Federal Reserve Bulletin, 1998-10

VOLUME 84 D NUMBER 10 U OCTOBER 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 811 NEW SUMMARY MEASURES OF THE Issuance of an interim rule to expand the exami- FOREIGN EXCHANGE VALUE OF THE nation frequency cycle for certain U.S. branches DOLLAR and agencies of foreign banks. The multilateral trade-weighted index of the for- Issuance of host state loan-to-deposit ratios. eign exchange value of the U.S. dollar against Proposal by the Federal Reserve, the Office of the currencies of the other countries in the Group the Comptroller of the Currency, the Federal of Ten (G-10), developed at the Federal Reserve Deposit Insurance Corporation, and the Office Board in 1971, has played an important role in of Thrift Supervision to revise their rules staff analysis of foreign influences on the U.S. regarding management interlocks. economy for more than twenty-five years. However, changes in international trading relation- Scheduling of a public meeting on the proposed ships and in the structure of international finan- merger of Norwest Corporation with Wells cial markets have led to increased interest in the Fargo & Company. currencies of U.S. trading partners outside the G-10 countries. Furthermore, the establishment 824 MINUTES OF THE FEDERAL OPEN of the European Economic and Monetary Union MARKET COMMITTEE MEETING HELD (EMU) is bringing about significant changes ON JUNE 30-JULY 1, 1998 inside the G-10 countries, with the euro, which At its meeting on June 30-July I, 1998, the will be introduced in January 1999, ultimately Committee voted to reaffirm the ranges for replacing five of the G-10 currencies. As a growth of M2, M3, and total domestic nonfinanresult, members of the Board's staff have develcial debt that it had established in February for oped several new indexes of the dollar's overall 1998 and to extend those ranges on a tentative foreign exchange value. basis to 1999. For the intermeeting period ahead, the Committee adopted a directive that 819 INDUSTRIAL PRODUCTION AND CAPACITY called for maintaining conditions in reserve UTILIZATION FOR AUGUST 1998 markets that were consistent with an unchanged federal funds rate of about 5'/2 percent and that Industrial production rebounded 1.7 percent in contained a bias toward the possible firming of August; the gain slightly exceeded the cumulareserve conditions and a higher federal funds tive decline in June and July, which was associrate. ated with strikes at key General Motors parts plants. At 129.1 percent of its 1992 average, 833 LEGAL DEVELOPMENTS total industrial production in August was 3.1 percent higher than it had been in August Various bank holding company, bank service 1997. Capacity utilization in manufacturing, corporation, and bank merger orders; and pendmining, and electric and gas utilities rebounded ing cases. 1.1 percentage points to 81.7 percent, a level 0.4 percentage point above its 1967-97 average. A i FINANCIAL AND BUSINESS STATISTICS These tables reflect data available as of 822 ANNOUNCEMENTS August 27, 1998. Issuance of a final rule to amend capital adequacy standards. A3 GUIDE TO TABULAR PRESENTATION Amendment of the risk-based capital standards A4 Domestic Financial Statistics for banks, bank holding companies, and thrift A42 Domestic Nonfinancial Statistics institutions. A50 International Statistics Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A63 GUIDE TO STATISTICAL RELEASES AND MI FEDERAL RESERVE BOARD PUBLICATIONS SPECIAL TABLES A74 MAPS OF THE FEDERAL RESERVE SYSTEM A66 INDEX TO STATISTICAL TABLES A68 BOARD OF GOVERNORS AND STAFF A?6 ^ ^ f^ ^^ BRANCHES' A70 FEDERAL OPEN MARKET COMMITTEE AND STAFF; ADVISORY COUNCILS Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

PUBLICATIONS COMMITTEE Lynn S. Fox, Chairman • S. David Frost • Donald L. Kohn • J. Virgil Mattingly, Jr. • Michael J. Prell • Dolores S. Smith • Richard Spillenkothen • Edwin M. Truman The Federal Reserve Bulletin is issued monthly under Ihe 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 Ihe direction of Christine S. Griffith, and Publications Services supervised by Linda C. Kyles. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

New Summary Measures of the Foreign Exchange Value of the Dollar Michael P. Leahy, of the Board's Division of Interna- designed index will preserve information that is crititional Finance, prepared this article. Suzette Apple- cal for its purpose. gate and Adam LaVier provided research assistance. Exchange rate indexes can have various uses. They can play a role in the analysis of the price competi- The multilateral trade-weighted index of the foreign tiveness of domestic goods relative to foreign goods, exchange value of the U.S. dollar against the curren- the effect of foreign economic and financial developcies of the other countries in the Group of Ten ments on the domestic price level, and the demand (G-10), developed at the Federal Reserve Board in for domestic and foreign currency assets. The G-10 1971, has played an important role in staff analysis of index, which was developed when the Bretton Woods foreign influences on the U.S. economy for more than system of fixed exchange rates first broke down, was twenty-five years.1 However, changes in international designed to serve as a summary measure of the trading relationships and in the structure of interna- dollar's movements against the currencies of ten tional financial markets have led to increased interest other major foreign countries that participated in in the currencies of U.S. trading partners outside the the Smithsonian Accord of December 1971. Over G-10 countries. Furthermore, the establishment of the the years, the index has been used for a variety of European Economic and Monetary Union (EMU) is purposes, but it has functioned mainly as a tool in the bringing about significant changes inside the G-10 analysis of how changes in the foreign exchange countries, with the euro, which will be introduced in value of the dollar influence U.S. international trade. January 1999, ultimately replacing five of the G-10 In this index, the ten bilateral dollar exchange rates currencies. Consideration of these developments has are aggregated using multilateral trade shares, which prompted taking a fresh look at ways to measure the are viewed as reflecting the relative importance of foreign exchange value of the dollar. As a result, each country as a competitor in world markets. members of the Board's staff have developed several Like the G-10 index, the new indexes are designed new indexes of the dollar's overall foreign exchange principally to measure competitiveness in world marvalue. kets. However, the new indexes are created with a In general, an index of the foreign exchange value different weighting scheme that focuses more directly of a currency is intended to distill into a single on the competitiveness of U.S. goods in U.S. and number key information from often divergent move- foreign markets. In addition, the new indexes summents in bilateral exchange rates. As with a price marize and characterize the dollar's movements in index, an exchange rate index can be created in a foreign exchange markets against a broader set of variety of ways. The design of an exchange rate currencies and are designed to take account of the index—both which currencies to include and how to changing structure of trade patterns and exchange weight them—depends on its specific purpose. rates. Although the process of compressing individual currency information into one number inevitably results in the loss of some information, a well- THE NEW INDEXES The new indexes of the dollar's overall foreign 1. Since January 1977, this index has been published in table 3.28 exchange value have been developed for three curof the statistical appendix to the Federal Reserve Bulletin. Discussions rency groups, and for each group nominal and real of the index have appeared in various issues of the Bulletin: See (price-adjusted) indexes have been created. The first, "Index of the Weighted-Average Exchange Value of the U.S. Dollar: Revision," vol. 64 (August 1978), p. 700; Peter Hooper and John and primary, group is that of the currencies of impor- Morton, "Summary Measures of the Dollar's Foreign Exchange tant U.S. trading partners. This group is the basis for Value," vol. 64 (October 1978), pp. 783-89; and B. Dianne Pauls, the construction of what the staff terms the broad "Measuring the Foreign-Exchange Value of the Dollar," vol. 73 (June 1987), pp. 411-22. index of the dollar's foreign exchange value. The Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

812 Federal Reserve Bulletin • October 1998 broad index includes thirty-five currencies until the I. Nominal indexes otthe foreign exchange \alue beginning of Stage III of EMU on January 1, 1999.2 ot ihe LLS. dollar. January I<>73-Sepieinl>er I'WX At that time, the euro will replace the ten euro-area Ralio scale.March 1973= 100 currencies, and the broad index will have twenty-six currencies.3 — A U-1(1 into — 150 The other two groups are subsets of the broad — r M n — 140 — — 130 index currencies. One of these comprises the major international currencies—those of the euro-area — — 120 countries and Australia, Canada, Japan, Sweden, nw ,^ Ar \ — 110 Switzerland, and the United Kingdom. These are \jwj / 100 used in the construction of what is termed the major — 90 currency index. It includes sixteen currencies until the introduction of the euro in January 1999.4 After » K v SO that, the index will become a seven-currency index. 1 1 1 II 1 1 1 1 1 M1 a1jo r1 c u!r r1en !c y1 in IdIe x1 1 LI 1 The third group comprises the remaining curren- Ralio scale, January 1997 * cies. In this group are the currencies of important U.S. trading partners, but these currencies are not heavily traded outside their home markets. This group is used to construct what the staff terms the other important trading partner (OITP) index. It 60 includes the currencies of nineteen major U.S. trading partners: Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela in Latin America; China, Hong Kong, — 40 India, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand in Asia; Israel and Saudi Arabia in the Middle East; and Russia in I! 1 1 1 1! 1 1 II 1 1 1! 1 1 1 1 1 1 1 1 Eastern Europe. Ratio scale. January 1997 •I0O The major currency indexes—nominal and real— Other important trading partner y have a path similar to that of the comparable G-10 — (OITP) index 80 indexes over the same period, although the swings in — — 40 the new series are less extreme (charts 1 and 2). The nominal broad and OITP indexes move quite differ- — 20 ently from the major currency index because of the inclusion of currencies of some high-inflation coun- — / — 10 tries that have experienced persistent depreciations. — / — 5 The inclusion of such countries restricts the usefulness of the nominal versions of these indexes to — 2.5 analysis of shorter-term developments in foreign II | II 1 1 II 1 1 1 1 1 1 1 i ii i i i i 1 1 1 exchange markets because, over the longer term, 1974 1978 1982 1986 1990 1994 1998 large nominal depreciations of a few currencies NOTL. The dala are monthly. swamp information on the value of the dollar against other currencies. The real versions of the broad and The three indexes employ a common weighting OITP indexes compensate for these depreciations, scheme. Market shares of U.S. goods in foreign maralthough the real OITP index yields a value of the kets and foreign goods in U.S. and third-country dollar that is consistently higher than the value in the markets are used to construct the currency weights broad index after the mid-1980s. for the broad index. These weights are updated annually to incorporate changes in trade patterns. We derive the weights for the major currency and OITP indexes from the broad index weights by simply 2. Because of the existing monetary union between Belgium and rescaling the broad index weights so that the weights Luxembourg, the Belgian/Luxembourg franc is treated as one currency in this accounting. of the currencies included in each subindex sum to 3. The euro-area countries are Austria, Belgium, Finland, France, one (table 1). Germany. Ireland, Italy, Luxembourg, the Netherlands, Portugal, and The major currency and broad indexes currently Spain. 4. The Belgian/Luxembourg franc is again treated as one currency. give considerably more weight to the Canadian dollar Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

New Summary Measures of the Foreign Exchange Value of the Dollar 813 2. Real (price-adjusted) indexes of the l'orviun exchange [lW7 trade weights for the new U.S. dollar indexes and value of Ihe U.S. dollar, January IW-September 1WS 1972 76 multilateral trade weiyhls lor the G-10 index Percent Rulta scale. March 1973 = 100 Country or region Broad Major orrp G-10 currency Canada . 17.3 30,3 9.1 Euro area 16.4 28.7 57.6 Japan 14.6 25.6 13,6 Mexico 8.6 19.9 China 6.6 15.3 United Kingdom 4,6 8.0 Taiwan 3.9 ' 9.1 Korea . 3.7 8.6 Singapore 3.1 7.2 Hong Kong 2.8 6.6 Malaysia 2.4 5.5 Brazil i.9 4.4 Major currency Switzerland 1.8 3.2 3.6 I I I I I I I I I 1 i I t I I I I I I I 1 1 Thailand 1.7 3.9 Australia 1.5 2.6 Indonesia 1.3 ' 3.0 Philippines 1.2 2.7 Russia .9 2.2 India ,9 2.2 Sweden , .9 1.6 4.2 Saudi Arabia .9 2.1 Israel .9 2.1 Argentina .6 1.5 Venezuela .6 1.4 Chile .5 1.3 Colombia .5 1.1 Total ... 100 10X3 too 100 MEMO Euw~area roiitiiries Germany 5.6 9.9 20.8 France 2.9 5.0 13.1 I ! ! I ) Italy 2.5 4.5 9.0 1973 1978 1983 198)1 1993 1998 Netherlands 1.5 2.7 8.3 Belgium/Luxembourg 1.4 2.5 6.4 NOTE. The data are monthly. Spain .8 1.4 Ireland .7 1.3 Austria .4 .7 Finland .3 .6 and the Japanese yen than the G-10 index does, with Portugal ., .1 .2 offsetting declines in the weights for the euro-area Total 16.4 2S.7 57.6 currencies. These shifts reflect the growth of Japan as NOTE. Broad index weights for previous years will be available on the a U.S. trading partner since the mid-1970s and the Board's web site (hitp://www.federalreserve.gov). Components may not sum to change from a multilateral trade-weighting scheme, totals because of rounding. with equal weight given to global trade in any market, to one that gives more weight to trade in markets foreign countries or regions that had a share of U.S. that are important to the United States. These shifts non-oil imports or nonagricultural exports of at least also reflect the exclusion from the new weights !/2 percent in 1997 are included in the broad indexes, of intra-European Union (EU) trade, which was as rankings of U.S. trading partners by share of U.S. included in the multilateral trade weights. trade in that year show (tables 2, 3, and 4). The countries with currencies in the broad index are also important in global trade (table 5). The CURRENCY SELECTION countries and regions whose currencies are included The basic strategy in selecting which currencies to in the indexes generate more than 75 percent of the include in the new indexes was to expand the cur- world's gross national product (outside the United rency coverage from that of the G-10 index by includ- States), measured on the basis of purchasing power ing the currencies of a larger set of important U.S. parity (table 6). The list of currencies included in the trading partners. The new indexes were also designed broad index will be re-evaluated annually when the to accommodate the introduction of the euro. currency weights are updated. The Broad Index The Major Currency Index Shares in U.S. trade largely determined the currency The major currency index was designed to serve selection for the broad index. The currencies of all many of the same purposes that the G-10 index of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

814 Federal Reserve Bulletin D October 1998 2. U.S. non-oil imports, hy country or region. 1LW7 dollar's foreign exchange value served in the past. Like the G-10 index, the major currency index not Share of Level U.S. non-oil only measures the competitiveness of U.S. goods Country or region (billions of US. dollars) imports relative to goods of the major industrial countries, it (percent) also serves as a gauge of financial pressures on the Canada 156.189 19.55 dollar. As a consequence, the index includes curren- Japan 121.551 15.21 Bom area 113.252 14.18 cies traded in deep and relatively liquid financial Mexico 77.487 9.70 China 62.099 7.77 markets and for which short- and long-term interest Taiwan 32.628 4.08 United Kingdom . 30.524 3.82 rates are readily available: the currencies of the G-10 Korea 23.040 2.88 countries and of the other countries of the euro area 19.940 2.50 17.820 2.23 and the Australian dollar. 12.592 1.58 10.444 1.31 One benefit of this currency group is that it 10288 1.29 excludes currencies of trading partners with a history Brazil 9.454 1.18 of high inflation relative to the United States. Thus Indonesia 8.730 1.09 Switzerland .. 8.496 1.06 it provides a useful gauge of the dollar's foreign Israel 7J2Q .92 India 7.302 .91 exchange value in nominal terms for tracking both Sweden 7.182 .90 day-to-day and longer-term developments. Curren- Australia — 4.223 .53 Russia 4.199 .53 cies of economies subject to high inflation pose a Colombia.... 2.666 .33 Chile 2584 .29 problem in the construction of a nominal exchange Argentina ... 1.641 .21 rate index: Because the large depreciations of those Venezuela ... 1.639 .21 Saudi. Arabia .548 .07 currencies tend to dominate the index, the contri- MEMO butions of movements in the dollar's nominal Broad index group 753.538 94.32 Major currency group 441.417 55.25 value against other currencies become relatively OITP group 312.122 39.07 insignificant. G-tO 42U32 52.74 NOTE. In this table and those that follow, components may not sura to memo items because of rounding. SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis. 4. L.LS. non-oil imports and nomtgriculuiral exports, by country or region. 1997 3. U.S. nonugriculturul exports, by country or region, 19l)7 Share of US. Share of US. Level non-oil imports and Level nonagricultural Country or region (billions of nonagriculturat Country or region (billions of exports US. dollars) exports US. dollars) (percent) (percent) Canada 143.210 23.28 Canada 299.399 2147 Euro area 89.655 14.57 Euro area 202.907 14.35 Mexico 65.776 10.69 Japan 175.580 12.435 Japan 54.029 8.78 Mexico 143.263 10:i3 United Kingdom 33.35* 5.42 China 73:206 5.18 Korea 21.634 3.52 United Kingdom 63J5O 4.52 Singapore 17555 2.80 Taiwan 49,111 3.47 Taiwan 16.483 2.68 Korea 44.674 3.16 Bnail 15,268 2.48 Singapore 37.195 2.63 Hong Kong 13.170 2-J4 Malaysia 27.675 1.96 AUfflralia 11558 1.88 Brazfl , 24.722 1.75 China 11.107 1.81 Hong Kong 23.458 1.66 Malaysia 9.855 1.60 Thailand , 19.049 135 •rBtuppmes 6.506 1.06 Philippines 16.950 1.20 Thailand 6.457 1.05 Australia 15.781 1.12 Saudi Arabia 6.408 1.04 Switzerland 13.271 .94 Venezuela 5.967 .97 Indonesia 12.463 .88 Argentina 5.420 .88 Israel 11.956 .85 Switzerland 4.775 .78 India 10.734 .76 Israel 4.636 .75 Sweden , , . 10.235 .72 Colombia 4.612 .75 Argentina 7.061 .50 Chile 4.222 .69 Saudi Arabia 6.956 .49 Indonesia 3.733 .61 Chile 6J06 .46 India 3.432 .56 Russia 6.329 .45 Sweden 3.053 .50 Venezuela 5.967 .42 Russia 2,130 .35 Colombia 4.612 .33 MEMO MEMO Broad index group 563.676 91.63 Broad index group 1317.214 93,15 Major currency group . 339.605 55.20 Major currency group 781.022 55,23 OITP group 224.070 36.42 OITP group 536.192 37.92 G-io ...: 315.351 51.26 G-10 , 736.683 52.10 NOTE. Nonagricultural exports exclude military exports and gold. NOTE. NonagriculturaJ exports exclude military exports and gold. SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis. SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

New Summary Measures of the Foreign Exchange Value of the Dollar 815 The Other Important Trading Partner index in all the markets that are important to U.S. producers. To the extent that a country's goods are The OITP index captures movements of the dollar important in those markets, that country's currency against the currencies of key U.S. trading partners in will be heavily weighted in the index. Latin America, Asia, the Middle East, and Eastern Competition between U.S. goods and the goods of Europe. These currencies account for more than a particular foreign country can be thought of as 40 percent of the weight in the broad index in recent taking place in the United States or in foreign maryears, and indexes including them provide important kets. For competition in the United States, a weight measures of the competitiveness of U.S. goods in equal to a country's share of U.S. imports is used as those regions and of goods from those regions in the a proxy for the degree of competition from that United States. Because some of these economies country. have experienced episodes of hyperinflation, the Competition in foreign markets can be decomnominal OITP index is likely to be most useful in posed into competition in the foreign country's home analyzing shorter-term developments in dollar market and competition in third-country markets. exchange rates. The price-adjusted version of this Two kinds of weights correspond to the two venues index can provide a useful summary of longer-term for competition abroad. A weight equal to a country's currency developments. share in U.S. exports is used to measure the extent to which U.S. goods compete directly with a foreign country's goods in that country's home market. A THE WEIGHTING SCHEME The weighting scheme used in the construction of the 6. Purchasing power parity GNP and non-U.S. GNP shares for selected countries, 1W5 indexes is based on a measure of trade competitiveness. In this measure, the importance of changes Purchasing power Share of in the exchange value of a given foreign currency Country or region parity GNP world GNP (billions of depends on the share of the foreign country's goods US. dollars) (percent) Euro area 5,353.651 20.05 China 3,504.584 12.65 5. Multilateral non-US, trade shares, 1V% Japan 1768.172 9,99 India 1,301.160 4.70 Percent of world trade United Kingdom 1,126.710 4.07 Brazil 8S9.680 3.10 Trade share Indonesia 734.540 Z65 Russia 663.936 2.40 Counny or region Including Excluding Canada 625.448 256 intra-EU trade intra-EU trade Mexico 587.520 J E a u p r a o n net , 34 8 . .2 7 3 3 1 9 4 . . 2 6 5 2 T K A h u o a s r t i e l r a a a n li d a . . . . . . 5 4 3 1 3 4 4 8 2 . . . 1 8 8 0 1 2 5 4 8 1 1 1 . . . 8 5 2 6 8 4 Hong Kong . 4.10 4.61 Turkey' .... 340.938 1.23 Canada , 4.01 4.50 Taiwan' ... 289.394 1.04 China 3.14 3.53 Argeolina .. 288357 1,04 Korea,. 3.04 3.42 Colombia .. 225.584 .81 United Kingdom 5.86 3.22 Philippines . 195.510 .71 Singapore 2,78 3.12 Malaysia ... 181.302 m65 Taiwan 2.34 2.63 Switzerland 1S1.020 Mexico , 101 2.26 Switzerland 1.71 1.92 Venezuela 171,430 M Mitoytift .......... 1.70 1.91 Saudi Arabia3 . 168.744 .6.1 Thailand 1.40 1.57 Sweden 163.152 .59 Hong Kong .. 142-290 51 Russia ...... 1.39 1.56 Chile 131184 A Br u a s z tr il a lia ...,.,. 1 1. 3 1 2 5 1 1 . . 4 3 8 0 G D r e e n e m ce a 1 rk' 1 1 2 1 2 ( . 0 9 9 5 6 5 m Indonesia 1.01 1.13 Norway1 96436 35 Saudi Arabia..... r .92 1.03 Israel 90.695 33 India .74 .83 Singapore 68310 .25 Swedes 1.63 .73 Philippines St .64 Tolal of above 21,992.945 79.40 Israel .54 .61 Argentina .. Si .58 MEMO Venezuela .., .37 .42 Broad index group ... 21322.120 76.98 Chile ,. .36 .40 Major currency group 10,760.967 38.85 Colombia .27 .30 OITP group 10.561.153 38.13 G-10 9394.633 33,92 MEMO 85.84 67.57 1 Country with currency not included in exchange rate index. Major currency group . 57.50 35.73 OlTPgHHip 28.34 31.84 2. As of 1994. G-10 .... 50.15 32.00 ^ Estimated. SOURCE. World Bank. World Development Report 1997. World GNP SOURCE. International Monetary Fund. Direction of Trade Statistics and estimate derived from share of U.S. GDP in world GDP from table A in International Financial Statistics. International Monetary Fund, World Economic Outlook, May 1998, p. 133. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

816 Federal Reserve Bulletin H October 1998 second type of export weight is constructed to with dramatic increases or decreases in trade shares account for the extent to which a particular foreign in markets that are important to the United States country's exports go to third-country markets that are could be added or subtracted from the index as the also destinations for U.S. exports, as would be the weights are revised. case when U.S. goods compete with German goods in Because the new indexes are intended to be mea- Japan. This type of competition is measured as the sures of trade competitiveness, the data used to comproduct of Germany's share in Japan's imports and pute the import and export shares for the United the share of U.S. exports going to Japan. In this way a States for the most part exclude U.S. military exports country will have a high combined export weight if it and trade in primary commodities. Trade competifigures prominantly as a direct destination for U.S. tiveness is unlikely to play an important role in the exports or is a major exporter to other countries that determination of U.S. military exports, and the countake a large share of U.S. exports. The weight in the try of origin or destination is relatively unimportant summary index is then computed as the simple aver- in the pricing of primary commodities, which are age of the bilateral import share weights and the largely homogeneous and are priced in world auction combined export weights. The appendix contains fur- markets based on global supply and demand. In the ther details on the construction of these weights. calculation of the weights, the shares of U.S. imports and exports are bilateral non-oil import shares and bilateral nonagricultural export shares adjusted to !\1>!' X I i IK .\ \!> I) \l'\ exclude U.S. gold and military exports. Comparably disaggregated trade data for other countries are not as The new exchange rate indexes incorporate weights readily available. Therefore, the import and export that vary over time. The formula for each nominal shares used in the calculation of third-country effects exchange rate index, /,, is given by are based on aggregate imports and exports for each country pair. Because of the impending move into monetary union by eleven of the EU member countries and the highly integrated trading relationships among the remaining EU countries, the calculations where e,, is the price of the U.S. dollar in terms of exclude intra-EU trade. All of these trade shares are foreign currency j at time t, and w is the weight of J%t updated annually to incorporate changes in patterns currency j at time t in the total competitiveness index of trade. In addition, events such as the expansion of for the U.S. dollar. The base-period value of the the euro zone to include other EU countries—which index, / , is assumed to take an arbitrary value— 0 would naturally change the trade shares for the euro typically equal to 100—at an arbitrary time. Replacand, as a by-product, the other currencies in the ing the nominal exchange rates, e , with their real jit indexes—will lead to an adjustment of the weights on counterparts, e pjpj,, where p, is the consumer price jt the date of such events. index (CPI) for the United States at time / and pj, is the CPI for country j at time /, yields the formula for the real exchange rate index. Thus, the indexes are constructed so that an appreciation of the dollar corre- orui sponds to higher index values.5 Index revisions and publication policies are two other One benefit of using a formula that allows for the issues associated with the development of the new weights on the exchange rates to vary over time is indexes. that the index can incorporate changes in the pattern of trade, such as the expansion of trade with China or other Asian economies, which would not be captured hh/ix AVn.v/o/z.v in a fixed-weight index. In addition, adjustable weights permit adaptation to events such as the accession of a second wave of EU countries to the EMU, Because the weights for the G-10 exchange rate which would change the trade shares assigned to index are fixed, revisions to that index were not currencies in the indexes. Currencies of countries necessary. The new indexes, however, will be subject to revision, particularly in the current year and the year immediately preceding the current year, because 5. Summary indexes of the foreign exchange value of any other the data used to construct the weights in the new currency could be computed in a similar fashion by using trade data to indexes are released with a lag and are periodically determine the weights and by using exchange rates for that currency instead of the dollar. revised. For example, in February 1999, a January Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

New Summary Measures of the Foreign Exchange Value of the Dollar 817 1999 index value (or a value for a particular day in to aggregate foreign prices and exchange rates as the month) would be calculated using trade data for functions of market shares alone, independent of the 1997, because trade data for all of 1998 or for 1999 structural parameters of the demand system.7 will not have been released. Later in 1999, after the The construction of the weights can be represented trade data for 1998 are available, the January 1999 as a two-stage process. In the first stage, the market index value will be updated using 1998 weights, as shares attributable to a given foreign country's goods will all of the 1998 index values. At some point in are determined for the U.S. market, the foreign coun- 2000, the trade data for 1999 will be released, and a try's home market, and third-country markets. In the second revision to the January 1999 index value will second stage, these individual market shares are averbe made. Thus, recent index values for the first part aged according to the share of U.S. goods going to of any year are likely to be revised at least two times. each market. Formally, the weight, W USk , of coun- Subsequent revisions will occur if historical values try k in a total competitiveness index for the United for trade data are revised. The weights used in the States is an average of the market shares, m jk , of indexes will normally be revised and updated on an goods from country k relative to total sales in each annual schedule. Earlier historical values may also be country j: revised from time to time. Revisions to the foreign CPIs used in the calcu- (1) KUS,j"1j.k lation of the real exchange rate indexes will also prompt revisions to the real exchange rate indexes. where x is the share of goods produced in the Because CPIs for some countries are released with a USj United States and sold in market j relative to all considerable lag, recent months will be estimated goods produced in the United States. by applying the most recent twelve-month percent As an example, let Japan be country k. Then, the change that is available. Those estimates will eventutotal competitiveness weight, W for the yen in the ally be replaced by published data when they become USky U.S. dollar index is an average of the market shares available. of Japanese goods in total sales in the United States, in Japan, and in all other countries. This average is computed after weighting each market demand share by its corresponding U.S. production share to incor- The new indexes will be published on the Board's porate into the weight the importance of the market to web site (http://www.federalreserve.gov) and, begin- U.S. producers. ning with this issue, in the Federal Reserve Bulletin.6 With the introduction of some further notation, We will continue to publish the G-10 index in the these weights can be written in terms of import and Bulletin for a few more months but will discontinue export shares. Let u . be the share of country j J/( publication with the release of the December value imports purchased from country k. For; 4- k, it can for the index, which will appear in the February 1999 be shown that \i = m^ /(I - ntjj). Because a country jk k issue. The broad index weights used in the construc- does not import from itself, u is undefined. Simi- ;j tion of the new indexes and the underlying exchange larly, let e j be the share of U.S. exports sold US rate data will also be made available on the Board's in country j. For j 4- US, it can be shown that web site. € j - x /{\ - x ). Because the United States us USj usus does not export to itself, e is undefined. With this USMS notation, the weight, W , of country J: in a total Al'lT.xiHX.- A I OR\I\L I'RISI.XI \n<>.\ or mi USk competitiveness index for the United States can be Wi!(,/!//u; .S< in \ir rewritten in terms of import and export shares: A stylized trade model is the basis for the weighting scheme. Behavior in this model is characterized by a (2) SM = x usus {l - m usus )\i USk set of symmetric import demand expressions for the home country and a number of foreign countries. After having imposed some simplifying assumptions relating to the functional form of the demand equations and the symmetry and constancy of various elasticities, one can formulate the weights with which 7. For details, see Anne K. McGuirk, "Measuring Price Competitiveness for Industrial Country Trade in Manufactures," International 6. See table 3.28, "Foreign Exchange Rates," p. A62. Monetary Fund working paper WP/87/34 (1986). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

818 Federal Reserve Bulletin • October 1998 As equation 2 shows, the weights can be decom- Aggregation of the three submeasures of competiposed into three submeasures of competitiveness. tiveness into a single currency weight according to The first term characterizes the effect of competition equation 2 requires information about the share of all in the United States between the goods of the United goods sold in home markets that are domestically States and country k. This term is a function of produced, m . Because such information is not JtJ country k's share in U.S. imports, \iusj<- The second readily available, particularly on a timely basis, we term describes the effect of competition between the take a pragmatic approach to the aggregation. The goods of the United States and country k in the home two export sector weights, e and x , are aver- USJc USk market of country k. This term is a function of aged with equal weighting. Empirical work done on country k's share in U.S. exports, ^usk- The third term the staff trade model for the broad index currencies captures the effect of competition between the goods shows that an equal weighting performs well in the of the United States and country k in the markets of core U.S. export sector and provides some rationale third countries, where the summation averages the for the equal treatment in the new exchange rate shares of country k goods in third-country imports indexes.8 Furthermore, the International Monetary weighted by U.S. export shares to the third-country Fund also uses equal weighting of its comparable markets. For convenience, let T represent this export sector weights in its exchange rate index. USk averaging of export and import shares in third Lacking any similar empirical work to support the countries: aggregation of the import sector measure, u ., and yS-t the export sector measures, the staff chose to aggregate these two components with equal weights, based (3) Xus'k-jhseus^ on aesthetic considerations of simplicity and symj* k metry. Thus, the weights, w , used in the new USk exchange rate indexes are a fixed average of the The weighting scheme used in the new exchange import share weights and the two types of export rate indexes is based on the three submeasures of weights: competitiveness: \i , e , T . These three sub- USJi USik USit measures are also currently included in the trade model used by the staff for forecasting purposes, with (4) wUS,k ~ 1 A the bilateral import shares used to aggregate foreign prices and exchange rates in the non-oil import sector and both the bilateral export shares and the thirdcountry weights used to aggregate foreign prices and 8. Core exports are merchandise exports other than agricultural exchange rates in the nonagricultural export sector. s, computers, and semiconductors. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

819 Industrial Production and Capacity Utilization for August 1998 Released for publication September 16 to replenish inventories depleted during the strikes. Excluding motor vehicles and parts, the index of Industrial production rebounded 1.7 percent in industrial production was at approximately the same August; the gain slightly exceeded the cumulative level in August as it had been in May. At 129.1 perdecline in production in June and July, which was cent of its 1992 average, total industrial production in associated with strikes at key General Motors parts August was 3.1 percent higher than it had been in plants. Motor vehicle assemblies, which had dropped August 1997. Capacity utilization in manufacturing, from a seasonally adjusted annual rate of 12.4 million mining, and electric and gas utilities rebounded units in May to 8.2 million units in July, jumped to 1.1 percentage points, to 81.7 percent, a level 0.4 per- 13.2 million units in August as General Motors strove centage point below its 1967-97 average. Industrial production indexes Ratio scale, 1992= 100 Ratio scale, 1992= 100 _ Consumer goods 130 _ Intermediate products 130 k.—*f 120 120 Durable / _ Construction supplies J*^ 110 110 _~ **-' Nondurable 100 Business supplies — 100 - 90 - 90 i i i i 1 1 1 1 1 1 1 1 1 — Equipment - 170 - Materials ,- 170 150 150 Business 130 130 ^^ Durable goods s" - 110 , „„ _ 110 Nondurable goods - 90 - and energy ~~ 90 Defense and space •~^—~^ ., ,_ 1 1 1 1 i i 1 1 i i i 1 1 1990 1992 1994 1996 1998 1990 1992 1994 1996 1998 Capacity utilization Percent of capacity Percent of capacity - 85 - 85 - 80 80 - 75 - 75 1984 1986 1988 1990 1992 1994 1996 1998 1984 1986 1988 1990 1992 1994 1996 1998 DigitizedA flol rse FrieRs AarSe EseRas onally adjusted. Latest series, August. Capacity is an index of potential industrial production. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

820 Federal Reserve Bulletin • October 1998 Industrial production and capacity utilization, August 1998 Industrial production, index. 1992= 100 Percentage change Category 1998 1998' Aug. 1997 to May1 June' July' Mayr June' Julyr Aug.p Aug. 1998 Total 128.8 127.5 127.0 129.1 .3 -1.1 -.4 1.7 3.1 Previous estimate 128.9 127.5 126.8 .4 -1.1 -.6 Major market groups Products, total2 122.2 121.2 120.4 122.5 .3 -.6 1.7 2.7 Consumer goods 116.7 115.2 114.1 116.6 .1 -1.2 -1.0 2.2 1.7 Business equipment 150.4 150.9 149.8 154.3 .1 .3 -.7 3.0 6.7 Construction supplies 126.7 126.4 127.0 126.1 1.6 -.3 .4 -.7 2.8 Materials 139.6 137.5 137.5 139.7 .4 -1.5 .0 1.6 3.6 Major industry groups Manufacturing 131.7 129.9 129.5 132.0 .1 -1.3 -.4 2.0 3.2 Durable 150.2 147.6 146.4 151.9 .3 -1.7 -.9 3.8 5.3 Nondurable 112.9 111.9 112.1 112.0 -.3 -.9 .2 -.1 .9 Mining 108.4 106.0 106.3 105.7 .9 -2.2 .3 -.6 -.6 Utilities 115.5 118.6 117.6 118.1 3.3 2.7 -.9 .4 4.5 Capacity utilization, percent MEMO Capacity, percentage 1997 1998 change, Average, Low, High, Aug. 1997 1967-97 1982 1988-89 to Aug. May' June' July Aug.P Aug. 1998 Total 82.1 71.1 85.4 82.8 82.4 81.2 80.6 81.7 4.5 Previous estimate .. 82.4 81.2 80.5 Manufacturing 81.1 69.0 85.7 81.8 81.1 79.7 79.1 80.4 5.1 Advanced processing 80.5 70.4 84.2 80.0 79.4 77.8 77.0 78.8 5.9 Primary processing 82.4 66.2 88.9 85.8 84.9 84.0 83.9 83.9 3.2 Mining 87.5 80.3 88.0 90.0 91.4 89.3 89.5 88.8 .8 Utilities 87.3 75.9 92.6 89.2 90.4 92.8 91.9 92.2 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. MARKET GROUPS tion indexes for heavy trucks, truck trailers, and commercial aircraft—for which demand remained The output of consumer goods rose 2.2 percent in strong—reached record highs. The production of August, principally because of the 32.3 percent jump information processing equipment advanced after in the production of automotive products. The index having edged down in July; the output of office and for other durable consumer goods declined 1.0 per- computing equipment continued to grow rapidly cent as the output of appliances and air conditioners, although somewhat more slowly than in the first which had moved erratically in recent months, fell half of the year. The output of industrial equipment back. Even with this decline, the output of household declined nearly 1 percent after gains in June and July, appliances has increased noticeably so far this year. while the output of other equipment dropped 7 per- The production of consumer nondurables has cent because the production of farm machinery and changed little in the past two months, during which equipment fell sharply from an elevated level. Lower the output of clothing weakened further while the prices of farm commodities have led farmers to reoutput of consumer paper products improved. The duce their prospective purchases of farm equipment. output of food products, which had fallen sharply in The output of construction supplies declined June, changed little thereafter. 0.7 percent but remained at a high level. The produc- The production of business equipment rose 3.0 per- tion of materials, which had declined in June and a cent in August, largely because of the 19.6 percent bit further in July, rebounded 1.6 percent, to slightly jump in transit equipment. Although the transit- above its May level. The recovery was in durable equipment jump primarily reflects the post-strike goods materials used to make motor vehicles; the rebound in the assembly of light vehicles, the produc- output of consumer durable parts bounced back more Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Industrial Production and Capacity Utilization 821 than 12 percent, while that of equipment parts and capacity utilization, and industrial use of electric other durable materials increased about 1 percentage power toward the end of the year. The revisions will point. The output index for nondurable materials begin with 1992 and will incorporate updated source eased, and that for energy materials edged up; these data for more recent years. indexes are a bit below their levels in May. This regular updating of source data for IP will include annual data from the Bureau of the Census's 1996 Annual Survey of Manufactures and from INDUSTRY GROUPS selected editions of its 1997 Current Industrial Reports. Annual data from the Department of the Manufacturing output, propelled by the 40 percent Interior on metallic and nonmetallic minerals (except jump in motor vehicles and parts, rose 2 percent in fuels) for 1996 and 1997 will also be introduced. The August and fractionally surpassed the pre-strike level. updating will also include revisions to the monthly Within durable manufacturing, gains were also indicators for each industry (physical product data, recorded in the production of stone, clay, and glass production-worker hours, or electric power usage) products; primary metals; computer and office equipand revised seasonal factors. ment; semiconductors; and instruments. The pro- Capacity and capacity utilization will be revised to duction of nondurables edged down after a gain incorporate preliminary data from the 1997 Survey of 0.2 percent in July. The production indexes for of Plant Capacity of the Bureau of the Census. The apparel, textile mill, paper, and leather products each statistics on the industrial use of electric power will declined 0.5 percent or more in August; each remains incorporate more complete reports received from below its level of twelve months earlier. Apart from utilities for the past few years as well as data from the manufacturing, the generation of electricity increased, 1996 Annual Survey of Manufactures. while mining output fell 0.6 percent; the production Once the revision is published, the revised data of coal and of oil and gas field services declined. will be available on the Board's web site, The factory operating rate rose 1.3 percentage http://www.federalreserve.gov/releases/gl7 and on points, to 80.4 percent, but remained 0.7 percentage diskettes from Publications Services (telephone 202point below the 1967-97 average. 452-3245). The revised data will also be available through the Economic Bulletin Board of the Depart- REVISION OF INDUSTRIAL PRODUCTION AND ment of Commerce; for information about the Bulle- CAPACITY UTILIZATION tin Board, call 202-482-1986. Further information on these revisions is available from the Board's Indus- The Federal Reserve will publish revisions of its trial Output Section (telephone 202-452-3197). • measures of industrial production (IP), capacity, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

822 Announcements ISSUANCE OF FINAL RULE TO AMEND CAPITAL These gains are reported as a component of equity ADEQUACY STANDARDS capital under U.S. generally accepted accounting principles (GAAP), but they have not been included The Federal Reserve Board, the Office of the Comp- in regulatory capital under the banking agencies' troller of the Currency, the Federal Deposit Insurance capital standards. Corporation, and the Office of Thrift Supervision on The final rule is effective October 1, 1998. How- August 4, 1998, issued a final rule amending capital ever, institutions may elect to comply immediately. adequacy standards for banks, bank holding compa- The final rule permits institutions to include in nies, and savings associations to address the regula- supplementary (tier 2) capital up to 45 percent of tory capital treatment of servicing assets on both the pretax net unrealized holding gains on certain mortgage assets and financial assets other than mort- available-for-sale equity securities. The final rule gages (nonmortgages). is intended to make the capital treatment of these The final rule is effective October 1, 1998. Banking unrealized gains consistent with the international organizations may voluntarily apply the provisions of standards of the Basle Accord. the final rule immediately if desired. The final rule increases the maximum amount of servicing assets, along with purchased credit card ISSUANCE OF AN INTERIM RULE TO EXPAND relationships (PCCRs), that are includable in reg- THE EXAMINATION FREQUENCY CYCLE FOR ulatory capital from 50 percent to 100 percent of CERTAIN U.S. BRANCHES AND AGENCIES OF tier 1 capital. Servicing assets include the aggregate FOREIGN BANKS amount of mortgage-servicing assets (MSAs) and nonmortgage-servicing assets (NMSAs). The Federal Reserve Board, the Office of the Comp- The final rule applies a further sublimit of 25 pertroller of the Currency, and the Federal Deposit Insurcent of tier 1 capital to the aggregate amount of ance Corporation, on August 28, 1998, issued an NMSAs and PCCRs and subjects the valuation of interim rule and requested public comment on a MSAs, NMSAs, and PCCRs to a 10 percent discount. proposal to expand the examination frequency cycle The final rule also modifies certain terms used in for certain U.S. branches and agencies of foreign the banking agencies* capital rules to be more con- banks. The interim rule is effective August 28, 1998. sistent with the terminology found in accounting Comments are requested by October 27, 1998. standards recently prescribed by the Financial Implementation of this ruling will make U.S. Accounting Standards Board for the reporting of branches and agencies of foreign banks with total these assets. assets of $250 million or less eligible for an eighteenmonth examination cycle rather than a twelve-month cycle if they meet the qualifying criteria set out in the interim rule. The ruling will implement provisions of AMENDMENT OF THE RLSK-BASED CAPITAL section 2214 of the Economic Growth and Regula- STANDARDS FOR BANKS, BANK HOLDING tory Paperwork Reduction Act of 1996. COMPANIES, AND THRIFT INSTITUTIONS The Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance ISSUANCE OF HOST STATE LOAN-TO-DEPOSIT Corporation, and the Office of Thrift Supervision RATIOS are amending their respective risk-based capital standards for banks, bank holding companies, and The Federal Reserve Board, the Office of the Compthrift institutions regarding the capital treatment troller of the Currency, and the Federal Deposit Insurof unrealized holding gains on certain equity ance Corporation, on August 13, 1998, issued the securities. host state loan-to-deposit ratios that the banking Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

823 agencies will use to determine compliance with sec- consider under the Bank Holding Company Act. tion 109 of the Riegle-Neal Interstate Banking and These factors are the effects of the proposal on the Branching Efficiency Act of 1994 (Interstate Act). financial and managerial resources and future pros- Section 109 prohibits any bank from establishing pects of the companies and banks involved in the or acquiring a branch or branches outside its home proposal, competition in the relevant markets, and state under the Interstate Act primarily for the pur- the convenience and needs of the communities to pose of deposit production and provides a two-step be served. Convenience and needs considerations process to test compliance with the statutory require- include consideration of the records of the performents. The first step involves a loan-to-deposit ratio mance of Norwest and Wells Fargo under the Comscreen that compares a bank's statewide loan-to- munity Reinvestment Act. The Board also must deposit ratio to the host state loan-to-deposit ratio for determine whether conducting the proposed nonbanka particular state. The second step requires the bank- ing activities can reasonably be expected to produce ing agencies to determine if the bank is reasonably benefits to the public that outweigh possible adverse helping to meet the credit needs of the communities effects, such as undue concentration of resources, served by the bank's interstate branches. decreased or unfair competition, conflicts of interest, A bank that fails both steps is in violation of or unsound banking practices. section 109 and is subject to sanctions by the banking The meeting was held at the Federal Reserve Bank agencies. of Minneapolis, 90 Hennepin Avenue, Minneapolis, Minnesota, at 9 a.m. CDT. Persons who wished to testify at the meeting were PROPOSED ACTION required to submit a written request by 5:00 p.m. CDT, Friday, September 4, 1998, containing a brief The Federal Reserve Board, the Office of the Compstatement of the nature of the expected testimony and troller of the Currency, the Federal Deposit Insurance the estimated time required for the presentation Corporation, and the Office of Thrift Supervision on (together with their address, telephone number, and August 10, 1998, requested public comment on a facsimile number if available), to JoAnne F. Lewelproposal to revise their rules regarding management len, Community Affairs Officer, Banking Supervision interlocks. Comments were requested by October 9, Department, Federal Reserve Bank of Minneapolis, 1998. 90 Hennepin Avenue, Minneapolis, Minnesota 55480 (facsimile: 612-204-5163). Persons interested only in PUBLIC MEETING SCHEDULED attending the meeting did not need to submit a writ- ON THE PROPOSED MERGER OF ten request to attend. NORWEST CORPORATION WITH On the basis of the requests to testify, the presiding WELLS FARGO & COMPANY officer of the public meeting established a schedule of appearances and prescribed all necessary procedures The Federal Reserve Board on August 31, 1998, to ensure that the meeting proceeded in a fair and announced a public meeting for Thursday, September orderly manner. An agenda for the meeting was pro- 17, 1998, in Minneapolis on the proposal by Norwest vided to participants. Corporation, Minneapolis, Minnesota, to merge with In connection with this action, the Board also Wells Fargo & Company, San Francisco, California. announced that the period for public comment on the The purpose of the meeting was to collect informa- proposal would close at 5:00 p.m. CDT, Thursday, tion relating to the factors the Board is required to September 17, 1998. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

824 Minutes of the Federal Open Market Committee Meeting Held on June 30-July 1, 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, June 30, 1998, at 1:30 p.m. and continued Mr. Reinhart, Assistant Director, Division of on Wednesday, July 1, 1998, at 9:00 a.m. Monetary Affairs, Board of Governors Present: Messrs. Small,1 ReifSchneider,1 and Whitesell, Section Mr. Greenspan, Chairman Chiefs, Divisions of Monetary Affairs, Research Mr. McDonough, Vice Chairman and Statistics, and Monetary Affairs respectively, Mr. Ferguson Board of Governors Mr. Gramlich Mr. Hoenig Ms. Kusko,2 Senior Economist, Division of Research Mr. Jordan and Statistics, Board of Governors Mr. Kelley Mr. Meyer Mr. Elmendorf2 and Ms. Garrett, Economists, Ms. Minehan Division of Monetary Affairs, Board of Mr. Poole Governors Ms. Rivlin Ms. Low, Open Market Secretariat Assistant, Messrs. Boehne, McTeer, Moskow, and Stern, Division of Monetary Affairs, Board of Alternate Members of the Federal Open Market Governors Committee Mr. Barron, First Vice President, Federal Reserve Messrs. Broaddus, Guynn, and Parry, Presidents of Bank of Atlanta the Federal Reserve Banks of Richmond, Atlanta, and San Francisco respectively Messrs. Beebe, Eisenbeis, Goodfriend, Hunter, Lang, Rosenblum, and Steindel, Senior Vice Mr. Kohn, Secretary and Economist Presidents, Federal Reserve Banks of Mr. Bernard, Deputy Secretary San Francisco, Atlanta, Richmond, Chicago, Ms. Fox, Assistant Secretary Philadelphia, Dallas, and New York respectively Mr. Gillum, Assistant Secretary Mr. Mattingly, General Counsel Ms. Perelmuter, Vice President, Federal Reserve Bank Mr. Baxter, Deputy General Counsel of New York Mr. Prell, Economist Mr. Truman, Economist Mr. Bryan, Assistant Vice President, Federal Reserve Bank of Cleveland Ms. Browne, Messrs. Dewald, Hakkio, Lindsey, Simpson, and Stockton, Associate Economists Mr. Weber, Senior Research Officer, Federal Reserve Bank of Minneapolis Mr. Fisher, Manager, System Open Market Account By unanimous vote, the minutes of the meeting of Mr. Winn, Assistant to the Board, Office of Board the Federal Open Market Committee held on May 19, Members, Board of Governors 1998, were approved. Mr. Ettin, Deputy Director, Division of Research and 1. Attended portion of the meeting relating to the discussion of the Statistics, Board of Governors Committee's consideration of its monetary and debt ranges for 1998 and 1999. Messrs. Madigan and Slifman, Associate Directors, 2. Attended portions of the meeting relating to the Committee's Divisions of Monetary Affairs and Research and review of the economic outlook and consideration of its monetary and Statistics respectively, Board of Governors debt ranges for 1998 and 1999. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

825 The Manager of the System Open Market Account Industrial production picked up in April and May reported on developments in foreign exchange mar- after having changed little in the first quarter, but the kets and on System transactions in those markets strike at General Motors likely depressed industrial during the period May 19, 1998, through June 30, production substantially in June. In manufacturing, 1998. By unanimous vote, the Committee ratified the output of motor vehicles rose briskly on balance these transactions. over April and May, and the production of computers The Manager also reported on developments in and office equipment remained robust. Growth in the domestic financial markets and on System open mar- manufacture of materials slowed sharply, perhaps ket transactions in government securities and federal reflecting the effects of reduced exports to Asia. agency obligations during the period May 19, 1998, Output of utilities, which continued to fluctuate through June 30, 1998. By unanimous vote, the Com- widely, changed little on balance over the April-May mittee ratified these transactions. period. The rate of utilization of manufacturing The Committee then turned to a discussion of capacity edged down in May to its lowest level in the economic and financial outlook, the ranges for more than two years as capacity grew at a faster rate the growth of money and debt in 1998 and 1999, than output. and the implementation of monetary policy over the Total nominal retail sales posted large gains in intermeeting period ahead. A summary of the eco- April and May. Sales were strong at automotive nomic and financial information available at the time dealers in response to a sharp increase in incentives of the meeting and of the Committee's discussion offered by the Big Three automakers. Sales also rose is provided below, followed by the domestic pol- briskly at building material and supply outlets and icy directive that was approved by the Commit- at general merchandise, apparel, and furniture and tee and issued to the Federal Reserve Bank of appliance stores. Although the growth in real outlays New York. for services in April (latest data available) was held The information reviewed at this meeting sug- down by a small decline in purchases of energy gested that the expansion in economic activity had services, the expansion of outlays for non-energy slowed considerably after a very rapid advance in the services remained brisk. Sales of homes were very first quarter. Much of the slowdown reflected a sub- strong in April and May, but housing starts and stantial moderation in business inventory accumu- building permits declined slightly on a seasonally lation. Consumer spending, business investment, and adjusted basis from their elevated first-quarter rates. residential homebuilding, though remaining robust, Available information suggested that the growth of apparently also were decelerating somewhat after business fixed investment slowed somewhat in the very strong gains in the first quarter; and the erosion second quarter from a very strong pace earlier in the in net exports continued to damp demand for domes- year. A deceleration in expenditures for producers' tically produced goods. Payroll employment per- durable equipment, after the surge in purchases of sisted on a brisk uptrend, but industrial production computer and communications equipment in the seemed likely to record only modest further expan- first quarter, apparently more than offset a pickup sion in the second quarter. Labor markets remained in spending on nonresidential structures. The recent tight, and there were indications of some further upturn in building activity was consistent with the acceleration in employment costs. Recent data on continuing indications of declining vacancy rates and consumer prices were a little less favorable than they rising real estate prices, but available data on conhad been earlier in the year. struction contracts did not point to further strength in Nonfarm payroll employment registered substan- nonresidential construction. tial increases in April and May despite further Business inventory investment slowed sharply in job losses in manufacturing. Construction payrolls April from the extraordinarily rapid rate of accumudeclined in May, but they were up sharply on balance lation in the first quarter. In manufacturing, stockover the April-May period following substantial building picked up somewhat in April from the gains earlier in the year. Employment increases in first-quarter pace, but with sales also rising, the service-producing industries, notably business ser- stock-sales ratio remained at a very low level. vices and retail and wholesale trade, continued to be Wholesale inventories declined sharply in April, prirobust. The civilian unemployment rate stayed at marily reflecting runoffs in stocks of motor vehicles; 4.3 percent in May, and initial claims for unemploy- the inventory-sales ratio for the sector remained near ment insurance remained low through mid-June, after the upper end of its range over the preceding twelve taking into account the onset of layoffs associated months. Retail inventory accumulation slowed somewith the strike at General Motors. what in April, and the aggregate inventory-sales ratio Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

826 Federal Reserve Bulletin • October 1998 stayed close to the lower end of its range over the a higher federal funds rate. The reserve conditions past year. associated with this directive were expected to be The nominal deficit on U.S. trade in goods and consistent with considerable moderation in the services widened further in April, as the value of growth of M2 and M3 over the months ahead. exports declined more than that of imports. Exports Open market operations were directed throughout of aircraft and parts dropped sharply from the first- the intermeeting period toward maintaining the existquarter level, and exports of industrial supplies ing degree of pressure on reserve positions, and the decreased by lesser amounts. Most of the decline in federal funds rate averaged close to the intended level imports was in capital goods and automotive prod- of 5'/2 percent. Market participants interpreted the ucts. Recent information suggested a mixed eco- further turmoil in financial markets in Asia and nomic performance among the major foreign indus- emerging market economies elsewhere as damping trial countries. Economic activity in Japan contracted the outlook for U.S. economic growth and improving sharply in the first quarter after having declined the chances that inflation would remain low. While slightly in the fourth quarter, and many other econo- most short-term interest rates changed little on balmies in Asia remained quite weak. The Asian crises ance over the period, yields on longer-term Treasury held down exports of the major European countries, securities, and to a lesser extent on private debt partly offsetting the influence of strong domestic instruments, declined somewhat, at least partly demand. reflecting a further flight to safety and quality from Consumer prices advanced at a slightly faster rate renewed turbulence in a number of foreign markets. in May as an upturn in energy prices and a large Share prices in U.S. equity markets remained volatile, increase in food prices more than offset a slower rate and changes in major indexes were mixed on balance of increase in the prices of nonfood, non-energy over the intermeeting period. items. Core consumer prices accelerated during the In foreign exchange markets, the trade-weighted three months ended in May, largely reflecting higher value of the dollar in terms of other major currencies tobacco prices and shelter costs. Nonetheless, core continued to increase through the middle of June, but consumer prices rose less over the twelve months it then retraced much of that rise, ending the interended in May than they had over the previous twelve meeting period somewhat higher on balance. The months. At the producer level, prices of finished recent fluctuations in the dollar's trade-weighted goods other than food and energy continued to rise at value were largely accounted for by movements in a subdued rate in May. For the twelve months ended the Japanese yen, which reached an eight-year low in May, core producer prices rose by a small amount against the dollar in the middle of June in response to after having changed little in the year-earlier period. growing market pessimism about the prospects for a At the intermediate level, core producer prices edged prompt resolution of Japan's financial sector probdown in May and were little changed on net over lems and for economic recovery in that country. The the twelve months ended in May. Average hourly yen rebounded in mid-June in response to coordiearnings of production or nonsupervisory workers nated intervention by the Japanese and U.S. governincreased at a slightly faster rate on balance over ments but soon renewed its downward drift, partly as April and May. Measured on a year-over-year basis, a result of rising concerns that the Japanese governaverage hourly earnings accelerated further in the ment would not take prompt action to address weakyear ended in May. The largest gains were in busi- nesses in the country's banking sector and in aggreness services and finance, insurance, and real estate, gate demand; the yen finished the period substantially but marked acceleration also was evident in whole- lower on balance. The dollar changed little on net sale and retail trade. By contrast, gains in manufactur- against the German mark and other continental ing had changed little over the past three years. European currencies; declines in long-term interest At its meeting on May 19, 1998, the Committee rates in those countries generally matched the drop adopted a directive that called for maintaining condi- in yields on comparable U.S. instruments. Against tions in reserve markets that would be consistent with the backdrop of weakness in the yen, the currenthe federal funds rate continuing to average around cies of key emerging market economies, particu- 5 Vi percent. In light of concerns that growth in aggre- larly some of those in Asia, fell further against the gate demand might remain so strong relative to the dollar. expansion of the economy's potential that inflation- Growth of M2 and M3 slowed in the second quarary pressures would tend to be generated, the Com- ter but remained fairly robust. Households accumumittee chose to retain an asymmetric directive tilted lated unusually large deposit balances to make hefty toward a possible finning of reserve conditions and nonwithheld tax payments in April, and these bal- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 827 ances ran off in May as tax checks cleared; averaging ness inventories, which until recently had added through these gyrations, the expansion of the broad substantially to economic growth, was expected to aggregates slowed on balance over April and May, continue at a much lower and more sustainable pace. and preliminary data suggested further slowing in Moreover, the effects on the U.S. trade balance of the June. The growth of M3 remained a little faster than appreciated value of the dollar and of economic that of M2, reflecting the further progress made by weakness in several of the nation's trading partners institution-only money market funds in attracting probably would hold down increases in domestic corporate cash-management business. For the year output in coming quarters. Many of the members through June, both aggregates rose at rates well above commented, however, that the already substantial the Committee's ranges for the year. Expansion of risks surrounding the economic outlook had increased total domestic nonfinancial debt appeared to have on both sides of their forecasts. On the downside, the moderated somewhat after picking up earlier in the greater risks focused on potential developments in year; the moderation evidently reflected some slow- Asia. Financial and economic conditions in Asia had ing in the growth of business and household borrow- deteriorated in recent months, and the members could ing as well as paydowns of federal debt made pos- not rule out the possible emergence of even greater sible by robust tax revenues. financial turmoil and economic weakness in that part The staff forecast prepared for this meeting indi- of the world that could spill over to other countries, cated that economic activity would expand more including the United States. On the upside, in the slowly over the projection period than it had in recent absence of strongly retarding effects from developyears. Moderation in business inventory investment ments in Asia, persistent strength in domestic final would damp domestic production as inventory accu- demand might well add to inflationary pressures. mulation was brought into better balance with the Indeed, there were signs of modestly rising inflation expected more moderate trajectory of final sales. In in some recent measures of prices, though the rate of addition, reduced growth of foreign economic activ- inflation was still relatively subdued. ity and the lagged effects of the sizable earlier rise in In keeping with the practice at meetings when the the foreign exchange value of the dollar were antici- Committee sets its long-run ranges for the money and pated to place substantial restraint on the demand for debt aggregates, the members of the Committee and U.S. exports and to lead to further substitution of the Federal Reserve Bank presidents not currently imports for domestic products. The staff analysis serving as members provided individual projections suggested that the prospective gains in income of the growth in real and nominal GDP, the rate of coupled with the run-up that had occurred in house- unemployment, and the rate of inflation for the years hold wealth would support further brisk, though 1998 and 1999. The forecasts of the rate of expangradually diminishing, increases in consumer spend- sion in real GDP for 1998 as a whole had a central ing. Housing demand was expected to remain at a tendency of 3 to 314 percent, which implied some generally high level in the context of the persisting moderation over the second half from staff estimates favorable cash flow affordability of home ownership, at the time of this meeting of the average rate of though the slower income growth anticipated over growth in the first and second quarters; for 1999 the the projection period would damp homebuilding forecasts pointed to moderate growth and were censomewhat. Growth in business fixed investment tered on a range of 2 to 2Vi percent. These projected would gradually moderate from the vigorous pace of rates of economic growth were accompanied by a the first half of the year in response to smaller very slight rise in the civilian rate of unemployment increases in business sales and profits. Pressures on over the next eighteen months to still quite low rates labor resources were likely to diminish somewhat as centering on 4'/2 to A3A percent in the fourth quarter the expansion of economic activity slowed, but of 1999. With regard to the growth of nominal GDP, underlying inflation was expected to pick up gradu- most of the forecasts were in ranges of AVi to 5 perally as gains in compensation increasingly outpaced cent for 1998 and 4'/4 to 5 percent for 1999. Projecimprovements in productivity. tions of the rate of inflation, as measured by the In the Committee's discussion of current and pro- consumer price index, indicated a slightly faster rise spective economic developments, the members gen- over the second half of this year and in 1999, largely erally agreed that the expansion in economic activity because of expectations that the plunge in energy was likely to be relatively moderate over coming prices earlier in the year would not be repeated. quarters, and that such growth would be consistent Specifically, the projections converged on CPI inflawith some limited increase in inflation from the cur- tion rates of VA to 2 percent for 1998 as a whole and rent unusually low level. The accumulation of busi- 2 to 2'/2 per cent in 1999. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

828 Federal Reserve Bulletin • October 1998 In their review of developments in different parts ing activity, including the robust growth in employof the country, Reserve Bank presidents reported ment and incomes, high wealth-to-income ratios, and high levels of business activity across the nation, but very attractive terms on home mortgages, seemed several also indicated that there were signs of some likely to continue to hold housing construction close slowing in the expansion of regional economic activ- to current elevated levels. ity. With regard to the nation as a whole, members Based on very partial data, business inventory noted that rising levels of employment and incomes investment appeared to have moderated considerably were continuing to foster solid growth in consumer in the second quarter from an unsustainable pace in spending, a development that was abetted by the the first quarter, and some further reductions in invensharp increases that had occurred in household wealth tory accumulation could be expected over the balance as a consequence of the extended uptrend in stock of the year. Several members commented, however, market prices and to a lesser extent the appreciation that despite the outsized rate of stockbuilding early of home prices. However, some anecdotal and other in the year, there were no broad indications of an evidence suggested that retail sales had moderated in inventory overhang, whether from the standpoint of recent weeks in at least some areas; the moderation inventory-sales ratios or anecdotal expressions of appeared to be only partly associated with the work concern. Against this background, many of the memstoppage at General Motors. The apparent decelera- bers saw little reason to anticipate a further sizable tion in retail sales could prove to be temporary, drop in nonfarm inventory investment, though the though some slowing in the growth of overall con- performance of this sector of the economy was sumer spending over the forecast horizon, perhaps to always subject to a high degree of uncertainty. a pace more in line with the growth of disposable With regard to the external sector of the economy, income, was viewed as a reasonable expectation, the recent deterioration of conditions in Japan and especially with equity price gains of recent years several emerging economies in Asia and the related unlikely to be repeated. effects on other countries around the world were Business fixed investment remained on a strong adding significantly to the uncertainties facing the uptrend, buoyed by several favorable factors. The U.S. economy. Members commented that it was too latter included the ready availability of debt and soon to judge the eventual extent and duration of the equity financing on relatively attractive terms, and turmoil in Asia and its spillover to other nations, but opportunities to invest in high-tech equipment at several suggested that the consequences were likely lower prices to enhance productivity and hold down to be more severe and longer lasting than they had labor costs in a period of very tight labor markets. anticipated earlier. Moreover, there seemed to be a While these factors were expected to support appre- very small but growing possibility of marked and ciable further expansion in business investment, spreading weakness that might have a more major growth in demand for capital goods was likely to effect on U.S. financial markets and the U.S. econdiminish as a result of the projected slowing in the omy. One key to an improvement in the outlook for expansion of final sales and business profits and the Asia was the adoption of appropriate policies by absence of pressure on manufacturing capacity. With Japan, but very difficult political as well as economic regard to the outlook for nonresidential construction, problems clearly were involved for that nation and members reported that declining vacancy rates and their resolution might well require an extended period rising prices and rents of office buildings and to some of internal deliberations. From the standpoint of the extent other commercial structures were fostering United States, the Asian crisis and its repercussions very high levels of construction activity in several around the world obviously were deepening the areas. Moreover, there were indications that some nation's trade deficit, but other effects such as those construction projects were being delayed because of on U.S. interest rates and prices in world commodity scarcities of labor or construction materials. A num- markets, notably oil, were boosting domestic demand ber of members commented that some of the con- and tended to have a moderating near-term influence struction was being undertaken on a speculative basis on inflation. and that the strong pace of building activity pointed With regard to the outlook for prices and wages, to overbuilding in some areas. On the residential side, members observed that some key measures of price construction activity also displayed considerable inflation had displayed a modest uptilt recently. strength across much of the country. There were Though overall price inflation had remained subdued widespread anecdotal and other reports of high levels when viewed over a longer horizon, signs of a conof home sales and few reports of faltering housing tinuing acceleration, should they become evident, demand. Favorable factors undergirding current hous- would be a matter of growing concern. Reflecting Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 829 very tight labor markets, the rate of increase in labor probably would exceed the current ranges in 1998 compensation had been on an uptrend, but the rise in and decline to a little below the upper end of those unit labor costs and overall unit product costs had ranges in 1999. Both M2 and M3 had grown unusubeen held down to a very modest pace by gains in ally quickly relative to spending in the first half of productivity. At some point, however the advance in the year. The staff analysis suggested that some of labor compensation would exceed likely improve- the forces that might have been responsible for ments in productivity by an increasing margin unless this decline in velocity would abate, and the projecthe expansion in overall demand, and hence in labor tions anticipated that the velocity of M2 would be demand, moderated significantly. Members cited roughly in line with historical experience before the greater, albeit still occasional, indications of height- early 1990s, as it had been, on balance, for several ened worker demands in labor negotiations that likely years. were encouraged in part by ample job opportunities. In their discussion of the choice of ranges for Any tendency for faster increases in labor costs to growth of M2 and M3 in 1998 and 1999, the memfeed through to price inflation was likely to be rein- bers agreed that those ranges should not reflect foreforced for a time by the unwinding of a number of casts of money growth under anticipated economic special factors that had tended to hold inflation down, and financial conditions, but instead should be including the decline in energy prices in recent quar- viewed as anchors or benchmarks for money growth ters and the dollar's appreciation during 1997. More- that would be associated with price stability and over, a rise in inflation would tend to erode currently sustained economic growth, assuming behavior of favorable inflation expectations and lead workers to velocity in line with historical experience. Reaffirmdemand higher nominal compensation. Nonetheless, ing the current ranges for 1998 and extending them questions could be raised about how rapidly and to to 1999 would thus underscore the Committee's what extent the effects of tight labor markets would commitment to a policy of achieving price stability show through to higher labor compensation and over- over time. In the view of a few members, the Comall producer costs and in turn how quickly the latter mittee should consider adopting ranges centered on would induce significantly faster increases in prices. its expectations for growth of the monetary aggre- Very competitive domestic and international markets gates in the future, but only if the members became for a wide range of products along with reduced more confident about the relationship between the prices of oil, other commodities, and imports more growth of money and measures of aggregate ecogenerally could well keep inflation in check for some nomic performance and undertook to give more time. It was noted in this regard that members had weight to the growth of the broad monetary aggretended in recent years to anticipate greater inflation gates in setting monetary policy. Some members than had materialized. noted that retention of the current monetary ranges In keeping with the requirements of the Full oriented toward price stability did not preclude Employment and Balanced Growth Act of 1978 (the greater use of the aggregates in assessing overall Humphrey-Hawkins Act), the Committee at this financial conditions and the formulation of monemeeting reviewed the ranges for growth of the mone- tary policy. The Committee agreed that the current tary and debt aggregates that it had established range for nonfinancial debt for 1998 should be left in February for 1998 and also decided on tentative unchanged and that the same range should be ranges for those aggregates in 1999. The current extended to 1999. The current range readily encomranges for the period from the fourth quarter of 1997 passed the growth rate seen likely to be associated to the fourth quarter of 1998 were unchanged from with the members' forecasts for economic activity the ranges for other recent years and included expan- and prices. sion of 1 to 5 percent for M2 and 2 to 6 percent for At the conclusion of this discussion, the Commit- M3. An unchanged range of 3 to 7 percent also was tee voted to reaffirm the ranges for growth of M2, set in February for growth of total domestic nonfinan- M3, and total domestic nonfinancial debt that it had cialdebtin 1998. established in February for 1998 and to extend those All the members favored or could support the ranges on a tentative basis to 1999. In keeping with retention of the current ranges for this year and their its usual procedure under the Humphrey-Hawkins extension on a provisional basis to 1999. They took Act, the Committee would review its preliminary note of a staff projection that indicated that, given ranges for 1999 early next year. Accordingly, the the Committee's expectations for the performance of Committee voted to incorporate the following statethe economy and prices and assuming no major ment regarding the 1998 and 1999 ranges in its changes in interest rates, growth of M2 and M3 domestic policy directive: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

830 Federal Reserve Bulletin • October 1998 The Federal Open Market Committee seeks monetary ber of countries abroad that were experiencing severe and financial conditions that will foster price stability and financial difficulties. It was not possible to anticipate promote sustainable growth in output. In furtherance of precisely what those effects might be, but the risks these objectives, the Committee reaffirmed at this meeting seemed to be particularly high at this time. To be the ranges it had established in February for growth of M2 and M3 of 1 to 5 percent and 2 to 6 percent respectively, sure, U.S. monetary policy had to be set ultimately measured from the fourth quarter of 1997 to the fourth on the basis of the needs of the U.S. economy, but quarter of 1998. The range for growth of total domestic recognition had to be given to the feedback of nonfinancial debt was maintained at 3 to 7 percent for the developments abroad on the domestic economy. year. For 1999, the Committee agreed on tentative ranges for monetary growth, measured from the fourth quarter of Those repercussions could be quite severe in the 1998 to the fourth quarter of 1999, of 1 to 5 percent for M2 event of further sizable economic and financial disturand 2 to 6 percent for M3. The Committee provisionally set bances in some of the nation's important trading the associated range for growth of total domestic nonfinanpartners. Many members concluded that because cial debt at 3 to 7 percent for 1999. The behavior of the there did not seem to be any urgency to tighten monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in current policy for domestic reasons, given the likelitheir velocities, and developments in the economy and hood that inflation would remain subdued for a while, financial markets. important weight should be given to potential reactions abroad. A number of these members empha- Votes for this action: Messrs. Greenspan. McDonough, sized, however, that they continued to see a high Ferguson, Gramlich, Hoenig, Jordan, Kelley, Meyer, probability that some tightening of monetary policy Ms. Minehan, Mr. Poole, and Ms. Rivlin. Votes against this action: None. would be needed later to curb rising inflationary pressures. Accordingly, they believed that the Com- In the Committee's discussion of policy for the mittee should take advantage of any early opportuintermeeting period ahead, all but one of the mem- nity to tighten policy in order to improve the prosbers indicated that they could support an unchanged pects of containing inflation and prolonging the policy stance and retention of the current tilt toward economic expansion. One member was persuaded, possible tightening in the directive. Although recent however, that such a policy move should be impledevelopments had increased both the upside and the mented at this meeting in order to avert the need for a downside uncertainties in the economic outlook, most stronger and probably more disruptive policy adjustof the members felt that the risks continued to point ment that would be needed later to head off rising on balance toward rising inflation. While the avail- inflation. able evidence suggested that the economic expansion Given that the balance of risks was seen as pointhad in fact slowed considerably in the second quarter, ing to rising inflation over time, the members agreed largely because of reduced inventory accumulation that it was desirable to retain the tilt toward restraint against the backdrop of weakness in the foreign trade in the directive. Such a tilt would continue to undersector, the retarding effects of those factors were seen score the Committee's commitment to its long-run as likely to wane over coming quarters and there objective of price stability and its view of the likely were only limited indications of any softening in direction of the next policy move. domestic final demand. Moreover, the persistence of At the conclusion of the Committee's discussion, accommodative financial conditions, as evidenced by all but one of the members accepted a directive that the ample availability of financing on favorable terms called for maintaining conditions in reserve markets to business and household borrowers and by robust that were consistent with an unchanged federal funds monetary growth, might well continue to support rate of about 5'/2 percent and that contained a bias relatively strong domestic spending. As a conse- toward the possible firming of reserve conditions and quence, many of the members expressed concern that a higher federal funds rate. Accordingly, in the conthe expansion in demand might continue at a fast text of the Committee's long-run objectives for price enough pace to raise pressures on wages and prices stability and sustainable economic growth, and givover time. Nonetheless, the substantial uncertainties ing careful consideration to economic, financial, and relating to prospective developments argued, as they monetary developments, the Committee decided that had at recent meetings, in favor of a cautious "wait a somewhat higher federal funds rate would be and see" policy stance. acceptable or a slightly lower federal funds rate might Another important reason for deferring any policy be acceptable during the intermeeting period. The action was that a tightening move would involve the reserve conditions contemplated at this meeting were risk of outsized reactions and consequent destabiliz- expected to be consistent with moderate growth in ing effects on financial markets in the growing num- M2 and M3 over the months ahead. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 831 The Federal Reserve Bank of New York was autho- for monetary growth, measured from the fourth quarter of rized and directed, until instructed otherwise by the 1998 to the fourth quarter of 1999, of 1 to 5 percent for M2 and 2 to 6 percent for M3. The Committee provisionally set Committee, to execute transactions in the System the associated range for growth of total domestic nonfinan- Account in accordance with the following domestic cial debt at 3 to 7 percent for 1999. The behavior of the policy directive: monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in The information reviewed at this meeting suggests that their velocities, and developments in the economy and the expansion in economic activity has slowed consider- financial markets. ably after a very rapid advance in the first quarter. Nonfarm In the implementation of policy for the immediate future, payroll employment registered another substantial increase the Committee seeks conditions in reserve markets consisin May, and the civilian unemployment rate was unchanged tent with maintaining the federal funds rate at an average at 4.3 percent. Industrial output picked up in recent months of around 5lA percent. In the context of the Committee's after weakening early this year; however, a strike at Gen- long-run objectives for price stability and sustainable ecoeral Motors likely depressed output substantially in June. nomic growth, and giving careful consideration to eco- Although retail sales posted large gains in April and May, nomic, financial, and monetary developments, a somewhat overall consumer spending appears to have grown less higher federal funds rate would or a slightly lower federal rapidly in the second quarter than in the first. Residential funds rate might be acceptable in the intermeeting period. sales have remained exceptionally strong, but housing The contemplated reserve conditions are expected to be starts and building permits slipped back in the spring, on a consistent with moderate growth in M2 and M3 over seasonally adjusted basis, from a sharply increased first- coming months. quarter level. Available indicators suggest that growth of business fixed investment also is slowing after a surge Votes for this action: Messrs. Greenspan, McDonough, earlier in the year. Business inventory accumulation Ferguson, Gramlich, Hoenig, Kelley, Meyer, Ms. Mineappears to have moderated in April from an extraordinarily han, Mr. Poole, and Ms. Rivlin. Votes against this action: rapid rate in the first quarter. The nominal deficit on U.S. Mr. Jordan. trade in goods and services continued to widen in April. Developments in the food and energy sectors contributed to a slightly faster advance in consumer prices in May. Mr. Jordan dissented because he believed that the unsustainably rapid growth of domestic demand— Most short-term interest rates have changed little since fueled by the acceleration of money and credit growth the meeting on May 19, but longer-term rates have declined somewhat. Share prices in U.S. equity markets remained in the past year—was reflected in the recent sharp volatile and changes in major indexes were mixed on increase in imports and rising trade deficits. As U.S. balance over the intermeeting period. In foreign exchange output growth slows significantly from the rapid markets, the trade-weighted value of the dollar rose sharply pace of 1997 and early 1998, it will be essential that through mid-June in terms of other major currencies, domestic demand also slow. The very welcome declined more recently, but is up somewhat on net since the May meeting; the fluctuations in the average value of the progress toward eliminating inflation in recent years dollar in terms of these major currencies were largely has contributed to the outstanding performance of the related to movements against the Japanese yen. The dollar economy. Allowing domestic demand to continue to has risen further against the currencies of key emerging exceed domestic production would run the risk that market economies, particularly some of those in Asia. corrosive effects of rising inflation would undermine Growth of M2 and M3 slowed in the second quarter, but future growth prospects. Furthermore, the resultant remained fairly robust. For the year through June, both aggregates rose at rates well above the Committee's ranges trade and current account deficits would have to be for the year. Expansion of total domestic nonfinancial debt matched by ever larger inflows of foreign capital. appears to have moderated somewhat after a pickup earlier Modest monetary restraint at this time might prevent in the year. either the buildup of inflationary imbalances that The Federal Open Market Committee seeks monetary would eventually necessitate future policy restraint or and financial conditions that will foster price stability and unsustainable capital flows. In either case an ecopromote sustainable growth in output. In furtherance of these objectives, the Committee reaffirmed at this meeting nomic contraction might become unavoidable. the ranges it had established in February for growth of M2 The meeting adjourned at 12:40 p.m. and M3 of 1 to 5 percent and 2 to 6 percent respectively, measured from the fourth quarter of 1997 to the fourth quarter of 1998. The range for growth of total domestic nonfinancial debt was maintained at 3 to 7 percent for the Donald L. Kohn year. For 1999, the Committee agreed on tentative ranges Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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

833 Legal Developments FINAL RULE — AMENDMENTS TO REGULATIONS H (2) Mortgage servicing assets; AND Y 3. In Appendix A to Part 3, paragraph (c)(14) of section The Office of the Comptroller of the Currency (OCC); the is revised to read as follows: Board of Governors of the Federal Reserve System (Board); the Federal Deposit Insurance Corporation (FDIC); and the Office of Thrift Supervision (OTS) (collec- Appendix A to Part 3—Risk-Based Capital tively, the Agencies) are amending their capital adequacy Guidelines standards for banks, bank holding companies, and savings associations (collectively, institutions or banking organiza- Section 1—Purpose, Applicability of Guidelines, and tions) to address the regulatory capital treatment of servic- Definitions. ing assets on both mortgage assets and financial assets other than mortgages (nonmortgages). This rule increases (c) * * * the maximum amount of servicing assets (when combined (14) Intangible assets include mortgage and nonwith purchased credit card relationships (PCCRs)) that are mortgage servicing assets (but exclude any interest includable in regulatory capital from 50 percent to only (IO) strips receivable related to these mort- 100 percent of Tier 1 capital. Servicing assets include the gage and nonmortgage servicing assets), purchased aggregate amount of mortgage servicing assets (MSAs) credit card relationships, goodwill, favorable leaseand nonmortgage servicing assets (NMSAs). It also applies holds, and core deposit value. a further sublimit of 25 percent of Tier 1 capital to the aggregate amount of NMSAs and PCCRs. The rule also subjects the valuation of MSAs, NMSAs, and PCCRs to a 4. In Appendix A to Part 3, paragraph (c) introductory text, 10 percent discount. The final rule also modifies certain (c)(l), and (c)(2) of section 2. are revised to read as terms used in the Agencies' capital rules to be more follows: consistent with the terminology found in accounting standards recently prescribed by the Financial Accounting Standards Board (FASB) for the reporting of these assets. This final rule is effective October 1, 1998. The Agen- Section 2—Components of Capital. cies will not object if an institution wishes to apply the provisions of this final rule beginning on August 10, 1998. For the reasons set out in the joint preamble, 12C.F.R. Parts 3. 6, 208, 225, 325, 565, and 567 are amended as (c) Deductions from Capital. The following items are defollows: ducted from the appropriate portion of a national bank's capital base when calculating its risk-based capital ratio: Part 3—Minimum Capital Ratios; Issuance of (1) Deductions from Tier I Capital. The following Directives items are deducted from Tier 1 capital before the Tier 2 portion of the calculation is made: 1. The authority citation for Part 3 continues to read as (i) Goodwill; follows: (ii) Other intangible assets, except as provided in section 2(c)(2) of this Appendix A; and Authority: 12U.S.C. 93a, 161, 1818, 1828(n), 1828 note, (iii) Deferred tax assets, except as provided in 1831n note, 1835. 3907, and 3909. 2. section 2(c)(3) of this Appendix A, that are 2. Section 3.100 is amended by revising paragraph (c)(2) dependent upon future taxable income, which and by removing the words "mortgage servicing rights" in exceed the lesser of either: paragraphs (e)(7) and (g)(2) and adding "mortgage servic- (A) The amount of deferred tax assets that the ing assets" in their place to read as follows: bank could reasonably expect to realize within one year of the quarter-end Call Section 3.100—Capital and surplus. Report, based on its estimate of future taxable income for that year; or (B) 10 percent of Tier 1 capital, net of goodwill and all intangible assets other than Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

834 Federal Reserve Bulletin • October 1998 mortgage servicing assets, non-mortgage 2. Section 6.2 is amended by revising paragraph (g) to read servicing assets, and purchased credit as follows: card relationships, and before any disallowed deferred tax assets are deducted. (2) Qualifying intangible assets. Subject to the follow- Section 6.2—Definitions. ing conditions, mortgage servicing assets, nonmortgage servicing assets6 and purchased credit card relationships need not be deducted from Tier 1 capital: (g) Tangible equity means the amount of Tier 1 capital (i) The total of all intangible assets that are in- elements in the OCC's Risk-Based Capital Guidelines cluded in Tier 1 capital is limited to (Appendix A to Part 3 of this chapter) plus the amount 100 percent of Tier 1 capital, of which no of outstanding cumulative perpetual preferred stock (inmore than 25 percent of Tier 1 capital can cluding related surplus) minus all intangible assets exconsist of purchased credit card relationships cept mortgage servicing assets to the extent permitted in and non- mortgage servicing assets in the Tier 1 capital under section 2(c)(2) in Appendix A to aggregate. Calculation of these limitations Part 3 of this chapter. must be based on Tier 1 capital net of goodwill and all identifiable intangible assets, other than mortgage servicing assets, nonmortgage Part 208—Membership of State Banking servicing assets and purchased credit card re- Institutions in the Federal Reserve System lationships. (Regulation H) (ii) Banks must value each intangible asset included in Tier 1 capital at least quarterly at the 1. The authority citation for Part 208 continues to read as lesser of. follows: (A) 90 percent of the fair value of each intangible asset, determined in accordance with section 2(c)(2)(iii) of this Appen- Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321dix A; or 338a, 371d, 461, 481-486, 601, 611, 1814, (B) 100 percent of the remaining unamor- 1816, 1818, 1823(j), 1828(o), 1831o, 1831p-l, tized book value. 1831r-l, 1835a, 1882, 2901-2907, 3105, 3310, (iii) The quarterly determination of the current fair 3331-3351 and 3906-3909; 15 U.S.C. 78b, value of the intangible asset must include 781(b), 781(g), 781(i), 78o-4(c)(5), 78q, 78q-l, adjustments for any significant changes in and 78w; 31 U.S.C. 5318; 42 U.S.C. 4012a, original valuation assumptions, including 4104a, 4104b, 4106, and 4128. changes in prepayment estimates. (iv) Banks may elect to deduct disallowed servic- 2. Section 208.41 as revised at 63 FR 37652, effective ing assets on a basis that is net of any associ- October 1, 1998, is amended by revising paragraph (f) to ated deferred tax liability. Deferred tax liabili- read as follows: ties netted in this manner cannot also be netted against deferred tax assets when determining the amount of deferred tax assets that are dependent upon future taxable income. Section 208.41—Definitions for purposes of this subpart. Part 6—Prompt Corrective Action (f) Tangible equity means the amount of core capital 1. The authority citation for Part 6 continues to read as elements as defined in the Board's Capital Adequacy follows: Guidelines for State Member Banks: Risk-Based Measure (Appendix A to this part), plus the amount of outstanding cumulative perpetual preferred stock (in- Authority: 12 U.S.C. 93a, 1831o. cluding related surplus), minus all intangible assets except mortgage servicing assets to the extent that the 6. Intangible assets are defined to exclude any IO strips receivable Board determines that mortgage servicing assets may be related to these mortgage and non-mortgage servicing assets. See included in calculating the bank's Tier 1 capital. section l(c)(14) of this Appendix A. Consequently, IO strips receivable related to mortgage and nonmortgage servicing assets are not required to be deducted under section 2(c)(2) of this Appendix A. However, these IO strips receivable are subject to a 100 percent risk 3. In Appendix A to part 208, sections II.B.l.b.i. weight under section 3(a)(4) of this Appendix A. through II.B.l.b.v. are revised to read as follows: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 835 Appendix A to Part 208—Capital Adequacy of the balance sheet amount for these assets Guidelines for State Member Banks: Risk-Based would result in an amount being deducted Measure from capital, the bank would deduct only the greater of the two amounts from its core capital elements in determining Tier 1 capital. g * * * iv. Banks may elect to deduct disallowed ser- 1. Goodwill and other intangible assets vicing assets on a basis that is net of any b. Other intangible assets. associated deferred tax liability. Deferred i. All servicing assets, including servicing astax liabilities netted in this manner cannot sets on assets other than mortgages (i.e., also be netted against deferred tax assets nonmortgage servicing assets) are included when determining the amount of deferred in this Appendix A as identifiable intangible tax assets that are dependent upon future assets. The only types of identifiable intantaxable income. gible assets that may be included in, that is, v. Banks must review the book value of all not deducted from, a bank's capital are intangible assets at least quarterly and make readily marketable mortgage servicing asadjustments to these values as necessary. sets, nonmortgage servicing assets, and pur- The fair value of mortgage servicing assets, chased credit card relationships. The total nonmortgage servicing assets, and puramount of these assets included in capital, chased credit card relationships also must in the aggregate, can not exceed 100 percent be determined at least quarterly. This deterof Tier 1 capital. Nonmortgage servicing mination shall include adjustments for any assets and purchased credit card relationsignificant changes in original valuation asships are subject to a separate sublimit of sumptions, including changes in prepay- 25 percent of Tier 1 capital.14 ment estimates or account attrition rates. ii. For purposes of calculating these limitations Examiners will review both the book value on mortgage servicing assets, nonmortgage and the fair value assigned to these assets, servicing assets, and purchased credit card together with supporting documentation, relationships, Tier 1 capital is defined as the during the examination process. In addition, sum of core capital elements, net of goodthe Federal Reserve may require, on a casewill, and net of all identifiable intangible by-case basis, an independent valuation of a assets other than mortgage servicing assets, bank's intangible assets. nonmortgage servicing assets, and purchased credit card relationships, regardless of the date acquired, but prior to the deduc- 4. In Appendix A to Part 208, section II.B.4. is revised tion of deferred tax assets. to read as follows: iii. The amount of mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships that a bank II. * * * may include in capital shall be the lesser of * * * B 90 percent of their fair value, as determined 4. Deferred tax assets. The amount of deferred tax in accordance with this section, or 100 perassets that is dependent upon future taxable incent of their book value, as adjusted for come, net of the valuation allowance for deferred capital purposes in accordance with the intax assets, that may be included in, that is, not structions in the commercial bank Consolideducted from, a bank's capital may not exceed dated Reports of Condition and Income the lesser of: (Call Reports). If both the application of the (i) The amount of these deferred tax assets that limits on mortgage servicing assets, nonthe bank is expected to realize within one year mortgage servicing assets, and purchased of the calendar quarter-end date, based on its credit card relationships and the adjustment projections of future taxable income for that year,20 or 14. Amounts of servicing assets and purchased credit card relationships in excess of these limitations, as well as identifiable intangible assets, including core deposit intangibles, including favorable lease- 20. To determine the amount of expected deferred-tax assets realizholds, are to be deducted from a bank's core capital elements in able in the next 12 months, an institution should assume that all determining Tier 1 capital. However, identifiable intangible assets existing temporary differences fully reverse as of the report date. (other than mortgage servicing assets and purchased credit card rela- Projected future taxable income should not include net operating-loss tionships) acquired on or before February 19, 1992, generally will not carry-forwards to be used during that year or the amount of existing be deducted from capital for supervisory purposes, although they will temporary differences a bank expects to reverse within the year. Such continue to be deducted for applications purposes. projections should include the estimated effect of tax-planning strate- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

836 Federal Reserve Bulletin • October 1998 (ii) 10 percent of Tier 1 capital. The reported average total assets (defined net of the allowance for amount of deferred tax assets, net of any loan and lease losses) reported on the bank's Reports valuation allowance for deferred tax assets, in of Condition and Income (Call Reports), less goodexcess of the lesser of these two amounts is to will; amounts of mortgage servicing assets, nonmortbe deducted from a bank's core capital ele- gage servicing assets, and purchased credit card relaments in determining Tier 1 capital. For pur- tionships that, in the aggregate, are in excess of poses of calculating the 10 percent limitation, 100 percent of Tier 1 capital; amounts of nonmort- Tier 1 capital is defined as the sum of core gage servicing assets and purchased credit card capital elements, net of goodwill, and net of relationships that, in the aggregate, are in excess of all other identifiable intangible assets other 25 percent of Tier 1 capital; all other identifiable than mortgage and nonmortgage servicing as- intangible assets; any investments in subsidiaries or sets and purchased credit card relationships, associated companies that the Federal Reserve deterbefore any disallowed deferred tax assets are mines should be deducted from Tier 1 capital; and deducted. There generally is no limit in Tier 1 deferred tax assets that are dependent upon future capital on the amount of deferred tax assets taxable income, net of theirvaluation allowance, in that can be realized from taxes paid in prior excess of the limitation set forth in section II.B.4 of carry-back years or from future reversals of Appendix A of this part.3 existing taxable temporary differences, but, for banks that have a parent, this may not exceed the amount the bank could reasonably expect its parent to refund. Part 225—Bank Holding Companies and Change in Bank Control (Regulation Y) 5. In Appendix B to Part 208, section II.b. is revised to 1. The authority citation for Part 225 continues to read as read as follows: follows: Appendix B to Part 208—Capital Adequacy Authority: 12U.S.C. 1817(j)(13), 1818, 1828(o), 18311, Guidelines for State Member Banks: Tier 1 1831p-l, 1843(c)(8), 1844(b), 1972(1), 3106, Leverage Measure 3108. 3310, 3331-3351, 3907. and 3909. 2. In Appendix A to Part 225, sections II.B.l.b.i. through II.B.l.B.v. are revised to read as follows: II. b. A bank's Tier 1 leverage ratio is calculated by divid- Appendix A to Part 225—Capital Adequacy ing its Tier 1 capital (the numerator of the ratio) by Guidelines for Bank Holding Companies: its average total consolidated assets (the denominator Risk-Based Measure of the ratio). The ratio will also be calculated using period-end assets whenever necessary, on a case-bycase basis. For the purpose of this leverage ratio, the * * * definition of Tier 1 capital as set forth in the riskg * * * based capital guidelines contained in Appendix A of 1. Goodwill and other intangible assets * * * this part will be used.2 As a general matter, average b. Other intangible assets. total consolidated assets are defined as the quarterly i. All servicing assets, including servicing assets on assets other than mortgages {i.e., nonmortgage servicing assets) are included gies that the organization expects to implement to realize net operating losses or tax-credit carry-forwards that would otherwise expire in this Appendix A as identifiable intangiduring the year. Institutions do not have to prepare a new 12-month ble assets. The only types of identifiable projection each quarter. Rather, on interim report dates, institutions intangible assets that may be included in, may use the future-taxable-income projections for their current fiscal that is, not deducted from, an organizayear, adjusted for any significant changes that have occurred or are tion's capital are readily marketable mortexpected to occur. 2. Tier 1 capital for state member banks includes common equity, gage servicing assets, nonmortgage servicminority interest in the equity accounts of consolidated subsidiaries, ing assets, and purchased credit card and qualifying noncumulative perpetual preferred stock. In addition, relationships. The total amount of these as a general matter, Tier 1 capital excludes goodwill; amounts of assets included in capital, in the aggregate, mortgage servicing assets, nonmortgage servicing assets, and purchased credit card relationships that, in the aggregate, exceed 100 percent of Tier 1 capital; nonmortgage servicing assets and purchased credit card relationships that, in the aggregate, exceed 25 percent of Reserve may exclude certain investments in subsidiaries or associated Tier 1 capital; other identifiable intangible assets; and deferred tax companies as appropriate. assets that are dependent upon future taxable income, net of their 3. Deductions from Tier 1 capital and other adjustments are disvaluation allowance, in excess of certain limitations. The Federal cussed more fully in section II.B. in Appendix A of this part. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 837 cannot exceed 100 percent of Tier 1 capi- values as necessary. The fair value of morttal. Nonmortgage servicing assets and pur- gage servicing assets, nonmortgage servicchased credit card relationships are subject, ing assets, and purchased credit card relain the aggregate, to a sublimit of 25 percent tionships also must be determined at least of Tier 1 capital.15 quarterly. This determination shall include ii. For purposes of calculating these limita- adjustments for any significant changes in tions on mortgage servicing assets, non- original valuation assumptions, including rnortgage servicing assets, and purchased changes in prepayment estimates or accredit card relationships, Tier 1 capital is count attrition rates. Examiners will review defined as the sum of core capital elements, both the book value and the fair value net of goodwill, and net of all identifiable assigned to these assets, together with supintangible assets and similar assets other porting documentation, during the inspecthan mortgage servicing assets, nonmort- tion process. In addition, the Federal Regage servicing assets, and purchased credit serve may require, on a case-by-case basis, card relationships, regardless of the date an independent valuation of an organizaacquired, but prior to the deduction of de- tion's intangible assets or similar assets. ferred tax assets. iii. The amount of mortgage servicing assets, nonmortgage servicing assets, and pur- 3. In Appendix A to Part 225, section II.B.4. is revised chased credit card relationships that a bank to read as follows: holding company may include in capital shall be the lesser of 90 percent of their fair value, as determined in accordance with II. * * * this section, or 100 percent of their book B * * * value, as adjusted for capital purposes in 4. Deferred tax assets. The amount of deferred tax accordance with the instructions to the assets that is dependent upon future taxable in- Consolidated Financial Statements for come, net of the valuation allowance for deferred Bank Holding Companies (FR Y-9C Re- tax assets, that may be included in, that is, not port). If both the application of the limits deducted from, a banking organization's capital on mortgage servicing assets, nonmortgage may not exceed the lesser of: servicing assets, and purchased credit card (i) The amount of these deferred tax assets that relationships and the adjustment of the bal- the banking organization is expected to realance sheet amount for these intangibles ize within one year of the calendar quarterwould result in an amount being deducted end date, based on its projections of future from capital, the bank holding company taxable income for that year,23 or would deduct only the greater of the two (ii) 10 percent of Tier 1 capital. amounts from its core capital elements in The reported amount of deferred tax assets, net of determining Tier 1 capital. any valuation allowance for deferred tax assets, in excess of the lesser of these two amounts is to iv. Bank holding companies may elect to debe deducted from a banking organization's core duct disallowed servicing assets on a basis capital elements in determining Tier 1 capital. that is net of any associated deferred tax For purposes of calculating the 10 percent limitaliability. Deferred tax liabilities netted in tion, Tier 1 capital is defined as the sum of core this manner cannot also be netted against capital elements, net of goodwill, and net of all deferred tax assets when determining the identifiable intangible assets other than mortgage amount of deferred tax assets that are dependent upon future taxable income. v. Bank holding companies must review the book value of all intangible assets at least 23. To determine the amount of expected deferred tax assets realizquarterly and make adjustments to these able in the next 12 months, an institution should assume that all existing temporary differences fully reverse as of the report date. Projected future taxable income should not include net operating loss 15. Amounts of mortgage servicing assets, nonmortgage servicing carryforwards to be used during that year or the amount of existing assets, and purchased credit card relationships in excess of these temporary differences a bank holding company expects to reverse limitations, as well as all other identifiable intangible assets, including within the year. Such projections should include the estimated effect core deposit intangibles and favorable leaseholds, are to be deducted of tax planning strategies that the organization expects to implement from an organization's core capital elements in determining Tier 1 to realize net operating losses or tax credit carryforwards that would capital. However, identifiable intangible assets (other than mortgage otherwise expire during the year. Institutions do not have to prepare a servicing assets, and purchased credit card relationships) acquired on new 12 month projection each quarter. Rather, on interim report dates, or before February 19, 1992, generally will not be deducted from institutions may use the future taxable income projections for their capital for supervisory purposes, although they will continue to be current fiscal year, adjusted for any significant changes that have deducted for applications purposes. occurred or are expected to occur. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

838 Federal Reserve Bulletin • October 1998 servicing assets, nonmortgage servicing assets, excess of the limitation set forth in section II.B.4 of and purchased credit card relationships, before Appendix A of this part.4 any disallowed deferred tax assets are deducted. There generally is no limit in Tier 1 capital on the Part 325—Capital Maintenance amount of deferred tax assets that can be realized from taxes paid in prior carryback years or from 1. The authority citation for Part 325 is revised to read as future reversals of existing taxable temporary follows: differences. Authority: 12U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 18l9(Tenth), 4. In Appendix D to Part 225, section Il.b. is revised to 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), read as follows: 1831o, 1835, 3907, 3909, 4808; Pub. L. 102- 233, 105 Stat. 1761, 1789, 1790 (12U.S.C. Appendix D to Part 225—Capital Adequacy 183In note); Pub. L. 102-242, 105 Stat. 2236, Guidelines for Bank Holding Companies: Tier 1 2355, as amended by Pub. L. 103-325, 108 Leverage Measure Stat. 2160, 2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 II. (12 U.S.C. 1828 note). b. A banking organization's Tier 1 leverage ratio is calculated by dividing its Tier 1 capital (the numera- 2. In section 325.2, paragraph (n) is revised to read as tor of the ratio) by its average total consolidated follows: assets (the denominator of the ratio). The ratio will also be calculated using period-end assets whenever Section 325.2—Definitions. necessary, on a case-by-case basis. For the purpose of this leverage ratio, the definition of Tier 1 capital as set forth in the risk-based capital guidelines contained in Appendix A of this part will be used.3 As a (n) Mortgage servicing assets means those assets (net of any related valuation allowances) that result from contracts general matter, average total consolidated assets are to service loans secured by real estate (that have been defined as the quarterly average total assets (defined securitized or are owned by others) for which the benefits net of the allowance for loan and lease losses) reported on the organization's Consolidated Financial of servicing are expected to more than adequately compen- Statements (FR Y-9C Report), less goodwill; sate the servicer for performing the servicing. For purposes amounts of mortgage servicing assets, nonmortgage of determining regulatory capital under this part, mortgage servicing assets, and purchased credit card relation- servicing assets will be recognized only to the extent that ships that, in the aggregate, are in excess of 100 the assets meet the conditions, limitations, and restrictions percent of Tier 1 capital; amounts of nonmortgage described in section 325.5(f). servicing assets and purchased credit card relation- # * * * * ships that, in the aggregate, are in excess of 25 Section 325.2—[Amended] percent of Tier 1 capital; all other identifiable intangible assets; any investments in subsidiaries or asso- 3. In section 325.2, paragraph (s) is amended by removing ciated companies that the Federal Reserve deterthe words "mortgage servicing rights" and adding in their mines should be deducted from Tier 1 capital; and place the words "mortgage servicing assets" each time deferred tax assets that are dependent upon future they appear. taxable income, net of their valuation allowance, in 4. In section 325.2, paragraphs (t) and (v) are amended by removing the words "mortgage servicing rights" and adding in their place the words "mortgage servicing assets, 3. Tier 1 capital for banking organizations includes common equity, nonmortgage servicing assets," each time they appear. minority interest in the equity accounts of consolidated subsidiaries, 5. In section 325.5, paragraph (f) is revised to read as qualifying noncumulative perpetual preferred stock, and qualifying follows: cumulative perpetual preferred stock. (Cumulative perpetual preferred stock is limited to 25 percent of Tier 1 capital.) In addition, as a general matter, Tier 1 capital excludes goodwill; amounts of mortgage Section 325.5—Miscellaneous. servicing assets, nonmortgage servicing assets, and purchased credit card relationships that, in the aggregate, exceed 100 percent of Tier 1 capital; nonmortgage servicing assets and purchased credit card rela- (f) Treatment of mortgage servicing assets, purchased tionships that, in the aggregate, exceed 25 percent of Tier 1 capital; all credit card relationships, and nonmortgage servicing other identifiable intangible assets; and deferred tax assets that are dependent upon future taxable income, net of their valuation allowance, in excess of certain limitations. The Federal Reserve may exclude certain investments in subsidiaries or associated companies as 4. Deductions from Tier 1 capital and other adjustments are disappropriate. cussed more fully in section II.B. in Appendix A of this part. 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Legal Developments 839 assets. For purposes of determining Tier 1 capital under (4) Tier I capital sublimit. In addition to the aggregate this part, mortgage servicing assets, purchased credit limitation on mortgage servicing assets, purchased card relationships, and nonmortgage servicing assets credit card relationships, and nonmortgage servicwill be deducted from assets and from common stock- ing assets set forth in paragraph (f)(3) of this secholders' equity to the extent that these items do not tion, a sublimit will apply to purchased credit card meet the conditions, limitations, and restrictions de- relationships and nonmortgage servicing assets. The scribed in this section. Banks may elect to deduct disal- maximum allowable amount of purchased credit lowed servicing assets on a basis that is net of any card relationships and nonmortgage servicing asassociated deferred tax liability. Any deferred tax liabil- sets, in the aggregate, will be limited to the lesser ity netted in this manner cannot also be netted against of: deferred tax assets when determining the amount of (i) Twenty-five percent of the amount of Tier 1 deferred tax assets that are dependent upon future tax- capital that exists before the deduction of any able income and calculating the maximum allowable disallowed mortgage servicing assets, any disamount of these assets under paragraph (g) of this allowed purchased credit card relationships, section. any disallowed nonmortgage servicing assets, (1) Valuation. The fair value of mortgage servicing and any disallowed deferred tax assets; or assets, purchased credit card relationships, and non- (ii) The sum of the amounts of purchased credit mortgage servicing assets shall be estimated at least card relationships and nonmortgage servicing quarterly. The quarterly fair value estimate shall assets, determined in accordance with parainclude adjustments for any significant changes in graph (f)(2) of this section. the original valuation assumptions, including * * * ** changes in prepayment estimates or attrition rates. Section 325.5—[Amended] The FDIC in its discretion may require independent fair value estimates on a case-by-case basis where it 6. In section 325.5, paragraph (g)(2)(i)(B) is amended by is deemed appropriate for safety and soundness removing the words "any disallowed mortgage servicing purposes. rights" and adding in their place the words "any disal- (2) Fair value limitation. For purposes of calculating lowed mortgage servicing assets, any disallowed nonmort- Tier 1 capital under this part (but not for financial gage servicing assets". statement purposes), the balance sheet assets for 7. In section 325.5, paragraph (g)(5) is amended by removmortgage servicing assets, purchased credit card ing the words "mortgage servicing rights" and adding in relationships, and nonmortgage servicing assets will their place the words "mortgage servicing assets, nonmorteach be reduced to an amount equal to the lesser of: gage servicing assets". (i) 90 percent of the fair value of these assets, determined in accordance with paragraph Appendix A to Part 325—[Amended] (0(1) of this section; or (ii) 100 percent of the remaining unamortized 8. In Appendix A to Part 325, the words "mortgage servicbook value of these assets (net of any related ing rights" are removed and the words "mortgage servicvaluation allowances), determined in accor- ing assets, nonmortgage servicing assets" are added each dance with the instructions for the preparation time they appear in section I.A.I., section I.B.(l) and footnote 8 to section I.B.(l), section II.C, and Table of the Consolidated Reports of Income and I-Definition of Qualifying Capital and footnote 2 to Condition (Call Reports). Table I. (3) Tier 1 capital limitation. The maximum allowable amount of mortgage servicing assets, purchased Appendix B to Part 325—[Amended] credit card relationships, and nonmortgage servicing assets, in the aggregate, will be limited to the 9. In Appendix B to Part 325, section 1V.A. and footnote 1 lesser of: to section IV.A. are amended by removing the words (i) 100 percent of the amount of Tier 1 capital "mortgage servicing rights" and adding in their place the that exists before the deduction of any disalword "mortgage servicing assets, nonmortgage servicing lowed mortgage servicing assets, any disalassets" each time they appear. lowed purchased credit card relationships, any disallowed nonmortgage servicing assets, and Part 565—Prompt Corrective Action any disallowed deferred tax assets; or (ii) The sum of the amounts of mortgage servicing 1. The authority citation for Part 565 continues to read as assets, purchased credit card relationships, and follows: nonmortgage servicing assets determined in accordance with paragraph (f)(2) of this section. Authority: 12 U.S.C. 1831o. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

840 Federal Reserve Bulletin • October 1998 2. Section 565.2 is amended by revising paragraph (f) to Section 567.6—Risk-based capital credit risk-weight read as follows: categories. Section 565.2—Definitions. (a) (1) * * * ** (iv) * * * (f) Tangible equity means the amount of a savings associa- (L) Certain nonsecurity financial instruments tion's core capital as computed in part 567 of this chapter including servicing assets and intangible plus the amount of its outstanding cumulative perpetual assets includable in core capital under preferred stock (including related surplus), minus intangi- section 567.12 of this part; ble assets as defined in Section 567.1 of this chapter and (M) Interest-only strips receivable; nonmortgage servicing assets that have not been previously deducted in calculating core capital. 7. Section 567.9 is amended by revising paragraph (c)(l) to read as follows: Part 567—Capital 3. The authority citation for Part 567 continues to read as Section 567.9—Tangible capital requirement. follow: Authority: 12U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 (c) * * * (note). (1) Intangible assets, as defined in § 567.1 of this part, 4. Section 567.1 is amended by revising the definition for and servicing assets not includable in tangible capiintangible assets to read as follows: ta] pursuant to section 567.12 of this part. 6. Section 567.12 is amended by revising the section head- Section 567.1—Definitions. ing and paragraphs (a) through (f) to read as follows: Intangible assets. The term intangible assets means assets considered to be intangible assets under generally accepted Section 567.12—Intangible assets and servicing accounting principles. These assets include, but are not assets. limited to, goodwill, core deposit premiums, purchased credit card relationships, and favorable leaseholds. Servic- (a) Scope. This section prescribes the maximum amount of ing assets are not intangible assets, and interest-only strips intangible assets and servicing assets that savings assoreceivable and other nonsecurity financial instruments are ciations may include in calculating tangible and core not intangible assets under this definition. capital. (b) Computation of core and tangible capital. (1) Purchased credit card relationships may be in- 5. Section 567.5 is amended by revising paragraph cluded (that is, not deducted) in computing core (a)(2)(ii) to read as follows: capital in accordance with the restrictions in this section, but must be deducted in computing tangible capital. (2) In accordance with the restrictions in this section, Section 567.5—Components of capital. mortgage servicing assets may be included in computing core and tangible capital and nonmortgage servicing assets may be included in core capital. ( 2 ) (3) Intangible assets, as defined in section 567.1 of this (ii) Servicing assets that are not includable in core part, other than purchased credit card relationships capital pursuant to section 567.12 of this part described in paragraph (b)(l) of this section and are deducted from assets and capital in com- core deposit intangibles described in paragraph puting core capital. (g)(3) of this section, are deducted in computing tangible and core capital. (c) Market valuations. The OTS reserves the authority to 6. Section 567.6 is amended by revising paragraphs require any savings association to perform an indepen- (a)(l)(iv)(L) and (a)(l)(iv)(M) to read as follows: dent market valuation of assets subject to this section Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 841 on a case-by-case basis or through the issuance of (f) Tangible capital limitation. The maximum amount of policy guidance. An independent market valuation, if mortgage servicing assets that may be included in required, shall be conducted in accordance with any tangible capital shall be the same amount includable in policy guidance issued by the OTS. A required valua- core capital in accordance with the limitations set by tion shall include adjustments for any significant paragraph (e) of this section. All nonmortgage servicchanges in original valuation assumptions, including ing assets are deducted in computing tangible capital. changes in prepayment estimates or attrition rates. The valuation shall determine the current fair value of assets subject to this section. This independent market FINAL RULE—AMENDMENTS TO REGULATIONS H valuation may be conducted by an independent valua- AND Y tion expert evaluating the reasonableness of the internal calculations and assumptions used by the associa- The Office of the Comptroller of the Currency (OCC), the tion in conducting its internal analysis. The association Board of Governors of the Federal Reserve System shall calculate an estimated fair value for assets subject (Board), the Federal Deposit Insurance Corporation to this section at least quarterly regardless of whether (FDIC), and the Office of Thrift Supervision (OTS) (collecan independent valuation expert is required to perform tively, the Agencies) are amending their respective riskan independent market valuation based capital standards for banks, bank holding companies, and thrifts (institutions) with regard to the regulatory capi- (d) Value limitation. For purposes of calculating core capital treatment of unrealized holding gains on certain equity tal under this part (but not for financial statement securities. These gains are reported as a component of purposes), purchased credit card relationships and serequity capital under U.S. generally accepted accounting vicing assets must be valued at the lesser of: principles (GAAP), but have not been included in regula- (1) 90 percent of their fair value determined in accortory capital under the Agencies' capital standards. This dance with paragraph (c) of this section; or final rule permits institutions to include in supplementary (2) 100 percent of their remaining unamortized book (Tier 2) capital up to 45 percent of the pretax net unrealvalue determined in accordance with the instrucized holding gains on certain available-for-sale (AFS) eqtions for the Thrift Financial Report. uity securities. The final rule is intended to make the (e) Core capital limitation— regulatory capital treatment of these unrealized gains con- (1) Aggregate limit. The maximum aggregate amount sistent with the international standards of the Basle Acof servicing assets and purchased credit card rela- cord. tionships that may be included in core capital shall This final rule is effective October 1, 1998. The Agenbe limited to the lesser of: cies will not object if an institution wishes to apply the (i) 100 percent of the amount of core capital com- provisions of this final rule beginning on September 1, puted before the deduction of any disallowed 1998. For the reasons set out in the joint preamble, servicing assets and disallowed purchased 12 C.F.R. Parts 3, 208, 225, 325, and 567 are amended as credit card relationships; or follows: (ii) The amount of servicing assets and purchased credit card relationships determined in accor- Part 3—Minimum Capital Ratios; Issuance of dance with paragraph (d) of this section. Directives (2) Reduction by deferred tax liability. Associations may elect to deduct disallowed servicing assets on 1. The authority citation for Part 3 continues to read as a basis that is net of any associated deferred tax follows: liability. (3) Sublimit for purchased credit card relationships Authority: 12U.S.C. 93a, 161, 1818, 1828(n), 1828 note, and non mortgage-related servicing assets. In addi- 183In note, 1835, 3907, and 3909. tion to the aggregate limitation in paragraph (e)(l) of this section, a sublimit shall apply to purchased 2. In Appendix A to Part 3, section 2. is amended by credit card relationships and non mortgage-related adding a new paragraph (b)(5) including footnote 5 to servicing assets. The maximum allowable amount read as follows: of these two types of assets combined shall be limited to the lesser of: (i) 25 percent of the amount of core capital com- Appendix A to Part 3—Risk-Based Capital puted before the deduction of any disallowed Guidelines servicing assets and purchased credit card relationships; or * * * ** (ii) The amount of purchased credit card relationships and non mortgage-related servicing as- Section 2—Components of Capital. sets determined in accordance with para- * * * ** graph (d) of this section. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

842 Federal Reserve Bulletin • October 1998 (b)* * * (v) Unrealized holding gains on equity securities (5) Up to 45 percent of the pretax net unrealized hold- (subject to limitations discussed in section ing gains (that is, the excess, if any, of the fair value II.A.2.e. of this Appendix). over historical cost) on available-for-sale equity se- The maximum amount of Tier 2 capital that may be curities with readily determinable fair values.5 Unre- included in a bank's qualifying total capital is limited to 100 percent of Tier 1 capital (net of goodwill and other alized gains (losses) on other types of assets, such as intangible assets required to be deducted in accordance bank premises and available-for-sale debt securities, with section II.B.l.b. of this Appendix). The elements are not included in supplementary capital, but the of supplementary capital are discussed in greater detail OCC may take these unrealized gains (losses) into below. account as additional factors when assessing a bank's overall capital adequacy. 3. In Appendix A to Part 208, section II.A.2., paragraphs Part 208—Membership of State Banking (d) and (e) are revised to read as follows: Institutions in the Federal Reserve System (Regulation H) 1. The authority citation for Part 208 is revised to read as A.** * follows: 2 * * * d. Subordinated debt and intermediate term pre- Authority: 12 U.S.C. 24, 36, 92(a), 93(a), 248(a), 248(c), ferred stock. 321-338a, 37Id, 461, 481^86, 601, 611, 1814, i. The aggregate amount of term subordi- 1816, 1818, 1820(d)(9), 1823(j), 1828(o), 1831, nated debt (excluding mandatory convert- 1831o, 1831p-l, 1831r-l, 1835a, 1882, 2901ible debt) and intermediate-term preferred 2907, 3105, 3310, 3331-3351, and 3906-3909; stock that may be treated as supplementary 15 U.S.C. 78b, 781(b), 781(g), 78I(i), 78o-4(c)(5), capital is limited to 50 percent of Tier 1 78q, 78q-l, and 78w; 31 U.S.C. 5318; 42 U.S.C. capital (net of goodwill and other intangi- 4012a, 4104a, 4104b, 4106, and 4128. ble assets required to be deducted in accordance with section II.B.l.b. of this appen- 2. In Appendix A to part 208, the introductory paragraphs dix). Amounts in excess of these limits in section II.A.2. are revised and footnote 8 is removed may be issued and, while not included in and reserved to read as follows: the ratio calculation, will be taken into account in the overall assessment of a Appendix A to Part 208—Capital Adequacy bank's funding and financial condition, Guidelines for State Member Banks: Risk-Based ii. Subordinated debt and intermediate-term Measure preferred stock must have an original weighted average maturity of at least five years to qualify as supplementary capital. II. * * * (If the holder has the option to require the A.* * * issuer to redeem, repay, or repurchase the 2. Supplementary capital elements (Tier 2 capital). instrument prior to the original stated ma- The Tier 2 component of a bank's qualifying total turity, maturity would be defined, for riskcapital may consist of the following items that are based capital purposes, as the earliest posdefined as supplementary capital elements: sible date on which the holder can put the (i) Allowance for loan and lease losses (subject instrument back to the issuing bank.)12 to limitations discussed below) iii. In the case of subordinated debt, the instru- (ii) Perpetual preferred stock and related surplus ment must be unsecured and must clearly (subject to conditions discussed below) state on its face that it is not a deposit and (iii) Hybrid capital instruments (as defined below) is not insured by a Federal agency. To and mandatory convertible debt securities qualify as capital in banks, debt must be (iv) Term subordinated debt and intermediateterm preferred stock, including related surplus (subject to limitations discussed below) 12. As a limited-life capital instrument approaches maturity it begins to take on characteristics of a short-term obligation. For this reason, the outstanding amount of term subordinated debt and limitedlife preferred stock eligible for inclusion in Tier 2 is reduced, or discounted, as these instruments approach maturity: one-fifth of the original amount (less redemptions) is excluded each year during the 5. The OCC reserves the authority to exclude all or a portion of instrument's last five years before maturity. When the remaining unrealized gains from Tier 2 capital if the OCC determines that the maturity is less than one year, the instrument is excluded from Tier 2 equity securities are not prudently valued. capital. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 843 subordinated to general creditors and (iii) Hybrid capital instruments (as defined beclaims of depositors. Consistent with cur- low), perpetual debt and mandatory convertrent regulatory requirements, if a state ible debt securities member bank wishes to redeem subordi- (iv) Term subordinated debt and intermediatenated debt before the stated maturity, it term preferred stock, including related surmust receive prior approval of the Federal plus (subject to limitations discussed below) Reserve. (v) Unrealized holding gains on equity securities e. Unrealized gains on equity securities and unreal- (subject to limitations discussed in section ized gains (losses) on other assets. II.A.2.e. of this Appendix). i. Up to 45 percent of pretax net unrealized The maximum amount of Tier 2 capital that may be inholding gains (that is, the excess, if any, of the cluded in an organization's qualifying total capital is limfair value over historical cost) on available- ited to 100 percent of Tier 1 capital (net of goodwill and for-sale equity securities with readily deter- other intangible assets required to be deducted in accorminable fair values may be included in supple- dance with section II.B.l.b. of this appendix). The elementary capital. However, the Federal Reserve ments of supplementary capital are discussed in greater may exclude all or a portion of these unreal- detail below. ized gains from Tier 2 capital if the Federal Reserve determines that the equity securities are not prudently valued. Unrealized gains 3. In Appendix A to Part 225, section H.A.2., paragraphs (losses) on other types of assets, such as bank d. and e. are revised to read as follows: premises and available-for-sale debt securities, are not included in supplementary capital, but the Federal Reserve may take these unrealized gains (losses) into account as additional A.*** factors when assessing a bank's overall capital 2 * * * adequacy. d. Subordinated debt and intermediate-term preferred stock. i. The aggregate amount of term subordinated debt (excluding mandatory convertible Part 225—Bank Holding Companies and Change in debt) and intermediate-term preferred stock Bank Control (Regulation Y) that may be treated as supplementary capital is limited to 50 percent of Tier 1 capital 1. The authority citation for Part 225 is revised to (net of goodwill and other intangible assets read as follows: required to be deducted in accordance with section II.B.l.b. of this appendix). Amounts Authority: 12U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, in excess of these limits may be issued and, 1831p-l, 1843(c)(8), 1844(b), 1972(1), 3106, while not included in the ratio calculation, 3108, 3310, 3331-3351, 3907, and 3909. will be taken into account in the overall assessment of an organization's funding and 2. In Appendix A to Part 225, the introductory paragraphs financial condition. of section II. A.2. are revised and footnote 8 is removed ii. Subordinated debt and intermediate-term and reserved to read as follows: preferred stock must have an original weighted average maturity of at least five Appendix A to Part 225—Capital Adequacy years to qualify as supplementary capital.12 Guidelines for Bank Holding Companies: (If the holder has the option to require the Risk-Based Measure issuer to redeem, repay, or repurchase the instrument prior to the stated maturity, maturity would be defined, for risk-based capital purposes, as the earliest possible date on A.*** 2. Supplementary capital elements (Tier 2 capital). The Tier 2 component of an institution's qualifying total capital may consist of the following items that are defined as supplementary capital elements: 12. Unsecured term debt issued by bank holding companies prior to (i) Allowance for loan and lease losses (subject March 12, 1988, and qualifying as secondary capital at the time of issuance continues to qualify as an element of supplementary capital to limitations discussed below) under the risk-based framework, subject to the 50 percent of Tier 1 (ii) Perpetual preferred stock and related surplus capital limitation. Bank holding company term debt issued on or after (subject to conditions discussed below) March 12, 1988, must be subordinated in order to qualify as capital. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

844 Federal Reserve Bulletin • October 1998 which the holder can put the instrument Appendix A to Part 325—Statement of Policy on back to the issuing banking organization.)13 Risk-Based Capital In the case of subordinated debt, the instrument must be unsecured and must clearly state on its face that it is not a deposit and is not insured by a Federal agency. Bank holding company debt must be subordinated in the right A.*** of payment to all senior indebtedness of the company, 2. Supplementary capital elements (Tier 2) consist e. Unrealized gains on equity securities and unreal- of: —Allowance for loan and lease losses, up to a ized gains (losses) on other assets. maximum of 1.25 percent of risk-weighted assets; i. Up to 45 percent of pretax net unrealized hold- —Cumulative perpetual preferred stock, longing gains (that is, the excess, if any, of the fair term preferred stock (original maturity of at least value over historical cost) on available-for-sale 20 years), and any related surplus; equity securities with readily determinable fair —Perpetual preferred stock (and any related survalues may be included in supplementary capi- plus) where the dividend is reset periodically tal. However, the Federal Reserve may exclude based, in whole or part, on the bank's current all or a portion of these unrealized gains from credit standing, regardless of whether the divi- Tier 2 capital if the Federal Reserve deter- dends are cumulative or noncumulative; mines that the equity securities are not pru- —Hybrid capital instruments, including mandadently valued. Unrealized gains (losses) on tory convertible debt securities; other types of assets, such as bank premises —Term subordinated debt and intermediate-term and available-for-sale debt securities, are not preferred stock (original average maturity of five included in supplementary capital, but the Fed- years or more) and any related surplus; and eral Reserve may take these unrealized gains —Net unrealized holding gains on equity securi- (losses) into account as additional factors when ties (subject to the limitations discussed in paraassessing an institution's overall capital ade- graph I.A.2.(f) of this section). quacy. The maximum amount of Tier 2 capital that may be recognized for risk-based capital purposes is limited to Part 325—Capital Maintenance 100 percent of Tier 1 capital (after any deductions for disallowed intangibles and disallowed deferred tax assets). 1. The authority citation for Part 325 continues to read as In addition, the combined amount of term subordinated follows: debt and intermediate-term preferred stock that may be treated as part of Tier 2 capital for risk-based capital Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), purposes is limited to 50 percent of Tier 1 capital. Amounts 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), in excess of these limits may be issued but are not included 1828(d), 1828(i), 1828(n), 1828(o), 1831o, in the calculation of the risk-based capital ratio. 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 2236, 2355, as 3. In Appendix A to part 325, the last undesignated amended by Pub. L. 103-325, 108 Stat. 2160, paragraph of section I.A.2., entitled "Discount of 2233 (12 .S.C. 1828 note); Pub. L. 102-242, limited-life supplementary capital instruments," is 105 Stat. 2236, 2386, as amended by Pub. L. designated as paragraph (e) and a new paragraph (f) 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 is added to section I.A.2. to read as follows: note). 2. In Appendix A to Part 325, the introductory paragraphs j * * * of section I.A.2. are revised to read as follows: A * * * 2 * * * (f) Unrealized gains on equity securities and unrealized gains (losses) on other assets. Up to 45 percent of pretax net unrealized holding gains (that is, the excess, if any, of the fair value over historical cost) on available-for- 13. As a limited-life capital instrument approaches maturity it sale equity securities with readily determinbegins to take on characteristics of a short-term obligation. For this reason, the outstanding amount of term subordinated debt and limited- able fair values may be included in supplemenlife preferred stock eligible for inclusion in Tier 2 is reduced, or tary capital. However, the FDIC may exclude discounted, as these instruments approach maturity: one-fifth of the all or a portion of these unrealized gains from original amount (less redemptions) is excluded each year during the Tier 2 capital if the FDIC determines that the instrument's last five years before maturity. When the remaining maturity is less than one year, the instrument is excluded from Tier 2 equity securities are not prudently valued. Uncapital. realized gains (losses) on other types of assets, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 845 such as bank premises and available-for-sale Table I. Definition of Qualifying Capital debt securities, are not included in supplemen- Minimum Requirements and Componenls tary capital, but the FDIC may take these Limitations unrealized gains (losses) into account as addi- (1) Core Capital (Tier 1) Must equal or exceed 4 percent of tional factors when assessing a bank's overall risk-weighted assets capital adequacy. (2) Common stockholders' equity No limit1 capital (3) Noncumulative perpetual No limit1 4. In Appendix A to Part 325, Table I is revised to read preferred stock and any related surplus as follows: (see Table I. in next column) (4) Minority interests in equity No limit1 capital accounts of consolidated subsidiaries ORDERS ISSUED UNDER BANK HOLDING COMPANY (5) Less: All intangible assets other 2 ACT than mortgage servicing rights and purchased credit card relationships Orders Issued Under Section 3 of the Bank Holding (6) Less: Certain deferred tax assets 3 Company Act (7) Supplementary Capital (Tier 2) Total of Tier 2 is limited to 100% of Tier I4 First American Corporation Nashville, Tennessee (8) Allowance for loan and lease Limited to 1.25% of risk-weighted losses assets4 (9) Unrealized gains on certain Limited to 45 percent of pretax net Order Approving the Acquisition of a Bank equity securities5 unrealized gains5 (10) Cumulative perpetual and No limit within Tier 2; long-term First American Corporation ("First American"), a bank long-term preferred stock preferred is amortized for capital holding company within the meaning of the Bank Holding (original maturity of 20 years or purposes as it approaches maturity more) and any related surplus Company Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act to acquire The (11) Auction rate and similar No limit within Tier 2 Middle Tennessee Bank, Columbia, Tennessee ("Bank").1 p an re d f e n rr o e n d c u s m to u c l k a t ( i b v o e) th cumulative Notice of the proposal, affording interested persons an (12) Hybrid capital instruments No limit within Tier 2 opportunity to submit comments, has been published (including mandatory (63 Federal Register 33,932 (1998)). The time for filing convertible debt securities) comments has expired, and the Board has considered the (13) Term subordinated debt and Term subordinated debt and proposal and all comments received in light of the factors intermediate-term preferred intermediate term preferred stock stock (original weighted average are limited to 50% of Tier I4 and set forth in section 3 of the BHC Act. maturity of five years or more) amortized for capital purposes as they approach maturity First American is the second largest commercial banking organization in Tennessee, controlling approximately (14) Deductions (from the sum of Tier I plus Tier 2) $8.2 billion in deposits, representing 14.2 percent of total deposits in commercial banking organizations in Tennessee (15) Investments in banking and finance subsidiaries that are not ("state deposits").2 Bank is the 38th largest commercial consolidated for regulatory banking organization in Tennessee, controlling approxi- capital purposes mately $196.8 million in deposits, representing less than (16) Intentional, reciprocal 1 percent of state deposits. On consummation of the pro- cross-holdings of capital securities issued by banks posal, First American would remain the second largest commercial banking organization in Tennessee, controlling (17) Other deductions (such as On a case-by-case basis or as a investments in other subsidiaries matter of policy after formal deposits of $8.4 billion, representing 14.5 percent of state or in joint ventures) as consideration of relevant issues determined by supervisory deposits. authority (18) Total Capital (Tier I + Tier 2 Must equal or exceed 8 percent of Competitive Considerations - Deductions) risk-weighted assets 1. No express limits are placed on the amounts of nonvoting common, Section 3 of the BHC Act prohibits the Board from approv- noncumulative perpetual preferred stock, and minority interests that may be ing a proposal that would result in a monopoly, or that may recognized as part of Tier 1 capital. However, voting common stockholders' equity capital generally will be expected to be the dominant form of Tier 1 substantially lessen competition in any relevant banking capital and banks should avoid undue reliance on other Tier 1 capital elements. 2. The amounts of mortgage servicing rights and purchased credit card relationships that can be recognized for purposes of calculating Tier 1 capital are subject to the limitations set forth in section 325.5(f) of the FDIC's regulations. All deductions are for capital purposes only; deductions would not affect accounting treatment. 1. First American proposes to acquire Bank and merge it with and 3. Deferred tax assets are subject to the capital limitations set forth in section into First American's subsidiary bank. First American National Bank, 325.5(g). Nashville, Tennessee. 4. Amounts in excess of limitations are permitted but do not qualify as capital. 2. State deposit data are as of June 30, 1997, and reflect acquisitions 5. Unrealized gains on equity securities are subject to the capital limitations through July 6, 1998. First American also controls a bank in Missis- set forth in paragraph I.A.2.(f) of Appendix A to Part 325 of the FDIC's Digitizeds ifpopri FaRndA aS sEaRvi ngs association in Virginia. regulations. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

846 Federal Reserve Bulletin • October 1998 market, if the anticompetitive effects of the proposal are ceed the average for rural markets in Tennessee.7 Since not clearly outweighed in the public interest by the proba- 1992, one bank has entered the Maury County banking ble effect of the proposal in meeting the convenience and market de novo and four bank holding companies have needs of the community to be served.3 entered the market by acquisition, including two bank First American and Bank compete in the Maury County, holding companies that entered the market by acquiring Tennessee, banking market, which is an area approximated banks with a significant portion of their deposits in the by Maury County, Tennessee.4 Consummation of the pro- market. Tennessee, moreover, permits unrestricted intraposal would exceed the Department of Justice Merger state branching.8 Guidelines ("DOJ Guidelines") in the Maury County The Department of Justice reviewed the proposal and banking market.5 First American is the fifth largest com- advised the Board that consummation of the proposal mercial banking organization in the market, controlling would not likely have any significantly adverse competi- $43.5 million in deposits, representing 5.3 percent of total tive effects in the Maury County banking market or any deposits in commercial banking organizations in the mar- other relevant banking market. In addition, neither the ket ("market deposits").6 Bank is the second largest com- Federal Deposit Insurance Corporation, which is the primercial banking organization in the market, controlling mary federal supervisor for Bank, nor the Office of the $196.8 million in deposits, representing 23.9 percent of Comptroller of the Currency, which is the primary federal market deposits. On consummation of the proposal, First supervisor for First American National Bank, has objected American would become the second largest commercial to the related bank merger. banking organization in the market, controlling Based on all the facts of record, and for the reasons $240.3 million in deposits, representing 29.2 percent of discussed above, the Board concludes that consummation market deposits. The HHI would increase by 252 points to of the proposal is not likely to result in any significantly 2727. adverse effects on competition or on the concentration of Several characteristics of the Maury County banking banking resources in the Maury County banking market or market mitigate the proposal's potential anticompetitive any other relevant banking market. effects. Six competitors, including First American, would remain in the market after consummation of the proposal. Other Considerations Several of the competitors are large regional institutions, and three of them would each control more than 20 percent of market deposits after consummation of the proposal. The BHC Act requires the Board, in acting on an applica- The Maury County banking market also is attractive for tion, to consider the financial and managerial resources and entry. Data for 1997 show that deposits per banking office future prospects of the companies and banks involved, the and population per banking office in the market are greater convenience and needs of the communities to be served, than the averages for other non-MSA counties in Tennes- and certain supervisory factors. The Board has reviewed see. In addition, population growth, household income, and these factors in light of all the facts of record, including per capita income in Maury County all substantially ex- supervisory reports of examination assessing the financial and managerial resources of the organizations. Based on all the facts of record, the Board concludes that the financial and managerial resources and the future prospects of First 3. 12U.S.C. § 1842(c)(l). American, its subsidiary banks, and Bank are consistent 4. First American contends that the relevant banking market in this with approval, as are the other supervisory factors the case should be the broader market defined to include Maury County Board must consider under section 3 of the BHC Act. In and the greater Nashville, Tennessee, area. Based on an analysis of employment opportunities, commuting data, shopping patterns, loan addition, considerations related to the convenience and and deposit data, interviews with local bankers, and other facts of needs of the communities to be served, including the record, the Board concludes that the appropriate market for analyzing records of performance of the institutions under the Comthe competitive effects of the proposal is the Maury County banking munity Reinvestment Act, are consistent with approval of market. See St. Joseph Valley Bank, 68 Federal Reserve Bulletin 673, 674 (1982); see also United States v. Philadelphia Nat'I Bank, the proposal. 374 U.S. 321, 374 (1963); United States v. Phillipsburg Nat'l Bank, 399 U.S. 350(1969). 5. Under the revised DOJ Guidelines. 49 Federal Register 26,823 Conclusion (June 29, 1984), a market in which the post-merger Herfindahl- Hirschman Index ("HHI") exceeds 1800 is considered highly concentrated. The Department of Justice has informed the Board that a bank Based on the foregoing, and in light of all the facts of merger or acquisition generally will not be challenged (in the absence record, the Board has determined that the application of other factors indicating anticompetitive effects) unless the postmerger HHI is at least 1800 and the merger increases the HHI by more should be, and hereby is, approved. The Board's approval than 200 points. The Department of Justice has stated that the higher is specifically conditioned on compliance by First Amerithan normal HHI thresholds for screening bank mergers for anticom- can with all the commitments made in connection with the petitive effects implicitly recognize the competitive effect of limitedpurpose lenders and other non-depository financial entities. 6. Market share data are as of June 30, 1997, and reflect acquisitions through July 6, 1998. No savings associations operate in the Maury 7. Rand McNally Commercial Atlas (1997). County banking market. 8. See Tenn. Code Ann. § 45-2-614 (1997). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 847 application. For the purposes of this action, the commit- Section 3(d) of the BHC Act, as amended by Section ments and conditions relied on by the Board in reaching its 101 of the Riegle-Neal Interstate Banking and Branching decision are deemed to be conditions imposed in writing Efficiency Act of 1994 ("Riegle-Neal Act"), allows the by the Board in connection with its findings and decision Board to approve an application by a bank holding comand, as such, may be enforced in proceedings under appli- pany to acquire a bank located in a state other than the cable law. home state of such bank holding company if certain condi- The transaction shall not be consummated before the tions are met.2 For purposes of the BHC Act, the home fifteenth calendar day following the effective date of this state of Norwest is Minnesota, and Norwest proposes to order, or later than three months after the effective date of acquire a bank in Texas. The conditions for an interstate this order, unless such period is extended for good cause by acquisition under section 3(d) of the BHC Act are met in the Board or by the Reserve Bank of Atlanta, acting this case.3 pursuant to delegated authority. The BHC Act prohibits the Board from approving a By order of the Board of Governors, effective proposal under section 3 of the BHC Act that if would August 17, 1998. result in a monopoly that would substantially lessen competition in any relevant market unless the Board finds that Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and the anticompetitive effects of the proposed transaction are Governors Kelley, Meyer, Ferguson, and Gramlich. clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and ROBERT DEV. FRIERSON needs of the community to be served.4 Associate Secretary of the Board Norwest and Star compete in fifteen banking markets in Texas. The Board has carefully reviewed the competitive Norwest Corporation effects of the proposal in those markets in light of all the Minneapolis, Minnesota facts of record, including the projected increase in the concentration of total deposits in depository institutions in Order Approving the Acquisition of a Bank Holding the market ("market deposits"),5 as measured by the Company Herfindahl-Hirschman Index ("HHI") under the Department of Justice Merger Guidelines ("DOJ Guidelines"), Norwest Corporation ("Norwest"), a bank holding comand the number of competitors that would remain in the pany within the meaning of the Bank Holding Company markets.6 As described in more detail in the Appendix and Act ("BHC Act"), has requested the Board's approval under section 3 of the BHC Act (12U.S.C. § 1842) to acquire all of the voting shares of Star Bancshares, Inc, 2. 12 U.S.C. § 1842(d). A bank holding company's home state is the Austin, Texas ("Star"), and thereby acquire Star Bancstate in which the operations of the bank holding company's banking shares of Nevada, Inc., Carson City, Nevada, and its sub- subsidiaries were principally conducted on July 1, 1966. or the date on sidiary bank, First State Bank, Austin, Texas. which the company became a bank holding company, whichever is later. Notice of the proposal, affording interested persons an 3. Norwest is adequately capitalized and adequately managed as opportunity to submit comments, has been published denned in the Riegle-Neal Act. 12 U.S.C. § 1842(d)(l)(A). On con- (63 Federal Register 34,651 (1998)). The time for filing summation of the proposal, Norwest would control less than 10 comments has expired, and the Board has considered the percent of the total amount of deposits of insured depository institutions in the United States. In addition, First State Bank has been in proposal and all comments received in light of the factors existence for the minimum period of time necessary to satisfy age set forth in section 3 of the BHC Act. requirements established by applicable state law. See Tex. Fin. Code Norwest, with total consolidated assets of $98.5 billion, Ann. § 38.003 (West 1998). Norwest also would control less than 20 is the eleventh largest commercial banking organization in percent of the total deposits of insured depository institutions in the United States. Norwest is the fourth largest commercial Texas. See Tex. Fin. Code Ann. § 38.002 (West 1998). The Board has considered Norwest's record of compliance with the applicable state banking organization in Texas, controlling approximately community reinvestment provisions. All other requirements of section $6.5 billion in deposits, representing 4 percent of total 3(d) of the BHC Act also would be met on consummation of the deposits in commercial banking organizations in the state.1 proposal. Star is the twenty-eighth largest commercial banking orga- 4. 12 U.S.C. § 1842(c). nization in Texas, controlling approximately $487.3 mil- 5. All market data are as of June 30, 1997. In this context, depository institutions include commercial banks, savings banks, and savlion in deposits, representing less than 1 percent of total ings associations. Market share data are based on calculations in deposits in commercial banking organizations in the state. which the deposits of thrift institutions are included at 50 percent. The On consummation of the proposal, Norwest would remain Board previously has indicated that thrift institutions have become, or the fourth largest commercial banking organization in have the potential to become, significant competitors of commercial banks. See Midwest Financial Group, 75 Federal Reserve Bulletin Texas, controlling deposits of approximately $7 billion, 386 (1989); National City Corporation, 70 Federal Reserve Bulletin representing 4.3 percent of commercial bank deposits in 143 (1984). Thus, the Board has regularly included thrift deposits in the state. the calculation of market share on a 50-percent weighted basis. See, e.g., First Hawaiian, Inc., 11 Federal Reserve Bulletin 52 (1991). 6. Under the revised DOJ Guidelines, 49 Federal Register 26,823 1. Asset and state deposit data are as of June 30, 1997, unless (June 29, 1984), a market in which the post-merger is above 1800 is otherwise indicated. considered highly concentrated. The Department of Justice has in- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

848 Federal Reserve Bulletin • October 1998 below, the increase in the HH1 does not exceed the DOJ cantly adverse effects on competition or on the concentra- Guidelines in the banking markets in which Norwest and tion of banking resources in the Kerr County banking Star compete. In addition, numerous competitors would market or any other relevant banking market. remain in those banking markets. The BHC Act also requires the Board to consider the In the Kerr County banking market, Norwest is the financial and managerial resources and future prospects of largest depository institution, controlling deposits of the companies and banks involved in the proposal, the $210.1 million, representing 40.2 percent of market depos- convenience and needs of the communities to be served, its.7 Star is the sixth largest depository institution in the and certain supervisory factors. The Board has reviewed banking market, controlling deposits of $7.1 million, repre- these factors in light of the record, including supervisory senting 1.4 percent of market deposits. On consummation reports of examination assessing the financial and manageof the proposal, Norwest would remain the largest deposi- rial resources of the organizations and financial informatory institution in the banking market, controlling deposits tion provided by Norwest. Based on all the facts of record, of $217.2 million, representing 41.6 percent of market the Board concludes that the financial and managerial deposits. Concentration in the Kerr County banking mar- resources and the future prospects of Norwest, Star, and ket, as measured by the HHI, would increase by 110 points their respective subsidiary banks are consistent with apto 2896. proval, as are the other supervisory factors the Board must In evaluating the competitive effects of the proposal in consider under section 3 of the BHC Act. Considerations the Kerr County banking market, the Board has considered related to the convenience and needs of the communities to several factors that tend to mitigate the concentration of be served also are consistent with approval of the proposal. banking resources in the market. Five competitors would remain in the market after consummation of the proposal. Conclusion Four competitors other than Norwest would have market shares of at least 5 percent, including two bank holding Based on the foregoing, and in light of all the facts of companies that would have market shares of 29.3 percent record, the Board has determined that the application and 13.7 percent, respectively. In addition, the market should be, and hereby is, approved. The Board's approval appears to be attractive for entry.8 In April 1998, a com- is specifically conditioned on compliance by Norwest with mercial bank entered the Kerr County banking market all the commitments made in connection with the applicade now and received approximately $13 million in depos- tion. For the purpose of this action, the commitments and its in less than three months. The Board also notes that Star conditions relied on by the Board in reaching its decision is a recent entrant to the Kerr County banking market with are deemed to be conditions imposed in writing by the a relatively small market presence of less than 2 percent of Board in connection with its findings and decision and, as market deposits. such, may be enforced in proceedings under applicable As in other cases, the Board sought comments from the law. Department of Justice and the Federal Deposit Insurance The proposed acquisition of Star shall not be consum- Corporation ("FDIC") on the competitive effects of the mated before the fifteenth calendar day following the effecproposal. The Department of Justice has reviewed the tive date of this order, or later than three months after the proposal and advised the Board that consummation of the effective date of this order, unless such period is extended proposal would not likely have any significantly adverse for good cause by the Board or by the Federal Reserve competitive effects in the Kerr County banking market or Bank of Minneapolis, acting pursuant to delegated authorany other relevant banking market. The FDIC has been ity. consulted and has not objected to consummation of the By order of the Board of Governors, effective proposal. August 12, 1998. Based on all the facts of record, and for the reasons discussed in this order, the Board concludes that consum- Voting for this action: Chairman Greenspan and Governors Kelley, mation of the proposal is not likely to result in any signifi- Meyer, Ferguson, and Gramlich. Absent and not voting: Vice Chair Rivlin. formed the Board that a bank merger or acquisition generally will not ROBERT DEV. FRIERSON be challenged (in the absence of other factors indicating anticompeti- Associate Secretary of the Board tive effects) unless the post-merger is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening Appendix bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other non- (1) Austin—Approximated by the Austin Metropolitan depository financial entities. 7. The Kerr County banking market is approximated by Ken- Statistical Area ("MSA"). Norwest would control County, Texas. 16.3 percent of the market deposits and would be- 8. Kerr County's population increased by 15.4 percent from 1990 to come the second largest depository institution in the 1997. compared with an average increase in population of market. The HHI would increase 112 points to 1276. 13.5 percent for the state. The population of Kerr County is projected Thirty-six depository institutions would remain in to increase 12.2 percent from 1997 to 2001, compared with a projected average increase in population of 7.9 percent for the state. the market after consummation of the proposal. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 849 (2) Brazoria—Approximated by Brazoria County, ex- Thirty-eight depository institutions would remain in cluding Alvin, Pearland and the surrounding unin- the market after consummation of the proposal. corporated area which is included in the Houston (8) Odessa-Midland—Approximated by Midland and Ranally Metropolitan Area ("RMA"). Norwest Ector Counties. Norwest would control 18.3 percent would control 11.3 percent of the market deposits of the market deposits and would remain the second and would remain the fourth largest depository insti- largest depository institution in the market. The HHI tution in the market. The HHI would increase would increase 11 points to 1474. Ten depository 7 points to 1536. Twelve depository institutions institutions would remain in the market after conwould remain in the market after consummation of summation of the proposal. the proposal. (9) Brazos County—Approximated by Brazos County. (3) Corpus Christi—Approximated by the Corpus Norwest would control 27.5 percent of the market Christi MSA and the area encompassing Alice and deposits and would remain the largest depository Orange Grove in Jim Wells County; and the commu- institution in the market. The HHI would increase nity of San Diego in Duval County. Norwest would 16 points to 1803. Nine depository institutions would control 7.7 percent of the market deposits and would remain in the market after consummation of the become the fifth largest depository institution in the proposal. market. The HHI would increase 3 points to 1105. (10) Burnet County—Approximated by Burnet County. Twenty-five depository institutions would remain in Norwest would control 5.7 percent of the market the market after consummation of the proposal. deposits and would become the seventh largest de- (4) Dallas—Approximated by Dallas County; the south- pository institution in the market. The HHI would eastern quadrant of Denton County, including Den- increase 15 points to 1441. Ten depository instituton and Lewisville; the southwestern quadrant of tions would remain in the market after consumma- Collin County, including McKinney and Piano; tion of the proposal. Rockwall County; and the communities of Forney (11) Lubbock—Approximated by the Lubbock MSA. and Terrell in Kaufman County; Midlothian, Waxa- Norwest would control 21.5 percent of the market hachie, and Ferris in Ellis County; and Grapevine deposits and would remain the second largest deposand Arlington in Tarrant County. Norwest would itory institution in the market. The HHI would incontrol less than 1 percent of the market deposits and crease 10 points to 1499. Sixteen depository instituwould become the twenty-first largest depository tions would remain in the market after institution in the market. The HHI would increase consummation of the proposal. less than 1 point to 1649. One hundred-seven depos- (12) San Angelo—Approximated by the San Angelo itory institutions would remain in the market after MSA. Norwest would control 23.5 percent of the consummation of the proposal. market deposits and would remain the second largest (5) Ft. Worth—Approximated by Tarrant County, ex- depository institution in the market. The HHI would cluding Grapevine and Arlington; the northern half increase 23 points to 1828. Ten depository instituof Johnson County, including Cleburne and Burle- tions would remain in the market after consummason; the eastern half of Parker County, including tion of the proposal. Weatherford and Springtown; the southwestern (13) Victoria—Approximated by the Victoria MSA. Norquadrant of Denton County, including Roanoke and west would control 32.8 percent of the market depos- Justin; the communities of Boyd, Newark, and its and would remain the second largest depository Rhome in Wise County. Norwest would control institution in the market. The HHI would increase 12.4 percent of the market deposits and would re- 34 points to 2630. Eight depository institutions main the third largest depository institution in would remain in the market after consummation of the market. The HHI would increase 3 points to the proposal. 860. Fifty depository institutions would remain in (14) Hidalgo County—Approximated by Hidalgo the market after consummation of the proposal. County. Norwest would control 4.0 percent of the (6) Houston—Approximated by the Houston RMA. market deposits and would remain the seventh larg- Norwest would control less than 1 percent of the est depository institution in the market. The HHI market deposits and would become the thirty-eighth would increase 1 point to 1481. Twenty depository largest depository institution in the market. The HHI institutions would remain in the market after conwould increase less than one point to 869. Ninety- summation of the proposal. eight depository institutions would remain in the market after consummation of the proposal. (7) San Antonio—Approximated by the San Antonio Orders Issued Under Section 4 of the Bank Holding MSA and Kendall County. Norwest would control Company Act 6.4 percent of the market deposits and would remain the fifth largest depository institution in the market. BankBoston Corporation The HHI would increase less than one point to 1099. Boston, Massachusetts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

850 Federal Reserve Bulletin • October 1998 Order Approving Notice to Engage in Nonbanking BankBoston proposes to merge Robertson Stephens Di- Activities vision with and into BankBoston's wholly owned subsidiary, BancBoston Securities, Inc., Boston, Massachusetts BankBoston Corporation ("BankBoston"), a bank holding ("BSI").2 After consummation of the proposal, BSI would company within the meaning of the Bank Holding Com- be renamed BancBoston Robertson Stephens, Inc. pany Act ("BHC Act"), has requested the Board's ap- ("BRS"). BSI currently is, and after consummation of the proval under section 4(c)(8) of the BHC Act (12 U.S.C. proposal BRS will be, a broker-dealer registered with the § 1843(c)(8)) and section 225.24 of the Board's Regulation Securities and Exchange Commission ("SEC") and a Y (12 C.F.R. 225.24) to acquire the operating business of member of the National Association of Securities Dealers, the Robertson Stephens Division ("Robertson Stephens Inc. ("NASD"). Accordingly, BSI is, and BRS will be, Division") of BancAmerica Robertson Stephens, San Fran- subject to the recordkeeping and reporting obligations, cisco, California, and thereby engage in the following fiduciary standards, and other requirements of the Securiactivities: ties Exchange Act of 1934 (15 U.S.C. § 78a et seq.), the (1) Underwriting and dealing in, to a limited extent, all SEC, and the NASD. types of debt and equity securities, other than ownership interests in open-end investment companies Underwriting and Dealing Activities (''bank-ineligible securities"); (2) Extending credit and servicing loans, in accordance The Board has determined, subject to the framework of with section 225.28(b)(l) of Regulation Y (12 C.F.R. prudential limitations to address the potential for conflicts 225.28(b)(l)); of interests, unsound banking practices, or other adverse (3) Arranging commercial real estate equity financing, effects, that underwriting and dealing in bank-ineligible in accordance with section 225.28(b)(2)(i) of Regu- securities is so closely related to banking as to be a proper lation Y (12 C.F.R. 225.28(b)(2)(i)); incident thereto within the meaning of section 4(c)(8) of (4) Providing financial and investment advisory ser- the BHC Act.3 The Board also has determined that undervices, in accordance with section 225.28(b)(6) of writing and dealing in bank-ineligible securities is consis- Regulation Y (12 C.F.R. 225.28(b)(6)); tent with section 20 of the Glass-Steagall Act (12 U.S.C. (5) Providing securities brokerage, private placement, § 377), provided that the company engaged in underwriting and riskless principal services, in accordance with and dealing activities derives no more than 25 percent of section 225.28(b)(7)(i), (ii), and (iii) of Regulation Y its gross revenues from underwriting and dealing in bank- (12 C.F.R. 225.28(b)(7)(i), (ii), and (iii)); and ineligible securities over a two-year period. (6) Underwriting and dealing in government obligations BankBoston has committed that BRS will conduct its and money market instruments in which state bank-ineligible securities underwriting and dealing activimember banks may underwrite and deal under ties using the methods and procedures and subject to the 12 U.S.C. §§ 335 and 24(7) ("bank-eligible securi- prudential limitations established by the Board in the Secties"), in accordance with section 225.28(b)(8)(i) of tion 20 Orders. BankBoston also has committed that BRS Regulation Y (12 C.F.R. 225.28(b)(8)(i)). will conduct its bank-ineligible securities underwriting and In connection with this acquisition, BankBoston also would dealing activities subject to the Board's 25-percent revenue acquire BA Robertson Stephens International Limited, limitation.4 As a condition of this order, BankBoston is London, England ("BARSIL"). BankBoston has requested approval to engage in equity underwriting and dealing through BARSIL in accordance with section 4(c)(13) of 2. BSI currently engages in limited underwriting and dealing in the BHC Act (12 U.S.C. § 1843(c)(13)) and section bank-ineligible securities, as permitted under section 20 of the Glass- Steagall Act (12 U.S.C. § 377). See Bank of Boston Corporation, 211.5(d)(14) of the Board's Regulation K (12 C.F.R. 83 Federal Reserve Bulletin 42 (1996). BSI also is authorized to engage in a variety of other nonbanking activities. See id. Notice of the proposal, affording interested persons an 3. See J.P. Morgan & Co. Incorporated, et al., 75 Federal Reserve opportunity to submit comments, has been published Bulletin 192 (1989), aff'd sub nom. Securities Industries Ass'n v. (63 Federal Register 35,932 (1998)). The time for filing Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. 1990); Citicorp, et al., 73 Federal Reserve Bulletin 473 comments has expired, and the Board has considered the (1987), aff'd sub nom. Securities Industry Ass 'n v. Board of Governotice and all comments received in light of the factors set nors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert, forth in section 4(c)(8) of the BHC Act. denied, 486 U.S. 1059 (1988); as modified by Review of Restrictions on Director, Officer and Employee Interlocks, Cross-Marketing Activi- BankBoston, with total consolidated assets of approxities, and the Purchase and Sale of Financial Assets Between a Section mately $71.4 billion, is the 16th largest banking organiza- 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register tion in the United States.1 BankBoston operates subsidiary 57,679 (1996). Amendments to Restrictions in the Board's Section 20 banks in Massachusetts, Connecticut, Florida, New Hamp- Orders, 62 Federal Register 45,295 (1997); and Clarifications to the shire, and Rhode Island, and engages through its subsidiar- Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders"). ies in a broad range of permissible nonbanking activities. 4. BankBoston proposes to merge Robertson Stephens Division with and into BRS immediately on consummation of the proposed transaction. Accordingly, BankBoston must calculate BRS's compli- 1. Asset and ranking data are as of March 31, 1998. ance with the revenue limitation in accordance with the method stated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 851 required to conduct its bank-ineligible securities activities BRS's underwriting and dealing activities in banksubject to the revenue restrictions and Operating Standards ineligible securities. established for section 20 subsidiaries ("Operating Stan- On the basis of its supervisory experience with Bankdards").5 Boston and BSI, the commitments provided in this case, and the proposed management of BRS, the Board also has Other Activities Approved by Regulation or Order determined that BankBoston and BRS have established the policies and procedures to ensure compliance with this The Board previously has determined by regulation that order and the Section 20 Orders, including computer, audit, extending credit and servicing loans; arranging commercial and accounting systems, internal risk management conreal estate equity financing; providing financial and invest- trols, and the necessary operational and managerial inframent advisory services; providing securities brokerage, structure. The Board also has reviewed other aspects of the private placement, and riskless principal services; and un- managerial resources of the entities involved in this proderwriting and dealing in government obligations and posal, including the expected effect of this proposal on money market instruments are closely related to banking such resources. On the basis of the foregoing and all the within the meaning of section 4(c)(8) of the BHC Act.6 facts of record, the Board has concluded that financial and BankBoston has committed that BRS will conduct each of managerial considerations are consistent with approval of these activities in accordance with the BHC Act, Regula- the notice. tion Y, and relevant Board interpretations and orders. The Board expects that the proposed acquisition would provide added convenience to customers of both Bank- Proper Incident to Banking Standard Boston and Robertson Stephens Division. BankBoston has indicated that the acquisition would expand the range of In order to approve the proposal, the Board also must products and services available to its customers and those determine that the proposed activities are a proper incident of Robertson Stephens Division. BankBoston also has to banking, that is, that the proposed transaction "can stated that the proposed transaction would result in operareasonably be expected to produce benefits to the public ... tional efficiencies that would allow it to become a more that outweigh possible adverse effects, such as undue con- effective competitor. centration of resources, decreased or unfair competition, The Board also has carefully considered the competitive conflicts of interests, or unsound banking practices."7 As effects of the proposed acquisition. BankBoston represents part of its evaluation of these factors, the Board considers that there are few overlaps in the services provided by BSI the financial condition and managerial resources of the and Robertson Stephens Division: BSI specializes in bronotificant and its subsidiaries and the effect the transaction kering, underwriting, and dealing in debt products, while would have on such resources.8 Robertson Stephens Division has focused primarily on In considering the financial resources of the notificant, underwriting of equity securities. To the extent that BSI the Board has reviewed the capitalization of BankBoston and Robertson Stephens Division offer different types of and BRS in accordance with the standards set forth in the products, the proposed acquisition would result in no loss Section 20 Orders. The Board finds the capitalization of of competition. In those markets in which the product each to be consistent with approval of the proposal. The offerings of BSI and Robertson Stephens Division do over- Board's determination is based on all the facts of record, lap, such as investment advisory activities, there are numerincluding BankBoston's projections of the volume of ous existing and potential competitors. Consummation of the proposal, therefore, would have a de minimis effect on competition in the market for these services, and the Board has concluded that the proposal would not result in any significantly adverse competitive effects in any relevant market. in the Section 20 Orders, as modified by the Order Approving Modifications to the Section 20 Orders, 75 Federal Reserve Bulletin 751 As noted above, BankBoston has committed that, after (1989); 10 Percent Revenue Limit on Bank-Ineligible Activities of the proposed acquisition, BRS will conduct its bank- Subsidiaries of Bank Holding Companies Engaged in Underwriting ineligible securities underwriting and dealing activities in and Dealing in Securities, 61 Federal Register 48,953 (1996); and accordance with the prudential framework established by Revenue Limit on Bank-Ineligible Activities of Subsidiaries of Bank the Board's Section 20 Orders. Under the framework and Holding Companies Engaged in Underwriting and Dealing in Securities, 61 Federal Register 68.750 (1996) (collectively, "Modification conditions established in this order and the Section 20 Orders"). Orders, and based on all the facts of record, the Board 5. 12 C.F.R. 225.200. BRS may provide services that are necessary concludes that BRS's proposed underwriting and dealing incidents to the proposed bank-ineligible securities underwriting and activities in bank-ineligible securities are not likely to dealing activities. Unless BRS receives specific approval under section 4(c)(8) of the BHC Act to conduct the activities independently, result in significantly adverse effects that would outweigh BRS must treat any revenues from the incidental activities as ineligi- the public benefits of the proposal. Similarly, the Board ble revenues subject to the Board's revenue limitation. finds no evidence that BRS's proposed riskless principal, 6. See 12 C.F.R. 225.28(b)(l), (2)(ii), (6), (7)(i), (7)(ii), (7)(iii), and private placement, and other nonbanking activities, con- (8X0ducted under the framework and conditions established in 7. See 12 U.S.C. § 1843(c)(8). this order and Regulation Y, would likely result in any 8. See 12 C.F.R. 225.26. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

852 Federal Reserve Bulletin • October 1998 significantly adverse effects that would outweigh the public Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and benefits of the proposal. Governors Kelley, Ferguson, and Gramlich. Absent and not voting: Governor Meyer. Based on all the facts of record, the Board has determined that consummation of the proposed transaction by ROBERT DEV. FRIERSON BankBoston can reasonably be expected to produce public Associate Secretary of the Board benefits that would outweigh any potential adverse effects. Accordingly, the Board has determined that performance of the proposed activities by BankBoston is a proper inci- Cooperatieve Centrale Raiffeisen-Boerenleenbank dent to banking for purposes of section 4(c)(8) of the BHC B.A., Rabobank Nederland Act. The Board also has determined that BankBoston has Utrecht, The Netherlands established appropriate internal policies and procedures and has adequate capital resources consistent with approval Order Approving Notice to Engage in Nonbanking of the proposed equity underwriting and dealing activities, Activities under section 4(c)(13) of the BHC Act. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland ("Rabobank"), a foreign bank sub- Conclusion ject to the provisions of the Bank Holding Company Act ("BHC Act"),1 has requested the Board's approval under section 4(c)(8) of the BHC Act (12U.S.C. § 1843(c)(8)) On the basis of all the facts of record, the Board has and section 225.24(a) of the Board's Regulation Y determined that the notice should be, and hereby is, ap- (12 C.F.R. 225.24(a)) to acquire Weiss, Peck & Greer, proved, subject to all the terms and conditions in this order L.L.C., New York, New York ("Company"),2 and thereby and the Section 20 Orders, as modified by the Modification engage in the following nonbanking activities: Orders. The Board's approval of the proposal extends only (1) Providing financial and investment advisory services to activities conducted within the limitations of those or- in accordance with section 225.28(b)(6) of Reguladers and this order, including the Board's reservation of tion Y (12 C.F.R. 225.28(b)(6)); authority to establish additional limitations to ensure that (2) Providing agency transactional services for customer BRS's activities are consistent with safety and soundness, investments in accordance with section 225.28(b)(7) avoidance of conflicts of interests, and other relevant con- of Regulation Y (12 C.F.R. 225.28(b)(7»; siderations under the BHC Act. Underwriting and dealing (3) Providing certain administrative services for openin any manner other than as approved in this order and the end investment companies ("mutual funds"); Section 20 Orders (as modified by the Modification Or- (4) Acting as general partner or managing member for ders) is not within the scope of the Board's approval and is certain private investment funds that invest in assets not authorized for BRS. in which a bank holding company is permitted to The Board's determination is subject to all the terms and invest; and conditions set forth in Regulation Y, including those in (5) Acting as a commodity pool operator for private sections 225.7 and 225.25(c) of Regulation Y (12C.F.R. investment funds organized as commodity pools that 225.7 and 225.25(c)), and to the Board's authority to invest in assets in which a bank holding company is require such modification or termination of the activities of permitted to invest. a bank holding company or any of its subsidiaries as the Notice of the proposal, affording interested persons an Board finds necessary to ensure compliance with, and to opportunity to submit comments, has been published prevent evasion of, the provisions of the BHC Act and the (63 Federal Register 33,374 (1998)). The time for filing Board's regulations and orders issued thereunder. The comments has expired, and the Board has considered the Board's decision is specifically conditioned on compliance notice and all comments received in light of the factors set with all the commitments made in connection with this forth in section 4(c)(8) of the BHC Act. notice, including the commitments discussed in this order, Rabobank, with total consolidated assets of approxiand the conditions set forth in this order and the above- mately $211.4 billion, is the second largest banking organinoted Board regulations and orders. These commitments zation in The Netherlands and the 40th largest banking and conditions are deemed to be conditions imposed in organization in the world.3 In the United States, Rabobank writing by the Board in connection with its findings and operates a branch in New York, New York; an agency in decision, and, as such, may be enforced in proceedings under applicable law. The proposal shall not be consummated later than three 1. As a foreign bank operating a branch and an agency in the United months after the effective date of this order, unless such States, Rabobank is subject to certain provisions of the BHC Act by period is extended for good cause by the Board or by the operation of section 8(a) of the International Banking Act of 1978 Federal Reserve Bank of Boston, acting pursuant to dele- (12U.C. §31O6(a))("IBA"). 2. Rabobank would hold its interest in Company through Robeco gated authority. Groep N.V., a Netherlands corporation. By order of the Board of Governors, effective 3. Asset and ranking data are as of December 31. 1997, and are August 24, 1998. based on foreign exchange conversion rates as of that date. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 853 Dallas, Texas; and representative offices in San Francisco, underwriter."7 The independent distributor also would be California; Atlanta, Georgia; and Chicago, Illinois. Rabo- responsible for supervising sales as the principal underbank also engages through subsidiaries in a broad range of writer for purposes of the federal securities laws.8 nonbanking activities in the United States. Company, with Rabobank also proposes to have certain director and total consolidated assets of $2.3 billion, engages in securi- officer interlocks with the funds. In particular, Rabobank ties brokerage, investment advisory, and other activities.4 proposes that up to 25 percent of the directors of a mutual Company is currently and. after consummation of the fund would be employees, officers, or directors of Raboproposal, will continue to be registered with the Securities bank or one of its subsidiaries, including Company.9 Raboand Exchange Commission ("SEC") as an investment bank proposes that one of these directors may serve as adviser under the Investment Advisers Act of 1940 ("1940 chairman of the board of the fund. In addition, Rabobank Act"), as a broker-dealer under the Securities Exchange seeks to have up to three directors, officers, or employees Act of 1934 (15 U.S.C. § 78a et seq.) ("1934 Act") and a of Rabobank or its subsidiaries, including Company, serve member of the National Association of Securities Dealers, as senior officers of the fund and have other Rabobank Inc. ("NASD"). Company also is, and will continue to be personnel serve as junior-level officers of the fund.10 registered as a futures commission merchant, commodity The Board previously has authorized a bank holding trading advisor, and commodity pool operator with the company and its nonbank subsidiaries to have limited Commodity Futures Trading Commission ("CFTC") and director and officer interlocks with mutual funds that the the National Futures Association ("NFA"). Accordingly, bank holding company advises and administers." The Company is subject to the recordkeeping and reporting Board noted that independent directors would constitute at obligations, fiduciary standards, and other requirements of least 40 percent of the board of directors of the fund and the 1934 Act, the 1940 Act, the SEC, and the NASD, as would be responsible for the selection and review of the well as those of the Commodity Exchange Act (7 U.S.C. investment adviser, the underwriter, and the other major § 2 et seq.), the CFTC, and the NFA. service contractors of the fund.12 In this case, Rabobank's personnel would not comprise Mutual Fund Activities more than 25 percent of any fund's board of directors. The Board previously has determined that providing administrative services to mutual funds is closely related to 7. As defined under the 1940 Act, a principal underwriter is any banking within the meaning of section 4(c)(8) of the BHC underwriter who, as principal, purchases from a mutual fund any Act.5 Rabobank proposes to provide investment advisory, security for distribution, or who as agent for such fund sells or has the right to sell the fund's securities to a dealer and/or to the public. brokerage, and administrative services through Company 15 U.S.C. § 80a-2(a)(29). that previously have been approved by the Board, and 8. An independent distributor would enter into any sales agreements Rabobank has committed that the proposed activities will with brokers or other financial intermediaries to sell shares of mutual funds. The independent distributor also would have legal responsibilbe conducted in compliance with Regulation Y and subject ity under the rules of the NASD for the form and use of all advertising to the prudential and other limitations established by the and sales literature and also would be responsible for filing these Board.6 Rabobank has committed that distribution activi- materials with the NASD or the SEC. ties of mutual funds will be the responsibility of an inde- In some cases, mutual funds advised and administered by Company pendent distributor, which will enter into contractual agree- would not have a distributor. In these cases, Rabobank has provided commitments to the Board to ensure that Company would not be ments with the mutual funds to serve as "principal engaged in distributing these funds. See Lloyds TSB Group pic, 84 Federal Reser\>e Bulletin 116 (1998) (."Lloyds"). Among these commitments are that these so-called distributorless funds would 4. Company currently controls certain limited partnerships that have employ a marketing officer who is independent of Rabobank and investments that are not permissible for bank holding companies. Company who would initiate contact with financial intermediaries Rabobank has committed to conform the investments and relation- regarding the sale of fund shares, negotiate broker selling agreements ships of Company to those permissible for bank holding companies on behalf of the funds, and be responsible for placing, reviewing, and within two years of acquiring Company. filing with regulators, advertisements on behalf of the funds. 5. See, e.g., Societe Generate, 84 Federal Reserve Bulletin 680 9. No employees, officers, or directors of Rabobank or its subsidiar- (1998) ("SoGen1'); Bankers Trust New York Corporation, 83 Federal ies, including Company, would serve as directors of distributorless Reserve Bulletin 780 (1997) ('•BTNY"); Commerzbank AG, 83 Fed- mutual funds advised or administered by Company. See Lloyds. eral Reserve Bulletin 679 (1997). 10. Senior officers include the president, secretary, treasurer, and 6. See, e.g.. SoGen, BTNY. The administrative services that Rabo- vice presidents with policy-making functions. Junior officers include bank would provide to mutual funds through Company and other assistant secretaries, assistant treasurers, or assistant vice-presidents of Rabobank subsidiaries include computing the fund's financial data, the funds. Junior officers are fund employees who have no authority or maintaining and preserving the records of the fund, providing office responsibility to make policy. facilities and clerical support for the fund, and preparing and filing tax 11. See, e.g., SoGen, BTNY; Lloyds; BankAmerica Corporation returns for the funds. The services are listed in the Appendix. The 83 Federal Reserve Bulletin 913 (1997); The Governor and Company Board previously has determined that the Glass-Steagall Act does not of the Bank of Ireland, 82 Federal Reserve Bulletin 1129 (1996). prohibit a bank holding company from providing advisory and admin- 12. Under the 1940 Act, independent directors may not be affiliated istrative services to a mutual fund. See 12C.F.R. 225.125. Although with the mutual fund, investment adviser, or any other major contrac- Rabobank does not own a member bank, Rabobank is subject to the tor to the fund. The 1940 Act and related regulatory provisions require limitations applicable to domestic banking organizations under the that independent directors annually review and approve the mutual principle of national treatment. See, e.g., Canadian Imperial Bank of fund's investment advisory contract and any plan of distribution or Commerce, et at, 76 Federal Reserve Bulletin 158 (1990). related agreement. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

854 Federal Reserve Bulletin • October 1998 Accordingly, all of the funds to which Rabobank provides equivalent to the capital levels that would be required of a advisory and administrative services would have boards of United States banking organization. Based on all the facts directors in which 75 percent of the directors are unaffili- of record, the Board concludes that financial and manageated with Rabobank. In addition, any director of a fund rial considerations are consistent with approval. who also serves as a director, officer, or employee of The Board also has carefully considered the competitive Rabobank would be an "interested person" under the 1940 effects of the proposal. To the extent that Rabobank and Act and, therefore, would be required to abstain from Company offer different types of products and services, the voting on investment advisory and other major contracts of proposed acquisition would result in no loss of competithe fund. tion. In those markets where the product offerings of Rabo- The director and officer interlocks proposed by Rabo- bank and its subsidiaries and Company do overlap, there bank would not appear to atfect the independence of the are numerous existing and potential competitors. As a other directors on the boards of directors for the funds. The result, consummation of the proposal would have a independent members of the boards of directors would de minimis effect on competition for these services, and the continue to have authority to review broker-age, advisory, Board has concluded that the proposal would not result in a administrative and other major contracts and would retain significantly adverse effect on competition in any relevant authority to change the distributor of fund shares. Based on market. the foregoing, the Board concludes that the proposed direc- The Board expects that consummation of the proposal tor and officer interlocks would not compromise the inde- can reasonably be expected to provide added convenience pendence of the boards of the funds or permit Rabobank to to Rabobank's customers by offering them an expanded control the funds and are consistent with previous Board range of investment products and expertise. The Board decisions, the BHC Act, and the Glass-Steagall Act. previously has determined that the provision of administrative services to mutual funds within the parameters estab- Other Activities Approved by Regulation or Order • lished by the Board is not likely to result in the types of subtle hazards at which the Glass-Steagall Act is aimed or The Board previously has determined that providing finan- in any other adverse effects. Rabobank also would be cial and investment advisory services, providing agency required to comply with the Board's interpretive rule on transactional services for customer investments, acting as Investment Adviser Activities, which was designed to mitgeneral partner to private investment limited partnerships igate potential conflicts of interests and the potential for that make investments that a bank holding company may customer confusion associated with the proposed activities. make, and acting as a commodity pool operator are all Based on the foregoing and all the facts of record, the closely related to banking within the meaning of sec- Board concludes that there is no evidence in the record to tion 4(c)(8) of the BHC Act.13 Rabobank has committed indicate that consummation of the proposal is likely to that it will conduct these activities in accordance with the result in significantly adverse effects, such as undue conlimitations set forth in Regulation Y and the Board's orders centration of resources, decreased or unfair competition, and interpretations relating to each of the activities.14 conflicts of interests, or unsound banking practices, that would outweigh the public benefits of the proposal. Ac- Other Considerations cordingly, the Board has determined that the balance of public benefits that it must consider under the proper In order to approve the proposal, the Board also must incident to banking standard of section 4(c)(8) of the BHC determine that the proposed activities are a proper incident Act is favorable and consistent with approval of the proto banking, that is, that the proposed transaction "can posal. reasonably be expected to produce benefits to the public ... that outweigh possible adverse effects, such as undue con- Conclusion centration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."13 As Based on the foregoing and all other facts of record, the part of its evaluation of these factors, the Board considers Board has determined that the notice should be, and hereby the financial and managerial resources of the notificant, its is, approved. This determination is subject to all the terms subsidiaries, and any company to be acquired, and the and conditions discussed in this order, including the effect the transaction would have on such resources.16 Board's reservation of authority to establish additional Rabobank's capital ratios satisfy applicable risk-based limitations to ensure that Rabobank's activities are consisstandards under the Basle Accord and are considered tent with safety and soundness, conflicts of interests, and other relevant considerations under the BHC Act. The Board's determination also is subject to all the terms 13. See 12 C.F.R. 225.28(b)(6), (7); Dresdner Bank AG, 84 Federal and conditions set forth in Regulation Y, including those in Reserve Bulletin 361 (1998) ("Dresdner"). sections 225.7 and 225.25(c) of Regulation Y (12 C.F.R. 14. See 12 C.F.R. 225.28(b)(6), (7); Dresdner. 225.7 and 225.25(c)), and to require such modification or 15. See 12U.S.C. § I843(c)(8). termination of the activities of a bank holding company or 16. See 12 C.F.R. 225.26(b); .see ulso The Fuji Bank. Limited, 75 Federal Reserve Bulletin 94 (1989); Bayerische Vereinsbank AG, any of its subsidiaries as the Board finds necessary to 73 Federal Reserve Bulletin 155 (1987). ensure compliance with, and to prevent evasion of, the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 855 provisions of the BHC Act and the Board's regulations and 14. Providing information to the distributor's personnel orders issued thereunder. The Board's decision is specifi- concerning performance and administration of funds. cally conditioned on compliance with all the commitments 15. Participating in seminars, meetings, and conferences made in connection with the notice and related correspon- designed to present information to financial intermediaries dence, the conditions established in this order, and the concerning operations of the funds. Board's regulations and other orders noted above. The 16. Assisting in the development of additional funds. commitments and conditions relied on by the Board in 17. Providing reports to the board of directors of funds. reaching this decision are deemed to be conditions im- 18. Providing telephone shareholder services through a posed in writing by the Board in connection with its toll-free number. findings and decision and, as such, may be enforced in proceedings under applicable law. Royal Bank of Canada The proposal shall not be consummated later than three Montreal, Quebec, Canada months after the effective date of this order, unless such period is extended for good cause by the Board or by the Order Approving a Notice to Acquire a Savings Federal Reserve Bank of New York, acting pursuant to Association delegated authority. Royal Bank of Canada ("Royal Bank"), a foreign banking By order of the Board of Governors, effective August 3, organization that is subject to the Bank Holding Company 1998. Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12U.S.C. Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and § 1848(c)(8)) to acquire all the voting shares of New Governors Kelley, Meyer, and Ferguson. Absent and not voting: Governor Gramlich. Security First Network Bank, Miami, Florida ("Security First"), and thereby engage in operating a savings associa- ROBERT DEV. FRIERSON tion.1 Associate Secretary of the Board Notice of the proposal, affording interested persons an opportunity to submit comments, has been published Appendix (63 Federal Register 29,221 (1998)). The time for filing comments has expired, and the Board has considered the List of Administrative Services notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act. Royal Bank, with total consolidated assets of approxi- 1. Maintaining and preserving the records of funds, includmately $164 billion, is the largest banking organization in ing financial and corporate records. Canada and the 56th largest banking organization in the 2. Computing net asset value, dividends, performance world.2 In the United States, Royal Bank operates branches data, and financial information regarding funds. in New York, New York; Portland, Oregon; and San Juan, 3. Furnishing statistical and research data to funds. Puerto Rico; agencies in Los Angeles, California; and 4. Preparing and filing with the SEC and state securities Miami, Florida; and representative offices in Chicago, Illiregulators registration statements, notices, reports, and nois; and Houston, Texas. Royal Bank also engages other materials required to be filed under applicable laws. through subsidiaries in various securities-related, data pro- 5. Preparing reports and other informational materials recessing, and foreign exchange activities closely related to garding funds, including proxies and other shareholder banking.3 communications, and reviewing prospectuses. 6. Providing legal and other regulatory advice to funds. 7. Providing office facilities and clerical support for funds. 8. Developing and implementing procedures for monitoring compliance with regulatory requirements and compliance with funds' investment objectives, policies, and restrictions as established by the boards of directors of the 1. Royal Bank, through is wholly owned subsidiaries, RBC Holdfunds. ings (USA) Inc., New York, New York, and RBC Holdings (Dela- 9. Providing routine accounting services to funds and liai- ware) Inc., Wilmington. Delaware, would acquire Security First from son with outside auditors. Security First Technologies, Inc., Atlanta, Georgia. Security First is a 10. Preparing and filing tax returns. federally chartered savings bank in formation that would acquire certain assets and liabilities of Security First Network Bank, Atlanta, 11. Reviewing and arranging for payment of expenses for Georgia ("Old Security First"), an insured depository institution that funds. provides electronic banking services primarily over the Internet. Car- 12. Providing communication and coordination services dinal Bancshares, Inc., 82 Federal Reserve Bulletin 614 (1996) ("Carwith regard to funds' transfer agent, custodian, distributor, dinal"). and other service organizations that render distribution, 2. Asset and ranking data are as of December 31, 1997, and are based on exchange rates then applicable. recordkeeping, or shareholder communication services. 3. See The Royal Bank of Canada, 11 Federal Reserve Bulletin 272 13. Preparing advertising materials, sales literature, and (1991); Royal Bank of Canada, 83 Federal Reserve Bulletin 135 marketing plans for the funds. (1997); Bank of Montreal, 83 Federal Re.iene Bulletin 127 (1997). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

856 Federal Reserve Bulletin • October 1998 Closely Related to Banking Analysis primary federal supervisor.9 Old Security First received an overall rating of "satisfactory" as a result of that evalua- Section 4(c)(8) of the BHC Act provides that a bank tion of CRA performance, as of March 1996. holding company may, with Board approval, engage in any Royal Bank has not previously operated an insured debanking activity that the Board determines to be "so pository institution subsidiary in the U.S. that is subject to closely related to banking or managing or controlling banks CRA.10 As part of its application in this case, however, as to be closely related thereto."4 Old Security First oper- Royal Bank presented a proposed CRA plan for Security ates a single, full service office in Atlanta, Georgia, and First. The plan includes the appointment of a CRA officer focuses its efforts on providing banking and financial prod- who would report to Security First's board of directors; the ucts and services to the public over the Internet. Royal employment of a CRA consulting firm to assist Security Bank intends to enhance the products and services that First in preparing and implementing a CRA plan; and the Security First oifers by providing additional financial and offering of specific banking products and services directed managerial resources to it and to expand Security First's to its assessment area, including low- and moderate-income business volume throughout the United States by increas- areas.11 ing promotional activities. The Board previously has deter- Commenter questions whether the criteria adopted in the mined by regulation that the operation of a savings associ- CRA regulations of the federal financial supervisory agenation by a bank holding company is closely related to cies for defining the assessment area of an insured deposibanking for purposes of section 4(c)(8) of the BHC Act.5 tory institution are adequate and whether compliance by The Board also previously has determined that providing Old Security First with the regulations adopted by the data processing services related to providing banking and institution's appropriate supervisory authority for defining financial services over the Internet is closely related to an assessment area is sufficient in light of the Internet banking.6 banking activities proposed by Old Security First.12 The CRA requires the federal banking agencies, in re- Proper Incident to Banking Analysis viewing certain applications, to take account of an institution's record of actual performance in helping to meet the In order to approve the proposal, the Board must determine credit needs of its community, including low- and that the proposed activities are a proper incident to bank- moderate-income neighborhoods. That record includes ing, that is, that the proposal "can reasonably be expected compliance by Old Security First with the rules and reto produce benefits to the public, such as greater conve- quirements of its appropriate supervisory authority and that nience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, or unsound banking practices."7 9. The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA As part of its review of these factors, when acting on a examination is an important and often controlling factor in the considproposal to acquire a savings association, the Board has eration of an institution's CRA record and that reports of these traditionally considered the records of performance under examinations will be given great weight in the applications process. the Community Reinvestment Act (12 U.S.C. §2901 54 Federal Register 13,742 and 13.745 (1989). et seq.) ("CRA") of the institutions involved in the propos- 10. Commenter argues that, in the absence of an established record al.8 The Board has reviewed the record of performance of of performance by Royal Bank under the CRA, the Board should perform an extensive investigation of Royal Bank's proposed CRA Old Security First in light of all the facts of record, includplan before taking any action on the proposal. In keeping with the ing comments received on the proposal from Inner City Board's precedent and the BHC Act and CRA, the Board has carefully Press/Community on the Move ("Commenter"). Com- reviewed and considered the actual CRA performance record of the menter argues that Royal Bank's proposal to address CRA relevant insured depository institution in this case and has also carefully considered the proposals by Royal Bank to adopt and improve is not adequate. the CRA policies and programs of that insured depository institution. The Board has reviewed the examination of the CRA See The Statement of the Federal Financial Supervisory Agencies performance record of Old Security First conducted by the Regarding the Community Reinvestment Act; see also The Toronto- Office of Thrift Supervision ("OTS"), the appropriate su- Dominion Bank, 82 Federal Reserve Bulletin 1052 (1996). pervisory authority for Old Security First. An institution's 11. The proposed CRA plan indicates that the products and services to be offered would include low-cost banking products and services most recent CRA performance evaluation is a particularly for individuals, credit counseling, and loans to and investments in important consideration in the applications process because affordable housing projects. it represents a detailed on-site evaluation of the institu- 12. Commenter asserts that the designation by Old Security First of tion's overall record of performance under the CRA by its the Atlanta Metropolitan Statistical Area ("MSA") assessment area under the CRA is inappropriate in view of Old Security First's emphasis on soliciting deposits nationwide over the Internet, and that Old Security First's marketing efforts directed to Internet users dispro- 4. 12 U.S.C. §1843(c)(8). portionately exclude low- and moderate-income individuals. Com- 5. 12C.F.R. 225.28(b)(4). menter also asserts that the Miami MSA should be included in 6. See Cardinal. Security First's assessment area because Security First's main office 7. 12 U.S.C. §1843(c)(8). would be located there. As part of the proposal, however, Royal Bank 8. See Bane One Corporation, 83 Federal Reserve Bulletin 602 intends to relocate the main office to Atlanta approximately 30 days (1997). after acquiring Security First and to close the Miami office. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 857 supervisor's on-site evaluation of the CRA performance Bank also has significant financial and managerial rerecord of Old Security First. sources that may be used to support and develop the Old Security First has defined its assessment area in activities of Security First. Based on all the facts of record, accordance with the requirements contained in regulations the Board concludes that the financial and managerial of the OTS that govern the CRA obligations and perfor- resources of the organizations involved in the proposal mance of Old Security First.13 The OTS has examined the lend weight toward approval of the proposal.16 CRA performance of Old Security First, including the The record indicates that consummation of the proposal adequacy of the assessment area definition adopted by Old would result in benefits to consumers and businesses. The Security First, and found it satisfactory. Security First, proposal would increase the financial and technological moreover, would continue to be subject to regular evalua- resources available to Security First, thereby enabling it to tions by its primary federal supervisor of its CRA perfor- enhance the financial products and services it offers, which mance record in its entire community, including low- and would provide greater convenience to consumers and busimoderate-income neighborhoods. nesses that desire to conduct banking transactions over the The proper application of the CRA to the operations of a Internet. Additionally, there are public benefits to be definancial institution such as Security First, that operates rived from permitting capital markets to operate so that primarily over the Internet, is subject to evaluation and bank holding companies may make potentially profitable review by the institution's appropriate supervisory author- investments in nonbanking companies when, as in this ity as experience is gained regarding the actual success, case, those investments are consistent with the relevant geographic reach, and lending patterns of depository insti- considerations under the BHC Act, and from permitting tutions conducting these activities. Commenter's concerns banking organizations to allocate their resources in the regarding the alleged difficulties for a financial institution manner they believe is most efficient. Based on all the facts operating over the Internet to serve low- and moderate- of record, the Board has determined that consummation of income individuals and communities, however, remain the proposal can reasonably be expected to produce public speculative at this time.14 benefits that would outweigh any likely adverse effects Based on all the facts of record, the Board concludes that under the proper incident to banking standard of secthe CRA performance record of the depository institutions tion 4(c)(8) of the BHC Act. involved and the CRA plan submitted by Royal Bank lend weight toward approval of the proposal. Conclusion In connection with its review of the public interest factors under section 4(c)(8) of the BHC Act, the Board Based on the foregoing and all the facts of record, the also has carefully considered the financial and managerial Board has determined that the notice should be, and hereby resources of Royal Bank and its subsidiaries and Security is, approved.17 The Board's approval of the proposal is First and the effect the transaction would have on such resources in light of all the facts of record.15 The Board has reviewed, among other things, confidential reports of ex- 16. Commenter also alleges that Royal Bank's proposal to establish amination and other supervisory information received from the main office of Security First in Miami, Florida, and then to the appropriate supervisory authorities for the organiza- relocate the main office to Atlanta, Georgia, is intended to evade tions. The Board notes that Royal Bank's capital ratios Georgia's charter age requirements. See Ga. Code Ann. §7-1- 608(a)(2) (Michie 1998). Georgia law permits Royal Bank to acquire meet applicable risk-based capital standards under the Security First's office in Atlanta as a branch of a thrift with a home Basle Accord and are equivalent to the capital levels that office in another state, and to relocate its main office to Atlanta. would be required for a U.S. banking organization. Royal Georgia banking authorities have advised the Board that they have reviewed and do not object to the proposal. 17. Commenter has requested that the Board hold a public meeting or hearing on the proposal to obtain additional factual evidence 13. See 12C.F.R. 563e.41(c). concerning the adequacy of the CRA plan submitted by Royal Bank 14. In April 1997. the OTS published notice of proposed rulemaking for Security First to address the convenience and needs of the commuconcerning all aspects of electronic banking, including the application nity to be served. The Board's Rules of Procedure provide for a of the CRA to those activities. See 62 Federal Register 15,626 hearing on notices under section 4 of the BHC Act to acquire a (April 2, 1997). Several public comments were received by the OTS savings association only if there are disputed issues of material fact concerning the CRA. The proposed rulemaking remains open. Com- that cannot be resolved in some other manner. See 12 C.F.R. menter also requests that the Board postpone taking any action on the 225.25(a)(2). The Board also may, in its discretion, hold a public proposal until the OTS has determined whether to require Royal Bank meeting or hearing if a hearing is necessary to clarify factual issues to submit a specific CRA plan or set of CRA commitments in related to the proposal and to provide an opportunity for testimony, if connection with its review of the proposal and to permit public appropriate. See 12 C.F.R. 225.16(e). After a careful review of all the comment on Royal Bank's CRA plan. The Board is required under its facts of record, the Board has concluded that Commenter's contenprocedures, however, to take action on the proposal within a specified tions amount to a dispute concerning the weight that should be period of time. See 12 C.F.R. 225.24(d). The Board has provided a accorded to, and the conclusions that the Board should draw from, the period for public comment in this case of 34 days, and the Secretary of facts of record, but do not identify disputed issues of fact that are the Board has extended the time for receiving comments on the material to the Board's decision. The Board also notes that interested proposal from Commenter an additional 22 days. Based on all the parties have had an ample opportunity to present their views, and facts of record, the Board has determined that no additional delay is Commenter has submitted substantial written comments that have warranted in this case. been considered by the Board. Commenter's request fails to demonstrate why a written presentation would not suffice and to summarize 15. to 12 C.F.R. 225.26. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

858 Federal Reserve Bulletin • October 1998 specifically conditioned on compliance by Royal Bank California.1 NationsBank also has requested the Board's with the commitments made in connection with the notice. approval under section 4(c)(8) of the BHC Act (12 U.S.C. The Board's determination also is subject to all the condi- § 1843(c)(8)) and section 225.24 of the Board's Regulations in Regulation Y, including those in sections 225.7 and tion Y (12 C.F.R. 225.24) to acquire the domestic nonbank 225.25(c) (12C.F.R. 225.7 and 225.25(c)) and to the subsidiaries of BankAmerica, including Bank of America, Board's authority to require such modification or termina- FSB, Portland, Oregon.2 In addition, NationsBank has filed tion of the activities of a holding company or any of its applications and notices under section 4(c)(13) of the BHC subsidiaries as the Board finds necessary to assure compli- Act (12 U.S.C. § 1843(c)(13)), sections 25 and 25A of the ance with, or to prevent evasion of, the provisions and Federal Reserve Act (12 U.S.C. §§ 601 et seq., 611 et seq.\ purposes of the BHC Act and the Board's regulations and and the Board's Regulation K (12 C.F.R. 211) to acquire orders issued thereunder. The commitments and conditions the Edge Act and agreement corporations and foreign relied on by the Board in reaching this decision shall be operations of BankAmerica. deemed to be conditions imposed in writing by the Board NationsBank, with total consolidated assets of approxiin connection with its findings and decision, and, as such, mately $315 billion, is the third largest commercial bankmay be enforced in proceedings under applicable law. ing organization in the United States.3 NationsBank's lead The transaction shall not be consummated later than bank subsidiary, NationsBank, N.A., Charlotte, North three months after the effective date of this order, unless Carolina ("NB-Lead Bank"), and NationsBank's other such period is extended for good cause by the Board or the subsidiary banks operate in North Carolina, Arkansas, Del- Federal Reserve Bank of New York, acting pursuant to aware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, delegated authority. Maryland, Missouri, New Mexico, Oklahoma, South Caro- By order of the Board of Governors, effective August 3, lina, Tennessee, Texas, Virginia, and the District of Colum- 1998. bia. NationsBank also engages in a number of permissible nonbanking activities nationwide. Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and BankAmerica, with total consolidated assets of approxi- Governors Kelley, Meyer, and Ferguson. Absent and not voting: mately $265 billion, is the fifth largest commercial banking Governor Gramlich. organization in the United States. BankAmerica's subsidiary depository institutions operate in California, Alaska, ROBERT DEV. FRIERSON Arizona, Florida, Idaho, Illinois, Nevada, New Mexico, Associate Secretary of the Board New York, Oregon, Texas, and Washington. Bank of America also operates branches in 38 foreign countries and Orders Issued Under Sections 3 and 4 of the Bank engages through numerous nonbanking subsidiaries in a Holding Company Act variety of permissible nonbanking activities nationwide. The proposed transaction would create the largest com- NationsBank Corporation mercial banking organization in the United States, with Charlotte, North Carolina total assets of approximately $580 billion, and the third largest commercial banking organization in the world. The BankAmerica Corporation subsidiary insured depository institutions of the combined San Francisco, California organization would operate approximately 4,800 fullservice branches in 27 states and more than 14,000 auto- Order Approving the Merger of Bank Holding mated teller machines ("ATMs") nationwide. NationsBank Companies has indicated that after the proposed merger the combined organization would operate under the name BankAmerica NationsBank Corporation, a bank holding company within Corporation ("New BankAmerica").4 the meaning of the Bank Holding Company Act ("BHC Act"), and its wholly owned subsidiary, NationsBank (DE) Corporation (collectively, "NationsBank"), have requested the Board's approval under section 3 of the BHC Act (12 U.S.C. § 1842) to merge with BankAmerica Corporation ("BankAmerica"), and thereby acquire Bank- 1. NationsBank also seeks approval to acquire BankAmerica's other America's subsidiary banks, including its lead bank subsidiary banks, which are Bank of America Texas, N.A., Dallas, subsidiary, Bank of America National Trust and Savings Texas: Bank of America Community Development Bank, Walnut Creek, California; and Bank of America N.A.. Phoenix, Arizona. Association ("BA-Lead Bank"), both of San Francisco, 2. The nonbanking activities engaged in by BankAmerica for which NationsBank has sought Board approval under section 4 of the BHC Act and the subsidiaries engaged in such activities are listed in Appendix A. 3. Asset data for NationsBank and BankAmerica are as of the evidence that would be presented at a meeting or hearing. For March 31, 1998, unless otherwise noted. these reasons, and based on all the facts of record, the Board has 4. NationsBank and BankAmerica also have requested the Board's determined that a public meeting or hearing is not required or war- approval to hold and exercise an option to acquire up to 19.9 percent ranted in this case. Accordingly, the request for a public meeting or of each other's voting shares. The options would expire on consummahearing on the proposal is hereby denied. tion of the proposal. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 859 Factors Governing Board Review of Transaction local communities and leadership in community development activities. These commenters praised NationsBank's Under the BHC Act, the Board must consider a number of and BankAmerica's records of providing affordable mortspecific factors when reviewing the merger of bank hold- gage loans, investments, grants and loans in support of ing companies or the acquisition of banks. These factors economic and community revitalization projects, and charare the competitive effects of the proposal in the relevant itable contributions in local communities. These commentgeographic markets; the financial and managerial resources ers also favorably noted the organizations' small business and future prospects of the companies and banks involved lending activities and the organizations' provision of eduin the transaction; the convenience and needs of the com- cational seminars or technical assistance to small busimunity to be served, including the records of performance nesses. Many of these commenters also praised under the Community Reinvestment Act (12 U.S.C. § 2901 NationsBank's $350 billion, 10-year community reinvestet seq.) ("CRA") of the insured depository institutions ment plan and contended that the plan would increase the involved in the transaction; and the availability of informa- availability of loans and investments to support community tion needed to determine and enforce compliance with the development and affordable housing activities. BHC Act.5 In cases involving interstate bank acquisitions, A significant number of other commenters expressed the Board also must consider the concentration of deposits concern regarding the performance records of NationsBank in the nation and certain individual states, as well as and BankAmerica under the CRA, particularly with respect compliance with other provisions of the Riegle-Neal Inter- to their records of lending to small businesses and minoristate Banking and Branching Efficiency Act of 1994 ties and in low- and moderate-income ("LMI") and rural ("Riegle-Neal Act").6 areas. Many commenters from California and other states currently served by BankAmerica also expressed concern Public Comment on the Proposal that NationsBank would not serve the diverse needs of their local communities as well as BankAmerica, or would In order to permit interested members of the public an terminate organizations and programs that BankAmerica opportunity to submit comments to the Board on these has developed to meet the needs of its communities, such factors, the Board published notice of the proposal and as the BankAmerica Community Development Bank and provided a period for public comment.7 The Board ex- Rural 2000 Initiative. Other commenters believed the tended the public comment period to accommodate the merger would reduce competition for banking services, broad public interest in the proposal. The extended public particularly in Texas and New Mexico, or result in the loss comment period provided interested persons more than of local control of lending and investment decisions. Many 65 days to submit written comments on the proposal. commenters also criticized NationsBank's $350 billion, Because of the extensive public interest in the proposal, 10-year community reinvestment plan, stating that the inithe Board also held a public meeting on July 9 and 10, tiative is not enforceable and does not provide specific 1998, in San Francisco, California, to permit interested lending or investment commitments for individual states or persons an opportunity to present oral testimony regarding regions, or for particular loan products or programs. Comthe various factors that the Board is charged with review- menters also discussed other potential adverse effects of ing under the BHC Act. More than 170 commenters ap- the proposal, including branch closings, the loss of a major peared and testified at the public meeting, and many of the financial institution headquartered in San Francisco, and commenters who testified also submitted written com- job losses. ments. In evaluating the statutory factors under the BHC Act, In total, more than 1,600 organizations and individuals the Board has carefully considered the information and submitted comments on the proposal, either through oral views presented by all commenters, including the informatestimony or written comments. Commenters included fed- tion and testimony provided at the public meeting and the eral, state, and local government officials, community and views and information submitted in writing. The Board non-profit organizations, small business owners, customers also considered all the information presented in the applicaof NationsBank and BankAmerica, and other interested tions and notices and in supplemental filings by organizations and individuals from California, North Caro- NationsBank as well as various reports filed by the relevant lina, Texas, New Mexico, and other regions of the country. companies and publicly available information and other Commenters in support of the proposal commended reports. In addition, the Board reviewed confidential super- NationsBank and BankAmerica for their commitment to visory information, including examination reports regarding the companies and depository institutions involved, and information provided by the other federal banking 5. In cases involving a foreign bank, the Board also must consider agencies and the Department of Justice. For the reasons whether the foreign bank is subject to comprehensive supervision or regulation on a consolidated basis by appropriate authorities in the discussed in this order, and after a careful review of all the foreign bank's home country. facts of record, the Board has concluded that the statutory 6. Pub. L. No. 103-328, 108 Stat. 2338 (1994). factors it is required to consider under the BHC Act and 7. Notice of the proposal was published in the Federal Register other relevant banking statutes are consistent with approval (63 Federal Register 28,385 and 35,231) (1998)) and in local newspaof the proposal, subject to the conditions noted in this pers in accordance with the Board's Rules of Procedure. See 12 C.F.R. 262.3(b). order. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

860 Federal Reserve Bulletin • October 1998 Interstate Analysis view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act. Section 3(d) of the BHC Act, as amended by section 101 of the Riegle-Neal Act, allows the Board to approve an appli- Competitive Factor cation by a bank holding company to acquire control of a bank located in a state other than the home state of the Section 3 of the BHC Act prohibits the Board from approvbank holding company if certain conditions are met. For ing a proposal that would result in a monopoly, or that purposes of the BHC Act, the home state of NationsBank is would substantially lessen competition in any relevant North Carolina,8 and BankAmerica's subsidiary banks are banking market if the anticompetitive effects of the prolocated in California and eleven other states.9 posal are not clearly outweighed in the public interest by Section 3(d) of the BHC Act provides that the Board the probable effect of the proposal in meeting the convemay not approve a proposal if, after consummation, the nience and needs of the community to be served.14 The applicant would control more than 10 percent of the total Board has carefully considered the competitive effects of deposits of insured depository institutions in the United the proposal in light of all the facts of record, including States.10 In addition, the Board may not approve a proposal public comments on the proposal. if, on consummation of the proposal, the applicant would A number of commenters expressed concern that the control 30 percent or more of the total deposits of insured proposed merger would have adverse competitive effects. depository institutions in any state in which both the appli- Many of these commenters expressed concern that large cant and the organization to be acquired operate an insured bank mergers in general, or the proposed merger of depository institution, or such higher or lower percentage NationsBank and BankAmerica in particular, would reduce established by state law.11 competition for banking services and result in higher fees On consummation of the proposal, New BankAmerica or reduced customer convenience. In addition, a number of would control approximately 8.1 percent of the total commenters claimed that the proposed merger of amount of deposits of insured depository institutions in the NationsBank and BankAmerica would have significantly United States. New BankAmerica would control less than adverse effects on competition in Texas and New Mexico, 30 percent or the appropriate percentage established by where the subsidiary banks of both NationsBank and applicable state law of total deposits held by insured depos- BankAmerica compete, and particularly in Dallas, Texas. itory institutions in Texas, New Mexico, Illinois, and Flor- Some commenters also contended that the proposed merger ida, the states in which NationsBank and BankAmerica would result in higher interest rates for small business both operate an insured depository institution.12 loans, and reduced levels of small business and mortgage All other requirements of section 3(d) of the BHC Act lending, particularly in California, Texas, and New Mexalso would be met after consummation of the proposal.13 In ico. In order to determine the effect of a particular transaction on competition, it is necessary to designate the area of effective competition between the parties, which the courts 8. A bank holding company's home state is that state in which the operations of the bank holding company's banking subsidiaries were have held is decided by reference to the relevant "line of principally conducted on July 1, 1966, or the date on which the commerce" or product market and a geographic market. company became a bank holding company, whichever is later. The Board and the courts have consistently recognized that 9. For purposes of the Riegle-Neal Act, the Board considers a bank the appropriate product market for analyzing the competito be located in the states in which the bank is chartered, headquartered, or operates a branch. tive effects of bank mergers and acquisitions is the cluster 10. 12 US.C. § 1842(d)(2)(A). For this purpose, insured depository of products (various kinds of credit) and services (such as institutions include all insured banks, savings banks, and savings checking accounts and trust administration) offered by associations. banking institutions.15 The Board and the courts also con- 11. 12 US.C. § 1842(d)(2)(B)-(D). 12. On consummation, New BankAmerica would control less than sistently have found that the geographic market for analyz- 30 percent of total deposits in insured depository institutions in ing the competitive effects of a proposal on the supply and Florida and Illinois. See Fla. Stat. Ann. § 658.295 (West 1997). The appropriate deposit cap in New Mexico is set by New Mexico state law at 40 percent, and New BankAmerica would not, on consummation of the proposal, exceed that state limit. See N.M. Stat. Ann. requirements established by applicable state law. See 12 US.C. § 58-lB-6(B) (Michie 1998). New BankAmerica also would control § 1842(d)(l)(B). The Board also contacted the relevant state banking less than 20 percent of total deposits in insured depository institutions commissioners regarding, and considered NationsBank's record of in Texas on consummation of the proposal and the Texas Banking compliance with, applicable state community reinvestment laws. Commissioner has advised the Board in writing that the proposal is 14. 12 US.C. § 1842(c)(l). consistent with the provisions of Texas law concerning interstate bank 15. See Chemical Banking Corporation, 82 Federal Reserve Bulleacquisitions. See Letter from Catherine A. Ghiglieri, Texas Banking tin 230 (1996) ("Chemical") and the cases and studies cited therein. Commissioner, to Scott G. Alvarez, Associate General Counsel of the The Supreme Court has emphasized that it is the cluster of products Board, dated July 17, 1998; Tex. Fin. Code Ann. § 38.002 (West and services that, as a matter of trade reality, makes banking a distinct 1998). line of commerce. See United States v. Philadelphia National Bank, 13. NationsBank is adequately capitalized and adequately managed 374 U.S. 321. 357 (1963) ("Philadelphia National"); accord. United as denned in the Riegle-Neal Act. 12 US.C. § 1842(d)(l)(A). Bank- Stares v. Connecticut National Bank, 418 U.S. 656 (1974); United America's subsidiary banks have been in existence and operated for States v. Phillipsburg National Bank, 399 U.S. 350 (1969) ('• Phillipsthe minimum periods of time necessary to satisfy the minimum age burg National"). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 861 demand of the cluster of banking products and services is A. Banking Markets Without Divestitures local in nature.16 The geographic scope of the local banking market is defined by the area in which competition Consummation of the proposal, without divestitures, would between depository institutions can reasonably be expected be within the thresholds contained in the Department of to have a direct effect on the price and supply of the cluster Justice Merger Guidelines ("DOJ Guidelines")20 in of banking products and services.17 11 banking markets: Austin, Fort Worth, Houston, San The Board concludes, based on all the facts of record, Antonio, Temple, and Waco, in Texas; Farmington, Las that the appropriate product market for considering the Cruces, and Roswell-Artesia, in New Mexico; and Miamicompetitive effects of this case is the cluster of banking Ft. Lauderdale and West Palm Beach, in Florida.21 In each products and services, and that the appropriate geographic of these markets, a large number of competitors relative to markets for considering the competitive effects of this the size of the market would remain after consummation of proposal are the 17 local banking markets in which the the proposal. As discussed in Appendix C, each of these subsidiary banks of NationsBank and BankAmerica oper- markets also would remain unconcentrated or moderately ate and compete.18 These local banking markets are Austin, concentrated, as measured by the HHI, after consummation Dallas, Fort Worth, Houston, San Antonio, Temple, and of the proposal, with the exception of the Farmington Waco, in Texas; Albuquerque, Clovis, Farmington, Las market. In ten of these eleven markets, including the Far- Cruces, Lea, McKinley County, Santa Fe, and Roswell- mington market, consummation of the proposal would Artesia, in New Mexico; and Miami-Ft. Lauderdale and increase market concentration, as measured by the HHI, by West Palm Beach, in Florida.19 too broadly. As an initial matter, the Board notes that the Dallas 16. See Philadelphia National, 374 U.S. at 357; Phitlipsburg banking market does not include the City of Fort Worth and certain National; First Union Corporation, 84 Federal Reserve Bulletin 489 surrounding communities, which are included in the separate Fort (1998) {"First Union"); Chemical; St. Joseph Valley Bank, 68 Fed- Worth banking market. The record indicates that Dallas is a hub for eral Reserve Bulletin 673 (1982) {"St. Joseph"). financial, commercial, medical, transportation, and distribution ser- 17. Philadelphia National, 374 US. at 359. quoting Tampa Electric vices for the areas within the Dallas banking market. Commuting and Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961). In determining workforce data demonstrate that there is substantial and continuous the geographic scope of local banking markets, the Board considers a economic integration between Dallas and the communities and county number of factors, including population density, worker commuting areas within the banking market. For example, 1990 Census Bureau patterns (as indicated by census data), shopping patterns, the availabil- data indicate that more than 30 percent of workers residing in the ity and geographic reach of various modes of advertising, the presence portions of Collin, Denton, Ellis, Kaufman, Rockwall, and Tarrant of shopping, employment, health care and other necessities, the avail- counties that are included in the Dallas banking market commute to ability of transportation systems and routes, branch banking patterns, Dallas County to work. Television, newspaper, and radio media serve deposit and loan activity, and other indicia of economic integration all areas of the designated banking market. A recent survey conducted and the transmission of competitive forces among depository institu- by the Federal Reserve Bank of Dallas indicates that commercial tions that affect the pricing and availability of banking products and banks in Dallas consider the offerings of other banks located throughservices. See Crestar Bank, 81 Federal Reserve Bulletin 200, 201 n.5 out the market in setting prices for loan and deposit products. Small (1995): Pennbancorp, 69 Federal Reserve Bulletin 548 (1983); business lending data filed under the CRA also indicate that deposi- St. Joseph. tory institutions originate small business loans throughout the banking market. Based on these and other facts of record, the Board believes 18. One commenter expressed concern that financial institutions that the relevant banking market for considering the competitive that operate very large numbers of ATMs may decide to handle their effects of the proposal in the Dallas area is the Dallas banking market own ATM transaction processing functions, rather than relying on an as defined in Appendix B. ATM network or third parties for such processing, and that financial institutions that engage in significant levels of credit card lending may 20. Under the DOJ Guidelines, 49 Federal Register 26,823 seek to establish a separate brand identity for the credit cards that they (June 29, 1984), a market in which the post-merger Herfindahlissue. Commenter has presented no evidence to demonstrate that, if Hirschman Index ("HHI") is less than 1000 is considered to be such actions were to occur, they would result in a violation of the unconcentrated, and a market in which the post-merger HHI is beantitrust laws, and the Board notes that the events discussed by the tween 1000 and 1800 is considered to be moderately concentrated. commenter could, in fact, increase competition for ATM transaction The DOJ has informed the Board that a bank merger or acquisition processing or credit card lending by creating a new competitor for generally will not be challenged (in the absence of other factors such services. indicating anticompetitive effects) unless the post-merger HHI is at Commenter also expressed concern that combinations of large least 1800 and the merger or acquisition increases the HHI by at least banking organizations that are significant members of separate re- 200 points. The DOJ has stated that the higher than normal HHI gional ATM networks may lead to the merger of the ATM networks thresholds for screening bank mergers or acquisitions for anticompetiand, thereby, result in a reduction in competition for ATM network tive effects implicitly recognize the competitive effect of limitedservices. Under section 4 of the BHC Act. a bank holding company is purpose lenders and other non-depository financial institutions. required to obtain the Board's approval before acquiring more than 21. Market data for these markets, including respective market 5 percent of the voting shares of any company engaged in activities shares and relevant HHI figures, are set forth in Appendix C. Market that are closely related to banking, including a company formed by the concentration calculations include deposits of thrift institutions at merger of two or more ATM networks. In the event that a merger of 50 percent. The Board previously has indicated that thrift institutions regional ATM networks controlled by bank holding companies is have become, or have the potential to become, significant competitors proposed at some time in the future, the Board would have the of commercial banks. See Midwest Financial Group, 75 Federal opportunity to address the issues raised by the commenter in the Reserve Bulletin 386 (1989); National City Corporation, 70 Federal context of the specific facts presented at that time. Reserve Bulletin 743 (1984). Thus, the Board has regularly included 19. The geographic scope of these local banking markets is set forth thrift deposits in the calculation of market share on a 50-percent in Appendix B. A few commenters contended, without providing any weighted basis. See. e.g.. First Hawaiian, Inc.. 77 Federal Reserve supporting evidence, that the Dallas, Texas, banking market is defined Bulletin 52 (1991). 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862 Federal Reserve Bulletin • October 1998 less than 140 points, which is significantly less than the proposal would have a significantly adverse effect on com- 200 point threshold contained in the DOJ Guidelines.22 petition in any of these markets.25 Dallas Banking Market. NationsBank is the largest of B. Banking Markets with Proposed Divestitures 109 depository institutions in the Dallas banking market, and controls deposits of $14.1 billion, representing approx- Consummation of the proposal would exceed the DOJ imately 35.1 percent of market deposits. BankAmerica is Guidelines as measured by the HHI in the remaining six the fifth largest depository institution in the market, and banking markets. In order to mitigate the potential anticom- controls deposits of $1.8 billion, representing approxipetitive effects of the proposal in the Albuquerque, Clovis, mately 4.4 percent of market deposits. On consummation and McKinley County banking markets in New Mexico, of the proposal, New BankAmerica would remain the NationsBank has committed to divest a total of largest depository institution in the market and control 17 branches, which in the aggregate control deposits of approximately 39 percent of market deposits. The HHI approximately $492 million.23 After accounting for the would increase 311 points to 1977.26 proposed divestitures, consummation of the proposal The Board has considered that two savings associations would be within the thresholds in the DOJ Guidelines in operating in the Dallas banking market are significant these three banking markets.24 In light of these divestitures, commercial lenders and provide a range of consumer, the transaction would result in no increase in the HHI in mortgage, and other banking products and services. Comthe Clovis and McKinley County banking markets and an petition from these savings associations more closely apincrease of only 60 points in the HHI for the Albuquerque proximates competition from commercial banks, and the banking market. In addition, a significant number of com- Board concludes that deposits controlled by these organizapetitors would remain in each of these markets in relation tions should be weighted at 100 percent in calculating to the size of the market after consummation of the market concentration under the DOJ Guidelines.27 Acproposal. counting for the deposits of these thrifts at 100 percent, the HHI for the Dallas banking market would increase by C. Remaining Banking Markets 302 points to 1924, and New BankAmerica would have a post-merger market share of approximately 39 percent. In the Dallas, Texas, banking market and the Santa Fe and Lea, New Mexico, banking markets, consummation of the proposal would increase the level of market concentration, 25. The number and strength of factors necessary to mitigate the competitive effects of a proposal depend on the level of concentration as measured by the HHI, to levels that exceed the DOJ and sfese of the increase in market concentration. See NationsBank Guidelines. No divestitures have been proposed in these Corporation, 84 Federal Reserve Bulletin 129 (1998) ("NationsBank/ markets. Barnett"). In conducting its review of the competitive effects of the 26. NationsBank contends that the Board, for purpose of determining the HHI in the Dallas market, should exclude approximately proposal in these markets, the Board has carefully consid- $5.8 billion in deposits held on June 30, 1997, by the Dallas branches ered whether other factors either mitigate the competitive of NationsBank of Texas, N.A., because the deposits were made by effects of the proposal in the market or indicate that the corporate customers that may have no special connection to the Dallas banking market, or because the deposits were transferred to another NationsBank branch outside of Texas after June 30, 1997. Certain 22. The HHI for the San Antonio market would increase 207 points commenters contended, on the other hand, that the Board, in determinon consummation of the proposal, but the market would remain only ing the pro forma HHI for the Dallas market, should not reduce the moderately concentrated, with a post-merger HHI of 1303. market share of NationsBank as a consequence of the transfer in 1998 23. Calculations of existing and pro forma levels of market concen- of approximately $14 billion in deposits from NationsBank's Dallas tration in local banking markets and divestiture amounts are based on branches to its branches in North Carolina. As noted above, consistent June 30, 1997, summary of deposit data, adjusted to reflect acquisi- with the Board's practice in previous cases, and based on the facts of tions since that date. With respect to each market in which this case, the Board has calculated existing and pro forma HHI levels NationsBank has committed to divest branches to mitigate the anti- in local banking markets based on the most recently available (June competitive effects of the proposal. NationsBank has committed to 30, 1997) summary of deposits, adjusted only for acquisitions consumexecute a sales agreement, prior to consummation of the merger with mated since that date, and has not adjusted these figures to take Bank-America, with a purchaser determined by the Board to be account of deposit transfers. competitively suitable and to complete the divestiture within 180 days 27. Certain commenters contended that the Board should not fully of consummation of the merger. weight the deposits of any savings association in considering the 24. Market data for these three banking markets reflecting the competitive effects of the proposal. The Board previously has indiproposed divestitures are provided in Appendix C. NationsBank has cated thai it may consider the competitiveness of savings associations entered into an agreement to sell all the branches to an out-of-market at a level greater than 50 percent of the savings association's deposits, commercial banking organization that is competitively suitable to the if appropriate. See Banknorth Group, Inc., 75 Federal Reserve Bulle- Board, and the pro forma market data contained in Appendix C reflect tin 703 (1989). In the Dallas banking market, First Savings Bank, this proposed divestiture. NationsBank has committed that, in the FSB. maintains 9 percent and Guaranty Federal Bank, FSB, maintains event it is unsuccessful in completing any divestiture within 180 days 5.7 percent of their respective assets in nonmortgage commercial of consummation of the merger, NationsBank will transfer the unsold loans, which is significantly greater than the 1.7 percent national branches to an independent trustee that is acceptable to the Board and average for thrifts. The record also indicates that these thrifts either will instruct the trustee to sell the branches promptly. See Bank- have a separate commercial lending department or have loan officers America Corporation. 78 Federal Reserve Bulletin 338 (1992); United devoted to originating nonmortgage commercial loans, and that the New Mexico Financial Corporation, 11 Federal Reserve Bulletin 484 thrifts plan to continue to increase their commercial lending in the (1991). Dallas banking market. 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Legal Developments 863 After consummation of the proposal, more than proposal, NationsBank would remain the largest deposi- 100 banks and savings associations would remain in the tory institution in the market, controlling $308.4 million of market, including 8 competing bank holding companies deposits, representing approximately 33.2 percent of marand four savings associations or savings association hold- ket deposits. The concentration of market deposits, as ing companies that each have more than $10 billion in total measured by the HHI, would increase 375 points to 1965. assets. The second and third largest depository institutions The Board has considered that one thrift operating in the in the market are among the largest commercial banking Santa Fe banking market has been an active commercial organizations in the United States and in Texas. For exam- lender, with more than 10 percent of its assets in nonmortple, Bane One Corporation, the second largest competitor gage commercial loans.30 Based on all the facts of record, in the Dallas banking market, is currently the 8th largest the Board concludes that deposits controlled by this thrift commercial banking organization in the nation by total should be weighted at 100 percent in calculating market assets,28 and would continue to control approximately 16 concentration under the DOJ Guidelines. Giving full percent of market deposits and operate 64 branches in the weight to these deposits, the HHI in the Santa Fe banking market. Chase Manhattan Corporation, the third largest market would increase 332 points to 1845. competitor in the market, currently is the largest commer- Several other mitigating factors also suggest that the cial banking organization in the nation by total assets,29 increase in market concentration in the Santa Fe banking and would continue to control approximately 9.5 percent of market, as measured by the HHI, is not likely to reflect a market deposits and operate 28 branches in the market. significantly adverse effect on competition in the market. The Dallas banking market also is attractive for entry by Ten competitors, including New BankAmerica, would reout-of-market competitors, as shown by market characteris- main in the banking market. The second largest depository tics and the significant number of competitors that have institution in the market would control more than 20 perentered the market recently, either de novo or by acquisi- cent of market deposits, and three other commercial banks tion. Between 1990 and 1997, total deposits in the Dallas would each control more than 10 percent of market depos- Metropolitan Statistical Area ("MSA"), which approxi- its. In addition, the fifth and tenth largest competitors in the mates the Dallas banking market, increased by more than banking market are large out-of-state bank holding compa- 40 percent, compared to an average increase of 22 percent nies with substantial resources. for other MSAs in Texas. Per capita income and deposits The Santa Fe banking market has become slightly less per banking office in the Dallas MSA also are significantly concentrated since 1991, and appears to be attractive for greater than the average for all Texas MSAs. In addition, new entry. The Santa Fe MSA, which approximates the the Dallas MSA has experienced a greater percentage banking market, has greater deposits per banking office and increase in population from 1990 to 1996 than MSAs on greater per capita income than any other MSA in New the average both nationally and in Texas. Mexico. Total deposits in the Santa Fe MSA also increased Since January 1, 1995, eight out-of-market banks and approximately 49 percent from 1990 to 1997, which is thrifts have entered the market by establishing de novo significantly greater than the average deposit increase for branches. An additional ten commercial banks have been MSAs in New Mexico during the same time period. established de novo in the market since the beginning of In the Lea banking market, NationsBank is the third 1996. Nine other depository institutions have entered the largest of seven depository institutions, controlling deposmarket since 1995 by acquiring other depository institu- its of $68.3 million, representing approximately 17 percent tions. During that period, more than 120 new branches of market deposits. BankAmerica is the fifth largest deposhave been opened, or been approved to be opened, in the itory institution, controlling deposits of $24.3 million, rep- Dallas banking market by competitors of NationsBank and resenting approximately 6 percent of market deposits. On BankAmerica. consummation of the proposal, NationsBank would remain The Board believes that these considerations and other the third largest depository institution in the market, confactors mitigate the potentially adverse competitive effects trolling deposits of $92.6 million, representing approxiof the proposal in the Dallas banking market. mately 23 percent of market deposits, and the HHI in the New Mexico Banking Markets. NationsBank and Bank- market would increase 205 points to 2351. America also compete in the Santa Fe and Lea, New Six competitors, including New BankAmerica, would Mexico, banking markets. In the Santa Fe banking market, remain in the market. Three depository institutions would NationsBank is the largest of 11 depository institutions, each control more than 20 percent of market deposits, and controlling $241.2 million of deposits, representing ap- one depository institution would control approximately proximately 26 percent of market deposits. BankAmerica 16.8 percent of market deposits. One of the competitors is the sixth largest depository institution, controlling that would control more than 20 percent of market deposits $67.2 million of deposits, representing approximately is a large bank holding company with significant resources. 7.2 percent of market deposits. On consummation of the The Lea banking market also appears to be attractive for 28. As of March 31, 1998. Bane One Corporation had total assets of approximately $117 billion. 30. The record indicates that the thrift, Century Federal Savings and 29. Chase Manhattan Corporation had total assets of approximately Loan Association, also operates a separate commercial loan depart- $366 billion, as of March 31. 1998. ment and intends to continue making commercial loans in the future. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

864 Federal Reserve Bulletin • October 1998 entry. Lea County, which is approximates the Lea banking Financial, Managerial, and Supervisory Factors market, is the fourth largest of 27 non-MSA counties in New Mexico in terms of population, and deposits per The proposed combination of NationsBank and Bankbanking office and the population per banking office in Lea America would create the largest banking organization in County are significantly greater than the average for all the United States and the third largest banking organization non-MSA counties in the state. in the world, in terms of total assets. New BankAmerica would operate depository institutions in 27 states, with approximately 4,800 full-service branches. The companies D. Conclusion Regarding Competitive Factor have indicated that the size and geographic scope of the combined organization would provide their customers The Board has sought the views of the Department of added convenience and a broader range of services, allow Justice regarding the competitive effects of the proposal. the combined organization to better diversify its exposure The Department of Justice has reviewed the proposal, and to particular geographic regions, and allow the organizaadvised the Board that, in light of the proposed divestitures tion to better absorb the financial costs associated with in New Mexico, consummation of the proposal would not developing new and alternative methods of delivering likely have a significantly adverse effect on competition in banking resources to their customers. any relevant banking market.31 The Office of the Comptrol- The Board has carefully considered the financial and ler of the Currency ("OCC") and the Federal Deposit managerial resources and future prospects of the compa- Insurance Corporation ("FDIC") have been consulted and nies and banks involved in the proposal, the effect the have not objected to consummation of the proposal.32 proposed transaction would have on such resources, and Based on all the facts of record, and for the reasons other supervisory factors in light of all the facts of record, discussed above, the Board has determined that consumma- including public comments. A number of commenters extion of the proposal would not be likely to result in a pressed concerns regarding the financial and managerial significantly adverse effect on competition or on the con- resources of NationsBank, BankAmerica, and the comcentration of banking resources in any of the 17 banking bined organization.34 In addition, commenters questioned markets in which NationsBank and BankAmerica compete, whether the Board and the other federal banking agencies or in any other relevant banking market. Accordingly, would have the ability to supervise the combined organizasubject to completion of the proposed divestitures, the tion adequately, or whether the combined organization Board has determined that competitive factors are consis- would present special risks to the federal deposit insurance tent with approval of the proposal.33 funds or the financial system in general.35 34. The comments included contentions that: (i) The proposed transaction would stretch the financial resources of NationsBank; 31. Some commenters contended that studies have shown that larger (ii) The combined organization would have inadequate rebanks offer more expensive products and charge higher fees. As a serves for loan losses; general matter, pricing decisions are directly affected by supply and (iii) NationsBank currently holds risky real estate investdemand conditions that may exist in markets where banks compete. In ments; this case, data show that competition in the relevant banking markets (iv) The executive officers of the organizations receive exceswould not be significantly reduced and that the markets would remain sive compensation or would receive unreasonably large competitively structured. payments as a result of the proposed merger; 32. One commenter contended, without providing any supporting (v) NationsBank has experienced difficulty in integrating the evidence, that consummation of the proposal would have anticompeti- credit card, lending, and other systems acquired through tive effects and harm consumers by expanding the number of ATMs previous acquisitions; that are subject to a surcharge on ATM transactions by non-customers. (vi) Subsidiaries of NationsBank and BankAmerica that are As the Board previously has noted, the practice of imposing a sur- engaged in selling securities and insurance products may charge on the use of ATMs by non-customers is relatively recent and not adequately inform their customers of the uninsured limited data are available on the effect of ATM surcharging. See nature of such products; and NationsBank Corporation, 83 Federal Reserve Bulletin 148 (1997) (vii) The systems of the combined organization may not be ("NarionsBank/Boatmen's"). Commenter, moreover, has provided no prepared for the Year 2000. data to show that NationsBank's acquisition of BankAmerica's ATMs The Board also received comments criticizing the adequacy of the would give NationsBank sufficient market power to compete unfairly management of NationsBank based on the manner in which with other depository institutions in the market for providing the NationsBank's subsidiaries handled individual loan, business or sharecluster of banking products and services. The Board also has taken holder transactions, or prepared credit documents and made credit commenter's comments regarding NationsBank's ATM surcharge pol- decisions in individual cases. The Board also has considered these icy into account in considering the convenience and needs factor in comments in reviewing the convenience and needs factor in this case. this case. 35. Some commenters referred to lawsuits or administrative actions 33. One commenter reiterated his contention, considered by the involving NationsBank or its subsidiaries that have been resolved or Board in previous cases, that the Board establish absolute limits on settled. A number of these commenters noted that NB-Lead Bank and relative market share in bank mergers and acquisitions. See First its registered broker-dealer subsidiary, NationsSecurities, recently paid Union; NationsBank/Bamett. For the reasons discussed in those or- approximately $6.75 million to settle administrative complaints arisders, the Board has concluded that its current approach to competitive ing from securities sales activities conducted by NationsSecurities. analysis provides a more complete economic analysis of the competi- The securities sales activities at issue in these administrative actions tive effects of a proposal in a local banking market. occurred in 1993 and 1994, and the OCC, the primary federal supervi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 865 In considering financial and managerial factors, the The Board and the other financial supervisory agencies, Board also has considered the terms of the merger and moreover, have extensive experience supervising confidential examination and other supervisory informa- NationsBank, BankAmerica, and their subsidiary deposition assessing the financial and managerial strength of both tory institutions, as well as other banking organizations organizations on a consolidated basis as well as the finan- that operate across multiple states or multiple regions. cial and managerial resources of the subsidiary depository Building on this experience, the Board has developed a institutions of NationsBank and BankAmerica, and in par- supervisory system that, in the Board's view, will permit ticular NB-Lead Bank and BA-Lead Bank. The Board also the Board to monitor and supervise the combined organizahas reviewed information submitted by NationsBank re- tion effectively on a consolidated basis. This system ingarding the programs that NationsBank and BankAmerica volves, among other things, the continuous supervision, have implemented to prepare their systems for the including both on- and off-site reviews, of the combined Year 2000, and confidential examination and supervisory organization's material risks on a consolidated basis and information assessing the organizations' efforts to ensure across business lines, access to and analyses of the com- Year 2000 readiness, both before and after the proposed bined organization's internal systems and reports for montransaction. itoring and controlling risks on a consolidated basis, and In evaluating financial factors in expansion proposals by frequent contact with the combined organization's senior bank holding companies, the Board has consistently con- management and risk management personnel. The Board sidered capital adequacy to be an especially important expects that management of New BankAmerica will coopfactor.36 The Board expects banking organizations contem- erate fully with this supervisory system to ensure that the plating expansion to maintain strong capital levels substan- Board has complete access to information regarding the tially in excess of the minimum levels specified in the combined organization's operations, risks, risk manage- Board's Capital Adequacy Guidelines. NationsBank, ment, and efforts to ensure Year 2000 compliance. The BankAmerica, and their subsidiary depository institutions Board's supervisory processes are, and would continue to currently are well capitalized under applicable federal be, coordinated with those of the financial supervisory guidelines. New BankAmerica and its subsidiary deposi- agencies with primary supervisory responsibility for the tory institutions also would be well capitalized on a combined organization's subsidiary depository institutions. pro forma basis on consummation of the transaction, and The Board has contacted these financial supervisory agen- New BankAmerica would have capital ratios on a cies regarding the proposed merger and the supervision of pro forma consolidated basis that are more than 300 basis the combined organization's subsidiary depository institupoints above the capital levels required for bank holding tions and none of these agencies has objected to the procompanies under the Board's Capital Adequacy Guideposal or indicated that consummation of the proposal lines. The proposed transaction is structured as a stock-forwould present special supervisory difficulties. stock combination, and would not increase the debt service For these reasons, and based on all the facts of record, requirements of the combined company. In addition, both including review of the comments received, the Board has companies have reported strong earnings in recent periods. concluded that considerations relating to the financial and NationsBank, BankAmerica, and their subsidiary depos- managerial resources and future prospects of New Bankitory institutions also are well managed, and the Board has America, NationsBank, BankAmerica, and their respective extensive supervisory experience with the senior manage- subsidiaries, as are the other supervisory factors that the ment of both organizations. The Board notes that the senior Board must consider under section 3 of the BHC Act, are management of New BankAmerica would be drawn from consistent with approval of the proposal. the senior executives of NationsBank and BankAmerica, which would provide the combined organization with experience and knowledge concerning the markets and operations of both companies.37 BankAmerica, would not include a sufficient number of minorities or sor of NB-Lead Bank, has stated that the bank and NationsSecurities women. Other commenters requested that the Board require that New have instituted policies and procedures and taken other actions to BankAmerica maintain internal policies that would prohibit discrimicorrect the deficiencies alleged in the administrative complaints. nation in employment on the basis of sexual orientation. The racial Several commenters noted that NationsBank is a defendant in and gender composition of management and the breadth of an organipending administrative or judicial proceedings, including lawsuits zation's internal policies on employment discrimination are not facalleging that NationsBank subsidiaries have engaged in improper tors the Board is entitled to consider under the BHC Act. The Board lending practices and an administrative action brought by the Depart- notes that the Equal Employment Opportunity Commission has jurisment of Labor alleging that NationsBank engaged in discriminatory diction to determine whether banking organizations like NationsBank hiring practices in Charlotte, North Carolina, in 1993. There has been are in compliance with federal equal employment opportunity statutes no adjudication of wrongdoing by NationsBank in any of these under the regulations of the Department of Labor. See 41 C.F.R. matters, and each matter currently is pending before a forum that can 60-1.7(a) and 60-1.40. Several states and municipalities also have provide the plaintiffs adequate redress if their allegations can be adopted laws that prohibit discrimination on the basis of sexual sustained. orientation. There has been no finding by an appropriate authority or 36. See Chemical. court that either NationsBank or BankAmerica is in violation of 37. Several commenters alleged that the current management of applicable employment laws, and the Board expects all banking NationsBank or BankAmerica, and the proposed management of New organizations to comply with applicable federal, state, and local laws. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

866 Federal Reserve Bulletin • October 1998 Convenience and Needs Factor A number of state and local government agencies involved in community development and affordable housing In acting on the proposal, the Board also must consider the commented favorably on their experiences with convenience and needs of the communities to be served NationsBank and BankAmerica. The Florida Division of and take into account the records of the relevant depository Banking, for example, commended NationsBank's record institutions under the CRA. The CRA requires the federal of lending to small businesses and LMI and minority financial supervisory agencies to encourage financial insti- individuals in that state. In addition, a number of private tutions to help meet the credit needs of local communities developers commended NationsBank for supporting the in which they operate, consistent with their safe and sound development of affordable housing for low-income individoperation, and requires the appropriate federal supervisory uals, elderly individuals, or individuals with disabilities, authority to take into account an institution's record of through loans, grants, and technical assistance. Other primeeting the credit needs of its entire community, including vate organizations supported the proposal based on LMI neighborhoods, in evaluating bank expansion propos- NationsBank's record of financing development projects in als. The Board has carefully considered the convenience neighborhoods with predominately LMI and minority resiand needs factor and the CRA performance records of the dents, and of financing businesses owned by women and subsidiary depository institutions of NationsBank and minorities ("women-owned" and "minority-owned") di- BankAmerica in light of all the facts of record, including rectly and through financial intermediaries. Some public comments on the proposal. community-based organizations observed that useful needed products and services were developed through part- A. Summary of Public Comments Regarding nerships with NationsBank and BankAmerica. A number Convenience and Needs Factor of comments from owners of small businesses stated that NationsBank had been a leader in fostering economic The Board provided an extended period for public com- revitalization and community development.39 ment on the proposal and convened a two-day public More than 800 commenters either opposed the proposal, meeting on the proposal in San Francisco to aid the Board requested that the Board approve the merger subject to in collecting information regarding the statutory factors the conditions suggested by the commenter, or expressed con- Board is required to consider and, in particular, the effect of cerns about large bank mergers in general or the CRA the proposal on the convenience and needs of the affected performance record of NationsBank or BankAmerica.40 A communities and the CRA performance records of the depository institutions involved. As noted above, more than 1,600 interested persons either submitted written com- (13) Community development organizations, nonprofit organizaments or testified at the public meeting. tions, and small businesses in North Carolina, Texas, Flor- More than 850 commenters supported the proposal or ida, and New Mexico. commented favorably on NationsBank's or BankAmeri- 39. Several commenters argued that the Board should give less weight to comments in support of the proposal if the commenter ca's CRA-related activities. Many of these commenters received financial assistance from NationsBank or BankAmerica to commended NationsBank for providing credit or other travel to the San Francisco public meeting or otherwise received services to small businesses, sponsoring community devel- encouragement or assistance from NationsBank or BankAmerica to opment activities, participating in programs that provided submit comments supporting the proposal. One commenter also alleged that a NationsBank representative sought to coerce community affordable housing and mortgage financing for LMI indigroups to submit comments in favor of the merger and implied that viduals, and providing support to nonprofit organizations. failure to do so could result in a loss of funding from NationsBank. Other commenters related their favorable experiences with The description of the number of comments in this order is provided specific programs or services offered by NationsBank.38 only to indicate the public interest in the proposal, and does not represent a numerical weighting by the Board of the comments submitted in favor of or in opposition to the proposal. The Board has carefully considered the substance of oral and written submissions in light of the entire record in this case and the factors the Board is 38. These commenters included: required to consider under the BHC Act. (1) A member of the U.S. House of Representatives; 40. These commenters included: (2) Local government officials, including the mayors of Char- (1) Several members of the U.S. House of Representatives and lotte, Baltimore, Memphis, Richmond (Virginia), Houston, the U.S. Senate; and Atlanta, and state senators and representatives in Arkan- (2) Several state and local government officials, including the sas, Texas, Florida, and North Carolina; Mayor of San Francisco, a member of the board of supervi- (3) The National Association for the Advancement of Colored sors for the City and County of San Francisco, the Los People; Angeles City Council, the mayors of Richmond and Walnut (4) National Urban League; Creek, both in California, and a California State Assembly- (5) Local Initiatives Support Corporation; man; (6) ACORN Housing; (3) The Greenlining Institute and a number of its member orga- (7) Charlotte-Mecklenburg Housing Partnership; nizations; (8) Neighborhood Assistance Corporation of America; (4) Community Reinvestment Association of North Carolina; (9) Local branches of Neighborhood Housing Services, Inc.; (5) California Reinvestment Committee; (10) Greater Miami Neighborhoods; (6) The Stockton, California, chapter of the National Association (11) San Francisco Chamber of Commerce; for the Advancement of Colored People; (12) Southern Dallas Development Corporation; and (7) Inner City Press/Community on the Move; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 867 number of these commenters contended that NationsBank menters contended that the proposal would adversely affect had an inadequate record of performance under the CRA, local communities though job losses, reduced levels of particularly in lending to LMI individuals and minorities charitable contributions, and branch closings.41 and to women- and minority-owned small businesses. Some commenters questioned NationsBank's compliance B. CRA Performance Records with fair lending laws and criticized the lending practices of NationsBank's subprime lending subsidiaries. Other In its consideration of the convenience and needs of the commenters maintained that BankAmerica's CRA perfor- communities to be served by New BankAmerica, the Board mance record was inadequate, particularly in New Mexico has reviewed in detail the CRA performance records of and Texas. A number of commenters criticized the lending NationsBank and BankAmerica, including their mortgage records of NationsBank and BankAmerica by citing data and small business lending records, community developsubmitted by the banking organizations under the Home ment and investment programs, and their initiatives to Mortgage Disclosure Act (12U.S.C. § 2810 et seq.) increase lending in LMI areas, in states served by their ("HMDA"). subsidiary depository institutions.42 The Board also has Some commenters who commended BankAmerica's considered the record and ability of these organizations to CRA performance in California expressed concern that the adapt programs to special local needs. In addition, the proposal might diminish CRA-related activities in that Board has considered the record of NationsBank and state, particularly in communities and rural areas with BankAmerica in implementing CRA programs and policies specialized housing and community development needs. effectively after an expansion proposal, as well as the These commenters identified the activities of the Bank of current plans of New BankAmerica for implementing CRA America Community Development Bank and Bank- policies and programs following consummation of the pro- America's Rural 2000 Initiative as programs that assisted posal. in meeting the credit needs of diverse California communi- NationsBank and BankAmerica have indicated that the ties and urged NationsBank to retain these programs. CRA policies and programs of New BankAmerica would NationsBank's community development and lending pro- draw on the CRA policies and programs currently in effect grams, on the other hand, were characterized by some of at both institutions. NationsBank has stated, for example, these commenters as standardized and inflexible. Some that New BankAmerica would continue to operate the commenters expressed concern that the expansion of the Bank of America Community Development Bank, and NationsBank Community Development Corporation would maintain BankAmerica's Rural 2000 Initiative and ("CDC") might harm nonprofit affordable housing devel- expand that initiative to areas currently served by opers. NationsBank.43 NationsBank also has stated that New A number of commenters expressed concerns about BankAmerica would continue to operate the NationsBank NationsBank's $350 billion, 10-year community reinvest- CDC, which provides equity financing and technical assisment plan. Most of these commenters asserted that the plan tance to encourage residential and commercial developwas inadequate because it failed to establish specific lend- ment in distressed urban neighborhoods. ing and investment commitments for particular states, com- NationsBank and BankAmerica have extensive and wellmunities, or products. Some commenters contended that established CRA policies and programs that serve commuthe Board should monitor and enforce NationsBank's fu- nities in several states and that have been rated "outstandture compliance with the plan. Other commenters argued ing" by the federal supervisors of their subsidiary that the plan should not be considered by the Board if the depository institutions. The Board expects that New plan is not enforceable by community groups or federal BankAmerica will continue the policies of NationsBank supervisory agencies. Some commenters also contended that NationsBank has not cooperated with community 41. Several commenters opposed the proposal based on unfavorable groups in general or provided community groups with experiences with NationsBank or BankAmerica in particular loan access to its senior level executives. transactions or business dealings with the organizations. The Board Some commenters also were concerned that the merger has reviewed these comments in light of all the facts of record, including information provided by NationsBank. The Board has prowould result in the loss of local control over lending vided copies of these comments to the appropriate federal supervisor decisions and the relocation of a major financial institution of the subsidiary involved for its consideration. currently headquartered in San Francisco. In addition, com- 42. Some commenters claimed that evidence suggests that large banks engage in less small business lending, relative to their size and total lending activities, than small banks. The Board has considered (8) City and County of San Diego Community Reinvestment these comments in light of the record of lending performance of Task Force; NationsBank and BankAmerica. including their record of assisting in (9) National Training and Information Center; meeting the credit needs of small businesses. (10) Texas Community Reinvestment Coalition; 43. BankAmerica's Rural 2000 Initiative, established in 1997, seeks (11) Consumers Union; to increase the level of community development in LMI rural areas. (12) The U.S. Hispanic Chamber of Commerce and National Under the initiative, BankAmerica established a $500 million lending Black Chamber of Commerce; and goal to support community development lending in rural communi- (13) Community groups and nonprofit organizations in Califor- ties. The initiative also includes programs to support community nia, North Carolina, Florida, Texas, New Mexico, Arizona, reinveslment activities in areas with large Native American populaand Nevada. tions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

868 Federal Reserve Bulletin • October 1998 and BankAmerica that devote priority to addressing the Bank received an "outstanding" rating from the OCC at its banking needs of local communities, including LMI neigh- most recent examination for CRA performance, as of Sepborhoods, through programs and policies that recognize the tember 1997.47 Bank of America Texas, N.A., Dallas, needs of different communities. Texas ("BankAmerica-Texas"), also received an "outstanding" CRA rating from the OCC at its most recent C. CRA Performance Examinations examination, as of October 1996.48 As provided in the CRA, the Board has evaluated the D. NationsBank's CRA Performance Record convenience and needs factor in light of examinations by the appropriate federal supervisors of the CRA perfor- Overview. NationsBank's Community Investment Group mance records of the relevant institutions. An institution's coordinates and facilitates the delivery of products and most recent CRA performance evaluation is a particularly services by NationsBank's subsidiaries to LMI individuals important consideration in the applications process because and communities and to small businesses. The Community it represents a detailed on-site evaluation of the institu- Investment Group works with regional and local managers tion's overall record of performance under the CRA by its to market the organization's products in local communities appropriate federal financial supervisory agency.44 and to develop strategies to meet the special credit needs of A substantial majority of NationsBank's and Bank- local communities throughout the NationsBank franchise. America's total assets are controlled by insured depository In 1997, NationsBank made more than 35,000 home institutions that received an "outstanding" rating at their mortgage and home improvement loans, totaling approximost recent CRA performance examination. NB-Lead mately $2 billion, in LMI neighborhoods. In 1997, Bank received an "outstanding" rating from the OCC, its NationsBank also originated or purchased more than appropriate federal supervisor, at its most recent examina- 35,000 loans, totaling more than $3 billion, under protion for CRA performance, as of July 1995. Since that grams sponsored by the Federal Housing Administration examination, NB-Lead Bank has acquired by merger ("FHA"), Veterans Administration ("VA"), and Fanners NationsBank's subsidiary banks located in Florida, Geor- Home Administration. NationsBank also made approxigia, Texas, and Virginia, each of which also received an mately $11 billion in small business loans in 1997, of "outstanding" rating from the OCC at their most recent which more than $2 billion in loans were made to small examinations for CRA performance conducted before the businesses located in LMI areas. NationsBank was one of mergers.45 After these internal mergers, NB-Lead Bank the largest bank originators of Small Business Administracontrols more than 80 percent of NationsBank's total as- tion ("SBA") loans by number of loans in 1997, originatsets. All of NationsBank's other subsidiary banks received ing 1,184 SBA loans, totaling approximately $112 million. either an "outstanding" or a "satisfactory" rating at the NationsBank also operates a Small Business Investment most recent examinations of their CRA performance.46 Company ("SBIC"), which provides investments of up to All of BankAmerica's subsidiary depository institutions $500,000 in small and minority-owned businesses that received an "outstanding" rating at their most recent exam- have an annual net income of less than $2 million and a net inations for CRA performance. In particular, BA-Lead worth of less than $6 million. NationsBank engages in community development through a variety of programs and initiatives, including the 44. The Statement of the Federal Financial Supervisory Agencies NationsBank CDC which functions as a lender and devel- Regarding the Community Reinvestment Act provides that a CRA examination is an important and often controlling factor in the consid- oper of affordable housing projects in LMI communities. eration of an institution's CRA record and that reports of these examinations will be given great weight in the applications process. 54 Federal Register 13,742 and 13,745 (1989); see also 62 Federal 47. Because BA-Lead Bank operates branches in more than one Register 52.105 (1997). state, OCC examiners also separately rated the bank's CRA perfor- 45. NB-Lead Bank acquired by merger the following NationsBank mance in each state and multi-state MSA in which the bank operated subsidiary banks after July 1995: NationsBank of Florida, N.A., branches. BA-Lead Bank received an "outstanding" rating for its Tampa, Florida ("NationsBank-Florida"); NationsBank of Georgia, CRA performance in California, Washington, and in the multi-state N.A., Atlanta, Georgia ("NationsBank-Georgia"); NationsBank of MSA of Portland, Oregon-Vancouver, Washington. These states and Texas, N.A., Dallas, Texas ("NationsBank-Texas"); and NationsBank, multi-state MSA account for approximately 80 percent of BA-Lead N.A., Richmond, Virginia ("NationsBank-Virginia"). Bank's domestic deposits from its assessment areas. BA-Lead Bank 46. NationsBank of Tennessee, N.A., Nashville, Tennessee received a "satisfactory" rating for its CRA performance record in the ("NationsBank-Tennessee"), received an "outstanding" rating from other eight states and one multi-state MSA where it operated depositthe OCC as of July 1995; and NationsBank of Delaware, N.A., taking branches. Wilmington. Delaware ("NationsBank-Delaware"), a limited-purpose 48. Bank of America, F.S.B., Portland, Oregon ("BankAmericacredit card bank, and NationsBank of Kentucky, N.A., Hopkinsville, FSB"), received an "outstanding" CRA rating from the Office of Kentucky ("NationsBank-Kentucky"), each received "satisfactory" Thrift Supervision ("OTS") at its most recent examination, as of June ratings from the OCC as of July 1995. Barnett Bank. N.A., Jackson- 1997; Bank of America Community Development Bank, Walnut ville, Florida; Boatmen's Bank of Austin, Austin, Texas; Sunwest Grove, California ("Community Development Bank"), received an Bank of El Paso, El Paso, Texas; NationsBank, N.A. (Glynn County), "outstanding" rating from the FDIC at its most recent CRA examina- Brunswick, Georgia; and Community Bank of the Islands, Sanibel, tion, as of August 1997; and Bank of America, N.A., Phoenix, Florida, also received either an "outstanding" or "satisfactory" rating Arizona ("BankAmerica-Arizona"), a limited-purpose credit card at their most recent CRA examinations, which occurred prior to bank, received an "outstanding" rating from the OCC at its most NationsBank's acquisition of these institutions. recent examination, as of October 1996. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 869 The NationsBank CDC has developed or redeveloped ap- NationsBank-Georgia, NationsBank-Texas, NationsBankproximately 14,000 units of affordable housing with invest- Virginia, NationsBank-Kentucky, and NationsBankments totaling more than $300 million since it was formed Tennessee (the "NationsBank Examinations"). The in 1991,49 and it opened new offices in 1997 in four cities, NationsBank Examinations found that each bank, either including St. Louis, Missouri, and Tampa-St. Petersburg, directly or in conjunction with its affiliates, offered a vari- Florida. NationsBank also has established a Community ety of housing-related loan products with flexible credit Development Financial Institution Initiative, a $25 million terms and underwriting guidelines, including mortgages fund to provide investments and loans to financial institu- with low downpayment requirements and mortgages intions that focus their efforts on serving LMI individuals sured or guaranteed by the FHA and VA.52 The and communities, such as community development banks NationsBank Examinations also found that NationsBank's and multi-bank community development corporations, and subsidiary banks affirmatively solicited loan applications a separate Community Investment Financial Institutions from all segments of their communities, especially LMI Initiative to assist in meeting the credit needs of rural neighborhoods, and that the banks' lending activities had areas.50 effectively reached LMI communities and individuals. In NationsBank also maintains partnerships with a number addition, examiners determined that the loan originations of national and local community organizations to provide and denials of NationsBank's subsidiary banks were reaaffordable mortgages, counseling to first-time homebuyers, sonably distributed throughout the banks' communities. and loans and technical assistance to small businesses. The NationsBank Examinations also concluded that These partnerships include the Neighborhood Assistance NationsBank's subsidiary banks had effectively identified Corporation of America ("NACA"), which offers a no- potentially underserved areas within their communities and downpayment mortgage product and credit and homeown- designated the areas for priority attention. Examiners noted ership counseling to eligible borrowers. The partnership's that NationsBank had established the NationsBank Neighproducts and services currently are offered in Atlanta, borhoods program to focus the banks' resources on the Baltimore, Charlotte, Washington, D.C., and Jacksonville, revitalization of inner-city neighborhoods in communities and NationsBank intends to expand the program in 1998 to served by a NationsBank's subsidiary bank.53 seven additional cities, including Albuquerque, San Anto- NationsBank's subsidiary banks also maintained an ongonio, and Tampa-St. Petersburg, Florida.51 In 1998, ing dialogue with local government officials and commu- NationsBank increased its funding for the NACA partner- nity groups representing neighborhoods, small businesses ship by $250 million to $750 million. and minorities to ascertain the credit needs of the local NationsBank, together with the Enterprise Social Invest- community, and participated in loan pools and programs ment Corporation, also established the Nations Housing with local government and community development orga- Fund, which provides equity financing for the acquisition, nizations to promote affordable housing opportunities in construction, or rehabilitation of affordable housing. The local communities.54 Nations Housing Fund has helped create more than 5,000 Examiners also concluded that NationsBank's subsidiary units of affordable rental housing, and, in 1996, banks continued to help meet the credit needs of small NationsBank doubled its initial $100 million commitment businesses in their communities, including LMI communito the Fund. NationsBank also has established a partner- ties. They noted, for example, that NB-Lead Bank inship with Rural Local Initiatives Support Corporation creased its volume of business loans in LMI areas in North ("LISC") to promote affordable housing and community Carolina and South Carolina from 1993 to 1994, and that development activities in rural areas, and has provided NationsBank had increased its offering of business lines of Rural LISC a $350,000 grant to support eighteen CDCs in credit to respond to an identified need of small business eleven states. owners. The NationsBank Examinations also found that Lending Record in General. As noted, the OCC con- the banks actively participated in community development ducted coordinated CRA performance examinations in activities in their communities, and noted that the banks 1995 of NB-Lead Bank, NationsBank-Florida, 52. These affordable mortgage programs included two loan products that required a downpayment of 5 percent, with only 3 percent or $500 49. The NationsBank CDC has provided debt and equity financing of the necessary downpayment required to be provided from the to a number of community development corporations through national borrower's own funds. or local partnerships or programs. These partnerships include neigh- 53. The program included neighborhoods in the following cities: borhood development organizations, for-profit developers, local and Charlotte, Durham, and Greensboro, North Carolina; Charleston and federal government agencies, and financial intermediaries. Greenville, South Carolina; Austin, Houston, and San Antonio. Texas; 50. The initiative fund was developed to enhance NationsBank's Tampa, Miami, and Orlando, Florida; Atlanta, Macon, and Savannah. existing partnerships with 10 minority-owned banks, many of which Georgia; and Chattanooga and Memphis, Tennessee. serve rural areas. The Community Investment Group also includes 54. Among the projects with local government and community NationsBank's Rural Forum which focuses on lending to LMI borrow- groups noted by examiners were the Charlotte/Mecklenburg Housing ers in rural communities. Partnership in North Carolina; the South Carolina Down Payment 51. NationsBank's partnerships with other organizations include Assistance Program; the Tampa Challenge Fund II and Homes for ACORN Housing, National Council of La Raza, the National Urban South Florida in Florida; the Tarrant County Housing Partnership and League, and the National Association for the Advancement of Colored City of Austin "Double Down" Program in Texas; and the Athens/ People. Clarke County H.E.L.P. Program in Georgia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

870 Federal Reserve Bulletin • October 1998 frequently had taken a leadership role in corporate or local making mortgages in rural areas of the state. NB-Lead initiatives designed to promote community development. Bank also participated in loan programs operated in con- Examiners also concluded that NationsBank's subsidiary junction with the cities of Charlotte, Hendersonville, and banks reasonably served the credit needs of all segments of Wilmington in North Carolina, and the cities of Liberty, their communities, including LMI communities, through Columbia, and Rock Hill in South Carolina.57 their branch structure, ATM network, and alternative deliv- NationsBank invested approximately $8.5 million in ery systems. The NationsBank Examinations reviewed the eight projects in North Carolina and South Carolina for the branch closing policies and record of branch closings of construction or rehabilitation of approximately 350 hous- NationsBank's subsidiary banks and concluded that each ing units for LMI families and individuals in 1994. of the banks had a good record of opening, closing, and NationsBank's SBIC also made $1.4 million in investrelocating branch offices while providing all segments of ments in nine businesses in North Carolina and South its communities, including LMI areas, with reasonable Carolina, including five minority- or women-owned busiaccess to bank services. nesses. Importantly, examiners found no evidence of prohibited In 1997, NationsBank made more than 100 community discriminatory or other illegal credit practices by development loans totaling $15 million in North Carolina. NationsBank's subsidiary banks.55 In reaching this conclu- In 1997, NationsBank also originated more than $6 million sion, examiners conducted a comparative analysis of loan of SBA loans in North Carolina and $3 million of SBA applications submitted by minority and non-minority appli- loans in South Carolina, making NationsBank the top SBA cants. lender in both states. NB-Lead Bank in North Carolina and South Carolina. Florida. Examiners concluded that NationsBank-Florida Examiners concluded that the lending record of NB-Lead showed a commitment to lending to small businesses Bank reflected a responsiveness to the most important throughout its service communities that was reflected by credit needs of its communities. For example, in 1994, the the bank's origination of business loans totaling $45 milbank made 303 loans under NationsBank's affordable lion in LMI areas of Florida in 1994. Furthermore, despite mortgage loan programs totaling $19 million in North an overall decline in business lending, the bank increased Carolina, and 451 loans totaling $27 million under these its SBA lending in Florida from 1993 to 1994, making programs in South Carolina. Examiners also noted that the 42 loans totaling $8.5 million under SBA programs in bank continued to assist in meeting the credit needs of 199458 NationsBank-Florida also made 21 agricultural agricultural communities in North Carolina and South loans totaling $5.4 million in 1994.59 Carolina, making more than 900 agriculture-related loans, In addition, NationsBank-Florida made 18 low-cost which totaled $77 million, in these states in 1993 and 1994, mortgage loans, totaling $1.3 million, to LMI individuals and which included more than 480 loans totaling approxi- under the Keystone Challenge Fund in 1994, and provided mately $37.5 million in LMI areas. $2.1 million in financing to the First Housing Development NB-Lead Bank significantly increased its origination of Corporation for the construction or rehabilitation of multi- SBA-guaranteed loans from 1993 to 1994.56 Examiners family rental housing. In 1993 and 1994, the bank provided also noted that NB-Lead Bank provided funding for the approximately $4 million in equity financing for the devel- NAACP Community Development Resource Centers in opment of 286 affordable housing units for low-income Charlotte, North Carolina, and Columbia, South Carolina, families in conjunction with the Nations Housing Fund. which provide educational assistance to potential home- Since the NationsBank Examinations, NationsBank has buyers and small businesses, and that customer referrals provided a total of $1.4 million in grants to seven Black from these Resource Centers resulted in the origination of Business Investment Corporations in Florida, and in 1998 approximately $10 million in consumer and small business expanded its SBIC to Jacksonville. The NationsBank CDC loans by NB-Lead Bank. also recently committed approximately $30 million to NB-Lead Bank participated with state and local govern- projects that will create 772 units of affordable, multiments in a number of loan programs designed to promote family housing units in three localities.ft0 In 1997, affordable housing and economic and community development during the period covered by the examination. For 57. In 1994, NB-Lead Bank originated 91 loans totaling approxiexample, in 1994, NB-Lead Bank made 69 loans totaling mately $5.5 million under the city and county-sponsored loan pro- $4.4 million under the North Carolina Housing Finance grams noted by examiners. Agency Home Ownership Program, which assists banks in 58. In 1993, the bank originated 21 SBA loans totaling approximately $3.3 million. 59. Although NationsBank-Florida's agricultural lending decreased 55. Examiners also found no evidence of prohibited discriminatory from 1993 to 1994, examiners noted that this decline was generally or illegal credit practices at Barnett Bank, Boatmen's Bank of Austin, attributable to a single large loan made in 1993 and external factors Sunwest Bank of El Paso, Community Bank of the Islands, and affecting agricultural businesses in Florida. NationsBank, N.A. (Glynn County) at the banks" most recent CRA 60. Several commenters alleged that NationsBank should acquire performance examinations, which were conducted before the banks more goods and services from businesses owned by women and were acquired by NationsBank. minorities. NationsBank responded that it conducted $106 million in 56. In 1994, NB-Lead Bank originated 82 SBA loans totaling business with more than 1,200 minority- and women-owned busiapproximately $21.7 million, compared with 51 loans totaling nesses in 1997. and that it was named "Corporation of the Year" by $14.6 million in 1993. the National Minority Supplier Development Council in 1997. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 871 NationsBank originated or purchased more than 21,000 found that the number of the bank's HMDA-reportable housing-related loans totaling approximately $954 million loans in LMI areas increased by 44 percent from 1993 to in LMI areas in Florida. 1994. Georgia. Examiners noted that NationsBank-Georgia in- Small business lending through programs sponsored by creased its origination of consumer and HMDA-reportable the SBA also increased from 1993 to 1994.63 Overall, loans in LMI areas from 1993 to 1994. Small business NationsBank-Texas made a total of $375 million in loans lending in LMI areas of Georgia by the bank also increased to small businesses located in LMI neighborhoods in 1994. from $131 million in 1993 to approximately $200 million The bank also provided $1 million in equity and loaned in 1994. NationsBank-Georgia made 115 agricultural loans $5.7 million to the Carlton Court Limited Partnership for totaling $5.4 million in 1994. the development of approximately 260 apartment units for The number and dollar volume of the bank's SBA loans low-income residents of Dallas, and invested $2.4 million more than doubled from 1993 to 1994. In 1994, the bank in MESBIC Ventures, a minority-owned small business originated 50 SBA loans totaling $16.6 million, compared investment company that provides financing to small and with 23 loans totaling $8.2 million in 1993. Examiners also minority-owned businesses during the period covered by noted that the bank invested $200,000 in the Savannah the performance examination. CDC, which seeks to support small businesses in down- NationsBank recently committed $500 million for loans town Savannah, and committed $4.5 million to the Atlanta and investments in south Dallas in the next four years. In Economic Development Corporation for the construction 1997, NationsBank originated or purchased more than of a community center in Atlanta. 6,000 housing-related loans totaling approximately Virginia, Maryland, and the District of Columbia. $240 million in LMI areas in Texas. The Texas Banking NationsBank-Virginia significantly increased its origina- Commissioner also has advised the Board that tion of mortgages through its partnership with ACORN NationsBank has agreed to take a number of actions in Housing from 1993 to 1994, originating approximately Texas after consummation of the proposal, including in- 500 loans totaling approximately $52 million in creasing its small business lending activities and purchases 1994 throughout Virginia, Maryland, and the District of from minority- and women-owned businesses in Texas, Columbia.61 and freezing its monthly service charge on certain deposit Examiners also noted that NationsBank-Virginia was the products for LMI markets for 12 months after consummamost active lender under the Virginia Housing Develop- tion. ment Authority ("VHDA") loan program, making New Mexico. NationsBank entered New Mexico in 1997 324 loans totaling $23 million under the program in 1994. through its acquisition of Boatmen's Bancshares, Inc., This represented an increase from 1993, when the bank St. Louis, Missouri, which operated twelve subsidiary originated 285 loans totaling $19 million under the VHDA banks in the state.64 Each of the twelve bank subsidiaries of loan program. Boatmen's received either an "outstanding" or a "satisfac- In addition, the bank's Community Development Lend- tory" rating at its most recent examination for CRA perforing Group provided a total of $48.5 million in financing in mance, which occurred before NationsBank acquired the 1993 and 1994 for neighborhood revitalization projects. banks. NationsBank has merged eleven of these banks into These projects included $1.6 million in financing to de- NB-Lead Bank, which, as noted, received an "outstandvelop a shopping center in the 14th Street Urban Renewal ing" rating at its most recent CRA performance examina- Area in the District of Columbia. tion.65 Texas. Examiners favorably noted that NationsBank- The Board also has considered actions that NationsBank Texas made 805 low-rate mortgages, totaling $44 million, has taken since entering New Mexico to meet the credit in 1993 and 1994 through its partnerships with ACORN needs of the communities it serves in the state. In 1997, Housing and the United Housing Program, and that the NationsBank originated or purchased more than bank participated in a variety of other city-sponsored pro- 850 housing-related loans totaling approximately grams, including the Dallas Affordable Housing Partnership, that provided mortgage products to LMI borrowers.62 63. The bank made 123 SBA loans totaling approximately Although the bank's overall number of HMDA-reportable $20 million in 1994, compared with 51 loans totaling $16.5 million in loan originations declined from 1993 to 1994, examiners 1993. 64. These banks were Sunwest Bank of Albuquerque, N.A., Albuquerque; Sunwest Bank of Clovis, N.A., Clovis; Sunwest Bank of Rio Although the Board fully supports programs designed to stimulate and Arriba, N.A., Espanola; Sunwest Bank of Farmington, Farmington; create economic opportunities for all members of society, the Board Sunwest Bank of Gallup, Gallup; Sunwest Bank of Hobbs, N.A., concludes that consideration of the third-party contracting activities of Hobbs; Sunwest Bank of Las Cruces, N.A., Las Cruces; Sunwest NationsBank is beyond the scope of the CRA and other relevant Bank of Raton, N.A., Raton; Sunwest Bank of Roswell, N.A., federal banking statutes. Roswell; Sunwest Bank of Santa Fe, Santa Fe; Sunwest Bank, Silver 61. In 1993, NationsBank-Virginia made 15 loans totaling City; and Boatmen's Credit Card Bank, Albuquerque, all in New $1.2 million through the ACORN Partnership in the District of Colum- Mexico. bia. The partnership's programs were not available in Maryland or 65. Boatmen's Credit Card Bank, a limited-purpose credit card Virginia in 1993. bank, was merged into NationsBank's limited-purpose credit card 62. NationsBank made a total of 1,649 affordable mortgages, total- bank, NationsBank-Delaware, which, as noted, received a "satisfactoing $81 million, in Texas in 1994. ry" rating at its most recent examination for CRA performance. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

872 Federal Reserve Bulletin • October 1998 $44.6 million in LMI areas in New Mexico. NationsBank BankAmerica also offers an Advantage Business Credit also made a $500,000 loan to the New Mexico Community program, which provides loans or lines of credit of up to Development Fund, which provides low-interest financing $100,000 to small businesses under an expedited review and technical assistance to urban and rural communities in process. In addition, BankAmerica offers SBA loans and is the state, and a $400,000 loan to the Santa Fe Business designated as an SBA Preferred Lender in each SBA Incubator, which provides assistance to small start-up busi- district in which it operates. nesses. Lending Record In General. As noted above, the appropriate federal supervisory agencies conducted CRA perfor- E. BankAmerica's CRA Performance Record mance examinations of BA-Lead Bank, Community Development Bank, and BankAmerica-FSB in 1997, and Overview. BankAmerica's subsidiary depository institu- BankAmerica-Texas in 1996 (the "BankAmerica Examinations are integrated into the company's corporate CRA tions"). Examiners concluded that loan originations by the strategy and work in a coordinated manner to deliver the institutions were reasonably distributed throughout their company's CRA-related programs and services to their communities, including LMI communities. Examiners also local communities. Retail banking services are provided found that the lending activities of the institutions reflected primarily by BA-Lead Bank and BankAmerica-Texas. Lo- responsiveness to the credit needs of their communities. cal CRA activities of BA-Lead Bank and BankAmerica- Examiners at BA-Lead Bank, which represents approxi- Texas are supported by the Community Development Bank mately 90 percent of BankAmerica's total consolidated and BankAmerica-FSB, which make community develop- assets, noted that the bank had demonstrated leadership in ment investments and originate affordable housing loans its CRA performance and was exemplary in extending throughout the communities served by BankAmerica.66 credit to LMI borrowers. Examiners found that BA-Lead BankAmerica offers a wide range of credit products Bank's percentage of total loan originations to LMI borthrough its subsidiary banks, including a number of prod- rowers in many areas matched or exceeded the bank's ucts with flexible underwriting criteria that are designed to overall market share in the area or the representation of assist in meeting the credit needs of small businesses and LMI borrowers in the area's population in 1996. BA-Lead LMI individuals and communities. For example, Bank- Bank originated approximately 30,500 residential housing- America's Neighborhood Advantage mortgage product related loans to LMI individuals, totaling $1.5 billion.69 uses special underwriting criteria and requires a downpay- BA-Lead Bank originated 22,986 small business loans, ment of 5 percent, with 3 percent of the downpayment totaling $ 1.4 billion in LMI census tracts and representing from the borrower's own funds.67 BankAmerica also oifers approximately 26 percent of the bank's total small business an affordable consumer loan product, the BankAmerica loan originations. The BankAmerica Examinations also Special Income Credit (B*A*S*I*C), that uses special noted that the institutions were active in community develunderwriting criteria. The Neighborhood Advantage prod- opment activities. Examiners found that BA-Lead Bank's uct and home equity and home improvement loans under community development activities represented a substanthe B*A*S*I*C program are available for loans relating to tial commitment to its communities. BA-Lead Bank made properties in LMI areas and to borrowers whose income is 266 community development loans, totaling approximately less than 100 percent of the relevant county's median $467 million, and 1,202 qualified community development income.68 BankAmerica automatically analyzes loan appli- investments, totaling approximately $406 million.70 Comcations to determine whether the loan would qualify for the munity Development Bank also originated $37 million in Neighborhood Advantage or B*A*S*I*C program. In community development loans and partially financed ten 1997, BankAmerica made $3.5 billion in home loans under housing projects that created 763 units of affordable housthe Neighborhood Advantage program, and $1.3 billion in ing for LMI individuals. consumer loans under the B*A*S*I*C program to low- The BankAmerica Examinations also found that the income borrowers. branch networks of the institutions were reasonably distributed throughout their respective communities, including 66. In January 1998, BankAmerica sold BankAmerica-FSB's 69. All lending data from the BankAmerica Examinations are for deposit-taking branches in Hawaii, Illinois, and Indiana to other the assessment period covered by the examination unless otherwise institutions, and BankAmerica-FSB currently operates a single indicated. Those periods for the banks are as follows: BA-Lead Bank deposit-taking branch in Walnut Creek, California, which primarily (January 1996 through June 1997), BankAmerica-Texas (September accepts deposits related to the bank's community development activi- 1994 through October 1996), Community Development Bank (Januties. ary 1996 through August 1997), and BankAmerica-FSB (March 1995 67. BA-Lead Bank also participates in the Home Works program in through March 1997). conjunction with the City of Los Angeles, which provides eligible 70. The BankAmerica Examinations found that BankAmericaapplicants with financial assistance to meet the downpayment require- FSB's loan originations were reasonably distributed throughout its ment and an interest-free loan for rehabilitation of the acquired communities, and that the institution had increased its lending for property. affordable housing projects from $173 million in 1995 to $254 million 68. Non-housing related consumer loans are available under the in 1996. The savings association also actively participated in B*A*S*I*C program for borrowers with incomes that are equal to or government-sponsored loan programs, originating approximately less than 80 percent of the area's median income. $338 million in FHA and VA loans in 1996. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 873 LMI areas.71 Examiners reviewed the institutions' branch that the bank's residential, small business, and consumer closing policies and records of opening and closing branch lending were reasonably distributed throughout the state, offices and concluded that branches closed by the institu- including LMI areas. In 1996, BA-Lead Bank originated tions during the review period generally had not adversely approximately 13 percent of its housing-related loans and affected the ability of the institutions to serve their entire 26 percent of its consumer loans in California in LMI communities, including LMI areas. areas. Examiners found that Community Development The BankAmerica Examinations included reviews of the Bank's lending levels also reflected responsiveness to the fair lending policies and programs of BA-Lead Bank, credit needs of its California assessment area. BankAmerica-Texas, Community Development Bank, and Examiners also found that BA-Lead Bank was effective BankAmerica-FSB as part of the depository institutions' in helping to meet the credit needs of small businesses of fair lending law compliance examinations. Examiners all sizes in California, and noted that approximately found that the fair lending policies and programs main- 92 percent of the bank's small business loans were in tained by the institutions were comprehensive and suffi- amounts ol'less than $100,000. In addition, approximately cient to monitor compliance with the fair lending laws.72 26 percent of BA-Lead Bank's and Community Develop- OCC examiners reviewed a sample of housing-related loan ment Bank's small business loans in California were origifiles at BA-Lead Bank during the 1997 examination and nated in LMI areas, which is a level that approximates the concluded that the bank did not process housing-related percentage of small businesses in California located in loan applications from minorities in a disparate manner. LMI areas. The Community Development Bank originated Examiners at the BankAmerica Examinations also found 88 SB A loans in its assessment area from October 1995 to no evidence of prohibited discriminatory or other illegal September 1997, with a substantial portion of these loans credit practices at any other subsidiary depository institu- originated under the SBA's 504 Loan Program and new tion of BankAmerica. FA$TRAK Program, each of which provides flexible re- California. BA-Lead Bank is the largest commercial payment terms.74 bank in California and approximately 60 percent of the BA-Lead Bank also made a total of $181 million and the bank's total domestic deposits are held in the state. As Community Development Bank made more than $5.5 milnoted above, New BankAmerica will continue to operate lion in community development investments and grants in the Community Development Bank after consummation of California. The BankAmerica Foundation also provided the merger. BA-Lead Bank originated 120 community de- support to a wide variety of nonprofit community developvelopment loans, totaling $261 million, that financed ap- ment organizations throughout the state, including the proximately 5,500 units of housing for LMI residents of Rural California Housing Corporation, Housing California, California. Community Development Bank also provided and the California Community Economic Development funding for a variety of affordable housing projects in the Corporation. Sacramento and Oakland areas, including $7.6 million in Texas. The 1996 examination of BankAmerica-Texas financing for the construction of 125 units of affordable found that the bank engaged in substantial lending activihousing in the Vintage Court development in Alameda ties that addressed important credit needs of its communi- County and $4.5 million in financing for the construction ties, including LMI neighborhoods. Examiners also noted of 124 units of affordable housing in the Southland Park that BankAmerica-Texas offered innovative and specialproject in Sacramento.73 ized credit products designed to help serve LMI borrowers. Examiners concluded that BA-Lead Bank's lending per- BankAmerica-Texas originated the largest volume of conformance in California demonstrated a substantial level of ventional home purchase mortgages in Texas in 1995, and housing-related and consumer loans to LMI borrowers, and made more than $198 million in loans to LMI individuals and to small businesses in LMI areas. Examiners also considered the bank's HMDA-reportable lending in LMI areas to be particularly strong.75 BankAmerica-Texas orig- 71. Examiners also noted that BA-Lead Bank operated a sizable network of alternative delivery systems that was generally accessible inated 140 SBA loans, totaling approximately $32 million, to customers in LMI areas, including an extensive network of ATMs, a and examiners commented favorably that the bank's small 24-hour help line, and Loan-by-Phone services. business loans were distributed throughout its communi- 72. OTS examiners, for example, noted that BankAmerica-FSB, ties, with more than 20 percent of the loans originated in which continues to control BankAmerica's principal mortgage subsidiary, the BankAmerica Mortgage Group, used a variety of methods to LMI areas in 1995. monitor compliance with the fair lending laws, including second review programs for denied applications, a "matched pair" testing program designed to assure the equal treatment of similarly situated minority and non-minority applicants, and statistical analyses of loan decisions. 74. The SBA 504 Loan Program allowed repayment terms of 73. The Community Development Bank also initiated several pro- between 10 and 20 years. The FA$TRACK Program permitted small grams utilizing loans, guarantees, and subsidies to meet the special businesses to develop a stable cash flow before repayment begins. credit needs of California communities, including special financing 75. Forty percent of the residential housing loans and 33 percent of packages developed with the Los Angeles Housing Department to the consumer loans originated by BankAmerica-Texas in 1995 were to repair damage caused by the Northridge earthquake and with the State LMI borrowers. These percentages exceeded the representation of Water Resource Board to eliminate pollution in the Santa Cruz and LMI residents in the general population of many areas within the Lake Tahoe areas. bank's delineated community. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

874 Federal Reserve Bulletin • October 1998 The BankAmerica Examinations also found that 1997 indicate that NationsBank originated a higher per- BankAmerica-Texas actively participated in community centage of its housing-related loans in LMI areas in Flordevelopment activities in its communities. Examiners noted ida, Georgia, Texas, New Mexico, and Maryland than that BankAmerica-Texas held a portfolio of approximately lenders in the aggregate in those states. In many areas, $6 million in municipal securities to finance housing including the states of North Carolina, Florida, Georgia, projects in Texas, and provided $4 million in financing for Maryland, and New Mexico, the percentage of the Corona del Valle project in El Paso, which will provide NationsBank's housing-related loan originations to African 100 units of housing for low-income persons. The bank Americans in 1997, compared with its total housing-related also committed a total of $3.4 million in investments to originations for that year, equaled or approximated the community development organizations throughout the performance of lenders in the aggregate in the relevant state, including the San Antonio Business Development area. Fund and the Greater Brownsville CDC; invested more Data for 1997 also indicate that BankAmerica originated than $5 million in low-income housing tax credits through a higher percentage of its housing-related loans to Hispanthe Texas Housing Opportunities Fund; and provided more ics in Texas and New Mexico than lenders in the aggregate. than $7 million in loans for the Sterling Green Village In addition, these data indicate that BankAmerica origidevelopment in Houston, which will provide 150 units of nated a higher percentage of its HMDA-reportable loans to affordable housing. LMI borrowers in California, Texas, and New Mexico than New Mexico. Examiners at the 1997 examination of lenders in the aggregate in those states. BA-Lead Bank noted that the bank's 41 branches in New The data also reflect certain disparities in the rates of Mexico accounted for less than 1 percent of the bank's loan applications, originations, and denials among memtotal domestic deposits.76 Although examiners noted areas bers of different racial groups and persons at different for improvement in the bank's residential and community income levels, both generally and in certain states and local development lending activities, examiners noted that the areas. The Board is concerned when an institution's record bank began participating in the HUD 184 Native American indicates such disparities in lending, and believes that all Home Loan Program in 1997. The program provided loan banks are obligated to ensure that their lending practices guarantees to tribal members and designated tribal housing are based on criteria that assure not only safe and sound authorities. Examiners also noted that BA-Lead Bank had banking, but also equal access to credit by creditworthy developed a special initiative that is designed to address applicants regardless of their race or income level. The the specific needs of lesser populated states like New Board recognizes, however, that HMDA data alone provide Mexico. an incomplete measure of an institution's lending in its In reviewing other aspects of the bank's lending activi- community because the data cover only a few categories of ties, examiners found that 43 percent of the bank's con- housing-related lending. HMDA data, moreover, provide sumer loans in the state were made to LMI borrowers, only limited information about the covered loans.77 HMDA which exceeded the representation of LMI individuals in data, therefore, have limitations that make the data an the general population. Examiners also noted that the inadequate basis, absent other information, for concluding bank's small business loans were reasonably distributed that an institution has not adequately assisted in meeting its throughout all areas of the community, including LMI communities' credit needs or has engaged in illegal disareas. BA-Lead Bank also made a total of 33 grants and crimination in making lending decisions. contributions totaling $230,000 to nonprofit organizations Because of the limitations of HMDA data, the Board has throughout the state. This represented approximately carefully considered the data in light of other information, 3 percent of the bank's total grants and contributions by including examination reports that provide an on-site evalamount. Examiners also found that the bank's branches uation of the compliance by the subsidiary banks of were adequately distributed throughout the community, NationsBank and BankAmerica with the fair lending laws including LMI areas. and the overall lending and community development activities of the banks.78 As discussed above, examiners found F. HMDA Data The Board also has carefully considered the lending 77. The data, for example, do not account for the possibility that an records of NationsBank and BankAmerica in light of cominstitution's outreach efforts may attract a larger proportion of marginments regarding the HMDA data reported by the organiza- ally qualified applicants than other institutions attract and do not tions' subsidiaries. The data generally show that provide a basis for an independent assessment of whether an applicant NationsBank and BankAmerica have assisted in meeting who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most the housing-related credit needs of minority and LMI borfrequently cited for a credit denial) are not available from HMDA rowers and borrowers in LMI areas. For example, data for data. 78. Certain commenters contended that they had difficulty in obtaining HMDA data from NB-Lead Bank or BA-Lead Bank, or that the data were not maintained at the banks' local offices as required by 76. Loans originated by BA-Lead Bank in New Mexico accounted federal law. The Board's regulations require that each insured deposifor 1.4 percent of the bank's total loans by number, and 1.3 percent of tory institution make its HMDA disclosure statement and modified the bank's total loans by dollar volume. loan application register available to the public from its home oifice Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 875 no evidence of prohibited discrimination or other illegal The Board also has carefully considered the branch closing credit practices at the subsidiary depository institutions of policies of NationsBank and BankAmerica and the record NationsBank and BankAmerica at their most recent exami- of the institutions in opening and closing branches. nations. Examiners reviewed the fair lending policies and NationsBank's corporate branch closing policy and BAprocedures maintained by the depository institutions and Lead Bank's branch closing policy require that a senior found the policies and procedures to be comprehensive and officer from the organization's community investment deappropriate for monitoring compliance with fair lending partment approve all branch closings. Both branch closing laws.79 Examiners also conducted comparative file reviews policies also require that an appropriate senior officer from at NB-Lead Bank and BA-Lead Bank for racial discrimina- the community investment department, prior to any final tion and found no violations of the fair lending laws. The decision to close a branch, consider whether the closing Board also has considered the HMDA data in light of the would have an adverse impact on the community served overall lending records of NationsBank and BankAmerica, and the actions that NationsBank or BankAmerica would which show that their subsidiary depository institutions are take to mitigate any adverse effects of the closing on the assisting in meeting the credit needs of their entire commu- community.80 nities, including LMI neighborhoods, and confidential su- Examiners reviewed the branch closing policies and pervisory information received from the OCC. record of opening and closing branches of NationsBank's subsidiary banks during the NationsBank Examinations G. Branch Closings and of BankAmerica's subsidiary depository institutions during the BankAmerica Examinations. Examiners for Several commenters contended that NationsBank or NationsBank concluded that its subsidiary banks generally BankAmerica have closed branches in their respective had good records of opening, closing, and relocating their service areas, particularly in LMI neighborhoods, that have offices while providing all segments of their communities adversely affected the local communities. These and other with reasonable access to banking services.81 Examiners commenters expressed concern that this merger would also found that the branch locations of BankAmerica's result in additional branch closings in LMI and other subsidiary depository institutions, even after various branch neighborhoods, particularly in Texas and New Mexico. closings, provided reasonable access to banking services to NationsBank has indicated that there may be some all segments of BankAmerica's communities, including branch closings as a result of the proposed merger. LMI areas.82 NationsBank expects that branch closings will be limited The Board also has taken account of NationsBank's to a small number of locations in Texas and New Mexico record of closing branches after its recent acquisitions of where both NationsBank and BankAmerica currently oper- Barnett Banks, Inc., and Boatmen's Bancshares. Many of ate branches, and has submitted preliminary and confiden- the branches that NationsBank has closed or has proposed tial information concerning branches that are under consid- to close in connection with these acquisitions were or eration for closure in Texas and New Mexico. NationsBank would be consolidated into other NationsBank branches has indicated, however, that NationsBank and Bank- that are located near the affected branch. In addition, America continue to obtain, prepare, and review relevant NationsBank would continue to operate a significant numdata concerning branches in these areas. ber of branches in LMI areas, both overall and in Florida, The Board has carefully considered the public comments after accounting for the closings that have occurred or are regarding past and potential branch closings in light of all scheduled to occur after these acquisitions. NationsBank's the facts of record, including the preliminary branch clos- announced branch closings in Florida also would not deing information provided by NationsBank and the limited geographic overlap of the organizations' branch networks. 80. The branch closing policy of BankAmerica-Texas provides that the bank will not close a branch in a lower-income community if the and the relevant portion of such documents available from at least one branch is the only provider of financial services in the community and branch office in each additional MSA where the institution has requires the bank to explore alternative methods of ensuring continued branches. See 12 C.F.R. 203.5. These regulations also require that all access to banking services in lower income areas affected by branch of the institution's branch offices in MSAs post notices informing the closings. public where requests for the institution's HMDA data should be sent, 81. One commenter contended that BankAmerica, in connection and require that the institution respond to written requests for data with the 1997 merger of Bank of America Illinois into BA-Lead Bank, within specified time frames. The Board has forwarded these com- represented to the OCC that the branches of BankAmerica-FSB operments to the OCC, the primary federal supervisor of NB-Lead Bank ating in certain grocery stores in the Chicago area would continue to and BA-Lead Bank. The OCC has supervisory authority to investigate be used by BankAmerica to help meet the convenience and needs of commenters' complaints and to take any action deemed appropriate to those communities. As noted, BankAmerica-FSB's branches in Illiensure compliance by the institution involved with the public disclo- nois were sold in 1998 to another financial institution. NationsBank sure provisions of HMDA. has stated, and the OCC has confirmed, that BankAmerica made no 79. Several commenters also expressed concerns that NationsBank's commitment to continue to operate the branches in question. toll-free Advocacy Call Center, which collects and handles fair lend- 82. For example, BA-Lead Bank closed 63 branches in California, ing complaints, may mislead callers into thinking that they have filed including 15 in LMI areas, during the assessment period covered by a complaint with NationsBank's federal supervisor or another govern- its CRA performance examination. Examiners noted that all the mental agency. Other commenters were dissatisfied with the center's branches closed in LMI areas were reasonably close to another branch advice. Commenters presented no facts to support their allegations. of the bank. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

876 Federal Reserve Bulletin • October 1998 crease the percentage of NationsBank's branches in Florida loans in Hawaii. In addition, New BankAmerica proposes that are located in LMI areas. to establish a separate annual charitable contribution goal The Board also has considered that federal banking law of $100 million. provides a specific mechanism for addressing branch clos- NationsBank intends to report publicly on its activities ings. Federal law requires an insured depository institution under the plan each year beginning in 1999. The reports to provide notice to the public and to the appropriate would provide information on national, state, and local federal regulatory agency prior to closing a branch. The levels, by product line, and would describe the geographic law does not authorize federal regulators to prevent the and demographic distribution of products and services closing of any branch.83 Any branch closings resulting offered under the plan. New BankAmerica's senior manfrom the proposed transaction will be considered by the agement would hold an annual meeting with community appropriate federal supervisor at the next CRA examina- organizations to discuss results of the plan.86 NationsBank tion of the relevant subsidiary bank. also has indicated that local and regional managers of New To permit the Board to assess the effectiveness of the BankAmerica would have substantial input into the organibranch closing policies of New BankAmerica, the Board zation's community investment and philanthropic activities conditions its action on this proposal on the requirement at the regional and local level, including California, and that New BankAmerica report to the Federal Reserve Sys- that New BankAmerica would continue to seek the input of tem on a semi-annual basis during the two-year period local and regional community groups in establishing the after consummation all branch closings, including consoli- company's goals for community development lending and dations, that occur as a result of this proposal. For branches investment in local areas. closed in LMI census tracts, New BankAmerica should The CRA requires that, in considering NationsBank's indicate the proximity of the closed branch to the closest application to acquire BankAmerica's subsidiary insured branch of New BankAmerica and the steps New Bank- depository institutions, the Board carefully review the ac- America took to mitigate the impact of the branch tual record of past performance of NationsBank and closure.84 BankAmerica in helping to meet the credit needs of their entire communities.87 Consistent with this mandate, the H. CRA Plan Board previously has held that, to gain approval of a proposal to acquire an insured depository institution, an In connection with this proposal, NationsBank has an- applicant must demonstrate a satisfactory record of perfornounced a $350 billion, 10-year community reinvestment mance under the CRA without reliance on plans or comand lending plan.85 NationsBank also has stated that New mitments for future action.88 BankAmerica would honor all of the outstanding CRA The Board has considered the CRA plan in this light as commitments that NationsBank and BankAmerica have an indication of the intent of New BankAmerica to mainwith states and community groups, including Bank- tain the commitment to serving the banking convenience America's commitment to provide $40 million in annual and needs of its communities that has been demonstrated charitable contributions and to provide $150 million in consistently by NationsBank and BankAmerica. The Board believes that the CRA plan—whether made as a plan or as an enforceable commitment—has no relevance in this case 83. Section 42 of the Federal Deposit Insurance Act (12U.S.C. without the demonstrated record of performance of the § 1831r-l), as implemented by the Joint Policy Statement Regarding companies involved. The Board notes, moreover, that the Branch Closings (58 Federal Register 49,083 (1993)), requires that a bank provide the public with at least 30 days notice and the appropri- future activities of New BankAmerica's subsidiary deposiate federal supervisory agency with at least 90 days notice before the tory institutions, including any lending and community date of the proposed branch closing. The bank also is required to development activities that New BankAmerica may engage provide reasons and other supporting data for the closure, consistent in under the announced CRA plan, will be reviewed by the with the institution's written policy for branch closings. 84. Several commenters contended that the merger of NationsBank and BankAmerica would result in the loss of jobs, particularly in California, Texas, and New Mexico. NationsBank has stated that staff 86. A number of commenters criticized NationsBank for not enterreductions resulting from the merger are expected to be relatively ing into agreements with community-based organizations that would small in relation to the overall workforce of the combined company. establish separate monetary goals under the CRA plan for particular The effect of a proposed transaction on employment in a community, geographic areas or demographic groups, or that would provide supmoreover, is not among the factors included in the BHC Act and the port for particular products or programs. The Board previously has convenience and needs factor has been consistently interpreted by the noted that, while communications by depository institutions with federal banking agencies, the courts, and the Congress to relate to the community groups provide a valuable method of assessing and detereffect of a proposal on the availability and quality of banking services mining how an institution may best address the credit needs of the in the community. See Wells Fargo & Company, 82 Federal Reserve community, neither the CRA nor the CRA regulations of the federal Bulletin 445, 457 (1996). financial supervisory agencies require depository institutions to enter 85. The plan includes the following goals: into agreements with any organization. See Fifth Third Bancorp, (1) $115 billion for affordable housing lending and investments; 80 Federal Reserve Bulletin 838 (1994). (2) $180 billion for small business lending and investments; 87. As noted above, a number of commenters contended the Board (3) $25 billion for economic development; and should not consider the plan as part of its review of the proposal. (4) $30 billion in consumer loans (other than credit card loans). 88. See Totalbank Corporation of Florida, 81 Federal Reserve The goals include $10 billion for loans and investments to foster Bulletin 876 (1995); First Interstate BancSystems of Montana, Inc., 11 community and economic development in rural areas. Federal Reserve Bulletin 1007 (1991). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 877 appropriate federal supervisors of those institutions in fu- consumer compliance reviews of NationsCredit and ture performance examinations as the plan is implemented, EquiCredit.92 and that CRA performance record will be considered by the Board in future applications by New BankAmerica to J. Conclusion on Convenience and Needs Factor acquire a depository institution. The Board recognizes that this proposal represents a sig- I. NationsBank's Nonbank Lending Subsidiaries nificant expansion in terms of the size of the resulting institution and of the geographic areas of the country the Several commenters maintained that nonbank lending sub- resulting institution would serve. Accordingly, an imporsidiaries of NationsBank, including NationsCredit Con- tant component of the Board's review of the proposal is the sumer Corporation ("NationsCredit") and EquiCredit Cor- consideration of the eifects of the proposal on the conveporation ("EquiCredit"), have engaged in discriminatory nience and needs of all communities served by lending practices. Commenters contended that these NationsBank and BankAmerica. subprime lending subsidiaries focus their marketing and Commenters have expressed concern about specific aslending activities on LMI and minority borrowers, and pects of NationsBank's record of performance under the primarily offer these borrowers credit products with inter- CRA in its current service areas and concern about whether est rates and fees that are higher than comparable products New BankAmerica would be responsive to the credit needs that are available from NationsBank's subsidiary banks. of communities located throughout its franchise, particu- Commenters also alleged that loan applicants are illegally larly in California, Texas, and New Mexico. The Board has "steered" from NationsBank's subsidiary banks and weighed these concerns in light of all the facts of record, NationsBanc Mortgage Corporation ("NBMC") to including the overall CRA records of NationsBank and NationsBank's subprime lending subsidiaries on a prohib- BankAmerica, reports of examinations of CRA perforited basis like race.89 mance, information provided by NationsBank and Bank- The Board reviewed similar allegations in the America, and information from other commenters regard- NationsBank/Boatmen's and NationsBank/Barnett orders. ing the records of NationsBank and BankAmerica in As noted above, the OCC's fair lending examinations meeting the credit needs of their communities.93 found no evidence of illegal discrimination or credit prac- As discussed in this order, the record in this case demontices at the subsidiary banks of NationsBank or NBMC at strates that NationsBank and BankAmerica have estabthe most recent CRA examination of NationsBank's sub- lished records of helping to meet the convenience and sidiary banks.90 OCC examiners also favorably commented needs of the communities that each serves. This record has on NationsBank's fair lending policies and procedures to been demonstrated over time in CRA performance evaluaprevent illegal practices like "pre-screening" at the most tions and reflects a commitment by NationsBank to address recent CRA examinations of NationsBank's subsidiary the credit needs of new communities into which it expands. banks. NationsCredit and EquiCredit have consumer com- Moreover, while each organization operates in a number of pliance programs in place and the staffs of NationsCredit's states, both NationsBank and BankAmerica have impleand EquiCredit's compliance groups work closely with the mented their CRA programs through a combination of compliance group responsible for overseeing the compli- national programs and local initiatives tailored to the needs ance program for NationsBank's subsidiary banks.91 of local communities. NationsBank's internal audit department also performs 92. Some commenters criticized the fact that NationsCredit and 89. One commenter also alleged, without providing any supporting EquiCredit do not refer customers with appropriate credit ratings to facts, that NationsBank's subsidiary banks and NBMC violate the NBMC or a NationsBank subsidiary bank. NationsBank has indicated Equal Credit Opportunity Act by not sending adverse action notices to that management is evaluating potential nationwide programs for potential borrowers who are referred from those institutions to referrals between its subsidiaries, and that any such programs would NationsCredit or EquiCredit. be reviewed for compliance with fair lending and consumer protection 90. Some commenters stated that NationsBank's nonbank subsidiar- laws before implementation. Comments regarding NationsBank's reies refuse to report HMDA data. NationsCredit and EquiCredit report ferral programs also have been provided to the OCC for consideration HMDA data annually. as the primary federal supervisor of NationsBank's subsidiary banks. 91. Some commenters requested that the Board conduct an on-site 93. A number of commenters expressed concerns that the proposal examination of NationsBank's nonbanking subsidiaries for fair lend- would result in increased fees for banking services or in the loss of ing law compliance before acting on the proposal. Primary authority low-cost banking products, and requested that the Board require New for enforcement of fair lending law compliance by nonbanking compa- BankAmerica to provide low-cost banking products as a condition of nies such as NationsCredit and EquiCredit is conferred by statute on the merger. NationsBank and BankAmerica offer a full range of the Federal Trade Commission and the Department of Housing and banking products and services, including low-fee checking accounts Urban Development. As discussed above and in the NationsBank/ that permit a certain number of withdrawals per month without an Barnett and NationsBank/Boatmen's orders, NationsBank's subsid- additional service charge. Moreover, although the Board has recogiary banks—which account for a substantial majority of nized that banks help serve the banking needs of their communities by NationsBank's total assets and total revenues—have satisfactory making basic services available at nominal or no charge, neither the records of compliance with fair lending laws and the compliance CRA nor the primary federal supervisors of the banks involved in this program for NationsCredit has been implemented by the group respon- case require an institution to limit the fees charged for its services or sible for overseeing the compliance programs of the subsidiary banks. to provide any specific types of banking products. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

878 Federal Reserve Bulletin • October 1998 NationsBank has indicated that New BankAmerica will a limited extent, through BancAmerica Robertson Stedraw on the CRA policies and programs of both organiza- phens ("BA-Robertson").97 NB-Montgomery and BAtions. The Board expects that New BankAmerica will Robertson are, and would continue to be, broker-dealers demonstrate the same commitment to helping to serve the registered with the Securities and Exchange Commission banking needs of its communities, including LMI neigh- ("SEC"), and members of the National Association of borhoods, after the merger that NationsBank and Bank- Securities Dealers, Inc. ("NASD"). Accordingly, both enti- America have demonstrated to date. Based on a review of ties would remain subject to the recordkeeping and reportthe entire record, the Board concludes that convenience ing obligations, fiduciary standards, and other requirements and needs considerations, including the CRA records of of the Securities Exchange Act of 1934 (15 U.S.C. § 78a performance of both organizations' subsidiary depository et seq.), the SEC, and the NASD. institutions, are consistent with approval of the proposal. The Board has determined that, subject to the framework of prudential limitations established in previous decisions Nonbanking Activities to address the potential for conflicts of interests, unsound banking practices, or other adverse effects, underwriting NationsBank also has filed notice under section 4(c)(8) of and dealing in bank-ineligible securities is so closely rethe BHC Act to acquire the nonbank subsidiaries of lated to banking as to be a proper incident thereto within BankAmerica, including BankAmerica-FSB, and thereby the meaning of section 4(c)(8) of the BHC Act.98 The engage in a number of nonbanking activities, including Board also has determined that underwriting and dealing in operating a savings association, engaging in mortgage bank-ineligible securities is consistent with section 20 of banking and other lending activities, providing financial the Glass-Steagall Act (12 U.S.C. § 377), provided that the and investment advisory services, underwriting and deal- company engaged in the activities derives no more than ing to a limited extent in equity and debt securities, and 25 percent of its gross revenues from underwriting and providing administrative services to open-end investment dealing in bank-ineligible securities over a two-year pericompanies ("mutual funds").94 The Board has determined od.99 NationsBank has committed that, after consummation by regulation or order that the activities for which notice of the transaction, NB-Montgomery and BA-Robertson has been provided are closely related to banking for pur- will conduct their bank-ineligible securities underwriting poses of section 4(c)(8) of the BHC Act.95 NationsBank and dealing activities subject to the 25-percent revenue has committed that it will conduct these activities in accor- limitation and the prudential limitations previously estabdance with the Board's regulations and orders approving lished by the Board, and this order is conditioned on these activities for bank holding companies. compliance by NationsBank with the revenue restriction and Operating Standards established for section 20 subsid- A. Bank-Ineligible Securities Activities iaries.100 The Board also has reviewed the capitalization of New NationsBank currently is engaged in underwriting and BankAmerica, NB-Montgomery, and BA-Robertson in dealing in bank-ineligible securities, to a limited extent, through NationsBanc Montgomery Securities LLC ("NB- Montgomery").96 BankAmerica also currently is engaged 97. BankAmerica Corporation, 83 Federal Reserve Bulletin 913 in underwriting and dealing in bank-ineligible securities, to (1997) ("BA/Robertson Stephens"); BankAmerica Corporation, 80 Federal Reserve Bulletin 1104 (1994). BankAmerica recently entered into an agreement to sell the equity underwriting and dealing operations of BA-Robertson to a third party. 94. A list of the nonbanking activities for which NationsBank has 98. See J.P. Morgan; Citicorp, as modified by Review of Restrictions requested the Board's approval under section 4 of the BHC Act is on Director, Officer and Employee Interlocks, Cross-Marketing Activiprovided in Appendix A. As discussed above, the Board has consid- ties, and the Purchase and Sale of Financial Assets Between a Section ered the CRA performance record of BankAmerica-FSB in evaluating 20 Subsidiary and an Affiliated Bank or Thrift, 61 Federal Register the convenience and needs factor in this case. 57,679 (1996), Amendments to Restrictions in the Board's Section 20 95. See 12C.F.R. 225.28(b)(l), (3), (4)(ii), (6), (7), (8)(i). (ll)(i), Orders, 62 Federal Register 45,295 (1997); and Clarification to the (12), and (14); J.P. Morgan & Co. Inc., et ah, 75 Federal Reserve Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collec- Bulletin 192 (1989), aff'd sub nom. Securities Industry Ass 'n v. Board tively, "Section 20 Orders"). of Governors of the Federal Reserve System. 900 F.2d 360 (D.C. Cir. 99. See Section 20 Orders. Compliance with the revenue limitation 1990) {"J.P. Morgan"); Citicorp, 73 Federal Reserve Bulletin 473 shall be calculated in accordance with the method stated in the Sec- (1987), aff'd sub nom. Securities Industry Ass'n v. Board of Gover- tion 20 Orders, as modified by the Order Approving Modifications to nors of the Federal Reserve System, 839 F.2d 47 (2d Cir.), cert, the Section 20 Orders. 75 Federal Reserve Bulletin 751 (1989), and denied. 486 U.S. 1059 (1988) ("Citicorp") (underwriting and dealing, 10 Percent Revenue Limit on Bank-Ineligible Activities of Subsidiaries to a limited extent, in all types of securities); Mellon Bank Corpora- of Bank Holding Companies Engaged in Underwriting and Dealing in tion, 79 Federal Reserve Bulletin 626 (1993), and Commerzbank AG, Securities, 61 Federal Register 48,953 (1996); and Revenue Limit on 83 Federal Resen'e Bulletin 678 (1997) (providing administrative Bank-Ineligible Activities of Subsidiaries of Bank Holding Companies services to mutual funds); Meridian Bancorp, Inc., 80 Federal Re- Engaged in Underwriting and Dealing in Securities, 61 Federal serve Bulletin 736 (1994), and Dresdner Bank AG, 84 Federal Re- Register 68,750 (1996) (collectively, "Modification Orders"). serve Bulletin 361 (1998) (private investment limited partnership 100. 12C.F.R 225.200. As long as NB-Montgomery and BAactivities). Robertson operate as separate corporate entities, both companies will 96. See NationsBank Corporation, 83 Federal Reserve Bulletin 924 be independently subject to the 25-percent revenue limitation on (1997); NationsBank Corporation, 79 Federal Reserve Bulletin 892 underwriting and dealing in bank-ineligible securities. See Citicorp at (1993). 486 n. 45. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 879 light of the standards set forth in the Section 20 Orders. companies can make potentially profitable investments in The Board finds the capitalization of each to be consistent nonbanking companies and from permitting banking orgawith approval of the proposal and the Section 20 Orders. nizations to allocate their resources in the manner they The Board's determination is based on all the facts of consider to be most efficient when such investments and record, including the projections of the volume of bank- actions are consistent, as in this case, with the relevant ineligible securities underwriting and dealing activities to considerations under the BHC Act. be conducted by NB-Montgomery and BA-Robertson. The Certain nonbank subsidiaries of NationsBank and Board also has considered that NationsBank and Bank- BankAmerica compete in direct residential mortgage lend- America have established policies and procedures to en- ing, indirect residential mortgage lending, residential mortsure compliance with this order and the Section 20 Orders, gage servicing, consumer and corporate lending and leasincluding computer, audit, and accounting systems, inter- ing, underwriting and selling insurance to the extent nal risk management controls, and the necessary opera- permissible for bank holding companies, trust, securities tional and managerial infrastructure.101 brokerage, investment advisory, data processing and data transmission, venture capital, and securities underwriting B. Proper Incident Considerations and dealing activities. The markets for each of these nonbanking activities, with the exception of direct residential In order to approve the notice, the Board also must deter- mortgage lending, are regional or national in scope. The mine that the acquisition of the nonbanking subsidiaries of record in this case indicates that there are numerous provid- BankAmerica and the performance of the proposed activi- ers of these services and that the markets for these nonties by New BankAmerica can reasonably be expected to banking services are unconcentrated. produce benefits to the public that outweigh possible ad- The Board previously has determined that the market for verse effects, such as undue concentration of resources, direct residential mortgage lending is local in scope.103 In decreased or unfair competition, conflicts of interests, or considering the effects of the proposal on competition for unsound banking practices. residential mortgage lending, the Board has reviewed NationsBank has indicated that the expanded geographic HMDA data showing mortgage originations by scope of New BankAmerica's nonbanking operations NationsBank, BankAmerica, and other lenders in all would provide added convenience to current and future 328 MSAs in the United States. These data show that customers of NationsBank and BankAmerica. The com- consummation of the proposal would not exceed the DOJ bined organization, for example, would offer customers of Merger Guidelines in any MSA in the United States. In NationsBank and BankAmerica additional locations to ob- addition, numerous mortgage originators would remain in tain a variety of nonbanking products or services, such as each MSA after consummation. For these reasons, and mortgage loans and securities brokerage services. In addi- based on all the facts of record, the Board concludes that tion, NationsBank has stated that the proposed merger consummation of the proposal would have a de minimis would allow the combined organization to achieve greater effect on competition. efficiency through the elimination of redundant operations The Board also believes that the conduct of the proposed and greater economies of scale.102 NationsBank also has nonbanking activities within the framework established by indicated that the proposal would enhance the financial this order, prior orders, and Regulation Y is not likely to ability of the organizations to develop new products and result in adverse effects, such as undue concentration of services and new technologies that would facilitate the resources, decreased or unfair competition, conflicts of delivery of the combined organization's products and ser- interests, or unsound banking practices, that would not be vices, including technologies that would allow consumers outweighed by the public benefits of the proposal, such as to gain access to the organization's products and services increased customer convenience and gains in efficiency. through personal computers, telephones, or other forms of Accordingly, based on all the facts of record, the Board electronic media. has determined that the balance of public interest factors In addition, there are public benefits to be derived from that the Board must consider under the proper incident to permitting capital markets to operate so that bank holding banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with approval. NationsBank also has requested the Board's consent 101. In connection with its 1997 acquisition of Robertson Stephens, under section 4(c)(13) of the BHC Act and section 211.5(c) BankAmerica committed to conform the investments and relation- of the Board's Regulation K (12C.F.R. 211.5(c)) to acships that BA-Robertson had with various entities to the requirements quire BankAmerica's foreign banking and nonbanking opof section 4 of the BHC Act and Regulation Y within two years of erations. In addition, NationsBank has provided notice consummation of the proposal. See BA/Roberlson Stephens. under sections 25 and 25A of the Federal Reserve Act and NationsBank has committed to conform these relationships to the requirements of the BHC Act and Regulation Y within the time sections 211.4 and 211.5 of Regulation K (12 C.F.R. 211.4 periods previously committed to by BankAmerica. and 211.5) to acquire BA FSC Holdings, Inc., an agree- 102. Some commenters questioned whether the merger of large banking organizations allow the organizations to achieve additional economies of scale or efficiencies. NationsBank has estimated the merger would produce approximately $1.3 billion in annual after-tax 103. See Norwest Corporation, 82 Federal Reserve Bulletin 683 cost savings within two years of consummation. (1996). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

880 Federal Reserve Bulletin • October 1998 merit corporation operating under section 25 the Federal ten comments do not adequately present their views, evi- Reserve Act, and BankAmerica International Corporation dence, and allegations and why the public meeting in San and BankAmerica International Financial Corporation, all Francisco did not provide an adequate opportunity to in San Francisco, California, and BankAmerica Interna- present oral testimony. Moreover, the Board has carefully tional Investment Corporation, Chicago, Illinois, each of considered the lending records of NationsBank and Bankwhich are companies organized under section 25A of the America separately in many of the states where comment- Federal Reserve Act. The Board concludes that all the ers requested public meetings, particularly New Mexico, factors required to be considered under the Federal Re- Texas, North Carolina, and Florida. For these reasons, and serve Act, the BHC Act, and the Board's Regulation K are based on all the facts of record, the Board has determined consistent with approval of the proposal.104 that additional public meetings or hearings are not required and are not necessary or warranted to clarify the factual Requests for Additional Public Meetings record on the proposal. Accordingly, the requests for additional public meetings or hearings on the proposal are A number of commenters have requested that the Board hereby denied. hold additional public meetings or hearings on the proposal in all areas that may be aifected by the merger, including in Conclusion Los Angeles and other regions of California, North Carolina, Texas, New Mexico, and Florida. The Board has Based on the foregoing and all the facts of record, the carefully considered these requests in light of the BHC Board has determined that the transaction should be, and Act, its Rules of Procedure, and the substantial record hereby is, approved. In reaching its conclusion, the Board developed in this case.105 has considered all the issues raised in public comments As explained above, the Board held a two-day public filed in connection with the proposal in light of the factors meeting on the proposal in San Francisco to clarify issues that the Board is required to consider under the BHC Act related to the application and notice and to provide an and other applicable statutes and concludes that the comopportunity for members of the public to testify.106 More ments do not warrant a delay or denial of the proposal.107 than 170 interested persons appeared and provided oral The Board's approval is specifically conditioned on comtestimony at the public meeting, including individuals and pliance by NationsBank with all the commitments made in representatives from cities and towns throughout Califor- connection with this application and notice, including the nia and from a number of other states, including Texas, commitments discussed in this order, and the conditions set New Mexico, North Carolina, Arizona, the District of forth in this order and the above-noted Board regulations Columbia, Florida, Illinois, Iowa, Kansas, Nevada, and and orders. The Board's approval of the nonbanking as- Pennsylvania. In addition, the Board has received and pects of the proposal also is subject to all the conditions set considered written comments from more than 1,400 inter- forth in Regulation Y, including those in sections 225.7 and ested persons who did not attend the public meeting. 225.25(c) of Regulation Y (12 CFR. 225.7 and 225.25(c)), In the Board's view, all interested persons have had and to the Board's authority to require such modification or ample opportunity to submit their views either in writing or termination of the activities of a bank holding company or orally at the two-day public meeting in San Francisco. Numerous commenters have, in fact, submitted substantial 107. A number of commenters requested that the Board delay action materials that have been carefully considered by the Board or extend the public comment period on the proposal until: in acting on the proposal. Commenters requesting addi- (i) New CRA or other examinations of NationsBank or Banktional public meetings have failed to show why their writ- America or their various subsidiaries are completed; (ii) Reports on the impact of bank mergers are published by governmental or private sources; 104. NationsBank also has applied for permission to engage, (iii) Pending lawsuits or administrative actions against through its foreign subsidiaries, in equity underwriting and dealing NationsBank are resolved; pursuant to sections 211.5(d)(14)(ii)(A) and 211.5(d)(14)(iii) of Regu- (iv) NationsBank enters into CRA agreements with community lation K. See 12C.F.R. 211.5(d)(14)(ii)(A) and (iii). Based on all the groups; or facts of record, the Board concludes that NationsBank has established (v) NationsBank submits additional information on branch closappropriate internal policies and procedures to govern such underwrit- ings and fee increases resulting from the merger. ing and dealing operations and has adequate capital resources consis- The requests for delay do not warrant postponement of the Board's tent with approval of the proposed equity underwriting and dealing consideration of the proposal. The Board has accumulated a signifiactivities. cant record in this case, including reports of examination, supervisory 105. Section 3(b) of the BHC Act does not require that the Board information, public reports and information, and considerable public hold a public hearing on an application unless the appropriate supervi- comment. In the Board's view, for the reasons discussed above, sory authority for the bank to be acquired makes a timely written commenters have had ample opportunity to submit their views, and, in recommendation of denial of the application. 12U.S.C. § 1842(b). In fact, have provided substantial written submissions and oral testimony this case, the Board has not received such a recommendation from any that have been considered carefully by the Board in acting on the state or federal supervisory authority. Section 4 of the BHC Act and proposal. Based on a review of all the facts of record, the Board the Board's rules thereunder provide for a hearing on a notice to concludes that the record in this case is sufficient to warrant Board acquire a savings association, such as BankAmerica-FSB, if there are consideration and action on the proposal at this time, and that further disputed issues of material fact that cannot be resolved in some other delay of consideration of the proposal, extension of the comment manner. 12U.S.C. § 1843(c)(8); 12C.F.R. 225.25(a)(2). period, or denial of the proposal on the grounds discussed above or on 106. See 12 C.F.R. 262.3(e) and 262.25(d). the basis of informational insufficiency is not warranted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 881 any of its subsidiaries as the Board finds necessary to (3) Operating a savings association, in accordance ensure compliance with, and to prevent evasion of, the with section 225.28(b)(4)(ii) of the Board's Reguprovisions of the BHC Act and the Board's regulations and lation Y (12C.F.R. 225.28(b)(4)(ii)), through orders issued thereunder. These commitments and condi- Bank of America, FSB, Portland, Oregon; tions are deemed to be conditions imposed in writing by (4) Providing financial and investment advisory serthe Board in connection with its findings and decision, and, vices, in accordance with section 225.28(b)(6) of as such, may be enforced in proceedings under applicable the Board's Regulation Y (12C.F.R. law. Underwriting and dealing in any manner other than as 225.28(b)(6)), through BancAmerica Robertson approved in this order and the Section 20 Orders (as Stephens, Robertson Stephens Investment Manmodified by the Modification Orders) is not within the agement Co., and AMB Investment Real Estate, scope of the Board's approval and is not authorized for L.P., all in San Francisco; NationsBank. (5) Providing securities brokerage, riskless principal, The acquisition of BankAmerica's subsidiary banks may private placement, futures commission merchant, not be consummated before the fifteenth calendar day after and other agency transactional services, in accorthe effective date of this order, and the proposal may not be dance with section 225.28(b)(7) of the Board's consummated later than three months after the effective Regulation Y (12C.F.R. 225.28(b)(7)), through date of this order, unless such period is extended for good BA Futures, Incorporated, Chicago, Illinois; and cause by the Board or by the Federal Reserve Bank of BancAmerica Robertson Stephens; Richmond, acting pursuant to delegated authority. (6) Underwriting and dealing in certain government By order of the Board of Governors, effective obligations and money market instruments that August 17, 1998. state member banks may underwrite or deal in, in accordance with section 225.28(b)(8)(i) of the Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Board's Regulation Y (12 C.F.R. 225.28(b)(8)(i)), Governors Kelley, Meyer, Ferguson, and Gramlich. through BancAmerica Robertson Stephens; (7) Acting as principal, agent, or broker in connection ROBERT DEV. FRIERSON with the sale of credit-related insurance, in accor- Associate Secretary of the Board dance with section 225.28(b)(l l)(i) of the Board's Regulation Y (12 C.F.R. 225.28(b)(ll)(i)), Appendix A through BA Insurance Agency, Inc., San Diego; and General Fidelity Life Insurance Company, San Diego; Nonbanking Activities of BankAmerica Corporation' (8) Engaging in community development activities, in accordance with section 225.28(b)(12) of the (1) Extending credit and servicing loans, in accor- Board's Regulation Y (12 C.F.R. 225.28(b)(12)), dance with section 225.28(b)(l) of the Board's through BA Northwest Community Service Cor- Regulation Y (12C.F.R. 225.28(b)(l)), through poration, Seattle, Washington; and BankAmerica BankAmerica Realty Finance, Inc., Los Angeles; Community Development Corporation, Walnut First Franklin Financial Corporation, San Jose; Creek; First Franklin Funding Corporation, San Jose; and (9) Providing data processing and data transmission Security Pacific Housing Services, Inc., San Diservices, in accordance with section 225.28(b)(14) ego; of the Board's Regulation Y (12 C.F.R. (2) Leasing personal and real property, in accordance 225.28(b)(14)), through Concorde Solutions, Inc., with section 225.28(b)(3) of the Board's Regula- Concord; tion Y (12C.F.R. 225.28(b)(3)), through DFO (10) Underwriting and dealing in all types of debt and Partnership, San Francisco; MCOG Leasing Corp., equity securities (other than interests in open-end San Francisco; Pasir Mas Ltd., Charlotte Amalie, investment companies) to a limited extent, in ac- St. Thomas, U.S. Virgin Islands; Security Pacific cordance with previous Board decisions, through Capital Leasing Corporation, San Francisco; Secu- BancAmerica Robertson Stephens. See Bankrity Pacific Leasing Corporation, San Francisco; America Corporation, 83 Federal Reserve Bulle- Ulysses Queensland Corporation, San Francisco; tin 913 (1997); BankAmerica Corporation, 80 Western America Financial, Inc., San Francisco; Federal Reserve Bulletin 1104 (1994); White Sands Leasing Corporation, San Francisco; (11) Acting as the general partner or managing member Windmill Leasing Ltd., Charlotte Amalie, of, or otherwise controlling, private investment St. Thomas, U.S. Virgin Islands; and Windmill limited partnerships or limited liability companies Sands Leasing Corporation, San Francisco; that invest in assets in which a bank holding company is permitted to invest. See Dresdner Bank AG, 84 Federal Reserve Bulletin 361 (1998); and 1. All subsidiaries are in California unless otherwise indicated. (12) Providing the administrative services listed in Subsidiaries also include organizations controlled by such subsidiaries. BankAmerica Corporation,^^ Federal Reserve Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

882 Federal Reserve Bulletin • October 1998 Bulletin 913 (1997) to open-end and closed-end B. Banking Markets in which NationsBank Corporation investment companies. See Mellon Bank Corpora- and BankAmerica Corporation Compete tion, 79 Federal Reserve Bulletin 626 (1993); Commerzbank AG, 83 Federal Reserve Bulletin 678 (1997); J.P. Morgan & Co., Inc., 84 Federal Texas Reserve Bulletin 113(1998). Austin Austin Metropolitan Statistical Area ("MSA"). Dallas Dallas County; the southeastern quadrant Appendix B of Denton County (including Denton and Lewisville); the southwestern quadrant of Collin County (including McKinney A. State Deposit and Ranking Data for Texas, and Piano); Rockwall County; and the New Mexico, Florida, and Illinois communities of Forney and Terrell in Kaufman County; Midlothian, Waxahachie, and Ferris in Ellis County; and Texas. NationsBank is the largest commercial banking Grapevine and Arlington in Tarrant organization in the state, controlling deposits of County. $30.1 billion, representing approximately 15.5 percent of Fort Worth Tarrant County (excluding Grapevine all deposits held by depository institutions in the state and Arlington); the northern half of ("state deposits"). BankAmerica is the ninth largest com- Johnson County (including Cleburne and mercial banking organization in Texas, controlling deposits Burleson); the eastern half of Parker of $4.5 billion, representing approximately 2.3 percent of County (including Weatherford and state deposits. After consummation of the proposal, Springtown); the southwestern quadrant NationsBank would remain the largest commercial bankof Denton County (including Roanoke ing organization in Texas, controlling deposits of $34.6 and Justin); and the communities of billion, representing approximately 17.8 percent of state Boyd, Newark, and Rhome in Wise deposits. County. New Mexico. NationsBank is the largest commercial Houston Houston Ranally Metropolitan Area banking organization in the state, controlling deposits of ("RMA"). $2.8 billion, representing approximately 20.7 percent of all San Antonio San Antonio MSA and Kendall County. state deposits. BankAmerica is the fourth largest commer- Temple Killeen-Temple MSA. cial banking organization in New Mexico, controlling de- Waco Waco MSA. posits of $760 million, representing approximately 5.6 percent of state deposits. After consummation of the proposal, and accounting for the proposed divestitures, New Mexico NationsBank would remain the largest commercial bank- Albuquerque Albuquerque MSA and Torrance and ing organization in New Mexico, controlling deposits of Guadalupe Counties. $3 billion, representing approximately 22.7 percent of state Clovis Curry County. deposits. Farmington Farmington RMA. Florida. NationsBank is the largest commercial banking Las Cruces Las Cruces MSA (excluding those comorganization in the state, controlling deposits of $53 bilmunities in the El Paso, Texas, RMA). lion, representing approximately 28.9 percent of all state Lea Lea County (excluding the towns of Jal deposits. BankAmerica operates two offices in the state that and Bennett). McKinley County Mcdo not accept deposits. After consummation of the pro- Kinley County. posal, NationsBank's deposits and ranking in Florida Santa Fe Santa Fe RMA. would remain unchanged. Roswell- Illinois. NationsBank is the 34th largest commercial Artesia Chaves County and the northern half of banking organization in the state, controlling deposits of Eddy County. $893 million, representing less than 1 percent of state deposits. BankAmerica is the fifth largest commercial banking organization in Illinois, controlling deposits of Florida $6.6 billion, representing approximately 3.2 percent of Miamistate deposits. After consummation of the proposal, Ft. Lauderdale Broward and Dade Counties. NationsBank would become the fifth largest commercial West Palm Beach Palm Beach County east of the banking organization in Illinois, controlling deposits of town of Loxahatchee and the towns $7.5 billion, representing approximately 3.6 percent of of Hobe Sound and Indiantown in state deposits. Martin County. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 883 Appendix C Roswell- Artesia After consummation of the proposal, NationsBank would control 20.9 per- A. Banking Markets with No Proposed Divestitures cent of market deposits and would remain the second largest of nine depository institutions in the market. The HHI Texas would increase 74 points to 1566. Austin After consummation of the proposal, NationsBank would control 25.8 percent of market deposits and would remain the largest of 35 depository institu- Florida tions in the market. The HHI would Miami-Ft. increase 121 points to 1285. Lauderdale After consummation of the proposal, Fort Worth After consummation of the proposal, NationsBank would control 27.4 per- NationsBank would control 18.1 percent of market deposits and would recent of market deposits and would remain the largest of 83 depository institumain the second largest of 50 depositions in the market. The HHI would tory institutions in the market. The HHI remain unchanged at 1283. would increase 138 points to 992. West Palm Houston After consummation of the proposal, Beach After consummation of the proposal, NationsBank would control 14.8 per- NationsBank would control approxicent of market deposits and would remately 26 percent of market deposits main the second largest of 94 deposiand would remain the largest of 44 detory institutions in the market. The HHI pository institutions in the market. The would increase 77 points to 968. HHI would remain unchanged at 1231. San Antonio After consummation of the proposal, NationsBank would control 23.7 per- B. Other Banking Markets cent of market deposits and would become the largest of 38 depository institutions in the market. The HHI would Texas increase 207 points to 1303. Dallas After consummation of the proposal, Temple After consummation of the proposal, NationsBank would control 38.9 per- NationsBank would control 17.6 percent of market deposits and would recent of market deposits and would remain the largest of 108 depository instimain the second largest of 9 depository tutions in the market. The HHI would institutions in the market. The HHI increase 302 points to 1924. would increase 30 points to 1742. Waco After consummation of the proposal, NationsBank would control 17.9 per- New Mexico cent of market deposits and would re- Albuquerque NationsBank proposes to divest main the largest of 18 depository institu- 15 branches controlling deposits of aptions in the market. The HHI would proximately $460 million. After conincrease 50 points to 1049. summation of the proposal, and giving effect to the proposed divestiture to an out-of-market commercial banking organization, NationsBank would control New Mexico 33.9 percent of market deposits and Farmington After consummation of the proposal, would remain the largest of 15 deposi- NationsBank would control 15.9 per- tory institutions in the market. The HHI cent of market deposits and would re- would increase 60 points to 2332. main the third largest of five depository Clovis NationsBank proposes to divest one institutions in the market. The HHI branch controlling deposits of approxiwould increase 126 points to 4047. mately $17 million. After consumma- Las Cruces After consummation of the proposal, tion of the proposal, and giving effect to NationsBank would control 11.6 per- the proposed divestiture to an out-ofcent of market deposits and would be- market commercial banking organizacome the fifth largest of 12 depository tion, NationsBank would control institutions in the market. The HHI 32.4 percent of market deposits and would increase 54 points to 1530. would remain the largest of six deposi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

884 Federal Reserve Bulletin • October 1998 tory institutions in the market. The HH1 ("FDIC"). The time for filing comments has expired, and would remain unchanged at 2306. the Board has considered the application and all comments McKinley received in light of the factors set forth in the Bank Merger County NationsBank proposes to divest one Act. branch controlling deposits of $14 mil- WestStar is a wholly owned subsidiary of Arvest Bank lion. After consummation of the pro- Group, Bentonville, Arkansas ("Arvest"), which is the posal, and giving effect to the proposed ninth largest commercial bank organization in Oklahoma, divestiture to an out-of-market commer- controlling deposits of approximately $798 million, reprecial banking organization, NationsBank senting 2.3 percent of total deposits in commercial banking would control 44.2 percent of market organizations in the state ("state deposits").2 The branch deposits and would remain the largest of Superior Federal to be acquired controls deposits of of 5 depository institutions in the mar- approximately $6.2 million, representing less than 1 perket. The HHI would remain unchanged cent of state deposits. On consummation of the proposal, at 2894. Arvest would remain the ninth largest commercial banking Santa Fe After consummation of the proposal, organization in the state. NationsBank would control 31.2 per- The Bank Merger Act provides that the Board may not cent of market deposits and would re- approve an application if the effect of the acquisition is to main the largest of 10 depository institu- create a monopoly or substantially to lessen competition in tions in the market. The HHI would any section of the country unless the Board finds the increase 332 points to 1845. anticompetitive effects of the proposal are clearly out- Lea After consummation of the proposal, weighed in the public interest by the probable effect of the NationsBank would control 23 percent proposal in meeting the convenience and needs of the of market deposits and would remain community.3 the third largest of 6 depository institu- WestStar and Superior Federal operate in the Bartlestions in the market. The HHI would ville, Oklahoma, banking market.4 WestStar is the largest increase 205 points to 2351. depository institution in the banking market, controlling deposits of approximately $359 million, representing ORDERS ISSUED UNDER BANK MERGER ACT 50.1 percent of the total deposits in depository institutions in the market ("market deposits").5 The Superior Federal WestStar Bank branch that WestStar proposes to acquire is the 1 lth largest Bartlesville, Oklahoma depository institution in the market, controlling deposits of approximately $3.1 million, representing less than 1 per- Order Approving the Acquisition of a Savings cent of market deposits. On consummation of the proposal, Association Branch WestStar would remain the largest depository institution in the Bartlesville banking market, controlling deposits of WestStar Bank ("WestStar"), a state member bank, has approximately $365 million, representing 50.8 percent of requested the Board's approval under section 18(c) of the market deposits. Concentration in the market, as measured Federal Deposit Insurance Act ("FDI Act") (12U.S.C. by the Herfindahl-Hirschman Index ("HHI"), would in- § 1828(c)) ("Bank Merger Act") to acquire the assets and crease 60 points to 3066.6 assume the liabilities of a branch office of Superior Federal Bank, F.S.B., Fort Smith, Arkansas ("Superior Federal"), located in Nowata, Oklahoma ("Nowata Branch").1 2. State and market data are as of June 30, 1997. Notice of the proposal, affording interested persons an 3. 12U.S.C. § 1828(c)(5). 4. The Bartlesville, Oklahoma, banking market includes Nowata opportunity to submit comments, has been given in accorand Washington Counties, Oklahoma; the northeastern quadrant of dance with the Bank Merger Act and the Board's Rules of Osage County, Oklahoma; and the town of Caney, Kansas. Procedure (12C.F.R. 262.3(b)). As required by the Bank 5. In this context, depository institutions include commercial banks, Merger Act, reports on the competitive efFects of the savings banks, and savings associations. Market share data before merger were requested from the United States Attorney consummation are based on calculations in which the deposits of thrift institutions are included at 50 percent. The Board previously has General, the Office of the Comptroller of the Currency indicated that thrift institutions have become, or have the potential to ("OCC"), and the Federal Deposit Insurance Corporation become, significant competitors of commercial banks. See WM Bancorp, 76 Federal Reserve Bulletin 788 (1990); National City Corporation, 70 Federal Reserve Bulletin 743 (1984). Because the deposits of the Nowata Branch would be acquired by a commercial banking 1. The proposal involves the acquisition of assets of a Savings organization, the Nowata Branch's deposits are included at 100 per- Association Insurance Fund member by a Bank Insurance Fund mem- cent in the calculation of the pro forma market share. See Norwest ber. Approval of the proposal under the Bank Merger Act satisfies the Corporation, 78 Federal Reserve Bulletin 452 (1992); First Banks, requirements of section 5(d)(3) of the FDI Act (12U.S.C. Inc., 76 Federal Reserve Bulletin 669 (1990). § 1815(d)(3)). The proposal also would comply with the interstate 6. Under the revised Department of Justice Merger Guidelines, banking requirements of the Bank Holding Company Act if the 49 Federal Register 26,823 (June 29, 1984) ("DOJ Guidelines"), a Nowata Branch was a state bank that the parent holding company of market in which the post-merger HHI is above 1800 is considered to WestStar Bank was applying to acquire directly. be highly concentrated. The Justice Department has informed the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 885 Several factors materially mitigate the competitive ef- other facts of record, the Board concludes that financial fects of a merger in the market as measured by the HHI. and managerial resources and future prospects of the insti- Ten competitors, including WestStar, would remain in the tutions involved are consistent with approval, as are other Bartlesville banking market, including the largest commer- supervisory factors. cial banking organization in Oklahoma. In addition, a large WestStar plans to consolidate the Nowata Branch into credit union operates in the market, of which approxi- WestStar's existing full service branch in Nowata and mately 39 percent of the total population in the banking close the Nowata Branch. WestStar's branch in Nowata is market are members. located within 250 feet of the Nowata Branch and offers Superior Federal is the smallest competitor in the many products and services not offered at the Nowata Bartlesville banking market, and the Nowata Branch is not Branch. WestStar" s branch in Nowata is staffed full-time a full service branch and does not have a loan officer on its by loan officers, and the bank offers commercial checking staff or offer ATM or drive-through services.7 Since 1995, accounts, corporate cash management services, discount deposits in the Nowata Branch have declined by 16 per- brokerage services, and trust services that Superior Federal cent, and its market share has declined by more than does not offer. WestStar also has a satisfactory record of 20 percent. The Board concludes that all the factors de- performance under the Community Reinvestment Act in scribed above mitigate the potentially adverse competitive helping to meet the credit needs of all its communities, effects of the proposal. including low- and moderate-income areas.8 Based on all The Department of Justice has reviewed the proposal the facts of record, the Board concludes that considerations and advised the Board that consummation of the proposal relating to convenience and needs are consistent with apwould not likely have any significantly adverse competi- proval . tive effects in the Bartlesville banking market or any other Based on the foregoing and all the facts of record, the relevant banking market. The OCC and the FDIC also have Board has determined that the proposal should be, and not objected to the proposal. hereby is, approved. The Board's approval of the proposal Based on all the facts of record, and for the reasons is specifically conditioned on compliance by WestStar with discussed above, the Board concludes that consummation all the commitments made in connection with the applicaof the proposal would not have a significantly adverse tion. For purposes of this action, the commitments and effect on competition or on the concentration of banking conditions relied on in reaching this decision are condiresources in the Bartlesville banking market or any other tions imposed in writing by the Board, and, as such, may relevant banking market. be enforced in proceedings under applicable law. The Bank Merger Act also requires the Board to con- The proposed acquisition shall not be consummated sider the financial and managerial resources and future before the fifteenth calendar day following the effective prospects of the existing and proposed institutions and the date of this order, or later than three months after the convenience and needs of the community to be served. The effective date of this order, unless such period is extended Board has carefully considered these factors in light of all for good cause by the Board or by the Federal Reserve the facts of record. Arvest and WestStar meet, and on Bank of Kansas City, acting pursuant to delegated authority. consummation of the proposal will continue to meet, all By order of the Board of Governors, effective August 3, applicable capital standards. The facts of record include 1998. supervisory reports of examination that assess the financial and managerial resources of the organizations and financial Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and information provided by WestStar. Based on these and all Governors Kelley, Meyer, and Ferguson. Absent and not voting: Governor Gramlich. ROBERT DEV. FRIERSON Associate Secretary of the Board Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Justice Department has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effect of limited-purpose lenders and other non-depository financial entities. 7. The nearest full-service branch of Superior Federal where a 8. 12 U.S.C. § 2901 et seq. ("CRA"). WestStar and Superior Federal customer could meet with a loan officer is 50 miles from the Nowata received satisfactory ratings under the CRA at their most recent Branch. performance examinations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

886 Federal Reserve Bulletin • October 1998 ORDERS ISSUED UNDER INTERNATIONAL tional standards as set forth in the IBA (12 U.S.C. BANKING ACT § 3105(d)(3) and (4)) and Regulation K (12C.F.R. 211.24(c)). The Bank of East Asia, Ltd. With respect to home country supervision of Bank, the Board has considered the following information. The Hong Hong Kong Special Administrative Region, Kong Monetary Authority ("HKMA") is the principal People's Republic of China supervisory authority of Bank. The Board previously determined, in connection with applications to establish U.S. Order Approving Establishment of a Representative offices by three other Hong Kong banks, that these banks Office were subject to comprehensive consolidated supervision by the HKMA.2 The Board has determined that Bank is super- The Bank of East Asia, Ltd. ("Bank"), Hong Kong Special vised on substantially the same terms and conditions as Administrative Region, People's Republic of China, a for- these other banks.3 Based on all the facts of record, the eign bank within the meaning of the International Banking Board concludes that the factors relating to the supervision Act ("IBA"), has applied under section 10(a) of the IBA of Bank by its home country supervisors are consistent (12 U.S.C. § 3107(a)) to establish a representative office in with approval of the proposed representative office. Flushing, New York. The Foreign Bank Supervision En- The Board also has found that, for purposes of the IBA hancement Act of 1991, which amended the IBA, provides and Regulation K, Bank engages directly in the business of that a foreign bank must obtain the approval of the Board banking outside of the United States through its banking to establish a representative office in the United States. operations in Hong Kong and elsewhere. Bank has pro- Notice of the application, affording interested persons an vided the Board with the information necessary to assess opportunity to submit comments, has been published in a the application through submissions that address the relenewspaper of general circulation in New York, New York vant issues. (The New York Times, October 31, 1997). The time for The Board also has taken into account the additional filing comments has expired, and the Board has considered standards set forth in the IBA (12 U.S.C. § 3105(d)(3) and the application and all comments received. (4)) and Regulation K (12 C.F.R. 211.24(c)(2)). Bank has Bank, with assets of approximately $17.2 billion as of received the consent of the HKMA to establish the proyear-end 1997, was established in 1918. Bank has repre- posed representative office. The Board also has determined sented that no shareholder owns 10 percent or more of its that the financial and managerial factors are consistent with issued share capital. Bank has approximately 100 branches approval of the proposed office. Bank appears to have the in Hong Kong and provides a broad range of retail and experience and capacity to support the proposed office and wholesale banking services. Bank also owns domestic sub- has established controls and procedures for the proposed sidiaries engaged in real estate, investment, insurance, leas- office to ensure compliance with applicable U.S. law. ing, corporate finance, and other activities. Outside Hong Kong, Bank has nonbanking subsidiaries and offices in several countries, including two branches in New York, New York, and one in Los Angeles, California. (i) Ensure that the bank has adequate procedures for monitor- The proposed representative office would serve as a ing and controlling its activities worldwide: (ii) Obtain information on the condition of the bank and its marketing office for Bank's New York operations and subsidiaries and offices through regular examination resolicit loans from customers in its proximity. The proposed ports, audit reports, or otherwise; office would not disburse loan proceeds or accept loan (iii) Obtain information on the dealings with and relationship payments, nor would it be used to provide deposit services. between the bank and its affiliates, both foreign and domestic; In acting on an application to establish a representative (iv) Receive from the bank financial reports that are consolioffice, the IBA and Regulation K provide that the Board dated on a worldwide basis, or comparable information shall take into account whether the foreign bank engages that permits analysis of the bank's financial condition on directly in the business of banking outside of the United a worldwide consolidated basis; and States and has furnished to the Board the information it (v) Evaluate prudential standards, such as capital adequacy and risk asset exposure, on a worldwide basis. needs to assess the application adequately. The Board also These are indicia of comprehensive consolidated supervision; no shall take into account whether the foreign bank and any single factor is essential and other elements may inform the Board's foreign bank parent is subject to comprehensive supervi- determination. sion or regulation on a consolidated basis by its home 2. See Hong Kong and Shanghai Banking Co.. 81 Federal Reserve country supervisor (12 U.S.C. § 3107(a)(2); 12C.F.R. Bulletin 902 (1995); Liu Chong Hing Bank, Ltd., 81 Federal Reserve Bulletin 905 (1995); Dah Sing Bank, Ltd., 80 Federal Reserve Bulletin 211.24(d)(2)).' The Board may take into account addi- 182(1994). 3. On July 1, 1997, Hong Kong became a Special Administrative Region of the People's Republic of China. The HKMA has confirmed 1. In assessing this standard, the Board considers, among other that its supervision of Bank has not been materially affected by the factors, the extent to which the home country supervisors: change in sovereignty. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 887 Finally, with respect to access to information on Bank's also specifically conditioned on compliance by Bank with operations, the Board has reviewed applicable provisions the commitments made in connection with the application of law and has communicated with appropriate govern- and with the conditions of this order.4 The commitments ment authorities regarding access to information. Bank has and conditions referred to above are conditions imposed in committed to make available to the Board such informa- writing by the Board in connection with its decision, and tion on the operations of Bank and any of its affiliates that may be enforced in proceedings under 12 U.S.C. § 1818 the Board deems necessary to determine and enforce com- against Bank, its offices, and its affiliates. pliance with the IBA, the Bank Holding Company Act of By order of the Board of Governors, effective August 3, 1956, as amended, and other applicable federal law. To the 1998. extent that the provision of such information to the Board may be prohibited or impeded by law or otherwise, Bank Voting for this action: Chairman Greenspan, Vice Chair Rivlin. and has committed to cooperate with the Board in obtaining Governors Kelley, Meyer, and Ferguson. Absent and not voting: any necessary consents or waivers that might be required Governor Gramlich. from third parties in connection with the disclosure of certain information. In light of these commitments and ROBERT DEV. FRIERSON other facts of record, and subject to the condition described Associate Secretary of the Board below, the Board concludes that Bank has provided adequate assurances of access to any necessary information the Board may request. 4. The Board's authority to approve the establishment of the pro- On the basis of all the facts of record, and subject to the posed representative office parallels the authority of the State of New commitments made by Bank, as well as the terms and York to license offices of a foreign bank. In this case, Bank has conditions set forth in this order, the Board has determined received permission from the Office of the Comptroller of the Currency to establish and administer the proposed representative office as that Bank's application to establish a representative office a unit of Bank's existing insured federal branch in New York, New should be, and hereby is, approved. Should any restrictions York. The New York State Banking Department ("NYSBD") has on access to information on the operations or activities of confirmed that, in the circumstances of this case, the establishment of Bank or its affiliates subsequently interfere with the the proposed office as a unit of Bank's existing insured federal branch in New York would not contravene New York State law. Bank has Board's ability to determine the compliance by Bank or its confirmed that, in the event of the closure of Bank's insured New affiliates with applicable federal law, the Board may recom- York branch, Bank would be required to obtain a representative office mend termination of any of Bank's direct or indirect activ- license from the NYSBD to operate the representative office as a ities in the United States. Approval of the application is stand-alone entity. INDEX OF ORDERS ISSUED OR ACTIONS TAKEN BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (APRIL 1, 1998-JUNE 30, 1998) Date of Bulletin Volume and Applicant Merged or Acquired Bank or Activity Approval Page Bane One Corporation, First Commerce Corporation, May 26, 1998 84, 553 Columbus, Ohio New Orleans. Louisiana First National Bank of Commerce, New Orleans, Louisiana City National Bank of Baton Rouge, Baton Rouge, Louisiana Rapides Bank & Trust Company in Alexandria, Alexandria, Louisiana The First National Bank of Lafayette, Lafayette, Louisiana The First National Bank of Lake Charles, Lake Charles, Louisiana Central Bank, Monroe, Louisiana Eagle Bancorp, Inc., EagleBank, June 1. 1998 84, 673 Bethesda, Maryland Bethesda, Maryland Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Reserve Bulletin • October 1998 Index of Orders—Continued Date of Bulletin Volume and Applicant Merged or Acquired Bank or Activity Approval Page Fifth Third Bancorp, The Ohio Company, June 1, 1998 84, 677 Cincinnati, Ohio Columbus, Ohio Cardinal Management Corp., Columbus, Ohio First Midwest Bancorp, Inc., Heritage Financial Services, Inc., April 13, 1998 84, 486 Itasca, Illinois Tinley Park, Illinois Heritage Bank, Blue Island, Illinois Heritage Trust Company, Tinley Park, Illinois First National Bank of Lockport, Lockport, Illinois First Union Corporation, CoreStates Financial Corp, April 13, 1998 84, 489 Charlotte, North Carolina Philadelphia, Pennsylvania CoreStates Bank, N.A., Philadelphia, Pennsylvania CoreStates Bank of Delaware, N.A., Wilmington, Delaware The Fuji Bank, Limited, The Yasuda Trust and Banking Co., June 8, 1998 84, 674 Tokyo,lapan Ltd., Tokyo, Japan Yasuda Bank and Trust Company, New York, New York HSBC Equator Bank pic, To establish a representative office in May 4, 1998 84, 564 London, England Washington, D.C. HUBCO, Inc., MSB Bancorp, Inc., May 13, 1998 84, 547 Mahwah, New Jersey Goshen, New York MSB Bank, Goshen, New York North Fork Bancorporation, Inc., Long Island Bancorp, Inc., April 13, 1998 84, 477 Melville, New York Melville, New York The Long Island Savings Bank, FSB, Melville, New York Norwest Corporation, Mountain Bancshares, Inc., June 1, 1998 84, 676 Minneapolis, Minnesota Newport, Minnesota Mountain Bank, Eagle, Colorado Norwest Corporation, To engage de novo in underwriting and May 26, 1998 84, 552 Minneapolis, Minnesota dealing, to a limited, extent, in all Norwest Investment Services, Inc., types of debt securities Minneapolis, Minnesota PAB Bankshares, Inc., Investors Financial Corporation, April 27, 1998 84, 474 Valdosta, Georgia Bainbridge, Georgia Bainbridge National Bank, Bainbridge, Georgia Popular, Inc., Popular Cash Express, April 2, 1998 84, 481 Hato Rey, Puerto Rico Orlando, Florida Florida Exchange, Ltd., Oak Park, Illinois Mirando J., Inc., Oak Park, Illinois Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 889 Index of Orders—Continued Date of Bulletin Volume and Applicant Merged or Acquired Bank or Activity Approval Page Regions Financial Corporation, First Commercial Corporation, May 13, 1998 84, 558 Birmingham, Alabama Little Rock, Arkansas Societe Generale, Cowen & Co., June 22. 1998 84, 680 Paris, France New York, New York Cowen Incorporated, New York, New York UBS AG, Swiss Bank Corporation, June 8, 1998 84, 684 Zurich and Basel, Switzerland Basel, Switzerland Union Bank of Switzerland, Zurich, Switzerland U.S. Bancorp, Piper Jaffray Companies, Inc., April 20, 1998 84, 483 Minneapolis, Minnesota Minneapolis, Minnesota Piper Jaffray, Inc., Minneapolis, Minnesota 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 American Corporation, CSB Financial Corporation, August 6, 1998 Nashville, Tennessee Ashland City, Tennessee Cheatham State Bank, Kingston Springs, Tennessee Sections 3 and 4 Applicant(s) Bank(s) Effective Date First American Corporation, Pioneer Bancshares, Inc., August 27, 1998 Nashville, Tennessee Chattanooga, Tennessee Valley Bank, Sweetwater, Tennessee Pioneer Bank, f.s.b., East Ridge, Tennessee Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

890 Federal Reserve Bulletin • October 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. Section 3 Applicant(s) Bank(s) Reserve Bank Effective Date Alabama National Bancorporation, Community Financial Corporation, Atlanta August 27, 1998 Birmingham, Alabama Mableton, Georgia Georgia State Bank, Mableton, Georgia Archer, Inc., Osceola Insurance, Inc., Kansas City August 3, 1998 Palmer, Nebraska Osceola, Nebraska BancFirst Corporation, AmQuest Financial Corporation, Kansas City July 30, 1998 Oklahoma City, Oklahoma Duncan, Oklahoma CCF Holding Company, Heritage Bank, Atlanta August 6, 1998 Jonesboro, Georgia Jonesboro, Georgia Capitol City Bancshares, Inc., Capitol City Bank and Trust, Atlanta July 31, 1998 Atlanta, Georgia Atlanta, Georgia Carolina First BancShares, Inc., Community Bank & Trust Company, Richmond August 19, 1998 Lincolnton, North Carolina Rutherfordton, North Carolina Citizens Bancshares, Inc., Citizens Bank-Wakulla, Atlanta July 28, 1998 Crawfordville, Florida Crawfordville, Florida Citizens Bancshares, Inc., Citizens Bank of Edmond, Kansas City August 27, 1998 Edmond, Oklahoma Edmond, Oklahoma The Colonial BancGroup, Inc., FirstBank, Atlanta August 4, 1998 Montgomery, Alabama Dallas, Texas Commerce Bancshares, Inc., Columbus Bancshares, Inc., Kansas City August 5, 1998 Kansas City, Missouri Columbus, Kansas CBI-Kansas, Inc., Kansas City, Missouri Community Bank Minnesota Owatonna Bancshares, Inc., Minneapolis July 24, 1998 Employee Stock Ownership Plan, Owatonna, Minnesota Owatonna, Minnesota The Connor Trusts, Pioneer Bancorp, Inc., Chicago July 24, 1998 Marshfield, Wisconsin Auburndale, Wisconsin Pioneer Bank, Auburndale, Wisconsin Danvers Bancorp, Inc., Danvers Savings Bank, Boston August 11, 1998 Danvers, Massachusetts Danvers, Massachusetts Emigrant Bancorp, Inc., Emigrant Savings Bank, New York August 25, 1998 New York, New York New York, New York F.N.B. Corporation, Citizens Banking Corporation, Cleveland July 31, 1998 Hermitage, Pennsylvania Clearwater, Florida FSBO Holdings, Inc., First State Bank of Olmsted, St. Louis August 21, 1998 Olmsted, Illinois Olmsted, Illinois First Banks, Inc., Republic Bank, St. Louis July 30, 1998 Creve Coeur, Missouri Torrance, California CCB Bancorp, Inc., Newport Beach, California First National Bank of Nevada Laughlin National Bank, San Francisco August 12, 1998 Holding Company, Laughlin, Nevada Laughlin, Nevada First Union Corporation, United Bancshares, Inc., Richmond August 26, 1998 Charlotte, North Carolina Philadelphia, Pennsylvania Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 891 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date InterWest Bancorp, Inc., Kittitas Valley Bancorp, Inc., San Francisco July 24, 1998 Oak Harbor, Washington Ellensburg, Washington Kittitas Valley Bank, N.A., Ellensburg, Washington Marfa Bancshares, Inc., The Marfa National Bank. Dallas August 5, 1998 Marfa, Texas Marfa, Texas Marfa Delaware Bancshares, Inc., Wilmington, Delaware Merchants Holding Company, Primo Financial Services, Inc., Minneapolis August 26, 1998 Winona, Minnesota Hastings, Minnesota New Millennium Bankshares, Inc., Alliance Bank, Kansas City August 19, 1998 Topeka, Kansas Topeka, Kansas Pilot Grove Savings Bank Employee Pilot Bancorp, Inc., Chicago July 29, 1998 Stock Ownership Plan, Pilot Grove, Iowa Pilot Grove, Iowa Premier Financial Corp., Premier Bank, Chicago July 23, 1998 Dubuque, Iowa Dubuque, Iowa Prosperity Bancshares, Inc., Union State Bank, Dallas August 19, 1998 El Campo, Texas East Bernard, Texas Second Bancorp Incorporated, Enfin Inc., Cleveland July 24, 1998 Warren, Ohio Solon, Ohio SunTrust Banks, Inc., Citizens Bancorporation, Inc., Atlanta July 29, 1998 Atlanta, Georgia Marianna, Florida SunTrust Banks of Florida, Inc., Citizens Bank of Marianna, Orlando, Florida Marianna, Florida Gadsden State Bank, Chattahoochee, Florida Texas Capital Bancshares, Inc., Resource Bank, N.A., Dallas August 20, 1998 Dallas, Texas Dallas, Texas United Financial Corp., Heritage State Bank, Minneapolis August 7, 1998 Great Falls, Montana Fort Benton, Montana Q Bank, Fort Benton, Montana Vail Banks, Inc., Telluride Bancorp, Ltd., Kansas City August 27, 1998 Vail, Colorado Montrose, Colorado Violeta Investments, Ltd., Hebbronville State Bank, Dallas July 28, 1998 Hebbronville, Texas Hebbronville, Texas Warren Bancorp, Inc., Warren Bank. Chicago August 25, 1998 Birmingham, Michigan Warren, Michigan Section 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Arvest Bank Group, Inc., State Bank & Trust, N.A., St. Louis August 19, 1998 Bentonville, Arkansas Tulsa, Oklahoma First Bancshares, Inc., Bartlesville, Oklahoma Bancshares of Jackson Hole, Inc., The AmeriTrust Holding Company, Kansas City August 19, 1998 Jackson, Wyoming Tulsa, Oklahoma Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

892 Federal Reserve Bulletin • October 1998 Section A—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Bank of Montreal, Virtual Information Processing Services, Chicago July 23, 1998 Toronto, Ontario, Canada L.L.C., Bankmont Financial Corp., Wilmington, Delaware Chicago, Illinois Barclays PLC, The Long View Group, Inc., New York August 14, 1998 London, England Boston, Massachusetts Barclays Bank PLC, London, England Barclays California Corporation, San Francisco, California Barclays PLC, Daiwa Securities America Inc.. New York August 11, 1998 London, England New York, New York Barclays Bank PLC, Daiwa Europe Limited, London, England London, England Barclays Capital Inc., Daiwa Securities Limited, New York, New York Hong Kong, China Barclays USA, Wilmington, Delaware BOK Financial Corporation, Leo Oppenheim & Co., Inc., Kansas City August 12, 1998 Tulsa, Oklahoma Oklahoma City, Oklahoma Carolina First Corporation, Poinsett Financial Corporation, Richmond August 12, 1998 Greenville, South Carolina Travelers Rest, South Carolina Poinsett Bank, FSB, Travelers Rest, South Carolina The Colonial BancGroup, Inc., Prolmage, Inc., Atlanta August 12, 1998 Montgomery, Alabama Macon, Georgia Commerce Financial Corporation, Financial Institution Technologies, Kansas City August 4, 1998 Topeka, Kansas Topeka, Kansas Deutsche Bank AG, German American Capital Corporation, New York July 24, 1998 Frankfurt am Main, Federal New York, New York Republic of Germany Bouclier Vert Limite, L.L.C. d/b/a Green Shield Limited, L.L.C, Woodbury, New Jersey Advanta Mortgage Holding Company, Fort Washington, Pennsylvania Green Shield Ltd., Woodbury, New Jersey First Charter Corporation, HFNC Financial Corp., Richmond August 27, 1998 Concord, North Carolina Charlotte, North Carolina Home Federal Savings and Loan Association, Charlotte, North Carolina Heritage Group, Inc., Neligh Insurance Agency, Kansas City August 12, 1998 Aurora, Nebraska Neligh, Nebraska National City Bancshares, Inc.. Princeton Federal Bank, FSB, St. Louis August 5, 1998 Evansville, Indiana Princeton, Kentucky Northern Trust Corporation, Northern Trust Bank, Federal Savings Chicago July 29, 1998 Chicago, Illinois Bank, Bloomfield Hills, Michigan U.S.B. Holding Co., Inc., Tappan Zee Financial, Inc., New York August 11, 1998 Orangeburg, New York Tarrytown, New York Tarrytowns Bank, FSB, Tarrytown, New York Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 893 Section 4—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date UST Corp., Cambridge Trading Services Boston July 24, 1998 Boston, Massachusetts Corporation, Boston, Massachusetts Cambridge Trade Financial Corp., Boston, Massachusetts Sections 3 and 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Arvest Bank Group, Inc., Ameribank Corporation, St. Louis August 13, 1998 Bentonville, Arkansas Shawnee, Oklahoma United Oklahoma Bankshares, Inc., Del City, Oklahoma American National Bank and Trust Company of Shawnee, Shawnee, Oklahoma United Bank, Del City, Oklahoma Ameritrust Corporation, Tulsa, Oklahoma Americorp Investment Advisors, Inc., Tulsa, Oklahoma Investment Management, Inc., Tulsa, Oklahoma Citizens Bancshares, Inc., Mid Am, Inc.. Cleveland July 30, 1998 Salineville, Ohio Bowling Green, Ohio United Financial Corp., Chouteau County Bancshares, Inc., Minneapolis August 19, 1998 Great Falls, Montana Fort Benton, Montana Fort Benton Insurance Agency, Fort Benton, Montana Heritage Bank, FSB, Great Falls, Montana 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 Compass Bank, Compass Bank, August 28, 1998 Birmingham, Alabama Houston, Texas Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

894 Federal Reserve Bulletin • October 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 BankFirst, AmQuest Bank, N.A., Kansas City July 30, 1998 Oklahoma City, Oklahoma Lawton, Oklahoma Exchange National Bank and Trust Company, Ardmore, Oklahoma Bank of Casa Grande Valley. National Bank of Arizona, San Francisco August 6, 1998 Casa Grande, Arizona Tucson, Arizona Colonial Bank, FirstBank, Atlanta August 20, 1998 Montgomery, Alabama Dallas, Texas Colonial Bank, First Macon Bank & Trust Company, Atlanta August 12, 1998 Montgomery, Alabama Macon, Georgia Colonial Bank, Prime Bank of Central Florida, Atlanta August 4, 1998 Montgomery, Alabama Titusville, Florida The Commercial Bank, Delphos Interim Bank, Cleveland July 2, 1998 Delphos, Ohio Delphos, Ohio First Community Bank, Cheyenne Western Bank, Minneapolis August 14, 1998 Glasgow, Montana Ashland, Montana Hanmi Bank, Fkst Global Bank, F.S.B., San Francisco July 28, 1998 Los Angeles, California Los Angeles, California Johnson Bank, Johnson Bank N.A., Chicago August 20, 1998 Racine, Wisconsin Janesville, Wisconsin Lindell Bank & Trust Company, Duchesne Bank, St. Louis August 24, 1998 St. Louis, Missouri St. Peters, Missouri Mercantile Bank of Western Iowa, Mercantile Bank of Eastern Iowa, Chicago August 4, 1998 Des Moines, Iowa Waterloo, Iowa One Valley Bank of Summersville, One Valley Bank of Oak Hill, [nc, Richmond August 5, 1998 Inc., Oak Hill, West Virginia Summersville, West Virginia One Valley Bank of Ronceverte, National Association, Ronceverte. West Virginia People First Bank, Home State Bank, Kansas City July 23, 1998 Hennessey, Oklahoma Hobart, Oklahoma The Peoples Bank and Trust The Bank of Tallassee, Atlanta August 5, 1998 Company, Tallassee, Alabama Selma, Alabama Republic Security Bank, First Bank of Florida, Atlanta July 29, 1998 West Palm Beach, Florida West Palm Beach, Florida PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the class complaint alleging race discrimination in employ- Federal Reserve Banks in which the Board of Governors is not ment. named a party. Branch v. Board of Governors, No. 97-5229 (D.C. Cir., filed Artis v. Greenspan, No. 97-5234 (D.C. Cir., filed Septem- September 12, 1997). Appeal of district court order denying ber 19, 1997). Appeal of district court order dismissing motion to compel production of pre-decisional supervisory employment discrimination action. documents and testimony sought in connection with an action Artis v. Greenspan, No. 97-5235 (D.C. Cir, filed Septem- by Bank of New England Corporation's trustee in bankber 19, 1997). Appeal of district court order dismissing ruptcy against the Federal Deposit Insurance Corporation. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 895 Clarkson v. Greenspan, No. 97-CV-2035 (D.D.C., filed Sep- ing the acquisition by NationsBank Corporation and NB tember 5, 1997). Freedom of Information Act case. Holdings Corporation, both of Charlotte, North Carolina, of Banking Consultants of America v. Board of Governors, Boatmen's Bancshares, Inc., St. Louis, Missouri. Also on No. 97-2791 (W.D. Tenn., filed September 2, 1997). Action December 24, 1996, petitioners moved for an emergency to enjoin investigation by the Board, the Office of the stay of the Board's order. The motion for a stay was denied Comptroller of the Currency, and the Department of Labor. by the 10th Circuit on January 3, 1997; on January 6, 1997, Bettersworth v. Board of Governors, No. 97-CA-624 (W.D. petitioners' application for emergency stay was denied by Tex., filed August 21, 1997). Privacy Act case. the Supreme Court. Eliopulos v. Board of Governors, No. 97-1442 (D.C. Cir., American Bankers Insurance Group, Inc. v. Board of Goverfiled July 17, 1997). Petition for review of a Board order nors, No. 96-CV-2383-EGS (D.D.C., filed October 16, dated June 23, 1997, approving the application of First 1996). Action seeking declaratory and injunctive relief in- Bank System, Inc., Minneapolis, Minnesota, to acquire U.S. validating a new regulation issued by the Board under the Bancorp, Portland, Oregon, and thereby acquire U.S. Ban- Truth in Lending Act relating to treatment of fees for debt corp's banking and nonbanking subsidiaries. On Septem- cancellation agreements. On October 18, 1996, the district ber 12, 1997, the Board filed a motion to dismiss the court denied plaintiffs' motion for a temporary restraining petition. order. On January 17, 1997, the parties filed cross-motions Greeff v. Board of Governors, No. 97-1976 (4th Cir., filed for summary judgment. June 17, 1997). Petition for review of a Board order dated Leuthe v. Board of Governors, No. 96-5725 (E.D. Pa., filed May 19, 1997, approving the application of by Allied Irish August 16, 1996). Action against the Board and other Banks, pic, Dublin, Ireland, and First Maryland Bancorp, Federal banking agencies challenging the constitutionality Baltimore, Maryland, to acquire Dauphin Deposit Corpora- of the Office of Financial Institution Adjudication. On Seption, Harrisburg, Pennsylvania, and thereby acquire Dau- tember 10, 1997, the court granted the agencies' motion to phin's banking and nonbanking subsidiaries. dismiss the action. Inner City Press/Community on the Move v. Board of Gover- Inner City Press/Community on the Move v. Board of Governors, No. 97-1394 (D.C. Cir., filed June 12, 1997). Petition nors, No. 96-4008 (2nd Cir., filed January 19, 1996). Petito review a Board order dated May 14, 1997, approving the tion for review of a Board order dated January 5, 1996, application of Bane One Corporation, Inc., Columbus, Ohio, approving the applications and notices by Chemical Bankto merge with First USA, Inc., Dallas, Texas. On June 16, ing Corporation to merge with The Chase Manhattan Cor- 1997, petitioners moved for a stay pending appeal. The poration, both of New York, New York, and by Chemical motion was denied on June 27, 1997. On August 11, 1997, Bank to merge with The Chase Manhattan Bank, N.A., both the Board filed a motion to dismiss the petition. of New York, New York. Petitioners' motion for an emer- Vickery v. Board of Governors, No. 97-1344 (D.C. Cir., filed gency stay of the transaction was denied following oral May 9, 1997). Petition for review of a Board order dated argument on March 26, 1996. The Board's brief on the April 14, 1997, prohibiting Charles R. Vickery, Jr., from merits was filed July 8, 1996. The case was consolidated for further participation in the banking industry. oral argument and decision with Lee v. Board of Governors, Wilkins v. Board of Governors, No. 3:97CV331 (E.D. Va., No. 95-4134 (2d Cir.); oral argument was held on Janufiled May 2, 1997). Customer dispute with bank. On ary 13, 1997. On July 2, 1997, the court of appeals dis- August 15, 1997, the court granted the Board's motion to missed the petition for review. dismiss the action. On September 12, 1997, plaintiff filed a Lee v. Board of Governors, No. 95-^134 (2nd Cir., filed notice of appeal. August 22, 1995). Petition for review of Board orders dated Pharaon v. Board of Governors, No. 97-1114 (D.C. Cir., filed July 24, 1995, approving certain steps of a corporate reorga- February 28, 1997). Petition for review of a Board order nization of U.S. Trust Corporation, New York, New York, dated January 31, 1997, imposing civil money penalties and and the acquisition of U.S. Trust by Chase Manhattan an order of prohibition for violations of the Bank Holding Corporation, New York, New York. On September 12, Company Act. Oral argument is scheduled for December 8, 1995, the court denied petitioners' motion for an emergency 1997. stay of the Board's orders. The Board's brief was filed on Research Triangle Institute v. Board of Governors, No. 97- April 16, 1996. Oral argument, consolidated with Inner City 1282 (4th Cir., filed February 24, 1997). Appeal of district Press/Community on the Move v. Board of Governors, took court's dismissal of contract claim. Oral argument is sched- place on January 13, 1997. On July 2, 1997, the court of uled for October 30, 1997. appeals dismissed the petition for review. Jones v. Board of Governors, No. CV97-0198 (W.D. Louisi- Board of Governors v. Pharaon, No. 91-CIV-6250 (S.D. New ana, filed January 30, 1997). Complaint alleging violations York, filed September 17, 1991). Action to freeze assets of of the Fair Housing Act. individual pending administrative adjudication of civil The New Mexico Alliance v. Board of Governors, No. 96- money penalty assessment by the Board. On September 17, 9552 (10th Cir., filed December 24, 1996). Petition for 1991, the court issued an order temporarily restraining the review of a Board order dated December 16, 1996, approv- transfer or disposition of the individual's assets. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

896 Federal Reserve Bulletin D October 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 All 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 A11 Maturity distribution of loan and security holding Real Estate Monetary and Credit Aggregates A34 Mortgage markets—New homes A12 Aggregate reserves of depository institutions A35 Mortgage debt outstanding and monetary base A13 Money stock, liquid assets, and debt measures Consumer Credit A36 Total outstanding Commercial Banking Institutions— A36 Terms Assets and Liabilities A15 All commercial banks in the United States Flow of Funds A16 Domestically chartered commercial banks A17 Large domestically chartered commercial banks A37 Funds raised in U.S. credit markets A19 Small domestically chartered commercial banks A39 Summary of financial transactions A20 Foreign-related institutions A40 Summary of credit market debt outstanding A41 Summary of financial assets and liabilities Financial Markets A22 Commercial paper and bankers dollar DOMESTIC NONFINANCIAL STATISTICS acceptances outstanding A22 Prime rate charged by banks on short-term Selected Measures business loans A42 Nonfinancial business activity A23 Interest rates—Money and capital markets A42 Labor force, employment, and unemployment A24 Stock market—Selected statistics A43 Output, capacity, and capacity utilization A44 Industrial production—Indexes and gross value Federal Finance A46 Housing and construction A25 Federal fiscal and financing operations A47 Consumer and producer prices A26 U.S. budget receipts and outlays A48 Gross domestic product and income A27 Federal debt subject to statutory limitation A49 Personal income and saving Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A2 Federal Reserve Bulletin • October 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 Pro forma balance sheet and income statements A56 Banks' own and domestic customers' claims on for priced service operations, June 30, 1998 foreigners A56 Banks' own claims on unaffiliated foreigners A57 Claims on foreign countries—Combined A66 INDEX TO STATISTICAL TABLES domestic offices and foreign branches Reported by Nonbanking Business Enterprises in the United States 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 PMI Private mortgage insurance Principal only CRA Community Reinvestment Act of 1977 PO Real estate investment trust FFB Federal Financing Bank REIT Real estate mortgage investment conduit FHA Federal Housing Administration REMIC Repurchase agreement FHLBB Federal Home Loan Bank Board RP Resolution Trust Corporation FHLMC Federal Home Loan Mortgage Corporation RTC Securitized credit obligation FmHA Farmers Home Administration SCO Special drawing right FNMA Federal National Mortgage Association SDR Standard Industrial Classification FSLIC Federal Savings and Loan Insurance Corporation SIC Department of Veterans Affairs G-7 Group of Seven VA 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 • October 1998 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted' Monetary or credit aggregate Q3 Q4 Ql Q2 Apr. May July Reserves of depository institutions 1 Total " -3.0 -2.7 -1.9 -3.8 8.5 -2.3 -9.6 -5.3 -15.3 2 Required -3.7 -5.6 -1.8 -2.5 14.5 -3.1 -4.7 -18.1 -8.9 3 Nonborrowed -4.7 -.7 -4.3 9.0 -3.1 -11.7 -7.9 -15.6 4 Monetary base 6.2 6.9 4.1 4.1 3.3 4.7 6.2 5.0 Concepts of money, liquid assets, and debt4 5 Ml .3 .9 3.0 .3 5.1 -.3 -3.2 -3.1 6 M2 5.6 7.1 8.0 7.3 8.3 9.5 5.2 4.7 7 M3 8.2 10.0 11.0 9.5' 14.4 10.1' 5.9' 5.2 .1 8 L 7.2 9.2 12.1 6.8 11.8 4.5' 3.2' 6.3 9 Debt 4.5 5.8 6.3' 5.9 6.7' 6.0' 4.9' 5.1 Nontransaction components [0 InM25 7.6 9.4 9.9 9.8 9.4 13.0' 4.9' 8.1 7.4 11 In M3 only6 16.8 19.3 20.2 16.1' 32.7' 12.0' 15.1' 5.1 -13.4 Time and savings deposits Commercial banks 12 Savings, including MMDAs 9.6 16.3 13.6 14.3' 12.1 26.2' .4' 10.9 16.8 13 Small time7 8.1 4.5 1.5 -.8 -.2 4 -3.8 -.8 .6 14 Large time8-9 17.2 9.9 19.8 14.2' 45.9 -7.1 7.1' 8.2 -38.9 Thrift institutions 15 Savings, including MMDAs 1.0 1.4 7.6 11.6' 11.6 10.2' 16.3 3.6 8.5 16 Small time7 -5.2 -3.1 -.4 -6.9' -5.6 -10.8 -6.0 -3.5 -7.1 17 Large time 10.0 5.4 14.4 -.5' -8.2 11.0' -19.1' 13.9 -9.6 Money market mutual funds 18 Retail 16.3 16.0 19.6 21.0 21.6 18.0 19.8 20.7 5.4 19 Institution-only 19.7 22.0 18.9 36.5 22.5 51.7 38.7 28.7 -5.3 Repurchase agreements and Eurodollars 20 Repurchase agreements10 13.4 38.3 32.8 13.2 88.5 -.9 6.5 -34.8 13.4 21 Eurodollars10 18.6 24.3 7.5' -18.0' -56.5' -3.6' 12.6' -9.8 8.1 Debt components 22 Federal .0 .4 .0 -1.4 1.4 -1.8' -4.0' -1.0 23 Nonfederal 6.1 7.6 8.4' 8.3 8.5r 8.5' 7.9' 7.1 1. Unless otherwise noted, rates of change are calculated from average amounts outstand- amounts held by depository institutions, the U.S. government, money market funds, and ing during preceding month or quarter. foreign banks and official institutions. Seasonally adjusted M3 is calculated by summing large 2. Figures incorporate adjustments for discontinuities, or "breaks," associated with time deposits, institutional money fund balances, RP liabilities, and Eurodollars, each regulatory changes in reserve requirements. (See also table 1.20.) seasonally adjusted separately, and adding this result to seasonally adjusted M2. 3. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency securities, commercial paper, and bankers acceptances, net of money market fund holdings of component of the money stock, plus (3) (for all quarterly reporters on the "Report of these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term Transaction Accounts, Other Deposits and Vault Cash" and for all weekly reporters whose Treasury securities, commercial paper, and banker? acceptances, each seasonally adjusted vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference separately, and then adding this result to M3. between current vault cash and the amount applied to satisfy current reserve requirements. Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial 4. Composition of the money stock measures and debt is as follows: sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in the process of collection and Federal corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data, Reserve float, and (4) other checkable deposits (OCDs). consisting of negotiable order of which are derived from the Federal Reserve Board's flow of funds accounts, are breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at thrift institutions. Seasonally month-averaged (that is, the data have been derived by averaging adjacent month-end levels). adjusted Ml is computed by summing currency, travelers checks, demand deposits, and 5. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retail OCDs, each seasonally adjusted separately. money fund balances, each seasonally adjusted separately. M2: Ml plus (1) savings (including MMDAs), (2) small-denomination time deposits (time 6. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities deposits—including retail RPs—in amounts of less than $100,000), and (3) balances in retail (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and money market mutual funds (money funds with minimum initial investments of less than term) of U.S. addressees, each seasonally adjusted separately. $50,000). Excludes individual retirement accounts (IRAs) and Keogh balances at depository 7. Small time deposits—including retail RPs—are those issued in amounts of less than institutions and money market funds. Seasonally adjusted M2 is calculated by summing $100,000. All IRA and Keogh account balances at commercial banks and thrift institutions savings deposits, small-denomination time deposits, and retail money fund balances, each are subtracted from small time deposits. seasonally adjusted separately, and adding this result to seasonally adjusted Ml. 8. Large time deposits are those issued in amounts of $ 100,000 or more, excluding those M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more), (2) booked at international banking facilities. balances in institutional money funds (money funds with minimum initial investments of 9. Large time deposits at commercial banks less those held by money market funds, $50,000 or more), (3) RP liabilities (overnight and term) issued by all depository institutions, depository institutions, the U.S. government, and foreign banks and official institutions. and (4) Eurodollars (overnight and term) held by U.S. residents at foreign branches of U.S. 10. Includes both overnight and term. banks worldwide and at all banking offices in the United Kingdom and Canada. Excludes Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Money Stock and Bank Credit A5 1.11 RESERVES OF DEPOSITORY INSTITUTIONS AND RESERVE BANK CREDIT' Millions of dollars Average of Average of daily figures for week ending on date indicated daily figures May July June 17 June 24 July 1 July 8 July 15 July 22 July 29 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 471,939 480,045 479,603 477,547 480,335 491,660 479,432 481,517 479,086 U.S. government securities 2 Bought outright—System account3. . 438,825 441,368 440,572 442,202 441,898 440,584 440,354 441,798 440,121 439,960 3 Held under repurchase agreements . 442 4,853 4,662 2,060 4,144 14.953 4,637 5,105 2,593 4,928 Federal agency obligations 4 Bought outright 551 549 526 551 551 540 526 526 526 526 5 Held under repurchase agreements 66 736 838 814 483 1,465 815 1,121 840 674 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 58 80 55 71 6 194 4 1 150 12 8 Seasonal credit 95 160 215 157 180 188 196 195 223 243 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float 605 779 377 829 1,162 318 769 391 421 31 11 Other Federal Reserve assets 31,297 31,522 32,358 30,864 31,912 33,417 32,132 32,381 31,989 32,712 12 Gold stock 11,048 11,048 11,047 11,048 11,049 11,047 11,047 11,047 11,046 11,047 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 25,792 25,825 25,886 25,822 25,836 25,850 25,864 25,878 25,892 25.906 ABSORBING RESERVE FUNDS 15 Currency in circulation 479,018 481,524 486,030 481,623 481,204 482,203 486,148 486,605 485,690 485,709 16 Treasury cash holdings 247 188 207 204 204 201 194 188 181 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 5,474 10,401 5,430 6,982 12,769 18,717 5,956 5,171 5,155 5,115 18 Foreign 165 165 170 159 164 172 176 163 169 174 19 Service-related balances and adjustments 6,721 6,809 6,919 6,759 6,958 7,018 7,083 6,861 6,966 6,733 20 Other . 364 332 277 337 333 316 301 292 264 252 21 Other Federal Reserve liabilities and capital . . 16,617 16,888 16,832 16,913 16,880 17,092 16,747 16.837 16,752 17,025 22 Reserve balances with Federal Reserve Banks4 9,374 9,790 9,890 10,637 7,909 12,035 8,932 11.519 7,819 10,049 End-of-month figures Wednesday figures May June July June 17 June 24 July 1 July 8 July 15 July 22 July 29 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 475,856 496,967 482,027 482,526 488,041 487,173 478,926 487,207 476,479 484,416 U.S. government securities 2 Bought outright—System account3 440,980 439,773 440,612 442,164 441,495 440,522 440,328 440,887 436,103 441,354 3 Held under repurchase agreements 2,997 18,681 7,266 6,678 11,495 11,606 4,894 9,492 4.661 8,411 Federal agency obligations 4 Bought outright 551 526 526 551 551 526 526 526 526 526 5 Held under repurchase agreements 230 1,865 760 1,237 1,180 415 469 2,425 1,956 1,110 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 4 773 2 33 3 516 3 4 2 8 Seasonal credit 132 189 239 166 193 197 202 204 239 249 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float 253 1,416 -270 183 3 612 193 642 724 -518 11 Other Federal Reserve assets 30,709 33,743 32,893 31,514 33.122 32,780 32,313 33,027 32,267 33,282 12 Gold stock 11,049 11,047 11,046 11,048 11.049 11,047 11,047 11,047 11,046 11,047 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 25,794 25,850 25,920 25,822 25.836 25,850 25,864 25,878 25,892 25,906 ABSORBING RESERVE FUNDS 15 Currency in circulation 480,726 483,865 486,098 482,355 482,065 •84,977 487,799 487,127 486,517 487,012 16 Treasury cash holdings 226 204 141 204 204 204 195 189 178 141 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 5.693 18,140 4,648 8,273 22,464 7,866 4,934 5,309 4.426 5,184 18 Foreign 156 201 161 176 (54 166 149 180 195 158 19 Service-related balances and adjustments . 6,674 7,018 6,979 6,759 6,958 7,018 7,083 6,861 6,966 6,733 20 Other 309 296 264 326 325 313 275 279 247 262 21 Other Federal Reserve liabilities and capital . 16,743 17,073 16,830 16,709 16,667 16,548 16,577 16,589 16,513 16,754 22 Reserve balances with Federal Reserve Banks' 11,371 16,269 13,072 13,794 5,291 16,179 8,025 16,796 7,576 14,324 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 US. 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 • October 1998 1.12 RESERVES AND BORROWINGS Depository Institutions1 Millions of dollars Prorated monthly averages of biweekly averages Reserve classification 1995 1996 1997 1998 Dec. Dec. Dec. Jan. Feb. Mar. Apr. May June' July 1 Reserve balances with Reserve Banks2 20,440 13,395 10,673 9,733 9,394 10,140 11.053 9,646 9.668 9,645 42,281 44,525 44,707 47,336 43,167 41.598 41,215' 41,482' 42,635 42,034 3 Applied vault cash 37,460 37,848 37,206 37,762 35.580 35,370 35,423 35,159 35,427 34,954 4 Surplus vault cashs 4,821 6,678 7,500 9,574 7,587 6,228 5.792' 6,323' 7,208 7,080 5 Total reserves6 57,900 51,243 47,880 47,495 44,974 45,509 46,475 44.805 45,095 44,599 56,622 49,819 46,196 45,714 43,450 44,193 45,131 43,655 43,475 43,235 7 Excess reserve balances at Reserve Banks 1,278 1,424 1,683 1,780 1,524 1,316 1.345 1.150 1,620 1,364 8 Total borrowings at Reserve Banks8 257 155 324 210 58 41 72 153 251 258 40 68 79 18 12 22 41 94 159 215 10 Extended credit9 0 0 0 0 0 0 0 0 0 0 Biweekly averages of daily figures for two week periods ending on dates indicated 1998 Apr. 8 Apr. 22 May 6 May 20 June 3 June 17 July 1' July 15 July 29 Aug. 12 1 Reserve balances with Reserve Banks2 10,623 11,991 9,841 9,365 9,898 9,340 9,969 10,225 8,933 10,417 2 Total vault cash3 41,420 40,813 41,712' 41,545' 41,277' 43,592' 41,919 42,101 41,983 41,983 3 Applied vault cash4 35,534 35,185 35,727 35,066 34,969 35,867 35,060 35,102 34,770 35,154 5,886 5,628' 5,985" 6,479' 6,307' 7,725' 6,859 6,999 7,213 6,829 5 Total reserves6 46,157 47,176 45,568 44,430 44,867 45,206 45,029 45,327 43,703 45,571 44,865 45,736 44,339 43,409 43,597 43,676 43,232 43,999 42,341 44,145 7 Excess reserve balances at Reserve Banks7 1,291 1,441 1,230 1,022 1,270 1,530 1,797 1,328 1,362 1,426 8 Total borrowings at Reserve Banks8 101 51 81 165 178 236 285 198 314 271 9 Seasonal borrowings 30 37 61 85 123 145 184 196 233 241 10 Extended credit 0 0 0 0 0 0 0 0 0 0 1. Data in this table also appear in the Board's H.3 (502) weekly statistical release. For 5. Total vault cash (line 2) less applied vault cash (line 3). ordering address, see inside front cover. Data are not break-adjusted or seasonally adjusted, 6. Reserve balances with Federal Reserve Banks (line 1) plus applied vault cash 2. Excludes required clearing balances and adjustments to compensate for float and (line 3). includes other off-balance-sheet "as-oF" adjustments. 7. Total reserves (line 5) less required reserves (line 6). 3. Total "lagged" vault cash held by depository institutions subject to reserve 8. Also includes adjustment credit. requirements. Dates refer to the maintenance periods during which the vault cash may be used 9. Consists of borrowing at the discount window under the terms and conditions estabto satisfy reserve requirements. The maintenance period for weekly reporters ends sixteen lished for the extended credit program to help depository institutions deal with sustained days after the lagged computation period during which the vault cash is held. Before Nov. 25, liquidity pressures. Because there is not the same need to repay such borrowing promptly as 1992, the maintenance period ended thirty days after the lagged computation period. with traditional short-term adjustment credit, the money market effect of extended credit is 4. All vault cash held during the lagged computation period by "bound" institutions (that similar to that of nonborrowed reserves. is, those whose required reserves exceed their vault cash) plus the amount of vault cash applied during the maintenance period by "nonbound" institutions (that is, those whose vault cash exceeds their required reserves) to satisfy current reserve requirements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A7 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit' Seasonal credit Extended credit3 Federal Reserve Bank On Effective date Previous rate On Effective date On Effective date Previous rate 9/11/98 9/11/98 9/11/98 Boston 2/1/96 5.25 5.55 9/10/98 5.55 9/10/98 6.05 New York. .. . 1/31/96 Philadelphia. . 1/31/96 Cleveland 1/31/96 Richmond. . .. 2/1/96 Atlanta 1/31/96 Chicago 2/1/96 St. Louis 2/5/96 Minneapolis . . . 1/31/96 Kansas City . . . 2/1/96 Dallas 1/31/96 San Francisco. 1/31/96 5.25 9/10/98 5.55 Range of rates for adjustment credit in recent years4 Range (or F.R. Bank Range (or F.R. Bank Range (or F.R. Bank Effective date level)—All of Effective date level)—All of level)—All of F.R. Banks N.Y. F.R. Banks N.Y. F.R. Banks N.Y. In effect Dec. 31, 1977 1981—Nov. 2 13-14 13 8—Aug. 9 6-6.5 6.5 6 13 13 11 6.5 6.5 1978—Jan. 9 6-6.5 6.5 Dec. 4 12 12 20 6.5 6.5 1989—Feb. 24 6.5-7 7 May 11 6.5-7 7 1982—July 20 11.5-12 11 5 7 7 12 7 7 23 11.5 II 5 27 July 3 7-7.25 7.25 Aug. 2 11-11.5 11 6.5 6.5 10 7.25 7.25 3 11 II 1990—Dec. 19 Aug. 21 7.75 7.75 16 10.5 10.5 6-6.5 6 Sept. 22 8 8 27 10-10.5 10 1991—Feb. 1 6 6 Oct. 16 8-8.5 8.5 30 10 10 4 5.5-6 5.5 20 8.5 8.5 Oct. 12 9.5-10 9.5 Apr. 30 5.5 5.5 Nov. 1 8.5-9.5 9.5 13 9.5 9.5 May 2 5-5.5 5 3 9.5 9.5 Nov. 22 9-9.5 9 Sept. 13 5 5 26 9 9 17 4.5-5 4.5 1979—July 20 10 10 Dec 14 8.5-9 9 Nov. 6 4.5 4.5 Aug. 17 10-10.5 10.5 15 8.5-9 8.5 7 3.5-4.5 3.5 20 10.5 10.5 17 8.5 8.5 Dec. 20 3.5 3.5 Sept. 19 10.5-11 11 24 21 II 11 1984—Apr. 9 8.5-9 9 1992—July 2 3-3.5 3 Oct. 8 11-12 12 13 9 9 7 3 3 10 12 12 Nov. 21 8.5-9 8.5 26 8.5 8.5 1994—May 17 3-3.5 3.5 1980—Feb. 15 12-13 13 Dec. 24 18 3.5 3.5 19 13 13 Aug. 16 3.5-1 4 May 29 12-13 13 1985—May 20 7.5-8 7.5 18 4 4 30 12 12 24 7.5 7.5 Nov. 15 4-4.75 4.75 June 13 11-12 11 17 ... . 4.75 4.75 16 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 29 10 10 Apr. 21 6.5-7 6.5 9 5.25 5.25 Sept. 26 11 II 23 6.5 6.5 Nov. 17 12 12 July 11 6 6 1996—Jan. 31 5.00-5.25 5.00 Dec. 5 12-13 13 Aug. 21 5.5-6 5.5 Feb. 5 5.00 5.00 8 1.1 13 22 5.5 5.5 1981—May 5 13-14 14 In effect Sept 11, 1998 . 14 14 1987—Sept. 4 5.5-6 6 11 6 6 1 Available on a short-term basis to help depository institutions meet temporary needs for of the Federal Reserve Bank, this time period may be shortened. Beyond this initial period, a funds that cannot be met through reasonable alternative sources. The highest rate established flexible rate somewhat above rates charged on market sources of funds is charged. The rate for loans to depository institutions may be charged on adjustment credit loans of unusual size ordinarily is reestablished on the first business day of each two-week reserve maintenance that result from a major operating problem at the borrower's facility. period, but it is never less than the discount rate applicable to adjustment credit plus 50 basis 2. Available to help relatively small depository institutions meet regular seasonal needs for points. funds that arise from a clear pattern of intrayearly movements in their deposits and loans and 4. For earlier data, see the following publications of the Board of Governors: Banking and that cannot be met through special industry lenders. The discount rate on seasonal credit takes Monetary Statistics, 1914-1941, and 1941-1970; and the Annual Statistical Digest, 1970into account rates charged by market sources of funds and ordinarily is reestablished on the 1979. first business day of each two-week reserve maintenance penod; 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 induslry 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 • October 1998 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS' Type of deposit Net transaction accounts 1 $0 mi]]ion-$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 1, 1998, for depository institutions that report weekly, include commercial banks, mutual savings banks, savings and loan associations, credit and with the period beginning January 15, 1998, for institutions that report quarterly, the unions, agencies and branches of foreign banks, and Edge Act corporations. exemption was raised from $4.4 million to $4.7 million. 2. Transaction accounts include all deposits against which the account holder is permitted 4. The reserve requirement was reduced from 12 percent to 10 percent on to make withdrawals by negotiable or transferable instruments, payment orders of with- Apr. 2, 1992, for institutions that report weekly, and on Apr. 16, 1992, for institutions that drawal, or telephone or preauthonzed transfers for the purpose of making payments to third report quarterly. persons or others. However, accounts subject to the rules that permit no more than six 5. For institutions that report weekly, the reserve requirement on nonpersonal time deposits preauthorized, automatic, or other transfers per month (of which no more than three may be with an original maturity of less than 1W years was reduced from 3 percent to 1 [/i percent for by check, draft, debit card, or similar order payable directly to third parties) are savings the maintenance period that began Dec. 13, 1990, and to zero for the maintenance period that deposits, not transaction accounts. began Dec. 27, 1990. For institutions that report quarterly, the reserve requirement on 3. The Monetary Control Act of 1980 requires that the amount of transaction accounts nonpersonal time deposits with an original maturity of less than 1 '/> years was reduced from 3 against which the 3 percent reserve requirement applies be modified annually by 80 percent of percent to zero on Jan. 17, 1991. the percentage change in transaction accounts held by all depository institutions, determined The reserve requirement on nonpersonal time deposits with an original maturity of 1 '/> as of June 30 of each year. Effective with the reserve maintenance period beginning January I, years or more has been zero since Oct. 6, 1983. 1998, for depository institutions that report weekly, and with the period beginning January 15, 6. The reserve requirement on Eurocurrency liabilities was reduced from 3 percent to zero 1998, for institutions that report quarterly, the amount was decreased from $49.3 million to in the same manner and on the same dates as the reserve requirement on nonpersonal time $47.8 million. deposits with an original maturity of less than 1 l/z years (see note 5). Under the Garn-St Germain Depository Institutions Act of 1982, the Board adjusts the amount of reservable liabilities subject to a zero percent reserve requirement each year for the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A9 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS' Millions of dollars 1997 Type of transaction and maturity Apr. May U.S. TREASURY SECURITIES2 Outright transactions (excluding matched transactions) Treasury bills 1 Gross purchases 10,932 9,901 9,147 4,545 0 0 0 3,550 0 0 2 Gross sales 0 0 0 0 0 0 0 0 0 0 3 Exchanges 405,296 426,928 436,257 32,575 41,731 35,495 34,025 46,802 35,190 32,830 4 For new bills 405,296 426,928 435,907 32,575 41,731 35,495 34,025 46,802 35,190 32,830 5 Redemptions 900 0 0 0 2,000 0 0 0 0 0 Others within one year 6 Gross purchases 390 524 5,549 1,947 0 0 1,501' 1,369 0 0 7 Gross sales 0 0 0 0 0 0 0 0 0 0 8 Maturity shifts 43,574 30.512 41.716 1,548 3,447 6,098 1,964 4,369 6,951 1,520 9 Exchanges -35,407 -41,394 -27,499 -2,329 -400 -6,128 -5,736 -2,601 -4,990 -5,084 10 Redemptions 1,776 2,015 1.9% 0 478 0 0 286 0 0 One to five years 11 Gross purchases 5,366 3,898 19,680 4,471 0 0 2,262' 2,993 0 0 12 Gross sales 0 0 0 0 0 0 0 0 0 0 13 Maturity shifts -34,646 -25,022 -37,987 -1,548 -3,447 -3,213 -1,964 -4,369 -6,620 -1,520 14 Exchanges 26.387 31,459 20,274 2,329 0 3,383 5,736 2,201 2,270 5,084 Five to ten years 15 Gross purchases 1,432 1,116 3,849 613 0 0 283 495 0 0 16 Gross sales 0 0 0 0 0 0 0 0 0 0 17 Maturity shifts -3,093 -5,469 -1,954 0 0 -2,884 0 0 -331 0 18 Exchanges 7,220 6,666 5,215 0 400 1,420 0 0 2,720 0 More than ten years Gross ppurchases 2,529 1,655 5,897 1,214 0 0 743 0 0 0 GGr oss salles 0 0 0 0 0 0 0 0 0 0 Maturity shifts -2,253 -20 -1,775 0 0 0 0 0 0 0 Exchanges 1,800 3,270 2,360 0 0 1,325 0 400 0 0 All maturities Gross purchases 20,649 17,094 44,122 12,790 0 0 4,789 8,407 0 0 Gross sales 0 0 0 0 0 0 0 0 0 0 Redemptions 2,676 2,015 1,996 0 2,478 0 0 286 0 0 Matched transactions 26 Gross purchases 2,197,736 3,092,399 3,577,954 353,726 332,581 326,813' 364,307 354,756 367,934 369,358 27 Gross sales 2,202,030 3,094,769 3,580,274 355,668 332,795 326.235' 364,537 354,741 368,281 370,569 Repurchase agreements 28 Gross purchases 331,694 457,568 810,485 97,932 45,544 33,428 40,211 59,548 7,722 57,098 29 Gross sales 328,497 450,359 809,268 87,160 65,932 30,583 37,010 50,663 20.456 41,414 30 Net change in U.S. Treasury securities 16,875 41,022 21,620 -23,079 3,423' 7,760 17,021 -13,081 14,473 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 50 74 25 Repurchase agreements 34 Gross purchases 36,851 75,354 160.409 20,056 12,488 9,615 17,685 13,547 1,575 14,548 35 Gross sales 36,776 74,842 159,369 21,186 13,872 8,776 18,342 13,042 3,300 12,913 36 Net change in federal agency obligations -928 103 -500 -1,130 -1,384 829 -707 431 -1,725 1,610 37 Total net change in System Open Market Account. 15,948 20,021 40,522 20,490 -24,463 4,252' 7,053 17,452 -14,806 16,083 1. Sales, redemptions, and negative figures reduce holdings of the System Open Market 2. Transactions exclude changes in compensation for the effects of inflation on the principal Account; all other figures increase such holdings. of inflation-indexed securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A10 Domestic Financial Statistics • October 1998 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements1 Millions of dollars Wednesday 1998 1998 July 1 July 8 July 15 July 22 July 29 May 31 June 30 July 31 Consolidated condition statement 1 Gold certificate account 11,047 11,047 11,047 11,046 11,047 11,049 11,047 11,046 2 Special drawing rights certificate account . 9,200 9,200 9,200 9,200 9,200 9,200 9,200 9,200 3 Coin 389 377 395 405 413 407 392 435 Loans 4 To depository institutions 713 203 208 243 251 136 963 241 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 526 526 526 526 526 551 526 526 8 Held under repurchase agreements 415 469 1,956 1,110 230 1.865 760 2,425 9 Total US. Treasury securities 452,128 445,222 440,764 449,765 443,977 458,454 447,878 450,379 10 Bought outright2 440,522 440,328 436,103 441,354 440.980 439,773 440,612 11 Bills 198,013 197,818 440,887 194,900 200,149 198,476 197,264 199,407 12 Notes 180,594 180,595 199,685 178,886 178,886 180,590 180,594 178,887 13 Bonds 61,915 61,915 178,885 62,318 62,318 61,914 61,915 62,318 14 Held under repurchase agreements 11,606 4,894 62,317 4,661 8,411 2,997 18,681 7,266 9,492 15 Total loans and securities 453,781 446,420 453,537 443,489 451,651 444,893 461,807 449,404 16 ttems in process of collection 8,504 6,727 7,531 7,656 6,253 5,165 10,126 4,677 17 Bank premises 1,290 1,294 1,294 1,294 1,288 1.287 1,290 1,289 Other assets 18 Denominated in foreign currencies3 17,333 17.341 17,349 17,358 17,366 16,995 17,366 17,282 19 Allother4 14,202 13,727 14.420 13,728 14,659 12,356 15,126 14,378 20 Total assets 515,748 506,134 514,773 504,177 511,878 501.352 526^55 507,711 LIABILITIES 21 Federal Reserve notes 459,720 462,507 461,833 461,208 461,660 455,565 458,610 460,754 22 Total deposits 31,834 20,689 29,477 20,135 27,222 24,112 42,287 25312 23 Depository institutions 23,490 15,330 23,707 15,267 21,618 17,954 23,651 20,239 24 U.S. Treasury—General account. 7,866 4,934 5,309 4,426 5,184 5,693 18,140 4,648 25 Foreign—Official accounts 166 149 180 195 158 156 201 161 26 Other 313 275 279 247 262 309 296 264 27 Deferred credit items 7,645 6,361 6,874 6,321 6,242 4,931 8,385 4,816 28 Other liabilities and accrued dividends5 4,733 4,637 4,636 4,530 4,796 4,993 4,850 4,818 29 Total liabilities . 503,933 494,194 502,820 492,194 499,920 489,602 514,132 495,699 CAPITAL ACCOUNTS 30 Capital paid in 5,809 5,811 5,815 5,822 5,819 5.721 5,791 5,822 31 Surplus 5,220 5,220 5,220 5,220 5,220 5,218 5.220 5,220 32 Other capital accounts 786 908 918 940 919 811 1,212 970 33 Total liabilities and capital accounts 515,748 506,134 514,773 504,177 511,878 501,352 526355 507,711 MEMO 34 Marketable U.S. Treasury securities held in custody for foreign and international accounts 599,574 589,691 586,656 592,068 592,993 606,393 600,373 595,603 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Banks) . 567,090 567,723 569,062 570,074 570,576 566,773 567,155 570,428 36 LESS: Held by Federal Reserve Banks 107,370 105,216 107,228 108,866 108,916 111,209 108,545 109,674 37 Federal Reserve notes, net 459,720 462,507 461,833 461,208 461,660 455,565 458,610 460,754 Collateral held against notes, net 38 Gold certificate account 11,047 11,047 11,047 11,046 11,047 11,049 11,047 11,046 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 439,472 442,260 441.587 440,962 441,413 435,316 438,363 440,508 42 Total collateral 459,720 462,507 461,833 461,208 461,660 455,565 458,610 460,754 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 July 1 July 8 July 15 July 22 July 29 May 31 July 31 1 Total loans 2 Within fifteen days' 560 57 55 220 229 78 859 107 153 146 153 23 22 58 104 134 3. Sixteen days to ninety days 452,128 445,222 450,379 440,764 449,765 443,976 458,634 447,878 4 Total US. Treasury securities2 20,456 15,381 19,893 19,394 17,348 5,745 27,389 13,538 5 Within fifteen days' 94,040 94,275 94,052 92,596 97,971 102,385 93,433 98,052 6 Sixteen days to ninety days 145,693 143,627 144,441 136,779 142,449 145,188 145,693 145,377 7 Ninety-one days to one year 98,145 98,145 97,796 97,797 97,797 96,868 98,145 96,711 8 One year to five years, 43,016 43,016 43,016 43,017 43,018 43,013 43,016 43,018 9 Five years to ten years 50,778 50,778 51,181 51,181 51,181 50,777 50,778 51,181 10 More than ten years 11 Total federal agency obligations 941 995 2,951 2,481 1,635 781 2,391 1,286 12 Within fifteen days' 2,425 1,956 1,160 230 1,865 13 Sixteen days to ninety days 98 98 48 75 98 14 Ninety-one days to one year 104 104 109 109 114 125 104 114 15 One year to five years 99 99 109 109 104 126 99 104 16 Five years to ten years 200 200 185 185 185 200 200 185 17 More than ten years 25 25 25 25 25 25 25 25 1. Holdings under repurchase agreements are classified as maturing within fifteen days in 2. Includes compensation that adjusts for the effects of inflation on the principal of accordance with maximum maturity of the agreements. inflation-indexed securities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A12 Domestic Financial Statistics • October 1998 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1997 1994 1995 1996 1997 Dec. Dec. Dec. Dec. Dec. Feb. Apr. May July Seasonally adjusted ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS2 1 Tolal reserves1 59.41 56.40 50.08 46.67 46.67 46.50 45.72 46.05 45.96 45.59 45.39 44.81 2 Nonborrowed reserves 59.20 56.14 49.93 46.35 46.35 46.29 45.66 46.01 45.89 45.44 45.14 44.56 3 Nonborrowed reserves plus extended credit5 59.20 56.14 49.93 46.35 46.35 46.29 45.66 46.01 45.89 45.44 45.14 44.56 4 Required reserves 58.24 55.12 48.66 44.99 44.99 44.72 44.20 44.73 44.61 44.44 43.77 43.45 5 Monetary base 418.12 414.17 452.38 480.15 480.15 482.84 484.23 485.86 487.20 489.10 491.63 493.70 Not seasonally adjusted 6 Total reserves 61.13 58.02 51.52 47.97 47.97 47.49 44.99 45.55 46.53 44.87 45.17 44.69 7 Nonborrowed reserves 60.92 57.76 51.37 47.65 47.65 47.28 44.94 45.50 46.45 44.71 44.92 44.43 8 Nonborrowed reserves plus extended credit5 60.92 57.76 51.37 47.65 47.65 47.28 44.94 45.50 46.45 44.71 44.92 44.43 9 Required reserves8 59.96 56.74 50.10 46.29 46.29 45.71 43.47 44.23 45.18 43.72 43.55 43.32 10 Monetary base9 422.51 439.03 456.72 485.11 485.11 484.41 481.35 484.00 487.36 488.28 491.18 495.35 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS^ 11 Total reserves'' 61.34 57.90 51.24 47.88 47.88 47.50 44.97 45.51 46.48 44.81 45.10 44.60 12 Nonborrowed reserves 61.13 57.64 51.09 47.56 47.56 47.29 44 92 45.47 46.40 44.65 44.84r 44.34 13 Nonborrowed reserves plus extended credit5 61.13 57.64 51.09 47.56 47.56 47.29 44.92 45.47 46.40 44.65 44.84' 44.34 14 Required reserves 60.17 56.62 49.82 46.20 46.20 45.71 43.45 44.19 45.13 43.66 43.48r 43.24 15 Monetary base12 427.25 444.45 463.49 491.92 491.92 491.61 488.41 490.96 494.11 494.95 497.93 502.20 16 Excess reserves'3 1.17 1.28 1.42 1.68 1.68 1.78 1.52 1.32 1.35 1.15 1.62 1.36 17 Borrowings from the Federal Reserve .21 .26 .16 .32 .32 .21 .06 .04 .07 .15 .25 .26 1. Latest monthly and biweekly figures are available from the Board's H.3 (502) weekly 8. To adjust required reserves for discontinuities that are due to regulatory changes in statistical release. Historical data starting in 1959 and estimates of the effect on required reserve requirements, a multiplicative procedure is used to estimate what required reserves reserves of changes in reserve requirements are available from the Money and Reserves would have been in past periods had current reserve requirements been in effect. Break- Projections Section, Division of Monetary Affairs. Board of Governors of the Federal Reserve adjusted required reserves include required reserves against transactions deposits and nonper- System, Washington, DC 20551. sonal time and savings deposits (but not reservable nondeposit liabilities). 2. Figures reflect adjustments for discontinuities, or "breaks," associated with regulatory 9. The break-adjusted monetary base equals (1) break-adjusted total reserves (line 6), plus changes in reserve requirements. (See also table 1.10.) (2) the (unadjusted) currency component of the money stock, plus (3) (for all quarterly 3. Seasonally adjusted, break-adjusted total reserves equal seasonally adjusted, break reporters on the "Report of Transaction Accounts, Other Deposits and Vault Cash" and for all adjusted required reserves (line 4) plus excess reserves (line 16). those weekly reporters whose vault cash exceeds their required reserves) the break-adjusted 4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally adjusted, difference between current vault cash and the amount applied to satisfy current reserve break-adjusted total reserves {line 1) less total borrowings of depository institutions from the requirements. Federal Reserve (line 17). 10. Reflects actual reserve requirements, including those on nondeposit liabilities, with no 5. Extended credit consists of borrowing at the discount window under the terms and adjustments to eliminate the effects of discontinuities associated with regulatory changes in conditions established for the extended credit program to help depository institutions deal reserve requirements. with sustained liquidity pressures. Because there is not the same need to repay such 11. Reserve balances with Federal Reserve Banks plus vault cash used to satisfy reserve borrowing promptly as with traditional short-term adjustment credit, the money market effect requirements. of extended credit is similar to that of nonborrowed reserves. 12. The monetary base, not break-adjusted and not seasonally adjusted, consists of (1) total 6. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally reserves (line 11), plus (2) required clearing balances and adjustments to compensate for float adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency at Federal Reserve Banks, plus (3) the currency component of the money stock, plus (4) (for component of the money stock, plus (3) (for all quarterly reporters on the "Report of all quarterly reporters on the "Report of Transaction Accounts, Other Deposits and Vault Transaction Accounts, Other Deposits and Vault Cash" and for all those weekly reporters Cash" and for all those weekly reporters whose vault cash exceeds their required reserves) the whose vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference between current vault cash and the amount applied to satisfy current reserve difference between current vault cash and the amount applied to satisfy current reserve requirements. Since the iniroduclion 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 1996 1997 Dec. Dec. Apr. May June July Seasonally adjusted Measures 1 Ml 1,150.7 1,128.7 1,082.8 1,076.0 1,080.8 1,078.0 1,075.1 1,072.3 2 M2 3,503.0 3,651.2 3,826.1 4,045.8 4,165.1 4,174.9 4,193.0 4,209.3 3 M3 4,333.6 4,595.6 4,931.1 5,374.9 5,573.6 5,601.2 5,625.4 5,625.7 4 L 5,315.8 5,702.3' 6,083.6 6,609.4 6,833.4 6,851.5 6,887.2 n.a. 5 Debt 13,003.1 13,702.3 14,432.1' 15,170.7 15,493.4 15,557.2 15,623.5 n.a. Ml components 6 Currency1 354.3 372.4 394.9 425.5 433.7 435.5 438.2 441.3 7 Travelers checks4 8.5 8.9 8.6 8.2 8.0 8.0 7.8 7.7 8 Demand deposits 384.0 391.0 403.6 397.1 388.7 388.2 383.7 378.5 9 Other checkable deposits6 403.9 356.4 275.9 245.2 250.5 246.3 245.4 244.8 Nontransaction components 10 In M27 2,352.3 2,522.6 2,743.2 2,969.7 3,084.3 3,096.9 3,117.9 3,137.1 11 In M3 only8 830.6 944.4 1,105.0 1,329.1 1,408.6 1,426.3 1,432.4 1,416.4 Commercial banks 12 Savings deposits, including MMDAs . 752.6 775.0 904.8 1,020.9 1,078.2 1,078.6 1,088.4 1,103.6 13 Small time deposits 503.2 575.8 594.5 625.7 626.4 624.4 624.0 624.3 14 Large time deposits10' " 298.7 345.4 413.2 487.5 521.1 524.2 527.8 510.7 Thrift institutions 15 Savings deposits, including MMDAs 397.3 359.7 366.9 376.6 389.9 395.2 396.4 399.2 16 Small time deposits9 314.2 357.2 354.3 341.9 339.8 338.1 337.1 335.1 17 Large time deposits10 64.7 74.2 78.0 85.4 88.0 86.6 87.6 86.9 Money market mutual funds 18 Retail 385.0 454.9 522.8 602.6 649.9 660.6 672.0 675.0 19 Institution-only 203.1 253.9 310.3 376.2 408.8 422.0 432.1 430.2 Repurchase agreements and Eurodollars 20 Repurchase agreements12 183.3 182.4 194.2 234.8 257.4 258.8 251.3 254.1 21 Eurodollars12 80.8 88.6 109.2 145.3 133.3 134.7 133.6 134.5 Debt components 22 Federal debt 3,492.4 3,638.9 3,780.6 3,798.4 3,791.5 3,778.8 3,775.8 n.a. 23 Nonfederal debt 9,510.6' 10,063.4 10,651.6 11,372.3 11,701.8 11,778.4 11,847.7 n.a. Not seasonally adjusted Measures 24 Ml 1,174.4 1,152.4 1,104.9 1,097.6 1,086.2 1,068.7 1,074.3 1,073.2 25 M2 3,523.4 3,672.0 3,845.4 4,064.7 4,185.8 4,154.3 4,188.1 4,209.9 26 M3 4,353.2 4,615.2 4,948.9 5,392.1 5,588.2 5,579.1 5,615.4 5,617.9 27 L 5,344.6 5,732.8' 6,111.6 6,634.9 6,854.7 6,828.9 6,869.6 28 Debt .. . 13,004.5 13,702.5 14,431.0 15,168.8 15,464.3 15,512.3 15,575.4 Ml components 29 Currency' 357.5 376.2 397.9 429.0 433.7 436.1 438.3 442.7 30 Travelers checks4 8.1 8.5 8.3 7.9 7.9 7.9 8.0 8.2 31 Demand deposits5 400.3 407.2 419.9 413.0 388.8 380.5 383.1 379.3 32 Olher checkable deposits6 408.6 360.5 278.8 247.7 255.8 244.2 245.0 243.0 Nonjransacfton components 33 In M27 2,349.0 2,519.6 2,740.5 2,967.1 3,099.6 3,085.6 3,113.8 3,136.7 34 In M3 only8 829.7 943.2 1,103.5 1,327.4 1,402.4 1,424.8 1,427.2 1,408.0 Commercial banks 35 Savings deposits, including MMDAs 751.7 774.1 903.3 1,019.0 1,083.5 1,077.1 1,091.6 1,106.1 36 Small time deposits 501.5 573.8 592.7 624.1 627.2 625.0 624.4 625.0 37 Large time deposits10' 298.9 345.8 413.6 487.9 517.6 525.5 526.8 509.8 Thrift institutions 38 Savings deposits, including MMDAs 396.8 359.2 366.4 375.9 391.8 394.7 397.6 400.0 39 Small time deposits9 313.2 355.9 353.2 343.0 340.2 338.4 337.3 335.5 40 Large time deposits'" 64.8 74.3 78.1 85.4 87.4 86.8 87.4 Money market mutual funds 41 Retail 385.9 456.4 524.8 605.1 656.9 650.4 662.9 670.1 42 Institution-only 204.6 255.8 312.7 378.9 405.8 414.1 424.5 425.3 Repurchase agreements and Eurodollars 43 Repurchase agreements12 179.6 178.0 188.8 228.2 257.8 262.8 256.4 254.5 44 Eurodollars'" 81.8 89.4 110.3 146.9 133.7 135.7 132.1 131.6 Debt components 45 Federal debt 3,499.0 3,645.9 3,787.9 3,805.8 3,800.5 3,765.9 3,755.3 46 Nonfederal debt 9,505.5 10,056.6 10,643.1 11,363.1 11,663.8 11,746.4 11,820.1 Footnotes appear on following page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Financial Statistics • October 1998 NOTES TO TABLE 1.21 1. Latest monthly and weekly figures are available from the Board's H.6 (508) weekly these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term statistical release. Historical data starting in 1959 are available from the Money and Reserves Treasury securiiies, commercial paper, and bankers acceptances, each seasonally adjusted Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve separately, and then adding this result to M3. System, Washington, DC 20551. Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial 2. Composition of the money stock measures and debt is as follows: sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in the process of collection and Federal corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data, Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of which are derived from the Federal Reserve Board's flow of funds accounts, are breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at thrift institutions. Seasonally month-averaged (that is, the data have been derived by averaging adjacent month-end levels). adjusted Ml is computed by summing currency, travelers checks, demand deposits, and 3. Currency outside the U.S. Treasury, Federal Reserve Banks, and vaults of depository OCDs, each seasonally adjusted separately. institutions. M2: Ml plus (I) savings deposits (including MMDAs), (2) small-denomination time 4. Outstanding amount of U.S. dollar-denominated travelers checks of nonbank issuers. deposits (time deposits—including retail RPs—in amounts of less than $100,000), and (3) Travelers checks issued by depository institutions are included in demand deposits. balances in retail money market mutual funds (money funds with minimum initial invest- 5. Demand deposits at commercial banks and foreign-related institutions other than those ments of less than $50,000). Excludes individual retirement accounts (IRAs) and Keogh owed to depository institutions, the U.S. government, and foreign banks and official institubalances at depository institutions and money market funds. Seasonally adjusted M2 is tions, less cash items in the process of collection and Federal Reserve float. calculated by summing savings deposits, small-denomination time deposits, and retail money 6. Consists of NOW and ATS account balances at all depository institutions, credit union fund balances, each seasonally adjusted separately, and adding this result to seasonally share draft account balances, and demand deposits at thrift institutions. adjusted Ml. 7. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retail M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more) money fund balances. issued by all depository institulions, (2) balances in institutional money funds (money funds 8. Sum of (1) large time deposits, (2) institutional money fund balances, (3) RP liabilities with minimum initial investments of $50,000 or more), (3) RP liabilities (overnight and term) (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and issued by all depository institutions, and (4) Eurodollars (overnight and term) held by U.S. term) of U.S. addressees. residents at foreign branches of U.S. banks worldwide and at all banking offices in the United 9. Small time deposits—including retail RPs—are those issued in amounts of less than Kingdom and Canada. Excludes amounts held by depository institutions, the U.S. govern- $100,000. All IRAs and Keogh accounts at commercial banks and thrift institutions are ment, money market funds, and foreign banks and official institutions. Seasonally adjusted subtracted from small time deposits. M3 is calculated by summing large lime deposits, institutional money fund balances, RP 10. Large time deposits are those issued in amounts of $100,000 or more, excluding those liabilities, and Eurodollars, each seasonally adjusted separately, and adding this result to booked at international banking facilities. seasonally adjusted M2. 11. Large time deposits at commercial banks less those held by money market funds, L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury depository institutions, the U.S. government, and foreign banks and official institutions. securities, commercial paper, and bankers acceptances, net of money market fund holdings of 12. Includes both overnight and term. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A15 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities' A. All commercial banks Billions of dollars Monthly averages Wednesday figures Account 1997 1998' 1998 July Jan. Feb. Mar. Apr. May June July July 8 July 15 July 22 July 29 Seasonally adjusted Assets 1 Bank credit 3,961.5r 4,150.9 4,182.2 4,222.7 4,219.8 4,246.4 4,256.0 4,274.0 4,257.8 4,263.4 4,273.4 4,295.4 2 Securities in bank credit 1,030.0 1,104.5 1,108.5 1,127.0 1,107.6 1,122.7 1,116.1 1,124.0 1,118.6 1,118.7 1,122.3 1,133.7 3 U.S. government securities 718.2 760.6 768.0 779.9 764.1 770.9 754.1 757.7 758.0 752.3 751.2 765.3 4 Other securities 311.7 343.9 340.5 347.1 343.4 351.8 362.1 366.4 360.6 366.5 371.1 368.4 5 Loans and leases in bank credit2 . .. 2,931.5 3,046.4 3,073.7 3,095.7 3,112.2 3,123.7 3,139.9 3,150.0 3,139.2 3.144.7 3,151.1 3,161.7 6 Commercial and industrial 820.1' 863.4 871.1 873.0 871.3 880.1 890.2 895.6 892.4 895.9 893.8 900.1 7 Real estate 1,196.5 1,235.4 1,250.1 1,262.8 1,270.1 1,271.4 1,270.8 1.273.2 1,275.1 1,272.4 1,270.0 1,273.4 8 Revolving home equity 93.2 98.0 98.1 98.2 98.3 97.9 97.6 97.3 97.3 97.2 97.4 97.3 9 Other 1,103.3 1,137.4 1,152.0 1,164.6 1,171.8 1,173.5 1.173.2 1.175.9 1,177.8 1,175.2 1,172.7 1,176.1 10 Consumer 518.1 504.4 502.5 502.5 505.6 505.6 502.1 496.0 496.0 496.1 496.3 495.9 11 Security-' 94.2 116.0 117.7 116.7 115.2 119.8 126.1 128.8 123.3 124.0 135.1 133.0 12 Other loans and leases 302.6 327.2 332.3 340.8 350.0 346.8 350.6 356.4 352.4 356.3 355.8 359.2 13 Interbank loans 184.9 201.3 199.8 216.5 212.7 201.4 216.5 212.1 206.1 215.0 209.2 214.4 14 Cash assets4 246.2 265.4 269.1 281.0 274.1 255.8 255.8 248.1 231.6 261.2 248.5 249.6 15 Other assets5 287.4 291.6 294.7 291.3 305.6 312.2 312.0 309.4 304.7 314.3 307.8 310.9 16 Total assets6 4,6232 4,852.6 4,889.1 4,954.6 4,954£ 4,9583 4,9823 4,986.2 4,942.7 4,996.6 4,9813 5,01Z8 Liabilities 17 Deposits 3,005.2 3,118.3 3,155.4 3,195.1 3,208.3 3,201.7 3,218.7 3,192.0 3,174.4 3,207.7 3,182.7 3.188.0 18 Transaction 689.4 681.1 688.4 698.4 697.0 687.8 683.4 667.7 646.1 679.4 665.6 677.6 19 Nontransaction 2,315.8 2.437.2 2,467.0 2,496.7 2,511.3 2,513.9 2,535.3 2,524.4 2,528.2 2,528.3 2,517.2 2,510.5 20 Large time 597.2 645.1 659.6 676.4 673.7 674.0 683.5 665.1 665.5 660.7 663.7 665.5 21 Other 1.718.6 1.792.1 1.807.3 1,820.3 1,837.7 1,839.9 1,851.8 1,859.3 1,862.7 1,867.6 1,853.5 1,844.9 22 Borrowings 741.6 828.9 829.2 860.2 874.7 867.1 866.2 866.7 846.9 864.9 868.9 885.8 23 From banks in the US 280.2 291.2 292.3 306.6 304.6 283.5 292.0 293.0 286.7 297.5 286.2 298.1 24 From others 461.5 537.7 536.9 553.6 570.1 583.6 574.2 573.8 560.3 567.4 582.7 587.6 25 Net due to related foreign offices 213.9 230.6 223.0 201.4 175.5 168.4 164.7 179.0 188.3 172.6 178.4 177.7 26 Other liabilities 283.4 293.8 296.8 290.7 289.6 295.6 303.9 314.9 310.8 314.2 310.2 323.2 27 Total liabilities 4044.1 4471.6 43043 43473 4348.1 4332.8 4353.6 435Z6 43204 43594 4340.2 4374.7 28 Residual (assets less liabilities)7 379.1 381.0 384.8 407.2 406.8 425.6 429.3 433.6 422.3 437.3 441.3 438.1 Not seasonslly adjusted Assets 29 Bank credit 3,956.5' 4,158.2 4,179.6 4,213.2 4,224.4 4,241.3 4,257.4 4,268.3 4,260.4 4,258.0 4,260.7 4,284.3 30 Securities in bank credit 1,025.6 1,105.0 1,112.0 1,128.4 1,118.3 1,127.4 1,119.0 1,118.5 1,117.7 1,112.3 1 113 1 1,126.3 31 U.S. government securities 715.1 757.2 766.9 783.2 772.5 775.5 756.5 753.8 756.1 748.2 746.6 759.9 32 Other securities 310.5 347.7 345.1 345.2 345.8 351.9 362.5 364.7 361.6 364.0 366.5 366.4 33 Loans and leases in bank credit2 .. . 2,930.? 3,053.2 3,067.6 3,084.8 3,106.1 3,113.9 3,138.4 3,149.8 3,142.7 3.145.7 3,147.6 3,158.0 34 Commercial and industrial 819.8 861.1 871.0 876.5 878.8 885.6 892.9 895.2 895.0 895.6 892.9 896.7 35 Real estate 1,198.2 1,235.5 1,244.8 1.256.2 1,263.6 1,265.1 1,268.4 1,275.3 1,276.9 1,275.2 1,271.6 1,275.8 36 Revolving home equity 93.2 98.2 97.7 97.2 97.4 97.5 97.3 97.3 97.2 97.3 97.4 97.4 37 Other 1,105.0 1,137.3 1,147.1 1.159.1 1,166.3 1.167.6 1,171.1 1,178.0 1,179.6 1,177.9 1,174.2 1.178.4 38 Consumer 515.8 511.1 502.0 496.0 500.6 500.3 499.3 494.1 492.6 493.5 494.5 495.5 39 Security1 92.5 116.2 119.2 117.6 116.7 119.4 126.1 126.8 121.1 122.6 132.1 131.0 40 Other loans and leases 304.5 329.3 330.7 338.6 346.3 343.5 351.7 358.5 357.2 358.8 356.4 359.0 41 Interbank loans 180.2 208 1 202 8 216.0 2154 197.0 213.4 206.0 207.3 209.4 198.6 202.9 42 Cash assets4 241.9 276.4 269.3 269.4 269.4 251.4 250.6 243.7 235.1 257.8 234.9 243.1 43 Other assets5 288.2 290.1 295.8 291.2 303.7 311.7 310.3 310.7 306.9 314.4 307.5 313.1 44 Total assets6 4,610.1 4,876.4 4,891.0 4333.0 4,955.9 4,944.0 4,974.2 4,971.2 4,952.2 4,9823 4,9443 4,986.0 Liabilities 45 Deposits 2,997.7 3,124.5 3,142.6 3,185.8 3,207.8 3,185.2 3,210.8 3,184.5 3,190.2 3,202.4 3,155.6 3,167.6 46 Transaction 684.4 693.1 681.7 686.0 702.1 676.0 678.5 662.8 659.1 675.1 644.2 665.0 47 Nontransaction 2.313.3 2.431.3 2,460.9 2,499.8 2,505.6 2,509.3 2,532.3 2,521.7 2,531.1 2,527.3 2,511.4 2,502.6 48 Large time 593.9' 643.4 658.5 673.9 668.1 674.3 681.2 661.8 659.4 657.9 660.6 664.5 49 Other 1.719.3 1.788.0 1,802.4 1,826.0 1,837.5 1,834.9 1,851.1 1,860.0 1,871.7 1,869.3 1,850.8 1,838.1 50 Borrowings 744.4 835.3 829.8 852.1 874.6 872 5 873.5 868.6 8474 868.7 871.5 886.6 51 From banks in the U.S 280.3 294.7 293.2 304.2 303.9 284.6 294.0 292.3 286.2 297.9 285.4 296.4 52 From others 464.1 540.6 536.5 547.9 570.7 587.9 579 6 5762 561.2 570.8 586.1 590.3 53 Net due to related foreign offices .... 213.2 231.0 221.1 199.7 174.8 178.8 172.2 182.3 187.0 176.3 183.5 185.7 54 Other liabilities 282.6 293.8 298.0 290.9 288.7 295.0 303.1 314.2 309.6 313.4 309.4 323.1 55 Total liabilities 4,238.0 4,484.6 44913 43283 4345.8 4331.6 43593 4349.6 43342 4360.8 4320.0 4362,9 56 Residual (assets less liabilities)7 .... 372.1 391.8 399.5 404.5 410.0 412.5 414.7 421.6 418.0 421.5 424.3 423.1 MEMO 57 Revaluation gains on off-balance-sheet items'* 89.5 93.2 87.5 87.2 83.3 85.3 92.1 92.2 93.0 92.6 91.5 92.1 58 Revaluation losses on off-balancesheet items* 92.0 95.6 89.8 89.3 84.4 84.8 90.4 90.6 91.7 91.6 89.0 89.5 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics • October 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 Account 1997 1998' 1998 July Jan. Feb. Mar. Apr. May June July July 8 July 15 July 22 July 29 Seasonally adjusted Assets 1 Bank credit 3 424.7 3.582.2 3,613.5 3,656.8 3,662.1 3.682.2 1,688.1 3,700.0 3.686.9 3.700 3 1.701.7 3.710.0 2 Securities in bank credit 854.3 911.4 915.5 929.7 916.1 928.7 920.4 927.3 922.1 929.4 930.1 929.6 3 U.S. government securities 635.1 679.1 683.9 692.1 675.9 682.6 667.3 668.0 666.3 668.8 667.3 669.4 4 Other securities 219.3 232.3 231.6 237.6 240.2 246.1 253.2 259.3 255.8 260.6 262.8 260.3 5 Loans and leases in bank credit- . . . 2.570.4 2,670.9 2,698.0 2,727.1 2.746.0 2,753.5 2,767.7 2,772.8 2.764.9 2.770.9 2,771.6 2,780.4 6 Commercial and industrial 598.9 640.2 648.5 652.6 656.9 666.5 674.8 677.3 674.3 677.9 676.3 679.9 7 Real estate 1.167.6 1,208.9 1,224.2 1.238.1 1.246.5 1,248.3 1,247.9 1,250.1 1,252.7 1,249.0 1,246.8 1,250.2 8 Revolving home equity ... . 93.2 98.0 98.1 98.2 98.3 97.9 97.6 97.3 97.3 97.2 97.4 97.3 9 Other 1.074.4 1,110.9 1.126.1 1.140.0 1.148.2 1,150.4 1,150.4 1,152.8 1.155.4 1.151.8 1.149.5 1,152.9 10 Consumer 518.1 504.4 502.5 502.5 505.6 505.6 502.1 496.0 496.0 496.1 496.3 495.9 11 Security3 49.6 61.2 62.9 67.8 63.5 61.7 67.5 69.2 66.9 67.1 71.6 71.6 12 Other loans and leases 236.2 256.2 259.9 266.1 273.5 271.4 275.4 280.2 274.9 280.8 280.6 282.8 13 Interbank loans 166.1 173.2 175.0 195.6 191.8 180.6 193.2 190.5 184.7 196.7 187.2 189.1 14 Cash assets4 212.4 232.5 236.5 246.9 238.8 221.3 220.7 213.4 196.9 225.8 214.6 2149 15 Other assets5 243.5 251.3 252.5 248.7 262.8 270.4 271.6 269.7 265.5 274.7 268.3 270.4 16 Total assets6 3,990.3 4,182.9 4,221.1 4,291.3 4,298.4 4,297.1 4,316.3 4,316.5 4,276.8 4.340.4 4,314.7 4,327.1 Liabilities 17 Deposits 2,741.9 2,844.8 2,870.6 2,906.2 2,915.9 2,907.4 2,916.6 2.896.2 2,875.2 2.915 7 2,890.4 2,891.0 18 Transaction 678.8 670.9 678.3 687.7 685.9 677.2 672.7 654.7 629.1 667.7 653.8 666.1 19 Nontran.saction 2,063.1 2,173.9 2,192.3 2,218.4 2,230.1 2,230.1 2.244.0 2,241.5 2.246.1 2.248.0 2,236.6 2,224.9 20 Large time 346.9 383.6 386.8 399.8 393.3 390.2 391 5 382.9 384.4 381.5 383.8 380.4 11 Other 1,716.2 1.790.4 1,805.6 1,818.6 1,836.7 1,839.9 1,852.5 1.858.6 1.861.7 1.866.4 1.852.9 1,844.6 21 Borrowings 597.6 679.1 684.3 706.1 705.6 698.7 692.7 690.4 681.8 688.0 690.0 7047 23 From banks in the U.S 248.3 267.7 269.6 280.8 278.1 259.7 259.9 264.2 262.8 265.5 256.3 269.7 24 From others 349.3 411.5 414.7 425.3 427.5 439.0 432.8 426.2 419.0 422.5 433.7 435.0 25 Net due to related foreign offices 80.3 91.0 88.3 82.9 77.2 71.4 71.5 76.0 74.9 111 77.3 73.7 26 Other liabilities 184.2 197.6 199.5 196.7 199.4 202.1 209.2 217.4 216.3 219.0 214.2 220.7 27 Total liabilities 3,604.1 3,812.6 3,842.6 3,891.9 3,898.0 3,879.5 3,890.1 3,880.0 3,848.2 3,900.4 3,871.8 3,890.1 28 Residual (assets less liabilities)7 .... 386.2 370.3 378.5 399.4 400.4 417.6 426.2 436.4 428.6 440.1 442.8 437.1 Not seasonally adjusted Assets 29 Bank credit 3,417.1 3.592.6 3,611.5 3,647.6 3,666.9 3,675.5 3,686.4 3,691.2 3,687.4 3.692.3 3,685.9 3,695.0 30 Securities in bank credit 847.4 917.2 922.0 933.0 925.3 929.5 920.2 918.9 919.1 921 4 918.1 917.8 31 U.S. government securities 632.1 677.7 683.6 694.6 685.7 686.6 669.6 664.4 665.0 665.5 662.5 664.0 32 Other securities 215.2 239.5 238.4 238.4 239.6 242.9 250.6 254.5 254.1 255.9 255.6 253.8 33 Loans and leases in bank credit- .... 2,569.8' 2,675.4 2,689.5 2,714.5 2,741.6 2,7460 2.766.3 2,772.3 2,768.2 2,770.9 2,767.8 2,777.2 34 Commercial and industrial 598.8 637.0 647.3 655.5 664.4 6726 677.6 677.1 677.2 677.7 675.4 677.2 35 Real estate 1,169.6 1.209.0 1,218.7 1,231.6 1,240 2 1,242.1 1,245.7 1,252.4 1,254.6 1,252.1 1,248.5 1.252.8 36 Revolving home equity . . . 93.2 98.2 97.7 97.2 97 4 97.5 97.3 97.3 97.2 97.3 97.4 97.4 37 Other 1 (176 4 I.11O.8 1,121 0 1.H4 4 1.142.8 1,1446 1.148.4 1.155.1 1,157.3 1.154.8 1,151.1 1,155.4 38 Consumer 515.8 511.1 502.0 4960 500.6 500.3 499.3 494.1 492.6 493.5 494.5 495.5 39 Security3 48.5 61.3 64.2 67 9 65.6 61.8 67.6 67.7 65.4 66.1 69.4 70.1 40 Other loans and leases 237.1 257.0 257.3 263.6 270.8 269.2 276.1 281.0 278.4 281.6 280.0 281.6 41 Interbank loans 161.4 180.1 178.0 195.2 194.6 176.2 190.0 184.4 186.0 191.1 176.7 177.7 42 Cash assets4 208.2 243 5 237.2 236.4 235.8 217.2 214.6 209.1 200.3 222.6 201.5 208.4 43 Other assets5 244.9 249.3 252.2 248.6 263.2 269.4 270.8 271.4 268.7 275.3 268.5 272.5 44 Total assets6 3,975.2" 4,209.5 4,222.6 4,271.1 4,303.6 4,281.1 4,304.6 4,298.9 4,285.1 4,324.2 4,275.4 4,296.4 Liabilities 45 Deposits 2,736.4 2,852.9 2,860.0 2.895,7 2.917.0 2,888.1 2,906.9 2,890.5 2,895.3 2,912.1 2,864.9 2,870.2 46 Transaction 673.8 683.0 671.8 675.5 691.4 665.7 667.6 649.7 641.9 663.2 632.3 653.4 47 Nontransaction 2,062.6 2,169.9 2.188.3 2,220.2 2,225.6 2,222.5 2.239.3 2,240.8 2,253.4 2.248.8 2,232.6 2,216.8 48 Large time 345.8 382.9 387.1 395.2 389.1 388.5 389.1 381.8 382.7 380.5 382.7 379.7 49 Other 1,716.8 1.787.0 1.801.2 1,825.0 1,836.5 1,834.0 1.850.2 1,859.0 1,870.7 1,868.3 1.849.9 1,837.1 50 Borrowings . 600.4 685 6 684.9 697.9 705.5 704 2 700.0 692.2 682.2 691 8 692.7 705 6 51 From banks in the U.S 248.5 271.2 270.6 278.3 277.4 260.8 261.9 263.5 262.4 265.9 255.6 267.9 52 From others 351.9 414.4 414.3 419.6 428.1 443 4 418.1 4?8 7 419.8 425.9 437.1 437.6 53 Net due to related foreign offices .... 83.6 86.5 85.1 82.1 77.9 80.8 79.7 83.0 78.3 85.1 85.6 83.1 54 Other liabilities 184.2 197.6 199.5 196.7 199.4 202.1 209.2 217.4 216.3 219.0 214.2 220.7 55 Total liabilities 3,604.6 3,822.6 3,829.6 3,872.5 3,899.8 3,875.2 3,895.9 3,883.1 3,872.1 3,907.9 3,857.4 3,879.6 56 Residual (assets less liabilities)7 .... 370.5 3868 393.0 398.7 403.8 406.0 408.7 415.8 413.0 416.3 418.0 416.7 MEMO 57 Revaluation gains on off-balance-sheet items8 44.3 49.9 47.0 47.2 43.9 45.6 50.5 51.2 51.6 52.1 51.8 50.3 58 Revaluation losses on off-balancesheet items* 45.9 52.7 49.2 49.6 45.3 46.3 50.1 50.6 51.2 52.3 50.3 48.5 59 Mortgage-backed securities4 254.9 289.7 293.8 299.5 293.4 294.9 286.9 289.7 289.6 288.9 290.4 289.1 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A17 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued C. Large domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures Account 1997r 1998' 1998 July Jan. Feb. Mar. Apr. May June July July 8 July 15 July 22 July 29 Seasonally adjusted Assets 1 Bank credit 2,051.8 2,145.5 2,171.5 2,208.8 2,208.8 2,220.9 2,218.2 2,217.8 2,208.1 2,221.1 2,217.2 2,225.1 2 Securities in bank credit 453.9 502.0 507.8 519.5 506.7 515.6 507.8 509.8 505.2 512.8 512.1 511.6 3 U.S. government securities 318.1 355.0 361.6 369.7 356.4 359.9 346.5 345.1 343.4 346.2 344.3 346.5 4 Trading account 23.3 29.1 28.0 27.5 23.7 24.5 24.6 217 22.1 22.3 21.2 21.7 5 Investment account 294.8 325.9 333.6 342.2 332.7 335.4 321.9 323.4 321.3 324.0 323.2 324.8 6 Other securities 135.8 147.0 146.2 149.8 150.3 155.7 161.3 164.7 161.8 166.6 167.7 165.1 7 Trading account 68.4 69.6 67.5 70.9 69.4 74.4 78.3 79.8 76.8 81.2 82.5 80.7 8 Investment account 67.4 77.4 78.7 78.9 80.9 81.3 83.1 84.9 85.0 85.3 85.3 84.5 9 State and local government . 22.1 22.5 22.7 22.8 23.0 22.8 22.2 22.4 22.3 22.3 22.5 22.4 10 Other 45.3 54.9 56.0 56.2 57.9 58.5 60.9 62.5 62.7 63.1 62.8 62.0 11 Loans and leases in bank credit- .. . 1,597.9 1,643.6 1,663.7 1,689.3 1,702.1 1,705.4 1,710.3 1,707.9 1,702.9 1,708.3 1,705.1 1,713.5 12 Commercial and industrial 423.7 455.1 462.0 465.8 468.6 475.7 482.3 483.2 481.0 484.1 482.2 485.0 13 Bankers acceptances 1.6 1.2 1.2 1.3 1 2 1.3 1.2 13 1.3 12 1 3 12 14 Other 422.2 453.9 460.7 464.6 467.4 474.5 481.1 481.9 481.0 484.2 482.2 485.3 15 Real estate 649.5 651.2 661.2 672.7 676.9 676.6 669.6 665.7 670.0 666.2 661.0 664.2 16 Revolving home equity 65.6 68.6 68.6 68.9 69.2 68.6 68.0 67.5 67.6 67.5 67.4 67.5 17 Other 583.9 582.6 592.6 603.8 607.7 608.0 601.7 598.2 602.5 598.7 593.6 596.7 18 Consumer 307.4 294.5 293.0 294.5 298.5 298.1 294.8 289.4 289.7 290.0 288.9 289.0 19 Security1 45.3 55.6 57.1 61.6 57.2 55.9 61.4 63.3 60.9 61.1 65.9 65.9 20 Federal funds sold to and repurchase agreements with broker-dealers 28.6 39.4 41.2 43.7 39.7 37.6 42.9 44.8 42.9 42.4 47.3 47.0 21 Other 16.7 16.2 16.0 17.8 17.5 18.3 18.5 18.5 18.0 18.7 18.6 18.9 22 State and local government .... 11.3 11.4 11.4 11.2 11.2 11.3 11.2 11.1 11.1 11.2 11.1 11.1 23 Agricultural 9.1 9.5 9.5 9.6 9.6 9.7 9.6 9.6 9.4 9.5 9.6 9.7 24 Federal funds sold to and repurchase agreements with others 7.9 7.7 6.1 7.1 7.2 5.6 5.6 8.7 8.3 9.3 8.4 9.0 25 All other loans 68.0 74.3 78.1 79.6 82.5 80.0 82.2 82.3 78.5 82.6 83.1 84.2 26 Lease-financing receivables .... 75.8 84.2 85.3 87.3 90.3 92.5 93.4 94.8 94.0 94.3 94.9 95.4 27 Interbank loans 116.3 117.5 118.3 131.3 126.6 115.3 125.7 122.0 118.1 126.1 120.7 120.1 28 Federal funds sold to and repurchase agreements with commercial banks 72.2 77.0 69.5 81.0 75.1 64.2 73.1 66.9 63.2 70.8 66.1 64.6 29 Other 44.1 40.6 48.8 50.3 51.5 51.1 52.5 55.0 54.8 55.3 54.6 55.5 30 Cash assets4 145.6 161.2 164.4 174.0 165.0 147.5 146.3 140.7 128.3 150.2 142.2 141.3 31 Other assets5 182.6 188.4 188.3 185.7 196.5 201.9 199.4 196.5 194.6 197.9 195.1 198.2 32 Total assets6 2,459.1 2,575.9 2,605.6 2,662.7 2,659.6 2,6483 2,6523 2,639.8 2,611.7 2,658.1 2,638J 2,647.6 Liabilities 33 Deposits 1.511.7 1,561.3 1,580.8 1,609.1 1,611.5 1,595.9 1,592.5 1,568.9 1,556.1 1,583.5 1,564.7 1,562.4 34 Transaction 383.0 375.7 380.8 387.5 386.8 378.9 372.7 358.0 342.8 369.7 355.4 362.1 35 Nontransaction 1,128.7 1,185.6 1,200.0 1,221.5 1,224.7 1,217.0 1,219.8 1.210.9 1.213.3 1,213.8 1,209.4 1,200.3 36 Large time 188.6 213.7 214.7 227.3 219.5 214.8 216.2 210.0 211.5 208.4 210.5 208.0 37 Other 940.1 971.9 985.3 994.2 1,005.2 1,002.1 1,003.5 1,000.9 1,001.8 1,005.4 998.8 992.3 38 Borrowings 444.8 521.5 525.7 545.1 543.0 534.9 527.8 522.1 512.8 519.6 523.5 534.9 39 From banks in the U S 172.5 195.5 197.2 209.1 208.3 188.7 187.8 188.8 187.0 190.8 182.3 193.2 40 From others 272.3 326.0 328.4 335.9 334.7 346.2 340.1 333.2 325.8 328.8 341.3 341.7 41 Net due to related foreign offices 75.4 86.8 82.2 78.8 73.7 67.6 67.7 72.4 71.3 74.3 73.5 70.0 42 Other liabilities 158.6 169.4 170.7 166.8 169.0 171.3 178.4 185.7 185.7 187.0 182.0 188.7 43 Total liabilities 2,190.5 2338.9 23593 2399.8 2397.2 2369.7 2366.4 2349.1 2325.9 23644 2343.8 2356.0 44 Residual (assets less liabilities)7 .... 268.6 236.9 246.3 262.9 262.4 278.6 285.9 290.7 285.8 293.7 294.4 291.6 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Financial Statistics • October 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued C. Large domestically chartered commercial banks—Continued Monthly averages Wednesday figures Account 1997' 1998' 1998 July Jan. Feb. Mar. Apr. May June July July 8 July 15 July 22 July 29 Not seasonslly adjusted Assets 45 Bank credit 2,046.1 2,161.1 2,178.0 2,203.3 2,207.9 2,207.2 2,211.7 2,210.8 2,211.1 2,214.1 2,204.2 2,211.5 46 Securities in bank credit 448.1 509.4 516.4 521.5 510.3 512.2 504.5 502.8 503.2 505.8 501.9 501.5 47 U.S. government securities 316.4 355.1 363.4 371.1 361.1 360.6 346.2 342.9 343.0 344.1 341.2 342.8 48 Trading account 22.6 28.2 28.4 28.3 23.9 23.7 23.7 21.1 21.4 21.6 20.5 21.2 49 Investment account 293.8 326.9 334.9 342.8 337.3 336.9 322.5 321.7 321.6 322.5 320.7 321.6 50 Mortgage-backed securities . 192.1 220.5 223.1 227.7 221.3 221.0 212.6 214.0 213.6 213.1 214.1 214.3 51 Other 101.7 106.4 111.8 115.1 116.0 115.9 109.9 107.7 108.0 109.4 106.6 107.4 52 One year or less 27.4 27.3 29.2 30.0 31.2 29.7 29.8 28.7 28.9 29.7 27.8 28.2 53 One to five years 52.8 52.5 51.6 51.4 50.8 49.4 46.3 49.1 49.3 49.4 48.6 49.4 54 More than five years . .. 21.5 26.7 31.0 33.7 34.0 36.8 33.8 30.0 29.7 30.3 30.2 29.7 55 Other securities 131.7 154.3 153.0 150.3 149.2 151.5 158.3 159.9 160.1 161.7 160.6 158.7 56 Trading account 64.9 76.3 74.2 714 690 70.9 75 5 75 7 75 8 76.9 76.1 75.0 57 Investment account 66.9 78.0 78.8 79.0 80.2 80.6 82.9 84.3 84.3 84.8 84.5 83.7 58 State and local government .. 21.9 22.5 22.7 22.7 22.9 22.7 22.4 22.3 22.1 22.1 22.4 22.5 59 Other 44.9 55.6 56.1 56.3 57.3 57.9 605 620 62.2 62.7 62.1 61.2 60 Loans and leases in bank credit2 .. 1,598.0 1,651.7 1,661.6 1,681.8 1,697.6 1,695.0 1,707.3 1,708.0 1,707.9 1,708.4 1,702.4 1,710.0 61 Commercial and industrial 423.8 452.7 461.1 467.7 473.7 479.3 483.4 483.3 483.2 483.8 481.9 483.3 62 Bankers acceptances 1.5 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.3 1.2 1.3 1.2 63 Other 422.3 451.5 459.9 466.5 472.5 478.1 482.2 482.0 482.0 482.5 480.6 482.1 64 Real estate 651.4 654.3 659.5 668.4 671.0 668.8 666.8 668.0 672.7 6689 662.8 666.2 65 Revolving home equity 65.8 69.0 68.3 67.9 68.1 68.1 67.8 fill 67.7 67.7 67.7 67.7 66 Other 362.0 359.0 363.9 373.2 374.3 371.7 371.3 372.5 377.6 373.0 367.9 370.5 67 Commercial 223.6 226.3 227.4 227.3 228.6 228.9 227.7 227.7 227.4 228.2 227.3 227.9 68 Consumer 306.9 299.5 292.6 289.9 294.5 294.1 293.6 289.1 289.0 289.4 288.7 289.4 69 Security3 44.2 55.7 58.5 61.7 59.3 55.9 61.6 61.8 59.4 60.1 63.7 64.4 70 Federal funds sold to and repurchase agreements with broker-dealers .... 28.0 39.5 42.4 43.9 41.6 37.5 42.6 43.7 41.7 42.0 46.2 45.7 71 Other 16.2 16.2 16.0 17.8 17.7 18.4 19.0 18.0 17.7 18.1 17.5 18.7 72 State and local government . .. 11.2 11.3 11.4 11.2 11.1 11.2 11.2 11.1 11.1 11.1 11.1 11.1 73 Agricultural 9.4 9.4 9.1 9.2 9.3 9.5 9.7 9.9 9.8 9.9 10.0 10.0 74 Federal funds sold to and repurchase agreements with others 7.9 7.7 6.1 7.1 7.2 5.6 5.6 8.7 8.3 9.3 8.4 9.0 75 All other loans 67.8 75.0 76.7 78.7 81.5 78.8 82.4 82.0 80.6 82.0 81.5 82.0 76 Lease-financing receivables 75.4 86.0 86.6 87.9 90.1 91.8 93.0 94.3 93.9 94.0 94.3 94.6 77 Interbank loans 115.5 122.9 117.3 127.1 127.3 114.6 126.1 120.9 119.3 125.5 117.8 117.5 78 Federal funds sold to and repurchase agreements with commercial banks 71.5 80.9 68.7 77.7 76.2 63.9 73.5 66.2 64.6 70.5 63.3 62.7 79 Other 44.0 42.0 48.6 49.4 51.1 50.8 52.7 54.7 54.7 55.0 54.5 54.8 80 Cash assets4 142.0 171.1 165.3 165.2 162.6 143.5 141.2 137.0 129.1 148.1 132.3 136.5 81 Other assets5 182.6 188.4 188.3 185.7 196.5 201.9 199.4 196.5 194.6 197.9 195.1 198.2 82 Total assets6 2,449.0 2,607.0 2,612.1 2,6443 2,6573 2,630.0 2,641.1 2,628.1 2,616.9 2,648.4 2,6123 2 6263 Liabilities 83 Deposits 1,511.4 1,570.7 1 573 3 1,597.0 1,604.3 1,576.1 1,586.1 1,568.9 1 572 1 1,585.8 1,551.6 1,552.5 84 Transaction 380.7 385.4 377.7 378.3 388.8 369.4 369.3 355.8 350.6 368.3 342.6 356.0 85 Nontransaction 1,130.7 1,185.3 1,195.6 1,218.7 1,215.5 1,206.7 1,216.9 1,213.1 1,221.5 1,217.5 1,208.9 1,196.6 86 Large time 187.6 213.0 215.1 222.8 215.3 213.1 213.9 208.9 209.7 207.4 209.5 207.3 87 Other 943 1 972.3 980.5 995.9 1,000.3 993.6 1,003.0 1,004.2 1,011.8 1,010.1 999.4 989.3 88 Borrowings 447.7 527.0 528.1 540.1 544.8 540.0 534.7 523.9 514.5 524.0 525.7 534.4 89 From banks in the US 172.5 198.5 198.9 207.9 208.0 189.1 189.2 188.0 187.0 191.3 181.1 190.7 90 From nonbanks in the U.S 275.1 328.5 329.1 332.3 336.8 350.9 345.6 335.9 327.5 332.7 344.6 343.8 91 Net due to related foreign offices . . . 78.7 82.3 79.0 78.0 74.4 77.0 75.9 79.3 74.6 81.6 81.9 79.5 92 Other liabilities 158.6 169.4 170.7 166.8 169.0 171.3 178.4 185.7 185.7 187.0 182.0 188.7 93 Total liabilities 2,196.4 2349.5 2351.1 2382.0 23923 2364.5 2375.1 2357.8 2347.0 23783 2341.2 2355.2 94 Residual (assets less liabilities)' . . . 252.6 257.5 261.1 262.2 264.8 265.5 266.0 270.3 269.9 269.9 271.2 271.3 MEMO 95 Revaluation gains on off-balancesheet items'* 44.3 49.9 47.0 47.2 43.9 45.6 50.5 51.2 51.6 52.1 51.8 50.3 96 Revaluation losses on off-balance sheet items'* 45.9 52.7 49.2 49.6 45.3 46.3 50.1 50.6 51.2 52.3 50.3 48.5 97 Mortgage-backed securities9 210.1 238.8 242.6 247.7 241.1 241.9 233.9 236.4 236.2 235.7 237.1 236.0 98 Pass-through securities 144.6 163.0 165.2 169.8 165.2 164.6 156.7 156.8 156.5 156.2 157.2 157.3 99 CMOS, REMICs, and other mortgage-backed securities 65.5 75.8 77.3 77.9 75.9 77.3 77.2 79.6 79.8 79.5 79.9 78.7 100 Net unrealized gains (losses) on available-for-sale securities10 ... 1.3 3.0 3.3 2.9 3.0 2.8 3.2 3.5 3.7 3.4 3.6 3.4 101 Offshore credit to U.S. residents" . .. 33.7 35.5 36.2 35.2 35.5 36.0 36.1 35.3 35.5 35.7 34.9 35.2 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A19 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued D. Small domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures AccounI 1997 1998' 1998 July' Jan. Feb. Mar. Apr. May June July July 8 July 15 July 22 July 29 Seasonally adjusted Assets 1 Bank credit 1,373.0 1,436.7 1,442.0 1,448.0 1.4S3.3 1,461.3 1,4699 1,482.3 1,478.9 1,479.2 1,484.5 1.484.9 2 Securities in bank credil 400.4 409.4 407.7 410.2 409.4 413.1 412.6 417.4 416.9 416.6 418.0 418.0 3 U.S. government securities 317.0 324.1 322.3 322.4 319.5 322.7 320.8 322.8 322.9 322.5 323.0 322.9 4 Other securities 83.5 85.3 85.4 87.8 89.9 90.4 91.8 94.6 94.1 94.0 95.0 95.1 5 Loans and leases in bank credil- 972.5 1,027.3 1,034.3 1,037.8 1,043.8 1,048.1 1,057.4 1,064.8 1,062.0 1,062.6 1,066.5 1,066.9 6 Commercial and industrial 175.2 185.1 186.6 186.8 188.3 190.7 192.4 194.1 193.3 193.8 194.1 194.9 7 Real estate 518.1 557.7 563.0 565.4 569.5 571 7 578 3 5844 582 6 582 8 585 8 585.9 8 Revolving home equity 27.6 29.3 29.5 29.3 29.1 29.3 29.6 29.8 29.7 29/7 2ft9 29.8 9 Other 490.5 528.4 533.5 536.1 540.4 542.4 548.7 554.6 552.9 553.1 555.9 556.2 10 Consumer 210.7 209.9 209.5 208.0 207.1 207.5 207.3 206.6 206.3 206.1 207.5 206.9 11 Security3 4.3 5.5 5.7 6.2 6.3 5.9 6.0 5.9 6.1 6.0 5.7 5.7 12 Other loans and leases 64.2 69.1 69.6 71.4 72.7 72.4 73.3 73.7 73.7 73.9 73.4 73.4 13 Interbank loans 49.7 55.7 56.7 64.3 65.2 65.3 67.5 68.5 66.7 70.6 66.5 69.1 14 Cash assets4 66.8 71.1 72.1 72.9 73.8 73.7 74.4 72.8 68.6 75.6 72.4 73.6 15 Other assets^ 60.9 62.8 64.2 63.0 66.3 68.4 72.1 73.2 70.8 76.8 73.1 72.2 16 Total assets6 1,531.2 1,607.0 1,615.6 1,628.6 1,638.8 1,648.9 1,664.0 1,676.7 1,665.1 1,6823 1,6765 1,6795 Liabilities 17 Deposits 1,230.2 1,283.6 1,289.8 1,297.1 1,3(M,4 1,311.5 1,324.2 1,327.3 1.319.1 1,332.2 1,325.6 1,328.6 18 Transaction 295.9 295.2 297.5 300.2 299.1 298.3 300.0 296.8 286.3 298.1 298.4 304.0 19 Nontransaction 934.4 988.3 992.3 996.9 1.005.3 1.013.2 1,024.2 1,030.5 1.032.8 1.034.1 1,027.3 1,024.7 20 Large time 158.2 169.8 172.0 172.5 173.8 175.4 175.3 172.9 172.9 173.1 173.2 172.4 21 Other 776.1 818.5 820.3 824.4 831.5 837.7 849.0 857.7 859.9 861.0 854.0 852.3 22 Borrowings 152.8 157.6 158.7 161.0 162.6 163.8 1648 168 3 169.0 168.3 166.5 169.8 23 From banks in the US 75.8 72.2 72.4 71.6 69.7 71.0 72.1 75.4 75.8 74.6 74.1 76.5 24 From others 77.0 85.4 86.2 89.4 92 9 92 8 92 7 9\0 93 2 93 7 924 93 3 25 Net due to related foreign offices 4.9 4.2 6.1 4.1 3.5 3.8 3.8 3.6 3.6 3.5 3.7 3.6 26 Other liabilities 25.6 28.2 28.8 29.9 30.4 30.8 30.9 31.7 30.6 32.0 32.1 32.0 27 Total liabilities 1,413.6 1,473.6 1,4833 1,492.1 1,500.9 1,509.9 1,523.7 1530.9 15223 1536.0 1528.0 1534.1 28 Residual (assets less liabilities)7 117.6 133.4 132.3 136.5 137.9 139.0 140.3 145.8 142.8 146.4 148.5 145.5 Not seasonally adjusted Assets 29 Bank credit 1,371.0 1,431.5 1,433.5 1,444.3 1,458.9 1,468.3 1,474.7 1.480.4 1,476.3 1,478.2 1.481.7 1.483.6 30 Securities in bank credit 399.2 407.8 405.6 411.6 415.0 417.3 415.7 416.1 416.0 415.6 416.2 416.3 31 U.S. government securities 315.7 322.7 320.3 323.5 324.6 326.0 323.4 321.5 322.0 321.5 321.3 321.2 32 Other securities 83.5 85.1 85.4 88.0 90.4 91.3 92.2 94.6 94.0 94.2 95.0 95.1 33 Loans and leases in bank credit-1 .... 971.8 1,023.7 1,027.8 1,032.7 1,044.0 1,051.0 1,059.0 1,064.2 1.060.3 1.062.6 1,065.4 1.067.3 34 Commercial and industrial 175.0 184.3 186.2 187.7 190.7 193.3 194.1 193.9 194.0 193.9 193.5 193.9 35 Real estate 518.2 554.7 559.2 563.1 569.2 573.4 578.9 584.5 581.9 583.2 585.7 586.7 36 Revolving home equity 27.4 29.2 29.4 29.2 29.3 29.4 29.5 29.6 29.6 29.6 29.7 29.7 37 Other 490.7 525.4 529.8 533.9 540.0 544.0 549.4 554.8 552.3 553.6 556.0 557.0 38 Consumer 208.9 211.6 209.4 206.1 206.1 206.2 205.7 204.9 203.6 204.2 205.8 206.1 39 Security1 4.3 5.5 5.7 6.2 6.3 5.9 6.0 5.9 6.1 6.0 L 5.7 5.7 40 Other loans and leases 65.4 67.6 67.4 69.6 71.7 72.3 74.2 75.1 74.7 75.2 74.7 74.9 41 Interbank loans 45.9 57.2 60.7 68.1 67.3 61.6 63.9 63.5 66.7 65.6 58.9 60.2 42 Cash assets4 66.1 72.5 72.0 71.2 73.2 73.7 73.4 72.1 71.2 74.6 69.2 71.9 43 Other assets5 62.3 60.9 63.9 62.9 66.7 67.5 71.4 74.9 74.1 77.4 73.4 74.4 44 Total assets6 1,526.2 1,602.5 1,610.5 1,626.9 1,6463 1,651.1 1,663.4 lj670.8 1,6683 1,675.8 1,663.1 1,669.9 Liabilities 45 Deposits 1,225.0 1,282.2 1,286.8 1,298.7 1,312.8 1,312.0 1320 8 1,321.6 1,323.2 1,326.3 1,313.3 1,317.7 46 Transaction 293.1 297.6 294.1 297.2 302 7 296.2 298.4 294.0 291.3 294.9 289.7 297.4 47 Nontransaction 931.9 984.6 992.7 1,001.5 1,010.1 1,015.7 1,022.4 1,027.7 1,031.9 1,031.3 1,023.7 1,020.3 48 Large time 158.2 169.8 172.0 172.5 173.8 175.4 175.3 172.9 172.9 173.1 173.2 172.4 49 Other 773.7 814.7 820.6 829.0 836.3 840.3 847.2 854.8 858.9 858.2 850.4 847.9 50 Borrowings 152.8 158.5 156.9 157.8 160.7 164.2 165.3 168.3 167.7 167.7 167.0 171.1 51 From banks in the U.S 76.0 111 71.7 70.5 69.4 71.7 72.7 75.6 75.4 74.5 74.5 77.2 52 From others 76.8 85.9 85.2 87.3 91.3 92.5 92.6 92.8 92.3 93.2 92.5 93.9 53 Net due to related foreign offices 4.9 42 6.1 4.1 35 3.8 3.8 3.6 3.6 3.5 3.7 3.6 54 Other liabilities 25.6 28.2 28.8 29.9 30.4 30.8 30.9 31.7 30.6 32.0 32.1 32.0 55 Total liabilities 1,4082 1,4732 1,478.5 1,490.4 1,5073 1,510.7 1320.8 1,5253 1525.1 1529.4 1516.2 1524.4 56 Residual (assets less liabilities)7 117.9 129.3 132,0 136.4 139.0 140.4 142.6 145.5 143.2 146.4 146.9 145.4 MEMO 57 Mortgage-backed securities1' 44.8 50.9 51.2 51.8 52.3 53.0 53.0 53.3 53.3 53.2 53.3 53.1 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Financial Statistics • October 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 1998 1998 July Jan. Feb. Mar. Apr. May June July July 8 July 15 July 22 July 29 Seasonall; adjusted Assets 1 Bank credit 536.7 568.7' 568.6 565.? 557.7' 564.2' 567.9 574.0 570.9 563.1 571.7 585.4 2 Securities in bank credit 175.6 193.1 193.ff 197.2' 191.5' 194.0' 195.7 196.8 196.5 189.4 192.2 204.1 3 U.S. government securities 83.2 81.5 84.1 87.8 88.2 88.3 86.8 89.7 91.7 83.5 83.8 96.0 4 Other securities 92.5 111.7' 108.9 109.4' 103.3' 105.7' 108.9 107.0 104.8 105.9 108.3 108.1 5 Loans and leases in bank credit2 . .. 361.1 375.6 375.7 368.7 366.2 370.2 372.2 377.2 374.4 373.7 379.5 381.3 6 Commercial and industrial 221.2 223.3' 222.6' 220.4' 214.3' 213.6' 215.4 218.3 218.1 218.0 217.5 220.2 7 Real estate 28.9 26.5 25.9 24.6 23.7 23.1 22.9 23.1 22.5 23.4 23.2 23.3 8 Security3 44.6 54.8 54.8 49.0 51.7 58.1 58.6 59.6 56.3 56.9 63.5 61.4 9 Other loans and leases 66.4 710 72.4 74.7 76.5' 75.4' 75.2' 76.3 77.5 75.5 75.2 76.5 10 Interbank loans 188 28.0 248 20.9 20.9 20.8 23 3 21.6 21.3 18.3 21.9 25.3 11 Cash assets4 .... 33.8 32.9 32.6 34.1 35.3 34.5 35.1 34.7 34.7 35.4 33.9 34.8 12 Other assets5 43.9 40.4 42.2 42.7 42.8 41.8 40.5 39.7 39.2 39.6 39.5 40.5 13 Total assets6 633.0 669.7 668.0 6633r 6564r 661Jr 666J 669.8 665.9 656.2 666.8 685.7 Liabilities 14 Deposits 263.2 273.5 284.8 288.9 292.4 294.3 3020 295.8 299.1 292.0 292.3 297.0 15 Transaction 10.6 10.2 10.1 10.6 11.1 10.6 10.7 12.9 17.0 11.7 11.8 11.5 16 Nontransaction 252.7 263.3 274.7 278.3 281.3 283.8 291.3 282.9 282.1 280.3 280.5 285.5 17 Borrowings 144.0 149.7 144.8 154.1 169.1 168.4 173.5 176.4 165.2 176.9 178.9 181.1 18 From banks in the US 31.9 23.5 22.6 25.8 26.6 23.8 32.1 28.8 23.9 32.0 29.9 28.5 19 From others 112.2 126.2 122.2 128.3 142.5 144.5 141.4 147.6 141.3 144.9 149.0 152.6 20 Net due to related foreign offices 133.6 139.6 134.7 118.5 98.3 97.0" 93.2 102.9 113.4 94.9 101.2 104.0 21 Other liabilities 99.2 96.2 97.4 94.0 90.2 93.5 94.7 97.5 94.4 95.2 96.0 102.5 22 Total liabilities 640.1 659.1 661.7 655.5r 650.0 653.2r 6634 672.6 672.1 659.0 668.4 684.6 23 Residual (assets less liabilities)7 -7.1 10.7' 6.3 7.8' 6.4' 8.0 3.1 -2.8 -6.3 -2.8 -1.6 1.1 Not seasonally adjusted Assets 24 Bank credit 539.3 565.6' 568.1 565.6 557.5' 565.8' 570.9 577.1 573.0 565.7 574.8 589.3 25 Securities in bank credit 178.2 187.8' \90.(f 195.3 193.01 197.9 198.8 199.5 198.5 190.9 195.0 208.5 26 U.S. government securities 83.0 79.5 83.3 88.5 86.8 88.9 86.9 89.4 91.1 82.7 84.1 95.9 27 Trading account 16.0 14.6 14.1 17.6 18.3 20.4 18.2 24.3 23.5 17.7 20.1 32.8 28 Investment account 67.ff 64.? 69.2' 70.? 68.6' 68.5' 68.7' 65.1 67.6 65.0 64.0 63.1 29 Other securities 95.3 108.3' 106.7' 106.8 106.2 109.0 111.9 110.2 107.4 108.2 110.9 112.6 30 Trading account 56.0 63.4' 62.0' 60.4' 59.1' 60.8' 64.3' 64.7 64.2 63.7 63.8 66.0 31 Investment account 39.3' 44.? 44.7' 46.3' 47.2' 48.2' 47.6' 45.5 43.2 44.5 47.1 46.7 32 Loans and leases in bank credit2 .. . 361.1 377.8 378.1 370.3 364.5 367.9 372.1 377.5 374.5 374.8 379.8 380.8 33 Commercial and industrial 221.0 224.1 223.7' 221.0 214.4' 213.0" 215.4' 218.0 217.7 218.0 217.5 219.5 34 Real estate 28.6 26.5 26.1 24.7 23.5 23.0 227 22.9 22.3 23.1 23.0 22.9 35 Security1 44.0 54.9 55.0 49.7 51.1 57.7 58.5 59.1 55.7 56.5 62.7 60.9 36 Other loans and leases 67.4 72.2' 73.4 74.? 75.6 74.3' 75.6 77.5 78.8 77.2 76.5 77.3 37 Interbank loans 18.8 28.0 24.8 20.9 20.9 20.8 23.3 21.6 21.3 18.3 21.9 25.3 38 Cash assets4 33.7 32.8 32.0 33.0 33.6 34.2 36.1 34.6 34.8 35.2 33.4 34.8 39 Other assets5 43.3 40.8 43.7 42.7 40.5 42.3 39.6 39.3 38.1 39.1 39.0 40.6 40 Total assets6 634.9 667.0r 668.4' 661.9 6523 662.9r 669.6 6723 667.1 658.1 668.8 689.6 Liabilities 41 Deposits 261.3 271.6 282.5 290.1 290.7 297.1 303.8 294.0 294.9 290.3 290.6 297.3 42 Transaction 10.7 10.1 9.9 10.5 10.7 10.3 10.8 13.1 17.2 11.9 11.8 11.6 43 Nontransaclion 250.6 261.4 272.6 279.6 280.0 286.8 293.0 281.0 277.7 278.4 278.8 285.8 44 Borrowings 144.0 149.7 144.8 154.1 169.1 168 4 173.5 176.4 165.2 176.9 178.9 181.1 45 From banks in the US 31.9 23.5 22.6 25.8 26.6 23.8' 32.1 28.8 23.8 32.1 29.9 28.5 46 From others 1122 126.2 122.2 128.3 142.5 144.5 141.4 147.6 141.4 144.8 149.0 152.6 47 Net due to related foreign offices .... 129.6 144.5 136.0 117.6 96.9 98.0 924 99.3 108.8 91.3 97.9 102.5 48 Other liabilities 98.3 96.3 98.5 94.2 89.3 92.9 93.8 96.7 93.2 94.4 95.2 102.3 49 Total liabilities 6333 662.0 661.9 656.1 646.0r 656.4 663.6 666.5 662.1 65Z9 662.6 6833 50 Residual (assets less liabilities)' 1.6 5ff 6.5' 5.9 6.2' 6.5 6.0 5.8 5.0 5.2 6.2 6.3 MEMO 51 Revaluation gains on off-balance-sheet items8 45.2 43.2 40.4 40.0 39.4 39.7 41.5 41.0 41.4 40.5 39.7 41.8 52 Revaluation losses on off-balancesheet items8 46.1 42.9 40.6 39.8 39.0 38.4 40.3 40.0 40.5 39.3 38.7 41.0 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A21 NOTES TO TABLE 1.26 NOTE. Tables 1.26, 1.27. and 1.28 have been revised to reflect changes in the Board's H.8 group that contained the acquired bank and put into past data for the group containing the statistical release, "Assets and Liabilities of Commercial Banks in the United States." Table acquiring bank. Balance sheet data for acquired banks are obtained from Call Reports, and a 1.27, "Assets and Liabilities of Large Weekly Reporting Commercial Banks," and table 1.28, ratio procedure is used to adjust past levels. "Large Weekly Reporting U.S. Branches and Agencies of Foreign Banks," are no longer 2. Excludes federal funds sold to, reverse RPs with, and loans made to commercial banks being published in the Bulletin. Instead, abbreviated balance sheets for both large and small in the United States, all of which are included in "Interbank loans." domestically chartered banks have been included in table 1.26, parts C and D. Data are both 3. Consists of reverse RPs with brokers and dealers and loans to purchase and carry merger-adjusted and break-adjusted. In addition, data from large weekly reporting U.S. securities. branches and agencies of foreign banks have been replaced by balance sheet estimates of all 4. Includes vault cash, cash items in process of collection, balances due from depository foreign-related institutions and are included in table 1.26. part E. These data are break- institutions, and balances due from Federal Reserve Banks. adjusted 5. Excludes the due-from position with related foreign offices, which is included in "Net The no(-seasonally-adjusted data for all tables now contain additional balance sheet items, due to related foreign offices." which were available as of October 2, 1996. 6. Excludes unearned income, reserves for losses on loans and leases, and reserves for 1. Covers the following types of institutions in the fifty states and the District of transfer risk. Loans are reported gross of these items. Columbia: domestically chartered commercial banks that submit a weekly report of condition 7. This balancing item is not intended as a measure of equity capital for use in capital {large domestic), other domestically chartered commercial banks (small domestic); branches adequacy analysis On a seasonally adjusted basis this item reflects any differences in the and agencies of foreign banks, and Edge Act and agreement corporations (foreign-related seasonal patterns estimated for total assets and total liabilities. institutions). Excludes International Banking Facilities. Data are Wednesday values or pro 8. Fair value of derivative contracts (interest rate, foreign exchange rate, other commodity and rata averages of Wednesday values. Large domestic banks constitute a universe; data for equity contracts) in a gain/loss position, as determined under FASB Interpretation No. 39. small domestic banks and foreign-related institutions are estimates based on weekly samples 9. Includes mortgage-backed securities issued by U.S. government agencies, U.S. and on quarter-end condition reports. Data are adjusted for breaks caused by ^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 adjustment for restated to include an estimate of these tax effects. mergers changes past levels to make them comparable with current levels. Estimated 11. Mainly commercial and industrial loans but also includes an unknown amount of credit quantities of balance sheet items acquired in mergers are removed from past data for the bank extended to other than nonfinancial businesses. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A22 Domestic Financial Statistics • October 1998 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December 1998 D 19 e 9 c 3 . 1 D 9 e 9 c 4 . D 19 e 9 c 5 . D 19 e 9 c 6 . D 19 e 9 c 7 . Apr. May Commercial paper (seasonally adjusted unless noted otherwise) 1 All issuers 555,075 595,382 674,904 775,371 966,699 973,761 1,004,662 1,049,222 1,041,681 1,053,995 1,091,554 Financial companiess'' 2 Dealer-placed paper2, total . . . 218.947 223,038 275,815 361,147 513,307 509.950 520,940 550,670 558.817 569,065 597,193 3 Directly placed paper , total. . 180,389 207,701 210,829 229,662 252.536 254.926 268,001 282,083 275,415 274,469 276,476 4 Nonfinancial companies4 155.739 164,643 208,886 215,721 207,449 210,460 217,885 Bankers dollar acceptances (not seasonally adjusted)5 5 Total. 32348 29,835 29,242 25,754 By holder 6 Accepting banks 12,421 11,783 7 Own bills 10,707 10,462 8 Bills bought from other banks . 1,714 1,321 Federal Reserve Banks6 9 Foreign correspondents 725 410 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 [00 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. Jn 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 te age Period Av r e a r te age 1995—Jan. 1 8.50 1995 8.83 1996—Jan 8.50 1997—Jan 8.25 Feb. 1 9.00 1996 8.27 Feb 8.25 Feb 8.25 Julv 7 8.75 1997 8.44 Mar 8.25 Mar. 8.30 Dec. 20 8.50 Apr 8.25 Apr. 8.50 1995—Jan 8.50 May 8.25 May 8.50 1996—Feb. 1 8.25 Feb 9.00 June 8.25 June 8.50 Mar 9.00 July 8.25 July 8.50 1997—Mar. 26 8.50 Apr 9.00 Aug 8.25 Aug 8.50 May 9.00 Sepl 8.25 Sept 8.50 June 9.00 Oct 8.25 Oct 8.50 July 8.80 Nov 8.25 Nov 8.50 Aug 8.75 Dec 8.25 Dec 8.50 Sept 8.75 Oct 8.75 1998—Jan 8.50 Nov 8.75 Feb 8.50 Dec 8.65 Mar. 8.50 Apr. 8.50 May 8.50 June 8.50 July 8.50 Aug 8.50 1. The prime rate is one of several base rates that banks use to price short-term business Report. Data in this table also appear in the Board's H.15 (519) weekly and G.13 (415) loans. The table shows the date on which a new rate came to be the predominant one quoted monthly statistical releases. For ordering address, see inside front cover. by a majority of the twenty-five largest banks by asset size, based on the most recent Call Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A23 1.35 INTEREST RATES Money and Capital Markets Percent per year; figures are averages of business day data unless otherwise noted 1998 1998. weekending Item 1995 1996 1997 Apr. May June July July 3 July 10 July 17 July 24 July 31 MONEY MARKET INSTRUMENTS 1 Federal funds1'2"1 5.83 5.30 5.46 5.45 5.49 5.56 5.54 5.88 5.47 5.49 5.50 5.54 2 Discount window borrowing24 5.21 5.02 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Commercial paper' 6 Nontinanciat 3 1-month n.a. n.a. 5.57 5.49 5.49 5.51 5.51 5.53 5.50 5.50 5.51 5.52 4 2-month n.a. n.a 5.57 5.48 5.49 5.50 5.50 5.53 5.50 5.50 5.50 5.50 5 3-month n.a. n.a. 5.56 5.46 5.48 5.48 5.48 5.48 5.48 5.48 5.48 5.50 Financial 6 1-month n.a. n.a. 5.59 5.51 5.50 5.53 5.52 5.55 5.52 5.51 5.52 5.54 7 2-monlh n.a. n.a. 5.59 5.49 5.50 5.52 5.51 5.54 5.51 5.51 5.51 5.5! 8 3-month n.a. n.a. 5.60 5.48 5.50 5.50 5.50 5.51 5.50 5.50 5.50 5.51 Commercial paper (historical) ' ' 9 1-month 5.93 5.43 5.54 n.a. n.a. n.a. n.a. n.a n.a. n.a. n.a. n.a. 10 3-monlh 5.93 5.41 5.58 n.a. n.a. n.a n.a. n.a. n.a. n.a. n.a. n.a. 11 6-month 5.93 5.42 5.62 Finance paper, directly placed (historical)3'5'7'8 12 1 -month 5.81 5.31 5.44 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 13 3-month 5.78 5.29 5.48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a 14 6-month 5.68 5.21 5.48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Bankers acceptances*^^ 15 3-month 5.81 5.3) 5.54 5.48 5.48 5.50 5.50 5.53 5.50 5.50 5.49 5.49 16 6-month 5.80 5.31 5.57 5.44 5 44 5.47 5 46 5.48 5.45 5.49 5.44 5.46 Certificates of deposit, secondary rnarkep*0 [7 1-month 5.87 5.15 5.54 5.56 5.56 5.57 5.57 5.59 5.56 5.57 5.57 5.57 18 3-month 5.92 5.39 5.62 5.58 5.59 5.60 5.59 5.60 5.59 5.59 5.59 5.60 19 6-month 5.98 5.47 5.73 5.63 5.67 5.65 5.65 5.67 5.64 5.64 5.65 5.65 20 Eurodollar deposits, 3-month3'11 5.93 5.38 5.61 5.56 5.57 5.57 5.57 5.59 5.56 5.56 5.56 5.56 US. Treasury bills Secondary market3 5 21 3-month 5.49 5.01 5.06 4.95 5.00 4.98 4.96 4 94 4.94 5.01 4.96 4 95 22 6-month 5.56 5.08 5.18 5.06 5.14 5.12 5.03 5.03 5.02 5.04 5.04 5.01 23 1-year 5.60 5.22 5.32 5.10 5.16 5.13 5.08 5.10 5.07 5.08 5.08 5.09 Auction average3'5'12 24 3-month 5.51 5.02 5.07 5.00 5.03 4.99 4.96 5.00 4.96 4.98 4.95 4.92 25 6-month 5.59 5.09 5.18 5.08 5.15 5.12 5.03 5.06 5.01 5.03 5 05 5.02 26 1-year 5.69 5.23 5.36 5.12 5.15 5.13 5.10 n.a. n.a. n.a. 5.10 n.a. U.S. TREASURY NOTES AND BONDS Constant maturities* 27 1 -year 5.94 5.52 5.63 5.38 5.44 5.41 5.36 5.38 5.34 5.36 5.36 5.37 28 2-year 6.15 5.84 5.99 5.56 5.59 5.52 5.46 5.48 5.43 5.46 5.47 5.48 29 3-year 6.25 5.99 6.10 5.58 5.61 5.52 5.47 5.49 5.44 5.48 5.47 5.48 30 5-year 6.38 6.18 6.22 5.61 5.63 5.52 5.46 5.46 5.41 5.47 5.47 5.51 31 7-year 6.50 6.34 6.33 5.70 5.72 5.56 5.52 5.51 5.47 5.54 5.52 5.56 32 10-year 6.57 6.44 6.35 5.64 5.65 5.50 5.46 5.44 5.41 5.49 5.46 5.50 33 20-year 6.95 6.83 6.69 6.00 6.01 5.80 5.78 5.73 5.71 5.82 5.79 5.83 34 30-year 6.88 6.71 6.61 5.92 5.93 5.70 5.68 5.63 5.61 5.71 5.68 5.73 Composite 35 More than 10 years (long-term) 6.93 6.80 6.67 5.98 5.99 5.78 5.76 5.71 5.69 5.80 5.77 5.81 STATE AND LOCAL NOTES AND BONDS Mood\'s series** 36 Aaa 5.80 5.52 5.32 5.00 5.04 4.97 5.00 4.98 5.04 4.98 5.00 4.98 37 Baa 6.10 5 79 5.50 5.21 5.25 5.08 5.12 5.08 5.14 5.08 5.13 5.15 38 Bond Buyer series15 5.95 5.76 5.52 5.23 5.20 5.12 5.14 5.09 5.12 5.17 5.16 5.16 CORPORATE BONDS 39 Seasoned issues, all industries16 7.83 7.66 7.54 6.99 6.98 6.83 6.84 6.81 6.79 687 6.85 6.89 Rating group 40 Aaa * 7.59 7.37 7.27 6.69 6.69 6.53 6.55 6.51 6.48 6.58 6.56 6.60 41 Aa 7.72 7.55 7.48 6.90 6.91 6.78 6.78 6.75 6.72 6.81 6.79 6.82 42 A 7.83 7.69 7.54 7.03 7.03 6.88 6.89 6.87 6.85 6.92 6.90 6.93 43 Baa 8.20 8.05 7.87 7.33 7.30 7.13 7.15 7.11 7.09 7.17 7.15 7.20 44 A-rated, recently offered utility bonds17 7.86 7.77 7.71 7.10 7.16 6.98 6.93 6.87 6.89 6.98 6.92 7.04 MEMO Dividend-price ratio*8 45 Common stocks 2.56 2.19 1.77 1.43 1.45 1.45 1.39 1.39 1.37 1.37 1.38 1 43 1. The daily effective federal funds rale is a weighted average of rates on trades through 13. Yields on actively traded issues adjusted to constant maturities. Source: U.S. Depart- New York brokers. ment of the Treasury. 2. Weekly figures are averages of seven calendar days ending on Wednesday of the current week; monthly figures include each calendar day in the month. 3. Annualized using a 360-day year for bank interest. 4. Rate for the Federal Reserve Bank of New York. l rating. Based on Thursday figures. 5. Quoted on a discount basis. 166 . Dailyy figgures 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 lonngg--tteerrmm bboonnddss. 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. WeekJy 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 Digitizedfo fr oinrd FicaRtioAn SpuErpRos es only. G.13 (415) monthly statistical releases. For ordering address, see inside front cover. http://frase12r.. sAtluoctuioins fdeatde .foorr gda/i ly data; weekly and monthly averages computed on an issue-date basis. Federal Reserve Bank of St. Louis

A24 Domestic Financial Statistics • October 1998 1.36 STOCK MARKET Selected Statistics 1997 1998 Indicator 1995 1996 1997 Nov. Dec. Jan. Feb. Mar. Apr. May June July Prices and trading volume (averages of daily figures)1 Common stock prices (indexes) 1 New York Stock Exchange (Dec. 31, 1965 = 50) 291 18 357.98 456.99 492.14 504.66 504.13 532.15 560.70 578.05 574.46 569.76 586.39 2 Industrial 367.40 453.57 574.97 615.65 623.57 624.61 660.91 693.13 711.89 712.39 731.01 718.54 3 Transportation 270.14 327.30 415.08 453.56 461.04 458.49 485.73 508.06 523 73 505.02 492.98 503.89 4 Utility 110.64 126.36 143.87 153.53 165.74 146.25 170.96 191.67 207.32 198.25 188.26 189.95 5 Finance 2.18.48 303.94 424.84 465.35 490.30 479.81 508.97 539.47 563.07 551.28 548.57 579.67 6 Standard & Poor's Corporation (1941-43 = 10): 541.72 670.49 873.43 938.92 962.37 963.36 1.023.74 1,076.83 1,112.20 1,108.42 1,108.39 1,156.58 7 American Stock Exchange (Aug. 31, 1973 = 50V1 498.13 570.86 628.34 674.37 667.89 665.72 685.73 722.37 742.33 735.02 704.59 724.83 Volume of trading (thousands of shares) 8 New York Stock Exchange 345,729 409,740 523,254 531,449 541,134 632,895 610,958 619,366 647,110 569,239 605,576 639,744 9 American Stock Exchange 20,387 22,567 n.a. 27,741 27,624 28,199 26,808 28.943 29,544 27,004 25,447 26.473 Customer financing (millions of dollars, end-of-period balances) 10 Margin credit at broker-dealers4 76,680 97,400 126,090 127,330 126,090 127,790 135,590 140,340 140,240 143,600 147,700' 154,370 Free credit balances at brokers 11 Margin accounts6 16,250 22.540 31,410 26,735 31,410 29,480 27,450 27,430 28,160 26,200 29,840' 31,820 12 Cash accounts 34,340 40,430 52,160 45,470 52,160 48,620 48,640 51,340 51,050 47,770 51,205 53,780 Margin requirements (percent of market value and effective date)7 Mar. 11, 1968 June 8, 1968 May 6. 1970 Dec. 6, 1971 Nov. 24, 1972 Jan. 3, 1974 13 Margin stocks 70 80 65 55 65 50 14 Convertible bonds 50 60 50 50 50 50 15 Short sales 70 80 65 55 65 50 1. Daily data on prices are available upon request to the Board of Governors. For ordering 6. Series initiated in June 1984. address, see inside front cover. 7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant 2. In July ] 976 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 rehased its index, effectively cutting Board. Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May 1, previous readings in half. 1936, Regulation G, effective Mar. 11, 1968; and Regulation X, effective Nov I. 1971. 4. Since July 1983, under the revised Regulation T, margin credit al 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 m 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 1998 1995 1996 1997 Feb. Mar. Apr. May June July US. budget' 1 Receipts, total 1,351,830 1,453.062 1,579,292 97,952 117,930 261,002 95,278 187,860 119,723 2 On-budget 1,000,751 1,085,570 1,187,302 65,051 80.647 216,988 61,790 144,973 87,820 3 Off-budget 351,079 367,492 391,990 32,901 37,283 44,014 33,488 42,887 31,903 4 Outlays, total 1,515,729 1,560,512 1.601,235 139,701 131,743 136,400 134,057 136,754 143,807 5 On-budget 1,227,065 1,259,608 1,290,609 109,393 101,967 108,569 102,381 125,606 115,714 6 Off-budget 288,664 300,904 310,626 30,309 29,775 27,830 31,676 11,148 28,094 7 Surplus or deficit (-), total -163,899 -107,450 -21,943 -41,750 -13,813 124,603 -38,779 51,106 -24,084 8 On-budget -226,314 -174,038 -103,307 -44,342 -21,320 108,419 -40,591 19,367 -27,894 9 Off-budget 62,415 66,588 81,364 2,592 7,508 16,184 1,812 31,739 3,809 Source of financing (total) 10 Borrowing from the public 171,288 129.712 38,171 30,565 20,137 -60,587 -8,597 -12,618 -16,370 11 Operating cash (decrease, or increase (-)) -2,007 -6,276 604 24,027 -11,352 -60.398 51,899 -36,144 36,210 12 Other2 -5,382 -15,986 -16,832 -12,842 5,028 -3,618 -4,523 -2,344 4,244 MEMO 13 Treasury operating balance (level, end of period) 37,949 44,225 43,621 16,280 27,632 88,030 36,131 72,275 36,065 14 Federal Reserve Banks 8,620 7,700 7,692 5,037 5,490 28,014 5,693 18,140 4,648 15 Tax and loan accounts 29,329 36,525 35,930 11,243 22,141 60,016 30,438 54,135 31,417 1. Since 1990. off-budget items have been the social security trust funds (federal old-age net gain or loss for U.S. currency valuation adjustment; net gain or loss for IMF loansurvivors insurance and federal disability insurance) and the U.S. Postal Service. valuation adjustment; and profit on sale of gold. 2. Includes special drawing rights (SDRs); reserve position on the U.S. quota in the SOURCE. Monthly totals: U.S. Department of the Treasury, Monthly Treasury Statement of International Monetary Fund (IMF); loans to the IMF; other cash and monetary assets; Receipts and Outlays of the U.S, Government; fiscal year totals: U.S. Office of Management accrued interest payable to the public; allocations of SDRs; deposit funds; miscellaneous and Budget, Budget of the U.S. Government. liability (including checks outstanding) and asset accounts; seigniorage; increment on gold; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A26 Domestic Financial Statistics • October 1998 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS' Millions of dollars Fisca year Calendar year Source or type 1996 1997 1998 1998 1996 1997 H2 HI H2 HI May June July RECEIPTS 1 AH sources 1,453,062 1,579,292 707,552 845,527 773,812 922,632 95,278 187,860 119,723 2 Individual income taxes, net 656,417 737,466 323.884 400,436 354,072 447,514 29,974 81,587 58,969 3 Wilhheld 533,080 580,207 279,988 292,252 306,865 316,309 49,854 48.501 57,486 4 Nonwithheld 212,168 250,753 53,491 191,050 58.069 219,136 4,196 35,135 4,001 5 Refunds ... . 88,897 93,560 9.604 82,926 10,869 87,989 24,086 2.060 2,520 Corporation income taxes 6 Gross receipts 189,055 204,493 95,364 106,451 104,659 109.353 4,706 41,098 5,808 7 Refunds 17211 22.198 10,053 9.635 10,135 14.220 1,447 1,313 1,736 8 Social insurance taxes and contributions, net ... 509,414 539,371 240,326 288.251 260.795 312,713 51.239 55,468 43,817 9 Employment taxes and contributions 476,361 506,751 227,777 268.357 247,794 293,520 42,560 54,807 41,130 10 Unemployment insurance 28,584 28,202 10,302 17,709 10,724 17,080 8,273 292 2,301 11 Other net receipts"1 4,469 4,418 2,245 2,184 2,280 2,112 406 369 385 12 Excise taxes 54,014 56,924 27,016 28.084 31,132 29,922 4.841 5,370 6,127 13 Customs deposits 18,670 17,928 9,294 8.619 9.679 8,546 1,297 1,568 1,777 14 Estate and gift taxes 17,189 19,845 8,835 10,477 10.262 12,971 1,845 1,775 1,825 15 Miscellaneous receipts4 25,534 25,465 12.889 12,866 13.348 15,837 2,823 2.307 3,135 OUTLAYS 16 All types 1,560^12 1,601,235 800,177 797,418 824,370 815,886 134,057 136,754 143,807 17 National defense 265,748 270,473 139,402 132,698 140,873 129,351 23,212 22,329 25,865 18 International affairs 13.496 15,228 8,532 5,740 9,420 4,610 720 347 815 19 General science, space, and technology 16,709 17.174 8,260 8.938 10.040 9,426 1,548 1,657 1.711 20 Energy 2,844 1,483 695 803 411 957 42 661 122 21 Natural resources and environment 21,614 21,369 10,307 9,628 11,106 10,051 1,574 1,964 2.217 22 Agriculture 9,159 9,032 11,037 1,465 10,590 2,387 -451 140 176 23 Commerce and housing credit -10,472 -14,624 -5,899 -7,575 -3,526 -2,483 791 -20 -1,223 24 Transportation 39,565 40.767 21,512 16.847 20,414 16,196 2,746 3,127 3 327 25 Community and regional development 10,685 11,005 5,498 5,678 5.749 4,863 873 914 917 26 Education, training, employment, and social services 52,001 53,008 27.524 25,080 26.851 25.928 2.798 4,237 3,645 27 Health 119,378 123,843 61,595 61,809 63.552 65,053 10,419 11,602 11,033 28 Social security and Medicare 523,901 555,273 269,412 278.863 283.109 286,305 46.831 51.569 51,109 29 Income security 225.989 230.886 107,631 124,034 106.353 125,196 18,705 14.554 21,198 30 Veterans benefits and services 36,985 39,313 21,109 17,697 22,077 19,615 3,604 3,355 4,958 31 Administration of justice 17,548 20,197 9,583 10,670 10,212 11,287 1,781 2,241 2.256 32 General government 11,892 12,768 6,546 6.623 7,302 6,139 925 2,080 308 33 Net interest5 241,090 244,013 122,573 122.655 122,620 122,345 20,855 19,407 20,791 34 Undistributed offsetting receipts6 -37.620 -49,973 -25,142 -24,235 -22,795 -21,340 -2,916 -3,408 -5,416 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. Fisca! 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. Renth and royalties for the outer continental shelf, U.S. government coniributions for been fully distributed across months. employee retirement, and certain assei sales. 2. Old-age, disability, and hospital insurance, and railroad retirement accounts. SOURCE. Fiscal year totals: U.S. Office of Management and Budget. Budget of the 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 U.S. 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 30 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 5,573 5,578 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 5,073 5,137 5,237 5,294 5.290 5.328 5,416 5,456 5,460 10 Other debt' 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 i. Consists of guaranteed debt of U.S. Treasury and other federal agencies, specified SOURCE. U.S. Department of the Treasury, Monthly Statement of the Public Debt of the participation certificates, notes to international lending organizations, and District of Colum- United States and Treasury Bulletin. bia stadium bonds. 1.41 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership Billions of dollars, end of period Type and holder Q3 Q4 Ql Q2 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 5,3(7.2 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 510.3 521.2 555.0 587.3 576.2 587.3 598.7 598.7 7 Inflation-indexed notes and bonds n.a. n.a. n.a. 33.0 24 4 33.0 41.5 50.1 8 Nonmarketable2 1,643.1 1,657.2 1,857.5 2,038.1 1,967.9 2,038.1 2,068.2 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 Foreign issues' 42.5 40.8 37.4 36.2 34.9 36.2 35.4 36.0 II Government 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 . . 177.8 181.9 182.4 181.2 182.7 181.2 181.2 180.7 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 holder' 16 U.S. Treasury and other federal agencies and t 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 88.9 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 treasuries*1'7 541.0 469.6 482.5 493.0 486.6 493.0 494.6 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 international 688.7 862.2 1,135.6 1.278.0 1,266.0 1,278.0 1,288.0 27 Other miscellaneous investors79 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 of 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- States. 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; data for other groups are Treasury estimates. SOURCE. U.S. Treasury Department, data by type of security, Monthly Statement of the 6. Includes state and local pension funds. Public Debt of the United Slates; data by holder. Treasury Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A28 Domestic Financial Statistics • October 1998 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions1 Millions of dollars, daily averages 1998 1998. week ending Apr. May June July 1 July 8 July 15 July 22 July 29 OUTRIGHT TRANSACTIONS2 By type of security 1 U.S. Treasury bills 38,290 31,384 30,868 27,119 31,816 29,497 26,696 Coupon securities, by maturity 2 Five years or less 112,975 115,270 111,622 119,962 95,567 137,966 105,264 100,451 66,195 74,522 76,811 90,646 3 More than five years 65,132 75,845 78,005 74,041 79.855 97,329 66,052 69,451 52,599 59,598 61,994 59,517 4 Inflation-indexed 370 2.753 1.321 786 638 Federal agency 1,720 673 651 559 791 362 1,163 5 Discount notes 40,697 39,706 34,584 33,072 33,516 Coupon securities, by maturity 39,114 35,571 37,154 36.576 34,742 35,005 40,923 6 One year or less 1,430 7 More than one year, but less than 1,620 1,290 1,746 2.398 1,406 1,741 1,101 or equal to five years 2.676 2,320 2,391 2,922 2,449 3,311 2,614 2,355 8 More than five years 4,041 2,903 3,196 4,189 2,865 5,075 2,195 4,632 3,613 2,932 2,078 2,073 9 Mortgage-backed 3,118 62,597 3,330 76,692 3.209 3,030 57,055 59,199 65,684 82,411 44,941 51,617 67.799 71,310 94,057 69,278 By type of counterparty With interdealer broker 10 U.S. Treasury 120,163 124,671 122,408 124,619 114,370 149,485 115.646 105,406 78,696 87,603 92,253 98,869 11 Federal agency 2,417 2,034 2,250 2,375 2,264 2,650 1.704 2,323 1,655 1,940 1,718 1,927 12 Mortgage-backed 21,335 20,318 20,149 19.072 26,454 21,858 16,219 15,853 17,603 25,068 13,601 20,851 With other 13 U.S. Treasury 97,954 98,501 98,737 107,147 88,730 117,450 87,848 95,156 68,819 72,381 74,036 77,371 14 Federal agency 45,476 40,407 43,176 46,923 42,784 41,602 39,628 47,256 45,543 40,544 37,114 37,447 15 Mortgage-backed 46,463 42,279 51,161 57,620 67,603 47,420 40,835 43,346 48,081 57,343 31.340 30,766 FUTURES TRANSACTIONS' By type of deliverable security 16 U.S. Treasury bills 334 Coupon securities, by maturity 17 Five years or less 2.084 2,337 2,666 4,255 2,644 3,294 1,871 1,713 1,177 1,673 1,675 1,918 18 More than five years 14,015 13,900 16,057 16,142 15,281 21,273 13,596 13,521 8,315 12,348 12,701 11,539 19 Inflation-indexed 0 Federal agency 0 0 0 0 0 0 0 0 0 0 0 20 Discount notes Coupon securities, by maturity 0 0 0 0 0 0 0 0 0 0 0 21 One year or less 22 More than one year, but less than 0 0 0 0 0 0 0 0 0 0 0 or equal to five years 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 24 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 OPTIONS TRANSACTIONS4 By type of underlying security 25 U.S. Treasury bills Coupon securities, by maturity 26 Five years or less 2,407 2,110 1,627 2,774 1,309 1,372 1,500 1,643 1,706 2,032 1,571 2,362 27 More than five years 5,815 6,263 4,943 4,685 4,903 6.086 5,244 3,384 4,581 4.664 5,493 6,251 28 Inflation-indexed 109 0 0 Federal agency 25 0 0 0 0 0 0 0 29 Discount notes 0 0 Coupon securities, by maturity 0 0 0 0 0 0 0 0 30 One year or less 0 0 31 More than one year, but less than 0 0 0 0 0 0 0 0 or equal to five years 0 0 0 0 32 More than five years 0 0 0 0 0 0 0 0 0 0 n.a. 0 33 Mortgage-backed 0 535 0 0 874 0 683 933 0 0 0 0 750 768 455 801 519 987 487 386 1. Transactions are market purchases and sales of securities as reported to the Federal Forward transactions are agreements made in the over-the-counter market that specify Reserve Bank of New York by the U.S. government securities dealers on its published list of delayed delivery. Forward contracts for U.S. Treasury securities and federal agency debt primary dealers. Monthly averages are based on the number of trading days in the month. securities are included when the time to delivery is more than five business days. Forward Transactions are assumed to be evenly distributed among the trading days of the report week. contracts for mortgage-backed agency securities are included when the time to delivery is Immediate, forward, and futures transactions are reported at principal value, which does not more than thirty business days. include accrued interest; options transactions are reported at the face value of the underlying 3. Futures transactions are standardized agreements arranged on an exchange. All futures securities. transactions are included regardless of time to delivery. Dealers report cumulative transactions for each week ending Wednesday. 4. Options transactions are purchases or sales of put and call options, whether arranged on 2. Outright transactions include immediate and forward transactions. Immediate delivery an organized exchange or in the over-the-counter market, and include options on futures refers to purchases or sales of securities (other than mortgage-backed federal agency securi- contracts on U.S. Treasury and federal agency securities. ties) for which delivery is scheduled in five business days or less and "'when-issued" NOTE, "n.a." indicates that data are not published because of insufficient activity. securities that settle on the issue date of offering. Transactions for immediate delivery of mortgage- Major changes in the report form filed by primary dealers induced a break in the dealer data backed agency securities include purchases and sales for which delivery is scheduled in thirty business series as of the week ending January 28, 1998. days or less. Stripped securities are reported at market value by maturity of coupon or corpus. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A29 1.43 U.S. GOVERNMENT SECURITIES DEALERS Positions and Financing1 Millions of dollars 1998 1998, week ending Apr. May June June 3 June 10 June 17 June 24 July 1 July 8 July 15 July 22 Positions NET OUTRIGHT POSITIONS' By type of security 1 U.S. Treasury bills 16,747 7.500 2,012 8,760 4,453 -1,131 4,075 -2,948 -181 140 3,642 Coupon securities, by maturity 2 Five years or less -17,750 -25,842 -22,489 -20,186 -24,154 -21,456 -19,795 -26,044 -17,377 -20,895 -14,861 3 More than five years -27,081 -24,468 -11,405 -15,091 -10,460 -8,448 -14,020 -11,061 -16,843 -22,511 -16,402 4 Inflation-indexed 2,058 1,968 1,306 1.481 1,343 1,167 1,179 1,486 2,710 3,005 2,597 Federal agency 5 Discount notes 18,148 16,837 16,758 20,087 22.241 17,011 10,185 16,069 21,408 19,700 18,019 Coupon securities, by maturity 6 One year or less 3,215 2,715 2,098 2,889 2.596 1.762 1,880 1.766 2,030 3.647 2,869 7 More than one year, but less than or equal to five years 8.394 7,646 7.043 6,476 5.914 7,662 7.281 7,646 8,045 8,432 7,487 8 More than five years 11,588 11.182 10,934 9.765 11,107 11,014 10,839 11,334 11.575 11,349 10,528 9 Mortgage-backed 55.843 56.867 69,961 62.204 69.747 74,736 73.249 64,683 69,649 72,690 62,253 NET FUTURES POSITIONS4 By type of deliverable security 10 US Treasury bills -1,040 -433 139 -272 -238 279 300 431 414 423 734 Coupon securities, by maturity 11 Five years or less 698 2,910 -1,530 2,156 1.313 -2,890 -3,161 -3,198 -4,351 -4,376 -4,853 12 More than five years -15,744 -21,492 -32,350 -30,203 -17,146 -34,285 -30.924 -27,233 -24,358 -20,469 -28,3.37 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 0 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 628 825 -2,063 -2,145 -2,522 -1,476 -1,527 -2,798 -1.529 -1,453 -986 21 More than five years 1.561 7 -343 -1,058 -420 -748 145 6 -1,642 -2,103 -4,210 22 Inflation-indexed 70 n.a. 0 n.a. 0 0 0 0 0 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 n.a. 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 435 660 1,750 929 1,667 2,058 1,675 1,983 1,494 2,421 2.517 Financing Reverse repurchase agreements 28 Overnight and continuing 365,357 368,407 341,684 382,159 329,190 338,660 335.220 347,093 329,735 321,018 308,181 29 Term 822,709 793,992 824,391 753,008 803.727 830.448 863.112 831.951 850,019 872,093 905,486 Securities borrowed 30 Overnight and continuing 208,558 216,006 221,331 217.059 217,413 223,799 224,350 221,635 223.880 221,461 216,800 31 Term 99,303 100,113 98,054 95.824 98.899 98,125 99,542 96.362 95,109 94,119 96,114 Securities received as pledge 32 Overnight and continuing 2.591 3,131 3,043 3,116 2,924 2,927 3,198 3,102 3,603 3,292 2,925 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 788,452 761,206 740,876 767,445 740,156 757,836 739.308 710,472 717,112 722,568 729,819 35 Term 726,216 710,585 744,206 668,836 718,453 751,130 790,917 749,363 753.798 774,758 806,390 Securities loaned 36 Overnight and continuing 11.640 10,871 11,164 10,071 11,003 11,023 10,837 12,444 10,108 10,267 11.340 37 Term 2,120 2.734 3.625 3,081 3.321 3,421 3.636 4,476 4,709 4,182 2.820 Securities pledged 38 Overnight and continuing 48,773 49,489 56,175 48,555 51.525 57,787 59,281 59,904 55,420 55,608 54,728 39 Term 5,693 4,961 5,471 5,129 5,264 5,331 5,607 5,888 6,674 6,590 6,420 Collateralkcd loans 40 Total 11,714 11.607 11,177 12,327 12.724 10,640 9.489 11,392 14.328 13,528 18,245 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 thai 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 U.S. Treasury securities and federal agency debt Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A30 Domestic Financial Statistics • October 1998 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period 1998 Agency 1994 1995 1996 1997 Jan. Feb. Mar. Apr. May 1 Federal and federally sponsored agencies 738,928 844,611 925,823 1,022,609 1,032,486 1,038,348 1,059,043 1,048,661 1,044,575 2 Federal agencies 39,186 37,347 29,380 27,792 27,110 27 101 27,227 27 104 26,995 3 Defense Department' 6 6 6 6 6 6 6 6 6 4 Export-Import Bank2 3 3,455 2,050 1,447 552 682 549 549 542 542 5 Federal Housing Administration4 116 97 84 102 133 79 97 102 108 6 Government National Mortgage Association certificates of participation5 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 7 Postal Service" 8,073 5,765 n.a. n.a. n.a. n.a. n.a. n.a. n.a. 8 Tennessee Valley Authority 27,536 29.429 27.853 27,786 27,104 27,095 27,221 27.098 26,989 9 United States Railway Association6 n.a. 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 1,005,376 1,011,247 1,031.816 1,021.557 1,017,580 1 ] Federal Home Loan Banks 205,817 243,194 263,404 313,919 311,385 312,017 317,967 323,208 322,155 12 Federal Home Loan Mortgage Corporation 93,279 119.961 156.980 169,200 181,948 184,100 193,300 200,800 204,751 13 Federal National Mortgage Association 257,230 299,174 331.270 369.774 370,524 373.574 381,093 195,977 399,489 14 Farm Credit Banks8 53,175 57,379 60,053 63,517 61.317 61,177 62.327 62,799 63,744 15 Student Loan Marketing Association 50,335 47,529 44,763 37,717 39,375 39,570 36.310 36,256 35,952 16 Financing Corporation10 8,170 8 170 8.170 8,170 8,170 8.170 8 170 8,170 8,170 17 Farm Credit Financial Assistance Corporation" 1,261 L261 1,261 1,261 1.261 1,261 1,261 1,261 1,261 18 Resolution Funding Corporation . . . 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 MEMO 19 Federal Financing Bank debt" 103,817 78,681 58,172 49,090 48,321 47,341 45,487 44,893 44,223 Lending to federal and federally sponsored agencies 20 Export-Import Bank 3,449 2,044 1,431 552 549 549 549 542 542 21 Postal Service6 8^073 5*765 n.a. n.a. n.a. n.a. 22 Student Loan Marketing Association n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a. 23 Tennessee Valley Authority 3,200 3,200 n.a n.a. n.a. n.a. n.a. n a. n.a. 24 United States Railway Association n.a. n.a. n.a n.a. n.a. n.a. n.a. n.a. n.a. Other lending'4 25 Farmers Home Administration 33,719 21.015 18,325 13,530 13,530 13,160 13.030 12,380 11,955 26 Rural Electrification Administration . . 17,392 17.144 16,702 14,898 14,841 14,852 14.315 14,203 14,207 27 Other 37,984 29,513 21,714 20,110 19,401 18.780 17,593 17,768 17,519 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. ], 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 paymenl 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 1995 1996 Apr. May July 1 All issues, new and refunding1 145,657 171,222 214,694 21,342 16,770 21,306 27,859 20,271 22,862 29,665 22,599 By type of issue 2 General obligation 56.980 60,409 69,934 8,005 5,608 9,893 9,597 8,154 4,827 10,135 6,515 3 Revenue 88,677 110,813 134,989 13.337 11,162 11,413 18,261 12,117 18.035 19,530 16,084 By type of issuer 4 5 S S t p a e le ci al district or statutory authority2y 9 1 3 4 , , 5 6 0 6 0 5 11 1 3 3 , ,6 2 5 2 1 8 13 1 4 8 , , 9 2 1 3 9 7 15 1 , ,7 6 0 0 2 0 11 1, , 2 7 6 9 8 4 1 2 4 , , 4 22 2 8 0 1 2 9 , , 3 6 7 2 5 9 1 3 2 , , 5 5 4 0 8 4 16 1. , 1 8 4 6 6 5 1 2 8 , , 8 0 0 9 9 9 16 1 , . 2 97 4 2 4 6 Municipality, county, or township 37,492 44,343 70,558 4,098 3,708 4,658 5,859 4,219 4,851 7,220 5.673 7 Issues for new capital 102,390 112,298 135,519 13,487 9,695r 12,538 15,134 12,616 15,281 19,341 15,895 By use of pwieeds 8 Education 23,954 26,851 31,860 2.981 2,338 3,525 4,297 4,080 2.819 4,911 2,733 9 Transportation 11.890 12,324 13,951 1.144 1,521 1,760 771 1,089 1.043 2,962 3,677 10 Utilities and conservation 9.618 9.791 12,219 683 598 687 1.866 749 5.971 2,368 795 11 Social welfare 19,566 24,583 27,794 2.940 1,540 2,903 3,104 2,765 2,390 3,258 3,014 12 Industrial aid 6,581 6,287 6.667 897 448 581 1,236 678 576 563 1,002 13 Other purposes 30,771 32,462 35.095 4,842 3,251 3,082 3,860 3,255 2,482 5.279 4,674 1. Par amounts of long-term issues based on date of sale. SOURCE. Securities Data Company beginning January 1990; Investment Dealer's 2. Includes school districts. Digest before then. 1.46 NEW SECURITY ISSUES U.S. Corporations Millions of dollars 1997 1998 Type of issue, offering, or issuer 1995 1996 1997 Nov. Dec. Jan. Feb. Mar. Apr May June 1 All issues' 673,571r n a. n.a. 58,959' 64,463' 73,865' 68,579' 108,122' 76,799' 77,164 101,258 2 Bonds2 572,998' 548,922 641,069 46,543 55,973 66,198 57,396 89,723 64329 62,713 85,434 By type of offering 3 Public, domestic 408.707' 465,489 537,880' 42,969 54,443 55.647 50,453 81.778 55,452 56,965 78,094 4 Private placement, domestic3 87,492 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n a. 5 Sold abroad 76,799' 83,433 103,188 3,574 1,530 10.551 6,943 7,946 8,878 5,748 7.340 By industn- group 6 Nc-nfinancial 156,763 119,765 130.116 6,794 7.696 21,039 12,133 17,301 16.985 12,856 17,109 416 235 4^9 157 510 953 39 750 48 276 45 159 45 26? 72 4'2 47 145 49,857 68.125 8 Stocks- 68,817 116,561 112,207 11,807 8,019 7,416 10,965 18,371 11,717 14,136 16,444 By type of offering 9 Public 73,212 122,006 117.745 12,417 8,351 7,667 11,182 19,271 12,470 14,700 17,112 10 Private placement" 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 Nonfinancial 52,707 80.460 60,386 6,861 3,039 1,761 5,737 10,756 5,551 9,271 10,248 20,516 41,546 57,494 5,555 5,451 5,906 5.445 8.515 6.919 5,429 6,863 2. Monthly data cover only public offerings. 3, Monthly data are not available. SOURCE. Beginning July 1993, Securities Data Company and the Board of Governors of the Federal Reserve System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A32 Domestic Financial Statistics • October 1998 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets1 Millions of dollars 1997 1998 Dec. Jan. Feb. Mar. Apr. May Juner July 1 Sales of own shares2 934,595 1,190,900 110,452 119,488 114,219 128,348 128,828 113,593 122,288 134,636 2 Redemptions of own shares 702,711 918,728 89,982 92.621 81,688 97.248 97.087 84,421 97,899 107,250 3 Net sales 231.885 272,172 20,471 26,867 32,532 31,100 31.741 29,172 24.389 27,386 4 Assets4 2,624,463 3,409,315 3,409,315 3,459,354 3,675,392 3,843,971 3,909,932 3,882,061 3,986,952 3,962,267 5 Cash5 138,559 174,154 174,154 183,648 180,415 174,058 170,045 171,425 199.135 194.118 6 Other 2,485,904 3,235,161 3,235,161 3,275,706 3.494,977 3,669,913 3,739,887 3,710,636 3,787,817 3.768,148 1. Daia include stock, hybrid, and bond mutual funds and exclude money markel mulua) 4. Market value al end of period, less current liabilities. funds. 5. Includes all U.S. Treasury securities and other short-term debt secunties. 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 out of money Exchange Commission. Data reflect underwritings of newly formed companies after their market mutual funds within the same fund family. initial offering of securities. 1.48 CORPORATE PROFITS AND THEIR DISTRIBUTION Billions of dollars; quarterly data at seasonally adjusted annual rates 1<)96' 1997' 1998 Account 1995' 1996' 1997' Q3 04 Ql Q2 Q3 Q4 Ql' Q2 1 Profits with inventory valuation and capital consumption adjustment 672.4 750.4 817.9 755.4 762.0 794.3 815.5 840.9 820,8 829.2 819.7 2 Profits before taxe* 635.6 680.2 734.4 681.9 685.7 712.4 729.8 758.9 736.4 719.1 720.5 3 Profits-tax liability 211 0 226.1 246.1 227.7 224.2 238.8 241.9 254.2 249.3 239 9 240.0 4 Profits after taxes 424.6 454.1 488.3 454.2 461.5 473.6 487.8 504.7 487.1 479.2 480.5 5 Dividends 205.3 261.9 275.1 269.1 273.6 274.1 274.7 275.1 276.4 277.3 278.1 6 Undistributed profits 219.3 192.3 213.2 185.1 187.9 199.5 213.2 229.5 210.6 201.8 202.4 7 Inventory valuation -22.6 -1.2 6.9 1 2 3.0 8.1 10.3 4.8 4.3 25.3 9.8 8 Capital consumption adjustment 59.4 71.4 76.6 72.3 73.3 73.8 75.5 77.2 80.1 84.9 89.4 SOURCE. U.S. Department of Commerce, Survey of Current Business. 1.51 DOMESTIC FINANCE COMPANIES Assets and Liabilities1 Billions of dollars, end of period; not seasonally adjusted 1996 1997 1998 Q3 Q4 01 Q2 Q3 04 Ql ASSETS 1 Accounts receivable, gross 607.0 637.1 663.3 628.1 637.1 648.0 651.6 660.5 663.3 666.8 2 Consumer 233.0 244.9 256.8 244.4 244.9 249.4 255.1 254.5 256.8 251.3 3 Business 301.6 309.5 318.5 301.4 309.5 315 2 311.7 319.5 318.5 325.9 4 Real estale 72.4 82.7 87 9 82.2 82.7 83 4 84.8 86.4 87.9 89.6 5 LESS: Reserves for unearned income 60,7 55.6 52.7 54.8 55.6 51.3 57.2 54.6 52.7 52.1 P 8 13 1 13 0 129 13 1 12 8 12 7 13 0 13 1 7 Accounts receivable, net 533.5 568.3 597.6 560.5 568.3 583.9 581.2 593.1 597.6 601.6 8 Allother 250.9 290.0 312.4 268.7 290.0 289.6 306.8 289.1 312.4 329.9 9 Total assels 784.4 858.3 910.0 829.2 858.3 873.4 887.9 882.3 910.0 931.5 LIABILITIES AND CAPITAL 15.3 19.7 24.1 18.3 19.7 18.4 18.8 20.4 24.1 22 0 168.6 177.6 201.5 173.1 177.6 185.3 193.7 189.6 201.5 211.7 Debt 12 Owed to parent 51 1 60.3 64.7 57.9 60.3 61.0 60.0 61.6 64.7 64.6 13 Not elsewhere classified 300.0 332.5 328.8 322.3 332.5 324.6 345.3 322.8 328.8 338.1 14 All other liabilities 163.6 174.7 189.6 164.8 174.7 189.2 171.4 190.1 189.6 193.0 15 Capital, surplus, and undivided profits 85.9 93.5 101.3 92.8 93.5 94.9 98.7 97.9 101.3 102.0 16 Total liabilities and capital 784.4 858.3 910.0 829.2 858.3 873.4 887.9 882.3 910.0 931.5 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 amounls 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 810.4 821.1 818.6' 824.1' 830.0' 2 Consumer. . . 281.9 306.6 326.9 324.9 326.2 327.0' 329.4' 330.2' 335.7 3 Real estate . . 72.4 111.9 121.1 121.9 123.7 121.6 121.9 124.2' 120.9 4 Business 328.1 343.8 362.4 364.3 371.1 369.9 372.8 375.6' 375.0 Not seasonally adjusted 5 Total 689.5 769.7 818.1 812.2 819.6 819.7' 825.3' 832.2r 836.1 6 Consumer 285.8 310.6 330.9 326.2 324.8 325.4' 326.7' 329.4' 335.9 7 Motor vehicles loans 81.1 86.7 87.0 87.4 84.7 86.8 90.6 89.6 89.9 8 Motor vehicle leases 80.8 92.5 96.8 94.5 94.7 95.2 95.9 95.9 97.0 9 Revolving' 28.5 32.5 38.6 37.6 36.9 36.6' 30.4' 30.5' 30.4 10 Other1 42.6 33.2 34.4 34.5 34.1 33.0 33.4 33.5 34.4 Securitized assets4 11 Motor vehicle loans 34.8 36.8 44.3 42.8 45.3 45.0 42.8 45.7 49.3 12 Motor vehicle leases 3.5 8.7 10.8 10.7 10.6 10.5 10.4 10.8 10.9 13 Revolving n.a. 0.0 0.0 0.0 O.O 0.0 5.3 5.3 5.3 14 Other 14.7 20.1 19.0 18.7 18.5 18.2 18.1 18.1 18.6 15 Real estate 72.4 111.9 121.1 121.9 123.7 121.6 121.9 124.2' 120.9 16 One- to four-family n.a. 52.1 59.0 59.8 62.2 61.5 62.4 65.2 62.4 17 Other 30.5 28.9 29.1 29.0 28.1 28.1 28.1 27.5 Securitized real estate assets4 18 One- lo four-family n.a. 28.9 33.0 32.8 32.3 31.8 31.2 30.7 30.9 19 Other n.a. 0.4 0.2 0.2 0.2 0.2 0.2 0.2' 0.1 20 Business 331.2 347.2 366.1 364.0 371.1 372.7 376.7 378.6' 379.3 21 Motor vehicles 66.5 67.1 63.5 61.8 64.8 67.8 68.2 69.1' 68.4 22 Retail loans 21.8 25.1 25.6 26.1 26.4 27.3 28.3 29.3 29.2 23 Wholesale loans5 36.6 33.0 27.7 25.6 28.2 30.2 29.5 29.5 28.2 24 Leases 8.0 9.0 10.2 10.1 10.2 10.2 10.4 10.4' 11.0 25 Equipment 8.0 9.0 10.2 204.2 204.7 206.5 207.8 209.3 212.8 26 Loans 8.0 9.0 10.2 50.7 49.9 50.8 51.2 51.3 52.7 27 Leases 8.0 9.0 10.2 153.5 154.8 155.7 156.7 158.0 160.2 28 Other business receivables6 8.0 9.0 10.2 52.1 55.6 51.6 54.0 54.3 53.7 Securitized assets 29 Motor vehicles 8.0 9.0 10.2 31.5 31.2 32.1 31.6 31.0 28.7 30 Retail loans 8.0 9.0 10.2 2.3 2.2 2.0 1 9 1.9 2.3 31 Wholesale loans 8.0 9.0 10.2 29.2 29.0 30.0 29.6 29.2 26.4 32 Leases 8.0 9.0 10.2 0.0 0.0 0.0 0.0 0.0 0.0 33 Equipment 8.0 9.0 10.2 10.4 10.8 10.5 10.3 10.2 10.5 34 Loans 8.0 9.0 10.2 3.9 4.3 4.2 4.1 4.0 4.1 35 Leases 8.0 9.0 10.2 6.5 6.5 6.3 6.2 6.2 6.4 36 Other business receivables6 8.0 9.0 10.2 4.0 4.0 4.2 4.7 4.7 5.3 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 • October 1998 1.53 MORTGAGE MARKETS Mortgages on New Homes Millions of dollars except as noted 1998 Jan. Feb. Mar. Apr. May June July Terms and yields in primary and secondary markets PRIMARY MARKETS Terms* 1 Purchase price (thousands of dollars) 175.8 182.4 180.1 184.1 195.3 191.7 189.5 195.6 193.7 208.7 2 Amount of loan (thousands of dollars) 134.5 139.2 140.3 142.3 148.5 149.5 147.1 150.2 151.0 160.1 3 Loan-to-price ratio (percent) 78.6 78.2 80.4 80,5 78,6 81.0 80.4 79.1 81.0 78.7 27.7 27.2 28.2 28,5 28,0 28.3 28.4 28.3 28.3 28.5 5 Fees and charges (percent of loan amount) 1.21 1.21 1.02 0.91 0.99 0.95 0.87 0.85 0.85 0.90 Yield (percent per year) 6 Contract rate' 7.65 7.56 7.57 7.13 7.09 7.03 7.05 7.05 7.03 6.99 7 Effective rate1' 7.85 i.n 7.73 7,27 7,24 7.17 7.19 7.18 7.16 7.13 8.05 8.03 7.76 7.16 7.22 7.16 7.20 7.11 7.08 7.05 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (Section 203)5 8.18 8.19 7.89 7.08 7,06 7,09 7.37 7.07 7.07 7.05 10 GNMA securities6 7.57 7.48 7.26 6.56 6.63 6.66 6.63 6.63 6.54 6.48 Activity in secondary marke FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 253,511 287,052 316,678 320,062 322,957 327,025 333,571 343,922 349,249 359,827 12 FHA/VA insured 28.762 30.592 31.925 31,621 31,650 31,965 32,734 32,771 32,896 33,036 13 Conventional 224.749 256.460 284,753 288,441 291,307 295,060 300,837 311,151 316,353 326,791 14 Mortgage transactions purchased (during period) 56.598 68,618 70,465 7,647 8,630 12,095 14,668 17,423 11,916 17,326 Mortgage commitments (during period) 15 Issued1 56.092 65.859 69,965 12,199 10,587 14,057 17,556 10,612 16,921 13,217 16 To sell8 360 130 1,298 60 0 92 0 0 0 419 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of period)^ 17 Total 107,424 137 755 164.421 169,142 175,770 185,928 189,471 192,603 196,634 202,582 18 FHA/VA insured 267 220 177 173 170 166 162 160 160 160 107,157 137,535 164,244 168,969 175,600 185,762 189,309 192,443 196,474 202,422 Mortgage transactions (during period) 20 Purchases 98 470 125.103 117,401 13.120 13,610 21,011 25,132 23,743 22,394 22,604 21 Sales 85,877 119,702 114,258 12,702 12,481 19,085 24,479 23,338 21,133 22,263 22 Mortgage commitments contracted (during period)9 118.659 128,995 120,089 15,638 17,397 23,060 24,468 26,100 20,008 23,528 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 OUTSTANDING' Millions of dollars, end of period Type of holder and property 1996 01 Q2 Q4 Ql" 1 All holders 4,395,888 4,608,162 4,936,041 4,991,477 5,070,645 5,189,141 5,288,301 5,383,193 By type of property 2 One- 10 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 Nonfami, nonresidenlial 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 88,678 89,759 90,417 91.422 fiv 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 Commercial banks . 1,012,711 1,090,189 1,145,389 1,160,136 1,196,524 1,227,151 1,244,146 1,269,973 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 II Farm 22,551 23,830 24,883 25,242 26,061 26.800 26,978 27.453 12 Savings institutions' 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 Fann 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 8 24 One- to four-family 6 2 6 7 7 8 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- lo four-family 441,198 461,438 494,158 500,591 507,618 516,217 523,156 519,152 Mullifamily 9,736 10,845 12,182 12,880 13,320 13,650 13,654 13.859 Federal Home Loan Nfortgage Corporation 490,851 515,051 554,260 562,894 567,187 569,920 579,385 583,144 One- to four-family 487,725 512.238 551,513 560,369 564,445 567.340 576,846 580,715 Multifamily 3,126 2,813 2,747 2,525 2,742 2,580 2,539 2,429 Federal National Mortgage Association 530,343 582,959 650,780 663.668 673,931 690,919 709,582 730,832 One- to four-family 520,763 569,724 633,210 645.324 654,826 670,677 687,981 708,125 Multifamily 9,580 13,235 17,570 18,344 19,105 20,242 21,601 22.707 Farmers Home Administration 19 II 3 3 2 2 2 One- to four-family 3 2 0 0 0 0 0 0 Multifamily 0 0 0 0 0 0 0 0 Nonfarm. nonresidential 9 5 0 0 0 0 0 0 Fann 7 4 3 3 2 2 2 2 Private mortgage conduits 260.200 296,459 359,053 373,734 391,753 420,222 456.787 487,427 One- to four-family 208,500 227,800 261,900 271,100 279,450 299,400 318,000 330,300 Multifamily 14,925 21,279 33,689 35,607 38,992 41,973 48,261 54,680 Nonfarm, nonresidential 36,774 47,380 63,464 67,027 73,312 78,849 90,526 102,447 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, state and local departments. credit agencies, state and local retirement funds, noninsured pension funds, credit unions, and 3. Includes savings banks and savings and loan associations. finance companies. 4. FmHA-guaranteed securities sold to the Federal Financing Bank were reallocated from SOURCE. Based on data from various institutional and government sources. Separation of FmHA mortgage pools to FmHA mortgage holdings in 1986:Q4 because of accounting nonfarm mortgage debt by type of property, if not reported directly, and interpolations and changes by the Farmers Home Administration. extrapolations, when required for some quarters, are estimated in part by the Federal Reserve. 5. Outstanding principal balances of mortgage-backed securities insured or guaranteed by Line 69 from Inside Mortgage Securities and other sources. the agency indicated Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A36 Domestic Financial Statistics D October 1998 1.55 CONSUMER CREDIT1 Millions of dollars, amounts outstanding, end of period 1998' Holder and type of credit 1995 1996 1997 Jan Feb. Mar. Apr. May June Seasonally adjusted 1 Total 1,094,197 1,179,892 1,230,695 1,233,470 1,238,459 1,246,200 1,249,858 1,249,640 1,256,315 2 Automobile 364,231 392,370 413,453 415,344 416,468 419,584 421,204 422,545 425,717 442 994 499 209 530,801 532 626 536.106 540,421 542,470 519.927 542,416 4 Other2 286,972 288,313 286,441 285,500 285,885 286,195 286,184 287,169 288,182 Not seasonally adjusted 5 Total 1,122,828 1,211,590 1,264,103 1,243,50.3 1,233,241 1,234,722 1,2.39,006 1,249,549 By major holder 6 Commercial banks 501.963 526,769 512,563 499 347 492,549 492,221 499,843 496,601 487,943 7 Finance companies 152,123 152,391 160.022 159.493 155.675 156,480 154,328 153,556 154,731 131 939 144,148 152 362 151 024 149,804 149,334 149,119 149,784 149,272 9 Savings institutions 40,106 44,711 47,172 47.144 47,115 47,087 47,059 47,030 47,002 85,061 77,745 78,927 75,349 72,761 72,754 65,090 65,216 65,210 11 Pools of securitized assets4 211,636 265,826 313,057 311,146 315,337 316,846 323,054 326,819 345,391 By major type of credit 367 069 395 609 416 962 413 586 412,177 415 524 416,202 418,498 425,626 13 Commercial banks 151,437 157,047 155,254 154,413 152,747 153,926 151,278 151,677 150,936 14 Finance companies 81,073 86,690 87,015 87.379 84,685 86,834 90,564 89,569 89,942 15 Pools of securitized assets4 44,635 51,719 64.950 63,066 65,957 65,057 63.737 65,934 71,562 16 Revolving 464,134 522,860 555.858 541,144 535,451 534,420 535,495 515,080 537,541 17 Commercial banks 210,298 228,615 219.826 208,750 204,564 201,316 209,171 207,318 199,095 18 Finance companies 28,460 32,493 38.608 37,603 36,851 36,613 30,398 30,495 30,355 19 Nonfinancial business3 53.525 44,901 44.966 42,689 40,976 41,246 33,487 33,412 33,544 20 Pools of securitized assets4 147,934 188,712 221.465 221.805 223,400 226,226 233,668 235,347 245,960 21 Other 29! 625 293 121 291 283 288 773 285.613 284,778 286 796 285,428 286,382 22 Commercial banks 140,228 141,107 137,483 136.184 135,238 136,979 139,394 137,606 137,912 23 Finance companies 42,590 33,208 34,399 34.511 34,139 33,033 33.366 13,492 34,434 24 Nonfinancial business3 31,536 32,844 33.961 32,660 31,785 31,508 31.603 31,804 31,666 25 Pools of securitized assets4 19,067 25,395 26,642 26,275 25,980 25,563 25,649 25,538 27,869 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. L.56 TERMS OF CONSUMER CREDIT1 Percent per year except as noted 1997 1998 Item 1995 1996 1997 Dec. Jan. Feb. Mar. Apr. May June INTEREST RATES Commercial banks 1 48-month new car 9.57 9.05 9.02 n.a. n.a. 8.87 n.a. n.a. 8.69 n.a. 2 24-month personal 13.94 13.54 13.90 n.a. n.a. 14.01 n.a. n.a. 13.76 n.a. Credit card plan 3 All accounts 15.90 15.63 15.77 n.a. n.a. 15.65 n.a. n.a. 15.67 n.a. 4 Accounts assessed interest 15.64 15.50 15.57 n.a. n.a. 15.33 n.a. n.a. 15.62 n.a. Auto finance companies 11.19 9.84 7.12 5.93 6.12 6.98 5.94 6.20 6.07 6.02 6 Used car 14.48 13.53 13.27 13.16 12.77 12.87 12.79 12.76 12.73 12.63 OTHER TERMS3 Maturity (monihs) 7 New car 54.1 51.6 54.1 535 52.8 52.6 51.5 50.7 50.8 50.9 8 Used car 52.2 51.4 51.0 50.5 52.2 52.5 52.6 52.9 52.9 54.0 Loan-to-value ratio 92 91 92 92 92 92 92 91 93 91 99 100 99 99 98 97 97 98 99 100 Amount financed (dollars) 1 1 New car 16,210 16,987 18,077 19,121 18,944 18,825 18,932 18,922 18,793 18,878 12 Used car 11,590 12,182 12,281 12,547 12,391 12,356 12,431 12,716 12,607 12,698 1. The Board's series on amounts of credit covers most short- and intermediate-term credit 2. Data are available for only the second month of each quarter. extended to individuals. Data in this table also appear in the Board's G.19 (421) monthly 3. At auto finance companies. statistical release. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A37 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1 Billions of dollars; quarterly data at seasonally adjusted annual rates 1996' 1997' 1998' Transaction category or sector Q4 Ql Q2 Q3 Q4 Ql Q2 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors. 572.2r 701.6r 725.8' 768.4r 642.2 674.5 614.4 829.6 954.9 919.1 By sector and instrument 2 Federal government 256.1 155.9 144.4 145.0 23.1 112.3 64.9 -43.5 30.3 40.8 -31.3 -69.6 3 Treasury securities 248.3 155.7 142.9 146.6 23.2 115.6 66.3 -43.8 31.2 39.0 -28.9 -68.1 4 Budget agency securities and mortgages 7.8 2 1.5 -1.6 -.1 -3.3 -1.4 .2 -.9 1.7 -2.4 -1.4 5 Nonfederal 416.4' 557.1' 580.8' 745.3' 530.0 609.6 658.0 799.3 914.2 950.4 1,004.5 By instrument 6 Commercial paper 10.0 21.4 18.1 -.9 13.7 -24.1 7.2 20.3 14.5 12.8 53.9 6.6 7 Municipal securities and loans 74.8 -35.9 -48.2 2.6 71.4 54.8 34.1 59.6 88.9 103.2 116.7 86.1 8 Corporate bonds 75.2 23.3 73.3 72.5 90.7 89.9 79.4 86.1 122.9 74.4 157.2 160.8 9 Bank loans n.e.c 6.4 75.2 102.3 66.2 107.6 27.8 140.7 118.1 31.6 140.0 56.0 170.1 10 Other loans and advances -18.9 34.0 67.2 33.8 68.2 3.2 34.2 19.3 79.2 140.1 80.7 34.5 11 Mortgages 123.7 173.4' 205.5' 318.0' 341.1' 331.5 251.5 295.1 411.9 405.8 434.3 487.8 12 Home 156.2 178.5 174.5 264.9 267.7 248.4 217.5 210.5 333.6 309.3 330.3 367.9 13 Multifamily residential -6.8 -1.2' 8.1' 12.6' 11.4' 15.3 3.9 12.7 6.5 22.3 19.9 22.5 14 Commercial -26.7 -6.1' 21.2r 37.9' 58.7' 66.1 28.0 67.7 67.5 71.6 80.1 91.1 15 Farm 1.0 2.2 1.6 2.6 3.3 1.6 2.1 4.1 4.3 2.6 4.0 6.2 16 Consumer credit 60.7 124.9 138.9 88.8 52.5 46.8 62.5 59.5 50.3 37.8 51.7 58.6 Bv borrowing sector 17 Household 207.8r 311.4' 349.0' 372.8' 351.6' 306.6 324.7 317.3 368.3 396.2 435.9 476.7 18 Nonfinancial business 57.9r 151.3' 259.6' 214.8' 337.6' 177.7 268.0 298.2 358.4 425.7 420.2 463.0 19 Corporate 52. lr 143.6' 232.7' 165.5' 267.8' 108.6 215.2 223.6 287.1 345.1 334.9 363.4 20 Nonfarm noncorporate 3.2 3.3 23.9 44.5 63.5 61.4 47.8 68.6 65.8 71.6 77.4 92.2 21 Farm 2.6 4.4 2.9 4.8 6.4 7.6 4.9 6.0 5.5 9.0 7.9 7.4 22 State and local government 66.2r -46.2' -51.5' -6.8' 56.1' 45.7 16.9 42.5 72.6 92.3 94.3 64.9 23 Foreign net borrowing in United States 69.8 -14.0 71.1 76.9' 56.9' 93.6 31.2 61.7 92.5 42.3 68.8 68.5 24 Commercial paper -9.6 -26.1 13.5 11.3 3.7 4.4 15.5 10.4 -11.6 .7 56.0 -24.8 25 Bonds 82.9 12.2 49 7 55.8' 46.7 84.5 15.5 38.7 100.3 32.4 14.3 89.8 26 Bank loans n.e.c .7 1.4 8.5 9.1 8.5 7.8 -.7 11.5 7.3 15.7 5.5 7.9 27 Other loans and advances -4.2 -1.5 -.5 .8 -2.0 -3.1 .9 1.2 -3.5 -6.5 -7.0 -4.4 28 Total domestic plus foreign 657.8 558.2r 772.7r 802.7r 825.3 735.8 705.7 676.1 922.2 997.2 987.9 1,003.5 Financial sectors 29 Total net borrowing by financial sectors . 294.4 468.4 456.4 556.2 644.4 674.1 336.5 1,016.2 By instrument 30 Federal government-related 165.3 287.5 204.1 231.5 212.8 252.8 105.7 286.2 161.0 298.1 227.3 413.4 31 Government-sponsored enterprise securities 80.6 176.9 105.9 90.4 98.4 123.3 -8.9 198.1 46.4 157.9 142.5 166.4 32 Mortgage pool securities 84.7 115.4 98.2 141.1 114.4 129.6 114.6 88.1 114.6 140.3 84.8 247.0 33 Loans from US. government .0 -4.8 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 34 Private 129.1 180.9 252.3 324.7 431.6 421.3 230.9 372.9 433.0 689.8 613.0 602.8 35 Open market paper -5.5 40.5 42.7 92.2 166.7 162.1 176.6 77.0 168.8 244.2 237.4 134.8 36 Corporate bonds 123.1 121.8 196.7 179.7 208.1 199.0 61.7 231.4 193.4 345.8 316.0 376.8 37 Bank loans n.e.c -14.4 -13.7 3.9 16.9 13.6 24.0 6.5 -6.0 23.2 30.7 18.9 7.2 38 Other loans and advances . 22.4 22.6 3.4 27.9 35.6 31.2 -20.1 63.0 37.5 61.7 32.7 76.0 39 Mortgages 3.6 9.8 5.6 7.9 7.8 4.9 6.2 7.5 10.1 7.3 8.0 8.0 By borrowing sector 40 Commercial banking 13.4 20.1 22.5 13.0 46.1 26.9 14.4 76.4 32.5 61.0 83.5 95.9 41 Savings institutions 11.3 12.8 2.6 25.5 19.7 23.0 -16.8 31.9 22.3 41.7 10.6 31.2 42 Credit unions .2 .2 -.1 .1 .1 .3 _ 2 .2 .2 .3 .5 .2 43 Life insurance companies .2 .3 -.1 1.1 .2 2.0 ,8 .1 .2 -.3 .0 -.6 44 Government-sponsored enterprises 80.6 172.1 105.9 90.4 98.4 123.3 -8,9 198.1 46.4 157.9 142.5 166.4 45 Federally related mortgage pools 84.7 115.4 98.2 141.1 114.4 129.6 114 6 88.1 114.6 140.3 84.8 247.0 46 Issuers of asset-backed securities (ABSs) 83.6 72.9 141.1 153.6 204.6 157.3 858 122.7 224.7 385.0 255.0 363.5 47 Finance companies -1.4 48.7 50.2 45.9 48.7 38.1 5.6 120.5 8.9 59.6 80.1 101.8 48 Mortgage companies .0 -11.5 .4 12.4 -1.3 12.1 -.7 -12.2 3.6 4.2 5.2 -5.5 4 5 9 0 R B e ro a k l e e r s s t a a t n e d i n d v e e a s l t e m rs ent trusts (REITs) . . 1 3 2 . . 4 0 13 . . 5 7 -5 5 . . 0 7 - 1 2 1 . . 0 0 24 8 . . 8 1 1 4 5 . . 9 2 - 1 2 5 . . 9 1 3 1 4 9 . . 9 8 - 3 6 2 . . 9 0 3 7 2 . .1 0 - 3 1 6 . . 0 3 3 20 3 . . 0 9 51 Funding corporations 6.3 23.1 34.9 64.1 80.7 141.6 129.7 -21.5 115.4 99.2 142.8 -37.6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 8 Domestic Financial Statistics • October 1998 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1—Continued 19%' 1997' Transaction category or sector 1995 Q4 Ql Q2 Q3 Q4 Ql Q2 52 Total net borrowing, all sectors 952.2 l,026.6r l,229.0r 1,358.9' 1,469.7' 1,409.9 1,042.2 1,335.1 1,516.2 1,985.1 1,828.2 2,019.6 53 Open market paper -5.1 35.7 74.3 102.6 184.1 142.4 199.3 107.7 171.7 257.7 347.3 116.6 54 U.S. government securities 421.4 448.1 348.5 376.5 235.9 365.1 170.6 242.6 191.3 338.9 196.0 343.8 55 Municipal securities 74.8 -35.9 -48.2 2.6 71.4 54.8 34.1 59.6 88.9 103.2 116.7 86.1 56 Corporate and foreign bonds 281.2 157.3 319.6 308.0' 345.5 373.4 156.6 356.1 416.6 452.6 487.5 627.4 57 Bank loans n.e.c -7.2 62.9 114.7 92.1 129.7 59.7 146.5 123.6 62.2 186.4 80.4 185.3 58 Other loans and advances .... -8 50.3 70.2' 62.5 101.8' 31.3 15.0 83.4 113.3 195.3 106.4 106.1 59 Mortgages 127.3 183.2' 211.1' 325.9' 348.8' 336.4 257.7 302.6 422.0 413.1 442.1 495.8 60 Consumer credit 60.7 124.9 138.9 88.8 52.5 46.8 62.5 59.5 50.3 37.8 51.7 58.6 Funds raised through mutual funds and corporate equities 61 Total net issues 429.7 125.2 143.9 231.8' 191.9' 162.3 181.9 183.9 248.6 153.0 218.0 194.2 62 Corporate equities 137.7 24.6 -3.5 -5.8' -73.3' -20.4 -67.7 -66.2 -51.3 -108.0 -103.4 -118.2 63 Nonfinancial corporations 21.3 -44.9 -58.3 -64.2 -114.6 -56.0 -90.4 -100.0 -124.0 -144.1 -138.0 -129.2 64 Foreign shares purchased by U.S. residents 63.4 48.1 50.4 60.0' 41.3' 42.2 46.6 54.4 64.3 - .3 13.6 4.0 65 Financial corporations 53.0 21.4 4.4 -1.6 .1 -6.7 -23.9 -20.6 8.4 36.5 21.0 7.1 66 Mutual fund shares 292.0 100.6 147.4 237.6 265.1 182.8 249.6 250.1 299.9 261.0 321.4 312.4 1. Data in this table also appear in the Board's Z. 1 (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 Transaction category or sector 1995 Q4 Ql Q2 Q3 Q4 Ql NET LENDING IN CREDIT MARKETS 1 Total net tending in credit markets 952.2 1,026.6' 1,229.0' 1,358.9' 1,469.7 1,409.9 1,042.2 1,335.1 1,516.2 1,985.1 1,828.2 2 Domestic nonfederal nonfinancial sectors 41.6 238.7' -93.8' 9.5' -141.2 -221.7 -50.5 -138.0 55.0 -206.4 3 Household 1.0 275.5' 1.6' 13.8' -106.1 -46.6 -273.5 -48.3 -131.5 28.6 -196.5 4 Nonfinancia! corporate business 9.1 17.7 -8.8 15.0 14.9 -16.9 78.7 -46.7 31.7 -4.1 -5.5 5 Nonfarm noncorporate business -1.1 .6 4.7 4.4 2.7 4.4 2.5 2.7 2.8 2.9 3.0 6 State and local governments 32.6 -55.0 -91.4 -23.7 -.3 -82.1 -29.5 41.8 -41.0 27.5 -7.4 7 Federal government -18.4 -27.5 _ 2 -7.7 4.9 -4.3 1.7 5.7 3.3 9.0 15.5 8 Rest of the world 129.3 132.3 273.9 414.7' 312.1 586.6 330.6 307.0 404.1 206.5 234.9 9 Financial sectors 799.7 683.0 1,049.1 942.4r 1,241.5 968.8 931.7 1,072.9 1,246.8 1,714.7 1,784.2 10 Monetary authority 36.2 31.5 12.7 12.3 38.3 6.9 34.4 42.9 22.9 52.9 27.4 11 Commercial banking 142.2 163.4 265.9 187.5 324.8 245 4 316.0 290.0 226.2 467.1 293.7 12 U.S.-chartered banks 149.6 148.1 186.5 119.6 274.9 152.4 206.1 286.7 220.7 386.2 260.8 13 Foreign banking offices in United States . . -9.8 11.2 75.4 63.3 40.2 84.1 101.7 -3.6 4.6 58.2 12.0 14 Bank holding companies .0 .9 -.3 3.9 5.4 10.5 2.2 5.1 -5.0 19.4 15.3 15 Banks in U.S.-afliliated areas 2.4 3.3 42 .7 4.2 -1.6 6.1 1.8 5.8 3.2 5.6 16 Savings institutions -23.3 6.7 -7.6 19.9 -4.7 -47.9 -5.3 23.8 -35.3 -2.0 10.1 17 Credit unions 21.7 28.1 16.2 25.5 16.8 25.8 20.5 25.2 13.6 7.7 19.6 18 Bank personal trusts and eslales 9.5 7.1 -8.3 -7.7 7.6 -2.5 3.4 10.7 7.3 8.8 2.4 19 Life insurance companies 100.9 66.7 99.2 72.5 101.0 124.5 88.3 174.4 106.0 35.3 108.9 20 Other insurance companies 27.7 24.9 21.5 22.5 25.2 27.7 6.0 28.0 32.0 34.7 23.4 21 Private pension funds 49.5 45.5 61.3 48.3 67.6 34.1 55.0 58.5 66.2 90.7 72.6 22 State and local government retirement funds .... 22.7 22.3 27.5 45.9 36.6 38.1 23.2 34.6 79.1 9.5 81.7 23 Money market mutual funds 20.4 30.0 86.5 88.8 87.5 81.1 58.2 26.1 121.5 144.2 172.0 24 Mutual funds 159.5 -7.1 52.5 48.9 80.9 25.7 63.9 90.0 108.0 61.8 143.6 25 Closed-end funds 20.0 -3.7 10.5 2.2 1.2 2.2 2.7 1.3 .3 .4 .6 26 Government-sponsored enterprises 87.8 117.8 84.7 92.0 95.0 137.1 44.9 119.9 55.8 159.2 166.0 27 Federally related mortgage pools 84.7 115.4 98.2 141.1 114.4 129.6 114.6 88.1 114.6 140.3 84.8 28 Asset-backed securities issuers (ABSs) 81.0 65.8 119.3 123.4 166.1 108.2 62.3 107.8 162.2 332.2 195.8 29 Finance companies -20.9 48.3 49.9 18.4 21.9 -3.6 39.8 .9 68.3 -21.4 28.6 30 Mortgage companies .0 -24.0 -3.4 8.2 16.4 4.1 -1.3 -24.4 82.9 8.3 10.4 31 Real estate investment trusts (RElTs) .6 4.7 2 ° 2.0 -2.0 -2.1 -2.1 -2.1 -2.1 -1.7 -2.0 32 Brokers and dealers 14.8 -44.2 90.1 -15.7 13.7 82.7 -14.5 -11.7 15.8 65.3 250.4 33 Funding corporations -35.3 -16.2 -29.7 6.5' 33.4 -48.4 21.5 -10.9 1.7 121.2 94.1 RELATION OF LIABILITIES TO FINANCIAL ASSETS 34 Net flows through credit markets 1,026.6' 1,229.0' 1,358.9' 1,469.7 1,409.9 1,042.2 1,335.1 1,516.2 1,985.1 1,828.2 Other financial sources 35 Official foreign exchange -5.8 -6.3 .7 .7 -17.6 .4 2.4 17.5 1.0 36 Special drawing rights certificates .0 .0 2.2 -.5 -.5 .0 -2.1 .0 .0 .0 .0 37 Treasury currency .4 .7 .6 .1' -.0 -24 .4 .2 1.3 -1.9 .3 38 Foreign deposits -18.5 52.9 35.3 85.9' 107.4 120.1 186.7 23.9 116.1 103.0 -45.3 39 Net interbank transactions 50.5 89.8 9.9 -51.6 -45.8 10.2 -78.4 -57.0 -31.5 -16.2 21.2 40 Checkable deposits and currency 117.3 -9.7 -12.7 15.8 41.5 -47.3 81.8 50.6 -38.4 71.9 65.9 41 Small time and savings deposits -70.3 -39.9 96.6 97.2 97.1 91.1 151.5 34.0 47.0 156.0 152.0 42 Large time deposits -23.5 19.6 65.6 114.0 122.5 136.5 56.3 174.7 188.4 70.8 118.5 43 Money market fund shares 20.2 43.3 142.3 145.8 157.6 188.2 157.6 98.9 226.2 147.8 248.0 44 Security repurchase agreements 71.3 78.2 110.4 40.0 115.2 72.9 32.7 218.9 111.2 98.1 250.5 45 Corporate equities 137.7 24.6 -3.5 -5.8' -73.3 -20.4 -67.7 -66.2 -51.3 -108.0 -103.4 46 Mutual fund shares 292.0 100.6 147.4 237.6 265.1 182.8 249.6 250.1 299.9 261.0 321.4 47 Trade payables 52.2r 94.0' 100.7' 72.3' 94.5 110.4 63.4 56.0 121.0 137.7 79.6 48 Security credit 61.4 -.1 26.7 52.4 110.1 131.1 110.4 127.5 90.6 111.9 168.8 49 Life insurance reserves 36.0 34.5 44.9 43.6 52.9 66.7 49.8 62.5 62.8 36.6 47.8 50 Pension fund reserves 255.6 246.2' 233.2' 230.8' 296.8 281.1 256.6 318.9 326.9 284.8 259.9 51 Taxes payable 11.4 2.6 6.2' 16.2' 15.1 22.1 21.7 12.4 29.6 -3.4 44.1 52 Investment in bank personal trusts .9 17.8 4.0 -8.6 75.0 -4.2 68.8 71.8 80.8 78.4 50.3 53 Noncorporate proprietors' equity 25.5 55.6' 71.5' 47.1' 41.1 29.4 50.1 48.0 49.7 16.8 41.0 54 Miscellaneous 340.0' 252.0' 449.4' 415.8' 586.7 465.4 668.2 527.8 621.6 529.4 868.6 55 Total financial sources 2,312.9' 2,083.6r 2,768.5' 2,900.8' 3,529.6 3,244.3 3,082.2 3,288.5 3,770.5 3,977.4 4,418.4 Liabilities not identified as assets ( —) 56 Treasury currency -.2 _ 2 -.5 -.9' -.6 -3.1 - .3 -.5 .7 -2.4 57 Foreign deposits -5.7 43^0 25.1 59.4' 107.4 51.7 176.9 10.6 93.9 148.3 -94.6 58 Net interbank liabilities 4.2 -2.7 -3.1 -3.3 -19.8 1.5 30.3 -26.7 -50.0 -32.6 107.2 59 Security repurchase agreements 46.4 69.4 22.9 - 7 72.6 110.4 -107.3 185.3 23.4 188.9 187.6 60 Taxes payable 15.8 16.6 21.1' 20.4' 17.7 24.8 19.3 27.6 14.7 9.4 41.2 61 Miscellaneous -170.8' -150.4' -221.3' -122.6' -303.3 -140.4 25.1 -485.0 -137.8 -615.5 -207.6 Floats not included in assets (-) 62 Federal government checkable deposits -1.5 -4.8 .5 -2.7 -12.4 -4.6 -8.? 10.0 -7.9 7.5 63 Other checkable deposits -1.3 -2.8 -4.0 -3.9 -3.8 -3.3 -4.3 -3.0 -5.0 -4.0 64 Trade credit -4.0' 1.5' -12.5' -31.5' 9.7 -9.8 -5.2 -53.8 39.4 58.5 5.9 65 Total identified to sectors as assets 2,429.9r 2,114.0' 2,946.7' 2,983.7' 3,652.5 3,225.3 2,951.3 3,643.7 3,779.1 4,235.7 4,375.5 1. Data in this table also appear in the Board's Z.I (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund shares. F.I 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 • October 1998 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING' Billions of dollars, end of period 1996 1997 1998 Transaction category or sector 1994 1995 1996 1997 Q4 Ql Q2 Q3 Q4 Ql' Q2 Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 13,014.5r 13,716.0' 14,441.8' 15,208.7 14,441.8' 14,608.9' 14,727.4' 14,931.4' 15,208.7' 15,439.6 15,634.4 Bv sector and instrument 2 Federal government 3.492.3 3,636.7 3,781.8 3,804.9 3,781.8 3.829.8 3,760.6 3,771.2 3,804.9 3,830.4 3,749.0 3 Treasury securities 3.465.6 3,608.5 3,755.1 3,778.3 3,755.1 1,803.5 3 734 1 3,745.1 3,778.3 3,804.5 3,723.4 4 Budget agency securities and mortgages 26.7 28.2 26.6 26.5 26.6 26.3 26.3 26.1 26.5 25.9 25.6 5 Nonfederal 9,522.2' 10,079.3' 10.660.1' 11.403.8 10,660 1' 10,779.1' 10.966.8' 11.160.2' 11.403.8' 11,609.2 11,885.5 By instrument 6 Commercial paper 139.2 157.4 156.4 168.6 156.4 168.7 179.3 176.6 168.6 193.1 202.5 7 Municipal securities and loans 1.341.7 1,293.5 1,296.0 1.367.5 1,296.0 1,305.1 1,326.8 1,340.2 1,367.5 1,397.1 1,425.8 8 Corporate bonds 1,253.0 1,326.3 1,398.8 1,489.5 1,398.8 1.418.7 1,440.2 1,470.9 1.489.5 1,528.8 1,569.0 9 Bank loans n.e.c 759.9 862.1 928.3 1,035.9 928.3 964.5' 1,000.2' 1,000.1' 1,035.9' 1,052.0 1,100.6 10 Other loans and advances 669.6 736.9 770.6 838.8 770 6 784.4 788.2' 802.8' 838.8' 864.6 871.9 11 Mortgages 4,374.8' 4,580.3' 4,898.3' 5,239.3 4,898.3' 4,951.3' 5,027.1' 5,142.7' 5,239.3' 5,338.9 5,461.8 |7 Home . .... 3,355.9 3,530.4 3,761.6 4,029.3 3,761.6 3,806.1 3,860.8 3,956.8' 4,029.?' 4,102,8 4,195.7 13 Multifamily residential 265.6' 273.8' 290.0' 301.4 290.0' 291.0' 294.2' 295.8' 301.4' 306.4 312.0 14 Commercial 670.3' 691.6' 759.5' 818.3 759.5' 766.5' 783.5' 800.4' 818.3' 838.3 861.1 15 Farm 83.0 84.6 87.1 90.4 87.1 87.7 88.7 89.8 90.4 91.4 93.0 16 Consumer credit 983.9 1,122.8 1,211.6 1,264.1 1,211.6 1,186.4 1,205.0 1,226.7 1,264.1 1,234.7 1,253.9 By borrowing sector 17 Household 4.452.8' 4,806.8' 5,150.9' 5,5052 5.150.9' 5,182.8' 5,271.2' 5,383.0' 5,505.2' 5,562.4 5,689.3 18 Nonfinancial business 3,947.6' 4,202.3' 4 445.8' 4,779.2 4.445.8' 4,527.4' 4.609.6' 4,681.7' 4,779.2' 4,9024 5.028.8 19 Corporate 2,683.6' 2,911.4' 3,105.7' 3,369.2 3.105.7' 3,176.8' 3,236.8' 3,291.1' 3,369.2' 3,473.9 3,571.8 20 Nonfami noncorporate 1,121.8 1,145.8 1,190.2 1,253.7 1.190.2 1.202.2 1,219.3 1,235.2 1,253.7 1.273.1 1,296.1 21 Farm 142,2 145.1 149.9 156.3 149.9 148.3 153.4 155.4 156.3 155.4 160.9 22 State and local government 1,121.7' 1,070.2' 1,063.4' 1,119.5 1,063.4' 1.069.0' 1,086.1' 1,095.5' 1,119.5' 1,144.3 1,167.3 23 Foreign credit market debt held in United States 370.8' 441.9' 518.8' 569.6 518.8' 524.3' 539.2' 557.7' 569.6' 584.1 602.1 24 Commercial paper 42 7 56.2 67.5 65.1 67.5 69.3 71.3 64.3 65.1 76.7 71.4 25 Bonds 242.3 291.9 347.7' 394.4 347.7' 351.6' 361.2' 386.3' 394.4' 398.0 420.5 26 Bank loans n.e.c 26.1 34.6 43.7 52.1 43.7 43.5 46.4 48.2 52.1 53.5 55.5 27 Other loans and advances 59.8' 59.3' 60.0' 58.0 60.0' 59.9' 60.3' 58.9' 58.0' 55.9 54.8 28 Total credit market debt owed by nonfinanrial sectors, domestic and foreign 13,385.3r 14,158.0' 14,960.7' 15,778.3 14,960.7' 15,133.2' 15,266.6' 15,489.1' 15,778.3' 16,023.7 16,236.5 Financial sector; 29 Total credit market debt owed by financial sectors 3,822.2 4,281.2 4,837.3 5,448.7 4,837.3 4,916.5' 5,085.3r 5,205.4' 5,448.7' 5,653.7 5,912.5 Bv instrument 30 Federal government-related 2,172.7 2,376.8 2,608.3 2.821.0 2.608.3 2,634.7 2,706.2 2,746.5 2,821.0 2,877.9 2,981.2 31 Government-sponsored enterprise securities 700.6 806.5 896.9 995.3 896.9 894.7 944.2 955.8 995.3 1.030.9 1.072.5 32 Mortgage pool .securities 1,472.1 1,570.3 1,711.4 1.825.8 1,711.4 1,740.0 1,762.1 1.790.7 1,825.8 1.847.0 1.908.7 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 2.627.6 2,229.1 2,281.8' 2,379.1' 2,458.9' 2,627.6' 2,7758 2,931.3 35 Open market paper 441.6 486.9 579.1 745.7 579.1 6230 642.5 684.7 745.7 804.9 838.9 36 Corporate bonds 1.008.8 1,205.4 1,385.1 1.560.1 1.385 ! 1,396 5 1,458.1' 1,478.2' 1,560.1' 1.634.9 1,733.5 37 Bank loans n.e.c 48.9 52.8 69.7 8.VS 69 7 70.6' 69.2' 74.8' 83.3' 87.3 89.3 38 Other loans and advances 131.6 135.0 162.9 198.5 162.9 157.9 173.7 183.0 198.5 206.6 225.6 39 Mortgages 18.7 24.3 32.2 40.0 32.2 33.8 35.6 38.2 40.0 42.0 44.0 By borrowing sector 40 Commercial banks 94.5 102.6 113.6 140.6 113.6 115.3 125.7 130.0 140.6 148.7 159.7 41 Bank holding companies 133.6 148.0 150.0 168.6 150.0 151.6 160.5 164.0 168.6 181.2 194.5 42 Savings institutions 112.4 115.0 140.5 160.3 140.5 136.3 144.3 149.8 160.3 162.9 170.7 43 Credit unions .5 .4 .4 .6 .4 .4 .4 .5 .6 .7 .8 44 Life insurance companies .6 .5 1.6 1.8 1.6 1.8 1.8 1.9 1.8 1.8 1.6 45 Government-sponsored enterprises 700.6 806.5 896.9 995.3 896.9 894.7 944.2 955.8 995.3 1,030.9 1,072.5 46 Federally related mortgage pools 1,472.1 1,570.3 1.711.4 1,825.8 1,711.4 1,740.0 1,762.1 1,790.7 1,825 8 1,847.0 1,908.7 47 Issuers of asset-backed securities (ABSs) 579.0 720.1 873.8 1,089.4 873.8 889.9 918.4' 989.2' 1.089.4' 1,147.4 1,236.1 48 Brokers and dealers 34.3 29.3 27.3 35.3 27.3 26.6 35.3 33.6 35.3 35.1 40.1 49 Finance companies 433.7 483.9 529.8 554 5 529 8 528.4 557.8 532.7 554.5 571.9 596.9 50 Mortgage companies 18.7 19 1 31 5 30.3 31.5 314' 28 3' 29.2' 30.3' 31.6 30.2 51 Real estate investment trusts (REITs) 31.1 36.8 47.8 72.6 47.8 51.6 56.6 64.6 72.6 81.7 90.1 52 Funding corporations 211.0 248.6 312.7 373.8 312.7 348.6 350.0 363.4 373.8 412.9 410.7 All sectors S3 Total credit market debt, domestic and foreign 17,207.5r 18,439.2' 19,798.0' 21,227.0 19,798.0' 20,049.7' 20,351.9' 20,694.5' 21,227.0' 21,677.4 22,149.1 54 Open market paper 623.5 700.4 803.0 979.4 803.0 861.1 893.1 925.7 979.4 1,074.8 1,112.7 55 U.S. government securities 5.665.0 6,013.6 6,390.0 6,625.9 6.390.0 6,464.5 6,466.8 6,517.7 6,625.9 6,708.3 6,730.2 56 Municipal securities 1,341.7 1,293.5 1,296.0 1,367.5 1.296.0 1,305.1 1,326.8 1,340.2 1,367.5 1,397.1 1,425.8 57 Corporate and foreign bonds 2,504.0 2,823.6 3,131.7' 3,444.1 3.131.7' 3,166.8' 3,259.5' 3,335.4' 3,444.1' 3,561.8 3,723.0 58 Bank loans n.e.c 834.9 949.6 1,041.7 1,171.3 1.041.7 1,078.6 1,115.8' 1,123.1 1,171.3 1,192.8 1,245.4 59 Other loans and advances 860.9' 931 1' 993.6' 1,095.3 993.6' 1,002.3' 1,022.1' 1,044.8' 1,095.3' 1,127.1 1,152.4 60 Mortgages 4.393.5' 4,604.6' 4,930.5' 5,279.3 4 930.5' 4,985.0' 5,062.8' 5,180 9' 5,279.3' 5,380.9 5,505.8 61 Consumer credit 983.9 1.122.8 1,211.6 1,264.1 1,211.6 1,186.4 1,205.0 1,226.7 1,264.1 1,234.7 1,253.9 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 LIABILITIES1 Billions of dollars except as noted, end of period 1998 Transaction category or sector 04 Ql Q2 03 04' Ql' Q2 CREDIT MARKET DEBT OUTSTANDING2 1 Total credit market assets 17,207.5r 18,439.2' 19,798.0' 21,227.0 19,798.0' 20,049.7' 20,351.9' 20,694.5' 21,227.0 21,677.4 22,149.1 2 Domestic nonfederal nonfinancial sectors 3,038.9' 2,903.8' 2,953.4' 2,814.6 2,953.4' 2,891.2' 2,842.4' 2,789.4' 2,814.6 2,759.7 2,812.8 3 Household 1.982.2' 1,942.6' 2,005.9' 1,849.7 2,005.9' 1,951.7' 1.898.6' 1,848.1' 1,849.7 1,819.1 1,846.8 4 Nonfinancial corporate business 289.2 280.4 286.0 300.9 286.0 286.8' 276.9' 285.9' 300.9 280.0 286.9 5 Nonfarm noncorporate business 37.6 42.3 46.7 49.4 46.7 47.4 48.0 48.7 49.4 50.2 51.0 6 State and local governments 729.9 638.6 614.8 614.5 614.8 605.4 618.9 606.6 614.5 610.5 628.2 7 Federal government 203.4' 203.2' 195.5' 200.4 195.5' 195.9' 197.3' 198.2' 200.4 204.3 207.5 8 Rest of the world 1,216.0' 1,530.3' 1,931.2' 2,258.4 1,931.2' 2.019.4' 2,094.6' 2,196.3' 2,258.4 2,322.5 2,398.5 9 Financial sectors 12.749.2 13,801.8 14,717.9' 15.953.6 14,717.9' 14,943.2' 15,217.6' 15,510.7' 15,953.6 16,391.0 16,730.3 10 Monetary authority 368.2 380.8 393.1 431.4 393.1 397.1 412.4 412.7 431.4 433.8 440.3 11 Commercial banking 3,254.3 3,520.1 3,707.7 4,032.5 3,707.7 3,775.7 3,856.8 3,912.9 4,032.5 4,094.1 4,140.1 12 US.-chartered banks 2.869.6 3,056.1 3,175.8 3.450.7 3,175.8 3,218.1 3,295.2 3,351.9 3,450.7 3,505.1 3.546.8 13 Foreign banking offices in United States . . 337.1 412.6 475.8 516.1 475.8 499.5 501.8 501.0 516.1 518.0 525.5 14 Bank holding companies 18.4 18.0 22.0 27.4 22.0 22.5 23.8 22.5 27.4 31.2 26.8 15 Banks in U.S.-affiliated areas 29.2 33.4 34.1 38.3 34.1 35.6 36.1 37.5 38.3 39.7 41.0 16 Savings institutions 920.8 913.3 933.2 928.5 933.2 931.9 937.8 929.0 928.5 931.0 928.1 17 Credit unions 246.8 263.0 288.5 305.3 288.5 291.2 299.9 303.9 305.3 307.5 316.4 18 Bank personal trusts and estates 248.0 239.7 232.0 239.5 232.0 232.8 235.5 237.3 239.5 240.1 240.9 19 Life insurance companies 1,482.6 1.581.8 1,654.3 1,755.2 1,654.3 1,680.2 1,724.1 1,750.4 1,755.2 1,786.3 1,815.6 20 Other insurance companies 446.4 468.7 491.2 515.3 491.2 491.6' 498.6' 506.6' 515.3 521.1 528.2 21 Private pension funds 656.9 718.2 766.5 834.2 766.5 780.3 794.9 811.5 834.2 852.3 878.7 22 State and local government retirement funds 455.8 483.3 529.2 565.8 529.2 531.6 542.7 562.0 565.8 582.5 603.2 23 Money market mutual funds 459.0 545.5 634.3 721.9 634.3 659.0 656.5 678.7 721.9 775.0 815.9 24 Mutual funds 718.8 771.3 820.2 901.1 820.2 838.5' 861.3' 890.4' 901.1 939.3 968.5 25 Closed-end funds 86.0 96.4 98.7 99.8 98.7 99.3 99.7 99.7 99.8 100.0 100.0 26 Government-sponsored enterprises 663.3 748.0 813.6 908.6 813.6 824.3 854.8 868.7 908.6 949.5 985.9 27 Federally related mortgage pools 1,472.1 1,570.3 1,711.4 1,825.8 1,711.4 1,740.0 1,762.1 1,790.7 1,825.8 1,847.0 1,908.7 28 Asset-backed securities issuers (ABSs) 541.7 661.0 784.4 950.5 784.4 794.6 819.4' 863.4' 950.5 993.7 1,074.6 29 Finance companies 476.2 526.2 544.5 566.4 544.5 552.4 553.1 564.4 566.4 572.0 579.0 30 Mortgage companies 36.5 33.0 41.2 57.6 41.2 40.9 34.8 55.5 57.6 60.2 57.4 31 Real estate investment trusts (REITs) 13.3 15.5 17.5 15.5 17.5 17.0 16.5 15.9 15.5 15.0 14.5 32 Brokers and dealers 93.3 183.4 167.7 181.4 167.7 164.1 161.2 165.1 181.4 244.0 196.9 33 Funding corporations 109.3 82.2 88.7' 117.4 88.7' 100.6' 95.6' 91.8' 117.4 146.5 137.4 RELATION OF LIABILITIES TO FINANCIAL, ASSETS 34 Total credit market debt 17,207.5' 18,439.2' 19,798.0' 21,227.0 19,798.0' 20,049.7' 20351.9' 20,694.5r 21,227.0 21,677.4 22,149.1 Other liabilities 35 Official foreign exchange 53.2 63.7 53.7 48.9 53.7 46.3 46.7 46.1 48.9 48.2 50.1 36 Special drawing rights certificates 8.0 10.2 9.7 9.2 9.7 9.2 9.2 9.2 9.2 9.2 9.2 37 Treasury currency 17.6 18.2 18.3' 18.3 18.3' 18.4' 18.4' 18.7 18.3 18.4 18.4 38 Foreign deposits 373.9' 418.8' 516.1' 619.4 516.1' 562.8' 568.8' 597.8' 619.4 608.1 619.2 39 Net interbank liabilities 280.1 290.7 240.8 193.3 240.8 210.9 197.1 186.9 193.3 188.4 186.4 40 Checkable deposits and currency 1,242.0 1,229.3 1,245.1 1.286.6 1,245.1 1,220.0 1,265.3 1,234.2 1,286.6 1,259.5 1,321.4 41 Small time and savings deposits 2,183.2 2,279.7 2,377.0 2.474.1 2,377.0 2,427.1 2,432.3 2,438.8 2,474.1 2,524.5 2,532.7 42 Large time deposits 411.2 476.9 590.9 713.4 590.9 606.0 646.7 696.1 713.4 744.0 733.5 43 Money market fund shares 602.9 745.3 891.1 1,048.7 891.1 950.8 952.4 1,005.1 1,048.7 1,130.7 1,153.7 44 Security repurchase agreements 549.5 659.9 699.9 815.1 699.9 713.8 766.7 795.4 815.1 881.4 865.4 45 Mutual fund shares 1,477.3 1,852.8 2,342.4 2,989.4 2.342.4 2,410.6' 2,717.5' 2,973.6' 2,989.4 3,340.2 3,456.0 46 Security credit 279.0 305.7 358.1 468.2 358.1 380.0 414.8 432.2 468.2 505.3 481.0 47 Life insurance reserves 505.3 550.2 593.8 646.7 593.8 606.2' 621.9' 637.6' 646.7 658.7 668.3 48 Pension fund reserves 4,870.5' 5,588.7' 6,314.7' 7,398.2 6,314.7' 6,401.5' 6,906.7' 7,289.8' 7.398.2 7.955.8 8.093.9 49 Trade payables 1,140.6' 1,241.4' 1,313.6' 1,408.2 1,313.6' 1,297.3' 1,317.1' 1,347.0' 1,408.2 1,395.4 1,416.9 50 Taxes payable 101.4 107.6' 123.8' 138.8 123.8' 137.3' 133.5' 142.6' 138.8 158.6 149.2 51 Investment in bank personal trusts 699.4 803.0 871.7 1,082.8 871.7 888.7 982.9 1,058.9 1,082.8 1.179.3 1,207.2 52 Miscellaneous 5,331.3' 5.697.7' 5,982.5' 6,452.7 5,982.5' 6,227.1' 6,199.9' 6,409.2' 6,452.7 6,650.9 6,720.1 53 Total liabilities 37,334.1' 40,778.7' 44,341.1' 49,039.1 44,341.1' 45,163.9' 46,549.8' 48,013.6' 49,039.1 50,934.0 51,831.5 Financial assets not included in liabilities ( + ) 54 Gold and special drawing rights 21.1 22.1 21.4 21.1 21.4 20.9 21.1 21.0 21.1 21.2 21.0 55 Corporate equities 6,237.9 8,331.3 10,062.4' 12,776.0 10,062.4' 10,063.5' 11,627.0' 12,649.4' 12,776.0 14,397.6 14,556.) 56 Household equity in noncorporate business 3,422.4' 3,649.7' 3,868.8' 4,188.6 3,868.8' 3,963.3' 4,053.9' 4.119.5' 4,188.6 4,188.6 4,165.5 Liabilities not identified as assets {-) 57 Treasury currency -5.4 -5.8 -6.7' -7.3 -6.7' -6.8' -6.9' -6.7' -7.3 -7.4 -7.4 58 Foreign deposits 325.4' 360.2' 431.2' 534.5 431.2' 475.4' 478.0' 501.5' 534.5 510.8 525.9 59 Net interbank transactions -6.5 -9.0 -10.6 -32.1 -10.6 -1.6 -8.1 -22.1 -32.1 -2.0 4.7 60 Security repurchase agreements 67.8 90.7 90.0 162.6 90.0 68.1' 108.6' 124.9' 162.6 213.0 193.7 61 Taxes payable 48.8 62.4' 76.9' 92.0 76.9' 74.8' 77.1' 87.4' 92.0 96.5 100.5 62 Miscellaneous 1,039.5' -1,332.5' -1,749.4' -2,204.8 -1.749.4' -1,628.4' -1,743.9' -1,735.8' -2,204.8 -2,190.0 -2,189.2 Floats not included in assets (-) 63 Federal government checkable deposits 3.4 3.1 -1.6 -8.1 -1.6 -9.7 -6.8 -7.8 -8.1 -10.4 -16.1 64 Other checkable deposits 38.0 34.2 30.1 26.2 30.1 25.6 27.9 19.5 26.2 21.4 24.2 65 Trade credit -245.9' -258.4' -289.9' -291.2 -289.9' -344.0' -369.8' -377.8' -291.2 -342,4 -354.9 66 Total identified to sectors as assets 47,829.3' 53,836.9' 59,723.7' 67,753.1 59,723.7' 60,558.2' 63,695.6' 66,220.5' 67,753.1 71,251.9 72,292.8 1. Data in this table also appear in the Board's Z.I (780) quarterly statistical release, tables 2. Excludes corporate equities and mutual fund shares. L. I and L.5. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A42 Domestic Nonfinancial Statistics • October 1998 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, and indexes 1992=100, except as noted 1997 1998 Nov. Dec. Jan. Feb. Mar. Apr. May' June' July 114 5 118 5 124 5 127 5 127 9 127.8 127.3 128.0 128 4' 128.9 127.5 126.8 Market groupings 2 Products, total 110.6 113.7 118.5 121.2 121.0 121.3 120.6 121.3 121.8' 122.3 121.3 120.4 111.3 114.6 119.6 122.5 122.2 122.6 121.5 122.6 123.2' 123.5 122.3 121.2 4 Consumer goods 109.9 111.8 114.4 116.7 115.9 116.6 115.1 116.0 116.5' 117.0 115.3 114.3 5 Equipment 113.8 119.6 128.8 132.8 133.4 133.1 133.1 134.3 135.0 135.1 135.0 133.7 108.3 110.8 115.1 117.3 117.4 117.4 117.6 117.3 117.5' 118.6 117.9 117.9 7 Materials 120.8 126.2 134.1 137.7 138.9 138.2 138.2 138.7 139.1' 139.6 137.6 137.0 Irutustn gmupings 8 Manufacturing 116.0 120.2 127.0 130.4 130.9 131.1 130.6 130.8 131.6 131.7 130.2 129.3 9 Capacny utilization, manufacturing (percent)2. . 82.8 81.4 81.7 82.3 82.3 82.1 81.4 81.2 81.4 81.1 79.9 79.0 10 Construction contracts 122.2' 130.8 141.6' 143.0 144.0' 144.0' 145.0' 140.0' 144.0' 143.0 137.0 139.0 11 Nonagricultural employment, total4 114.9 117.2 119.9 121.6 121.9 122.3 122.4 122.5 122.8 123.2 123.3 123.4 12 Goods-producing, total 98.3 99.0 100.3 101.7 102.1 102.5 102.6 102.4 102.7 102.5 102.5 101.9 13 Manufacturing, total 97.5 97.2 97.6 98.7 98.9 99.1 99.1 99.1 99.1 99.0 98.8 97.9 14 Manufacturing, production workers 99.0 98.4 98.9 100.1 100.4 100.5 100.6 100.5 100.4 100.1 99.9 98.6 120.2 123.0 126.2 127.9 128.2 128.6 128.8 128.9 129.3 129.7 130.0 130.3 16 Personal income, total 156 1' 165.2' 174.5' 177.7' 178.2' 179.2' 180.2' 180.9' 181.4' 182.2 182.7 183.5 150.9 159.8 171.2' 175.9' 176.3' 177.8' 178.9' 179.5 180.3 181.5 181.8 182.9 18 Manufacturing 130.3' 135.7 144.7' 149.2' 150.2' 150.6' 151.0' 151.2' 151.0' 151.5 150.5 149.7 156.4' 164.0' 171.7' 174.4' 174.7' 175.2' 176.0' 176.7' 177.1' 177.7 178.0 178.8 20 Retail sales5 151 5 159 6 166 9 168 4 169 1 170 8 172 2 172 4 173 7 175 8 175 9 175 3 Prices'' 21 Consumer (1982-84=100) 152.4 156.9 160.5 161.5 161.3 161.6 161.9 162.2 162.5 162.8 163.0 163.2 22 Producer finished goods (1982= 100) 127.9 131.3 131.8 131.7 131.1 130.3 130.2 130.1' 130.0 130.4 130.6 130.9 1. Data in this table also appear in the Board's G 17 (419) monthly statistical release. For 4. Based on data from U.S. Department of Labor, Employment and Earnings. Series covers the ordering address, see the inside front cover. The latest historical revision of the industrial employees only, excluding personnel in the armed forces. production index and the capacity utilization rates was released in December 1997. The recent 5. Based on data from U.S. Department of Commerce, Survey of Current Business. annual revision is described in an article in the February 1998 issue of the Bulletin. For a 6. Based on data not seasonally adjusted. Seasonally adjusted data for changes in the price description of the aggregation methods for industrial production and capacity utilization, see indexes can be obtained from the U.S. Department of Labor, Bureau of Labor Statistics, "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- Monthlx Labor Review. ments," Federal Reserve Bulletin, vol. S3 (February 1997), pp. 67-92. For details about the NOTE. Basic daia (not indexes) for series mentioned in notes 4 and 5, and indexes for series construction of individual industrial production scries, see "Industrial Production: 1989 mentioned in notes 3 and 6, can also be found in the Survey of Current Business. Developments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), pp. Figures for industrial production for the latest month are preliminary, and many figures for 187-204. the three months preceding the latest month have been revised. See "Recent Developments in 2. Ratio of index of production to index of capacity. Based on data from the Federal Industrial Capacity and Utilization," Federal Reserve Bulletin, vol. 76 (June 1990), pp. Reserve, DRI McGraw-Hill, U.S. Department of Commerce, and other sources. 411-35. See also "Industrial Production Capacity and Capacity Utilization since 1987," 3. Index of dollar value of total construction contracts, including residential, nonresiden- Federal Reserve Bulletin, vol. 79 (June 1993), pp. 590-605. tial, and heavy engineering, from McGraw-Hill Information Systems Company, F.W. Dodge Division. 2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data seasonally adjusted 1997 1998 Category 1995 1996 1997 Dec. Jan. Feb. Mar. Apr. May June' July HOUSEHOLD SURVEY DATA' 132,304 133.943 126.297 137,169 137.493 137,557 137,523 137,242 137,364 137.447 137,296 Employment 121,460 123,264 126,159 127,392 127,764 127,829 127,862 128,033 128,118 127,867 127,626 1440 3,443 3,399 3,385 3.319 3,335 3,132 3,350 3,335 3,343 3,441 Unemployment 4 Number 7,404 7,236 6,739 6,392 6,409 6,393 6,529 5,859 5,910 6,237 6,230 5 Rate (percent of civilian labor force) 5.6 5.4 4.9 4.7 4.7 4.6 4.7 4.3 4.3 4.5 4.5 ESTABLISHMENT SURVEY DATA 6 Nonagricultural payroll employment4 117,191 119,523 122,257 124,289 124,640 124,832 124,914 125,234 125,562r 125,758 125,824 7 Manufacturing 18,524 18,457 18,538 18,791 18,824 18,822 18.829 18,827 18,805 18,776 18,600 8 Mining 581 574 573 592 592 590 587 582 579 579 574 9 Contract construction 5,160 5,400 5,627 5.810 5.881 5,902 5,860 5.930 5,917 5,942 5,960 10 Transportation and public utilities 6,132 6,261 6,426 6,451 6,473 6,494 6,504 6.513 6.5341" 6,537 6.555 11 Trade 27,565 28,108 28,788 28,976 29,039 29.052 29,042 29,133 29.238r 29.273 29,399 12 Finance 6,806 6,899 7,053 7,194 7,213 7.232 7,258 7,289 7,3 IT 7,334 7,366 13 Service 33,117 34,377 35,597 36,795 36,932 37,020 37,106 37,196 37.350r 37.501 37,566 14 Government 19,305 19,447 19,655 19,680 19,686 19,720 19,728 19,764 19.828r 19.816 19,804 1. Beginning January 1994, reflects redesign of current population survey and population 4. Includes all full- and part-time employees who worked during, or received pay for, the controls from the 1990 census. pay period that includes the twelfth day of the month: excludes proprietors, self-employed 2. Persons sixteen years of age and older, including Resident Armed Forces. Monthly persons, household and unpaid family workers, and members of the armed forces. Data are figures are based on sample data collected during the calendar week that contains the twelfth adjusted to the March 1992 benchmark, and only seasonally adjusted data are available at this day; annual data are averages of monthly figures. By definition, seasonality does not exist in time. population figures. SOURCfi. Based on data from U.S. Department of Labor. Employment and Earnings. 3. Includes self-employed, unpaid family, and domestic service workers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A43 2.12 OUTPUT, CAPACITY, AND CAPACITY UTILIZATION1 Seasonally adjusted 1997 1998 1998 03 Q4 Ql Q2r Q3 Q4 Ql Q2 Q4 Ql Q2' Output (1992= 100) Capacity (percent of 1992 output) Capacity utilization rate (percent)2 1 Total industry 2 Manufacturing 130.1 130.8 131.2 156.3 158.3 160.4 162.4 82.2 81.6 80.8 3 Primary processing3 118.5 119.8 120.2 120.0 138.0 139.2 140.4 141.4 85.8 86.0 85.6 84.8 4 Advanced processing4 132.1 135.3 136.2 136.8 165.7 168.1 170.7 173.1 79.8 80.4 79.8 79.0 5 Durable goods 143.7 147.2 148.2 149.3 177.2 180.6 184.1 187.6 81.1 81.5 80.5 79.6 6 Lumber and products 114.9 114.7 115.7 116.8 140.0 141.3 142.2 142.6 82.1 81.2 81.3 81.9 7 Primary metals 125.5 127.8 128.2 125.9 137.2 138.5 140.1 141.8 91.5 92.3 91.5 88.8 8 Iron and steel 122.8 126.5 127.2 123.6 136.6 137.9 139.4 141.3 89.9 91.8 91.3 87.5 9 Nonferrous 128.8 129.4 129.3 128.7 137.7 138.9 140.6 142.1 93.5 93.2 92.0 90.5 10 Industrial machinery and equipment 173.9 177.6 181.2 188.3 204.4 210.0 215.8 221.4 85.1 84.6 84.0 85.1 11 Electrical machinery 236.6 246.0 254.0 257.9 289.1 301.9 315.4 328.6 81.9 81.5 80.5 78.5 12 Motor vehicles and parts 136.7 144.0 137.2 132.8 184.7 186.7 188.8 190.8 74.0 77.1 72.7 69.6 13 Aerospace and miscellaneous transportation equipment 95.6 98.6 101.3 101.2 124.1 124.8 125.5 126.3 77.1 79.0 80.7 80.1 14 Nondurable goods 111.1 112.6 113.1 112.8 135.0 135.7 136.4 137.0 82.3 82.9 82.9 82.3 15 Textile mill products 110.9 111.5 110.1 109.6 131.7 132.3 132.8 133.2 84.3 84.3 82.9 82.3 16 Paper and products 114.1 113.5 113.1 112.7 126.0 126.7 127.4 128.1 90.5 89.6 88.8 88.0 17 Chemicals and products 114.8 117.1 118.0 118.3 146.3 147.5 148.6 149.4 78.5 79.4 79.4 79.2 18 Plastics materials 130.6 131.4 130.8 131.0 140.0 141.9 143.6 145.0 93.3 92.6 91.1 90.4 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 106.4 105.9 108.4 106.9 118.1 118.2 118.4 118.6 90.1 89.6 91.6 90.1 21 Utilities 114.0 115.5 110.4 115.3 126.7 127.1 127.4 127.7 90.0 90.9 86.6 90.3 22 Electric 114.2 115.7 112.1 117.0 125.0 125.4 125.7 126.1 91.4 92.3 89.2 92.8 Previous cycle Latest cycle 1997 1998 High High High July Apr.r Mayr June Capacity utilization rate (percent) 1 Total industry 85.4 82.2 82.4 82.4 81.2 80.5 2 Manufacturing 85.7 81.2 79.9 79.0 3 Primary processing" 91.2 68.2 88.1 66.2 77.7 86.0 85.5 85.1 85.4 85.0 84.1 83.6 4 Advanced processing4 87.2 71.8 86.7 70.4 76.1 79.6 79.6 79.5 79.6 79.5 78.0 76.9 5 Durable goods 89.2 68.9 87.7 63.9 84.6 73.1 80.8 80.2 80.2 80.3 80.1 78.3 77.0 6 Lumber and products 88.7 61.2 87.9 60.8 93.6 75.5 83.2 82.0 81.2 81.9 81.8 82.1 82.6 7 Primary metals 100.2 65.9 94.2 45.1 92.7 73.7 91.5 91.4 90.3 90.8 89.0 86.6 85.5 8 Iron and steel 105.8 66.6 95.8 37.0 95.2 71.8 89.7 91.1 90.5 89.9 87.8 84.9 84.1 9 Nonferrous 90.8 59.8 91.1 60.1 89.3 74.2 93.8 92.0 90.3 92.1 90.6 87.3 10 Industrial machinery and equipment 96.0 74.3 93.2 64.0 85.4 72.3 85.0 83.1 84.4 84.9 85.0 85.3 84.9 11 Electrical machinery 64.7 89.4 71.6 84.0 75.0 82.7 80.5 79.7 79.4 78.5 77.6 77.5 12 Motor vehicles and parts 51.3 95.0 45.5 89.1 55.9 70.7 72.4 72.1 72.7 73.5 62.6 52.8 13 Aerospace and miscellaneous transportation equipment . 78.4 67.6 81.9 66.6 87.3 79.2 76.4 80.4 79.9 80.3 80.1 80.6 14 Nondurable goods 87.8 71.7 87.5 76.4 87.3 80.7 82.3 82.4 82.7 82.4 81.7 81.4 15 Textile mill products 91.4 60.0 91.2 72.3 90.4 77.7 84.2 82.5 81.9 82.1 83.7 81.0 81.5 16 Paper and products 97.1 69.2 96.1 80.6 93.5 85.0 90.8 90.0 88.1 88.5 88.0 87.4 85.9 17 Chemicals and products 87.6 69.7 84.6 69.9 86.2 79.3 78.4 79.1 79.0 79.5 79.1 79.0 78.5 18 Plastics materials 102.0 50.6 90.9 63.4 97 0 74.8 94.4 90.3 89.0 91.8 90.2 89.2 88.2 19 Petroleum products 96.7 81.1 90.0 66.8 88.5 85.1 94.7 96.3 98.6 97.9 96.2 96.4 96.9 20 Mining. . . 94.3 88.2 96.0 80.3 88.0 87.0 90.3 91.9 91.2 90.6 90.8 89.0 89.3 21 Utilities. . . 96.2 82.9 89.1 75.9 92.6 83.4 84.9 89.6 87.6 91.4 91.9 91.8 22 Electric. 99.0 82.7 88.2 78.9 95.0 87.1 87.9 91.8 90.7 94.3 93.6 93.4 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 • October 1998 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data seasonally adjusted 1992 pro- Group portion July Aug. Sept. Oct. Dec. Jan. Feb Apr.' May' Julyp Index (1992 = 100) MAJOR MARKETS 1 Total index 100.0 124.5 124.5 125.2 125.6 126.5 127.5 127.9 127.8 127.3 128.0 128.4 128.9 127.5 126.8 2 Products 60.5 118.5 118.1 119.2 119.1 120.2 121.2 121.0 121.3 120.6 121.3 121.8 122.3 121.3 120.4 3 Final products 46.3 119.6 119.2 120.5 120.3 121.5 122.5 122.2 122.6 121.5 122.6 123.2 123.5 122.3 121.2 4 Consumer goods, total 29.1 114.4 113.9 114.6 114.5 115.9 116.7 115.9 116.6 115.1 116.0 116.5 117.0 115.3 114.3 5 Durable consumer goods 6.1 131.3 128.1 132.1 131.9 131.4 136.5 134.7 135.6 134.3 135.2 136.3 138.1 130.6 125.2 6 Automotive products 2.6 129.9 120.3 131.6 132.8 131.2 138.4 133.8 132.6 131.0 132.4 134.5 136.7 122.1 108.5 7 Autos and trucks 1.7 136.5 120.2 137.6 140.9 139.7 147.8 142.7 139.9 137.2 137.7 140.2 142.4 117.5 93.9 8 Autos, consumer .9 115.2 113.0 118.6 119.9 115.2 120.3 113.9 116.0 105.7 107.4 108.3 109.3 94.6 79.3 9 Trucks, consumer .7 159.1 131.9 161.2 166.5 168.6 179.8 175.7 168.2 172.7 172.0 176.0 179.4 144.0 111.6 10 Auto parts and allied goods . . . .9 119.3 119.3 121.8 120.1 117.9 123.8 120.1 120.9 121.0 123.7 125.3 127.5 127.3 127.3 11 Other 3.5 132.3 134.4 132.5 131.1 131.5 135.0 135.3 138.0 136.9 137.4 137.8 139.2 137.4 138.8 12 Appliances, televisions, and air conditioners 1.0 168.6 174.8 169.8 166.0 169.4 177.2 178.7 186.4 188.6 192.5 193.8 193.6 192.5 201.8 13 Carpeting and furniture .8 117.0 116.4 117.7 116.2 116.5 122.1 116.8 122.5 117.7 116.5 117.1 122.3 117.4 119.2 14 Miscellaneous home goods. .. . 1.6 120.0 122.1 119.8 119.4 118.6 119.2 122.1 121.0 120.7 120.8 120.7 120.6 120.2 118.9 15 Nondurable consumer goods 23.0 110.2 110.3 110.3 110.2 112.1 111.8 111.3 112.0 110.4 111.3 111.6 111.9 111.4 111.4 16 Foods and tobacco 10.3 109.3 109.6 108.9 108.6 109.7 110.7 110.0 113.0 111.8 111.3 111.9 112.0 110.3 110.1 17 Clothing 2.4 95.9 95.8 96.0 96.0 96.4 95.1 95.1 95.2 93.5 94.7 94.8 93.6 93.3 93.1 18 Chemical products 4.5 119.1 117.3 119.4 119.4 123.0 121.3 121.8 122.9 121.8 122.2 124.1 123.5 124.0 123.4 19 Paper products 2.9 109.3 110.8 109.8 110.1 1113 111.7 110.1 110.2 107.8 106.2 106.7 105.8 105.2 106.4 20 Energy 2.9 111.3 112.4 112.8 112.4 116.2 113.9 113.5 107.4 104.6 112.6 110.2 114.2 116.1 116.1 21 Fuels .8 109.3 108.8 111.0 110.8 112.0 106.7 109.3 110.5 110.0 111.3 111.7 111.0 111.0 113.1 22 Residential utilities 2.1 112.0 113.7 113.2 112.8 117.8 117.1 115.1 105.4 101.5 112.8 109.0 115.3 118.1 117.1 23 Equipment 17.2 128.6 130.9 130.6 131.3 132.8 133.4 133.1 133.1 134.3 135.0 135.1 135.0 133.7 24 Business equipment 13.2 141.9 141.6 144.6 144.4 145.5 147.5 148.6 147.3 146.8 148.7 150.2 150.3 150.8 149.4 25 Information processing and related.... 5.4 168.1 169.3 171.1 172.9 174.3 174.7 176.0 175.4 178.0 179.7 182.9 183.8 186.1 188.3 26 Computer and office equipment .... 1.1 385.6 391.6 407.1 414.6 420.3 427.3 440.1 457.1 476.1 499.2 518.2 531.5 550.1 567.1 27 Industrial 4.0 133.3 133.7 135.8 133.8 135.9 136.3 137.8 136.4 134.2 117.4 137.6 136.3 139.6 138.4 28 Transit 2.5 111.2 106.9 113.3 114.2 113.0 119.9 121.2 119.8 117.9 117.8 118.9 120.5 114.1 106.2 29 Autos and trucks 1.2 119.7 111.5 120.3 120.2 117.0 128.2 124.6 121.1 116.4 117.1 119.4 120.2 105.5 87.4 30 Other 1.3 135.0 136.3 137.9 135.1 137.5 137.3 136.2 133.6 132.7 135.2 136.2 134.7 136.8 140.8 31 Defense and space equipment 3.3 75.2 74.9 75.0 74.7 74.7 74.5 74.5 75.7 75.9 75.3 75.1 75.4 75.3 75.2 32 Oil and gas well drilling .6 149.7 152.1 153.2 153.1 149.1 150.0 145.9 154.0 158.9 158.6 150.5 148.1 137.5 132.1 33 Manufactured homes 139.1 143.5 139.5 137.2 136.9 138.1 132.4 144.0 148.6 145.4 146.9 148.6 149.1 146.8 34 Intermediate products, total 14.2 115.1 114.6 115.3 115.2 116.3 117.3 117.4 117.4 117.6 117.3 117.5 118.6 117.9 117.9 35 Construction supplies 5.3 121.8 121.2 122.7 120.4 121.3 123.6 123.2 125.2 126.2 124.2 124.7 126.1 125.7 126.1 36 Business supplies 8.9 111.1 110.6 111.0 112.2 113.4 113.5 113.9 112.9 112.6 113.2 113.2 114.2 113.3 113.1 37 Materials 39.5 134.1 134.9 134.9 136.1 136.7 137.7 138.9 138.2 138.2 138.7 139.1 139.6 137.6 137.0 38 Durable ggoods materials 20.8 158.2 159.3 160.3 161.3 163.2 165.0 166.5 166.2 165.8 166.4 167.6 167.8 164.4 163.0 39 DurDabblle consumer parts 4.0 139.2 139.2 140.3 140.7 141.8 142.3 146.9 138.5 139.3 139.3 141.0 141.2 129.0 122.0 40 Equipment parts 7.6 221.9 224.6 227.6 229.6 233.3 237.9 240.9 245.5 245.7 247.7 249.6 250.4 250.0 252.6 41 Other 9.2 125.5 125.9 126.0 126.6 127.8 128.8 128.3 128.8 127.7 127.8 128.4 127.7 127.1 126.3 42 Basic metal materials 3.1 120.6 121.1 121.8 121.7 122.5 124.9 122.2 125.0 125.4 122.8 122.8 122.0 120.1 119.1 43 Nondurable goods materials 8.9 113.0 113.5 112.3 113.3 113.1 114.4 116.0 114.5 114.8 113.5 113.9 113.3 112.9 112.0 44 Textile materials 1.1 109.3 112.3 108.4 111.4 111.9 111.0 112.5 107.9 108.5 107.6 107.6 107.7 106.3 105.7 45 Paper materials 1.8 112.6 113.8 114.3 112.7 113.4 112.2 113.7 112.3 114.0 111.8 111.9 110.9 111.6 108.9 46 Chemical materials 3.9 115.2 115.1 113.9 115.6 115.0 116.5 119.1 119.2 117.6 116.6 117.2 116.2 115.8 115.5 47 Other 2.1 110.3 110.1 108.6 109.5 109.0 113.7 113.3 109.4 112.5 111.5 111.7 111.9 II I.I 110.5 Energy materials 9.7 103.9 104.6 103.9 105.5 104.7 103.9 104.2 103.7 103.7 106.0 105.0 106.9 105.9 106.9 49 Primary energy 6.3 101.7 102.3 102.4 102.2 101.7 101.4 100.7 102.8 103.0 104.0 103.3 104.2 103.1 104.3 50 Converted fuel materials 3.3 108.3 109.0 106.8 111.8 110.6 108.6 110.9 105.5 105.0 109.6 108.3 112.2 111 1 112.0 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.1 124.3 124.8 125.1 125.4 126.5 127.2 127.7 127.7 127.3 128.0 128.4 128.9 128.0 127.8 52 Total excluding motor vehicles and parts 95.1 123.8 124.3 124.6 124.8 125.9 126.6 127.0 127.3 126.9 127.5 127.9 128.4 127.9 128.0 53 Total excluding computer and office equipment 98.2 121.9 122.0 122.6 122.9 123.8 124.8 125.1 124.9 124.3 124.8 125.2 125.7 124.2 123.4 54 Consumer goods excluding autos and trucks 27.4 113.2 113.5 113.4 113.0 114.6 115.0 114.4 115.4 113.9 114.8 115.2 115.6 115.1 115.1 55 Consumer goods excluding energy 26.2 114.8 114.1 114.9 114.7 115.9 117.0 116.2 117.9 116.5 116.4 117.3 117.4 115.2 114.0 56 Business equipment excluding autos and trucks 145.2 147.5 147.3 149.0 149.7 151.5 150.5 150.5 152.6 153.9 153.9 156.4 57 Business equipment excluding computer and office equipment 12.1 129.1 128.6 131.2 130.8 131.8 133.5 134.4 132.7 131.7 133.0 134.0 133.7 133.7 132.2 58 Materials excluding energy 29.8 143.7 144.6 144.8 145.8 147.0 I48 6 150.2 149.4 149.3 149.2 150.1 150.1 147.7 146.5 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A45 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1—Continued 1992 1997 1998 Group c S o I d C e p po ro r- - 1 av 99 g 7 . tion July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr.' Mayr June Julyp Index (1992 = 100) MAJOR INDUSTRIES 59 Total index 100.0 124.5 124.5 125.2 125.6 126.5 127.5 127.9 127.8 127.3 128.0 128.4 128.9 127.5 126.8 60 Manufacturing 85.4 127.0 126.9 127.9 128.0 129.1 130.4 130.9 131.1 130.6 130.8 131.6 131.7 130.2 129.3 61 Primary processing 26.5 118.1 118.3 118.5 118.6 118.9 120.0 120.5 120.6 120.1 119.8 120.5 120.2 119.3 118.9 62 Advanced processing 58.9 131.4 131.2 132.5 132.7 134.1 135.5 136.1 136.4 135.8 136.3 137.2 137.6 135.7 134.4 63 Durable goods 45.0 142.3 142.4 144.3 144.4 145.5 147.7 148.6 148.3 147.8 148.6 149.7 150.2 147.9 146.2 64 Lumber and products 24 2.0 114.9 116.1 115.4 113.3 112.9 117.0 114.4 114.8 116.7 115.6 116.7 116.7 117.2 118.0 65 Furniture and fixtures 25 1.4 122.5 124.2 121.1 122.0 123.0 124.1 124.4 122.5 120.4 123.0 122.3 121.8 122.4 122.6 66 Stone, clay, and glass products 32 2.1 120.5 120.9 120.5 121.2 121.0 122.1 123.4 122.3 121.4 120.7 120.2 120.9 120.5 120.6 67 Primary metals 31 3.1 124.5 125.2 125.5 125.9 127.4 128.9 127.2 129.3 128.1 127.1 128.2 126.1 123.3 122.2 68 Iron and steel 331,2 1.7 122.8 122.2 121.8 124.5 126.4 127.0 126.1 127.9 127.0 126.7 126.4 124.0 120.4 119.9 69 Raw steel 331PT .1 115.9 115.5 116.1 119.2 117.7 120.9 119.2 122.8 123.7 119.5 122.8 122.3 115.9 115.6 70 Nonfeirous 333-6,9 1.4 126.4 128.8 129.9 127.7 128.6 131.1 128.5 131.0 129.4 127.5 130.4 128.7 126.8 125.0 71 Fabricated metal products. . . 34 5.0 122.9 122.4 122.8 122.7 124.4 124.7 126.7 125.6 124.3 125.0 125.6 126.4 125.7 125.0 72 Industrial machinery and equipment 35 8.0 171.4 172.2 175.9 173.7 176.5 177.7 178.6 180.3 179.4 183.8 186.3 188.2 190.5 191.0 73 Computer and office equipment 357 1.8 382.3 388.5 403.9 412.0 418.0 425.7 438.3 457.1 476.6 500.5 520.1 534.2 553.7 571.8 74 Electrical machinery 36 7.3 231.5 235.5 236.8 237.5 240.8 247.4 249.9 252.9 254.1 254.9 257.5 257.9 258.4 261.3 75 Transportation equipment. . . 37 9.5 115.6 112.2 117.0 118.8 118.3 121.6 123.4 119.9 118.8 118.7 119.4 120.7 110.8 102.3 76 Motor vehicles and parts . 371 4.9 137.2 130.0 138.9 141.2 139.6 145.9 146.6 138.3 136.7 136.6 138 3 140.2 119.9 101.5 77 Autos and light trucks . 37IPT 2.6 128.3 115.0 129.5 132.3 130.4 137.7 132.5 130.8 126.7 127.4 129.5 131.4 109.3 88.1 78 Aerospace and miscellaneous transportation equipment 372-6,9 4.6 94.4 94.6 95.5 96.8 97.3 97.9 100.6 101.8 101.1 101.0 100.7 101.4 101.4 102.3 79 Instruments 38 5.4 108.0 108.0 109.2 108.9 109.7 109.5 109.0 109.0 109.6 109.9 110.4 110.3 109.9 110.9 80 Miscellaneous 39 1.3 125.9 127.0 126.7 126.1 126.5 126.2 128.5 128.0 128.4 128.5 129.1 127.3 127.0 127.0 81 Nondurable goods 40.4 111.1 110.9 111.0 111.3 112.2 112.6 112.9 113.6 113,0 112.6 113.2 113.0 112.1 111.9 82 Foods 20 9.4 109.6 110.0 108.9 108.6 109.2 110.9 110.9 112.9 112.0 111.4 112.2 112.3 110.7 110.3 83 Tobacco products 21 1.6 112.7 110.5 112.5 112.0 118.8 115.9 110.1 116.9 115.9 114.7 114.0 114.0 113.1 113.9 84 Textile mill products 22 1.8 109.6 110.7 110.7 1114 111.6 112.5 110.4 111.8 109.6 108.9 109.2 111.5 108.0 108.6 85 Apparel products 23 2.2 99.6 99.7 99.1 99.1 99.3 98.6 99.3 99.3 97.7 98.2 98.3 97.2 97.1 96.8 86 Paper and products 26 3.6 112.9 114.2 114.4 113.7 112.8 113.6 114.1 112.4 114.6 112.4 113.2 112.7 112.1 110.4 87 Printing and publishing 27 6.7 104.9 104.1 104.4 105.1 106.7 107.4 107.1 106.5 105.6 105.0 104.8 104.5 103.3 103.8 88 Chemicals and products .... 28 9.9 115.3 114.3 114.5 115.6 116.7 116.5 118.2 118.7 117.6 117.7 118.7 118.2 118.2 117.7 89 Petroleum products 29 1.4 109.4 108.9 109.7 110.1 1112 108.6 109.7 112.3 111.9 114.8 114.4 112.7 113.3 114.1 90 Rubber and plastic products . 30 3.5 126.4 126.0 127.9 127.6 127.4 129.6 129.3 129.3 129.4 129.7 131.9 131.5 130.7 130.6 91 Leather and products 31 3 73.7 74.0 71.2 70.9 72.4 71.0 71.3 69.4 70.8 69.4 67.7 67.3 66.6 65.4 92 Mining 6.9 106.0 106.5 106.3 106.5 105.9 106.1 105.7 108.4 108.8 108.0 107.4 107.7 105.7 106.1 93 Metal 10 5 106.9 105.2 106.0 105.3 111.1 113.2 103.8 105.3 119.5 105.5 103.0 104.7 105 1 104.5 94 Coal 1.0 109.9 112.1 107.7 109.5 109.6 111.2 117.4 116.0 108.4 109.4 110.6 118.2 111.7 114.8 95 Oil and gas extraction 13 4.8 103.2 103.9 104.1 104.3 103.1 102.6 101.7 105.0 105.9 106.5 105.3 104.3 102.4 102.6 96 Stone and earth minerals 14 .6 118.8 117.8 119.9 117.7 116.2 119.2 120.2 124.3 122.6 117.2 120.8 120.0 121.5 121.6 97 Utilities 7.7 112.5 113.8 1 13.0 115.1 116.9 115.3 1143 108.7 108.2 114.3 111.8 116.8 117.5 117.4 98 Electric 491.493PT 6.2 113.1 113.8 113.1 115.7 118.1 114.7 114.2 110.2 110.6 115.6 114.2 118.8 118.1 117.9 99 Gas 492.493PT 1.6 111.0 113.5 112.5 112.7 111.9 117.8 115.0 103.0 99.0 109.5 102.4 108.8 115.1 115.8 SPECIAL AGGREGATES 100 Manufacturing excluding motor vehicles and parts 80.5 126.4 126.7 127.2 127.3 128.4 129.4 130.0 130.7 130.2 130.5 131.2 131.3 130.8 130.9 101 Manufacturing excluding office and computing machines ... 83.6 124.1 123.9 124.8 124.9 125.9 127.2 127.6 127.8 127.1 127.2 127.9 127.9 126.3 125.3 Gross value (billions of 1992 dollars, annual rates) MAJOR MARKETS 102 Products, total 2,001.9 2,373.2 2,368.4 2,402.0 2,396.9 2,416.1 2,442.2 2,435.3 2,442.8 2,427.7 2,442.6 2,454.7 2,465.2 2,432.7 2,402.8 103 Final 1,552.1 1.855.8 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 1,922.9 1,928.2 1 897 6 1,867.2 104 Consumer goods 1 049 6 1 195 5 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 1,225.3 1,228.9 1 202.8 1,185.9 105 Equipment 502.5 660.0 657.8 674.0 672.3 674.5 686.9 689.4 687.3 685.5 692.6 697.9 699.6 695.4 681.6 106 Intermediate 449.9 518.1 519.9 523.7 522.2 526.5 532.3 531.4 532.0 533.3 532.1 533.0 537.9 535.5 535.1 1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For ments," Federal Reserve Bulletin, vol. 83 (February 1997). pp. 67-92. For details about the the ordering address, see the inside front cover. The latest historical revision of the industrial construction of individual industrial production series, see "Industrial Production: 1989 production index and the capacity utilization rates was released in December 1997. The recent Developments and Historical Revision," Federal Reserve Bulletin, vol. 76, (April 1990), pp. annual revision is described in an article in the February 1998 issue of the Bulletin. For a 187-204. description of the aggregation methods for industrial production and capacity utilization, see 2. Standard industrial classification. "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A46 Domestic Nonfinancial Statistics • October 1998 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted 1997 1998 Item 1995 1996 1997 Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June Private residential ral estate activity (thousands of units exceptis noted) NEW UNITS 1 Permits authorized 1.333 1,426 1,442 1,475 1,502 1.475 1,467 1,553 1,635 1,569 1.517 1,543 1,517 997 1.070 1,056 1.084 1,106 1,102 1,094 1,142 1,176 1,136 1.145 1.152 1,128 3 Two-family or more 335 356 387 391 396 373 373 411 459 433 372 391 389 1.354 1.477 1.474 1,501 1,529 1,523 1,540 1,545 1,616 1,585 1,546 1,538 1,626 5 One-family 1,076 1,161 1,134 1,174 1,124 1,167 1,130 1,225 1,263 1,239 1,237 1,224 1,268 6 Two-family or more 278 316 340 327 405 356 410 320 353 346 309 314 358 7 Under construction at end of period1 776 820 834 843 853 862 872 888 907 911 911 915 925 8 One-family 554 584 570 571 574 575 580 593 609 616 619 626 635 9 Two-family or more 222 235 264 272 279 287 292 295 298 295 292 289 290 10 Completed 1,319 1,405 1,407 1,433 1,384 1,432 1,413 1,314 1,461 1,486 1,509' 1,461 1,481 1.073 1,123 1,122 1,133 1,063 1,145 1,094 1,007 1,142 1,130 1,198' 1,112 1,164 12 Two-family or more 247 283 285 300 321 287 319 307 319 356 311 349 317 13 Mobile homes shipped 341 361 354 351 349 352 353 362 377 374 370 374 362 Merchant builder activity in one-family units 14 Number sold 667 757 803 809 805 875 805 853 878 836 891 901 935 15 Number for sale at end of period1 374 326 287 284 284 280 282 281 281 285 286 286 287 Price of units sold (thousands of dollars)1 16 Median 133.9 140.0 145.9 146.3 141.5 145.0 145.9 148.0 156.0 152.7 147.9 150.0 145.0 17 Average 158.7 166.4 175.8 177.5 172.9 175.4 175.8 178.6 181.6 178.5 175.7 184.8 175.8 EXISTING UNITS (one-family I 18 Number sold 3,812 4,087 4,215 4,300 4,380 4.390 4,370 4,370 4,770 4.890 4,770 4,830 4,740 Price of units sold (thousands of dollars)2 19 Median . 113.1 118.2 124.1 125.8 124.4 124.3 125.9 126.1 124.5 127.1 128.2 130.5 134.0 20 Average 139.1 145.5 154.2 155.4 154.7 155.0 157.5 156.8 153.9 157.2 159.7 162.3 169.2 Value of new construction (millions of dollars)3 CONSTRUCTION 21 Total put in place 538,158 581,813 618,051 623,305 626,608 623,068 626,290 633,714 638,180 639,913 645,349' 633,277 644,002 22 Private 408,012 444.743 470,969 475.885 477,539 475,340 478,363 487,807 490,896 494,333 499,946' 494,776 501,045 23 Residential 231,191 255,570 265,536 266.077 268,623 268,893 273,020 278,956 282,496 286,045 289,587' 287,684 289,991 24 Nonresidential 176,821 189,173 205,433 209,808 208,916 206,447 205,343 208,851 208,400 208,288 210,359' 207,092 211,054 32,535 32.563 31,417 32,220 30,870 30,075 29,794 31,055 30,936 31,474 31,391' 28,737 28,876 26 Commercial buildings 68,245 75,722 83,727 83,473 83.838 83,601 83,214 85,807 84,152 83,981 86.206' 86,483 89,435 27 Other buildings 27,084 30,637 37,382 39,083 38.372 38,341 39,275 37,694 39,151 37,812 39,091' 37,542 37,229 28 Public utilities and other 48,957 50,252 52,906 55,032 55,836 54,430 53,060 54,295 54,161 55,021 53,671' 54,330 55,514 29 Public.... 130,147 137,070 147,082 147,421 149.069 147,728 147,927 145,907 147,284 145,580 145,404' 138,500 142,958 30 Military . . . 2.983 2,639 2,625 2,630 2,806 2,889 2,342 2,474 2,916 2.818 2,686' 2,296 2,638 38.126 41,326 45,246 44,309 43,144 47,416 45.306 46.067 45.561 45.559 46,060' 42,033 43,794 32 Conservation and development 6,371 5,926 5,628 6,180 5,148 5.068 6,422 5,281 6,305 5.488 4,980' 5,111 6,139 33 Other 82,667 87,179 93,583 94,302 97.971 92.355 93.857 92,085 92,502 91,715 91,678' 89,060 90,387 1. Not at annual rates. SOURCE. Bureau of the Census estimates for all series except (1) mobile homes, which are 2. Not seasonally adjusted. private, domestic shipments as reported by the Manufactured Housing Institute and season- 3. Recent data on value of new construction may not be strictly comparable with data for ally adjusted by the Census Bureau, and (2) sales and prices of existing units, which are previous periods because of changes by the Bureau of the Census in its estimating techniques. published by the National Association of Realtors. All back and current figures are available For a description of these changes, see Construction Reports (C-30-76-5), issued by the from the originating agency. Permit authorizations are those reported to the Census Bureau Census Bureau in July 1976. from 19,000 jurisdictions beginning in 1994. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A47 2.15 CONSUMER AND PRODUCER PRICES Percentage changes based on seasonally adjusted data except as noted C m ha o n n g th e s fr e o 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, 1997' 1998' July 1998 ' July July Sept. Dec Mar. June Mar. Apr. May June July CONSUMER PRICES2 (1982-84=100) 1 All items 2.2 1.7 2 Food 2.5 2.2 2.8 1.5 1.3 3.0 .0 .1 6 .1 2 160.5 3 Energy items -1.0 -5.6 8.3 -7.7 -21.1 -1.9 -1.2 -.1 3 -.7 0 105.2 4 All items less food and energy 2.4 2.2 1.7 2.4 2.4 2.6 .1 .3 2 .1 2 173.3 5 Commodities .9 .6 -.3 .6 1.1 -.1 .1 1 .0 1 142.4 6 Services 3.1 3.0 2.6 3.3 3.2 .2 .4 3 2 2 190.9 PRODUCER PRICES (1982=100) 7 Finished goods -.3 1.2 -1.2 -3.0 .0 -.1' -.1 130.9 8 Consumer foods .1 4 -1.5 1.5 -1.8 .6 -.3' .,4r .1 134.6 9 Consumer energy -1.3 -7.5 6.0 -5.7 -27.0 -3.1 -2.3' -1.7 76.9 10 Other consumer goods .1 2.1 1.7 -.3 3.9 1.4 -.5' .5 .3 147.4 11 Capital equipment -.2 -.4 .6 -2.0 .0 -.9 .0' -.2 .0 137.2 Intermediate materials 12 Excluding foods and feeds -1.4 -.6 -4.4 -1.6 -.3 .1 -.2 123.9 13 Excluding energy .0 -.9 -1.2 .0' -.1' -.1 -.1 133.6 Crude materials 14 Foods -14.4 -7.3 -5.0 4.1 -14.3 -3.0 .3' .6' -1.4 .1 -2.8 103.8 15 Energy -3.3 -13.0 21.8 5.4 -53.5 -2.3 -2.9' 2.9' .6 -3.9 -.6 68.8 16 Other 2.1 -7.8 .3 -8.2 -13.6 -5.0 -1.4' -1.3' .5 -.5 -1.8 143.4 1. Not seasonally adjusted. SOURCE. U.S. Department of Labor, Bureau of Labor Statistics. 2. Figures for consumer prices are for all urban consumers and reflect a rental-equivalence measure of homeownership. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A48 Domestic Nonfinancial Statistics • October 1998 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates 1997' 1998 Account 1995r 1996' 1997' Q2 Q3 04 Ql' Q2 GROSS DOMESTIC PRODUCT 1 Total 7,269.6 7,661.6 8,110.9 8,063.4 8,170.8 8,254.5 8,384.2 8,435.2 By source 2 Personal consumption expenditures 4,953.9 5.215.7 5.493.7 5.438.8 5.540.3 5.593.2 5,676.5 5,770.6 3 Durable goods 611.0 643.3 673.0 659.9 681.2 682.2 705.1 719.9 1,473.6 1,539.2 1,600.6 1,588.2 1,611.3 1,613.2 1,633.1 1,654.0 5 Services 2.869.2 3,033.2 3,220.1 3.190.7 3,247.9 3,297 8 3,338.2 3.396.8 6 Gross private domestic investment 1.043.2 1,131.9 1,256.0 1,259.9 1,265.7 1,292.0 1.366.6 1,344.6 1.012.5 1.099.8 1.1X8.6 1,176.4 1.211.1 1.220.1 1,271.1 1,304 4 8 Nonresidential 727.7 787.9 860.7 850.5 882.3 882.8 921.3 941 4 9 Structures 201.3 216.9 240.2 234.3 243.8 246.4 245.0 245.6 10 Producers' durable equipment 526.4 571.0 620.5 616.2 638.5 636.4 676.3 695.8 11 Residential structures 284.8 311.8 327.9 325.9 328.8 337.4 349.8 363.0 12 Change in business inventories 30.7 32.1 67.4 83.5 54.6 71.9 95.5 40.2 13 Nonfarm 40.1 24.5 63.1 77.2 47.3 66.9 90.5 32.3 14 Net exports of goods and services -83.9 -91.2 -93.4 -86.8 -94.7 -98.8 -123.7 -160.3 15 Exports 819.4 873.8 965.4 961.1 981.7 988.6 973.3 950.2 1 058 8 1 047 9 1 076 4 1 087 4 1 097 1 1 1105 17 Government consumption expenditures and gross investment 1,356.4 1,405.2 1,454.6 1,451.5 1,459.5 1,468.1 1.464.9 1.480.3 18 Federal 509.1 518.4 520.2 522.9 521.0 520.1 511.6 519.9 19 State and local 847.3 886.8 934.4 928.6 938.5 947.9 953.3 960.4 By major type of product 20 Final sales, total 7,238.9 7,629.5 8.043.5 7,979.9 8,116.2 8,182.6 8.288.7 8,395.1 21 Goods 2,644.9 2,780.3 7.911.2 2,883.6 2,944.3 2 948 7 3.005.8 3,020.4 2° Durable 1,143.4 1,228.8 1,310.1 1,293.6 1,337.1 1,334.3 1,376.9 1,378.5 23 Nondurable 1,501.5 1,551.6 1.601.0 1,589.9 1,607.2 1,614.4 1,628.8 1,641.8 "H Services 3,974.9 4,179.5 4.414.1 4,386.9 4,448.0 4,501.2 4,538.4 4.618.2 25 Structures 619.1 669.7 718.3 709.4 723.9 732.7 744.6 756.5 26 Change in business inventories 30.7 32.1 67.4 83.5 54.6 71.9 95.5 40.2 27 Durable goods 32.4 20.8 33.6 48.8 19.9 34.0 49.9 3.7 28 Nondurable goods -1.7 11.4 33.8 34.6 34.7 37.9 45.6 36.5 MEMO 29 Total GDP in chained 1992 dollars 6,761.7 6,994.8 7,269.8 7,236.5 7,311.2 7,364.6 7.464.7 7,494.9 NATIONAL INCOME 30 Total 5,923.7 6,256.0 6,646.5 6,604.5 6,704.8 6,767.9 6,875.0 6,942.7 31 Compensation of employees 4,208.9 4,409.0 4,687.2 4,649.2 4,715.5 4,798.0 4,882.8 4,945.3 32 Wages and salaries 3,441.9 3,640.4 3,893.6 3,859.2 3,919.3 3,993.6 4,065.9 4,121.8 33 Government and government enterprises 622.7 640.9 664.2 661.6 666.7 671.4 679.5 685.9 34 Other 2,819.2 2.999.5 3.229.4 3,197.6 3,252.6 3,322.2 3.386.4 3,435.9 35 Supplement to wages and salaries 767.0 768.6 793.7 790.0 796.2 804.4 816.8 823.5 36 Employer contributions for social insurance 365.3 381.7 400.7 398.4 402.7 407.4 414.1 417.8 37 Other labor income 401.6 387.0 392.9 391.5 393.6 397.0 402.8 405.7 38 Proprietors' income1 488.1 521.1 551.2 549.9 556.5 558.0 564.2 569.6 39 Business and professional1 465.6 488.8 515.8 512.1 520.2 526.6 536.8 543.8 40 Farml 22.4 38.9 35.5 37.8 36.3 31.4 27.4 25 7 41 Rental income of persons 133.7 150.2 158.2 158.0 158.6 158.8 158.3 161.8 672.4 750.4 817.9 815.5 840.9 820.8 829.2 819.7 635.6 680.2 734.4 729.8 758.9 736.4 719.1 720.5 44 Inventory valuation adjustment -22.6 -1.2 6.9 10.3 4.8 4.3 25.3 9.8 59.4 71.4 76.6 75.5 77.2 80.1 84.9 89.4 420.6 418.6 432.0 4.31.8 433.3 432.4 440.5 446.3 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 1997r 1997' Q3 Q4 Ql Q2 PERSONAL INCOME AND SAVING 1 Total persona] income 6,072.1 6,425.2 6,784.0 6,743.6 6,820.9 6,904.9 7,003.9 7,080.8 2 Wage and salary disbursements 3,428.5 3,631.1 3,889.8 3,855.5 3,915.5 3.989.9 4,061.9 4,117.8 3 Commodity-producing industries 863.9 909.0 975.0 965.4 979.4 1,003.7 1,019.0 1,023.1 4 Manufacturing 647.9 674.6 719.5 712.0 722.3 741.3 750.4 750.7 5 Distributive industries 782.9 823.3 879.8 870.2 886.3 904.5 918.9 932.2 6 Service industries 1,158.9 1,257.9 1,370.8 1,358.3 1,383.2 1,410.2 1,444.5 1,476.6 7 Government and government enterprises 622.7 640.9 664.2 661.6 666.7 671.4 679.5 685.9 8 Other labor income 401.6 387.0 392.9 391.5 393.6 397.0 402.8 405.7 9 Proprietors' income1 488.1 527.7 551.2 549.9 556.5 558.0 564.2 569.6 10 Business and professional1 465.6 488.8 515.8 512.1 520.2 526.6 536.8 543.8 11 Farm' 22.4 38.9 35.5 37.8 36.3 31.4 27.4 25.7 12 Rental income of persons2 133.7 150.2 158.2 158.0 158.6 158.8 158.3 161.8 13 Dividends 192.8 248.2 260.3 259.9 260.4 261.3 261.6 262.1 14 Personal interest income 704.9 719.4 747.3 745.7 750.5 753.0 757.0 762.4 15 Transfer payments 1,015.9 1,068.0 1,110.4 1,106.8 1,114.0 1,120.5 1,139.0 1,146.6 16 Old-age survivors, disability, and health insurance benefits 507.8 538.0 565.9 563.9 568.3 572.2 581.6 585.1 17 LESS: Personal contributions for social insurance 293.6 306.3 326.2 323.7 328.2 333.6 340.9 345.1 18 EQUALS: Personal income 6,072.1 6,425.2 6,784.0 6,743.6 6,820.9 6,904.9 7,003.9 7,080.8 19 LESS Personal lax and nontax payments 795.0 890.5 989.0 975.8 999.0 1.025.5 1,066.8 1,087.4 20 EQUALS Disposable personal income 5.277.0 5,534.7 5,795.1 5,767.9 5.821.8 5,879.4 5.937.1 5,993.4 21 LESS: Personal outlays 5,097.2 5.376.2 5,674.1 5,616.0 5,723.3 5,781.2 5,864.0 5,960.4 22 EQUALS. Personal saving 179.8 158.5 121.0 151.9 98.5 98.2 73.0 33.1 MEMO Per capita (chained 1992 dollars) 23 Gross domestic product 25,690.5 26,335.7 27,136.2 27,052.3 27,260.4 27,398.2 27,718.8 27,769.1 24 Personal consumption expenditures 17,498.4 17,893.0 18,340.9 18,215.6 18,445.2 18,530.5 18,771.1 18,997.1 25 Disposable personal income 18,640.0 18,989.0 19,349.0 19,315.0 19,385.0 19,478.0 19,632.0 19,733.0 26 Saving rate (percent) 2.9 GROSS SAVING 27 Gross saving 1,187.4 1,274.5 1,406.3 1,41<S.3 1,427.0 1,428.0 1,482.5 1,448.0 28 Gross private saving 1,106.2 1,114.5 1,141.6 1,169.5 1,139.0 1,131.6 1,130.1 1,086.9 29 Personal saving 179.8 158.5 121.0 151.9 98.5 98.2 73.0 33.1 30 Undistributed corporate profits' 256.1 262.4 296.7 299.0 311.5 295.0 312.0 301.6 31 Corporate inventory valuation adjustment -22.6 -1.2 6.9 10.3 4.8 4.3 25.3 9.8 Capital consumption allowances 32 Corporate 431.1 452.0 477.3 473.7 480.8 487.7 492.5 497.8 33 Noncorporate 225.9 232.3 242.8 241.3 244.4 247.0 248.6 250.4 34 Gross government saving 81.2 160.0 264.7 246.9 288.0 296.4 352.4 361.1 35 Federal -103.7 -39.6 49.5 36.1 70.0 72.3 128.7 142.0 36 Consumption of fixed capital 70.7 70.6 70.6 70.9 70.3 70.2 69.9 69.4 37 Current surplus or deficit (-), national accounts -174.4 -110.3 -21.1 -34.8 -.3 2.2 58.8 72.6 38 State and local 184.8 199.7 215.2 210.7 218.0 224.1 223.7 219.0 39 Consumption of fixed capital 73.2 77.1 81.1 80.6 81.4 82.7 83.5 84.2 40 Current surplus or deficit (-), national accounts 111.7 122.6 134.1 130.1 136.6 141.4 140.2 134.8 41 Gross investment 1,160.9 1,242.3 1,350.5 1,368.6 1,361.9 1,360.7 1,428.4 1,361.7 42 Gross private domestic investment 1,043.2 1,131.9 1,256.0 1,259.9 1,265.7 1,292.0 1,366.6 1,344.6 43 Gross government investment 218.4 229.7 235.4 232.6 237.3 236.5 237.4 232.2 44 Net foreign investment -100.6 -119.2 -140.9 -123.9 -141.0 -167.8 -175.6 -215.1 45 Statistical discrepancy -26.5 -32.2 -86.3 1. With inventory valuation and capital consumption adjustments. SOURCE. U.S. Department of Commerce, Survey of Current Business. 2. With capital consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 International Statistics • October 1998 3.10 U.S. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data seasonally adjusted except as noted' 1998 Item credits or debits 1997 Ql Q4 1 Balance on current account .y -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 US. government pensions and other transfers -3,433 -4,442 -4,193 -1,013 -1,055 -1,056 -1,069 -1,071 0 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, —) -589 -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 -730 -4,524 -444 13 Gold 0 0 0 0 0 0 0 0 14 Special drawing rights (SDRs) -808 370 -350 72 -133 -139 -150 -182 15 Reserve position in International Monetary Fund -2 466 -1,280 -3,575 1,055 54 -463 -4,221 -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 -29,577 -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 US. 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 assets" 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 liabilities3 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 States, 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 -22.742 -99,724 -5,418 -28,762 -10,009 -55.535 -5,196 MEMO Changes in official assets 38 U.S. official reserve asseis (increase, -) -9.742 6,668 -1,010 4,480 -236 -730 -4,524 -444 39 Foreign official asseis in United Stales, 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) 10,822 1,970 3,031 -1,282 1. Seasonal factors are not calculated for lines 12-16, 18-20, 22-34, and 38-40. 4. Associated primarily with military sales contracts and other transactions arranged with 2. Data are on an international accounts basis. The data differ from the Census basis data, or through foreign official agencies. shown in table 3.11, for reasons of coverage and timing. Military exports are excluded from 5. Consists of investments in U.S. corporate slocks and in debt securities of private merchandise trade data and are included in line 5. corporations and state and local governments. 3 Reporting banks include all types of depository institutions as well as some brokers and SOURCE US. Department of Commerce, Bureau of Economic Analysis. Survey of Current dealers. Business Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A51 3.11 U.S. FOREIGN TRADE1 Millions of dollars; monthly data seasonally adjusted 1997 1998 Item 1995 1996 1997 Dec. Jan. Feb. Mar. Apr. May Junep 1 Goods and services, balance -101,857 -111,040 -113,684 -10,205 -9,898 -11,614 -13,498 -14,148 -15,777 -13,639 -173,560 -191,170 -198,975 -16,962 -17,076 -18,120 -20,504 -21,335 -22,578 -20,530 3 Services 71,703 80,130 85,291 6,757 7,178 6,506 7,006 7,187 6.801 6,891 4 Goods and services, exports 794,610 848,833 931,370 79,784 79,668 77,813 79,058 77,515 76,399 76,375 575,871 612,069 678,150 58,336 57,902 56,350 57,217 55,335 54,719 54,767 6 Services 218,739 236,764 253.220 21,448 21,766 21,463 21,841 22,180 21,680 21,608 7 Goods and services, imports -896,467 -959,873 -1,045,054 -89,989 -89,565 -89,427 -92,555 -91,663 -92,176 -90,014 8 Merchandise -749,431 -803,239 -877,125 -75,298 -74,977 -74,470 -77,720 -76,670 -77,297 -75,297 9 Services -147,036 -156.634 -167,929 -14,691 -14.588 -14,957 -14,835 -14,993 -14,879 -14,717 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 Dec. Jan. Feb. Mar. Apr. May June Julyp 1 Total 74,335 85,832 75,090 69,954 70,003 70,632 69,354 70,328 70,723 71,161 71,782 2 Gold stock, including Exchange Stabilization Fund1 11,051 11,050 11,049 11,050 11,046 11,050 11,050 11,048 11,049 11,047 11,047 3 Special drawing rights ' 10,039 11,037 10,312 10,027 9,998 10.217 10,108 10,188 10,296 10,001 9,586 4 Reserve position in International Monetary Fund 12,030 14,649 15,435 18,071 18,039 18,135 17,976 18,218 18,957 18,945 20,297 5 Foreign currencies 41,215 49,096 38,294 30,809 30,920 31.230 30,220 30.874 30,421 31,168 30,852 1. Gold held "under earmark" at Federal Reserve Banks for foreign and international SDR holdings and reserve positions in the IMF also have been valued on this basis since July accounts is not included in the gold stock of the United States; see table 3.13, line 3. Gold 1974. stock is valued at $42.22 per fine troy ounce. 3. Includes allocations of SDRs by the International Monetary Fund on Jan. 1 of the year 2. Special drawing rights (SDRs) are valued according to a technique adopted by the indicated, as follows: 1970—$867 million; 1971—$717 million; 1972—$710 million; 1979— International Monetary Fund (IMF) in July 1974. Values are based on a weighted average of $1,139 million; 1980—$1,152 million; 1981—$1,093 million; plus net transactions in SDRs. exchange rates for the currencies of member countries. From July 1974 through December 4. Valued at current market exchange rates. 1980, sixteen currencies were used; since January 1981, five currencies have been used. U.S. 3.13 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS1 Millions of dollars, end of period 1997 1998 Asset 1994 1995 1996 Dec. Jan. Feb. Mar. Apr. May June Julyp 250 386 167 457 215 243 167 162 156 200 161 Held in custody 2 U.S. Treasury securities 441,866 522,170 638,049 620,885 625,219 621,956 630,602 622,220 622,557 616,569 613,893 12,033 11,702 11,197 10,763 10,709 10.705 10,664 10,651 10,641 10,617 10,586 1. Excludes deposits and U.S. Treasury securities held for international and regional 3. Held in foreign and international accounts and valued at $42.22 per fine troy ounce; not organizations. included in the gold stock of the United States. 2. Marketable U.S. Treasury bills, notes, and bonds and nonmarketable U.S. Treasury securities, in each case measured at face (not market) value. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A52 International Statistics • October 1998 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1997 1998 Item 1995 1996 Dec. Jan. Feb. Mar. Apr. May Junep 1 Total1 630,918 758,624 778,538 780,587 780,393 790,921 788,310' 786,219 780,860 By type 2 Liabilities reported by banks in the United States 107,394 113,098 135,326 140,931 139,739 134.719 144,929 142,693 143,889 168 534 198 921 148 301 145 609 144 324 153 335 138418 137 652 134 324 U.S. Treasury bonds and notes 293,690 379,497 423,456 422,267 423,509 429.642 430,804' 431,702 428,217 6,491 5,968 5,994 6,033 6,069 6,110 6,149 6,189 6,229 6 U.S. securities other than U.S. Treasury securities5 54,809 61,140 65,461 65,747 66,752 67,115 68,010' 67,983 68,201 By area 7 Europe1 222,406 257,915 263,103 261,680 261,133 259,053 268,848 269,178 264,594 8 Canada 19,473 21,295 18,749 18,339 19,065 20.280 20,254 20,122 19,396 66,721 80,623 97,616 96,997 99,381 98,028 101,191 101,792 100,675 10 Asia 311,016 385,484 382,423 387,204 385,378 397,283 382,027' 379,223 378,144 11 Africa 6,296 7,379 10,118 10,213 10,518 11,440 11,281 10,574 11,552 5,004 5,926 6,527 6,152 4,916 4,835 4,707 5,328 6,497 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 US, corporate stocks and bonds. institutions of foreign countries. SOURCE, Based on U.S. Department of the Treasury data and on data reported to the 4. Excludes notes issued to foreign official nonreserve agencies. Includes current value of department by banks (including Federal Reserve Banks) and securities dealers in the United zero-coupon Treasury bond issues to foreign governments as follows: Mexico, beginning States, and on the 1989 benchmark survey of foreign portfolio investment in the United March 1988, 20-year maturity issue and beginning March 1990, 30-year maturity issue; States. 3.16 LIABILITIES TO, AND CLAIMS ON, FOREIGNERS Reported by Banks in the United States' Payable in Foreign Currencies Millions of dollars, end of period 1997 1998 Item 1994 1995 1996 June Sept. Dec. Mar. 89,258 109,713 103,383 110,224 120,105 117,524 100,054 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 41,050 51,320 43,551 56,405 59,004 54,377 54,043 5 Claims of banks' domestic customers2 10.878 6,145 10,978 10,251 10,090 8,191 7,926 1. Data on claims exclude foreign currencies held by U.S. monetary authorities. 2. Assets owned by customers of the reporting bank located in the United States that represent claims on foreigners held by reporting banks for the accounts of the domestic customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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 1997 1998 Item 1995 1996 1997 Dec. Jan. Feb. Mar. Apr. May June11 BY HOLDER AND TYPE OF LIABILITY I Total, all foreigners 1.099,549 1,162,148 1,283,248 1,283,248 1,267,169 1,283,616 l,255,075r l,270,525r 1,260,321 1,286,536 2 Banks' own liabilities 753.461 758,998 883,238 883,238 867,140 879,659 843,906 861,626' 852.052 884.638 3 Demand deposits 24,448 27,034 32,104 32,104 29,716 29,691 32,588 32,107' 31,201 36.819 4 Time deposits^ 192,558 186,910 198,470 198,470 187,617 183,285 183,109 185,948' 185,160 186.565 5 Other1 140,165 143,510 167,713 167,713 185,049 189,527 188,425 204,193 193.118 184.900 6 Own foreign offices4 396.290 401.544 484,951 484,951 464,758 477,156 439,784 439,378 442.573 476,354 7 Banks' custodial liabilities5 346.088 403,150 400,010 400.010 400,029 403,957 411,169' 408,899' 408.269 401.898 8 U.S. Treasury bills and certificates6 197,355 236.874 193,239 193.239 184,881 186.564 191,571 174,256 173.873 168.011 9 Other negotiable and readily transferable instruments7 52,200 72,011 93,604 93.604 96.945 99.370 96,364' 111,398' 107.797 112,412 10 Other 96,533 94,265 113.167 113 167 118,203 118.023 123,234 123,245 126.599 121,475 11 Nonmonetary international and regional organizations . . 11,039 13,972 11,390 11,390 11,240 16,184 15,246 14,793 14,186 13.814 12 Banks' own liabilities 10,347 13,355 11,186 11,186 11,048 15,855 14,925 14,377 13,559 13.176 13 Demand deposits 21 29 16 16 175 74 98 365 229 226 14 Time deposits2 4,656 5,784 5,466 5,466 5,023 5,316 5,957 6.646 7.029 6,684 15 Other 5,670 7,542 5,704 5,704 5,850 10,465 8,870 7,366 6,301 6.266 16 Banks' custodial liabilities5 692 617 204 204 192 329 321 416 627 638 17 U.S. Treasury bills and certificates6 350 352 69 69 85 149 247 344 15") 338 18 Other negotiable and readily transferable instruments7 341 265 133 133 107 180 72 72 268 298 19 Other 1 0 2 0 0 0 0 2 20 Official institutions9 275,928 312.019 283.627 283,627 286,540 284,063 288,054 283,347 280,345 278,213 21 Banks' own liabilities 83.447 79.406 101.910 101.910 111.027 109.959 104,006 105,731 104,358 102,189 22 Demand deposits 2.098 1.511 2.314 2.314 1,682 1,910 2,051 2,532 2.052 2.590 23 Time deposits" 30.717 33,336 41,420 41,420 38.726 37,242 40,265 38,865 36,060 36.110 24 Other' 50.632 44.559 58.176 58.176 70.619 70,807 61,690 64.334 66,246 63,489 25 Banks' custodial liabilities5 192.481 232,613 181.717 181.717 175.513 174,104 184,048 177.616 175.987 176,024 26 U.S. Treasury bills and certificates6 168,534 198,921 148,301 148.301 145,609 144,324 153,335 138.418 137.652 134,324 27 Other negotiable and readily transferable instruments7 23,603 33,266 33,211 33.211 29,614 29,643 30,183 38,745 38,010 41,037 28 Other 344 426 205 205 290 137 530 453 325 663 29 Banks10 691,412 694,835 815,963 815,963 794,648 799,916 763,349 776,269 782.841 807,724 30 Banks' own liabilities 567,834 562,898 642,223 642,223 620,410 623,186 585,083 596,509 601,967 632,773 31 Unaffiliated foreign banks 171.544 161,354 157,272 157,272 155,652 146,030 145,299 157,131 159.394 156,419 32 Demand deposits 11.758 13,692 17,527 17,527 15,974 16,084 18,350 17,152 16,111 20,763 33 Time deposits 103,471 89,765 83.433 83,433 79,051 75,255 70,060 72,703 74,018 75,253 34 Other3 56.315 57 897 56,312 56,312 60,627 54,691 56,889 67,276 69,265 60,403 35 Own foreign offices 396.290 401,544 484,951 484,951 464,758 477,156 439,784 439,378 442,573 476.354 36 Banks' custodial liabilities5 123,578 131.937 173.740 173,740 174,238 176,730 178,266 179,760 180,874 174,951 37 U.S. Treasury bitls and certificates6 15.872 23,106 31,915 31,915 27.607 30,620 28,499 26,650 26,920 24.114 38 Other negotiable and readily transferable instruments7 13,035 17.027 35,333 35,333 35,266 35,107 34,962 37,942 38,186 38,077 39 Other 94,671 91,804 106,492 106,492 111,365 111,003 114.805 115,168 115,768 112.760 40 Other foreigners 121,170 141,122 172.268 172,268 174,741 183,453 188,426' 196,116' 182,949 186.785 •41 Banks' own liabilities 91,833 103,339 127.919 127,919 124,655 130,659 139,892 145,009' 132,168 136,500 42 Demand deposits 10,571 11,802 12.247 12,247 11,885 11,623 12,089 12,058' 12,809 13,240 43 Time deposits 53,714 58,025 68.151 68.151 64,817 65,472 66,827 67.734' 68,053 68,518 44 Other' 27,548 33,512 47.521 47.521 47,953 53.564 60.976 65,217 51.306 54,742 45 Banks' custodial liabilities5 29,337 37,983 44,349 44.349 50,086 52,794 48,534' 51,107' 50.781 50,285 46 U.S. Treasury bills and certificates 12.599 14.495 12,954 12.954 11,580 11,471 9.490 8,844 8.942 9,235 47 Other negotiable and readily transferable instruments7 15,221 21,453 24,927 24,927 31,958 34,440 31,147' 34,639' 31.333 33,000 48 Other 1,517 2,035 6,468 6,468 6,548 6.883 7,897 7,624 10.506 8,050 MEMO 49 Negotiable time certificates of deposit in custody for foreigners 9,103 14,573 16,046 16,046 17,038 20,791 22,416' 22.503' 23,440 21,229 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 Inier 4 For U.S. banks, includes amounts owed to own foreign branches and foreign subsidiar- American Development Bank, and the Asian Development Bank. Excludes "holdings of ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory dollars" of the International Monetary Fund. agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists 9. Foreign central banks, foreign central government, and ihe Bank for International principally of amounts owed to the bead 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 ccnlral 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 O October 1998 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States'—Continued Feb. Mar. Apr. May 50 Total, all foreigners 1,099,549 1.162,148 1,283,248 1,283,248 1,267,169 1,283,616 l,255,075r l,270,525r 1,260,321' 1,286,536 51 Foreign countries . 1,088,510 1,148,176 1,271,858 1,271,858 1,255,929 1,267,432 1,239,829' 1,255,732' 1,246,135' 1,272,722 52 Europe 362,819 376,590 420,401 420,401 401,604 419,986 390,750' 406,391' 405,348' 401,325 53 Austria 3,537 5,128 2,717 2,717 2,787 2,774 2,375 2,957 3,012 2,268 54 Belgium and Luxembourg 24,792 24,084 41,007 41,007 39,018 38,178 33,244 38,530 35,518 35,063 55 Denmark 2,921 2,565 1,514 1,514 1,625 1,215 1,094 2,588 1,443 1,989 56 Finland 2,831 1,958 2,246 2,246 2,177 2,136 1,549 1,768 1,365 1,438 57 France 39,218 35,078 46,607 46,607 44,773 44,990 44,027 48,468 47,869 46,161 58 Germany 24,035 24,660 23,737 23,737 21,988 23,290 20,971 24,895 26,452' 25,470 59 Greece 2,014 1,835 1,515 1,515 1,676 1,663 2,020' 2,383' 2,610' 2,429 60 Italy 10,868 10,946 11,378 11,378 9,854 9,804 9,631 10,600 11,127 11,510 61 Netherlands 13,745 11,110 7,385 7,385 6,287 7,043 8,208 8,051 7,265 6,845 62 Norway 1,394 1,288 317 317 955 845 346 514 774 607 63 Portugal 2,761 3,562 2,262 2,262 1,515 1,437 1,426 2,279 2,160 2,334 64 Russia 7,948 7,623 7,968 7,968 5,573 6,118 6,466 5,381 3,952 4,654 65 Spain 10,011 17,707 18,989 18,989 19,413 20,137 16,315 18,071 15,520 11,650 66 Sweden 3,246 1,623 1,628 1,628 1,415 2,055 1,967 1,785 2,197 3,148 67 Switzerland 43,625 44,538 39,172 39,172 37,340 37,157 35,463 32,341 33,893 37,854 68 Turkey 4,124 6,738 4,054 4,054 3,659 4,047 4,154 4,340 4,467 4,875 69 United Kingdom 139,183 153,420 181,904 181.904 176.457 191,181 174,198 172,829 178,185' 177,426 70 Yugoslavia" 177 206 239 239 292 244 236 246 270 234 71 Other Europe and other former U.S.S.R.1' 26,389 22,521 25.762 25,762 24,800 25,672 27,060 28,365 27,269' 25,370 72 Canada 30,468 38,920 28,341 28,341 29,035 29.470 27,121 27,398 26,021' 28,862 73 Latin America and Caribbean 440,213 467,529 536,365 536,365 532,748 533,880 529,446' 552,896' 550,714' 567,792 74 Argentina 12,235 13,877 20,199 20,199 19,215 18,278 18,835 17,766 16,938 18,504 75 Bahamas 94 991 88,895 112,217 112217 117.604 110 882 109,041 112,510 114,222' 116,410 76 Bermuda 4,897 5,527 6,911 6,911 6,279 8,283 8,273 6,657 7,142 7,771 77 Brazil 23,797 27,701 31,037 31,037 31,857 33,026 34,017 36,777 38,463' 35,244 78 British West Indies 239,083 251,465 276,389 276,389 268,034 273,464 261,542' 273,565 277,927r 295,094 79 Chile 2,826 2,915 4,072 4,072 4,514 4,450 3,975 4,330 4,230 4,349 80 Colombia 3,659 3,256 3,652 3,652 3,584 3,904 4,200 4,212 4,383 4,799 81 Cuba 8 21 66 66 63 58 55 57 59 63 82 Ecuador 1,314 1,767 2,078 2,078 1,867 1,997 1,814 1,737 1,783 1,606 83 Guatemala 1,276 1,282 1,494 1,494 1,492 1,382 1,438 1,478 1,353 1,363 84 Jamaica 481 628 450 450 449 437 431 449 438' 512 85 Mexico 24,560 31,240 33,972 33,972 33,230 33,611 35,708 37,623' 37,682' 38,058 86 Netherlands Antilles 4,673 6,099 5,085 5,085 5,777 5,417 11,351 17,569 7,447 6,861 87 Panama 4,264 4,099 4,241 4,241 3,921 4,087 3,958 4,211 4,106 3,723 88 Peru 974 834 893 893 876 912 878 878 964 925 89 Uruguay 1,836 1,890 2,382 2,382 2,201 2,247 2,228 2,097 1,991 1,982 90 Venezuela 11,808 17,363 21,601 21,601 22,339 21,887 21,474 20,696 21,600 20,252 91 Other 7,531 8,670 9,626 9,626 9,446 9,558 10,228 10,284 9,986 10,276 92 Asia . .. 240,595 249,083 269,198 269,198 274,770 267,957 275,173' 251,423 244,827' 254,421 China 93 Mainland .. 33,750 30,438 18,252 18,252 20,153 18,575 20,701' 20,122 20,209 21,558 94 Taiwan 11,714 15,995 11,760 11,760 12,936 12,942 13,619 13,776 12,648 11,619 95 Hong Kong 20,197 18,789 17,722 17,722 18,002 17,797 17,825 19,762 18,106' 19,720 96 India 3,373 3,930 4,567 4,567 5,331 5,265 5,586 4,813 4,882 4,821 97 Indonesia 2,708 2,298 3,554 3,554 2,909 2,989 4,015 4,266 3,197 3,860 98 Israel 4,041 6,051 6,281 6,281 7,190 7,197 7,589 7,348 6,251 6,095 99 Japan 109,193 117,316 143,401 143,401 138,686 140,426 137,700 113,283 111,623 118,675 100 Korea (South) 5,749 5,949 12,959 12,959 12,171 12,530 11,233 13,711 14,058 13,259 101 Philippines 3,092 3,378 3,250 3,250 2,530 2,872 3,009 2,870 2,802 3,418 102 Thailand 12,279 10,912 6,501 6,501 5,858 4,676 9,073 7,928 8,876' 7,148 103 Middle Eastern oil-exporting countries ' . . 15,582 16,285 14,959 14,959 16,059 15,952' 16,217' 17,095' 15,296' 13,834 104 Other 18,917 17,742 25,992 25,992 32.945 26,736 28,606 26.449 26,879' 30,414 105 Africa 7,641 8,116 10,347 10,347 10,291 9,670 11.385 11,160 10,965 10,734 106 Egypt 2,136 2,012 1,663 1,663 1,949 1,670 1,449 1,236 1,460 1,523 107 Morocco 104 112 138 138 131 73 88 131 115 84 108 South Africa 739 458 2,158 2,158 1,685 1,825 2,547 2,556 2,465 2,642 109 Zaire 10 10 10 10 7 4 10 3 5 5 110 Oil-exporting countries14 1,797 2,626 3,060 3,060 3,470 3,479' 4,275' 4,332' 4,079' 3,552 111 Other 2,855 2,898 3,318 3,318 3,049 2,619 3,016 2,902 2,841 2,928 112 Other 6,774 7,938 7,206 7,206 7,481 6,469 5,954 6,464 8,260 9,588 113 Australia 5,647 6,479 6,304 6,304 6,385 5,466 4,989 5,450 7,416 8,509 114 Other 1,127 1,459 902 902 1,096 1,003 965 1,014 844 1,079 115 Nonmonetary international and regional organizations 11,039 13,972 11,390 11,390 11,240 16,184 15,246 14,793 14,186 13,814 116 International15 9,300 12,099 10,217 10,217 10,016 14,591 14,331 13,330 12,509 12,283 117 Latin American regional16 893 1,339 424 424 975 1,217 536 762 830 670 118 Other regional17 846 534 749 749 249 376 379 701 847 861 11. Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 15. Principally the International Bank for Reconstruction and Development. Excludes 12. Includes the Bank for International Settlements. Since December 1992, has "holdings of dollars" of the International Monetary Fund. included all parts of the former U.S.S.R. (except Russia), and Bosnia. Croatia, and Slovenia. 16. Principally the Inter-American Development Bank. 13. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab 17. Asian, African, Middle Eastern, and European regional organizations, except the Bank Emirates (Trucial States). for International Settlements, which is included in "Other Europe." 14. Comprises Algeria, Gabon, Libya, and Nigeria. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank-Reported Data A55 3.18 BANKS' OWN CLAIMS ON FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period Area or country 1996 Dec. Apr. May 1 Total, all foreigners .. 532,444 599,925 708,233 708,233 703,190 703,984 687,650r 700,037' 704,208 706,981 2 Foreign countries 530,513 597,321 705,770 705,770 700,273 701,229 684,702r 696,744r 701,816 704,066 3 Europe 132.150 165,769 199,880 199,880 204,763 212,307 205,528' 207.154' 208.587 223,180 4 Austria 565 1,662 1,354 1,354 1,917 1,934 1,566 1.827 2.132 1,259 5 Belgium and Luxembourg 7,624 6,727 6,641 6,641 5,714 6,021 6,148' 5.482' 6.123 7,730 6 Denmark 403 492 980 980 1,531 907 895 968 1.286 1,198 7 Finland 1,055 971 1,233 1,233 1,492 1,554 1,686 1.018 931 1,146 8 France 15,033 15.246 16,239 16,239 21,474 18,963 18,206 17.383 16,276 15,474 9 Germany 9,263 8.472 12,676 12,676 10,849 10,752 13,047 16,931' 15.304 15.751 10 Greece 469 568 402 402 504 504 503 442 428 364 11 Italy 5,370 6,457 6,230 6,230 6,655 5.974 6,601 6,938 6,533 6,434 12 Netherlands 5,346 7,117 6,141 6,141 5,384 5,447 6,618 5,851 3,980 5,770 13 Norway 665 808 555 555 989 1.296 850 662 736 14 Portugal 888 418 777 777 655 533 589 935 1,496 15 Russia 660 1,669 1,248 1,248 1,297 1,143 1,115 1,133 1,117 1,057 16 Spain 2,166 3,211 2,942 2,942 6,926 6.255 5,778 7,458 6,218 5,560 17 Sweden 2,080 1,739 1.854 1,854 1,736 2.184 2,798 2,975 3.181 3,069 18 Switzerland 7,474 19,798 28.846 28,846 28,515 29.006 31,306 25,069 29,319 34,951 19 Turkey 803 1,109 1,558 1,558 1,648 1,675 1,914 2,324 2,386 2,414 20 United Kingdom 67,784 85,234 103,143 103.143 99,302 110,357 97,588 101,772' 102.894 109,754 21 Yugoslavia2 147 115 52 52 53 53 61 59 19 53 22 Other Europe and other former U.S.S.R.1 . 4,355 3,956 7.009 7.009 8.122 7,749 8,259 7,927 8,228 9,628 23 Canada 20,874 26,436 27.176 27,176 25,155 24,872 29.827 25,785 24,961 32,585 24 Latin America and Caribbean 256,944 274,153 343,820 343,820 345,787 345,643 338,909 354,302 361,724 345,764 25 Argentina 6,439 7,400 8,924 8,924 9,076 9,402 8,726 8,540 8,222 8,505 26 Bahamas 58.818 71,871 89,379 89,379 90,823 84,982 77.585 82,711 78,083 76,990 27 Bermuda 5,741 4,129 8,782 8,782 9,385 8,917 8.997 9,462 8,890 9,347 28 Brazil 13,297 17,259 21,696 21,696 22.541 23,987 25,283 26,033 25,971 25,331 29 British West Indies 124,037 105,510 145,471 145,471 145.935 149,520 147,910 159,649 168.131 156,296 30 Chile 4,864 5,136 7,913 7,913 7,910 8,249 8,171 8,444 8,482 8,482 31 Colombia 4,550 6,247 6,945 6.945 6.733 6,729 6,783 6,772 7.208 7,106 32 Cuba 0 0 0 0 0 0 0 0 0 0 33 Ecuador 825 1,031 1,311 1,311 1,390 1,398 1,476 1,522 1.501 1.430 34 Guatemala 457 620 886 886 863 868 904 955 955 932 35 Jamaica 323 345 424 424 410 401 364 373 385 320 36 Mexico 18,024 18,425 19,518 19,518 20,515 21,107 20,680 20,913 21,220 20,435 37 Netherlands Antilles 9,229 25,209 17,838 17,838 16,026 15,594 17,618 14,073 17,352 14,279 38 Panama 3,008 2,786 4.364 4,364 4,074 4,232 4,108 4,422 4.393 4,233 39 Peru 1.829 2,720 3 491 3,491 3,413 3.550 3,538 3.644 3,793 3,955 40 Uruguay 466 589 629 629 588 594 920 773 807 959 41 Venezuela 1,661 1,702 2,129 2,129 2,257 2,334 2,169 2,194 2,375 2,496 42 Other 3.376 3,174 4,120 4,120 3,779 3,677 3,822 3,956 4,668 43 Asia 115,336 122,478 125,024 125,024 114,457 109,041 101,355' 99,185 96,827 94,090 China 44 Mainland 1.023 1,401 1,579 1,579 2,534 1,988 2,762 2,921' 2.934 1,989 45 Taiwan 1.713 1,894 921 921 847 820 740 939' 723 835 46 Hong Kong 12,821 12,802 13.990 13.990 14,569 13,520 12,628 10,162 12.884 12,871 47 India 1,846 1,946 2,200 2,200 2.299 2,172 1,927 1,807 1,912 1,976 48 Indonesia 1.696 1,762 2,634 2,634 2.361 2,266 2,293' 2,212 2,100 2,046 49 Israel 739 633 768 768 946 987 812 874 907 954 50 Japan 61,468 59,967 59.540 59,540 52,904 51,891 46,660 44.970 42.071 42,344 51 Korea (South) 13.975 18,901 18,123 18,123 14,450 12,812 11,520 10,852 11.937 11,003 52 Philippines 1,318 1,697 1,689 1,689 1,794 1,645 1,813 1,561 1,614 1,541 53 Thailand 2,612 2,679 2,259 2,259 2,164 2,138 2,144 1,971 1,906 1,889 54 Middle Eastern oil-exporting countries' 9,639 10.424 10,790 10,790 9,133 9,101 8,921 11,028 9,338 8,448 55 Other 6,486 8.372 10.531 10,531 10,456 9,701 9,135 8,501 8,194 56 Africa 2,742 2,776 3.530 3,530 3,580 3,403 3.567 3,337 3,693 2,502 57 Egypt 210 247 247 247 279 304 289 294 281 283 58 Morocco 514 524 511 511 498 514 518 483 490 430 59 South Africa 465 584 805 805 694 573 559 490 859 653 60 Zaire 1 0 0 0 0 0 0 0 0 0 61 Oil-exporting countries'1 552 420 1.212 1.212 1,324 1.219 1,364 1,194 1,078 308 62 Other 1,000 1,001 755 755 785 793 837 876 985 63 Other 2 467 5,709 6,340 6,340 6,531 5.963 5,516 6,981 6,024 5.945 64 Australia 1,622 4.577 5,299 5,299 5,419 5,139 5,011 6,513 5,704 5,439 65 Other 845 1,132 1,041 1,041 1,112 824 505 468 320 506 66 Nonmonetary international and regional organizations'1 2,604 2,463 2.463 2,917 2,755 2,948 3,293 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 deaalleerrss. Emirates (Trucial States). 2. Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 5. Comprises Algeria, Gabon, Libya, and Nigeria. 3. Includes the Bank for International Settlements. Since December 1992. has included all 6. Excludes the Bank for International Settlements, which is included in "Other Europe." parts of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A56 International Statistics • October 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 Dec. Jan. Feb. Mar. Apr.' May Junep 1 Total 655,211 743,919 852,860 852,860 842,463r 2 Banks' claims 532,444 599.925 708,233 708,231 703,190 703,984 687,650' 700,037 704.208 706,981 3 Foreign public borrowers 22,518 22,216 20,660 20,660 30,195 27,041 28,226 32,463 28,985 27,804 307.427 341,574 431,685 431,685 415,708 421,733 402,387 409,955 415.184 414,547 5 Unaffiliated foreign banks 101.595 113,682 109,224 109,224 111.015 106,600 107,802 104,626 105,536 107,553 6 Deposits 17,771 33,826 31,042 31,042 10,768 26.559 25,657 24,324 21,282 22,521 7 Other 63,824 79,856 78,182 78,182 80,247 80.041 82,145 80,302 84,254 85,032 8 All other foreigners 100.904 122,453 146,664 146,664 146,272 148.610 149,235' 152,993 154,503 157,077 9 Claims of banks' domestic customers' .... 122,767 143,994 144,627 144,627 154.813 10 Deposits 58.519 77,657 73.110 73.110 85,406 11 Negotiable and readily transferable instruments 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 nonbanking business enterprises in the United States5 30.717 39,661 34,046 34,046 35,831 36,615 31,958 31.633 32,172 25,287 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 bunks abroad. 3.20 BANKS' OWN CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period 1997 1998 Maturity, by borrower and area 1994 1995 1996 June Sept. Dec. Mar. 1 Total 202,282 224,932 258,106 272,029 281,000 276,558 285,520 fly bornm-er 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 vear 31.871 46.075 46.247 61.132 63.019 70,699 70.688 6 Foreign public borrowers 7,838 7,522 6,790 11,406 8,752 8.525 11,312 7 All oiher foreigners 24,033 38.553 39,457 49,726 54,267 62.174 59,376 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 Europe 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 10,733 18 Africa 1.583 1,421 1,361 1.264 1,236 1,236 1,243 19 Allother' 1.385 1,286 941 1,300 1,358 1,483 1,504 I Reporting banks include all types of depository institutions as well as some brokers and 2. Maturity is time remaining until maturity. dealers. 3. Includes nonmauetary 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 Area or country Sept. Sept. Dec. 1 Total 499.5 551.9 574.7 612.8 586.2 645.3 647.5 678.8 711.0 725.9 2 G-10 countries and Switzerland . .. 191.2 206.0 203.4 226.9 220.0 228.3 231.4 250.0 247.7 242.8 3 Belgium and Luxembourg 1.2' 13.6 11.0 11 4 11.3 11.7 14.1 9.4 11.4 III) 4 France 19.1 19.4 17.9 18.0 17.4 16.6 19.7 17.9 20.2 15.4 5 Germany 24.7 27.3 31.5 31.4 13.9 29.8 32.1 34.1 34 7 28.6 6 Italy 11.8 11.5 13.2 14.9 15.2 16.0 14.4 20.2 19.3 15.5 7 Netherlands 3.6r 3.7 3.1 47 5.9 4.0 4.5 6.4 7.2 6.2 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 6.0 5.4 4.8 7.2 10 United Kingdom 85.8 82.4 847 101.6 90.5 104.7 99.2 110.6 108.3 113.4 11 Canada 10.0 10.3 10.8 12.2 14.8 14.0 16.3 15.7 15.1 13.7 12 Japan 21.1 28.5 22.7 23.6 21.7 23.7 21.7 26.8 22.6 28.6 13 Other industrialized countries 45.7 50.2 61.3 55.5 62.1 65.7 66.4 71.7 73.8 64.5 14 Austria 1.1 .9 1.3 1.2 1.0 1.1 1.9 1.5 1.7 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 45 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 1.1 1.4 .9 20 Spain 13.6 11.6 17.5 13.6 16.1 13.2 14.4 15.4 13.9 11.7 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 24.4 27.8 28.1 23.1 25 OPEC2 24.1 22.1 21.2 20.1 192 19.7 21.8 22.3 22.9 26.0 26 Ecuador .5 .7 .8 9 9 1.1 1.1 .9 1.2 1.3 27 Venezuela 3.7 2.7 2.9 2.3 2.3 2.4 1.9 2.1 2.2 2 5 28 Indonesia 3.8 4.8 4.7 4.9 5.4 5.2 4.9 5.6 6.5 67 29 Middle East countries 15.3 13.3 12.3 11.5 10.2 10.7 13.2 12.5 11.8 144 30 African countries .9 .6 .6 .5 .4 .4 .7 1.2 I.I 31 Non-OPEC developing countries . 96.0 112.6 126.5 128.1 140.6 137.0 Lutirt America Argentina 11.2 12.9 12.7 14.1 15.0 14.3 14.3 16.4 17.1 18.4 Brazil 8.4 13.7 18.3 21.7 17.8 20.7 22.0 27.3 26.1 28.6 Chile 6.1 6.8 6.4 67 6.6 7.0 6.8 7.6 8.0 8.7 Colombia 2.6 2.9 2.9 2.8 .3.1 4.1 3.7 3.3 3.4 3.4 36 Mexico.. 18.4 17.3 16.1 15.4 16.3 16.2 17.2 16.6 16.4 17.4 37 Peru .5 .9 1.2 1.3 1.6 1.6 1.4 1.8 2.0 38 Other . . . 2.7 3.1 3.0 3.0 3.3 3.4 3.4 3.6 4.1 Asia China 39 Mainland 1.1 1.8 3.3 2.9 2.6 2.5 2.7 3.6 4.3 3.2 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 1 4.9 5.3 4.9 4.9 42 Israel .4 .5 .5 .6 .5 .5 .6 .8 1.0 .7 43 Korea (South) 16.2 19.1 19.3 21.7 21.9 21.5 14.6 16.3 16.2 15.6 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 6.0 7.0 5.7 5.7 46 Thailand 2.1 4.9 5.2 5.4 4.8 17 6.8 73 6.2 5.4 47 Other Asia 4.7 4.5 4.3 4.8 4.1 4.1 4.3 47 4.5 4.3 Africa 48 Egypi .4 .6 .7 .9 1.1 .9 49 Morocco.... .7 .7 .7 .6 .7 7 5(1 Zaire .0 .0 .1 .0 .0 .0 51 Other Africa' .9 1.0 .9 .9 .9 .9 52 Eastern Europe 4.2 6.3 5.1 5.3 6.9 8.9 7.1 9.8 9.1 53 Russia4 1.0 1.4 1.0 1.8 3.7 3.5 4.2 5.1 5.1 54 Other 1.9 3.2 4.9 4.1 3.5 3.2 5.4 2.9 4.7 40 55 Offshore banking centers 72.9 99.2 101.3 106.1 105.2 134.7 131.3 129.6 138.9 145.7 56 Bahamas 10.2 11.0 13.9 17.3 14.2 20.3 20.9 16.1 19.8 29.9 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 . 21.4 32.4 28.8 26.1 32.0 37.2 32.8 35.1 45.7 43.4 59 Netherlands Antilles 1.6 10.3 11.1 13.2 11.7 26.1 19.9 15.8 21.7 14.6 60 Panama5 1.3 1.4 1.6 1.7 1.7 2.0 2.0 2.6 2.1 3.1 61 Lebanon .1 .1 .1 .1 .1 .1 .1 .1 .1 I 62 Hong Kong, China 20.0 25.0 25.3 27.6 26.0 27.9 30.8 35.2 27.2 322 63 Singapore 10.1 13.1 15.4 15.9 15.5 16.7 17.9 16.7 12.7 12.7 64 Other* .1 .1 I .1 .1 .1 .1 .3 .1 I 65 Miscellaneous and unallocated7 66.9 57.6 62.6 72.7 50.0 59.6 59.6 57.6 80.8 99.1 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 US. 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 US agencies and branches of foreign banks. Beginning March 1994, the data include Arab Emirates): and Bahrain and Oman (not formally members of OPEC) large foreign subsidiaries of U.S. banks. The data also include other types of U.S. depository 3. Excludes Liberia. Beginning March 1994 includes Namibia. institulionK as well as some types of brokers and dealers. To eliminate duplication, the data 4. As of December 1992. excludes other republics of the former Soviet Union. are adjusted to exclude the claims on foreign branches held by a U.S. office or another foreign 5. Includes Canal Zone branch of the same banking institution. 6. Foreign branch claims only. These data are on a gross claims basis and do not necessarily reflect the ultimate country 7. Includes New Zealand, Liberia, and international and regional organizations. risk or exposure of U.S. banks. More complete data on the country risk exposure of U.S. banks are available in the quarterly Country Exposure Lending Survey published by the Federal Financial Institutions Examination Council. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A58 International Statistics • October 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 55,639 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 13.0.37 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 1,186 878 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 Betmuda 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 I 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 countries' 35 27 25 25 72 39 23 32 23 30 Africa 135 150 38 29 29 33 60 33 31 Oil-exporting countries2 123 122 0 0 0 0 0 0 32 All other' 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 4,086 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 13.875 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 Other1 1,103 1.156 1,086 1,136 1. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab 2. Comprises Algeria, Gabon, Libya, and Nigeria. Emirates (Trucial States). 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A59 3.23 CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1996 1997 1998 Type of claim, and area or country 1994 1995 1996 Dec. Mar. June Sept. Dec. Mar.p 1 Total 57,888 52,509 63,642 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 rype 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 14,106 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 16 Europe 7,936 7,609 9,282 9,282 13,076 12,904 15,862 16,948 16,009 17 Belgium and Luxembourg 86 193 185 185 119 203 360 406 378 18 France 800 803 694 694 760 680 1,112 1,015 902 19 Germany 540 436 276 276 324 281 352 427 391 20 Nelherlands 429 517 493 493 567 519 764 677 911 21 Switzerland 523 498 474 474 570 447 448 434 401 22 United Kingdom 4,649 4,303 6,119 6,119 9,837 9,814 11,254 12,286 11,113 23 Canada 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 1.31.3 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 3] 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 82.3 791 33 Middle Eastern oil-exporting countries' 141 3 22 22 12 20 15 9 34 Africa 373 276 174 174 182 179 174 319 325 35 Oil-exporting countries2 0 5 14 14 14 15 16 15 16 36 All other1 600 583 569 569 562 55.3 553 652 720 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 213 231 226 226 364 327 331 328 232 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 SS4 475 43 United Kingdom 2,556 2,656 2.946 2,946 2,626 2,836 2,904 3.660 4,8.34 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 1,413 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 Japan 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 countries2 67 87 166 166 100 81 207 119 123 57 Other1 910 1.006 1,368 1,368 1,178 1,163 1,198 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 • October 1998 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars 1998 1997 1998 Transaction, and area or country 1996 1997 Jan.— Dec. Jan. Feb. Mar. Apr. May June' June US. corporate securities STOCKS 1 Foreign purchases 590.714 961.423 681.663 90.699 89.801 99.011 124.729 120.906' 117.877 129,339 2 Foreign sales 578,203 895,365 637,731 85,341 83,507 88,995 111,958 116,649 109,545 127,077 3 Net purchases, or sales (—) 12,511 66,058 43,932 5,358 6,294 10,016 12,771 4,257r 8,332 2,262 4 Foreign countries 12,585 66,215 44,044 5,392 6^46 10,006 12,775 4,278r 8,352 2,287 5 Europe 5,367 59,167 49,770 5,889 6,664 9,617 10,499 6,219 10,831 5,940 6 France -2,402 3,135 3,836 299 664 492 831 449 849 551 1,104 9,059 6,248 788 546 768 627 1,453 1,834 1,020 8 Netherlands 1,415 3,831 2,865 408 613 140 557 161 564 830 9 Switzerland 2,715 7,848 8,470 1,475 683 1,132 1,956 974 2,234 1,491 4,478 22,464 14,890 1,278 2,797 4,573 3,406 594 2,930 590 ]) Canada 2,226 -1,414 -2,199 -331 -254 -461 566 55 -505 -1,600 12 Latin America and Caribbean 5,816 5,206 3,715 -1,224 2,646 2,183 2,110 -3,689 -1,333 1,798 13 Middle East1 -1,600 368 -223 21 -166 -273 -170 346' -237 277 14 Other Asia 918 2,074 -6,834 1,075 -2,693 -944 -201 1.563 -610 -3,949 -372 4,786 -3,394 555 -1,112 -667 -1,422 555 -208 -540 -85 472 739 7 34 13 83 128 275 206 -57 342 -924 -45 115 -129 -112 -344 -69 -385 18 Nonmonetary international and regional organizations -74 -157 -112 -34 -52 10 -4 -21 -20 -25 BONDS2 19 Foreign purchases 393,953 610,118 410,102 52,164 57,548 67,418 70,079 75,955' 65,040 74,062 20 Foreign sales 268,487 475,959 302,792 43,174 44,394 49,991 50,208 52,229 52,584 53,386 21 Net purchases, or sales (-) 125,466 134,159 107,310 8,990 13,154 17,427 19,871 23,726r 12,456 20,676 22 Foreign countries 12535 133,596 106,783 8,979 13,122 17^58 19,732 23,596r 12398 20,577 23 Europe 77,570 71,631 61,832 4,257 5,425 8,253 12,669 18,522' 5,100 11.863 24 France 4,460 3,300 1,756 -67 74 272 727 33 -17 667 4,439 2,742 2,853 -474 289 419 249 1,727 -133 302 2,107 3,576 1,526 425 -433 199 364 520 532 344 27 Switzerland 1,170 187 3,354 733 760 266 358 772 794 404 28 United Kingdom 60,509 54,134 46,616 2,751 4,172 6,194 9.833 13,845' 4,130 8,442 29 Canada 4,486 6,264 3,521 677 1,409 114 400 363 628 607 17,737 34,734 31,014 7,220 5,339 5,512 4,835 2,257 6,703 6,368 31 Middle East1 1,679 2,155 1,760 142 78 820 522 69 109 162 32 Other Asia 23,762 16,996 7.317 -3,531 485 2,428 1,166 2,078 -106 1,266 33 Japan 14,173 9,357 4,561 -3,763 -958 886 742 2,904 460 527 34 Africa -5 6 6 2 3 4 1, 8 00 1 5 1 1 2 1 0 3 2 7 1 4 6 9 5 2 1 4 4 4 2 1 3 9 6 5 - 2 7 1 2 2 26 4 2 5 -3 -5 1 22 8 9 2 36 Nonmonetary international and regional organizations 171 563 527 11 32 69 139 130 58 99 Foreign ecurities -59,268 -40,931 -3.758 1.435 83 -1.205 -1,643 -217r -3,349 2,573 450,365 755,842 463,368 70,435 63,573 68.782 81,297 80.591 80,811 88,314 39 Foreign sales 509,633 796,773 467.126 69.000 63,490 69,987 82,940 80,808' 84,160 85,741 -51,369 -45,917 -25.715 -3.099 -3,539 -2,691 2,797 -9.629 -1,673 -10,980 41 Foreign purchases 1,114,035 1,490,498 704.146 117,165 97,927 102,429 132,740 117,121 107,888 146,041 42 Foreign sales 1,165,404 1,536,415 729.861 120.264 101,466 105,120 129,943 126,750 109,561 157,021 43 Net purchases, or sales (-), of stocks and bonds -110,637 -86,848 -29,473 -1,664 -3,456 -3,896 1,154 -9,846r -5,022 -8,407 44 Foreign countries -109,764 -86,764 -29,492 -1.578 -3,367 -3,854 1,182 -9,882r -5,190 -8,381 -57,139 -27,898 -11.311 823 -4.009 -1.816 4,841 -100' -3,140 -7,087 46 Canada -7,685 -2,890 -800 -51 987 600 -1,561 -481 -1,336 991 47 Latin America and Caribbean -11,507 -25,264 -8,522 -2.943 834 512 569 -5,817 -1,105 -3,515 48 Asia -27,831 -25,131 -7,032 876 -1.109 -3.099 -2.598 -2,777' 607 1,944 -5,887 -10,001 62 1,887 -414 -1,831 -1.732 2.019 652 1,368 50 Africa -1,517 -3,293 -872 -74 -115 -151 -169 -305 -90 -42 955 209 45 402 P6 52 Nonmonetary international and regional organizations -871 -84 19 -86 -89 -42 -28 36 168 -26 1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, 2. Includes state and local government securities and securities of U.S. government Saudi Arabia, and United Arab Emirates (Trucial States). agencies and corporations. Also includes issues of new debt securities sold abroad by US, corporations organized to finance direct investments abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Holdings and Transactions/Interest and Exchange Rates A61 3.25 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Transactions1 Millions of dollars; net purchases, or sales ( —) during period 1998 1997 1998 Area or country 1996 1997 Jan - Dec. Jan. Feb. Mar. Apr. May Junel' June 1 Total estimated 232,241 184,171 40,411 -9398 5,512 9,957 -4,091 6,078 21,267 1,688 2 Foreign countries 234,083 183,688 39,671 -7,788 4,990 10,091 -5.287 6,769 21,116 1,992 3 Europe 118.781 144,921 32,188 -37 18.215 6.798 -857 6,530 788 714 4 Belgium and Luxembourg 1,429 3.427 758 161 304 252 704 -165 176 -513 17,980 22,471 -245 3,052 -1.085 1.096 1.897 -829 -143 -1.181 6 Netherlands -582 1,746 -920 -1.525 403 -792 -1.73.1 130 341 731 7 Sweden 2,242 -465 369 -124 82 -430 400 -202 184 335 8 Switzerland 328 6,028 2.866 2.847 2,419 1.690 170 -483 44 -974 9 United Kingdom 65,658 98,253 15,688 - 1,792 11,879 5,875 -3,705 5,785 -2,720 -1,426 10 Other Europe and former U.S.S.R 31,726 13,461 13,672 -2,656 4.213 -893 1,410 2,294 2,906 3,742 11 Canada 2,331 -811 916 -2.132 -1 266 -517 1,457 -223 -66 12 Latin America and Caribbean 20,785 -2,554 4.766 3,737 -3,619 2,123 -8,383 -7.981 20,033 2.593 13 Venezuela -69 655 341 -36 4 97 -128 14 -339 693 14 Other Latin America and Caribbean 8,439 -549 7.210 2,485 1,711 2,949 -11 -632 - 335 3.528 12,415 -2,660 -2.785 1,288 -5,334 -923 -8,244 -7,363 20.707 -1,628 16 Asia 89,735 39,567 4,381 -10,359 -8,757 1,348 3,522 7,966 1,455 -1,153 17 Japan 41,366 20,360 -447 -7,860 -6,484 764 -168 6,301 1,582 -2,442 18 Africa 1,083 1,524 427 268 -43 176 154 -18 13 145 19 Other 1,368 1,041 -3.007 735 -805 -620 794 -1,185 -950 -241 20 Nonmonetary international and regional organizations -1,842 483 740 -1,610 522 -134 1,196 -691 151 -304 21 International -1,390 621 317 -1,025 445 -223 900 -715 136 -226 22 Latin American regional -779 170 8 -131 32 -29 10 -4 -1 0 MEMO 23 Foreign countries 234,083 183,688 39,671 -7,788 4,990 10.091 -5,287 6,769 21,116 1,992 24 Official institutions 85,807 43,959 4,761 -367 -1,189 1,242 6,133 1,162' 898 -3,485 25 Other foreign 148.276 139,729 34,910 -7,421 6,179 8,849 -11.420 5,607' 20,218 5,477 Oil-exporting countries 26 Middle East2 10,232 7,636 -1,494 -1,506 -2,411 409 1,325 -380 951 -1,388 27 Africa' 1 -12 1 0 1 0 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 Rale on Aug. 31, 1998 Rate on Aug. 31, 1998 Country Country Percent e M ffe o c n ti t v h e Percent ef M fe o c n ti t v h e Austria 2.5 Apr. 1996 Germany 2.5 Apr. 1996 Belgium 2.75 Oct. 1997 Italy 5.0 Apr. 1998 Canada 6.0 Aug. 1998 Japan 5 Sept. 1995 Denmark 3.75 May 1998 Netherlands 2.5 Apr. 1996 France 3.3 Oct. 1997 Switzerland 1.0 Sept. 1996 I. Rates shown arc mainly those at which the central bank either discounts or makes 2. Since February 1981. the rate has been that atwhich the Bank of France discount* 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 us credit operations. 3.27 FOREIGN SHORT-TERM INTEREST RATES1 Percent per year, averages of daily figures 1998 Type or country 1995 1996 1997 Feb. Mar. Apr. May June July Aug. 1 Eurodollars 5.93 5.38 5.61 5.53 5.56 5.56 5.57 5.57 5.57 556 2 United Kingdom 6.63 5.99 6.81 7.46 7.47 7.41 7.37 7.61 7.67 7.61 3 Canada . . 7.14 4.49 3.59 5.02 4.93 4 94 5.09 5.10 5.10 5.35 4 Germany 4.43 3.21 3.24 1.45 1.44 3.56 3.55 3,49 3.46 3.42 5 Switzerland 2 94 1.92 1.58 .98 1.06 1.39 1.52 1.81 1.98 1.68 6 Netherlands 4.30 2.91 3.25 3.36 3.42 3.52 3.53 3.51 3.46 3.41 7 France ... 6.43 3.81 3.35 3.45 3.45 3.50 3.50 3.47 3.44 3.44 8 Italy 10.43 8.79 6.86 6.12 5.59 5.09 4.98 4.99 4.75 4.78 9 Belgium 4.73 3.19 3.40 3.53 3.61 3.69 3.67 3.62 3.59 3.48 10 Japan 1.20 58 .58 84 .74 .66 .56 .57 .67 .69 I. Rates are for three-month interbank loans, with the following exceptions: Canai finance company paper; Belgium, three-month Treasury bills; and Japan, CD rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A62 International Statistics • October 1998 3.28 FOREIGN EXCHANGE RATES' Currency units per dollar except as noted 1998 Country/currency unit 1995 1996 1997 Mar. Apr. May June July Aug. 1 Australia/dollar 74.073 78.283 74.368 66.963 65.231 63.124 60.456 61.802 58.884 2 Austria/schilling 10.076 10.589 12.206 12.852 12.760 12.491 12.615 12.650 12.574 3 Belgium/franc 29.472 30.970 35.807 37.699 37.424 36.624 36.981 37.074 36.848 4 Brazil/real 0.9162 1.0051 1.0779 1.1334 1.1409 1.1475 1.1543 1.1614 1 1717 5 Canada/dollar 1.3725 1.3638 1.3849 1.4166 1.4298 1.4452 1.4655 1 4869 1.5346 6 China, PR./yuan 8.3700 8.3389 8.3193 8.3076 8.3058 8.3084 8.3100 8 3100 8.3100 7 Denmark/krone 5.5999 5.8003 6.6092 6.9661 6.9174 6.7662 6.8294 6.8499 6.8067 8 Finland/markka 4.3763 4.5948 5.1956 5.5467 5.5053 5.3966 5.4503 5.4653 5.4340 9 France/franc 4.9864 5.1158 5.8393 6.1257 6.0782 5.9528 6.0118 6.0280 5.9912 10 Germany/deutsche mark 1.4321 1.5049 1 7348 1.8272 1.8132 1.7753 1.7928 1.7976 1.7869 11 Greece/drachma 2.11.68 240.82 273.28 306.05 315.82 307.22 304.24 299.35 301.21 12 Hong Kong/dollar 7.7357 7.7345 7.7431 7.7458 7.7497 7.7490 7.7471 7.7483 7 7494 13 India/rupee 32.418 35.506 36.365 39.569 39.703 40.469 42.367 42.612 42.843 14 Ireland/pound 160.15 159.95 151.63 116 72 138.94 141.74 140.51 139.88 140 37 15 Italy/lira 1,629.45 1,542.76 1,703.81 1,799.07 1,791.24 1,750.79 1,766.32 1,772.42 1,763.01 16 Japan/yen 91.96 108.78 121.06 129.08 131.75 134.90 140.33 140.79 144.68 17 Malaysia/nnggit 2.5073 25154 28173 3.7456 3.7376 3.8204 4.0006 4.1591 4.2036 18 Mexico/peso 6.4467 7.6004 7 9177 8.5681 8.5017 8.5848 8.9200 8.8990 9.3712 19 Netherlands/guilder 1.6044 1.6863 1.9525 2.0598 2.0422 2.0005 2.0208 2.0267 2.0148 20 New Zealand/dollar2 65.625 68.765 66.247 57.261 55.339 53.876 51.231 51.847 50.115 21 Norway/krone 6.3355 6.4594 7.0857 7.5833 7.5315 7.4539 7.5785 7.6246 7.7248 22 Portugal/escudo 149.88 154.28 175.44 187.03 185.81 181.87 183.58 183.93 182.99 23 Singapore/dollar 1.4171 1.4100 1 4857 1 6188 1 6007 1.6374 1.6941 1.7085 1 7571 24 South Africa/rand 3.6284 4.3011 4.6072 4.9746 5.0459 5.0927 5.3910 6.2285 6.3198 25 South Korea/won 772.69 805.00 950.77 1,489.36 1,391.55 1,399.05 1,397.77 1.295.76 1.314.29 26 Spain/peseta 124.64 126.68 146.53 154.95 153.99 150.81 152.18 152.58 151 72 27 Sri Lanka/rupee SI.047 55.289 59.026 62.083 62.903 64.261 65.150 65.908 66.642 28 Sweden/krona 7.1406 6.7082 7.6446 7.9677 7.8238 7.7026 7.9174 7.9942 8.1282 29 Switzerland/franc 1.1812 1.2361 1.4514 1.4901 1.5051 1.4790 1.4949 1.5136 1.4933 30 Taiwan/dollar 26.495 27.468 28.775 32.524 33.016 33.466 34.553 34.387 34.731 31 Thailand/baht 24.921 25.359 31.072 41.366 39.654 39.198 42.332 41.300 41 720 32 United Kingdom/pound2 157.85 156.07 163.76 166.19 167.23 163.82 165.04 164.37 163.42 33 Venezuela/bolivar 174.85 417.19 488.39 521.68 531.26 537.26 543.82 558.47 571.88 Nominal indexes 34 G 10 (March 1973-100)4 84.2500 87.3400 96.3800 100.4700 100.3000 99.6100 100.9000 101.3800 101.8000 35 Broad (January 1997= 100)5 92.5321 97.4052 104.4669 114.3572 114.1338 115.1641 117.8730 118.1663 120.1445 36 Major currency (March 1973=100)" 81.4049 85.2240 91.8513 95.8275 96.4116 96.8838 98.6822 99.3108 100.9581 37 Other important trading partner (January 1997=100)' 92.5466 98.2587 104.6742 122.0681 120.5335 122.2841 125.9675 125.6377 127.7693 Real indexes 18 Broad (March 1973= 100)5 85.8714 87.8485 92.5478 99.3684 99.0801 99.8195 102.1286 102.5217 103.9770 39 Major currency (March 1973=100)6 80.7827 85.8298 93.2024 97.4655 98.0587 98.4039 100.4113 101.4100 103.1225 40 Other important trading partner (March 1973=100)' 101.3152 98.3325 99.4765 110.5793 108.9568 110.3409 113.2939 112.8221 114.0228 1. Averages of certified noon buying rates in New York for cable transfers. Data in this average of U.S. bilateral import shares from and export shares to the issuing country and of a lable also appear in the Board's G.5 (405) monthly statistical release. For ordering address, measure of the importance to U.S. exporters of that country's trade in third country markets. see inside front cover. 6. Weighted average of the foreign exchange value of the U.S. dollar against a subset of 2. Value in U.S. cents. broad index currencies that circulate widely outside the country of issue. The weight for each 3. For more information on the indexes of the foreign exchange value of the dollar, see currency is its broad index weight scaled so that the weights of the subset of currencies in the Federal Resen-e Bulletin, vol. 84 (October 1998), pp. 811-818. index sum to one. 4. Weighted average of the foreign exchange value of the U.S. dollar against the currencies 7. Weighted average of the foreign exchange value of the U.S. dollar against a subset of of ihe other G-10 countries. The weight for each of the ten countries is the 1972-76 average broad index currencies thai do not circulate widely outside the country of issue. The weight world trade of that country divided by the average world trade of all ten countries combined. for each currency is its bri>ad index weight scaled so that the weights of the subset of Series revised as of August 1978 (see Federal Reserve Bulletin, vol. 64 (August 1978), p. currencies in the index sum ID one. 700). 5. Weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of U.S. trading partners. The weight for each currency is computed as an 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 June30, 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 December 31, 1997 May 1998 A70 March 31, 1998 August 1998 A72 Pro forma balance sheet and income statements for priced service operations September 30, 1997 January 1998 A64 March 31, 1998 July 1998 A64 June 30, 1998 October 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 • October 1998 4.31 PRO FORMA FINANCIAL STATEMENTS FOR FEDERAL RESERVE PRICED SERVICES A. Pro forma balance sheet Millions of dollars Item June 30, 1998 June 30, 1997 Short-term assets (Note 1) 633.0 663.5 Investment in marketable securities 5,697.0 5,971.5 Receivables 69.3 64.1 Materials and supplies 4.7 2.9 Prepaid expenses 23.4 24.5 6,462.3 1,101.3 Total short-term assets 12,889 7 7,827.9 Long-term assets (Note 2) 392.9 385.1 Furniture and equipment 127.9 136.3 Leases and leasehold improvements 24.6 33.2 395.1 318.6 Total long-term assets 940.5 873.3 13,830.1 8,701.1 Short-term liabilities Clearing balances and balances arising from early credit of uncollected items 7,926.3 6,922.0 4,866.0 814.4 Short-term debt 97.4 91.5 Total short-term liabilities 12,889.7 7,827.9 Long-term liabilities Obligations under capital leases 0.0 .7 190.9 187.6 Postretirement/postemployment benefits obligation 211.2 199.9 Total long-term liabilities 402.1 388.2 Total liabilities .. 13,291.8 8,216.1 Equity 538.3 485.1 Total liabilities and equity (Note 3) 13,830.1 8,701.1 NOTE. Components may not sum to totals because of rounding. The priced services (2) LONG-TERM ASSETS financial statements consist of these tables and the accompanying notes. Consists of long-term assets used solely in priced services, the priced-services portion of (1) SHORT-TERM ASSETS long-term assets shared with nonpriced services, and an estimate of the assets of the Board of Governors used in the development of priced services. Effective Jan. 1, 1987, the Reserve The imputed reserve requirement on clearing balances held at Reserve Banks by depository Banks implemented the Financial Accounting Standards Board's Statement of Financial institutions reflects a treatment comparable to that of compensating balances held at corre- Accounting Standards No. 87, Employers' Accounting for Pensions (SFAS 87). Accordingly, spondent banks by respondent institutions. The reserve requirement imposed on respondent the Federal Reserve Banks recognized credits to expenses of $28.7 million in the second balances must be held as vault cash or as nonearmng balances maintained at a Reserve Bank; quarter of 1998, $16.2 million in the first quarter of 1998, $15.6 million in the second quarter thus, a portion of priced services clearing balances held with the Federal Reserve is shown as of 1997, and $15.6 million in the first quarter of 1997, and corresponding increases in this required reserves on the asset side of the balance sheet. The remainder of clearing balances is asset account. assumed to be invested in three-month Treasury bills, shown as investment in marketable securities. Receivables are (1) amount* due the Reserve Banks for pneed services and (2) the share of (3) LIABILITIES AND EQUITY suspense-account and difference-account balances related to priced services. Materials and supplies are the inventory value of short-term assets. Under the matched-book capital structure for assets that are not "self-financing," short-term Prepaid expenses include salary advances and travel advances for priced-service personnel. assets are financed with short-term debt Long-term assets are financed with long-term debt Items in process of collection is gross Federal Reserve cash items in process of collection and equity in a proportion equal to the ratio of long-term debt to equity for the fifty largest (CIPC) stated on a basis comparable to that of a commercial bank. It reflects adjustments for bank holding companies, which are used in the model for the private-sector adjustment factor intra-System items that would otherwise be double-counted on a consolidated Federal (PSAF). The PSAF consists of the taxes that would have been paid and the return on capital Reserve balance sheet; adjustments for items associated with non-priced items, such as those that would have been provided had priced services been furnished by a private-sector firm. collected for government agencies; and adjustments for items associated with providing fixed Other short-term liabilities include clearing balances maintained at Reserve Banks and availability or credit before items are received and processed. Among the costs to be deposit balances arising from float. Other long-term liabilities consist of obligations on capital recovered under the Monetary Control Act is the cost of float, or net CIPC during the period leases. (the difference between gross CIPC and deferred-availability items which is the portion of gross CIPC that involves a financing cost), valued at the federal funds rate. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank-Reported Data A65 4.31 PRO FORMA FINANCIAL STATEMENTS FOR FEDERAL RESERVE PRICED SERVICES B. Pro forma income statement Millions of dollars Item Quarter ending June 30, 1998 Quarter ending June 30, 1997 Revenue from services provided to depository institutions (Note 4) 202.0 195.8 Operating expenses (Note 5) 154.0 164.8 Income from operations 48.0 31.0 Inputed costs (Note 6) Interest on float 3.9 1.8 Interest on debt 4.3 4.4 Sales taxes 1.7 2.3 FDIC insurance 0.0 9.8 0.5 9.0 Income from operations after imputed costs 38.1 22.0 Other income and expenses (Note 7) Investment income on clearing balances 88.0 91.7 Earnings credits 81.5 6.5 87.6 4.3 Income before income taxes 44.6 26.3 Jnputed income taxes (Note 8) 14.3 8.4 Net income 30.3 17.8 MEMO Targeted return on equity (Note 9) 17.2 13.4 Six months ending June 30, 1998 Six months ending June 30, 1997 Revenue from services provided to depository institutions (Note 4) 397.1 388.9 Operating expenses (Note 5) 316.9 328.1 Income from operations 80.2 60.7 Imputed costs (Note 6) Interest on float 9.3 6.1 Interest on debt 8.5 8.8 Sales taxes 3.7 4.9 FDIC insurance 0.0 21.5 1.0 20.8 Income from operations after imputed costs 58.7 39.9 Other income and expenses (Note 7) Investment income on clearing balances 181.5 180.1 Earnings credits (165.5) 16.0 165.8 14.3 Income before income taxes 74.7 54.2 Imputed income taxes (Note 8) 24.0 17.4 Net income 50.7 36.8 MEMO Targeted return on equity (Note 9) 32.8 27.1 NOTE. Components may not sum to totals because of rounding. The priced services Unrecovered float includes float generated by services to government agencies and by other financial statements consist of these tables and the accompanying notes. central bank services. Float recovered through income on clearing balances is the result of the increase in investable clearing balances, the increase is produced by a deduction for float for (4) REVENUE cash items in process of collection, which reduces imputed reserve requirements. The income on clearing balances reduces the float to be recovered through other means. As-of adjustments Revenue represents charges to depository institutions for priced services and is realized from and direct charges are mid-week closing float and interterritory check float, which may be each institution through one of two methods: direct charges to an institution's account or recovered from depositing institutions through adjustments to the institution's reserve or charges against its accumulated earnings credits. clearing balance or by valuing the float at the federal funds rate and billing the institution directly. Float recovered through per-item fees is valued at the federal funds rate and has been (5) OPERATING EXPENSES added to the cost base subject to recovery in the second quarters of 1998 and 1997. Operating expenses consist of the direct, indirect, and other general administrative expenses (7) OTHER INCOME AND EXPENSES of the Reserve Banks for priced services plus the expenses for staff members of the Board of Governors working directly on the development of priced services. The expenses for Board Consists of investment income on clearing balances and the cost of earnings credits. staff members were $0.7 million in the first and second quarters of 1998 and 1997. The credit Investment income on clearing balances represents the average coupon-equivalent yield on to expenses under SFAS 87 (see note 2) is reflected in operating expenses. three-month Treasury bills applied to the tola! clearing balance maintained, adjusted for the effect of reserve requirements on clearing balances. Expenses for earnings credits granted to depository institutions on their clearing balances are derived by applying the average federal (6) IMPUTED COSTS funds rate to the required portion of the clearing balances, adjusted for the net effect of Imputed costs consist of interest on float, interest on debt, sales taxes, and the FDIC reserve requirements on clearing balances. assessment. Imeresi on float is derived from the value of float to be recovered, either (8) INCOME TAXES explicitly or through per-item fees, during the period. Float costs include costs for checks, book-entry securities, noncash collection, ACH, and funds transfers. Imputed income taxes are calculated at the effective tax rale derived from the PSAF model Interest is imputed on the debt assumed necessary to finance priced-service assets. The (see note 3). sales taxes and FDIC assessment that the Federal Reserve would have paid had it been a private-sector firm are among the components of the PSAF (see note 3). The following list shows the daily average recovery of float by the Reserve Banks for the rate of return on equity that the Federal Reserve would have earned second quarter of 1998 and 1997 in millions of dollars: 1998 1997 quarter of 1997, and $2.3 million for the first quarter of 1997. The Reserve Banks plan to Total float 627 9 404.1 recover these amounts, along with a finance charge, by the end of the year 2001 Unrecovered float 40.1 20.1 Float subject to recovery 587.8 384.0 Sources of float recovery Income on clearing balances 58.6 38.0 As-of adjustments 308.8 251.9 Direct charges 107.7 83.2 Per-<cem fees 112.7 10.9 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A66 Federal Reserve Bulletin • October 1998 Index to Statistical Tables References are to pages A3-A65 although the prefix "A" is omitted in this index ACCEPTANCES, bankers (See Bankers acceptances) Federal credit agencies, 30 Assets and liabilities (See also Foreigners) Federal finance Commercial banks, 15-21 Debt subject to statutory limitation, and types and ownership Domestic finance companies, 32, 33 of gross debt. 27 Federal Reserve Banks, 10 Receipts and outlays, 25, 26 Foreign-related institutions, 20 Treasury financing of surplus, or deficit, 25 Automobiles Treasury operating balance, 25 Consumer credit, 36 Federal Financing Bank, 30 Production, 44, 45 Federal funds, 23, 25 Federal Home Loan Banks, 30 BANKERS acceptances, 5, 10, 22, 23 Federal Home Loan Mortgage Corporation, 30, 34, 35 Bankers balances. 15-21. (See also Foreigners) Federal Housing Administration, 30, 34, 35 Bonds (See also U.S. government securities) Federal Land Banks, 35 New issues, 31 Federal National Mortgage Association, 30, 34, 35 Rates, 23 Federal Reserve Banks Business activity, nonfinancial. 42 Condition statement, 10 Business loans (See Commercial and industrial loans) Discount rates (See Interest rates) U.S. government securities held, 5, 10, 11, 27 CAPACITY utilization, 43 Federal Reserve credit. 5, 6, 10, 12 Capital accounts Federal Reserve notes, 10 Commercial banks, 15-21 Federal Reserve System Federal Reserve Banks, 10 Balance sheet for priced services, 64, 65 Central banks, discount rates, 61 Condition statement tor priced services. 64. 65 Certificates of deposit. 23 Federally sponsored credit agencies, 30 Commercial and industrial loans Finance companies Commercial banks, 15-21 Assets and liabilities, 32 Weekly reporting banks, 17, 18 Business credit, 33 Commercial banks Loans, 36 Assets and liabilities, 15-21 Paper, 22, 23 Commercial and industrial loans, 15-21 Float, 5 Consumer loans held, by type and terms, 36 Flow of funds, 37-41 Real estate mortgages held, by holder and property, 35 Foreign currency operations, 10 Time and savings deposits. 4 Foreign deposits in U.S. banks, 5 Commercial paper, 22, 23, 32 Foreign exchange rates, 62 Condition statements (See Assets and liabilities) Foreign-related institutions, 20 Construction, 42, 46 Foreign trade, 51 Consumer credit, 36 Foreigners Consumer prices, 42 Claims on, 52, 55, 56, 57, 59 Consumption expenditures, 48, 49 Liabilities to. 51, 52, 53, 58, 60, 61 Corporations Profits and their distribution, 32 GOLD Security issues, 31,61 Certificate account, 10 Cost of living (See Consumer prices) Stock, 5, 51 Credit unions, 36 Government National Mortgage Association. 30. 34. 35 Currency in circulation, 5, 13 Gross domestic product, 48, 49 Customer credit, stock market, 24 DEBT (See specific types of debt or securities) HOUSING, new and existing units, 46 Demand deposits, 15-21 Depository institutions INCOME and expenses, Federal Reserve System, 64, 65 Reserve requirements, 8 Income, personal and national, 42, 48, 49 Reserves and related items, 4, 5, 6, 12 Industrial production. 42, 44 Deposits (See also specific types) Insurance companies, 27, 35 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 International organizations, 52, 53, 55, 58, 59 FARM mortgage loans, 35 Inventories. 48 Federal agency obligations, 5, 9, 10. 11, 28. 29 Investment companies, issues and assets, 32 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A67 Investments (See also specific types) Retail credit and retail sales, 36, 42 Commercial banks, 4, 15-21 Federal Reserve Banks, 10, 11 SAVING Financial institutions, 35 Flow of funds, 37-41 National income accounts, 48 LABOR force, 42 Savings institutions, 35, 36, 37-41 Life insurance companies (See Insurance companies) Savings deposits (See Time and savings deposits) Loans (See also specific types) Securities (See also specific types) Commercial banks, 15-21 Federal and federally sponsored credit agencies, 30 Federal Reserve Banks, 5, 6, 7, 10, 11 Foreign transactions, 60 Federal Reserve System, 64, 65 New issues. 31 Financial institutions, 35 Prices, 24 Insured or guaranteed by United States, 34, 35 Special drawing rights, 5, 10, 50, 51 State and local governments MANUFACTURING Holdings of U.S. government securities, 27 Capacity utilization, 43 New security issues, 31 Production, 43, 45 Rates on securities, 23 Margin requirements, 24 Stock market, selected statistics, 24 Member banks, reserve requirements, 8. (See also Depository Stocks (See also Securities) institutions) New issues, 31 Mining production, 45 Prices, 24 Mobile homes shipped, 46 Student Loan Marketing Association, 30 Monetary and credit aggregates, 4, 12 Money and capital market rates, 23 TAX receipts, federal, 26 Money stock measures and components, 4,13 Thrift institutions, 4. (See also Credit unions and Savings Mortgages (See Real estate loans) institutions) Mutual funds. 13,32 Time and savings deposits, 4, 13, 15-21 Mutual savings banks (See Thrift institutions) Trade, foreign, 51 Treasury cash, Treasury currency, 5 NATIONAL defense outlays, 26 Treasury deposits, 5, 10, 25 National income, 48 Treasury operating balance, 25 OPEN market transactions, 9 UNEMPLOYMENT, 42 U.S. government balances PERSONAL income, 49 Commercial bank holdings, 15-21 Prices Treasury deposits at Reserve Banks, 5, 10, 25 Consumer and producer, 42, 47 U.S. government securities Stock market. 24 Bank holdings, 15-21,27 Prime rate, 22 Dealer transactions, positions, and financing, 29 Producer prices, 42, 47 Federal Reserve Bank holdings, 5, 10, 11, 27 Production, 42, 44 Foreign and international holdings and Profits, corporate, 32 transactions, 10, 27, 61 Open market transactions, 9 REAL estate loans Outstanding, by type and holder, 27, 28 Banks, 15-21, 35 Rates, 23 Terms, yields, and activity, 34 U.S. international transactions, 50-62 Type of holder and property mortgaged, 35 Utilities, production, 45 Reserve requirements, 8 Reserves VETERANS Administration, 34, 35 Commercial banks, 15-21 Depository institutions, 4, 5, 6, 12 WEEKLY reporting banks, 17, 18 Federal Reserve Banks, 10 Wholesale (producer) prices, 42, 47 U.S. reserve assets, 51 Residential mortgage loans, 34, 35 YIELDS (See Interest rates) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A68 Federal Reserve Bulletin • October 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 JANICE SHACK-MARQUEZ, Assistant Director DIVISION OF BANKING CHARLES S. STRUCKMEYER, Assistant Director SUPERVISION AND REGULATION ALICE PATRICIA WHITE, Assistant Director RICHARD SPILLENKOTHEN, Director JOYCE K. ZICKLER, Assistant Director STEPHEN C. SCHEMERING, Deputy Director GLENN B. CANNER, Senior Adviser HERBERT A. BIERN, Associate Director JOHN J. MINGO, Senior Adviser ROGER T. COLE, Associate Director WILLIAM A. RYBACK, Associate Director 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

A69 ROGER W. FERGUSON, JR. EDWARD M. GRAMLICH OFFICE OF DIVISION OF RESERVE BANK OPERATIONS STAFF DIRECTOR FOR MANAGEMENT AND PAYMENT SYSTEMS S. DAVID FROST, Staff Director CLYDE H. FARNSWORTH, JR., Director SHEILA CLARK, EEO Programs Director DAVID L. ROBINSON, Deputy Director (Finance and Control) JOHN R. WEIS, Adviser LOUISE L. ROSEMAN, Associate Director PAUL W. BETTGE, Assistant Director MANAGEMENT DIVISION JACK DENNIS, JR., Assistant Director EARL G. HAMILTON, Assistant Director S. DAVID FROST, Director STEPHEN J. CLARK, Associate Director, Finance Function JOSEPH H. HAYES, JR., Assistant Director DARRELL R. PAULEY, Associate Director, Human Resources JEFFREY C. MARQUARDT, Assistant Director Function MARSHA REIDHILL, Assistant Director DIVISION OF SUPPORT SERVICES OFFICE OF THE INSPECTOR GENERAL 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

A70 Federal Reserve Bulletin • October 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

A71 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 GAIL SMALL, Lame Deer, Montana JANET C. KOEHLER, Jacksonville, Florida GWENN KYZER, Allen, Texas GREGORY D. SQUIRES, Milwaukee, Wisconsin GEORGE P. SURGEON, Chicago, Illinois JOHN C. LAMB, Sacramento, California THEODORE J. WYSOCKI, JR., Chicago, Illinois ERROL T. LOUIS, Brooklyn, New York 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

A72 Federal Reserve Bulletin • October 1998 Federal Reserve Board Publications For ordering assistance, write PUBLICATIONS SERVICES, The Payment System Handbook. $75.00 per year. MS-127, Board of Governors of the Federal Reserve System, Federal Reserve Regulatory Service. Four vols. (Contains all Washington, DC 20551, or telephone (202) 452-3244, or FAX four Handbooks plus substantial additional material.) $200.00 (202) 728-5886. You may also use the publications order per year. form available on the Board's World Wide Web site Rates for subscribers outside the United States are as follows (http://www.bog.frb.fed.us). When a charge is indicated, payment and include additional air mail costs: should accompany request and be made payable to the Board of Federal Reserve Regulatory Service, $250.00 per year. Governors of the Federal Reserve System or may be ordered via Each Handbook, $90.00 per year. Mastercard, Visa, or American Express. Payment from foreign FEDERAL RESERVE REGULATORY SERVICE FOR PERSONAL residents should be drawn on a U.S. bank. COMPUTERS. CD-ROM; updated monthly. Standalone PC. $300 per year. Network, maximum 1 concurrent user. $300 per year. BOOKS AND MISCELLANEOUS PUBLICATIONS Network, maximum 10 concurrent users. $750 per year. THE FEDERAL RESERVE SYSTEM—PURPOSES AND FUNCTIONS. Network, maximum 50 concurrent users. $2,000 per year. 1994. 157 pp. Network, maximum 100 concurrent users. $3,000 per year. ANNUAL REPORT, 1997. Subscribers outside the United States should add $50 to cover ANNUAL REPORT: BUDGET REVIEW, 1998-99. additional airmail costs. FEDERAL RESERVE BULLETIN. Monthly. $25.00 per year or $2.50 THE U.S. ECONOMY IN AN INTERDEPENDENT WORLD: A MULTIeach in the United States, its possessions, Canada, and COUNTRY MODEL, May 1984. 590 pp. $14.50 each. Mexico. Elsewhere, $35.00 per year or $3.00 each. INDUSTRIAL PRODUCTION—1986 EDITION. December 1986. ANNUAL STATISTICAL DIGEST: period covered, release date, num- 440 pp. $9.00 each. ber of pages, and price. FINANCIAL FUTURES AND OPTIONS IN THE U.S. ECONOMY. 1981 October 1982 239 pp. $ 6.50 December 1986. 264 pp. $10.00 each. 1982 December 1983 266 pp. $ 7.50 FINANCIAL SECTORS IN OPEN ECONOMIES: EMPIRICAL ANALY- 1983 October 1984 264 pp. $11.50 SIS AND POLICY ISSUES. August 1990. 608 pp. $25.00 each. 1984 October 1985 254 pp. $12.50 RISK MEASUREMENT AND SYSTEMIC RISK: PROCEEDINGS OF A 1985 October 1986 231 pp. $15.00 JOINT CENTRAL BANK RESEARCH CONFERENCE. 1996. 1986 November 1987 288 pp. $15.00 578 pp. $25.00 each. 1987 October 1988 272 pp. $15.00 1988 November 1989 256 pp. $25.00 1980-89 March 1991 712 pp. $25.00 EDUCATION PAMPHLETS 1990 November 1991 185 pp. $25.00 Short pamphlets suitable for classroom use. Multiple copies are 1991 November 1992 215 pp. $25.00 available without charge. 1992 December 1993 215 pp. $25.00 1993 December 1994 281 pp. $25.00 1994 December 1995 190 pp. $25.00 Consumer Handbook on Adjustable Rate Mortgages 1990-95 November 1996 404 pp. $25.00 Consumer Handbook to Credit Protection Laws A Guide to Business Credit for Women, Minorities, and Small Businesses SELECTED INTEREST AND EXCHANGE RATES—WEEKLY SERIES OF Series on the Structure of the Federal Reserve System CHARTS. Weekly. $30.00 per year or $.70 each in the United The Board of Governors of the Federal Reserve System States, its possessions, Canada, and Mexico. Elsewhere, The Federal Open Market Committee $35.00 per year or $.80 each. Federal Reserve Bank Board of Directors REGULATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL Federal Reserve Banks RESERVE SYSTEM. A Consumer's Guide to Mortgage Lock-Ins A Consumer's Guide to Mortgage Settlement Costs ANNUAL PERCENTAGE RATE TABLES (Truth in Lending— A Consumer's Guide to Mortgage Refinancings Regulation Z) Vol. I (Regular Transactions). 1969. 100 pp. Home Mortgages: Understanding the Process and Your Right Vol. II (Irregular Transactions). 1969. 116 pp. Each volume $5.00. to Fair Lending How to File a Consumer Complaint GUIDE TO THE FLOW OF FUNDS ACCOUNTS. 672 pp. $8.50 each. Making Sense of Savings FEDERAL RESERVE REGULATORY SERVICE. Loose-leaf; updated monthly. (Requests must be prepaid.) SHOP: The Card You Pick Can Save You Money Consumer and Community Affairs Handbook. $75.00 per year. Welcome to the Federal Reserve When Your Home is on the Line: What You Should Know Monetary Policy and Reserve Requirements Handbook. $75.00 per year. About Home Equity Lines of Credit Securities Credit Transactions Handbook. $75.00 per year. Keys to Vehicle Leasing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A73 STAFF STUDIES: Only Summaries Printed in the 165. THE DEMAND FOR TRADE CREDIT: AN INVESTIGATION OF BULLETIN MOTIVES FOR TRADE CREDIT USE BY SMALL BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September Studies and papers on economic and financial subjects that are of 1993. 18 pp. general interest. Requests to obtain single copies of the full text or to be added to the mailing list for the series may be sent to 166. THE ECONOMICS OF THE PRIVATE PLACEMENT MARKET, by Mark Carey, Stephen Prowse, John Rea, and Gregory Udell. Publications Services. January 1994. Ill pp. 167. A SUMMARY OF MERGER PERFORMANCE STUDIES IN BANK- Staff Studies 1-157, 161, and 168-169 are out of print. ING, 1980-93, AND AN ASSESSMENT OF THE "OPERATING PERFORMANCE" AND "EVENT STUDY" METHODOLOGIES, 158. THE ADEQUACY AND CONSISTENCY OF MARGIN REQUIRE- by Stephen A. Rhoades. July 1994. 37 pp. MENTS IN THE MARKETS FOR STOCKS AND DERIVATIVE 170. THE COST OF IMPLEMENTING CONSUMER FINANCIAL REGU- PRODUCTS, by Mark J. Warshawsky with the assistance of LATIONS: AN ANALYSIS OF EXPERIENCE WITH THE TRUTH Dietrich Earnhart. September 1989. 23 pp. IN SAVINGS ACT, by Gregory Elliehausen and Barbara R. 159. NEW DATA ON THE PERFORMANCE OF NONBANK SUBSIDI- Lowrey, December 1997. 17 pp. ARIES OF BANK HOLDING COMPANIES, by Nellie Liang and 171. THE COST OF BANK REGULATION: A REVIEW OF THE EVI- Donald Savage. February 1990. 12 pp. DENCE, by Gregory Elliehausen, April 1998. 35 pp. 160. BANKING MARKETS AND THE USE OF FINANCIAL SER- VICES BY SMALL AND MEDIUM-SIZED BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September 1990. 35 pp. REPRINTS OF SELECTED Bulletin ARTICLES 162. EVIDENCE ON THE SIZE OF BANKING MARKETS FROM MORT- Some Bulletin articles are reprinted. The articles listed below are GAGE LOAN RATES IN TWENTY CITIES, by Stephen A. those for which reprints are available. Beginning with the Janu- Rhoades. February 1992. 11 pp. ary 1997 issue, articles are available on the Board's World Wide 163. CLEARANCE AND SETTLEMENT IN U.S. SECURITIES MAR- Web site (http://www.federalreserve.gov) under Publications, KETS, by Patrick Parkinson, Adam Gilbert, Emily Gollob, Federal Reserve Bulletin articles. Lauren Hargraves, Richard Mead, Jeff Stehm, and Mary Ann Taylor. March 1992. 37 pp. Limit of ten copies 164. THE 1989-92 CREDIT CRUNCH FOR REAL ESTATE, by James T. Fergus and John L. Goodman, Jr. July 1993. FAMILY FINANCES IN THE U.S.: RECENT EVIDENCE FROM THE 20 pp. SURVEY OF CONSUMER FINANCES. January 1997. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A74 Federal Reserve Bulletin • October 1998 Maps of the Federal Reserve System ». lllilii.,,. 9 MlN'NTsAPOLR V 7. 12 INIWYORK CHSCMQM 10 ilil LPHIA • SANFRANLISIO ST. Lntjij 8 «^. #' 1 11 - DALL.\S HAWAII IP LEGEND Both pages Facing page • Federal Reserve Bank city • Federal Reserve Branch city • Board of Governors of the Federal — Branch boundary Reserve System, Washington, D.C. NOTE The Federal Reserve officially identifies Districts by num- of Puerto Rico and the U.S. Virgin Islands; the San Franber and Reserve Bank city (shown on both pages) and by cisco Bank serves American Samoa, Guam, and the Comletter (shown on the facing page). monwealth of the Northern Mariana Islands. The Board of In the 12th District, the Seattle Branch serves Alaska, Governors revised the branch boundaries of the System and the San Francisco Bank serves Hawaii. most recently in February 1996. The System serves commonwealths and territories as follows: the New York Bank serves the Commonwealth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A75 1-A 2-B 3-C 4-D 5-E ME Pittsburgh Baltimore MD CT v\ OH • I vr wv - - - - NC SH • Cinunnati Buffalo "A rA •Chariot lo N / J NY KY sc BOSTON NEW YORK PHILADELPHIA CLEVELAND RICHMOND 6-F 7-G 8-H TN—». •Nashville KY Ml Birmingham^ _ II- IN ,; I )ctruit• , • Louisville GA - - - r ~ •."" •« i'N AR h ' d •Memphis New Orleans H. IN Little • Rock . MS VKami ATLANTA CHICAGO ST. LOUIS 9-1 MT i Helena Ml •' SD MINNEAPOLIS 10-J 12-L Omaha* - MO WA Seattle \M 1 '! lahuma (it1 Po•r"tl"a*n-d'• ' OK KANSAS CITY 11-K Salt Lake cfity UT I.I Paso Houston •Los Angeles S;m Antonio DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 Federal Reserve Bulletin • October 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 Carl W. Turnipseed' PHILADELPHIA 19105 Joan Carter Edward G. Boehne Charisse R. Lillie William H. Stone, Jr. CLEVELAND* 44101 G. Watts Humphrey, Jr. Jerry L. Jordan David H. Hoag Sandra Pianalto Cincinnati 45201 George C. Juilfs Charles A. Cerino1 Pittsburgh 15230 John T. Ryan III Robert B. Schaub RICHMOND* 23219 Claudine B. Malone J. Alfred Broaddus, Jr. Robert L. Strickland Walter A. Varvel Baltimore 21203 Daniel R. Baker William J. Tignanelli1 Charlotte 28230 Dennis D. Lowery Dan M. Bechter1 ATLANTA 30303 David R. Jones Jack Guynn John F. Wieland Patrick K. Barron James M. Mckee Birmingham 35283 Patricia B. Compton Fred R. Herr1 Jacksonville 32231 Judy Jones James D. Hawkins1 Miami 33152 R. Kirk Landon James T. Curry III Nashville 37203 Frances F. Marcum Melvyn K. Purcell New Orleans 70161 Lucimarian Roberts Robert J. Musso CHICAGO* 60690 Lester H. McKeever, Jr. Michael H. Moskow Arthur C. Martinez William C. Conrad Detroit 48231 Florine Mark David R. Allardice1 ST. LOUIS 63166 John F. McDonnell William Poole Susan S. Elliott W. LeGrande Rives Little Rock 72203 Betta M. Carney Robert A. Hopkins Louisville 40232 Roger Reynolds Thomas A. Boone Memphis 38101 Carol G. Crawley Martha L. Perine MINNEAPOLIS 55480 David A. Koch Gary H. Stern James J. Howard Colleen K. Strand Helena 59601 William P. Underriner John D.Johnson KANSAS CITY 64198 Jo Marie Dancik Thomas M. Hoenig Terrence P. Dunn Richard K. Rasdall Denver 80217 Peter I. Wold Carl M. Gambs' Oklahoma City 73125 Barry L. Eller Kelly J. Dubbert Omaha 68102 Arthur L. Shoener Steven D. Evans DALLAS 75201 Roger R. Hemminghaus Robert D. McTeer, Jr. James A. Martin Helen E. Holcomb El Paso 79999 Patricia Z. Holland-Branch Sammie C. Clay Houston 77252 Edward O. Gaylord Robert Smith, III' San Antonio 78295 H. B. Zachry, Jr. James L. Stull' SAN FRANCISCO 94120 Gary G. Michael Robert T. Parry Cynthia A. Parker John F. Moore Los Angeles 90051 Anne L. Evans MarkL. Mullinix1 Portland 97208 Carol A. Whipple Raymond H. Laurence' 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