22.60 10.10 20.10 15.60 16,70 21.80 24.80 37.10 8 Two males 4.00 10.20 2.40 15.40 1.50 20.30 1.40 29.20 15.90 10.00 15.00 15.20 14.50 21.10 17.70 36.40 10 Two females 2.90 9.20 1.60 15.10 1.30 19.20 1.00 34.70 11 One male and one female 54.70 9.10 60.90 11.00 66,00 17.70 55.10 27.50 12 Total3 100.00 9.60 100.00 12.70 100.00 18.90 100.00 31.60 Black 27.50 13.90 27.70 53.00 24,80 28.00 27.00 44.30 14 Two males 1.30 10.70 .90 55.70 .70 25.50 .50 42.50 15 One female 34.70 13.40 37.30 56.60 32.70 27.40 37.10 44.30 3.00 14.70 3.00 61.30 1.80 25.70 1.80 46.10 17 One male and one female 33.40 15.00 31.10 48.00 39.90 26.20 33.60 38.50 18 Total5 100.00 14.10 100.00 53.00 100.00 27.00 100.00 42.40 Hispanic 19 One male 24.10 9.80 30.30 42.70 21.00 27.40 31.80 44.60 20 Two males 6.50 9.30 2.60 37.20 1,80 22.70 1.30 45.00 21 One female . 13.10 9.50 17.60 40.20 16,60 25.20 21.80 46.20 22 Two females 2.40 10.20 1.80 39.90 1.40 25.70 1.10 45.20 53 90 9 40 47 80 33 70 59 20 24 10 44 00 39 00 24 Total3 100.00 9.50 100.00 37.80 100.00 25.00 100.00 42.50 While 25 One male 25.20 8.30 23.60 32.40 19,50 20.00 22.30 28.20 26 Two males 1.50 7.70 1.20 26.50 ,80 16.80 .70 27.80 27 One female 16.90 7.40 17.70 32.00 14.70 18.20 18.10 28.00 28 Two females 1.30 8.00 1.10 34.10 ,80 18.10 .90 30.00 29 One male and one female 55.00 7.60 56.30 20.90 64.20 14.80 58.00 20.90 30 Total3 100.00 7.70 100.00 25.80 100.00 16.40 100.00 23.90 All 31 One male 25.40 9.50 24.30 35.10 20.10 21.50 23.90 32.60 32 Two males 2.30 8.80 1.30 29.30 .90 18.30 .70 32.00 33 One female 19.10 9.30 19.50 36.60 16,70 20.50 20.70 33.50 1.70 10.30 1.40 39.60 ,90 20.40 1.00 35.20 35 One male and one female 51.50 8.60 53.50 22.90 61.40 16.20 53.60 23.80 36 Total3 . . 100.00 9.00 100.00 28.80 100.00 18.00 100.00 28.10 1. Applicants are categorized by race of first applicant listed on Loan Application Register, 3. Includes all applicants from racial or ethnic group regardless of whether gender was except for joint white and minority applications, which are not shown in this table. reported. 2. Loans backed by the Federal Housing Administration, the Department of Veterans SOURCE. FFIEC, Home Mortgage Disclosure Act. Affairs, or the Farmers Home Administration. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Home Mortgage Disclosure A67 4.39 APPLICATIONS FOR HOME LOANS REPORTED UNDER HMDA, 1997 By Loan Program and Size of Dwelling Percent One- to four-family dwellings Type of loan Home purchase Home refinancing program Approved Approved Approved Approved and but not Denied Withdrawn File closed Total and but not Denied Withdrawn File closed Total accepted accepted accepted accepted 1 FHA 79.3 2.0 9.0 8.3 1.5 100 63.3 5.7 14.7 11.4 5.0 100 2 VA 77.4 1.9 9.8 9.5 1.3 100 72.1 3.7 6.0 13.7 4.5 100 3 FmHA 77.2 1.1 13.5 7.1 1.0 100 40.6 .4 55.9 2.8 .3 100 4 Conventional 54.4 9.8 28.6 6.0 1.2 100 51.1 10.1 24.2 11.6 3.0 100 5 All 58.6 8.4 25.3 6.5 1.2 100 51.8 9.9 23.6 11.6 3.1 100 One- to four-family dwellings Multifamily dwellings1 Home improvement Approved Approved Approved Approved and but not Denied Withdrawn File closed Total and but not Denied Withdrawn File closed Total accepted accepted accepted accepted 1 FHA 22.8 11.6 47.6 13.4 4.6 100 80.0 3.6 6.0 8.0 2.4 100 2 VA 32.5 2.0 38.6 26.6 .2 100 82.6 8.7 8.7 100 3 FmHA 64.5 .1 35.1 .3 * 100 55.3 * 2.6 39.5 2.6 100 4 Conventional 50.9 11.0 32.6 47 .7 100 66.8 6.4 15.5 9.2 2.1 100 5 All 47.6 11.0 34.4 5.8 1.2 100 67.0 6.4 15.4 9.2 2.1 100 NOTE. Loans approved and accepted were approved by the lender and accepted by the *Less than 0.05 percent. applicant. Loans approved but not accepted were approved by the lender but not accepted by 1. Multifamily dwellings are those for five or more families. the applicant. Applications denied were denied by the lender, and applications withdrawn SOURCE. FFIEC, Home Mortgage Disclosure Act. were withdrawn by the applicant. When an application was left incomplete by the applicant, the lender reported file closed and took no further action. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A68 Special Tables • September 1998 4.40 APPLICATIONS FOR ONE- TO FOUR-FAMILY HOME LOANS REPORTED UNDER HMDA, 1997 By Disposition of Loan and Characteristics of Applicant and Census Tract A. Home Purchase Loans Percent Government-backed ' Conventional Characteristic Approved Denied Withdrawn File closed Total Approved Denied Withdrawn File closed Total APPLICANT Racial or ethnic identity 1 American Indian or Alaskan Native .... 76.1 11.4 10.4 2.1 100 42.2 51.9 5.2 .7 100 2 Asian or Pacific Islander . 80.0 9.6 9.1 1.4 100 77.3 12.7 8.3 1.7 100 3 Black 73.9 14.1 9.9 2.1 100 40.4 53.0 5.2 1.3 100 4 Hispanic 79.4 9.5 9.3 1.7 100 54.3 37.8 6.5 1.4 100 5 White 83.9 7.7 7.2 1.1 100 67.9 25.8 5.4 .9 100 6 Other 77.3 1)1 10.1 1.5 100 67.2 22.5 8.5 1.8 100 7 Joint2 81 7 9.4 7.7 1.2 100 68.8 23.6 6.5 1.1 100 Income ratio (percentage of MSA median)3 8 Less than 50 74.9 14.1 9.2 1.8 100 46.4 47.6 4.8 1.3 100 9 American Indian or Alaskan Native . . 70.5 18.7 9.4 1.4 100 38.2 55.1 5.2 1.6 100 10 Asian or Pacific Islander 76.0 14.1 8.3 1.6 100 65.4 23.5 8.4 2.7 100 11 Black 70.5 17.2 10.1 2.2 100 36.9 57.2 4.5 1.5 100 12 Hispanic 77.4 12.3 8.5 1.8 100 45.7 48.1 4.9 1.3 100 13 White 78.3 12.4 7.8 1.6 100 48.8 46.3 4.1 .9 100 14 Other 71.1 17.0 9.8 2.1 100 53.0 38.3 6.7 2.0 100 15 Joint2 70.1 17.6 9.9 2.4 100 46.5 45.7 6.0 1.7 100 16 50-79 82.7 8.9 7.3 1.1 100 61.8 31.5 5.5 1.2 100 17 American Indian or Alaskan Native 80.7 10.0 7.2 2.1 100 50.9 43.2 4.9 1.1 100 18 Asian or Pacific Islander 82.5 9.1 7.4 1.0 100 76.9 14.3 7.2 1.6 100 19 Black 76.9 12.8 8.7 1.7 100 46.8 45.6 5.9 1.7 100 20 Hispanic 82.1 9.1 7.5 1.2 100 55.4 37.6 5.7 1.2 100 21 White 85.5 7.3 6.3 .9 100 65.0 29.4 4.8 .8 100 22 Other 81.6 9.3 7.6 1.4 100 66.6 24 4 7.2 1 8 100 23 Joint2 80.7 10 9 1A L0 100 58.5 35.1 5.5 .8 100 24 80-119 85.0 7.3 6.8 .9 100 72.9 19.6 6.3 1.3 100 25 American Indian or Alaskan Native .. 82.1 7.4 9.4 1.1 100 59.3 32.4 7.1 1.2 100 26 Asian or Pacific Islander 83.1 7.6 8.3 1.0 100 79.9 10.9 7.6 1.6 100 27 Black 79.0 11.5 8 1 1.4 100 55.8 34.7 7.4 2.1 100 28 Hispanic 82.7 8.4 7^8 II 100 63.0 28.6 7.0 1.5 100 29 White 87.6 5.9 5 8 .8 100 75.9 17.6 5.5 1.0 100 30 Other 583 6^8 5^6 ^6 100 28.7 7.1 3^2 .6 100 31 Joint2 84.5 7.9 6 7 9 100 71.9 21.1 6.1 1.0 100 32 120 or more 84.4 6.9 7.5 1.2 100 81.9 10.1 6.7 1.3 100 33 American Indian or Alaskan Native 79.9 8.1 10.1 1.9 100 71.6 17.4 9.4 1.6 100 34 Asian or Pacific Islander 81.3 9.9 7.5 1.3 100 81.0 9.9 7.6 1.5 100 35 Black 79.1 11.0 8 4 1.5 100 67.6 21.7 8.5 2.2 100 36 Hispanic 79.7 7.5 10 5 2.3 100 71.7 17.9 8.6 1.9 100 37 White 87^6 55 6^0 .8 100 84^2 8.8 ia L0 100 38 Other 76 7 11 4 10 4 1.5 100 76.7 12.7 8.7 1.9 100 39 Joint2 86.1 6 9 6 2 .8 100 81 5 10.5 6.8 1.2 100 CENSUS TRACT Racial or ethnic composition (minorities as percentage of population) 40 Less than 10 85.2 7.1 6.7 1.0 100 76.1 16.9 5.9 1.1 100 41 10-19 83.6 8.1 7.2 1.2 100 71.7 20.3 6.7 1.3 100 42 20-49 814 9.4 8.0 1.3 100 65.2 26.2 7.1 1.5 100 43 50-79 78.1 II.1 9.3 1.5 100 60.3 30.0 7.9 1.8 100 44 80-100 74.1 12.7 11.1 2.1 100 54.5 33.7 9.2 2.6 100 Income 45 Low 72.8 13.3 11.5 2.4 100 54.3 34.1 9.3 2.3 100 46 Moderate 79.3 10.6 8.6 1.6 100 59.1 32.7 6.7 1.5 100 47 Middle 83.3 8.3 7.3 1.2 100 69.2 23.4 6.2 1.3 100 48 Upper 83.7 7.4 7.7 1.2 100 79.9 12.0 6.8 1.3 100 Location 49 Central city 81.4 9.3 7.9 1.4 100 69.4 22.3 6.9 1.4 100 50 Non-central city 83.3 10.3 53.1 14.0 100 72.6 19.9 6.3 1.2 100 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Home Mortgage Disclosure A69 4.40 APPLICATIONS FOR ONE- TO FOUR-FAMILY HOME LOANS REPORTED UNDER HMDA, 1997 By Disposition of Loan and Characteristics of Applicant and Census Tract—Continued B. Home Refinancing and Home Improvement Loans Percent Home refinancini Home improvement Characteristic Approved Denied Withdrawn File closed Total Approved Denied Withdrawn File closed Total APPLICANT Racial or ethnic identity I American Indian or Alaskan Native .... 57.8 24.1 14.2 3.9 100 58.0 36.8 4.5 .8 100 2 Asian or Pacific Islander . 68.0 18.9 10.5 2.6 100 60.6 31.6 6.3 1.5 100 3 Black 56.6 27.0 12.1 4.2 100 52.5 42.4 4.1 1.0 100 4 Hispanic 57.5 25.0 13.4 4.2 100 52.2 42.5 4.5 .8 100 5 White 72.6 16.4 8.7 2.3 100 71.3 23.9 4.2 .6 100 6 Other 53.3 36.3 8.7 1.7 100 36.0 45.0 18.4 .6 100 7 Joint2 70.7 176 9.3 2.4 100 69.1 26.2 4.1 .7 100 Income ratio (percentage of MSA median)* 8 Less than 50 49.2 34.2 12.9 3.7 100 44.2 49.2 5.5 I.I 100 9 American Indian or Alaskan Native . . 52.7 29.6 13.0 4.8 100 47.7 47.2 4.5 .6 100 10 Asian or Pacific Islander 51.3 30.7 13.6 4.4 100 43.6 50.0 5.5 .9 100 11 Black 53.7 30.3 11.6 4.4 100 44.5 50.2 4.1 1.1 100 12 Hispanic 49.4 32.7 13.6 4.3 100 39.8 55.0 4.4 .8 100 13 White 60.8 25.7 10.3 3.2 100 58.0 36.7 4.6 .7 100 14 Other 44.4 48.1 6.3 1.2 100 29.7 55.4 14.6 .3 100 15 Joint2 59.3 24.6 11.8 4.3 100 49.9 45.1 4.1 .9 100 16 50-79 56.5 27.6 12.6 3.2 100 51.7 41.4 5.7 1.2 100 17 American Indian or Alaskan Native .. 55.1 26.2 15.4 3.3 100 54.4 40.1 4.7 .8 100 18 Asian or Pacific Islander 63.1 22.S 109 3.1 100 52.7 40.6 5.4 1.3 100 19 Black 55.1 28.3 12.4 4.2 100 49.5 45.5 3.9 1.1 100 20 Hispanic 54.3 28 7 13.2 38 100 46.8 47.5 4.8 .9 100 21 White 68.3 19.4 9.7 2.6 100 65.4 29.8 4.3 .6 100 22 Other 50.1 40.0 8.4 1.4 100 31.8 51.0 16.8 .4 100 23 Joint2 . 65 7 21.8 9.6 2.9 100 57 3 37 7 4.3 .6 100 24 80-119 62^6 23.4 11.1 2.9 100 59.1 33.8 5.8 1.3 100 25 American Indian or Alaskan Native 59.8 22.7 13.4 4.1 100 65.1 29.7 4.3 .9 100 26 Asian or Pacific Islander 68.2 19.0 10.3 2.5 100 61.2 31.2 6.4 1.2 100 27 Black 58.0 26.8 10.9 4.2 100 55.5 39.5 4.0 I.I 100 28 Hispanic 57.7 26.2 12 7 3 4 100 52 8 41 6 4.8 .8 100 29 White 73.6 16.0 8.2 23 100 72.2 23.2 4.1 .6 100 30 Other 8.1 5.0 1.3 .3 100 4.0 4.9 2.1 .1 100 31 Joint 69.5 19.2 9.0 2.3 100 67.0 28.8 3.6 .6 100 32 120 or more 69.9 17.9 9.7 2.5 100 68.8 24.3 5.6 1.3 100 33 American Indian or Alaskan Native .. 63.3 20.4 13.1 3.2 100 71.1 23.1 4.5 1.2 100 34 Asian or Pacific Islander 72.7 16.4 8.8 2.0 100 67.7 24.4 6.3 1.6 100 ?5 Black 60.5 25.0 10.7 3.8 100 62.4 32.6 3.9 1.0 100 36 Hispanic 61.4 21.9 12.7 4.0 100 63.7 32.1 3.6 .6 100 37 White 78.3 12.6 7.2 2.0 100 79.5 16.1 3.8 .6 100 38 Other 58.0 29.9 99 22 100 42.9 35.8 20.5 .8 100 39 Joint2 74.1 15.8 8.0 2.1 100 75.4 20.1 3.7 .7 100 CENSUS TRACT Racial or ethnic composition (minorities as percentage of population) 40 Less than 10 67.0 20.0 10.4 2.6 100 67.5 26.6 5.0 1.0 100 41 10-19 62.7 22.7 11.5 3.0 100 58.8 33.3 6.5 1.4 100 42 20-49 57.3 26.7 12.7 3.4 100 51.3 40.3 6.8 1.7 100 43 50-79 52.0 29.7 14.3 4.0 100 45.6 45.9 6.8 1.7 100 44 80-100 48.4 30.3 16.5 4.8 100 43.2 48.7 6.5 1.6 100 income4 45 Low 48.5 32.6 14.9 4.0 100 42.0 50.4 6.0 1.5 100 46 Moderate 54 1 28 6 13 5 3 8 100 48 9 43 8 5.9 1 4 100 47 Middle 6K8 23.4 11.8 3.\ 100 59.4 33.7 5.7 1.2 100 48 Upper 68.0 18.7 10.6 2.7 100 65.5 27.2 5.9 1.3 100 Location' 49 Central city 59.3 25.1 12.4 33 100 54.3 38.4 6.0 1.3 100 50 Non-central city 63.9 21.8 11.3 3.0 100 61.4 31.7 5.6 1.2 100 NOTE. Applicant income ratio is applicant income as a percentage of MSA median. MSA median family income for the MSA in which the tract is located- Categories are defined as median is median family income of the metropolitan statistical area (MSA) in which the follows: Low income, median family income for census tract less than 50 percent of median property related to the loan is located. family income for MSA; Moderate income, median family income for census tract at least 50 1. Loans backed by the Federal Housing Administration, the Department of Veterans and less than 80 percent of MSA median; Middle income, median family income at least 80 Affairs, or the Farmers Home Administration. percent and less than 120 percent of MSA median; Upper income, median family income 120 2. While and minority. percent and greater of MSA median. 3. MSA median is median family income of the metropolitan statistical area (MSA) in 5. For census tracts located in MSAs. which the property related to the loan is located. SOURCE. FFIEC, Home Mortgage Disclosure Act. 4. Census tracts are categorized by the median family income for the tract relative to the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Special Tables • September 1998 4.41 HOME LOANS SOLD, 1997 By Purchaser and Characteristics of Borrower and Census Tract Fannie Mae Ginnie Mae Freddie Mac FmHA Commercial bank Number Percent Number Percent Number Percent Number Percent Number Percent 1 All 1,122,744 100.0 995,880 100.0 840,545 100.0 4,049 100.0 130,920 100.0 BORROWER Racial or ethnic identity 2 American Indian or Alaskan Native .... 2,509 .3 2,437 .4 1,629 .2 49 1.4 275 .2 3 Asian or Pacific Islander 37,761 4.1 10,823 1.7 21,075 3.0 76 2.2 3,092 2.8 4 Black 30,769 3.3 78,341 12.6 18,172 2.6 429 12.6 9,141 8.3 5 Hispanic 41,203 4.5 85,134 13.7 22,799 3.2 441 13.0 7,221 6.5 6 White 781,165 84.6 418,406 67.5 619,833 88.1 2,305 67.8 87,628 79.2 7 Other 8.205 .9 5,244 .8 5,812 .8 18 .5 819 .7 8 Joint 21,214 2.3 19,867 3.2 14,059 2.0 83 2.4 2,516 2.3 9 Total 922,826 100.0 620,252 100.0 703,379 100.0 3,401 100.0 110,692 100.0 Income ratio (percentage of MSA median) 10 Less than 50 38.888 4.7 46.300 9.3 26,920 4.3 351 11.4 6,239 5.7 11 50-79 141.888 17.0 158,835 32.0 101,330 16.1 1,044 33.9 20,622 18.8 12 80-99 128.083 15.3 108,238 21.8 95,502 15.2 621 20.2 15,624 14.2 13 100-119 124.532 14.9 76,183 15.3 95.912 15.2 389 12.6 14,108 12.8 14 120 or more 401 340 48 1 107 473 21 6 310 203 49 2 673 21 9 53 250 48 5 15 Total 834731 100 0 497 029 100 0 629 867 100 0 3 078 100 0 109 843 100.0 CENSUS TRACT Racial or ethnic composition (minorities as percentage of population) 534,246 55.2 327,561 36.7 437.944 61.0 1,492 42.1 57,734 49.6 17 10-19 209,970 21.7 206,759 23.2 145.401 20.2 873 24.6 26,798 23.0 18 20-49 155,278 16.1 231.571 26.0 97,335 13.6 781 22.0 21,455 18.4 19 50-79 44,992 4.7 73.609 8.3 25,634 3.6 192 5.4 6,007 5.2 20 80-100 52,300 11 834 1 6 5 9 4 420 3 8 21 Total 967,218 100.0 891,800 100.0 718,148 100.0 3,548 100.0 116,414 100.0 Income 22 Low 8.248 .9 16,167 1.8 4.835 .7 96 2.7 1.562 1.3 23 Moderate 77,723 8.0 135,970 15.1 52.005 7.2 533 15.0 12,337 10.5 24 Middle 480,392 49.7 523,218 58.0 365.633 50.9 1.939 54.7 54.892 46.6 25 Upper 401,056 41.5 226,291 25.1 295,568 41.2 975 27.5 48,995 41.6 26 Total 967 419 100 0 901 646 100 0 718 041 100 0 3,543 100 0 117 786 1000 Location 27 Central city 358,933 37.1 384.345 42.6 249,329 34.7 1,542 43.5 44,488 37.8 28 Non-central city 608,554 62.9 517,025 57.4 468,618 65.3 2.004 56.5 73,336 62.2 29 Total 967,487 100.0 901,370 100.0 717,947 100.0 3,546 100.0 117,824 100.0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Home Mortgage Disclosure A71 4.41 HOME LOANS SOLD, 1997 By Purchaser and Characteristics of Borrower and Census Tract—Continued Savings ban a k s s o o r c i s a a ti v o i n ngs and loan Life insurance company Affiliate Number Number 30 All 68,108 6.807 547,528 100.0 1.944,298 BORROWER Racial or ethnic identity 31 American Indian or Alaskan Native 179 .3 14 .2 1.971 .4 6,472 .4 32 Asian or Pacific Islander 1,636 2.8 88 1.4 22.806 5.1 39,570 2.6 33 Black 3,294 5.5 350 5.6 30.135 6.7 167,355 111 34 Hispanic 2,170 3.6 115 1.9 23.078 5.1 118,574 7.9 35 White 50,546 85.0 5,508 88.6 357,440 79.3 1,124.323 74.5 36 Other 496 .8 22 .4 5,275 1.2 16,559 1.1 37 Joint 1,159 1.9 119 1.9 10,221 2.3 35,959 2.4 38 Tout . 59,480 100.0 6.216 100.0 450,926 100.0 1,508,812 100.0 Income ratio [percentage of MSA median) 39 Less than 50 2,578 4.9 378 6.9 25,030 6.4 150,884 10.7 40 50-79 9,014 17.1 1,336 24.4 66,692 17.1 332,943 23.5 41 80-99 7,350 13.9 968 17.6 47,080 12.1 221,169 15.6 42 100-119 6,552 12.4 794 14.5 43,840 11.3 176,537 12.5 43 120 or more 27,367 51.8 2,009 36.6 206,702 53.1 532,404 37.7 44 Total 52,861 100.0 5,485 100.0 389344 100.0 1,413,937 100.0 CENSUS TRACT Racial or ethnic composition (minorities as percentage of population) 45 Less than 10 38,310 62.0 4,449 73.4 234,553 48.4 688,089 42 4 46 10-19 11,616 18.8 862 14.2 116,9% 24.1 347,295 21.4 47 20-49 8,143 13.2 557 9.2 86,980 18.0 335.366 20.7 48 50-79 2,141 3.5 122 2.0 27,506 5.7 121,848 7.5 49 80-100 1.560 2.5 71 1.2 18,455 3.8 128,930 8.0 50 Total 61,770 100.0 6,061 100.0 484,490 100.0 1,621,528 100.0 Income2 51 Low .... 873 1.4 1.5 8,562 1.8 50,599 3.1 52 Moderate 5,173 8.4 582 9.6 50,849 10.5 250,936 15.5 53 Middle .. 26,868 43.4 3,242 53.5 212,522 43.8 818,836 50.4 54 Upper . .. 28,990 46.8 2,147 35.4 213,585 44.0 503,322 31.0 55 Total 61,904 100.0 6,059 100.0 485,518 100.0 1,623,693 100.0 Location 56 Centra] city 19,956 32.2 2,415 39.9 190,775 39.3 683,368 42.1 57 Non-centrai city 42,008 67.8 3,645 60.1 294,824 60.7 941,739 57.9 61,964 100.0 6,060 100.0 485,599 100.0 1,625,107 100.0 Note- Includes securitized loans. See also notes to table 4.40. 2. Census tracts are categorized by the median family income for the tract relative to the Fannie Mae—Federal National Mortgage Association median family income for the MSA in which the tract is located. Categories are denned as Ginnie Mae—Government National Mortgage Association follows: Low income, median family income for census tract less than 50 percent of median Freddie Mac—Federal Home Loan Mortgage Corporation family income for MSA; Moderate income, median family income for census tract at least 50 FmHA—Farmers Home Administration and less than 80 percent of MSA median; Middle income, median family income at least 80 Affiliate—Affiliate of institution reporting the loan percent and less than 120 percent of MSA median; Upper income, median family income 120 1. Median family income of the metropolitan statistical area (MSA) in which the property percent and greater of MSA median. related to the loan is located. SOURCE. FFIEC, Home Mortgage Disclosure Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A72 Special Tables • September 1998 4.42 APPLICATIONS RECEIVED AND POLICIES WRITTEN FOR PRIVATE MORTGAGE INSURANCE, 1994-97 By Insurance Company 1994 1995 1996 1997 Company Applications P w o r l i i t c te ie n s Applications P w o r l i i t c te ie n s Applications P w o r l i i t c te ie n s Applications P w o r l i i t c te ie n s 23.239 20,673 48,266 48,229 61,401 61,378 60.149 60,105 2 Commonwealth Mortgage Assurance 113,862 81,606 127,734 95,476 151,261 106,768 152,874 112,513 3 GE Capital Mortgage Insurance .... - 406,440 314.144 281,755 221,450 269.133 199.728 210,493 160,847 4 Mortgage Guaranty Insurance 388.248 317,499 331.534 267.423 360,167 283.897 325,336 265,566 5 PMI Mortgage Insurance 212.352 155,966 157.929 119,582 181,904 142,896 152,129 119,181 6 Republic Mortgage Insurance 133,307 107,927 119,147 94,038 158,731 123,289 132,204 102,221 7 Triad Guaranty Insurance 20.020 15,459 18.910 14.699 23,942 19.143 36,908 31,129 186.) OS 134,348 150,962 118,092 170.868 132,661 147.256 120,182 9 Total 1,483376 1,147,622 1,236,237 978,989 1,377,407 1,069,760 1,217,349 971,744 I. First year of data collection; covers only fourth quarter. SOURCE. Federal Financial Institution Examination Council. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Private Mortgage Insurance A73 4.43 APPLICATIONS RECEIVED AND POLICIES WRITTEN FOR PRIVATE MORTGAGE INSURANCE, 1997 By Purpose of Loan and Insurance Company Percent Home purchase Home refinance Total Company Applications Policies written Applications Policies written Applications Policies written 1 Amerin Guaranty 5.0 6.1 4.8 6.4 4.9 6.2 2 Commonwealth Mortgage Assurance 12.2 11.3 14.3 13.1 12.6 11.6 3 GE Capital Mortgage Insurance 17.5 16.7 16.5 16.0 17.3 16.6 4 Mortgage Guaranty Insurance 26.9 27.6 25.7 25.9 26.7 27.3 5 PMI Mortgage Insurance 12.7 12.5 11.2 10.7 12.5 12.3 6 Republic Mortgage Insurance 10.8 10.5 11.4 10.6 10.9 10.5 7 Triad Guaranty Insurance 2.8 2.9 4.2 4.7 3.0 3.2 8 United Guaranty 12.1 12.3 12.0 12.6 12.1 12.4 9 Total 100.0 100.0 100.0 100.0 100.0 100.0 MEMO 10 Number of applications or policies 1.018.728 822,566 198,621 149.178 1,217,349 971,744 SOURCE. Federal Financial Institutions Examination Council. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A74 Special Tables • September 1998 4.44 APPLICATIONS FOR PRIVATE MORTGAGE INSURANCE, 1997 By Purpose of Loan and Characteristic of Applicant and Census Tract Home purchase Home refinance Number Number APPLICANT Race or ethnic group 1 American Indian or Alaskan native 2,353 .3 453 .3 2 Asian or Pacific Islander 26,132 3.1 4,344 2.8 3 Black 47,165 5.6 8.868 5.6 4 Hispanic 54,819 6.5 7.810 5.0 5 While 682,354 80.5 129.630 82.4 6 Other 16,015 1.9 2.923 1.9 7 Joint (white and minority) 18,348 2.2 3,306 2.1 8 Total 847,18« 100.0 157,334 100.0 Income {percentage of MSA median^ 9 Less than 50 29,009 3.5 3,310 2.0 10 50-79 126,536 15.2 21,749 13.2 11 80-99 124,351 14.9 24,659 15.0 12 100-119 127,907 15.3 26,284 16.0 13 120 or more 426,329 51.1 88,234 53.7 14 Total 834,132 100.0 164,236 100.0 CENSUS TRACT Racial composition (minorities as percentage of population) 15 Less than 10 438,359 52.6 84,326 50.5 16 10-19 185,569 22.2 37,171 22.3 17 20-49 141,947 17.0 30,551 18.3 18 50-79 43,743 5.2 9,272 5.6 19 80-100 24,412 2.9 5,711 3.4 20 Total 834,030 100.0 167,031 100.0 Income" 21 Lower 10,455 1.3 1.553 .9 22 Moderate 77,334 9.3 15,477 9.3 23 Middle 408,163 49.0 88,363 52.9 24 Upper 337,286 40.5 61,489 36.8 25 Total 833,23» 100.0 166,882 100.0 Location 26 Central city 326,673 38.8 57,972 34.4 27 Non-central city 514,233 61.2 110,722 65.6 28 Total 840,906 168,694 100.0 NOTE. Not all characteristics were reported for all loans. 3. For census tracts located in MSAs. 1. MSA median is median family income of the metropolitan statistical area (MSA) in SOURCE. Federal Financial Institutions Examination Council. which the property related to the loan is located. 2. Lower: median family income for census tract less than 50 percent of median family income for MSA. Moderate: 50 percent to less than 80 percent. Middle: 80 percent to less than 120 percent. Upper: 120 percent or more Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Private Mortgage Insurance A75 4.45 APPLICATIONS FOR PRIVATE MORTGAGE INSURANCE, 1997 By Purpose of Loan, Disposition of Application, Characteristic of Applicant, and Census Tract Percent Home purchase Home refinance Approved Denied Withdrawn File closed Tola' Approved Total 89.0 7.4 100.0 87.S 8.7 J.I APPLICANT Race or ethnic group 2 American Indian or Alaskan Native 86.0 9.9 3.3 .9 100.0 81.0 14.6 3.1 1.3 100.0 3 Asian or Pacific Islander 85.2 9.7 3.9 1.1 100.0 84.4 11.0 4.0 .6 100.0 4 Black 78.5 16.5 3.8 1.2 100.0 80.2 14.8 4.0 .9 100.0 5 Hispanic 80.1 14.4 4.2 1.4 100.0 81.0 13.6 4.3 1.1 100.0 6 White 89.7 6.9 2.6 .8 100.0 87.6 8.7 3.1 .6 100.0 7 Other 94.7 3.4 1.6 .3 100.0 93.6 4.1 2.1 .2 100.0 8 Joint (white and minority) 86.8 9.3 3.0 .9 100.0 85.8 10.0 3.7 .6 1O0.0 Income {percentage of MSA median^ 9 Less than 50 78.9 17.3 3.1 100.0 73.4 21.5 4.0 1.1 100.0 10 50-79 87.6 9.1 2.6 100.0 84.0 11.8 3.4 .7 100.0 11 80-99 90.3 6.7 2.3 100.0 86.6 9.6 3.2 .7 100.0 12 100-119 91.6 5.8 2.1 100.0 88.7 7.9 2.8 .6 100.0 13 120 or more 91.7 5.4 2.3 100.0 7.6 3.1 .6 100.0 CENSUS TRACT Racial composition (minorities as percentage of population) 14 Less than 10 92.6 5.0 1.9 .5 100.0 89.0 7.6 2.8 100.0 15 10-19 90.4 6.6 2.4 .6 100.0 88.1 8.3 2.9 100.0 16 20-49 87.5 8.7 2.9 .9 100.0 86.6 9.5 3.3 100.0 17 50-79 83.3 11.8 3.9 1.0 100.0 83.5 3.8 100.0 18 80-100 79.5 15.0 4.1 1.4 100.0 79.5 4.3 100.0 Income 19 Lower . .. 80.3 15.1 3.5 1.1 100.0 80.2 14.7 4.1 1.0 1O0.0 20 Moderate . 85.4 10.8 3.0 .9 100.0 83.9 11.6 3.6 .9 1O0.0 21 Middle ... 90.5 6.6 2.3 .6 100.0 87.8 8.5 3.1 .6 100.0 22 Upper .. . 91.7 5.5 2.2 .6 100.0 88.7 7.8 2.9 .6 100.0 Location' 23 Central city .... 89.5 7.3 2.5 100.0 87.3 8.9 3.2 100.0 24 Non-central ciiy 91.0 6.2 2.3 100.0 87.9 8.5 3.0 100.0 NOTE. Not all characteristics were reported for all loans. 3. For census tracts located in MSAs. 1. Median family income of the metropolitan statistical area (MSA) in which the property SOURCE. Federal Financial Institutions Examination Council. related to the loan is located. 2. Lower: median family income for census tract less than 50 percent of median family income for MSA of tract. Moderate: 50 percent to less than 80 percent. Middle: 80 percent to less than 120 percent. Upper: 120 percent or more. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 Special Tables • September 1998 4.46 SMALL LOANS TO BUSINESSES AND FARMS, 1996-97 1996 Total business loans 1 Number 2,424,966 2,560,795 2 Amount (thousands of dollars) 149,718,193 159,401,302 Percent to small firms' 3 By number of loans 55.9 50.0 4 By amount of loans 43.1 42.1 Total farm loans 5 Number of loans 217,356 2,128,222 6 Amount of loans (thousands of dollars) 10,480,989 11,192,400 Percent to small farms2 7 By number of loans 88.4 89.5 8 By amount of loans 81.4 81.3 Activity of CRA reporters as a percentage of All small loans to businesses 9 By number of loans 64.6 67.9 10 By amount of loans 65.9 66.2 All small loans to farms2 11 By number of loans 21.6 22.2 12 By amount of loans 27.5 27.8 Distribution of business loans by asset size of lender By number (percent) 13 Less than 100 3.7 1.2 14 100 to 249 19.7 6.5 15 250 to 999 16.1 15.7 16 1,000 or more 60.6 76.6 17 Total 100.0 100.0 By amount (percent) 18 Less than 100 1.6 1.4 19 100 to 249 5.7 3.5 20 250 to 999 22.4 20.9 21 1,000 or more 70.3 74.2 22 Total 100.0 Distribution of farm loans by asset size of lender By number of loans (percent) 23 Less than 100 9.8 6.4 24 100 to 249 14.2 10.4 25 250 to 999 34.5 37.4 26 1,000 or more 41.5 45.8 27 Total 100.0 100.0 By amount of loans (percent) 28 Less than 100 6.4 5.1 29 100 to 249 11.5 8.2 30 250 to 999 31.7 34.2 31 1,000 or more 50.4 52.5 32 Total 100.0 100.0 Distribution of business loans by income of census tract3 By number of loans 33 Low 4.7 4.6 34 Moderate 15.9 16.0 35 Middle 49.4 49.1 36 Upper 29.5 29? 37 Income not reported .5 .5 38 Total 100.0 100.0 By amount of loans 39 Low 5.6 5.4 40 Moderate 16.0 16.0 41 Middle 46.8 46.5 42 Upper 30.9 31.4 43 [ncome not reported .7 .7 44 Tout 100.0 100.0 MEMO Number of reporters 45 Commercial banks 1,583 1.421 46 Savings institutions 496 475 47 Total 2,079 1,421 1. Businesses and farms with revenues of $ 1 million or less. 3. Low income', census tract median family income less than 50 percent of MSA median 2. Percentages reflect the ralio of activity by CRA reporters to activity by all lenders. family income or nonmetropolitan portion of state median family income; moderate income: Calculations are based on information reported in the June 1996 and 1997 Call Reports for 50-79 percent; middle income: 80-120 percent; upper income: 120 percent or more. commercial banks and the Thrift Financial Reports. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Loans to Businesses and Farms All 4.47 ORIGINATIONS AND PURCHASES OF SMALL LOANS TO BUSINESSES AND FARMS, 1997 By Size of Loan Size of loan (dollars) MEMO Loans to firms Type of borrower and loan 100,000 or less 100,001 to 250,000 More than 250,000 of$ o l r m es i s llion Total Percent Total Percent Total Percent Total Percent Total Percent Number of Loans Business 2,180,314 86.5 186,114 7.4 153,331 6.1 2,519,759 100 1,276,331 50.7 2 Purchases 37,500 91.4 1,773 4.3 1,763 4.3 41,036 100 4,624 11.3 3 Total 2417,814 86.6 187,887 7.3 155,094 6.1 2,560,795 100 1,280,955 50.0 Farm 4 Originations 182,258 86.3 21,038 10.0 8,007 3.8 211,303 100 189,477 89.7 5 Purchases 1,166 76.8 233 15.3 120 7.9 1.519 100 953 62.7 6 Total 183,424 86.2 21,271 10.0 8,127 3.8 212,822 100 190,430 89.5 All 7 Originations 2,362,572 86.5 207,152 7.6 161,338 5.9 2,731,062 100 1,465,808 53.7 38,666 90.9 2,006 4.7 1,883 4.4 42,555 100 5,577 13.1 9 Total 2,401,238 86.6 209,158 7.5 163,221 5.9 2,773,617 100 1,471,385 53.0 Amount of loans (thousands of dollars) Business 10 Originations 45,647,222 29.0 32,231,586 20.5 79,669,425 50.6 157,548.233 100 66,652,157 42.3 620,409 33.5 296,943 16.0 935,717 50.5 1.853,069 100 380.268 20.5 12 Total 46467,631 29.0 32,528,529 20.4 80,605,142 50.6 159,40132 100 67,032,425 42.1 Farm 13 Originations 4,644,415 42.0 3,464,126 31.3 2,956,286 26.7 11,064,827 100 9,042,825 81.7 38,860 30.5 38,918 30.5 49,795 39.0 127,573 100 61,933 48.5 15 Total 4,683,275 41.8 3403,044 31.3 3,006,081 26.9 11,192,400 100 9,104,758 81.3 All 16 Originations 50.291,637 29.8 35,695,712 21.2 82,625,711 49.0 168,613.060 100 75,694,982 44.9 659,269 33.3 335,861 17.0 985,512 49.8 1,980,642 100 442,201 22.3 18 Total 50,950,906 29.9 36,031,573 21.1 83,611,223 49.0 170,593,702 100 76,137,183 44.6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A78 Special Tables D September 1998 4.48 ORIGINATIONS AND PURCHASES OF SMALL LOANS TO BUSINESSES AND FARMS, 1997 By Type of Borrower and Loan, and Distributed by Size of Lending Institution Institutions, by asset size (millions of dollars) All institutions Type of borrower and loan Less than 100 100 to 249 250 to 999 1,000 or more Total Percent Total Percent Total Percent Number of loans Business 1 Originations 29,479 1.2 167,392 6.6 398,731 15.8 1,924,157 76.4 2,519,759 100 2 Purchases 118 .3 249 .6 2,547 6.2 38,122 92.9 41,036 100 3 Total 29,597 167,641 6.5 401,278 15.7 1,962,279 76.6 2,560,795 100 Farm 4 Originations 13,383 6.3 21,937 10.4 79,056 37.4 96,927 45.9 211,303 100 5 Purchases 253 16.7 229 15.1 532 35.0 505 33.2 1,519 too 6 Total 13,636 6.4 22,166 79,588 97,432 212,822 All 1 Originations 42,862 1.6 189,329 6.9 477,787 17.5 2,021,084 74.0 2,731.062 100 8 Purchases 371 .9 478 1.1 3,079 7.2 38,627 90.8 42,555 100 9 Total 43,233 189,807 6.8 480,866 2,059,711 74.3 2,773,617 100 Amount of loans (thousands of dollars) Business 10 Originations 2,182,058 1.4 5,550,607 3.5 32,988,689 20.9 116,826,879 74.2 157,548,233 100 11 Purchases 25,877 1.4 79,117 4.3 331,106 17.9 1,416,969 76.5 1,853,069 100 12 Total 2,207,935 5,629,724 33,319,795 118,243,848 159,401,302 Farm 13 Originations 563,775 5.1 914,006 8.3 3,763,572 34.0 5,823,474 52.6 11,064,827 100 14 Purchases 10,969 8.6 4,706 3.7 58,898 46.2 53,000 41.5 127,573 100 15 Total 574,744 918,712 3,822,470 5,876,474 11,192,400 All 16 Originations 2,745,833 1.6 6,464.613 3.8 36,752,261 21.8 122,650,353 72.7 168,613,060 100 17 Purchases 36,846 1.9 83,823 4.2 390,004 19.7 1.469.969 74.2 1,980.642 100 18 Total 2,782,679 6,548,436 3.8 37,142,265 124,120322 170,593,702 MEMO 19 Number of institutions reporting .... 153 261 1,008 474 1,896 20 Number of institutions extending loan: 144 252 913 420 1,729 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Community Reinvestment A79 4.49 COMMUNITY DEVELOPMENT LENDING, 1997 Number of loans Amount of loan MEMO: CRA reporters (thousands of dollars) Asset size of lender (millions of dollars) Community development loans Total Percent Total Percent Number Percent Number Percent extending extending 1 Less than 100 397 .9 113,472 .6 153 8.1 54 5.0 2 100 to 249 594 1.4 214,146 1.2 261 13.8 108 10.1 3 250 to 999 25,113 60.1 3,116,022 16.8 1,008 53.2 544 50.7 4 1,000 or more 15,688 37.5 15,153,086 81.5 474 25.0 366 34.1 5 All 41,792 100.0 18.596,726 100.0 1,896 100.0 1.072 100.0 MEMO 6 Lending by all affiliates 545 1.3 916,151 4.9 30 2.8 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A80 Index to Statistical Tables References are to pages A3-A79 although the prefix "A" is omitted in this index ACCEPTANCES, bankers (See Bankers acceptances) FARM mortgage loans, 35, 76-78 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) CAPACITY utilization, 43 U.S. government securities held, 5, 10, 11, 27 Capital accounts Federal Reserve credit, 5, 6, 10, 12 Commercial banks, 15-21 Federal Reserve notes, 10 Federal Reserve Banks, 10 Federally sponsored credit agencies, 30 Central banks, discount rates, 61 Finance companies Certificates of deposit, 23 Assets and liabilities, 32 Commercial and industrial loans Business credit, 33 Commercial banks, 15-21 Loans, 36 Small, to businesses, 76-78 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 Community Reinvestment Act, lending, 79 Claims on, 52, 55, 56, 57, 59 Condition statements (See Assets and liabilities) Liabilities to, 51, 52, 53, 58, 60, 61 Construction, 42, 46 Consumer credit, 36 GOLD Consumer prices, 42 Certificate account, 10 Consumption expenditures, 48, 49 Stock, 5,51 Corporations Government National Mortgage Association, 30, 34, 35 Profits and their distribution, 32 Gross domestic product, 48, 49 Security issues, 31, 61 Cost of living (See Consumer prices) HOME Mortgage Disclosure Act Credit unions, 36 Applications for home loans, 64—69 Currency in circulation, 5, 13 Home loans by lenders, 64, 70, 71 Customer credit, stock market, 24 Residential lending by financial institutions, 64, 67, 70, 71 Housing, new and existing units, 46 DEBT (See specific types of debt or securities) Demand deposits, 15-21 INCOME and expenses, Federal Reserve System, 64, 65 Depository institutions Income, personal and national, 42, 48, 49 Reserve requirements, 8 Industrial production, 42, 44 Reserves and related items, 4, 5, 6, 12 Insurance companies, 27, 35 Deposits (See also specific types) Insurance, mortgage, 72-75 Commercial banks, 4, 15-21 Interest rates Federal Reserve Banks, 5, 10 Bonds, 23 Discount rates at Reserve Banks and at foreign central banks and Consumer credit, 36 foreign countries (See Interest rates) Federal Reserve Banks, 7 Discounts and advances by Reserve Banks (See Loans) Foreign central banks and foreign countries, 61 Dividends, corporate, 32 Money and capital markets, 23 Mortgages, 34 EMPLOYMENT, 42 Prime rate, 22 Eurodollars, 23, 61 International capital transactions of United States, 50-61 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A81 International organizations, 52, 53, 55, 58, 59 Reserves Inventories, 48 Commercial banks, 15-21 Investment companies, issues and assets, 32 Depository institutions, 4, 5, 6, 12 Investments (See also specific types) Federal Reserve Banks, 10 Commercial banks, 4, 15-21 U.S. reserve assets, 51 Federal Reserve Banks, 10, 11 Residential mortgage loans, 34, 35, 64-71, 76-78 Financial institutions, 35 Retail credit and retail sales, 36, 42 LABOR force, 42 SAVING Life insurance companies (See Insurance companies) Flow of funds, 37^1 Loans (See also specific types) National income accounts, 48 Commercial banks, 15-21, 70, 71 Savings institutions, 35, 36, 37—41 Conventional, 64, 67 Savings deposits (See Time and savings deposits) Fannie Mae, 70 Securities (See also specific types) Federal Reserve Banks, 5, 6, 7, 10, 11 Federal and federally sponsored credit agencies, 30 FHA, 64, 67 Foreign transactions, 60 FmHA, 64, 67, 70 New issues, 31 Financial institutions, 35, 64 Prices, 24 Freddie Mac, 70 Special drawing rights, 5, 10, 50, 51 Ginnie Mae, 70 State and local governments Home purchase, 68 Holdings of U.S. government securities, 27 Insured or guaranteed by United States, 34, 35 New security issues, 31 Small, to businesses and farms, CRA, 76-79 Rates on securities, 23 VA, 64, 67 Stock market, selected statistics, 24 Stocks (See also Securities) MANUFACTURING New issues, 31 Capacity utilization, 43 Prices, 24 Production, 43, 45 Student Loan Marketing Association, 30 Margin requirements, 24 Member banks, reserve requirements, 8. (See also Depository TAX receipts, federal, 26 institutions) Thrift institutions, 4. (See also Credit unions and Savings Mining production, 45 institutions) Mobile homes shipped, 46 Time and savings deposits, 4, 13, 15-21 Monetary and credit aggregates, 4, 12 Trade, foreign, 51 Money and capital market rates, 23 Treasury cash, Treasury currency, 5 Money stock measures and components, 4, 13 Treasury deposits, 5, 10, 25 Mortgage insurance, 72-75 Treasury operating balance, 25 Mortgages (See Real estate loans) Mutual funds, 13, 32 UNEMPLOYMENT, 42 Mutual savings banks (See Thrift institutions) U.S. government balances Commercial bank holdings, 15-21 NATIONAL defense outlays, 26 Treasury deposits at Reserve Banks, 5, 10, 25 National income, 48 U.S. government securities Bank holdings, 15-21,27 OPEN market transactions, 9 Dealer transactions, positions, and financing, 29 Federal Reserve Bank holdings, 5, 10, 11, 27 PERSONAL income, 49 Foreign and international holdings and Prices transactions, 10, 27, 61 Consumer and producer, 42, 47 Open market transactions, 9 Stock market, 24 Outstanding, by type and holder, 27, 28 Prime rate, 22 Rates, 23 Private mortgage insurance, 12—IS U.S. international transactions, 50-62 Producer prices, 42, 47 Utilities, production, 45 Production, 42, 44 Profits, corporate, 32 VETERANS Administration, 34, 35 REAL estate loans Banks, 15-21,35 WEEKLY reporting banks, 17, 18 Terms, yields, and activity, 34 Wholesale (producer) prices, 42, 47 Type of holder and property mortgaged, 35 Reserve requirements, 8 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A82 Federal Reserve Bulletin • September 1998 Federal Reserve Board of Governors and Official Staff ALAN GREENSPAN, Chairman EDWARD W. KELLEY, JR. ALICE M. RIVLIN, Vice Chair LAURENCE H. MEYER 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 DIVISION OF BANKING JANICE SHACK-MARQUEZ, Assistant Director 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 DIVISION OF MONETARY AFFAIRS GERALD A. EDWARDS, JR., Deputy Associate Director 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, Deputy Associate Director MOLLY S. WASSOM, Deputy Associate Director WILLIAM C. WHITESELL, Assistant Director HOWARD A. AMER, Assistant Director NORMAND R.V. BERNARD. Special Assistant to the Board NORAH M. BARGER, Assistant Director BETSY CROSS, Assistant Director DIVISION OF CONSUMER RICHARD A. SMALL, Assistant Director AND COMMUNITY AFFAIRS WILLIAM SCHNEIDER, Project Director, DOLORES S. SMITH, Director National Information Center GLENN E. LONEY, Deputy Director 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

A83 ROGER W. FERGUSON, JR. EDWARD M. GRAMLICH OFFICE OF DIVISION OF RESERVE BANK OPERATIONS STAFF DIRECTOR FOR MANAGEMENT AND PA YMENT 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 BARRY R. SNYDER, Inspector General ROBERT E. FRAZIER, Director DONALD L. ROBINSON, Assistant Inspector General GEORGE M. LOPEZ, Assistant Director DAVID L. WILLIAMS, Assistant Director DIVISION OF INFORMATION RESOURCES MANAGEMENT STEPHEN R. MALPHRUS, Director RICHARD C. STEVENS, Deputy Director MARIANNE M. EMERSON, Assistant Director MAUREEN HANNAN, 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 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A84 Federal Reserve Bulletin • September 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. WILLIAM POOLE EDWARD M. GRAMLICH LAURENCE H. MEYER ALICE M. RIVLIN THOMAS M. HOENIG CATHY E. MINEHAN JERRY L. JORDAN ALTERNATE MEMBERS EDWARD G. BOEHNE MICHAEL H. MOSKOW GARY H. STERN ROBERT D. MCTEER, JR. STAFF DONALD L. KOHN, Secretary and Economist LYNN E. BROWNE, Associate Economist NORMAND R.V. BERNARD, Deputy Secretary STEPHEN G. CECCHETTI, Associate Economist LYNN S. FOX, Assistant 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 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

A85 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, Washington, DC JEREMY EISLER, Biloxi, 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

A86 Federal Reserve Bulletin • September 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 Rales 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 28) 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 States, its possessions, Canada, and Mexico. Elsewhere, The Board of Governors of the Federal Reserve System $35.00 per year or $.80 each. The Federal Open Market Committee Federal Reserve Bank Board of Directors REGULATIONS OF THE BOARD OF GOVERNORS OF THE FF.DERAL 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

A87 STAFF STUDIES: Only Summaries Printed in the 166. THE ECONOMICS OF THE PRIVATE PLACEMENT MARKET, by Mark Carey, Stephen Prowse, John Rea, and Gregory Udell. BULLETIN January 1994. Ill pp. 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 EUiehausen and Barbara R. ARIES OF BANK HOLDING COMPANIES, by Nellie Liang and Lowrey, 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.federalreserve.gov) under Publications, Rhoades. February 1992. 11 pp. Federal 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. )8pp. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A88 Federal Reserve Bulletin • September 1998 Maps of the Federal Reserve System •£NEW YORK PI HI ADELPHIA \I \skA 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

A89 1-A 2-B 3-C 4-D 5-E Pittsburgh Baltimore MD "fcf • Buffalo #•* < NY NJ KV NEW YORK PHILADELPHIA CLEVELAND RICHMOND 6-F 7-G 8-H lie m 1 sville - * • • •% NewTBfleans ATLANTA CHICAGO ST. LOUIS 9-1 MINNEAPOLIS 10-J 12-L KANSAS CITY 11-K DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A90 Federal Reserve Bulletin • September 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 Vacant Buffalo 14240 Bal Dixit CarlW. 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 HI 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. Tignanelli' Charlotte 28230 Dennis D. Lowery DanM. Bechter1 ATLANTA 30303 David R. Jones Jack Guynn John F. Wieland Patrick K. Barron James M. Mckee Birmingham 35283 Patricia B. Compton Fred R. Herr1 Jacksonville 32231 Judy Jones James D. Hawkins1 Miami 33152 R. Kirk Landon James T. Curry HI 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 Poole Susan S. Elliott W. LeGrande Rives Little Rock 72203 Betta M. Carney Robert A. Hopkins Louisville 40232 Roger Reynolds Thomas A. Boone Martha L. Perine Memphis 38101 Carol G. Crawley 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, III' San Antonio 78295 H. B. Zachry, Jr. James L. Stall' SAN FRANCISCO 94120 Gary G. Michael Robert T. Parry Cynthia A. Parker John F. Moore Los Angeles 90051 Anne L. Evans MarkL. Mullinix' 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